India's high-frequency economic indicators continue to surprise positively. But with risks to global growth and the uncertainty of the impact of China's real-estate sector stress, further upside to Indian stocks may be limited, according to Credit Suisse.
Though the economic rebound would help drive upgrades to GDP growth and FY23 and FY24 earnings forecasts, this may not translate to further rallies in the stock market, the Swiss research firm said in a note co-authored by research analysts Neelkanth Mishra, Abhay Khaitan and Prateek Singh.
Though global equities have fallen 2.2% in two weeks because of volatility, Indian equities have outpaced them for five consecutive months, the note said. The 12-month outperformance of 22 percentage points is the highest since 2014, it said.
While India's economy is "less exposed" to China, this may already be priced in, according to Credit Suisse. "India's price-to-earnings ratio premium in comparison to world and emerging markets is at a decade high," the note said. "It has been 243 days since the last 10% drawdown in the Nifty, the third longest ever."
Credit Suisse said India's markets may not stay immune to global volatility even if strong retail flows distort the speed of response. "Links exist for earnings in the form of exporters or commodity producers and multiples, with 21% foreign investor ownership in listed companies."
Credit Suisse would stay in relatively safe stocks such as information technology and pharma, and buy domestic cyclicals such as financials and industrial stocks, if they correct.
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