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Indian Equity – Investment Haven

Posted by malvika15 on Friday, 31 October, 2008

Value emerges in Indian equities due to stiff correction. BSE Sensex has corrected by 63.1% from its peak level of 20,873 to current level of 7,697. India economics is resilient among the global turmoil, with projected GDP growth of 7% for the year 2009. Major thrust on infrastructure creation, burgeoning middle class and global aspirations of Indian corporate makes India an exciting place for investments. Factors enumerated below makes our case for staying invested.

Robust Economic Fundamentals

  • GDP growth of around 7% in 2009 would still put India among the world’s fastest-growing economies. Many of India’s fundamentals remain sound.
  • During April-August 2008, exports rose 35% in dollar terms, while imports rose 37.7%, indicating sustained demand. Capacity is being added in numerous sectors, including power, steel, oil and cars.
  • Foreign direct investment during April-August 2008 was a record US$14.8bn (a 114% rise over the corresponding period of the previous year)
  • Finally, India’s banks are well-capitalized and well-regulated, there is no domestic bad-loan crisis, and Indian banks have only a marginal exposure to overseas credit markets.

Swift RBI intervention to counter slowdown

  • RBI has reduced CRR by 150 bps to infuse liquidity into the markets
  • Repo rate has also been cut by 100 bps to 8% for the first time since June-04
  • Relaxation of ECB norms and increase in interest rate for NRI deposit schemes to attract foreign inflows Cash rich Domestic Institutional biggest buyers; Foreign Investors wary
  • Domestic Institutions have piled up cash balances of around 30% and are set to invest aggressively into Indian equities.
  • Till date for the year 2008, these institutions have bought Rs.11,450 crores (approx.) of Indian equities.
  • Reversal in the trend of outflows from foreign investors could be significant catalyst.

Consistent Corporate Performance: Moderation in growth discounted

  • Aggregate results of 1,072 companies showed a 6.8% rise in net profit on 29.10% increase in net sales in Q2 September 2008 over the corresponding quarter of the previous year
  • Slowdowns in corporate earnings are discounted for in current prices.
  • BSE Sensex PE at current market prices stands at around 10x FY09 earnings.

Commodities meltdown boon for Indian corporates

  • Decline in crude prices will reign in inflation; improve current account and fiscal deficit.
  • Companies will reap the benefits of lower input cost thus maintaining the trajectory for sales and profits.

Lower inflation will spur growth

  • Inflation is expected to ease below 10% by March 2009.
  • Moderate inflation will enable RBI with more headroom for interest rate cuts, thereby promoting growth.

VC and PE firms still attracted by India’s growth Story

  • Attracted by the India growth story, VC firms are keeping up the fund-raising momentum despite an imminent global slowdown.
  • Consultancy firm Grant Thornton said that there were 31 PE deals announced in August with an announced value of US$944 million, compared to 29 deals amounting to US$650 million in the previous month.

Source : Artha Money


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