IIFL has argued that 2014 would be a much better year for Indian equities for the following reasons:
1. The macro economic outlook will turn for the better. GDP growth will pick up pace, current account will further improve, inflation will peak in the early months, and the rate cycle will eventually turn more supportive.
2. A revival in the investment cycle will lead the turnaround in growth; a likely pickup in execution rates from the current historic lows will be the initial driver for the turnaround and in our view, growth will be much more broad based and qualitatively better.
3. The downgrade momentum in earnings estimates will likely reverse and the favorable turnaround in macro economic variables will drive upgrades in FY15/FY16 consensus estimates; Ebidta and PAT margins will likely trough out in FY14.
4. An improving macro outlook will mitigate the pressure from rising NPLs in the banking system and the trend will stop worsening; credit costs may still be high, but may not surprise on the negative side.