Mumbai: Credit Suisse Wealth Management’s India arm is maintaining its cautious stance on Indian markets citing further escalation of trade tensions, already high crude oil prices and depreciating rupee, coupled with its impact on inflation.
“Globally, the macro picture is still looking reasonably good but the Credit Suisse equity market global sentiment index is in a panic zone," Jitendra Gohil, head of India equity research, and Premal Kamdar, equity research analyst at Credit Suisse Wealth Management, India, said in a note on Thursday.
Gohil and Kamdar argued that this divergence between the resilient macro and weak sentiment is mostly due to worries over trade tensions and its implication on the future GDP growth.
However, they pointed that the silver lining is solid domestic flows and expectation of robust earnings growth of over 20% in FY 2019 given a lower base.
“On the other hand, the upcoming earnings season could be reasonably good, presenting an opportunity to bottom-pick quality stocks amid a volatile environment," said Gohil and Kamdar.
They expect June quarter earnings to be positive for consumption-oriented companies, on the back of robust domestic demand and exporters because of a depreciating rupee. They, however, are of the view that earnings could be under pressure for metals and mining because of trade tensions and financials, courtesy the ongoing issues of bad loans.
For the year to date, BSE’s 30-share Sensex and National Stock Exchange’s 50-share Nifty are up 4.72% and 2.26%, respectively.
“We advise investors to remain cautious on equities and cut risks in their portfolios by lowering the overall portfolio beta. We continue to prefer private banks, select NBFCs (non-banking financial companies), consumption-oriented names, including discretionary and autos," they said.
They continue to expect the mid-caps to underperform large caps as the valuation is still stretched, even after this sharp underperformance recently.
They believe the fixed income market is already factoring in fiscal deficit concerns, and maintain their constructive view on the market. They believe the benchmark 10-year yield to hover in the range of 7.5% to 8.0% in the near term.
“We remain positive on the Indian fixed income market as we believe inflation should remain well anchored within the Reserve Bank of India’s (RBI) comfort zone," the note said.
However, things may not look good for the rupee as yet.
“The INR could remain vulnerable to concerns over widening current account and fiscal deficit. While RBI intervention could support the INR to a certain extent, it will not be fully sufficient to arrest downside risks as fundamentals still remain weak," the note said.
“Thus, we continue to maintain our cautious view on the INR," it said.