HSBC and JP Morgan raise Indian equities
HSBC and JP Morgan raise Indian equities
HSBC and JP Morgan raise Indian equities
HSBC and JPMorgan have upgraded Indian equities as inflation is expected to ease, following a series of rate increases and signs of the government moving to enacting laws that could smoothen conduct of business. Global investors possibly shifting back to Asia due to weakening consumer confidence in the West may also help India. "The political situation is still precarious. Yet, there is progress on legislation," says Adrian Mowat Asia Strategist for JPMorgan.
"Investors' cynicism that no senior politician or businessman will be charged has also proved misplaced." JPMorgan upgraded India to 'overweight' from 'neutral' and HSBC raised it to just neutral', because of the stubbornly high inflation. Investors are shifting back to emerging markets since consumer confidence in the US and Europe has fallen due to rising oil prices and the possibility of interest rates rising there due to high inflation.
EPFR Global data show that emerging market funds that it tracks had weekly inflows of a net $2.6 billion, the highest since January first week. The MSCI Emerging Markets Index has risen 10% from its low after the Japan earthquake.
"Investors in Asian equities have been obsessed over inflation for the past few months, with CPI surprising on the upside and central banks dithering about raising rates," HSBC said in a report. "But now that rates have been hiked multiple times in most countries, and with inflation showing signs of slowing, especially in China, we think that worries will shift elsewhere."
But crude oil at more than $120 a barrel due to Libya and the Middle East conflict could still weigh on investors' minds. Yearto-date , the Sensex has seen a 4.37% erosion. "For now, our overweight is modest due to India's well-flagged vulnerability to higher oil prices," says JP Morgan's Mowat . "India is a large oil importer with a current account deficit. Click to Know more on Hotels in Manali
The situation in MENA has the potential to generate a spike in oil prices." But the paralysis in decisionmaking due to scandals may be giving way for some business at last, they say. "The government appears to be committed to the reform process and this is reflected in 32 bills which have been tabled for discussion. After a gap of almost one year, we are seeing a few government approvals for long-awaited large projects and this augurs well for investment growth outlook," says Bharat Iyer, head-India research at JP Morgan.
"While the near-term domestic concerns on high inflation and growth moderation are likely to continue over the new term, we believe that these risks are largely priced in. Growth is expected to consolidate into FY12, but real GDP growth at 7.8% would be reasonably healthy, on a absolute and relative basis ," he adds. According to him, if global economic conditions, especially the Middle-East situation doesn't worsen from here, then Indian equities could deliver a healthy return into the second half of the year.
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