UBS:Short term correction - Do's & Don'ts : TOP high conviction ideas

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UBS Investment Research
India Market Strategy
Short term correction - Do's & Don'ts 
 
„ Indian stocks have corrected significantly - Main reasons
1) Tight liquidity conditions (Indian banks are borrowing on average ~US$23bn
from RBI in the last one month & overnight call rates in the interbank market have
moved to 6.7%), 2) Probes by government on various scams (we have at least 6
high profile scams - 2G scam, Commonwealth scam, Loan bribery scam, SEBI
probes, Micro financing investigations, Adarsh housing society Mumbai scam), 3.
Nervousness of investors around a market which is perhaps over owned (in light of
above two points).
„ Short Term strategy for investors- Do's & Don'ts
1) Consider stocks which are high quality from corporate governance perspective -
Eg: Bharti, Asian Paints, Infosys, TCS, Murugappa group companies; 2) Trim
exposure in over-owned sectors such as banks; 3) Stay away from names with
corporate governance issues irrespective of how attractive valuations look
„ Structural story is resilient - Buy selectively
We expect Indian economy to grow at real growth rate of 8% in FY12 following an
impressive ~9% growth in FY11. (1H FY11 GDP grew by 8.9%). Corporate
earnings are likely to grow at 16% in FY11E & 21%in FY12E. India's growth is
likely to attract a premium in a slowing world. Flows are likely to be strong in the
medium to long term as India's weightage in most emerging market indices is
likely to improve significantly. Our high conviction ideas are: Bharti Airtel, Lanco
Infratech, DLF, Jai Balaji & Murugappa group companies such as Coromandel
International & Tube Investments.

Valuation – high conviction ideas
stock	Rating	Mkt Cap	Current  Price	Target Price	Potential	PE(x)	P/BV (x)	ROE	Earnings
		(US$ mn)	(Rs)	(Rs)	Upside	FY12E	FY12E	FY12E	FY11-14 CAGR%
Bharti Airtel	Buy	28,405	339	415	22.60%	18.9	2.3	12%	32.00%
Coromandel International	Buy	1,706	549	733	33.50%	10.9	2.8	26%	23.60%
DLF Limited	Buy	10,690	284	425	49.70%	18.8	1.7	9%	14.60%
Jai Balaji	Buy	330	234	450	92.20%	6.5	1.2	16%	62.30%
Lanco	Buy	3,109	58	105	79.60%	9.5	2.2	23%	36.60%
Tube Investments	Buy	547	134	197	47.00%	12.2	2.2	18%	23.30%