HDFC Bank- Deutsche Bank, India Conference Highlights

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HDFC Bank
􀂄 On the issue of liquidity, HDFC Bank does not foresee any major improvement in the
near future. It expects the banking system to remain net borrowers from the central
government in order to manage inflation on the one hand and growth on the other.
However, it expects the credit growth–deposit growth gap to narrow soon.
􀂄 The bank feels there is sufficient room for everyone to expand, given the type of growth
the economy is expecting. It believes it can expand its low-cost deposits (CASA) without
hurting the share of other banks. According to it, banks that can leverage their CASA
franchise to expand their product portfolio would emerge as value creators in the long
term.
􀂄 HDFC Bank does not foresee any significant reduction in its cost/income ratio in the near
term. However, it believes a 100-150bps improvement is possible. It has not witnessed
any slowdown in the demand for working capital loans. On the manufacturing capex
front, it believes that ongoing projects are progressing as per schedule, but there has
been a slowdown in the onset of new projects. Projects primarily dependent on
government policies and clearances are facing delays.
􀂄 The bank does not expect any major shift in its retail loan portfolio despite increasing
competition; it plans to ramp up its distribution network at a steady pace for the next
couple of years.

Kotak Sec, News Round-up March 23, 2011

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Economy News
4 The Ministry of New and Renewable Energy (MNRE) is looking at the
possibility of generating 10,000 MW of power in the next 10 years from
surplus biomass (ET).
4 The prices of diesel cars in NCR are likely to increase sharply, with the city
government today announcing an additional tax of 25 per cent on the
existing tax rates for all diesel-propelled vehicles (BS).
4 Finance Minister today rolled back the 5% service tax on hospitals and
diagnostic services proposed in the budget (BS).

Volumes subdued ahead of the borrowing calendar; 10 Yr bond closes flat at 8.01% : Edelweiss

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Volumes subdued ahead of the borrowing calendar; 10 Yr bond closes flat at 8.01%
Government securities
 Bond yields ended steady with subdued volumes as most participants preferred to
remain on the sidelines ahead of the release of the borrowing calendar. GoI has
projected a net borrowing of INR 3.43 trn for the next fiscal year which brings the
gross borrowing to INR 4.17trn in FY12. Official of the RBI & the finance ministry
are likely to meet on Friday to decide the borrowing calendar. The ten year
benchmark bond closed unchanged from yesterday’s level of 8.01% while the most
liquid 8.13% 2022 bond closed at 8.11%, 1 basis higher than Monday’s close.

IT Services- Deutsche Bank, India Conference Highlights

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IT Services
Short term and medium trend in IT industry
Post our meetings with the business heads of various top tier Indian IT services companies,
at the DB Access India Conference, we are convinced that the top tier Indian vendors are in
the midst of a robust demand environment largely on account of a proven delivery capability.
While this may last in the medium term, there are early signs that: (a) rapid adoption of
private cloud networks and (b) greater adoption of global delivery network (GDN) model by
continental European clients will propel the offshore IT services industry in general and the
top tier Indian vendors in particular into another hyper growth stage for the next 3-4 years.
We thus, continue with our overweight stance on the sector with Infosys and TCS being our
top picks amongst the large caps. With a niche telecom play in its standalone business and
upside from improved business prospects from Mahindra Satyam, we re-iterate our Buy
rating and top pick status for Tech Mahindra amongst the mid-caps.
In our view, some of the short and medium-term trends in the industry are as below:
Demand continues to be strong but limited pricing power
All the companies were unanimous in indicating a strong demand environment for offshore IT
service providers. While overall demand is largely broad based across all verticals, according
to the managements the three most important trends impacting this are:
􀂄 Market share gains made by the Indian vendor’ vs local competition (not MNC) in the
USA and Europe. A case of vendor consolidation benefiting the Indian companies.
􀂄 Increase in share of off shoring in the marginally increased 2011 IT budgets of clients.
This is helping high volume growth over the last few quarters which is likely to sustain.
􀂄 Pricing power still doesn’t seem to have returned for the Indian vendors. While there
were divergent views on this, with Wipro indicating good success in winning coupon
rate increases from their customers, Infosys seemed most cautious on pricing increase.
It has managed to get only cost of living adjustment increases (~2%yoy) in most cases.
Telecom and Europe likely to drive spending in 2HCY11E
The laggards of 2010 are likely to turn the corner in a big way in 2HCY11E. For instance,
Infosys indicated that the pipeline in the telecom vertical is at its best in the last two years.
They are seeing good number of high double and triple digit US$mn deals. The investments
in continental Europe (especially Germany and France) made over the last two years are
paying off now. Breaking away from their self imposed aversion to offshoring, these regions
are now positively inclined to offshore. While all companies are witnessing this trend, TCS in
particular indicated that they are seeing good improvement in demand from key markets like
Nordics, Benelux, Germany and Switzerland.
High margins can be defended
Ability of the Indian vendors to sustain the high operating margins is a perpetual concern for
most investors. From our meetings, we could infer that almost all of these companies are
adopting different approaches to deal with this issue and barring any extraordinary changes in
the business environment should be able to hold or improve operating margins.
􀂄 TCS seems to ahead of the pack here and is enjoying the benefits of the realignment of
its organisation structure it instituted in early 2008. Its operating margins since then have
moved up ~200bps since then.


􀂄 Wipro seems to have taken a leaf out of TCS’s book and is attempting a similar exercise
now after dismantling its dual CEO structure recently.
􀂄 On a smaller scale HCL Tech is realigning its employee pyramid and delivery structure to
arrest the margin declines witnessed over the last 6 quarters.
􀂄 Infosys is following an altogether different path of improving its ‘absolute profitability’
per employee by moving up the value chain. This will entail a greater proportion of
revenues from discretionary spending related services like transformation and innovation
(67% of revenues) with annuity based revenues relegated to 33%. Organisation
realignment could be a consequence of this change in business approach.
Investment in cloud computing is a need of the hour
While the exact nature and extent of business impact from cloud computing is still not clear,
all the companies have no doubt in their mind that would be a game changer in the years to
come and are thus making proactive investments to build these capabilities. Most companies
are offering two types of services:
􀂄 Services for the cloud (this is a big opportunity in the medium term) and
􀂄 Services on the cloud (long-term growth driver).

FII DERIVATIVES STATISTICS FOR 23-Mar-2011

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FII DERIVATIVES STATISTICS FOR 23-Mar-2011
	BUY		SELL		OPEN INTEREST AT THE END OF THE DAY
	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores
INDEX FUTURES	73578	2016.42	60515	1657.92	472927	13003.70	358.49
INDEX OPTIONS	193807	5248.67	177353	4781.61	1904095	52174.56	467.05
STOCK FUTURES	88669	2272.62	93269	2391.32	1172172	28871.86	-118.70
STOCK OPTIONS	7016	184.77	7444	192.98	44536	1181.66	-8.21
						Total	698.64

 

FII & DII trading activity on NSE and BSE as on 23- March-2011

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FII & DII Turnover (BSE + NSE)

(Rs. crore)
	FII			DII
Trade Date	Buy	Sales	Net	Buy	Sales	Net
23/3/11	1,930.24	1,618.14	312.10	2,042.81	931.13	1,111.68
22/3/11	1,533.50	1,297.21	236.29	844.44	748.40	96.04
21/3/11	1,263.27	1,360.29	-97.02	782.26	734.28	47.98
Mar , 11	33,216.60	32,820.94	395.66	16,984.98	13,898.75	3,086.23
Since 1/1/11   *	148,034.92	163,965.76	-15,930.84	73,003.76	58,899.30	14,104.46

Clients, NRI, Proprietary trading activity 23-Mar-11

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(Rs Crore)	Clients
Trade Date	Buy	Sales	Net
23-03-2011	2,978.42	3,380.08	-401.66
22-03-2011	2,104.79	2,145.55	-40.75
21-03-2011	2,344.97	2,365.27	-20.31
Mar , 11	36,684.81	37,570.11	-885.3
Since 1/1/11	1,28,706.96	1,29,967.82	-1,260.86
(Rs Crore)	NRI
Trade Date	Buy	Sales	Net
08-03-2011	0.30	0.53	-0.23
07-03-2011	0.73	0.42	0.32
04-03-2011	0.66	0.72	-0.07
Mar , 11	14.88	12.54	2.34
Since 1/1/11	64.01	51.54	12.47
(Rs Crore)	Proprietary
Trade Date	Buy	Sales	Net
08-03-2011	656.75	605.31	51.44
07-03-2011	545.69	520.75	24.94
04-03-2011	488.86	481.29	7.57
Mar , 11	10,172.67	9,951.53	221.15
Since 1/1/11	37,588.67	37,721.47	-132.80