Herald van der Linde, HSBC said risks to growth are rising and there's limited room for support from rate cuts. He feels the delay in the recovery in the investment cycle and poor monsoon expectations will continue to put pressure on earnings.
According to him, earnings expectations are already high – too high in his opinion – because of optimism about growth, while concerns about the monsoon could further dent rural demand. Consensus has cut CY15 earnings estimates by 2.6 percent in the last two months. This is not good news for India Inc, he believes.
He stayed underweight on India.
"India is still the most overweight market in the region in terms of the holdings of overseas investors. This is also reflected in high valuations – at a 12-month forward PE of 17.1x, the market is trading at a 17 percent premium to its five-year average. Investors have started to take money off the table in India but it is still an overcrowded trade. We believe that valuations need to adjust downwards. As a result we stay underweight on Indian equities," he explained.
In the current scenario, sectors he likes are capital goods, private banks, power and metals and sectors he would avoid are IT, real estate and healthcare.
His key buy ideas are Bharti Airtel, HDFC Bank (also an HSBC Asia Super Ten constituent), NTPC (also an HSBC GEMs Super 15 constituent), Maruti Suzuki and Hindustan Zinc.
However, his key Reduce ideas are BHEL, M&M Financial, Bank of Baroda, Tata Steel and Ambuja Cements.
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