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India – Strategy (Batten down the hatches):
In all likelihood, 2011 will be a year of negative returns for Indian equities. Multiple domestic headwinds are gradually gathering pace. Growth in capital formation is faltering, the current account deficit is widening partly due to rising energy-import dependence, inflationary pressures are building up all over again, and policy rates are set to further harden. We worry that consensus growth estimates will see downgrades, and deterioration in the earnings mix will weigh down market valuations. With capital preservation as the key, buy into sectors and stocks with high growth visibility, good corporate governance and strong free cash flow generation. Valuation-based calls are unlikely to work, in our view, as the focus will be on delivery of growth expectations.
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