CLSA View on India

India has most attractive outlook in Asia this year: CLSA


SHANGHAI: Australian equities will be the biggest losers in the Asia-Pacific region this year as a slowing Chinese economy cuts demand for commodities, according to CLSA Asia Pacific Markets.

“We are massively underweight Australia,” Christopher Wood, the second-ranked Asia strategist in Institutional Investor magazine’s annual poll, said in an interview yesterday in Shanghai.

“Australia is perceived as an economy that is geared to China on the commodity side.” Australia’s benchmark S&P /ASX 200 Index fell 1.5% on Wednesday after rallying 20% in the past 12 months as Chinese expansion fueled demand for the nation’s exports, including copper and iron ore.

BHP Billiton, the world’s largest mining company, has risen 13% in that time and Rio Tinto Group, the third-biggest, gained 32%. Both are based in Melbourne.

The S&P/ASX 200 has fallen 11% since reaching an 18-month high on April 15. Losses accelerated after the government said it will impose a 40% levy on the profits of raw-materials producers including BHP and Rio Tinto as part of the broadest overhaul of its tax system since World War II. The stock index had risen 11% between February 9 and April 15 after posting a 7.5% retreat to start the year.

China, Australia’s biggest export market and purchaser of iron ore, began unwinding stimulus measures this year to avert asset bubbles. China International Capital cut its estimate for China’s economic growth this year on May 10 to 9.5% from 10.5%, citing property tightening measures and overseas “uncertainties.”

The Chinese government raised mortgage rates and down payments in April to curb property price gains, while the central bank this month ordered banks to set aside more deposits as reserves for a third time in 2010.

“The impact of tightening is starting to affect other markets such as commodities,” said Hong Kong-based Wood, who is CLSA’s chief equity strategist. Copper and aluminum for three-month delivery have slumped about 10% in London this month, while zinc has lost 16% and nickel dropped about 18%.

The S&P /ASX 200’s valuation has increased to 14.4 times estimated 2010 profit at its companies, trailing only Japan as the highest among Asia-Pacific developed nations with more than $1 trillion in stock-market value, Bloomberg data show.

Indian equities have the most attractive outlook in Asia this year, Wood said. Annual growth may accelerate to 9% over the next five years, allowing the nation to overtake China as the world’s fastest growing major economy, if the government maintains its pledge to rebuild infrastructure, he said.


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Heard on the Street: Investors stock up on Sundaram Multipap

A falling market shows no mercy to new entrants

Small-sized initial public offerings are no longer immune to steep falls in the broader markets, as investors in the Tarapur Transformers issue would have found, much to their ‘discomfort’. The stock closed at Rs 50.60 on Wednesday, down 11% over its previous close. It has now fallen 33% below its issue price of Rs 75, raising questions about the quality of investors — especially the qualified institutional buyers — which had subscribed to the issue.

The stock, which listed on Tuesday and hit a high of Rs 97.50 on that day, has been sliding ever since. Brokers say the price movement in the past couple of sessions indicates a classic “pump and dump” operation. Because of low floating stock, operators are able to corner a good chunk of the floating stock, ramp up the share price, and then dump it on unsuspecting investors who are drawn like moths to a flame. In the past few months, many of the smaller issues have given much better returns than reputed names.

DLF slips for the third day, hits 10-month low

Shares of real estate major DLF fell for the third time in four days to end the day at Rs 279.20, its lowest closing level in over 10 months. Dealers tracking the counter say a leading foreign portfolio investor in the stock has been a steady seller over the past few sessions.

The company’s fourth quarter numbers announced last week have evoked a mixed reaction from analysts, but almost all of them have raised a red flag about the rising debt level. While cutting their price targets for the stock, some analysts still maintain that DLF is one of the better bets in the realty sector. Dealers said some fund managers were making some bargain purchases at the counter, but the big sell order had them scurrying for cover. Given the overall gloomy mood in the market, every rupee and dollar counts.

Investors stock up on Sundaram Multipap

Equity analysts are expecting shares of Sundaram Multipap to gain over the next few weeks on hopes that the company will report good numbers over the next two quarters. With schools and colleges reopening for the new academic year over the next two months, Sundaram Multipap, which makes education exercise books, among other stationery items, is expected to log a rise in sales turnover.

Sundaram Edusys, a wholly-owned subsidiary of Sundaram Multi Pap, recently launched a learning product ‘e-Class’, which will be used by students class 8, 9th and 10th under Maharashtra Board. Sundaram Multipap shares ended 1.2% lower at Rs 49 on the BSE.

(Contributed by Santosh Nair & Shailesh Menon)


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