India Strategy
Run with the bull!
The Indian equity market witnessed interesting twists and turns throughout 2013. Beginning with high hopes, the market saw extremely depressed levels in Aug-13, as economic growth fell to new lows. What followed thereafter was equally dramatic. Buoyed by hopes of a recovery, changing political landscape, and growing thrust on reforms and investments, the market rebounded swiftly. Going forward, we expect the Indian economy to show a meaningful pick-up, led by manufacturing and agriculture sectors. Key macro indicators also appear on track after witnessing extreme lows.
Market Strategy
With GDP growth at 5.5%, we expect Sensex earnings to grow at 18% in FY15, on a base of 8% growth in FY14. We expect CY14 year-end Sensex at 24,515, based on 16x FY15 Sensex EPS of INR1,532. In our opinion, markets would see significant volatility before elections, on account of fluctuating 'noise levels' around political events. As a result, markets may see divergent trends before and after elections.
Key themes
1. Increase weight in cyclicals, reduce defensives: Buy industrials, automobiles, NBFCs and private banks.
2. Play the export theme through IT and pharmaceuticals (against commodities), despite significant re-rating through CY13.
3. Watch out for energy sector reforms.
4. Continue to depend on bottom-up approach. Buy good quality companies in growth sectors with healthy RoEs. Select buying opportunities across many sectors (monopolistic FMCG businesses, infrastructure, power utilities).
5. Avoid playing deleveraging story. Risk remains high for highly levered companies.
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