Rising From The Ashes

Ali On Content / 04 Jan 2010

It can now safely be assumed that the worst of the Indian economic recession is over. Given that, there are many sectors such as infrastructure, banking, information technology and retail that will yield positive gains in the months to come.

The year 2009 has been a phenomenal one in terms of bounce-back in the financial markets across the globe. The assumption is that this stability and robust growth will now last for many years. The Indian economy could expand between 6-7 per cent in the year up to March 2010 and between 7- 8 per cent up to March 2011, despite a bad monsoon.[INSERT_1] 
A number of leading indicators, such as increase in hiring, freight movement at major ports and encouraging data from a number of key manufacturing segments such as steel and cement indicate that the downturn has bottomed out and highlight the Indian economy’s resilience. We strongly feel that 2010 will be a year full of consolidations and low risk investments. Industrial output in India bounced back in the last quarter and industrial production grew in excess of 10 per cent. The strong domestic consumption patterns in India contributed to sustained industrial growth despite the recession experienced by the western economies. 

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Infrastructure will remain the top sector in 2010 as well. The key to sustaining India’s growth rate during a global meltdown lies in developing India’s infrastructure. Keeping this in mind, the government is targeting an investment of USD 20.38 billion over the next two years in infrastructure development. Within infrastructure, power, roads, ports and airports are attractive. The potential stocks in these sectors are Reliance Infra, Gammon India, Lanco Infratech, Supreme Infra and Gayatri Projects, etc. 
 
The Asia-Pacific IT spending, which is expected to grow by 5 per cent to reach USD 515.6 billion in 2010, represents a fast V-shaped recovery for IT spending in the region. However, this industry would return to growth in 2010 with USD 3.3 trillion of total spending, registering a 3.3 per cent increase from 2009. Infosys and TCS are all-time favorites in the IT domain. We are also positive on Mahindra Satyam.
 
The Indian banking system is financially stable and resilient to the shocks. The FDI norms in the banking sector would give more leverage to the Indian banks. Thus, a consolidation phase in the banking industry in India is expected in the near future with mergers and acquisitions gathering more pace. One might also see mergers between public sector banks or public sector banks and private banks. Stocks with upside potential are SBI, Axis Bank, IDBI Bank, OBC, Yes Bank and HDFC Bank, etc. The Indian retail market, which is the fifth largest retail destination globally, has been ranked as the most attractive emerging market for investment in the retail sector. The share of retail trade in the country’s gross domestic product (GDP) was between 8-10 per cent in 2007.
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It is currently around 12 per cent, and is likely to reach 22 per cent by 2010. With rising consumer demand and greater disposable income, the USD 400 billion Indian retail sector is clocking an annual growth rate of 30 per cent. This gives a good opportunity for investments in 2010. Stocks like Pantaloon, Shopper's Stop and Trent, etc. will be in demand in 2010.
 
We strongly believe in the Indian growth story but at this juncture where markets have run up to the tune of 80 per cent in just one year, one needs to understand whether the risk reward is in favour or not. We believe that the markets have the potential to garner more than 18 per cent returns in the coming financial year and the real opportunity will be available in mid and small-cap sectors. This coming year will provide stock-specific opportunities and so one needs to be cautious and also be wise enough to identify these gems.

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