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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● India’s global linkages are higher than in 2008. We believe slowing
global growth will expand trade deficit and hurt GDP growth.
● The percentage of imports sensitive to commodity prices is the
same as that of exports – and while import volumes would stay
resilient, export volumes will not. Due to pro-cyclical fiscal deficits,
the government is out of options if the economy slows. Despite
meaningful scope for monetary easing, we believe it is unlikely
until: (1) fiscal deficits stay high (they drive domestic inflation); (2)
inflation falls due to a global crisis.
● India’s trailing real GDP is now 26% higher and nominal GDP 59%
higher than in 2008. Markets too, while being at similar levels, are at
lower multiples (base EPS 20% higher). Further, last time the
market was coming off significant outperformance of high-risk and
mid-cap names, which is not the case now. Yet, corporate leverage
has actually risen, and share pledging has not come down.
● The ~50% of globally linked Nifty EPS that was largely uncut so
far may see downward revisions: FY12 growth could fall to 8%
(from the current 17%). We continue to prefer names such as ITC,
HH and Coal India, and we avoid rate-sensitive stocks such as
ICICI and Tata Steel.
We compare the current Indian economy and markets to its position
during the 2008 crisis.
The negatives: India’s global linkages are now higher than in 2008.
Against the market consensus, we believe slowing global growth will
expand the trade deficit and hurt GDP growth: the percentage of
imports sensitive to commodity prices is the same as that of exports –
and while import volumes would stay resilient, export volumes will not.
Due to pro-cyclical fiscal deficits, the government is out of options if
the economy slows. Despite meaningful scope for monetary easing,
we believe it is unlikely until (1) fiscal deficits stay high (they drive
domestic inflation); (2) inflation falls due to a global crisis.
The positives: India’s trailing real GDP is now 26% higher, and
nominal GDP 59% higher than it was in the last crisis. FY11 MSCI
India EPS integer is also 20% higher than in FY08. Thus, despite the
market peaking at similar levels, multiples are already a lot lower.
Moreover, last time the market was coming off significant
outperformance of high-risk and small/mid-cap names, which is not
the case this time. Further, while share pledging is no different from
last time, the market cap exposed to such companies is a lot lower.
We stay risk-averse: Corporate leverage has not improved: the
number of companies with high leverage is now higher than it was in
FY08. Moreover, the ~50% of globally linked Nifty EPS that was
largely uncut so far, may see downward revisions: FY12 growth could
fall to 8% (from the current 17%). We reiterate that we are at the
beginning of the period of uncertainty globally, and far from the end.
We still prefer names such as ITC, Hero Honda, and Coal India, and
we avoid rate-sensitive stocks such as ICICI and Tata Steel.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● India’s global linkages are higher than in 2008. We believe slowing
global growth will expand trade deficit and hurt GDP growth.
● The percentage of imports sensitive to commodity prices is the
same as that of exports – and while import volumes would stay
resilient, export volumes will not. Due to pro-cyclical fiscal deficits,
the government is out of options if the economy slows. Despite
meaningful scope for monetary easing, we believe it is unlikely
until: (1) fiscal deficits stay high (they drive domestic inflation); (2)
inflation falls due to a global crisis.
● India’s trailing real GDP is now 26% higher and nominal GDP 59%
higher than in 2008. Markets too, while being at similar levels, are at
lower multiples (base EPS 20% higher). Further, last time the
market was coming off significant outperformance of high-risk and
mid-cap names, which is not the case now. Yet, corporate leverage
has actually risen, and share pledging has not come down.
● The ~50% of globally linked Nifty EPS that was largely uncut so
far may see downward revisions: FY12 growth could fall to 8%
(from the current 17%). We continue to prefer names such as ITC,
HH and Coal India, and we avoid rate-sensitive stocks such as
ICICI and Tata Steel.
We compare the current Indian economy and markets to its position
during the 2008 crisis.
The negatives: India’s global linkages are now higher than in 2008.
Against the market consensus, we believe slowing global growth will
expand the trade deficit and hurt GDP growth: the percentage of
imports sensitive to commodity prices is the same as that of exports –
and while import volumes would stay resilient, export volumes will not.
Due to pro-cyclical fiscal deficits, the government is out of options if
the economy slows. Despite meaningful scope for monetary easing,
we believe it is unlikely until (1) fiscal deficits stay high (they drive
domestic inflation); (2) inflation falls due to a global crisis.
The positives: India’s trailing real GDP is now 26% higher, and
nominal GDP 59% higher than it was in the last crisis. FY11 MSCI
India EPS integer is also 20% higher than in FY08. Thus, despite the
market peaking at similar levels, multiples are already a lot lower.
Moreover, last time the market was coming off significant
outperformance of high-risk and small/mid-cap names, which is not
the case this time. Further, while share pledging is no different from
last time, the market cap exposed to such companies is a lot lower.
We stay risk-averse: Corporate leverage has not improved: the
number of companies with high leverage is now higher than it was in
FY08. Moreover, the ~50% of globally linked Nifty EPS that was
largely uncut so far, may see downward revisions: FY12 growth could
fall to 8% (from the current 17%). We reiterate that we are at the
beginning of the period of uncertainty globally, and far from the end.
We still prefer names such as ITC, Hero Honda, and Coal India, and
we avoid rate-sensitive stocks such as ICICI and Tata Steel.
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