While the price-to-earnings ratio for the market is high, it is not expensive compared to global equities but that is taken care of by the corporate scorecard in Q2 which was one of the best in three years with aggregate earnings seeing no cuts, the Swiss brokerage Credit Suisse said today without offering a Sensex or Nifty target for 2018.
Consensus forecasts of 22 per cent earnings-per-share (EPS) growth for the market in FY19 may still fall, but should settle in the low teens, Credit Suisse said in its India Market Strategy report.
"The current EPS growth projection is dependent on strong growth for banks, discretionary, energy and materials. We expect cuts to bank earnings lower-than-expected loan growth, margins and likely increase in credit costs and discretionary.
"Therefore, it would be unwise to extrapolate the strong earnings growth trend that we have seen this year," its India equity strategist Neelkanth Mishra told reporters.
Given this macroeconomic backdrop, the brokerage favours energy and metals, state0-run banks and IT sectors.
"We are more comfortable owning stocks that are likely to benefit from steady global growth, and in particular beneficiaries of the withdrawal of China from export markets in polluting industries. We are therefore overweight on energy and metals.
"Together with the likely write-back of provisions in steel non-performing assets, we also believe the recapitalisation should benefit the stronger state-owned banks, and help drive a re-rating, even if only for 2-3 years," Mishra said.
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