>DAILY MARKET & TECHNICAL OUTLOOK (ICICI Direct)

MARKET OUTLOOK

■ Indian markets are likely to open flat today, taking cues from global markets. Asian markets were trading mixed in the morning amid caution over whether US government moves to shore up the economy will succeed. Before this, US markets fell on the uncertainty of the US plan of buying toxic assets. Bank stocks, which posted their best day in at least 16 years on Monday, dragged Wall Street lower as investors booked profits amid questions whether the US government's plan to spend up to $1 trillion to buy up toxic bank assets would work. We saw Indian markets ending nearly flat on Tuesday after a volatile session. Crude bounced to settle near $54/bbl as the dollar strengthened. The rupee is expected to start weaker on Wednesday,
following the dollar’s gains against Asian currencies and month-end import payments heighten demand for the US currency

■ The Sensex has supports at 9420 and 9350 and resistances at 9650 and 9770. The Nifty has supports at 2920 and 2900 and resistances at 3000 and 3030

■ Asian stocks declined after Japan’s exports slumped by a record margin, metal prices dropped and Sanyo Electric forecast a loss. The Nikkei fell 61.6 points, or 0.7%, to trade at 8,426.7. The Hang Seng fell 197.8 points, or 1.4%, to trade at 13,712.5

■ US stocks slid on Tuesday as investors paused to reassess the likely success of the government's latest plans to clean up bank’s balance sheets and revive the financial system, a day after initial euphoria over the plan drove huge gains. The Dow Jones was down 115.65 points, or 1.49%, at 7,660.21. The S&P 500 was down 16.59 points, or 2.02%, at 806.33. The Nasdaq was down 37.43 points, or 2.41%, at 1,518.34

■ Stocks in news: Patel Engineering, GAIL, NIIT, Ashok Leyland, Reliance Communication and DLF

TECHNICAL OUTLOOK

Sensex: We said, "Trading above the candle's high of 9455 can test the upper end of the Green channel ... This could be the short term target/resistance for the Index." Up nearly 3% initially, the Index did touch the target, only to find its short-term resistance as argued. Retracing all the gains, it closed flat. Metals lost 3%. The A/D ratio ended negative.

The action formed an up day, but a bear candle with an upper shadow. This indicates hesitance at technical resistance near the upper channel and last month's high. However, it does not indicate a breakdown as yet, until we see a strong selling below its low at 9400. Holding 9400 can, therefore, encourage positive efforts, perhaps initially.

To see full report: OPENING BELL 250309

>Reliance Communications (ANAND RATHI)

Net-adds drop in February but still tracking in-line

■ 3.4m net-adds in February. This implies a decline of 32% from the record 5.0m reported in Jan, yet RCOM is on track to meet our 4QFY09 forecast of 11.2m net-adds; the company needs to add 2.8m subs in March, which is achievable in our view. Furthermore, our FY10 forecast of sustainable monthly net-adds for RCOM is 2.1m, coupled with a 14% yoy decline in the ARPU.

■ Why the sharp decline in monthly net-adds? Three reasons in our view: (1) 10% fewer days in Feb vs. in Jan, (2) Reduced attractiveness of the promotional GSM package – initial cost to the subscriber is Rs100-110 vs. Rs25-50 in Jan, also reduction in free talktime value to Rs4/day (for 90 days) vs. Rs5-10 previously and, (3) conscious effort on the part of RCOM to limit the supply/sale of promotional GSM SIM cards, especially in those circles where RCOM is close to qualifying for additional spectrum.

■ 4Q recovery thesis intact. A positive surprise on net-adds (vs. our 11.2m forecast) now appears unlikely, but the key is revenue growth. RCOM has been offering discounted tariffs to boost usage and has indicated that the trends in recharge and ‘paid’ minutes are better than their own expectations. Furthermore, prebooking of bulk of the network operating costs and control in ad expenditure should contribute to healthy EBITDA growth in 4Q.

■ We find RCOM stock attractive given potential recovery in revenue/EBITDA growth and inexpensive valuations (FY10 P/E of 7.7x). Key risks include irrational competition and 3G auctions.

To see full report: RELIANCE COMMUNICATIONS

>Ranbaxy Laboratories Ltd. (RELIANCE MONEY)

UK & Australia Regulators approve Paonta sahib facility
Ranbaxy’s Paonta Sahib plant (that has been under U.S. Food and Drug Administration (USFDA) Import Alert since September 2008) receives approval from United Kingdom (UK- MHRA) and Australian (TGA) regulatory authorites for GMP Compliance. Moreover, the UK - MHRA approval will also apply to all product filings for the entire European Union region. The European approval comes as a consolation for Ranbaxy’s Paonta Sahib facility, as USFDA has recently halted reviewing its all drug applications having link with Paonta Sahib facility on the ground of falsified data and test results. Likewise, the Australian (TGA) approval is mild positive for Ranbaxy. In fact earlier this month, TGA had raised a safety & efficacy concern over Ranbaxy’s Paonta Sahib facility, subsequent to USFDA’s halt of reviewing Ranbaxy’s all drug applications

Implication
Though the favourable decision from Europe and Australian regulator has provided some comfort to Ranbaxy, the undergoing USFDA issue with the Paonta Sahib plant and Dewas facility continues to be cause of concern (the impact of which has already been factored in our estimates). And we believe this UK & Australia approval as just a sentiment booster and would not bring any incremental financial benefit. Thus, we maintain our estimates for Ranbaxy, as per which the EPS for CY09E and CY10E stands at Rs 11.8 and Rs 20.6, respectively. With the multiplying impact of USFDA safety issues and outstanding foreign debt exposure (over $500mn) at a time of steadily weakening Rupee/Dolla scenario, the stock faced heavy sell-off leading to sharp correction in prices from over Rs 250 levels to CMP Rs161. But with the FII holding minimising to about 4%, we don’t anticipate any major down side from current level. On the other hand, the strong bout of revenues from the FTF (First-to-File) opportunities of generic Valacyclovir and Tamsulocin during late 2009 and early 2010, provides good earning visibility for Ranbaxy in medium term.

Recommend BUY with retained TP of Rs 189
At the CMP, Ranbaxy is attractively valued at 8x its CY09E earnings (after factoring the NPV value worth Rs 70 for its FTF pipeline). Hence, with about 25% price correction in in Ranbaxy, we upgrade our rating from Hold to Buy with the earlier fixed target price of Rs 189.

To see full report: RANBAXY

>Infrastructure Sector (JM FINANCIAL)

Concerns remain…..

Infrastructure stocks have seen a sharp correction over the last 12 months. Reasons include rising interest rates (highlighted in our report dated 10th July 2008), reducing future order book visibility given slowdown in the capex cycle in a weak economic environment and sharp fall in real estate valuations leading to the decline in subsidiary valuations of the infrastructure companies. Where we believe valuations’ compression of subsidiaries has been accounted for, and interest rate pressures will ease off, visibility of future order book still remains lower than 12 months ago. Additionally, prospects of cancellations/delays in existing projects given the sharp economic slowdown still remain. For the purpose of future outlook, we analysed the annual budget outlays of states and government publications on achieved targets to get a sense of the spending patterns of the Xth five year plan. Our analysis surprised us positively, given that government spending has not seen substantial slippages. However, it must be noted that this was supported by a robust economic environment and reducing state fiscal deficits. Given the current weak macro-economic environment and upward pressures on deficits we have accounted for higher proportion of slippages in the planned infrastructure spending. Accordingly, we found that order flow prospects for FY10E do not appear encouraging…

● Xth plan spending patterns encouraging: During the Xth plan we found slippages were not very high v/s planned spending patterns. States executed around 80% of planned spending across the irrigation, power and roads segments. The Centre slipped on irrigation targets substantially, but saw limited slippages in power, given it is driven by spending of companies like NTPC, NHPC and Power Grid.

● Organized players market share seen rising during Xth plan: In context of the spending targets achieved during the Xth plan, companies under our coverage had the highest market share in power and lowest in roads with a rising trend seen across segments. Interestingly in terms of market share, L&T stands out in power, while IVRCL leads in irrigation.

● XIth plan prospects healthy but….: For the XIth plan period Planning Commission forecasted a sharp jump in infrastructure investments. However, based on annualized spending patterns of the states during FY08-FY10E, we realized quite a bit of the spending is backended in nature. Although, this is similar to trends in the Xth plan, during that period it was supported by reducing fiscal deficits of states. Given this trend is unlikely to continue, we have budgeted higher slippages for the XIth plan.

● Sector anticipated to continue underperformance: Based on the planned spending and derived market shares of companies, we have charted the anticipated order inflow during FY10E. Given the derived order inflows are muted, our earnings expectations is muted for FY11E. Based on our earnings expectations, we maintain L&T and Punj Lloyd will not give returns despite the share price correction and remain positive on IVRCL.

To see full report: INFRASTRUCTURE SECTOR