Credit Policy Analysis

The Reserve Bank of India announced its third quarter review of monetary policy. The bank raised the Cash Reserve Ratio (CRR) by 75 bps to 5.75% and left the key policy rates, repo and reverse repo unchanged. The hike in CRR was above the street expectation of a 50 bps hike and the market reacted in a knee jerk manner, however has recovered because of a stronger growth outlook.

Some of the key highlights form the policy documents are:

· The Indian monetary authority sounded very bullish on growth in the third quarterly review of its annual monetary policy for FY10 and raised the growth projection for the economy to 7.5%, way ahead of its forecast of 6% with upside bias given in the last policy review three months ago

· The figure is also substantially higher compared with median forecast of 6.9% in the survey of professional forecasts release by the RBI on Thursday

· The deficient monsoon rainfall and drought conditions in several parts of the country have accentuated the pressure on food prices, pushing up the overall inflation rate – both of the WPI and consumer price indices (CPIs)

· The central bank says that even though a baseline scenario is comforting a number of downside risks to growth and upside risks to inflation are there

o There is still uncertainty about the pace and shape of global recovery and it is too dependent on public spending and will unravel if governments around the world withdraw their fiscal stimuli prematurely

o Expectations of softening domestic inflation are contingent on food prices moderating. This, in turn, depends significantly on the performance of the monsoon which if remains inadequate could continue to intensify inflationary pressures

o As growth accelerates and the output gap closes, excess liquidity, if allowed to persist, may exacerbate inflation expectation

Analysis:

The two-phased CRR hike will soak Rs 36000 crore from the banking system, that was the only negative that the RBI policy document. The way the banking and the real estate sector stock recovered clearly highlights the fact that the market has really taken this policy in a positive way, however one should remain cautious as there was nothing positive in the document which fundamentally could lead to a rally like today.

Credit Policy Eve

The Reserve Bank of India today released its review of the macroeconomic and

monetary developments which serves as a background to the Third Quarter review of

Monetary Policy 2009-10 being announced tomorrow, January 29th, 2010.

Some of the Key Highlights of the documents which we believe will set the tone of the

monetary policy are:

• The IMF, in its January 2010 update, has revised significantly the global growth outlook for 2010 (from the earlier projected 3.1 per cent to 3.9 per cent). Recovery in advanced economies is, however, expected to remain sluggish, while economic activity in emerging market economies (EMEs) and developing economies could expand vigorously, driven by domestic demand
• The pace and shape of recovery continue to remain uncertain. By far the biggest anxiety is about the recovery losing momentum once the props of fiscal stimulus and monetary accommodation are withdrawn
• Emerging economies, which are already on the recovery path, face various challenges from capital flows, potential inflationary pressures and credit revival
• According to the first advance estimates, production of kharif food grains and oilseeds is expected to decline by about 16 per cent over the previous year
• Corporate performance data up to the second quarter of 2009-10 indicate that despite the persistence of dampened (y-on-y) growth in sales, sequential quarterly growth remained positive. In the third quarter of 2009-10, partial data indicate significant (Y-o-Y) growth in sales.
• Pattern of capital flows, pace of the recovery in demand for credit from the private sector and the fiscal stance would influence the monetary and liquidity conditions in the near term
• Inflation emerged as a major concern during the third quarter, dominated by significant supply factors.
• In December 2009, there have been signs of emergence of generalized inflation
• While anchoring inflation expectations becomes important in such a situation, addressing supply constraints would be critical for enhancing the effectiveness of any anti-inflationary policy measures
• In view of the dominance of food price inflation, balancing the policy needs of supporting durable return to the high growth path while avoiding a situation of generalized increase in inflation through monetary policy actions has emerged as a delicate challenge for the Reserve Bank
• The upside prospects for further acceleration in growth in the near term derive support from several factors, including as per the Reserve Bank’s business expectations survey as well as similar surveys of other agencies
• According to the Reserve Bank’s Professional Forecasters Survey conducted in December 2009, the outlook for 2009-10 growth has been revised upwards from 6.0 per cent to 6.9 per cent
• The outlook for inflation will be conditioned by the upside risks in terms of persistence of supply side pressures in the near term and possible return of purchasing power because of higher growth
• The growth and inflation mix for India is increasingly becoming asymmetric vis-à-vis the pattern in other G-20 countries. The possibility of surges in capital inflows and the associated domestic liquidity conditions may also affect inflationary expectations, besides the impact of the rebound in international commodity prices in response to global recovery
• With a stronger recovery in India, the risk of food price inflation causing generalized inflation cannot be ignored

Analysis:

The RBI review clearly highlights the fact that the growth is no more a concern and is on apositive trajectory, however clearly states inflation as a big concern. Thus we believe that tocurb this inflation demon RBI may go against the general street consensus and increase the key repo and reverse repo rate by around 50 bps. (The CRR hike of at least 50 bps is almost inevitable).

In the last policy too, RBI did removed some unconventional measures and tightened prudential norms and said that “This is the beginning of the phase of monetary reversal”.

Thus we strongly believe that this quarter a reversal is highly likely on the cards and one should avoid investment (can go short) in rate sensitive sectors like Banking, Real Estate, Automobile and Capital Goods and move towards defensives like FMCG and Pharma (long).

MSK Projects-Good Medium Term Investmemt

MSK projects is into the construction business with presence in the following domains.

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• Road Construction
• Industrial (Both Civil and corporate projects)
• Residential Housing
• Commercial Real estate

It is engaged in industrial construction such as mass housing and townships, multistoried buildings etc. Its industrial projects for coal mines, fertilizer plants, petrochemicals etc are executed for both the private and public sectors. With With government thrust on infrastructure development through public-private partnership, the Company will benefit as it has executed many projects in road and industrial construction segment.

At the CMP of around 106 the company is trading at a P/E of around 10 and with the strong order book, execution track record and strong equipment back it makes sense to take a long position in the stock with a target of around 140-50 with stop loss around 80 level and should add on dips at 95 and 85.

Please use the link to download a basic financial summary report for the company.

Network 18 Result Update

Network 18 Media & Investments Ltd. came out with its Q3FY10 results on 25th January 2010. The net sales for forQ3FY10 stood at Rs 370.10 crore while Net loss stood at Rs 21.08 cr.

RESULT HIGHLIGHTS:

• The net sales for the quarter ended December 09 grew by 66.15% in the quarter ended Dec-09 on a YoY basis while Net loss stood at rs 21.81 crores down 50% on a YoY basis
• The company turned EBITDA positive this quarter posting an EBITDA of Rs 8.10 cr against a loss in the same quarter a year ago
• While the company boasted of higher revenues from Infomedia18 it was able to curb its operating expenses which helped it in turning EBITDA positive
• The company also witnessed a decline in its interest costs which declined by 480 basis points and along with higher revenues curbing its non operating costs was a key factor in reducing losses by 50%
• 7 OUT OF 9 TV CHANNELS ARE NUMBER 1 IN THEIR RESPECTIVE CATEGORIES:
• The company's channel Color's became the No.1 Entertainment channel last quarter surpassing Star Plus & Zee and will commence its operations in USA & UK soon
• The company's news channel CNBC TV18 dominates more than 58% in the relevant market while CNBC Awaaz is the number 1 Hindi business news channel
• Homeshop18 witnessed its income double over the same quarter a year ago
• MTV & VH1 continues to lead in their respective genres
• Other income mainly income from investments declined substantially by almost 50% YoY because of selling of investments in the FY08-09

The golden era for the holding companies in India is yet to come like the developed markets in terms of being rewarded by the shareholders.

I strongly believe that the one should keep holding/create fresh longs in Network 18, since the kind of businesses both the web and tv space the company owns will create substantial shareholders value and moreover is currently trading at a huge discount to its NAV.

Dish TV Q3 Result Update

Dish Ltd. declared its second quarter result on 22nd January 2010. The results came better than the street expectations, on account of an impressive growth in new subscribers and reduction in cost of production. The sales were at Rs. 277.21cr above the consensus estimate of Rs. 223.00cr, whereas the net loss was Rs. 76.22cr. as against the street estimate of Rs. 151.00cr.

Result Highlights:

• The net sales for the quarter ended December 09 grew by 43.83% to Rs. 277.21cr from Rs 192.73cr in 3Q09 due to addition of new subscribers to the tune of 0.55 million
• The EBIDTA for the quarter ended December 09 increased by a whopping 129.8% to Rs. 11.60cr while the EBIDTA margin improved by 2434.1 basis points (bps) to 4.18% as compared to -20.16% reported a year ago
• Improvement in the EBIDTA margin is mainly on account of decline the total expenditure cost. The cost of goods and services as a % of sales declined from 72.59% in 3Q09 to 65.16% in 3Q10
• Company’s net interest expense decreased by 50.5% y-o-y to a level of Rs.11.05cr
• Company’s net loss for the quarter ended December 09 reduced significantly by 35.4% to Rs. 76.22cr as compared to a net loss of Rs. 118.06cr reported a year ago
• During the quarter, the Company raised USD 100 million through issue of GDRs, which would be utilized towards expanding its subscriber base
• During the quarter, Dishtv also entered into a tie up with Axis Bank for collection of DTH Subscription Recharge
• The Company is likely to target subscribers which are below Rs 100 on DD Direct which is a zero subscription as none of the DTH players are looking for subscribers below Rs 125

DTH industry is expected to grow more than 50% in the next 3 years and Dish TV would strive to take a large share of the business. The Company would continue to focus on increasing ARPU, value added services, commercial sales (e.g. hotels, restaurants, pubs, clubs, malls etc), brand building and penetration, service capability ramp up resulting in value creation for the stakeholder. Thus I strongly believe that one should keep holding Dish TV in a long term time horizon portfolio.

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Wipro's Q3 Resuls: End of IT rally?

Wipro, the IT major is to come up with its Q3 results tomorrow and as per Bloomberg consensus expectations it is expected to post a muted sales growth of around -1% and a fall in net profit growth of around 4%.

Despite this the street is really looking forward to the same with hope and excitement. The main reason behind this excitement is that the other two giants Infosys and TCS have delivered better than expected results and as a result the whole IT pack have performed quite well on exchanges over the last one week.

However, the whole IT lot have gone way beyond their fundamentals are trading at almost their 3-4 year high. Even if Wipro also turns up with a mid blowing results, much of this is already discounted in the prices because when Infosys or TCS delivered good results then Wipro was also making new highs because the street was expecting to follow the same trend. Thus, if it does delivers the same then also the performance, I believe is already there in the price.

I would strongly suggest to start booking profits from the IT lot.

Opening as Equity Research Analyst with KREDENT Brokerage

Opening as Equity Research Analyst with KREDENT Brokerage

We are inviting applications for our Equity Research Team.

Kredent Brokerage is one of the largest trading houses in India with substantial market share in exchange’s volume and liquidity. Kredent is a direct clearing and trading member of the NSE, MCX-SX, MCX, NCDEX and BSE.

At Kredent Equity, one of the most important initiatives is the de-risking factor. To make prudent investment plans for our clients, our highly trained analytical team researches on the probable market trends. There are openings in this research team for an Equity Research Analyst.

Pre-requisite: Candidates with a minimum of 2 years experience in the Indian Equity Market, meeting either of the following conditions can apply.

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Kindly forward your resume at rahul.s@kredent.com with the subject: Equity Research Analyst

Jubilant Food Works IPO: The Pizza is Costly

Jubilant Food Works the owner of Dominos Pizza India has come up with its IPO to raise around 300 crore rupees with the purpose of

• Repayment of Loans, and
• General Corporate Purposes

Thus, not using the IPO money for any substantial growth purpose, but the promoters just wants to en cash an opportunity to mint money in this IPO frenzy.

Jubilant operates its pizza delivery stores pursuant to a Master Franchise Agreement with

Domino’s International, which provides it with the exclusive right to develop and operate

Domino’s pizza stores and the associated trademarks in the operation of pizza stores in

India, Nepal, Bangladesh and Sri Lanka. This provides the ability to use Dominos’ globally

recognized brand name, as well as operational support for pizza and food technology,

commissary & logistics management support, global marketing and vendor development

know-how. Some facts regarding the company are

• As of November 30, 2009, Jubilant operated 286 stores in India located in 22 states including 59 cities and through a sub-franchisee
• On average, 1.81 million pizzas, including add-ons were sold each month throughout its pizza stores in India in FY09 and for the six months period ended September 30, 2009, 2.46 million pizzas (including add-ons) were sold each month

Despite the company being in a growth segment is faced with too much of competition from players like Pizza Hut, Papa John's and other local/regional food joints, because of which the margins remains subdued.

At INR145.00 the upper end of the price band, Jubilant is priced at 34.8x times of its FY2010 Diluted EPS of Rs4.16. However, based on FY09 Diluted EPS, it is at a P/E of 125x at the upper price band. This is much higher compared to the other global listed players like Domino’s (US), Papa John’s and Mcdonald’s.

Hence, I strongly believe that a retail investor should avoid subscribing to the IPO as it is an highly expensive offering and the application from the anchor investors (Not completely subscribed) front clearly highlights this fact.

The Inflation deamon

The WPI for the month of December stood at 7.31% against 6.15% in the corresponding month of the last year.The same figure posted 4.78% in the previous month. The released figure is almost in the line with the market’s expected figure

• This high figure of inflation is the resultant of high food prices and a low base effect. Government has thus, decided for the off taking of surplus stocks of wheat and rice and also efforts to be made to increase the farm-productivity
• The inflation figure is much higher than the RBI’s forecast of around 7% by March end which the central bank published in its second quarter monetary policy review Hence it will definitely going to pull a chord with the RBI and help it to determine the interest-rate and monetary policy. It is expected to tighten the monetary policy and thus, hike the interest-rates as high inflation erodes the value of money and thus decrease its purchasing-power.

Thus we believe that that one should start booking profits form the rate sensitive like banking and real estate and move towards defensives like FMCG and Pharma.

Inflation Internals

• The sub-group of primary articles rose by 14.88% y-o-y against 11.15% in Dec’08.It registered a growth of 1.25% m-o-m mainly because of high growth in the food articles, which increased by 0.45% m-o-m. The increase in the food articles was induced by the surge in prices of urad, moong, spices, condiments, vegetables, pulses and wheat
• In the same sub-group, the non-food articles increased by 3.92% m-o-m due to higher prices of raw tobacco, oil-seeds and fibers like raw jute & rubber. The index for minerals rose to 0.19% m-o-m which was due to higher prices of fire-clay, dolomite, phosporites barites and many other minerals
• The second sub-group of fuel, power, lights and lubricants increased to 4.29% y-o-y from -0.21 in Dec’08. It registered a growth of a mild 0.09% m-o-m due to higher prices of light diesel oil, furnance and neptha oil
• The third sub-group of manufactured products registered an increase of 5.17% y-o-y from 6.63% in Dec’08. it registered a growth of 0.19% m-o-m mainly because of increase in the prices of food-products, sugar, edible oils, cotton textiles and rubber and plastic products Food products rose by 0.76% m-o-m on note of higher prices of edible food products.
• Sugar rose by 0.20% while there was an increase of 2.27% in edible oils due to higher prices of oil-seeds.

Training the Teachers

If education is the foundation for the future generation, teaching automatically forms the core. In a project that will help upgrade skills of Indian teachers, including primary school teachers, the

University of Oxford has tied up with Core Projects and Technology to bring global training

standards to the country.

• The University of Oxford and Core Projects will collaborate in the field of teacher capacity building and enablement in the country
• Prime Minister Manmohan Singh has said that the national shortfall of school teachers today is about a million.
• ·Teacher training will be very critical and crucial for the success of the Sarva shiksha Abhiyan SSA); Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and the Model Schools Programme.
• In India, Johnson will lead the proposed India programme on behalf of the University of Oxford.
• The project is initially slated for duration of three years; during which; the Oxford team of
• educationists; headed by Johnson; will closely work with Core projects and various stakeholders of the Indian education space

Given this noble initiative and other such projects by Core Projects, I believe that the stock is a good long term investments and should be added on dips or one could start a SIP form of investment from today.

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Indian Healthcare Sector

The Indian healthcare sector, we believe is well poised for growth in the long term and presents a good investment opportunity.The stocks mentioned in the report have multiplied around four fold on an average in the last one year and hence a SIP form of investment is recommended.

Please use the following link to download the report containing our top recommendations.

Bayer Corp: Making Agriculture Better

BSCL, an agro-chemical company, is subsidiary of the Euro 35 billion Bayer AG

• Its business is divided into crop protection, environmental science and bio-science

• Per hectare consumption of pesticide in India is merely 0.48 kgs, lower than 5.0 kgs per hectare in the US and again less than 10.0 kgs per hectare in Japan

• With its strong R&D, BSCL continues to offer new products to its customers

• The Company derives nearly 80.0% of its exports revenue from its Bayer AG group companies due to the cost advantages

• New products’ launch, outsourcing from parent and low pesticide penetration will drive the future growth of the Company

• Despite poor rainfall in H1FY10, the Company registered a strong performance

• Its profit in H1FY10 is Rs. 109.42 crore higher than Rs. 94.46 crore posted for FY09

• The Company has shut down its Thane plant spread over 108 acres of land, valued around Rs. 1,000.0 crore

• The sale of land could generate huge cash reserves for BSCL

• The stock could be bought at current levels with one year target price of Rs. 632.0