The key benchmark indices surged, extending gains for the fifth straight day. The market slipped into the red after a positive start. The market traded rangebound and moved between the positive and negative zone in early trade. The market formed fresh intraday lows in morning trade but recovered soon after and gradually moved into the positive terrain in mid-morning trade. The market surged to fresh intraday high in early afternoon trade as the latest data showed easing of food inflation in early February 2011. The market extended gains in afternoon trade and continued to move up on sustained buying and hit a fresh intraday high in mid-afternoon trade. The market again hit a fresh intraday high in late trade. The Sensex ended the day up by 1.1%, while the Nifty closed higher by 1.2%. The mid-cap and small-cap indices ended higher by 0.9% each. Among the front liners, HDFC Bank, HDFC, Bharti Airtel, L&T and Tata Steel gained 2–4%, while Wipro, ONGC, Jindal Steel, Hindustan Unilever and NTPC lost 1–3%. Among mid caps, Arss Infra Proj., Manappuram General Finance, Sobha Developers, Techno Electric and Engineering and Coromandel International gained 7–20%, while Jubilant Life, KGN Industries, Gujarat NRE Coke, Prakash Industries and Prestige Estates lost 4–7%.
Markets Today
The trend deciding level for the day is 18,424/5,521 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,615–18,723/5,579-5,611 levels. However, if NIFTY trades below 18,424/5,521 levels for the first half-an-hour of trade then it may correct up to 18,316–18,126/5,489-5,431 levels.
PSU banks to get capital infusion
The Government of India has approved the infusion of capital in some of the PSU banks through preferential allotment of equity shares. The beneficiary banks include Corporation Bank (Rs.309cr), Dena Bank (Rs.539cr), UCO Bank (Rs.940cr) and IOB amongst our coverage universe. In addition to this, Allahabad Bank, Andhra Bank, Syndicate Bank and United Bank of India (Rs.308cr) are also likely to get capital infusion. Quantum of capital infusion is yet to be decided in case of IOB, Allahabad Bank, Andhra Bank and Syndicate Bank. The tier-I capital adequacy ratio for IOB, Dena Bank and UCO Bank was below 8% as of 3QFY2011, while for Corporation Bank it was slightly higher at 8.1%.
The much-needed capital infusion will enable the banks to grow their advances at a healthy pace. We believe the infusion will be positive for banks notwithstanding the equity dilution. However, as of now we have not factored in the proposed infusion into our estimates pending further details, except in the case of Dena Bank. We maintain our Buy recommendation on IOB (TP: Rs.166) and Dena Bank (TP: Rs.127). However we recommend an Accumulate on Corporation Bank (TP: Rs.654) and remain Neutral on UCO Bank.
Result Review
FAG Bearings – 4QCY2010
FAG Bearings reported strong 4QCY2010 performance. Net sales during the quarter grew by strong 21.5% yoy to Rs.266cr (Rs.219cr), slightly lower than our expectation of Rs.280cr. Revenue performance was largely driven by a substantial jump in volumes, aided by strong growth in overall auto volumes and the industrial bearings segment. EBITDA margin expanded significantly by 721bp yoy to 19.6% (v/s 18.9% est.) basically due to the 105bp decline in raw-material costs and a 705bp decline in purchase of traded goods. Robust topline growth and improvement in operating performance resulted in impressive 105% yoy growth in net profit to Rs.34cr (Rs.16cr). Moreover, higher other income and lower tax outgo aided in reporting better-than-expected numbers on the bottom-line front.
At Rs.841, the stock is trading at attractive valuations of 11x and 9.7x CY2011E and CY2012E earnings, respectively. We maintain our Buy rating on the stock; however, the target price is under review.
Result Preview
Nestle – 4QCY2010
Nestle is expected to announce its 4QCY2010 results. For the quarter, we expect the company to post modest 17.7% yoy growth in its top line to Rs.1,591.4, aided by steady volume growth across categories and new product launches. Earnings for the quarter are expected to register 66% yoy growth to Rs.187.5cr, aided by margin contraction of 309bp to 17.7%. However, owing to the recent run up in the stock price, we recommend Neutral on the stock.
Economic and Political News
- Food inflation declines to two-month low of 11.05%
- Capital adequacy ratio raised for deposit-taking NBFCs
- Exporters can now avail sops worth Rs.500cr
Corporate News
- RCOM signs pact with Radio Netherlands Worldwide
- Nitesh Estates launches Rs.500cr mall in Bangalore
- PVR steps away from production, to add screens
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