'Vulnerable' Indian Stocks Get Bernstein Downgrade On Near-Term Concerns
Bernstein remains bullish on Asia region driven by US rate cuts, reasonable valuations, declining equity risk premium and some earnings recovery.
The pricey Indian stock market got downgraded to 'underweight' from 'neutral' by Bernstein Research as it sees the market to be "quite vulnerable" in the near-term.
The concerns are driven by record high relative valuations to China and emerging markets, high crowding risk which has expanded into large-caps, and the increasing pace of downgrades, Bernstein said in a note.
Expectations of continued outflow of foreign money, moderation of SIP flows and high growth stocks joining the league of small- and mid-caps are also weighing Asia's fifth largest stock market, the note said.
Bernstein maintains the preference towards low volume, quality, large-caps stocks and recommended reducing exposure towards high volume, small-medium companies.
The NSE Nifty 50 and the 30-stock BSE Sensex have risen 14.9% and 12.7% respectively, so far this year, making them the ninth and 12th best-performing Asian indices.
India remains the most expensive emerging market with current price-to-earnings pegged at 24.5.
The brokerage closed their long momentum trade in India as valuations are now at record high with earnings cycle heading towards a downgrade.
However, Bernstein remains bullish on Asia region driven by US rate cuts, reasonable valuations, declining equity risk premium and some earnings recovery.
The brokerage maintained their "tactical overweight" on China, Hong Kong and ASEAN markets. China's unexpected policy support led to one of the strongest investor reaction, with passive flows from the US reaching record high.
Such extreme inflows set the market for a short-term reversal, which has been seen over the last couple of days, it said. "We turned positive after the policy announcement, and still believe the risk- reward in China is skewed to the upside."
While markets have been disappointed by lack of clarity on stimulus, Bernstein expects some concrete announcements soon.
Bernstein closed its overall momentum by going long on China and short on India, and picked value exposure in Asia, excluding China, to position for soft-landing rate cut. "Outside China, the other big Asian market to consider would be Japan."
