Key points:
In line with the declining trend in Singapore gross refining margin (GRM), we have revised downwards our assumption for Reliance Industries Ltd’s (RIL) GRM to US$11.7 per barrel for FY2009 and US$10.7 per barrel for FY2010. We have also factored in the delay in the commissioning of Reliance Petroleum Ltd’s (RPL) refinery and a lower throughput initially. 
The margins of the core business of petrochemicals will be dented by a significant decline in the prices of polymer and polyester products. However, this will be partially offset by the decline in the raw material prices. Moreover, the depreciation in the rupee will also have a positive impact on the margins of the petrochemical business.
The exploration and production (E&P) division is expected to drive the company’s growth as oil production starts from KG basin and as gas production is expected commence in Q4FY2009. Furthermore, the oil ministry’s decision on gas price of US$4.2 per million British thermal unit (mmbtu) for all the customers strengthens RIL’s case against the ongoing dispute with Reliance Natural Resources Ltd (RNRL) for the supply of gas at a lower price of US$2.34 per mmbtu. 
To factor in the deterioration of business environment in both refining and petrochemical businesses, we have revised our fully diluted earning per share (EPS) estimates to Rs100 for FY2009 and Rs130.9 for FY2010. At the current market price, the stock trades at a price/earnings ratio of 9.4x FY2010E consolidated earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.5x FY2010E. Considering the fully diluted equity, the price target works out to Rs1,710 per share. We maintain our Buy recommendation on the stock. 
Cluster: Evergreen
Recommendation: Buy
Price target: Rs1,710
Current market price: Rs1,227
Price target revised to Rs1,710

SINGAPORE Nov. 28, 2008–Standard & Poor’s Ratings Services today said it does not believe the terrorist attacks in India will have a direct effect on the sovereign ratings on India (BBB-/Stable/A-3), provided they are an isolated case.
    
“Based on the scenario that these attacks were an isolated case, we don’t expect there would be negative implications on India’s macroeconomic activities, or on the government’s fiscal position,” Standard & Poor’s credit analyst Takahira Ogawa said. “In the short term, we expect there will be a slowdown of tourist arrivals (particularly business travelers to India), and some negative impact on the foreign exchange and stock exchange markets, but such short-term effects will recede over time if there are no further attacks.”

Further to the Terror attacks on Mumbai over the past 48 hours, Edelweiss has put together an impact analysis for your consideration.

Comments from the Edelweiss team:

We do not see any long term impact of the terrorist attacks on the economy or the capital markets though some weakness is likely in the near term. The city of Mumbai has shown remarkable resilience in the past and business conditions have quickly returned to normal – we do not expect this time to be any different. Even currently, apart from certain parts of South Mumbai, business is proceeding as usual in other parts of the  city. However, in the short term certain industries such as tourism and hotels are likely be impacted. We will send a detailed note subsequently.

Market falls have been minimal during past terrorist attacks

The immediate impact of past terrorist attacks on equity markets has not been significant. The indices have shown falls of less than 0.75% in most instances with only 1 or 2 instances of fall of over 1% (Source: media reports).

In the current instance we do not expect anything different. However, the general weakness in the markets may cause some downward pressure.

S&P has indicated that these attacks by themselves would not have any impact on ratings. Moody’s has echoed a similar sentiment but mentioned that they would look at the actions of the government in controlling the situation as well as restoring confidence.

We expect both, tighter anti-terrorist laws and more stringent security measures to come out of this; this should again be positive in the medium to long term.

Tourism and hotel industry expected to have the most impact in the near term

Foreign tourist inflows are likely to slow down. Western countries have either issued travel advisories or cautions. Media has reported about 15% cancellations in airline bookings currently. Overseas clients, such as those of Indian IT companies, may postpone their visits but this may not have much impact since business travel to outsourcing destinations is anyway low due to holidays in the Western world.

The Indian stock market has been incessantly correcting over the last ten months or so. We attempted to establish links between the market performance (as captured by movements of the BSE Sensex) and some key indicators such as inflation, money supply, index of industrial production (IIP), GDP, credit growth and interest rates.

The attached note contains our analysis.
Summary of Conclusions
1.     The Sensex and the rate of inflation have inverse correlation. The inverse correlation has been amply evidenced during April – October 2007 (declining inflation fuelled the Sensex rally) and during November 2007 – September 2008 (inflation went up and the Sensex gave negative returns).
2.     Post October 2008, inflation has started declining, so has the Sensex. A similar trend – of declining inflation, accompanied by a declining Sensex – was witnessed during January 1998 – July 1999 and during January 2001 – July 2002. The returns on the Sensex during these 2 periods, were near their bottoms at the peak of inflation and thereafter the Sensex consolidated for some time.
3.     Key fiscal and monetary indicators viz., GDP, IIP, credit growth, interest rates and money supply (M3) all show a strong correlation with the Sensex.
4.     Changes in rate of inflation trigger a series of changes in underlying macro-economic indicators. For instance, a drop in inflation eases interest rates and boosts aggregate demand, which in turn, helps industries recover and go for more investments. However, there is a time lag after which markets may consolidate.
5.     The Indian economy is currently witnessing falling inflation and falling interest rates. A gradual rise in consumption would help in boosting industrial production, with a time lag of 3-4 quarters, before the latter materializes.
6.     Historically, credit growth has immediately responded to liquidity measures such as increase or reduction in CRR, except for a few aberrations. However, industrial production picks up, in response to liquidity measures and interest rate movements, only with a time lag of 3-4 quarters.
7.      The RBI has attempted to boost liquidity by slashing CRR twice during the last 2 months. Considering the time lag and the weak consumption demand, we expect the markets to consolidate over the next 3-4 quarters, aided by the southward journey of inflation and declining interest rates.
-contributed by a blogger.

The winds of change continue to blow away from markets world over. The seven-day rout, which has knocked off about 20% from the key indices, is likely to continue, at least in the early part of today’s session. And, no prices for guessing the reason behind our grim forecast! Market participants will continue to pay a price as stocks on Wall Street got pounded for a second day running, amid uncertainty over the fate of the American auto giants, continuing bad news on the economy and growing concerns over the health of Citigroup.

The Ambani brothers may have shook hands after four years. Dont read too much into it. Thats more because they landed up at the same place, same time to discuss the same issue with the Opposition leader LK Advani. Again no prices for guessing what the issues are. Leading industrialists met Advani who promised to restore confidence in India’s growth story if voted to office. Advani message to the gathering was that BJP was “willing and able” to tackle the economic challenge.

A recent survey Mood of the Nation conducted by India Infolines institutional arm – IIFL states that Nationally there is a swing against the incumbent UPA alliance. Inflation and terrorism are the most important issues for voters..one of UPAs biggest achievements, the Indo-US nuclear deal finds no resonance.

Meanwhile, the economic and financial contagion is not restricted to the US alone. The news flow from across the globe remains downbeat and bleak. Every day one hears or reads about profit warnings, slew of job cuts and production rationalization by companies to cut costs and stay afloat. A large Indian corporate may also announce some downsizing later this year. We do not see any let up in this string of bad news in the foreseeable future, as the worldwide economic gloom deepens.

The solace one can derive is the steep fall in oil prices. But again, the slide in crude is mainly due to fear of demand destruction in the face of the savage economic downturn rather than any drastic change in fundamentals of demand and supply. For India though, lower crude prices could prove to be a boon, as it will lower inflation further, opening up the door for more rate cuts. But, the fact remains that the markets are refusing to respond to any regulatory action to reverse the tide. Investors remain highly pessimistic and skeptical about the effectiveness of any government initiatives (unilateral or global) on the rapidly deteriorating economic climate.

-From Investors note on 21st Nov 08.

Prices levered up!
Hindustan Unilever Ltd (HUL) has hiked the prices of select products (stock-keeping units [SKU]) across categories, effective from October-end to the beginning of November 2008. The price increase has been implemented primarily in shampoo, detergent and toothpaste categories. In the quarter gone by (July-September 2008) HUL’s operating margins contracted by 154 basis points year on year (yoy), as the raw material cost as percentage to the sales increased by 112 basis points. This is despite the fact that the company has been continuously effecting steep price hikes across product categories, particularly from July 2008 (July-September 2008 quarter had a 12.9% year-on-year average increase in the prices). The steep increase in the prices of key raw materials such as palm oil, LAB, caustic soda, soda ash, raw tea, coffee and crude oil derivatives has led the company to implement these price increases to protect its margins.
Hindustan Unilever
Cluster: Apple Green
Recommendation: Buy
Price target: Rs280
Current market price: Rs234
-From Share Khan investor note.