GDP Growth of the OECD region

Japan has committed ~ Rs 2,557 cr (Yen 46.401 bn) under the first batch of FY2010 Japan’s Official Development Loan Assistance (ODA) package to fund 3 projects in India in the agriculture, forestry and the environment sectors.

The consumer-price index in the US advanced 0.4 percent for a second month in January as the rising global demand for food and fuel in more than two years pushed up the U.S. cost of living more than forecast

U.S. stocks increased with the Standard & Poor’s 500 Index reaching a new32-month high before closing at1340.3as improving corporate earnings and manufacturing data overshadowed higher- than-forecast growth in consumer prices.

Asian stocks rose for the fourth day this week, as Taiwan announced faster-than-estimated economic growth and companies announced earnings better than forecasts. Shipping stocks in Japan increased after cargo rates rose.

Oil traded near a five-day high, heading for its biggest weekly gain in five weeks as tensions mounted in the Middle East and reports showed the economic recovery in the U.S., the world’s biggest crude user, is gaining momentum.

Food inflation for the week ended February 5, 2011 stood at 11.05%, reducing more than 200 bps compared to the previous week figure of 13.1% and 700 bps form all-time high figure of 18.3% registered for the week ended December 25, 2010. We expect further easing in food inflation going forward on the back of falling vegetable prices and also due to high base effect. Inflation in primary articles for the same period stood at 14.6%, down from 16.2% a week ago.

Foreign Direct Investment (FDI) inflow into the country rose 30.6% y-o-y to $2.014 bn during December 2010 and posted 23.7% m-o-m growth.

Sector Developments:

Natural rubber prices increased further by Rs.500 per tonne yesterday to Rs 239,500 per tonne. Rubber prices in the international markets have increased 29% from Rs.226 per kg to Rs.291 per kg since the beginning of this calendar year. However, prices in the domestic markets have risen only by 16% only during the same period. Therefore, tyre companie’s plans to import natural rubber may not be financially feasible in spite of the Government reducing the customs duty to 7.5% on 40,000 tonnes.

RBI has raised the minimum capital adequacy ratio requirement for all deposit taking NBFCs to 15% (earlier 12%) from 31st March 2012.

Oil Marketing Companies are incurring a loss of Rs.430 crore per day by selling fuel at subsidized rates/

Corporate Developments:

BHEL has successfully test runned it’s first indigenously manufactured turbine developed in collaboration with GE of US and plans to deliver two more units by the end of the current fiscal.

Royal Sundaram and Reliance General are reported to be re-applying for the merger. We expect that Sundaram Finance might exit or sell a partial stake in the non-life insurance business in the future. Any such divestment would unlock substantial value for the shareholders of Sundaram Finance.

The Environment Ministry is likely to respond to the concerns raised by various stakeholders on issues relating to coal mining while protecting the forest cover by March 15, 2011. The Environment Ministry's classification of nine major coal fields into ‘Go' and ‘No Go' areas depending on the forest cover is seen impacting the coal output resulting in a widening demand-gap supply. A softer stance taken by the Ministry of Environment is positive for Coal India.

As part of the recapitalization package for increasing the equity capital of the banks, the Government plans to infuse Rs. 539 crore in Dena Bank and Rs. 368 crore in Vijaya Bank.

The Government has begun the road-show for 5% stake sale in ONGC. The size of the issue which is expected to realize Rs.12000 crore is significant considering the Government’s budgeted figure of Rs.40,000 crore from disinvestment in this fiscal year.

Our Views:

Yesterday, the Sensex rose for the fifth consecutive session by 206 points to close at 18,507 points on the back of declining food inflation. FIIs were net buyers to the tune of Rs. 37.99 crore while DIIs bought equities worth Rs. 244.4 crore. For the last five sessions Sensex has recovered over 1000 points which is the longest rally over the last five months. The markets may remain volatile till the Budget. However, we hold optimistic view on the domestic equity market and hence, we continue to advise clients to accumulate “deep value stocks” and especially companies whose price has been badly hammered but having the fundamentals intact like Lakshmi Vilas Bank, City Union Bank, Tide Water Oil and Harrisons Malayalam. In large cap space, we recommend accumulating stocks like BHEL, Neyveli Lignite, Hindutan Zinc, etc.