Which Sensex Stocks Should You Bet On_ - The Economic Times on Mobile

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7/15/13 Which Sensex stock s shoul d y ou bet on? - The Economic Times on Mobil e sp.m.economi cti mes.com/mar kets/stocks/stocks/in /new s/Whi ch-S ensex -s tock s-s houl d -y ou- bet- on/ar ti cl eshow/21053697.cms# 1/22 15 Jul, 2213hrs IST SENSEX 76.01 20034.48 NIFTY 21.80 6030.80 GOLD (MCX)  -220.00 26523.00 (RS/10G) Sect ions Mar ket Portfol io Sear ch Stocks in News You are here:Home » Markets » Stocks » Stocks in N ew s 15 Jul, 2013, 1017 hrs IST, Sanket Dhanorkar & Narendra Nathan, ET Bureau The 30 Sensex stocks are market m overs and held most w idel y. Thei r perf orm ance af fec ts your portf oli o w hether you invest in them directly, through mutual funds, or Uli ps. Go through our ratings to f ind if y ou should buy, s ell or hold. The Indian stock market's benchmark index , the Sensex, has yielded only moderate returns over the one- year, threeyear and five-year horiz ons. How ever, not all Sensex stocks have turned in a lacklustre performance over these periods. Defensive stocks in the consumer goods and pha rma sectors have prospered. So, even in these times, when the index remains range-bound, there is a strong rationale for tracking individual stocks within the index. Given their large size, stability, high liquidity and institutional ownership, owning these stocks will lend greater resilience to your portfolio if the market enters a rough patch. As for the outlook for the Sensex over the next Which Sensex stocks should you bet on?

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15 Jul, 2213hrs IS

SENSEX  76.01

20034.48NIFTY  21.80

6030.80GOLD (MCX)  -220.00

26523.00 (RS/10G)

Sections Market Portfolio Search

Stocks in News

You are here:Home » Markets » Stocks » Stocks in New s

15 Jul, 2013, 1017 hrs IST, Sanket Dhanorkar & Narendra Nathan, ET Bureau

The 30 Sensex stocks are market movers and held most w idely. Their performance affects your portf olio w hether you invest in

them directly, through mutual funds, or Ulips. Go through our ratings to f ind if you should buy, sell or hold.

The Indian stock market's benchmark index, the Sensex, has yielded only moderate returns over the one-year, threeyear and five-year horizons. However, not all Sensex stocks have turned in a lacklustreperformance over these periods. Defensive stocks in the consumer goods and pharma sectors haveprospered. So, even in these times, when the index remains range-bound, there is a strong rationale for tracking individual stocks within the index.

Given their large size, stability, high liquidity and institutional ownership, owning these stocks will lend greateresilience to your portfolio if the market enters a rough patch. As for the outlook for the Sensex over the nex

Which Sensex stocks should you bet on?

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one year, the US Fed's decision to taper quantitative easing (QE) from the end of this year has already ledto an outflow from the emerging markets.

If it proceeds on schedule, a market like India, with its high current account deficit (and high dependence onportfolio flows to fund the deficit) and a depreciating rupee, will definitely be affected. However, whether theFed moves on tapering and the quantum of reduction will depend on the pace of economic recovery in theUS.

On the domestic front, several state elections are scheduled this year, culminating in the May 2014 generalelection. In such a year, there is always the danger that reformist measures get relegated to the backburnerand populist measures take precedence. Any step that burns a big hole in the fisc will affect marketsentiments.

On the positive side, India's GDP growth appears to have bottomed out. The inflation scenario has turnedmore benign. Corporate earnings are expected to begin improving in a quarter or two. With the benchmarkindex trading below the long-term average, valuations definitely favour betting on equities.

 Among sectors, export-oriented ones like IT and pharma will benefit from the rupee's depreciation. Howeverboth face trouble. The US government's visa rules are not encouraging for Indian IT. Pharma companies,especially those with large domestic businesses, will be affected by the government's drug price controlinitiatives. The FMCG companies' margins may come under pressure due to the higher cost of imported rawmaterial. However, increased government spending, especially in rural areas, may boost demand for their goods.

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With the economy still in the trough, public-sector banks' del inquency pressures will continue. They will also have towithstand pressure from the finance minister to cut lending rates. The infrastructure capital goods s egment remains in the

doldrums as investment activity has not revived. The government's decis ion to raise the price of natural gas from 2013 is apositive for the oil and gas sector. With this broad picture in mind, let us consider the prospects of individual s tocks within the

Sensex.

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1) ITC 

Recommendation: BUY

CMP: Rs 349.80

PE: 37.25

PB: 11.99

Dividend Yield: 1.50%

Sensex Weight: 16.81%

While ITC'S cigarette division continues to clock healthy growth, its improving profitability in the noncigarette bus inesses isdriving earnings . Despite a hike in excise duty on cigarettes, it has witnessed volume growth. ITC's high pricing power allows

it to pass on the cost of duty hikes to its cus tomers. Meanwhile, its paper and hotel busines ses are expected to show aturnaround after the current lows. Its s trong pricing power, high earnings visibility and improving return ratios are likely to

sustain high valuations.

2) Reliance Industries 

Recommendation: BUY

CMP: Rs 889.60

PE: 13.68

PB: 1.59

Dividend Yield: 1.01%

Sensex Weight: 8.97%

Though there is a risk of timing (the new government after the general e lection may not allow it), Reliance Industries is goingto be the bigges t beneficiary of the recent natural gas price reform. The Indian rupee's depreciation and improving refining

margins are going to be the other drivers of its earnings .

 Analysts have already started upgrading their earnings estimates for financial year 2014-15 and the upgrades are in therange of 10-15%. The periods of flat earnings growth and lack of other triggers are probably behind the firm.

3) HDFC 

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Recommendation: HOLD

CMP: Rs 849.85

PE: 19.83

PB: 4.12

Dividend Yield: 1.47%

Sensex Weight: 8.03%

HDFC continues to be the undisputed leader among hous ing finance companies. The other factors that attract long-term

investors to this counter include its operational excellence demonstrated over several decades, sustainable revenue and neprofit growth, and high ass et quality.

Despite its big s ize, HDFC's asset base is expected to grow by more than 20% in the coming years as well. Though spreadswithin the sector may get squeezed in the medium term due to the problems faced by the housing s ector, HDFC is well-

positioned to defend its margins due to its wider reach and size. Investors also need to consider the embedded value of its23% stake in HDFC Bank. However, there is not much ups ide in the medium term in this counter as i ts valuation is high.

4) Infosys 

Recommendation: HOLD

CMP: Rs 2,802.75

PE: 17.08

PB: 4.24

Dividend Yield: 1.50%

Sensex Weight: 7.01%

 After his sensational return to the company he cofounded, N R Narayana Murthy has displayed typical zeal in setting thehouse in order. To improve employee morale, Infosys has announced salary increments. A return to the company's earlier 

successful PSPD model (predictability, sus tainability, profitability and derisking) is expected as the company strives toimprove operational performance. While the problem of crisis of leadership may have been solved, it will be som e time

before the management changes are reflected in better numbers.

5) HDFC Bank 

Recommendation: HOLD

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CMP: Rs 694.40

PE: 24.65

PB: 4.53

Dividend Yield: 0.79%

Sensex Weight: 6.09%

The March quarter marked the 54th consecutive quarter of over 30% year-on-year growth in net profit for HDFC Bank. Yet, itsstock price has been languishing in 2013, perhaps because of its high valuation and the prolonged economic slowdown.

This, despite the fact that the bank remains the best in class in terms of core parameters like earnings growth, ass et quality,high NIM, high CASA and high return ratios . However, analysts are of the view that most of the pos itives are already factored

into the stock's price, which leaves little room for an ups ide.

6) Larsen & Toubro 

Recommendation: BUY

CMP: Rs 994.10

PE: 18.71

PB: 2.72

Dividend Yield: 1.86%

Sensex Weight: 5.43%

While it is reas onable for the market to punish weak counters from the infra sector, a strong player like L&T has also taken abeating. Many infrastructure players face a cash crunch. This is likely to help strong players like L&T expand at the cost of 

weaker competitors. Lower commodity prices will als o help L&T improve its margins .

The company is expected to remain s table at current levels and generate pos itive returns for investors once the revival in

capex takes place. Since the stock is going ex-bonus on 13 July, use the price fall triggered by this event to buy it.

7) ICICI Bank 

Recommendation: BUY

CMP: Rs 1,061.95

PE: 12.76

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PB: 1.78

Dividend Yield: 1.88%

Sensex Weight: 5.29%

For the pas t few quarters, ICICI Bank has been churning out decent numbers des pite a s lowdown in the economy. It hasshown improvement in operating performance and a pick-up in retail business growth. In the future, net interest margin is

expected to improve as the bank deploys excess liquidity more aggress ively.

The company's RoE has improved by almos t 300 bps over financial years 2011-13 and is expected to expand due to healthyperformance by subsidiaries, m ainly general insurance. The s tock appears attractively priced at current levels and should

give a reasonable ups ide.

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8) TCS 

Recommendation: HOLD

CMP: Rs 1,606.10

PE: 22.59

PB: 8.16

Dividend Yield: 1.37%

Sensex Weight: 4.99%

Despite the l ikely impact of the anticipated US Imm igration Bill, the Indian IT's s trongest player is expected to continue to dowell in the future as well. Since the bill will have a s ignificant impact if passed in the current form, TCS has already started

concentrating on newer opportunities (under-penetrated geographies and new technologies).

Being the biggest Indian IT player, TCS is expected to benefit from the ongoing US economic revival. It is also expected tobenefit in a big way from the rupee's depreciation. In fact, the positive impact of this development may offset the impact of this

year's wage hikes. With TCS being the market's darling, its valuation is a little stretched at current levels.

9) ONGC 

Recommendation: HOLD

CMP: Rs 296.30

PE: 12.11

PB: 1.68

Dividend Yield: 3.21%

Sensex Weight: 4.76%

The recent reforms like reduction in under-recoveries due to regular increases in diesel price, and doubling of natural gas

price from April 2014 are good for the oil & gas sector. However, there are reports that ONGC may be asked to bear the samesubs idy burden during the April-June period as well.

Though, theoretically, ONGC will benefit from the gas price hike, the government may take it back in the form of higher oil

subsidy share to bring down the its fiscal deficit. Barring government interference, ONGC is a very good investment for thelong term, so existing investors should hold on to it.

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10) Hindustan Unilever  

Recommendation: SELL

CMP: Rs 601.40

PE: 34.25

PB: 45.42

Dividend Yield: 3.08%

Sensex Weight: 3.77%

HUL's shares surged to a record high recently after the company's UK parent completed an open offer, raising its stake in the

Indian unit by almost 15%. Given the sharp rally, most analysts fear a decline in i ts share price in the near future. Besides,weak consumer sentiment is likely to keep a lid on volume growth. A weakening rupee also makes imported raw materials

costlier, which will put press ure on margins . However, a good monsoon would boost consumption in rural areas, whichwould improve volumes.

11) State Bank of India 

Recommendation: HOLD

CMP: Rs 1,893.40

PE: 7.23

PB: 1.04

Dividend Yield: 2.19%

Sensex Weight: 2.79%

The SBI is already going through a tough period of margin compress ion and asset quality concerns. These problems maycontinue for a few more quarters till the economy recovers. Moreover, the finance minis ter is now putting press ure on PSU

banks to reduce lending rates, and some banks have yielded.

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Since the competition won't allow banks to reduce their deposit rates s imultaneously, margin pressure is going to increase.

The aggress ive recovery tactics adopted in recent times by India's largest bank may also become di fficult to pursue as thegeneral election approaches. Hence, the SBI's immediate outlook is weak. Since most of these negatives are already in theprice, long-term investors may hold on to the stock.

12) Tata Motors 

Recommendation: HOLD

CMP: Rs 291.95

PE: 9.50

PB: 2.45

Dividend Yield: 0.69%

Sensex Weight: 2.69%

In the auto sector, the commercial vehicles segment is the worst affected. Tata Motors' passenger vehicle segment is alsounder pressure. Due to these factors, the company's cons olidated numbers may remain weak for a few more quarters

despi te Jaguar and Land Rover's ( JLR) good performance. In addition to the continued traction of the new Range Rover, JLR

has a s trong pipeline of products for the next two to three years. Among them, the launch of a smaller Jaguar, expected in2014, is going to be the most significant because it will open up an entirely new segment for the company.

13) Sun Pharmaceuticals 

Recommendation: HOLD

CMP: Rs 1,108.25

PE: 38.15

PB: 8.11

Dividend Yield: 0.45%

Sensex Weight: 2.54%

Sun Pharma has grown by leaps and bounds from its humble beginning in 1983. Even so, it is expected to grow by around20% in the next two years (financial years 2013-15). To make its earnings stream more predictable, Sun Pharma recently

settled its ongoing litigation with Wyeth and Atland Pharma by making a lump-sum payment of $550 m illion. With the litigatioout of the way, the earnings growth will take centrestage in this counter. Since most of its earnings are in dollars, the recent

rupee depreciation will help Sun Pharma. However, its valuation has skyrocketed in the recent past. Therefore, in the mediumterm, the stock doesn't hold much potential for upside gains from its current levels.

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14) Mahindra & Mahindra 

Recommendation: BUY

CMP: Rs 905.60

PE: 16.58

PB: 2.79

Dividend Yield: 1.44%

Sensex Weight: 2.35%

Though the pass enger vehicle segment is going through a difficult phase, M&M could compensate for it with im proved tracto

sales . Against a 13% fall in the passenger vehicle segment in June on a year-on-year basis, M&M's tractor sales in the samemonth increased by 23%.

Increased rural income due to election-related spending and a good m onsoon should help increase the demand for tractors

M&M is changing its vehicles' s pecifications to circumvent the additional tax imposed on SUVs. It is planning to launch a newversion of XUV 500 with lower ground clearance, and it will be priced Rs 30,000 lower.

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15) Bharti Airtel 

Recommendation: Sell

CMP: Rs 304.95

PE: 53.59

PB: 2.27

Dividend Yield: 0.33%

Sensex Weight: 2.34%

The telecom company's African operations continue to be a major drag on performance. Two years s ince it acquired the African business, revenue growth and margins rem ain weak. In the domestic market, the company's operations have begun

to stabilise, with both voice and data traffic growing at a decent pace. However, regulatory iss ues pose a threat. Last month, apenalty of Rs 650 crore was s lapped on the company for violating the country's roaming norms. The prospect of more

surcharges and fines from the government, along with the upcoming l icence renewals, make the s tock's prospects uncertain

16) NTPC 

Recommendation: BUY

CMP: Rs 146.10

PE: 9.55

PB: 1.48

Dividend Yield: 3.94%

Sensex Weight: 1.84%

NTPC's problem s may be ending. The country's larges t power producer will benefit from the ongoing s ector reforms. CCEA'snew coal price mechanis m wi ll help it import coal to mitigate the shortfall from Coal India suppl ies. The recent allocation of 

four more captive coal m ines with an aggregate reserve of 2 billion tonne will provide fuel security.

The company is also maintaining its pace of capacity addition: it commis sioned around 4,000 MW in 2012-13. At current

valuations, it is the sector's safest bet.

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17) Bajaj Auto 

Recommendation: HOLD

CMP: Rs 1,867.65

PE: 17.76

PB: 6.70

Dividend Yield: 2.41%

Sensex Weight: 1.65%

Bajaj Auto reported its lowest domestic monthly sales in June s ince December 2009. The chief problem is muted demand fo

two-wheelers. The ongoing s trike at its Chakan plant caused production loss es. The workers are demanding a wage hikeand 500 company shares at Rs 1 per share. Tough competition in the twowheeler segment is expected to keep margins low

Better export realisation is the only positive.

18) Dr Reddy's Lab 

Recommendation: BUY

CMP: Rs 2,349.90

PE: 23.81

PB: 5.47

Dividend Yield: 0.64%

Sensex Weight: 1.40%

The pharma major's US operations are showing an improved traction, leading to a rally in s tock price over the past few

months. A string of new product approvals from the USFDA have led to significant product launches that are expected to boosearnings this fiscal year. In the fourth quarter of last fiscal year, Dr Reddy's launched 18 new generic products and filed 14

new product registrations. A weak rupee also provides a fillip to its dollar revenues. Given the high earnings visib ility, mostanalysts are pos itive about it.

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19) Cipla 

Recommendation: HOLD

CMP: Rs 405.00

PE: 21.58

PB: 3.61

Dividend Yield: 0.49%

Sensex Weight: 1.24%

The company has given a lower guidance for revenue and margins over the next two years, citing rebuilding of product

pipeline in the US. However, its outlook remains positive due to the expected ramp-up in key markets and ongoing expansion

plans. Cipla is expected to complete its $488 m illion takeover of South African Medpro this month.

Its expansion in emerging markets and increased spending on research and development to build product pipeline providecomfort over the medium to long term. However, the stock may remain range-bound in the near term due to its ongoing

investment phase.

20) Coal India 

Recommendation: HOLD

CMP: Rs 300.00

PE: 10.92

PB: 3.87

Dividend Yield: 4.67%

Sensex Weight: 1.16%

The world's largest coal producer has underperformed the Sensex this year due to its inability to ramp up its production anddue to weak coal prices. Growth has been a concern given the delays in environmental and production approvals for mining

projects. However, sentiment is slowly turning positive for the stock due to the recent government approval to set up an

independent coal regulator. This is expected to speed up clearances, usher in more transparency in pricing, and improvesupply. Attractive valuation, improving pricing power and receding policy risks may keep the stock buoyant.

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21) Wipro 

Recommendation: HOLD

CMP: Rs 375.50

PE: 13.94

PB: 3.26

Dividend Yield: 1.86%

Sensex Weight: 1.13%

Though Wipro's valuation is currently cheap compared with that of its peers, this is reasonable because of its lower growth

rate and weaker margins . While Wipro is taking a number of correct steps like revamping sales team to increase the numbeof deals won and moderating attrition by increasing em ployee satisfaction, the impact of these meas ures is not yet visible

either in revenue or net profit growth.

The guidance given by Wipro's m anagement for the April-June quarter is also weak. This means there is no im mediate

trigger for the counter. Wipro's expected recovery may get delayed from 2013-14 to 2014-15. However, the counter is quotingat low levels. Existing investors may hold on to the stock.

22) Maruti Suzuki 

Recommendation: HOLD

CMP: Rs 1,452.70

PE: 17.54

PB: 2.31

Dividend Yield: 0.55%

Sensex Weight: 1.12%

The entire auto sector is facing headwinds due to the increase in petrol and diesel prices. The jump in costs of imported

inputs due to the rupee's depreciation is expected to create pressure on margins within the sector. Since most of Maruti'simports are denominated in Japanese yen, it will benefit from i ts higher depreciation.

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23) Gail 

Recommendation: HOLD

CMP: Rs 321.80

PE: 10.15

PB: 1.42

Dividend Yield: 2.98%

Sensex Weight: 1.03%

 After the recent gas price hike, gas transmiss ion company Gail could be adversely affected in the near term. Its gas cost will

increase substantially, but it will not be able to pass this on to customers as the pricing of both LPG and petrochem is bas edon import parity. It expects a hit of $218 million annually on pre-tax profits on account of higher costs. This, in addition to its

subs idy burden, will dent profitability. Gail, on its part, is trying to free itself from the subs idy burden by changing focus fromtransportation of gas to trading, thereby reducing its dependence on the regulated bus iness.

24) Tata Steel 

Recommendation: HOLD

CMP: Rs 262.80

PE: NA

PB: 0.75

Dividend Yield: 3.04%

Sensex Weight: 1.03%

In addition to the fall in s teel prices triggered by global commodity woes, Tata Steel also has to manage its high debt.However, the drastic fall in the stock's price (more than 40% since the beginning of 2013) is much more than warranted. Tata

Steel continues to be the strongest domes tic player in metals with access to key raw materials.

The ongoing restructuring in its overseas operations has also started yielding fruit. There are also reports that the company

planning to sell i ts stake in other group companies to reduce debt and fund its expansion plans . Existing investors may

continue to hold on to the stock.

7/27/2019 Which Sensex Stocks Should You Bet On_ - The Economic Times on Mobile

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25) Hero Motocorp 

Recommendation: HOLD

CMP: Rs 1,708.50

PE: 16.11

PB: 6.82

Dividend Yield: 3.51%

Sensex Weight: 0.99%

Hero Motocorp has been affected by the slowdown in two-wheeler demand, clocking a decline in volume in the past fewmonths. It lost some market share in the motorcycle segm ent to its ers twhile partner Honda. In the domestic market, thecompany has planned a capex of Rs 25 bill ion over the next two years. Besides, it has recently started operations in Africa

and Latin America, displaying strong intent to gain a firm foothold in other emerging markets. However, stiff competition andcontinued weak demand in the domes tic market is likely to keep the margins under pressure.

26) BHEL 

Recommendation: SELL

CMP: Rs 187.85

PE: 6.95

PB: 1.51

Dividend Yield: 2.88%

Sensex Weight: 0.91%

Earnings visibility remains a big concern for this capital goods manufacturer. The prolonged s lowdown and poor investmentclimate are reflected in a falling order book and slackening pace of order execution. As the demand environment remains

sluggish, fiscal year 2014 is expected to be tough for the company. Its revenue and profit margin are expected to decline.Given these iss ues, there appears to be little scope for a rerating in the near term. Despite its attractive valuation, the stock

may continue to be an underperformer.

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27) Tata Power  

Recommendation: HOLD

CMP: Rs 89.45

PE: NA

PB: 1.98

Dividend Yield: 1.29%

Sensex Weight: 0.83%

Tata Power continues to suffer due to issues like losses at Mundra UMPP and lower profitability at the Indonesian coal m inedue to weak coal prices. However, with the government bringing in more reforms in the power sector, Tata Power, the

country's most efficient power producer, is expected to reap good dividends. Though delayed, electricity tariffs have startedgoing up. The Maharashtra Electricity Regulatory Commiss ion (MERC) has approved a 25% tariff increase for res idential

consumers from 1 July. With Tata Power planning to increase its capacity at Mundra UMPP to 5,600 MW, the stock mayoscillate till there is more clarity about the compensatory tariff.

28) Hindalco 

Recommendation: HOLD

CMP: Rs 101.65

PE: 11.45

PB: 0.57

Dividend Yield: 1.38%

Sensex Weight: 0.71%

The stock has corrected sharply this year in line with the downturn in the metals sector. A global s lowdown in demand for 

commodities has taken its toll on the sector. These conditions are likely to persist for a while. For Hindalco, lack of approvalsfor captive coal mines for its greenfield smelters and weak aluminium prices remain a concern. While near-term positive

triggers are not visible, analysts are of the opinion that the negatives are already priced in. Besides, Hindalco's US-basedsubs idiary, Novelis, lends comfort with good earnings. Given the s tock's low valuation, investors should hold on to it for the

medium term.

7/27/2019 Which Sensex Stocks Should You Bet On_ - The Economic Times on Mobile

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29) Sterlite Industries 

Recommendation: HOLD

CMP: Rs 88.30

PE: 4.90

PB: 0.55

Dividend Yield: 2.60%

Sensex Weight: 0.60%

Besides weak global commodity prices, Sterlite Industries, India's largest copper smelter, is currently facing multipleproblems . Though the Supreme Court has temporarily allowed Sterlite Industries to operate its smelter, its fight with the

Tamil Nadu Pollution Control Board on this is sue continues. Other concerns pertain to the merger between Sterlite and SesaGoa, which is a time-taking process. Sterlite's power division also faces problems like transmiss ion bottlenecks, issues

regarding coal quality, and so on. However, all these negatives have already been factored into the price. Hence, long-terminvestors may continue to hold the stock till clarity emerges on a few of these issues .

30) Jindal Steel & Power  

Recommendation: SELL

CMP: Rs 222.20

PE: 7.14

PB: 0.98

Dividend Yield: 0.72%

Sensex Weight: 0.52%

Commodity players across the globe are going through tough times, es pecially because of the uncertainty created by the US

Fed's proposed reduction in quantitative eas ing. JSP's power division als o faces sector-specific problems on the ground. Italso has to live with the overhang from the coalgate allegations, though there won't be any immediate impact on earnings

because of this. None of the affected blocks are operational or are expected to become operational in the next twothree yearsJSP has also not incurred material capital expenditure on these coal blocks or ass ociated projects. Since the shrillness of 

charges may increase clos er to the elections, investors had better avoid this counter for now.

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1641.40

BSE

35.30(2.20%)

Vol:134371 sharestraded

1641.75

NSE

31.90(1.98%)

Vol:1030285 sharestraded

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The overall recommendation is by ET Wealth. Figures for buy, sell and hold are number of analysts holding these views. PE:

Price to earnings ratio; PB: Price to book value ratio.

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