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.