EU to stay weak; India to grow in FY14: Deutsche Equities

Abhay Laijawala, head-research, Deutsche Equities India says that the 2013 outlook for Europe has not improved and expects RBI to cut rates by 75 bps in six-to-eight months. The concerns over Chinese property market were not unexpected and the market overreacted, he adds.

"I expect the FY14 India GDP growth to be better than FY13 and the yen at 100/USD is a near-term possibility. The Indian market is expected to consolidate in the near-term. Considerable domestic institutional selling has offset foreign inflows and I expect policy action from the government to continue supporting the market," he told CNBC-TV18.
He expects earnings to pick up from Q1FY14 and GDP growth to recover from next quarter onwards. "India is relatively attractive versus China due to realty market concerns and I hope to see business confidence improving as growth picks up.  The current account deficit is a key worry for foreign investors and FII inflows may slowdown if the rupee depreciates further."
Issuances, divestments could crowd out secondary market flows and risk appetite will be driven by growth prospects in China, the US and the EU, he says.
"DTAA concerns have been put to rest after the FM’s clarifications and China will continue to significantly influence commodity prices. I remain constructive on banking-stocks on hopes of pick-up in growth of loans. Investors are concerned about the recent midcap carnage." Below is the edited transcript of the analysis on CNBCTV18 Q: What lies ahead for India? After recording a scorching performance in 2012, it has been one of the relatively weaker performers in 2013?
A: I think there has been some consolidation in the Indian market. Honestly, that consolidation has come largely from domestic factors rather than global cues. Though foreign institutional investors continue to repose their faith in India with inflows at close to USD 8.4 billion, there has been a considerable amount of DII selling, close to 75 percent of which is driven by insurance companies. Until domestic institutional selling driven by insurance does not ebb, I think the markets may continue to consolidate. Simultaneously, the indications from the government are positve. Q: What’s the global-investor outlook? Having invested so much money, is disenchantment setting in either on earnings or growth?.
A: The flows have started to weigh-in more on account of the recent risk-off created by fears from Europe particularly after the Italian election results and over what might happen in the US. Regarding earnings, the expectation is that the earnings cycle will probably start improving from the June or the first quarter of FY14. At the same time, investors are looking for more government initiative. Continued reform initiatives from the government should provide more direction to the markets. Q: The market held out and turned quite bristly in the face of huge inflows. What will happen when the investments start being withdrawn?
A: These fears have been prevalent for a long time due to the increased dependence on foreign flows. But at the same time I think India needs to be viewed in a global perspective where all the right ingredients for growth are present. GDP growth is troughing out and at the start of next quarter, it will start to recover.  India could be at the cusp of aggressive monetary loosening. Therefore, the likelihood of foreign institutional investors reducing their exposure to India is reduced. Q: Are the market and the economy looking distinctly vulnerable?
A: The spate of government action and return of policy certainty has strengthened India’s position and the economy is confident of a return to growth.