Ms. Mayana Sobti Rajani from DSP BlackRock shares insights on India's equity markets, highlighting a positive outlook for sectors like consumer durables, pharmaceuticals, IT, and banking, while being neutral to negative on energy and telecom. The DSP BlackRock Tax Saver Fund has a diversified approach with 60% large-cap and 40% mid/small-cap investments, utilizing bottom-up and top-down strategies. Despite high valuations, earnings growth projections for FY2011 and FY2012 remain robust, driven by improving consumer confidence and a recovering economy.

1. DSP BlackRock’s outlook on Equity Markets
Author: iFAST Research Team
Ms Mayana Sobti Rajani, Vice President and Fund Manager, DSP BlackRock Mutual Fund shares her
views on the equity market and discusses the positioning of DSP BlackRock Tax Saver Fund.
Key Highlights:
• Bottom-up approach of investing is critical in today’s scenario
• Expect FY2011 EPS to be around INR 1050 to INR 1070 and FY2012 EPS to be around INR 1250
and INR 1260 for the sensex.
• Broader market is trading at better valuation than Large-cap Index
• Positive on Consumer Durables, Pharmaceuticals, Information Technology and Banking Sector
• Neutral to Negative on Energy and Telecom Sector
• DSP BlackRock Tax Saver Fund is well-diversified and currently positioned with 60% large-cap
stocks and 40% mid-cap and small-cap stocks
Market so far
The Indian markets have been upward trending for last 10 months with 15% returns (1 January to
October 2010) except for two time periods i.e., during February and May where markets dipped. The
two negative periods were on account of European crisis which started in January and deepened further
in May. Otherwise, the emerging markets particularly India has seen strong interest from advanced
world and the same is visible from heavy FII inflows. Also, strong earnings in the first and second quarter
contributed to the bull-run.
Ms. Mayana Sobti Rajani says that recent uptrend in markets and the return of risk appetite is owing to
the reasons stated below -
• Incremental positive beginning to gradually come from China and US.
• Gradual stability back in the European economy due to the measures adopted by the European
Central Bank (ECB) which is helping many countries to come out of financial distress.
• Quantitative Easing part two (QE II) programme launched by US, the fear of a double-dip is off
for now.
• Another fear that China would adapt to hard lending policy are slowly easing.
• “The markets need more of bottom-up approach (while investing) and a huge divergence is
visible in stock as well as sector performance,” opined Ms. Mayana. Hence, presently the

2. strategy for the fund house is to manage funds through bottom-up stock selection, along with
an overlapping top down approach.
Valuation
DSP BlackRock Mutual Fund expects FY2011 EPS to be around INR 1050 to INR 1070 which means that
the corporate growth would be around 25% to 30% and projects EPS at about INR 1250 to 1260 for
FY2012.
So on one year forward earning basis, Sensex is trading at around 17.5X which is high from historical
average levels but it is still below the peak. BSE 500 which represents the broader market is trading at
16X one year forward earning and has a potential to go up higher from current levels.
Sectoral Outlook
DSP Blackrock Mutual Fund is positive on consumption sector – Consumer durables and staples, Pharma,
IT and Banking and Financial Services.
Consumption Sector
The factors like rising per capital income, low leverage and the high spending potential of Indians will
benefit the consumption sector for many years to come.
Banking Sector
The banking stocks could be one of the best stock picks to play combining the consumption and infra
theme in India. The Non Performing Assets (NPA) of banking sector has come down and the credit
growth has increased in a meaningful way. Also, there is a possibility of an upgrade of the sector as the
margin compression has not happened as expected in the second quarter results. However, the stocks
have run up recently and are trading at fair valuations so the fund house will not add further meaningful
position in the sector for now. However, the fund house is positive on this sector from long-term
perspective and would invest in the blend of PSU and Private Banks.
IT
The confidence in the IT sector is visible from the second quarter results. The volume growth has been
strong, earnings before interest, tax, depreciation and amortisation (EBITDA) margin has not
compressed as expected due to improvement in the utilisation levels. However, appreciating rupee is
still a concern for the sector and can play spoilt spot for the sector.
DSP BlackRock Mutual Fund is negative or neutral on telecom and energy sector

3. Telecom
The sector is facing huge competition resulting in margin compression. Though the fund house is
underweight on the sector, they would take a tactical call when the valuations appear really cheap.
Energy
The sector in India is highly regulated by government in terms of pricing etc. Moreover one stock
accounts for very high weight in the index. As the fund house does not have equal weight in that stock
as compared to benchmark hence they are underweight on the sector.
Positioning of DSP BlackRock Tax Saver Fund
The fund is managed by Mayana Sobti Rajani and corpus of the fund is around INR 950 crore as at
October 2010. The fund is fairly diversified with current allocation of 60% in large-cap stocks and 40% in
mid and small-cap stocks. The fund follows both, bottom-up and top-down approach in managing the
fund.
In beginning of the year, the fund was 60% in mid and small-cap stocks and 40% in large-cap stocks. The
gradual shift was purely based on stock selection. The fund manager has booked profit in mid-cap stocks
as and when they have reached their fair value and switched to large-cap stocks which were trading at
more attractive valuation.
The fund is overweight on Consumer Goods and Pharma sector. The fund is currently underweight on
financial services as compared to benchmark for diversification and not because the fund manager is not
positive on sector. The financial sector accounts for around 26% in the index so the fund manager does
not want to take concentrated bet on any sector.
Moreover, the fund has booked some profit on financial stocks in last few weeks as the stocks have run
and valuation are little bit stretched.
Disclaimer
This article is for information purpose only. This article and information do not constitute a distribution, an endorsement, an
investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial
products /investment products mentioned in this article or an attempt to influence the opinion or behaviour of the investors
/recipients. Any use of the information /any investment and investment related decisions of the investors/recipients are at their sole
discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives
of the specific person or group of persons. Opinions expressed herein are subject to change without notice.