>Daily Calls (ICICI Direct)

Sensex: We said, "Index now moves closer to previous crucial levels of earlier years, all between 12316 and 12671 ... profit-booking at higher levels cannot be ruled out." Index did correct over 170 points on profit-booking before closing flat. Realty Index outperformed with 8.6% gain. A/D ratio cooled down, though it held +ve 3:1.

The action formed a High Wave pattern, indicating a pause on suspected profit-booking. Bulls will be interested if the Index today trades strongly above its head at 12198. Failure to achieve that can see further profit-booking, especially if it breaks High Wave's low of 11985. Larger trend remains positive above the Green line.

To see full report: CALLS 130509

>Daily Market & Technical Outlook (ICICI Direct)

Key points
■ Market Outlook — Open flat to negative
■ Positive — FIIs, MFs buying
■ Negative — Crude rising again

Market outlook

■ Indian markets are likely to open flat with a negative bias. Our markets rallied yesterday. We expect some profit booking to creep in today. We again saw a bear trapping yesterday and the Nifty climbed almost 150 points from its low of the day. The major contribution came from
heavyweights like Reliance and Bharti

■ The Sensex has supports at 11900and 11760 and resistances at 12280 and 12470. The Nifty has supports at 3640 and 3610 and resistances at 3740 and 3780

■ Asian stocks were trading flat in the morning session with a positive bias. The Shanghai and Taiwan indices were up nearly 0.5%, while the Nikkei and Kospi were trading marginally in the green

■ The Dow rose on Tuesday as investors scooped up defensive shares, including Pfizer while energy companies' stocks climbed as oil hit a six-month high. However, the S&P was little changed and the Nasdaq fell as financial and technology shares declined after leading the
recent rally from bear market lows

■ Stocks in news: Bajaj Auto, Pantaloon Retail, IOC and Reliance

■ Recent development: India’s industrial output dipped by 2.3% in March this year as the country’s industries were adversely impacted by a sharp fall in exports and cut in spending by local consumers

To see full report: OPENING BELL 130509

>Special Report (ECONOMIC RESEARCH)

Is the problem really "financial capitalism"?

The term "financial capitalism" describes a situation where companies are managed based solely on shareholders’ objectives, and not the objectives of wage earners, governments, suppliers, consumers, researchers developing new products, etc. Distortions can then result from the existence, during the cycles, of an abnormally high and stable return on equity target chosen by the shareholders, which in principle leads to decisions that give priority to achieving short-term profits, increasing debt leverage and risk, and squeezing wages, especially during a recession period.

We can date the beginning of the changeover to financial capitalism in the United States and the United Kingdom to the late 1980s, and to the mid-1990s in Spain, Italy and France; but it is not clear whether this changeover has occurred in Germany, and the case of Japan is even less clear.

In order to identify the effects of financial capitalism, we can therefore look at:

- whether there was a change in corporate management in the mid-1980s in the United States and the United Kingdom; and in the mid-1990s in Spain, Italy and France;

- whether we see a difference between the management of companies in Germany and Japan and the way it is carried out in the United States and the United Kingdom.

We find:

- that the signs of financial capitalism (debt leverage, rise in profits and dividends, offshoring, etc.) did appear at the expected dates in the countries where financial capitalism clearly set in;

- but that they also appeared in Germany and in Japan, which casts a doubt: are we seeing the effects of "Anglo-Saxon capitalism" or of the new global corporate management model?

"Financial capitalism" is a system where corporate management decisions are taken solely in the interest of shareholders, and not the company’s other stakeholders: wage earners, governments, suppliers, consumers, researchers, etc.

Moreover, company shareholders are currently formulating demands for high and stable return on equity despite economic cycles, which in theory implies:

- giving priority to projects that provide short-term profits;

- increasing debt leverage and risk in order to boost the return per share;

- squeezing wage costs, particularly in a period of economic slowdown.

We will try to examine the reality of these supposed effects of financial capitalism.


To see full report: SPECIAL REPORT

>India IT Services (MORGAN STANLEY)

Quick Comment: Read-through from CTSH Results

Comforting but Not Euphoric: We believe the industry’s revenue outlook still appears to be scraping the bottom. CTSH reported revenues marginally ahead of guidance, but earnings were in line with consensus expectations. Q2CY09 guidance is for +2% qoq revenue growth and is in line with consensus expectations. Adjusting for ~4% higher working days in Q2, revenue
guidance implies sequential decline in Q2 (vs. +1% qoq adjusted revenue growth in Q1) on a like-for-like basis.

2009 Guidance: CTSH maintained full-year revenue guidance but lowered GAAP EPS guidance by 1 cent, to US$1.53, primarily due to FX losses and lower other income.

Management is not seeing any signs of a material rebound in 2H: However, the pace of revenue decline does not appear to be accelerating materially.

Revenues and margins for India IT services vendors have been less volatile than those of their regional technology peers have. Consequently, although the revenue decline was not as severe in the last few quarters, relative revenue growth rates are likely to be muted in the event of a turnaround, we believe. Expectations of a sharp turnaround or sharply improved growth rates appear a bit stretched, in our view.

Valuations are key: CTSH currently trades at 18x consensus C09e EPS, a 10-40% premium to India IT peers, which are now trading at 12-15x FY10e EPS for an EPS CAGR of 0-5% during the FY09-11e period. We believe P/E multiples for the sector could erode over the coming quarters.

To see full report: IT SERVICES