Indian markets relatively expensive | High potential for another bubble : RBS

Indian markets relatively expensive; high potential for another bubble; see opportunities in ONGC, Cairn India; sell call on RIL, Bajaj Auto: RBS

Emil Wolter, Head of Regional Strategy, Asian Equities at RBS said that valuations are unattractive in India as against the region. Most FIIs were in a wait-n-see position ahead of the elections which positively surprised. However, he is not negative on India’s long term story but prices are too full at this stage.

He further said that MSCI A-pac target is of 500. Reaction post crisis has been typical. He feels that second stage of recovery is still to come. Liquidity conditions remain extremely loose. He feels that second phase of recovery will see rotational trading and will lead the indices much higher. Opporutnities lie within the energy sector, names like ONGC and Cairn India. However, auto sector is unattractive globally and he gives sell call on Bajaj Auto.

RBS is of the view that MSCI A-Pac (ex-Japan) has target of 500. Its bullish outlook is driven by excess liquidity. RBS feels that global structural problems remain. Potential for another bubble is high. Oversold financial markets are stimulated by excess liquidity.

RBS stays overweight on Asia as against the world. It is underweight on India, Korea and China. RBS advises to stay with cyclical. It is overweight on tech relative to materials and underweight on financials & consumers staples. It advises to buy telecom and industrials.

About India, RBS is of the view that India’s valuations are ahead of regional counterparts and Indian markets are relatively expensive. It feels that policy reforms may trigger re-rating of risky assets. Monetary policy might turn sooner than anticipated. RBS puts buy on Sun Pharma, hold on Cairn India, ONGC and sell on Bajaj Auto and Reliance Industries
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