Wednesday, October 14, 2009

>Gold: The currency of last resort (SMC)

Gold is rapidly becoming the only welcoming port in a sea of uncertainties as worries rise over the traditional safe heaven, specially like US dollar. Despite increasing signs that the world's worst economic crisis is close to bottoming out, investors are continuously pumping money into gold-backed securities as insurance against the outcome of massive cash injection and ultra-low interest rates by global central banks. Due to mounting risk appetite, Gold prices have already surpassed $1050/oz mark in New York last week and is standing to gain the most of all assets classes on its unlikely quality – neutrality. Gold has a unique dual quality of acting as a currency and as an asset which is making it utmost irresistible to buy in current scenario.

While no major currency is likely to replace the dollar anytime soon, the need for an alternative is clear, and growing. China among others is considering how to diversify its more than $2 trillion in foreign exchange reserves; talk of using other currencies to trade oil or commodities continues to circulate. Supply constraints mean there is no chance of a full revival of the gold standard era, when currencies were pegged directly to gold. The textbook reference of Gold as a currency has been given life post Lehman shock. The dollar index, a measure against six major currencies, fell about 14 percent since March this year while gold rose about 13 percent during the same period. Gold's bullish picture is also painted by specter of inflation for the remainder part of this year as well as for next year as well. Moreover, record high Investments demand and speculative positions in New York have quickened the velocity of Gold prices in past few weeks. SPDR Gold
Trust, the world's largest Gold-backed exchange-traded fund saw its holding rise to a record 1134.03 tonnes on June 1, a 44 percent rise in the year that contributed to gold's 16 percent rise in the same period.

This growing number of investors means price action could also add to further gold's volatility and is also sparking fresh interest in Gold as alternative assets. We have analyzed Gold's performance for coming 2010 from Macro and Micro point of view. The raining bucket of cheap money into major economies, Dollar weakness, Inflation concerns and need for alternative currency have resulted in our confidence to forecast Gold prices at $1100/oz as our first target and then $1200/oz as the most likely in 2010.

To see full report: GOLD


Strong CASA growth stands out amidst growth slowdown and asset quality concerns
CASA growth of 12% QoQ and 19.4% YoY stood out in a quarter marked by slowdown in asset growth (19%), credit growth (17.7%) and asset quality concerns - Gross NPA at 1.21% and Net NPA at 0.45%. We expect NII, Operating Profit and PAT to grow by 30.2%, 39.9% and 28.1%
respectively for FY10E. At the current market price, the stock trades at 2.7X FY10E and 2.3X FY11E ABV. Raise target to Rs.910. Maintain Underperform.

Retail leads slowdown in advances
Retail loans grew by just 7% YoY and their share in total advances reduced to 22% from 24% a year ago. Large and midcorporate loans grew by 19%, SME loans grew by 21% while agricultural loans grew by 38%. Overall advances grew by 17.7% while total assets grew by 19% YoY.

CASA growth at 19.4%
Current Deposits grew by 7.4% YoY and savings deposits grew 30.5% YoY. Share of CASA improved to 43% even as aggregate deposits grew by 12.4%. NIM for the quarter was at 3.52% as against 3.51% in Q2FY09 and 3.34% in Q1FY09.

Fee income growth slowing down, treasury gains surprise positively
Other Income grew by 53.5% YoY primarily driven by growth in treasury gains which were at Rs.2.2 bn. as against 0.4 bn. in Q1FY09. Fee income growth moderated to 11.7% while forex income continued to grow strongly at 35.2%.

Asset quality concerns evident
Despite higher provisioning at 1.4% of average assets for the quarter as against the usual trend of 0.6-0.9% of average assets, Gross NPA and Net NPA moved up to 1.2% and 0.5% respectively. During the quarter, the bank restructured assets amounting to Rs.3.9 bn (0.5% of
advances). Outstanding restructured assets stood at 2.9% of advances at the end of the quarter.

Outlook and valuation
We have upgraded our estimates to account for the higher than expected treasury gains that the bank has posted in this quarter. We expect NII, Operating profit and Net Profit to grow by 30.2%, 39.9% and 28.1% respectively. We are moving over to FY11E for valuing the bank and are upgrading our target price to Rs. 910. At our target price, the stock would trade at 2.4X FY10E and 2.0 FY11E ABV. We have raised our target price primarily on account of dilution at a higher than expected price and lower then expected equity dilution. Maintain Underperform.

To see full report: AXIS BANK


Mahurat Picks 2009

With equity indices making new yearly highs, our equity strategy will be to buy on any significant declines in the markets as we are cautiously optimistic as the velocity of markets is surely exceeding the earnings expectation. Also, in October 2009, the markets will get sensitised by the earnings reported by Corporate India. So, any positive/negative surprises will have a corresponding impact on the markets. At best, investors should hold on to long positions while aggressive buying is not advisable at current market levels.

To see full report: MAHURAT PICKS 2009


We initiate coverage on Siemens India with a ‘Neutral’ recommendation and a target price of Rs 538 per share implying a downside of 5% from the current levels. We believe that the improving economic scenario has resulted in revival of industrial capex activity giving much needed boost to the industry business division of Siemens whereas the continued investment inflow in power generation and robust spending planned in improving power transmission network will continue to create huge demand for power equipments business.

Improving industry scenario bodes well for industry division
The slowdown in industrial segment owing to postponement / cancellation of corporate capex during the economic downturn in 2008 severely affected the industry division of Siemens (47% revenue). However the industry segment is now seeing clear signs of economic revival led by series of fiscal and monetary stimulus measures. Availability of funds on account of low interest rate has increased investment demand while also boosting consumer demand resulting in increased capital expenditure activity and economic recovery.

Power sector mega orders to ensure visibility
Unlike the industry sector, the power sector did not face any slowdown during last year’s financial crisis. India being a power deficit country with a very high peak power deficit of 13% and a continuous growing demand for power (8 to 10 % annually) necessitated huge investment into the sector by government in order to meet the shortfall. Higher plan outlay in the 11th plan has been made in increasing the installed capacity of power generation as well as in expanding the T&D network across the country. Siemens being a dominant player stands to benefit due to both the scenarios.

Uncertainties regarding Areva takeover bid
Siemens AG, the global parent of Siemens India, is one of the serious contenders to bid for the global T&D business of Areva T&D. An addition of Areva T&D India’s portfolio to Siemens India will result in creation of a behemoth player having the largest installed capacity and highest market share. However, the most critical element for the deal will be the price paid by Siemens India. Over leveraging the balance sheet in case of an aggressive bidding will be a negative in short term as the company is just starting to recover from the economic slump.

Outlook & Valuation
We feel that capital goods sector is now out of the woods considering the clear signs of economic revival resulting in recovery of industrial capital expenditure activity. At the peak of economic boom during FY07 – 08 when the order inflow for both power and industry sectors were strongest, Siemens traded at a P/E of more than 50 times one year forward. However, in the current macro scenario where the power equipment demand is equally strong but the industrial demand is in its initial stages of revival we feel that a conservative P/E of the average of last five years earnings CAGR of 23x is a prudent way to value the sector. On our estimated EPS of Rs 23.4 for FY10, we value Siemens at 23 times one year forward P/E multiple arriving at a target price of Rs 538.

To see full report: SIEMENS



The Nifty continues to move up after a sharp pullback at the start of the week. Though the upmove is not supported by the momentum indicators, which continue to make lower highs and lower lows, thereby giving a negative divergence signal between the price and the momentum.
The Nifty managed to surpass the high of 5110. Going forward, 5150 is the next crucial resistance on the upside, so till that is crossed we expect the Nifty to face selling pressure at this level.

On the hourly charts, the KST momentum indicator has a given a negative crossover and is trading below the zero line. The Nifty is trading above the 20-HMA and 40-HMA, ie 5008 and 5012 respectively, which are supports in the short run. The market breadth is positive with 926 Of the 30 stocks of the Sensex Gujarat Ambuja (down 3.52%) and RCom (down 4.08%) are the top losers while Tata Motors (up 3.69%) and Hindalco (up 3.10%) are the top gainers. advances and 308 declines.

To see full report: HIGH NOON


Gitanjali Gems announces the Brand Valuation for Nakshatra, Gili, D'damas and Asmi

To see detail: GITANJALI GEMS



We see a serious threat to the bottom-line growth for RIL for FY10 and FY11 with refining margins still under pressure and margin contractionin petchem. Additionally, rupee appreciation will impact. RIL negatively as its three main businesses have dollar-denominated pricing. Although E&P will provide growth, earnings will taper due to poor refining and petchem performance. We are downgrading our EPS estimates for FY10 and FY11 to Rs 108(Rs124) and Rs 159 (Rs 166) respectively, due to lower refining margins assumptions.

  • Refining: Margins unlikely to improve in next 2-3 qtrs
  • Perchem: Polymers witnessing margin pressure
  • E&P: Gas ramp up of 80 mmscmd unlikely before Q4FY10
  • Maintain sector Neutral; target price of Rs 1,900/share.
To see full report: RIL