On Tuesday, the global brokerage upgraded India, along with Australia, to overweight from ‘market weight’, and in turn cut exposure to China and Thailand in its APAC portfolio. It believes the exciting period of recovery for the latter two has passed.
“The upgrades reflect our expectation that economic and earnings recoveries are just starting their most rapid phases for the two markets. EPS momentum for the two are among the region’s best, and the pandemic is no longer a major factor for either,” said Dan Fineman and Kin Nang Chik, research analysts at the Swiss broker.
India saw a severe outbreak of Covid-19, but has seen a dramatic drop in infections from October onwards, likely due in part to the achievement of herd immunity in some locations. With vaccination picking up pace, the threat is further mitigating.
“India looks much better positioned cyclically and relative to the pandemic. EPS momentum is among the region’s strongest. Its credit cycle is at an earlier stage than perhaps all other APAC markets. The scope for rate cuts is greater than in perhaps every other market save Indonesia,” the duo said.
In simple terms, the upgrade means the total return of stocks in its portfolio is expected to outperform BSE Sensex over the next 12 months.
A number of analysts have displayed their confidence in recent days, especially after domestic companies reported better-than-expected numbers and the government laid down its a bigger capex plans. India’s benchmark indices have more than doubled from their March lows , moving in tandem with best performing markets in the world. A major reason behind the euphoric rise have been consistent flows from foreiin portfolio investors.
In the current financial year, they have invested Rs 2,56,646 crore in Indian equities. In February so far, when Nifty and Sensex have rallied over 12 per cent each, FIIs have poured in Rs 18,883 crore, nearly as much as in January.
The bullish view held by global brokerages signifies that FII flow trend will continue. Moreover, the continued virus spread in western countries also puts emerging economies like India and South Korea, which have more or less controlled the pandemic, at an advantage.“Sectors like private banks, consumer, FMCG and IT have seen foreign flows, as Indian companies have exhibited resilience and demonstrated growth post lifting of the lockdown restrictions in Q3. We expect foreign flows to be positive in Q4 as well, in line with the trend seen so far as the Budget has been pro-growth with privatisation gaining ground,” said S Ranganathan, Head of Research at LKP Securities.
V K Vijayakumar, Chief Investment Strategist at
, said FIIs now see India as having the fastest post-Covid recovery among emerging markets…therefore, future flows also are likely to be good. “There has been sectoral rotation in the market now. In 2020, the pharma sector was a preferred choice and the sector did very well while banking stocks underperformed amid NPA concerns. Now banking stocks have again become much sought after for FIIs. IT stocks continue to be favourites with high delivery buying,” he said.
