Fw: ValueGuide: The "R" factor

 

 

Sharekhan ValueGuide [July 08, 2013]  Sharekhan www.sharekhan.com

Summary of Contents    EQUITY FUNDAMENTALS THE STOCK IDEAS REPORT CARD FROM SHAREKHAN'S DESK The "R" factor  The rupee crossed the psychological mark of 60 against the dollar last month. The local currency's fall to an all-time low was largely driven by the strengthening of the US Dollar against all the other major currencies. But the currencies of countries with relatively a high current account deficit, like India, South Africa and Mexico, were among the worst affected globally. On the other hand, the currencies of countries with a current account surplus, like Indonesia and Singapore, managed to sail through with a limited damage. MARKET OUTLOOK It's more global than local this time around  Volatility picks up as Ben pulls the plug and cues turn negative in China, Europe: The unexpected move by the US Federal Reserve to begin tapering of the monetary stimulus under the quantitative easing (QE) programme jolted the financial markets globally. As part of the knee-jerk reaction to the Fed's statement a scramble began for unwinding of the leveraged dollar carry trades which perked up the bond yields, strengthened the dollar and led to the withdrawal of money from risky assets. India also suffered its share of collateral damage with the sudden outflow of $7.5 billion from the Indian debt market and the freefall of the rupee beyond the important psychological barrier of Rs60 to the dollar. The deterioration in the Chinese economic data and the re-emergence of issues in some of the troubled European nations added to the uncertainty in the equation. Rupee dives but creates room for radical policy moves: The global uncertainty and the steep depreciation in the rupee have galvanised the government into taking policy decisions on some pending critical issues. The cabinet committee has approved the new gas price formula that makes investment in oil & gas exploration much more attractive, taken steps to address the availability of coal for the power sector and is looking at hiking foreign direct investment (FDI) limits in certain sectors. Therefore, by hiding behind the compelling circumstances and due to the growing differences within the opposition parties the government may be able to push some pending bills in the forthcoming parliamentary session. Though the government has passed the food bill ordinance, hopefully the pressure on the rupee would act as a grim reminder to the government to maintain fiscal prudence rather than focus on giveaways under social schemes during the election year. RBI to retain cautious monetary stance; corporate earnings to remain muted: Despite the moderation in the inflation rate, the Reserve Bank of India (RBI) is likely to retain its cautious view in the light of the inflationary pressures resulting from the rupee's depreciation. We do not expect it to cut the key policy rates or take any measure to ease liquidity during the policy review meet at the end of July. Thus, the cyclical uptick in the economy could be more sluggish than expected or get delayed due to the uncertainty caused by external factors. The earnings season would be rather lacklustre with the expectations of a marginal decline in the cumulative earnings of the Sensex in Q1 of FY2014 and the growing risk of further downgrades in the FY2014 earnings estimates.  Nifty likely to fluctuate in a broader range: The global events pushed the market towards the lower end of its multi-month trading range of 5600-6100; however, the benchmark indices are stabilsing after the initial knee-jerk reaction. In the immediate term, the continued pressure on the rupee remains the key risk to inflation, might delay monetary easing by the RBI and put further stress on already stretched corporate balance sheets. However, the valuation is quite reasonable with a one-year forward price/earnings (PE) multiple of 13.8x, which is at 5% discount to the long-term average valuation of the Sensex. Consequently, the benchmark indices are likely to consolidate within a broad range though with increase in volatility.  SHAREKHAN TOP PICKS Sharekhan Top Picks  STOCK UPDATES Eros International: Media Price target reduced to Rs240 Gateway Distriparks: Norwest Venture Partners to invest in Snowman Logistics Godrej Consumer Products: Management interaction note HCL Technologies: Upgraded to Buy with increased price target of Rs900 Hindustan Unilever: Book some profits, Hold from long-term perspective ICICI Bank: Annual report review  IL&FS Transportation Networks: Environment ministry clears 3 road projects Ipca Laboratories: Price target revised to Rs675 Mahindra & Mahindra: M&M to consolidate automotive component business Persistent Systems: Upgraded to Buy Pratibha Industries: Muted execution and higher interest expenditure dent earnings Raymond: Annual report review Reliance Industries: Refining margin to correct; petchem margin to improve in the quarter coming ahead Selan Exploration: Technology Budget for development activities approved; retain Buy State Bank of India: Annual report review - Price target revised to Rs2,450 Sun Pharmaceutical Industries: Upgraded to Buy post-correction with revised price target of Rs1,120  Tata Consultancy Services: TCS reiterates FY2014 will be better than FY2013 United Phosphorus: Annual report review  Unity Infraprojects: Price target revised to Rs57 Zee Entertainment Enterprises: New advertising directive to hit ad volumes, phased rates hikes to counter the move SHAREKHAN SPECIAL Currency impact Q1FY2014 Banking earnings preview Monthly economy review SECTOR UPDATES FMCG: Prices of key inputs remain stable; freebies galore Real Estate: Tough environment; be selective  VIEWPOINT Puravankara Projects: Banking on Bangalore market Titan Industries: New regulation alters business model   EQUITY TECHNICALS    Sensex: Final leg up  EQUITY DERIVATIVES    Derivative view: Bulls high on spirit  COMMODITY FUNDAMENTALS    Macro-economy Crude oil: Geopolitical risk premium the main driver  Bullion: Downside pressure to continue Base metals: Likely to move higher on bargain buying, US data Major economic events in July 2013   COMMODITY TECHNICALS    Buy gold on dips Silver has channel supports  Crude oil sees larger distribution Downside potential intact in copper Fresh opportunity for bears in nickel Turmeric poised for a fall  CURRENCY FUNDAMENTALS    Rupee hammered by broad-based dollar strength  INR-USD CMP: Rs60.18 (spot) INR-GBP CMP: Rs90.77 (spot) INR-EUR CMP: Rs77.64 (spot) INR-JPY CMP: Rs60.20 (spot)   CURRENCY TECHNICALS    USD-INR: Pit stop GBP-INR: Cushion for bulls EUR-INR: Bulls gathering strength  JPY-INR: Sub-division on the way up  PMS DESK Sharekhan PMS funds: Fund manager's view and product performance ProPrime-Top Equity ProPrime-Diversified Equity ProTech-Diversified ProTech-Nifty Thrifty ProTech-Trailing Stops  ADVISORY DESK    Monthly performance of Advisory products MID Trades Derivative Ideas  MUTUAL FUNDS DESK  MF PICKS Sharekhan's top mutual fund picks (equity)  Sharekhan's top SIP fund picks  EARNINGS GUIDE Click here to read report: Sharekhan ValueGuide   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.