Top Stock Picks

This is not a research report and has not been produced by a research unit. Important disclosures can be found in the
Disclosures Appendix.
1






Standard Chartered Securities
India Top Picks equity strategy
equities | 6 March 2014

Sensex consolidating in a narrow range
 No changes to our Top Picks this month
 On Watch:
– Maruti Suzuki (MSIL IN) to Cut (waiting for a rebound)
– Tata Power (TPWR IN) and HPCL (HPCL IN) or Oil India
(OINL IN) under consideration to Add
 Indian markets were up last month because of better-than-
expected inflation data and pre-election opinion polls suggesting
that the BJ P-led coalition is the frontrunner for forming the next
government at the Centre.
 Of the stocks we highlight, we believe those with the most
favourable technicals are Cipla (CIPLA IN), Lupin (LPC IN) and
Tech Mahindra (TECHM IN). We would advocate investors
consider adding to these names at current levels.
 In the Interim Union Budget, the Finance Minister surprised the
market by announcing that the FY14 fiscal deficit would be 4.8%,
20bps lower than previously forecast. Other highlights include the
lack of populist measures ahead of the budget and excise duty
reduction in automobiles, capital goods and non-consumer
durables.
 We expect Indian equities to trade in a narrow range until the
general elections and remain Neutral on the markets; we expect
a rally on a favourable outcome in the general elections.


Contents
Sensex consolidating in a narrow range 1 
India Top Picks 2 
India Top Picks Review 2 
Range-bound till elections 7 
Technical Commentary 8 
India Top Picks – Results Update 18 
Sector – Performance & Valuations 19 
Important Information 21



Sirshendu Basu
Chief Investment Strategist
Nishit Sheregar
Equity Strategist
Shishir Narsinghani
Associate Strategist

Soumen Das
Senior Quantitative Strategist
India Top Picks (Refer to appendix for a summary of the rationale behind each stock’s selection)
Ticker Name Sector
Stock
Price
Consensus
Rating
12m
Fwd P/E
12m
Fwd P/B Div Yield
Div
Payout% TR 1M% TR YTD% YTD% USD TR ITD%
LPC IN Lupin Ltd Healthcare 982.8 4.6 21.9 5.4 0.3 13.6 13.3% 10.0% 8.0% 7.6%
CIPLA IN Cipla Ltd Healthcare 376.6 3.4 18.8 2.6 0.5 10.4 -6.4% -4.1% -6.5% 24.8%
LT IN Larsen & Toubro Industrials 1097.6 4.1 17.9 2.4 1.1 21.9 12.6% 3.7% 2.0% 29.1%
TECHM IN Tech Mahindra Technology 1906.5 4.4 13.4 3.5 0.3 5.0 4.5% 1.6% 3.2% 92.5%
HCLT IN HCL Technologies Technology 1504.7 4.4 15.8 4.6 0.9 20.7 7.8% 25.1% 18.9% 19.9%
MSIL IN Maruti Suzuki Discretionary 1582.2 3.9 14.3 2.0 0.5 9.8 -2.9% -9.9% -10.7% 13.8%
TTMT IN Tata Motors Ltd Discretionary 410.7 4.7 7.8 1.9 0.5 6.5 19.3% 10.8% 8.6% 14.8%
RIL IN Reliance Industries Energy 803.4 4.2 9.8 1.1 1.1 14.7 -3.8% -10.6% -10.7% 9.5%
ICICIBC IN ICICI Bank Financials 1029.8 4.6 - - 1.9 24.0 5.7% -5.0% -6.7% 20.1%
AXSB IN Axis Bank Financials 1255.5 4.1 - - 1.4 18.9 12.8% -2.5% -3.9% -2.8%
BHARTI IN Bharti Airtel Telecom Svs 286.7 4.4 21.4 1.8 0.3 16.7 -8.7% -12.9% -13.6% -14.6%
ITC IN ITC Ltd Staples 329.2 4.6 25.4 8.9 1.6 54.5 0.8% 1.8% 1.8% 50.1%
Source: Bloomberg, Standard Chartered, data as of 03 March 2014

equity strategy – India Top Picks | 06 March 2014


2

India Top Picks
Here, we highlight our Top Picks in India on a sector-agnostic basis. For a brief view on each individual stock, refer to page 17. The
technicals section on pages 8-15 highlights selected stocks with favourable technical views on a 1-3 months basis.
Our key sector calls over the next 12 months
Healthcare (OW)  Q3 FY14 revenues continued to beat expectations because of greater penetration in key markets, new
product launches and a better product mix.
Industrials (OW)  The sector is expected to be a key beneficiary of any revival in economic growth. Focus on infrastructure
development is on the economic agenda of most major political parties, which augurs well for the sector.
Furthermore, attractive valuations are supportive in face of market volatility.
Technology (OW)  The business outlook for the sector remains strong; however, we need to be cautious as profit-booking in
the near term cannot be ruled out, because of the recent sharp outperformance. The sector is a good
hedge against any volatility arising from an unfavourable election verdict, given its more internationalised
earnings profile, which would benefit from a weaker rupee.
Utilities (N)  The sector is returning to normalcy following the recent regulatory order on a tariff hike, which is positive
as it reduces fuel price concerns (the availability of coal remains a worry). Furthermore, the focus on
reviving ailing State Electricity Boards (SEB) is expected to improve realisation for power generating
companies. A favourable election outcome is likely to raise hopes of further power sector reforms. In
addition, valuations in the sector being at historical lows provides added comfort.



India Top Picks Review
We are not making any changes to the India Top Picks this month. We
have, however, put a number of stocks on our watch list.
 On Watch:
– To ADD: Tata Power (TPWR IN), HPCL (HPCL IN), Oil India
(OINL IN)
– To CUT: Maruti Suzuki (MSIL IN) - awaiting a technical
rebound

On Watch to Add: Tata Power (TPWR IN)
Profile: Tata Power generates and supplies electricity in Mumbai and
its suburbs. The company also constructs and operates independent
and captive power plants for industrial concerns. In addition, it
provides various services related to electricity distribution, erects and
commissions transmission lines and is diversifying into the
telecommunications market.
Key Drivers:
 TPWR’s portfolio comprises low-risk businesses because c.98%
of its projects are tied up under long-term power purchase
agreements (PPA) and c.94% of operational and under-
construction projects have long-term tie-ups for fuel supply. This
provides the company medium-term revenue visibility.
 The recent regulatory order on the pass-through of fuel costs is
structurally positive and enhances the viability of its ultra mega
power project (UMPP) in Mundra, albeit with a cap on RoE.
Stock Ticker View
Tata Power TPWR IN Watch (Add)
Hind Petroleum Co HPCL IN Watch (Add)
Oil India OINL IN Watch (Add)
Maruti Suzuki MSIL IN Watch (Cut)







Tata Power trading at c.-1SD below its median
EV/EBITDA
EV/EBITDA

equity strategy – India Top Picks | 06 March 2014


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Valuations: The stock is attractively valued at 7.3x EV/EBIDTA and
trades at 1.7x P/B versus its historical 10-year average of 2.3x.
Technicals: The stock is trading within a broad range of INR 70-90.
The downside is very limited at the current level.
Risks: The recent tariff hike is likely to be challenged by State
Electricity Boards (SEBs).

On Watch to Add: Hindustan Petroleum Corp (HPCL IN)
We are considering adding HPCL to the Top Picks list. The stock
has run up in recent weeks, and we would look to add it on
weakness.
Profile: Hindustan Petroleum Corporation Ltd refines crude oil and
manufactures petroleum and petroleum products. The company’s
products, sold via outlets throughout India, include lube products,
lubricating oil, aviation fuel, hydraulic brake fluid, greases, liquefied
petroleum gas and insecticides. The Government of India is the
company’s majority shareholder.
Key drivers:
 We expect the re-rating of oil marketing companies (OMC) to
continue given the improving RoE. The attracti ve risk-reward
makes OMCs well positioned for an outperformance in case
of a favourable election outcome.
 We expect fuel subsidies to contract further, led by regular diesel
price hikes and declining crude oil prices. However, an INR
depreciation could hurt our assumptions.
 Timely government subsidy payouts are likely to progressively
reduce finance charges and improve working capital. This would
also help deleverage the balance sheet.
 We expect RoEs to improve on the back of (1) stable gross
refining margins (GRM), (2) falling finance charges, and (3) full
compensation in addition to the absence of forex losses in FY14.
Valuations: The c.8x 12-month forward P/E is below the Energy
sector’s historical mean of 13.5x. The stock offers an attractive
dividend yield of 3.2%.
Technicals: The stock pulled back sharply after hitting a low of INR
160 in September 2013. We expect the stock to touch INR 350 in the
medium term. However, a price correction cannot be ruled out in the
near term, as momentum indicators are trading in the overbought
zone.
Risks: Lower compensation by the government in FY14E, rising crude
prices on account of geo-political concerns and the INR depreciating
against the USD.

On Watch to Add: Oil India Ltd (OINL IN)
Profile: Oil India explores, develops and produces crude oil and
natural gas in India and internationally. The state-owned company is
also involved in the transportation of crude oil, production of liquefied
petroleum gas, pipeline services, as well as various exploration and
production-related services.










HPCL trading at c.1SD below its median P/Bk
12-month forward P/Bx
Source: Bloomberg, data as on 03 March 2014





















Oil India trading at c.1SD below its median P/Bk
12-month forward P/Bx
Source: Bloomberg, data as on 03 March 2014


equity strategy – India Top Picks | 06 March 2014


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Key drivers:
 We expect Oil India to benefit from a sharp fall in fuel
subsidies in FY15 from FY14 and a doubling of gas prices in
FY15, which could drive growth.
 The company’s Q3 FY14 revenue was in line with expectations
(adjusting for subsidy) as INR depreciation was offset by lower oil
production volume.
Valuations: The stock offers an attractive dividend yield of 3.3%. The
6.6x 12-month forward P/E is below the Energy sector’s historical
mean of 13.5x.
Technicals: The stock is trading near multi-year support zone at INR
430-440. It continues to trade within a range of INR 440-490 in the
medium term. We expect a technical pullback from lower band of the
trading range.
Risk: Higher subsidy burden on upstream PSUs in FY14.

On Watch to Cut: Maruti Suzuki Ltd (MSIL IN)
The stock is under review for a potential cut.
 Investors are concerned about the proposed capacity expansion
through a contract manufacturing arrangement with 100% Suzuki-
owned plant in Gujarat. Investors are apprehensive about the
pricing of cars from the plant and the funding of the project, which
raises corporate governance concerns. While we await further
clarity from management, we expect the issue to cap upside in
the near term.
 The overhang of this pact overlooks Maruti’s robust operational
performance.
 Technicals: The stock may consolidate within a range of INR
1,500-1,750. The medium-term uptrend would remain intact as
long as it holds support at INR 1,400.
 View: We keep the name in the India Top Picks list for existing
investors, and for new investors, we would advocate they await
clarity on the Gujarat plant investment by the parent Suzuki.

Current Top Picks:
Lupin Ltd (LPC IN)
 The stock rose 13.6% last month following better-than-expected Q3
FY14 results, driven by strong business growth in the US.
 During this period, Lupin received final approval for its Rifabutin
capsules USP (for advanced HIV infection) from the US Food and
Drugs Administration (USFDA) to market a generic version of
Pharmacia and Upjohn’s Mycobutin capsules (annual US sales of
USD 18.6m). The company’s US subsidiary will commence
marketing the product shortly.
Valuations: Despite the upmove, the stock is trading at 21.6x 12-
month forward P/E, lower than the sector’s 10-year average of 22.3x.
Risks: Deceleration in the growth of Indian formulations and a
prolonged slowdown in sales in J apan.






















Uncertainty with regard to the deal with the parent
Suzuki spooked investors
Maruti Suzuki’s price chart
Source: Bloomberg, data as on 03 March 2014






Lupin’s exposure to foreign markets could aid its
earnings on a global economic recovery
Revenue by geography
Source: Bloomberg, Standard Chartered




equity strategy – India Top Picks | 06 March 2014


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Cipla (CIPLA IN)
 Cipla was sold down by 6.4% as its Q3 FY14 earnings
disappointed due to lower margins.
 Management has highlighted that the business model going
forward is local manufacturing in countries like Brazil and Turkey.
Cipla already has a factory each in Uganda and South Africa and
a partnership in China. So it is in the process of evolution, which
could lead to having its own manufacturing abroad.
 The stock did bounce back from a key support level. As
highlighted in our Results Flash dated 14 February 2014, we
believe that the near-term pressure on margins is due to Cipla’s
investment in future growth. Furthermore, Cipla’s transition to a
business model driven by expanding global reach and a greater
research focus should lead to higher revenues.
Valuations: The stock is trading at 18.9x 12-month forward P/E,
below the sectoral mean of 22.3x.
Risks: Persistence of margin pressure in the medium term

Larsen & Toubro (LT IN)
LT rebounded a sharp 12.6% last month and continues to display
strength.
 LT’s strategy of monetising its assets through public listing and
stake sales is a sentiment booster in the waning industrial sector.
 We remain constructive on LT’s Infrastructure business (c.76% of
the current order book and c.58% of FY14 revenues), which is
now the key driver of sales and margins. Furthermore,
management’s guidance that the infrastructure segment is one of
the most profitable segments in its orderbook is reassuring.
 LT has a robust order book, and new order growth of more than
23% for the first nine months of 2014 exceeded the full-year
guidance of more than 20% growth.
Valuations: The stock is trading at attractive levels 18.2x 12m forward
P/E versus its historical 10-year average of 22.2x.
Risks: Lower manufacturing utilisation, especially in power and
shipbuilding, will remain a drag on earnings in the near term.

Tata Motors Ltd (TTMT IN)
The company saw a sharp up-move of 19.3%, led by:
 Robust J aguar Land Rover (J LR) retail volume growth (c.12.1%
y/y) in J anuary. Volumes grew at a strong double-digit rate in
China (up 38.9% y/y) and North America (up 16.9% y/y), led by
strong momentum in recently launched models.
 We expect J LR to continue outperforming, driven by continued
momentum in the global luxury vehicle market and aided further
by a product launch pipeline and the success of its newly
launched models.
 We continue to observe demand erosion for the domestic
passenger and commercial vehicles segments on the back of
weak economic activity.
Cipla under earnings pressure but bounced back
from the support level
Cipla’s price chart
Source: Bloomberg, data as on 03 March 2014





Larsen & Toubro is trading below its median
valuation
LT’s EV/EBITDA
Source: Bloomberg, data as on 03 March 2014






TTMT trading at an all-time high
Tata Motor’s price chart
Source: Bloomberg, data as on 03 March 2014


equity strategy – India Top Picks | 06 March 2014


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Valuations: The stock is trading at reasonable levels 8.1x 12m
forward P/E versus a 10-year average of 12.5x.
Risks: Demand moderation in China and developed countries as well
as adverse forex movements could pressure J LR’s profitability.
Further, any impediment in India’s economic recovery could severely
impact its domestic business.

Bharti Airtel (BHARTI IN)
Bharti Airtel corrected sharply, by 8.7%, in line with industry
performance.
 Investors fear that the recent spectrum auction could lower
industry returns, as rising debt will hurt operators' ability to invest
and roll out new technologies, which would eventually lead to
higher tariffs and reduced services for consumers.
 We believe the negatives are mostly priced into the stock price
and monetization of assets may lead to a de-leveraging of its
balance sheet, which can further boost sentiment.
 In addition, the operating metrics in Bharti’s domestic business
continue to improve, which is positive.
Valuations: The stock is trading at attractive levels – at 21.3x 12m
forward P/E versus a 10-year average of 29.5x and a P/B of 1.9x
versus 3.5x.
Risks: Inability to hike prices, as well as rising spectrum and
operational costs are margin dampeners.









Data services could dri ve growth
Proportion of revenue (%)
Source: Bloomberg, Standard Chartered


equity strategy – India Top Picks | 06 March 2014


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Range-bound till elections and possible
rally thereafter
The impending general election is the key near-term trigger for Indian
markets. Interestingly, during the last three elections, the equity
markets had rallied strongly, either during the run-up to the election or
right after. However, this year, the markets have been marginally
positive until now, and we expect a rally on a favourable election
outcome. Nevertheless, an unfavourable election outcome, resulting in
a hung parliament, should have limited downside for the following
reasons:
1. The markets are trading at reasonable valuations.
2. Among the sectors with high index weightage, IT and Consumer
Staples are less vulnerable because of their fundamental strength
and defensive nature.
3. Energy, another heavyweight, is trading near historically low
valuations, and only Financials are likely to witness some
volatility.
Recent pre-election opinion polls indicate that the Bhartiya J anta Party
(BJ P) is likely to emerge as the single largest political party. However,
the strength of the largest party in the collation that forms the
government will be critical because it is directly related to the stability
of the government and its decision-taking capability. The key risk to
this outcome is the emergence of the Aam Aadmi Party (AAP) and the
expected complexity from 149m young first-time voters that constitute
one-fifth of the total electorate.
Interestingly, the prima facie economic manifesto of most political
parties stress on infrastructure development, revival of economic
growth and socio-economic reforms, which is a positive.
We suggest adding election beta to the Industrials and Utilities
sectors.
Markets mostl y have moved up either before or after
elections in the last three instances
Source: Bloomberg, Standard Chartered



MSCI India sector valuations / weights
MSCI India sector P/E 10Y Avg Weight (%)
Healthcare 21.3 22.3 7.1
Industrials 15.3 20.0 4.3
Technology 17.4 20.1 25.3
Con Discretionary 10.4 14.5 6.5
Energy 8.7 13.5 11.9
Financials* 2.2 3.0 21.2
Materials 9.8 10.4 6.4
Telco 19.9 19.6 2.5
Utilities 9.6 14.6 3.6
Con Staples 29.6 25.5 11.2
Source: Standard Chartered, Bloomberg
P/E – 12-month forward P/E and 10-year average forward P/E
* For Financials P/Book ratio is considered








equity strategy – India Top Picks | 06 March 2014


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Technical Commentary
Below, we present the technical views for our India Top Picks. The stocks are given a rating of 1-5, with 1 being the most
favourable and 5 being the least favourable on a 1-3 months basis. This is from a pure technical standpoint and may run contrary
to the fundamental views we hold of the stocks within the portfolio, which is on a 12-month basis.
India Top Picks Technical rating
Name Ticker Sector Rating
Cipla CIPLA IN Healthcare 1
Lupin LPC IN Healthcare 1
Tech Mahindra TECHM IN IT 1
Bharti BHARTI IN Telecom 3
ICICI Bank ICICIBC IN Financials 2
ITC ITC IN Staples 2
Larsen & Toubro LT IN Industrials 2
Maruti Suzuki Ltd MSIL IN Discretionary 2
Reliance RIL IN Energy 2
Axis Bank AXSB IN Financials 3
HCL Tech HCLT IN IT 3
Tata Motors TTMT IN Discretionary 3

Source: Standard Chartered, Metastock
Views as of 03 March 2014


equity strategy – India Top Picks | 06 March 2014


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Technical Commentary (cont’d)

 BSE SENSEX – The
Sensex continues to
consolidate within a
range of 19,000-
21,500. The long-term
uptrend should remain
intact as long as the
Sensex stays above
18,000.
Weekly Chart
Source: Metastock, Standard Chartered, data as on 03 March 2014

 Lupin (LPC IN) – The
stock should continue
to maintain its positive
momentum as long as
it can hold the support
at INR 870. The stock
may touch INR 1,030
in the medium term.
Weekly Chart _______ 100 EMA _______ 200 EMA
Source: Metastock, Standard Chartered, data as on 03 March 2014

equity strategy – India Top Picks | 06 March 2014


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Technical Commentary (cont’d)

 Cipla (CIPLA IN) –
The stock found
support at INR 370
and pulled back
slightly. We expect it
would consolidate
around this level rather
than a significant price
correction. The
medium-term uptrend
would remain intact as
long as the stock holds
above INR 355.

Weekly Chart
Source: Metastock, Standard Chartered, data as on 03 March 2014

 Larsen & Toubro (LT
IN) – We remain
positive in the longer
term. However, the
current rally may
pause near its
resistance at INR
1,150 and the stock
may consolidate within
a range of INR 1,050-
1,150 in the near term
before resuming its
uptrend.
Daily Chart _______ 50 EMA _______ 100 EMA _______ 200 EMA
Source: Metastock, Standard Chartered, data as on 03 March 2014


equity strategy – India Top Picks | 06 March 2014


11


Technical Commentary (cont’d)

 Tech Mahindra
(TECHM IN) – The
stock is trading near
its all-time high. The
near-term positive
momentum is likely to
continue as long as
the stock holds the
support at INR 1,700.
A strong resistance
zone is at INR 1,900-
2,050.
Weekly Chart _______ 50 EMA
Source: Metastock, Standard Chartered, data as on 03 March 2014

 HCL Tech (HCLT IN)
– The stock is likely to
maintain its positive
momentum as long as
it holds the support at
INR 1,250. We expect
profit-booking at the
current level as
momentum indicators
are trading in an
overbought zone.
Weekly Chart _______ 50EMA _______ 100 EMA
Source: Metastock, Standard Chartered, data as on 03 March 2014


equity strategy – India Top Picks | 06 March 2014


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Technical Commentary (cont’d)

 Maruti Suzuki (MSIL
IN) – The stock may
consolidate within a
range of INR 1,500-
1,750. The medium-
term uptrend would
remain intact as long
as it holds support at
INR 1,400.
Weekly Chart
Source: Metastock, Standard Chartered, data as on 03 March 2014


 Tata Motors (TTMT
IN) – As expected, the
stock found support at
INR 330 and rallied to
a new lifetime-high.
Currently, the stock is
trading near the upper
band of the channel at
INR 425. We expect
the stock to
consolidate within a
range of INR 390-425
in the near term.
Daily Chart
Source: Metastock, Standard Chartered, data as on 03 March 2014 _______ 100 EMA _______ 200 EMA



equity strategy – India Top Picks | 06 March 2014


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Technical Commentary (cont’d)

 Reliance Industries
(RIL IN) – The stock is
likely to continue to
trade within a broad
range of INR 760-960
in the medium term.
We expect pull back
from support.
Weekly Chart _______ 50 EMA _______ 100 EMA _______ 200 EMA
Source: Metastock, Standard Chartered, data as on 03 March 2014
 ICICI Bank (ICICIBC
IN) – The stock should
continue to consolidate
within a range of INR
900-1,230 in the
medium term. The
medium-term uptrend
would remain intact as
long as the stock
trades above the key
support at INR 900.

Weekly Chart _______ 50 EMA _______ 100 EMA _______ 200 EMA
Source: Metastock, Standard Chartered, data as on 03 March 2014

equity strategy – India Top Picks | 06 March 2014


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Technical Commentary (cont’d)

 Axis Bank (AXSB IN)
– The stock may face
resistance at INR
1,330. Key support is
at INR 1,100 and
below that at INR 950.
The stock may
consolidate within a
range of INR 1,150-
1,330.

Weekly Chart
Source: Metastock, Standard Chartered, data as on 03 February 2014

 Bharti Airtel (BHARTI
IN) – The stock is
trading near the lower
band of the trading
range at INR 280. We
expect a technical
pullback from the
support zone at INR
255-280. However, the
stock is expected to be
range-bound within a
band of INR 280-310
in the medium term.
Weekly Chart _______ 50 EMA
Source: Metastock, Standard Chartered, data as on 03 March 2014

equity strategy – India Top Picks | 06 March 2014


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Technical Commentary (cont’d)

 ITC (ITC IN) – The
stock should continue
to consolidate within a
range of INR 309-350
in the near term. The
medium-term uptrend
would remain intact as
long as the stock stays
above INR 309.
Weekly Chart
Source: Metastock, Standard Chartered, data as on 03 March 2014





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India Top Picks – Performance & Valuations

India Top Picks performance and valuations (local currency)
Ticker Name Sector
Stock
Price
Consensus
Rating
12m
Fwd P/E
12m
Fwd P/B Div Yield
Div
Payout% TR 1M% TR YTD% YTD% USD TR ITD%
LPC IN Lupin Ltd Healthcare 982.8 4.6 21.9 5.4 0.3 13.6 13.3% 10.0% 8.0% 7.6%
CIPLA IN Cipla Ltd Healthcare 376.6 3.4 18.8 2.6 0.5 10.4 -6.4% -4.1% -6.5% 24.8%
LT IN Larsen & Toubro Industrials 1097.6 4.1 17.9 2.4 1.1 21.9 12.6% 3.7% 2.0% 29.1%
TECHM IN Tech Mahindra Technology 1906.5 4.4 13.4 3.5 0.3 5.0 4.5% 1.6% 3.2% 92.5%
HCLT IN HCL Technologies Technology 1504.7 4.4 15.8 4.6 0.9 20.7 7.8% 25.1% 18.9% 19.9%
MSIL IN Maruti Suzuki Discretionary 1582.2 3.9 14.3 2.0 0.5 9.8 -2.9% -9.9% -10.7% 13.8%
TTMT IN Tata Motors Ltd Discretionary 410.7 4.7 7.8 1.9 0.5 6.5 19.3% 10.8% 8.6% 14.8%
RIL IN Reliance Industries Energy 803.4 4.2 9.8 1.1 1.1 14.7 -3.8% -10.6% -10.7% 9.5%
ICICIBC IN ICICI Bank Financials 1029.8 4.6 - - 1.9 24.0 5.7% -5.0% -6.7% 20.1%
AXSB IN Axis Bank Financials 1255.5 4.1 - - 1.4 18.9 12.8% -2.5% -3.9% -2.8%
BHARTI IN Bharti Airtel Telecom Svs 286.7 4.4 21.4 1.8 0.3 16.7 -8.7% -12.9% -13.6% -14.6%
ITC IN ITC Ltd Staples 329.2 4.6 25.4 8.9 1.6 54.5 0.8% 1.8% 1.8% 50.1%
Source: Bloomberg, Standard Chartered
As of 03 March 2014






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India Top Picks – Stock Rationale

India Top Picks stock rationales
Company Ticker Sector Conviction
Lupin LPC IN Healthcare Robust earnings growth, led by excellent execution in the US and Indian
businesses, expanding geographic reach and strong product pipeline. Margins in
domestic business remain a concern.
Cipla CIPLA IN Healthcare The stock has corrected post its Q3 FY14 results due to earnings disappointing as
a result of lower margins. Revenues, however, grew an impressive 24% y/y. We
believe that the near-term pressure on margins is due to Cipla’s investment in
future growth. Furthermore, Cipla’s transition to a business model driven by
expanding global reach and a greater focus on research should lead to higher
margins in the medium term. Investment in future growth can impact margins in
the short term.
Larsen & Toubro LT IN Industrials Diversified business model, ability to protect margins in challenging times, stable
orderbook and the prospect of monetisation of non-core assets are key drivers.
Prolonged economic slowdown is negative.
Tech Mahindra TECHM IN Technology Strong focus on organic and inorganic growth, high momentum in deal-wins, stable
order book and reasonable valuation. Changes in the US immigration visa rules
remain a concern
HCL Technologies HCLT IN Technology Still strong earnings traction, large deal wins and reasonable valuation. The recent
sharp rally warrants caution in the near term. Changes in the US immigration visa
rules remain a concern
Maruti Suzuki MSIL IN Discretionary The recently outlined expansion plan with its parent is a near-term overhang on
the stock. Market share gains, launch of revolutionary new auto gear shift car and
margin expansion are key drivers.
Reliance Industries RIL IN Energy The increase in gas prices from Q1 FY15 is positive; however, the low production
of gas and high capital investment in its telecom business remain a worry.
ICICI Bank ICICIBC IN Financials Strong revenues, margin expansion, healthy CASA, reasonable asset quality,
improvement in ROE and attractive valuations. An addition to restructured assets
and NPAs is a worry.
AXIS Bank AXSB IN Financials Focus on retail business, improved loan growth and valuation close to its historical
low are key drivers. Asset quality remains a worry.
Bharti Airtel BHARTI IN Telecom Svs Improvement in the domestic business, focus on cost and possible monetisation of
assets are positives. The high cost of spectrum leading to stress on the balance
sheet is a concern.
ITC ITC IN Staples Stable volumes and pricing power in cigarettes, profitability in the non-cigarette
FMCG business, traction in the hotels and paper board businesses are potential
drivers. The stock is a good hedge in case of an unfavourable election verdict.
Increase in excise duty remains a risk.
Tata Motors TTMT IN Discretionary The domestic commercial vehicle business is expected to be a beneficiary of
economic revival. Strong growth at J LR and a healthy pipeline of new products,
key markets witnessing traction, focus on cost rationalisation and an attractive
valuation. Increased capex can lead to cash flow stress.
Source: Standard Chartered


equity strategy – India Top Picks | 06 March 2014


18


India Top Picks – Results Update

Name Report Date Quarter Results Comments
AXIS BANK 1/16/2014 Q3 Meet Macro slowdown impacted asset quality
HCL TECH 1/16/2014 Q3 Beat Growth momentum remains strong
RELIANCE INDUSTRIES 01/17/2014 Q3 Meet Flat earnings beat expectations of a decline with stable refining margins
while petrochemicals and other income propped up profits
ITC LTD 01/17/2014 Q3 Beat Cigarette margins remained strong while other FMCG businesses are
expected to maintain momentum
LARSEN & TOUBRO 01/22/2014 Q3 Meet Strong business momentum but order growth forecast cut
ICICI BANK 01/28/2014 Q3 Meet Slowest quarterly profit growth in four years, as the ability of corporate
borrowers to repay loans declined and provisioning increased
MARUTI SUZUKI 01/28/2014 Q3 Beat Strong operational performance, higher localisation and favourable forex
BHARTI AIRTEL 01/29/2014 Q3 Beat Increase in profit growth after 15 quarters, led by mobile data revenue and
realisation from voice services
LUPIN LTD 02/03/2014 Q3 Beat Strong US and India sales helped the company put up a stellar show
TECH MAHINDRA 02/04/2014 Q3 Beat Sequential growth on account of exceptional gain
TATA MOTORS 02/10/2014 Q3 Beat Most geographies showed good traction, along with improved sales
performance in J aguar and continued resilience in Land Rover
CIPLA LTD 02/14/2014 Q3 Miss Revenues grew an impressive 24% y/y though margins disappointed
Source: Standard Chartered

equity strategy – India Top Picks | 06 March 2014


19


Sector – Performance & Valuations

MSCI India Sectors (USD)
Name Last Price
12m Fwd
P/E
12m Fwd
P/B
EV/
EBITDA
Fwd Div
Yield%
Div
Payout% TR 1M%
TR USD
1M TR YTD%
Consumer Staples 513.6 29.5 8.9 23.0 1.8 45.7 -0.9% 0.2% -2.0%
Consumer Discretionary 777.3 9.9 2.6 6.3 1.9 19.9 8.9% 10.2% 3.4%
Energy 1049.7 8.7 1.2 6.7 2.5 22.6 -1.7% 0.9% -7.1%
Financials 4457.2 13.0 1.5 - 1.9 20.2 3.4% 4.9% -2.6%
Healthcare 1376.3 21.1 3.8 16.9 0.8 22.3 6.7% 4.1% 7.8%
Industrials 859.0 15.4 1.7 11.4 1.4 23.3 8.6% 10.2% -1.3%
Information Technology 1127.6 17.5 4.5 14.7 1.5 22.4 3.3% 4.7% 8.8%
Materials 631.8 9.8 1.0 5.4 1.7 25.7 -1.3% 2.1% -9.8%
Telecommunication Svs 23.7 19.9 1.4 7.0 0.5 9.1 -9.2% -6.0% -16.0%
Utilities 420.6 9.4 1.0 8.4 2.9 30.4 -1.4% -0.9% -7.9%
Index 804.9 13.9 2.1 11.3 1.7 23.2 2.3% 3.7% -0.3%

Source: Bloomberg, Standard Chartered
As of 03 March 2014


India Sector Preferences
Country View Rationale
Healthcare OW Earnings momentum continues with greater penetration in key markets, new product launches and better product mix.
Industrials OW Expected beneficiary of revival of economic growth. Earnings downturn is likely over and valuations are attractive.
Information
Technology
OW The business outlook for the sector remains strong; however, profit-booking in the near term cannot be ruled out because
of the recent sharp outperformance.
Consumer
Discretionary
N Sector outlook remains muted, vehicle sales remain low. The interim budget provided some respite by lowering excise
duty.
Energy N Creeping reforms and increase in natural gas price are key positives.
Financials N Asset quality concern remains a worry, especially for state-owned banks. Valuations are attractive.
Materials N Continues to be impacted by low demand and cost pressure.
Telecom Svs N The recent aggressive bidding in the spectrum auction is expected to deteriorate balance sheets in the sector. High data
usage, uptick in call charges and improvement in operating metrics are positives.
Utilities N The sector is returning to normalcy with the recent regulatory order on tariff hikes, which is a positive as it reduces fuel
price concerns.
Consumer
Staples
UW Low volume growth, pressure on cost and historically high valuations are key concerns.

Source: Standard Chartered



equity strategy – India Top Picks | 06 March 2014


20

Definitions
YTD: Year to date.
ITD: Inception to date.
PT: Price Targets (SCB uses an investment horizon of 12 months for
its price targets).
RSI: Relative Strength Index.
Relati ve Volatility index: A measure of the standard deviation of the
daily price change.
MA: Moving Average.
Basket average performance: Basket average is the un-weighted
performance of the shortlisted stocks
Consensus rating: A rating provided by Bloomberg which reflects the
aggregation of all brokers rating for a particular stock. 1 is a Sell, while
5 is a Strong Buy.
P/E: Price/Earnings ratio. The Trailing P/E refers to 12m of trailing
earnings, while the forward refers to 12m forecast earnings, against
current price.
P/B: Price/Book ratio. The book value refers to total shareholder’s
equity, while the forward refers to 12m forecast book value, against
current price.
EV/EBITDA: Enterprise value/Earnings Before Interest, Tax and
Depreciation Amortisation.
Earnings revision ratio: Net earnings revision (upgrades -
downgrades) / Total earnings revision (upgrades +downgrades)
ROE and ROA: Return on Equity (book value) and Return on Assets.
Dividend Yield: Dividend paid/ current price.
Net Interest Margin (NIM): Is a measure of difference between the
net interest income generated from lending by financial institutions
and the amount of interest paid out to their lenders (for example
deposits).
Beta: Correlation between a stock and the market. Is based on two
years of weekly data, but modified by the assumption that a security’s
beta moves toward the market average over time.
Total return: Capital appreciation +dividend income received.
Short term: Time horizon of 1-4 weeks.
Medium term: Time horizon of 3-6 months.
EMA: Exponential moving average
Investment Strategy Team:
Sirshendu Basu
Chief Investment Strategist
Nishit Sheregar
Investment Strategist
Shishir Narsinghani
Associate Strategist
Soumen Das
Senior Quantitative Strategist
Ashish Pai
Quantitative Strategist

Errol Crasto
Quantitative Strategist

Priya Iyer
Production Executive

equity strategy – India Top Picks | 06 March 2014


21
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written consent of an authorised signatory of Standard Chartered Securities (India) Limited. All rights reserved. ©Standard
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