India Equity Insights Quarterly
Burden of expectations
We downgrade India to underweight from neutral. Cut our
Sensex targets to 20,700 (from 21,700) for CY13
Prefer defensive positioning; overweight private banks,
exporters, utilities and energy; underweight consumer
discretionary, materials and state-owned banks
Key stock ideas – ONGC, Colgate, Tata Power, Petronet LNG,
ICICI Bank, HDFC Bank, Sun Pharma (an Asia Super Ten
portfolio stock), Hindalco, TCS, Titan and NTPC
India markets positioned for a turnaround – earnings not supportive
FII inflows of USD35bn since January 2012 have made investors overweight India in a
regional context. Unfortunately, corporate earnings are not keeping pace. A slowing
economy and movement of money from corporate and retail India (rational fuel prices and
higher taxes) to the exchequer means earnings will likely disappoint. We have already
seen a 3% cut to earnings in the last two quarters with the bulk of the cuts in the telecom,
materials and industrial sectors. We expect to see further earnings downgrade as the Street
expectation of a 15% corporate earnings growth for FY14 appears too optimistic.
We cut India to underweight from neutral within the region – cut
Sensex target to 20,700
A diminishing window for reforms, slackness in corporate earnings and a more protracted
recovery make us more unfavourable on India within the region. We therefore lower India
to underweight from neutral.
Play exporters (IT services and healthcare), private banks, utilities
and energy
We continue to be defensively positioned, preferring exposures to exporters, private
banks, utilities and energy. We are underweight on discretionary, metals and industrials.
Our preferred picks for the market are Sun Pharma and TCS in exporters, Colgate and
Titan in consumer, Tata Power and NTPC in utilities and HDFC Bank and ICICI among
the private banks. We continue to be negative on the building materials, autos and
industrial sectors.
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