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WORLD MAJOR INDICES (%)
Particulars US Indices NASDAQ S&P 500 DJIA European Indices CAC DAX FTSE 100 Rest of the World Indices STRAITS NIKKEI Hang Sang Brazil IBOV Russia RTSI China (Shanghai) (5.4) (6.2) (9.4) (5.2) (1.4) (5.5)
Note: 1M: 1 Month Source: Bloomberg, SSL Research

December 2011

% Change

The global markets witnessed a massive sell off last month on account of fears of deepening European woes and sluggish world economic growth casting doubts of world being pushed into recession. However the markets retraced to some extent on the news of leading Central Banks relaxing liquidity. The U.S markets declined nearly 3.3% to 6.3% while European bourses lost 0.7% to 2.7%. Asian markets underperformed the most with Hang Sang losing maximum viz. 9.4%.

(6.3) (1.3) (3.3)

(2.7) (0.9) (0.7)

Major developments
China's PMI drops, troubled times ahead
The HSBC flash purchasing managers' index (PMI) - the preliminary readout of China's industrial activity - fell sharply this month to 48 from October's 51, reflecting signs of a domestic economic slowdown. The contraction of China's manufacturing sector has further unnerved investors who are already fearful of an expanding global recession amid persistent signs of a struggling U.S. economy and the rampant debt crisis affecting the Eurozone. Financial markets already suffering from a pessimistic Western economic outlook were further frustrated by the release of the disappointing PMI data.

China cuts reserve requirements by 50bps

For the first time in three years, China's Central Bank has slashed reserve requirements by 50 bps to 21% in the backdrop of disappointing PMI reading and the mounting credit crisis. This stance is expected to release approximately 350 billion to 400 billion Yuan into the banking system freeing up funds for lending. The abrupt shift in policy by the central bank will help ease credit crunch and strengthen economic activity that has been moving at a frail pace since 2009. Global markets rejoiced the news since Europe has been reeling under pressure for quite some time and this move comes as a savior with the Chinese economy being bestowed with more funds to invest in European bonds.

Italy's borrowing cost touches all time high levels

Italy paid record yields of nearly 8 percent to sell three-year bonds, a level seen driving its debt burden out of control if sustained over time. Italy was forced to offer a record 7.89 percent yield to sell 3-year bonds, a giant leap from the 4.93 percent it paid in late October and 7.56 percent for 10-year bonds, compared with 6.06 percent at that time. Euro markets were temporarily pacified courtesy strong demand with the maximum 7.5 billion Euros sold.

December 2011 / 1

COMMODITY & CURRENCIES

Particulars USD Index USD/EURO USD/Pound USD/Yen Brent Crude Gold Silver Copper Aluminum Zinc Lead Nickel Tin % Change 2.2 (3.5) (2.7) (0.2) 2.0 0.3 (11.5) (7.2) (11.0) (1.8) 0.0 (14.0) (8.3)
Note: 1M: 1 Month, Source: Bloomberg, SSL Research

Italy's debt burden stands at a massive 1.9 trillion euro equivalent to 120 percent of GDP. The picture is expected to go darker as it needs to refinance 340 billion Euros of maturing debt next year with big redemptions starting in late January. The country has promised to balance its budget in 2013 but this auction threatens its ability to keep borrowing costs under control without international help.

Top Credit Rating Agencies downgrades outlook, shivering world economies

After S&P and Moody's, Fitch downgraded US outlook from stable to negative triggering nervousness across the world economies with a possible anticipation of recession. This comes in the backdrop of US's inability to arrive at a consensus on its deficit cuts, accentuating the probability of downgrade to more than 50% in the near future. This is also followed by S&P adjusting the ratings for major financial institutions including top banks like Bank of America, Citigroup Inc, Morgan Stanley, J.P Morgan Chase & Co and Goldman Sachs Group Inc. The panic strucken economic developments as well as enormous regulatory changes specially in eurozone has exposed the sensitive business models of these institutions to the turbulent financial markets. As an implication, Fitch also lowered its rating for three banks and has put seven others on negative watch list. Adding to the woes, the UK's Finance Minister George Osborne lowered economic growth forecasts for UK from budgeted 2.5% to 0.7% next year hinting the economy falling into clutches of recession if Euro's debt crisis stood tall for long.

Outlook:
During the month of November, the statistics were not encouraging enough globally. The ongoing Euro-zone debt crisis seem to be escalating and rescue packages have been of limited help, however positive steps from Chinese central bank may lead to flow of money to European bond markets. Changes in political leadership, confusion on the role of the European Central Bank & European Financial Stability Facility and the magnitude of financial support that will be provided by member states will direct the markets. Outcome of EU meeting on December 9 will be crucial. We expect positive steps from European central banks in easing liquidity and sustaining operations. Apart from above, any move by rating agencies to downgrade any other eurozone member or member bank is likely to drag down the markets across the world. Amidst weakening local government finances, lack of transparency in operations and deteriorating assets of banking system observed in Chinese economy are further drags to the global macro-economic outlook for the coming months. With the onset of December, the festive fervor will grip the markets, leaving them hugely indecisive. Thus we'll preferably wait and watch for further developments in short term and our medium term outlook remains neutral.

December 2011 / 2

Indices Return (%)

Index S&P CNX Nifty BSE Sensex BSE Midcap BSE Smallcap BSE Auto Bank Nifty BSE Capital Goods BSE Con. Durables BSE FMCG BSE Healthcare BSE IT BSE Metal BSE Oil & Gas BSE Power BSE Realty BSE Tech % Change (9.28) (8.93) (10.6) (12.6) (11.0) (14.3) (11.9) (14.4) (3.7) (1.3) (5.6) (14.1) (9.3) (11.2) (15.2) (4.9)

Indian Market
The Indian markets underperformed as compared to most of the global peers with broader indices Sensex and Nifty dropping by 8.93% and 9.28% respectively. BSE Realty sharply corrected by 15.2% followed by Bank Nifty and BSE Consumer Durables losing over 14%. BSE Healthcare outperformed the most declining by a mere 1.4%.

Major Developments
Cabinet gives a nod to 51% FDI in multi brand retail
The UPA Government has finally opened doors for foreign retailers ending years of indecisiveness. The Government has allowed 51% FDI in multi brand retail and 100% FDI in single brand subject to certain conditions such as:
n n n

Minimum investment of $100 million with 50% in back-end processes. At least 30% sourcing from small industries Stores can only be in cities with a population of 1million

Note: 1M: 1 Month; Source: Cline, SSL Research

Institutional Investment (Rs Cr.)

Segment FII DII MF Oct 2011 1097.76 (1777.9) (211.70) Nov 2011 (6508.71) 4841.35 13268.7

This verdict is definitely a game changer for retailers, consumers and the Indian economy. It will bring in huge investments, technology and modern distribution infrastructure. The farmers and suppliers will be able to fetch better prices and bigger orders. Retailers will save on commission by the way of direct purchase from farmers and may garner more foreign investments. It is expected that in the next 10 years, $7-10 billion worth of investment will flow in the retail sector. The move will also help in lowering the prices of products and easing up supply side inflation through investments in backend infrastructure. However, the local kiranas and intermediaries may become victims due to competition and direct sourcing from farmers. Today the total size of retail industry is around $500 billion which contributes to nearly 1/3rd of India's GDP but unfortunately organized retail constitutes only 2-3% of the total retail. India is facing huge fiscal deficit of over 5% of GDP and this move would result into higher tax collection as most of small retailers in India are doing business on cash basis and hence easily evade taxes. We think FDI would not only create jobs but would also put a check on food inflation.

Note: 1M: 1 Month; Source: SEBI, SSL Research

CNX 100 Top Gainers (%)

Scrips Patni Computer Systems Cipla Power Finance Corporation Hindustan Unilever Sun Pharmaceutical Industries (1M) Change 37.94 11.05 7.94 5.68 4.17

Note: 1M: 1 Month; Source: Cline, SSL Research

GDP doom, economy gloom

Gross Domestic Product (GDP) growth sank to 6.9 per cent in Q2FY12, as compared to 7.7 per cent in the previous quarter and 8.4 per cent a year ago. With this, the GDP growth during first-half of FY12 stands at 7.3 per cent as compared to 8.6 per cent last year. Courtesy the dawdling performance of the manufacturing and mining sector, industrial growth took the beating and reduced to 3.2 per cent in Q2FY12. Services sector growth restrained too, but remained above 9 per cent. On the demand-side, fixed investment withered due to high interest rates and policy paralysis. Prospects for improvement in GDP growth in the rest of FY12 remain drab due to deteriorating global scenario and lengthy decision making procedures of the government.

CNX 100 Top Losers (%)

Scrips HDIL Adani Enterprises IFCI SAIL GMR Infrastructure (1M) Change (39.60) (36.93) (30.05) (28.52) (25.77)

Note: 1M: 1 Month; Source: Cline, SSL Research

December 2011 / 3

Indias GDP Growth Rate

GDP at fac tor cost 10 9 8 7 6 5 4 3 2 1 0 Q1FY11 Q2 FY11 Q1FY1 2 Q2FY12 GDP at ma rket price

Rupee Depreciated to all time low

The rupee sank to a record low to 52.73 this month as intensifying sovereign crisis in Europe drove investors to seek safety in US dollars. Persistent weakening of rupee against the greenback has put pressure on inflation as imported goods and commodities will cost more. The rupee has depreciated over 14% this year making it the worst performing currency in Asia. Analysts expect that the rupee may fall to as low as 55 against dollar. The factors pushing Indian rupee down is the widening current account deficit coupled with slow economic growth arising out of high inflation, interest rates and policy paralysis. A weak rupee has not only pushed importers to despondency but also exporters who have hedged themselves at a higher level potentially eroding the margins for many businesses. This comes along with RBI's declaration of decrease in India's foreign exchange reserves by $12 billion in three weeks.

FII Cap raised in Government and Corporate Debt

Source: RBI, SSL Research

Addressing the issue of rupee instability and poor investor response towards Government debt, the Ministry of Finance raised the FII cap by $5 billion each for corporate as well as government debt. The limit for government debt has increased from $10 billion to $15 billion and for corporate debt from $15 to $20 billion. This move has come as a rescue measure to arrest the persistently falling rupee coupled with the inflating current account deficit and lack of investor interest shown towards the auction of government debt.

INR / USD
INR/USD 53 52 51 50 49 48 47 1-Nov

Outlook:
Markets have turned extremely volatile and in sync with the global peers. We should expect really tough times ahead as there is no shortage of bad news - be it domestic or global. The result session is almost over, while topline for Nifty 50 companies have grown 24%, the bottomline grew just 7% indicating clear sign of margin pressure on account of rising raw material prices and higher borrowing cost. RBI's credit policy review scheduled on 16th December will be crucial wherein we expect RBI to pause rate hike. Domestic macro-economic prospects dominated by high inflation and drooping industrial production led to downward revision of
8-No v 1 5-Nov 22-Nov 29-Nov

Source: www.x-rates.com, SSL Research

growth estimates to 7.6% for FY12, acting as the main driver for rupee depreciation. With contribution of exporters remaining marginal, a further widening of the current account deficit would result in outflow of dollars from the Indian economy.

December 2011 / 4

From the Technical Research Desk:

Benchmark Index NIFTY

Source: Spider Iris, SSL Research

Market View:
As on 30th November, Nifty ended with a negative note at a level of 4832.05, losing 9.28% below the previous month's close of 5326.60. It has held the support of 38.20% retracement of the upswing from a low of 2252.75 and a high of 6338.50 on closing basis, making a monthly low of 4639.10 in later half of the month. The volumes in Nifty futures were higher in November than the previous month indicating strength in the down move. However last week's recovery of Nifty held support of previous month's low on closing basis indicating recovery from the oversold zone. We expect Nifty to recover in the 1st week of the month till it reaches monthly average of 4982 and from there selling pressures may take Nifty to test month's low of 4632.25. Holding support of month's low can again take nifty to highs around quarterly average of 5175 level on the upside.

December 2011 / 5

Our Recommendations:
Asahi Songwong Colors Limited
BSE Code : 532853
About Company:
Asahi Songwong Colors Ltd. is a leading player in the Indian Pigment Industry. The company manufactures Pigment Green7 / CPC Beta Blue and Blue Crude and exports substantial part of its production to prominent MNCs across the globe courtesy its good quality products.

Recommendation: Buy
I CMP : Rs80 I Target : Rs96

NSE Code : ASAHISONG

Key Rationales:
n

The company has a reputation of paying high dividends and this year is no different. It has paid a dividend of Rs 3.25 per share taking its dividend payout ratio to nearly 20% and dividend yield ratio to 5%. ASCL has carried out an expansion plan with a capital outlay of Rs52 crores to enhance the production capacity of CPC Blue Crude from present levels of 3600 TPA to 10800 TPA, and expanding its Beta Blue pigment capacity to 2400 TPA. The company is in the process of adding new products to its basket. The company's sales during FY11 clocked 44 percent and profit grew 107 percent. The sales and profits registered a CAGR of 31 and 21% respectively with sales increasing from 83 to 184 Cr and profits from 11 to 21 Cr. The company is expected to generate sales and profit growth in excess of 40 percent during FY12. The company during H1FY12 has reported 25 percent growth in sales and 39 percent in profits. The company is expected to grow at 30-35 percent CAGR in terms of sales and profit for next 2-3 years. The company has prominent clients like DIC of Japan, Sun Chemicals of USA, Clariant of Germany and BASF. DIC also holds 7% strategic stake in Asahi Songwong. Asahi has now started investing in R&D and plans to launch two new higher value added products. The pigments and colorant sector is one of the most important segments of the chemical industry in India. In the current global market scenario, India has emerged as a leading player in the color industry which comprises of pigments and intermediates. The Company derives nearly 80% of its revenue from exports with DIC Corporation, Sun Chemicals, Clariant and BASF etc being the most important customers. The Company is able to maintain a strong relationship with its clients by supplying high quality products. The recent rupee depreciation would help the company in gaining higher export realization.

n n

Outlook and valuation:

At current price of Rs80 the stock is trading at 4.1x of its TTM September 2011 earnings whereas it is trading at 0.99x on P/BV front. We are very positive on the stock in short term. We recommend investors to BUY the stock with price target of Rs96.

December 2011 / 6

Our Recommendations:
PVR Limited
BSE Code : 532689
About Company:

(contd....)
Recommendation: Buy

NSE Code : PVR

CMP : Rs137

Target : Rs148

PVR Ltd is a leading and premium Multiplex Cinema Exhibition Company with a strong presence across various spheres of lifestyle entertainment. It has diversified business interests with presence in movie exhibition through PVR Cinemas and production & distribution through PVR Pictures. It also operates Bowling Alleys, Karaoke Centers and Ice Skating Rinks through PVR Blu-O. To further diversify its business offerings, company plans to venture into retail entertainment and management of food courts. It generates majority of its revenue from Movie Exhibition, apart from movie production and distribution. In FY11, PVR has been successful in entertaining more than 19 million esteemed patrons across India.

Key Rationales:
n

Currently, company's geographically diverse cinema circuit consists of 36 Cinemas with 158 screens spread over 20 different cities covering major markets across the length and breadth of the country.

PVR Cinemas contributes about 20-25% of domestic box office collections of Hollywood movies and 12-13% of Bollywood movies, highest across the Indian Film Exhibition space. The diversity of its offerings generate operating synergies hence derisking its business model. The Indian Film industry poised at INR 83bn in 2010 was estimated to achieve a staggering 9% growth rate in FY12 with many great prepositions in pipeline. In the long term, the industry is projected to grow at the CAGR of 9.6% from 20102014, and reach the size of INR 132bn by 2014. The company plans to add 60 screens in FY12, incurring a capex of nearly Rs 1bn, to expand its movie screening network across India. Apart from this, PVR Blu-O plans to open 26 lanes bowling alley in Delhi, 20 lanes bowling alley in Pune and 28 lanes bowling alley in Bangalore in FY12.

n n

Owing to draining revenues due to poor performance of the production segment, the company has decided to focus on its core competency i.e. movie exhibition and distribution.

Outlook and valuation:

At the current market price of Rs. 137, the company is trading at P/E of 13.37x and P/B of 1.24x. We recommend a buy on this stock with a price target of Rs 148.

December 2011 / 7

Our Recommendations:
Mahindra Lifespaces Limited
BSE Code : 532313
About Company:

(contd....)
Recommendation: Buy
I CMP : Rs279 I Target : Rs301

NSE Code : MAHLIFE

Mahindra Lifespaces is the real estate and infrastructure development arm of the Mahindra Group. Mahindra Lifespaces today has a development footprint of over 2 million square meters of residential space, spread across multiple regions in India. Mahindra Lifespaces also develops mixed-use industrial real estate under the "Mahindra World City" brand. Operational Mahindra World City developments - covering 1,800 hectares across two locations - are large-format developments that integrate Special Economic Zones (SEZs) and industrial parks with residential developments, office space and amenities for education, hospitality and recreation. Mahindra World City projects are developed in collaboration with provincial governments.

Key Rationales:
n

Demand for residential units in India is estimated to be over 7.5 million units between 2009 and 2013 - an average of 1.5 million units for each of the five years. A bulk of this demand is expected to come from affordable to mid-market strata. The key drivers of this growth in demand of residential housing are: 1. 2. 3. Disposable incomes are increasing at a significant pace Better quality of jobs coupled with easy availability of home finance Reduction in household sizes due to preference for nuclear families and urban migration will further boost demand for housing.

Given these trends, the opportunity in the residential segment, especially in the affordable and mid-market category continues to be favorable.
n

The Company has formalized an ambitious plan, outlining its growth aspirations for the period 2010-2015, which is based on a combination of innovative offerings that will expand its product bouquet in both the segments - residential and commercial as well as by increasing its geographic footprint thus mitigating the concentration risk. Mahindra Lifespaces also entered into two MoUs with the Government of Gujarat at the 'Vibrant Gujarat' Summit, marking its foray into the State. The first MoU is for the development of a 3,000 acre integrated business city, along the lines of the existing MWC format, at Dholera Special Investment Region, located in the proposed Delhi Mumbai Industrial Corridor. The second MoU is for the development of an industrial park of around 500 acres close to Ahmedabad. Mahindra Lifespaces is the first private sector company to have developed and operationalized large format integrated development projects - Mahindra World City (MWC), Chennai in Tamil Nadu and MWC, Jaipur in Rajasthan, which became operational in 2008-09, saw considerable rise in activity during the year with closing of lease agreements and start of construction work across IT/ITeS, Handicrafts and Light engineering SEZs. Apart from these, the Company is in various stages of planning and land acquisition for other large format projects especially in Tamil Nadu and Maharashtra. During FY13, it is also planning to launch projects in two new cities - Hyderabad and Nagpur. All new projects of the Company launched during the FY12, received an impressive response, with the inventory being sold within days of the launch in some cases. The company has also sold 885 residential units across eight ongoing and newly launched projects in five cities, including projects of its subsidiary companies in the residential space. The Company has a total of 3.27mn sq ft area located in Mumbai, NCR and Chennai under development comprising of 2055 units with an average selling price of Rs 4710 out of which 81% has already been sold.

Outlook and valuation:

At the current market price of Rs. 279, the company is trading at P/E of 11.16x and P/B of 1.07x. We recommend a buy on this stock with a price target of Rs 301.
December 2011 / 8

Retail Research Team

Name Alpesh Porwal Ashu Bagri Rajesh Gupta Amit Bagade Megha Hemdev Designation SVP & Head (Retail) Dy. Head - Technical Research Research Analyst Technical Analyst Trainee Analyst

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December 2011 / 9