The brokerage said daily case counts in India have increased from the lows of 32,000 to about 42,000 now, which is almost entirely driven by an increase in cases in Kerala. Yet, daily infections in major cities such as Mumbai, Surat, Nagpur and Varanasi have risen recently and the pace of decline in cases has slowed almost everywhere else, said JP Morgan.
“If fatality remains low (as it has in the UK), then local governments may not impose significant restrictions. Markets may then look through an increase in infections – hoping the third wave recedes like the first and second did,” said JP Morgan.
MSCI India’s one-year forward price earnings is now 79% higher than MSCI EM.
JP Morgan said a third wave may hurt domestic-focused sectors but it is bullish on banks, auto and real estate sectors as potential reopening or monetary policy beneficiaries.
Overall, earnings surprise momentum for the market is likely to worsen on higher expectations and adverse base effects, said JP Morgan.