The brokerage has cited “cyclical and structural” concerns for its UW stance on healthcare.
has announced major changes to its sectoral preferences. The brokerage has gone neutral on information technology (IT), from a strong overweight (OW), citing high valuations and a relatively muted growth forecast.
It has also cut its stance on health care from OW to underweight (UW).
On the other hand, it has turned bullish on banking stocks, which have been laggards this year.
“After a 37 per cent bounce, the relative price-to-earnings (P/E) is now the highest since 2013, and the gains going forward are likely to be growth-dependent, which appears unlikely to break out of the 10-12 per cent range,” said Credit Suisse
strategists, led by Neelkanth Mishra, in a note.
In June, the brokerage had turned bullish on IT, citing low P/E ratio. The IT sector
is the only sector to see earnings upgrades for FY21 and FY22.
said “these are not substantial enough to drive sustained outperformance”.
The brokerage has cited “cyclical and structural” concerns for its UW stance on health care.
“The medium-term concerns are about more price competition and the changes in business models of Indian pharmaceutical companies from branded generics to more proprietary/specialty pharma, which is necessary to maintain growth but warrant lower multiples,” it said.
Credit Suisse has turned bullish on banks as it believes the space may see a re-rating and earnings upgrades.
“We have strong overweight positions on banks. Private and PSU banks
were a rare sector that de-rated year-to-date. Going forward, they are likely to benefit from re-rating, as well as earnings upgrades. While private bank trailing P/B vs the market has bounced from a discount, it is still very much below the highs seen last year,” it said.
The brokerage highlighted that earnings for FY21 and FY22 are beginning to see upgrades led by banks.
Metal is another sector Credit Suisse is overweight on. It is neutral on energy, telecom, staples, and utilities. It is underweight on NBFCs, industrials, cement, and consumer discretionary.