Sharekhan ValueGuide
[For March 2010]Sharekhan
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Investment Insights Our regular features on investments and equity picks for our investors. FROM SHAREKHAN'S DESK
Waiting to break freeAfter shooting up by over 66% in the first half of FY2010 on the back of global economic revival, improving health of the domestic economy, strong first quarter results of India Inc (and the resulting earnings upgrades) and most importantly, abundant liquidity, the Indian market has been stuck in a range for the past four to five months. Reason? For one, it has been bogged down by its own rich valuations. Then, there have been a host of domestic and global issues that have been acting as a drag on the market.
MARKET OUTLOOK
Building a base
- In line with our expectation, the markets have managed to stay in a narrow range, hovering around 5000 levels (+/-5%) on Nifty, for the past few months. It withstood the global tremors emerging out of sovereign debt crisis in eastern Europe and domestic issues such as rising inflation and sedate earnings upgrades since October 2009. India?s recent outperformance compared to some of the other emerging markets is driven by the relatively better economic revival that is backed by sustainable domestic consumption story.
- The Union Budget 2010-11 has also cheered the market sentiments, as the finance minister managed to strike a fine balance between fiscal consolidation and growth stimulus. Moreover, the Union Budget has also emphasised on the key themes of investment in infrastructure development (increase in plan outlays), growth in consumption demand (higher tax slabs and rural programs) and divestment.
- Though the market is moving towards the higher-end of its multi-month trading range, we believe it might not be ready to break free yet. The lack of earnings upgrades and expected monetary tightening by the Reserve Bank of India (RBI) in its forthcoming policy review meet in April 2010 would act as a drag on the market. Moreover, in the near-term, there are technical issues such as withdrawal of liquidity due to advance tax payments and clean up of accounts prior to the end of the fiscal year. Globally, the economic revival in the US and relatively weaker environment in Europe could further strengthen the US dollar, resulting in some pressure on foreign inflows in the coming months.
- Given the lack of any re-rating triggers in the near-term, we maintain our thesis that the markets are likely to remain range-bound and consolidate during the first half of 2010. As against this, the second half should see the focus of investors gradually turning away from the near-term issues to the long-term potential of the Indian economy and the strong corporate earnings in FY2011 and beyond. Moreover, with passage of time the valuations would turn more compelling as the street rolls over discounting to FY2012 earnings estimates.
- Consequently, we maintain our ?buy on dips? stance and view any significant correction or knee-jerk reaction to global events as an opportunity to accumulate fundamentally-
strong stocks at lower levels for reasonably handsome returns over the next 12-18 months.
SHAREKHAN TOP PICKS
- Sharekhan top picks
SHAREKHAN BUDGET SPECIAL
Union Budget 2010-11: Managing expectations
Despite the backdrop of a recovering economy, high fiscal deficit and rising inflation, the Union Budget 2010-11 has managed to more than meet the market expectations. Perhaps the expectations weren?t very high anyway. Not to take away the credit from the finance minister, the market sentiments are boosted by the fact that the finance minister has addressed the key issue of containing fiscal slippage and has outlined a clear roadmap for fiscal consolidation for the next three years. This essentially allays fears of crowding out of bank credit for private sector and the lower supply of government paper eases pressure on bond yields.
While the fiscal deficit target of 5.5% for FY2011 seems to be achievable, a lot would depend on the government?s ability to contain growth in expenditure (subsidies etc) and successful execution of divestment plans. Meanwhile, the budgeted 18% year-on-year (y-o-y) increase in gross tax receipts seems achievable given the improving economic conditions.
RAILWAY BUDGET SPECIAL
Railway Budget 2010-11
The United Progressive Alliance (UPA) presented its Railway Budget in the parliament today. The Railway Budget turned to be a mix of reformist in nature with a social face as the new railway minister decided to leave freight rates and fares unchanged. The ministry emphasised the need to enhance the railway infrastructure in the current fiscal. We present below the highlights of the Railway Budget.
STOCK UPDATE
- Aditya Birla Nuvo: Life insurance and AUM businesses outperform
- Axis Bank: Firmly footed
- Bajaj Auto: Unstoppable growth
- Balrampur Chini Mills: Results below estimates, strong earnings ahead
- Bharat Electronics: Price target revised to Rs2,144
- Bharti Airtel: Bharti-Zain deal: Potential to be long term positive
- Corporation Bank: Q3 performance beats estimates
- Glenmark Pharmaceuticals: Price target revised to Rs325
- Greaves Cotton: Q3 numbers better than expected on higher margins
- ISMT: Higher power cost impacts Q3 results
- ITC: Smokers to pay more
- Jaiprakash Associates: Upgraded to Buy
- Lupin: Price target revised to Rs1,760
- Max India: On track
- Mold-Tek Technologies: Price target revised to Rs99
- Opto Circuits India: Price target revised to Rs250
- Patels Airtemp India: Price target revised to Rs101
- Pratibha Industries: Fair Q3; better times ahead
- Seamec: Downgraded to Hold
- Subros: Price target revised to Rs58
- Sun Pharmaceutical Industries: Price target revised to Rs1,616
- Tata Chemicals: Price target revised to Rs351
- Tata Tea: Price target revised to Rs1,006
- Thermax: Settles pending legal dispute with Purolite
- Tourism Finance Corporation of India: Price target revised to Rs34
- Unity Infraprojects: Price target revised to Rs680
SHAREKHAN SPECIAL
- Monthly economy review
- Q3FY2010 earnings review
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VIEWPOINT
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Regards,
The Sharekhan Research Team
Management lies in dropping the last alphabet: manage – men. still better, drop one more alphabet: manage – me.
Samir Kumar Shah.
9830405060
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