(Reuters) – Societe Generale on Wednesday downgraded Indian equities to “neutral” from “overweight” ahead of elections next year on expectations of “moderating” economic growth and improving risks for broader emerging market stocks.
India’s benchmark, Nifty 50 index, is up 11% so far this year, compared with roughly 3% year-to-date growth for the MSCI Emerging Markets index.
“Indian equities have been defensive over the past year due to the country’s resilient economic growth, low asset volatility and sticky domestic flows,” the European brokerage noted.
It added that with the dollar and U.S. Treasury yields softening, risk sentiments for the broader emerging market stocks are now improving.
This, coupled with the general elections in India next year, could weigh on risk sentiments on Indian stocks, SocGen said.
SocGen strategists, led by Frank Benzimra, expect Indian companies’ profit growth to remain resilient and grow by 15% next year, with increased contribution coming from exporters like the technology sector. However, they expect the growth to be lower compared to most east Asian markets.
In Southeast Asia, Benzimra downgraded Indonesian stocks to “underweight” from “neutral” as earnings growth are among the weakest in Asia and on uncertainty surrounding election results.
For the broader region, Benzimra said U.S. financial conditions should now be “somewhat” more favourable to emerging Asian equities, but less favourable to Japanese stocks.
(Reporting by Roshan Abraham in Bengaluru; Editing by Maju Samuel)
