“Given that macroeconomic and geopolitical risks are still significant, and the US yields have started to rise again after the US Fed reconfirmed its hawkish stance, there is a possibility of some correction in India equities in the near term. However, we believe it could be temporary and any sharp correction could be a good buying opportunity as India’s medium-term outlook is still attractive,” the global brokerage said in a report.
In the near term, Credit Suisse analysts prefer banks and pharma, as well as sectors that could benefit from higher consumer spending ahead of the festive season.
“We continue to maintain our mild overweight positions in mid-cap companies in a portfolio context,” said Jitendra Gohil, Head of India Equity Research, Credit Suisse Wealth Management, India.
After equities staged a sharp rebound recently, the 12-month forward PE valuation of Nifty50 has expanded to 19.5x and is now trading at one standard deviation above its 10-year average. The MSCI India was trading at a valuation premium of 37 per cent and 96 per cent versus the MSCI World and MSCI EM, respectively.
Given that the 10-year US government bond yield (up 40 bp in the month to date) has started to rise again, a valuation correction could be possible in the near term,” Gohil and equity research analyst Premal Kamdar said.
“We favor prudence in our equity allocation strategy and focus on sectors that could benefit from the upcoming festive season – which we expect to be good,” they said.
The June quarter earnings season witnessed 2-3 per cent cuts to consensus Nifty earnings projections for FY23/24 as strong topline growth was more than offset by margin pressures. “Nevertheless, companies’ management expect cost pressures to abate over the next couple of quarters as commodity prices fall, which is comforting. We expect topline growth to slow in the H2 given global growth worries but easing cost pressures could improve margins and limit sharp earnings cuts, in our view,” the analysts said.
On the macro front, Credit Suisse said while India’s dwindling balance-of-payment situation and subsequent weakness in the Indian rupee are the key risks, the recent correction in commodity prices, especially Brent oil (down 10 per cent MoM), should help alleviate some concerns.
Warning that INR could trade with a downward bias due to a large BoP (balance of payments) deficit, it said a higher trade deficit indicates rising pressure on the current account deficit and subsequently on the BoP position, which is negative for the INR.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
