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Infosys Technologies: Growth drivers intact; Buy on 19% potential upside
[Aniruddha Bhosale]
We have cut our FY12 and FY13 earnings estimates for Infosys as a result of a
below-par Dec-Q by 7% and 4%, respectively. However, we remain steadfastly
overweight on the sector in general and Infosys in particular. In spite of dismal
volume growth in the Dec-Q, the company continues to show a marked
improvement on key parameters such as revenue productivity, operating margins,
new deal pipeline and clients’ spending outlook. Based on a 25% earnings CAGR
over FY11-13E, we value the stock at a 24x FY12E PE and rate it a top buy along
with TCS.
Steel Authority of India: 3Q'FY11 - Earnings disappoint on lower realizations
[Abhay Laijawala]
SAIL's 3Q'FY11 recurring earnings came in below our (29%) and consensus (25%)
estimates. The variance is attributed primarily to lower than expected realizations.
SAIL's blended saleable steel realizations declined 2% QoQ versus our
expectation of flat realizations. The decline in SAIL's blended realizations appears
to be higher than the decline in domestic steel prices. SAIL did record a marked
increase in saleable steel sales volumes (up ~7% QoQ) but the positive impact of
volumes was more than offset by the decline in blended steel realizations.
EBITDA margins for the quarter increased marginally by 50bps QoQ. With the
recovery in domestic demand and pricing environment, we expect a sharp
recovery in EBITDA margins in 4Q'FY11.
Global Economic Perspectives: The Policy Response to Inflation In Asia
International food prices are rising as fast as they did in 2007/08 and most
economies in Asia appear likely to import this inflation. However, we do not
expect a vigorous policy response to higher inflation. First, the fact that inflation is
mostly in food prices, with generally low non-food inflation means central banks
may be more concerned about the drag on growth from reduced real household
spending power than higher core inflation.
Commodities Outlook: Bull Markets In 2011 [Michael Lewis]
Commodities As An Asset Class: We believe commodities will enjoy a fresh wave
of investment inflows during 2011. To exploit the properties of mean reversion,
carry and momentum we are introducing the DBLCI Apex index, which performs
well when commodity prices are trending. Crude Oil: We believe oil price rallies
will be based on more solid foundations in 2011. This reflects upside risks to
global oil demand and falling crude oil inventories, which we expect will push the
crude oil forward curve into backwardation.
Steel Price Tracker: Strong start in 2011; South Europe leads the trend
[Bastian Synagowitz]
Prices remain dynamic and support sentiment; TK top pick in the sector The
earnings recovery is intact, albeit at a slower pace than we anticipated at the start
of the year. Our European IP growth forecast of 3.4% for 2011 underpins our
positive steel volume scenario, while continued high raw materials costs support
steel prices. The increasing price dynamics in the major regions (China, the US,
Europe) should help to support sentiment for steel stocks, in our view. Our top
pick is ThyssenKrupp (Buy, CP €30.40), which should benefit from an annual
contract price catch-up in January and which offers more than just simple
exposure to the spot steel cycle.
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