>SECTORAL CHARTSCAPE (ICICI SECURITIES)

We have compiled interesting charts across key sectors, which we believe have compelling stocks & key takeaways.

Some significant takeaways are:
■ IT Services look well poised as western economies recover and Indian IT Services are strongly correlated with these economies. We favour Tata Consultancy Services the most among larger companies as its revenue mix is ideal (it has the highest exposure to BFSI, which is recovering well, and the lowest to Manufacturing, which is still struggling). We also prefer HCL Technologies’ (HCLT) emerging verticals, which will fuel the company’s growth in the next 10 years; HCLT will benefit from this through Axon.

■ We reiterate BUY on Ranbaxy, which remains a contrarian call. We are currently valuing Ranbaxy’s first-to-file (FTF) ANDAs at 3x (present value of EPS), compared to 4-9x given by market to top tier pharma companies during product announcements. Prospective FTF launches over the next six months can trigger consensus rating upgrades and the FTF multiple.

■ We believe aluminium prices are well poised as they are still hovering around the cost curve. Significant destocking has been seen in the US and Europe, and this can absorb any demand shock from China. Global steel capacity utilisation is at a 25-year low; significant discipline will be required from producers to ensure that the positive price trends continue, which will be difficult.

■ Increasing market share of new operators coupled with new aggressive tariff plans reinforce a cautious stance on the telecom sector. Idea’s incremental market share has been hit significantly, making it a SELL for us. Bharti is our preferred pick in the sector as it continues to gain revenue share in the face of increasing competition.

■ Our composite real estate sector index is now trading close to NAV versus 60%+ discount 9-10 months ago, indicating that the sector is fairly valued. Using the discount to NAV as a basis, Sobha and HDIL are relatively more attractive, while DLF and Unitech are not.

■ Jagran has witnessed significant earnings revision and the steep fall in newsprint prices in the past 12 months has been a reason. While newsprint prices are inching up now, we believe positive consensus earnings revisions will continue (our FY10E estimates are 15% higher than consensus). Sun’s valuation premium to Zee has contracted over the past three years; we expect
its market leadership to drive that premium up again.

■ We are cautious on refiners due to our expectations of muted GRMs. Oil PSUs are hostage to policy changes; we are concerned on OMCs as we believe they will bear higher-than-expected subsidy sharing.

To see full report: SECTORAL CHARTSCAPE