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The Indian equity market recovered sharply in last month and outperformed most other equity markets. As a result, India’s PE valuation premium increased again compared to its peers. CS expects India’s relative valuation to remain elevated, supported by its improved macro fundamentals and relative attractiveness. However, geopolitical risks and recession fears amid aggressive tightening by major central banks are key headwinds that could lead to heightened volatility in the near term, it said. Against this backdrop, some caution and risk management are warranted as India’s valuation premium is still elevated, the brokerage added. CS said it would remain defensive in the near term and prefer companies with high domestic exposure. It prefers sectors such as financials, healthcare, autos, and FMCG in the near term.

Credit Suisse said the CPI inflation in India was largely unchanged MoM, and in line with consensus. Incremental inflation pressure eased largely, helped by excise duty cuts and a fall in palm oil prices. With pricing pressures moderating, and the monsoon progressing well, the urgency of rate hikes could wane, and the RBI may adopt a less aggressive monetary policy. Nevertheless, the key risk is higher oil prices and the impact of rupee weakness on imported inflation that needs to be closely monitored.


"We close our negative view and turn neutral on bonds across the yield curve as we believe inflation could not be a major worry, and the RBI could be less aggressive. We continue to prefer investing into debt instruments where credit spreads are attractive," CS said.

The rupee fell to an all-time low against the dollar due to the strengthening of the dollar, FPI outflows, and concerns over the worsening of India’s balance of payment (BoP) position. India’s BoP in Q4FY2022 fell into deficit for the first time since the taper tantrum, and at –$16 billion, it was the second highest ever. More importantly, it is expected to widen further in case the oil prices remain elevated. According to CS' macro strategist, India could run a BoP deficit of $50 billion in FY2023 if oil prices average around $120 per barrel for the fiscal year. While this could remain an overhang on the rupee, India’s healthy forex reserves may help to prevent a sharp depreciation, CS said.

Gold prices declined 7.7 per cent in the past four weeks as a stronger dollar and aggressive tightening by central banks weighed on gold. Against this backdrop, investor outflows from gold ETFs accelerated over the last month. The risk-reward appears well balanced for gold. On the one hand, aggressive rate hikes could weigh on gold prices, while on the other hand, recession fears will likely support gold on the downside. CS' commodity team maintains a neutral view on gold with a 12-month forecast of $1,750 per ounce.


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