Top Mutual Fund schemes for January 2012:: ICICI Securities,

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Large Cap IMAP 1Year 3Year 5Year

ICICI Prudential Focused Bluechip Equity Fund 4.66 -15.87% 26.34% -- Franklin India Bluechip Fund 4.01 -17.72% 22.62% 7.23% HDFC Top 200 Fund 3.51 -23.72% 22.40% 9.21% BSE 100 NA -25.21% 16.48% 2.57%

Diversified Funds IMAP 1Year 3Year 5Year Reliance Equity Opportunities Fund 4.51 -20.90% 28.82% 6.76% Tata Dividend Yield Fund 4.22 -16.33% 27.62% 11.21% Canara Robeco Equity Diversified 4.21 -15.40% 25.00% 9.49% S&P Nifty NA -24.21% 15.78% 3.12%  Mid Cap IMAP 1Year 3Year 5Year HDFC Mid-Cap Opportunities Fund 4.46 -17.63% 28.19% -- IDFC Premier Equity Fund - Plan A 4.45 -17.24% 30.23% 16.63% SBI Magnum Sector Umbrella- Emerging Business Fund 4.22 -9.17% 35.57% 5.17% CNX Midcap Index NA -30.17% 18.16% 3.28%  Short Term IMAP 1Year 3Year 5Year IDFC Super Saver Income Fund - Short Term - Plan A 4.25 9.22% 6.12% 8.09% Templeton India Short Term Income Plan 4.14 9.06% 8.84% 9.14% ICICI Prudential Short Term Plan 3.22 8.76% 6.33% 8.85% CRISIL STBEX NA 7.84% 6.42% 7.31%  Monthly Income Plans IMAP 1Year 3Year 5Year HDFC Monthly Income Plans - LTP 3.8 -0.54% 12.71% 9.27% Reliance Monthly Income Plan 3.14 -0.07% 9.59% 9.33% ICICI Prudential MIP 25 3.02 -0.32% 9.96% 6.28% CRISIL MIPEX NA 1.82% 7.21% 6.39%

Source: MFI Explorer, ICRA Online Ltd. All returns are annualized. Data as on 30/12/2011

Strategy: India witnesses outflows worth US$5.4 bn in 2011 :: Kotak Securities

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Strategy
Foreign fund-flow tracker
India witnesses outflows worth US$5.4 bn in 2011. KIE’s foreign fund-flow tracker
gives us a comprehensive view of market flow activity in India and among its emerging
market peers. Using a top-down approach, we analyze country flows and the
underlying factors which affect them, such as fund flows and country allocations for
different fund types.

Post Office Savings Schemes : Summary of various offerings

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Scheme	Interest payable, Rates, Periodicity etc.	Investment limits and Denominations	Salient features including Tax Rebate
PostOffice Savings Account	4.0% per annum on individual/ joint accounts.	Minimum INR 50/-.	Cheque facility available.  Interest Tax Free.
5-YearPost Office Recurring Deposit Account	On maturity INR 10/- account fetches INR 738.62/-. Can be continued for another 5 years on year to year basis.	Minimum INR 10/- per month or any amount in multiples of INR 5/-. No maximum limit.	One withdrawal upto 50% of the balance allowed after one year. Full maturity value allowed on R.D. Accounts restricted to that of INR. 50/- denomination in case of death of depositor subject to fulfillment of certain conditions. 6 & 12 months advance deposits earn rebate.
PostOffice Time Deposit Account	Interest payable annually but calculated quarterly. Period          Rate 1 yr. A/c      7.70% 2 yr. A/c      7.80% 3 yr. A/c      8.00% 5 yr. A/c      8.30%	Minimum INR 200/- and in multiples thereof. No maximum limit.	Account may be opened by individual.   The investment under this scheme qualify for the benefit of Section 80C of the Income Tax Act, 1961 from 1.4.2007.
PostOffice Monthly Income Account Scheme	8.2% per annum   w.e.f. 01.12.2011	In multiples of INR 1500/- Maximum INR 4.5 lakhs in single account and INR 9 lakhs in joint account.	Maturity period is 5 years. Can be prematurely encashed after one year with certain conditions No Bonus   is admissible on maturity in respect of MIS accounts opened on or after 01.12.2011.
15year Public Provident Fund Account	8.6% per annum w.e.f. 01.12.2011	Minimum INR. 500/- Maximum INR. 1,00,000/- in a financial year. Deposits can be made in lumpsum or in 12 installments.	Deposits qualify for deduction from income under Sec. 80C of IT Act. Interest is completely tax-free. Withdrawal is permissible every year from 7th financial year. Loan facility available from 3rd Financial year. No attachment under court decree order.
National Savings Certificate (VIII issue)	INR. 100/- grows to INR 150.90 after 5 years.	Minimum INR. 100/- No maximum limit available in denominations of INR. 100/-, 500/-, 1000/-, 5000/- & INR. 10,000/-.	A single holder type certificate can be purchased by an adult for himself or on behalf of a minor or to a minor. Deposits qualify for tax rebate under Sec. 80C of IT Act. The interest accruing annually but deemed to be reinvested will also qualify for deduction under Section 80C of IT Act.
National Savings Certificate (IX issue)	INR. 100/- grows to INR 234.35 after 10 years.	Minimum INR. 100/- No maximum limit available in denominations of INR. 100/-, 500/-, 1000/-, 5000/- & INR. 10,000/-.	A single holder type certificate can be purchased by an adult for himself or on behalf of a minor or to a minor. Interest on these certificates shall be liable to tax under the Income-Tax Act, 1961 (43 of 1961, on the basis of annual accrual specified in rule15, but no tax shall be deducted at the time of payment of discharge value.
Senior Citizen Savings Scheme	9% per annum, payable from the date of deposit of 31st March/30th Sept/31st December in the first instance & thereafter, interest shall be payable on 31st March, 30th June, 30th Sept and 31st December.	There shall be only one deposit in the account in multiple of INR.1000/- maximum not exceeding rupees fifteen lakh.	Maturity period is 5 years. A depositor may operate more than a account in individual capacity or jointly with spouse.  Age should be 60 years or more, and 55 years or more but less than 60 years who has retired on superannuation or otherwise on the date of opening of account subject to the condition that the account is opened within one month of receipt of retirement benefits. Premature closure is allowed after one year on deduction of 1.5% interest & after 2 years 1% interest. TDS is deducted at source on interest if the interest amount is more than INR 10,000/- p.a.  The investment under this scheme qualify for the benefit of Section 80C of the Income Tax Act, 1961 from 1.4.2007.

IT - Q3FY12 Result Preview - Near-term slowdown:: Edelweiss

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Q3FY12 performance is expected to be subdued due to lower working days and higher-than-usual annual shutdowns and furloughs. We believe decision-making has slowed down and ramp ups are behind schedules. Inflation-linked pricing hikes have been denied. Revenue growth in Q3FY12 is expected to slow down to 2-3% QoQ from the earlier expectation of 4-5% in USD terms. But INR depreciation is likely to aid earnings growth. Infosys is likely to raise its FY12 EPS guidance from INR145 to INR150 due to the INR depreciation, but we believe commentary on decision making, IT spending in CY12 and pricing will be cautious. We prefer TCS, HCLT and Hexaware.

Management commentary ‘cautiously optimistic’

Q3FY12 started on a positive note with September and October being good months. But decision making lost steam in the latter half of Q3FY12. Infosys indicated that discretionary projects have to go through multiple levels of approvals, delaying decision making. Also, ramp ups are behind schedule. The quarter also experienced higher days of annual shutdowns and furloughs in the hi-tech manufacturing sector. Even pricing commentary has changed with inflation-linked pricing increases, which were possible till H1FY12, being denied in Q3FY12. Thus, commentary on business has moderated, although, optimism on a strong FY13 remains.            

INR depreciation to aid earnings growth

Revenue growth in Q3FY12 is expected to moderate to 2-3% QoQ from the earlier expectation of 4-5% in USD terms, both due to lower volume growth expectation as well as USD appreciation against other currencies. But the INR depreciation of 11% QoQ is expected to aid margins. We expect Infosys’ EBITDA margin to record a seven quarter high of 34%. TCS’ EBITDA margin at 31% will be the highest since FY01. Thus, tier-1 IT companies are expected to report 32% YoY growth in EBITDA. For mid caps we expect revenue growth of about 2% QoQ in USD terms and EBITDA growth of 52% YoY.   

Prefer players with good order books—TCS, HCLT and Hexaware 

We had revised down our FY13 revenue growth expectation for tier-1 IT stocks (Read our report IT – Growth moderating, dated 22^nd December, 2011) but raised earnings 1-8% due to assumption of INR 50/USD compared to INR 46/USD earlier. In mid caps, we are now cutting our FY13 USD revenue growth forecast marginally from about 20% earlier to 18‐19%, but raising earnings 3‐11% due to the INR depreciation. In the backdrop of a slowing volume growth and risk of pricing pressure in FY13, we prefer players with good order books built on back of large order wins in the past few quarters. Thus, we prefer TCS, HCLT and Hexaware and maintain ‘BUY’. We remain cautious on Infosys due to its exposure to short-term projects and discretionary spending and Wipro, due to risk of disappointment given the expectation of an improving revenue growth trajectory and hence maintain ‘HOLD’.

    

INFORMATION TECHNOLOGY :: Kotak Securities

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INFORMATION TECHNOLOGY
The quarter has seen steep fall in the rupee (v/s USD), which is expected to
positively impact the revenues and operating profits of most companies.
We expect companies under our coverage to report a sequential revenue
growth of about 11%, driven by higher volumes and favourable currency
movement. This is a seasonally weak quarter for the IT sector. Volumes for
the Top 4 companies are expected to rise between 3% - 5%. The cross
currency volatility may impact USD revenues by about 50bps - 150bps QoQ
for the top companies. However, the rupee depreciation v/s USD (~11%
average) should help growth of INR revenues. Average realizations are
expected to have remained stable QoQ.
EBIDTA margins are expected to be higher on a QoQ basis on the back of the
rupee depreciation and volume increases. With no salary increments for
most companies (except Mahindra Satyam) we do not expect any impact on
margins. We expect margins to improve and EBIDTA to increase by 19%
QoQ.
Companies follow different hedging strategies and different accounting
policies. This may lead to corresponding impact of currency volatility on
other income. We also are not aware of what part of the currency benefits
will be re-invested by companies in business generation activities.
Consequently, PAT is expected to rise by about 18% for companies under
our coverage (19% for Top 4).
The guidance from Infosys will be important. We expect volume growth
guidance (implied from USD revenue guidance) to be maintained. The
uncertain macro environment may lead to continued conservatism from the
management. However, the USD growth guidance may be pared down a bit
due to cross-currency impact. However, because of the rupee depreciation,
the INR guidance will be scaled up, we opine. Normally Infosys gives
guidance at the exchange rate prevailing at the end of the just-concluded
quarter.
Among other things, we will also watch out for :
a) Early indications on CY12 budgets
b) Pricing declines, if any and comments on the same,
c) Further insights into sustainability of discretionary spends, etc.,
d) hiring trends and
e) Comments on new opportunities like Cloud Computing, etc
We maintain our optimistic view on the medium-to-long term prospects of
the sector. Over the medium term, we expect large caps to out-perform as
they are better equipped to counter the impact, if any, of any variation in
the demand scenario. We will keep a close watch on the evolving macro
scene in developed economies, where recent economic developments are
concerning.
Infosys and TCS remain our preferred large-cap picks. In mid-caps, we prefer
NIIT Technologies and KPIT Cummins. Mphasis is not covered here because
quarter ends in January.

Markets may see a short rally in Jan-Feb: Jagdish Malkani, NSE (ET)

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In an interview with ET Now, Jagdish Malkani, Member, NSE, gives his views on the markets and his favourite picks. Excerpts:

ET Now: Non-Nifty, how do you view stocks in 2012, the broader market space?

Jagdish Malkani: The fact of the matter is the macro picture of the Indian economy is not great, but now all that is well known and frankly much of it is in the price. The fact that the budget itself may have some not-so-market-friendly measures, all that is in the price. And 95% of the market and the analyst community is gloomy, which itself is a good enough reason for there to be a rally.

I really do think maybe we are in the beginning of a rally and that too led by more mid-caps, which have been more popular, etc. So in the short run, especially January-February pre-budget, you could have a bit of a run-up, not humongous, but let's say 5000 Nifty is not beyond the pale of reason. And in that I would think the mid-caps would have a better run.

ET Now: What is it that you would be looking at and why is it that you like Max India?

Jagdish Malkani: I have a long list, but on top of my head I would say Max India is not a bad one, great play on insurance, good management, healthcare, great favourite of FIIs and good quality private equity players and the promoter Analjit has proved his mark in his other investments. This has come down from a high of 230 or something to around 145. Of course insurance a bit maligned by the ULIP story earlier this year and recently this whole general insurance motor pool account, etc. But it is all in the price and a couple of very prominent FIIs are very bullish, have bought into at higher levels. So this one could easily give you a 20-30% bump-up in 2012.

ET Now: Is there an earnings trigger out here? Have you tried to map their numbers as to what it will do in the next 12-18 months?

Jagdish Malkani: No. Going by insurance is a slightly more complicated play, actuarial valuations, how they are doing in the marketplace, market share. The softer things are certainly improving with every quarter and the management is very credible and management these days, especially in such bear markets, is crucial. So this has been pummelled recently by maybe some institutional selling, etc. So, this is an opportunity.


ET Now: What about your second stock then?

Jagdish Malkani: Another one in the IT education space is NIIT Ltd, again it has fallen off pretty sharply. It is around 37-38 as we speak. I like both the NIIT twins but NIIT Ltd. in particular still a great play on global IT education, the Indian IT story and the good news again is that they had divested their stake in the US subsidiary, which was a bit of a drain and that will help to, $110 million or whatever they were getting, which is a big number for them and that will help to pay off some of the debts. Again this combines IT, the falling rupee and the education story. So this could give you a pretty good bump-up from here.

ET Now: Any concerns on any of the two stocks that you recommended?

Jagdish Malkani: No. Certainly on Max, of course it is in the price. The insurance FDI story is getting dragged out, it may not happen and this whole general insurance motor pool accounting, how much because just in the last couple of days IRDA has again taken some adverse measures after giving them some good news, which was it's a bit complicated that the whole motor pool account was a big concern for the insurance industry.

Now, they have raised the provision norms a bit. Which is why there has been weakness in this and Bajaj Finserv, both of which I like. So those are the concerns. As far as NIIT Ltd goes, overall IT stocks being sort of downgraded and some of the other education stocks, especially some of the bigger stars of last couple of years, I would not take names, if they all get pummelled down, then NIIT Ltd. may also, but that will only be an opportunity.

ET Now: What is the target price that you would be looking at for your recommendation?

Jagdish Malkani: Max could easily be 180 in the next few months. I will be conservative because these are rough times, but 180, maybe even 200, is quite within the realm of reason and Rs 50 for NIIT Ltd should be very feasible.

Banks/Financial Institutions: Focus shifts to restructuring from slippages :: Kotak Securities

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Banks/Financial Institutions
India
Focus shifts to restructuring from slippages. We see sharper focus on restructured
loans in 3QFY12E than on slippages/increases in gross NPLs. Reported NPLs are likely to
remain sequentially stable generally, and in the case of a few banks, surprisingly
positive. Margins are expected to remain healthy but loan growth is likely to moderate
for all banks. NBFCs will continue to drive strong loan growth though NIMs are close to
their nadir, in our view. Most preferred picks: ICICI Bank and Federal Bank among
private banks, PNB among public banks, IDFC and Mahindra Finance among NBFCs.

RESULT PREVIEW Q3FY12 No quarter given:: Edelweiss

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The fault lines are clearly visible. In the backdrop of a perceptible
slowdown in macro‐environment, India Inc., faces another tough quarter
as Q3FY12 results estimates point to a tepid 3.3% PAT growth for Sensex
and 2.1% for the coverage universe. Drawdown in revenue trajectory also
continues with top line growth moderating to ~19.0% as margins remain
under pressure (EBITDA margins likely to contract by ~221bps). Highly
disconcerting is the breadth of negative earnings—almost a third of
companies under coverage are expected to post an earnings decline of
more than 20.0%. However, the stand‐out sector could be pharma, led by
a strong surge in the domestic market, favourable currency movement
and niche launches in the US.
Growth under fire, breadth in negative earnings widens
Earnings growth for Q3FY12 is likely to be weak with the Edelweiss coverage universe (ex‐
OMCs) expected to post a tepid 2.1% YoY growth, marking the fourth consecutive quarter
with a sub‐10% growth. Meanwhile, Sensex is expected to clock an earnings growth of
3.3% YoY, way below 12.1% in Q2FY12. Apart from this weary outlook, equally
disconcerting is the breadth of negative earnings revision as almost a third of companies
may post an earnings decline of more than 20%. The rupee has also depreciated 8%
against the USD in Q3FY12 and potentially could suppress reported profit growth. New
AS‐11 amendments, however, may provide some respite.
Revenues decelerate, margins on downward spiral
The revenue trajectory continues to moderate even as the top line is expected to grow by
19.0% YoY (ex‐OMCs) compared to 21.0% YoY in Q2FY12 and way below 25.2% recorded
in Q1FY12. Sectors that have seen a progressive decline in revenue growth include capital
goods where shrinking new order intake, especially from the power sector, has hampered
revenue visibility (Q3FY12e Y‐o‐Y revenue growth at 13.3% compared to 22.0% a year
back). In contrast, pharma sector is expected to post a stellar 23% top line growth, riding
strong surge in domestic market, favourable currency movement and niche launches in
the US. Overall, EBITDA margins remain under pressure and may well contract by 221bps
for our coverage universe (ex‐OMCs) and 250bps for the Sensex.
Downgrades persist to dent earnings outlook
EPS estimates continue to be downgraded with FY13 estimates being cut 3% during
Q3FY12 alone. This extends the total FY13 EPS downgrades to 11% in the current fiscal.
Consensus EPS estimates for Sensex for FY12 and FY13 now stand at INR1,140 and
INR1,316, respectively (Edelweiss: INR1,086 and INR1,260). Based on our macro
assessment, we believe there are further risks to the earnings trajectory. If GDP growth,
based on our stress case assumption, falters to 5.8% in FY13, earnings (in FY13) could be
downgraded to as low as INR 1,143.

Pharmaceuticals: 3QFY12E preview :: Kotak Securities

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Pharmaceuticals
India
3QFY12E preview. We expect a sequentially better quarter for companies in our
coverage with (1) strong yoy reported PAT growth of above 30% for DRL, SUN, Divis,
Cipla and Glaxo; however, (2) expect forex to act as a dampener leading to reported
PAT decline for Glenmark, despite strong results, as well as for Cadila. We expect
strong yoy sales growth of 31% in 3QFY12E for generic companies under our coverage.
However, excluding exclusivity sales, we expect base business performance to remain
muted for Ranbaxy and DRL. SUN Pharma is most likely to spring a positive surprise
versus our estimates. Our preferred sector picks—SUN and Lupin.

Banks/Financial Institutions: Focus shifts to restructuring from slippages :: Kotak Securities

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Banks/Financial Institutions
India
Focus shifts to restructuring from slippages. We see sharper focus on restructured
loans in 3QFY12E than on slippages/increases in gross NPLs. Reported NPLs are likely to
remain sequentially stable generally, and in the case of a few banks, surprisingly
positive. Margins are expected to remain healthy but loan growth is likely to moderate
for all banks. NBFCs will continue to drive strong loan growth though NIMs are close to
their nadir, in our view. Most preferred picks: ICICI Bank and Federal Bank among
private banks, PNB among public banks, IDFC and Mahindra Finance among NBFCs.

Technology: 3QFY12E preview – quarter should meet/beat reset expectations :: Kotak Securities

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Technology
India
3QFY12E preview – quarter should meet/beat reset expectations. We expect solid,
though not spectacular, earnings reports from the Indian IT services companies, on a
currency-adjusted basis. Sequential sharp movements in various currencies versus the
US$ would pressure US$ revenues but propel margins, EBITDA, and net income. We
would focus on CY2012E budget indicators, pricing, lateral hiring, campus visits
update, and 4QFY12 guidance in the earnings prints and management commentaries.
Remain positive on the sector; INFO/TCS top Tier-I and MTCL/HEXW top Tier-II picks.

Strategy December 2011 quarter earnings preview. ::Kotak Sec

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Strategy
December 2011 quarter earnings preview. We expect the net income of the BSE-30
Index to grow 12.4% yoy and 7.1% qoq. On an ex-Energy basis, we expect the net
income of the BSE-30 Index to grow 11.1% yoy. We expect the net income of the KIE
universe to grow 6.8% yoy on an ex-Energy basis, but decline 8.4% yoy on an overall
basis; yoy comparisons of financial performance of R&M companies are not meaningful
due to fluctuations in the timing and quantum of compensation/subsidy from the
government. We expect the net income of the Energy, Real Estate and Telecom sectors
to decline yoy while the net income of Cement, Industrials, Pharmaceuticals and
Technology will likely improve yoy.

Bajaj Corp BUY:: Target Price ` 136:: Ventura

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We initiate coverage on Bajaj Corp Ltd as a BUY with a Price Objective of ` 136 (target 14x FY13 P/E). At CMP of ` 99, the stock is trading at 12.7x and 10.2x its estimated earnings for FY12 & FY13 representing a potential upside of ~37.4% over a period of 15 months. Strong sustainable volume growth and pricing power of its flagship brand “Almond Drops”, new product launches in niche segments and inorganic acquisitions should lead to an earnings growth of 30.6% CAGR over the period FY11 to FY13. Bajaj Corp Ltd is one of the fastest growing companies in the FMCG space with market leadership in the niche “Light Hair Oil” category and over the years has successfully consolidated its market share.
 Brand leadership, product differentiation, and extensive network reach has helped BCL maintain its market leadership
The Light Hair Oil (LHO) segment (~13% of total hair oil market) has witnessed ~25.5% CAGR (in value terms) and ~17.6% CAGR (in volume terms) over the period of 6 years since 2006-07. Further this segment is expected to grow at ~17% CAGR over FY12-14 and Bajaj Corp with its offering of Almond Drops hair oil ADHO (~93% of total sales) is best placed to benefit from this opportunity. Over the years, ADHO has enhanced its market share to 53.9% (+1360 bps since FY08) and has ambitious plans to further consolidate its position in this segment to ~65% over the next five years. Slew of measures like sachets to penetrate the rural market (being the only player), targeted advertising, product differentiation through use of glass bottle packaging (which reinforces its value proposition) and market expansion strategies to convert coconut hair oil users to the higher value added LHO category should stand the company in good stead to achieve its growth targets.
 New foray into the fast growing cooling hair oil segment to help diversify product portfolio and boost revenues
Leveraging on its strong presence in the LHO segment and the distribution strength of over 2 mn retail outlets, BCL is looking at strategic brand extension and new product launches. In line with this strategy, the company has forayed into the ~ ` 640 crore cooling hair oil segment with the launch of Kailash Parbat Cooling oil (KPCO). The initial response has been quite promising with KPCO attaining a volume market share of 1% within the first quarter of its launch. However we have not factored this in our model and represents an upside risk to our estimates.

Infotech Enterprises – BUY ‘Steady momentum:: IIFL

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Our discussions with Infotech Enterprises indicate steady
business momentum, especially its engineering business which
is experiencing continued demand traction. Its Network &
Communications (N&CE) business too is on an improving
trajectory with ramp downs in key client largely over and
services mix improving favourably. Strong annuity-based
revenues (~70% of total revenues) coming from long term
service agreements lends decent visibility in times of
uncertainty. OPM appears to have bottomed out in Q1 FY12 and
its outlook remains sanguine with INR depreciation being a
major lever followed by increased offshoring and improving
employee pyramid. Valuations remain attractive. Maintain BUY.
Engineering demand remains robust; Service mix improving
Infotech’s key business segments of Engineering and N&CE continue to
perform well. Its key aerospace clients (55% of Engineering business)
continue to involve the company in long term design/engineering
programs. On the other hand, its N&CE business too has transformed
incrementally moving away from its low-end services. Focused
approach towards top clients, proven delivery (strong referrals) and
high renewal rates adds to the comfort.
Margins likely to have bottomed out
Implementation of wage hikes, integration of low margin acquisitions
and ramp down in key clients had led to strong margin erosion in
FY11. Going forward, reduced exposure to low margin data conversion
business, higher offshoring in key subsidiaries and improving employee
mix along with a weak rupee are expected to expand margin.
Valuations provide an attractive entry point
Infotech’s revenue traction has been consistent in past 6-8 quarters as
it continued to benefit from its well entrenched position as an
engineering services provider for its top clients. OPM which was a
concern over FY11 has shown decent improvement in Q2 FY12 and
should improve going forward. Sustained demand in Engineering
segment (70% of total revenues), improving N&CE segment and
protected margin makes us positive on the company. We incorporate
weaker rupee assumptions in our estimates and maintain BUY

MARKET STRATEGY Indian markets :: Kotak Securities

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Preferred picks
Sector Stocks
Automobiles TVS, 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 ITC, GCPL
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation Allcargo Global Logistics, Gateway Distriparks, Mundra Port
Media HT Media
NBFC IDFC, M&M Financial Services
Oil & Gas Cairn India, IGL
Source: Kotak Securities - Private Client Research




MARKET STRATEGY
Indian markets started December on a positive note, in anticipation of
coordinated action by central banks (for a possible solution to the of eurozone
crisis) in EU summit and key policy announcements from Parliament's
winter session on the domestic front. However, the rally was snapped by
policy logjam and renewed fears coming from the euro zone nations.
Sharper-than-expected contraction in IIP and currency depreciation also
impacted markets adversely. On the other hand, RBI's signal of rate hike
pause and decline in food inflation came as positives for the market. US and
European markets remained volatile due to fears of rating downgrades and
lack of comprehensive solution to solve debt crisis. However, ECB's offering
of 489bn euros in 3-year auction provided some respite from the rising
yields of Italian and Spanish bonds.
In the backdrop of a sharp contraction in IIP, RBI kept key policy rates
unchanged in its mid-quarter policy review. It also signaled the end of long
series of interest rate increases and mentioned that from now onwards,
monetary policy actions are likely to reverse the cycle. Food inflation has
also started coming down due to decline in prices of essential items and on
account of high base effect. However, in terms of key policy reforms, there
was disappointment as Government had to put on hold raising FDI limit in
multi-brand retail as well as the Lokpal Bill. It also had to withdraw two
important bills - the Companies Bill and Pension fund Regulatory and
Development Authority bill - due to lack of political consensus on the same.
It did introduce the National Food Security Bill, which has raised concerns
on the fiscal impact of the same.
Markets have been reacting to macro-economic concerns such as growth
slowdown, high interest rates and policy inertia on the domestic front as
well as continued challenges in euro-zone region. On the positive side,
inflation has started tapering down and interest rate cycle is also expected
to reverse from Q1FY13. Valuations are also near the lower end of the longterm
valuations band for the benchmark indices.
However, we believe that, near term market performance will be influenced
more by policy initiatives, currency movement, Q3FY12 results as well as
developments in Europe and US. These headwinds may keep markets under
pressure in the near term. Resolution of these issues is necessary for
markets to stabilize and move up. 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.

Jan 7; News Round-up 􀁠Kotak Sec,

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Economy News
4 Food inflation entered negative territory for the first time in nearly six
years at -3.36%, raising hopes that the Reserve Bank of India (RBI) might
ease back on lending rates soon. (BL)
4 Indian Drug Manufacturers Association (IDMA), the largest body of small
and mid-sized pharma companies, has taken up several concerns of the
pharmaceutical industry with the government. The matters include issues
such as Chinese competition for the Active Pharmaceutical Ingredients
(API) market, pharma pricing and foreign direct investment (FDI) in the
sector. (BS)
4 The finance ministry has decided not to pressurize cash-starved public
sector banks to pay higher dividend to the government this fiscal or to
support its disinvestment programme by buying equity in state-run
enterprises. (ET)
Corporate News
4 State Bank of India has said that its exposure to the ailing private
carrier Kingfisher Airlines has turned a bad loan or a non-performing
asset. SBIs outstanding exposure to Kingfisher is Rs15.8 bn and it will now
have to make a provisioning of Rs2.5-2.8 bn (ET).
4 There is uncertainty whether Indian Hotels will continue to run the Taj
Mahal Hotel near India Gate with the New Delhi Municipal Corporation
(NDMC) mulling the option of inviting fresh bids for the property as the
extended lease for its use ends in October this year (BS).
4 Adani Power, battling authorities to scrap an electricity-sales contract
because of fuel supply uncertainty and unexpected rise in cost of
imported coal, has approached the Supreme Court to terminate the pact
in a case that can make or break mega projects worth Rs1.6 trillion and
their lenders (ET).
4 Cable TV companies Den Networks and Hathway Cable & Datacom
will launch a joint media campaign, beginning with Delhi this weekend,
informing consumers about the need to install set-top boxes by June 30
as mandated by the government (BS).
4 Suzuki Motor Corporation's Indian subsidiary, Maruti Suzuki India Ltd
(MSIL), is going to play an increasingly important role in designing and
developing global vehicles for the Japanese auto company in the coming
years (BL).
4 Hyderabad-based Ramky Infrastructure Limited, an integrated
infrastructure development and management company, has bagged new
orders valued at Rs 10.5 bn across roads, industrial, water and waste
water, power, irrigation and building verticals (BS)
4 SREI Infrastructure Finance Ltd (SIFL) has announced plans to raise Rs
14 bn through a public issue of long term infrastructure bonds. The
secured redeemable non-convertible debentures will be raised in
tranches. The shelf limit for this fiscal is Rs 5 bn and the company opened
subscription for Rs 3 bn which is the first tranche (BL).
4 Oil and Natural Gas Corp (ONGC) has discovered about 4 trillion cubic
feet (Tcf) of gas reserves off the Daman coast,which can produce 7
million cubic meters a day of gas in four years.ONGC has over the past
few years made several discoveries some 50-km off the Daman coast
(ET).
4 J Kumar Infra bagged projects worth Rs 1653 mn for construction of
flyovers in Pune and supply of RMC (BSE).

Infra Insights Project Status Analysis – Q3FY12 (Dec’11 Ending) Centrum Research

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Sector update

Infra Insights

Project Status Analysis – Q3FY12 (Dec’11 Ending)

Trend in investment capex reflects stress in macro environment

m  Drop in new projects and announcements confirm our cautious view on the sector – Q3FY12 CMIE project data backs our view made in Q2FY12 note (link) that Indian construction industry was witnessing a slowdown in activity with ”New Projects” at Rs1,878bn, lower by 28% QoQ and 39% YoY. Announcements for the quarter at Rs55,413bn, showed a decline of 16% QoQ and 5% YoY. However, shelved projects for the quarter at Rs358bn, rose 70% YoY but declined 50% QoQ.

m  Quarterly average of completed projects drops.– One point to note from the analysis is that the quarterly average completion of projects stood at Rs284bn a fall of 53% QoQ and 50% YoY, lowering comfort on revenue growth capability of construction companies. Unless this part of the investment capex picks-up, it is difficult to take a positive view on the growth prospects for the sector.

m  Reasons for declining trend not new to investors - Macro headwinds (domestic and overseas), policy hurdles, fuel (coal) issues for power, delays in environmental clearances, land acquisition and high interest rates among others, have impacted the Indian investment capex. This can also be ascertained from the cautious to negative comments of industry players. The key triggers would be momentum in order-tendering of sectors (ex-Highways), stable government, and regulatory policies among others.

m  No comfort on revenue generation capacity of construction companies – From the investment capex environment analyzed above, we believe, near term challenges remain for growth of construction companies as it is the most linked sector. We too remain cautious on the revenue generating capacity of the construction sector as lower order-tendering and execution visibility pose risks to profitable growth. Our estimates are below consensus and we believe that near term pain (for at least 6months) will persist for the sector.

m  Maintain cautious stance on the construction sector with no triggers in the up-move of investment capex cycle - We are cautious on the impact of macro concerns on construction companies as it is directly related to the investment capex in India. We are evaluating revision in estimates of coverage companies (if required) & ratings (post correction in stock prices) and publish in our Q3FY12 preview note.

Pharma Pill: Monthly Update- Jan 2012: ICICI Securities,

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G r owt h   i n   a c u t e   t  h e r a p i e s ,   a   p l e a s a n t   s u r p r i s e…
Indian pharma market witnessed strong growth of 21.5% YoY in
November 2011, which was higher than 13.7% YoY in October 2011, as
per latest All India Organisation of Chemists & Druggists (AIOCD) data.
We saw a sharp recovery in therapies like anti-infectives (17.9%), GI
(24.6%) and gynaecology (18.2%). These therapies were languishing
around single digit growth in the past few months. Extended monsoon
resulted in higher growth in anti-malarials to 20%. Companies like Pfizer
India (31.2%), Ipca Labs (30.2%), Sun Pharma (28.8%), Glenmark Pharma
(28.6%) and GSK Pharma (23.1%) registered robust growth during the
month. For the 12 months ending  November 2011, the IPM grew by
14.9% compared to 14.5% in October 2011.
During the period, Ranbaxy launched the much awaited generic version
of Lipitor, the world’s largest selling brand. The mood was, however,
dampened by profit sharing agreement with Teva. Ranbaxy also signed a
consent decree with the USFDA to  resolve the pending CGMP issues
with a provision of ~US$500 million.
On the approvals front, Strides once again hogged the limelight with
maximum number of approvals in the consecutive month, thanks to
speedier approvals from the USFDA in injectables category. Other
companies like Glenmark Pharma, Sun Pharma, and Torrent Pharma
received one approval each during the period.
On the R&D front, Glenmark received a setback when Napo Pharma, its
partner in the development of drug for HIV related Diarrhoea terminated
the contract due to lack of regulatory filing. Glenmark was supposed to
launch this product in 140 countries  (excluding regulated market) by
2013.
A report published by US Government Accountability Office during the
month gave a detailed account on shortage of drugs in the US market
and issues related to shortage of drugs. The  report indicates a 200%
increase in drug shortages between 2006 and 2011.
S e c t o r   v i e w
During the month, the healthcare index managed to stay afloat on
account of some defensive buying. Market sentiments remained weak on
account of some really poor macro data, which led to hammering of
frontline stocks. The markets have also started weighing the impact of
currency fluctuation on pharma stocks. Companies like Sun, Divi’s, Cipla,
Biocon, Lupin and Ipca are well placed to reap the benefits of favourable
currency fluctuation on account of nil to very less component of forex
debt. On the other hand, players like Ranbaxy, Jubilant, Aurobindo,
Cadila, Glenmark and Strides will have to make substantial MTM
provisions for restatement of forex debts. Going ahead, we expect forex
to slowly become a major determinant if the pressure on the Indian
rupee persists. The sector, however, is still expected to outperform the
broader market on account of good traction from the US supported by
product approvals, a growing presence in Pharmerging markets and a
strong foothold in India.