Market Outlook

India Research
October 3, 2011

Dealers Diary
The market opened on a weak note as Asian stocks opened in red. A bout of volatility was witnessed thereafter, as the key benchmark indices cut losses after hitting fresh intraday lows in early trade. The market turned positive to strike intraday high only to once again dip in red in mid-morning trade. The market moved in a narrow range in early afternoon trade. The market trimmed losses after weakening in early afternoon trade. The market weakened again in mid-afternoon trade and weakness persisted in late trade as well. The Sensex and Nifty closed lower by 1.5%, and 1.4%, respectively. The mid-cap and small-cap indices, however, outperformed the broader market, as they lost 0.6% and 0.9%, respectively. Among the front runners, Bharti Airtel and RIL gained 0-1%, while Coal India, Sterlite Inds, Tata Steel, Jindal Steel and Hero MotoCorp lost 3-5%. Among mid caps, Dewan Housing, Honeywell Auto, SREI Infra, Phoenix Mills and KGN Inds gained 3-7%, while Network18 Media, Ruchi Soya, Sintex Inds, Voltas and Indiabulls Real Estate lost 6-13%.

Domestic Indices BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT Global Indices Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com

Chg (%) (1.5) (1.4) (0.6) (0.9) (0.6) (1.6) (1.8) (1.8) (2.7) (0.7) (1.2) Chg (%) (2.2) (2.6) (1.3) (0.0) (2.3) (1.2) (0.3)

(Pts) (72.2) (35.8) (61.1) (34.8) (122.0) (152.1) (56.3) (63.4) (Pts) (65.4) (68.4) (0.9) (33.0) (6.1)

(Close) 4,943 6,130 6,881 5,868 7,404 8,498 8,494 5,275 (Close) 2,415 5,128 8,700 2,675 2,359

(244.3) 16,454

(203.9) 10,851 (303.0) 10,996

(240.6) 10,913

Markets Today
The trend deciding level for the day is 16,535/4,964 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,664 16,875/5,004 5,066 levels. However, if NIFTY trades below 16,535/4,964 levels for the first half-an-hour of trade then it may correct up to 16,324 16,194/4,903 4,863 levels.
Indices SENSEX NIFTY S2 16,194 4,863 S1 16,324 4,903 R1 16,664 5,004 R2 16,875 5,066

(418.7) 17,592

Indian ADRs Infosys Wipro ICICI Bank HDFC Bank Advances / Declines Advances Declines Unchanged

Chg (%) (1.3) (3.9) (5.8) (5.0)

(Pts) (0.7) (0.4) (2.1) (1.5) BSE 1,019 1,716 134

(Close) $51.1 $9.3 $34.7 $29.2 NSE 494 950 81

News Analysis
Union Cabinet approves the new Mining Bill Auto sales numbers - September 2011 Infosys bags a contract from DoP Strike at Marutis Manesar plant has been called off Indraprasth Gas hikes CNG prices in Delhi
Refer detailed news analysis on the following page

Net Inflows (September 28, 2011) ` cr Purch Sales FII MFs 2,744 319 2,493 476

Net 252 (157)

MTD (835) (731)

YTD (1,643) 5,544

Volumes (` cr) BSE NSE 2,489 11,265

FII Derivatives (September 30, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company Hind. Copper Sesa Goa GSPL Mcleod Russel Glaxo. Cons. Price (`) 227 200 105 235 2,325 chg (%) 6.7 4.4 3.5 2.7 2.7 Company Reliance Capital RCOM Reliance Infra. Sintex Ind. Voltas Losers Price (`) 315 72 374 127 111 chg (%) (12.2) (7.6) (7.4) (7.3) (6.7) Sebi Registration No: INB 010996539
1

Purch 2,315 1,483

Sales 2,403 1,791

Net (88) (308)

Open Interest 13,035 26,012

Please refer to important disclosures at the end of this report

Market Outlook | India Research

Union Cabinet approves the new Mining Bill

The Union Cabinet has approved the Mines and Mineral Development and Regulation (MMDR) Bill, 2011, making it mandatory for coal miners to share 26% of their profit after tax with project-affected people. For companies mining other minerals (such as limestone, iron ore and bauxite), the bill proposes that the companies should pay an amount equivalent to 100% of the royalty to the local population of the project site. Furthermore, the new bill obligates mining firms to pay a 10% cess to state governments and 2.5% to the centre on the total royalty paid. As per our estimates, the EPS of mining companies is expected to be lower by 813%, while for Coal India the EPS could potentially decline by 17% (For details refer to our report Mining Bill Impact Analysis dated July 8, 2011). The bill is expected to be taken up for approval by the parliament in the winter session. Meanwhile, we maintain our estimates and rating for the stocks under coverage until the bill is approved by the parliament.

Auto sales numbers - September 2011

Maruti Suzuki (Maruti) Maruti reported a 20.8% yoy (6.4% mom) decline in sales volume in September 2011 due to disruption in production at the Manesar facility since August 29, 2011. Labour issues at Manesar plant led to a production loss of 20,00025,000 units during the month. While the company managed to ramp up the production of Swift to 650-750 units daily despite the strike, production of SX4 and A-Star, which are also produced at the same facility, was completely stopped. As a result, sales of SX4 nosedived by 90% on a yoy and mom basis. Sales volume in the mini as well as compact segments witnessed a yoy decline of 23.5% and 9.3%, respectively, leading to a 17.2% yoy decline in total domestic sales. However, on a sequential basis, volumes bounced back on account of the festival season, resulting in a 2.2% mom increase in domestic sales. Exports surprisingly plunged by 47.5% yoy (53% mom) during the month. Mahindra & Mahindra (M&M) M&M reported better-than-expected 30.7% yoy and 28.2% mom jump in total volumes to 68,810 units, aided by robust 25.5% (17.1% mom) and 41.1% yoy (54.2% mom) growth in automotive sales and tractor sales, respectively. Growth in the tractors space was driven by an impressive 41.1% yoy (54.2% mom) increase in domestic sales, whereas exports sales remained flat on a yoy basis. Within the automotive segment, the four-wheeler pick-up segment continues to maintain its growth traction and witnessed strong 45% yoy (6.8% mom) growth. Verito also continued its impressive run during the month. Automotive exports registered a robust 128.9% yoy (55.7% mom) jump to 3,001 units. Tata Motors (TML) TML reported a 22% yoy increase in total sales to 78,786 units on the back of strong performance by its commercial vehicle (CV) segment. Growth in the CV segment was driven by robust 47% yoy growth in the light commercial vehicle (LCV) segment, which sustained its impressive growth rate. M&HCV volumes witnessed a slight rebound in sales, posting 9% yoy growth during the month. During September 2011, the PV segment registered its best performance YTD in FY2012, growing by 6% yoy. Sales in the PV segment were driven by 64% yoy growth in Indica volumes on the back of the newly launched Indica Vista and 60% yoy growth in Sumo/Safari/Aria/Venture volumes. However, Nano and Indigo sales continued their disappointing run, declining by 47% and 11% yoy, respectively.

October 3, 2011

Market Outlook | India Research

TVS Motor (TVS) TVS reported a strong 16.7% yoy (12.6% mom) jump in total volumes to 219,369 units, led by continued growth in the scooters segment. Strong momentum in the scooters segment continued during the month, resulting in a 29.7% yoy (6.9% mom) increase in sales volume. Volumes of motorcycles and mopeds also registered healthy growth of 11.6% (16.9% mom) and 14.3% yoy (14.5% mom), respectively. In the three-wheeler segment, volumes increased by 14.2% yoy; however, they were down sharply by 22% on mom basis. Exports reported a mixed trend as yoy volumes increased by 14.2%, whereas they declined by 13.4% sequentially.

Infosys bags a contract from DoP

Infosys has bagged a `700cr-750cr financial services systems integrator contract from the Department of Posts (DoP). This is the second contract from the department for Infosys. Infosys emerged as the lowest bidder for the contract. Other vendors in the fray included TCS and HP. The contract is part of the governments postal department modernisation project. The financial services contract is among the eight contracts that the department is outsourcing. As part of this project, Infosys would help with postal banking and insurance solutions, enabling the department to perform anytime, anywhere banking. We maintain our Accumulate rating on the stock with a target price of `2,705.

Strike at Marutis Manesar plant has been called off

The month-long strike at Marutis Manesar plant has been ended after an agreement was reached between the workers and the companys management. The agreement was reached on September 30, 2011, and the full production is expected to be resumed from October 3, 2011. As part of the agreement, workers have agreed to sign the good conduct bond and management has agreed to reinstate 18 trainees who were earlier suspended. However, the company has not taken back 44 regular employees against whom disciplinary action was taken and they are still suspended. Maruti will also be withholding the salary of the employees for the standoff period. Employees at the Manesar facility were on a strike since August 29, 2011, after the management prevented workers from entering the factory premises unless they sign a good conduct bond. This was following the alleged sabotage and deliberate compromise on the quality front by employees. The Manesar plant A, which has a daily capacity of ~1,250 units (350,000 units annually), manufactures Swift, SX4 and A-Star. Recently, in September 2011, Maruti also commenced production at plant B, which has annual capacity of 250,000 units. While Maruti continued to produce 600-750 Swift vehicles on a daily basis from the Manesar facility, the production of A-Star and SX4 was completely halted. As a result, sales for the two models were adversely impacted in September 2011. We believe the recent strike has led to a production loss of 20,000-25,000 units for the company, which translates into revenue loss of `600cr-700cr. Further, due to the strike (in June and August-September), the market share of the company in the domestic passenger car market has fallen by almost 500bp to ~43%. Considering increased competition in the domestic passenger car market in recent times, we feel that it will be challenging for the company to regain its lost ground. We expect 2QFY2012 results of Maruti to be negatively affected due to the recent strike, which is likely to shrink the companys bottom line by `35cr-40cr. We revise our volume estimates downwards for FY2012E/13E by ~12%/~15% to 1.18mn/1.33mn units. Consequently, our EPS estimates stand revised at `75.4/`90.1. However, we maintain our Accumulate rating on the stock with a revised target price of `1,172

October 3, 2011

Market Outlook | India Research

Indraprasth Gas hikes CNG prices in Delhi

Indraprasth Gas hiked Compressed Natural Gas (CNG) price by `2.0/kg to `32.0/kg in Delhi mainly on account of depreciation of the INR against the USD. Price in Noida, Greater Noida and Ghaziabad has been hiked by `2.3/kg to `35.9/kg. This is the fifth increase in CNG prices in CY2011. This is expected to offset the companys rise in costs on account of INR depreciation. We believe the stock is trading at a fair value (PE of 18.1x FY2012 and 16.9x FY2013) currently. Hence, we maintain our Neutral rating on the stock.

Economic and Political News

Indias fiscal deficit surges to `270,000cr during AprilAugust 2011 `53,000cr additional borrowing will not impact fiscal deficit: Finance Minister India's overseas investment rises to US$103.9bn at the end of June 2011

Corporate News
Coal India likely to revise regulated coal price in three months Coal India plans to invest `40,000cr in the twelfth plan Cairn India discovers natural gas in Sri Lanka Reliance Capital receives RBIs approval to sell stake in Reliance Life Insurance
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

October 3, 2011

Market Outlook | India Research

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E-mail: research@angelbroking.com

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Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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October 3, 2011