Indian stocks outperformed their global peers in January even as domestic indexes fell as overseas investors withdrew funds amid concerns over inflation, withdrawal of stimulus and rate hikes by the Reserve US Federal.
“While Indian equities have corrected from the peak, they are still outperforming given a steeper fall in global equities,” Credit Suisse said in a note. In January 2022, Indian stocks were down 2% in US dollars, but outperformed their global peers by 3.5% as they fell further, he said.
The price-to-earnings premium has also returned to near highs, as it was in September 2021, Credit Suisse said. “India’s P/E premium to the world, which had fallen to 21% in November 2021, rebounded again to 33%, at the top of its 10-year range.”
Continued volatility in global markets, according to Credit Suisse, should also put pressure on Indian equities and, despite a low correlation to US inflation and rates, set the market up for further downside.
“The pattern of monetary/fiscal easing that global markets have grown accustomed to at the first signs of economic weakness is unlikely to work over the next six to 12 months,” he said. “This uncertainty, as much as higher US rates, means more short-term downside.”
The note referred to historical data to show how Indian stocks P/E changed during high, low and normal inflation in the US “With market P/E capped or likely to fall during periods of high inflation. US over the past decade, P/E multiples could fall faster than a rise in 12-month forward earnings, putting pressure on markets until earnings catch up,” he said. he declares.