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.

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.