Credit Suisse just went ‘overweight’ on India⁠ — says the pandemic is “no longer a factor”

• The global investment bank is essentially advising investors to put more money in India compared to other markets.
• The money will move from the funds withdrawn from China and Thailand, which Credit Suisse has downgraded.
• Credit Suisse expects faster credit growth and lower interest rates in times to come.

International investment bank Credit Suisse just upgraded its rating on the Indian market to “overweight”. It essentially means that it advises investors to put more money in India compared to other markets.

The money will move from the funds withdrawn from China and Thailand, which Credit Suisse has downgraded to “Market Weight”. This could lead to further bolstering the bull run in the Indian stock market where the Sensex and Nifty have gained nearly 10% since the beginning of 2021.

There are many reasons for this upgrade. “The upgrades reflect our expectation that economic and earnings recoveries are just starting their most rapid phases for the two markets,” the report said, adding that “the pandemic is no longer a major factor.”

The rationale cited above would hold good for both India and Australia. "India looks much better positioned cyclically and relative to the pandemic. India suffered a severe outbreak but has seen a dramatic drop in infections, likely due at least in part to achievement of herd immunity in some locations," it added.

A couple of other projections that may be significant, include:

• The credit cycle is at an earlier stage than, perhaps, all other APAC markets.
• The scope for rate cuts is greater than in perhaps every other market save Indonesia.

Faster growth in credit is good for both banks and non-banking financial companies, where the stocks have already run up significantly. Bank Nifty is up 21.5% since the budget proposals were announced. More loans invested in productive businesses also lead to a virtuous cycle of economic growth.

In India, credit growth had slowed down sharply even before the pandemic had hit.

While the Reserve Bank of India has interest rates intact in recent monetary policy reviews, Governor Shaktikanta Das has reiterated that the central bank will keep its stance “accommodative”. In other words, push for more economic growth via more money supply and credit, and worry less about the resultant inflation.

If the RBI does cut rates, as projected by Credit Suisse, then it will result in cheaper cost of funds for the lenders and lower interest rates for businesses and consumers.

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