Small investors ahoy! Global investment banks are telling their clients to take profits from India

• Goldman Sachs, Morgan Stanley, UBS and Nomura have slashed India rating, citing expensive valuations.
• Analysts feel the risk-reward for Indian equities is less favorable at current levels.
• But if Indian bonds are included in the global bond index, it could lead to a sudden influx of $15-20 billion dollars into India.
• Check out the last news and updates on Business Insider.

The Indian share market has given the most amount of returns, as measured by the Nifty and the Sensex, for those who have held their stakes since the start of this year, compared to anywhere in Asia.

Now, it’s time to book profits, say global investment banks like Goldman Sachs, Morgan Stanley and UBS, who have cut their rating on Indian equities.

Goldman Sachs has also downgraded its rating on Indian equities from ‘overweight’ saying the risk-reward ratio is not as favourable, any more, as it was in November last year.

Morgan Stanley has said that the stocks have peaked and the returns may not be as exciting in the next 3-6 months. Rising inflation both in the US and India may hurt Indian stock markets. The analysts at Morgan Stanley said that they expect the Reserve Bank of India (RBI) to increase interest rates in February 2022.

Inflation has been a cause of concern for many companies this earnings season including consumer goods giants — including Marico, Nestle, Hindustan Unilever, Britannia and Parle to name a few ⁠— that may have to pass on more price hikes if inflation remains high. In fact, consumer product companies are unable to hike prices to cover the entire rise in costs and that has led to shrinking margins for many.

The risk of a mutant virus that is resistant to vaccines is the biggest downside risk, as it might leave the government no choice but to roll out new mobility restrictions, say analysts at UBS.

More restrictions would mean several pockets of the economy would be forced to halt physical operations leading to slowdown in economic activity.

What could turn the tide in India’s favour?

A correction in the market typically means either a fall in prices or they remain stagnant or rangebound for a while. The latter is also called ‘time correction’. But there could be other factors that could come into play too.

For instance, India has been pushing to get its bonds included in the global indices. UBS emerging markets strategist Rohit Arora has said that it is possible in early 2022 while Bloomberg has noted that these decisions are usually announced in September.

If it happens, India could see a foreign fund inflow of $15-20 billion and that could be a big mover for the equities too.

What is a global bond index?

Think of a global bond index like the Sensex but for bonds. And India wants its debt to be a part of it. It adds a stamp of credibility, and the rating denotes repayment capacity, which will draw more foreign investors to buy government debt. India will be able to borrow money at a cheaper rate than what it does now.

SEE ALSO: Droom files for ₹3,000 crore IPO ⁠— the online car dealer wants ₹400 crore for acquisitions

he mystery behind the fall in Tata Steel’s shares despite a seven-fold rise in profit