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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eye on India
Have cash, will grow
Event
ƒ A recent joke doing the rounds across Indian media – “Mr Manmohan Singh,
Prime Minister of India, visits a dentist. Dentist says to the PM, at least now
open your mouth!” – suggests to us the state of inaction by the government.
Finally, the past week saw some action from the government, which brought
about a positive feel to the market. We have been visiting investors from
around the world last month and it was very clear to us that most are still
underweight India and think any positive development can lead to a rally. The
last few days in HK and SG, as the market was going up, saw investors
getting excited about ideas to invest. We would like to caution that macro data
will likely continue to worsen, earnings downgrades will be the order of the
day and medium term concerns remain. Hence, we believe sticking to quality
names will be important.
ƒ This week we assess stocks under our coverage for their ability to deliver
consistent earnings growth and to fund this growth internally. Based on their
cash flows, balance sheet strength and earnings quality, the ones that screen
favourably are MM, ITC, GAIL, DRRD, NMDC, JSP, CRG, GPPV and NTPC.
Stocks that do not screen favourably include UNSP, SUEL, PUNJ, GNC,
TATA, GMR and RPWR. Stocks with the highest delta in potential earnings
quality improvement include LT, MRCO, GNP, HCL and HEXW.
What caught our eye?
ƒ Market rally led by falling oil prices: Over the last week, India outperformed
developed and emerging markets by 150bp and 320bp respectively. The
Sensex rose 6.3%, with capital goods outperforming (7.6%) and consumer
durables underperforming (0.1%). Our Top 10 Focus List rose 5.1% led by
L&T (+9.3%) and M&M (7.4%), and it continues to outperform MSCI India by
600bp since August last year.
ƒ Strong fund flows this week: The past week saw net inflow of US$1.1bn
(YTD US$500m net inflow) from FIIs and US$100m from domestic mutual
funds (YTD US$700m net buys).
ƒ Lots to cheer on government action: a) Bold step on fuel prices, which was
better than we expected especially on cooking gas and kerosene. b) Six coal
mines received environmental clearance even though they were earlier
classified under “No go area”.
ƒ Positive data points: a) Current account deficit positively surprised in 4Q
FY11 (Jan-Mar) and lowered the FY11 deficit to 2.6% of GDP, which was
lower than 2.8% in FY10. b) Non-food credit growth in May 2011 was 22%
YoY, led by growth of 54% and 27% YoY in credit to NBFCs and the industry
respectively.
Outlook
ƒ We expect the rally to gain some more strength as investors do follow up
buying post the short covering. However, we don’t think it is the start of a bull
cycle as concerns on medium term growth loom large. Unless suitable
reforms are pushed through, we believe high inflation will curtail growth to
lower levels as compared to the last 5yrs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eye on India
Have cash, will grow
Event
ƒ A recent joke doing the rounds across Indian media – “Mr Manmohan Singh,
Prime Minister of India, visits a dentist. Dentist says to the PM, at least now
open your mouth!” – suggests to us the state of inaction by the government.
Finally, the past week saw some action from the government, which brought
about a positive feel to the market. We have been visiting investors from
around the world last month and it was very clear to us that most are still
underweight India and think any positive development can lead to a rally. The
last few days in HK and SG, as the market was going up, saw investors
getting excited about ideas to invest. We would like to caution that macro data
will likely continue to worsen, earnings downgrades will be the order of the
day and medium term concerns remain. Hence, we believe sticking to quality
names will be important.
ƒ This week we assess stocks under our coverage for their ability to deliver
consistent earnings growth and to fund this growth internally. Based on their
cash flows, balance sheet strength and earnings quality, the ones that screen
favourably are MM, ITC, GAIL, DRRD, NMDC, JSP, CRG, GPPV and NTPC.
Stocks that do not screen favourably include UNSP, SUEL, PUNJ, GNC,
TATA, GMR and RPWR. Stocks with the highest delta in potential earnings
quality improvement include LT, MRCO, GNP, HCL and HEXW.
What caught our eye?
ƒ Market rally led by falling oil prices: Over the last week, India outperformed
developed and emerging markets by 150bp and 320bp respectively. The
Sensex rose 6.3%, with capital goods outperforming (7.6%) and consumer
durables underperforming (0.1%). Our Top 10 Focus List rose 5.1% led by
L&T (+9.3%) and M&M (7.4%), and it continues to outperform MSCI India by
600bp since August last year.
ƒ Strong fund flows this week: The past week saw net inflow of US$1.1bn
(YTD US$500m net inflow) from FIIs and US$100m from domestic mutual
funds (YTD US$700m net buys).
ƒ Lots to cheer on government action: a) Bold step on fuel prices, which was
better than we expected especially on cooking gas and kerosene. b) Six coal
mines received environmental clearance even though they were earlier
classified under “No go area”.
ƒ Positive data points: a) Current account deficit positively surprised in 4Q
FY11 (Jan-Mar) and lowered the FY11 deficit to 2.6% of GDP, which was
lower than 2.8% in FY10. b) Non-food credit growth in May 2011 was 22%
YoY, led by growth of 54% and 27% YoY in credit to NBFCs and the industry
respectively.
Outlook
ƒ We expect the rally to gain some more strength as investors do follow up
buying post the short covering. However, we don’t think it is the start of a bull
cycle as concerns on medium term growth loom large. Unless suitable
reforms are pushed through, we believe high inflation will curtail growth to
lower levels as compared to the last 5yrs.
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