Stratoscope - Valuations Re-visited::: JPMorgan,

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 Valuations re-visited. Indian equities have de-rated meaningfully. In
this report, we evaluate valuations and potential returns considering
different growth assumptions and methodologies. We believe that at
current levels a large part of the risks emanating from local factors are
priced in. Our valuation models, based on both near-term earnings and
long term DDM, P/B-RoE suggest that returns of about 15% are possible
by fiscal year end. The key risk on the downside emanates more from
global factors, mainly an increase in risk aversion. A slowing global
economy per se would help cool India's inflation problem and pave the
way for relative outperformance.
 What could be the turning point? That said, markets could continue to
drift until visible catalysts present themselves. The necessary condition
for the market to find a base would be an end to monetary tightening.
Key re-rating triggers for that include a sustained correction in global
crude oil prices and / or an improvement in the local policy environment.
 Portfolio stance. Our sector strategy is premised on the following
views: 1) Our house view that global macro data points are likely to
remain weak over the near-term and sentiments volatile as policy makers
grapple with the issues on hand. 2) Growth in India is slowing as
evidenced by a number of high frequency data indicators 3) The medium
term outlook for imported inflation is also improving with the fall in
global commodity prices. Consequently, our sectoral stance is biased
towards local sectors vs. global sectors. We are not however shedding
our defensive bias completely yet. The key risk to our sector strategy is
higher commodity / energy prices.