‘Better valuations, oil price fall will make Indian equities attractive’

Dan Fineman, co-head of Asia Pacific, Securities Research, Credit Suisse, says the brokerage would like to upgrade India if an opportunity arises


Credit Suisse | Indian equities

Credit Suisse on Thursday said that Indian equities will look attractive if oil prices soften or valuations moderate further.

Earlier this month, Credit Suisse cut India’s ratings while increasing its weightage for China.

Speaking at Credit Suisse’s Asia Investment Conference, Dan Fineman, co-head of Asia Pacific, Securities Research, Credit Suisse, said the brokerage would like to upgrade India if an opportunity arises.

He said the credit and property cycles are nicely positioned.

India has been in a pronounced property downturn much of the past decade. The banking credit cycle bottomed around 2018 after bad loans started blowing up a decade ago.

“Now the banking sector is ready to expand its balance sheet. Property prices are cheap relative to incomes. From a 3-5 year view, there is potentially a very good growth story for India,” said Fineman.

However, the valuations are steep. And there is no momentum as far as near term earnings upgrades are concerned. And oil prices have been rising.

“The elephant in the room is oil prices. If we had a negotiated settlement in Ukraine and oil prices drop $80-90 per barrel, India looks more appealing. High oil prices make everything worse in India,” said Fineman.

He said high oil prices worsen inflation which was already problematic.

“It worsens the sensitivity to Fed rate hikes because India has to import more foreign capital to balance its balance of payments. What will make us turn positive in India will be two things, either singly or in combination. It is better valuation or better oil prices.”

Regarding increasing weightage for China, Fineman said China has a moderate oil import bill though it is a net importer.

“It’s import bills are manageable. China’s exports dependence is lower than most other markets in the region, which means policymakers have more room to manoeuvre.”

Recent volatility notwithstanding, China usually acts as low volatility, low beta market.

“If we look at the two dips in the recent past, the global financial crisis ( GFC) and the first couple of months of COVID. China held out than most markets. We have an ambitious GDP target. China always meets or beats that target by hook or crook,” said Fineman.

However, Credit Suisse said it still has some concerns as earnings revisions have remained weak in China though the macro indicators have improved.

“This is an indicator potentially of low-quality GDP growth. If GDP is held up by infrastructure spending with low economic returns,” said Fineman.

Fineman termed China vice-premier Liu He’s recent statement on policy measures to support equity markets as a big positive.

“If nothing else it shows government cares about equities. That government views equities as an important economic variable, an economic tool. It says Beijing has our backs. And that is a positive indicator.”

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