It’s time to take some risk, says Credit Suisse.
Risk aversion among Indian stock market investors at present is the highest since the US investment bank Lehman Brothers collapsed in September 2008, strategists at Credit Suisse said.
Factors like a worsening debt crisis in the euro zone, fears of a double-dip recession in the US and a high rate of inflation, in addition to the high interest rate regime in India, have reduced the lure of stocks this year. The Bombay Stock Exchange (BSE) benchmark, the Sensex, has declined nearly 18 per cent in this year so far, making India the third-worst-performing market in Asia. The present low level of risk aversion is an opportunity to buy selective stocks, reckon Credit Suisse strategists.
“Risk aversion is the highest it has been in a decade, except in the two months after the ‘Lehman moment’. Given that such a catastrophe is not a certainty, further de-risking for the market may be unlikely,” said Neelkanth Mishra and Karthik Visvanathan, strategists at Credit Suisse, in a note to clients.
“This does not rule out further declines for the market. However, notwithstanding the recent bounce, taking risks selectively could yield healthy returns,” they added.
Credit Suisse strategists advise investors to reduce holdings of low-risk expensive stocks and add riskier but cheap ones in their portfolios. “While it seems to be a consensus now that the developed world economies are likely to see sustained slow growth in the coming years, it is by no means certain that a series of bank failures is imminent,” they said.
Credit Suisse strategists have recommended stocks like JSPL, RIL, Axis Bank and Crompton Greaves to their clients, which they believe have borne the brunt of risk aversion, despite healthy fundamentals.
Suresh Mahadevan, head of India equities at UBS Securities, believes one of the biggest concerns of the Indian stock market is that selling from foreign institutional investors (FIIs) has not happened on a significant scale yet. “Adjusted for market performance, inflow into Indian equities in 2010 was the highest among Asian markets, at about 10 per cent of market cap, which would imply the greatest vulnerability to a reversal,” Mahadevan said in a market strategy note. “In the absence of severe FII outflows, Indian markets should find support at current levels. However, if we see significant FII outflows, we believe Nifty/Sensex could correct further by 15 per cent to 20 per cent in our bear-case scenario.”
After pumping in Rs 1,33,266 crore ($29.4 billion) in the Indian stock market last year, FIIs have invested Rs 1,935 crore ($494 million) in this year so far, data available on the Securities and Exchange Board of India website showed.
