The IBR Newsletter (2013 / Vol1)

B R IE F COM M E NTS ON R E CE N T N E W S A ND R E S E A R CH

JAN13

EQUITY MARKETS DID QUITE WELL IN 2012

With around 26% returns for the calendar year 2012, India was among the 3 top performing markets. While the data in the two graphs below is not quite the same (one places Indian 3rd, and the other at the top), but you get the general drift.

Sensex rose around 26% for 2012

Indian markets were top 3 global markets in 2012

Source: Reliance Securities

www.indiabusinessreports.com

2013/Vol1

THE IBR NEWSLETTER

13 Jan13

2012 was a fantastic year for stock investing Despite the bad news on the economic front, 2012 was a fantastic year for investing in the stock markets. In the table below, we present advance-decline data for the last 3 years.

A monkey would have made money in 2012

Sensex Companies* Lost Rose >10% >15%

2010 38% 62% 50%

2011 89% 11% 8% 7%

2012 37% 63% 52% 48%

Source: India Business Research, *around 2600 companies

As you can see, 2012 was a year in you could have made money throwing darts. Why are we saying so? 63% of scrips ended positive. Whats more, almost 50% of them rose above 15%! So it was almost impossible to lose money in 2012. A great year for FII flows as well 2012 was also the second best year in Indias history for FII flows. Even at the height of the bull market in 2007, FII inflow was much less.

Second best year for FII flows

There was some debate in 2012, as to whether all of these FII flows were genuine, but that aside, FII money is clearly the smart money.

www.indiabusinessreports.com

2013/Vol1 FII

THE IBR NEWSLETTER

FLOWS AND INDIAN MARKETS

13 Jan13

The objective of this newsletter is to bring to you interesting bits of research. On that note, a recent CLSA strategy piece makes this interesting observation..
Over the last 15 years, FIIs have been net sellers for only 3 years (1998, 2008 and 2011) and since CY03, have invested US$10bn/year.Our historical analysis suggests that years in which net FII inflow as a % of market cap has fallen below 1%, market has dipped 20% on an average. Thus, going by the past analysis, a net FII inflow of US$10-15bn will be required in CY13 to drive moderate (close to 10%) returns from the market.

Annual FII flows on $10-15bn needed for positive returns from equity markets, says a CLSA report

This figure should be easy to achieve, given the positive sentiment around Indian markets currently.

HOW WILL MARKETS FARE IN 2013?

Between 17.5K and 22.5K We expect Sensex to trade between 17500 and 22500 for 2013. At 19784, the market is almost bang in the middle of this. More important from our perspective is the advance decline ratio, since that is what really determines what happens to returns an ordinary investor can expect. This year, is a tough one, given last years strong performance. 2013 should be a good year as well, we expect advance declines to be just marginally worse than 2012 We will stock our neck out, and say, 2013 may only be marginally worse off than 2012. We expect a majority of stocks to rise, stocks closing positive could be around 55% of traded stocks on the BSE (as compared to 62% in 2012). Stocks giving more than 15% returns, a better benchmark for investor returns, could be around 40% of total traded stocks. So 2013 could still be a very good year for stock investing. Our relative optimism comes from the fact that worst may be behind us.
www.indiabusinessreports.com 3

2013/Vol1

THE IBR NEWSLETTER

13 Jan13

Interest rates should continue to soften this year. The government has already taken some tough steps, and it is likely to take some more in 2013. IPO market will see more activity PSE divestment, plus pent up private sector demand will see a rush of IPOs, now that market conditions are better. As the following chart from a CLSA note shows, IPO activity has been muted for almost 2 years now.

SECTORAL OUTLOOK
From 2012s winners, pharma sector should continue to do well. FMCG will continue to do well from demand perspective, but valuations are high. Most brokers are positive on banks, but we think there are large risks in the system. For ex, simply the Deccan Chronicle case would see almost Rs 4000 crore of write off from the system. A similar amount could vanish courtesy Kingfisher. Infra companies like Lanco are in trouble. Yes Bank is a top pick for several brokers, on the other hand, from the banking system we hear words of caution about the bank. Even for ICICI Bank, we are once again beginning to hear stories which one thought the bank had left behind under Chanda Kocchar. We have no idea about the veracity of these stories, and ICICI Bank is the top pick of several brokers, but we would avoid the stock at this point. We see value in real estate. There are several firms, still quoting below book, or around book value. Some of these have practically zero debt. Similarly, while small, sectors like chemicals and logistics, offer value.

Hidden devils in the banking sector

Good value in smaller sectors like real estate, ancillaries, chemicals, logistics..

2013 Sectoral Stance Positive Negative Auto, Auto Ancillaries Telecom Pharma Capital Goods Cement Metals Real Estate Infra Logistics Chemicals

Neutral FMCG Banks Mining Media Oil IT

www.indiabusinessreports.com

2013/Vol1

THE IBR NEWSLETTER

13 Jan13

GLOBAL OUTLOOK US COMPANIES IN GOOD SHAPE

Fears about US fiscal cliff notwithstanding, US companies are in tremendous shape now, as the following chart from a JP Morgan note shows. Cash balances with US companies are close to multi-decade highs.

The following chart makes the same point. US corporate are also making record profits.

One positive for India from the above data: Strong US corporate sector is good for Indian IT. So while outlook for Indian IT remains weak in the next 1-2 quarters, at some point in 2013, probably in the second half, IT could move up to be among sectoral outperformers.

www.indiabusinessreports.com

2013/Vol1

THE IBR NEWSLETTER PHARMA SALES SLOWDOWN GATHERS PACE

13 Jan13

Dec-12 has been the month with one of the lowest growth rates in a long period of time, if we ignore the low growth of Nov-12 to Diwali effect. Industry sales for Dec12 increased at a measly 5.1%, according to data from AIOCDAWACs, the data arm of industry association AIOCD. The year 2012 had started with a bang, with Jan-Mar sales showing 18.7% growth, and ended on a whimper. Sales growth for Oct-Dec12 was in single digits at 9.1%. The trend of Q1, Q2, Q3 and Q4: 18.7%, 16.9%, 13.5% and 9.1% respectively, definitely points to a slow-down. While the entire industry will analyze the data on what caused this slowdown, there are some trends which are being reported / discussed, including generics acquiring bigger share, slowdown in New Patient detection in chronic therapies as well as subdued seasonal anti-infective market due to lower respiratory infections compared to prior period. Amongst the top 25 corporates for Dec-12 showing high growth are Sun 17.3%, Zydus-Biochem 16.2%, Mankind 14.5%, Macleods 16% , Intas 13.4% and USV 19.1%. Amongst the top 10, Lupin has moved up one rank for the month.

With Bonus Units at Full Value Val in Crs CORPORATE IPM Abbott + Abbott Hc Cipla Sun Pharma Glaxo Zydus + Biochem Ranbaxy Mankind Alkem + Cachet + Indchemie Pfizer + Wyeth Lupin Macleods Intas Aristo Sanofi-Aventis + Universal Emcure + Zuventus Dr. Reddys Glenmark Micro + Bal IPCA Wockhardt
www.indiabusinessreports.com

Rank MA MT T H 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 10 9 11 12 14 13 16 17 15 19 21 23

MAT Dec -12 Val (Cr) 69338 4091 3496 3343 3239 3049 2899 2495 2351 2213 2098 1771 1657 1618 1556 1467 1362 1356 1309 1228 1206 MS% 100.00 5.90 5.04 4.82 4.67 4.40 4.18 3.60 3.39 3.19 3.03 2.55 2.39 2.33 2.24 2.12 1.96 1.96 1.89 1.77 1.74 GR% 14.3 11.8 10.6 22.0 16.9 17.1 8.8 26.1 15.4 17.0 14.4 27.8 18.6 14.0 14.0 14.3 9.8 24.6 17.4 18.1 10.4 Val (Cr) 5776 341 302 300 267 265 252 198 187 181 182 152 147 124 133 121 119 123 106 100 95

Dec-12 MS% 100.00 5.90 5.23 5.19 4.62 4.59 4.37 3.43 3.25 3.13 3.15 2.62 2.55 2.15 2.31 2.09 2.06 2.13 1.83 1.72 1.64 GR% 5.1 4.3 0.4 17.3 2.1 16.2 7.0 14.5 0.8 6.6 8.7 16.0 13.4 -1.5 6.4 10.0 3.6 9.6 -5.1 4.4 -5.0
6

2013/Vol1
USV Torrent Novartis Alembic FDC MSD + Fulford + Organon Elder Unichem Novo Nordisk Indoco Remedies Cadila Fanco Indian Himalaya Merck Eris Blue Cross Bharat Serums Raptakos, Brett Jb Chemicals Astrazeneca Wallace + Indi Pharma Johnson & Johnson Win-Medicare Meyer Organics Hetero Medley Panacea Allergan Troikaa Shreya

THE IBR NEWSLETTER

21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 18 20 22 24 27 28 25 26 29 30 31 32 35 36 34 37 33 41 38 39 42 40 43 45 44 46 47 48 53 54 1198 1190 1125 920 786 761 715 707 624 554 530 477 444 443 424 408 391 376 367 352 346 331 314 309 307 284 251 231 229 227 1.73 1.72 1.62 1.33 1.13 1.10 1.03 1.02 0.90 0.80 0.76 0.69 0.64 0.64 0.61 0.59 0.56 0.54 0.53 0.51 0.50 0.48 0.45 0.45 0.44 0.41 0.36 0.33 0.33 0.33 23.4 11.5 11.6 9.5 5.3 22.5 7.9 7.7 8.1 15.6 16.1 14.5 27.3 14.0 31.3 21.8 39.7 28.8 16.8 17.7 8.5 9.6 7.8 3.9 22.5 4.5 7.2 24.8 6.9 4.1 106 101 96 78 58 56 60 60 50 44 41 39 36 35 36 34 36 28 31 30 27 29 26 23 25 21 21 20 18 17

13 Jan13
1.84 1.75 1.66 1.35 1.00 0.98 1.04 1.03 0.87 0.76 0.71 0.67 0.62 0.61 0.62 0.59 0.63 0.49 0.54 0.52 0.46 0.50 0.45 0.40 0.43 0.36 0.36 0.35 0.31 19.1 9.8 3.8 -0.5 -7.3 -6.0 8.0 5.4 10.4 2.9 -0.8 11.9 5.6 3.9 10.0 5.4 18.7 13.9 12.0 21.7 -1.6 2.0 -2.4 10.6 1.7 -8.4 -0.9 12.4 19.0

0.30 0.7 Source: AIOCD AWACSs

The Anti-infective segment the largest size and 17% weightage is flat, and is a major contributor to lower growth rates. For the first time ever, Diabetes market is growing lower than the Cardiac market, which is surprising as Diabetes for most part of last several years has shown 5-10% higher growth rate than Cardiac. Another market that is virtually stagnant for the month is Respiratory along with Pain / Analgesics. While Anti-infectives, Respiratory and Pain/Analgesics (including antipyretics) can have seasonal influence, the slowdown in Cardiac and Diabetes points to a definite lowering of mid-term IPM growth forecasts.

www.indiabusinessreports.com

2013/Vol1

THE IBR NEWSLETTER Check our website to see more research

13 Jan13

Disclaimer This note is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The content in this note is solely for informational purpose and is not a solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this note constitutes investment, legal, accounting and tax advice. India Business Reports or its owner-partners accept no liabilities for any loss or damage of any kind arising out of the use of this note. Contact Admin@indiabusinessreports.com +91 9987474021

www.indiabusinessreports.com