Market Outlook 10th October 2011

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Market OutlookIndia Research

October 10, 2011

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

Dealer’s Diary

The Indian markets are expected to open flat to marginally positive on the backof mixed global cues and positive opening in most of the Asian markets in theearly market trade. The domestic benchmark indices rallied on Friday as they played catch-up to a global rally in equities and commodities on Thursday. TheLabor Department in the US released its closely watched monthly employmentreport, showing stronger-than-expected job growth in September as well asupward revisions to the data from previous months, but despite stronger-than-expected job growth, the unemployment rate remained at 9.1% in September,unchanged from the previous month. The overall job creation figure stood at1,03,000, exceeding the 65,000 predicted by economists. In Eurozone,financial stocks were pulled lower on Friday after the announcement thatMoody's had downgraded a number of banks in the UK and Portugal. But themarket is likely to take positive cues from the announcement by French andGerman leaders to come up with a package of reforms to recapitalize banks,get Greece on the right track and fix Europe’s economic governance in

three weeks.

Markets Today

The trend deciding level for the day is 16,243/4,891 levels. If NIFTY tradesabove this level during the first half-an-hour of trade then we may witness afurther rally up to 16,337–16,441/4,920–4,952 levels. However, if NIFTYtrades below 16,243/4,891 levels for the first half-an-hour of trade then it may correct up to 16,139–16,045/4,859–4,829 levels.

Indices S2 S1 R1 R2

SENSEX 16,045 16,139 16,337 16,441

NIFTY 4,829 4,859 4,920 4,952

News Analysis French and German leaders pledge bank recapitalization Debt restructuring proposals rise sharply HZL reports steady production numbers; expansion plans on track Sterlite reports steady production numbers Sesa Goa reports slightly disappointing 2QFY2012 production numbers

Refer detailed news analysis on the following page

Net Inflows (October 05, 2011)

` cr Purch Sales Net MTD YTD

FII 2,027 2,996 (969) (2,718) (4,671)

MFs 528 424 104 (225) 5,273

FII Derivatives (October 07, 2011)

` cr Purch Sales NetOpen

Interest

Index Futures 3,295 1,714 1,582 12,845

Stock Futures 1,652 1,687 (35) 25,792

Gainers / Losers

Gainers Losers

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

Sun TV Network 261 13.0 Idea Cellular 90 (4.5)

Sterlite Inds 113 8.6 Bharti Airtel 355 (3.3)

Jindal Steel 482 8.2 Areva T&D 219(3.3)

Axis Bank 1,030 8.2 Shriram Trans 578 (2.9)

Tata Motors 159 7.7 Adani Power 78(2.6)

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

BSE Sensex 2.8 440.1 16,233

Nifty 2.9 136.8 4,888

MID CAP 1.4 80.5 5,959

SMALL CAP 1.2 76.7 6,722

BSE HC 0.5 31.2 5,845

BSE PSU 2.0 145.0 7,305

BANKEX 3.9 386.3 10,348

AUTO 2.4 197.4 8,488

METAL 5.4 557.5 10,910

OIL & GAS 2.6 217.4 8,451

BSE IT 1.7 86.8 5,241

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

Dow Jones (0.2) (20.2) 11,103

NASDAQ (1.1) (27.5) 2,479

FTSE 0.2 12.1 5,303

Nikkei 1.0 83.6 8,606

Hang Seng 3.1 534.7 17,707

Straits Times 1.4 37.2 2,640

Shanghai Com (0.3) (6.1) 2,359

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

Infosys (0.7) (0.4) $52.3

Wipro (1.9) (0.2) $9.1

ICICI Bank (0.2) (0.1) $33.5

HDFC Bank (1.7) (0.5) $29.5

Advances / Declines BSE NSE

Advances 1,821

Declines 982 377

Unchanged 115 58

Volumes (` cr)

BSE 2,072

NSE 10,927



October 10, 2011 2

Market Outlook | India Research

French and German leaders pledge bank recapitalization

French and German leaders announced on Sunday that they will come up with a packageof reforms to recapitalize banks, get Greece on the right track and fix Europe’s economicgovernance. The plan for restructuring is expected to be announced by the November 3,2011. The announcement came on the same day that the governments of France, Belgium

and Luxembourg agreed to nationalize Dexia Bank, Belgium’s biggest bank, infusing itwith billions of euros in taxpayer money after it became a casualty of the Greek sovereigndebt crisis.

Debt restructuring proposals rise sharply

Corporate Debt Restructuring (CDR) proposals received by banks have risen sharply in the1HFY2012. The CDR mechanism has been in place in order to help companies that areunable to repay liabilities. The CDR proposals received by the banks have jumped up by around six times in the 1HFY2012 vis-à-vis the restructuring proposals received in1HFY2011. However, the bulk of the increase can be attributed to a chunky account of

GTL, a network services firm (accounting for c.65% of the total proposals received in1HFY2012).

Having said that, the rise in the restructuring proposals is in line with our view that the key monitorable over the next few quarters is likely to be the strain on the asset quality front onaccount of high interest rates and slowing domestic growth. We remain cautious on PSUbanks with higher exposure to riskier sectors and banks which have grown aggressively over the past 2 years. As far as the private banking players are concerned we believe thatwe have witnessed the trough of the asset quality cycle and may witness rise in slippagesover the next few quarters. However we believe that private banks are still better placed onthe asset quality front as compared to the PSU peers. As far as PSU banks are concernedwe prefer banks (Syndicate Bank, United Bank of India and Bank of Maharashtra) which

have a conservative asset quality profile and have been relatively moderate in terms ofgrowth over the past 2 years.

HZL reports steady production numbers; expansion plans on track

Hindustan Zinc (HZL) released production data for 2QFY2012. Mined metal productionincreased by 2% yoy to 210,000 tonnes in 2QFY2012, reflecting improved production atRampura Agucha following the maintenance shutdown in 1QFY2012. Refined zincproduction increased by 5% yoy to 185,000 tonnes in 2QFY2012, primarily due toimproved operational performance at its hydro smelters. Refined lead productionincreased by 6% yoy to 17,000 tonnes in 2QFY2012, primarily due to higher volumes

from the newly commissioned 100kt Dariba lead smelter. Silver production increased by 12% yoy to 1.6mn ounces in 2QFY2012. The company aims to commission the new silverrefinery during 3QFY2012, thus taking its silver capacity to 16mn ounces by the end ofFY2012. The company also informed that it was on track to achieve its targeted 2mntonnes p.a. capacity by the end of FY2012 at Sindesar Khurd mine. The company’sproduction results are broadly in-line with our expectations. Further, HZL’s targets forramping up capacities are on schedule. Hence, we continue to maintain our Buyrecommendation on the stock with a target price of `156.



October 10, 2011 3


Sterlite reports steady production numbers

Sterlite Industries’ (Sterlite) subsidiary, HZL’s (65% stake) mined metal production increasedby 2% yoy to 210,000 tonnes in 2QFY2012, reflecting improved production at Rampura

Agucha following the maintenance shutdown in 1QFY2012. Refined zinc productionincreased by 5% yoy to 185,000 tonnes in 2QFY2012, primarily due to improved

operational performance at its hydro smelters. Refined lead production increased by 6%yoy to 17,000 tonnes in 2QFY2012, primarily due to higher volumes from the newly commissioned 100kt Dariba lead smelter. Sterlite’s International Zinc business productionof zinc-lead equivalent decreased by 2% yoy to 114,000 tonnes. Silver productionincreased by 12% yoy to 1.6mn ounces in 2QFY2012. During 2QFY2012, the Tuticorincopper smelter’s production increased by 28% yoy to 87,000 tonnes of copper cathode,reflecting lower production in 2QFY2011 on account of a planned bi-annual maintenanceshutdown. Mined metal production at Australia stood at 5,000 tonnes in 2QFY2012. Thecompany informed that the construction of the 160MW captive power plant at Tuticorinwas progressing well and the first unit was scheduled for commissioning in 4QFY2012,while the 400ktpa copper smelter expansion project at Tuticorin was awaiting approvalfrom the regulatory authorities. We maintain our Buy recommendation on the stock with a

target price of`189.

Sesa Goa reports slightly disappointing 2QFY2012 production numbers

Sesa Goa reported iron ore production of 1.1mn tonnes in 2QFY2012, compared to2.9mn tonnes (2.4mn tonnes excluding the shut Orissa mines). The company’s productiondeclined on account of ban on mining in Karnataka announced on August 26, 2011, andthe discontinuation of operations in Orissa in November 2010. Sesa Goa reported 1.6mntonnes of iron ore sales compared to 1.8mn tonnes (1.4mn tonnes excluding the shutOrissa mines). The company sold 0.7mn tonnes (up 58% yoy) from Karnataka and 0.8mntonnes (down 10% yoy) of iron ore from Goa. Production and sales numbers came in

slightly below our estimates. Nevertheless, we expect the company’s production and salesvolumes to increase after the seasonally weak 2QFY2012. We maintain our Buyrecommendation on the stock with a target price of `253.

Economic and Political News

Food inflation soars to 9.41%

Railways' earnings up by over 10% yoy in April-September

Tax collections up 22% in the first six months of FY2012 to ` 4,25,712cr

Corporate News

McNally Bharat bags three orders worth ` 197cr

SAIL seeks 5mscmd gas for 1,050MW power plant

Tata Motors launches Manza, Prima in South Africa

Tecpro bags ` 405cr order from NTPC

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



October 10, 2011 4


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Market Outlook 10th October 2011

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