2010 may be a positive year for Indian investors: Credit Suisse
Domestic equities are likely to be volatile in the January-March quarter of 2010 on concerns the government may draw back fiscal stimulus, the Reserve Bank of India (RBI) could absorb money supply and over bubbles in asset prices worldwide, said Credit Suisse.
But investors should add exposure to shares in this period, according to the investment bank, which remains confident of India's growth prospects.
Credit Suisse is optimistic about Indian equities in 2010. "2010 is expected to be a positive year for Indian equities, though the move will not be as linear as in 2009," said the investment bank in a report co-authored by analysts Toral Munshi and Chirag Shah.
The S&P Nifty has risen almost 98% from its lows on March 9, led by share purchases by global investors worth over $15 billion. This sharp jump has sparked fears about a bubble in global equity markets, including India's, because most global economies are still struggling to come out of recession, while inflation is on the rise, partly driven by surplus money.
With global policymakers indicating their intent to mop up some of the money supply early next year on expectations of rising inflation, investors are pondering to what extent will such moves impact investor sentiment.
"While strong GDP and earnings growth parameters are supportive for equities, the withdrawal of monetary and fiscal stimulus is likely to weigh on investor sentiment in the first quarter," the Credit Suisse analysts said.
The investment bank expects RBI to raise the cash reserve ratio (CRR) — the amount of cash banks need to deposit with the central bank — in early 2010, followed by hike in repo rate — the rate at which banks borrow from RBI — of 125 basis points during the year.
But investors should add exposure to shares in this period, according to the investment bank, which remains confident of India's growth prospects.
Credit Suisse is optimistic about Indian equities in 2010. "2010 is expected to be a positive year for Indian equities, though the move will not be as linear as in 2009," said the investment bank in a report co-authored by analysts Toral Munshi and Chirag Shah.
The S&P Nifty has risen almost 98% from its lows on March 9, led by share purchases by global investors worth over $15 billion. This sharp jump has sparked fears about a bubble in global equity markets, including India's, because most global economies are still struggling to come out of recession, while inflation is on the rise, partly driven by surplus money.
With global policymakers indicating their intent to mop up some of the money supply early next year on expectations of rising inflation, investors are pondering to what extent will such moves impact investor sentiment.
"While strong GDP and earnings growth parameters are supportive for equities, the withdrawal of monetary and fiscal stimulus is likely to weigh on investor sentiment in the first quarter," the Credit Suisse analysts said.
The investment bank expects RBI to raise the cash reserve ratio (CRR) — the amount of cash banks need to deposit with the central bank — in early 2010, followed by hike in repo rate — the rate at which banks borrow from RBI — of 125 basis points during the year.
"The 125 basis points of tightening repo rate, though substantial, should be viewed in the context of the 425 bps reduction from October 2008 to April 2009," the analysts said.
Investors will closely watch the government's actions to drive economic growth in 2010, according to Credit Suisse. Share sales of public sector companies, deregulation of the oil sector and reforms in the pension and insurance sectors are expected in 2010, the investment bank said.
"This would send a positive signal to investors and can attract significant capital flows into the country, a key requirement for sustaining India's growth momentum," the analysts said.
"While the government's intention itself was enough to drive momentum in 2009, the conversion of intention to action will be the key driver of investor sentiment in 2010," according to them.
"On the other hand, inability or disappointment in implementing reforms can lead to a P/E (price to earnings) derating," they added.
Investors will closely watch the government's actions to drive economic growth in 2010, according to Credit Suisse. Share sales of public sector companies, deregulation of the oil sector and reforms in the pension and insurance sectors are expected in 2010, the investment bank said.
"This would send a positive signal to investors and can attract significant capital flows into the country, a key requirement for sustaining India's growth momentum," the analysts said.
"While the government's intention itself was enough to drive momentum in 2009, the conversion of intention to action will be the key driver of investor sentiment in 2010," according to them.
"On the other hand, inability or disappointment in implementing reforms can lead to a P/E (price to earnings) derating," they added.
Source: 19 Dec 2009, 1048 hrs IST, ET Bureau
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