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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Are we close to the peak in the rate tightening cycle
While RBI’s stance remains predominantly anti-inflationary in the immediate term,
we sense that it may be in the final stage of its near 15-month rate tightening
cycle. Our economist Taimur Baig expects a further 50bps hike (over next 2 policy
meetings) cumulating to a total of 325 bps. Recent global macro developments
(Greece’s sovereign debt crisis, end of QE2, concerns over slowing economic
growth in EU and US) will also influence RBI’s policy biases. Consequently we are
reiterating our preference for rate sensitives.
Maintain overweight on Financials; Raise Real Estate & Media to overweight
On the back of our expectation of a peaking rate cycle, we are raising our portfolio
weighting in classical rate sensitive sectors –Financials and Real Estate. We are
also moving real estate to overweight from a neutral position, following our analyst
Abhay Shanbhag’s recent sector upgrade. In addition, we remain strong believers
in India’s structural shift in demography, income and consumption patterns.
Consumer interfacing businesses are likely to see continuing robust growth as
rising incomes particularly in tier 2 and tier 3 towns boost consumption demand.
While this has resulted in sharp outperformance of consumer staples (YTD MSCI
consumer staples have outperformed MSCI India by ~14%), we are yet to see a
similar outperformance in consumer discretionary sub sectors like media. Hence,
we are raising media to an overweight from a neutral position and lowering
consumer staples from overweight to neutral (primarily on account of reducing
weightage in HUL, following its recent sharp outperformance). Our top picks are:
Bharti, Coal India, DLF, HDFC Bank, ITC, M&M, TCS, and Tata Motors.
Monsoon session of parliament, GOM meeting on mining critical to market
sentiment
Investor concerns over slowing capex, policy inertia, scams and civic activism
have impacted market sentiment since April. The monsoon session of parliament
(expected to commence in either 2
nd
or 3
rd
week of July) holds critical significance
in terms of signaling government’s intent on moving ahead with long delayed
reforms. Several key bills - pertaining to Land Acquisition, Ombudsman, Pension
Fund Regulator, progress towards implementation of Goods and Service tax etc. -
are likely to be discussed.. While we concede that parliament may take very few
decisive measures, given the current stage of policy inertia and coalition dynamics,
any incremental move on key reforms - after a long period of inaction will be
viewed positively by the market. Resolution of the controversial ‘go and no go‘
areas on mining and accelerated clearances for mining coal blocks coupled with
government dropping the proposal to impose an additional tax of 26% on mining
profits will also assuage sentiment meaningfully, addressing concerns of a sharp
slowdown in corporate capex. We eagerly look forward to increasing visibility on
above in a GOM meeting on mining and coal, scheduled in the first week of July.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Are we close to the peak in the rate tightening cycle
While RBI’s stance remains predominantly anti-inflationary in the immediate term,
we sense that it may be in the final stage of its near 15-month rate tightening
cycle. Our economist Taimur Baig expects a further 50bps hike (over next 2 policy
meetings) cumulating to a total of 325 bps. Recent global macro developments
(Greece’s sovereign debt crisis, end of QE2, concerns over slowing economic
growth in EU and US) will also influence RBI’s policy biases. Consequently we are
reiterating our preference for rate sensitives.
Maintain overweight on Financials; Raise Real Estate & Media to overweight
On the back of our expectation of a peaking rate cycle, we are raising our portfolio
weighting in classical rate sensitive sectors –Financials and Real Estate. We are
also moving real estate to overweight from a neutral position, following our analyst
Abhay Shanbhag’s recent sector upgrade. In addition, we remain strong believers
in India’s structural shift in demography, income and consumption patterns.
Consumer interfacing businesses are likely to see continuing robust growth as
rising incomes particularly in tier 2 and tier 3 towns boost consumption demand.
While this has resulted in sharp outperformance of consumer staples (YTD MSCI
consumer staples have outperformed MSCI India by ~14%), we are yet to see a
similar outperformance in consumer discretionary sub sectors like media. Hence,
we are raising media to an overweight from a neutral position and lowering
consumer staples from overweight to neutral (primarily on account of reducing
weightage in HUL, following its recent sharp outperformance). Our top picks are:
Bharti, Coal India, DLF, HDFC Bank, ITC, M&M, TCS, and Tata Motors.
Monsoon session of parliament, GOM meeting on mining critical to market
sentiment
Investor concerns over slowing capex, policy inertia, scams and civic activism
have impacted market sentiment since April. The monsoon session of parliament
(expected to commence in either 2
nd
or 3
rd
week of July) holds critical significance
in terms of signaling government’s intent on moving ahead with long delayed
reforms. Several key bills - pertaining to Land Acquisition, Ombudsman, Pension
Fund Regulator, progress towards implementation of Goods and Service tax etc. -
are likely to be discussed.. While we concede that parliament may take very few
decisive measures, given the current stage of policy inertia and coalition dynamics,
any incremental move on key reforms - after a long period of inaction will be
viewed positively by the market. Resolution of the controversial ‘go and no go‘
areas on mining and accelerated clearances for mining coal blocks coupled with
government dropping the proposal to impose an additional tax of 26% on mining
profits will also assuage sentiment meaningfully, addressing concerns of a sharp
slowdown in corporate capex. We eagerly look forward to increasing visibility on
above in a GOM meeting on mining and coal, scheduled in the first week of July.
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