Citigroup cuts its 2011 forecast for India’s BSE Sensex index by 10% and forecast a slow recovery in stock values when they begin rising again.
The Wall Street bank cut its year-end forecast for the Indian benchmark to 19,700 from 21,500, citing weak market environment, heightened uncertainty and lower earnings.
“India will also likely lag any sharp global bounce-back,” Citigroup said. The decline and following rally are likely to be less severe than the 2008 recessions, the bank said.
The index is down almost 17% so far this year and overnight closed down another 0.4%, or 71 points, at 17,059.
For the future, India may have already turned a corner on its issues of inflation, central bank tightening of credit, cuts in GDP forecast and a difficult political situation.
“In fact, with lower global growth and commodity markets, most of these headwinds could well turn into tailwinds,” Citigroup said.
Citi raised the auto sector to “overweight” from “underweight” and maintained its “overweight” rating on the banks, telecom and pharmaceuticals while it cut metals to “underweight” from “neutral” and reduced real estate to “neutral.”
In another downgrade for the Indian economy, RBS cut its rating on Indian banks to “neutral” from “overweight,” based on a narrowing net interest profit margin, slowing growth and higher credit costs. The Reserve Bank of India has been raising rates to fight inflation.
“We think the slowdown of GDP growth and high interest rates will start taking a toll on Indian banks’ earnings in FY3/12, which will be reflected in a slower loan growth (around 15-16%), higher non-performing loans and, thus, lower earnings growth,” RBS said in a report.
Relatively good news for car maker Tata Motors (TTM) but not a ringing endorsement for metal producer Sterlite (SLT).
The iShares S&P India Nifty 50 Index (INDY) tracks the performance of the biggest companies in the country.