Find below some of our observations-

Capital Goods & Infra Sector
· In the construction space, valuations are cheap but order inflows and competition is a concern. In addition , the average debtor days for construction companies is on the rise reaching 200 days.

· In the Infrastructure space Road, T&D are areas where order inflow is relatively strong.

· Problems continue to persist in order book, execution of projects and operating margins.

· Our view is that one should not look at capital goods space at these levels as more pain is expected there.

· Government paralysis has severely affected firms like IVRCL and Nagarjuna

· Companies such as Voltas and L&T having some exposure to middle east will help them to ward off the domestic blues.

Pharmaceutical Sector
· Moderation in expected growth rate (low double digit) is visible in the Pharma sector after the rapid growth seen over the last 2-3 years.

· Increasing competitive pressures and trade discounts are putting further pressure on margins of the companies.

· Specialties / chronic therapeutics will be less impacted in the domestic market. Select players could benefit from domestic market consolidation. Sales force in the domestic market has increased by manifold over the last few years.

· Inorganic growth would continue over the next 6-12 months in order to bridge the gap in expectations. However, acquisitions in emerging markets / US will be key growth avenue. Sun Pharma is the only company to have added value through acquisitions. Rest players have broadly not been very successful with acquisitions.

· US Pharma market is also seeing some growth moderation. Base effect, patent cliff impact just about to start on US business.

· Emerging markets contribution to generics markets is set grow at 15% for next 5-10 year . Their market share is expected to reach 27% from the current global share of 18%

2 of 2 File(s)

 tfp20111215INFLATION .pdf
 IIFL_DM_14122011.pdf