Credit Suisse upgrades domestic equity markets to neutral

Mumbai: Global financial services major Credit Suisse today upgraded the domestic equity markets from underweight to neutral as valuation has come down to attractive levels.

In its Asia Pacific Equity Research Investment Strategy report, Credit Suisse said that India joins the cheapest four club as it had moved from being the most overvalued market in the region in September 2010, when it was downgraded to the biggest underweight, to now the fourth-most undervalued market on its price-to-book versus return on equity valuation model.

[caption id=“attachment_172518” align=“alignleft” width=“380” caption=“The report also points out that this was only the 14th quarter since 2000 that India has been among the four most undervalued markets in the region. Reuters”]  [/caption]

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However, Credit Suisse says it continues to have concerns over the country’s large current account and fiscal deficits.

The WPI inflation at least in year-on-year terms remains high at over nine percent. Despite these concerns, there are five key reasons for the upgrade of India from our biggest underweight to neutral, it said.

The report also points out that this was only the 14th quarter since 2000 that India has been among the four most undervalued markets in the region. On 12 of those 13 previous episodes, India outperformed.

The cheapest four now are MSCI China, Korea, MSCI Hong Kong and India. Since March 2000, India has been in the cheapest four club for 13 quarters (from March 2002 to September 2004 and again for two quarters from December 2008).

With the exception of the 12 months after December 2003 (2004 general elections), MSCI India has historically outperformed the MXASJ (MSCI Asia ex-Japan) when India joined the cheapest four club, the report said.

“With Credit Suisse India strategist Neelkanth Mishra and Credit Suisse India banking analyst Ashish Gupta, still cautious on the domestic market and banks particularly, we are only upgrading India to neutral,” the report said.

With financials, materials, energy and consumer cyclicals the four most undervalued sectors, Credit Suisse has added Tata Steel, Tata Motors and Reliance Industries to its model portfolio. This is in addition to Sun Pharma and Bharti, it said.

PTI