Our Favorite Picks at current valuations

1. LARGE CAP PICKS
MAY 2011

2. Rationale for Picks
• Undervalued relative to
• Consensus Valuations
• Previous Peaks
• Sectoral Cycle
= The Right Price at The Right Time
• Low Possibility of unpleasant (non financial)
surprises
• Industry and Index Leadership

3. CMP : Rs 1843
52 Week L/H : Rs 1571-2688 State Bank of India
Mid Term View
• Negatives Behind – Stock suppressed despite positive result surprises except Dec 2011
• Consensus Valuations far higher than current levels
Near Term View
• Available at discount to PSU Index and other heavyweights like HDFC Bank
• Near Term fall due to FnO speculative activity – Results in May 2012 to act as trigger
• Our Target – Rs 2400

4. CMP : Rs 2344
52 Week L/H : Rs 2161-Rs 3023 Infosys Technologies
Mid Term View
• Turnaround in business with time as management settles down and demand picks up
for key products cyclically
• Maintaining Premia / Rates evident of confidence in products and services
• Short term issues like Visa investigation, employee dissatisfaction putting pressure on
stock – Industry issues and not specific to Infy
Near Term View
• Over reaction to fall in guidance – Price down by 30% plus for a 5-6% drop in
guidance
• Our Target – Rs 3000

5. CMP : Rs 1154
52 Week L/H : Rs 969-Rs 1868 L&T
Mid Term View
• Short term issues in power segment and construction etc putting pressure on long
term value – order book slowdown and currency movements cyclical in nature
• Diversified conglomerate capable of extracting value from the ‘India growth story’ –
best proxy
• Long term outperformance against closest competitor BHEL
Near Term View
• Stock down ~ 50% from peak
• Our Target – Rs 1500

6. CMP : Rs 1503
52 Week L/H : Rs 1260-Rs 1843 Bajaj Auto
Mid Term View
• Rupee expected to remain on a long term depreciation mode – Benefits Bajaj Auto in
export markets (25%+ of sales)
• Wide distribution network, diversified product basket and established capabilities in
technology
• Available around fair value estimates – more stable than Hero / higher discount
Near Term View
• Long term outperformance marred by short term market cyclicals / increased competitive
intensity
• Our Target – Rs 1800

7. CMP : Rs 517
52 Week L/H : Rs 400 -Rs 553
HDFC Bank
Mid Term View
• High NIMs / Capital Adequacy to ensure outperformance of bank index continues
• A proxy for banking for FIIs in ETF portfolios
• Premium to sector may come in question from time to time but markets willing to give
premium for more than a decade now – likely to continue
Near Term View
• Movements correlated to index but has maintained a 20% plus lead of indices
• Our Target – Rs 625

8. http://castaneawealth.blogspot.in/
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