>Market Outlook (MICROSEC)

Indian market is likely to remain volatile due to Global market volatility which is led by fears of Global Economic slowdown led by Europe and China. Election results slated to be announced on Oct 19 in two key states will further decide Governments strength in framing bold policies.

There are many low hanging fruits like insurance bill which need to be cleared in the winter session of parliament. Lower CPI and WPI may create conducive environment for RBI to cut interest rates by end of the CY14 or early next year. Geopolitical issues, China slowdown, weakness in global markets and US Fed may indicate hiking rates sooner will prompt some investors to remain cautious. Indian
PM visit to US was successful in many ways if one takes a macro view and specially strengthening the defense sector by inviting manufacturing in India to US INC. Earning season has started which would emphasize on stock specifics according to the performance. Markets in the past has performed on beaten down stock valuation but henceforth, earnings accretion would bring new run in markets in
few upcoming quarters rather than P/E expansion. Favorable outcome on assembly results towards Central ruling party would enthuse markets in its ability to clear key bills in upper house of parliament.

Sharp decline in input prices across industries like crude oil, rubber, cotton yarn, copper will improve fundamentals across OMC’s, Auto-ancilliaries, Textiles and Consumer durable. These sectors may continue to outperform in Oct 2014. Nifty EPS(E) for CY15 is currently at ~571, Bloomberg consensus. On that basis we believe Nifty is likely to trade 13.66-14.18x CY15(E) earnings which makes a range of ~7800-8100 for October 2014. Engineers India, Dredging Corp, Max India,
Finolex Cable, CCL Product, Crompton Gr, IDFC, Tide Water, IL&FS Transportation, Blue Star, UPL Ltd., Bharat Electronics, Archies Ltd, Exide Ind, Lloyds Electric, M&M, L&T, Tata Motors, TCS, INFY, RIL, SBI, ONGC may remain strong.


RISH TRADER

>MADRAS CEMENT: Completion of Capacity Expansion from 10.49 MTPA to 12.49 MTPA

Strong Growth delivered in FY12 & Encouraging Return Ratios. The company has registered a strong financial growth in FY12. It’s Net sales increased by 24% to INR3278 crore and PAT improved by 82% to INR386 crore. Its EBITDA margin also improved from 24.6% to 29.3%. ROE of the company came at 20.4%. Its total D/E ratio also came down marginally from 1.1 to 1.0. Madras cement’s financial ratios are strong and are very much in line with top cement players like Ultratech Cement, ACC and Ambuja Cement.

Completion of Capacity Expansion from 10.49 MTPA to 12.49 MTPA to add to Topline once the demand improves: Madras Cements has completed the capacity expansion of its cement plant of 2MTPA (million Tonnes Per Annum) capacity at its Ariyalur plant in Tamil Nadu to increase the total capacity from 10.49 MTPA to 12.49 MTPA. This capacity expansion will help in increasing its topline and meeting the demand which is expected to improve after the monsoon departure and government’s thrust on infrastructure revival. Also the company is expected to add another 45MW of captive power taking its total captive power capacity to 157 MW which will further reduce its power cost.

Pick up in Cement prices by INR25-30 per bag after the monsoon season: Cement prices in the Andhra Pradesh market have started to pick up after the correction witnessed in the earlier 3 months time. Prices of cement have gone up by INR25-30 per bag of 50 kg in AP in October after hovering around a level of INR230-240 per bag. Cement companies, which have been going through a bad patch, see not just a recovery of prices, but growth with demand increasing, as the monsoon season is just over and construction movement is showing signs of improvement.

To read report in detail: MADRAS CEMENT

>APOLLO TYRES: Expansion to aid growth

Fall in rubber prices will result in margin improvement for tyre companies: Amidst all the gloom and doom in the auto industry, tyre companies have something to cheer in the form of fall in rubber prices. Despite the falling rupee and sluggish demand, the correction in rubber prices may result in margin improvement for tyre companies in the coming quarters offering much needed margin relief. Domestic prices have come down from Rs.240/ kg to around Rs 185/kg i.e around 23% from its peak.


Expansion to aid growth: Apollo Tyres plans to invest around 400 million euro (over Rs 2,700 crore) to set up two new facilities in East Europe and Brazil in the next 3-4 years as it aims to expand its global footprint. The company already has a tyre manufacturing facility in South Africa in the city of Durban. The company expects production from Durban facility to move from 1,000 tyres to 1,200 tyres per day while, the company is planning increase the tyre production from Ladysmith facility to 13000 tyres from 10,000 tyres per day.


Increasing shift towards Radialization: Indian tyre industry lags far behind other developed countries when it comes to Radialization in Trucks and Bus Segment (T&B). The Indian markets are slowly converging towards radial tyres in CV segment. Tyre Companies are now continuously investing in radial capacity which is likely to improve turnover and margin performance due to change in the sales mix.


To read report in detail: APOLLO TYRES
RISH TRADER

>FUTURE GROUP DEMERGES PANTALOONS RETAIL FORMAT FROM FLAGSHIP COMPANY

ADITYA BIRLA NUVO TO INVEST IN PANTALOONS FORMAT

Future group today announced the intent to execute a full demerger of Pantaloons retail format from Pantaloon Retail India Limited (PRIL). On completion of the demerger process, subject to necessary and statutory approvals, the demerged entity will be automatically listed in NSE & BSE. Future group also announced that the demerged entity, will invite an investment from Aditya Birla Nuvo Limited (ABNL)


Scheme of Demerger-
• PRIL will issue debentures to ABNL worth Rs800 crore at mutually agreed terms, convertible in the equity shares of the resulting entity i.e. Pantaloons Format business.
• PRIL will demerge its Pantaloons Format business through a court scheme of arrangement. PRIL will transfer the net assets of its business, its apportioned debt of Rs800 crore and debentures of Rs 800 crore to the resulting entity. After the demerger, the debentures will be converted into equity shares of the resulting entity.
• ABNL will make an open offer of a minimum 26% to the shareholder’s of the resulting entity. After the listing of the resulting entity and on conversion of debentures into equity, ABNL’s holding in the resulting entity post open offer shall be a minimum of 50.01%.The resulting entity will become a subsidiary of ABNL.
• The proposed transaction likely to be completed within 8 to 10 months.


Rationale for ABNL-
• Post the acquisition, the two entities ABNL’s Madura Fashion & Lifestyle and PRIL will work closely as partners to derive operational synergies.
• Pantaloons Format business is spread over 2.05 million square feet and in the medium term the format is expected to add 20 stores annually which will be of great advantage for ABNL.


Rationale for PRIL-
• Post demerger, the total debt of Pantaloon Retail will be reduce by Rs 1600 crore.

>Coromandel International Ltd- Q4 FY2012 Result

Coromandel International Ltd (CIL), a Muragappa Group company is engaged in fertilizer, pesticides, speciality nutrients, farm mechanization and life style products businesses. On 23rd April 2012, CIL announced its Q4 FY12 and FY12 results. The consolidated result includes the audited results of company’s subsidiaries/JV’s/Associate concerns namely Parry Chemicals Ltd, Coromandel Brasil Limitada, Tunisian Indian Fertiliser SA, Mauritius ltd, Coromandel Getax Phosphates Pte Ltd, Coromandel SQM (India) Private Ltd and consolidated results of Sabero Organics Gujarat Ltd and its subsidiaries. A glimpse of the company’s consolidated Q4 FY2012 results is as follows:

The revenue increased by 133% and 30% on quarterly y-o-y and annual basis respectively. The top line growth was driven by 994% higher subsidy income on quarterly yoy basis and higher volume sales through the push selling method to the dealers by giving higher commissions and credits. The operating profit margin (OPM) of FY12 (annual) declined by 293 basis points despite 312 basis points OPM rise on Q4 FY12 due to the increased raw material prices, international fertilizer prices and currency volatility. Furthermore, the Net Profit Margin dropped by 374 basis points and 269 basis points on y-o-y quarterly and annual basis respectively.


The Board of Directors have recommended final dividend of INR 3 per share on the face value of INR 1 per share.


View: We are having a long term positive view about the company as price of key raw materials like phosphoric acid, ammonia and sulphur jump down by around 11%, 30% and 14% respectively which is likely to increase margins. In addition to that, increasing number of retail stores is likely to boost company’s profitability. Moreover, by acquisition of 74.57% equity stake of Sabero Organics, CIL enhanced its product portfolio.


RISH TRADER

>CUMMINS INDIA LIMITED: Expansion at Phaltan Megasite to fuel Cummins future growth Engine

■ Substantial Revenue growth despite multiple headwinds: Despite of high interest rates and commodity prices coupled with uncertain global environment, the company has been growing at a CAGR of 16.47% for the last 5 years. It is poised to grow at a CAGR of 14% for the next 5 years with improved outlook on export demand and substantive growth across all segments, particularly in segments like power generation and industrial business which contribute around 45% and 20% to the total revenue respectively.


■ New products to aid to future growth; Margins bottoming out: Cummins elasticity of adopting the new technology and using the same efficiently will help the margins to bottom out. It will significantly benefit from the enhanced products built‐in with new emission power generation norms and industrial engines due to superior product development capabilities. Hence, with the improving demand scenario and correction in commodity prices, there will be an upside in EBITDA margins, going forward.


■ Expansion at Phaltan Megasite to fuel Cummins future growth Engine: Cummins is well placed with its expansion initiatives at Megasite, Phaltan. It constitutes almost 10 facilities in total, out of which 4 are operational and remaing would be operational by 2016 and contribute additional INR1500 crores to the overall revenue. The 2 operational facilities namely Upfit centre & MIDC SEZ would add up annual capacity of 20,000MW & 51,000MW respectively.


■ Power Generation Business to act as power booster: The company expects the Power generation business to grow at a CAGR of 12‐15%% over the next five years. The growth will be mainly driven by 1) market growth 2) LHP export opportunity at MIDC SEZ 3) larger penetration in the domestic LHP market (though might come at lower margins) and 4) tapping the bio mass opportunity. The company anticipates some pre‐buying behavior to show up before the change in the emission norms in July 2013 which would contribute heavily to the revenues. Cummins is confident that it will be able to penetrate the market much better post the norm change, given its technology leadership and readiness with the product to meet the revised needs of the customers


■ Cummins‐Cash enriched and Steady Balance Sheet: The Company has enough cash to carry on its future operation and expansions. It has strong balance sheet with healthy reserves and low debt.


To read full report: CUMMINS INDIA
RISH TRADER

>CEMENT SECTOR: Growth in production & dispatches for the month of February 2012

Cement giants ACC, Ambuja and Ultatech together reported 8.64% growth on YoY basis to 7.67million tones in their dispatches for the month of February, after being stable for a month. Cement prices again witnessed an upward pricing trend in the range of INR20/bag across the western and Eastern regions again. This uptrend in prices is due to the improvement seen in demands. Cement Companies in Western region are contemplating a further hike of INR 10/bag due to lower Railway rake availability.


ULTRA TECH CEMENT: UltraTech cement’s dispatches decreased by 5.46% on MoM basis.
■ During February, 2012, UltraTech Cement’s (Aditya Birla Group Company) production stood at 3.468 million tonnes, growing by 3.83% on YoY basis and dispatches stood at 3.517 million tonnes, increasing by 5.68% on YoY basis. On monthly basis, both the production and dispatches decreased by 8.25% and 5.46%, respectively.


■ For the period, January- February of 2012, UltraTech’s production and dispatches were 7.248 million tonnes and 7.237 million tonnes respectively, against 6.729 million tonnes and 6.669 million tonnes during the same period of the corresponding year.



AMBUJA CEMENT:  Ambuja Cement reported 4.33% growth in dispatches on MoM basis.
■ Ambuja Cement registered a growth of 11.28% on YoY basis in its production to 1.993 million tonnes for February, 2012. The company’s dispatches also grew by 12.74% to 2.00 million. Ambuja Cement’s production and dispatches both increased by 4.40% and 4.33% on MoM basis.


■ Cumulative dispatches of the company during the period, January - February jumped by 8.36% to 3.916 million tonnes against 3.614 million tonnes during the corresponding period a year ago.


ACC: ACC reported a growth of 7.50% on YoY basis in cement dispatches in February, 2012.
■ ACC registered an increase in sales for the month of February, 2012 by 7.50% to 2.150 million tonnes. The company had sold 2.00 million tonnes cement in the same month of last year. Production also rose to 2.140 million tonnes in February this year compared to 1.970 million tonnes in the corresponding month of last year. ACC Cement’s production and dispatches both decreased by 4.89% and 3.59% respectively
on MoM basis.


■ ACC's cumulative sales during the period, January-February of the current year stood at 4.380 million tonnes over 4.040 million tonnes in the same period of last year. Production also increased to 4.400 millions tonnes against 4.030 million tonne.

RISH TRADER

>India’s exports grew by 10.1 percent in January 2012 from a year earlier, after increasing by 6.7 percent in the previous month

EXPORTS
India's exports grew by 10.1 percent YoY in January 2012 to USD25.35 billion despite weak demand in the Western markets. Exports had grown by 6.7 percent YoY in December 2011. In value terms, Exports increased to USD25.35 billion in January from USD25.02 billion in December 2011. Exports were USD23.02 billion in January last year. However, in INR terms, exports decreased to INR1,301,290 million against INR1,317,760 million in December 2011. Before showing the uptick, exports growth has slipped from a peak of 82 percent YoY in July 2011 to 44.3 percent YoY in August 2011, 36.4 percent YoY in September 2011, 10.8 percent YoY in October and 3.9 percent YoY in November 2011.


India's total exports for the first ten months (April-January) of FY2011-12 stood at USD242.79 billion (INR11,538,000 million) against USD196.63 billion (INR8,965,180 million) in the corresponding period of last year, registering a growth of 23.5 percent in USD term. During this period (from April to January FY2011-12), sectors such as engineering has done exceedingly well (USD49.7 billion) with growth of 21 percent over April – January of last year; followed by petroleum & oil products 50.1 percent YoY (USD48.9 billion); Gems & Jewellery 33 percent YoY (USD37 billion); Drugs and pharmaceuticals 21.1 percent YoY (USD10.20 billion).


IMPORTS
On the other hand, pushed by expensive crude oils and vegetable oils, India’s imports grew by 20.3 percent in January 2012 from a year earlier to USD40.11 billion against USD37.75 billion in the previous month. India’s Imports were USD33.35 billion in January last year. In INR terms, imports stood at INR2,059,110 million against INR1,988,730 million in the previous month. For the first ten months of FY2011-12, Imports totaled at USD391.46 billion compared with USD302.53 billion in the same period of previous year, resulting a growth of 29.4 percent. Sectors which reported healthy imports growth during April – January FY2011-12, include POL 38.8 percent YoY (USD117.9 billion) and gold and silver 46.6 percent YoY (USD50 billion).


To read full report: EXPORT-IMPORT
RISH TRADER

>BLUE STAR LIMITED: Moving from HVAC (Heating, Ventilation and air-conditioning) to MEP (Mechanical, electrical and plumbing) orders:

We recommend “BLUESTAR” a BUY. Blue star is one of India’s largest central air-conditioning company with an annual turnover of INR2,900 crores. It has a market share of 7.5% in room air-conditioning market and is aiming to reach 15% in coming years. The company commands 30% share in packaged air-conditioning market and 25% in cold storage segment.


INVESTMENT HIGHLIGHTS



■ Moving from HVAC (Heating, Ventilation and air-conditioning) to MEP (Mechanical, electrical and plumbing) orders: The company is focusing on MEP orders rather than HVAC, which increases the order book size by almost two and a half times. Almost, 75% of the order book comprises of large infrastructure projects (all sectors) and clients prefer to choose MEP orders as a matter of its simplicity. In simple terms, in case of large projects customers prefer MEP orders and HVAC orders for small projects.


■ Consistent growth in Cooling Product Segment: The cooling product segment has been growing at a CAGR of 17% for last 5 years. The Company’s confidence in their strategy of channel expansion, continuous focus on high growth markets and products and their leadership position in refrigeration product business would help the company keep growing in coming years.


■ Company’s aggressive focus on room AC segment: The company which entered the room AC segment last year through retail route has already captured 7% of market share and is eying 9% by FY12. The company primarily focused on commercial and residential sector having equal business mix. But now, the residential sector would now account for 60% of the mix. It has plans to reach INR1,000 crores by 2014 in room air conditioner segment in terms of revenue.


■ Company’s inviolable initiative to take measures to improve profitability: The company has taken various measures like a)setting up of separate hedging desk for copper and other commodities to reduce the risk of loss b) including price escalation clauses while booking new projects, as 70% of the orders are of fixed price in nature c) managing the capital employed in business through expediting debtor collection, commercially closing jobs and contemporizing delivery of materials, allocation of resources strictly base on requirements and payment trends.


To read the full report: BLUE STAR LIMITED
RISH TRADER

>CEMENT SECTOR: Player wise dispatches (in million tones)

Cement giants ACC, Ambuja and Ultatech together reported 8.08% growth on YoY basis to 7.87million tones in their dispatches for the month of January after being stable for a month, the cement prices across the western regions again witnessed an upward pricing trend in the range of Rs.10/bag. This uptrend in prices is due to the improvement seen in demands. Demand improvement in Mumbai reflects the impact of increased construction activity ahead of the civic body poll scheduled in February 2012. Northern region witnessed a growth of 16.3% owing to increasing rural demand in Punjab, Haryana and Rajasthan. Southern region surprised with a robust growth of 16.7%.


ULTRA TECH CEMENT: UltraTech cement’s dispatches increased by 2.76% on MoM basis. 
During January 2012, UltraTech Cement’s (Aditya Birla Group Company) production stood at 3.780 million tonnes, growing by 11.54% on YoY basis and dispatches stood at 3.720 million tonnes, increasing by 11.34% onYoY basis. On monthly basis, both the production and dispatches increased by 5.88% and 2.76%, respectively.


For the period April-January 2012, UltraTech’s production and dispatches were 32.260 million tonnes and 32.220 million tonnes respectively against 31.380 million tonnes and 31.304 million tonnes during the same period of the corresponding year.April-January2011.


AMBUJA CEMENT: Ambuja Cement reported 0.73% fall in dispatches on MoM basis.
Ambuja Cement registered a growth of 3.47% on YoY basis in its production to 1.909 million tonnes for January, 2012. The company’s dispatches also grew by 4.13% to 1.917 million. Ambuja Cement’s production and dispatches both declined by 0.10% and 0.73% on MoM basis.


Cumulative dispatches of the company during the period April-January jumped by 4.53% to 17.540 million tonnes against 16.780 million tonnes during the corresponding period a year ago.


ACC: ACC reported a growth of 6.70% onMoM basis in cement dispatches in January, 2012.
ACC registered an increase in sales for the month of January, 2012 by 8.78% to 2.230 million tonnes. The company had sold 2.050 million tonnes cement in the same month last year. Production also rose to 2.250 million tonnes in January this year compared to 2.060 million tonnes in the corresponding month of last year. ACC Cement’s production and dispatches both increased by 10.84% and 6.70% respectively on MoM basis.


ACC's cumulative sales during the period April-January of the current year stood at 19.680 million tonnes over 17.660 million tonnes in the same period of last year. Production also increased to 19.680 millions tonnes against 17.740 million tonne.

RISH TRADER

>Global recovery looks more prolonged in 2012 / Twin Pillars of Emerging Markets / Sectoral Outlook 2012

Recovery in advanced economies is likely to take longer time than initially anticipated. Forward looking indicators like Purchasing Managers' Indexes ( PMIs) have been declining; though there was a marginal uptick in case of the manufacturing sector in the U.S. where better prospects of recovery have been further reinforced by early Christmas Retail Sales data and a drop in the Unemployment Rate. By contrast, the European PMI has slid down to contractionary level providing strong indications of a recession in Europe in 2012.


In view of the prolonged slowdown in developed economics, reduction of debt levels would entail structural measures which, in some cases, may not be politically expedient. Both the indebted and the bailing-out' countries have to overcome some political resistance to take steps towards effective resolution of the problem and prevent credibility from weakening. In this scenario upcoming policy decisions are going to be the key towards the global economic outlook.


After the recent EU summit which has failed to reverse the negative market sentiments, European governments are likely to make a big step towards fiscal integration soon and that the U.S. Congress extends most of this year's stimulus. Failure on these fronts would risk a full-blown recession, with global GDP growth falling below the 2.5 percent recession threshold.


In case of emerging economies, policy tightening (as inflation has been a major concern in 2011) and falling external demand moderate economic activities In China GDP growth number is likely to come at around 9 percent YoY in 2011 against an average of 10.5 percent during 2000–07. In 2012 the scenario is unlikely to change much as global slowdown, domestic housing market weakness and limited room for policy stimulus will lead China towards registering a second year of below-trend growth in 2012.


OUTLOOK 2012
As we enter the NEW CY12 with lot of negative developments in CY11 and sharp correction in markets, we strongly believe that the ‘negatives’ are at their peak or near peak on the domestic economic front and corporate performance are at their bottom or near bottom The word ‘near’ should be read with a margin of safety for a quarter from where we may see reversals in bottom. near quarter, domestic macroeconomic and corporate performance. Fall in Inflation may prompt cut in interest rate, as indicated by RBI, IIP numbers may improve and corporate earnings may brighten from 2nd quarter of CY12. The major risk remains on the political front with elections in 5 key states, the result of which may determine the fate of the government and their reforms agenda.


We give less Weightage on global front, even though the chances of deterioration of global macroeconomic factors led by Euro Zone and US are higher which may create volatilities across asset classes. The reason we give less Weightage on global adverse developments’ impact on Indian market is because Indian markets have sharply under-performed Global markets, hence further downslide on adverse global factors looks minimal for Indian markets. But among the adversity, we may see prosperity as the rising crude oil price trends, the single most factor which remains a major risk to India’s growth may correct, although there are fewer indications of the same in the near term due to escalating tensions between US and Iran


On the earnings front, we expect 14% and 16% growth in Sensex and Nifty Earnings respectively for FY13 (E), with EPS of 1320 and 410 respectively. Nifty at close of CY11 was trading at 13.6xFY12 earnings and 11.60XFY13(E) Earnings estimates. Nifty is trading 19% discount to 10 year average PE and 30% discount to 5 year average forward earnings. This gives us confidence that the Indian market is likely to swing higher rather than going lower from current levels, unless there is further damage in fundamentals which may call for more downgrades on earnings. We expect the Nifty to trade between 4500-5950 levels in CY12, with a probable uptrend in the second half of the CY12 on factors mentioned above. The INR may trade between 48-54 in CY12 with more bias to settle down around 48 towards end of CY12. We may see FII flows to pick up this year, as they are not only poised for higher returns on compelling Equity valuations, the INR appreciation may further boost their returns from Indian markets.


Twin Pillars of Emerging Markets



India and China registered Manufacturing PMI ( Purchasing Managers Index) value of 54.2 and 50.3 respectively for the month of Dec 11’. In CY2011 India’s PMI has outperformed China in
11 out of 12 months.



To read the full report: OUTLOOK 2012
RISH TRADER

>HINDUSTAN UNILEVER LIMITED: Premiumisation in urban and rural penetration are two biggest opportunities

■ Strong Portfolio of Brands covering the entire consumer pyramid: HUL is well placed to maximize on the opportunity in a growing market like india with the help of its sustained brand power. The company has increased sharp focus on the needs of its consumers and has build a solid distribution network to support it.


■ Premiumisation in urban and rural penetration are two biggest opportunities in india that will propel HUL’s future sales growth. While 60% of the market is still at the bottom-of-the-pyramid, premiumisation is the most prominent trend across categories of foods and personal care.


■ Expansion of Outlets with improved visibility and availablity of its products. HUL increased its direct retail coverage by adding 600000 outlets and improved the visibility of its products through opening up of ‘Perfect Stores’. Increasing Innovation in the product line is the ‘mantra’ for growth in HUL


■ Almost 35% of its turnover in FY11 has come though innovation. HUL focuses on consumer insight and use of breakthrough technology to deliver better and bigger innovations to the consumers. For Eg. Dove shampoo in superior packaging, Brooke Bond Sehatmand delivering vitamins in tea , Project Shakti &; Shaktiman etc.


VALUATION
At the CMP of INR419, the stock is currently trading at a P/E of 39.7x. It discounts its FY12E EPS of Rs.11.64 by 36x and its FY13E EPS of Rs 13.9 by 30x. We value the stock at a target P/E multiple of 36x based on its FY13E EPS to arrive at the Target price of INR500.




RISH TRADER

>TWIN PILLARS OF EMERGING MARKET (MICROSEC)

■ India and China registered PMI (Purchasing Managers Index) value of 57.2 and 55.7 respectively for the month of Apr 10’. Manufacturing activities in both India and China continued to improve. Since Dec 2008, India registered a higher PMI than China in first four months of CY2010.

■ India’s PMI has outperformed China in 10 out of 17 months. India’s PMI decreased from 57.8
to 57.2 on a sequential basis, while during the same period, China’s PMI increased from 55.1 to 55.7.

■ China’s HSCEI curved in by 4.06% and domestic market (Shanghai composite) decreased by 8.79% in last one month. In comparison, Nifty outperformed the former indices during the same period.

To read the full report: INDIA STRATEGY

>INDIAN AUTO ANCILLARIES (MICROSEC)

OVERVIEW
Described as the ‘sunrise industry of India’, the auto ancillary industry is highly fragmented
with 500 organized and 5,000 unorganized players with over 60% of exports to Europe and USA. The market for auto components can be classified into Original Equipment (accounting for around 40% of demand), Replacement Market (accounting for around 50% of demand) and export market (accounting for the balance 10%).

The pie-chart shows the vehicle category contribution to the component market in India. Two and three wheelers along with passenger cars account for two-thirds of the components manufactured.

Indian Auto Industry - Overview
The Indian auto industry is highly competitive with the presence of a number of global and Indian auto companies. India is the world’s second largest manufacturer of two wheelers and ninth largest car manufacturer. Automobile production has consistently shown an upward trend, growing at a CAGR of ~10% over 2002-2009. Automobile production including Passenger Vehicles, Commercial Vehicles, Three Wheelers and Two Wheelers stood at 11.2 million units in 2008-09, almost double the figure of 6.3 million units in 2002- 03.

During October 2009, sales of Honda, Ford, Skoda, Hyundai and Maruti increased by 347%, 98%, 97%, 41% and 21% y-o-y, respectively. The momentum in sales of automobiles shows buoyancy in demand.

With improving road infrastructure, higher per capita income, favorable interest rates and launch of new models, the demand for automobiles and hence production is forecasted to be on the rise over the coming years.

Indian auto component industry is expected to grow to US$33-40 billion by 2015 based on buoyed growth in auto industry. In 2008-09 the turnover of the auto sector (automobiles and auto ancillaries) stood at INR2,190 billion with the ancillaries industry accounting for ~50% of the total turnover. India supplies a range of high-value and critical automobile components to global auto makers such as General Motors, Toyota, Ford and Volkswagen. Some of the leading manufacturers of auto components in India include Apollo Tyres, Bosch Ltd, Exide, CEAT, Bharat Forge, Motherson Sumi.

India compares favorably with other low cost countries in labour cost. Power cost constitutes only 3% of total cost structure, hence India’s high power cost compared to other low cost countries is not a significant disadvantage. Indian manufacturers lag their counterparts in terms of high fuel costs and higher taxes. However, with continuous growth in this sector and increased competition from foreign players, the government might structure the taxes more favorably for the benefit of component manufacturers. For example, the government lately announced an excise duty reduction of 4% across automobiles. High fuel cost is solely an economy driven factor and with global recession calming this might not be a significant cause for worry.

To read the full report: AUTO ANCILLARIES

>PSU PICKS (MICROSEC)

Market performance in the last six months has been stupendous across the globe, India not being an exception. However, the recent run up has baffled most of the investors and putting fresh money into stocks is being considered a risky affair, unless one is ready to invest at higher valuations on stocks selected on bottom up approach.

However, some of the Public Sector Undertaking companies, or the PSU’s are not only likely to outperform the key indices during the period of the stable government, they are also likely to act as a cushion to protect portfolios from sharp volatilities in times of uncertainties. The latest initiatives undertaken by the stable Indian government towards PSU disinvestment and focused approach in
infrastructure developments such as roads, ports, airports, railways and the hydrocarbon sector are likely to benefit companies in the PSU arena. In addition, valuations of the companies mentioned below remain attractive despite the recent run up in the market. Investment in these companies with an 18 months time horizon is likely to deliver return between 36-42 percent. The basis of selection is expected good earnings visibility, high ROE, high cash reserves, and investments.

The following return charts between SENSEX and BSEPSU Index reflects an interesting trend. During the previous coalition government, SENSEX outperformed the BSEPSU Index throughout the 5 year period as shown in exhibit II.

During the current stable government, BSEPSU Index has outperformed SENSEX during the last five months as shown in exhibit I. The trend is likely to gain further momentum as the current government is expected to focus on an improved performance of the PSU companies.

• Container Corporation of India Ltd
• Engineers India Ltd
• Balmer Lawrie & Company
• Bharat Electronics Ltd
• BEML Ltd
• GMDC Ltd
• REC Ltd
• Indian Bank

To see full report: PSU PICKS

>Derivative Strategy (MICROSEC)

ANALYSIS OF FUTURE AND OPTIONS MARKET

HIGHLIGHTS

* Nifty opened flat to weak but fell to test a low of 2735 in early trade. It recovered from there and a late surge helped it close higher by 0.84%. However, the breadth of the market was negative.

* Inflation for the week ended 14th Feb came at 3.36%

* Nifty Call options of strike 2800 added 22254 lots to open interest while Put options of strike 2700 had a build up of 31790 lots. Put options of strike 2500 also added 25290 lots to open interest.

* Nifty Put Call ratio (OI) stands at 1.17 with the total open interest in Call options at 1,038,639 lots and that in Put options at 1,215,329 lots

* Ultratech Cement, Mphasis BFL, Chambal Fertilizers, Hero Honda Motors, Infosys
Technologies, NTPC and Cipla Ltd look good

* Volatility Index fell by 4.94% from 41.94 to 39.87.

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>Derivative Strategy (MICROSEC)

HIGHLIGHTS

● Although Nifty remained range-bound between 2890 and 2960, the breadth of the
market was positive and the midcap index moved up by 1.6%

● Nifty Put Call ratio (OI) rose to 1.34 with the total open interest in Call options at
712,275 lots and that in Put options at 957,454 lots

● Nifty Call options of strike 3000 added 11070 lots to open interest while Put
options of strike 2800 had a build up of 13264 lots

● Dish TV, Unitech Ltd, Educomp Solutions, HDIL, Divis Laboratories, Lanco
Infratech, Punj Lloyd, Larsen & Toubro, Kotak Mahindra Bank, Adlabs Films,
Reliance Capital and United Spirits look good

● Volatility Index fell by 0.63% from 44.58 to 44.30 after making an intra-day low of
40.93

To see full report: Derivative Strategy