Even as we continue to see heightened volatility in the stock markets and dampened investor sentiment, global firm Credit Suisse says that India is the currently the second worst performing market among major economies. In an interview to CNBC TV18, Sakthi Siva of Credit Suisse highlighted that Credit Suisse is underweight on India given expensive valuations and earnings revision. Sakthi Siva pointed out that in terms of valuations, India is now part of the ‘expensive four.’ “We are still underweight at this point in time. The reason for being underweight are firstly valuations and secondly earnings revisions. On valuations, India has been in what we call the expensive four club, which is the four most overvalued markets in the region,” the expert told the channel.
In the same interview, Sakthi Siva pointed out that the premium has been above 50 percent in India and the country’s performance so far has been the second worst among major economies. She pointed out that while the valuations have improved in the country, it has not improved sufficiently enough for the firm to to upgrade its recommendation. On the earnings front, Sakthi Siva noted that India has had almost 3-4 consecutive years of earnings downgrades, while the other major economies has seen strong earnings upgrades last year and even this year the revisions are flat. “So, India is still trailing the other markets in terms of earnings revisions,” noted the expert.
While valuations and earnings downgrades seem to be the major concerns, Sakthi Siva of Credit Suisse also pointed out that there are political concerns, as well as the unfolding of India’s biggest banking fraud in Punjab National Bank. “With the BJP in the last by elections, the fact that the opposition parties are starting to come together and may be that if that slows the pace of reform, that is an additional concern,” observed the expert.
Speaking about the impact of structural reforms such as demonetisation and GST, she said that India has trailed regional markets on earnings revision for now 3-4 years, and the earnings downgrades had preceded these two episodes. “Obviously the banking sector thing has also contributed but that also hopefully will get sorted out soon,” Shakti Siva of Credit Suisse observed on the PNB scam.