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4 May 2015
For private circulation only
Review and Equinomics’ Views on Economies and Markets
Last week most global equity indices fell anywhere from 0.5% to 3% as the US gave negative
surprise of poor January-March 2015 GDP growth at 0.2% which shocked the global equities.
The FED in its latest meeting decided not to revise the benchmark interest rates which gave
some hope for the Asian equities this morning as most of them are in green now.
 Applications for U.S. jobless benefits declined by 34,000 last week to 262,000, the
lowest level in 15 years, showing employers view a first-quarter slowdown in the
economy is probably temporary;
 The US Fed on Wednesday offered no changes to its zero interest rate policy, pointing
to weakness in the US labour market and economy, in a sign that the central bank is
struggling to proceed with its plans to raise interest rates this year.
 Euro-area consumer prices ended a four-month streak of declines after the European
Central Bank started pumping billions of Euros into the bloc’s economy through its
quantitative-easing program. Prices stagnated in April from a year earlier after falling
0.1% in March;
 Russia's central bank on Thursday cut its key interest rate by 1.5% points to 12.5%,
citing declining inflation risks and the need to kick-start the ailing economy. The cut is the
third this year following an emergency hike by a massive 6.5% points in December;
 The Bank of Japan maintained its pledge to increase base money at an annual pace of
¥80 trillion ($674 billion) through purchases of government bonds;
 The international price of gold hits 6-month low at $1,175. However, most metals
recover to 4-month high. There are reports of China considering $l.1 trillion stimulus
to boost the economy as well as hundreds of dwindling infra projects;
 Crude oil (Brent) price trade above $66 a barrel despite the oil output by OPEC
hitting a 2-½ high. We believe that the international oil price would continue to recover
and may settle around $70 a barrel in the short term. We continue to suggest the long-term
investors to accumulate Cairn India. The cash, current investments and lending to
Vedanta Group together account for about 80% of current market cap of Cairn India
– its core oil assets are valued at mere 20% of its current market cap!;
Review of the Domestic Economy and Equity Markets
The domestic market continued their slide on Thursday, with the Nifty breaching the
psychological 8200- mark and the Sensex slipping below 27,000. The Sensex shed 215 points
to close at 27,011 after touching a low of 26,897 intraday whereas the Nifty fell 58 points to
close at 8,181, after hitting a low of 8,145. The Sensex and Nifty have now fallen a little over
10% from their record highs seen in early March. For the truncated week, both indices fell
about 1.5% each. The mid and small cap indices fared better, falling around 0.5%.
 The rupee has weakened 1.5% in April in Asia’s worst performance as data showed
India’s trade deficit widened last month amid a slump in exports. The currency, which fell
0.2% on Thursday to 63.42 a dollar, completed its biggest monthly loss since December.
 Eight core industries registered a negative growth of 0.1% in March, the lowest
performance in 15 months, due to a steep decline in production of steel, cement and
refinery products. The output had expanded by 4% in March 2014. The previous low
logged by the core industries was in October 2013 at (-) 0.6%. For the full FY2015, the
production growth of eight sectors also slowed down to 3.5%, from 4.2% in FY2014.
In March 2015, production of steel declined by 4.4% and of cement by 4.2%. Refinery
products’ output contracted 1.3% while natural gas by 1.5%. However, coal production
rose by 6%, crude oil by 1.7% and fertiliser output by 5.2% in the last month of FY2015
fiscal. Electricity generation grew by 1.7% in March 2015 compared to 5.4% in the same
month last year;
Founder &
Managing Director
[email protected]
Equinomics Research & Advisory Private Limited - Investment Adviser
4 May 2015
Equinomics
Weekly Insight
|
Review of the Domestic Economy and Equity Markets (Continued)
 The country's foreign exchange reserves surged by $1.4 billion to touch a new life-time high of $344.6
billion in the week to April 24;
Equinomics’ View: The broad indices have fallen by about 10% from their life-time peak achieved in the first week
of March 2015. The tussle between the FIIs and the government continues – the latest media report says that the tax
amount in dispute through the MAT issue could be around Rs.6,000 crore to Rs.7,000 crore. The FIIs have been
continusoly selling the Indian equities. The Sensex has fallen 3.4% during the month of April. History shows that the
May month is normally quite bad for the Indian equity markets. In this background. Many investors are wondering
whether the market is set for further fall in this month.
We believe that the history is only source of learning, it doesn’t become a rule consistently. We see this moment
giving good opportunity to follow the bottom-up approach and buy good quality and also attractively valued
individual stocks. Many indicators provide us comfort and confidence that the market could recover 3% to 5% during
the month of May. Finally the tax collections remained quite robust in relative terms. Direct tax collections, though
fell short of revised budget target, they grew at 19% yoy in FY2015. Though the results of the IT sector disappointed,
the private banks and companies engaged in the capital goods and also in manufacturing have posted some
improvement in results. The poor GDP growth also augurs well for the Indian equities – the US FED is unlikely to hike
the interest rates in the near future. Globally, the metal prices have improved to 4-month high and oil prices have hit
2015 high. We believe that these are all positive indications for the significant recovery of the domestic equity
markets. Hence, we suggest our investors to accumulate good quality stocks.
Sector developments
 Government has cut the export tax on low-grade iron ore to 10% from 30% effective from June 1, a move
that will boost shipments of the steelmaking raw material from the state of Goa;
 In the listed space, among all automobile manufacturers, Maruti continues to post impressive sales growth. In
April 2015, its sales of passenger vehicles have gone up 27.3% yoy. Hero Motor is yet to succeed in managing the
competition from Honda Motors – while sales of 2-wheelers of Hero Motor has declined by 6.6^ yoy, Honda
posted 9% yoy growth in the same month. TVS Motor registered 13% yoy growth. M&M posted just 1% yoy
growth in its utility vehicle sales while Tata Motors posted 7% yoy growth in total sales and 5% in the sales of
commercial vehicles. Overall, the auto sales seems to have improved in the month of April;
Corporate developments
 Polaris Consulting & Services Ltd reported 18.5% yoy decline in net profit of to Rs.37.00 crore during the
quarter ended March 31, 2015 as against Rs.45.41 crore, a year ago. Revenue stood at Rs.467.65 crore as against
Rs.645.49 crore. Previous year financials are not comparable with the current year financials consequent
to demerger of product business during the current year. The company has declared a final dividend of Rs.10
per share, taking the total dividend to Rs.15 for the financial year (including the interim dividend of Rs.5 declared
in March 2015). It is worth noting that the company is paying out Rs.15 per share as the dividend, while its total
earning per share is Rs.16.77 – its payout stands at whopping 89%! It is quite logical for any company to
exhaust the cash before opting for any M&A activity – we are wondering whether the company is set for
joining any consolidation process. Our firm view is that the consolidation in the IT pace will continue as the large
IT companies are growing their top line in a single digit off late;
 The review of Biocon balance sheet gives a lot of comfort – its net cash has gone up by 43% yoy to Rs.638
crore as of March 31, 2015. BIOCON holds 86% stake in Syngene for which it has filed prospectus with the
domestic regulator for its IPO. The stake is valued at ~Rs.4691 crore. The Net Cash and its Syngene stake
valuation stands at ~Rs.5329.06 crore (which is 59% of Biocon’s current market cap). We suggest a
strong BUIY on BIOCON;
Equinomics Research & Advisory Private Ltd | For private circulation only
 Coal India has registered a production growth of 10.7% at 41.52 million tonnes in April, over the
corresponding month of 2014. Coal India has begun FY2016 on a strong note with a record production during
April at 41.52 million tonnes, 101% of target production. CIL had registered a 6.9% production growth for the
fiscal FY2015. Coal off take was at 43.52 million tonnes during April. We believe that the government’s efforts to
clear the environmental hurdles for Coal India are paying off – we expect Coal India to continue with significant
improvement in its coal production going forward also;
 WIPRO plans to cut down the costs by about $300 million – this would be 5% to 6% of it s total costs and
the same would be positive for the earning accretion;
Equinomics Research & Advisory Private Limited - Investment Adviser
4 May 2015
Equinomics
Morning
Insight
| Equinomics Research & Advisory Private Ltd
Weekly
Insight
We reiterate our “BUY” recommendation on Karur Vysya Bank Ltd. (KVB)
Karur Vysya Bank is one of the most high-conviction stocks for Equinomics. It has posted quite impressive
result in the March 2015 quarter:
o
o
o
o
o
Net profit for the period grew by 15.2% to Rs.137.83 crore compared to Rs.119.59 crore, a year ago.
Net Interest Income for the quarter grew by 14% to Rs.397.38 crore compared to Rs.348.33 crore.
The bank has successfully maintained its Net NPAs below 1% at 0.78% for the quarter.
The only concern were the Advances, which grew at a mere 6% for the year. This was mainly because the
bank is of a conservative nature in disseminating loans to maintain its Net NPAs at comfortable levels;
It has declared a dividend of Rs.13 for the year.
The stock price of KVB has corrected by ~22% from its 52W High of Rs.618 hit on 4th March 2015. We recommend
our investors to use this correction to accumulate the stock & continue to reiterate our conviction in the stock and
suggest our investors to consider having exposure as high as 10% of their overall equity assets, depending upon their
risk profile.
Apart from its impressive results, KVB trades at an attractive valuation as compared to its peers:
Business
(Deposits
Net
Adj.
+
NPAs
Book Price/ABV
Banks
CMP Advances)
(%)
Value
(X)
Karur Vysya Bank
482
79980
0.78
326
1.4
South Indian Bank*
24
82065
1.04
24
1.0
Federal Bank
131
122110
0.69
86
1.5
Lakshmi Vilas Bank
102
38316
1.85
70
1.4
In the last 2 years, the management has become very aggressive in branch expansions – it set up totally 121 new
branches in FY2013 and FY2014 – it is little more than half of total number of branches (231) it had 10 years ago (in
FY2005) - we firmly believe that the aggressive branch expansions of the bank in the last 2 years would play
out positively on its bottom line over the next two years;
In next 2 to 3 years, its new branches will start turning around and the NPA cycle in the country would
reverse. This period eventually end with KVB celebrating its 100th year in FY2016. Hence, we
expect Karur Vysya Bank playing out in a big way in FY2016. Considering these facts, we recommend our investors
to accumulate the stock at current market price of Rs.482 with a target price of Rs.800/.
Disclosure: I. G.Chokkalingam, personally hold shares of Karur Vysya Bank and South Indian Bank with due
compliance process and hence, the investors are advised to consider this fact before investing in these stocks.
Equinomics
Weekly Insight
Equinomics Universe Active Calls
Sr
No.
Date of
Inititation
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
30-May-14
02-Jun-14
13-Jun-14
18-Jun-14
31-Jul-14
18-Aug-14
29-Sep-14
07-Oct-14
28-Oct-14
10-Nov-14
17-Nov-14
25-Nov-14
27-Nov-14
11-Dec-14
17-Dec-14
30-Dec-14
01-Jan-15
02-Jan-15
07-Jan-15
13-Jan-15
15-Jan-15
05-Feb-15
06-Feb-15
12-Feb-15
20-Feb-15
24-Feb-15
09-Mar-15
11-Mar-15
12-Mar-15
13-Mar-15
30-Mar-15
13-Apr-15
15-Apr-15
17-Apr-15
29-Apr-15
Company Name
Initiation
Price
Target
Price
CMP
Balmer Lawrie
Cairn India
MOIL
State Bank of Bikaner & Jaipur
Styrolution ABS India
Biocon
Karur Vysya Bank
Radico Khaitan
South Indian Bank
Claris Lifesciences
International Paper APPM
Hindustan Zinc
JB Chemicals & Pharma Ltd.
HOV Services
Mphasis
ITC
Engineers India
BBTC
Heritage Foods
Sutlej Textiles
Bal Pharma
Axis Bank
Genus Power Infrastructures
Steel Strips Wheels
Maruti Suzuki
Sasken Comm. Technologies
Polaris Consulting & Services
Coal India
Wipro
Reliance Communication
Indraprastha Medical Corp
Hero Motocorp
Bambino Agro Industries
JK Tyre & Industries
Jay Bharat Maruti
447
338
324
550
543
470
520
80
27
171
296
170
206
142
346
370
230
386
379
370
67
559
27
341
3,592
209
148
371
654
70
54
2,584
115
128
142
850
600
400
715
800
560
800
110
35
365
400
200
285
188
460
420
300
600
500
500
85
675
40
500
4,000
300
225
450
731
92
70
3225
170
168
230
567
214
254
556
637
453
482
90
24
246
283
169
217
81
394
322
184
420
312
356
62
568
27
286
3,732
223
157
363
539
61
53
2,329
109
118
147
%
Return
s
27%
-37%
-22%
1%
17%
-4%
-7%
13%
-11%
44%
-4%
-1%
5%
-43%
14%
-13%
-20%
9%
-18%
-4%
-7%
2%
0%
-16%
4%
7%
6%
-2%
-18%
-13%
-2%
-10%
-5%
-8%
4%
Equinomics Research & Advisory Private Limited - Investment Adviser
Recomm
4 May 2015
Equinomics
Morning
Insight
| Equinomics Research & Advisory Private Ltd
Weekly
Insight
Equinomics Universe Closed Calls
Sr
No.
1
2
3
4
Date of
Inititation
22-May-14
26-May-14
29-May-14
11-Jun-14
Tilaknagar Industries
GAIL India
BBTC
State Bank of Mysore
5
6
7
8
9
10
11
12
13
14
15
16
17
18
17-Jun-14
19-Jun-14
24-Jun-14
30-Jun-14
08-Jul-14
22-Jul-14
07-Aug-14
20-Aug-14
27-Aug-14
28-Aug-14
25-Sep-14
17-Oct-14
22-Oct-14
26-Dec-14
Godfrey Phillips
JK Tyre & Industires
Andhra Bank
HOV Services
Weizmann Forex
Mangalore Chemicals & Fertilizers
Financial Technologies
Rane Brake Lining
Zensar Technologies
Bal Pharma
Colgate Palmolive
Bayer Cropscience
Oberoi Realty
Colgate Palmolive
Company Name
Initiatio
n Price
62
379
116
599
580
290
97
81
144
73
290
253
439
59
1,649
2,260
229
1,757
Close
Date
01-Jan-15
20-Jun-14
31-Jul-14
03-Mar-15
Close
Price
27
460
212
543
03-Mar-15 465
23-Sep-14 500
86
03-Mar-15
01-Oct-14 153
10-Nov-14 193
95
26-Sep-14
205
01-Jan-15
293
01-Jan-15
26-Sep-14 582
85
30-Oct-14
14-Nov-14 1,990
18-Nov-14 2,858
282
01-Jan-15
10-Apr-15 2,150
%
Returns
-56%
21%
83%
-9%
-20%
72%
-11%
89%
34%
30%
-29%
16%
33%
44%
21%
26%
23%
22%
Equinomics
Weekly Insight
Stock Disclosure: Whether Stock Held By:
Karur Vysya Bank/South Indian Bank
G.Chokkalingam & Family
Equinomics
YES
NO
Equinomics Research & Advisory Private Ltd
Investment Adviser
CIN:U67190MH2014PTC252252
SEBI REG. NO. INA000001712
G. Chokkalingam - Founder & Managing Director
Head Office – Mumbai
18 - A/3, Ekta CHS, Shivdham Complex, Opposite Fire Brigade,
Near Oberoi Mall, Malad (East), Mumbai - 400097
Ph: +91 22 28492940 | Email: [email protected] | Website: www.equinomics.in
Equinomics Research & Advisory Private limited (Equinomics) is a SEBI registered Investment Advisor. This document has been prepared
by Equinomics Research & Advisory Private Ltd– Advisory Client Group. Besides, Equinomics is also Authorised person of Tata Securities
Limited (TSL). TSL or Equinomics Research & Advisory Private Ltd focused-broking division may have issued other reports that are
inconsistent with and reach different conclusion from the information presented in this report. The views and opinions expressed in this
document may or may not match or may be contrary with the views, estimates, rating and target price of the Affiliates research report.
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in
any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent.
This report and information herein is solely for informational purpose and may not be used or considered as an offer document or
solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment,
legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their
own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be
taken in substitution for the exercise of independent judgement by any recipient.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an
investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own
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The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be
treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company
reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior
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