Global financial major Credit Suisse believes that the Indian equity market is in a worrisome zone due to a combination of global and domestic macro-economic factors like high crude prices, current account deficit and consecutive years of earnings downgrade.
In its latest India strategy report, Credit Suisse said that India “could be the next shoe to drop” while reiterating its underweight stance on the Indian equity market.
Fiscal deficit
“Close to highest ever premiums versus the region, four consecutive years of downgrades to consensus EPS, current account deficit, rising oil prices further pressuring the current account and fiscal deficit and the fact that foreign investors have yet to capitulate – suggest India could be the next shoe to drop,” said Credit Suisse in its latest report.
While highlighting the fact that MSCI India index had fallen the least from its highs when compared to the fall of MSCI Indonesia or MSCI Philippines, the financial major says that India's premium had risen to 64% — close to its highest ever — amidst continued downgrades to consensus EPS and weak return on equity (RoE).
According to Credit Suisse, the upcoming US Federal Reserve meeting shceduled on June 12-13 could be a catalyst especially with US bond yields rising to 3%, oil prices above $70 per barrel and the “Fed’s preferred measures of inflation and wages rising.”
Incidentally, a rise in the U.S. interest rates makes emerging markets, including India, less attractive for overseas investors that need to factor currency volatility as well.
