Nomura revises downwards Sesa Goa, Maruti Suzuki, Tata Steel and upgrades M&M, GAIL, Ranbaxy

Nomura’s valuation model shows that Hindustan Unilever is overvalued in historical terms

Much of finance and investing today rely on information and forecasting. Investors, after all, are interested in what the market is likely to do well in the future, even though nothing is guaranteed, and a lot of finance firms feed this very need. Usually, forecasting has much to do whether a stock will do well or not. If prospects of the company seem good, the earnings will be revised upwards, from time to time, as more information is gathered. The same thing applies if the prospects are bleak, which will lead to downward revision. However, these revisions of forecasts are based on hindsight information which says nothing about the future. It is only a prediction, which can be true or false. Hence, investors must take all forecast reports with a pinch of salt.

By and large, most forecasted earnings revolve around price-earnings multiple and earnings per share, two of the key fundamental indicators used by analysts. Firstly, earnings is an indicator of profitability. Good news would mean higher earnings and vice versa. Secondly, the price-earnings (PE) denoted how much a stock is overvalued or undervalued. Even though this is a widely used indicator, it can be also a hugely misleading one. A higher PE does not necessarily mean overvalued or such. It can also mean the market is attaching a premium on a particular scrip for growth. Similarly, low PE does not mean cheap or undervalued. More often than not, the market is right and the PE is low, for a reason.

The Equity Research division of Nomura, a global investment bank, has come up with its latest fortnightly equity valuation monitor and has revised some of its NSE Nifty 50 stocks. It revised downwards Sesa Goa, Tata Steel, Bharat Petroleum and Maruti Suzuki, to name a few. At the same time, it revised upwards Mahindra & Mahindra (M&M), Gas Authority of India and Ranbaxy, to name a few. All these were done on the basis of earnings.

However, Nomura does not mention the reasons for downgrade/upgrade. It also came up with list of stocks based on PE valuation. On the valuation front, it says that Hindustan Unilever’s average 12 month PE is quoting at more than two times its standard deviation of its historical average indicating, perhaps, the stock has run its course. The company has been continuously delivering on all fronts and can be considered a long-term pick. Meanwhile, none of the stocks were found below two times historical forward 12 month PE. Stocks such as Ambuja Cement and ITC, Grasim had 12 month PE between one and two times standard deviation of its historical averages, indicating, perhaps, slightly over valued or good growth prospects. However, these are just indicators to give the investor an idea of the stock and not triggers to buy or sell stocks. Further homework needs to be done.

Revisiting the earnings revisions of the stocks, we are not surprised by the downgrade of Sesa Goa— a company owned by Vedanta Group—which has flouted environmental norms and come under heavy media scrutiny (for instance, do check this report we had written here: Vedanta’s Millions: Which political party benefited from it?). The report mentions Sterlite, a company which has been taken over by Sesa Goa but amalgamation has been put on hold pending court orders, which has fallen down by 7.4% and topped the list of laggards. Sterlite, has lagged Sensex over the last two years. These two companies — Sesa Goa and Sterlite Industries — should be avoided due to poor corporate governance record. Sterlite has now been removed from the Sensex.

Recent plant troubles in Maruti Suzuki’s Manesar plant obviously impacted future prospects of the company, with Nomura revising downwards earnings estimates by 3.8%. However, after the plant’s troubles were over the price gained by 13.8% over the last one month, showing that the worst is now over.

Tata Steel (earnings revised down by 5.3%) has been going through a difficult time as steel industry is in the doldrums and largely dependant on global economy. Moreover, it is a heavily fragmented industry. The bellwether, London-based Mittal Group had reported losses recently, which doesn’t bode well for the sector.

On the other hand, Ranbaxy has been revised upwards by 2.8%, though the reason remains unclear. News sources mention that the company has already missed out on the first day of the launch of its hypertension drug, Diovan, as it is yet to get approval of the regulators in the US. The irony is that the market has discounted the information and the report lists it as a laggard in terms of price performance (down 5.4%). Other pharmaceutical companies such as Sun Pharma and Cipla have been upgraded as well, but only by 0.9%, which is nothing. 




mam chand aggarwal

5 years ago

Seems to be aunrhetic

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Uptrend on Sensex, Nifty continues: Friday Closing Report

Nifty has to close below 5,670 for the uptrend to break and a possible sideways move to start


The market closed with gains of around 1% on the government continuing with its reforms push and support from the global markets. Today the Nifty closed at its highest since 8 July 2011 on the overall positive cues. The benchmark again managed to make higher high and higher low and wiped off the losses incurred in the past two trading days. We may now see the Nifty may moving sideways if it closes below 5,670. The National Stock Exchange (NSE) saw a lower volume of 81.15 crore shares and an advance decline ratio of 1064:694.
The domestic market opened on a firm footing on supportive global cues and reports of the rupee trading at a near five-month high against the dollar in early trade. Also reports of the Indian government asserting that it will not resort to any additional borrowing through bonds and will stick to its borrowing plan in the second half of the fiscal supported the upmove.
The Nifty opened 35 points higher at 5,685 and the Sensex resumed trade at 18,705, a gain of 125 points over its previous close. The market touched its intraday low in initial trade itself but across-the-board buying activity soon pushed it to a higher trajectory. At the lows the Nifty stood at 5,683 and the Sensex moved lower to 18,699.
Gains in metals, power and auto sectors pushed the benchmarks to their highs at around 10.30am. At their highs, the Nifty rose to 5,735 and the Sensex climbed to 18,870.
Having already completed about 65% of its market borrowing programme for 2012-13, the government on Thursday said it will raise only Rs2 lakh crore in the second half of the fiscal to ensure adequate availability of cash for the private sector. According to the Budget estimate, the gross market borrowing is planned Rs5.69 lakh crore for 2012-13.
Meanwhile, in line with the strong equity market, the rupee shot up to five-month high of 52.55 a dollar on Friday morning due to fresh selling of the American currency by banks and exporters. 
The rupee, which resumed higher at 52.73 per dollar from 53.02 on Thursday, firmed up further to a five-month high of 52.55 per dollar, before quoting at 52.68 at 11.00am. The rupee last traded at 52.55 on May 2, 2012.
However, the market pared some of its gains and was trading sideways in subsequent trade. A mixed opening of the key European markets kept the local indices steady in noon trade.
A minor bout of profit taking saw the market paring some more gains, but snapping its two-day decline to close higher. The Nifty closed 54 points (0.95%) higher at 5,703 and the Sensex finished the session at 18,763, a gain of 183 points (0.99%) over its previous close.
In the broader markets space, the BSE Mid-cap index gained 1.14% and the BSE Small-cap index rose 0.85%.
Except for BSE Realty which fell 0.37% all other sectoral indices ended up in the green. The main sectoral gainers were BSE Auto (up 1.89%); BSE Consumer Durables (up 1.63%); BSE Fast Moving Consumer Goods (up 1.42%); BSE Metal (up 1.38%) and BSE Power (up 1.37%).
25 of the 30 stocks on the Sensex closed in the positive. The key gainers were Hindalco Industries (up 3.39%); Tata Motors (up 2.96%); Cipla (up 2.50%); Sun Pharma (2.44%) and Tata Power (up 2.30%). The main losers were Infosys (down 0.58%); BHEL (down 0.56%); SBI (down 0.39%); GAIL (down 0.22%) and HDFC Bank (down 0.14%).
The top two A Group gainers on the BSE were—Tata Global (up 8.30%) and Indian Hotels (up 6.32%). 
The top two A Group losers on the BSE were—United Breweries (down 7.59%) and United Spirits (down 4.61%).
The top two B Group gainers on the BSE were—Assam Company (up 20%); Agre Developers (up 19.83%).
The top two B Group losers on the BSE were—Minaxi Textiles (down 13.75%) and Sacheta Metals (down 12.79%).
Out of the 50 stocks listed on the Nifty, 39 stocks settled in the positive. The top gainers were Hindalco Industries (up 3.69%); Power Grid (up 2.96%); Sun Pharma (2.96%); Tata Motors (up 2.79%) and Jaiprakash Associate (up 2.42%). The key losers were Reliance Infrastructure (down 1.50%); IDFC (down 1.38%); DLF (down 1.35%); HCL Technologies (down 1.28%) and BHEL (down 0.60%).
The Asian pack, with the exception of the Japanese benchmark, settled higher on hopes that Spain would be able to rein its debt imbalances following the unveiling of fresh budget to reduce in spending. The Spanish Cabinet on Thursday approved a new tax on lottery winnings and a cut in ministries’ spending as part of a 13 billion-euro ($16.8 billion) central government package to reduce the euro area’s third-biggest budget deficit.
 The Shanghai Composite advanced 1.45%; the Hang Seng gained 0.38%; the Jakarta Composite climbed 0.89%; the KLSE Composite rose 0.54%; the Straits Times added 0.03%; the Seoul Composite was up 0.38% and the Taiwan Weighted settled 0.41% higher. Bucking the trend, the Nikkei 225 declined 0.89%.
At the time of writing, the key European markets were mixed with a negative bias and the US stock futures were trading in the negative.
Back home, foreign institutional investors were net buyers of shares aggregating Rs399.75 crore on Thursday whereas domestic institutional investors were net sellers of equities amounting to Rs447.87 crore.
Aiming to regain its lost position in the two wheeler industry, TVS Motor Company today launched its second 125cc motorcycle—TVS Phoenix. The first 125cc motorcycle from the Hosur-based manufacturer was TVS Flame that was introduced few years back. The stock advanced 1.19% to close at Rs42.50 on the NSE.
India’s largest private sector oil retailer Essar Oil and Gujarat State Petroleum Corporation on Friday announced a partnership to expand CNG presence in the Gujarat to offer more fuel choice to customers. The two companies also announced commissioning of a compressed natural gas (CNG) facility at Essar Oil’s retail outlet at Botad in the state. This is Essar’s 20th CNG outlet in Gujarat. Essar Oil fell 0.10% to settle at Rs50.50 on the NSE.
Dalmia Cement Bharat, a subsidiary of Dalmia Bharat Enterprises, has acquired Meghalaya-based Adhunik Cement for Rs560 crore. Adhunik Cement has a robust presence in the North-East markets with a near 10% market share and a capacity of 1.5 million tonnes per annum (MTPA). Dalmia Bharat closed trade at Rs168.20 on the NSE, a jump of 12.02%.


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