Market Outlook

India Research
September 19, 2011

Dealers Diary
The market opened on a firm note triggered by a rally in Asian shares, however it soon pared gains. The market regained strength later but again trimmed gains in morning trade. A bout of volatility was witnessed in midmorning trade as the market trimmed gains after hitting fresh intraday highs to hit fresh intraday lows. Wild swings in share prices were the order of the day in early afternoon trade after the Reserve Bank of India (RBI) raised repo rate by 25bp at its mid-quarter review. Higher opening of European shares ensured firmness on domestic bourses in early afternoon trade, however intraday volatility continued as the market trimmed gains in mid-afternoon trade as US index futures fell. The market managed to close with small gains. The Sensex and Nifty closed up by 0.3% and 0.2%, respectively. The mid-cap index closed with gain of 0.4%, however the small-cap index closed flat. Among the front runners, Tata Motors, ONGC, NTPC, Sterlite Industries and Tata Power gained 2-7%, while HUL, Wipro, BHEL, Tata Steel and Jindal Steel lost 1-3%. Among mid caps, Financial Tech, Shree Global Trading, Nava Bharat Ventures, Rajesh Exports and Indiabulls Finance gained 7-10%, while Essar Ports, HCL Infosystems, India Cements, Hexaware Technologies and Jai Corp. lost 5-6%.

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 (%) 0.3 0.2 0.4 (0.0) 0.6 1.7 0.6 1.1 0.4 0.2 (0.9) Chg (%) 0.7 0.6 0.6 2.3 1.4 0.8 0.1

(Pts) 8.6 23.1 (0.7) 35.8 126.9 99.4 19.1 (44.1) (Pts) 15.2 30.9 195.3 23.1 3.3

(Close) 5,084 6,390 7,213 5,986 7,762 8,833 8,749 5,102 (Close) 2,622 5,368 8,864 2,789 2,482

57.3 16,934

65.5 11,128 52.8 12,248

75.9 11,509

Markets Today
The trend deciding level for the day is 16,982/5,099 levels. If Nifty trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,07417,215/5,1295,174 levels. However, if Nifty trades below 16,982/5,099 levels for the first half-an-hour of trade then it may correct up to 16,84116,749/5,0545,023 levels.
Indices SENSEX NIFTY S2 16,749 5,023 S1 16,841 5,054 R1 17,074 5,129 R2 17,215 5,174

273.8 19,455

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

Chg (%) 0.0 0.6 (2.1) 0.3

(Pts) 0.0 0.1 (0.8) 0.1 BSE 1,288 1,530 120

(Close) $50.6 $9.8 $37.1 $31.5 NSE 628 798 65

News Analysis
RBI Mid-Quarter Monetary Policy Review - No respite just yet NTPC declares third unit of Simhadri Super Thermal Plant commercial Tata Motors reports 2.8% yoy increase in global sales in August 2011
Refer detailed news analysis on the following page

Net Inflows (September 15, 2011) ` cr Purch Sales FII MFs 1,981 499 1,812 392

Net 169 107

MTD 1153 (951)

YTD 345 5,323

Volumes (` cr) BSE NSE 2,787 14,283

FII Derivatives (September 15, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company Financial Tech Tata Motors Indiabulls Fin Manappuram Fin NMDC Price (`) 861 162 162 57 249 chg (%) 10.4 7.0 7.0 6.8 6.4 Company India Cements Jai Corp Motherson Sumi Piramal Health Ambuja Cements Price (`) 69 91 187 348 144 Losers chg (%) (5.6) (5.4) (5.3) (5.2) (4.3) Purch 2,898 2,532 Sales 2,809 2,266 Net 88 266 Open Interest 16,033 29,578

Please refer to important disclosures at the end of this report

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Market Outlook | India Research

RBI Mid-Quarter Monetary Policy Review - No respite just yet

The RBI in its mid-quarterly monetary policy review persevered with its anti-inflationary stance and raised repo rate for the 12th time since March 2010. The Central Bank maintained status quo on CRR and SLR at 6.0% and 24.0%, respectively. The policy action was in-line with streets expectations. The overall tone of the monetary policy remained hawkish, with the expected outcome of the monetary policy solely focused on containing inflation and anchoring inflationary expectations. Outlook on inflation and policy rates Looking at the remaining pass-through of oil and electricity prices, we expect WPI inflation to remain sticky above 9% levels at least until December 2011, which is likely to force the RBI to persevere with its hawkish stance to anchor inflationary expectations. Hence, taking into account our forecasted inflation trajectory and the RBIs unequivocal guidance (that in the near term, unless inflation actually shows a clear declining trend, its stance will not change), we do not rule out further rate hikes up to January 2012. However, from January 2012, we believe inflation is likely to start trending downwards, barring any major negative surprises on the global commodity price front. In fact, rising global growth concerns and declining fiscal stimulus measures in developed economies are likely to keep commodity and energy prices in check in the short term. Moreover, in our view, annualised inflation in manufactured products is showing signs of cooling (5% in August, 3.6% on a three-month annualised basis) an indication that demand-side pressures are not at runaway levels. Hence, from January 2012 at the latest, we see a meaningful case for the RBI to take a pause, especially considering the signs of slowdown on the domestic growth front, evident from slowing GDP growth rates, tepid IIP growth, moderating trend in PMI, declining vehicle sales, flat cement dispatches and expected moderation in export growth. Impact on banks Considering the improvement in systemic liquidity (moderation in credit offtake and substantial rise in deposit mobilisation), we do not expect deposit rates to go up materially from the current levels. In fact, over the past six months, there have not been meaningful hikes in deposit rates and the impact of the past increases has largely flown through bank P&Ls (refer Exhibit 1). Hence, unlike six months ago, when tight liquidity conditions were a major factor in pushing up lending rates, at present we see the upward bias to lending rates arising only from the monetary policy front, which too we believe is close to peak levels on account of the above-mentioned reasons. That said, further lending rate hikes are likely to moderate the already slowing trend in credit demand; but more than that, the key concern for the banking sector would be the increase in asset-quality risks. Hence, we prefer banks with a more conservative assetquality profile, especially amongst mid caps (i.e. relatively lower yield on advances and switchover to system-based recognition system nearly complete) this includes banks such as Syndicate Bank, Bank of Maharashtra and United Bank of India. Also, from a mediumterm perspective, we continue to prefer large private banks with a strong structural investment case (within which we prefer Axis Bank and ICICI Bank from a valuation perspective).

September 19, 2011

Market Outlook | India Research

NTPC declares third unit of Simhadri Super Thermal Plant commercial

NTPC has declared the third unit (500MW) of Simhadri Super Thermal Power Project (Simhadri STPP) commercial on September 16, 2011. With this, the commercial capacity of Simhadri STPP and NTPC (on a standalone basis) has become 1,500MW and 30,330MW, respectively. NTPC along with its JVs has planned to add 4,320MW during FY2012. At the CMP, the stock is trading at 1.7x FY2013E P/BV, we maintain our Buy view on the stock with a target price of `202.

Tata Motors reports 2.8% yoy growth in global sales in August 2011
Tata Motors reported a 2.8% yoy (2.4% mom) increase in global sales volume in August 2011 to 87,459 units, led by a strong 17.5% yoy (3.5% mom) jump in commercial vehicle volumes to 48,023 units. Passenger vehicle volume, however, continued its downward slide (down 10.8% yoy to 39,436 units), as sales in India remained subdued because of macroeconomic concerns. Jaguar and Land Rover (JLR) posted better-than-expected 31% yoy (11.1% mom) growth in volumes to 21,242 units despite economic concerns in US and Europe. Jaguar sales remained weak, registering a 10% yoy (sharp 22% mom) decline to 3,409 units, while Land Rover sales came in better-than-expected, posting substantial growth of 43.4% yoy (20.9% mom) to 17,833 units. We expect JLR sales to maintain its momentum going ahead as the company started deliveries for pre-booked orders for Evoque during the month. We maintain our Accumulate rating on the stock with an SOTP target price of `183.

Economic and Political News

EGoM meet over LPG cylinder supply deferred FDI dips 38% to US$1.09bn in July 2011 Government slashes sops on exports, 1,100 items to be hit

Corporate News
Pantaloon to sell Future Cap stake in six months ONGC's `12,000cr FPO postponed again Strike at Suzuki Powertrain, Suzuki Motorcycle called off
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

September 19, 2011

Market Outlook | India Research

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September 19, 2011