BCA tells its clients to stay short India, long China stocks
Investing.com -- BCA Research analysts, in a note dated Friday, are advising their clients to take a tactical stance by going short on Indian stocks while adopting a long position on Chinese equities.
The brokerage’s recommendation comes amid a forecast of weakening corporate profit growth, credit contraction, and fiscal tightening in India, which are expected to lead to underperformance in the Indian stock market over the next six to nine months.
BCA's analysts argue that Indian equities, while having reached new highs recently, are now on shaky ground. They warn that high valuations and diminishing corporate profits will likely cause stock prices to retreat significantly in the months ahead.
The tight monetary policies enacted by India's central bank, combined with stringent fiscal measures, are constraining domestic liquidity.
This situation will continue to weigh on corporate earnings and profit margins, particularly as rising costs erode the gains seen from the past two years of subdued input prices.
India’s credit cycle, which had supported household consumption and corporate investment, has turned negative, adding further pressure to the country's growth outlook.
BCA notes that real interest rates remain elevated even as inflation has declined, effectively dampening credit growth. With credit conditions tightening and private consumption already growing at a tepid pace, the brokerage foresees further economic deceleration.
In contrast, BCA sees more promising opportunities in China, where recent government stimulus measures have provided a much-needed boost to the stock market.
China's equity valuations are lower compared to India’s, and the country’s economic policies are now geared towards stimulating growth after a prolonged period of underperformance.
For international investors seeking relative value within emerging markets, BCA recommends taking a long position in Chinese A-shares while shorting Indian equities.
Source: Investing.com
