Prithvi: No Disclosures

Prithvi: No Disclosures

Sometime in the middle of June, a leading television channel reported...

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Is India poised to deliver?

Despite the global slowdown still showing that it is alive in fits and spurts, brokerages continue to be bullish on India. But crude prices, capital flows, and market correlations remain a concern

Morgan Stanley (MS) is positive on India and is advising investors to buy on dips with an expected return of around 23% by the end of 2011. Its India Strategy report (end August) says it is overweight on energy, industrials, materials and telecoms, and underweight on healthcare, utilities, consumer discretionary, financials and technology.

First the negatives mentioned in the report:

* India has outperformed emerging markets since February 2010 and this itself may make it vulnerable to a sharp correction.

* It trades at a 50% premium to EM above its five-year trailing average.

* Earnings and IIP growth seem to be slowing.

* India's high external deficit, funded largely by portfolio flows make it vulnerable to any global risk aversion.

Which the positives outweigh:

* India's defensive behaviour is backed by a strong policy environment, resilient domestic growth, healthy corporate balance sheets, and an improving government balance sheet.

* Anaemic growth elsewhere in the world makes India's growth look attractive.

* A coming slowdown seems to be priced in by the market.

* It has low cyclicality - India's earnings growth was almost close to zero even as global earnings fell by over 40%

* High RoE.

* It looks like the RBI is going slow in hiking rates - this will give more time for individuals and businesses to benefit from lower interest rates

* The government is actually delivering on reforms and on infrastructure - fertiliser price reform, gas price rationalisation, partial fuel price decontrol, 3G auction and tax reforms.

Morgan Stanley qualifies that its expected return is based on certain conditions - fiscal consolidation, policy initiatives in FDI, infrastructure, tax and deregulation, a steady global situation and reasonable capital flows, no sudden spike in crude oil prices, a slow exit by the RBI through 2010, and moderate equity supply. The report mentions that it is likely to be a quiet year ahead for politics with only 5 elections over 2010-11 - Bihar, Assam, Kerala, Tamil Nadu and West Bengal.

MS' high net-worth survey in June 2010 revealed that cash and crude were the least preferred asset classes for 2010 while the BSE Midcap was the best; materials and telecoms were considered the worst sectors while financials was the best.

Other interesting points in the report:

* Private capex has collapsed in FY10.

* Capital is cheap and supply is likely to rise.

* Equities are slightly overvalued vs. local bonds.

* Peak liquidity for commercial banks is behind. It now remains tight.

* Derivative markets are giving mixed signals - hedges have flattened, VAR suggests participants are bullish, Nifty premium suggests net long positions.

* Institutional flows have been choppy but foreigners have raised stakes.

* Key concerns are global risks - namely crude prices, capital flows, and market correlations.


GTL Infra cancels tower merger deal with Reliance Infratel

Mumbai: GTL Infrastructure today said it has called off the deal to merge the telecom tower business of Anil Dhirubhai Ambani Group (ADAG)-led Reliance Infratel with itself, reports PTI.

"The Non-Binding Term Sheet signed by both parties dated 27 June, 2010, expired on 31 August, 2010," the company said in a filing to the Bombay Stock Exchange.

"Despite efforts, both parties have neither extended the term sheet nor entered into any definitive transaction agreements as envisaged therein. Consequently, the process of merger as originally contemplated would not take place," the filing added.

On 27th June, the boards of GTL, Reliance Communications (RCom) and its subsidiary Reliance Infratel Ltd had given in-principle approvals to the Rs50,000 crore ($11 billion) merger deal to create the world's largest independent telecom infrastructure company, neither owned nor controlled by any telecom operator.


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