>Economic Cruise: Watch out for the 'Rate-Berg' (CITI)

■ Market Outlook — We believe India is getting the platform right: a) Growth is back, and is fairly broad-based, b) Policy measures are beginning to come through, c) The fiscal shows signs of stabilising, and the Government appears cognizant of the risks on hand, and d) The RBI has signalled the exit from easy monetary policy. While this mix will support stronger and steadier growth, the unwinding of fiscal and monetary risks will likely hold back a retracement to peak growth levels or to aggressive valuations. We see the market settling at long-term average valuations – for a Sensex range of 15,000-16,000 – before it commences on a sharper growth trajectory.

■ Key positive themes for 2010 — a) Rising and broad-based urban consumption, b) Government-driven rural and social sector thrust, c) Investment momentum, and d) Government policy aggression: Divestment, and quicker implementation.  Key negative themes for 2010 — a) Rising interest rates, regulator-driven, on account of rising inflation risks, b) Increased Government borrowing squeezing liquidity and constraining fiscal spend, and c) Monsoon impact on agri and related parts of the economy being more severe than has been factored in.

■ Sector Winners — We would be a little more defensive: a) IT – we expect a demand pick-up, b) Pharma – defensive, business in decent shape, c) Autos and retail – catch the urban consumption pick-up, d) Energy sector – refiners & gas, and e) Telecoms – The bad news is largely in.

■ Sector Losers — Interest rate cyclicals: a) Banks and financial services, b) Real estate, and c) Materials (cement). The penny still needs to drop – and when it does, that’s the time to catch it.

To read the full report: INDIA ROAD AHEAD 2010