Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Collateral damage
Enhanced global risk aversion, led by worries on growth, the US
downgrade by S&P and lingering sovereign concerns in Europe, will
create some collateral damage for Indian stocks in the near-term. We see
earnings downgrades through 2011, as the domestic slowdown becomes
more broad-based. Vulnerable stocks are those with significant pledges,
or higher leverage to global factors, short on funding or limited valuation
support. A reversal in monetary policy stance can be a positive catalyst.
Global risk aversion - US downgrade just one factor
q The direct impact of the US downgrade on the Indian financial sector is limited; our
Chief Economist believes that, near-term, UST yields may actually fall.
q With the S&P downgrade looming for a while, regulators/investors would be better
prepared to avert disruptions. Central Banks have little options in the near-term.
q However, global risk aversion will remain high, given shaky US growth economic
data, sovereign concerns in Europe and enhanced uncertainty on the US$.
Domestic growth slowdown set to become broad-based
q The slowdown in domestic growth (CLSA has 7.5% GDP growth in FY12, versus
8.5% in FY11) has been largely due to macro-political dampeners on investment.
q Consumption is starting to slow and a double dip in global growth can lead to a
visible slowdown in growth in 2Q, given that exports had remained buoyant.
q Risk aversion will push-up cost of capital, as concerns on capital outflows and
slippage in fiscal deficit rise.
q EPS cuts in global commodity plays, banks - which are significant contributors to
the earnings pool - will see downgrades to market earnings sustain through 2011.
Who’s vulnerable? Where to hide?
q Stocks with high % of pledged shares can see a disproportionate selldown amid
weak/volatile markets. United spirits, Unitech and Suzlon have high % pledge.
q Global plays - commodity stocks, exporters will see revenues, margins come under
pressure. In addition to industrials like Reliance, Hindalco, Tata Motors, Sterlite, IT
stocks are vulnerable, given that stocks had held up on perception of their
'defensiveness' in a slowing domestic economy. We have U-PF on all frontline
stocks, including TCS, Infosys.
q Cash short stocks - leveraged companies, stocks that are highly free cash negative
or have big redemptions coming up. Property, infrastructure, airlines, leveraged
industrials like DLF, Jet Airways, Tata Steel, JSW Steel are likely to be weak. Banks
& financials will reflect increased risk of NPLs, growth. We have an U-WT on Banks
in our model portfolio, but private banks are better positioned.
q Stocks where valuation support may be limited, following strong performance.
Mundra Port, L&T, Titan, Bharti look vulnerable.
q We do see relatively high earnings resilience for many pharma companies,
some utilities and plays on rural consumption. For some consumer staples, benefit
from fall in input commodity prices will help.
q Dr Reddy's, Lupin, NTPC, Powergrid, GAIL, Hero Honda, Coal India, M&M, ONGC,
HUL, should provide better downside protection for the near-term.
Resilience will emerge
q India’s stronger domestic consumption dynamic will support growth at c.7%.
q The RBI may change course on rates very soon, given that inflationary pressures,
which have been at the core of the current hawkish monetary policy stance, will
ease as prices of global commodities, particularly oil, come off. However,
secondary market yields/borrowing costs may remain sticky for longer.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Collateral damage
Enhanced global risk aversion, led by worries on growth, the US
downgrade by S&P and lingering sovereign concerns in Europe, will
create some collateral damage for Indian stocks in the near-term. We see
earnings downgrades through 2011, as the domestic slowdown becomes
more broad-based. Vulnerable stocks are those with significant pledges,
or higher leverage to global factors, short on funding or limited valuation
support. A reversal in monetary policy stance can be a positive catalyst.
Global risk aversion - US downgrade just one factor
q The direct impact of the US downgrade on the Indian financial sector is limited; our
Chief Economist believes that, near-term, UST yields may actually fall.
q With the S&P downgrade looming for a while, regulators/investors would be better
prepared to avert disruptions. Central Banks have little options in the near-term.
q However, global risk aversion will remain high, given shaky US growth economic
data, sovereign concerns in Europe and enhanced uncertainty on the US$.
Domestic growth slowdown set to become broad-based
q The slowdown in domestic growth (CLSA has 7.5% GDP growth in FY12, versus
8.5% in FY11) has been largely due to macro-political dampeners on investment.
q Consumption is starting to slow and a double dip in global growth can lead to a
visible slowdown in growth in 2Q, given that exports had remained buoyant.
q Risk aversion will push-up cost of capital, as concerns on capital outflows and
slippage in fiscal deficit rise.
q EPS cuts in global commodity plays, banks - which are significant contributors to
the earnings pool - will see downgrades to market earnings sustain through 2011.
Who’s vulnerable? Where to hide?
q Stocks with high % of pledged shares can see a disproportionate selldown amid
weak/volatile markets. United spirits, Unitech and Suzlon have high % pledge.
q Global plays - commodity stocks, exporters will see revenues, margins come under
pressure. In addition to industrials like Reliance, Hindalco, Tata Motors, Sterlite, IT
stocks are vulnerable, given that stocks had held up on perception of their
'defensiveness' in a slowing domestic economy. We have U-PF on all frontline
stocks, including TCS, Infosys.
q Cash short stocks - leveraged companies, stocks that are highly free cash negative
or have big redemptions coming up. Property, infrastructure, airlines, leveraged
industrials like DLF, Jet Airways, Tata Steel, JSW Steel are likely to be weak. Banks
& financials will reflect increased risk of NPLs, growth. We have an U-WT on Banks
in our model portfolio, but private banks are better positioned.
q Stocks where valuation support may be limited, following strong performance.
Mundra Port, L&T, Titan, Bharti look vulnerable.
q We do see relatively high earnings resilience for many pharma companies,
some utilities and plays on rural consumption. For some consumer staples, benefit
from fall in input commodity prices will help.
q Dr Reddy's, Lupin, NTPC, Powergrid, GAIL, Hero Honda, Coal India, M&M, ONGC,
HUL, should provide better downside protection for the near-term.
Resilience will emerge
q India’s stronger domestic consumption dynamic will support growth at c.7%.
q The RBI may change course on rates very soon, given that inflationary pressures,
which have been at the core of the current hawkish monetary policy stance, will
ease as prices of global commodities, particularly oil, come off. However,
secondary market yields/borrowing costs may remain sticky for longer.
No comments:
Post a Comment