)
Thus after cutting repo rate by 25 basis points in January’13, the Deutsche Bank group expects Reserve bank of India to continue on the rate easing cycle and expects a further 75 bps cut in repo rate over the course of 2013. The group feels that the inflation has started to ease out (last announced at 6.62 percent) and growth slowdown has become a key concern. They expect RBI to maintain an accommodative stance- which should be a key tailwind for Indian equities.
Laijawala believes that” the Onus of Transition from vicious to virtuous cycle will initially rest with New Delhi and the Reserve Bank of India during the first half of 2013, before the baton is taken over by the private sector”. Thus while policy reforms and RBI actions will continue to give momentum during first half of 2013, Laijawal feels that the first green shoots of the private sector capital formation will start to be seen in the Second half of 2013. The revival of private sector will drive growth during the second half and in turn the equities market.
The group does not see elections as a major threat to growth as Laijawala adds that “A back-ended state election, calendar (with most key states due for legislative assembly elections in November-December) should help continue its reforms/policy agenda” .
The Deutsche Bank India Equity Strategy team maintains a positive view on Indian equity markets in 2013 and believes that performance of Indian markets will largely be determined by policy action.
The group maintains its Sensex target of 22,500 by December 2013 underpinned by expectations of (i) economic pragmatism from the government despite the imperatives of pre-election year populism, (ii) monetary easing; (iii) government’s perceived urgency in addressing policy issues, (iv) likely turnaround in corporate earnings cycle and (v) recovery in global growth, driving stronger risk appetite. However, further deterioration of current account deficit and continuation of DII selling remain key risks to its positive outlook.
They feel that the recent correction provides an opportunity for investors who had missed the bus during the last few months of rally. Amongst the sectors they prefer the Domestic reforms play (as the interest sensitive’s), Sectors as IT and Metals that are dependent on Global recovery as-well-as Oil and Gas which will get momentum by the domestic policy reforms.
