The Indian stock market indices witnessed broad-based gains following positive global market cues. The BSE Sensex closed up 1.9% and the Nifty closed up 1.8% at their highest levels in 31 months, led by metals and banking stocks. Foreign funds continued purchasing Indian stocks, boosting market sentiment. The outlook is positive if the Nifty sustains above 5,549 levels in early trade, but the market may see some correction if it falls below that level.

1. Market Outlook
India Research
September 7, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
The Indian indices witnessed a broad-based rally following strong gains in
global indices, as the US reported a better-than-expected payroll data, giving BSE Sensex 1.9% 338.6 18,560
credibility to recovery in the world's biggest economy. The markets opened gap- Nifty 1.8% 97.6 5,577
up and continued to rise steadily without any major dip throughout the session. MID CAP 1.3% 102.7 7,962
The positive sentiment was evident from lack of volatility. The benchmark SMALL CAP 1.8% 181.9 10,095
indices, viz. BSE Sensex and S&P CNX Nifty, hit their highest level in the last 31 BSE HC 1.0% 54.4 5,685
months as good monsoon and sustained buying by foreign funds boosted BSE PSU 1.1% 109.8 9,919
investor sentiment. The Sensex and Nifty closed with gains of 1.9% and 1.8%, BANKEX 2.1% 257.3 12,729
respectively. BSE mid and small-cap indices rose in line with benchmark indices, AUTO 1.7% 153.1 9,124
registering gains of 1.3% and 1.8%, respectively. Among the front liners, Tata METAL 3.5% 532.2 15,879
Steel, Hindalco, ICICI Bank, Sterlite Industries and JP Associates gained 3–7%, OIL & GAS 2.0% 196.5 10,178
while Hero Honda, Reliance Comm., HUL and L&T lost 0–2%. Among mid BSE IT 1.9% 102.6 5,563
caps, MVL, Gujarat Gas, Apollo Tyres, Sterling Bio and Indian Metals gained 6–
Global Indices Chg (%) (Pts) (Close)
15%, while KEC International, Sirgun Holdings, Allcargo Global, Nirma and
Dow Jones 1.2% 127.8 10,448
Sunteck Realty lost 2–7%.
NASDAQ 1.5% 33.7 2,234
FTSE 0.2% 11.0 5,439
Markets Today
Nikkei 2.1% 187.2 9,301
The trend deciding level for the day is 18428 / 5549 levels. If NIFTY trades Hang Seng 1.8% 384.3 21,356
above this level during the first half-an-hour of trade then we may witness a Straits Times 1.1% 32.0 3,035
further rally up to 18732 – 18904 / 5618 - 5658 levels. However, if NIFTY Shanghai Com 1.5% 40.9 2,696
trades below 18428 / 5549 levels for the first half-an-hour of trade then it may
correct up to 18256 – 17952 / 5508 - 5439 levels.
Indian ADRs Chg (%) (Pts) (Close)
Indices S2 S1 R1 R2 Infosys 1.5% 0.9 $60.7
SENSEX 17,952 18,256 18,732 18,904 Wipro 3.4% 0.4 $13.5
Satyam 6.8% 0.3 $5.0
NIFTY 5,439 5,508 5,618 5,658
ICICI Bank 0.5% 0.2 $43.3
HDFC Bank 1.3% 2.2 $169.6
News Analysis
Phillips Carbon Black – Re-initiate coverage – Buy Advances / Declines BSE NSE
Gujarat Gas increases CNG prices by 8.3%
Advances 2,072 1,065
RCOM and GTL Infra transaction called off
Declines 881 325
Refer detailed news analysis on the following page.
Unchanged 123 39
Net Inflows (September 03, 2010)
Rs cr Purch Sales Net MTD YTD Volumes (Rs cr)
FII 2,173 1,686 486 1,699 61,081 BSE 5,443
MFs 594 574 19 180 (15,934)
NSE 14,893
FII Derivatives (September 06, 2010)
Open
Rs cr Purch Sales Net
Interest
Index Futures 2,581 1,761 820 16,938
Stock Futures 1,617 969 648 36,790
Gainers / Losers
Gainers Losers
Price chg Price chg
Company Company
(Rs) (%) (Rs) (%)
Tata Steel 576 6.6 Hero Honda 1,703 (1.9)
Bajaj Holding 827 6.3 Chambal Fert 73 (1.4)
BEML 1,198 5.6 Indian Bank 256 (1.3)
GVK Power 49 5.1 Bajaj Finserv 513 (1.2)
1
Essar Shipping 107 5.0 Apollo Hospital 410 (1.1)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. Market Outlook | India Research
Phillips Carbon Black – Re-initiate coverage – Buy
Phillips Carbon Black (PCBL), part of the RPG Group, is the leading producer of carbon
black in India, with ~48% of the total installed capacity in FY2010. Currently, with ~65%
of the total carbon black production in the country being consumed by the tyre industry,
PCBL is well poised to benefit from the rising demand for tyres going ahead. Moreover, we
expect the company’s power segment to start contributing substantially to its bottom line in
FY2011 and FY2012 and provide stability to its earnings.
We have valued PCBL on the sum-of-the parts valuation methodology and have arrived at
a Target Price of Rs270, wherein we have valued PCBL’s carbon black segment at
Rs144/share (1x FY2012E P/BV) and the power segment at Rs126/share (NPV method).
We Re-initiate Coverage on PCBL with a Buy recommendation.
Gujarat Gas increases CNG prices by 8.3%
Gujarat Gas has hiked CNG price by Rs2.49 per kg (an increase of 8.3%), following the
increase in its input (gas) costs and other operational expenditure. The hike was effective
from Sunday. The revised CNG price now stands at Rs32.45 per kg against the earlier
price of Rs29.96 per kg in Bharuch, Ankleshwar and Surat. The company had last revised
its CNG price in December 2009 (at that time price was increased by Rs2.46 per kg to
Rs29.96 per kg). The price hike in December 2009 was done to cover the negative impact
of the weakening Indian rupee against the US dollar and the upward revision in electricity
tariff.
The price hike is almost in line with the other companies in the CNG business in Gujarat.
Gujarat-based Adani Energy Limited is offering CNG at Rs32.67 per kg, followed by GAIL
at Rs32.10 per kg, HPCL at Rs32.00 per kg and GSPC at Rs31.60 per kg.
The revised price will increase the running cost of over one lakh CNG vehicles operating in
Bharuch, Ankleshwar and Surat. CNG still continues to remain a cheaper fuel compared to
petrol and diesel. Also, CNG price continues to remain cheaper compared to other cities
such as Lucknow, Bareilly, Agra, Hyderabad, Vijaywada, Indore and Ujjain.
The price hike points towards the company’s effort to maintain its margins and can be
viewed as a positive development. However, as the CNG segment contributes around 10%
of total sales volume of Gujarat Gas, the impact of the move on the company’s financials
will not be that significant. We are surprised with a steep rise in the stock price yesterday,
following the news. Currently, Gujarat Gas is trading at 4.4x CY2011E P/BV and 18.2x
CY2011E P/E. The stock is currently under review.
September 7, 2010 2

3. Market Outlook | India Research
RCOM and GTL Infra transaction called off
Reliance Communications Ltd. (RCOM) and GTL Infrastructure Ltd. (GTL Infra) had in-
principle approved on June 27, 2010, a demerger of Reliance Infratel’s
(a subsidiary of RCOM) tower assets into GTL Infra to create the world’s largest
independent telecom infrastructure company that would have had an enterprise value of
over US $11bn and 80,000 towers in the merged entity. Through this deal, RCOM was
expected to receive cash infusion, which would have been utilised for substantial reduction
of its debt, whereas about 2mn RCOM shareholders were expected to receive free listed
shares of GTL Infra.
However, the non-binding term sheet signed by RCOM and GTL Infra expired on August
31, 2010, and despite subsequent efforts, both parties have neither extended the term
sheet nor entered into any definitive transaction agreement. Subsequent to the failure of
this transaction, RCOM has made a statement that it is in talks with other strategic and
financial investors to sell a stake in the business. However, it declined to comment on the
failure of its deal with GTL Infra.
We believe this transaction was vital for RCOM as the cash infusion would have helped it
to lower the huge debt (debt position as on June 30, 2010, stood at Rs33,216cr) piled up
on the balance sheet and the demerger of the tower business would have resulted in value
unlocking of its core mobile business. At the current levels, we maintain Neutral on RCOM.
Economic and Political News
Decision on Cairn-Vedanta deal in 4–6 weeks: Murli Deora
Govt. planning IOC, ONGC stake sale in March quarter
Direct tax collections up 14% during April–August 2010
Marine exports jump about 22% in July 2010
Corporate News
PFC to raise US $240mn loans in Japan and China
HDFC Bank hikes BPLR by 50bp to 16.25%
Firstsource inks outsourcing deal with Axis Bank
Aurobindo Pharma in licensing pact with Astra Zeneca
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
September 7, 2010 3

4. Market Outlook | India Research
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