The Indian market is one of the best performing equity markets among Asian and Emerging markets this year. In 2012 YTD, the Sensex has moved up c16%. Recent outperformance seems based on hopes of policy implementation. But such hopes seem to be getting continuously postponed – 2012 has been a year of “shifting milestones”.
Consumption Story Threatened
The current All-India monsoon deficit (-13%) presents a much better picture than in early July (25-30%). That said, there are initial signs of declining demand in consumer discretionaries – particularly two-wheelers. This is clearly worrying because consumption seems to be the only leg that the Indian economy is running on.
Foreign Liquidity injections could keep the market buoyant for a while - maintain exposure to the likely QE beneficiary sectors – but through stocks that are of relatively better management quality and have overseas exposure – preferably in developed markets.
At a 12-month forward PE of 13.6x the Sensex is neither cheap nor expensive (long term average is 15.2). Historically the Indian market bottomed out at 12-12.5x and we are about 10% higher than those levels.
