Saturday, January 14, 2012

impact Europe debt crisis on indian stock market

impact Europe debt crisis on indian stock market : Indian shares fell 0.9 percent on Thursday, led by export-driven software services companies after bellwether Infosys cut its outlook for revenue citing the debt roubles in Europe.

Sharply better-than-expected industrial output in November failed to bolster sentiment as the data, while providing a glimmer of hope for the battered economy, could allow the central bank to hold off on easing monetary policy.

Infosys fell 8.4 percent to 2,588.25 rupees as investors braced for earnings downgrades by brokerages after the company trimmed its full-year revenue growth outlook for a second straight time and warned of lower client spending because of the crisis in Europe, its second-biggest market.

How do you see the European crisis panning out in 2012? Will there be further worsening?
We expect the ongoing European debt crisis to cast a shadow on global financial markets and the global economy during 2012, especially, in the first half of 2012. Fresh concerns about the Eurozone debt crisis are likely to emerge in February, with a large tranche of debt auctions in Italy, Spain, Portugal and Greece. These auctions are likely to indicate whether these peripheral economies are able to secure funding at reasonable rates. Eurozone is expected to experience a recession in 2012 with a negative feedback loop between the debt crisis and rising funding costs and the weak economy. We expect the crisis to ease in the second half of 2012, leading to a decline in uncertainty and risk aversion.

What's more threatening for the Indian markets - Eurozone or domestic economic worries?

India will not be immune to negative developments in the Eurozone crisis. Even if the Eurozone fears ease, domestic economic concerns are likely to impact Indian stocks. Indian economic growth could continue to grind lower as high interest rates continue to stifle investment demand. Commodity prices continue to remain elevated and the weak rupee will ensure prices remain high even if they decline globally. These factors will prompt analysts to lower GDP growth forecast. Policy reforms are likely to be put on hold until some of the key state elections are out of the way. These reasons, combined with potential worsening of the Eurozone crisis, could push equity markets lower over near term.

What are the major concerns with respect to Indian markets?
Our major concerns centre around medium-term trajectory for GDP growth and consequently corporate earnings, and policy disappointments, especially, in the infrastructure sector. In the recent past, environment approvals for coal mines, other infra projects have been slow, leading to stress in the power sector - the economy's lifeline.

What's your India market outlook for 2012?
Going ahead, growth is likely to become a priority again for policy makers. Interest rate cuts combined with policy action has the potential to trigger a rally in equity markets in the second half of 2012. We expect rate cuts and lower rates in the system towards the middle of 2012. There's potential for a rally in 2012 for the Indian market. Valuations are attractive, while interest rate headwinds are easing. At current levels, the Indian market is trading at close to 13X one year forward earnings, a discount to its historical trading range. Thus from a valuation perspective, these are good levels for longer term investors. However, Indian equities remain at a premium to other emerging markets.
(source- )

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