India valuations expensive; inflation may hit US growth too: Credit Suisse

Suresh Tantia, Senior Investment Strategist, Credit Suisse, on Tuesday, said that he is cautious on India due to expensive valuations. He explained that as yields rise, there will be some pressure on the Indian market. Highlighting sectors, he shared that he would focus on banks, oil and material companies in India.

He said, “On India, I am a bit cautious because although structurally it’s a very good market but the valuation is expensive. In fact, the Indian equity market is trading at a higher valuation than S&P 500 and with the RBI withdrawing its accommodative stance at policy, I think going forward as yields go higher, we are going to see some pressure on the valuation of the Indian equity market.”

Tantia pointed out that it is likely that commodity prices will go higher, hence Credit Suisse is looking at commodity-linked markets like Brazil. Within Asia, he expects a recovery in the Chinese market going forward.

“In the emerging markets, we are looking at two strategies- one is to focus on commodity-linked markets like Brazil, which are benefiting from higher commodity prices. In Asia, we are focusing on China because it is a bombed-out market, down substantially this year and last year and given the policy easing by authorities, going forward, you should see a recovery in China equity market,” he said.

He believes that a slowdown in growth may be in the offing, especially in Europe due to the Russia-Ukraine crisis. He explained that due to higher inflation, US growth might also be impacted. However, Tantia clarified that he doesn’t expect the US to be hit by the recession.

“It is likely that growth will slow down going forward, especially in Europe which is suffering from its linkage to the Russian economy and what is going on in Russia and Ukraine is going to have a substantial impact on the European economy," he mentioned.

"Even in the US economy, we will see some slowdown. Given the higher inflationary pressure, consumer confidence in the US has been falling and that is a sign that going forward, growth will slow down, but that doesn’t mean we are going into a recession. The global economy, this year, will still grow above the last 10-year trend. So growth will slow down but we still will be seeing above-trend growth this year and next year,” added Tantia.