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Fiscal may
see 20-per cent jump in equities: Salomon Smith Barney study
Our
Markets Bureau
Mumbai, Jan 7: India's equity market is expected to
witness an upside of 20 per cent during 2002, with recovery,
which according to Salomon Smith Barney (SSB) equity research,
would be driven mainly by improved earnings, easy liquidity
which would be led by local cyclicals, growth in agriculture
and increased infrastructure spending.
“We advise positioning the portfolio for the expected recovery
in 2002,” says Ratnesh Kumar, head of India research at Salomon
Smith Barney in its Asia Pacific 2002 Outlook report.
SSB maintains that the adverse impact due to the fall in India’s
weightage in MSCI will not be a hindrance to attract foreign
funds as this would be mitigated as companies increase foreign-ownership
limits.
Highlighting macro and market outlook for India, the SSB study
says: “Signs of progress are evident in the main growth drivers
for FY03 and therefore, we are overweight on local cyclicals
and IT services on the back of robust earnings growth and improved
visibility in 2002.”
Further, the report recommends automobiles, capital goods, IT
services, media, pharmaceutical and oil and gas to be overweighted
in 2002-03, while banks and financial institutions, consumer
non-durable, metals and telecoms were placed as being underweighted.
However, SSB has cautioned market movements in the first half
of the calendar year on political grounds (with elections pending
in Uttar Pradesh), as it believes policy initiatives over the
next year will take in the outcome of the election results.
On the macro front, the economy’s growth drivers are low oil
prices, stable interest rates and global recovery — which in
turn will help merchandise and software exports.
Automobiles and capital goods offer the best way of forecasting
recovery due to their high leverage, the report said. The optimism
in automobiles and capital goods was despite recent gains in
their stock prices as valuations seemed appealing against their
three-year lows.
The report said, IT services are expected to post robust earnings
growth with more global environment support in 2002 in terms
of both sentiment and medium-term earnings visibility, while
the recommendation of overweight in oil and gas is backed on
expectations of decontrol in this sector by the government in
the first quarter of 2002 due to the prevailing soft global
oil prices.
However, in case of cement, SSB remained cautious following
its stretched valuations due to a recent rally and concerns
over the substainability of aggressive price hikes.
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