India: Bright spots emerging :: HSBC Research

Economy continues to slow but patches
of growth are emerging
Valuations now look reasonable.
Elections and INR volatility remain the
key themes for the next year
Overweight India. Stock picking is key:
Prefer IT, healthcare and selected banks

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In need of a lift. The initial signs are that the monsoon,
which accounts for more than 70% of India’s annual rainfall,
may be a good one this year. This should help agriculture
(20% of GDP). India is in need of some good news – the
PMI is still falling and there are few signs of a sustainable
economic recovery.
But there are bright spots. We recently raised our
weighting on India to overweight. Estimated earnings
growth of 11% for 2013 appears reasonable, as do valuations
(especially in USD terms). With a 12-month forward PE of
13.1x, India is starting to offer value. Expect credit
conditions to improve slowly. Next year’s elections also
raise hopes that the government may loosen its purse strings.
Market views. We identify patches of growth – wedding
detectives are a (small) growth industry. More importantly,
rural consumer demand remains resilient. We prefer
defensive sectors like private banks, IT and healthcare to
cyclicals such as consumer discretionary, building materials
and industrials.
Key stocks: ONGC, Colgate, Tata Power, Petronet LNG,
ICICI Bank, HDFC Bank, Sun Pharma (an Asia Super Ten
and GEMs Super 15 stock), Hindalco, TCS, Titan and NTPC.