Reliance, ICICI Bank, M&M among Nomura’s top picks

Nomura has maintained an overweight rating on India in its Asia ex-japan portfolio while stating that Asian markets have the potential to outperform global peers.

According to Nomura’s latest report, Reliance Industries (RIL), Infosys, ICICI Bank, Mahindra & Mahindra (M&M) and Dr Reddy’s are its preferred picks in the Indian context.

The global research and brokerage had cut the Nifty50 target to 15,340 for March 2022 (earlier target was 14,680 by December 2021), which it has retained for now.

Nomura said, going ahead, markets will focus more on corporate earnings rather than the broad economic growth in India. If the broader economic growth sustains above a threshold, India Inc, Nomura feels, can deliver on earnings through improved profitability.

“Top down, we think equities still appear attractive relative to bonds — until yields go higher to a level where bonds start becoming attractive (possibly +2 per cent). Investors appear too cautious on Asia equities, but we think Asia has the potential to outperform in global portfolios," wrote analysts at Nomura, led by Jim Mccafferty, joint head of Asia-pacific (APAC), equity research.

Nomura’s end-2021-22 target for MSCI Asia– ex Japan is 900-974 on expectations of continued earnings recovery in FY21-22. This translated into a return of 27 per cent to 38 per cent from the current levels where the index currently is. But it cautions against the risk of a short-term pull-back if inflation overshoots and the policy normalisation narrative gains strength. On an overall basis, Nomura remains constructive on Asian equities from a medium-term perspective.

Inflation and commodity prices; taper talks and rates outlook; earnings disappointments, especially from the technology sector in Asia; regulation, higher taxes and rising social tensions in the Asian region; and Covid infections are the key risks to their stance on Asian equities.

Its preference still remains towards North Asia over South/south East Asia. The former, it believes, is more resilient to higher rates/inflation/tapering and Covid outbreaks — and has stronger fiscal buffers and more exciting longterm themes to offer.