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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
India
Follow the middle path and hope for the best. We base our ‘middle path’ portfolio
on the premise that (1) the world won’t see a repeat of the 2008 global financial crisis
(GFC) in the form of a global sovereign crisis and (2) India’s macro-economic situation
will stabilize over the next 2-3 months. We hope that the lessons from GFC 2008 have
sunk in sufficiently into the political class in the western world to avoid GFC 2011 (or a
later version) but we are less sure given the recent theatrics in Europe and the US.
‘Middle’ path portfolio hinges on subdued global economic growth and no catastrophic meltdown
Our ‘middle’ path portfolio is based on two critical assumptions—(1) India is at the fag end of its
rate tightening cycle; recent global events and strong evidence of a slowdown in India may force
the RBI to soften its hawkish stance as suggested by its last policy action and statement and (2)
Eurozone muddles through its sovereign-debt problems through a combination of austerity and
luck. The latter situation would keep oil prices in check but avoid a catastrophic meltdown in a
repeat of the 2008 global financial crisis possibly on a larger scale.
India looks good for the next 9-12 months; just don’t ask about the next three
(1) At 13.5X FY2012E ‘EPS’ (BSE-30 Index basis) and 11.5X FY2013E ‘EPS’, the Indian market is
attractively valued. (2) Earnings face downside risks but we note that our FY2012E BSE-30 Index
‘EPS’ is down only 2% to `1,200 from `1,225 at the start of the reporting season; 20 companies
have reported so far but most of the major sectors are already through. We will focus on earnings
in a subsequent report post the ongoing quarterly reporting season. (3) We expect inflation and
interest rates to peak out over the next 2-3 months and the RBI to reverse the current tightening
phase after another 6-7 months of stable interest rates once it is comfortable with the inflation
trajectory. (4) Crude oil supply-demand balance looks a lot better in CY2012E and may surprise
positively if Libya is able to come back to normalcy in 2HCY12E.
High on banks, technology and some fundamentally solid stocks; low on defensives and infra
We see low reward-risk balance in so-called defensive sectors (consumer, pharma) and prefer highquality
banks and companies with strong balance sheets. Consumer stocks are still very expensive
and won’t withstand a global meltdown; no portfolio barring cash will. Pharma companies
reported very poor 1QFY12/2QCY11 results and investors may reassess their positive bias in light
of expensive valuations. We avoid the broader infra space given a mix of high interest rates, policy
inertia, execution issues and high leverage in the case of several companies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
India
Follow the middle path and hope for the best. We base our ‘middle path’ portfolio
on the premise that (1) the world won’t see a repeat of the 2008 global financial crisis
(GFC) in the form of a global sovereign crisis and (2) India’s macro-economic situation
will stabilize over the next 2-3 months. We hope that the lessons from GFC 2008 have
sunk in sufficiently into the political class in the western world to avoid GFC 2011 (or a
later version) but we are less sure given the recent theatrics in Europe and the US.
‘Middle’ path portfolio hinges on subdued global economic growth and no catastrophic meltdown
Our ‘middle’ path portfolio is based on two critical assumptions—(1) India is at the fag end of its
rate tightening cycle; recent global events and strong evidence of a slowdown in India may force
the RBI to soften its hawkish stance as suggested by its last policy action and statement and (2)
Eurozone muddles through its sovereign-debt problems through a combination of austerity and
luck. The latter situation would keep oil prices in check but avoid a catastrophic meltdown in a
repeat of the 2008 global financial crisis possibly on a larger scale.
India looks good for the next 9-12 months; just don’t ask about the next three
(1) At 13.5X FY2012E ‘EPS’ (BSE-30 Index basis) and 11.5X FY2013E ‘EPS’, the Indian market is
attractively valued. (2) Earnings face downside risks but we note that our FY2012E BSE-30 Index
‘EPS’ is down only 2% to `1,200 from `1,225 at the start of the reporting season; 20 companies
have reported so far but most of the major sectors are already through. We will focus on earnings
in a subsequent report post the ongoing quarterly reporting season. (3) We expect inflation and
interest rates to peak out over the next 2-3 months and the RBI to reverse the current tightening
phase after another 6-7 months of stable interest rates once it is comfortable with the inflation
trajectory. (4) Crude oil supply-demand balance looks a lot better in CY2012E and may surprise
positively if Libya is able to come back to normalcy in 2HCY12E.
High on banks, technology and some fundamentally solid stocks; low on defensives and infra
We see low reward-risk balance in so-called defensive sectors (consumer, pharma) and prefer highquality
banks and companies with strong balance sheets. Consumer stocks are still very expensive
and won’t withstand a global meltdown; no portfolio barring cash will. Pharma companies
reported very poor 1QFY12/2QCY11 results and investors may reassess their positive bias in light
of expensive valuations. We avoid the broader infra space given a mix of high interest rates, policy
inertia, execution issues and high leverage in the case of several companies.
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