Global investment bank Julius Baer is overweight on Indian stock markets along with US and Chinese markets, even even though it sees restricted upside at the index level. “With the current pace of market rally, we believe that the upside could be limited at the index level in the immediate short/medium term,” Julius Baer analysts mentioned in a report. Domestic markets have scaled fresh highs lately with broader markets participating in the upward march. Julius Baer had upgraded India to overweight in march this year right after the union price range aided rally in domestic markets.
“After a sharp rebound, the Nifty now trades at a 12-month forward P/E of 20.3x, ~8% above its historical average of 18.8x. At 3.0x, the Nifty P/B is well above its historical average of 2.6x,” the report mentioned. Analysts at Julius Baer anticipate earnings momentum to accelerate in FY22, as India vaccinates more and more of the population and the economy opens up additional. Although the upside is anticipated to be restricted on the index level, analysts think possibilities nevertheless lies in rotation trade, cyclicals. “The ‘rotation trade’ will continue, and we remain positive on economic recovery plays/ domestic cyclicals such as Financials, Cement, Industrials, Autos, and relative value plays such as Utilities and select PSUs,” the report added. Further, Midcap and smallcaps are anticipated to outperform the benchmark indices as they have performed so far this year.
In terms of investment approach, Julius Baer bets on structural plays and thematic tips in India. Under Structural plays the report lists stocks such as HDFC Bank, Reliance Industries Ltd, Maruti Suzuki India, Mahindra & Mahindra, ICICI Prudential Life, ICICI Lombard, United Spirits, Sun Pharma, and Ultratech Cement.
Thematic tips – Earnings Momentum
ICICI Bank
Axis Bank
Alkem Laboratories
Infosys
Syngene
Rotation TradeValue/Mean Reversion
State Bank of India
ITC
Bharti Airtel
NTPC
IOC / BPCL
Mid and Small caps to outperform
Dalmia Bharat
Coromandel
AIA Engineering
Capacite Infra
Aarti Industries
Crompton Cons