UBS Securities cautious on India's high valuations, foresees 'mild' US recession in 2024

UBS Securities' Sunil Tirumalai is cautious about Indian equities in the global context. Despite India's rapid economic growth, he notes that "Indian stocks are not the frontrunners in terms of earnings growth, but they have outperformed significantly when it comes to valuations."

In an exclusive chat with CNBC-TV18, the brokerage firm's Emerging Markets and India Strategist highlighted the disparity between the fundamentals and the elevated sentiment-driven valuations. Emerging market stocks listed in India, he noted, have seen an 80% valuation increase post-pandemic, a substantial jump from the 30% premium observed pre-pandemic. This surge can be attributed to an influx of domestic savings into the market during the pandemic.

UBS Securities maintains a watchful approach, considering the challenging environment for Indian stocks to outshine their emerging market peers.

The brokerage firm forecasts a modest recession in the United States, extending into 2024. "It's not a very deep recession, but we definitely are below consensus in terms of what our economic outlook in the USA is, " Tirumalai said.

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Vishal Goyal, Head of Research & Banks Analyst at UBS Securities India, highlighted the banking sector's declining credit costs over the past few years.

"For the last three or four years, we are only seeing credit cost decline, and that is on the back of the non-performing liability (NPL) cycle peaking and we have seen some lumpy recoveries also in the last few years, which has supported credit costs," said Goyal.

Tirumalai mentioned, “Over the course of this year, we have seen the auto sector has done well, and we have turned a bit cautious on some of the stocks.”