READERS Query: Invest based on risk appetite, not returns:: Business Line

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I am 35, and the sole earning member of the family. My spouse is a homemaker. We have a son aged two. After meeting our household expenses of Rs 40,000 a month I have kept about two months' salary in bank fixed deposit as reserve. Apart from this, I do not have any other debt investments. I live in my own house without any liability.

I manage a surplus of Rs 40,000, which I use for investments in MF schemes. All the investments started a year ago and my corpus is less than my investment.

I invest every month in DSPBR Top 100 (Rs 2,000), DSPBR Equity (Rs 5,000), HDFC Top 200 (Rs 2,000), HDFC Equity (Rs 5,000), Franklin India Bluechip (Rs 5,000), Birla Sun Life Dividend Yield Plus (Rs 5,000), Birla Sun Life Frontline Equity (Rs 5,000), IDFC Premier Equity (Rs 5,000).

After these investments I have a monthly surplus of Rs 5,000 that I can invest for other goals. I recently bought a term plan for Rs 1 crore to protect my family.

For my son's education I have taken an insurance plan with a sum insured of Rs 15 lakh and my annual premium is Rs 27,000. I have taken a whole-life plan for Rs 5 lakh and the annual premium is Rs 10,000. For health protection, my family is covered by group health policy for Rs 5 lakh.

My Financial goals are: I am planning to enrol my son in an international school for which I need to have Rs 1 lakh per annum.

How much do I need to save monthly to meet my son's higher education requirement, assuming current cost of Rs 10 lakh? Based on my current expenses, how much do I need for my retired life, assuming that I plan to retire by 50? Considering the appreciation in real estate, should I look for real estate investments instead of SIPs?

Going by my family history, I may live up to 80 years.

— Anant Kumar

Solutions: There appears to be a disconnect between your surplus and savings. As you have not disclosed from when your surpluses have increased, we presume that it is from last year.

With enough time being available , reaching financial goals will be easier due to the compounding factor. But you wish to retire early, so your time horizon to save is far lesser than your life expectancy. Hence, you need to save more towards the goal.

As you want to earmark Rs 1 lakh towards your son's education from next year, you may not be left with a larger surplus to meet your retirement goals. To achieve the goal within your time horizon, you need to take bigger bets on risky asset classes such as equity.

Education: Even considering inflation at 7 per cent, your present anticipated higher education cost of Rs 10 lakh will be Rs 26 lakh in 14 years. Even if the current savings in your insurance grow at 5 per cent, you can comfortably meet the cost of education. However, considering the time duration of the goal, it may be prudent to shift your savings from traditional insurance to equity, or into a combination of debt and equity as a cushion for escalation of cost.

Check the surrender value of your policy and the impact cost before shifting your savings.

Retirement: It is important to note that for an early retirement you need to build a corpus that can take care of you and your spouse for the rest of the life, failing which longevity will be a financial ordeal.

For instance, your current monthly expenses of Rs 40,000 inflated at 7 per cent would at the start of your retirement at 50 require that you have a monthly pension of Rs 1,14,000. For such a monthly income at retirement you should have a retirement nest of Rs 3 crore and it should earn an interest of 2 per cent over and above the prevailing inflation.

To build such a corpus you should save Rs 60,000 a month for the next 180 months and it should earn a return of 12 per cent. Given your current surplus, it will be a tall order. Alternatively, if you wish to retire at 55, your monthly savings requirement towards retirement will come down to Rs 45,000.

Investments: Diversification is an important aspect of portfolio building. But just spreading yourself thin within the same asset class and with similar investment styles may not deliver the goods.

For instance, you have eight schemes and several of them focus on large-cap stocks. Despite diversification, if large-cap stocks underperform for quite some time, it will impact your portfolio return. Hence it is better to restrict your exposure to two to three large-cap funds such as HDFC Top 200, Birla Sun Life Dividend Yield Plus and Franklin India Bluechip Fund. In the midcap space, you can continue your investment in IDFC Premier Equity Fund.

As for your question on investing in real estate instead of equity: That does not seem like a right strategy. It is ideal to construct a portfolio based on the risk appetite rather than taking a returns based approach.

Insurance: Your term insurance of Rs 1 crore will cover 60 per cent of risk. It is prudent to increase your cover by another Rs 60 lakh and the premium outgo for the same will Rs 7,300

Allahabad Bank: Strong asset growth to offset NIM compression:: Daiwa

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 We forecast strong loan
growth of 25%+ YoY for 1Q
FY12
 NIM compression is in line
with industry trends, though
not likely to fall below 3%
 Stock trading at an attractive
valuation of 1x FY12E PBR
 What's new
We expect 1Q FY12 to be a
reasonably good quarter for
Allahabad Bank, driven by strong
loan growth, which should
neutralise the negative impact of
NIM compression. We also expect
fresh NPLs to be much lower on a
quarter-on-quarter basis, while NPL
recoveries should be high, leading to
a low provisioning requirement.
 What's the impact
We expect the strong loan growth to
result in an improvement in the
loan-to-deposit ratio. Even after
factoring in NIM compression, we
expect net-interest-income growth
to be much higher than the industry
average for 1Q FY12.
We believe NIM compression was
marginal in 1Q FY12, as the bank
raised its prime lending rate and
base rate by 50bps each in May, the
positive impact of which would have
been felt in 1Q FY12. Also, the
capital infusion of Rs6.7bn received
from the Government of India in
March 2011 should have helped
reduce the NIM compression in 1Q
FY12. However, the NIM of 3.49%
for 4Q FY11 was the bank’s peak
level over the past 17 quarters, and
hence is likely to revert to its mean
level of around 3% in the medium
term. Management guides for a NIM
of around 3% for FY12.
During our recent discussion,
management said it did not expect
any significant accretion to NPLs for
loans below Rs5m which have yet to
be shifted to system-based
recognition for NPLs. Management
also expects recoveries and
upgradations to be strong in FY12.
 What we recommend
We forecast a strong 22% net-profit
CAGR from FY12-14 with an ROE of
20%+ over the same period. We
maintain our six-month target price
of Rs269, based on a target PBR of
1.4x on our FY12 BVPS forecast
(based on the Gordon Growth
Model). The key risk to our call
would be higher-than-expected fresh
formation of NPLs and lower-thanexpected
loan growth.
We have revised down our earnings
forecast for FY12 by 5.6%, as we now
conservatively factor in higher credit
costs than we did earlier, though our
EPS forecast is revised down by
11.4% due to the high equity dilution
in FY11.
 How we differ
Despite the high ROE of 20%+ that
the bank commands, the current
valuation, at a 1x FY12E PBR,
possibly reflects the market’s
concerns about asset quality and
NIM compression. While most
banks are likely to see NIM
compression, we believe Allahabad
Bank will surprise positively on the
asset-quality front, which would
help the stock to rerate from here.

May We Help You? - Understanding corporate actions :: Business Line

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There are actions initiated by companies themselves that directly impact your holdings, while provoking stock price reactions. Wide-ranging ones, called corporate actions, encompass everything from a routine dividend to a corporate restructuring or an acquisition. Here's detailing the most common forms of corporate actions.

DIVIDENDS

These are among the most routine of corporate actions. Dividends are a part of the profits a company earns which are paid out to shareholders. Typically, dividends are quoted as a certain figure per share as well as a percentage of the face value of the share. For instance, Bajaj Auto paid Rs 40 a share valued at Rs 10 each or a 400 per cent dividend for FY-11.

Dividends may be paid out at the close of the financial year, called the final dividend, and during the year as well, called interim dividend.

BONUS ISSUES

A company comes out with a bonus when it gives out a certain number of shares for no cost to its shareholders. The share capital of the company increases to the extent of the issue. The number of bonus shares that will be issued is announced as a ratio to the number of shares held. For instance, Zodiac Clothing Company announced a 1:2 bonus last year. This means shareholders would get one bonus equity share for every two shares held. As a shareholder, you will hold three equity shares instead of two post the offer. Companies opt for bonus issues as a method of rewarding shareholders. While utilising excess reserves to do the same, it also signals its faith in servicing a higher equity base. Dividends and bonus issues increase the returns on a shareholder's investment.

STOCK SPLITS

A stock split occurs when a company divides each share into two or more equal portions. Here, the total value of your investment remains the same. The price of the stock, and the earnings per share, reduces to the extent of the split.One reason companies undertake stock split is to improve the liquidity in a stock and encourage investments from smaller investors.

RIGHTS AND BUY-BACK

Coming out with rights issues is another instance of a corporate action, adopted to raise capital and reward shareholders. Here, a company offers its existing shareholders fresh shares in the company at a specified cost and during a specified time period. Rights issues can be subscribed to only by existing shareholders. The number of shares on a rights basis is expressed as a ratio to the number of shares held. Usually, rights issues are priced at a discount to the prevailing stock price.

The next form of a corporate action is a buyback plan, where companies flush with reserves or cash decide to repurchase their stocks and reduce capital. Buybacks can be done in two ways. One is through a tender offer where a company offers to buy shares from the shareholders at a specified price. For such an exercise to actually be successful, the set buyback price should be at a premium to the prevailing market price. The other way is to simply purchase them in the open market.

Other examples of corporate actions include restructuring moves where units are hived off into new entities, or mergers and takeovers. For any action, companies mark a date as the record date. Those who are shareholders in the company's books on that date stand to benefit from the action

Automobiles - India – June quarter results preview:: RBS

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Domestic sales volume growth slowed sharply for M&HCVs and cars in the June quarter.
This is likely to impact companies' quarterly results; notably, we expect Ashok and Maruti to
record a sharp qoq and yoy dip in profits. However, strong exports should help Bharat Forge
and Bajaj lead the pack in terms of yoy growth.


LCVs, two-wheelers and UVs drove June quarter growth in domestic volumes
For April-June, the leading segments in terms of yoy domestic volume growth were light
commercial vehicles (LCVs), two-wheelers and utility vehicles (UVs) in that order. The
laggards were medium & heavy commercial vehicles (M&HCVs) (5%) and cars (7.2%). The
sharp slowdown in car sales surprised us, but the slow M&HCV growth was as we had
expected. Key qoq changes in domestic market share: in M&HCVs, Tata Motors took share
from Ashok Leyland; in passenger vehicles, Hyundai and M&M gained at the expense of
Maruti and Tata Motors; in two-wheelers, Hero Honda took share from Bajaj and TVS.
Fewer winners than losers in quarterly results
The slower-than-expected volume growth coupled with higher commodity costs, especially
for aluminium and rubber, poses profitability concerns. For the quarter, we expect Bharat
Forge to report the highest yoy profit growth followed by Bajaj, as they were able to
overcome domestic pressure thanks to being the export leaders in their respective segments.
In terms of qoq growth, we expect Bajaj and Hero Honda to lead as two-wheeler segment
sales volume hit a new peak. We expect Ashok Leyland followed by Maruti Suzuki to be the
laggards for the quarter as we expect their earnings to decline sharply.    

Export plays have edge over domestic consumption in June quarter
Ongoing export profitability of Bharat Forge and Bajaj hinges on continuation of the DEPB export
incentive scheme, on which clarity is still forthcoming. We prefer Bharat Forge, which should
benefit from a US and Europe heavy truck market recovery. In two-wheelers, rising aluminium
cost pressure is a concern, which could lead to disappointment in Hero Honda’s results, although
its sharp share-price rise in recent weeks on strong volume growth may be used to book profits
ahead of the results. Bajaj's domestic market share loss could soon weigh on profitability, Sell.
M&M, due to its rural focus, continues to drive high volume growth home and we maintain Buy.
We think Tata Motors, driven by strong premium car and LCV demand, should be able to
overcome this tough quarter before reaping benefits from the Evoque launch. Weak M&HCV
growth could impact Ashok Leyland, Hold. Maruti is likely to be facing two more quarters of sharp
EPS dip and we recommend Hold.

‘You don't build a track record in a year' : James Valentine in: Business Line

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‘I recommend analysts to develop proprietary sources of information.'

James Valentine is the author of “Best Practices for Equity Research Analysts” and the founder of AnalystSolutions, a training firm. A former Wall Street star analyst, Mr Valentine was also responsible for training at Morgan Stanley. His book provides training tools to help equity analysts do better at their job. We caught up with Mr Valentine during his book promotion tour in India.

What are the big mistakes/major challenges faced by analysts?

One of the biggest mistakes many analysts make is poor time management. They tend to spread themselves thin rather than using relevant, focussed information for their research.

The second mistake is not developingproprietary sources of information. I think too often analysts depend on financial filings and conference calls for their research. If you want to have an out-of-consensus stock call, you need to have information sources that are out-of-consensus. You need to have something that nobody else has.

The third big mistake or challenge is that many analysts don't have a differentiated, high-conviction call. To have a really differentiated stock call, it has to have one of three elements – a unique financial forecast, a unique valuation, or a unique view towards the sentiment of the market on that stock. And the last big challenge is getting the message heard. Analysts need to develop communication skills which include influencing skills. First you have to have good content. And then you have to deliver the message properly. If you do that, then it's more likely that the client (if you are on the sell side) or the portfolio manager (if you are on the buy side) would adopt your idea.

Some critics say that forecasts rarely work. What is your view ?

I think forecasts rarely work when the analyst has not done a good job. If you simply ask the company for an answer or look at the history and just extrapolate it in to the future, there is going to be a problem. And those are probably the two most common types of forecasts that analysts build.

To do a good forecast, you need to have really good insights. You need to have something that nobody else has. You have to develop your own proprietary sources of content.

How do you do that?

One of the fastest ways is to immerse yourself into the industry, rather than immersing yourself into the companies. Read trade journals and trade blogs. Contact journalists or people quoted in an article or in a blog. Get involved in industry associations actively. Attend industry conferences to the extent possible. Use expert networks if your firm allows you to.

How should an analyst deal with uncertain global macro-economic variables?

I tell analysts not to try to forecast macro-events with accuracy because this is not something they are good at. If they are really good at forecasting global economy or trade, then they should be a strategist or an economist.

So, I tell analysts to take the consensus view on some of these macro-things and then drill down to really try to figure out where they can be different. Analysts need to have a supply and demand forecast for their sector. Also, they need to have a framework of spreadsheet where they can think through various inputs which could alter these demand-supply dynamics.

Sometimes, analysts risk obtaining insider information. How should they deal with this?

This question comes up a lot in my tour of Asia, maybe because of the recent insider trading case of Raj Rajaratnam. From my perspective, it's fairly black and white. An analyst seeking information is trying to build a mosaic of the future to build a forecast. What Raj Rajaratnam was doing was not building a mosaic but trying to take one big photograph. So, there was no question in the jury's mind that he was not doing research.

What I recommend analysts do is first and foremost develop proprietary sources of information. Then, there is a very low probability you'll get inside information. Your proprietary sources are going to be people from the industry, competitors, industry associations or customers of the company. Most of these people are not going to be in possession of material non-public information that the company management has.

How do you gauge analysts in irrational market cycles?

You don't build a track record in one year. When the sub-prime crisis happened, everything went down. If the economy collapses, your stock calls may not play out like they way you thought. You can't do anything about it. But if you've got a track record of five or six years as an analyst, that could still offset it. And by the way, everyone has a bad run that year. So, it's relative. If you are good, you should still be doing better than your peers in the long run.

Has stock picking become more difficult?

It does get harder to pick stocks with more information available. We went through a few phases. In the 1960's, 70s and even in the 80s, simply obtaining the information meant that you could probably pick stocks better than other people. This is because the professional money management hadn't really formed until the 70s and 80s. Then in the 1990s and 2000s, with much more information flow, it came down to the ability to interpret information. Over the last few years, with many quant-shops back-testing data and trying to infer effects of information flow on sectors and stocks, it is getting more difficult to pick stocks.

On the other hand, many investors who got burned in 2008 have decided to take their money out of active management and put it into passive management. The explosive growth of ETFs shows you this. So you could argue that if anything there is more of an opportunity now, with all this kind of dumb money. It's not a dumb product, but it's kind of dumb money out there is not really thinking about how it gets invested. This can be exploited by people who are actually into research

Infosys -On the mark, but no sparks :: Standard Chartered Research,

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 Modest 1Q12, but lacked sparks to meet consensus’
heightened expectations.
 We see 1H12 as a ‘WIP’ for Infosys as restructuring
plays outs; though no risk to our below consensus 23%
FY12 US$ revenue growth target.
 We also maintain our more cautious FY12/FY13 margin
stance – note, pricing recovery remains shallow and
campus wage hike cycle is a key risk to FY13 margin.
 No change to our FY12/13 EPS estimates; but expect
consensus to trend down.
 Stay OP for mid-range horizon with 13% upside.

IndusInd Bank - Raising target price; we re-iterate a Buy :Anand Rathi

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IndusInd Bank
Raising target price; we re-iterate a Buy
IndusInd’s net profit was driven by higher net interest income
growth (31.9% yoy), robust fee income (39.3% yoy) and lower
NPA provisions. We raise our target price from `305 to `345, as
we value the stock at a 12-month forward BV of 3.2x. We retain
our Buy as we expect the RoE to expand, led by stable NIM,
improving share of fee income and healthy asset quality.
 Stable margins led by CASA share improvement. Reported
NIM improved 9bps yoy to 3.41%, largely led by a rise in CASA
share, by 398bps yoy (105bp qoq) to 24.2%. Likely gain in CASA
share, led by an increase in number of branches to 550 by Mar ’13
from 326 at present, would aid NIM of +3.5% over FY11-14e.
 Improving share of fee-income to boost RoA. Led by steady
business growth, fee income rose 39.3% yoy to ~1.8% of average
earning assets (annualized). We expect 30% CAGR in fee-income
over FY11-14, led by 32% business growth over the same period.
We estimate fees-to-average-earning-assets of 1.8% over FY11-14
to improve RoA to 1.53%/1.64% in FY12/FY13.
 Asset quality slips, high NPA coverage. Gross NPAs rose
16.3% qoq, but NPA coverage, at 72.9%m is high. IndusInd’s
likely robust pre-provisioning profits (31.2% over FY11-14e)
would sustain NPA coverage above 70%. Capital adequacy of
15% (tier-1 of 11.7%) is sufficient for robust business growth.
 Valuation and Risks. At our Sep ’12 target of `345, the stock
would trade at 3.4x FY12e and 2.9x FY13e BV. Risks: slower credit
growth; higher credit costs due to higher-than-expected NPA.

Infosys Technologies :: June-Q results review ::Deutsche bank,

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Infosys Technologies
Reuters: INFY.BO Bloomberg: INFO IN Exchange: BSE Ticker: INFY
June-Q results review



Retaining Buy with a revised target price of INR3,200
We cut our FY12 revenue and earnings estimates for Infosys by 2.4% and 3.7%,
respectively. This follows a decrease in our offshore volume and realization
forecast. Though the demand environment for Infosys continues to be strong, the
perceived risk to back-ended revenue  growth expectations from a volatile
macroeconomic environment and earnings CAGR of 18.5% (vs. 21.5% for FY11-
13E) over FY12-14E, we have lowered our target PE multiple to 21 (vs. 25).
Despite this, we forecast 15% upside potential to the stock and retain Buy.


In line June-Q
Infosys reported revenues of USD1,671m (+4.3% qoq, 0.7% below our estimate).
The overall reported pricing increased 1.2%  qoq (vs. our estimate of 0.5% qoq)
and volume growth was 3.2% qoq (vs. our estimate of 4% qoq). EBIT margins at
26.1% were down 291bps qoq (171bps lower than our estimate). This was
predominantly on account of a higher proportion of the growth onsite and no
significant change in utilisation ex-trainees. Key negatives: continuation of qoq
revenue declines in the telecom vertical  and declines in revenues from Europe.
Key positives: high onsite volume growth is indicative of new project starts and
continuation of growth momentum in the medium term.
Muted guidance weighs on the stock in the interim
Though a back-ended revenue growth expectation from Infosys is not unusual, we
believe the unchanged FY12E US dollar revenue growth guidance will weigh on
the stock in the interim. Thus, we believe investors should wait for additional data
points, suggesting (1) improvement in the global macroeconomic environment, (2)
improvement in client spending, and (3)  reasonable increase to FY12E US dollar
revenue and earnings growth guidance at end-2QFY12.
Valuation and risks
We value Infosys at 21x FY12E/06 (vs. 25x) and a PEG of 1.1. Key downside risks:
(1) greater-than-expected appreciation of the rupee, (2) global vendor competition,
and (3) stronger political rhetoric against outsourcing affecting client spending.

Mphasis' client Santander shifts call centres out of India ::Angel Broking,

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Mphasis' client Santander shifts call centres out of India
Santander, a UK-based financial services firm, has decided to stop outsourcing services to
Mphasis and shift all its Indian call centres for retail banking customers back home.
Santander announced that it is recalling outsourced work from India back to the UK
following complaints by customers over their frustration in dealing with offshore
employees. Santander has hired an additional 500 UK staff to handle the estimated 1.5mn
calls each month. The new staff is fully trained and is now available to take calls. In total,
Santander's UK call centres employ 2,500 staff. Santander is a wholly owned unit of
Spain's Banco Santander S.A. This client contributes 2–3% to Mphasis’ BPO revenue
(~i.e.US$5mn annually) and is not amongst its top clients. This contract is expected to
cease from August 2011 (i.e. from 4QFY2011).
We expect this to have a marginal impact on the company’s earning’s estimate. The stock
is currently under review.

USFDA on Dr Reddys and Cadila:: EMkay

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US FDA bans import from Dr Reddy’s Mexico plant

Having put Dr Reddy’s Laboratories on notice a month back over non-compliance with the good manufacturing practices in Mexico, the US Food and Drug Administration has banned products made at the plant – blocking the sale of products from this facility to the US. In the Warning letter issued last month, the FDA had specified four deviations at Mexico unit. It had asked Dr. Reddy's to determine their cause and prevent them from recurring. The company manufactures intermediates and active pharmaceutical ingredients at this plant. However, the financial impact from this ban is negligible as contribution from the Mexico plant to the overall sales is negligible. The ban remains in effect till the FDA is satisfied with the corrective measures.

Cadila's injectable plant got USFDA Warning letter in pre approval inspection

Cadila has got a warning letter for one of its newly setup facility at Bavla for sterile Injectable. It was a Pre approval inspection by US FDA. There were two objections raised in this warning letter.

n    One was in Microbiology area for recording the data and

n    Second was in monitoring of microbiological contaminants.

These objections are very minor in nature and can be corrected easily. Current business is not impacted as this plant does not generate any revenues for the company. It was a pre approval inspection for the sterile injectable plant. Cadila has 15 days to notify to the USFDA the steps it has taken to correct the violations.

Techcheck Daily Nifty just there, Bank Nifty not yet n Emkay

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Techcheck Daily

Nifty just there, Bank Nifty not yet

n     Chart in Focus: Nifty prices marginally break past trend resistances, potential upsides open up as long as we stay above 5700 levels on a closing basis

n     Bank Nifty though still trades below similar resistances around 11450-11500, this means that it has still not confirmed with the benchmark

n     BSE FMCG Index prices trade below multi year trend line, momentum readings hint at a correction before prices can move higher

n     Heavyweights HUL and ITC carry similar setups, expect corrections to the tune of 10-15% in each of them.

n     Stocks with positive short term view

n     M&M, DLF (stop 225)

n     Stocks with negative short term view

n     Dish TV, Asian Paints, Bharti, Tata Motors, HUL, ITC, TCS, L&T, Sun Pharma, Ranbaxy, Wipro  

  

IndusInd Bank reported 52% YoY growth in net profit to Rs1.8bn, ::HDFC Sec,

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IndusInd Bank reported 52% YoY growth in net profit to Rs1.8bn, mainly
due to strong growth in advances, robust fee income growth and lower loan
loss provisions. Key highlights from the results were a) healthy business
growth b) improvement in CASA ratio by 100bps QoQ to 28%, c)
contraction in NIMs by 9bps QoQ to 3.4% and d) deterioration in asset
quality as fresh slippages came in higher at 1.03% of advances (v/s 84bps
in Q4). We expect IndusInd to realize a 24% CAGR in net profit over FY11-
13E. Maintain HOLD.
In-line results
IndusInd Bank reported 52% YoY and 5% QoQ growth in net profit to Rs1.8bn,
mainly due to strong volumes growth, robust fee income growth and lower loan loss
provisions. The net interest income for the quarter remained flat QoQ but grew 32%
YoY. Non-interest income grew 34% YoY and 19% QoQ on the back of robust fee
income growth (44% YoY and 13% QoQ). Fee income growth came on the back of
increase in income from third party products, foreign exchange income and
investment banking fees. The cost/income ratio increased by 80bps QoQ to ~49%;
we expect the cost/income ratio to expand over FY12-13E on account of higher
employee expenses and expansion in branch network. The loan loss provisions were
lower as compared to 1QFY11 and 4QFY11 even as credit cost declined by 30bps to
60bps (annualized).
Healthy business growth; margins shrunk
IndusInd Bank reported healthy business growth at 30% YoY and 5% QoQ driven by
both robust growth in advances (31% YoY and 8% QoQ) and deposits (29% YoY and
~3% QoQ).The advances growth was driven by the consumer finance division (41%
YoY and 9% QoQ), within consumer finance division, CV loans growth remained
strong at 40% YoY and 8% QoQ. The business mixed improved and the creditdeposit
ratio expanded by 440bps QoQ to 80%.We were positively surprised sharp
improvement in CASA ratio which improved 100bps QoQ to 28%, CASA deposits
contributed strong 66% of the incremental deposits on a QoQ basis. The cost of
deposits (calculated) increased by 80bps QoQ on account of higher interest rates
offered for the saving deposits and lag effect in reprising of deposits, while the yield
on advances (calculated) increased by just 20bps QoQ. As a result, the NIMs
contracted by 9bps QoQ to 3.4%. We expect the margins to remain under pressure.
Asset quality deteriorated; Maintain HOLD
Asset quality deteriorated during the quarter as gross NPAs increased by 16% QoQ
to 1.1% of advances. During the quarter, fresh slippages stood at Rs730m implying
a slippage ratio of 1% of advances (annualized – we believe partly due to seasonal
trend). The coverage ratio remained stable at 73%, even as the bank made lower
loan loss provisions. We believe the stock is quite rich in valuations and hence see
limited upside. Maintain HOLD.

Accumulate EVEREST KANTO: price target of Rs.103: Kotak Sec,

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Healthy order backlog for the US operations should translate in curtailment
of losses.
To expand Dubai capacity owing to strong demand from Iran and Pakistan.
The company's FCCB is up for redemption in Oct 2012. The outgo on
maturity would be of the order of USD 50 mn (Rs 2.2 bn). We believe the
company may have to refinance the FCCB given that, free cash flow may
aggregate close to Rs 1.4-1.5 bn over FY12-13. Thus interest outgo may
increase in FY13.
Downgrade the stock to Accumulate due to moderate upside of 11%.

Infosys: Lacklustre, not appalling ƒ 1Q ::BNP Paribas

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Lacklustre, not appalling
ƒ 1Q slightly below our view, no rev guidance raise as we expected
ƒ But onsite pick-up points to previously slow deals ramping up
ƒ Lowered expectations could help the stock in the next 12 months
ƒ Retain BUY, bear case is for the stock to stay flat over the year
Lacklustre, but not appalling
Infosys’s 1QFY12 results were marginally
below our expectations. Management
commentary centred on continuing macro
concerns, but there was no indication of
any impact of this on demand. Therefore,
while the 2Q guidance of 3.5-5% q-q USD
revenue growth was healthy, management
chose to keep the EPS outlook (flat to
declining q-q) characteristically
conservative despite the absence of
material margin headwinds. We lower our
FY12-14 revenue estimates by 2% and
EPS by 2-4% on the 1Q miss. Our FY12
estimates are now only slightly above
guidance. But despite our EPS cuts, we believe lowered expectations
could work in the stock’s favour and, barring any unusual macro shocks
(as in 2008), should ensure 15-20% returns over the next 12 months.
1Q marginally below our view, FY guidance unchanged
Infosys’s 1Q USD revenue growth of 4.3% q-q was marginally below our
expectation of 4.8%. EBIT margin of 26.1% (-290bps q-q) was 86bps
below our view, due to wage hikes and higher onsite revenue. EPS was
in line, but was helped by other income gains. The FY12 revenue growth
guidance was unchanged at 18-20%. Utilisation stayed at 75% (~5ppt
less than 1Q-3QFY11) and remains a margin lever, and could come into
play after the ongoing restructuring is completed in the coming weeks.
Retain BUY on a likely pick-up from 2Q
Going into the result season, we were cautious on Infosys in the near
term as we expected no FY12 revenue guidance increase (Of change
and transition, 27 June 2011) and no significant catalysts from the result
(Taking stock of the situation, 7 July 2011). As we noted at the time,
some previously signed large deals – especially in Europe (-2.6% q-q
constant currency) and telecom (-7.1% q-q) – had not ramped up as  
per plan. However, the 6.6% onsite volume increase in 1Q is indicative of
new project starts and suggests some of those issues are abating.
Bear case is for the stock to stay flat over 12 months
Following our estimate cuts, we reduce our DCF-based TP to INR3,370,
which implies an FY13E P/E of 20.0x, but we retain our BUY rating. We
still believe the bear case is for the stock to stay flat over the next year
(Reality check revisited, 21 June 2011) and lowered expectations post
the 1Q result should help. The risk can come from an unusual macro
shock that causes the stock to correct more than our DCF model can
justify. However, our economists foresee no such scenario.
HOW WE DIFFER FROM THE STREET
BNP   Consensus  % Diff
Target Price (INR)  3,370.00  3359.79  0.

Angel Broking, Bharti, IBM ink 10-year agreement for IT solutions in Africa

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Bharti, IBM ink 10-year agreement for IT solutions in Africa
Bharti Airtel (Bharti) has signed a 10-year agreement with IBM to provide IT solutions to its
employees across 16 African countries. IBM will provide a standard operating
environment, help desk and desk-side support to enhance employee efficiency and
convenience. The deal size has not been disclosed. This is in addition to a partnership
signed in late 2010 between the two sides to manage the computing technology and
services to power Bharti’s mobile communications network spanning 16 African countries.
As part of the new agreement, IBM will provide end-user services to Bharti’s employees
across Africa, in French and English. The consolidation of Bharti's helpdesks is expected to
bring about greater cost savings and efficiencies through streamlining of the processes for
addressing IT operational issues. We maintain our Neutral rating on the stock.

India Macro: May Industrial Output Slows Below Expectations to 5.6% Citi

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India Macro Flash
 May Industrial Output Slows Below Expectations to 5.6%
 Data Surprises in India as well — Following recent global data surprises with US
NFP coming in at 18K v/s expectations of 105k, Chinese CPI at 6.4% v/s 6.2%, and
Malaysia’s IP at -5.1% v/s estimates of -2.7%, India’s May factory output came in lower
at 5.6% (Citi : 8%, Consensus 8.5%, and  8.5% last May). On a MoM seasonally
adjusted basis, production was down 1.7% vs. -2.7% last month. Growth during AprilMay averaged 5.7% v/s 10.8% in the same period last year.  A key point to note is that
volatility in the IIP has been continuing for a while, with the RBI Governor remarking at
a recent conference that this statistic is ‘analytically bewildering’ making it vital ‘to
determine whether the root cause of such behavior is the production decisions in the
wake of uncertainty or whether it is due to the compilation process’.
 May data - Key takeaways —
–  Sectoral Trends:  (1) Manufacturing rose 5.6% with medical/optical instruments,
office/accounting/computer machinery, motor vehicles  and  food products being the
key growth drivers while textiles, electrical machinery, wood and leather were in the
red (see p. 2); (2) Electricity rose 10.3% (3) mining was up a  mere 1.4% reflecting
the impact of environmental clearances and transportation bottlenecks.
–  Use-based classification, (1) Intermediate goods saw a sharp slow down to 0.9%
while basic goods led by steel were up 7.2%. (2) Trends in capital goods continued
their roller coaster ride up 5.6% but on  a 3mma basis trends indicate a sharp
deceleration averaging 6.7% during the last few months v/s the 22% levels seen
earlier. (3) Consumer goods were up 5.4% led by non-durables (+5.6%) while
growth in durables continued to decelerate to 5.2% from double-digit levels earlier.
 Outlook: Soft Patch or Slowdown? —Weak June PMI, subdued auto sales, moderating
credit demand etc. are concerning. However, trends appear to be more reflective of a soft
patch as on the domestic front incremental policy momentum has been positive. In
addition to fuel price hikes, progress on resolving environment related issues which
began in April has increased. This bodes well for a moderate pick-up towards the later
half of the year. We thus maintain our view that FY12 will be a year of two halves, with
1H GDP in the 7.5-7.8% YoY range and 2H GDP at 8.2-8.5% YoY.  At the global level,
while drags from Japan’s supply disruption are dissipating and commodity prices also
appear to be easing, issues in the EU could be a dampener.
 Monetary Policy Implications — With the WPI likely to remain elevated at 9-9.5% in
the coming months and the RBI re-iterating that inflation is likely to get priority over
growth, we maintain our view of the RBI hiking rates by a further 50bps taking the repo
rate to 8% by Dec11. However, the key is whether the RBI will hike in its July 26
meeting especially in context of the evolving debt issues in Europe. As of now, odds
favor the RBI will continue its focus on domestic inflation and hike by 25bps on July 26

Auto –June 2011 volume update ::Emkay

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Auto –June 2011 volume update

Bajaj Auto Ltd: - Strong exports, 3 wheelers driving growth

n    Total sales increased by 16% YoY and 2% MoM to 366,657 units

n    Motorcycle sales increased by 14% YoY, 1.5% MoM to 322,827 units

n    Three wheelers increased by 34% YoY to 43,830 units (7% MoM)

n    Domestic momentum sustained at 11.5% YoY to 224,533 units

n    Exports was up 25% YoY and 12% MoM to 142,124 units

Ashok Leyland Ltd (ALL)

n    Total sales declined by 4.6% YoY to 8,009 units

n    Total MHCV sales declined by 4% YoY to 7,942 units

n    Total exports sales increased by 31.5% YoY to 1,185 units.

Buy IRB INFRA:: price target of Rs 246:: Kotak Sec,

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We recently met the management of IRB Infra to get an insight
into existing projects as well as scenario going ahead.
n Company believes that competition has increased immensely in bidding for NHAI
projects
n Interest rates continue to stay high but may not impact company's existing
projects adversely
n We reduce our revenue estimates to factor in delays in Goa Karnataka project.
Margins are likely to remain strong but mark to market provisioning for interest
rate currency swap for Mumbai-Pune BOT may impact profits during Q1FY12
also.
n We thus arrive at a revised price target of Rs 246 based on sum of the parts
methodology on FY12 estimates (Rs 265 earlier). We continue to remain positive
on the company and maintain BUY recommendation due to attractive valuations.

Angel Broking, IIP growth moderates to 5.6% in May 2011

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IIP growth moderates to 5.6% in May 2011
The pace of industrial production moderated further in May 2011, with IIP growth slowing
to 5.6% from a downwardly revised 5.8% in April 2011. The latest IIP print was well below
Bloomberg’s median forecast of 8.5%.
Growth in manufacturing production, which accounts for 80% of the industrial production,
slowed to 5.6% (vs. 6.3% in April 2011 and 8.9% in May 2010). In terms of industries, 14
of the 22 industry groups in the manufacturing sector registered positive growth during
May 2011. Mining production growth was muted at 1.4% (1.3% in April 2011) compared
to strong 7.8% growth in May 2010. Growth in electricity picked up sharply to 10.3% from
6.5% in April 2011 and 6.2% in May 2010.
As per use-based data, basic goods recorded growth of 7.2% compared to 6.1% in May
2010 and 6.9% growth in April 2011. Capital goods’ performance cooled off to 5.9%
compared to 7.3% (revised from 14.5%) growth in April 2011. Consumer durables
continued to report slower growth trend witnessed in April 2011, with growth of 5.2%;
overall consumer goods grew by 5.4% during May 2011.
The moderating growth trend is in-line with the RBI’s target of reducing demand-side
inflationary pressures even if it means sacrificing a bit of short-term growth. Though
elevated inflation numbers may prompt the RBI to persist with one or two more hikes in its
repo rates, overall looking at the signs of cooling global commodity prices, moderating
food inflation, weakening domestic demand, slowing credit off-take and higher deposit
mobilisation, we believe both inflation and interest rates are likely to start cooling off from
2HFY2012.

Infosys Technologies : In line quarter; earnings downgrade cycle has likely bottomed out  HSBC

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Infosys Technologies (INFO)
OW: In line quarter; earnings downgrade cycle has likely
bottomed out
 In line quarter, but 2Q guidance missed expectations
 Telecom recovery remains the key to FY12 growth
 FY12e earnings downgrade cycle has likely bottomed, in our
view; stock is trading at 20x and 17x on normalized FY12/13e
EPS; maintain OW rating, cut TP to INR3,300 (from INR3,400).

IndusInd Bank - A Perfect Quarter ::KR Choksey

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The bank reported excellent net profit of Rs180 crore (up 52% y-o-y and 4.9% q-o-q), in line
with our expectation and broad market consensus. NII grew 31.9% y-o-y but muted 0.5% q-o-q
due to higher-than-expected margin contraction during the quarter. Loan growth stood at
31.4% y-o-y and 8.5% q-o-q, well above system credit growth. Deposits increased 28.8% y-o-y
and 2.6% q-o-q, CASA ratio continued to show steady improvement to 28.2% driven by
aggressive branch expansion and superior liability product offerings. Core fee income grew
strongly by 44% y-o-y and 13.5% q-o-q, supporting bottom line during the quarter. Cost to
income ratio has marginally inched up to 48.5% on the back of aggressive branch and ATM
expansion during the quarter. Broad trend on asset quality has been stable in a challenging
macro environment reflecting robust credit origination practices. Maintain BUY.
Healthy NII growth led by loan growth: Net interest income grew strongly 31.9% y-o-y led by
strong loan growth 31.4% y-o-y and relatively lower margin contraction during the quarter. Impact
of rising cost of funds on net interest margins has negated to some extent by 435bps increase in CD
ratio and steady improvement in CASA ratio resulted into 9bps q-o-q NIM contraction to 3.41%. We
expect NII to grow 26.3% CAGR over FY11-FY13 driven by strong loan growth and CASA led NIM
expansion.
Strong fee income growth: Core fee income showed strong growth momentum (up 44% y-o-y and
13.5% q-o-q) driven by trade fees, forex income and third party distribution income, contributing
63.2% to Non-interest income. Trading gains declined 12.9% q-o-q to Rs27.8 crore. We are factoring
in 30.8% CAGR in fee income over FY11-FY13e, higher than loan book growth.
Cost to income ratio stable at 48.5%: The bank aggressively expanded its branch (26 branches)
and ATMs (39 ATMs) network during the quarter, resulted into 11% q-o-q increase in employee cost
while other operating expenses increased by 6.7% q-o-q, in line with quarterly run rate. We expect
cost to income ratio to stabilize at ~ 46.1% over FY11-FY13e.
Asset quality held up well: Headline asset quality has held up well during the quarter as Gross NPA
marginally increased from 1% in Q4FY11 to 1.1% in Q1FY12 in a challenging macro environment. Net
NPAs has remained stable at 0.3% in Q1FY12 with provision coverage at 73%. Restructured asset
pool stood at 0.37% of loan book, which is one of the lowest in the industry. We have factored in
70bps and 75bps credit cost in FY12 and FY13 respectively.
Superior return ratios and healthy capital adequacy ratio - The bank reported 1.59% RoA and
18.41% RoE in Q1FY12. We expect the bank to sustain superior return ratios at ~ 1.5% RoA and
17.1% RoE over FY11-FY13e. Capital adequacy stood at 15% while tier I stood at 11.7%. The
management has guided for 25-30% balance growth in the next three years. We expect the bank to
raise equity in FY13 to support their asset growth.
Valuation & Recommendation
Indusind Bank delivered strong bottom line driven by strong core fee income growth and steady NII
growth during the quarter. Branch expansion, diversity in fee income progression and steady
improvement in CASA were key positive highlights of the result. We expect earnings to grow 27.8%
CAGR over FY11-FY13 driven by core operation reflecting superior earnings quality. At Rs 286 the
stock is trading at 2.6x FY13 book and 14.2x FY13 earnings. We expect RoA and RoE to remain at
healthy levels of 1.5% and 18.8% respectively in FY13. Robust growth outlook, superior margins,
diversified fee income profile, continuous improvement in liability franchise, best in class risk
adjusted returns are key value drivers for the stock. We reiterate our BUY recommendation on the
stock with a target price of Rs 331 (Potential upside 15.6%).

Market Outlook - July 13, 2011 ::Angel Broking,

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Dealer’s Diary
High intraday volatility was the order of the day as the key benchmark indices
tumbled as world stocks fell on growing fears about the spreading of the
eurozone debt crisis to large European economies such as Italy and Spain.
Volatility ruled the roost in mid-morning trade as the market reacted to
disappointing industrial production growth data and reports of a Cabinet
reshuffle by the PM. The key benchmark indices slumped to two-week lows in
afternoon trade as European shares tumbled in opening trade. Weakness
continued in mid-afternoon trade. The market remained volatile in late trade
with the Sensex and Nifty reporting losses of 1.7% and 1.6%, respectively.
The mid-cap and small-cap indices closed down by 1.1% and 0.9%,
respectively. Among the front runners, ONGC and HUL gained 0–1%, while
Infosys, DLF, M&M, Jindal Steel and Reliance Infra lost 3–4%. Among mid caps,
Anant Raj Inds, SKS Microfinance, Wockhardt, SpiceJet and Honeywell Auto
gained 4–10%, while HDIL, Jain Irrigation, Shree Renuka Sugar, KGN Inds and
Whirlpool lost 5–6%.
Markets Today
The trend deciding level for the day is 18,442/5,534 levels. If NIFTY trades
above this level during the first half-an-hour of trade then we may witness a
further rally up to 18,558–18,705/5,572-5,618 levels. However, if NIFTY
trades below 18,442/5,534 levels for the first half-an-hour of trade then it may
correct up to 18,296–18,180/5,489-5451 levels.

Better portfolio with index funds, stocks :: Business Line

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Enhanced indexing is an investment solution for those who do not want high active risk, yet cannot settle for an index fund.

Active management is exciting but risky because active bets can lead to underperformance. Passive management, on the other hand, is unexciting and at best only mirrors the benchmark returns. Choosing between the two is not always easy. Fortunately, investors have a third choice called enhanced indexing.

This article explains the concept of enhanced indexing. It then shows how discerning investors can create similar portfolio using index funds.

Passive management refers to managing a portfolio that generates the same return as the benchmark index. Index funds follow passive management. An active portfolio manager, on the other hand, has a mandate to deviate from the benchmark index to generate excess returns or alpha.

The problem with active management is that alpha is a zero-sum game. That is, some active managers will outperform benchmark return and some will underperform benchmark. The total of all positive and negative excess returns will be zero because the successful active managers will earn their excess return from the ones that underperform.

This makes the manager selection process important; for selecting the wrong manager would lead to portfolio underperformance.

Enhanced indexing is a process that allows portfolio managers to marginally deviate from the benchmark. An enhanced indexed fund, for instance, could have a mandated tracking error of 2 per cent. This means that the annualized standard deviation of the difference in monthly returns between the portfolio and the benchmark should be managed within 2 per cent every year; this controls the portfolio's active risk. Additionally, these managers may be given a mandate to generate alpha, say, one per cent. This automatically translates into a mandate to generate an information ratio (ratio of alpha to tracking error) of 0.50.

Enhanced indexing is popular among investors that do not want exposure to high active risk. Professional money managers typically use quantitative models to deviate from the benchmark index and stay within given investment mandates.

Suppose a portfolio manager believes that HDFC Bank is likely to outperform the Nifty Index.

The portfolio manager may want a 7.5 per cent allocation to the stock against its 5 per cent weight in the index. This excess allocation to the stock has to come from other stock(s) that will be underweighted against the index. The portfolio manager has to simultaneously ensure that she stays within her mandated tracking error.

Individual investors may not have the resources to apply such models. Such investors should buy an index fund and adjust their holdings using stocks and single-stock futures. This is based on the rationale that an enhanced index portfolio is nothing but an index fund with some stocks having marginally different weights compared with the benchmark index.

But even such a process could be tedious to implement. If the individual investor believes that Reliance Industries is likely to underperform the benchmark index, she has to underweight the stock in her portfolio. This means she needs to short Reliance Industries, as the index fund already holds the stock in same weight as the benchmark index. And not all investors fancy short-selling. It is, therefore, optimal for investors to only buy stocks that they believe are likely to outperform the index.

Investors should not take more than three active positions at any given time to ensure deviations from the index are small and manageable. Further, such active positions should not constitute more than 10 per cent of the index portfolio value.

Downside risk should be controlled using stop loss or other risk management measures.

Enhanced indexing carries minor tilts to an index fund and offers risk-controlled alpha returns. Investors can create similar portfolio using index fund and individual stocks and single-stock futures. Enhanced indexing is optimal for creating target portfolio to meet specific investment objectives.