Amid the sharp selloff seen in the domestic equity market since Budget 18, Credit Suisse said it prefers sectors with global exposure such as energy, metals and information technology.
The government's spending as a ratio of the gross domestic product has been budgeted at a multi-decade low for the fiscal year ending March 2019, hence "we stay concerned about domestic growth", Credit Suisse wrote in a market strategy note.
Its top picks are Larsen & Toubro Ltd., Mahindra & Mahindra Ltd. and Tata Steel. It also prefers State Bank of India Ltd., ITC Ltd., Cummins India Ltd. and Motherson Sumi Ltd., according to the note.
The Indian stock market fell the most since demonetisation, a day after Finance Minister Arun jaitley presented the Budget. The decline was widely attributed to the reintroduction of a 10 percent tax on long term equity gains.
That's not the only reason Credit Suisse is concerned.
India's broader market has lagged global equities by 6.4 percent in 2018, reversing the October-December outperformance, Credit Suisse said. “Further, lower market-cap stocks have trailed in the recent sell-off, reversing last year's trend.”
The BSE 500's 6 percent decline from its Jan. 23 peak is more than the benchmark Nifty 50's 4 percent fall in the same time. Nearly three-fourths of stocks with less than $500 million market capitalisation have fallen 20 percent or more. These stocks are more exposed to domestic growth, have low foreign ownership and are, thus, impacted by domestic flows.
All sectors have corrected since their peak on Jan. 24 and the decline has been led by state-owned banks, real estate, discretionary, chemicals and healthcare. Auto and IT stocks have “held up slightly better suggesting a quality bias” in the selloff, Credit Suisse said.
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