Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MARKET STRATEGY
Indian markets remained weak during month of August 2011, largely due to
the negative news coming in from the global economy. US credit rating
was downgraded by S&P and concerns continued on euro zone debt issues.
On the domestic front, high inflation, earnings / rating downgrades post
Q1FY12 numbers as well as apparent delays in approval of key bills from the
government kept markets under pressure. The anti-corruption civil society
movement in India has raised concerns on the reforms process. Globally, US
and European markets also remained weak amid the above-mentioned
worries.
In India, the Parliament passed the resolution on the Lokpal Bill where both
the houses of Parliament agreed to discuss the three main issues of citizen
charter, lower bureaucracy to be under Lokpal through an appropriate
mechanism and establishment of Lok Ayuktas in the states. This was seen as
a step in the right direction. However, effective implementation of the same
remains the key, we opine.
IIP for the month of June witnessed an improvement, though we expect it
to come down given broad based slowdown in demand as indicated by fall
in car sales, lower than expected cement demand growth as well as decline
in consumer durable growth. Inflation also remains at elevated levels and
high food, manufacturing and fuel inflation coupled with high oil prices
may continue to pose a concern. This may prompt RBI to further hike the
interest rates to control the inflation.
We had been continuously stating that markets may remain negative to
range bound till the time concerns from global markets ease off or crude
prices come down and there is affirmative action regarding policy reforms
and inflation. We believe that, many of these positives need to still play
out, which may keep markets range bound in the near term. However, any
action towards addressing these concerns can result in upward movement
in the markets since valuations have already corrected to attractive levels.
Thus in the near term, actions of key policy reforms and fall in crude prices
are the pre-requisites for domestic markets to move up from the current
levels. We believe that, valuations have come down and may provide the
cushion over the medium - to - long term. We would thus recommend
adopting a stock specific approach in sectors like IT, Banking, Capital Goods,
Infrastructure, FMCG, Media and Logistics sectors. We maintain our cautious
view on Automobiles, Metals and Cement.
Global markets remained weak amid worries over a global recession
in addition to the ongoing euro zone jitters
US markets were impacted adversely due to US's AAA rating downgrade by Standard
and Poor as well as poor set of economic reports. S&P lowered the U.S rating
by one notch to AA+ while keeping the outlook at "negative" This would hurt the
U.S. economy over time by increasing the cost of mortgages, auto loans and other
types of lending tied to the interest rates paid on Treasuries. Federal Reserve's
speech to keep interest rates near zero for at least two years also didn't add to the
market recovery. Along with this, disappointing economic data such as weak manufacturing
and consumer spending report, fall in existing home sales as well as new
home sales also put downward pressure on the US markets. US economy also grew
at a revised annual rate of 1% during the second quarter, down from a previously
reported 1.3%. Due to poor economic growth, investors were looking out for Fed's
announcement regarding QE3. Though Fed didn't come out with any QE3 announcement
but acknowledged that the economy continues to remain weak in the
short term and it would consider what it can do at an extended policy meeting in
September.
European markets also witnessed huge selling pressure due to concerns related to
overall global slowdown as well as rating downgrade in US. Due to lower than expected
euro zone's economic recovery, ECB also paused policy tightening cycle and
held its interest rates at 1.5 per cent. Eurozone saw a meagre economic growth of
0.2% in the three months to June amid sluggish recovery in Germany and France.
While Germany's GDP rose by just 0.1%, French economy stagnated in the second
quarter with zero growth.Spanish economy rose 0.2% while Italy's GDP grew 0.3%.
French and German leaders also rejected the proposal to expand the bailout fund
and also said that issuing eurobonds, a collective bond to help pay off the debt of
the peripheral countries, will not solve the European debt crisis.
China continued to struggle with high inflation which rose to 6.5 % in July, its highest
level since June, 2008. Though earlier China had raised interest rates to control
inflation but due to prevailing debt crisis in US and Europe, the People's Bank of
China (PBoC) may hold interest rates steady. Rating downgrades have now come to
Japan also with Moody's Investors Service cutting the rating on Japan's government
debt by one notch to Aa3, due to large budget deficits and the build-up of debt
since the 2009 global recession.
Indian markets remained weak due to volatile global markets as
well as earnings downgrades
Indian markets remained weak during entire month of Aug, 2011 on negative news
from US rating downgrades and poor economic data as well as euro debt zone problems.
On domestic fronts, delays in approval of key bills during the monsoon session
of Parliament as well as stubbornly high inflation kept markets under selling pressure.
Along with this, earnings and rating downgrades were also witnessed on
completion of Q1FY12 results.
RBI has indicated amendments to the Banking Regulations Act before it allows
corporates to promote banks. This is to prevent corporates from using banks as private
pools of readily available funds. It has come out with draft guidelines for licensing
of new banks in the private sector setting stiff conditions that straightaway shut
the door on real estate companies and brokerage firms. The RBI said private groups
or entities with diversified ownership, sound credentials and a "successful track
record" of 10 years would be allowed to apply for new banking licences. Such
groups or entities cannot have more than 10 per cent or more assets or income from
real estate and capital market activities. The minimum capital required to set up
new banks has been fixed at Rs 5 bn. Along with this, RBI has indicated that banking
licenses will be issued on a selective basis.
The draft mining legislation will be placed before the Cabinet shortly. During last
week of August, 2011, Parliament passed the resolution on Jan Lokpal bill where
both the houses of Parliament agreed on three principles of citizen charter, lower
bureaucracy to be under Lokpal through an appropriate mechanism and establishment
of Lok Ayuktas in the states. This ended the stalemate between government,
opposition and team Anna and was taken as one positive step.
During the month, government also cleared a proposal to free urea prices. As per
the draft policy, fertilizer companies will be able to raise the rate of key farm nutrients
by 10% in the first year, and starting second year will have the complete freedom
to fix the maximum retail price of urea based on market dynamics. As a result,
fertilizer stocks witnessed some buying interest.
Rainfall till now has also been normal. Rainfall for the week ending 24th Aug, 2011
was excess/normal in 22 deficient/scanty in 14 out of 36 meteorological sub-divisions.
Cumulative rainfall from 1st June to 24th Aug, 2011 was excess/normal in 32
and deficient in 4 out of 36 meteorological sub-divisions. (Actual: 656.0mm, Normal:
662.8 mm and Departure: -1%).
Earnings as well as rating downgrades were also witnessed post Q1FY12 numbers
primarily in sectors like banking, capital goods and construction. Concerns have also
come up in IT sector due to current uncertainty prevailing in US and Europe. A significant
deterioration in the situation of US or Europe may make clients hold back or
defer their IT spends, in turn, impacting demand for IT vendors.
IIP surprised on the upside
IIP has, once again, surprised the market by growing at 8.8% in June. While manufacturing
output, which constitutes about 76% of the industrial production, rose by
10%, mining was almost flat and electricity growth was robust at 7.9%. May IIP
was revised upwards from 5.6% to 5.9%. IIP data suggests that growth is buoyant
despite the rate increases over the past 17 months.
On a sectoral classification basis, mining sector growth continued to remain muted
at 0.6% (1.4% in May) while electricity production growth at 7.9% has declined in
comparison with last month. Manufacturing production witnessed a jump of 10% in
comparison with last month, mainly led by growth in electrical machinery and apparatus.
Consumer durables growth has come down to just 1.6% YoY and has been
hurt by higher interest rates and higher inflation. However, growth of 37.7% in capital
goods production came as a surprise.
The cumulative growth of IIP in Q1FY12 stands at 6.8% as against 14% in Q1 FY11
(GDP growth in Q1 was 9.3%). Going forward we expect IIP to slowdown, given
broad based slowdown in demand as indicated by fall in car sales by 15.8% in July,
the first drop in 2 ½ years, due to higher interest rates and rising input costs.
Inflation started declining, though rate hike may still come
WPI inflation for the month of July came at 9.22%, down from June's data of 9.44%
driven by decline in fuel and food article inflation. There has been consistent upward
revision in the previous month's inflation figures with May inflation revised up to
9.56% from 9.06% earlier. We had also seen that April inflation data has also been
revised upward from 8.7% to 9.7%. Data showing inflation remaining at the elevated
levels raised the concerns that central bank may further hike the interest
rates.
Manufacturing inflation quickened to 7.49% in July from 7.43% in the previous
month. Prices of food articles went up by 8.19% in July, which is lower than the
8.38% inflation recorded in June. Inflation in overall primary articles stood at
11.30% in July, down from 12.22% in June. Fuel inflation stood at 12.04% year-onyear
in July, down from 12.85% in the previous month.
Food inflation for the week ended 13th Aug, 2011 rose to 9.8% due to higher fruit,
onion and potato prices. Primary articles recorded 12.40% inflation for the week
ended August 13, up from 11.64% in the previous week. Inflation in non-food articles,
which include fibres, oil seeds and minerals, stood at 17.80%, compared to
16.07% in the previous week. Meanwhile, fuel and power inflation stood stable at
13.13%.
Stubbornly high inflation prompted RBI to hike the key interest rates by 50 bps during
July, 2011, much ahead of market expectations. We believe that going forward,
food, non-food manufactured product and fuel inflation would continue to pose a
concern. If inflation continues to stay at higher levels, RBI may be prompted to hike
rates further.
Negative global cues kept FII’s as net sellers during Aug, 2011
Foreign funds continued to remain net sellers till 26th Aug, 2011 due to negative
global cues related to rating downgrade in US and debt worries from Europe. Net FII
outflows in the cash market stood at about Rs.107 bn while mutual funds remained
as net buyers with net inflows standing at Rs.21.8 bn. Delays in approval of key bills
during the monsoon session of Parliament as well as stubbornly high inflation also
weighed down on the markets.
Recommendation
Global markets remained weak due to euro debt issues as well as rating downgrade
in US. Along with this, higher crude prices and slower than expected economic recovery
also weighed down on the markets. Indian markets also remained under selling
pressure due to negative global cues, higher inflation, high interest rates as well
as lack of certainty on key policy initiatives during monsoon session of the parliament.
We had been continuously stating that markets may remain negative to range
bound till the time concerns from global markets ease off or crude prices come
down and there is affirmative action regarding policy reforms and inflation. We believe
that, many of these positives need to still play out, which may keep markets
range bound in the near term. However, any action towards addressing these concerns
can result in upward movement in the markets since valuations have already
corrected to attractive levels.
Thus in the near term, actions of key policy reforms and fall in crude prices are the
pre-requisites for domestic markets to move up from the current levels. We believe
that, valuations have come down and may provide the cushion over the medium - to
- long term. We would thus recommend adopting a stock specific approach in sectors
like IT, Banking, Capital Goods, Infrastructure, FMCG, Media and Logistics sectors.
We maintain our cautious view on Automobiles, Metals and Cement.
Preferred picks
Sector Stocks
Automobiles Bajaj Auto
Banking Axis Bank, Bank of Baroda, ICICI Bank, SBI, Union Bank
Construction IRB Infra, Unity Infra, NCC, Pratibha Industries
Engineering L&T, Greaves Cotton, Havells India, Cummins,
Diamond Power, Voltas, Bajaj Electricals
FMCG ITC
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation GDL, Allcargo Global Logistics
Media HT Media
NBFC LIC Housing Finance
Oil & Gas IGL, Cairn India
Source: Kotak Securities - Private Client Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MARKET STRATEGY
Indian markets remained weak during month of August 2011, largely due to
the negative news coming in from the global economy. US credit rating
was downgraded by S&P and concerns continued on euro zone debt issues.
On the domestic front, high inflation, earnings / rating downgrades post
Q1FY12 numbers as well as apparent delays in approval of key bills from the
government kept markets under pressure. The anti-corruption civil society
movement in India has raised concerns on the reforms process. Globally, US
and European markets also remained weak amid the above-mentioned
worries.
In India, the Parliament passed the resolution on the Lokpal Bill where both
the houses of Parliament agreed to discuss the three main issues of citizen
charter, lower bureaucracy to be under Lokpal through an appropriate
mechanism and establishment of Lok Ayuktas in the states. This was seen as
a step in the right direction. However, effective implementation of the same
remains the key, we opine.
IIP for the month of June witnessed an improvement, though we expect it
to come down given broad based slowdown in demand as indicated by fall
in car sales, lower than expected cement demand growth as well as decline
in consumer durable growth. Inflation also remains at elevated levels and
high food, manufacturing and fuel inflation coupled with high oil prices
may continue to pose a concern. This may prompt RBI to further hike the
interest rates to control the inflation.
We had been continuously stating that markets may remain negative to
range bound till the time concerns from global markets ease off or crude
prices come down and there is affirmative action regarding policy reforms
and inflation. We believe that, many of these positives need to still play
out, which may keep markets range bound in the near term. However, any
action towards addressing these concerns can result in upward movement
in the markets since valuations have already corrected to attractive levels.
Thus in the near term, actions of key policy reforms and fall in crude prices
are the pre-requisites for domestic markets to move up from the current
levels. We believe that, valuations have come down and may provide the
cushion over the medium - to - long term. We would thus recommend
adopting a stock specific approach in sectors like IT, Banking, Capital Goods,
Infrastructure, FMCG, Media and Logistics sectors. We maintain our cautious
view on Automobiles, Metals and Cement.
Global markets remained weak amid worries over a global recession
in addition to the ongoing euro zone jitters
US markets were impacted adversely due to US's AAA rating downgrade by Standard
and Poor as well as poor set of economic reports. S&P lowered the U.S rating
by one notch to AA+ while keeping the outlook at "negative" This would hurt the
U.S. economy over time by increasing the cost of mortgages, auto loans and other
types of lending tied to the interest rates paid on Treasuries. Federal Reserve's
speech to keep interest rates near zero for at least two years also didn't add to the
market recovery. Along with this, disappointing economic data such as weak manufacturing
and consumer spending report, fall in existing home sales as well as new
home sales also put downward pressure on the US markets. US economy also grew
at a revised annual rate of 1% during the second quarter, down from a previously
reported 1.3%. Due to poor economic growth, investors were looking out for Fed's
announcement regarding QE3. Though Fed didn't come out with any QE3 announcement
but acknowledged that the economy continues to remain weak in the
short term and it would consider what it can do at an extended policy meeting in
September.
European markets also witnessed huge selling pressure due to concerns related to
overall global slowdown as well as rating downgrade in US. Due to lower than expected
euro zone's economic recovery, ECB also paused policy tightening cycle and
held its interest rates at 1.5 per cent. Eurozone saw a meagre economic growth of
0.2% in the three months to June amid sluggish recovery in Germany and France.
While Germany's GDP rose by just 0.1%, French economy stagnated in the second
quarter with zero growth.Spanish economy rose 0.2% while Italy's GDP grew 0.3%.
French and German leaders also rejected the proposal to expand the bailout fund
and also said that issuing eurobonds, a collective bond to help pay off the debt of
the peripheral countries, will not solve the European debt crisis.
China continued to struggle with high inflation which rose to 6.5 % in July, its highest
level since June, 2008. Though earlier China had raised interest rates to control
inflation but due to prevailing debt crisis in US and Europe, the People's Bank of
China (PBoC) may hold interest rates steady. Rating downgrades have now come to
Japan also with Moody's Investors Service cutting the rating on Japan's government
debt by one notch to Aa3, due to large budget deficits and the build-up of debt
since the 2009 global recession.
Indian markets remained weak due to volatile global markets as
well as earnings downgrades
Indian markets remained weak during entire month of Aug, 2011 on negative news
from US rating downgrades and poor economic data as well as euro debt zone problems.
On domestic fronts, delays in approval of key bills during the monsoon session
of Parliament as well as stubbornly high inflation kept markets under selling pressure.
Along with this, earnings and rating downgrades were also witnessed on
completion of Q1FY12 results.
RBI has indicated amendments to the Banking Regulations Act before it allows
corporates to promote banks. This is to prevent corporates from using banks as private
pools of readily available funds. It has come out with draft guidelines for licensing
of new banks in the private sector setting stiff conditions that straightaway shut
the door on real estate companies and brokerage firms. The RBI said private groups
or entities with diversified ownership, sound credentials and a "successful track
record" of 10 years would be allowed to apply for new banking licences. Such
groups or entities cannot have more than 10 per cent or more assets or income from
real estate and capital market activities. The minimum capital required to set up
new banks has been fixed at Rs 5 bn. Along with this, RBI has indicated that banking
licenses will be issued on a selective basis.
The draft mining legislation will be placed before the Cabinet shortly. During last
week of August, 2011, Parliament passed the resolution on Jan Lokpal bill where
both the houses of Parliament agreed on three principles of citizen charter, lower
bureaucracy to be under Lokpal through an appropriate mechanism and establishment
of Lok Ayuktas in the states. This ended the stalemate between government,
opposition and team Anna and was taken as one positive step.
During the month, government also cleared a proposal to free urea prices. As per
the draft policy, fertilizer companies will be able to raise the rate of key farm nutrients
by 10% in the first year, and starting second year will have the complete freedom
to fix the maximum retail price of urea based on market dynamics. As a result,
fertilizer stocks witnessed some buying interest.
Rainfall till now has also been normal. Rainfall for the week ending 24th Aug, 2011
was excess/normal in 22 deficient/scanty in 14 out of 36 meteorological sub-divisions.
Cumulative rainfall from 1st June to 24th Aug, 2011 was excess/normal in 32
and deficient in 4 out of 36 meteorological sub-divisions. (Actual: 656.0mm, Normal:
662.8 mm and Departure: -1%).
Earnings as well as rating downgrades were also witnessed post Q1FY12 numbers
primarily in sectors like banking, capital goods and construction. Concerns have also
come up in IT sector due to current uncertainty prevailing in US and Europe. A significant
deterioration in the situation of US or Europe may make clients hold back or
defer their IT spends, in turn, impacting demand for IT vendors.
IIP surprised on the upside
IIP has, once again, surprised the market by growing at 8.8% in June. While manufacturing
output, which constitutes about 76% of the industrial production, rose by
10%, mining was almost flat and electricity growth was robust at 7.9%. May IIP
was revised upwards from 5.6% to 5.9%. IIP data suggests that growth is buoyant
despite the rate increases over the past 17 months.
On a sectoral classification basis, mining sector growth continued to remain muted
at 0.6% (1.4% in May) while electricity production growth at 7.9% has declined in
comparison with last month. Manufacturing production witnessed a jump of 10% in
comparison with last month, mainly led by growth in electrical machinery and apparatus.
Consumer durables growth has come down to just 1.6% YoY and has been
hurt by higher interest rates and higher inflation. However, growth of 37.7% in capital
goods production came as a surprise.
The cumulative growth of IIP in Q1FY12 stands at 6.8% as against 14% in Q1 FY11
(GDP growth in Q1 was 9.3%). Going forward we expect IIP to slowdown, given
broad based slowdown in demand as indicated by fall in car sales by 15.8% in July,
the first drop in 2 ½ years, due to higher interest rates and rising input costs.
Inflation started declining, though rate hike may still come
WPI inflation for the month of July came at 9.22%, down from June's data of 9.44%
driven by decline in fuel and food article inflation. There has been consistent upward
revision in the previous month's inflation figures with May inflation revised up to
9.56% from 9.06% earlier. We had also seen that April inflation data has also been
revised upward from 8.7% to 9.7%. Data showing inflation remaining at the elevated
levels raised the concerns that central bank may further hike the interest
rates.
Manufacturing inflation quickened to 7.49% in July from 7.43% in the previous
month. Prices of food articles went up by 8.19% in July, which is lower than the
8.38% inflation recorded in June. Inflation in overall primary articles stood at
11.30% in July, down from 12.22% in June. Fuel inflation stood at 12.04% year-onyear
in July, down from 12.85% in the previous month.
Food inflation for the week ended 13th Aug, 2011 rose to 9.8% due to higher fruit,
onion and potato prices. Primary articles recorded 12.40% inflation for the week
ended August 13, up from 11.64% in the previous week. Inflation in non-food articles,
which include fibres, oil seeds and minerals, stood at 17.80%, compared to
16.07% in the previous week. Meanwhile, fuel and power inflation stood stable at
13.13%.
Stubbornly high inflation prompted RBI to hike the key interest rates by 50 bps during
July, 2011, much ahead of market expectations. We believe that going forward,
food, non-food manufactured product and fuel inflation would continue to pose a
concern. If inflation continues to stay at higher levels, RBI may be prompted to hike
rates further.
Negative global cues kept FII’s as net sellers during Aug, 2011
Foreign funds continued to remain net sellers till 26th Aug, 2011 due to negative
global cues related to rating downgrade in US and debt worries from Europe. Net FII
outflows in the cash market stood at about Rs.107 bn while mutual funds remained
as net buyers with net inflows standing at Rs.21.8 bn. Delays in approval of key bills
during the monsoon session of Parliament as well as stubbornly high inflation also
weighed down on the markets.
Recommendation
Global markets remained weak due to euro debt issues as well as rating downgrade
in US. Along with this, higher crude prices and slower than expected economic recovery
also weighed down on the markets. Indian markets also remained under selling
pressure due to negative global cues, higher inflation, high interest rates as well
as lack of certainty on key policy initiatives during monsoon session of the parliament.
We had been continuously stating that markets may remain negative to range
bound till the time concerns from global markets ease off or crude prices come
down and there is affirmative action regarding policy reforms and inflation. We believe
that, many of these positives need to still play out, which may keep markets
range bound in the near term. However, any action towards addressing these concerns
can result in upward movement in the markets since valuations have already
corrected to attractive levels.
Thus in the near term, actions of key policy reforms and fall in crude prices are the
pre-requisites for domestic markets to move up from the current levels. We believe
that, valuations have come down and may provide the cushion over the medium - to
- long term. We would thus recommend adopting a stock specific approach in sectors
like IT, Banking, Capital Goods, Infrastructure, FMCG, Media and Logistics sectors.
We maintain our cautious view on Automobiles, Metals and Cement.
Preferred picks
Sector Stocks
Automobiles Bajaj Auto
Banking Axis Bank, Bank of Baroda, ICICI Bank, SBI, Union Bank
Construction IRB Infra, Unity Infra, NCC, Pratibha Industries
Engineering L&T, Greaves Cotton, Havells India, Cummins,
Diamond Power, Voltas, Bajaj Electricals
FMCG ITC
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation GDL, Allcargo Global Logistics
Media HT Media
NBFC LIC Housing Finance
Oil & Gas IGL, Cairn India
Source: Kotak Securities - Private Client Research
No comments:
Post a Comment