After confronting the worst period of uncertainty due to Covid 19, Indian indices have recovered from March lows and are up as much as 13 percent YTD despite a slowing economy. And return-wise, this year is expected to be best for Nifty since 2017.
And in a recent report, global investment firm Credit Suisse highlighted that Indian equities are no longer cheap and are only a short distance away from being the most expensive they have ever been. "With 12 month forward P/E multiples 20 percent higher than on 31-Jan, with a broad-based increase in P/E multiples, the recovery is priced in," it noted in a report.
Outlook for 2021: What will drive Indian markets going ahead?
And for the next year, the global brokerage is of the view that upside shall be triggered by corporate earnings. 12-month forward earnings have begun to rise sharply as more of 2021 is included in forward earnings, noted Credit Suisse."12 months from now the market would be looking at CY22/FY23 earnings: even if Nifty and FY22 and FY23 EPS forecasts do not change, the P/E would have still not reverted to pre-Covid levels," the brokerage quoted.
The September quarter earnings have been better than expected for most Nifty companies. To comfortably expect upside to the Nifty, FY23 earnings estimates need to rise, it stated.
The firm is of the view that 50-60 percent of the year-on-year EPF growth i.e. expected for FY22 is likely to be from private banks, energy and consumer discretionary.
Model Portfolio of Credit Suisse for 2021
Given the government's production-linked incentive scheme (PLI) cover extended to several other industries including auto and auto-ancillary, there is expected a pick-up in activity of industrials. And thus the global brokerage has turned 'overweight' on the sector. This rise in weight on industrials is funded by cuts in IT and Energy sector.
Credit Suisse is also overweight on banks i.e. both private sector players and SBI. It noted that especially private sector banks remain the best vehicle to get exposure to the general economic uptrend.
It is also overweight on the metal space and in its report explained "The stance on metals is a tactical one, though. For steel, it is hard to separate the seasonal from the cyclical from the structural. At some point during the year, the cycle is likely to turn, in our view, but there are still significant gains to be made till then". Meanwhile, its underweights are on Discretionary (prefer 4 wheelers over 2 wheelers) NBFCs, Healthcare and Cement.
Credit Suisse's 30-stock India model portfolio include
6. ICICI Bank
7. Axis Bank
8. Maruti Suzuki
9. HCL Tech
10. Tata Steel
12. Asian Paints
13. Dr. Reddy's
14. Coal India
19. HDFC Bank
22. Eicher Motors
24. Bajaj Finance
25. Power Grid
26. Godrej Consumer
27. SBI Life
29. Tata Consumer