>India 2010: Watch out for the 2nd half (MOTILAL OSWAL)

To use football parlance, Earnings remains a star striker for Team India. It should remain in steady form in 1QFY11, with Sensex PAT growing 19% YoY. Second half of 2010 for Indian equities depends on the interplay of 11 different drivers. Monsoons and Global markets remain the near term triggers for market direction. Our model portfolio is overweight on domestic plays - Financials (SBI, ICICI Bank), Infrastructure & allied sectors (BHEL, ACC, Unitech) and Oil & Gas (BPCL, GAIL). Amongst the global plays, we prefer IT and Pharma over cyclicals.

■ Steady 1QFY11 for the Indian corporate sector; Sensex PAT up 19% YoY
We expect MOSL Universe (excluding oil marketing companies) to report 1QFY11 earnings growth of 17% YoY. This growth is a moderation compared to 31% YoY in 2HFY10, when earnings were largely driven by low base. Telecom sector and ONGC are the two key reasons for lower growth. Ex these, growth for rest of Universe would be 31%.1QFY11 will also be a quarter, where absolute PAT will be lower QoQ (first time in last 4 years). This is driven by flat growth QoQ in Oil & Gas and drop in earnings in Metals and Telecom sector. Sensex performance is marginally better than aggregate with PAT growth of 19% YoY.

■ India 2010: Watch out for the second half
Indian markets had a lackluster first half 2010, rising just 1-2%. However, just like the ongoing football World Cup, Indian equities could throw up a few surprises in the second half of the year. How the second half plays out for India depends on the interplay of 11 different forces that we have identified and lined up like a typical football team.

■ Markets to remain range-bound; stock-picking to drive portfolio performance
Accelerating economic and corporate profit growth will limit downside in the markets. At the same time, above-average valuations cap the upside. Expect benchmark indices to remain with a range of 10% from current levels. Thus, 2010 will be a year of stock picking, with market contribution to aggregate performance being the lowest in three years. We believe stocks in our model portfolio offer growth at reasonable valuations. We are overweight on domestic plays - Financials (SBI, ICICI Bank), Infrastructure & allied sectors (BHEL, ACC, Unitech) and Oil & Gas (BPCL, GAIL). Amongst the global plays, we prefer IT and Pharma over cyclicals.

To read the full report: INDIA 2010