Indian equities poised to do wellSectors including telecoms, consumer staples, consumer banks have promise
Anand Shah, Chief investment officer BNP Paribas Mutual Fund, India
Indian equities are poised for a turnaround this year as issues that weighed on stocks for the last two years show signs of abating. Valuations look favourable to us, averaging about 13 times forward earnings, down significantly from the peak of 24 times. We see monetary loosening now that inflation and growth have slowed. With market concerns about Europe abating, capital appears to be flowing into India again, helping to narrow the account deficit. India is unique among developing nations in that it imports more than it exports. The country is a major importer of oil and the world´s largest buyer of gold.Foreign capital inflows should boost the rupee, which has fallen against the US dollar and continues to be under pressure. A rising rupee would help reduce inflation expectations further.
Yet another boost we see for Indian stocks should be spending on public infrastructure projects, with the power, ports and rail networks all in need of upgrades. Around USD 1 trillion is earmarked to be spent between fiscal year 2012 and 2017.
The fast-growing Indian economy should put equity investors in a position to benefit from rising demand in a number of sectors.
Consumer consumption remains a favourite investment theme. Urbanisation and a growing middle class should drive consumption for years to come. Companies in sectors such as telecommunication services, consumer staples, personal care, healthcare and consumer banks can be expected to do well as the middle class flexes its increased spending power.
In telecommunications, for instance, we expect prices to start rising from an all-time low. We see banking industry revenue growing fivefold to 10.6 trillion rupees by 2020 from 2009 levels. Life insurance is another sector poised to grow at a fast clip.
As wealth and investment shifts from the public to private sectors, we expect private sector banks to benefit since they are more efficient and have better processes and technology that state banks. With so much growth expected in the private sector, equity investors have a chance to do well.