Market Outlook

India Research
December 8, 2011

Dealers Diary
Indian markets are expected to open in the red following negative cues from the Asian markets. Asian stocks were trading lower as investors prefer to wait for the results of the crucial European summit (to be held on Friday) on the regions sovereign debt crisis before taking any calls on the markets. Uncertainty about the financial situation in Europe contributed to the lackluster performance on Wednesday in both the US and European markets. While, S&P revealed that it had placed its 'AAA' long-term issuer credit rating on the EU on credit watch with negative implications, positive news flow from the Federal Reserve which released a report showing that consumer credit increased roughly in line with estimates in October, kept the US markets balanced. The Indian government finally surrendered to the pressures from the opposition and announced a hold on FDI in retail until a consensus is reached. With the monetary policy approaching (16th December, 2011), Indian markets will watch out for the weekly inflation data due today. Further, global investors would also watch out for the outcome of ECBs monetary policy meet scheduled today.

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 (%) 0.4 0.5 0.2 0.2 (1.5) (0.4) 0.0 0.5 0.2 0.5 1.4 Chg (%) 0.4 (0.0) (0.4) 1.7 1.6 1.2 0.3

(Pts) 71.7 23.5 11.3 12.5 (93.3) (24.9) 0.5 40.1 26.0 41.1 81.6 (Pts) 46.2 (0.4) (21.8) 147.0 298.4 33.3 6.8

(Close) 16,877 5,063 5,772 6,208 6,007 7,069 10,553 8,864 10,842 8,441 5,809 (Close) 12,196 2,649 5,547 8,722 19,241 2,783 2,333

Markets Today
The trend deciding level for the day is 16,887/5,065 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,993 17,110/5,097 5,132 levels. However, if NIFTY trades below 16,887/5,065 levels for the first half-an-hour of trade then it may correct up to 16,771 16,665/5,030 4,998 levels.
Indices SENSEX NIFTY S2 16,665 4,998 S1 16,771 5,030 R1 16,993 5,097 R2 17,110 5,132

Indian ADRs Infosys Wipro ICICI Bank HDFC Bank

Chg (%) 0.3 0.1 (0.8) (1.0)

(Pts) 0.1 0.0 (0.2) (0.3)

(Close) $52.9 $10.2 $30.0 $28.5

News Analysis

FDI in retail put on hold; parliament finally begins business Coal India lowers production target Larsen and Toubro bags orders worth `2,700cr ONGC issues NOC for sale of Cairn India to Vedanta Ranbaxy launches Caduet in the US market Sesa Goa acquires additional 1.5% stake in Cairn India
Refer detailed news analysis on the following page

Advances / Declines Advances Declines Unchanged

BSE 1,451 1,362 113

NSE 778 692 71

Net Inflows (December 05, 2011)

` cr FII MFs ` cr Index Futures Stock Futures Purch
1,513 271

Sales
1,301 186

Net
212 85

MTD
1,829 4

YTD
(2,195) 5,950

Volumes (` cr) BSE NSE 3,093 10,564

FII Derivatives (December 07, 2011)

Purch
2,006 1,362

Sales
1,466 1,592

Net
540 (230)

Open Interest
13,804 26,136

Gainers / Losers
Gainers Company
Indiabulls Fin. United Breweries Pantaloon Retail CESC JP Power

Losers Company
Idea Cellular Petronet LNG Lupin Indraprastha Gas Shree Renuka Sugar

Price (`)
153 434 198 261 39

chg (%)
12.4 7.5 6.3 4.7 4.7

Price (`)
92 160 451 386 31

chg (%)
(5.9) (4.2) (4.0) (3.7) (3.6)

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

Market Outlook | India Research

FDI in retail put on hold; parliament finally begins business

After a series of endless debates over the FDI in retail, the UPA government has finally surrendered to opposition parties and has announced a hold on FDI in retail till a consensus is reached among various stakeholders. Consequently, political parties applauded the move and paved the way for normal functioning of the two houses after 10 days. Nonetheless, there was criticism from Congress quarters that the government's move was ill-timed as it could have been taken before or after the winter session. Post suspension, Congress ally NCP backed the decision but said it was adventurous to think that the government could steamroll its UPA constituents. While the political heat has turned down considerably, industry bodies, including Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Federation of Indian Chambers of Commerce and Industry's (FICCI), have expressed disappointment over the government's decision. It is been viewed as a case of missed opportunity, wherein the move has a potential to generate over 10mn new jobs in three years, curb agricultural wastages, benefit farmers with better remuneration for their produce and lower the prices of many commodities for consumers. With many important reforms lined up (FDI in civil aviation and passage of the insurance, pension fund and banking reforms bills), key UPA leaders feel some of these proposals may now be difficult to push through. A rollback on this decision, going ahead, would be a big loss for domestic retailers such as Pantaloons, Shoppers Stop and Trent, who had firmed up initially in the anticipation of much required capital inflows and infrastructure.

Coal India lowers production target

Coal India (CIL) has lowered its production target for FY2012 to at least 440mn tonnes from the previous estimate of 452mn tonnes on account of lower-thantargeted production in 1HFY2012. CILs 1HFY2012 production stood at 176mn tonnes as against its target of 196mn tonnes, as heavy rains during August September 2011 resulted in lower production. The decline in production target by CIL for FY2012 is inline with our expectation. We continue to expect production of 436mn tonnes for FY2012. Although the company has not lowered its sales volumes guidance, we continue to believe it would be challenging for CIL to meet its sales volumes targets given the lower-than-expected production and insufficient availability of railway rakes. We maintain our Neutral view on the stock.

Larsen and Toubro bags orders worth `2,700cr

Larsen & Toubros (L&T) construction arm has bagged various orders aggregating to `2,700cr in October and November 2011. The company received orders worth `1,109cr for the construction of residential complex and warehousing facility in the buildings and factories segment. In the infrastructure space, projects worth `353cr for the construction of a viaduct and two station buildings for Kolkata Metro have been received. The power T&D segment witnessed order inflow of `763cr for the construction of transmission lines, electrical works including sub-stations and

December 8, 2011

Market Outlook | India Research

`200cr worth of orders from Tatweer Petroleum, Bahrain. The company also got an order from Delhi Jal Board for `272cr for works relating to the existing water treatment plant in Delhi. With these orders, the companys outstanding order book stands at ~`1,47,389cr (3.4x FY2011 revenue), which provides good revenue visibility. This order booking takes the total declared orders to ~`5,200cr for L&T until now in this quarter against orders received worth `13,336cr in 3QFY2011. The drying up of order inflows is one of the major concerns for the stock and has led to underperformance in the recent past. However, at the CMP of `1,331, the stock is trading at PE of 12.8x FY2013E earnings, after adjusting for investments, which is below the historical trading multiple for L&T; and we believe it factors in most of the negatives surrounding the stock. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in the different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to `1,714, which provides 28.7% upside from current levels. Hence, we maintain our Buy recommendation on the stock.

ONGC issues NOC for sale of Cairn India to Vedanta

ONGC has issued a no-objection certificate (NOC) to Britains Cairn Energy for the sale of a majority stake in its Indian unit, Cairn India, to Vedanta Resources. Separately, the deal has also been approved by the Home Ministry. With this, Cairn India has almost completed all the major formalities required to conclude the deal. Thus, we expect the deal closure to be announced very soon. However, we do not foresee any changes to our financial estimates on the closure of the deal. Hence, we maintain our Neutral view on Cairn India.

Ranbaxy launches Caduet in the US market

Ranbaxy has launched the authorized generic version of Caduet. The company has FTF para IV on 5/10 mg, 20 mg, 40 mg and 80 mg. Mylan was FTF Para IV on 2.5mg and 10/40 mg and para IV on rest of the strengths. Mylan has already launched the drug on November 30; however, Ranbaxy launched it on December 6 due to delay in approval from USFDA. The drug reported sales of US$339mn in the US in 2011. We expect the drug to contribute around `3/share to the companys EPS in CY2011. We maintain our Buy recommendation on the stock with a target price of `578.

December 8, 2011

Market Outlook | India Research

Sesa Goa acquires additional 1.5% stake in Cairn India

Sesa Goa and its subsidiary, Sesa Resources, has acquired 24.3mn and 4.5mn equity shares, respectively, of Cairn India, representing ~1.5% of the total paid up share capital of Cairn India from Cairn UK Holdings at an average price of `325/share through a block deal. With this acquisition, Sesa Goa along with its subsidiary, Sesa Resources, holds 20% of the share capital of Cairn India. This transaction is expected to have an insignificant impact on Sesa Goas financials. We maintain our estimates and recommend Accumulate rating on Sesa Goa with a target price of `208.

Economic and Political News

Direct Tax Code to come into force from April 1, 2012: Finance Minister Hiring activity down marginally in November: Monster.com Cabinet Committee clears `8,750cr package for West Bengal

Corporate News

SKS Microfinance plans to raise `500cr via share sale to institutional investors HCL Infosystems bags order for 22 border check posts in Maharashtra Moser Baer to spend US$1bn to set up solar plants in the next nine months

Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

December 8, 2011

Market Outlook | India Research

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December 8, 2011