NIRMAL JAIN, CMD, IIFL
CIPLA: Cipla has largely completed a strong investment cycle and its meaningful impact will flow in the next 2-3 years. The stock underperformed over the past two years largely due to its lower-than-market growth and margin pressure. We believe with the operating leverage looming in and improvement in margin and return ratio, Cipla would trade at its high multiple. We expect a revenue CAGR of 14% over FY11-FY13E as against 8% over FY09-FY11. In a volatile market, we expect Cipla to offer a defensive play with a lower risk and high rewards.
ICICI BANK: Over FY08-11, ICICI Bank underwent a landmark transformation elevating its profitability matrix significantly. Over the past two years, its NIM has been steady in the range of 2.5-2.7% aided by structural improvement in CASA. Asset quality has held up well so far and the bank recently upgraded its credit cost guidance for the year implying a sanguine outlook. Negligible restructured assets and robust capitalization provide a lot of comfort. Current valuation is extremely attractive in the light of potential 1.3% RoA delivery.
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CIPLA: Cipla has largely completed a strong investment cycle and its meaningful impact will flow in the next 2-3 years. The stock underperformed over the past two years largely due to its lower-than-market growth and margin pressure. We believe with the operating leverage looming in and improvement in margin and return ratio, Cipla would trade at its high multiple. We expect a revenue CAGR of 14% over FY11-FY13E as against 8% over FY09-FY11. In a volatile market, we expect Cipla to offer a defensive play with a lower risk and high rewards.
ICICI BANK: Over FY08-11, ICICI Bank underwent a landmark transformation elevating its profitability matrix significantly. Over the past two years, its NIM has been steady in the range of 2.5-2.7% aided by structural improvement in CASA. Asset quality has held up well so far and the bank recently upgraded its credit cost guidance for the year implying a sanguine outlook. Negligible restructured assets and robust capitalization provide a lot of comfort. Current valuation is extremely attractive in the light of potential 1.3% RoA delivery.
MOTILAL OSWAL, CMD, Motilal Oswal Fin. Services
STATE BANK OF INDIA: SBI has a strong liability franchise of over 18,500 branches at the group level, leading to a robust growth in CASA, fee income and core PPP growth. Led by repricing of assets and control over cost of funds, NIMs have improved sharply to 3.8% ( one of the best in the industry), and we expect it to remain superior at over 3.5%, a key driver for profitability. Higher focus on asset quality versus growth and proactive recognition of stressed assets will lead to lower slippages and higher recoveries going forward.
INFOSYS: Infosys has positioned itself as a high value player in ITeS. We expect it to consolidate its positioning across Europe and emerging markets. Its strategy of moving up the value chain while aggressively targetting new markets will help hold margins in a narrow band. Infosys is also better placed to drive productivity post the restructuring undertaken earlier this year. The company also has a prudent hedging policy, better than its peers in our view-a key positive in the current environment. We expect earnings to grow by 15% in FY13.
STATE BANK OF INDIA: SBI has a strong liability franchise of over 18,500 branches at the group level, leading to a robust growth in CASA, fee income and core PPP growth. Led by repricing of assets and control over cost of funds, NIMs have improved sharply to 3.8% ( one of the best in the industry), and we expect it to remain superior at over 3.5%, a key driver for profitability. Higher focus on asset quality versus growth and proactive recognition of stressed assets will lead to lower slippages and higher recoveries going forward.
INFOSYS: Infosys has positioned itself as a high value player in ITeS. We expect it to consolidate its positioning across Europe and emerging markets. Its strategy of moving up the value chain while aggressively targetting new markets will help hold margins in a narrow band. Infosys is also better placed to drive productivity post the restructuring undertaken earlier this year. The company also has a prudent hedging policy, better than its peers in our view-a key positive in the current environment. We expect earnings to grow by 15% in FY13.
D KANNAN, MD, Kotak Securities
INFOSYS: The company's management has reiterated its long-term commitment to increase the proportion of non-linear revenues. We concur with the management's view that this is necessary to ensure profitable growth, while providing more value to customers. We remain positive on the medium-to- long term strategy of the company.
HDFC BANK: HDFC Bank is best positioned vis-a-vis its peers in the prevailing uncertain macro-economic environment with better loan profile in the form of higher exposure to retail and working capital loans, strong liability franchise aiding superior net interest margins and high coverage ratio, in our view. We are modeling earnings to grow at 27.9% CAGR during FY11-13E.
INFOSYS: The company's management has reiterated its long-term commitment to increase the proportion of non-linear revenues. We concur with the management's view that this is necessary to ensure profitable growth, while providing more value to customers. We remain positive on the medium-to- long term strategy of the company.
HDFC BANK: HDFC Bank is best positioned vis-a-vis its peers in the prevailing uncertain macro-economic environment with better loan profile in the form of higher exposure to retail and working capital loans, strong liability franchise aiding superior net interest margins and high coverage ratio, in our view. We are modeling earnings to grow at 27.9% CAGR during FY11-13E.
GAGAN RANDEV, CEO, Religare Securities
ACC: The demand in rural areas is set to improve as a good monsoon will lead to better earnings for farmers. Awarding of road projects and construction activity of metros will further boost cement demand. A sharp rise in cement prices was attributed to demand from large dealers who were stocking up in anticipation of a pickup in demand during the festive season.
GODREJ INDUSTRIES: The diversified business provides it a hedge against adverse developments in any industry. It is planning a major expansion in its agri and chemical businesses at an investment of around `300 crore. The group owns about 5,000 acres in Vikhroli; a part of which has been used for residential and commercial purposes. The company holds 69.51% stake in Godrej Properties
ACC: The demand in rural areas is set to improve as a good monsoon will lead to better earnings for farmers. Awarding of road projects and construction activity of metros will further boost cement demand. A sharp rise in cement prices was attributed to demand from large dealers who were stocking up in anticipation of a pickup in demand during the festive season.
GODREJ INDUSTRIES: The diversified business provides it a hedge against adverse developments in any industry. It is planning a major expansion in its agri and chemical businesses at an investment of around `300 crore. The group owns about 5,000 acres in Vikhroli; a part of which has been used for residential and commercial purposes. The company holds 69.51% stake in Godrej Properties
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SIVASUBRAMANIAN KN, Chief Investment Officer, Franklin Templeton Investments
There is likely to be increased volatility over the shortterm, but investors should focus on the long-term return potential, as it is difficult to time the market. One of the key triggers could be substantial progress on key reforms that are required to address structural issues in India, reduce inflation levels and lay the ground for future growth.
Sectors: From a medium- to long-term perspective, sectors benefiting from structural growth drivers, that is, consumption and infrastructure development are likely to fare well in our view. However, in volatile market conditions such as those seen in recent times, historical data suggests that, typically, defensive sectors such as FMCG and healthcare relatively outperform markets, while cyclical stocks are rather severely hit during periods of high volatility.
There is likely to be increased volatility over the shortterm, but investors should focus on the long-term return potential, as it is difficult to time the market. One of the key triggers could be substantial progress on key reforms that are required to address structural issues in India, reduce inflation levels and lay the ground for future growth.
Sectors: From a medium- to long-term perspective, sectors benefiting from structural growth drivers, that is, consumption and infrastructure development are likely to fare well in our view. However, in volatile market conditions such as those seen in recent times, historical data suggests that, typically, defensive sectors such as FMCG and healthcare relatively outperform markets, while cyclical stocks are rather severely hit during periods of high volatility.
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SANKARAN NAREN,Chief Investment Officer, ICICI Prudential Asset Management
The market will remain volatile in 2012 unless the government is able to handle the rising fiscal deficit, which is keeping interest rates high.
Sectors: We are bullish on exporters in 2012, as the rupee has weakened by almost 20% against competitor China's yuan. This is a real opportunity for exports to pick up. Among exporting sectors, we are optimistic about textiles, dyes and chemicals, and engineering goods. We like the technology space too, but the sector is not showing any significant improvement in volumes.
The market will remain volatile in 2012 unless the government is able to handle the rising fiscal deficit, which is keeping interest rates high.
Sectors: We are bullish on exporters in 2012, as the rupee has weakened by almost 20% against competitor China's yuan. This is a real opportunity for exports to pick up. Among exporting sectors, we are optimistic about textiles, dyes and chemicals, and engineering goods. We like the technology space too, but the sector is not showing any significant improvement in volumes.
SUNIL SINGHANIA,Head - Equity Investments, Reliance Capital Asset Management
Year 2012 starts with a lot of uncertainty and challenges. Right from action on reforms and policies by the Indian government to the inflation, interest rates and currency scenario, and also global concerns; there is uncertainty on every front. Thus the outlook as we start the year is one of confusion. We expect 2012 to throw a challenge in the first half and a possible big surprise in the second half.
Sectors: Companies having dollar assets and revenues should do well. In case interest rates fall towards the second half, there is a possibility of capital expenditure reviving the ailing engineering and capital goods sector.
Year 2012 starts with a lot of uncertainty and challenges. Right from action on reforms and policies by the Indian government to the inflation, interest rates and currency scenario, and also global concerns; there is uncertainty on every front. Thus the outlook as we start the year is one of confusion. We expect 2012 to throw a challenge in the first half and a possible big surprise in the second half.
Sectors: Companies having dollar assets and revenues should do well. In case interest rates fall towards the second half, there is a possibility of capital expenditure reviving the ailing engineering and capital goods sector.
ANUP MAHESHWARI, EVP & Head - Equities, DSP BlackRock Investment Managers
Global markets will remain volatile and continue to negatively impact market sentiment and growth. During volatile market conditions, investors will benefit more from large cap companies.The performance of large- cap companies may potentially provide for a 15% CAGR over the long-term although these returns may not be linear.
Sectors: Interest rate sensitive sectors will appear attractive as there may be a pause in interest rate hikes. There are opportunities in pharma, IT, auto & auto-ancillaries. Infrastructure will remain under pressure.
Global markets will remain volatile and continue to negatively impact market sentiment and growth. During volatile market conditions, investors will benefit more from large cap companies.The performance of large- cap companies may potentially provide for a 15% CAGR over the long-term although these returns may not be linear.
Sectors: Interest rate sensitive sectors will appear attractive as there may be a pause in interest rate hikes. There are opportunities in pharma, IT, auto & auto-ancillaries. Infrastructure will remain under pressure.
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