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Credit Suisse upgrades India to ‘small overweight’

Indices have fallen about 10 per cent from record high levels.

ET Bureau|
Last Updated: Aug 07, 2019, 07.59 AM IST
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Credit Suisse’ upgrade of India comes days after Citigroup Global Markets cut its March 2020 Sensex target to 39,500 from 41,000 to factor in downgrades in corporate earnings growth forecasts.
Credit Suisse has upgraded Indian market to a ‘small overweight’ from ‘marketweight’ owing to improvement in valuations relative to Asian markets, high real interest rate, a negative correlation with global bond yields and low sensitivity to the dollar and the renminbi.

“Falling inflation opens ample policy space for rate cuts and EPS is proving more resilient than for the region as a whole,” said Credit Suisse.

However, Credit Suisse has kept a ‘small overweight’ on India because of the worsening liquidity crunch in the non-banking financial companies’ space and continued deterioration in the economy.

India has lost its tag as the fastestgrowing economy to China after it reported a 5.8 per cent growth in the January-March quarter due to slowdown in consumption demand. Sentiment in equity market in India has worsened more as the government did not announce any stimulus in the budget for immediate revival of the economy and increased tax on the super-rich, including FPIs. Indices have fallen about 10 per cent from record high levels as a result of these sentiment dampening factors, notwithstanding the recovery of over 1 per cent seen in the benchmark indices on Tuesday.

“It could take 6-12 months before rate cuts have an impact on growth,” said Credit Suisse. The brokerage also upgraded Indonesia to ‘overweight’ and added to its ‘overweight’ in Malaysia.

According to an ET Poll, the Reserve Bank of India is likely to cut benchmark policy rate by 25 basis points on Wednesday, with the growth concerns rising across consumption pockets. The central bank has reduced the repo rate by 75 basis points in the last three consecutive policy decisions.

Credit Suisse’ upgrade of India comes days after Citigroup Global Markets cut its March 2020 Sensex target to 39,500 from 41,000 to factor in downgrades in corporate earnings growth forecasts.

“With uncertainty over how deep the downturn in economic activity is likely to be and the resolution of the NBFC liquidity squeeze, stocks could continue to remain under pressure in the near-term,” said Citi in a report last week.

Commentaries from domestic brokerages have also been bearish. This backdrop of a slowing economy and the low probability of any ‘big-bang’ stimulus event do not bode well for overall growth and earnings outlook, said Emkay Global in a report on Friday.

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