>MID-MONTH EQUITY INVESTMENT STRATEGY (HSBC)

Strategy

1. Consumer discretionary: Maintain marginal underweight: The growth momentum in Auto sales continued in the month of June 2009 with the domestic passenger car sales growing by 8% YoY and 2 wheelers by 17% YoY. Commercial Vehicle sales however continue to lag, with the segment de-growing by 12% YoY. However, the pace of decline was arrested as compared to the last month (17% YoY de-growth). We had selectively increased our exposure in the sector and reduced our underweight position.

2. Consumer staples: Maintain Overweight. We maintain our overweight position as the sector offers relatively better earnings visibility, and should be a good defensive bet in volatile markets.

3. Energy: Maintain Neutral. We maintain a mixed portfolio of direct play on rising oil prices (E&P) as well as on falling oil prices through OMCs. Also, favorable regulatory changes in the form of de-regulation of the sector could lead to re-rating in the sector
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4. Healthcare: Maintain Overweight. We had re-aligned our exposure to stocks based on relative valuation and the expected risk-return payoff. We had recently increased our weightage given that the sector has been witnessing increased interest from global pharma majors.

5. Financials: Maintain marginal underweight. We continue to maintain our preference for private banks to PSU banks due to better asset quality and earnings visibility. We would closely monitor the banks’ 1QFY10 results, especially on the asset quality front, and could re-align our weightages accordingly.

6. Industrials: Maintain Overweight. We have increased exposure on account of marginal pick-up in economic activity and expectations of increased infrastructure spending by the new Government. Also, improved capital availability may boost the capex cycle for the infrastructure sector.

7. Information Technology: Maintain Underweight. We remain cautious on the growth outlook due to uncertainty in the US economy. However, the first set of 1QFY10 reported numbers for the sector does point to some marginal improvement in terms of easing pricing pressure and lower project cancellations. We have reduced our underweight position.

8. Materials: Maintain Underweight. With better than expected economic data (consumer/business confidence, PMI) and expectation of an economic recovery in 2HCY09, we have started reducing our underweight position. We have added commodity stocks both from the ferrous and non-ferrous segments, but will remain cautious and watchful as it is difficult to fathom whether the current price rise is due to inventory re-stocking or a genuine pickup in demand.

9. Telecommunication: Maintain Neutral. In addition to being a domestic growth story, valuations for the earnings growth are reasonable, although regulatory uncertainty has risk of further de-rating the sector. Also, with the entry of new players during the current year, the competition will only rise.

10. Utilities: Maintain Underweight. We maintain underweight on the sector due to expensive valuations.

To see full report: MID-MONTH STRATEGY