>Auto & Auto Ancillary: The Outsourcing Opportunity

Global OEMs are increasingly sourcing components from cheaper manufacturing destinations and Indian component manufacturers offer a great cost-quality proposition. The global auto components industry is estimated at US$1.2 trillion. An average cost reduction of nearly 25-30%
has attracted several global automobile manufacturers to set up their base. The value in sourcing auto components from India includes low labor cost, raw material availability, technically skilled manpower and quality assurance.

The global auto ancillary industry is expected to reach US$1.9 trillion by 2015, of which around 40% (US$700 billion) is potentially expected to be sourced from low cost countries including India. Launch of new vehicles by global auto majors for both domestic and export market will augur well as localization content is higher at ~75% which helps to control cost and compete with peers.

Current scenario and future prospects for OEMs
The CV industry has positive factors working for it now – increased road activities and infrastructure activities that are boosting demand thus enabling transporters to pass on increasing fuel prices in freight rates. The key indicator of underlying demand in the CV industry, the index of industrial production (IIP), has been improving steadily over the past two quarters, following strong revival in industrial activity. We anticipate CV industry to grow by 14% CAGR over next 3 years and by 17% in FY11.

Natural Rubber prices to remain firm till late 2011…until supply recovers but pricing power to remain in favor of tyre manufacturers.

Buoyant demand from China, India and US for automobiles coupled with drought-like-conditions in major rubber producing countries and rubber trees reaching declinng yield phase, led rubber prices to rise sharply. Apart from the buoyant demand and drought-ridden supply other factors influencing the rubber market included the weakening US dollar, volatility in yen and the increasing crude oil prices.

The existing yielding trees in major producing countries were mostly planted during 1980. Most of the trees planted have reached declining yield phase, thus the age composition of the existing yielding area is unfavorable for yield improvement. However period from 2005 onwards has seen substantial expansion in rubber area and hence net impact of the trees planted during 2005 onwards (less the trees that are needed to be uprooted) are expected to start yielding from 2012 onwards.

To read the full report: AUTO ANCILLARY

>Emerging Opportunities in Infrastructure (ANANGRAM)

After announcing last year about awarding mega highways projects, the Ministry of roads transport and highways has started the process of site selection for the same. The Mega roads projects are the ones which are approximately of 500 kilometers and are of around Rs 5000 Cr.
Though not of the same size, but one such project was bagged by IVRCL Infra recently valued at around Rs 3100 Cr. Over the last one year (i.e. June 2009 – May 2010) the NHAI has awarded projects with a combined length of 7478 km and plans to award a further 12000 km in FY11. After showing significant improvements during the 1 year of charge, in terms of formulating / modifying policies favorably to faster awarding, the ministry now takes a step ahead.

The government has set a target for constructing 35,000 km of highways in the next five years under the National Highways Development Programme (NHDP), which will require an estimated investment of about USD 60 billion. Out of this, USD 40 billion will come from the private sector.

The National Highways Authority of India (NHAI) has estimated its annual borrowings from the domestic and international market to be more than Rs 4.3 billion for the next 15 years.

While not many construction companies will pre-qualify for such mega projects, we believe that many small construction companies too will be benefitted from these as we expect the actual developers to sub-contract quite a lot of the work to smaller players.

Funding remains challenging – at least as of now
The gross borrowings would be in the region of Rs1,92,000 crore, with a peak at around Rs. 71,500 crore. This is where the major challenge lies.

The RBI has recently rejected priority status to road projects as the priority status is for the borrower like farmers and small and medium industries. The planning commission has recently proposed to set up a $ 11 billion fund to finance infrastructure projects in order to secure ample investments to implement the development plans. The fund will be under a special company which will be owned by banks and financial institutions. The main objective will be to raise long term funds from domestic as well as overseas markets by issuing bonds.

Thus while the government is working on this, it is still on an early stage and may take a while before it materializes.

To read the full report: INDIAN INFRASTRUCTURE

>APOLLO TYRES (ANAGRAM)

We like Apollo Tyre due to its dominance in tyre market (28% market share in T&B vs. 19% of closest competitor) and capacity addition, ahead of its peers, to leverage on the structural shift from cross-ply to radial. The company has already taken 12-15% hike in tyre prices (as per price hikes taken by industry) and we believe even further price hikes wont taper demand for tyres. We initiate coverage with “ Accumulate” rating on the stock.

RADIALISATION TO WITNESS S-CURVE EFFECT.
In past markets have exhibited growth along S-curve once the level of 11-12% is breached. Going by that trend and coupled with thrust on road development put forth by the ministry of road we expect T&B tyre market to witness inflection point in 2011 and reach at 25% radialisation level by 2013. To leverage upon this opportunity company is expanding its radial manufacturing capacity by 440 MT/day at Chennai with an aggregate capex of Rs 2000 crores.

SOARING RUBBER PRICES: MARGIN HEADWINDS ONLY FOR SHORT TERM.
Rubber prices are hovering at Rs 160/kg and we expect rubber prices to become favorable from 2012 while the current capacity constraints coupled with buoyant demand will remain in favor for tyre manufacturers to raise prices and maintain margins. It has been observed that EBITDA margin remains impacted for some quarters when rubber prices are on rise as manufacturers pass-on the prices gradually while Apollo tyres has shown better margins than its peer during rising rubber price scenario and the difference between company’s and industry margins has widen during such situation.

SUBSIDIARIES TO DRIVE EARNINGS
We expect South African facilities acquired in 2006 and acquisition in Vredestian Banden in 2009 will contribute 30% of overall business in FY11 from 18% in FY09 and report sales growth of 5% CAGR over FY10- 13. Acquisitions offers cross leveraging benefits of technology, marketing network and low cost production, which will drive profitability of the overall business.

VALUATION
We expect sales to grow at 15% CAGR over 2010-13 and PAT to grow at 17% over the same period, mainly due capacity addition, increase in gross realization due to rubber price increase and change in product mix. Since rubber price volatility translates into volatile earnings we believe that looking at EV/Sales is better indicator and show a better picture. The stock trades at 0.53x and 0.45x its FY11E sales of Rs 9080 cr and FY12 E sales of Rs 10624 cr. Our target price of Rs 80 implies a 1 yr fwd P/E of 6 (Hist. 1yr Fwd P/E of 8.3 and 1 yr fwd EV/ sales of 0.57 (Hist. 1yr Fwd EV/sales of 0.45). Hence we are extremely positive on the medium term prospects of Apollo Tyres considering the fact it is the market leader in the CV segment where a major portion of its sales accrue and where overall demand traction continues to remain
strong.

To read the full report: APOLLO TYRES

>VIEW ON THE FORTHCOMING CREDIT POLICY ON JANUARY 29, 2010 (ANAGRAM)

SNAPSHOT: THE WITHDRAWAL OF EXPANSIONARY MONETARY POLICY IN OUR VIEW WILL NOT DERAIL THE ECONOMY

At the Oct09 monetary policy, the RBI withdrew some unconventional liquidity support measures and tightened the prudential norms particularly for the property sector. The monetary policy statement clearly shows that those steps represented the first step towards "exit".

In the coming meeting on 29th January 2010, there is an expectation on 50 bps CRR hike. On a more aggressive stance, there is also a slim possibility of Reverse Repo hike at the same time (25 bps) in the policy meeting. The possibility for this measure remains slim as the current market is in a revers repo mode with approximately Rs 80,000 crore parked with the RBI.

To read the full report: MONETARY POLICY

>MANGALAM CEMENT LIMITED (ANAGRAM)

To read the full report: MANGALAM CEMENT

>What's Happening? & What's Next? (ANAGRAM)

What's happening?
What's Next?

What's Happening in the Markets?

• WORLD INDICES NEAR YEAR HIGHS
• COMMODITIES MULTI MONTH-HIGHS
• MARKET SURGED ON FOREIGN INFLOWS
• FDI TURNED TO BRIC COUNTRIES

What's Happening in India?

• MONSOON IN INDIA WORST IN 37 YEARS
• CAPITAL ACCOUNT IN SURPLUS AFTER TWO QUARTERS
• CORE SECTOR GROWTH ZOOM TO 7.1%
• BURGEONING WPI - IMPEDIMENT FOR GROWTH
• NET REMITTANCES-SECOND HIGHEST EVER

What's Happening in the World?

• US AUTO SALES PLUNGED IN SEPTEMBER
• US EXISTING HOME SALES LOSE MOMENTUM
• US UNEMPLOYMENT HIGHEST IN 26 YEARS
• US FACTORY ORDER POST FIRST DROP SINCE MARCH
• WORST EMPLOYMENT HIKE IN RECENT DECADE
• COSTLESS ASSETS ALLOCATED BY IMF

What's Next?

• RBI- TO CONTINUE WITH SOFT POLICY
• WHATS NEXT FOR DOLLAR : 85 OR 70
• MARKETS MOVING FROM UNDERVALUED FROM FAIRLY VALUED ZONE

What's the Outlook?

OUTLOOK & STRATEGY

• Dollar weakness is fueling flows into commodities and emerging markets equity.
• Markets seems to be running ahead of fundamentals, moving from undervalued to fairly valued zone
• Investors should wait for a large pull back before committing fresh resources to equities.
• Learning from History, we anticipate markets to remain lackluster till diwali.
• Major resistances for the nifty lies at 5200 and support lies at 4750.
• Markets trading in a range between 4920 and 5050.
• On break beyond the range traders should play for 4780 or 5170 via October Nifty Options

To see presentation and graphs: WHAT'S HAPPENING?

>IVRCL INFRASTRUCTURES & PROJECTS LIMITED (ANAGRAM)

Company Background

Incorporated in 1987, IVRCL is a Hyderabad based construction company, present in most of the verticles of infrastructure space like Water & Irrigation, Transportation, Power T&D and Buildings and Industrial structures. The company is betting big on irrigation and water opportunity in India and has maintained its un-disputed leading position in the segment. Acquisition of Hindustan Dorr Oliver has improved its presence in water and environmental engineering space. Going forward, the management has given indication of tapping upcoming opportunity in power transmission.

Infrastructure Industry –Opportunities Unlimited
There is a little doubt that the infrastructure industry in India is to play a vital role in nation's progress towards achieving the status of a 'developed nation'. The government has realized that the infrastructure related inadequacies will put a significant constraint in realizing the nation's growth potential. Consequently, the planned investment in the 11th five year plan is 136% higher over the anticipated investment in the 10th five year plan. Irrigation, roads and highways and power have witnessed 129%, 117% and 127% growth in the 11th five year plan and account for almost 60% of the total outlay. With the new government in place, there are strong expectations that going forward these infrastructure initiatives will get a further emphasis in terms of execution and incremental investments.

Healthy Order Book Provides Revenue Visibility
The current order book of the company stands at Rs 13900 Cr with a further Rs 1000 Cr of projects having L1 status. Irrigation projects account for 69% of the total followed by 22% contribution from Buildings and Industrial Structures unit. Going forward we expect the order book to witness robust growth mainly from the order wins in Irrigation, power and road sector.

Valuation
We believe that IVRCL will continue tapping huge opportunities in irrigation and water related projects. While over the past couple of years the company has strengthened its position in Buildings and Industrial Structures segment, going forward, power transmission and roads related projects will increasingly contribute to the growth.The core construction business of the company is valued at Rs 363 per share by assigning forward multiples to FY11E EPS. The two listed subsidiaries IVR Prime and HDO are valued at CMP and contribute Rs 42.8 and Rs 19.8 per share respectively. The 4 BOT projects are valued at Rs 28.7 per share. We had given OUTPERFORMER rating on the stock in our Q1FY10 Earnings Review report (14th Aug 2009, Price Rs 318). Investors who had already invested in IVRCL Infra can continue holding it while others can look at the stock on declines.

We remain bullish on IVRCL and retain OUTPERFORMER rating with the SOTP based 12 months price target of Rs 465.

To see full report: IVRCL

>ROLLOVER ANALYSIS JUNE'09 (ANAGRAM)

LOWEST ROLL OVER SINCE MAY 2005

Wild swing was witnessed in the June series where at one point of time nifty was up by 8% during the first half of the series, only to retreat almost 12% from the high in the later half of the series and finally settled with a marginal loss of 2.2%. This muted dose came on the back of highest ever gain of 25% witnessed in the May series.

We have seen overall rollover of 74% as against 77% last month and last three months' average rollover of 76%. This Roll-over of 74% is at four year low - the lowest since May'05 when rollover of 72% was seen. We are starting the July series with a slightly lower OI of 109Cr shares as against 111Cr shares with which we had started June series. Even if we consider only stock futures, OI at the beginning of July series is slightly lower at 97.5 Cr as against 98.5 Cr indicating subdued confidence among the market players' in terms of rolling over of positions ahead of the budget which is going to be announced early next month.

LOWEST EVER ROLLOVER IN NIFTY

• LOWER OPEN INTEREST IN NIFTY OPTION SEGMENT: PUT WRITING IS SEEN AT 4200 LEVEL.

OUTLOOK FOR THE JULY SERIES- BE BEARISH ONLY BELOW 4200 LEVEL ON CLOSING BASIS : In a nutshell, considering aggressive put writing at 4200 level and subdued rollover in stock futures which in-turn indicates that there is a higher possibility of positions being built in the first few days of the series before we see any major correction. Therefore our advise would be to remain bullish till 4200 level gets broken on the downside, the level at which we have seen aggressive put writing. One more notable thing is the lowest rollover in Nifty futures coupled with higher Nifty future premium, which shows lack of confidence among bears to build short positions ahead of the budget. This lower short rollover can be a negative factor during the time of correction, as market will not get enough support from short covering unlike past few months.Any close below 4200 level would result into unwinding of long positions, which might drag nifty to even 3950-4050 level. On the higher side we advise booking profit in long positions around 4500-4550 levels, the level which consists of second highest OI among the Nifty July calls.

To see full report: ROLLOVER ANALYSIS

>CEMENT UPDATE (ANAGRAM)

ACCELERATING VOLUME GROWTH CONTINUES

The Indian cement industry posted a staggering growth for the seventh consecuare tive month during May 2009 as the dispatches found rising on the increased infrastructure and rural housing activity across the nation. All India cement production witnessed healthy growth of 11.9% YoY and dispatches of 10.8% YoY. All regions witnessed healthy growth, however northern region among them witnessed highest growth rate 26.3% YoY on back of the increased infrastructure spending and demand from the construction for the commonwealth games. Southern region witnessed sluggish growth rate of 4.1% YoY due to acute power cut problem and low demand in the region. Central, Western and Eastern regions dispatch growth of 11.0%, 8.3% and 7.2% respectively.

PRICES
The all India cement prices had crossed Rs. 250 per bag in May. The strong grip witnessed in cement prices is mainly on account of strong dispatch numbers posted by cement companies and continual delay in commencement of new capacities

SOFTENING OF IMPORTED COAL PRICES
Average coal prices have now come down from their July'08 peak of $200 and expected to remain around $68. Given the significant correction in international coal prices and pet coke prices, major beneficiaries will be those manufacturers who primarily rely on imported coal as a raw material in production process.

OUTLOOK
Demand in Apr-May had picked up mainly due to Government infrastructure projects and will come down by end of june-09 with the onset of monsoons. Cement prices could fall by up to 10% in the coming months, pushed lower by new supply and slower construction activity during monsoon season. However, with a likelihood of a fresh impetus to infrastructure and housing sector in the forthcoming budget, utilization levels may improve.

To see full report: CEMENT UPDATE

>FUEL PRICE DECONTROL (ANAGRAM)

■ Murli Deora is in charge of petroleum ministry for the second term under the leadership of the new UPA government without the Left is actively considering deregulation of auto fuel prices. This if approved by the cabinet would be shot in the arm for the oil marketing companies and provide relief to the government reeling under huge fiscal deficit of 6%.

■ The subsidy burden for the government to keep the oil prices under check is around 1.3% of GDP. Deregulation of the auto fuel prices till the time crude is below a threshold level would help to reduce the subsidy burden for the government and thus impacting the fiscal deficit positively.

■ In April 2002, the APM system was discontinued and a degree of autonomy extended to the oil marketing companies to set prices based on internatinally quoted prices of petroleum products. Between 2002 and 2004, the world prices of crude petroleum had risen by 26% to 32% and prices of HSD and MS by between 19% and 41%. So the government again started implementing APM.

■ The government has opened discussions on possibility of deregulation of auto fuel prices. This government had appointed Chaturvedi Committee for implementing reforms in the oil & gas sector in India.

To see full report: FUEL PRICE DECONTROL

>INFOGRAM (ANAGRAM)

Gains are capped!!!!

DIVESTMENT BACK IN RECKONING

The newly elected Government is planning to revive the divestment process. Many divestment stocks are rising rapidly on bourses. Instead of selling majority holdings or completely privatizing, the current thinking is to sell small amount of stocks.

Government is thinking with a short term goal of gamering resources but will not fundamentally change the picture. Neither ownership or management of these companies will change in any major way. If government were to privatize them that will infuse fresh managerial talent and new ideas to make these resources much more profitable. If they sell in large chunk, the price they will receieve will be substantially higher than what they will get for a small stake sells.

RISE IN MARKETS: TOO FAST TOO SOON.

In less than three months time. almost half of the BSE 500 stocks have returned more than 50% to its holders. 21% have risen more than 75% and almost 10% stocks have risen more than 100% from its recent lows in March.

99% of the stocks listed on BSE exchange are above 50 day moving average. 95% of the stocks are 200 day moving average. The kind of bullishness is difficult to sustain in such economically challenging times.

India's market capitalization has risen more than 75% in a short span of three months.

Our Market cap to GDP ratio has gone up by more than 66% during time and now reaching fair value level of 1.

This suggest stocks have risen quite rapidly. Now, in order to sustain such rapid moves in the markets, the fundamentals have to turn and improve drastically in next 6 months. If economic data does not improve to that extend, we may be setting ourselves for a negative surprises.

This led us to believe that gains from here are going to be capped at best. Investors will do follow trailing stop loss methodology to protect their precious gains.

BUY GOLD AS AN INSURANCE

It's always been easy to participate in the gold market and there are three options available in India. First, buying physical gold coins, bars and jewellery and store it somewhere safe. Secondly, to trade futures gold on Commodity Exchange. And thirdly buying a Gold ETF on NSE.

All the ingredients are in place for a big run in gold.

To see full report: INFORGRAM

>ROLLOVER ANALYSIS MAY 09 (ANAGRAM)

NIFTY UP 25% IN MAY SERIES; HIGHEST GAIN EVER IN ANY SERIES.
Nifty surged 25% in May series, the highest ever gain witnessed in any series in the history of derivative market in India. Before this, the highest gain was witnessed way back in Oct 2007, where nifty rose by 13%. Nifty continued its upward journey during the entire series without any significant correction and finally closed the series at the highest level on a closing basis at 4337. This gain of 25% came on the back of a rise of 12,7% witnessed in the April series,

OVERALL ROLLOVER - 77% IN LINE WITH LAST THREE MONTHS AVERAGE ROLLOVER OF 76%
Rollover for the May series STOOD AT 77%, the same as that of April series. This is also in line with the last three months' average rollover of 76%. Although in percentage terms rollover is same, in absolute terms picture is different. We are starting the June series with a higher OI of 111Cr shares as against 106 Cr shares with which we had started May series.

LOWER ROLLOVER IN NIFTY(63%) - LOWEST SINCE OCTOBER'08
In case of Nifty, lower rollover is seen, where only 63% positions got rolled over to June series as against 74% last month and last six months' average rollover of 70%. Even in terms of no. of shares, we are starting June series with Nifty futures OI of only 2.75 Cr shares (Lower by 27%) as against 3.76Cr last month and last three month average OI of 3.47 Cr shares at the beginning on new series.

OUTLOOK FOR THE JUNE SERIES - BE BEARISH ONLY BELOW 4200 LEVEL ON CLOSING BASIS

BOOK PROFIT IN NIFTY AROUND 4500-4600 LEVEL
In a nutshell, considering aggresive put writing at 4200 and 4300 level, long rollover in stock future suggested by the higher COC and FIIs investment in cash market we believe there is a higher possibility of upward momentum to continue for the first couple of week in the new series. There fore our advice would be to remain bullish till 4200 level gets broken on the downside, the level at which we have seen aggressive put writing.

This report includes data on following stocks:

• HIGHEST ROLLOVER STOCKS
• LOWEST ROLLOVER STOCKS
• PERFORMANCE OF THE MAY SERIES
• F&O (STOCKS+INDICES) ROLLOVER DETAILS

To see full report: ROLLOVER ANALYSIS

WEEKLY WATCH (ANAGRAM)

UNLUCKY 13?

Indian markets had a dream run for the past 12 consecutive weeks. India was amongst top gainers in the world indices and the move was fairly broad based. Realty and metal stocks continue to sizzle on the street. India's market capitalization has increased by a massive 70% or 9 lakh crore in just 12 weeks time. Momentum indicators are still showing strength. It is natural for a prudent financial investor to remain cautious and keep one foot on the door.

To see full report: WEEKLY WATCH

LARSEN & TOUBRO LIMITED (ANAGRAM)

REVENUE & PROFITABILITY RISE LED BY EFFICIENT EXECUTION OF LARGE PROJECTS.

During FY09, company reported a revenue of Rs. 40187 crore as against Rs.29198 Crore and Net Profit increase by 63% to Rs 3756 crore (incl extraordinary income)

Core EBIDTA margin stood at 11.6% V/s 11.8. Adj. NPM stood at 9.35% v/s 7.88% due to institutionalized risk management processes, efficient cost management and speedy execution.

SEGMENTAL PERFORMANCES

ENGINEERING & CONSTRUCTION (E&C) SEGMENT

Bucking the current industry down turn:- The core infrastructure and industrial sectors have attracted sizeable investment in the recemt times, driven by sound fiscal and economic policies of the government. The E&C segment reported a significant growth in its Order Inflows during FY09 at Rs 45418 crore, a growth of 28% on YoY basis. Share of internatinal order stood at 14.5% of the segment order inflow.

Electrical & Electronics Segment:- Electrical & Electronics segment reported a muted growth in its sales. The segment reported revenues at Rs 2778 crore for the year, a growth of 4% compared to the previous year. Revenue growth was impacted by slowdown & industrial segment. EBIDTA Margin took a cut & was down at 13.3% v/s 16.9%, lower by 360 bps.

Machinery & Industrial Products Segment:- Overall slow down in Industrial & real estate sector in H209 has adversely revenue and profitability were muted during the year. The segment posted Net revenues of Rs.2397 crore, registering a growth of 3%. EBIDTA margin increase to 20% v/s 18.9%, increase by 110 bps. Improvement in margin due to rupee depreciation.

To see full report: LARSEN & TOUBRO

>CEMENT SECTOR (ANAGRAM)

COMPANY DESCRIPTION
India Cements is the third largest cement group in India with a capacity of 10.1mmt spread across seven manufacturing plants in the states of Andhra Pradesh and Tamil Nadu. Its cements are sold in south India under the Sanskar, Coromandel and Rassi brands, whcih have strong brand equity in that market.

The Company has revived its Shipping business with the purchase of two ships(Dry bulk carriers) with a total capapcity of 79843 DWT which will be primarily utilized for captive movement of coal and other rae materials also to partake in the upswing in the shipping industry.


INDUSTRY SCENARIO

DEMAND-SUPPLY SCENARIO
The overall outlook for the back of robust demand from housing construction, phase-2 of NHDP and other infrastructure development projects. Domestic demand for the cement has been increasing at a fast pace in India.

The cement sector is expected to witness growth in line with economic grwoth because of strong co-relation with GDP.

The industry had installed capacity of 212mn tonnes in last financial year, while consumption was 176mn tonnes. Cement companies have added nearly 7mn tonnes capacity in April, taking the total installed level to 219mn tonnes. According to the Cement Manufactrurers' Association, the UltraTech/Grasim combine led the way with 4.5mn tonnes, followed by Damia Cements with 2mn tonnes of cement capacity is scheduled to come on stream by the end of FY10.

To see full report: CEMENT SECTOR

>ESSAR OIL LIMITED (ANAGRAM)

MAJOR DEVELOPMENTS

■ Firm arrangements with HPCL, BPCL & IOC for product off-take of 7 million tonnes and infrastructure support from these companies provide a strong foothold in the domestic market.

■ Retail outlet reactivation started from Q#FY09. Retail sales for the quarter January to March 2009 stood at 264,421 KL, a 253% jump over the Q3 sales of 74998 KL.

Outlook and Valuation

Going ahead, the performance of the stock will be greatly leveraged to progress on refinery expansion, refining margins & news flow on E&P business. Based on the assumption of crude oil prices at the levels of USD 50/ barrel for FY10E and USD 55/ barrel in FY11E from the current level, the stock is trading at a forward P/E of 19.36xFY10E and an EPS of Rs.9.2xFY10E.Based on the above mentioned assumptions the target price is Rs.167 (18 P/E + E&P).

To see full report: ESSAR OIL

>EQUITY WEEKLY WATCH (ANAGRAM)

What a week!

New UPA government has heralded good times for India bourses. Nifty gained highest ever in a week and for its elder brother Sensex it was a best since March 1992. Reality and capital goods stocks recorded massive 37% and 28% gains while underperformed the broader indices. Foreign institutional investors poured in 5000 cr. this week chasing stock prices, while domestic funds booked profits worth Rs.1300 cr.

Markets are attracting lot of interests from retail investors and we expect indices to remain buoyant as well. Midcap and small caps are hogging the limelight and as we have been asking our readers to put their money in this space as it will generate much superior returns in the short term.

INDEX

■ WEEKLY NEWS
■ WEEKLY EVENTS
■ WEEKLY TRENDS

• MARKET INDICATORS,
• SECTORAL INDICES,
• WEEKLY SENSEX GAINERS & LOSERS,
• ADVANCE-DECLINES,
• WORLD INDICES

■ MARKET AT A GLANCE

■DERIVATIVE WEEKLY SUMMARY

• OVERALL INTEREST IS HIGHEST SINCE JAN 08, FRIDAY'S DATA: PUTS ADD HUGE OPEN INTEREST,
• OUTLOOK: BE BULLISH ONLY ABOVE 4300-4350 LEVEL ON CLOSING BASIS
• SECTORWISE WEEKLY CHANGE IN OI,
• TOP STOCKS OPEN INTEREST WISE,
• FII ACTIVITY FOR THE WEEK (From 18th May to 22nd May'09)
• TOP GAINERS & LOSERS OPEN INTEREST WISE
• TOP GAINERS & LOSERS PRICE WISE
  

■ TECHNICAL TALK

• EXPECT MARKET TO BE IN THE RANGE COUPLED WITH A STOCK SPECIFIC BULLISH MOMENTUM
• TECHNICAL PICKS FOR THE FORTHCOMING WEEK, REVIEW OF STOCKS RECOMMENDED LAST WEEK WITH REVISED ENTRY LEVELS & SL
  

■ WEEKLY SUPPORT RESISTANCE

• SUPPORT - RESISTANCE LEVELS OF VARIOUS STOCKS FOR FORTHCOMING WEEK

■ FUNDAMENTAL CHECK

• REVIEW OF STOCKS COVERED 3 MONTHS BACK

To see full report: WEEKLY WATCH

>HINDUSTAN CONSTRUCTION COMPANY LTD (ANAGRAM)

RESULT HIGHLIGHTS

Hindustan Construction reported lower than estimated revenue of Rs 979.7 Cr (-7% yoy) as a few if its projects failed to reach the minimum threshold limit. The (adj) net profit however, was higher 7% partly owing to 300 bps improvement in operating margins to 15.4% for the quarter.

The FX reversal of losses provided earlier in the year and SAP implementation advisory fee has resulted in other income surging to Rs 24 Cr which in turned boosted reported profit by 94.5%. We have treated reversal of FX losses of Rs 19.33 Cras extraordinary item.

HCC booked orders worth Rs 5200 Cr during Q4FY09 taking the total order book to Rs 16400 Cr.

FINANCIALS

Due to change in its accounting policy for treating gains and losses on FX borrowings for working capital, the company has reserved Rs 29 Cr of net FX loss in Q4FY09. The reversed amount has been credited to 'Foreign Currency Monetary Items Translation Difference Account' and will be amortised over 3 years. For Q4FY09, Rs 9.67 has been amortised for the same. We have treated FX loss reversal as a non-recurring item whereas the amortisation of the same has been considered as recurring item.

The revenue growth (YoY) which had been decreasing for last 4 quarters finally slipped below zero - marking de-growth. Apart from the general slow down in execution, the de-growth in revenue was also due to failure of some projects to reach the threshold limit of revenue recognition. The bottom line however, witnessed a 7% rise yoy partly due to higher operating margins at 15.38% (+296 bps yoy)

HCC added orders worth Rs 5002 Cr in the Q4FY09 taking the total unexecuted orders to Rs 16400 Cr. The company is L1 for Rs 1000 Cr worth of projects and is currently evaluating projects worth Rs 10,000 Cr.

To see full report: HCC

>BANKING SECTOR REVIEW (ANAGRAM)

Banks reported a robust yearly growth in Q4FY09, though sequentially situation worsened,

Slowdown in the lending activities from the last two quarters coupled with lower interest rate scenario translated in to a negative growth in Net Interest Income in most of the banks quarterly basis. Moreover, hit of asset quality could be very clearly seen in gross NPA figures. We are Bearish on Banking Sector due to the following major concerns.

• Adverse effect of downturn in core business in Net Interest Income
• Hit on asset quality following the economic downturn
• Inadequate cover for NPAs
• Stress on demand Deposit
• Banks still in a diverse track of business

PRESSURE ON NET INTEREST INCOME
The cautious strategy adopted by most of the banks discouraged lending activites, putting pressure on the interest income and the margins. Lower interest income, while on the other side continued flow of deposits kept the interest expenses on a high end. As a result of which most of the banks registered degrowth in net interest income on sequential basis, consequently drop in the margins.

WORRY ON ASSET QUALITY
Banks had hard hit on their asset quality following the ongoing financial slowdown and that is the reason of choosing the safe avenues for the fund deployment by the banks instead of providing credit to the productive sectors. To deal with it, RBI came out with the circular of restructuring without changing its investment grade.

INADEQUATELY PROVIDED FOR NPAs
Provision coverage ratio provides the cushion for the corrosion in the asset quality. Presently where all banks prefer capital conversation and risk management over growth, those who have adequately provided for the NPAs are on a safer side. In FY 2008-09 instead of providing more amount for the same, some of the banks lowered their provisions and thus showed positive sum of growth in Net Profit.

To see full report: BANKING SECTOR REVIEW

>Infogram (ANAGRAM)

Will Momentum last?

Our bellowed Sensex had one of the best months in last ten years. After May of 1999, first time we saw sensex rising for than 17% in a month. Last month is this report we advised our reports to buy stocks as we foresaw good times. How do we judge the weather now? Well, slightly overcast to say in brief. There are many events scheduled over a month which can derail our rally and the advice is to remain indoors or carry an umbrella (strict stop loss) when you dare to venture out!

In the US, there is a market maxim, 'Sell in May and go away'. The idea is to sell in the month of May and enter after Halloween in November. The saying is based on some studies that show that returns during the November-April period are better than the May-October period.

We scanned the data in India from October 1989 onwards to find whether the rule applies to us as well. We found that while the April October returns in the last 19 years were 9.38% on an average. The returns were positive in 12(63%) out of the last 19 years. The returns in the October to April returns were 12,57% in the last 20 years. The returns were positive in 15 (75%) of the last 20 years under study.

The month of May is notoriously bad for equities. In the last 19 years, it has given a negative return of 0.97%. This is the second worst month after October, which has an average loss of 2.81%. In the last 19 years, the month of May has returned losses in 9 out of 19 instances. Besides, the month of May has some other idiosyncrasies as well.

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