Global Economy Indian Economy
Deutsche Bank continues to remain positive on the Indian equity market, despite its 6% coming off from the recent highs.
Abhay Laijawala, the head of research at Deutsche Equities India, said that they are yet constructive on the Indian equities market. This announcement was made at Deutsche Equities India's annual investor conference.
Deutsche Bank's Indian broking arm has a target of 18,000 on the Sensex for the ongoing calendar year, but it however, believes that the target could also be overshot in the next few months. And this can be presumed as a result of global central banking pumping the world with liquidity that this target is likely to be overshot.
Moreover, the bank said that it has also seen two longer-term refinancing operations (LTROs) by the European authorities, which have pumped in close to $700 billion of liquidity in the system. Also the US Fed has been hinting that it will keep interest rates low for a far longer time than one had anticipated.
The head of equities at Deutsche Equities India, believes that the Indian market will continue to attract even more foreign institutional investors' money, as a lot of them are still underweight on this country. Their studies have found that about $7 billion of FII money is coming into India. The researchers said that a lot of foreign investors have missed this rally, as the market went up too soon and too fast. Still, there are many FIIs who are underweight on India and there still is potential to attract lot of more FII inflows.
Moreover, the equity strategists at Deutsche believe that the pace of the current market rally will be determined by three key domestic events-the state election results due on March 13th 2012, the Reserve Bank of India's policy meeting on March 15th , 2012 and the Union Budget.
The elections would determine if the central government can push through reforms, while the RBI is expected to further ease liquidity in the policy. The Budget, on the other hand, is expected to work towards fiscal consolidation through lower subsidies, higher service and excise taxes, encouragement to investments in infrastructure, sops to retail investors and changes in the personal tax structure.
Accordingly, Deutsche expects stocks from sectors such as banks, real estate and infrastructure to do well on the back of easing monetary policy and the government's focus on capital formation.
The withdrawal of fiscal stimulus in the form of higher service and excise duties makes Deutsche underweight on consumer staples and consumer discretionary sectors.
Deutsche Bank, however, believes a spike in oil prices due to geopolitical tensions will be a big risk for the markets. They believe that if the crude oil prices rise significantly above $130 a barrel and are sustain at those levels then it will be a big risk for the Indian market.
But nonetheless, Deutsche remains positive on Indian equities, based on bottoming out of the earnings cycle, lower interest rates, better government finances and the government's perceived urgency in addressing policy issues.
Deutsche Bank AG (literally German Bank) is a global banking and financial services company with its headquarters in the Deutsche Bank Twin Towers, Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia-Pacific and the emerging markets.