Emerging Markets
Credit Suisse Smiles On India After Landslide Election Result; Likes Cyclicals

Following the recent landslide BJP win in India, the prospect of serious reforms in the country have emboldened Credit Suisse to take an "outperform" stance on the country and its markets.
Credit Suisse
is taking a more optimistic view on India’s economy and markets
to “outperform” from “neutral” because of what it sees as greater
chances of reforms following the emphatic victory a week ago of
the Bharatiya Janata Party, or BJP.
The elections have granted new prime minister Narendra Modi the
rare position of having an overall majority for one party, the
first time this has been the case since 1984. High priorities for
the government are legislative and administrative reforms, tax
and foreign direct investment reforms, recapitalisation of
certain banks and accelerated clearance of investment projects,
the bank said in a note.
“We believe India is poised for a structural re-rating as the
pro-growth policy agenda of the BJP is expected to bring a
profound impact on India’s long-term growth outlook if the
proposed reforms are implemented effectively,” Credit Suisse
said.
The bank expects India’s gross domestic product growth rate to
accelerate to 6.1 per cent in 2015 and 5.5 per cent this
year.
India’s flagship SENSEX Index of stocks has rallied by 17 per
cent so far this year, implying a forward price-to-earnings ratio
on a 12-month basis of 15 times based on expected earnings in
2015, which is in line with its 10-year average but 25 per cent
below the cycle peak of a PE of 20, the bank said.
“We have upgraded India to outperform from neutral to reflect its
improved reform and growth recovery outlook,” it said, but it
added that the Indian equity market is likely to see some
profit-taking in the aftermath of the post-election rally.
Investors should add to equity holdings on any such tactical
pullbacks, the bank said.
To capture the effects of a structural recovery in India, the
bank advises investors to hold cyclical stocks, although
valuations may have become less attractive recently. It favours
energy, auto, infrastructure and financial sectors.