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From the Fund Managers Desk 1x1pix.gif (807 bytes)
1x1pix.gif (807 bytes)

Tuesday, November 09, 2010 15:33 Hrs IST

Sensex EPS is expected to grow 23.6% & 18.6% in FY11 & FY12 Respectively

DSP BlackRock MF Equity Market Views

Global Update

MSCI India underperformed almost all major global indices during October after being the best performing market in Asia in September. In 2010, India has outperformed global indices in 8 out of the 10 months, with the exception of July and October when it underperformed. India's performance ranking plunged to 16th position (among 21 EMs) from 4th position in the previous month. Year to date, India continues to be the 9th best performing EM. The MSCI India Index gained 1.5% during October.

Domestic market review

Sensex/Sectors: The BSE Sensex Index was down 0.2% during October. On a year on year basis, the BSE Sensex Index is up 26.0%. During the month, Energy was the best performing sector that contributed 1.0% to the absolute Sensex movement while Financials lagged behind with a contribution of (-) 0.6%. On a year on year basis, Financials was the best performing sector with a contribution of 9.2% while Real Estate with a negative contribution of 0.1% turned out to be the worst performing sector

Large/Mid/Small Cap: The Large Cap Index (BSE 100) underperformed the BSE Mid Cap and BSE Small Cap Indices, on a 1 month basis as well as on a YTD basis.

Flows: FII flows in the cash market continued to remain strong amounting to USD 5.4bn (second highest monthly inflows ever) but FIIs remained sellers in the derivatives market selling worth USD 3.1bn (second worst ever). Domestic Mutual Funds continued to remain sellers to the tune of USD 1.3bn while the Insurance companies sold worth USD 1.2bn, making it the second highest level of selling by the domestic institutions in any month totaling USD 2.5bn. Year to date, FIIs have bought stocks worth USD 24.6bn, which is also a new high while domestic institutions (mutual funds + insurance companies) have sold worth USD 5.2bn.

Equity market activity: Market volumes in the cash segment were up 9% m-o-m. Volumes in the derivatives segment were at a new high after rising 7% m-o-m.

Earnings expectations: The consensus expects Sensex EPS growth of 23.6% and 18.6% in FY11 and FY12 respectively.

Corporate activity: M&A activity was marginally down in September. YTD (Jan-Sep) debt and equity issuances stood at USD 42bn and USD 19bn respectively.

Valuation: The MSCI India's valuations touched a 32 month high and are trading at a 67% premium to the MSCI EM valuations. The Sensex Index is trading at 16.82(x) 1-year forward earnings.


October proved to be a volatile month for the Indian equity market, with the global scenario remaining uncertain on the one hand, and large foreign inflows continuing into India on the other. The BSE Sensitive Index (Sensex) closed the month marginally down, after having touched a 33-month high.

Domestically, the Indian macro economic data seems to present a mixed picture. While on ground macro variables such as tax collections, non-oil imports, passenger car sales remain steady, inflation continues to remain high as does the current account deficit. Industrial Production data too has been choppy off late. Fundamentally, while the better than normal monsoon should help bring food prices down, rising oil price continues to pose a threat to inflation. To that end, the Central Bank (Reserve Bank of India) has raised the key rates in its policy review. Meanwhile economic growth remains robust with the IMF having raised India's growth forecast to 9.7% for 2010, up from the July forecast of 9.4%.

On the global front, concerns regarding further quantitative easing by developed nations persist. While this points to uncertainty and lack of a clear direction in the developed world, from an emerging market point of view it could be positive as they might continue to see inflows.

Corporate results for the Jul-Sep quarter, released thus far seem to be well in line with expectations, showing a 25% growth in earnings. The consensus earnings growth expectations for FY11 stand at 23%. Keeping in mind the current and foreseeable growth momentum, Indian equity market valuations (FY12) look attractive.

Non-Equity Market Update

Currency: In October, the Indian Rupee appreciated 1.15% against the US Dollar but depreciated 1.19% against the EURO. The USD/INR FX rate closed the month at 44.43 against 44.95 as at previous month end. The EURO/INR FX rate closed the month at 61.55 against 60.83 as at the previous month end.

Gold: Gold appreciated 3.9% during October to close the month at USD 1,359.4/ounce.

Oil: Oil moved up 1.83% to close at USD 81.43/barrel.

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