24 March 2012

Technology: Should Infosys not give guidance for FY2013E? :: Kotak Securities PDF link

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Technology: Should Infosys not give guidance for FY2013E?
` S&P 500 guidance - some snippets from a recent FT article
` Infosys has guided for two reasons, historically

http://www.kotaksecurities.com/pdf/indiadaily/indiadaily20032012.pdf

Tech Mahindra: Thoughts on Tech Mahindra (TM)-Satyam merger :: Kotak Securities PDF link

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Tech Mahindra: Thoughts on Tech Mahindra (TM)-Satyam merger
` TM valued at a premium to Satyam in the merger process
` Merger creates a large IT organization but still with some portfolio issues

http://www.kotaksecurities.com/pdf/indiadaily/indiadaily22032012.pdf


IPO Grey Market Premium: NBCC, MT Educare : 24 March 2012

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Company Name
Offer Price (Rs)
Expected Listing Price Premium



National Buildings Construction Corporation (NBCC)
Rs 90/- to Rs 106/-
(retail 5% discount)
None. Expected to list at IPO price. Retail may expect 5% as they get discount.
MT EDUCARE
Rs.74 to Rs.80
Discount

Zuari Industries - High Court approves demerger; company update; Buy :Edelweiss PDF link

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Zuari Industries (ZUAR IN, INR 486, Buy)
Zuari Industries (Zuari) reports that it has received sanction from the High Court of Bombay at Goa for its proposed restructuring of fertiliser and related entities into Zuari Holdings (ZHL) as well as demerger of ZHL. We believe that this would enable value unlocking by Zuari Industries for its fertiliser business, leading to a re-rating. It would also address investor concerns over the possibility of the company investing fertiliser profits into unrelated businesses. Maintain ‘BUY’.

Buy VST Industries; Target : Rs 1829 : ICICI Securities PDF link : Initiating Coverage

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http://content.icicidirect.com/mailimages/ICICIdirect_VSTIndustries_InitiatingCoverage.pdf


W e l l   p l a c e d   a t   l o w   p r i c e   p o i n t …
VST Industries is one of the foremost cigarette manufacturers in India with
a presence in low priced brands like ‘Charms’, ‘Charminar’ and ‘Moments’.
We believe, with VST’s dominance in  low priced cigarettes market, it is
well poised to benefit from increasing per capita income and shift in
demand from other cheaper tobacco products to cigarettes. We expect
revenue  and  earnings to  grow  at  a  CAGR  of  16.7%  and  27.6%,
respectively, during FY11-14E. Further, with increasing dividend/share
(from | 45/share in FY11 to | 95/share in FY14E), return ratios would
improve, going forward. We are initiating  coverage  on the  stock with a
BUY rating.

Attractive FD schemes from Top Performing Housing Finance Companies with sound track record.

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Attractive FD schemes from Top Performing Housing Finance Companies with  sound track record.
 
Company NameMin. AmountRate of Interest (%)Additional InterestRating
1
Year
400 Days15
Months
20
Months
2 Years
33
Months
3 Years
DHFL AASHRAY Deposit - 400 Days10000-10.75-----0.50% additional for senior citizensCARE (AA+) FD BWR FAAA
HDFC Ltd - Platinum Deposits20000--
 
10
--10-0.25% additional for senior citizensFAAA (CRISIL) MAAA (ICRA)
Gruh Finance20009.50-
-9.75-100.25% additional for senior citizensMAA+ (ICRA) FAA+ (CRISIL)
ICICI Home Finance100009.25-9.509.50---0.25% additional for senior citizens
AAA(FD) CARE
MAAA(ICRA)
LIC Housing Finance100009.00---9.25-9.500.10% (upto Rs.50000/-) & 0.25% (Rs.51000/-& above) additional for senior citizensFAAA (CRISIL)
PNB Housing Finance200009.50---9.50-9.750.50% additional for senior citizensFAA+ (CRISIL)
  
For further informations and application forms, kindly contact us

Energy: What the Government giveth, the Government taketh away :: Kotak Securities PDF link


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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily19032012.pdf


Energy
India
What the Government giveth, the Government taketh away. The Government’s
decision to provide `850 bn of compensation to downstream oil companies for FY2012
is a positive for GAIL, OIL and ONGC as it implies a subsidy burden of ~38%. However,
the proposed increase in cess on crude oil is a negative for future earnings of Cairn, OIL
and ONGC. We maintain our BUY rating on ONGC/OIL, ADD on GAIL and SELL on
Cairn India.  

Ashok Leyland: Initiating at Buy: Adverse externalities set to reverse :: Jefferies

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Key Takeaway
We initiate coverage of Ashok Leyland with a Buy rating and PT of Rs37.
We believe FY13E will mark the reversal of factors that have, so far, led to
AL’s underperformance in a resilient CV market. We see AL’s volume growth
reviving as demand in south improves. Production ramp-up at its tax-exempt
plant and operating leverage should aid margins. With the peak in capex/
investments behind us, we expect the strain on balance sheet to ease.

Consumer products: Cost push :: Kotak Securities PDF link


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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily19032012.pdf


Consumer products
India
Cost push. The central budget had many (correctly so) proposals to maximize revenue
collection from the jewelry industry (some of it likely creates a not-so-level playing field
for organised players like Titan). The increase in excise duty is likely to impact Asian
Paints, HUL and GSK the most, whereas the introduction of a negative list for service
tax is likely to have modest impact as most of the services consumed by consumer
companies (adspends being a large component) are already covered under service tax.

Mayur Uniquoters -Buy on dips: target Rs 465: HDFC Sec

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We had released a Management Interaction Note on Mayur Uniquoters on 31st March 2011 at the then CMP of Rs 249.30 and
had advised investors to buy the scrip at the then CMP and add on dips to Rs 222 and Rs 227 band for targets of Rs 280 and
Rs 308 in 1 - 2 quarters. The stock had achieved our first target of Rs 280 on 27th April 2011 and achieved our second
target of Rs 308 on 20th May 2011. Post the report it made a low of Rs 251.65 on 11th April 2011 and a high of Rs 467
on 21st July 2011. Currently the stock is trading at Rs 415.05. We hereby present an update on the stock.
Company Background
Mayur Uniquoters Ltd (MUL), a PU and PVC synthetic leather (artificial leather) manufacturer, was established in 1992 by S.K.
Poddar, an industry veteran trader in PVC Leather line. Synthetic leather finds application in footwear, automobile seats,
upholstery, furnishings, sports goods, apparel, women bags, and a host of fashion accessories and it is used as a substitute
for natural leather. The products are customized to suit various applications. Synthetic leather is available in a very wide price
range depending on application, inputs that goes into it, order size, etc.
Key Developments & Updates:
Recent Financial Performance – Q3FY12
MUL came out with decent Q3FY12 results. The company reported net sales of Rs 81.09 crs in Q3FY12 as against Rs 68.84
crs in Q3FY11 and Rs 76.19 crs in Q2FY12. The company has been witnessing consistent growth in its sales over the past 3
quarters. The operating profit of the company stood at Rs 13.76 crs in Q3FY12 as against Rs 11.79 crs in Q3FY11 and Rs
12.17 crs in Q2FY12. The Profit Before Tax of the company stood at Rs 12.45 crs in Q3FY12 as against Rs 10.88 crs in
Q3FY11 and Rs 11.10 crs in Q2FY12. The PAT of the company for Q3FY12 stood at Rs 8.65 crs as against Rs 7.32 crs and
Rs 7.45 crs in Q2FY12. The EPS of the company stood at Rs 15.77 in Q3FY12 as against Rs 13.53 in Q3FY11 and Rs 13.77
in Q2FY12. During the quarter the company earned a duty drawback on part of exports of Rs 0.47 crs, which was reported
under the other operating income and interest on FD was reflected under other income for a total amount of Rs 0.58 crs.
Depreciation and interest costs rose as a consequence of the capitalization of expansion plans. MUL reported a forex loss of
Rs.1.52 crs in Q3FY12 vs. a gain of Rs.0.36 crs in Q3FY11.
Capacity expansions to help MUL in growing its business
Exactly a year ago, MUL had overall capacity of 1.4 mn mtrs with 3 lines installed at a plant near Jaipur. The company
installed the 4th line, which has enhanced the overall capacity to 1.9 mn mtrs. The 4th line started its production from December
2011 onwards and started functioning full fledged from the 1st week of February 2012. The company is also planning to start a
5th line of production and for the same purpose it has purchased land about 15 kms away from the current location. Post the
completion of this line (which is expected to be completed by December 2012), the company expects its capacity to be
enhanced to 2.5 mn mtrs per month.
The 5th line is expected to be completed at a capex of Rs.22 crs while the 4th line was completed at a capex of 10-12 crs. The
higher cost of the 5th line is mainly due to the fact that the line is being implemented at a new site.
With the demand for synthetic leather rising consistently, capacity expansion of the company could be handy and could augur
well for the smooth growth of its business in the coming years.
Backward integration through production of fabrics
As mentioned earlier, the company has purchased a new plot of land, about 15 kms away from the current plant near Jaipur.
The company along with planning a 5th line of production is also in the process of starting a fabric production unit which will
manufacture raw material for the synthetic leather unit of MUL and hence is a backward integration initiative. The company
has already started work and could start trial runs from Sept 2012. The capex incurred for this is about Rs.25 crs for
production of Rs.45 crs worth fabric (at full capacity). The fabric plant will go into production in two phases (in terms of
processes). This will help the company to register an increase in its margins and also help in reducing the rejection rate of its
final products in export markets as it will have total control over the quality of a key raw material.
To finance these two initiatives, MUL could borrow about Rs.20 crs worth loans (including a large portion from Textile up
gradation fund which is available with 5% interest subsidy). The rest could be raised from internal accruals.

UBS - Global Equity Strategy --Multiple Expansion

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UBS Investment Research
Global Equity Strategy
M ultiple Expansion
􀂄 A slowing growth backdrop . . .
Global earnings growth is set to slow significantly in 2012 as the cycle matures.
Further, ongoing public- and financial-sector deleveraging are apt to result in a
persistently sluggish economic growth backdrop.
􀂄 . . . with mounting margin pressure
Another implication of the maturing cycle is increased margin pressure. Corporate
profit margins have begun to roll over in recent quarters. Historically, these turns
have been followed by anaemic earnings growth (which we detail below). In fact,
in nearly half of the episodes we examined, earnings contracted over the 3-year
period following a peak in profit margins.
􀂄 But multiples can expand
Within economic cycles, earnings growth and valuation multiples typically have an
inverse relationship. So while we’re stuck with a lousy growth backdrop, the good
news is that multiples do typically rise at this stage of the cycle. Further, the
combination of undemanding current valuations and an elevated risk premium lend
additional support to the re-rating case.
􀂄 Piecing it together: Total return expectations
We expect global earnings growth in the low-single-digit range over the next few
years. Add the current 2.7% dividend yield and some modest multiple re-rating,
and it’s not overly demanding to expect total returns in the high single digit range
in coming years. This outlook is predicated, of course, on fading cyclical and
systematic risks, which would allow the equity risk premium to moderate

Liquidity: Opportunity in adversity? :Espirito Santo

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Given liquidity pressures and heightened capital requirements, EU
banks are reducing exposure to Asia, including India, creating an
opportunity for Indian banks to capitalise on. Our top plays on this
being Bank of Baroda and SBI. Moreover, in a year with a $5.2bn
wall of FCCB redemptions, we think there are likely to be
opportunities appearing from FCCB mispricing. The FCCB’s of
companies such as Educomp, Rolta and Suzlon look like interesting
opportunities.
The objective
The stage is set for another round of liquidity infusion by the major global central
banks, at a time when domestically bank credit growth is showing signs of
significant moderation (16% YoY vs. 24% last year). This note analyses the extent
to which changes in global liquidity have impacted the availability of resources to
the domestic commercial sector, especially at a time when a) European banks are
expected to deleverage ahead of the EBA core Tier 1 capital requirement and b)
huge FCCB refinancing/restructuring needs have arisen for Indian corporates.
The impact of EU banks deleveraging on Asia
Continental European (ex UK) banks account for approximately USD 70bn of
bank claims in India, and if including the UK, then European banks in total
account for 45% of the total claims on India. While no significant deleveraging
was noted by the UK in Q3’11, other European banks have reduced exposure by
USD 5bn from Q1’11 to Q3’11. Given their robust liquidity and capital and strong
presence in Asia, both HSBC (Buy) and Standard Chartered (Buy) are well
positioned to capitalize on the deleveraging of European banks, as our banking
analyst Shailesh Raikundlia explains in his report of 6 February 2012: “HSBC,
Standard Chartered: Opportunities in Adversity”.
Indian banks exposed to this opportunity
We think PSU Banks are best placed to gain access to critical dollar funding to
exploit this opportunity given quasi sovereign guarantees. Among the PSU banks
under our coverage we recommend Bank of Baroda (BOB IN, BUY) as our top
pick to play this theme, given its international loan book constitutes 26% of
advances, and its 15% QoQ international growth in Q3FY12. Our second choice to
play this theme would be State Bank of India (SBIN IN, BUY), with its
international loan book of Rs. 1.3tn.
Is India facing a foreign funding crunch?
The data suggests that despite fears of a contraction in foreign funding, actually
foreign funding (notably ECBs and FDI) has played an important role at a time
when domestic sources have contracted. The biggest test this year in terms of
foreign funding of corporate India will be the USD 5.2bn of Indian FCCB
redemption coming up, pretty much all of them underwater, so requiring
restructuring, refinancing or replacement with other forms of borrowing, such as
ECBs.
How much risk do the FCCB redemptions pose?
Whilst the FCCB redemptions pose a challenge, the fears around the issue means
that opportunities are likely to arise in FCCB mispricing. We review examples
from historical price/yield movements of these instruments and present FCCBs of
companies that provide high YTMs (yield to maturity), as well as relative safety of
principal.
The FCCBs of companies such as Educomp, Rolta look like interesting
opportunities to us, and even the Suzlon situation with multiple tranches on
very high YTMs is worth us monitoring. First Source, Tulip IT, REI Agro,
Jaiprakash Power, Videocon Ind., Sintex, JP Associates, Welspun Gujarat, Bharat
Forge are all trading at high YTMs with relatively low probability of default given
leverage, higher interest coverage and respectable credit ratings implying easier
access to international and domestic funds. We think GTL Infra and Suzlon look
like candidates for restructuring with haircuts, and 3i Infotech looks to us to be
the most likely candidate for default given its weak core business.

Union Budget-FY13 Realistic on Fisc; what about growth! - Sunidhi

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The Union Budget FY13 makes an earnest attempt to depict a true picture of the economic scenario given the dichotomy of slowing growth v/s fiscal challenges. Although, the aim to bring down the fiscal deficit to 5.1% in FY13 from a revised estimate of 5.9% in FY12 looks credible, but the gross market borrowing program of 5.7 trillion in FY13 has been a major dampener for the markets. Despite a deviation from the thirteen finance commission roadmap in terms of fiscal deficit (5.1% for FY13 against a target of 4.2%), the debt to GDP ratio at 45.5% for FY13 remains well below the target of 50.5%. As some undesirable subsidies have been putting pressure on the government financials, the budget assures to keep central subsidies under 2% of GDP in FY13. In addition to that finance minister targets to bring it down to 1.75% in next 3 years. The absence of any mention of proceeds from the 4G and 2G auctions of the cancelled licenses could provide a positive surprise to overall fiscal deficit number.

Global Macro Strategy :CitiBank Research

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Macro Backdrop: March Higher
The risk rally continues: S&P 500 futures are marching higher in a tight upward sloping channel (Slide 2,
LHS) as our GRAMI signals better risk appetite (Slide 2, RHS). As we have highlighted before, we think
there are four key factors behind this rally:
1. Easy money: global Central Bank policy is easy and likely to get even easier. Take-up at this week’s
second ECB 3y LTRO was higher than expected, resulting in a net increase in liquidity of EUR
313bn1. Meanwhile, Bernanke’s testimony to congress presented no new information in our view.
Although not mentioning QE explicitly, he re-iterated that easy policy from the Fed is also likely here
to stay. In the EM world, too, some Central Banks are starting to ease
2. Reduction of systemic fears: related to easier monetary policy, systemic fears have receded since
the onset of 2012. Money market rates such as 3m Euribor traded through ECB policy for the first
time since 2010 this week, causing the Euribor-OIS spread to further contract (Slide 3, LHS) and
several EMU bond spreads also continue to narrow (Slide 3, RHS)
3. Growth prospects: Citi’s ESIs remain positive and near their highs. Furthermore, having anticipated
the re-pricing of growth expectations late last year, our updated Leading Indicators for Consensus
Forecasts for February signal consensus growth expectations need to be ratcheted higher. Note that
our LIs are more or less directly comparable with 2012 growth expectations at this juncture2. In the
US, our LI stands at 2.45%, a positive gap to consensus of 47bp (Slide 4, LHS); and in the
Eurozone, our LI at 0.03% suggests consensus expectations are 56bp too low (Slide 4, RHS).
4. Positioning: several positioning indicators hint at relatively low investor participation in the risk rally.
The latest credit investor survey showed longs increased to 12m highs, but was offset by large cash
inflows (Slide 5, top LHS). The beta of equity long/short funds remains low (Slide 5, top RHS),

The Ice Age only ends when the market loses hope: there is still too much hope: societe generale

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Plus ça change! The new year starts with yet another equity rally. Another burst of hope. To
me this feels no different from the start of 2011 but with one major difference. Profits are
sliding instead of rising robustly. In the UK there are calls to cut company taxes to help revive
the economy. I may not have a remedy for the current post-bubble malaise, but I do know a
bloody stupid idea when I hear one.
 One key lesson from Japan is that an essential ingredient to the end of a long valuation
bear market is revulsion. It is when ‘buyers-on-dips’ become ‘sellers-on-rallies’. It is when
volume dries up to almost nothing. It is the loss of hope. In Japan we saw huge rallies in the
Nikkei on the back of short-lived cyclical recoveries. Each cyclical failure and further new
lows in the equity market saw hope being progressively crushed. Previous US valuation
bear markets typically take 4 or 5 recessions to fully play out. We have only had two.
 The market is once again in a hope phase – hoping that the US is now in a self-sustaining
recovery; hoping that China might be soft-landing; hoping that the Greece bailout and the
ECB liquidity polices have settled things down in the eurozone. These bursts of hope are
essential in long bear markets. Essential in the sense that hope must be crushed. It will be
crushed. Hope still beats in the breasts of equity investors. The market will rip out that hope
and consume it in front of investors’ eyes. Only then can the bull market begin.
 Talking about pain, having previously shared my experience of an anaesthetic-free
vasectomy, I feel I know what sudden unexpected pain is - link. Standing outside Daphne’s
on my recent sun-seeking hols enjoying my happy-hour rum punch, this plucky crab
proceeded to attempt to remove one of my toes. It hurt far more than I expected but
provided much amusement for my wife. Upon finding he was not large enough to remove
my toe he scuttled under the decking to get his bigger mates out to help him. Cue my exit.

ITC: Rationality in taxation is the key to mitigate the ad valorem tax impact :: Kotak Securities PDF link


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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily19032012.pdf


ITC (ITC)
Consumer products
Rationality in taxation is the key to mitigate the ad valorem tax impact. Re-entry
of ad valorem tax (after 25 years) means volume-led growth becomes important for
profit growth over the medium term. While the effective ~15% excise increase was in
line with expectations, the introduction of ad valorem duty is a likely precursor to GST
implementation (the possibility of the current specified rate of duty being migrated to
ad valorem in entirety exists). The opportunity to re-enter the Rs2 price point is a likely
tailwind for volumes and the Government’s intention to increase tax on bidis and
chewing tobacco probably indicates rational taxation of cigarettes. ADD.

ACCUMULATE AXIS BANK: TARGET PRICE: RS.1230 :: Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight22032012.pdf


AXIS BANK
PRICE: RS.1229 RECOMMENDATION: ACCUMULATE
TARGET  PRICE:  RS.1230 FY13E P/E: 10.6X, P/ABV: 2.0X
Stock is trading near its fair value; hence, we are downgrading the stock on back of limited upside left from the
current level.
q Axis bank has moved up sharply during CY12 (49.3% YTD), as against
11.6% rise in SENSEX and 29.0% rise in BANKEX, on back of street's expectation of RBI moving to the downward interest rate trajectory along
with some positive noises coming from the government to address the
infrastructure related bottlenecks.

RBI May Intervene More in Currency Markets

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India's central bank may intervene further in the currency markets if it sees a "strong one way risk" for the Indian rupee, Deputy Gov. Subir Gokarn said Friday. "We see the return of some instability in the currency," Mr. Gokarn said in an interview on the sidelines of the Credit Suisse Asian Investor Conference. "We don't target a range (for the rupee), but when there's a risk of moving strongly one way, that's something we want to avoid," he said. Mr. Gokarn's comments come as the rupee is trading at an over two-month low to the dollar. The rupee slipped to a record low against the dollar last year following mounting global uncertainty and slowing growth in Asia's third-largest economy, which has been impacted by an extended period of inflation. The senior Reserve Bank of India official said the nation's currency was relatively stable between January and February. In the last few days, however, he said there has been some instability in the rupee. On Thursday, RBI Adviser Ashima Goyal said the central bank should continue to intervene in the market to ensure that the rupee doesn't weaken significantly beyond its fair value of 50 rupees to the dollar. Currency fluctuations affect software companies to a large extent as they book most of their revenue in dollars, but settle the majority of their costs in rupees. On the inflation front, Mr. Gokarn said he has seen some moderation in inflation, while domestic demand remains strong. However, he warned that the recent sharp rise in oil prices will pose new risks to price pressures. Earlier Friday, Mr. Gokarn said the central bank is moving toward looser monetary policy, though the timing for easing will depend on the state of the economy. At its rate-setting meeting on March 15, the central bank left its key lending rate unchanged, saying risks to inflation have increased due to a recent spurt in crude oil prices, a wide fiscal deficit and a weakening rupee.

ACCUMULATE EVEREST KANTO CYLINDER:: TARGET PRICE: RS.41 :: Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight23032012.pdf


EVEREST KANTO CYLINDER
PRICE: RS.33 RECOMMENDATION: ACCUMULATE
TARGET  PRICE:  RS.41 FY13E P/E: 11.7X
q Iran sanctions continue to plague the company's Dubai operations.
q Outlook for US operations has improved but the company continues to
bleed in China. EKC is contemplating on disposing in part or full its Chinese operations.
q The company's FCCB is up for redemption in Oct 2012. The outgo on maturity would be of the order of USD 50 mn (Rs 2.5 bn). The company
plans to repay the FCCB through combination of ECB (around USD 30 mn)
and interal accruals (cash flow from operations of Rs 1.0 bn in FY13).
However, interest outgo would shoot up in FY13 as the FCCB would be
replaced by ECB.

Indian Railways hike rail haulage yet again by 20% - :: Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight21032012.pdf


LOGISTICS
Indian Railways hike rail haulage yet again by 20% - to impact
volumes for container rail companies
1. Indian Railways (IR) has yet again increased the haulage rates by 20% for four
commodity categories. This four categories include Cement, Iron and Steel , Alumina and Petroleum (POL) products effective 1st April 2012

FII DERIVATIVES STATISTICS FOR 23-Mar-2012

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FII DERIVATIVES STATISTICS FOR 23-Mar-2012 
 BUYSELLOPEN INTEREST AT THE END OF THE DAY 
 No. of contractsAmt in CroresNo. of contractsAmt in CroresNo. of contractsAmt in Crores 
INDEX FUTURES1287483382.381429763773.4363459816701.97-391.05
INDEX OPTIONS99358125926.7090510223755.96198333652339.022170.74
STOCK FUTURES1323993819.981265493609.84107034130569.54210.14
STOCK OPTIONS30326838.2528222793.07546591527.8145.18
      Total2035.01


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