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.

Weekly Review----March 8, 2010

Markets on the upswing
The Indian stock markets gave thumbs up to the budget and took a sharp upswing during the current week of trade, with both the benchmark indices, the BSE Sensex and the NSE Nifty, each ending higher by 3.4%, respectively. The BSE Mid- and Small-Cap indices were back into the limelight (both the indices ending higher by 5.3% and 5.4%, respectively), outperforming their large cap counterparts. On the sectoral front, all the major sectoral indices ended in the green, with the BSE Metal index gaining the maximum of 7.1%, followed by the BSE Realty and Auto indices.
BSE Metal Index - rolls ahead
The BSE Metal Index gained 7.1% over the previous week, outperforming the Sensex by 3.7%, on the back of an increase in metal prices. The domestic steel companies hiked steel prices by 2-3%, to pass on the excise duty hike of 2%. JSW Steel, Jindal Steel, Tata Steel and SAIL outperformed the Sensex by 8.3%, 6.7%, 4.2% and 3.9%, respectively. During the week, JSW steel rose by 11.7%, as the company reported a 69% yoy rise in crude steel production, on the back of strong domestic demand, while Tata Steel sold its stake in Chindu Chemicals (unit of Corus). Sesa Goa gained 11.7% over the previous week, on the back of an increase in spot iron ore prices and positive sentimental impact of the NMDC FPO. Among the Non-Ferrous pack, Hindustan Zinc, Nalco, Sterlite and Hindalco gained 9.4%, 4.0%, 3.8% and 3.3%, respectively, due to strong base metals prices on the LME. Our top picks in the sector are JSW Steel, Tata Steel and Sterlite.
Balrampur Chini Millls (BRCM) - Initiating Coverage: We expect sugar prices to rule firm in SY2010E, which would in turn result in a higher switch-over to sugar in Brazil and an increase in cane acreage in India. As a result, supply would ease and prices are expected to soften in SY2011E. We expect BRCM's profitability to peak in SY2010E and decline in SY2011E. We e Initiate Coverage on the stock, with a Neutral recommendation.
DQ Entertainment (International) - IPO Note: DQE (International) is an animation services and production company, focused on both the Indian and International markets. At the upper band of Rs80, the market capitalisation post issue for DQE would stand at Rs634cr, which equates to rich valuations - P/E of 20.3x, P/BV of 1.6x and EV/Sales of 2.6x FY2012E estimates. We recommend a Neutral view on the issue.
Tata Motors - 3QFY2010 Consolidated Result Update: TML reported consolidated Net Sales of Rs26,044cr (Rs17,703cr) for 3QFY2010. The company registered a stellar recovery in 3QFY2010 and reported a Net Profit of Rs650.3cr (Net Loss of Rs2,599cr in 3QFY2009). This was mainly due to the good turnaround performance registered by the company's key subsidiaries, including JLR. We maintain a Buy, with a revised Target Price rice of Rs942 (Rs859).

Weekly Market Outlook---February 27, 2010

Market gives thumbs up to the budget
In a landmark week, the Indian stock markets gave a thumbs up to the budget (the first time in four years), with both the benchmark indices, the BSE Sensex and the NSE Nifty, ending higher by 1.5% and 1.6%, respectively. The BSE Mid- and Small-Cap indices had a muted performance for the week, with both the indices ending lower by 0.5% and 1.7%, respectively. On the sectoral front, all the major sectoral indices witnessed a mixed trend, with the BSE Metal index gaining the maximum of 3.8%, followed by the BSE Bankex, while the BSE FMCG index led the pack of losers and ended down by 3.3% for the week.
BSE Bankex zooms ahead
The BSE Bankex outperformed the Sensex this week, ending up by 2.8%, as against a 1.5% rise for the Sensex. A large part of this outperformance was on the last day of the week, in reaction to the budget. The Union Budget 2010-11 generally contained positive measures for the Banking Sector, especially for PSU Banks. The real stand-out points were the commitment towards lowering the fiscal deficit, as well as the Rs16,500cr recapitalization of PSU Banks, which will be especially positive for smaller banks like Dena Bank, Syndicate Bank, etc. The Centre's Fiscal deficit has been targeted to be brought down to about 5.8% in FY2011 and to as low as 4.1% by FY2013. The decline in Fiscal deficit appears realistic, as it is predicated on tax buoyancy from rising corporate profits (Rs45,000cr increase), 3G auctions (Rs40,000cr) and divestments (Rs40,000cr). This will help in graduating the rise in interest rates going forward, once credit growth starts gaining momentum in FY2011E. We maintain our positive outlook on the sector, and retain HDFC Bank, ICICI Bank and Axis Bank as our top picks.
Union Budget 2010-11 Review:
Finance Minister, Mr. Pranab Mukherjee, managed to do the unexpected in the Budget. In what was largely being feared as an exercise that could have put some friction to the recovery that the Indian economy is currently witnessing, it actually turned out that the Finance Minister has managed to effectively conclude this exercise in a highly balanced fashion. This has left a lingering 'feel-good factor' in the minds of most segments of the society; be it corporates, individuals, economists, etc.
Railway Budget 2010-11 Review:
Ms. Mamta Banerjee’s second Railway Budget has turned out to be a non-event from the stock market point of view even though certain key points are worth highlighting, which makes this Railway Budget somewhat different from the earlier ones.
Godawari Power and Ispat - Visit Note:
We visited Godawari Power's (GPIL) iron ore mines and its recently commissioned 0.6 mtpa pellet plant. We believe that the stock is at an inflection point, as the pellet plant has started production, and savings of Rs125-Rs150cr are expected in FY2011E. We maintain our Buy rating on the stock, with a 15-month Target Price of Rs252.

Weekly Review: February 22, 2010

Markets consolidate around 16k
Amidst sessions marked by high volatility, the Indian markets consolidated their position during the current week of trade, with both the benchmark indices, the BSE Sensex and the NSE Nifty, ending higher by 0.2% and 0.4%, respectively. The BSE Mid- and Small-Cap indices suffered a bigger blow, with each of these indices ending lower by 1.2%. On the sectoral front, all the major sectoral indices witnessed a mixed trend, with the BSE Healthcare index gaining the maximum of 1.9%, while the BSE Realty index led the pack of losers and ended down by 5.8% for the week.
BSE Realty Sector - on a weak foundation
The Realty Sector lost 5.8% on a weekly basis and underperformed the Sensex, which was up marginally by 0.2%. Apprehensions of a rate hike by the RBI and an overall risk aversion ahead of the Union Budget for FY2011 forced investors to take a cautious stand on the sector. The top losers were Unitech (6.1%), Ansal Properties (5.9%), DLF (5.2%), Parsvnath (4.0%) and Sobha Developers (3.4%), among others on the index.
Inside This Weekly
Union Budget Preview review 2010-11:
Partial Stimulus rollback and fiscal prudence setting in are already reflecting in the current behaviour of the market participants. Thus, any significant deviation from the expected can lead to heightened volatility in markets. However, considering the limited options at hand for the FM in this Budget, it seems unlikely that he can deviate from the path visible. Thus, the FM's moves are expected to be calculative so as to ensure that a move towards fiscal prudence is initiated without jeopardizing the country's growth prospects.
Man Infraconstruction - IPO Note:
Man Infraconstruction (MInfra) is a mid-sized construction company specialising in Residential buildings (83% of Order Book) in Mumbai and Pune. On the valuation front, the IPO is available at a P/E of 11-12x FY2012E Earnings on the lower and upper price bands respectively, which is at a premium to listed players. Moreover, due to the concentrated nature of business and subdued Earnings growth, we believe the stock should trade at a discount to its peers. Hence, we recommend an Avoid to the Issue.
Rural Electrification Corporation (REC) - FPO Note:
REC is a leading public financial institution exclusively focused on extending finance to the Indian Power Sector. Around 91% of REC's loan book comprises of loans to public sector entities. Around 91% of the loans are either secured by or enjoy government guarantee. At the floor price of Rs203, the stock is available at 1.5x FY2011E. Adjusted Book Value of Rs132 and 1.3x FY2012E Adjusted Book Value of Rs151. We believe that REC can command up to 1.75x on its FY2012E Adjusted Book Value, implying a reasonable upside. Hence, we recommend a Subscribe view on the issue.
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Weekly Review: January 30, 2010

Markets continue profit-taking

Markets continued to witness profit booking during the week, with both the BSE Sensex and the NSE Nifty, ending lower by 3.0% and 3.1%, respectively. The BSE Mid-Cap and Small- Cap indices also fell by 4.0% and 4.9%, respectively. Notably, the RBI in its Monetary Policy Review raised CRR by 75 bps to suck out excess liquidity from the banking system. However, other key rates were left unchanged. On the sectoral front, all the major sectoral indices ended in the red, with the BSE Metal index losing the maximum of 7.8%, followed by the BSE Realty and the BSE Auto indices.

3QFY2010 Monetary Policy Review:

RBI hiked CRR by 75 bps to 5.75% in its 3QFY2010 Monetary Policy, to drain out excess liquidity in the system. RBI also raised GDP projection for the year to 7.5%. We believe low interest rates and reducing leverage in borrowers' balance sheets (due to equity raising and rising earnings), will revive credit demand 4QFY2010E onwards.

Tyre-Sector Update:

With the sector set for a structural shift (higher investment needs in Radialisation) and apparent pricing flexibility, improvement in the RoCE and RoE of Tyre manufacturers is expected, going forward. With 12-month view, JK Tyre offers better risk-reward, and we rate it a Buy. However, we prefer Apollo Tyres in the long term for its comprehensive business strategy. We also recommend a Buy on CEAT, owing to attractive valuations.

Greenply Industries (GIL):

GIL is well placed to service future wood panel demand, as it has largest production capacity and distribution network in India. Owing to strong RoE profile and substantial expansion in lucrative organised markets of MDF and laminates, we assign a target multiple of 8x FY2012E EPS of Rs 36.4. We recommend a Buy, with a 15-month target price of Rs 291, implying an upside of around 57%.

DB Realty (DBRL) - IPO Note:

DBRL has launched an IPO (~30.9mn shares) in the Price Band of Rs 468-486/share to raise approx Rs 1,500 cr. DBRL has firmed up development plans for 100 mn sq ft with a total saleable area of 60.9 mn sq ft. We have assumed average realisation of Rs 6,000/sq ft, which gives us a Fair NAV of Rs 412/share. Hence, we believe that the IPO is expensive and recommend an Avoid.