 "A stock market or a market of stocks")
Fundamentally speaking nothing seems to be going right for the Indian economy, yet market continue to remain high. BNP Paribas says that Indian equity markets are an enigma, despite ghastly macro (large CAD, declining growth, sticky inflation expectations) market continues to attract record inflows.
BNP Paribas reasons that this may be due to lack of choice in rest of Asia. Despite a macro-economic slowdown, India still offers investor a bouquet of good quality stocks generating good earnings growth, cash flows and ROEs. Their report titled ‘A stock market or a market of stocks’ says that nearly 80% of FII flows have gone in 20-25 stocks.
For this list of stocks macro-economic pulls and pressures have not mattered much. Crunching data, the broking outfit says that while GDP growth has collapsed from more than 10% to less than 5%, the revenue and earnings growth of this select group has been resilient in the range of 15-25%. Little reason than these stocks attract FII flows, concludes the report.
Currency and current account, it believes are the main challenges going forward. The rapid deterioration in India’s basic balance has left the economy increasingly dependent on ‘hot money’ inflows to finance the current account. According to BNP Paribas India’s current account deficit was financed by ‘hot money’ inflows in FY13. It defines ‘hot money’ as banking capital, trade credit, equity and debt portfolio investments.
On the impact of anticipated withdrawal of QE, BNP Paribas feels Indian Rupee is vulnerable as it has one of the highest current account deficit in Asia. The broking firm feels that the Indian rupee is still over-valued by 4% against the dollar from a PPP (purchasing power parity) perspective.
The report concludes by saying that growth recovery will be ‘bathtub shaped’ (long and slow recovery) on the back of lower prices and lower interest rates.
BNP Paribas reasons that this may be due to lack of choice in rest of Asia. Despite a macro-economic slowdown, India still offers investor a bouquet of good quality stocks generating good earnings growth, cash flows and ROEs. Their report titled ‘A stock market or a market of stocks’ says that nearly 80% of FII flows have gone in 20-25 stocks.
For this list of stocks macro-economic pulls and pressures have not mattered much. Crunching data, the broking outfit says that while GDP growth has collapsed from more than 10% to less than 5%, the revenue and earnings growth of this select group has been resilient in the range of 15-25%. Little reason than these stocks attract FII flows, concludes the report.
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Going forward BNP Paribas says that economy is unlikely to pull itself up. Though consensus GDP target in the market is 6%, economists at BNP Paribas feel that the country can clock only 5.5%.
Currency and current account, it believes are the main challenges going forward. The rapid deterioration in India’s basic balance has left the economy increasingly dependent on ‘hot money’ inflows to finance the current account. According to BNP Paribas India’s current account deficit was financed by ‘hot money’ inflows in FY13. It defines ‘hot money’ as banking capital, trade credit, equity and debt portfolio investments.
On the impact of anticipated withdrawal of QE, BNP Paribas feels Indian Rupee is vulnerable as it has one of the highest current account deficit in Asia. The broking firm feels that the Indian rupee is still over-valued by 4% against the dollar from a PPP (purchasing power parity) perspective.
The report concludes by saying that growth recovery will be ‘bathtub shaped’ (long and slow recovery) on the back of lower prices and lower interest rates.