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Weekly Wrap

Pair Strategy
Long Axis Bank & Short ICICI Bank
Over the past one month, a sell-off in the rate sensitive sector (banks) has resulted in a breakdown in the co-relation between Axis Bank and ICICI Bank, thus widening the historical price ratio relationship close to Upper Band 2 at 0.90* (mean+2nd standard deviation). One year co-relation between Axis Bank and ICICI Bank is above 88% (strong co-relation), while standard deviation at 0.021 is healthy. We believe this deviation from mean is temporary and expect ratio to revert back to its mean We recommend traders to go long on Axis Bank (1 Lot August futures) and short ICICI Bank (1 lot August futures) at price ratio of 0.89-0.90 with Stop loss placed at 0.94 for target of 0.83.
Recommedation* Long Axis Bank (Aug Fut) Short ICICI Bank (Aug Futs) Spread Summary Last Mean Off Mean Median Standard Dev Spread Summary Correlation Price 1043.35 941.35 1-Year 0.902 0.794 0.108 0.786 0.021 1-Year 0.89 Qty 250 250 60 Days 0.902 0.794 0.108 0.786 0.021 60 Days 0.95 Fut lots 1 1 21 Days 0.902 0.796 0.106 0.793 0.017 21 Days 0.72

July 20, 2012

*~Outlflow(`0.8lacs), Time horizon - 30days, Expected return 5%

Absolute spread and price ratio - Axis vs ICICI
(50) (100) (150) (200) (250) (300) (350) 19-Jul Spread (Rs) (LHS) Ratio (x) 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 18-Sep 18-Nov 18-Jan 19-Mar 19-May 0.0 19-Jul

Price ratio at 1yr high (Mean + 2Std Dev)
Ratio (X) UB (2) Price ratio Mean LB (2) UB (1) UB (3) LB (1) LB (3)

1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65

0.60 19-Jul

18-Oct

17-Jan

17-Apr

17-Jul

Source: India Infoline Research

Source: India Infoline Research

Axis has underperformed vis-à-vis ICICI
0.10 0.00 -0.10 -0.20 -0.30 -0.40 Axis Bank ICICI Bank

Maximum occurrence between 0.77 - 0.8
0.7-0.73 0.73-0.77 0.77-0.8 0.8-0.84 0.84-0.87 0.87-0.91 10 17 28 Distribution of price ratio (%)

13 33

-0.50 19-Jul

28-Sep

8-Dec

17-Feb

28-Apr

8-Jul

0.91-0.95

0

Source: India Infoline Research

Source: India Infoline Research

The falling gap appearing between 5260-5312 has been acting as major headwind in the near term with price action most of time turning into indecisive mode.9 Sectoral performance BSE Pharma BSE FMCG BSE Metal BSE Oil & Gas BSE-200 BSE IT BSE Small-Cap BSE Cap Goods BSE Bank BSE Power BSE Auto BSE Realty (2. the break even for the call writers is at 5250 which would act as resistance for current expiry.5 1. especially that of crude oil.3 (1. while rollover in Nifty stood at 16%.8) (0.3) (0.300 1.800 1.6) (0.5 2. Highest open interest in nifty for august series stood at 5300call and 5000put. while put unwinding by short was seen at 5200 strike .500 2.300 2.000 500 0 (No of stocks) Advance Decline Global performance Hangseng Nasdaq Dow Jones Sensex Nifty Nikkei Shanghai (0.300 800 300 (200) 25-Jun 26-Jun 27-Jun 28-Jun 10-Jul 11-Jul 12-Jul 13-Jul 16-Jul 17-Jul 18-Jul Advance/Decline Net FIIs inflow Net MFs Inflows (Rs cr) 2.000 1.9) (1.7) (0.5 0.2) (0.0 2.0 -1. On the daily chart ‘hammer’ appearing on Wednesday trading has so far not negated the low of 5169 which raises a probability to retesting levels of 5260 once again. Expectations of further monetary stimulus from the US and Chinese central banks also remain in place amid mixed economic statistics. Call writing is visible in July 5200 call at an average price of `50.0 1.5 (1.6) (1.4) (0. One problematic area is the resurgence in commodity prices.0 -0.5) 0. The results were pretty mixed. Markets will be disappointed if the expected reforms do not come through. The persistent deficit in the southwest monsoon rainfall is the biggest overhang for the Indian market apart from lack of progress on reforms.5) (0.800 2.5 3.6) (0.0) 0.800 3.5) 2 25-Jun 26-Jun 27-Jun 28-Jun 29-Jun 2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 9-Jul 10-Jul 11-Jul 12-Jul 13-Jul 16-Jul 17-Jul 18-Jul 19-Jul (700) 2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 9-Jul .5) -3.0 0.India Infoline Weekly Wrap Market Outlook Indian markets declined for the second week running.500 1.5 -2.300 3.0 -2. as investors digested a spate of corporate earnings even as they wait for the Government to introduce important reforms. Sticky inflation and widening twin deficits are among the other negatives for the Indian economy. Global equities have held up quite well lately as central banks have swung into action to boost economic growth. Technical View Markets extended the selling streak for second week after it failed to surpass the resistance of 5260 levels on a closing basis.5 -1.6 0.5 1. Nifty range for week would be 5120-5270.5 1. FIIs/MFs activity 4. F&O View Long rollover was seen in Bank nifty which rolled almost 30%.8 0. Except for Infosys. FII flows have stayed positive this month on hope that the UPA will initiate a few key reforms before the start of the monsoon session of parliament on August 8. there hasn’t been any major negative surprise so far.3 2.1) (1.

7) HSIL (5.3 Price 14.7) RCOM (4.0 0.2 Atul 1.8 0.2) (9.7) (10.3) Infosys (5.1 3.4) (13.1 7.9 Balaji Telefilms 0.3 Shanthi Gears 4.9) Tourism Fin (5.148 % Chg Company (10.2) Sterling Bio (9.9 Company Infosys RCOM Tata Motors Kotak Bank Reliance Cap Jindal S&P Reliance Infra PNB Siemens Maruti Suzuki Nifty 50 & CNX 500 top 10 Losers NSE Nifty CMP (`) 2.9 Cadila Health 2.2 12.8) (9.3 9.5) Technically strong CMP (`) 341 311 530 229 53 10 days Moving Average (`) 347 316 537 232 54 Total Traded Qty (lacs) 1.9 0.1 SRF CNX 500 CMP (`) 67 881 264 72 204 730 43 35 116 240 % Chg 16.1 Company HPCL Century Textile Bombay Dyeing BHEL JSW Energy Company Asian Paints JSW Steel United Phos Opto Circuit CESC CMP (`) 3.1) Union Bank (4.592 327 2.1 10 days Average Traded Qty (lacs) 0.685 695 123 158 303 Total Traded Qty (lacs) 0.3 3.7 - Book closure and record date Company EIH Hotels Tata Power RPG Life Science Apollo Hospitals Orient Paper Cadila Healthcare Date 24 Jul 2012 24 Jul 2012 24 Jul 2012 26 Jul 2012 26 Jul 2012 26 Jul 2012 Purpose Dividend Dividend Dividend Dividend Dividend Dividend Nifty Future VWAP 5380 5360 5340 5320 5300 5280 5260 5240 5220 5200 29-Jun 2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 9-Jul 10-Jul 11-Jul 12-Jul 13-Jul 16-Jul 17-Jul 18-Jul 19-Jul 20-Jul Bank Nifty Future VWAP Nifty Vwap 10800 10700 10600 10500 10400 10300 10200 10100 29-Jun 2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 9-Jul 10-Jul 11-Jul 12-Jul 13-Jul 16-Jul 17-Jul 18-Jul 19-Jul 20-Jul Nifty Futs Close Bank Nifty Futs Close Bank Nifty Vwap 3 .9 10 days Average Traded Qty (lacs) 0.724 704 124 161 309 Bulk deals Date 16-Jul 19-Jul Institution HSBC Invst Fund MANULIFE GLOBAL FD.0 1.8 9.1) (10.9 Jb Chem 1.2 11.5 0.6) Essel Propack CNX 500 CMP (`) 8 44 43 26 23 138 2.1 24.1 Sundaram Fin 0.8 3.219 192 64 31 % Chg (18.2 Technically weak 10 days Moving Average (`) 3.0 10.1 11.ASIAN EQ FD Scrip name Ashapura Minechem Ltd HDIL B/S S S Qty (lacs) 6.9) (12.8) Ind-Swift Lab (7.7 3.5) Arss Infra (7.India Infoline Weekly Wrap Technical Check Nifty 50 & CNX 500 top 10 gainers NSE Nifty Company Bajaj Auto Cairn India Hero Motocorp JP Associates ONGC HUL HDFC Cipla Sun Pharma SAIL CMP (`) 1.9 11.0) (12.8 11.5 0.2 KCP 0.219 64 223 563 352 427 526 819 686 1.2 Mastek 0.8 1.4 Chola Fin 1.2) (12.3 15.8) (9.0 1.082 78 282 446 685 326 625 93 % Chg Company 5.0 84.2 5.0 0.3) DCHL (5.3 14.

677) 8. adding that growth is slowing.550-1.530 15.6 4.880 1. Fed Chairman’s downbeat assessment of economic growth implies that monetary easing would take place sooner rather than later.330 1. It reminds us of the cliché.864 1. around 500 contract workers at three of world No.5) 1. Market participants remain disappointed by the fact that Bernanke did not offer any immediate indication of initiating another round of quantitative easing.372 Chg (%) 0. 1 copper producer Codelco's massive northern deposits are poised to strike. Note: This market commentary is written at 12:30 PM IST LME prices Base Metals (US$/ton) Copper Nickel Zinc Aluminium Lead Precious Metals (US$/ounce) Spot Gold Spot Silver * Last Traded Price High 7.550 4.913 LTP* 1.585 27 Chg(%) 0.946 1.599 28 Low 7. 1.3) (0.425 338.5) 2.325 11. Gold bulls may seek encouragement from the recent flow of US macro numbers.950 (6. We remain skeptical regarding the recent knee-jerk reaction in base metal prices to the growing expectations of further monetary easing by China.070 1.932 1.7 LME Copper 10500 10000 9500 9000 8500 8000 7500 7000 6500 6000 Jan-12 Mar-10 Mar-11 Mar-12 Jan-10 Jan-11 May-11 May-12 May-10 Jul-10 Jul-11 Nov-10 Sep-10 Nov-11 Sep-11 Jul-12 COMEX Gold Copper (LME) 2000 US$/ ounce Gold US$/ ton 1750 1500 1250 Jan-10 Mar-10 Jan-11 Mar-11 Jan-12 May-10 May-11 Mar-12 May-12 Jul-10 Jul-11 Nov-10 4 Nov-11 Sep-10 Sep-11 Jul-12 5500 1000 . He also referred that developments in the labour markets remain frustratingly slow.6 3.600/ounce in spite of the fact that the events which transpired during the week were theoretically congenial for the yellow metal to move higher.832. as the central bank conveyed that it is ready to take further action in order to promote a stronger economic recovery.075 4. which were mostly on the weaker side.658 1.854 Low 1. with Aluminium and Lead registering decent upside. On supply front.529 313. which implies that therein lays a possibility of prices rebounding back from current levels.5 0.800/ton on a closing basis. while the rest of the metals were restricted to marginal gains. considering the sizeable gains witnessed in energy and moderate gains in industrial metals.S Federal Reserve Chairman Bernanke offered a gloomy view of the economy's prospects.075 28. but Codelco stated the unrest won't affect mine output. Base metals garnered support from the wide speculation that Chinese government is poised to initiate further monetary stimulus and recent reports of stable growth in domestic bank loans. On price front. In addition.250) (385) 45 (1. However.973 327.896 34.085 Abs Chg. Precious metals Gold prices underperformed this week. largely impacted by the European crisis and the prospect of fiscal tightening in the US.5) (0.India Infoline Weekly Wrap Commodity Corner Base metals Industrial metals traded on a mixed note this week.715 160. LME copper prices have failed to surpass the redundant barrier of US$7. We suggest that monetary easing on a standalone basis will not be able to stimulate economic growth in China.813 16.015. U.6 (1. wherein one puts the cart ahead of the horses rather than putting horses ahead of the cart.712 16. but provided few clues on the fresh round of monetary easing measures.225 110.2 (0.800 1.566 27 LTP* 7.2) 0.900 1.8) (3.3) Weekly inventory update Tons Copper (LME) Nickel (LME) Zinc (LME) Aluminium (LME) Lead (LME) Tin (LME) Shanghai Copper Shanghai Zinc Shanghai Aluminium 253. there still looms a strong probability of quantitative easing in the medium term.930 High 1. Gold prices are surprisingly trading in the confined range of US$1. Exports constitute a major component of Chinese economic growth.8 Chg(%) (0. as the country’s biggest export partner (Europe) is mired in a recession. In this regard. Bernanke stated that the pace of the US economic recovery has been unstable.0 (0.2 1.842 1.

7 NFO update Fund Name ICICI Prudential Fixed Maturity Plan Series 63-3 Years Plan M. of stocks No. DSP BlackRock US Flexible Equity Fund Reliance Dual Advantage Fixed Tenure Fund II .0 (0. ICICI Bank Ltd.3 56.3 5.9) 1mth 3.5 16.000 BSE 100 34 21 1.8) 0. Aventis Pharma Ltd.6 5.3) 0.India Infoline Weekly Wrap Mutual Fund Round-up India Infoline picks Mutual Funds HDFC Top 200(G) ICICI Pru Dynamic(G) IDFC Sterling Equity(G) Fidelity Tax Advt(G) HDFC Prudence(G) Reliance Equity Oppor-Ret(G) IDFC Premier Equity-A(G) Assets (` Cr) 10.T.9) 6mth 7.9 5yr 58.1 86.7/29.5 5.2 (0.6 5.9 16. Tata Consultancy Services Ltd.6 105.692 4.4 3.7 0.0 0.356 3.8) (1.203 6.4 6.1 `10.0 37.Plan E Close 25-Jul 31-Jul 31-Jul Type CE OE CE Class Debt Equity Hybrid 5 .2 Reliance Equity Opportunity Fund Fund snapshot Fund Manager Latest NAV NAV 52 high/low Latest AUM (cr) Type Class Options Min investment Benchmark No.5 (2.0 (0.6 `218.8 5.8) (2.5 6.9 9.7 1yr (6. of stocks No.0 56.8 4.2 6.9 Funds this week: HDFC Top 200 Fund Fund snapshot Fund Manager Latest NAV NAV 52 high/low Latest AUM (cr) Type Class Options Min investment Benchmark No. Divis Labs SBI Trent Top 3 sectors (%) I.9 3yr 34.Diversified Growth & dividend `5.9) (1.9 11.0 (0.2 3mth (2.3) 0.8 10.3 0.2 Absolute return (%) as on July 20.8% 1% before 1 year Asset allocation (%) Equity Debt Cash/call Top 5 holdings (%) State Bank of India Infosys Ltd.3 5.Diversified Growth.8) (3.3 `3. of sectors Expense ratio Exit load Prashant Jain `199.345 NAV (`) 199.2 4.9) 6.061 1. Top 3 sectors (%) Banks Software Consumer Non Durables 22.7 66.2) 1.4 99.1 8.9 10.0 4.3 5.3 (2.2 3.6 86.159 Open-ended Equity .7 3.4 39.9 215.1) (2. Dividend & Bonus `5.9 95.7 (0. Healthcare Auto 16.4 48.7/168. ITC Ltd.4 15.0 3.8) 2yr 0.7 8.9 18.1 3.85% 1% before 1 year Asset allocation (%) Equity Debt Cash/call Top 5 holdings (%) Infosys Ltd.1 44.5 43.130 1.537 Open-ended Equity .1 8.0) 0. of sectors Expense ratio Exit load Shailesh Raj Bhan `37.7 6.9 `37.000 BSE 200 66 30 1.193 2.1) 1.9 3.1) (5.9 33.5 65.8 4.7 20.6 66. 2012 1wk (0.

India Infoline Weekly Wrap Chartbook Inflation 14 12 10 8 6 4 2 0 Jan-08 Jan-09 Jan-10 Jan-11 May-08 May-09 May-10 May-11 Jan-12 May-12 Sep-08 Sep-09 Sep-10 Sep-11 Interest Rate Monthly Inflation MFG Products 18 16 14 12 10 8 6 4 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 (%) (%) 10yr Gsec yield 3mth CP rate 5yr AAA bond yield (2) 2 IIP and Six core Industries 16 12 8 4 0 (4) Oct-10 Aug-10 Aug-11 Apr-10 Apr-11 Oct-11 Jun-10 Jun-11 Dec-10 Dec-11 Apr-12 Feb-11 Feb-12 Crude (Brent/ Nymex) IIP 180 160 140 120 100 80 60 40 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-12 (%) Six core Ind. (US $) Nymex Crude Brent Crude Jul-08 Jul-09 Jul-10 Jul-11 Currency Movements 100 90 80 70 60 50 40 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Dollar Index (INR/USD) (INR/JPY) 95 Dollar Index 90 85 80 75 70 (EURO/USD) (INR/GBP) Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Source: Bloomberg 6 Jul-12 30 Jul-12 (8) 20 .

00 4.00 - (Rs) PE (x) Dow Jones Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Nasdaq PE Comparision S&P 500 FTSE US Initial Jobless Claims DAX Sensex Earning Estimates India Infoline Weekly Wrap Hang Seng* FY13 .00 14.00 6.400 1.00 2.. Source: Bloomberg Apr-00 Jan-09 Volatility Index Sensex PE Band Apr-01 Apr-02 Jul-09 India Germany Apr-03 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jan-10 Apr-04 Apr-05 VIX Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Apr-06 Euro Zone US Apr-07 Apr-08 Apr-09 Apr-10 9x 21x China Apr-11 17x 5x 13x Apr-12 200 300 400 500 600 700 800 1.500 1.200 1.000 Dec-10 15.000 25.00 16.000 Jan-08 0 (%) Jul-08 Apr-99 Feb-11 Apr-11 Chartbook.40 45 50 55 60 65 70 100 10 20 30 40 50 60 70 80 90 PMI 0 10.000 20. Nikkei* Shanghai Comp Dec-11 Jan-12 Feb-12 Mar-12 Brazil Bovespa Mexico Bolsa FY14 Initial Jobless Claims ('000) Kospi* FY13 Taiwan* Apr-12 May-12 Jun-12 Jul-12 Straits* Jan-12 Jul-12 Sensex 7 .000 35.000 30.000 5.300 1.00 12.00 8..600 10.

Outlook for Indian infrastructure sector remains negative. Global consumer confidence lost further ground in Q2. Euro area crisis has reached a critical stage. websites and other media. The US economy grew at 'modest to moderate pace' in June and early July. while reiterating that the central bank is ready to intervene and prop up the US economy if the need arises. said the Fed’s Beige Book. The Cabinet also cleared the disinvestment in SAIL besides hiking fair and remunerative price of sugarcane. 8 . the IMF added. The materials and information provided by this newsletter are not. electronic media. prompting the government to say that it will maintain the curbs on the property markets. Ratan Tata threw his weight behind the reformist Prime Minister Dr. Past performance is not necessarily an indication of future performance. Senapati Bapat Marg. with Pranab Mukherjee set to win the race to the Rashtrapati Bhavan on a canter. The US economic activity appears to have decelerated. Core inflation is better indicator of price trends.3% in 2012. Lower Parel (W). The Union Cabinet approved 21% import duty on power generation gears to protect domestic industry. research. RBI Governor Dr. The RBI unveiled a report to review prudential norms on loan restructuring. A fresh labour unrest broke out at Maruti's Manesar plant following violent clashes between workers and management personnel. Investors should not rely solely on the information contained in this publication and must make their own investment decisions based on their specific investment objectives and financial position and using such independent advisors as they believe necessary. India Infoline does not assure for accuracy or correctness of information or reports in the newsletter. Event Calendar Period : 23rd – 27th July US • • • • • • • • • • • Jun Durable Goods Orders (26 Jul) Jun Pending Home Sales YoY (26 Jul) Q2 GDP QoQ Annualized (27 Jul) Q2 Personal Consumption (27 Jun) Food Articles WPI YoY (26 Jul) Primary Articles WPI YoY (26 Jul) Fuel Power Light WPI YoY (26 Jul) HSBC Flash China Manufacturing PMI (22-25 Jul) MNI July Business Condition Survey (27 Jul) Jul Euro-Zone Consumer Confidence (20-23 Jul) Jul PMI Manufacturing (21-24 Jul) India China Euro Zone IIFL. Manmohan Singh amid growing criticism of policy logjam. Nielsen said while German investor confidence was down for a third straight month. IT spending in India is expected to grow by 16. according to Fitch. The Government raised 201112 foodgrain output estimates to a new record while the Food Minister said that the Government might impose stock limits on food items to check spiraling inflation.India Infoline Weekly Wrap News Recap The Presidential Polls got over. Maruti shares tumbled 9%. Metal stocks fell after Moody's scaled back its outlook on the global base metal sector. India Infoline may or may not hold positions in any of the securities named in this newsletter as a part of its business. Eurozone inflation held at a 16-month low while trade surplus swelled. according to Nielsen. Kamala City. IMF cut global growth forecast citing the lingering Eurozone debt crisis and slower growth in the Emerging Markets. IIFL Centre. The UPA received a minor setback after NCP leaders Sharad Pawar and Praful Patel resigned from the Union Cabinet. UK’s annual CPI slowed to a 31-month low in June. Agriculture Minister Sharad Pawar said that there is no drought situation in India as yet and that the Centre is ready for any eventuality on the monsoon front. Bernanke said. UK unemployment rate fell in May on Olympic boost while June retail sales were below estimates. Monsoon rains turned below average for the week ended July 19 after having turned positive in the previous week. The PMO decided to speed up project clearance in the Oil & Gas exploration sector. The information also includes information from interviews conducted. Fed Chairman Ben S. and should not be construed as an advice to buy or sell any of the securities named in this newsletter. Still. Mumbai 400 013 The information in this newsletter is generally provided from the press reports. views expressed by our research team. China's home prices snapped an eight-month losing steak. India's inflation dipped slightly in June. but April's figure was revised higher. Consumer confidence in India dropped in Q2 CY12. analysis. as per IDC. Subbarao said.