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India Contenders & Defenders
India Contenders: Inexpensive Growth
�� India Contenders: Growth stocks at reasonable price
The India Contenders & Defenders identify stocks with strong earnings
momentum and price momentum irrespective of the valuation. Nevertheless,
India stocks with strong earnings and price momentum are currently inexpensive
with eight out of the ten Contenders trading at a PE discount to the market.
Attractive growth stocks are currently inexpensive in India. The model continues
to favour Financials and remains underweight Utilities, Materials and Telecom
sectors
India Contenders - Momentum BUYS
The India Contenders are ten stocks with
above-average earnings momentum and
above-average price momentum.
The new India Contender this month is Hindalco Industries. The longest standing
Contenders are Bajaj Auto, Bank of Baroda, Punjab National Bank and Tata
Motors (all 6 months). The other India Contenders are Bank of India, Canara
Bank, Jet Airways India, Mahindra & Mahindra, and Oriental Bank of Commerce.
India Defenders -Momentum SELLS
The India Defenders are ten stocks with
below-average earnings momentum and
below-average price momentum.
The India Defenders are unchanged this month. The longest standing Defenders
are DLF Ltd, Indiabulls Real Estate, Punj Lloyd and Reliance Capital
(all 6 months). The India Defenders are GMR Infrastructure, Hero Honda Motors,
Piramal Healthcare, Reliance Communications, Reliance Industries, and Steel
Authority of India Limited.
Overview
We have drawn upon our analysis of earnings momentum and price momentum
investment strategies in India to create the India Contenders which we expect to
outperform the MSCI India Index and the India Defenders, which we expect to
underperform the Index. We introduced the India Contenders and Defenders in
September 2010.
In India, stocks with rising earnings forecasts have tended to subsequently
outperform, according to our analysis.
Not all companies with rising earnings estimates outperform, so the challenge is
to differentiate between stocks with rising earnings forecasts that will outperform,
and stocks with rising earnings expectations that will underperform. By definition,
stocks are being de-rated if earnings expectations are rising but the price is
falling. That is, the “E” in the PE ratio is going up while the “P” is going down.
To identify stocks with rising earnings expectations that are not being de-rated,
we consider stocks that have both above-average earnings momentum and
above-average price momentum. Our analysis indicated that stocks with aboveaverage
earnings momentum tended to outperform, stocks with above-average
price momentum tended to outperform, but stocks with both characteristics
tended to perform even better.
The India Contenders are the ten stocks with strong earnings momentum and
price momentum that meet the minimum market cap, turnover and coverage
requirements of our model (as discussed in the Methodology section). The India
Defenders are the ten stocks with falling earnings and falling price momentum
with the same market cap, turnover and coverage constraints as the India
Contenders.
We intend to publish the India Contenders and Defenders on a monthly basis.
The India Contenders and Defenders screens are not a recommended list either
individually or as a group of stocks. Investors should consider the fundamentals
of the companies and their own individual circumstances/objectives before
making any investment decision.
Girish Nair
2 February 2011
Note: Share prices in this report are as at 31 January 2011 unless otherwise
stated.
Screen Methodology
The universe of large and liquid stocks included in this analysis is selected from
the constituents of the MSCI India index that meet our market cap, turnover and
coverage requirements (see below). The universe is recalculated every 6 months
in line with the six-month rebalancing of the MSCI India Index.
For a stock to be included in the analysis it must be in the largest 85% of stocks
from the MSCI India Index by market capitalisation, the largest 65% by average
daily turnover in the last 6 months, and it must have a consensus earnings
estimate. The universe of stocks in the model for the latest analysis period
included 89% of MSCI India Index by free market capitalisation.
The India Contenders and Defenders are determined at the end of each month
using month-end data from MSCI, IBES and Ex-share databases. Stocks in the
firm’s restricted list at the time of the month-end analysis are excluded from the
analysis.
Our monthly analysis produces rankings for each eligible security for earnings
momentum and price momentum.
An Earnings Revision Rank from 1 (worst) to 100 (best), a percentile rank, is
calculated for each stock based on the 3-month change in a rolling forward
consensus EPS estimate.
A Price Momentum Rank from 1 (worst) to 100 (best) is also calculated
based on the slope of a log-linear regression of daily prices in last 9m.
The Contenders Rank is the average of the Price Momentum Rank and the
Earnings Revision Rank.
At inception in September 2010, the India Contenders were the ten stocks with
the highest Contenders Rank. In each subsequent month, a stock will drop out of
the India Contenders only when either the Earnings Revision Rank falls below
average (rank of 50) or the Price Momentum Rank falls below average (rank of
50). When a stock falls out of the Contenders it is replaced by the stock with the
highest Contenders Rank that is not already a Contender.
At inception, the India Defenders were the ten stocks with the lowest Contenders
Rank. In each subsequent month, a stock will drop out of the India Defenders
only when either the Earnings Revision Rank moves above average (rank of 50)
or the Price Momentum Rank moves above average (rank of 50). When a stock
falls out of the Defenders it is replaced by the stock with the lowest Contenders
Rank that is not already a Defender.
The average monthly turnover rate was 22% for the India Contenders and 20%
for the India Defenders based on the testing from Jan 1996 to August 2010. In
other words, the testing indicates roughly two stocks in the Contenders and two
stocks in the Defenders would be expected to change each month, on average.
We publish a report with the new Contenders & Defenders each month.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Contenders & Defenders
India Contenders: Inexpensive Growth
�� India Contenders: Growth stocks at reasonable price
The India Contenders & Defenders identify stocks with strong earnings
momentum and price momentum irrespective of the valuation. Nevertheless,
India stocks with strong earnings and price momentum are currently inexpensive
with eight out of the ten Contenders trading at a PE discount to the market.
Attractive growth stocks are currently inexpensive in India. The model continues
to favour Financials and remains underweight Utilities, Materials and Telecom
sectors
India Contenders - Momentum BUYS
The India Contenders are ten stocks with
above-average earnings momentum and
above-average price momentum.
The new India Contender this month is Hindalco Industries. The longest standing
Contenders are Bajaj Auto, Bank of Baroda, Punjab National Bank and Tata
Motors (all 6 months). The other India Contenders are Bank of India, Canara
Bank, Jet Airways India, Mahindra & Mahindra, and Oriental Bank of Commerce.
India Defenders -Momentum SELLS
The India Defenders are ten stocks with
below-average earnings momentum and
below-average price momentum.
The India Defenders are unchanged this month. The longest standing Defenders
are DLF Ltd, Indiabulls Real Estate, Punj Lloyd and Reliance Capital
(all 6 months). The India Defenders are GMR Infrastructure, Hero Honda Motors,
Piramal Healthcare, Reliance Communications, Reliance Industries, and Steel
Authority of India Limited.
Overview
We have drawn upon our analysis of earnings momentum and price momentum
investment strategies in India to create the India Contenders which we expect to
outperform the MSCI India Index and the India Defenders, which we expect to
underperform the Index. We introduced the India Contenders and Defenders in
September 2010.
In India, stocks with rising earnings forecasts have tended to subsequently
outperform, according to our analysis.
Not all companies with rising earnings estimates outperform, so the challenge is
to differentiate between stocks with rising earnings forecasts that will outperform,
and stocks with rising earnings expectations that will underperform. By definition,
stocks are being de-rated if earnings expectations are rising but the price is
falling. That is, the “E” in the PE ratio is going up while the “P” is going down.
To identify stocks with rising earnings expectations that are not being de-rated,
we consider stocks that have both above-average earnings momentum and
above-average price momentum. Our analysis indicated that stocks with aboveaverage
earnings momentum tended to outperform, stocks with above-average
price momentum tended to outperform, but stocks with both characteristics
tended to perform even better.
The India Contenders are the ten stocks with strong earnings momentum and
price momentum that meet the minimum market cap, turnover and coverage
requirements of our model (as discussed in the Methodology section). The India
Defenders are the ten stocks with falling earnings and falling price momentum
with the same market cap, turnover and coverage constraints as the India
Contenders.
We intend to publish the India Contenders and Defenders on a monthly basis.
The India Contenders and Defenders screens are not a recommended list either
individually or as a group of stocks. Investors should consider the fundamentals
of the companies and their own individual circumstances/objectives before
making any investment decision.
Girish Nair
2 February 2011
Note: Share prices in this report are as at 31 January 2011 unless otherwise
stated.
Screen Methodology
The universe of large and liquid stocks included in this analysis is selected from
the constituents of the MSCI India index that meet our market cap, turnover and
coverage requirements (see below). The universe is recalculated every 6 months
in line with the six-month rebalancing of the MSCI India Index.
For a stock to be included in the analysis it must be in the largest 85% of stocks
from the MSCI India Index by market capitalisation, the largest 65% by average
daily turnover in the last 6 months, and it must have a consensus earnings
estimate. The universe of stocks in the model for the latest analysis period
included 89% of MSCI India Index by free market capitalisation.
The India Contenders and Defenders are determined at the end of each month
using month-end data from MSCI, IBES and Ex-share databases. Stocks in the
firm’s restricted list at the time of the month-end analysis are excluded from the
analysis.
Our monthly analysis produces rankings for each eligible security for earnings
momentum and price momentum.
An Earnings Revision Rank from 1 (worst) to 100 (best), a percentile rank, is
calculated for each stock based on the 3-month change in a rolling forward
consensus EPS estimate.
A Price Momentum Rank from 1 (worst) to 100 (best) is also calculated
based on the slope of a log-linear regression of daily prices in last 9m.
The Contenders Rank is the average of the Price Momentum Rank and the
Earnings Revision Rank.
At inception in September 2010, the India Contenders were the ten stocks with
the highest Contenders Rank. In each subsequent month, a stock will drop out of
the India Contenders only when either the Earnings Revision Rank falls below
average (rank of 50) or the Price Momentum Rank falls below average (rank of
50). When a stock falls out of the Contenders it is replaced by the stock with the
highest Contenders Rank that is not already a Contender.
At inception, the India Defenders were the ten stocks with the lowest Contenders
Rank. In each subsequent month, a stock will drop out of the India Defenders
only when either the Earnings Revision Rank moves above average (rank of 50)
or the Price Momentum Rank moves above average (rank of 50). When a stock
falls out of the Defenders it is replaced by the stock with the lowest Contenders
Rank that is not already a Defender.
The average monthly turnover rate was 22% for the India Contenders and 20%
for the India Defenders based on the testing from Jan 1996 to August 2010. In
other words, the testing indicates roughly two stocks in the Contenders and two
stocks in the Defenders would be expected to change each month, on average.
We publish a report with the new Contenders & Defenders each month.
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