Nomura has overweight-neutralised Indian markets citing unfavorable risk-reward, given the higher valuations, with several positive price headwinds emerging. Instead, the Japanese brokerage firm prefers China and ASEAN and will look for better entry points to India. Nomura upgraded India to overweight in February, citing local factors such as fiscal activism and falling Covid-19 cases.
“However, we think these positives are now adequately reflected in the current valuation – which appears rich not only on an absolute basis but also on a relative basis,” said Nomura analysts Chetan Seth and Amit Phillips, two-year-old. On a forward price-to-earnings (PE) basis (incorporating India’s strong earnings outlook), India is trading at a record high premium relative to regional markets.
At the stock level, around 77% of Indian stocks in the MSCI index are trading higher than or before the pandemic in 2018 average valuations, forcing Nomura analysts to downgrade, it said. Analysts at Nomura are concerned about emerging adversities in the form of policy normalization amid headline inflation in India, rising commodity prices that could also add to near-term price pressures and stifle growth, and a decline in consumption demand. Could give potential signs of recession.
There is another near-term risk of a possible reversal in the retail downturn once back-to-work broadens and interest rates rise. However, in the medium term, Nomura continues to prefer India, such as a strong listed corporate sector and a growing number of new economy-ready firms that generate high and sustainable income growth that is likely to outperform regional growth rates. Is.
While Indian markets have outperformed global peers so far this year, analysts and fund managers are wary of costly valuations. Markets seem to be losing institutional liquidity support, with foreign institutional investors selling $41.77 million in Indian shares in October.
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