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MARKET STRATEGY
Markets were very volatile during the month of July. The month was
marked by the surprise event of the RBI raising rates by 50bps and concerns
on delay in raising of the US debt ceiling which is something unheard of in
recent times.
The earnings season has been mixed for us, with healthy numbers from
sectors like IT / Private banks / FMCG sectors but disappointments from
Capital goods / Infrastructure / power companies.
Global markets did not provide any support during the month, to say the
least. With concerns growing on Spain and Italy, markets there have
remained edgy. On the other hand, the uncertainty relating to the US debt
ceiling also kept sentiments subdued. China further raised reserve
requirements for banks with a view to cool down inflation.
The RBI's 50bps hike and its hawkish stance came as a negative surprise for
most participants and provided an additional headwind for the markets
during the last week of the month, just when the market seemed to be
finding its feet and moving higher. The priority of the apex bank is clear. It
remains committed on anchoring inflation and inflationary expectations. It
has likely accounted for potential surprises from monsoon and high crude
prices. The RBI's move is likely to moderate credit growth further. Sectorwise,
interest rate sensitive sectors like banks, autos and real estate may see
further moderation in growth. We believe that, the Government will take
fiscal steps to tackle supply side issues and promote more investments in
the months to come.
During the month, the Government made some progress on reforms. It
moved on the Mining Bill and also approved raising of FDI in FM radio.
Furthermore, the government moved a step closer to allowing 51% FDI in
multi-brand retail after the committee of secretaries approved the proposal.
Going forward, we expect government to further the reforms process
(especially in the upcoming monsoon session) which would be positive for
the markets, we believe. The Cabinet re-shuffle also had some surprises.
In our previous updates, we have been stating that markets may remain
negative to side-ways till the time concerns coming from global markets
ease off or commodity prices and inflation cool down. The recent market
performance has validated our view. The investment cycle in India has
weakened in recent quarters due to factors like delays in land acquisition
and availability of fuel. The latest interest rate hike by the RBI may further
dampen the investment cycle as the project cost would go up.
Overall, we opine that, quick action on fiscal side and fall in crude prices
will be the pre-requisites for the markets to sustain current levels and move
up in the medium - to - long term. Given this scenario, investors should take
a longer-term view. Market valuations are at reasonable levels. We remain
positive on stocks in sectors like Banking, IT, FMCG, Media and Logistics. We
remain selective in capital Goods and Infrastructure sector stocks. We
maintain our cautious view on Automobiles, Metals and Cement.
Global markets
US markets remained range bound during last month. Market gains were limited by
concerns regarding raising of debt limit for US and contagion impact of Europe debt
crisis. On economic front, housing starts and permits for future construction rose
more than expected in June and pace of growth in the manufacturing sector also
picked up for the first time in four months. These gains were restricted by weakness
in net job creation coupled with uncertainty regarding raising the statutory debt ceiling
of $14.3 trillion by August 2 or risk a default.
If the debt ceiling had not been raised it could have immediately endangered the
AAA rating of the US. However, there are doubts that, US ratings may still be downgraded.
This in turn could lead to increase in funding costs; generalized risk aversion;
and further growing doubts about the status of the dollar as an international
currency and US (Treasuries) as an international risk-free asset.
European markets remained weak on series of rating downgrades and on concerns
that fiscal problems seen in Greece, Portugal and Ireland may be spreading to larger
economies including Italy and Spain and could force more countries to require financial
aid. Concerns from Europe debt crisis were addressed to some extent when EU
leaders agreed on a final bailout package for Greece.
Rating agency Moody's downgraded Portugal's government debt rating by one
notch, citing growing risks. It also downgraded Ireland's rating to junk status and
said that it may follow Greece in needing a second bailout. Along with this, rating of
Greece has also been cut by three notches, just one notch above default since it
believes that country still faces medium-term solvency challenges and significant
implementation risks despite debt reduction due to new rescue package.
However, markets recovered to some extent after Euro zone leaders decided to prevent
the contagion and let default temporarily under a crisis. EU leaders agreed on
a Euro 109bn rescue package for Greece that could push the debt-ridden nation into
a temporary default on some of its debt, but would also give Europe's bailout fund
sweeping new powers to shore up struggling economies.
Chinese economy continued to struggle with high inflation as its inflation rose to a
three- year high of 6.4% in June, though GDP eased to 9.5% in the second quarter
of 2011 from 9.7% in previous quarter. To control its high inflation, China continued
its monetary tightening and raised interest rates for the third time this year by 25
bps.
India - range bound markets, Cabinet reshuffle and some policy
moves
Indian markets moved in a narrow band on the back of mixed quarterly numbers
coupled with weak IIP data and persistently high inflation. In the cabinet reshuffle
announced by the Prime Minister Mr Manmohan Singh, eight new faces were inducted
into the government. Among the major changes, Salman Khursheed took
over the law ministry while Jayanthi Natarajan is the new environment minister. She
replaced Jairam Ramesh who has been elevated as a cabinet minister in the ministry
of rural development.
Government approved a draft bill for the mining sector, which makes it mandatory
for coal miners to share 26% of their profits with project-affected people. The draft
Mines and Mineral Development and Regulation (MMDR) Bill, 2011, also proposes
companies mining other resources to pay 100% of the royalty on their production to
the original inhabitants of the project site. The total burden on miners on account of
profit and royalty has been estimated at around Rs 110bn per annum. Following this
directive, mining stocks (Coal India, Sesa Goa, GMDC among others) were under
pressure.
The Government also approved the raising of FDI ceiling in private FM radio broadcasting
firms to 26% from 20%. Radio media stocks reacted positively to this move.
The government moved a step closer to allowing 51% FDI in multi-brand retail after
the Committee of Secretaries approved the proposal. The proposal allows for multibrand
foreign retailers to set up outlets in only cities with population of over 1mn.
Another key pre-requisite is a minimum FDI investment of $100mn with 50% being
invested in back-end supply chain systems. The shift towards organized retailing
could help in dealing with some of the supply chain inefficiencies in the farm produce
marketing chain which, in turn, is expected to help control inflation.
Strong numbers from FMCG, private banks and tech bellwethers
but Capital Goods and Infrastructure disappoint
Most of the IT companies reported in-line performance. TCS' 7.4% volume growth
reflected the continued strength in the demand environment, which most companies
also indicated. However, 2QFY12 and FY12 guidance from Infosys did not meet expectations.
More importantly, growth for most companies was broad-based.
Quarterly numbers from Capital Goods companies turned out to be a major disappointment.
Crompton Greaves reported sharp decline in profits reflecting weak overseas
sales and erosion in margins across product lines. Over just two trading sessions,
the stock lost 30% of its value. BHEL's numbers were healthy in a difficult environment
but could not meet street estimates. Investors were also concerned about significantly
lower order intake reported by the company. This combined with the overall
concerns pertaining to the power sector, resulted in the stock losing about 10%
in two days. In infrastructure, numbers from companies like HCC and BGR were
lower than expected.
Reliance's results were in line with street expectations. The company benefited from
higher refining margins. ITC numbers beat street expectations aided by improved
profitability across most of its businesses including cigarettes and hotels. Numbers
from Godrej Consumer, Marico as well as Dabur were strong.
Profits of Axis Bank and HDFC Bank beat street estimates. In general credit growth
has begun to slow down for the banking sector. Growth in auto companies was
muted, in line with expectations.
IIP remained below our expectations
Industrial production growth surprised on the downside again, indicating signs of a
slowdown. IIP growth for May came in at 5.6% (vs consensus of 8.5%). Manufacturing
production was clearly weak as it contracted by 2.1% on MoM basis in May.
The consumer sector remained soft though growth rates were higher than April. In
the coming couple of months, production may remain muted due to rising borrowing
costs and the monsoon.
On a sectoral classification basis, mining sector growth continued to remain muted
at 1.4% while electricity production growth at 10.3% was strong (on the back of
increase in generation capacity). More importantly, manufacturing production grew
at modest pace of 5.6% (contraction on a MoM basis), underscoring the persistent
weakness in the sector. Consumer durables was growing at a robust pace in FY11
but has decelerated sharply in FY12. The index grew modestly at 5.2% yoy but contracted
on a month-on-month basis. Capital Goods index reported 5.9% yoy increase
but contracted on a month-on-month basis.
Inflation continued to remain at higher levels
WPI inflation for the month of June came at 9.44%, up from May's data of 9.06%
driven by increases in fuel and manufactured goods costs. June's figure is much
higher than RBI's forecast of 7% by March, 2012. Along with this, April inflation
data has also been revised upward from 8.7% to 9.7%. Though there has been
some moderation in food prices, but inflation for manufactured products inched up
to 7.43% in June from 7.27% in May. Fuel price inflation, which has remained consistently
high for the last several months, was 12.85% for June as against 12.32% in
May and 13.04% in April.
Food inflation for the week ended 9th July, 2011 fell to a three-week low of 7.58%
on the back of cheaper pulse prices and a high base last year. It was 8.31% the
previous week. This fall was led by fall in the primary article inflation which stood at
11.13% during the week under review, down from 11.58% in the previous week.
Inflation of non-food articles was at 15.50% for the week ended July 9, compared to
15.20% in the previous week.
During last week of June, government had raised the prices of diesel, kerosene and
LPG - full impact of which would be visible in July inflation data. Stubbornly high
inflation prompted RBI to hike the key interest rates by 50 bps, much ahead of
market expectations. We believe that going forward, food, non-food manufactured
product and fuel inflation would continue to pose a concern. If inflation continues to
stay at higher levels, RBI may be prompted to hike rates further.
RBI’s 50 bps rate hike takes market by surprise
In its monetary policy meeting, the RBI raised repo rates by 50 bps to 8%. RBI's
move took markets by surprise. In our opinion, RBI has opted to negatively surprise
the market to drive the message that, it is ready to sacrifice some growth for the
sake of inflation. The apex bank's move may have also sought to address inflationary
expectations. In this process, it has likely accounted for several concerns which
may come up in next few months. (Crude prices, monsoons, fuel price hikes, etc)
The headline growth target was maintained at around 8%. However, unless there is
concerted action to remove supply bottle-necks and promote investments, there
could be a downward bias to the GDP growth estimates.
The rate hike will have an impact on the credit growth as demand moderates and
may also put further pressure on margins of companies, especially the debt heavy
companies. In our view, banks will see growth rates moderating. RBI has reduced
credit growth target to 18% from 19%. Most banks will increase rates which should
lead to demand contraction. The NIMs might come under some pressure, atleast
initially. Also, interest rate sensitive sectors will see some impact in the form of reduced
demand. Across sectors, the interest rate hikes will pinch profit growth.
Monsoons have been largely on track
For the country as a whole, cumulative rainfall during this year's monsoon has so far
(upto 20 July) been 1% below the LPA. The cumulative seasonal rainfall continues
to remain near normal over all the four homogeneous regions. Out of 36 meteorological
subdivisions, the rainfall has been excess over 8, normal over 22 and deficient
in 6 sub-divisions. In area-wise distribution, 88% area of the country received
excess/normal rainfall. Remaining 12% area received deficient/scanty rainfall. 408
out of 601 districts of the country have received normal to excess rainfall.
The monsoon winds bring 75 to 90% of the rainfall in most parts of India, and are
vital for cane, rice and oilseeds crops as 60% of cultivated areas depend entirely on
the rains for irrigation. Normal monsoons are critical from an inflation management
point of view as well, because it would serve to contain the supply-side pressures
created inadequate agri-output.
Recommendation
Global markets have remained range-bound for the month. The earnings season has
been largely in line with healthy numbers from the IT/Private banks/FMCG sector
while the Capital goods/Infrastructure/power announced disappointing numbers. Going
into August, the raising US debt-ceiling has come as a relief. The Monsoon Session
of Parliament will be held from August 1 to September 8. The Government has
already announced its plans to bring the much-talked about Lokpal and the food
security bill in the Monsoon session. Several other bills are also on the agenda.
In our previous updates, we have been stating that markets may remain negative to
side-ways till the time concerns coming from global markets ease off or commodity
prices and inflation cool down. The recent market performance has validated our
view. The investment cycle in India has weakened in recent quarters due to factors
like delays in land acquisition and availability of fuel. The latest interest rate hike by
the RBI may further dampen the investment cycle as the project cost would go up.
Overall, we opine that, quick action on fiscal side and fall in crude prices will be the
pre-requisites for the markets to sustain current levels and move up in the medium -
to - long term. Given this scenario, investors should take a longer-term view. Market
valuations are at reasonable levels. We remain positive on stocks in sectors like
Banking, IT, FMCG, Media and Logistics. We remain selective in capital Goods and
Infrastructure sector stocks. We maintain our cautious view on Automobiles, Metals
and Cement.
Preferred picks
Sector Stocks
Automobiles Bajaj Auto
Banking Axis Bank, Bank of Baroda, ICICI Bank, SBI, Union Bank
Construction IRB Infra, BGR Energy, IVRCL Infra, Unity Infra
Engineering L&T, Greaves Cotton, Tractors India, Cummins,
Diamond Power, Voltas, Bajaj Electricals
FMCG ITC
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation Mercator Lines, GDL
Media HT Media
NBFC LIC Housing Finance
Oil & Gas IGL, Cairn India
Source: Kotak Securities - Private Client Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MARKET STRATEGY
Markets were very volatile during the month of July. The month was
marked by the surprise event of the RBI raising rates by 50bps and concerns
on delay in raising of the US debt ceiling which is something unheard of in
recent times.
The earnings season has been mixed for us, with healthy numbers from
sectors like IT / Private banks / FMCG sectors but disappointments from
Capital goods / Infrastructure / power companies.
Global markets did not provide any support during the month, to say the
least. With concerns growing on Spain and Italy, markets there have
remained edgy. On the other hand, the uncertainty relating to the US debt
ceiling also kept sentiments subdued. China further raised reserve
requirements for banks with a view to cool down inflation.
The RBI's 50bps hike and its hawkish stance came as a negative surprise for
most participants and provided an additional headwind for the markets
during the last week of the month, just when the market seemed to be
finding its feet and moving higher. The priority of the apex bank is clear. It
remains committed on anchoring inflation and inflationary expectations. It
has likely accounted for potential surprises from monsoon and high crude
prices. The RBI's move is likely to moderate credit growth further. Sectorwise,
interest rate sensitive sectors like banks, autos and real estate may see
further moderation in growth. We believe that, the Government will take
fiscal steps to tackle supply side issues and promote more investments in
the months to come.
During the month, the Government made some progress on reforms. It
moved on the Mining Bill and also approved raising of FDI in FM radio.
Furthermore, the government moved a step closer to allowing 51% FDI in
multi-brand retail after the committee of secretaries approved the proposal.
Going forward, we expect government to further the reforms process
(especially in the upcoming monsoon session) which would be positive for
the markets, we believe. The Cabinet re-shuffle also had some surprises.
In our previous updates, we have been stating that markets may remain
negative to side-ways till the time concerns coming from global markets
ease off or commodity prices and inflation cool down. The recent market
performance has validated our view. The investment cycle in India has
weakened in recent quarters due to factors like delays in land acquisition
and availability of fuel. The latest interest rate hike by the RBI may further
dampen the investment cycle as the project cost would go up.
Overall, we opine that, quick action on fiscal side and fall in crude prices
will be the pre-requisites for the markets to sustain current levels and move
up in the medium - to - long term. Given this scenario, investors should take
a longer-term view. Market valuations are at reasonable levels. We remain
positive on stocks in sectors like Banking, IT, FMCG, Media and Logistics. We
remain selective in capital Goods and Infrastructure sector stocks. We
maintain our cautious view on Automobiles, Metals and Cement.
Global markets
US markets remained range bound during last month. Market gains were limited by
concerns regarding raising of debt limit for US and contagion impact of Europe debt
crisis. On economic front, housing starts and permits for future construction rose
more than expected in June and pace of growth in the manufacturing sector also
picked up for the first time in four months. These gains were restricted by weakness
in net job creation coupled with uncertainty regarding raising the statutory debt ceiling
of $14.3 trillion by August 2 or risk a default.
If the debt ceiling had not been raised it could have immediately endangered the
AAA rating of the US. However, there are doubts that, US ratings may still be downgraded.
This in turn could lead to increase in funding costs; generalized risk aversion;
and further growing doubts about the status of the dollar as an international
currency and US (Treasuries) as an international risk-free asset.
European markets remained weak on series of rating downgrades and on concerns
that fiscal problems seen in Greece, Portugal and Ireland may be spreading to larger
economies including Italy and Spain and could force more countries to require financial
aid. Concerns from Europe debt crisis were addressed to some extent when EU
leaders agreed on a final bailout package for Greece.
Rating agency Moody's downgraded Portugal's government debt rating by one
notch, citing growing risks. It also downgraded Ireland's rating to junk status and
said that it may follow Greece in needing a second bailout. Along with this, rating of
Greece has also been cut by three notches, just one notch above default since it
believes that country still faces medium-term solvency challenges and significant
implementation risks despite debt reduction due to new rescue package.
However, markets recovered to some extent after Euro zone leaders decided to prevent
the contagion and let default temporarily under a crisis. EU leaders agreed on
a Euro 109bn rescue package for Greece that could push the debt-ridden nation into
a temporary default on some of its debt, but would also give Europe's bailout fund
sweeping new powers to shore up struggling economies.
Chinese economy continued to struggle with high inflation as its inflation rose to a
three- year high of 6.4% in June, though GDP eased to 9.5% in the second quarter
of 2011 from 9.7% in previous quarter. To control its high inflation, China continued
its monetary tightening and raised interest rates for the third time this year by 25
bps.
India - range bound markets, Cabinet reshuffle and some policy
moves
Indian markets moved in a narrow band on the back of mixed quarterly numbers
coupled with weak IIP data and persistently high inflation. In the cabinet reshuffle
announced by the Prime Minister Mr Manmohan Singh, eight new faces were inducted
into the government. Among the major changes, Salman Khursheed took
over the law ministry while Jayanthi Natarajan is the new environment minister. She
replaced Jairam Ramesh who has been elevated as a cabinet minister in the ministry
of rural development.
Government approved a draft bill for the mining sector, which makes it mandatory
for coal miners to share 26% of their profits with project-affected people. The draft
Mines and Mineral Development and Regulation (MMDR) Bill, 2011, also proposes
companies mining other resources to pay 100% of the royalty on their production to
the original inhabitants of the project site. The total burden on miners on account of
profit and royalty has been estimated at around Rs 110bn per annum. Following this
directive, mining stocks (Coal India, Sesa Goa, GMDC among others) were under
pressure.
The Government also approved the raising of FDI ceiling in private FM radio broadcasting
firms to 26% from 20%. Radio media stocks reacted positively to this move.
The government moved a step closer to allowing 51% FDI in multi-brand retail after
the Committee of Secretaries approved the proposal. The proposal allows for multibrand
foreign retailers to set up outlets in only cities with population of over 1mn.
Another key pre-requisite is a minimum FDI investment of $100mn with 50% being
invested in back-end supply chain systems. The shift towards organized retailing
could help in dealing with some of the supply chain inefficiencies in the farm produce
marketing chain which, in turn, is expected to help control inflation.
Strong numbers from FMCG, private banks and tech bellwethers
but Capital Goods and Infrastructure disappoint
Most of the IT companies reported in-line performance. TCS' 7.4% volume growth
reflected the continued strength in the demand environment, which most companies
also indicated. However, 2QFY12 and FY12 guidance from Infosys did not meet expectations.
More importantly, growth for most companies was broad-based.
Quarterly numbers from Capital Goods companies turned out to be a major disappointment.
Crompton Greaves reported sharp decline in profits reflecting weak overseas
sales and erosion in margins across product lines. Over just two trading sessions,
the stock lost 30% of its value. BHEL's numbers were healthy in a difficult environment
but could not meet street estimates. Investors were also concerned about significantly
lower order intake reported by the company. This combined with the overall
concerns pertaining to the power sector, resulted in the stock losing about 10%
in two days. In infrastructure, numbers from companies like HCC and BGR were
lower than expected.
Reliance's results were in line with street expectations. The company benefited from
higher refining margins. ITC numbers beat street expectations aided by improved
profitability across most of its businesses including cigarettes and hotels. Numbers
from Godrej Consumer, Marico as well as Dabur were strong.
Profits of Axis Bank and HDFC Bank beat street estimates. In general credit growth
has begun to slow down for the banking sector. Growth in auto companies was
muted, in line with expectations.
IIP remained below our expectations
Industrial production growth surprised on the downside again, indicating signs of a
slowdown. IIP growth for May came in at 5.6% (vs consensus of 8.5%). Manufacturing
production was clearly weak as it contracted by 2.1% on MoM basis in May.
The consumer sector remained soft though growth rates were higher than April. In
the coming couple of months, production may remain muted due to rising borrowing
costs and the monsoon.
On a sectoral classification basis, mining sector growth continued to remain muted
at 1.4% while electricity production growth at 10.3% was strong (on the back of
increase in generation capacity). More importantly, manufacturing production grew
at modest pace of 5.6% (contraction on a MoM basis), underscoring the persistent
weakness in the sector. Consumer durables was growing at a robust pace in FY11
but has decelerated sharply in FY12. The index grew modestly at 5.2% yoy but contracted
on a month-on-month basis. Capital Goods index reported 5.9% yoy increase
but contracted on a month-on-month basis.
Inflation continued to remain at higher levels
WPI inflation for the month of June came at 9.44%, up from May's data of 9.06%
driven by increases in fuel and manufactured goods costs. June's figure is much
higher than RBI's forecast of 7% by March, 2012. Along with this, April inflation
data has also been revised upward from 8.7% to 9.7%. Though there has been
some moderation in food prices, but inflation for manufactured products inched up
to 7.43% in June from 7.27% in May. Fuel price inflation, which has remained consistently
high for the last several months, was 12.85% for June as against 12.32% in
May and 13.04% in April.
Food inflation for the week ended 9th July, 2011 fell to a three-week low of 7.58%
on the back of cheaper pulse prices and a high base last year. It was 8.31% the
previous week. This fall was led by fall in the primary article inflation which stood at
11.13% during the week under review, down from 11.58% in the previous week.
Inflation of non-food articles was at 15.50% for the week ended July 9, compared to
15.20% in the previous week.
During last week of June, government had raised the prices of diesel, kerosene and
LPG - full impact of which would be visible in July inflation data. Stubbornly high
inflation prompted RBI to hike the key interest rates by 50 bps, much ahead of
market expectations. We believe that going forward, food, non-food manufactured
product and fuel inflation would continue to pose a concern. If inflation continues to
stay at higher levels, RBI may be prompted to hike rates further.
RBI’s 50 bps rate hike takes market by surprise
In its monetary policy meeting, the RBI raised repo rates by 50 bps to 8%. RBI's
move took markets by surprise. In our opinion, RBI has opted to negatively surprise
the market to drive the message that, it is ready to sacrifice some growth for the
sake of inflation. The apex bank's move may have also sought to address inflationary
expectations. In this process, it has likely accounted for several concerns which
may come up in next few months. (Crude prices, monsoons, fuel price hikes, etc)
The headline growth target was maintained at around 8%. However, unless there is
concerted action to remove supply bottle-necks and promote investments, there
could be a downward bias to the GDP growth estimates.
The rate hike will have an impact on the credit growth as demand moderates and
may also put further pressure on margins of companies, especially the debt heavy
companies. In our view, banks will see growth rates moderating. RBI has reduced
credit growth target to 18% from 19%. Most banks will increase rates which should
lead to demand contraction. The NIMs might come under some pressure, atleast
initially. Also, interest rate sensitive sectors will see some impact in the form of reduced
demand. Across sectors, the interest rate hikes will pinch profit growth.
Monsoons have been largely on track
For the country as a whole, cumulative rainfall during this year's monsoon has so far
(upto 20 July) been 1% below the LPA. The cumulative seasonal rainfall continues
to remain near normal over all the four homogeneous regions. Out of 36 meteorological
subdivisions, the rainfall has been excess over 8, normal over 22 and deficient
in 6 sub-divisions. In area-wise distribution, 88% area of the country received
excess/normal rainfall. Remaining 12% area received deficient/scanty rainfall. 408
out of 601 districts of the country have received normal to excess rainfall.
The monsoon winds bring 75 to 90% of the rainfall in most parts of India, and are
vital for cane, rice and oilseeds crops as 60% of cultivated areas depend entirely on
the rains for irrigation. Normal monsoons are critical from an inflation management
point of view as well, because it would serve to contain the supply-side pressures
created inadequate agri-output.
Recommendation
Global markets have remained range-bound for the month. The earnings season has
been largely in line with healthy numbers from the IT/Private banks/FMCG sector
while the Capital goods/Infrastructure/power announced disappointing numbers. Going
into August, the raising US debt-ceiling has come as a relief. The Monsoon Session
of Parliament will be held from August 1 to September 8. The Government has
already announced its plans to bring the much-talked about Lokpal and the food
security bill in the Monsoon session. Several other bills are also on the agenda.
In our previous updates, we have been stating that markets may remain negative to
side-ways till the time concerns coming from global markets ease off or commodity
prices and inflation cool down. The recent market performance has validated our
view. The investment cycle in India has weakened in recent quarters due to factors
like delays in land acquisition and availability of fuel. The latest interest rate hike by
the RBI may further dampen the investment cycle as the project cost would go up.
Overall, we opine that, quick action on fiscal side and fall in crude prices will be the
pre-requisites for the markets to sustain current levels and move up in the medium -
to - long term. Given this scenario, investors should take a longer-term view. Market
valuations are at reasonable levels. We remain positive on stocks in sectors like
Banking, IT, FMCG, Media and Logistics. We remain selective in capital Goods and
Infrastructure sector stocks. We maintain our cautious view on Automobiles, Metals
and Cement.
Preferred picks
Sector Stocks
Automobiles Bajaj Auto
Banking Axis Bank, Bank of Baroda, ICICI Bank, SBI, Union Bank
Construction IRB Infra, BGR Energy, IVRCL Infra, Unity Infra
Engineering L&T, Greaves Cotton, Tractors India, Cummins,
Diamond Power, Voltas, Bajaj Electricals
FMCG ITC
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation Mercator Lines, GDL
Media HT Media
NBFC LIC Housing Finance
Oil & Gas IGL, Cairn India
Source: Kotak Securities - Private Client Research
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