Go defensive as few catalysts for Indian stocks, says Jefferies

After last year’s lacklustre gains in India’s key equity indexes, the outlook is expected to be more of the same — clouded by political uncertainty and economic concerns, says Jefferies. 

To make money, look at large firms, banks and defensive stocks such as software exporters and utilities, they say.

“Our top-down bias is defensive,” Jefferies India analysts Somshankar Sinha, Piyush Nahar and Pratik Chaudhuri wrote in a note on January 19. “With valuations expensive, the macro soft and political outcomes uncertain, we see few triggers for India’s equity markets this year.”

Even though key Indian equity indexes only eked out single-digit percentage gains last year, they were still the best performers among major stock gauges across Asia. That’s made them relatively more expensive. 

The MSCI India Index trades at 17.6 times its 12-month estimated earnings, well above the 10-year average of 15.6 times, while emerging markets and global rivals barely meet the mean, according to Jefferies.

Jefferies’s tilt toward defensive equities means a preference for large caps over mid-sized rivals as their revenue and earnings growth is more consistent. 

The brokerage is betting on banks due to a peaking of bad loans and expected drop in borrowing costs, while predicting a decline in the Indian rupee against the dollar will boost software exporters’ sales.