Another Quarter Of Uncertainty-Enam

n Jan 08, the Indian market was banking on global & domestic liquidity, despite its over-leverage, combined with pockets of over-valuation & over-ownership.

Since then, India has been one of the worst performing markets, even as most global markets have bounced back banking on Fed rescue, while commodity inflation has aided Brazil/ Russia.

India investing confidence dented largely due to:

Uncertainty in:

- Corporate earnings: Execution vs expectations, Fx derivative losses
- Direction of interest rates & Currency
- Govt's use of Price control to curb inflation
- Economy on both reflationary (fiscal expansion) AND monetary tightening modes: like a car on Brake + Accelerator !

However, greater clarity on the above is likely to emerge in Apr-July 08:

- Q1FY09 results: Execution & Fx losses to be clearer by then

- Monetary stance in Credit policy of Apr 29: eg expectation of CRR hike?

- End-game of Govt's resolve to control commodity prices, & then, some clarity on election timing

Despite maximum uncertainty being over the next few months, a ST leg up can't be ruled out, due to the huge undeployed cash with funds. However, a sustained market momentum is unlikely till clarity emerges over glocal concerns of currency alignments, & stagflation:

- While global currency realignments appear inevitable, it may be protracted.

-Domestic factors such as bloated capital a/c etc may nudge interest rates lower, once the inflation genie is tamed.

In the meantime, with favourable LT risk-reward ratio, Liquidity will trickle in selectively as markets look inexpensive at ~15x FY09E EPS (with potential 25% Sensex upside in 12 months), continuing global liquidity glut and LT India fundamentals.

Recommendation:

Defensive bets: IT, & selectively in Telecom,
FMCG, Pharma. Underweight
Cap goods & Realty Aggressive LT bets (hi risk/ reward, though with ST uncertainty): Banking & Commodities (Cement, Metals, Oil & gas)

Regards,

Nandan Chakraborty
(Head-Research)


Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

Nothing in this article is, or should be construed as, investment advice.