In its latest Indian market strategy, Credit Suisse reduced metal stocks from overweight (OW) to underweight (UW).
“We are posting gains on metals and reversing positions added December 20 and earlier as the P / E to the market is near a 10-year high. It can go higher and stay elevated in a super cycle, but we believe that the current surge in apparent demand is due to an extreme inventory cycle rather than a structural increase. Slower capacity increases in steel due to ESG regulations are not enough to warrant the hold, especially given the iron ore-fueled increase in earnings at Tata, which should be corrected, “said Credit Suisse.
Asian Paints and UltraTech were added as cement should benefit from lower input costs at global prices (prices are local). Sector P / B has a market premium of 11%, which is well below the average. Short-term concerns about adverse seasonality and weak discretionary demand from low-income households are offset by company-specific factors (e.g., steady stock gains).
“We remain overweight banks (private banks plus SBI) as we believe they are the best outcomes of our expectation of medium-term growth that is above consensus. This also supports our heavy overweight in industrials (also has a low relative P / E), ”said Credit Suisse.
“We’ve reduced the market weight for staples: we’re leaving Nestle and adding a lighter weight to Marico (growth in new businesses). Our continued underweight in NBFCs is due to BFIN (further cut; now zero weight of the stock) and insurance. We are underweight pharmaceuticals (Dr. Reddy and Aurobinndo overweight), telecom, utilities, automobiles (mostly 2W) and energy, ”he added.
India caught up on the April 2021 underperformance in May, with relative P / E ratios now in the middle of the past. Moving forward, broader market performance is likely to be in line with global trends until there are signs of mid-term acceleration.