Titan Company, State Bank of India, Larsen & Toubro, ICICI Bank and Bajaj Finance are among the 35 stocks JPMorgan favours in its India equity strategy, as the brokerage expects domestic-facing sectors to benefit from falling crude oil prices and improving earnings
The international brokerage firm remained overweight on financials, industrials, consumer discretionary, healthcare and materials, while maintaining an underweight position on information technology stocks, according to its India equity strategy note published on Wednesday.
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Additionally, the brokerage said India's earnings outlook remains strong, with MSCI India earnings tracking over 20% year-on-year growth in the current quarter.
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Oil's Relief Rally
Brent crude has declined 11% between Oct. 30 and Nov. 3, following developments in Qatar-mediated talks between the US and Iran that could ease supply risks through the Strait of Hormuz. The fall in crude oil prices have raised hopes of a reduction in geopolitical risks, although no breakthrough had been reached at the time of its assessment, JPMorgan said.
India imports 85-90% of its crude oil requirements. JPMorgan noted that the lower oil prices could reduce the country's import bill, support the rupee, moderate inflation and improve corporate margins.
The brokerage also examined the performance of Indian sectors during previous periods when oil prices stabilised after a rally. Real estate stocks gained 40%, consumer discretionary advanced 22% and industrials rose 19%. Information technology and energy stocks, meanwhile, delivered negative returns.
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IT Risks
The brokerage house remained underweight information technology, citing the potential impact of artificial intelligence on India's IT services industry. "AI's impact on India is most immediate in IT services," it said in its note.
JPMorgan estimated that around 80% of existing IT services revenue pools face contraction risk from AI, while only 20% have the potential to expand.
The research firm also flagged the possible impact of slower hiring, weaker demand for entry-level roles and job losses on household incomes and consumption. It said these effects could be more pronounced in cities with a high concentration of technology jobs.
The brokerage identified sustained higher global bond yields as another risk for Indian equities, warning that they could trigger further foreign capital outflows from emerging markets.
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