| Brokerages revisit portfolios |
| Sheetal Agarwal / Mumbai March 16, 2011, 0:52 IST |
Consequent to change in global and local factors, brokerages have enhanced their allocation to domestic consumption plays and export-oriented companies.
Barely three months into the year, global factors like unexpected spike in crude oil prices, demand uptick from the major export markets like the US and domestic issues like higher-than-expected inflation have driven some of the country’s top brokerages to revisit their model portfolios.
Most brokerages now favour consumption led sectors like auto, banking, along with export-oriented industries like IT and, to some extent, the pharma segment.
| TOP STOCKS | ||
| in Rs | Reco price | Target price |
| BUYS | ||
| Bajaj Auto | 1,365 | 1,650 |
| Bharti Airtel | 330 | 400 |
| Coal India | 337 | 412 |
| ICICI Bank | 1,021 | 1,324 |
| Infosys | 3,115 | 3,780 |
| L&T | 1,570 | 2,210 |
| Maruti | 1,270 | 1,550 |
| M&M | 670 | 810 |
| Tata Motors | 1,160 | 1,494 |
| TCS | 1,119 | 1,330 |
| SELLS | ||
| ACC | 988 | 850 |
| Hindalco | 212 | 202 |
| HUL | 281 | 265 |
| Source: BNP Paribas, Religare Capital Markets, ENAM | ||
On the other hand, slowdown in consumption in China and surging input costs have made the metals space the least preferred by brokerages. However, most of them believe the recent events in Japan are unlikely to have a significant impact on earnings of India Inc, barring a few, and that too, in the near term.
| SECTOR ALLOCATION | ||||
| Religare Capital | Nifty | BNP Paribas | MSCI India | |
| Automobiles | 8.5 | 7.5 | 9.0 | 6.7 |
| Banks | 26.0 | 26.4 | 26.0 | 24.6 |
| Capital Goods | 3.0 | 3.0 | 14.0 | 7.3 |
| Cement | 1.5 | 1.2 | -- | -- |
| Energy | 15.8 | 15.0 | 12.0 | 15.3 |
| FMCG | 5.0 | 7.3 | 4.0 | 6.0 |
| Infra/Cons. | 4.4 | 5.6 | -- | -- |
| IT Services | 18.8 | 14.6 | 21.0 | 18.8 |
| Metals,mining | 7.0 | 8.2 | 3.0 | 9.6 |
| Pharma | 3.0 | 3.5 | 3.0 | 4.0 |
| Real estate | 3.0 | 0.5 | 2.0 | 1.6 |
| Telecom | 4.0 | 2.8 | 3.0 | 0.4 |
| Utilities | 0.0 | 4.4 | 3.0 | 2.9 |
| Nifty and MSCI India are benchmark indices of Religare Capital and BNP Paribas Source: BNP Paribas, Religare Capital Markets | ||||
Riding on domestic consumption
Even as India’s economic growth is seen slowing in 2011-12 compared to the current financial year, its consumption is expected to remain healthy. Manishi Raychaudhuri and Gautam Mehta of BNP Paribas Securities recently wrote in their report, “While the real GDP growth may slow to 8.5 per cent year-on-year in 2011-12, as the economy grapples with the triple whammy of a high interest rate, high commodity prices and political uncertainty, in our view, market concerns are overblown as (a) consumption remains buoyant; (b) global recovery should provide a tailwind to exports, reducing the drag of net exports on growth and (c) leading indicators indicate the resilience of the investment cycle despite headwinds.”
While the research house has upgraded the banking sector to overweight from neutral (led by the increase in weight on ICICI Bank, BoB and HDFC Bank), it continues to be overweight on the auto (M&M and Bajaj Auto; added Maruti) and IT (larger allocation to TCS) sectors. On the flip side, it has increased its underweight position on metals, eliminating its exposure to steel stocks.
Domestic brokerage, Emkay Global, is also bullish on the domestic consumption, even as it remains sceptical of the investment-based themes. Ajay Parmar, head, research (Institutional Equities) at Emkay Global says, “The Indian economy will continue to be driven by consumption, though higher raw material costs and crude oil price surge are key concerns. We are bullish on the IT, pharma and agricultural inputs sectors, while we dislike telecom and infrastructure sectors. Within auto, two-wheeler stocks are a safer bet as against four-wheelers, because they are self-funded and hence not exposed to the risk of higher interest rates.” Among the top stocks, the brokerage is recommending Bajaj Auto and is bearish on L&T.
Although, the FMCG space fits in well within the domestic consumption story, its outperformance in recent months has led most brokerages to remain neutral or avoid. While ENAM Securities is concerned about the weakening pricing power, due to the competition and higher raw material costs, and is recommending investors to avoid the FMCG sector (barring ITC), Religare Capital has reduced its weight to neutral on fair valuations (limiting upside).
For now, most of them are indicating a neutral stance on the investment-based themes like infra and capital goods for at least one-two quarters consequent to rising interest rates, firm raw material prices and execution issues. They are, however, open to exploring selective buying in these segments.
Global influences
The party spoiler, however, could be oil, wherein, the future direction of price is not predictable and the expert opinion is divided. Thanks to the geo-political tensions in West Asia and Nort
