While investors are generally overweight to neutral on India, they feel that the sharp market rally over the last six months has priced in good news like reforms and rate cuts, says BofA-ML, after its India investor conference.
Policy, performance and positioning may turn out to be the three negatives in 2013 and there could be disappointment on both the GDP and earnings fronts. These were the key takeaways from the meet, according to BoFA-ML.
The foreign brokerage says these findings are in line with its expectations that the re-rating in the markets is behind us and returns hereon would mirror earnings growth.
It says that consumption demand, which is still holding up, may be displaying cracks in terms of higher inflation, smaller hikes in compensations and lower hiring targets across sectors, including software.
Meanwhile, investment demand has also failed to show any signs of improvement with most companies not looking to start any significant capex. This was reflected in a common theme of weakness across companies like Tata Motors and L&T in sectors like CVs and infrastructure, to lack of new project approvals by lenders, said BofA-ML.
The brokerage said software, pharma and private banks sounded most positive during the investor conference. It maintained its top recommendations for Maruti, Tata Motors, ICICI Bank, Lupin and DLF among he blue chips, and Havells and Yes Bank among others.
For the quarter ended December 2012, while y-o-y sales growth of Sensex companies fell to its lowest in three years, net earnings growth was at its lowest in the last 13 quarters.
Following the dismal results season, the market has started giving up its gains even as traders anticipate the upcoming Union Budget to give some impetus to the latest rally. After clocking in more than 26% in 2012, the Sensex has lagged in the recent past and is down 0.6% in 2013 so far.