Dec. 12, 2010 (The Hindu Business Line) --
Jayant Mallick
Market is likely to remain choppy this week. Year-end calculations are likely to kick-start profit-booking by certain money managers.
An uncertain Europe and relatively undervalued emerging markets have kept hedge funds on the toes; their strategy options for Dalal Street in the short term are likely to tilt towards mopping up of profits.
Local operators also do not seem to be overly bullish. In the short term, advance tax numbers may provide some clues to the corporate profitability for this quarter.
Advisors to long-term investors have, however, begun their exercise to figure out what lies ahead for the Indian equities in the backdrop of the $30-billion FII inflow into equity this year. Morgan Stanley (NYSE:MS) analysts indicate that Indian household's allocation to equity has fallen sharply following the credit crisis.
Deutsche Bank sees India entering the New Year with a great deal of interest and goodwill from the investor world. “We see ingredients in place for another high growth year, but remain concerned about the supply/demand dynamic with respect to inflation. We have also reduced our expectation of major reform initiatives or legislative achievements in the coming year due to a likely rise in political noise.”
Morgan Stanley took a dim view of low penetration of financial savings and existence of black money, even as its estimates suggest that the share of financial savings increased to 53 per cent in FY2010 as real interest rates increased to 3.6 per cent.
Still, Deutsche Bank (NYSE:DB) foresees India continuing to be one of the most compelling investment destinations in the world with its rising economic strength and underlying potential.
It further speculated that the November PMI may point to a continuation of a strong production trend. However, it expects the year-on-year IP growth rate to ease somewhat, mainly due to strong base effects.
Nomura says it expects a moderation in the headline industrial numbers and supply constraints-triggered elevation in inflationary pressures, even as growth consolidates in 2011.
It predicts industrial output growth to average 8.4 per cent in FY11 and 7.9 per cent in FY12 owing to the lagged effects of tighter policy. “Looking ahead, we see headwinds to year-on-year industrial output growth.”
Fewer working days in November may result in a sharp pullback in industrial output growth numbers, the financial conglomerate reckons. It notes that base effects are also adverse over the next few quarters: Industrial output growth averaged 15.1 per cent year-on-year between November 2009 and May 2010.
In addition, extreme tightness in domestic liquidity conditions has sharply raised the cost of working capital and is likely to be an overhang on production.
“The key tailwinds to industrial output growth are recent signs of a recovery in exports and the rise in the manufacturing PMI index to 58.4 in November from 57.2 in October. The OECD's composite leading index for India, which has a lead of six months on industrial output growth, also suggests that demand is consolidating and not slowing very sharply,” says Nomura.
jayanta_mallick@thehindu.co.in
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