1. Market Outlook
India Research
July 14, 2010
Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)
A bout of volatility was witnessed in the morning session as the benchmark BSE Sensex 0.3% 48.7 17,986
indices slipped into the red zone, after recovering from an initial slide. Later, the Nifty 0.3% 17.6 5,401
market moved in a narrow range in mid-morning trade. However, in mid- MID CAP 0.7% 52.8 7,389
afternoon trade, the market moved into the positive zone, with the key SMALL CAP 0.7% 67.4 9,394
benchmark indices hitting the fresh intraday high as European stocks and US
BSE HC -0.1% (8.2) 5,733
index futures jumped. The market extended gains in late trade. The Sensex and
BSE PSU 0.4% 37.6 9,493
Nifty closed with gains of 0.3% each. BSE mid-cap and small-cap indices also
BANKEX 0.8% 94.3 11,303
ended the session with gains of 0.7% each. Among the front liners, DLF, Tata
AUTO 0.3% 24.7 8,393
Steel, Jaiprakash Associates, HDFC and Tata Motors were up by nearly 2–4%,
while Infosys, TCS, Bharti Airtel, M&M and Wipro declined by 1–3%. Among METAL 1.2% 173.4 15,074
mid-caps, Parsvnath, Jet Airways, BASF India, Puravankara and JSW Holdings OIL & GAS 1.3% 135.5 10,723
were up by 7–8%, while Blue Dart, Sparc, Polaris Software, MTNL and BSE IT -2.7% (148.9) 5,398
Monsanto were down by 2–3%.
Global Indices Chg (%) (Pts) (Close)
Markets Today
Dow Jones 1.4% 146.8 10,363
The trend deciding level for the day is 17947 / 5388 levels. If NIFTY trades NASDAQ 2.0% 43.7 2,242
above this level during the first half-an-hour of trade then we may witness a FTSE 2.0% 104.0 5,271
further rally up to 18037 - 18089 / 5419 – 5437 levels. However, if NIFTY
Nikkei -0.1% (10.9) 9,537
trades below 17947 / 5388 levels for the first half-an-hour of trade then it may
Hang Seng -0.2% (36.4) 20,431
correct up to 17895 - 17804 / 5370 - 5340 levels.
Straits Times 0.1% 3.4 2,929
Indices S2 S1 R1 R2 Shanghai Com -1.6% (40.4) 2,450
SENSEX 17,804 17,895 18,037 18,089
Indian ADRs Chg (%) (Pts) (Close)
NIFTY 5,340 5,370 5,419 5,437 Infosys -5.7% (3.6) $59.4
Wipro 0.6% 0.1 $13.0
News Analysis
Satyam 2.4% 0.1 $5.2
IOC, BPCL, HPCL to cartelise price of deregulated petrol
ICICI Bank 2.2% 0.9 $39.2
RIL looks at third shale gas deal in North America HDFC Bank 0.1% 0.1 $152.0
Result Reviews: Exide Ind., Hotel Leela, Infosys
Result Preview: South Indian Bank
Advances / Declines BSE NSE
Refer detailed news analysis on the following page.
Advances 1,682 766
Net Inflows (July 12, 2010)
Declines 1,215 563
Rs cr Purch Sales Net MTD YTD
Unchanged 108 49
FII 3,260 2,145 1,116 6,271 36,555
MFs 496 633 (137) (244) (8,462)
Volumes (Rs cr)
FII Derivatives (July 13, 2010) BSE 4,370
Open NSE 14,061
Rs cr Purch Sales Net
Interest
Index Futures 1,415 1,465 (50) 16,876
Stock Futures 1,352 1,577 (225) 31,540
Gainers / Losers
Gainers Losers
Price Price
Company Chg (%) Company Chg (%)
(Rs) (Rs)
Max India 168 6.4 Idea 66 (6.1)
Unitech 83 6.3 Infosys 2,795 (3.4)
Titan Ind. 2,635 5.6 MTNL 65 (2.3)
Suzlon 62 4.4 TCS 775 (2.1)
JP Hydro 74 4.4 Indiabulls Fin. 159 (2.0)
Please refer to important disclosures at the end of this report Sebi Registration No: INB 0109965391

2. Market Outlook | India Research
IOC, BPCL, HPCL to cartelise price of deregulated petrol
Oil marketing companies (OMCs) such as IOC, BPCL and HPCL will continue to act as a
cartel while revising petrol prices every fortnight in the freepricing regime, which looks set
to kick in as early as this week. Petrol prices were freed from government control last
month, resulting in a Rs3.50 per litre rate hike in Delhi. However, the modalities of
subsequent retail price adjustments, in line with changes in raw material cost, were left for
the industry to decide. Though diesel price was raised by an ad-hoc Rs2 per litre, it
continues to be under the government’s control. It makes no sense for PSUs to compete
among themselves if only petrol prices are being freed. OMCs will continue to coordinate
on the pricing of petrol. They are likely to revise petrol prices twice a month on the basis of
fortnightly average of crude oil prices. As the modalities are likely to be finalised this week,
pump rates may be revised at least once this month. The three companies would have a
uniform rate for petrol in particular cities or locations, and it would change on the same
dates. Companies will not announce dates of revision in advance to avoid hoarding of
fuel. Instead of changes in rates on the 1st and 16th of every month, prices will be revised
on any day of the month.
Oil Secretary S Sundareshan said that the change needed in the retail selling price of
petrol will be known on July 15 (based on the average cost of crude oil in the first
fortnight), and the modalities would flow thereof. It is said that the three OMCs have
already held discussions with private retailers such as RIL, Essar Oil and Royal Dutch/Shell
on modalities, including frequency and intervals at which prices would be revised. Initially,
the oil ministry was not in favour of fortnightly revisions and the same line was adopted by
market leader IOC. However, most of the other retailers favoured fortnightly revisions in
retail rates to reflect changes in cost of raw material (i.e., crude oil). Given the recent run-
up in the stock price of HPCL and BPCL, we believe they are trading closer to their fair
value. Currently, we have no rating on OMCs.
RIL looks at third shale gas deal in North America
RIL is looking at yet another shale gas acquisition in North America, its third in three
months. The transaction is said to be in line with RIL’s recent acquisition of a 45% stake in
Eagle Ford shale acreage of Pioneer Natural Resources. In April 2010, RIL had picked up a
40% stake in Atlas Energy’s Marcellus shale acreage for US $1.7bn, committing a capital
expenditure of US $3.5bn over 10 years. In another deal, RIL had picked up a 45% stake
in Pioneer Natural Resources’ Eagle Ford shale acreage for US $1.3bn in June 2010.
Pioneer owns 46%, while Newpeck holds the remaining 9%. RIL had agreed to make an
upfront payment of US $266mn in cash and contribute another US $879mn towards
Pioneer’s share of future drilling costs in the next four to six years. With such deals, RIL has
been deploying its surplus cash, thus reducing an overhang from the stock. We maintain a
Buy rating on RIL with a target price of Rs1,260.
July 14, 2010 2

3. Market Outlook | India Research
Result Reviews
Exide Industries
Exide Industries, India’s largest auto battery manufacturer, reported net profit growth of
35.1% yoy to Rs165.3cr for 1QFY2011, which came in above our estimate of Rs136cr.
Growth was largely on the back of the substantial 27.5% yoy jump in net sales to
Rs1,152cr, which is also above our expectation, and higher other income of Rs6.2cr in
1QFY2011. During 1QFY2011, Exide witnessed a 34bp yoy decline in its EBITDA margin,
owing to a 69bp yoy rise in raw material costs, which accounted for around 58.6% of sales
(58% in 1QFY2010). However, on a qoq basis, the company has shown a substantial
169bp jump in EBITDA margin, largely because of a substantial decline in other
expenditure. During the quarter, average lead prices, which declined by 13% qoq to US
$1,924/tonne, helped the company to improve margins on the sequential front, while
average lead prices increased by 28% yoy (from US $1,509/tonne in 1QFY2010).
We would be revising our earnings estimates upward for FY2011E and FY2012E by 7–8%,
which would lead to about 7–8% increase in our earlier target price. Post revision in the
target price, there exists an upside potential of about 13–14% from the current market
price. We recommend an Accumulate rating on the stock.
Hotel Leela
Hotel Leela (HLVL) reported decent performance in 1QFY2011. The company posted top-
line growth of 24.9% yoy to Rs105.8cr for 1QFY2010, as the company witnessed
improving occupancy rates (ORs) and average room rates (ARRs) during the quarter. On
the operating front, EBITDA improved by 67.5% yoy to Rs31.6cr, while margins improved
by 750bp to 29.8% on a yoy basis. Increased ORs and ARRs have led to absorption of
fixed costs, thereby improving profitability. Consequently, the adjusted net profit registered
a phenomenal jump from Rs0.4cr in 1QFY2010 to Rs9.2cr in 1QFY2011. We maintain
our positive stance on the growth prospects of the hotel industry. However, considering that
at the current valuations HLVL is expensive as compared to its peers, we maintain our
Neutral rating on the stock.
Infosys
Infosys top-line performance for 1QFY2010 was in line with the guidance and consensus
estimates. In rupee terms, the company reported top-line growth of 4.3% qoq to
Rs6,198cr, while in USD terms, it posted growth of 4.8% qoq to US $1358mn. Growth was
backed by volumes, which were up by 7.6%, while the blended pricing was lower by 1.6%
on a qoq basis. Growth was broad-based across the services, with the company delivering
strong qoq growth of 21.7%, 15.3% and 7.4% in PES, testing and ADM services,
respectively. However, on account of annual wage hike, EBIDTA margins were down by
178bp, while the increase in taxable income further impacted the PAT, which declined by
5.4% qoq. Though adverse macro-economic factors such as Europe crisis and cross-
currency movements are causes for concern for IT companies, we expect Infosys to
maintain growth through strong volumes and other operating leverages with pricing
remaining stable. At the current CMP, we recommend an Accumulate rating on the stock.
July 14, 2010 3

4. Market Outlook | India Research
Result Preview
South Indian Bank
South Indian Bank is scheduled to announce its 1QFY2011 results today. We expect the
bank to post flat net profit growth on a yoy basis at Rs58.9cr. The net interest income is
estimated to grow by 4% yoy to Rs158cr. Non-interest income is expected to decline by
27% yoy due to lower treasury gains compared to the past year. Consequently, the
operating income of the bank is expected to decline by 4% yoy to Rs199cr.
At the CMP, the stock is trading at 6.6x its FY2012E EPS of Rs28.4 and 1.1x its FY2012E
adjusted book value of Rs172. We believe that the current valuations fully reflect the near-
term positives; hence, we maintain a Neutral rating on the stock.
Economic and Political News
New inflation index likely from August 14, 2010
Banks to disburse Rs9,165cr farm credit to Orissa farmers
Government may divest 10% more in PFC
Corporate News
SAIL FPO may hit market in Oct-Nov: Steel Secy
Punj Lloyd and partner bag US $463mn Abu Dhabi gas deal
TVS Motor says no plans to buy LML assets
Suzlon bags order of Rs118.8cr in Karnataka, Maharashtra
RPG Life sets up 2 verticals, plans to launch 9 products
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
Events for the day
Camlin Quarterly Results
HDFC Quarterly Results
Polyplex Corp. Quarterly Results
South Indian Bank Quarterly Results
TTK Prestige Quarterly Results
July 14, 2010 4

5. Market Outlook | India Research
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July 14, 2010 5