At the CMP of 1,151, the stock is discounting its FY11E and FY12E EPS by 9.9x and 9.7x and EV/ EBITDA by 5.3x and 4.3x, respectively. We value OIL India at Rs 1,332, assigning an EV/EBITDA multiple of 6.5x on our FY11E estimates and give a BUY rating.

Downstream Co: Neutral

Gas Co: Positive

Q3 FY10 review: almost in line with our expectations

The Q3 FY10 results were broadly in line with our expectations. The upstream companies posted good profits during the quarter on account of higher average crude oil prices on YoY basis and higher GRMs. Commencement of Rajasthan field (Cairn India) and increased production in KG-D6 were the key contributors to the top line.

The downstream (OMCs) results were below our expectations, mainly due to the significant under-recoveries, not yet compensated by GoI. Government has committed an Rs 120 bn cash subsidy against the estimated under recovery of about Rs 300 bn for the current financial year.

The gas players did well on the back of higher gas transmission volume, except Petronet LNG.

Outlook

Oil prices are hovering around $70-$75 a barrel. If we follow the pattern of the past 15 years, then Jan-Feb has typically been the months, in which, the seasonal oil price starts moving up again as markets prepare for the summer driving season. Thus, this gives a Positive pitch to RIL and Cairn India.

We downgraded our rating on downstream companies to Sell but the much awaited Mr. Kirit S. Parikh? panel report on retail fuel prices is out. This report supports market-determined pricing for petrol and diesel, Rs.100/cylinder hike in LPG and Rs. 6/liter hike in kerosene. Though the Oil ministry has to give its final words, as it has to ensure the consumer interest as well as the financial health of PSU fuel retailers, but still this report, focusing on minimizing under recoveries and subsidies, provides positive undertone to the earnings of OMCs. So, we remain Neutral to OMCs.

Considering the huge demand-supply gap, huge growth potential market, potential upside in transmission volumes on account of additional gas availability from RIL?s KG Basin gas, PLL?s RLNG and ONGC?s marginal fields in FY10-FY11, we are positive on gas transmission companies like GAIL (India) Ltd. and Indraprastha Gas Ltd.

Considering the growing dependence on imports (80%) and a loss of Rs 180 crore per day on selling petrol, diesel, domestic LPG and kerosene below the imported cost by Indian Oil, BPCL and HPCL, this report supports market-determined pricing for petrol and diesel, Rs.100/cylinder hike in LPG and Rs. 6/liter hike in kerosene.

I have a 15 years’ crude oil seasonal price chart. This chart says that from January to September, crude oil prices increase substantially, mainly because of the summer vacation-driving season. Then, in September- October, it becomes sluggish and then in the month of November- December, demand for crude oil weakens because of the reduction in driving and more moderate temperatures between the summer cooling and winter heating seasons, thus, crude prices see correction.

During the last 15-year period, January has typically been the month, in which, the seasonal oil price starts moving up again as markets prepare for the summer driving season. It is interesting to note that, while crude oil prices are usually soft during December, energy stocks begin to strengthen in December, offering the investors an opportunity to capitalize the favorable seasonal demand.

The OPEC meeting just concluded in Angola. We found two take aways from the event: first was that Asian demand is strong, mainly from China and second take away was that $70 is the new floor in oil prices. i.e. oil between $70-$80 is perfect for OPEC. So, this implies that, anyhow, OPEC will attempt to keep the oil above $70. At present, crude oil is trading at $75. So, may be ?a new uptrend has begun.

So, if 2010 also, follows the pattern of the past 15 years, then we are approaching the start of a seasonal climb in the crude oil prices that could present a good investment opportunity in energy-related stocks.

Currently, the crude oil is trading near US$ 75 per barrel. Going forward, according to this chart, crude should move further up. This would result in higher realizations to upstream companies like RIL, ONGC, Cairn India. But at the same time, higher crude prices would also impact the profitability of downstream companies like HPCL, BPCL (Oil Marketing Companies) as retail oil prices are Govt. driven and OMCs cannot pass on the higher cost to the end users. It would also lead under recoveries.

Natural Gas

Currently, the natural gas is trading at $5.7 per mmbtu, below its average rate of US$ 8 per mmbtu. In the economic recovery, it would be preferred as cheap energy alternative. But there is huge surplus inventory buildup in natural gas; so, we expect that the upside is limited to US$ 8-8.5 per mmbtu. Given the vast demand-supply gap in natural gas, gas transmission companies like GAIL India, Indraprastha Gas and Gujarat State could be highly benefited in 2010.

Rupee

Another factor that can impact oil and gas industry is ?movement in Rupee?. We expect rupee is strong in the near term, on account of higher economic activities, FII inflows to India and the recent comment from FM that GDP growth in FY10 could reach 7.75%. This would be a positive factor for oil marketing companies like IOC, BPCL, HPCL etc. as it will reduce the oil procurement costs, thus reducing subsidy losses and it would also be good for Gujarat Gas as its procurement is dollar denominated and the selling price is rupee-based.

Whereas, rupee appreciation could be negative for stand-alone refineries like Chennai Petroleum as their GRMs are dollar denominated and for upstream companies – ONGC and OIL as crude realisation is US$ denominated but some negative impact is mitigated due to lower subsidies.

Overall, I remain constructive on energy stocks?supply and demand fundamentals for energy will tighten, given the improving economy and positive seasonal factors, heading into the New Year. So, the energy stocks will benefit in 2010.

Apart from it, we have many factors which ensure consistent capital inflows in India.

FII inflow crosses record Rs 73,441 crore-mark ($15.3 bn)

From January till date, India has recorded Rs 73,441 crore inflows through FII route, the highest ever investment made in rupee terms in a single year. A number of factors including weakening of dollar and a higher rate of return from the emerging markets have attracted the FII investment. Notably, in 2008, FIIs were net sellers of stocks worth Rs 52,900 crore. In the year 2007, stock markets witnessed a record breaking FIIs investment of Rs 71,486 crore. With the government’s talk on disinvestment of stake in state-run companies and the announcement of big infrastructure programmes, India sees FIIs would stay long in the Indian market.

GDP growth

According to the Govt’s CSO, growth in GDP rose to 6.1 % from a year earlier in the April-June quarter. China exceeds India in terms of growth rate, but India is not as dependent on exports as China, which helps India to endure the global economic troubles. Going forward, we expect India to continue to expand in the mid to high single digit growth rates as they take advantage of their growing batch of educated workers.

Large Population

India?s growing population provides a boost to the domestic demand. There is worry that rising raw material costs (due to monsoon) would impact margins of the company. But we expect demand will also go up. In the first half we saw low volumes but lower costs which helped shore margins, so in second half we expect that we could see higher volumes which could offset the higher outgo on raw materials.

30% volume rise in Indian commodity market

This year (till November), Indian commodity future exchange has seen a jump of 30% in volume terms. This can be because of the re-introduction of some commodities like wheat and soya bean. Due to weak monsoon and cyclone, Indian commodity market saw some commodities hitting all time high like Guar seed, Guar gum, Pepper, Jeera and Turmeric. Gold also touched its life time high level on account of RBI?s purchase of gold to increase its reserve and physical demand.

India’s forex investment

India has invested 30% of its foreign investment in US, whereas China and Brazil have invested 50% and 70% of their investment respectively in US.

Industrial output

Industrial output grew 9.1% in September 2009 on Y-o-Y basis. The reason can be low interest rates, which have given confidence to the consumers to borrow to buy vehicles or other factory-made goods. This was also helped by stimulus and festival demand.

Trade deficit gap narrows

India?s trade deficit narrowed to $7.8 bn in the month of September from $8.4 bn in August. Exports continue to decline ? it was down by 13.8% but the good part about this was that it has been the least decline since the downturn began this fiscal. Imports are down by 41% to $31.6 billion in April-September this year, mainly on the back of lower prices of crude. (So, import bill for crude oil came down).

Going forward, according to Indian Export Organisations, India’s exports are expected to touch around $167 billion, almost the same level of last year in FY10. The commerce ministry looks ambitious and optimistic and has come up with foreign trade policy for the next 5 years, whereby; it aims to have an export of $ 200 billion by FY11. This will ultimately improve the declining trend of exports and will give thrust to employment-oriented sector like Textiles and Gem Jewellery.

India on recovery trail

India has emerged as a leader of the nascent worldwide recovery. The stock market has surged more than 76 % this year, emerging as one of the best performers among its peers. Growth in this Asia’s third-largest economy is expected to be 6 to 7% this fiscal year and accelerate in 2010/11, and a rash of companies is raising billions of dollars to fuel expansion.

Strong Government

The re-election of the Congress party-led government in May? 2009 freed India, from having to depend on communist allies, lifting hopes of acceleration in long-delayed financial reforms and infrastructure investment.

India…in a better position

India can be considered as ?balanced? in terms of investment and consumption with savings rate of 35% and consumption of 65% of its GDP. The fastest growing China leans towards investment, whereas the most of the western countries are weighted more towards consumption.

Sustainable rural growth

According to Sunil Duggal (CEO of Dabur India), for the first time last year, rural sales overtook urban areas in select categories ? it was a paradigm shift. But this year also weak monsoons haven?t dampened rural growth.

Q3 earnings

From last 2 quarters, we are seeing strong corporate earnings growth due to the lower costs, which are a direct result of the cost cutting measures deployed by businesses over the last 12 months. With lower interest rates, government spending in rural areas and lower base year, we can expect Q3? 2009 results to be ?revenue driven?. If India Inc. records a strong growth in sales volume, this will be the most concrete indicator of a recovery. Top line growth is not only good for the company and stock market but also for the economy as a whole.

So, these are some of the ?Green Shoots?, which makes India an attractive investment destination for FIIs. So, going forward, keeping in mind the bumps of the stock market, we expect the overall trend is up.

INR

INR @ 48.13 weakened to its lowest in nearly two weeks on Wednesday, tracking lower Asian shares, & investors would watch IIP later in the day for cues on the economy’s strength.    At 9:05 a.m. INR was at 48.16/17, its lowest since July 31. On Tuesday, it closed at 47.97/98.

BONDS

Indian federal bond yields are expected to drop on Wednesday as global crude prices were lower with a fall in U.S. Treasury yields also expected to underpin sentiment. 10Y  ended at 7.03 % on Tuesday, below Monday’s close of 7.10 %.  Oil was trading above $69 a barrel. On Tuesday, it had fallen by $1.15. The IIP is to be released around noon. It probably rose in June for the third month in a row, helped by a rebound in sectors linked to the Gov.’s stimulus spending, a Reuters poll showed on Tuesday. The median estimate was for a 3.3 % rise.   U.S. Treasury prices rose on Tuesday as stock market losses fuelled a safe-haven bid & strong demand  at a three-year note sale fed hopes that buyers would show enthusiasm for the two remaining Treasury auctions this week. FOMC  is expected to hold its benchmark overnight rate in a range of zero to 0.25 %. A statement on the decision is due.

STOCK

Indian shares nosed up 0.4 % on Tuesday, led by automakers M&M , Tata Motors & Maruti Suzuki after the market shed 5.6 % over the past three sessions. But worries that a shortfall in crucial monsoon rains will hit economic growth, concerns over pricey stocks & mixed overseas markets kept investors wary.

CALL

Indian call rates were steady on Tuesday as ample liquidity in the banking system helped banks meet their funding needs comfortably. Call @ 3.25/30 %, largely unmoved from its previous close of 3.25/30.    Traders said cash management bills (CMB), the new money market instrument Gov. announced late on Monday, may not impact the cash rates as the regulators are unlikely to leave the system cash-strapped with a huge borrowing target to be met . The weighted average rate in the call money market was 3.26 %, while in CBLO  was 2.82 . Banks Parked 1.1 trillion in the Rev. Repo Auction.

GLOBAL MARKET

DJIA  9,241.45  -96.50  Nikkei  10,502.96  -82.50   FTSE  4,671.34  -50.86 HSeng 20,601.88 -472.33 US10Y 3.674   EUR 1.4151  Yen 95.91  Gold 942.75  Crude    69.35

    * U.S. stocks fell on Tuesday after a prominent banking analyst warned the sector’s fundamentals have yet to improve, & an unexpectedly large drop in wholesale inventories raised worries about an economic recovery. Financial stocks, which had gained about 25 % in the last month, tumbled after Rochdale Securities analyst Richard Bove painted a gloomy outlook for the banking industry. He said bank stocks are trading on “fumes,” & he expects a short-term pull-back in their stock prices.

    * FTSE shed 1.1 % on Tuesday knocked by weakness in heavyweight banks, miners, & oils, with defensive issues back in favor headed by International Power after pleasing results.

    * Nikkei pulled back from 10-month highs on Wednesday as concerns over a U.S. economic recovery grew, with investors locking in profits before the end of a FOMC  meeting.

    * Yen rose broadly on Tuesday as investors bought the low-yielding currency as U.S. stocks declined & on rising risk aversion after disappointing economic data from China.  China reported below-forecast growth in factory output & investment, reminding investors that the world’s third-largest economy is not yet back on a solid footing. The news also added to the currency woes of the so-called commodity-bloc countries that supply raw materials to China, such as Australia & Canada. The commodity-bloc currencies were among Tuesday’s biggest decliners against the U.S. $.

    * Gold eased in Europe on Tuesday, reversing earlier gains, as the $ swung towards a session high versus the euro amid caution ahead of a two-day FOMC.

    * Copper prices closed lower on Tuesday as mixed economic data from the United States & top consumer China raised concerns about the health of the global economy & its potential impact on metals.

    * Oil prices fell on Tuesday as doubts resurfaced over the pace of economic recovery after data showed another drop in U.S. wholesale business inventories & the U.S. Gov. revised lower its forecast for global oil demand.

INDIA FRONT PAGE

    * ONGC Videsh,  has initiated talks with three Russian firms to put in a joint bid for a substantial stake in YPF, the Argentinean arm of Spanish oil major Repsol YPF SA.

    * PE equity arms of Goldman Sachs <GS.N> & Standard Chartered are in discussions to invest 2 billion in building safety & security solutions provider Firepro Systems for a 26 % stake.

    * BHEL will sign a pact on Wednesday to set up a joint venture with Maharashtra State Power Generation Company to set up a thermal power plant with a maximum capacity of 1,500 megawatts at Latur, Maharashtra.

    *  Etisalat DB Telecom India, in which Emirates Telecommunications Corp (Etisalat) holds a 45 % stake, is close to signing a 15-billion-INR outsourcing deal with IT major Wipro Technologies.
   
    *  Infrastructure development & construction firm, Anant Raj Industries <ANRA.BO>, said it has deferred plans to raise funds through QIB.

    * Indraprastha Gas Ltd will finalize its negotiations with Reliance Industries Ltd for the supply of D6 Block gas by Wednesday. A formal agreement on the gas supply will be signed soon.

    *  The project cost of rebuilding the capital’s Indira Gandhi  International Airport,  run by private sector consortium Delhi International Airport Ltd (DIAL), has increased by around 50 % , or almost 30 billion INRs.

US lost 247,000 jobs in July best month since Aug 08: $ RISES ON GOOD NEWS??? , S&P, FTSE, Nikkei all see 10M Highs. Gold retreats as ECB limits gold sales but inflation hedge may add shine.
 
PFRDA No limit , launch on 1st Dec, RBI to be the regulator for Housing Finance Companies, Retailers Together we swim.

INR

INR @ 47.78 ; expected to gain on Monday from a one-week low hit in the previous session as a rally in Asian shares may raise hopes of FII inflows . Trading volumes were low in the previous two sessions due to a planned strike on Thursday & Friday by state-run bank employees & some private sector bank unions. SGX Nifty in Singapore was up 2.1 %. 1M NDF  at 47.93/48.03 .

BONDS

Yields are expected to drop on Monday as the Gov. said it would go ahead with only the scheduled debt sale this week, allaying investor concerns of an attempt to accommodate last week’s cancelled bond auction. 10Y closed at 7.03 % on Friday, down from the previous close of 7.08 %. It fell as much as much as 16 BP in intraday trading to 6.97 % from the day’s high of 7.13 % after the RBI rejected all bids at a bond auction. U.S. Treasuries prices fell on Friday after data showed U.S. jobs losses slowed in July, brightening the economic outlook.

STOCK

Indian shares slid 2.3 % on Friday, extending losses for the week to 3.25 %, as shaky overseas markets, concerns about pricey stocks & below-normal monsoon rains sapped investor confidence.  Markets across Asia & Europe were muted as investors awaited a key U.S. jobs report & as worries mounted stocks were getting ahead of fundamentals after a recent rally.     Forecasts of weak rains in the next five days & inadequate water in Indian reservoirs have raised the risk to the country’s cane & soybean crops, & could potentially hit crucial rural demand & & slow down a nascent economic revival. On OVERSEAS cues the markets are set to rise. 

CALL

Rates remained little moved on Friday, helped by surplus funds with banks though a strike by bank employees hurt volumes for a second straight day. 3D Call ended at 3.25/30 %, scarcely moved from its previous close of 3.20/25.   Banks parked 1.20 trillion with the RBI. 1D CBLO at 3%.

GLOBAL MARKET

DJIA  9,370.07 +113.81  Nikkei 10,559.99 +147.90  FTSE 4,731.56  +41.03 HSeng 20,877.79 -502.42  US10Y  3.856  EUR 1.4185 Yen 97.55  Gold 956.00 Crude  70.80

    * U.S. stocks rallied on Friday, pushing the S&P  500 to a 10-month high as the July jobs report was less bleak than feared & underpinned hopes the economy was on track for recovery.

    * FTSE hit a 10-month closing high on Friday after U.S. employers shed far fewer jobs than expected, driving fresh optimism that the economy may be on the path to recovery.

    * Nikkei stock average hit a 10-month high on Monday after better-than-expected Japanese & U.S. data underpinned hopes that both economies are on the mend, with exporters also gaining on a weaker yen.

    * $ vaulted higher on Friday as data showed the pace of U.S. job losses slowed last month, adding to recent evidence that the health of the world’s largest economy is starting to improve.

    * Gold futures ended lower in choppy trade Friday as the $ rallied on optimistic U.S. jobs data & the market digested news that ECB extended an agreement limiting gold sales. But gold could soon reverse its losses if global monetary easing prompts investors to buy more gold as a hedge against inflation.

    * Copper prices reversed earlier losses & extended gains into the close on Friday, after stronger-than-expected employment data in the United States sparked renewed optimism.

    * Oil fell from six-week highs on Friday, pressured by gains in the $ following the release of better-than-expected U.S. job-loss numbers. U.S. employers cut 247,000 jobs in July, far less than expected & the least in any month since last August, according to a Gov. report, adding to optimism that the world’s largest economy was turning around.   

INDIA FRONT PAGE

    * Top retailers including Future Group, Aditya Birla Retail, Spencer’s & Reliance Retail have formed a coalition to align their sourcing operations & share private labels, logistics, warehouses & hiring details on a transactional payment basis, to help cut operational costs & improve margins.

    * Amid growing concern over the financial health of airlines, the top three carriers of the country Air India, Kingfisher & Jet Airways are planning to convert most of their domestic flights into no-frills services.

    * Edelweiss Capital  is in talks with Japanese insurance group Tokio Marine Holdings for a possible joint venture in life insurance.

    * RBI has suggested it handle  the regulation, licensing & supervision of housing companies, as a rider for offloading its stake in the National Housing Bank.

    *  The federal petroleum ministry has approved a three-month credit period from oil marketing companies to the cash-strapped national carrier Air India for payment of its aviation turbine fuel (ATF) dues. Currently Air India has a two-month credit period.

    * The Pension Fund Regulatory & Development Authority has decided not to fix any minimum limit on investments by individuals to a scheme of the new pension system in which the subscription money can be withdrawn at any time. The new scheme will be launched on Dec.1.

INR

INR @ 48.57 dropped to fresh one-week lows on Thursday as mostly weak regional stocks raised concerns about the outlook for the local market, while some month-end $ demand from refiners also hurt.  At 9:20 a.m. the INR was at 48.55/56 per $, off an early low of 48.58, its weakest since July 22 and below its close of 48.42/43 on Wednesday. 1M NDF were at 48.62/72, weaker than the onshore spot rate. Nifty futures in Singapore were up 0.2 %.   The $ trimmed gains against most other major currencies on Thursday. U.S. crude futures fell below $63 a barrel on Thursday.

BONDS

Yields were largely steady on Thursday ahead of weekly inflation data due at noon (0630 GMT) after the RBI raised its inflation projection for 2009/10 at a scheduled review this week.    * At 9:11 a.m., the benchmark 10-year bond yield was at 6.90 %, a notch below Wednesday’s close of 6.91 %.    * The Gov. will sell 120 billion INRs of bonds on Friday as part of its revised first-half borrowing plan of 2.99 trillion INRs. The RBI sold 90 billion INRs of bills and 20 billion INRs of state loans on Wednesday. WPI  is forecast to have fallen 1.46 % in the 12 months to July 18, steeper than the previous week’s decline of 1.17 %, a Reuters poll of 11 analysts showed on Wednesday. 

STOCK

Indian shares slid 1 % on Tuesday, their third consecutive fall, as a sell-off in Shanghai stocks on fears Chinese banks may begin to restrict lending weighed on markets across Asia.     Chinese stocks dropped 5 %, their biggest fall in eight months, dragging down India’s main index as much as 2.9 % before it pared losses as analysts said any moves by banks in China were unlikely to affect India. China’s banking regulator on Tuesday had urged lenders to ensure that loans enter the real economy, rather than flow into property and stock markets for speculation.    Dealers said disappointing results from Reliance , HLL,  Sun Pharmaceutical  and Tata Steel had made investors cautious and weakened the market momentum seen since mid-July.

CALL

Indian overnight cash rates were steady on Wednesday as demand for funds from banks remained low in the second week of the reporting cycle amid ample liquidity in the banking system. Call closed at 3.20/3.30 %, unchanged from previous day’s close.    Banks parked 1.19 trillion INRs in the RBI’s reverse repo auction on Wednesday, highlighting the extent of the surplus cash in the banking system.

GLOBAL MARKET

DJIA 9,070.72  -26.00  Nikkei 10,116.49 +3.25  FTSE  4,547.53  +18.69  Hang Seng 20,303.02 +167.52  US 10Y 3.668   EUR 1.4063  Yen 95.01    Gold 931.00   Crude  62.95

·         U.S. stocks fell on Wednesday as investors worried that China’s banks might be poised to hit the brakes on lending to stem market excesses, a move that could curb the global economic recovery.

·         FTSE on Wednesday as gains from financial stocks, boosted by strong numbers from the British arm of Spain’s Banco Santander and positive broker comment, outweighed a weak mining sector.

·         Nikkei stock average was flat on Thursday, with caution after a Chinese stock tumble offsetting a surge in auto shares after Honda Motor Co and Nissan Motor Co  eked out surprise quarterly profits. Honda climbed 8.1 % to become the biggest contributor to the Nikkei 225, and Nissan rose 7.5 %.

·          $ climbed to a two-week high against the euro on Wednesday, as steep losses in Shanghai’s stock market and an unexpectedly weak U.S. durable goods report reignited the greenback’s appeal as a safe haven.

·          August gold contract limited losses to $11.60, or 1.24 %, at $927.50  an ounce by  on the COMEX Exchange.

·         Copper prices fell to their lowest in a week on Wednesday as the $ firmed on rising risk aversion and as investors focused on the prospect of reduced Chinese imports of the metal.

·         Oil dropped nearly 6 % on Wednesday to near $63 a barrel in the biggest one-day slide since April after data showed a surge in U.S. crude inventories on higher imports and lower refinery activity.

INDIA FRONT PAGE

·         A consortium comprising RInfra, SNC Lavalin  of Canada and Reliance Communications has bagged the contract to construct the 82.5-billion-INR Charkop-Bandra-Mankhurd corridor of the Mumbai Metro. The consortium was the sole bidder.

·          The diversified Hinduja group is scouting for a partner to speed up the process of setting up its first hospital in Chennai. Massachusetts General Hospital is one of the names doing the rounds.

·         The Gov. is set to give security clearance to Unitech Wireless’s proposal to hike its foreign shareholding by Norwegian telecom firm, Telenor to up to 74 %, on condition that none of the staff of Telenor Pakistan, which is wholly-owned by Telenor, are employed in India.

·          Indian Oil Corp and explorer Oil India have jointly initiated talks for a possible acquisition of Bermuda-incorporated Gulf Keystone Petroleum an independent explorer, which has operations in Kurdistan in Iraq, and Algeria. The acquisition could cost over $2 billion.

·          Power Grid Corp is in talks with Advanced Engineering Associates International Inc of the U.S. to bid for a 500-circuit kilometre transmission contract in Arizona, U.S.

US New Housing data brings cheer , FTSE 11 sessions +ve equals Dow , $ falls against EURO , Copper Crude surge.

Hotels to raise room rate by 10% on economic recovery , Jet tightens belt to go down from  5th gear.

INR

INR @ 48.29 edged lower on Tuesday ahead of the RBI’s first quarter monetary policy review, but traders were awaiting the domestic market open for cues on direction of fund flows.  Dealers said some month-end $ demand from importers and oil refiners was weighing on the local unit.  48.24/25 was Monday’s close. 1M NDF @ 48.33 . SGX Nifty Up  were up 0.2 %.

BONDS

Yields were steady on Tuesday as traders preferred to stay on the sidelines ahead of the RBI’s rate decision at 11:15 a.m.  At 9:10 a.m., 6.90 % 2019 was at 6.96 %, 1 BP above Monday’s close.  At its quarterly review of the economy published on Monday, the RBI said there were signs of inflation firming up while there was a need for fiscal consolidation, to return the economy, to a high growth path.

STOCK

Indian shares are expected to make a cautious start on Tuesday on mixed signals from other Asian markets and as investors await the outcome of the RBI monetary policy. RBI is expected to hold key rates steady at its policy review as growth begins to show some signs of revival and concerns about rising prices are seen deterring further cuts, a Reuters poll shows.  Tata Motors Ltd reported an unexpected surge in first-quarter net profit, helped by a change in accounting policy.

CALL

Indian overnight money rates were virtually unmoved near the RBI’s main borrowing rate of 3.25 % on Monday, with banks meeting their funding needs comfortably amid easy liquidity in the system.   Banks deployed 1.13 trillion at Monday’s reverse repo auction, showing the extent of cash surplus in the system.

GLOBAL MARKET

DJIA  9,108.51  +15.27  Nikkei 10,062.88  -25.78  FTSE 4,586.13   +9.52 H Seng 20,182.42 -69.20  US 10 Y 3.725  +0.067 EUR 1.4238  Yen 95.24  Gold 955.00  Crude  68.23

    * U.S. stocks rose late to finish Monday’s session with a small gain following two strong weeks as investors bought bank shares that had lagged in the recent rally.

    * Buoyant energy stocks and miners helped Britain’s top share index rise for a record-equaling 11th straight session, though gains were limited by falls on Wall Street after corporate earnings disappointed.

    * Nikkei average inched down 0.3 % on Tuesday, after a nine-day rally, as stocks that had led the strong run-up such as Advantest Corp fell  amid concern about the rapid pace of the rally.

    * . $ dropped to a more than seven-week low against the euro on Monday as a jump in U.S. new-home sales bolstered the market’s appetite for riskier assets and dimmed the greenback’s safe-haven appeal.

    * Gold rose to its highest level since mid-June on Monday as the $ weakened, with investors gaining fresh appetite for currencies seen as higher risk, while platinum tracked the yellow metal to a near six-week high.

    * Copper prices on Monday rose to their highest levels since early October, fueled by optimism about growth in China, the world’s top consumer of industrial metals, and signs of a U.S. housing market recovery.

    * Oil prices rose on Monday as strong U.S. homes sales data raised optimism about a turnaround in the economy.

INDIA FRONT PAGE

    * Reliance Natural Resources Ltd plans to raise funds though a QIP. The stake dilution will not exceed 25 %.

    * Mukesh Ambani’s Reliance Group has started selling flour, pulses and edible oil through a new company in the open market in Mumbai to test the waters before it takes a plunge into the consumer products business.

    * Wireless tower operator Crown Castle International is bidding against its close rival, American Tower Company, for a controlling stake in the separated tower operations of Aircel.

    *  Hoteliers are planning to raise room tariffs by 5-10 % before the peak season begins in September as they see corporate travel perking up on the back of encouraging financial results.

    *  Jet Airways has begun to trim its financial liabilities through debt repayment, extension of repayment period and deferring capacity expansion. It has a debt burden of 145 billion about five-times its equity. It aims to bring its debt down to below 100 billion by 2011.

    *  The Andhra Pradesh Gov. will participate in the country’s largest auction of oil and gas blocks through the eighth round of the new exploration licensing policy, Nelp 8.  sale.

US Inc gears up for good corporate results , CIT group thrown a lifeline , $ falls as investors venture out of their safe havens – has the storm abated

Gsec FII cap to rise above $6.5 billion , Sops on power equipment import , Infosys to manage coaches , Buy a BMW Bike  , Vedanta gets in expansion mode , Service Tax on Freight services may be rolled back.

 
INR

INR @ 48.24 and is expected to rise on Tuesday, helped by the $’s weakness against some currencies, but gains likely will be kept in check by importer buying from refiners.  INR closed at 48.21/22 per $ on Monday, 1.1 % stronger than Friday’s close of 48.73/74. The unit rose to as high as 48.18 in intraday trades, its highest since July 6. FII inflows a net $1.2 billion stocks so far in July, taking net purchases in 2009 to $6.2 billion, and further buying was expected in a rising market. 1M NDF were at 48.31, indicating a bullish near-term outlook. Nifty futures in Singapore were down 0.3 %. . Dollex near a 6W low. U.S. crude futures were above $64 a barrel, bolstered by a weak $.

 
BONDS

Yields are expected to rise on Tuesday as the prospect of heavy debt supply and higher commodity prices push investors to the sidelines.  7.94 % 2021 rose to 7.28 % on Monday from Friday’s close of 7.19 %.  6.90 % 2019 also rose to 6.92 % from Friday’s 6.85 %. AUCTIONS :    RBI will sell 63 billion of SDL on Tuesday, 95 billion of bills on Wednesday and 120 billion of bonds on Friday. (278).  U.S. Treasury prices rose on Monday, climbing back up from earlier losses as trades related to corporate debt deals dominated the market in a week without

 
STOCK

Indian shares rose 3 % on Monday to their highest close in 5 weeks as a last-minute rescue seen for troubled U.S. lender CIT Group and a raft of positive earnings fuelled global appetite for riskier bets. TCS , surged 15.3 % to 500.10 its best one-day %age gain, after it beat forecasts with a 22 % rise in quarterly profit.     Several factors, including ample global and local liquidity, a recovery in earnings growth and strong corporate balance sheets, will spur the market over the next 12 months, Morgan Stanley analyst Ridham Desai said.

 
CALL

Rate ended little changed near the RBI’s main borrowing rate of 3.25 % on Monday as banks funded their reserve needs comfortably amid robust cash conditions. Call closed at 3.20/30 %, barley moved from Friday’s close of 3.25/30.   The RBI is scheduled to announce 2009/10 fiscal’s first r monetary policy on July 28 might hike the (SLR), to help the Gov.’s additional market borrowing.    A one % rise in SLR, , could bring down the liquidity surplus by at least 400 billion I. Banks deployed 1.27 trillion INRs at Monday’s reverse repo auction by the RBI.

 
GLOBAL MARKET

DJIA  8,848.15 +104.21  Nikkei  9,522.26 +126.94   FTSE   4,443.62  +54.87 H Seng      19,412.99 -89.38 US 10 3.610    EUR 1.4236 Yen 94.22    Gold 952.  Crude   64.29

·         U.S. stocks rallied on Monday, pushing the S&P 500 to an eight-month closing high, after CIT Group Inc was thrown a lifeline to avoid bankruptcy, and investors bet corporate America would log another strong set of earnings this week.

·         A broad-based rally in the stock market saw FTSE recording gains for a sixth straight day, with banks leading the surge and commodity shares jumping on stronger crude oil and metal prices.

·         Japan’s Nikkei stock average gained 1.4 % as optimism about a U.S. economic recovery grew, sparking a revival of risk appetite, with blue-chip exporters such as Canon Inc gaining.

·          $ weakened broadly on Monday, hitting a six-week low against the euro, as strong U.S. corporate earnings prompted investors to plunge back into high-yielding currencies and other risky assets.

·         Gold futures rallied above $950 an ounce on Monday, reaching the highest level in more than a month, as a sharp $ decline and better U.S. corporate earnings boosted bullion’s inflation-hedge appeal.

·         A brighter economic outlook and more downside in the U.S. $ drove the price of copper to its loftiest level since mid-October, with some analysts expecting improved global demand for industrial metals later this year.

·         Oil rose on Monday as optimism about a potential global economic recovery lifted markets and expectations of a turnaround in fuel demand.

 
INDIA FRONT PAGE

·         India is likely to raise the investment cap in Gov. securities by FII  investors beyond the current limit of $6.5 billion.

·         Punj Lloyd is planning to raise $125-$150 million by placing fresh QIP to retire part of its high-cost debt and infuse liquidity.

·          India is planning to permit projects that allow merchant sales of upto 40 % of saleable energy in case of hydel power and 15 % in thermal power to get zero import duty and excise duty waiver on equipment purchase. It is also planning to extend its policy of giving price preference of 15 % to domestic equipment companies till 2011.

·         The union budget proposal to levy a 10 % service tax on railway freight may see a partial rollback , with the Gov. planning to exempt sensitive commodities such as food items and fertilisers in a bid to curb rising retail food prices.

·         German luxury carmaker BMW  is planning another foray into India’s minuscule high-end motorcycle market through its Motorrad range of super bikes.

·          Infosys  has bagged a pilot project to roll out an integrated coach management system for the Indian Railways. The project cost is small, but its success would determine the time-frame for the railways floating the final tender for the project, estimated to be about 2.10 billion INRs.

·         The London-listed Vedanta Resources plans to spend 430 billion INRs to enhance its capacity, in addition to its 500-billion INR plan in power generation.

·          British hedge fund Spinnaker Capital Group is in talks to sell its 25 % stake in Hyderabad-based cement firm Sanghi Industries Ltd

·          Apollo Hospitals Enterprise is planning to hive off its pharmacy division as a separate entity by the last quarter of the present financial year. It is also open to have a foreign player as an equity partner for the new corporate entity.