Weekly Review---April 19, 2010

Markets tread cautiously ahead of RBI meet

The Indian stock markets lost ground during the current week of trade, amidst sessions marked by high volatility, with both the benchmark indices, the BSE Sensex and the NSE Nifty, ending lower by 1.9% each. The BSE Mid- and Small-cap indices also ended in the red, but continued to outperform their large cap counterparts, with both the indices losing only 0.9% and 0.5%, respectively. On the macro front, the Index of Industrial Production (IIP) grew by 15.1% in February 2010, as against a lackluster 0.2% in the same month last year, raising further expectations of monetary tightening by the RBI next week. On the sectoral front, most of the indices ended in the red, with the BSE Oil & Gas and BSE CG indices both losing 3.3% each; however, the BSE IT index was a clear outperformer, gaining 3.2%.

BSE IT Index - Strong 4QFY2010 performance of Infosys leads to positive momentum in IT

The BSE IT Index gained 3.2% over the previous week, outperforming the Sensex by 5.1%. The weekly momentum of BSE IT gathered strength with IT companies viz. Infosys, TCS, Wipro, HCL Tech and Mphasis gaining 4%, 2.8%, 1.7%, 2.6% and 3.2%, respectively. This is mainly attributed to the strong 4QFY2010 performance of Infosys and a slight 0.3% depreciation of the Rupee v/s the US Dollar over the week. Sequentially, the Top-line grew by 3.5% in Rupee-terms, while in US $-terms it grew by 5.2%, which was 3.9% and 3.7% ahead of its revenue guidance of Rs5,721cr and US $1,250mn, respectively, for the quarter. The company added a total of 47 new clients and entered two large transformational deals; thereby confirming the improved IT demand environment and the onset of discretionary IT spends. Our Top pick in the sector is Mphasis.

Simplex Infrastructure (SI) - Company Update:

SI has underperformed the BSE Sensex and its peers by ~15% YTD. Further, we believe that it has entered into a comfortable valuation zone and will catch the eye of investors. Therefore, we reiterate a Buy on SI, with a Target Price of Rs586.

Merchant  Tariffs - Sector Update:

Merchant Power rates have begun to surge since March 2010, as the intensifying summer has pushed up the mercury levels all across the country. The merchant rates are currently at their highest levels since August 2009, and have touched day-high rates of Rs10/unit. Companies like Jindal Power, JSW Energy and Tata Power are likely to be the key beneficiaries of the higher merchant tariffs.