BNP Paribas Downgraded India based on the bearish views contained in our latest economics team. The current policy deadlock amid high inflation will be a tough one for the current government to overcome, and indeed we may need to wait until a new government is formed in 2014 to break the deadlock. We, however, only move India from Overweight to NEUTRAL because,
India’s equity market has a strong positive correlation with commodity prices, so it is likely to be at least an in-line performer during “risk on” periods;
38% of Indian equity market earnings are derived from global cyclical sectors, the fourth highest exposure in the region.
