US's Loss is India's gain? Foreign Brokers Start Upgrading Indian Economy.

Mumbai: Even as Indian markets continued to slide on risk aversion of investors globally, foreign brokerages, led by Goldman Sachs, have started turning positive on the country.

The slowdown in developed markets following the downgrade of the US, along with decent valuations, makes emerging markets like India attractive from a medium-to-long term perspective, is the refrain.

Seven Goldman analysts, in their note on Monday said they expect a turnaround in India’s macro cycle, which, along with lower oil prices, lower valuations, and progress in policy reforms will benefit local equities.

“Given recent developments in the macro landscape, we are moving India to a market weight (neutral) stance from underweight, which we have held for over a year. We believe enough progress has been made to warrant a relatively more optimistic view,” wrote the analysts said.

Earlier last month, Nomura and UBS had raised their weightage on India on reducing domestic concerns.

RBS, too, has been positive on India and expects India to outperform global markets over next 12 months.

The 17% fall in crude prices over last one month due to concerns related to global slowdown amidst debt crisis in Europe and US is the primary reason for hope.

According to experts, though markets are likely to remain under pressure in near term due to risk aversion, valuations have corrected a lot and are now looking attractive from medium term.

“Currently there is lot of uncertainty on the global front which has led to the reduction in risk appetite among foreign investors. Though flows could remain muted in the near term as passive money moves out, valuations have become attractive and many of the domestic concerns like higher commodity and crude prices seem to be easing off. There has been progress in policy actions in sectors like oil & gas, fertilisers and retail, which is likely to continue. With Indian markets having corrected much before others, we can expect things to settle down in a few days,” said Sandeep Nanda, CIO at Bharti AXA Life Insurance.

The benchmark Sensex on Monday lost 315.69 points to close at 16990.18, its lowest close in almost 14 months.

“We expect the Indian markets to decline in the next few trading sessions as India is a high beta market and therefore risk aversion will lead to a kneejerk sell reaction,” wrote Suresh A Mahadevan, Gautam Chhaochharia, Varun Ahuja and Sanjena Dadawala, analysts at UBS India, in a India market strategy note on Monday.

“However, we believe that Indian stocks are likely to be attractive to foreign investors in the medium to long term as weakening crude and decline in global commodity prices will result in peaking of policy rates. India is likely to have more attractive growthprospects versus developed markets and other emerging markets, in our view,” they said.

The Sensex has corrected close to 9.9% in the last one month, first due to interest rate tightening by the Reserve Bank of India and then due to global concerns.

This has drastically reduced the premium India commanded over its peers.

“Currently, MSCI India trades at just 14 times forward earnings, or a 21% premiumto the region.On an absolute basis, a 14 times multiple is in the 37th percentile relative to India’s 10-year multiple range, which we believe is a relatively attractive entry point.History suggests that at current valuation levels, India may moderately outperform the region on a six-monthbasis,” the Goldman Sachs, who expect Nifty to touch 6600 by September 2012, said.

Source : daily.bhaskar.com