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India Strategy
Relative value?
Though upside catalysts still appear limited, we think MSCI India could
outperform Asia ex Japan from here as inflation and growth slowdown concerns
seem well recognised and priced in (18% underperformance since early October).
Valuations have moderated and now look close to fair value
The 18% underperformance of the MSCI India versus Asia ex Japan since early October has
now brought absolute and relative valuations close to average levels. The MSCI India is now
trading at 14.5x our 12-month-forward PE (10-year average 14.2x), putting it at a 24%
premium to the MSCI Asia ex Japan (down from 36% at the end of 2010).
Macro concerns (inflation and growth slowdown) now appear well recognised
The RBI expects yoy headline WPI inflation to stay close to 9% through September, which is
realistic, in our view, and reduces the risk of a negative surprise. Yoy GDP growth slowed to
7.8% for the March quarter from 9.4% a year earlier. Consequently, we think monetary policy
tightening has run its course in India, and we expect only up to 50bp of further rate hikes.
Potential outperformance from here, even without catalysts?
MSCI India Bloomberg consensus EPS for FY12 has declined 5% since the start of 2011,
reflecting the above concerns, and is now in line with our estimate. We believe the MSCI
India could outperform the region from now on as we think its underperformance has priced
in much of the macro concerns, and that India is probably ahead of the region in dealing with
inflation and the resulting growth slowdown. However, the lack of upside catalysts and fair,
but not cheap, valuations prevent us from pounding the table. Upside risks include a pick up
in reform momentum and an increase in natural gas production at KG-D6, while crude oil
prices remain a wild card.
Moderating our sector weightings; time for stock picking
We have moderated our sector weightings as we think stock picking should be more
rewarding with receding macro concerns. Our key stock overweights from a portfolio
perspective are HNDL, LT, MSIL, CIPLA, CBK and POWF, and our key stock underweights
are COAL, ACEM, JSTL and DLFU
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Strategy
Relative value?
Though upside catalysts still appear limited, we think MSCI India could
outperform Asia ex Japan from here as inflation and growth slowdown concerns
seem well recognised and priced in (18% underperformance since early October).
Valuations have moderated and now look close to fair value
The 18% underperformance of the MSCI India versus Asia ex Japan since early October has
now brought absolute and relative valuations close to average levels. The MSCI India is now
trading at 14.5x our 12-month-forward PE (10-year average 14.2x), putting it at a 24%
premium to the MSCI Asia ex Japan (down from 36% at the end of 2010).
Macro concerns (inflation and growth slowdown) now appear well recognised
The RBI expects yoy headline WPI inflation to stay close to 9% through September, which is
realistic, in our view, and reduces the risk of a negative surprise. Yoy GDP growth slowed to
7.8% for the March quarter from 9.4% a year earlier. Consequently, we think monetary policy
tightening has run its course in India, and we expect only up to 50bp of further rate hikes.
Potential outperformance from here, even without catalysts?
MSCI India Bloomberg consensus EPS for FY12 has declined 5% since the start of 2011,
reflecting the above concerns, and is now in line with our estimate. We believe the MSCI
India could outperform the region from now on as we think its underperformance has priced
in much of the macro concerns, and that India is probably ahead of the region in dealing with
inflation and the resulting growth slowdown. However, the lack of upside catalysts and fair,
but not cheap, valuations prevent us from pounding the table. Upside risks include a pick up
in reform momentum and an increase in natural gas production at KG-D6, while crude oil
prices remain a wild card.
Moderating our sector weightings; time for stock picking
We have moderated our sector weightings as we think stock picking should be more
rewarding with receding macro concerns. Our key stock overweights from a portfolio
perspective are HNDL, LT, MSIL, CIPLA, CBK and POWF, and our key stock underweights
are COAL, ACEM, JSTL and DLFU
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