Market Outlook

India Research
M

Dealers Diary
The Indian markets are expected to open in green tracking positive cues from the Asian markets and a fresh batch of data suggesting the US economy may be picking up momentum will underpin investor sentiment. Globally, US Stocks moved higher over the course of the trading day on Thursday, extending the upward move seen in recent sessions. Optimism about the outlook for the US economy contributed to the strength on Wall Street, with a report from the Labor Department showing a bigger than expected drop in initial jobless claims in the week ended 10 March. A separate report from the New York Federal Reserve showed a continued expansion in regional manufacturing activity, with the index of activity in the sector showing an unexpected increase. The European markets largely closed to the upside on Thursday, with the exception of the FTSE 100 of the UK. On Thursday, markets snapped four day winning streak dragged by rate sensitive shares after expectations of a rate cut were dashed with the Reserve Bank of India maintaining a status quo on key policy rates. The markets will be closely watch out for Union Budget today.

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 (%)

(Pts)

(Close)

(1.4) (243.5) 17,676 (1.5) (1.4) (1.0) (0.4) (83.4) (90.0) (66.2) (28.2) 5,381 6,405 6,780 6,485 7,684

(2.0) (154.4) (0.7)

(2.6) (325.7) 12,203 (71.8) 10,132 8,524 6,081

(Close)

(1.4) (164.9) 11,777 (1.9) (161.1) 0.1

Chg (%)

5.5
(Pts)

0.4 0.5 (0.1) 0.7 0.2 (0.0) (0.7)

Chg (%)

58.7 13,253 15.6 (4.7) 3,056 5,941

Markets Today
The trend deciding level for the day is 17,739/ 5,402 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,855 18,035 / 5,441 5,502 levels. However, if NIFTY trades below 17,739 / 5,402 levels for the first half-an-hour of trade then it may correct up to 17,559 17,443 / 5,341 5,302 levels.
Indices SENSEX NIFTY S2 17,443 5,302 S1 17,559 5,341 PIVOT 17,739 5,402 R1 17,855 5,441 R2 18,035 5,502

72.8 10,123 45.6 21,354 (0.6) (17.5)

(Pts)

3,026 2,374
(Close)

Indian ADRs

INFY WIT IBN HDB

Advances / Declines Advances Declines Unchanged

0.6 (0.4) (0.2) (1.2)

0.4 (0.0) (0.1) (0.4)

BSE

$59.1 $11.1 $37.6 $34.2

NSE

News Analysis
Monetary Policy Review L&T bags orders worth `1,140cr

Refer detailed news analysis on the following page

1,006 1,848 129

380 1,074 58

Net Inflows (March 14, 2012)

` cr FII MFs Purch 4,185 640 Sales 2,110 1,113 Net 2,075 (473) MTD 6,332 (767) YTD 42,630 (4,794)

Volumes (` cr) BSE NSE

2,768 12,278

FII Derivatives (March 15, 2012)

` cr
Index Futures Stock Futures

Purch 2,144 1,649

Sales 2,647 1,914

Net (503) (265)

Open Interest 15,169 30,515

Gainers / Losers
Gainers Company
Educomp Sol Pipavav Defence JSW ENERGY Wockhardt United Brew

Losers Company
Lanco Infra Sintex Inds GMR Infra Titan Inds Reliance Cap

Price (`)
206 81 70 583 555

chg (%)
4.8 4.3 4.1 2.6 2.1

Price (`)
20 84 31 233 409

chg (%)
(8.9) (6.3) (6.2) (5.9) (5.9)

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

Market Outlook | India Research

Monetary Policy Review

Key highlights
Keeps SLR and CRR unchanged at 24.0% and 4.75%, respectively Holds on to key policy rates (Repo: 8.5%, Reverse Repo: 7.5% and MSF: 9.5%) Monetary policy maintains status quo in-line with consensus: The Reserve Bank of India (RBI) in its mid-quarterly monetary policy review kept both CRR and repo rate unchanged, in-line with streets expectations. The RBI, in its third quarter review of the monetary policy (January 24, 2012), had clearly stated that fiscal consolidation measures in the forthcoming budget (scheduled on March 16, 2012) would be a critical factor in the commencement of the monetary easing cycle. Accordingly, it was widely expected that the RBI would hold on to key policy rates in todays monetary policy and wait for credible signs of fiscal consolidations before initiating rate cuts. Also, while February inflation readings were in-line with the RBIs year-end projections, the RBI preferred to adopt a wait-and-watch approach, pointing out that the current readings do not reflect higher fuel, power and fertilizer prices. The RBI has injected nearly `2lakh cr in the past six months (~`1.2lakh cr via OMOs and `0.8lakh cr via cumulative 125bp CRR cut). Hence, in the backdrop of the 75bp CRR cut already done just a few days back, as expected, the RBI kept the CRR unchanged in todays monetary policy. Inflation environment benign for monetary easing commencement: Food inflation for February 2012 climbed back to 6.1% yoy (negative 0.5% yoy for January 2012). However, the sharp yoy jump in food inflation can be attributed to the low base effect (decline of 5.8% mom in food inflation in February 2011). Also, for February 2012, annualized mom food inflation levels stood at 5.6%, lower than the six-month annualized figure of 7.1%. Manufacturing inflation eased further to 5.7% yoy (lowest levels in over a year) from 6.5% yoy levels in January 2012. Annualized mom growth in the manufacturing index stood at 4.2% and even the six-month annualized figure was at low 4.6% levels. More importantly, core inflation, which the RBI tracks closely for its monetary policy decisions, eased further to 5.5% levels. The marked decline in manufacturing inflation levels over the past three months (~240bp) has been visible post the dip in primary inflation, as a large part of pass-through of primary inflation is, in our view, already done with. Going ahead, sustained lower food inflation levels are likely to lead to lower wage inflation, which in turn are likely to translate into further easing of manufacturing inflation levels. Hence, in our view, the overall inflation environment, apart from fuel-related concerns, seem to be benign for monetary easing commencement; and we expect the RBI to begin with more decisive signaling through repo rate cuts from April 2012. Resurgence in inflation levels (we assign a low probability to the same) and a more populist budget than expected are possible impediments that could push back the initiation of rate cuts.

March 16, 2012

Market Outlook | India Research

L&T bags orders worth `1,140cr

Larsen & Toubro's (L&T) construction arm bagged new orders worth `1,140cr under various divisions during March 2012. The company's building and factories division has secured a `970cr order for the design and construction of a IT campus facility in Kolkata. The project will be executed on a joint venture model along with Shapoorji & Pallonji Co within a period of 32 months. L&T Oman LLC has bagged a new contract worth `170cr from Oman Electricity Transmission Co for replacing some substations within 15 months. At the CMP of `1,363, the stock is trading at PE of 19.3x FY2013E earnings, which is below the historical trading multiple for L&T. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in different businesses. Ascribing separate values to its parent business on P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to `1,607, which provides 17.9% upside from current levels. Hence, we maintain our Buy rating on the stock.

Economic and Political News

EPFO cuts rate to 8.25% World Bank approves US$4.3bn aid to India Survey pegs FY2013 economic growth at 7.6% Hydro-power projects worth `1,700cr caught in green net Food Security Bill unlikely in Budget Session

Corporate News
Infosys to double R&D team, add 500 people in two years M&M to pump `1,780cr into Ssangyong Abbott India appoints Rehan Khan as MD SKS to raise `200cr through securitization
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

March 16, 2012

Market Outlook | India Research

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March 16, 2012