MOSt Wealth April issue
From the Desk of Manish Shah
Dear Investor,
"Reality does not depart even when you stop believing in it."
A 9% rally in the markets in March resulted in the Sensex giving an 11% return in fiscal 2010-11, after an 80% rise in 2009-10. Individual sectors and indices outperformed broader markets. The consumerism theme has come of age with the Consumer Durables Index gaining 48% and the FMCG Index gaining 27%. Banking and IT Services posted 25% gains. With interest rates bottoming out and deposit rates rising aggressively towards the end of the fiscal year, interest rate sensitive and capital intense industries posted negative returns. The Realty Index was down 29%, followed by the Power and Metals indices, which posted 12% and 10% respectively.
Corporate sector earnings entered a new growth cycle following a 2-year growth holiday in 2008-09 and 2009-10. We expect Sensex EPS CAGR of 22% over FY10-13. For the 9 months to December 2010, the Sensex's performance is in line, with sales up 18% and PAT up 22%. We expect an EPS of Rs.1,050 in FY11 and Rs.1,252 in FY12. At 19,400 points, the Sensex, at 15.4 times FY12E earnings is trading near its 15-year median average of 14.7 times.
This would not have been a cause for worry had the global situation been normal, but a rise in crude prices after political turmoil in the Middle East and Africa, can fuel inflation, worsen the current account and fiscal deficit and create hurdles for
As the last year of the Eleventh 5 Year Plan, it could be a year of infrastructure orders and this could influence neglected infrastructure-related stocks. Sectors that could gain from this include capital goods, metals and cement. Among stocks, we like BHEL and L&T in the capital goods space, Tata Steel and Sterlite Industries in the metals space, and Ambuja Cements and Birla Corporation in the cement sector.
Happy investing!!!
Pg 2 – MOSt Value
Ø
Uphill task
FY11 ended on a positive note for Indian equities with several records being created. A late rally in March 2011 helped the markets to close FY11 at their highest annual closing level of 19,450 points, a gain of 11%. FIIs poured in a record US$25b in FY11, a key driver for market gains. Earnings growth rebounded with the Sensex EPS growing 26% after a 2-year growth holiday in FY09 and FY10. In a year of significant events, macro-economic concerns emerged in 2HFY11, prominent among them being continued inflation and a big rise in oil prices. The government based its FY12 Budget projections on the assumption of 9% GDP growth, which appears challenging in the current environment. Our FY12 estimates suggest Sensex EPS growth of 19% to Rs.1,252, a marginal downgrade over the past 2 quarters. If the current trend of rising commodity prices persists, the PAT mix will tilt in favor of global cyclicals rather than domestic plays. This will drive down valuations of Indian equities. We believe markets holding at current levels in 1QFY12/1HFY12 will be positive. As confidence in earnings growth improves and clarity emerges on the direction of oil prices, the markets will look to move higher.
Pg 4 – MOSt Value
Ø Research Update- Financials - Fuelled to fly
Loan growth of ~20%, operating leverage and fall in credit cost will drive banking sector's profitability over FY12 and FY13. Margins, even with some moderation from their peaks in 3QFY11, would be above/near the average level of FY04-09. Higher recoveries could provide positive surprise to earning estimates (write-offs were aggressive over FY09 and FY10 to keep reported GNPAs lower). We expect banks to report 20%+ earnings growth on an aggregate basis and return ratios to be healthy with RoA of 1.1%+ and RoE of ~18%. Valuations at P/E of 8x and P/BV of 1.3x for PSU banks and P/E of 16x and P/BV of 2.3x for private banks are at the 5-year average multiples, despite strong core operating performance expected. Our top bets are SBI, ICICI Bank and PNB. In the mid-cap space we like Indusind Bank and Yes Bank.
Pg 5 – MOSt Value
Ø Mid cap Research
Allahabad Bank, Amara Raja Batteries and Bajaj Corp Ltd.
Pg 6 – MOSt Value
Ø MOSt 3X3
Asian Paints, ICICI Bank, JP Associates, State Bank of
Pg 7 – MOSt Momentum
Ø Market Outlook
Racing towards the last high? Not yet
In our last month's MOSt Momentum we had said 5,650 points would be the point at which a trend would be decided. At this level the market had faced strong resistance before and after the Budget. Besides, with oil prices strong, it was thought to be a difficult level to breach. However, the market crossed the level with strong volumes and with a 2.5% move in a single day due to strong FII buying.
Going forward…
Pg 13 – MOSt Mutual
Ø Fund of the Month- Franklin
Pg 14 – MOSt Insurance
Ø ICICI Pru SmartKid Premier
Key Benefits
• Joint life coverage option: Ensure a comprehensive safety net for your child by opting for insurance coverage for yourself as well as your spouse in the same policy.
• Payer waiver benefit: In the unfortunate event of death of a parent, the nominee gets a lump-sum payment of the sum assured. Besides, the company will pay all future premiums under the policy until the end of the premium paying term.
• Choice of funds: Choose from 8 funds and 3 portfolio strategies to align your investment as per your risk taking ability.
• Premium paying term: Pay premiums for a 5-25 year term as per your choice.
• Loyalty additions: Get rewarded for staying long-term: enjoy loyalty additions of 2% to your fund value. These will be paid at the end of every 5th policy year, starting from the end of the 10th policy year subject to payment of all due premiums.
• Partial withdrawals: Get money at key educational milestones of your child with our partial withdrawal facility.
• Tax benefits: Get tax benefits on premiums paid and benefits received as per prevailing tax laws.
Pg 17 – MOSt PMS
Ø Strategy Overview
Value Strategy: During March there were no transactions in Value Strategy. Value Strategy remains fully invested as of March 2011.
Bulls Eye Strategy: During the month, Bulls Eye Strategy introduced Bajaj Finserv, Grasim, ICICI Bank, Infosys and. . .
NTDOP Strategy: During the month, NTDOP Strategy exited GVK Power and sold partial quantity of…
Optima Strategy During March, Optima Strategy bought Reliance Industries, HPCL, HDFC Bank, Infosys and Mphasis. Optima Strategy remains fully invested as of March 2011.
Focused Series III: During the month, Focus III Strategy exited Reliance Infrastructure and increased weights of Tata Motors and BPCL. Focus - III is fully invested as of March 2011.
Focused Series IV - Flexi Cap Strategy - During the month, this strategy exited Bajaj Auto, GVK Power and Wockhardt and increased the weight in
Focused Series - V Strategy- During the month, this strategy sold partial quantity of Reliance Industries to create cash for Central Bank of
Invest
Pg 18-19 – MOSt Commodities
Ø Technical Snapshot
Gold - Gold witnessed a strong rally in March, to reach a new high in March of Rs.21, 274. Strong long-term support lies at 19,880/19,820. Resistance can be seen at 21,120/21,180. In the long term, a break below 19,530 will weaken prices. Near term support lies at 20,470/20,430. As long as prices sustain above these levels, more price rises are likely.
Copper - Copper traded on a weak note in March. The long term resistance lies at 450/452. Supports are at 413/411. As long as prices trade above 411, there will be positive movements in coming weeks. A fall below 400/398 will weaken prices.
Crude Oil - Crude looks to trade positively in April. In March, it traded on a strong bullish note. Long term support lies at Rs. 4,440. If the 4,948 level is broken on the upside, then we will see a strong rally in the prices.
Pepper - Pepper has been trading on a positive note over the past 2 months. It is trading above the moving average, which is a positive sign. Long term support lies at 23,100/22,980. We are bullish on pepper as long as the levels hold.
To read the complete articles click on the below link:
http://www.motilaloswal.com:1234/moslweb/MOSt_Wealth_April2011.pdf
You can also visit http://www.motilaloswal.com/Research to read the research reports.
Regards,
Retail Product Team
Johnson Dye Compound
Plot: 6&7,
Kanchpada, Malad
Mumbai-400064
Tel:- 22 30896600
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