Indian stocks are becoming “less interesting” as their valuation vis-a-vis other markets in the Asian region have declined considerably, Swiss banking major Credit Suisse said in a report.
“We believe India is becoming less interesting from a valuation perspective,” Credit Suisse Research Analysts Sakthi Siva and Kin Nang Chik said.
In March 2009, India traded at a 40 per cent discount to the region (Asia), while currently that discount is just 2 per cent. The consensus EPS (earnings per share) revisions in India are also lagging in the region, the report added.
Though India is currently trading at a 2 per cent discount, it still looks favourable for the stocks compared to the 20 per cent premium the country traded at during the strong growth years from 2005-07, the report said.
Credit Suisse has, however, maintained an “overweight” status on the Indian market.
The benchmark index Sensex, which opened at 9,647 points in 2009 closed the year almost double at 17,464, up 7,817.50 points (81 per cent) from the year ago level.
The Sensex witnessed a historic 81 per cent rally last year, boosted by the UPA victory in May 2009 on expectations that the new government would introduce measures to boost economic growth. Another reason for the rally was the sooner-than-expected economic recovery of the country.
The year 2009 also saw Foreign Institutional Investors (FIIs) flocking in and buying Indian equities worth a whopping Rs. 80,000 crore after their flight away from the market previous year (2008).
Credit Suisse further said, “in March 2009, India was the third most undervalued market in the region after Indonesia and Thailand. Currently, it is the sixth most undervalued.”
Elaborating further, the report said EPS estimates for Indian companies were raised 1 per cent, 0.8 per cent and 0.1 per cent in the last three months of 2009, while for other markets in the Asian region it was 3.4 per cent, 4.2 per cent and 0.9 per cent over the same period.
The sectors, which looks bullish in India include Information technology, steel and banks.
“Within India, our biggest overweight was IT. This was initially because of valuations and more recently as a play on a global capex recovery,” Credit Suisse said