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Global investment bank Deutsche Bank stated that investors may be too pessimistic about Indian equities, adding that it expects the government to now accelerate policy reforms and step up spending.
The India Equity Strategy report dated 24th March noted that the Indian markets are trading at a discount to long-term averages in terms of valuations.
“The market is now down 7% since touching its 52-week high in December, with valuations now at 13.3x (14% discount to its 5-year trading average). The premium to MSCI Asia ex-Japan also remains below LT(long-term) average. We maintain our Sensex target of 22,500 for Dec’13 end,” said the report authored by analysts Abhay Laijawala and Abhishek Saraf.
The duo wrote that sentiment amongst investors has been weak on fears of the government's inability to meet its FY14 fiscal deficit target and restore the capex cycle and GDP growth trajectory.
The analysts however, noted that the government has moved to increase diesel prices and that the Cabinet Committee of Investments (CCI) cleared five key proposals for oil and gas exploration, entailing a total investment of $9 bn to $10 bn.
Additionally, the government has also moved to rationalize foreign institutional investment in the debt market.
“With legislative maneuverability constrained and political rhetoric expected to rise as we head closer to national elections, government policy action will likely shift towards executive decisions, which do not need parliamentary approvals,” said the report.
