UBS Upgrades India to Neutral Amid Global Trade Tensions
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Synopsis
On April 24, UBS Group AG upgraded India's investment rating to 'Neutral' from 'Underweight' due to strong domestic revenues and resilience in EPS. While concerns about stock fundamentals and high valuations remain, India's economy benefits from declining oil prices and a growing preference for defensive shares.
Key Takeaways
- UBS upgraded India's rating to 'Neutral'.
- Strong domestic revenues and EPS resilience noted.
- Benefits from falling oil prices.
- Concerns about stock fundamentals and valuations persist.
- Global investors view India as a safe haven.
New Delhi, April 24 (NationPress) The global brokerage firm UBS Group AG has elevated India's status to 'Neutral' from its previous 'Underweight' designation in its updated equity strategy for emerging markets. This shift follows the uncertainties in international trade prompted by the significant tariff increases declared by US President Donald Trump.
UBS recognized India's strengths, highlighting its robust domestic-oriented revenues, resilience in earnings per share (EPS) even during challenging times, and potential benefits from falling oil prices.
Moreover, the Indian economy is receiving additional support from the increasing readiness of banks to reduce deposit rates, despite sluggish deposit growth, alongside possible government initiatives aimed at stimulating consumption.
The brokerage is becoming increasingly optimistic about the Indian market, as there is a growing preference for defensive and domestically-focused stocks, as noted by UBS strategists, including Sunil Tirumalai, in a note released on Thursday.
"While valuations still appear high in comparison to typical fundamental performance of companies, India stands out as a defensive option amid trade uncertainties due to its domestically-focused economy, while also benefiting from lower crude oil prices," the analysts emphasized.
This upgrade arrives as global investors are viewing Indian assets as a relatively safe haven, with local stock indices swiftly recovering losses after the initial shock following the announcement of US tariff hikes.
However, UBS maintains a cautious stance due to perceived lackluster stock fundamentals. The brokerage is also not entirely convinced that India will be a clear beneficiary of the global supply chain adjustments expected during the ongoing trade conflict.
Concerns regarding valuations remain, with UBS observing that Indian equity valuations are significantly elevated compared to historical averages. The brokerage is closely observing trade negotiations, especially in sensitive sectors like agriculture and retail.
In the meantime, UBS has downgraded Hong Kong stocks to neutral from overweight, as the tariff risk may dampen market sentiment, given the market's considerable trade reliance and index exposure to US revenues.
Additionally, UBS upgraded Indonesia to overweight from neutral, citing its domestic and defensive characteristics, with valuations nearing Covid lows and potential backing from state-owned funds.
UBS has held an underweight rating on India since 2022. In April of last year, they had upgraded Chinese stocks to overweight, citing a promising earnings outlook and the potential for increased participation by domestic investors.
