>India Property (CITI)

Per Sq Ft Portable

· Mall rentals decline 12/19% QoQ in 4Q2008 — C&W data suggests NCR and Hyd witnessed the sharpest decline in rentals at 19% and 13% resp while main street rentals fell most in Mumbai (24%), Chennai (21%) and Delhi (18%). 4Q vacancy in Mumbai and NCR was high at ~15%. We see more risks to rentals with most retailers re-negotiating and scaling down expansion plans (Fig 19).

· 2008 Mall supply below est; pronounced slowdown in 4Q — JLL data highlights actual aggregate mall supply in Mumbai, NCR, Bangalore and Chennai was 60% lower than est. supply at the beginning of the year (Fig 7). The supply slowdown was more pronounced in 4Q vs. 3Q for four key cities largely due to liquidity and absorption issues delaying mall completions.

· Derivative action in property stocks — Real estate stocks with Unitech in particular have seen a build up of fresh long positions. Unitech and DLF saw rollovers of 76% and 70% resp. vs. 69% for Nifty (Fig 20). On stocks, short positions in DLF have reduced with rollover costs down MoM, while in Unitech some long positions were left to expire, triggering a rally in cash market; long positions in HDIL and IBREL have largely been rolled over.

· Trikona Trinity Capital a casualty of property slowdown — Shareholders of the AIM-listed real estate fund invested in several projects in India have passed a resolution to dispose of all assets and return the capital. We see this as a sign of distress and more such events could further add to liquidity crunch.

· News — 1) DLF cuts Gurgaon prices; 2) Sicom acq 0.27% stake in Parsvnath through invocation of promoter pledged equity; 3) 53% of homes built in 6- key cities since 2007 unsold; and 4) Dec’08 FDI fell 62% MoM to US$44m.

To see full report: INDIA PROPERTY

>IT Services (PINC RESEARCH)

Introduction
We initiate coverage on Indian IT services sector with a Negative view. We believe that the macro-economic factors will continue to impede Indian IT Services industry. The industry is experiencing multiple headwinds along with the slowdown that will play out in terms of reduced growth rates, pricing pressures, project cancellations, delays or no orders and return of economic nationalism resulting in sluggish top-line growth. We initiate coverage on Infosys (Sell), TCS (Sell), Wipro (Hold), and HCL (Hold) rating.

· Global macro-economic headwinds: BFSI, Telecom and Retail the worst affected: The current macro-economic outlook appears bleak in the near term. GDP of the US and Europe, which contributes about 85% of revenue for top 4 Indian IT comapanies, is expected to de-grow. BFSI, Telecom and Retail that contributes 65% of revenue for top 4, are suffering because of declining consumer confidence, write-offs and bankruptcies. M&A has further decreased the size of the pie.

· Globalization of global delivery model: Large global peers like IBM, HP-EDS, and Accenture have managed to grow at a faster pace in India than the top 4 Indian IT companies. Global players have steadily improved their margins over the last 3 years. Tier-1 Indian IT companies are also facing pricing pressure due to competition from the Tier 2 Indian IT companies.

· Pyramid effect not geared for decelerated growth: We believe that with little visibility of volume growth and gloomy macro-economic condition, and in declining attrition scenario, the ability to maintain the pyramid base would be difficult. Any decline in hiring would increase the average age and accelerated hiring would put pressure on utilization ratio and margins.

· STPI benefit to end in FY10, slower volume growth could increase tax rate further in FY11: End of tax holiday will have dampening effect on bottom-line of Indian IT companies. According to us, slower volume growth than expected could increase effective tax rate higher than anticipated in FY11. We are factoring in the number of new business moving to SEZ, but as the volume of new business dries up the companies' effective tax rate could be higher than anticipated.

To see full report: IT SERVICES

>India Strategy (MERRILL LYNCH)

India elections: Musical chairs post elections

· Hung parliament likely…
Over next 6-8 weeks, we think concerns of a hung Parliament post-election will likely worry the market and, coupled with expected slowing earnings, we believe could lead to a 15% correction in the markets. On the elections, we believe
(a) there will likely be a hung Parliament i.e. none of the three combinations – Congress-led UPA, BJP-led NDA and the Third Front – will be able to come to power (b) post-election results new alliances are likely –regional parties like BSP and AIADMK will be important (c) the probability of a Third Front Government coming to power is still low but increasing in our view. Our best case scenario would be a Congress Government but with the Left being a key ally in it.

· …leading to new alliances in effort to form the Government
We think most of the present alliances are fluid and many parties would be willing to reconsider their alliances post-elections. We think 2 regional parties – Mayawati’s BSP and Jayalalita’s AIADMK would play a crucial role in deciding the Government. The role of the Left parties, though weakened, should also be important.

· Congress-led UPA Government still has a slight edge
Despite the break-down of seat sharing with Mulayam Singh’s SP in U.P and Laloo Yadav’s RJD in Bihar, we think both will continue to be part of the Congress-led UPA. We think the UPA still has a slight edge since they can get
Left support again. The BJP-led NDA on the other hand, we believe, could need the support of BSP, Jayalalita’s AIADMK, Naidu’s TDP as well as its old ally BJD.

· Third Front Government: Negative scenario for the market
We think it would be highly unlikely that a Third Front Government is formed without the support of Congress or BJP, because Congress plus BJP should gain nearly 50% of the total seats. However, if the Congress/BJP can’t form a stable Government, they may support a Third Front Government. While we think this is a lower probability event, the possibility has been increasing past few weeks.

· Markets edgy till Government formed
We think a positive scenario for the market is a BJP or Congress led Government without the Left parties but has a low probability event in our view. Historically, markets have been edgy ahead of elections. We think concerns of a hung Parliament could lead to a 15% correction in markets this time. We would be defensive (Buy Hero Honda, Bharti) in the run-up to elections. We think infrastructure would be a priority for all Governments – Jaiprakash could be a gainer in the post-election scenario. We believe a Congress or BJP government without the Left could lead to reforms in (a) privatization and oil reforms (gainers: HPCL/BPCL) (b) banking reforms (gainers: Government banks) (c) FDI in retail, aviation, insurance etc (gainers: Pantaloon).

To see full report: INDIA STRATEGY

>Eastern silk Industries (INAJ MENA)

COMPANY OVERVIEW

EASTERN SILK INDUSTRIES, LTD. engages in the manufacture, sale, and export of silk yarn and fabrics primarily in India. It offers fabrics and madeups, home furnishings, fashion fabrics, handloom fabrics, double width fabrics, scarves, laces and belts, and embroidered fabrics. EASTERN SILK INDUSTRIES exports its products to the United States and Europe, as well as to Australia, the Middle East, and the Far East. The company was founded in 1946 and is based in Kolkata, India. The company was thereafter converted into a Private Limited Company in the name of Eastern Silk Manufacturing Company Private Limited on 12th June 1956. The company was again converted to a Public Limited company in the name of Eastern Silk Manufacturing Company Limited and fresh certificate of incorporation consequent to change of name was issued by the Asst. Registrar of Companies West Bengal on 26th July 1975. The name of the company was further changed to "Eastern Silk Industries Limited" and a fresh certificate of incorporation consequent on change of name issued by the Asst Registrar of Companies West Bengal was obtained on 12th August 1975.

The company manufactures silk fabrics with an annual processing capacity of 4.05 million mtr pa. Most of its production is exported to Japan, the US and the UK. A government-recognized export house, it also exports made-ups, leather goods and shrimps. The company has two subsidiaries – Eastern Enterprises and Mayur International Corporation. Eastern subsidiaries markets a part of the ESIL products in the US and Canada.

ESIL is involved in an integrated production facility of silk products starting from reeling of yarn from cocoons to finished silk. ESIL procures the cocoons from the southern part of India and Madhya Pradesh. The yarn is reeled on a contract basis by the various units in different villages in the cottage industry sector. The reeled yarn is sent either directly in to company's process house at Noida for dyeing or given to Eastern Enterprises Ltd. (EEL) a wholly owned subsidiary of ESIL. Around 50% to 60% of the yarn requirement is imported mainly from China or Brazil . After the weaving of the fabric, ESIL processes and finishes the fabric at its process house at Noida. The made-ups like scarves etc. are mainly manufactured in Naraina in New Delhi.

· Expansion Plans to drive volumes :The company is starting a new plant worth INR 800mn in Bangalore which should be operational from July 2009. This will surge the total production capacity of silk yarn and fabrics.

· Shift in Product Mix :The company is now focusing on machine made silk fabrics rather than handloom made silk fabrics. Machine made silk fabrics fetches higher margins and have better demand in developed countries.

· More Focus on Domestic markets to improve margins :ESIL plans to venture into domestic markets due to an increase in demand for silk in the furnishing sector in India. The margins in the domestic markets are higher as the finished products are sold to the retailers directly.

· We have initiated a coverage with a price target of INR 49.95 giving an appreciation potential of 581% in the next 2 years.

To see full report: EASTERN SILK INDUSTRIES