Global credit rating agency Standard & Poor's has indicated that Indian stock markets are overvalued currently, recommending underweighing of the markets next year.
Besides India, S&P Equity Research is also recommending underweighing of Japanese markets, while overweighing South Korea, Taiwan and China (H-shares) next year.
In general, the global credit rating agency in a report said the New Year would bring more risks and volatility for investors in India and other markets of the Asia Pacific.
The risks would be caused by higher financing costs, accentuated corporate borrowing and higher M&As activity, despite the general trend remaining strong, the report titled 'Asia Pacific Markets Outlook 2007' said.
The credit agency expects economic growth in the region to outdo most other regions next year as well.
This will be underpinned by a growth recovery in Japan, continuing momentum in China and India, and growing intra-regional trade, which will offset the impact of a slowdown in the US, it said.
S&P (APAC) Equity Research Vice President Lorraine Tan however said, "after such a spectacular performance in the second half of 2006, there is less upside potential for Asian markets in 2007. Corporate earnings should be supported by strong domestic consumption, but tighter liquidity will have a dampening effect on regional stock markets."
The outlook combines the agency's expectations for equity markets, credit quality and economic performance across the region.
This will encourage greater corporate leverage, deepen the high-yield market and fuel an already over-heated M&A market, it said.
