>Market Insight 16-02-2009 (RELIGARE SECURITIES)

The Dow closed negative and other markets are trading in the red. The finance minister will announce the interim budget today; expectations from this budget are high given the ongoing economic slowdown. While there is likely to be some relief for certain sectors like auto and exports, we do not anticipate major changes in policies or tax rates. The situation in the US remains grim and hence we will see more bad news before any revival is seen. We remain bearish on our market for the short term; for today we expect high volatility.

To see full report: Market Insight

>India Economics 12-02-2009 (CITI)

India Economics

Consumer Durables Drag Dec Industrial Output Down 2% YoY

# Dec Industrial production below expectations - down 2%: Industrial production
was down -2% YoY below ours (+0.1%) as well as consensus expectations
(Bloomberg at -0.4%; Reuters +1.3%). This follows the -0.3% contraction in
Oct (which was the 1st contraction since the index was constructed in 1994)
and the 1.7% growth in Nov. Cumulatively during the current fiscal (Apr-Dec),
production slowed to 3.2% v/s 9% during the same period last year and poses
some downside risks to the CSO’s FY09 advance GDP estimate of 7.1%.
# Highlights: On a sectoral basis the contraction seen in Dec was due to
manufacturing at -2.5% while electricity and mining saw growth of 1.6% and
1% respectively. As per the use-based classification, consumer goods
contracted -2.7%, with durables down -12.8% (the steepest decline since
March03). Intermediate goods remained in negative territory for the 5th month
in a row, while capital and basic goods were up 4.2% and 1.7% respectively.

# Implications – Advancement of rate cuts; fiscal measures: While we continue to
expect the RBI to cut rates by an additional 100bps-150bps in 1H2009, the
contraction in output could advance easing. Secondly, given the upcoming
elections, the govt will be coming out with its interim budget on Monday -
Feb16 instead of a regular budget. While normally changes in taxation are not
announced in an 'interim budget' we could see the poor data being used as a
reason for additional spending/tax cuts.

# Maintain FY10 GDP estimate of 5.5%: Earlier this week, the CSO pegged FY09
GDP growth at 7.1%. This was slightly higher than our estimate of 6.8%. For
FY10, we maintain our estimate of 5.5%. This factors a contraction in exports,
a further deceleration in investment growth and a moderation in consumption.

To see full report: India Economics

>Equity Weekly Watch (ANAGRAM)

WHEN THE BULL MEETS THE BEAR

The battle of the titans is on the cards. On Monday we will have the vote-on-account and the market's reaction to this interim exercise will determine whether the bulls or the bears will have the final say.

At this point of time the bulls have the balls. If you were to take stock of the open interest (OI) added in stock futures after the January expiry, you will find that it has reached 30.7%. In order to compare like against like we looked at OI addition up to expiry plus 11 sessions and found that this addition is the highest percentage terms since September 2006, when it was 32.6%.

This piece of data tells us that the markets have never added OI with so much of gusto in the past 29 months. If the markets continue to be bullish even after the VOA, then there is no looking back and we will a rocking rally. But should for any reason, the rally engine sputters and it starts going down then the positions built will ensure that we fall with equal aplomb.

Now this rally in our domestic market comes about amidst a week of discontent in global markets. Our Sensex has risen 3.7% in contrast to a 5.20% slide in the Dow. This kind of an outerperformance is rather abnormal. Another theory going in the street is that the powers that we have muzzled up the most vociferous bear on the street on Friday evening and have winked at the bulls to take the ball and run till the elections.

To see full report: Equity WW

>India Strategy (MORGAN STANLEY)

A Slow Return To “Normal” Markets

• Markets have been disrupted quite severely over the past few months. We believe the signals from some of the metrics
we track suggest that the market is returning to some sort of normalcy.
• Firstly, return tails, which are still very fat on a 12-month trailing basis, have compressed significantly on a three-month
trailing basis.
• Secondly, we have witnessed some sort of peaking in absolute volatility and relative volatility (to emerging markets) has
come down quite significantly.
• Market valuations and fundamentals (ROE) have also experienced thinning of tails.
• However, the market continues to be dominated by macro. This is most evident in the elevated correlation of returns
from individual stocks (market effect) with the market. Conversely, the average relative volatility of the stocks in our
coverage universe continues to stay at a decade low. The high market effect tells us that individual stocks are being
influenced more by market performance-related factors than by idiosyncratic or non-market performance–related issues.
• In our view, the environment is building up for stock pickers. For one, the correlation of returns between stocks and the
market is unlikely to get much higher. Secondly, valuation dispersion is at an all-time high. Combined with a high ROE
and earnings growth dispersion, the backdrop for stock pickers is actually quite good.

To see full report: India Strategy