Credit Suisse Wealth Management finds Indian equity market in a sweet spot buoyed by easing consumer inflation, surge in exports growth and the nation’s foreign exchange reserves and the improving government finances.
The wealth manager said that investor sentiment got a boost after the government announced a slew of key sector-specific incentive packages that have helped a net inflow of foreign portfolio investment into the Indian equity in August after an outflow in July.
Credit Suisse noted that MSCI India’s current 12-month forward price-to-earnings (P/E) premium stands at 85%, significantly higher than the 10-year average of 43%, relative to the MSCI Emerging Markets Index. A nervous sentiment is warranted ahead of the upcoming US Federal Reserve’s key meeting this week as an announcement on tapering of asset purchases is anticipated.
The most watched National Stock Exchange’s 50-share Nifty 50 has surged more than 25% this year to 17,562 points, among the biggest advances in the world. The bellwether Bombay Stock Exchange’s 30-share Sensex has advanced over 23% in the same period.
“We view Indian equities’ high P/E premium as warranted, considering the improving fundamentals, and believe that relative valuations may remain stretched until the earnings catch up. We would expect that a good recovery in the second half of the year should support these seemingly lofty valuations. Hence, we advise investors to stay invested in equities, albeit with reduced portfolio beta,” Credit Suisse said in a note to clients.
Credit Suisse also sounded a warning pointing to the surge in gas prices and oil prices being on the boil again in the international market at the anvil of winter season.
The wealth manager also said that while the stretched equity market valuations and the upcoming Fed meeting may induce some volatility, Indian equities still offer relatively better risk-reward from a medium to long-term perspective. India’s macro-economic fundamentals have improved the wealth manager expects the P/E premium to sustain.