UPDATE 1-JPMorgan upgrades Indian equities to "overweight"

Thu Jun 21, 2012 3:23pm IST

(Updates with details)

MUMBAI, June 21 (Reuters) - J.P.Morgan upgraded Indian equities to "overweight" from "neutral", despite acknowledging the risk factors facing the economy, encouraged by what it called a number of more positive factors including historic valuations.

The bank said its year-end target for the BSE index was at 19,000 points, a nearly 12 percent upside from current levels.

It expects the broader 50-share NSE index to trade in a 4,800-5,200 range in the near-term.

Slowing policy reforms, however, remain a hindrance to economic growth and would be key to a recovery, J.P.Morgan said.

"If policy actions manage to revive corporate and consumer confidence, growth may accelerate into the second half of the fiscal year," the bank said in a note Thursday.

Despite calling the environment "clearly poor," because of risks including slowing economic growth, J.P.Morgan argued Indian valuations are trading at 12 times forward earnings, or one standard deviation below the 10-year historic average.

The Reserve Bank of India's 50 basis points cut in interest rates in April and its combined cut of 75 basis points in the cash reserve ratio so far this year should start impacting the economy late in the year, it said.

A slumping rupee would boost trade, while lower oil prices would ease pressures on India's current account and fiscal deficits, J.P.Morgan added.

The investment bank said it remains "overweight" on private banks, citing "strong" growth in revenues on the back of loan growth momentum.

Its other "overweight" sectors are IT services and health care as part of a strategy of focusing on sectors that stand to benefit from rupee depreciation.

The rupee slumped to a life low of 56.55 to a dollar on Thursday, as less aggressive monetary easing from the U.S. Federal Reserve and weak data from China and Germany fanned risk aversion.

However, J.P.Morgan is "underweight" on consumer discretionary goods given a "demanding" base effect and "adverse" impact from the government's push towards fiscal consolidation.

The bank is also "underweight" on energy and materials. (Reporting By Rafael Nam; Editing by Subhadip Sircar)

SAARC Summit

REUTERS SHOWCASE

E-Commerce Boom

E-Commerce Boom

Online grocers come up trumps in India's e-commerce boom   Full Article 

Reuters Poll

Reuters Poll

GDP growth to slow to 5.1 pct, but no rate cut yet  Full Article 

Vodafone Tax Dispute

Vodafone Tax Dispute

India advised against challenging Vodafone tax ruling - source  Full Article 

India-focused Funds

India-focused Funds

India-focused hedge funds up over 40 pct YTD - HFR  Full Article 

Trade Deal

Trade Deal

WTO postpones trade deal by a day after last-minute objection.  Full Article 

Falling Oil Prices

Falling Oil Prices

OPEC heading for no output cut despite oil price plunge  Full Article 

RBI Rate Hopes

RBI Rate Hopes

Markets pricing in rate cut, despite wary RBI  Full Article 

Land Disputes

Land Disputes

Disputes over land for industry on the rise in India, angering locals - charities  Full Article 

Google in Europe

Google in Europe

Insight - Behind Google's Europe woes, American accents  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage