Weekly Notes

Market Outlook
Market witnessed huge selling pressure on Monday, on account of RBI measure to hike the CRR and repo rate by 50 bps and 25 bps respectively to curb inflation. But market recovered partly during the week following firm global market. Market lost 216 points during the week. Mid cap and Small cap lost 1.19% and 0.22% respectively. All major sectoral indices ended in red. Auto and Banking indices were the major losers which lost 5.41% and 2.6% respectively. Healthcare, Metal and Consumer Durable sectors outperformed the market which gained 5.12%, 1.59% and 0.95% respectively.
Global markets remain firm during the week on the back of fall in the crude oil prices and better economic indicators. Hang Seng was the biggest gainer among all the global indices.
>> Inflation eases from the higher levels
After remaining unaltered for three weeks in a row, inflation dropped marginally to 6.39% for the week ended March 24 from 6.46% due to lower prices of some food items and manufactured products. It remained above the upper limit of the central bank’s
target of 5-5.50% for a 16th straight week. We expect inflation to ease further as RBI measure of tightening of liquidity will start reflecting in coming weeks. If the same will not happen then we may see some more rate hikes in the coming RBI Monitory
policy review meeting.
>> Core sector slowed to 7.2%
Lackluster performance by cement and electricity pulled down overall core sector index to 7.2% in February 2007. Cement showed a rise of 5.8% against the growth of 16.3% and electricity generation slowed down to 3.3% against 9.1% in same month of
the last year. For April-February 2006-07, the index grew 8.3% as compared to 6.1% during the corresponding period of the previous year.
>> Dollar weaken against rupee
During the week rupee touched a near eight-year high and touched Rs.42.84 a dollar. Rupee strengthened because of the purchases from refiners and importers. On the other hand crude oil prices are hovering around US $ 64 per barrel mark.
>> Lackluster performance in exports continues
During April-Feb 2007, India’s exports showed a rise of 22.95% to US $ 109 billon over the corresponding period of the previous year and import showed a rise of 31% to US $ 165 billion. The sharp rise in the trade deficit was seen due to ban on the
exports and cut in import duties in past few months to curb the inflation.
Outlook
We expect Infosys guidance for the next year to be little subdued, that may impact negatively to overall market sentiments. The Sensex faces resistance at 13121 levels while support exists at 12557 levels. NIFTY faces resistance at 3841 levels while support exists at 3655 levels.



Investment Concerns … Sectoral Outlook
Cement Numbers - Good dispatches but government intervention keeps sentiment negative. Cement Companies posted mixed set of number for the month of March. ACC production (capacity utilization 103 percent) and dispatches were up 1.74 and 3.4 percent respectively at y-o-y while AV Birla groups production (capacity utilization at 109.5 percent) and dispatches were up 6.17 and 7.64 % respectively.
ACC Ltd posted a cement production and dispatches of 1.77 million MT and 1.81 MT for the month of March 2007 while production and despatch figure for the Jan – March quarter were at 4.86 and 4.88 lower by 1.4 and 1 % y-o-y due to shutdown at some of its plant for some modification during Feburary.
For AV Birla Group, cement production and dispatches for the month of March 2007 stood at 3.11 lakh mt and 3.16 lakh mt, registering a growth of 6.17 per cent and 7.64 per cent y-o-y. Cement production and dispatches for april march 2007 has moved up by 8.33 per cent and 8.46 percent y-o-y to 32.51 million MT and 32.56 lakh mt.
Meanwhile the government countervailing duty and special additional excise duty on import of cement effectively bringing down the cost of imported cement by Rs 32 thus making imported cement competitive in coastal markets. Though the lack of port infrastructure and handling facility at port would not make import in huge quantity
possible, the sentiment against cement stocks is expected to be negative despite attractive valuation.

Automobile:
Automobile companies have reported mixed numbers. The highest growth was recorded by M&M in commercial and utility vehicles. The Scorpio volume (inclusive of exports) grew by 56% in March’07 to 5260 (Mar’06: 3364), whereas in the FY07 it clocked 42593 nos up by 25% from 34084 in FY06. In April’07 Mahindra Renault (a 51:49 JV between M&M and Renault of France) launched “Logan”. Both diesel and petrol versions of Logan are priced aggressively. It plans to sell 4000+ vehicles per month. (installed capacity 50,000 p.a.). Tata Motors and Maruti also registered better sales in Mar ’07. Tata Motors registered highest ever-monthly sales across all segments in March’07. CV sales grew by 12.6% to 30,720 (27,289), Passenger vehicle sales grew by 14% to 25,760. For the FY07 CV sales rose by 39% to 299,173 whereas passenger vehicle sales rose by 20% to 226,893. But exports in Mar’07 has declined 3% in Tata motors to 6299(6508), whereas Maruti recorded 275% rise in exports to 7,216 nos. (2,055). Overall export growth in Maruti was muted to 13% in FY07 to 39,295 (34,781) and 5% in the case of Tata Motors 53,312 (50,539). Management of Maruti recently opined that in the near term, growth in sales would decelerate thanks to the recent hike in bank interest rate. Tractor sales of M&M, has slowed down to 6.5% in Mar’07 as compared to 20.6% for FY07. In 2/3W space all the companies registered a dismal growth in Mar’07. Both Bajaj Auto and TVS Motors’ sales declined, but Hero Honda could manage to show 2.1% growth in sales. Bajaj has set a growth of 10% to sell 3mn vehicles in FY08. We maintain “Buy” on Maruti and M&M.