Category: Economy, Markets and Macro Views

We are in a situation where earnings risk and valuation risk seem to be prevailing simultaneously. Large cap stocks in most sectors appear fully valued and the market is trading close to top of its trading range. Simultaneously, Sensex EPS estimates have declined 2-3% during the recent quarterly result season.

The narrow market (i.e., BSE Sensex) is lagging the broad market on profit growth. Slightly more than half of the reported companies (more…)

The Indian Equity market has reacted nonchalantly to a tepid earnings season, especially with the larger companies tending to disappoint on earnings. While inflation is a concern, the market seems to hold the view that the pressures will recede, and hence that India’s premium multiples will continue.

Morgan Stanley has crunched some historical data and come up with the theory of – Value at Risk. (VAR) – represents the weekly (more…)

Dr. Reddy’s Laboratories’ (DRRD) Q1FY11 results were below estimates, with operating profit of INR 2.6 bn vs. our estimate of INR 3.1 bn. While operating margins were flat Q-o-Q (ex-restructuring costs in Q4FY10) and fixed costs of INR 6.3 bn broadly in line with estimates, a lower-than-expected sales of INR 16.8 bn led to operating margins of 15.6% (below our estimate of 17.2%). Adjusted net profit of INR 2.3 bn (excluding INR 225 mn forex loss primarily from rouble depreciation) was 8% lower than our estimate of INR 2.5 bn. This (more…)

Large Institutional Investors continue to be bullish on growth and worried about inflation. Buy-side earnings expectations are in line with the sell side. Investors expect modest rate hikes totaling to 50bp for the rest of the year and almost unchanged 10-year bond yields. The Sensex is expected to close the year 10% higher from current levels, although it may hit an intra-year high of around 19,500. About two-thirds of the surveyed investors expect India to continue to outperform emerging markets in 2010 and about half of them are overweight India in their portfolios. (more…)

The Empowered Group of Ministers (EGoM) plans to re-convene on 25th June 2010 to consider petrol price decontrol, according to media reports. We estimate that petrol prices may be hiked by Rs 4/litre (8%), if decontrolled. We believe this will likely be taken positively by the market as the first step towards eventual decontrol of diesel as (more…)

Corporate capital spending in India is likely to surprise on the upside. Capex plans for the next six months imply a 20% YoY increase in calendar 2010. According to the AlphaWise survey, confidence in the growth outlook drives capex – and 89% of corporates expect better domestic economic conditions in 2010 than in 2009.

Capex plans are focusing on productivity gains and brownfield expansions. Capex looks most sensitive to changes in growth (more…)