Indian Equity to be Best Asset Class in 2012: Escorts Mutual Fund

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Review for 2011

CY11 has been the second worst year after 2008 in the history of Indian Markets with nifty falling in rupee and USD terms by 25% and 44% respectively. The low rung stock witnessed heavy selling with BSE mid cap and BSE small cap falling by 34% and 42% respectively. The steep fall in market has been a big blow for FII’s portfolio and they remained net sellers of Rs. 2889 crores of CY11. The key challenges which led to massive underperformance were mix of international factors like EU financial crisis, global shifting of investment risk, slower than expected global growth etc and domestic factors like lack of reforms, sluggish demand, high inflation and interest rates, slowing capex and mounting currency risk.

Outlook for 2012

We expect 2012 to be different than 2011 as global factors matter less and domestic factors will become a key market driver (India’s correlation with global markets to weaken). On Domestic front, we expect key themes in play would be Reforms which should move forward post election in March, allowing foreign national to invest directly in stock market would help to meet the current account deficit woes and deflationary outcome from EU to help ease commodity pressure.   On international front, US would continue to be on extended deleveraging cycle in spite of positive economic indicators. In EU, ECB continue to make efforts to ease the liquidity situation of European Banks but going forward Investors should remain cautious in first half of 2012 as European countries have a combined EUR 1.1 trillion of government debt maturing in 2012.  The Indian Market is trading at Market capitalization/ GDP of 50% today which had reached 160% in early 2008. The corporate profitability has been depressed due to cost pressure and rising interest rate which we expect to reverse in next 18 months due to impending monetary easing.  On Valuation, the broader markets are today nearing historic lows and overall market is trading at attractive valuation. We suggest to invest in Indian equities at this stage as markets has taken into price most of the negatives and market psychology points to extreme pessimism which indicates for nearing bottom formation. 

Regards,
Archit Singhal
Fund Manager- Equity
Escorts Mutual Fund

BSE, Bulk deals, 20/1/2012

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Deal Date	Scrip Code	Company	Client Name	Deal Type *	Quantity	Price **
20/1/2012	531448	ARROW SECURI	ADVANCE INDIA SHARES AND SECURITIES PRIVATE LIMITED	B	40000	17.29
20/1/2012	531448	ARROW SECURI	AANIR SHARES SERVICES	B	54000	17.38
20/1/2012	531448	ARROW SECURI	ANUJ GARG	S	40000	17.29
20/1/2012	531448	ARROW SECURI	DINESHKUMAR HARIBHAI PATEL	S	52500	17.38
20/1/2012	526187	Ashram Online	VANDANA JAIN	S	76000	2.71
20/1/2012	532435	Asia HR Tech	KUNAL ZAVERILAL DEDHIA	B	50000	5.60
20/1/2012	532435	Asia HR Tech	M SARASWATHY	S	100000	5.55
20/1/2012	511742	Chokhani Sec	R R CHOKHANI	B	225000	9.75
20/1/2012	511742	Chokhani Sec	CHOKHANI FINANCIAL & INVESTMENT CONSULTANCY SERVICES PVT LTD	S	225000	9.75
20/1/2012	531270	Dazzel Conf	YOGESHKUMAR SURESHBHAI PARMAR	B	838673	3.56
20/1/2012	531270	Dazzel Conf	SARWANKUMAR DEVIDUTT SARAF	B	750000	3.57
20/1/2012	531270	Dazzel Conf	NARESHKUMAR KISHANLAL SARAF	B	750000	3.57
20/1/2012	531270	Dazzel Conf	YOGESHKUMAR SURESHBHAI PARMAR	S	919890	3.57
20/1/2012	531695	Dhvanil Chem	DHARMENDRA GHANSHYAMBHAI MAKWANA	B	40000	32.18
20/1/2012	531695	Dhvanil Chem	GANESH BHAGOJI KHAIRE	S	34100	32.13

FII DERIVATIVES STATISTICS FOR 20-Jan-2012

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FII DERIVATIVES STATISTICS FOR 20-Jan-2012
	BUY		SELL		OPEN INTEREST AT THE END OF THE DAY
	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores
INDEX FUTURES	188788	4734.91	167639	4196.12	677237	17039.22	538.79
INDEX OPTIONS	702532	17444.37	667159	16601.72	1591003	40135.08	842.65
STOCK FUTURES	243547	6427.60	226745	6047.45	1129444	29718.94	380.15
STOCK OPTIONS	36770	892.34	37426	910.73	65863	1738.47	-18.39
						Total	1743.20

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Categories Turnover (BSE) (Rs. crore) Clients NRI Proprietary Trade Data

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Categories Turnover (BSE)

(Rs. crore)
	Clients			NRI			Proprietary
Trade Date	Buy	Sales	Net	Buy	Sales	Net	Buy	Sales	Net
20/1/12	1,762.61	1,806.14	-43.53	1.69	1.30	0.39	675.03	656.54	18.49
19/1/12	1,622.51	1,677.05	-54.53	0.35	0.52	-0.18	575.78	540.33	35.45
18/1/12	1,709.60	1,681.51	28.09	2.16	0.30	1.86	586.40	589.19	-2.80
Jan , 12	22,961.14	23,179.10	-217.97	12.26	8.72	3.54	8,118.05	7,895.21	222.84
Since 1/1/12	22,961.14	23,179.10	-217.97	12.26	8.72	3.54	8,118.05	7,895.21	222.84

20/1/12: FII & DII Turnover (BSE + NSE) (Rs. crore)

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FII & DII Turnover (BSE + NSE)

(Rs. crore)
	FII			DII
Trade Date	Buy	Sales	Net	Buy	Sales	Net
20/1/12	3,509.75	2,689.91	819.84	1,221.68	1,836.47	-614.79

NSE, Bulk deals, 20-Jan-2012

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Date Symbol Security Name Client Name Buy / Sell Quantity Traded Trade Price / Wght. Avg. Price Remarks 20-Jan-2012 GREENPOWER Orient Green Power Co Ltd ASHISH DHAWAN BUY 25,24,800 12.00 - 20-Jan-2012 GREENPOWER Orient Green Power Co Ltd CITIGROUP GLOBAL MARKET MAURITIUS PVT.LTD. SELL 27,88,752 12.00 - 20-Jan-2012 GTL GTL Limited CROSSEAS CAPITAL SERVICES PVT. LTD. BUY 5,90,190 48.12 - 20-Jan-2012 GTL GTL Limited CROSSEAS CAPITAL SERVICES PVT. LTD. SELL 5,90,190 48.29 - 20-Jan-2012 HDIL Housing Development and I CLSA (MAURITIUS) LIMITED SELL 25,54,602 81.60 - 20-Jan-2012 IBREALEST Indiabulls Real Estate Li MERRILL LYNCH CAPITAL MARKETS ESPANA S.A. SVB BUY 28,53,122 63.09 - 20-Jan-2012 IFCI IFCI Ltd. ADROIT SHARE & STOCK BROKER PVT. LTD. BUY 43,92,708 25.08 -

Page Industries - The right fit; visit note;:: Edelweiss

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Page Industries (PAG IN, INR 2,496, Not Rated)

We recently interacted with the management of Page industries (Page), one of the leading manufacturers of men’s and women’s innerwear in India. With focus on branding, the company has been able to garner 21% market share in men’s innerwear and 12% in women’s wear with a strong nationwide distribution network. It has a strong balance sheet, steady return ratios (52.2% ROAE and 41.2% ROCE in FY11), strong dividend payout, besides robust free cash flows.

Strong brand positioning with healthy market share

Globally, Jockey is positioned as a premium brand and in India Page has been successful in positioning it as an aspirational brand by maintaining high quality standards and through brand building exercise. Page is a leading brand with 21% market share in men’s and 12% market share in women’s innerwear. The company has an integrated manufacturing process, ranging from yarn knitting to finished products, with an installed capacity of 87mn units, likely to expand to 136mn units over the next two years. In July 2010, the company renewed its licencing agreement with Jockey USA, which makes Page the exclusive licencee to manufacture and distribute JOCKEY® brand of products until December 31, 2030, with UAE being added to the list.

Strong distribution gives edge over competition

Page has a well-channeled distribution network of over 400 distributors and around 20,000 retail outlets spread across 1,100 cities of India. The company is increasing focus on tier 2 and 3 cities as these are at an an early stage of evolution towards branded market. It sells products directly to large format stores like Shoppers Stop etc., and balance sales are done via distributors. The company pays around 11% margin to distributors and around 25-30% margin to retailers, thereby creating significant entry barriers for competition.

Outlook: Positive

With strong brand positioning and distribution network, we believe Page is poised for growth over the next few years. We do not have a recommendation on the stock.

Result Update MindTree Limited Reco: ACCUMULATE ::Emkay

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Result Update

MindTree Limited Reco: ACCUMULATE CMP: Rs 449 Target Price: Rs 500 Continuing to deliver along thesis, raise TP to Rs 500 ·      MindTree’s results vindicate thesis on improving op performance. While rev at US$ 104 mn were tepid, mgns improved by ~440 bps QoQ aided by weak INR, ahead of est ·      Op metrics show mixed. Improvement in client mining with top 1/5/10 clients growing by 20/12/7% QoQ ·      Rev growth bolstered by one time transition income as vol growth remains anemic (-0.8% QoQ). Momentum in IT Svcs (+6.6% QoQ) continue while PES remains weak (-5.4% QoQ) ·      Raise FY12/13E EPS by 18%/12% to ~Rs 48.4/50.4 driven by lower currency resets (factor in Rs 49.5/$ for FY13). Retain ACCUMULATE, TP Rs 500 (V/s Rs 450 earlier)

Reliance Capital - AMC stake sale: Raking in the moolah :: Edelweiss

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Reliance Capital will offload 26% stake in its asset management business (RCAM) to Nippon for INR14.5bn (~USD285mn) thereby valuing this business at INR56bn (~USD1.1bn) or INR225 per share. We were ascribing a value of INR45bn (INR185 per share) to this business in our SOTP fair value (~20% lower than the deal value).

Deal valued at 6.4% - higher compared to the past few deals

RCAM had AUM of INR870bn as of December 2011 (MF at INR843bn, PMS at INR18bn and offshore AUM at USD180mn); consequently the deal values the company at 6.4% of December, ‘11-end AUM. The valuation seems to be on a higher side as compared to the past few deals.

Impact – Directionally positive

We have been highlighting since past few quarters that stake sale in operating businesses will be a key trigger for the stock. This deal will be directionally positive as the management has been guiding for a stake sale since long. It also needs to shore up the capital base to scale up growth in other businesses. The deal will be subject to necessary regulatory approvals which the management expects to come through within three months.

Earlier, Nippon Life had acquired 26% stake in Reliance Life (held directly and indirectly by Reliance Capital) for USD680mn, pegging the value of its life insurance venture at USD2.6bn (INR468/share) - against our valuation estimate of USD1.4bn. (INR260/share).

Result Update: Kajaria Ceramics, HCL Technologies, Chambal Fertilisers & TCS :: Emkay

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Result Update

Kajaria Ceramics Reco: BUY CMP: Rs 109 Target Price: Rs 143 Topline growth continues; re-iterate BUY ·      Q3 FY12 results were in line with our est. Revenues grew by 38% yoy to Rs 3.5bn while EBITDA grew by 41% yoy to ·      Rs 561mn. Company reported PAT of Rs 211mn, 20% yoy ·      Despite intensifying cost pressures in the form of increase in gas & other input costs, rupee depreciation, Kajaria has been able to improve margins 40bps yoy/80bps qoq to 16.0% ·      Management expects to clock 25% topline growth over the next 2 years and has set target of Rs 20bn by FY14.  EBITDA margins are likely to remain around 15-16% ·      We expect inorganic growth to remain the thrust area for management supported by healthy balance sheet. Reiterate BUY keeping FY12E / FY13E est of Rs 11.1/14.3 intact HCL Technologies Reco: HOLD CMP: Rs 425 Target Price: Rs 430 Decent show, retain HOLD ·      HCLT reported in line op performance with revenues at US$ 1,022 mn (+2% QoQ, +3.7% in c.c terms) and margins improving by ~140 bps QoQ to 18.1% aided by weak currency  ·      Core IT Svcs see a 3.8% QoQ (+5% vol) growth while IMS saw an unexpected 3% seq decline. Op metrics performance decent with US/Europe growing by 7.4%/2.7% QoQ     ·      BFSI, Manufacturing grow by 2.8/3.7% QoQ. Co announces 18 deal wins with a TCV of US$ 1 bn+. Cash generation improves with CFO’s at US$ 132 mn (70% of op profits) ·      Tweak FY12/13E EPS marginally lower by 0.8%/0.5% to Rs 34/38.5 as we cut our US$ revenue estimates modestly. Retain HOLD with an unchanged TP of Rs 430 Chambal Fertilisers Reco: ACCUMULATE CMP: Rs 79 Target Price: Rs 98 Operating results – better than estimates ·      Results were above est with APAT of Rs 862mn (adjusted for deferred tax liability in shipping of Rs 929mn) -5% yoy, sales Rs 18 bn, +32% yoy. Reported PAT stood at loss of Rs 12mn ·      Shift from tonnage tax in shipping to normal tax regime to reduce tax rates under weak environment resulted in deferred tax liability of Rs 929mn in Q3FY12 ·      All segment results were encouraging while trading margins at 6% (EBIT Rs 482mn) was positive surprise. Lower losses in textile and shipping too contributed to higher profit ·      Change in tax policies may reduce effective tax rates by 4-5% depending on shipping business performance. Maintain FY12/FY13 est at Rs 9.0 / 8.9 and reiterate Accumulate Tata Consultancy Services Reco: HOLD CMP: Rs 1,105 Target Price: Rs 1,075 Op performance fails to enthuse, retain HOLD ·      Dec’11 results tad misses est with rev at US$ 2.6 bn (+2.4% QoQ, +4.5% in c.c terms), Mgns up by ~190 bps QoQ(V/s est +240 bps). Inline profits aided by lower forex losses/ taxes ·      Op metrics weak with vol growth at 3.2% ( Infy +3.1% QoQ). Top 5/10 clients flat sequentially while top client rev grow by ~2.3% QoQ. Headcount addition strong at ~12k during the qtr ·      We cut our rev est.( model in 14.2%/16% YoY US$ growth V/s 16/17% earlier) driving a 3.4/4.2% cut in our FY13/14E earnings to Rs 63.2/71 (V/s Rs 65.4/74 earlier)  ·      Dec’11 qtr marks the 2nd qtr of op performance convergence with Infy. We see risks to TCS’s premium valuation multiples. HOLD with TP cut to Rs 1,075 (V/s Rs 1,110 earlier)