>MARKET STRATEGY (CLSA)

Singapore Access Forum

We hosted nine Indian mid-cap companies at the CLSA Corporate Access Forum, Singapore over May 20-23, 2009. In general, the companies said that they are seeing signs of an improvement in demand environment and with the liquidity scenario having improved, most corporates are pushing ahead with ongoing projects and reviving expansion plans. Companies believe that in the
near-term, the economic environment will remain challenging and will continue to focus on various cost saving initiatives that have been undertaken. Our top picks in the midcap space are Educomp, Godrej Consumer, Exide and Shree Cement.

Corporates witnessing sequential improvement
Most companies that presented in our forum were of the view that there are visible signs of revival in the domestic demand.

The outcome of election and a likely stability in government/economy has raised hopes of a much better FY10 than what it was before the elections.

The companies were appreciative of government efforts during last year towards keeping the economy on a growth path despite a global slowdown through various initiatives viz. farm waiver scheme, support prices, pre-election spending, pay revisions etc.

While the companies are looking forward to similar initiatives by government in the coming months, deteriorating fiscal balance did come out as a concern in our interactions with these corporates.

Mixed view on near-term outlook; different growth strategies
The companies are generally cautious on near term outlook and have stressed upon the various self-help cost saving initiatives that have been undertaken. Godrej Consumer, JSW Steel expect international businesses to remain under pressure and expect a better performance from the domestic operations. Interestingly, Mindtree is already seeing some traction in financial services in Europe and manufacturing and Hi-tech in US.

Tulip Telecom and Financial Technologies viewed regulatory action as a key risks while Godrej Consumer viewed rising commodity prices (crude, palm etc from the bottom) a potential threat in 2HFY10.

JSW Steel, which benefits from rising commodity prices, stated that the company is already witnessing an uptick in pricing and believes that the worst is over in commodity (steel) cycle.

Expansions to continue as per schedule; easing liquidity helping
The government action has improved the liquidity situation and the availability of funds to the corporate sector.

JSW Steel is going ahead with the existing expansion plans while Unitech, Educomp are working on new projects - thanks to the improvement in availability of funds.

Companies upbeat on long term India potential (Godrej Consumer, Aditya Birla Nuvo, JSW Steel) are working on to scale up distribution channel in India.

Ranbaxy and Financial Technologies are planning to expand footprints in newer geographies outside India.

Top midcap picks: GCPL, Educomp, Exide, Shree Cement
■ The positive election outcome has helped boost investor sentiment, but the sharp rally in the market has made investors hesitant to aggressively add their exposure to Indian equities, particularly the high beta names that have run the hardest.

■ An early revival in confidence will augur well for a 2H FY10 recovery, but this appears priced in to a large extent; the Sensex is near our 12m target of 14,000. Clearer signals on fiscal consolidation and revival in private investment will be prerequisites for the next leg-up for the market.

■ In this backdrop, we would recommend a high quality filter for investment into midcap stocks; we are also biased towards domestic plays with high earnings visibility. Our picks from forum are Godrej Consumer, Educomp and also prefer Exide and Shree Cement in the mid cap space.

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