Credit Suisse Outlook for Indian Equities in 2014
November 25, 2013
The Indian markets will be driven by politics and developments around the “taper” to drive the market in the first half of 2014. Both will have limited impact on fundamentals, but market sentiments will still get affected. Their research suggests almost no correlation between the extent of government fragmentation at the centre and growth / market performance.
Investment Cycle Broken
They foresee the investment cycle staying broken for the next two to three years and middle-income consumption to stay under pressure as inflation and stagnant wages mar consumption sentiment. Even as two out of the three pillars of the Indian economy remain weak in 2014 the third pillar, i.e., low income consumption, is expected to stay strong given robust productivity-driven wage growth.
Earnings On the earnings side, growth is expected to stay muted as financials see the bulk of EPS cuts.
Valuations Multiples touch the low end of the ranges at times of severe macroeconomic stress, such
as the euro crisis in late 2011 or the recent INR crisis at end-August. Recently, of course, P/E bounced back from 12.8x during end-August to 14.3x currently, with a rerating of sectors such as materials, industrials and financials even as multiples for IT, staples and healthcare remained unchanged. Thus, expect the broader market to break out of the 12.5-15x P/E range some time in 2014.