The markets are expected to remain in a volatile phase till the general elections this year. However, certain foreign brokerages see this phase as an opportunity for investors to start adding quality stocks to their portfolio with a long-term view. Global brokerage house Credit Suisse, in a recent client note, said, "The government's strong push to create infrastructure over the past four years could start showing results in the next couple of years as landmark projects — freight corridors, metro rail projects, highways, railway electrification, and airports — start getting commissioned in a phased manner." Credit Suisse analysts said India might face the risk of higher de-rating in the near term as a stable government and government-led reforms had given the country premium valuation over peers. Data analysed by the brokerage showed India had seen the least price-to-earnings contraction in 2018 among its peers. The country's premium to other emerging markets is at 66 per cent compared to the historical average of 37 per cent. "Limited de-rating in valuation has helped India deliver the best equity market returns in local currencies after Brazil in year-to-date CY18. Nevertheless, we believe valuations now look a bit stretched compared to other markets, and hence Indian equity markets run the risk of a higher de-rating," the analysts said in their note. De-linking future market performance from elections, the analysts suggested that fundamentals would be the key drivers, irrespective of the election results. "Initial optimism or distress tends to fizzle out as fundamentals return to the fore.
Thus, investors should stay invested in quality companies, avoiding debt-laden, high-beta, and illiquid names," they said. Corporate earnings in the past four years have been disrupted by a slew of factors such as banking sector clean-up, back-to-back draughts in 2014 and 2015, demonetisation and goods and services tax (GST) implementation. Going ahead, Credit Suisse expects a stronger earnings cycle. "Earnings growth has been accelerating, and we see potential for further acceleration (although lower than consensus), especially in 2019-20 FY20, as the reforms start bearing fruit," the firm said. The analysts expect stress in the banking sector to come down because of the Insolvency and Bankruptcy Code. The brokerage is bullish on select names in private banks, including corporate lenders. Construction materials, energy and utilities, information technology, and chemicals are other sectors where the analysts see pockets of opportunities.