Mumbai, May 24: Faced with uncertainty over economic reforms process under the new Congress-led government, global investment banking outfit Merrill Lynch has downgraded India to "market weight" category and said the near term disappointment could accelerate selling that has until recently been rather modest. Congress' win in the Indian elections cast a major cloud over the near term outlook for the equity market, it said adding "we do not question Congress' reform credentials but rather those of its coalition partners." Downgrading India from "over weight" to "market weight" category, Merrill Lynch Asia Pacific - India strategy report asked investors to cut exposure to the Indian stock market.
"Change in the government leaves the reforms process, fiscal and monetary situation, in question. Valuations are not compelling enough given the outlook for the risk premium and India remains overweight amongst international investors," it said. The near term policy disappointment could accelerate selling that has until recently been rather modest. The public finances could come under pressure and asset sales become slow, placing upward pressure on rates, it said.
Bureau Report