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Nomura's 4 top Buys and 2 top Sells for 2011 (click on company name for detailed report)
TOP BUYS (click on company name for detailed report)
1. Mahindra and Mahindra (M&M)
2. Tata Steel
3. Pantaloon Retail India
4. Cairn India
Top SELLS (click on company name for detailed report)
1. Ambuja Cements
2. Hindustan Petroleum Corporation (HPCL)
03 January 2011
Nomura 2011 Ideas: Top Buys & Sells: India
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Nomura: Top 2011 Sells: Hindustan Petroleum Corporation (HPCL)
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Hindustan Petroleum Corporation (HPCL)
Action
Since its recent peak in mid-September, HPCL has underperformed the Sensex by
25%. Hopes of reforms have taken a backseat again, with plans for diesel now on
the backburner. Given inflation worries, a near-term price hike looks unlikely. The
entire subsidy-sharing mechanism remains ad hoc. Firming up oil prices are likely
to derail any plan for reforms, in our view. REDUCE reiterated.
Catalysts
Tightening fundamentals, weakening US dollar, potentially higher inflation
expectations and abundant money supply will likely all lead to higher oil prices.
Anchor themes
We believe the oil price will strengthen further, driven by QE2 and improving
fundamentals, thus further dashing hopes of de-regulation/reforms. We continue to
believe that for OMCs to emerge as a long-term investment idea, concrete and
transparent policies on the subsidy-sharing mechanism are a must.
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Hindustan Petroleum Corporation (HPCL)
Action
Since its recent peak in mid-September, HPCL has underperformed the Sensex by
25%. Hopes of reforms have taken a backseat again, with plans for diesel now on
the backburner. Given inflation worries, a near-term price hike looks unlikely. The
entire subsidy-sharing mechanism remains ad hoc. Firming up oil prices are likely
to derail any plan for reforms, in our view. REDUCE reiterated.
Catalysts
Tightening fundamentals, weakening US dollar, potentially higher inflation
expectations and abundant money supply will likely all lead to higher oil prices.
Anchor themes
We believe the oil price will strengthen further, driven by QE2 and improving
fundamentals, thus further dashing hopes of de-regulation/reforms. We continue to
believe that for OMCs to emerge as a long-term investment idea, concrete and
transparent policies on the subsidy-sharing mechanism are a must.
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Nomura: Top 2011 Sells: Ambuja Cements
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Ambuja Cements
Action
We maintain our REDUCE rating and price target of INR113, based on an EV/IC
multiple-based methodology. The stock’s recent outperformance puts it at trading
premiums of 23% and 22% over peers ACC and Ultratech, respectively. We believe
such gaps are unjustified and expect a correction, as most of the earnings upside
appears to be priced in.
Catalysts
Pressure on earnings from a correction in realisations in the company’s core
markets could dampen share price performance.
Anchor themes
Profitability of the Indian cement sector looks set to decline considerably over the
next two to three years and valuations are yet to reflect the lower profitability levels.
We expect Ambuja Cement to deliver an average ROCE of 26% during FY10-12F,
compared with the 33% that the company delivered during FY06-09.
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Ambuja Cements
Action
We maintain our REDUCE rating and price target of INR113, based on an EV/IC
multiple-based methodology. The stock’s recent outperformance puts it at trading
premiums of 23% and 22% over peers ACC and Ultratech, respectively. We believe
such gaps are unjustified and expect a correction, as most of the earnings upside
appears to be priced in.
Catalysts
Pressure on earnings from a correction in realisations in the company’s core
markets could dampen share price performance.
Anchor themes
Profitability of the Indian cement sector looks set to decline considerably over the
next two to three years and valuations are yet to reflect the lower profitability levels.
We expect Ambuja Cement to deliver an average ROCE of 26% during FY10-12F,
compared with the 33% that the company delivered during FY06-09.
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Nomura: Top 2011 Buys: Cairn India
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Cairn India
Action
Cairn India has underperformed the Sensex by ~15% since the mid-August
announcement of a proposed change in its ownership (and resulting uncertainties
on government approvals). We believe the stock could remain range-bound until
clarity emerges on the deal. But after that, irrespective of the outcome, we think it
could do some catching up as its Rajasthan story remains promising. BUY.
Catalysts
Early clarity on the government’s decision on the Cairn Energy-Vedanta deal,
continued strength in oil prices, and fast ramp-up in Cairn’s MBA production.
Anchor themes
We believe oil prices could strengthen further in 2011, driven by QE-2 and
improving fundamentals. We like Cairn India as a pure oil play and continue to see
significant upside from the Rajasthan block, with nearly 4bn boe of discovered
resources and 2.5bn boe of prospective exploration resources.
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Cairn India
Action
Cairn India has underperformed the Sensex by ~15% since the mid-August
announcement of a proposed change in its ownership (and resulting uncertainties
on government approvals). We believe the stock could remain range-bound until
clarity emerges on the deal. But after that, irrespective of the outcome, we think it
could do some catching up as its Rajasthan story remains promising. BUY.
Catalysts
Early clarity on the government’s decision on the Cairn Energy-Vedanta deal,
continued strength in oil prices, and fast ramp-up in Cairn’s MBA production.
Anchor themes
We believe oil prices could strengthen further in 2011, driven by QE-2 and
improving fundamentals. We like Cairn India as a pure oil play and continue to see
significant upside from the Rajasthan block, with nearly 4bn boe of discovered
resources and 2.5bn boe of prospective exploration resources.
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Nomura: Top 2011 Buy: Pantaloon Retail India
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Pantaloon Retail India
Action
With organised retail set to take off in India over the next few years, we believe
PRIL is best placed to benefit from the attractive opportunity in the Indian retail
sector. Through its market leadership across various retail formats, unmatched
scale and strong brand recognition, we believe PRIL is the most attractive way to
invest in the Indian retail story over the medium term. Maintain BUY.
Catalysts
We think PRIL’s ongoing restructuring of its business segments could be a key
near-term catalyst. Reducing its stake in an insurance JV and the opening up of
FDI in the multi-brand retail sector could also boost share-price performance.
Anchor themes
Penetration of organised retail remains low in India, nudging 10%, by our
estimates, and should continue to grow in the medium term. PRIL, in our view, is
very well placed to benefit from such growth.
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Pantaloon Retail India
Action
With organised retail set to take off in India over the next few years, we believe
PRIL is best placed to benefit from the attractive opportunity in the Indian retail
sector. Through its market leadership across various retail formats, unmatched
scale and strong brand recognition, we believe PRIL is the most attractive way to
invest in the Indian retail story over the medium term. Maintain BUY.
Catalysts
We think PRIL’s ongoing restructuring of its business segments could be a key
near-term catalyst. Reducing its stake in an insurance JV and the opening up of
FDI in the multi-brand retail sector could also boost share-price performance.
Anchor themes
Penetration of organised retail remains low in India, nudging 10%, by our
estimates, and should continue to grow in the medium term. PRIL, in our view, is
very well placed to benefit from such growth.
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Nomura: Top 2011 Buy: TATA Steel
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TATA Steel
Action
TATA Steel is our top pick in the Indian metal space on: 1) stronger y-y earnings
growth in FY13F resulting from a 2.9mn-tonne capacity expansion, scheduled to be
completed by December 2011; 2) the sustainable turnaround of its European
operations; and 3) Rio Tinto’s offer to acquire Riversdale Mining, which should lead
to value discovery for TATA Steel’s Riversdale stake. Maintain BUY.
Catalysts
Improving steel prices, positive news flow on capacity expansion and development
on Riversdale Mining are likely to be key triggers.
Anchor themes
TATA Steel has shown a remarkable turnaround at Corus and a significant
improvement in the profitability of its domestic business. With investment in mining
projects, raw material integration for the company ought to improve significantly. At
the same time, with strong cashflow, leverage should come down as well.
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TATA Steel
Action
TATA Steel is our top pick in the Indian metal space on: 1) stronger y-y earnings
growth in FY13F resulting from a 2.9mn-tonne capacity expansion, scheduled to be
completed by December 2011; 2) the sustainable turnaround of its European
operations; and 3) Rio Tinto’s offer to acquire Riversdale Mining, which should lead
to value discovery for TATA Steel’s Riversdale stake. Maintain BUY.
Catalysts
Improving steel prices, positive news flow on capacity expansion and development
on Riversdale Mining are likely to be key triggers.
Anchor themes
TATA Steel has shown a remarkable turnaround at Corus and a significant
improvement in the profitability of its domestic business. With investment in mining
projects, raw material integration for the company ought to improve significantly. At
the same time, with strong cashflow, leverage should come down as well.
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Nomura: Top 2011 Buy: Mahindra and Mahindra
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Action
Mahindra & Mahindra (MM) remains our top pick in the Indian auto sector. The
company has a strong brand and distribution network in rural India and faces low
competition. It is also well positioned to benefit from various government policies on
rural growth and development. The standalone auto business trades at 11.7x
FY12F EPS, at a 22% discount to Indian OEMs. Given the 43% volume growth in
tractors in November 2010, we will review our tractor growth estimates and price
target. We reaffirm our BUY rating.
Catalysts
Improved UV volumes led by de-bottlenecking, sustained tractor growth and
successful new launches could be key catalysts.
Anchor themes
Nomura’s economics team estimates 4.8% agricultural GDP growth for 2011F, vs
0.2% in 2010F. Strong agricultural GDP growth should drive rural incomes.
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Action
Mahindra & Mahindra (MM) remains our top pick in the Indian auto sector. The
company has a strong brand and distribution network in rural India and faces low
competition. It is also well positioned to benefit from various government policies on
rural growth and development. The standalone auto business trades at 11.7x
FY12F EPS, at a 22% discount to Indian OEMs. Given the 43% volume growth in
tractors in November 2010, we will review our tractor growth estimates and price
target. We reaffirm our BUY rating.
Catalysts
Improved UV volumes led by de-bottlenecking, sustained tractor growth and
successful new launches could be key catalysts.
Anchor themes
Nomura’s economics team estimates 4.8% agricultural GDP growth for 2011F, vs
0.2% in 2010F. Strong agricultural GDP growth should drive rural incomes.
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Nomura: 2011 Update: Transport infrastructure
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Transport infrastructure
Action
Domestic ports and logistics companies have underperformed over the past year
on the back of a sluggish global economy. However, we expect the base effect and
a modest pick-up in the global economy to help deliver mid-teen growth, and prefer
CCRI and MSEZ on the theme. Airports are likely to benefit from rising air traffic,
while return of risk-taking and clarity on regulatory issues along with land
monetisation should drive up GVK, which is our preferred pick to GMR.
Catalysts
Continued strength in port traffic is the key to MSEZ and CCRI, while non-aero
revenue and real-estate monetisation will drive growth at GVKP, in our view.
Anchor themes
Pick-up in industrial activity will likely lead to a turnaround in EXIM traffic, benefiting
port entities and container logistics companies. Similarly, an improving
macroeconomy will benefit air traffic and related revenue streams at airports.
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Transport infrastructure
Action
Domestic ports and logistics companies have underperformed over the past year
on the back of a sluggish global economy. However, we expect the base effect and
a modest pick-up in the global economy to help deliver mid-teen growth, and prefer
CCRI and MSEZ on the theme. Airports are likely to benefit from rising air traffic,
while return of risk-taking and clarity on regulatory issues along with land
monetisation should drive up GVK, which is our preferred pick to GMR.
Catalysts
Continued strength in port traffic is the key to MSEZ and CCRI, while non-aero
revenue and real-estate monetisation will drive growth at GVKP, in our view.
Anchor themes
Pick-up in industrial activity will likely lead to a turnaround in EXIM traffic, benefiting
port entities and container logistics companies. Similarly, an improving
macroeconomy will benefit air traffic and related revenue streams at airports.
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Nomura: 2011 Update: Telecoms
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Telecoms
Action
After a disappointing 2010 (two out of three India telcos have underperformed the
broader market YTD), we don’t expect too many fireworks in 2011 either.
Competition should be more benign, but regulations and political intervention will
remain. 3G could surprise positively, and contrary to expectations that 3G will be
largely used to address decongestion, we think strong data demand bodes well for
the ARPU outlook. Rising proliferation of affordable smart-phones and applications
will be key. We see M&A as an ongoing theme. Bharti is our relative pick in India.
Catalysts
Price stability in wireless segment, data growth and M&A.
Anchor themes
Data could be the biggest surprise this year as 3G is rolled out, but the core wireless
segment could remain under pressure. The regulatory environment is uncertain.
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Telecoms
Action
After a disappointing 2010 (two out of three India telcos have underperformed the
broader market YTD), we don’t expect too many fireworks in 2011 either.
Competition should be more benign, but regulations and political intervention will
remain. 3G could surprise positively, and contrary to expectations that 3G will be
largely used to address decongestion, we think strong data demand bodes well for
the ARPU outlook. Rising proliferation of affordable smart-phones and applications
will be key. We see M&A as an ongoing theme. Bharti is our relative pick in India.
Catalysts
Price stability in wireless segment, data growth and M&A.
Anchor themes
Data could be the biggest surprise this year as 3G is rolled out, but the core wireless
segment could remain under pressure. The regulatory environment is uncertain.
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Nomura: 2011 Update: Property/ Real estate
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Property
Action
The recovery in the residential segment is over and now it is essential to ensure
growth in volumes and execution, to lower dependence on external funding.
Improvement in the office segment should help developers monetise some of their
leased assets. The current pessimism for the sector is unwarranted, in our view,
and we continue to prefer HDIL Ltd, Unitech Ltd and Puravankara.
Catalysts
A sharp upward move in volumes, led by strong economic growth, would make us
more bullish. Rapid and large increases in interest rates would make us bearish.
Anchor themes
CY11-12 will be a crucial period for developers, as they need to sell and execute
higher volumes, not only to deleverage themselves, but also to justify the large land
banks they hold. If volumes are not substantially higher from here by CY12, then
developers may not be able to get full value for their large land holdings.
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Property
Action
The recovery in the residential segment is over and now it is essential to ensure
growth in volumes and execution, to lower dependence on external funding.
Improvement in the office segment should help developers monetise some of their
leased assets. The current pessimism for the sector is unwarranted, in our view,
and we continue to prefer HDIL Ltd, Unitech Ltd and Puravankara.
Catalysts
A sharp upward move in volumes, led by strong economic growth, would make us
more bullish. Rapid and large increases in interest rates would make us bearish.
Anchor themes
CY11-12 will be a crucial period for developers, as they need to sell and execute
higher volumes, not only to deleverage themselves, but also to justify the large land
banks they hold. If volumes are not substantially higher from here by CY12, then
developers may not be able to get full value for their large land holdings.
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Nomura: 2011 Update: Pharmaceuticals
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Pharmaceuticals
Action
The Healthcare Index (BSEHTC) has outperformed the SENSEX by 20% YTD.
Despite the outperformance, we believe the risk-reward for the sector remains
favourable. We expect the earnings upgrade cycle to continue going into FY13F as
sales for products going off-patent in the US peak and the sector’s premium
valuations continue.
Catalysts
Product approvals in the US, licensing deals and alliances with global pharma
majors.
Anchor themes
The Indian healthcare sector is a play on four themes: 1) US patent expiries; 2)
secular domestic market growth, 3) participation in other emerging markets
opportunities, including collaboration/alliances; and 4) R&D and manufacturing
outsourcing.
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Pharmaceuticals
Action
The Healthcare Index (BSEHTC) has outperformed the SENSEX by 20% YTD.
Despite the outperformance, we believe the risk-reward for the sector remains
favourable. We expect the earnings upgrade cycle to continue going into FY13F as
sales for products going off-patent in the US peak and the sector’s premium
valuations continue.
Catalysts
Product approvals in the US, licensing deals and alliances with global pharma
majors.
Anchor themes
The Indian healthcare sector is a play on four themes: 1) US patent expiries; 2)
secular domestic market growth, 3) participation in other emerging markets
opportunities, including collaboration/alliances; and 4) R&D and manufacturing
outsourcing.
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Nomura: 2011 Update: Power & utilities
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Power & utilities
Action
Given a likely 60% (>100GW) rise in capacity by FY15F, we like IPPs with a frontended
capacity pipeline, credible execution ability, adequate fuel security (sourcing,
pricing) and a healthy offtake mix. Lanco is our top IPP pick (it scores highest in
‘our milestone risk matrix’), along with NTPC (reasonable risk-reward). PWGR, a
hedged play on capacity growth, offers 30%-plus potential upside on our estimates.
Catalysts
Strong latent demand growth, regulatory developments (eg, auctioning of coal
blocks, dilution in ‘no-go’ mining areas) and reduction of T&D losses.
Anchor themes
As the electricity demand-supply gap narrows, merchant tariffs trend lower and the
domestic fuel shortage intensifies, developers able to minimise fuel security risks
(sourcing, pricing) should be long-term winners. A 150GW+ pipeline by FY17F
offers growth visibility in transmission. Health of SEBs remains a key concern.
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Power & utilities
Action
Given a likely 60% (>100GW) rise in capacity by FY15F, we like IPPs with a frontended
capacity pipeline, credible execution ability, adequate fuel security (sourcing,
pricing) and a healthy offtake mix. Lanco is our top IPP pick (it scores highest in
‘our milestone risk matrix’), along with NTPC (reasonable risk-reward). PWGR, a
hedged play on capacity growth, offers 30%-plus potential upside on our estimates.
Catalysts
Strong latent demand growth, regulatory developments (eg, auctioning of coal
blocks, dilution in ‘no-go’ mining areas) and reduction of T&D losses.
Anchor themes
As the electricity demand-supply gap narrows, merchant tariffs trend lower and the
domestic fuel shortage intensifies, developers able to minimise fuel security risks
(sourcing, pricing) should be long-term winners. A 150GW+ pipeline by FY17F
offers growth visibility in transmission. Health of SEBs remains a key concern.
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utilities
Nomura: 2011 Update: Oil & gas/chemicals
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Oil & gas/chemicals
Action
For 2011F, we are Bullish on oil, and expect refining margins to be on the uptrend,
and think petchem will enter a golden age. Reliance, an integrated play, will likely
benefit and is our large-cap pick. As clarity emerges on its ownership issue, Cairn
India will re-emerge as a pure oil play. Despite a strong 2010, we remain Bullish on
the gas story, with PLNG as our preferred pick for 2011F, but continue to like GAIL,
GSPL and IGL.
Catalysts
Continued strength in refining and chemical margins, Early clarity on the govt’s
decisions on the Cairn-Vedanta deal and early easing of pipeline bottlenecks.
Anchor themes
We believe oil prices would strengthen further, driven by QE-2 and improving
demand. As India imports ~80% of its oil needs, higher prices would put pressure
on the economy, and likely derail any plans for further reforms / deregulation.
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Oil & gas/chemicals
Action
For 2011F, we are Bullish on oil, and expect refining margins to be on the uptrend,
and think petchem will enter a golden age. Reliance, an integrated play, will likely
benefit and is our large-cap pick. As clarity emerges on its ownership issue, Cairn
India will re-emerge as a pure oil play. Despite a strong 2010, we remain Bullish on
the gas story, with PLNG as our preferred pick for 2011F, but continue to like GAIL,
GSPL and IGL.
Catalysts
Continued strength in refining and chemical margins, Early clarity on the govt’s
decisions on the Cairn-Vedanta deal and early easing of pipeline bottlenecks.
Anchor themes
We believe oil prices would strengthen further, driven by QE-2 and improving
demand. As India imports ~80% of its oil needs, higher prices would put pressure
on the economy, and likely derail any plans for further reforms / deregulation.
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oil and gas
Nomura: 2011 Update: Infrastructure and construction
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Infrastructure and construction
Action
We believe the Indian construction companies have underperformed the broader
market YTD CY10 on concerns over low execution rates, increase in working
capital, rising interest rates and company-specific issues regarding investments
and receivables. However, we remain positive on execution and improvement in
working capital in CY11F. We believe valuations are attractive and maintain our
Bullish stance on the sector.
Catalysts
A pick-up in execution and an improvement in working capital are potential
catalysts in the near term.
Anchor themes
The Indian construction sector is a play on improvement in corporate capex and
investment in infrastructure. We expect order-booking momentum and
revenue/earnings growth to accelerate in 2H FY11.
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Infrastructure and construction
Action
We believe the Indian construction companies have underperformed the broader
market YTD CY10 on concerns over low execution rates, increase in working
capital, rising interest rates and company-specific issues regarding investments
and receivables. However, we remain positive on execution and improvement in
working capital in CY11F. We believe valuations are attractive and maintain our
Bullish stance on the sector.
Catalysts
A pick-up in execution and an improvement in working capital are potential
catalysts in the near term.
Anchor themes
The Indian construction sector is a play on improvement in corporate capex and
investment in infrastructure. We expect order-booking momentum and
revenue/earnings growth to accelerate in 2H FY11.
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Nomura: 2011 Update: IT services & software -Moderation ahead
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IT services & software
Action
We expect FY12F to see strong but moderating revenue growth compared with
FY11F on the tailing off of one-offs, such as for M&A integration, pent-up spending,
vendor consolidation gains and base effects. Supply-side risks, limited operational
scope and increased taxation should moderate flow through of growth to earnings.
We remain NEUTRAL on the sector. HCL Tech is our top large-cap pick, while we
prefer Mphasis among the mid-caps. Among our NEUTRAL calls we prefer Infosys.
Catalysts
Surge in discretionary demand and rebid wins could provide upside to revenue.
Rupee appreciation and greater MNC offshoring remain downside risks.
Anchor themes
Aggressive MNC offshoring trends could blunt the competitive advantage of Indian
IT vendors, leading to a reduction in margin differentials and valuation premiums.
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IT services & software
Action
We expect FY12F to see strong but moderating revenue growth compared with
FY11F on the tailing off of one-offs, such as for M&A integration, pent-up spending,
vendor consolidation gains and base effects. Supply-side risks, limited operational
scope and increased taxation should moderate flow through of growth to earnings.
We remain NEUTRAL on the sector. HCL Tech is our top large-cap pick, while we
prefer Mphasis among the mid-caps. Among our NEUTRAL calls we prefer Infosys.
Catalysts
Surge in discretionary demand and rebid wins could provide upside to revenue.
Rupee appreciation and greater MNC offshoring remain downside risks.
Anchor themes
Aggressive MNC offshoring trends could blunt the competitive advantage of Indian
IT vendors, leading to a reduction in margin differentials and valuation premiums.
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Software and IT Services
Nomura: 2011 Update: Electrical equipment- Power play
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Electrical equipment
Action
We continue to see the opportunity in the sector being driven by power capex, as
we expect industrial capex to revive only modestly and gradually. While competition
and margin pressures will likely increase in the generation space, we expect it to
abate in the T&D space. We highlight Crompton Greaves as our preferred pick in
the space, while we remain bearish on BHEL. We remain positive on Cummins
India, but the stock has significantly outperformed over the past 18M.
Catalysts
Stronger-than-expected recovery, speedier clearances on land and environment
and early finalisation of key orders will be key triggers for the capital goods stocks.
Anchor themes
Decades of under-investment followed by a march towards building sufficient power
for the nation promises significant opportunities for T&D equipment makers but
rising competition will hurt generation equipment makers.
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Electrical equipment
Action
We continue to see the opportunity in the sector being driven by power capex, as
we expect industrial capex to revive only modestly and gradually. While competition
and margin pressures will likely increase in the generation space, we expect it to
abate in the T&D space. We highlight Crompton Greaves as our preferred pick in
the space, while we remain bearish on BHEL. We remain positive on Cummins
India, but the stock has significantly outperformed over the past 18M.
Catalysts
Stronger-than-expected recovery, speedier clearances on land and environment
and early finalisation of key orders will be key triggers for the capital goods stocks.
Anchor themes
Decades of under-investment followed by a march towards building sufficient power
for the nation promises significant opportunities for T&D equipment makers but
rising competition will hurt generation equipment makers.
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Nomura: 2011 Update- Consumer/ FMCG
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Consumer
Action
With input cost pressures rising, competition continuing to remain strong and sector
valuations towards the top end of the long-term average, we are cautious on the
sector into 2011. However, we believe there is value in select stocks such as ITC,
Asian Paints and Pantaloon, where we see pick-up in operational performance in
H2FY11. Hindustan Unilever and Marico are our top REDUCE calls.
Catalysts
Longer-term opportunity in the sector will be driven by robust GDP growth, rising
incomes and wider product availability.
Anchor themes
The Indian consumer sector remains attractive in the long term, given favourable
demographics, rising disposable income and increasing urbanisation. With
penetration levels still low across several categories, we are positive on the sector
in the longer term. We prefer food names vs HPC.
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Consumer
Action
With input cost pressures rising, competition continuing to remain strong and sector
valuations towards the top end of the long-term average, we are cautious on the
sector into 2011. However, we believe there is value in select stocks such as ITC,
Asian Paints and Pantaloon, where we see pick-up in operational performance in
H2FY11. Hindustan Unilever and Marico are our top REDUCE calls.
Catalysts
Longer-term opportunity in the sector will be driven by robust GDP growth, rising
incomes and wider product availability.
Anchor themes
The Indian consumer sector remains attractive in the long term, given favourable
demographics, rising disposable income and increasing urbanisation. With
penetration levels still low across several categories, we are positive on the sector
in the longer term. We prefer food names vs HPC.
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Nomura: Banks 2011 Update- Time to be selective
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Banks
Action
We are now Neutral on banks and recommend being selective going forward, with
a bias towards large private banks, on the back of stronger loan growth with stable
margins and declining credit costs. Continued asset quality issues, uncertainty over
pension liability and margin pressures for PSU banks could trigger earnings
downgrades for most of the PSU banks.
Catalysts
We believe a pick-up in broad-based credit growth, decline in credit costs and
stable margins will be key drivers for private banks.
Anchor themes
With moderating loan growth and rising deposit rates leading to margin pressures,
we recommend banks with a strong deposit franchise and stable margins. ICICI
Bank and SBI are our top picks.
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Banks
Action
We are now Neutral on banks and recommend being selective going forward, with
a bias towards large private banks, on the back of stronger loan growth with stable
margins and declining credit costs. Continued asset quality issues, uncertainty over
pension liability and margin pressures for PSU banks could trigger earnings
downgrades for most of the PSU banks.
Catalysts
We believe a pick-up in broad-based credit growth, decline in credit costs and
stable margins will be key drivers for private banks.
Anchor themes
With moderating loan growth and rising deposit rates leading to margin pressures,
we recommend banks with a strong deposit franchise and stable margins. ICICI
Bank and SBI are our top picks.
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Nomura: Autos -2011 Update
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Autos
Action
We maintain our Neutral stance on the Indian auto sector. We expect slower but
steady volume growth for FY11F. Mahindra & Mahindra is our top pick for 2011F as
the company benefits from low availability of farm labour and relatively subdued
competition. We also like Bajaj Auto, given its sound product mix and potential to
outgrow the industry.
Catalysts
Volume growth will likely be a key catalyst for the sector.
Anchor themes
We prefer stocks centred around the consumption and rural growth themes. These
companies stand to benefit from the government’s focus on rural development and
rural job creation.
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Autos
Action
We maintain our Neutral stance on the Indian auto sector. We expect slower but
steady volume growth for FY11F. Mahindra & Mahindra is our top pick for 2011F as
the company benefits from low availability of farm labour and relatively subdued
competition. We also like Bajaj Auto, given its sound product mix and potential to
outgrow the industry.
Catalysts
Volume growth will likely be a key catalyst for the sector.
Anchor themes
We prefer stocks centred around the consumption and rural growth themes. These
companies stand to benefit from the government’s focus on rural development and
rural job creation.
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Auto,
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Nomura: 2011 Update: Metals and Mining
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Metals
Action
We expect steel prices to remain strong, driven primarily by high raw material
prices. Therefore, we continue to prefer integrated steelmakers. TATA Steel and
SAIL are our preferred picks in the sector. TATA Steel is our top pick on account of:
1) 2.9mn tonne expansion to drive earnings growth in FY13F, 2) sustainability of
Corus’ turnaround and 3) raw material projects to start production in 12 months.
Catalysts
We believe strong steel prices coupled with news on capacity additions will be
potential key catalysts for the stocks.
Anchor themes
We are Bullish on steel and prefer Indian steel companies over non-ferrous due
primarily to: 1) high volatility in non-ferrous metal prices, 2) India as a net importer
of steel and exporter of aluminium and zinc — two major non-ferrous commodities
that India produces and 3) attractive valuations for steel companies.
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Metals
Action
We expect steel prices to remain strong, driven primarily by high raw material
prices. Therefore, we continue to prefer integrated steelmakers. TATA Steel and
SAIL are our preferred picks in the sector. TATA Steel is our top pick on account of:
1) 2.9mn tonne expansion to drive earnings growth in FY13F, 2) sustainability of
Corus’ turnaround and 3) raw material projects to start production in 12 months.
Catalysts
We believe strong steel prices coupled with news on capacity additions will be
potential key catalysts for the stocks.
Anchor themes
We are Bullish on steel and prefer Indian steel companies over non-ferrous due
primarily to: 1) high volatility in non-ferrous metal prices, 2) India as a net importer
of steel and exporter of aluminium and zinc — two major non-ferrous commodities
that India produces and 3) attractive valuations for steel companies.
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Nomura: Construction materials (cement) 2011 Update
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Construction materials (cement)
Action
We believe the downcycle that the sector has entered is here to stay for a while
and that the demand-supply mismatch will not improve significantly by FY13F. We
do not expect any pricing discipline to sustain for long, given the fragmented nature
of the industry. We think valuations have some more room for corrections to adjust
to the lower profitability regime that the sector is facing. We maintain our Bearish
stance on the sector.
Catalysts
Low pricing power due to adverse demand-supply equation resulting in lower
profitability for the sector should keep valuations in check.
Anchor themes
Cement companies saw high profitability during FY07-FY10, delivering record high
ROCEs on a tight demand-supply equation, which resulted in solid pricing. FY11-
FY13 may be the opposite but valuations have yet to adjust to this, in our view.
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Construction materials (cement)
Action
We believe the downcycle that the sector has entered is here to stay for a while
and that the demand-supply mismatch will not improve significantly by FY13F. We
do not expect any pricing discipline to sustain for long, given the fragmented nature
of the industry. We think valuations have some more room for corrections to adjust
to the lower profitability regime that the sector is facing. We maintain our Bearish
stance on the sector.
Catalysts
Low pricing power due to adverse demand-supply equation resulting in lower
profitability for the sector should keep valuations in check.
Anchor themes
Cement companies saw high profitability during FY07-FY10, delivering record high
ROCEs on a tight demand-supply equation, which resulted in solid pricing. FY11-
FY13 may be the opposite but valuations have yet to adjust to this, in our view.
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Cement,
Nomura research
Preferred picks for 2011: Kotak Securities
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with negative news related to 2G scam, bribery allegations and corporate
governance issues. Markets however moved up by nearly 9% from the lows
seen in December on positive news of inflation moderation, better than
expected IIP growth and RBI announcements to ease liquidity.
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Kotak Preferred picks for 2011 | |
Sector | Stocks |
Automobiles | TVS Motors |
Banking | Axis Bank, ICICI Bank, J&K Bank, SBI, Allahabad Bank |
Construction | BGR Energy, Pratibha Industries, IRB Infra, Sunil Hi Tech |
Engineering | Cummins India, Diamond Power Infrastructure, Voltas, |
Greaves Cotton, L&T, Tractors India, Havells India | |
Information Technology | KPIT, Infosys, NIIT Tech |
Media | HT Media |
Metals & Mining | SAIL, Sesa Goa |
NBFCs | HDFC, IDFC, PFC |
Other Midcaps | Time Techno |
Source: Kotak Securities - Private Client Research |
2011 India MARKET STRATEGY: Kotak Securities
Indian markets started on a negative note in the beginning of Decemberwith negative news related to 2G scam, bribery allegations and corporate
governance issues. Markets however moved up by nearly 9% from the lows
seen in December on positive news of inflation moderation, better than
expected IIP growth and RBI announcements to ease liquidity.
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2011 Ideas,
Kotak Sec
FII & DII trading activity on NSE and BSE as on 03-Jan-2011
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FII trading activity on NSE and BSE on Capital Market Segment | ||||||||||||||||
The following is combined FII trading data across NSE and BSE collated on the basis of trades executed by FIIs on 03-Jan-2011. | ||||||||||||||||
|
Domestic Institutional Investors trading activity on NSE and BSE on Capital Market Segment | ||||||||||||||||
The following is combined Domestic Institutional Investors trading data across NSE and BSE collated on the basis of trades executed by Banks, DFIs, Insurance, MFs and New Pension System on 03-Jan-2011. | ||||||||||||||||
|
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FII DERIVATIVES STATISTICS FOR 03-Jan-2011
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FII DERIVATIVES STATISTICS FOR 03-Jan-2011 | |||||||
BUY | SELL | OPEN INTEREST AT THE END OF THE DAY | |||||
No. of contracts | Amt in Crores | No. of contracts | Amt in Crores | No. of contracts | Amt in Crores | ||
INDEX FUTURES | 25402 | 786.17 | 28176 | 867.98 | 410167 | 12628.55 | -81.81 |
INDEX OPTIONS | 109003 | 3313.46 | 65617 | 1990.15 | 1138082 | 34851.75 | 1323.32 |
STOCK FUTURES | 26526 | 791.05 | 38056 | 1086.97 | 1228985 | 34761.17 | -295.92 |
STOCK OPTIONS | 3099 | 100.97 | 3054 | 102.24 | 7319 | 228.25 | -1.27 |
Total | 944.32 |
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derivative statistics,
FII
NSE, Bulk deals, 03-Jan-2011
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Symbol | Security Name | Client Name | Buy / Sell | Quantity Traded | Wght. Avg. Price |
EMAMIINFRA | Emami Infrastructure Ltd | CROSSEAS CAPITAL SERVICES PVT. LTD. | BUY | 1,31,888 | 47.55 |
EMAMIINFRA | Emami Infrastructure Ltd | CROSSEAS CAPITAL SERVICES PVT. LTD. | SELL | 1,31,888 | 47.79 |
EVERONN | Everonn Education Limited | CROSSEAS CAPITAL SERVICES PVT. LTD. | BUY | 1,61,623 | 689.93 |
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BSE, Bulk deals, 3/1/2011
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Scrip Code | Company | Client Name | Deal Type * | Quantity | Price ** |
530901 | ACIL | SONAL INTERNATIONAL LTD | B | 588165 | 3.95 |
532166 | Alka Securities | NAVEEN GUPTA | B | 508517 | 1.68 |
521174 | Arora Fibres | DEEPINDER SINGH POONIAN | S | 79600 | 5.54 |
517565 | Ashco Niulab | GANESH SARJULAL GUPTA | B | 342132 | 5.12 |
517565 | Ashco Niulab | GANESH SARJULAL GUPTA | S | 352130 | 5.09 |
531591 | Bampsl Sec | BP FINTRADE PRIVATE LIMITED | B | 425034 | 2.50 |
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