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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Preferred picks
Sector Stocks
Automobiles Bajaj Auto
Banking HDFC Bank, ICICI Bank, Bank of Baroda, SBI
Cement Grasim Industries
Construction IRB Infra, Unity Infra
Engineering Greaves Cotton, Cummins, BEL, Havells
FMCG GCPL
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation Allcargo Global Logistics, Gateway Distriparks, Mundra Port,
Arshiya International
Media HT Media
NBFC IDFC, M&M Financial Services
Oil & Gas Cairn India, IGL
Source: Kotak Securities - Private Client Research
MARKET STRATEGY
Global equities started the new year on a strong note on the back of
resilient US economic data. Successful Spanish and Italian bond auctions
aided the rally. Indian equities (up about 11% for the month) outperformed
the developed market indices by a wide margin. Revival in FII flows,
progress on reforms and softening of inflation led to a strong rally in the
markets. The RBI cut the CRR ratio, which further fuelled the rally. Beatendown
sectors like Capital Goods, Real Estate and Banking emerged as the
outperformers in the rally.
Economic data emerging from US remained healthy and there were signs
that the labour market is finally gaining strength. Fed announced that it will
likely hold interest rates near zero until at least 2014. In the Eurozone, the
debt crisis continued to linger. Spain announced that it would miss its 2011
fiscal deficit target. The S&P downgraded France's sovereign rating. While
the downgrade was an important event, markets were expecting it for some
time and hence the market reaction was muted. A positive event was the
successful auction of Spanish and Italian bonds. In the near-term, the
Eurozone leaders are working towards averting an impending default by
Greece.
On the domestic front, Government notified 100% FDI in single-brand retail,
paving way for global chains like Adidas, Louis Vuitton and Gucci to have
full ownership of their India operations. The government also initiated
efforts to address power sector concerns in a time-bound manner. The
markets were up also due to revival in FII flows coupled with softening
inflation. FII flows were about $2bn (cash segment) for the month. Q3FY12
results have been largely in line with expectations.
Post the rally, valuations are reasonable given the moderate growth outlook
in near-term. Looking ahead, the developments in the Eurozone would be
closely monitored. The geo-political developments related to Iran are also a
matter of concern to us in that it may push crude oil prices upwards. There
are assembly elections in a few states after which, the Union Budget would
be presented in March. Post the strong rally in January, we expect markets
to consolidate its gains. We recommend a bottoms-up approach with a
medium to long term view. One should accumulate stocks of companies
having ethical managements and strong balance sheets, which are available
at reasonable valuations, across sectors like IT, Banking, Media, Logistics,
Capital Goods and Infrastructure sectors.
Markets rallied on the back of strength in US economy and successful
bond auctions
For the month, most major markets posted gains. Emerging economies outperformed
the developed ones. Global markets commenced the new year on a strong
note aided by continuing strength in US economic growth despite the ongoing crisis
in the Eurozone. The data on consumer sales as well as purchasing manager's index
were strong. The labour market also showed signs of vibrancy with monthly jobs
data for December indicating an addition of 200,000 jobs. Unemployment rate declined
to 8.5% for December. On the earnings front, tech stocks reported robust
numbers for the quarter which helped the Nasdaq outperform the Dow Jones for the
month. Fed announced that it will likely hold interest rates near zero until at least
2014. In a departure from past, the Fed announced setting an inflation target of 2%,
when it released its economic forecast and said it will maintain its highly accommodative
stance to support the recovery
In the Eurozone, the debt-crisis continued to linger. Spain announced that it would
miss its 2011 fiscal deficit target. It has subsequently announced austerity measures
to rein in expenditure. The S&P downgraded France's sovereign rating. While this
was an important event, markets were expecting it for some time and hence the
market reaction was muted. However, the downgrade pushed the yields on EFSF
(bailout fund wherein France is a creditor) bond yields. A positive event was the
successful auction of Spanish and Italian bonds. In the near-term, the Eurozone leaders
would be working on putting in place a permanent rescue fund for the Euro
Zone. The uncertainty over Greece continues as the nation has been negotiating
with its private creditors (mainly hedge funds) for accepting higher hair-cuts on bond
holdings.
On the economic front, the Eurozone economy continued to lose steam. China reported
8.9% growth in GDP, which was higher than market estimates.
Indian markets outperformed by a wide margin
Performance of Indian equities in January mirrored the rally in the global equity indices.
The Sensex was one of the major underperformers in 2011 but began the new
year on a strong note. The Sensex rallied ~11% vs 8%, 3% and 11% for Nasdaq,
Dow Jones and HSI respectively. Among individual sectors, the capital goods, real
estate and banking indices rebounded strongly. Taking note of the beaten-down
valuations, the FIIs bought indian equities. This also helped reverse the downward
trend in the INR. The RBI cut the CRR ratio, which further fuelled the rally.
During the month, SEBI announced that promoters can now offload their stakes
through Institutional Placement Programme (IPP) or sale of through stock exchange.
This move is expected to enable corporates meet the minimum public holding guideline
to be implemented from June 2013. Additionally, this move can also help government
in meeting its disinvestment target by bypassing the lengthy process of a
FPO.
This earnings season was widely expected to be tough given the impact of
unfavourable global economy combined with domestic headwinds of high interest
costs and forex fluctuation impact. Barring IT, most sectors were expected to report
deterioration in profitability. In this backdrop, the earnings of frontline companies
have not been disappointing and has been largely in-line.
Infosys headline numbers were in line with expectations but the company's revenue
guidance for Q4 disappointed the street. The company noted that the moderation in
revenue guidance indicated near-term uncertainty in client spending. TCS' 3Q operating
results were in line with our expectations. However, the company was cautious
about the pricing environment and conceded that decisions on discretionary budgets
are being delayed.
While most banks reported decent numbers for Q3 FY12, Union Bank's numbers
were disappointing. HDFC and HDFC Bank's numbers were robust and reported
healthy NIMs accompanied by a stable asset quality. Axis Bank earnings were higher
than expectations but reported higher slippages (net addition in NPAs). Bank of
Baroda's headline numbers were strong but asset quality deteriorated marginally.
Led by strong exports, Bajaj Auto's 3QFY12 results were ahead of estimates. Hero
Moto Corp's earnings came in slightly below expectation even as the revenues remained
in line. Its profits during the quarter were aided to some extent by lower tax
rate.
L&T PAT was ahead of expectations by a wide margin. However, the profit was led
by significantly higher other income. Order intake was in line with expectations. The
company maintained its order intake guidance for the year, a bold move we opine.
BHEL's numbers were disappointing on the operations as well as order intake front.
Government takes initiatives to speed reforms
During the month, the Government notified 100% FDI in single-brand retail, paving
way for global chains like Adidas, Louis Vuitton and Gucci to have full ownership of
their India operations. The hike in FDI limit is subject to some conditions including
30% sourcing from India.
In another move, the government sought to address the issues that has crippled
power sector. The PM met the heads of power utilities to address various concerns
that are hampering the sector including fuel availability and health of SEBs. The PM
constituted a committee of secretaries under Principal Secretary, Pulok Chatterjee to
work out a time bound action plan to chalk out plans on coal and gas shortage, hike
in power tariffs and unleashing second generation of power reforms.
Declining trend in Rupee arrested
For the month, Rupee has gained 7.3% month-on-month vs the USD to close at
Rs.49.4 (as on 31st Jan). The appreciation in INR has been primarily driven by revival
in FII flows. The appreciation should come as a relief to importers as well as the
various corporates that have borrowed in foreign currency. The appreciation in Rupee
should also relieve pressure on imported inflation (primarily crude oil).
FIIs turn net buyers
For the month, FIIs turned buyers after two consecutive months of net selling. For the
month of January, FIIs were net buyers to the tune of Rs.110.9 bn. We note that FII
flows remain one of the keys for the market to sustain gains. However, FII flows are
influenced by global factors as well as domestic issues including inflation, progress
on reforms, corporate governance and valuations.
IIP rebounded in November on the back strong electricity production
IIP growth in November came in sharply higher than estimates at 5.9%, after recording
2 year low reading in October at -4.7% (revised slightly upwards from -5.1%).
Cumulative growth during Apr-Nov FY12 has slowed to 3.8% vs 8.7% last year.
Despite strong 9.5% growth in Electricity (wt. 10.32%), slowdown in manufacturing
sector at 4.1% (wt. 75.53%) and contraction in mining sector at -2.5% (wt.
14.16%) brought down the industrial growth in Apr-Nov. 3MMA of IIP remained low
at 1.07% vs. 3.03% in September. A sharp reversal in IIP from lows of October was
not entirely unexpected, as indicated by the robust performance of core infrastructure
sectors. The Eight Core Industries Index had grown by 6.75% in November
2011, with an upside in five out of eight industries.
Inflation softens led by primary articles
Headline WPI inflation in December decelerated sharply to 7.47% from 9.11% in
November, one of the lowest in the past several months. The drop was due to fall in
primary articles inflation (3.1% vs 8.5% in Nov 2011). Manufactured inflation continues
to remain well entrenched at elevated levels, rising by 7.41%. Fuel inflation
remains at a high of 15%. Additionally, October headline WPI inflation was revised
to 9.87% from 9.73% previously.
Monetary policy - Cycle turns as the RBI cuts CRR
RBI has started its monetary policy easing with 50 bps cut in CRR to 5.5% from 6%,
injecting Rs.320 billion of primary liquidity into the banking system. However, it has
also indicated that, unless there is credible fiscal consolidation in the budget it would
be constrained from lowering the rates. RBI revised the GDP forecast downward to
7% for FY12, but maintained the inflation forecast at 7% by March end. We expect
reduction in repo and reverse repo rates to begin from the next policy meeting. The
CRR cut by 50bps would inject Rs.320 bn of primary liquidity in the system and in
turn partly alleviate the structural liquidity deficit witnessed in the banking system
(Rs.1200 bn of average borrowing under LAF window). We believe this has to do
more with the change in stance rather than easing of monetary policy; however, RBI
has given enough indications of softer bias in coming months.
Recommendation
The Sensex was up around ~ 11% in January 2012 on revival in FII flows coupled
with softening inflation and government's policy initiatives. Q3FY12 results have
been largely in line with expectations. Post the rally, valuations are reasonable given
the moderate growth outlook in near-term. Looking ahead, the developments in the
Eurozone would be closely monitored. The geo-political developments related to Iran
are also a matter of concern to us in that it may push crude oil prices upwards.
There are assembly elections in couple of states after which the Union Budget would
be placed in March. Post the strong rally in January, we expect markets to consolidate
its gains. Inflation has begun to soften and if the trend continues then it may
provide room for the RBI to effect further cuts. We recommend a bottoms-up approach
with a medium to long term view. One should accumulate stocks of companies
having ethical managements and strong balance sheets, which are available at
reasonable valuations, across sectors like IT, Banking, Media, Logistics, Capital
Goods and Infrastructure sectors.
Preferred picks
Sector Stocks
Automobiles Bajaj Auto
Banking HDFC Bank, ICICI Bank, Bank of Baroda, SBI
Cement Grasim Industries
Construction IRB Infra, Unity Infra
Engineering Greaves Cotton, Cummins, BEL, Havells
FMCG GCPL
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation Allcargo Global Logistics, Gateway Distriparks, Mundra Port,
Arshiya International
Media HT Media
NBFC IDFC, M&M Financial Services
Oil & Gas Cairn India, IGL
Source: Kotak Securities - Private Client Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Preferred picks
Sector Stocks
Automobiles Bajaj Auto
Banking HDFC Bank, ICICI Bank, Bank of Baroda, SBI
Cement Grasim Industries
Construction IRB Infra, Unity Infra
Engineering Greaves Cotton, Cummins, BEL, Havells
FMCG GCPL
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation Allcargo Global Logistics, Gateway Distriparks, Mundra Port,
Arshiya International
Media HT Media
NBFC IDFC, M&M Financial Services
Oil & Gas Cairn India, IGL
Source: Kotak Securities - Private Client Research
MARKET STRATEGY
Global equities started the new year on a strong note on the back of
resilient US economic data. Successful Spanish and Italian bond auctions
aided the rally. Indian equities (up about 11% for the month) outperformed
the developed market indices by a wide margin. Revival in FII flows,
progress on reforms and softening of inflation led to a strong rally in the
markets. The RBI cut the CRR ratio, which further fuelled the rally. Beatendown
sectors like Capital Goods, Real Estate and Banking emerged as the
outperformers in the rally.
Economic data emerging from US remained healthy and there were signs
that the labour market is finally gaining strength. Fed announced that it will
likely hold interest rates near zero until at least 2014. In the Eurozone, the
debt crisis continued to linger. Spain announced that it would miss its 2011
fiscal deficit target. The S&P downgraded France's sovereign rating. While
the downgrade was an important event, markets were expecting it for some
time and hence the market reaction was muted. A positive event was the
successful auction of Spanish and Italian bonds. In the near-term, the
Eurozone leaders are working towards averting an impending default by
Greece.
On the domestic front, Government notified 100% FDI in single-brand retail,
paving way for global chains like Adidas, Louis Vuitton and Gucci to have
full ownership of their India operations. The government also initiated
efforts to address power sector concerns in a time-bound manner. The
markets were up also due to revival in FII flows coupled with softening
inflation. FII flows were about $2bn (cash segment) for the month. Q3FY12
results have been largely in line with expectations.
Post the rally, valuations are reasonable given the moderate growth outlook
in near-term. Looking ahead, the developments in the Eurozone would be
closely monitored. The geo-political developments related to Iran are also a
matter of concern to us in that it may push crude oil prices upwards. There
are assembly elections in a few states after which, the Union Budget would
be presented in March. Post the strong rally in January, we expect markets
to consolidate its gains. We recommend a bottoms-up approach with a
medium to long term view. One should accumulate stocks of companies
having ethical managements and strong balance sheets, which are available
at reasonable valuations, across sectors like IT, Banking, Media, Logistics,
Capital Goods and Infrastructure sectors.
Markets rallied on the back of strength in US economy and successful
bond auctions
For the month, most major markets posted gains. Emerging economies outperformed
the developed ones. Global markets commenced the new year on a strong
note aided by continuing strength in US economic growth despite the ongoing crisis
in the Eurozone. The data on consumer sales as well as purchasing manager's index
were strong. The labour market also showed signs of vibrancy with monthly jobs
data for December indicating an addition of 200,000 jobs. Unemployment rate declined
to 8.5% for December. On the earnings front, tech stocks reported robust
numbers for the quarter which helped the Nasdaq outperform the Dow Jones for the
month. Fed announced that it will likely hold interest rates near zero until at least
2014. In a departure from past, the Fed announced setting an inflation target of 2%,
when it released its economic forecast and said it will maintain its highly accommodative
stance to support the recovery
In the Eurozone, the debt-crisis continued to linger. Spain announced that it would
miss its 2011 fiscal deficit target. It has subsequently announced austerity measures
to rein in expenditure. The S&P downgraded France's sovereign rating. While this
was an important event, markets were expecting it for some time and hence the
market reaction was muted. However, the downgrade pushed the yields on EFSF
(bailout fund wherein France is a creditor) bond yields. A positive event was the
successful auction of Spanish and Italian bonds. In the near-term, the Eurozone leaders
would be working on putting in place a permanent rescue fund for the Euro
Zone. The uncertainty over Greece continues as the nation has been negotiating
with its private creditors (mainly hedge funds) for accepting higher hair-cuts on bond
holdings.
On the economic front, the Eurozone economy continued to lose steam. China reported
8.9% growth in GDP, which was higher than market estimates.
Indian markets outperformed by a wide margin
Performance of Indian equities in January mirrored the rally in the global equity indices.
The Sensex was one of the major underperformers in 2011 but began the new
year on a strong note. The Sensex rallied ~11% vs 8%, 3% and 11% for Nasdaq,
Dow Jones and HSI respectively. Among individual sectors, the capital goods, real
estate and banking indices rebounded strongly. Taking note of the beaten-down
valuations, the FIIs bought indian equities. This also helped reverse the downward
trend in the INR. The RBI cut the CRR ratio, which further fuelled the rally.
During the month, SEBI announced that promoters can now offload their stakes
through Institutional Placement Programme (IPP) or sale of through stock exchange.
This move is expected to enable corporates meet the minimum public holding guideline
to be implemented from June 2013. Additionally, this move can also help government
in meeting its disinvestment target by bypassing the lengthy process of a
FPO.
This earnings season was widely expected to be tough given the impact of
unfavourable global economy combined with domestic headwinds of high interest
costs and forex fluctuation impact. Barring IT, most sectors were expected to report
deterioration in profitability. In this backdrop, the earnings of frontline companies
have not been disappointing and has been largely in-line.
Infosys headline numbers were in line with expectations but the company's revenue
guidance for Q4 disappointed the street. The company noted that the moderation in
revenue guidance indicated near-term uncertainty in client spending. TCS' 3Q operating
results were in line with our expectations. However, the company was cautious
about the pricing environment and conceded that decisions on discretionary budgets
are being delayed.
While most banks reported decent numbers for Q3 FY12, Union Bank's numbers
were disappointing. HDFC and HDFC Bank's numbers were robust and reported
healthy NIMs accompanied by a stable asset quality. Axis Bank earnings were higher
than expectations but reported higher slippages (net addition in NPAs). Bank of
Baroda's headline numbers were strong but asset quality deteriorated marginally.
Led by strong exports, Bajaj Auto's 3QFY12 results were ahead of estimates. Hero
Moto Corp's earnings came in slightly below expectation even as the revenues remained
in line. Its profits during the quarter were aided to some extent by lower tax
rate.
L&T PAT was ahead of expectations by a wide margin. However, the profit was led
by significantly higher other income. Order intake was in line with expectations. The
company maintained its order intake guidance for the year, a bold move we opine.
BHEL's numbers were disappointing on the operations as well as order intake front.
Government takes initiatives to speed reforms
During the month, the Government notified 100% FDI in single-brand retail, paving
way for global chains like Adidas, Louis Vuitton and Gucci to have full ownership of
their India operations. The hike in FDI limit is subject to some conditions including
30% sourcing from India.
In another move, the government sought to address the issues that has crippled
power sector. The PM met the heads of power utilities to address various concerns
that are hampering the sector including fuel availability and health of SEBs. The PM
constituted a committee of secretaries under Principal Secretary, Pulok Chatterjee to
work out a time bound action plan to chalk out plans on coal and gas shortage, hike
in power tariffs and unleashing second generation of power reforms.
Declining trend in Rupee arrested
For the month, Rupee has gained 7.3% month-on-month vs the USD to close at
Rs.49.4 (as on 31st Jan). The appreciation in INR has been primarily driven by revival
in FII flows. The appreciation should come as a relief to importers as well as the
various corporates that have borrowed in foreign currency. The appreciation in Rupee
should also relieve pressure on imported inflation (primarily crude oil).
FIIs turn net buyers
For the month, FIIs turned buyers after two consecutive months of net selling. For the
month of January, FIIs were net buyers to the tune of Rs.110.9 bn. We note that FII
flows remain one of the keys for the market to sustain gains. However, FII flows are
influenced by global factors as well as domestic issues including inflation, progress
on reforms, corporate governance and valuations.
IIP rebounded in November on the back strong electricity production
IIP growth in November came in sharply higher than estimates at 5.9%, after recording
2 year low reading in October at -4.7% (revised slightly upwards from -5.1%).
Cumulative growth during Apr-Nov FY12 has slowed to 3.8% vs 8.7% last year.
Despite strong 9.5% growth in Electricity (wt. 10.32%), slowdown in manufacturing
sector at 4.1% (wt. 75.53%) and contraction in mining sector at -2.5% (wt.
14.16%) brought down the industrial growth in Apr-Nov. 3MMA of IIP remained low
at 1.07% vs. 3.03% in September. A sharp reversal in IIP from lows of October was
not entirely unexpected, as indicated by the robust performance of core infrastructure
sectors. The Eight Core Industries Index had grown by 6.75% in November
2011, with an upside in five out of eight industries.
Inflation softens led by primary articles
Headline WPI inflation in December decelerated sharply to 7.47% from 9.11% in
November, one of the lowest in the past several months. The drop was due to fall in
primary articles inflation (3.1% vs 8.5% in Nov 2011). Manufactured inflation continues
to remain well entrenched at elevated levels, rising by 7.41%. Fuel inflation
remains at a high of 15%. Additionally, October headline WPI inflation was revised
to 9.87% from 9.73% previously.
Monetary policy - Cycle turns as the RBI cuts CRR
RBI has started its monetary policy easing with 50 bps cut in CRR to 5.5% from 6%,
injecting Rs.320 billion of primary liquidity into the banking system. However, it has
also indicated that, unless there is credible fiscal consolidation in the budget it would
be constrained from lowering the rates. RBI revised the GDP forecast downward to
7% for FY12, but maintained the inflation forecast at 7% by March end. We expect
reduction in repo and reverse repo rates to begin from the next policy meeting. The
CRR cut by 50bps would inject Rs.320 bn of primary liquidity in the system and in
turn partly alleviate the structural liquidity deficit witnessed in the banking system
(Rs.1200 bn of average borrowing under LAF window). We believe this has to do
more with the change in stance rather than easing of monetary policy; however, RBI
has given enough indications of softer bias in coming months.
Recommendation
The Sensex was up around ~ 11% in January 2012 on revival in FII flows coupled
with softening inflation and government's policy initiatives. Q3FY12 results have
been largely in line with expectations. Post the rally, valuations are reasonable given
the moderate growth outlook in near-term. Looking ahead, the developments in the
Eurozone would be closely monitored. The geo-political developments related to Iran
are also a matter of concern to us in that it may push crude oil prices upwards.
There are assembly elections in couple of states after which the Union Budget would
be placed in March. Post the strong rally in January, we expect markets to consolidate
its gains. Inflation has begun to soften and if the trend continues then it may
provide room for the RBI to effect further cuts. We recommend a bottoms-up approach
with a medium to long term view. One should accumulate stocks of companies
having ethical managements and strong balance sheets, which are available at
reasonable valuations, across sectors like IT, Banking, Media, Logistics, Capital
Goods and Infrastructure sectors.
Preferred picks
Sector Stocks
Automobiles Bajaj Auto
Banking HDFC Bank, ICICI Bank, Bank of Baroda, SBI
Cement Grasim Industries
Construction IRB Infra, Unity Infra
Engineering Greaves Cotton, Cummins, BEL, Havells
FMCG GCPL
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation Allcargo Global Logistics, Gateway Distriparks, Mundra Port,
Arshiya International
Media HT Media
NBFC IDFC, M&M Financial Services
Oil & Gas Cairn India, IGL
Source: Kotak Securities - Private Client Research
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