Credit Suisse ‘overweight’ on Indian stock markets,bets big on cyclicals,defensives to lag

Credit Suisse gung-ho on cyclicals,but refuses to forecast BSE Sensex,NSE Nifty target.

Written by PTI | Mumbai | Published:January 3, 2014 9:41 pm

Even as the indices closed the first week of the new year in deep red,leading global brokerage Credit Suisse today said it is “overweight” on Indian stock markets as the cyclicals are set to outperform defensives driven by the forthcoming elections.

The brokerage,however,stopped short of forecasting a BSE Sensex or NSE Nifty target for the year. Many brokerages had in November and December pegged the the Sensex target at over 23,000 and the Nifty at over 6,700 crore this calendar year.

In a report,wherein it revised upwards the EPS target of the domestic stocks,Credit Suisse research analyst Sakthi Siva said the brokerage is “overweight” on the country,and noted that the return from the domestic market is at an “inflection point” after three consecutive months of upgrades in consensus earnings-per-share (EPS) forecasts.

She also based the optimism on the forthcoming general elections,which the report termed as “a potential catalyst for an inflection point for investors”.

Siva said going forward,the market rally will be driven by the cyclicals which could continue to outperform the defencive stocks.

“Our ‘overweight’ call on India is based on the general elections as a potential catalyst for an inflection point in return on equities. While the polls are still months away,we believe there is support for our call on inflection point from recent EPS revisions,” Siva said,adding that there is support for its call on inflection point from recent EPS revisions.

“We believe valuations,EPS revision trends,and rises in US bond yields and the ISM (Institute for Supply Management) suggest cyclicals could have further to outperform,” Siva said in the report dated Thursday.

Its domestic top picks include the cyclicals of technology,energy,materials,consumer cyclicals and industrials. From a stock specific point its top pick are HCL Technologies,Wipro,Tata Motors,Reliance Industries,Sesa Sterlite and Cairn India.

The market breadth also looks good with eight of the 11 sectors associated with either flat revisions or upgrades to the 2014 consensus EPS in December,the report said.

Noting that the cyclicals could continue to outperform defencive stocks,it said price-to-book gap between the cyclicals and the defensives has narrowed both in the Asian region as well as in the country. It also said the EPS gap between the two at -4.2 times now is the biggest in the region.

The report noted that cyclicals have outperformed the defensives by 22 per cent since the lows on April 30,2013,and valuations,EPS revisions and rise in US bond yields suggest further cyclicals’ outperformance.

After plunging over 1.25 per cent,the market closed with minor losses today with the Sensex shedding 37 points and Nifty losing 10 points.

The benchmark Sensex fell for the third straight day and dropped 37 points even as value buying and gains in technology shares helped to trim early losses,wrapping up its worst weekly performance in two months.

Losing 342 points this week,it was the worst show for the Sensex since November 8.

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