Markets re-bound during the week

The Indian stock market gained some 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 higher by 2.5% and 2.7%, respectively. BSE mid-cap and small-cap indices were up during the week, gaining 1.0% and 0.9%, respectively, though they underperformed their large-cap counterparts. Gains extended during the latter half of the week as world stocks rose after China signaled its support for the euro zone. The volatility in the market was immense, as traders rolled over positions in the derivatives segment from May 2010 series to June 2010 series. On the sectoral front, most of the major sectoral indices ended in green, with the BSE Realty index gaining the maximum of 4.1%, followed by the Oil and Gas index rising 3.4%.

BSE Oil and Gas Index - RIL leads the way

The week witnessed the BSE Oil and Gas index gaining 3.4%, outperforming the benchmark BSE Sensex, which gained 2.5%. RIL gained 5.0% post the scraping of the non-compete agreement with ADAG. RNRL also gained 17.8% on the announcement and was the largest gainer in the index. ONGC gained 3.5% during the week post the increase in APM gas price. Pegging some hopes on fuel price reforms, IOC and HPCL gained 3.3% and 2.8%, respectively. However, BPCL underperformed, gaining mere 0.7%. Crude prices continued to be volatile during the week, gaining 5.6%. Cairn India gained 4.1% during the week, largely mirroring the increase in crude oil prices. We have a positive view on the sector and our Top Pick is RIL.

Bhushan Steel - Initiating Coverage: We expect Bhushan Steel to register 26.2% CAGR in volumes over FY2010-15E, the highest in the industry, with the completion of Phase-III of the expansion plan. This will be further sweetened by EBITDA/tonne rising to US $331 in FY2011E, which is at the higher end of the industry curve. Further, its strong relationships with OEMs and growing investments by foreign OEMs will help mitigate demand risks. We Initiate Coverage on the stock with a Buy and Target Price of Rs1,634.

Piramal Healthcare - Event Update: Piramal Healthcare (PHL) has sold its Domestic Formulation business for US $3.72bn. This landmark deal signifies the growing interest of global MNCs in the Indian Domestic Formulation business and signals increasing likelihood of further consolidation in the Industry going ahead. We recommend Neutral on the stock.

Jagran Prakashan - 4QFY2010 Result Update : JPL reported strong results on both Revenues and Earnings front, reporting yoy growth of 17.4% and 66.8%, respectively. After the results we have marginally revised our estimates to take into account flat circulation revenues posted by Jagran this quarter. While we have not factored the Mid-Day deal in JPL's numbers, we believe that the deal is likely to be Earnings accretive by ~2% in FY2011E. We maintain a Buy, with a Target Price of Rs160.

Global concerns dampen the mood on the bourses

The Indian stock markets lost quite a bit 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 3.2% each. The BSE Mid- and Small-cap indices were also battered, with both the indices ending in the red, losing 3.7% and 4.5%, respectively. During the week, among the major policy moves, the government more than doubled the price of natural gas produced from nomination blocks. On the sectoral front, most of the major sectoral indices ended deep in the red, with the BSE Realty index losing the maximum of 8.8%, followed by the Metal index, down 6.5%.
BSE Metal Index - Stumbles on global cues
The BSE Metal Index lost 6.5% over the previous week, underperforming the Sensex by 3.3%, on the back of longer term worries about the outlook for the Euro zone and China. Moreover, there were media reports that the Indian government is also proposing a windfall tax on non-fuel minerals. SAIL and Jindal Steel outperformed the BSE Metal Index by 4.0% each, but JSW Steel and Tata Steel underperformed the benchmark metal index by 2.8% and 0.6%, respectively. On the iron ore front, NMDC outperformed the Metal Index by 0.5%, on reports that the company is seeking a 90% hike in its export contract prices, but Sesa Goa underperformed by 2.6% due to a fall in the prices of iron ore fines. Among the Non-Ferrous pack, Nalco outperformed the Metal index by 5.7%, while Hindustan Zinc, Sterlite and Hindalco underperformed by 3.7%, 2.0% and 0.7%, respectively, as base metal prices on LME declined during the week. Our top picks in the sector are JSW Steel, Hindalco, Hindustan Zinc and Sterlite.
3G Auction Outcome - Event Update: The 3G Spectrum auction concluded on Day 34, raising about Rs680bn for the Government, 2x of the budgeted estimate. Bharti won 13 circles (outlay of Rs12,295cr), RCOM won 13 (outlay of Rs8,585cr), and Idea won 12 (outlay of Rs5,972cr). The aggressive bidding would lead to increased capex spends, straining the leverage position of the companies. However, we believe that Bharti, Idea and RCOM managed to corner crucial and scarce spectrum in their required respective circles, which would cover up for their large existing subscriber base.
APM Gas Price De-regulation - Event Update: The Government has hiked APM gas price from Rs3.20/scm to Rs6.82/scm. In a related development, the cabinet has also approved the marketing margins of US $0.112/mmbtu (Rs200/scm) for GAIL on APM gas marketing volumes. The move is positive for State upstream companies and GAIL.
ICICI Bank - Event Update: The Board of Directors of ICICI Bank has granted its in-principle approval for the amalgamation of Bank of Rajasthan (BoR) with ICICI Bank, subject to further approvals. Based on the swap ratio, ICICI Bank has valued BoR at 5.3x FY2010E ABV, which is expensive in our view. That said, at about 3.2% of ICICI Bank's MCap and 4.5% of Total Assets, the acquisition is too small to have any material impact on ICICI Bank.

Markets gain some ground

The Indian stock markets gained 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 higher by 1.3% and 1.5%, respectively. The BSE Mid- and Small-cap indices too ended in the green gaining 1.6% and 1.25, respectively. The key indices recouped a portion of the previous week's losses after the EU announced a rescue package to aid Greece. On the sectoral front, the major sectoral indices mirrored a mixed trend with the BSE Realty and Auto indices gaining the maximum of 4.1% and 3.7% respectively, while the BSE Metal and CG indices ended marginally in the red.

BSE Realty Index

The Realty Index gained 4.1% for the week, outperforming the Sensex, which was up 1.3%. The top gainers in the Realty Index were Sobha Developers (up 15%), HDIL (up 6.6%), Peninsula Land (up 6.3%), DLF (up 4.9%) and Ansal Properties (up 4.6%). The IIP grew at 13.5% (vis-a-vis 0.3% last year) in March, albeit lower than market expectations. Also, with the EU debt crisis remaining grim, market expects the Central Bank to keep its monetary tightening on hold, thus providing interest-sensitive sectors some relief.

Elecon Engineering - Initiating Coverage: Elecon Engineering (EEC) is a leading player in Material Handling Equipment turnkey solutions and Gear provider for the core sectors of the economy. EEC has also built strong domain expertise in coal handling. We believe that EEC is well placed to capitalise on the burgeoning industrial capex, primarily power. We estimate Revenues and Adj PAT to post a CAGR of 15% and 37% over FY2010-12E. At Rs79, the stock is available at attractive valuations of 8x FY2012E EPS and 5x FY2012E EV/EBITDA, respectively. We Initiate Coverage on the stock, with a Buy recommendation and Target  Price of Rs102.

GCPL - Event Update: GCPL has agreed to acquire remaining 51% stake of its JV with GSL for a consideration of Euro 185mn (Rs1,050cr) valuing GSL at Rs2,065cr. While we have not factored the deal into our numbers owing to a lack of funding details, based on our assumptions of full equity funding (10.2% dilution at CMP of Rs300), we believe the deal is likely to be EPS accretive by 8-10%. We maintain a Buy with a revised Target Price of Rs357 (Rs329)

Hindalco - 4QFY2010 Result Update: Hindalco's standalone top-line increased 45.3% yoy and 1.4% qoq to Rs5,358cr, lower than our estimate of Rs5,684cr primarily due to lower copper production. EBITDA margins expanded by 707bp yoy and 144bp qoq to 15.6%, in line with our estimates. Net income increased 147% yoy and 55.4% qoq to Rs664cr ahead of our estimate of Rs486cr due to lower interest expense and tax write back of Rs113cr. We believe that the company is well placed to benefit from its low cost capacity expansions and expected turnaround at Novelis. We maintain a Buy on the stock, with a SOTP Target Price of Rs208.