Thought for
the day
“Never accept ultimatums, conventional wisdom, or
absolutes.”
-Christopher Reeve (American, 1952-2004)
Word of the
day
Calorifacient (adj)
(of foods) producing heat.
(of foods) producing heat.
(Source: Dictionary.com)
Shri Nārada Uvāca
After bank license, now Tata’s do not want airport!
Will we see Tata House shifting from Mumbai to Dublin in
next one decade?
Positioning for May 2014
As suggested yesterday,
expecting any substantial improvement in macro fundamentals of the economy in
2014 could lead to disappointment.
In our view, the best thing that could potentially occur in 2014
due to change in government is improvement in execution of existing plans,
programs and projects. We however do not agree with the consensus that the
improvement in execution would completely depend on the outcome of the
elections.
In our view, irrespective of the constitution (UPA, NDA or third
front) or nature (minority or majority) of the government the tremendous public
pressure, heightened fiscal pressure and elevated inflation would ensure faster
execution. Consequently, we would not be too disappointed if BJP fails to form
a government led by Narendra Modi (not our base case).
Given that the 2014 elections are likely to be fought very
aggressively, and acrimoniously we do not see political consensus evolving on
key social, economic and financial sector reforms till the tempers cool down
(may be couple of years down the line).
In our view, therefore, the limited implications of general
elections in terms of industry performance would be better visibility of order
flow for capital goods from 2015, improvement in working capital cycle.
Improvement in capacity utilization level would depend on the correction in inventory
level, pick up in consumption demand and higher government plan expenditure.
We also note that global economic cycle is stabilizing and may
show further improvement in 2014. This could have positive implications for
Indian industry in terms of better external demand environment, especially when
INR is likely to remain weak. Growing participation of global corporations in
Indian industrial landscape by way of expanding operations (HUL, Cadbury,
Nestle, Vodafone etc.) or increasing stakes in existing operations is a key
trend to follow.
We therefore would like position for May
2014 through:
(a)
Industrial companies with substantial operating
leverage and lower financial leverage. The companies with market and technology
leadership, strong brand equity and access to global markets would be
preferred. Examples would be Siemens, Cummins, and L&T etc. Product
companies rather than services companies are more preferable as they gain from
inventory correction, pricing power among other things.
(b)
Consumer companies both in staple and
discretionary space which may benefit from weaker INR, lower commodity prices,
rising demand post bumper Rabi harvest and rising consumption demand in
external markets. Examples would be HUL, ITC, Maruti, Bajaj Auto, Tata Motors,
Tata Global Beverages, and Dabur, etc.
(c)
Local units of global corporations that may see
larger participation through more investment, hike in stake or transfer of
manufacturing operations for regional exports. Examples would Bayer, Bosch,
Siemens, Cummins, United Spirits etc.
We would continue to avoid PSUs,
commodity stocks and leveraged infrastructure companies.
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