Outlook For 2009: India Represents A Good Buying Opportunity
Valuations seem attractive and long term-growth opportunities exist
Domestic economy has insulated India from the global financial crisis with relatively strong GDP and earnings growth versus other economies
Indias banking and financial system remains stable and robust with limited fallout likely from global deleveraging
Investors who are considering investing in India could consider acting now. Current valuations reflect challenges that India will likely face because of a slowdown in external funding and global growth. We, at Kotak expect the Indian market to consolidate post the December 2008 quarter results which are expected to be weak. The Indian market does provide good opportunity for investors seeking medium to long term gains. Indias long term growth story is driven by consumption, demographics and investments with the latter likely to see fresh impetus with the formation of a new government.
In an effort to lessen the impact of the global slowdown and stimulate growth, the Indian Government in conjugation with the Reserve Bank of India announced two separate sets of stimulus packages in December 2008 and January 2009 to boost demand, infuse primary liquidity into the system and support infrastructure development projects.
Indias macroeconomic condition and relative isolation from global events could help the BSE-30 Index move upto levels of 12,000-13000 from its current level of about 9,000 by end-CY2009E.
Indias banking and financial system
Although it has not emerged unscathed from global events, Indias banking and financial system remains among the most resilient globally.
A conservative regulatory regime sets the Indian banking sector apart from other emerging and developed economies. Often in the past, these strict policies had been criticised for being restrictive, yet this has prevented India from being exposed to the initial subprime crisis. In addition, we believe that India is relatively robust as compared to most other markets due to its predominantly domestic economy, which has insulated it from the worst of the global financial strife.
Valuations
Valuations in the Indian market seem attractive, being close to the bottom end of the historical range for the market. Investors should be aware that they can now take advantage of long-term growth opportunities. Given the inexpensive valuations, a relatively strong GDP and earnings growth versus other economies, a stable financial system and a long term growth potential, we expect a return of about 30-35% from the Indian markets in CY 2009E. In this way, the volatility experienced in FY2008, is likely to be rendered largely irrelevant over the longer term.
However, there are some analysts who claim that the Indian financial system will not be able to sustain this rapid growth in the economy, particularly in the field of infrastructure development and consumer debt.
It is true that capital inflows are scarce due to liquidity problems and foreign investors deleveraging. Corporates, in our opinion, will need to adjust to having access to less equity than they have become accustomed to in the past few years. Yet Kotak views this as a short-tem situation, which is likely to stabilise in the second half of CY2009.
A senior executive at Kotak said, We believe the long term India story still remains intact. Implied equity risk premiums in India currently rule higher than the average equity risk premium attached to India in the 90s. Valuations in the Indian market are therefore attractive given that India has structurally transformed over the last 10 years. We expect India to end FY09 with real GDP at 6.5-7.0%.
Investing In India
Important notice
The views and estimates mentioned in the above article are made by the fund management team of the Kotak Group and are not intended as a recommendation or for the purpose of soliciting any action in relation to any investments, or to be otherwise relied upon for any purpose. These have been published in the Kotak Institutional Equities strategy report dated 31st October 2008.
Investments in India are subject to the normal risks associated with emerging markets, including but not limited to risk of losing some or all of the capital invested, high volatility, variable liquidity, geopolitical risks (including political instability), exchange rate fluctuations and restrictions on foreign investors. Investments in India should, therefore, be considered only as part of a well diversified portfolio.
Domestic economy has insulated India from the global financial crisis with relatively strong GDP and earnings growth versus other economies
Indias banking and financial system remains stable and robust with limited fallout likely from global deleveraging
Investors who are considering investing in India could consider acting now. Current valuations reflect challenges that India will likely face because of a slowdown in external funding and global growth. We, at Kotak expect the Indian market to consolidate post the December 2008 quarter results which are expected to be weak. The Indian market does provide good opportunity for investors seeking medium to long term gains. Indias long term growth story is driven by consumption, demographics and investments with the latter likely to see fresh impetus with the formation of a new government.
In an effort to lessen the impact of the global slowdown and stimulate growth, the Indian Government in conjugation with the Reserve Bank of India announced two separate sets of stimulus packages in December 2008 and January 2009 to boost demand, infuse primary liquidity into the system and support infrastructure development projects.
Indias macroeconomic condition and relative isolation from global events could help the BSE-30 Index move upto levels of 12,000-13000 from its current level of about 9,000 by end-CY2009E.
Indias banking and financial system
Although it has not emerged unscathed from global events, Indias banking and financial system remains among the most resilient globally.
A conservative regulatory regime sets the Indian banking sector apart from other emerging and developed economies. Often in the past, these strict policies had been criticised for being restrictive, yet this has prevented India from being exposed to the initial subprime crisis. In addition, we believe that India is relatively robust as compared to most other markets due to its predominantly domestic economy, which has insulated it from the worst of the global financial strife.
Valuations
Valuations in the Indian market seem attractive, being close to the bottom end of the historical range for the market. Investors should be aware that they can now take advantage of long-term growth opportunities. Given the inexpensive valuations, a relatively strong GDP and earnings growth versus other economies, a stable financial system and a long term growth potential, we expect a return of about 30-35% from the Indian markets in CY 2009E. In this way, the volatility experienced in FY2008, is likely to be rendered largely irrelevant over the longer term.
However, there are some analysts who claim that the Indian financial system will not be able to sustain this rapid growth in the economy, particularly in the field of infrastructure development and consumer debt.
It is true that capital inflows are scarce due to liquidity problems and foreign investors deleveraging. Corporates, in our opinion, will need to adjust to having access to less equity than they have become accustomed to in the past few years. Yet Kotak views this as a short-tem situation, which is likely to stabilise in the second half of CY2009.
A senior executive at Kotak said, We believe the long term India story still remains intact. Implied equity risk premiums in India currently rule higher than the average equity risk premium attached to India in the 90s. Valuations in the Indian market are therefore attractive given that India has structurally transformed over the last 10 years. We expect India to end FY09 with real GDP at 6.5-7.0%.
Investing In India
Important notice
The views and estimates mentioned in the above article are made by the fund management team of the Kotak Group and are not intended as a recommendation or for the purpose of soliciting any action in relation to any investments, or to be otherwise relied upon for any purpose. These have been published in the Kotak Institutional Equities strategy report dated 31st October 2008.
Investments in India are subject to the normal risks associated with emerging markets, including but not limited to risk of losing some or all of the capital invested, high volatility, variable liquidity, geopolitical risks (including political instability), exchange rate fluctuations and restrictions on foreign investors. Investments in India should, therefore, be considered only as part of a well diversified portfolio.