UBS has upgraded Indian stocks to "overweight" citing attractive valuations compared with growth markets in Southeast Asia and an improving trade balance that could help improve domestic liquidity conditions.
Although the investment bank warned the country still faces a number of challenges, including politics and potential problems in the balance of payments, it recommended investors continue to bet on India.
"We think the risk is worth it - that either improved risk appetite globally helps lower domestic rates, or that in the coming months an improving trade balance does the same," UBS said.
"As such, we think liquidity will improve and by interacting with sensible earnings estimates (that have as much risk as elsewhere in the region in our view) and attractive valuations, should help India perform better in relative terms," it added.
Copyright Thomson Reuters 2012
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