Credit Suisse believes that the expected slowdown in growth in the Indian economy will continue to be due to weak consumption, and that the pickup in investment activity seen in the last 18 months will continue through 2019. However, the market continues to be in favor of consumption, as reflected in the sector’s high price-to-earnings ratios. In contrast, industrials stocks have mostly not participated in the market re-rating over the past three years. This under performance of the industrial sector and corporate banks is expected to reverse.
Neelkanth Mishra, Co-Head of Equity Strategy, Asia Pacific & India Equity Strategist at Credit Suisse, said: “As monetary conditions are expected to tighten at a time when global growth is surprising negatively, volatility is likely to remain high in global markets in 2019. Indian equities would be affected too, particularly if equities globally see a compression in valuation multiples. However, the impact should be somewhat moderated, given that foreign investors have not been meaningful buyers of Indian stocks for the past three years and are now accounting for less than a third of trading volumes. Within the Indian market, our preference remains for the less expensive industrials stocks which are showing good earnings momentum; we fear the consumption-focused stocks are too expensive, and there is a risk of earnings cuts.”
