Equity Research Hong Kong Open | 27 February 2015Asia ex-Japan Morning Research SummaryHighlightsAsia ex-Japan BanksIndia Equity Strategy: Earnings recovery around the cornerRead the latest Japan Equity Research Summary »This summary is compiled from research reports previously published by Barclays Equity Research. A full list of all publications isavailable on Barclays Live. VIEW SETTLEMENT DISCLOSURES, ANALYST CERTIFICATIONS AND OTHER IMPORTANT DISCLOSURES Company ResearchAIA Group Ltd. (1299.HK)BYD Co., Ltd. (1211.HK)Cheung Kong (0001.HK)Chipbond Technology (6147.TWO)Halla Visteon Climate Control (018880.KS)Larsen & Toubro Ltd. (LART.NS)Lupin Ltd. (LUPN.NS)Noble Group Ltd. (NOBG.SI)Pacific Basin Shipping Ltd. (2343.HK)Sime Darby Berhad (SIME.KL)Soulbrain (036830.KQ)Telekom Malaysia (TLMM.KL)Industry ResearchHong Kong Property: What are Chinese buyers doing?India Capital Goods: Earnings cuts continueIndia Capital Goods: Rail budget FY16: Plan spends to increase: 5 year outlook sharedIndia Infrastructure & Transport: 3Q FY15: Traffic recovery continued; balance sheet strength aided earningsKorea Gaming & Leisure: Gaming demand - things are not as dire as they appear despite ChinaMINED MATTERS 27/2/15: 'Old lamps (or fridges) for new' - from Aladdin to modern China, the allure doesn't fadeEquity StrategyIndia Equity Strategy: Earnings recovery around the cornerMacro ResearchGlobal Macro Daily (New York Open): German 5y yields fall to -0.1%Singapore: January IP - Sharp weakening in momentum Publications Summary | ReportsEquity StrategyIndia Equity Strategy: Earnings recovery around the cornerAsia ex-Japan BanksBhuvnesh Singh+91 22 6719 6314bhuvnesh.singh@barclays.comBSIPL, Mumbai Vijit Jain+91 (0) 22 6719 6211vijit.jain@barclays.comBSIPL, Mumbai Saurabh Mishra+91 22 6719 6386saurabh.c.mishra@barclays.comBSIPL, Mumbai Rachna Biyani+91 22 6719 6248rachna.biyani@barclays.comBSIPL, Mumbai 26 February 2015Indian companies could generate double-digit returns in 2015 for three reasons, webelieve: 1) the underlying earnings growth is accelerating, with those companies inthe broad BSE-100 index poised to report growth of 21.9% for FY16, on ourestimates; 2) market valuations do not look expensive, and in an improvingROE/cash flow environment, multiples should be sustained or even rise; and 3) Indiaremains one of the few large markets among the emerging markets, in our view, withboth a strong top-down and bottom-up story. Accordingly, we update our 12-monthNIFTY target to 10,219 based on a forward P/E multiple of 15.8x, representingpotential upside of 17%. Our preferred stocks are Axis Bank, Container Corp, HDFCBank, Hindalco, JustDial, Lupin, Maruti Suzuki, Tata Motors, Titan Industries andUltratech Cement (all rated OW).Significant acceleration in underlying earnings: The Thomson Reuters Datastreamconsensus forecast for headline BSE-100 earnings growth for FY15 has fallen to8.8% - a disappointment compared with the expectation for 18.3% at the beginningof the year. However, excluding the impact of the decline in materials prices,underlying growth has been closer to c13%. Our analysts forecast FY16 earningsgrowth of 21% y/y for the BSE-100 (excluding energy and financials), largely basedon a recovery in consumption demand, a slight improvement in margins and lowernon operating costs.Improving returns and cash flows: Capex appears to have peaked, with our analystsestimating capex for FY16 for our coverage universe at Rs3.8tn compared withR4.9tn for FY14. On the other hand, the 13% improvement at the top line (excludingenergy and financials) should lead to operating leverage and help asset turns. ROEfor the BSE-100 is expected to rise to 16.8% by FY17 (14.9% for FY14) despite thereduction in debt/equity to 2.1x (vs. 2.5x for FY14) (see Figure 10).Valuations do not look expensive: The NIFTY index is trading at a 12-month forwardP/E of 16.4x vs. an average of 14.4x for the past 10 years. In the years ofdouble-digit earnings growth rates of FY06-08, the NIFTY traded at an average ofc15.8x. Furthermore, we note that improvements in corporate ROEs and cash flowsare usually positive for valuations.The Indian market appears to have both better top-down and bottom-up prospectsthan other emerging markets: With India's accelerating GDP growth, lower inflationleading to a likely rate cut cycle, falling fiscal deficit and a balanced current account,the macro picture for India has improved significantly in the past two years. Similarly,at the corporate level, earnings growth for the MSCI India could be in the top third ofthe emerging markets based on consensus estimates.Returns could moderate but remain strong: Based on a forward P/E of 15.8x, weupdate our 12-month NIFTY target to 10,219, implying a 17% potential return. Wehave Overweight stances on Consumer Discretionary (including Autos), BuildingMaterials and Private Sector Banks but Underweight stances on Industrials andPublic Sector Banks. View full report on Barclays Live