Market Ends Flat

The market ended almost flat during the week, amidst sessions marked by volatility, with the Sensex and Nifty ending marginally higher by 0.02% and 0.1%, respectively. However, BSE mid-cap and small-cap indices outperformed their large-cap counterparts by further extending gains during the week by 1.5% and 1.6%, respectively. Factors such as partial decontrol of Chinese currency against USD, negative cues from global markets, decontrol of oil prices in India and rolling over of positions in the derivatives segment on the eve of the monthly expiry contributed to the volatility during the week. Most of the sectoral indices ended in green, with the oil and gas index and healthcare index gaining the most by 3% each.

BSE Oil and Gas Index - Oil PSUs Shine
The BSE oil and gas index gained 3% during the week, outperforming the Sensex. The major spurt and relief was seen in OMC stocks and upstream oil companies following EGoM's decision to fully decontrol petrol price and hike diesel price. Prices of kerosene and domestic LPG were also increased. Following this, HPCL, BPCL and IOC gained 18%, 19.1% and 12.9%, respectively. ONGC, Oil India and GAIL gained 5.9%, 7.4% and 2.2%, respectively. Cairn declined 2% during the week, mirroring the 1.9% fall in crude price. RNRL gained 5.1% and RIL gained 0.8%. We have a positive view on the sector and our top pick is RIL.

Sun TV Network (Initiating Coverage): Sun TV Networks (STNL) is a leader in three out of the four lucrative southern TV markets through its bouquet of 20 channels across genres. We have modeled in 23.5%, 24.9% and 25.3% CAGRs in top line, core EBIT (post amortisation) and earnings, respectively, for STNL over FY2010–12E. We estimate STNL's cash balance to swell to a whopping Rs10bn (~Rs33 per share) in FY2012E. We initiate coverage on STNL with Buy and a Target Price of Rs497 based on 24x P/E FY2012E.

Indraprastha Gas - Company Update: The CNG price hike has eliminated key headwinds for IGL. We revise our target price on the stock to Rs301 (Rs210) owing to the upward revision in earnings estimates and lower WACC estimates. We upgrade the stock to Buy from Reduce earlier.

Reliance Industries - Event Update: RIL acquired 45% stake in Eagleford shale acreage. RIL will pay US $1.3bn to Pioneer and Newpek for its implied share of 118,000 net acres. The deal is valued at US $11,144/acre. We maintain a Buy view on RIL with a target price of Rs1,260.

Container Corporation of India - Management Meet Note: The management in its recent meeting has given volume guidance of 10–12% for EXIM and 12–15% for the domestic segment in FY2011E with operating margins expected to be rangebound. We maintain Reduce on the stock with a target price of Rs1,194.

Market ends in green

The Indian stock market ended on a positive note during the week. The BSE Sensex and the NSE Nifty ended higher by 3.0% and 2.8%, respectively, backed by positive global cues and higher first quarter advance tax payments. However, both BSE mid-cap index and BSE small-cap index underperformed the broader market, ending the week with gains of 1.3% and 2.4%, respectively. During the week, Fitch Ratings, a global rating agency, raised India's local currency rating outlook to stable from negative as windfall gains from the sale of spectrum raised expectations of a steeper cut in the country's fiscal deficit. On the sectoral front, all sectoral indices ended in green, with the BSE IT index and BSE capital goods index gaining the most by 4.6% and 4.5%, respectively.

BSE IT Index surges by 4.6%
The BSE IT index gained 4.6% during the week, outperforming the Sensex that gained 3.0%. The weekly momentum of the IT index gathered strength with Infosys, Wipro, HCL Tech, TCS, Mphasis and Tech Mahindra gaining by 5.6%, 5.6%, 4.9%, 3.0%, 1.4% and 1.2%, respectively. This was despite the 1.5% appreciation in average Rupee versus US Dollar over a week's time. The surge in the index can be attributed to certain positive events such as Infosys mulling over the long-awaited M&A, TCS's deal with Telenor and HCL Tech's deal with SGX. Further, during the week Tech Mahindra announced to disclose the audited financial statements of Mahindra Satyam by September 2010, which gave clarity on the ambiguity of the issue. Our top picks in the sector are TCS, Wipro, Tech Mahindra and Mphasis.

SpiceJet - Event Update: Sun TV promoter Kalanithi Maran has announced to buy 37.75% stake in SpiceJet from the company's promoter Bhupendra Kansagra (Royal Holdings Services) and investor Wilbur Ross at Rs47.3/share, which is at a 16.7% discount to the current market price. We recommend Buy on the stock with a Target Price of Rs65.

BWA - Event Update: The Broadband Wireless Access (BWA) auction raised Rs38,543cr for the government, over 3x of the budgeted estimate. Infotel Broadband bagged the pan-India spectrum (22 circles) for Rs12,848cr, backed by Reliance Industries, which acquired 95% stake in Infotel for Rs4,800cr. Aircel won 6 circles, Tikona won 5 circles, Bharti Airtel won 4 circles, Qualcomm won 4 circles and Augere won 1 circle. The operators will have to pay the amount before June 22, which would result in increased capex and incremental strain on their balance sheet position.

Cement Sector - Monthly Update: The growth in cement dispatches decelerated during May 2010 due to lower off-take from the real estate and infrastructure segments. Cement dispatches grew at a 8.1% yoy in May 2010 as against 10.7% yoy growth in May 2009. Cement prices declined across the country in May 2010, with the Southern region experiencing the highest price correction in the range of Rs20-45 per bag till date.

Markets end marginally lower during the week

Markets ended marginally negative during the week, amidst sessions marked by volatility, with the Sensex and the Nifty ending lower by 0.3% each. BSE mid-cap index also witnessed a negligible fall of 0.1% during the week while BSE small-cap index ended flat, marginally outperforming their large-cap counterparts. The week witnessed mixed investor sentiment with positive global cues and robust IIP data cheering investors, while concerns over the cyclone delaying the monsoon acting as a deterrent in the initial part of the week. On the sectoral front, most of the major sectoral indices ended in red, with the BSE realty index losing the maximum of 4% followed by the BSE IT index losing 2.5%. However, BSE auto index gained the maximum of 1.6%, followed by the BSE healthcare index rising 1.5%.

BSE Auto Index - M&M and Bajaj Auto outperform

Robust May 2010 vehicle sales triggered BSE auto index to outshine consecutively in the second week of June with a gain of 1.6%, outperforming the BSE Sensex that declined 0.3%. Growth was largely driven by heavyweights M&M and Bajaj Auto, having weightage of 19.6% and 12.4%, respectively. M&M increased 3.3% during the week on the back of prediction of normal monsoon by the Meteorological Department. Bajaj Auto gained 5% on account of robust sales growth in May. Other index members, including Maruti and Hero Honda, also posted steady gains of 1-2% during the week, aided by strong volume numbers. However, CV majors such as Tata Motors and Ashok Leyland recorded marginal declines of 0.9% and 2.2%, respectively. We remain positive on the Indian auto sector. We estimate overall auto volumes to register a CAGR of around 10% over FY2010-12E, aided by improved economic environment for the sector. We remain overweight on Maruti Suzuki, M&M and Tata Motors.

Hotel Leela Venture (HLVL) - Initiating Coverage: HLVL is one of the key players in the premium segment of the hospitality industry in India. We estimate HLVL’s Top-line and PAT to register CAGRs of 41.6% and 57.9%, respectively, over FY2010-12E. Although HLVL’s financials are currently recovering, we believe EV/Room is the ideal parameter for valuing the company on which it is expensive as compared to its peers. Hence, we Initiate Coverage on the stock with a Neutral view.

RIL - Event Update: RIL has announced the acquisition of Infotel Broadband Services (P) Ltd promoted by Nahata Group. Key factors to watch out for RIL will be the execution and ramp-up of the broadband foray. At 1.8x FY2012E P/BV, we believe that RIL is relatively undervalued at current levels. We maintain a Buy view on RIL, with a Target Price of Rs1,260.

Orchid Chemicals - Event Update: Orchid Chemicals has announced entering into an agreement to acquire Karalex Pharma, the US-based generic marketing and sales service company, through an all-cash deal. We maintain a Neutral view on the stock.

Markets extend gains during the week

The Indian stock market extended its gains during the week, amidst sessions marked by volatility, with both the benchmark indices, the BSE Sensex and the NSE Nifty, ending higher by 1.5% and 1.4%, respectively. BSE mid-cap and small-cap indices were up during the week, gaining 2.0% and 1.7%, respectively, outperforming their large-cap counterparts. Positive global cues coupled with positive domestic triggers, such as robust GDP data and steady progress of monsoons, lifted investor sentiment during the week. On the sectoral front, most of the major sectoral indices ended in green, with the BSE auto index gaining the maximum of 4.4%, followed by the BSE FMCG index rising 3.6%. However, BSE metals and BSE realty indices were down 2.1% and 0.7%, respectively.

BSE Auto Index - Maruti and M&M outperform

Robust May 2010 vehicle sales triggered BSE auto index to gain 4.4% during the quarter, outperforming the benchmark BSE Sensex, which gained 1.5%. Gains in the index were largely driven by heavyweights Maruti Suzuki and M&M, having weightage of 15% and 19%, respectively. Maruti posted an increase of 8.8% during the week on the back of strong sales volumes in May. M&M gained 7.4% for the week on the back of strong 4QFY2010 results and robust sales growth in May. Other index members, such as Hero Honda, Tata Motors and Ashok Leyland, also posted steady gains of 3-6% during the week, aided by strong volume numbers. We remain positive on the Indian auto sector. We estimate overall auto volumes to register a CAGR of around 10% over FY2010-12E, aided by the improved economic environment for the sector. Among the pack, we remain overweight on M&M, Maruti Suzuki and Tata Motors.

FM directs listed companies to have 25% Public Float: There are almost 190 companies where the promoter holding is more than the stipulated 75% with around 80% of the same being accounted by the PSU companies. Post the current notification, the quantum money to be raised would be around 0.8% of overall market cap every year, which we believe can sail through without much impact on overall markets.

United Phosphorus - Initiating Coverage: United Phosphorus ranks among the Top-5 generic agrichemical manufacturers in the world. We expect UPL to report CAGRs of 9% and 17% in sales and PAT over FY2010-12E, respectively. We Initiate Coverage on the stock with a Buy and Target Price of Rs226, valuing the stock at 13x FY2012E EPS.

Auto Sector Update - May 2010: Indian auto companies continued to report impressive performance in May 2010. Maruti Suzuki and Hero Honda recorded the highest-ever monthly sales. Strong growth across segments continues, with demand surpassing supply in a few segments due to short supply from vendors. Demand is high despite increased vehicle prices announced by most auto majors to pass on the cost impact to consumers.