Unicon Monthly Research report (thepathfinder)march2011


Published on

UNICON monthly research magazine - THE PATHFINDER is a dedicated analysis on various types of investments

Published in: Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Unicon Monthly Research report (thepathfinder)march2011

  1. 1. March 2011 A Monthly Wealth Journal INFLATION V/S GROWTH ASSOCIATIONThe Path To Wealth WEALTH MANAGEMENT FOR LIFE
  2. 2. Contents The Road Ahead 1 Wealth Overview 2 Market Round Up -Equity 3 Model Portfolios 4 Union Budget 2011-12 6 Stock pick of the month 7 Technical Market Outlook 8 The Road Ahead Derivative Market Outlook 9 The economic survey, recently released by the government of India , Mutual Fund round up 10 highlighted that India has emerged with remarkable rapidity from the Insurance 11 slowdown caused by the financial crisis. The growth in GDP is expected to be Bond Market Outlook 12 8.6% for FY11 and 9% for FY12. The growth in agriculture is expected to be Currency Market Outlook 12 robust at 5.4% while manufacturing growth is projected at 9.1%. The services sector would be leading the growth at 9.6%. The growth is largely Real Estate Opportunities 13-14 consumption and exports driven. Commodity round up 15 The key challenge, however, to the Indian economy comes from inflation. Alternative Investment Ideas 16 While rising consumption has boosted the demand for goods, the supply of food articles has not grown due to various reasons including poor supply chain management, leading to a rise in prices. Even the fuel inflation has been high Editor Vijay Agrawal and the crisis in middle east countries can lead to further increase in fuel prices. Assistant Editor Yatish Pandey While the growth has been good, the fiscal deficit numbers at 5.1% of GDP Printed and Published on behalf of for FY 11 have also been better than the promised figure of 5.6% of GDP. Vijay Agrawal The budget for the FY12 seeks to further reduce the fiscal deficit to 4.6% of Unicon Wealth Management the GDP largely through a reduction of expenditure growth and increase in 285, Princess street, Jhawar House, Ground Floor, revenue through measures like selectively raising excise tax, bringing new Marine lines, Mumbai- 400002 items in service tax and divestment. vagrawal1@uniconindia.in The industry has been looking for various reforms like the FDI in retail, Design & Print reduction of subsidies, land reforms and the introduction of GST and the Kozmic Style Offset government has been slow in delivering these reforms. In the budget speech, D 137, Okhla Industrial Area, Phase- 1, the finance minister did announced some initiatives like the promise to table New Delhi - 110020 the GST bill in the current budget session, launching a scheme for providing Ph.: +91 11 46251190, Email: kozmic@consigliori.org cash subsidy through direct transfer to the poor from April 2012, granting new banking license by end of FY12, infusing fresh capital into PSU banks etc. The Wealth Management finance minister also allowed FII investments into mutual funds and hiked the Unicon Financial Intermediaries. Pvt. Ltd. FII limit for investment in corporate bonds issued by infrastructure companies by $20 bn to $25 bn. Head Office: P-45/90, Connaught Place The budget for the FY12 has been aimed at preserving the growth momentum New Delhi- 110001, India. of the economy by containing the high fiscal deficit and addressing inflation. Tel: 011 -43529500 The markets have also reacted positively to the budget. However, It remains Fax: 011 -43581216 to be soon how the government can and actually deliver on the promises and also being about the much needed reforms for the industry, for these can give a Corporate Office: boost to the investor sentiments and take the markets to new highs. Block No. 2, Jhawar House, 285 Princess Street, Marine Lines (East), Mumbai – 400 002, India. Tel: 022 -43591200 Regards, Fax: 022 -66181100 Gajendra Nagpal SMS “UNICON” TO 54646 - TOLL FREE: 1800 10333 88 Founder & CEO Unicon Financial Intermediaries Pvt. Ltd.DISCLAIMER : This document has been issued by Unicon Financial Intermediaries. Pvt. Ltd. (“UNICON”) for the information of its customers only. UNICON is governed by the Securities and Exchange Board of India. This document is notfor public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. Theinformation and opinions contained herein have been compiled or arrived at based upon information obtained in good faith from public sources believed to be reliable. Such information has not been independently verified and no guarantee,representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document has been produced independently of any company orcompanies mentioned herein, and forward looking statements; opinions and expectations contained herein are subject to change without notice. This document is for information purposes only and is provided on an “as is” basis. Descriptions of anycompany or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer, or solicitation of an offer, to buy or sell or subscribe to any securities or other financialinstruments. We are not soliciting any action based on this document. UNICON, its associate and group companies its directors or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to theinvestments made or any action taken on basis of this document, including but not restricted to, fluctuation in the prices of the shares and bonds, reduction in the dividend or income, etc. This document is not directed to or intended for display,downloading, printing, reproducing or for distribution to or use by any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or usewould be contrary to law or regulation or would subject UNICON or its associates or group companies to any registration or licensing requirement within such jurisdiction. If this document is inadvertently sent or has reached any individual in suchcountry, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purpose without prior written approval of UNICON. This document is for the general informationand does not take into account the particular investment objectives, financial situation or needs of any individual customer, and it does not constitute a personalized recommendation of any particular security or investment strategy. Before acting onany advice or recommendation in this document, a customer should consider whether it is suitable given the customer’s particular circumstances and, if necessary, seek professional advice. Certain transactions, including those involving futures,options, and high yield securities, give rise to substantial risk and are not suitable for all investors. UNICON, its associates or group companies do not represent or endorse the accuracy or reliability of any of the information or content of thedocument and reliance upon it is at your own risk.UNICON, its associates or group companies, expressly disclaims any and all warranties, express or implied, including without limitation warranties of merchantability and fitness for a particular purpose with respect to the document and anyinformation in it. UNICON, its associates or group companies, shall not be liable for any direct, indirect, incidental, punitive or consequential damages of any kind with respect to the document. No part of this publication may be reproduced, storedin a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Unicon Financial Intermediaries. Pvt. Ltd.
  3. 3. Wealth Overview Time to realign asset allocation strategyFinally the wait is over & the cat is out of FMs hat. The budget proposals have been well accepted by the industry & the financial markets as well. Infact these proposals can be summed up as a “balanced effort to maintain the growth momentum”. The Finance Minister has presented aforward-looking budget at a time when the global economy is still looking fragile.The key takeaway from the perspective of economic growth is that the Finance Minister has avoided the temptation of raising excise duties, aswas widely feared. Also he has which would only marginally reduce the tax burden on the corporate sector. The Finance Minister seems to bebanking on the economy going well and therefore has placed his hopes on revenues rising on the back of overall higher growth of the economy.Realignment of asset allocation strategy post budget proposals:Although the proposals put forward would affect the entire economy, lets have a look at the various budget proposals which may have specificimplications for the various assets being held by us. We strongly recommend you to realign your asset allocation strategy in the light of budgetproposals. Broadly we can have a look at the following asset classes from the budget perspective.Equity:Provisions:?Continuation to maintain the excise duty rates at 10% level?Reduction of corporate tax from 7.5% to 5%?Exemption limit for the individual taxpayers enhanced from `160000 to `180000.Implications:For equity as an asset class no specific provision has been made but some of the positive steps, as given below, would boost buoyancy in the marketsthereby enhancing returns from this asset class:Debt:Provisions:?Proposal to introduce special infrastructure debt funds to attract foreign financing in infrastructure sector and hike in FII investment limit by an additional $20 billion for investment in infrastructure-related sectorsImplications:The above proposal is going to enhance the liquidity in the debt markets & expected to ease liquidity measures & hence eventually pressure on interestrates. Its going to be beneficial for short term debt funds.Mutual FundsProvisions:?Foreign investors allowed investing in SEBI registered mutual funds.Implications:The above provision is going to attract foreign individuals to Indian equity markets as they would no longer be dependent on the FII sub a/c route andthey would be able to access the markets directly. It would lead to better transparency & corporate governance standards in the MF industry eventuallyleading towards better returns to the investors.Real Estate:Provisions:?ForeignInterest subvention of 1% on housing loans for the housing loans upto `15 lakh (presently `10 lakh) where the cost of the house does not exceed `25 lakh (presently `20 lakh).?ForeignTo provide housing finance to targeted groups in rural areas at competitive rates, the provision under rural housing fund enhanced to `3,000 crore.Implications:This is going to boost demand in the affordable housing sector. We recommend enhancing your allocation to the real estate as an asset class. You mayinvest either directly or through PMS/PE funds focusing in the residential segment. One such fund which is specially focusing on this segment is RealEstate PE fund by ASK. It should be considered for participating in the high growth real estate sector.To sum up the budget has been neutral to favorable for most of asset classes. You, as a prudent investor, should keep on reviewing & rebalancingperiodically your financial plan in the realm of changing environment. You are suggested to be in touch with your respective wealth manager for the same.Happy InvestingRajev B SharmaCountry Head – Wealth Management & Investment BankingUnicon Financial Intermediaries Pvt. Ltd 2
  4. 4. Market Round Up -EquityDomestic Markets Sectoral Indices Performance ? Among the BSE sectoral indices, FMCG (+1.97%) endedIndex Jan-11 Feb-11 Change Change % High Low positive.Sensex 18,327.76 17,823.40 -504.36 -2.75% 18,690.97 17,295.62 ? (-11.09%), CG (-8.33%), HC (-8.32%), Power (-8.05%), RealtyNifty 5,505.90 5,333.25 -172.65 -3.14% 5,599.25 5,177.70 Auto (-7.21%), CD (-6.07%), Metal (-4.76%) ended negative. ? Among other indices, BSE MidCap (-7.21%), SmallCapGlobal Markets (-7.79%), BSE100 (-3.23%) ended negative.Index Jan-11 Feb-11 Change Change% High Low Sectoral IndicesDow Jones 11,891.93 12,226.34 334.41 2.81% 12,417.97 11,892.50 AUTO BANKEXNasdaq 2,700.08 2,782.27 82.19 3.04% 2,840.51 2,705.54 CDS&P 500 1,286.12 1,327.22 41.1 3.20% 1,344.07 1,289.14 CG FMCGNikkei 10,237.92 10,624.09 386.17 3.77% 10,891.60 10,245.75 HCCAC 4,005.50 4,110.35 104.85 2.62% 4,169.87 3,984.36 IT METALFTSE 5,862.90 5,994.00 131.1 2.24% 6,105.80 5,861.00 OIL&GASHangseng 23,447.34 23,338.02 -109.32 -0.47% 23,981.74 22,446.67 POWER PSU Nifty Index PCR REALTY 1.4 TECk 1.2 -12 -10 -8 -6 -4 -2 0 2 4 1 0.8 Change (%)PCR 0.6 Market News 0.4 0.2 ?were net sellers of `7423 cr (In Jan net sellers 8,903 cr). DIIs FIIs 0 were net buyers of `5781cr (In Jan net buyers of `5,237 cr) in 1-Feb-11 2-Feb-11 3-Feb-11 4-Feb-11 7-Feb-11 8-Feb-11 9-Feb-11 10-Feb-11 11-Feb-11 14-Feb-11 15-Feb-11 16-Feb-11 17-Feb-11 18-Feb-11 21-Feb-11 22-Feb-11 23-Feb-11 24-Feb-11 25-Feb-11 28-Feb-11 cash market. Turnover Jan-11 Feb-11 Feb-10 MoM ? open in Feb 2011: Sudar Garments Ltd., Acrepetal IPOs (` crs.) Change% Technologies Ltd., Fineotex Chemical Ltd. Index Futures 384,484 402,759 326,870 4.75% ? listed in Feb 2011:Tata Steel Ltd. (FPO), Omkar IPOs Stock Futures 411,149 401,306 354,484 -2.39% Speciality Chemicals Ltd. Index Options 1,962,515 2,044,353 847,235 4.17% Per capita income of Indians grew by 14.5% to `46,492 in ? Stock Options 83,684 80,875 41,285 -3.36% 2009-10 from `40,605 in the year-ago period, as per the Total 2,841,833 2,929,294 1,569,876 3.08% revised data released by the Government. Government approved `8,000 cr subsidy to oil firms in Q3. ? Highlights ? exports in December rose an annual 36.4% to $22.5 Indias? global indices ended positive in the month.Major?In the US markets, Dow (+2.81%), Nasdaq (+3.04%), billion, while imports for the month fell 11.1% on the year to S&P500 (+3.20%) ended positive. $25.1 billion. Indias trade deficit in December narrowed to $2.6? Asian Markets, Nikkei (+3.77%) ended positive, whileIn the billion compared with $8.9 billion in November. The April- HangSeng (-0.47%) ended negative.? European markets CAC (+2.62%), FTSE (+2.24%)In the December exports rose an annual 29.5% to $164.7 billion. ended positive. ? car and two-wheeler companies Wednesday reported a Indian? domestic front, Nifty lost 172.65 points (-3.14%) andOn the stellar 19% increase in sales figures for January, which stood atSensex lost 504.36 points (-2.75%) in the month.? Cash Turnover: `266,503 cr, down 0.31% as comparedNSE 13,22,979 units as compared to 11,14,692 units in the liketo previous month (`267,331 cr). period of last year.? Derivative Turnover: `2,929,294 cr, up 3.08%, asTotal ? Industrial growth slumped further to a 20-month low of 1.6%compared to previous month (`2,841,833 cr). in December 2010, weighed down by a contraction in capital?Turnover in index futures increased by 4.75% over theprevious month. goods, consumer non-durables and manufacturing. 3
  5. 5. Model PortfoliosThe markets have been largely range-bound in the month of StrategyFebruary. Positive surprises on the corporate earnings front werenegated by inflation, corporate governance issues and corruption ?During the month, we have not made any changes to thescams at the national level. The uncertainty in the markets was portfolio. However we may look to switch the portfoliofurther heightened by increasing unrest in oil-producing Middle towards large cap stocks during the month as news flow stillEastern countries like Tunisia, Egypt and Libya. With fears of the remains negative.unrest spreading to other parts of the region, crude oil prices have ? The budget now being discounted in the price, we do not foreseespiked up nearly 15% this month. These fears were reflected in all any positive triggers for the market and expect it to remainmarkets, including the Indian indices, which in-turn thwarted any range-bound and consolidate around the current level.chance of a pre-budget rally. These factors contributed to a declinein our model portfolios for the month of February. However, with Stock movementmarket fears of a populist budget being put to rest by the Finance ? Entered StockMinister, we expect the markets to consolidate around the currentlevels. No Changes during the month ? Exited StockGrowth Portfolio No Changes during the monthObjectiveHigh Capital appreciation with moderate capital safety. Optimizer PortfolioSr. Stock Name % Wtg Rec.Price Price 28th % return %return ObjectiveNo Feb-2011 (Since Inception) Feb-2011 1 ICICI Bank 5.5% 995.00 971.00 -2.4% -4.8% Moderate Capital appreciation with substantial capital safety. 2 Crompton Greaves 5.3% 177.35 244.95 38.1% -12.3% Skewed towards Growth, value and large caps. 3 Shree Cement 6.6% 1725.59 1729.70 0.2% 4.2% Sr. Stock Name % Wtg Rec.Price Price 28th % return %return 4 IVRCL Infra 4.6% 171.55 69.30 -59.6% -13.8% No Feb-2011 (Since Inception) Feb-2011 5 IB Real Estate 4.0% 188.33 104.00 -44.8% -13.8% 1 Hero Honda 3.7% 1544.30 1464.95 -5.1% -10.2% 6 HCC 3.1% 61.50 33.90 -44.9% -8.0% 7 UTV software 5.1% 465.40 501.30 7.7% 5.0% 2 Bank of Baroda 14.9% 425.65 870.85 104.6% 0.2% 8 Aurobindo Pharma 4.8% 192.10 170.00 -11.5% -28.4% 3 ICICI Bank 2.8% 1205.00 971.00 -19.4% -4.8% 9 Apollo Tyre 3.4% 58.80 52.20 -11.2% 1.6% 4 Syndicate Bank 0.7% 156.00 114.20 -26.8% 7.2% 10 Tata Motor 5.6% 1113.00 1081.80 -2.8% -5.8% 5 Larsen & Toubro 3.8% 1516.00 1528.05 0.8% -6.9% 11 MSP Steel 8.0% 72.00 60.85 -15.5% 3.1% 6 Crompton Greaves 3.6% 261.10 244.95 -6.2% -12.3% 12 GAIL 5.7% 356.25 428.25 20.2% -9.1% 7 Castrol India 9.5% 240.93 390.95 62.3% -5.7% 13 Reliance Ind 5.7% 973.00 964.95 -0.8% 5.0% 8 Oil India 7.9% 1140.55 1233.75 8.2% -4.3% 14 Navbharat Venture 6.5% 397.80 229.10 -42.4% -20.4% 15 BGR Energy 5.0% 612.00 407.55 -33.4% -26.1% 9 Dabur India 8.6% 70.65 100.05 41.6% 6.5% 16 Banswara Syntex 4.8% 103.85 126.80 22.1% -4.7% 10 TCS 12.2% 532.95 1112.95 108.80 -3.8% 17 Deepak Fertliser 7.0% 162.00 149.10 -8.0% -6.2% 11 Infosys Tech 3.5% 2615.10 3003.05 14.8% -3.6% Cash 9.2% 12 HCL Tech 4.5% 358.85 442.15 23.2% -10.5% Total 100.0% 5.2% -7.9% 13 Glaxosmith Pharma 8.0% 1454.40 2217.20 52.4% -2.7% 14 Aurobindo Pharma 5.7% 191.76 170.00 -11.3% -28.4% % Returns Growth Nifty Top 5 Sectors Wtg 15 Bharti Airtel 3.0% 405.35 331.10 -18.3% 3.9%Since inception 5.2% 16.1% Infrastructure 11.7% Cash 7.6%Performance -10.9% Power 11.6% Total 100.0% 37.2% -4.9% Oil and Gas 11.4%For month of Feb -7.9% -3.1% Auto & Auto Ancillary 9.0% % Returns Growth Nifty Top 5 Sectors WtgPerformance -4.8% Metals & Allied 8.0% IT Software 20.2% Since inception 37.2% 16.1% Performance + 21.1% Banking & Finance 18.4% Performance Highlights For month of Feb -4.9% -3.1% Pharmaceuticals 13.7% Chemicals 9.5%?portfolio has underperformed the Nifty by 10.9% sinceThe Performance - 1.8% FMCG 8.6% inception and has underperformed by 4.8% in the month of February 2010. Performance Highlights? Software, Reliance Industries and Shree Cement were theUTV ?Optimiser Portfolio has outperformed the Nifty index by The top gaining stocks during the month. nearly 21% since its inception.?Aurobindo Pharma, BGR Energy, Navbharat Ventures, ? the month of February, the portfolio marginally For IVRCL Infra, IB Real Estate and Crompton Greaves were the underperformed the Nifty by 1.8%. laggards during the month with losses of more than 10%. ? a negative month filled with uncertainties, four stocks Despite 4
  6. 6. Model Portfolios in the portfolio ended on the higher side. % Returns Growth Nifty Top 5 Sectors Wtg Since inception 35.3% 16.1% FMCG 14.2%?portfolio declined on the back of underperformance inThe Banking & Finance 13.6% Performance + 19.2% the Capital Goods, Information Technology and Pharmaceuticals 11.1% For month of Feb -3.9% -3.1% Oil and Gas 9.7% Pharmaceuticals. Performance - 0.8% Chemicals 9.6%?Aurobindo Pharma, Hero Honda, Crompton Greaves and HCL Tech were laggards, each declining more than 10%. Performance HighlightsStrategy ?portfolio has outperformed the Nifty Index by 19.2% The? stocks in our portfolio represent the best possible picks in The since inception and underperformed .08% for the month. their respective sectors and we continue to believe that there is ?outperformance was led by Bank of Baroda, Castrol India The potential upside from its current levels.? increasing global uncertainty regarding oil prices andHowever, and Godrej Cons. Products, whereas Bhel, NTPC followed by inflationary pressures are negative cues that is keeping the Larsen & Toubro remained laggards for the month. markets range-bound. We will continue to monitor the crude oil situation and its immediate impact on the portfolio and Strategy move to cash whenever the need arises. ?apprehension of market correction came true and our Our?also continue to look out for value picks for the portfolio.We will precautionary move to keep cash at high level has capped the damage against broader market. This has infact enabled us to Stock movement increase our exposure to few blue-chip stocks during market? EnteredStocks corrections. No changes during the month? ExitedStocks ? Broadly, higher fund allocation in Budget 2012 for No changes during the month infrastructure and move to allow FII to invest more in India infrastructure via debt augurs well not only for the infrastructure sector but also to the overall economy of theDefensive Portfolio country, as Infra spending has cascading effects.ObjectiveConcentrating on stable large cap, blue-chip companies aimed at ? Depending on opportunity, our focus from hereon would beclients with moderate to low risk appetite. to reduce the cash level and allocate in growth & emergingSr. Stock Name % Wtg Rec.Price Price 28th % return %return sectors.No Feb-2011 (Since Inception) Feb-20111 Punjab National Bank 2.4% 678.45 1054.75 55.5% -4.3%2 Bank of Baroda 7.4% 425.65 870.85 104.6% 0.2% Stock movement3 ICICI Bank 0.9% 950.00 971.00 2.2% 2.2%4 HDFC Ltd 2.9% 630.16 629.50 -0.1% -0.1% ? Entered Stocks5 BHEL 4.0% 2196.65 2000.65 -8.9% -9.8%6 Crompton Greaves 2.1% 261.10 244.95 -6.2% -12.3% ICICI Bank, HDFC Ltd (New Added)7 Dabur India 2.3% 69.20 100.05 44.6% 6.5% Larsen & Toubro (Increased Weightage)8 Godrej Cons. Product 7.9% 235.15 360.05 53.1% -2.5%9 Gillette India 2.5% 1414.25 1585.45 12.1% -6.2% ? Exited Stocks10 Britannia Ind 1.5% 440.00 337.45 -23.3% -10.5%11 Castrol India 9.6% 240.93 390.95 62.3% -5.7% Reliance Infra (Sold All Booked Loss)12 Larsen & Toubro 6.1% 1510.70 1528.05 1.1% -6.9% Petronet LNG (Reduced)13 Dr. Reddys Lab 3.2% 765.45 1547.05 102.1% -4.8%14 Glaxosmith Pharma 7.9% 1454.40 2217.20 52.4% -2.7%15 NTPC 6.1% 205.55 170.05 -17.3% -10.0%16 Oil India 8.0% 1140.55 1233.75 8.2% -4.3%17 Petronet LNG 1.7% 114.70 110.05 -4.1% -14.5% Cash 23.6% Total 100.0% 35.3% -3.9% 5
  7. 7. Union Budget 2011-12The Union Budget 2011-12 was a balanced and positive budget, with little populist announcements and no major tax cuts, preserving thegrowth momentum of the economy (est. at 9% for FY12). Fiscal deficit pegged at 4.6% in FY12 with revenue generation through lowersubsidy, widening of service tax net (`11 bn), divestment (`400bn.) and borrowing was set at `3.43 bn. The Finance minister increasedallocations, towards infrastructure, agriculture and education, which is positive for the overall development of the economy. Increase in FIIlimit for investment in bonds and allowing FIIs to invest in Mutual funds are all positive from the FII point of view. The confirmation, that thetaxation reforms (Direct Taxes Code and GST) would be effective from April 1st, 2012 and GDP growth projection of 9% for 2011-12,provides confidence to investors.Major Sectors to benefited from Union Budget 2011-12 areFertiliserThe govt has attracted new investments in urea by assigning infrastructure status to new fertiliser investment. Declaration of cash subsidy forurea would improve working capital cycle for urea manufacturers.Positive for - Chambal Fertilisers, Tata Chemicals, Nagarjuna FertilisersAgricultureGoI proposed a total investment of `22bn in the agriculture space to boost yields and address growing problems of food security in thecountry. 15 Mega Food parks were approved in FY12.Positive for - REI Agro, KRBL, Lakshmi Energy & Foods, Rallis India, KS Oils, Gokul Refoils, Shree Renuka Sugar, Balrampur Chini, BajajHindusthan, Jain Irrigation.Auto & Auto AncillaryExcise duties remain unchanged, moreover, enough incentives for the auto sector to go green, in light of the rising fuel costs.Positive for - Bajaj Auto, Hero Honda & Maruti, Mahindra & Mahindra & Electrotherm, Tata Motors, Ashok Leyland, MRF, Ceat Ltd, JK TyreBFSIWith Legislative Amendments for additional Banking Licenses, capitalization of banks, Microfinance equity fund & FII in Mutual fundindustry is Positive for the overall sector.Positive for - NBFC like IDFC, TATA Group, Birla group, Reliance Capital, Indiabulls, Dena Bank, Bank of Maharashtra, UCO Bank, UnionBank of India, Central Bank of India, SKS Micro, SE Investments, Motilal Oswal, Religare, EdelweissMetals & MiningThe increase in the iron ore export duties is positive for the steel players. Cost of production for stainless steel is expected to reduce by$15-17 /ton.Positive for - JSW Steel, Sail, MSP Steel, Godawari, Power & Ispat, Jindal Stainless, Facor SteelsFMCGThe higher allocation for rural schemes and tax benifits to individuals auger well for the rural sector which accounts ~33% of sectorstotal revenue. Overall, we remain positive about the sectors prospects.Positive for - HUL, Colgate , ITC, Dabur, Jyothy Labs, Marico, GCPL, EmamiInfrastructureSpending of `2.14 Bn on infrastructure (48.5% of the gross budgetary support to the plan expenditure) & more FII participation through debtinstruments for infra projects will have positive impact on the infra sector.Positive for - IRB Infra, HCC, Madhucon Projects, Reliance Infra, Punj Lloyd, L&T, Lanco Infra, GMR Infra, Nagarjuna Constructions, IVRCL. 6
  8. 8. Stock of the monthDeepak Fertilisers & Petrochemicals Ltd.CMP: `159* Target: `202Deepak Fertilisers & Petrochemicals Ltd (DFPC) operates in four business verticals: chemicals, fertilisers, specialty retail and agri-business. Itholds leading position in industrial chemicals and fertilisers business in the country. The company manufactures iso propyl alcohol, technicalammonium nitrate, ammonium nitro phosphate, methanol, nitric acid and other specialty chemicals. It is a bulk importer of Muriate ofPotash, Single Super phosphate, complexes, solid solubles, bio fertilisers etc. The company recently forayed in specialty retail and agri-servicebusinesses.Investment Rationale?Revenues to ride on TAN capacity expansionDFPC is the largest producer of Technical Ammonium Nitrate (TAN) in the country with a total installed capacity of 432,000 MTPA (whichincludes the new 3lac MTPA facility, installed in Oct 2010, currently under stabilization process). Domestic demand for TAN has grown at therate of 8-9% per annum to 5.5-6.0lac MTPA and it is expected to sustain on back of stable growth in mining & cement sectors and robustprospects in infrastructure (especially during 12th Five Year Plan). The company is expected to increase its market share from 30% in FY10 to70% by FY12.? revision & volume growth to drive fertiliser revenuesSubsidyAmmonium Nitro Phosphate is the key fertilizer manufactured by DFPC which contributed 10% in revenues in FY10. Fertiliser production isexpected to revive due to improved gas availability (of 0.67 mmbtu per day in Q3 FY11 against requirement of 0.65 mmbtu per day) andrevision of fertiliser prices under Nutrient based scheme w.e.f. Apr 2011.? cash flows to continue from IPA & nitric acidHealthyIsopropyl Alcohol (IPA) is the largest revenue generator for DFPC and is expected to contribute ~23% in total revenue in FY11. DFPC is theonly producer of IPA in India with total installed capacity of 70,000 MTPA and domestic market share of 75%. Utilisation level for IPA isexpected to remain stable around FY10 level of 88%. Realisation and margin are likely to hold their historical levels, below `60,000 per tonneand ~20% respectively, till FY13. We expect steady cash flows from IPA going ahead. Nitric acid is also expected to maintain its utilisation leveland post stable cash flows till FY13. DFPCs market share in domestic market stands at 46% and 37% in concentrated and diluted productsrespectively. Nitric acid contributed ~11% of total income in FY10 and is expected to maintain these levels.ValuationLack of competition, switching of major mining & infrastructure players to technical grade AN (from fertiliser grade AN) and strong growthin infrastructure in Southeast Asia (especially India in 12th Five Year Plan) would support TAN growth. Better utilisation of ANP unit andrevision of fertiliser prices under NBS provide strong revenue visibility for the fertiliser segment. Contribution from methanol could surpriseearning estimates while income from bentonite sulphur is expected to rise stably till FY13. We expect an upward revision of PE for DFPC,considering its commanding position in multiple products and steady cash flows, to 7x and thereby arrive at a 15 months target of `202.*Price on 4th March, 2011. 7
  9. 9. Technical Market OutlookEconomic DataUSA, March 2011 India, March 2011?08 - Consumer Credit, Jan, Survey $4.00 bn, Prior $6.09 bnMar ?08 - India Manpower Survey, 2Q Mar?09 - Wholesale Inventories, Jan, Survey 1.00%, Prior 1.00%Mar ?10 - Food Articles WPI YoY, Feb 26 Mar?10 - Trade Balance, Survey -$41.0 bn, Prior -$40.6 bnMar ?10 - Fuel Power Light WPI YoY, Feb 26 Mar?11 - Advance Retail Sales, Feb, Survey 0.50%, Prior 0.30%Mar ?10 - Primary Articles WPI YoY, Feb 26 Mar?11 - Business Inventories, Jan, Survey 0.70%, Prior 0.80%Mar ?11 - Industrial Production YoY, Jan, Prior 1.60% Mar?15 - Empire Manufacturing, Mar, Prior 15.43%Mar?15 - Import Price Index (MoM), Feb, Prior 1.50%,Mar ?14 - Monthly Wholesale Prices YoY%, Feb, Prior 8.23% Mar?15 - FOMC Rate Decision, Mar 15, Prior 0.25%Mar ?17 - India REPO Cutoff Yld, Mar 17, Prior 6.50% Mar?16 - Housing Starts MOM%, Feb, Prior 14.60%Mar ?17 - Food Articles WPI YoY, Mar 05 Mar?16 - Building Permits MOM%, Feb, Prior -10.40%Mar ?17 - Fuel Power Light WPI YoY, Mar 05 Mar?16 - Producer Price Index (MoM), Feb, Prior 0.80%Mar ?17 - Primary Articles WPI YoY, Mar 05 Mar?16 - Current Account Balance, 4Q, Prior -$127.2 bnMar ?17 - Cash Reserve Ratio, Mar 17, Prior 6.00% Mar?17 - Consumer Price Index (MoM), Feb, Prior 0.40%Mar?17 - Industrial Production, Feb, Prior -0.10%Mar ?17 - Reverse Repo Rate, Mar 17, Prior 5.50% Mar?17 - Capacity Utilization, Feb, Prior 76.10%Mar ?24 - Food Articles WPI YoY, Mar 12 Mar?21 - Existing Home Sales MoM, Feb, Prior 2.70%Mar ?24 - Fuel Power Light WPI YoY, Mar 12 Mar?22 - House Price Index MoM, Jan, Prior -0.30%Mar ?24 - Primary Articles WPI YoY, Mar 12 Mar?23 - New Home Sales MoM, Feb, Prior -12.60%Mar ?31 - Food Articles WPI YoY, Mar 19 Mar?24 - Durable Goods Orders, Feb, Prior 2.70%Mar ?31 - Fuel Power Light WPI YoY, Mar 19 Mar?25 - GDP QoQ (Annualized), 4Q T, Prior 2.80%Mar ?31 - Primary Articles WPI YoY, Mar 19 Mar?25 - GDP Price Index, 4Q T, Prior 0.40%Mar?25 - Core PCE QoQ, 4Q T, Prior 0.50%Mar ?31 - Current Account Balance, 4Q, Prior -$15.76 bn Mar?25 - Personal Consumption, 4Q T, Prior 4.10%Mar?28 - PCE Core (MoM), FebMar?28 - Personal Spending, FebMar?28 - Personal Income, FebMar?28 - Pending Home Sales MoMMar?29 - Consumer Confidence, Mar, Prior 70.4Mar?31 - Initial Jobless Claims, Mar 26Mar Technical Markets Outlook Nifty Monthly Technical Outlook Nifty ended the month down 173 points and closed negative (bearish pattern) at 5333 levels, after making a high of 5599. Technically Nifty on monthly chart has formed bearish candle stick formation, which indicates selling pressure at 38.20% retracement at 5620 levels. On monthly charts Nifty finds resistance around previous top of 5600-5650 and supports are placed at 5250-5000 levels. Some leading indicators like MACD,RSI and Momentum indicators are falling down and are in overbought condition, whereas selling pressure at resistance and closed bearish candle pattern with small lower shadow, so nifty would continue till 5250-5000 levels. If Nifty breaks above 5700, it would take next area of resistance 5900-6000 levels. Nifty is trading in a rising channel and heading towards supports at 5250- 5000 levels. In wide range Nifty has good supports at 5000 and resistance at 5675. Stochastic and the RSI are overbought but remain sideways to negative trading possible in short-term. For short term trading long potions, stop loss of 5400 is advisable on closing basis. If Nifty crosses higher levels above 5700 Nifty canSource : Iris target 5920 and 6000 higher levels as well. 8