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Equity market
Comsi Comsa (so, so)
While Budget 2011-12 has not rolled back the stimulus for the markets, it is low on significant policy actions. Hence,
CRISIL Equities believes it is essentially neutral for the domestic equity markets.
Higher capital outlay and other policy measures for infrastructure, education and realty sectors are expected to boost
sentiments and support the players’ growth, but the overall impact on profitability may not be significant. The
government has focused on easing financing to infrastructure. The allocation to infrastructure has been raised by 23.3
per cent to Rs 2.14 lakh crore. The FII limit for investment in corporate bonds (with maturity over five years) issued in
the infrastructure sector has been raised by US$20 bn. Further, the additional deduction of Rs 20,000 for investment in
long-term infrastructure bonds would be extended in FY12. While these measures will facilitate financing infrastructure
projects, we believe execution delays rather than financing pose a bigger challenge for infra companies. The
liberalization of interest subvention of 1 per cent on housing loans and enhancing of housing loan limit to Rs 25 lakh for
units under priority sector lending would be positive for players in affordable and low income housing. The 24 per cent
increase in budget allocation for education is expected to be positive for the sector.
The removal of STPI exemption and bringing SEZ (developers and production units) under purview of MAT would
adversely impact the IT sector. On the taxation front, while reduction in surcharge from 7.5 per cent to 5 per cent is
positive for normal tax paying companies, the benefit would be nullified for companies under MAT due to 0.5
percentage points increase in MAT rate.
Allowing foreign investors to invest in domestic mutual funds is a key positive for equity markets and is expected to
lead to higher capital flow from foreign investors. Continuing with its divestment agenda, the government has set a
target of raising Rs 40,000 crore through divestment of its stake in central public sector undertakings, which we believe
would be challenging in the current market conditions.
The Nifty started the budget day on a positive note. However, the index was very volatile. It witnessed an intra-day high
of 5477 (+3.3 per cent) and an intra-day low of 5309 (+0.1 per cent); it closed at 5,333 (+0.6 per cent) for the day.
Equity market
NIFTY Close as of Change Remarks
28-Feb-11 25-Feb-11
NIFTY 5333 5304 0.6% Budget expected to be neutral for markets
Sectoral indices
AUTO 8253 8251 0.0%
METAL 15349 15344 0.0%
BANKEX 11840 11832 0.1%
For 2010, the domestic consumption story played out for consumer durables, auto, FMCG, banking and healthcare
sectors, helping the markets to deliver 18 per cent returns. However, realty, metals, power, infrastructure and oil & gas
sectors underperformed the broader markets. Net FII inflow in 2010 was Rs 627 bn in the secondary equity markets.
The year 2011 has started with strong headwinds in the form of high inflation, rising crude prices, monetary tightening
and dent in corporate credibility. These domestic concerns coupled with improvement in developed economies have so
far led to net selling of over Rs 130 billion in the secondary equity markets. As a result, Indian markets have not only
underperformed most of the developed markets but also most emerging markets significantly in the past two months.
CRISIL Equities expects domestic consumption to remain strong and India to register GDP growth of 8.3 per cent in
FY12. The recent spike in crude oil prices, driven by political turmoil in the crude-producing regions needs to be
closely monitored because consistently high crude prices could pose a real threat to the Indian markets given its high
dependence on oil imports. This risk is accentuated by an already high inflation and there is little leeway for further
monetary tightening without impacting growth. While the government targets fiscal deficit of 4.6 per cent in FY12, we
believe it could be a challenge to achieve.
Equity market
Nevertheless, CRISIL Equities believes that 2011 will be a tale of two halves for the Indian market. In the first half we
expect the market to continue to remain subdued due to concerns on high commodity prices, inflation and earnings
downgrades while in the second half we expect potential absence/bare minimum impact of most of these factors would
provide buoyancy to the markets. A strong GDP growth expectation coupled with attractive valuation could support the
market in the second half. On the back of global concerns and earnings downgrade we have tempered our returns
expectations. We expect the Nifty to trade at 6200-6400 (Sensex 20700-21200) by the year-end (December 31). We
expect banking, IT and pharma to deliver strong returns but remain neutral on telecom and infrastructure, and negative
on real estate.
FII and DII flows in secondary equity markets One-year forward P/E multiple
(Rr an) FII DII 25
300
19x
250
20
200
150 15
100
14x
50 10 Median =14x
0
-50 5 7x
-100
-150 0
Mar-10
Jul-10
Nov-10
Dec-10
Apr-10
Oct-10
Jan-10
Jun-10
Jan-11
May-10
Feb-10
Feb-11
Aug-10
Sep-10
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: NSE Source: Industry
Lakshmi Finance & Industrial 1/5 58 40 120 5/5 10.90 N.A. 3.64 NA
Cements
Sagar Cements 2/5 202 135 2,009 5/5 2.10 7.60 64.21 17.74 Change in excise duty to impact negatively
OCL India 3/5 178 104 5,920 5/5 17.80 26.10 5.85 3.99
Chemicals
Dhanuka Agritech 3/5 87 68 3,421 5/5 10.10 12.10 6.77 5.65
Hydro S&S Industries 3/5 37 24 151 5/5 0.8 3.8 30.02 6.11
Navin Fluorine International 2/5 265 234 2,363 4/5 73.40 156.40 3.19 1.50
Plastiblends India 3/5 230 162 1,050 5/5 25.40 30.80 6.36 5.25
Punjab Chemicals & Crop
1/5 126 90 644 5/5 -26.30 -0.70 NM NM
Protection
continued…
Consumer Durables
Cut in Income Tax slabs and more disposable
Symphony 3/5 829 1,011 7,099 2/5 75.70 98.60 13.36 10.26
income in rural due to NREGA
Consumer Finance
Wall Street Finance 2/5 32 26 301 4/5 -0.05 1.60 NM 16.16
Electrical Equipment
Havells India 4/5 368 317 39,554 4/5 21.10 30.70 15.02 10.33
Modison Metals 3/5 44 26 850 5/5 4.40 5.10 5.95 5.14
Industrial Conglomerates
Century Plyboards India 3/5 73 59 13,086 4/5 6.00 7.00 9.82 8.41 Change in excise duty to impact negatively
IT Services
Polaris Software Lab 4/5 235 182 18,037 5/5 20.00 22.70 9.09 8.01
Infinite Computer Solutions 3/5 269 160 7,034 5/5 24.30 30.90 6.58 5.18 Non extension of STPI,SEZ under MAT regime
Omnitech Infosolutions 3/5 282 130 1,806 5/5 42.40 48.70 3.07 2.68
Zylog Systems 3/5 656 401 6,595 5/5 89.30 100.00 4.49 4.01
Spanco 3/5 289 144 4,041 5/5 17.40 29.50 8.28 4.88
Machinery
Eimco Elecon India 4/5 339 224 1,291 5/5 29.10 36.80 7.69 6.08
Wendt India 4/5 1,229 1,030 2,060 4/5 93.60 115.00 11.00 8.96
continued…
Personal Products
GKB Opthalmics 2/5 44 38 158 4/5 7.90 5.50 4.82 6.92
Pharmaceuticals
Plethico Pharmaceuticals 3/5 530 370 12,605 5/5 76.50 75.70 4.84 4.89
Real Estate
Ackruti City* 3/5 640 206 14,991 5/5 19.60 61.60 10.52 3.35
DLF 3/5 356 212 359,627 5/5 12.60 15.70 16.81 13.49
Phoenix Mills 2/5 192 177 25,652 3/5 8.60 9.60 20.59 18.45
Ashiana Housing 3/5 220 125 2,342 5/5 24.30 31.90 5.14 3.92
Omaxe 2/5 176 136 23,605 5/5 7.40 15.40 18.38 8.83 Interest subvention & increase in priority limit is
Parsvnath Developers 2/5 63 29 12,816 5/5 4.10 5.10 7.18 5.77 a positive for companies in affordable housing
Vipul 2/5 31 15 1,758 5/5 1.80 4.30 8.14 3.41
Specialty Retail
Thangamayil Jewellery 2/5 152 161 2,207 3/5 21.60 25.40 7.45 6.33
continued…