Nomura has upgraded its stance on the Indian market from ‘neutral’ to ‘overweight’.
In the Asia (excluding Japan) portfolio, the brokerage has recommended a weight of 18.2 per cent, 100 basis points (bps) higher than India’s weightage in the benchmark MSCI Asia ex-Japan index.
China and South Korea are the two other markets, which Nomura is overweight on, while it is underweight on Singapore and Philippines.
“The structural story of India is now well known as a major beneficiary of the “China+1” theme, possessing a large, liquid equity market. We see the recent softness driven by higher oil prices as an opportunity to raise exposure. While this weakness may persist in the near term, we think the window of opportunity might not be open for too long. Valuations are expensive but will likely remain so in a scenario of policy/government continuity,” said Nomura equity strategists Chetan Seth, Anshuman Agarwal and Ankit Yadav, in a note.
Benchmark indices have come off 3 per cent from their record highs amid a spike in global oil prices and upsurge in selling by foreign portfolio investors (FPIs).
The brokerage is positive on stocks that are quoting at “reasonable relative valuations” and those expected to gain from the growth in the domestic economy (banks and infrastructure stocks).
ICICI Bank, Axis Bank, L&T, Reliance, ITC and MedPlus are some stocks it favours.
Nomura is also positive on stocks that are likely to benefit from some structural themes such as increased adoption of electric vehicles. These include Mahindra & Mahindra and Uno Minda (formerly Minda Industries).
Nomura said sustained high oil prices, China re-rotation and the general elections in 2024 are the key risks for the Indian markets.
The brokerage said populist measures and lower government capital expenditure (capex), especially going into the elections, could be a concern.
Also, it believes there could be a pullback in the Indian markets in case of a global ‘risk off’ scenario as valuations are rich both on an absolute and relative basis.
The Nomura note states that if global oil prices remain above $100 per barrel, it will be a major risk. It may put pressure on the current account and fiscal deficits and also hurt corporate earnings. Reversal in domestic flows also remains a key risk for the Indian markets, said Nomura.