india top picks 5 june 2014

This is not a research report and has not been produced by a research unit. Important disclosures can be found in the Disclosures Appendix.

1

Standard Chartered Securities

India Top Picks equity strategy Equities | 5 June 2014

Markets in a consolidation phase for now

• We have added Tata Steel (TATA IN) to our Top Picks this

month.

• The uncertainty surrounding the general election ended with a

decisive mandate in favour of National Democratic Alliance

(NDA). The markets rallied with key benchmark indices Sensex

and Nifty touching their all time high levels.

• This is the first time after the 1984 Lok Sabha elections that any

single party has secured absolute majority. We believe markets

have entered a consolidation phase and are awaiting major

announcements from government before further gains can be

seen. Initial indications are that the forthcoming budget may

throw some positive surprises. Foreign investment inflows remain

robust and the month of May witnessed USD 2.4bn of inflows,

showing confidence in the India growth story.

• We remain optimistic and suggest investors with long term

horizon consider staying invested and underweight investors use

any dip to consider accumulating additional equity exposure. The

key to further upside will be the budget, to be presented in July,

which is expected to outline the new government’s broad macro

policy framework, particularly its reform agenda.

• Of the stocks we highlight, we believe Bharti (BHARTI IN) has

the most favourable technicals. We would advocate investors

consider adding to this name at current levels, where

appropriate.

Contents

Markets in a consolidation phase 1

India Top Picks 2

India Top Picks Review 2

Will history repeat itself 5

Technical Commentary 6

India Top Picks – Results Update 17

Sector – Performance & Valuations 18

Important Information 20

Mitesh Dalal Chief Investment Strategist

Nishit Sheregar Investment Strategist

Shishir Narsinghani Associate Strategist

Soumen Das Senior Quantitative Strategist

India Top Picks (Refer to appendix for a summary of the rationale behind each stock’s selection)

Ticker Name Sector

Stock

Price

Consensus

Rating

12m

Fwd P/E

12m

Fwd P/B Div Yield

Div

Payout% TR 1M% TR YTD% YTD% USD

TR

ITD%INR

LPC IN Lupin Ltd Healthcare 922.0 4.6 18.8 4.6 0.8 13.6 -8.7% 1.9% 6.4% 0.9%

CIPLA IN Cipla Ltd Healthcare 387.2 3.7 19.2 2.7 0.5 0.0 -3.7% -3.4% 0.9% 28.3%

LT IN Larsen & Toubro Industrials 1646.0 4.2 26.9 3.7 0.7 21.9 30.3% 53.8% 60.7% 93.7%

TECHM IN Tech Mahindra Technology 1895.9 4.5 13.4 3.5 0.3 5.0 3.2% 3.2% 7.8% 91.4%

HCLT IN HCL Technologies Technology 1382.8 4.5 13.8 3.9 1.2 20.7 -2.9% 10.1% 15.1% 10.5%

MSIL IN Maruti Suzuki Discretionary 2324.3 4.1 20.4 2.9 0.3 9.8 23.4% 31.8% 37.7% 67.1%

TTMT IN Tata Motors Ltd Discretionary 420.8 4.6 7.7 1.8 0.5 6.4 1.4% 11.8% 16.8% 17.6%

RIL IN Reliance Industries Energy 1082.2 4.1 12.9 1.5 0.9 12.4 17.6% 22.0% 27.4% 48.8%

ICICIBC IN ICICI Bank Financials 1464.2 4.5 - - 1.4 24.1 16.9% 33.3% 39.2% 70.8%

AXSB IN Axis Bank Financials 1900.9 4.3 11.0 1.9 0.9 17.5 24.2% 46.3% 52.8% 47.1%

BHARTI IN Bharti Airtel Telecom Svs 361.6 4.4 25.7 2.2 0.3 16.7 11.1% 9.5% 14.4% 7.8%

ITC IN ITC Ltd Staples 336.7 4.6 25.1 8.5 1.8 54.5 -1.1% 4.6% 9.3% 53.5%

TPWR IN Tata Power Co Utilities 106.1 4.0 16.6 1.8 1.0 - 32.3% 20.3% 25.7% 24.5%

TATA IN Tata Steel Ltd Materials 492.9 3.8 11.0 1.2 1.6 - 26.4% 16.2% 0.0% -

Source: Bloomberg, Standard Chartered, data as of 02 June 2014

India Top Picks

Here, we highlight our Top Picks in India on a sector

Technical’s section on pages 7-14 highlights select stocks with

Our key sector calls over the next 12 months

Industrials (OW) • We are positive on the sector on the expected revival of economic growth, fast tracking of stalled projects

and expected policy reforms after the formation of the new government.

Utilities (OW) • Resolution of stranded assets in the power sector, faster signing of

greater imported fuel

restructuring of distribution companies

Energy (OW) • The Oil & Gas sector has witnessed creeping reforms (diesel price hikes leading to lower losses) and

higher gas prices which should

India Top Picks Review

We have added Tata Steel (TATA IN) to our list of

month.

Current Top Picks:

Tata Steel Ltd (TATA IN)

• Tata Steel is a major beneficiary of a likely

steel sector dynamics driven by low long steel inventory

stable demand due to limited new capacity addition from major

players.

• Improving demand in European markets

Odisha mining ban (contributes c.50% of

production) by Supreme Court are key trigge

• Ongoing capital expenditure at the Odisha plant will keep the

balance sheet under pressure, but near term earnings momentum

should outweigh balance sheet concerns.

Valuations: The stock is trading at 1.2x P/B

historical P/B of 2.0x.

Risks: Increasing competition from China

pricing and margins.

Equity strategy – India Top Picks

on a sector-agnostic basis. For a brief view on each individual stock, refer to page

highlights select stocks with favourable technical views on a 1-3 months basis.

We are positive on the sector on the expected revival of economic growth, fast tracking of stalled projects

and expected policy reforms after the formation of the new government.

Resolution of stranded assets in the power sector, faster signing of Fuel Supply

imported fuel-price pass-through, increase in gas supply in the medium term and financial

tribution companies can lend further support to the sector

The Oil & Gas sector has witnessed creeping reforms (diesel price hikes leading to lower losses) and

which should lead to an increase in sector capex and productivity in the next 1

to our list of Top Picks this

likely turnaround in the India

driven by low long steel inventory and

stable demand due to limited new capacity addition from major

European markets and the lifting of the

Odisha mining ban (contributes c.50% of company’s total iron ore

key triggers.

Ongoing capital expenditure at the Odisha plant will keep the

balance sheet under pressure, but near term earnings momentum

should outweigh balance sheet concerns.

1.2x P/B versus the 10-year

Increasing competition from China could put pressure on

Stock

Tata Steel TATA IN

Tata Steel’s topline showing traction from and international business

Sales growth y/y

Source: Bloomberg, Standard Chartered

India Top Picks | 05 June 2014

2

view on each individual stock, refer to page 16. The

3 months basis.

We are positive on the sector on the expected revival of economic growth, fast tracking of stalled projects

Fuel Supply Agreements (FSA),

in gas supply in the medium term and financial

pport to the sector.

The Oil & Gas sector has witnessed creeping reforms (diesel price hikes leading to lower losses) and

lead to an increase in sector capex and productivity in the next 1-2 years.

Ticker View

Tata Steel TATA IN Add

’s topline showing traction from domestic and international business

Standard Chartered

Larsen & Toubro (LT IN)

• We retain our confidence on LT, likely to be one of

beneficiaries of a recovery in infrastructure capex, and relaxation

in government policies in defence, power and infrastructure

• Growth in LT’s new order book growth of

conviction on a likely recovery of capex cycle. International

business (c.33% contribution to total sales) should

to drive healthy topline.

• Robust Q4FY14 results, up 69% y/y

guidance for consolidated order inflow of 20% y/y and margins

maintained at +/- 100 bps are the key positives.

Valuations: The stock is trading at 4x P/B versus

of 5.4x.

Risks: Delay in implementing reforms by the new government

Lupin (LPC IN)

• Lupin’s India business (contributes c.22% of total revenue)

weak spot, as sales grew by c.2% y/y

growth. Overall margins remain robust.

• US and Europe formulation sales (including IP)

contributing 47% to overall sales.

• On a positive note, the management continue

new launches in FY15. Further, investors can expect Lupin to

grow inorganically, as the company is looking at acquisitions

Valuations: The stock is trading at attractive levels at

P/E, below the 10-year average of 34.6x.

Risks: Continued slowdown in domestic business due to increase in

competition intensity.


likely to be one of the biggest

infrastructure capex, and relaxation

in government policies in defence, power and infrastructure.

of 15% y/y, reiterates our

recovery of capex cycle. International

% contribution to total sales) should also continue

y/y, strong management

guidance for consolidated order inflow of 20% y/y and margins

100 bps are the key positives.

versus its 10-year average

elay in implementing reforms by the new government.

(contributes c.22% of total revenue) is one

grew by c.2% y/y, pulling down overall

(including IP) grew by 28.2%y/y

On a positive note, the management continues to guide for 15-20

Further, investors can expect Lupin to

grow inorganically, as the company is looking at acquisitions.

The stock is trading at attractive levels at 18.8x forward

siness due to increase in

LT a likely beneficiary rebound

LT Business segmentation


Lupin margins continue to expand India business

EBITDA margins



3

beneficiary of infrastructure capex

LT Business segmentation


continue to expand despite slowing

Standard Chartered

ITC Ltd. (ITC IN)

ITC Ltd. announced an in-line set of earnings for

healthy top line growth and strong EBIT margin

hikes.

• Net sales, EBITDA and Profit after Tax grew 12%

18% y/y, respectively. While price hikes dented volum

margins grew by a strong 21% y/y.

• FMCG segment reported a profit for the first time in FY14.

net sales grew a strong 19.2% on capacity expansion and price

increases. Agri business and Hotel segments

performers.

• Strong performance in a weak environment reinforces ITC’s

earnings growth resilience. We expect demand for staples to

recover only in FY16 and a poor monsoon could worsen demand

further. Hence, within staples, ITC is best placed to deliver mid

high-teens EPS growth.

Valuations: At 25.2x forward P/E, the stock is trading at attractive

levels versus its historical 10-year average P/E

Risks: Declining cigarette volume (4th fourth successive quarter) and

falling paper margin (the lowest in nine years)

CIPLA Ltd. (CIPLA IN)

• Cipla’s net profit declined 6% y/y, domestic sales rose 19.3% y/y

and exports of formulations rose 30% y/y

• Higher spend on R&D is likely to build a strong pipeline in the US

and other global markets.

• We continue to be positive, as the inhaler franchise

launches in US and Europe should drive sustainable growth over

the longer term.

Valuations: The stock is trading at 19.1x 12m forward

10-year average of 24.5x.

Risks: Further increase in R&D expenditure could dent margins.


line set of earnings for 4QFY14, with

strong EBIT margin growth led by price

grew 12% y/y, 18%y/y and

. While price hikes dented volumes, the

FMCG segment reported a profit for the first time in FY14. Paper

net sales grew a strong 19.2% on capacity expansion and price

egments were moderate

Strong performance in a weak environment reinforces ITC’s

earnings growth resilience. We expect demand for staples to

recover only in FY16 and a poor monsoon could worsen demand

further. Hence, within staples, ITC is best placed to deliver mid- to

he stock is trading at attractive

P/E of 27.4x.

Declining cigarette volume (4th fourth successive quarter) and

years).

net profit declined 6% y/y, domestic sales rose 19.3% y/y

and exports of formulations rose 30% y/y

to build a strong pipeline in the US

inhaler franchise and new

should drive sustainable growth over

x 12m forward P/E versus the

xpenditure could dent margins.

ITC

Profit before Interest and tax


CIPLA EBITDA margins

Cipla’s EBITDA Margin (%)

Source: Bloomberg, Company


4

rofit before Interest and tax margin


CIPLA EBITDA margins

Margin (%)

Source: Bloomberg, Company

Will the History repeat itself ?

All eyes are on Prime Minister Mr. Narendra Modi. If past experience

(1984 decisive mandate) is to be given weight, then

indeed rosy. Meanwhile, under the leadership of Mr. Modi, Gujarat’s

economic performance outperformed the rest of the country

2000 and investors anticipate the repeat in his

larger canvas.

Narendra Modi, the Prime Minister of India, is guided by the principle

of Collective efforts, inclusive growth where each and every person

an important stakeholder.

Believing that the progress of states is crucia

development, the Prime Minister has designed the

1. Build confidence in bureaucracy

2. Welcome innovative ideas & babus to be given freedom to work

3. Education, Health, Water. Energy & roads will be priority

4. Transparency in the government. E-auction to be promoted

5. System will be placed for inter-ministerial issues

6. People-oriented system to be in placed in government machinery

7. Addressing concerns relating to economy

8. Infrastructure and investment reforms

9. Implement policy in a time-bound manner

10. Stability and sustain ability in government policy


Will the History repeat itself ?

All eyes are on Prime Minister Mr. Narendra Modi. If past experience

(1984 decisive mandate) is to be given weight, then the outlook is

nder the leadership of Mr. Modi, Gujarat’s

the rest of the country since

in his performance trait on a

is guided by the principle

of Collective efforts, inclusive growth where each and every person is

Believing that the progress of states is crucial for the country's

has designed the ten point vision:-

2. Welcome innovative ideas & babus to be given freedom to work

3. Education, Health, Water. Energy & roads will be priority

auction to be promoted

ministerial issues

oriented system to be in placed in government machinery

government policy.

In 1984, Sensex rallied decisively over next 5 years after the new government got absolute majority


Can past performance be

GDP CAGR growth (%) since 1960


0

100

200

300

400

500

600

700

800

900

Jun-8

0

Nov-8

0

Apr-

81

Sep-8

1

Feb-8

2

Jul-82

Dec-8

2

May-8

3


5

rallied decisively over next 5 years after the new government got absolute majority


Can past performance be benchmark for future

CAGR growth (%) since 1960


245.3

792.2

May-8

3

Oct-

83

Mar-

84

Aug-8

4

Jan-8

5

Jun-8

5

Nov-8

5

Apr-

86

Sep-8

6

Feb-8

7

Jul-87

Dec-8

7

May-8

8

Oct-

88

Mar-

89

Aug-8

9

Jan-9

0

Equity strategy – India Top Picks | 05 June 2014

6

Technical Commentary

Below, we present the technical views for our India Top Picks. The stocks are given a rating of 1-5, with 1 being the most

favourable and 5 being the least favourable on a 1-3 months basis. This is from a pure technical standpoint and may run contrary

to the fundamental views we hold of the stocks within the portfolio, which is on a 12-month basis.

India Top Picks Technical rating

Name Ticker Sector Rating

HCL Tech HCLT IN IT 1

Tech Mahindra TECHM IN IT 1

Bharti BHARTI IN Telecom 1

Larsen & Toubro LT IN Industrials 2

Axis Bank AXSB IN Financials 2

Tata Power TPWR IN Utilities 2

Lupin LPC IN Healthcare 2

Cipla CIPLA IN Healthcare 2

ICICI Bank ICICIBC IN Financials 2

Tata Steel TATA IN Materials 3

Maruti Suzuki Ltd MSIL IN Discretionary 3

Tata Motors TTMT IN Discretionary 3

Reliance RIL IN Energy 3

ITC ITC IN Staples 3

Source: Standard Chartered, Metastock

Views as of 02 June 2014


7

Technical Commentary (cont’d)

• BSE SENSEX – After

the strong rally, we

expect the Sensex to

consolidate within a

range of 23500 –

25000 in the month of

June 2014, but with a

positive bias.

However, we would

remain bullish from a

medium to long term

perspective. Our long

term target for the

Sensex is 28000. The

long term uptrend is

likely to remain intact

as long as the Sensex

maintains the long

term support line at

21000.

Weekly Chart

Source: Metastock, Standard Chartered, data as on 02 June 2014

• Lupin (LPC IN) – The

stock should retain its

positive momentum as

long as it can hold the

support at INR 900.

The stock may touch

INR 1,100 in the

medium term.

Weekly Chart _______ 100 EMA _______ 200 EMA



8


• Cipla (CIPLA IN) –

The stock once again

found support at INR

370 and pulled back

from the support level.

The stock may face

resistance at INR410

and above that

INR425. The medium-

term uptrend should

remain intact as long

as the stock holds key

support at INR 355.

Weekly Chart


• Larsen & Toubro (LT

IN) – We remain

positive in the longer

term. However, we

expect correction from

the current level in the

short term as the stock

is trading near key

resistance line at INR

1600. Support is at

1,400.

Weekly Chart _______ 50 EMA _______ 100 EMA _______ 200 EMA



9


• Tech Mahindra

(TECHM IN) – The

stock is likely to move

higher from the current

level and it may touch

INR2050 in the near

term. Key support is at

INR1700.

Weekly Chart _______ 50 EMA


• HCL Tech (HCLT IN)

– The stock is likely to

maintain its positive

momentum as long as

it holds the support at

INR 1,340. We expect

the stock to


range of INR 1,300-

1,500 in the near term.

Weekly Chart _______ 50EMA _______ 100 EMA



10


• Maruti Suzuki (MSIL

IN) – The stock

continues to trade

within an upward

channel. The medium-

term uptrend is

expected to remain

intact as long as it

holds support at INR

1,500.

Weekly Chart


• Tata Motors (TTMT

IN) – The stock

continues to trade

within an upward

channel. Currently, the

stock is trading near

the upper band of the

channel at INR 430.

We expect the stock to


range of INR 380-430

in the near term.

Daily Chart

Source: Metastock, Standard Chartered, data as on 02 June 2014 _______ 100 EMA _______ 200 EMA


11


• Reliance Industries

(RIL IN) – The stock

has moved up sharply

and faces resistance

near key resistance at

INR1160. It is likely to

trade within a broad

range of INR 960-1160

in the near term.



• ICICI Bank (ICICIBC

IN) – The stock has

given positive

breakout. The

medium-term uptrend

should remain intact

as long as the stock

trades above the key

support at INR 1,250.

Long term target is

INR 2000.




12


• Axis Bank (AXSB IN)

– The stock has given

positive breakout. The

medium-term uptrend

is expected to remain

intact as long as the

stock trades above the

key support at INR

1,600. However, we

expect a correction or

consolidation in the

near term before

resuming its positive

momentum.

Weekly Chart


• Bharti Airtel (BHARTI

IN) – The stock is

trading near multi-year

key resistance at

INR370. The stock is

expected to continue

consolidating within

INR 290-370 in the

near term before

resuming its uptrend.

Weekly Chart _______ 50 EMA _______ 100EMA



13


• ITC (ITC IN) – The

stock continues to


range of INR 309-360.

The medium-term

uptrend would remain

intact as long as the

stock stays above INR

309.

Weekly Chart


• Tata Power (TPWR

IN) – After a

consolidation, the

stock has given

positive breakout at

INR 95. Looking at the

current momentum,

the stock may touch

INR 120, where it may

face strong resistance.

Support is at INR 90.




14

• Tata Steel (TATA IN)

– The stock is trading

near key resistance at

INR480. The stock is

likely to correct from

the current level.

However, it may trade

within a range of INR

390 – 480. Support is

at INR 415.




15

India Top Picks – Performance & Valuations

India Top Picks performance and valuations (local currency)

Ticker Name Sector

Stock

Price

Consensus

Rating

12m

Fwd P/E

12m

Fwd P/B Div Yield

Div

Payout% TR 1M% TR YTD% YTD% USD

TR

ITD%INR

LPC IN Lupin Ltd Healthcare 922.0 4.6 18.8 4.6 0.8 13.6 -8.7% 1.9% 6.4% 0.9%

CIPLA IN Cipla Ltd Healthcare 387.2 3.7 19.2 2.7 0.5 0.0 -3.7% -3.4% 0.9% 28.3%

LT IN Larsen & Toubro Industrials 1646.0 4.2 26.9 3.7 0.7 21.9 30.3% 53.8% 60.7% 93.7%

TECHM IN Tech Mahindra Technology 1895.9 4.5 13.4 3.5 0.3 5.0 3.2% 3.2% 7.8% 91.4%

HCLT IN HCL Technologies Technology 1382.8 4.5 13.8 3.9 1.2 20.7 -2.9% 10.1% 15.1% 10.5%

MSIL IN Maruti Suzuki Discretionary 2324.3 4.1 20.4 2.9 0.3 9.8 23.4% 31.8% 37.7% 67.1%

TTMT IN Tata Motors Ltd Discretionary 420.8 4.6 7.7 1.8 0.5 6.4 1.4% 11.8% 16.8% 17.6%

RIL IN Reliance Industries Energy 1082.2 4.1 12.9 1.5 0.9 12.4 17.6% 22.0% 27.4% 48.8%

ICICIBC IN ICICI Bank Financials 1464.2 4.5 - - 1.4 24.1 16.9% 33.3% 39.2% 70.8%

AXSB IN Axis Bank Financials 1900.9 4.3 11.0 1.9 0.9 17.5 24.2% 46.3% 52.8% 47.1%

BHARTI IN Bharti Airtel Telecom Svs 361.6 4.4 25.7 2.2 0.3 16.7 11.1% 9.5% 14.4% 7.8%

ITC IN ITC Ltd Staples 336.7 4.6 25.1 8.5 1.8 54.5 -1.1% 4.6% 9.3% 53.5%

TPWR IN Tata Power Co Utilities 106.1 4.0 16.6 1.8 1.0 - 32.3% 20.3% 25.7% 24.5%

TATA IN Tata Steel Ltd Materials 492.9 3.8 11.0 1.2 1.6 - 26.4% 16.2% 0.0% -

Source: Bloomberg, Standard Chartered As of 02 June 2014


16

India Top Picks – Stock Rationale

India Top Picks stock rationales

Company Ticker Sector Conviction

Lupin LPC IN Healthcare Strong growth in markets like US, Europe, South Africa in API business and entry

into high growth markets like Mexico and acquiring technology research

capabilities will help propel future growth.

Cipla CIPLA IN Healthcare Company expects future revenue growth to be led by respiratory launches in EU

markets and better than market growth in the domestic market.

Larsen & Toubro LT IN Industrials Beneficiary of re-rating in industrial sector. Further, focus on railways, renewable

and power could be future revenue drivers.

Tech Mahindra TECHM IN Technology Valuations attractive as trading at a significant discount to peers and have room to

expand given better revenue and EPS growth profile.

HCL Technologies HCLT IN Technology The fear of strong INR impacting the earnings is overstated and a seasonally

strong period ahead is positive for potential news-flow/outperformance.

Maruti Suzuki MSIL IN Discretionary Improvement in consumer sentiment and cementing of leadership position with

new launches are key positives.

Reliance Industries RIL IN Energy Clarity on gas price hike should lead to a revival of E&P investments and further

improve margin outlook.

ICICI Bank ICICIBC IN Financials The fast track of reforms in power and infrastructure sectors will reduce the risk of

recovery.

AXIS Bank AXSB IN Financials Large exposure to power, infrastructure and SME portfolio, the risk to which will

reduce with the improving macro economy and revival of the capex cycle.

Bharti Airtel BHARTI IN Telecom Svs Potential divesture of African tower business will help de-lever the balance sheet.

African business remains sluggish with a sequential revenue decline.

ITC ITC IN Staples Strong earnings growth in the weak environment coupled with the first time profit in

FMCG business are the key drivers.

Tata Motors TTMT IN Discretionary Capacity expansion at Solihull and the China’s JV launch along with JLR’s healthy

product line coupled with the strong demand for Range Rover and Range Rover

Sport should drive volume growth.

Tata Power TPWR IN Utilities Improved regulatory environment and reduced risk of receivables especially in

distribution business along with the completion of the Arutmin stake sale are the

positive triggers.

Tata Steel TATA IN Materials Improving demand in domestic and European markets and the lifting of the Odisha

mining ban by Supreme Court are key triggers

Source: Standard Chartered


17

India Top Picks – Results Update

Name Report Date Quarter Results Comments

ITC LTD 05/24/2014 Q4 Meet Cigarette margins remained strong while FMCG businesses reported profit

for the first time in FY 14

LARSEN & TOUBRO 06/02/2014 Q4 Beat EBITDA margin hit 14.4% (up 237bps y/y) due to the write-back of warranty

provisions. Even after adjusting for provisions, margin of 13.2% (up 110bps

y/y)

LUPIN LTD 02/03/2014 Q4 Beat Domestic India business a cause for concern.

TECH MAHINDRA 05/15/2014 Q4 Beat Surprise from headline growth on account of one-off short-term projects

TATA POWER 02/07/2014 Q3 Meet Net loss on account of forex loss in the quarter (in line with estimates

though)

TATA MOTORS 05/30/2014 Q4 Miss Weak operating and economic environment in the standalone business was

more than offset by strong demand for new products, growth in volumes,

richer product mix and richer geographic mix at JLR

CIPLA LTD 02/14/2014 Q4 Miss On consolidated basis the net profit declined 6% and net sales grew 27%

HCL TECH 04/17/2014 Q4 Beat Growth momentum and consistent execution of its strategic plans

RELIANCE INDUSTRIES 04/18/2014 Q4 Meet Record refining profit made up for weak petrochem and other income

ICICI BANK 04/25/2014 Q4 Meet In-line set of earnings for 4Q FY14, with healthy loan growth, stable asset

quality and steady NIMs

AXIS BANK 04/25/2014 Q4 Beat Strong earnings driven by robust loan growth, net interest margin (NIM)

expansion, a strong growth in savings deposits and a revival in fees

MARUTI SUZUKI 04/25/2014 Q4 Miss Lagged expectations on account of cost pressure due to rise in raw material

costs and unfavourable currency

BHARTI AIRTEL 04/29/2014 Q4 Meet Steady India performance again partly offset by a slow Africa

Source: Standard Chartered


18

Sector – Performance & Valuations

MSCI India Sectors (USD)

Name Last Price

12m Fwd

P/E

12m Fwd

P/B

EV/

EBITDA

Fwd Div

Yield%

Div

Payout% TR 1M%

TR USD

1M TR YTD%

Consumer Staples 545.4 30.3 9.5 21.1 1.8 49.2 1.6% 3.0% 3.6%

Consumer Discretionary 890.7 11.0 2.8 5.7 1.6 19.6 8.2% 9.7% 16.6%

Energy 1406.0 11.6 1.6 7.2 1.9 22.8 17.7% 19.3% 25.8%

Financials 5794.0 16.0 1.8 - 1.6 21.5 12.8% 14.3% 25.4%

Healthcare 1320.1 19.7 3.7 13.8 1.0 15.6 -5.7% -4.4% 0.8%

Industrials 1294.5 23.4 2.9 9.4 0.9 21.9 29.8% 31.6% 47.3%

Information Technology 970.5 13.8 3.4 10.0 2.2 30.4 -4.5% -3.2% -7.0%

Materials 865.5 13.4 1.3 6.3 1.2 21.1 21.9% 23.6% 23.3%

Telecommunication Svs 28.6 23.7 1.8 6.9 0.5 8.2 9.8% 11.3% 1.5%

Utilities 576.1 12.9 1.3 8.9 2.3 34.4 26.3% 28.0% 25.7%

Index 922.5 15.4 2.3 10.0 1.7 24.9 8.7% 10.1% 13.5%

Source: Bloomberg, Standard Chartered As of 02 June 2014

India Sector Preferences

Country View Rationale

Healthcare OW Strong domestic franchise, US product pipeline and healthy cash flows to drive valuations.

Industrials OW Re-rating of the sector and earnings upgrades due to higher probability of the faster recovery of the capex cycle.

Information

Technology

OW Fears of sharp earnings impact due to due to stronger INR are overstated, any incremental correction to be selective and

modest as sector valuations are now at par with the broader market.

Consumer

Discretionary

N Demand revival expectation on the back of sentiment improvement to drive volumes. Expected easing of interest rates,

and moderation in inflation could be added trigger.

Energy OW The precedent of regular hikes taken in FY14 has diluted the political risks to a major extent making it easier for the new

government to continue with diesel price hikes.

Financials N Potential macro recovery, removal of roadblocks and eventual revival of the capex cycle will help improve the growth and

margins.

Materials N Sector growth is improving, driven by the long steel inventory and rising growth in western world.

Telecom Svs N Impending entry of Reliance Jio in the voice and data market is a concern. Moderating competition intensity is a positive.

Utilities OW Improving the power sector productivity could be the top priority of the new government.

Consumer

Staples

UW Earnings are at risk as volume and margin pressures intensify amid weak demand and cost inflation. El-nino effect

leading to sub-normal monsoon may dampen sentiments.

Source: Standard Chartered; OW: Overweight; N: Neutral: UW: Underweight


19

Definitions

YTD: Year to date.

ITD: Inception to date.

PT: Price Targets (SCB uses an investment horizon of 12 months for

its price targets).

RSI: Relative Strength Index.

Relative Volatility index: A measure of the standard deviation of the

daily price change.

MA: Moving Average.

Basket average performance: Basket average is the un-weighted

performance of the shortlisted stocks

Consensus rating: A rating provided by Bloomberg which reflects the

aggregation of all brokers rating for a particular stock. 1 is a Sell, while

5 is a Strong Buy.

P/E: Price/Earnings ratio. The Trailing P/E refers to 12m of trailing

earnings, while the forward refers to 12m forecast earnings, against

current price.

P/B: Price/Book ratio. The book value refers to total shareholder’s

equity, while the forward refers to 12m forecast book value, against

current price.

EV/EBITDA: Enterprise value/Earnings Before Interest, Tax and

Depreciation Amortisation.

Earnings revision ratio: Net earnings revision (upgrades -

downgrades) / Total earnings revision (upgrades + downgrades)

ROE and ROA: Return on Equity (book value) and Return on Assets.

Dividend Yield: Dividend paid/ current price.

Net Interest Margin (NIM): Is a measure of difference between the

net interest incomes generated from lending by financial institutions

and the amount of interest paid out to their lenders (for example

deposits).

Beta: Correlation between a stock and the market. Is based on two

years of weekly data, but modified by the assumption that a security’s

beta moves toward the market average over time.

Total return: Capital appreciation + dividend income received.

Short term: Time horizon of 1-4 weeks.

Medium term: Time horizon of 3-6 months.

EMA: Exponential moving average

Investment Strategy Team:

Mitesh Dalal Chief Investment Strategist

Nishit Sheregar Investment Strategist

Shishir Narsinghani Associate Strategist

Soumen Das Senior Quantitative Strategist

Ashish Pai Quantitative Strategist

Errol Crasto Quantitative Strategist

Priya Iyer Associate Strategist


20

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21

written consent of an authorised signatory of Standard Chartered Securities (India) Limited. All rights reserved. © Standard

Chartered Securities (India) Limited 2014.

Investment Strategy Disclaimer:

This document and/or trading calls are issued by Investment Strategy Team of Standard Chartered Securities (India) Limited, a

registered broker regulated by the Securities and Exchange Board of India. This is not research material and it does not represent

the views of the Standard Chartered Group, particularly those of the Global Research function. This document is not independent

of Standard Chartered Group’s own trading strategies or positions. Therefore, it is possible, and you should assume, that Standard

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Trading recommendations based on quantitative analysis are based on index / stock’s momentum, price movement, trading

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