Nomura is bearish on India, feels inflation may worsen

Crude oil prices have been ruling markets globally, but foreign institutional investors continue to cold shoulder emerging economies, including India. Ian Scott global head of equity strategy with Nomura says he prefers developed markets to emerging ones. Nomura has, in fact, cut its exposure in emerging market since the first week of December, moving from an overweight view to an underweight one.

On the rationale behind his stand on emerging markets, he says, "The inflationary backdrop here is bad and is probably going to worsen before getting any better. Also, valuations have been a little stretched, especially in India. The gap in PE multiples between India and other emerging markets (particularly China) needs to narrow down." He feels it is too early to come back to Indian markets; "the relative valuations are still high here and there is still some adjustment to take place in terms of monetary policy. We may see some near-term pressure on margins as a result of higher cost as well," he says. Talking about the impact of the recent Middle East crises on emerging markets, Scott says these geo-political concerns have had an effect on equity markets particularly some of the big oil importers like India. "Investors are more concerned about the geo-politics than high oil prices. I think stock market can live with oil above USD 100 a barrel if we could get rid of some of the concerns on the geo political side," he adds. Find out: Where does Nomura stand on emerging market vs developed market debate?