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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��India Equity Strategy
Bright Side of the Gloom
Such gloom — Investing in India these days seems depressing; growth has started
slipping, anecdotal evidence/signs of an investment implosion, reforms appear on
the back burner, the macro appears lost in a maze and not surprisingly, the market
is down 9.3% YTD and is one of the biggest underperformers.
Though the economy and earnings continue to move — The economy should
clock 8% growth (the second highest among large markets), earnings outlook
remains at 18-19% growth. 4QFY11 earnings have held up well – some signs of an
investment uptick and consumption momentum has been positively strong. While
there clearly is an investment slump, we think it is cyclical and seems to be
completely overshadowing an otherwise OK demand and pricing environment.
Macro is bad, but incrementally ‘falling growth and rising rates’? — Daunting
macro – high and rigid inflation, rising rates – has moderately damaged growth and
meaningfully dashed expectations. But the economy is now probably close to peak
in terms of incremental pressures, and either growth falls or market rates rise – it is
unlikely that both will happen, which is what we believe the market is suggesting.
Expectations (low) + risk perceptions (high) + valuations (moderate) = Buy —
Beaten-down economic growth expectations, elevated earnings/macro risk
perceptions, resultant moderation in valuations (14x 1-yr Fwd, 10% discount to
average) and India’s second half seasonality (21% avg. gains over last 7 years) are
reasons to buy Indian stocks. We see a 21,500 Sensex at Dec11 (previously
22,000), with OWs in Financials, Energy, Pharma, Property and Telecom.
Catalysts — Easing macro and commodity price pressures, capex revival –
government policy or approvals driven, and a widening global growth differential.
Structural risk lies in profitability, not growth — India’s fundamental risks are its
high ROEs (cyclical boost near term), which will be threatened medium term, not its
growth outlook, which we believe is cyclically, not structurally, challenged.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��India Equity Strategy
Bright Side of the Gloom
Such gloom — Investing in India these days seems depressing; growth has started
slipping, anecdotal evidence/signs of an investment implosion, reforms appear on
the back burner, the macro appears lost in a maze and not surprisingly, the market
is down 9.3% YTD and is one of the biggest underperformers.
Though the economy and earnings continue to move — The economy should
clock 8% growth (the second highest among large markets), earnings outlook
remains at 18-19% growth. 4QFY11 earnings have held up well – some signs of an
investment uptick and consumption momentum has been positively strong. While
there clearly is an investment slump, we think it is cyclical and seems to be
completely overshadowing an otherwise OK demand and pricing environment.
Macro is bad, but incrementally ‘falling growth and rising rates’? — Daunting
macro – high and rigid inflation, rising rates – has moderately damaged growth and
meaningfully dashed expectations. But the economy is now probably close to peak
in terms of incremental pressures, and either growth falls or market rates rise – it is
unlikely that both will happen, which is what we believe the market is suggesting.
Expectations (low) + risk perceptions (high) + valuations (moderate) = Buy —
Beaten-down economic growth expectations, elevated earnings/macro risk
perceptions, resultant moderation in valuations (14x 1-yr Fwd, 10% discount to
average) and India’s second half seasonality (21% avg. gains over last 7 years) are
reasons to buy Indian stocks. We see a 21,500 Sensex at Dec11 (previously
22,000), with OWs in Financials, Energy, Pharma, Property and Telecom.
Catalysts — Easing macro and commodity price pressures, capex revival –
government policy or approvals driven, and a widening global growth differential.
Structural risk lies in profitability, not growth — India’s fundamental risks are its
high ROEs (cyclical boost near term), which will be threatened medium term, not its
growth outlook, which we believe is cyclically, not structurally, challenged.
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