Market inexpensive despite earnings risk: Nomura

In their 2009 outlook, they maintain that though the knock-on impact of the global slowdown is likely to cause earnings and economic growth to weaken in the short term, changing terms of trade (low commodity prices), slowing investments and loose monetary policy are likely to ease capital scarcity, resulting in lower interest rates and a stronger currency. "In our view, the decline in interest rates is the single biggest factor going in India's favour at the moment and should provide a boost to consumer-related sectors and rate-sensitive stocks such as utilities," they said. Nomura's top BUYs are Tata Power and Hindustan Unilever. While the resilience of household spending will likely come at the cost of corporate capex, they expect the government to step up infrastructure investment to fill the void, creating other significant pockets of upside. “Apart from consumer goods and utilities, we are bullish on autos (cars and two-wheelers), infrastructure construction, private banks, pharmaceuticals and telecoms. Our view is neutral on cement, real estate and oil & gas. We are bearish on metals, petrochemicals, IT and engineering. DLF and Infosys look particularly vulnerable at current prices," said Nomura in its note. Nomura believes going forward the rate cycle should move down further and that the consumption cycle should pick up after a lag. They expect 15-20% risk to earnings in FY10.The market is inexpensive despite earnings risk, they maintain.