India Strategy: Run with the bull! (Antique)

India Strategy

Run with the bull!

The Indian equity market witnessed interesting twists and turns throughout 2013. Beginning with high hopes, the market saw extremely depressed levels in Aug-13, as economic growth fell to new lows. What followed thereafter was equally dramatic. Buoyed by hopes of a recovery, changing political landscape, and growing thrust on reforms and investments, the market rebounded swiftly. Going forward, we expect the Indian economy to show a meaningful pick-up, led by manufacturing and agriculture sectors. Key macro indicators also appear on track after witnessing extreme lows.

Market Strategy

With GDP growth at 5.5%, we expect Sensex earnings to grow at 18% in FY15, on a base of 8% growth in FY14. We expect CY14 year-end Sensex at 24,515, based on 16x FY15 Sensex EPS of INR1,532. In our opinion, markets would see significant volatility before elections, on account of fluctuating 'noise levels' around political events. As a result, markets may see divergent trends before and after elections.

Key themes

1.      Increase weight in cyclicals, reduce defensives: Buy industrials, automobiles, NBFCs and private banks.

2.      Play the export theme through IT and pharmaceuticals (against commodities), despite significant re-rating through CY13.

3.      Watch out for energy sector reforms.

4.      Continue to depend on bottom-up approach. Buy good quality companies in growth sectors with healthy RoEs. Select buying opportunities across many sectors (monopolistic FMCG businesses, infrastructure, power utilities).

5.      Avoid playing deleveraging story. Risk remains high for highly levered companies.

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Bharti Airtel – BUY: Who says elephants can’t dance?: IIFL

Based on our recent interaction with Bharti, industry interactions,
media reports, and survey of prepaid and post-paid plans, we
observe that Bharti has taken a number of measures in the past
few months. These include: 1) launching Airtel Store to accelerate
seeding of the data market; 2) launching Airtel myPlan for more
effective targeting of post-paid subs; and 3) capex productivity
improvements (minutes per BTS being still lower than historical
high, data traffic moving from 2G to 3G network and improving
handset mix are levers). Moreover, telcos have continued discount
reductions by lowering the validity period and the SMS and 2G
data limit by 20-30% across circles. In our view, part of this has
manifested through Bharti’s strong 1HFY14 results and more of
this should be visible going forward. But in the near term, the
stock could be driven by news-flow around RIL’s likely bidding for
1800MHz in the upcoming auction due to contiguous (4G suitable)
spectrum availability. BUY (TP Rs414).
Yield improvement measures have continued: Bharti’s voice RPM in
2QFY14 was 7% above 4QFY13 levels and discount reductions have
continued even in the past three months. Our tariff surveys indicate that
Bharti and Idea have cut validity period/SMS limit/2G data limit in certain
plans by 30%/20%/25% across circles.
Faster seeding of data market through Airtel Store: On data,
messaging to customers has been simplified; for instance, “99 retro
Bollywood songs for Rs99” is easier for the subscriber to understand, in
our view. Airtel Store allows users 3MB free data for Re1 for a day (in the
form of games, videos, and social media browsing). Such a low
denomination should encourage more users to try out data, resulting in
faster seeding of the market by Bharti.
Post-paid offering simplified and made more flexible through
myPlan; improved capex productivity: Bharti has simplified its postpaid
offering from multiple plans to a single myPlan. This allows
subscribers the flexibility of choosing (and changing once a month) from
equally priced bundles, each offering local minutes, STD minutes, SMS,
2G/3G data, etc, with discounts increasing with the number of bundles
chosen. Minutes per BTS being still lower than historical highs, data traffic
moving from 2G to 3G, freeing up 2G network capacity, and better
handset mix, are the medium-term capacity levers.

India 2014 Outlook: Cycle getting back in gear: IIFL

Cycle getting back in gear

The year 2014 will herald the beginning of a more broad-based
market rally and will be a better year for Indian equities. Most
macro variables, including real growth and current account, will
turn for the better, inflation will likely peak in the early part of the
year, and rate cycle will gradually become supportive. Quality of
growth will be better as a gradual turnaround in the investment
cycle will lead the recovery. The momentum in earnings
downgrade will reverse and there is a rising probability of an
upgrade cycle kicking in. Thus, the environment will be supportive
for a valuation re-rating. The key known unknown is the outcome
of the May 2014 elections and as of now, it is too close to call.
Investment cycle – turning around: Private sector capital formation,
the key swing factor in capital formation growth (down from +12%
during FY07-11 to -5% in FY14ii), will start to recover this year, driven
by an acceleration in execution rates. Given the large size of projects
under implementation (~US$1.4 trillion) a pickup in execution rates
from the current historic lows would by itself have a more-thanproportionate
impact on growth in capital formation.
Earnings, rate cycle - will be supportive: A continued slowdown in
demand side pressures, slower growth in wages, lower food inflation,
and a more stable rupee, augur well for mitigation of inflationary
pressures. The monetary policy will gradually turn more
accommodative. The turnaround in ex-agricultural GDP growth will drive
the recovery in Ebidta and net profit margins; in all likelihood,
FY15/FY16 earnings estimates will see upgrades.
Portfolio positioning - cyclical bias: In the backdrop of a broader
cyclical recovery, we overweight financials and domestic industrials. IT
and Autos are the other key O/Ws as we believe that both these sectors
will see positive earnings surprises. In contrast, FMCG will be negatively
impacted due to the consumption slowdown and earnings momentum
will be weak. Apart from FMCG, Energy is the other key underweight,
given lacklustre growth.

Top􀀃large􀍲cap􀀃buys
􀅂 Dr􀀃Reddys􀀃
􀅂 Hero􀀃Motocorp􀀃
􀅂 ICICI􀀃Bank􀀃
􀅂 L&T􀀃
􀅂 Wipro􀀃

Top􀀃mid􀍲cap􀀃buys
􀅂 Crompton􀀃Greaves􀀃
􀅂 IPCA􀀃Labs􀀃
􀅂 The􀀃Ramco􀀃Cements􀀃
􀅂 Motherson􀀃Sumi􀀃
􀅂 Shriram􀀃Transport􀀃
􀀃
Dark􀀃horses
􀅂 Ashok􀀃Leyland􀀃
􀅂 Bharti􀀃
􀅂 Infosys􀀃
􀅂 SBI
􀅂 Sesa􀀃Sterlite
􀀃
Key􀀃overweight􀀃sectors
􀅂 Consumer􀀃Discretionary􀀃
􀅂 Financials􀀃
􀅂 Industrials􀀃
􀅂 Information􀀃Technology􀀃

Key􀀃underweight􀀃sectors
􀅂 Consumer􀀃Staples􀀃
􀅂 Energy􀀃
􀅂 Materials􀀃