>>Indian Banking Sector (MACQUARIE RESEARCH)

Bond yields, NPLs in focus

EVENT
We preview the 4Q FY3/09E results for Indian banks.

IMPACT
Decelerating NII: Net interest incomes will decelerate this quarter as a result of slowing loan growth and lower margins, in our view. Systemic loan growth has slowed from the October peak primarily because of disinflation; company revenues (and thus, working capital needs) have shrunk. Cancelled capital projects have emphasised the slowdown. NIMs have also been under pressure, due to aggressive benchmark rate cuts from the banks – the benefits from lower deposit rates will take a couple of quarters to offset this.

Bond profits will disappear: Bond profits are expected to reverse this quarter, as bonds collapsed over this quarter. Bond yields are up by almost 200bp over the quarter, reversing a 300bp fall in the previous quarter. Almost all banks benefited strongly from bond profits in 3Q FY3/09E, and that trend
should significantly reverse over this quarter.

NPLs pushed into FY3/10E: Despite the dramatic slowdown in the economy from October/November, we think it is too early for NPLs to show up in most P&L accounts. The worst period for NPLs is likely to be FY3/10E and FY3/11E, with probably an even spread of provisions. One of the key reasons
for the postponement is the window that the RBI has allowed banks to restructure assets: It allows banks to absorb the losses over a long period.

Revising forecasts: We are revising our forecasts for some of the banks under our coverage, partly due to the strong loan growth and margins that came up in 3Q FY3/09, and our view that the provisions will be postponed to later years.

OUTLOOK
We remain cautiously optimistic on Indian banks, and believe that:
* The valuations, in many cases, factor in an asset quality slippage situation that is too pessimistic.

*The deep interest rate cuts actioned by the RBI since October 2008 will
have a medium-term beneficial impact on the banks.

* We upgrade Bank of Baroda to Outperform from Underperform, given the belief that its core profitability is improving while NPLs will be cushioned by its high provision coverage. Our top picks in the sector remain HDFC (HDFC IN, Rs1,577, OP, TP: Rs1,738) and HDFC Bank (HDFCB IN, Rs1,037, OP, TP: Rs1,106).

To see full report: BANKING SECTOR

>What’s Happening? (ANAGRAM)]

AGENDA

• What’s Happening in the Markets.
• What’s Happening in the World
• What has improved?
• What’s Next ?
• What’s the outlook ?

To see full report:WHAT’S HAPPENING

>India to import 25-30 tons gold in April-Exec

New Delhi - India will import 25 to 30 metric tons of gold in April after no imports in the last two months, the president of the Bombay Bullion Association said Friday. Suresh Hundia said around 10 tons of gold have already been imported this month. India, which imports around 700 to 800 tons of gold annually, had virtually halted purchases as consumers weren't willing to buy because of high prices. But prices have been falling globally as a revival in equities markets has prompted many investors to shift out of gold. Friday, pure spot gold in Mumbai was quoted at INR14,160 per 10 grams, down sharply from INR15,725/10 grams at the beginning of March. "Although there has been some improvement in physical demand compared with a month ago, it is still around 50% below that of last year," said Daman Prakash, director with trading house MNC Bullion. He said that initially when prices started declining, big purchases were witnessed, but buying has slowed. However, with marriages and Akshaya Trithya around the corner, he expects demand to pick up again. The Hindu festival of Akshaya Trithya, at the end of the month, is considered an auspicious occasion to buy gold, and sales usually surge. "We could import around 30-35 tons of gold this month," he added. "Demand from jewelry manufacturers has risen to 150-200 kg on a daily basis in Ahmedabad after the fall in prices to INR14,000 levels," said Girish Choksi, a bullion trader At the INR15,000/10 gram level, demand was around 20 kg, he said, adding that as long as prices are below INR14,500, demand will be good.

Source: COMMODITIESCONTROL

>Karvy Bazaar Baatein

20 April 2009 to 26 April 2009

Sentiment resurrected…
Both the BSE Sensex and the Nifty completed a sixth consecutive week of gains, as investor sentimentcontinued to resurrect from the depths of despair. Although the Nifty crossed its 200-day movingaverage of 3400 levels during the week, it fi nally closed at 3385 levels, a gain of 1.28% W/W. Meanwhile,investors cheered as the Sensex closed above 11000 levels, a rise of 2.03% W/W. Since this rally beganfrom the March 9 lows, the Sensex has jumped nearly 36% while the Nifty has risen by more than 32%during the same period. Sentiment is a state of mind, and a rally as spectacular as this one has clearly got retail investors talking once again about the stock markets.

So is this rally sustainable? Well, to begin with, we continue to reiterate that the news fl ow from the USis key to global recovery. While a few economic data points came in lower than expectations, some keycorporate earnings exceeded market estimates—Wells Fargo, JPMorganChase, Citicorp, and Hewlett-Packard announced better-than-expected earnings, providing a fi llip to the global markets. Moreover,reassuring noises from policymakers provided the necessary support for the markets—while the FedChairman Ben Bernanke felt the “sharp decline” in the economy was easing, President Barack Obamaexpressed confi dence on the stimulus plan leading the way to “economic progress”.

However, one should not forget that there is a key local issue that is being intensely played out today—theGreat Indian General Elections. With the world’s largest democracy going to the polls, we have seentremendous volatility in the stock markets. With no clear winner in sight, there is a pall of uncertaintyhanging over the potential policies of the new government. What’s more, this time around, there is afeeling that the fi nal verdict may be more fractured than ever, and this, in turn, would limit the powersof the coalition government to introduce reforms and make timely decisions. In such a backdrop ofuncertainty, volatility in the stock markets could rise to unprecedented levels. Therefore, a cautiousinvestment approach is recommended until the poll results are out.

To see full report: KARVY BAZAAR BAATEIN