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UBS Investment Research
India Market Strategy
- ve earnings momentum may be priced in
Negative earnings momentum continues
We believe that the Indian stock market may already be factoring in the negative
earnings momentum. Nifty FY12E and FY13E consensus estimates have been
revised down by 1.9% & 2.7% ytd. Sectors such as IT services, financials and
materials have led the downward revision in Nifty earnings during the quarter. Our
bottom-up estimates indicate earnings growth of 17.5% in FY12E and 18.3% in
FY13E.
Sensitivity to further negative revisions; We are O/W India
Our discussion with our various sector analysts indicates that Nifty earnings
growth could slow further to 9.4% in FY12 and 16.7% in FY13 in a bear case
scenario. We revise our March 12 Sensex and Nifty targets to 21,000 (from
22,500) and 6,500 (from 6,800) respectively. Our regional Asia strategist Niall
MacLeod recently upgraded India stating that policy headwinds may peak soon
(Please refer to our note Moving overweight India dated 4 July 2011 for details).
Focus on bottom-up stock picking
Our analysis of Indian stock returns from Jan 2008 to June 2011 clearly indicates
that Indian stock markets reward stock pickers (Please refer to our note A stock
picker’s market dated 15 June 2011 for details). Therefore we believe investors
should focus on strong bottom-up stock ideas. Our high conviction buy ideas are
BHEL, Federal Bank, Hero Honda, Idea Cellular, Maruti and Power Grid. In the
mid-cap space we prefer Coromandel, Exide, Page, Havells, VIP, Triveni,
Motherson, Emami, Dish TV and DB Corp.
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