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

The Economic Times - - Markets: Beating Volatility - Our Bu­reau Shilpy.Sinha@ times­

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.”

—Ra­jesh Mas­caren­has

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