Nomura raises India exposure to 19% from 18.2%; likes RIL, Axis Bank, ICICI Bank

Global brokerage house Nomura has increased its exposure of Indian equities in its Asia ex-Japan portfolio, maintaining an overweight position on Indian stocks despite high valuations.

India now holds a weight of 19 percent, up from 18.2 percent in September 2023, in Nomura's portfolio. The brokerage views India as a significant, liquid market that can act as a counterbalance to North Asia in the event of a Western slowdown and China's recovery falling short. Nomura sees India as home to high-quality/growth stocks, less vulnerable to a global trade slowdown.

For 2024, Nomura prefers India, considering economic, earnings, political, easing, sectoral cycles, structural growth prospects, geopolitical risks, and equity market liquidity.

Read here: Nomura upgrades India to 'overweight' from ‘neutral’; here's why

"Structurally, we would be buyers on dips assuming political/policy continuity, and Korea and China (both tactically into Q1 at least). In ASEAN, our preference is Thailand (we remain Neutral), while we downgrade Indonesia to Underweight," said the brokerage.

Among stocks, Nomura highlights Reliance Industries as its largest exposure in Indian stocks with a 4.5 percent weightage, followed by ICICI Bank (3.5 percent), Godrej (2.5 percent), Axis Bank (2.5 percent), Mahindra & Mahindra (2.5 percent), Larsen & Toubro (1.5 percent), UNO Minda (1.5 percent), and Fortis (0.5 percent).

Nomura also outlined the potential risks for the Indian stock market in 2024 from the China rotation and stretched government finances leading to populism, higher taxes, and lower government capex.

While acknowledging the vulnerability of Indian equities to pullbacks due to high valuations in a global "risk-off" scenario, Nomura expects any underperformance to be temporary. The firm identifies elevated oil prices as a major risk but notes recent bond inclusion should help mitigate the impact.

Read here: Nomura upgrades China's YoY GDP growth forecast to 5.1% in 2023 vs 4.8% prior

Nomura also expects modest returns in Asian ex-Japan equities in 2024, supported by strong earnings growth, stabilized valuations, a softer USD, and a favorable fund flow environment. However, it warns of potential volatility in the year ahead.

"Our base case is slower global growth, moderating inflation (and thus peak Fed rates), a mild US recession in H2 (and thus Fed rate cuts in 2024), but more growth supportive measures from China (but not enough for a meaningful recovery in China’s growth/property sector), and a continued chip/tech sector recovery in 1H24. If this view is indeed correct, we expect a pullback in Asian stocks during the middle of 2024, but recovery in Q4 through a mild recession, but overall positive returns in 2024," Nomura said.

Nomura also suggested that a mild US recession could serve as a 'clearing event' for stocks, leading to a better flow environment. Any sell-off in Asian stocks due to global macro factors would be viewed as an opportunity to increase exposure, especially in structural growth areas. The firm emphasizes the importance of sector and stock selection, as well as agility, for achieving outperformance in the evolving market conditions.

Read here: 'Cautious of headwinds to domestic demand; inflation to average 5.7% in 2023'

Key sources of uncertainties stem from US inflation/growth/policy outlook; China’s growth issues/policy outlook; and political cycles in Asia and the sustainability of AI/semi/chip cycle recovery beyond H1-CY24, it warned.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.