The document discusses the selloff seen in Indian markets in line with other Asian markets due to disappointing economic data from China. The China PMI fell to a seven-month low, indicating a slowdown in manufacturing activity and employment. While foreign investors have turned net sellers in India, the fall is less severe than other emerging markets as some see India as relatively stronger. However, the Indian market direction depends on international flows, and volatility may increase closer to national elections if a fractured mandate is predicted.

1. Apart from weak global cues, the selloff seen in Indian markets was largely in line with what
was happening with other Asian markets, as China also disappointed. The country's PMI data
painted a grim picture of its manufacturing sector, fuelling uncertainty about growth in Asia's
largest economy.
The preliminary China Purchasing Managers' Index (PMI) from HSBC/Markit for February fell
to a seven-month low of 48.3 in February from January's final reading of 49.5, as employment
fell at the fastest pace in five years, Reuters reported.
However, even though foreign institutional investors, or FIIs, have turned net sellers on Indian
markets, the fall in the market is less severe as against other emerging markets.
"India probably looks to be a better place in then a lot of other emerging markets. So, despite the
fact that there have been redemptions in emerging market funds India is pretty much holds up
and if you see India's performance since September it has been right on top of the emerging
markets' table," said Anish Damania, Head-Institutional Equities, IDFC Securities, in an
interview with ET Now.
"A lot of fund managers who are in the FII category have really sort of found India to be the
place to be in; however, having said this the positive returns in our markets are going to be
driven by two facts - one is earnings growth which is what drives any market and the second
thing is as to how the redemptions or how the FII flows are," he added.
While the CAD or the current account deficit has been under control, the risk premia on the EMs
have resulted in an outflow from the equity markets in January 2014.
Foreign institutional investors (FIIs), which were the backbone of the rally that we witnessed in
the calendar year 2013, have turned net sellers in 2014. Last year, they brought in $20 billion;
while this year FIIs have been net sellers to the tune of $250 million-odd as per the recent data.
However, if we compare this with data of the last quarter, foreign investors have been broad
buyers of Indian shares in the October-December quarter, with increases in foreign institutional
investments in about 75 per cent of the BSE 200 companies, according to a report by HSBC on
Thursday.
That means all sectors, except healthcare and staples, saw an increase in FII ownership.
Information technology, consumer discretionary and utilities saw the highest net buying by FIIs,
HSBC said.
According to the report, PowerGrid, Tech Mahindra, UPL, Housing Development &
Infrastructure and Yes Bank saw the biggest increase in FII ownership.

2. The biggest FII selling was in Hexaware Technologies, Multi Commodity Exchange of India,
Strides Arcolab, Apollo Tyres and Unitech.
The Indian markets' direction has been on the international flows, should we see the risk premia
continuing to remain high in EMs; the upside target of 6,500 looks capped, and this could
increase the pressure on the downside, Prabhudas Lilladher said in a report.
As we come closer to the Lok Sabha polls, any indications of a fractured mandate is likely to
result in an increase in negative sentiments, sending the market lower, added the report.
Here are 10 stocks which can give returns up to 75% in 2014 despite increase in volatility:
Yes Bank Ltd: Target price set at Rs 400
Yes bank has managed PPOP volatility well in the last two quarters but with slowing B/S and fee
income growth. The brokerage firm expects PPOP growth to come off sharply. NIMs will largely
remain flat with stability in wholesale funding rates now.
However, given management's cautious approach, growth is unlikely to revert back till macro
outlook improves. Prabhudas Lilladher numbers factor in less than 10 per cent PPOP growth in
FY15.
The brokerage firm has upgraded stock to 'Buy' from 'Accumulate' with a PT of Rs 400 per
share.
UPL Ltd: Target price set at Rs 230
UPL's higher exposure to emerging markets which are growing at 10-12 per cent per annum
compared to global agrochem market growth of 4-5 per cent per annum promises sustained top-
line growth over the medium term.
Prabhudas Lilladher expects UPL's EBITDA margins to improve by 50 bps over the next two
years to 19 per cent, driven by shift in product mix, rationalisation of costs and turnaround of
DVA. Stock is currently trading at 7.6x FY15E earnings which are at a discount of 30-35% to
industry average.

3. The brokerage firm believes sustained earnings growth combined with improved management of
working capital will trigger re-rating.
ING Vysya: Target price set at Rs 711