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Market Outlook

India Research
December 13, 2011

Dealers Diary
Indian markets are expected to open in red taking cues from gap down opening in most of the Asian markets and negative closing in the global markets yesterday. The Indian markets fell sharply for a third consecutive session yesterday after data showed that the domestic IIP shrank by 5.1% yoy for October 2011, well below estimates. Globally, US and European markets closed on a negative note yesterday as troubling remarks by Moody's and Fitch ratings agencies led to renewed concerns about Europe. These rating agencies raised some questions regarding the agreement reached by European policymakers last Friday and whether it will address the ongoing debt crisis. The markets today would be closely watching out for the Fed policy meeting scheduled today which is likely focus on a plan to reveal the direction of interest rates more explicitly. As such no announcements are expected to be made today in this meeting but this will lay the ground for the new communications strategy which could be unveiled in January 2012. Also, retail sales data of the US for November 2011 (estimated at 0.5%) will be on the radar.

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 (%) (2.1) (2.1) (1.9) (1.5) (0.9) (2.8) (3.0) (2.6) (4.1) (2.8) 1.0 Chg (%) (1.3) (1.3) (1.8) 1.4 (0.1) 0.3 (1.0)

(Pts) (343.1) (102.1) (106.9) (93.0) (50.7) (190.2) (302.4) (217.3) (431.6) (224.7) 54.3 (Pts) (162.9) (34.6) (101.4) 117.4 (10.6) 7.1 (23.7)

(Close) 15,870 4,765 5,514 5,960 5,908 6,654 9,855 8,304 9,989 7,797 5,788 (Close) 12,021 2,612 5,428 8,654 18,576 2,702 2,292

Markets Today
The trend deciding level for the day is 16,024 / 4,810 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,207 16,544 / 4,865 4,965 levels. However, if NIFTY trades below 16,024 / 4,810 levels for the first half-an-hour of trade then it may correct up to 15,687 15,503 / 4,710 4,655 levels.
Indices SENSEX NIFTY S2 15,503 4,655 S1 15,687 4,710 R1 16,207 4,865 R2 16,544 4,965

Indian ADRs Infosys Wipro ICICI Bank HDFC Bank

Chg (%) (1.7) (0.7) (7.1) (5.2)

(Pts) (0.9) (0.1) (2.0) (1.5)

(Close) $51.6 $10.4 $26.3 $26.8

News Analysis
Industrial production (IIP) contracts by 5.1% yoy in October 2011 GAIL signs agreement for LNG supplies
Refer detailed news analysis on the following page

Advances / Declines Advances Declines Unchanged

BSE 798 1,943 121

NSE 289 1,153 49

Net Inflows (December 09, 2011)

` cr FII MFs ` cr Index Futures Stock Futures Purch
1,770 341

2,062 561

(292) (221)

1,811 (145)

(2,213) 5,801

Volumes (` cr) BSE 1,824 9,322 NSE

FII Derivatives (December 12, 2011)

1,629 1,469

1,864 1,346

(235) 123

Open Interest
11,451 24,512

Gainers / Losers
Gainers Company
Wipro Aurobindo Pharma Glenmark Pharma Pipavav Defence Infosys

Losers Company
Essar Oil United Brew Chambal Fert Power Finance Sintex Inds

Price (`)
415 91 308 68 2,731

chg (%)
2.6 1.7 1.1 1.0 0.9

Price (`)
60 411 84 149 86

chg (%)
(10.9) (10.7) (8.2) (8.2) (7.9)

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

Market Outlook | India Research

Industrial production (IIP) contracts by 5.1% yoy in October 2011

First industrial production contraction in 27 months: Indias industrial output growth slipped into the negative territory for the first time since June 2009, suggesting the entrenchment of the slowdown in the domestic economy. Industrial production contracted by 5.1% yoy, from a slightly upwardly revised 2.0% growth registered in September 2011 and robust 11.4% yoy growth witnessed in October 2010. Industrial production contraction was at the lower end of street expectations. Median expectation from the survey was of a slight (0.7%) contraction in the industrial production. The sharp contraction can be partly attributed to a) the sharp growth witnessed in the year-ago period (high base effect), b) the festive season and c) sharp contraction in the highly volatile capital goods production data. The 12-month rolling industrial production growth has been on a declining trend since November 2010, and it slipped further to just 5.3%. Even YTD growth more than halved to just 3.5% yoy as compared to 8.7% yoy during April-October 2010. Manufacturing industrial production tumbles by 6.0% yoy: The manufacturing sectors production, which accounts for ~75% of the overall industrial production, contracted by a rather sharp 6.0% yoy, the sharpest contraction since March 2009. In terms of industries, 13 of the 22 industry groups (15 out of 22 in August 2011) in the manufacturing sector registered positive growth during October 2011. Mining production (which accounts for 14.2% of industrial production) continued to register a decline in production for the third straight month in a row. The mining sectors production fell by 7.2% compared to a downwardly revised 7.0% decline in September 2011. The only constituent, according to use-based classification, to remain in the positive growth region was electricity, registering 5.6% yoy growth as compared to 9.0% yoy growth in September 2011. Capital goods production data continues to be highly volatile, declines by steep ~26%: As per use-based data, all the categories registered a decline in production as compared to a year-ago period. Production of basic goods declined albeit by a marginal 0.1% compared to downward revised 4.0% growth in September 2011 and robust 9.8% growth in October 2010. Volatile capital goods production contracted by rather steep 25.5% yoy, the sharpest contraction in more than five years. Production of intermediate goods fell by 4.7% yoy. In spite of the festive season in October 2011, consumer goods production declined, albeit slightly (by 0.8% yoy). Do not expect further policy rate hikes in the current rate cycle: The sharp contraction in industrial production data coupled with the set of moderating economic data (GDP growth at sub-7% levels, slowing export growth etc.) clearly point to the entrenchment of the slowdown witnessed over the past few quarters. The RBI in its latest monetary policy review had also acknowledged the fact of moderating economic growth and had hinted at a low probability of policy rate action in its forthcoming review of the monetary policy. On the basis of our expectation of moderation in inflation from December 2011 (on the basis of weaker demand prospects due to slower global growth) and the considerably slower economic growth trends, we do not expect further hike in policy rates in the current interest rate cycle.

December 13, 2011

Market Outlook | India Research

GAIL signs agreement for LNG supplies

GAIL has signed a Sales and Purchase Agreement (SPA) to buy 3.5mn tonnes of LNG per year for 20 years with US-based Sabine Pass Liquefaction. The supplies are expected to commence from CY2016. The pricing of gas will be based on contractual provisions on a Henry Hub (US gas benchmark) basis after transfer of custody on FOB. This move is a part of GAIL's long-term strategy to secure gas supplies to meet the rising demand in India. This deal will not have a major impact on GAIL's financials over the next two years. Hence, we maintain our estimates and recommend a Buy rating on the stock with a target price of `499.

Economic and Political News

2G case: CBI files charge sheet against Ravi Ruia, Anshuman Ruia of Essar Group Farmer Groups to meet Manmohan Singh to press for FDI in retail Four big-ticket bills expected to come for discussion in Cabinet meeting today Government to free diesel and LPG prices after weighing impact Rupee hits new record low of 52.84 per dollar

Corporate News
Infosys employees working extra hours to meet revenue targets M&M plans to set up an assembly plant in Southeast Asia Sri Lankan bank selects Polaris' Intellect CBS system Suzlon Group wins 35MW UK contracts

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

December 13, 2011

Market Outlook | India Research

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December 13, 2011