GDP Growth Slowest in 3 Years
Friday, August 29, 2008
As anticipated, the Indian GDP growth for Q1-FY09 reversed the trend and hit 7.9%, the slowest since Q3FY-2005. The main factor behind the recent slowdown in real growth has been industry's poor performance. Services growth, too, registered a noticeable dip.After growing at double digits for the last 11 quarters, financial services growth has fallen to 9.3%, following the trend it has shown for the past six quarters. The slowdown in electricity growth raises concern that it could lead to supply bottlenecks in other sectors.
The only alarming factor is the slowdown in foreign investments and slight dip in consumption. Use this correction to add stocks to your existing portfolio.
Update:
Adding to India's woes is the fiscal deficit during April to July, which stood at 1.16 trillion rupees ($26.5 billion), or 87 percent of the annual target Not a good number at all.
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Published by Sunil K @ 7:33 PM IST.
DLF + Sobha Downgrade to Sell - Goldman Sachs
Thursday, August 28, 2008
In a report released just a while ago, Goldman Sachs [GS] has downgraded DLF and Sobha Developers to a SELL as a way to book profits in the recent rally from trough of July-1st. GS believes that primary property prices and commercial rentals are yet to witness a significant correction. It may only be a matter of time before developers give in and bring prices down as end-users are bound to be affected by the recent monetary policy tightening.DLF:
DLF is planning a slew of launches in Homes and Retail, although the management admitted that it expects a cautious outlook for the year ahead. It remains to be seen whether DLF can lease out office space at the same rate in FY2009 as it did in FY2008 and increase its area under construction, given the current tough market environment. GS believes property prices and rentals are yet to undergo a material correction and we believe this may happen before the year-end.
RNAV of DLF for FY09 is estimated to be at Rs 478 / share and the breakdown is as follows. in INR
Office Sales - 130
Retail Sales - 92
Residential Sales - 151
Office lease - 34
Retail Lease - 85
Hotels + Land Acquisition - 45
Net Debt (-58)
Due to challenging times for Developers, at a 15% discount to potential RNAV Goldman has set a target price of Rs 406 on the DLF stock.
Sobha Developers:
The Bangalore market, which accounts for 66% of Sobha's NAV, is saturated, in GS' view. GS does not assign much value to long-dated land banks as visibility on market dynamics is low. Further, Sobha's high gearing relative to peers is not reassuring in the current tough market environment.
Residential projects in Bangalore, Trissur, Pune and Coimbatore should be key near-term revenue drivers, while the share of contractual income is likely to fall over time.
RNAV of Sobha Developers is Rs 492 calculated as below,
Residential Rs 126
Commercial Rs 8
Retail - 29
Open Land Bank - Rs 466
Contracts + manufacturing - Rs 92
Net Debt (-Rs92)
GS has set a Target Price at Rs 246 on Sobha Developers, 50% discount to RNAV due to major part of the NAV being arrived from Land Bank.
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Published by Webmaster @ 3:19 PM IST.
ICICI Bank Management Wakes Up
Wednesday, August 27, 2008
The Management of ICICI Bank has finally woken up fulfill customers and shareholders needs. It is now focused on improving its operating efficiency. Here are the details of Management views at a roadshow in Singapore.Asset Growth:
Balance sheet growth will moderate further to 5-10% in FY09 for standalone bank from current growth rates of 13%. This is is lower than consensus estimate of 15% in FY09.Retail disbursements are down 30% Y-o-Y due to: (1) increased booking of mortgage business under the housing finance subsidiary; and (2) cautious lending to two-wheeler and unsecured retail segments.
International Business:
ICICI is steadily growing its balance sheet outside India and the international balance sheet currently contributes to ~29-30% of the loan book on consolidated basis (~24% of standalone book).International banking is clearly the new growth frontier for ICICIB, particularly Indian corporate-linked banking and NRI banking. The retail banking experience in the UK and Canada has been encouraging so far.
Operational Costs:
ICICI has initiated various cost-cutting measures and is focused on optimising the same. Expenses directly linked to loan growth (sourcing expense etc) are slowing down, due to 30% decline in retail disbursement in last quarter. The bank is aiming to maintain operating expenses growth within 10% Y-o-Y.
Asset Quality deterioration:
Nearly 20% of retail assets which comprises of unsecured loans contribute to ~65% of retail NPA, suggesting high delinquencies in personal loans and credit cards segment. Delinquencies will continue to rise, driven by stress in two-wheeler and unsecured personal loan portfolios, which are expected to peak only in Q4FY09. Additions to NPA should decelerate as bank sees complete wind down of its small ticket personal loan (STPL) book (roughly INR 10bn).
Growth outlook on the non-banking subsidiaries:
The bank expects new business growth to remain at ~35-40% (in line with our assumption) for FY09. It expects more capital infusion in the next one-two years and intends to place ~5% through private placement, if the sector does not open in one year.
Looks like ICICI is analogus to American sub-prime in a mini way ;-)
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Published by Webmaster @ 2:28 PM IST.
Underweight on Brokerages - Deutsche
Tuesday, August 26, 2008
Deutsche Bank [DB] is underweight on Indian brokerage stocks [Emkay, Motilal Oswal, Geojit etc] especially Indiainfoline and Edelweiss where they have recommended a SELL. DB compares the premium P/E at which these stocks are quoting to their peers across Asia where they are all trading at discount. This is very different from exchanges, which are also turnover-dependent but trade at market premiums since they are oligopolistic businesses.A fragmented market, structural weaknesses such as relatively low product diversity and a distinct reversal of both the trend and the cyclical component, could lead to a significant de-rating from current above-market multiples. The sector is thinly covered by the Street; DB estimates and target price are materially below consensus.
The low market concentration and hence the propensity to intensely compete could exert significant pressure on returns. To this end, distribution prowess becomes the main value-driver and, with players such as Reliance Money taking the lead in network expansion, the crucial process of scaling up could be harder for rivals. DB expects turnover velocity to further compress in FY09E, the key retardant being the unavailability of large IPOs which have been an important driver of velocity in the past.
India Infoline is expected to report a negative growth in EPS for FY09 to Rs 5.23 [Rs 6.03 FY08] DB has a sell rating on the stock with a target price of Rs 110. [Broking/Investment banking/Wealth management/Ins distribution etc Rs 75 and Consumer Finance Rs 35.]
Edelweiss Capital is expected to report an EPS of Rs 33.83 [negative growth Rs 42.30 FY08] DB has set a target price of Rs 480 [ Broking/Investment banking/Wealth management etc Rs 265, Consumer Finance Rs 71, private Equity Rs 19 and Arbitrage Business Rs 127]
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Published by Webmaster @ 12:29 PM IST.
Yo-Yo Markets + Range Bound - Credit Suisse
Sunday, August 24, 2008
Credit Suisse expects the Sensex to repeatedly touch both extremes of the 13,000-16,000 band in the next six months. At each extreme, are advised to prepare portfolios for a market move to the other. Some of the key negatives that are factored in - soon to stabilise inflation, a peaking monetary tightening cycle, diminished earnings expectations and stable global commodity prices.In the last eight months, the Sensex has done more of a "yo-yo" than in any full year since 1995 There have been 13 rally and reversal episodes this year so far - the highest in any year since 1995. 1998 and 2000 had 12 such episodes. There have been six rallies and seven reversals so far this year, with the Sensex moving by at least 7%.
Long-term investors should wait for more data before increasing exposure significantly. Expectations of rate declines or current valuation levels are not enough to lift the market. Given local political risks, rising credit quality concerns and dependence on global risk aversion, the market could break down rather than up. Positively, almost all valuation charts have reached their best point since 2006.
Short-term investors should play frequent rallies and reversals by adjusting financial/industrial versus pharmaceuticals/staples. All historically successful quantitative investment strategies have stopped working in this environment. Rather, financials have emerged as one of the top-two outperforming sectors in every rally since February, and one of the top-two underperforming sectors in every reversal. Industrials are not far behind financials as high beta performers in every market half-cycles.
Lastly, valuations would be proven cheap enough only when growth returns back to India Inc.
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Published by Webmaster @ 10:11 AM IST.
Goldman Prefers China Over India
Thursday, August 21, 2008
The sharp drop in oil prices led the Indian stocks to recover 15% from its July low outperforming the region by 20%. There is skepticism in the oil staying at ~110 levels and Goldman expects the price to rebound within the next 4 months [Q4 2008]. Adding to Indian market woes is valuations remain among the highest in the region and the risks to macro and EPS growth are to the downside.
The Indian market trades at 14.4x 12m forward earnings and 3.2x 2008E book value. India's valuations are now towards the midpoint of its historical range, whereas other markets are trading at the low end of theirs.
Goldman's assessment on oil prices is about $10 downside and possibly $30 or more upside. This implies that the benefits to the Indian equity market of lower oil is already discounted and that the market could again be vulnerable to rising oil prices. Oil accounts to 40% of India's imported goods.
RBI has regained some inflation-fighting credibility through more forceful policy tightening, but rates have moved up sharply. GS expect further policy tightening in October and think rates will remain elevated into next year.
At the market level, GS would sell calls to fund India downside protection and prefer China to India (valuation discount, greater policy flexibility to cushion cyclical risks).
Individual Stocks on BUY List
Reliance Industries, Jindal Steel & Power, Axis Bank, Suzlon Energy, Dr. Reddys
Individual Stocks on SELL List
Indian Oil Corp, Unitech and National Aluminium.
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Published by Webmaster @ 9:51 AM IST.
12.44% Inflation - Who Leaked Data ?
Friday, August 15, 2008
A Month ago, the Finance Ministry changed the timing of releasing Inflation data citing that the sensitive data would be ready by Thursday of every week and should be released by evening on the same day. However, I don't agree with the Finance Ministry's argument and I think it was directly related to rampant sell-offs on Friday's in the Stock Market where the Inflation figures kept on rising and older numbers revised upwards in retrospect.Today's Inflation Data of 12.44% was widely available in all the newsgroups across the web during market hours much before the Government's announcement at 5:00 PM IST.
Just late last month, RBI's Web Manager sent out e-mails on rate hike even before the RBI Governor addressed it. Today, the Inflation Data and tomorrow it could be India's Financial Budget or details of India's Nucelar Deal with the US.
It is high time that the Government clean such elements from the system to bring higher level of transparency and boost Investors confidence.
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Published by Webmaster @ 12:20 AM IST.
Who owns Indian Capital Market ?
Wednesday, August 13, 2008
Latest shareholding data for June 2008 shows a continued drop in foreign ownership of the Indian markets. FII (FIIs+ADR/GDR) share of the BSE-500 now stands at 17.4% (17.8% in March and 19.27% in June 2007). Foreign ownership levels are now back to Dec-2004 levels.This time its not the company promoters who are increasing their stakes, but it is the Indian Insurance Companies who have raised their ownership level from 4.1% to 4.4% and to some extent retailers and HNIs have also bought seeing their stake go to 9.24% from 9.0%.
How have the Domestic Mutual Funds fared ?
Domestic Mutual Funds continue to see inflows into equity funds, but it's now down to a trickle (US$690mn in 2Q vs. US$6.6bn in 1Q08). The Insurers continue to see inflows, now decisively a bigger driver than DMFs.
The following Chart shows the Share Holding Pattern of Mutual Funds, FIIs, Banks and Retailers in BSE 500 companies between 2001 and 2008.
When it comes to BSE SENSEX, FIIs Hold 23.8%, Insurance Cos 6% and Mutual Funds at 4%.
FIIs have core of their holdings parked in Financials 27%, Energy 13%, Industrials 12%, IT and Commodities. Mutual Funds have parked their holdings in Industrials 25%, Financials 14%, Commodities 12% and Energy 10%. Insurance Companies have their holdings concentrated in Energy 18%, Financials 15%, Consumer Staples 13%, Commodities and Industrials.
You maybe wondering why there is so much of dispersion in holdings ? Well Mutual Funds are always under the pressure to perform in Short Term [QoQ] results are a must while the same doesn't hold true for Insurance companies who can take a long gestation call and are hence really long on the energy sector. How will you own ?
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Published by Webmaster @ 11:43 AM IST.
Brokerage Price target chasing Market Prices ?
Tuesday, August 12, 2008
Brokerage houses are totally confused about the markets as they are unable to take a call on the stock. We see the Sanctity of research at CLSA and Citigroup India ;-)
In the Table below, we can clearly see how CLSA Analyst is chasing the market in revising the stock price downwards of HDIL. Has the Mumbai Realty Market corrected so much ? Have Land prices fallen so Much ?
The matter is no different at Citigroup. They downgraded BHEL's target price to Rs 1,642 from Rs 2,800 and now it is upgraded to Rs 2,025 when the current market price is ruling at Rs 1,800 levels. Well their are so many such instances, so better take an informed decision rather than churning folios aggressively.
You can read our coverage in Jan - Stupid Theories in Bull Market for Stock Price Justification.
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Published by Webmaster @ 12:56 PM IST.
Industrial Production down to 5.4%
The Index of Industrial Production (IIP) for June 2008 slipped to 5.4%, year-on-year.Industrial growth has fallen from the double-digit levels seen early last year as tight monetary policy and a stronger rupee lowered demand. Manufacturing production was down to 5.9% against 9.7% last year and 3.9% in May.
India's infrastructure sector output grew 3.4% in June from 5.2% a year earlier, and below May's 3.5% annual growth.
Among other sectors, mining recorded a growth at 2.9%, consumer goods grew at 10%, electricity grew at 2.6% and capital goods grew at 5.6%
Meanwhile, the government has revised the May industrial growth figure to 4.1% against the provisional figure of 3.8% earlier.
Labels: India-IIP-Numbers
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Published by Webmaster @ 12:38 PM IST.
Composition Dow Jones India Titans 30 Index
Monday, August 11, 2008
Dow Jones India Titans 30 Index is the new benchmark launched by Dwo Jones and Company. Here is a complete list of companies and their weight age in the Index. In Dow Jones Titan Index, no company has a weight age of more than 10% [i.e the cap].
You can check the composition of Dow Jones India Titan 30 Index here [PDF Document].
Difference between BSE SENSEX 30 and Dow Jones India Titans 30 Index composition:
- Reliance Industries has a weightage of 15% in SENSEX while its capped at 10% in DJIT-30
- NTPC, Wipro, HDFC Bank, Hindustan Unilever, Tata Power, Maruti Suzuki, Ranbaxy Labs, Grasim are Missing in Dow Jones India Titans -30
- Some scrips included in DJIT-30 but are not part of the SENSEX are Cairn Energy, Essar Oil, Reliance Petroleum, Reliance Capital, Reliance Infrastructure, Reliance natural Resources, Suzlon Energy, Jindal Steel and Power, Mundra Port, Unitech and IDFC.
- We personally feel that Dow Jones India Titan 30 should have excluded Essar Oil, Reliance Petroleum, Reliance Infrastructure and Reliance Natural Resources
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Published by Webmaster @ 1:29 PM IST.
SENSEX Companies - Result Card for Q1FY09
Wednesday, August 06, 2008
Its time to take a look at Corporate India's performance in Q1FY09. Profit GROWTH for the Sensex companies came out at 11.7%, the lowest since 2002. SENSEX. Ebitda margins declined marginally by 51bps to 20.6% and Ebitda grew by 26.3%, excluding financials. Growth was mainly concentrated in four sectors - Media (29%, supported by exceptionals), Telecoms (27%), Capital Goods (+25%) and Real Estate (+25%).The 1QFY09 results clearly indicate the pressure on margins and challenges in execution. We believe going forward corporate India will face the headwinds of slowing demand environment. Stock to bottoms-up stock selection.
Autos: 1QFY09 EBITDA margins declined across the board due to rising raw material cost pressures.
Banks / Finance: Axis bank was a surprise Positive while ICICI Bank is the Worst Hit for now.
Capital Goods: Strong order book growth and improvement in EBITDA margins for BHEL. L&T also registered robust growth in order book. ABB was a negative.
Media: Zee results were strong led by 37% YoY growth in ad revenues and 28% in subscription.
Oil & Gas: ONGC's results came below estimates, however, due to higher than expected exploration expenses; [Stay away from Oil Marketing companies]
Real Estate: Topline growth was weaker than expected for most companies as impact of slowdown led to reduction in new projects launched; Margins were down across the board.
Telecom: Bharti's operating performance was 4% ahead of estimates led by lower than expected ARPU decline of 2%QoQ and higher than expected 5%QoQ increase in MoU. RCom was a negative Surprise and faced downgrade.
Individual Stock Research Recommendations will follow from now.
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Published by Webmaster @ 1:15 PM IST.
Amtek Auto - Consolidation Amidst Weak Results
Monday, August 04, 2008
Amtek Auto has announced the consolidation of all group companies into itself amidst declaring weak results. Consolidated earnings after minority interest including gain on sale of shares (net of losses on forex hedges) of Rs 305 mm came in at Rs 1,070 mm. Lower operating margin at 15.5%. Adjusted net earnings after minority interest of Rs 765 mm were 22% below last year's Rs 981 mm; depreciation was up 39% to Rs 584 mm and interest was up 19% to Rs 300 mm..Amtek Group Consolidation:
44 shares in Amtek Auto for every 100 shares held in Amtek India.
56 shares in Amtek Auto for every 100 shares held in Ahmednagar Forgings.
5 shares in Amtek Auto for every 100 shares held in Amtek Castings.
We will revert back ASAP once we have all the details of Equity Dilution and consolidated Earnings estimate. We recommend a HOLD and Accumulate at lower levels with an investment horizon of 18 months.
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Published by Komal M @ 1:22 AM IST.