Today’s Report of Indian Stock Market

Outlook on markets today

The Sensex closed at 17924, down 154.93 points or 0.86% and the Nifty ended at 5429 down 54 points or 0.98%. It was first weekly collapse for markets in 2012. Among the 13 sectoral indices, five bunged superior. Top Gainers - BSE Metal up by 1.08%, BSE TECK up by 0.56% and BSE IT stirring by 0.55%. Top Losers - BSE CG down by 2.96%, BSE Realty down by 2.28% and BSE Bankex down by 1.95%. Profit booking appear after current gains as concerns increase over the state of the universal financial system, including rising oil prices. India’s widening financial shortage also added to obscurity. Volatility was high owing to F&O expiry for Feb 2012 this week. There was also a lot of uncertainty ahead of events like the upcoming financial statement.

ICICI Bank and HDFC Bank were among the big losers as market potential for a rate cut in March was tempered by the rally in world oil prices, which could make it difficult for the central bank to relieve strategy. Housing Development Finance Corp fell as much as 6.2% after Citigroup Inc sold its entire chance in the company for about $1.9 billion.

Market cinch was weak at ~0.60x as investor sold large cap stocks. On temporary origin FIIs bought equity of Rs.8955.30Cr while domestic institutions sold equity of Rs.836.71Cr.

Many chief Asian markets slip but Japanese stocks rise as the yen weakens against the euro on trust of a larger euro-zone bailout package.

We expect a flat opening for the Indian markets today following the mixed nod from the Asian markets.

Monetary and Mutual Developments

The Centre has asked fertilizer firms not to lift imported nutrients, especially potash and DAP, planned to reach ports in February and March, due to poor command, a move that could save up to Rs 1,000 crore in the subsidy bill of this monetary.

A Group of Ministers (GoM) today accepted a new asset policy for the urea sector, to make the nation independent in the input soil nutrient.

Vibrant Stocks

Oil and Natural Gas Corporation (ONGC) is spending Rs 26,000 crore to enlarge 10 oil and gas bunch in western and eastern offshore, to enlarge crude production by up to 4 million tonne per annum by 2013-14.

NTPC to invest Rs 24,000 cr in Andhra plant.

The Karnataka government has completed land acquirement for Tata Steel and Tata Metallic’s incorporated scheme at Haveri district, an official of the corporation said on Saturday.

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Daily Morning Report of Indian Stock Market

Observation on markets today

Indian markets plunge for the second day yesterday to reach their stumpy closing level in more than a week as investors took profits on expiry of monthly derivatives along with concerns about high oil prices. Volatility was high as traders turn over positions in futures & options (F&O) segment from the near-month February 2012 series to March 2012 series. Investors are also awaiting further confirmation on the health of the global financial system as high oil prices intimidate to fuel inflationary pressures and increase costs for companies, affecting their profitability. UBS also said in a note that India looks susceptible to profit taking in the short term after recent outperformance, rising oil prices and seasonally tighter financial conditions. The downward movement was mainly led by selling pressure in real estate, metal, auto and capital goods stocks while FMCG, power and oil & gas stocks spectator some buying activities which gave some support to the markets. Realty stocks edged lower on profit taking after recent strong gains. DLF, Phoenix Mills, HDIL and Unitech fall between 1.08-6.17%. Sterlite Industries fell 4.09%, with the stock extending Wednesday's 6.62% slide. As per media reports, the Vedanta Resources group may merge iron ore firm Sesa Goa with copper and aluminium maker Sterlite Industries to shorten and merge its corporate structure. PNB fell 1.96% as the board of directors of the bank at its meeting has permitted issuance of up to 1.28Cr equity shares to Government of India and up to 1.58Cr equity shares to LIC on preferential basis, at a premium of Rs.993.69.

- Market breadth was weak at ~0.61x as investors sold huge cap stocks. On provisional basis, FIIs bought equity of Rs.1.05bn while domestic organization sold equity of Rs.6.41bn in cash segment.

- Asian markets were plane today after growing crude oil prices and strain related to Iran weighed on the equities.

- We expect a flat to vigilant opening for the Indian markets today following the signal from the Asian markets.

Financial and Commercial Improvement

Amid the country facing an sensitive coal shortage, a ministerial panel, headed by Finance Minister Pranab Mukherjee, will meet on March 1 to address the environmental problem that hurt the coal productivity.

A panel of ministers will meet on Feb 27 to confer a share sale in state-run oil voyager and producer Oil and Natural Gas Corp, Oil Minister S. Jaipal Reddy said.

Energetic Stocks

Shasun Pharmaceuticals would meet on February 27, 2012, to judge issue of equity shares on a special basis to private equity investor.

Coal India Ltd. will look for offtake obligation from power utilities before importing, as has been asked by the Prime Minister’s Office.

The state-owned coal sector monopoly was recently asked by the Prime Minister’s office (PMO) to meet the contribute obligation of the power sector even if it means resorting to imports.

Ashok Leyland is scheduling to set up a new creation facility near Chennai.

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Indian stock market and companies daily report (February 22, 2012, Wednesday)

Indian domestic markets are expected to open flattish tracking global markets worldwide. Asian stocks fell for a second day and oil retreated from a nine-month high as Greece’s approval for a second bailout failed to spur confidence among investors.

Euro-zone finance ministers early Tuesday gave a green light to a second rescue package for Greece, unlocking a €130bn in bailout money for the cash-strapped nation. The new bailout would leave Greece with sufficient funds to repay a €14.5bn bond due on March 20. The European markets finished Tuesday's trading with modest losses, while US markets managed to close marginally in the green as deal on the Greek debt bailout prompted some profit taking.

Meanwhile Indian shares continued to extend their recent gains driven by positive developments in the Euro zone area. Investors worldwide would keenly watch out for German PMI and US home sales data due for release today.

Markets Today

The trend deciding level for the day is 18,339/5,597 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,502 – 18,575/5,632 – 5,657 levels. However, if NIFTY trades below 18,339/5,597 levels for the first half-an-hour of trade then it may correct up to 18,325 – 18,221/5,572 – 5,537 levels.

IPO Note: MCX LTD. – Subscribe

Sustainable competitive position: Multi Commodity Exchange of India Ltd. (MCX) is a leading commodities exchange, which received permanent recognition from Government of India on September 26, 2003. The company reported a market share of 87.3% as of December 2011. MCX is also the fifth largest commodity futures exchange globally in terms of the number of contracts. As of June 2011, MCX was the largest silver exchange, the second largest gold, copper and natural gas exchange and the third largest crude oil exchange for this period globally.

Growth strategy in place: MCX has introduced a variety of new commodity futures contracts; and since inception, the number of products offered by the company has grown from 15 to 49 as of December 31, 2011. MCX has 2,153 members nationwide with over 296,000 terminals, including CTCL spread over 1,572 cities and towns in India. The company intends to continue to increase the number of participants by introducing new products on its exchange by expanding to more geographical areas, which is expected to drive growth going ahead. Regulatory changes can also lent a fillip to MCX as currently option contracts are not allowed to be traded in commodity. Any changes in favor of MCX can lead to a major increase in revenue and profitability going ahead.

Outlook and valuation: MCX currently has zero debt on its book, and major capex to fuel growth has already been incurred by the company. Secondly, the company reported investment and cash worth Rs.1,324cr at the end of 9MFY2012, which works out to Rs.260/share. On an annualized basis, shares will be trading at 15.1x and 18.1x at the lower and upper band on FY2012E earnings, respectively, which we believe is fair compared to global peers, which trade at 18x-19x TTM EPS, and the recent off market deals value MCX’s Indian peers NSE and BSE at 22x-24x 9MFY2012 annualized earnings. We believe MCX being the only major commodity exchange in India and the world’s fifth largest exchange can witness strong growth in revenue and profitability going ahead, which makes its valuation much more attractive than global and Indian peers. Hence, we recommend Subscribe to the issue on account of the relatively fair valuations.

ECL receives MOEF nod for its iron ore mine

Electrosteel Castings (ECL) has received forest stage-I clearance for its iron ore mines located at Kodolibad, West Singhbhum, Jharkhand, from Ministry of Forests and Environment (MOEF). ECL expects to receive stage-II clearance in the coming 2-3 months and then sign mining lease with the state government. After signing the mining lease, ECL can develop the mine and resume production. The mine has reserves of 91mn tonnes with 64% Fe content. ECL expects to commence production from this mine in FY2013. However, procedural delays cannot be ruled out in our view.

With upcoming production from coking coal and iron ore, ECL will turn into a fully integrated steelmaker. Although there is lack of clarity on the timelines for commencement of meaningful production from its coking coal and iron ore mines, ECL’s margins are expected to be significantly higher than its peers once it reaches optimum production capacity at its mines. Moreover, ECL’s associate, Electrosteel Steels (34.8% stake) with 2.2mn tonnes of steel capacity is expected to benefit the most, as ECL will supply coking coal and iron ore from its mines to Electrosteel Steels at subsidized rates (cost + 20%).

We have a positive stance on ECL’s initiatives of gradually venturing into steel making through its associate Electrosteel Steels. Furthermore, the company’s backward integration initiatives through allocation of coking coal and iron ore mines are expected to result in cost savings from FY2013. The stock is currently trading at 0.4x each for FY2012E and FY2013E. We recommend Buy on the stock with an SOTP target price of Rs.32.

Economic and Political News
- Economic slowdown likely to be temporary: Finance Minister
- India’s January consumer price inflation (CPI) at 7.65%
- RBI may consider CRR cut at next policy review meeting: Deputy Governor
- Government ready for dialogue with states on NCTC

Corporate News
- Coal India to incur additional Rs.6,500cr burden due to new labor pact
- Suzlon arm, REpower wins 250MW order from French firm
- Tata Motors to launch 230 Nano showrooms in one year
- M&M looks to assemble products in Russia through SsangYong distributors
- HCL Infosystems bags Rs.278cr order from Tamil Nadu government
- Kingfisher assures of normal operations in 5-7 days

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Indian stock market and companies daily report (February 21, 2012, Tuesday)

The domestic markets are expected to open flat or marginally in green following higher closing across most of the western markets. Asian stock markets are trading flat as investors remain cautions and wait for European finance ministers in Brussels to approve a crucial second bailout for Greece.

The US markets traded choppily on Friday (closed on Monday) as the economic data releases painted a mixed picture with a report from the Conference Board showing that its index of leading economic indicators increased for the fourth consecutive month in January, while another report from the Labor Department showing only a modest increase in consumer prices in the month of January. Although investors seemed reluctant to make any significant moves going into the long weekend, optimism that European finance ministers will approve a new bailout package for Greece helped to keep traders from doing much profit taking. Meanwhile Indian shares rebounded on Friday after some consolidation the day before, with firm global cues supporting the liquidity-driven rally.

Markets Today

The trend deciding level for the day is 18,315/5,572 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,397 – 18,504/5,599 – 5,634 levels. However, if NIFTY trades below 18,315/5,572 levels for the first half-an-hour of trade then it may correct up to 18,208 – 18,126/5,537 – 5,511 levels.

Cement companies raise prices

Cement companies have raised prices in the northern and western regions in the range of Rs.7 to Rs.10 per bag with effect from February 17, 2011. The price hike follows the correction in the region during January due to the severe winter season, which affected construction activities. We believe the recent price hike is an effort by cement manufacturers to pass on the hike in operating costs. We are currently Neutral on the cement sector, as we believe valuations are significantly ahead of the cycle, but we maintain our Buy recommendation on JK Lakshmi Cement due to its attractive valuations, with a target price of Rs.79.

NMDC cuts ore prices; lowers volume guidance

NMDC has cut prices of iron ore fines and lumps by 20% and 3%, respectively, for 4QFY2012 on the back of the decline in global iron prices, the recent rupee appreciation and increased export duty on iron ore. The price cut by NMDC is higher than our expectations given the shortage of iron ore in the domestic markets.

NMDC has also lowered its sales volume guidance for FY2012 and FY2013. The company now expects sales volumes of 27mn tonnes and 30mn tonnes (earlier 30 mn tonnes and 33mn tonnes) for FY2012 and FY2013, respectively. Although the company has ~5mn tonnes of iron ore inventory at its mine pit-heads, however it faces logistical constraints to increase off take due to breakdown in slurry pipeline, lower availability of railway rakes and stricter regulations in transportation of iron ore in Karnataka. Considering the company’s revised sales volumes guidance, we lower our 4QFY2012 and FY2013 realization and sales volume estimates.

Although NMDC has a strong balance sheet, presence in sellers market (iron ore), low cost of production, high-grade mines and long mine life, we now expect sales volumes to witness a CAGR of only 5.2% over FY2011-2013. On account of lower volume growth and lower realization, NMDC’s bottom line is expected to grow by only 4.0% yoy during FY2013. Further, given the 23% rise in the stock price since January 1, 2012, we recommend Neutral on the stock.

Result Review – 4QCY2011

CRISIL announced its 4QCY2011 numbers. Net sales increased by 26.6% yoy to Rs.225cr (Rs.177cr) led by strong growth in the research segment. Research segments revenue increased by 34.0% yoy while the rating segment and advisory segments revenue increased by 14.1% and 7.0% respectively. EBITDA increased by 15.2% yoy to Rs.80cr (Rs.69cr) due to higher revenue. EBITDA margin declined by 352bps yoy to 35.6% (39.1%). PAT increased by 10.4% yoy to Rs.56cr (Rs.51cr) while margin declined by 366bps yoy to 24.8% (28.5%) almost in line with EBITDA margin contraction. We will be coming out with a detailed report post management interaction. We continue to maintain an Neutral rating on the stock.

Economic and Political News
- Government may let foreign individuals directly buy corporate debt
- Railways stares at a Rs.2lakh cr crunch
- Bankers agree to subscribe to Air India’s Rs.7,400cr bond issue

Corporate News
- Ashok Leyland's Optare eyes small bus market
- Frozen bank accounts led to disruptions: Kingfisher
- Essar Oil plans to raise Rs.3,000cr in next 15 months

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