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Deutsche Bank cuts Indian equities to neutral

LiveMint logoLiveMint 23-05-2014 Ami Shah

Mumbai: Deutsche Bank AG downgraded Indian equities to “neutral” from “neutral/overweight”, saying the valuations appear very stretched, and the market was taking too much for granted.

MSCI India is marginally cheap against its 10-year history, but is now about 7% expensive relative to other emerging markets, which appears excessive given the sharp slowdown in the economic growth over the past three years, Deutsche Bank analysts wrote in a note on Thursday.

“The most obvious result of the sharp rally in Indian equities has been to push valuations up at a time when the underlying economic fundamentals appear to have continued to worsen,” Deutsche Bank analysts John-Paul Smith, Priyal Mulji and Punyadip Cheema wrote in the note.

“The recent election may well mark the start of a paradigm shift, but it is too early to tell,” they added.

This is the first downgrade of Indian equities after the election results on 16 May showed a landslide win for the Bharatiya Janata Party (BJP) at the polls in the world’s largest democracy.

The BJP, led by Narendra Modi, won 282 seats, giving it a simple majority in the lower house. The National Democratic Alliance (NDA) that it heads won 336 seats. Many foreign brokerages had raised their target for Indian equity indices after the results.

India’s benchmark equity index—S&P BSE Sensex—has risen 23.2% since 13 September, when BJP announced Narendra Modi as its prime ministerial candidate, outperforming the MSCI Emerging Markets Index, which logged a 5.1 % gain in the same period.

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