>Daily Market & Technical Outlook (ICICI Direct)

Key points
■ Market outlook — Open flat on mixed & flat global cues
■ Positive — FIIs buying
■ Negative — MFs selling

Market outlook

■ Indian markets are likely to open flat, following the global markets. Asian markets were trading mixed in the morning as profit taking and investor caution overshadowed recent optimism about a global economic recovery. US stocks ended lower as the market awaited the results of stress testing of major banks; while lower oil prices saw energy shares dip. The rupee is expected to retreat from 2-1/2-month highs on Wednesday tracking the dollar's strength versus other currencies but traders are awaiting the domestic share market open for more cues

■ The Sensex has supports at 11990 and 11640 and resistances at 12290 and 12560. The Nifty has supports at 3620 and 3570 and resistances at 3680 and 3730

■ Asian markets are trading mixed, following the US equity markets, as profit taking and investor caution overshadowed recent optimism about a global economic recovery

■ US stocks fell on Tuesday as cautious investors fretted about impending bank stress test results and energy shares succumbed to the pressure of lower oil prices. The Dow Jones dipped 16.09 points, or 0.19%, to 8,410.65 points. The S&P 500 shed 3.44 points, or 0.38%, to 903.80. The Nasdaq dipped 9.44 points, or 0.54%, to 1,754.12

■ Stocks in news: Reliance Infra, Tata Power, Cadila Healthcare, Cipla, Elecon Engineering, L&T

To see full report: OPENING BELL 060509

>RELIANCE INDUSTRIES (NOMURA)

Fully valued - Downgrade to Neutral

Investment Conclusion
Reliance Industries' share price has rallied nearly 51% since its recent lows made in early March. YTD in 2009 it has outperformed the Nifty index by 27%. The key catalysts for such an outperformance, in our view, are the commencement of production from KG-D6 and better-than-expected refining and petchem margins. With the addition of KG-D6 and new refinery in FY10, we expect earnings to increase about 30% in both FY10 and FY11. However, we believe earnings upsides are already factored in the current price after the recent rally. We have moved forward our valuation to FY11 and revised our price target to INR1,725 (from INR1,650). With no potential upside from the current level, we downgrade the stock from BUY to NEUTRAL.

Summary

■ We revise our EPS estimates to INR123 for FY10 (previous INR115) and INR160 for FY11 (previously INR163).

■ As a long-term investment stock, we continue to believe that potential upside is likely from its large E&P portfolio. In our PT, we already factor an exploration upside of INR189/share for discoveries for which firm reserve/resource estimates are yet to be disclosed.

Downgrade to NEUTRAL – will look for better entry point

The share price of Reliance Industries has rallied since the beginning of 2009, up 41% on an absolute basis and outperformed the benchmark Nifty index by 27%. From its recent lows in early March, the stock has sharply risen by nearly 51% (vs. Nifty, which was up 30% over same period).

The key catalysts for this recent outperformance, in our view, are:

■ A much-awaited commencement of oil & gas production from its key KG-D6 block, and

■ A better-than-expected performance in the core refining and petrochemical business, led by a rebound in both the refining and petrochemical margins.

The commencement of gas production and increased visibility on offtake of an initial volume of 40mmscmd are clearly a positive for the company, in our view. The E&P business will soon become its key core business with EBIT share of 47% in FY10E and 58% in FY11E; E&P alone contributes nearly 55% of Reliance Industries’ NAV in our estimates.

Refining and petrochemical margins also rebounded in 4Q09 from their November 2008 lows, due to lower run-rates in the refining and petrochemical plants, and delays in the ramp-up of new capacity. We continue to remain bearish on the refining and petrochemical sectors. We believe that the refining margin will resume its downward trend in 2Q09, while the petrochemical margin will turn downwards in 3Q09, as the impact of the expected large Chinese and Middle-Eastern capacity is finally felt.

To see full report: RELIANCE INDUSTRIES

>India IT Services (GOLDMAN SACHS)

Green shoots could turn to weeds, as growth prospects remain precarious. Still Cautious.

Industry context
We started 2009 with a clear view that the demand backdrop for Indian IT services would
remain weak for the year and that expectations remained too high. This view has essentially
proven out, with continued revenue and EPS reductions through the year. Since the beginning
of 2008 we have now trimmed our CY09 revenue expectations by an average of 28% and EPS by an average of 26%, while our CY10 average revenue reduction has come down 16%, and our EPS estimates have been reduced by 13% on average.

Source of opportunity
Despite reduced expectations, the Indian IT shares on both the local and ADR-listed side have
shown significant outperformance this year. We do not see the recent performance as sustainable given the lack of a turn in earnings, and which we believe remain susceptible to further downward revisions. Importantly, as a lagging model the Indian IT sector is not likely to lead a recovery, especially considering continued weakness in enterprise spending (note IBM, MSFT, SAP, etc.)

Maintain Cautious view on Indian IT
We maintain our Cautious coverage view on three factors: 1. Earnings are not at a trough, and
remain susceptible to reductions. 2. Stretched valuation on reduced growth expectations. 3.
Continued exposure to weak enterprise spending.

Estimate and price target changes
HCL Technologies—for FY09, our revised EPS est. is Rs.17.79. Our revised FY10/FY11 EPS ests. are now Rs.13.67/Rs.16.83. We raised our 12- month price target to Rs.120. Patni—for CY09, our revised USD EPS est. is now $0.95. For CY10/CY11, our revised EPS ests. now stand at $0.90/ $0.93. Our CY09/CY10/CY11 rupee EPS ests. are now Rs.24.8/Rs.23.5/Rs.25.47. Our 12-month price target is now $5.75 on the ADR, and Rs.144 on the local shares. Wipro—for FY10 and FY11, we trimmed our USD EPS ests. by $0.02 and $0.01 to $0.53 and $0.51. On a rupee basis, our FY10/FY11 EPS ests. are now Rs.25.54/Rs.24.09. Our 12-month price target is now $6.50 on the ADR, and to Rs.250 on the local shares.

To see full report: IT SERVICES

>India Real Estate (UBS)

Green Green shoots of recovery

■ From the registration offices: Gurgaon and Mumbai increased MoM New registrations for March 2009 in Mumbai rose 30% MoM (down 33% YoY), possibly the first real MoM increase since October 2008. In FY09, total registrations were 45,580, 30% less than in FY08. March 2009 volumes in Gurgaon grew 19% MoM (the first real increase since July 2008). In FY09,
Gurgaon registered a YoY decline of 5%. In FY08, March witnessed a sequential decline MoM. Hence, we think seasonality is not a factor for the MoM increase in March 2009.

■ Based on JLL REIS survey—absorption up QoQ Based on the sample survey conducted by JLL REIS, absorption of apartments, ie actual sales of apartments, likely grew during Q109. The national capital region (NCR) recorded sales of 4,491 apartments, up 11% QoQ, during Q109, while sales in Mumbai were flat at 740. We note that sales were highest where price cuts were
around 30%. Where the price cuts have been lower, inventory is taking more time
to clear.

■ Expect further price cut to flush out inventory As discussed in our note, India Real Estate: Inventory Check-II, published on 3 April 2009, inventory levels are still high in most cities, and price cuts are helping, in our view. The sales pick-up has come in earlier than our forecast of Q3/Q409 though we did expect the stocks to re-rate earlier. We still think existing inventory
will be cleared only by Q3/Q409 if price cuts continue.

■ Valuation: Buy ratings on IBREL, UT We maintain our Buy ratings on IBREL and Unitech. We maintain our Sell/shortterm Sell rating on DLF. We believe the key risks remain macro recovery risks, and the availability of credit.

To see full report: INDIA REAL ESTATE