The Indian markets are expected to open flat with positive bias tracking mixed opening in the Asian markets and positive closing in the U.S. markets yesterday. Asian markets fell broadly yesterday, extending recent steep losses, as fiscal concerns in peripheral European countries as well as fresh fears over dwindling global growth kept investors cautious.
The US markets gained yesterday, rebounding from an extended losing run after Spanish and Italian bond yields fell which renewed hopes about a solution to the eurozone economic crisis and aluminum maker Alcoa Inc. reported a surprising profit. Statements made by Benoît Coeuré, a Board Member of the European Central Bank, also seemed to ease concerns over Spain.
The Indian benchmark indices ended slightly lower yesterday mirroring negative sentiment on Wall Street overnight and caution prevailed ahead of industrial output and inflation data. The markets will now closely watch out for IIP data for February 2012 (Bloomberg estimate – 6.7%) due to be released today. Also, initial jobless claims data for the week ended April 4 for the U.S. economy will be on radar.
Markets Today
The trend deciding level for the day is 17,198 / 5,227 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,320 – 17,441 / 5,263 – 5,300 levels. However, if NIFTY trades below 17,198 / 5,227 levels for the first half-an-hour of trade then it may correct up to 17,077 – 16,955 / 5,191 – 5,154 levels.
Cement growth unlikely to sustain at double-digit levels
Cement demand growth is anticipated by markets to remain buoyant going ahead, in-line with ~10% growth witnessed in 2HFY2012, which has led to the recent run-up in the prices of cement stocks (market cap of our coverage stocks increased by ~18% YTD vs. Sensex registering an increase of only ~12% YTD). However, we remain cautious on the sustenance of demand at double-digit levels in FY2013E and expect yoy demand to decelerate to 8-9% levels, considering moderate overall GDP growth. Moreover, while elections are in any case scheduled in FY2013 in states accounting for only 9% of overall cement demand, even in FY2014, though elections are scheduled in states accounting for 22%+ of overall cement demand, we would not bank upon elections to be a major catalyst for demand growth to improve unless the overall GDP cycle improves from current levels.
This is because, contrary to the popular belief that elections can lead to a significant surge in demand, our analysis of all-India cement demand growth, overall GDP growth and elections – both centre and state over the last ~20 years – has led us to conclude that it is the overall GDP growth that is a major determinant of cement demand rather than the thrust provided by elections.
As per our analysis, the correlation coefficient between cement demand and election comes at +0.02 (we have considered two years’ CAGR for cement demand, as election-related activities usually pick-up in one-two years prior to the elections) i.e., it does not indicate any correlation at all. In fact, even in years when states accounting for 23%+ of overall cement consumption came up for elections, on five such occasions cement growth (two years’ CAGR) was less than 8%, mainly on account of slowness in the overall GDP cycle. Similarly, on four occasions, we found that cement growth was more than 8% on account of healthy GDP cycle despite elections only being there in states accounting for less than 13% of overall cement consumption.
Also, in four of the seven times when general elections were held, cement growth during the election year was not higher than that witnessed in the immediate preceding year. Further, in case of state assemblies’ elections in major cementconsuming states such as Maharashtra, Uttar Pradesh, Andhra Pradesh, Karnataka and Tamil Nadu, it was observed that in greater number of occasions cement growth in the election year was not higher than that registered in the immediate preceding year.
Cement sector – Outlook and valuation
In our view, the cement sector's valuations in terms of EV/sales and EV/tonne when compared to utilization levels are almost 39% more expensive than its historical valuations during periods of similar utilization levels. However, healthy pricing helped by production discipline among cement companies along with sturdy demand growth in 2HFY2012 has led to high valuations currently. Nevertheless, in our view, this is a thin investment thesis to rely on, as there is a persistent risk of a breakdown in production discipline and deceleration of demand growth to 8-9% levels in FY2013E. Hence, we remain Neutral on the cement sector. That said, we maintain our Buy view on JK Lakshmi due to its attractive valuations, as it is trading at EV/tonne of US$44 on FY2014E capacity.
Idea Cellular and ESPNcricinfo tie up to launch Dream Fields
Idea Cellular and ESPNcricinfo have formed a long term tie up spanning content and advertising in India to launch Idea Dream Fields. It is a dedicated editorial repository within the website www.espncricinfo.com, which explores the issue of lack of cricket spaces in cities in India.
As part of this initiative, ESPNcricinfo will travel to the prominent cricket cities in the country, speak to fans, players, parents and local administrators, and visit cricket grounds to explore the issue. Idea Dream Fields will also feature content gathered from the public via social media. ESPN and Idea Cellular have an annual sponsorship deal, estimated by market experts to be in the range of US$1-1.5mn, which was initiated in August, 2011. The Dream Fields initiative is part of that deal. The initiative intends to engage the various stakeholders to present their concerns and issues regarding the cricket playing spaces in the cities in India and marks an attempt to raise this issue at a national level. The content line up for the initiative includes Maidan View, a series on popular cricket grounds; and Ground Reality, a video series exploring the state of cricket in major cities. We maintain our Neutral view on Idea Cellular.
Economic and Political News
- ADB projects moderate increase in GDP to 7% in 2012-13
- India, other emerging economies showing positive signs: OECD
- Tsunami alert in 28 nations as 8.9 quake hits Indonesia
Corporate News
- M&M to consolidate R&D units, to roll out tractor soon
- Piramal Healthcare gets EU nod for orthopaedic product
- PSL bags `570cr order from IOC
- Strides Arcolab receives US FDA nod for vancomycin oral capsules
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