Wednesday, January 13, 2010


Positive stance on Indian stocks maintained
We continue to maintain our positive stance on Indian equities. We are not overly concerned with monetary tightening as we believe 1) Economic recovery is likely to be strong to offset any tightening related demand weakness 2) RBI is unlikely to tighten significantly that stifles the economic recovery. Our structural view on India is bullish based on attractive economic outlook, falling dependency ratio and a stable government. Please refer to “India-the next Asian tiger” report for details.


Turning O/W on Banks, Power; Neutral on Telecom, Autos
We are turning more positive on banks as we believe the tightening related worries are overdone and we expect credit growth to pick up on the back of strong economic recovery. We also increase exposure to power as we believe the upcoming period is likely to be positive for companies with backward integration (in fuel) and strong execution capabilities such as Tata Power and Adani Power. We reduce our O/W stance on telecom as we believe there could be stock price weakness around 3G auctions. We turn neutral on autos as we believe the strong growth expectations in Q4FY10 are already factored in. There is also risk of auto
sector underperformance in case of reversal of excise duty cut by the government.

Top picks – PNB, BOB, Ambuja, Ranbaxy, Adani Power, IBREL
We maintain our March 2011 BSE Sensex target of 20,000. We believe that upside surprises are likely if the government speeds up the reform process (given elections are 4 years away). Economic recovery and corporate earnings recovery could also surprise on the upside. Risks include 1) Rising commodity prices 2) Government fails to deliver on reforms and 3) Geopolitical risks.

To read the full report: MARKET STRATEGY