Go for Growth vs Value Investing - HSBC
Tuesday, September 29, 2009
Prefer growth investing over value style; better valuation and superior earnings
growth create a compelling proposition. Growth stocks are trading at a relative valuation that is lower than their historical level. The growth index is currently at a 12-month forward PE of 20.4x, while the value index is at 15.8x. The valuation premium of growth stocks, at 1.3x, is in fact one standard deviation below its five-year average.
From March 1997 to June 2009, the EPS of growth stocks grew at a CAGR of 13.5% compared to 7.8% in the case of value stocks. In the last two years, the performance of growth stocks lagged that of value stocks, as EPS growth of the former lagged that of the latter. Looking ahead, analysts forecast a turnaround, marked by growth stocks growing earnings at a CAGR of 22.5% versus value stocks at 17.5% over FY2010-12e. Overall, in this period, their EPS grew at a CAGR of 11%.
Some of the Overweight growth stocks are ITC, HDFC Bank and BHEL.
Performance of Growth Stocks vs Value Stocks in a Decade
Performance during Rally
Start End Value Growth
Jan-97 Aug-97 39.7 39.2
Oct-98 Feb-00 55.6 168.8
Sep-01 Feb-02 53.5 38.2
Oct-02 Jan-04 148.4 80.2
May-04 May-06 206.4 168.7
Jun-06 Feb-07 63.0 74.5
Mar-07 Jan-08 95.7 60.1
Mar-09 Sep-09 111.5 100.1
Performance during Correction
Start End Value Growth
Aug-97 Oct-98 -41.8 -3.9
Feb-00 Sep-01 -46.7 -58.3
Feb-02 Oct-02 -22.4 -20.0
Jan-04 May-04 -29.9 -25.7
May-06 Jun-06 -31.6 -28.7
Feb-07 Mar-07 -15.1 -16.6
Jan-08 Mar-09 -60.8 -67.3
Labels: Performance-Growth-Value-Stocks
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Published by Webmaster @ 10:51 AM IST.
India March 2011 SENSEX Target 20,000 - UBS
Wednesday, September 23, 2009
UBS - leading financial institution and also the holder of Swiss Private Banking accounts continues to be bullish on India calling it a Tiger :-)
India's economy could be entering a golden period - we expect real GDP growth of 8-9% pa for the next 10-20 years. The stock market is relatively liquid (US$5bn average traded value) with several diversified sectors. Penetration levels for most products and services are relatively low, implying ample room for high-growth investment ideas. Attractive demographics and a high savings rate imply that demand for equity stocks and mutual funds is likely to multiply in the next 10-15 years.
Consumption, Infrastructure and Equity investment led Growth - the consumption boom, driven by low penetration, attractive demographics, and strong economic growth. Infrastructure investment of US$2.5trn in the next 15 years. Greater potential demand for equities, as India's relatively high household savings could be channelled into the equity markets.
March 2011 Sensex target of 20,000 is based on a forward PE multiple of 14.9x on FY12E EPS [~ EPS of SENSEX for FY2012 is INR 1333.
Sensex earnings CAGR of 12% in the next 15-20 years. Assuming a long-term average PE multiple of 15x, the Sensex could reach a level of 100,000 by FY25
Labels: India-2025-SENSEX-Target-100000
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Published by Webmaster @ 12:00 PM IST.
Current State of Indian Economy
Tuesday, September 15, 2009
I found this slide in one of the presentations by Citigroup and thought will share it with you. This depicts the current state of Indian Economy.
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Published by Webmaster @ 7:36 PM IST.
BPCL + HPCL + IOC - SELL - Goldman Sachs
Monday, September 14, 2009
On the back of fuel pricing reform is unlikely at this stage, Glodman Sachs has come out with a bold report to SELL all the 3 Oil Marketing companies - BPCL, HPCL and Indian Oil.
The government will bear all cooking fuel losses while auto fuel losses would be shared by state-owned upstream companies and oil marketing companies and the proportion of subsidy sharing is not known.
The government has actually been bearing more subsidy than just cooking fuel losses since FY08, implying that its subsidy share will reduce going forward. It is possible that government is trying to reduce further issuance of oil bonds in order to reduce fiscal strain, in our view.
With no fuel pricing reforms, the profitability of OMCs has again become a function of oil price, on which, we are above-consensus bullish.
Glodman Analysts have downgraded all three OMCs to Sell from Neutral with potential downside of 24%-31% lower 12-m TPs, based on 6X FY11E EV/EBITDA.
Target price of HPCL is Rs 270 with fully diluted EPS expectations of Rs 27.23 and 31.20 for FY10 and FY11.
Target price of BPCL is Rs 420 with fully diluted EPS expectations of Rs 47.23 and 44.43 for FY10 and FY11.
Target price of IOC is Rs 470 with fully diluted EPS expectations of Rs 55.23 and 44.13 for FY10 and FY11.
Our Recommendation:
We do not cover these companies as they are heavily dependent on incompetent Government policies.
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Published by Webmaster @ 10:57 AM IST.
GMR Infra - Fund raising post QIP failure a surprise
Saturday, September 12, 2009
GMR Infra shared its vision to grow at a rapid pace and with a hurdle rate of 16-18% IRR from new projects. The management believes dividends from InterGen would be sufficient to pay off acquisition debt.
GMR Infra revealed plans to raise a whopping INR75bn over FY10-12 even as medium-term requirement for projects under development is only INR28.5bn as per GMRI's estimates.
The plan envisages a separate listing of segment holding companies with a view to unlock value. We see this as a negative for the parent as one would now attribute a holding discount to GMR Infra since investors can pick and choose segments in which they would want to invest.
We recommend a REDUCE rating on GMR Infrastructure given what we deem to be its expensive valuation and our expectation of several disappointments relating to growth
opportunities and in the airports segment.
With expected earnings of mere Rs 2.2 for FY10, the stock is extremely expensive at Rs 135. SELL GMR Infrastructure
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Published by Webmaster @ 10:00 AM IST.
Allahabad Bank - Re-rating in th offing - Reliance Equities
Thursday, September 10, 2009
After Quick Gun Murugun's recommendation on Oriental Bank, yesterday its time to review Allahabad Bank today.
In the last few quarters, Balance-sheet restructuring both on the liabilities and the asset side will aid margin improvement. Fee income is set to gather traction, given the thrust on fee income and implementation of the bank's core banking solution (80% business is currently under CBS). The bank's conservative approach of putting cyclical treasury gains to good use, shoring up the provisioning buffer and wage revisions should hold it in good stead.
After a subdued FY09, when earnings declined 21%, Analysts expect a robust 27% CAGR over FY09-11 with core operating profits growing at a faster 31% CAGR over the same period. Allahabad Bank has always traded as if it were a poorer cousin to its larger PSU peers - at a discount of 35% over the past four years. The discount should narrow, as the bank improves its operating performance through technology upgrades and balance sheet restructuring. Factors that already favour a narrowing discount are a steady deposit profile, comparable cost-to-income, manageable asset quality and, above all, a stable guard at the helm.
The bank is expected to report an EPS of Rs 23.4 for FY10 and Rs 27.7 for FY11.
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Published by Webmaster @ 12:58 PM IST.
Oriental Bank of Commerce - Quick Gun Morgan's Recommndation
Wednesday, September 09, 2009
Quick Gun Morgan, the Leading Researcher for other Western Financial institutions, has started its coverage on the long forgotten Oriental Bank of Commerce - OBC. In a report released just minutes ago, Murugun emphasizes on OBC's net interest margin (1.8% in QE-Jun 09) is the lowest in their coverage universe. Its margins have declined by two percentage points since F2004 primarily due to a collapse in bond spreads.This trend is behind us. Further, by QE-Dec 09, OBC will see the full benefit from repayment of high-cost deposits amounting to Rs. 209 bn (17% of assets). This alone will likely help margin expand by more than 30 bps.
OBC has a 23% stake in a life insurance JV with HSBC and Canara that has gained significant market share within one year of operation. We currently do not ascribe any value to this.
Key beneficiary of cyclical and structural margin improvement theme. Core earnings progression to improve in F2H 2010 with an improvement in margins as high-cost deposits reprice downwards.
OBC could re-rate to 1x BV from current 0.6x over the next 12 months driven by reduced pressure from asset quality concerns. OBC will likely generate close to 12% ROE in F2011 without any support from capital gains and even after building in a 3x rise in credit costs.
OBC is likly to report an EPS of Rs 36 for FY10 and Rs 40.1 for FY11 according to Murgun ;-) Morgan has set a Target price of Rs 325 on OBC, Mind it!!!
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Published by Webmaster @ 1:08 PM IST.
