India Policy and Reforms share price target

Going forward, in the near term, Indian stockmarket focus on the on-going quarterly result season would continue with high stock-specific action. As far as the medium-to-long-term is concerned, after seeing some slowdown post demonetization and the countrys transition to the new tax system (GST), the domestic economy is expected to gather some steam, also aided by the concentrated efforts of the government. The only challenge from the near-term perspective is the fact that valuations seem to have run a bit ahead of their true worth and thus we do not rule out heightened volatility in the months ahead for the market. However, at the same time, every dip should be taken as an opportunity to enter the market with an investment horizon.

We value V-Guard based on a P/E of 32x Sep-19EPS, and arrive at a TP of Rs 214. We maintain BUY. We arranged a road-show with the management of V-Guard. Our confidence in the companys long-term business trajectory was further strengthened, despite the short-term hiccups caused by GST. The company is confident of achieving 15% revenue growth in FY18, despite revenue being flat in 1QFY18. Healthy underlying growth with restocking should register high double-digit figures in the coming quarters. Management is also confident of maintaining 10% EBITDA margin in FY18 (1QFY18 margin was at 5.8%, -574bps YoY).

Q1FY18 earnings season displayed another quarter of weak performance. The performance was also hit by GST-related de-stocking in several consumer-oriented sectors. Q1FY18 earnings season displayed another quarter of weak performance. The performance was also hit by GST-related de-stocking in several consumer-oriented sectors.

Q1FY18 corporate earnings tepid performance can mainly be attributed to de-stocking in major sectors before the GST roll-out. However, going forward, we expect sustainable recovery in earnings from H2FY18, which is also important from market standpoint considering that the market valuation is at premium from the near-term perspective. Moreover, while nothing much changes for the medium-to-long-term India growth story, in the short-term, geopolitical concerns and corporate earnings recovery, along with the Governments reform agendas, will decide the course of the Indian stockmarket. We maintain our positive outlook on Indian equities and continue to advocate taking advantage of any correction in the market.

An economy enters the strongest phase of growth when stocks, bonds and commodities rally. We believe that India is at the cusp of entering this phase.

Trade deficit continues to remain benign at $13 billion in June as against $13.8 billion in May. Exports have slowed to 4.4% (y-o-y) in June compared to 7.2% (y-o-y) in May and 17.9% (y-o-y) in June.

Top picks: CDH, LPC, GNP and GRAN While the 4QFY17 performance of the Pharma sector was impacted by a sudden drop in US sales, 1QFY18 is likely to be adversely affected by GST-related channel de-stocking. Overall, we expect a single-digit top-line decline YoY for our coverage universe. The drop in profitability is likely to be influenced by both lower sales of exclusive products (gGleevec, gGlumetza and gAbilify), and compensation for lost tax credits offered to dealers in the face of GST implementation. However, we believe that the operating performance is likely to have bottomed out in 4QFY17 and companies like LPC, CDH, GNP and ARBP are now receiving a higher number of product approvals, leading to stronger base businesses in the US.

In our coverage universe, Maruti Suzuki, M&M are our top picks. This is because they have an extensive distribution network and strong rural franchise, and would be major beneficiaries of demand revival in the next two years. We also prefer Eicher and Force Motors, given the increasing preference for premium, stylish and differentiated vehicles. We continue to maintain our positive stance on Tata Motors, as JLR's volume growth momentum is likely to continue with its healthy new product cycle and margin trajectory. 1QFY18 is expected to be a muted quarter for auto companies. PV/2W wholesale dispatches were strong in first two months of the quarter, but June sales were impacted by uncertainty ahead of GST. OEMs reduced their shipments to help dealers liquidate their stock. Customers postponed purchases, owing to expectations of price cuts post GST implementation.

Q1FY18E earnings and possibly the next quarter is likely to be a nonevent as the economy gears up for GST challenge. We believe that market is likely to focus on the long term benefits that would accrue from this structural change. We note that with most of items' rate being closer to the existing rates and more importantly ~ 81% of items are to be taxed below the 18% standard rate, we believe implementation of...

The investment outlook is too early to write off: As CMIE Capex releases Q1FY18 numbers, at a cursory glance, the data may not cheer. Yet we remain positive. Barring Q4FY17, over the last ten quarters, the trend in net investment addition eked out a weaker trend. This quarter was no different. Adding to that, the proportion of change in outstanding investments is actually contributed by variation in cost. (Refer Exhibit 1 and Exhibit 2). Further, the aggregate value of projects scrapped in the June 2017 quarter, CMIE opines, was Rs.2.4tn. Here, 52 projects were scrapped between April and June 2017, as per CMIE. And the prominent projects among them include: (a) Mithi Vardi Automic Power Plant worth Rs.600bn; and...