Nomura raises India exposure to 19% from 18.2%; likes RIL, Axis Bank, ICICI Bank

livemint.com:

Reliance Industries as its largest exposure in Indian stocks with a 4.5 percent weightage, followed by ICICI Bank (3.5 percent), Godrej (2.5 percent), Axis Bank (2.5 percent), Mahindra & Mahindra (2.5 percent), Larsen & Toubro (1.5 percent), UNO Minda (1.5 percent), and Fortis (0.5 percent). Nomura also outlined the potential risks for the Indian stock market in 2024 from the China rotation and stretched government finances leading to populism, higher taxes, and lower government capex.

While acknowledging the vulnerability of Indian equities to pullbacks due to high valuations in a global "risk-off" scenario, Nomura expects any underperformance to be temporary. The firm identifies elevated oil prices as a major risk but notes recent bond inclusion should help mitigate the impact.

Nomura also expects modest returns in Asian ex-Japan equities in 2024, supported by strong earnings growth, stabilized valuations, a softer USD, and a favorable fund flow environment. However, it warns of potential volatility in the year ahead.

"Our base case is slower global growth, moderating inflation (and thus peak Fed rates), a mild US recession in H2 (and thus Fed rate cuts in 2024), but more growth supportive measures from China (but not enough for a meaningful recovery in China’s growth/property sector), and a continued chip/tech sector recovery in 1H24. If this view is indeed correct, we expect a pullback in Asian stocks during the middle of 2024, but recovery in Q4 through a mild recession, but overall positive returns in 2024," Nomura said.

Nomura also suggested that a mild US recession could serve as a 'clearing event' for stocks, leading to a better flow environment. Any sell-off in Asian stocks due to global macro factors would be