ValueGuide_Sep13.pdf

September 2013 Sharekhan ValueGuide2

Sharekhan ValueGuide September 20133

For the third consecutivemonth the rupeedominated marketsentiment, as continuingwith its depreciationagainst the US Dollar thelocal currency hit a newlow of Rs68.5 in Augustthis year. Even intervention by the Reserve Bank of India (RBI) could notstem its fall and the currency lost a whopping 10% against the greenbackduring the month and was among the worst performing currencies withinthe emerging market pack.

REGULAR FEATURESReport Card 4Earnings Guide I

TECHNICALSSensex 29

Stock Updates 15Sharekhan Special 26Sector Updates 28Viewpoint 28

From Sharekhan’s Desk EQUITY

06

3 events to decide market's fate FUNDAMENTALS

DERIVATIVESView 30

TECHNICALS

Crude Oil 31Gold 32Silver 32

FUNDAMENTALSCopper 32Lead 32Zinc 33

Gold 34Silver 34Crude Oil 34

Copper 35Natural gas 35Dhaanya Index 35

TECHNICALS

FUNDAMENTALS

USD-INR 37EUR-INR 37

GBP-INR 37JPY-INR 37

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COMMODITY

CURRENCY

PMS DESKProPrime - Top Equity 38ProPrime - Diversified Equity 39ProTech - Diversified 40ProTech - Nifty Thrifty 41ProTech - Trailing Stops 42

MUTUAL FUNDS DESK

Top MF Picks (equity) 45

Top SIP Fund Picks 46

RESEARCH BASED EQUITY PRODUCTS

Market Outlook 07Top Picks basket 11

INR-GBP 36INR-JPY 36

ADVISORY DESK

MID Trades 43

INR-USD 36INR-EUR 36

Derivative Ideas 43

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CONTENTS


REPORT CARD EQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON SEPTEMBER 05, 2013)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 05-SEP-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

NEW

NEW

NEW

NEW

AUTOMOBILES

Apollo Tyres Hold 65.0 77.0 102.5 54.6 -1.5 -27.3 -23.1 -29.1 1.5 -23.9 -22.8 -34.4Ashok Leyland Hold 13.0 18.0 29.0 11.8 -0.8 -44.5 -42.0 -37.8 2.3 -42.0 -41.7 -42.5Bajaj Auto Hold 1901.0 2201.0 2229.0 1597.5 -1.1 9.4 -2.8 17.4 2.0 14.5 -2.4 8.5M&M Buy 777.1 1010.0 1025.9 700.6 -8.7 -19.8 -10.6 4.0 -5.9 -16.1 -10.2 -3.9Maruti Suzuki Hold 1299.6 1589.0 1777.0 1158.0 -4.0 -17.0 -8.2 9.3 -1.1 -13.1 -7.8 1.0BSE Auto Index 10418.6 11868.6 9174.5 0.3 -5.0 -0.5 12.3 3.4 -0.6 -0.1 3.8BANKS & FINANCE

Allahabad Bank Hold 71.4 85.0 191.1 64.8 -1.4 -43.6 -48.9 -42.4 1.6 -41.0 -48.7 -46.7Andhra Bank Reduce 51.5 55.0 130.0 47.2 -16.4 -41.5 -44.6 -45.0 -13.8 -38.8 -44.4 -49.2Axis (UTI) Bank Buy 927.5 1550.0 1549.9 763.4 -27.3 -41.8 -40.6 -16.9 -25.1 -39.1 -40.4 -23.2Bajaj Finserv Hold 569.0 728.0 984.0 561.0 -1.1 -12.5 -27.3 -26.1 1.9 -8.5 -27.0 -31.7Bank of Baroda Buy 502.6 626.0 899.7 429.3 -4.6 -27.1 -32.1 -23.5 -1.7 -23.7 -31.9 -29.3Bank of India Hold 145.3 220.0 393.0 126.5 -19.5 -51.0 -54.1 -45.9 -17.0 -48.8 -53.9 -50.0CanFin Homes Buy 117.9 220.0 187.9 100.1 -8.5 -17.3 -18.3 14.7 -5.6 -13.5 -17.9 6.1Capital First Buy 155.1 ** 235.0 109.5 26.9 1.2 11.2 3.6 30.9 5.9 11.7 -4.3Corp Bank Hold 249.9 380.0 495.3 239.6 -14.0 -37.6 -36.1 -32.5 -11.3 -34.6 -35.9 -37.6Federal Bank Buy 274.6 500.0 571.0 221.3 -30.1 -45.4 -48.9 -38.6 -28.0 -42.9 -48.7 -43.3HDFC Hold 750.4 865.0 931.4 631.3 -12.2 -15.7 -6.9 -0.3 -9.5 -11.8 -6.6 -7.9HDFC Bank � Hold 609.5 712.0 727.3 505.1 -10.6 -16.7 -9.4 -3.6 -7.9 -12.9 -9.0 -10.9ICICI Bank � Buy 893.7 1195.0 1238.4 756.9 -7.8 -28.2 -21.4 -8.9 -5.0 -24.8 -21.1 -15.8IDBI Bank Hold 56.9 94.0 118.4 52.3 -4.0 -26.8 -34.6 -34.0 -1.1 -23.4 -34.3 -39.0Punjab National Bank Buy 442.6 750.0 922.1 400.2 -21.2 -43.7 -45.2 -36.8 -18.8 -41.1 -45.0 -41.6SBI Hold 1638.2 1950.0 2551.7 1452.7 -11.1 -26.3 -27.4 -18.8 -8.4 -22.9 -27.1 -24.9Union Bank of India Hold 110.7 150.0 288.0 97.0 -11.9 -51.2 -50.1 -32.4 -9.2 -49.0 -49.9 -37.5Yes Bank Buy 287.5 510.0 547.7 216.1 -23.5 -52.1 -49.7 -28.3 -21.2 -49.8 -49.5 -33.7BSE Bank Index 11015.0 15335.9 9535.8 -11.8 -27.7 -23.0 -11.1 -9.0 -24.4 -22.7 -17.8CONSUMER GOODS

Bajaj Corp � Buy 244.6 303.0 284.0 164.3 -3.2 -14.0 6.8 31.7 -0.2 -10.0 7.2 21.8GSK Consumers Hold 4303.8 4625.0 6347.8 2400.0 -6.0 -29.0 2.6 46.2 -3.1 -25.7 3.1 35.2Godrej Consumer Products Hold 819.4 875.0 978.0 599.7 -6.7 -9.3 8.3 19.0 -3.8 -5.1 8.8 10.0Hindustan Unilever Reduce 628.0 540.0 725.0 432.2 0.1 5.4 41.2 22.3 3.2 10.3 41.8 13.0ITC Buy 312.2 379.0 380.0 220.3 -9.9 -11.1 4.1 14.3 -7.2 -7.0 4.5 5.6Jyothy Laboratories Buy 147.0 254.0 211.3 138.8 -7.6 -25.7 -4.5 -0.4 -4.8 -22.2 -4.1 -8.0Marico Buy 206.2 242.0 251.7 186.2 -1.4 -10.6 -3.1 1.2 1.6 -6.5 -2.7 -6.5Mcleod Russel India Buy 265.5 343.0 387.0 237.7 -0.8 -9.6 -24.8 -14.8 2.3 -5.4 -24.5 -21.3TGBL (Tata Tea) Buy 147.2 175.0 181.7 121.6 -1.7 -2.4 15.5 11.1 1.3 2.1 16.0 2.7Zydus Wellness Buy 528.7 633.0 755.0 391.0 -13.2 -13.1 12.4 34.0 -10.5 -9.1 12.9 23.9BSE FMCG Index 6468.9 7600.1 5182.3 -5.8 -6.8 12.7 19.4 -2.9 -2.4 13.2 10.4IT / IT SERVICES

CMC Buy 1285.0 1500.0 1523.0 963.0 5.7 6.6 -2.2 31.3 8.9 11.6 -1.8 21.4HCL Technologies � Buy 1019.9 1187.0 1050.9 534.3 11.0 41.3 45.7 88.0 14.5 47.9 46.3 73.8Infosys Hold 3004.8 3218.0 3139.9 2060.6 3.5 24.7 8.4 34.2 6.6 30.5 8.9 24.1NIIT Technologies Hold 292.0 305.0 324.9 234.3 20.9 13.3 12.2 6.3 24.7 18.6 12.6 -1.7Persistent Systems Buy 585.0 600.0 599.0 366.1 9.4 13.9 9.0 54.8 12.7 19.2 9.4 43.1Tata Consultancy Services � Buy 1990.8 ** 2078.8 1055.0 12.1 42.8 38.3 56.7 15.5 49.4 38.8 44.9Wipro Hold 468.9 485.0 501.0 263.1 9.7 47.5 30.5 51.5 13.1 54.4 31.0 40.1BSE IT Index 7857.4 8154.1 5496.0 7.7 33.4 21.1 43.6 11.0 39.6 21.6 32.7CAPITAL GOODS / POWER

Bharat Heavy Electricals Hold 138.1 150.0 272.5 100.2 -14.9 -34.9 -36.4 -40.2 -12.3 -31.8 -36.2 -44.7CESC Hold 309.6 385.0 368.0 252.5 -4.0 -4.0 13.8 4.4 -1.1 0.5 14.3 -3.5Crompton Greaves Hold 84.0 105.0 143.6 71.7 1.3 -7.5 -10.7 -20.2 4.4 -3.2 -10.3 -26.3Greaves Cotton Buy 57.1 85.0 87.6 53.0 -4.7 -13.6 -19.7 -12.2 -1.7 -9.6 -19.4 -18.8Kalpataru Power Transmission Buy 60.6 115.0 106.9 56.0 -4.1 -17.3 -15.9 -9.3 -1.1 -13.4 -15.5 -16.2PTC India Buy 46.1 58.0 81.3 33.2 18.8 -16.0 -23.6 -13.4 22.5 -12.1 -23.3 -19.9Thermax Reduce 544.5 527.0 691.0 474.6 -7.5 -4.6 -5.3 13.2 -4.7 -0.1 -4.9 4.7V-Guard Industries Hold 516.0 560.0 590.5 381.0 -6.2 8.3 10.9 26.6 -3.3 13.3 11.4 17.1BSE Power Index 1411.2 2113.7 1315.6 -2.0 -19.9 -19.6 -25.0 1.0 -16.2 -19.3 -30.7BSE Capital Goods Index 7242.6 11408.6 6718.8 -11.8 -24.6 -22.8 -25.7 -9.1 -21.1 -22.4 -31.3


REPORT CARDEQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON SEPTEMBER 05, 2013)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 05-SEP-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

� In Top Picks basket ** Price target under review

NEW

NEW

NEW

NEW

NEW

INFRASTRUCTURE / REAL ESTATE

Gayatri Projects Buy 55.7 202.0 130.6 46.0 -2.4 -27.2 -33.6 -39.8 0.6 -23.8 -33.3 -44.3ITNL Buy 115.0 242.0 228.9 108.0 -0.3 -33.1 -39.9 -29.2 2.8 -30.0 -39.7 -34.6IRB Infra Buy 64.3 160.0 161.4 51.9 1.3 -46.2 -44.8 -49.6 4.4 -43.7 -44.6 -53.4Jaiprakash Associates Buy 37.6 63.0 106.8 28.4 22.6 -44.5 -46.1 -43.5 26.3 -41.9 -45.9 -47.7Larsen & Toubro � Buy 727.8 1075.0 1146.7 677.2 -14.5 -24.5 -22.0 -22.1 -11.9 -21.0 -21.7 -27.9Pratibha Industries Buy 19.0 44.0 59.0 16.8 -15.8 -48.5 -54.6 -64.1 -13.2 -46.1 -54.4 -66.8Punj Lloyd Hold 22.3 ** 64.1 20.1 -4.2 -50.3 -44.9 -52.5 -1.2 -48.0 -44.6 -56.1Unity Infraprojects Buy 18.0 40.0 53.4 16.1 -0.9 -39.4 -40.0 -55.4 2.2 -36.6 -39.7 -58.7CNX Infra Index 1976.7 2684.7 1829.8 -6.9 -16.7 -14.2 -12.8 -4.0 -12.8 -13.8 -19.4BSE Real Estate Index 1213.3 2326.8 1126.8 -4.9 -30.6 -38.3 -23.4 -2.0 -27.4 -38.1 -29.2OIL & GAS

Oil India Buy 432.6 650.0 629.9 415.0 -11.5 -26.4 -17.3 -7.3 -8.8 -23.0 -17.0 -14.3Reliance Industries � Buy 862.6 1010.0 955.0 682.4 -0.9 8.9 5.7 10.2 2.1 13.9 6.1 1.8Selan Exploration Technology Buy 262.9 365.0 351.0 197.4 8.0 1.4 -5.3 -6.4 11.3 6.1 -4.9 -13.5BSE Oil and Gas Index 8388.2 9890.9 7552.2 -1.6 -2.7 -3.5 1.8 1.5 1.8 -3.1 -5.9PHARMACEUTICALS

Aurobindo Pharma Buy 188.6 267.0 204.9 115.6 20.0 2.4 22.4 61.1 23.7 7.2 22.9 48.9Cipla Buy 418.6 490.0 435.0 320.3 6.3 12.0 10.1 12.6 7.3 14.8 9.6 1.1Cadila Healthcare Buy 643.6 886.0 975.0 629.0 -15.7 -20.6 -15.7 -28.4 -13.1 -16.9 -15.3 -33.8Dishman Pharma Buy 43.3 130.0 124.5 37.1 8.3 -41.1 -34.0 -57.7 11.7 -38.3 -33.7 -60.9Divi's Labs � Buy 966.8 1231.0 1234.4 905.0 4.9 2.4 -4.8 -11.2 8.1 7.2 -4.5 -17.9Glenmark Pharmaceuticals Hold 513.8 600.0 613.4 386.5 -9.2 -14.6 2.3 18.3 -6.4 -10.6 2.7 9.4Ipca Laboratories Hold 709.9 675.0 730.0 400.9 3.8 14.9 44.9 59.7 7.0 20.2 45.5 47.7Lupin Buy 854.6 907.0 908.0 496.4 -1.4 14.7 48.7 48.3 1.6 20.0 49.3 37.1Sun Pharma � Buy 518.6 595.0 581.4 290.0 -6.4 2.1 30.1 57.1 -3.5 6.8 30.6 45.2Torrent Pharma Hold 427.6 445.0 466.4 303.7 -5.8 3.5 27.3 22.8 -2.9 8.3 27.8 13.6BSE Health Care Index 9050.4 9509.5 7315.2 0.9 1.5 16.9 22.3 4.0 6.2 17.4 13.0AGRI-INPUTS

Tata Chemicals Buy 242.6 346.0 381.5 233.2 -6.5 -18.6 -23.8 -19.3 -3.7 -14.8 -23.5 -25.4United Phosphorus Buy 135.2 180.0 167.5 101.6 7.6 -16.2 18.7 14.1 10.9 -12.3 19.2 5.5BUILDING MATERIALS

Grasim Hold 2301.8 2950.0 3511.0 2105.7 -14.0 -19.9 -24.7 -25.7 -11.4 -16.2 -24.3 -31.3India Cements Hold 49.3 75.0 104.7 43.0 6.1 -28.0 -41.6 -41.6 9.3 -24.6 -41.3 -46.1Madras Cements Hold 157.6 210.0 273.5 135.2 2.5 -30.3 -35.9 -13.5 5.6 -27.1 -35.6 -20.0Shree Cement Hold 3765.0 4660.0 5384.4 3282.6 -13.3 -23.6 -12.8 9.5 -10.7 -20.1 -12.4 1.3UltraTech Cement Hold 1539.4 2100.0 2154.2 1402.4 -16.4 -20.0 -19.1 -10.5 -13.8 -16.3 -18.8 -17.3DISCRETIONARY CONSUMPTION

Eros International Media Buy 124.7 165.0 235.1 106.5 1.0 -25.3 -26.8 -26.8 4.2 -21.9 -26.4 -32.4Indian Hotel Company Hold 46.5 61.0 71.8 37.5 10.9 -12.1 -17.5 -22.9 14.3 -8.1 -17.1 -28.8KKCL Buy 724.0 913.0 903.2 525.0 0.6 -17.0 5.6 22.2 3.7 -13.1 6.0 13.0Raymond Buy 187.6 350.0 488.9 175.5 -3.8 -33.9 -41.0 -46.7 -0.9 -30.8 -40.8 -50.8Relaxo Footwear Hold 722.0 800.0 918.0 470.0 -1.9 8.6 20.7 15.1 1.1 13.6 21.2 6.4Speciality Restaurants Buy 126.2 230.0 198.2 108.1 4.0 -24.1 -14.7 -18.2 7.2 -20.6 -14.4 -24.4Zee Entertainment � Buy 225.4 300.0 267.5 166.6 -9.9 -7.9 -0.1 30.2 -7.1 -3.6 0.3 20.4DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo Buy 1124.9 1254.0 1274.0 743.6 -6.9 4.4 3.8 42.8 -4.0 9.2 4.2 32.0Bajaj Holdings Buy 795.0 1334.0 1058.3 735.1 -6.3 -10.7 -13.0 9.7 -3.4 -6.6 -12.6 1.4Bharti Airtel � Hold 296.2 395.0 370.6 215.8 -13.9 -2.3 -5.7 19.4 -11.3 2.2 -5.3 10.4Bharat Electronics Buy 1177.1 1485.0 1380.0 1073.1 6.1 -10.3 -3.7 -2.8 9.4 -6.2 -3.3 -10.2Gateway Distriparks Buy 109.1 149.0 150.7 98.1 4.6 -12.7 -16.1 -19.7 7.8 -8.6 -15.8 -25.8Max India Buy 153.2 296.0 273.0 150.2 -22.8 -27.0 -35.4 -12.0 -20.4 -23.7 -35.2 -18.7Ratnamani Metals and Tubes Hold 125.4 170.0 162.1 101.0 0.2 -13.2 3.3 19.8 3.2 -9.2 3.7 10.8BSE500 Index 6819.4 7792.7 6301.3 -3.0 -9.2 -5.5 1.9 0.0 -5.0 -5.1 -5.8CNX500 Index 4264.1 4877.7 3937.7 -3.3 -9.8 -5.7 2.0 -0.4 -5.6 -5.3 -5.7CNXMCAP Index 6724.5 8859.4 6330.8 -1.0 -14.7 -10.7 -5.7 2.0 -10.7 -10.3 -12.8


3 events to decide market's fate

FROM SHAREKHAN’S DESK

from

sha

rekh

an’s

desk For the third consecutive month the rupee dominated market sentiment, as continuing

with its depreciation against the US Dollar the local currency hit a new low of Rs68.5 inAugust this year. Even intervention by the Reserve Bank of India (RBI) could not stem itsfall and the currency lost a whopping 10% against the greenback during the month andwas among the worst performing currencies within the emerging market pack.

The new governor at the RBI has initiated some fresh thinking and announced steps toprop up the rupee and sentiments. The initial reactions are positive but he has a tough taskahead. Fundamentally, the situation remains unfavourable. The rupee would face pressurefrom the deterioration in the economic growth (with consensus growth estimate for FY014at close to 4.5%), firm crude oil prices and the populist legislative tilt of the government inthe run-up to the general election.

In the editorial column of the previous two issues, we had highlighted these contentiousissues that threaten to derail the economic revival story and their possible adverse impacton the equity market. In the past two months, we have witnessed a 4-5% downward revisionin the consensus earnings estimates and the sentiments have turned distinctively weak. Themarket is also adjusting to the emerging realties and threatening to break down from itsmulti-month trading range. Our Market Outlook report, “Hopes belied, back to squareone” gives a detailed analysis of and outlook for the equity market on page 7 of this issue.

Having said this, it would not be surprising if the benchmark indices (more so in the mid-cap space) bounce back to regain some lost ground after the steep correction of the last fewmonths. However, the extent of the bounce would depend on three important events ahead.

Two events are related to the policy decisions to be taken in the USA. First, the outcome ofthe decision taken by the western countries (especially the USA) on possible limited militarystrikes on Syria. A fresh outbreak of conflict in the Middle-East would further firm upcrude oil prices and adversely affect India’s trade balance and increase fiscal imbalance.The under-recoveries in the oil and gas sector have already reached record levels and thegovernment is already looking at a one-time bulky hike in retail prices of fuels in additionto the regular adjustments of Rs0.5/litre. The economic outlook for an energy-deficit Indianeconomy would get dented further in such a scenario.

Second, the US Federal Reserve’s meet scheduled in the middle of the month is anotherimportant event that would influence the global financial system, not just the Indian markets.The US central bank is likely to provide more details related to the tapering of its prevailingextremely loose fiscal policy and begin the end of the easy and cheap liquidity globally. Theproposed plan has already caused an upheaval in the foreign exchange, fixed-income andequity markets across the world since it was announced in May this year.

Lastly, the RBI’s new governor would announce his maiden monetary policy review in thethird week of September post-meet of the Federal Reserve. The governor has started histerm on a positive note and raised hopes among market participants. His response to thetough domestic macro-economic conditions and the changing global financial landscapewould be watched closely and would significantly influence the financial markets in India.

To summarise, the bias is positive for the equity market this month. But there are threeimportant events ahead that can significantly influence the market in the near term. Underthe circumstances, we expect the market to remain volatile this month.�


Hopes belied, back to square one

MARKET OUTLOOK AUGUST 30, 2013

� Going nowhere; lost opportunity: The benchmark equityindices had pushed out of a multi-month range (Nifty;4700-5300) and moved into a new orbit (Nifty; 5400-6000) after the change at the finance ministry last year.Favourable global cues and the Reserve Bank of India(RBI)’s monetary easing stance around the same timehad helped the market to rise close to its previous high(Nifty; over 6000). But the recent knee-jerk policyannouncements to tackle the run on the local currency,populist push from the United Progressive Alliance(UPA)-II government (with an eye on the forthcominggeneral election) and spike in crude oil prices havedeveloped fault lines in the economic revival story.Consequently, the benchmark indices are slipping backinto the lower range last seen in the era preceding PChidambaram’s return to the finance ministry. It is likea novice lost in a jungle who keeps pushing ahead butends up moving in circles, going nowhere.

� Paying the price for profligacy but no lessons learnt:

The proposed tapering of the quantitative easingprogramme by the US Federal Reserve (Fed) has joltedthe global financial markets that had got addicted tothe ample dose of easy and cheap liquidity. The worstaffected are the markets of the emerging or developingcountries that have a relatively high dependence onforeign inflows to fill the gap in their trade imbalancesand current account deficit. The official estimates pegIndia’s current account deficit at around $70-80 billionwith additional requirement to roll over short-termforeign debt of $80-90 billion. This means Indiarequires $180-190 billion of foreign capital in thisfinancial year alone. But that appears a difficult taskconsidering the facts that the expected liquidity squeezewill affect the foreign fund inflows and foreign investorsare busy withdrawing funds from the Indian debtmarket. Consequently, the Indian Rupee has beenamong the worst performing currencies globally despiteIndia’s manageable level of external debt of around20% of the gross domestic product (GDP; unlike in1991 when the external debt of the country had risen

MARKET OUTLOOKEQUITY FUNDAMENTALS

SENSEX’ ONE-YEAR FORWARD P/E BAND

Source: Bloomberg, Sharekhan research

to 40% of the GDP). But unfortunately, the policyresponse to the crisis has not been well coordinatedand has failed to have the desired effect. Worst still,the government has gone ahead with a populist schemelike the Food Security Bill that would add to theburgeoning subsidy burden. The subsidy burden hasalready bloated by Rs50,000-60,000 crore due to aspike in the crude oil prices and the rupee’s depreciation(fuel subsidy estimated to cross the Rs2-trillion markin FY2014 as against expectations of Rs1.3-1.4 trilliona couple of months back).

� Corporate earnings performance belies growth

expectations; earnings estimate downgrades pick up:

The corporate earnings growth for Q1FY2014disappointed even though the expectations were quitemuted. The slowdown in the economic growth haspercolated deeper since the revenue growth has turnedflattish (after remaining over 20% for many quarters)while margins are sliding on account of a weak rupee,thereby affecting corporate profitability. Consequently,barring a few sectors (information technology [IT],pharmaceuticals [pharma] etc), earnings estimatedowngrades have picked up again leading to muchlower consensus earnings estimates across sectors.Given the macro-economic situation, we see the riskof further downgrades in the earnings estimates.

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MARKET OUTLOOK EQUITY FUNDAMENTALS

� Uncertainty and volatility to prevail; global events andelections important: The Indian stock market isplunging along with the other emerging markets likeIndonesia, Brazil, South Africa and Turkey, which haveserious fiscal imbalances. With global events likely toremain unfavourable going ahead (amid the unwindingof the unprecedented policy of massive liquidityinfusions in the aftermath of the 2008 debt crisis), anda populist policy framework in the run-up to the generalelection and muted corporate earnings growth at home,the equity market would remain volatile in the nearfuture with a limited scope for hiding in thetraditionally safe-haven stocks (fast moving consumergoods [FMCG] and private banks). The Sensex’valuation is also not cheap (post-downgrade of itsearnings estimates) at close to 14.0-14.5x one-yearforward earnings (close to the long-term averagevaluation multiple) despite the difficult macro-economic scene and weak Q1FY2014 corporate results.

It is advisable to be selective (export-orientedcompanies that benefit from a weak rupee may beconsidered) and look at only systematic and gradualbuilding of portfolio with a medium-term outlook.

Macro-economic concerns heighten with rupee’s deterioration

The rupee breached the 68-mark recently against the dollar(down 19.5 % since May 2013) and is facing furtherdownward pressure due to expectations of tightening ofglobal liquidity. This could further aggravate the macro-economic issues since a weak local currency will feedinflation and raise the current account deficit. Despite themeasures taken by the RBI and the government it will bechallenging to meet the current account deficit target of$70-80 billion ($88 billion in FY2013) since the structuralissues relating to India’s current account deficit crisis (highimports, limited foreign exchange [forex] reserves etc)remain. Consequently, several institutions havedowngraded the FY2014 GDP forecast for India to 5%levels (from 6% levels in the beginning of FY2014)whereas some rating agencies have threatened todowngrade India’s sovereign rating.

Global environment remains volatile; commodity prices move up

The global environment has remained quite volatile in thepast couple of months led by the US Fed’s taperingindications and the subsequent withdrawal of funds fromthe emerging financial markets by investors. Several otheremerging markets like Brazil, South Africa, Turkey, andIndonesia have witnessed increased outflows and sharpdepreciation in their respective currencies. Further, thesituation in the Middle-East remains fluid and the Syrian

DEPRECIATION OF EM CURRENCIES VS DOLLAR (%)

Source: Bloomberg, Sharekhan Research

crisis has pushed up crude oil prices which pose a key riskto high-current account deficit nations like India. Goingahead, the US Fed’s meeting on September 18, 2013 maythrow more light on the US central bank’s tapering plans.

FOREX RESERVE COVERAGE OF INDIA VS OTHER EMS (%)

*As of Q1FY2013 Source: RBI, Sharekhan ResearchNote: reserves as a % of CAD plus short-term debt by residual maturity

9497

100103106109112115118121124127

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RBI’s tightening stance to continue

In response to the crisis the RBI tightened liquidity in thesystem, rationalised gold imports and even restricted theflow of capital outside (selectively). As a result, short-termrates shot up and the bond yields hardened to 9.4% levels;but the same cooled down after some relief was announcedfor banks (they have been allowed to transfer bond

SHORT-TERM RATES RISE SHARPLY (%)


8.08.59.09.5

10.010.511.011.512.012.513.0


3M CP 6M CP


MARKET OUTLOOKEQUITY FUNDAMENTALS

holdings from the “available for sale” portfolio to the“held till maturity” portfolio on July 15, 2013 prices andto spread their marked-to-market losses in their bondbook). Recently, the RBI also opened the forex swapwindow for oil companies to ease the pressure on therupee. Though a new governor will take charge of theRBI (Dr Raghuram Rajan) next month, but he is unlikelyto wind up the liquidity tightening measures (at least inthe near term) and may even resort to further tightening,if the crisis persists.

Fiscal slippages likely in view of rising subsidies, populist measures

Around twelve months back when Mr Chidambaram hadreturned as the finance minister, the market was enthusedover the prospects of more reforms. The government didtake some firm measures to reduce its subsidy burden(reduction in diesel, liquefied petroleum gas subsidies, hikein gas prices etc) following signs of improvement in theglobal environment, thereby pushing the market to +6000levels (Nifty). However, as the global environment turnedadverse again, the government’s actions seemed inadequateand so far it has failed to lift the confidence of investors.The recent spike in the crude oil prices and the rupee’s

depreciation would push the government’s fuel subsidy toRs1.9-2 trillion in FY2014 as against the expectation ofRs1.3-1.4 trillion a couple of months back. That is enoughto spoil the fiscal maths. Being oblivious of the past mistakes,the government has resorted to spending again, pushingpopulist measures such as the food security bill and theland reform bill with an eye on the upcoming election.

Downgrades pick up in consensus earnings estimates

The earnings season gone by was lacklustre as thecorporate earnings growth for Q1FY2014 disappointedeven though the expectations were quite muted. Therevenue growth faltered severely (up 2% year on year vsa growth of +20% a few quarters back) in response to theslowdown in the economy. In addition, the earnings beforeinterest, tax, depreciation and amortisation margin, whichseemed to have recovered in Q4FY2013, declined againin Q1FY2014 which affected the profits. Consequently,barring a few sectors (IT, pharma etc) the downgrade ofearnings estimates has picked up again leading to muchlower consensus earnings growth estimates across sectors.Since the fundamental triggers are lacking, the scope formore downgrades persists.

FISCAL DEFICIT MAY BREACH BUDGETED LEVELS (%)


BRENT CRUDE PRICES SOAR ($/BBL)


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INDIA’S NET FOREIGN EQUITY AND DEBT INVESTMENTS ($ MN)


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

For detailed report, please visit the Research section of our website, sharekhan.com.

SENSEX’ ONE-YEAR FORWARD P/E BAND


FII outflows remain high, Nifty to shift to lower end of trading band

Foreign fund outflows have increased significantly fromthe emerging markets including India ($12.8 bn flownout of the Indian debt and equity markets since June 2013)due to risk-off trades. Consequently, several blue-chipstocks (especially from the banking, capital goods andinfrastructure sectors) have reached their multi-year lows.The slowdown is likely to persist for a longer period mainlydue to weak economic data releases, an inverted yield

curve, a slower investment rate and persistent policyparalysis. The Nifty is likely to retract to its previous range(ie 4700-5300) due to the heightened global uncertaintyand worsening local macro-economic environment.Further, considering the downgrade in consensus earningsestimates and the weak macro-economic scene, the Sensex’valuation is also not cheap at close to 14.5x one-yearforward earnings (close to the long-term average valuationmultiple).

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MARKET OUTLOOK EQUITY FUNDAMENTALS


Sharekhan Top Picks

SHAREKHAN TOP PICKS

Our preferred picks in the information technology services space,

Tata Consultancy Services (TCS) and HCL Technologies (HCL

Tech), have vindicated our conviction and aided the overall

performance of the Top Picks basket. The two were among the

best performing stocks in the basket in August this year. TCS and

HCL Tech have appreciated by 10% and 12% respectively since

the last revision of the contents of the basket and minimised the

decline in the basket to 2% as compared with 2.8% in the Sensex

*CMP as on August 30, 2013 # Adjusted to bonus issue

NAME CMP* PER ROE (%) PRICE UPSIDE(RS) FY13 FY14E FY15E FY13 FY14E FY15E TARGET (RS) (%)

Bajaj Corp 248 21.9 18.6 14.2 36.7 37.7 41.8 303 22%

Bharti Airtel 295 49.2 27.6 19.2 5.2 7.4 8.8 395 34%

Divi's Labs 987 22.2 19.3 15.2 23.6 24.5 25.9 1,231 25%

HCL Technologies 1,041 17.9 14.6 13.2 36.1 34.1 29.7 1,187 14%

HDFC Bank 591 20.9 16.7 13.3 20.3 21.3 22.6 712 20%

ICICI Bank 821 11.4 10.5 9.0 13.1 12.9 13.9 1,195 46%

Larsen & Toubro# 720 13.8 12.5 11.1 15.4 13.8 13.8 1,075 49%

Reliance Industries 846 13.1 13.1 11.5 10.7 9.7 9.9 1,010 19%

Sun Pharma# 520 17.9 24.9 22.7 25.4 26.4 23.4 595 14%

TCS 2,030 28.5 23.7 21 33.1 31.8 29.2 UR -

Zee Entertainment Enterprises 233 31.1 26.8 21.2 19.6 20.0 21.9 300 29%

ABSOLUTE OUTPERFORMANCE CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS IN %)

SHAREKHAN TOP PICKSEQUITY FUNDAMENTALS

and 3.5% in the Nifty in the same period. On the other hand,

banking stocks were among the worst performers last month and

our decision to replace State Bank of India with TCS has worked

out well.

This month we are not making any changes in the Top Picks basket.

We believe the current composition is well structured to perform

during corrections as well as bounce-backs.�

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(Jan2009)

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NAME CMP PER ROE (%) PRICE UPSIDE(RS) FY13 FY14E FY15E FY13 FY14E FY15E TARGET (RS) (%)

BAJAJ CORP 248 21.9 18.6 14.2 36.7 37.7 41.8 303 22%

Remarks: � Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO)category with its Almond Drops hair oil.

� With consumers upgrading to the LHO category, we expect the strong volume growth momentum to continue in the coming quarters.With the prices of the key inputs stabilising, we expect the GPM to improve in the coming quarters.

� The company’s thrust on enhancing the distribution reach in rural India and improving the market share every year has helped it clocka good sales volume growth in the past few quarters. Any initiative to expand its limited product portfolio or strengthen its core businesswould be a key upside trigger for the stock.

� Currently the stock is trading at 18.6x FY2014E EPS of Rs13.3 and 14.2x FY2015E EPS of Rs17.5.

BHARTI AIRTEL 295 49.2 27.6 19.2 5.2 7.4 8.8 395 34%

Remarks: � The Indian telecom environment is turning favourable with a drop in the competitive intensity and the benefits of consolidation flowingto the incumbent players, as visible in the financial results of the players for the past two quarters.

� The Q1FY2014 results of the Indian business of Bharti Airtel exhibited a strong pricing power (+4% QoQ), with a robust data revenuegrowth, aided by a 190-basis-point sequential margin expansion in the India mobile business.

� The strong performance indicators along with a positive management commentary on maintaining pricing discipline and headroomahead for price increases make us upgrade our India mobile revenue and margin expectations.

� In the wake of the improving business fundamentals, relatively less harsh regulatory moves, and the impending mergers and acquisitionsin the sector, we maintain our positive stance on Bharti Airtel, with a revised price target of Rs395 (valued at 7.5x FY2015 EV/EBITDA).

DIVI'S LABS 987 22.2 19.3 15.2 23.6 24.5 25.9 1,231 25%

Remarks: � Despite a weaker performance in Q4FY2013, we are confident of Divi’s Laboratories’ growth potential. Its recent performance wasaffected by the expansion process and the switching of production to new facilities which partly disrupted supplies. The growth willbounce back on normalisation of supplies by the end of Q1FY2014.

� It will benefit from the rupee’s depreciation against major other currencies, thanks to its debt-free balance sheet and the fact that nearly90% of its revenues come from the export market (mainly the USA and Europe).

� The new DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for the company as it would improve the economiesof scale and lead to tax benefits. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuingstrategic investments and exploit the growth opportunities in niche segments, like oncology and steroids for contraceptives.

� The stock is currently trading at 19.3x and 15.2x estimated earnings for FY2014 and FY2015 respectively. We have a Buyrecommendation on the stock with a price target of Rs1,231, which implies 19x FY2015E earnings.

HCL TECHNOLOGIES 1,041 17.9 14.6 13.2 36.1 34.1 29.7 1,187 14%

Remarks: � HCL Technologies is an IT services company providing software-led IT solutions, remote infrastructure management services andBPO services. The company has a leading position in remote infrastructure management services which has helped it win large IToutsourcing contracts. Through the Axon PLC acquisition, the company has gained a strong SAP consulting footing.

� In the current environment, we believe HCL Tech is well placed in terms of its business strategy of consciously targeting the re-bidmarket. The results of the same are evident in its consistent outperformance in terms of volume and revenue growth. The companyhas allayed the apprehensions on the margin front by consistently improving its margins despite head winds.

� The management acknowledged the potential threat of the impending US immigration bill and expressed concern over the outplacementclause in the current form (we, therefore, hope for some dilution in the final bill). Nevertheless, among the top four IT companies, HCLTech is relatively better placed, as around 50% of its total workforce in the USA holds the H1-L1 visa against a higher percentage ofsuch visa holders for TCS, Infosys and Wipro.

� The management continues to see EBIT margin corridor of 19-20% for the coming quarter. However, the margin could improve furtherif the rupee continues to stay weak against the dollar over the coming quarters. Among the top 4 IT companies, HCL Tech has shownthe highest sensitivity to the rupee’s depreciation in terms of margin improvement in the last seven quarters.

� In view of its better earnings predictability compared with peers, stable margins and sustainable momentum in the IMS vertical, wecontinue to recommend a Buy on it with a price target of Rs1,187.

SHAREKHAN TOP PICKS EQUITY FUNDAMENTALS



HDFC BANK 591 20.9 16.7 13.3 20.3 21.3 22.6 712 20%

Remarks: � HDFC Bank is expected to continue its strong growth in advances due to a strong presence in the retail segment. While the creditdemand has moderated in the corporate segment, it has a strong presence in the retail segment which will benefit the bank.

� The bank has the highest current and savings account (CASA) ratio in the sector with a stable net interest margin (NIM; at 4.6%levels). Given the higher proportion of CASA and retail deposits, it will be least affected by the Reserve Bank of India’s liquiditytightening measures.

� HDFC Bank’s asset quality is among the best in the sector and the bank is expected to maintain the same due to its strong creditorigination practices and marginal exposure to the troubled segments. Further, the higher provisions provide comfort on assetquality front.

� We expect HDFC Bank to deliver earnings CAGR of 25.2% over FY2013-15 leading to RoE and RoA of 22.6% and 1.9% respectively.We believe the bank will continue to command a premium over its peers due to a strong and consistent growth. We have a price targetof Rs712 for the stock.

ICICI BANK 821 11.4 10.5 9.0 13.1 12.9 13.9 1,195 46%

Remarks: � ICICI Bank continues to report a strong growth in earnings led by a growth in advances and expansion in margins (2.9% in FY2013).We expect its advances to grow at 17.6% CAGR over FY2013-15. This should lead to a 17.1% CAGR growth in the net interest income(NII) in the same period.

� ICICI Bank’s asset quality remains stable as its non-performing assets (NPAs) have declined in the past several quarters led by acontraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, weexpect the asset quality pressures to be within the manageable limits leading to a healthy the profit growth.

� Led by a pick-up in the business growth and an improvement in the margins, the RoE is likely to expand to 13.9% by FY2015 while theRoA is likely to improve to 1.6%. This would be driven by a 12.4% growth (CAGR) in the profit over FY2013-15.

� The stock trades at 1.2x FY2015E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthygrowth in the core income and improved operating metrics, we recommend Buy with a price target of Rs1,195.

LARSEN & TOUBRO 720 13.8 12.5 11.1 15.4 13.8 13.8 1,075 49%

Remarks: � Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domesticinfrastructure development and industrial capex boom.

� L&T continues to impress us with its good execution skills, reporting decent numbers throughout despite the slowdown in the industrialcapex cycle. Also, we have seen order inflow traction in recent quarters which enhances the revenue visibility.

� Despite challenges like deferral of award decisions and stiff competition, the company has given a robust guidance of ~15% growth inthe future.

� A sound execution track record, a healthy order book and a strong performance of its subsidiaries reinforce our faith in L&T.

� At the CMP, the stock is trading at 11.1x its FY2015E earnings.

RELIANCE INDUSTRIES 846 13.1 13.1 11.5 10.7 9.7 9.9 1,010 19%

Remarks: � Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refiningdivision of the company is the highest contributor to the company’s earnings and is operating efficiently with a better gross refiningmargin (GRM) compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude. However,the gas production from the Krishna-Godavari-D6 field has fallen significantly in the past one year. With the government approval foradditional capex, we believe production will improve going ahead.

� In case of the upstream exploration business, RIL has got the nod for further investments in exploration at the Krishna-Godavari basin,which augurs well for the company and could address the issue of falling gas output.

� Further, the CCEA has approved a new gas pricing formula, which increases the price of gas to $8.4/mmbtu from $4.2/mmbtu andaugurs well for the company. This could provide further upside to the company’s earnings.

� The key concerns remain in terms of a lower than expected GRM, profitability of the petrochemical division and the company’s inabilityto address the issue of falling gas output in the near term.

� At the CMP the stock is trading at a PE of 11.5x its FY2015E EPS.

SHAREKHAN TOP PICKSEQUITY FUNDAMENTALS



SUN PHARMA 520 17.9 24.9 22.7 25.4 26.4 23.4 595 14%

Remarks: � The combination of Sun Pharma, Taro Pharma, Dusa Pharma and the generic business of URL Pharma offers an excellent businessmodel for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue growth and 39% Y-o-Y profit growth in FY2013.

� Though a $550-million provision related to Protonix case would erode the cash balance by 55% in FY2014, but we believe SunPharma is in a comfortable cash position. The rupee’s depreciation against the dollar is set to positively affect Sun Pharma.

� Though Taro Pharma may not show a similar performance in the next quarter, but we expect a better performance from Sun Pharmagoing forward mainly driven by (1) the resumption of sales from the US-based subsidiary, Caraco Pharma, post-USFDA clearance; (2)the contribution from the newly acquired Dusa Pharma and URL Pharma in the USA; and (3) the launch of key products in the USA andthe emerging markets including India. We expect 18% and 21% revenue and PAT growth (CAGR) respectively over FY2012-15 on anorganic basis. With a strong cash balance, Sun Pharma is well positioned to capitalise on the growth opportunities and inorganicinitiatives. Its debt-free balance sheet insulates it from the negative impact of the volatility in the currency market.

� At the CMP, Sun Pharma is trading at 24.9x and 22.7x FY2014E EPS and FY2015E EPS respectively. We maintain our Buyrecommendation on the stock, with a price target of Rs595 (post bonus shares), which implies 26x FY2015E EPS.

TCS 2,030 28.5 23.7 21 33.1 31.8 29.2 UR -

Remarks: � TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in mostservice offerings and has further consolidated its position as a full service player by delivering a robust financial and operationalperformance consistently in the last two years.

� The consistency and predictability of the earnings performance has put the company in the top of its league. Moreover, the quality ofits performance has also been quite impressive, ie it has been able to report a broad-based growth in all its service lines, geographiesand verticals consistently over the past two years, thereby justifying its position as a full service player in the IT industry.

� Going ahead too, we believe the company is well positioned to capitalise on to the opportunities that the marketplace has to offer dueto its scale.

� At the current market price of Rs2,030 the stock is trading at 23.7x FY2014 EPS of Rs85.6 and 21x FY2015 EPS of Rs96.5.

ZEE ENTERTAINMENT 233 31.1 26.8 21.2 19.6 20.0 21.9 300 29%

Remarks: � Among the key stakeholders of the domestic TV industry, we expect the broadcasters to be the prime beneficiary of the mandatorydigitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incrementalcapex as the subscriber declaration improves in the cable industry.

� On completion of 20 years of operations, ZEEL has issued redeemable preference shares (RPS) aggregating Rs2,000 crore (6%preference dividend) for eight years. The RPS will be issued at a ratio of 21 RPSs for every equity share. The RPS will be redeemablefrom the fourth year till the eighth year.

� ZEEL’s management acknowledged that the recent TRAI recommendation of capping the advertisement time at 12 minutes per hourwould have an adverse impact on its advertisement volume. The company will take adequate hikes in the advertisement rates in orderto negate the impact of reduced volumes. Thus, we expect a very minimal impact on the blended advertisement growth in FY2014 andFY2015.

� We believe ZEEL will be the major beneficiary of the digitisation process in the years to come which coupled with a strong balancesheet and high return ratios makes it a compelling long-term growth story. We maintain our Buy rating on ZEEL with a price target ofRs300.

SHAREKHAN TOP PICKS EQUITY FUNDAMENTALS


Price target revised to Rs55; downgraded to reduceCOMPANY DETAILS

Price target: Rs55

Market cap: Rs3,293 cr

52 week high/low: Rs130/55

NSE volume (no. of shares): 11.7 lakh

BSE code: 532418

NSE code: ANDHRABANK

Sharekhan code: ANDHRABANK

Free float (no. of shares): 23.5 cr

(%) 1m 3m 6m 12m

Absolute -27.8 -34.6 -44.9 -40.1

Relative to Sensex -26.9 -33.4 -43.8 -47.1

PRICE PERFORMANCE

REDUCE CMP: RS59 AUGUST 5, 2013ANDHRA BANK

RESULT HIGHLIGHTS� Andhra Bank reported a disappointing set of numbers for Q1FY2014 as its net profit

declined by 36.1% YoY and was lower than our estimate. This was due to a decline inthe NII and a rise in the provisions. The NIM declined to 2.7%, which contributed tothe decline in the NII.

� The advances grew by 16% YoY mainly led by the retail and SME segments. TheCASA ratio declined to 24%.

� The slippages increased sharply to Rs1,182 crore while the recoveries and upgradationwere much lower which pushed the gross NPA to 4.73% levels. Also, the bank hasrestructured Rs700 crore worth of loans and has about Rs3,300 crore of loans in thepipeline for restructuring.

� The bank reported a treasury profit of Rs286 crore while its fee income declined by1% YoY.

� Weak asset quality and Andhra Pradesh issue to affect performance; downgraded toReduce: Andhra Bank’s results were marred by a sharp dip in the NIMs and a rise inthe slippages. Therefore, we have raised our assumptions for slippages and credit costs,and lowered the estimate for credit growth and NIM. Hence, we value the bank at 0.6xFY2015E ABV, leading to a revised price target of Rs55. Though the stock is trading ata fairly low valuation, but we believe the bank’s operating performance and asset qualitywill weaken further. We have downgraded the rating on the bank to Reduce.�

SHAREHOLDING PATTERN

Sharekhan Limited, its analyst or dependant(s) of the analyst might be

holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

Price target revised to Rs626, upgraded to BuyCOMPANY DETAILS

Price target: Rs626




BSE code: 532134

NSE code: BANKBARODA

Sharekhan code: BANKBARODA


(%) 1m 3m 6m 12m

Absolute -2.2 -16.9 -33.1 -11.5


PRICE PERFORMANCE

BUY CMP: RS516 AUGUST 1, 2013BANK OF BARODA

RESULT HIGHLIGHTS� Bank of Baroda reported a PAT of Rs1,167.9 crore, which was higher than our estimate.

This was due to a higher than expected growth in the non-interest income driven bytreasury gains.

� The NII growth was in line with our estimate as it grew at a modest pace. The NIM(global) declined by 10 basis points QoQ to 2.41%.

� The advances grew by 12.4% YoY largely due to a slower growth in the corporateadvances. The CASA ratio expanded on a sequential basis to 31.2%.

� The asset quality deteriorated led by gross slippages of Rs2,165 crore. In addition, thebank restructured around Rs2,000 crore of advances.

� Led by treasury profits of Rs409.3 crore, the non-interest income increased by 59.6%YoY. The fee income grew by 9.1% YoY whereas the bank recovered Rs117.0 croreon written-off accounts. The opex increased by 26.8% YoY.

Valuation: Bank of Baroda’s Q1FY2014 results reflect the pressure on its NIM and assetquality. However, the management is confident the NIM will improve and slippages willmoderate in the coming quarters. Despite that, we have raised our assumptions for slippagesand lowered the NIM estimate. We now expect the earnings to grow at a CAGR of 8.2%over FY2013-15. The stock has corrected sharply due to the asset quality concerns and istrading at 0.7x FY2015E adjusted book value, which seems reasonable. We have upgradedthe rating on the stock to Buy from Hold and revised our price target to Rs626.�



holding or having a postition in the companies mentioned in the article.For detailed report, please visit the Research section of our website, sharekhan.com.

STOCK UPDATEEQUITY FUNDAMENTALS

Promoter59%

MF & FI12%

Foreign13%

Public & others16%

Promoter56%

MF & FI19%

Foreign15%

Public & others10%


Negative operating leverage continues; price targetrevised down to Rs150

COMPANY DETAILS

Price target: Rs150




BSE code: 500103

NSE code: BHEL

Sharekhan code: BHEL


(%) 1m 3m 6m 12m

Absolute -18.5 -21.8 -32.8 -31.1


PRICE PERFORMANCE

HOLD CMP: RS122 AUGUST 5, 2013BHARAT HEAVY ELECTRICALS

RESULT HIGHLIGHTS� Profitability dented due to negative operating leverage on lower sales: During

Q1FY2014, the net sales of Bharat Heavy Electricals Ltd (BHEL) declined by 24% toRs6,353 crore, which is significantly lower than our and the Street’s estimates. Ondeclining sales, the employee cost (up 6% YoY while the sales declined 24%) and otherexpenses (down 2% YoY while the sales declined by 24%) weighed heavily on thesales, eventually pressurising the OPM, which stood at 4.5% in Q1FY2014. InQ1FY2014, the PAT was reported at Rs465 crore, which is a decline of 50% YoY.This is significantly (42%) below our and the Street’s estimates.

� Order backlog declined YoY but inflow likely to improve in FY2014: At the end ofQ1FY2014, the order backlog of BHEL remained at Rs108,600 crore, which is a declineof 18% YoY and 6% QoQ. However, the management expects the inflow to improveafter touching a low in FY2012.

� Earnings estimates revised down; price target cut to Rs150: A slowdown in the orderinflow during FY2012 has had a percolating effect on slower sales conversion in thecurrent period. We believe the impact of the decline in the order inflow environmentwill last longer than previously estimated. Hence, we have trimmed our sales estimatesby 1% and 4% for FY2014 and FY2015 respectively. Further, we have trimmed ouroperating profit estimates by 2% in FY2014 and 14% in FY2015 and cut down ourearnings estimates by 3% for FY2014 and 15% for FY2015. We estimate BHEL’searnings would decline by 31% in FY2014 and 10% in FY2015, which would dragdown the return on equity to 11-13% in FY2014-15 from 22% in FY2013. Therefore,we downgrade our price target multiple from 12x to 9x and our price target to Rs150(9x FY2015E earnings and 1x FY2015 book value).�




Maintain Hold; price target revised to at Rs395COMPANY DETAILS

Price target: Rs395




BSE code: 532454

NSE code: BHARTIARTL

Sharekhan code: BHARTIARTL


(%) 1m 3m 6m 12m

Absolute 18.1 8.4 1.8 15.6

Relative to Sensex 18.1 8.2 3.5 1.4

PRICE PERFORMANCE

HOLD CMP: RS344 AUGUST 1, 2013BHARTI AIRTEL

RESULT HIGHLIGHTS� Bharti Airtel (Bharti)’s Q1FY2014 results reported a strong performance from the Indian

business, which was ahead of our expectations. The performance of its African businessremained subdued. Due to a decline in the African business’ revenues, the consolidatedrevenues witnessed a weak performance and declined by 0.8% on a sequential basis.

� The consolidated OPM stood at 32.2% (10 basis points higher than our estimate),which is an improvement of 54 basis points QoQ.

� The reported net profit for the quarter stood at Rs689 crore. The net profit includedvarious one-offs (gain on account of transfer of Bharti Televenture to Indus Towers[Indus], loss on account of revaluing the network assets) along with a foreign exchange(forex) loss of Rs534 crore on account of an adverse exchange movement. Adjustingthe same, the profit came in at Rs1,127 crore for the quarter.

� In the wake of a strong performance from the Indian business, a positive managementcommentary and visibility of pricing seen for the India mobile business, we have upgradedour EBITDA estimates by 3.1% and 3.9% for FY2014 and FY2015 respectively (thoughour EPS estimates are down as we consummate the equity dilution).

� We have revised our EPS estimates to Rs10.7 and Rs15.4 for FY2014 and FY2015respectively. Taking cognisance of the revised EBTIDA estimate, we have upgradedour price target to Rs395 based on 7.5x FY2015E EV/EBITDA. We maintain our Holdrating on the stock.�




STOCK UPDATE EQUITY FUNDAMENTALS

Promoters68%

FII15%

DII12%

Others5%

Promoters66%

Institutions8%

Foreign21%

Public & Others1%

Non-promoter corporate

4%


Targets $5 billion by 2020COMPANY DETAILS

Price target: Rs490




BSE code: 500087

NSE code: CIPLA

Sharekhan code: CIPLA


(%) 1m 3m 6m 12m

Absolute -2.0 -2.9 6.0 12.0


PRICE PERFORMANCE

BUY CMP: RS396 AUGUST 23, 2013CIPLA

KEY POINTS� Q1FY2014 results better than expected; milestone payment boosts bottom line: Cipla

reported a 19.2% Y-o-Y rise in the net sales to Rs2,284.6 crore in Q1FY2014, whichis nearly 7% higher than our estimate. The OPM declined by 431 basis points YoY to21.7% from a high base (one-off supplies of Escitalopram in Q1FY2013). The companyreceived a milestone payment (amount not disclosed) from Meda AB (Meda) related tothe supply of technology for Dymista. This led the company’s net profit to grow by18.5% YoY to Rs474.9 crore. However, the adjusted net profit would decline by 14%YoY to Rs345 crore (yet better than our estimate of Rs325 crore).

� Ambitious growth plans; USA, South Africa would be thrust areas: Cipla aims toachieve $5 billion revenues by the end of 2020 (from $1.3 billion in FY2013), including$1 billion from the US market (from nearly $200 million in FY2013). Besides, it alsoplans to achieve a sizeable growth in the South African market after the acquisitionof Cipla Medpro, which would be earnings accretive from FY2015. The long-termrevenue target of the company implies a compounded annual growth rate of 21%over FY2013-20.

� We marginally tweak estimate; price target kept intact: We have increased our earningsestimate by 4.6% for FY2015 to factor in the acquisition of Cipla Medpro and astronger Q1FY2014. However, we prefer to maintain our price target at Rs490 (implies19x FY2015E EPS). We maintain our Buy rating on the stock.�




Crystallising recovery path; maintain HoldCOMPANY DETAILS

Price target: Rs105


52-week high/low: Rs142/72


BSE code: 500093

NSE code: CROMPGREAVE

Sharekhan code: CROMPGREAVE


(%) 1m 3m 6m 12m

Absolute -6.2 -13.5 -22.0 -29.8


PRICE PERFORMANCE

HOLD CMP: RS84 AUGUST 6, 2013CROMPTON GREAVES

RESULT HIGHLIGHTS� Profit ahead of estimate; improvement in subsidiaries and consumer segment: In

Q1FY2014 Crompton Greaves Ltd (CGL) reported an operating profit ahead of ourestimate due to a lower than estimated loss in the subsidiaries coupled with a healthymargin in the consumer segment, though the sales were reported in line with our estimate.On a stand-alone basis, the profitability was driven by the consumer segment, supportedby a healthy margin of 12% and a sales growth of 21%. On a consolidated level, CGLreported an operating profit of Rs145 crore, which is 13% lower YoY but grew by85% QoQ. The net profit was at Rs60 crore, much ahead of our estimate.

Highlight of conference call� The management of CGL maintained its sales growth guidance of around 8-10% in

FY2014.

� A better margin is a reflection of price hikes in the consumer segment.

� The management shared that its Belgian unit was back in profit at the PBIT level inQ1FY2014. However, some other international units including the one in Canada areyet to be in profit.

View and valuation: We believe a better than expected rate of recovery in the internationalbusiness was a positive development; however, consistency of the same needs to be watchedout for. Moreover, in the current quarter, the profitability of the company was mainlydriven by the consumer segment. We are positive on this development but also remaincautious on the company’s ability to sustain its margin at this level, given the competitiveintensity. Hence we remain cautiously positive on the stock and retain our Hold ratingwith a price target of Rs105.�





Foreign15%

Institutions24%

Promoters42%

Others19%

Foreign28%Promoters

37%

Institutions11%


5%Public and others19%


Price target reduced to Rs165COMPANY DETAILS

Price target: Rs165




BSE code: 533261

NSE code: EROSMEDIA

Sharekhan code: EROSMEDIA


(%) 1m 3m 6m 12m

Absolute -7.3 -22.3 -32.5 -27.1


PRICE PERFORMANCE

BUY CMP: RS130 AUGUST 14, 2013EROS INTERNATIONAL MEDIA

RESULT HIGHLIGHTSA soft quarter: Eros International Media Ltd (EIML)’s performance continues to be lacklustrein the absence of any big releases in the recent quarters, the postponement of the big-budget movie “Kochadaiyaan” and lower monetisation of its movie catalogue on accountof the launch of premium advertising-free movie channels, HBO Defined and HBO Hits(its joint ventures with HBO Asia).

� The consolidated revenues were down by 27.5% YoY to Rs186.3 crore, which is belowour expectation of Rs210.8 crore.

� For Q1FY2014, the EBITDA margin stood at 21.2%, up 110 basis points YoY but stilllower than our estimate of 26%. The other income for the quarter was up almost fourfold to Rs7.9 crore, which restricted the decline in the net income level to 7% YoY toRs29.4 crore.

Valuation: The fiscal gone by was soft for EIML in terms of its earnings performance;however the company has made inroads into some long-term strategic initiatives, likeventuring into the HBO alliance and the launch of EROS Now (a digital platform) andstrategic alliances with Endemol India and Sony for movie production. Additionally, thelisting of the company’s parent on the New York Stock Exchange could act as a medium-term trigger for the stock. However, the lack of super “A” category movies and lowermonetisation of TV syndication (EIML has forgone some part of its revenues on accountof the launch of new TV channels in joint venture with HBO Asia) have dented the visibilityof the company’s business. We have reduced our earnings estimates for FY2014 and FY2015by 15% and 20% respectively. We have also reduced our target multiple to 9x from 10xearlier based on the FY2015E earnings. Consequently, we have reduced our price target toRs165 and we maintain our Buy rating on the stock.�




Price target revised to Rs149COMPANY DETAILS

Price target: Rs149




BSE code: 532622

NSE code: GDL

Sharekhan code: GDL


(%) 1m 3m 6m 12m

Absolute -5.7 -16.5 -22.1 -22.9


PRICE PERFORMANCE

BUY CMP: RS100 AUGUST 2, 2013GATEWAY DISTRIPARKS

RESULT HIGHLIGHTS� Substantial drop in volumes and margin at JNPT CFS led to poor stand-alone results:

In Q1FY2014, Gateway Distriparks Ltd (GDL) reported a 40% decline in its stand-alone net profit on account of a decline of 965 basis points in the EBITDA margin from50.2% in Q1FY2013 to 40.6% in Q1FY2014. However, the revenues declined by11% YoY to Rs48.4 crore on account of a 20% decline in the volumes at the JawaharlalNehru Port Trust (JNPT).

� Consolidated revenues lower than estimated due to muted performance of rail divisionand other CFSs: The consolidated revenues stood at Rs245 crore, lower than ourestimate. The revenues grew by 6% YoY but declined by 8% QoQ. The cold chaindivision witnessed a 58% growth in its revenues. The rail division saw a revenue growthof just 4% YoY. The other container freight stations (CFSs), ie the Chennai,Vishakhapatnam and Kochi CFSs, together saw a 3% Y-o-Y growth in the revenues.

� Consolidated PAT lower than our estimate as well: The consolidated profit after tax(PAT) was lower than our estimate on account of lower than expected revenues andhigher than expected interest expenses during the quarter. The consolidated EBITDAmargin was down by 333 basis points YoY. The profit for the quarter declined by 15%YoY to Rs30.0 crore.

� Estimates downgraded; price target revised to Rs149, Buy maintained: We havedowngraded our net profit estimates for FY2014 and FY2015 by 3% and 11%respectively. We have revised our price target downwards to Rs149. We maintain ourBuy recommendation on GDL.�





Promoters75%

Institutions3%

Foreign12%


3%

Public & Others

7%

FII26%

Promoters41%

Public & others17%

Institutions16%


Price target revised to Rs4,625COMPANY DETAILS

Price target: Rs4,625


52 week high/low: Rs6,020/2,700

NSE volume (no. of shares): 29,504

BSE code: 500676

NSE code: GSKCONS

Sharekhan code: GSKCONS


(%) 1m 3m 6m 12m

Absolute -14.8 13.9 20.9 72.2

Relative to Sensex -13.9 13.8 22.4 51.4

PRICE PERFORMANCE

HOLD CMP: RS4,450 AUGUST 2, 2013GLAXOSMITHKLINE CONSUMER HEALTHCARE

RESULT HIGHLIGHTS� Performance snapshot: GlaxoSmithKline Consumer Healthcare (GSK Consumer)’s

Q2CY2013 net sales grew by 16.9%YoY to Rs852.9 crore. The growth was driven bya mix of volume and value growth, with the volume growth standing at around 7%YoY during the quarter. The core malted food drinks (MFD) segment grew by about18% while the packaged food segment grew by about 19% YoY during the quarter.The GPM improved by 203 basis points YoY to 65% in Q2CY2013. The OPM declinedby 126 basis points to 13.9% in Q2CY2013. The OPM largely declined on account ofa one-time wage settlement cost, one-time operational expenses towards the expandedcapacity and higher production from third-party manufacturers. Hence, the operatingprofit grew by just 7.2% YoY to Rs118.7 crore. However, a strong growth in thebusiness auxiliary income (of around 30.2% YoY) and a high other income resulted ina 12.5% Y-o-Y growth in the reported PAT to Rs120.0 crore.

� Outlook: We have broadly maintained our earnings estimates for CY2013 and CY2014.GSK Consumer’s management is confident of maintaining the sales volume growth inthe range of 7-8% in the current inflationary environment on account of distributionenhancement and an improvement in the penetration. With the OPM likely to sustainin the range of 15.0-15.5%, we believe GSK Consumer’s bottom line will grow at aCAGR of 18% over CY2012-14.

� Premium valuation provides limited upside; maintain Hold: At the current market price,the stock is trading at 30.8x its CY2014E EPS of Rs144.5. We have revised our pricetarget to Rs4,625 (valuing the stock at 32x its CY2014E earnings). Despite strongfundamentals, we don’t see any significant upside from the current levels. Thus, wemaintain our Hold recommendation on the stock.�









BSE code: 500300

NSE code: GRASIM

Sharekhan code: GRASIM


(%) 1m 3m 6m 12m

Absolute -8.4 -13.1 -14.9 -11.6


PRICE PERFORMANCE

HOLD CMP: RS2,549 AUGUST 5, 2013GRASIM INDUSTRIES

RESULT HIGHLIGHTS� Consolidated operating profit largely in line with estimate: For Q1FY2014, Grasim

Industries (Grasim) posted an operating profit (at consolidated level) of Rs1,270.5crore (-20.2% YoY), which is largely in line with our estimate. However, on accountof a surge in the other income by 58.1% to Rs278.8 crore (due to maturity of certainfixed maturity plan in UltraTech Cement) and a lower than expected effective tax rateof 23.3% as against our estimate of 29%, the reported net profit stood at Rs610 crore(-15% YoY), which is better than our estimate.

� Expansion on track, balance sheet is strong to fund the capex: The ongoing expansionprojects in the VSF, chemical and cement divisions are progressing well and are expectedto come on stream as per schedule. With the commissioning of a 3.3mtpa clinkerisationplant at Karnataka, the overall cement capacity has enhanced to around 60mtpa. TheVSF capacity is likely to increase by 156,000 tonne during H2FY2014 and the chemicaldivision has recently added 182,000 tonne of additional capacity. Grasim commissioneda 182,000tpa of caustic soda plant at Vilayat during the quarter.

� Maintain Hold with revised price target of Rs2,950: Though the company has a gooddiversified business model with a strong balance sheet and a comfortable debt-to-equityratio (0.35x FY2013), but the near-term concerns in terms of correction in the price ofVSF and a poor demand environment for cement due to an economic slowdown will bean overhang on the stock. Hence, on the valuation front, we are discounting our valuationmultiple for the VSF business and also increasing the holding company discount ratefor valuation of the cement business. We arrive at a fair value of Rs2,950 for Grasim.Hence, we maintain our Hold recommendation on the stock with a revised price targetof Rs2,950.�





Public & others36%

Promoters26%

Institutions15%

Foreign23%

Promoters72%

FIIs12%

Others15%

Domestic institutions

1%


Price target revised to Rs242; Buy maintainedCOMPANY DETAILS

Price target: Rs242




BSE code: 533177

NSE code: IL&FSTRANS

Sharekhan code: IL&FSTRANS


(%) 1m 3m 6m 12m

Absolute -12.0 -29.8 -35.8 -27.8


PRICE PERFORMANCE

BUY CMP: RS126 AUGUST 12, 2013IL&FS TRANSPORTATION NETWORKS

RESULT HIGHLIGHTS� Revenues lower than expected due to early monsoon: In Q1FY2014, the consolidated

revenues of IL&FS Transportation Networks Ltd (ITNL) declined by 8% YoY toRs1,451 crore led by lower than expected construction revenues, primarily due to anearly onset of the monsoon. The construction revenues declined by 15% YoY and thecompany booked a high fee income during the quarter. However, the revenues fromthe BOT assets grew at a robust rate of 21%.

� Favourable revenue mix boosts margins: The OPM improved by 630 basis points YoYto 24.4%, which was higher than our estimate. The expansion in the margin wasmainly on account a lower contribution of revenues from the low-margin constructionincome vis-a-vis the BOT income.

� Decline in PBT on account of surge in interest and depreciation charges, and a lowerother income: Though the company reported an increase in the OPM, a huge surge inthe interest charges (up 29% YoY) and depreciation (up 7% YoY) coupled with adecrease in the other income (down 18% YoY) led to a decline in the PBT by 12% YoYto Rs198 crore.

� Estimates revised downwards for FY2014 and FY2015: We have downgraded our netsales estimates for FY2014 and FY2015 by 11% and 6% respectively. Our net profitestimates for FY2014 and FY2015 have also been downgraded by 15% and 16%respectively.

� Maintain Buy with a revised price target of Rs242: We have assigned 5x EV/EBITDAmultiple to ITNL’s engineering, procurement and construction business, which lowersour SOTP based price target to Rs242. We have maintained our Buy rating on the stock.�



holding or having a postition in the companies mentioned in the article.


A robust operating performanceCOMPANY DETAILS

Price target: Rs254


52-week high/low: Rs211/121


BSE code: 532926

NSE code: JYOTHYLAB

Sharekhan code: JYOTHYLAB


(%) 1m 3m 6m 12m

Absolute -12.7 -10.4 12.6 20.4

Relative to Sensex -10.3 -5.7 15.4 11.0

PRICE PERFORMANCE

BUY CMP: RS168 AUGUST 12, 2013JYOTHY LABORATORIES

RESULT HIGHLIGHTS� Strong operating performance: In Q1FY2014 Jyothi Laboratories Ltd (JLL)’s net

revenues grew by 13.1% YoY to Rs318.2 crore driven by a strong growth of around15% in the power brands. The volume growth stood at 5-6% during the quarter.Several strategic initiatives including an improvement in the revenue mix and salesrealisation aided the GPM to improve by 679 basis points YoY to 47.2% in Q1FY2014.The advertisement and promotional spending went up by 402 basis points YoY to12.1%, as the company increased its spending on the power brands. Despite a sharpincrease in the advertisement and promotional spending the OPM was increased by373 basis points YoY to 15.3%. The operating profit grew by about 50% YoY toRs48.6 crore in Q1FY2014. With the depreciation charge remaining almost flat on aY-o-Y basis, the adjusted PAT almost doubled to Rs29.6 crore.

� Outlook and valuation: We are enthused by the strong improvement in the GPM andOPM of the company in Q1FY2014. We have marginally increased our earnings estimatefor FY2014 to factor in the higher than expected profitability but broadly maintainedthe FY2015 earnings estimate. The performance of the homecare segment has to bekeenly monitored in the coming quarters. At the current market price the stock istrading at 20.9x its FY2015E EPS of Rs8.0. We like JLL in the mid-cap FMCG spacebecause of the strong visibility of its future earnings and its thrust on becoming astrong consumer goods player in the domestic market. Hence, we maintain our Buyrecommendation on the stock with a price target of Rs254.�





Promoters64%

FIIs17%

Domestic institutions

9%

Others10%

Promoters73%

FII4%

Public & others20%

Institutions3%



Price target: Rs907




BSE code: 500257

NSE code: LUPIN

Sharekhan code: LUPIN


(%) 1m 3m 6m 12m

Absolute -0.3 16.5 39.9 41.5


PRICE PERFORMANCE

BUY CMP: RS801 AUGUST 8, 2013LUPIN

RESULT HIGHLIGHTS� Q1FY2014 revenues weaker than expected; forex gains enrich bottom line: Lupin

reported a 9% Y-o-Y rise in the net sales to Rs2,420.7 crore mainly driven by the USand European businesses, which grew by 29% YoY to Rs1,099.40 crore. However, a5% Y-o-Y decline in the revenues from the Indian formulation business and a 12% Y-o-Y decline in the Japanese business restricted the revenue growth during the quarter.The company achieved an improvement of 300 basis points YoY in the OPM to 22.1%during the quarter on account of a better product mix and currency benefits. This ledthe profit before tax excluding the foreign exchange (forex) gains to increase by 29.8%YoY to Rs527 crore. The company recorded a forex gain of Rs96 crore during thequarter as compared with a forex loss of Rs13.3 crore in Q1FY2013. As a result, thereported net profit jumped by 43% YoY to Rs401 crore.

� We broadly maintain estimates, price target revised to Rs907 on roll-over: The weakerperformance during Q1FY2014 seems to be temporary and we believe the companywould bounce back in the subsequent quarters on normalisation of the Indian businessand the launch of key products in the USA, Europe and Japan The management isconfident of achieving a 15-30% growth in the top line in FY2014. We have rolled-over our valuation to earnings estimate of FY2015. Our price target is revised upwardsby 12% to Rs907 (20x FY2015 earnings per share). We maintain Buy recommendationon the stock.�



holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.




52 week high/low: Rs1,026/731


BSE code: 500520

NSE code: M&M

Sharekhan code: M&M


(%) 1m 3m 6m 12m

Absolute -3.7 -9.7 -1.2 18.2

Relative to Sensex 1.4 -5.1 0.8 7.8

PRICE PERFORMANCE

BUY CMP: RS871 AUGUST 13, 2013MAHINDRA & MAHINDRA

KEY POINTS� Q1FY2014 results: operating performance in line with estimate; higher other income

boosts profit: Mahindra and Mahindra (M&M)’s results were in line with our estimateon the operating front. The revenues at Rs10,022.5 crore were marginally below ourestimate. The operating profit at Rs1,287.4 crore was in line with our estimate. However,the higher other income at Rs164.2 crore (which included Rs81-crore dividend fromthe subsidiaries) boosted the profitability. M&M reported a profit of Rs937.9 crore,which was ahead of our estimate of Rs817.4 crore.

� Tractor growth strong; outlook raised: The tractor sales grew in strong double digits inApril-July 2013 on account of a normal monsoon and an increase in the farm realisations.The management has raised the tractor volume forecast from 6-8% to 10-12% for FY2014.

� Automotive demand to remain under pressure; to observe no production days to controlinventory: M&M’s key segments, utility vehicles and light commercial vehicles(contributing about 85% of the overall volumes), have been facing pressure on accountof a subdued economic environment and an increase in diesel prices. To avoid theexcess inventory, M&M would be observing no production days across its automotiveplants for 0-6 days in August 2013.

� Valuation: Given the pressure on the automotive segment, we have lowered our revenueassumptions for FY2014 and FY2015. We have marginally raised our marginassumptions given the improved tractor mix. Our revised earnings per share estimatesfor FY2014 and FY2015 stand at Rs57.6 and Rs61.6. We have revised our price targetto Rs1,010. We maintain our Buy recommendation on the stock.�






1%

Foreign31%

Public and others9%

Promoters47%

Institutions12%

Institutions15%

Foreign40%

Bodies corporate

6%

Public & Others14%

Promoters25%


Upgraded to BuyCOMPANY DETAILS

Price target: Rs242




BSE code: 531642

NSE code: MARICO

Sharekhan code: MARICO


(%) 1m 3m 6m 12m

Absolute -5.0 -6.5 -8.5 8.3


PRICE PERFORMANCE

BUY CMP: RS202 AUGUST 12, 2013MARICO

RESULT HIGHLIGHTS� Consolidated results snapshot: In Q1FY2014 Marico’s net sales grew by 8.8% YoY to

Rs1,382.4 crore, which is lower than our expectation of Rs1,427.6 crore. The revenuegrowth was pre-dominantly driven by a volume growth of 10% YoY. The benign keyinput prices aided the GPM to improve by 238 basis points YoY to 51.5% in Q1FY2014.There was no major increase in the other operational cost. Hence, the OPM improvedby 190 basis points YoY to 16.6% during the quarter. The operating profit grew by22.8% YoY to Rs229.7 crore. This along with a Y-o-Y decline in the interest expensesled to a 25.4% Y-o-Y growth in the adjusted PAT to Rs155.3 crore.

� Upgraded to Buy: We believe Marico is well placed to achieve around 20% bottomline growth in the medium term. However, any significant drop in the sales volume ofthe key brands or any significant drop in the OPM would act as a key risk to ourearnings estimate.

We broadly maintain our earnings estimates for FY2014 and FY2015. At the currentmarket price, the stock trades at 28.7x its FY2014E EPS of Rs7.0 and 23.9x its FY2015EEPS of Rs8.5. In view of a decent earnings visibility and a decent upside of 19% fromthe current level, we have upgraded our rating on the stock to Buy from Hold whileretaining the price target at Rs242.�




Earnings below estimatesCOMPANY DETAILS

Price target: Rs650




BSE code: 533106

NSE code: OIL

Sharekhan code: OIL


(%) 1m 3m 6m 12m

Absolute -11.4 -14.0 -10.3 4.4


PRICE PERFORMANCE

BUY CMP: RS491 AUGUST 14, 2013OIL INDIA

RESULT HIGHLIGHTS� In Q1FY2014, Oil India Ltd (OIL) posted a net profit of Rs609.1 crore (a decline of

34.5% YoY) on account of a lower than expected sales volume of crude oil and higherthan expected other expenses. The revenues of the company declined by 14% YoY dueto a decline in the sales volume of crude oil and a correction in the net realisation($45.9/barrel in Q1FY2014 as against $53.9/barrel in Q1FY2013). However, theproduction of natural gas was impressive and grew by 5% YoY.

� The crude oil production for the quarter declined by 4.6% YoY due to an externalenvironmental issue. However, on the natural gas front, the company posted animpressive production growth of 5% YoY. Going ahead in FY2013-15, we expect thecompany’s oil and gas production to grow at CAGR of 3% and 4% respectively.

� With a correction in the crude oil price during Q1FY2014, the gross realisation of thecompany declined by 7.2% YoY to $101.9/barrel. The subsidy burden on OIL hasbeen kept unchanged at $56/barrel despite a reduction in crude oil price which has ledto higher pressure on the net realisation of the company.

� The oil ministry has accepted the formula recommended by the Rangarajan committeefor increasing the price of natural gas. Hence, the move will increase the profitabilityand earnings of the company going ahead. However currently, we are not incorporatingthe impact of these developments ino our earnings estimates.

� We maintain our bullish stance on OIL because of its huge reserves and healthy reserve/replacement ratio, which would provide a reasonably stable revenue growth outlook.Hence, we maintain our Buy recommendation on OIL with a price target of Rs650. �





Others7%

Foreign & Institutions

33%

Promoters60%

Public & others15%

Promoters68%

Foreign10%

Institutions7%


Discontinuing coverage due to bleak outlookCOMPANY DETAILS

Market cap: Rs155 cr



BSE code: 532837

NSE code: ORBITCORP

Sharekhan code: ORBITCORP


(%) 1m 3m 6m 12m

Absolute -18.4 -32.7 -64.7 -68.9


PRICE PERFORMANCE

BOOK OUT CMP: RS14 AUGUST 14, 2013ORBIT CORPORATION

RESULT HIGHLIGHTS� Another dismal performance; next couple of quarters to remain weak: Like in the

previous quarter, the financial performance of Orbit Corporation (Orbit) was dismalin Q1FY2014 led by poor execution and surging interest cost. What worries us more isthe fact that the slowdown in approvals is creating an uncertainty about the revenuepipeline in future. The management also indicated that the slow approvals would affectthe financial performance in the next couple of quarters. Consequently, the cash inflowswould remain weak and put further stress on the balance sheet.

� Declining pre-sales adding to the pressure: The pre-sales volume continued its decliningtrend as it dipped to Rs12.8 crore, which appears far lower compared with theQ1FY2013 performance of Rs52.7 crore of pre-sales.

� Asset sale; exit not materialising: We had persisted with the stock hoping that theproposed exit from the Santacruz and Lalbaug projects would bring in some cash flowsthat would ease the situation. Also, the progress on the Mandawa project, which isother potential re-rating factor for the stock.

� Better to exit on rallies: Though there is an inherent value in the stock, the positivedevelopments on the above mentioned events could lead to a sharp bounce in thestock. We believe that would be an opportunity to exit the stock. Moreover, the heavilybeaten down stocks in the real estate sector tend to bounce back sharply. Hence, waitfor a sharp bounce to lighten your commitments. We are discontinuing our coverageon the stock.�




Price target revised to Rs1,950, downgraded to HoldCOMPANY DETAILS



52 week high/low: Rs2,550/1,575


BSE code: 500112

NSE code: SBIN

Sharekhan code: SBIN


(%) 1m 3m 6m 12m

Absolute -11.2 -24.8 -25.8 -17.7


PRICE PERFORMANCE

HOLD CMP: RS1,605 AUGUST 12, 2013STATE BANK OF INDIA

RESULT HIGHLIGHTS� State Bank of India (SBI)’s Q1FY2014 net profit declined by 13.6% YoY to Rs3,241

crore, which is in line with our estimate. A slower growth in the NII and a rise in theopex affected the earnings, though a sharp rise in the slippages was a negative surprise.

� The NIM continued to decline as it fell to 3.16% led by a contraction in the domesticNIM and interest income reversal of Rs390 crore.

� The advances growth was slightly higher than the industry rate at 15.7% YoY drivenby a strong growth in the mid corporate and large corporate segments. The CASA ratiodeclined to 44.67%.

� The asset quality deteriorated quite sharply led by a sharp uptick in the slippages. Theslippages mainly came from the agriculture and SME segments.

Valuation: SBI’s Q1FY2014 results were disappointing especially on the asset quality front,though the opex was also weaker. Going ahead, we expect the asset quality pressures tosustain in view of the weak economic environment and exposure to sectors like textile,engineering, metals, infrastructure etc, which are witnessing stress. We expect the earningsgrowth to be muted (1.5% CAGR) leading to return on equity and return on asset of12.8% and 0.7% respectively. Therefore, we value SBI (stand-alone) at 0.9x FY2015 bookvalue leading to a revision in the sum-of-the-parts based price target to Rs1,950. We havedowngraded the rating on SBI to Hold.�





Promoter62%

Foreign10%

MF & FI17%

Public & others11%

Institutions1%

Public & others56%

Promoters43%


Newly acquired US entities fuel growthCOMPANY DETAILS

Price target: Rs595




BSE code: 524715

NSE code: SUNPHARMA

Sharekhan code: SUNPHARMA


(%) 1m 3m 6m 12m

Absolute -3.0 2.6 35.6 51.1

Relative to Sensex -0.4 8.1 39.0 39.3

PRICE PERFORMANCE

BUY CMP: RS541 AUGUST 12, 2013SUN PHARMACEUTICAL INDUSTRIES

RESULT HIGHLIGHTS� Q1FY2014 results better than expected; one-time charge erodes bottom line: Sun

Pharmaceutical Industries (Sun Pharma) reported an impressive 31% Y-o-Y rise in thenet sales to Rs3,482.2 crore in Q1FY2014, mainly due to the consolidation of thenewly acquired entities like DUSA Pharmaceuticals (DUSA Pharma) and the genericarm, URL Pharma, in the US market. The consolidation also helped maintain a healthyOPM of 44% (down 182 basis points YoY from a high base) during the quarter. Thislevel of OPM was achieved despite its US subsidiary Taro Pharmaceutical Industries(Taro Pharma) reporting a pricing pressure in key products and the consolidation ofthe newly acquired entities leading to a rise in the employee cost. A turnaround in theother income and a lower effective tax rate further boosted the profit line during thequarter. However, a one-time charge of Rs2,517.4 crore related to a patent settlementcase on Protonix led to a decline in the bottom line with a net loss of Rs1,276.1 crore.The adjusted net profit grew by 56% YoY to Rs1,241.3 crore (vs our estimate ofRs923 crore for the quarter).

� Outlook remains strong; we maintain our estimates, price target and recommendations:We find most of the growth elements intact during the quarter. However, given theuncertainty in currency movement and implications of the new pricing policy in India,we prefer to maintain our estimates for FY2014 and FY2015. We have Buyrecommendation on the stock with a price target of Rs595 (adjusted for bonus shares),which implies 26x estimated earnings for FY2015.�





Price target: Rs346




BSE code: 500770

NSE code: TATACHEM

Sharekhan code: TATACHEM


(%) 1m 3m 6m 12m

Absolute -6.9 -20.2 -27.1 -12.2


PRICE PERFORMANCE

BUY CMP: RS259 AUGUST 5, 2013TATA CHEMICALS

RESULT HIGHLIGHTS� Q1FY2014 consolidated revenues marginally lower than estimate: During Q1FY2014,

Tata Chemicals Ltd (TCL)’s consolidated revenues grew by 7.7% to Rs3,311.6 crore,which was marginally lower than our expectations. The reported PAT (after minorityinterest and share of associate) for the quarter stood at Rs75.4 crore, which included aforeign exchange loss of Rs43.4 crore. Adjusting for this, the PAT stood at Rs118.8crore, which was much lower than our estimate of Rs168.2.

� Pressure on soda ash realisation across geographies affected margin: The consolidatedOPM for Q1FY2014 stood at 12.4%, which is 367 basis points lower than the OPMin the same period of the last quarter. The margin was lower mainly on account of adecline in the realisation of soda ash due to softening of the demand from South-EastAsia. The total fertiliser subsidy pending with the government stood at Rs1,160 croreat the end of Q1FY2014.

� Valuation and outlook: The demand environment for the non-urea fertilisers improvedon account of a normal monsoon but a high level of inventory in the market is affectingthe margin of the fertiliser segment. On the chemical front, the business environment inEurope remains the key challenge. We have already factored in the lower realisation ofsoda ash and the high input cost in our estimate and considering that we maintain ourearnings estimates for FY2014 and FY2015. On the valuation front, we value TCL at9x FY2015E EPS and investment value of Rs45 per share, and arrive at a fair price ofRs346.�





MF & FI24%

Foreign20%

Promoter32%

Public & others24%

Promoters64%


5% Institutions3%

Public and others

5%

Foreign23%


Upgraded to Buy with revised price target of Rs175COMPANY DETAILS

Price target: Rs175




BSE code: 500800

NSE code: TATAGLOBAL

Sharekhan code: TATAGLOBAL


(%) 1m 3m 6m 12m

Absolute 3.9 1.5 1.8 19.6


PRICE PERFORMANCE

BUY CMP: RS146 AUGUST 2, 2013TATA GLOBAL BEVERAGES

RESULT HIGHLIGHTS� Performance snapshot: In Q1FY2014, TGBL’s consolidated revenues grew by 5.1% YoY

to Rs1,813.5 crore. The mid single-digit growth was largely driven by an organic initiativewith no forex translation gain due to the rupee’s depreciation against the key internationalcurrencies. The revenues of TGBL’s stand-alone business grew by 19.2% YoY to Rs679.6crore, while the revenues of Tata Coffee’s consolidated business stood flat on a Y-o-Ybasis during the quarter. The benign coffee prices and holding of product prices in thekey geographies aided the consolidated GPM and the OPM to expand by 127 basispoints YoY to 51.1% and by 94 basis points YoY to 11.4% respectively in Q1FY2014.Hence, despite the mid single-digit revenue growth, the operating profit grew by 14.6%YoY to Rs207.1 crore while the adjusted PAT before minority interest and profit fromshare of associates grew by 18.8% YoY to Rs121.5 crore during the quarter.

� Outlook—decent earnings visibility: We expect TGBL’s top line and bottom line togrow at a CAGR of 12% and 18% respectively over FY2013-15. Any significant increasein the raw material prices or slowdown in the performance of the key geographieswould act as a key risk to our earnings estimates.

� Upgraded to Buy: The stock’s current valuations of 19.1x FY2014E EPS of Rs 7.7 and16.8x FY2015E EPS of Rs8.7 are at a substantial discount to the current valuation ofthe FMCG basket. In view of a decent earnings visibility and an upside, we have upgradedour recommendation on the stock from Hold to Buy. In line with the upward revisionin our earnings estimates, our price target stands revised to Rs175 (valuing the stock20x FY2015E earnings).�




Price target revised to Rs150, downgraded to HoldCOMPANY DETAILS

Price target: Rs150




BSE code: 532477

NSE code: UNIONBANK

Sharekhan code: UNIONBANK


(%) 1m 3m 6m 12m

Absolute -28.6 -43.5 -45.7 -17.5


PRICE PERFORMANCE

HOLD CMP: RS126 AUGUST 1, 2013UNION BANK OF INDIA

RESULT HIGHLIGHTS� Union Bank of India’s Q1FY2014 performance was disappointing as the earnings grew

by 9.5% YoY. However, apart from a lower tax rate, higher treasury gains cushionedthe impact of a subdued growth in the NII.

� The NII growth was marginally short of our estimate, as it grew by 4.8% YoY toRs1,909.1 crore. The NIM dipped by 26 basis points sequentially to 2.63%.

� The advances growth was a tad higher than the industry rate at 16.6% YoY. However,the deposits grew by 22.3% YoY while the CASA ratio declined to 29.1%.

� After holding the asset quality for the past three quarters, the slippages rose sharply. Inaddition, the bank restructured Rs1,068 crore of advances and has another Rs5,000crore worth of loans in the pipeline for restructuring.

Valuation: Union Bank of India’s Q1FY2014 results were below our estimates despite atreasury profit and lower tax rates. We have downgraded our earnings estimates to factorin the rise in slippages and the pressure on the NIM. The relatively weaker capital positionof the bank is likely to affect the business growth. We expect the bank’s return ratios to besubdued (return on equity at 12.6% and return on asset at 0.6%) and asset quality concernsto persist. Therefore, we value the stock at 0.6x FY2015E adjusted book value leading toa revised price target of Rs150. We have downgraded our recommendation on the bank toHold.�





Foreign12%

Promoter57%

MF & FI18%

Public & others13%

Foreign & Institutions

37%

Others28% Promoters

35%


Q1FY2014 earnings reviewSHAREKHAN SPECIAL AUGUST 23, 2013

KEY POINTS� Aggregate growth turns negative; 11 Sensex constituents

reported a decline in their earnings: On an aggregate basis, theSensex companies reported a decline of 1.5% year on year (YoY)in their earnings (a 6.5% growth excluding oil companies). Theperformance was weaker compared with the expectations, whichwere already muted. What’s more concerning is that more thanone-third of the companies (and six sectors) reported a declinein earnings. The disappointment came from companies acrosssectors, like Tata Motors, Bharat Heavy Electricals Ltd (BHEL),GAIL, ONGC and Tata Power. Moreover, the deterioration inthe asset quality of the banking sector is another worrying factoraffecting the outlook for corporate earnings. On the positiveside, fast moving consumer goods (FMCG), pharmaceutical(pharma) and information technology (IT) sectors, and RelianceIndustries Ltd (RIL) managed to post a double-digit growth inearnings. Companies like Cipla, Sun Pharmaceutical Industries(Sun Pharma) and Mahindra and Mahindra (M&M), and metalcounters surprised on the positive side.

� Revenue growth falters: As expected, the revenue growth of theSensex companies was tepid (up 2% YoY) indicating significantsoftening of the demand in the economy. One-third of the Sensexcompanies reported a decline in revenues. These companies weremainly from automobiles (auto), capital goods and metal sectors.Out of the 30 companies in the Sensex 11 managed to post adouble-digit growth in revenues and these were mainly fromthe banking, IT and pharma sectors. Even the FMCG sectorstruggled to grow in double digits due to volume pressures whichindicates a broader slowdown in revenues.

� Margin pressures re-emerge: The decline in the margins of theSensex companies (ex banks) was slightly higher than expectedas the margins contracted by 100 basis points quarter on quarter(QoQ) to 18% levels (18.1% in Q1FY2013). The overallEBITDA growth itself was around 1.5% YoY for the Sensexcompanies. From a sectoral perspective, the capital goodscompanies faced higher margin pressure (on a quarter-on-quarter [Q-o-Q] basis) followed by the metal and power sectors.However, IT, oil & gas and telecommunications (telecom)sectors witnessed some margin expansion on a Q-o-Q basis.


Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or

having a position in the companies mentioned in the article.

Going ahead, due to a sharp depreciation in the local currency(which has made imports expensive) and a drop in the pricingpower the margin pressures may continue.

� Earnings downgrades picks up: Given the disappointment ofthe Q1FY2014 results, weak macro-economic data releases andthe series of measures taken by the Reserve Bank of India (RBI)to tighten liquidity, earnings downgrades have picked up.Barring a few sectors (like IT, pharma) most sectors (especiallybanking, capital goods) saw sharp downgrades in the consensusearnings estimate during Q1FY2014. The consensus FY2014earnings growth estimates for Sensex now stands at about 6%compared with 15% expected at the beginning of FY2014. Giventhe sharp volatility in the exchange rates, the rise in interestrates and policy inertia, there is scope for further downgradesin the consensus earnings estimate for sensex.�

TREND IN SENSEX’ (EX OIL) EARNINGS GROWTH—ACTUAL VS ESTIMATE


0%

5%

10%

15%

20%

25%

30%

Q1F

Y11

Q1F

Y12

Q1F

Y13

Q1F

Y14

Estimated Actual

SECTOR-WISE EARNINGS GROWTH IN Q1FY2014

-30% -20% -10% 0% 10% 20% 30% 40%

Pharma

Divers if ied

FMCGIT

Metal

Banking & Finance

Pow er

A utoTelecom

Capital goods

Energy

SECTOR-WISE CONTRIBUTION TO SENSEX’ EARNINGS GROWTHSectors Performance %Diversified 1.82IT 1.57Banking & Finance 1.13Pharma 1.13FMCG 0.64Metal 0.45Power -0.15Telecom -0.15Auto -0.66Capital goods -0.83Energy -6.47Sensex -1.53

OUTPERFORMERS UNDERPERFORMERSICICI Bk, Axis Bk Andhra Bk, IDBI Bk, Federal Bk

HCL Technologies, TCS, Infosys BHEL, GAIL, PTC

Sun Pharma, Cipla Cadila Healthcare, Divi’s Labs

Jyothy Labs, Bajaj Corp HUL, Zydus Wellness

Marico, Mcleod Russel India Tata Chemicals

Punj Lloyd JP Associates, IRB Infrastructure

Maruti, M&M, Apollo Tyres Ashok Leyland

EQUITY FUNDAMENTALSSHAREKHAN SPECIAL


EQUITY FUNDAMENTALS SHAREKHAN SPECIAL

Monthly economy reviewSHAREKHAN SPECIAL AUGUST 22, 2013

Economy: macro-economic issues aggravate as headline inflationpicks up and rupee depreciates sharply� In June 2013 the Index of Industrial Production (IIP) declined

by 2.2%. The growth was lower than expected largely becauseof persistent weakness in the manufacturing, mining and capitalgoods segments, and a decline in the electricity index to 157.0(172.4 in May 2013). Moreover, the May IIP growth has beenrevised downwards to (2.8%) from the provisional estimate of(1.6%). Based on the three-monthly moving average, the IIPgrowth for June 2013 stands at (1.0%) as against (0.3%) inJune 2012.

� The Wholesale Price Index inflation number for July 2013surprised negatively as it was higher than the Reserve Bank ofIndia (RBI)’s comfort level of about 5%. While the core inflationremains low, the rising pressure on food inflation and thedepreciation in the local currency cast a shadow on the inflationoutlook for the rest of the year. The Consumer Price Index (CPI)inflation is already high (9.64% for July 2013) which alongwith fuel price hikes could further affect the prices. However,the RBI is concerned about the rising current account deficitand has taken several measures (tightened liquidity, curbed goldimports etc) to deal with it. Therefore, we do not expect anyrespite from the RBI in the near term unless the macro-economicsituation improves significantly.

� India’s trade deficit was stable at $12.3 billion in July 2013 ascompared with $12.2 billion in June 2013. However, it declinedby 29.8% year on year (YoY) as the country’s total importsdeclined in July 2013. In July imports declined by 6.2% YoY(down 0.4% YoY in June 2013) to $38.1 billion while exportsgrew by 11.6 % YoY, for the first time in four months, to $25.8billion due to the falling rupee.

� After the announcement of stiff measures to curb volatility inexchange rates since mid July this year, the markets wereexpecting the RBI to maintain a status quo in its Q1FY2014policy review and that is what eventually happened. Therefore,the repo rate now stands at 7.25%, the cash reserve ratio at4.0%, and the marginal standing facility and bank rates are at10.25% each. Further, the central bank has trimmed the growthforecast for FY2014 to factor in the evolving conditions in thedomestic economy as well as the global economy.

Banking: credit offtake remains sluggish, margin pressureincreases due to a rise in interest rates� The credit offtake has grown by 16.6% YoY (as of August 9,

2013), which is higher than the 14.9% year-on-year (Y-o-Y)growth recorded in the previous month (on July 12, 2013). The




credit growth during the given fortnight could be a one-offphenomenon (driven by the shifting of borrowings fromcommercial papers [CPs] to bank credit as the rates at the shorterend have increased significantly) and is unlikely to sustain due tothe weakening economic growth. However, the fortnight’s creditgrowth is lower than the RBI’s projection of 15.0% for FY2014.

� The deposit growth has slowed down to 13.0% YoY (as ofAugust 9, 2013) as compared with the 13.7% Y-o-Y growthrecorded in the previous month (on July 12, 2013). The growthin the deposits remains subdued due to the competitive returnsoffered by the other instruments. The RBI has targeted theFY2014 deposit growth at 14.0%.

� A slower growth in the deposits compared with the advancesremains a concern for banks. The credit/deposit ratio for thebanks remains at an elevated level of 77.6% (as of August 9,2013).

� The yield on the government securities (G-Secs; of ten-yearmaturity) stood at 8.41% on August 21, 2013 and was higherthan the average of 7.83% maintained in July 2013. Moreover,the five-year and ten-year G-Sec yields grew by 47 and 33 basispoints respectively on a month-on-month (M-o-M) basis. Sincemid July 2013, the RBI has announced several liquidity measuresto stem the rupee’s fall. This has led to a sharp increase in theshort-term yields and has also had a spill-over effect on thelong-term bond yields. Further, the depreciation in the rupeeand the expectation of more stringent measures will maintainthe pressure on the bond prices.

Equity market: FIIs turn net sellersDuring the month-to-date (MTD) period of August 2013 (August1-20, 2013), the foreign institutional investors (FIIs) were net sellersof equities while the domestic mutual funds were net buyers in theequity market.

Banking stocks underperform in August 2013 due to weakeningasset quality and jump in bond yieldsIn the last one month, the BSE Bankex has declined by 15.8% ascompared with a decline of 11.0% in the Sensex. The banking stocksunderperformed due to rising asset quality pressures (evident intheir Q1FY2014 results) and a sharp rise in the bond yields afterthe RBI’s liquidity tightening measures. Though recently the RBIhas provided some relief from the rising bond yields (it has allowedthe transfer of bonds from the “available for sale” [AFS] portfolioto the “held to maturity” [HTM] portfolio at July 15, 2013 prices;the HTM limit has been raised to 24.5% of the net demand andtime liabilities [NDTL] from 23% proposed earlier), but the assetquality remains the sector’s dominant concern.�


SECTOR UPDATE

Oil is not well

OIL & GAS AUGUST 29, 2013

KEY POINTSIndia’s fuel subsidy bloats up owing to double whammy of spike incrude oil prices and steep depreciation in the rupee: India’s fuelsubsidy bill is likely to shoot beyond Rs2 trillion in FY2014 asagainst Rs1.3-1.4 trillion estimated at the beginning of the financialyear and Rs1.55 trillion in FY2013. In addition to the spike in thecrude oil prices (over $110 per barrel on an average), sharpdepreciation in the rupee has added worries. On the other hand,the government has not shown the courage to pass on the burdento consumers leading to record under-recoveries in diesel and thepossibility of a loss in even deregulated products like petrol.According to rough estimates, the under-recoveries in diesel at theprevailing crude oil prices, exchange rate and retail price wouldcross Rs15 per litre which is clearly not sustainable.

Oil and gas stocks have reacted negatively to the situation: Giventhe scenario, the oil and gas stocks have corrected sharply in linewith the emerging situation and market condition. The worst hitare the oil marketing companies Indian Oil Corporation (IOC),Hindustan Petroleum Corporation and Bharat PetroleumCorporation as the under-recoveries would put further stress ontheir balance sheet. In case of the upstream companies (ONGCIndia, Oil India and GAIL India), the expectations of a highersubsidy burden (and a lack of clarity on the subsidy sharingarrangement) have led to the de-rating of their valuations.




Strong results; positive view maintained

ESCORTSVIEWPOINT AUGUST 14, 2013CMP: RS89

Q3FY2013 result highlights; farm and railway businesses showstrong performance� Escorts Ltd (EL)’s Q3FY2013 revenues at Rs1,175.9 crore grew

strongly by 16% YoY. The growth was led by the tractor andrailway segments, which posted a healthy growth in doubledigits. The construction equipment and automotive (auto)ancillary segments declined in double digits.

� The OPM at 7.9% improved by 260 basis points YoY and 250basis points QoQ on account of an overall cost reduction andbenefit of operating leverage. The margin of the tractor andrailway segments improved both YoY and QoQ. The marginof the construction and auto ancillary segments dipped bothYoY and QoQ.

� The lower interest expenses and taxation further boosted theprofit. EL’s net profit at Rs58.8 crore almost trebled YoY andimproved by 59% QoQ.

Tractor segment’s growth to remain in double digitsThe tractor industry recorded a strong growth of 23% YoY in theApril-June 2013 quarter. The sales were boosted by a goodmonsoon, which improved the overall sentiment. Also, the increasein the minimum support price for crops led to better farm realisationswhich boosted the demand for tractors. Going forward, the industryexpects a growth of about 10-12% in FY2014.

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


EQUITY FUNDAMENTALS

Margin improvement to sustainDuring Q3FY2013, EL reported a higher margin on account of astrong margin improvement in the tractor business. The margin ofthe tractor segment improved by 300 basis points YoY and QoQ.EL’s focus on cost reduction and higher HP range along with priceincreases resulted in a higher margin for the segment. Though ELalso had the advantage of operating leverage during the quarter,but we expect the margin to remain at higher levels on account ofthe increased focus on the more profitable higher HP tractors.

Valuation: industry outperformer; retain positive viewWe expect the company’s revenues to grow by 11% in FY2014,given the strong demand for tractors. The margin is expected toimprove by 40 basis points on account of a margin improvement inthe tractor business due to EL’s focus on the higher HP range andcost-control initiatives. The net profit is expected to grow by 29%in FY2014 on account of an improved operating performance andreduction in the interest expenses. The stock currently trades at 7xand 5.5x its FY2013 and FY2014 estimated earnings. Given thestrong tractor demand and improved margin scenario, we have apositive view on the company.�

Syria crisis could further push up crude oil prices; government wouldbe unable to pass on the sudden increase in subsidy burden: Therising threat of the involvement of the western countries in the Syrianconflict has stirred concerns over the crude oil supplies from theMiddle-East. Syria may not have a direct impact on global crudeoil supply but it lies in close proximity to the pipelines and searoutes that transport much of the world’s crude. Given the scenario,an attack on Syria could not be ruled out which could further inflatethe crude oil prices from the current level for some time. Furtherrise in crude price could widen under-recoveries.

Outlook for public sector oil stocks challenging; situation favourablefor RIL, Cairn India and Selan Exploration: Worst still, we feeleven a bulky hike in fuel prices will not make up for the sudden andsharp increase in the under-recoveries that are likely to be muchhigher than the budgeted figures for the year. Hence, despite therecent correction in the stock price of the oil marketing companiesand upstream public sector companies, the near-term outlook forthe oil and gas companies remains challenging and we advise cautionto investors looking at them. However, the situation is favourablefor Reliance Industries Ltd, Cairn India and Selan ExplorationTechnology due to their better blended realisations.�


Z wave up

� The Sensex has taken support at a downward sloping trendline and also closed above the 20-daily moving average, ie18554, which will be a very crucial support going forward.

� The momentum indicator is trading in positive zone and aroundthe zero line.

� The key support would be around 18554 and 18166 whileresistance would be faced at 19993.

� In the short term, the index is expected to trend up till thedownward sloping trend line, which lies at 19600.�

� The Sensex is trading below the 20-weekly moving average, ie19376. But it is expected to cross above the average and retestthe previous swing’s high, ie 20350, in the medium term.

� According to the Elliott Wave theory the index has completeda pull-back as W-X-Y-X and a new move on the upside as waveZ is in process.

� The leg on the upside as wave Z will be confirmed as soon asthe index forms a positive close on the quarterly chart.

� On the weekly chart, the momentum indicator has given anegative crossover, trading below the zero line, but is expectedto turn around.

� As the index has bounced back, it is now expected to continuethe positive momentum and the strategy should be to buy ondeclines with reversal around the 20-quarterly moving average,ie 17200.

� The key supports would be around 17448 and 17200 whileresistance would be around 19376.�

� On the monthly chart the Sensex is trading in a big rangebetween 21207 and 15135.

� The index is expected to form a triple top around the all-timehigh of 21207, which is a crucial resistance going forward.

� The Sensex has been consolidating above the 20-monthlymoving average (MMA), ie 18500, which will act as a verycrucial support going forward. But if the index closes belowthis level then the previous swing’s low can be retested, ie 15135.

� The Sensex is trading above the 20-MMA levels, ie18500, and isexpected to form a positive close on the quarterly and monthly charts.

� The Sensex has taken support at a long-term upward slopingtrend line which is a very bullish sign for the market.�

Sensex: daily view

Sensex: weekly view

Sensex: monthly view

Trend Trend reversal Support Resistance Target

Up 17450 17450 21100 21100

Medium term

Trend Trend reversal Support Resistance Target

Up 18150 18150 19250 19250

Short term

TREND & VIEWEQUITY TECHNICALS

15 22 29 6May

13 20 27 3June

10 17 24 1July

8 15 22 29 5August

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Derivative view: Market to oscillate like a pendulumIt all started with the deprecation in the rupee to 68 and lower againstthe dollar due to the news flow on tapering of the quantitative easingmeasures from the American continent followed by domestic factorssuch as discouraging economic data on gross domestic product, Indexof Industrial Production and inflation. The international prices ofnot only crude oil but also the other commodities skyrocketed onmounting tension between the USA and Syria which had a greaterimpact on the Indian equity market compared with the other emergingmarkets. The intensity of the pain left market participants in a grimand clueless situation as the prime index, the Nifty, fell by 13.89%in a single series to create a fresh 10-month low at 5118.85 from thecurrent series’ high of 5944.50. The market showed resilience at lowerlevels and bounced back sharply from the recent low to wind up themonth with a loss of 4.71%.

MARKET WIDE VS NIFTY ROLL-OVER

MONTHLY VIEW EQUITY DERIVATIVES

Being a shorter one and with the line-up of some key events (USFederal Reserve’s meet and the RBI’s monetary policy review meet)in the second half of the month, the September series may see hugewhipsaws and volatility in the derivatives market. Due to thedomestic macro-economic concerns the activity on the option frontis widespread across strikes, indicating signs of indecisiveness. Fromall the above data points we have learned that the market maycontinue to oscillate in a broad range of 5300-5800. Hence, we areforming a Condor Strategy in the Nifty with a favourable risk-to-reward ratio.�

Top five stock options with highest open interest in the current series

View

STOCK OPTIONS (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)

SBIN 568.13TCS 516.09MCDOWELL-N 404.25RELIANCE 375.67AXISBANK 349.41

A condor is market neutral strategy, which is a combination of buyingand selling of options. It is a “limited risk and limited profit” strategywith a favourable risk-to-reward ratio. A condor is generally formedwhen the market/a stock is expected to contract its range. A condorcan be constructed by selling a lower strike in-the-money call, buyingan even lower strike in-the-money call, selling a higher strike out-of-the-money call and buying another even higher strike out-of-the-money call of the same expiry and underlying.

Strategy for the month: Condor

PAY-OFF DIAGRAM

Expectations of positive steps from the Reserve Bank of India (RBI)’snew Governor Raghuram Rajan to curb the volatility in the currencymarket helped the Nifty start the September series with gains. TheSeptember series started the month with Rs8,719 crore in Niftyfutures vs Rs11,071 crore in the previous series; Rs24,396 crore instock futures vs Rs26,637 crore in the previous series; Rs57,934crore in index options vs Rs55,035 crore in the previous series; andRs2,836 crore in stock options vs Rs3,172 crore in the previousseries. The roll-over in the Nifty stood at 51.87%, which issignificantly lower than the previous month’s roll-over of 75.92%as well as the three-month and six-month average roll-overs of60.03% and 59.10% respectively. The market-wide roll-over stoodat 73.84%, which was lower than the three-month and six-monthaverage roll-overs of 79.53% and 79.59% respectively. We havelearnt that the majority of the positions were rolled on the shortside as the roll-over cost decreased.

The current series’ expiry option activity data from the day of theexpiry till date suggests that there has been a very gradual increasein the open interest (OI) in calls compared with puts. As a result,the put/call ratio (PCR) has been hovering in the range of 1.16 to1.28 for quite some time. On the option front, the call option (CE)of strike 5700 stands with the highest number of shares in OIfollowed by good activity witnessed in the strike of 5800. On theput side, the put options on strikes of 5400 and 5300 have combinedOI of 1.16 crore shares. After such a sharp move, we feel that theIndia Volatility Index would remain in a broad range of 26-36%going forward. The above description indicates that the marketmay remain in a broad range of 5300-5800 in the month ahead.

STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)

TCS 1689.98MCDOWELL-N 1507.40ICICIBANK 1039.67HDFCBANK 909.57SBIN 905.21

Top five stock futures with highest open interest in the current series

FORMATIONTYPE BUY/SELL STRIKE PREMIUM OUTFLOW

CE Buy 5400 348CE Sell 5500 269 -27.00CE Sell 5700 137CE Buy 5800 85

Strategy note

The strategy has an initial outflow of 27 points in the Nifty, whichamounts to Rs2,700 (27*100) and which is also the maximum lossthat can be incurred in the strategy if the Nifty expires below or abovethe break-even points. The maximum profit potential in the strategy isof 73 points, which amounts Rs7,300 and which could be incurred ifthe Nifty expires in the 5500-5700 range. The higher break-even pointfor the strategy is 5773 and the lower break-even point is 5427.


Commodities: Syria, QE taper related selling to provide buying opportunities as Europe and China recover

Key points

� The US Senate Foreign Relations Committee voted to authoriseObama to conduct a limited US military operation in Syria

� Syria urges UN Security Council to block “absurd use of force”

� Fed economists see QE offering as a moderate growth boost at best

� Fed seen tapering QE this month, opine 65% of surveyed economists

� Obama focuses on the risk of a new bubble undermining the broadrecovery

� US manufacturing accelerates at the fastest pace in 26 months

� US construction spending at a 4-year high in July

� US trade deficit widened to $39.15 billion in July

� US car sales beat estimates in August; outlook cautious for September

� Retail sales in the USA increase for fourth consecutive month

� US new home sales tumbled 13.4% in July

� Economists in Jackson Hole say QE less potent than Fed believes

� US home prices continued to climb in June

� Hopes of euro zone recovery gather pace after strong private sectordata

� German investor confidence rises as euro area resumes growth

� German, French growth helps euro region recover from recession

� EMU: PMI services returns to expansion in August

� German unemployment holds steady at 6.8%

� Euro area manufacturing expands on a surge in Italy, Spain

� UK manufacturing index rises to the highest in 2 1/2 years

� UK unemployment stays at 7.8%

� China’s manufacturing gains on stronger domestic demand

� China HSBC China services PMI increases to 52.8 in August from51.3

� China trade rebounds, further sign that economy is stabilising

COMMODITY PRICES IN AUG 2013 (IN $)

Commodity High Low Close Mon chg %

Copper 7420.0 6671.0 7100.0 1.7

Zinc 2009.0 1839.0 1905.0 3.4

Lead 2256.0 2000.0 2152.0 4.0

Gold 1433.8 1273.0 1395.2 5.3

Silver 25.1 19.2 23.5 18.5

Crude oil 112.2 101.8 107.7 3.4

MONTHLY CHANGE IN SHFE STOCKS (JUL-AUG 2013)

Copper Lead Zinc

Change (in tonne) -4996 -11890 -9063

26-July-13 161564 111903 269310

Change (in %) -3.09 -10.63 -3.37

MONTHLY CHANGE IN DOE CRUDE STOCKS (JUL-AUG 2013)

Crude oil Dist. Gasoline

Change in M (000' bbls) -0.003 0.003 -0.005

26-July-13 0.365 0.126 0.223

Change in (%) -0.82 2.38 -2.24

Refinary utlisation rate was at 91.3% in the last week of August.

MONTHLY CHANGE IN LME STOCKS (JUL-AUG 2013)

Copper Lead Zinc

Change (in tonne) -24800 -14550 -44150

31-July-13 622800 200225 1049475

Change (in %) -4.0 -7.3 -4.2

Note—LME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)

Macro-economy

Crude oil to be volatile on Syria, supply disruptions and end of the US driving seasonKey points

� Syria crisis seen as supportive for crude oil prices• Cushing supply drops to 17-month low• Libyan oil production slumps to less than half of 2011 level• China may further open up crude oil import market, Reuters says• China set to become the world's biggest net oil importer• US refinery utilisation can decline as the driving season gets over• US oil stocks 5.40% above 5-year average• US gasoline demand for last week of August at 8-year low• Chemical weapons claim “pretext” to attack Syria: an Iranian leader• US plants have slowed output in Q3 each year since 1999: EIA

Commodities in the Indian Rupee terms witnessed an extremely sharp rise in prices due to unprecedented weakness in the domestic currency.Huge swings in the rupee means that traders need to hedge their currency risks for taking positions in commodities. Crude oil gained on themonth on declining US inventories, geo-political concerns, supply concerns out of Libya, and encouraging macro-indicators out of Chinaand Europe. Oil production in Iraq is likely to decline in September due to maintenance work on the Southern Export terminals. Libyan oilproduction (down to 1mbpd in July from 1.42mbpd in April this year) is suffering because of unrest and strikes. The Syrian crisis issupporting the counter on concerns that the oil producing region could get embroiled in the turbulence should the USA attack Syria. On thebearish side, the decline in the US refinery utilisation as the driving season has ended would reduce the demand. We look for a range of$104-112 with an upside risk in case of an attack on Syria.

WTI NYMEX crude oil CMP: $108.72

MONTHLY VIEWCOMMODITY FUNDAMENTALS


MONTHLY VIEW

Gold CMP: $1,368 (SPOT)

Bullions face downside risk from Fed’s QE tapering

Silver CMP: $23.15 (SPOT)

Silver prices surged sharply in August as silver breached the crucial resistance of $22 on account of an improving global economicscenario and a rally in gold. The gold-silver ratio moved in favour of silver. Silver is likely to be range-bound in the near term. We expectthe metal to trade between $22 and $26.

Copper CMP: Rs480 (November contract)

Base metals to be bought on dipsKey points

� China’s July refined copper imports rise to 291,846 tonne• Lead market shortage seen by Study Group at 40kt in January-June 2013• Zinc surplus 44kt in the same period• China's lead ore and concentrate imports up in July as domestic production falls• Copper had surplus of 338,000 tonne in the first half, WBMS says• China’s power use signals more demand for copper• China’s copper output seen lower by Antaike on tight scrap supply• Japan’s copper consumption likely to pick up• China’s copper consumption likely to improve on rise in imports• Automobile and housing recovery to drive US zinc demand higher

Copper rallied in August on improving Chinese economy and decline in the London Metal Exchange (LME) inventories. China’s copperimports are likely to stay elevated as restocking ends and scrap market remains tight. China’s copper demand is likely to rise by 5%towards the end of the year from a contraction seen earlier in the year. Japan’s copper consumption is likely to rise on reflationarypolicies. The recovery in the US housing and automobile sectors is supportive for the metal. The base metals complex could face downwardpressure on account of the Syria issue and the US Fed’s tapering of the quantitative easing (QE) measures. However, the decline should betreated as a buying opportunity. The metal can rise to $7,600 on the LME. Copper is likely to trade in the range of Rs465-510.

Lead CMP: Rs140 (September contract)We remain friendly towards lead on declining inventories at the Shanghai Futures Exchange and LME warehouses. Also, the Chinese e-bike related demand continues to be healthy. A risk can come from a sharp jump in crude oil prices that could affect the demand forautomobiles. Lead is likely to trade in the range of $135-155.

Gold and silver rallied on the expectations that the US Federal Reserve (Fed) might delay tapering as reflected from the mixed signals fromthe Fed officials and the Federal Open Market Committee’s minutes. Headlines related to Syria also helped the complex to some extent.The imports in the first half of 2013 stood at 536 tonne, sharply down from 860 tonne in 2012 as a whole. The rising income in Chinaand a steady yuan are seen as supportive for the metal. The industrial demand for the metal is likely to grow at 1% in 2013 and 2014 onlower prices in dollar terms. The mining companies are responding to the lower prices by cutting costs and deferring projects. If thesecompanies get back to hedging it would cap the advance in the prices. A recovering Europe increases the possibility of tapering by the USFed. The Indian demand could suffer due to wild swings in the domestic currency. However, the yellow metal can get some support fromIndia in the festival season. Gold’s price primarily depends on two factors: (1) the continuation of the stimulus from the US Fed, and (2)geopolitical issues. Thus, we see a limited upside to the metal. The metal can decline to $1,280 level in the near term. The upside is likelyto be capped at $1,420.

Key points� The USA to hit its Congressionally mandated borrowing $16.7-trillion limit by the middle of October• Silver coin sales from the US mint were up 26% in August from a year earlier• Year-to-date silver sales equaled the total sales in 2012• September usually a strong month for gold• Deteriorating capital account balances in emerging markets to affect demand from central banks: Nomura• Russia, Kazakhstan boost gold reserves as Mexico sells: IMF• India has no proposal to lease gold bought from IMF: Mayaram• Gold bull Paulson cuts SPDR stake by half amid bear market• Gold tax increase, festival demand may spur smuggling in India• India increases gold tax for third time this year to cut deficit

COMMODITY FUNDAMENTALS


Zinc CMP: Rs123 (September contract)

The apparent demand for the metal in China is quite strong as it is up 8% year on year on demand for galvanising due to a year-on-yearincrease of nearly 12% in steel production. Global consumption of the metal is likely to grow at 4% this year. We look for a range ofRs120-135 with an upward bias.

Major economic events in September 2013

CMP as on September 06, 2013

MONTHLY VIEWCOMMODITY FUNDAMENTALS

Date Region Event Survey Actual Prior Impact9/2/2013 China Manufacturing PMI 50.2 50.1 47.7 The data was somewhat surprising as China's economy is seen to be struggling

Positive surprise is supportive for industrial commodities

9/2/2013 Euro zone PMI Manufacturing 51.3 51.4 51.3 The euro zone PMI data showed manufacturing expanded for the second straightmonth, which is a positive sign for industrial commodities

9/2/2013 UK PMI Manufacturing 55 57.2 54.6 The recovering Europe theme is supportive for base metals; supportive for the GBP too

9/3/2013 USA ISM Manufacturing 54 55.7 55.4 Data quite bullish for dollar and industrials, however Syria issue and FOMC policydecision to keep traders cautious in near term

9/4/2013 USA Trade Balance ($38.8B) ($39.1B) ($34.2B) Deficit widens on record auto imports

Somewhat bearish for dollar

9/5/2013 UK BoE asset purchase target 375B 375B 375B No change expected; focus would be BoE's assessment of economy

More important for GBP

9/5/2013 Euro zone ECB announces interest rates 0.50% -- 0.50% No change expected; ECB affirming the recovery can support euro and industrials tosome extent

9/5/2013 USA Factory orders -3.50% -- 1.50% Bearish data would support bullions especially gold

9/6/2013 UK Industrial production MoM 0.20% -- 1.10% Data likely to be upbeat, thus to support GBP

9/6/2013 USA Change in non-farm pay-rolls 180K -- 162K Data topping the forecast would increase the chances of QE tapering; hence wouldsupport dollar and weigh on commodities especially gold

9/6/2013 USA Unemployment rate 7.40% -- 7.40% Focus would be on participation of the job seekers

9/8/2013 China Trade balance $18.85B -- $17.82B Positive surprise would support base metals and crude oil as the data reflects thehealth of both the global economy and the Chinese economy

9/9/2013 Japan BoP current account balance -- Y336.3B Data important for yen, bearish data would be yen negative

9/9/2013 China CPI YoY 2.70% -- 2.70% Lower than expected inflation would be seen as positive for industrials as it wouldgive more room to adjust the monetary policy

9/10/2013 China Industrial production YoY 9.90% -- 9.70% Recent Chinese data topped the forecast; the continuation of the trend would bepositive for the industrials

9/10/2013 China Retail sales YTD YoY 12.90% -- 12.80% Better than expected data to support base metals and crude oil (industrialcommodities)

9/12/2013 Japan Machine orders YoY -- -- 4.90% Data important for yen; strong data would be positive for industrials

9/12/2013 Euro zone Industrial production SA MoM -- -- 0.70% The European recovery theme would need confirmation; better than expected data tosupport euro and industrials

9/12/2013 USA Import Price Index MoM -- -- 1.00% Lower than expected inflation figure would be negative for gold as it reduces inflationhedging demand

9/13/2013 USA Retail sales ex auto and gas -- -- 0.40% Data topping the forecast would be bullish for dollar and bearish for gold

9/16/2013 Euro zone CPI MoM -- -- -0.50% Inflation remains well below ECB’s target

Subdued inflation could weigh on euro and gold

9/17/2013 Euro zone ZEW Survey Euro Zone expectations -- -- 44 Would have direct impact on industrials and euro

9/18/2013 USA Housing starts -- -- 896K Recovering US housing sector is a key point in the US recovery theme

Bearish data would weigh on dollar and boost gold prices but even with somewhatdisappointing data the US Fed is likely to start tapering which would be a major factorfor direction

9/18/2013 USA FOMC rate decision -- -- 0.25% No change expected in the rates; the markets expect QE3 tapering which would bebullish for dollar and bearish for commodities; however, clues to the pace of taperingwould be crucial for medium-term direction

9/23/2013 UK GDP QoQ -- -- 0.60% UK economy has surprised positively; strong GDP data would support pound andindustrial commodities

9/24/2013 USA Consumer Confidence Index -- -- 81.5 Better than expected data would be positive for dollar and negative for bullions

9/25/2013 USA New home sales -- -- 394K Strong housing number would be bearish for gold and bullish for industrials

9/25/2013 USA Durables ex transportation -- -- -0.60% Better than expected data would be positive for dollar Industrials to rise once thedollar related sell-off is over

9/26/2013 USA GDP annualised QoQ -- -- 2.50% Stronger than expected number to help dollar and industrials, but would be bearishfor gold


Gold is a channelised play

� After the near vertical fall in April, gold had taken supportnear the long-term rising trend line. It had consolidated therefor several weeks, taking the form of a triangular pattern. Thepattern broke out on the downside and the price tumbledsharply.

� Towards the end of June this year, it achieved the equality targeton the downside and started moving higher. The rally isunfolding in a channelised manner. In the last few days goldhas fallen towards the lower channel line and the key dailymoving averages. From there the next leg up is likely to start.

� In the short term the targets are $1,453 and $1,462. The bullishpotential remains intact as long as the level of $1,347 holds ona closing basis

Silver favoured by bulls

� Silver had been falling in a channelised manner for the last fewmonths. It had formed a channel within a channel.

� On the downside, the white metal had cracked through multipleprevious lows and reached the lower end of both the channels.

� It had achieved the medium-term equality target on thedownside. Since July this year, silver has been in a recoverymode. It formed a leading diagonal on the upside at thebeginning of the rally. On the way up the white metal brokeout from a short-term falling channel.

� The key level on the upside is $26.05. The reversal can be trailedto $22.26.

Trend Trend Supports Resistances Targetreversal

Up $22.26 $22.98/22.50 $24.47/25.08 $26.05

� Crude oil was oscillating about its crucial weekly movingaverages for the last few months.

� In the last month it took off from there and leaped towards amedium-term falling trend line. It has crossed the trend lineand is consolidating above it for the last couple of weeks.

� Structurally, crude oil seems to have moved out of a triangularpattern. The recent rise is taking place in a channelised manner.

� The short-term momentum indicators are trading in favour ofbulls. Thus, unless the swing’s low of $102.22 is broken on aclosing basis, the oil is expected to move up till $114.83-127.00levels.


Up $102.22 $108/104.20 $112.24/120 $114.83/$127


Up $1347 $1359/1350 $1416/1433 $1453 /$1462

TREND & VIEW COMMODITY TECHNICALS

Crude oil scaling higher

April May June July August September October N

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1450

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SILVER [CASH] (23.0800, 23.9100, 23.0100, 23.8200, +0.67000)

-1.0-0.50.00.51.0MACD (0.73244)

O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S O N D 201

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LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (107.070, 110.700, 104.210, 110.530, +2.88000)

-15-10

-505

101520KST (9.81831)



Down $3.42 $2.98/2.72 $3.35/3.388 $2.58

Natural gas still under pressure� NYMEX natural gas has been trading in a medium-term fall-

ing channel. Within that it has formed a channelised rise fromthe lower end to the upper end and from there it has started tofall since the beginning of May this year.

� The gas was tumbling down in a short-term falling channel.Recently, it moved out of the channel but couldn’t surpass itskey weekly moving averages.

� Unless the 20-weekly moving average ($3.725) is crossed on aclosing basis the downside potential remains intact.

� The momentum indicators are in line with the fall.

� The Fibonacci targets on the downside are $3.18 and $2.88.


Down $3.725 $3.35/3.12 $3.60/3.72 $3.18 /2.88

Dhaanya Index forms an Impulse

� NCDEX Dhaanya Index has been in a correction mode for thelast one year. After the first leg of the fall the index had formeda bearish triangular pattern.

� It had broken out on the downside and almost achieved theequality target, ie 2111, in July this year. Near that level bullshad rushed in to provide support to the index.

� The daily as well as the weekly momentum indicators were at-tempting to recover from the oversold territory. As a result, theindex formed an Impulse from the low of 2119.

� A minor-degree correction till 2300-2290 is an opportunity toinitiate fresh long position with reversal at 2255. The target onthe upside will be 2487.


Up Rs2,255 Rs2,300/2,290 Rs2,394/2,400 Rs2,487

Copper near multiple resistances

� Copper has formed a multi-month triangle where the last legmade a throw-over of the pattern. The triangle has been formedin the right shoulder of a larger head-and-shoulders pattern.

� Thus, the red metal is in for a significant decline. In April thisyear copper broke the lower end of the triangular pattern aswell as the neckline of the head-and-shoulders pattern.

� However, the fall is breaking up into waves of lower degrees.The red metal once again moved up in the last few weeks toretest the pattern neckline. From there it seemed to start thenext leg down in the last week.

� The target on the downside will be the equality target, ie $2.58.The reversal can be pegged at the weekly upper Bollinger Band,ie $3.42.

TREND & VIEWCOMMODITY TECHNICALS

O N 2010 A M J J A S O N 2011 A M J J A S O N 2012 A M J J A S O N D 2013 A M J J A S O D 201

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2.58

HG COPPER CONTINUOUS 25000 LBS [COMEX] (3.25050, 3.32750, 3.22000, 3.26150, +0.02850)

-15-10

-505

1015KST (2.24350)

J A S O N D 2012 M A M J J A S O N D 2013 M A M J J A S O N D

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0.0%

23.6%

38.2%

50.0%

61.8%

100.0%

3.725

2.88

3.18

NATURAL GAS CONTINUOUS 10000 MMBTU [NYMEX] (3.60100, 3.71900, 3.51700, 3.53000, -0.05100)

-20

-10

0

10

20KST (-6.97736)

er December 2013 February March April May June July August September

2100

2150

2200

2250

2300

2350

2400

2450

2500

2550

2600

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23.6%

38.2%

50.0%

61.8%

100.0%

2255

2487

* DHAANYA - NCDEX FUTURE INDEX (2,346.39, 2,354.70, 2,326.06, 2,333.91, -11.1101)

203040506070

Relative Strength Index (54.7736)


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Currencies: Sell INR crosses as INR may recover briefly

Key points

� The Indian Rupee fell to a new lifetime low against the US Dollar� India’s Q2FY2013 GDP falls to 4.4%� The RBI opens dollar window for oil importers, curbs volatility in

exchange rate� Euro zone shows growth in second quarter, ends recession� In Q2 the USA GDP rises 2.8%, increases probability of tapering

of QE by US Fed� Emerging economies’ fate hangs in balance ahead of US Fed meet

CURRENCY LEVELS IN AUGUST 2013 (IN RS)

Currency High Low Close Monthly chg (%)

USD-INR 69.00 59.34 68.42 15.41

EUR-INR 92.42 78.94 91.48 16.23

GBP-INR 107.69 91.40 106.16 16.44

JPY-INR 71.58 60.56 70.12 15.78

INR-USD CMP: Rs67.09 (SPOT)The rupee hit a new lifetime low of 69.22 against the dollar in August this year as panic gripped the currency market due to weak domesticeconomy amid signs of life in the developed world. Market sentiment worsened after the Reserve Bank of India (RBI) and the Indian governmentinitiated a string of measures aimed mainly at curbing the dollar outflows rather than promoting the inflows. The rupee also came under intensepressure after the government passed the food security bill, which is expected to add Rs25,000 crore annually to food subsidy and exacerbatethe government’s fiscal woes. Meanwhile, India’s April-June 2013 gross domestic product (GDP) tanked while the US GDP growth rate wasrevised upwards to 2.8%. India’s manufacturing activity contracted to a four-year low in August led by a fall in the export orders while theConsumer Price Index and the Wholesale Price Index inflation rose in July. The rupee may appreciate to 63.50 levels per dollar if the US FederalReserve (Fed) keeps the quantitative easing (QE) programme unchanged in this month. The USD-INR may test 70.00 levels ahead of the Fed’smeet scheduled on September 18, 2013.

INR-GBP CMP: Rs104.75 (SPOT)The Pound Sterling surged to a new high of 107.03 against the rupee and rose by 1.9% against the dollar in August mainly on risingoptimism regarding economic recovery in the UK. The cable defied gravity despite Bank of England (BoE) pledging to hold interest ratesat low levels till the unemployment rate falls to 7%. However, the bank expressed readiness to tighten policy if inflation expectationscontinue to rise. In Q2 the UK GDP growth rate was revised upwards to 0.7% while the PMI indices in August continued to highlighteconomic recovery. We believe that BoE will remain dovish as the rising long-term rates risk derailing the economic recovery. Thepossibility of the US Fed tapering its QE programme will also weigh on the pound. We see the GBP-INR in the 108.45-100.13 range.

INR-JPY CMP: Rs67.20 (SPOT)The yen gained against the rupee while it stayed in the range of 95.00 to 100.00 per dollar in August this year. The gains in the yen werecapped after the Japanese Prime Minister Shinzo Abe came under intense pressure to increase the consumption tax in April to 8% fromthe current 5%. The last time Japan had increased the sales tax from 3% to 5% in 1997, consumer spending had tumbled and theeconomy had gone into recession. However, the urgency to increase the tax and boost government revenues is high at present after it wasreported last month that Japan’s debt has exceeded 1 quadrillion yens. Except for the temporary rise in the yen due to geo-politicaluncertainty, we believe the yen is slated to fall against the dollar in the medium term. We see the USD-JPY in the range of 96.00 to 102.00.We see the JPY-INR in the range of 64.88 to 72.

August 2013 contract price movement August 2013 contract price movement

CMP as on September 04, 2013

The single currency rose to a new high of 92.335 against the rupee and remained flat against the dollar in August as a rebound inmanufacturing and service sector activity across the euro zone was countered by fears of the US Fed reducing the size of its monthly bondpurchases. In the euro area the GDP increased by 0.3% quarter on quarter in Q2 ending a six-quarter-long recession. In particular, thePMI data, which Mario Draghi watches closely, has increased quicker than expected with the euro area composite PMI up from 47.7 inMay to 51.7 in August this year. We do not expect the European Central Bank to rock the markets by announcing a rate hike inSeptember. However, the policy tone is expected to remain bearish keeping in mind the possibility of the US Fed tapering QE this monthwhich will result in a spike in bond yields across the European Union. We see the EUR-USD in the range of 1.33 to 1.2800. We see theEUR-INR in the range of 89.73 to 84.20.

MONTHLY VIEW CURRENCY FUNDAMENTALS

INR-EUR CMP: Rs88.41 (SPOT)

5860626466687072

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5860626466687072USDINR JPYINR


GBP-INR IS FALLING BACK

� The GBP-INR in its previous fall had taken support near a long-term rising trend line (shown in blue in the chart). From therebulls regained strength as a result of which we witnessed a strongrally. The price on the way up crossed a crucial resistance levelwhere it had faced resistance several times.

� The price has recently crossed the upper end of the medium-term rising channel but is facing pressure in the higher territory.

� The short-term momentum indicator has given a sell signal fromthe overbought territory. Thus, the high of 106.98 will act as astrong resistance. In the short term the targets on the downsidewill be 98.20 and 96.50.

Currency View Reversal Supports Resistances Target

USD-INR Down 68.80 63.63/63.00 67.00/68.00 62.20

GBP-INR Down 106.98 100/98 104.8/106.76 98.20-96.50

EUR-INR Down 90.31 85/83.40 88.57/90 83.00-82.50

JPY-INR Down 0.6889 0.6500/0.6390 0.6726/0.6800 0.6300

EUR-INR hit by bears again� In case of the EUR-INR, a short-term correction had found

support near the medium-term rising trendline.� From there the price had taken off sharply. The momentum on

the way up had been so sharp that the price had crossed theupper end of the long-term rising channel.

� It had achieved the medium-term equality target (89.30).� Recently the price crossed the upper end of the medium-term

rising channel but faltered above the trendline and fell backtowards the lower end of the reverse channel (85). Once thelevel of 85 is broken, 83 and 82.50 will be the targets.

� A medium-term top looks in place at 92.00 whereas in the shortterm resistance is at 90.31.

JPY-INR in a channelised play� As can be seen from the adjacent chart, the JPY-INR had fallen

significantly. It had achieved the equality target on the downside.� The JPY-INR had formed an ending diagonal, which had

marked the end of the fall. It had broken out from the bullishpattern as well as from the medium-term falling channel.

� From there the price formed a three-wave rise and achieved theequality as well as the channel targets on the upside. Thus, thecurrency pair is expected to undergo a decent correction now.

� The high of 0.7081 will now act as a strong resistance frommedium-term perspective whereas the short-term resistance is0.6889.

� The key level on the downside would be 0.6300.

TREND & VIEW

USD-INR is overheated� After breaking out from an ending diagonal in May, the USD-

INR rallied smartly. On the way up it crossed multiple resis-tances. It achieved the conservative as well as the aggressiveequality targets on the upside.

� Channel study shows that it even overshot the long-term risingchannel. However, the price couldn’t sustain in the higher ter-ritory on a weekly closing basis and fell back into the channel.

� Thus, the high of 68.80 will now act as a strong hurdle fromshort-term as well as the medium-term perspective.

� On the other hand, the price can fall till the medium-term ris-ing trendline, ie 62.20.

CURRENCY TECHNICALS

11 A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S O N D 2014 M A M

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62636465666768697071

68.80

62.20

USDINR - INDIAN RUPEE (66.1000, 68.6000, 65.0000, 65.2400, -0.46000)

40

50

60

70

80Relative Strength Index (79.4782)

ary March April May June July August September October

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99100101102103104105106107108109

106.98

98.20

96.50

GBPINR (102.903, 103.439, 101.273, 101.964, -0.93900)


March April May June July August September October

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

9394

92.00

85.00

83.00

90.31

82.50

EURINR (86.5920, 87.0060, 85.2220, 85.9800, -0.61900)

40

50

60

70


December 2013 February March April May June July August September N

0.52

0.53

0.54

0.55

0.56

0.57

0.58

0.59

0.60

0.61

0.62

0.63

0.64

0.65

0.66

0.67

0.68

0.69

0.70

0.71

0.72

0.73

0.74

0.7081

0.6300

0.6889

JPYINR (0.65920, 0.66360, 0.65190, 0.65810, -0.00110)

30405060



We are pleased to introduce you to Sharekhan’s PortfolioManagement Service (PMS) in which we completely manageyour investment portfolio so that you stop worrying aboutthe market volatility and focus your energy on things thatyou like to do!

We have a wide range of strategies that you can choose from.Our strategies are based on fundamental research and tech-nical analysis.

Portfolio Management Service

INVESTMENT STRATEGY� Disciplined investment decisions are taken in specific stocks based on thorough

fundamental research.

� Investments are made primarily in the Nifty Fifty or the BSE 100 scrips.

� Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and

that of minimum of 90% in the BSE 100 stocks.

� Endeavours to create a core portfolio of blue-chip companies with a proven track

record and have partial exposure to quality companies in the mid-cap space.

Fund Manager: Gaurav Dua

FUND OBJECTIVEA good return on money through long-term investing in quality companies

PRICING� Minimum investment of Rs25 lakh

� Charges

� 2% per annum; AMC fee charged every quarter

� 0.5% brokerage

� 20% profit sharing after the 12% hurdle is crossed at the end of

every fiscal

PROPRIME - TOP EQUITY

OVERVIEWThe ProPrime—Top Equity PMS strategy is suitable for the long-term investors looking

to create an equity portfolio through disciplined investments that will lead to a growth

in the portfolio’s value with low to medium risk.

Top 10 stocks

Bank of Baroda

BHEL

Cipla

Larsen & Toubro

Oil India

Reliance Industries

HDFC Bank

State Bank of India

Reliance Communications

Zee Entertainment Enterprises

Product performanceas on August 31, 2013

(In %) Scheme Sensex Nifty

1 month -5.9 -3.8 -4.7

3 month -12.7 -5.8 -8.6

Since inception* -16.1 3.5 1.4

Best month 11.8 11.2 12.4

Worst month -10.6 -8.9 -9.3

Best quarter 12.7 12.6 14.5

Worst quarter -12.9 -12.7 -12.5

*16-June-11

Disclaimer: Returns are based on a client’sreturns since inception and may be different fromthose depicted in the risk disclosure document.

We have the following strategies on offer:

ProPrime (based on fundamental research)

� Top Equity � Diversified Equity

ProTech (based on technical analysis)

� Nifty Thrifty � Diversified� Trailing Stoploss

PMS FUNDS PMS DESK


INVESTMENT STRATEGY� Disciplined investment decisions are taken in specific stocks based on thorough

fundamental research.� A balanced mix of value and growth stocks (mid-cap and small-cap) is created

that represents investment opportunities across sectors and market capitalisation.� Invests in quality value and growth stocks with good earnings visibility and healthy

balance sheet.� The fund manager, with the help of extensive, in-house, superior research,

identifies fundamentally sound companies to invest in.� The fund manager strives to capture the short-term trading opportunities to

maximise the potential of the swings in specific stocks.

FUND OBJECTIVEA good return on money through long-term investing regardless of short-term volatility

PRICING� Minimum investment of Rs25 lakh� Charges

� 2.5% per annum; AMC fee charged every quarter

� 0.5% brokerage

� 20% profit sharing after the 15% hurdle is crossed at the end of every fiscal

PROPRIME - DIVERSIFIED EQUITYOVERVIEWThe ProPrime—Diversified Equity PMS strategy is suitable for long-term investorslooking to create an equity portfolio through disciplined investments that will lead to agrowth in the portfolio’s value with medium to high risk.

Top 10 stocks

Bank of Baroda

BHEL

Cipla

Federal Bank

ITNL

Power Finance Corporation

Reliance Industries

Reliance Infrastructure

Sesa Goa

Southern Petrochemicals Industries


(In %) Scheme S&P CNX 500

1 month -3.3 -4.7

3 month -19.9 -10.8

Since inception* 121.4 208.5

Best month 50.9 34.4

Worst month -23.2 -27.2

Best quarter 71.1 51.2

Worst quarter -28.5 -28.6

*27-Aug-04

Disclaimer: Returns are based on a client’sreturns since inception and may be different fromthose depicted in the risk disclosure document.FUND MANAGER’S VIEW

The market recovered a bit by the end of August 20013 after touching a low towards

the middle of the month. Stock-specific action did not lead to any substantial recovery

in the net asset value of ProPrime Diversified Equity even though the fund’s constituents

rallied by 8-10% from their bottoms during the month. These stocks are now trading

10-15% lower than their August 2013 close. As of today the market is really adjusting

to the uncertainties over the tapering of the US central bank’s quantitative easing

measures, fluctuation in the currency market, the Syrian conflict and the last phase of

political uncertainty at home prior to the general election next year. Policy paralysis

and populist measures of the United Progressive Alliance-II government have severely

dented the India growth story which is reflected in the nation’s gross domestic product

performance (GDP; in Q1FY2014 India’s GDP grew by only 4.4%). Hence, the

stock prices reflect the lack of confidence and extent of pessimism in the market.

We really need a change in leadership and in the attitude of those who govern the

country. The good news is we expect both to happen after the next year’s general

election. Even though the task will not be easy for the new government but the new

government will at least restore the faith of investors and initiate policy making

which will provide a breather to the stock market. For now, we prefer to sit on the

sidelines. We shall stay invested and hold our positions till a firm trend appears

and pessimism reduces in the market. We do not see the need to book any capital

losses yet.

Fund Manager: Suhas Samant

PMS FUNDSPMS DESK


INVESTMENT STRATEGY� This strategy has the potential to generate profits irrespective of the market

direction by going long or short on specific indices and stocks.

� It invests in the Nifty and the Bank Nifty indices (via futures) and 10 stock futures.

� An automated basic back-testing model is used to predict the market directionfor each of the indices and stocks which then decides the strategy to be deployedin terms of going long or short.

� The portfolio is not leveraged, ie its exposure will never exceed its value.

Fund Manager: Abhinay Jain

FUND OBJECTIVEAbsolute returns irrespective of market conditions through a long-short strategy followed in multiple investments


� Charges

� AMC fees: 0%

� Brokerage: 0.05%

� Profit sharing: Flat 20% charged on a quarterly basis

PROTECH - DIVERSIFIEDOVERVIEWThe ProTech–Diversified PMS strategy is suitable for long-term investors who desireto profit from both bullish and bearish market conditions. The strategy involvesgoing long (buying) or going short (selling without holding) on certain investmentclasses by predicting the market direction based on a back-tested automated model.



1 month -3.2 -3.8 -4.7

3 month -4.0 -5.8 -8.6

FY12-13 2.3 8.2 7.3

FY11-12 8.8 -10.5 -9.2

FY10-11 9.8 10.9 15.3

FY09-10 - - -

Since inception* 24.8 10.6 15.5

Best month 11.4 11.2 12.4

Worst month -8.1 -10.6 -10.3


Worst quarter -3.5 -12.7 -12.5

*16-May-2010


FUND MANAGER’S VIEW

In August this year we witnessed a sharp sell-off in the stock market and the Niftyplunged by over 4%. The month saw large swings and a significant increase in theIndia Volatility Index (VIX) on account of a sharp fall in the rupee against the dollar.Selling was more evident in the large-cap space especially in the banking stockscompared with the mid-cap space.

September is also likely to be very volatile as India VIX is currently at a level whichis the high seen in several months, indicating fear among market participants. Wehave seen significant writing in 5300 put option which forms the floor for the market.On the other hand, the 5700-5800 level can be a hurdle area. The market is likely toremain in a broad range of 5300-5800 in this month.

The net asset value (NAV) of ProTech Diversified decreased by 3.20% in August thisyear. The month was not good for the scheme, as the product witnessed multiplewhipsaws in this period. The major part of the downward move came in the form ofopening gaps which led to the erosion of the NAV. August was one of the few volatilemonths in many years when the product did not do well. We believe the scheme’sNAV has corrected by 28% to 21% and now can be a good time to enter the scheme.

*Traded stocks

Investments in*

Apollo Tyres

Bank Nifty

Century Textiles

IDBI Bank

JP Associates

LIC Housing Finance

Nifty

Punj Loyd

Reliance Capital

Tata Motors

Tata Steel

Yes Bank

PMS FUNDS PMS DESK


Fund Manager: Rohit Srivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%



PROTECH - NIFTY THRIFTY

OVERVIEWThe ProTech–Nifty Thrifty PMS strategy is suitable for long-term investors whodesire to profit from both bullish and bearish market conditions. The strategy in-volves going long (buying) or going short (selling without holding) on Nifty futuresby predicting the market direction based on a back-tested automated model.



1 month 6.5 -3.8 -4.7

3 month 11.5 -5.8 -8.6

FY12-13 3.7 8.2 7.3

FY11-12 13.1 -10.5 -9.2

FY10-11 9.2 10.9 11.1

FY09-10 14.7 80.5 73.8

Since inception* 175.4 83.9 81.1

Best month 28.9 -23.9 -26.4

Worst month -17.1 0.0 0.6


Worst quarter -11.7 17.3 22.3

*01-Feb-2006


FUND MANAGER’S VIEWProTech Nifty Thrifty closed August of 2013 with a return of 6.45%, boasting of

such a monthly performance after a long time. With this the net asset value of the

scheme hit a new high. With a return of 175% we are far ahead of the Nifty, which

has given returns of 81% in the same period. The power of compounding is at work.

Even though the scheme reported lower returns in the last few years the same was

normal. The market has recently shown an increasingly trending behaviour on both

sides which should be good for boosting the returns of ProTech Nifty Thrifty going

ahead.

The market itself had been moving in a narrow trading range for a long time and

volatility had declined. This range has gradually started to expand and the trend

should continue. Consequently, the returns of the scheme will also expand to a higher

range than witnessed in recent years. While the broad market has been bearish for

quite some time, the Nifty has been holding up better. This deviation is undergoing a

test and the oversold readings seen at the end of the last month must be relieved. The

5100-6200 level is the broad range established by the Nifty which should eventually

be breached by a large margin.

Investments in

Nifty Index

INVESTMENT STRATEGY� The strategy has the potential to generate profits irrespective of the market

direction by going long or short on Nifty futures.

� An automated basic back-testing model is used to predict the market directionfor the Nifty which then decides the strategy to be deployed in terms of goinglong or short.

� The portfolio is not leveraged, ie its exposure never exceeds its value.

PMS FUNDSPMS DESK


Fund Manager: Rohit Srivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%



PROTECH - TRAILING STOPS



1 month 0.1 -3.8 -4.7

3 month 2.8 -5.8 -8.6

FY12-13 14.9 8.2 7.3

FY11-12 29.0 -6.1 -4.6

FY10-11 - - -

FY09-10 - - -

Since Inception* 52.3 0.5 -1.4

Best month 9.1 11.3 12.4

Worst month -4.4 -2.0 -1.7

Best quarter 9.9 -12.7 -12.5

Worst quarter -1.2 3.0 2.8

*09th May 2011


FUND MANAGER’S VIEWAfter recording positive returns in July ProTech Trailing Stops ended August with

flat returns this year. This was because the broad market (which involves stocks as

against the Nifty and stock futures in case of ProTech Trailing Stops) moved in a

narrow range even as the Nifty sold off mostly on account of banking stocks. This

trend may make it look like the market was falling but the impact of this trend was

near zero on portfolios like ProTech Trailing Stops. So looking at the trend in stocks

the scheme maintained a capital protection strategy, thereby reporting near zero returns

for the month.

The market itself had been moving in a narrow trading range for a long time and

volatility had declined. This range has gradually started to expand and the trend

should continue. Consequently, the returns of the scheme will also expand to a higher

range than witnessed in recent years. While the broad market has been bearish for

quite some time, the Nifty has been holding up better. This deviation is undergoing a

test and the oversold readings at the end of the previous month must be relieved. The

5100-6200 level is the broad range established by the index and should eventually be

breached by a large margin.

Investments in

Nifty Index

Stock futures

INVESTMENT STRATEGY� This strategy spots the winning trades based on technical analysis vs time frame-

based portfolios, basically the momentum calls.

� A risk model has been developed for stock portfolio allocation that reduces therisk and portfolio volatility through staggered building of positions.

� It is non-leveraged—the exposure will never exceed the value of the portfolio.

OVERVIEWOur ProTech–Trailing Stops PMS strategy is ideal for Traders and Investors look-ing for Regular Income from trading and desire to make profits in both bullish andbearish market conditions. It is designed to payout book profits on monthly basis.*

It is also for those investors who are looking for better income than Fixed Incomeor Deposits. This strategy involves going Long (buying) or Short (selling withoutholding) on stock futures.

* Terms and conditions apply

PMS FUNDS PMS DESK


Advisory Products & ServicesThe Advisory Desk is a central desk consisting of a Mumbai-based expert team thatruns various sample model portfolios (for illustrative purposes only) for clients of allprofiles, be they traders or investors. For investors, it has the Portfolio Doctor serviceunder which it reviews an existing portfolio on various parameters and suggests changesto improve its performance. For traders, it has five products in all: MID Intraday, MIDSwing, MID Option, MID Delivery and MID Delivery Series.

All MID products are different from Sharekhan’s research-based technical andfundamental offerings as these essentially try to capture trading opportunities in liquidstocks where momentum is expected before or after some event including theannouncement of results or where some news/event is probable. These calls are rolledout by the Advisory Desk based on the market pulse and before generating an MID

call, all market news on the stock as well as its technical and derivative indicators are thoroughly checked.

Advisory products are ideal for those who do not have time to either monitor the market tick by tick or shift through pages of research fordata or pour over complex charts to catch a trend. However, all these products require perfect discipline and money management.

MONTHLY PERFORMANCE

MID TRADESThere are five different types of MID calls.

� MID Swing: These are positional long/short ideas based on fun-damental rationales/events/news as well as technical checks.These ideas come with proper stop losses and probable targets.

� MID Delivery: This is a long-only cash market delivery productwhere ideas are generated based on the market pulse (and notfundamental research). These ideas come with proper stop lossesand probable targets for a maximum period of one month.

� MID Delivery Series: Basket of trading ideas based on the short-term theme/flavour of the market. All ideas have a short-term

For more details on any of the Advisory Desk products write to us at [email protected]

READY FOR ROARING ADVICE

#Please note there may be some deviation in the actual performance reported in TradeTiger due to a difference in the method of closure of an idea in a particular month.

Portfolio Doctor evaluates an existing portfolio on various parameters and suggests recommendations on aregular basis to improve its performance. It is targeted at long-term investors with a portfolio value of morethan Rs10 lakh. The Portfolio Doctor service involves three simple steps:

� analysis of an existing portfolio, � realignment of the portfolio with Sharekhan’s

� creation of a Model Portfolio. recommendations

FOR INVESTORS

PORTFOLIO DOCTOR

FOR TRADERS

DERIVATIVE IDEADerivative Idea is generated by the Sharekhan Derivatives ResearchDesk based on the analysis of open interest, implied volatility andput-call ratio. It is a leveraged product and ideal for aggressivetraders. Calls in Derivative Idea are accompanied by proper stoploss, targets, time frame and quantity to execute.

trigger, are accompanied by fundamental arguments and havea maximum time frame of one month. The entry time is thesame for all ideas but the exit time could vary depending uponthe price movement. Ideally, the corpus should be spread acrossthe ideas with equal weightage.

� MID Options: These are directional calls on options based onthe analysis of the open interest and put-call ratio in the market.These come with proper stop losses and probable targets.

� MID Intraday: These are long/short ideas based on fund flowand technical levels. As is apparent from the name, these callsare meant for intra-day trading. All MID Intraday calls areaccompanied by proper stop losses and probable targets.

Derivative Ideas performance#

Ticket size (Rs) 300,000

Month Aug 2013 YTD FY14

No. of calls 13 144

Profit and loss (Rs) 2,267 33,713

Returns (%) 0.76 11.24

ADVISORY DESK

NEW

MID performance#

Product MID Intraday MID Swing MID Delivery MID Delivery Series MID OptionMonth Aug 2013 YTD FY14 Aug 2013 YTD FY14 Aug 2013 YTD FY14 Aug 2013 YTD FY14 Aug 2013 YTD FY14No. of calls 92 362 28 61 23 124 - 21 17 121Profit booked 67 232 16 33 17 69 - 12 11 74Stop loss hit 25 130 12 28 6 55 - 9 6 47Strike rate (%) 73 64 57 54 74 56 - 57 65 61


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

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhanfirst understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggestthat you get in touch with our Mutual Fund Advisor before investing in the best funds.�

MF PICKS

SHAREKHAN’S TOP MUTUAL FUND PICKS (EQUITY) AUGUST 13, 2013

MUTUAL FUNDS DESK

Data as on August 07, 2013

Scheme name Star NAV (Rs) Returns (%)rating Absolute Compounded annualised

6 months 1 year 3 years 5 years Since inception

Large-cap fundsICICI Prudential Focused Bluechip Equity Fund - Ret �� 17.4 -6.1 5.9 4.0 11.8 11.2

Birla Sun Life Top 100 Fund �� 23.4 -9.0 3.2 2.6 8.1 11.5

UTI Top 100 Fund �� 29.4 -4.6 2.8 2.3 4.7 11.1

Birla Sun Life Frontline Equity Fund - Plan A �� 91.7 -8.2 6.9 2.2 9.5 22.4

SBI Magnum Bluechip Fund �� 15.2 -8.6 6.0 1.5 6.0 5.8

IndicesBSE Sensex 18,664.9 -4.7 6.0 0.9 4.30 16.3

Mid-cap fundsSBI Emerg Buss Fund �� 48.9 -17.1 -0.8 6.6 11.7 19.5

Mirae Asset Emerging Bluechip Fund �� 11.8 -12.8 1.1 4.2 -- 5.5

IDFC Premier Equity Fund - Reg �� 34.7 -10.2 2.9 1.8 12.5 17.1

Franklin India Prima Fund �� 291.1 -9.3 6.4 1.4 9.2 18.7

SBI Magnum Midcap Fund �� 23.2 -11.6 5.6 -0.8 1.9 10.6

IndicesBSE MID CAP 5,337.5 -21.6 -12.9 -10.8 -1.92 18.8

Multi-cap fundsBNP Paribas Equity Fund �� 38.0 -3.8 8.9 5.3 6.0 16.2

Tata Ethical Fund - Plan A �� 73.0 -1.0 12.5 4.4 9.2 16.0

Axis Equity Fund �� 12.0 -1.6 12.0 2.9 -- 5.2

Mirae Asset India Opportunities Fund - Reg �� 16.9 -9.1 3.7 2.8 11.6 10.3

IDFC Equity Fund - Reg �� 16.3 -4.6 5.0 1.9 4.4 7.1

IndicesBSE 500 6,727.3 -10.7 -0.1 -2.7 2.90 14.0

Tax saving fundsAxis Long Term Equity Fund �� 14.1 -3.5 6.9 6.1 -- 10.1

BNP Paribas Tax Advantage Plan �� 15.6 -6.5 6.1 4.0 5.6 6.0

Franklin India Taxshield �� 220.0 -8.5 2.2 3.7 9.4 24.1

Tata Tax Saving Fund - Plan A �� 42.6 -6.4 3.0 2.2 6.7 18.8

IDFC Tax Advantage (ELSS) Fund - Reg �� 20.4 -7.8 5.3 1.5 -- 16.7

IndicesCNX500 4,213.9 -10.6 0.2 -2.4 3.05 7.9

Thematic fundsBirla Sun Life India GenNext Fund �� 29.5 -5.8 10.9 7.6 12.4 14.4

ICICI Prudential Service Industries Fund �� 21.5 12.2 30.3 7.1 7.9 10.5

UTI India Lifestyle Fund �� 13.1 -5.7 5.5 4.9 9.7 4.6

Reliance Media & Entet Fund �� 33.7 -12.5 14.3 3.6 7.6 14.7

L&T India Special Situations Fund �� 19.1 -10.7 1.1 1.4 7.6 9.3

IndicesS&P Nifty (CNX Nifty) 5,519.1 -7.1 3.4 0.5 4.05 13.8

Balanced funds

ICICI Prudential Balanced �� 53.0 -5.9 8.3 6.7 8.6 12.9

Tata Balanced Fund - Plan A �� 91.0 -6.0 2.3 4.2 10.3 15.2

Canara Robeco Balance �� 65.0 -7.8 -0.05 2.9 9.9 9.7

SBI Magnum Balanced Fund �� 54.2 -4.9 10.0 2.2 7.2 15.2

Reliance RSF - Balanced �� 22.3 -11.9 -2.1 0.1 10.4 10.3

Indices

Crisil Balanced Fund Index -- -4.2 4.5 3.0 6.0 12.2


MF PICKS

SHAREKHAN’S TOP SIP FUND PICKS AUGUST 13, 2013

MUTUAL FUNDS DESK

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

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhanfirst understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggestthat you get in touch with our Mutual Fund Advisor before investing in the best funds.�

Data as on August 07, 2013

Investment period 1 year 3 years 5 yearsTotal amount invested (Rs) 12,000 36,000 60,000Funds would have grown to (Rs) NAV Present Avg. annual Present Avg. annual Present Avg. annual

value (Rs) return (%) value (Rs) return (%) value (Rs) return (%)

Large-cap funds

ICICI Prudential Focused Bluechip Equity Fund-Ret 17.4 11,620.5 -3.5 37,475.9 1.4 77,918.5 5.5

SBI Magnum Bluechip Fund - Growth 15.2 11,349.2 -5.9 37,434.3 1.3 71,597.6 3.7

Birla Sun Life Frontline Equity Fund - Plan A 91.7 11,488.2 -4.7 37,417.4 1.3 74,617.9 4.5

Birla Sun Life Top 100 Fund - Growth 23.4 11,358.5 -5.8 36,775.4 0.7 72,280.3 3.9

UTI Top 100 Fund - Growth 29.4 11,558.1 -4.0 36,689.6 0.7 69,996.5 3.2

BSE Sensex 18,664.9 11,742.1 -2.35 36,728.8 0.69 69,944.8 3.17

Multi-cap funds

Tata Ethical Fund - Plan A - Growth 73.0 12,068.2 0.6 39,234.7 3.0 81,094.5 6.3

BNP Paribas Equity Fund - Growth 38.0 11,892.4 -1.0 38,878.6 2.7 74,382.0 4.5

UTI Opportunities Fund - Growth 29.9 11,590.7 -3.7 37,791.9 1.7 78,577.2 5.6

UTI Masterplus Unit Scheme 91 - Growth 85.8 11,586.5 -3.8 36,983.0 0.9 70,945.3 3.5

IDFC Equity Fund - Reg - Growth 16.3 11,657.0 -3.1 36,951.7 0.9 70,573.3 3.4

BSE 500 6,727.3 11,138.4 -7.82 34,340.1 -1.60 65,843.9 1.91

Mid-cap funds

SBI Emerg Buss Fund 48.9 10,662.4 -12.1 37,944.9 1.8 88,904.0 8.3

Franklin India Prima Fund 291.1 11,308.3 -6.3 37,380.2 1.3 77,864.5 5.4

IDFC Premier Equity Fund - Reg 34.7 11,137.1 -7.8 36,677.7 0.6 80,357.5 6.1

SBI Magnum Midcap Fund 23.2 11,055.6 -8.6 36,176.2 0.2 71,396.3 3.6

HDFC Mid-Cap Opportunities Fund 16.0 10,913.6 -9.9 35,414.2 -0.6 78,202.9 5.5

BSE Midcap 5,337.5 9,983.2 -18.22 29,348.1 -6.76 56,215.8 -1.32

Tax saving funds

BNP Paribas Tax Advantage Plan 15.6 11,623.8 -3.4 38,312.0 2.2 75,149.7 4.7

Franklin India Taxshield 220.0 11,409.0 -5.4 36,803.7 0.8 75,292.9 4.7

Tata Tax Saving Fund - Plan A 42.6 11,516.6 -4.4 36,666.4 0.6 72,472.5 3.9

DSP BlackRock Tax Saver Fund 16.9 11,295.9 -6.4 36,317.5 0.3 72,050.3 3.8

HDFC Long Term Advantage Fund 135.6 11,371.5 -5.7 35,738.3 -0.2 73,113.6 4.1

CNX Nifty 5,519.1 11,488.0 -4.7 36,013.8 0.01 68,524.0 2.7


Prices as on September 05, 2013

FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY15/FY13 FY13 FY14E FY15E FY14E FY15E FY14E FY15E (Rs)

EQUITY FUNDAMENTALSEARNINGS GUIDE

Sharekhan Earnings Guide Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div

(Rs) growth yield(%)

Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated **June ending company

AUTOMOBILES

Apollo Tyres 65.0 12,794.6 13,850.9 15,129.5 596.9 721.4 778.4 11.9 14.3 15.4 14% 5.5 4.5 4.2 18.4 17.7 17.7 16.2 0.5 0.8

Ashok Leyland 13.0 12,457.8 12,416.1 16,136.4 148.2 (57.9) 449.8 0.6 (0.2) 1.7 68% 21.6 -64.8 7.6 2.8 9.3 -1.3 9.7 0.6 4.6

Bajaj Auto 1,901.0 19,997.3 22,790.4 26,846.3 3,043.6 3,801.1 4,547.0 105.2 131.4 157.2 22% 18.1 14.5 12.1 51.5 46.2 37.5 35.4 45.0 2.4

M&M 777.1 38,356.6 39,437.8 45,761.3 3,543.8 3,547.1 3,791.3 57.7 57.6 61.6 3% 13.5 13.5 12.6 25.0 22.8 18.2 16.3 13.0 1.7

Maruti Suzuki 1,299.6 43,076.7 46,045.1 54,080.2 2,300.0 2,625.6 3,199.6 79.6 86.9 105.9 15% 16.3 15.0 12.3 16.5 18.1 12.8 13.9 7.5 0.6

BANKS & FINANCE

Allahabad Bank 71.4 6,343.3 7,033.0 8,334.4 1,185.2 1,252.6 1,578.0 23.7 25.1 31.6 15% 3.0 2.9 2.3 - - 10.6 12.2 6.0 8.4

Andhra Bank 51.5 4,804.4 5,353.8 6,113.0 1,289.1 1,250.7 1,343.6 23.0 22.4 24.0 2% 2.2 2.3 2.1 - - 14.0 13.6 5.0 9.7

Axis (UTI) Bank 927.5 16,217.4 19,390.2 22,756.3 5,179.4 6,018.5 7,097.0 110.7 128.6 151.7 17% 8.4 7.2 6.1 - - 16.9 17.3 18.0 1.9

Bajaj Finserv 569.0 5,072.4 - - 1,573.6 - - 103.0 - - - 5.5 - - - - - - 1.5 0.3

Bank of Baroda 502.6 14,945.9 16,633.3 19,611.6 4,480.7 4,436.2 5,245.1 106.0 105.0 124.1 8% 4.7 4.8 4.0 - - 13.2 14.0 21.5 4.3

Bank of India 145.3 12,790.0 14,088.0 16,138.9 2,749.3 2,507.2 2,903.8 46.1 42.0 48.7 3% 3.2 3.5 3.0 - - 10.1 10.8 10.0 6.9

CanFin Homes 117.9 95.7 129.0 158.3 54.1 64.8 80.4 26.4 31.6 39.2 22% 4.5 3.7 3.0 - - 15.5 16.8 4.0 3.4

Capital First 155.1 245.0 310.3 413.6 63.1 57.5 100.1 9.0 8.2 14.2 26% 17.3 19.0 10.9 - - 5.8 9.5 1.8 1.2

Corp Bank 249.9 5,033.8 5,610.4 6,450.7 1,434.8 1,511.7 1,806.0 93.8 98.9 118.1 12% 2.7 2.5 2.1 - - 14.9 15.8 19.0 7.6

Federal Bank 274.6 2,639.1 2,943.5 3,450.2 842.8 762.1 942.9 49.3 44.6 55.1 6% 5.6 6.2 5.0 - - 11.4 12.9 9.0 3.3

HDFC 750.4 5,927.5 7,063.1 8,593.3 4,848.3 5,731.2 6,752.4 31.3 37.2 43.8 18% 24.0 20.2 17.1 - - 18.4 17.8 12.5 1.7

HDFC Bank 609.5 22,663.7 27,430.3 33,067.5 6,726.2 8,413.0 10,546.6 28.3 35.4 44.3 25% 21.6 17.2 13.8 - - 21.3 22.6 5.5 0.9

ICICI Bank 893.7 22,212.1 25,864.0 30,001.6 8,326.2 8,983.4 10,520.5 72.2 78.0 91.4 13% 12.4 11.5 9.8 - - 12.9 13.9 20.0 2.2

IDBI Bank 56.9 8,592.6 8,990.8 10,006.2 1,882.1 2,123.5 2,403.2 14.1 15.9 18.0 13% 4.0 3.6 3.2 9.6 10.1 3.5 6.2

PNB 442.6 19,072.4 20,566.3 22,869.3 4,747.7 4,254.1 4,372.9 134.3 120.4 123.7 -4% 3.3 3.7 3.6 - - 12.4 11.5 27.0 6.1

SBI 1,638.2 60,366.1 65,548.3 74,480.5 14,105.0 12,296.2 14,545.6 206.2 179.8 212.6 2% 7.9 9.1 7.7 - - 11.9 12.8 41.5 2.5

Union Bank of India 110.7 10,094.9 11,076.4 12,689.7 2,158.5 2,151.9 2,486.6 36.2 36.1 41.7 7% 3.1 3.1 2.7 - - 11.9 12.6 8.0 7.2

Yes Bank 287.5 3,476.2 4,284.2 5,519.1 1,300.7 1,498.2 1,907.4 36.3 38.0 48.4 16% 7.9 7.6 5.9 - - 20.4 19.8 6.0 2.1

CONSUMER GOODS

Bajaj Corp 244.6 606.7 750.3 918.7 167.4 196.5 258.8 11.3 13.3 17.5 24% 21.6 18.4 14.0 47.3 52.4 37.7 41.8 6.5 2.7

GSK Consumers 4,303.8 3,079.4 3,638.4 4,244.8 436.8 524.8 607.9 103.9 124.8 144.5 18% 41.4 34.5 29.8 53.9 52.9 35.3 34.7 45.0 1.0

Godrej Consumer 819.4 6,390.8 7,783.5 9,526.0 667.2 853.5 1,103.1 19.6 25.1 32.4 29% 41.8 32.6 25.3 20.6 24.5 25.6 27.5 5.0 0.6

Hindustan Unilever 628.0 26,317.2 29,441.2 33,375.0 3,233.7 3,564.4 3,890.8 15.0 16.5 18.0 10% 41.9 38.1 34.9 131.4 100.6 98.1 72.9 18.5 2.9

ITC 312.2 29,901.3 34,733.7 41,512.9 7,418.4 8,824.3 10,697.5 9.4 11.2 13.5 20% 33.2 27.9 23.1 46.1 46.6 36.4 36.7 5.3 1.7

Jyothy Laboratories 147.0 1,106.0 1,333.0 1,611.5 19.6 75.3 133.6 1.2 4.5 8.0 158% 122.5 32.7 18.4 11.3 16.5 11.6 19.5 2.5 1.7

Marico 206.2 4,596.2 5,196.2 6,070.3 370.3 454.0 545.6 5.7 7.0 8.5 22% 36.2 29.5 24.3 22.3 24.2 20.8 20.8 1.0 0.5

Mcleod Russel India 265.5 1,629.5 1,869.5 2,109.7 274.2 352.6 416.8 25.1 32.2 38.1 23% 10.6 8.2 7.0 19.9 20.5 17.4 18.1 7.0 2.6

TGBL (Tata Tea) 147.2 7,351.0 8,075.8 8,979.1 391.5 475.3 540.2 6.3 7.7 8.7 18% 23.4 19.1 16.9 11.2 12.0 9.6 10.1 2.2 1.5

Zydus Wellness 528.7 388.0 448.7 525.1 99.0 108.7 130.3 25.3 27.8 33.3 15% 20.9 19.0 15.9 39.5 36.6 36.7 33.8 6.0 1.1

IT / IT SERVICES

CMC 1,285.0 1,927.6 2,192.6 2,672.8 230.2 261.8 325.1 76.0 86.4 107.3 19% 16.9 14.9 12.0 32.0 32.3 24.8 25.1 17.5 1.4

HCL Technologies** 1,019.9 25,733.7 30,308.1 33,302.2 4,098.7 5,031.8 5,577.5 58.2 71.4 79.1 17% 17.5 14.3 12.9 39.5 35.1 34.1 29.7 12.0 1.2

Infosys 3,004.8 40,352.0 46,576.5 49,974.8 9,421.0 9,867.5 10,829.2 164.7 172.5 189.3 7% 18.2 17.4 15.9 31.8 29.6 23.7 22.1 42.0 1.4

NIIT Technologies 292.0 2,021.4 2,344.3 2,691.2 213.2 255.3 282.7 35.4 42.4 47.0 15% 8.2 6.9 6.2 30.3 27.9 21.2 20.2 8.5 2.9

Persistent Systems 585.0 1,294.5 1,558.4 1,753.1 187.7 222.9 248.8 46.9 55.7 62.2 15% 12.5 10.5 9.4 28.8 27.2 20.5 19.4 9.0 1.5

TCS 1,990.8 62,989.5 77,209.5 87,063.7 13,941.4 16,754.7 18,896.4 71.2 85.6 96.5 16% 28.0 23.3 20.6 41.5 38.0 31.8 29.2 22.0 1.1

Wipro 468.9 37,425.6 41,468.0 44,431.4 6,136.2 7,079.2 7,464.5 24.9 28.7 30.3 10% 18.8 16.3 15.5 20.0 18.8 21.9 20.3 7.0 1.5

CAPITAL GOODS / POWER

BHEL 138.1 47,617.7 38,809.0 37,385.0 6,614.7 4,547.0 4,111.0 27.0 18.6 16.8 -21% 5.1 7.4 8.2 20.5 17.3 13.5 11.2 5.4 3.9

CESC 309.6 5,317.0 5,850.1 6,234.4 618.0 645.9 660.6 49.2 51.4 52.6 3% 6.3 6.0 5.9 8.5 8.2 9.6 9.2 7.0 2.3

Crompton Greaves 84.0 12,094.4 13,407.1 15,040.1 84.6 301.3 565.6 1.3 4.7 8.8 160% 64.6 17.9 9.5 10.0 16.1 8.0 13.5 0.4 0.5

Greaves Cotton 57.1 1,873.8 2,023.2 2,265.9 155.6 157.7 173.7 6.4 6.5 7.1 5% 8.9 8.8 8.0 26.5 25.8 18.7 18.1 1.6 2.8

Kalpataru Power 60.6 6,085.0 7,001.6 7,897.1 129.5 135.6 163.1 8.4 8.8 10.6 12% 7.2 6.9 5.7 10.3 11.0 6.8 7.6 1.5 2.5

PTC India 46.1 8,857.0 10,927.0 12,951.4 129.0 125.0 146.0 4.3 4.2 4.9 7% 10.7 11.0 9.4 7.3 8.2 5.2 5.8 1.6 3.5

Thermax 544.5 4,690.9 4,972.0 5,389.0 349.9 345.0 381.0 29.4 29.0 32.0 4% 18.5 18.8 17.0 25.2 24.5 17.4 17.0 7.0 1.3

V-Guard Industries 516.0 1,360.2 1,699.7 2,080.6 62.9 84.0 104.4 21.1 28.1 35.0 29% 24.5 18.4 14.7 28.3 28.1 28.3 27.5 3.5 0.7


Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div(Rs) growth yield

(%)FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY15/FY13 FY13 FY14E FY15E FY14E FY15E FY14E FY15E (Rs)

EQUITY FUNDAMENTALS EARNINGS GUIDE

#UltraTech numbers are post -merger of Samruddhi Cement. *FY2012 is of 15 months, ending June 2012 as company has changed reporting year from FY to June end

INFRASTRUCTURE / REAL ESTATE

Gayatri Projects 55.7 2,022.2 2,300.1 2,559.6 73.3 76.3 72.4 24.3 25.2 23.9 -1% 2.3 2.2 2.3 12.6 11.5 11.5 9.9 3.0 5.4

ITNL 115.0 6,644.9 6,561.2 7,347.0 520.3 464.2 494.2 26.8 23.9 25.4 -3% 4.3 4.8 4.5 10.1 10.2 11.9 11.3 4.0 3.5

IRB Infra 64.3 3,687.2 4,642.6 5,454.5 556.7 547.3 621.8 16.7 16.5 18.7 6% 3.8 3.9 3.4 12.2 12.3 15.9 16.0 4.0 6.2

Jaiprakash Associates 37.6 13,208.7 14,698.3 16,168.1 501.0 510.0 653.0 2.4 2.4 3.1 14% 15.6 15.6 12.1 10.0 9.8 5.0 6.8 1.8 4.8

Larsen & Toubro 727.8 74,498.0 79,651.6 88,077.0 4,797.3 5,298.9 5,964.0 52.0 57.4 64.6 11% 14.0 12.7 11.3 8.9 9.2 13.8 13.8 12.3 1.7

Pratibha Industries 19.0 2,157.5 2,554.3 2,757.1 82.7 79.8 88.0 8.2 7.0 7.7 -3% 2.3 2.7 2.5 14.8 14.9 11.6 11.2 0.6 3.2

Punj Lloyd 22.3 11,408.2 12,615.5 14,064.3 (284.7) 141.4 164.4 (8.6) 4.3 5.0 - -2.6 5.2 4.5 9.5 10.8 4.8 5.3 0.0 0.0

Unity Infraprojects 18.0 2,039.8 2,206.4 2,396.8 92.6 74.9 83.2 12.5 10.1 11.2 -5% 1.4 1.8 1.6 14.6 14.8 8.6 8.8 0.2 1.1

OIL & GAS

Oil India 432.6 9,948.0 10,360.0 11,922.0 3,588.0 3,773.0 4,389.0 60.0 62.8 73.0 10% 7.2 6.9 5.9 25.5 26.8 18.5 19.0 19.0 4.4

Reliance Ind 862.6 397,062.0 402,003.9 406,827.7 20,879.0 20,894.9 23,741.1 64.7 64.7 73.5 7% 13.3 13.3 11.7 9.8 10.2 9.6 9.9 8.5 1.0

Selan Exploration 262.9 97.1 128.6 166.5 45.8 60.0 77.2 27.2 35.7 45.9 30% 9.7 7.4 5.7 28.7 30.6 22.5 23.6 5.0 1.9

PHARMACEUTICALS

Aurobindo Pharma 188.6 5,855.3 7,123.3 8,133.6 457.3 606.5 774.4 15.7 20.8 26.6 30% 12.0 9.1 7.1 14.1 16.2 21.2 22.2 1.5 0.8

Cipla 418.6 8,279.3 9,551.8 11,362.8 1,544.9 1,687.2 2,053.0 18.7 21.0 25.6 17% 22.3 19.9 16.4 21.1 23.1 17.4 18.1 2.0 0.5

Cadila Healthcare 643.6 6,358.1 7,288.4 8,641.9 655.2 843.4 1,209.3 32.0 41.2 59.1 36% 20.1 15.6 10.9 19.0 23.5 22.4 24.9 7.5 1.2

Dishman Pharma 43.3 1,267.6 1,392.2 1,576.7 100.3 116.6 172.9 12.4 14.5 21.4 31% 3.5 3.0 2.0 11.5 14.6 10.4 13.5 1.2 2.8

Divi's Labs 966.8 2,139.9 2,515.2 3,133.8 590.6 679.7 859.8 44.5 51.2 64.8 21% 21.7 18.9 14.9 31.0 32.9 24.5 25.9 15.0 1.6

Glenmark Pharma 513.8 5,012.4 6,014.6 6,999.6 614.8 752.2 922.5 22.7 27.8 34.1 22% 22.6 18.5 15.1 20.7 23.7 21.9 21.5 2.0 0.4

Ipca Laboratories 709.9 2,738.8 3,225.9 3,738.3 394.7 502.2 610.4 31.3 39.8 48.4 24% 22.7 17.8 14.7 28.7 27.9 27.9 26.5 2.0 0.3

Lupin 854.6 9,461.6 11,379.2 13,490.4 1,314.2 1,626.3 2,029.5 29.4 36.3 45.4 24% 29.1 23.5 18.8 30.9 32.2 24.6 24.0 4.0 0.5

Sun Pharma 518.6 11,238.9 14,481.7 16,349.3 3,008.1 4,102.7 4,740.4 14.5 20.9 22.9 26% 35.7 24.8 22.7 35.0 33.1 26.4 23.4 5.0 1.0

Torrent Pharma 427.6 3,054.0 3,709.5 4,351.3 470.0 593.4 684.7 27.8 35.1 40.5 21% 15.4 12.2 10.6 34.9 32.8 34.7 29.7 23.0 5.4

AGRI-INPUTS

Tata Chemicals 242.6 14,718.6 15,288.1 16,329.9 652.5 778.3 852.6 25.6 30.5 33.5 14% 9.5 8.0 7.2 13.2 13.7 10.5 10.7 10.0 4.1

United Phosphorus 135.2 9,194.5 10,416.3 11,126.8 777.5 906.7 962.4 17.5 20.7 22.0 12% 7.7 6.5 6.1 16.9 16.3 17.0 15.7 2.5 1.8

BUILDING MATERIALS

Grasim 2,301.8 27,640.0 31,127.0 34,535.0 2,500.0 3,040.0 3,353.0 272.7 331.6 365.7 16% 8.4 6.9 6.3 19.0 18.4 12.6 11.9 22.5 1.0

India Cements 49.3 4,597.0 4,710.0 4,990.0 185.0 200.0 246.0 6.0 6.5 8.0 15% 8.2 7.6 6.2 6.0 7.0 5.0 6.0 2.0 4.1

Madras Cements 157.6 3,789.0 4,114.0 4,450.0 404.0 409.0 481.0 17.0 17.2 20.2 9% 9.3 9.2 7.8 9.0 10.0 16.0 16.0 2.5 1.6

Shree Cement* 3,765.0 5,590.0 6,017.0 6,743.0 1,005.0 912.0 1,057.0 288.5 261.9 303.5 3% 13.1 14.4 12.4 21.0 21.0 22.0 21.0 8.0 0.2

UltraTech Cement 1,539.4 20,174.9 22,773.7 25,227.4 2,655.4 3,005.7 3,220.0 96.9 109.7 117.5 10% 15.9 14.0 13.1 22.5 21.4 16.6 15.3 8.0 0.5

DISCRETIONARY CONSUMPTION

Eros Intnl Media 124.7 1,067.9 1,024.3 1,133.4 154.4 153.0 169.4 16.8 16.6 18.4 5% 7.4 7.5 6.8 14.9 14.9 14.4 14.0 1.5 1.2

Indian Hotel Company 46.5 3,743.4 3,968.1 4,449.8 0.2 19.5 75.5 - 0.2 0.9 - - 232.5 51.7 2.7 2.6 0.9 3.8 0.8 1.7

KKCL 724.0 303.0 368.1 435.1 53.0 62.8 77.7 43.0 50.9 63.0 21% 16.8 14.2 11.5 30.7 32.9 24.4 26.1 17.5 2.4

Raymond 187.6 4,069.0 4,551.0 5,126.0 40.7 70.0 129.8 6.6 11.4 21.1 79% 28.4 16.5 8.9 9.8 12.1 5.0 8.6 1.0 0.5

Relaxo Footwear 722.0 1,009.8 1,196.8 1,420.9 44.8 52.2 64.1 37.3 43.5 53.4 20% 19.4 16.6 13.5 23.7 25.2 17.8 19.7 2.0 0.3

Speciality Restaurants 126.2 226.9 293.8 387.3 23.4 33.4 53.9 5.0 7.1 11.5 52% 25.2 17.8 11.0 15.4 22.3 11.0 15.7 1.0 0.8

Zee Entertainment 225.4 3,699.6 4,277.4 5,120.0 719.6 830.3 1,053.1 7.5 8.7 11.0 21% 30.1 25.9 20.5 29.6 32.3 20.0 21.9 2.0 0.9

DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo 1,124.9 9,595.2 10,490.5 11,366.1 423.1 571.5 620.3 32.5 44.0 47.7 21% 34.6 25.6 23.6 9.7 9.5 7.9 7.9 6.5 0.6

Bajaj Holdings 795.0 336.9 - - 1,856.4 - - 166.8 - - - 4.8 - - - - - - 25.0 3.1

Bharti Airtel 296.2 80,311.0 85,536.0 95,688.0 2,266.0 4,291.0 6,169.0 6.0 10.7 15.4 60% 49.4 27.7 19.2 9.2 10.4 7.4 8.8 1.0 0.3

Bharat Electronics 1,177.1 5,991.0 6,125.0 6,534.0 890.0 858.0 992.0 111.2 107.2 124.0 6% 10.6 11.0 9.5 14.5 14.6 11.0 11.1 22.3 1.9

Gateway Distriparks 109.1 949.7 1,144.0 1,376.7 126.7 143.9 172.0 11.7 13.3 15.8 16% 9.3 8.2 6.9 15.4 17.6 17.6 19.7 6.0 5.5

Max India 153.2 10,624.0 - - 784.1 - - 29.5 - - - 5.2 - - - - - - 12.2 8.0

Ratnamani Metals 125.4 1,201.0 1,286.0 1,388.0 136.0 137.0 158.0 29.3 29.5 34.0 8% 4.3 4.2 3.7 23.4 22.2 19.5 19.2 4.0 3.2


Remarks

Automobiles

Apollo Tyres � Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. The demand isexpected to remain subdued in the near term, given the sluggishness in the domestic OEM and the Europeanoperations. The margins may improve due to softening of raw material prices. The company is planning to acquire100% stake in US-based Cooper Tyres, which is 2.5x its size. Since the acquisition is debt funded it would putsubstantial stress on the balance sheet. Further, any adverse movement in raw material prices and slowdown inthe global economy would exert pressure on the cash flows. Given the uncertainty, we have reduced our targetmultiple to 5x (a discount of 25% to the long-term multiple of 6.5x) to arrive at a price target of Rs77. Wemaintain Hold recommendation on the stock.

Ashok Leyland � Ashok Leyland, the second largest commercial vehicle (CV) manufacturer in India, is a pure CV play. The newgreenfield facility in Pantnagar in Uttaranchal has provided strategic cost and diversification benefits. The companyhas ventured into LCV space with the launch of Dost together with Nissan and is witnessing significant ramp-upin volumes. It has also entered into construction equipment space in JV with John Deere. The MHCV volumes arecurrently under pressure due to a subdued economic environment and increased diesel prices. The heavy discountingin the MHCV space may lead to a loss in FY2014. We have a Hold recommendation on the stock with a pricetarget of Rs18.

Bajaj Auto � Bajaj Auto is a leading two-wheeler maker. It is moving up the value chain by concentrating on the executive andpremium motorcycle segments. The launch of the new Pulsar and the KTM range would help it maintain itsleadership in the premium bike segment as well as its domestic volume growth. Further, the company plans tolaunch six new Discover models which would help increase its market share in the commuter segment. Exportsremain the key for the company to drive its overall volumes.

M&M � M&M is a leading maker of tractors and utility vehicles in India. Though the automotive demand may moderatedue to moderation in the UV demand and increasing competition, but the tractor demand would recover on theback of a normal monsoon and better crop realisation. Associating with world majors in passenger cars and CVshas helped it diversify into various automobile segments. The value of its subsidiaries adds to its sum-of-the-partsvaluation. Higher farm incomes, strong rural positioning, lower vulnerability to interest rates make M&M aproxy play on food inflation.

Maruti Suzuki � Maruti Suzuki is India’s largest small carmaker. Though the demand for diesel cars is witnessing pressure due toa hike in diesel prices, but the petrol segment is witnessing recovery due to narrowing differential between petroland diesel prices. Recently the company successfully diversified into the MPV segment with the launch of Ertiga.Suzuki of Japan has also identified India as a manufacturing hub for small cars for its worldwide markets. Withthe merger of SPIL, the diesel engine manufacturing arm of the Suzuki group, we expect synergistic benefits forMaruti.

Banks & Finance

Allahabad Bank � With a wide network of over 2,200 branches spread across India, Allahabad Bank enjoys a strong hold in northand east India. However, the bank has been recently plagued with severe asset quality issues and has the highestamount of stressed loans among its public peers.

Andhra Bank � Andhra Bank, with a wide network of over 1,800 branches across the country, has a strong presence in southIndia especially in Andhra Pradesh. Though it is trading at an attractive valuation, but the concerns on assetquality front and political situation within the state could affect its operations.

Axis Bank � Axis bank continues to grow faster than the industry rate and is diversifying its book in favour of retail. Notably,the bank has maintained a delicate balance between balance sheet growth and profitability. Besides the corebanking business, the bank has forayed into the asset management business and acquired the securities andinvestment banking business of Enam Securities. We expect the earnings growth to remain strong driven by ahealthy operating performance while asset quality pressures will be manageable.

Bajaj Finserv � Bajaj Finserv is actively present in businesses such as vehicle finance, consumer finance, distribution etc, withinsurance being the dominant contributor to its revenues. It is one of the top players in the life insurance segmentand also has a sizeable presence in the general insurance segment. Its consumer finance business (Bajaj Finance)has shown a robust performance and is likely to boost the earnings of Bajaj Finserv. However, an industry-wideslowdown in the insurance sector could affect its profitability.

Bank of Baroda � Bank of Baroda is among the top public sector undertaking (PSU) banks having a sizeable overseas presence (100offices in 24 countries) and a strong network of over 4,200 branches across the country. It has a stronghold in thewestern and eastern parts of India. The bank’s performance metrics remain superior to that of the other PSUbanks though the recent deterioration in asset quality raises concern.

Bank of India � Bank of India has a network of over 4,000 branches, spread across the country and abroad, along with a diversifiedproduct and services portfolio, and steadily growing assets. The operating performance has weakened due tomargin deterioration. Further, the rising stress on the asset quality and pressure on the margin could affect theearnings growth.



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CanFin Homes � CanFin Homes is a housing finance company sponsored by Canara Bank. It was set up in 1987. It offers a rangeof products on housing, such as loans for home purchase, home construction, home improvement/extension andsite purchase as well as non-housing finance. The company has 69 branches of which 65% are based in southIndia. It has a loan book of over Rs4,000 crore. Its renewed focus on growth and the recent aggressive expansionof its branch network have put it on a high growth path for the next few years. We believe the operationalperformance and return ratios are improving which should lower the valuation discount to its peers.

Capital First � Capital First (the erstwhile Future Capital Holdings) has been acquired by the global private equity firm WarburgPincus (a 70.3% stake). The present management has taken several initiatives to tap the high-growth retail productsegments, like gold loans, loan against property and loan against shares. It has a strong capital adequacy ratio anda sound asset quality. Its loan book is expected to more than double to over Rs10,000 crore in the next threeyears. The change in the ownership, the capital infusion and the ability to aggressively grow its loan book in theretail and SME segments will drive its growth going ahead.

Corp Bank � Corporation Bank is a mid-sized PSU bank having a relatively higher presence in south India. The bank ispredominantly exposed to the corporate segment constituting about 50% of its book. Due to a higher dependenceon the wholesale business and a low current and savings account ratio, it lags its peers in terms of operationalperformance.

Federal Bank � Federal Bank is the fifth largest private sector bank in India in terms of asset size and has traditionally been astrong player in south India, especially Kerala. Under the new management, the bank has taken several initiatives,which would improve the quality of its earnings and asset book. The near-term asset quality issues are manageablewhile the operating performance is steady.

HDFC � HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. Ithas interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries aregrowing faster than HDFC, the value contributed by them would be significantly higher going forward.

HDFC Bank � HDFC Bank was established in 1994 as part of the liberalisation of the Indian banking industry by the RBI. It wasone of the first banks to receive an “in-principle” approval from the RBI to set up a private sector bank. Itsrelatively high margins (compared with its peers), strong branch network and better asset quality make HDFCBank a safe bet.

ICICI Bank � ICICI Bank is India’s largest private sector bank with a network of over 3,000 branches in India and a presence inaround 18 countries. The bank has once again entered an expansionary mode after making a conscious effort tocontract its advances book due to asset quality concerns. The bank offers substantial value unlocking opportunitiesfrom the insurance and securities businesses.

IDBI Bank � IDBI Bank is one of leading PSU banks of India. The bank is gradually working towards improving its liabilitybase and expanding the retail book, which is likely to reflect in the form of better margins and return ratios. Dueto rising asset quality risks and slower business growth, the stock is likely to underperform in the near term.

PNB � Punjab National Bank has one of the best deposit mixes in the banking space, with low-cost deposits constitutingaround 38% of its total deposits. This helps it to maintain one of the highest margins in the sector. A strongliability franchise and technology focus will help the bank to increase its core lending operations and fee incomerelated-businesses. In view of the weakness in the economy and relatively higher exposure to troubled sectors, theasset quality has come under stress.

SBI � State Bank of India is the largest bank of India with loan assets of over Rs10 lakh crore. The loan growth forFY2013 was above industry average while the core operating performance was largely stable. The successfulmerger of the associate banks and value unlocking from insurance business could provide further upside for theparent bank. While the bank is favourably placed in terms of liability base, the asset quality would remain a keymonitorable in the near term.

UBI � Union Bank of India has a strong branch network and an all-India presence. The bank aspires to become thelargest retail bank. Hence, it has ramped up its manpower and infrastructure. Though the earnings growth hascome under pressure but the asset quality has shown some improvement in the recent quarters which is positivefor the bank.

Yes Bank � Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bankapproved by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. It follows aunique business model based on knowledge banking, which offers product depth and a sustainable competitiveedge over established banking players. Though the operating performance remains strong, but liquidity tighteningby the RBI could affect the margins in the near term.


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Consumer goods

Bajaj Corp � Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in thepremium light hair oil category with its Almond Drops hair oil. With its strong brand positioning, distributionstrength and healthy balance sheet, it is well poised to ride the strong consumer demand emerging due to the risingdisposable income and growing aspirations of the Indians. Bajaj Corp, which was scouting for a strategic acquisition,recently acquired the Nomarks brand. The acquisition will add value to its product portfolio and help it upgradefrom a single-brand company to a multi-brand company, thereby improving its growth prospects.

GSK Consumers � GSK Consumer Healthcare is a leading player in the MFD segment with a close to 70% share in the domestic market.Judicious new launches and brand extensions, and the expansion of its distribution reach have helped it to stay aheadof the competition and maintain its pricing power over the years. In a bid to de-risk its business model, it has expandedits product portfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats inthe recent years. With cash balance of close to Rs1,500 crore the company can invest in growth initiatives as well asreward its investors with a healthy dividend payment. The recently concluded open offer by the promoter acted asan additional trigger for the stock, which remained firm on the bourses. We maintain a Hold recommendation on thestock.

GCPL � Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide marketsegments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies havehelped the company to expand its geographic footprint. We believe the decent sales volume growth in the domesticbusiness coupled with a strong growth in the Indonesian, African and Argentine businesses would help it toachieve an above 20% CAGR top line and bottom line growth over FY2013-15.

HUL � Hindustan Unilever is India’s largest FMCG company. The subdued volume growth due to the uncertain andinflationary environment is likely to sustain the pressure on its profitability in the near term. Overall, we expect itsbottom line to grow at a CAGR of 10% over FY2013-15. The stock’s current premium valuation does not justifythe true business fundamentals of the company. Hence we recommend a Reduce rating on the stock. In the longterm, it will be one of the key beneficiaries of the Indian consumerism story.

ITC � ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, tostrengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses someof which are at a nascent stage. Thus, the company will deliver a sustained and steady growth in the coming years.

Jyothy Labs � Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration ofHenkel and the induction of a new management team led by S Raghunanadan, it is transforming itself from a one-brand wonder to an aggressive FMCG player. We expect its top line to grow at a CAGR of 21%. A strongimprovement in the OPM would help the company to achieve an exponential growth in bottom line over FY2013-16. We have a Buy rating on the stock with a price target of Rs 254.

Marico � Marico is among India’s leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footingin the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of newproduct categories (especially in the beauty and wellness space) and growth through acquisitions. While the domesticproduct portfolio is likely to achieve a steady growth in volumes, the international business is now gainingmomentum on the back of an increase in distribution and strong performance by the core brands.

Mcleod Russel � Mcleod Russel is the world’s largest tea producer with an annual tea production of close to 100mn kg. With teaestates in India and Africa, it is well poised to take advantage of the current favourable global demand-supplyscenario. With the expectation of a substantial improvement in its sales realisation and a volume growth in mid tohigh single digits (in the domestic market and the international subsidiaries), the company’s consolidated top lineand earnings are expected to grow at CAGR of 14.0% and over 20.0% respectively over FY2013-15.

TGBL � Over the past few years, Tata Global Beverages (formerly Tata Tea) has transformed itself from a mere tea andcoffee company into a complete beverage maker. The recent addition of Mount Everest mineral water to itsproduct portfolio and its tie-up with Pepsico Inc to make a mark in the non-carbonated beverage space are likelyto be the new growth drivers in the long run. Also, its JV with Starbucks would help it to explore opportunities inthe coffee retailing space. Its intention to acquire companies in the USA, Europe and Russia also augurs well andwill enhance its geographical footprint.

Zydus Wellness � Zydus Wellness owns three high-growth brands, Nutralite, Sugar Free and EverYuth, in the niche health andwellness segment. It focuses on rampant growth by increasing the distribution of the existing products, scaling upthe existing product portfolio through variants and new product launches leveraging the three brands. We expectZydus Wellness’ top line and bottom line to grow at a CAGR of 16% and 15% over FY2013-15 respectively.


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IT/IT services

CMC � Over the years, CMC has gradually transformed itself from a low-margin equipment provider into a well-diversifiedIT services and solutions provider. Its joint-go-to-market strategy with TCS is also playing a big role in the businesstransformation, with CMC gaining a strong traction in the international markets. We believe CMC has already setthe stage for the next level of growth and is likely to witness a much stronger growth in the coming years.

HCL Tech � HCL Technologies is one of the leading Indian IT service vendors. It has reported consistent financial performancein the past several quarters on the back of a ramp-up in business from the large deals bagged earlier and strongmomentum in the IMS space. It continues to demonstrate a strong growth visibility with a robust backlog of dealsand successful execution with market share gain strategy through vendor churns/consolidation. We remain positiveon the company in view of its order wins and superior earnings visibility. The company remains the least affectedby the impending US immigration bill as compared with its large-cap peers.

Infosys � Infosys is India's premier IT and IT-enabled services company. The quality of its margins and earnings has deterioratedsignificantly in the last couple of years. We remain sceptical of a secular revival in its growth in the near term, given thediscretionary services-heavy business model. Furthermore, its inconsistent quarterly performance and the absence of abroad-based growth raise questions about the sustainability of the recent good performance in the quarters to come.

NIIT Tech � With its strong domain expertise in a few niche verticals and competitive advantage in terms of significantcontribution from its non-linear initiatives, NIIT Technologies is well placed to benefit from the overall improvementin the demand environment. The two significant pain points for the company, the GIS business and the insurancebusiness, have shown some signs of revival in the past two quarters. The company has a robust deal pipeline led byits government vertical which comforts us on the revenue visibility front. Improvement in the margin trajectoryremains the key to re-rating of the stock.

Persistent � Persistent Systems has proven expertise in the OPD space, a strong presence in the newer technologies, strength toimprove its IP base and the best-in-the-class margin profile which set it apart from the other mid-cap IT companies.We maintain our confidence due to an optimistic management outlook driven by acceleration in the productengineering services business, new technologies and increased momentum in the IP space after consolidating theHP client Automation revenues.

TCS � Tata Consultancy Services pioneered the IT services outsourcing business in India and is the largest IT service firmin the country. It is a leader in most service offerings and has further consolidated its leadership through theinorganic route. With a strong base it is well placed to garner incremental deals across sectors. Its consistentquarterly performance (better than peers’) coupled with the higher predictability of its earnings would keep it theStreet’s favourite counter in the IT space.

Wipro � Wipro is one of the leading Indian IT service companies. It has lagged the other IT biggies in terms of performance.In the June 2013 quarter, the management commentary on deal closures and discretionary spending indicated amuch better outlook which was reflected in its decent guidance for the September 2013 quarter. However, executionnow remains the key as the company has been unable to implement its plans in the past two years.

Capital goods/Power

BHEL � Bharat Heavy Electricals, India’s biggest power equipment manufacturer, has been the prime beneficiary of the multi-fold increase in the investments made in the domestic power sector over the last few years. However, the order inflowhas been showing signs of slowing down which would remain a major concern for the company. The key challengebefore the company now would be to maintain a robust order inflow and maintain margin amid rising competition andlower order inflow. The current order book of Rs108,600 crore stands at around 2.3x FY2013 sales.

CESC � CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) whichis a strong cash generating business. Further, it is adding 1,200MW of generation capacity which would be onstream by FY2015. Moreover, CESC has a high degree of integrated status among peers. Despite that, the stock iscurrently one of the cheapest in the Indian utility space, trading at a significant discount to its book value primarilyon account of the concerns related to the losses from its retail business, Spencer’s. However, the retail business hasstarted exhibiting a store-level profit since FY2011, which is a sign of revival as per the management. Again, theacquisition of a majority stake in First Source by CESC is an unrelated diversification (also BPO is not a high-growth area in our view) in a time when the company itself needs huge cash to fund projects in the core area(power). Therefore, we recommend a Hold on it with a price target of Rs385.

Crompton Greaves � Crompton Greaves’ key businesses—industrial and power systems—hold a high potential in view of the investmentopportunities in the power transmission and distribution sector. Its consumer products segment is expected towitness a high growth. Though the domestic operations remain relatively stable, but the international operationswent through a restructuring. This has been the major disappointment in the last few quarters adding to the woesof investors. On a positive note, the restructuring in Belgium is over and no more cost is likely to be charged forthe same. Now, the key thing to watch out for is the stabilisation of its Hungarian operations. Nevertheless, thestock should remain under pressure for some time.


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Greaves Cotton � Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrolengines, power gensets, agro engines and pumpsets (engine segment) and construction equipment (infrastructureequipment segment). The engine business accounts for 85% of its revenues while the rest comes from infrastructureequipment. The foray in the mini tractor segment and international markets would open new growth avenues.While the subdued economic environment would put pressure on the revenues, the company is likely to outperformthe industry on the back of new product launches. We maintain our Buy recommendation on the stock with arevised price target of Rs85.

Kalpataru � Kalpataru Power Transmission is a leading EPC player in the transmission & distribution space in India.Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility (also currentorder book is 2x its FY2013 sales). The OPM of the stand-alone business is likely to remain around 10%. JMCProjects (a subsidiary) is experiencing margin pressure which would affect the overall margin and return ratios ofthe company. However, on low valuation, we retain our Buy rating with a price target of Rs115.

PTC India � PTC India is a leading power trading company in India with a market share of 39% in FY2013 in the short-termtrading market. In the last few years, the company has made substantial investments in areas like power generationprojects, power project financing, which will start contributing to its earnings. While the poor financial health ofthe SEBs has elongated its working capital cycle, the recent policy push for the SEB debt restructuring programmehas eased the payment delay concerns to some extent. The company converted its high-risk high-margin tollingbusiness into a moderate-margin long-term arrangement. Nevertheless, its valuation continues to look attractiveon an SOTP basis.

Thermax � The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Inc’scapex. Thermax’ group book stands at Rs6,322 crore, which is 1.4x its FY2013 consolidated revenues. However,the company has shown its ability to maintain a double-digit margin in a tough environment. The managementsounded cautious on the growth prospect and the company’s ability to sustain margins in double digits, given thecurrent environment. Hence, we have revised our rating to Reduce.

V Guard Ind � V-Guard Industries is an established brand in the electrical and household goods space, particularly in southIndia. Over the years, it has successfully ramped up its operation and network to become a multi-product company.It has recently also forayed into non-south India and is particularly focusing on the tier-II and III cities where thereis a lot of pent-up demand for its products. We expect a CAGR of 29% in its earnings over FY2013-15.

Infrastructure/Real estate

Gayatri Proj � Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road andindustrial construction businesses. The order book stands at Rs7,550 crore, which is 3.7x its FY2013 revenues. Itis also expanding its power and road BOT portfolio and plans to unlock value by offloading stake to privateequity. The company has potential to transform itself into a bigger player though we expect its net profit to remainflat over FY2013-15.

IL&FS Trans � IL&FS Transportation Networks is India’s largest player in the BOT road segment with a pan-India presence anda diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with thegeographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, astrong pedigree along with the outsourcing of civil construction activity helps it to scale up its portfolio faster.Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector.

IRB Infra � IRB Infrastructure Developers is the largest toll road BOT player in India and the second largest BOT operator inthe country with all its projects being toll based. It has an integrated business model with an in-house constructionarm which provides a competitive advantage in bidding for the larger projects and captures the entire value fromthe BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-freeand it has presence in high-growth corridors which provides healthy cash flow. Thus, it is well poised to benefitfrom the huge opportunity in the road development projects on the back of its proven execution capability and thescale of its operations.

Jaiprakash Asso � Jaiprakash Associates, India’s leading cement and construction company, is all set to reap the benefits of India’sinfrastructure spending. The company has also monetised very well the real estate properties of Yamuna Expressway.The marked improvement in the macro environment has improved accessibility to capital and thus eased theconcerns of liquidity to some extent. However, higher leverage could act as drag on the valuation.

L&T � Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of thedomestic infrastructure capex cycle. The strong potential of its international business, its sound execution track recordand bulging order book, and the strong performance of subsidiaries further reinforce our faith in it. There also liesa great growth potential in some of its new initiatives.


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Pratibha Ind � Pratibha Industries is a dominant player in water & irrigation and urban infrastructure segments. It has also diversified

into other high-margin areas like road BOT, power and oil & gas. The current order book stands at Rs6,899 crore,which is 3.2x its FY2013 revenues. We expect the net profit to grow at a CAGR of 3.2% over FY2013-15. Thecompany is looking at expanding into the structural manufacturing business instead of the HSAW pipe manufacturingbusiness (which has been an overhang for the past one year). This will improve the balance sheet and profitability.

Punj Lloyd � Punj Lloyd is the second largest EPC player in the country (first being Larsen & Toubro) with a global presence.However, since FY2009, the profitability has come under severe pressure due to cost overruns/ liquidated damagesin some of Simon Carves (a subsidiary) projects. Thus it has put Simon Carves under administration. FurtherLibyan projects will take another few quarters to begin execution. Therefore, the successful execution of itsprojects along with debt reduction and working capital management will drive its growth as it enjoys a robustorder book.

Unity Infra � With a well-diversified order book, Unity Infrastructure is expected to be the key beneficiary of the government’sthrust on infrastructure spending. The order book remains strong at Rs3,910 crore, which is 1.9x its FY2013revenues. We expect its net profit to post a CAGR of -5.2% due to higher interest expenses during FY2013-15.Further, it has recently forayed into the road BOT segment and has three BOT projects under its kitty.

Oil & gas

Oil India � Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 442 million barrels (mmbbls)and 941mmbbls respectively as on March 2013. In addition to the huge oil reserves, the company’s reserve-replacement ratio is quite healthy at 1.23x, which implies a comfortable level of accretion of oil reserves throughnew discoveries. Further, it has net cash of around Rs184 per share as on March 2013 and offers healthy dividendyield of around 7%, which provides comfort to investors. The recent policy reforms in terms of partial deregulationof diesel prices and a likely revision in gas prices augurs well for the company.

Reliance Ind � Reliance Industries holds a great promise in E&P business with gas production from the KG basin. Further, a likelyrevision in the natural gas prices will be a positive trigger. In the refining space, we expect its GRM to pick up witha likely improvement in the light-heavy crude oil price differential. The company is likely to fetch a premium overSingapore Complex’ GRM due to its superior refinery complexity and captive use of KG-D6 gas. We expect thepetrochem margins to be maintained in the medium term on an uptick in the domestic demand. Currently, the declinein gas output from the KG-D6 basin is weighing on the stock price.

Selan Exploration � Selan Exploration Technology is an oil exploration & production company with five oil fields in the oil-richCambay Basin of Gujarat. The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields arelikely to improve production. Further, it intends to explore its next field, Indrora, which is the most prolific onewith significant reserves. Based on this, we expect it to ramp up production significantly, subject to approval forthe new wells. We expect production ramp-up in FY2014 and hence we expect the earnings to grow by 23%(CAGR over FY2013-15). Therefore, we retain our Buy rating on the stock with price target of Rs365.

Pharmaceuticals

Aurobindo Pharma� Aurobindo Pharma is set to rebound with the USFDA clearing two of its manufacturing facilities (including onegreenfield facility) and removing import-alert on Unit-VI facility, which will help the company to ramp up itsproduct list in the USA, thanks to a strong product pipeline built over a period. With the expected increase in theexport-led business after resolution of the USFDA issues, the favourable tilt in the revenue mix is likely to boostthe margin, resulting in a relatively much better growth in earnings as compared with revenues. We expect therevenues and net profit to grow at a CAGR of 17% and 26% over FY2013-15 respectively.

Cadila � Cadila Healthcare’s performance in the US generic vertical is likely to improve on the back of new approvalswhich was stagnant during FY2013. Besides, its consumer business and exports to the emerging markets will helpit to achieve its target of generating revenues of $3 billion by FY2016. It got USFDA’s clearance for its Moraiyaplant in FY2013, which removes one of the vital concerns for the company. Recently, it got DCGI approval for itsfirst NCE called Lipaglyn to treat type-II diabetes; this will add value to its R&D pipeline.

Cipla � Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus ontechnology intensive products in the inhalation and nasal spray segments; (2) established front-end presence in thekey markets like South Africa and Europe; (3) developed an appetite for inorganic expansions; (4) decided to tapthe FTF opportunities through collaboration with major generic players in the regulated markets and (5) investedin future growth areas like biosimilars. Besides, Cipla’s base business growth would be fast-tracked in the quartersahead because of the optimisation of the Indore formulation plants and consolidation of Cipla Medpro inQ2FY2014. We expect 13% and 12% revenue and profit CAGR respectively over FY2013-15. We have a Buyrating on Cipla with a price target of Rs490.


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Dishman Pharma � Dishman Pharmaceuticals and Chemicals is a key player engaged in CRAMS and specialty chemical businesses. Ithas invested heavily over the past four years (over Rs1,000 crore capex during FY2008-11) to establish a strongfoothold in the CRAMS, API and vitamin-D businesses. After witnessing four years of sluggish performance dueto a global slowdown (that affected the CRAMS business) and heavy capex (that resulted in a sharp rise in thefixed costs), it is all set to record a strong operating performance on the back of enhanced capacities, the up cyclein the CRAMS business and a substantial reduction in the debt/equity ratio due to stronger free cash flow.

Divi’s Labs � Despite a weaker performance in Q1FY2014, we are confident of Divi’s Laboratories’ growth potential. The newDSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for the company as it would improveeconomies of scale and lead to tax benefits after USFDA approvals come in for thee additional production blocksin H2FY2014. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuingstrategic investments (biosimilars) and exploit the growth opportunities in niche segments, like oncology andsteroids for contraceptives.

Glenmark Pharma � Glenmark Pharmaceuticals exhibited an impressive operating performance during FY2013 in the core business onkey generic launches, but for higher R&D expenses and tax payments, which restricted the profit growth. Throughthe successful development and out-licencing of six molecules in a short span of eight years, it has become India’sbest play on research-led innovation. It has built a pipeline of 14 molecules and clinched six out-licencing dealsworth $1,672 million (active deals worth $938). It has received $200 million as initial milestone payment. Its corebusiness has seen stupendous success due to its focus on niche specialties. Q1FY2014 has been relatively a weakerquarter and we are confident of its long-term growth prospects.

Ipca Lab � Ipca Laboratories has successfully capitalised on its inherent strength of producing low-cost drugs to tap theexport markets. Its ongoing efforts in the branded formulations business in the emerging economies, the revival inthe UK operations, the pan-European initiatives, the likely approval of one additional product under institutionalbusiness and a significant scale-up in the US business will drive its formulation exports. It has received USFDA’sapproval for the Indore SEZ (US supplies expected in H2FY2014) which would help ramp up the sales in the USA.

Lupin � The expected ramp-up in the launch of oral contraceptives, ophthalmic products and a robust pipeline of newlaunches in the domestic and overseas markets provide strong growth visibility for Lupin. Further, with an expandedfield force and therapy focused marketing division, its formulation business in the domestic market has beenperforming better than the industry. The deal with Eli-Lilly to distribute human insulin would open an incrementalrevenue stream for Lupin in the Indian market.

Sun Pharma � The combination of Sun Pharmaceuticals, Taro, Dusa Pharma and the generic business of URL Pharma offers anexcellent business model, as has been reflected in the 40% Y-o-Y revenue growth and 39% profit growth inFY2013. Though Taro may not show a similar performance in the next quarter, but we expect a better performancefrom Sun Pharmaceuticals going forward mainly driven by (1) contribution from the newly acquired Dusa Pharmaand URL Pharma in the USA and (2) launch of key products in the USA and emerging markets including India. Weexpect 18% and 22% revenue and PAT CAGR respectively over FY2012-15 on an organic basis. With a strongcash balance, it is well positioned to capitalise on the growth opportunities and inorganic initiatives. Its debt-freebalance sheet insulates it from the negative impact of volatile currency.

Torrent Pharma � A well-known name in the domestic formulation market, Torrent Pharmaceuticals has been investing in expandingits international presence. With the investment phase now over, it should start gaining from its internationaloperations in the USA, Russia and Brazil. The impending turnaround of its German acquisition, Heumann, willalso drive its profitability. Better field force productivity, focus on developed market and stronger balance sheetwould result in a sustainable earnings growth.

Agri-Inputs

Tata Chemicals � With a total capacity of 5.5mmtpa Tata Chemicals is the second largest soda ash producer in the world. It haspurchased 25% stake in a urea-ammonia greenfield project at Goban with investment of $290 million. Furtherchanges in urea policy are likely to benefit it further. Soda prices are likely to improve from the current levelsbecause lower cost Chinese players are also finding it tough to break even at current price. So it believes that theprice of soda may improve from here. Demand for soda ash in India and North America remains strong.

United Phos � A leading global producer of crop protection products, intermediates, specialty chemicals and other industrialchemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to cropprotection products and post-harvest activities. A diversified geography and the recent acquisition of DVA AgroBrazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. Itsrevenues are likely to grow at 12-15% and EBIDTA margin is expected to remain at 18-20% in FY2014. It hasalso started to focus on premium products in agro-chemicals and will slowly stop selling commodities and low-margin products.


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Building materials

Grasim � Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet,comfortable debt/equity ratio (0.33x FY2012), attractive valuation and diversified business. The demand for VSFproducts remains strong in the global market and Grasim being a leading domestic player is well placed to capturethe incremental demand. It is in the process of adding another 120,000 tonne capacity in VSF by H2FY2014 at aninvestment of Rs1,690 crore.

India Cements � India Cements’ installed capacity has got enhanced to 16mtpa which will result in volume growth and drive itsearnings. It is also setting up a 100MW captive power plant, which is expected to come on stream by FY2013 andbenefit the company in terms of cost savings. We believe its average cement realisation in FY2014 will remainhigher as compared with FY2013.

Madras Cement � Madras Cements, one of the most cost-efficient cement producers in India, will benefit from the capacity additioncarried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed volumegrowth in the future. The regional demand remains lacklustre but on account of the improvement in the realisationdue to supply discipline and a likely change in the market mix its profitability will improve (marginally) in FY2014.

Shree Cement � Shree Cement’s cement grinding capacity has grown to 13.5mtpa which will support its volume growth in thecoming years. It has set up 300MW power plant entirely for merchant sale which is expected to support itsrevenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruingfrom the sale of surplus power will drive the earnings of the company.

UltraTech Cement � UltraTech Cement is India’s largest cement company with approximately 52mtpa cement capacity. It has benefitedfrom an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing fromthe new captive power plants will improve its cost efficiency.

Discretionary consumption

Eros Intl Media � Eros International Media is one of the largest integrated film studios in India with multi-platform revenue streamsand a well-established distribution network across the globe. With its proven track record, an impressive movieslate and alliance with HBO coming into foray, it is well poised to gain from the rising discretionary spending onfilm entertainment driven by the country’s favourable demographics. Thus, it is a compelling value play on theIndian media and entertainment industry.

Indian Hotels Co � Indian Hotels is the largest hotelier in India with a vast portfolio of hotel properties around the globe. Over the longterm it would benefit from the increase in tourism and corporate travel in India. Also, a turnaround in profitabilityof its overseas properties would boost its earnings.

KKCL � Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, hascreated a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is aheadof its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled witha robust balance sheet position put it in a sweet spot.

Raymond � Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. Withgrowing incomes, rise in aspirations to lead a luxurious life, greater discretionary spending and favourabledemographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond withits brands and superior distribution set-up is very well geared to encash the same. Any development with regard tothe Thane land in the form of either joint development or disposal would lead to value unlocking and providesignificant cash to the company.

Relaxo Footwear � Relaxo Footwear is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-the-mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investmentopportunity due to its growing scale, strong brand positioning and healthy financial performance. Currently wehave a Hold with a price target of Rs800.

Speciality Rest. � Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands suchas Mainland China and Oh! Calcutta. It is a good proxy on the Indian consumption story as several factors suchas demographics, increasing disposable income and the trend of nuclear families are playing in its favour.

Zee Entertainment � Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainmentcompanies. It has a bouquet of 32 channels across Hindi, regional, sports and lifestyle genres. It is best placed to benefitfrom the digital addressable system regime rolled out by the government. The recent regulatory change of capping theadvertising time on TV to 12 minutes per hour remains a neutral development for the company as it will be able toincrease its advertisement rates to negate the fall in advertisement volumes.


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Diversified/Miscellaneous

Aditya Birla Nuvo � We like the strong positioning that Aditya Birla Nuvo’s businesses enjoy in their respective fields. It is amongst thetop five players in the insurance, asset management and telecom (Idea Cellular is the fastest growing telecom company,third in ranking) segments. Madura Garments, with its marquee brands, and consistent and resilient growth, is aprofitable set-up. In an improving macro-economic environment the company would be well placed to grow.

Bajaj Holdings � Bajaj Holdings & Investment Limited (BHIL, erstwhile Bajaj Auto) was demerged in December 2007, whereby itsmanufacturing undertaking was transferred to the new Bajaj Auto Ltd (BAL) and its strategic business undertakingconsisting of the wind farm and financial services businesses was vested with Bajaj FinServ (BFS). All the businessesand properties, assets, investments and liabilities of erstwhile Bajaj Auto, other than the manufacturing undertakingand the strategic business undertaking, now remain with BHIL. BHIL is a primary investment company focused onnew business opportunities. It holds more than 30% stake each in BAL and BFS. We have a Buy recommendation onthe stock with a price target of Rs1,396.

Bharti Airtel � Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industryas well as the company focusing on the quality of revenues rather than volume, better times can be expected aheadfor the sector and hence the company. The African business is facing head winds and thus its performance remainsa key monitorable. Overall, we remain optimistic on the company.

BEL � Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, is benefiting from theenhanced budgetary outlay for strengthening and modernising the country’s security. The growth in revenues is alsoexpected to be aided by the civilian and export orders. The company’s current order book of around Rs25,000 croreprovides revenue visibility for the next three to four years. The huge cash reserve would also support the stock.

GDL � With its dominant presence in the container freight station segment and recent forays into the rail freight and coldchain businesses, Gateway Distriparks has evolved as an integrated logistic player. Its CFS business is a cash cowwhile its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largestplayers in the CFS business and has also evolved as the largest player in the rail freight business as well as the coldstorage business. The proposed capex for all the three segments will strengthen its presence in each of the segmentsand increase its pan-India presence. We expect its revenue and net profit to grow at 20% and 16% CAGR respectivelyover FY2013-15.

Max India � Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insuranceand healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sectorplayers, has gained the critical mass and enjoys some of the best operating parameters in the industry. Withinsurance penetration picking up in India and with the company entering into a tie-up with Axis Bank, we expectto see a healthy growth in the company’s annual premium equivalent going ahead. As the company has turnedprofitable on a consolidated basis and has a treasury corpus of Rs409 crore, it has announced a dividend of 610%in FY2013 and will continue to pay dividends in the future.

Ratnamani Metals � Ratnamani Metals & Tubes is the largest stainless steel tube and pipe maker in India. In spite of the challengingbusiness environment due to increasing competition, the stock is attractively valued. The management has maintaineda strong outlook on the potential opportunities in the oil & gas sector. We expect a subdued revenue performancein FY2013. However, we expect the EBITDA margin to inch up by close to 400 basis points which should resultin a healthy growth in profits in FY2013.

ValueGuide_Sep13.pdf

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