MUMBAI: Hong Kong-based research house Jardine Fleming has downgraded India
to Neutral from Overweight in its regional strategy, but feels the country
remains an attractive market for the long run, it said in a June report. It had
been overweight on India in the previous six months.
The report made available to Reuters on Tuesday said the change is because of
Jardine Fleming's new approach to market weightings, as its concerns about US
rates had eased. "Market strategy need no longer seek safe interest-rate
havens and indeed should increase exposure to markets sensitive to US rate
trends," the report said.
It said India's macro environment no longer looked superior to those of other
countries in the Asian region. "Whereas India seemed to enjoy at least a
chance at interest rate cuts at the start of this year, poor inflation data has
closed the door on that possibility and raised chances of a modest rise in
rates," it said.
The inflation rate measured by the wholesale price index was 6.43 per cent in
the week ended June 3 compared to 3.02 per cent in the previous-year period. The
report said the Indian economy had also lost its lead over the rest of the
region.
"Till now, India was the only country in the region to enjoy a recovery
that was consumption-led rather than export-led," it said.
"Unfortunately, we expect Indian consumption growth to peak towards the end
of this year, just as domestic demand in the rest of the region should
deepen," it said.
But the research house felt India had other factors working in its favor,
which gave it a Neutral weighting. "Local investors have unwound their
oversized, long carry forward positions, rains have alleviated fears of a
drought in the northwest and software stocks have worked off their
excesses," it said.
It said in contrast to Malaysia and Taiwan, India had performed in line with
the region and had not seen relative valuations rise. It felt India would
continue to attract both local and foreign fund interest in the long run.
"Local stock investments as a proportion of household savings remain far
below historical levels, and India's liquidity, size and broad selection of
companies will keep the market on investors’ road maps," it said.
"We feel strongly that the worst is over and that the market will post
gains the rest of the year, but more exciting investments beckon
elsewhere."
As part of Jardine Fleming’s new market weightings, Malaysia was downgraded
to Neutral from Overweight and Singapore was upgraded to Overweight from
Neutral. Most of the other weightings were maintained. India strategist Rukshad
Shroff said Jardine Fleming’s favorite sectors were software, pharmaceuticals,
consumer non-durables, private-sector banks, financial institutions and cement.
(C) Reuters Limited 2000.