Preferred picks -Dec 2014 :: Kotak Sec, links

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MARKET STRATEGY
Global factors were in focus during the month of November. The highlight
was the sharp fall in crude prices to under $70 / barrel, which provided
impetus to our markets. Additional liquidity poured in from Japan, which
announced further stimulus to prop up its sagging economy. China also
jumped in by announcing a surprise rate cut. Expectations of a full blown
sovereign bond-buying program from euro-zone also propped up global
sentiments.
On the domestic front, better-than-expected GDP growth numbers and
moderation in inflation also provided further tailwinds to the markets. IIP
growth in September was better at 2.5% than 0.48% seen previous month,
likely indicating that economy has bottomed out. GDP rose 5.3% in the
second quarter of FY15 while CPI in October moderated further to 5.5%
from 6.5%. Recent fall in global commodity prices provide an opportunity to
contain inflationary expectations. Correspondingly, RBI adopted a dovish
stance towards interest rates while maintaining status quo on the interest
rates.
In the near term, apart from crude, focus will consistently remain on further
reform initiatives (winter session of the Parliament). Disinvestment plans of
government in the next couple of months will be closely watched.
Valuations at 16.2x one-year forward consensus earnings (FY16) are slightly
higher than the long-term average. We believe that, affirmative action on
reforms by the Government will be needed for maintaining confidence in
the markets. This will, in turn, lead to a further re-rating of the markets in
the medium-to-long term.
We expect further reforms by the Government and remain positive on the
domestic infrastructure and cyclical sectors over the medium-to-long term.
However, after the steep run-up in several of these stocks, we recommend
sticking to quality and advise selectively investing in stocks having strong
balance sheets and ethical managements. On the other hand, we are
positive on select export oriented stocks based on improving demand
scenario in developed economies like USA. Most of the consumption -
related stocks can be bought at declines. We expect rupee to remain in a
range. Key risks to our recommendation are geo-political concerns globally,
decline in foreign inflows, sharp currency movements and spike in oil
prices.

Preferred picks
Domestic Cyclicals / Investment oriented sectors
Sector Stocks
Automobiles Maruti Suzuki, Tata Motor
Banking, NBFCs ICICI Bank, IDFC
Capital Goods, Engineering L&T, Greaves Cotton, AIA Engg, Carborundum
Universal, Blue Star
Cement, Construction, Real Estate Grasim, Shree Cements, IRB Infra, Kajaria Ceramics
Logistics, Transportation Guj Pipavav Port, Allcargo
Oil & Gas Oil India
Paints Kansai Nerolac
Source: Kotak Securities - Private Client Research
Export oriented / Defensive sectors
Sector Stocks
IT TCS, Geometric, KPIT
Media Dish TV
Source: Kotak Securities - Private Client Research

http://www.kotaksecurities.com/pdf/dmb/MorningInsight04122014ad.pdf