Market Outlook 2012 - Sharekhan

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Market Outlook 2012 - Sharekhan Powered By Docstoc
					Visit us at www.sharekhan.com                                                                                                                                                                                                                                                                                                           December 31, 2011



                                                                                            2012: A year of high volatility
                                                                                                             Also an opportunity to cherry pick quality stocks
2011—the year of self-inflicted pain: Circa January 2011,                                                                                                                                   Rate cuts and resolute policy actions are key triggers for a
the year began with a lot of hope. The global situation was                                                                                                                                 meaningful revival: Global events would continue to strongly
expected to improve with the unleashing of the second round                                                                                                                                 influence foreign inflows and consequently the overall market
of quantitative easing (QE2) by the USA while at home the                                                                                                                                   direction. However, any meaningful revival in the equity market
government was expected to push forward some of the long                                                                                                                                    would have to be supported by a reversal in policy rates and
awaited reforms and rein in the fiscal deficit. Domestic demand                                                                                                                             resolute government policy actions. The cut in policy rates is
was robust and corporate earnings were expected to grow at                                                                                                                                  inevitable now though the timing of the same has become
compounded annual growth rate (CAGR) of 18-20% over FY2011-                                                                                                                                 uncertain due to the stubbornly high core inflation. The
13. However, contrary to expectations, India’s economic growth                                                                                                                              situation has been amplified by imported inflationary pressures
moderated sharply in 2011. The Indian currency and the                                                                                                                                      led by the rupee’s depreciation. The more questionable issue
country’s stock market were among the worst performers                                                                                                                                      is the ability of the ruling United Progressive Alliance (UPA)
globally. Unfortunately, much of the pain was self-inflicted:                                                                                                                               government to circumvent political logjam and push forward
the domestic macro-economic environment deteriorated                                                                                                                                        reforms in the areas of pension, land acquisition and retail
sharply due to continued monetary tightening by the central                                                                                                                                 foreign direction investment (FDI) instead of tilting towards
bank and a lack of resolute policy response from the                                                                                                                                        populist schemes like food security bill and farm loan waiver.
government even in the face of tough global conditions.
                                                                                                                                                                                            Downside risk remains despite supportive valuations: After
2012—begins on an extremely pessimistic note: Pessimism                                                                                                                                     the correction, the Sensex now trades at 12.0-12.5x FY2013E
is written all over. Globally, the economic revival in the USA                                                                                                                              earnings or at a 26% discount to the mean of the last five years’
remains sluggish and the euro zone is on the edge threatening                                                                                                                               valuations and at a 17% discount to the mean of the last ten
to slip off the cliff. At home, the political logjam has derailed                                                                                                                           years’ valuations. The Sensex’ premium over the other Asian
policy decisions and there is no shortage of macro-economic                                                                                                                                 peers has also shrunk to 17% compared with the historical
problems. The consensus earnings estimates for FY2012/                                                                                                                                      average of 25%. But the downside risk remains high due to the
FY2013 have been revised downwards by 9-10% over the last                                                                                                                                   rising risk aversion globally that is visible in the record net
one year and the CAGR growth estimate for FY2011-13 now                                                                                                                                     outflows from the emerging market equity funds this year.
stands at 11.5%. What’s more, the earnings downgrade cycle                                                                                                                                  Moreover, regulatory uncertainties and policy inaction have
is likely to continue on account of the signs of moderation in                                                                                                                              created critical issues in some of the index heavyweight sectors/
domestic demand, margin pressure and rising foreign exchange                                                                                                                                stocks such as banks, infrastructure, power, telecommunications
(forex) losses. The emerging markets are underperforming and                                                                                                                                (telecom) and Reliance Industries. Nevertheless, many quality
the Indian equity is out of favour among foreign investors. The                                                                                                                             stocks are trading close to their 2009 lows and 2012 could very
retail investor is disillusioned and the proportion of domestic                                                                                                                             well turn out to be one of the best years to cherry pick quality
savings flowing into equities is the lowest in a decade.                                                                                                                                    stocks for exponential returns over the next few years.
Earnings downgrade FY2012, FY2013                                                                                                                                                           Sensex’ P/E (12-month forward)
 1500
                                                                                                                                                                                            30
 1450
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 1400
 1350                                                                                                                                                                                       22
 1300                                                                                                                                                                                                                                                                                                                                                                       +1σ
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 1250                                                                                                                                                                                                                                                                                                                                                                       15x
                                                                                                                                                                                            14
 1200
                                                                                                                                                                                            10
                                                                                                                                                                                                                                                                                                                                                                            -1σ
 1150
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                                                              FY2012                                       FY2013

                                                                                                                                                Source: Bloomberg                                                                                                                                                                                Source: Bloomberg
market outlook                                                                                                                                                                              2012: a year of high volatility



2012—begins on an extremely pessimistic note                                       GDP, IIP

Unlike 2011, when the market began with optimism due                                 20.0%
to the announcement of QE2 by the USA and the positive
                                                                                     15.0%
measures announced by the Indian government, 2012 is
beginning on an extremely pessimistic note due to a policy                           10.0%
paralysis, slump in growth and unpredictable global                                   5.0%
environment. To compare a few, the corporate earnings
                                                                                      0.0%
momentum, which was quite strong at the beginning of




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2011, has slowed leading to significant downgrades. Also,                            -5.0%
the government, which had initially appeared to be
                                                                                    -10.0%
extremely cautious of the fiscal deficit and reform-                                                                                                                  GDP                                          IIP
oriented, has not lived up to expectations and disappointed
                                                                                                                                                                                                                                Source: Bloomberg
the market. Finally, the global situation, which was
expected to improve with the unleashing of QE2 by the                              Easing of rates could help but timing is a question
USA in early 2011, has again worsened due to the                                   Investment sentiments have weakened for a number of
deepening of the European crisis. With all the concerns                            reasons with higher interest rates being the most important
hitting at the same time Indian equity is going out of favour                      one. The investment activity has slowed down despite
leading to disillusionment among the local investors.                              negative real interest rates, but the easing of the rates
Therefore, the proportion of the domestic savings flowing                          will certainly lift the confidence of corporates and set
into equities has dropped to the lowest in a decade.                               the tone for growth. While monetary tightening was
                                                                                   undertaken to contain inflation, the inflation rate still
Sensex’ performance vis-à-vis other EMs
                                                                                   hovers around 9% levels, much higher than the RBI’s
                                                                                   comfort zone. In addition, though food inflation has
                                               Hong Kong                           declined the depreciation of the local currency, possible
                                                       India                       tariff hikes by the utilities and firm commodity prices still
                                                Indonesia                          pose the risk of higher inflation. The RBI has hinted at the
                                                 Thailand                          peaking of rates but refrained from signaling a downward
                                                       China                       trend due to imminent inflation fears. Therefore, given
                                                 Malaysia                          the extreme cautious outlook on inflation the rates are
                                                  Taiw an                          unlikely to come down in the near term.
                                                   Korea
                                                                                   Gross fixed capital formation
  -30.0%   -25.0%   -20.0%   -15.0%   -10.0%   -5.0%       0.0%    5.0%
                                                                                     500000
                                                           Source: Bloomberg
                                                                                     450000
Subdued growth over next few quarters
We believe the gross domestic product (GDP) growth                                   400000

trajectory is drifting towards 7% or sub-7% kind of growth
                                                                                     350000
from the average of around 8.5% (excluding the 2009 crisis)
due to high interest rates, policy uncertainty and demand                            300000

destruction led by high inflation. The non-performing                                250000
assets of banks could increase further due to the strain
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on the corporate earnings whereas the credit could also
decline. However, inflation stays much above the Reserve                                                                                                                                                                                         Source: CSO
Bank of India (RBI)’s comfort level. Hence the apex bank                           Deadlock on policy remains big overhang
may reduce the policy rates only when there is more                                The deadlock over policy initiatives from the government also
certainty about the downward trend in inflation. As core                           contributed to the deepening of the domestic crisis. The market
inflation is stickier than expected and the rupee’s                                was expecting swift action after the assembly elections held
depreciation is also amplifying the inflationary pressures,                        in May 2010 but the same could not materialise due to the
the dilemma of the central bank to go for inflation control                        stand-off with allies and opposition parties on several issues.
or support growth will continue for some time.                                     The proposal to allow FDI in the retail sector has been virtually
                                                                                   withdrawn, fuel price hikes have been rolled back and the


                                                               Sharekhan       2    December 31, 2011
market outlook                                                                                                                                                                                                                                                                                                                                      2012: a year of high volatility



fate of the other bills also hangs in balance in view of the                                                                                                                                                                      FII, FDI inflows (mn $)
upcoming Utter Pradesh assembly election. If that was not                                                                                                                                                                          7,000

enough, the government has also turned to populist measures                                                                                                                                                                        6,000
                                                                                                                                                                                                                                   5,000
(food security, debt waiver) despite the acute fiscal stress.
                                                                                                                                                                                                                                   4,000
Therefore, the government’s commitment towards fiscal
                                                                                                                                                                                                                                   3,000
consolidation has come under question and that would be
                                                                                                                                                                                                                                   2,000
further tested in the upcoming annual budget announcement.                                                                                                                                                                         1,000
                                                                                                                                                                                                                                      -
Global environment remains jittery




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                                                                                                                                                                                                                                   (1,000)
Although the European central banks expanded funding of                                                                                                                                                                            (2,000)
banks to buy bonds lifting sentiments, yet the move could                                                                                                                                                                          (3,000)
                                                                                                                                                                                                                                                                                                                        FII                FDI
also aggravate the banking crisis within the euro region.
Meanwhile the developed world’s growth momentum continues                                                                                                                                                                                                                                                                                                                                 Source: Bloomberg

to slow and risks remain on the downside relative to                                                                                                                                                                              Fund inflows and MSCI EM performance
expectations. The US economy has started looking up as growth                                                                                                                                                                      30%                                                                                                                                                                                  180%
has been reasonable at about 2.5% (similar to the long-term
                                                                                                                                                                                                                                   25%
                                                                                                                                                                                                                                                                                                                                                                                                                        140%
rates) and the unemployment rate has dropped to 8.6% levels.
                                                                                                                                                                                                                                   20%
Going ahead, the outcome of the efforts of the European                                                                                                                                                                                                                                                                                                                                                                 100%
                                                                                                                                                                                                                                   15%
leaders to resolve the crisis will be keenly watched since if
                                                                                                                                                                                                                                   10%                                                                                                                                                                                  60%
the crisis deepens the USA could also get affected due to its
                                                                                                                                                                                                                                    5%
large trade and financial exposure to the region. To sum up,                                                                                                                                                                                                                                                                                                                                                            20%
                                                                                                                                                                                                                                    0%
deleveraging will continue to be a drag on spending at both                                                                                                                                                                                2001 2002 2003 2004 2005                                                       2006 2007 2008 2009 2010 2011                                                                 -20%
                                                                                                                                                                                                                                   -5%
private and public levels with political deadlock limiting policy
                                                                                                                                                                                                                                  -10%                                                                                                                                                                                  -60%
response in the USA and more stringent monitoring of
                                                                                                                                                                                                                                                             EM fund inflow s ( % AUM)                                                              MSCI GEM performance (RHS)
government spending doing the same in Europe.
                                                                                                                                                                                                                                                                                                                                                                                   Source: Media reports
US GDP growth, euro zone GDP growth (%)
  6                                                                                                                                                                                                                               Earnings downgrade continue as concerns still unfolding
  4
                                                                                                                                                                                                                                  The first two quarters of FY2012 saw a significant slowdown
                                                                                                                                                                                                                                  in the earnings growth led by margin pressures. This
  2                                                                                                                                                                                                                               resulted in a sharp downward revision in the earnings
  0                                                                                                                                                                                                                               estimates. The earnings estimates for FY2013 have been
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                                                                                                                                                                                                                                  revised downwards from around Rs1,250 in April 2011 to
 -2                                                                                                                                                                                                                               around Rs1,161 currently. Given the current state of the
 -4                                                                                                                                                                                                                               economy and the global environment there is further
                                                                                                                                                                                                                                  downside risk to these earnings estimates. The FY2013
 -6
                                                                                                                                                                                                                                  estimates look reasonably positive as the market expects
                                                                              US                              Europe
                                                                                                                                                                                                                                  a growth of around 15% in FY2013. This growth estimate,
                                                                                                                                                                             Source: Bloomberg
                                                                                                                                                                                                                                  in our view, could also be revised downward.
…likely to fuel capital outflows
An increase in the fiscal deficit, corruption related                                                                                                                                                                             Earnings downgrade FY2012, FY2013
investigations and weak global capital environment have                                                                                                                                                                            1500
wrecked investor confidence and contributed to the outflow                                                                                                                                                                         1450
of capital which, in turn, has aggravated the currency crisis.                                                                                                                                                                     1400
In absolute dollar terms, the current account deficit (CAD)                                                                                                                                                                        1350
was over $33 billion till Q2FY2012, significantly higher than                                                                                                                                                                      1300
in the previous year. This has led to a sharp depreciation in                                                                                                                                                                      1250

the local currency. Further net FII inflow YTD has been around                                                                                                                                                                     1200

$1.6 billion (compared to $12.4 billion in 2011) while FDI                                                                                                                                                                         1150
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inflow was around $2.4 billion (till october 2011) against
$2.1 billion in similar period of the last year. Therefore,
clarity on policy issues is something that investors will keenly                                                                                                                                                                                                                                    FY2012                                          FY2013
watch in the coming period.                                                                                                                                                                                                                                                                                                                                                               Source: Bloomberg


                                                                                                                                                                                            Sharekhan                         3     December 31, 2011
market outlook                                                                                                                                                                                   2012: a year of high volatility



  Indian Rupee: Weakness to persist
  • Rupee among the worst performers: After falling by 20% in the last five months, the Indian Rupee has turned
    out to be one of the worst performers among the major currencies vs the US Dollar.
  • Both global and domestic factors contribute to weakness: The reasons that have led to a sharp decline in
    the rupee can be divided into two major categories.

      A. Global factors have boosted the dollar due to following reasons:
         • The demand for the dollar driven by the rising risk of a sovereign debt crisis in Europe. Thus, there is a
           shift away from the euro to the dollar despite the sluggish growth in the US economy.
         • In addition to the fragile global economy, the stubbornly high inflation and moderating growth in the
           emerging markets are also aiding sentiments and the demand for the dollar.

      B. Intrinsic weakness of the domestic currency: This weakness is coming from mainly two factors.
         • Deterioration in the fiscal health of the government with much higher than expected twin deficits
           (fiscal and current account deficits) of the country.
         • Capital outflows due to a slowdown in growth and risk aversion in the financial markets.

  • Rupee to remain weak: Our Currency research team expects a potential threat of further depreciation of
    7-8% from the current level due to the above mentioned factors. However, the movement would be relatively
    restrained due to direct and indirect intervention by the RBI and possible easing of liquidity conditions.


Market view: Downside risk remains despite                           Sensex’ P/E (12-month forward)
supportive valuations
                                                                     30
The Sensex has declined almost 16% since the beginning of            26
2011, becoming one of the worst performing stock market
                                                                     22
indices globally. It trades at a 25% discount to the mean                                                                                                                                                                                                                    +1σ
valuation of the last five years and at a 17% discount to the        18

mean valuation of the last ten years. The Sensex’ premium            14
                                                                                                                                                                                                                                                                              15x

over the other Asian peers has also shrunk to 17% compared           10
                                                                                                                                                                                                                                                                              -1σ
with the historical average of 25%. At the beginning of 2011
                                                                      6
domestic inflation and global issues were the key dampeners
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whereas towards the end of 2011, both the domestic situation
and the global situation have deteriorated. Already the FII
                                                                                                                                                                                                                                          Source: Bloomberg
flows to the Indian market in 2011 were much lower than in
the previous two years due to the deepening of the European
                                                                     Sensex’ P/BV (12-month forward)
debt crisis. This significantly eroded investors’ confidence
                                                                      5.0
and there was huge selling by the FIIs in the last four months
                                                                      4.5
of 2011. Given the multiple macro-economic challenges we
don’t expect FII flows to resume in the immediate future.             4.0

                                                                      3.5
                                                                                                                                                                                                                                                                             +1σ
Moreover, regulatory uncertainties and policy inaction have           3.0
created funding issues in some of the index heavyweight                                                                                                                                                                                                                        2.8
                                                                      2.5
sectors/stocks such as banks, infrastructure, power, telecom
                                                                      2.0                                                                                                                                                                                                     -1σ
and Reliance Industries. Nevertheless, many quality stocks
                                                                      1.5
are trading close to their 2009 lows and 2012 could very well
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turn out to be one of the best years to cherry pick quality
stocks for exponential returns over the next few years.
                                                                                                                                                                                                                                          Source: Bloomberg




                                                   Sharekhan     4    December 31, 2011
market outlook                                                                                                                2012: a year of high volatility


Sectoral outlook
Sector        Positive triggers                    Key risks                       Structural changes vs the       View       Premium/ Top picks
                                                                                   2008-09 cycle                              (Discount)
                                                                                                                               to 3-year
                                                                                                                                   mean
                                                                                                                               valuation


Agri-inputs   New policy for investment in Increase in the price of                Introduction of nutrient-       Positive       -12% United Phosphorous
              fertiliser sector and possibility of feedstock    and  raw           based subsidy scheme (NBS)
              urea price decontrol.                materials.                      for non-urea fertilisers; new
                                                                                   policy in consideration for
              Increase in subsidy given by the Lower offtake of non-urea
                                                                                   urea price decontrol.
              government to non-urea fertilisers due to increase in
              fertiliser manufacturers.            the price of non-urea           Higher use of crop
                                                   fertilisers.                    protection chemicals due to
                                                                                   shortage of farm labour.

Automobiles Better than expected recovery in       Steep moderation in             No scope for fiscal stimulus    Negative       -24% Prefer Maruti and
            economy. If IIP recovers much          economy and IIP to result in    as in 2008, when the excise                         Hero MotoCorp over
            ahead of our expectations to           disappointing      volume       duty was reduced to boost                           M&M and Bajaj Auto
            over 6% before H2FY2013, the           offtake in CY2012.              automobile sales.
            volume growth could surprise                                           Banks struggling with asset
                                                   Adverse policy changes
            positively.                                                            quality and could be
                                                   expected      in   budget
                                                   particularly in the diesel      reluctant to push for
                                                   segment.                        aggressive growth in
                                                                                   advances.

Banking       The RBI has indicated peaking of     Further deterioration of the    Increase in PCR to 70% and      Neutral        -28% HDFC Bank, ICICI
              rates and hence reduction in         economy could affect the        roll-back of the same;                              Bank
              rates will be positive as it would   credit offtake and increase     deregulation of savings,
              aid credit expansion and ease the    the NPAs.                       deposit and NRI deposit
              yields.                                                              rates.
                                                 Lack of    clarity    on
              Reflecting the asset quality restructuring of SEBs, IPPs,
              stress the stocks have steeply aviation loans etc could Change in IRAC norms
              corrected and are trading at a increase NPAs in the system. resulting      in    higher
              significant discount to three-year                          provisioning for banks.
              mean valuations.

Capital goods A reversal in the interest cycle     Policy inaction from the        Rise in competition from        Cautious       -54% L&T , BHEL
              could lead to better investment      government on environment       overseas players has
              sentiments and an uptick in          clearances, import duty and     threatened the margins.
              industrial capex cycle. This         interest cuts.                  Input cost pressures.
              would result in an upward        Delay in order awarding
              rerating of the sector.          activity and intensified
              An uptick in the order inflow, competition could lead to
              particularly from the power more pressure on margins.
              sector, of individual companies.

Cement        Any significant improvement in       Failure to adhere to supply     The balance sheet position      Neutral         30% Grasim, Orient Paper
              the cement offtake led by an         discipline by mid-sized         in terms of D/E ratio is more
              improvement in investments in        players in order to deliver     comfortable in the current
              infrastructure and realty sectors    higher volume could result      scenario compared with the
              will boost the earnings of the       in sharp correction in          previous down cycle.
              cement companies.                    cement price.                   The supply discipline
              Any delay in the commissioning       Increase in the price of        followed         by       the
              of new capacities scheduled for      imported coal and continued     manufacturers to maintain
              FY2013 could lead to a correction    slowdown in investments in      cement price at higher levels
              in the price of imported coal        the infrastructure and realty   is tighter and remains longer
              which will be a positive for the     sectors will be the key         than expected.
              sector.                              downside risks.


FMCG          Any improvement in penetration, Volatility in raw material Increasing income, rising                 Positive        18% ITC, GCPL and GSK
              innovations and renovations in  prices to add pressure on aspirations and the opening                                    Consumers
              the product portfolio, and focusmargins and profitability   up of the rural markets
              on getting niche categories.                                coupled with accelerated
                                              Competition intensifies in
              Any acquisition in the domestic key categories limiting the premiumisation and evolving
              and international markets would pricing power of the categories aided FMCG



                                                               Sharekhan    5      December 31, 2011
 market outlook                                                                                                            2012: a year of high volatility


Sectoral outlook

Sector        Positive triggers                  Key risks                      Structural changes vs the       View       Premium/ Top picks
                                                                                2008-09 cycle                              (Discount)
                                                                                                                                   to
                                                                                                                              3-year
                                                                                                                               mean
                                                                                                                           valuation

              be the key upside trigger for the companies.                      sector to achieve growth in
              FMCG companies.                                                   high teens.
                                                                                Most of the companies
                                                                                focused on enhancing their
                                                                                global presence through
                                                                                strategic acquisitions in the
                                                                                emerging geographies, such
                                                                                as Africa and south East
                                                                                Asian countries.


Infrastructure If the government starts pushing Government      remains         Due to various scams and        Cautious      -64%    IL&FS Transportation
               infrastructure orders once again dormant.                        corruption hitting the
               and quickens the clearances of High borrowings costs.            government one after
               the stalled projects.                                            another over the last two
              Softening of interest rates.                                      years, the government’s
                                                                                attention got diverted from
                                                                                investment                in
                                                                                infrastructure.
                                                                                Higher exposure to BOT
                                                                                assets and real estate
                                                                                deteriorates the balance
                                                                                sheet.


IT            An improvement in the global       Deterioration in the current   IT sector has gradually         Cautious     -3.6%    TCS , Wipro
              macro-economic environment         uncertain macro-economic       moved up the services value
              and new deal wins will aid the     environment.                   chain.
              Indian IT sector to gain further
                                                 Volatility in the currency.    The low tax regime of Indian
              market share against multi-
              national companies.                                               IT sector ended on March
                                                                                2011, with the withdrawal of
              Further depreciation in the                                       the STPI scheme under
              Indian Rupee would help the                                       section 10A-10B.
              Indian IT companies to improve
              their profitability further as a
              major portion of their revenues
              is denominated in dollars.

Power         A sudden implementation of Default by SEBs and states'            Increased participation of      Neutral       -42%    NTPC, CESC
              reforms in the distribution sector inability to back them up.     private    players     and
              to clean up the system.                                           competitive bidding in
                                                  Any constraint in arranging
              A significant rise in domestic coal fuel supply (both domestic    several power projects.
              availability led by captive coal and imported) .                  Multiple       execution
              block allocation.                                                 challenges emerge in the
                                                                                form of environment
                                                                                clearance,    fuel    and
                                                                                equipment shortage etc.

Real estate   A revival in demand with a cut in Developers don’t resort to      Since the downturn in 2008,     Negative      -56%    Cash-rich players
              interest rates and prices.        price cuts.                     the demand has not picked                             like Oberoi Realty
               Project clearances to speed up Interest rates rise and           up while high interest rate
              the new launches.               liquidity tightens further.       and liquidity issues remain.
                                                                                Delay    in   regulatory
                                                                                clearances and exit of FDI
                                                                                investments.

Retail        Clearance for FDI in multi-brand Prolonged slowdown in the        Unlike in 2008-09, expansion    Negative      -44%    Prefer      Titan
              retail would provide the much economy that could hurt             in 2010-11 was a lot more                             Industries among
              required financial muscle as well consumer segments and           rationale and calibrated,                             retailers
              as expertise to the players.



                                                             Sharekhan     6    December 31, 2011
  market outlook                                                                                                                                                                2012: a year of high volatility


Sectoral outlook
 Sector               Positive triggers                                  Key risks                                   Structural changes vs the                    View          Premium/ Top picks
                                                                                                                     2008-09 cycle                                              (Discount)
                                                                                                                                                                                        to
                                                                                                                                                                                   3-year
                                                                                                                                                                                    mean
                                                                                                                                                                                valuation

                       The revival of the economy will demand.                                                  keeping ground realities in
                      have a strong positive impact on A high interest                                     rate mind. The cost structure did
                      the revenue and margins, and environment.                                                 not bloat the way it had in
                      thus lead to expansion of the                                                             2008-09.
                      earnings as well as valuation                                                                  Increased deployment of
                      multiples.                                                                                     consumer metrics and birth
                                                                                                                     of social networking sites
                                                                                                                     and groups have started
                                                                                                                     influencing    consumer
                                                                                                                     decisions.

 Pharma               Faster approvals in US market New pricing policy in India                                      Increased          generic                   Positive                        Divi's Lab , Lupin,
                                                                                                                                                                                           7%
                      (owing to shortage of drugs) could expand the span of                                          competition forces tie-ups/                                                  Sun Pharma
                      would help ramp up product price control.                                                      joint ventures and alliances
                      filings and approvals.                                                                         with global companies.
                                                        Being export-oriented,
                      Increasing level of income in the currency risk looms large.                                   Shifting of focus to niche
                      emerging markets would drive                                                                   segments      and   brand
                      the demand for generic                                                                         building.
                      products.


 Telecom              Favourable regulation on                           Negative regulatory and                     Increased competitive                        Neutral               -21%      Bharti Airtel
                      mergers and acquisitions, one-                     policy framework--high                      intensity with 13-14 players
                      time spectrum charges, licence                     charges for spectrum beyond                 in each circle.
                      fee renewal.                                       6.2mhz and licence renewal                  Balance sheets deteriorated
                                                                         fees.                                       across the segment with
                      Stability and sustenance of the
                      tariff hikes undertaken and Return of pricing wars.                                            players resorting to debt to
                      return of pricing power.                                                                       pay hefty fees for the 3G
                                                                                                                     spectrum.



       Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.


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