The Hindu Business Line : Market View

The recent earnings indicate that pricing power is returning to the larger players in the Indian IT space, with the possibility of upward revisions in full year earnings estimates. On another front, trends in quarterly results announced so far suggest a widening gap between the frontline and mid-sized IT vendors. Frontline players are likely to garner a larger share of the off-shoring pie as order flows migrate to companies with proven execution capabilities.

Franklin Templeton Investments

The low level of penetration of retail credit and the low levels of leverage in the corporate sector, do provide the scope for absorbing few more rate hikes, without seriously jeopardising growth rates. But the RBI's concern is so much about the direction of credit for funding speculative assets. The changes in the risk weights for specific loans in the credit policy, has been followed through with limits on lending to the capital market last week. The limits on aggregate bank exposure to capital market and a uniform margin of 50 per cent on financing IPOs announced recently, would have the direct impact of reducing the funding of stock market activities by banks, and therefore have a sharper impact on the underlying asset prices.

OptiMix View and Outlook

It is relevant to note that the increase in GDP growth rates have been matched by a sharp increase in capex-to-GDP and an increase in the savings rate. Incrementally, these have grown by nearly 6 per cent of GDP since 2002-03, which says a lot about the sustainability of the higher levels of growth. The fact that the less capital-intensive services have gone up to well above half the GDP reinforces this belief. Having said that, we continue to remain cautious from a near-to-medium-term perspective on the stock market purely from a valuation perspective. The Sensex now trades at close to 19 times 2006-07 earnings with an expected growth of 18 per cent YoY for 2007-08. This happens to be at a 65-70 per cent premium to emerging market equities and above historic levels. It is more imperative than ever that investors take a longer view on their investments.

Principal PNB Mutual