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India Strategy
US Marketing: When will rates
peak in India?
„Positioning: Investors U/W, but thinking whether to add
We did a marketing trip to USA over the past week. There was little resistance to
our view that we are still in a range-bound market, with a correction likely this
quarter and a possible rally next quarter. The trip reiterated our view that investors
are already under-weight India. On the margin, investors are wondering when to
add to their India exposure, given the sharp under-performance of the market.
Overall, hedge funds seemed keener to invest than the long-only funds. Some of
the common investor questions were:
#1: When will inflation peak and the risks to that?
Inflation continues to be on the top of everyone’s mind and was the most-debated
subject. Our view is that inflation peaks in September and core inflation peaks in
October. Clients were keen to understand the risk to this – mainly a poor
monsoon and a rally in global commodity prices.
#2: When will interest rates peak?
Post the RBI hike, investor expectations of an early peak to the interest rate cycle
have lessened. In our meetings before the RBI meeting, some investors were
expecting a clear signal from RBI of a pause. We expect RBI to now hike in
September, as well as possibly in October.
#3: How much will earnings be downgraded?
Clients generally agree that earnings will see downgrades, as margin pressure
will be more than analyst expectations. However, our expectation that EPS growth
for FY12 will be close to 15% (FY12: Sensex EPS around 1150-1175) was
generally considered lower than consensus. Clients are clearly waiting for
analysts to cut EPS estimates, so that valuations reflect the realistic earnings.
#4: Will Government reforms accelerate?
Clients are clearly hoping for more positive action after the oil price hike and the
talk on power reforms and the FDI in retail. We expect the Government to look at
(a) Land Acquisition Bill (b) Minerals and Mining Bill (c) Food Security act and a
possible increase in FDI limits in retail and insurance over the next few months.
#5: When to switch to interest rate-sensitive plays?
The big sectoral call for most clients was when to buy the underperforming ratesensitive companies. Our view is that we would be more positive on these
companies toward the end of September, in anticipation of a rate peak-off signal
in October. We, however, continue to worry about the lack of capex. After a long
time, DLF (XVDUF, Rs222.05) was discussed in many meetings, as clients look
to add beta to their portfolio
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Strategy
US Marketing: When will rates
peak in India?
„Positioning: Investors U/W, but thinking whether to add
We did a marketing trip to USA over the past week. There was little resistance to
our view that we are still in a range-bound market, with a correction likely this
quarter and a possible rally next quarter. The trip reiterated our view that investors
are already under-weight India. On the margin, investors are wondering when to
add to their India exposure, given the sharp under-performance of the market.
Overall, hedge funds seemed keener to invest than the long-only funds. Some of
the common investor questions were:
#1: When will inflation peak and the risks to that?
Inflation continues to be on the top of everyone’s mind and was the most-debated
subject. Our view is that inflation peaks in September and core inflation peaks in
October. Clients were keen to understand the risk to this – mainly a poor
monsoon and a rally in global commodity prices.
#2: When will interest rates peak?
Post the RBI hike, investor expectations of an early peak to the interest rate cycle
have lessened. In our meetings before the RBI meeting, some investors were
expecting a clear signal from RBI of a pause. We expect RBI to now hike in
September, as well as possibly in October.
#3: How much will earnings be downgraded?
Clients generally agree that earnings will see downgrades, as margin pressure
will be more than analyst expectations. However, our expectation that EPS growth
for FY12 will be close to 15% (FY12: Sensex EPS around 1150-1175) was
generally considered lower than consensus. Clients are clearly waiting for
analysts to cut EPS estimates, so that valuations reflect the realistic earnings.
#4: Will Government reforms accelerate?
Clients are clearly hoping for more positive action after the oil price hike and the
talk on power reforms and the FDI in retail. We expect the Government to look at
(a) Land Acquisition Bill (b) Minerals and Mining Bill (c) Food Security act and a
possible increase in FDI limits in retail and insurance over the next few months.
#5: When to switch to interest rate-sensitive plays?
The big sectoral call for most clients was when to buy the underperforming ratesensitive companies. Our view is that we would be more positive on these
companies toward the end of September, in anticipation of a rate peak-off signal
in October. We, however, continue to worry about the lack of capex. After a long
time, DLF (XVDUF, Rs222.05) was discussed in many meetings, as clients look
to add beta to their portfolio
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