Dalal Street not as expensive as global markets: Credit Suisse


Mumbai: The domestic market is not expensive compared to its global peers, given the robust corporates earnings in the second quarter that was one of the best in three years, says a global brokerage.

While the price-to-earnings ratio for the market is high, it is not expensive compared to global equities but that is taken care of by the corporate scorecard in Q2 which was one of the best in three years with aggregate earnings seeing no cuts, the Swiss brokerage Credit Suisse said today without offering a Sensex or Nifty target for 2018.

Consensus forecasts of 22 percent earnings-per-share (EPS) growth for the market in FY19 may still fall, but should settle in the low teens, Credit Suisse said in its India Market Strategy report.

“The current EPS growth projection is dependent on strong growth for banks, discretionary, energy and materials. We expect cuts to bank earnings lower-than-expected loan growth, margins and likely increase in credit costs and discretionary.

“Therefore, it would be unwise to extrapolate the strong earnings growth trend that we have seen this year,” its India equity strategist Neelkanth Mishra told reporters.

Given this macroeconomic backdrop, the brokerage favours energy and metals, state-run banks and IT sectors.

“We are more comfortable owning stocks that are likely to benefit from steady global growth, and in particular beneficiaries of the withdrawal of China from export markets in polluting industries. We are therefore overweight on energy and metals.

“Together with the likely write-back of provisions in steel non-performing assets, we also believe the recapitalisation should benefit the stronger state-owned banks, and help drive a re-rating, even if only for 2-3 years,” Mishra said.

Politics is expected to attract greater market attention in 2018. As the 2019 general elections draw closer, state elections are likely to attract greater attention from investors.

Nearly a fourth of the population will vote in state elections in the coming 12 months. It is also possible that the general elections could be brought forward to late 2018. This has limited direct economic implications, but the changes in market sentiment may drive volatility, he added.

The report, however, said structural reforms in indirect taxes, insolvency resolution and real estate, while structurally positive, have disrupted business processes and supply chains, and the windscreen is foggy when looking at the near-term growth outlook, fiscal health, interest rates, inflation and the currency.

“Structural reforms have weakened visibility on most macroeconomic parameters. We’ve long considered India as being a ‘house under renovation’ with structural reforms like GST, Insolvency Bankruptcy Code and Rera are all though structurally positive, have brought in significant uncertainty around growth, fiscal deficit, inflation, interest rates and the health of the banking system,” he said.

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