Dinesh Thakkar, CMD, Angel Broking.
What is your Sensex target by December 31, 2012? Why?
Around 17,500. In the near-term, clearly India faces global and domestic challenges, but one of the silver linings is that the rupee depreciation should help boost exports and secondly, the cooling inflation should provide scope for interest rates too cool down in FY2013, provide some succor to the infra and manufacturing space. In any case, valuations of 12.5PE in our view factor in the current downside risks.
How much downside you see for Sensex and Nifty from present levels (Sensex – 15,275, Nifty – 4,578)? By when do you think market will bottom out?
The concerns on the domestic and global front will weigh on the market due to which markets will remain volatile in the near-term. The markets may witness some downside and see 15,000 levels, however, in the absence of any catastrophic event that could significantly drag down the markets, we expect markets to find valuation support at these levels. In any case, no one can time the markets so perfectly that they can infallibly catch the bottom, so at these valuations it makes sense for long-term investors to start accumulating quality blue-chips into their long-term portfolios.
What is your Sensex EPS estimate for FY12 and FY13? What are the possibilities of this estimates getting revised?
1,112 and 1,308 for FY12 and FY13 respectivel.
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Which are the three large-cap stocks you will recommend investors to buy at current prices for 2-3 years time horizon? Please give a brief rationale for your recommendations.
ICICI Bank: ICICI Bank’s substantial branch expansion (from 955 branches at the end of 3QFY2008 to 2,535 branches as of 2QFY2012) and strong capital adequacy at 19.0% (tier-1 at 13.1%) have positioned it to gain CASA and credit market share, respectively. The bank improved its market share of savings deposits by 10bp in FY2011 compared to FY2010, capturing a substantial 5.8% incremental market share.
L&T: L&T is best placed to benefit from the gradual recovery in the capex cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to its peers, which grapple with issues such as strained cash flow, high leverage and limited net worth and technological capabilities.)
Tata Steel: Tata Steel is setting up a 6mn tonne integrated steel plant (including cold rolling mill) in two phases of 3mn tonnes each for a capex of Rs 34,500cr. Phase 1 of the 3mn tonne plant is expected to be completed by CY2014. This plant could potentially result in significant earnings accretion post completion, as these plants will be backed by captive iron ore.
Which are the stocks/sectors you will avoid in 2012? Why?
I would stay from Cement, Capital Goods/Infrastucture, as these are skewed towards GDP growth. The contraction in GDP estimates to 7% (from earlier 8% and above), indicates weakness in the manufacturing sector, which I believe is not working at its full capacity. Hence, it will take some time before new capex requirements to gather steam.
Which are the key events/triggers (both negative and positive) to look for from the stock market perspective in 2012?
Crises in Euro-zone, which has weighed heavily on the domestic markets. It is a challenging situation which is likely to keep the markets jittery till a genuine solution is put into place. While strong efforts are being pursued to resolve grave issues, it will take some time. Nonetheless, any calamitous event will naturally affect India too in the short-term irrespective of our relatively better fundamentals, due to our financial and trade linkages.
In addition, the passage of crucial reforms, such as that of FDI in retail is something to keenly watch out. The proposed reform has been put on hold after political uproar and thesis of widespread unemployment weighed heavily. Reconsidering this decision and implementation of the same would attract much required capital in order to enhance the backend infrastructure. It then boils down to several advantages such as better prices for consumers, etc. Further, this would open up the floor for various other reforms such as Education FDI, Insurance FDI etc.