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.