Betting big on cyclicals, Credit Suisse 'overweight' on market

Even as the market closed the first week of the new year in deep red, leading global brokerage Credit Suisse today said it is "overweight" on domestic equities as the cyclicals are set to outperform defensives driven by the forthcoming elections.
The brokerage, however, stopped short of forecasting a Sensex or Nifty target for the year. Many brokerages had in November and December pegged the the Sensex target at over 23,000 and the Nifty at over 6,700 crore this calendar year.
In a report, wherein it revised upwards the EPS target of the domestic stocks, Credit Suisse research analyst Sakthi Siva said the brokerage is "overweight" on the country, and noted that the return from the domestic market is at an "inflection point" after three consecutive months of upgrades in consensus earnings-per-share (EPS) forecasts.

She also based the optimism on the forthcoming general elections, which the report termed as "a potential catalyst for an inflection point for investors".
Siva said going forward, the market rally will be driven by the cyclicals which could continue to outperform the defencive stocks.
"Our 'overweight' call on India is based on the general elections as a potential catalyst for an inflection point in return on equities. While the polls are still months away, we believe there is support for our call on inflection point from recent EPS revisions," Siva said, adding that there is support for its call on inflection point from recent EPS revisions.

"We believe valuations, EPS revision trends, and rises in US bond yields and the ISM (Institute for Supply Management) suggest cyclicals could have further to outperform," Siva said in the report dated Thursday.

Its domestic top picks include the cyclicals of technology, energy, materials, consumer cyclicals and industrials. From a stock specific point its top pick are HCL Technologies, Wipro, Tata Motors, Reliance Industries, Sesa Sterlite and Cairn India.
The market breadth also looks good with eight of the 11 sectors associated with either flat revisions or upgrades to the 2014 consensus EPS in December, the report said.
Noting that the cyclicals could continue to outperform defencive stocks, it said price-to-book gap between the cyclicals and the defensives has narrowed both in the Asian region as well as in the country. It also said the EPS gap between the two at -4.2 times now is the biggest in the region.