IDFC resesrch- Top buys – Mid cap & small cap

Tech Mahindra
􀀹 Merger with Mahindra Satyam would create an entity with US$2.6bn in sales and 75,000 employees, put it on the global map for large
deals and improve growth prospects.
􀀹 Core competencies of the two firms complement each other (enterprise services of Satyam and TechM’s mobility expertise), creating
a formidable player in the fast-growing enterprise mobility business, a key area of investment for Fortune 500 companies.
􀀹 Valuations of ~10.8x FY13E EPS on pro forma earnings do not completely capture the improved growth prospects of the company.
Eicher Motors
􀀹 Best play on CVs; company poised to gain market share, driven by AB Volvo-validated products and frugal cost structure (efficiency
close to that of 2W names!!!)
􀀹 Offers superior growth visibility in a cyclical industry due to rising HCV market share (up in a weak market), resilient LMD and exports/
outsourcing.
􀀹 CY13/ CY14 to be blow-out years as MDEP project goes live, RE expands capacity, new CV platform hits market and new EM brand is
launched.
Petronet LNG
􀀹 Company to expand capacity 2x over the next two years (Dahej +5m tpa from 10m tpa currently; Kochi +5m tpa) and 2.5x in four
years (Gangavaram +5m tpa).
􀀹 Domestic gas volumes remain muted; demand to keep growing in double digits over the next decade (volumes to grow from ~11m
tpa currently to ~15m tpa by FY15 and ~18m tpa by FY17E).
􀀹 Pricing remains an issue, but with newer tranches of domestic supply coming in at higher prices, acceptability of higher prices would
rise. Slowing Japanese demand and global capacity additions could drive some moderation in spot LNG prices in the next five years.

IDFC: Top buys – Large cap

Bajaj Auto
􀀹 Structurally well-placed; presence in 40 countries with 2W, 3W and, very soon, 4Ws. Poised to benefit the most from uptrading, with
brands like Pulsar and Kawasaki in its stable.
􀀹 Better placed to handle competition. Derives 20% of volumes from the domestic 100cc executive segment; robust launches planned in
key brands to tackle competition.
􀀹 Potential of RE60 not captured in estimates; could be replacement for 3Ws as it caters to demands of both regulators and customers.
Exports to start in 3QFY13.
M&M
􀀹 UVs drive growth while tractors take a pause. XUV and Bolero drive growth in a weak market and mitigate impact of weak tractor demand.
􀀹 Recent recovery of monsoon reduces risk of a tractor collapse.
􀀹 Recent turnaround of Tech Mahindra positive for consolidated financials.
JPA
􀀹 Capex has peaked, gearing expected to reduce.
􀀹 Expect strong cash flows in power (JPVL) due to robust generation at hydro plants and progress of projects under construction. Yamuna
Expressway commissioned; to pave way for real estate launches in new locations along the expressway.
L&T
􀀹 Diversified skill-sets for a range of industries; vendor of choice for large and complex projects.
􀀹 Large and diversified order book.
􀀹 Captures maximum value from most orders due to broad presence in the value chain (e.g., power EPC solutions include manufacturing of
both BTG and BoP components).

India strategy -Recalibration: Top 5 Picks ::CLSA

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Recalibration
India has been the best performing Asian market YTD and we believe the
strong performance would continue as the liquidity driven rally is now
getting the policy support and corporate earnings stability. Any initiative
to improve coal production and power generation, we believe, will further
increase our enthusiasm. CLSA’s global strategist Chris Wood prefers
India on sustained global liquidity conditions, and if domestic retail
investor returns to equity, the risks will be on the upside. We continue to
add more beta to our portfolios and add Tata Motors and Yes Bank to our
top 5 ideas replacing ITC and Dr Reddy’s. The rising crude and potential
delays/lower rate cuts by the RBI will be a negative.
Liquidity rally has moved the valuations back to July level
q With the liquidity driven rally, Indian stock market has now moved back to the July
2011 level, valuations are also similar at 14.5x as time effect offset by earnings
downgrade.
q Recent stock price reactions to bad results etc imply that the investors are now
much more willing to look beyond the near-term, focussing on longer-term trends.
Initial signs of policy level improvement visible
q The Government has certainly moved beyond the policy noise to some concrete
steps (refer to our earlier note: Policy Paralysis no more?). While still a few
uncertainties exist, the direction is clear.
q The possibility of Coal India being able to ramp-up production whether from the
existing mines (relatively easier and could be effective in a year) or the new mines
(production will likely take a couple of years assuming fast-track clearances) can be
rerating trigger for the Indian markets.
q With these policy initiatives and the willingness of the investors to look beyond the
near-term patches makes us more sanguine about the current rally.
CY2012 market returns to be front ended; retail support should
q With primary markets being slow to pick-up, we believe that the CY12 market
returns will be upfronted as easier global liquidity continues.
q Domestic retail investors have been virtually absent from the equity markets for the
last three years (FY10-12) with 0.2% of incremental saving going into equities as
against 5% as the trend prior. A reversion mean (3.5% average over the last 8
years), could bring in US$13-14bn creating potential buffer for equity issuances.
Adding more beta to portfolio
q Corporate earnings trend stabilising (our FY13 Sensex EPS has remained
unchanged at 1,269 over the last 45 days and through the 3QFY12 results season),
and earnings downgrade cycle has ended.
q We raise market target multiple to 14.5x – in line with the last 10 year average to
take the Sensex target to 20,800. Rising international crude prices and possible tax
hike / fuel hike may delay the potential rate cuts by RBI. This could be a risk to
market sentiments which are building in large hopes on rate cuts.
q In line with the view of our global strategist, Chris Wood, who believes in continued
global liquidity, we add more beta to our portfolio. We remove ITC and Dr Reddy’s
from our top 5 ideas and replace with Yes bank and Tata Motors.
q We raise weight on financials by 5 ppts to become OWT. We also raise industrials to
Neutral (+2). Lower pharma by 4 pts to UWT from OWT earlier. Weight in IT also
cut but 2.5ppts but maintain the OWT stance. Reduce staples weights by 2ppts to
increase our UWT further. Also reduce weight in Energy by 2pts to make it UWT.

India outlook 2012:: Nomura research,

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Macro risks near term but
largely discounted, see much
improved second half
We expect growth in India to stay slow, inflation to slowly ease, the
rupee to be weak near term and rate cuts to happen with a lag.
In this environment, we prefer banks and exporters such as IT and
pharma to capital goods and autos. We are also underweight the
consumer sector. We would play the investment cycle through
cement rather than infrastructure.
Our top picks are SBI and Axis Bank on a more benign rate
environment, and exporters like Infosys and Lupin on the weak
rupee. We like Power Grid’s regulated return profile.
Key analysis in this anchor report includes:
• Outlook for economic growth and the investment cycle
• Why we expect the rate-cutting cycle to be back-ended in 2012 if
further rupee pressure disrupts the fall in inflation momentum
• A look at the near-term currency headwinds due to concerns about
capital flows and Europe
• How valuations stack up historically. We see 15-20% market upside
through the year

Top Picks 2012 ::ICICI Securities (pdf link)

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Click here for PDF LINK ICICI Top PICKS



B e t   o n   q u a l i t  y   m i d c a p s   w i t h   b e t t e r   r i s k   r e t u r n   t r a d  e   o f f …
In December 2011, 4600 levels on the Nifty coupled with a |54 on the
exchange rate, the ongoing tough ground realities made the consensus
scary for a further slide on the indices as well as the exchange rate and
register new lows. But only variable, liquidity behaved strangely. This lead
to Indian markets posting their best ever January performance induced by
liquidity and reversal of risk on trade. While after a sharp jump the Indian
markets may consolidate over the next two or three months. Volatility is
likely to get amplified as the markets take cues from domestic events like
the outcome of polls in five states, Q3 GDP number and Budget 2012
(which may provide visibility on reforms). Also, the outcome of events in
the Euro area may add volatility to the markets till March 2012. Apart from
this, clarity on various macro headwinds such as monetary easing (given
the RBI has commenced the loosening process with the recent CRR cut),
direction of commodities and rollover of focus on FY13 earnings outlook
will act as key catalysts for the markets making a move ahead.
In such a scenario, we are recommending select large caps and midcaps
which offer better risk return trade off and should benefit from improved
macroeconomic condition and liquidity.

2012 Year ahead outlook from key brokerage houses • Reliance MF

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2012 Year ahead outlook from key brokerage houses
• Overall stance: Near term cautious but optimistic in the 2HCY12. 2012 may be much better year
than 2011.
• Real GDP growth (%yoy) – Overall muted growth expectations. Consensus expects below 7%
GDP growth in FY12 and around 7% GDP growth in FY13.
• Inflation – Worst of inflation worries are behind. As per consensus, FY13 inflation may be
significantly lower than FY12 inflation
• Policy Rates‐ Consensus expects policy easing to begin in 4QFY12. Rate cuts expectations
between 50 – 125 basis points by FY13.
• INR/USD: Consensus expects INR to gradually appreciate to below 50 levels by FY13 end.
• Corporate Earnings: Earnings expectations for FY13 are remarkably similar with most expecting
around 10% growth. (Consensus expectation for FY13 growth is now below 10%).
• Index targets: Consensus expects around 18000 levels for Sensex by Dec 2012.
• Sector preferences: Mixed preference but indicating adding cyclical tilt to the portfolios in the
2HCY12.

Fairwealth Investment Ideas 2012

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Fairwealth Investment Ideas 2012

Axis Bank TP: 1350


Ashok Leyland TP: 32

 Bajaj Electricals TP: 241

KPIT Cummins TP: 185

JindalSteel TP: 640

Shasun Pharma TP: 90

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.

Deep value holds promise of strong rebound :: Avendus

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TOP PICKS (click on company name below)

Axis Bank

Biocon 

Hindalco Industries

ICICI Bank

IDBI Bank 

Maruti Suzuki 

NCC 

Sanghvi Movers

Shriram Transport Finance 

SKS Microfinance 

Deep value holds promise of strong rebound

Several stocks that fell sharply during 2011 may possess the properties
that could drive an equally large rebound when equities valuations
recover. This was visible in the previous cycle that stretched from 2008
to 2010. During this period, a large number of the initial
underperformers not only recovered lost ground, but their
appreciation was also strong enough to make them outperform the
Sensex from the peak of the previous cycle to the next peak. The
promising underperformers are scattered across sectors and market
capitalization. In this report we put the spotlight on 10 stocks that are
capable of such a rebound – Axis Bank (Buy), Biocon (Buy), Hindalco
Industries (Buy), ICICI Bank (Buy), IDBI Bank (Buy), Maruti Suzuki (NR),
NCC (Buy), Sanghvi Movers (NR), Shriram Transport Finance (Buy) and
SKS Microfinance (Buy).
Beaten down stocks tend to recover value in the next upturn
268 stocks in the BSE500 had underperformed the Sensex during the rapid fall
in the wake of the global financial crisis of 2008. The mean erosion in market
capitalization of these stocks was 58.9%, well above the 45.5% fall in the
Sensex. The rebound during 2009‐2010 saw the market capitalization of these
268 stocks rise by 227.9%, well above the 157.4% rise in the Sensex.
Several outperform across the cycle
123 of the 268 underperformers during 2008 also outperformed the Sensex
from the peak of the previous cycle (Aug08) to the more recent peak in Nov10.
Therefore, a significant portion of the underperformers not only recovered the
value that was lost in the initial phase, but they also more than made up for the
initial losses in the later phase of the cycle.
Dispersed across a range of sectors and market capitalization
Contrary to common perceptions, we find that underperformers were
dispersed across a large number of sectors. In 2008, Engineering (27) and
Financials (27) had the largest number of stocks within the 268
underperformers, followed by IT Services, Metals, Construction and Real
Estate. In 2011, 343 of the BSE500 have underperformed and Financials (46),
Engineering (28), Metals (27) and Construction (23) make up the large part.
The Avendus ‘Deep‐value picks’
In this report we have focused on the factors that provide resilience to these
stocks during the ongoing downturn and those that would facilitate a rebound
in their growth, earnings and valuation over the medium term. We also
estimate the potential ‘worst‐case’ value for the stock under sustained adverse
conditions.



TOP PICKS (click on company name below)

Axis Bank

Biocon 

Hindalco Industries

ICICI Bank

IDBI Bank 

Maruti Suzuki 

NCC 

Sanghvi Movers

Shriram Transport Finance 

SKS Microfinance 

2012: No bull market in sight �� A broader market range… BofA Merrill Lynch

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2012: No bull market in sight
�� A broader market range…
We expect the Indian equities to head lower in 1H2012 led by the falling growth,
worsening domestic macro fundamentals, deteriorating earning profile, slowing
global economy and elevated risk of more adverse outcome from Europe. We
also expect the market to get slightly de-rated, given the Indian equity valuations
are still at premium to peers.
…would provide better trading opportunities
Nonetheless, we see the likely fall in equity prices as a ‘big’ trading opportunity.
The current cycle is proving to be quite similar to 1990’s where markets remained
in a broad trading range during 1994-1999. The long term (5yr) Sensex returns
chart suggests that 2012 may see market record the bottom of the cycle. Though,
a new secular bull market does not appear to be in sight as yet.
The upside to be driven by rate cuts and policy initiatives
We see tough times for markets near term and believe that market could recover
in later part of the year, to end 2012 with a positive return. The recovery would be
triggered by the RBI easing the policy stance, cutting rates and Government
taking policy decisions to kick-start investment spend. In our view, RBI should
start easing from March and lending rates may fall by 150bps during April-
September period.
Strategy: gingerly buy the dips below15K, sell above 18K
Given our view that on top down basis Sensex may fall to 14500 level in 1H2012
and see a recovery to 19K level by the year end, we suggest buying the dips
below 15K and selling above 18K levels. As we expect rate cuts to be a key
theme for the market in 2012, we suggest rate sensitives for trading. However, we
would prefer to play rate sensitives through consumer discretionary, i.e.,
passenger auto, and defensive large private sector banks rather than
infrastructure and real estate.
GDP growth to slow; downgrades likely
We expect FY13 GDP to slow to 6.8% and consensus to cut GDP forecasts over
the next few months. GDP growth in the next few quarters is likely to come even
lower at around 6.5%. A slower GDP will be led by: (a) a slowing global economy,
(b) impact of high rates and (c) slowing investment spend.
Earnings downgrades to continue
We continue to expect earnings downgrades, led by slowing sales and sustained
margin pressure from rising labor and interest costs. We expect the bottom-up
Sensex EPS of Rs1,275 to be downgraded to Rs1,200 (growth of under 10% vs.
e xpectations of nearly 15%).

MNC Stocks – Defensive Value picks :: HDFC Sec

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MNC Stocks – Defensive Value picks
Multinational companies (MNC) have historically enjoyed premium valuations to their Indian counterparts. This is primarily due to their
financial strength, strong parentage, good cash reserves, low debt exposure, asset light model and technological proficiency.
Professional management, transparency in operations and good working capital management aids maintain a safe image. Healthy
RONW / ROCE, good dividend distribution policies and clean financials attract investors. Most of these companies are debt free and
cash rich. Prudent management ensures aset reallocation whenever required and MNCs don’t tend to hold on to businesses/cash only
for pride.
While MNCs are as susceptible to market conditions as their Indian counterparts are, they have greater staying power in adverse
circumstances due to the sheer size and backing of the parent companies. Again, due to the parent companies, they have greater
access to export markets (though, at times, access to different countries is decided by the parent on other parameters). The parent
companies are often their customers too. Thus, overall, the general perception is that MNCs in general offer better value to
shareholders.
For years, MNCs operated in India through subsidiaries. They were forced to list on Indian stock exchanges in the late 70s due to the
enforcement of the Foreign Exchange Regulation Act. Over the years, litigation between MNCs and the state continued over issues like
parent company holdings, royalty paid to the parent, minority shareholder interests and so on. Previously, MNCs were happy holding
51% stake in their listed Indian subsidiaries but over the past few years it has been noticed that they have increased their shareholding
either through creeping acquisitions or open offers. Nestle, Unilever, Siemens, ABB and Vodafone are some such companies that fall
under this category.
The government’s introduction of minimum 25% float in any listed company could demoralize several MNCs from remaining listed on
the Indian bourses. Companies with over 75% stake could make open offers to acquire the remaining shares and thereafter, delist and
in some rare cases, divest shares through negotiated deals or public offers to offload the excess over 75% held by them.
The fact that the parents of Indian MNCs quote at a much lower P/E (except in a few exceptional cases like Glaxo, Hitachi and
Ingersoll) than their listed subsidies in India reflects two things – higher growth potential in India and lack of other investible high quality
stocks in India.
Parent MNC P/E
(trailing 12 months)
Indian subsidiary P/E
(trailing 12 months)
Abbott 19.3 32.6
Glaxosmithkline 45.1 29.1
Hitachi 150.1 22.6
Ingersoll-Rand 34.6 22.4
Kennametal 11.3 18.2
Marui Suzuki 5.0 15.5
P&G 16.9 37.8
Pfizer 15.1 20.5
Siemens 10.4 33.4
Unilever 16.7 32.3
(Source: Yahoo Finance, Capitaline, HDFC Sec Research)
As a result of the several factors listed above, MNC stocks are better placed in poor market conditions. The chart below shows the
performance of the CNX MNC index vs that of the Sensex and the S&P CNX500. While MNC stocks fell as well in the 2008-2009 global
economic crisis, it is evident the fall was subdued. In the upmove too, MNC stocks rose more than the general market. This trend gives
investors the comfort of lower losses and higher gains, a win-win situation. It is evident that investors like investing in MNC stocks
despite their higher valuations. The second chart below shows that the CNX MNC has traded at a premium to the Sensex for most of
the period since its inception and the premium has expanded lately.

Outlook for 2012: Emerging out of a maze:: Antique,

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Foreword
The year CY11 commenced on an uncertain note as dark clouds on our economy re-emerged from international quarters, and domestic factors like inflation, political and policy making
slowly turned adverse. Even then, the consensus was that FY11 growth would be maintained and FY12 growth, while a bit muted would still be encouraging. Broader market indices were
expected to maintain their sluggish/sideways trend and end the year on an encouraging note.
Come December, Murphy’s law seems to be reigning supreme in India. On the macro front, inflation is yet to be tamed (though early signs of respite emerging now) despite our central
bank using most of the tools in its arsenal. The unenviable tightrope walk of RBI has resulted in the high interest rates (inflicting pain on India Inc.) with an imminent danger of demand
slowdown. In conjunction, elevated crude prices and weakening rupee could emerge as a major derailing factor for all budgetary/financial parameters. The waters have been further
muddled by the paralysis on the policy making front resulting in big ticket capex being derailed. Consequently all growth/economic monitoring parameters are exuding negativity.
In this back drop, our markets have undergone a consistent derating along with multiple earnings downgrades. Retardation of earnings growth has been visible and uncertainty is
widespread with most observers taking it as given, that the ongoing global slowdown will have an adverse rub off on us. That brings some pertinent questions to the fore: Are we entering
a secular bear market, or is it just a corrective phase?; Is the deterioration of performance of India Inc. divergent (less/more) from what is being perceived?; The frames of reference have
moved fundamentally, but is it being adequately captured by the markets?
Indications are that our GDP growth will be lower than estimates at the beginning of the year, and mid year review conveys the same. However, the broad consensus is veering towards
7.1-7.2% level and that seems to be achievable. This despite the blip in manufacturing as services and agriculture seem to be on a stable growth path. While demand growth is slowing
down, the fears of demand destruction seem to be farfetched at the current juncture. However, sentiments convey that the same is being considered a distinct possibility.
On the corporate front, data flows indicate that large players sensed the rough road ahead and tightened operations on all fronts i.e raw material/manufacturing costing, leverage,
financial costs etc. While inflation may have become structural along with high interest rates, India Inc. seems to have aligned its operational metrics to these changed frames of reference
much faster that the capital market observers and participants. Hence, most of the numbers flow is usually met with disbelief and skeptics abound on the sustainability of the same.
We at Antique believe that while factors for being a pessimist abound, the stock markets seem to have factored the same to a large extent, much earlier. The consistent downgrade in
consensus earnings estimates for FY12e and FY13e was preempted by the flight of smart money (as usual). While the markets have exhibited a slide on a P/E basis, we believe that a
large part of the same was on account of P/B derating as India inc. was perceived to have softening RoE and risk free returns (G-Sec, Interest rates) were on a rising trend. As both these
anticipated trends fructified and are close to their turning points, a slow reversal of these two key measurable is expected. Thus, we anticipate the markets to exit the calendar year with
better P/B ratio and the rub off on P/E could come later, may be nurtured by slow and grudging earning upgrades by the street in 2HFY13e. However, a long term overhang factor could
be the derailed/deferred capex which could pose a risk to the FY13e and FY14e earnings growth and can prove to be the proverbial spoilsport.
Thus, we are of the opinion that the markets would find its sweet spot at around the P/E level of 14.5-15 and P/B level of 2.6-2.8 for our FY13e earnings
and hence our Sensex target for End CY12e is 18600-19200. However, the route to those levels would be quite tortuous. While there exists a good chance
that the valuation and earnings metrics could get revised upwards, indication of the same would be received post 2QFY13e numbers.

2012 Stock Picks !! See all our top ideas

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2012 Ideas
CLICK on company name below for details

1. BofA ML
2. Kotak Private Banking
3. Kotak Securities
4. Rakesh Jhunjhunwala
5. Morgan Stanley
6. UBS
7. Citi Research
8. JPMorgan
9. Credit Suisse
10. Julius Baer
11. Anand Rathi
12. KRChoksey
13. Antique's Top Picks
14. Hedge Research
15. Avendus Research
16. Economic Times
17. Investment-mantra
18. Fairwealth
19. Reader's Top Picks

CLICK on company name above for details

Outlook – 2012 “Panic - Consolidation - Rally” :: Anand Rathi

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12 Stocks that look good for 2012 are
SAIL, 
DIVIS LAB, 
CAIRN INDIA,
NMDC, 
BEML, 
EIL, 
HEXAWARE, 
IPCA, 
HUL, 
INDIAN HOTELS, 
WIPRO and 
OBEROI REALTY 

which can be bought in panic

Outlook – 2012 “Panic  - Consolidation -  Rally”

                                              

2012 OUTLOOK - Fundamentals  

"        Year 2012 would be year of consolidation after making panic low, sectors like Infrastructure and Realty can surprise market while IT & Pharma will be very defensive in the year. The rupee weakness (up to levels 55 and may be above that to 59) is to continue which may further impact positively to the export oriented businesses.

"         Stocks which have corporate governance issues, pledged shares, ECB loans or FCCB maturities may witness pressure.

"         On the other hand Cash-Rich PSU stocks with lower debt on books and good quality management stocks will be preferred.

"         After downgrades and a view of India being replaced by Indonesia in BRICs, its just a matter of time as after this bear phase rally we will enter the consolidation phase in 2012 and later 2013, market may see out performance.

"         Gradually the domestic situations will also improve with government action taking place, softening of inflation and reversing of interest rates will support the out performance.   

2012 OUTLOOK - Technical 

"        Sensex to move in the range of 11500 – 17700.

"         Nifty to move in the range of 3500 – 5400.

"         Nifty and  Sensex has closed below 200WMA on 3 continuous weeks which normally leads to more than 20% correction.

"         This bear phase which will see very sharp and short lived correction may see a low of 3500 in Nifty and 11500 in Sensex. This may be experienced H1 CY2012.

"         Later after the bear phase the market may see some consolidation phase followed by a rally which may see a high of 5400 in Nifty and 17700 levels in Sensex. These levels are possibly seen in the H2CY12.

"         This rally will be mainly lead by the top 100 market cap stocks and cash rich companies mainly from PSU and MNC basket.     

12 Stocks that look good for 2012 , which can be bought in panic 

SAIL, DIVIS LAB, CAIRN INDIA, NMDC, BEML, EIL, HEXAWARE, IPCA, HUL, INDIAN HOTELS, WIPRO AND OBEROI REALTY

UBS India – Outlook 2012 ::Most & Least Preferred Stock Ideas for 2012

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Most Preferred Stock Ideas for 2012

Bharti Airtel

Coal India

Federal Bank

Idea Cellular 

Mahindra & Mahindra

Least Preferred Stock Ideas for 2012

Bank of India

HCL Technologies

LIC Housing Finance

Tata Motors 

Headwinds provide buying opportunity
�� Summary
India is in the midst of a cyclical slowdown that is further complicated by stubborn
inflation and a rapidly depreciating currency. Corporate earnings growth is likely
to slow to about 10% YoY as earnings momentum continues to be negative. In the
event of large-scale foreign institutional investment (FII) outflows, we estimate
20% further downside to Indian equity markets. However, we would view this as
an attractive buying opportunity as India’s structural story is strong and
underpinned by demographic advantages.
�� Inflation, policy and rates in 2012
We expect inflation to slow to 7% by March 2012 and remain in the 6-7% range
thereafter. In 2012, we expect cuts of 100bp in the official repo rate starting in the
March quarter. We expect the USD-INR rate to weaken to 55 by end-2011 and
appreciate in stages to 51 by end-2012 as it prices in ‘inflation-stabilisation’ then
‘growth recovery’.
�� Key Catalysts
We think falling inflation followed by a loosening monetary policy that revives
economic growth is likely to be the key catalyst to watch out for. Other potential
catalysts include the government making progress on reforms and fiscal discipline
in the February 2012 budget. Potential negative catalysts include stubborn
inflation, higher crude oil prices, further rupee depreciation and continuing policy
paralysis.
�� Most & Least Preferred Stock Ideas for 2012
Most preferred: Bharti Airtel, Coal India, Federal Bank, Idea Cellular and
Mahindra & Mahindra. Least preferred: Bank of India, HCL Technologies, LIC
Housing Finance and Tata Motors.

Kotak's top 5 picks for 2012

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HDFC Bank

One of the largest private sector banks has been a showcasing consistency in its earning growth. It has grown around 30% y-o-y in the past 38 quarters.

In the September quarter, its standalone net profit rose 31.49% to Rs 1,199 crore on y-o-y basis. It has consistently delivered one of the highest CASA mix in the industry.

Its CASA mix remained healthy at 47.3% at the end of Q2FY12, despite the rise in FD rates in last few quarters.

Valuations: P/ABV - 3.1x FY13.

Infosys

The IT bellwether stock replaced Mukesh Ambani led Reliance Industries as the number one stock in the BSE Sensex and the NSE Nifty weightage wise in December.

Kotak remains positive on the medium-to- long-term strategy of the company. It  also witnessed a management change as SD Shibulal took over as the new CEO.

Management has reiterated its long term commitment to increase the proportion of non-linear revenues. Kotak concur with the management's view that this is necessary to ensure profitable growth, while providing more value to customers.

Valuations: PE - 16.8x FY13

ITC

ITC has a long track record of high market share in the cigarette business. Coupled with pricing power, this creates an improving profit profile, and high visibility in revenue and earnings growth for the segment.

Tobacco constitutes only 15% of India's consumption pie; which explains ITC's entry in the space. ITC's products show encouraging trends in market share, creating portents for profitability toward the end of FY13.

Over a cycle all other businesses of ITC are self-sustaining, and gel strategically with growth objectives of the company.

Valuations: PE - 21.8x FY13E

IRB Infra

This infra company is an experienced player in road Built-operate-transfer (BOT) segment and is likely to benefit from upcoming project awarded in road segment.

The company has a strong order book of Rs 9,600 crore which can drive growth in revenues at a CAGR of 36% between FY11-FY13.

Valuations: PE of 9.4x FY13

Cummins India

The Pune based company is one of the largest diesel and natural gas engine manufacturers for power generation, industrial and automotive markets. It is well poised to benefit from recovery in the infrastructure spending in the country.

It has recently set up a greenfield facility in Phaltan near Pune.  Commencement of this mega production site is likely to ease out capacity constraints and would add to cash flow generation.

Valuations: PE 14x FY13E

India Contenders & Defenders :: Contenders outperform amid macro uncertainty 􀂄BofA Merrill Lynch,

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India Contenders & Defenders
Contenders outperform amid
macro uncertainty
􀂄 Contenders beat the markets
The India Contenders (-13.7%) struggled last month as equity markets retraced
amid European crisis and weakening rupee, but still managed to outperform the
MSCI India index (-16.0%) by +2.3% and the India Defenders (-23.8%) by +10.0%.
Implied Sector Allocation favours Discretionary
Our Implied Sector Allocation model is most overweight Consumer Discretionary
and Health Care, and most underweight Financials, Materials and Industrials.
Last month, the model increased the overweight in Health Care at the expense of
Financials. This sector tilts matches with our new Asia Pac Country-Sector
allocation recommendations.
New India Contenders: Hero Motorcorp, Raymond
The new India Contenders are Hero Motorcorp, and Raymond. The longest
standing Contender is Bajaj Auto (16 months). The other India Contenders are
Dish TV India, HDFC Bank, LIC Housing Finance, Petronet LNG, Satyam
Computer, Tata Consultancy Services, and Titan Industries.
New India Defenders: JSW Steel, Sesa Goa
The new India Defenders are JSW Steel, and Sesa Goa. The longest standing
Defender is Steel Authority of India (15 months). The other India Defenders are
Crompton Greaves, Hindalco Industries, Housing Development & Infrastructure,
Reliance Communications, Sterlite Industries (India), Tata Motors, and Unitech

Equity Strategy – 2012 :: KRChoksey

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Executive Summary
• We have entered sixth phase of the market cycle. In this phase, we have seen higher level
of capitulation , intense FII selling and significantly decline in volume in deliverable segment
which is generally operated by investors community. Our study reveals that market forms
bottom in ~ 14 months from previous peak and it rally 25% from the bottom ~ 3.-4 months.
• Economic cycle is likely to turn relatively favorable in next 6-12 months led by reversal of
monetary policy cycle, policy reform process speed up during Budget 2012, encouraging
macro data flow from US economy.
• Sectoral performance data suggest outperformance in defensive sectors such as FMCG,
Pharma is followed by outperformance high growth sector viz. Auto, Banks, capital goods. We
believe large global institutional investors would change their sectoral weights led by
improving operating environment and rotation trade possibility in global equity portfolio.
• Based on our market cycle findings, we are overweight on infrastructure, capital goods,
banks, auto and Housing and underweight on information technology, commodities, energy,
FMCG and Pharma.
KR Choksey’s Super 11 stocks for 2012
L&T, IRB Infra, Mundra Ports, IDFC, ICICI Bank, Axis Bank, Indusind Bank, BHEL, Tata
Motors, Bajaj Auto and HDFC Ltd.

India Year Ahead 2012:: Will get worse before it gets better �� BofA Merrill Lynch,

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India Year Ahead 2012
Will get worse before it gets
better
�� Sell year-end rally; tough markets over next six months;
expect index to correct to 14,500
India has been the worst-performing market this year, falling a third in US$ terms.
Peaking inflation and a consequent pause in RBI rates are a positive which will
likely help the traditional December rally. However, we continue to expect a tough
market over the next six months and expect a correction of the Sensex to 14,500
as growth concerns take center-stage:
1. GDP growth to slow; downgrades likely: We expect FY13 GDP to slow to
6.8% and consensus to cut GDP forecasts over the next few months. GDP
growth in the next few quarters is likely to come even lower at around 6.5%.
A slower GDP will be led by: (a) a slowing global economy, (b) impact of high
rates and (c) slowing investment spend.
2. Earnings downgrades to continue: We continue to expect earnings
downgrades, led by slowing sales and sustained margin pressure from rising
labor and interest costs. We expect the bottom-up Sensex EPS of Rs1,275 to
be downgraded to Rs1,200 (growth of under 10% vs. expectations of nearly
15%).
3. Valuations will see slight de-rating: Based on analysts’ forecasts, markets at
13x one-year forward PE are at a slight discount to long-term averages. Slow
down in GDP and earnings growth as well as falling RoEs will likely lead markets
to trade lower. Secondly, on a relative basis, India trades at a 27% PE premium
to GEM markets, higher than a 10-year average of 17%.
Markets stop panicking when policymakers start panicking;
year-end index 19,000
The good news is that we could get some positive returns in 2012 if policymakers
take steps to reverse the economic slowdown.like a) aggressive rate cuts by RBI:
we expect rate cuts from April 2012 (though slow given stick inflation); markets
typically rally 3-6 months after the rate-cut cycle starts, and (b) policy reform by
the Government.
Sector Overweights: Pharma, autos and banks
We play a mix of defensives (through pharma rather than staples) and consumerrelated
rate sensitives through autos and private sector banks.
Top Buys: Sun Pharma, Lupin, Maruti, HDFC Bank, ICICI Bank
Top Underperforms: Bajaj Auto, Tata Steel, Ambuja Cement
Top Mid Cap Buys: Apollo Tyres, Havells, Exide, Dish Tv, Manappuram