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Diwali Muhurat Pick: ICICI Securities, LINKS (click below)
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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Diwali Muhurat Pick: ICICI Securities, LINKS (click below)
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Equity markets have rallied over 25% since last Diwali, largely fuelled
by improving corporate earnings, expectations of tough reforms from
the new government and reviving macroeconomic variables. The
government has already initiated several confidence building
measures and taken key decisions like allowing FDI in several sectors,
railway fare hike, online environment and forest clearance, etc
ƒ The government’s pro-activeness is complemented by robustness in
economic data points. GDP growth has revived to a nine-quarter high
of 5.7% in Q1FY15, strengthening hopes of an economic turnaround
and a shift to a high growth trajectory. Secondly, softening crude
prices at a 27-month low of $91/barrel would cushion the current and
fiscal account imbalances. At current levels, under-recoveries are
expected to decline to ~| 80,500 crore in FY15 from ~| 140,000 crore
in FY14. Thirdly, declining crude prices would also help soften
inflation, which had remained at elevated levels for much of the
recent past. Consequently, we expect CPI to reach below 7% by FY15
from the current 7.8% levels, which could pave the way for rate cuts
ƒ The current rally marks a peculiar trend wherein investors have
shown a preference for cyclicals and sectors linked to the capex cycle
revival but not opted for a blanket sector rotation. Consumer
durables, capital goods, banking and automobile have rallied in the
range of 40-55% since last Diwali while FMCG has underperformed
with 10% appreciation. However, at the same time, other defensives
like healthcare and IT have appreciated 47% and 29%, respectively
ƒ Though volatility is expected to prevail on the global front as central
banks across the globe recalibrate liquidity levels, India, with its
higher growth rate and least political instability among major
emerging markets, will remain in a sweet spot and continue to attract
global investors. India has already received $9.8 billion in the current
fiscal and seems to be on track to record its highest ever inflows
ƒ Sensex earnings grew 17.1% in FY14, partly aided by suppressed
cumulative growth of 6.9% in last two years. Earnings are expected to
grow 16.2% in FY15E before reviving to 18.5% in FY16E. We expect
Sensex to trade at 16.5x FY16E EPS of 1880 at 31000 by next Diwali
Exhibit 1: Sensex and Nifty Target
FY14 FY15E FY16E
Sensex EPS 1365 1586 1880
Growth (%) 17.1% 16.2% 18.5%
Target Multiple 16.5x
Sensex Target - Diwali 2015 31000
Corresponding Nifty Target 9250
Source: Company, ICICIdirect.com Research
ƒ We are positive on auto, cement on the back of the robust demand
outlook and capital goods on account of balance sheet improvement
and margin expansion. In addition, declining crude prices also makes
the oil & gas sector attractive. We would avoid the infrastructure and
real estate sector for now as the outlook for both is still hazy.
Moreover, these sectors would perform with a lag as the benefit from
initial phase of economic recovery may not accrue to them
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