Nov 08, 2012, 09.19 PM | Source:

Muhurat picks 2012, Sensex target, sector bets: ICICIdirect has come out with a report that talks about Muhurat picks 2012, year end sensex target and prefered sector. has come out with a report that talks about Muhurat picks 2012,  year end sensex target and prefered sector.

The first half of 2012 unfolded in line with our expectations with markets remaining in the broader range. The political leadership in Europe continues to flip flop on policy measures and solvency concerns with whispers of liquidity easing rising while the US continues to focus on domestic topical issues in an election year. Investors continue to perceive US bonds as safe havens (yields at multi-year low of 1.5%) while lack of alternatives and risk-off trades led to record low yields on German bunds, a rise in dollar index, Swiss franc and gold. Fears of moderating growth in China led to commodity sell-offs including crude, a blessing in disguise for India.

However, starting July-August 2012, domestically things have started looking up. The key surprise was the pick-up in policy action from the government side. The key moves being deregulating the petroleum products, hiking limit of FDI in retail and aviation, proposing SEB reforms, direct transfer of cash subsidy, etc. Though it will take time to see the fruits of the above moves, getting the intent right has certainly lifted the animal spirits. Consequently, the markets have cheered the same and posted a handsome rally with FII flows reaching record levels of $18.4 billion in YTDCY12. Even on the earnings side, we expect earnings to be tough in FY13E and look up in FY14E given the stage is set for rates to come down, commodity prices are looking weak (amid a global set-up) and a pick-up in domestic economy on the whole.

We are upgrading our CY12E Sensex target range on the back of better-than-expected earnings, liquidity driven rally, muted expectations and rolling forward to FY14E. We now expect the Sensex to trade in the range of 16484 (13x FY13E Sensex EPS of 1268) 20146 (14x FY14E Sensex EPS of 1439, upside of 15%). Our bull case target multiple is in line with the historical average multiple of 14x while our base case Sensex target now stands at 18707 i.e. 13x FY14E EPS, an upside of 7%. Parallel levels on the Nifty are 4950 on the lower side and 6050 on the higher side.

In terms of sector preference, we expect auto (overweight on fourwheelers and underweight on two-wheelers), pharma (earnings visibility), telecom, banking (private banks positive, PSB neutral) to outperform while we are neutral on capital goods (policy inaction), IT (global macro headwinds), FMCG (valuation concerns) and cement. We expect, infrastructure & real estate (stretched balance sheet), oil & gas (subsidy burden), power (delay in reforms) and metals (global slowdown) to underperform.

State Bank of India (Buying Range: Rs2210-Rs2150): SBI is the market leader (~18% market share) by a wide margin with a gross advances of Rs 9.45 trillion. It has led the rate cuts and is offering one of the lowest lending rate across the industry. In spite of this, it is maintaining one of the highest NIM at ~3.7%. A strong operational performance led by NII enables SBI to cover up for higher provisioning and post decent profitability. Besides, the economy and investment cycle is near bottom and interest rates are expected to come down. A few reform measures (like fast environmental clearance, land clearance, etc.) may surprise positively. Such a scenario remains positive for high beta stock like SBI to outperform.

Coal India (Buying Range: Rs348-Rs335): CIL has a strong balance sheet with robust cash flow and a healthy liquidity position, which augurs well for the company. Going forward, CIL is well poised to deliver healthy performance and is a priced asset to be held in one’s portfolio.

Lupin (Buying Range: Rs590-Rs565): The management has guided for ~100 bps improvement in EBITDA margins every year on the back of continuous improvement in product mix and cost rationalisation. We expect sales, EBITDA and PAT to grow at a CAGR of 24%, 27% and 29%, respectively, in FY12-14E. The stock is currently quoting at 18x FY14E EPS of Rs 32.5.

JK Lakshmi Cement (Buying Range: Rs127-Rs120):  We remain positive on the stock on account of capacity expansion led volume growth, improvement in margins and return ratios and cheap valuations. It is trading at $54/tonne at FY14E capacity of 8.1 MT, which is ~55% discount to the current replacement cost.

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