“We have been overweight India since mid-2013 when India joined the cheapest 4 club, but have trimmed that overweighting to just one per cent, as India joined the expensive 4 club. We are now trimming from one per cent overweight to a modest one per cent underweight. We emphasise that this is more of a tactical call based on valuations and that we still believe India's RoE (return on equity) is likely to rise in 2016,” said Sakthi Siva, head of Asia-Pacific and global emerging markets equity strategy at Credit Suisse.
Siva said the premium between India’s price-to-book value and RoE rose to 50 per cent. According to the report, this is only the fourth time in the past 15 years that the premium has increased to this level, with March 2006, December 2007 and January 2015 being the previous three occasions.
Credit Suisse downgraded four mid-cap Indian companies on valuations. It also has dropped Tata Motors, while Axis Bank and HCL Technologies remained its top picks in its regional portfolio.
According to Credit Suisse, the four most overvalued sectors in India are staples, healthcare, tech (largely Tata Consultancy Services) and industrials (largely Larsen & Toubro).