MUMBAI: Japan’s Nomura Group on Wednesday became the latest global financial major to upgrade India’s ratings to ‘overweight’ from ‘neutral’ on the back of strong macro-economic fundamentals and the expected benefits accruing to it from the ‘China plus one’ policy.
Analysts at Nomura believe there could be some cyclical slowdown in the next few months, but that won’t alter the “structural attractiveness” of India as a long-term investment destination.
Last month, Morgan Stanley – another global financial powerhouse – upgraded India to the ‘overweight’ category, giving it the top rating among Asian emerging markets. Its analysts had noted that a long upward cycle in India was starting while the same was ending in China. Of the 27 countries tracked by Morgan Stanley’s Asia strategists, India rose to number 1 from number 6 earlier. In June this year, Goldman Sachs, another financial major, also upgraded India to an ‘overweight’ status.
Nomura analysts said India is a “large-liquid market and a counterweight to north Asia if slowdown in the West occurs and China continues to disappoint on recovery”. “(It’s) home to a number of high quality, growth stocks albeit expensive (but are) less exposed to global trade slowdown,” the report noted. For these analysts, another positive for the Indian market is how, despite high interest rates, corporate earnings are being revised upwards and domestic flows are still holding up well.
“We see recent softness driven by higher oil prices as an opportunity to raise exposure. While this weakness may persist in the near term, thus presenting even better timing, we think the window of opportunity might not be open for too long,” the report said.
The report also noted some concerns that could affect the stock market in the coming months. China rotation, risk of politicking, stretched government finances raises risk of populism/higher taxes/lower government capex especially going into national elections in May 2024, vulnerable to pullbacks given stretched absolute/relative valuations in a scenario of global ‘risk off’ although we expect India underperformance to be transitory.
In Nomura’s model portfolio for Asiz ex-Japan, it has frontline stocks like ICICI Bank, Axis Bank, L&T, Reliance, ITC and Mahindra.
