Posts in category All News
Ahead of PM’s visit, BJP wary of Patel protests in the US, UK (15-09-2015)
Maintain buy on Federal Bank, target Rs 82: Edelweiss (15-09-2015)
Trading at 1.1 times FY17E P/ABV, with RoA touching 1.4% plus and RoEs rising to 16%, the stock of Federal Bank has potential to trend towards 1.5x, implying >35% return potential. With tier-1 of 14.4%, the stock has the requisite fuel for growth as well.
We recently met Federal Bank’s management to gauge the performance on critical parameters. Key highlights were: (1) Credit growth: Confident of 15% plus surge in FY16 driven by SME and retail, corporate growth will be more opportunistic; (2) Margin: NIMs will largely be stable as funding cost benefit flows in; (3) Though the elevated cost-income ratio does strike a sour note as past investments are yet to bear fruits, rising productivity riding improved revenue traction and controlled opex is bound to lower the ratio, which in turn will boost return ratios; and (4) Asset quality: confident that stress will be contained with no further addition to the watchlist, moreover >80% provision coverage lends comfort.
The stock has corrected and now trades at 1.1x FY17E ABV, which for a bank with tier-1 of 14.4% and estimated RoA/RoE of 1.4%/16% by FY17E lends comfort.
Maintain buy on Tata Motors, target Rs 488: Motilal Oswal (15-09-2015)
Land Rover volumes are down ~2% while Jaguar’s volumes have grown ~42%. JLR wholesale volumes grew ~5% YoY (1.6% MoM) in August to 33,103 units (our estimate: 31,300 units).
We estimate ~9% volume growth in FY16, implying a residual monthly rate of 47,120 units or 18% growth for FY16.
Land Rover declined ~2% YoY to 26,509 units (our estimate: 25,642 units), while Jaguar grew ~42% YoY to 6,594 units (our estimate: 5,658 units).
In terms of regional retail sales performance, China volumes declined 31% YoY (due to slowing economic conditions and model transitions, specifically the launch of the locally produced Range Rover Evoque and Discovery Sport. The Jaguar XF and XJ are in their run-out phases ahead of upcoming launches. The month was also impacted by the Tianjin port explosion on 12 August, which affected up to 5,800 imported Jaguar Land Rover vehicles. US volumes grew ~13% YoY and Europe volumes grew 18.7% YoY. However, UK volumes grew 93% YoY.
We are lowering our EPS estimates by ~17% to Rs 43 for FY16 and by ~6% to Rs 54 for FY17 to factor in, lower JLR volumes due to higher-than-estimated impact of transitory issues, lower margins in JLR due to operating leverage, and lower volumes in LCVs. Even after factoring for lower China margins, we expect TTMT’s consolidated EPS to grow at a CAGR of ~17% over FY15-17.
The stock trades at 8.2x FY16E and 6.5x FY17E consolidated EPS. Maintain buy with a target price of Rs 488 (FY17E SOTP-based) for ordinary shares and R341 for DVR (~30% discount to target price for ordinary shares).
F&O strategies for Nifty, TCS (15-09-2015)
‘Fed hike unlikely to spook Indian markets’ (15-09-2015)
Foreign investors might pull out from emerging markets (EMs), anticipating further hikes by the US Fed in the days to come as the most important factor to look out ahead is further devaluation of yuan, says Saurabh Mukherjea, CEO, Institutional Equities at Ambit Capital, in an interview with Pavan Burugula.
How do you think Indian markets would react in case of an interest rate hike by US Fed?
To begin with, there is a 30-60% chance that the US Fed will up the interest rate in the coming meet, but the quantum of hike is likely to be small. Hence, it is unlikely spook the Indian markets as such. However, foreign investors might pull out from the emerging markets, anticipating further hikes by the US Fed in the days to come. The most important factor to look out for in such scenario would be the reaction of China.
The Central bank of China might go ahead and devalue the yuan again. Such a devaluation will hit the Indian
markets.
What would be the impact of slowdown in China on Indian markets?
The rise of EM equity as an asset class around 12-13 years ago was on the back of a rising China. Most emerging markets have witnessed good inflows from foreign investors over the last 10-12 years. It follows, therefore, that concerns about China can impact the perception of investors about the very concept of EM equity as an asset class.
Most emerging markets have started to witness outflow of foreign funds already. This trend is expected to continue in the days to come and India is unlikely to ride this out without getting affected.
However, the macro economic environment in the country seems to be positive; hence, India has a chance to bounce back over the medium-long run but such process will take time. Meanwhile, India will continue to be under the pressure of the selling by FPIs in EMs.
What are the concerns of your foreign clients about India?
If we look at our market’s history, FPIs didn’t invest in India due to the “overweight” status that numerous brokerages had conferred India or due to the country’s GDP growth rate.
Foreign investors are more concerned about stock-specific investment opportunities than about our macro-economic positioning. Our clients these days are concerned about issues like overcapacity in most sectors of the Indian economy, about the state of the Indian banking system and about the lack of aggregate demand in India. There is also disappointment that the land-acquisition amendment did not see the light of day — instead, states will pass their own laws, which are unlikely to be as effective as a union law.
What do you think are the major challenges for Indian economy in the near term?
Our biggest worry is about the health of the Indian banks. The proportion of stressed assets is already more than 11%. Further, the capital required to recapitalise the banks is by our estimation at least five times the quantum recently promised by the government. Another important factor is the slump in the real estate sector. The sector accounts to 30% of India’s capital expenditure. As per NSSO data, real estate accounts to one-third of non-agricultural jobs in the country… hence, any decline in the sector would affect the economy and rural demand.
Overcapacity is yet another challenge. The problem is prevalent in almost all the sectors. Further, revival of our economy is linked with improvement in capital expenditure. Our economy is right now in a transition phase. Till a year ago, we were a subsidy driven demand economy. Post the emergence of the NDA government, subsidies have been cut. Whilst this would certainly help the economy in the long run, in the near-term it would hit demand.
What would be the role of domestic investors in such a scenario?
Domestic institution investors (DIIs) have been actively investing the markets over the past year even at times when FPIs were selling their stakes. However, this is unlikely to go on for a long time as any downturn in the market would also impact the domestic investors.
But there is no doubt that DIIs have started to play a more important role in the Indian markets than they did in the years from 2010 to 2014. In the years to come, domestic institutions are likely to grow in size and India might turn into a domestic investor driven economy. For now, domestic investors don’t have enough muscle to absorb the FPI selling.
Trading calls: Buy Amara Raja Batteries, Hindustan Unilever; Sell Bajaj Auto (15-09-2015)
Trading ideas: Buy KEC International, Lupin, Tech Mahindra; Sell Ambuja Cements (15-09-2015)
Relaxo Footwear: a wannabe brand play (15-09-2015)
Would like to differ respectfully here. My point based on the above scenario - there is no risk of re-investing here as once you are through with 30-40% CAGR for 2-3 years invest that money into the 10 yr 20% compounder straight away. right? More money at the end of the day. So I would invest in 30-40% company for 2-3 years and buy the 20% compounder at the end of 3rd year.
Anyway, different opinions make investors!
Govt opens FDI door wider by allowing partly-paid shares (15-09-2015)
Page industries (15-09-2015)
Argh...Japan: India in the near future can never have a scenario like Japan as we are a growing economy. Deflation is only for this year as it's an YoY comparison and while we move onto next year it would be inflation in low single digits.
Agree, If Page falls, it would be a very good opportunity to ride the economy turnaround.
Disclosure: As already made, I'm invested in Page. I read somewhere that stock markets discount any macro positive turnarounds about 6 months ahead and any negative turnaround markets will be a bit late to discount