Market Outlook

India Research
October 11, 2011

Dealers Diary
The Indian markets are expected to open gap up on the back of supportive global cues which lead to rally in global markets and positive opening in all the Asian markets in the early market trade. The domestic benchmark indices rallied for the second consecutive day yesterday as positive employment data from the US and easing concerns over euro-zone banks drove investor appetite for risk. Yesterday realty, consumer durable, oil and gas, technology and auto stocks rallied, while defensive healthcare and FMCG stocks closed subdued. Globally, US and European markets extended their upward movement yesterday backed by renewed optimism about the financial situation in Europe as German and France leaders vowed to unveil a new plan to address the European debt crisis by the end of the month which indicated that they have a concrete plan to fix the troubles in the European banking sector. On the global front the key event to watch out today will be UKs industrial production data. Also on the domestic front IIP numbers for August 2011 which will be released tomorrow, will be on the radar as well.

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 (%) 2.0 1.9 1.4 1.0 (0.1) 1.5 1.4 2.3 1.9 2.7 2.9 Chg (%) 3.0 3.5 1.8 1.0 0.0 1.1 (0.6)

(Pts) 91.6 81.0 65.4 (3.4) 106.3 191.7 230.2 149.4 (Pts) 86.7 95.6 83.6 28.0 (14.4)

(Close) 4,980 6,040 6,787 5,841 7,411 8,680 8,681 5,391 (Close) 2,566 5,399 8,606 2,668 2,345

324.7 16,557

147.5 10,495 202.7 11,113

330.1 11,433

Markets Today
The trend deciding level for the day is 16,461/4,951 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,69216,826/5,0205,060 levels. However, if NIFTY trades below 16,461/4,951 levels for the first half-an-hour of trade then it may correct up to 16,32716,096/4,9114,842 levels.
Indices SENSEX NIFTY S2 16,096 4,842 S1 16,327 4,911 R1 16,692 5,020 R2 16,826 5,060

4.1 17,711

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

Chg (%) 3.0 4.8 4.3 3.8

(Pts) 1.6 0.4 1.4 1.1 BSE 1,686 1,084 136

(Close) $53.8 $9.6 $35.0 $30.6 NSE 952 476 60

News Analysis
Bonds yields soar to the highest in three years National Telecom Policy 2011 SBI to raise `5,000cr through rights issue by December 2011 2QFY2012 Result Review Sintex Industries
Refer detailed news analysis on the following page

Net Inflows (October 07, 2011) ` cr Purch FII MFs 3,564 528

Sales 3,073 424

Net 491 104

MTD (2,227) (225)

YTD (4,180) 5,273

Volumes (` cr) BSE NSE 2,214 10,616

FII Derivatives (October 10, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company Amtek Auto Sun TV Network Educomp Sol Tata Motors Jubilant Food Price (`) 131 288 278 171 754 chg (%) 12.7 10.2 9.0 7.4 7.0 Company Maruti Suzuki Voltas Engineers India Neyveli Lignite Adani Power Losers Price (`) 1,073 102 243 75 78 chg (%) (3.6) (2.8) (2.3) (2.0) (2.6) Purch 1,855 1,626 Sales 1,497 1,549 Net 358 77 Open Interest 12,784 26,467

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

Market Outlook | India Research

Bond yields soar to the highest in three years

The Indian governments bond yields have shot up sharply following the announcement of higher government borrowings for FY2012. The Government of India had announced its intention to raise additional borrowings of `52,800cr in 2HFY2012 on September 29, 2011. Yields on the benchmark 10-year government bonds have soared to 8.74% (from 8.34% as of September 28, 2011), the highest in three years. Even the shorter tenure, one and five-year, bond yields have risen by 8bp and 18bp, respectively, over the same period. This rise is in-line with our expectations that G-sec yields being lower than FD rates would have an upward bias, even as broader deposit and lending rates peak at more or less current levels. While traditionally PSU banks were regarded as bond proxies, in recent years, they have been reducing their holding of excess government securities above SLR requirements, especially in the Available For Sale (AFS) portfolio and have reduced the duration of the AFS investment book, thereby reducing their vulnerability to fluctuation in bond yields. Having said that, in our view, if the yields stay at current high levels, it is likely to lead to underperformance of banks with relatively higher AFS investment proportion and/or higher AFS duration as higher MTM provisions will dent the profitability. Exhibit 1: AFS modified duration as of 1QFY2012
Bank Dena Bank* Oriental Bank Bank of Maharashtra# State Bank of India Syndicate Bank Axis Bank Canara Bank Allahabad Bank* Punjab National Bank Bank of Baroda* Indian Overseas Bank Indian Bank Union Bank Andhra Bank J&K Bank Bank of India South Indian Bank*
#

AFS (` cr) 2,897 14,860 4,116 72,000 3,750 25,213 25,355 13,835 22,212 10,390 15,116 11,000 2,658 10,264 2,169 6,028 31,530 1,771

AFS (%) 14.6 33.0 18.0 24.5 11.0 33.5 29.5 30.3 22.0 13.0 29.5 29.6 22.1 17.1 8.6 33.2 37.3 20.9

AFS mod. dur. (years) 3.97 3.64 3.33 3.15 3.15 3.01 2.67 2.67 2.64 2.50 2.19 1.69 1.60 1.59 1.09 0.97 0.62 0.39

Federal Bank*

Source: Company, Angel Research; Note:* AFS + HFT Mod duration, #Latest available data

October 11, 2011

Market Outlook | India Research

National Telecom Policy 2011

The new telecom policy draft 2011 was released yesterday by the Telecom Minister, Kapil Sibal. It was a qualitative extension of the proposed draft in February 2011. Following are the key highlights of the policy: One Nation-One Licence This implies the abolition of roaming charges within the country. As per TRAI, currently GSM operators derive ~8% of their wireless revenue from roaming, out of which ~50% is from international roaming. Therefore, effectively 4% of revenue, which is from national roaming, will be at risk. This might impact the earnings of telecom players in the near term. Delinking of licence fees and spectrum charges Previously, licence fees was inclusive of spectrum up to 4.4MHz; but after delinking, separate charges will be levied to avail spectrum along with licence fee. This will increase the capex outgo for companies from 2015 when regional licences would come up for renewals. Under the Spectrum Act, the ministry intends to deal with all issues related to mobile permits, including re-farming, pricing of spectrum, withdrawal of allotted spectrum and norms for sharing and trading. Re-farming will increase the capex outgo for all companies as they will have to shift from 900MHz spectrum to 1,800MHz. All future spectrum allocations will be priced at market rates. At this juncture, the possible financial impact will be due to the one nation, one-licence proposition. Other propositions are still in the nascent stage and we expect some discreet decisions on this only by December 2011.

SBI to raise `5,000cr through rights issue by December 2011

State Bank of India (SBI) is likely to raise `5,000cr through a rights issue of shares by December. The government is expected to infuse ~`3,000cr, keeping its stake in the bank at ~60%. The `5,000cr rights issue, according to the management would be the first tranche in the entire process of raising ~`20,000-`30,000cr over the next few years. While this infusion of ~`5,000cr is expected to shore up the tier 1 ratio of the bank to ~8%, it would be still short of the benchmark 9% that most large banks currently have. While the capital adequacy ratio is expected to be an overhang on the stock, however, in the medium term considering the attractive valuations (1.3x FY2013 ABV) and structural positives, we maintain a buy on the bank with a target price of `2,403

Result Review Sintex Industries

For 2QFY2012, Sintex Industries registered strong top-line growth. The companys net sales grew by 25.3% yoy and to `1,157cr on the back of strong growth of 25.9% yoy in the plastic segment to `1,043cr (`828cr). The company reported a 93bp yoy contraction in OPM to 17.7% (18.6%), largely on back of increased purchase of traded goods, up by 132bp yoy. Net profit declined by 61.2% yoy to `39cr (`100cr). The sharp decline in PAT was due to `60cr loss on forex exchange on outstanding FCCBs. Consequently, with an extraordinary increase in forex losses, PAT margin also declined by 749bp to 3.4%. We will be coming out with an updated report post management concall. We may revise our estimates and target price post the concall today.

October 11, 2011

Market Outlook | India Research

Quarterly Bloomberg estimates

Infosys Ltd
Particulars (` cr) Net Sales EBITDA EBITDA margin (%) Net Profit
Source: Bloomberg, Angel Research

2QFY12E 8,071 2,444 30 1,893

2QFY11 6,947 2,315 33 1,737

yoy (%) 16.2 5.6 9.0

1QFY12 7,485 2,176 29 1,722

qoq (%) 7.8 12.3 9.9

Reliance Industries Ltd

Particulars (` cr) Net Sales EBITDA EBITDA margin (%) Net Profit
Source: Bloomberg, Angel Research

2QFY12E 79,890 10,304 13 5,792

2QFY11 57,479 9,396 16 4,923

yoy (%) 39.0 9.7 17.6

1QFY12 81,018 9,926 12 5,661

qoq (%) (1.4) 3.8 2.3

Economic and Political News

Credit offtake by priority sectors up 17.3% in August 2011 CRISIL cuts India GDP forecast for FY2012 to 7.6% Government to spend `30cr to dispose Union Carbide waste

Corporate News
BHEL wins `4,000cr contract to set up power plant Mahindra Satyam in deal for financial services CRM M&M resumes operations at Rudrapur plant RIL to sign a deal with Disney's UTV
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

October 11, 2011

Market Outlook | India Research

Research Team Tel: 022-3935 7800 E-mail: research@angelbroking.com Website: www.angelbroking.com

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October 11, 2011