MFS 30, March 2012 Marwah Financial Services

Market Outlook for March 2012: Cautiously Bullish

Benjamin Graham had said that in the short-term, the market acts like a voting machine. FIIs are definitely voting for a return to a bull market with The Foreign Institutional Investors (FIIs) infused a net amount of $ 5.12 billion (about Rs 25,212 crore) during February, taking the total for 2012 so far to $7.16 billion for the Indian stocks Though, Indian markets turned volatile post the Q3 GDP numbers (that rose 6.1 per cent in October to December compared with a year earlier, a lower than expected increase of 6.3) and high oil prices. Country's economic growth slowed to its weakest annual pace in almost three years in the three months to December as high interest rates and rising input costs constrained investment and manufacturing. We saw some consolidation with negative bias in the market ahead of events like UP elections outcome and RBI th monetary policy to be announced on 15 March 2012. The market needs strong triggers from here to move higher," Nifty is expected to move in a tight band of 5200 and 5500. Broadly the markets expects to trade in a new range of 5000-5600 in the month of March, with 5200 (which acted as a stiff resistance earlier) being the very important support for the market and the levels 5400 and 5600 acting as a stiff resistance where in investors started booking profits and reducing their long positions. As far as the overall market sentiment goes, the markets seems to be cautiously bullish wherein a buy on dips strategy (i.e start partial buying between 5200-5300) should be adapted in selective sectors and stocks Global financial markets have had a positive stint in 2012 so far, helped by improved economic data out of key nations and additional monetary policy stimulus. Emerging markets have benefited from the easy global liquidity situation and outperformed developed markets this year Supply-side disruptions due to geo-political tensions surrounding Iran have pushed crude oil prices higher(currently around 106$)over the past few weeks. Given Indias dependence on energy imports, the current account deficit could widen if prices move higher. Companies with strong business models, robust processes and able managements are likely to fare better than others and we believe investors utilizing a bottom-up approach with emphasis on strong fundamentals should do well "The month of March will be critical in setting a direction for Indian equity markets for the rest of the year as some key events namely state election results, IIP data, RBI policy meeting and the Union Budget, will have a strong bearing on market sentiment and policy landscape,

Important Events and Corresponding Market Expectations in March 2012

IMPORTANT EVENT IIP(Index for Industrial Production) for January 2012 Monetary Policy
TH

EVENT DATE 12 March 2012

EXPECTATIONS The Industry expects the January IIP numbers to grow by 2.1 % as compared to the previous month numbers of 1.8% The industry does not expect any interest rate cuts this time, though expectations for a cut in the CRR by 50 -100 basis points are pretty high Reduction of STT(Security Transaction Tax) on equity trade GDP growth target for FY13 likely to be 7.5%, and inflation target likely 6.5%. Reduction in surcharges for corporates, fewer tax exemptions and a hike in the rate of Minimum Alternate Tax (MAT). Hike in threshold for exemption for income tax from Rs 1.80 lakh to Rs.3 lakh, giving more disposable income to the middle class. Higher rebate (Rs 50,000) on investment in infrastructure bonds, to boost investments into the infrastructure sector. Increase in deductions allowed under section 80C, as well as an increase in deduction on housing loan interest.

15 March 2012

th

Union Budget 2012

16 March 2012

th

Sectors Outlook March 2012 Sectors Outlook Preferred Picks

Pharma

The sector has been outperforming the market since a long time now, especially in the bear trend If the global uncertainty prevails further this defensive sector is likely to continue its future outperformance. The pharma sector usually performs inversely to the market and gives positive returns in the falling market

Automobile

The Auto sector with both two wheeler and the 4 wheeler segment has seen some stellar performance in the last two months, with some consolidation taking place in the sector post their Q3 results and monthly sales numbers. Any easing of interest rates in the upcoming monetary policy or in the months ahead would augment good for this sector

Sun Pharma (Target:595) Just broke its 52 week high (i.e 560)yet again with decent volumes few days back and is now slated to make a new 52 week high going forward (may be 600) One can keep on partially accumulating this stock whenever the stock is falling in the market Decent buy close to 540 levels Dr Reddy (Target :1785) Launched Ziprasidone Hydrochloride capsules, a bioequivalent generic version of Geodon in the US market on March 2, 2012, following the approval by the United States Food and Drug Administration The Geodon brand, made by Pfizer , had sales of about $1.34 bn in the US in 2011 This news helped the stock break its strong resistance of 1700 and also its earlier 52 week high of 1717 Very strong buy at the current price of 1640-1660 levels TATA MOTORS(Target :295) The stocks continue to maintain its uptrend with breaking its 52 week high in the month of February post its stellar Q3 results. One successful model can change the fortunes of a company and this is best reflected in Tata Motors performance. It was not Nano but Evoque which helped the company post remarkable numbers with very buoyant sales coming from China. The stock is a buy on all dips between 250-270 levels BAJAJ AUTO(Target:1820) This two-wheeler major also continues to be a preferred pick in the auto sector. The stock witnessed a breakout above 1600 levels which now acts as a very strong support for the stock. One can buy this between 1650-1700 levels.

Banking

Very powerful sector in 2012 which outperformed the entire market with robust gains in the month of February on high liquidity and monetary easing expectations PSU Banking stocks remains a buy on dips on account of heavy capital infusion by the RBI and Govt of India through preferential allotment(GOI infusing Rs 8000 cr in SBI tentatively at Rs 2191 before 31st Macrh 2012) Any decent cut in the CRR in the monetary policy would further increase liquidity in the system which would augment very well for this sector The one thing that has been affecting the rise of the Indian market and this sector predominantly is the rising international crude oil prices. Crude prices reduces the rate cut expectations in the upcoming monetary policy in lieu of the rising import bill and chances of further hike in inflation. The rise in prices augments very well for some Indian companies like Cairn which is heavily into oil extraction.

Oil

Telecom

DOT lobbying for infrastructure status and tax cuts which could significantly benefit new telecom players attain break-even DOT suggestions if expected could boost earnings per share of taxpaying telecom operators by 2-3% EGOM decided to allocate 700 Mhz spectrum for offering fourth-generation or 4G telecom services. This particular band (700 Mhz) is considered to be very efficient and could fetch the government revenues more than it got through auctioning of 3G spectrum last year. The above 2 events augment well for the entire telecom sector and would benefit the large and the old telecom players more

AXIS BANK(Target:1275) Axis bank has been gradually increasing the share of retail business(from 20.3% a year ago to 22.4% now) and the trend is likely to continue during FY13 Over the last 2-3 years, the bank has been leveraging its improving CASA (41.5%) and pricing power to increase exposure to large corporates with a minimal impact on NIMs Bank also plans to diversify its asset book by increasing the proportion of retail advances to 30% of its mix from 21% over the next 2-3 years. Trades at deep discount to its peer banks Strong buy around 1100 levels with 200 DMA lying around 1115 CAIRN INDIA (Target:395) Awaiting approval of a crucial committee, where its partner state-owned Oil and Natural Gas Corp (ONGC) is represented, for raising output from its largest oilfield in the prolific Rajasthan block Looking at increasing output from the Rajasthan oilfields to 240,000 barrels a day from 150,000 barrels/day, at present. Exploring a dividend policy with possible one time dividend to be announced in the month of April which can be around Rs 14-16. With the ongoing tensions in Iran any rise in international crude oil prices would result in higher realizations from crude sales for this company RIL keen on Cairn crude for Jamnagar SEZ refinery Strong buy between 340-360 levels BHARTI AIRTEL(Target:375) Easing competition; reducing regulatory risk benefits yet to be reflected in the price. Further tariff increases and potential increase in ARPU with Lower than TRAI recommended excess spectrum pricing will augment very well for this company going forward. The stock has been making a very solid base between 330-340 levels where its a very strong buy. Very strong support at Rs 320

Infrastructure

The sector has been one the worst performer for entire 2011 with the continuous rise in the interest rate in the economy Easing of interest rate in coming quarters would augment for the sector and overall economy Rise in new orders post softening of interest rates and rate cuts

BHEL(TARGET-315) Government is planning a 19% import duty on power equipment for mega projects. This augments very positive for Bhel The stock trades above and close to its 89 DMA of Rs 274 where it find very decent support Can outperform the market ost any interest rate easing going forward Government planning a FPO soon and trying to create a conducive price environment for the same Strong buy at 275 levels

Outlook for GOLD

Traditionally, gold has been an international currency and investors across the world buy gold as an investment. The demand for gold has risen over the last few years. It is mainly 'safe haven' demand from large global investors and hedge funds who aim at safeguarding their investments amidst global economic uncertainty. High liquidity and soft monetary policies of central banks across the world, to boost economic activity, further channels money to gold-based instruments. This results in higher prices of gold. Gold has been hovering around in a broader range of 1500 US $ to 1800 $ post it witnessed a very strong break out above US$ 1480 in 2011 and making an all time high somewhere close to 1900$.The sharp rise in the Gold prices in such a short span was a result of huge uncertainty over the future of the global markets and excessive demand from various countrys central banks to replace some part of their forex reserves from US $ to GOLD. Technically GOLD finds a very strong support at 1530 US $ followed by good supports at the levels of 1600$ and 1650 $ from where it Gold is seing small but small rallies. The current trend is Gold is a buy on dips so one can look forward to create fresh long in Gold around 1650 and 1600 $ levels with stop placed at 1580$ The levels of 1500 $ continues to be a very strong and a medium term support for Gold.

MFS 30 March 2012: Recommended Buying Levels

Sr. No % Index Weightage Good buying Level 5150-5280 8.4 8.5 4.4 6.8 5.6 3.5 3.8 1.9 2.5 2.9 1.8 1.2 2.4 2.4 1.2 5.4 1.5 1.1 1.2 1.1 1.4 0.7 0.7 1.1 NA 0.8 NA 1.2 NA NA 1.21 0.97 1.19 0.54 0.95 1.22 0.95 1.36 0.76 1.58 1.45 1.15 0.37 0.53 0.52 1.01 0.74 0.75 0.51 1.47 1.07 0.79 1.11 0.51 0.78 0.82 1.11 0.61 NA NA 760-795 2780-2830 1240-1280 200-205 490-515 2070-2160 1150-1190 420-445 325-345 250-265 1110-1150 130-142 375-382 265-275 1630-1670 650-670 1650-1710 1150-1200 530-550 123-131 270-290 155-162 450-485 1840-1930 445-470 350-365 94-100 310-325 950-1000 2560-2625 Crucial Support 5050 760 2700 1190 198 470 2040 1090 410 320 240 1090 130 365 260 1600 640 1600 1100 520 120 260 148 420 1800 440 340 90 300 900 2500 Trading Range 5000-5600 760-860 2720-3000 1200-1450 200-220 460-550 1800-2200 1100-1300 400-500 320-395 250-295 1100-1300 130-170 370-415 260-300 1600-1800 640-720 1600-1850 1100-1400 520-600 120-150 230-290 145-175 430-520 1800-2200 450-520 330-400 90-10 300-350 900-1200 2540-2750

Security Name NIFTY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Reliance Industries Infosys Technologies Larsen & Toubro ITC HDFC Bank State Bank of India Tata Consultancy Tata Steel Bharti Airtel Tata Motors Axis Bank Hindalco Industries Hindustan Unilever ONGC Dr. Reddy's HDFC Bajaj Auto Maruti Suzuki India L Sun Pharmaceutical. IDFC Bhel Ambuja Cement Hcl Technologies Hero Motors Lupin Cairn India IOB Coal India Ltd Bank Bees Gold Bees

Industry BENCHMARK REFINERIES COMPUTERS ENGINEERING CIGARETTES BANKS BANKS COMPUTERS STEEL TELECOM AUTOMOBILES BANKS ALUMINIUM DIVERSIFIED OIL PHARMA FINANCE AUTOMOBILES AUTOMOBILES PHARMA NBFC EQUIPMENT CEMENTS COMPUTERS AUTOMOBILES PHARMA OIL BANKING Power Banking Gold

Beta

Fundamental Indicators Info for MFS 30 March 2012

Sr. No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Dividend Yield 1.00% 2.00% 1.00% 2.20% 0.77% 1.84% 1.20% 2.60% 0.29% 1.50% 1.19% 1.28% 1.60% 6.20% 0.72% 1.30% 2.30% 0.60% 0.70% 1.40% 2.10% 2.00% 5.00% 0.68% ND 6.00% 1.20% 1.60% Book Value 446 426 351 21 108 1023 100 503 115 63 461 155 12 114 355 118 170 480 64 70 82 48 148 70 167 132 31 85 Debt/Equity Ratio* 0.40 0.00 0.30 0.01 16.20 12.00 0.01 0.59 0.21 0.52 12.65 0.23 0.00 0.18 0.24 6.40 0.07 0.02 0.01 3.60 0.01 0.01 0.50 0.31 0.04 14.50 0.07 0.18 PE Multiple 14 22 19 28 25 18 22 6 22 68 12 12 31 11 33 26 14 21 37 13 11 21 17 27 NA 7 29 20

Security Name Reliance Industries Infosys Technologies Larsen & Toubro ITC HDFC Bank State Bank of India Tata Consultancy Tata Steel Bharti Airtel Tata Motors Axis Bank Hindalco Industries. Hindustan Unilever ONGC Dr. Reddy's HDFC Bajaj Auto Maruti Suzuki Sun Pharmaceutical. IDFC Bhel Ambuja Cement Hero Motors Lupin Cairn India IOB Coal India HCL Technologies

Face Value 10 5 2 1 2 10 1 10 5 2 10 1 1 5 5 10 10 5 1 10 10 2 2 2 10 10 10 2

Industry PE 15 23 16 31 11 8 23 7 20 37 11 13 36 12 11 24 15 15 11 9 12 20 17 11 12 8 20 22

*The above list consists of 28 stocks only from the MFS 30 because BANK BEES and GOLD BEES does not have any financial fundamental indicator

GLOSSARY
(1) FACE VALUE (par Value) OF SHARE All companies issue shares with a fixed denomination called the face value (or par value) of the share. This face value is indicated on the share certificate. Generally Indian shares has a face value of Rs. 10/ A Face value or par value of the company share always remains the same, irrespective of the market price of that share. Companies have to right to split the face value of the share to Rs. 5, 2 or 1 to bring more volatility to the share (2) DIVIDEND YIELD A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows:

(3) BOOK VALUE Book value is the accounting value of a firm. It has two main uses: 1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. 2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced

(4) DEBT/EQUITY RATIO A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. It is calculated as:

Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation

(5) PE MULTIPLE A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: Market Value per Share Earnings per Share (EPS) EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay Rs 20 for Rs 1 of the current earnings. .(6) CAR-CAPITAL ADEQUACY RATIO* This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors It is expressed as a percentage of a bank's risk weighted credit exposures.

Also known as "Capital to Risk Weighted Assets Ratio (CRAR)." The fundamental objective behind the norms is to strengthen the soundness and stability of the banking system. Minimum requirements of capital fund in India: * Existing Banks 09 % * New Private Sector Banks 10 % * Banks undertaking Insurance business 10 % * Local Area Banks 15% Tier I Capital should at no point of time be less than 50% of the total capital. This implies that Tier II cannot be more than 50% of the total capital.