1. Market Outlook
India Research
July 12, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The key benchmark indices surged for the second straight day as expectations BSE Sensex 1.0% 181.8 17,834
of strong June 2010 results, a recent upward revision in India's GDP growth Nifty 1.0% 55.6 5,352
forecast by the International Monetary Fund and the SEBI's recent decision to cut MID CAP 0.9% 64.9 7,317
exposure margins on stock derivatives boosted sentiments. Except the BSE SMALL CAP 0.4% 34.9 9,271
FMCG index, all other sectoral indices on BSE were in green. The market
BSE HC 0.0% 0.9 5,750
extended gains to hit fresh intraday highs in morning trade as Asian stocks
BSE PSU 0.3% 27.5 9,469
extended initial gains. It regained strength in mid-afternoon trade, but pared
BANKEX 1.3% 146.4 11,061
gains at the end of the trading session. The Sensex and Nifty closed with gains
AUTO 1.3% 106.9 8,369
of 1% each. BSE mid-cap and small-cap indices also ended the session with
gains of 0.9% and 0.4%, respectively. Among the front liners, Bharti Airtel, DLF, METAL 1.6% 226.6 14,838
HDFC Bank, RCOM and Hindalco were up by 3–10%, while HUL, ACC, OIL & GAS 0.3% 31.9 10,633
Reliance Infra., ITC and NTPC declined by 0–1%. Among mid-caps, Deccan BSE IT 1.1% 57.3 5,478
Chronicle, Monnet Ispat, REI Agro, Indiabulls Financial and Dewan Housing
were up by 7–12%, while KGN Indus., United Breweries, Simplex Infra., Global Indices Chg (%) (Pts) (Close)
Pipavavship and Eicher Motors were down by 2–6%. Dow Jones 0.6% 59.0 10,198
Markets Today NASDAQ 1.0% 21.0 2,196
FTSE 0.5% 27.5 5,133
The trend deciding level for the day is 17786 / 5336 levels. If NIFTY trades
Nikkei 0.5% 49.6 9,585
above this level during the first half-an-hour of trade then we may witness a
Hang Seng 1.6% 328.1 20,379
further rally up to 17905 - 17976 / 5375 – 5398 levels. However, if NIFTY
Straits Times 0.0% 0.0 2,917
trades below 17786 / 5336 levels for the first half-an-hour of trade then it may Shanghai Com 2.3% 55.8 2,471
correct up to 17715 - 17597/ 5313 - 5274 levels.
Indian ADRs Chg (%) (Pts) (Close)
Indices S2 S1 R1 R2
Infosys 2.0% 1.2 $62.6
SENSEX 17,597 17,715 17,905 17,976 Wipro 3.3% 0.4 $13.0
NIFTY 5,274 5,313 5,375 5,398 Satyam 0.8% 0.0 $5.1
ICICI Bank 1.9% 0.7 $37.9
News Analysis HDFC Bank 2.0% 3.0 $148.8
Mid Cap Steel – Sector Report
Axis Bank planning to outsource management of ATMs Advances / Declines BSE NSE
Pratibha Industries secures and annuity project from NHAI Advances 1,582 788
Sugar decontrol – Not so positive
Declines 1,344 546
Refer detailed news analysis on the following page.
Unchanged 102 38
Net Inflows (July 08, 2010)
Rs cr Purch Sales Net MTD YTD Volumes (Rs cr)
FII 2,552 1,361 1,191 1,690 32,767
BSE 4,265
MFs 422 421 1 (86) (8,625)
NSE 13,648
FII Derivatives (July 09, 2010)
Open
Rs cr Purch Sales Net
Interest
Index Futures 1,836 777 1,060 16,483
Stock Futures 1,477 946 531 30,324
Gainers / Losers
Gainers Losers
Price Price
Company Chg (%) Company Chg (%)
(Rs) (Rs)
Idea 67 13.3 Concor 1,390 (2.5)
Deccan Chr. 138 12.2 Nestle 2,983 (2.1)
Bharti Airtel 308 9.7 Ambuja Cem. 111 (1.7)
Indiabulls Fin. 161 6.7 Glenmark 275 (1.7)
PTC India 106 5.8 Indus Ind Bank 215 (1.6)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 0109965391

2. Market Outlook | India Research
Mid Cap Steel - Sector Report
Our recent visit to Chhattisgarh's steel plants and mines was enriching, and we believe
mid-cap companies in the state stand to benefit from their captive mineral assets, flexible
business model and attractive valuations. Further, with sponge iron prices currently trading
below their marginal cost of production and domestic iron ore prices expected to remain
high, we expect sponge iron prices to increase in the coming months. Even though the
Naxal issue is still unsettled, we view it as region-specific and like companies whose
operations are unaffected. Moreover, with the government focusing on implementing a
progressive policy framework, we believe faster allotment of mines would offer a strong
foothold to these companies. Our top picks in this space are Prakash Industries (PIL) and
Godawari Power & Ispat (GPIL). We also like Monnet Ispat & Energy (MIEL) and Sarda
Energy & Minerals (SEML) and recommend investors to accumulate on declines.
Prakash Industries (PIL), through expansion of its sponge iron and billet capacity, is
addressing the imbalance in its steel business. Moreover, commissioning of the 125MW
power plant by 4QFY2011E will enable PIL to be net long on power. With EBITDA expected
to increase at a CAGR of 35.2% over FY2010-12E, we Initiate Coverage on the stock with
a Buy recommendation and target price of Rs232, valuing the stock at 5.0x FY2012E
EV/EBITDA.
We maintain our positive view on Godawari Power (GPIL) as its is expected to benefit from
the increase in mining capacity at Ari Dongri mine, starting of mining operations at Boria
Tibu iron ore mine and commercial production of pellets to start at Ardent Steel by August
2010. We maintain our Buy recommendation with a revised target price of Rs322 (earlier
Rs309), valuing the stock at 3.5x FY2012E EV/EBITDA.
Monnet Ispat & Energy (MIEL) is expanding its finished steel capacity by 1.5mn tonnes and
setting up a 1,050MW power plant in its 87.5% subsidiary Monnet Power. The timely
execution of the company's steel and power projects can provide a significant upside from
current levels. We Initiate Coverage on MIEL with an Accumulate rating and an SOTP
target price of Rs534, valuing the company's steel business at 6x FY2012E EV/EBITDA and
its investment in Monnet Power at 1.4x P/BV.
Sarda Energy and Mineral (SEML) is well poised to benefit from a) backward integration
into coal and iron ore, b) commercial production of pellets and c) increased power and
ferro alloy production. We expect full benefits of captive coal and iron ore to result in
EBITDA increasing by 189.6% yoy in FY2011E to Rs222cr. We Initiate Coverage on the
stock with an Accumulate recommendation and a target price of Rs290, valuing the stock
at 5.0x FY2012E EV/EBITDA.
Axis Bank planning to outsource management of ATMs
Axis Bank is exploring options to monetise its 4,200 automatic teller machines (ATMs). For
an upfront payment, the bank may allow a third-party service provider to collect inter-
change fees from other banks to let customers use Axis Bank’s ATMs. Thus, the bank will
be able to move its ATM assets off its balance sheet and outsource the entire network’s
management to service providers, paying them on a per-transaction basis.
Request-for-proposals seeking solutions on how this can be accomplished have already
been sent to 8–10 vendors, including Wincor-Diebold, Prizm Payment Services, AGS
Infotech and NCR, as per reports. Recently, the bank also entered into an agreement with
Prizm Payment Services and AGS Infotech to set up and manage 5,000 ATMs on a purely
variable model, enabling the bank to increase its ATM count to more than 9,000 within the
next 18 months. At the CMP, the stock is currently trading at 2.4x FY2012E ABV. We
maintain a Buy rating on the stock with a target price of Rs1,466.
July 12, 2010 2

3. Market Outlook | India Research
Pratibha Industries secures and annuity project from NHAI
Pratibha Industries has secured an annuity project from the National Highway Authority of
India (NHAI) in a joint venture with Abhyudaya Housing and Construction Pvt. Ltd. Total
annuities receivable from NHAI over the span of the concession agreement is Rs337cr. The
project involves two laning with paved shoulders of Bhopal-Sanchi section of NH-86 under
NHDP Phase III. The construction period is two years and the payments shall be through
semi annuities of Rs12.95cr for 13 years totaling to Rs337cr. In light of the rich valuations
that the stock trades at, we maintain our Neutral view.
Sugar decontrol – Not so positive
The Union Food and Agriculture Minister, Mr Sharad Pawar, said that this was the ‘right
time’ to work towards decontrolling the country's sugar industry, thus fulfilling the long
overdue request of investors and sugar manufacturers. Currently, cane prices of sugar
mills are governed by the central (statutory minimum price) as well state governments
(state advised price). The central government also controls sugar supply and price through
monthly sales quota and levy sales (% of mills production) to government at subsidies
price. Hence, any decontrol should not only be from the central government but also from
the state government to completely benefit sugar mills. We maintain our Neutral view on
the sector.
Economic and Political News
Trade minister forecasts over 9% GDP growth
Minimum tenure for infra bonds fixed at 10 years
June 2010 power output up 3.43%
Diesel subsidy may be set at Rs1.49/litre
Corporate News
Essar Power signs pact for Tori-I power plant
Piramal to get US $2.12bn in 4–6 weeks from Abbott
Apollo to invest Rs1,800cr, hire 23,000 in 3–4 yrs
Essar Oil raises US $147mn from founders
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
Events for the day
ABC India Ltd. Quarterly Results
Arman Financial Services Audited Results, Dividend & Others
Aurionpro Solutions Audited Results & Dividend
Beckons Industries Quarterly Results
Celebrity Fashions Preferential Issue of Shares
CMC Ltd. Quarterly Results
July 12, 2010 3

4. Market Outlook | India Research
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