First Call January 6, 2011-EDEL - The Smart Investor
First Call January 6, 2011-EDEL - The Smart Investor
First Call January 6, 2011-EDEL - The Smart Investor
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India Equity Research<br />
<strong>First</strong> <strong>Call</strong><br />
Contents<br />
Latest Research<br />
- IRB Infrastructure - addressing key investor concerns; Buy<br />
- IT - resurgence of offshore growth story<br />
- hEDGE - <strong>The</strong> alternative insights monthly<br />
- Bond Vector - LAF borrowing drops significantly; short term rates ease<br />
on improved liquidity<br />
Regular Features<br />
- Sales Trader’s Commentary<br />
- Insider Trades & Bulk Deals<br />
- Technical Updates<br />
- Eye Catchers<br />
Sectoral Movements % Change<br />
Ticker 5-Jan-11 1 D 1 M 3 M 1 Y<br />
Banking 12,834<br />
IT 7,508<br />
Pharmaceuticals 6,813<br />
Oil 10,688<br />
Power 2,991<br />
Auto 9,964<br />
Metals 17,782<br />
Real Estate 2,781<br />
FMCG 3,783<br />
Capital Goods 15,199<br />
(2.2)<br />
(0.1)<br />
(0.1)<br />
(0.4)<br />
(0.6)<br />
(1.9)<br />
(0.6)<br />
(2.0)<br />
0.7<br />
(1.6)<br />
(8.8)<br />
9.5<br />
1.6<br />
3.5<br />
2.5<br />
(3.2)<br />
9.8<br />
(5.8)<br />
5.2<br />
(1.5)<br />
<strong>January</strong> 6, <strong>2011</strong><br />
, 2010<br />
(10.4)<br />
11.5<br />
9.4<br />
(0.3)<br />
(10.4)<br />
0.7<br />
1.2<br />
(28.9)<br />
2.9<br />
(7.2)<br />
Edelweiss Research is also available on www.edelresearch.com ,Bloomberg <strong>EDEL</strong> , Thomson <strong>First</strong> <strong>Call</strong>, Reuters and Factset.Edelweiss Securities Limited<br />
25.9<br />
27.0<br />
34.6<br />
1.9<br />
(7.5)<br />
31.9<br />
(3.3)<br />
(29.0)<br />
32.9<br />
6.5<br />
Daily<br />
India Change in %<br />
Nifty 6,080<br />
Sensex 20,301<br />
CNX 500 4,903<br />
Global Indices<br />
DJIA 11,723<br />
NASDAQ 2,702<br />
Hang Seng 23,775<br />
Nikkei 225 10,502<br />
Net Inv (INR Bn)<br />
Open Interest (INR mn)<br />
Volume 5-Jan-11 4-Jan-11 % Change<br />
Futures 540,718 544,266 (0.7)<br />
<strong>Call</strong> 312,503 290,097 7.7<br />
Put 376,528 367,353 2.5<br />
Total 1,229,748 1,201,717 2.3<br />
Put <strong>Call</strong> Ratios<br />
Volume 5-Jan-11 4-Jan-11 % Change<br />
PCR 1.05 1.03 1.7<br />
WPCR 0.98 0.75 29.8<br />
OI PCR 1.20 1.26 (4.9)<br />
Total OI/ Volume 1.28 1.20 6.7<br />
Nifty IVs at 16 - 18% levels.<br />
FII Activity* (INR Mn) (4-Jan)<br />
5-Jan-11 1-d 1-mo 3-mo<br />
(1.1)<br />
(1.0)<br />
(0.5)<br />
1.5<br />
1.7<br />
0.6<br />
(1.1)<br />
(0.5)<br />
(2.8)<br />
5-Jan-11 1-d 1-mo 3-mo<br />
0.3<br />
0.8<br />
0.1<br />
1.2<br />
3.0<br />
4.3<br />
2.3<br />
3.3<br />
7.1<br />
12.6<br />
3.9<br />
8.4<br />
3-Jan-11 Buy Sell Net<br />
FII Cash 33.8<br />
FII F&O 73.4<br />
MF Cash 5.9<br />
26.0<br />
78.1<br />
8.8<br />
Value Traded - India (INR Bn) Change in %<br />
BSE Cash 40.8<br />
NSE Cash 130.9<br />
NSE F&O 959.3<br />
7.8<br />
(4.7)<br />
(2.9)<br />
5-Jan-11 1-d 1-mo 3-mo<br />
(6.1)<br />
(9.0)<br />
(30.5)<br />
2.5<br />
(11.0)<br />
Forex/Money Market Change in %<br />
INR/USD 45.3<br />
USD/EUR 1.3<br />
USD/YEN 0.0<br />
10 Yr G-Sec 8.1<br />
(44.4)<br />
(26.3)<br />
5-Jan-11 1-d 1-mo 3-mo<br />
(0.8)<br />
(0.0)<br />
(0.0)<br />
-<br />
(0.8)<br />
(1.2)<br />
0.7<br />
(1.6)<br />
Commodities (USD/Mt ton)Change in %<br />
Copper 9,587.0<br />
Aluminium 2,452.8<br />
*Gold 1,375.8<br />
*Silver 29.4<br />
**NYMEX 90<br />
(1.4)<br />
(5.6)<br />
0.3<br />
1.5<br />
5-Jan-11 1-d 1-mo 3-mo<br />
(0.4)<br />
(0.8)<br />
(0.2)<br />
0.4<br />
1.0<br />
*USD/Troy Ounce **USD/bbl<br />
9.4<br />
6.6<br />
(3.4)<br />
(2.6)<br />
1.2<br />
Agri Commodities (INR/QT)Change in %<br />
Sugar 3,156.0<br />
Cotton^ 4,399.5<br />
17.5<br />
4.5<br />
2.0<br />
26.7<br />
9.0<br />
5-Jan-11 1-d 1-mo 3-mo<br />
(0.3)<br />
(1.0)<br />
^INR/Maund ^^INR/KG<br />
4.3<br />
5.0<br />
11.0<br />
19.4<br />
1
STOCKS IN NEWS<br />
Govt defers Urea decontrol decision(Dna)<br />
RIL draws a balnk in D9, second well junked(Dna )<br />
IOC follow-on delayed to next fiscal on crude(Dna)<br />
BOC India delisting floor price ar Rs225.29 (Dna)<br />
Omnitech to buy Dutch co(Dna)<br />
KRBL basmati exports to treble on Pakistan floods(Dna)<br />
Lupin lines up $50mn for acquisitions in Latin America(DET)<br />
TCS to set up Rs1500cr learning centre in Kerala(ET)<br />
Edelweiss Securities Limited<br />
2
SALES TRADERS COMMENTARY<br />
On Wednesday, equity benchmarks saw profit taking on higher level. Financials, auto,<br />
metal, realty, telecom, and capital goods stocks witnessed sell offs. <strong>The</strong> Nifty slipped below<br />
the 6100 mark in second half of trade, especially after a fall in global markets.<br />
<strong>The</strong> Sensex closed at 20301, down 197 points, while the Nifty dipped 66 points to 6079.<br />
Major gainers were Hindustan Unilever (1.43%), I T C (1.38%), Hindalco Industries<br />
(1.36%), Tata Consultancy Services (1.25%), Tata Power Company (1.17%), and Wipro<br />
(0.53%).<br />
Major losers were Bajaj Auto (3.69%), Hero Honda Motors (3.60%), D L F (3.28%), I C I C<br />
I Bank (3.08%), Reliance Communications (2.81%), and Housing Development Finance<br />
Corporation (2.75%).<br />
<strong>The</strong> FMCG index was up 0.72%. Major gainers were Hindustan Unilever (1.43%), I T C<br />
(1.38%), Marico (0.81%), Dabur India (0.29%), and Nestle India (0.07%).<br />
<strong>The</strong> Bankex dipped 2.19%. Major losers were Canara Bank (4.63%), I C I C I Bank<br />
(3.08%), Federal Bank (2.8%), H D F C Bank (1.58%), and Bank of Baroda (0.31%).<br />
<strong>The</strong> Realty index was down 2.03%. Major losers were Anant Raj Industries (5%), D L F<br />
(3.28%), D B Realty (2.45%), Ackruti City (1.06%), and Indiabulls Real Estate (0.97%).<br />
<strong>The</strong> Auto index dipped 1.95%. Major losers were Apollo Tyres (4.75%), Bajaj Auto<br />
(3.69%), Amtek Auto (3.65%), Ashok Leyland (2.97%), and Bharat Forge (1.16%).<br />
Major losers in mid cap were Allahabad Bank (3.86%), Aban Offshore (3.81%), Core<br />
Projects and Technologies (1.98%), Ackruti City (1.06%), and Allcargo Global Logistics<br />
(0.98%).<br />
Major losers in small caps were Aarti Industries (3.68%), A B G Shipyard (3.1%), Abhishek<br />
Industries (2.56%), A B G Infralogistics (0.89%) and INEOS ABS (India) (0.16%).<br />
Globally, Asian indices ended mixed, while European indices were trading lower.<br />
3<br />
Edelweiss Securities Limited<br />
3
India Equity Research | Construction Company Update<br />
•<br />
IRB INFRASTRUCTURE<br />
Addressing key investor concerns<br />
� Stress testing IRB’s SOTP value<br />
Key investor concern on IRB Infrastructure (IRB) has been regarding the<br />
valuation assigned to its EPC business, given: 1) Predominantly in-house road<br />
projects; and 2) significantly higher EBIDTA margin, at ~20% against 10% for<br />
other construction companies. We attempt to incorporate these concerns in our<br />
valuation through various scenarios, as below, and conclude that even our worst<br />
case SOTP value of INR 236/share offers 5% upside on the current market price.<br />
� Scenario–I: EPC business earns normalized margins / nil profits<br />
Here, we assume EPC business earns EBIDTA margin of 10% instead of 20% and<br />
pass on this benefit to BOT projects through lower project cost. We use target<br />
P/E of 11x FY12 for valuing EPC business. This is higher than base case target<br />
multiple, but is still at 10-15% discount to the target multiple used to value<br />
other construction companies. In this case, EPC value nearly halves to INR<br />
44/share, but value of BOT projects goes up 8% as project costs reduce to the<br />
extent of lower profits earned by EPC business. Our SOTP value in this case<br />
comes to INR 264/share. Further, if we assume that EPC does not earn any<br />
profits and pass on the entire benefit to BOT projects, we arrive at SOTP of INR<br />
239 /share (with zero value for EPC).<br />
� Scenario–II: No new project win; EPC executes only current order book<br />
Here, we assume that the EPC executes only current order book of INR 95 bn by<br />
FY14 and then shuts down. We use DCF for valuing EPC business in this case and<br />
arrive at a value of INR 30/share (versus INR 86/share in our base case). Value<br />
for BOT projects remains unchanged and our SOTP value comes to INR<br />
236/share.<br />
� Outlook and valuations: Top construction pick; maintain ‘BUY’<br />
We expect award of road projects to pick up pace in Q4FY11 and believe IRB is<br />
well-positioned to win a few. Also, we expect Q3FY11 to be a strong quarter for<br />
construction as contribution from new road projects will start to kick-in. We<br />
maintain ‘BUY’ on the stock with target price of INR 292 and rate it ‘Sector<br />
Outperformer’ on relative returns (refer rating page for details).<br />
Financials<br />
Year to March FY09 FY10 FY11E FY12E<br />
Revenue (INR mn) 9,919 17,049 22,204 36,268<br />
Rev. growth (%) 35.4 71.9 30.2 63.3<br />
EBITDA (INR mn) 4,388 7,990 10,336 13,707<br />
Net profit 1,758 3,854 4,577 5,238<br />
Shares outstanding (mn) 332 332 332 332<br />
EPS (INR) 5.3 11.6 13.8 15.8<br />
EPS growth (%) 54.4 119.2 18.8 14.4<br />
P/E (x) 42.9 19.6 16.5 14.4<br />
EV/ EBITDA (x) 21.7 12.4 10.8 9.2<br />
ROAE (%) 10.5 20.4 20.4 19.6<br />
ROACE (%) 8.5 13.4 14.2 12.6<br />
<strong>January</strong> 5, <strong>2011</strong><br />
Reuters: IRBI.BO Bloomberg: IRB IN<br />
<strong>EDEL</strong>WEISS 4D RATINGS<br />
Absolute Rating<br />
Rating Relative to Sector<br />
Edelweiss Research is also available on www.edelresearch.com, Bloomberg <strong>EDEL</strong> , Thomson <strong>First</strong> <strong>Call</strong>, Reuters and Factset. Edelweiss Securities Limited<br />
BUY<br />
Risk Rating Relative to Sector Low<br />
Sector Relative to Market<br />
Outperformer<br />
Overweight<br />
Note:<br />
Please refer last page of the report for rating explanation<br />
MARKET DATA<br />
CMP : INR 227<br />
52-week range (INR) : 315 / 186<br />
Share in issue (mn) : 332.4<br />
M cap (INR bn/USD mn) : 75 /1,667<br />
Avg. Daily Vol. BSE/NSE (‘000) : 1,405.1<br />
SHARE HOLDING PATTERN (%)<br />
Promoters* : 74.9<br />
MFs, FIs & Banks : 4.3<br />
FIIs : 12.7<br />
Others : 8.1<br />
* Promoters pledged shares<br />
(% of share in issue)<br />
: 15.3<br />
PRICE PERFORMANCE (%)<br />
Stock Nifty EW<br />
Construction<br />
Index<br />
1 month 1.2 2.6 (1.5)<br />
3 months (11.7) (0.2) (6.5)<br />
12 months (2.9) 17.5 5.8<br />
Manish Sarawagi<br />
+91 22 4040 7575<br />
manish.sarawagi@edelcap.com<br />
Parvez Akthar Qazi<br />
+91 22 4063 5405<br />
parvez.qazi@edelcap.com<br />
Rohit Patni<br />
+91 22 6623 3392<br />
rohit.patni@edelcap.com
India Equity Research | IT Sector Update<br />
INFORMATION TECHNOLOGY<br />
Resurgence of offshore growth story<br />
•<br />
We believe FY12 is likely to be another 26-30% growth year for tier I<br />
vendors as was the case in FY11. Interactions with industry players and<br />
channel partners suggest that FY11 growth being driven by cost-outs along<br />
with gradual spending towards revenue productivity is a sustained and<br />
structural increase in demand for offshore services. Growth in FY12 will be<br />
driven by: (a) greater offshoring by existing client base; (b) market share<br />
increase for Indian IT players in the renewal deal market; and (c) sustained<br />
improvement in IT spending i.e., revival and embracing off shore market.<br />
� Upfront discretionary commitments in CY11 budgets<br />
CY11 IT budgets are likely to see greater offshore spending with significant<br />
commitment on discretionary spending. Conventional cost take out continues to<br />
drive growth for services like IS, BPO, ADM while revenue enhancement is<br />
driving spend in Enterprise Solutions (ES), consulting and Package<br />
Implementations (PI). We anticipate discretionary spend commitments from<br />
large clients to drive visibility for tier 1 companies (TCS, Infosys, Wipro and<br />
Cognizant) going into CY11/FY12.<br />
� What to expect from December quarter?<br />
Barring the impact of fewer working days during the December quarter,<br />
performance is expected to be similar to Q2FY11. <strong>The</strong> trend of stable pricing<br />
and high attrition will remain unchanged. While broadening of the employee<br />
pyramid will be favourable, INR appreciation against USD and GBP will be a<br />
margin headwind.<br />
� Revising up FY12 forecast and introducing FY13 estimates<br />
We are revising up our FY12 USD revenue growth forecast from 21-23% to 26-<br />
30% for TCS, Infosys and HCLT, and from 20% to 22% for Wipro. <strong>The</strong> resultant<br />
increase in EPS varies from 1.5% to 6.5% across companies. For tier II<br />
companies, our FY12 revenue forecast is unchanged while tweaking the margin<br />
assumption leads to 2-4% downward revision for Patni and Infotech.<br />
We also introduce FY13 forecast for our coverage universe. We factor in a 17-<br />
21% USD growth for top 4 companies (from TCS to HCLT) and 15-20% growth<br />
for mid-tier players (refer table 4 on page 6).<br />
� Outlook and valuations<br />
<strong>The</strong> IT index has outperformed the benchmark index (BSE Sensex) by 14% in<br />
the past six months. With continued traction in business and upgrades in<br />
earnings, we expect the outperformance to continue. We continue to prefer TCS<br />
(BUY) over Infosys and upgrade HCLT to ‘BUY’. We believe better client<br />
mining, aggressive sales approach in renewal deal market and improving<br />
margins will lead to narrowing of HCLT’s valuation discount to TCS and Infosys.<br />
We maintain ‘HOLD’ recommendation on Infosys and Wipro (refer table 5 for<br />
detailed recommendations).<br />
Re-rating in mid-caps is imminent and will continue to be selective (like in<br />
Hexaware, our erstwhile top pick) and not broad based.<br />
� Top picks: TCS and HCLT in large caps and Infotech in mid caps<br />
<strong>January</strong> 5, <strong>2011</strong><br />
Kunal Sangoi<br />
+91-22-6623 3370<br />
kunal.sangoi@edelcap.com<br />
Ganesh Duvvuri<br />
+91-22-2286 7586<br />
ganesh.duvvuri@edelcap.com<br />
Edelweiss Research is also available on www.edelresearch.com,, Bloomberg <strong>EDEL</strong> , Thomson <strong>First</strong> <strong>Call</strong>, Reuters and Factset. Edelweiss Securities Limited
India Alternative Research<br />
HEDGE<br />
<strong>The</strong> alternative insights monthly<br />
<strong>January</strong> view: New year new hope; concerns still old<br />
� Bye bye 2010; selective buy <strong>2011</strong><br />
� Its silver all the way<br />
� Growth and inflation: A tight rope walk going forward<br />
� Metals, commodities in play post QE2<br />
� Oil & gas: Higher crude prices to benefit players<br />
� IT: Global recovery coming its way<br />
Bye bye 2010; selective buy <strong>2011</strong><br />
CY10 is over and along with it has ended an eventful decade in equities. During this<br />
period, Indian markets have been party to several events that we believe have<br />
made it more mature. Be it the technology boom and bust, K-10 scam, the fallout<br />
of the global credit crisis, the Satyam scam or the recent loan–for-bribe scam,<br />
barring the initial knee jerk reaction, Indian markets have emerged much stronger.<br />
With strong regulators, Indian equity markets have become multifold safe place for<br />
investors against the senerio a decade ago.<br />
Among emerging markets (EMs), India still remains a hot destination for funds<br />
chasing quick bucks. CY10 saw a record influx of foreign portfolio flows of ~USD 29<br />
bn. <strong>The</strong> disinvestment process initiated by the government resurrected fortunes of<br />
the primary market. IPOs worth ~USD 9.5 bn hit the market last year. Retail<br />
participation gained traction (average retail subscriptions was ~6.8x in CY10<br />
versus ~2.0x in CY09). For an economy poised to grow at ~8.3% in CY11,<br />
maintaining the momentum going forward should not be an issue.<br />
In this background, while we welcome the new year with fresh enthusiasm and zeal,<br />
we also carry previous year’s baggage of micro (domestic) as well as macro<br />
(global) economic concerns. Domestic markets received stupendous foreign flows<br />
of USD 29 bn (primary + secondary), the highest ever in Indian equity markets in<br />
CY10. <strong>The</strong> flows were majorly driven by primary market activity which accounted<br />
for ~USD 16 bn and the balance ~USD 13 bn came via secondary market. <strong>The</strong><br />
muted equity returns of ~18% relative to the huge foreign flows are well justified<br />
by a few facts. Throughout CY10, domestic institutional investors were net sellers.<br />
Also, one has to remember that the surge of ~75% in CY09 was from the abyss<br />
when stimulating monetary policies world over ignited a chase for high-yielding<br />
risky asset classes. CY10 started on a higher base as compared to CY09 which<br />
started with an oversold market.<br />
In short, the point that we are driving home is, flows should continue in CY11 but<br />
the possibility of upside being capped is strong on the back of supply at higher<br />
levels. Economic issues like quantitative easing, inflation, deflation, flight to quality<br />
etc., have been the buzz words for quite some time.<br />
<strong>January</strong> 05, <strong>2011</strong><br />
Yogesh Radke<br />
+91‐22‐6620 3199<br />
yogesh.radke@edelcap.com<br />
Sriram Velayudhan<br />
+91‐22‐6620 3100<br />
sriram.velayudhan @edelcap.com<br />
December Retrospect<br />
India vs. Global Markets<br />
Under In line Out<br />
perform perform<br />
Fund Flows<br />
� FII<br />
� MF<br />
Dec - Sector performance<br />
� Outperformers –Metals and IT<br />
� Underperformers – Bank,<br />
consumer durables and auto<br />
Jan – Sectors to watch<br />
� Outperformers<br />
o Metals<br />
o Oil & Gas<br />
� Underperformers<br />
o Banks<br />
o Auto
hEDGE<br />
Will these issues continue to be preferred topics of talk in CY11 seems to be seen? <strong>The</strong> struggle for growth (deflation)<br />
and structural issues (sovereign debt concerns) in the western part of the world should ensure that these economies<br />
continue to loosen their purse strings in CY11 as well (possibility of quantitative easing 3 (QE3) is high). This coupled<br />
with the government’s disinvestment programme should keep inflows intact. At the same time, concerns like inflation<br />
(supply side concerns on the domestic front and spillover effect of rising commodity prices globally), rate hikes, rising<br />
raw material costs, and widening current account deficit (negative for INR) may dent earnings prospects of corporate<br />
India in the new year. One thing that’s sure is that CY11 is not going to be an easy year. We hold a moderately bullish<br />
view on the Indian market with rise in volatility as uncertainty over global factors still persists along with steady<br />
domestic growth. We place Nifty target for the year at 7015 with a double bottom formation at 5734. <strong>The</strong> recent up<br />
move is likely to extend towards 6450.<br />
For <strong>January</strong> <strong>2011</strong> we place the Nifty target at around 6300 with crucial resistances and support levels placed at<br />
6240/6300 and 6100/6055, respectively.<br />
<strong>The</strong>mes to play in CY11: Overweight on commodities; caution recommended on rate-sensitive sectors<br />
<strong>The</strong> global economic recovery is poised to gain further momentum in CY11. On one hand developed economies are<br />
facing a growth crisis while on the other though EMs have growth on their plate they also have to contend with<br />
inflationary pressures. We believe India too will have to counter this scenario (growth + inflation) in most part of CY11.<br />
We are overweight on sectors with a global interface (IT, metals and energy) and cautious on rate-sensitive cyclical<br />
sectors (BFSI, auto and real estate). As interest rates rise, companies/sectors with higher capital requirements may<br />
find it difficult to expand, thereby handing over the edge to companies with lower capital requirements. Sectors which<br />
we like within this space are consumption, pharma, utilities, and media. Global recovery is expected to gather pace as<br />
we move into CY11. We like sectors that will benefit from the likely combination of global growth and easy monetary<br />
conditions, such as energy and metals. Similarly, a strong global inter linkage (improving corporate spend in the US)<br />
augurs well for the IT sector. Banks, real estate and auto are likely to be crippled by margin concerns due to rising<br />
interest rates, commodity and resource costs, resource crunch and competition.<br />
Quality mid caps should stay on investor radar<br />
<strong>The</strong> valuation disparity between large<br />
caps and mid caps should narrow down<br />
in CY11. In CY10, the BSE mid-cap<br />
140.0<br />
Sensex vs. BSE Mid-cap<br />
index had consistently outperformed<br />
130.0<br />
the Sensex, barring the last two 120.0<br />
months of under performance owing to<br />
sell offs.<br />
110.0<br />
We believe the quest for scalable and<br />
100.0<br />
quality business models should keep 90.0<br />
investors interested in this space. 80.0<br />
<strong>The</strong>re are quite a few quality stocks<br />
(proxy plays on India consumption<br />
story) still available at reasonable<br />
Source: Edelweiss research<br />
Sensex BSE Mid-cap<br />
valuations. In our latest strategy update Bulls to hibernate, dated <strong>January</strong> 4, <strong>2011</strong>, we have stated our top picks in the<br />
Edelweiss Securities Limited<br />
2<br />
Base to 100 (31-Dec-09)<br />
Dec-09<br />
Jan-10<br />
Feb-10<br />
Mar-10<br />
Apr-10<br />
May-10<br />
Jun-10<br />
Jul-10<br />
Aug-10<br />
Sep-10<br />
Oct-10<br />
Nov-10<br />
Dec-10
hEDGE<br />
mid-cap space. To mention a few are Pantaloon (PE of ~18.6x FY12E), United Phosphorous (PE of ~9x FY12E), Federal<br />
Bank (PB of ~1.2x FY12E), and Jindal Saw (PE of ~9.2x FY12E).<br />
Metals: Commodities in play post QE2 (Our metals analyst Prasad Baji)<br />
Famously known as late cycle leaders, commodities especially metals stand firm for an upside. Metals’ relative strength<br />
peaked after the market did; this is expected because commodities in general lag equities and peak well after them.<br />
Industrial activity such as manufacturing has led the momentum, with strongest pace of expansion observed in metal<br />
products. However, the momentum has moderated for some time now, as observed in the sequential seasonally<br />
adjusted data. <strong>The</strong> recovery in global economy, in our view, will be supportive of higher metal prices in the near term.<br />
Global PMI indices, which had softened in H1CY10, have revived somewhat of late. This uptick in demand will feed into<br />
higher metal prices as well. Demand for aluminum has increased more than anticipated and is expected to be 13% in<br />
CY11. Though incremental supply is coming in, mostly from China and rest of Asia, we expect global market to be in a<br />
deficit in CY11 due to strong demand. Our top pick in the metal space is Tata Steel in ferrous and Hindalco in the nonferrous<br />
space on the back of continuous global recovery and demand for both steel and non-ferrous metals moving up.<br />
Oil & Gas: Higher crude prices to benefit players (Our oil & gas analyst Niraj Mansingka)<br />
Crude prices are expected to remain high in CY11 and CY12 on the back of continued demand growth, leading to spare<br />
capacity dipping below 5% of total global demand CY12 onwards. Global crude demand is expected to expand to 87.3<br />
mbpd, much above the earlier peak of 86.7 mbpd (CY07), on the back of faster-than-expected global recovery. Going<br />
forward, overall crude demand is expected to rise at 1.3% CAGR (CY10-15E) or average 1.2 mbpd per year. Meanwhile,<br />
increased demand of crude is expected to lead to higher demand of refined products benefiting complex refiners like<br />
Reliance Industries (RIL) as the company is able to garner larger discounts for purchase of crude. RIL remains one of<br />
our key sector overweight, given its high sensitivity to rising crude prices. In the near term, GRMs should trend<br />
upwards due to impact of severe winter in Europe and North America. Higher cotton prices and increased textile<br />
domestic consumption in China has led to increase in polyester prices, which, in turn, has pushed polyester margins to<br />
the highest in the past 20 years.<br />
IT: Global recovery coming its way (Our IT analyst Kunal Sangoi)<br />
Global recovery and QE2 will benefit sectors like IT which have global interface. We expect management commentary<br />
to remain positive during results season. We believe demand continues to remain strong and, hence, revenue growth is<br />
less of a concern for tier-1 companies. But, given the continued high levels of attrition and competition precluding<br />
increase in billing rates, the challenge for the sector is to defend margins. Companies believe that growth in FY11 was<br />
not driven by pent up demand and, hence, was not a one-off, implying that growth could sustain in FY12. We believe<br />
consensus is factoring 22% revenue growth in FY12 for tier 1 IT companies and if FY11 growth is repeated in FY12,<br />
upgrades will lead to continued stock outperformance. Among large caps our top pick is Tata Consultancy Services<br />
(TCS) which is witnessing strong long-term demand momentum and also closing large multi-year deals. EBITDA<br />
margins have risen from 25.8% in FY09 to 30.0% in Q2FY11 due to impressive cost management. <strong>The</strong> company is<br />
guiding for continued cost efficiency improvement, which, combined with pricing uptick (likely in H2FY11), could<br />
expand margins further. Among mid caps, Hexaware remains our top pick. <strong>The</strong> company has focused on improving<br />
operational efficiencies and in that process has realigned itself vertically from the earlier horizontal sales-based<br />
approach. With this vertical alignment, the company will be able to focus on select areas of strength and create<br />
opportunities through better client mining.<br />
Edelweiss Securities Limited<br />
3
hEDGE<br />
Growth and inflation: A tight rope walk going ahead<br />
<strong>The</strong> world economy is now facing a perplexing situation. Developed economies are fighting to stay fit (anemic economic<br />
growth) but EMs are on the growth path even though rising prices threaten to derail this recovery. Overall, we believe<br />
recovery is underway and extension of tax benefits will boost it further. Accordingly, forecasts for US GDP growth in<br />
<strong>2011</strong> have been revised higher by 50-70bps; ergo, the economy is now expected to grow ~3% in CY11E.<br />
Edelweiss Securities Limited<br />
4<br />
65<br />
58<br />
51<br />
44<br />
37<br />
30<br />
Jan-98<br />
Aug-98<br />
Mar-99<br />
Oct-99<br />
US ISM Manufacturing & Non-manufacturing Index<br />
May-00<br />
Dec-00<br />
Source: Edelweiss research<br />
Jul-01<br />
Feb-02<br />
Sep-02<br />
Apr-03<br />
Nov-03<br />
Jun-04<br />
Jan-05<br />
Aug-05<br />
Mar-06<br />
Oct-06<br />
May-07<br />
Dec-07<br />
Jul-08<br />
Feb-09<br />
Sep-09<br />
US ISM Non-Manufacturing Index<br />
US ISM Manufacturing Index<br />
India and China, the two major economies that pulled the global economy out of recession, are now battling<br />
inflationary concerns. China hard landing now appears to be one of the key concerns thwarting the world economy.<br />
Y-o-Y(%)<br />
16.0<br />
12.0<br />
8.0<br />
4.0<br />
0.0<br />
(4.0)<br />
Sep-05<br />
Dec-05<br />
Mar-06<br />
Jun-06<br />
Sep-06<br />
Source: Edelweiss research<br />
Dec-06<br />
Mar-07<br />
Home prices growth<br />
Jun-07<br />
Sep-07<br />
Dec-07<br />
Mar-08<br />
Jun-08<br />
Sep-08<br />
Dec-08<br />
Mar-09<br />
Jun-09<br />
Sep-09<br />
Dec-09<br />
Mar-10<br />
Jun-10<br />
Apr-10<br />
Sep-10<br />
China Shanghai Beijing<br />
To curb an asset bubble and rising prices, China has increased reserve requirements for banks from ~16% to ~18.5%<br />
in CY10.<br />
Nov-10<br />
Dec-10
hEDGE<br />
China’s policymakers have to play a fine balancing act in terms of managing multiple challenges of moderating<br />
economic growth, rising inflation, and a cooling of the property market. Any over-tightening by policymakers could lead<br />
to sharper-than-expected slowdown in the economy, while slower-than-required response could lead to inflation<br />
becoming generalised in the economy. Since China remains the major driver of the EM economic momentum, any<br />
unfavourable event in the country could hurt global business and market sentiments.<br />
Y-o-Y (%)<br />
25<br />
20<br />
15<br />
10<br />
5<br />
0<br />
-5<br />
Aug-06<br />
Nov-06<br />
Feb-07<br />
May-07<br />
Aug-07<br />
Source: Edelweiss research<br />
India: Valuations still pricey<br />
Nov-07<br />
Recipe for tigthening<br />
Feb-08<br />
May-08<br />
Aug-08<br />
Nov-08<br />
Feb-09<br />
May-09<br />
Aug-09<br />
Nov-09<br />
Feb-10<br />
May-10<br />
Aug-10<br />
China CPI<br />
China Non-food CPI, YoY<br />
China Food CPI, YoY<br />
Among EMs, India’s valuations appear pricey. <strong>The</strong> country commands a forward P/E premium of 1.46x, which is above<br />
its long-term average of 1.38x. On P/B as well, India is trading at a premium of 1.63x over MSCI EM, although it is a<br />
shade below its long-term average of 1.7x. Historically, also the country has enjoyed a premium in valuations over<br />
other EMs.<br />
While valuations are a concern, India’s earnings growth profile offers some comfort; it is estimated at ~22% for<br />
FY12/CY11 against ~16% expected for the EM universe. Although growth appears robust, macro headwinds may drag<br />
down the actual earnings growth rate for FY12 to 18-20%.<br />
Premium (MSCI India vs MSCI EM<br />
2.5<br />
2.2<br />
1.9<br />
1.6<br />
1.3<br />
1.0<br />
Jul-03<br />
Nov-03<br />
Mar-04<br />
Jul-04<br />
Nov-04<br />
Mar-05<br />
Jul-05<br />
Nov-05<br />
Mar-06<br />
Jul-06<br />
Fwd P/E Avg fwd P/E premium P/B Avg P/B premium<br />
Source: Edelweiss research<br />
Nov-06<br />
Mar-07<br />
Jul-07<br />
Nov-07<br />
Mar-08<br />
Jul-08<br />
Nov-08<br />
Mar-09<br />
Jul-09<br />
Nov-09<br />
Mar-10<br />
Jul-10<br />
Nov-10<br />
Nov-10<br />
Edelweiss Securities Limited<br />
5
hEDGE<br />
<strong>The</strong> year that was…<br />
<strong>The</strong> performance of Indian equity markets has been in line with global counter parts. Nifty and Sensex returned ~18%<br />
in CY10. It has been a rollercoaster ride for global equities, marred by concerns of debt default in European economies<br />
(PIGS), China hard landing, tussle on currency revaluation (US and China), inflation concerns in EMs and growth issues<br />
in developed markets.<br />
India (Cash+Fut ~USD 24 bn) and Taiwan (~USD 9.70 bn) have cornered major part of FII flows in EMs in CY10.<br />
Edelweiss Securities Limited<br />
6<br />
%<br />
FII flows in EMs:<br />
50.0<br />
40.0<br />
30.0<br />
20.0<br />
10.0<br />
-<br />
(10.0)<br />
(20.0)<br />
18 17<br />
Nifty<br />
Sensex<br />
11<br />
DJIA<br />
17<br />
NASDAQ<br />
Source: Edelweiss research<br />
Till Dec '10 (fig<br />
in USD Mn)<br />
Global equity indices -CY'10<br />
India Developed markets Other emerging markets<br />
13<br />
S&P 500<br />
India<br />
(Cash + Fut)*<br />
CY-00 1,383<br />
CY-01 2,728<br />
CY-02 739<br />
CY-03 6,415<br />
CY-04 7,437<br />
CY-05 9,527<br />
CY-06 4,489<br />
CY-07 5,586<br />
CY-08 (7,931)<br />
CY-09 13,773<br />
CY-10 24,008<br />
(3)<br />
CAC 40<br />
Note: *India FII flows is cash + futures<br />
9<br />
FTSE 100<br />
(4)<br />
Nikkei 225<br />
23<br />
Kospi<br />
5<br />
Hang Seng<br />
(14)<br />
Shanghai Comp<br />
Indonesia Taiwan Thailand Philippine<br />
99<br />
431<br />
864<br />
1,168<br />
2,125<br />
(1,733)<br />
1,945<br />
3,179<br />
1,721<br />
1,313<br />
2,332<br />
4,906<br />
9,146<br />
705<br />
16,014<br />
9,366<br />
22,153<br />
18,122<br />
2,066<br />
(14,847)<br />
14,313<br />
9,668<br />
10<br />
STI<br />
1<br />
Bovespa<br />
(857)<br />
(156)<br />
280<br />
(639)<br />
104<br />
2,949<br />
2,068<br />
1,548<br />
(4,752)<br />
1,017<br />
2,035<br />
10<br />
TAIEX<br />
19<br />
KLCI Index<br />
39<br />
SET<br />
(123)<br />
88<br />
(50)<br />
(80)<br />
278<br />
354<br />
720<br />
1,354<br />
(1,132)<br />
442<br />
1,238
Asset class performance; its silver all the way<br />
hEDGE<br />
Among asset classes, commodities had a good run compared to equities. Silver was the outperformer followed by<br />
copper and gold. As global recovery gains strength, the need for metals and energy will rebound the world over. Silver<br />
out performed gold post August 2010 by a stunning margin of ~53%.<br />
Base to 100 (31-Dec-09)<br />
200<br />
180<br />
160<br />
140<br />
120<br />
100<br />
80<br />
Index movers CY10:<br />
Dec-09<br />
Jan-10<br />
Feb-10<br />
Mar-10<br />
Source: Edelweiss research<br />
Equity* - MSCI Emerging Mkt<br />
Asset class performance CY 10<br />
Apr-10<br />
May-10<br />
Jun-10<br />
Jul-10<br />
Aug-10<br />
Sep-10<br />
Oct-10<br />
Nov-10<br />
Silver, 182<br />
Copper, 130<br />
Gold, 129<br />
Brent, 123<br />
Equity*, 118<br />
Equity* Copper Gold Silver Brent<br />
Banking has contributed the maximum points towards index movement in CY10. Buoyed by uptick in credit growth,<br />
improvement in margins and asset quality banks were hot cakes for a major part of CY10. IT comes in at the second<br />
position. Led by stalwarts like TCS, Infosys, HCL Technology and Wipro (triggers being revenue as well as margin<br />
improvement) the sector proved its detractors wrong in CY10 and highlighted that the sun never sets on the Indian IT<br />
industry. Auto and FMCG once again reiterated the India consumption story.<br />
5,200<br />
5,000<br />
4,800<br />
4,600<br />
4,400<br />
4,200<br />
4,000<br />
3,800<br />
3,600<br />
3,400<br />
4,329<br />
-<br />
CNX500<br />
(31-Dec-09)<br />
227<br />
Banking<br />
Source: Edelweiss research<br />
Index movers - CY '10<br />
136<br />
IT<br />
89<br />
Auto<br />
Dec-10<br />
78 68 14<br />
FMCG<br />
Pharma<br />
Indian<br />
Other<br />
4,941<br />
CNX500<br />
(31-Dec-10)<br />
Edelweiss Securities Limited<br />
7
hEDGE<br />
(Our technical analyst Tejas Shah)<br />
2010 was a tale of two halves. <strong>The</strong> first half<br />
was spent consolidating in a broad range and<br />
the second saw the market break out with a<br />
strong 18% rally. After the November carnage,<br />
confidence returned in December and<br />
stabilised the market. Commodities and IT<br />
were at the forefront of the market rally. 2010<br />
has provided the platform from where the<br />
index can extend the structural uptrend it<br />
continues to be in. Technical structure of the<br />
market still remains in a good and healthy<br />
uptrend which is likely to lead to the Nifty<br />
surpassing previous highs. <strong>The</strong> broader index<br />
view will remain bullishly skewed till the crucial<br />
support of 200 DMA (5600) remains inviolate.<br />
Sectors that could be leaders in the new year<br />
are resources, healthcare, oil & gas, IT and<br />
capital goods. Sectors with concerns are<br />
banking, realty and auto.<br />
December recovery saw the market retrace nearly 61.8% of the November fall and with that the daily oscillators have<br />
moved comfortably in the buy mode. Weekly oscillators, however, are trading sideways indicative of a broad trading<br />
range still for the index. Additionally, on a break above 6069, the Nifty has confirmed the ‘double bottom’ reversal at<br />
5700 that has a target of 6300 (conservative) and 6450 (aggressive). On the larger perspective, the Nifty is riding the<br />
current bull trend in an ascending trend channel from July 2009. Key feature of the bull market is the classical higher<br />
peaks and troughs on the Nifty.<br />
Edelweiss Securities Limited<br />
8<br />
Technical View
Global context<br />
Indian benchmarks bounce back into green; Kospi leads from the front<br />
hEDGE<br />
� Fresh interest rate increase by China combined with a speech by Premier Wen Jiabao has confirmed what was<br />
known already—China remains in a tightening cycle. <strong>The</strong> benchmark one-year lending rate and one-year deposit<br />
rate were both raised by 25bp to 5.81% and 2.75%, respectively.<br />
� <strong>The</strong> FTSE 100 finally came back strongly, posting resounding gains of ~6.7% during the month. It was among the<br />
biggest laggard last month among the developed markets losing around ~2.6%.<br />
� Mixed data flow came in from US markets, reflecting both positive and negative sentiments. Initial jobless claim<br />
numbers decreased from ~420k to ~388k in the last week of December. Consumer confidence came in at 52.5<br />
against 54.1, a weak recovery signal.<br />
� After a negative November, Indian benchmark indices took flight in December. Among tepid volumes and little<br />
activity, directionless markets consolidated and then moved up.<br />
� Emerging markets were strong with the Taiex leading from the front with ~7.2% gain.<br />
� Among EM benchmarks, the Shanghai Comp was the only underperforming index, down ~0.4%.<br />
� Among developed markets, the Hang Seng was the lowest gainer (returns of ~0.1% in December). On the other<br />
hand, biggest gainers were Kospi and FTSE 100, gaining ~7.7% and 6.7%, respectively.<br />
9%<br />
8%<br />
7%<br />
6%<br />
5%<br />
4%<br />
3%<br />
2%<br />
1%<br />
0%<br />
-1%<br />
5.1% 5.2%<br />
4.6%<br />
Global equity indices -Dec '10<br />
6.2% 6.5%<br />
India Developed markets<br />
7.7%<br />
Other emerging markets<br />
7.2%<br />
6.7%<br />
Nifty<br />
Sensex<br />
DJIA<br />
Source: Edelweiss research<br />
NASDAQ<br />
S&P 500<br />
5.4%<br />
CAC 40<br />
FTSE 100<br />
2.9%<br />
Nikkei 225<br />
Kospi<br />
0.1%<br />
Hang Seng<br />
-0.4%<br />
Shanghai Comp<br />
1.4%<br />
STI<br />
2.4%<br />
Bovespa<br />
TAIEX<br />
2.7%<br />
2.3%<br />
KLCI Index<br />
SET<br />
Edelweiss Securities Limited<br />
9
Fund flows<br />
hEDGE<br />
FII flows continue in EMs<br />
� FIIs remained net buyers in India for the<br />
seventh month in a row. Taiwan, among EMs,<br />
witnessed maximum FII inflows of ~USD 2.9 bn.<br />
� In India, FIIs were net buyers of ~USD 1.66 bn<br />
(cash + futures). In the cash segment, FIIs<br />
bought ~USD 0.33 bn, while in futures they<br />
were net buyers of ~USD 1.33 bn in December.<br />
In CY10, FIIs have been net buyers (cash +<br />
futures) of ~USD 24 bn.<br />
Domestic funds net buyers<br />
� Contrary to earlier months, domestic mutual<br />
funds were net buyers in December.<br />
� <strong>The</strong>y were net buyers of ~USD 303.9 mn of<br />
Indian equities. In CY10, till date, domestic<br />
mutual funds have sold ~USD 6 bn of equities.<br />
Metals and IT among top performers; banking lacklustre<br />
� Metals (up ~12.6%) and IT (up ~12%) were<br />
leaders in December.<br />
� Banks (down 1.8%) and consumer durables 14%<br />
(down ~1.2%) led the laggards.<br />
12%<br />
Edelweiss Securities Limited<br />
10<br />
(in USD mn)<br />
4,000<br />
3,000<br />
2,000<br />
1,000<br />
-<br />
(1,000)<br />
1,663<br />
India<br />
Note: India figs include Equity + Futures<br />
(in USD mn)<br />
500<br />
450<br />
400<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
-50<br />
1-Dec<br />
3-Dec<br />
Foreign institutional investor (FII) inflows -Dec '10<br />
5-Dec<br />
292<br />
Indonesia<br />
2,910<br />
Taiwan<br />
260<br />
Thailand<br />
Cumulative domestic funds' inflow - Dec '10<br />
7-Dec<br />
9-Dec<br />
11-Dec<br />
Source: Securities Exchange Board of India (SEBI)<br />
Returns<br />
10%<br />
8%<br />
6%<br />
4%<br />
2%<br />
0%<br />
-2%<br />
-4%<br />
Broader<br />
Indices<br />
0.5%<br />
BSE Mid Cap<br />
3.3%<br />
CNX 500<br />
Source: Edelweiss research<br />
12.6% 12.0%<br />
Metal<br />
IT<br />
13-Dec<br />
15-Dec<br />
17-Dec<br />
Sector Returns for Dec '10<br />
Out-performing sectors<br />
8.6%<br />
Teck<br />
5.4%<br />
Oil & Gas<br />
19-Dec<br />
(33)<br />
Philippine<br />
Source:Edelweiss research<br />
21-Dec<br />
23-Dec<br />
2.8%<br />
2.4% 2.3%<br />
1.8%<br />
1.3%<br />
.<br />
FMCG<br />
Capital<br />
Goods<br />
Healthcare<br />
PSU<br />
Auto<br />
25-Dec<br />
27-Dec<br />
Under-performing<br />
sectors<br />
-1.2% -1.8%<br />
Consumer<br />
Dur<br />
Bank<br />
Sector Returns<br />
29-Dec<br />
31-Dec
Macro-environment<br />
Inflation cooling down Crude oil at ~USD 91.5 per barrel<br />
(in %)<br />
12%<br />
10%<br />
8%<br />
6%<br />
4%<br />
2%<br />
0%<br />
-2%<br />
(in USD bn)<br />
300<br />
290<br />
280<br />
270<br />
260<br />
250<br />
6.00<br />
5.00<br />
4.00<br />
3.00<br />
2.00<br />
1.00<br />
0.00<br />
May-08<br />
Oct-09<br />
Nov-04<br />
Feb-05<br />
Nov-09<br />
Aug-08<br />
May-05<br />
Dec-09<br />
Aug-05<br />
Nov-08<br />
Nov-05<br />
Jan-10<br />
Feb-06<br />
Feb-10<br />
May-06<br />
Feb-09<br />
Aug-06<br />
Mar-10<br />
Nov-06<br />
May-09<br />
WPI Inflation<br />
Apr-10<br />
Aug-09<br />
Nov-09<br />
Forex Reserves<br />
May-10<br />
Jun-10<br />
US Fed Fund Rate<br />
Feb-07<br />
May-07<br />
Aug-07<br />
Nov-07<br />
Jul-10<br />
Feb-08<br />
May-08<br />
Feb-10<br />
Aug-10<br />
Aug-08<br />
Sep-10<br />
Nov-08<br />
May-10<br />
Feb-09<br />
Oct-10<br />
May-09<br />
Aug-10<br />
Nov-10<br />
Aug-09<br />
Nov-09<br />
Dec-10<br />
Nov-10<br />
Feb-10<br />
(in %)<br />
(in USD/bbl)<br />
95<br />
90<br />
85<br />
80<br />
75<br />
70<br />
65<br />
60<br />
44.00<br />
44.50<br />
45.00<br />
45.50<br />
46.00<br />
46.50<br />
47.00<br />
47.50<br />
48.00<br />
7.50<br />
7.00<br />
6.50<br />
6.00<br />
5.50<br />
5.00<br />
4.50<br />
4.00<br />
3.50<br />
3.00<br />
13-Apr<br />
Mar-10<br />
Apr-10<br />
Apr-10<br />
13-May<br />
Apr-10<br />
May-10<br />
May-10<br />
12-Jun<br />
May-10<br />
Jun-10<br />
Jun-10<br />
Jun-10<br />
12-Jul<br />
NYMEX Crude Futures<br />
Forex reserves at USD 295.1 bn Rupee ends December at ~44.7<br />
Fed target rate remains at 0.25%<br />
Jul-10<br />
11-Aug<br />
Aug-10<br />
10-Sep<br />
Sep-10<br />
10-Oct<br />
USD / INR Exchange Rate<br />
Indian short-term yields at ~7.19%<br />
91- day T-Bill Yield in India<br />
Sensex gained ~5.06 % M-o-M Some recovery in commodities during the month<br />
22,000<br />
21,000<br />
20,000<br />
19,000<br />
18,000<br />
17,000<br />
16,000<br />
15,000<br />
14,000<br />
13,000<br />
12,000<br />
Aug-09<br />
Oct-09<br />
Dec-09<br />
Feb-10<br />
BSE Sensex<br />
Apr-10<br />
Jun-10<br />
Aug-10<br />
Oct-10<br />
Dec-10<br />
Commodities Price<br />
Steel USD/ton 515<br />
Tin USD/ton 26,900<br />
Zinc USD/ton 2,454<br />
Copper USD/ton 9,600<br />
Aluminium USD/ton 2,255<br />
Nickel USD/ton 24,750<br />
Lead USD/ton 2,550<br />
Gold USD/T.Oz. 1,417<br />
Silver USD/T.Oz. 30.85<br />
Jul-10<br />
Jul-10<br />
Aug-10<br />
Aug-10<br />
Aug-10<br />
Sep-10<br />
Sep-10<br />
Oct-10<br />
Oct-10<br />
Oct-10<br />
9-Nov<br />
Nov-10<br />
Nov-10<br />
Nov-10<br />
9-Dec<br />
Dec-10<br />
hEDGE<br />
Dec-10<br />
Dec-10<br />
1Mth % 3Mth 1 Year<br />
Chg<br />
-<br />
% Chg<br />
(3.74)<br />
% Chg<br />
1.98<br />
5.28 8.03 58.70<br />
10.57 10.09 (4.14)<br />
10.03 18.52 30.17<br />
1.35 1.12 15.35<br />
5.32 3.80 33.60<br />
8.97 11.11 4.85<br />
0.18 7.70 26.34<br />
4.92 40.54 75.54<br />
Edelweiss Securities Limited<br />
11
S 000<br />
India Fixed Income Research Daily<br />
BOND VECTOR<br />
LAF borrowing drops significantly; short term rates ease on improved liquidity<br />
Government securities<br />
� RBI bought back securities worth INR 100bn against a planned buyback of INR<br />
120bn. It repurchased INR 88bn of the 7.17% 2015 bond and INR 10bn of the<br />
7.99% 2017 bond while the response in the 2019 and 2021 gilts remained muted.<br />
Yields remained range bond today with some value buying emerging in the 7.80%<br />
2020 bond which closed 1 basis lower at 8.06%.<br />
Non-SLR market<br />
� Short term rates tumbled 20-35bps across maturity due the improved liquidity in<br />
the banking system. Banks mopped up INR 50bn through the CD market. State<br />
Bank of India placed INR 9bn of June maturity CD at 9.05% while State Bank of<br />
Travancore placed INR 1bn of April maturity CD at 8.70%. Punjab National Bank<br />
placed one year amounting to INR 5bn at 9.40% and INR 9.25bn of April maturity<br />
CD at between 8.75% -8.80%. Bank of India placed one year CD at 9.43% for a<br />
quantum of INR 8.70bn. National Housing Bank placed end March maturity CP of<br />
INR 5bn at 7.90% while HPCL placed INR 3bn of Feb maturity CD at 7.39%.<br />
Money markets<br />
� Improved liquidity outlook lead to a sharp decline in the overnight rates. Since<br />
November, the central bank has injected INR 500bn through a series of buyback,<br />
in order to ease the liquidity. LAF borrowing dropped to INR 621bn compared to<br />
over INR 1trn in the previous fortnight. Swap rates moved in tandem with the LAF<br />
borrowing pattern since the past two days. <strong>The</strong> one year swap closed 10 bps lower<br />
at 7.01% while the five year swap closed 4bps lower at 7.71%.<br />
� <strong>Call</strong> rates eased 20bps to 6.37% while the CBLO rates closed below the central<br />
bank lending rate at 6.20%. Volumes at the CBLO window continued to be robust<br />
at INR 723bn compared to INR 687bn on Tuesday. Although the central bank is<br />
scheduled to conduct another OMO of INR 120bn in the next week, the system<br />
liquidity will continue to remain in the negative mode(1% of NDTL), consistent<br />
with its monetary stance to tackle the soaring inflation.<br />
Yield Curve – India & US<br />
Yield Curve – Domestic Markets<br />
<strong>January</strong> 5, <strong>2011</strong><br />
Edelweiss Fixed Income Research<br />
+91-22-6623 3405<br />
Edelweiss Fixed Income research is also available on Bloomberg <strong>EDEL</strong> , Thomson <strong>First</strong> <strong>Call</strong>, Reuters and Fact set Edelweiss Securities Limited<br />
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PLEDGED SHARES<br />
Reporting<br />
Date<br />
Company Name<br />
Name of the<br />
Entity<br />
5-Jan-11 Marg G Ramakrishna<br />
Reddy<br />
Pledged<br />
Quantity<br />
Pledged %<br />
of the total<br />
captial<br />
3,198,093 9.69%<br />
5-Jan-11 JSW Energy JSW Investments 105,979,415 6.46%<br />
5-Jan-11 Onward Technologies Onward Computer<br />
Technologies<br />
5-Jan-11 Shree Ashtavinayak<br />
Cine Vision<br />
5-Jan-11 Shree Ashtavinayak<br />
Cine Vision<br />
5-Jan-11 Crew B.O.S.<br />
Products<br />
172,840 1.30%<br />
Dahila Traders 108,000,000 13.10%<br />
Dhilin H Mehta 49,055,000 5.95%<br />
Fable Concepts &<br />
Technology .<br />
Revoked 0.00%<br />
5-Jan-11 Sadbhav Engineering Sadbhav Finstock 3,620,000 2.76%<br />
5-Jan-11 Resurgere Mines &<br />
Minerals India<br />
Eminent Steel 25,000,000 1.26%<br />
Edelweiss Securities Limited<br />
4
INSIDER TRADES & BULK DEALS<br />
Insider Trades<br />
Company Name Acquirer/Seller B/S Qty Traded<br />
Zee Learn Reliance Long Term<br />
Equity Fund<br />
Buy 5475000<br />
P.M. Strips Limited Suresh Venkatachari Buy 3561645 preferential<br />
allotment<br />
EMCO Rajesh S Jain Buy 3210000 preferential<br />
allotment<br />
Akanksha Finvest Omkam Global Capital Buy 3100000 allotment<br />
Shree Ashtavinayak<br />
Cine Vision<br />
UTV Software<br />
Communications<br />
Dahila Traders Buy 1600000<br />
Unilazer Exports &<br />
Management<br />
Consultants<br />
Buy 445000 inter se<br />
transfer<br />
HBL Power Systems A Kavita Prasad Buy 414300<br />
LIC Housing Finance FMR LLC & PACs Buy 383881<br />
HBL Power Systems M S S Srinath Buy 290700<br />
P.M. Strips Limited M V Bhaskar Buy 37077 preferential<br />
allotment<br />
RPP INFRA PROJECTS A Nithya Buy 30000<br />
Oriental Hotels D Varada Reddy Buy 29642<br />
SVC Superchem Sunidhi Securities &<br />
Finance<br />
Resurgere Mines &<br />
Minerals India<br />
UTV Software<br />
Communications<br />
Marvel Capital & Finance<br />
(India)<br />
Eminent Steel Private<br />
Limited<br />
Sell 4300000<br />
Sell 3750000<br />
Rohinton Screwvala Sell 445000 inter se<br />
transfer<br />
Rahi Fintrade &<br />
Investment<br />
Sell 300000<br />
Banswara Syntex Mefcom Capital Markets Sell 67280<br />
BMB Music & Magnetics<br />
Limited<br />
Maharaja Shree Umaid<br />
Mills<br />
K C Bokadia Sell 50000 off market<br />
Sheetal Bangur Sell 50000<br />
ITC K Vaidyanath Sell 50000<br />
Andhra Cements ISG Traders Sell 38050<br />
Maharaja Shree Umaid<br />
Mills<br />
Lakshmi Niwas Bangur Sell 35000<br />
Cipla Geeta Lulla Sell 25,000<br />
5<br />
Edelweiss Securities Limited<br />
5
Bulk Deals<br />
Date Company Name Acquirer/Seller B/S Qty Traded Price<br />
5-Jan-11 Alchemist Realty Singh Singh Archana Sell 760,000 13.0<br />
5-Jan-11 Alchemist Realty Varinder Pal Singh Buy 760,000 13.0<br />
5-Jan-11 Bajaj Auto Finance Reliance Capital<br />
Trustee Co. -A/C<br />
Reliance Regular<br />
Saving<br />
Buy 195,500 697.5<br />
5-Jan-11 BAMPSL Securities Prakash Chand Gupta Buy 614,007 2.6<br />
5-Jan-11 Bellary Steels &<br />
Alloys<br />
Jmp Securities Sell 1,772,033 3.7<br />
5-Jan-11 Century Extrusions Dinesh Hirji Kenia Sell 275,000 4.7<br />
5-Jan-11 Century Extrusions Sarla Dinesh Kenia Buy 275,000 4.7<br />
5-Jan-11 Chhattisgarh<br />
Industries<br />
5-Jan-11 Chhattisgarh<br />
Industries<br />
Prism Impex Buy 200,000 7.5<br />
Tripurari Properties Sell 187,444 7.5<br />
5-Jan-11 DMC Education R B K Securities Sell 152,838 15.3<br />
5-Jan-11 IFL Promoters Wealth Managers Buy 139,000 8.6<br />
5-Jan-11 Incap Financial<br />
Services<br />
5-Jan-11 Incap Financial<br />
Services<br />
5-Jan-11 Incap Financial<br />
Services<br />
5-Jan-11 Incap Financial<br />
Services<br />
Abhay Dattatray<br />
Javlekar<br />
Chandra Shekhar<br />
Sunil Bhatt<br />
5-Jan-11 Kaleidoscope Films Clarus Finance &<br />
Securities<br />
5-Jan-11 Kohinoor<br />
Broadcasting<br />
Corporation<br />
Sell 142,049 24.8<br />
Sell 71,544 24.5<br />
Elizabeth Lobo Buy 100,000 25.0<br />
Yatin Vasantrai Parekh Sell 58,000 24.7<br />
Indravarun Trade<br />
Impex<br />
Sell 277,294 21.6<br />
Sell 563,007 2.8<br />
5-Jan-11 Lanco Infratech Norges Bank On<br />
Account Of<br />
Government<br />
Petroleum Fund<br />
Buy 14,000,000 64.0<br />
5-Jan-11 Marvel Web<br />
Solutions<br />
Girish Kumar Ganwani Sell 37,000 31.5<br />
5-Jan-11 NCL Research and<br />
Financial Services<br />
5-Jan-11 Parichay<br />
Investments<br />
5-Jan-11 Parichay<br />
Investments<br />
5-Jan-11 Parichay<br />
Investments<br />
5-Jan-11 Parichay<br />
Investments<br />
5-Jan-11 Parichay<br />
Investments<br />
5-Jan-11 Punjab National<br />
Bank<br />
Chello Commotrade Buy 31,000 40.3<br />
Amul Gagabhai Desai Buy 11,350 126.6<br />
Desai Mahesh Sell 8,900 127.0<br />
Dhirenkumar<br />
Dharamdas Agarwal<br />
Buy 10,200 126.7<br />
Krunal Gopaldas Rana Buy 10,150 126.7<br />
Pradeep Narendra<br />
Bhatt<br />
Buy 20,000 127.0<br />
Cinnamon Capital Sell 3,121,156 1,330.0<br />
Edelweiss Securities Limited<br />
6
Date Company Name Acquirer/Seller B/S Qty Traded Price<br />
5-Jan-11 Punjab National<br />
Bank<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
5-Jan-11 Ravikumar<br />
Distilleries<br />
Lam Llc A/C Cimco Inc Buy 3,410,501 1,329.9<br />
Bhanumati Dharamraj<br />
Giri<br />
Buy 403,336 53.5<br />
Gokul Securities Buy 200,000 53.5<br />
Govindarajan<br />
Natarajan Pandian<br />
Buy 57,372 54.1<br />
Kanha Marketing Sell 117,000 53.2<br />
Kedia Consultants Sell 150,000 53.0<br />
Mangalmayee Hirise Sell 150,000 53.0<br />
Panther Finvest Buy 105,000 59.4<br />
Prefer Absan Sell 800,002 53.2<br />
Rajanbabu<br />
Venkatamallu Gaddam<br />
Shri Siddheshwar<br />
Sweet<br />
Sell 128,000 53.2<br />
Sell 235,000 53.2<br />
Suvidha Securities Buy 500,000 53.5<br />
Udaykumar Prabhudas<br />
Shah<br />
Sell 252,848 53.0<br />
5-Jan-11 Religare Enterprises Rhc Finance Buy 2,691,453 456.0<br />
5-Jan-11 Sacheta Metals Madhukant Sheth Ketu Sell 48,000 37.4<br />
5-Jan-11 Sanraa Media Jmp Securities Sell 7,236,701 0.2<br />
5-Jan-11 Shasun<br />
Pharmaceuticals<br />
5-Jan-11 Shree Nath<br />
Commercial &<br />
Finance<br />
5-Jan-11 Shree Nath<br />
Commercial &<br />
Finance<br />
Chander Kanta Sell 35,796 77.2<br />
Kumar Choudhary<br />
Bimal<br />
Sell 31,000 71.8<br />
Pratham Investments Buy 70,000 72.0<br />
5-Jan-11 Vivimed Labs Niraj Rajnikant Shah Buy 58,144 315.6<br />
7<br />
Edelweiss Securities Limited<br />
7
TECHNICAL UPDATES<br />
Following the previous day’s selling activity, Nifty cracked sharply in yesterday’s<br />
session with a loss of 1%. <strong>The</strong> selling activity was consistent throughout the day as<br />
the key hourly moving averages were breached on good volume activity. Nifty has<br />
closed below the 6100 mark, shaking out the bullish traders. <strong>The</strong> index has reacted<br />
down from the upper trend line of the ascending trend channel (light grey / refer<br />
chart) and is most likely to test the short-term moving averages. Daily oscillators<br />
are showing mixed signals. Hourly oscillators had triggered a sell signal and are now<br />
approaching the oversold territory. Market breadth drooped sharply in favor of<br />
declining stocks. Nifty 50 stocks A/D ratio was weak at 1:3. <strong>The</strong> reaction from the<br />
6160-6180 resistance cluster was much expected, but the magnitude of the decline<br />
has been surprising. Taking a lead from the oscillator behavior the decline looks like<br />
a corrective move of the rally from 5721 to 6181, with key trading supports at 6045-<br />
6020. <strong>The</strong> ‘double bottom’ reversal would remain valid as long as 6015 remains<br />
inviolate on a daily closing basis.<br />
Once again the interest rate sensitive’s Banking, Realty and Autos shed the chunk of<br />
weight. Cap Goods and Metals shares too joined the bear feast. IT and FMCG<br />
continued to show resilience in a shaky market indicating underline strength. Bullish<br />
Setups: HCLT, DIVI, JSP, HNDL, ITC, TPWR, GAIL Bearish Setups: KMBH, ONGC,<br />
BJAUT, HH, BPCL<br />
India VIX has moved above the 10-DEMA at 18, and on a close above 18.35 would<br />
confirm a pick up in vols. Commodities have entered a difficult phase for traders with<br />
extreme intraday moves. Gold continues to trade above $1353, holding on to the<br />
uptrend, despite a triple top pattern at $1425. European and US indices have<br />
improved on the early loss displaying resilience in the uptrend.<br />
Interesting chart setups: HCLT, DIVI, ITC, BJAUT<br />
Nifty Index<br />
Bloomberg Code NIFTY Index<br />
Spot Price 6,080<br />
Resistance 1 6,115<br />
Resistance 2 6,150<br />
Support 1 6,035<br />
Support 2 5,995<br />
Nifty 20 SDMA 5,990<br />
Nifty 50 SDMA 6,020<br />
Nifty 200 SDMA 5,587<br />
Adv : Dec [NSE] 319 : 1113<br />
Turnover ` Crs. 17163<br />
BSE+NSE cash<br />
Indicator Outlook Points*<br />
Candlestick Positive 1<br />
Stochastic Positive 1<br />
Moving Avg Negative (1)<br />
RSI Neutral 0<br />
ADX Neutral 0<br />
MACD Neutral 0<br />
Aggregate Positive 1<br />
Edelweiss Securities Limited<br />
8
EYE CATCHERS<br />
Futures Snapshot<br />
Top OI Rises Top OI Falls<br />
Scrip<br />
Allahabad Bank 18<br />
Opto Circuits (I) Ltd. 17<br />
Yes Bank 16<br />
Canara Bank 16<br />
REC 15<br />
Oriental Bank 14<br />
Mini NIFTY 14<br />
Chambal Fertilizers 13<br />
% OI<br />
Chg OI<br />
1,156<br />
1,502<br />
5,371<br />
1,518<br />
7,261<br />
1,619<br />
918<br />
15,864<br />
%<br />
Price<br />
Chg<br />
(4.1)<br />
(3.2)<br />
(4.9)<br />
(4.5)<br />
(3.2)<br />
(4.1)<br />
(0.1)<br />
(3.7)<br />
%<br />
Future<br />
Vol Chg<br />
24<br />
4<br />
104<br />
112<br />
39<br />
20<br />
2<br />
38<br />
Scrip<br />
Jain Irrigation System (29)<br />
Jindal Saw Ltd (11)<br />
Ranbaxy (7)<br />
CESC Ltd (7)<br />
Welspun Guj (6)<br />
Bank of Baroda (6)<br />
Asian Paints Limited (6)<br />
Voltas (6)<br />
% OI<br />
Chg OI<br />
738<br />
3,125<br />
2,398<br />
993<br />
10,335<br />
944<br />
87<br />
1,441<br />
% Price<br />
Chg<br />
2.8<br />
7.2<br />
(0.9)<br />
0.3<br />
(0.0)<br />
(0.3)<br />
1.6<br />
(1.0)<br />
%<br />
Future<br />
Vol Chg<br />
9<br />
47<br />
173<br />
(44)<br />
(46)<br />
(16)<br />
17<br />
40<br />
(24)<br />
Edelweiss Securities Limited<br />
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