Revival of capex cycle key to re-rating of market
We have had more problems this year than we will probably have next year; so, our view on the market remains constructive for 2013. We know there are issues related to governance, NPLs in the banking system, muted action on the investment side. Even global headwinds including problems in the US, China and Europe are very well known. The question is the whether these problems become bigger, smaller or remain the same. Domestically, there seem to be some constructed efforts by the government for things to be moving on policy front.
On the macro side, weak rupee, high inflation, high interest rates have persisted throughout the year. The worst-case scenario can be that these things continue, which is less likely. Interest rates are most likely to fall this year and we believe people's 2012 anticipation on the interest rate cuts will play out in 2013.
Growth may continue to surprise on the downside, but the market appears to have discounted for growth rates of about 5.5%. In fact, it may be deemed positive as it may take the RBI closer to start cutting rates. The limitation
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