03 October 2011

Quarterly Earnings Preview - Q2FY12 ::Unicon

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Unicon Quarterly Earnings Preview - Q2FY12

Indian market continued to face challenges and the markets fell by more than 12% in the quarter ended September 2011 which was one of the highest fall after October –December quarter 2008. This was contributed majorly by global headwinds in terms of downgrading of US sovereign debt and Euro crisis leading to large scale FII outflow. Lack of strong leadership in Europe and the politics in Washington are further denting the investor confidence in the region. Greece is on the verge of default and the steps taken by the Euro zone nations to bail it out have not worked. Greece has a debt of close to USD 400 bn and now has a debt greater than its GDP.

In addition to this the domestic economy also registered a slower growth of 7.7% in Q1FY12 vs 9.3 in Q1FY11 & Industrial production fell by 3.3% in July 11. On the political front, last quarter saw major anti-corruption movement taking a front seat along with unfolding of major scams, which affected the political stability in the country. Lack of reforms in the country was also one of the main reasons for slower growth. Another major challenge for the economy has been the elevated levels of inflation. High inflation has been putting pressure on RBI to take anti inflationary measures (increasing the interest rates) at the cost of economic growth. Investments in industries and credit growth thus been hampered in this high interest rate regime.

Going forward, we expect certain solutions by the world governments, international agencies to control global economic crisis. Debt reduction plans of the Obama administration & future plans of the FED could be decisive in engaging confidence of the global investors. Rebalancing of global currencies and EU’ decision on Euro bonds along with other cooperative measures would lay the foundation for stable global fundamentals. The slower global growth will drag down the commodity prices going ahead. This will help the domestic inflation to taper down from current high levels. On domestic front we expect the government continue to take corrective actions on a) high inflation, b) high fiscal deficit, c) erratic FII flows d) changes in the FDI policy.

Redressal of these issues will provide much needed stability to economic growth. We believe, the rural economy would continue to remain robust on the back of good monsoon in 2011 supporting the consumption led demand. Thus, we expect the Indian economy to register growth of 7.5% in 2011-12.

We believe that cooling of commodity prices and strengthening of the US dollar could be the driving factors for Indian markets. The markets would continue to be range bound till the global concerns are addressed properly & domestic economy stabilizes. The last quarter of FY 12 would give a clearer picture wherein the corporate earnings should improve with lower raw material prices. Thereafter the rerating would lead to expansion of P/Es on selective basis. In the short term till uncertainty prevails sectors like FMCG, IT and Agri should outperform the index but for medium to long term one should start accumulating interest sensitive’s like Banks, Infrastructure and automobiles. 

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Thanks and Regards
Unicon Wealth Research

Fortnightly round up of key banking and economic indicators n Emkay

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Fortnightly round up of key banking and economic indicators


n     Growth in non food credit came in upwards of 20% yoy for second consecutive fortnight. We expect growth to remain buoyant on back of festive season
n     However, has higher base-effect of previous year and elevated interest rate hurt growth, we expect credit growth to taper-off to sub-20% level by end-FY12
n     Growth in deposits continues to remain steady at ~18.0% yoy levels (up 6% YTD). While CD ratio remains in narrow range of 73-75% since Mar’11; incremental CDR has been on an up-move (43%) 
n     Growth in money supply eases further to 16.4% yoy levels; reserve money growth too moderated to 13.8% yoy levels. Money multiplier came in at 4.98x
n     Net borrowing under LAF window post advance tax-outflows came in at ~Rs1tn. The liquidity situation is likely to remain tight owing to improving credit demand
n     The spread of 10-yr Gsec over 1-yr Gsec has moved into negative territory (5-10bps). These levels were last witnessed in July-October’2008 period
n     After a brief period of sub-8% mark, Call money rates have spiked to 8.25%. The spread between the long and short end OIS has moved into negative terrain

Emkay Alternate Intelligence Rollover below 3-month average

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Emkay Alternate Intelligence
Rollover below 3-month average


Nifty October futures started with an open interest of 19.34 million shares as against 3-month average of 20.48 million shares. With cost of carry fluctuating between premium and discount, no clarity emerges on the nature of accumulation. Among Nifty call options, maximum accumulation is observed in 5200 strike with an open interest of 4.36 million shares (Rs22.96 billion). Among Nifty put options, maximum accumulation is observed in 4800 strike with an open interest of 5.40 million shares (Rs26.33 billion). It is followed by an accumulation in 4700 strike with an open interest of 4.75 million shares (Rs22.60 billion). 
Nifty put-call ratio of open interest has increased to 1.35 levels. In the current calendar year, barring last series, downward reversals are generally seen from levels of 1.35-1.45. In the last series, the ratio sustained above 1.30 levels and moved towards the territory of 1.58 levels along with an upward movement in the index. We need to keep a close watch on the movement of the ratio in next 3-4 sessions. Any level over 1.45 would indicate positive sentiments prevailing while a move below 1.28 would indicate negative biasness.
Nifty rollover stands at 61.19% as against 3-month average of 69.80%. Market-wide rollover (excluding index) stands at 82.98% as against 3-month average of 85.78%. Higher rollover was seen in sectors such as Infrastructure (86.78%), Metals (84.82%) and Capital Goods (82.05%). Lower rollover is witnessed in FMCG (73.29%), Technology (73.79%) and Cement (75.11%).

Economy: Government borrowings announced higher ::Kotak Sec,

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Economy
Fiscal Policy
Government borrowings announced higher. The Central Government announced
its borrowing program for 2HFY12E higher by Rs529 bn over the market expectations.
This, as the government explained, was due to lower-than-expected cash surplus at the
start of the fiscal and also on account of revenue shortfall under the small savings
scheme. Thus, it appears that funding sources for the budget deficit are moving away
from small savings and cash surplus to dated market borrowings. The higher
borrowings do not appear to be taking into account any slippages under the revenue
side or the expenditure side as official statements tended to indicate that the fiscal
deficit calculations remain unchanged.


Dated government borrowings announced higher than anticipated
The central government had borrowed Rs2.5 tn in 1HFY12 out of the announced dated borrowing
program for the year at Rs4.17 tn. Thus, the market was expecting the RBI to announce a dated
borrowing program of Rs1.67 tn for the 2HFY12E. However, the market was surprised with a
dated borrowing program of Rs2.2 tn, or around Rs529 bn in excess of the anticipated amount.
This higher borrowing program was however not on account of any anticipated fiscal slippage
(either from the revenue side or the expenditure side); as official statements tend to indicate that
the fiscal deficit calculations remain unchanged. As explained, the higher borrowings are due to
(1) revenue shortfall from small savings where the expectation is for a shortfall of Rs350 bn on
account of reallocation of small savings into bank deposits due to higher rates offered on deposits
and (2) lower cash surplus at the beginning of the year (now estimated at Rs160 bn which is
Rs170 bn lower the anticipated cash surplus of Rs330 bn). In other words, the higher dated
borrowing amount is just a change in the way of funding the fiscal gap.
Likely to have considered some buffer for fiscal slippage
While there is no explicit admission of a fiscal slippage, our anticipation is that some amount of
buffer has been maintained for likely ultimate slippages in tax collections, PSU disinvestments and
also higher expenditures due to slippages in the subsidy bill, especially oil. The trends indicate a
relatively sharp pick-up in the small savings collections closer to the end of the fiscal year. Thus,
while recent trends in small savings show an abysmal collection, it might not be right to assume
this trend to continue into the rest of the fiscal. In this sense, as the small savings collections might
be seen to improve closer to the end of the fiscal, this could ultimately serve as a buffer for
slippages in other areas, thereby preventing any further shocks to the market on account of even
higher borrowing numbers.
Nervousness in bond markets returns
10-year benchmark bond yields had been ranged at 8.28-8.35% recently. However, after the
higher borrowing program was announced, the 10-year benchmark yield shot up by around 10
bps to close at 8.44%. There could be further upside to the yields given that the calendar
announced borrowings for each week in 2HFY12E in the region of Rs120 bn to Rs150 bn, even as
redemptions of dated securities remain limited.
Moreover, we remain worried of the fiscal position and anticipate stress on the budgeted deficit
numbers out of slippages in the tax revenue receipts, disinvestments and higher subsidy payments.
In the event of the small savings not picking up towards the end of FY2012E, the government
might be forced to extend its dated borrowing program even higher. The disadvantage now would
be that the announced borrowing calendar already extends till the end of February; thereby
leaving little room for RBI to schedule additional borrowings. 10-year benchmark yields could now
be seen testing 8.65-8.75% in 2HFY12E.

Technology: Accentures accelerated GDN push - positives and negatives:: Kotak Sec,

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Technology
India
Accenture’s accelerated GDN push – positives and negatives. Accenture’s strong
Aug 2011 quarter earnings report, robust FY2012E guidance and upbeat commentary
suggest sustained strength in demand environment for outsourced/offshore IT services.
More importantly, however, we note the recent acceleration in Accenture’s global
delivery network (GDN) headcount addition, bulk of which presumably is happening in
India. Client-demand-led (somewhat) forced adoption of the global delivery model by
Accenture may just be turning into a warm embrace of the model. This has positive and
negative connotations for the Indian offshore pure plays.


Accenture’s GDN headcount addition has accelerated in recent quarters
Accenture’s adoption of the global delivery model (or global delivery network as Accenture calls it)
has historically not been a comfortable one for the company, both from a strategic and execution
viewpoint. Volume shift in favor of GDN from the traditional onsite-delivery model has revenue
cannibalization impact. More importantly, the company has had internal challenges in the form of
changes required to mindset & incentive structures and getting the sales and delivery model right –
these have prevented a full-fledged embrace of the global delivery model in the past, in our view.
We note that the company has experimented with multiple sales and organizational structures in
India in the recent years.
However, Accenture’s recent headcount addition numbers suggest a marked change – the
company has added 60,000 people to its GDN over the past eight quarters, more than 100% of its
total headcount addition in the timeframe. To put it in context, TCS has been the only other IT
outsourcing company to have seen a similar net headcount addition in the past eight quarters.
The company’s outsourcing revenues have growth at 5% CQGR over the past four quarters, versus
<1% over the previous 12. Outsourcing bookings for the Aug 2011 quarter were up 43% yoy. In
summary, recent headcount and outsourcing revenues/ booking metrics suggest clear acceleration
of the company’s offshore push – a combination of greater strategic intent and higher comfort on
execution, in our view.
Implications for Indian offshore pure plays – both positive and negative
Lest we are misunderstood, we are not suggesting that Accenture has suddenly become a
player to watch out for from an IT offshoring perspective. However, it is important to note
the recent acceleration in their GDN push. Now, this could be a result of two factors
􀁠 Lack of choice with clients increasingly demanding more and more services to be delivered on a
global delivery model.
􀁠 Accenture getting more comfortable with selling and delivering services on global delivery
model – from a strategic as well as execution perspective.
We believe it is a combination of both. The 1st one, validating the secular shift in favor of IT
offshoring, is an unqualified positive for the Indian offshore pure plays. The 2nd one can be viewed
as a reason to worry though – more aggressive competition, both on the demand as well as supply
side. Accenture has deep relationships with majority of F/G-500 clients. Their low margin targets
and aggressive offshore push can impact incremental market share gains for the Indian players, to
an extent. Also, while Accenture and other global SIs are not a meaningful factor as far as campus
recruitments are concerned, they have the potential to disrupt the supply scenario in the laterals
market, especially for niche high-demand skill sets.


We view Accenture earnings read-through as positive for the Indian players, on
balance. Reiterate positive coverage view on Infosys and TCS
Accenture’s earnings report does however validate two structural positive theses we have on
Tier-I Indian IT services names – (1) secular market share gains for offshore players and (2)
resilience of IT outsourcing/ offshoring demand unless decision making comes to a complete
halt – such an event would require a Lehman-type shock (or possibly something worse). We
find the valuations of Tier-I names, especially Infosys and TCS, attractive in this light.
Reiterate positive view on both.


BSE, Bulk deals, 3/10/2011

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Deal DateScrip CodeCompanyClient NameDeal Type *QuantityPrice **
3/10/2011531686Advik LabVINEET SINHAS679694.35
3/10/2011531560Aroma EnterprisesAASHISH DEVELOPERB3000070.00
3/10/2011524606Beryl DrugsUTTAMCHAND VARDICHAND JAINB4000017.23
3/10/2011524606Beryl DrugsGLOBALWORTH SECURITIES LIMITEDS9838917.33
3/10/2011531358Choice IntlANIL ANANT MAHADIKB6182852.36
3/10/2011531358Choice IntlANIL ANANT MAHADIKS6182852.16
3/10/2011531695Dhvanil ChemMANOJ CHHAGANLAL RATHODB20000013.54
3/10/2011531695Dhvanil ChemSUNNY RASHMIKANT THAKKARS18000013.54
3/10/2011526608ElectrothermKAMAL KUMAR JALAN SEC. PVT. LTDB97406138.05
3/10/2011526608ElectrothermRKSV SECURITIES INDIA PRIVATE LIMITEDB81488138.74
3/10/2011526608ElectrothermRKSV SECURITIES INDIA PRIVATE LIMITEDS81488137.91
3/10/2011526608ElectrothermKAMAL KUMAR JALAN SEC. PVT. LTDS97406138.35
3/10/2011531137Gemstone InvestJIGAR PRAFUL GHOGHARIB5485008.77
3/10/2011531055GFLFINAJANTA FIBERS PRIVATE LIMITEDB28000107.00
3/10/2011500204India SecESSAR CAPITAL LIMITEDB4639717059.00
3/10/2011500204India SecESSAR TELEHOLDINGS LIMITEDS4639717059.00
3/10/2011530165Kanchan IntlSAGAR MUKESHKUMAR CHOKSIB2510039.25
3/10/2011530165Kanchan IntlARVIND BABULALJI GOYALS2781939.50
3/10/2011532901Koutons RetlCROSSEAS CAPITAL SERVICES PRIVATE LIMITEDB15395926.27
3/10/2011532901Koutons RetlCROSSEAS CAPITAL SERVICES PRIVATE LIMITEDS15786725.92
3/10/2011533310MidValley EntertainmentCRESTA FUND LTDS850000105.74
3/10/2011505525Parichay InvestREENA MOTILAL SHAHB750017.80
3/10/2011505525Parichay InvestSAURAVS1100017.75
3/10/2011511734Pasupati FinAMIT KRISHNAKANT THAKKERB3000015.60
3/10/2011533581PG ELECTROA K G SECURITIES AND CONSULTANCY LTDB89606265.55
3/10/2011533581PG ELECTROA K G SECURITIES AND CONSULTANCY LTDS89606265.36
3/10/2011533581PG ELECTROCHAMPAKLAL NARSHIBHAI PUJARAS103700265.77
3/10/2011590077Ranklin Sol-$GARIKIPATY S VB3000113.23
3/10/2011590077Ranklin Sol-$SREE LAKSHMI MIKKILINENIB4280113.32
3/10/2011590077Ranklin Sol-$GARIKIPATY S VS3000113.28
3/10/2011533143RBNRENUKA PRANAV SHAHS45000070.62
3/10/2011533268Sea TV NetworkSHREE MALLIKARJUN TRADINVEST PRIVATE LIMITEDB6020019.50
3/10/2011526479SKY Inds-$PUSHPA BIPIN SHAHB2300047.00
3/10/2011526479SKY Inds-$VIJAY JAMNADAS VORAS2931747.00
3/10/2011526441Vision TechMALLINATH MADINENIS2369596.37
* B - Buy, S - Sell
** = Weighted Average Trade Price / Trade Price

NSE, Bulk deals, 03-Oct-2011

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DateSymbolSecurity NameClient NameBuy / SellQuantity TradedTrade Price /
Wght. Avg.
Price
Remarks
03-Oct-2011ARSSINFRAARSS Infra Proj. LtdDECENT FINANCIAL SERVICES PVT LTDSELL1,23,514336.06-
03-Oct-2011ARSSINFRAARSS Infra Proj. LtdJAYANTILAL B JAINBUY75,000335.46-
03-Oct-2011KOUTONSKoutons Retail India LimiCROSSEAS CAPITAL SERVICES PVT. LTD.BUY1,56,62825.88-
03-Oct-2011KOUTONSKoutons Retail India LimiCROSSEAS CAPITAL SERVICES PVT. LTD.SELL1,49,67526.20-
03-Oct-2011PGELPG Electroplast LtdCHAMPAKLAL NARSHIBHAI PUJARABUY35,000258.63-
03-Oct-2011PGELPG Electroplast LtdCHAMPAKLAL NARSHIBHAI PUJARASELL1,39,000265.47-
03-Oct-2011RUSHILRushil Decor LimitedSHASWAT STOCK BROKERS LIMITEDBUY1,01,383185.91-
03-Oct-2011RUSHILRushil Decor LimitedSHASWAT STOCK BROKERS LIMITEDSELL1,01,383185.51-

3/10/11: Categories Turnover (Rs. crore) Clients NRI Proprietary Trade Data

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Categories Turnover
(Rs. crore)
ClientsNRIProprietary
Trade DateBuySalesNetBuySalesNetBuySalesNet
3/10/111,491.601,436.5955.000.720.130.59440.00438.002.00
30/9/111,656.321,649.516.820.880.650.22548.79570.56-21.77
29/9/111,434.971,409.4125.560.370.360.01544.33478.8165.53
Oct , 111,491.601,436.5955.000.720.130.59440.00438.002.00
Since 1/1/11385,882.35390,420.30-4,537.94287.10196.8890.22111,239.35110,639.78599.57

3/10/11; FII & DII Turnover (BSE + NSE) (Rs. crore)

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FII & DII Turnover (BSE + NSE)
(Rs. crore)
FIIDII
Trade DateBuySalesNetBuySalesNet
3/10/111,633.822,459.71-825.891,112.85817.51295.34
30/9/112,498.172,957.64-459.471,240.39723.05517.34
29/9/113,539.323,769.62-230.301,058.771,461.65-402.88
Oct , 111,633.822,459.71-825.891,112.85817.51295.34
Since 1/1/11   *477,523.26497,883.61-20,360.35224,756.45200,120.3624,636.09

FII DERIVATIVES STATISTICS FOR 03-Oct-2011

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FII DERIVATIVES STATISTICS FOR 03-Oct-2011
BUYSELLOPEN INTEREST AT THE END OF THE DAY
No. of contractsAmt in CroresNo. of contractsAmt in CroresNo. of contractsAmt in Crores
INDEX FUTURES900332173.731101942644.7952204712561.66-471.07
INDEX OPTIONS3682528734.582978697122.92160683138960.151611.66
STOCK FUTURES505161201.43596571380.46110815125911.29-179.02
STOCK OPTIONS12044288.0411668277.6627144666.1310.38
Total971.96


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