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Indian stock market and companies daily report (September 20, 2012, Thursday)

Contributed by Angel Broking

The Indian markets are expected to open on a negative note tracking weak opening of most of the Asian indices following Japanese exports data which declined 5.8% yoy in August 2012 raising concerns on global economic growth. The US markets moved modestly higher over the course of the trading day on Wednesday, although buying interest remained subdued. The modest strength on Wall Street was partly due to news of additional stimulus from the Bank of Japan. The US Commerce Department said housing starts rose 2.3% to an annual rate of 750,000 in August 2012 from the revised July 2012 estimate of 733,000; while building permits, an indicator of future housing demand, fell 1.0% to an annual rate of 803,000 in August 2012 from 811,000 in July 2012. As per National Association of Realtors (NAR), existing home sales jumped 7.8% to an annual rate of 4.82mn in August 2012 from 4.47mn in July 2012, reaching their highest level since May 2010.

Indian shares eased slightly on Tuesday, as caution crept in amid extremely weak global cues. Going ahead, trading is likely to be impacted by the release of US economic data, including reports on weekly jobless claims, leading economic indicators and Philadelphia area manufacturing activity. Further, a preliminary survey for ChinaRs.s manufacturing activity in September is due today which is also likely to weigh on investors mind.

Markets Today

The trend deciding level for the day is 18,515/5,602 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,561 - 18,626/5,618 - 5,636 levels. However, if NIFTY trades below 18,515/5,602 levels for the first half-an-hour of trade then it may correct up to 18,450 - 18,404/5,584 - 5,568 levels.

CPI inflation for August 2012 reports double-digit growth at 10.03%

As per provisional estimates from the Central Statistical office (CSO), combined Consumer Price Index (CPI) inflation for the month of August 2012 increased to 10.03% as compared to 9.86% in July 2012. Inflation in rural areas stood at 9.9% during August 2012 as against 9.76% in the month of July 2012. Inflation in urban areas stood at 10.19% in the August 2012 as compared to 10.1% in July 2012.

Inflation in the Rs.Food and BeveragesRs. category has witnessed an uptrend since January 2012 and reached 12% during August 2012 as compared to 11.53% in the previous month. The index reported an increase of 11.68% for rural consumers and 12.64% for urban consumers. Inflation in Rs.Food and BeveragesRs. was led by high vegetable prices which reported an increase of 20.79% for the month. The Combined Index for Fuel and Light witnessed an increase to 7.55% during the month as compared to 7.36% in July. Inflation in Rs.HousingRs. as well as Rs.Clothing, Bedding and FootwearRs. recorded an increase of 10.75% and 10.71% respectively in the month of August 2012. Inflation in the Miscellaneous Category comprising transport and communication, education, recreation etc slipped for the second quarter to 6.8% in August 2012 as compared to 7.53% in July 2012.

Headline inflation, as measured by the Wholesale Price Index (WPI), also inched upwards to 7.55% during the month as compared to 6.87% in July 201 2 driven by increase in fuel prices and inflation in manufactured products.

Earlier, on September 17, 2012 the Reserve Bank of India in its Mid Quarter Review of Monetary Policy maintained its key policy rates, while reducing the CRR by 25bps, in spite of fiscal consolidation and reform measures announced by the government; signaling that inflation management remains its top priority.

IMG recommends some more coal block cancellations

Inter-Ministerial Group (IMG) has recommended canceling three more mines allocated to various steel makers including Electrosteel CastingsRs. North Dhadu thermal coal mine. North Dhadu thermal coal mine was allotted to Electrosteel Castings and others in January 2006. It has extractable reserves of 340mn tonne and the coal from the mine was meant to be used in a sponge Iron project. However the clearance for this mine were in the preliminary stage of development and hence was not factored in our estimates. Hence, we maintain our estimates and our Buy rating on the stock with a target price of ?23.

Bajaj Auto enters into marketing tie-up with Kawasaki

Bajaj Auto (BJAUT) has entered into marketing tie-up with Japanese major Kawasaki to penetrate into Brazil and other ASEAN countries. Following the successful tie-up with Kawasaki in Philippines, BJAUT is planning to replicate the business model in other emerging countries leveraging upon the distribution network of Kawasaki. BJAUT and Kawasaki began their Philippines operations in 2004 and has been successful in garnering 45% market share in the country. Initially, the models introduced in Philippines will be showcased in Indonesia by mid CY2013. Further, BJAUT will also sell the newly launched Bajaj Pulsar 200NS in Indonesia under the Kawasaki brand. As per the agreement, all the motorcycles will be manufactured in India and sold under the Kawasaki-Bajaj brand name. We believe that the tie-up with Kawasaki to enter into emerging markets is a positive move as it will enable the company to strengthen its position in the highly competitive exports markets. Also, entering into newer geographies will help BJAUT sustain its exports momentum. Nonetheless, at Rs.1,748, the stock is trading at 14.4x FY2014E earnings which is in-line with its historical average of 15x. We therefore recommend Neutral rating on the stock.

HCL bags 5 year, multi-million deal from Freescale Semiconductors

HCL Tech has bagged a five year contract from US based Freescale Semiconductor to manage its IT infrastructure across the world. As part of the deal, HCL Tech will manage and transform infrastructure operations covering desktop support, compute, storage, database, telecom (network and security), process automation and compliance. According to media reports, the contract would generate about US$60-$80mn for HCL Tech over a five year period, starting in November this year. The company denied to confirm the size of this deal, which it has won by displacing a large incumbent US based IT firm. HCL Tech will deliver these services to Freescale across 20 countries, handling a user base of 19,000 employees. HCL TechRs.s infrastructure services business is the fastest growing line of business of the company. We remain positive on the stock but maintain Neutral view on it given recent stock run-up.

Bajaj Electricals sells its entire 50% stake in Bajaj Ventures for Rs.35.9cr

Bajaj Electrical Ltd (BEL) divested its entire 50% stake in Bajaj Ventures for Rs.35.9cr. BEL held 1.5cr shares of Rs.10 each in its subsidiary Bajaj Ventures which is a leading provider of electrical and electronic products and components. BEL sold its entire stake to Black & Decker Pvt Ltd for Rs.35.94cr under share purchase agreement signed on 17 September 2012 at a consideration of Rs.23.96 per share. The cost of the investment stood at Rs.1 1.3cr as on FY2012 thereby leading to net income of Rs.24.7cr. We maintain our Buy recommendation on the stock with a target price of ?228, based on target PE of 10x for FY2014E.

Tata Sponge Iron denies de-allocation of coal block

Tata Sponge IronRs.s management denied any deallocation of Radhikapur coal block. However, there are recommendations to forfeit the bank guarantee, though the management was uncertain on the quantum of its impact on the company. This issue continues to be an overhang on the stock, hence we maintain our target price at ?377 based on a target P/BV of 0.8x for FY2014E.

Economic and Political News

- Union Cabinet to take up discom debt revamp in three weeks : Power Minister

- Planning Commission pitches for privatization of coal mining

- IndiaRs.s steel exports declined by 1% to 19.1 9lakh tones YTD in FY2013

- Government may reserve 50% of RINL issue for retail subscription

Corporate News

- HPCL to raise US$200mn via ECBs

- Tribhovandas Bhimji Zaveri to invest Rs.1,200cr to open 43 showrooms

- CIL initiates process to set up 20 more washeries

- Cairn seeks permission to sell crude oil to RILRs.s SEZ refinery

- Tata Motors bags record order of 1,314 trucks