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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
India
Tweak and seek. We have made a few changes to our Model Portfolio given the
recent high volatility in stock prices. Broadly, we continue to follow our investment
thesis of the past few months—an ‘intermediate’ portfolio comprising a few defensive
stocks (private banks, consumer names), select economy-agnostic stocks and companies
with strong balance sheets and reasonable valuations. We see a few positives in the
Indian market but these may continue to be overshadowed by an uncertain global
environment.
Realign stocks within sectors; broad sector allocations remain
We have realigned weights in banking (larger PSU banks and non-infra NBFCs from smaller PSU
banks and HDFC), consumption (HUL and ITC from Bajaj Auto) and global commodities (RIL from
Hindalco) given changes to our analysts’ ratings and views and sharp movement in several stocks.
Our broad preferences are largely unchanged—retail banks and NBFCs, economy-agnostic stocks
(Coal India, ONGC) and certain fundamentally sound companies with strong balance sheets and
reasonable valuations. It is too early to look at the broader infrastructure space (we continue to
recommend a large underweight) and valuations of most consumption stories are too rich. Exhibits
1 and 2 give our Model Portfolio and Top-10 stocks.
No immediate clear triggers for the market but it is not all gloom and doom in India
We see (1) inexpensive valuations of the broad market (though a wide disparity exists across
sectors), (2) likely peaking of interest rates/inflation over the next 2-3 months and (3) likely decline
in crude prices over the next 3-6 months as positives. However, an uncertain global environment
and continued weak governance overshadow these positives at present.
Earnings still holding out well
Despite signs of a slowdown in the domestic economy and increased risks from a deteriorating
global situation, we haven’t seen any meaningful earnings downgrades over the past few weeks.
(1) The consumption story in India is relatively intact (although consumer discretionary is seeing
some signs of a slowdown), (2) earnings of several large companies (Coal India, ONGC) are quite
agnostic to a domestic slowdown and high interest rates (barring unfavorable government action)
and (3) earnings of several other large companies (metals, RIL, technology) depend on global
factors. Also, several large-cap. banks (ICICI Bank, SBI) and sectors (telecom) are coming off a low
base in FY2011, which should drive reasonably strong earnings growth in FY2012E. We model
19.1% and 15.3% growth in net profits of the BSE-30 Index in FY2012E and FY2013E with
banking, energy and metals and mining driving the bulk of the incremental growth in earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
India
Tweak and seek. We have made a few changes to our Model Portfolio given the
recent high volatility in stock prices. Broadly, we continue to follow our investment
thesis of the past few months—an ‘intermediate’ portfolio comprising a few defensive
stocks (private banks, consumer names), select economy-agnostic stocks and companies
with strong balance sheets and reasonable valuations. We see a few positives in the
Indian market but these may continue to be overshadowed by an uncertain global
environment.
Realign stocks within sectors; broad sector allocations remain
We have realigned weights in banking (larger PSU banks and non-infra NBFCs from smaller PSU
banks and HDFC), consumption (HUL and ITC from Bajaj Auto) and global commodities (RIL from
Hindalco) given changes to our analysts’ ratings and views and sharp movement in several stocks.
Our broad preferences are largely unchanged—retail banks and NBFCs, economy-agnostic stocks
(Coal India, ONGC) and certain fundamentally sound companies with strong balance sheets and
reasonable valuations. It is too early to look at the broader infrastructure space (we continue to
recommend a large underweight) and valuations of most consumption stories are too rich. Exhibits
1 and 2 give our Model Portfolio and Top-10 stocks.
No immediate clear triggers for the market but it is not all gloom and doom in India
We see (1) inexpensive valuations of the broad market (though a wide disparity exists across
sectors), (2) likely peaking of interest rates/inflation over the next 2-3 months and (3) likely decline
in crude prices over the next 3-6 months as positives. However, an uncertain global environment
and continued weak governance overshadow these positives at present.
Earnings still holding out well
Despite signs of a slowdown in the domestic economy and increased risks from a deteriorating
global situation, we haven’t seen any meaningful earnings downgrades over the past few weeks.
(1) The consumption story in India is relatively intact (although consumer discretionary is seeing
some signs of a slowdown), (2) earnings of several large companies (Coal India, ONGC) are quite
agnostic to a domestic slowdown and high interest rates (barring unfavorable government action)
and (3) earnings of several other large companies (metals, RIL, technology) depend on global
factors. Also, several large-cap. banks (ICICI Bank, SBI) and sectors (telecom) are coming off a low
base in FY2011, which should drive reasonably strong earnings growth in FY2012E. We model
19.1% and 15.3% growth in net profits of the BSE-30 Index in FY2012E and FY2013E with
banking, energy and metals and mining driving the bulk of the incremental growth in earnings.
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