Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MARKET STRATEGY
Indian markets remained volatile during month of Sep 2011 and ended
nearly flat. While some sectors performed well, it got nullified by the
negative news coming in from the global and the domestic economy. US
Fed decided to extend the average maturity of its holdings of securities
popularly called as Operation Twist in its two day extended meeting.
However, this failed to enthuse investors who were expecting some further
stimulus measures. European markets remained weak due to delays from
policy makers to come up with concrete plan to solve euro zone debt crisis.
On the domestic front, high inflation, rupee depreciation, fuel price hike,
lower than expected IIP growth and rate hike announcement by RBI had a
negative impact on overall markets.
In India, Government approved the draft Land Acquisition, Rehabilitation
and Resettlement bill 2011. The bill replaced the Land Acquisition Act, 1894
and proposed a unified legislation for acquisition of land and adequate
rehabilitation mechanisms for all affected persons. Government has fixed
the minimum cost slab for land in rural and urban areas and in our view,
this would increase the overall cost of land acquisition. The Mines &
Minerals Development and Regulation Bill, 2011 was also cleared by the
cabinet. RBI also raised the External Commercial Borrowing (ECB) limit for
corporates which was a positive step since domestic interest rates have
risen quite sharply in past few quarters.
IIP witnessed moderation for the month of July 2011 after seeing sharp
jump in June, 2011. This was led by contraction in both capital and
intermediate goods. High inflation and rising interest cost also resulted in
putting pressure on consumer durable growth. Higher food, manufacturing
and fuel inflation kept overall inflation higher and prompted RBI to further
hike the interest rates. Though crude prices softened a bit during last
month, corresponding depreciation in the rupee made imports costlier
We had been continuously stating that concerns coming from global
markets as well as higher crude prices may keep the markets negative to
range bound. Though crude prices corrected during September but
corresponding currency depreciation has played spoilsport. On domestic
front, affirmative action regarding policy reforms and inflation are key
parameters to watch out for. Thus, we believe that many of the positives
related to easing of global concerns, cooling off of crude prices, inflation
and policy reforms still need to play out and may thus keep the markets
range bound in the near term. However, any action towards addressing
these concerns can result in upward movement in the markets
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
US markets witnessed sharp fall during Sep, 2011 led by grim outlook posted by
Fed. Fed decided to extend the average maturity of its holdings of securities and
stated that it intends to purchase $400 billion of Treasury securities with remaining
maturities of 6 years to 30 years and to sell an equal amount of Treasury securities
with remaining maturities of 3 years or less by end of Jun, 2012. This would put
downward pressure on longer term interest rates. Fed also decided to keep fed
funds rates at nearly 0-0.25%. This came in line with expectation; however, Fed's
pessimistic outlook for the economy resulted in steep sell off in the markets. Along
with this, leading economic indicators remained weak. The unemployment rate
stayed at 9.1% for the second straight month. During the month, President Obama
also introduced a $447 billion plan to boost jobs.
European markets continued to remain under pressure due to failure of policy makers
to come up with concrete plan to solve euro zone debt crisis. Concerns during
most part of the month remained that Greece might not receive its next aid package
also continued to weigh on markets heavily. Euro zone policymakers were at odds
over a plan to provide Greece with a second €109 billion bailout. Greece government
had failed to end tax evasion, eliminate dozens of inefficient state entities and
sell off loss-making state firms and also remained off track for its goal of cutting the
budget deficit to 7.6 percent of annual output this year. However, during month end
Greek lawmakers approved property tax law so it can meet the terms of its international
bailout and continue receiving aid funds ECB, IMF and EU have accepted the
revised deficit targets given by Greece. German parliament also met and approved
reforms to the European Financial Stability Facility (EFSF) that would allow the fund
to participate in the primary market and to recapitalize European banks.
China's manufacturing sector contracted for the third straight month in September
due to fading demand from United States and Europe. Its economy continues to feel
the pinch from weaker global growth while domestic demand remained resilient. Its
exports came off from record highs while imports remained strong due to high domestic
demand. However, its inflation is easing off from a three-year high of 6.5
percent in July due to the government's tightening campaign and has come at 6.2
percent for August, 2011. China also expressed its willingness to help Europe
through its current debt crisis but expects EU to grant China the status of a full
market economy before the World Trade Organization (WTO) does so in 2016.
China is keen to help Europe tide through the current crisis since Europe is China's
largest export destination and it also wants to diversify its $3 trillion reserves away
from the dollar.
Indian markets continued to witness selling pressure
Pessimistic outlook for US economy and continued euro zone debt issues kept Indian
markets fairly volatile. On the domestic front, high inflation, rupee depreciation, fuel
price hike, lower than expected IIP growth and rate hike announcement by RBI also
had a negative impact on overall markets.
During the month, Union Cabinet approved the draft Land Acquisition, Rehabilitation
and Resettlement bill 2011. The Bill proposes a unified legislation for acquisition of
land and adequate rehabilitation mechanisms for all affected persons and replaces
the Land Acquisition Act, 1894. The provisions of the Bill relating to land acquisition,
rehabilitation and resettlement shall be applicable in cases when the appropriate
government acquires land, (a) for its own use and control, (b) to transfer it for the
use of private companies for public purpose, and (c) on the request of private companies
for immediate use for public purpose. The Bill also proposes that private companies
shall provide for rehabilitation and resettlement if they purchase or acquire
land, through private negotiations, equal to or more than 100 acres in rural areas
and 50 acres in urban areas. However, this would increase the overall cost of land
acquisition given that government has fixed the minimum cost slab for land in rural
areas as 4x market price and in urban areas as 2x market price.
It also raised the External Commercial Borrowing (ECB) limit for corporates and allowed
firms to raise debt in Chinese yuan up to a collective total of $1 billion. This
came as a positive for Indian companies when domestic interest rates have risen
quite sharply in past few quarters. The finance ministry has raised the amount a
company can raise without RBI approval to $750 million from $500 million in a financial
year. ECB borrowing was hiked from USD 100 million to USD 200 million for the
services sector. The figure has been doubled from USD 5 million to USD 10 million
for microfinance institutions and high net worth individuals.
Due to worsening sovereign crisis in Europe and deteriorating outlook for emerging
economies, rupee has witnessed a sharp depreciation during last month as investors
fled for safer currency. RBI tried to prevent slide in rupee by selling US dollars since
depreciating rupee may compound the macroeconomic problems as prices of imported
goods will surge and worsen the current account deficit.
State-owned oil firms raised petrol prices by Rs 3.14 per litre as the rupee touched
two-year low against the US dollar, thereby increasing the cost of importing crude
oil. This may further result in putting upward pressure on inflation which may be
reflected from Sep-end. Among the sectoral indices, metal index witnessed decline
due to softening of commodity prices while IT sector outperformed due to rupee
depreciation. Oil and gas sector also witnessed gains due to deferral of ONGC FPO.
IIP volatility continues
IIP volatility continued for the month of July also. After delivering 8.8 per cent growth
in June, it slumped to 3.3 per cent (slowest growth since October 09) in July 11 on
back of contraction in both capital and intermediate goods. Cumulative growth during
Apr-July FY12 slowed to 5.8 per cent vs. 9.7 per cent last year. Manufacturing
on a three month moving average basis has been about 7-8 per cent; but slowed to
2.3 per cent in July. This was on the back of negative growth in electrical machinery
(-46 per cent), medical precision and optical instruments (-12.5 per cent), and textile
production (-5.6 per cent). Mining growth remained lackluster, up 2.8 per cent (from
a contraction in June). Mining sector has not been doing well due to regulatory issues
as well as fall in coal production. However, electricity growth remained buoyant,
up 13.1 per cent in line with the infrastructure index.
Among use based classification, capital goods index declined by 15.2 per cent while
intermediate goods index declined by 1.1 per cent due to slowdown in the capital
goods. Consumer durables grew by 6.2 per cent for July, 2011 but year till date
growth in consumer durable segment remained only 4.6 per cent as against 10 per
cent seen last year between Apr-July, 2010. High inflation and rising interest cost
have been main reasons for decline in the consumer durables growth
Inflation remained in uncomfortable range
Inflation moved further up to 9.8 per cent in August 2011 from 9.2 per cent in July.
Due to continuously high inflation, RBI continued with its rate tightening stance and
hiked key policy rates by 25 bps.
Higher inflation in August 2011 was mainly due to a jump in food inflation which
increased to 9.1 per cent in August 2011 from 8.0 per cent in July as well as nonfood
inflation which jumped to 7.7 per cent from 7.5 per cent in July. Fuel inflation
also inched up higher at 12.8 per cent in August 2011 compared to 12.0 per cent in
July 2011 due to impact of fuel price hike taken during June, 2011. Non-food manufacturing
inflation jumped to 7.8 per cent in August 2011, from 7.5 per cent in the
previous month.
We had been stating inflation may continue to remain high till the time food, nonfood
manufacturing as well as fuel inflation comes down. Though in the recent past,
we have witnessed softening in the commodity as well as crude oil prices, but corresponding
rupee depreciation has made imports costlier. Recent hike in the petrol
prices may also keep fuel inflation on the higher side while continued demand pressures
are keeping non-food manufacturing inflation higher. RBI has already hiked its
key policy rates by 12 times in past 18 months and hence we expect inflation to
start moderating only from October and it may reach the RBI's target of 7 per cent
only by March, 2012.
Monetary policy tightening continues
RBI continued with its policy tightening in its mid-quarter monetary policy review and
hiked its policy rates by 25 bps as widely expected. It also maintained its anti-inflationary
stance and added that inflation is not likely to come down immediately since
food inflation continues to stay high and demand pressures keeping non-food manufacturing
inflation also higher. Along with this, rupee depreciation has also resulted
in making imports costlier.
However, this could not be end of tightening process as RBI believes a premature
change in the policy stance could harden inflationary expectations, thereby diluting
the impact of past policy actions. As inflation is only likely to be at 7 per cent levels
by the end of FY12, their policy stance is likely to continue with the current anti-inflationary
one. Unless, global situation worsens going forward or growth slows down
significantly RBI may look at one more hike as inflation may remain at elevated levels
in near future.
FII's remained net sellers
Foreign funds were net sellers due to negative global cues related to concerns of
Greece default and poor economic outlook of US. Rupee depreciation, subdued IIP
numbers as well as stubbornly high inflation also weighed down on the markets.
Recommendation
Global markets remained weak on continued risk of Greece default on its 340 billion
euro debt pile as well as Fed's pessimistic outlook for the US economy. Indian markets
also remained under selling pressure due to negative global cues, higher inflation,
high interest rates as well as currency depreciation.
We had been continuously stating that concerns coming from global markets as well
as higher crude prices may keep the markets negative to range bound only. Though
crude prices corrected during September but corresponding currency depreciation
has played spoilsport and kept markets fairly volatile. On domestic front, affirmative
action regarding policy reforms and inflation are key parameters to watch out for.
Thus, we believe that many of the positives related to easing of global concerns,
cooling off of crude prices, inflation and policy reforms still need to play out and may
thus keep the markets range bound in the near term. However, any action towards
addressing these concerns can result in upward movement in the markets.
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 TVS
Banking Axis Bank, Bank of Baroda, ICICI Bank, SBI
Cement Grasim Industries
Construction IRB Infra, Unity Infra, Pratibha Industries
Engineering L&T, Greaves Cotton, Havells India, Cummins, BEL
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
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 volatile during month of Sep 2011 and ended
nearly flat. While some sectors performed well, it got nullified by the
negative news coming in from the global and the domestic economy. US
Fed decided to extend the average maturity of its holdings of securities
popularly called as Operation Twist in its two day extended meeting.
However, this failed to enthuse investors who were expecting some further
stimulus measures. European markets remained weak due to delays from
policy makers to come up with concrete plan to solve euro zone debt crisis.
On the domestic front, high inflation, rupee depreciation, fuel price hike,
lower than expected IIP growth and rate hike announcement by RBI had a
negative impact on overall markets.
In India, Government approved the draft Land Acquisition, Rehabilitation
and Resettlement bill 2011. The bill replaced the Land Acquisition Act, 1894
and proposed a unified legislation for acquisition of land and adequate
rehabilitation mechanisms for all affected persons. Government has fixed
the minimum cost slab for land in rural and urban areas and in our view,
this would increase the overall cost of land acquisition. The Mines &
Minerals Development and Regulation Bill, 2011 was also cleared by the
cabinet. RBI also raised the External Commercial Borrowing (ECB) limit for
corporates which was a positive step since domestic interest rates have
risen quite sharply in past few quarters.
IIP witnessed moderation for the month of July 2011 after seeing sharp
jump in June, 2011. This was led by contraction in both capital and
intermediate goods. High inflation and rising interest cost also resulted in
putting pressure on consumer durable growth. Higher food, manufacturing
and fuel inflation kept overall inflation higher and prompted RBI to further
hike the interest rates. Though crude prices softened a bit during last
month, corresponding depreciation in the rupee made imports costlier
We had been continuously stating that concerns coming from global
markets as well as higher crude prices may keep the markets negative to
range bound. Though crude prices corrected during September but
corresponding currency depreciation has played spoilsport. On domestic
front, affirmative action regarding policy reforms and inflation are key
parameters to watch out for. Thus, we believe that many of the positives
related to easing of global concerns, cooling off of crude prices, inflation
and policy reforms still need to play out and may thus keep the markets
range bound in the near term. However, any action towards addressing
these concerns can result in upward movement in the markets
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
US markets witnessed sharp fall during Sep, 2011 led by grim outlook posted by
Fed. Fed decided to extend the average maturity of its holdings of securities and
stated that it intends to purchase $400 billion of Treasury securities with remaining
maturities of 6 years to 30 years and to sell an equal amount of Treasury securities
with remaining maturities of 3 years or less by end of Jun, 2012. This would put
downward pressure on longer term interest rates. Fed also decided to keep fed
funds rates at nearly 0-0.25%. This came in line with expectation; however, Fed's
pessimistic outlook for the economy resulted in steep sell off in the markets. Along
with this, leading economic indicators remained weak. The unemployment rate
stayed at 9.1% for the second straight month. During the month, President Obama
also introduced a $447 billion plan to boost jobs.
European markets continued to remain under pressure due to failure of policy makers
to come up with concrete plan to solve euro zone debt crisis. Concerns during
most part of the month remained that Greece might not receive its next aid package
also continued to weigh on markets heavily. Euro zone policymakers were at odds
over a plan to provide Greece with a second €109 billion bailout. Greece government
had failed to end tax evasion, eliminate dozens of inefficient state entities and
sell off loss-making state firms and also remained off track for its goal of cutting the
budget deficit to 7.6 percent of annual output this year. However, during month end
Greek lawmakers approved property tax law so it can meet the terms of its international
bailout and continue receiving aid funds ECB, IMF and EU have accepted the
revised deficit targets given by Greece. German parliament also met and approved
reforms to the European Financial Stability Facility (EFSF) that would allow the fund
to participate in the primary market and to recapitalize European banks.
China's manufacturing sector contracted for the third straight month in September
due to fading demand from United States and Europe. Its economy continues to feel
the pinch from weaker global growth while domestic demand remained resilient. Its
exports came off from record highs while imports remained strong due to high domestic
demand. However, its inflation is easing off from a three-year high of 6.5
percent in July due to the government's tightening campaign and has come at 6.2
percent for August, 2011. China also expressed its willingness to help Europe
through its current debt crisis but expects EU to grant China the status of a full
market economy before the World Trade Organization (WTO) does so in 2016.
China is keen to help Europe tide through the current crisis since Europe is China's
largest export destination and it also wants to diversify its $3 trillion reserves away
from the dollar.
Indian markets continued to witness selling pressure
Pessimistic outlook for US economy and continued euro zone debt issues kept Indian
markets fairly volatile. On the domestic front, high inflation, rupee depreciation, fuel
price hike, lower than expected IIP growth and rate hike announcement by RBI also
had a negative impact on overall markets.
During the month, Union Cabinet approved the draft Land Acquisition, Rehabilitation
and Resettlement bill 2011. The Bill proposes a unified legislation for acquisition of
land and adequate rehabilitation mechanisms for all affected persons and replaces
the Land Acquisition Act, 1894. The provisions of the Bill relating to land acquisition,
rehabilitation and resettlement shall be applicable in cases when the appropriate
government acquires land, (a) for its own use and control, (b) to transfer it for the
use of private companies for public purpose, and (c) on the request of private companies
for immediate use for public purpose. The Bill also proposes that private companies
shall provide for rehabilitation and resettlement if they purchase or acquire
land, through private negotiations, equal to or more than 100 acres in rural areas
and 50 acres in urban areas. However, this would increase the overall cost of land
acquisition given that government has fixed the minimum cost slab for land in rural
areas as 4x market price and in urban areas as 2x market price.
It also raised the External Commercial Borrowing (ECB) limit for corporates and allowed
firms to raise debt in Chinese yuan up to a collective total of $1 billion. This
came as a positive for Indian companies when domestic interest rates have risen
quite sharply in past few quarters. The finance ministry has raised the amount a
company can raise without RBI approval to $750 million from $500 million in a financial
year. ECB borrowing was hiked from USD 100 million to USD 200 million for the
services sector. The figure has been doubled from USD 5 million to USD 10 million
for microfinance institutions and high net worth individuals.
Due to worsening sovereign crisis in Europe and deteriorating outlook for emerging
economies, rupee has witnessed a sharp depreciation during last month as investors
fled for safer currency. RBI tried to prevent slide in rupee by selling US dollars since
depreciating rupee may compound the macroeconomic problems as prices of imported
goods will surge and worsen the current account deficit.
State-owned oil firms raised petrol prices by Rs 3.14 per litre as the rupee touched
two-year low against the US dollar, thereby increasing the cost of importing crude
oil. This may further result in putting upward pressure on inflation which may be
reflected from Sep-end. Among the sectoral indices, metal index witnessed decline
due to softening of commodity prices while IT sector outperformed due to rupee
depreciation. Oil and gas sector also witnessed gains due to deferral of ONGC FPO.
IIP volatility continues
IIP volatility continued for the month of July also. After delivering 8.8 per cent growth
in June, it slumped to 3.3 per cent (slowest growth since October 09) in July 11 on
back of contraction in both capital and intermediate goods. Cumulative growth during
Apr-July FY12 slowed to 5.8 per cent vs. 9.7 per cent last year. Manufacturing
on a three month moving average basis has been about 7-8 per cent; but slowed to
2.3 per cent in July. This was on the back of negative growth in electrical machinery
(-46 per cent), medical precision and optical instruments (-12.5 per cent), and textile
production (-5.6 per cent). Mining growth remained lackluster, up 2.8 per cent (from
a contraction in June). Mining sector has not been doing well due to regulatory issues
as well as fall in coal production. However, electricity growth remained buoyant,
up 13.1 per cent in line with the infrastructure index.
Among use based classification, capital goods index declined by 15.2 per cent while
intermediate goods index declined by 1.1 per cent due to slowdown in the capital
goods. Consumer durables grew by 6.2 per cent for July, 2011 but year till date
growth in consumer durable segment remained only 4.6 per cent as against 10 per
cent seen last year between Apr-July, 2010. High inflation and rising interest cost
have been main reasons for decline in the consumer durables growth
Inflation remained in uncomfortable range
Inflation moved further up to 9.8 per cent in August 2011 from 9.2 per cent in July.
Due to continuously high inflation, RBI continued with its rate tightening stance and
hiked key policy rates by 25 bps.
Higher inflation in August 2011 was mainly due to a jump in food inflation which
increased to 9.1 per cent in August 2011 from 8.0 per cent in July as well as nonfood
inflation which jumped to 7.7 per cent from 7.5 per cent in July. Fuel inflation
also inched up higher at 12.8 per cent in August 2011 compared to 12.0 per cent in
July 2011 due to impact of fuel price hike taken during June, 2011. Non-food manufacturing
inflation jumped to 7.8 per cent in August 2011, from 7.5 per cent in the
previous month.
We had been stating inflation may continue to remain high till the time food, nonfood
manufacturing as well as fuel inflation comes down. Though in the recent past,
we have witnessed softening in the commodity as well as crude oil prices, but corresponding
rupee depreciation has made imports costlier. Recent hike in the petrol
prices may also keep fuel inflation on the higher side while continued demand pressures
are keeping non-food manufacturing inflation higher. RBI has already hiked its
key policy rates by 12 times in past 18 months and hence we expect inflation to
start moderating only from October and it may reach the RBI's target of 7 per cent
only by March, 2012.
Monetary policy tightening continues
RBI continued with its policy tightening in its mid-quarter monetary policy review and
hiked its policy rates by 25 bps as widely expected. It also maintained its anti-inflationary
stance and added that inflation is not likely to come down immediately since
food inflation continues to stay high and demand pressures keeping non-food manufacturing
inflation also higher. Along with this, rupee depreciation has also resulted
in making imports costlier.
However, this could not be end of tightening process as RBI believes a premature
change in the policy stance could harden inflationary expectations, thereby diluting
the impact of past policy actions. As inflation is only likely to be at 7 per cent levels
by the end of FY12, their policy stance is likely to continue with the current anti-inflationary
one. Unless, global situation worsens going forward or growth slows down
significantly RBI may look at one more hike as inflation may remain at elevated levels
in near future.
FII's remained net sellers
Foreign funds were net sellers due to negative global cues related to concerns of
Greece default and poor economic outlook of US. Rupee depreciation, subdued IIP
numbers as well as stubbornly high inflation also weighed down on the markets.
Recommendation
Global markets remained weak on continued risk of Greece default on its 340 billion
euro debt pile as well as Fed's pessimistic outlook for the US economy. Indian markets
also remained under selling pressure due to negative global cues, higher inflation,
high interest rates as well as currency depreciation.
We had been continuously stating that concerns coming from global markets as well
as higher crude prices may keep the markets negative to range bound only. Though
crude prices corrected during September but corresponding currency depreciation
has played spoilsport and kept markets fairly volatile. On domestic front, affirmative
action regarding policy reforms and inflation are key parameters to watch out for.
Thus, we believe that many of the positives related to easing of global concerns,
cooling off of crude prices, inflation and policy reforms still need to play out and may
thus keep the markets range bound in the near term. However, any action towards
addressing these concerns can result in upward movement in the markets.
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 TVS
Banking Axis Bank, Bank of Baroda, ICICI Bank, SBI
Cement Grasim Industries
Construction IRB Infra, Unity Infra, Pratibha Industries
Engineering L&T, Greaves Cotton, Havells India, Cummins, BEL
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
Source: Kotak Securities - Private Client Research
No comments:
Post a Comment