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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eye on India
危机 (pronounced “Wéijī”)
Event
This Chinese word means “Crisis”. John F Kennedy in his address on 12 April
1959 said, "When written in Chinese, the word "crisis" is composed of
two characters. One represents danger and the other represents
opportunity." That rings just as true today on 12 August 2011.
This week we stress-test earnings for Sensex stocks and run valuation
screens to identify where the market could bottom out. Our analysis suggests
the Indian market is fairly valued, but not at the absolute bottom as yet. The
market is currently trading at a one-year-forward PER of 14.1x, which is below
the past 10 years’ average of 14.7x, and still implying nominal average annual
earnings growth of 17% for the next 10 years. Moreover, the implied equity
risk premium is less than 1 sd away, as compared to 2 sd for Asia ex Japan.
Our stress-test of Sensex stocks earnings suggests that there can be an 18%
and 23% hit for FY12 and FY13 earnings estimates in the worst-case
scenario. Stock selection is key. Our analysis suggests that a number of
Sensex companies could potentially register annualised earnings growth of
10% over the next two years even under our bear-case assumptions: ONGC,
HNDL, ICICI, ITC, HDFCB, SUNP, HDFC, LT, JSP, STLT, HUVR and SBI.
Impact
Markets continue to be weak: The Indian market fell nearly 4% this week,
outperforming emerging markets by 100bp and underperforming the
developed world index by 160bp. Last week saw nearly US$1.2bn net selling
by FIIs (YTD +US$980m) and US$370m worth of net buying by domestic MFs
(YTD US$1.2bn). Amongst sectors, IT and Metals were the worst-performing
sectors (-9.7% and -7.2% respectively) while the Auto index was the best
performing sector (1.4%). Our top 10 stocks underperformed the broader
market, led by a 10% fall in Infosys; M&M was the only stock that was up
(+7.2%). Our top-10 list continues to outperform the MSCI India Index by
460bp.
Mixed macro data but both hawkish: IIP data surprised on the upside,
recording an 8.8% yoy growth vs the consensus estimate of 5.5%. The May
data was revised up from 5.6% to 5.9%. On the other hand, weekly food
inflation spiked up to 9.9%, the highest in more than three months. Both data
points are hawkish in nature and it would be interesting to see what stance
the RBI takes in its mid-quarter announcement next month. Our economist,
Tanvee Gupta Jain, believes that the current situation in the US and Europe
and the recent decline in oil prices have lowered the probability of a rate hike
in September; however, the data over the next few weeks would need to be
closely monitored to have a firm view on the mid-quarter meeting.
Outlook
One thing looks certain – VOLATILITY: There is a plethora of results lined
up today and given past experience, the weaker companies usually announce
at season’s end. Markets have been in selling mode and will most likely
continue to oscillate around current levels. Don’t rush to buy, take your time.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eye on India
危机 (pronounced “Wéijī”)
Event
This Chinese word means “Crisis”. John F Kennedy in his address on 12 April
1959 said, "When written in Chinese, the word "crisis" is composed of
two characters. One represents danger and the other represents
opportunity." That rings just as true today on 12 August 2011.
This week we stress-test earnings for Sensex stocks and run valuation
screens to identify where the market could bottom out. Our analysis suggests
the Indian market is fairly valued, but not at the absolute bottom as yet. The
market is currently trading at a one-year-forward PER of 14.1x, which is below
the past 10 years’ average of 14.7x, and still implying nominal average annual
earnings growth of 17% for the next 10 years. Moreover, the implied equity
risk premium is less than 1 sd away, as compared to 2 sd for Asia ex Japan.
Our stress-test of Sensex stocks earnings suggests that there can be an 18%
and 23% hit for FY12 and FY13 earnings estimates in the worst-case
scenario. Stock selection is key. Our analysis suggests that a number of
Sensex companies could potentially register annualised earnings growth of
10% over the next two years even under our bear-case assumptions: ONGC,
HNDL, ICICI, ITC, HDFCB, SUNP, HDFC, LT, JSP, STLT, HUVR and SBI.
Impact
Markets continue to be weak: The Indian market fell nearly 4% this week,
outperforming emerging markets by 100bp and underperforming the
developed world index by 160bp. Last week saw nearly US$1.2bn net selling
by FIIs (YTD +US$980m) and US$370m worth of net buying by domestic MFs
(YTD US$1.2bn). Amongst sectors, IT and Metals were the worst-performing
sectors (-9.7% and -7.2% respectively) while the Auto index was the best
performing sector (1.4%). Our top 10 stocks underperformed the broader
market, led by a 10% fall in Infosys; M&M was the only stock that was up
(+7.2%). Our top-10 list continues to outperform the MSCI India Index by
460bp.
Mixed macro data but both hawkish: IIP data surprised on the upside,
recording an 8.8% yoy growth vs the consensus estimate of 5.5%. The May
data was revised up from 5.6% to 5.9%. On the other hand, weekly food
inflation spiked up to 9.9%, the highest in more than three months. Both data
points are hawkish in nature and it would be interesting to see what stance
the RBI takes in its mid-quarter announcement next month. Our economist,
Tanvee Gupta Jain, believes that the current situation in the US and Europe
and the recent decline in oil prices have lowered the probability of a rate hike
in September; however, the data over the next few weeks would need to be
closely monitored to have a firm view on the mid-quarter meeting.
Outlook
One thing looks certain – VOLATILITY: There is a plethora of results lined
up today and given past experience, the weaker companies usually announce
at season’s end. Markets have been in selling mode and will most likely
continue to oscillate around current levels. Don’t rush to buy, take your time.
