>US Economics Analysts (GOLDMAN SACHS)

The Budget Outlook—A Trillion Here, a Trillion There…

■ We now expect a US budget deficit of $1.86 trillion (13.2% of GDP) for fiscal year (FY) 2009, up from the $1.425 trillion (10%) we projected in late January. The main reasons for this change are greater weakness in the economy and a view that more funding will be needed for financial stabilization.

■ Over the next ten years, we expect the deficit to cumulate to $9.4 trillion, including a $1.5 trillion shortfall for FY 2010. Our ten-year figure is close to the CBO's estimate for President Obama's budget even though we don't include all his proposals. Our weaker economic outlook makes up the difference vis-à-vis CBO and puts our ten-year profile well above the administration's $7.0 trillion estimate for its own budget.

■ As a result, we now project that federal debt held by the public will double as a share of GDP over the next decade, to 83%. With a primary balance (excluding net interest) that remains in deficit throughout this period, policymakers have some wood to chop to keep the debt in check. While they work on that, market participants should take comfort in the fact that the Treasury will benefit from low borrowing costs as well as from yields on assets the government is acquiring in its efforts to stabilize the financial system, most of which will also be repaid.

■ To finance this surge, the US Treasury will need to ramp up its borrowing still further in coming months. We put the total borrowing need (gross coupon sales plus the net change in bills outstanding) at about $3¼ trillion and $2trn for FY 2009 and 2010, respectively. Current financing patterns can cover the FY 2010 need, but the Treasury will have to find another $800bn or so in the next few months if our FY 2009 numbers are right.

To see full report: US ECONOMICS ANALYSTS

>Crude down on dollar bounce; econ unease lingers

Singapore - Crude oil futures fell Friday in Asia as a rebound in the dollar encouraged traders to take profit.

While regional share markets remained on track for a solid finish this week, traders noted a lingering sense of unease over the outlook for the global economy.

"We believe that oil prices are likely to slip back into the USD40's a barrel over the next couple of months, but may still head higher in the latter part of the year," said David Moore, commodity strategist at Commonwealth Bank of Australia. "Oil consumption remains weak."

On the New York Mercantile Exchange, light, sweet crude for delivery in May traded at $52.09 a barrel at 0630 GMT, down 55 cents, or 1%, in the Globex electronic session.

May Brent crude on London's ICE Futures exchange lost 46 cents to USD52.29 a barrel.

The dollar held steady against the euro but traded firmer versus the yen, briefly topping Y100, a five-month high.

Market participants still "want to see if the rally is real. The U.S. economy doesn't seem to have hit its bottom and crude demand is not strong at all," said Koichi Murakami, a broker at Daiichi Shohin.

Oil prices on both sides of the Atlantic surged about 8.8% Thursday as a decline in the dollar boosted buying interest among investors, amid renewed optimism over the global economic outlook.

The Dow Jones Industrial Average - for many traders, a barometer of the health of the U.S. economy - spiked above 8,000 points for the first time since February.

This followed a pledge by world leaders from the Group of 20 industrialized nations, who met Thursday in London, to step up efforts to tackle the downturn, including a USD1 trillion commitment to the International Monetary Fund.

Oil's rally showed how a weak dollar and stronger stock markets can fuel speculative fund inflows to commodities, even if fundamentals remained soft - a trend that could persist in the near term.

"Until burdensome domestic supplies of crude and products become too onerous to ignore, we look for the petroleum complex to tag along behind these...large financial swings," Jim Ritterbusch, president at trading advisory firm Ritterbusch and Associates, said in a note to clients.

U.S. non-farm payrolls and unemployment data due at 1230 GMT will guide trading for much of Friday, he added.

Still, other analysts observed that sentiment isn't being driven only by macroeconomic considerations.

Supply-demand factors may be starting to lend support, particularly on the recent aggressive output cutbacks by the Organization of Petroleum Exporting Countries, according to Barclays Capital.

"We see the recent move up in prices as fundamentally justified, as pronounced supply-side (tightness), both in terms of OPEC cuts and involuntary non-OPEC production reductions, have more than offset the steep fall in demand," analysts led by Gayle Berry said in an overnight report.

"As the year progresses, we envisage a further tightening in oil market balances, as the pace of year-on-year demand decline moderates and the full impact of ongoing production declines filter through the system."

At 0630 GMT, oil-product futures were mixed.

Nymex heating oil for May slipped 93 points to 142.98 cents a gallon, while May reformulated gasoline blendstock traded at 145.25 cents, 173 points lower.

ICE gasoil for April changed hands at USD452.25 a metric ton, chalking up USD1.25 from Thursday's settlement.

Source: COMMODITY CONTROL

>Cement Sector (FIRST GLOBAL)

CEMENT SECTOR UPDATE

Dwindling demand & surplus capacity amidst current down cycle signal the end of good times…

Decline in realisation of cement companies appears inevitable on account of excess capacity & subdued demand

The Story…..

The profitable cement cycle, which kicked off in FY05 on the back of soaring demand for cement from the private sector and sent the industry’s price realization as well as profitability skyrocketing to new levels, is now coming to an end. The real estate boom and government’s announcements towards infrastructure development had acted as a catalyst and encouraged cement companies to add more capacities, which will now result in surplus capacity in the cement industry amidst slackening demand, as the global economy is passing through a period of turmoil. India’s GDP is on a slippery path, as is evident from the downward revision in its growth rate. The real estate sector, which accounts for around 60% of the demand for cement, appears to have lost steam and is expected to witness worse times ahead. Moreover, over the last one year, the government’s measures aimed at curbing inflation, such as duty free cement imports, banning of cement exports, and a multiple excise duty structure, have also delivered a severe blow to the cement sector.

The woes of the cement sector have not yet come to an end, despite the sharp decline in imported coal prices, the fall in crude oil prices, re-imposition of countervailing duty, a 4% cut in cenvat and a 2% excise duty cut on bulk cement. The depreciation in the Indian Rupee vis-à-vis the US Dollar has partially negated the positive impact of the decline in imported coal prices and the reduction in coal linkages still remains a key concern for cement players. Also, the higher levels of inter regional movement of cement on the back of the expected phenomenal oversupply will partly offset the benefit of lower fuel cost. In order to provide a boost to the demand for cement, Indian cement companies had passed on the benefits of the reduction in excise duty to the consumers after adjusting for the rise of 7-8% in rail freight costs. Going forward, a decline in the realisation of cement companies appears inevitable on account of the surplus cement capacity and subdued demand. So have the Indian cement industry’s good days come to an end? The answer is YES, as the industry, which is struggling with a decline in capacity utilization, is now preparing itself for a challenging 18-24 month period amidst the current down cycle. In this report, we have looked at the demand and supply scenario in the Indian cement sector and how the capacity additions announced by various cement manufacturers will be absorbed.

Highlights

• Indian cement industry in FY09E, FY10E & FY11E
• Where the industry’s capacity utilisation is headed…
• Our view on cement demand, oversupply, realisation & margins
• Region specific analysis
• Analysing the recent newsflow

Ramp up in installed cement capacity

• Northern Region – Grasim & Jaiprakash show the way
• Eastern region – Lafarge & Ambuja plan significant expansion
• Southern Region – ACC, UltraTech, Zuari cement, Rain Commodity…and many more
• Western Region – Entry of new player, Murli Agro amidst existing ones, such as Jaiprakash & ACC
• Central Region - Maximum capacity expansion by Jaiprakash & Prism
• All India - Big as well as smaller players have huge capacity expansion plans

Factors responsible for subdued growth in cement demand

• Slackening demand from real estate
• Exports growth to remain insignificant
• Downturn in IT sector
• Slowdown in GDP growth to negatively impact demand
• Infrastructure activity could take a breather

Current factors determining profitability of cement players...

• Coal – Imported coal prices decline…but the pain continues
• Government intervention…more pain & little cheer
• Competition from imported cement after 26/11?

To see full report: CEMENT SECTOR

>Novartis (HEM SECURITIES)

COMPANY OVERVIEW
Novartis India Limited is a leading provider of innovative solutions to improve health and well-being through activities to manufacturing and marketing of products & services in the areas of pharmaceuticals, over-the-counter (OTC) products, nutrition, eye care and animal health. The Company is a subsidiary of the Swiss giant Novartis AG, which is world’s second largest pharmaceutical company.

The company Business activities comprises of pharmaceuticals, generic and OTC drugs in the therapeutic areas of immunology and transplantation, oncology, gynaecology, central nervous system, respiratory, pain and inflammation, ophthalmics and orthopaedics; animal health in the areas of poultry, cattle and pets.; and has a presence in medical nutrition. The company product portfolio consists of key brands such as Sandimmun, Neoral®, and Visudyne in pharmaceuticals with new introductions like Benace®, Tegrital®, and Zaditen®, and holds leadership positions in Voveran®, Methergin®, Syntocinon® and Sandimmun Neoral®.

In generics category the focus of the company is to reduce the TB trade business and sustained in gynecology. The OTC business revolved around the vitamins, minerals and supplements category of products. Key brands include Otrivin®, a nasal decongestant and the T-minic® range of products in the segment of cough, cold and allergy. The new products and line extensions introduced in FY07 included Calcium Sandoz® Suspension, Calcium Sandoz® Woman Mix Fruit, Otrinoz™ and Benefiberm®. Spearheading growth in the animal health business were flagship brands of Tiamutin, Calborol™, Mifexm® and Mifex Oral® with Chelated Milmor Forte® being a new product. The company manufacturing facilities are located at hane, Kalwe, Turbhe and Mahad in Maharashtra.

Recommendation
Novartis India Limited has registered a continuous growth rate over past few years when most of the company’s competitor has registered a decline in revenue. The company is trading at a PE of around 10.3x. We expect the company to be de-listed in the future which could result in a high share premium for minority share holder and we reiterate “BUY” on the stock.

Highlights/Recent Updates
Novartis AG offers to buy more 39 per cent stake in Novartis India at INR 351 per Share
Novartis AG has offered to raise the stake in Novartis India Limited to nearly 90 per cent from the current level of 50.93 per cent. The offer is expected to open in May 2009.

Novartis gets USD 486 Million contract for build flu vaccine manufacturing facility in USA
Novartis announced that the US Department of Health and Human Services, Biomedical Advanced Research and Development Authority has awarded Novartis Vaccines a contract for up to USD 486 million over eight years to support the design, construction, validation, and licensing of US cellbased influenza vaccine manufacturing facilities to provide a prepandemic supply of influenza vaccine.

Novartis collaborates with USV to market Galvus in India
Novartis has collaborated with healthcare company USV to market its anti-diabetic product Galvus, in a move that would pitch the pharma company directly against Merck. Novartis plans to pitch this against Merck’s Januvia by pricing it lower in the Indian anti-diabetic market which saw total sales of INR 16.72 billion till June 2008.

To see full report: NOVARTIS