India is the most attractive stock market in terms of asset allocation in a portfolio due to the current lucrative valuations and the recent government measures to boost liquidity in the economy, says global research from Macquarie.
"In terms of countries, our top pick is India. In our view, the risk and reward trade-off for India is now much improved. Besides, recent events have significantly eased concerns like high valuations, bullish earnings forecasts among others," Macquarie Research said in a report.
"Valuations in India are now much more reasonable than they have been for some time ... Most interestingly India is now trading at a discount to Asia ex-Japan, something it hasn't done on a sustained basis since 2001," Macquarie said adding that the current earnings expectations are no longer outrageously optimistic.
Meanwhile, the response from policy makers has also been very impressive. Since mid-September, the Reserve Bank of India has cut the repo rate and the cash reserve ratio by 350 and 400 basis points respectively, while the reverse repo rate has been cut by 200 basis points in a month, the report said.
As per Macquarie's outlook for economic growth in 2009, China, India, Indonesia and the Philippines would see meaningful amount of growth, while Hong Kong, Singapore, Korea and Taiwan are likely to see large contractions.
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