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Mar 08, 2013, 11.52 AM IST | Source: Moneycontrol.com

India stories look weak, watch for currency risks: Kotak

Brokerage house Kotak Securities expects weakness in consumption and investment demand to continue beyond May 2014, and sees current account deficit woes weighing on investor sentiment.

Moneycontrol Bureau

Brokerage house Kotak Securities expects weakness in consumption and investment demand to continue beyond May 2014, and sees current account deficit woes weighing on investor sentiment.

"With capital flows into India hostage to (1) global liquidity and sentiment and (2) India’s reforms process, we recommend that investors build sufficient currency hedges in their portfolios against any sudden depreciation in the Indian Rupee," says the Kotak note to clients.

Barring a couple of sectors like FMCG and banks, valuations have become reasonable after the recent sell-off say Kotak strategists Sanjeev Prasad, Akhilesh Tilotia, and Sunita Baldawa. But they caution that low valuations alone would not be sufficient reason for buying.

"India’s inability to fix the institutional framework for investment, weak balance sheets of infrastructure companies and upcoming election cycle may result in investment cycle remaining subdued for a prolonged period," write the trio.

Kotak has cut the weights of consumer staples, HDFC and SBI in its Model Portfolio and allocated more weight to metals (zero position previously), pharmaceuticals and regulated utilities.

The brokerage continues to be underweight (1) investment stocks, given no sign of recovery in the investment cycle, (2) banks, where the worst is yet to come and investors too sanguine about the quality of books of banks (both private and public) and (3) metals (ferrous) despite a severe correction in stock prices in the past few weeks.

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READ MORE ON  Kotak Securities

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