Global investment bank Julius Baer is overweight on Indian stock markets along with US and Chinese markets, even though it sees limited upside at the index level. “With the current pace of market rally, we believe that the upside could be limited at the index level in the immediate short/medium term,” Julius Baer analysts said in a report. Domestic markets have scaled fresh highs recently with broader markets participating in the upward march. Julius Baer had upgraded India to overweight in march this year after the union budget aided rally in domestic markets.

“After a sharp rebound, the Nifty now trades at a 12-month forward P/E of 20.3x, ~8% above its historical average of 18.8x. At 3.0x, the Nifty P/B is well above its historical average of 2.6x,” the report said. Analysts at Julius Baer expect earnings momentum to accelerate in FY22, as India vaccinates more and more of the population and the economy opens up further. Although the upside is expected to be limited on the index level, analysts believe opportunities still lies in rotation trade, cyclicals. “The ‘rotation trade’ will continue, and we remain positive on economic recovery plays/ domestic cyclicals such as Financials, Cement, Industrials, Autos, and relative value plays such as Utilities and select PSUs,” the report added. Further, Midcap and smallcaps are expected to outperform the benchmark indices as they have done so far this year. 

In terms of investment strategy, Julius Baer bets on structural plays and thematic ideas in India. Under Structural plays the report lists stocks such as HDFC Bank, Reliance Industries Ltd, Maruti Suzuki India, Mahindra & Mahindra, ICICI Prudential Life, ICICI Lombard, United Spirits, Sun Pharma, and Ultratech Cement to focus on.

Thematic ideas to focus on- Earnings Momentum

ICICI Bank
Axis Bank
Alkem Laboratories
Infosys
Syngene

Rotation TradeValue/Mean Reversion
State Bank of India
ITC
Bharti Airtel
NTPC
IOC / BPCL

Mid and Small caps to outperform
Dalmia Bharat
Coromandel
AIA Engineering
Capacite Infra
Aarti Industries
Crompton Cons