RBS Private Banking expects the Indian equity markets to outperform in the second half of 2012 as it sees improvement in policy implementation by the government in the next three months.
It believes that signs of recovery in global growth, coordinated policy action in the euro zone, combined with the domestic policy progress, should see Indian equities continuing to outperform. ?The next three months are crucial for the government to enact long-awaited policy reforms, including allowing FDI in multi-brand retail, aviation, pension and insurance sectors,? it said in a note. Indian equities have outperformed most regional peers in the first six-months of 2012, amid a rising risk appetite among global investors.
While it has assigned a neutral preference between the bond and equity markets in its mid-year outlook, the private banking unit of RBS sees Nifty on course to end the year near 5,600-5,700 and sees the index EPS at R449 by the end of December. It has given relative preference to healthcare, IT and interest rate sensitive sectors, such as financials and auto, while maintaining a negative stance on telecom and consumer staples. It also picks large caps over mid caps as the recent run-up in the mid-cap stocks valuations have turned in favour of large caps.
It expects a rate cut of 50 bps by the RBI during the remainder of the year. ?Going forward, lower commodity prices should ease headline inflation, and weakened domestic gold demand will support the current account and, in turn, aid the currency and inflation, making a rate cut plausible,? said Rajesh Cheruvu, CIO, RBS Private Banking.
Cheruvu anticipates easing input cost pressure and policy rate cuts to trigger an early recovery in the earnings and investment cycle. The private banking player expects a second-half upturn in domestic growth, citing the recent momentum in the domestic PMI as an early sign of recovery.
