BSH NEWS
Mumbai: Credit Suisse has downgraded its India position to ‘underweight’ from ‘overweight’ due to high oil prices. Terming the downgrade as ‘tactical’, Credit Suisse said it will use the funds freed from India to raise its China and Australia position to ‘overweight’ from ‘market weight’.
“Because of its strong structural prospects and robust earnings per share momentum, we will look for opportunities to re-enter the market, but today we tactically cut our India position. Higher oil prices hurt the current account, add to inflationary pressures and increase sensitivity to Fed rate hikes,” said Credit Suisse.
India’s current account would weaken by almost 3 percentage point of the Gross Domestic Product if brent crude remained at $120 per barrel, said Credit Suisse, adding that the market’s high price to earnings premium magnifies the risks.
Sensex is trading at a one-year forward price to earnings ratio of 19.6 times while the MSCI Emerging Markets index is trading at 11 times.
India’s benchmark indices have lost over 6% since February 24 when Russia announced a special military operation in Ukraine. The conflict which is being seen as a full blown war has led to sanctions against Russia, with reports suggesting a potential ban on Russian oil imports by some countries.
Reports on Tuesday quoted a top Russian official that a Western ban on Russian oil imports could result in oil prices more than doubling to about $300 per barrel and prompt closure of the main gas pipeline from Russia to Germany.
Prior to the Ukraine conflict also, foreign investors have been dumping Indian stocks due to expensive valuations, high oil prices and concern over aggressive rate hikes by the US Fed. From record high levels hit on October 19 last year, India’s Sensex and Nifty are down around 14%. Indices had risen over 30% between January 2021 and October 19, 2021. Sensex and Nifty are down 8.2% and 7.7% respectively so far in 2022.
“Oil is the main concern driving our cut. Even before Ukraine, higher oil prices had seriously dented the trade balance,” said Credit Suisse.
(What’s moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)
Download The Economic Times News App to get Daily Market Updates & Live Business News.