Market Outlook

March 5, 2013

Dealers Diary
The Indian market is expected to open in the green today mirroring positive opening trades in the SGX Nifty and most of the Asian markets. Also, Finance Minister P Chidambarams promise to take a relook at a clutch of proposals pertaining to indirect taxes in the budget is expected to cheer the markets. US market stocks rebounded from early losses on Monday to finish the session with modest gains. The weakness came in due to worries about China and about the ongoing impact of the budget sequester. European shares fell on Monday, mirroring weakness across Asia as China's service sector data missed estimates and US budget cuts of about USD85bn kicked in, threatening the fragile US economic recovery. Meanwhile Indian markets edged lower, mirroring weakness in Asian and European equities as US budget cuts kicked in and data out of the euro zone and China underlined concerns over the global economic outlook.

Domestic Indices

Chg (%)

(Pts)

(Close)

BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT
Global Indices

(0.2) (0.4) (1.4) (0.1) (1.1) 0.3 (0.8) (0.2) (0.1)

Chg (%)

(40.6) 18,878 (21.2) (86.6) (11.0) (78.5) 5,699 6,234 6,078 7,808 6,788

(1.9) (117.2)

35.3 13,277 (82.6) 10,533 8,893 8,627 6,753

(Close)

(2.5) (231.7) (18.0) (9.7)

(Pts)

Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com
Indian ADR

0.3 0.4 (0.5)

0.4 (1.5) (0.9) (3.6)

38.2 14,128 12.3 (33.0)

45.9 (342.4) (29.5) (86.1)

Markets Today
The trend deciding level for the day is 18,856/ 5,691 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,952 19,027 / 5,719 5,740 levels. However, if NIFTY trades below 18,856/ 5,691 levels for the first half-an-hour of trade then it may correct up to 18,782 18,686 / 5,671 5,643 levels.
Indices SENSEX NIFTY S2 18,686 5,643 S1 18,782 5,671 PIVOT 18,856 5,691 R1 18,952 5,719 R2 19,027 5,740

3,182 6,346
11,652 22,538 3,240 2,273

Chg (%)

(Pts)

(Close)

INFY WIT IBN HDB

Advances / Declines

(0.7) (0.4) 0.7 (1.1)

(0.4) (0.0) 0.3 (0.4)

BSE

$53.6 $9.6 $42.1 $37.7

NSE

News Analysis
Sequester, debt ceiling issues to be eyed Defence Ministry clears RILs two blocks Tata Motors slashes prices of its passenger cars by up to `50,000 Talks between Hero MotoCorp and workers ends inconclusive Bajaj Auto registers sluggish monthly sales in February 2013

Advances Declines Unchanged

Volumes (` cr)

860 1,958 110

360 1,152 61

Refer detailed news analysis on the following page

Net Inflows (March 01, 2013)

` cr FII MFs Purch 3,071 1,669 Sales 2,155 1,199 Net 915 470 MTD 915 (1,119) YTD 45,283 (6,331)

BSE NSE

1,797 10,392

FII Derivatives (March 04, 2013)

` cr Index Futures Stock Futures Purch 1,778 1,898 Sales 1,379 1,327 Net 399 571 Open Interest 9,626 23,656

Gainers / Losers
Gainers Company
Core Projects GMR Infra Bharat Elect Colgate Palmolive CRISIL

Losers Company
NHPC Essar Oil MMTC IFCI Jet Air India

Price (`)
71 19 1,218 1,357 974

chg (%)
8.8 4.7 4.3 4.0 3.9

Price (`)
20 73 369 27 500

chg (%)
(18.8) (11.7) (9.2) (7.2) (7.0)

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Market Outlook
March 5, 2013

Sequester, debt ceiling issues to be eyed

The United States Congress failed to reach an agreement on deferring the sequester budget cuts. In effect, across-the-board automatic spending cuts across military and domestic programs kicked in since March 1, 2013. The reduction in deficit through the spending cuts is expected to amount to USD 1.2 trillion over nine years, with USD 85 billion set to take effect in the remainder of the fiscal year (until September 2013). The Republicans are not open to further tax increases since they acceded to raising taxes in the partial deal passed in January 2013. In case the Congress reaches a deal it is likely to apply retrospectively since March 1, 2013 to avoid the economic consequences of the fiscal cliff. According to the International Monetary Fund, the cuts are likely to adversely impact the economic growth in the United States by 0.5%. The next legislative agenda following the issue of sequestered spending cuts is likely to be raising of the debt ceiling as the U.S treasury is about to hit its statutory borrowing limit of USD 16.4 trillion. We believe that progress on resolution to the sequester and raising the debt ceiling is likely to impact risk perception and determine extent of liquidity flows in emerging markets like India.

Defence Ministry clears RILs two blocks

The Defence ministry has permitted Reliance Industries (RIL) to carry out exploration in the gas producing KG-D6 block and the discovery area of NEC-25, subject to certain conditions. Both these blocks were among the seven blocks that were declared as no-go zones by the Defence ministry as they overlapped with a proposed naval base and were also close to missile launching and Air Force exercise area. RIL and BP plan to spend US$5bn over the coming 3-5 years to raise production from KG-D6 block from the current levels of 19mmscmd. We maintain our Neutral rating on the stock until further clarity on production from these blocks.

Tata Motors slashes prices of its passenger cars by up to `50,000

Tata Motors (TTMT) has slashed the prices of its passenger car portfolio (ex. Nano) by up to `50,000 in an attempt to revive the declining sales. According to the company, the prices have been cut in the range of `29,000 - `50,000 with immediate effect to boost the consumer sentiments and make the companys products more attractive for the consumers. The company is witnessing significant decline in passenger car sales amidst slowdown in demand and increasing competition. The passenger car sales of the company are down 27% yoy YTD in FY2013. However, TTMT has increased the prices of its utility vehicle portfolio, comprising Sumo, Safari and Aria, by up to `35,000 following the excise duty hike in the Budget. While the Sumo prices have been increased by `7,500; Safari and Aria prices have been raised by `11,000. The Finance Minister in the Union Budget 2013-14 has increased the excise duty on large SUVs (length greater than 4,000mm and engine displacement exceeding 1,500cc) to 30% from 27% earlier. The increase in the prices by the company is on the expected lines and has been undertaken to protect the margins. We do not see any major impact of the price hikes/cuts on the companys consolidated financials; however, the price cuts will definitely impact the standalone performance which is already struggling. Meanwhile, TTMT has announced creation of 700 new jobs at Jaguar and Land Rover at its engine plant in Wolverhampton which is expected to commence

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Market Outlook
March 5, 2013

production from 2014. This is likely to increase JLRs investment at the engine facility from around 355mn to 500mn. We maintain our Accumulate rating on the stock with a target price of `326.

Talks between Hero MotoCorp and workers ends inconclusive

According to media report, the final wage talks between management and workers at Hero MotoCorps Gurgaon factory ended on an inconclusive note. The talks with the workers union were arranged after the state governments labor department took an initiative to broker a settlement. Earlier in the last week, the wage talks had fallen apart after both the parties stuck to their demands. Meanwhile, five union representatives at the Gurgaon unit had last week gone on a four-day hunger strike to press the workers demands. However, the strike was called off, after intervention from other trade union leaders in the region. The workers at the Gurgaon unit have been agitating for the past two months for higher wages in a peaceful manner. The workers have been sporting black armbands at the workplace and had also stopped taking tea and snacks offered by the company. While the employees are demanding an increment of around `15,000 in monthly salary, spread over a period of three years, the management is not willing to increase wages beyond `7,500-`9,000/ month. The company currently employs around 1,200 permanent workers and 4,000 contract workers at its Gurgaon facility. The Gurgaon facility accounts for ~30% of HMCLs total annual installed capacity of 7mn units. We would be watchful of any developments on this front as media reports indicate that there is a possibility of production shutdown. However, we believe that an amicable resolution to the wage settlement agreement would be in the best interest of the company. We expect the wage settlement agreement to remain an overhang on the stock in the near term. At `1,638, the stock is trading at 13.6x FY2014 earnings. Currently, we have a Buy rating on the stock with a target price of `1,923.

Bajaj Auto registers sluggish monthly sales in February 2013

Bajaj Auto (BJAUT) reported lower-than-expected sales for February 2013 primarily on account of sluggish demand in the domestic motorcycle segment. Total volumes for the month registered a decline of 3.3% yoy (4.4% mom) to 332,387 units as domestic volumes posted a sharp decline of 10.8% yoy (10% mom).Three-wheeler sales during the month too reported a decline of 1.7% yoy (11.2% mom). The export volumes however, registered a healthy growth of 10.8% yoy (5.2% mom) mainly led by recovery in the export markets. AT the CMP of `1,984, the stock is trading at 15.7x FY2014 earnings. We therefore maintain our Neutral rating on the stock.

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Market Outlook
March 5, 2013

Economic and Political News

Financial inclusion plan key criteria for new bank license: RBI Power Regulators bat for legislative changes to ensure grid security Budget 'realistic', positive for ratings, says Moody's Petrol, diesel price hike to impact coal production cost: Government

Corporate News
Adani Enterprises OFS oversubscribed; promoter gets `189cr Bharti hits bond mart, to raise at least $500 mn Ranbaxy can only sell US-made Lipitor copy

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

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