With markets getting highly polarised over the last two years, both in terms of volume and the market cap, Credit Suisse believes the narrow rally in headline indices should continue at least for another six months, as economic uncertainty continues to push funds into the “safe” stocks, resulting in higher market concentration.
According to Credit Suisse, the concentration of performance may worsen in the first half of 2020 till uncertainty over growth continues. The brokerage believes 2020 should see an inflection point in risk as it expects the headline indices to rise, driven by growth from firms which are not directly affected by domestic macroeconomic factors.
The foreign brokerage said one should start reducing concentration risk. If the government takes measures to revive growth, the markets would react well in time. In order to reduce concentration risk, Credit Suisse has turned more overweight on State Bank of India than on HDFC Bank, along with staying overweight on ICICI Bank. The brokerage prefers Tier II IT companies such as HCL Technologies and Tech Mahindra over Tata Consultancy Services and Infosys.
Similarly, from the FMCG space, ITC and Dabur India are preferred over HUL. While HDFC Bank and TCS have added about `1.3 lakh crore each in market capitalisation in 2019, ITC saw its market value eroding by Rs 48,462 crore.
Neelkanth Mishra, co-head of equity strategy, Asia Pacific and India equity strategist at Credit Suisse, said: “Even as de-stocking ends in some sectors, driving some stabilisation in the Indian economy, pro-cyclical forces in credit, fiscal and sentiment may still create downside risks. In our view, policy interventions to get a growth rebound to 6.5% levels are not politically challenging, but it is unclear when they may be undertaken: efforts to reduce the cost of capital should be among the first of these. We expect headline indices to stay elevated, driven by inflows, as most of the market cap is in stocks linked to rising penetration of products/formalisation, market share gains, or global factors.”
While the Nifty50 gained nearly 13% so far in 2019, half of its constituents lost value, with Yes Bank being the biggest loser. While shares of Yes Bank plunged 71.7%, Zee Entertainment, M& M and Gail India have come off between 33.6% and 40.4% during the same period.
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Source: Financial Express