market outlook 3rd october 2011

8/4/2019 Market Outlook 3rd October 2011

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Market OutlookIndia ResearchOctober 3, 2011

Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

Dealer’s Diary

The market opened on a weak note as Asian stocks opened in red. A bout ofvolatility was witnessed thereafter, as the key benchmark indices cut losses after

hitting fresh intraday lows in early trade. The market turned positive to strikeintraday high only to once again dip in red in mid-morning trade. The marketmoved in a narrow range in early afternoon trade. The market trimmed lossesafter weakening in early afternoon trade. The market weakened again inmid-afternoon trade and weakness persisted in late trade as well. The Sensexand Nifty closed lower by 1.5%, and 1.4%, respectively. The mid-cap andsmall-cap indices, however, outperformed the broader market, as they lost0.6% and 0.9%, respectively. Among the front runners, Bharti Airtel and RILgained 0-1%, while Coal India, Sterlite Inds, Tata Steel, Jindal Steel and HeroMotoCorp lost 3-5%. Among mid caps, Dewan Housing, Honeywell Auto, SREIInfra, Phoenix Mills and KGN Inds gained 3-7%, while Network18 Media,Ruchi Soya, Sintex Inds, Voltas and Indiabulls Real Estate lost 6-13%.

Markets Today

The trend deciding level for the day is 16,535/4,964 levels. If NIFTY tradesabove this level during the first half-an-hour of trade then we may witness afurther rally up to 16,664 – 16,875/5,004 – 5,066 levels. However, if NIFTYtrades below 16,535/4,964 levels for the first half-an-hour of trade then it may correct up to 16,324 – 16,194/4,903 – 4,863 levels.

Indices S2 S1 R1 R2

SENSEX 16,194 16,324 16,664 16,875

NIFTY 4,863 4,903 5,004 5,066

News Analysis Union Cabinet approves the new Mining Bill Auto sales numbers - September 2011 Infosys bags a contract from DoP Strike at Maruti’s Manesar plant has been called off Indraprasth Gas hikes CNG prices in Delhi

Refer detailed news analysis on the following page

Net Inflows (September 28, 2011)

` cr Purch Sales Net MTD YTD

FII 2,744 2,493 252 (835) (1,643)

MFs 319 476 (157) (731) 5,544

FII Derivatives (September 30, 2011)

` cr Purch Sales NetOpen

Interest

Index Futures 2,315 2,403 (88) 13,035

Stock Futures 1,483 1,791 (308) 26,012

Gainers / Losers

Gainers Losers

Company Price (`) chg (%) Company Price (`) chg (%)

Hind. Copper 227 6.7 Reliance Capital 315 (12.2)

Sesa Goa 200 4.4 RCOM 72 (7.6)

GSPL 105 3.5 Reliance Infra. 374 (7.4)

Mcleod Russel 235 2.7 Sintex Ind. 127 (7.3)

Glaxo. Cons. 2,325 2.7 Voltas 111(6.7)

Domestic Indices Chg (%) (Pts) (Close)

BSE Sensex (1.5) (244.3) 16,454

Nifty (1.4) (72.2) 4,943

MID CAP (0.6) (35.8) 6,130

SMALL CAP (0.9) (61.1) 6,881

BSE HC (0.6) (34.8) 5,868

BSE PSU (1.6) (122.0) 7,404

BANKEX (1.8) (203.9) 10,851

AUTO (1.8) (152.1) 8,498

METAL (2.7) (303.0) 10,996

OIL & GAS (0.7) (56.3) 8,494

BSE IT (1.2) (63.4) 5,275

Global Indices Chg (%) (Pts) (Close)

Dow Jones (2.2) (240.6) 10,913

NASDAQ (2.6) (65.4) 2,415

FTSE (1.3) (68.4) 5,128

Nikkei (0.0) (0.9) 8,700

Hang Seng (2.3) (418.7) 17,592

Straits Times (1.2) (33.0) 2,675

Shanghai Com (0.3) (6.1) 2,359

Indian ADRs Chg (%) (Pts) (Close)

Infosys (1.3) (0.7) $51.1

Wipro (3.9) (0.4) $9.3

ICICI Bank (5.8) (2.1) $34.7

HDFC Bank (5.0) (1.5) $29.2

Advances / Declines BSE NSE

Advances 1,019

Declines 1,716 950

Unchanged 134 81

Volumes (` cr)

BSE 2,489

NSE 11,265



October 3, 2011 2

Market Outlook | India Research

Union Cabinet approves the new Mining Bill

The Union Cabinet has approved the Mines and Mineral Development and Regulation(MMDR) Bill, 2011, making it mandatory for coal miners to share 26% of their profit aftertax with project-affected people. For companies mining other minerals (such as limestone,iron ore and bauxite), the bill proposes that the companies should pay an amount

equivalent to 100% of the royalty to the local population of the project site. Furthermore,the new bill obligates mining firms to pay a 10% cess to state governments and 2.5% to thecentre on the total royalty paid. As per our estimates, the EPS of mining companies isexpected to be lower by 8–13%, while for Coal India the EPS could potentially decline by 17% (For details refer to our report “Mining Bill – Impact Analysis” dated July 8, 2011). Thebill is expected to be taken up for approval by the parliament in the winter session.Meanwhile, we maintain our estimates and rating for the stocks under coverage until thebill is approved by the parliament.

Auto sales numbers - September 2011

Maruti Suzuki (Maruti)Maruti reported a 20.8% yoy (6.4% mom) decline in sales volume in September 2011 dueto disruption in production at the Manesar facility since August 29, 2011. Labour issues atManesar plant led to a production loss of 20,000–25,000 units during the month. Whilethe company managed to ramp up the production of Swift to 650-750 units daily despitethe strike, production of SX4 and A-Star, which are also produced at the same facility, wascompletely stopped. As a result, sales of SX4 nosedived by 90% on a yoy and mom basis.Sales volume in the mini as well as compact segments witnessed a yoy decline of 23.5%and 9.3%, respectively, leading to a 17.2% yoy decline in total domestic sales. However,on a sequential basis, volumes bounced back on account of the festival season, resulting ina 2.2% mom increase in domestic sales. Exports surprisingly plunged by 47.5% yoy (53%mom) during the month.

Mahindra & Mahindra (M&M)M&M reported better-than-expected 30.7% yoy and 28.2% mom jump in total volumes to68,810 units, aided by robust 25.5% (17.1% mom) and 41.1% yoy (54.2% mom) growthin automotive sales and tractor sales, respectively. Growth in the tractors space was drivenby an impressive 41.1% yoy (54.2% mom) increase in domestic sales, whereas exportssales remained flat on a yoy basis. Within the automotive segment, the four-wheelerpick-up segment continues to maintain its growth traction and witnessed strong 45% yoy (6.8% mom) growth. Verito also continued its impressive run during the month. Automotiveexports registered a robust 128.9% yoy (55.7% mom) jump to 3,001 units.

Tata Motors (TML)TML reported a 22% yoy increase in total sales to 78,786 units on the back of strongperformance by its commercial vehicle (CV) segment. Growth in the CV segment wasdriven by robust 47% yoy growth in the light commercial vehicle (LCV) segment, whichsustained its impressive growth rate. M&HCV volumes witnessed a slight rebound in sales,posting 9% yoy growth during the month. During September 2011, the PV segmentregistered its best performance YTD in FY2012, growing by 6% yoy. Sales in the PV segment were driven by 64% yoy growth in Indica volumes on the back of the newly launched Indica Vista and 60% yoy growth in Sumo/Safari/Aria/Venture volumes.However, Nano and Indigo sales continued their disappointing run, declining by 47% and11% yoy, respectively.



October 3, 2011 3


TVS Motor (TVS)TVS reported a strong 16.7% yoy (12.6% mom) jump in total volumes to 219,369 units, ledby continued growth in the scooters segment. Strong momentum in the scooters segmentcontinued during the month, resulting in a 29.7% yoy (6.9% mom) increase in salesvolume. Volumes of motorcycles and mopeds also registered healthy growth of 11.6%(16.9% mom) and 14.3% yoy (14.5% mom), respectively. In the three-wheeler segment,

volumes increased by 14.2% yoy; however, they were down sharply by 22% on mom basis.Exports reported a mixed trend as yoy volumes increased by 14.2%, whereas they declinedby 13.4% sequentially.

Infosys bags a contract from DoP

Infosys has bagged a ` 700cr-750cr financial services systems integrator contract from theDepartment of Posts (DoP). This is the second contract from the department for Infosys.Infosys emerged as the lowest bidder for the contract. Other vendors in the fray includedTCS and HP. The contract is part of the government’s postal department modernisationproject. The financial services contract is among the eight contracts that the department isoutsourcing. As part of this project, Infosys would help with postal banking and insurancesolutions, enabling the department to perform ‘anytime, anywhere’ banking. We maintainour Accumulate rating on the stock with a target price of `2,705.

Strike at Maruti’s Manesar plant has been called off

The month-long strike at Maruti’s Manesar plant has been ended after an agreement wasreached between the workers and the company’s management. The agreement wasreached on September 30, 2011, and the full production is expected to be resumed fromOctober 3, 2011. As part of the agreement, workers have agreed to sign the good conduct

bond and management has agreed to reinstate 18 trainees who were earlier suspended.However, the company has not taken back 44 regular employees against whomdisciplinary action was taken and they are still suspended. Maruti will also be withholdingthe salary of the employees for the standoff period. Employees at the Manesar facility wereon a strike since August 29, 2011, after the management prevented workers from enteringthe factory premises unless they sign a good conduct bond. This was following the allegedsabotage and deliberate compromise on the quality front by employees.

The Manesar plant A, which has a daily capacity of ~1,250 units (350,000 units annually),manufactures Swift, SX4 and A-Star. Recently, in September 2011, Maruti also commencedproduction at plant B, which has annual capacity of 250,000 units. While Maruti continuedto produce 600-750 Swift vehicles on a daily basis from the Manesar facility, theproduction of A-Star and SX4 was completely halted. As a result, sales for the two models

were adversely impacted in September 2011. We believe the recent strike has led to aproduction loss of 20,000-25,000 units for the company, which translates into revenueloss of ` 600cr-700cr. Further, due to the strike (in June and August-September), themarket share of the company in the domestic passenger car market has fallen by almost500bp to ~43%. Considering increased competition in the domestic passenger car marketin recent times, we feel that it will be challenging for the company to regain its lost ground.

We expect 2QFY2012 results of Maruti to be negatively affected due to the recent strike,which is likely to shrink the company’s bottom line by ` 35cr-40cr. We revise our volumeestimates downwards for FY2012E/13E by ~12%/~15% to 1.18mn/1.33mn units.Consequently, our EPS estimates stand revised at ` 75.4/ ` 90.1. However, we maintain ourAccumulate rating on the stock with a revised target price of `1,172



October 3, 2011 4


Indraprasth Gas hikes CNG prices in Delhi

Indraprasth Gas hiked Compressed Natural Gas (CNG) price by ` 2.0/kg to ` 32.0/kg inDelhi mainly on account of depreciation of the INR against the USD. Price in Noida,Greater Noida and Ghaziabad has been hiked by ` 2.3/kg to ` 35.9/kg. This is the fifthincrease in CNG prices in CY2011. This is expected to offset the company’s rise in costs on

account of INR depreciation. We believe the stock is trading at a fair value(PE of 18.1x FY2012 and 16.9x FY2013) currently. Hence, we maintain our Neutral ratingon the stock.

Economic and Political News

India’s fiscal deficit surges to ` 270,000cr during April–August 2011

` 53,000cr additional borrowing will not impact fiscal deficit: Finance Minister

India's overseas investment rises to US$103.9bn at the end of June 2011

Corporate News

Coal India likely to revise regulated coal price in three months

Coal India plans to invest ` 40,000cr in the twelfth plan

Cairn India discovers natural gas in Sri Lanka

Reliance Capital receives RBI’s approval to sell stake in Reliance Life Insurance

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



October 3, 2011 5


Research Team Tel: 022-3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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market outlook 3rd october 2011

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