MUMBAI: Global financial services firm HSBC has upgraded India’s outlook to overweight stating that India is a relatively defensive market in an increasingly uncertain investment world.
“Global asset allocators face a period of uncertainty. They might be more inclined to increase the allocation towards defensive assets in the period of economic and political uncertainty in major parts of the developed world. A variety of global themes could play a role in this volatile environment, with markets moving from one issue to another as events unfold. The results show that India is not immune to these factors, but we believe it is one of the most defensive markets, i.e. the least driven by global factors,” said analysts at HSBC.
According to HSBC, India is one of the most convincing growth stories. As the GDP growth is accelerating, the budget deficit has narrowed significantly, high frequency data points are picking up, and the recent earnings season points to improvement in demand. One of the key risks to Indian equities, according to HSBC, has been the high consensus earnings forecast. At the beginning of the year, the consensus earning forecast for 2016 was 18.5 per cent.
“However, after the recent annual earnings season, the expectations have come down. The earnings growth expectations of 14 per cent for 2016 are more realistic and closer to our expectations of 12 per cent, reducing one of the overhangs on India equities, in our view. As a result of this, the valuation multiple, which was inflated, looks more realistic now, in our view. MSCI India is trading at a 12-month forward PE of 17.2 times, which is 15 per cent above the last five-year average. We believe that Indian equities deserve to trade at higher multiples than the historical average due to several reasons — improving macro position, relatively defensive characteristics in times of increasing risks to global growth, and decline in cost of equity,” HSBC said.
