Investment and demand will continue to remain weak in India as multiple structural reforms introduced in the country have weakened near-term visibility on most macroeconomic parameters, according to a Credit Suisse report.
While the windscreen should clear up through 2018, we believe growth could still be weak. An unclear outlook together with low utilisations should keep demand weak.Credit Suisse India Market Strategy Report
Besides the twin shocks of Goods and Services Tax and demonetisation over the last year, India's banking system and the real estate sector are also undergoing heavy reforms.
Here are some key highlights of the report:
- Weak agricultural income growth to lower broad-based consumption.
- State elections have limited economic impact.
- Changes in market sentiment to drive volatility as 2019 elections approach.
- Market is not relatively expensive, but cuts should resume.
- Expect double-digit earnings per share growth in financial year 2018-19.
Here are some of its key calls:
- Underweight on high price to earnings sectors with possible earnings-per-share cuts: non-banking finance companies, cement, discretionary and staples.
- Outperform: State Bank of India Ltd., Oil and Natural Gas Corporation Ltd., Tata Steel Ltd.
- Underperform: Bajaj Finance Ltd., UltraTech Cement Ltd., Dr. Reddy's Laboratories Ltd.
- Overweight: Energy and metals, public sector banks and information technology.
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