JPMorgan upgrades India to 'Overweight', adds 3 stocks to EM portfolio

JPMorgan has upgraded India equities to 'Overweight' from 'Neutral' earlier and asked investors to use any near-term correction as an opportunity to add and and leverage on a positive historical seasonality to general elections. The global brokerage said India offers the strongest emerging market (EM) nominal GDP compounding (demographic trends, infrastructure investment needs) and has competitive risk-adjusted returns to developed market (DM) equities. A deeper domestic bond market should support lower risk premia, it said.

JPMorgan said it has added Sun Pharmaceuticals Industries Ltd, Bank of Baroda Ltd , and Hindustan Unilever in its EM model portfolio.

"The road bumps for EM equities to outperforn increase primarily as US long rates move higher. The infamous USD smile has been an obstacle for EM equities on two levels. growth and rates. It seems that investors need to see the cycle completing in the US - GDP recession and rate cuts - before a sustainable bid for EM equities emerges," JPMorgan said.

The India rating upgrade by JPMorgan came in the backdrop of similar rating upgrades for the domestic market by other global brokerages. Morgan Stanley recently called India a 'Standout Overweight' CLSA has upgraded India's portfolio allocation to 20 per cent above the MSCI benchmark against 40 per cent underweight earlier. Besides, Nomura India also increased India's weight to 'Overweight' from 'Neutral'.

CLSA had identified eight positive drivers to underpin its 20 per cent overweight position. They included a return to superior relative profitability for India compared with other emerging markets, strongest economic growth across primary emerging markets and more manageable energy pricing due to discounted Russian crude.

The brokerage had suggested that a trend breakout in earnings per share (EPS) was being supported by GDP. A rebounding credit impulse is suggested robust equity momentum, the foreign brokerage had suggested.

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