Earnings recovery continues to be elusive, see positive policy surprises: BoAML

Ajay Kapur of Bank of America Merrill Lynch says India has shown strong improvement in its macro fundamentals, however, the earnings recovery continues to be elusive.

Steep EPS growth expectations of 18.3 percent for 2017 are vulnerable to downward revisions as the currency is much less competitive compared with its peers in emerging markets, he feels.

Kapur says 13.8 percent year-to-date returns in USD terms have driven valuations to expensive levels historically as well as compared with other emerging markets in the region.

However, PM Modi's recent victories in state elections could lead to positive policy surprises, and that is a risk to underweight rating, he says.