>Daily Market & Technical Outlook (ICICI Direct)

Key points
■ Market outlook — Open positive on strong global cues
■ Positive — FIIs & MFs buying, rupee expected to gain
■ Negative – February exports slide 21.7%

Market outlook
■ Indian markets are likely to open positive, taking cues from global markets. The SGX Nifty was trading 40 points up in the morning. Other Asian markets were also sharply higher after economic data from the US raised hopes the recession there may be moderating. Rise in pending home sales and a smaller-than-expected fall in factory activity saw industrial and construction stocks rise, pushing US markets up as much as 2%. The rupee is expected to extend gains, helped by gains in regional stock markets but dismal export data may limit the rise

■ The Sensex has supports at 9850 and 9750 and resistances at 10100 and 10170. The Nifty has supports at 3050 and 3020 and resistances at 3120 and 3140

■ Inflation for the week ended March 21 is expected around 0.18% as against 0.27% for the previous week

■ Asian stocks rose as better-than-expected auto sales and economic reports in the US lifted investor’s confidence that the world’s largest economy will stage a recovery. The Nikkei gained 251.6 points, or 3.0%, to trade at 8,603.5. The Hang Seng advanced 486.0 points, or 3.6%, to trade at 14,005.6

■ US stocks climbed on Wednesday as factory and home sales data raised hopes the economic downturn is moderating, sparking a broad advance. The Dow Jones gained 152.68 points, or 2.01%, to 7,761.60. The S&P 500 added 13.21 points, or 1.66%, to 811.08. The Nasdaq climbed 23.01 points, or 1.51%, to 1,551.60

■ Stocks in news: Gati, L&T, HCC, Piramal Healthcare, Wockhardt, Glenmark Pharma, NTPC

To see full report: OPENING BELL 020409

>Q4FY09 PREVIEW (KR CHOKSEY)

Q4FY09 PREVIEW : MARCH 2009
Q4FY09 Earnings Preview: Time for bottom fishing, Re-rating to take place

Sensex sales to increase 4.8% y-o-y and profits to increase ~4.2% y-o-y in Q4FY09 We expect Sensex sales and profits to increase ~4.8% and ~4.2% y-o-y, respectively, in Q4FY09. In Q4FY09, our Universe of Stocks (representing ~58% of overall BSE market cap) is estimated to report a y-o-y growth of ~3.7% in sales and a decline of 8.7% y-o-y in net profit.

Top line growth to decline significantly, margins expected to face the heat
In Q4FY09, our universe is expected to see 3.7% growth in sales, significantly lower as compared to 11.0% witnessed in Q3FY09. The decline in growth has been mainly due to fall in realizations owing to the overall fall in prices due to slowdown in demand. We expect the PAT margins to take further hit in this quarter. PAT margins in Q4FY09 are expected to be 14.8% as compared to 15.8% in Q4FY08. However, with indications of easing commodity costs and macro pressures, margins may just pick in coming quarters in selective commodity-intensive sectors like metals, autos, cements and semi-finished goods.

The Macro factors
S&P’s downgrade of outlook for India due to ballooning fiscal deficit of above 11% acted as key trigger for FIIs to pull out as the dollar kept on gaining against rupee. Rising fiscal deficit will lead the government to borrow heavily in the coming quarters. The huge borrowing of ~ Rs 3,29,000 crore (of which Rs 2,40,000 crore will be borrowed in H1FY10) will have a crowding out effect on the economy. Pressure on rupee will ease due to contracting trade deficit and weakening of dollar due to problems in US. Dollar depreciation would lead to rise in commodities which augur well for domestic players which are the lowest cost producers. Ample liquidity will ensure availability of credit at much cheaper cost to the borrowers. We may see deflation till Sept 09 levels at WPI. Upcoming productions from KG D-6 and Cairn facility in Rajasthan have potential to increase GDP by ~1.1%. In near term market will focus on G20 meeting and upcoming general election. Stable government at the center may bring some cheers to the market players.

Attractive Valuations
Recent strong ~25% bounce in the market could be attributed to a mix of positive global cues, pre-election rally and Government stimulus initiatives. Indian markets are trading at attractive valuations and offer substantial opportunities for the long term player. We expect market to be in a range of 9,000-10,500 till the election and it will consolidate at this level for few quarters. We are overweight in Metals, Power & Capital Goods, Telecom sectors and selective financials.

Top Picks from KRC Universe
Reliance Industries, SBI, BHEL, Reliance Infra, IVRCL, Bharat Forge, Sterlite Industries, Mundra Port, Bharti Airtel, Hindustan Zinc.

To see full report: Q4FY09 PREVIEW

>India Week Ahead (MERRILL LYNCH)

Small mercies: Slack season cuts risks

■ Slack season cuts macro risks…
We breathe a sigh of relief as the economy shifts to a lower gear with the onset of the “slack” summer-monsoon season after March 31. This lays to rest the ghastly prospect of an external shock squeezing liquidity at peak industrial production.

■ … greater headroom for intervention if equities correct
This strengthens the RBI’s hand in coping with FII outflows if the on-going bear market rally cracks. Intervention – ~US$5bn – has been thus far constrained by reluctance to take chances with liquidity when credit offtake is at a seasonal peak. Besides, Tuesday’s 4Q08 balance of payments should scale down short-term external debt concerns. The RBI has already reported that US$28.1/43.1bn trade credit due was disbursed by November.

■ Delhi likely to push for bank lending rate cuts, but…
We think Delhi will likely push PSU banks harder for pre-poll prime lending rate (PLR) cuts (100bp BAS-MLe by 1HFY10) with credit offtake seasonally unwinding. Besides, Prime Minister Manmohan Singh, no less, yesterday called on private and foreign banks to follow PSU banks into cutting PLR. Do find our rates roadmap here.

■ … RBI OMO at best moderating U in yields on fiscal risks
Yet, the prospects of an April gilt rally are fading: read Ashish and me here. The RBI, after all, expectedly front-loaded net FY10 borrowing – ~Rs.1659bn (net of MSS maturity) - in the slack season. True, it has pre-committed itself to a massive 1HFY10 OMO of Rs800bn (~Rs1200bn BAS-MLe FY) to soften the blow. Even so, the fisc is likely to suck out a hefty Rs1500+bn BAS-MLe including states in 1HFY10.

■ WPI nearing ‘deflation’, CPI peaking, steel prices softer
We expect WPI inflation – 0.1% BAS-MLe Thursday – to sink to deflation. Doubledigit urban CPI inflation should begin to top off Thursday: do read our recent note here. By the way, steel prices are reversing the end-February spike.

■ Will Delhi announce Pay Commission disbursal?
We think there is a possibility Delhi could announce a disbursal date of the balance 40% of 6th Pay Commission arrears (~US$3bn) after April 1.

To see full report: INDIA WEEK AHEAD

>HDFC Bank (KARVY)

We recently met HDFC Bank's management to discuss and clarify some of the financial issues; key takeaways of meeting are:

Moderation in banking system and the bank credit offtake: The bank's management is of view that the system's credit growth would be in range of 17-18% and the bank's credit book is expected to expand by 21-24% in FY10. During the third quarter FY09, some of the corporates' advances were not renewed but in fourth quarter the bank expects reasonable amount of growth in credit book. On eCBoP's credit front, downsizing of credit book would continue in coming quarter; the management expects delinquency to continue in some of retail and SME accounts. I believe the bank is planning to grow its credit book cautiously in the present turbulent times. We reduce our credit estimates to Rs1,277 bn (23.4% growth Y/Y) from our earlier estimates of Rs1,316 bn (27.3% growth Y/Y) in FY10.

Deposit franchise; centre of strength: The bank's management expects domestic banking system and HDBK to record 15-16% and 20% (Y/Y) growth respectively in FY10. The bank would expand its footprint by opening 200 branches and 350 ATMs; accumulation of CASA deposits holds prominence. Moderation in credit growth would also have positive impact on the bank's CASA deposits ratio. Anticipated decrease in banks' retail term deposit rates would be create reasonable level of difficulties in mobilizing deposits, though continued turbulence in equity and debt markets would not be able to attract much of incremental savings. We are reducing our deposit estimates for FY10 to Rs1,862 bn (20.9% growth Y/Y) from our earlier estimates of Rs1,913 bn (24.1% growth Y/Y).

Margin maintenance; a difficult target: HDBK's management indicated that the bank is hopeful of maintaining net interest margin in a range of 3.9-4.3% in FY10. Delayed re-pricing of entire deposits at lower rates, pressure on CASA deposits on liability-side and faster re-pricing of advances at lower interest rates and declining incremental credit-deposit ratio would put pressure on the bank's margin; we estimate almost 20bps decline in margin to 4.57% in FY10 from 4.75% in FY09 and 4.88%.

To see full report: HDFC BANK