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Credit Suisse turns negative on India

Credit Suisse turns negative on India

Credit Suisse’s private banking arm has turned negative on India following the country’s 2018 budget announcement.

It has demoted India to underperform from neutral after the South Asian nation decided to re-introduce a long-term capital gains tax on equity investments after 14 years.

As such, the bank now expects India to underperform as the 2018 budget turned out to be disappointing for markets, noted investment strategists Jack Siu, Suresh Tantia and Eddy Loh in a weekly report.

‘On top of this, we believe the current valuation multiple of 18.5x does not reflect fiscal deficit risks, which could lead to underperformance,’ they said.

Moreover, the decision by Indian stock exchanges to stop licensing indexes and securities or supplying data to foreign exchanges, on account of trading migrating outside the country, has further spooked international investors.

Foreign investors pulled INR 6415 crores ($984 million) in net flows from Indian equity markets in February alone, data from the National Securities Depository Limited showed.

India now joins Credit Suisse’s underweight positions in Thailand and Malaysia.

Some private banks, like UBS, are still betting on corporate sector growth to drive Indian equities but believes the market consensus of a 21% growth in earnings per share in India for the next year is too optimistic as it expects a slow pace of recovery.

In other developments, Credit Suisse has upgraded Indonesia to neutral from underperform after seven months, as it expects an improved economic outlook.

It has also turned optimistic on China, moving the market to outperform on expectations that it will continue its rally backed by promising GDP and PMI numbers and a new wave of liquidity.

The report noted that southbound flows - from mainland China to Hong Kong - have already reached HKD 100 billion ($12.7 billion) this year, with more retail investors in China going into active funds.

‘These flows are running at more than double the pace seen last year and four times of that of 2016.

‘We believe the southbound inflows are here to stay and are likely to get only stronger which will drive the next leg of rally in Chinese equities,’ the investment strategists said.

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