HSBC looks for a 20% EPS CAGR over the next two years. At 17,971 (Sensex at Aug end), India trades at a P/E of 16.0X FY11e (HSBC estimates). Thus, while valuations versus peers are at a significant premium (40% on P/E and 58% on P/B), we expect them to look less demanding rolling forward to FY 12.
We continue to encourage rebalancing of portfolios towards strategic asset allocations. For clients with under allocation to equity, we still recommend an SIP or quasi SIP approach. Sharp corrections could be viewed as good buying opportunities to rebalance under allocated portfolios.
Exposure to mid cap funds and stocks can be considered based on individual risk profiles. We believe the segment will continue to outperform in the near term. Our view stems from the valuation gap relative to large caps being higher than historical standards.
Overweight - Financials, industrials
Neutral - Infotech, utilities, consumer staple, Real esate, energy, healthcare
Underweight - Underweight (Cement and Aluminium), Telecom
