Indian Automobile – To cruise ahead, despite the speed-breakers

Indian auto companies have been reporting strong volume sales for the past few quarters. Upbeat consumer sentiments, benign interest rates and new launches have been the key factors responsible for the stupendous growth witnessed by the Indian Automobile industry. However, there exist near-term concerns in the form of a possible rollback of Excise duty or Fiscal stimulus in the upcoming Union Budget, and likely Margin pressure due to higher Raw Material costs going forward for Indian automobile companies. However, we believe that these are short-term hurdles for the sector, which will be overcome with the passage of time. On the long-term basis, we remain positive on the Indian Auto Sector. Overall we believe that the comparatively low penetration levels, a healthy economic environment and favourable demographics supported by higher per-capita income levels are likely to work in favor of the Indian Auto sector, which would help in sustaining a relatively high growth pattern over the next few years.

By Ms. Vaishali Jajoo, Sr. Research Analyst, Auto & Auto-ancillary, Angel Broking

The Real State of Real Estate in India

The Indian real estate sector has come a long way in the past few years. Listed developers’ market cap is up almost 30-fold, from US$110m in 2004 to US$30bn today. Notwithstanding this rise to eminence, primary data availability remains inadequate, despite statutory registration of every real estate transaction with government authorities. Presence of a cash component in transactions makes fair value estimations difficult. However from Investors perspective, transparency on the part of developers, timely land approvals from Government which would ensure regular flow of real-estate supply and dedicated regulator for the sector to make it more institutionalized, are all the need of the hour. However, over the next few years, we believe that the Indian real estate sector would remain in an upward transition phase on account of rising disposable incomes and more nuclear families. However, developers need to guard themselves against affordability going beyond the reach of the middle class, which represent a large percentage of population in India.

By Param Desai, Research Analyst - Real Estate & Logistics, Angel Broking

Infrastructure – Look beyond a quarter

Over the years, India has been experiencing power deficits, an inadequate road network to support the ever-burgeoning vehicular traffic, ports serving as bottlenecks, and so on and so forth. However, it is imperative that the growth of the human population is accompanied by a matching growth in the underlying infrastructure (at the minimum), if not more. When this does not happen, it starts to have a draw-down effect on the overall growth of the economy. Considering this, investment in infrastructure has been the focal point in recent years, as realisation dawned on the government that inadequate infrastructure has been withholding India's growth and deterring foreign players from investing in the country. Therefore we believe that Infrastructure sector is an ever shining theme for reasons mentioned above. However, the stocks in the Infra space have witnessed a battering over the past few weeks mainly on account of disappointing set of results, which in part can be attributed to the ongoing Telangana (AP) crisis leading to delay in execution due to various reasons. We believe that an Infrastructure Company’s performance should not be judged from only from quarterly performance but a macro view needs to be taken while betting on them as the inherent nature of the business is lumpy and prone to delays. Thus, the current correction is an opportunity for long term investors to play on the ever shining infra theme in India.

By Shailesh Kanani,Sr.Research Analyst-Infrastructure & Real Estate, Angel Broking

Indian IT – Return of the IT czars

Indian IT industry had been the biggest victim of the global financial crises, with large clients across the globe cutting their IT budgets as part of their cost cutting measures. However, all major Indian IT companies displayed resilience by overcoming the pricing pressure from large banks in US/Europe outsourcers, and largely maintained their profit margins. Large Tier-I companies (Infosys, TCS, Wipro) expanded into newer markets, acquired companies and bundled their services to maintain their strong revenue growth. Going ahead, these companies are likely to see strong business growth supported by improved economic scenario in the developed markets as indicated by the strong financial performance in the recent Q3FY2010 results. Further, companies have started hiring more employees signaling stronger order book in the ensuing quarters, resurrection of business confidence and of better times ahead.

By Hitesh Agrawal,Head - Research, Angel Broking

A hike won’t stop the coming boom

RBI is expected to come out with its monetary policy by the end of January. The market is expecting a rate hike or CRR hike by the RBI. The market has already discounted these expectations, as the banking shares have been underperforming the market in last 4 weeks. But the concerns of monetary tightening by the market have been overdone in our opinion. Banks are still sitting on huge liquidity and FIIs are pouring in money in the market on every fall. Interest rates are almost 2-3% lower than peak rates, even lower in case of some products. It will take several rate hikes by the RBI over a period of a couple of years, before interest rates become high enough to actually hamper demand in the economy. The fact is that as foreign money continues to come into the economy, the business confidence and consumer confidence starts picking up, economic activity tends to get a boost and companies and individuals alike look to borrow money from domestic banks even at increasing rates due to the positive economic environment. In our view, we are just at the beginning of a sharp increase in loan growth and overall economic activity, which we believe will take the markets and with that banking stocks, to much higher levels in the coming quarters.

By Vaibhav Agrawal, VP Research-Banking, Angel Broking

Markets @ 9 – The brighter side

Recently, the Indian Stock Exchanges implemented an Extra Trading Hour for investors, which has largely been opposed on several grounds. However, if we consider the brighter side of this development, it could work in favour of the Indian economy. This is because, apart from the fact that the Indian stock markets will now relatively be in a better position to react to global information flow, i.e. closer in tandem to Asian markets which open earlier because of the time zone differential; extended hours could also lead to higher participation interest by FIIs resulting in higher capital inflows. This would be a positive for the Indian economy, which is a capital-starved nation with the potential to grow at 10% per annum. Thus, additional long-term capital inflows will only work in favour of one-and-all Indians.

By Hitesh Agrawal, Head-Research, Angel Broking