Credit Suisse raises India to overweight, cuts China weightage in Asia Pacific portfolio

By: |
February 17, 2021 12:56 PM

Earnings per share (EPS) momentum offered by Indian stock markets is among the region's strongest, according to Credit Suisse.

Stock market, Credit SuisseCredit Suisse trimmed China’s weightage seeing a limited potential for future GDP gains. (Image: REUTERS)

Sensex and Nifty have zoomed 13% so far this month and many experts might be sounding the alarm bell, but global brokerage and research firm Credit Suisse believes India’s time to shine has just started. In a recent note on its Asia Pacific strategy, Credit Suisse has upgraded India and Australia to ‘overweight’ category from the ‘marketweight’ classification earlier. This increase in weightage comes at the expense of Asia’s largest economy — China. Analysts at Credit Suisse believe China has now passed most exciting period.

India better positioned

“India looks much better positioned cyclically and relative to the pandemic,” the note said. India’s economy contracted in double digits earlier this fiscal owing to the pandemic, however, the third-largest economy in Asia has managed to tame the virus as active cases continue to fall, helping the economic recovery pick up steam. “India suffered a severe outbreak but has seen a dramatic drop in infections, likely due at least in part to achievement of herd immunity in some locations,” the report said.

Earnings per share (EPS) momentum offered by Indian stock markets is among the region’s strongest, according to Credit Suisse. “Its credit cycle is at an earlier stage than perhaps all other APAC markets,” they said while adding that scope for rate cuts is greater than in perhaps every other market save Indonesia. The Shanghai Composite Index has gained little over 4% so far this year, Sensex meanwhile, has galloped over 8% in the same time frame.

China’s time has passed

Credit Suisse trimmed China’s weightage seeing a limited potential for future GDP gains, negative EPS momentum relative to the region, late-cycle valuations and the region’s biggest potential payback from pandemic related current account windfalls. “Along with Taiwan, China will likely suffer the region’s biggest post-pandemic payback when normalisation of tourism outflows and PPE and tech exports subtracts over 2% of GDP from the current account, on our forecast,” the note added. Thailand’s position has been cut for completely the opposite reason as Credit Suisse expects a long-wait before Thailand recovery from the pandemic blow.

Others choosing India over China

It is not just Credit Suisse that has increased India weightage at the cost of China. Earlier this year, Morgan Stanley said that supported by government’s policies, lower infections, and a pickup economic activity India could be a positive surprise this year. Morgan Stanley has increased India to ‘overweight’ along with Korea and Brazil while reducing its rating on MSCI China to ‘equal-weight’.

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