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Market Outlook- July 14,2010


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Market Outlook- July 14,2010

  1. 1. Market Outlook India Research July 14, 2010 Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close) A bout of volatility was witnessed in the morning session as the benchmark BSE Sensex 0.3% 48.7 17,986 indices slipped into the red zone, after recovering from an initial slide. Later, the Nifty 0.3% 17.6 5,401 market moved in a narrow range in mid-morning trade. However, in mid- MID CAP 0.7% 52.8 7,389 afternoon trade, the market moved into the positive zone, with the key SMALL CAP 0.7% 67.4 9,394 benchmark indices hitting the fresh intraday high as European stocks and US BSE HC -0.1% (8.2) 5,733 index futures jumped. The market extended gains in late trade. The Sensex and BSE PSU 0.4% 37.6 9,493 Nifty closed with gains of 0.3% each. BSE mid-cap and small-cap indices also BANKEX 0.8% 94.3 11,303 ended the session with gains of 0.7% each. Among the front liners, DLF, Tata AUTO 0.3% 24.7 8,393 Steel, Jaiprakash Associates, HDFC and Tata Motors were up by nearly 2–4%, while Infosys, TCS, Bharti Airtel, M&M and Wipro declined by 1–3%. Among METAL 1.2% 173.4 15,074 mid-caps, Parsvnath, Jet Airways, BASF India, Puravankara and JSW Holdings OIL & GAS 1.3% 135.5 10,723 were up by 7–8%, while Blue Dart, Sparc, Polaris Software, MTNL and BSE IT -2.7% (148.9) 5,398 Monsanto were down by 2–3%. Global Indices Chg (%) (Pts) (Close) Markets Today Dow Jones 1.4% 146.8 10,363 The trend deciding level for the day is 17947 / 5388 levels. If NIFTY trades NASDAQ 2.0% 43.7 2,242 above this level during the first half-an-hour of trade then we may witness a FTSE 2.0% 104.0 5,271 further rally up to 18037 - 18089 / 5419 – 5437 levels. However, if NIFTY Nikkei -0.1% (10.9) 9,537 trades below 17947 / 5388 levels for the first half-an-hour of trade then it may Hang Seng -0.2% (36.4) 20,431 correct up to 17895 - 17804 / 5370 - 5340 levels. Straits Times 0.1% 3.4 2,929 Indices S2 S1 R1 R2 Shanghai Com -1.6% (40.4) 2,450 SENSEX 17,804 17,895 18,037 18,089 Indian ADRs Chg (%) (Pts) (Close) NIFTY 5,340 5,370 5,419 5,437 Infosys -5.7% (3.6) $59.4 Wipro 0.6% 0.1 $13.0 News Analysis Satyam 2.4% 0.1 $5.2 IOC, BPCL, HPCL to cartelise price of deregulated petrol ICICI Bank 2.2% 0.9 $39.2 RIL looks at third shale gas deal in North America HDFC Bank 0.1% 0.1 $152.0 Result Reviews: Exide Ind., Hotel Leela, Infosys Result Preview: South Indian Bank Advances / Declines BSE NSE Refer detailed news analysis on the following page. Advances 1,682 766 Net Inflows (July 12, 2010) Declines 1,215 563 Rs cr Purch Sales Net MTD YTD Unchanged 108 49 FII 3,260 2,145 1,116 6,271 36,555 MFs 496 633 (137) (244) (8,462) Volumes (Rs cr) FII Derivatives (July 13, 2010) BSE 4,370 Open NSE 14,061 Rs cr Purch Sales Net Interest Index Futures 1,415 1,465 (50) 16,876 Stock Futures 1,352 1,577 (225) 31,540 Gainers / Losers Gainers Losers Price Price Company Chg (%) Company Chg (%) (Rs) (Rs) Max India 168 6.4 Idea 66 (6.1) Unitech 83 6.3 Infosys 2,795 (3.4) Titan Ind. 2,635 5.6 MTNL 65 (2.3) Suzlon 62 4.4 TCS 775 (2.1) JP Hydro 74 4.4 Indiabulls Fin. 159 (2.0) Please refer to important disclosures at the end of this report Sebi Registration No: INB 0109965391
  2. 2. Market Outlook | India Research IOC, BPCL, HPCL to cartelise price of deregulated petrol Oil marketing companies (OMCs) such as IOC, BPCL and HPCL will continue to act as a cartel while revising petrol prices every fortnight in the freepricing regime, which looks set to kick in as early as this week. Petrol prices were freed from government control last month, resulting in a Rs3.50 per litre rate hike in Delhi. However, the modalities of subsequent retail price adjustments, in line with changes in raw material cost, were left for the industry to decide. Though diesel price was raised by an ad-hoc Rs2 per litre, it continues to be under the government’s control. It makes no sense for PSUs to compete among themselves if only petrol prices are being freed. OMCs will continue to coordinate on the pricing of petrol. They are likely to revise petrol prices twice a month on the basis of fortnightly average of crude oil prices. As the modalities are likely to be finalised this week, pump rates may be revised at least once this month. The three companies would have a uniform rate for petrol in particular cities or locations, and it would change on the same dates. Companies will not announce dates of revision in advance to avoid hoarding of fuel. Instead of changes in rates on the 1st and 16th of every month, prices will be revised on any day of the month. Oil Secretary S Sundareshan said that the change needed in the retail selling price of petrol will be known on July 15 (based on the average cost of crude oil in the first fortnight), and the modalities would flow thereof. It is said that the three OMCs have already held discussions with private retailers such as RIL, Essar Oil and Royal Dutch/Shell on modalities, including frequency and intervals at which prices would be revised. Initially, the oil ministry was not in favour of fortnightly revisions and the same line was adopted by market leader IOC. However, most of the other retailers favoured fortnightly revisions in retail rates to reflect changes in cost of raw material (i.e., crude oil). Given the recent run- up in the stock price of HPCL and BPCL, we believe they are trading closer to their fair value. Currently, we have no rating on OMCs. RIL looks at third shale gas deal in North America RIL is looking at yet another shale gas acquisition in North America, its third in three months. The transaction is said to be in line with RIL’s recent acquisition of a 45% stake in Eagle Ford shale acreage of Pioneer Natural Resources. In April 2010, RIL had picked up a 40% stake in Atlas Energy’s Marcellus shale acreage for US $1.7bn, committing a capital expenditure of US $3.5bn over 10 years. In another deal, RIL had picked up a 45% stake in Pioneer Natural Resources’ Eagle Ford shale acreage for US $1.3bn in June 2010. Pioneer owns 46%, while Newpeck holds the remaining 9%. RIL had agreed to make an upfront payment of US $266mn in cash and contribute another US $879mn towards Pioneer’s share of future drilling costs in the next four to six years. With such deals, RIL has been deploying its surplus cash, thus reducing an overhang from the stock. We maintain a Buy rating on RIL with a target price of Rs1,260. July 14, 2010 2
  3. 3. Market Outlook | India Research Result Reviews Exide Industries Exide Industries, India’s largest auto battery manufacturer, reported net profit growth of 35.1% yoy to Rs165.3cr for 1QFY2011, which came in above our estimate of Rs136cr. Growth was largely on the back of the substantial 27.5% yoy jump in net sales to Rs1,152cr, which is also above our expectation, and higher other income of Rs6.2cr in 1QFY2011. During 1QFY2011, Exide witnessed a 34bp yoy decline in its EBITDA margin, owing to a 69bp yoy rise in raw material costs, which accounted for around 58.6% of sales (58% in 1QFY2010). However, on a qoq basis, the company has shown a substantial 169bp jump in EBITDA margin, largely because of a substantial decline in other expenditure. During the quarter, average lead prices, which declined by 13% qoq to US $1,924/tonne, helped the company to improve margins on the sequential front, while average lead prices increased by 28% yoy (from US $1,509/tonne in 1QFY2010). We would be revising our earnings estimates upward for FY2011E and FY2012E by 7–8%, which would lead to about 7–8% increase in our earlier target price. Post revision in the target price, there exists an upside potential of about 13–14% from the current market price. We recommend an Accumulate rating on the stock. Hotel Leela Hotel Leela (HLVL) reported decent performance in 1QFY2011. The company posted top- line growth of 24.9% yoy to Rs105.8cr for 1QFY2010, as the company witnessed improving occupancy rates (ORs) and average room rates (ARRs) during the quarter. On the operating front, EBITDA improved by 67.5% yoy to Rs31.6cr, while margins improved by 750bp to 29.8% on a yoy basis. Increased ORs and ARRs have led to absorption of fixed costs, thereby improving profitability. Consequently, the adjusted net profit registered a phenomenal jump from Rs0.4cr in 1QFY2010 to Rs9.2cr in 1QFY2011. We maintain our positive stance on the growth prospects of the hotel industry. However, considering that at the current valuations HLVL is expensive as compared to its peers, we maintain our Neutral rating on the stock. Infosys Infosys top-line performance for 1QFY2010 was in line with the guidance and consensus estimates. In rupee terms, the company reported top-line growth of 4.3% qoq to Rs6,198cr, while in USD terms, it posted growth of 4.8% qoq to US $1358mn. Growth was backed by volumes, which were up by 7.6%, while the blended pricing was lower by 1.6% on a qoq basis. Growth was broad-based across the services, with the company delivering strong qoq growth of 21.7%, 15.3% and 7.4% in PES, testing and ADM services, respectively. However, on account of annual wage hike, EBIDTA margins were down by 178bp, while the increase in taxable income further impacted the PAT, which declined by 5.4% qoq. Though adverse macro-economic factors such as Europe crisis and cross- currency movements are causes for concern for IT companies, we expect Infosys to maintain growth through strong volumes and other operating leverages with pricing remaining stable. At the current CMP, we recommend an Accumulate rating on the stock. July 14, 2010 3
  4. 4. Market Outlook | India Research Result Preview South Indian Bank South Indian Bank is scheduled to announce its 1QFY2011 results today. We expect the bank to post flat net profit growth on a yoy basis at Rs58.9cr. The net interest income is estimated to grow by 4% yoy to Rs158cr. Non-interest income is expected to decline by 27% yoy due to lower treasury gains compared to the past year. Consequently, the operating income of the bank is expected to decline by 4% yoy to Rs199cr. At the CMP, the stock is trading at 6.6x its FY2012E EPS of Rs28.4 and 1.1x its FY2012E adjusted book value of Rs172. We believe that the current valuations fully reflect the near- term positives; hence, we maintain a Neutral rating on the stock. Economic and Political News New inflation index likely from August 14, 2010 Banks to disburse Rs9,165cr farm credit to Orissa farmers Government may divest 10% more in PFC Corporate News SAIL FPO may hit market in Oct-Nov: Steel Secy Punj Lloyd and partner bag US $463mn Abu Dhabi gas deal TVS Motor says no plans to buy LML assets Suzlon bags order of Rs118.8cr in Karnataka, Maharashtra RPG Life sets up 2 verticals, plans to launch 9 products Source: Economic Times, Business Standard, Business Line, Financial Express, Mint Events for the day Camlin Quarterly Results HDFC Quarterly Results Polyplex Corp. Quarterly Results South Indian Bank Quarterly Results TTK Prestige Quarterly Results July 14, 2010 4
  5. 5. Market Outlook | India Research Research Team Tel: 022-4040 3800 E-mail: Website: DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059. Tel : (022) 3952 4568 / 4040 3800 Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302 July 14, 2010 5