[T.S.R:16995] India: A Year Of Sub Par Returns (Nomura)

Nomura: See a year of below-average returns

We judge 2011 to be a year of below-average returns for the market, with a potential return of around 12%. At the same time, we think the policy environment will likely tighten more than expected, restricting premium expansion for equities. 

Liquidity squeeze and slower growth momentum

Extremely tight systemic liquidity conditions would result in a slowdown in growth. 

Inflation déjà vu

Rising global commodity prices are becoming a clear and present danger to domestic inflation. Labour shortages are becoming a binding constraint on growth and are further feeding the wage-price spiral. 

A subpar recovery of the investment cycle

We expect some disappointment in the short to medium term. We see several obstacles to the capex cycle despite strength in demand; reports of government involvement in recent scams will likely impede government decision-making related to infrastructure projects and the reforms process. 

Earnings — potential disappointment to consensus expectations

Amid a tough macroeconomic environment next year, we see downside risk to consensus growth expectations of 20%. 

Sector stance — take a defensive stance

We favour a defensive bias when approaching sectors for next year. We recommend a relative Underweight stance on rate cyclicals, construction and cement and a relative Overweight stance on consumer, pharma, power, oil & gas, metals and IT services. 

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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