04 October 2010

Edelweiss: India Strategy - ride the tiger

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—  Facing weak domestic demand, US  and Europe are looking for weaker currencies to support trade sector
—  However, China is reluctant to allow meaningful RMB appreciation (Japan also worried about JPY appreciation). This could lead to trade tensions building up
—  For financial markets, it is concerns on growth Vs comfort of liquidity
Economic momentum in India remains on a strong footing
—  Robust industrial growth and healthy monsoons to sustain the growth momentum
—  Inflation concerns are easing; RBI embarking wait and watch approach
—  Credit growth on a recovery path; to further accelerate in H2FY11
However concerns remain
—  BoP situation remains a concern, with current account deficit on a widening  trend
—  Paper issuances an overhang but FII flows to remain supportive
—  Valuations vis-à-vis EMs appear higher but pace of earnings revisions also stronger
India on strong footing; growth propelled by consumption and capex
—  Consumption expected to be boosted by strong monsoons, easing inflation and rising salaries
—  In capex, power continues to be the dominant part with focus now shifting to operational capex such as mining and material handling, transmission towers, etc
Sectors to play
—  Consumption: autos, media, airlines, real estate
—  Capex: Material handling, earth moving equipment for mining, transmission towers for power evacuation

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