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India: Underweight to overweight - Views on News from Equitymaster
 
 
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  • Apr 29, 2009

    India: Underweight to overweight

    Analysts turn bullish on India
    With the stock markets rising handsomely over the past few weeks, brokerages in India are also waking up and smelling the coffee. As per a leading daily, in the past five days, quite a few of them have come out with reports stating that the worst indeed seems to be over for the economy and recovery should start taking place by as early as this June. Surprisingly, this observation is in stark contrast to that of the Indian central bank who in its economic review last week had said that worst is still not over yet.

    Perhaps, as pointed out by the paper, it has to do with the differences in their approach. While brokerages look at lead indicators such as money supply, foreign exchange reserves and fund inflows, the RBI is concerned with what is actually happening in the real economy like the consumption and investment patterns. However, it is observed that what usually drive the stock markets are the lead indicators and hence, waiting for the real economy to show signs of picking up may not be a very good approach to have. It should be noted that even during the plunge, stock markets declined much before than things started worsening in the real economy.

    India's steel demand to remain robust
    The fact that India will fare much better than the rest of the world was also endorsed by the World Steel Association, who in its outlook for the global steel sector predicts India's steel demand to grow by 2% in the current calendar year. While this may not sound sweet enough, it has to be borne in mind that the association expects global demand to fall a significant 15% and hence, by that yardstick, India is indeed in a lot better position.

    The association expects global demand to stabilise during the second half of 2009 and lead to a mild recovery in 2010. "The improvement in steel consumption for the second half of 2009 will depend on the effects of government packages, the continued stabilisation of financial systems and a return of some consumer confidence," is how the association chairman chose to put it across.

    Large US banks again in the line of fire
    Large banks in the US, such as Citigroup and Bank of America, have been told by the regulators to raise more capital as they have been found vulnerable in the stress tests that are currently underway to determine the health of the US banking system. The executives at these banks though are not willing to accept the verdict and are preparing for a detailed reply to the so called accusations.

    Regulators, on their part, have maintained that the advice to raise capital should in no way be equated to the banks' insolvency but should be seen as an attempt to cushion the banks against future losses should the economy take a turn for the worse. However, these are not the only two banks in the firing line. As per analysts, some regional banks with big portfolio of commercial real estate loans are also vulnerable to a significant rise in non performing assets.

     

     

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