Sensex fair value estimate to rise from 15950 to 17090

2012 started on a positive note. For the first week of the year, most of the global markets went up by 1 to 2% except China and Japan. Nifty for the week ended up2.6% and closed at 4747 levels.

Metal prices also saw an upswing. Gold rose by 3.3%, Silver rose by 4.8%. Amongst base metals, steel rose by 5.9%.

Volumes remained muted. The same had been the case through-out 2011; absolute daily average volume in stock market has been down at Rs140b, lower by 20% when compared to Rs182b in 2008, which is supposedly a very bad year.


This week will mark the start of Q3 earning announcements with Indusind Bank reporting its numbers on 10th followed by Infosys and HDFC declaring the results on 12th.


As per consensus estimate, median Sales growth of Indian companies in Q3FY12 will be 17% yoy and Profit after Tax will be mere 7% y-o-y.


Out of 185 companies for which we have consensus expectation, 73 companies i.e around 40% of companies are expected to report a negative y-o-y Pat growth and 11% of companies would report a negative y-o-y Sales Growth. Pharmaceuticals, Cement, Software and Utilities are expected to report good quarterly numbers while Construction & Egg, Metals & Mining and Electrical Equipment industry will report dismal results.

We expect FY12 Sensex EPS of 1,100, and FY13 Sensex EPS of 1221 up by 11% over FY12. We will also roll over base of Sensex fair value estimates post quarterly result announcement from FY12 to FY13. We expect fair value estimate to rise from 15,950 to 17090. How market will behave around this fair value level will depend a lot on how macro plays out over next three months in terms of RBI stand on interest rate and policy announcements by government.    

For companies that is reporting results this week:

For Indusind bank, NII is expected to grow at 18.3% y-o-y and profit after tax at 4% y-o-y. We still have buy rating on this stock. But ahead of results we are bit cautious because of higher auto loan exposure of the bank. We will review our rating after management speak post the quarterly results.

For Infosys- sales are expected to grow at 28% y-o-y and profits at 26% y-o-y.  The EPS for the company for FY 12 is expected to be Rs 143.3. We maintain BUY rating on the stock.

For HDFC - NII growth is expected to be 16%yoy and PAT growth is expected to be 10.5% y-o-y. We remain neutral weight on the stock.

In terms of technical structure, absence of volume and low open interest in derivative market makes anticipating short term movements difficult. Though, we assume bull case have chance, only if Nifty closes above crucial level of 4848 for three days.

Thank You and wish you a good trading & investment week ahead

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