New Delhi: Even after the GDP bounce-back off the low Covid-19 base, India can handle a 7.7 per cent growth in FY23 and therefore, ship development that’s nearly unrivalled globally, UBS stated in a report.
But, after a stellar two years for the Nifty the place it even left the S&P behind at occasions (even in US Greenback phrases), we imagine the valuation doesn’t absolutely mirror upcoming headwinds, the report stated.
These embrace rising rates of interest each globally and in India, and importantly, the return of India’s historic gentle spot, present account deficits. “These headwinds might have an effect on not solely the nation’s inventory market but in addition the INR. We, therefore, imagine a multi-month pause is so as, the current correction however,” the report stated.
“All informed, inside the house of two years, the present account is more likely to swing from its surplus of 0.9 per cent of GDP in the direction of a 1.9 per cent deficit, in our view. We imagine it will carry down the INR. We search for USDINR to commerce in the direction of 79 ranges by end-2022,” UBS stated.
One other attention-grabbing and probably bearish facet is the lopsidedness of current inflows which have saved the market afloat. They’re now derived nearly solely from home retail traders. Nevertheless, the previous has proven that such a flows can cease when markets not exhibit a gentle rise, and probably greater financial institution deposit charges may change into a potent competitor once more when the RBI begins to hike rates of interest, UBS stated.
India’s inventory market left most rising markets and even developed markets counterparts within the mud throughout 2020 and particularly 2021. That stated, and the structural attraction of the Indian market however, we imagine within the close to time period the Nifty is due for a pause, and should even ease within the early a part of 2022, UBS stated.
“A key cause is certainly the nonetheless lofty valuation premium. We count on this course of to proceed. The earnings development of 28.3 per cent for FY22 and 11.7 per cent for FY23 works as a partial counter-force and can seemingly assist to forestall a robust correction. On the identical time, we stress that as is usually the case, consensus estimates look implausibly excessive to us”, UBS stated.
Nonetheless, financials ought to come to the fore on the again of rising mortgage development, coupled with increasing curiosity margins. We additionally like cyclical names within the automobile, cement and building house. We imagine supplies shares on multi-year excessive valuations will seemingly underperform as some provide tightness eases, the report stated.
In our estimate, the central financial institution will seemingly begin to barely tighten coverage measures from March and subsequently elevate its repo price round September, adopted by a second price hike later in the course of the 12 months to reach at 4.5 per cent, the report stated.
Through the early a part of the pandemic, exports held up moderately properly whereas imports plummeted. But, for FY23, we count on solely small export development whereas imports ought to come roaring again because the financial system reopens additional and oil costs are rising.