Thursday, March 26, 2009

>Daily Derivatives (ICICI Direct)

Derivative Comments

• Nifty March futures witnessed short covering of 1.46 million shares whereas the April series added 6.22 million shares in OI. With Nifty April series settling at a premium of 6 points to spot, we feel fresh long positions have formed in next series. This further suggests that positive momentum may continue in Nifty for coming sessions and participants are advised not to form short positions although near resistance levels of 3000-3050, for the time being. The rollover in the Nifty till date is 65.03% whereas Marketwide rollover is 62.95%.

• Significant short covering continues in 2800 call option wherein the IV has jumped to 78 from 44 earlier. The 3000 call added 11802 contracts with a further upward shift in IV which suggests good call buying has happened at this strike price. On the flip side, 15521 contracts got added in 3000 put wherein also the IV has risen from 44 to 47. We feel the put buying in 3000 could be due to ‘Put Hedge’ strategy adopted by many market participants. In April series, the 2900 put has added 11336 contracts. Since past 4 sessions the IV of this put is hovering in the range of 33-36

• FII index futures added another stupendous OI by 18.32% with a net buy of Rs 332 crores.

To see full report: DERIVATIVES 260309

>Daily Calls (ICICI Direct)

Sensex: We said, "bear candle with upper shadow indicates hesitation ... But it doesn't indicate breakdown ... Holding 9400 can encourage positive efforts ..." Index held 9400 to encourage positive efforts, and closed 2% higher. Realty Index outperformed with 6.3% gain. A/D ratio also turned positive at 2:1.

A day prior to settlement, action formed an Engulfing Line Bull candle, which, however, is re-testing resistance at the upper Green channel and previous high. On the Settlement day, looks positive above 9706 with caution at higher levels. Things can turn volatile on settlement day, though trend remains positive within rising channel.

To see full report: CALLS 260309


Market outlook

■ Indian markets are likely to open flat, taking cues from global markets. Asian markets were trading higher in the morning as unexpectedly strong US housing and durable goods data is raising hopes. Crude Oil prices fell on Wednesday as data showed US crude inventories rose more than expected to the highest level in 16 years as petroleum demand dropped. Rupee is expected to rise supported by higher Asian equities and a rise in other regional currencies, but demand for dollars for import payments will limit the gains.

■ Inflation for the week ended March 14th is expected at 0.13% against 0.44% for the previous week

■ The Sensex has supports at 9490 and 9380 and resistances at 9730 and 9840. The Nifty has supports at 2915 and 2880 and resistances at 3020 and 3050

■ Asian stocks rose, lifting the region’s benchmark index to a two-month high, as better-than- expected US economic reports fuelled optimism that global growth is responding to government stimulus measures. Nikkei advanced 43.1 points, or 0.5%, to trade at 8,523.1. Hang Seng gained 350.5 points, or 2.6%, to trade at 13,972.6

■ US stocks rose in a late rally on Wednesday as unexpectedly strong housing and durable goods data fuelled hopes the economy is finally on the mend, offsetting concerns the United States may struggle to fund plans to pull the economy out of recession. The Dow Jones gained 89.84 points, or 1.17 %, to 7,749.81. The S&P 500 rose 7.76 points, or 0.96 %, to 813.88. The Nasdaq added 12.43 points, or 0.82 %, to 1,528.95

■ Stocks in news: GAIL, Bank of Baroda, Dishman Pharma, Fortis Healthcare, Tata Power, Ranbaxy

Technical Outlook

Sensex: We said, "bear candle with upper shadow indicates hesitation ... But it doesn't indicate breakdown ... Holding 9400 can encourage positive efforts ..." Index held 9400 to encourage positive efforts, and closed 2% higher. Realty Index outperformed with 6.3% gain. A/D ratio also turned positive at 2:1.

A day prior to settlement, action formed an Engulfing Line Bull candle, which, however, is re-testing resistance at the upper Green channel and previous high. On the Settlement day, looks positive above 9706 with caution at higher levels. Things can turn volatile on settlement day, though trend remains positive within rising channel.

To see full report: OPENING BELL 260309

>Reliance Infrastructure (MOTILAL OSWAL)

Expect financial closure for projects worth Rs269b by 1QFY10: Reliance Infrastructure, including Reliance Power (45% stake), is targeting to achieve financial closure for projects worth Rs269b by 1QFY10. There have been delays given the tightness witnessed in the credit markets during 2HFY09. For RELI, total equity commitment towards existing projects stands at Rs26.3b, of which Rs21.8b is outstanding (equity commitment in FY10 stands at Rs10b).

Net cash and cash equivalents at Rs110/sh, investments in preference shares at Rs96/sh: Net Cash and cash equivalent stands at Rs46.8b (Rs206/sh), including investment in preference shares of Rs22b. Amount invested through ICDs has reduced from Rs77.4b in Mar 07, to Rs51b in Mar 08 and Rs27b in Dec 08; and management stated that most of the outstanding ICDs will mature by end FY10.

Sole/L1 bidder in 3 road infrastructure projects, EPC business gaining traction: RELI has emerged sole / L1 bidder in three road projects, at a project cost of Rs94.4b. This includes the Western Freeway Sea Link Project, connecting Bandra to Haji Ali (Mumbai) at a cost of Rs53b, including upfront payment of Rs16b to MMRDA towards the Bandra-Worli sealink. In EPC business, Hisar (1200MW, Rs38b) and DVC Purulia (1200MW, Rs34b) projects should cross the margin recognition threshold in 1QFY10, which should improve profitability.

Valuations and view: We expect RELI to report net profit of Rs10.5b (up 58.9% YoY) in FY09, Rs9.9b in FY10 (down 5.4% YoY) and Rs10b in FY11 (up 1.9% YoY). The stock quotes at PER of 10.5x FY09E, 11.1x FY10E and 10.9x FY11E. We arrive at a target price of Rs785/sh, comprising of: Power business Rs90/sh, Delhi business Rs34/sh, EPC business Rs49/sh, Cash and cash equivalent Rs251/sh and holding in Reliance Power Rs361/sh (20% holding company discount). Maintain Buy.



Weak iron ore outlook = earnings pressure

Remain bearish on iron ore, cutting estimates, Maintain U/P
Iron ore outlook remains weak as global steel cutbacks continue to take hold. Our global team has cut iron ore contract price forecasts to factor in weaker iron ore fundamentals. We have cut our FY10e EPS by 15% as we incorporate lower contract prices and higher spot sales mix in FY10. We forecast Sesa’s EPS to decline 36% in FY10. Valuations at 2.5x FY10E EBITDA appears reasonable but weak iron ore outlook, earnings downgrade risks will weigh on stock valuations, in our view.

Spot prices to remain weak
India - China spot prices (cfr.) had rallied 30% from Oct lows to US$81/t in Jan led by restocking activity and production restarts at small/mid Chinese mills (a key market for Indian iron ore exporters). However, spot prices has recently declined to ~US$67/t on weaker Chinese demand as restocking is largely over, port inventories are rising and small/mid sized mills are cutting back production.

FY10 contract price expected to fall 30% vs. 20% earlier
BAS-ML expects steel cutbacks to push iron ore market into a surplus of 117-183 mn tons over 2009-11. BAS-ML forecasts Aust. contract prices of US$64/t (US$73/t) in FY10. However, current China cfr spot price of US$67/t implies a ~ 40% fall in contract prices for landed cost of contract ore to match China cfr spot prices. Assuming 40% fall in contract prices, Sesa’s FY10e EPS falls by 44%.

Key takeaways from Sesa’s operations visit
We recently visited Sesa’s mines in Goa and also met the Mgmt. Key takeaways were 1) iron ore demand has dropped sharply in March and are now similar to Oct lows; 2) Mgmt. reiterated 20-25% vol. growth guidance over next 3 years; 3) Sesa is implementing a number of initiatives to ease logistics bottleneck; 4) Mgmt expects to announce reserves upgrades soon given positive exploration results.

To see full report: SESA GOA

>India Nuclear Power (HSBC)

■ India’s return to the global nuclear fold is generating a lot of headlines

■ But what does it really mean for the country’s big private sector players?

■ Our industry primer is essential reading for long-term investors

India has rejoined the international nuclear community after more than three decades in the wilderness, opening up huge long-term opportunities for domestic utilities and equipment
manufacturers. Recent newsflow, marked by the announcement of a number of potential billion-dollar deals, suggests that events are moving rapidly. We beg to differ. Our message is that this will be a lengthy process and that the impact on earnings over the next 2-3 years is minimal.

Having said that, we feel it is important for investors to understand this new landscape, look at the big picture, and be aware of the limitations and timing of opportunities arising from the significant expansion in India’s nuclear power sector. This report explores the questions of who is likely to benefit, why and when.

There is no doubt that companies we cover want to be part of India’s nuclear renaissance, but this is an industry with its own set of challenges – energy security, national security, public safety, regulatory risk, massive capex, legal liability, lengthy project timelines and government subsidies, to name a few. And then there’s the politics, which are never far away when nuclear power is being discussed.

It is also important to remember that India is no nuclear novice; the country already has 17 nuclear power stations – all run by the government-owned NPCIL – with six more under construction.

Now that India has access to fuel and technology from overseas, NPCIL will want to expand rapidly to help meet the country’s rising demand for power. This is good news for domestic manufacturers of nuclear equipment like BHEL and Larsen & Toubro. What remains to be seen is how private sector utility giants like NTPC, Reliance Power and Tata Power fit into the long-term picture.

To see full report: NUCLEAR POWER

>Yes Bank (SUNIDHI)

Company Description:
YBL, India's new age private sector Bank, is an outcome of the professional entrepreneurship of its founder, Rana Kapoor in 2003. YBL has fructified into a 'full service' commercial Bank that has steadily built Corporate and Institutional Banking, Financial Markets, Investment Banking, Corporate Finance, Business and Transaction Banking, Retail and Wealth Management business lines across the country. During 2005, the bank had forayed into retail banking with launch of International Gold and Silver debit card in partnership with MasterCard International. YBL had entered the capital market with its initial public offer in June 05 at a price of Rs 45 (Rs 35 premium). YBL has 117 fully functional branches and expects to open another 35-50 branches.

Yes Bank is aggressively foraying into retail banking for deposits, while retail advances are not the focus. Its loan book is divided between corporate (57%) and small and medium enterprises (41%). As of Q3FY09, the top sectoral exposure is diversified between food and agri business (20%), engineering (18%), infrastructure and logistics (17%), life sciences and chemicals (8%), and technology media and telecom (12%).

The UAE-based private bank Mashreq has tied up with YB to launch global Indian banking services across UAE. The tie up will allow Mashreq Gold customers in the UAE to open rupee savings accounts and fixed deposits.

YBL also plans a foray into asset reconstruction business by the end of this year; this can boost its ‘other income’. The bank intended to increase its SME clientele to 1,000 by FY09 and plans to add 5,000 customers under its Urban-Micro Finance programme.

YBL has high quality assets, comfortable capital adequacy, robust other income and strong growth in advances in the current challenging scenario. Its NPA during 31st December 2008 stood at 0.15% and capital adequacy ratio at 14.6%.

Capital adequacy ratio continues to remain healthy at 15%. Further, the bank has raised hybrid tier-1 capital (innovative perpetual debt) of INR 1.6 billion recently and expects release of 80bps when it reports in Basel 2 by FY09.

To see full report: YES BANK

>Axis Bank (KARVY)

We have revised our Axis Bank earning estimates after a visit to the bank's senior management; we expect that the bank's credit growth would moderate to 31.5% (Y/Y) to Rs1,146 bn from our earlier credit book estimate of Rs1,226 bn in FY10. Net interest margin is estimated to shrink by 30 bps to 2.57% in FY10.The bank's core fee income growth momentum
is expected to come down to 28% (Y/Y) in FY10 from 70% in FY08 and 50% in 9MFY09. The bank's management did not provide with any guidance or estimates on non-performing assets front; we expect 152% (Y/Y) rise in gross NPA in FY10 to Rs21.5 bn and increased credit cost to
1.3% in FY10 from 0.71% in FY08 and 1.1% 9MFY09. We increase our earning estimates for FY09 by 5.0% to Rs17.7 bn and reduce for FY10 by 9.6% to Rs15.5 bn and reduce our target price by 29% to Rs629 per share. We estimate the bank to record RoAE of 18.8% and 14.4% in FY09 and FY10 respectively. We re-iterate our BUY rating on the stock with a target price of Rs629 at 2.2x adjusted book value FY10.

Key takeaways of the meeting are

Moderation in credit growth: Axis Bank's management is of the view that in FY10 SCBs' and the bank credit book would grow by around 18- 20% and 28-35% (Y/Y) respectively; we have slightly reduced our credit growth assumption to 31.5% (Y/Y) to Rs1,146 bn. Focus on CASA improvement and cost of deposits: Relatively slower growth in credit book would reduce undue dependence on term deposits and declining whole-sale deposits rates would also improve overall cost of deposits. According the bank's management total whole-sale deposits contributes almost 35% of total deposits; average cost of whole-sale deposits was close to 7.75%.

Margin under pressure: The Bank's management indicated there would be strain on net interest margin; we expect that in FY10 margin would come by 30 bps to 2.57% from estimated NIM of 2.87% for FY09.

To see full report: AXIS


'Time to tune in'

Zee News (ZNL) is an attractive play on the dual emerging themes of Regionalisation and Digitisation owing to its strong positioning in the lucrative Regional & News Broadcasting space, its proven execution track record and backing by the Zee Group. We believe that steady Viewership gains in new channels and Monetisation of the same coupled with higher Subscription Revenues will drive ZNL’s future Earnings growth. We Initiate Coverage on the stock, with a Buy recommendation and DCF-based Target Price of Rs37.

Regional + News = The Right Genre Mix: ZNL's business model clearly has an edge over other Media firms with limited presence in a single genre like News as ZNL offers investors an opportunity to play out a more resilient and diversified theme. Going ahead, weexpect ZNL's Advertising opportunity to register modest 12.3% CAGR in Revenues over FY2008-10E to Rs2,854cr. We also expect ZNL to emerge as one of the key beneficiaries of the upcoming General Elections.

Established Bouquet - Set for monetisation: ZNL is a diversified regional player with a strong foothold in all its markets. Its National channels, viz. Zee News and Zee Business have gained significant traction in Viewership while cash cows Zee Marathi and Zee Bangla are maintaining their strong No.1 position. ZNL's strategic foray in the South has also paid off well with Zee Telugu and Zee Kannada performing remarkably, and Zee Tamizh being well on track. Thus, as ZNL monetises its competitive position across markets, it is well poised to clock 23.3% CAGR in Ad Revenues over FY2008-10E.

Digitisation to accelerate ZNL's Revenue growth: A strong and diversified Bouquet coupled with advent of Digital Distribution platforms places ZNL in sweet spot in terms of maximising the emerging Subscription opportunity. We expect ZNL to register CAGR of 35.4% in Subscription Revenues over FY2008-10E driven by 77.5% CAGR in DTH Subscription Revenues (owing to DTH rollout) and Monetisation of its Southern Regional channels.

To see full report: ZEE NEWS

>Gold drifts higher, looks for fresh cues (GOLD)

London - Gold drifted higher Monday in a quiet start to the week, as market participants awaited fresh cues for direction.

Dollar weakness and buying by Japanese retail investors helped firm prices, although market participants expected the metal to range trade in the short-term.

At 1033 GMT, spot gold was trading at $952.80 per troy ounce, up 0.15% on the day.

Spot silver was 1% higher at $13.86/oz.

Spot platinum rose 0.7% to $1,120/oz, and spot palladium was up 0.7% at $206/oz.

"We're looking for some new news," said Michael Kempinski, a precious metals trader at Commerzbank in Luxembourg.

Without a strong momentum of its own, gold will likely react to equity markets, the dollar and news stories, traders said.

Key data points for precious metals Monday will be U.S. home sales figures for February and U.S. Treasury Secretary Timothy Geithner's unveiling of a banking plan for toxic assets.

Traders said a rally in stock markets on the back of Geithner's plan may not weigh on gold, even though the plan could instill confidence among investors.

Fears of inflation should pick up any slack from a decline in safe haven demand for gold, said Kempinski.

A London-based trader also said Geithner's plan won't quell investors' worries about the banking industry and financial markets.

"You need to see a real recovery before you see gold (negatively) correlating with equity markets," the trader said.

One sign that safe haven demand for gold remains steady is the recovery in demand for gold exchange-traded funds. Gold holdings in the world's largest gold ETF, SPDR Gold Trust, rose 11.31 metric tons Friday to a record high of 1,114.60 tons.

Traders said they expected gold to trade in a range between $940-$975/oz in the short-term.