1. Market Outlook
India Research
August 17, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The benchmark indices witnessed a bout of volatility in the initial trade. BSE Sensex -0.6% (116.3) 18,051
However, the benchmark indices recovered after erasing entire intraday gains in Nifty -0.6% (33.8) 5,418
early afternoon trade after the monthly inflation data hit the market. The market MID CAP 0.1% 6.1 7,648
slipped into the red zone in afternoon trade and slumped to a fresh intraday SMALL CAP -0.3% (24.6) 9,686
low in mid-afternoon trade as European stocks turned negative and as US index BSE HC -0.9% (47.0) 5,470
futures edged lower. The market ended the session in red on the first day of the BSE PSU -0.1% (6.5) 9,669
week on doubts over the global economic recovery. The Sensex and Nifty closed BANKEX -0.5% (64.0) 12,132
down by 0.6% each. However, the BSE mid-cap index outperformed the AUTO -0.2% (14.9) 8,761
benchmark indices to close with gain of 0.1%, while the BSE small-cap index
METAL -1.5% (229.8) 15,108
closed low by 0.3%. Among the front liners, HUL, ITC, Hero Honda, Maruti
OIL & GAS -0.8% (76.8) 10,061
Suzuki and NTPC gained 0–2%, while Cipla, Reliance Infra., RCOM, JP
BSE IT -0.6% (35.2) 5,479
Associates and ICICI Bank lost 2–4%. Among mid caps, Wockhardt, Trent, Tube
Global Indices Chg (%) (Pts) (Close)
Investment, Tata Chemicals and BF Utilities gained 5–18%, while Gammon
India, Hindusthan National Glass, Essar Shipping, Pipavav Shipyard and Shree Dow Jones 0.0% (1.1) 10,302
Cement lost 4–5%. NASDAQ 0.4% 8.4 2,182
FTSE 0.0% 0.7 5,276
Markets Today Nikkei -0.6% (56.8) 9,197
The trend deciding level for the day is 17964/5389 levels. If NIFTY trades Hang Seng 0.2% 40.6 21,112
above this level during the first half-an-hour of trade then we may witness a Straits Times -0.2% (6.5) 2,934
further rally up to 18084–18171/5427– 5457 levels. However, if NIFTY trades Shanghai Com 2.1% 55.0 2,662
below 17964/5389 levels for the first half-an-hour of trade then it may correct
up to 17878–18051/5359–5418 levels. Indian ADRs Chg (%) (Pts) (Close)
Infosys 0.7% 0.4 $59.5
Indices S2 S1 R1 R2
Wipro 0.2% 0.0 $13.2
SENSEX 18,051 17,878 18,084 18,171 Satyam -0.4% (0.0) $4.7
NIFTY 5,418 5,359 5,427 5,457 ICICI Bank -0.3% (0.1) $41.1
HDFC Bank 0.0% (0.1) $158.5
News Analysis
SBI hikes lending and deposit rates Advances / Declines BSE NSE
Vedanta buys majority stake in Cairn India
Advances 1,242 488
Vedanta (Sesa Goa) enters into an agreement with Cairn Energy
Declines 1,749 868
Tata Motors’ global sales rise 36% in July 2010
Unchanged 81 36
Refer detailed news analysis on the following page.
Net Inflows (August 13, 2010)
Volumes (Rs cr)
Rs cr Purch Sales Net MTD YTD
BSE 5,619
FII 3,011 2,294 717 5,194 53,135
MFs 885 895 (10) (928) (13,552) NSE 15,959
FII Derivatives (August 16, 2010)
Open
Rs cr Purch Sales Net
Interest
Index Futures 1,733 1,618 114 17,775
Stock Futures 2,020 2,576 (556) 36,948
Gainers / Losers
Gainers Losers
Price Price
Company chg (%) Company chg (%)
(Rs) (Rs)
Cummins India 716 6.5 Sesa Goa 323 (8.9)
Tata Chemicals 383 5.9 Suzlon 52 (7.3)
LIC Housing Fin. 1,286 5.0 Cairn India 333 (6.4)
Uco Bank 108 4.9 Essar Shipping 104 (4.6) 1
Bajaj Hind. 123 4.5 Sun TV 488 (4.1)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. Market Outlook | India Research
SBI hikes lending and deposit rates
SBI has raised BPLR by 50bp to 12.25% from 11.75%, with effect from August 16, 2010.
Among PSU banks, Bank of Baroda, Corporation Bank, Oriental Bank of Commerce,
Union Bank and IDBI Bank have already increased their PLR by 50bp each. The deposit
rates have also been increased by 25–150bp across tenures by SBI. SBI has also launched
floating rate term deposits, which will be linked to the bank’s base rate to be effective from
September 6, 2010. The move is in line with our expectations; we have factored in an NIM
improvement of 30bp in FY2011E to 2.8%.
At the CMP, the stock is trading at 1.7x FY2012E ABV (while excluding value of insurance
and capital market subsidiaries) v/s its five-year range of 1.3–2.0x and median of 1.7x.
We believe this provides reasonable upside to the stock, especially in light of its dominant
position and reach, strong growth and superior earnings quality. We maintain an
Accumulate rating on the stock with a Target Price of Rs3,185.
Vedanta buys majority stake in Cairn India
Deal details: Cairn Energy Plc has entered into an agreement with Vedanta Resources Plc
for sale of 40-51% stake in Cairn India. The success of the 20% mandatory open offer to
minorities will determine the extent of stake sale by Cairn Energy Plc. The all-cash deal is
being executed at Rs405/share, wherein Rs355/share will be towards the sale and
purchase agreement and the balance Rs50/share constituting the non-compete fee. Thus,
the open offer to the minorities will be at the lower price of Rs355/share, which is at 6.7%
premium to the close price. Thus, the minority shareholders are at a disadvantage. The
offer is subject to the government approval. The open offer will be made through Sesa
Goa. Post the transaction, Sesa Goa will hold 20% in Cairn India, with Vedanta holding
31- 40%.
Acceptance ratio contingent on Petronas stance: If Petronas tenders its share, the
acceptance ratio in case of 100% success, will be 53%. However, if Petronas does not
tender its share, the acceptance ratio would be higher at 88%. Under both scenarios, at
our target price for the stock, we believe that there are limited upsides from current levels
in case one decides to tender the shares. Thus, one should be indifferent between
tendering the shares in the open offer or retaining them.
Outlook and valuation: We believe the transfer of the ownership of Cairn India from Cairn
Energy Plc to Vedanta Resources Plc is unlikely to impact the company’s financials.
However, the key risk is Vedanta’s lack of experience in managing the E&P asset portfolio
being a new player in the segment. Further, we believe that returns to investors will be
quite similar in case of tendering the share in the open offer or otherwise. Our NAV-based
Fair Value of Rs315 assumes long-term crude oil price of US $75/bbl, whereas the current
stock price is discounting long-term average crude price of US $79.1/bbl. Thus, upsides
from current levels are limited. We recommend Neutral on the stock.
August 17, 2010 2

3. Market Outlook | India Research
Vedanta (Sesa Goa) enters into an agreement with Cairn Energy
Deal structure: Vedanta Resources Plc has entered into an agreement with Cairn Energy Plc
to acquire a 51–60% stake (along with Sesa Goa) in its Indian subsidiary Cairn India Ltd.
at a price of Rs405 per share. While Rs355 per share is being paid towards the sale and
purchase agreement, the balance Rs50 per share is being paid as non-compete fee. The
non-compete fee will be paid in consideration for Cairn Energy agreeing not to engage in
the business of oil or gas extraction in India, Sri Lanka, Pakistan and Bhutan, or any other
business that competes with the business of Cairn India and its subsidiaries, for a period of
three years. Vedanta along with Sesa Goa will make the 20% mandatory open offer to
other shareholders (except Cairn Energy Plc) of Cairn India Ltd. at Rs355 per share and
Sesa Goa will make a strategic investment of 20% in Cairn India Ltd. The 20% stake will be
acquired through a combination of share purchase from Vedanta (at a price of Rs405 per
share) less the number of Cairn India shares acquired under the open offer (at a price of
Rs355 per share).
Our take: While the past track record of Mr. Anil Aggarwal is exemplary in acquiring assets
and turning it around (Hindustan Zinc, Balco and Sesa Goa), Sesa Goa’s diversification
into an unrelated business to utilise its excess cash raises potential concerns on the growth
prospects of its core iron ore business and the stock can take a beating in the short term.
While the management has reiterated that it expects to increase its iron ore sales volume to
50mn tonnes by FY2014E and expects the deal to be EPS accretive from FY2011E, we
believe that with the cushion of excess cash gone away, any potential acquisition in its iron
ore business in the future will leverage its balance sheet. Also, cash, which was 80% of its
FY2010 balance sheet, will be replaced by a strategic investment in Cairn India, which is
expected to form ~81% of its balance sheet in FY2011E. As the deal is still subject to
regulatory approvals and cash outflow is dependent upon open offer acceptance, we
maintain our Neutral view on the stock
Tata Motors’ global sales rise 36% in July 2010
Tata Motors reported its global sales numbers for July 2010, which increased 36% yoy to
90,646 units on strong demand from the commercial and passenger vehicles segments.
While sales of commercial vehicles grew 30% yoy, sales of passenger vehicles grew by
42% yoy in July 2010. The marquee brands Jaguar and Land Rover (JLR) continue to
sustain sales momentum, growing 30% yoy to 19,386 units. Jaguar sales stood at 5,676
units, higher by 26% yoy, while Land Rover sales stood at 13,710 units, higher by 31% yoy.
JLR continues to benefit from strong demand in the UK, US, China and Russia. We expect
Tata Motors to post encouraging volume growth going ahead. We maintain our Buy rating
on the stock with a Target Price of Rs1,214.
August 17, 2010 3

4. Market Outlook | India Research
Economic and Political News
Moderating prices pull down inflation to 9.97%
Government hikes ethanol prices for OMCs to Rs27/litre
Centre rules out banning export of iron ore
Corporate News
HDFC picks up 2.44% stake in Raymond
Glenmark receives US FDA nod for generic Trospium tablets
Baring PE to pick 10% stake in Shilpa Medicare for US $17mn
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
Event for the day
Educomp Solutions Dividend, Results
August 17, 2010 4

5. Market Outlook | India Research
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