Broking firm UBS downgraded its rating on India to ‘neutral' from ‘overweight', citing valuations no longer as attractive when it upgraded Asia's third-largest economy in February.
The NSE Nifty 50 index has risen over 18 percent so far this year, making it one of the best performers among its emerging market peers. UBS has been structurally positive on India, given its capex discipline and balance sheet repair, coupled with the central bank's commitment to a lower inflation.
So, what's changed?
“Valuations have re-rated somewhat, and our economics team no longer expects the central bank to ease monetary conditions again this year,” the UBS note said. Besides, the ratings downgrade also factored in the negative impact of demonetisation on 2018 earnings estimates.
UBS, however, said a slower rate of upgrades in the more cyclical parts of the region will inevitably draw attention back to India's better structural story.
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