Economy Jan 10, 2013
HSBC has said the recent raft of reforms unleashed by the government would be positive for banks and the energy sector, and has called the direct transfer of subsidies 'transformational' in the long term.
In its latest India Equity Insights, HSBC has also reiterated its earlier calendar 2013 Sensex target of 21,700, implying an 11 percent potential upside.
The note says the reforms wave will be only marginally positive for the telecom, media and real estate sectors while they will need tweaking for other segments of the economy.
"Since September 2012, India has announced a multitude of reforms targeting a variety of sectors. We are most excited by the transformational potential of the direct cash transfer scheme for subsidies to the poor though its implementation will take time," HSBC says.
Calling the reforms in the energy sector and banking "steps in the right direction," it says increased price transparency and liberalisation in the energy sector, and better debt recovery laws for banks are all positives.
The much talked about Cabinet Committee on Investment is a good idea, but may lack real authority to tackle project delays, particularly as it has limited state participation, the note says.
Meanwhile, the new urea investment policy, which aims to cut reliance on imports, may end up inflating the exchequer's subsidy spending. "We believe these reforms need to be tweaked to be effective."
The government stance on telecom and media sectors have been clarified by recent announcements, while real estate reforms ease land purchases albeit accompanied by higher prices. "We believe these are marginally positive," the note says.
HSBC says it remains neutral on India within an Asian context. "We reiterate our Sensex target of 21,700 for CY13, which assumes a target 12-month forward PE multiple of 14.5x. Our target PE is marginally below historical levels."
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