- The Indian stock market declined significantly on May 20, with the Sensex falling 2.8% and Nifty down 2.9%, as Asian markets weakened. - The 3G spectrum auction concluded, raising around Rs. 70,000 crore for the government, double the estimated amount. Major bidders like Bharti, RCOM, Idea, and Vodafone won spectrum in several circles. - The government increased the price of natural gas sold by ONGC and OIL to $4.2 per unit, more than doubling the previous rate. This will boost the profits of these companies but increase costs for power and fertilizer firms.

1. Market Outlook
India Research
May 20, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The market recovered in morning trade after an initial slide triggered by weak BSE Sensex -2.8% (467.3) 16,408
Asian stocks. However it weakened again later. The Sensex hit a fresh intraday Nifty -2.9% (146.6) 4,920
low in early afternoon trade. Bargain hunting in some pivotals helped the key MID CAP -2.6% (177.1) 6,780
benchmark indices recover from a lower level in choppy afternoon trade. A sell-
SMALL CAP -2.5% (224.1) 8,588
off gripped the bourses in mid-afternoon trade, as European stocks slumped
BSE HC -2.0% (108.1) 5,281
after Germany sharpened financial regulation, as a result of which the Sensex
BSE PSU -1.8% (164.6) 8,772
hit a 2.5 month low in late trade. The Sensex and Nifty closed down by 2.8%
BANKEX -3.8% (414.1) 10,354
and 2.9%, respectively. The BSE Mid-cap and the Small-cap indices also closed
down by 2.6% and 2.5%, respectively. Among the front-liners, Hero Honda, AUTO -3.4% (263.8) 7,396
Cipla and Tata Power were up by 0.3-0.6%, while Tata Motors, Sterlite, ICICI METAL -4.2% (652.7) 14,913
Bank, M&M and RCom were down by 6-7%. In the mid-cap segment, 3MIndia, OIL & GAS -2.1% (204.4) 9,554
Berger Paints, South Indian Bank, Parsvnath Developers and Honeywell Auto BSE IT -1.5% (78.8) 5,080
were up by 2-7%, while Aban Offshore, Essar Ship Ports, Welspun Gujarat, GTL
Infrastructure and Gujarat NRE Coke were down by 7-9%. Global Indices Chg (%) (Pts) (Close)
Dow Jones -0.6% (66.6) 10,444
Markets Today
NASDAQ -0.8% (18.9) 2,298
The trend deciding level for the day is 16528 / 4964 levels. If NIFTY trades FTSE -2.5% (134.2) 5,173
above this level during the first half-an-hour of trade then we may witness a
Nikkei -0.5% (55.8) 10,186
further rally up to 16683 – 16957 / 5020 – 5121 levels. However, if NIFTY
Hang Seng -1.8% (366.0) 19,579
trades below 16528 / 4964levels for the first half-an-hour of trade then it may
correct up to 16254 – 16099 / 4864 – 4807 levels. Straits Times -2.5% (69.8) 2,774
Shanghai Com -0.3% (7.0) 2,588
Indices S2 S1 R1 R2
SENSEX Indian ADRs Chg (%) (Pts) (Close)
16,099 16,254 16,683 16,957
Infosys -1.0% (0.6) $56.9
NIFTY 4,807 4,864 5,020 5,121
Wipro -1.0% (0.2) $20.9
News Analysis Satyam -1.8% (0.1) $4.9
ICICI Bank -3.6% (1.4) $36.6
3G Spectrum auction concludes with a Winner’s Curse
HDFC Bank -0.7% (1.0) $139.0
Government reportedly hikes price of gas sold by ONGC, OIL to
US $4.2 per mmbtu
Advances / Declines BSE NSE
Results Preview: Grasim Industries
Advances 613 160
Refer detailed news analysis on the following page.
Declines 2,250 1,167
Unchanged 65 28
Net Inflows (May 18, 2010)
Rs cr Purch Sales Net MTD YTD
FII 2,143 2,582 (439) (4,484) 25,226 Volumes (Rs cr)
MFs 688 732 (44) (930) (8,159) BSE 4,695
NSE 15,542
FII Derivatives (May 19, 2010)
Open
Rs cr Purch Sales Net
Interest
Index Futures 3,674 5,229 (1,555) 14,052
Stock Futures 3,131 3,109 23 29,286
Gainers / Losers
Gainers Losers
Company Price (Rs) Chg (%) Company Price (Rs) Chg (%)
RNRL. 46 2.7 Aban Offshore 703 (9.3)
Federal Bank 313 1.8 Essar Ship Ports 84 (7.8)
Rolta India 165 1.7 Tata Motors 715 (7.4)
MMTC 30,124 1.7 Welspun Guj. 229 (7.4)
Bajaj Holdings 714 1.0 Idea Cellular 53 (7.4)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 0109965391

2. Market Outlook | India Research
3G Spectrum auction concludes with a Winner’s Curse
The 3G Spectrum auctions concluded on Day 34, raising about Rs70,000cr for the
Government, two times the budgeted estimate. Among the major bidders, Bharti won 13
circles (outlay of Rs12,295cr), RCOM won 13 circles (outlay of Rs8,585cr), Idea won 12
circles (outlay of Rs5,972cr), Tata Tele won 9 circles (outlay of Rs5,864cr), Vodafone won 9
circles (outlay of Rs11,618cr) and Aircel won 12 circles (Outlay of Rs6,296cr). The
successful bidders would be allocated the airwaves by the end of September 2010, after
the spectrum is vacated by the Defense Department. The operators would have to pay the
amount in the next 15 days.
Bharti Airtel won 13 circles, including the two key circles of Mumbai and Delhi, with an
estimated outlay of Rs12,295cr. The company would see increased capex for the year as
compared to its guidance of Rs8,000cr, and would be able to amortize the same over the
next 20 years. The 13 circles where it won account for 63% of its total subscriber base;
thus, this would support a large part of its potential future opportunities. RCom
strategically added 13 circles, with an outlay of Rs8,585cr, despite its GSM operations
having sufficient spare capacity; thus, this would meet its requirement for the next couple of
years. Idea won 12 circles, shelling out Rs5,972cr, covering about 72% of its existing
subscriber zone, and adding incremental spectrum in its large covered base.
We believe that the aggressive bidding would lead to increased capex spends, straining the
leverage position of the companies in the coming period. However, we believe that Bharti,
Idea and RCom have managed to corner crucial and scarce spectrum in their required
respective circles.
Government reportedly hikes price of gas sold by ONGC, OIL to US $4.2
per mmbtu
According to news reports, the government has more than doubled the price of natural gas
produced by state-owned ONGC and Oil India Ltd. (OIL) to US $4.20/mmbtu, at par with
the rate at which RIL sells its gas. The Cabinet approved an oil ministry proposal to raise
the rate of gas sold to power and fertilizer firms, from US $1.79/mmbtu to
US $4.20/mmbtu (i.e. Rs6,818 per thousand cubic meters). APM gas price were last
revised in 2005 to Rs3,200 per thousand cubic meters (US $1.79/mmbtu). ONGC and
OIL will get US $3.82/mmbtu price for the gas they produce from fields given to them on
nomination basis and after adding 10% royalty, the fuel will cost
US $4.20/mmbtu for consumers. On top of the US $4.20/mmbtu, GAIL India would be
allowed to charge 11.2 cents/mmbtu as a marketing margin (thus, GAIL will benefit as it
was earlier not allowed to charge marketing margin on APM gas). Above this would be
taxes, pipeline transportation charges and other levies. While the move will help state-run
firm’s break-even in the gas business, it would result in a hike in electricity generation
tariffs and fertiliser production costs. ONGC in FY2009 had lost Rs4,745cr in revenues on
selling 17.71bcm of gas at the government’s fixed rate.
We expect ONGC’s EPS to rise by Rs16/share for FY2012E on account of the proposed
move. On account of the same, we upgrade ONGC from Neutral to Buy with a Target
price of Rs1,233/share. GAIL is also likely to gain on account of the same, as its EPS is
likely to rise by around Rs1.9/share for FY2012E. Given the implied P/E multiple of 16.6x
to our target price, there could be a further upside of Rs32/share to our current target
price of Rs553/share.
May 20, 2010 2

3. Market Outlook | India Research
Grasim Industries - 4QFY2010 Result Preview
Grasim Industries (Grasim) is slated to announce its 4QFY2010 results today. We expect
the company’s consolidated net sales to decline by 1% yoy to Rs4,908cr due to de-growth
in the Top-line of cement division. However, we expect the VSF business to post a 31.6%
yoy growth in its Top-line during 4QFY2010 to Rs1,020cr. The company’s OPM’s are set
to improve by 458bp yoy to 29.2%, primarily on account of better operating performance
from the VSF business. We expect the net profit to grow by 28.6% yoy to Rs731cr. We
maintain an Accumulate on the stock, with a Target Price of Rs2,861.
Economic and Political News
India's imports jump 43.3% in April
24 foreign investment proposals worth Rs1,412cr approved
India may slap taxes, quotas to limit iron ore exports
Corporate News
Bombay Dyeing sells Mumbai property to Axis Bank
Ranbaxy recalls some batches of 3 drugs in Europe
Reliance April crude imports up 42%
Tata Power challenges Maharashtra Govt. directive
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
Events for the day
Grasim Industries Dividend, Results
Jet Air India Results
Shree Cement Dividend, Results
Wockhardt Results
May 20, 2010 3

4. Market Outlook | India Research
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