CLSA Cuts India Weight, Says Fed Tightening to Impact EMs
GURU SPEAK Who succeeds Yellen as Fed chief will also be critical for markets: Wood Insurers’ Individual New Business Income Jumps 25% in Ist Half
Mumbai: Christopher Wood, CLSA’s chief equity strategist, in his widely followed newsletter ‘Greed and Fear’ said that the firm has reduced its overweight on India in its Asia-Pacific ex-Japan relative-return portfolio to make way for a one percentage point increase in its weightage on Thailand.
Indian markets are currently at lifetime highs with the Nifty up 24.2% and the Sensex up 21.8% for the current year.
High valuations and a delay in earnings recovery in India have prompted global money managers to look at other markets which are cheaper. However, India remains one of the biggest overweight markets for emerging market equity funds.
Wood believes that the US Federal Reserve’s move to start balance sheet reduction is a risk for asset markets as it is a form of monetary tightening.
Wood said that there has not been a fallout in markets due to the balance sheet reduction announcement as the Fed has begun tentatively by decreasing its reinvestment of maturing bonds and also because the G7 central banks are still expanding in aggregate. Hong Kong-based Wood said the The Nifty hit a record high a week before Diwali and sectors such as fertilisers, telecom services, retail and pharma have outperformed since September 19 (Nifty’s last peak). These sectors have gained between 3% and 6% since the index hit its last peak as against 0.14% gain in the Nifty. Analysts remain very optimistic about earnings recovery in the coming quarters on the back of another good monsoon, which is likely to support and drive growth for the rural economy, which is the engine for consumption growth. Here are some of the top sectors and stocks that have outperformed the benchmark since Nifty's last peak. *% Chg over Sep 19 Fed’s move to begin quantitative tightening is surprising given that inflation remains well below the US central bank’s 2% target.
Wood’s base case is that the Fed will reverse its course sooner rather than later.
“The risks raised by the Fed’s re- Bharti Infra Coal India Bharti Airtel
Hindalco Inds. Tech Mahindra TVS Motor Co Ashok Leyland Petronet LNG Havells India Lupin
Siemens Canara Bank Exide Inds DLF NMDC Rural Elec Corp Power Fin Corpn ICICI Bank SAIL Larsen & Toubro *% Chg over Sep 19 450.15 288.05 431.60
266.14 475.05 699.00 125.20 250.95 540.00 1,061.40
1,240.40 308.20 205.05 172.95 120.30 155.00 123.85 271.39
57.75 1,138.50 Mumbai: Riding on the growth of unit-linked insurance plans (ULIPs) and bullish market conditions, the insurance industry reported a growth of 25.2% in individual annualised premium equivalent, while the private sector insurers grew 36.6% in the first half of the financial year.
State-run Life Insurance Corporation (LIC) saw a growth of 13.3% in the segment, according to the data released by the Insurance Regulatory and Development Authority.
The newly listed SBI Life reported a 48% increase in income on the annualised basis, while the other large listed company, ICICI Prudential Life, saw a growth of 38.8% in the first half of the financial year. HDFC Life, which is looking to list in this calendar year, saw a 38.5% increase in income on the annualised basis. Other large players like Max Life saw 18.8% and Bajaj Allianz Life reported a 65.6% increase in premium income during the first newed attempt to normalise are that either economic conditions or market conditions, or a combination of both, may force it to reverse; and with such a reversal there is a much greater risk of a resulting loss of central bank credibility,” said Wood.
Going forward, the issue of who will succeed Janet Yellen as the Fed chairperson will be critical, said Wood. For now, it is not clear if Yellen will be chosen to head the US central bank again when her term expires next year.
“If the Fed chairmanship is taken over by someone prioritising “normalisation” over “data dependency”, and prioritising targets inflated asset prices over core CPI or PCE inflation, then the immediate consequences for asset markets will be much more negative given that the S&P 500 is trading 24 times GAAP-adjusted earnings and given that the macro trend in corporate earnings in America in recent years is much less healthy than what is suggested by the performance of the American stock market,” said CLSA. 13.39 11.56 9.35 7.90 6.41 6.01 5.97 5.89 5.75 5.53
-11.78 -10.07 -9.43 -9.43 -9.34 -7.98 -7.88 -7.80 -7.60 -7.17 half of the fiscal.
“For ICICI Prudential Life, growth normalised to about18% from 100% YoY in May 2017, as base normalisation played out,” said Edelweiss in its report. “The tilt towards financial savings and higher inflows post demonetisation helped the industry register impressive growth. We expect growth to sustain through balanced contribution from distribution channels and strong ULIP traction, but H2FY18 may see some moderation due to the base effect.”
Smaller companies like IndiaFirst Life, Canara HSBC OBC saw a growth of 100% and 80.8%.
While first half has seen strong flows, industry leaders expect a slowdown in the second half due to the absence of strong flows post demonetisation.
“Insurers are seeing growth in the sale of ULIPs, which is the flavour of the season given the soaring equity markets,” said Vighnesh Shahane, MD and CEO, IDBI Federal Life Insurance. “We are growing our share of ULIPs, but par and non-par are also growing.”