Indian equities among worst in Asia-Pacific: Credit Suisse

Indian equities have delivered the third worst returns in the Asia-Pacific region since January. The underperformance is likely to continue given the relatively higher implied Return on equity ( RoE) amid downgrades in expected earnings per share, says Sakthi Siva, head of Asia-Pacifi c and global emerging markets equity strategy at Credit Suisse.

The Switzerland-headquartered brokerage believes that while investors are worried about China’s slowing economic growth.



But, India too is facing systemic risk, which has prompted the brokerage to reiterate ‘Underweight’ stance on the country. Credit Suisse has the biggest underweight on India along with Australia. There are two reasons why brokerage is underweight on India. First, the implied RoE of the market stands at 18.5 per cent as compared with actual RoE of 13.5 per cent, which suggests that there is a big disconnect between the asking rate indicated by the market for the corporate profi ts and actual fi gures. In addition to this, India’s price-earnings (P/E) premium to the Asia Pacifi c region has dropped from a high of 55 per cent in September to 46 per cent currently.

Historically, India has always underperformed once its premium to the region reach 50 per cent. The other reason is that India continues to witness signifi cant earnings downgrades. Even in February, India’s 2016 estimated EPS has been lowered by 1.7 per cent, the biggest within Asia-Pacifi c. India’s EPS has been reduced by 21 per cent as compared with a cut of 15 per cent for the region since beginning of 2015.