Outlook for CY13 remains upbeat - Microsec

The outlook for CY13 remains upbeat on a number of factors, albeit actual numbers of improved growth may only start in from the second half of the CY13. The reforms initiated by the government has kicked in investments across sectors, led by infrastructure and capital goods. The Government, headed by the Prime Minister, has formed a body (CCI) to fast track projects. Other measures like efforts to bring down subsidy, direct cash transfers to the eligible may lead to a better fiscal situation of the country, thereby raising India ratings and investments. Inflation at 7.2 percent is expected to moderate on higher base affect and the likely appreciation of the INR which has sharply depreciated against the USD on increasing current account deficit, redemption of FCCB's, lower domestic growth and weak sentiments. The RBI governor has indicated on a number of occasions that rate cuts to happen once inflation is under control.We believe that RBI may cut rates in CY13 by 100-125 basis points, which is likely to spur spending and growth.

On the global front, the outlook remains mixed. Whereas Euro zone remains fragile, Chinese Economy is showing signs of growth led by domestic factors. Japan has called for stimulation measures to bring growth back to growth. US economy remains mixed with fiscal cliff likely to pass without damage to the economy and growth rates remaining moderate. We have always believed that growth in other emerging markets and emergence of new economies may partially compensate for the slow growth of the leading economies, which may balance the global growth.

On the earnings front, Bloomberg consensus estimates for FY14 earnings of Nifty and Sensex is 440 and 1444 respectively, which reflects a growth of ~14.50 percent over the EPS of FY13. We believe that Nifty and Sensex earnings is likely to get upgraded by 4%on expected fall in interest rates, higher than this year GDP growth led by initiatives of the government. Hence our Nifty and Sensex target for FY14 is 462 and 1516, based on which Nifty and Sensex is trading at ~12.80 times FY14E (Microsec) Earnings. We believe the higher earnings growth is likely to be led by interest rate sensitive sectors like Banking & finance, Real Estate, Power and Infrastructure companies. We expect Nifty to trade between 12.25-14.5x FY14(ME) which makes a range of 5650-6700 for Nifty in CY13. The INR may trade between 48-56 in CY1s with more bias to settle down around 50 towards end of CY13. FII flows may continue to remain positive as they chase growth stocks from the reform oriented and consumption and infra sectors.

Top Picks:

Large Caps: RIL, BHEL, NTPC, NMDC, Coal India, SBI, ICICI bank, T, Bharti Airtel, BOB, Hind Lever and Ranbaxy.

Mid & Small Caps: Aditya Birla Nuvo, Tube Investment, Dish TV, LICHF, Dhanuka Agri, Cera Sanitary, IL&FS Trans, NBCC, Pidilite, Indian Bank, Indian Hotels, Maharashtra Seamless, Crompton Greaves, Blue Star, Eros and JK cement.

Source : Equity Bulls

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