Verdict and Direction for the Market

The situation of ambiguity has come to an end. This is a big relief for the Investor fraternity as this is a mandate to the run the Government for the next five years and most importantly Congress would have a say as far as the policies and the key ministerial berths are concerned.

Political risk premium, in our opinion, certainly would recede significantly with this decisive mandate. This is likely to help India improve its sovereign rating going forward. The weightage assigned to the Indian Equity within the emerging market (more…)

Fiscal Risk A Drag on the market

We wouldn’t be surprised if raters – Fitch just sounded caution – downgrade India on fiscal risks. And we wouldn’t be astonished, if fiscal sustainability fears, like in the previous down cycle, prove wrong. We do not share concerns about a medium-term impact on the India story, as the present spike in the fiscal deficit is essentially cyclical . Risk: election of a completely irresponsible fiscal regime next week.

It is critical, in our view, to appreciate that the causality essentially runs from growth to the fiscal deficit, rather than the other way round. It is surely no one’s case that the benign 5.4% of GDP FY07-08 fiscal deficit led to the current growth collapse! Once growth revives FY11 on, we expect the fiscal position to improve with a rebound in tax revenue.

The very growth collapse contracting taxes, after all, is also shrinking credit demand. This leaves banks with surplus to fund the fisc, moderating the yield impact of high government borrowing and enabling softer lending rates to support growth.

MSCI Change in Index Constituents

MSCI has announced changes to MSCI India index constituents under its May 2009 Semi
Annual Index Review (SAIR). There will be 3 additions to, and 4 deletions from the MSCI India Index. New number of constituents will be 58. Changes will be effective from as of close on May 29, 2009. Based on these changes, India country weight in the MSCI EM Index will reduce marginally from 6.47% to 6.36%.

Additions: Idea Cellular, Bajaj Auto and United Phosphorus
Deletions: Essar Oil, Unitech, Tata Communications, and Indian Hotels
Significant weight changes: Reliance Petroleum (+0.62%), Tata Consultancy (+0.36%) and Grasim (-0.43%).

Review of Earnings Season Till Date

55 of the Top companies have reported results. Aggregate earnings fell 3.2% YoY against streets’ expectation of a 7% fall YoY. In terms of surprise breadth, for 53%, or 29, companies’ net profits exceeded expectations by 5% or more, while 16 companies reported results that trailed our analyst expectations by 5% or less. Only three companies of this pack have reported losses.

Eighteen companies in the BSE Sensex have reported thus far, with aggregate earnings down 11% YoY, compared with expectations of a 7% fall. Excluding the energy sector, the Sensex earnings are down 14%, below expectations. (more…)

HSBC Overweight on Energy + Financials

India has been one of the best performing markets since mid March with ~ $2.0 bln of FII inflows moving into Indian equities in the past 2 months. Expect to see signs of stress on account of the slowdown, Indian companies’ earnings have been among the least volatile among emerging markets. Earnings are likely to remain under pressure for the next one to two quarters, as the full effects of the earlier monetary tightening measures and the credit squeeze feed through the economy.

Indian markets will continue to take cues from global developments and global market movements. The correlation of Indian markets to global markets has increased significantly over the last 12 months. (more…)

ICICI Prudential Target Returns Fund

ICICI Prudential Target Returns Fund is an open ended diversified equity fund that seeks to generate capital appreciation by investing in equity or equity related securities of large market capitalization companies constituting the BSE 100 index and providing investors with options to withdraw their investment automatically based on triggers for pre-set levels of return as and when they are achieved.

The Fund aims to generate capital appreciation by investing in equity and equity related securities of companies that form part of the constituents of the BSE 100 index and (more…)