Credit Suisse. (Representative Image)
Credit Suisse’s Global Equities Strategy team has upgraded India from ‘Underweight’ to ‘Benchmark’ for 2023, on the back of the country’s underlying economic strength.
The foreign brokerage held back from upgrading India to ‘Overweight’ because of high-valuation premium and the weakening balance of payments (BoP).
India’s BoP, a measure of how much the country relies on money from abroad, was squeezed to a record deficit earlier this year. The BoP is likely to remain in deficit for the next year, said Credit Suisse.
“We are expecting a stronger acceleration in India’s GDP growth in 2023, owing to a revival in government spending, increase in low-income jobs and easing of supply-chain bottlenecks,” Neelkanth Mishra, India Head of Research at Credit Suisse, said.
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The risk factors continue to be dependence on imported energy, reliance on foreign capital and a slowing global economy, he added.
The firm does not expect significant cuts in FY24 and FY25 earnings per share estimates, but it does not see much scope for substantial upgrades either.
If earnings forecasts are unchanged, the 12-month forward EPS could rise 15 percent by December 2023. “Most sectors are estimated to have double digit EPS growth in FY24, led by discretionary and financials,” Credit Suisse said.
Financials will add to 46 percent of incremental EPS of FY24 and FY25, followed by discretionary (24 percent).
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Thus, the firm continues to remain overweight on banks and NBFCs. It prefers domestic cyclicals over global ones and is overweight on sectors such as cement, staples and construction.
It is ‘underweight’ on industrials, information technology and metals. IT stocks are still trading at high valuations with potential EPS downgrades on the radar, the brokerage firm said.
FPI vs domestic flows
In 2022, inflows from domestic institutional investors (DIIs) overshadowed foreign portfolio investments and Credit Suisse sees this trend continuing.
It expects $ 12 billion from insurance funds, $ 7-8 billion from Employees’ Provident Fund Organisation and $ 18-20 billion from Systematic Investment Plans (SIPs) to sustain. Meanwhile, non-SIP retail flows might moderate due to higher rates.
DIIs now own a record 15 percent of the BSE 500, while the share of FPIs has declined to nine-year lows.
Also Read: Selling spree sends FII ownership in NSE50 to multi-year low of 18%
Interestingly, Credit Suisse analysts believe FPI outflows will continue in 2023. “India’s weight in emerging market funds remains intact despite the selling. With global markets focusing on growth risks again, EM (emerging markets) and Asia-Pacific funds could see outflows in 2023,” they said.
In contrast, BofA Securities believes India could benefit from EM flows into China as the country slowly reopens. “India and China do not compete for EM allocation and they are directionally linked,” it said in its 2023 market outlook report.
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