Wednesday, November 30, 2011

>INVESTMENT STRATEGY: Based on Dividend Yield

High Dividend Yield would be one of the factors to select stock in the current scenario where market is at its low.

High dividend yield becomes an important criteria for investment when stock prices are at
two year low and short term scenario is uncertain. Dividend yield is simply the amount of
dividends paid by the company, divided by the share price which is the clear cash return to
the share holder.

Investors expect dividends to increase as business profits improve on the other hand, companies
reduce dividend or eliminate dividends altogether, in response to economic recession and falling
profits or during the expansion phase. High dividend yield indicates the financial strength and
business safety of the company while low dividend yield in few cases is an indication of
overvaluation. In addition to this, high dividend yield also counteract inflation risks
associated with rising price levels and lost of purchasing power (economic fluctuation). We
have used dividend-yield as a yardstick to pick few of the stock which could provide some
protection against inflation and are potentially strong enough to participate in the market rally in
the long term.

We are recommending the five stocks with high dividend yield ratio (~3.5% or more) which are
considered to be fundamentally strong with, high level of cash, low debt to equity ratios, and
strong balance sheet. Any one or in combination the following stocks could be added to your
portfolio to get better overall returns.(dividend yield + capital appreciation)

To read more about: INVESTMENT STRATEGY

>IPO ANALYSIS: Manganese Ore India Limited (MOIL)

Fairwealth Research Desk rates the Initial Public Issue (IPO) of Manganese Ore India Ltd - Subscribe. The issue will open on Nov. 26, 2010 and close on Dec. 01, 2010 for retail investors and on Nov 30, 2010 for Institutional Investors. The face value is Rs. 10 per share and the price
band for the issue is Rs 340-375. It is a 100% book building process aggregating over Rs 1230cr.

Manganese Ore India Ltd (MOIL), a Miniratna Public Sector undertaking, is the largest producers of manganese ore by volume in India. It operates with 10 mines across India, of which six mines are located in the Nagpur and Bhandara districts of Maharashtra and four in the Balaghat district of Madhya Pradesh. All these mines are about a century old. Except three, rest of the mines is worked through underground method.

The outlook for Manganese ore looks strong on the back of strong domestic demand from steel industry and huge investment pipeline of Indian infrastructure.

On the price band of Rs 340-375, company is available at P/E of 12.68x on the lower price band and 13.98x on the higher price band based on FY10 earnings. At the book value of Rs.99.84 the stock is priced at P/BV of 3.76x on the higher price band and 3.40x on the lower price band.
MOIL has a net worth of Rs 1860cr and NAV of Rs 110.71/share.

We expect the demand of manganese ore to cross 4mt by the first half of FY13. Long term investors can consider the IPO with an expected return of 50-60% with a time horizon of 12-24 months whereas short term investors can expect listing gains of 20-30%.

To see issue details: MOIL



■ Correction in the Bangalore realty market

The Bangalore real estate market is a stable, healthy and mature market. The momentum seems to have picked up since the second half of the calendar year 2010. The pace is expected to slow down in the short run and prices are expected to stagnate amidst high interest rates and inflation, which is adversely affecting the purchasing power of the end users.

However, the uptrend in prices in the long term shall remain, largely supported by the inherent end-user demand, which is largely fuelled by the growth in the IT industry. According to a recent survey by manpower firm Ma Foi Bangalore stood second in terms of salary hikes (16.9%) in the first half of the calendar year 2011. The IT/ITeS sector continues to record double-digit growth and has added 91,000 jobs in India in the first half calendar year 2011.

■ Demand for apartments in the range of INR 3.0-5.5 million is high

The real estate market in Bangalore is an end-user and budget-driven market, i.e. budget emerges as the main determinant as well as constraint for end-users.

Demand is high for units priced in the range of INR 3.0-5.5 million; however, it dips to moderate levels for
apartments, priced at INR 6.0 million and above.

In terms of supply, while premium builders are in the INR 6.0 million and above bracket, there is a high level of small builder presence in the INR 3.0-5.5 million segment, almost to the extent of 75% of the total supply in the INR 3.0- 5.5 million bracket. Moreover, most buyers do not mind investing with a smaller builder subject to the builder having a good track record.

■ Is there an oversupply in the realty market?

As of today, there is no oversupply in the market as there were only a few launches during the recession. There is a lack of ready-to-occupy properties. New launches announced after the recession are expected to hit the market by 2014-15 and the future off-take trend is likely to be highly correlated with the performance of the IT industry.

■ Bangalore real estate market is predominantly IT-ITeS driven

The IT-ITeS industry has been the primary driver of real estate in Bangalore. The development of IT-ITeS
catchments along South and East Bangalore, has led to the unprecedented growth of the city during the past
decade. Micromarkets along Whitefield, Outer Ring Road Sarjapura, Bannerghatta Road and Electronic City, have developed into self-sustaining hubs. Areas along the northern corridor of the Outer Ring Road, such as Hennur Road and Thanisandra are also emerging as attractive locations catering to the housing requirements of the ITITeS catchments present along the north-eastern corridor.

■ Water is a predominant infrastructural challenge emerging in Bangalore

Water is emerging as a major issue in Bangalore, with the problem more pronounced in the northern and eastern regions. On a relative basis, the problem is not as acute in south and west Bangalore as it is located much nearer to the water table.

IT and commercial office developments in these markets are overshadowing the infrastructure constraints.
Builders are trying to overcome the problem mainly by providing methods like rainwater harvesting and water tankers.

■ Huge volume projects have showcased a mixed bag performance
Homebuyers should execute caution while looking at projects, which have huge volumes. Traditionally, large
format projects, unless supported by commercial presence in the vicinity have not done well.

■ 'Namma Metro' set to change the dynamics in Bangalore real estate

Real estate prices in Bangalore are yet to completely factor in the metro effect. The north-south corridor from Nagasandra to Puttenhalli and the east-west corridor from Byappanahalli to Mysore Road, once completed, can lead to a rise in property prices as Bangalore gradually wakes up to `how the metro can make life easier and simpler'. A few builders are holding up to 30% of their available stock, which will be launched at a 25-30% premium once the metro in the particular region becomes operational.


⇒ Public-sector companies like Bharat Electronics Limited, Hindustan Machine Tools, Bharat Heavy Electricals Limited and esteemed institutes such as the Indian Institute of Science and University of Agricultural Sciences are present in this region.

 The north-eastern belt has developed into an IT catchment, creating demand for housing and driving growth in this belt.

Easy accessibility to the International Airport and the Outer Ring Road has helped improve connectivity.  

To read the full report:: BANGALORE REAL ESTATE


>ALEMBIC PHARMACEUTICALS LIMITED: “Erstwhile Alembic is now a pure pharma play”

Investment Rationale
The recent demerger of the erstwhile Alembic into Alembic and Alembic Pharma has positioned the latter as a pure pharma play, helping it to focus on its growth momentum and we believe that this `12bn enterprise trading at 4.8xFY'13E earnings offers good value in the pharma space.

The `7bn domestic formulation franchise is today no longer just driven by its leadership in the Macrolide segment of antibiotics but by life style segments growing at rates faster than the category growth.

Domestic branded portfolio enjoys good brand equity with prescribers and its three macrolide brands figure among the Top100 brands with even its brands like Zeet and Wikoryl from the mature cough and cold segment figuring among the Top300 brands.

APL’s `2bn formulation exports to regulated markets, which contributes around 21% to the total revenues is gaining traction with 41 ANDA filings and 56 DMF filings and is expected to make additional contribution to its revenue basket with gradual approval in products.

As a part of ongoing restructuring, APL is aggressively ramping up its capacity in order to cater the increasing demand for drugs in the regulated markets. It will invest `1 bn in a new drugs facility, which will not only boost the productive capacity of the pharma major but will also soar up its revenue basket.

We expect APL to end this fiscal with revenues of `14.5bn and a net profit of `1.2bn and forecast a 30% growth in profits next fiscal which would be driven by a slightly muted revenue growth of 16% and aided by a lower debt and interest outgo.

Alembic Pharmaceuticals is now a pure pharma play with strong foothold in the domestic formulation business and increased focus on regulated markets. The formulation business is expected to escalate at a higher pace and revenues from the US generic market are expected to scale up on the back of product approvals going forward. The company to its credentials has 41 ANDA filings and 56 DMF filings.

APL trades at 6.3xFY'12E and 4.8xFY'13E earnings and we recommend a BUY with a one year price target of `75. Good earnings visibility and reasonable valuations support our investment argument.

To read the full report: ALEMBIC PHARMACEUTICALS


Tuesday, November 29, 2011


Promoters resort to various modes of raising finance to meet their business and personal needs. Loan against shares is one such method of raising finance. Under this method, promoters pledge the shares held by them with lenders to get the required financing. These loans typically have tenure of one to three years and carry a margin requirement of two or three times. Simply put, it means that the value of the promoter’s shares pledged is two to three times the amount of loan. The method appears beneficial for promoters as well as lenders. The promoters get access to quick short-term financing whereas lenders charge premium rates for this short-term financing arrangement and also have about twice the value of the loan as pledge of shares with a right to sell the shares if the promoter defaults in repayment or if the value of pledged securities goes down.

The risks associated with pledging of shares are quite significant particularly from the promoter’s perspective. In case of default, a lender can sell the shares in the open market to recover their dues, which could result in a fall in stock price and erosion of market capitalisation. Also, promoters run the risk of losing management control if a significant portion of their
holding is pledged.

The term “pledging of shares” is looked upon with a needle of suspicion by investors. In a scenario of rising stock prices, there is no concern but if the price of the shares declines to a certain level, the promoters are required to make some payment or pledge more shares. If the promoter defaults or is unable to provide further shares as margin, then the lender has a right to sell the shares in the open market. Usually the quantity of shares sold by lenders is large resulting in an erosion of stock price. Companies with a high proportion of pledged promoter holding are susceptible to such erosion in stock prices. Investors tend to be wary of investing in such companies.

In the last 10 quarters, from the data available on pledged shares, we have been able to decipher that promoters have utilised pledging of shares to get loans on a regular basis. On an average, 8-9% of the promoter’s holding has been pledged during June 2009-September 2011. In the quarter ended September 2011, the percentage of promoter holding pledged has increased from 9.1% in June 2011 to 9.5%, whereas the percentage of total equity pledged has increased from 5.0% in June 2011 to 5.1% in September 2011. From June 2009 to December 2010, the Sensex was on a constant up move due to which pledging would not have caused alarm bells to ring as the value of shares would not have seen much of erosion in value. However, recently the markets have been weak. The Sensex has corrected by ~ 20% in the last three quarters, resulting in an erosion of market capitalisation of stocks and, hence, the value of shares pledged for securing loans. In such a scenario, companies that have taken loans against shares have to provide further margin in cash or pledge more securities to maintain the margin requirement. The companies that default may face the situation of selling of pledged shares by lenders resulting in a decline in stock prices and reduction in promoter holding.


>INSTITUTIONAL OWNERSHIP TRENDS: Off with risk, welcome to defensives

In the backdrop of weak market sentiments, institutional flows for the second quarter came in at a tepid USD1.4bn, the weakest in last 10 quarters. Overall ownership holdings for BSE-100 remain largely unchanged with FIIs owning about 17% of BSE-100 and DIIs owning about 12%. From a portfolio perspective, FII ownership levels have hardly changed despite a 20% sell off in markets in the last 12 months. Our analysis also suggests that the street may be underreporting the extent of DII ownership given that some companies report holdings by pvt insurance players under the “Corporate Bodies” segment. On a sectoral basis, both FIIs and DIIs have increased their relative weights within the pharma sector while scaling back on cyclicals. We estimate FIIs to have added most to their positions in M&M and ITC while slashing in SBI and Axis Bank.

Domestic ownership: Street seems to be understating
As per the current reported data, DIIs hold about 12% in BSE-100. However, we observe that it may be slightly understated given that some companies report the stake of private insurance companies within “corporate bodies” which is not a part of the institutional segment. Though we cannot pin down the precise amount of stake, our calculations for the Sensex universe suggests that Street may be understating the ownership of DIIs by at least 60bps.

FII ownership: Largely stable despite sell-off
Interestingly, between Q2FY11 and Q2FY12, BSE-100 index shed about 20% even as FII ownership levels remained largely flattish (a trivial decline of ~50bps only) in contrast to the trend in FY09 crisis period. We believe that the general risk-off environment has not yet induced selling across the board and that there remains a continued appetite for bottom up ideas. Interestingly, with the recent underperformance of India, FIIs have been deviating from the benchmark BSE-100 index in search of higher returns.

FIIs, DIIs up relative weightage in pharma, but scale down cyclicals
Within both FII and DII portfolios, there was an increase in the share of pharma sector relative to the benchmark BSE-100. FIIs have increased their underweight on global cyclicals (materials and energy) while positioning themsel ves 300bps below the benchmark within in that segment. DIIs have trimmed their relative position within domestic cyclicals. On an overall basis, FIIs are overweight on BFSI and software while DIIs are overweight on consumer and cap goods sector.

FIIs shed SBI, Axis, but stock up M&M, ITC
On an average price basis, we estimate that the highest FII selling in Q2FY12 took place
BFSI followed by materials. The largest buying was seen in consumers and auto. We estimate that SBI and Axis Bank within BFSI and Tata Steel and Hindalco within materials sector were the most sold while M&M was among the most bought.

To read the full report: OWNERSHIP TRENDS


>SANGHVI MOVERS: Demand sluggish, margins retained; we maintain a Buy at lower PT

Despite attractive valuations, the environment and outlook for Sanghvi Movers is challenging. However, business from the wind-energy and power sectors continues to grow, with fleet utilization up, to 84%. Despite lower yields, it holds to plans for `2.3bn capex in FY12. We retain a Buy but at a lower price target of `142 (earlier `194).

 Challenging environment; Sanghvi rethinks FY13 expansion. Due to the recession, foreign competition is looking to hire out cranes in India, at cheaper rates. Within India too, there have been delays in the execution of power projects and a slowdown in steel and cement capacity build-up. Sanghvi had bought 33 cranes for `1.5bn in 1HFY12, and is going ahead with its planned `2.3bn capex for FY12. However, considering the current challenging environment, it has not finalized FY13 capex.

 2Q revenue up 22.6%; margin maintained, profit down 40.8%. Sanghvi’s 2Q revenue growth was 22.6% yoy, in line with our estimate. Demand for cranes continues in power and wind turbines, and resulted in 84% utilization in 2Q for Sanghvi. The EBITDA margin was 71%, a 32bps yoy contraction, in line with our estimate. During the quarter overtime revenue was 6.2% of sales (~10% a year ago). Profitability was down 40.8% yoy, owing to one-offs during the quarter. Adjusted for this, net profit was 14.4% lower.

 We introduce FY14 estimates. For FY14, we expect revenue growth of 6.3% over FY13, with capex of `1.2bn in FY14 (`1bn in FY13e). We estimate 14.5% earnings growth in FY14 over FY13.

 Valuation. We lower FY12 and FY13 earning estimates 0.7% and 14.7%, respectively, to factor in an expected demand slowdown. The stock trades at 5x FY12e and 4.5x FY13e earnings. We re-iterate a Buy. Risks: lower demand, higher interest rates.

To read the full report: SANGHVI MOVERS 


Sunday, November 27, 2011

>USD-INR: More pain ahead. Downgrade target to 57

Below given is the Daily chart of the USD-INR. A clear strong uptrend is visible. After a strong up move from 44 to 50 we can see a sideways consolidation after which the trend was resumed. The Breakaway Gap (shown in the chart) formed on the 22 September 2011 now becomes the pivotal point for the move and hence the lower end of the consolidation i.e. 48.6 becomes the most critical support for the USD-INR.

As per our report released on the 3 October 2011 (attached along with this email) we had given a target of 53. The USD-INR hit a high of 52.73 on 22 November after gapping up and formed a bearish hanging man pattern. The move on 23 November is that of a shooting star and filled the gap formed day before showing signs of exhaustion in the short term. Although in the short-term the USD-INR looks over bought the uptrend remains intact.

We believe any correction/ consolidation is only a pause in the uptrend and the rupee will continue to depreciate with an eventual target of 57 by March 2012. Levels of 50.67 and 49.33 will act as strong supports in any correction/ appreciation.

To read the full report: USD-INR

>GREED & FEAR (Stock Market)

Trickling down

World stock markets clearly continue to want to go up since they continue to ignore the
deteriorating action in the Eurozone credit markets. Thus, the S&P500 and the MSCI AC Asia
Pacific ex-Japan Index have only fallen by 4% and 6% from their recent high reached in late
October, and are still 13% and 15% above their recent low reached in early October. While the
all important spread between the 10-year French government bond yield and the 10-year
German bund yield has again widened to a new euro-era high of 190bp on Wednesday, up from
150bp last Friday (see Figure 1).

The stubborn desire to buy stocks is driven in GREED & fear’s view primarily by the time of the
year. Those who have done well in 2011 betting against risk naturally want to lock in their
gains. While those who have not are desperate to chase a year-end rally. Still GREED & fear
remains firmly of the view that it will pay to bet against risk if the S&P500 makes it temporarily
above the 200-day moving average (see Figure 2). Any such rally is likely to be driven by the
new technocratic government in Italy coming up with seemingly meaningful austerity

To read the full report: GREED & FEAR

Saturday, November 26, 2011

>DIFFERENT TRACK: India's unique rise

India never fails to confound, amaze or disappoint

India is a country with multiple personalities within each of its social, political
and economic layers. The palpable extreme contrasts, and the day-to-day
decision making and outcomes often appear to challenge logic, but never fail
to confound, amaze or disappoint - sometimes all in a single snapshot. Even
on a good day, there seems to be crisis somewhere in the folds of this chaotic
democracy. On a bad day, one often wonders how it functions at all, let alone
how it evolved to be Asia’s second-fastest growing economy.

Economic rise has been uneven

But despite its multinational character and the baggage of vast size of
uneducated and poor population, India has defied doomsday predictions.
However, its economic rise has been far from smooth or even, and continues
to have its share of uncertainties. This has more to do with the evolving local
endogenous political cross-currents than with the country’s democratic
foundation. The irony that the world’s largest democracy has a selected - not
popularly elected - prime minister should not be overlooked.

India is following a different economic path

A late bloomer, India’s economic evolution is following a different path
compared to other Asian economies. The differences are underappreciated
and often misinterpreted. Unlike the Asian authoritarian political regimes that
favoured political openness after becoming economically open, India is
moving ahead with the reverse combination, and with the additional liability
of weak coalition governments. To be sure, unlike Deng Xiaoping in China,
Lee Kuan Yew in Singapore or Mahathir Mohamad in Malaysia, India has no
effective visionary reformist-politicians who can ably negotiate political
consensus on reforms. Prime Minister Manmohan Singh, who is in office but
does not seem to be in power, is an accidental reformer at best.

Product markets reformed before factor markets

Still, trend economic growth has accelerated despite a lethargic reform
agenda since 2004, when the Congress-led UPA-1 came to power. UPA-II has
been embroiled in corruption scandals and is balancing the trade-off between
environment issues, corruption, growth and vote-bank politics. Admittedly,
the government’s policy paralysis in the last year has added to the cyclical
slowdown, but the attractiveness of a strong structural story does not
eliminate cyclical headwinds. The current challenges with land and labour are
another rude reminder that India’s topsy-turvy approach to reforms has
reformed product markets before fixing its factor markets. It appears ironic
that land and labour, which are both in surplus in India, have become
liabilities for growth but capital, which is scarce, has had a smoother ride.

Global export share has risen despite low reliance on FDI

Unlike other Asian economies, India’s global merchandise export share has
been rising without a comparable jump in FDI, without the aid of a superundervalued
currency, and despite the embarrassing infrastructure deficit.
Living with chronic twin deficits will remain challenging but globalisation is
also forcing Indian governments to do some right things, eventually.

There is nothing preordained about India’s economic rise

There is nothing pre-ordained about India’s economic rise, despite the scope
for unlocking of the structural tailwinds, which will be affected by the pace
and nature of reforms. The evolving demographic dividend, which has already
been contributing to economic growth, is also fuelling rising aspirations across
rural and urban areas and calls for greater accountability. Governments will
have little choice but to attempt better delivery, or Indians will vote with their
feet. In the final tally, India remains a glass half-full story that cannot be fully
appreciated by assessing it through the lens used for other Asian economies.

To read the full report: DIFFERENT TRACK

>Euro-zone Debt Crisis: Is It Spreading To Germany?

  • Germany’s failure to find buyers for 35% of its EUR 6bn 10-year bunds sparked concerns that the sovereign debt contagion may be spreading to the strongest of euro zone’s core economies
  • Market reaction was naturally negative for the Euro and risky assets but very positive for the US dollar and US Treasuries
  • Ironically, the spread of contagion to Germany could be the last straw to “force” ECB assume the role as the savior for the Euro-zone debt crisis but there is a risk that ECB only moves into the role after a credit event has occur
The European sovereign debt situation continued to dominate headlines with Germany failing to get bids for 35% of its EUR 6bn of 10-year bunds being offered on 23 November. Is Germany next?

The sovereign debt market mayhem that began more than two years ago in Greece and infected Ireland, Portugal, Italy and Spain, is now threatening France and Belgium and risks spreading to Germany, the euro zone’s biggest economy and the widely regarded back-stop to the European debt crisis. German 10-year bond yield surged 22.9bps to 2.148% (the highest in nearly a month).

Market Reaction Very Positive to US Treasuries and US Dollar, But Negative For Risky Assets Like Euro, Equity and Commodities
US dollar appreciated broadly against the rest of the major currencies on Wednesday (23 Nov) and the euro was put under significant pressure as Germany, the economically strongest market within the euro zone, came under contagion risk. The EUR/USD pair plummeted lower to 1.3343 (from previous session close of 1.3505).

USD Funding Pressures Increase Again For European Banks – Watch This Space
The cost for European banks to fund in USD reached the highest levels since December 2008. The three-month EUR cross-currency basis swap, the rate banks pay to convert euro payments into dollars, widened to 138 basis points below the euro interbank offered rate (Chart 1).

Friday, November 25, 2011

>GMR INFRASTRUCTURE: No near signs of relief

􀂄 Revenue better than our expectations: Sales in Q2FY12 were aided by a stable revenue growth in Airports of 27% YoY. There was a higher treasury income which led to higher sales growth. EPC revenues were robust on account of inhouse construction of BOT projects which was higher by 39% QoQ. Thus, for Q2FY12, revenues increased by 48% to Rs18.1bn as against our expectations of Rs13.5bn.

􀂄 Overall healthy volume growth: Pax traffic of DIAL increased by 23% YoY and (7.5%) QoQ to 8.2m. Similarly, HIAL experienced Pax growth of 14% YoY and 1.9% QoQ, respectively, at 2.1m. Turkey Airport experienced a 14% YoY/QoQ growth in Pax. Male Airport traffic was up by 3.4% QoQ. Number on units sold in power de-grew by 11.8% YoY to 1bn units and BOT Road traffic was up 5% YoY.

􀂄 EBITDA hit by Power sector: Consolidated airport EBITDA margin increased by 300bps at 28%, on account higher margins in Delhi Airport. Power, however, on consolidated basis, experienced an EBITDA margin de-growth of 400bps YoY and 200bps QoQ which was on account of higher input cost. EBITDA margin of BOTs increased by 400bps YoY at 87%, mainly on account of higher traffic growth.

􀂄 Forex gains adis PAT: Forex gains of Rs470m included in OI and higher treasury income reduced the impact of loss; however, adjusted loss stands at Rs950m which is lower than our expectation of Rs1.2bn. Segment-wise PAT contribution from Airport stood at Rs(1.3)bn, Power Rs(93)m,Roads Rs(51)m, BOT Rs(13)m and EPC Rs889m.

􀂄 Valuation: We have revised our estimates/TP downwards on account of higher interest cost. At CMP, the stock is trading at 1.4x FY13E earnings. Triggers ahead are resuming ADF collection at DIAL and gas allocation for 700MWs gas power plant which is nearing COD. Maintain ‘Accumulate’.

To read the full report: GMR INFRASTRUCTURE

>Indian Metals And Ferro Alloys Ltd

Faced by twin problems of dropping realisations and rising input costs, IMFA has come out with
disappointing set of numbers for Q2FY12. IMFA’s revenue declined by 4.8% YoY however on a
QoQ basis there is a growth of 9.8% to Rs.2,859.7 mn. Its EBITDA dropped significantly by 84.5% YoY to Rs.152.4 mn led by substantial rise in input costs by 45% YoY. The EBITDA margin for the quarter stood at 5.33% vs 32.74% in the corresponding quarter of the previous year. The raw material cost increase was led by higher coal and met coke costs. Due to seasonal factors availability of coal was a problem which resulted in higher dependency on e‐auction coal and imported coal. During the quarter the company relied on 90% e‐auction coal and 10% imported coal resulting in higher blended coal cost. Met coke prices were rock steady at ~$500/tonne which is acting as a further deterrent to the company’s performance given the adverse rupee dollar movement. The company’s power cost has more than doubled to Rs.5.5 per unit on the back of rise in the thermal coal prices. The company reported a loss of Rs.86.9 mn vs. profit of Rs.572.4 mn in Q2FY11.

Key Result Highlights:‐
• Ferro‐Chrome production for the quarter stood at ~48,500 tonnes which is up by 19.8% YoY.
The management is maintaining its FY12E guidance of ~210,000 tonnes.
• Its Ferro Chrome sales volume for Q2FY12 stands at ~52,427 tonnes vs. 52,500 tonnes of
• Average realization for the quarter stood at ~Rs.55,000/tonne down by 11% QoQ and 2.3%
YoY. Due to ongoing crisis in the European region Ferro Chrome prices have corrected and
are ruling at sub $1/lb (Spot Market). However, thermal coal prices in the domestic market
have started cooling off and the company has started receiving linkage coal from MCL
though in small quantities which will result in marginally lower coal costs on a sequential
basis. The company is looking at a blend of 40‐50% Linkage coal, 40%‐50% e‐auction coal
and ~10% imported coal for H2FY12E which will ease some input cost pressure going
Future Plans
• Power‐ IMFA is setting up a 120 MW power plant to enter into the power business which
would act as a standby power source for any further capacity expansions. One unit of 2x60
MW power plant is likely to get operational by Q4FY12E. Due to some unfortunate accident
at the plant site the commissioning of balance 60 MW is likely to get delayed by 4‐6 months.
The total capex involved for this power plant is Rs.5,950 mn of which the company has spent
~Rs.4,140 mn till Q2FY12. The company commissioned its 30MW dual fuel captive power
plant in August 2011 and is currently generating about 20MW. The plant is likely to stabilize
in a month’s time.
• Coal ‐ The Company received the stage‐II forest clearance for its Utkal coal block and is well
on track to start the coal mining operations by Q4FY12E. The company is targeting an output
of 1mn tons of coal in the first year which will be further ramped up to ~3mn tons in 3‐4
years. The company would be using this coal for its aforesaid 120 MW power plant as well as
the 138MW captive power plant, thus protecting the company from the vagaries of
fluctuating thermal coal prices. This coal project involves a capital expenditure of Rs.2,480
mn of which the company has invested Rs.2,140 mn till Q2FY12.

To read the full report: India Metals and Ferro Alloys

Thursday, November 24, 2011

>INDIA STRATEGY: 2QFY12 Review: Slow but in line profit growth

Margins at 5-year lows
The bad news is that profit growth continues to be mediocre, growing 11.4%
during the quarter. The good news is that after sharp disappointments in the
previous 2 quarters, earnings were slightly ahead of our expectations for the
Sensex companies. Excluding oil PSUs, however, earnings were a slight
disappointment. Also, our earnings exclude forex mark to mark losses that impact
~3% of the Sensex earnings. However, the spread is still poor – almost half the
companies disappointed in earnings growth. Lastly, Margins continued to decline
with Sensex margins falling by 240bps and currently at 7-year lows.

Energy & Banks drive profit growth; Metals & telecom drag
Energy (RIL), Banks (ICICI Bank, HDFC Bank) and Consumers (ITC) were the
key profit drivers for Sensex earnings. The biggest contributors to slowdown in the
profit growth were Metals (TISCO, Hindalco), Bharti and DLF were the drag on
Sensex earnings.

Earnings downgrades continue; FY13 more at risk
The result season has seen FY12 Sensex EPS downgraded by 2% to Rs1115
and FY13 by 5% to Rs1275. This justifies our view that FY13 is at greater risk
than FY12 (we expect FY13 EPS to be downgraded to Rs1200).

To read the full report: INDIA STRATEGY

>CEMENT SECTOR: Seasonal uptick in prices continue

Key highlights of our interaction with cement dealers across the country:

Northern Region: Price hikes continue
Prices in this region have surged by Rs5-15/bag over the last month. The
availability of cement in the region has improved m-o-m. Though few orders for
non trade segment has commenced in certain pockets, major supplies are still
being diverted to trade segment to exploit the premium of Rs10-15/bag.
The region is showing slight improvement in the offtake but demand still hasn’t
reached high levels expected post the festive season. Meanwhile, producers are
making attempts to push further hikes with pockets like Haryana and Amritsar
expecting announcements of price increases in the coming week. However given
sharp prices hikes over last 3 months, we expect prices to stabilize at current
levels, given the fact that cement offtake is yet to improve meaningfully. Also with
the advent of winter season (which usually impacts construction activity in late
December & January because of extreme temperatures) we believe that any
further hikes are unlikely to get absorbed immediately).

Eastern region: Spike in clinker prices push up cement prices, further price hikes unlikely to be absorbed
Major price hikes of Rs20-25/bag have been taken in the region over the last one
month. This is the fourth consecutive month where producers have hiked prices
with the latest hike coming in on 22nd November. Main reason for this surge is the
spike in the prices of clinker in the region pushing cement prices further up. From
the lows of Rs235/bag in July-11 cement prices have improved by ~Rs60/bag
(+25%) to current levels of Rs290-293/bag.
Demand remains at the same level as last month. However dealers believe that
the prices have almost reached their peak and even if demand improved from
hereon it would not give much room for prices to be triggered upwards as the
markets would not be able to absorb such high price.

Western region: Further hikes expected led by improvement in offtake
Cement prices in this region have increased by Rs5-10/bag over the last one
month. Though offtake has improved marginally for the region, it is expected to
gain momentum only by December-11.
Dealers are expecting another round of hikes to happen in the next 10-15 days
itself. We believe that unlike other regions, west has the capacity to absorb the
price hikes as it is expected to show improvement in offtake to back up these

Central Region: Weak demand making absorption of hikes difficult
Demand in the region remains at almost the same level as last month. Prices were
hiked by Rs5/bag only in certain pockets like Meerut. However attempts of hikes in
other parts of the region have not materialized owing to the lack of healthy demand
growth. Currently prices are just Rs10-15 / bag away from their YTD highs.
Though areas like Bhopal are expected to hear hike announcements to the tune of
Rs10/bag in the coming week, it remains to be seen whether it could be absorbed by
the market. Dealers expect demand to show recovery only by December.

Southern Region: Prices hold fort despite monsoon slowdown
The region continues to be plagued by multiple issues with Political situations in
Telangana and Karnataka and additionally the monsoon season further dragging
down the cement offtake in this region. However led by producer discipline, prices in
the region hold fort in most pockets with slight reduction seen only in Tamil Nadu.

In certain regions like Hyderabad, brands Ultratech and Bharti have rolled back the
discounts extended to dealers as a result of which prices for these brands have
increased. Demand continues to be in the negative with offtake expected only post

To read the full report: CEMENT SECTOR

>Indian Housing Finance Market Outlook to 2015

Exploring the under-penetrated rural market

After the evolution of the housing finance industry in India, the housing industry has witnessed tremendous growth. The price of the financial products has increased and the increasing number of players has intensified the competition. Various companies are coming up with innovative ideas to market their product differently and effectively. The market has evolved from being dominated by the sellers to now being led by the buyers’ preference. With the constant increase in the personal disposable income of the middle class, buyers now have higher bargaining power with several options available in the housing finance market. Houses in India are available at reasonable prices which fit into the budget of average household. The increasing demand for homes has attracted various construction companies as well as home loan companies.

The economic stability in India reinstated the confidence of foreign players which had a positive bearing on the construction industry in the country. This opportunity gave foreign players opportunity to invest in India in large scale projects. The FDI (Foreign Direct Investment) limit in the country was raised to 100% in housing and construction projects after witnessing a positive response from the foreign players. The increased flow of funds stirred the growth in the sector.

The demand for households has increased over the period. The provision of houses for the poor in order to fulfill the shortages is one of the biggest challenges being faced by the government. Nearly 15% of the population in the urban areas resides in slums. According to the census of India, 35% of the individuals living in urban areas reside in a single room house and in nearly 68% of the cases 4 or more individuals reside in these single room houses. Nearly one fourth of the Indian population is below the poverty line. There is nearly a shortage of 24.71 million units of houses in urban areas out of which 99% belongs to the EWS and LIG. The above stated fact reiterates that there is a shortage of houses for the poor and the situation of housing for all needs to be addressed as quickly as possible.

The real estate sector is one of the major contributors which support the economic development in the country and forms a major component of the financial sector. The growth registered in this sector has a positive effect on other sectors such as generating employment thereby increasing the personal disposable income of people. Undoubtedly, housing investment is one of the stepping stones in the development of the economy.


Emergence of banks has led to a tremendous growth of the housing finance industry. The industry has registered an impressive growth of nearly 30% in the last 5 years

The growth of housing finance in the country is largely because of the growth in the commercial banks as well as Housing Finance Companies (HFC’s). Over the years, there has been a considerable growth witnessed in the number of HFC’s. As on mid of June, 2010, there were nearly 52 HFC’s operating across the country which are listed with the National Housing Bank (NHB).

Scheduled Commercial Banks (SCB’s) also offer home loans and help in mobilizing the savings. Apart from SCB’s and HFC’s, there are Co-operative Institutions and Micro Finance Institutions which operates in both rural and urban areas to serve the needs of various individuals.
Emergence of banks has led to a tremendous growth of the housing finance industry. The industry has registered an impressive growth of nearly 30% in the last 5 years. However, 2008 and 2009 witnessed a slight downturn in the economy because of the economic turmoil across the globe.

Over the years, the structure of the housing finance industry has evolved. Commercial banks have increased their market share whereas the share of HFC’s has registered a downfall. Owing to their enhanced area coverage and their accessibility to low cost deposits, the share of commercial banks has almost doubled from 31% in 2000-2001 to 60% in 2008-2009. The share of HFC’s has decreased from 69% in 2000-2001 to only 38% in 2008-2009. National Housing Banks (NHB’s) monitors the development and challenges which have a bearing on the growth of the housing finance market in the country.

To read the full report: HFM

Wednesday, November 23, 2011

>INDIA STRATEGY: India’s Future Large Caps

We have used a combination of quant and our analysts’ opinion to filter Morgan Stanley’s best mid-cap picks (market cap

Over the long term, stocks down the cap curve tend to outperform their larger brethren: Valuation and performance make the case in favor of these stocks.

A combination of analyst opinion and quant: Our quant technique combines institutional ownership, consensus ratings, price momentum, earnings growth, revisions, trading volumes, valuations and ROE to score stocks. We overlay our analysts’ opinion on these metrics to generate our best ideas.

In general, we prefer stocks that are:

• Unloved: Trading significantly below 200 DMA with depressed trading volumes vs. history

• Under-owned: Rated poorly by the consensus and not owned by institutions

• Undervalued: Valuations cheap in the context of ROE versus history

• But with improving price momentum… Poor 12M performance but rising 1M returns

• …and earnings estimate revisions not priced in: Earnings estimates rising – but not share prices

To read the full report: INDIA STRATEGY

>Recent correction offers opportunity to accumulate RIL stock

Weak Rupee versus weak cycles. We believe RIL stock offers a favorable reward-risk
balance post the 10% correction in its stock price in the past three weeks. The softness
likely reflects the market’s concerns about recent weakness in refining margins but
ignores the steep correction in the Rupee over the same period, which should partially
offset weaker margins. We have made a few changes to our earnings model but retain
our 12-month SOTP-based fair valuation of `1,000. We upgrade RIL stock to a BUY
rating from ADD noting 27% upside to our target price.

Recent correction offers opportunity to accumulate RIL stock
We see a favorable investment reward-risk balance at current levels. RIL stock has corrected by
10% in the past three weeks reflecting the market’s concerns on (1) sharp decline in global
refining margins (see Exhibit 1), (2) likely subdued chemical margins given a weak global macroenvironment and (3) continued decline in KG D-6 gas production. RIL stock is currently trading at 10.3X FY2012E EPS and 9.7X FY2013E EPS (adjusted for treasury shares).

Refining margins tumble led by contraction in gasoline cracks
Singapore margins have plunged in the recent weeks, led by sharp contraction in gasoline/naphtha cracks. We compute Singapore complex gross refining margins at -US$2.5/bbl in the latest week versus US$3.5/bbl in October 2011. We would not be unduly concerned about weekly movement in refining margins and expect a rebound from current very low levels. However, we maintain our subdued view on the refining cycle for the next 12 months due to (1) demand weakness and (2) refining capacity additions in CY2012E. We model RIL’s refining margins for FY2012-14E at US$9.8/bbl, US$10.1/bbl and US$10.4/bbl; US$10.2/bbl in 1HFY12. Exhibit 2 gives the sensitivity of RIL’s earnings to key variables—exchange rate assumption, refining margins and chemical prices.

Production from KG D-6 continues to decline; factored in our earnings estimates
We take cognizance of the continued disappointment in the gas production from RIL’s KG
D- block, which has declined to 41.7 mcm/d for the week ended October 30, 2011. (1) The
steady decline from the block and (2) lack of progress on other E&P blocks has resulted in
sharp contraction in the value being ascribed to RIL’s E&P business. Our reverse valuation
exercise reflects that the market is not ascribing any meaningful value to RIL’s prospective
E&P blocks.

>STRIDES ARCOLAB: Focus on specialty segment to drive 25% revenue CAGR

We met Mr Arun Kumar, Executive Vice Chariman and CEO of Strides Arcolab (STR), who shared his views on the company's long term strategy, growth prospects, and challenges among other things.

Specialty business to be the key long term growth driver
STR's business focus is on the specialty segment as its key long-term value creator and growth driver. STR has developed one of the most competitive sterile product franchises globally with eight manufacturing facilities.
The company is looking to divest the pharma business, (non-sterile business) if it gets the right price. The pharma business comprises institutional business related to antimalaria, anti-TB remedies and branded generic business in India, Australasia and Africa, contributing ~INR12b to STR's annual revenue.

Partnership with MNCs leverages strong product pipeline
We feels that STR's partnership with Pfizer in various regulated markets and with GSK for 95 emerging markets has enabled Strides to leverage strong and best in class distribution of these MNCs across the globe.
Partnership with Pfizer, particularly the US, gives it a strong competitive advantage. STR expects to corner 15-25% market share in the US, backed by Pfizer's strong marketing and distribution, and low competition.

STR slated to post revenue CAGR of 25% over the medium term
STR's has raised its CY11 revenue guidance to INR25b from INR22b and is slated to grow overall revenue by 25% CAGR in the medium term. The product portfolio of the company targets USD11b market opportunity.
Further, given the strong product pipeline which includes High Potency drugs, Penems, Cephalosporins, Ophthalmic and Peptides, the company is likely maintain robust licensing income of INR2.5b every year over the next few years.

Profitability to increase as capacity utilization ramps up
The management guidance is for significant improvement in profitability, led by a scale-up in manufacturing.
STR expects EBITDA margins, RoCE and RoE to improve substantially over the medium term and believes profitability was depressed in the past due to large investments in building the specialty business.

Valuation and view
STR is set to emerge as a specialty company with revenue contribution from the segment rising from 28% in CY09 to 51% in CY12. STR has an impressive product pipeline in the specialty segment.
We expect STR to post earnings CAGR of 36% over CY10-12. At CMP of INR406, the stock trades at 10.8x CY11E and 10.4x CY12E earnings. Maintain Buy with a target price of INR509 (13x CY12E EPS), an upside of 25%.

To read the full report: STRIDES ARCOLAB

Tuesday, November 22, 2011

>India Consumer Staples Q2FY12 Review: Tier I outperforms!!

􀂄 Broad takeaways from management calls: A) Though demand has remained intact as yet and benefits of good monsoon can be seen in the subsequent quarters, impact of food inflation on urban wallets, leading to down-trading, is a threat. B) Competitive intensity remains high and ad-spends should move up in H2FY12e. C) Currency depreciation will impact input costs in H2FY12e.

􀂄 What surprised us? Positives: 1) Volume growth of 9.8%, 8% and 14% reported by HUVR, ITC and Marico 2) HUVR’s operating margin expansion of ~100bps. Negatives: 1) Dabur’s subdued volume performance. 2) Fourth consecutive quarter of PAT decline in CLGT. 3) Sharp operating margin decline in APNT (~400bps).

􀂄 What lies ahead? 1) Possible moderation in volume growth owing to a) fading impact of government social spending schemes in rural areas and b) sustained high inflation leading to down-trading in urban markets 2) We believe pricing power will continue to be tested in an environment of high input costs, sticky food inflation and elevated competitive intensity. Price hikes taken so far haven’t neutralized gross margin pressure and further price hikes will be
essential to sustain brand investments. 3) Current strategy of reducing adspends to manage operating margins is not sustainable in our view and will impact volumes, going forward.

To read full report: CONSUMER STAPLES

>>India Gas: Irrational tariff bidding continues – This time GAIL adopts and emerges winner

GAIL wins Surat-Paradip pipeline, with low zone-1 tariff: Very similar to ultra-low tariff strategy adopted by GSPL’s JV (GSPL 52%) last year, GAIL seems to have followed suit and has emerged a winner. As per an Economic Times article (GAIL wins rights to lay Surat-Paradip pipeline, 16 Nov 2011), GAIL bid very low (in fact the lowest allowed) tariff of 1 paisa/mmbtu in zone-1.

Bidding criteria encouraged irrational bidding: Such ultra-low zone-1 tariff may seem irrational, but perhaps was warranted as bidding criteria was somewhat irrational and too mathematical, in our view. As we highlighted in our note after GSPL won pipelines last year (Cross-country pipeline bidding – adding to the chaos, 22 October 2010) and in our anchor report (India Gas – Time to get back in), the bidding criteria were highly mathematical. It required bidders to give projections for each of the next 25 years, and gave too much weight to just zone-1 tariff.

Winners could still make decent returns: We had also highlighted (using hypothetical numbers) that despite low tariff zone-1 tariff, winners could charge high tariffs from zone -2 onwards so that average tariffs remain high and returns are reasonable. Despite low zone-1 tariffs for its three pipelines, GSPL remains confident of achieving 15%+ IRR. GAIL may also get similar returns.

With actual bid numbers now available on PNGRB website, as an example we analyse the numbers bid by GSPL JV and GAIL for Mallavaram-Bhilwara/Vijaipur pipeline last year. This shows that though GSPL’s JV bid for low tariffs in zone-1, tariffs sharply increased from zone-2 onwards. By bidding very low in criteria 1 (zone-1 tariff) and criteria 3 (zone 2 to 3 escalation), GSPL would have scored 100% score (and GAIL below 10%) for these two criteria. Thus despite getting lower score in criteria 2 and nearly same score in volume criteria 4, GSPL’s JV would have emerged winner by a wide margin.

First priority seems to corner pipeline: The strategy of bidders (at least of winners) has been seemingly (and perhaps rightly so) to take advantage of loopholes and win networks first and worry about tariffs later.

The penalties, if pipelines are not constructed (or not constructed on time) are not high. The performance bond for three pipelines awarded last year ranges from INR150mn to INR200mn, and is less than 0.5% of estimated project cost for INR120bn for three pipelines put together.
Adds to near term concerns: Even as we consider that winning a pipeline is positive (we believe pipeline would be constructed only; companies would see these as NPV positive) in near term such low bids add to concern. The serious investment in these pipelines would be forthcoming, in our view, only when companies see clear visibility on demand on the route of these pipelines, and also supply visibility via domestic gas or imported LNG.

We highlight that not much work has commenced on the three pipelines that GSPL’s JV won last year. After long delays, the actual authorization for these pipelines was issued by the regulator only in July 2011, and the six month period to achieve financial closure is valid till January 2012. In fact, not much physical progress has taken place on several pipelines that were authorised by Ministry of Petroleum and Natural Gas in 2007 (prior to formal appointment of regulator in 2008).

We do not ascribe value to these pipelines yet: With limited clarity on gas demand/ supply, tie-ups with customers and realistic timelines, we currently do not ascribe any value either for three pipelines won by GSPL’s JV or now for GAIL’s Surat-Paradip pipeline. As we say earlier, if implemented, these pipelines would be value accretive,

To read full report: GAIL

>Ruchi Soya: 2Q12 miss; expect negative stock reaction (NOMURA)

Ruchi Soya’s 2QFY12 results were below our estimates - (net income of Rs37.8mn was down 94% both y-y and q-q). Higher raw material cost and sharp depreciation of the Indian rupee (vs the USD) led to a drop in earnings. Though the stock is currently trading at 11x CY12F earnings, 1H12 standalone now forms only 26% of our full-year numbers, and we think there is a downside risk to our FY12F estimates. These weak results continue the trend we have seen in global supply players (weak trading conditions), and we see some negative reaction to stock price.

Lack of bargaining power and unhedged forex exposure hurt 2Q12 Management commented that the quarter was impacted by higher raw material prices (as we noted for Mewah, companies with large downstream operations were unable to pass on higher raw material prices to consumers), volatility in commodity prices and mark-to-market (MTM) provisions due to a steep fall in the USD-INR exchange rate. The company made an unrealized loss provision of Rs849mn on restatement of USD borrowings of which ~Rs420mn is MTM loss on loans payable during the next 2 years, ~ Rs220mn is forward contract losses for which physical contracts are not executed and Rs170mn loss due to unhedged exposure. In our view, some portion of MTM losses may be reversed if the Indian rupee strengthens vs the USD in coming periods, but we do not treat it as part of exceptional income. On the positive side, utilizations improved and plantation momentum remained strong. As a result, management expects 2H12F earnings to be more comparable to 2H11 earnings.

Other key takeaways from management:
Total revenues grew by ~60% y-y and 3% q-q mainly due to strong growth in the Oil segment (up 75% y-y and ~2% q-q). Segment-wise, the Oil segment recorded negative EBIT of Rs363mn with EBIT margin of -0.7% during the quarter, due to most of the adverse impact of exchange rate movements being in this segment.

Management expects soya crop for the current season (11mn vs 9.5mn) to be better than the previous year and higher capacity utilization of soya crushing operations.

Capacity utilization of crushing facilities increased from 36% to 41%. Capacity utilization of refining facilities increased from 76% to 82% from year ago. While port-based refiners are running at 90%+ utilizations.

Branded sales have gone up by 50% from Rs9,308mn to Rs13,972mn.

Current palm plantings are at 37,000ha - mgmt says they should be able to reach 40,000ha by FY12F, and at least 10,000ha per annum thereafter.

2Q12 tax rate was high at ~63% vs ~35% tax rate during same period in previous years.

To read the full report: RUCHI SOYA

Monday, November 21, 2011

>Banking Sector: Worsening NPL gap to prolong underperformance of PSBs

The large rise in net NPL/networth of PSBs in the Sep11 quarter
overshadows the expansion in their NIM. The NPL gap against PSBs is
now at a 12 quarter high and getting worse. At mid‐Nov, the valuation
gap between Nifty and CNXPSBK is at its highest in eight quarters. The
spurts of outperformance may stay short‐lived; we estimate the
underperformance could extend by up to six more months. The
surprise freeing of savings bank deposit rates in the Oct11 monetary
policy may pull down ROA for all, over the long term. Its medium term
impact may be less stark than implied by early reactions. Pricing is not
the sole influence on growth of savings deposits. The trend in NPLs
may be a stronger influence on valuation than the revisions in policy
rates. BOB and ALBK among PSBs, and HDFCB and IIB, among new
banks, are the preferred stocks over the near term.

Buoyant NPLs pull down Sep11 earnings and worsen the outlook
The gap in the net NPL/networth between PSBs and new banks is currently at
its widest in four years and is rising. PSBs saw a 3.3% sequential rise in the net
NPL/networth to 16.7%, while it remained stable for new banks at 2.9%. The
outstanding gross NPL of PSBs increased by 19% sequentially, against a 2%
increase for new banks. NIM expansion and pre‐provision profit growth of 16%
was offset by c44% rise in NPL provisions. During the past six weeks, consensus
net profit growth of PSBs for FY12 has been lowered by 7% to 15% y‐o‐y.

Underperformance of PSBs may extend for another six months
Oct11 was the worst month for PSBs after May11. The premium of the Nifty
P/E over the CNXPSBK increased by c16% in the past six weeks to c125% at the
end of 17 Nov11. It has stayed above the 12‐month moving average for close to
seven months. Historical precedence suggests the underperformance may
extend for another six months. The Bankex underperformed the Sensex by
2.4% in Oct11 and by 3.5% in Nov11. With a combined weight of c70%, new
banks contributed 91% of the rise in the Bankex in Oct11. The trend reversed in
Nov11, as new banks contributed c79% of the c11% fall in the Bankex.

Early reactions to SB deregulation reversed in the following weeks
In our report dated 25 Oct11, we had stated “we believe banks may follow
different strategies, with banks with a very small franchise in savings deposits
possibly adopting aggressive pricing.” Pricing is not the sole influencer of
savings deposits growth. Deregulation may lead to a fall of up to 25‐bp in the
ROA of all banks. The initial run up in banks with low CASA did not sustain.

Contribution of overseas sources of fund to the commercial sector rises
Loan growth declined by 5.4% in Oct11 to c18.0% y‐o‐y. Overseas sources of
funds offset the fall in the contribution of bank loans. The 11% decline in the
contribution of non‐food loans in the Sep11 quarter to c41% was offset by a
13% rise in the contribution from overseas sources such as ECBs/FCCBs and FDI.

Preferred stocks over the near‐term
BOB, ALBK, HDFCB and IIB are the preferred stocks over the near term.

To read the full report: BANKING SECTOR