India strategy, top 22 stock ideas: Prabhudas Lilladher

Benign global liquidity & supportive domestic policy environment ranged against galloping current account, large supply of paper and fair valuation.

Upmove to be earnings-upgrade driven

Global Macro

• US: Economy on the mend
•  US: Ultra-loose monetary policy looks likely to persist for some time
• Europe: Record unemployment, contracting GDPs & squabbling between austerity v/s growth continues …
• Europe: Political gridlock in Italy and credit downgrade in the UK
• China: Focus on shifting gears from export-dependent investment-led growth to domestic consumption
• Japan: New BOJ Governor Toes ‘Abenomics’- To do ‘whatever it takes’ to fight deflation

• India: Decade-low qtrly growth, cooling WPI (except food), falling exports and rapidly slowing consumption
• India: Plunging savings & corporate capex, massive rise of stalled projects, drying up of new investment projects-All eyes on CCI
• Budget: A bold gambit on revival of growth, Key Legislative reforms needed to stimulate growth, Galloping CAD-the biggest worry

• Markets: Limited room for rate cuts, large supply of paper and hope for continuance of reforms
• After showing an anemic growth of 0.6% in FY12 (Rs 339.6) over FY11 (Rs 337.8), we expect free float Nifty EPS to rise 8.8% to Rs 369.5 in FY13 and 17.2% to Rs 432.9 in FY14 . The earnings downgrade cycle still continues as evidenced in a 2.2% fall in our estimates of FY13 EPS from Rs 378 on Feb 7, 2013 to Rs 369.5 now.
• At 5,863 levels as on March 7,2013, Nifty is trading at 15.9x FY13E earnings and 13.5x FY14E earnings. The last ten-year average for Nifty’s one-year forward multiple is 13.6x. Thus, Nifty is currently trading in line with its ten year average.
• MSCI India is currently trading at a premium of 27% to MSCI Asia (ex-Japan). Last ten-year’s-average premium at which India has traded is 34%
• We expect any further upside will be less re-rating driven and more earnings-upgrade driven.  Relief in the form of fall albeit at a slower pace in interest rates and hopes of continuance of benign commodity prices ( propelled by no large scale liquidity-driven up move and weakish global demand environment) and moderate pick-up in demand due to slightly better growth prospects in FY14 would underpin any earnings upgrade.
• We expect the market to trade in a band between 5600 and 6200. A large current account deficit would act as a drag on the currency limiting RBI’s ability to reduce interest rates aggressively and this may act as a headwind for the equity markets. On the positives, a strong-willed government resolutely committed to the path of fiscal consolidation, reviving growth through policy enablers to kick start the investment cycle and creating a more-welcoming policy environment for foreign investments both through the FII and FDI route would act as strong tailwinds for the equity markets.

Large Cap: ITC , ICICI Bank , NTPC , Wipro , Tata Motors , Larsen & Toubro , Axis Bank , Cairn India , Hindustan Zinc , DLF , Maruti Suzuki , Adani Port & SEZ , NHPC , IDFC , Shree Cement

Mid-Cap: Petronet LNG , Bharat Electronics , Federal Bank , Jammu & Kashmir Bank , United Phosphorus , Apollo Tyres , NIIT Technologies

Institutional holding more than 40% in Indian cos

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