JPMorgan joins Credit Suisse in downgrading Indian Equity Fostering inflation concerns as “underweight” rising commodity prices due to geopolitical tensions.
The brokerage, which earlier had a “neutral” rating on Indian equities, cited a number of factors including a weaker rupee and its impact on growth, rise in prices of commodities like oil, possible portfolio outflows and domestic monetary tightening. ,
Indian indices opened on a positive note on Thursday with the Sensex rising over 1,000 points, while the Nifty 50 gained nearly 250 points despite the US Federal Reserve raising key rates by a quarter point.
The rise in crude oil prices may further push inflation in the coming months. Oil prices skyrocketed after Russia’s attack on Ukraine. In March alone, they have increased by about 35% – which will likely drive fuel, transport and other related components of inflation in March.
Recently, another foreign brokerage Credit Suisse downgraded Indian equities from “overweight” to “underweight” due to the jump in international oil prices.
Meanwhile, the Indian government cut its growth forecast for the current fiscal from 9.2% to 8.9%. The GDP growth rate in the third quarter of the current fiscal fell to 5.4% as compared to 8.5% in the previous quarter.
JPMorgan now expects the MSCI Emerging Markets (EM) index to reach 1,300 by the end of the year, up from 1,500 previously estimated. The index closed at 1,081 on Wednesday.
The brokerage expects earnings to be lower this year, with commodity prices rising and Russia excluded from the MSCI EM index.
FTSE Russell and MSCI said earlier this month that they would remove Russian stocks from all their indexes.
“Our view is that EM equities should outperform (after target revision) driven by EPS consensus estimates and downward bias to equity risk premiums,” JPMorgan economists said in a note Wednesday.
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