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Moneycontrol.com >> Messageboard >> General >> Business Talk >> Earnings upgrades to drive up market: HSBC
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Earnings upgrades to drive up market: HSBC (4)   21-Nov-09 12:47Track this thread   Tracked by (0)  
Posted by:   stocktobuy on ( 21-Nov-09 12:47 )
Addressed to  Dakshina murthy,  bhusbhac,  BullSheetRules,  chief_kamani,  dipakgod,  DONVITO,  hsnmf,  iinvestr,  insight95in,  maximindia,  mohankumar1000,  netdo,  pandumanu,  marketman,  radhika_nandlal,  ramsfm,  rvk41,  bookworm,  Option Analyst,  srisri223,  tara23,  sam_pd



MUMBAI: Indian equities are expected to move higher over the next 12 months, as surprises in companies’ growth could trigger earnings upgrades, said Why realty is good investment
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HSBC. But the bank has an ‘underweight’ rating on India, because it expects gains here to lag other countries.

“Growth expectations remain low and we see a significant room for upgrades to EPS forecasts. Analysts have yet to factor in an economic recovery, and EPS upgrades will be the major factor which will provide support to equities,” said Vivek Ranjan Misra and Garry O Evans, strategists at HSBC, in a recent report.

Though the valuation of the benchmark Sensex at 17 times next year’s earnings indicates limited room for upsides, earnings growth upgrades over the next 2-3 quarters will provide support to the market, the bank said. HSBC’s target for the Sensex is 18,000 and for the Nifty is 5,350 by the end of 2010.

On Thursday, the Sensex closed at 16,785.65 and the Nifty ended at 4989. Both indices have risen close to 94% since March 9, 2009.

A wider section of the market has been concerned over the existing value of Indian shares, terming it as ‘expensive’. Fund managers said Indian equities stand the risk of limited upsides hereon and a sharper fall than other emerging markets in the event of a correction.

HSBC sees the Reserve Bank of India’s (RBI) monetary policy tightening, led by stronger economic and earnings growth, as a key cause of concern for investors.

“While this (tighter monetary policy) may cause equity markets to pause, the negatives from rate tightening should be outweighed by the upside to the stock market from positive revisions to growth expectations,” the bank’s strategists said. “The clash between the two forces — rising growth expectations and withdrawal of monetary easing is likely to cause volatility,” they said.

HSBC expects RBI to hike the cash reserve ratio (CRR) — the minimum amount banks need to hold with the central bank in cash — by 200 basis points, or 2%, and policy rates by 125 basis points, or 1.25%, in 2010. But the rate hikes are unlikely to impact growth in 2010-11, the bank said.

“Tightening will be the result of a pick-up in growth. So, this won’t be a disaster for equities. However, evidence suggests the first move in a tightening cycle causes the market to pause,” the strategists said.

HSBC, however, thinks downside risks are limited, because “upside surprises to growth and low interest rates in the US create an environment supportive of EM assets”. It expects a “buy on dips” strategy is likely to prevail. The bank has ‘overweight’ ratings on private sector banks, industrials, consumer staples and IT, and ‘underweight’ ratings on materials and healthcare.
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