Expert Zone

Straight from the Specialists

Will 2014 be any better for investors?

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

High inflation, low GDP growth and a sharp depreciation in the rupee led to subdued returns of 6.8 percent for the Nifty in 2013.

The core sectors — steel, cement, industrials, energy, infrastructure and capital goods — continued their poor performance and hence valuations shrunk, while consumer staples, IT, pharma and private sector financials bucked the trend. But the polarisation towards a few sectors underscores growing risk aversion.

But will the 2014 be better for investors in India? Our best bet is a significant improvement in equity valuations over the next six months if global recovery continues and crucial policy decisions are taken. Any participation by the core sectors in earnings growth would help expand the multiples, leading to improvement in valuations.

As things stand, we believe the Indian economy is at the cusp of a turnaround. GDP growth, which slipped to 4.6% in the first half of the current fiscal, can improve to 5 percent. Equity valuations mirror this expectation. With the Nifty in the range of 6,100–6,300, the market is discounting next fiscal’s expected earnings nearly 13 times. That’s neither too cheap nor expensive and suggests expectations of a broader recovery.

Unclear messages from the electoral tea leaves

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The past 12 months have been characterized by the narrowest market in two decades although sectoral performance varied significantly. While the markets are likely to be range-bound, valuations are expected to rise in 2014, especially in the first half.

Based on a one-year forward PE range of between 12.5 and 15 times and our top-down FY15 earnings growth forecast for the Nifty of between 10 percent and 15 percent, we expect the index to trade between 5,500 and 6,900 in 2014, with a target of 6,900 — an implied increase of around 10 percent relative to current levels.

Time to ride the rally in the run-up to 2014 elections

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Election fever in the world’s biggest democracy is gripping India in the run-up to general elections due in 2014. In the coming months, politics will be in focus especially among investors.

Assembly elections in Chhattisgarh, Delhi, Madhya Pradesh and Rajasthan were a prelude to next year’s election. The four states make up 72 seats in the Lok Sabha. Historical data suggests the electorate votes on the same lines for the Lok Sabha in case state polls are held within 12 months of the general elections.

How the U.S. Fed’s tapering can affect Indian markets

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

It was never expected to be permanent. Quantitative Easing (QE), designed to pep up the U.S. economy after the financial crisis of 2008-09, has survived for five years. The United States is now on a rebound and unemployment is receding. That has tempted the U.S. Federal Reserve to reconsider tapering its economic stimulus.

This was first announced on May 17 and sent tremors through global markets. Asian markets were the most affected; India was worst-hit, having come to depend on FII investment. The knee-jerk reaction of FIIs was to reduce exposure to emerging market economies in the expectation that liquidity would dry up and interest rates would harden.

If change does come in 2014

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The market is pregnant with expectations of a change after the general elections which must be held by next May. You would have to travel far and wide before you come across anyone in India’s financial market who is not hoping – even praying – for change.

The mood on the current policy direction is so gloomy that any alternative is looking like manna from heaven.

India Markets Weekahead: Results of state elections a key driver

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Markets had been on a roller-coaster ride but closed weak for the third week in the row with the Nifty in the 5950-6000 range providing support.

A hint from the U.S. Federal Reserve on tapering its bond-buying programme was enough to spook the markets. Though this is expected in the first quarter of the new year, it remains to be seen whether chairman-elect Janet Yellen’s dovish stance would postpone it further.

India Markets Weekahead: Investors should wait for a correction to buy

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Markets continued a strong rally to close the week around 3 percent higher. After the partial U.S. shutdown was confirmed and triggered speculation over the postponement of QE tapering, a weakening dollar and the rupee’s subsequent appreciation also helped lift the mood.

Though the current account deficit for the first quarter was a better-than-expected 4.9 percent, IIP data that came in after market hours on Friday showed India’s industrial production had slowed to a dismal 0.6 percent in August. This suggests that buoyancy in the stock markets was driven by liquidity and sentiment, while things are different on the ground.

India Markets Weekahead: Lack of positive triggers in the near term

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Indian markets are in a corrective phase after RBI Governor Raghuram Rajan’s monetary policy review on Sept. 20 put a damper on investor expectations. If Rajan had played to the galleries, we would have seen a stock market bubble. The move from pessimism to euphoria — a rally of nearly 20 percent in less than three weeks — without any perceptible change in ground realities, would have led to a bull trap. Though participation levels were not high, FIIs had turned buyers and it would have been a matter of time before dormant market participants jumped into the fray.

Barclays is the latest to cut India’s GDP forecast to 4.7 percent. Most of the others have cut their forecast to below 5 percent although the government is still hoping for an early recovery. The banking sector was under pressure after Fitch cut its rating for a number of public sector banks such as Punjab National Bank, Bank of Baroda and Indian Bank.

Indian markets at risk but elections could spell change

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

It’s been an eventful September so far for India. The Indian parliament cleared key economic legislation in its extended session. The Reserve Bank of India saw a new governor taking charge. FII flows reversed trend to turn positive in equity and debt markets. Volatility in the currency market subsided and the rupee staged a recovery from historic lows. Near-term bond yields shrank and the August trade deficit came in lower as exports climbed. The Syrian crisis seems to have abated. Does this mean that the worst is behind us and things will start improving?

As discussed in my previous column, some of these actions from the Indian government and the central bank seem like quick fixes to set right deteriorating macroeconomic numbers. India’s Q1 GDP is now at 4.4 percent, much lower than expected, and FY14 GDP growth is expected to be below 5 percent. The rise in interest rates on account of the central bank’s measures to lessen currency volatility will definitely affect GDP growth in the remaining three quarters. Monthly IIP and PMI numbers are not encouraging either. Both WPI and CPI inflation are not yet stable. Headline inflation soared to a six-month high in August. Input costs for the consumer staples basket are set to rise due to currency depreciation, which could have an impact on consumption volumes. On the oil subsidy front, rupee depreciation has again increased per unit under-recovery on diesel, kerosene and cooking gas. The urgent need for a substantial increase in diesel prices could eventually have a dampening impact on growth.

India Market Weekahead – Volatility expected ahead of RBI policy review

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

After a rally of 500 points on the Nifty, markets consolidated at slightly higher levels to close at 5850 this week. It’s evident that hope keeps the market ticking — this time it was various measures by the new RBI governor, Raghuram Rajan,that cheered the markets.

But expectations, at times unrealistic, could lead to disappointment. Though Rajan made the right moves, it would be interesting to see how he uses the limited manoeuvrability he currently has. The monetary policy review on September 20 would be closely watched.

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