INSUBCONTINENT EXCLUSIVE:
By Nupur AcharyaWhile investors in India are worried about upcoming elections and threats to economic expansion, it’s not yet time to
lighten up on equities, according to Edelweiss Financial Services Ltd.The polls are mere “interruptions” that won’t disrupt the
nation’s economic structure or business cycle, analysts led by Aditya Narain wrote in a note earlier this week.
Political uncertainty is
emerging as the key risk as Prime Minister Narendra Modi’s Bharatiya Janata Party faces elections in five states before a national vote to
Some opinion polls are predicting a win in Rajasthan for the main opposition Congress, and a close contest in Madhya Pradesh and
Chhattisgarh -- both of which are currently ruled by the BJP
11, may determine how Indian assets end 2018.
Edelweiss is urging investors to focus on the second half of next year -- a period that may
see optimism return and the business cycle kicking into high gear
The NSE Nifty 50 Index may end 2019 at 11,800, about 11 per cent higher than Tuesday’s close, the brokerage said.
“Don’t split hairs
on India’s macros, earnings and valuations -- split 2019 into two halves,” the analysts wrote
“The second half should be a smoother ride.”
Expectations of further rate increases by the Reserve Bank of India have weakened as the
country’s retail inflation in October eased to a 13-month low and oil -- India’s top import -- slumped into a bear market
The rupee’s 15 per cent decline against the dollar this year is “probably an over reaction,” and the cooling in crude prices paves the
way for a rebound, the brokerage said.
Edelweiss recommends investors tilt their portfolio toward defensives -- large-cap banks, consumer
staples, technology firms and drugmakers -- and keep an eye on opportunities the increased volatility may throw up in the run up to general
elections.
There’s one caveat to Edelweiss’ 2019 outlook
A scenario where an alliance of regional parties take power will compress the valuation premium to other developing markets, the brokerage
The SP BSE Sensex trades at 20 times one-year forward earnings, versus 11.5 times for the MSCI Emerging Markets Index.
“An unstable
government shouldn’t disrupt the business cycle -- but valuation generosity it will,” the analysts wrote.
