India – A cyclical slowdown, but favorable valuations

Macro Headwinds continue:

Markets continue to face slew of negative news during the month starting with IIP, GDP growth target, currency, fiscal deficit, govt. backtracking on FDI in Retail, the Lokpal fiasco and a hasty clearance of the Food Security Bill (that aggravates the fiscal pain).

Rate action and policy impetus to be key drivers :

Dec monetary review saw the monetary stance shifting towards addressing growth concerns with RBI indicating reversal in monetary tightening cycle.
Tactical readjustment of polity required to get the structural India story on track. We believe the directional reversal in policy making to be subject to test of political will, on the backdrop of impending state elections is critical for change in the market sentiments.

Valuations offering a solid entry point :

We continue to prefer bottom up stock picking with core beliefs in terms of quality (business, management & cash flows), prudence (cash utilization) and agility (timing and allocation). We prefer to look for businesses with strong franchise value, large consumption compulsion canvass opportunity and penetration potential and remain alert to opportunities that provide tactical returns on Asset plays at attractive valuations and rate sensitive given impending policy response.