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CONTENTS

CONTENTS

From Sharekhan’s Desk

ValueGuide Index

 

Global concerns vs Domestic positives

INVESTMENT INSIGHTS

 

In June our market managed to recover the losses suffered in the previous month on the back of some positive developments domestically and a rebound in the equities markets globally during the early part of the month. However, the global uncertainties refuse to fade away and the equity markets across the world have turned jittery once again.

the global uncertainties refuse to fade away and the equity markets across the world have turned
03
03

REGULAR FEATURES

Sharekhan Top Picks Stock Idea Stock Update Mutual Funds Sector Update Viewpoint

13

17

22

35

36

37

06

Report Card

4

 

Earnings Guide

 

I

Market Outlook

Local push, global pull

TRADER'S TECHNIQUES

 

The Indian economy has returned to normalcy with a smart recovery in industrial production, credit offtake and exports, hinting towards a broad-based revival in the real economy.

38
38

Sensex

39

Soy oil

39

07

Lead

40

Sharekhan Special

Derivatives view

40

Q1FY2011 Auto earnings preview

 
 

Strong volume growth continues: Automobile (auto) sales continued to post robust volumes in Q1FY2011, with the sector witnessing a strong 32.1% year-on-year (y-o-y) growth in the first two months of the quarter. 32

COMMODITIES CORNER

41

 
Soy oil 42

Soy oil

42

Q1FY2011 FMCG earnings preview

 

The top line of Sharekhan’s fast moving consumer goods (FMCG) universe is likely to grow by 15.3% year on year

(yoy) in Q1FY2011.

33

Q1FY2011 Pharma earnings preview

PREMIER IDEAS

We expect the pharmaceutical (pharma) companies to report a strong growth for Q1FY2011 wherein the mid-caps will continue their winning streak. 33

43
43

Smart Trades Ideas

44

Nifty Ideas

44

Monthly economy review

Derivatives Ideas

44

In April 2010 the Index of Industrial Production (IIP) registered a robust growth of 17.6% yoy.

34

 

July 2010

2
2

Sharekhan ValueGuide

Sharekhan ValueGuide 3 July 2010

REPORT CARD

REPORT CARD

STOCK IDEAS STANDING (AS ON JULY 02, 2010)

 

COMPANY

RECO

PRICE

RECO

CURRENT

PRICE AS ON

GAIN-

ABSOLUTE PERFORMANCE

 

RELATIVETOSENSEX

 

PRICE

TARGET

DATE

RECO

02-JUL-10

LOSS (%)

1M

3M

6M

12M

1M

3M

6M

12M

EVERGREEN

                           

HDFC

2700.0

3085.0

19-Nov-07

Hold

2916.3

8.0

9.0

6.1

10.3

27.4

2.7

6.4

9.2

4.9

HDFC Bank

358.0

2205.0

23-Dec-03

Buy

1912.9

434.3

3.5

-1.0

12.8

27.7

-2.5

-0.7

11.6

5.2

Infosys Technologies

689.1

3027.0

30-Dec-03

Hold

2727.5

295.8

5.4

4.2

7.0

55.7

-0.7

4.6

5.9

28.2

Larsen & Toubro

1768.0

1884.0

18-Feb-08

Hold

1786.0

1.0

12.6

8.7

6.9

14.8

6.1

9.1

5.8

-5.4

Reliance Ind

283.5

1215.0

5-Feb-04

Hold

1069.0

277.1

6.5

-0.8

-0.7

5.8

0.3

-0.5

-1.7

-12.8

Tata Consultancy Services

426.3

867.0

6-Mar-06

Hold

743.8

74.5

0.8

-7.7

-0.4

91.6

-5.0

-7.4

-1.4

57.8

APPLE GREEN

                           

Aditya Birla Nuvo

714.0

1003.0

6-Dec-05

Buy

768.0

7.6

7.4

-15.5

-12.9

-13.9

1.2

-15.2

-13.8

-29.1

Apollo Tyres

37.0

**

27-Jul-09

Buy

64.4

74.1

-7.8

-11.3

30.8

99.4

-13.2

-11.0

29.5

64.2

Bajaj Auto

586.2

2527.0

15-Nov-05

Buy

2455.1

318.8

15.3

24.9

42.2

152.7

8.6

25.4

40.7

108.1

Bajaj Finserv

545.0

572.0

26-May-08

Hold

430.8

-21.0

-5.1

25.5

25.2

15.4

-10.6

25.9

23.9

-5.0

Bajaj Holdings

741.9

970.0

26-May-08

Buy

709.2

-4.4

7.7

16.7

15.0

80.2

1.5

17.1

13.8

48.4

Bank of Baroda

239.0

802.0

25-Aug-06

Buy

715.6

199.4

3.7

13.2

43.1

62.9

-2.3

13.6

41.6

34.2

Bank of India

358.0

388.0

29-Oct-09

hold

357.0

-0.3

10.9

3.1

-7.2

1.4

4.5

3.4

-8.2

-16.5

Bharat Electronics

1108.0

2015.0

25-Sep-06

Hold

1723.3

55.5

0.8

-21.4

-11.2

26.6

-5.1

-21.1

-12.1

4.3

Bharat Heavy Electricals

602.0

2616.0

11-Nov-05

Buy

2391.9

297.3

4.9

0.5

1.5

10.5

-1.2

0.8

0.4

-9.0

Bharti Airtel

313.0

350.0

8-Jan-07

Hold

264.7

-15.4

3.1

-12.2

-19.6

-35.5

-2.8

-11.9

-20.5

-46.9

Corp Bank

218.0

640.0

19-Dec-03

Buy

514.9

136.2

2.5

12.5

27.9

69.6

-3.5

12.9

26.6

39.7

Crompton Greaves

50.4

281.0

19-Aug-05

Hold

251.7

399.3

6.9

-5.6

5.7

54.6

0.7

-5.2

4.6

27.4

Glenmark Pharmaceuticals

599.0

400.0

17-Jul-08

Buy

275.4

-54.0

-0.5

-0.1

-2.0

28.5

-6.2

0.3

-3.0

5.8

Godrej Consumer Products

145.0

375.0

7-May-09

Hold

345.0

137.9

5.8

32.8

31.9

109.6

1.0

33.7

30.9

73.2

Grasim

1119.0

2300.0

30-Aug-04

Hold

1827.1

63.3

3.3

-12.5

-0.1

8.3

-2.6

-12.2

-1.1

-10.8

HCL Technologies**

103.0

419.0

30-Dec-03

Buy

353.0

242.7

-0.4

2.1

-1.6

93.5

-6.2

2.4

-2.6

59.4

Hindustan Unilever *

272.0

243.0

24-Nov-05

Reduce

268.4

1.3

12.9

16.5

1.4

0.5

7.7

17.2

0.6

-17.0

ICICI Bank

284.0

1243.0

23-Dec-03

Buy

840.1

195.8

1.9

-10.4

-2.7

17.0

-4.0

-10.1

-3.7

-3.7

Indian Hotel Company

76.6

111.0

17-Nov-05

Buy

104.7

36.7

4.4

2.1

2.0

62.9

-0.3

2.7

1.3

34.7

ITC

69.5

**

12-Aug-04

Buy

302.6

335.3

11.4

18.7

25.0

66.4

6.4

19.5

24.0

37.5

Lupin

403.5

2030.0

6-Jan-06

Buy

1932.0

378.8

4.1

19.3

30.9

136.4

-1.9

19.7

29.6

94.7

M&M

116.0

694.0

1-Apr-04

Hold

602.4

419.3

9.0

15.1

13.8

74.6

2.7

15.6

12.6

43.8

Marico

7.7

**

22-Aug-02

Hold

126.5

1,542.9

16.5

16.7

23.0

70.9

11.2

17.4

22.1

41.2

Maruti Suzuki

360.0

1473.0

23-Dec-03

Hold

1415.9

293.3

11.4

0.6

-10.2

31.0

5.0

0.9

-11.1

7.9

Piramal Healthcare

146.0

**

16-Mar-04

Hold

488.9

234.9

-3.9

15.3

30.7

52.4

-9.5

15.7

29.4

25.5

Punj Lloyd

519.0

138.0

12-Dec-07

Hold

133.5

-74.3

12.3

-24.9

-34.7

-37.5

5.8

-24.6

-35.4

-48.5

SBI

476.0

2580.0

19-Dec-03

Buy

2265.1

375.9

3.3

8.5

1.1

28.9

-2.7

8.9

0.1

6.2

Sintex industries

286.0

353.0

26-Sep-08

Buy

315.5

10.3

16.7

7.5

15.0

41.9

9.9

7.9

13.8

16.9

Tata Tea^

78.9

136.0

12-Aug-05

Buy

120.8

53.1

13.0

24.5

28.4

67.5

7.9

25.3

27.4

38.4

Wipro

251.0

461.0

9-Jun-06

Hold

385.6

53.6

-4.2

-12.6

-7.2

66.3

-9.7

-12.2

-8.2

36.9

EMERGING STAR

                           

3i Infotech

66.0

105.0

6-Oct-05

Buy

63.3

-4.1

0.5

-18.3

-24.4

-5.3

-5.3

-18.0

-25.2

-22.0

Allied Digital Services

189.5

300.0

14-Aug-09

Buy

225.5

19.0

4.2

7.2

-2.8

39.7

-1.9

7.5

-3.8

15.1

Alphageo India

150.0

297.0

29-Nov-06

Buy

190.4

26.9

8.3

-12.2

-14.7

22.4

2.0

-11.9

-15.5

0.8

Axis (UTI) Bank

229.4

1442.0

24-Feb-05

Buy

1237.2

439.4

4.4

6.2

26.0

43.3

-1.6

6.5

24.6

18.0

Cadila Healthcare#

198.3

780.0

21-Mar-06

Buy

657.5

231.5

8.3

21.5

54.5

171.0

2.1

21.9

52.9

123.2

EMCO

81.2

94.0

29-Jun-09

Hold

80.9

-0.4

2.0

-1.5

-7.9

1.8

-3.9

-1.1

-8.8

-16.2

Greaves Cotton**

266.0

422.0

24-Dec-09

Buy

339.3

27.5

4.6

7.4

19.7

191.2

-1.5

7.7

18.5

139.8

REPORT CARD

REPORT CARD

STOCK IDEAS STANDING (AS ON JULY 02, 2010)

 

COMPANY

RECO

PRICE

RECO

CURRENT

PRICE AS ON

GAIN/

ABSOLUTE PERFORMANCE

RELATIVE TO SENSEX

 

PRICE

TARGET

DATE

RECO

02-JUL-10

LOSS (%)

1M

3M

6M

12M

1M

3M

6M

12M

Max India

212.0

295.0

24-Nov-09

Buy

158.4

-25.3

-2.5

-27.9

-29.5

-25.4

-8.2

-27.6

-30.3

-38.6

Opto Circuits India

199.0

265.0

13-May-08

Buy

236.4

18.8

7.9

9.7

5.0

52.1

1.7

10.1

3.9

25.2

Patels Airtemp

88.2

122.0

7-Dec-07

Buy

90.7

2.8

1.3

-0.7

21.8

69.2

-4.5

-0.4

20.5

39.3

Thermax

124.2

**

14-Jun-05

Hold

746.9

501.3

6.7

6.4

22.4

84.7

0.5

6.8

21.2

52.1

Zydus Wellness

184.0

**

15-Oct-09

Hold

487.8

165.1

3.6

20.0

80.4

412.3

-2.4

20.4

78.5

321.9

UGLY DUCKLING

                           

BASF

220.0

469.0

18-Sep-06

Hold

423.5

92.5

2.4

14.8

2.1

69.5

-3.5

15.2

1.1

39.6

Deepak Fert

50.6

178.0

17-Mar-05

Buy

149.1

194.6

19.8

25.1

34.0

65.4

12.9

25.5

32.6

36.2

Federal Bank

258.0

344.0

16-Mar-10

Buy

330.0

27.9

-5.2

19.3

34.2

29.7

-10.7

19.7

32.8

6.8

Gayatri Projects

393.0

549.0

5-Apr-10

Buy

424.9

8.1

-4.7

7.7

2.8

134.1

-10.2

8.1

1.7

92.8

Genus Power

207.0

298.0

21-Jun-10

Buy

201.3

-2.8

9.5

14.3

19.7

-1.3

3.1

14.7

18.5

-18.7

India Cements

113.0

**

25-Jan-10

Reduce

106.6

6.1

0.2

-20.7

-13.6

-17.3

-5.6

-20.4

-14.5

-31.9

Ipca Laboratories

132.0

330.0

5-Nov-07

Buy

292.6

121.7

5.9

5.0

38.0

188.3

-0.2

5.4

36.5

137.4

ISMT

43.0

69.0

8-Oct-09

Buy

46.9

9.1

1.9

-13.4

-12.5

56.1

-4.0

-13.1

-13.5

28.6

Jaiprakash Associates

16.7

173.0

30-Dec-03

Buy

127.1

662.4

9.1

-16.7

-12.8

-7.3

2.8

-16.4

-13.7

-23.7

Orbit Corporation

400.0

215.0

17-Dec-07

Buy

131.4

-67.2

3.0

-2.7

-15.4

65.3

-3.0

-2.4

-16.3

36.1

Pratibha Industries

326.0

508.0

18-Jan-10

Buy

394.8

21.1

0.5

5.0

28.8

134.8

-5.3

5.4

27.5

93.4

Punjab National Bank

180.0

1224.0

19-Dec-03

Buy

1046.2

481.2

2.3

0.4

13.9

50.9

-3.6

0.8

12.7

24.3

Ratnamani Metals

54.0

149.0

8-Dec-05

Buy

124.8

131.0

5.1

21.4

17.7

66.9

-1.0

21.8

16.5

37.4

Selan Exploration

58.0

507.0

20-Mar-06

Buy

384.9

563.5

11.0

-12.2

13.4

96.5

4.6

-11.9

12.2

61.8

Shiv-Vani Oil & Gas

370.0

520.0

4-Oct-07

Buy

443.0

19.7

6.0

0.6

29.5

61.5

-0.1

1.0

28.2

33.0

Subros

41.2

60.0

26-Apr-06

Buy

46.8

13.6

9.3

4.8

2.9

72.0

2.9

5.1

1.8

41.6

Sun Pharmaceutical

302.0

2010.0

24-Dec-03

Buy

1755.8

481.4

4.3

-2.8

16.2

58.5

-1.8

-2.5

15.0

30.5

Sunil Hitech Engineers

211.0

295.0

12-Mar-10

Buy

205.6

-2.6

-1.6

-11.1

-8.8

21.1

-7.3

-10.8

-9.8

-0.3

Torrent Pharma

185.0

640.0

4-Oct-07

Buy

561.3

203.4

1.6

3.9

43.1

219.5

-4.3

4.3

41.7

163.1

UltraTech Cement

384.0

1070.0

10-Aug-05

Hold

870.6

126.7

-5.1

-23.8

-4.6

28.7

-10.5

-23.5

-5.6

6.0

Union Bank of India

46.0

385.0

19-Dec-03

Buy

310.8

575.7

13.1

5.3

20.8

28.5

6.5

5.7

19.5

5.8

United Phosphorus

163.0

220.0

27-Aug-09

Buy

182.3

11.8

3.4

21.4

4.4

23.5

-2.6

21.8

3.4

1.7

Zensar Technologies

342.0

351.0

18-Jun-07

Hold

316.5

-7.5

9.9

20.6

1.7

184.9

3.6

21.0

0.7

134.6

VULTURE'S PICK

                           

Esab India

60.0

672.0

21-May-04

Buy

610.1

916.8

8.4

1.0

16.9

55.5

2.1

1.4

15.7

28.0

Mahindra Lifespace

799.0

506.0

9-Jan-08

Hold

457.6

-42.7

9.7

17.3

34.5

72.7

3.4

17.7

33.1

42.2

Orient Paper

21.4

65.0

30-Aug-05

Hold

57.2

167.3

3.9

11.1

17.9

24.5

-2.1

11.5

16.7

2.5

Tata Chemicals

411.0

353.0

31-Dec-07

Hold

322.4

-21.6

4.4

3.0

2.5

56.3

-1.7

3.4

1.5

28.7

Unity Infraprojects

138.4

151.0

26-Feb-08

Buy

106.4

-23.2

5.0

-10.9

-0.5

61.6

-1.1

-10.5

-1.5

33.1

CANNONBALL

                           

Allahabad Bank

73.0

187.0

25-Aug-06

Buy

160.0

119.2

-0.6

15.6

32.3

112.1

-6.3

16.0

30.9

74.7

Andhra Bank

85.0

155.0

25-Aug-06

Buy

129.5

52.4

-0.1

23.5

28.4

64.9

-5.9

23.9

27.1

35.8

IDBI Bank

106.0

169.0

19-Jun-09

Buy

119.3

12.5

7.9

2.3

-7.0

10.8

1.6

2.7

-8.0

-8.8

Madras Cements

111.0

90.0

28-Jan-10

Reduce

99.4

11.7

-3.7

-18.5

-12.3

-1.7

-9.3

-18.2

-13.2

-19.1

Phillips Carbon Black

135.0

250.0

21-Aug-09

Buy

185.9

37.7

2.5

-6.1

15.7

200.3

-3.5

-5.7

14.5

147.3

Shree Cement

445.0

2100.0

17-Nov-05

Hold

1958.4

340.1

-0.6

-16.2

3.0

66.5

-6.4

-15.9

2.0

37.1

TFCI

17.1

38.0

25-Jun-07

Buy

31.0

81.0

7.1

5.4

21.9

51.4

0.9

5.7

20.6

24.6

**Price target under review ^ Reco price adjusted for stock split

#Reco price adjusted for bonus

FROM SHAREKHAN’S DESK Global concerns vs Domestic positives In June our market managed to recover
FROM SHAREKHAN’S DESK

FROM SHAREKHAN’S DESK

Global concerns vs Domestic positives

In June our market managed to recover the losses suffered in the previous month on the back of some positive developments domestically and a rebound in the equities markets globally during the early part of the month. However, the global uncertainties refuse to fade away and the equity markets across the world have turned jittery once again. The good news is that the Indian market continues to outperform the other global markets and has held out well in the recent volatile phase.

Sentiments towards the Indian market are boosted by the slew of reformist decisions announced lately. After dithering for long the government has finally decontrolled petrol prices and promised to free diesel from price controls too, displaying its willingness to go ahead with tough reforms. This unexpected announcement is among the number of steps that have been taken in the past few months to curtail the burgeoning food and oil subsidy burden and, in turn, addresses the critical issue of fiscal consolidation. What’s more, the announcement of reforms in the oil sector was immediately followed by suggestions to relax foreign direct investment norms in the media sector.

Another notable factor aiding market sentiments is the forecast of a normal monsoon. In fact, the India Meteorological Department has revised upwards its monsoon forecast for this year from 98% of the long period average to 102% keeping in mind the possibility of La Nina factor. Given the soaring food inflation, normal monsoon rains are essential to cool down food/agri product prices domestically especially since the rainfall was below normal in the past two years. Consequently, the Street would closely watch for the deficit reported in monsoon rains during the initial phase to correct itself in July, which is the peak sowing month for the kharif crops.

Apart from the progress of the monsoon, the first quarter results would influence the market’s direction in the near term. Expectations have built up considerably after the strong earnings growth reported in the last quarter. We would outline the same in our forthcoming detailed result preview notes on the Q1 performance.

Though the domestic cues have been positive lately, the global factors continue to act as a drag on equity markets globally as well as the Indian market. In addition to the European crisis, the economic data coming out of the USA is also turning weak. On the other hand, China is keeping the world guessing with conflicting signals related to possible overheating and the policy steps taken or planned to deal with the same. The global issues are discussed in detail in the Market Outlook report released this month.

Thus, global concerns are vying with the positive developments at home for the market’s attention and this tussle could keep the markets volatile and bound in a range in the days ahead. Under the circumstances, it will be wise to stay invested in fundamentally sound companies like Sharekhan’s Stock Ideas and to use corrections as an opportunity to increase your exposure to such companies.

MARKET OUTLOOK

JULY 02, 2010

M ARKET O UTLOOK J ULY 02, 2010 MARKET OUTLOOK Local push, global pull KEY POINTS
MARKET OUTLOOK

MARKET OUTLOOK

Local push, global pull

KEY POINTS

The Indian economy has returned to normalcy with a smart recov- ery in industrial production, credit offtake and exports, hinting to- wards a broad-based revival in the real economy. In addition, the fiscal position is expected to improve considerably on the back of the third generation (3G)/broadband auction bonanza and the slew of initiatives taken to curtail food and oil subsidy burdens.

Notwithstanding the low base effect, the improving macro envi- ronment has translated into a strong rebound in the earnings, as borne out by the Q4 earnings season. The earnings of the Sensex companies registered a growth of 27.6% year on year (yoy) vs about a 15% growth in the previous quarter. Importantly, the strong earnings growth momentum is likely to continue in the years ahead with the FY2011 earnings expected to grow by 21% yoy (though commodities remain the key risk given the recent softening of base metal prices).

Further, the earnings growth momentum in FY2012 and beyond would be supported by three key pillars: (1) A surge in infrastruc- ture creation across sectors; (2) booming domestic consumption; and (3) ground-breaking tax reforms. Effectively, the current fis- cal would mark the beginning of the next earnings growth cycle.

The key risks to our thesis are: (1) Scarcity of foreign inflows that are essential to support a high real gross domestic product (GDP) growth and fill in the fiscal gap; (2) the continued weak domestic flows in domestic institutions, mutual funds and insurance com- panies; and (3) the inflationary pressures resulting from the hike in fuel prices and a possible abnormal monsoon this year as well.

While the domestic indicators have reported reassuring trends, the developed economies have weakened once again. While the European crisis was already putting a question mark on the sustainability of the global recovery, the recent economic data from the USA has turned weak and revived debates of a double- dip recession. The weakness primarily stems from the worsen- ing trends in the housing space after the expiry of tax benefits that has also dampened consumer sentiments.

All in all, the short-term outlook remains muddied by the troubles in the developed nations with persistent doubts over the recov- ery in the USA and the unresolved challenges for the East Euro- pean nations. Hence, the valuation for the Sensex is likely to hover around the long-term average multiple of 15x (one-year forward earnings). Having said that, the medium-to-long-term outlook remains strong driven by India’s robust macro funda- mentals and the beginning of the next earnings growth cycle.

DOMESTIC SCENARIO

Growth back on track

The growth of the Indian economy appears to be back on track as reflected by the smart “V” shaped recovery seen in industrial produc- tion, credit and external trade. The recovery in these key economic indicators, especially industrial growth, led to a strong revival in real GDP growth. With this, the FY2010 GDP growth came in strong at 7.4% despite a lower agricultural growth. More importantly, the fu- ture growth outlook too remains strong as a result of an easing of the commodity prices and prediction of a normal monsoon for 2010.

INDUSTRIAL PRODUCTION 20% 15% 10% 5% 0% -5% -10% IIP yoy (% ) IIP 3
INDUSTRIAL PRODUCTION
20%
15%
10%
5%
0%
-5%
-10%
IIP yoy (% )
IIP 3 MMA (% )
The IIP for April 2010 registered a robust growth of 17.6% yoy, marking the seventh
consecutive month of a double-digit growth. The index has been sustaining at higher
levels since June 2009, aided by a strong revival in capital goods.
Apr-95
Apr-96
Apr-97
Apr-98
Apr-99
Apr-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
TREND IN CREDIT AND EXPORT GROWTH 0.35 0.6 0.5 0.30 0.4 0.3 0.25 0.2 0.1
TREND IN CREDIT AND EXPORT GROWTH
0.35
0.6
0.5
0.30
0.4
0.3
0.25
0.2
0.1
0.20
0
-0.1
0.15
-0.2
-0.3
0.10
-0.4
Non Food Credit
(% yoy)
Ex ports
(% yoy)
The credit offtake remained strong at around 19% yoy in June 2010, almost double
that in the same period of the previous year. If the credit offtake maintains its pace,
it is likely to exceed the 20% year-on-year (y-o-y) projection made by the Reserve
Bank of India (RBI) during its last monetary policy meet.
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10

GDP GROWTH

11% Real GDP % yoy 10% 9% 8% 7% 6% 5% 4% 3% 2% The
11%
Real GDP % yoy
10%
9%
8%
7%
6%
5%
4%
3%
2%
The GDP for Q4FY2010 came in at Rs1,205,119 crore, up by 8.6% yoy. The strong
GDP growth for the quarter was due to the sustained growth momentum in industrial
output, which expanded by 13.3% as compared to by 11.1% during the previous
quarter, as well as a revival in agricultural growth.
The robust fourth quarter growth thus provided an impetus to FY2010 GDP growth
leading to a strong 7.4% expansion for the full year despite a lower agricultural
growth. Going ahead, the forecast of a normal monsoon provides optimism relating
to agricultural growth in the current fiscal. As a result of revival in the economy, an
easing of the commodity prices and expectations of higher agricultural growth, the
outlook for the Indian economy is optimistic and the RBI has projected an 8% GDP
growth for the Indian economy during FY2011.
Jun-05
9.3%
Sep-05
8.9%
Dec-05
9.7%
Mar-06
10.0%
Jun-06
9.8%
Sep-06
10.1%
Dec-06
9.4%
Mar-07
9.6%
Jun-07
9.3%
Sep-07
9.4%
Dec-07
9.7%
Mar-08
8.5%
Jun-08
7.8%
Sep-08
7.5%
Dec-08
6.1%
Mar-09
5.8%
Jun-09
6.0%
Sep-09
8.6%
Dec-09
6.5%
Mar-10
8.6%
MARKET OUTLOOK Investment cycle gains momentum The smart “V” shaped recovery has translated in to

MARKET OUTLOOK

MARKET OUTLOOK

Investment cycle gains momentum

The smart “V” shaped recovery has translated in to a marked im- provement in the business and consumer confidence. In line, the investment cycle has gained momentum after remaining lacklustre for the past two years. The improvement in the investment cycle is reflected through a strong growth in gross capital formation, a surge in resources raised through primary equity markets and traction in project implementation. The investment cycle has improved because of improving corporate profitability and easing of commodity prices.

GROSS CAPITAL FORMATION 1800 20% GCF GCF % yoy 1600 15% 1400 10% 1200 1000
GROSS CAPITAL FORMATION
1800
20%
GCF
GCF % yoy
1600
15%
1400
10%
1200
1000
5%
800
0%
600
-5%
400
-10%
200
0
-15%
FY2006
FY2007
FY2008
FY2009
FY2010
Gross capital formation saw a significant revival in FY2010 after declining sharply in
FY2009. During Q4FY2010 the gross fixed capital formation grew by a robust 25% yoy—
at
its fastest pace in around five years. Additionally, the outlook for the same too appears
bright as reflected by a consistent improvement in new project announcements.
Thousand Crore (Rs)
CAPITAL RAISING THROUGH PRIMARY EQUITY MARKETS 35000 Resources raised from domestic primary market 30000 25000
CAPITAL RAISING THROUGH PRIMARY EQUITY MARKETS
35000
Resources raised from domestic primary market
30000
25000
20000
15000
10000
5000
0
The surge in resources raised through the primary equity market (initial public
offerings [IPO], follow-on public offers [FPO] etc) point towards an optimistic outlook
and return of risk appetite.
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
TREND IN PROJECT INVESTMENT 6000 65% Project under implementation 5000 as % of outstanding Investments
TREND IN PROJECT INVESTMENT
6000
65%
Project under implementation
5000
as % of outstanding Investments
60%
4000
55%
3000
50%
2000
45%
1000
40%
0
35%
Projects under implementation have gained traction and project implementation as
a
percentage of outstanding investments improved to about 49% during March 2010.
Thousand Crore (Rs)
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10

Fiscal position in control now

The government raked in revenue of over one lakh crore rupees by auctioning 3G and broadband spectrums. With the revenue from the auctions significantly above the estimates disclosed in the Union Budget, the government’s fiscal position has come under control. Though the government may or may not lower the borrowing

REVENUE STREAMS (EXPECTATIONS VS POTENTIAL)

80,000 14.8% 16% 70,000 14% 60,000 12% 50,000 7.7% 10% 40,000 8% 30,000 6% 20,000
80,000
14.8%
16%
70,000
14%
60,000
12%
50,000
7.7%
10%
40,000
8%
30,000
6%
20,000
4%
10,000
2%
0
0%

Estimated

3G Auction Revenues8% 30,000 6% 20,000 4% 10,000 2% 0 0% Estimated Actual as % of borrowing The

20,000 4% 10,000 2% 0 0% Estimated 3G Auction Revenues Actual as % of borrowing The

Actual

as % of borrowing

The government has received an inflow of about Rs68,000 crore (vs expectation of Rs35,000 crore) from 3G auctions and Rs32,000 crore (vs expectation of Rs15,000 crore) from the sale broadband wireless access (BWA) spectrum.

programme, the extra revenue offers flexibility in managing the borrowing programme and yet would leave room for increased spending on infrastructure.

Besides the blockbuster auctions for 3G and BWA spectrums, the government has freed the petroleum prices recently. In addition to showing the political will to execute such reforms, the government has effectively reduced the fuel subsidy burden to an extent. What’s more, further freeing of prices of diesel, cooking gas etc would only reduce the subsidy burden.

FISCAL CONSOLIDATION TARGETS 4,500 8% Fiscal Deficit FD as % of GDP 4,000 7% 3,500
FISCAL CONSOLIDATION TARGETS
4,500
8%
Fiscal Deficit
FD as % of GDP
4,000
7%
3,500
6%
3,000
5%
2,500
4%
2,000
3%
1,500
2%
1,000
1%
500
0
0%
The government is likely to meet its fiscal deficit targets on the back of higher inflows
from 3G and BWA auctions, the ongoing withdrawal of fiscal stimulus measures
introduced previously and the initiatives such as the deregulation of complex
fertilisers and petrol prices.
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY09RE
FY10RE
FY11BE
FY12T
FY13T

Q4 earnings: Strong rebound

The macro recovery has trickled down to micro level with a signifi- cant improvement in the corporate earnings growth. In Q4FY2010, the earnings of the Sensex companies registered a strong rebound (up 27.6% yoy vs about a 15% growth in Q3FY2010). The earn- ings growth was primarily led by the automobile sector (141% yoy), the metal sector (up 165% yoy) and the real estate sector (up 168% yoy). Though the rebound in the earnings growth benefited from a

TREND IN EARNINGS GROWTH FOR SENSEX COMPANIES

50% Expected Adjusted PAT 40% 30% 20% 10% 0% -10% -20% Q4FY05 Q1FY06 Q2FY06 Q3FY06
50%
Expected
Adjusted PAT
40%
30%
20%
10%
0%
-10%
-20%
Q4FY05
Q1FY06
Q2FY06
Q3FY06
Q4FY06
Q1FY07
Q2FY07
Q3FY07
Q4FY07
Q1FY08
Q2FY08
Q3FY08
Q4FY08
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
MARKET OUTLOOK low base of the previous year, the volume growth too contributed to a
MARKET OUTLOOK