After a 7 percent drop in the Indian market from its peak hit in mid-September, global brokerage house JP Morgan has upgraded India to ‘overweight’ from ‘neutral’. The brokerage has advised investors to use near-term correction/dip as an opportunity to add and leverage on a positive historical seasonality to general elections.
It further noted that India offers the strongest emerging market (EM) nominal GDP compounding (demographic trends, infrastructure investment needs) and has competitive risk-adjusted returns to developed market (DM) equities. A deeper domestic bond market should support lower risk premia, it added.
The brokerage has also added Sun Pharma, Bank of Baroda, and Hindustan Unilever to its EM model portfolio.
After a strong bull run earlier this year, the Indian market lost over 3 percent in October so far. This decline has been on the back of the Israel-Palestine conflict, rising bond yields, a strong dollar, a surge in crude oil prices and continuous outflows by foreign investors.
JP Morgan believes that EM equities face challenges as US long rates rise and the dollar impacts growth and rates. A sustainable bid for EM equities may only emerge once the US completes its cycle with a GDP recession and rate cuts, it stated.
Before JP Morgan, other global brokerages, Morgan Stanley and Nomura, also upgraded their India ratings to ‘overweight’ whereas CLSA increased its India portfolio allocation by 20 percent.
Morgan Stanley upgraded India’s rating citing that the relative economic and earnings growth is improving and the macro-stability setup looks sufficient to withstand the higher real rate environment.
“India remains standout overweight. We increase our overweight stance on Indian equities and as our most-preferred emerging market,” it said.
Apart from this, Morgan Stanley said that the ‘dream run’ of domestic flows continues and multipolar world dynamics are driving both FDI as well as portfolio flows towards the country, adding that the domestic equities top the brokerage’s global equity investment score with an overall score of 68.
Going ahead, MS expects the BSE Sensex to reach 68,500 points by December. It said Sensex will trade at a price-to-earnings multiple of 20.5 times compared to a 25-year average of 20 times. The premium over the historical average reflects greater confidence in medium-term growth, noted the brokerage.
Meanwhile, Nomura said, “The structural story of India is now well known as a major beneficiary of the “China+1″ theme, possessing a large, liquid equity market. We see the recent softness driven by higher oil prices as an opportunity to raise exposure. While this weakness may persist in the near term, we think the window of opportunity might not be open for too long. Valuations are expensive but will likely remain so in a scenario of policy/government continuity.”
Other countries
JP Morgan also upgraded Saudi to ‘overweight’ due to premium oil prices, uncertainty, a strong dollar, and equity market de-rating.
However, it downgraded South Korea to ‘neutral’ due to profit-taking, higher US rates, slowing demand, and less accommodative monetary policy.
Moreover, it mentioned that it plans to allocate its risk budget to overweight China, in addition to Saudi and India, due to attractive growth momentum, low investor positioning, and favorable valuations.
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Updated: 27 Oct 2023, 04:47 PM IST