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					                                                                                                                             Market Outlook
                                                                                                                                            India Research
                                                                                                                                                  April 11, 2012
 Dealer’s Diary
                                                                                                                  Domestic Indices      Chg (%)       (Pts)   (Close)
 The Indian markets are expected to open in red tracking negative opening in most
                                                                                                                  BSE Sensex               0.1       21.7 17,244
 of the Asian markets. Asian markets ended mixed yesterday, as no additional
                                                                                                                  Nifty                    0.2        9.2     5,244
 stimulus from the Bank of Japan, mixed views about China's trade data and
                                                                                                                  MID CAP                 (0.3)     (16.3)    6,370
 renewed concerns that the U.S. labor market recovery is still slow, prompted
 investors to adopt a cautious stance.                                                                            SMALL CAP               (0.1)      (8.3)    6,792
                                                                                                                  BSE HC                  (0.1)      (3.0)    6,588
 The US markets moved sharply lower yesterday and had their worst day of the year
                                                                                                                  BSE PSU                 (0.6)     (42.7)    7,267
 on anxiety leading up to earnings season and as government bond yields for Spain
                                                                                                                  BANKEX                   0.5       56.7 11,766
 and Italy surged. A sharply lower close by the major European markets also
 contributed to the pullback by the U.S. stocks, as traders worried about the global                              AUTO                     0.9       85.0 10,036
 economic impact of a recession in Europe.                                                                        METAL                   (0.9)     (98.4) 10,867
                                                                                                                  OIL & GAS               (0.6)     (50.4)    7,969
 The Indian benchmark indices ended on a flat note yesterday, as caution prevailed
                                                                                                                  BSE IT                  (0.9)     (56.9)    5,981
 ahead of industrial output and inflation data. The uncertainty before the RBI's
 upcoming rate-setting meeting on April 17 also prompted investors to remain on                                   Global Indices        Chg (%)       (Pts)   (Close)

 the sidelines. The markets will now closely watch out for IIP data for February 2012                             Dow Jones               (1.7) (213.7) 12,716
 (Bloomberg estimate – 6.7%) due to be released tomorrow.                                                         NASDAQ                  (1.8)     (55.9)    2,991
                                                                                                                  FTSE                    (2.2) (128.1)       5,596
 Markets Today
 The trend deciding level for the day is 17,218 / 5,237 levels. If NIFTY trades above                             Nikkei                  (0.1)      (8.2)    9,538

 this level during the first half-an-hour of trade then we may witness a further rally                            Hang Seng               (1.2) (236.8) 20,356
 up to 17,300 – 17,357 / 5,262 – 5,281 levels. However, if NIFTY trades below                                     Straits Times            0.8       22.3     2,982
 17,218 / 5,237 levels for the first half-an-hour of trade then it may correct up to                              Shanghai Com             0.9       20.1     2,306
 17,162 – 17,079 / 5,218 – 5,193 levels.
 Indices                 S2                 S1            PIVOT                R1                     R2          Indian ADRs           Chg (%)       (Pts)   (Close)

 SENSEX                17,079              17,162         17,218              17,300              17,357          INFY                    (0.9)      (0.5)    $56.2
 NIFTY                 5,193               5,218          5,237               5,262               5,281           WIT                     (0.7)      (0.1)    $10.6
                                                                                                                  IBN                     (2.0)      (0.7)    $33.4
 News Analysis                                                                                                    HDB                     (1.6)      (0.5)    $33.1
         Coal India – new FSA analysis
         Cairn India reports production numbers for 4QFY2012
                                                                                                                  Advances / Declines               BSE          NSE
         Sterlite Industries reports production and sales numbers for 4QFY2012
                                                                                                                  Advances                        1,342         630
         Sesa Goa reports production and sales numbers for 4QFY2012
 Refer detailed news analysis on the following page                                                               Declines                        1,451         776
                                                                                                                  Unchanged                        142            89
 Net Inflows (April 9, 2012)
   ` cr                       Purch              Sales           Net                MTD                    YTD
                                                                                                                  Volumes (` cr)
   FII                        1,085           1,338            (253)                 252           45,578
   MFs                          194               401          (207)                (234)          (5,807)        BSE                                          2,298
                                                                                                                  NSE                                         10,496
 FII Derivatives (April 10, 2012)
   ` cr                                          Purch       Sales            Net            Open Interest
   Index Futures                                    982     1,669         (687)                       8,916
   Stock Futures                                 1,160        914             246                  22,402

 Gainers / Losers
                                      Gainers                                                Losers
   Company                     Price (`)      chg (%)     Company                    Price (`)     chg (%)
   Godrej Industries                281             6.1   Indraprastha Gas                  230       (33.7)
   Dena Bank                          95            5.4   Gujarat State Pet                  71        (7.5)
   Nestle India                  4,783              4.5   IVRCL Ltd                          69        (4.0)
   Uco Bank                           82            4.3   India Cements                     105        (3.6)
   Tata Power                       104             3.8   Wockhardt                         639        (3.4)


Please refer to important disclosures at the end of this report                                                  Sebi Registration No: INB 010996539              1
                                                                   Market Outlook | India Research



                 Coal India – new FSA analysis
                 Presidential directive mandates CIL to sign FSAs: On April 3, 2012, the
                 government issued a presidential directive to Coal India (CIL) to sign Fuel Supply
                 Agreements (FSA) to commit supply of at least 80% of the quantity of coal
                 required to new power plants. However, the directive gave the company freedom
                 to relax the penalty payable in case of a shortfall. Given the muted production
                 and offtake growth, we believe it will be challenging for CIL to supply the required
                 coal for the upcoming FSAs. Nevertheless, we analyzed various scenarios on how
                 CIL could potentially meet its commitments. In our view, the likely path for CIL to
                 meet the new FSA requirements could be a combination of (a) reducing supply to
                 existing FSAs, (b) reducing/stopping e-auction sales, (c) raising production, (d)
                 importing the shortfall and (e) raising the blended prices of coal.

                 Our analysis points out that CIL will have to increase blended FSA prices by 15-
                 17% over FY2013-15 to fully offset the impact of high-price imports. However,
                 political compulsions could dilute CIL’s pricing power and, hence, there is a risk
                 that some portion of losses due to the high-price imported coal will have to be
                 absorbed by CIL. Hence, we are currently Neutral on the stock.

                 Assumptions
                 1.   CIL   lowers    supply      to   NTPC   by    5%   and    stops   coal   supplies   to
                      non-power companies (such as steel, aluminum and cement) under FSA
                      terms.
                 2.   CIL’s sales volumes are expected to grow at a CAGR of 4.8% over FY2012-
                      15.
                 3.   There are some delays in capacity additions by upcoming power plants. We
                      assume NTPC and private power producers to meet only 60% and 80% of
                      their targeted capacity addition plans during FY2013-15, respectively.


                 Exhibit 1: Power capacity addition (MW)
                                                               FY12E       FY13E         FY14E        FY15E
                 NTPC                                          2000            4200       7500       11100
                 Other power companies                        19600        28240         34080       40000
                 Total cumulative capacity                    21,600      32,440        41,580       51,100
                 Source: Ministry of Power, Angel Research

                 Exhibit 2: Coal shortfall to rise gradually (mn tonnes)
                                                                               FY13E     FY14E        FY15E
                 Raw coal – E-auction                                            52            52          52
                 Existing linkage coal                                          313        313            313
                 Beneficiated coal                                               19            19          19
                 Coal sales for new FSAs (A)                                     73            95         117
                 CIL sales volumes                                              456        479            501
                 Coal required for new FSAs (B)                                 130        166            204
                 Shortfall @ 3,500 kcal (B - A)                                  57            71          87
                 Imports required @ 6,500 kcal                                   29            36          44
                 Source: Coal India, Angel Research




April 11, 2012                                                                                              2
                                                               Market Outlook | India Research



                 Exhibit 3: Import parity in coal pricing
                 Price of 6,500kcal coal (US$/tonne)                                             105
                 Sea freight (US$/tonne)                                                           15
                 Handling and CIF charges (US$/tonne)                                               8
                 Landed cost (US$/tonne)                                                         128
                 Landed cost @ INR 50/US$ (`/tonne) – (A)                                      6,400
                 CIL coal price (6,500 kcal) (`/tonne) – (B)                                   4,100
                 Loss to CIL on imported coal (`/tonne) – (A – B)                              2,300
                 Source: Company, Angel Research


                 Scenario 1: Import the shortfall in coal and raise prices

                 Based on the capacity addition plans of most power producers (Exhibit 1), we
                 have calculated the quantity of coal required to be supplied by CIL to meet its FSA
                 norms. The shortfall will be imported by CIL at market prices and supplied to
                 power producers at domestic FSA prices. However, we assume that CIL would
                 raise its blended average realizations to offset the losses on account of high-price
                 imported coal. Our analysis points out that CIL will be required to raise blended
                 average prices to all power producers by 17% over FY2013-15.

                 Exhibit 4: Scenario 1 analysis
                                                                        FY13E      FY14E       FY15E
                 Landed cost of imports (`/tonne)                       6,400      6,400       6,400
                 CIL coal price (6500 kcal) (`/tonne)                   4,100      4,100       4,100
                 Loss to CIL (`/tonne) – (A)                           (2,300)    (2,300)     (2,300)
                 Shortfall @ 3,500 kcal                                    57         71           87
                 Imports @ 6,500 kcal – (B)                                29         36           44
                 Total loss (` cr) – ( A * B)                          (6,574)    (8,218)    (10,061)
                 Total CIL’s sales volumes (mn tonnes)                    443        479         517
                 FY2012 blended realization (`/tonne)                   1,175      1,175       1,175
                 Price increase reqd. from FY2012 levels                  13%        15%         17%
                 Required blended realization (`/tonne)                 1,324      1,347       1,370
                 Incremental price hike reqd./year                        13%         2%          2%
                 Source: Angel Research


                 Scenario 2: Stop e-auctions, import the deficit and raise prices

                 In scenario 2, we assume CIL would stop e-auctions of coal to meet new FSA
                 requirements, import the shortfall and take price hikes. Price hikes would offset
                 the impact of loss in profitability, which the company would face on account of
                 stoppage of e-auctions and coal imports. In this case, we estimate CIL would be
                 required to raise blended average realizations to all power producers by 15%
                 over FY2013-15.




April 11, 2012                                                                                      3
                                                            Market Outlook | India Research



                 Exhibit 5: Scenario 2 analysis
                                                                           FY13E       FY14E      FY15E
                 Total shortfall (3,500 kcal) (mn tonnes)                      57         71          87
                 e-auction (3,500 kcal) (mn tonnes)                            52         52          52
                 Import quantity (6,500 kcal) (mn tonnes)                       3         10          18
                 Premium on e-auction (`/tonne)                            1,000       1,000      1,000
                 Loss due to stoppage of e-auction (` cr)                 (5,200)    (5,200)     (5,200)
                 loss due to imports (` cr)                                 (594)    (2,238)     (4,081)
                 Total loss (` cr)                                        (5,794)    (7,438)     (9,281)
                 FY2012 blended realization (`/tonne)                      1,175       1,175      1,175
                 Price increase reqd. from FY2012 levels                     11%         13%        15%
                 Required blended realization (`/tonne)                    1,306       1,330      1,354
                 Incremental price hike reqd./year                           11%          2%          2%
                 Source: Angel Research


                 CIL has a free hand to decide penalties

                 In case CIL does not meet its 80% FSA targets, it can face penalties. Presidential
                 directive gives a free hand to CIL to decide on the terms of penalties; however, we
                 believe penalties could mirror its penalty provisions in the previously signed FSAs.

                 Exhibit 6: Penalties for FSAs signed before March 2009
                 85-90%                                      10% of price of shortfall quantity below 90%
                 80-85%                                      20% of price of shortfall quantity below 85%
                 <80%                                        30% of price of shortfall quantity below 80%
                 Source: Coal India, Angel Research


                 Exhibit 7: Penalties for FSAs signed after March 2009
                 <50%                                        10% of price of shortfall quantity below 90%

                 Source: Coal India, Angel Research


                 Paying penalties instead of importing could lower losses for CIL

                 In case CIL is unable to raise the price, it can lower its losses by paying penalties
                 instead of importing coal to meet its new FSA requirements. Although there is no
                 clarity on how CIL will pay the penalty, we analyze two possible scenarios for
                 penalties: 1) CIL would pay 10% of price of shortfall quantity below 80% and 2)
                 CIL would pay 30% of price of shortfall quantity below 80%.

                 Even if CIL faces penalty of 30% of price of shortfall quantity below 80% levels,
                 the loss by paying penalties would be significantly lower as compared to
                 importing high-price coal.




April 11, 2012                                                                                          4
                                                             Market Outlook | India Research




                 Exhibit 8: Imports vs. Penalties
                                                                 10% of price of      30% of price of
                                                                shortfall quantity   shortfall quantity
                                                                   below 80%            below 80%
                 Loss to CIL in case of imports (`/tonne )           2,300                2,300
                 Loss due to penalty (`/tonne )                       118                  353
                 Source: Angel Research




                 Cairn India reports production numbers for 4QFY2012
                 Cairn India reported robust production numbers for 4QFY012, which were in-line
                 with our expectations. The company’s gross oil production from operating units
                 was 167,663bopd (+13.1% yoy) and 160,635bopd (+18.3% yoy) during
                 4QFY2012 and FY2012, respectively. Gross production from the Mangala field
                 stood at 124,081bopd and 124,749bopd during 4QFY2012 and FY2012,
                 respectively. Cairn India commenced production from Bhagyam field during
                 January 2012 and produced 13,247bopd on a gross basis during the quarter.
                 We maintain our Neutral view on the stock.


                 Sterlite Industries reports production and sales numbers
                 for 4QFY2012
                 Sterlite Industries reported its production and sales volumes numbers for
                 4QFY2012, which were broadly in-line with our expectations. The company’s
                 mined zinc-lead metals decreased by 3.0% yoy to 223kt in 4QFY2012. Silver
                 production grew by 77.0% yoy to 88 tonnes. Power sales stood at 2.2bn units in
                 4QFY2012 compared to 1.0bn units in 4QFY2011. Aluminium production was
                 flat yoy to 62,000 tonnes in 4QFY2012. The /company continued to work
                 towards the second stage forest clearance for the BALCO coal block, following
                 the Environment Appraisal Committee's approval received in November 2011.
                 We maintain our Buy rating on the stock with a target price of `139.



                 Sesa Goa reports production and sales numbers for
                 4QFY2012
                 Sesa Goa reported its production and sales volumes numbers for 4QFY2012,
                 which were in-line with our expectations. The company’s iron ore sales stood at
                 5.2mn tonnes in 4QFY2012 compared to 6.6mn tonnes in 4QFY2011. The
                 decline in sales volumes was due to mining ban in Karnataka and logistical
                 constraints in Goa. Production also declined by 11.0% yoy to 4.9mn tonnes in
                 4QFY2012 as a result of mining ban in Karnataka. We maintain our Accumulate
                 rating on the stock with a target price of `206.




April 11, 2012                                                                                            5
                                                                                                   Market Outlook | India Research



                                           Quarterly Bloomberg Brokers’ Consensus Estimates

                                           Infosys Ltd – Consolidated (13/04/2012)
                                           Particulars (` cr)              4QFY12E               4QFY11 y-o-y (%)              3QFY12 q-o-q (%)
                                           Net sales                           9,204                7,250           27          9,298        -1
                                           Net profit                          2,314                1,818           27          2,372        -2



                                           Economic and Political News
                                                February industrial output may slow slightly: Poll
                                                Car sales rise 20% in March, up 2.2% in FY2012
                                                Government plans US$30bn investment to develop airports

                                           Corporate News
                                                AI, KFA jointly owe about `525cr to GMR airports
                                                Bharti Airtel launches 4G in Kolkata, Bangalore next
                                                RCom may launch `7,500cr IPO of Flag Telecom this quarter
                                                Tech Mahindra, Satyam may hire 10,000 new staff
                                           Source: Economic Times, Business Standard, Business Line, Financial Express, Mint




Results Calendar
 13/04/2012      Infosys
 16/04/2012      Crisil, MindTree
 18/04/2012      HDFC Bank, HCL Tech, Infotech Enterprises




April 11, 2012                                                                                                                                6
                                                                                                           Market Outlook | India Research



                                                   Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
  Research Team Tel: 022 - 39357800                    E-mail: research@angelbroking.com                                Website: www.angelbroking.com

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April 11, 2012                                                                                                                                     7

				
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