>Is growth back in fashion? (HSBC)

• Prefer growth investing over value style; better valuation and superior earnings growth create a compelling proposition
• At 1.3x relative PE, growth stocks are trading at the lowest valuation premium in five years
• Analysts forecast superior earnings growth for growth vs value stocks

Growth stocks are trading at a relative valuation that is lower than their historical level. The growth index is currently at a 12-month forward PE of 20.4x, while the value index is at 15.8x. The valuation premium of growth stocks, at 1.3x, is in fact one standard deviation below its five-year average. Also, at a 12-month forward PE of 15.8x, value stocks are no longer cheap.

In India, as opposed to other markets, growth stocks have outperformed value stocks over the longer term. Their performance is also better on a risk-adjusted basis; the Sharpe ratio of the growth index is 0.109 vs 0.108 for the value index.

From March 1997 to June 2009, the EPS of growth stocks grew at a CAGR of 13.5% compared to 7.8% in the case of value stocks. In the last two years, the performance of growth stocks lagged that of value stocks, as EPS growth of the former lagged that of the latter. Looking ahead, analysts forecast a turnaround, marked by growth stocks growing earnings at a CAGR of 22.5% versus value stocks at 17.5% over FY2010-12e.

A turnaround in earnings, stronger growth, and lower relative valuation make a compelling case for growth stocks. We recommend investing in growth stocks over value stocks.

From within HSBC’s coverage universe, we highlight growth stocks rated Overweight and value stocks rated Underweight. Some of the Overweight growth stocks are ITC, HDFC Bank and BHEL, while an Underweight value stock is Reliance Infrastructure.

To see full report: INDIA INSIGHTS

>TELEVISION EIGHTEEN INDIA LIMITED (FIRST GLOBAL)

Likely implementation of CAS in 2009 to be the key trigger for growth…Emergence of newer delivery platforms DTH & IPTV to drive increase in subscription revenues

Stock appears richly valued in view of intensifying competition in business news space & earnings dilution resulting from proposed rights issue…

THE STORY.....

It is hard to make real cash flow in any business in India (unless you are in politics)…and nothing exemplies this better than the Indian news media space. The sector is awash in red ink, and we really can’t see how this will change quickly, unless India’s stock market starts doubling every three
months (which it just did, in case you didn’t notice), or start having national elections every year
(which is definitely not happening for the next 20 years or so).

TV18 has been an outstanding success when it comes to eyeballs, but cash is quite another matter. To have negative EBITDA margin is quite a feat and TV18 achieved that in FY09.

The bewildering array of new initiatives like the portal, etc., are all really long shots. These will
make some money…eventually. Maybe

Hmmm…now what should one rate a stock like this?

We initiate with a Market Perform rating because no broker can anger a financial news network…

Television Eighteen India Ltd. TLEI.IN/TVET.BO, India's premier business and consumer news broadcaster and leading media content provider, has a presence in television through its two business news channels - CNBC-TV18 and CNBC-Awaaz - and in the Internet space through a number of web portals. Both these channels are dominant players in their respective genres, with the English business news channel commanding a consistent market share of 50% over the last five years, while the Hindi channel clearly dominates over its closest peer with a market share of over 68%. In the Internet space, the company has started/acquired a number of web portals Web 18 and has also launched Forbes Business magazine in India in collaboration with Forbes Media. It has also formed a 50:50 JV with Jagran Prakashan for launching a Hindi business daily in the Indian market, which, however, has been currently being put on hold. The company has been recording strong revenue growth since 2001, on the back of the country’s fast paced economic growth, with consolidated revenues growing at a CAGR of 55.17% over the last five years. However, the initial start up costs for its business news channels and web portals and competition from new channels NDTV Profit and the recent launch of UTV I have taken a toll on TV18’s profitability. The company’s proforma profit declined from Rs.383 mn in FY06 to Rs.63 mn in FY08 and it reported a proforma net loss of Rs.2.4 bn for FY09. Moreover, the fortunes of all business news channels are closely linked to the condition of the capital market, which has been witnessing a downturn for the past one year, though it is now exhibiting some signs of a recovery, post the elections.

In order to fund the company’s mounting losses, working capital requirements and debt repayment, TV18 plans to raise Rs.5 bn through a rights issue. We expect the company’s new ventures, particularly, those in the print media segment and web portals, to continue demanding the infusion of additional capital. On the positive side, the key trigger for TV18’s growth will come from the implementation of the Conditional Access System CAS, which is likely to be implemented by 2009. This, coupled with the emergence of newer delivery platforms, such as Direct-To-Home DTH and Internet Protocol Television IPTV, is expected to result in an increase in the company’s subscription revenues.

To see full report: TV18

>IRB INFRASTRUCTURE (BNP PARIBAS)

Don’t wait till the next project win

■ Only pure-play proxy on highway spending
We initiate coverage on IRB Infrastructure (IRB) with a BUY rating and TP of INR293.00. IRB is a pure-play highway developer with over 1,000km, or INR110.6b, worth of projects in its BOT portfolio. IRB has more than INR215b worth of projects under tender and we estimate new
project wins provide potential upside to the current price. The construction arm has an INR103b order book (represents 19x FY09 construction revenue).

■ INR1t opportunity over FY10-12; INR215b bids placed
The National Highway Authority of India (NHAI) is likely to tender INR1t worth of projects in the next three years. IRB is pre-qualified for more than INR215b. Separately, the NHAI has also made several changes to the model concession agreement that would attract private developers.

■ Internal accruals can support additional INR20b projects
We believe the company can win INR20b (approximately 10%) of projects from its existing bid pipeline of INR215b, based on its prequalification. We estimate that the internal accruals will be sufficient to fund equity in these additional projects. This holds true even if the traffic growth declines to 2%. In the worst case, the company can lever its standalone (with net cash of INR838m) or six debt-free projects generating EBITDA of INR1b annually.

■ Valuation
Our TP of INR293.00 is based on SoTP valuation. The BOT projects and construction business contribute INR130 and INR108 to our TP. Potential new projects and the real estate venture contribute INR30 and INR25 respectively. We use DCF to value the BOTs and an EV/EBITDA
multiple of 8.0x on our FY11 construction EBITDA of INR4,860m (implied FY11 P/E multiple of 12.6x is at a 40% discount to market leader L&T).

■ Sensitivity
A 0.5% change in annual traffic growth (from current 7%) results in a 5.0% change in TP. A 0.5% change in cost of equity has a 2.0% impact on TP. Our TP increases by 2.7% for every INR5.0b of projects secured

To see full report: IRB INFRASTRUCTURE

>Time for a Healthy Correction…. (MOTILAL OSWAL)

At the start of the month of September, Nifty broke the neckline of "Inverse Head and Shoulder" pattern and it started making higher tops and higher bottoms on the daily chart and made a high of 5110 on 1st Oct. Among the sector indices, the BSE Bankex, BSE Metal and BSE Health Care were the top gainers. On the daily chart Nifty has made a "Evening Star" pattern and the RSI oscillators has given a negative diversion. On the weekly chart, stochastic oscillator is giving sell signal, thus one should be cautious at current levels, but the confirmation of downtrend will come only if Nifty breaks its recent low of 4900, thus one should keep a strict stop-loss of 4900 for all the long positions. On higher levels the recent high of 5110 will play as a strong resistance, if Nifty manages to break this resistance then we may see continuation of upmove in the coming days. However as Nifty made an "Inverse Head & Shoulder" pattern and on the weekly chart Nifty is still making "Higher Tops and Higher Bottoms" thus the long term trend is still bullish.

Going forward, one should be cautious at current levels and keep a stop-loss of 4900 for all the long positions. If Nifty breaks 4900 then it can test 4821 and below that 4731, these are 38.20% and 50% retracement level of the rally from 4353 to 5110. Below 4731 Nifty has strong support at neckline of "Inverse Head and Shoulder pattern, which is placed at 4650. The long term trend is still bullish thus 4750 - 4650 would be a good accumulation range for long term investors.

On higher levels, the level of 5110 will play as a strong resistance for short term. If Nifty manages to break 5110 then it can test 5168 and above 5298, which is May'08 high. However if it sustains above 5298 then it can test Feb'08 high of 5545.

ACTIONABLES:

In the current scenario, the strategy for Nifty would be:
1. The existing long positions can be held with strict stop loss of 4900.

2. Fresh long positions can be created only above 5110 with stop-loss of 4968 for the target 5298.

3. If Nifty is able to cross 5298, then by using the trailing stop loss method, the trading buying positions can be continued for the target of 5545.

4. Trading selling positions can be created if Nifty breaches the recent low of 4900 with a stop-loss of 5005 for a target of 4731.

5. If Nifty breaks 4731 then by using the trailing stop loss method, the trading selling positions can be continued for the target of 4650.

To see full report: MARKET OUTLOOK