15 March 2012

Gilts surge post-inflation data, anticipating rate cuts in April policy: Edelweiss

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Gilts surge post-inflation data, anticipating rate cuts in April policy
Gilts ended higher today snapping a four-day slide on the back of the WPI inflation
release. WPI Inflation for the month of February was 6.95% YoY, slightly ahead of the
consensus estimate of 6.75% and higher than previous month’s 6.55%. However, the
breakdown of the data makes for pleasant reading as core and manufacturing inflation
softened further to below 6%, now almost 1.5% below RBI’s comfort level of 7%. The
central bank should gain assurance from the February data and a reading on similar lines
for March can provide the trigger to begin rate action as early as the April policy review.
The 10-Y G-Sec had opened above the previous close and was trading quite weak around
8.35% before the inflation reading. However, sentiment turned around postannouncement
of the WPI inflation figures and the yield rallied almost 10bps intraday
before ending the day at 8.28% vs 8.32%. Attention should soon shift back to the RBI’s
commentary in the policy review tomorrow (no rate action is expected) and a realistic
fiscal consolidation effort in the Union Budget on Friday.
The OIS segment also cheered the inflation data and expectation of earlier rate cuts, with
the near end showing pronounced movement downward. The 1Y OIS ended at 8.03-
8.09% vs 8.06-8.12% while the 5-Y swap ended flat at 7.47-7.53%.
Non-SLR Market
PNB placed 3M CD worth INR 2bn @11.05%. Allahabad Bank placed 6M CD worth INR 7.5bn
@ 11%. Corporation Bank placed 1Y CD worth INR 5bn @ 10.68%.
Money Market
The LAF borrowing has anchored itself at INR 1.25tn since the CRR cut and has not shown
signs of further easing which might be worrying as the advance-tax outflows are yet to hit.
The overnight call WAR was marginally higher at 8.89% vs 8.87%.

Hindustan Zinc - Marginal impact of Vizag smelter shutdown; company update; Buy :: Edelweiss PDF link

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Hindustan Zinc (HZ IN, INR 128, Buy)
Hindustan Zinc (HZL) has suspended production at its Vizag zinc smelter (56 ktpa) since mid February 2012 due to high smelting cost. Vizag operations are unlikely to restart owing to the recent increase in rail freight and unviable custom smelting at this old plant. The company intends to install roasters at Dariba (to begin with) and other smelting units, which will enhance their production by ~20kt each and also make up for production loss at Vizag. We have reduced our FY13 and FY14 zinc production estimates by ~3% each, leading to EPS cut of ~3% for both FY13 and FY14. MaintainBUY with revised target price of INR146/share.

Report on UNION BUDGET 2012-13: Hopes and fears - Motilal Oswal

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UNION BUDGET 2012-13: Hopes and fears amidst stiff challenges
Expect fiscal deficit at 5.6% of GDP for FY12 and 5% for FY13

-      Expect major fiscal slippage for FY12 given both revenue slowdown and expenditure overrun; fiscal deficit likely to be 5.6% of GDP v/s 4.6% budget estimate.
-      Based on realistic assumptions, expect some fiscal consolidation in FY13 with fiscal deficit at 5% of GDP and net borrowing program at INR5t. There is also headroom for positive surprises (additional excise on diesel vehicles, telecom spectrum auction, etc), which could further lower fiscal deficit to 4.5% of GDP.
-      From the policy perspective, expect a relatively routine budget with major initiatives (DTC, GST, FDI in retail, etc) taken off the Budget session.

Wyeth Buy Target Price: Rs1,267; Upside: 47.7%::Centrum

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Wyeth

Buy
Target Price: Rs1,267
CMP: Rs858             
Upside: 47.7%

Strong product portfolio
Wyeth is a leading MNC pharma company with strong product portfolio in the domestic market. Its six major brands are growing faster than the market and are likely to drive future growth. Wyeth has plans to launch vaccines and OTC products of its parent company. The company is a leading player in the oral contraceptive (OC) segment and has 27% MS. We initiate coverage on the company with a Buy rating and target price of Rs1,267 based on 15x FY14 earnings.

How large-cap funds fared ::Business Line

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Telecom - No saturation yet; monthly update :: Edelweiss PDF link

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We launch our telecom monthly, which apart from carrying updates on monthly subscriber numbers, will include meeting notes with companies across the telecom value chain. Our inaugural issue kicks off with insights into Vodafone’s strategy based on our meeting with its India CEO and CFO. Our analysis indicates that the sector has not hit saturation as yet. 

Traders may further revise their stop loss to 5350:: GEPL, pdf link

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Traders may further revise their stop loss to 5350.

Nifty moved higher for yet another session and ended with a gain of 34 points at 5469. Amongst the sectoral indices the BSE Bankex and CG indices were the outperformers whereas BSE Realty index was the loser in today's trade.

After today's move Nifty is now trading close to the resistance of 5477. It is now very important for it to sustain above 5400 if the upward momentum is to continue. Any move below 5400 would be initial sign of weakness and Nifty may further correct till 5350 which is the value of trend reversal for short term.

We recommend holding on to long positions with a revised stop loss of 5350. However if Nifty fails to remain firm above 5400 then one must not buy aggressively and protect their long positions with a stop loss of 5350. On the higher side, sustenance above 5400 can result in further upside till 5521.

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Economy News : March 15: Kotak Securities

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Economy News
4 While industrial output data shows a slowdown in the investment cycle
and industrial activity, headline inflation for February has risen to seven
per cent year-on-year (Y-o-Y), mainly driven by higher food prices. Though
core inflation is down to 5.5 per cent Y-o-Y from 6.5 per cent in January,
economists believe prices are not showing a meaningful downward trend,
which is essential for the central bank to begin its rate cut cycle. (BS)
4 The Indian aviation regulator will submit a report on troubled Kingfisher
Airlines in one to two days, Aviation Minister Ajit Singh told reporters on
Wednesday. Earlier in the day, the debt-crippled and cash-strapped carrier
said it will cut back its overseas flights as it looks to slash costs and attract
funding from wary bankers and sceptical investors. (ET)
4 Government plans to appoint an auctioneer within the next three months
for the third phase of FM radio frequency auction, a ministry official said
on Wednesday. (ET)
Corporate News
4 Tata Motors, the country's largest automobile manufacturer, has
stepped into the super-luxury inter-city bus segment with the launch of
the Tata Divo. This would make them the third player in the country in
this segment after Volvo and Mercedes. (BL)
4 Jaiprakash Power Ventures Ltd has planned to raise up to Rs 35 bn to
fund its expansion projects and is also entering cement manufacturing
activity. Its board of directors has authorised raising of funds / resources of
Rs 35 bn through various domestic / international options, including QIP /
ECB with conversion into shares/ FCCBs/ ADRs/ GDRs/ FPO/ Optionally or
Compulsorily Convertible Redeemable Preference Shares etc. (BL)
4 Japanese steel maker Kobe Steel Ltd will invest Rs 300 mn in  Man
Industries (India) Ltd to pick up a minor stake in the Indian pipe maker.
Kobe will get 3.28 per cent stake in Man Industries for subscribing to
18,18,181 shares of Rs 5 each for Rs 165 a share on preferential basis. This
is at a premium of 37.5 per cent over the current market price of Man
Industries at Rs 120.10 a share. (BL)
4 The Bombay High Court today paved the way for the country's third stock
exchange, MCX-SX. In a 150-page judgment, it set aside the Securities
Exchange Board of India's (Sebi) order refusing permission to the
exchange for equity trading. (BS)
4 Tata group's retail arm  Trent said it has raised nearly Rs 250 crore
through placement of shares with institutional investors. The company has
decided to close the QIP (Qualified Institutional Placement) and has
accorded its consent for the issue of 27,41,228 shares at a price of Rs 912
apiece for an aggregate value of Rs 2.5 bn, (BS)

Brokers call: March 2012

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Bonanza

Bharat Forge (Buy)
CMP: Rs 320
Target: Rs 360
BFL has delivered a good set of numbers during Q3FY12, with net profit on standalone basis grew by 25 per cent y-o-y to Rs 103cr. EBITDA margin expanded by 140 bps on sequential basis on the back of favourable product mix. Going ahead, revival of automotive industry in the US and Europe is expected to drive the export growth further. BFL's diversified portfolio of auto and non-auto segment could act as a support towards slowdown in a particular industry. The stock is trading at earnings multiple of 19.4x of FY12E. Investors can buy this stock for a target of Rs 360 in the medium-term.

IDBI Capital

Infosys (Accumulate)
CMP: Rs 2,859
Target: Rs 2,765
Infosys Q4 guidance indicated low near-term visibility due to delayed decision making, and longer time for ramp ups. Despite improvement in recent data points released in US, the management has not experienced any significant change in overall business environment except for timely closure of IT budgets. Most clients have closed CY12 IT budget which is flat-to-down, and are now in allocation mode.
Clients are allocating budget for shorter periods (2-3 months) for the past 2-3 years compared to yearly allocation in pre-2008 period, largely due to uncertain environment. The stock has appreciated by nine per cent since Q3 results due to flight to safety and attractive valuations. We continue to prefer HCLT and TCS over Infosys due to better visibility. Maintain ‘Accumulate' with a TP of Rs 2,765.

Kotak Securities

Gujarat Apollo (Buy)
CMP: Rs 137
Target: Rs 170
Gujarat Apollo has been observing sluggish demand across Mobile Equipment Group divisions. Public spending in new road construction and maintenance has slowed down due to 1) increase in interest rates; 2) issues related to land acquisition and environmental clearances continues to affect execution; 3) elections in five States including Uttar Pradesh led to a halt in Government spending. We believe that the company is well positioned to benefit from the likely recovery in road construction and maintenance activity in India over FY13. We maintain our ‘Buy' recommendation with a one year DCF based unchanged price target of Rs 170.

RBI Policy Preview - Likely to be a non-event :: Edelweiss PDF link

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In the forthcoming mid-quarter monetary policy scheduled for March 15, we expect a status quo on CRR and policy rates. We surmise this on the reasoning that: (a) CRR reduction on March 9 should be adequate to address excessively tight liquidity and hence another cut is not warranted; (b) RBI has raised concerns about surging crude prices; and (c) the central bank will be inclined to wait for the Union Budget (scheduled for March 16, post policy) to get a better sense on fiscal policy for the coming year. 
Nonetheless, slackening of growth in the economy is real and it has faltered much below potential. Given this, RBI is expected to take cognizance of growth (and investment) slowdown and initiate rate cuts in its annual policy meeting in April.
       
       

15 March : Edelweiss Technical Reflection (ETR)

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Edelweiss Technical Reflection (ETR)
    The index opened with yet another large gap up above 5400 and managed to hold out the gains by trading in a narrow range for the entire day. For the third session in a row, the index has made a higher high and higher low, clearly indicating a short-term uptrend. The up move is supported by robust volumes and a strong market breadth. There has been a bullish crossover of the 21 and 50 hourly EMAs that offer good support in the immediate near-term at 5375 and 5350 respectively. Momentum oscillators had turned in favor of the bulls and are likely to lead the index higher in the coming sessions. Above the immediate resistance of 5455, the index is most likely to test 5530 and possibly extend the move towards the recent high of 5630. It is advisable to ride the trend by trailing stop-loss regularly; this time at 5350.
    All sectoral indices ended the day on a positive note. The gains for the day were led by Metals (+3.01%), Oil & Gas (+2.60%) and Realty (+2.11%) indices. The laggards for the day were Autos (+0.11%), Banking (+0.57%) and Healthcare (+0.60%) shares. Broader markets underperformed their frontline peers with Mid-cap and Small-cap indices ending with 1.21% and 1.03% respectively.

    Bullish Setups: LT, CNXBANK, SHRS, HNDL, RIL, COAL     
    Bearish Setups: ADE, BPCL, MSIL

March 15: Stocks in News :: Edelweiss

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 Stocks in News
    Tata Power may take tariff hike plea to Govt. (ET)
    Lenders discover discrepancy of INR 6.58 bn in Bharati Shipyard’s books. (ET)
    Bank of Baroda & Asian Paint will replace RCOM & RPower on the benchmark S&P CNX Nifty index from April 27. (ET)
    HC tells Sebi to rethink MCX – SX plea (ET)
    Sun Pharma won`t hike offer price despite Taro`s strong show (ET)
    Jaiprakash Power Venture to raise INR 35bn via bonds (ET)
    Hindustan Zinc has suspended production at its Visakhapatnam Zinc smelter (ET)
    Suzlon refutes talk of Alstom eyeing REpower; wind turbine major says media reports on Alstom`s offer to buy are speculative (ET)
    Dr. Reddy`s anti migraine drug clears US FDA test (DNA)
    MOIL set to diversify into power sector (DNA)
    The govt said it has decided to issue show cause notices for deallocation to allocatees of 58 coal blocks for sitting idle on captive mines (MINT)

Deploy surplus well to reap benefits ::Business Line

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I am 39 , and my monthly income is Rs 2.8 lakh. My monthly expenses amount to Rs 80,000; the rest is surplus . My dependents are wife and two children.
Investments: I have invested in plots and its current market value is Rs 50 lakh. In PPF, I have Rs 10 lakh. There is a parental property worth Rs 50 lakh. I own gold worth Rs 20 lakh. Besides, Rs 5 lakh is paid as single premium in a pension plan, which will be completing five years in Jan 2014. I already have two cars and am planning to buy a third car for personal use, from my savings. I have an FD for Rs 6 lakh and two RDs where Rs 50,000 will continue to be paid monthly till April 2014; its present value is Rs 3 lakh. My bank balances will be Rs 20 lakh after buying the car. Since I have no time and don't understand equity investments I have invested in debt. Suggest good investment avenues as I can take investment risks. My family is covered by group health policy for Rs 5 lakh.
Goals:
I have twin daughters, six years old, studying in class one currently . For their education and marriage, I need Rs 1 crore.
In my employment I have no pension benefits. I wish to retire at 46, how much do I need to accumulate, if I live till 80 years? Post retirement my monthly expenses will be Rs 50,000 in present value. I wish to construct a house worth Rs 1 crore. —Kishor Varma
You have stated that you can stomach risks , yet, you have parked your investments in debt and gold. To fulfil your goals you should have proper asset allocation. Also, you may need to work for no less than 10 more years.
Education: It may be too early to predict the actual costs for your children's the higher education. But going by the current popular trend if your daughters study engineering, the present cost will be Rs 10 lakh each. If the cost is inflated at seven per cent, after 11 years, the total cost of education for both of your daughters would be Rs 42 lakh.
If you save monthly, a sum of Rs 18,300 for next 120 months you can easily reach the target.
For your daughters' marriages we have not factored gold, since you have already accumulated it. We peg the total cost of marriages at Rs 25 lakh present value . If you inflate the expenses at 7 per cent, in 18 years it will be Rs 84.45 lakh. Since you are going to work only for another ten years to meet your goals, you need to save monthly a sum of Rs 21,363 for the next 120 months and if you earn 12 per cent return, the accumulated value will be Rs 49.2 lakh.
Till 2030, invest maturity proceeds of Rs 49.2 lakh in debt investments that yield post tax return of seven per cent.
Retirement: Post retirement, the Rs 50,000 you need now will be Rs 98,360 .To meet your monthly income till 80, you should have a retirement corpus of Rs 2.81 crore after factoring your PPF. For the corpus to sustain till your life expectancy, your investment should earn one per over and above the inflation. You need to save a monthly sum of Rs 1,22,500 with a return of 12 per cent till 49.
House: Constructing a house without diluting existing investment will be a difficult task. Since you plan to work for a limited number of years, to reach your goals you need to save more . With limited resources and shorter tenure you will find it difficult to service a loan of more than Rs 28 lakh. You can utilise your FD and saving account balance to purchase a property. Still you may need an additional Rs 45 lakh. If you are not planning to construct in the existing plot, you can sell that to build a house worth Rs 1 crore.
Investment strategy: To reach the investment return of 12 per cent, you need to invest 60 per cent of the portfoio in equity, preferably through mutual fund. Your equity investment should earn 15 per cent return and the balance 40 per cent investment in debt should earn post tax return of 8 per cent. Of the equity investments, allocate 60 per cent to mid and small cap funds and rest to large caps.
Insurance: You need to take a term insurance for Rs 4 crore to protect your your financial goals. Purchase four Rs 1 crore policies for a ten year tenure.

15 March: Sales Traders Commentary ::Edelweiss

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Sales Traders Commentary
    On Wednesday, Indian equity markets closed higher for the fourth consecutive session tracking positive global cues and in anticipation of the RBI monetary policy review tomorrow. Both Sensex and Nifty gained more than 0.50% each. Sustained buying was seen in financials, capital goods, PSU, power and FMCG stocks, which gained more than 1% each.
    The Sensex closed at 17919, up 106 points, while the Nifty jumped 34 points to end the day at 5463.
    Major gainers were NTPC (2.63%), I C I C I Bank (2.61%), Larsen & Toubro (2.47%), Oil & Natural Gas Corporation (2.21%), Tata Motors (2.19%), and Hindalco Industries (2.02%).
    Major losers were Tata Consultancy Services (3.56%), Wipro (1.41%), Tata Steel (1.10%), Jindal Steel & Power (1.06%), Bajaj Auto (0.93%), and D L F (0.92%).
    The Bankex was up 1.83%. Major gainers were Bank Of India (5.21%), Bank Of Baroda (2.97%), Canara Bank (1.88%), Federal Bank (0.68%), and H D F C Bank (0.43%).
    The Capital Goods index jumped 1.60%. Major gainers were A B B (1.72%), Bharat Electronics (1.51%), A I A Engineering (0.93%), BEML (0.9%), and Alstom Projects India (0.26%).
    The PSU index gained 1.38%. Major gainers were Bank Of India (5.21%), Bank Of Baroda (2.97%), Bank Of Maharashtra (0.75%), Andhra Bank (0.59%), and Allahabad Bank (0.1%).
    The Realty index was down 0.96%. Major losers were Housing Development and Infrastructure (4.77%), Sunteck Realty (2.05%), Sobha Developers (1.85%), D L F (0.92%), and Unitech (0.8%).
    Major gainers in the mid–cap space were Allcargo Logistics (4%), A B G Shipyard (1.63%), A I A Engineering (0.93%), Alstom Projects India (0.26%), and Alfa-Laval (India) (0.03%).
    Major losers among small caps were A B G Infralogistics (3.46%), Adhunik Metaliks (2.96%), Reliance MediaWorks (2.33%), A2Z Maintenance & Engineering Services (1.08%), and Action Construction Equipment (1.02%).
    Globally, Asian indices ended on a mixed note while European indices were trading in the green.

Review your portfolio periodically ::Business Line

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Sector funds are risky and require appropriate timing in entry and exits.
I am 42 years old and have been investing Rs 20,000 a month for the last one year in the following mutual funds: Rs 2,000 each in HDFC Equity, HDFC Midcap Opportunities, Fidelity Equity, DSPBR Balanced, Quantum Long-term Equity, ICICI Pru Discovery and Birla Sun Life Frontline Equity.
In HDFC Prudence, I invest Rs 4000, while Rs 1000 each is parked in Reliance Banking and Reliance Pharma funds. I wish to earn Rs 1crore in 12 years. Will these funds help me reach that goal? — Dayanand
You can accumulate Rs 1 crore in 12 years if you invest Rs 20,000 every month, and it earns 18 per cent per annum during this period. The returns are achievable if you are willing to take slightly high risks. Step up your Systematic Investment Plans as and when your disposable income increases Given the timeframe of investment, you needn't hold too many balanced funds.So despite its good performance record, exit DSPBR Balanced. But you can retain HDFC Prudence as it has delivered returns that compare very favourably with top diversified equity funds.
Sector funds are risky and would require monitoring and appropriate timing in entry and exits. Please note Reliance Pharma and Reliance Banking have been exceptional performers, as the underlying themes have had a favourable run during the past 2-3 years.
Invest Rs 5,000 each in HDFC Top 200 and Quantum Long-term Equity, which would give you large and multi-cap exposure respectively. You can exit Fidelity Equity, a steady performer, as Quantum Long-term Equity follows a similar mandate, and has delivered superior returns. Similarly, exit Birla Sun Life Frontline Equity (although a good performer) as HDFC Top 200 would serve your purpose. You can retain HDFC Mid-cap Opportunities and ICICI Pru Discovery, where you can invest Rs 3,000 each. Review your portfolio periodically to leave out underperformers and rebalance.
*******
My age is 30 years, and I have accumulated Rs 3,20,000 through Systematic Investment Plans in various mutual funds since the month of May 2009. My targets are buying a car in 2 years (Rs 3 lakh), and getting married in 1 year. I invest Rs 14,000 per month in mutual funds. In DSPBR Top 100 Fund, Mirae Asset India Opportunities Fund, HDFC Prudence Fund and Fidelity Equity Fund, I invest Rs 2000 each. I park Rs 1000 each in Templeton India Income Opportunities Fund, Franklin India Prima Plus Fund, Templeton India Equity Income Fund, Reliance Equity Opportunities Fund. Additionally, I invest Rs 1500 in Mirae Asset Emerging Bluechip Fund and Rs 500 in HDFC Growth Fund. Please advice and suggest changes if any to my existing portfolio. — Abhijit Sen
Investments in mutual funds are meant for longer terms of 5-7 years. You can use part of the mutual fund proceeds to buy a car and take a loan for the rest, provided your monthly cash flow allows it. Use the rest for your marriage.
Coming to your portfolio, rebalance it as follows, as there are too many funds with overlap in mandate: Invest Rs 3,000 each in DSPBR Top 100, Reliance Equity Opportunities and HDFC Prudence. Continue the Systematic Investment Plan in Mirae India Asset Opportunities. Given that there are sufficient multi-cap funds, park the balance Rs 3,000 in a large-cap fund such as Franklin India Bluechip.

Inflation - Core inflation declines :: Edelweiss PDF link

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In coming months, we see the headline inflation hovering at current levels. The primary articles inflation is likely to inch up further as the non-food articles inflation continues to normalize against unusually low levels currently. This rise will, however, be negated by further dip in core inflation amidst falling demand pressures and high base effect.

       
       

March 15: Morning News (click on link to read article) IFCI research,

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Morning News (click on link to read article)

Economic Times

Business Standard

 Business Line
Mint

Financial Express

Financial Chronicle

   (Click on link to view article)

Thanks and Regards
IFIN: IFCI Financial Services Limited