JP Morgan elevates India's status to 'overweight' as it becomes increasingly attractive to investors

JP Morgan's decision to upgrade India to an "overweight" rating highlights the country's increasing allure for investors. The brokerage's move includes the addition of three major stocks – Sun Pharmaceutical Industries Ltd, Bank of Baroda, and Hindustan Unilever – to its Emerging Markets (EM) Model portfolio. This upgrade aligns JP Morgan with other renowned global brokerages like Morgan Stanley, CLSA, and Nomura, which have also shifted India to an "overweight" status.

Numerous factors contribute to this upgrade, including the positive seasonality associated with general elections, robust growth in emerging markets' nominal GDP, and the expansion of the domestic bond market, which is expected to reduce risk premiums.

JP Morgan's upgrade rests on both cyclical and structural considerations. On the cyclical front, it capitalizes on near-term correlations and market dips as opportunities.

Structurally, India's strong case is reinforced by robust nominal GDP growth driven by demographic trends and infrastructure investment requirements, competitive risk-adjusted returns in comparison to developed markets, and a burgeoning domestic bond market. However, the brokerage acknowledges that emerging market equities may face challenges as US long rates rise, and the dollar's influence affects growth and rates.

JP Morgan suggests that a sustainable demand for emerging market equities may only materialize once the US completes its cycle, which could include a GDP recession and rate cuts.

The inclusion of Sun Pharmaceutical Industries Ltd, Bank of Baroda, and Hindustan Unilever in its EM Model portfolio underscores JP Morgan's confidence in India's growth potential and its commitment to seizing emerging market opportunities.

This move by JP Morgan follows the endorsement of India's growing prominence by other major brokerages. Morgan Stanley previously upgraded India to "overweight" due to improved economic and earnings growth. CLSA increased its India portfolio allocation by 20 percent, and Nomura upgraded India to "overweight" in September, citing a strong top-down narrative and potential benefits from the China 1 trend.

In addition to upgrading India, JP Morgan has also elevated Saudi Arabia to "overweight" due to factors like premium oil prices, uncertainty, a strong dollar, and equity market de-rating. Conversely, it has downgraded South Korea to "neutral" due to profit-taking, higher US rates, slowing demand, and less accommodative monetary policy.

JP Morgan has outlined its plans to allocate its risk budget to overweight China, alongside Saudi Arabia and India, driven by China's attractive growth momentum, low investor positioning, and favorable valuations.