>INDIAN TELECOMMUNICATIONS (MORGAN STANLEY)

Tariff Wars Not as Fierce as Expected; Upgrade to In-Line

Upgrade sector to In-Line: We are raising our estimates of India’s average revenue per minute (ARPM) by 5/7% for F2010/F2011 and becoming more constructive on the sector. We still expect drops of 15% pa in average revenue per unit (ARPU) and 9.9% in ARPM for the industry as a whole in that period.

3G is a F2010 phenomenon: We believe each operator will invest US$1bn for a pan-India footprint; producing US$5 billion income for the government. Higher industry capex is likely to lower return on capital employed. The bright side would be a wider spectrum.

F1Q10 results to be dampened by lower incoming interconnect, despite 9% growth in subscribers: However we expect margins to improve due to higher on-net calls and a balanced incoming to outgoing traffic.

Reiterate Overweight on Bharti: We increase both our EBITDA and net profit estimates by 1% for F2010 and 3% for F2011 and expect 17% CAGR for F2009-11E EPS; MTN overhang is major short-term risk.

Upgrade RCOM to Equal weight: RCOM has underperformed the market by 15% YTD, 40% in 12 months, and we believe most risks are now factored in. We lower our estimate of cost of capital and raise our target price to Rs305/share. RCOM is seeking approval from shareholders to issue equity shares to qualified institutional buyers, to fund part of its 3G capex.

Still Underweight Idea but raise EBITDA estimates by 6% for F2010 and 4% for F2011 on the back of higher margins. Also increase our target price to Rs63. Idea is the costliest Indian telco stock at 17.5x F2011e earnings; hence our Underweight call.

To see full report: INDIAN TELECOMMUNICATIONS

>RELIANCE INDUSTRIES (MACQUARIE RESEARCH)

Gas dispute: Big picture perspective

Event
■ Notwithstanding the recent High Court judgement ruling in favour of RNRL, we believe the gas dispute is not over. Press reports suggest that the government believes that gas is a national asset and it may intervene in the dispute. Also, RIL has stated that it shall appeal in the Supreme Court. In our detailed series on the gas dispute, we discuss longer-term implications for
India's upstream potential in addition to potential consumers. Maintain OP.

Impact
■ Significant impact on value if worst-case materialises: The High Court ruling suggests that RIL should not only supply RNRL gas at US$2.3/mmBtu as opposed to the government approved price of US$4.2/mmBtu, but RIL should also compensate the government for the difference. Our base case assumption factors in the former which has an NPV implication of Rs39/sh for RIL. Nevertheless, if the latter worst case scenario materialises there will be significant impact of additional Rs148/sh on RIL's value. This is despite RIL’s lifting cost being very low. We believe the Rs184/sh fall in share price on the day of the judgement entirely factors in the impact of both.

■ Need for close coordination to exploit massive upstream potential. Our recent Oil Yatra (Tour) "Next Generation opportunity authenticated" India's massive upstream potential. The proposed oil & gas production from just ~4% of RIL’s KG-D6 block and Cairn’s Rajasthan block shall add 0.5% to global and equal 1/4th of Brazil or Gulf of Mexico current production. We estimate that this could add US$20bn to India's GDP, cut India's oil imports by 23% and add US$59bn NPV in government profit share and taxes. Yet this is the tip of the iceberg. Our Yatra finding suggests massive biogenic corridors not only in the rest of KG-D6, but across the east coast. We believe future contracts need to be closely coordinated between the buyers, sellers and the government otherwise misalignments such as the current one may dissuade future exploration and exploitation of India's mammoth upstream potential.

■ Core consumer sectors at risk: Currently, the power sector consumes 39% and fertilisers consume 32% of the gas produced in India. From the first 40mmscmd, the government has also allocated four-fifths to existing facilities from these two sectors (Figure 27). Moreover, latent demand suggests that the entire proposed 80mmscmd KG-D6 production would be consumed by existing facilities (Figure 21). A 40mmscmd reservation for ADA Group’s and NTPC's proposed new power facilities and an option for RNRL to source 40% additional volumes above 40mmscmd may leave little for existing facilities. We believe GMRI, LANCI, NFCL, CHMB and RCF are at risk.

Earnings and target price revision
■ No change.

Price catalyst
■ 12-month price target: Rs2,405.00 based on a Sum of Parts methodology.
■ Catalyst: New oil and gas finds and enhanced clarity on organised retail.

Action and recommendation
■ We estimate RIL’s profits, under our base case assumptions, to rise 50% in FY10E purely from volume growth, despite an assumed cyclical downturn.

To see full report: RIL

>WEEKLY OPTIONS REPORT (HDFC SECURITIES)

Options Open Interest Activity – Overall
The week ended July 08, 2009 saw the market break its important support level of 4200 & the Nifty is now trading below the same. The total open interest has seen a rise of 28.41% in terms of value and 44.21 % in terms of number of shares (where the Nifty showed a fall of 8.08% vis-à-vis previous week). The stock options saw a rise of 33.22% and 47.93% in terms of value and shares respectively. The Nifty options OI saw a rise of 27.79% and 35.99% in terms of value and shares respectively. The Index options other than Nifty also saw a comparable rise in the OI due to increased participation in Nifty Mid cap 50 index segment. Due to the sharp fall in the market, traders seem to be focusing on trading more in call & put options as compared to futures. This has resulted in increase in option OI & value.

Options Volumes Activity
The total volumes saw a significant increase in the number of contracts (up by 47.43%) and the turnover saw a rise of about 45.04%. The rise in volumes is higher this week as compared to the last week as the traders being cautious after the sharp fall are choosing to stay away from the futures market & taking fresh positions in Index option segment. The Stock Options have seen a rise in volumes in terms of the number of contracts & fall in turnover due to a fall in the stock prices of the all stocks as compared to the last week. Volume in contracts has increased in the stocks option segment by 21.03% on a week on week basis. In Index Options segment volumes saw a significant increase in the number of contracts (up by 48.61%) and the turnover saw a rise of about 48.16%. This shows increased participation in Index options segment.

Nifty Options Strike - wise Volumes Analysis as on July 08, 2009
During the week ended July 08, 2009, maximum volumes were observed in Nifty July Call 4500, as traders are expecting Nifty to face resistance at this level. In Nifty July series, maximum put volumes were observed in Nifty July 4000 Put. From last week, traders had
built up fresh positions in 3800 & 4000 Put in anticipation that Nifty could take support between 3800 – 4000 range in the coming weeks, which got reflected in an increase in volumes in these strike prices. In the August series traders are building up fresh positions at 4000 Put & 4500 Call option.

Trading Ideas
1. Buy Unitech 80 Call Option between Rs. 2.50 – Rs. 3.50 for a Target of Rs. 7 in 3 - 4 days. Stop Loss = Rs.1.75 CMP = Rs.3.10.

The Unitech 80 Call Option saw a significant build up in OI (up by about 9.83%) on Thursday. The Implied Volatility is about 78%, which is significantly lower than the HV of 93. Thus we feel that the value of this call option is likely to go up in the coming sessions and thus recommend a “buy” between Rs. 2.50 and Rs. 3.50 for a Target of Rs. 7 in 3-4 days. Stop Loss = Rs. 1.75 CMP = Rs.3.10.

To see full report: WEEKLY OPTIONS REPORT

>ECONOMIC OUTLOOK (ANZ)

SEPTEMBER QUARTER 2009

Inside

• GLOBAL OUTLOOK
• AUSTRALIAN ECONOMIC OUTLOOK
• NEW ZEALAND OUTLOOK
• EMERGING ASIA OUTLOOK
• FOREIGN EXCHANGE OUTLOOK
• GLOBAL CAPITAL MARKETS
• COMMODITIES OUTLOOK

To see full report: ECONOMIC OUTLOOK