JP Morgan tips recovery in Indian stocks despite disappointing growth figures

4th June 2013

After a spell in the economic and stockmarket wilderness, India represents an increasingly attractive investment opportunity, according to the managers of JPMorgan Indian Investment Trust.

Rajendra Nair and Rukhshad Shroff say that government reforms should improve the prospects for the stock market, while inflation has moderated leaving scope for monetary easing.

Nair says: “The Indian government has made significant policy changes as GDP growth dipped to a decade low of 5% for 2012-13 [4.8% for the first quarter of 2013] compared with its 15-year average of 7.3% a year,” said Nair. “India had been suffering from political deadlock, which was having an adverse impact on the economy, with knock-on effects for Indian companies. We now feel an economic recovery is made more likely by the measures that have been undertaken thus far.

“Inflation in India has been stubbornly high, reaching a peak of more than 10% in 2010, but is now falling towards a more manageable level of 5%. Interest rates are still high at around 8%, but there is scope for an easing of monetary policy, and concerns about India’s current account deficit are starting to moderate.

Shroff says: “While there are not always parallels between economic and stockmarket performance, the signs for investors in Indian companies are also encouraging. Measures of valuing companies’ shares, such as price-to-earnings ratio and price-to-book value, are below their long-term averages, meaning shares can be bought relatively cheaply, while analysts expect strong growth in company earnings over the coming year. Given the current opportunity to buy growing companies at below-average valuations, we are optimistic that Indian equities have the potential to perform significantly better over the next few years than they have in the recent past.”

13 thoughts on “JP Morgan tips recovery in Indian stocks despite disappointing growth figures”

  1. Anonymous says:

    Hi Shaun
    What happens if Japan does turn out to be the template for Germany going forwards? Will it not pose lots of problems for the rest of Europe and in particular the Euro area?

    1. Anonymous says:

      Hi Josephine

      Yes it would although the extent of it would also depend of the reaction of the Euro exchange rate.

  2. dutch says:

    So,bull markets in both equities and bonds.How’s that work?

    Forbin’s right,popcorn is the only place to be long.

    The really amazing stat for me is Spanish 10 yr sub 2.5%? I mean seriously?Makes Bunds look cheap.

    1. Anonymous says:

      Hi Dutch

      The equity and bond markets are giving messages which are very different. Only time will tell which was right…

      Many bond yields rose after today’s 4% annualised print for US 2nd quarter economic growth. But Spain was 2.51% for the 10 year and Italy with all its problems was 2.68%. They are being traded as ersatz German bunds again.

      The newswires have some late and dreadful news on the Portuguese bank which is in trouble (it lost 3.5 billion Euros) so I guess more than a few will be mulling the 3.58% ten year yield there.

  3. HarryA says:

    Shaun,
    Perhaps it has something to do with the recent ECB rate move. By charging banks to use ECB facilities might it suggest to the European banks (read German Banks) that investing Bunds may be far less loss-inducing.
    Hence driving the bund yields down, despite most other indicators being positive for the economy.
    Harry

    1. Anonymous says:

      Hi Harry

      That’s a good point that funds may have shifted to what is the premier Euro bond market. But would they have not shifted to the shorter end and be more of an explanation of the 2 year yield being a measly 0.03% rather than one for the 10 year?

  4. Noo 2 Economics says:

    Hi Shaun,

    I have a further possible explanation:

    In these days of incredibly intense financial repression, particularly on cash interest rates a new phenomenon has emerged – the cash saver whom has always been in cash but is so fed up with the return s/he feels forced into “investments” that carry “risk” to them which they are very uncomfortable with, so they go to a Financial Adviser requesting the next safest thing to cash.

    The adviser does the usual knee jerk answer – sovereign bonds and maybe corporate bonds, so all these financial markets virgins are herded into sovereign bonds and hey presto! you have your very own bubble courtesy of financial advisers failing to “think” about sovereign prices before recommending them preferring instead to blindly follow the textbook. I’m expecting a crash in sovereigns in the EZ and US although the”crash” may be stretched out over a couple of years by interventions from the ECB and Fed on financial stability grounds.

    1. Noo 2 Economics says:

      … and I forgot to say – where would be the safest of them all? Germany of course! Until it isn’t…

      1. Anonymous says:

        Hi Noo2

        That is an interesting point. In a world with fewer and fewer perceived safe havens I guess such pressures will only build. However it would need some funds to be doing the equivalent I think to add up to the buying which has gone on …

  5. Chicca says:

    Among actions & reactions (expectations & results in progress) we are in a mature process that reactions from hyper inflation-80s, will lead us to hyper reactions of opposite sign.

    If this interpretation is correct, some form of QE-ECB should reverse the YTM of the bonds, in the wake of an inflationary expectation, perhaps after a last rush to new record price bund.

    The only category of bonds to derive some benefit from QE should be that of the inflation-linked. At that point, for 12-18 months, the theme will be that of a rise in interest rates in perspective, rather than that of today, the record lows.

    Among actions & reactions of the cycle time plays the physiological function of human nature to push an excess (80) other (……20’s?) ……

    1. Anonymous says:

      Hi Chicca and welcome to my part of the blogosphere

      Are you saying that you expect any QE from the ECB to be highly inflationary? And also that you expect there will be some?

  6. Anonymous says:

    turning Japanese, yes and Germany has time to watch Japan’s energy led trade deficit and consider a u turn on it’s nuclear shutdown policy.

  7. Anonymous says:

    Hi HAL

    If only you could ask that question to the world’s central bankers! Anyway it is good to know that my blog reaches Jupiter….

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