A member of exchange staff uses a fixed-line telephone while looking at financial data on computer screens on the trading floor. Photographer: Jason Alden/Bloomberg.

Indian Equities Still Remain Unattractive, Says UBS’ Gautam Chhaochharia

The risk-reward ratio for investing in Indian equities is still not attractive despite the recent correction, said Gautam Chhaochharia, executive director and head of India research at UBS.

“The markets have corrected from very expensive valuations to less expensive valuations,” Chhaochharia told BloombergQuint in an interaction. “We are still staying away from commenting that the markets have de-rated sharply and therefore looking attractive.”

The benchmark NSE Nifty 50 Index corrected nearly 11 percent from its August peak on macro concerns such as rising crude oil prices, weakening rupee and uncertainties in the financial sector after the default at Infrastructure Leasing & Financial Services Ltd.

Yet, the 50-stock index remains expensive. The benchmark has a price-to-earnings multiple of nearly 21, the second highest among its Asian peers, Bloomberg data showed.

Chhaochharia expects the Nifty 50 to trade around 10,500 by the end of this year and around 11,900 in the “best-case scenario”. He also maintained his earnings growth forecast of 13 percent in the ongoing financial year. Chhaochharia said the rupee depreciation will not hurt earnings growth and that it is earnings accretive. “Many companies in the IT, pharma and metal sectors will benefit from the weaker rupee and translate it in their earnings.”

Yet, Chhaochharia said there’s nothing to panic yet in the macro front. “The current situation on the macroeconomic front is much better than that of 2013 and India is nowhere near to being termed as “fragile 5” even with oil at $85 a barrel.” Apart from crude and widening current account deficit, he said, India’s inflation structure is much better.

Also read: India’s Third-Largest Asset Manager Says Market Selloff A Value Buying Opportunity

Here are other highlights from the conversation:

On Oil Marketing Companies

  • The stocks will remain under pressure even if investors have a three-to-six-month view.
  • There will be less confidence on oil retailers until general elections.
  • The valuations, however, look attractive with a one-year perspective.

On Financials

  • Has an ‘Underweight’ view on non-banking financial companies.
  • Advises investors to be cautious and selective as the sector will witness growth and earnings cut in the next few quarters.
  • Individual companies with parentage and track record of still being able to borrow and having pricing power look good even as they can face some growth pressures.
  • Retail liability private banks look very attractive.

On Aviation

  • Has an ‘Underweight’ view.
  • With crude oil prices oil at $85 a barrel, the risk-reward ratio is still not attractive.

On RBI Monetary Policy

  • Expects a rate hike.
  • The RBI needs to take some counter inflationary actions.
  • Doesn’t expect the RBI to turn hawkish.

Watch the full conversation here: