Global investment bank Julius Baer has upgraded Indian share markets to ‘overweight’, with the worst of the coronavirus pandemic seemingly over, the vaccine drive being expanded, and economic recovery taking shape. In a recent report, Mark Matthews, Head of Research Asia, Julius Baer said that India could become the fastest-growing major economy in 2021, forecasting India’s GDP to grow 9% on-year in 2021. “We change our stance on India from market-weight to overweight and see 15% upside from current levels with a Sensex price target of 58,450,” he added.
India’s efforts to limit the spread of the coronavirus after the initial peak last year has been lauded by the investment bank, terming them better than global peers. The report said that for India the worst of India’s Covid epidemic appears over, with some herd immunity probably having been achieved.
Themes to play on Dalal Street
Talking stock markets, the report said that the financial sector now seems to be on the mend. The largest sector in the Indian stock market is the financials sector, at 34% of the Bombay Stock Exchange, where shares have been weighed down by NPAs – a situation we see improving in light of the formation of a ‘Bad Bank’,” Matthews said. Additionally, the IT sector is also expected to grow strongly with the rapid digitalization of the global economy.
To benefit from the up-move expected in the market, Julius Baer recommends a barbell approach of owning, consistent growth-compounding sectors with structural stories, including IT, healthcare and FMCG, with a focus on the leading companies in them. Along with that, the report recommends owning Cyclical sectors like financials, infrastructure, housing and discretionary consumption, whose earnings are more correlated to the economic recovery.
Strong economic growth to cheer stock markets
Julius Baer said that India’s fiscal stimulus package provided relief directly to the poor and small businesses. “Cognizant of the potential for very robust fiscal stimulus provoking a sovereign rating downgrade, government relief was constrained largely to providing support for the weakest sections of society, and small businesses,” they said. The Reserve Bank of India’s role has also been praised as the central bank pruned rates and injected liquidity.
“An economic recovery is underway, and we look for 9% on-year GDP growth this year, followed by 7% next year. We look for earnings per share to grow on average over 25% over the next 3 years. It would be unprecedented for the stock market to fall in an environment of such strong growth,” the report said.
Advising investors to watch out for possible risks, Mark Matthews said that FII flows have been robust for India equities and earnings recovery forecasts need to sustain to justify current market levels. Along with this, a resurgence in coronavirus cases and resulting in lockdown restrictions or delays in the vaccination drive, are also seen as potential risks for India’s growth.