>Weekly Derivatives (ICICI Direct)

To see report: DERIVATIVES 270409

>Weekly Calls (ICICI Direct)

To see report: CALLS 270409

>Daily Derivatives (ICICI Direct)

Derivative Comments

• The Nifty near month witnessed short covering followed by a drop in OI by 3.82 million shares whereas the May series added another 3.59 million shares in OI. With the May futures trading at a premium of 11 points we feel further long positions have been added in this series

• The unwinding of contracts continued in call options while accumulation of contracts was seen in puts. The 3300 and 3400 calls witnessed unwinding of 18575 and 12695 contracts respectively whereas some 5356 contracts got added in the 3600 call. Significant numbers of call writers have unwound their positions at the 3300 and 3400 calls. The 3600 call volume has surged along with drop in IV from 34.39 to 29.92 suggesting that some call writers were active at higher levels in this strike price. The 3400 and 3500 puts added 12861 and 16301 contracts respectively with rise in volumes and drop in IV indicating some put writing has happened at these strike prices. The maximum put OI base of 7.09 million shares stands at 3300 which suggests that this level is unlikely to be breached in this expiry and any dip in Nifty near this level should be an opportunity to write this option

• FII Index options depicted a rise in OI by 2.68% along with a net buy of Rs 151 crores

To see full report: DERIVATIVES 270409

>Daily Calls (ICICI Direct)

Sensex: We said, "More positive efforts can be seen if it sustains above the high of 11203." After trading below 11203 in the first half, Index later successfully crossed above it. Positive efforts in the 2nd half enabled it to end 194 points or 1.7% higher. Banks outperformed with a near 3% gain. A/D ratio ended positive at 2:1.

The action formed a bull candle but a Stalled Pattern, which is testing previous week's high of 11367. Previous resistances can attract profit-booking if move fails to sustain above them. However, till Friday's low holds, positive bias should continue. Due to Stalled pattern, however, see if the positive bias continues beyond today.

To see full report: CALLS 270409

>Daily Market & Technical Outlook (ICICI Direct)

Market outlook

■ Indian markets are likely to open flat to negative, taking cues from global markets. SGX Nifty was trading 20 points down in the morning. Other Asian markets were mixed in the morning as worries about a potential swine flu epidemic prompt a rally in pharmaceutical shares but sink airlines. The rupee may edge lower on Monday on demand for dollars from refiners for import payments and as foreigners consolidate their stock holdings after seven straight weeks of gains

■ The Sensex has supports at 11200 and 11070 and resistances at 11370 and 11530. The Nifty has supports at 3440 and 3395 and resistances at 3510 and 3550

■ Asian stocks were mixed, as worries about a potential swine flu epidemic prompt a rally in pharmaceutical shares but sink airlines. Nikkei gained 68.64 points, or 0.79%, to trade at 8,776.63. Hang Seng declined 345.6 points, or 2.3%, to trade at 14,913.3

■ US stocks rallied on Friday as earnings showed companies have weathered the recession and economic data raised hopes the economic cycle may have hit a bottom. The Dow Jones added 119.23 points, or 1.50 %, to 8,076.29. The S&P 500 rose 14.31 points, or 1.68 %, to 866.23. The Nasdaq gained 42.08 points, or 2.55 %, to 1,694.29

■ Stocks in news: ONGC, Uttam Galva, Reliance Infra, Elder Health care,Jindal steel & Power

To see full report: OPENING BELL 270409

>Special Report (ECONOMIC RESEARCH)

Beware of the deterioration in the situation of companies

Financial markets are delighted at the few positive signs that have emerged: significant refinancing of loans and an incipient upturn in consumption in the United States, beginning improvements in leading indicators, recovery in the Chinese economy being transmitted to other Asian countries, start of the implementation of fiscal stimulus programmes, effects of the bailout packages for the automobile industry, etc.

However, there is a major threat, i.e. the ongoing deterioration in the situation of companies (we will look at the situations of the United States and the euro zone). It could jeopardise the possibilities of an upturn by leading to a substantial decline in investment and employment, either due to bankruptcies, or to the need to restore profitability.

The encouraging signs that financial markets are clinging on to are well known:

− as a result of the decline in long-term interest rates, refinancing of mortgage loans is rising sharply in the United States

− real estate prices in the United States and the United Kingdom have already fallen drastically, which will contribute to an upturn in demand for housing.

− there is an incipient upturn in consumption in the United States, probably linked to the
favourable effects of disinflation on real incomes; stabilisation of consumer confidence.

− the implementation of the fiscal stimulus programmes is starting in the second and third
quarter of 2009;

− leading indicators are starting to improve;

− car sales are picking up in certain countries (France, Germany) due to the tax incentives
introduced

To see full report: SPECIAL REPORT

>Trade Winds (KARVY)

Markets continue to rally......

The BSE Sensex and the broader-based Nifty closed positively for the seventh consecutive week, something which they have achieved for the fi rst time since October 2007. While in a surprise move, the RBI cut repo and reverse repo rates, the corporate results did not bring in any major surprises, either positive or negative. Moreover, with mixed cues emanating from the developed markets, the Indian markets continued to display increased intraday volatility, and this is only bound to increase from current levels as we approach the much awaited general election results on May 16, which is expected to bring about one of the most fractured verdicts in India’s history.

For the week, the Sensex and the Nifty rose 2.78% and 2.85%, respectively. Since the rally began on March 9, the Sensex jumped nearly 40%, while the Nifty rose more than 35%. The spectacular rally has come as a surprise for market participants, many of who may be disappointed for having missed the bus, but at the same time, has raised hopes for most that the worst is probably over.

Last week, the RBI cut the repo and reverse repo rates by 25 bps each, the timing and announcement of which came as a surprise for the markets. This decision by the RBI seems to be a conscious attempt to boost faltering growth in the face of the global economic slowdown. The central bank also reiterated a call to banks to pass on its rate cuts to customers. Lower interest rates, coupled with stimulus measures and lower commodity prices, could push up investment demand and lead to a positive impact in industrial production in the coming months.

Overall, the Nifty is likely to trade in a range of 3300-3520-3650 this week, with an intermediate resistance placed at 3520 levels, which will also provide a major breakout, resulting in a short squeeze. With derivatives expiry lined up this week, investors should trade cautiously and look towards buying on dips. Cement, telecom and BFSI stocks can be considered for assuming long positions whereas energy and metal stocks can be shorted from higher levels.

To see full report: TRADE WINDS

>Karvy Bazaar Baatein

27 April 2009 to 03 May 2009


Markets ride on…
Although the BSE Sensex and the broader-based Nifty closed profi tably for the seventh consecutive week, the markets displayed high intraday volatility, mirroring the mixed sentiments across the globe. The RBI’s move to cut policy rates came as a complete surprise for the markets as many expected such a move post the election results. Accordingly, the Sensex and the Nifty rose 2.78% and 2.85%, respectively. Since the rally began on March 9, the Sensex has jumped nearly 40%, while the Nifty has risen more than 35%. Given that much of the rally was triggered by global cues, the Dow Jones Index itself has risen 23% during the period. The RBI, in its annual credit policy review last week, slashed the repo and reverse repo rates by 25 bps each to 4.75% and 3.25%, respectively. This move indicates that the central bank is giving increased precedence to the economic slowdown and the highly cautious stance that commercial banks have adopted in the current economic scenario. Accordingly, RBI cut rates in an effort to push credit off-take and to send out signals that the worst is over for the Indian economy, which has been hit by a demand slowdown in terms of exports and investment.

The central bank announced that it expects the economy to grow at 6% in the current fi nancial year. Moreover, it revised GDP growth estimates downward for the previous fi nancial year—from the projected 7% levels to 6.5%-6.7%. Since October 2008, the RBI has slashed the repo, reverse repo and cash reserve ratio heavily by 4.25%, 2.75% and 4.00%, respectively. The commercial banks, on the other hand, have responded quite meekly to these aggressive moves, with most of them lowering their prime lending rate only by 1.5-2.0% considering the high cost of funds raised previously, besides expectations of higher NPA levels and the vulnerable economic scenario.

Meanwhile, the WPI, which is at near-zero levels, rose marginally to 0.26% for the week-ended April 11, as against 0.18% a week earlier. The RBI added that it expects infl ation to pick up again, rising to around 4% for the full fi scal year. With the general elections expected to bring about one of the most fractured verdicts in history, we must brace ourselves for increased volatility until the results on May 16.

To see full report: KARVY BAZAAR BAATEIN

>Reliance Industries Ltd. (GOLDMAN SACHS)

Positive News – Estimates Under Review

First Take: Petchem surprises to upside; other income boosts profits

News
Reliance Industries (RIL) reported 4QFY09 adjusted PAT of Rs38.7bn, down 1% yoy, but ahead of Bloomberg consensus of Rs36.5bn. The results also beat our estimate of Rs32.8bn on the back of: 1) higher-than-expected petrochem margins at 18% (up 4.6% qoq) owing to better-than-expected realization from demand recovery and depreciation of INR-USD rate; and
2) higher “other” income. Refining margin of US$9.9/bbl, however, came below our estimate due to weakness in middle distillate cracks.

Analysis
We believe 4Q results demonstrate that RIL’s core commodity businesses are best positioned among regional peers to withstand the down cycle, given 1) its low operating cost structure in refining (opex US$1.5-1.75/bbl) and 2) that it sells the majority of its petrochemical products in highdemand markets like India and China. Since limited fresh investments are likely to be made in the medium term in these core businesses, we believe their cash flow will be increasingly deployed towards the company’s targeted US$4.0-4.5bn of annual capex in the E&P division. With commencement of gas production from D-6 block on April 2, we believe RIL management will focus on developing its other discovered blocks over the next 12-18 months. RIL currently has a total of 35 blocks under NELP, more than 50% of which are in highly prospective KG and Mahanadi basins.

Implications
Our estimates, 12-month target price and rating for RIL are under review. Going forward, we believe the gas business will improve the company’s earnings profile by: 1) adding high proportion of non-cyclical earnings, and 2) improving overall operating margins.

To see full report: RIL

>Prism Cement Ltd. (ANAGRAM)

EARNING REVIEW

RESULT HIGHLIGHTS
Prism cement reported a rise of 9.22% YoY in sales to Rs 249.74Cr due to higher cement prices whereas Operating Profit went down marginally by 1.85% from Rs88.34Cr to 86.71 Cr on account of higher selling and administrative cost. Tax rate for the quarter was higher at 40% while the adjusted PAT witnessed a decline of 22.02% YoY to Rs50.19 Cr.

Cement and clinker sales volume increased marginally at 0.84mn tonnes from 0.83 tonnes in the previous corresponding quarter. Sales were better than the previous corresponding quarter due to rise in net realizations.

Total cost was up by 16.18% YoY, resulting into fall of 1.85% YoY in EBITDA margin. The overall Selling and administrative cost was up by 21% YoY and employee cost was also up by 14.84% YoY, putting additional pressure on profitability of operations. Tax rate for the quarter was higher at 40% while the adjusted PAT witnessed a decline of 22.02% YoY to Rs50.19Cr. But EBITDA margins improved compared to last quarter due to decline in the prices of the international coal.


RECOMMENDATIONS
We believe, Prism is at comparable advantage against peers given its close to zero Debt/Equity ratio, as well as it looks fairly valued on EV/tonne basis.

At the current price, Prism cement trades at 5.12 times its TTM earning of Rs 5.27 and EV/EBITDA of 2.93 times its TTM EBITDA of Rs 269.09 Cr. With the softening of international coal and coke prices, cost pressure for the cement companies has eased out. Also, most of the companies have consumed their high cost coal inventories. Thus we expect that during the coming quarters cement companies will show improvement in profits. We maintain our outperform rating on the stock.

To see full report: PRISM CEMENT

>Hindustan Zinc (Motilal Oswal)

■ PAT declined ~57% YoY to Rs5.5b. This was higher than our estimate of Rs3.8b primarily due to sale of surplus lead concentrate during the quarter.

■ Net sales declined 44.3% YoY to Rs12.6b. Revenues from the zinc segment declined 33% YoY to Rs9.6b due to a 39% YoY decline in rupee realizations, partly cushioned by 11% YoY growth in refined zinc volumes to 152,796 tons. Mined zinc posted a growth of 27% to 175,438 tons, driven by the ramp-up of the stream-III concentrator at the Rampura Agucha mine. The company sold 25,055 tons of surplus lead concentrate during the quarter.

■ EBITDA declined 62.5% YoY to Rs5.6b and margins declined 21pp YoY to 44% primarily on account of lower realizations from the sale of by–products and metal. LME zinc and lead prices declined 51% YoY to US$1,208/ton and 60% YoY to US$1,173/ton, respectively. Mining & manufacturing expenditure declined QoQ due to correction of coal prices (used in power generation) and other inputs. Employee cost too was lower QoQ because there was a production bonus payment in 3QFY09.

■ Capacity expansion to 1m tons for both zinc and lead combined is expected to be completed on schedule by mid-2010. Earnings are likely to decline ~36% YoY to Rs41.6/share in FY10 on LME zinc price assumption of US$1,200/ton. Our marked-to-market FY10E EPS at current zinc and lead prices of US$1,425/ton has an upside of ~22%. On 31 March 2009, cash & cash equivalents were Rs96b (Rs228/share), which are invested as follows: (1) Rs69b in debt mutual funds, and (2) Rs27b in fixed deposits with banks. The stock trades at 1.3x FY10E book value (RoE of 11%). Maintain Buy.

To see full report: HINDUSTAN ZINC

>Credit Policy (ANAGRAM)

ANNUAL CREDIT POLICY 2009-10

In the context of exceptionally challenging circumstances in the global economy, Reserve Bank of India on 21st April 2009 announced Annual Policy Statement for 200-10 of which the keypoints are as follows.

■ Repo rate cut by 25 bps at 4.75% with immediate effect

■ Reverse Repo rate cut by 25 bps at 3.25% with immediate effect

■ CRR remained unchanged at 5.0%

■ Extension of special refinance facility and 14-day repo facility till March 2010.

■ Extension in the RCB relaxation for all in cost limit to December.

■ Change in the Structure of pricing of Floating Rate Bonds (FRB)

■ Increase in total amount of FCCB Buyback from US$ 50 million to US$ 100 million

■ Rescheduled 12% CAR implementation for NBFCs to Mar 31 2010 and 15% to Mar 31 2011

■ Hike in the limit of loans to NRI against deposit to Rs 10 million from Rs 2 million

■ GDP groth for FY10 projected at 6.0%

■ WPI inflation for Fy10 projected at 4.0%

■ Deposit growth for Fy10 projected at 18%

■ Non food credit growth for FY10 projected at 20.0%

■ Money supply growth for FY10 projected at 17.0%

To see full report: CREDIT POLICY