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India Equity Strategy
Color of Money: real rates approaching the sweet spot
for equities
• Liquidity eases: In line with expectations, liquidity has eased substantially
over the last fortnight. March has seasonally been the peak for liquidity
tightness. The improvement is reflected across a range of indicators – the
deficit in the daily LAF has come off markedly, call money and money
market rates have declined sharply, and the coporate yield curve has
steepened from an inverted position. Our upgrade of Financials to overweight
last month was premised on these developments. We reiterate our positive
stance.
• Special focus - real rates approaching the sweet spot for equities: With
normalization in monetary policy and stabilization in inflation over the last
few quarters, real interest rates have been inching up. Current real rates
though are low compared to the historical range and are expected to gradually
rise further over FY12. Real rates of ~ 1%-2% have historically been good for
sustained high returns from India equities. The current trend suggests that real
rates are headed toward this sweet spot during FY12. A pick-up in the
investment cycle is, however, a pre-requisite for sustained low inflation and
higher equity returns.
• Investor sentiment turning positive: Over the last month, FIIs turned buyers
(US$1.5 bn) after a two-month gap. Key indicators of investor sentiment have
also turned around. These include EMBI spreads, inflows into local mutual
funds, implied volatility and corporate fund raising. Our money flow monitor
suggests inflows into Financials, IT and Energy and outflows from Consumer
and Healthcare.
• Insider transactions: Insiders were net sellers over the month. The
breadth was positive too.
Net Buy: GMR Infra, HDF Bank, Axis Bank, HDFC, Lupin
Net Sell: Suzlon, ITC, Koyak Mahindra Bank, Indusind Bank, Piramal
Health Care, Jindal Steel & Power
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Equity Strategy
Color of Money: real rates approaching the sweet spot
for equities
• Liquidity eases: In line with expectations, liquidity has eased substantially
over the last fortnight. March has seasonally been the peak for liquidity
tightness. The improvement is reflected across a range of indicators – the
deficit in the daily LAF has come off markedly, call money and money
market rates have declined sharply, and the coporate yield curve has
steepened from an inverted position. Our upgrade of Financials to overweight
last month was premised on these developments. We reiterate our positive
stance.
• Special focus - real rates approaching the sweet spot for equities: With
normalization in monetary policy and stabilization in inflation over the last
few quarters, real interest rates have been inching up. Current real rates
though are low compared to the historical range and are expected to gradually
rise further over FY12. Real rates of ~ 1%-2% have historically been good for
sustained high returns from India equities. The current trend suggests that real
rates are headed toward this sweet spot during FY12. A pick-up in the
investment cycle is, however, a pre-requisite for sustained low inflation and
higher equity returns.
• Investor sentiment turning positive: Over the last month, FIIs turned buyers
(US$1.5 bn) after a two-month gap. Key indicators of investor sentiment have
also turned around. These include EMBI spreads, inflows into local mutual
funds, implied volatility and corporate fund raising. Our money flow monitor
suggests inflows into Financials, IT and Energy and outflows from Consumer
and Healthcare.
• Insider transactions: Insiders were net sellers over the month. The
breadth was positive too.
Net Buy: GMR Infra, HDF Bank, Axis Bank, HDFC, Lupin
Net Sell: Suzlon, ITC, Koyak Mahindra Bank, Indusind Bank, Piramal
Health Care, Jindal Steel & Power
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