>THE GLOBAL NIFTY FIFTY (HSBC)

Back in the 1960s and 1970s, the 'Nifty Fifty' were 50 large American companies whose shares were regarded as solid, dependable, low-risk growth stocks with stable earnings. Companies like Coca-Cola (NYSE:KO), GE (NYSE:GE), Procter & Gamble (NYSE:PG), and Johnson & Johnson (NYSE:JNJ), in other words: the bedrock of the American economy.

The proposition for investors was simple. These were companies that were built to last, well-positioned for growth, and well-managed -- so buy a broad cross-section of the Nifty Fifty, hold for the long term, and forget about fancy stock picking. Over 40 years on, investment strategists at HSBC (LSE: HSBA) have now revisited the Nifty Fifty notion -- with a twist. What would a global Nifty Fifty look like, they wondered? And -- of even more interest to UK investors -- a European Nifty Fifty?

The global Nifty Fifty includes several members of the original (and American-only) Nifty Fifty -- companies such as Coca-Cola, Johnson & Johnson, and Caterpillar(NYSE: CAT). It also includes American companies that were relative minnows when the original Nifty Fifty were formulated -- Wal-Mart Stores (NYSE: WMT), for example. There are also some that didn't exist at all back then: Microsoft (Nasdaq: MSFT), Cisco Systems (Nasdaq: CSCO) and Oracle (Nasdaq: ORCL). Of the complete global listing, 24 companies are American, 10 are Asian, and 16 are European. And of the European companies, six are British.

What might a global ‘Nifty Fifty’ look like? (SEE IN REPORT)

To see full report: THE GLOBAL NIFTY FIFTY

>ITC (MOTILAL OSWAL)

ITC has underperformed Sensex by 45% in CY09 (YTD). With Budget being just a month away expectations of steep increase in excise duty are doing the rounds. Cigarettes contribute 42% to sales and 87% to PBIT of ITC. The company has been facing headwinds on the regulatory front for the last two years, with the imposition of VAT (12.5%) and 5% increase in excise duty in FY08, followed by a sharp increase in excise duty on non-filter cigarettes (391% increase on
micros; 140% increase on plains) in FY09. ITC has discontinued non-filter cigarettes (19.4% of FY08 volumes). Consequently, volume growth of 7.1% in FY07 has decline to minus 3% in FY09.

■ Pictorial warnings unlikely to impact volumes: From 31 May 2009, it has become mandatory to display pictorial warnings on cigarette packs. However, as the pictorial warning is required only on one side of the cigarette pack to the extent of 40% of pack size, the consumer will not be able to see the warning if the retailer displays the back side of the pack or if the pack flap is open. Cigarette volumes are unlikely to be impacted due to the implementation of pictorial warnings. ITC will take a one-time hit of Rs150m-200m on replacement of cylinders for packing material.

■ Industry expects 6-8% excise duty increase in FY10 budget: Cigarette industry expects 6-8% increase in excise duty for FY10, which would result in 2-3% volume growth (v/s 4.5% decline in FY09). However, higher increase in excise duty would result in lower volume growth. We believe that fiscal constraints might force the government to propose a double-digit increase in excise duty. We don't rule out higher excise increase on filter cigarettes as this segment had not seen any excise increase in FY09.

■ Stock has reacted negatively to large excise hikes in the past: ITC’s stock price has reacted negatively to sharp increase in duties in the past. The stock declined by 6.1% in 2005 (10% excise increase after a gap of three years) and 17% in 2007 (imposition of 12.5% VAT and 5% increase in excise).

■ We currently factor in 7.5% increase in excise and 4% volume growth: We are currently factoring in 4% increase in cigarette volume and 7.5% increase in excise duty. Double-digit excise duty increase will be viewed negatively by the markets, in our opinion. Expanding margins by increasing prices will not be an easy option in FY10 as cigarette prices have increased by over 25% in the last two years. Maintain Buy with target price of Rs200.

To see full report: ITC

>COMPUTER SERVICES & IT CONSULTING (COWEN)

Industry Outlook

Computer/Business Services- Full Recap From

Last Week’s Tech Conference

Conclusion: Most IT Services vendors pointed to relative stability in IT spending trends, as funding remains firm for various cost-savings driven initiatives (application maintenance, BPO), while spending on discretionary, large projects remains cautious. Having said that, certain vendors highlighted improving pipeline conversions, with pricing pressure gradually abating (in
fact, most pricing renegotiations have already been completed). With somewhat improving visibility, partially driven by positive signals from the financial services sector (the industry’s largest vertical), the inflection point for the sector could be the September quarter, resulting in an industry-wide sequential revenue growth. Accordingly, we maintain our Outperform ratings on ACN, CTSH, INFY, WIT, ACS, VRTU, and NSTC.

■ Secular Growth Drivers Intact. We continue to believe that once spending decisions return to normalized levels, the offshore sector could continue to post strong revenue growth rates reflecting low penetration rates (IT spending dedicated to offshore projects as a percentage of overall IT budgets).

■ Pricing Trends Seem Manageable. While vendors have been working with clients in order to reduce offshore delivery costs by 10%-15%, greater mix of offshore execution and fix price work have resulted in an actual impact on pricing of 300-500BPTS.

■ EBIT Margins Sustainable. As we believe sector’s utilization rates are depressed by 500-1000BPTS.

■ Financial Services Could Lead The Spending Recovery. A number of vendors during our conference suggested improving pipeline conversion from this critical vertical (accounting for 30%+ of sector revenues), as the business environment in this vertical has stabilized.

To see full report: COMPUTER SERVICES & IT CONSULTING

>BRITANNIA INDUSTRIES (SBICAP SECURITIES)

Result analysis: Q4FY09
Quarterly net sales were up by 10%, slowest in past 12 quarters, operating profit up 17%, EBITDA down 11% and net profit down 33%. Operating profit increased due to lower raw material inflation, almost flat employee cost and less than proportionate increase in other operating expenses. However, starkly lower other income during the quarter affected the EBITDA. Lower EBITDA and higher tax provision coupled with exceptional & extraordinary items led to a 33% drop in net profit.

Result analysis: FY09
Annual sales growth momentum was maintained at 20%, whereas operating profit growth was restricted to 13.5% due to high commodity prices in the first half of FY09. Healthy other
income in Q3 and Q4 of FY09 buoyed up the EBITDA by 14.8%. Despite healthy EBITDA, and lower tax rate, net profit (bei) for the full year grew less than proportionately, up 9.7%, due to
higher financial expenses and depreciation. Extraordinary items further dragged the PAT down by 5.5%.

Management vision
As per Ms.Vinita Bali, MD, Britannia Industries, the company will continue to focus on:

• Building brand ‘Britannia’ in India and abroad and leverage the Middle East acquisition to expand its global footprint
• Continue to enhance portfolio of brands offered in India to cash in from buoyant demand for both healthy and indulgence food products from urban as well as rural India
• Cost efficiency to drive profitability
• Focus on both bakery and dairy to drive future growth

Outlook
Despite disappointing quarter we maintain our positive outlook due to Britannia’s leadership in biscuits category, which is expected to grow ~15% for next couple of years, as well as its increasing focus on other bakery products like bread and also on dairy businesses. We like Britannia’s aggressive innovation to cash in from rising demand for on-the-go snack foods and
presence across price points to cater consumers at all levels in the income pyramid. Buoyant demand from urban markets coupled with increasing demand from rural markets will keep the ball rolling for the bakery manufacturer, which controls 35% of the market.

Change in estimates and recommendation
Though, we maintain our positive outlook on the stock and expect the biscuit major’s revenues to grow by double digits, we revise our Earnings estimates (and in turn target price) downwards due to commodity inflation (sugar and vegetable oil), higher brand investment and increased debt burden to service bonus debentures (carrying 8.5% coupon for 3 years). We now estimate FY10 EPS at Rs91.1 and FY11 EPS at Rs111 and value the stock at 20xFY10E EPS arriving at a target price of Rs1823, upside potential of 8% from current price of Rs1682.

Recommendation changed from Buy to Market Perform.

To see full report: BRITANNIA INDUSTRIES