Dalal Street :: India Equity Research, Investment Analysis

Inflation at 3.36% for week ended Feb 14

February 26, 20091 min read

Riding on tax cuts and softening commodity prices, Inflation is continuing its downward journey. The wholesale price index (WPI) for all commodities fell by 0.1% to 227.8 on weekly basis for the week ended February 14.

Growth in WPI on annual basis stood at 3.36% in the said week compared with 3.92% in the previous week. Faster than expected decline in inflation and high base effect of last year is likely to drag India into negative inflation territory by April. Another fuel prices cut, which the government is understood to be considering, will further hasten the downward journey of inflation.

However, with Reserve Bank of India expected to cut its policy and reserve rates in near term, relatively stronger rural demand, and expectations of improvement in consumer demand by mid-20009 may still be able to save India from facing any serious deflation threats.

Equity Research

Dr Reddys Labs Growth Underestimated – Goldman Sachs

February 26, 20092 min read

Based on better-than-expected 9m-FY09 sales, Goldman Sachs [GS] now expect 33% FY09E sales growth. For FY2010E, while acknowledging that DRL faces a challenging task to improve upon its FY09 numbers, we believe that its growth momentum will continue and we expect it to post at least double-digit (10.1%) sales growth (core business growth of 16.9%). Market view of decline in growth in FY10E (owing to base comparison) is overly pessimistic; US to continue to drive revenue growth.

Additionally, we continue to believe that the AOK tender wins have equipped DRL better to face the changing business model in Germany and to be a long-term competitor of significance. (more…)

Mutual Funds Review

Asian Fund Managers Views

February 25, 20092 min read

Here is how Asian Fund Managers are looking at India and China for investments in the next 12 months.

Most long-only funds are underweight India and most hedge funds are running short positions on India, while almost 100% of the funds are overweight on China. The reason they are betting on China over India is the perception that China’s far stronger fiscal position, continued large current account surplus and large Fx reserves give it the flexibility to provide large economic stimulus in the form of infrastructure spending. India faces a number of worries, among them, uncertainty on outcome of the imminent general elections, rising fiscal deficit, and premium valuations. YTD, China’s A share index up ~30% , whereas BSE Sensex is down 8.3%.

67% of funds surveyed are underweight on tech or have short positions on techs, whereas ~ 40% funds are underweight on Real Estate and Cyclicals. Uncertainty on clients’ tech budgets in FY10 and expectations of rupee appreciation are key reasons for clients running an underweight position on techs.

While almost 40% of the funds we polled expect global cyclicals to retest their recent lows, more than 80% expect crude to behave differently from other commodities and rise from here on.

Its been over 3 months I have been telling myself to start an SIP in an Asian Fund. I will review one and post my analysis here.

Economy, Markets and Macro Views

India Fiscal Stimulus Part III – Missing Target

February 25, 20092 min read

The Indian government has announced significant reductions in indirect taxes during the interim budget debate. The Indian government has announced significant reductions in indirect taxes during the interim budget debate.

Across-the-board 4% cut in CENVAT (announced in December 2008), customs duty exemption for Naphtha extended to FY2010. General rate on CENVAT cut to 8% from 10%; service tax rate cut to 10% from 12%.

Fiscal profligacy to cost India dear – S&P downgrades India sovereign rating. Gross fiscal deficit likely higher than 5.5% expected in FY2010BE. (more…)

Breaking Corporate India Earnings News

HDFC fears erosion in its market share

February 24, 20091 min read

Irked by State Bank of India’s (SBI) move to offer home loans at 8% for the first year, housing loan giant Housing Development Finance Company (HDFC) is set to punish its wayward borrowers.

HDFC, fearing a slide in its market share, has decided to charge up to 3% of the outstanding home loan if its existing borrowers chose to switch their lender.

However, HDFC claimed that prepayment charges existed in the range of 0-3% depending on certain conditions. It added all lenders levy a prepayment charge as a difference between the contracted loan rate and the market rate prevalent at the time of the switch.

Don’t you think this is an unfair trade practice by HDFC ? Log on your complaints if any against HDFC Home Loans.

Equity Research

Impact of Duty Cut on Indian Auto Sector

February 24, 20091 min read

The excise duty cut affects 24%, 13%, and 61% of 2008 sales for Tata Motors, M&M, and
Ashok Leyland, respectively . Because the cut in excise duty is aimed specifically at boosting demand, as in past instances, we expect all OEMs to pass on the benefit to consumers in terms of lower prices, and thus the lower duty should have no impact on their bottom lines. Our channel checks indicate that all concerned OEMs plan to announce price cuts, in line with the excise duty cut, over the next week. (more…)

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