US Stocks

Economic Developments:

US Stocks rose to a 32- month high for the S & P Index which closed up 0.6% at 1,336, on account of improving earnings from companies and a more optimistic outlook from the Federal Reserve as per minutes of its meeting on January 25 released yesterday.

The Comprehensive Economic Partnership Agreement (CEPA) signed by India and Japan yesterday is expected to double the bi-lateral trade between the two countries to $ 25 bn by 2014 with textiles & pharma sectors to be the major beneficiary.

Sector Developments:

Natural rubber prices yesterday rose further by Rs 1,000 per tonne to touch an all-time high of Rs 239,000 per tonne.

For CY2010, sales of Personal Computers (desktop + notebooks) showed a phenomenal growth of 26.3% to 98.9 lakh units after having experienced a decline in sales of 1% yoy & 5% yoy in CY08 and CY09.

Corporate Developments:

About half-a-dozen government-owned banks such as Indian Overseas Bank, Allahabad Bank, UCO Bank, Andhra Bank, United Bank of India, and Syndicate Bank, Corporation Bank plan to raise Tier 1 Capital through preferential allotment of equity shares to the Government of India. This would raise Government holding in these banks to over 51% thereby allowing the banks to raise further capital from the market thus raising lending capacities of the banks. UCO Bank (Rs 940 cr) & Corporation Bank (Rs 309 cr) have already announced their limit for raising of capital.

SAIL plans to set up a 3 million tonnes per annum plant in Mongolia with a total investment of Rs 15,000 cr if the company is provided with raw material linkages and land in the country.

Rising material prices seems to be continuously denting the margin of Maruti and Hero Honda in the current quarter (Jan-Mar 2011) as well. For instance, the steel prices have gone up by about 20%-25% since the start of 2011.

The Ministry of Environment has sent show-cause notice to Sesa Goa for revocation of environmental clearance of the Pirna mines.

Tata Power & Tata Motors plan to raise upto$1 billion through perpetual bonds route.

Reliance Industries is planning major investments totaling upto $30 billion in the next five years in its various businesses including energy and telecom.

Petronet LNG is planning to set up a 5 MT import capacity terminal at Kochi by October 2012.

Our Views:

Yesterday Sensex rose for the 4th consecutive day (up 27 points) to 18,301as the Prime Minister yesterday assured the nation of taking stern action to stop corrupt practices, and also taking steps to bring about reforms and to boost infrastructure outlays going forward. However, FII’s and DII’s remained net sellers for yesterday in the equity markets to the tune of Rs 230.06 cr and Rs 68.49 cr respectively. Sensex at the current levels trades at comfortable levels of 14.6x 1-year forward earnings estimates. We see positive aspect of present concerns on corruptions – this would lead to better governance and hence, result in better realization of proceeds from the sale of government assets like telecom spectrum and divestments of public sector undertakings in the future. We continue to advise clients to accumulate good value stocks like Aurobindo Pharma, Dhanlaxmi Bank, BHEL and Hindustan Zinc.