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Credit Suisse downgrades India and raises bet on China, Australia; here’s why

Credit Suisse downgrades India and raises bet on China, Australia; here’s why

Global financial firm Credit Suisse has downgraded India's equities to 'Underweight’ from ‘Overweight’.

Rahul Oberoi
Rahul Oberoi
  • Updated Mar 8, 2022 5:23 PM IST
Credit Suisse downgrades India and raises bet on China, Australia; here’s whyCredit Suisse India strategist, Neelkanth Mishra, calculated that Brent crude of $120 per barrel could add $60 billion to India's import bill.

Global financial firm Credit Suisse has downgraded India's equities to 'Underweight' from 'Overweight', citing higher oil prices will hurt the current account. However, it added that due to the country's strong structural prospects and robust earnings per share (EPS) momentum, they will look for opportunities to re-enter the market.

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Credit Suisse India strategist, Neelkanth Mishra, calculated that Brent crude of $120 per barrel could add $60 billion to India's import bill. Price rises for gas, coal, edible oils and fertilisers could add another $35 billion. In total, the current account could fall by close to 3 per cent of GDP. If oil stays above $120, the hit would be bigger.

"The market's big P/E (price-to-earnings) premium magnifies the risks," Credit Suisse said, adding it will use the funds freed from India to raise China from 'Market Weight' to 'Overweight'.

It explained that China's credit intensity still clouds long term prospects, but the overseas firm likes the country's low oil import bill, insulation from Fed rate hikes, improving macro indicators and wealth of potential policy tools.

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"We also raise Australia from 'Market Weight' to 'Overweight'. We like the positive turn in EPS revisions, the favourable leverage to inflation and the neutral position on energy imports," it said.

Credit Suisse further highlighted that inflation also becomes more worrisome with higher oil price in India. Over the past year, headline inflation has risen to levels not seen since 2014. Neelkanth also calculated that if Brent stayed above $120 per barrel for a year, it could add over 100 basis points to inflation and subtract 2.5-3 pp from GDP.

"We still like India structurally and would look to take back to 'Overweight' if oil prices normalised," the research firm said.

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Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Published on: Mar 8, 2022 5:23 PM IST
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