Next year will be positive for equities, says Credit Suisse

Credit Suisse expects the Indian market to deliver positive returns in 2018; but, it has abstained from setting any targets for the Sensex or Nifty. The brokerage is forecasting low-teen growth in earnings for the next fiscal year (FY19), lower than the consensus estimate of 22 per cent. The markets, therefore, could deliver low-teen returns too, if valuations have to stay at current levels, said Neelkanth Mishra, managing director and India equity strategist at Credit Suisse.

Mishra said while the price-to-earnings (P/E) multiple is higher compared to historical averages, it is not expensive compared to global equities.  The June quarter earnings results have turned out to be one of the best in three years, with aggregate earnings seeing no cuts, he said.

“The market as a whole is not expensive on a relative basis, and while cuts should resume, we could still see double-digit earnings per share (EPS) growth in FY19,” Mishra said.

Credit Suisse also believes the economic growth forecasts of 7.5 per cent for next year could be difficult to achieve. However, the environment has become far less uncertain.

“Structural reforms have weakened near-term visibility on most macroeconomic parameters. While the windscreen should clear up through 2018, we believe growth could still be weak,” said Mishra adding that weak agricultural income growth could hamper consumption demand.

Credit Suisse said next year could be more volatile with elections in as many as eight states. “As the 2019 general elections get closer, state elections are likely to get more market attention,” said Mishra.

Globally, the US Federal Reserve is shrinking its balance sheet but the European Central Bank and Bank of Japan would continue to maintain easy monetary stance at least in the first half of 2018, he said. “Only inflation can change central bank behaviour. Inflation continues to remain benign.”

Credit Suisse said it has changed its sector preferences compared to the year-ago period. At the start of the year, the brokerage was overweight on financials and private banks. The stance has been reduced to underweight on the former and neutral weight on the latter. 

Credit Suisse has turned overweight on public sector banks (PSBs). Mishra said it will look for quality names within the PSB space. 

The brokerage has overweight position on energy, metals and IT as well. It is underweight on non-banking financial companies, cement, discretionary and staples.