Market Outlook

India Research
April 12, 2012

Dealers Diary
The Indian markets are expected to open flat with positive bias tracking mixed opening in the Asian markets and positive closing in the U.S. markets yesterday. Asian markets fell broadly yesterday, extending recent steep losses, as fiscal concerns in peripheral European countries as well as fresh fears over dwindling global growth kept investors cautious. The US markets gained yesterday, rebounding from an extended losing run after Spanish and Italian bond yields fell which renewed hopes about a solution to the eurozone economic crisis and aluminum maker Alcoa Inc. reported a surprising profit. Statements made by Benot Coeur, a Board Member of the European Central Bank, also seemed to ease concerns over Spain. The Indian benchmark indices ended slightly lower yesterday mirroring negative sentiment on Wall Street overnight and caution prevailed ahead of industrial output and inflation data. The markets will now closely watch out for IIP data for February 2012 (Bloomberg estimate 6.7%) due to be released today. Also, initial jobless claims data for the week ended April 4 for the U.S. economy will be on radar. Markets Today The trend deciding level for the day is 17,198 / 5,227 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,320 17,441 / 5,263 5,300 levels. However, if NIFTY trades below 17,198 / 5,227 levels for the first half-an-hour of trade then it may correct up to 17,077 16,955 / 5,191 5,154 levels.
Indices SENSEX NIFTY S2 16,955 5,154 S1 17,077 5,191 PIVOT 17,198 5,227 R1 17,320 5,263 R2 17,441 5,300

Domestic Indices BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT Global Indices Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com

Chg (%)

(Pts)

(Close)

(0.3) (0.3) (0.6) (0.3) 0.6 (0.1) 0.2 (0.5) (0.9) 0.2
Chg (%)

(44.4) 17,199 (16.8) (40.1) (18.3) 37.9 (9.0) (50.3) (68.9) 11.2
(Pts)

5,227 6,330 6,774 6,626 7,258 9,986 7,900 5,992

(Close)

22.8 11,789

(1.3) (146.1) 10,721

0.7 0.8 0.7 (0.8) (1.2) 0.1

Chg (%)

89.5 12,805 25.2 39.2 (79.3) (36.0) 3.1

(Pts)

3,016 5,635 9,459 2,946 2,309

(Close)

(1.1) (215.6) 20,141

Indian ADRs

INFY WIT IBN HDB

Advances / Declines Advances Declines

0.4 0.8 2.3 0.9

0.2 0.1 0.8 0.3

BSE

$56.5 $10.7 $34.2 $33.4

NSE

News Analysis
Cement growth unlikely to sustain at double-digit levels Idea Cellular and ESPNcricinfo tie up to launch Dream Fields
Refer detailed news analysis on the following page

1,211 1,578 121

544 885 74

Net Inflows (April 10, 2012)

` cr FII MFs Purch 1,903 194 Sales 2,942 401 Net (1039) (207) MTD (788) (234) YTD 44,539 (5,807)

Unchanged

Volumes (` cr) BSE

FII Derivatives (April 11, 2012)

` cr
Index Futures Stock Futures

2,383 11,065

NSE

Purch 1,450 1,424

Sales 1,762 1,280

Net (311) 144

Open Interest 9,249 22,452

Gainers / Losers
Gainers Company
Financial Tech Jet Air India Max India Kotak Mah Bank Crisil

Losers Company
India Cements Century Tex Reliance Cap ACC United Brew

Price (`)
747 359 188 560 1,072

chg (%)
5.8 5.3 3.6 2.7 2.6

Price (`)
97 345 361 1,237 513

chg (%)
(7.7) (6.2) (5.5) (4.9) (4.7)

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

Market Outlook | India Research

Cement growth unlikely to sustain at double-digit levels

Cement demand growth is anticipated by markets to remain buoyant going ahead, in-line with ~10% growth witnessed in 2HFY2012, which has led to the recent run-up in the prices of cement stocks (market cap of our coverage stocks increased by ~18% YTD vs. Sensex registering an increase of only ~12% YTD). However, we remain cautious on the sustenance of demand at double-digit levels in FY2013E and expect yoy demand to decelerate to 8-9% levels, considering moderate overall GDP growth. Moreover, while elections are in any case scheduled in FY2013 in states accounting for only 9% of overall cement demand, even in FY2014, though elections are scheduled in states accounting for 22%+ of overall cement demand, we would not bank upon elections to be a major catalyst for demand growth to improve unless the overall GDP cycle improves from current levels. This is because, contrary to the popular belief that elections can lead to a significant surge in demand, our analysis of all-India cement demand growth, overall GDP growth and elections both centre and state over the last ~20 years has led us to conclude that it is the overall GDP growth that is a major determinant of cement demand rather than the thrust provided by elections. As per our analysis, the correlation coefficient between cement demand and election comes at +0.02 (we have considered two years CAGR for cement demand, as election-related activities usually pick-up in one-two years prior to the elections) i.e., it does not indicate any correlation at all. In fact, even in years when states accounting for 23%+ of overall cement consumption came up for elections, on five such occasions cement growth (two years CAGR) was less than 8%, mainly on account of slowness in the overall GDP cycle. Similarly, on four occasions, we found that cement growth was more than 8% on account of healthy GDP cycle despite elections only being there in states accounting for less than 13% of overall cement consumption. Also, in four of the seven times when general elections were held, cement growth during the election year was not higher than that witnessed in the immediate preceding year. Further, in case of state assemblies elections in major cementconsuming states such as Maharashtra, Uttar Pradesh, Andhra Pradesh, Karnataka and Tamil Nadu, it was observed that in greater number of occasions cement growth in the election year was not higher than that registered in the immediate preceding year. Cement sector Outlook and valuation In our view, the cement sector's valuations in terms of EV/sales and EV/tonne when compared to utilization levels are almost 39% more expensive than its historical valuations during periods of similar utilization levels. However, healthy pricing helped by production discipline among cement companies along with sturdy demand growth in 2HFY2012 has led to high valuations currently. Nevertheless, in our view, this is a thin investment thesis to rely on, as there is a persistent risk of a breakdown in production discipline and deceleration of demand growth to 8-9% levels in FY2013E. Hence, we remain Neutral on the cement sector. That said, we maintain our Buy view on JK Lakshmi due to its attractive valuations, as it is trading at EV/tonne of US$44 on FY2014E capacity.
April 12, 2012

Market Outlook | India Research

Cement demand growth vis--vis elections in India

Financial year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Ambuja Cements

Two years Demand demand CAGR States having elections growth (%) (%) U.P., T.N., Kerala, W.B., Haryana, Assam, Puducherry, Punjab + General 9.6 8.6 Election 0.9 5.2 H.P., Meghalaya, Tripura, Nagaland + General Election 7.2 7.6 11.7 9.4 9.1 5.7 14.3 (0.3) 6.8 8.8 6.1 8.2 10.7 9.4 7.8 7.6 7.1 5.0 6.6 4.0 U.P., Rajasthan, M.P., NCT Delhi, Mizoram, Goa, 7.4 Maharashtra, A.P., Karnataka, Manipur, Arunachal Pradesh, Sikkim 9.6 Gujarat, Odisha, Bihar U.P., T.N., Kerala, W.B., Haryana, Assam, Puducherry, Punjab, J&K + 10.6 General Election 9.3 H.P., Meghalaya, Tripura, Nagaland 7.4 Gujarat, Rajasthan, M.P., NCT Delhi, Mizoram, Goa + General Election Maharashtra, A.P., Karnataka, Manipur, Arunachal Pradesh, Sikkim + 9.9 General Election 6.7 Haryana, Odisha, Bihar T.N., U.P., Kerala, Punjab, Uttarakhand, W.B., Assam, Puducherry, Goa, 3.2 Manipur 7.8 Gujarat, H.P., J&K, Meghalaya, Tripura, Nagaland 7.5 Rajasthan, M.P., NCT Delhi, Chhattisgarh, Mizoram Maharashtra, A.P., Karnataka, Odisha, Jharkhand, Arunachal Pradesh, 7.1 Sikkim + General Election 9.4 Haryana, Bihar T.N., U.P., Kerala, W.B., Punjab, Uttarakhand, Assam, Puducherry, Goa, 10.0 Manipur 8.6 Gujarat, H.P., Meghalaya, Tripura, Nagaland 7.7 Karnataka, Rajasthan, M.P., NCT Delhi, Chhattisgarh, J&K, Mizoram Maharashtra, A.P., Haryana, Odisha, Jharkhand, Arunachal Pradesh, 7.4 Sikkim + General Election 6.0 Bihar T.N., U.P., Kerala, W.B., Punjab, Uttarakhand, Assam, Puducherry, Goa, 5.8 Manipur Gujarat, H.P., Meghalaya, Tripura, Nagaland Karnataka, Rajasthan, M.P., NCT Delhi, Chhattisgarh, Mizoram

Election states combined cement consumption as a % of total* 36.5 1.6 23.9 29.0 12.7 37.1 1.6 20.7 29.0 10.0 34.1 9.0 15.9 33.8 7.0 34.1 8.4 23.1 31.3 2.9 34.1 8.4 22.5

Source: Election Commission of India, CMA, Company, Angel Research, Note: *Based on FY2009 data as latest data excludes dispatches of ACC and

Cement demand growth vs. GDP growth correlation

25.0 20.0 15.0 10.0 5.0 0.0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

two years' demand CAGR (%)

Source: Company, Angel Research

two years' GDP CAGR (%)

April 12, 2012

2012

Market Outlook | India Research

Idea Cellular and ESPNcricinfo tie up to launch Dream Fields

Idea Cellular and ESPNcricinfo have formed a long term tie up spanning content and advertising in India to launch Idea Dream Fields. It is a dedicated editorial repository within the website www.espncricinfo.com, which explores the issue of lack of cricket spaces in cities in India. As part of this initiative, ESPNcricinfo will travel to the prominent cricket cities in the country, speak to fans, players, parents and local administrators, and visit cricket grounds to explore the issue. Idea Dream Fields will also feature content gathered from the public via social media. ESPN and Idea Cellular have an annual sponsorship deal, estimated by market experts to be in the range of US$1-1.5mn, which was initiated in August, 2011. The Dream Fields initiative is part of that deal. The initiative intends to engage the various stakeholders to present their concerns and issues regarding the cricket playing spaces in the cities in India and marks an attempt to raise this issue at a national level. The content line up for the initiative includes Maidan View, a series on popular cricket grounds; and Ground Reality, a video series exploring the state of cricket in major cities. We maintain our Neutral view on Idea Cellular.

Quarterly Bloomberg Brokers Consensus Estimates

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

Economic and Political News

ADB projects moderate increase in GDP to 7% in 2012-13 India, other emerging economies showing positive signs: OECD Tsunami alert in 28 nations as 8.9 quake hits Indonesia

Corporate News
M&M to consolidate R&D units, to roll out tractor soon Piramal Healthcare gets EU nod for orthopaedic product PSL bags `570cr order from IOC Strides Arcolab receives US FDA nod for vancomycin oral capsules
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

Results Calendar
13/04/2012 16/04/2012 18/04/2012 19/04/2012

Infosys Crisil, MindTree HDFC Bank, HCL Tech, Infotech Enterprises Hind Zinc, Ambuja Cements, ACC, IndusInd Bank

April 12, 2012

Market Outlook | India Research

Research Team Tel: 022 - 39357800

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

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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April 12, 2012