August 12, 2015 / 2:14 AM / 2 years ago

RPT-BUZZ-India stocks: walking a fine line as bears sniff an opportunity

(Repeats without any changes)

** India's equity market -- among the last major EMs standing as funds gravitate toward developed market equities -- appears to be heading for some cloudy weather

** A possible Fed lift-off before the end of the year, a weak showing in Bihar state polls for the BJP and stubbornly sluggish corporate earnings are denting the "India story"

** Healthy demographics, the promise of reforms and resurgent domestic interest in equities have shielded Indian stocks from the exodus out of EMs while weak oil and gold provide some cushion by keeping the macro backdrop benign

** But at the micro level things are less than rosy

** India Inc's earnings growth stands at odds with the equity market's run. Chart: bit.ly/1gwrlWK

** The big bang reforms -- GST and land acquisition -- could be delayed further

** The Nifty has remained flat for more than 3 months and is down more than 6 pct from its intra-day record high in early March

** It still is up more than x pct over the past year and "long India" remains one of the most crowded trades in EM

** At its peak, FII overweight was a three standard deviation event versus mean - Citi. FII ownership of top stocks remains high at about 20 pct, according to Goldman

** The return of retail investors through domestic mutual funds being seen as a contrarian signal reminiscent of 2007-08 as is rally on midcaps which surged to a record high last week

** While India continues to offer large liquid stocks in US-exposed sectors such as IT and pharma not found elsewhere in Asia and low correlations with China

** As China's shock devaluation tightens the screws further, Indian equities unlikely to be able to sidestep the malaise inflicting EMs (RM: abhishek.vishnoi.thomsonreuters.com@reuters.net; RM: vikram.subhedar.thomsonreuters.com@reuters.net)

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