Following the recent market correction, the risk-reward trade-off appears in favour of the Indian market, says UBS Securities, which maintains a year-end Nifty target of 9,200.
Sharing feedback from his interactions with nearly 100 foreign investors over the last one month, Gautam Chhaochharia, executive director and head of Indian research, UBS, said while the MAT issue was perceived as a concern among investors, the recent correction was on account of moderation in their growth expectations and relative performance of peer markets.
“Most investors still remain overweight on India in general although they have trimmed their positions in the recent past. Even though they have exited stocks worth $2.5 billion over the last one month, that seems to be insignificant compared to the net buying of $4 billion year to date,”added Chhaochharia.
He added that their meetings also indicated that nearly all FIIs maintain a positive outlook on the Indian market, in both absolute and relative terms, although the time-frame they are looking at may differ.
Sharing the the macro view of UBS Securities, he said the growth recovery is likely to be gradual and mild and may disappoint some investors although many investors have widely acknowledged this possibility.
However, Chhaochharia regards more-than-expected interest rate cuts as a trigger, which could surprise market positively.
“We think that inflation is not structural and a strong disinflation process is under way. This will help drive interest rates sharply lower. If the rate easing cycle plays out as we expect, this could be a big positive trigger for the market.
While the recent correction reflects a reset in growth expectations, it also makes the risk-reward reasonable for our year-end Nifty target of 9,200,” he added.
The tepid earnings growth of corporate India is considered a headwind as UBS expects a 10% top-down earnings growth for the Nifty companies against consensus expectations of 16%. “We are still underweight on consumer staples and selectively on urban discretionary names and auto two-wheelers also. While these sectors may have downside earnings risk, the moderation will be quite broad-based.,” said Chhaochharia.