Nomura upgrades India's rating from 'Neutral' to 'Overweight'

Nomura upgrades India:  Nomura on Wednesday, September 27, upgraded India's rating to 'Overweight' from 'Neutral' earlier. The global brokerage said that India's structural growth story is now well-known as the major beneficiary of the China+1 theme, possessing a large liquid equity market. Nomura said that it sees recent weakness in the domestic market, driven by higher oil prices, as an opportunity to raise its exposure to domestic stocks. It further said that weakness may persist in the near term, presenting even better timing to enter the market.

Nomura further said that India's valuations are expensive and will likely remain so in a scenario of policy and government continuity. A cyclical slowdown from a high base is expected but will unlikely deter investor optimism, it added.

In August, Morgan Stanley raised India’s rating to overweight, saying relative valuations are 'less extreme' than in October, and the nation’s reform and macro-stability agenda supports a strong capex and profit outlook. "India is arguably at the start of a long-wave boom at the same time as China may be ending one," strategists at Morgan Stanley wrote in their research note.

Morgan Stanley strategists also upgraded India's industrial sector to Overweight. The financial and consumer discretionary sectors were already rated Overweight.

Morgan Stanley added that the structural change brought about by India in the last few years has started showing a positive impact. New growth opportunities are now being unlocked. A cut in corporation tax and the PLI scheme have helped reform supply-side policy. It added that the country's infrastructure will see expansion at a fast pace. The brokerage also added that the economy's regulation has become stronger now. READ MORE

Nomura's top picks

The brokerage is bullish on ICICI Bank, Axis Bank, L&T, Reliance, ITC, MedPlus Health Services, M&M and Uno Minda. Risks to India's growth story will be intense politicking into the May 2024 election, China's re-rotation, and sustained high oil prices, the brokerage added.