>Strategy Note (ELARA CAPITAL)

Elara Strategy Note - March 2009

Fundamental View....

The impact of the global financial meltdown is now clearly visible on the healthy of majority of Indian companies with deceleration of both the top line and bottom line. Sales growth for many companies ia at record low levels with negative price and volume growth. The reported profits for the listed companies have declined by almost 20% by almost 20% in Q3 FY09. We expect poor numbers again in Q4 FY09 resulting in a lower than expected growth in FY09.

The revised Sensex earnings (post the constitutent changes in the index) have fallen 13% in Q3 FY09 hinting at poor pricing power with declining volumes.Reported profits are also down 11%. The TTM EPS is down to Rs 704 at the end of Q3 FY09 from Rs 809 as at Q2 FY09.

With expectations of decelerating revenue and profit numbers in Q4 FY09, we expect Sensex earnings to be below Rs 700 for FY09. At 8,600, Sensex is trading 12.3x TTM earnings. Considering the other emerging equity markets in the world, Indian equity markets look expensive on a PE basis. Given the increased correltaion of Indian markets with other global markets, Sensex is likely to see a downward bias.

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