UBS downgrades Indian shares to 'neutral'

UBS says China a better bet

UBS has downgraded Indian shares to "neutral" from "overweight," saying China is the better bet. The investment bank said India was unlikely to see big downside surprises on inflation, and hence no aggressive rate cuts.

By contrast, China, the bank's biggest overweight market, offers an opportunity to benefit from expected policy easing, a more stable economy, and more attractive valuations.

"We continue to think the best theme in the region is to be tilted towards policy easing. Our preference here is now China rather than India," said UBS in the report.

The RBI cut interest rates by 50 basis points on Tuesday but warned of a limited scope for further rate cuts.

A subsequent poll of economies done by Reuters showed analysts expect another half of percentage of easing in the fiscal year ending in March 2012.

By contrast, China is expected to cut the reserve requirement ratio for banks by 50 basis points in each of the last three quarters of 2012.