Consumer Goods - Not to chew up cigarettes; sector update :Edelweiss PDF link

Fourteen states in India have banned gutkha using regulation that prohibits sale of food products containing tobacco. Key investor concerns on this are:  (1) How effective will be this ban, (2) Can it be extended to cigarettes in the long term and (3) If and by how much cigarettes stand to benefit in the medium term. We feel that the ban is likely to be effective only if implemented nationwide via strict monitoring and punitive actions against offenders. Currently gutkha is being smuggled from neighbouring states to states where the ban is in force or is being sold as separate ingredients (making it legal since it no longer qualifies as food containing tobacco). Yet, the ban is expected to curb tobacco consumption to an extent as it would become less accessible (unavailable publicly; but illegal gutkha is sold at 5-10x the earlier price). We do not expect the ban on gutkha to be extended to cigarettes. We assume this to be mildly positive for cigarette players due to the likely shift of gutkha consumers (addicted to tobacco); at the same time we will watch out for the implementation of plain packaging law on cigarettes (already implemented in Australia).

LKP LIKES : GAIL (Buy, Target Rs.430)

GAIL (Buy, Target Rs.430)

·      Inspite of a steady decline in gas production from KG D6, GAIL’s gas transmission volumes have remained stable since Q4FY10 mainly on account of LNG imports which have increased to meet the fall in domestic gas supplies. GAIL is investing around Rs67bn over the next three years to increase its capacity from 180mmsmcd to 300msmcd. GAIL plans to expand its pipeline network from 9,500kms to 14,000kms with expansions planned in Southern and Eastern India, which are outside of GAIL’s current strong areas of Northern and Western India.

·      GAIL’s gas transmission volume growth has taken a hit on account of declining gas production from KG D6. We estimate GAIL’s gas transmission volume for FY13e/FY14e at 116/121mmscmd but expect back ended volume growth post 2015 when the gas supplies increase on account of increasing LNG imports and production from new gas fields. We estimate gas transmission tariff at Rs904/ Rs962/tcm for FY13e/FY14e.

GAIL plans to invest Rs69bn over FY13e-15e in its petchem business. We are positive on GAIL’s move to increase its petchem capacity at Pata to 900ktpa by FY15e as it will enable GAIL to capitalize on domestic demand for petrochemicals which we expect to revive in FY14e. The recent decision by the government to cap LPG cyclinders per household at 6 bodes well for GAIL as it would lead to a fall in subsidy burden of GAIL. BUY GAIL trading at 9x expected one year forward earnings with a price target of Rs430.

Retail - FDI in multi-brand: Dream comes true once again! ::Edelweiss PDF link

Indian Government has approved FDI up to 51% in multi-brand retail (currently, foreign investors can hold upto 24%, but no FDI allowed), with the onus now falling on states to give the final authorization. Nine states and three union territories have shown interest for opening retail to FDI. Pantaloon Retail (PRIL) and Shoppers Stop (SSL) have more than 50% of their stores in these states. We consider PRIL and Trent as key beneficiaries. We expect SSL to scout for a partner for HyperCity.  However, Mamata Banerjee (a key ally of Govt) had previously halted a similar attempt hence we need to watch out for her next move. Be sides, we would have to observe how easy it will be for retail companies to structure businesses in order to comply with state approvals. The Centre has also relaxed local sourcing norms in single brand retail. We expect the share of modern retail in India for consumer companies to jump from the current ~8% to 20% plus by 2020. Also, this is positive for discretionary consumer goods as it will help increase consumption and prop volume growth by ~2%.

Economic Update [ PDF ] Bernanke confirms more easing - CIMB

Economic Update  [ PDF ]

Bernanke confirms more easing

- by Heng Guie LEE

The Fed's latest dose of "monetary medicine" is no surprise to us and the market. The Fed has initiated the third round of QE (bond purchases of US$40bn per month), as well as extended its low-rate pledge from at least "late-2014" to at least "mid-2015". With this latest monetary punch, the pressure is piling up on lawmakers to strike a deal to prevent the "fiscal cliff". Uncertainties over the tax policy, government spending and the future of regulations are the real impediments to faster economic growth.RDD

Media - FDI hike a fillip to digitisation ::Edelweiss PDF link

Indian government has approved hike in FDI for all TV distribution platforms from 49% to 74%. This will provide a huge boost to digitization. Now, the FDI cap will be uniform across various platforms like DTH, cable, Head-end In The Sky (HITS) and mobile TV. Initially, only the HITS distribution platform had permission for 74% FDI. With estimates of ~INR250bn-INR300bn funds required for the entire digitization process, relaxation in FDI limits will be critical for MSOs and DTH players like Hathway, DEN, WWIL and Dish TV to fund their capex requirements. We expect the digitisation process to speed up considerably over the coming months given this step, government remaining firm on deadline, regular ads on digitization (by government,  DTH and cable companies) and many inter-connect agreements in place.

Inflation - Core inches up ::Edelweiss PDF link

Headline inflation came in higher than expected at ~7.6% YoY in August on account of a pick-up in agri-prices (oilseeds, pulses etc), a sharp revision in electricity tariffs (unchanged since late last year) and a rise in manufactured product inflation especially food products, fertilizers, and cement. Indeed, core inflation too picked up during the month to 5.6% from 5.4% previously, which is worrying and needs monitoring. Persisting input cost pressures (high energy and agri-prices) seem to be spilling over to manufactured products and a hike in diesel prices could further reinforce this trend. Accordingly, headline inflation is likely to climb up in the coming months before trending down towards the year end.

As regards the monetary policy, despite the favourable move on fuel prices, we expect a status quo on policy rates in the forthcoming RBI meeting.

Inflation - Core inches up

Regards,

FII DERIVATIVES STATISTICS FOR 14-Sep-2012

FII DERIVATIVES STATISTICS FOR 14-Sep-2012
	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	147943	3886.83	108608	2983.60	433891	11925.86	903.23
INDEX OPTIONS	742408	20543.58	707001	19435.64	1800083	50133.83	1107.94
STOCK FUTURES	95521	2615.26	74458	2116.61	980729	26692.98	498.65
STOCK OPTIONS	72914	2047.98	77761	2175.04	63719	1802.64	-127.06
						Total	2382.76

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FII & DII trading activity across NSE and BSE 14-09-2012

	Buy	Sell	Net
	Value	Value	Value
FII	5355.25	2521.53	2833.72
DII	1818.41	2506.41	-688

 

 

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