1. Market Outlook
India Research
June 28, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The markets opened flat with a negative bias and continued to trade lower on BSE Sensex -0.9% (155.7) 17,575
weak Asian cues. Later the markets slipped further on back of high selling Nifty -1.0% (51.6) 5,269
pressure as investors awaited the outcome of the EGoM meeting on freeing of MID CAP -0.7% (49.6) 7,083
fuel prices. However, the domestic market managed to recover from the day’s SMALL CAP -0.5% (48.6) 8,989
low in early afternoon trade before a significant decline in the last session as the
BSE HC 0.2% 11.6 5,770
government gave its approval for deregulating fuel prices. Finally, Sensex and
BSE PSU 1.1% 104.2 9,353
Nifty closed down by 0.9% and 1.0%, respectively. However, BSE mid-cap and
BANKEX -2.2% (241.0) 10,753
small-cap indices performed relatively better and were down by 0.7% and
AUTO -0.9% (75.3) 8,209
0.5%, respectively. Among the front-liners, ONGC, RCOM, Cipla, RIL and
Maruti were up by 1–6%, while Sterlite Ind., ICICI Bank, M&M, Wipro and METAL -1.8% (279.9) 14,883
HDFC Bank were down by 2–3%. Among mid-caps, MVL, GTL Infra, OIL & GAS 2.9% 297.1 10,604
Astrazeneca Pharma, Alstom Projects and Gee Kay Finance were up by 4–8%, BSE IT -1.4% (76.8) 5,324
while KGN Ind., Berger Paints, Andrew Yule, Karnataka Bank and Dishman
Pharma declined by 3–6%. Global Indices Chg (%) (Pts) (Close)
Dow Jones -0.1% (9.0) 10,144
Markets Today
NASDAQ 0.3% 6.1 2,223
The trend deciding level for the day is 17612 / 5283 levels. If NIFTY trades
FTSE -1.1% (53.8) 5,046
above this level during the first half-an-hour of trade then we may witness a
further rally up to 17677 – 17780 / 5306 – 5344 levels. However, if NIFTY Nikkei -1.9% (190.9) 9,737
trades below 17612 / 5283 levels for the first half-an-hour of trade then it may Hang Seng -0.2% (42.7) 20,691
correct up to 17509 – 17444 / 5246 – 5223 levels. Straits Times 0.1% 4.0 2,852
Shanghai Com -0.5% (13.9) 2,553
Indices S2 S1 R1 R2
SENSEX 17,444 17,509 17,677 17,780 Indian ADRs Chg (%) (Pts) (Close)
Infosys 1.3% 0.8 $62.3
NIFTY 5,223 5,246 5,306 5,344
Wipro -0.3% (0.0) $12.6
News Analysis Satyam 2.2% 0.1 $5.1
ICICI Bank 0.2% 0.1 $37.6
EGoM deregulates petrol prices; diesel, kerosene, LPG prices raised
HDFC Bank 1.3% 1.9 $147.6
HCC bags order worth Rs431cr
RIL-RNRL enters in a new gas supply deal Advances / Declines BSE NSE
Refer detailed news analysis on the following page. Advances 1,145 451
Net Inflows (June 24, 2010) Declines 1,726 867
Rs cr Purch Sales Net MTD YTD Unchanged 97 47
FII 4,551 3,273 1,278 9,328 29,863
MFs 707 990 (283) (569) (7,699) Volumes (Rs cr)
BSE 4,492
FII Derivatives (June 25, 2010) NSE 13,451
Open
Rs cr Purch Sales Net
Interest
Index Futures 1,251 2,855 (1,604) 17,349
Stock Futures 1,045 1,281 (236) 27,037
Gainers / Losers
Gainers Losers
Price Price
Company Chg (%) Company Chg (%)
(Rs) (Rs)
HPCL 401 13.7 Shriram Transp 579 (3.7)
BPCL 621 12.8 HDIL 244 (3.5)
IOC 377 10.4 Sterlite Ind 168 (3.3)
Essar Oil 138 6.5 Sesa Goa 367 (3.2)
ONGC 1,264 6.4 ICICI Bank 858 (3.1)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 0109965391

2. Market Outlook | India Research
EGoM deregulates petrol prices; diesel, kerosene, LPG prices raised
In a meeting held on June 25, 2010, Empowered Group of Ministers (EGoM) took a major
policy decision on retail fuel pricing in the country. After long deliberation for more than a
year, EGoM freed the price of petrol from the government’s control. On an immediate
basis, the price of petrol has increased by Rs3.7/litre across the country (up ~7%). Diesel
prices are to be deregulated in a phased manner (Rs2/litre increase currently, an increase
of 5%). However, no timeline for decontrol has been mentioned. In the cooking fuel
segment, LPG price has been increased by Rs35/cylinder (increase of around 11.2%),
while kerosene price has increased by Rs3/litre (increase of around 33.3%). However,
cooking fuels will continue to be subsidised.
While the announcement of petrol deregulation is in line with our expectation, the
announcement of the deregulation of the diesel price and increase in prices of SKO and
domestic LPG has surprised us positively. However, absence, over the timeline of the
deregulation of diesel price, no mention of frequency of change in price of petrol and free
pricing limit (band) for petrol prices have taken the sheen off the decision. We were also
pinning hopes on the announcement of the subsidy-sharing formulae; however, the
absence of the same has left us a bit disappointed, as it makes it difficult to judge the
beneficiaries of the move.
All said, we believe the policy change is a significant step in the right direction and came
as a positive surprise for the PSU oil companies viz. ONGC, OIL India, GAIL, IOC, HPCL
and BPCL. In case of upstream companies, we were already building in proposed moves,
the same is reflecting in higher-than-consensus EPS estimates for ONGC and GAIL.
Moreover, given the uncertainty over the subsidy-sharing formulae we maintain our
earning estimates for ONGC and GAIL. We continue to value GAIL on an SOTP basis at
Rs580/share (core business is valued at Rs448/share, E&P at Rs20/share, and cash and
investments at Rs112/share). At the CMP of Rs483, the stock is available at 13.7x FY2012E
EPS of Rs35.2 and 2.7x FY2012E P/BV. We maintain a Buy rating on GAIL. In case of
ONGC, on account of reduction in the overall under-recoveries, the risk associated with
variability in earnings estimates of ONGC has reduced to an extent. Therefore, we
increase our target multiple for the company from 10x to 11x. At FY2012E EPS of
Rs123.3/share, we arrive at a target price of 1356/share for ONGC, resulting in an
upside of 7% from the current levels. We upgrade ONGC to Accumulate from Neutral
earlier.
We believe downstream oil companies are likely to be key beneficiaries of the EGoM
announcement on the following counts:
• Reduction in overall subsidies to manageable limits
• Subdued outlook on crude oil prices
• Improved profitability situation of upstream companies post APM gas price hike to
bear a relatively higher subsidy burden
• Government efforts towards divestment in IOC
On account of the same, we believe the earnings quality of BPCL, HPCL and IOC is likely
to improve. We expect HPCL to report EPS of Rs44.5 in FY2012E. On an average, HPCL
has traded at 1.15 times P/BV in the last four to five years. At the expected book value of
Rs399.7/share in FY2012E and assigning a P/B multiple of 1.15x, we have arrived at a
fair value of Rs460/share for HPCL. Thus, at the current market price, the stock provides
an upside of 14.6%. In case of BPCL, we expect it to report EPS of Rs60.4 in FY2012E. At
the expected book value of Rs481.2/share in FY2012E and assigning a P/B multiple of
1.3x, we have arrived at a fair value of Rs625/share for BPCL for the core business and
ascribing Rs75/share to the E&P business of the company, we arrive at a fair value of
Rs700/share. Thus, at the current market price, the stock provides an upside of 12.8%. We
do not have any rating on BPCL and HPCL at the current juncture.
June 28, 2010 2

3. Market Outlook | India Research
HCC bags order worth Rs431cr
Hindustan Construction Company (HCC), India’s leading infrastructure construction and
development company, has been awarded the EPC contract of 100MW Sainj Hydroelectric
Power Project by Himachal Power Corporation Ltd. The Rs431cr project is estimated to be
completed and commissioned in 48 months. In the backdrop of rich valuations, we
maintain our Neutral view on HCC.
RIL-RNRL enters in a new gas supply deal
Reliance Industries (RIL) and Reliance Natural Resources (RNRL) have entered into a new
gas supply agreement, as directed by the Supreme Court. The Supreme Court had ordered
the two companies to renegotiate the Gas Supply Master Agreement, which was signed
between the Ambani brothers as part of the business de-merger in 2005. While the
companies have not disclosed the details of the agreement, however, speculation is that
RIL will supply 28 million mmscmd (metric standard cubic metres) to RNRL for 17 years at
the government fixed price of US$ 4.2/mmbtu. The quantity and the term of the supply are
likely to be determined by the EGoM. With the gas supply agreement in place, the ADAG
Group will now speed up its power generation projects. It may take 3–4 years for creating
a gas-based generating capacity of 8,400 MW, including its existing projects and the
upcoming one in Dadri, Uttar Pradesh. The move improves the project visibility for
upcoming power projects of ADAG. However, it does not have much implication on RIL.
We continue to maintain Buy on RIL with a target price of Rs1,260.
June 28, 2010 3

4. Market Outlook | India Research
Economic and Political News
IMD revises monsoon forecast to 102% of LPA
Govt. pumps Rs31.2bn capital in IDBI Bank
Govt. to revise tax information exchange treaty with 65 countries
Corporate News
M&M plans to invest Rs250cr in aerospace business
Essar Oil gets 4 coal bed methane blocks
Zenith Birla announces bonus shares
MMTC invites bids to import 6,000 tonnes of edible oil
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
Events for the day
Tata Motors Ltd. Raising of long-term capital funds
Maytas Infra Ltd. Audited and Quarterly Results
June 28, 2010 4

5. Market Outlook | India Research
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