Global brokerage firm Nomura has upgraded the Indian equity market to an overweight status, indicating confidence in the country’s long-term economic prospects. This upgrade comes despite the belief that valuations may remain expensive, reflecting Nomura’s optimism in India’s structural story and its position as a major beneficiary of the “China+1” theme.
In their latest strategy report, Nomura analysts stated, “The structural story of India is now well known as a major beneficiary of the ‘China+1’ theme, possessing a large, liquid equity market. We see recent softness driven by higher oil prices as an opportunity to raise exposure. While this weakness may persist in the near term, thus presenting even better timing, we think the window of opportunity might not be open for too long. Valuations are expensive but will likely remain so in a scenario of policy/government continuity.”
Key points from the report:
1. India’s Attraction as an Investment Destination:
Nomura’s upgrade highlights India’s attractiveness as an investment destination, particularly in the context of the “China+1” strategy. India’s large and liquid equity market makes it a favorable choice for investors seeking diversification.
2. Opportunity Amid Short-Term Weakness:
Despite acknowledging short-term challenges, including softness due to higher oil prices, Nomura sees this as an opportunity to increase exposure to the Indian market. The analysts believe that this window of opportunity may be time-limited.
3. Expensive Valuations and Policy Continuity:
While valuations are considered expensive, Nomura anticipates that they will likely remain so, given the expectation of policy and government continuity in India.
4. Factors Supporting Investor Optimism:
Nomura identifies factors supporting investor optimism in the Indian market, including a K-shaped economy, high earnings growth, positive earnings revisions, and robust domestic inflows, even in the face of higher interest rates.
5. Preferred Stocks:
Nomura recommends a mix of stocks with reasonable relative valuations and exposure to domestic growth areas. Some of the preferred stocks mentioned in their report include ICICI Bank, Axis Bank, L&T, Reliance, ITC, and MedPlus Health. Additionally, the report highlights stocks likely to benefit from structural themes, such as increasing electric vehicle (EV) adoption, including M&M and Uno Minda.
This upgrade from Nomura follows similar moves by other global brokerage firms. Morgan Stanley recently upgraded Indian stocks to an overweight rating, ranking India as the No. 1 market in its basket of Asian emerging markets ex-Japan. Similarly, Goldman Sachs has previously expressed its overweight position on India, citing medium-term growth prospects and recommending foreign investors to build exposure in the Indian market.
In conclusion, the global investment community appears increasingly bullish on Indian equities, viewing them as a potential source of alpha generation in the years ahead.
News Summary: Nomura has upgraded the Indian equity market to an overweight status, emphasizing India’s role as a beneficiary of the “China+1” theme and a large, liquid equity market. Despite acknowledging expensive valuations, Nomura sees opportunities in India’s structural story and anticipates the continuation of favorable policies. This move follows similar upgrades by other global brokerage firms, reflecting growing optimism in the Indian market.