Utilities and the three demons: Buy Adani Power; Tata Power, NTPC:: Macquarie Research

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Utilities and the three demons: Sector Outlook
We continue to have an underweight position on power utilities into the next quarterly results
3Q11 due to ongoing pressure on merchant power prices, tight fuel supply and rising inflation.
We therefore prefer a more defensive stance, opting for exposure to Tata Power and NTPC
for outperformance over the next few months. We also like Adani Power due it stronger fuel
position.

Property -Tread carefully… and carry a big stick:: Macquarie Research

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Property -Tread carefully… and carry a big stick
Adopt a selective approach in the Indian real estate sector: Vertigo-inducing residential
prices, fund raising and corporate governance incidents remind us of the 2007 hey-days. The
key difference is that real estate stocks are 60-70% below all-time highs, while the market
index has retraced its journey. But is this really a case of broad-based sector mis-pricing? We
don’t think so. We believe a selective approach is required to gain exposure to sustainable
strategies and ‘sane’ markets. We recommend buying residential cost/price leaders (HDIL,
Prestige) and developers focussing on IT commercial and retail (Phoenix, and Anant Raj).

Pharmaceuticals and Healthcare: Buy Glenmark; Sell Cipla: Macquarie Research

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Pharmaceuticals and Healthcare- Sector Outlook
Emerging Market presence and Patent Expiry to drive earnings, Remain Positive: We
remain positive on the Indian Pharmaceutical space from a medium term (2-3 years)
perspective. We believe Emerging Market (EM) to be the next growth frontier for global
pharmaceutical industry. Most of the companies in the Indian Pharma space have a
significant (>50%) revenue coming from the EMs. Patent Expiries would continue to drive
earnings with over US$114bn worth of branded drugs expiring in next four years. Other
themes that we believe would drive earnings would be the outsourcing opportunity and
Biogenerics opportunity (2013 onwards). With a lot of momentum building up, we believe this
decade (2011-2020) can also see some positive surprises on Innovation front.

Oil and Gas: Buy RIL; Switch from ONGC to Oil India:: Macquarie Research

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Oil and Gas -Sector Outlook
Global economic recovery and deregulation make the sector buoyant: With bullish
economic and industry indicators, we expect the oil and gas sector to perform well in the next
fiscal; with the caveat of subsidies which are expected to increase due to the government not
increasing retail fuel prices in tandem with crude due to inflationary concerns in the first half
(higher base effect may allow for larger hikes later in the fiscal).

Media, BUY- Dish TV, Zee Entertainment:: Macquarie Research,

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Media

Sector Outlook
The Media sector remains one of the best ways to exploit the investment opportunity fuelled
by domestic growth, in our view, and is a play on the Indian consumption story.
�� Advertising to GDP spend still low – ample headroom to grow. Our economics
team estimates India’s GDP growth to be 8.5% in FY12. The charts below highlights
the tight correlation between advertising spend growth and GDP growth. Hence, we
believe that Indian media stocks would post buoyant performance, given the
underlying current in Indian economy

Metals and Mining: Buy Jindal Steel, Tata Steel and Gujarat NRE :: Macquarie Research

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Metals and Mining: Sector Outlook
Indian metals and mining companies are in a sweet spot right now. With increases in
commodity prices across the globe, strong demand and constrained supply in India, they are
set to reap the benefits of increasing earnings. We would increase exposure to companies
that have implemented new projects, lock in resources and will see earnings growth.
�� Demand growth to remain strong: India’s growth story remains intact, with GDP
forecasts at 8.5% for the next two years, which would support demand for metals for the
next few years. Also, India’s per capita consumption of all the metals is much below
those of developed countries, giving a considerable opportunity to grow.

Materials - Cement:: Top Sell Recommendation- Ambuja Cement :Macquarie Research

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Materials - Cement --Sector Outlook

Cement demand has been strong in the past few years. However, increased supply in the
market have put pressure on prices in the past few months with producers trying to ration
supply by cutting production and giving support to prices. This, in combination with rising
costs will keep margins muted.

Infrastructure and E&C:: Switch from BHEL to L&T:: Macquarie Research

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Infrastructure and E&C

Sector Outlook
FY12 outlook for the sector remains bright. Revenue growth is expected to pickup in FY12,
order inflow would improve on revival in industrial capex and improved ordering activity in
road sector.

Information Technology: Sector Top Picks- Macquarie Research,

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Information Technology: Sector Outlook
We remain bullish on the Indian IT sector for FY12. A capex led US recovery and strength in
Banking and Financial services vertical underpin our bullish thesis on the sector. We expect
Tier 1 players to deliver another year of solid top-line performance and are building in 27%
US$ revenue growth.

Consumer Staples: Switch from HUVR to ITC:: Macquarie Research

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Consumer Staples: Sector Outlook

Raw material inflation to be the key theme for 2011. We believe that managing raw
material inflation in 2011 will be a key challenge for the FMCG players and will also test their
pricing power. As the possibility of crude, palm oil and agri-commodity prices coming off is
remote, maintaining margins will be difficult. The current high valuations for the sector
increases the risks further; we remain cautious on consumer staples.

Banks – A tale of two halves:: Macquarie Research

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Sector Outlook – A tale of two halves
We believe FY2012 is likely to be a tale of two halves where the first half is likely to see weak
loan growth as well as margins. The weak loan growth should be more due to large amount of
telecom lending done in1HFY11, which is unlikely to be repeated in 1HFY12E. However as
the year progresses we expect loan growth to recover mainly as capex funding picks up.

Macquarie Research:: Focus on Four ‘I’s -- Inflation, Interest, Investment & Inflow

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India Strategy: Focus on Four ‘I’s
Inflation, Interest, Investment & Inflow
We expect the above four issues to weigh heavily on the market in 2011. While
inflation worries are now becoming consensus, we think the key surprises can
come from slower growth in investments as lack of reforms and strict
enforcement of environmental laws have stalled projects worth US$160bn. The
political balance might tilt post the upcoming elections in key states and has the
potential to push back economic reforms agenda even further. We believe that
post the current correction, valuations are reasonable but the market should
consolidate and wait for clarity on Indian Polity.

India Automobiles: Buy Tata Motor, Ashok Leyland; Sell Maruti: Macquarie Research

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Sector outlook 
India Automobiles: Buy Tata Motor, Ashok Leyland; Sell Maruti: Macquarie Research

Moderate growth expectation amidst cost concerns: Auto sales volume has increased by
28% YoY in the nine months ended December 2010, mainly due to rising disposable income
and buoyancy in the economy. We expect moderate industry growth next year in view of
higher base effect and rising interest rate. We believe auto sales would increase by 17% YoY
in FY12E, down from ~27% in FY11E. Further, profitability of the OEMs would be impacted
by ~150-200bps due to rising costs of key inputs like steel, aluminium and tyres. Due to high
competition in cars and the two-wheeler space, we expect advertisement and selling
expenses to remain elevated, which will further put pressure on margins.

ICICI Securities: Shareholding Monitor-Sectoral: Jan 2011 Update

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Promoters, public, FIIs and MFs are the major equity stakeholders in a listed corporate
entity. Of the stakeholders, FIIs have been major investors in Indian corporates, as is
evident from the accompanying chart (Exhibit 1), with their holding in BSE 500
companies moving up from 11.2% in September 2008 to 13.4% in September 2010.
The optimism displayed by FIIs in the Indian corporate growth story arises from the
fact that the Indian economy remained relatively insulated from the global economic
meltdown mostly on account of the strong domestic consumption, thrust on
infrastructure development and strong banking system. The resilience of the Indian
economy reaffirmed the faith of FII investors who have increased their holding in
Indian companies. After pulling out | 53052 crore in CY08 during the global economic
meltdown, FIIs have invested | 85368 crore in CY09 and | 130167 crore in CY10 till
date. The BSE 500 index has exhibited a positive correlation with the FII holding
(Exhibit 2) while the role of other stakeholders has been insignificant.

Forthcoming Results: January 17 and 18, 2011

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17-Jan-11
Company	Company	Company
Ashirwad Cap	Indusind Bank	Morarjee Tex
Axis Bank	Kalyani Steel	Nelcast
Beckons Inds	Kernex Micro	Onward Tech
Dhampur Sug Mil	L&T	Power Finance
Essar Oil	Mafatlal Fin	Rallis India
Gravita India	Maharashtra Scoot	RPG Life
Ruchi Soya	Swasti Vinay Syn	SVARTCORP
Shri Shakti Lpg	TCS	Sulabh Engr
State Bank Trav	UBE Inds	Zydus Wellness
Steelcast	Zensar Tech
18-Jan-11
Company	Company	Company
ABC Bearings	Container Corp	HCL Tech
Advanced Micro	Dev Credit Bank	HT Media
Anil	Dhruv Estates	INDIAB POWER
Automobile Corp	Elcid Invest	Indiabulls Real Est
Automotive Stamp	Everest Inds	ING Vysya Bank
Bajaj Finserv	Exide Inds	Mastek
BAJFINANCE	Flex Foods	Mindtree
Cadila Health	Gail India	MM Forgings
Modern India	Shree Rani Sati	Petronet LNG
MSP Steel	Solar Inds	Popular Est
NIIT Tech	State Bank Mysre	Prism Cement
Opto Circuits	Tata Elxsi	RPP Infra

Energy India -Gone with the gas.: Kotak Securities

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Energy
India
Gone with the gas. We see likely lower gas production from RIL’s KG D-6 block with
escalating concerns on gas supply in India over the next few years. We have revised our
earnings for gas transmission companies (GSPL, GAIL) to reflect lower gas supply in
India. GSPL’s new pipelines could face serious challenges in sourcing gas. We see
downside risk of 8-14% for RIL’s FY2012-13E EPS assuming gas production of 50 mcm/d
from its KG D-6 block. We will review RIL’s numbers at the time of 3QFY11 results

Citi: 3QFY11 Earnings Preview: Decelerating, or Stabilising?

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India Equity Strategy
3QFY11 Earnings Preview: Decelerating, or Stabilising?

 17% Sensex (Ex-Oil) growth — India’s headline Sensex 3QFY11 earnings
growth should be a robust 25%; but it’s a little more modest (17%) excluding
ONGC’s spike, is similar for a broader-base (CIRA univ. ex-Energy) at 16%, and is
a deceleration over 1HYFY11 (35% YoY for Sensex ex-oil) – all partly explained
by an expected ‘diminishing base effect’. While there is a deceleration in quarterly
earnings growth momentum, we do not expect earnings to swing/gyrate or be
anything like as weak as the equity market leading into the results season
suggests. The current quarter probably also reflects the more steady earnings
profile of 19% growth we forecast for FY12 at this point.

Macquarie Research:: Infosys Technologies- 3Q miss provides attractive entry point

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Infosys Technologies
3Q miss provides attractive entry point
Event
 We retain our positive view on Infosys post 3Q results. Feeble volume growth
and muted 4Q outlook were the key negatives in 3Q. Even so, we remain
comfortable with our 29% FY12 US$ top-line growth forecast. Retain OP with
revised TP of Rs3,750 (vs Rs3,500 earlier).

Finding difficult to SAIL:: Macquarie Research

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Steel Authority of India
Finding difficult to SAIL
Event
 3QFY11 results – below expectation: SAIL reported 3Q FY11 results which
were 20% below our estimat`e. SAIL reported EBITDA margin at $110/t,
marginally improving from $106/t it did last quarter but impacted by coking
coal costs. We maintain our Underperform rating and TP and believe that the
overhang of fresh equity dilution will lead to more downside from current
levels.

Sintex - Concerns remain:: Kotak Securities

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Sintex (SINT)
Others
Concerns remain. Sintex reported 3QFY11 consolidated EBITDA at Rs1.96 bn versus our
estimates at Rs1.77bn. The outperformance has come on the back of higher execution (Rs11.86
bn vs our estimates at Rs10.69 bn) against our estimates. The EBITDA margins in 3QFY11 at
16.6% are exactly in line with our estimates. We see incremental risks and any rally on the back
of good news/results should be used to pare down exposure. Retain REDUCE rating with target
price of Rs180 based on 13X FY2012E fully diluted EPS (Rs210 previously).

Infosys Technologies- Wait for the perfect quarter continues:: Kotak Securities

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Infosys Technologies (INFO)
Technology
Wait for the perfect quarter continues. Infosys’ quality and quantum of 3QFY11
performance was weaker than expected. Weak volume growth, high attrition and
modest growth guidance were significant dampeners. Without shifting focus from
weak performance, volatility in quarterly performance would be a common occurrence;
FY2011E performance is commendable, in our view. FY2012E would be a blockbuster
year for Tier 1; expect Infosys to gain. We marginally lower our estimates and TP. BUY.

ENAM: India Strategy - Bar-bell Risk-Reward; What to BUY?

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STOCKS to BUY After Recent Correction (click on name for detail report)

Automobiles: Buy Maruti

Banks: Buy ICICI

Buy Canara Bank

Infra: Buy L&T

Buy Mundra Port

Buy Coal India

Power: Buy PGCIL

Stocks Still a SELL: ENAM view  (click on name for detail report)

Cement: Sell ACC

FMCG: Sell HUL

Power: Sell NTPC

Power: Buy PGCIL: Top PICKS post Correction- ENAM: India Strategy

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Power: Buy PGCIL
�� A natural “monopoly” with a “take-or-pay” biz model: PGCIL owns ~95% of India’s inter-regional transmission assets
and operates on a “take-or pay” model. Its earnings are linked to availability of transmission assets and NOT power
flow. Recently, PGCIL’s scope has been expanded from ~1/3 of India’s capacity to about 85% of upcoming capacity
by linking conferring it to link Private sector projects from just CPSUs (like NTPC)

Power: Sell NTPC: Top PICKS post Correction- ENAM: India Strategy

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Power: Sell NTPC
Execution delays + Coal supply risk = Depressed RoE of 12%; valuations rich at 18x P/E for 6% earnings
CAGR
�� Execution Delays to keep RoEs depressed to 12% in FY13 from 15% in FY10

Buy Coal India: Top PICKS post Correction- ENAM: India Strategy

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Resources: Buy Coal India
�� CIL is undergoing a metamorphosis from a mere production driven company to a production plus profitability
focused mining behemoth. It is setting up 111 mn t of new washing capacity for its existing production and ~90% of
incremental production will have dedicated washeries. The proportion of washed coal is expected to rise to 45% of
total production by FY17 as against only 4% in FY10
�� Margin expansion driven by washed coal volumes: Since washed coal realization is ~2.3x that of raw coal, we expect
huge EBITDA margin expansion (45% in FY17 vs 27% in FY10) going forward. Led by better realizations and a
volume CAGR of 6%, we expect EBITDA and PAT to grow at a CAGR of 23% and 22% respectively by FY17
�� Sustainability of washed coal pricing: We believe that washed coal pricing can be absorbed by the regulated power
industry given improved load factor and reduced specific coal consumption, without substantial inflationary pressure
(to lead to ~10% increase in avg. power price). CIL’s washed coal price is equal to the marginal cost of Indonesian
suppliers (USD 45/t) and cheaper by ~30% assuming USD 65/t FOB price for 5,000 Kcal coal

Buy Mundra Port: Top PICKS post Correction- ENAM: India Strategy

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Mundra Port has a mkt share of ~5% of India’s port traffic (2% in FY05), and is expected to be India’s
largest cargo handler over the next 5 years with ~10% mkt share
�� Port Demand-Supply mismatch in India to continue – req additional 200 mn tpa of capacity v/s current
demand of 800 mn tpa
�� As Mundra Port increases utilization to cross 100 mn tpa cargo over the next 4-5 years, cash flows will touch
USD 500 mn p.a.

Infra: Buy L&T: Top PICKS post Correction- ENAM: India Strategy

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Infra: Buy L&T
�� L&T Best Risk-reward: Earnings growth in FY10-12E to continue at 19-20% CAGR despite large base
�� Consistent return ratios of ~20% and key beneficiary of any potential recovery in capex cycle will stem de-rating
potential
�� Earnings growth at limited risk given strong order backlog (3x Sales) and flexibility of in-house project execution
�� Risk of peers undercutting limited given the single-digit ROEs of its major competitors
�� Over the last 6 years L&T has traded at an avg 1-yr forward PE of ~24x vs current FY12E PE of 22x, limiting valuation downside

FMCG: Sell HUL: Top PICKS post Correction- ENAM: India Strategy

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FMCG: Sell HUL
�� Cost pressure may lead to earnings disappointment: Key inputs such as palm oil and coffee are at all time highs.
Further, rising crude prices is also putting upward pressure on packaging costs, logistics and crude related raw
materials. Despite recent price hikes, we believe gross margins are at risk (currently at ~50%) due to rising cost
pressures. Further, increase in competitive intensity and slowdown in volumes are expected to limit pricing power
�� Increased competition is a dampener for margins: FY11E net margins at 11% is expected to be lowest in 10 years.
Ad spends as a % of sales (16% for FY11E and 15.6% for FY11E) are the highest in 16 years. We believe the strong
volume growth at 14% in the last quarter was directly related to higher ad spends. A majority of this spend is
focused on increasing share of voice to support pricing actions which is unlikely to result in any long term benefit for HUL

Cement: Sell ACC: Top PICKS post Correction- ENAM: India Strategy

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Cement: Sell ACC
�� Due to delay in commissioning of expansion projects, ACC witnessed a negative volume growth of 1%
for YTD FY11, against industry growth of 5%
�� Driven by low prices (due to industry capacity utilization remaining low at 80%) and rising cost
pressures (particularly power & fuel and logistics costs), we expect margins to remain under pressure
in CY11 (EBITDA/ton of Rs 824, flat yoy)

Buy Canara Bank: Top PICKS post Correction- ENAM: India Strategy

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Banks: Buy Canara Bank
�� Canara Bank is the 5th largest public sector bank with an established presence for over 100 years, and a network of
~3065 branches and ~2015 ATMs
�� Recently moved to a 100% CBS (Core Banking Solution) platform, which is expected to improve the operational
efficiency of the bank and enhance profitability

Banks: Buy ICICI: Top PICKS post Correction- ENAM: India Strategy

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Banks: Buy ICICI…
�� Business getting back on track: Credit growth to gain pace, which until recently has been slow. The
mgmt has guided for a loan book growth of 18-20% by Mar-11
�� Lower delinquencies to reduce provisioning requirement: The pace of NPA accretion has slowed down
over the past few quarters. Moreover, with increase in share of secured loans, delinquency levels are
likely to remain under control

Tata Steel FPO Grey Market Premium; MidValley; C. Mahendra Export: Jan 16th, 2011

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Company Name	Offer Price	Premium
	(Rs.)	(Rs.)
C. Mahendra Export	110	1 to 2
Midvalley entertainment	70	3 to 5
TataSteel FPO	594- 610	2 to 4