Even though it is tempting to look at some beaten down small/mid-caps or momentum large-caps, we think that the global risks cannot be ignored and continue to suggest focus on large cap domestic plays.
Overweight—autos, private banks, capital goods, cement and media. Underweight—metal, oil and gas/petrochem, pharmaceuticals and IT.
Our top 10 large-cap buys remain the same: ABB Ltd, ACC Ltd, Bharat Heavy Electricals Ltd, Grasim Ltd, HDFC Ltd, ICICI Bank Ltd, Infrastructure Development Finance Co. Ltd, ITC Ltd, Tata Motors Ltd and Zee Entertainment Enterprises Ltd.
CLSA on 21 January
India growth story not at risk
We continue to believe that India’s growth will not be significantly impacted if US faces recession, although valuations are likely to correct.
Avoid global cyclicals and small/mid-caps. We remain buyers of our 2008 conviction picks—Bharti Airtel Ltd, Bharat Heavy Electricals Ltd, ICICI Bank Ltd, ITC Ltd and Tata Power Co. Ltd.
We believe the Indian growth story, led by an upsurge in investments and domestic consumption, remains largely intact. With corporate balance sheets remaining strong, delays in equity issuance are unlikely to delay major investments and with a busy calendar in 2H08 (second half of 2008) and 1H09 (first half of 2009), the government is likely to keep liquidity strong.
Nevertheless, in the event of a recession in the US, bellwether sectors such as information technology will face slowdown and can potentially impact domestic consumption—a reverse chain reaction at play. We estimate a 25% slowdown in the IT sector can dampen GDP growth by 0.5%. Sectors such as real estate that have heavy reliance on the IT sector are also likely to face slowdown.
Lehman Brothers on 23 January
We expect 33% return from the market over 12 months
We believe that the recent 20% correction in the market has brought valuations to reasonable levels… We believe this is not an unreasonably expensive (market) in view of growth and its relative insulation from global credit problems and the US slowdown. We believe the fall presents a good buying opportunity across several sectors and stocks.
We believe the Indian market is now attractively priced, given its growth in an absolute and relative context. We expect 33% return from the market over a 12-month period. From the current levels, we think the market should see a broad-based rally and we advise investors to run a broad-based portfolio. Over the next 12 months, we would recommend a mixture of interest-rate-sensitive stocks as well as some global cyclicals for which we believe the damage to valuations factors in the growth risks.
Within our India portfolio, we favour the following: ICICI Bank Ltd, Punjab National Bank, Tata Motors Ltd, Larsen and Toubro Ltd, Nagarjuna Construction Ltd, Infosys Technologies Ltd, Nicholas Piramal Ltd, Reliance Industries Ltd, NTPC Ltd, Unitech Ltd.
Credit Suisse on 23 January
Not the time to sell, even with a dire world view
The steep Sensex fall has proven two of our fears—the Indian market is linked to the world if the global slowdown is not mild and foreign flows are the biggest drivers of the market.