Weekly Review----March 8, 2010

Markets on the upswing
The Indian stock markets gave thumbs up to the budget and took a sharp upswing during the current week of trade, with both the benchmark indices, the BSE Sensex and the NSE Nifty, each ending higher by 3.4%, respectively. The BSE Mid- and Small-Cap indices were back into the limelight (both the indices ending higher by 5.3% and 5.4%, respectively), outperforming their large cap counterparts. On the sectoral front, all the major sectoral indices ended in the green, with the BSE Metal index gaining the maximum of 7.1%, followed by the BSE Realty and Auto indices.
BSE Metal Index - rolls ahead
The BSE Metal Index gained 7.1% over the previous week, outperforming the Sensex by 3.7%, on the back of an increase in metal prices. The domestic steel companies hiked steel prices by 2-3%, to pass on the excise duty hike of 2%. JSW Steel, Jindal Steel, Tata Steel and SAIL outperformed the Sensex by 8.3%, 6.7%, 4.2% and 3.9%, respectively. During the week, JSW steel rose by 11.7%, as the company reported a 69% yoy rise in crude steel production, on the back of strong domestic demand, while Tata Steel sold its stake in Chindu Chemicals (unit of Corus). Sesa Goa gained 11.7% over the previous week, on the back of an increase in spot iron ore prices and positive sentimental impact of the NMDC FPO. Among the Non-Ferrous pack, Hindustan Zinc, Nalco, Sterlite and Hindalco gained 9.4%, 4.0%, 3.8% and 3.3%, respectively, due to strong base metals prices on the LME. Our top picks in the sector are JSW Steel, Tata Steel and Sterlite.
Balrampur Chini Millls (BRCM) - Initiating Coverage: We expect sugar prices to rule firm in SY2010E, which would in turn result in a higher switch-over to sugar in Brazil and an increase in cane acreage in India. As a result, supply would ease and prices are expected to soften in SY2011E. We expect BRCM's profitability to peak in SY2010E and decline in SY2011E. We e Initiate Coverage on the stock, with a Neutral recommendation.
DQ Entertainment (International) - IPO Note: DQE (International) is an animation services and production company, focused on both the Indian and International markets. At the upper band of Rs80, the market capitalisation post issue for DQE would stand at Rs634cr, which equates to rich valuations - P/E of 20.3x, P/BV of 1.6x and EV/Sales of 2.6x FY2012E estimates. We recommend a Neutral view on the issue.
Tata Motors - 3QFY2010 Consolidated Result Update: TML reported consolidated Net Sales of Rs26,044cr (Rs17,703cr) for 3QFY2010. The company registered a stellar recovery in 3QFY2010 and reported a Net Profit of Rs650.3cr (Net Loss of Rs2,599cr in 3QFY2009). This was mainly due to the good turnaround performance registered by the company's key subsidiaries, including JLR. We maintain a Buy, with a revised Target Price rice of Rs942 (Rs859).

Weekly Market Outlook---February 27, 2010

Market gives thumbs up to the budget
In a landmark week, the Indian stock markets gave a thumbs up to the budget (the first time in four years), with both the benchmark indices, the BSE Sensex and the NSE Nifty, ending higher by 1.5% and 1.6%, respectively. The BSE Mid- and Small-Cap indices had a muted performance for the week, with both the indices ending lower by 0.5% and 1.7%, respectively. On the sectoral front, all the major sectoral indices witnessed a mixed trend, with the BSE Metal index gaining the maximum of 3.8%, followed by the BSE Bankex, while the BSE FMCG index led the pack of losers and ended down by 3.3% for the week.
BSE Bankex zooms ahead
The BSE Bankex outperformed the Sensex this week, ending up by 2.8%, as against a 1.5% rise for the Sensex. A large part of this outperformance was on the last day of the week, in reaction to the budget. The Union Budget 2010-11 generally contained positive measures for the Banking Sector, especially for PSU Banks. The real stand-out points were the commitment towards lowering the fiscal deficit, as well as the Rs16,500cr recapitalization of PSU Banks, which will be especially positive for smaller banks like Dena Bank, Syndicate Bank, etc. The Centre's Fiscal deficit has been targeted to be brought down to about 5.8% in FY2011 and to as low as 4.1% by FY2013. The decline in Fiscal deficit appears realistic, as it is predicated on tax buoyancy from rising corporate profits (Rs45,000cr increase), 3G auctions (Rs40,000cr) and divestments (Rs40,000cr). This will help in graduating the rise in interest rates going forward, once credit growth starts gaining momentum in FY2011E. We maintain our positive outlook on the sector, and retain HDFC Bank, ICICI Bank and Axis Bank as our top picks.
Union Budget 2010-11 Review:
Finance Minister, Mr. Pranab Mukherjee, managed to do the unexpected in the Budget. In what was largely being feared as an exercise that could have put some friction to the recovery that the Indian economy is currently witnessing, it actually turned out that the Finance Minister has managed to effectively conclude this exercise in a highly balanced fashion. This has left a lingering 'feel-good factor' in the minds of most segments of the society; be it corporates, individuals, economists, etc.
Railway Budget 2010-11 Review:
Ms. Mamta Banerjee’s second Railway Budget has turned out to be a non-event from the stock market point of view even though certain key points are worth highlighting, which makes this Railway Budget somewhat different from the earlier ones.
Godawari Power and Ispat - Visit Note:
We visited Godawari Power's (GPIL) iron ore mines and its recently commissioned 0.6 mtpa pellet plant. We believe that the stock is at an inflection point, as the pellet plant has started production, and savings of Rs125-Rs150cr are expected in FY2011E. We maintain our Buy rating on the stock, with a 15-month Target Price of Rs252.