Mumbai: Indian equities are in a multi-year bull run because a stable government is at the helm in New Delhi, RBS Private Banking India said in a note on Thursday.
“Hopes for a transformation under the recently elected National Democratic Alliance (NDA) have helped India’s equity market outperform both developed markets and its peers in the emerging world in 2014," the wealth management arm of the Royal Bank of Scotland NV in India said in a report. “We believe this is just the beginning; the political transformation has set Indian equities, in motion for a multi-year bull run."
According to RBS Private Banking, based on consensus earnings estimates for 2015, if the Nifty index on the National Stock Exchange were to trade around its 10-year average valuation of 14.6 times estimated earnings for the next 12 months, it would equate to a price gain of 18% above 10,000 points.
RBS’ Indian wealth management unit expects global investors to be increasingly attracted to local markets in the coming year and see local investors being encouraged to increase their participation.
“Indeed, the pace of domestic flows into Indian equities in the second half of 2014 was the strongest since 2009, and easing inflation could also provide further room for domestic savings and financial investments to increase," it said.
Within Indian equities, RBS Private Banking prefers rate-sensitive financials and export-oriented sectors, but added that until signs of sustained economic recovery were visible, they prefer less-economically sensitive consumer staples over more cyclical areas.
They see financials benefiting from falling inflation and anticipated interest-rate cuts by the Reserve Bank of India, while export-focused industries such as information technology, textiles and health care, would be helped by a stable currency and growth recovery in developed markets.
India’s positive economic outlook, particularly relative to other emerging markets should also help undermine strong demand for Indian debt through 2015, said Rajesh Cheruvu, chief investment officer, RBS Private Banking, India.
“Fixed income markets are at a sweet spot," the note said.
Foreign institutional investors have pumped in $26.3 billion of Indian bonds in 2014, outnumbering the flow into equities, which stood at $ 16.2 billion, data from Securities and Exchange Board of India (Sebi) showed .
“We anticipate Indian fixed income markets continuing to show strong momentum, given the solid macro-economic outlook with GDP growth poised at 6.5%, falling inflation (at 6%), a credible monetary policy backed by increased liquidity, lower crude prices and government-led policy reforms," RBS Private Banking added.