The government's window to decisively push its reforms agenda forward seems to be closing. Foreign brokerages are divided on just how much success the government will taste and what growth India will realistically achieve in the coming quarters.
The government's window to decisively push its reforms agenda forward seems to be closing. Foreign brokerages are divided on just how much success the government will taste and what growth India will realistically achieve in the coming quarters, report CNBC-TV18's Sajeet Manghat and Ashmit Kumar.
In FY13, foreign investors net invested USD 25 billion in Indian equities, but the domestic investors’ net sold stocks worth USD 12 billion dollars and that is nearly 12 percent of their holdings. So far this year, the Indian market has underperformed emerging market peers.
The biggest kick has come from nervousness amongst investors over the government's ability to meet its FY14 fiscal deficit target, restore the capex cycle, and move to a higher GDP growth trajectory. This nervousness is worsening, with a political minefield going boom with almost every step.
JP Morgan says this political instability points to limited stimuli both fiscal and monetary that the government can apply to revive growth over the short-term.
Commenting on their bearish stance on Indian equities, Bharat Iyer, ED, JPMorgan said, “The government has made very credible attempts to consolidate the fiscal position in the last six months. However, in the near-term it is going to come at a cost in the form of higher inflation and lower growth. That is what we are worried about because the market has priced in a higher level of growth. We believe that it is under estimating the extent of the slow down.”
Moreover, JPMorgan pegs FY14 growth at 5.5-6 percent, saying consensus earnings growth of 8-10 percent is lower than the earlier estimate of 16-18 percent which would have been possible only with GDP growth coming in above 6.5 percent.
However, Deutsche Bank is a bit more optimistic and said, “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. We firmly expect the government to use capital formation and accelerated FDI approvals as key vehicles to raise the GDP growth trajectory.”
The bank also points to a few positive steps and expectations including, “Road orders worth 6 billion dollars from NHAI, now that Environmental and Forest Clearances have been delinked. Hikes in domestic gas pricing by April that will accelerate new investments in oil and gas exploration. Also capital formation being led by the Oil and Gas sector, given that CCI is expected to take up 31 proposals pertaining to the oil & gas sector at its next meeting.”
Meanwhile, UBS has a slightly different view and according to them domestic outflows have peaked and with the redemption in the mutual fund industry expected to ease soon, the money that's leaving the markets will do a U-turn.