Goldman Sachs, Morgan Stanley and SSKI Strategy

Goldman Sachs believes recent appreciation in the INR has been unprecedented in its scaleand timing. The INR has appreciated by 8.7% in the last 9 weeks. Goldman Sachs says, the more recent run in the currency shows symptoms of over-shooting. The weight of reasons supporting a weaker INR appears to outweigh those arguing for a stronger currency and expect the INR to weaken from these levels, albeit gradually. Goldmach Sachs is revising the 3-month, 6-month and 12-month USD/INR targets to 41.3, 42.1 and 42.4 respectively.

Morgan Stanley thinks that Corporate psychology in India is strongly positive, as evidenced by booming activity on both the asset and liability sides of balance sheets. Thus capex, M&A, debt issuances and equity issuances are all in new territory. Underpinning this frame of mind are soaring and record profits, high cash balances, low financial gearing and more than four years of strong share prices. The resulting sweet spot seems to give corporations too many options to tackle any mishap, with the risk that they may start to feel infallible.

SSKI expects Sensex earnings growth to slowdown (12.6% CAGR over FY07-09), primarily due to our negative bias on prices of global commodities. However, non-commodity stocks (primarily domestic cyclicals) will continue witnessing a robust 22.7% CAGR over FY07-09; strong margins and topline expansion will keep return ratios strong