What made Credit Suisse downgrade India and raise bet on China

NEW DELHI: Credit Suisse (CS) has cut its rating for the Indian market to 'underweight' as it feels India is the most vulnerable to oil price hikes in Asia. This is even as Morgan Stanley believes Indian equities today are more resilient in face of rising crude oil prices.

Meanwhile, domestic brokerage Kotak Securities said even if BJP wins in UP it is unlikely to bring euphoria to the market, thanks to macro headwinds. Indian banks look attractive, according to foreign brokerage Citi.

CS underweight on India
On the Indian market, Credit Suisse said it will look for opportunities to re-enter the market, but would tactically cut its India position to 'Underweight' from 'Overweight' for now. Higher oil prices hurt the current account, add to inflationary pressures and increase sensitivity to Fed rate hikes, it said.

"We use the funds freed from India to raise China from Market Weight to Overweight. China’s credit intensity still clouds long-term prospects but we like the country’s low oil import bill, insulation from Fed rate hikes, improving macro indicators and wealth of potential policy tools," CS said.

Morgan Stanley said the geopolitical-led rise in oil prices is bad for India but noted that the BSE Sensex has risen 8 per cent to 11 per cent in three and six months after a geopolitical risk.

UP win good but no market euphoria
Exit polls suggest a strong electoral performance by the BJP in the states of Manipur, Uttar Pradesh and Uttarakhand. Exit polls further suggest AAP win in Punjab and a hung assembly in Goa.

"However, the market may not take a victory lap as the broader macro-economic outlook looks grim and market multiples do not adequately reflect risks to bond yields and earnings," said Kotak Institutional Equities.

The brokerage said the market will find comfort in the results, if they were to materialise, due to resultant political and legislative stability. It, however, noted that the ongoing grim macro outlook may limit any euphoria.

Citi finds banks attractive
Foreign brokerage Citi said domestic banks would benefit from a rising loan-to-deposit ratio in FY23, even as it feels that spends relating to customer acquisition are a risk to earnings.

Bank valuations are attractive relative to Nifty50 and on a global comparison, it said.
The brokerage likes largecap banks over midcap banks as they offer less near term margin and OPEX risks. It prefers ICICI Bank, HDFC Bank and Axis Bank in the same pecking order. It also likes AU SFB among midcaps.
"Financials is the biggest overweight in our India portfolio. Geopolitical events can be a risk if they lead to a macro slowdown," it said.