Credit Suisse, a global wealth management firm, has said that the medium term outlook for Indian equities remains attractive even as the near term indicators are looking a little stretched for them. This firm continues to believe Indian equities can deliver positive returns in the second half of the year and maintains its positive view from a medium-term perspective.

“We continue to expect some profit booking especially by the foreign investors. We do not expect FPIs to desert Indian equities as India’s structural outlook has improved materially, and it offers one of the fastest growth among major economies,” said Credit Suisse in its latest India Market Outlook report, authored by Jitendra Gohil, Head of India Equity Research and Premal Kamdar, Equity Research Analyst.

In the India Market Outlook for July 2021, Credit Suisse has noted that it believes investors can overlook the slightly softer June quarter results and rather focus on the outlook commentary by the management, which might be positive given the reopening of the economy. “We continue to prefer mid-caps over large-caps, albeit with a lower conviction now”, the report added.

Credit Suisse highlighted that the Q1-FY22 earnings season has started and it expects a minor disappointment in the June quarterly results as the business activities got disrupted due to the second wave of Covid19 and also due to cost pressures. “However, this was well anticipated by the markets and will be of less relevance, in our view. Instead, more focus will be on management commentaries about the expected recovery. Beyond the near term blip, we expect earnings momentum to remain resilient supported by a strong recovery in the second half of the year,” it added.

FPI Flows

On a year-to-date basis, foreign portfolio investment flows into India have remained very resilient, with net equity inflows of $7.6 billion. This is even as July so far had seen net equity outflows of $0.5 billion.

The domestic mutual funds recorded the fourth consecutive month of inflows as investors remained optimistic about the Indian equity market. Also, systematic investment plans remained robust, with monthly flow of ₹9,160 crore, near record levels.

Valuation Premium

Credit Suisse has highlighted that the MSCI India Index currently commands a valuation premium of 62 per cent compared to MSCI EM Index (vs the 10 Y avg of 40 per cent) and 13 per cent compared to the MSCI World Index, largely in line with 10-year average. “We expect this valuation premium to persist as the fundamentals have improved materially,” the Credit Suisse report said.

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