1. Market Outlook
India Research
June 21, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The key benchmark indices scaled 1.5-month high at the onset of the trading BSE Sensex -0.3% (45.9) 17,571
session led by Reliance Industries (RIL), which rose before the company's annual Nifty -0.2% (12.3) 5,263
general meeting (AGM). The market lost ground after the AGM and extended MID CAP -0.5% (35.6) 6,976
losses as profit booking set in. The Sensex and Nifty closed down by 0.3% and SMALL CAP -0.5% (44.6) 8,846
0.2%, respectively. BSE mid-cap and small-cap indices also underperformed, BSE HC 0.1% 3.7 5,603
ending down by 0.5% each. European stocks edged lower after a positive start. BSE PSU -0.2% (15.5) 9,204
Key indices in France, UK and Germany were down between 0.1% and 0.4%. BANKEX -0.4% (43.5) 10,880
Among the front-liners, Hero Honda, HUL, BHEL, L&T and SBI were up by 1– AUTO -0.6% (50.8) 8,135
2%, while RCom, Reliance Infra., Sterlite Industries, Maruti Suzuki and M&M METAL -1.2% (176.3) 14,822
ended 2–4% lower. Among the mid-caps, United Breweries, Geekay Finance, OIL & GAS -1.1% (115.0) 10,293
UB Holdings, Emami Ltd. and BGR Energy were up by 3–13%, while Bajaj BSE IT 0.4% 20.2 5,401
Finserve, Kwality Dairy, Gammon Infra., Bajaj Hindusthan and Mahindra
Finance declined by 4–10%.
Global Indices Chg (%) (Pts) (Close)
Markets Today Dow Jones 0.2% 16.5 10,451
NASDAQ 0.1% 2.6 2,310
The trend deciding level for the day is 17651 / 5270 levels. If NIFTY trades FTSE -0.1% (3.1) 5,251
above this level during the first half-an-hour of trade then we may witness a Nikkei -0.0% (4.4) 9,995
further rally up to 17674 – 17699 / 5295 – 5327 levels. However, if NIFTY
Hang Seng 0.7% 148.3 20,287
trades below 17651 / 5270 levels for the first half-an-hour of trade then it may
Straits Times -0.4% (10.5) 2,833
correct up to 17627 – 17604 / 5238 – 5213 levels.
Shanghai Com -1.8% (47.0) 2,513
Indices S2 S1 R1 R2
SENSEX 17604 17627 17674 17699 Indian ADRs Chg (%) (Pts) (Close)
Infosys 0.4% 0.2 $63.4
NIFTY 5213 5238 5295 5327
Wipro -0.6% (0.1) $22.1
News Analysis Satyam -1.8% (0.1) $5.0
ICICI Bank 0.3% 0.1 $38.1
Reliance AGM key excerpts HDFC Bank -0.5% (0.8) $150.5
Dr Reddy’s may sell stake in its domestic business
Refer detailed news analysis on the following page. Advances / Declines BSE NSE
Net Inflows (June 17, 2010) Advances 1,052 396
Rs cr Purch Sales Net MTD YTD Declines 1,831 934
FII 2,767 2,223 554 4,147 24,683 Unchanged 107 30
MFs 365 658 (293) 514 (6,616)
Volumes (Rs cr)
FII Derivatives (June 18, 2010)
BSE 4,468
Open
Rs cr Purch Sales Net NSE 14,329
Interest
Index Futures 2,384 2,516 (132) 14,898
Stock Futures 3,585 3,788 (203) 30,490
Gainers / Losers
Gainers Losers
Price Price
Company Chg (%) Company Chg (%)
(Rs) (Rs)
IDFC 169 2.8 Bajaj Finserv. 404 (10.0)
JP Hydro 69 2.1 RNRL 63 (7.5)
Fin. Tech. 1,341 2.1 Bajaj Hind. 111 (4.5)
Sintex Ind. 300 2.1 Reliance Cap. 734 (3.9)
Bank of India 333 2.1 Bosch 5,360 (3.8)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 0109965391

2. Market Outlook | India Research
Reliance AGM key excerpts
In RIL’s 2010 AGM, Chairman Mr. Mukesh Ambani charted out the company’s growth by
laying out a number of projects/plans along with transformational initiatives in the power
and infocomm space. Following are the experts of the chairman’s speech:
Refining: The chairman highlighted that the new SEZ refinery is now capable of operating
at 700kbpd, up from the nameplate of 580kbpd. RIL also plans to build a new coker
regasification plant at Jamnagar, Gujarat. The proposed plan is likely to improve the
refining complexity and will result in bottomless refinery.
Polyester and Petrochemicals: RIL announced capacity additions across olefins (offgas-
based cracker), polyester and the coke gasification plant. On a likely pick-up in the global
economy, the announcement was largely on the expected lines. RIL will set up a paraxylene
plant of a capacity of 1.4mtpa at Jamnagar. Integrated PTA of 2.3mtpa, PET of 540ktpa
and PFY of 360ktpa are part of the plan. RIL also plans to accelerate implementation of
1.5mtpa offgas cracker and downstream project. A normal paraffin project to cater to the
growing detergent market is also on the drawing board. The PBR plant at Baroda, SBR
plant at Hazira and butyl rubber in a joint venture with SIBUR would mark RIL’s foray into
elastomers.
Upstream: Accelerated development of discoveries in the blocks KG D6 in the Krishna-
Godavari basin, NEC-25 in the Mahanadi basin, CB-10 in the Cambay basin and Coal
Bed Methane in Sohagpur, Madhya Pradesh, are RIL priorities in the segment. RIL also
highlighted its intend its proven reserve base over the next three years. In the international
upstream space, RIL intends to drill the first exploration wells in Kurdistan in Northern Iraq
and in East Timor. Reliance aspires to build a significant position in the shale gas business.
Retail: RIL expects its retail sales to grow from the current revenue of US $1bn to US $10bn
in five years. It comes as a positive surprise, if RIL is able to execute the same. Retail could
add meaning to earnings and value creation going ahead.
Power: RIL plans to invest in coal, hydro and nuclear-based power plants besides focusing
on alternative energy, especially in the solar sector. RIL will also invest in the transmission
and distribution segment. However, power foray is largely on the drawing board with no
concrete investment plans by the company. We believe given the superior execution track
record of the company along with the experience of operating 2,000MW of captive power
plant, power foray synergizes well with the company. We believe as the bidding for the
new ULMP is likely to take place next month, RIL’s plans are likely to crystallize then.
Infocomm: In its bid to enter the wireless broadband services market, RIL has acquired
Infotel Broadband Services Pvt. Ltd., the only successful bidder in all 22 circles in the BWA
auction. RIL believes broadband is a huge opportunity as India has just 1% penetration,
while developed nations have a penetration in excess of 60%. China has a rapidly growing
market of over 130mn users.
On relationship with ADAG: Reiterated Reliance’s intent to have a harmonious and
constructive relationship with ADAG and supply gas to Reliance Power subject to
government approvals. We believe there are potential synergies to be exploited between
both the groups. Given, RIL’s intent of building an asset-light and partnership-heavy
investment strategy in the broadband space, it could enter into a agreement with ADAG for
its tower sharing for rolling out its broadband services.
RIL intends to double enterprise value in less than a decade: RIL has historically registered
a CAGR of around 20% in its earnings. However, given the increasing scale and as the
base effect starts to come into picture, earnings growth is bound to moderate in the long
run. Nevertheless, given the intent of expanding in the existing business coupled with
newer business initiatives and inorganic growth opportunities, we expect the company to
double its enterprise value much earlier than a decade.
June 21, 2010 2

3. Market Outlook | India Research
Outlook and valuation
Improved margin outlook in its core refining and petrochemical segment, coupled with
likely ramp-up in gas production from the KG basin, is likely to drive the company’s
earnings growth over the next couple of years. Also the uncertainties and concerns
associated with redeployment of cash flows are likely to be addressed as growth and
diversification plans of the company crystallize over next couple of quarters, which is likely
to provide the required boost to the stock price. We continue to maintain our Buy rating on
the stock with a Target Price 1,260.
Dr Reddy’s may sell stake in its domestic business
As per media reports, Dr Reddy’s (DRL) is contemplating the option of demerging its
domestic formulations business and unlocking value for its shareholders, though
management has denied any such plans. Last month, Abbott acquired the domestic
formulation business of Piramal Healthcare for US $3.7 billion. The Indian domestic
formulation business of DRL generated revenue of Rs1,016cr during FY2010, growing 21%
yoy. The business has a field force of 3,000 people. Based on our back-of-the-envelope
calculations with an EV/sales multiple of more than 5x FY2012, domestic sales would
present an upside from the current market price. The stock is currently trading at 24.1x
FY2011E earnings and 18.2x FY2012 earnings. We recommend Neutral on the stock.
Economic and Political News
Exports rise 35% yoy to US $16.1bn in May 2010
Finance Minister may tag STT with capital gains tax
LIC's investment in markets to cross Rs2lakh-crore
Banks withdraw Rs60lakh-crore from MFs to fund telcos
RBI hints at rate hike despite Rs20lakh-crore liquidity infusion
Corporate News
L&T gets orders worth US $312mn
R-Power commissions 2nd Rosa unit
Pipavav denies stake sale to Reliance Industries
ADAG firms up stake in Fame India to 15.6%
Ahluwalia Contracts bags 11 orders worth Rs505cr
RCom may hive off DTH, IPTV businesses into a separate entity
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
Events for the day
CESC Dividend, Results
Maithan Alloys Dividend, Results
June 21, 2010 3

4. Market Outlook | India Research
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