>India Essentials (MACQUARIE RESEARCH)

ICICI Bank (Downgrade to Underperform)

Too much too soon

We downgrade ICICI Bank to Underperform from Outperform following the recent rally in the stock price. We cut our target price to Rs436 from Rs465. Limited leverage to economic growth. We believe ICICI's ability to leverage on economic growth is constrained by the need to restructure the deposit base first – and we estimate this will take at least 4–6 quarters. Thus the upside, in case of a sooner-than-expected recovery, could be limited to fees.

Rocks on Stocks
Cashburn in 2009

Margins across Asia remain will remain low for several years as Asia digests a decade of over-investment. Asia's financial position deteriorated during 2008, as leverage ratios rose for the first time in a decade. This represents a major inflection point. An even greater increase will occur in 2009; even if restocking leads to a production rise in Asia over the rest of the year, many Asian companies will continue to burn significant amounts of cash.

Rocks on Stocks
Watching margins

We examine analysts' EBITDA margin forecasts for 2009. Profit margins across Asia fell to their lowest levels in a decade during 2008. The good news is that analysts are assuming that margins remain subdued in 2009. In aggregate, margins are assumed to be about the same in 2009 as 2008. However, there are some sectors where a large amount of good news is already factored into margin forecasts, while in others, margin forecasts are too pessimistic.

Macquarie Commodities Comment
Promising PMIs Isaac

PMIs ticked up again in April, with promising new orders data, but ex-China remain substantially below 50, the threshold between growth and contraction. Latest news Base metals prices were mixed on Tuesday, with copper closing down by 1.6%, while the other metals made small gains on Friday's close. US construction spending rose by 0.3% in March, the first increase in six months. In other US construction news, pending home sales jumped by 3.2% MoM as buyers were encouraged by favourable prices and mortgage rates.

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