Bullish calls surface as analysts begin to hope

One animal seems to have heard the Prime Minister’s call to revive animal spirits in the economy. It’s the bull that was lying in coma in analysts’ backyards. Even as North Block prepared to give a teary farewell to Pranab Mukherjee over the weekend, many brokerage analysts, especially those from foreign brokerages, seemed to have begun harbouring hopes of policy reforms and better implementation.

On Monday (June 25), Manishi Raychaudhuri and Gautam Mehta of BNP Paribas asked clients to “embrace some domestic risk in anticipation of slight improvement in policy and implementation environment.”

This was one of the four portfolio rebalancing strategies listed by the duo in a market outlook report advising bottom-up stock picking. Raychudhuri and Mehta also advised clients to "take advantage of disproportionate share price declines due to regulatory concerns or other sector-specific reasons, throw in the towel for chronic non-performing ideas without visible catalysts, and buy fundamentally good stocks with visible catalysts, even at relatively expensive valuations.”

CHANGE OF GUARD AT NORTH
BLOCK USHERS IN OPTIMISM

• BNP Paribas sees policy reforms, implementation picking up
• Falling crude prices, weaker currency seen as positives
• JPMorgan, Deutsche turn overweight
• Deutsche sees valuations cheapest in 20 years
• Barclays sees opportunities to bargain hunt
• Some others see positives, but still cautious

The French brokerage is not alone. On Thursday, Ambit Capital’s Saurabh Mukherjea listed “three tantalising positives” that seemed to be heading towards India. The first of them was “the Indian Prime Minister stepping on the accelerator”. The brokerage saw Raghuram Rajan leading the race to become the chief economic adviser as one of the signs of imminent reform. Ambit expected the Prime Minister to unveil a series of reform measures beginning with diesel price hikes.

“Either with TMC support and/or with SP support, the PM looks likely to push through retail FDI, aviation FDI and pension reform. Step three for the PM, ideally with a technocratic FM in tow, would be to get rid of GAAR and withdraw the Vodafone litigation, relics both of the outgoing finance minister’s troublesome tenure,” Mukherjea wrote in a note titled “Is the dice increasingly loaded in India’s favour”.

Mukherjea listed a devalued currency boosting exports and a slowdown in China as other positives.

Macroeconomic factors such as falling crude prices and easing liquidity are encouraging a number of analysts to take what still seems a contrarion call.