JPM cuts Indian shares to 'underweight', trims target for MSCI EM index

J.P.Morgan downgraded Indian equities to "underweight" and cut its full-year forecast for the MSCI Emerging Markets index, as geopolitical tensions fuel inflation worries, roiling global financial markets.

The brokerage, which previously had a "neutral" rating on Indian equities, cited a slew of factors, including a weaker rupee and its impact on growth, a spike in prices of commodities such as oil, potential portfolio outflows and the domestic monetary tightening cycle.

Commodity prices have skyrocketed after Russia was slapped with Western sanctions for its invasion of Ukraine, worsening inflationary pressures globally and prompting governments and central banks to reassess their monetary policies.

India's government trimmed its growth estimate for the 2021/22 fiscal year to 8.9% from 9.2%.

J.P.Morgan now expects the MSCI emerging markets (EM) index to hit 1,300 by the year-end from 1,500 estimated previously. The index closed at 1,081 on Wednesday.

The brokerage expects earnings to be lower this year, with commodity prices surging and Russia being excluded from MSCI EM index.

FTSE Russell and MSCI had earlier this month said they would remove Russian equities from all their indexes.

"Our view remains that EM equities should outperform (post target revision) driven by upward bias to EPS consensus estimates and downward bias to equity risk premium," J.P.Morgan economists said in a note dated Wednesday.