Nomura has upgraded their rating on India to 'overweight'. They say recent developments have surprised them positively. Chetan Seth, Asia-Pacific Equity Strategist at Nomura discussed the rationale behind it.

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“Our view was that given the demographics of the country, given the below-par soft and hard infrastructure, India might have a problem containing COVID. However as we have seen over the last few weeks, we have been very positively surprised with the COVID trend,” he said.

By and large, 11,000-12,000 cases on an average for a country as large as India is not a big deal, he added.

He believes during Union Budget 2021, it seems like there has been a paradigm shift from the authorities.

“They have indicated that they will not shy away from embarking on a higher fiscal deficit to stimulate growth. In past India has always been on the path of this fiscal conservatism and this time it seems it is more of fiscal activism. That is a big game-changer,” he said.

According to him, the potential for India to outperform other markets is quite high.

“Relatively we think India does have a chance to outperform the regional markets,” he pointed out.

Nomura’s approach has been to go with quality cyclical financial stocks rather than value stocks.

“As far as India market is concerned, as a house, our preference is clearly towards cyclical and financial stocks which are geared to economic growth recovery expectations,” he shared.

He believes, more than oil, one needs to keep an eye on COVID cases.

“It will be very difficult for us to say what will be the outcome of COVID. If oil prices continue to go higher, I won’t be surprised to see some action from the Organisation of the Petroleum Exporting Countries (OPEC) where they say we have been marked on these supply cuts, let us put some additional supply in the market because oil outlook has improved and demand has improved. So I am less worried about oil prices,” he said.

In terms of earnings upgrades, he said, “India for two straight quarters has been off the pack, one of the best markets in terms of earnings upgrades across Asia ex-Japan. So possibly there is some upside risk there.”

He thinks if there is an increase in real bond yields in the US, it could curtail any further multiple expansion for stocks in general.

For the full conversation, watch the video...

(Edited by : Anshul)

First Published:Feb 23, 2021 11:04 AM IST