Earnings concerns and political logjam in parliament, which threatens to stall reform measures vital for helping growth, pulled Indian shares down in the past week and with no easy remedy on the horizon to break the deadlock investors could be cautious to step up their exposure.

The imbroglio has emerged just when the markets were readying for a rally. Undoubtedly, there are signs of a recovery in the makes, but for the economy to expand at a pace to justify a strong rise in share prices the authorities need to tear down state tax barriers, make it easier to acquire land to build factories or highways and pursue labour reforms.

Unfortunately, the one-upmanship engaged by politicians, particularly the disruption of parliamentary proceedings, would undermine debates and passage of laws needed to support the government’s “make in India” campaign and create jobs for the hundreds of thousands pouring out of universities every year.

The much awaited demographic dividend, with more than half the population below the age of 25 promising productive contribution to the economy for at least three decades, could remain a myth if the authorities cannot get their act together.

“Wrangling politicians are holding the economy to ransom,” said the head of one foreign fund who did not want to be identified because of the sensitive issue. “India could miss the bus if the stalemate is not resolved quickly.”

Parliament, which opened for a monsoon session on Tuesday, was forced to adjourn for a fourth day on Friday without any business being transacted. Opposition politicians have held up proceedings demanding resignation of ruling party ministers on conflict of interest allegations. The government is no mood to cede ground and has offered to debate the issue in parliament.

The top-30 Sensex, which had climbed to a three-month high on Wednesday, backtracked after disappointing quarterly earnings also added to the political stumbling block and ended with a weekly loss of 1.2 per cent at 28,112.31. The 50-share Nifty shed 1 per cent.

Among the stocks that fell were ICICI Bank whose exposure to downgraded Jaiprakash Associates was a worry, and software services exporter Wipro that reported lower-than-expected quarterly earnings. TVS Motor and Crompton Greaves also dropped on results that came in below street forecasts.

Stay invested

Be that as it may, brokerages are recommending investors to grab the opportunity offered by lower prices to build a portfolio.

“For investors with one-to-two year horizon this is a good time to scoop up some shares,” said Biju Dominic who advises rich retail clients. “The longer term outlook is decidedly bullish.”

Infosys, the biggest software services exporter after leader Tata Consultancy Services, is a stock that should be part of a portfolio given the revival in the company’s business. The company, which gets a major chunk of its business from the US, reported April-June revenue growth in dollars that was the highest in 10 quarters — up 4.5 per cent quarter-on-quarter at $2.26 billion.

Volume grew 5.4 per cent, the highest in nearly five years, while net profit at Rs30.3 billion was ahead of expectations.

“We are heartened by the broad-based growth; only insurance, telecom and energy are growth-challenged,” Harit Shah at HDFC Securities said in a report. “We believe Infosys, with its improving growth should command a much lower discount to TCS than the 20 per cent plus seen in recent times.”

He retained a buy on the stock with a revised target price of Rs1,275. The share closed on Friday at Rs1,089.35.

Ashwin Mehta and Pinku Pappan, analysts at Nomura, are also upbeat on Infosys, noting the big improvement in grabbing new deals.

“Directionally, we believe Infosys is taking the right steps in terms of focusing on newer offerings and renewing its core offerings through innovation, greater automation and inorganic initiatives,” they wrote in a note to their clients.

“Management has also inducted strong external talent to boost its efforts in these areas. Early signs of success at client mining and better deal flow are also visible.”

They expect dollar revenue to grow at 8.4 per cent in 2015-16 and to 12 per cent in the following 6 per cent in financial year that ended last March 31. The securities firm raised its price target on the stock to Rs1,190.

Weathering storm

As the US is set to raise interest rates, probably as quickly as September, there will be repercussions across markets worldwide as fund managers pull out from riskier assets and head to the world’s largest economy.

In the emerging scenario, however, India is likely to be impacted far less than other economies, according to Deutsche Bank strategists Abhay Laijawala and Abhishek Saraf, as the drop in world commodity prices should give a long rope to a net buyer like India of items such as oil, coal, gold, silver and fertilisers that account for about 40 per cent of merchandise imports.

“While India will not stay immune to any FOMC (Federal Open Market Committee) lift-off induced suppressed inflows for emerging markets, India will be relatively less impacted as the emerging market differentiation — which started about one and a half years ago — is likely to intensify further as global commodity deflation becomes more entrenched,” they wrote in a recent report.

They said that mid-caps are likely to outperform in the run up to the US rate rise as domestic fund flows remain key drivers of stocks. “Our top mid-cap picks are: Apollo Tyres, IRB Infra, Castrol, Cummins, HPCL, Ashok Leyland and Bajaj Finserv.”

“A prolonged period of commodity deflation can provide additional fiscal manoeuvrability to the government of India to ramp up vital public investments without exerting much pressure on fiscal balance.”

The strategists said direct beneficiaries of commodity deflation include state-run oil refiners HPCL and BPCL, tyre maker Apollo Tyres, leading car producer Maruti Suzuki and utility vehicle and tractor maker Mahindra & Mahindra.

The writer is a journalist based in India.