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Indian consumer sector: Sturdy earnings, stable multiples [Harrish Zaveri]
In our view cigarettes, paints, watches and jewellery remain the best categories in
which to invest in India. Headwinds relate to relatively higher commodity prices
and changing taxation (for cigarettes). Within the sector there are no significant
undervaluations. Long-term buy stories are driven by pricing power for respective
companies resulting from an oligopolistic market structure and growing company
market share. ITC, Asian Paints, Titan, Jubilant Foodworks and Nestle are our top
picks that we expect to outperform their sectors. We retain Hold on HUL.
Steel Authority of India: Revising estimates down but remain positive
[Abhay Laijawala]
Following the lower-than-expected 3Q’FY11 results and upward revision of our
coking coal assumptions, we are cutting our earnings estimates for FY11 and FY12
by 22% and 21%, respectively. Consequently, we are cutting our target price by
15% to INR207. We remain excited over SAIL’s modernization program which is
expected to improve SAIL’s profitability significantly, once its full benefits are
harnessed. We expect the benefits of modernization to become apparent from
FY13 - when the IISCO plant is progressively commissioned.
HDFC: Pricing power compensates rise in funding costs [Dipankar
Choudhury]
We maintain our Hold rating on HDFC with a TP of Rs670. Mortgages remain one
of the finest assets in India and HDFC’s liquidity management is
uncharacteristically commendable for a non-bank. Of course there are a larger
number of credible players than even two years ago and rates offered by stateowned banks are still low. Margins and growth of life insurance new business may
get hurt by recent regulatory changes. Valuations look relatively demanding and
may have factored in this advantage.
Glenmark Pharma: Traction in US but slower recovery across markets [Abhay
Shanbhag]
Since 2003, Glenmark has followed a strategy of focusing on niche products
through alliances to drive overall growth. Its large pipeline of niche products is
nicely maturing with significant approvals in US in CY10, which would drive
growth. Global liquidity crisis significantly impacted Glenmark resulting in a lowgrowth consolidation phase in last 2 years. However bounceback has been slower
than anticipated. Hence a 35% cut in FY11e EPS estimates. Retain Hold rating.
Banks: Positive real deposit rates lowering liquidity deficit? [Dipankar
Choudhury]
Loans & deposits in the banking system saw a big spurt during the last fortnight.
While the risk of concluding from one fortnight’s data is high and the increase in
loans could be on account of the usual quarter end push by banks, it is less likely
so for deposit increase.
India Monthly Update: No respite from inflation [Sameer Goel]
Economic outlook: November IP growth pulled down sharply due to holiday and
base effect; but other indicators of growth remain strong. Inflation risks have
accentuated, with food prices soaring once again. The rise in global crude oil
prices has complicated the government’s petroleum subsidy policy.
Asia Economics Daily: RBI to hike amid rising inflation [Juliana Lee]
India’s WPI inflation rose to 8.4% in December (+1.3%mom), after having
moderated to 7.5% in November. The October figure was revised up to 9.2%
from 8.6%.
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