Market Outlook

India Research
September 26, 2011

Dealers Diary
The key benchmark indices opened on a weak note tracing weak Asian stocks. Volatility ruled the roost as the key benchmark indices weakened and hit fresh 3-1/2-week lows in mid-morning trade. In addition to global concerns, fears of expected weak 2QFY2012 corporate earnings as well as FII outflows also weighed on investor sentiments. The overall market breath remained weak. The indices continued their downward stride until the afternoon session, post which it reversed direction and ascended on firm opening of European markets. The indices turned positive for a brief period in mid-afternoon trade. Nonetheless, the recovery was short-sighted and mounting prospect of a global recession drove a broad-based sell-off. The Sensex and Nifty closed down by 1.2% and 1.1%, respectively. The mid-cap and small-cap indices also lost 0.8% and 1.1%, respectively. Among the front runners Cipla, Tata Power, SBI, Bharti Airtel and JP Associates gained 0.72%, while Tata Motors, Hindalco, HDFC Bank, HDFC and L&T lost 3-5%. Among mid caps, HCL Infosystems, Kirloskar Oil Engines, Shree Global Tradefin, KGN Ind. and Opto Circuits gained 4-6%, while Jain Irrigation, Prism Cement, Chambal Fertilisers, IL&FS Transportation and SKS Microfinance lost 5-8%.

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 (%) (1.2) (1.1) (0.8) (1.1) (0.2) (0.9) (1.4) (1.6) (2.3) (1.3) (0.3) Chg (%) 0.4 1.1 0.5 (2.1) (1.4) (0.8) (0.4)

(Pts) (55.9) (52.9) (80.4) (12.0) (69.1) (136.1) (112.1) (16.4) (Pts) 27.6 25.2 (180.9) (21.7) (9.9)

(Close) 4,868 6,223 7,041 5,872 7,485 8,420 8,263 4,986 (Close) 2,483 5,067 8,560 2,699 2,433

(199.1) 16,162

(147.2) 10,761 (269.1) 11,514

37.7 10,772

Markets Today
The trend deciding level for the day is 16,194 / 4,876 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,336 16,510 / 4,922 4,977 levels. However, if NIFTY trades below 16,194 / 4,876 levels levels for the first half-an-hour of trade then it may correct up to 16,020 15,878 / 4,821 4,775 levels
Indices SENSEX NIFTY S2 15,878 4,775 S1 16,020 4,821 R1 16,336 4,922 R2 16,510 4,977

(243.1) 17,669

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

Chg (%) 2.6 1.7 2.0 1.0

(Pts) 1.2 0.2 0.7 0.3 BSE 947 1,864 105

(Close) $48.2 $9.2 $34.7 $28.7 NSE 414 1,034, 50

News Analysis
Refer detailed news analysis on the following page

ITC raises cigarette prices after VAT hike in states GAIL delays `3,000cr pipeline projects over land acquisition hurdles

Net Inflows (September 22, 2011) ` cr Purch Sales FII MFs 1,353 655 2,588 439

Net (1,235) 216

MTD 1,021 (773)

YTD 213 5,501

2,644 12,043

FII Derivatives (September 23, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company Opto Circuits Union Bank Reliance Power Container Corp Mphasis Price (`) 231 244 82 925 334 chg (%) 4.3 3.9 3.9 3.8 3.7 Company Jain Irrigation Chambal Fert ABB NMDC HDIL Losers Price (`) 152 99 750 227 104 chg (%) (7.6) (6.9) (5.7) (5.3) (8.3) Purch 3,743 4,095 Sales 4,190 3,728 Net (447) 368 Open Interest 17,545 29,581

Please refer to important disclosures at the end of this report

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Market Outlook | India Research

ITC raises cigarette prices after VAT hike in states

ITC has increased the price of its mid-size brands Wills Navy Cut. This price hike comes after the recent increase in VAT on cigarettes in Andhra Pradesh from 14.5% to 20%. The company had recently taken a price hike in its premium brand Wills Classic owning to VAT rate on cigarettes hike in Tamil Nadu from 12.5% to 20%. West Bengal, where the effective rate is 30% now, also includes cigarettes as per Schedule D of VAT brackets. The prices of the brands now stand as follows: Brand Classic Pack of 10 Classic Pack of 20 Gold Flake Kings Pack of 10 Gold Flake Kings Pack of 20 Wills Navy Cut Gold Flake Regular Pack of 10 Size 84 mm 84 mm 84 mm 84 mm 69 mm 69 mm Old Price `50 `100 `48 `96 `40 `38 New Price `55 `110 Unchanged Unchanged `44 Unchanged

In the past, ITC has shown resilience to such events. We expect the impact of price hikes to be minimal on the companys earnings. We expect ITC to record ~6% volume growth in cigarettes in FY2012. At the CMP, the stock is trading at 21.6x FY2013E EPS. We maintain our Accumulate view with a target price of `205, based on our SOTP valuation. GAIL delays `3,000cr pipeline projects over land acquisition hurdles GAIL has delayed its pipeline projects worth `3,000cr due to problems in acquiring land. However, the company has sought the Environment Ministry's help in resolving the issue. The company informed that its Dadri-Bawana-Nangal project will be delayed by six months and its Dahej-Vijaipur project will be delayed by five months if the land acquisition issue was not resolved quickly. The government has recently proposed a new land acquisition bill, which promises higher compensation and rehabilitation to those whose land is acquired for development. We believe the governments new land acquisition bill would help in speeding up the land acquisition process. Meanwhile, we maintain our Buy rating on the stock with a target price of `516.

Economic and Political News

India's forex reserves rise by US$266mn India seeks additional World Bank resources for emerging markets Rupee fall to inflate India Inc's foreign loan bill by US$2bn

Corporate News
Realty developers expect a 10-15% fall in home prices NHPC to raise `2,000cr debt Fuel price hike adds to Air India woes, incurs `650cr additional expense Maruti to expand its sourcing as yen rises
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

September 26, 2011

Market Outlook | India Research

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Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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September 26, 2011