2017 has been a banner year for India’s economy – but a difficult year for sell-side analysts, who’ve had to grapple with new regulations abroad and at home.
“The Indian markets have had a dream run recently, similar to many markets globally,” said Gautam Chhaochharia, head of India research at UBS. “However the breadth of stocks doing well is arguably wider in India and is not just technology- or internet-driven.”
Chhaochharia and his team at UBS were ranked among India’s best research analysts in the 2017 All-India Research team, Institutional Investor’s annual ranking of the country’s best sell-side analysts. UBS came in second overall, with Chhaochharia and his team placing first for their coverage of small- and mid-cap stocks.
To select the members of this year’s All-India Research Team, Institutional Investor sent questionnaires covering 19 investment sectors to buy-side analysts and money managers at leading asset management firms around the world. This year’s ranking is based on responses from 389 individuals at 227 institutions, representing an estimated $190 billion in Indian equity assets.
This year, research firms were evaluated in two separate leaders’ tables, with one based on individual analysts’ scores and the other based on collective teams’ scores. For the team ranking, votes for individual analysts and strategists were combined to form a firm’s team in each sector.
Kotak Securities topped both rankings, earning first place for a third year straight. Credit Suisse came in third place in each ranking, while Morgan Stanley was No.4 in each division. Meanwhile, Spark Capital made its All-India Research Team debut at No. 5 in the team ranking, tying for the same position with Citigroup and IIFL in the individual analyst division.
Analysts ranked this year noted that India’s economy has been performing strongly since the beginning of 2017.
“The overall stock market has remained strong, with headline indices up 25 percent since January,” said Bernstein analyst Venugopal Garre, whose team ranked first for their coverage of the capital goods sector. “However, it has largely been supported by strong flows.”
Other factors driving India’s economic performance include low inflation and a stable currency, according to UBS’s Chhaochharia.
“India’s macro story remains very solid and stable, with hopes for strong growth ahead, aided by an aggressive reforms agenda of the government,” he said.
Those reforms include a new tax that was introduced on July 1. The Goods and Services Tax, known as the GST, is an indirect tax which replaced a number of former taxes on goods and services. Under the GST tax code, taxes are levied at every point of sale.
“The government has implemented several important reforms in the areas of fiscal, investment, and governance over the past three-and-a-half years, which will provide the foundation of more sustainable and inclusive growth in GDP in the medium term,” said Sanjeev Prasad, head of research at Kotak Securities. His team ranked first in the portfolio strategy sector.
According to Garre, investors are responding positively to the changes resulting from the GST. Still, he said valuations – which have always been a challenge for investors in India – remain as the “key aspect under scrutiny.”
Meanwhile, analysts are anticipating the second interation of the Markets in Financial Instruments Directive, or MiFID II, which will go into effect on Jan. 3, 2018. The European regulation will change the way investors pay for research by “unbundling” research costs from execution payments. Research firms that are independent from investment banks may be best-positioned to handle the coming regulation, according to Garre.
“MiFID II is positive for independent research firms like Bernstein, given the strong industry knowledge of analysts and differentiated research,” he said. “It is hence not impacting my core research process much and, if at all, making my client-side efforts focused and more intense.”