Indian market which has already risen nearly 18 percent to fresh record highs this week have unnerved some analysts at a global investment bank, UBS.
The broking firm downgraded its rating on India to ‘neutral’ from ‘overweight’ initiated earlier in the month of February, citing a sharp surge in valuations which offers limited risk to reward ratio from current levels.
Back in mid-February, UBS raised India’s rating to Overweight post demonetisation trends which were beginning to improve, and earnings estimates which looked like hitting the bottom. The valuations were also looking the least high, relative to Asia ex-Japan, since PM Modi was elected in 2014.
“The downgrade is more reflective of India’s valuation relative to the region. In emerging markets, we are seen positive earnings momentum, but in India, we are still seeing earnings cut,” Gautam Chhaochharia, Head of India Research, UBS said in an interview with CNBC-TV18.
“We still haven’t changed our Nifty target. Out base case still remains at 8,800 while our upside case is 9,700 which in absolute terms means that we don’t see any more upside in markets for current levels,” he said.
Commenting on the midcaps, Chhaochharia said the relative valuations between the midcap and largecaps is off the charts even when we compare it with 2007, 2008 levels, supported by a recovery in the Indian economy and domestic flows. The risk-to-reward is still not attractive in midcaps.
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