Global brokerage firm Nomura raised its stance to 'overweight' on Indian equities in its Asia ex-Japan portfolio, a day after another brokerage Credit Suisse also upgraded India.

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“A number of recent positive developments in India lead us to change our stance to Overweight from Neutral in our regional Asia-ex-Japan allocation. We view India as a counterweight to North Asia as a large liquid market that – despite its strong run recently – does provide a hedge in portfolios," Nomura said in the report.

The brokerage is reallocating to India from Korea, however, it said that it remains 'overweight' on Korea along with China and Indonesia.

As per Nomura, concerns regarding India’s limited fiscal space and vulnerability from Covid-19 have decreased owing to the recent developments, however, it cautions execution of Budget 2021 and other policy proposals remains one of the key risks.

“India’s recent budget aims to prioritise fiscal spending/growth over medium-term fiscal commitment – thus implying a positive medium-term growth outlook, while the Covid-19 situation appears to be largely under control,” Nomura stated in a report.

Another upside as per the brokerage is the solid earnings revision trends. It believes India will continue to command premium valuations along with a focus on reforms and measures to attract foreign direct investment (FDI) flows.

However, the brokerage is cautious about the expensive valuations in the Indian stock markets.

“Valuation-wise, India has almost never appeared ‘attractive’ – but today neither are other major regional markets. Whilst absolute valuations at 19.2x two-year-forward PER do not appear very attractive; however, relative to the regional Index (MXASJ), valuations are not as rich. Fiscal/monetary policy support, some focus on reforms and measures to boost FDI flows will likely keep valuations elevated,” Nomura observed.

It added that key risks to watch in the second half of 2021 (H2’2021) include Covid/inflation resurgence, policy normalisation, US Federal Reserve-driven ‘taper tantrum, higher oil/commodity prices and policy execution. But it added that any sustained weakness will likely provide an opportunity to increase India exposure.