Demonetization + GST mean earnings for the next 3-4 quarters (at least) will be volatile. Downgrades are likely to continue. But a) valuations are less of a hurdle (MSCI India trading 15.7 times 1yr fwd now), b) govt. should act soon (both monetary and fiscal stimulus likely), and c) difficulties on lack of cash now should end in a few weeks.
2017 India – equity can match / beat bonds; Low rates: strong domestic MF inflows. Dec-end Sensex target of 29,000 (12% return). Banks should dominate earnings growth – stay with the well capitalized ones (private sector, large PSU). Govt. stimulus should help rural – staples, cement (and 2W, tractors).
Source BOFAML
