>INDIA WEEK AHEAD (MERRILL LYNCH)

Of rains, hope and despair…

■ Met expects the monsoons to advance…
We join a parched India in praying for rain. The Met does expect widespread rainfall over the west, central and north-east this week. The good news: rains are resuming at last (Table 2). Weekly deficiency has shrunk to 8% by July 8 from July 1’s 29%. Besides, rains are watering the south’s relatively early June sowing.

The bad news: time’s running out. The north need sow by early August (Table 3). Although better than 54% a fortnight ago, 36% seasonal deficiency remains scary. What if rains fail? We expect a 100bp downside risk to our expected 6.3% FY10 growth and ~150bp upside risk to our 6.1% March 10 inflation forecast (Table 4). When would we know? End-July. Do read Jyoti and my monsoon report here.

■ Cropping doubled last week; but still 20% lower y-o-y
Yet, all is still not lost. We are relieved to report that autumn – kharif – cropping doubled last week as the monsoon penetrated the hinterland (Table 5). Rice farming is now up 33% from last year in contrast to last week’s 27% fall. Soya is also staging a recovery. And NCDEX oilseed prices are softening.

■ (-)1.4% deflation on 40bp fuel price hike impact
We expect the 40bp ‘direct’ impact of July 1’s fuel price hike to limit deflation to (-)1.4% Thursday (Tables 6-7). Oil minister Deora has promised to roll back the fuel price hike if oil slips below US$60/bbl. On our part, we expect US$64/bbl Brent this fiscal. This, in turn, should induce neither a fuel price hike/cut from Delhi. We thus expect inflation to climb back by March 10, forcing the RBI to hike CRR/rates by January/April (Chart 1). Do read our oil report here.

■ RBI will issue new borrowing calendar…
Gilts will watch out for the RBI’s new borrowing calendar expected by weekend. On our part, we estimate that the government need borrow Rs3260bn/US$68bn in FY10 (Table 8), net of repayments, MSS maturity/”desequestering” and Rs1200 bn RBI OMO here. Seasonal July liquidity and a large ~375bp 10y – 3.25%RBI rate spread should hold fiscal pressures for now. Do read Ashish and me here.

■ … fx flows swing on earnings: HDFC Bank (Tue), L&T (Thu)
We expect FII inflows to swing to June 09 earnings. Our analysts see BSE Sensex earnings bottoming at 4-5% (ex metals) (Table 9, here). By the way, bouts of INR volatility in no way detract from our long-held twin view of BoP risks overdone/ constructive INR outlook. Do read Christy and me here.

■ 7.6% 2Q09 China growth supports Asia bottoming out
We expect China to grow 7.6% in 2Q09, up from 1Q09’s 6.1%. At home, 2.7% May 09 industrial growth surprised us (1%) and consensus (1.3%) on the up Friday (Tables 10-12).

To see full report: INDIA WEEK AHEAD

>PRICE ACTION (CLSA)

Technical views on global and Asian market

■ Intermarket analysis. In this piece we review the technical levels for copper (HG1 - $230.50), crude oil (CL1 - $69.19), the US dollar index (DXY – 79.8) and the US long bond (US1 – 118.35). Since the summer of 2008 these markets have tendered to move in opposite directions depicting the markets sentiment towards inflationary and deflationary fears. The idea it to identify the key levels in these markets which would suggest that the deflationary pressures have reemerged.

■ Asia: The road ahead. What we see developing over the second half of the year for Asian markets, represented by the MSCI Asia ex Japan, from a technical perspective is:

• A mid July peak, closer to the 405-430 range. The key markets that are expected to drive the index higher in the short-term are Taiwan, India, Indonesia, Singapore and Hong Kong.

• This final thrust higher should be followed by a partial retracement of the advance off the March low. We would focus on the typical retracement levels, 50-62% of the advance, near the 300-330 range (20-30% decline).

• We would look at using the summer weakness as a buying opportunity for another cyclical advance.

• Our preferred markets to look for buys on weakness during the summer months: Indonesia, India and Taiwan.

• We believe that the biggest risk to our preferred roadmap is that Asian markets continue to squeeze higher in a rising wedge type pattern.

■ US: Big picture. In April we placed a chart of the S&P500 over the Dow Jones Industrial from 1937 to 1942 and noted the remarkable similarity. Such analogies rarely work to perfection, but given the striking replication this one bears watching. The large trading range pattern may be the best-case scenario for US equities. In the short-term 875 remains our main reference point for the S&P500.

■ India: Nifty – 5,000+. The 4,090-4,200 support zone has held and the market is starting to push higher again. Our minimum expectation for this advancing phase is for a retest of the recent peak at 4,696-4,700 with risk of extending towards our Elliot wave target zone of 5,500-5,700. We would buy ICICI Bank (ICICIBC IN – Rs724) on a break above Rs772.

■ Taiwan; Taiex targeting 7,100-7,700. We note that the daily chart of the Taiex (last – 6,667) shows a clear positive divergence. This tells us that the market is building underlying strength and projects a minimum upside target of 7,113. The Taiex’s heavyweight, TSMC (2330 TT – NT$55.10), has room for further gains and we like the set-up of Hung Poo Real Estate (2536 TT – NT$46.25) and AU Optronics (2409 TT – NT$34.05).

■ The recommended list: We would take profits in CNOOC (883 HK – HK$9.54) and Gazprom (GAZP RU - $5.22).

To see full report: PRICE ACTION

>IDBI (MORGAN STANLEY)

Research Tactical Idea

We believe the share price will rise relative to the country index over the next 15 days.

This is because the stock has traded off recently, making short term valuation much more compelling. IDBI reports tomorrow and we believe the results will be supported by some improvement in NIM's and also some pickup in fees. One of the issues facing IDBI has been its low NIM's at 0.1-0.2%, but in the current interest rate environment, NIM's could improve, which would have a positive bearing on the stock price, in our view. Moreover, IDBI has corrected by 25% from
the peak on June 29. We expect the stock to pick up some of this return post earnings release.

We estimate that there is about a 70% to 80% or "very likely" probability for the scenario.

Estimated probabilities are illustrative and assigned subjectively based on our assessment of the likelihood of the scenario.

This is a near term call. Our fundamental 12 month view on the stock remains intact. In the near term, IDBI should benefit from lower rates and higher asset prices. For us to turn more positive, we would need to see a sustainable improvement in NPL's.

Stock Rating: Underweight

Industry View: In-Line

IBN18 BROADCAST (IDFC SSKI)

KEY HIGHLIGHTS OF Q1FY10 RESULTS AND INTERACTION WITH THE MANAGEMENT

• IBN18 Broadcast (IBN18) numbers for the quarter are not comparable as it includes financials of IBN7. IBN18 has positively surprised on standalone as well as consolidated financials

• IBN18’s standalone (including CNN IBN and IBN7) revenues stood at Rs565m and operating profits at Rs59m in Q1FY10. Reported profit stood at Rs170m, which includes Rs515m of gains on sale of treasury stock (9m shares) and Rs305m of write off of option premium paid to TV18 for acquiring the balance stake in Viacom18.

• Driven by high spends on news broadcasting during the election period, the news operation (CNN IBN and IBN7) has seen like to like growth of 35%, EBITDA profit of Rs53m in Q1FY10 (loss of Rs113m in Q1FY09).

• IBN18 on a consolidated basis (including CNN IBN, IBN7, 50% share of IBN Lokmat and 33.7% share of Viacom18) reported revenues of Rs1.1bn, operating loss of Rs43m and net profit of Rs59m (including extraordinary income/expenses).

• We are extremely impressed with the financials of Viacom18. Share of revenues from Viacom18 (33.7% share) stood at Rs494m, which means Rs1.5bn of revenues for the property.

• Share of losses in Viacom18 is at just at Rs61m, which means only Rs181m of losses during the quarter. With continued sales traction and stabilizing cost structure, the property is expected to turn profitable at the operational level in Q3FY10

• Colors, the GEC property, is in a close battle with Star for the top slot in the GEC space. While in the last week, Colors’ GRPs stood at 284 as against 287 for Star Plus, Colors has been the leader in the genre with average GRPs of 258 as against 255 for Star Plus and 234 for Zee during the quarter. Viacom18’s other property – MTV is also emerging as a strong youth based GEC property.

• IBN18 has paid Rs.1.5bn to TV18 to exercise the option for the remaining stake in Viacom18. Now IBN18 owns 50% In Viacom18. The payment includes Rs300m towards option premium, which is expected to be written off in Q2FY10.

To see full report: IBN18