>STERLITE INDUSTRIES (MORGAN STANLEY)

Growth Potential Yet to Be Valued Fully, Stay OW

Investment conclusion: We are raising our price target by 35% to Rs963. This implies upside potential of 19% from current levels. In our view, Sterlite offers one of the best and most balanced growth opportunities in Indian metals. We expect the market to appreciate this over the next 4-6 quarters as Sterlite makes progress on its next-stage expansion, although power project delays may be short-term headwinds
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With its strong balance sheet, Sterlite is upping the ante on its aluminum and zinc expansion projects. We expect this to enhance its valuations amid a healthy metals price environment. For the period F09-F12 we project a CAGR in Sterlite’s attributable production of 52% for aluminum and 32% for zinc/lead, with a 10-15% decline in cash costs. As well, its saleable power output is likely to grow by 2,400 MW, despite the likelihood of some delay in the Jharsuguda power project.

Forecasts reflect new projects, new metals price outlook, delay on Jharsuguda power: We include the entire 1.25 mt smelter project in the VAL division now (earlier we assumed just 325 kt), given clear progress. On the other hand, we are pushing forward our commissioning timeline for the 2,400 MW power project by 9 months. Further, in line with the changes made by our global mining team, we raise our aluminum and zinc price forecasts for F2010-11 by 5% to 16%. Our EPS
forecasts change by -0.3% for F2010 and 2.3% for 2011. We introduce our F12 EPS forecast of Rs 106.7.

HZL and Balco stake purchase yet to be priced in properly: We also believe negative impact from Asarco will likely be eased out from the stock price soon.

To see the full report: STERLITE INDUSTRIES

>Emerging countries: A recovery that remains to be confirmed (ECLAIRAGES)

■ Emerging market countries: After the shock:
The global crisis has affected all emerging market countries, to different degrees, through the real channel (with lower demand from developed countries and lower commodity prices) and the financial channel (with a freeze or even reversal in capital flows). Economic activity, and industrial production in particular, contracted sharply in late 2008 and Q1 2009. Q2 saw a sometimes sharp rebound, which should continue with support from the reprieve in the developed countries, and from the same technical factors, i.e., inventories and a base effect. In the medium-term, however, despite fundamentals that are sound on the whole, the pace of growth in the emerging market countries will continue to depend on growth in the developed countries, which could remain soft. "They died not all, but all were sick"

■ Asia: On the road to recovery
Asian countries have been able to resist well during the global turmoil. However a complete recovery can only take place in Asia when the US economy fully exits the crisis and job markets return to normal. Beyond that, Indonesia, Philippines and Vietnam will be able to pick up more rapidly due to specific features that will bring further support to the economy. The reaction to the crisis has been the same throughout Asia. Without exception, all countries rapidly shifted towards a pro growth policy. Central Banks made drastic interest rate cuts. And helped by large fiscal leeway, policy makers implemented massive stimulus plans. Supportive measures are bearing fruits. The Chinese economy is recovering and is now expected to reach its growth target of 8% in 2009. In turn, this has led to a revival of Asian countries to a certain extent. The massive stimulus plan in China resulted in increased needs for commodities and intermediate goods which then led to a rise in Asian exports towards China. GDP growth in Asia also stood better than expected in Q2. Business sentiment improved following various signs of an upturn in USA and Europe. Even in Korea, confidence has gradually been restored since March. The won is now strengthening rapidly against the USD (30% appreciation since March 09 after a depreciation of 26% in 2008). These signs of recovery are increasingly fuelling hopes that the worst is over.

To see the full report: EMERGING COUNTRIES

>INVESTMENT STRATEGY (MERRILL LYNCH)

Pause before year-end rally

We expect near term correction
Indian markets are entering a seasonally strong quarter. On an average October has been a poor month but markets rally sharply in December. While valuations are looking expensive to us, the bulls argue that they are not yet in a bubble territory. An ideal cocktail of easy liquidity and improving economy/earnings are providing support to the markets. While any meaningful change in the uptrend is unlikely till the global liquidity changes, we expect a near term correction in the market (maybe 7-10%) before the year-end rally, led by:

#1: Markets may sell on “good news on earnings”
While headline profits for Sensex companies should decline by 18%, ex-metals EBIDTA should grow 20% and profits 9.4%. While we think earnings will beat estimates, market expectations are running much higher. We expect markets to sell on “good news”. Secondly, the pace of analyst upgrades is starting to slow down which could be negative for markets.

#2: Cash with domestic MFs at 18-month low
Cash with domestic MFs are at an 18 month low of 8% (down from over 20% in Feb, 2009). These low levels of cash were last seen at the peak of the markets in Jan, 2008. While insurance companies are bigger buyers than MFs, it does indicate that buying from domestics will be lower going forward.

#3: Supply of paper to suck secondary market liquidity
Over next 6 months, we could see $10 bn of primary issuances, largely in infrastructure and real estate sectors. This could cap secondary market performance.

#4: Inflation, interest rates could be worries
We expect headline inflation to show a rapid increase to 6-7% over next 6 months. We also expect RBI to hike interest rates in January.

To see the full report: INVESTMENT STRATEGY

>WORLD WEALTH REPORT 2009 (CAPEGEMINI & MERRILL LYNCH )

HNWI POPULATION AND WEALTH CONTRACT SIGNIFICANTLY

At the end of 2008, the • world’s population of high net worth individuals (HNWIs1) was down 14.9% from the year before, while their wealth had dropped 19.5%. The unprecedented declines wiped out two robust years of growth in 2006 and 2007, reducing both the HNWI population and its wealth to below levels seen at the close of 2005.

• Ultra-HNWIs2 suffered more extensive losses in financial wealth than the HNWI population as a whole. The Ultra-HNWI population fell 24.6%, as the group’s wealth dropped 23.9%, pushing many down into the ‘mid-tier millionaire’3 pool.

• T he global HNWI population is still concentrated, but the ranks are shifting. The U.S., Japan and Germany together accounted for 54.0% of the world’s HNWI population in 2008, up very slightly from 53.3% in 2007. China’s HNWI population surpassed that of the U.K. to become the fourth largest in the world. Hong Kong’s HNWI population shrank the most in percentage terms (down 61.3%).

• H NWI wealth is forecast to start growing again as the global economy recovers. By 2013, we forecast global HNWI financial wealth to recover to $48.5 trillion, after advancing at a sustained annual rate of 8.1%. By 2013, we expect Asia-Pacific to overtake North America as the largest region for HNWI financial wealth.

To see the full report: WORLD WEALTH REPORT