Market Outlook

India Research
September 7, 2011

Dealers Diary
The key benchmark indices surged to strike intraday high in late trade on aggressive bargain hunting in index heavyweights. Volatility was high across the globe with European markets trading firm after initial hiccup while select Asian markets turned positive after initial declines. US index futures also cut losses. A setback in global markets on worries of a recession in the US and the ongoing eurozone debt crisis had weighed on early sentiment for the second day. The Sensex rebounded into the green in afternoon trades, as IT shares recovered. The Sensex and Nifty closed with gains of 0.9% each. The mid-cap and small-cap indices logged gains of 0.6% and 0.7%, respectively. Among the front runners, RIL, M&M, JP Associates, Jindal Steel and Sterlite gained 2-4%, while DLF, Sun Pharma, Bharti Airtel, Bajaj Auto and NTPC lost 1-4%. Among mid caps, Hexaware Tech, Educomp Sol, Polaris Soft, Amtek Auto and Gujarat State Fert gained 6-8%, while HDIL, TV18 Broadcast, Dewan Housing, Federal Bank and HT Media lost 2-3%.

Domestic Indices BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT Global Indices Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com

Chg (%) 0.9 0.9 0.6 0.7 (0.2) 0.2 0.5 1.0 0.7 2.8 1.2 Chg (%) (0.9) (0.3) 1.1 (2.2) 0.5 0.0 (0.3)

(Pts) 47.1 37.6 50.8 (9.8) 13.6 83.0 233.0 57.1 (Pts) (6.5) 54.3 (193.9) 1.2 (8.2)

(Close) 5,064 6,394 7,197 5,980 7,637 8,766 8,616 4,981 (Close) 2,474 5,157 8,591 2,774 2,471

149.5 16,863

58.7 11,049 90.8 12,543

(101.0) 11,139

Markets Today
The trend deciding level for the day is 16,749/5,027 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,00917,155/5,1115,157 levels. However, if NIFTY trades below 16,749/5,027 levels for the first half-an-hour of trade then it may correct up to 16,60216,342/4,9814,897 levels.
Indices SENSEX NIFTY S2 16,342 4,897 S1 16,602 4,981 R1 17,009 5,111 R2 17,155 5,157

94.1 19,711

Indian ADRs Infosys Wipro ICICI Bank HDFC Bank Advances / Declines Advances Declines Unchanged Volumes (` cr) BSE

Chg (%) (1.3) (3.3) 0.5 1.2

(Pts) (0.7) (0.3) 0.2 0.4 BSE 1,633 1,169 118

(Close) $48.9 $9.4 $38.2 $32.3 NSE 873 548 58

News Analysis
Neutral impact on ITC due to hike in VAT rates on cigarettes by few states NTPC and CEB to form JV to set up a 500MW plant in Sri Lanka
Refer detailed news analysis on the following page

Net Inflows (September 5, 2011) ` cr Purch Sales FII MFs 2,996 446 2,784 651

Net (97) (206)

MTD 1,390 (475)

YTD 582 5,800

FII Derivatives (September 6, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company Educomp Sol Amtek Auto Motherson Sumi Ambuja Cements Neyveli Lignite Price (`) 216 148 206 140 88 chg (%) 7.5 6.8 5.5 5.4 5.2 Company DLF HDIL Cummins India Federal Bank Tech Mahindra Losers Price (`) 199 104 597 375 661 chg (%) (4.4) (3.4) (3.0) (2.9) (2.7) Purch 2,609 2,035 Sales 3,687 1,528 Net (1,078) 507 Open Interest 16,985 28,164

3,082 12,884

NSE

Please refer to important disclosures at the end of this report

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Market Outlook | India Research

Neutral impact on ITC due to hike in VAT rates on cigarettes by few states
The West Bengal Government has recently increased VAT on cigarettes from 13.5% to 20%. According to media sources, Andhra Pradesh (AP) Government is also expected to hike VAT on the same lines of West Bengal. The current VAT rate on cigarettes in AP is 14.5%. We believe this hike in VAT rates will have a neutral impact on ITCs volume growth and do not expect the company to take price hikes in the near term, as it had taken price hikes before Budget 2011. Also, since there was no hike in excise rates during Budget 2011, hike in VAT rates by states was expected. At the CMP, the stock is trading at 23x FY2013E EPS. We maintain our Neutral rating on the stock.

NTPC and CEB to form a JV to set up a 500MW plant in Sri Lanka

NTPC and Ceylon Electricity Board (CEB), Sri Lanka, signed a JV agreement on September 6, 2011, in Colombo for setting up a 500MW (2X250MW) coal-based power station at Sampur, Trincomalee in the Eastern Province of Sri Lanka. The proposed JV Company would be incorporated in Sri Lanka, with equal equity contributions from NTPC and CEB. At the CMP, NTPC is trading at 1.6x FY2013E P/BV. We maintain our Buy view on the stock with a target price of `202.

Economic and Political News

RBI moots lower reserve requirement Clear air, frame pension FDI policy, DIPP told Indias growth to slow at 8.1% in 2011: UNCTAD Plan panel for raising coal prices

Corporate News
BP to form marketing JV with RIL soon, plans LNG terminal Cipla closes two of its four marketing divisions Maruti to assemble Swift at Gurgaon JP Associates may rope in cement biz partner
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

September 7, 2011

Market Outlook | India Research

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September 7, 2011