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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Slowing down…
Indian market’s outperformance over the past month reflects the belief
that India will be relatively resilient in a global slowdown. We are not,
however, believers in a broad-based economic recovery, as Sep-11 data
on investment projects suggests further slowdown, with QoQ fall for the
first time, in projects under implementation, raising FY13/14 growth
questions. While our stance remains cautious, our preferred high beta
picks are those where strong business franchise is supplemented by
attractive valuations - JPA, DLF, United Spirits, IDFC, and Sterlite.
Relative sentiment towards India has improved…
q Indian stock markets have corrected by a further 4% over the last one month (11%
in USD terms) and has outperformed most markets in Asia / other emerging
markets
q India has been the worst performing emerging market for most of 2011 but not
anymore, thanks to the last 1m of outperformance by India. HK and Taiwan have
also nearly caught up with India.
q The above is in line with the view echoed by the CLSA Gurus viz. Chris Wood and
Russell Napier that India is a better defensive market thanks to the lower
export/GDP ratio and RBI’s active tightening so far.
q Even within India, it appears that investors have been doing some value hunting
with some of the most beaten down names viz. JPA, IRB and Educomp etc
outperforming the markets over the last one month.
…but don’t ignore poor data points on investment cycle
q According to the CMIE, growth in projects under implementation (PUI) has slowed
down from +40%YoY in Sep10 to 9% by Sep 11. PUI showing a first QoQ decline.
q New project announcement during Sep’11 quarter at Rs2.5tn nearly at the June-09
lows, which is the same as the Mar’06 levels.
Private sector leading the slowdown
q While private sector has accounted for c.75% of the incremental PUI over the last 5
years, the same number is now down to less than 40% i.e. back to 2004 level.
q Incremental investments still visible in transport infrastructure (roads, railways and
aviation) and power generation. But manufacturing, mining, housing construction
and irrigation is pointing towards a sharp slowdown.
Markets not ripe for bottom fishing yet
q Cap goods companies under coverage (L&T, BHEL, Thermax, ABB, Crompton and
Voltas) have already reported a YoY drop in orderbooking in 2 of the last three
quarters and we believe continued disappointment (not in consensus) is possible.
q Slowing investment cycle doesn’t augur well for the FY13/14 credit growth and we
maintain our UWT on the banking sector.
q If the markets were to trade down to the bottom GFC multiples in Mar-09, (PE of
10x and P /Book of 1.8x), a further 15-20% downside would be possible.
q For someone who wishes to start early, we would recommend JPA, DLF, United
Spirits, IDFC, and Sterlite.
q For those looking at India from a more defensive standpoint, we like ITC, Dr
Reddy’s, Mahindra & Mahindra and Power grid.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Slowing down…
Indian market’s outperformance over the past month reflects the belief
that India will be relatively resilient in a global slowdown. We are not,
however, believers in a broad-based economic recovery, as Sep-11 data
on investment projects suggests further slowdown, with QoQ fall for the
first time, in projects under implementation, raising FY13/14 growth
questions. While our stance remains cautious, our preferred high beta
picks are those where strong business franchise is supplemented by
attractive valuations - JPA, DLF, United Spirits, IDFC, and Sterlite.
Relative sentiment towards India has improved…
q Indian stock markets have corrected by a further 4% over the last one month (11%
in USD terms) and has outperformed most markets in Asia / other emerging
markets
q India has been the worst performing emerging market for most of 2011 but not
anymore, thanks to the last 1m of outperformance by India. HK and Taiwan have
also nearly caught up with India.
q The above is in line with the view echoed by the CLSA Gurus viz. Chris Wood and
Russell Napier that India is a better defensive market thanks to the lower
export/GDP ratio and RBI’s active tightening so far.
q Even within India, it appears that investors have been doing some value hunting
with some of the most beaten down names viz. JPA, IRB and Educomp etc
outperforming the markets over the last one month.
…but don’t ignore poor data points on investment cycle
q According to the CMIE, growth in projects under implementation (PUI) has slowed
down from +40%YoY in Sep10 to 9% by Sep 11. PUI showing a first QoQ decline.
q New project announcement during Sep’11 quarter at Rs2.5tn nearly at the June-09
lows, which is the same as the Mar’06 levels.
Private sector leading the slowdown
q While private sector has accounted for c.75% of the incremental PUI over the last 5
years, the same number is now down to less than 40% i.e. back to 2004 level.
q Incremental investments still visible in transport infrastructure (roads, railways and
aviation) and power generation. But manufacturing, mining, housing construction
and irrigation is pointing towards a sharp slowdown.
Markets not ripe for bottom fishing yet
q Cap goods companies under coverage (L&T, BHEL, Thermax, ABB, Crompton and
Voltas) have already reported a YoY drop in orderbooking in 2 of the last three
quarters and we believe continued disappointment (not in consensus) is possible.
q Slowing investment cycle doesn’t augur well for the FY13/14 credit growth and we
maintain our UWT on the banking sector.
q If the markets were to trade down to the bottom GFC multiples in Mar-09, (PE of
10x and P /Book of 1.8x), a further 15-20% downside would be possible.
q For someone who wishes to start early, we would recommend JPA, DLF, United
Spirits, IDFC, and Sterlite.
q For those looking at India from a more defensive standpoint, we like ITC, Dr
Reddy’s, Mahindra & Mahindra and Power grid.
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