Fw: Market Outlook: 2012: A year of high volatility

 

 

Market Outlook [December 31, 2011]  Sharekhan www.sharekhan.com

Summary of Contents MARKET OUTLOOK 2012: A year of high volatility Also an opportunity to cherry pick quality stocks 2011-the year of self-inflicted pain: Circa January 2011, the year began with a lot of hope. The global situation was expected to improve with the unleashing of the second round of quantitative easing (QE2) by the USA while at home the government was expected to push forward some of the long awaited reforms and rein in the fiscal deficit. Domestic demand was robust and corporate earnings were expected to grow at compounded annual growth rate (CAGR) of 18-20% over FY2011-13. However, contrary to expectations, India's economic growth moderated sharply in 2011. The Indian currency and the country's stock market were among the worst performers globally. Unfortunately, much of the pain was self-inflicted: the domestic macro-economic environment deteriorated sharply due to continued monetary tightening by the central bank and a lack of resolute policy response from the government even in the face of tough global conditions.  2012-begins on an extremely pessimistic note: Pessimism is written all over. Globally, the economic revival in the USA remains sluggish and the euro zone is on the edge threatening to slip off the cliff. At home, the political logjam has derailed policy decisions and there is no shortage of macro-economic problems. The consensus earnings estimates for FY2012/FY2013 have been revised downwards by 9-10% over the last one year and the CAGR growth estimate for FY2011-13 now stands at 11.5%. What's more, the earnings downgrade cycle is likely to continue on account of the signs of moderation in domestic demand, margin pressure and rising foreign exchange (forex) losses. The emerging markets are underperforming and the Indian equity is out of favour among foreign investors. The retail investor is disillusioned and the proportion of domestic savings flowing into equities is the lowest in a decade.  Rate cuts and resolute policy actions are key triggers for a meaningful revival: Global events would continue to strongly influence foreign inflows and consequently the overall market direction. However, any meaningful revival in the equity market would have to be supported by a reversal in policy rates and resolute government policy actions. The cut in policy rates is inevitable now though the timing of the same has become uncertain due to the stubbornly high core inflation. The situation has been amplified by imported inflationary pressures led by the rupee's depreciation. The more questionable issue is the ability of the ruling United Progressive Alliance (UPA) government to circumvent political logjam and push forward reforms in the areas of pension, land acquisition and retail foreign direction investment (FDI) instead of tilting towards populist schemes like food security bill and farm loan waiver.  Downside risk remains despite supportive valuations: After the correction, the Sensex now trades at 12.0-12.5x FY2013E earnings or at a 26% discount to the mean of the last five years' valuations and at a 17% discount to the mean of the last ten years' valuations. The Sensex' premium over the other Asian peers has also shrunk to 17% compared with the historical average of 25%. But the downside risk remains high due to the rising risk aversion globally that is visible in the record net outflows from the emerging market equity funds this year. Moreover, regulatory uncertainties and policy inaction have created critical issues in some of the index heavyweight sectors/stocks such as banks, infrastructure, power, telecommunications (telecom) and Reliance Industries. Nevertheless, many quality stocks are trading close to their 2009 lows and 2012 could very well turn out to be one of the best years to cherry pick quality stocks for exponential returns over the next few years.   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.   Click here to read report: Market Outlook

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Fw: PFC Tax-free Bond Issue - Opening on 30 Dec 2011

 

 

Power Finance Corporation Issue of tax-free secured redeemable non-convertible bonds in the nature of debentures Issue period: Friday, December 30, 2011 to Monday, January 16, 2012 Basis of allotment: On a first-come-first-serve basis within each category Issue size: Rs1,000 crore with an option to retain an oversubscription up to the shelf limit of Rs4,033.13 crore) Investment Opportunity: Interest rates are at peak level; best time to invest in fixed income tax free instruments. Interest rate cycle has peaked out Given the sharp slowdown in the industrial activity and softening of the food inflation, the interest rate cycle has peaked out. Reserve Bank of India has restrained from increasing the interest rates in the last policy review meet and is expected to begin reducing rates in March or April 2012. The bond yields which have increased close to 9% levels have corrected significantly and show easing of pressure on rates. High post tax yield for triple A rated product Tax free bond with yield of 8.2-8.3% is comparable with yields offered on government bonds and offer extremely attractive pre-tax yield close to 12% for a long period of time. The bond issue has got AAA (stable) rating from the rating agencies -- Crisil and CARE. The bonds would also be listed and tradable on NSE/BSE. About Power Finance Corporation: Power Finance Corporation-A Navratna Government of India undertaking (GoI; 73.72% equity stake held by GoI) Set up in July 1986 as a specialised financial institution dedicated to power sector financing and committed to the integrated development of the power and associated sectors Classified as infrastructure finance company in July 2010 by the Reserve Bank of India and as a public financial institution u/s 4A of the Companies Act ,1956 Options/Series Tranche-1 Series I Tranche-1 Series II Face value per bond Rs1,000 Rs1,000 Minimum application size Rs10,000 (10 bonds) Rs10,000 (10 bonds) In Multiples Of Rs5,000 (5 bonds) Rs5,000 (5 bonds) Frequency of interest payment Payable annually Payable annually Interest rate pa (%) 8.20% 8.30% Interest payment date Every year on October 15 and on respective maturity Redemption/Maturity date 10 years 15 years Redemption amount Repayment of the face value plus any interest that may have accrued on the redemption date Repayment of the face value plus any interest that may have accrued on the redemption date Category I II(Above Rs5 lakh) III (Below and including Rs5 lakh) Portion Institutional portion HNI portion Retail portion Size in % 50% of overall issue size on first-come-first-serve basis 25% of overall issue size on first-come-first-serve basis 25% of overall issue size on first-come-first-serve basis

Sharekhan Ltd: BSE Cash-INB/ INF 011073351; NSE - INB/INF /INE 231073330; MCX-SX INE 261073330 DP: NSDL-IN-DP-NSDL-233-2003; CDSL-IN-DP-CDSL-271-2004; PMS INP000000662. Sharekhan Commodities Pvt. Ltd.: MCX-10080; NCDEX-00132; Regd/Admin Add:- Lodha iThink Techno Campus, 10th Floor, Beta Building, Off. JVLR, Opp. Kanjurmarg Station, Kanjurmarg (East), Mumbai 400 042, Maharashtra. for any complaints email at igc@sharekhan.com; Regd/Admin Add:- Lodha iThink Techno Campus, 10th Floor, Beta Building, Off. JVLR, Opp. Kanjurmarg Station, Kanjurmarg (East), Mumbai 400 042, Maharashtra. for any complaints email at igc@sharekhan.com. Disclaimer: Sharekhan Limited is engaged as a distributor for distribution of IPO/Bonds/NCD. Sharekhan or any of its group concerns do not in any manner recommends any product or any of its characteristics. The client is advised to take his / her own independent decisions for investing in any financial product after understanding their respective nature and risk and returns involved. The client may also approach his / her own consultants for investing in financial products or in relation to the tax related aspects. We do not solicit any action based upon this promotional material. Please note that the product does not take into account any particular investment objectives, financial decisions or needs of individual recipients. Neither Sharekhan nor any person connected with Sharekhan accepts any liability arising out of investment suggested in the material above.

Fw: Investor's Eye: Thematic Report (Speed breaker ahead); Special - Monthly economy review

 

 

Investor's Eye [December 27, 2011]  Sharekhan www.sharekhan.com

Summary of Contents THEMATIC REPORT Speed breaker ahead Key points  Sharp moderation in IIP growth to restrict auto growth in FY2013: Our analysis reveals that the automobile sector is likely to experience significant moderation in growth during 2012. We have used the long-term Index of Industrial Production (IIP) multiplier methodology (that relates the level of IIP to the volume growth in the automobile sector) to arrive at sustainable growth rates for different automobile segments. The long-term growth potential looks intact but rapid volume expansion in the last two years has now paved the way for a mid-cycle growth moderation or intermediate down cycle during calendar year 2012.  Risk of downgrade of consensus estimate high; outperformance of auto sector unlikely to sustain Our optimistic estimate of a single-digit volume growth for FY2013 is lower than the consensus estimate. However, even a single-digit volume growth for FY2013 is challenging as the lag effect of a dismal IIP growth and high inflation sets in. The auto index has outperformed the Sensex in the last six months to one year period. However, the outperformance is at risk as the moderation in volume growth across segments exceeds the street's expectations for FY2013. Return comparison Particulars 3-month return (%) 6-month return (%) 12-month return (%) BSE Sensex -0.5 -12.44 -20.44 Auto Index 0.35 -2.38 -16.58 Bajaj Auto 6.58 16.51 11.45 Hero MotoCorp -2.89 2.82 -0.55 Maruti Suzuki -10.2 -13.59 -30.41 Mahindra -9.15 4.45 -7.71 Ashok Leyland -9.04 -1.25 -24.03 Downgrading earnings estimates for FY2013: We are downgrading our volume and earnings per share (EPS) estimates for all the automobile companies covered by us due to the challenging operating environment. Automobile companies whose earnings estimates have seen significant downgrades include Maruti Suzuki, Ashok Leyland and Mahindra and Mahindra (M&M). High risk of disappointment in M&M and Bajaj Auto; switch to Maruti and Hero MotoCorp: Considering the volume growth, margin sustenance, capital expenditure (capex) intensity and cash generation of their respective businesses we have assigned a 15% premium to Bajaj Auto and Hero MotoCorp to their respective mid-term average multiples. On the other hand, we have assigned a 15% discount to Maruti Suzuki, M&M and Ashok Leyland based on their mid-term average multiples. In view of the same, we see a much higher risk of disappointment in M&M and Bajaj Auto. Thus, we recommend switching to Maruti Suzuki and Hero MotoCorp.  Switch from M&M to Maruti Suzuki as we believe that the impact of policy action against diesel vehicles/fuel is inevitable and not yet fully factored. For Maruti Suzuki, a 30% stock price correction in the last one year has priced in most of the negatives.  Switch from Bajaj Auto to Hero MotoCorp based on the 14% outperformance of the former. Hero MotoCorp's market share gains in the domestic market over the last few months have not been fully captured in the stock price nor has the loss of domestic market share affected the Bajaj Auto stock fully.   SHAREKHAN SPECIAL  Monthly economy review Economy: Industrial growth remains subdued; inflation starts to decline In October 2011 the Index of Industrial Production (IIP) growth entered the negative territory showing a decline of 5.1%, which was significantly below the market estimate. The October IIP numbers were the weakest in 31 months and a result of a decline in the manufacturing, mining and capital goods output. For the year-till-date (YTD) FY2012, the IIP growth stands at 3.5% as against 8.7% in YTD FY2011. However, the IIP growth number for September has been revised upwards marginally to 2% from 1.9%. The Wholesale Price Index (WPI)-based inflation for November 2011 came in at 9.11%, in line with the Street's expectations. However, the inflation rate for September 2011 has been revised upwards to 10% from the provisional figure of 9.72%. The trade deficit for October 2011 came in at $19.6 billion, more than twice the trade deficit level recorded in September 2011. The trade deficit increased by 35.2% year on year (YoY). The growth in exports remained high showing a growth of 21.7% YoY (17.2% in September 2011). The imports grew by 10.8% YoY (up 36.4% in September 2011). Banking: Rate hike takes a breather; CRR cut expected  The Reserve Bank of India (RBI) has clearly indicated the peaking of rates hikes and articulated the need to support growth. The easing could start sometime in Q4FY2012 by way of a reduction in the cash reserve ratio (CRR) followed by repo rate cuts. The credit offtake registered a growth of 17.8% YoY (as on December 2, 2011), which was lower than the growth of 18.4% recorded in the previous month (as on November 4, 2011). The credit growth is largely in line with the RBI's expectation.  The deposits registered a significant pick-up as these grew by 18% YoY (as on December 2, 2011); the growth was lower than the 17.5% year-on-year (Y-o-Y) growth seen during the previous month (on November 4, 2011). The growth in the deposits was fuelled mainly by term deposits. The credit-deposit (CD) ratio was at 74.2% (as on December 2, 2011) as compared to 73.9% as on November 4, 2011. Meanwhile the incremental CD ratio expanded to 73.9% for the period which was lower than the ratio seen during the previous month.  The yield on government securities (G-Secs; of ten-year maturity) stood at 8.33% as in December 2011 and was lower than the previous month's levels. The G-Sec yields across the long-term maturities declined on a month-on-month (M-o-M) basis. Equity market: FIIs turn buyers  During the month-till-date (MTD) period in December 2011 (December 1-19), the foreign institutional investors (FIIs) were net buyers of equities and the domestic mutual funds were net sellers of equities. For the MTD period in December 2011 (December 1-19), the FIIs bought equities worth Rs175 crore while the mutual funds sold equities worth Rs307 crore.   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.   Click here to read report: Investor's Eye

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Fw: Sharekhan Mutual Fund Finder - January 2012

 

Sharekhan Mutual Fund Finder [December 27, 2011] Please see the attachment for details  Sharekhan www.sharekhan.com

Summary of Contents Sharekhan Mutual Fund Finder Top equity picks Top SIP picks SIP calculator Crorepati calculator Fund of the month: ICICI Prudential Discovery Fund Performance of debt funds and ETFs Click here to read report: Mutual Fund Finder

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Fw: Investor's Eye: Update - Sintex Industries (Price target revised to Rs120 ), Real Estate (Bangalore real estate stable now but to edge lower)

 

 

Investor's Eye [December 26, 2011]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Sintex Industries       Cluster: Apple Green Recommendation: Buy Price target: Rs120 Current market price: Rs71 Price target revised to Rs120  Our interaction with the management of Sintex Industries leads us to believe that the demand in the domestic as well as the international markets is moderating. Factoring the moderating demand, high crude prices and open forex exposure in the form of foreign currency convertible bonds (FCCBs: $110 million), we have reduced our FY2012 and FY2013 earning per share (EPS) estimate by 26% and 21% respectively. Our revised EPS for the stock is Rs13.5 (Rs18 earlier) and Rs16 (Rs20.3 earlier) respectively. On the stock performance side, Sintex Industries has underperformed the benchmark indices in the last six months (it has lost 52% while the Sensex has declined 11% in the same period). We believe that this underperformance on account of concerns related to moderating demand, slow execution pace and FCCBs is overdone and is getting reflected in the near bottom valuation of the stock (the stock is ruling at 4.4x its FY2013E earnings). Thus, we believe that this correction provides an attractive entry point for the investors and maintain our Buy rating on the stock with a revised price target of Rs120. Our price target implies an FY2013 price-to-earnings (PE) multiple of 7.5x, which is at a 30% discount to the average PE multiple of the last ten years. We feel this discount is warranted on account of the slower growth, the balance sheet risk and the company's exposure to an uncertain Europe. SECTOR UPDATE Real Estate     Bangalore real estate stable now but to edge lower  Residential demand at Bangalore fairly stable in comparison to other markets but might taper off in future Residential sales have been dropping in the prime cities of India, except for Bangalore, which is seeing somewhat steady sales comparatively. Volume in Bangalore fell by just 7% year on year (YoY) as compared to 23% and 31% fall in Mumbai and Delhi respectively. In fact in Q3CY2011, Bangalore-based developers outperformed peers, with a strong sales volume. However, with the information technology (IT) industry also slowing down, the demand in Bangalore is also expected to be affected going ahead. Bangalore's commercial market scores better but could edge down Even Bangalore's commercial market is doing fairly well compared to other markets. While the commercial market in other prime cities is facing heat with commercial leasing touching one-year low in Q3CY2011, the Bangalore market was much better off. Slower demand from IT/ITES may affect Bangalore developers The inventory level is already high for Brigade Enterprises (Brigade) and Puravankara Projects (Puravankara). Now if the inventory level rises further, it would further affect the cash flow of the companies, putting strain on their balance sheets. Except for Prestige Estates (Prestige), the net debt to equity for the rest of the southern developers is already in the range of 0.7x to 0.8x. Going ahead, a slowdown in demand, rising working capital pressure and negative free cash flows will result in higher debt requirement. Infact the return on equity (RoE) is very poor across all south based developers except Prestige. Outlook The sector has highly underperformed over the last one to two years, making valuations very attractive. However, we are still cautious as the real estate market will take time to revive. Though the interest rates seem to have peaked out, the demand will revive only once the overall economy improves and with the developers adopting meaningful price cuts.   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.   Click here to read report: Investor's Eye

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Fw: NHAI Tax-free Bond Issue - Opening on 28 Dec 2011

 

Investment Opportunity: Interest rates are at peak level; best time to invest in fixed income tax free instruments. Interest rate cycle has peaked out Given the sharp slowdown in the industrial activity and softening of the food inflation, the interest rate cycle has peaked out. Reserve Bank of India has restrained from increasing the interest rates in the last policy review meet and is expected to begin reducing rates in March or April 2012. Bond yields correct sharply The bond yields which had increased close to 9% levels have corrected significantly to around 8.3% which shows easing of pressure on rates. The banks have also kept their demand deposit rates stable since past couple of months despite the increasing policy rates. High post tax yield for triple A rated product Tax free bond with yield of 8.2-8.3% is comparable with yields offered on government bonds and offer extremely attractive pre-tax yield close to 12% for a long period of time. The bond issue has got AAA (stable) rating from the three agencies -- Crisil, CARE and Fitch. The bonds would also be listed and tradable on NSE/BSE. About NHAI: National Highways Authority of India (Authority) is an autonomous organization of Government of India and was constituted mainly to survey, develop, maintain and manage the National Highways, to construct offices or workshops, to establish and maintain hotels, restaurants and rest rooms at or near the highways vested in or entrusted to it, to regulate and control the plying of vehicles, to develop and provide consultancy and construction services and to collect fees for services or benefits rendered in accordance with Section 16 of the NHAI Act. As per NHAI Act, 1988, certain stretches of National Highways have been entrusted to NHAI by the Government for development, maintenance and management.

Tranche Series-I Series-II Tenor 10 Years 15 Years Face Value Rs1,000/- per bond Rs1,000/- per bond Issue Price At par i.e. Rs1,000/- per bond At par i.e. Rs1,000/- per bond Coupon Rate 8.20% p.a. 8.30% p.a. Interest Payment Annual Annual Put & Call Option None None Redemption Amount (Rs./ Bond) Repayment of the Face Value plus any interest that may have accrued at the Redemption Date Repayment of the Face Value plus any interest that may have accrued at the Redemption Date Credit Rating "CRISIL AAA/Stable" by CRISIL, "CARE AAA" by CARE and "Fitch AAA(ind)" by FITCH Mode of Holding Dematerialized as well as in physical form Minimum Application 50 bonds (Rs50,000/-) and in multiples of 1 bonds (Rs1,000/-) thereafter Listing Proposed on BSE/ NSE Who can apply Category-I Category II Category III Reservation for Categories 40% of overall issue size 30% of overall issue size 30% of overall issue size Basis of allocation in case of over-subscription On first-come-first-serve basis On first-come-first-serve basis On prorata / proportionate basis * For more details, please refer to the Terms and Conditions.

Sharekhan Ltd.: BSE Cash-INB011073351; F&O-INF011073351; NSE - INB/INF231073330; MAPIN - 100008375; DP: NSDL-IN-DP-NSDL-233-2003; CDSL-IN-DP-CDSL-271-2004; PMS INP000000662. Sharekhan Commodities Pvt. Ltd.: MCX-10080; NCDEX-00132; MAPIN - 100013912, for any complaints email at igc@sharekhan.com. Regd/Admin Add:- Lodha iThink Techno Campus, 10th Floor, Beta Building, Off. JVLR, Opp. Kanjurmarg Station, Kanjurmarg (East), Mumbai 400 042, Maharashtra. Please carefully read the risk disclosure document as prescribed by SEBI & FMC and Do's & Don'ts by NCDEX. Disclaimer: Sharekhan Limited is engaged as a distributor for distribution of IPO/Bonds/NCD. Sharekhan or any of its group concerns do not in any manner recommends any product or any of its characteristics. The client is advised to take his / her own independent decisions for investing in any financial product after understanding their respective nature and risk and returns involved. The client may also approach his / her own consultants for investing in financial products or in relation to the tax related aspects. We do not solicit any action based upon this promotional material. Please note that the product does not take into account any particular investment objectives, financial decisions or needs of individual recipients. Neither Sharekhan nor any person connected with Sharekhan accepts any liability arising out of investment suggested in the material above.

Fw: NHAI Tax-free Bond Issue - Opening on 28 Dec 2011

 

Investment Opportunity: Interest rates are at peak level; best time to invest in fixed income tax free instruments. Interest rate cycle has peaked out Given the sharp slowdown in the industrial activity and softening of the food inflation, the interest rate cycle has peaked out. Reserve Bank of India has restrained from increasing the interest rates in the last policy review meet and is expected to begin reducing rates in March or April 2012. Bond yields correct sharply The bond yields which had increased close to 9% levels have corrected significantly to around 8.3% which shows easing of pressure on rates. The banks have also kept their demand deposit rates stable since past couple of months despite the increasing policy rates. High post tax yield for triple A rated product Tax free bond with yield of 8.2-8.3% is comparable with yields offered on government bonds and offer extremely attractive pre-tax yield close to 12% for a long period of time. The bond issue has got AAA (stable) rating from the three agencies -- Crisil, CARE and Fitch. The bonds would also be listed and tradable on NSE/BSE. About NHAI: National Highways Authority of India (Authority) is an autonomous organization of Government of India and was constituted mainly to survey, develop, maintain and manage the National Highways, to construct offices or workshops, to establish and maintain hotels, restaurants and rest rooms at or near the highways vested in or entrusted to it, to regulate and control the plying of vehicles, to develop and provide consultancy and construction services and to collect fees for services or benefits rendered in accordance with Section 16 of the NHAI Act. As per NHAI Act, 1988, certain stretches of National Highways have been entrusted to NHAI by the Government for development, maintenance and management.

Tranche Series-I Series-II Tenor 10 Years 15 Years Face Value Rs1,000/- per bond Rs1,000/- per bond Issue Price At par i.e. Rs1,000/- per bond At par i.e. Rs1,000/- per bond Coupon Rate 8.20% p.a. 8.30% p.a. Interest Payment Annual Annual Put & Call Option None None Redemption Amount (Rs./ Bond) Repayment of the Face Value plus any interest that may have accrued at the Redemption Date Repayment of the Face Value plus any interest that may have accrued at the Redemption Date Credit Rating "CRISIL AAA/Stable" by CRISIL, "CARE AAA" by CARE and "Fitch AAA(ind)" by FITCH Mode of Holding Dematerialized as well as in physical form Minimum Application 50 bonds (Rs50,000/-) and in multiples of 1 bonds (Rs1,000/-) thereafter Listing Proposed on BSE/ NSE Who can apply Category-I Category II Category III Reservation for Categories 40% of overall issue size 30% of overall issue size 30% of overall issue size Basis of allocation in case of over-subscription On first-come-first-serve basis On first-come-first-serve basis On prorata / proportionate basis * For more details, please refer to the Terms and Conditions.

Sharekhan Ltd.: BSE Cash-INB011073351; F&O-INF011073351; NSE - INB/INF231073330; MAPIN - 100008375; DP: NSDL-IN-DP-NSDL-233-2003; CDSL-IN-DP-CDSL-271-2004; PMS INP000000662. Sharekhan Commodities Pvt. Ltd.: MCX-10080; NCDEX-00132; MAPIN - 100013912, for any complaints email at igc@sharekhan.com. Regd/Admin Add:- Lodha iThink Techno Campus, 10th Floor, Beta Building, Off. JVLR, Opp. Kanjurmarg Station, Kanjurmarg (East), Mumbai 400 042, Maharashtra. Please carefully read the risk disclosure document as prescribed by SEBI & FMC and Do's & Don'ts by NCDEX. Disclaimer: Sharekhan Limited is engaged as a distributor for distribution of IPO/Bonds/NCD. Sharekhan or any of its group concerns do not in any manner recommends any product or any of its characteristics. The client is advised to take his / her own independent decisions for investing in any financial product after understanding their respective nature and risk and returns involved. The client may also approach his / her own consultants for investing in financial products or in relation to the tax related aspects. We do not solicit any action based upon this promotional material. Please note that the product does not take into account any particular investment objectives, financial decisions or needs of individual recipients. Neither Sharekhan nor any person connected with Sharekhan accepts any liability arising out of investment suggested in the material above.