The Indian share (equity) market is poised for a repeat of impressive performance even in 2015 driven by faster GDP (Gross Domestic Product) growth & highest corporate earnings among the global peers as well as growing expectations of monetary easing by the global central banks due to deflationary fears.
Credit Suisse Equity Research. - 2015 Outlook: Growth at any price?
According to a Credit Suisse report titled "2015 Outlook: Growth at any price?. “The Indian equity market is set to extend its strong performance momentum into 2015, after topping the chart to be the best performing equity market in the world this year, strong medium-term prospects for India come from an extremely low base and a significant improvement in state-level governance".
The Highlights of Credit Suisse Equity Research
* Easy global monetary conditions, and India’s relatively strong growth in a world struggling for it are the key factors driving it.
* The Indian market could be impacted by lower dollar linked revenue growth from the export oriented sectors as well as Indian Rupee (INR) linked revenue, a large portion of which comes from banks that have substantial exposure to companies affected by slower global growth even though India's GDP growth is expected to be the fastest in 2015,
* Indian market is expected to see the strongest earnings growth among the global peers.
* The Indian equity market is inexpensive in both absolute & relative terms.
*As per consensus earnings growth estimates, the 2 - year annual compounded growth rate for India is 16%, compared to 13% for European Union, 11% for the US and 10% for China as well as Japan.
* The overall economic impact of lower commodity prices will only be slightly positive as lower commodity prices would also impact India's exports, the report said.
* India to see the fastest US $ nominal GDP growth in 2015 at about 12% with the growth gap between India and the rest of the world expanding. Global real growth in 2015 is expected to be marginally higher than 2.6% in 2014 as there is fear of deflation setting in again.
* Indian markets could get hurt from global weakness as markets are much more linked to the world than the economy .
The return of deflationary fears in the developed world that is likely to drive central banks towards more monetary easing. The quantum of quantitative easing (QE) in 2015 is likely to be nearly double that in 2014.
Mr. Neelkanth Mishra, MD, India equity strategist, Credit Suisse said, “ Despite this steep rally, the valuation premium for Indiaversus equities globally has not expanded as much and the strength in Indian equities is backed by the rising preference for equities globally.”
Morgan Stanley India’s analysts Mr. Ridham Desai, Ms. Sheela Rathi and Mr. Utkarsh Khandelwal, with index target of 32500 for December 2015 in their Indian Equity Outlook report for 2015 said, “ Sentiment is strong with support from flows and momentum - our market timing indicator suggests that market mood is buoyant though yet to hit exuberant territory. The market could face heightened volatility in 2015 from government action or lack of it and from rising equity supply.”
* There are 2 aspects of the world economy that are impacting Indian macro & equity market performance-the trend in commodity prices especially oil & the direction of interest rates especially those in the US.
As commodity prices are weakening after a long super-cycle, India is beginning to benefit from improving terms of trade. If current levels of commodity prices are maintained for the next 12 months, estimate that India’s net commodities trade deficit could decline by about 1% to 4.5% of GDP from 5.5% of GDP as of 12 months ended August 2014,” Desai, Rathi and Khandelwal said in their outlook for 2015.
“The overall economic impact of lower commodity prices will only be slightly positive with marginal impact on balance of payments (expected to stay at $40-45 billion) and a low impact on inflation but could help fiscal deficit assumptions for FY16E,” the report said.
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