>Real Estate (CITI)

● High vacancy, weak demand hint at further downside risk in office space market — Cushman and Wakefield data suggests rentals for office space across key cities were down an avg 7% in 4Q08 vs. 3Q08 (Fig 8), with NCR, Mumbai and Pune experiencing the sharpest falls in rentals (8-13%). With a marked slowdown in demand, supply > absorption, vacancy levels up significantly (Fig 7), especially in peripherals of Bangalore, Chennai and Pune (16-18% in 4Q08), we see further downside risks to the office rental market.

● Peripheral locations across key cities most at risk — OMR in Chennai registered vacancy of >40% in 4Q08; vacancy stood at 22% in Whitefield and Sarjapur Outer Ring Rd in Bangalore and 18% in peripheral areas of Hadapsar, Kharadi in Pune. Though rentals are already quite low in these locations (Rs25- 38/sf/mth), with slowdown in IT, we do not foresee any near-term recovery.

● Supply, however, came off in 4Q08 — This is a trend across most cities (Fig 9- 14). Moreover, actual office supply in end-2008 is much lower than estimated at the beginning of the year, especially for Mumbai, NCR and Pune (Fig 16).

● Ishaan sees some cancellations in pre-let commitments — Its total area let-out, pre-let/under option is now down to ~2.6msf vs. 2.9msf in Dec’08. Marked slowdown has resulted in cancellation of let-out options of ~0.4msf at its Hyd and Navi Mumbai SEZs and push back in est. timelines for several projects.

To see full report: REAL ESTATE

>ABB (MOTILAL OSWAL)

● Order intake to improve in power segment; automation division under pressure: ABB India’s management indicated that while order intake in power segment is likely to be healthy, automation business is expected to witness slowdown. In CY08, segments like Iron and Steel, Cement and Aluminium contributed to bulk of the growth in the automation segment,
where the demand outlook is weak. We believe that automation products is the weakest link for ABB India (CY08: 23% of Revenues and 26% of EBIT) as it has the shortest order book (0.3x) and given the diverse business profile, capacity and resources need to be constantly adjusted depending on market conditions.

● EBITDA margins to decline with change in business mix, pricing pressures: We expect share of revenues of automation business to decline from 42% in CY08 to 40% in CY09 and 36% in CY10; and share in EBIT to decline from 48% in CY08 to 42% in CY09 and 36% in CY10. Given the change in composition towards power business in CY09 / CY10, we expect EBIT margins to decline from 10.7% in CY08 to 10.1% in CY09 and 9.4% in CY10.

● Higher than expected working capital, net cash at Rs2.8b in December 2008 (v/s Rs6.5b YoY): Working capital has witnessed deterioration and stands at 17% of revenues in CY08, v/s 8% in CY07. Also, net cash level has declined from Rs6.4b in December 2007 to Rs2.8b in December 2008.

● Financials and valuations: We are downgrading our earnings estimates for CY09 by 3.5% and CY10 by 6.7% to factor in the business headwinds. The stock trades at PER of 14.8x CY09 and 15.5x CY10. Maintain Neutral with price target of Rs368/sh (15x CY09E).

To see full report: ABB

>Daily Derivatives (ICICI Direct)

• In yesterday’s trade, Nifty future saw covering in short positions along with some further long closure, which was followed by short rollover into the next series. The Nifty March series witnessed an unwinding of 741300 shares in OI accompanied by a nearly 1% rise in price and widening of the discount to 15.05 pts. The April series added 1.44 million shares in OI.

• The PCR-OI surged to 1.58 on account of huge addition of OI in the 2800 and 2700 strike Puts. An addition of 22299 contracts in the 2800 Put and 18643 contracts in the 2700 Put along with rise in IV. This indicates buying in these strikes. Also, addition of 9663 contracts in the 2600 Put with IV almost unchanged indicates some Put writing at this strike. On the other hand, 2800 Call shed 4727 contracts along with marginal rise in IV indicating some further unwinding of positions by Call writers. The maximum addition in OI (16882 contracts) among Calls was seen in the 2900 Call with drop in IV. Market participants are advised not to carry any aggressive long positions as far as 2800 is held as resistance on a closing basis and 2835 on an intraday basis. However, 2700 may still continue to be a good support for the market.

• FIIs were net buyers to the tune of Rs 222 crore. DIIs were net buyers to the tune of Rs 526 crore.

To see full report: DERIVATIVES 190309

>Daily Market & Technical Outlook (ICICI Direct)

● Indian markets are likely to open flat, taking cues from global markets. Asian markets were trading mixed in the morning despite good news on the US Fed’s plan to buy treasuries to boost the economy. US stocks gained after the Federal Reserve on Wednesday stunned markets by announcing it would pump another $1 trillion into the ailing US economy by buying long-term government debt for the first time since the 1960s and by expanding its purchases of mortgage
bonds. We expect Indian indices to follow global cues and inflation data today.

● Inflation for the week ended March, 7 is expected at 0.89% against 2.43% in the previous week.

● The Sensex has supports at 8800 and 8700 and resistances at 9080 and 9160. The Nifty has supports at 2770 and 2750 and resistances at 2840 and 2850.

● Asian markets were mixed despite the US Federal Reserve announcing its plan to buy $1 trillion of bonds that spurred speculation that lower borrowing costs will revive economic growth. The Nikkei fell 49.3 points, or 0.6%, to trade at 7,922.9. The Hang Seng fell 159.4 points, or 1.2%, to trade 12,957.7

● US stocks rallied on Wednesday after the Federal Reserve surprised Wall Street when it said it will buy long-term Treasury bonds for the first time in four decades in an effort to revive the recession-hit economy. The Dow Jones gained 90.88 points, or 1.23 %, to 7,486.58. The S&P 500 advanced 16.23 points, or 2.09 %, to 794.35. The Nasdaq rose 29.11 points, or 1.99 %, to 1,491.22

● Stocks in news: ICSA India, Essar Shipping, BEML and MindTree

To see full report: OPENING BELL 190309