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.