The Indian markets have gained 30 percent so far this year, even as the MSCI Asia Pacific ex-Japan index is flat
Foreign brokerages have turned cautious on India amid concerns over pricey valuations and earnings delivery. In the past week, at least three brokerages have recommended their clients to consider a higher exposure to other markets such as China and Indonesia, which have hugely underperformed India this year.
Japanese firm Nomura on Monday downgraded Indian equities from ‘overweight’ to ‘neutral, citing unfavorable risk-reward. Earlier, UBS, while maintaining an overweight stance, noted that India had turned “unattractive” due to “extremely expensive” valuations relative to the ASEAN countries. Meanwhile, Christopher Wood, global head of equity strategy at Jefferies, said its overweight position on India had come under a threat.
The change in stance has coincided with the latest round of correction in the domestic market. The benchmark indices on Monday would have posted a fifth straight day of loss if not for an 11 per cent jump in the shares of private sector lender ICICI Bank, which made a 511-point contribution to the Sensex. The 30-share index managed to end with a gain of 145 points, or 0.24 per cent, at 60,967.
The broader market indices extended losses with the Nifty Smallcap 100 index dropping 2.3 per cent and the Midcap 100 falling 1.7 per cent. Both indices are now down over 8 per cent from their recent highs, underscoring the pain in the market.
“We now see an unfavorable risk-reward given valuations, as a number of positives appear to be priced in, whilst headwinds are emerging. We, thus, downgrade India to neutral in our regional allocation and will look for better entry points given our still-constructive medium-term view. We like China (significant underperformer seeing stabilizing sentiment) and ASEAN (tactically laggard reopening play),” said Nomura equity strategists Chetan Seth and Amit Phillips in a note.
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