Hdfcsecuritie

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Monthly Report
July 2010
Monthly Report July 2010 Retail Research

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Table of Contents
Title Slide No.
Monthly Equity Commentary 03
− Market Statistics 05
− Bond yields, commodities and currencies 08
− Comparison of Equity Returns in various emerging
markets 13
− Outlook Going Forward 17
Technical Commentary 24
Learning Technical Analysis 28
Derivatives Commentary 29
Learning Derivatives 31
Extract of Calls during June 2010 33
FII & Mutual Fund Flow & Indices moves during June 2010 34
Gainers & Losers – June 2010 35
Disclosure 36

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Monthly Equity Commentary

BSE SENSITIV-Dly .21/05/10-01/07/10 I-1 TREND
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The Indian markets started the month of June on a flat note, gained momentum during the middle of the month
and shed part of the gains towards the close. On a monthly basis though the markets closed in the green with the
Sensex and Nifty gaining 4.2% and 4.4% respectively for the month after the sell off witnessed in the month of
May (Sensex & Nifty shed 3.2% and 3.6% respectively in the month of May). Interestingly, the Sensex and Nifty
are up only 1.4% and 2.1% respectively in H1CY10. The month of June was eventful as the pace of reforms
gathered momentum. However, global cues were negative – concerns over slowing economic growth in China,
Euro debt worries and its impact on US economic growth, a double dip in the US housing market, a dull jobs
market etc.
The markets started the first week of the month (4 trading sessions) ending 4 June 2010 on a cautiously positive
note. The Sensex rose 0.7% while the Nifty gained 1%. Broader markets outperformed. Strong auto and cement
sales in May 2010 and robust GDP growth data for Q4 March 2010 boosted the markets. India's economy
grew by 8.6% in the March 2010 quarter driven by robust manufacturing sector on the back of government
& consumer spending. The growth was significantly higher than the revised 6.5% expansion in Q3 Dec 2009 and
5.8% growth in Q4 March 2009. Exports recorded positive growth for the sixth successive month with shipments
increasing by 36.2% to $16.88 bn in April. However, most of the global markets ended in the red. Stocks slumped
in the US after a report showed that employers added fewer jobs than expected last month and the euro plunged
to new 4-year low, reviving worries about the health of the European economy. China’s manufacturing expanded
at a slower pace than estimated in May, prompting stock declines across Asia on concern growth in the world’s
third-largest economy may slow. The Purchasing Managers’ Index fell to 53.9 from 55.7 in April in China.

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Monthly Equity Commentary contd…

The week ended 11 June 2010 started on a weak note due to Euro zone debt worries, Hungary debt woes and the
BP oil spill. However, towards the end of the week the markers recouped most of their initial losses on the back
of revival of monsoon rains, robust industrial production data and strong exports data from China. The Sensex
and Nifty closed the week down 0.3% each. The broader markets once again outperformed as they fell to a lesser
extent for the week. Industrial output rose much faster than expected at 17.6% in April 2010 on the back of
strong consumer demand and government spending. Moving on to the global markets, the Dow posted its first
weekly gain in a month for the week ended 11 June 2010, after hitting 7 month lows during the start of the
week. Economic data was mixed. University of Michigan's consumer sentiment index rose to 75.5 in June, up
from 73.6 in May, which was better than expected, but retail sales tumbled 1.2%, in the first drop since
September 2009. The World Bank said a double-dip recession could not be ruled out in some countries if
investors lose faith in efforts in Europe and elsewhere to tackle rising debt levels. The World Bank forecast
that developing economies would expand at between 5.7% and 6.2% each year from 2010 to 2012 - more than
twice the growth rate of advanced economies.
Moving on, the markets closed the week ended 18 June 2010 near one and a half month highs. Easing concerns
over the Eurozone debt, positive global cues along with higher advance tax payments and an upgrade of the local
currency by Fitch boosted the markets. The Sensex rose 2.96% while the Nifty rose 2.79%. Global rating agency
Fitch Ratings raised India's local currency rating outlook to stable from negative. It forecast a decline in
government debt to GDP ratio to 80% by March 2011 from 83% at the end of March 2010. It also upgraded
India's growth forecast to 8.5% in the year to March 2011 from earlier forecast of 7% growth. Next, inflation
based on the wholesale price index (WPI) rose an annual 10.16% in May 2010, faster than 9.59% rise in April 2010.
Global markets also ended higher as U.S. economic reports eased concern that deficits in Europe will slow a
global recovery, and brokerages boosted investment ratings. The Euro strengthened against the dollar, debt sales
were met with decent demand and a report showed a big jump in industrial output in Europe reassuring investors
about the global recovery. Further, China announced that it plans to make the yuan more flexible (albeit
gradually). Beijing has kept the yuan frozen against the dollar to help Chinese manufacturers compete amid
weak global demand. On the downside, Moody's cut it’s rating on Greek debt four notches to Ba1, a speculative
rating that the firm says connotes "questionable" credit quality.
The markets once again sold off towards the end of the month on the back of poor economic data reports from
overseas, some amount of profit booking and uncertainty about the health of the US economy. The markets
closed the week ended 25 June 2010 on a flat note. Smallcap and mid-cap indices outperformed the Sensex.
Food inflation accelerated in mid-June 2010, maintaining pressure on the RBI to tighten monetary policy at a
faster pace. The food price index rose 16.9% in the year to 12 June 2010, higher than the previous week's annual
reading of 16.12%. The government decided to raise petrol price by Rs 3.50 a litre and diesel price by Rs 2 a litre,
as part of a plan to move towards a market-determined fuel price regime. Global cues were negative. Worries
that Europe's debt problems will slow down the global economic recovery dragged on stocks. Weaker-than-
expected reports on housing, jobs and manufacturing added to the wariness. The US housing market
reported poor numbers. New home sales fell 32.7% in May to a seasonally-adjusted annual unit rate of 300,000,
the lowest on record, from a revised 446,000 in April. The May plunge reflected the expiration of the homebuyer
tax credit at the end of April, but also the reality of a still-struggling economy European markets slipped after
Fitch Ratings downgraded French bank BNP Paribas and Standard & Poor's boosted its forecast on loan losses
for Spain's banking sector.

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The markets rose for two of the last 3 sessions of the month of June 2010. The Index of Six core industries having
a combined weight of 26.7% in the Index of Industrial Production (IIP) registered a growth of 5.0% compared to
3.2% registered in May 2009. The markets were also relieved as the ECB said it would lend banks 111.2 billion
euros ($136.5 billion) for six days to help them cope with the expiry of its landmark 12-month loan. The
Sensex and Nifty finally closed the month at 17,701 and 5,313 higher by 4.2% and 4.4% respectively.
Given below is an overview of global markets’ performance during June 2010:
Indic es 31-May -10 30-Jun-10 Change The major world markets closed the month of April
US - Dow Jones 10,136.60 9,774.02 -3.6% 2010 on a mixed note. While the Sensex, Jakarta
US - Nasdaq 2,257.00 2,109.24 -6.5% Composite and Singapore Strait Times clocked gains of
UK - FTSE 5,188.40 4,916.87 -5.2%
4.2%, 4.2% and 3% respectively, the Dow, Brazilian
Japan - Nikkei 9,768.70 9,382.64 -4.0%
Bovespa, FTSE and Shanghai Composite lost 3.6%, 3.3%,
Germany - DAX 5,964.30 5,965.52 0.0%
Brazil - Bovespa 63,047.00 60,935.90 -3.3%
5.2% and 7.5% respectively. Poor economic data in the
Singapore - Strait Times 2,752.60 2,835.51 3.0%
US, housing and labor market woes, BP oil spill, fears
Hong Kong – Hang Seng 19,765.20 20,128.99 1.8%
of a slowing China, Eurozone debt worries and rising
I ndia - Sensex 16,994.60 17,700.90 4.2% risk aversion pushed most equity markets lower.
I ndia - Nifty 5,086.30 5,312.50 4.4% However, markets like India and Indonesia that have
I ndonesia - Jakarta Composite 2,797.00 2,913.68 4.2% strong domestic growth stories and are less dependent
Chinese - Shanghai composite 2,592.20 2,396.82 -7.5% on exports outperformed.
Average daily volumes on BSE during the month of June 2010 rose by 3.4% as the markets, especially small and
midcaps witnessed buying. (NSE daily average volumes were lower by 4% MoM). Average daily derivatives volumes
were lower by 8.5% MoM on the NSE at Rs. 92,527 cr in June as against Rs. 1,01,166.5 cr in March 2010. Mutual
funds continued to be net sellers for the ninth consecutive month to the tune of Rs. 1,092 cr during the month of
June 2010 after being net sellers of Rs. 379 cr in the month of May. In CY10 so far, mutual funds have sold equity
worth Rs. 8,882 cr. While other global markets underperformed, India attracted fund flows. FIIs were net buyers
of Rs. 8,385 cr (till 29 June 2010) after being net sellers of Rs. 10,226 cr in May 2010. In CY10 so far, FIIs have
bought stock worth Rs. 18,618 cr. FIIs were net buyers in 14 out of the 21 sessions in the month of June.
Overall, the BSE Midcap and Smallcap indices outperformed the frontline stocks during the month of June, as
they gained 4.6% and 6.1% respectively. Sectorally speaking, the only index to close the month of June lower
was the BSE Metals Index. Top index gainers included FMCG, Auto, Capital Goods and Oil & Gas that closed with
gains between 6.8% - 8.4%. Other indices that also ended on an up note include BSE Consumer Durables,
Healthcare, PSU, Realty, IT and Banking with gains of 1% - 5.2%.

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FMCG stocks rose on expectations normal monsoon rains this year will boost rural sales. The index gained
8.4%. ITC, which has a weight of 52.3% in the index, rose 7.6% during the month. The company announced a
centenary bonus issue of 1:1 that led to buying interest in the stock. HUL with a weight of 18.7% rose 12.7%
during the month. The company approved a buyback of shares at a price not exceeding Rs. 280 per share.
The Auto index gained 8.1%. Stocks like M&M, Tata Motors and Maruti that have a weight of about 15-20% each in
the index reported gains of 3.1% to 15.1%. Major automakers continue to post robust sales as higher
disposable incomes, cheaper auto loans and new small car models drive sales. Automakers have also raised
prices to protect their profit margins. This includes the likes of TVS Motor, Bajaj Auto and Ashok Leyland.
The Capital Goods index surged 7.7% during the month led by L&T (weight 49.2% in index) and BHEL (weight
21.2% in index), which gained 10.9% and 4.5%. A revival in the capex cycle, faster execution and a fall in
commodity prices have kept interest up in this sector.
Next, the BSE Oil & Gas index closed higher by 6.8%. Index heavy weight Reliance Industries (weight 59.7%)
gained 4.2% during the month while ONGC (weight of 17.3%) surged 13.1%. RIL announced that it made seventh
oil discovery in Cambay basin in Gujarat. Further as per reports, Mukesh Ambani group is close to signing an
equal joint venture agreement with global private equity and hedge fund company, DE Shaw, to enter the
financial services sector. PSU OMCs gained strongly triggered by the government's decision to decontrol
petrol and diesel prices, which will help reduce under recoveries of PSU OMCs on fuel sales. ONGC also
gained, as the fuel price hike will reduce its subsidy-sharing burden.
The Consumer Durables index continues to do well and has been a clear outperformer in H1CY10. Innovative
marketing strategies, rise in discretionary spending, tax breaks at the personal income tax level, higher rural
spending power along with fiscal stimulus packages offered by the Government have helped the consumer
durables companies to record robust growth.
Gains in the BSE IT and Banking index were limited. The IT index rose 2.8% during the month. IT stocks have been
under pressure lately due to weak economic data in the US, which is the largest market for Indian IT firms. Also,
continuing concerns about the potential impact on euro-zone economic growth as governments in the
region take measures to bring their swelling fiscal deficits under control have worried companies. Europe is
the second largest market for Indian IT firms.
The Banking sector rose by a mere 1%. Bank credit grew an annual 19.1% in early June 2010, according to the RBI
data, in tune with a rise in business and consumer confidence. However, rising inflation (also with the fuel
price hike) could mean a hike in interest rates that is negative for banking stocks.
Coming to the losers, the Metal Index lost 2.9% during the month on the back of falling LME prices and
sovereign debt issues in Europe which threaten the pace of the global economic recovery and hence
demand. Further, monetary policy tightening by China along with a slowdown in lending by banks weighed on the
sector. Tata Steel, Jindal Steel and Hindalco lost 3%, 4.5% and 3.8% respectively during the month.

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Top gainers amongst the F&O stocks included Reliance Communication (up 36.8%), Reliance Media (up 33.8%),
HPCL (up 29.1%), GTL Infra (up 28.6%) and RNRL (up 25.9%). Even BRFL, Dish TV, MTNL, Orchid Chemical and
Aban Offshore gained between 18.4% and 25.4%. Major losers from the F&O space included Apollo Tyre (down
9.1%), Federal Bank (down 8.1%), Sesa Goa (down 7.7% and Tulip Telecom (down 7.1%). SAIL, Piramal Health, Yes
Bank, Patni, Petronet LNG and Sobha fell in the range of 4.9% to 6.7%.
Fund Activity
FII Activity Net Buy / Sell Net Buy / Sell Open Interest Open Interest
(Rs cr) Jun-10 May-10 Jun-10 May-10
Equities (Cash) 8385 -10226
Index Futures 1658 -3326 17844 12457
Index Options 15377 15360 43717 38498
Stock Futures -1258 5361 28531 25269
Stock Options -1355 -565 888 507
In the equity space, the FIIs were net buyers of Rs. 8,385 cr (till 29 June 2010) after being net sellers of Rs.
10,226 cr in May 2010. In CY10 so far, FIIs have bought stock worth Rs. 18,618 cr. FIIs were net buyers in 14 out
of the 21 sessions in the month of June.
In the F&O space, the FIIs were net sellers in the stock futures and options segments while they were net buyers
in the index futures and options segments. In the index futures segment, FIIs were net buyers to the tune of
Rs. 1,658 cr as opposed to net sellers in the previous month with a sharp jump in open interest, which
probably indicates a build up of fresh long positions. In the index options segment, FIIs were net buyers along
with a rise in open interest. In the stock futures segment, FIIs were net sellers vs net buyers in the previous
month along with a rise in open interest. This indicates value rise, build up of long positions in some stocks and a
possible build up of fresh shorts (naked or arbitrage related) in some other stocks. Lastly, in the Stock Options
segment, FIIs were net sellers of Rs. 1,355 cr with a rise in open interest by 75%. This could be due to fresh short
positions being built as the focus shifted from the frontline indices to stocks.

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Bond Yields:
Indian G-Sec bond yields ended lower by 1 bps at 7.55% at the end of June 2010. The benchmark 10-year bond
yield touched a 5-week high of 7.68% on June 14, 2010, after a higher-than-expected inflation data raised
concerns of an off-cycle policy tightening. The yield declined after reaching 5 week high on concerns that
license fees payment by companies to operate high-speed wireless internet services will drain cash from the
banking system.
10 G o ve rn m e n t Ye a r Bo n d Yie ld M o ve m e n t Commodities:
In June 2010, the Reuters/Jefferies CRB Index of
8.4 19 raw materials ended higher by 1.5% to 258.5.
7 Industrial commodities fell the most in 10 months
%
in June 2010, led by declines in metals on

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economic concerns in the U.S. and China. This fall
4.2 was offset by a rise in agri commodities like Cocoa
11/1/08
11/1/09
(up 6.4%), Coffee (up 16.7%), Cotton (up 4.4%),

7/1/08
9/1/08
1/1/09
3/1/09
5/1/09
7/1/09
9/1/09
1/1/10
3/1/10
5/1/10 Orange juice (up 7.7%), Sugar (up 8.9%) and

Pe r io d Wheat (up 13.0%).
Behavior of Metal prices (LME 3 month buyer prices) during the month of June 2010:
All the metals ended sharply in the red in the month of June with the major loser being Nickel, which lost
10.4%.
Metals 31-Mar-10 30-Apr-10 % Chg
Aluminium 2319 2210 -4.72%
Copper 7841 7395 -5.69%
Zinc 2387 2280 -4.48%
Nickel 24970 25895 3.70%
Tin 18400 18140 -1.41%
Lead 2150 2208 2.67%

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LME Nickel prices fell the most last month by 10.4%. LME nickel inventory levels were down 20% from their
peak in February and the latest International Stainless Steel Forum (ISSF) production data suggests that the
nickel market will remain in deficit for 2010 and 2011. China is the leading consumer of nickel and is
competing for supplies with recovering US industrial demand, as well as India, Russia and Brazil. Analysts said
that on a whole, the world nickel supply would be still in a shortage of 5,000 to 60,000 tonnes. LME inventories
have kept on declining but the pressure on the metal has continued due to Euro remaining at 4-year lows
against the Dollar.
LME Copper lost 6% in June. Copper hit an eight month-low on June 7, 2010 as investors sold off riskier assets
on mounting fears over the euro zone economy's health. Chinese trade data released showed only a modest
fall in copper imports and confirmed leaked reports that the nation's total exports rose almost 50%. Leaked
Chinese industrial output numbers confirmed slowing growth - suggesting a 16.5% rise in May from a year
earlier, falling short of expectations for 17.1% growth. An unexpected drop in U.S. retail sales in May also
added to broader market fears that the economic recovery was losing momentum.
Gold rose last month by 2.8%. Gold rallied to a record high near $1,263.7 an ounce on June 21, 2010 as
momentum triggered by buying of the metal as a safe haven from sovereign and financial risk pushed prices
through technical resistance to near their previous peak. The gold price in the global market would likely
increase continually as the debt crisis in Europe had not improved, causing investors to buy more gold to lower
the risk. Gold prices have risen by about 12% since January as traders and investors seek out clues that the
economic recovery is on track, both in the United States, where economic news has been mixed, and in Europe,
which is coping with a financial crisis. Reports showed U.S. jobless claims rose unexpectedly and
manufacturing in the Philadelphia region expanded in May; this also helped gold to move higher.
Crude oil gained 2.2% in June 2010. It jumped to a seven week high on June 25, 2010 ($78.86) as equities
surged after economic reports from China, Japan and Australia indicated that the global recovery is
strengthening. The dollar weakened against major currencies and the International Energy Agency raised its
demand forecast. Worldwide oil use in 2010 will rise by 1.7 million barrels a day, or 2%, to a record 86.4
million barrels, the Paris-based agency said in its monthly market report. The IEA bolstered its projection for
supplies from outside the Organization of Petroleum Exporting Countries by 65,000 barrels a day. Non-OPEC
producers, responsible for about 60% of world supplies, will provide an average 52.3 million barrels of oil per day
this year, or 800,000 barrels more than in 2009, according to the IEA report. The revision is based on higher
output from the North Sea. Crude oil prices rose on worries that a developing storm system in the Gulf of
Mexico could disrupt oil production just as gasoline demand is gaining traction.

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The Baltic Dry Index (BDI), a measure of shipping costs for commodities, fell by 41% last month as iron-ore
demand weakened in the face of higher raw-material costs and lower selling prices for steelmakers. Iron-ore
producers moved this year to a system of quarterly pricing, ending 40 years of annual accords. It has been on a
downward journey, after touching a high of 4,209 points in the last week of May, its highest level in CY10 to
date. Supply of ships is higher than the demand. Thus, charter rates are not improving, leading to volatility in
the BDI. Also slow scrapping of ships and addition of new ships at a faster pace has led to excess supply in the
market. The hardest hit sector during the month was Capesize with 48% loss and Panamaxes with 35.3% loss;
Supramaxes and Handysizes lost 30.7% and 21.8%. Iron ore prices are falling down. It looks like things are
slowing down in China. On the other hand ship prices rose 25% in last six months, a proof of excessive
expectations.
Currencies
Most of the currencies appreciated against the US Dollar in June 2010 with the top gainer being Japanese
Yen, which rose by 2.7%. Indian Rupee, Thai Baht and Malaysian Ringgit rose by 1.5% each while Brazilian Real
appreciated by 1.2%. Korean Won depreciated vis-à-vis the US Dollar by 1.6%.
Given below is a table that shows the depreciation (-)/appreciation (+) of the dollar against various currencies
for the month of June 2010:
USD to: 31-May -10 30-Jun-10 % Chg Japanese Yen rose by 2.7% against the dollar in June 2010. The yen
Pakistani rupee 85.31 85.93 0.7%
Hong Kong dollar 7.79 7.78 -0.1%
rose for three consecutive weeks in June, its longest stretch of
Chinese yuan 6.83 6.81 -0.3% gains since January, as U.S. economic data signalled the recovery is
Indian rupee 47.17 46.48 -1.5%
sputtering and boosted demand for currencies less likely to return a
Taiwan dollar 32.07 32.07 0.0%
Singapore dollar 1.41 1.40 -0.7% loss. It rose amid speculation that the Group of 20 nations will fail
Argentine peso 3.92 3.94 0.4% to agree on how to tackle Europe’s debt crisis. Investors sought
Euro 0.82 0.82 -0.1%
Thai baht 33.07 32.56 -1.5%
safety on concerns about euro zone fiscal strains and data showed soft
Malaysian ringgit 3.30 3.25 -1.5% U.S. economic growth. A U.S. government report that showed gross
Indonesian rupiah 9250.69 9165.90 -0.9%
domestic product (GDP) grew slower than previously expected in
Japanese yen 91.10 88.66 -2.7%
Brazilian real 1.82 1.80 -1.2% the first quarter also weighed on sentiments
Korean won 1198.04 1217.73 1.6%

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The Indian Rupee appreciated by 1.5% last month against the dollar helped by gains in shares and weakness in
US Dollar against most currencies. Indian shares got off to a shaky start as doubts resurfaced about the global
economic recovery and a slower manufacturing growth at home. The Indian rupee rose tracking gains in other
Asian currencies after the Chinese central bank decided to scrap a two-year peg to the US dollar for its
currency to avoid criticism at the G20 summit. The currency rose as SEBI data showed foreign investment in
stocks rose $6.6 billion this year to an all-time high of $79.4 billion on June 24.
Malaysian Ringgit rose by 1.5% vs the dollar. The Malaysian ringgit added gains to hit a near two-month high,
tracking its Asian peers after China's pledge to allow more yuan flexibility. China's vow to allow more yuan
flexibility boosted Asian currencies as the plan is seen bolstering demand in Asian economies and lifted risk
appetite. Malaysia unveiled a five-year program to boost its economy by relying less on exports to drive
expansion. The Government has planned $70 billion spending in new infrastructure, much of it in conjunction
with the private sector, to help improve power and transport systems over the next five years, as well as
develop university campuses. The goal is to expand Malaysia's economy by at least 6% a year, and boost the
country's average per capita annual income to $15,000 within the next 10 years from about $8,000 now.
Thai baht rose by 1.5% last month in line with regional movements following China's move to add "flexibility"
to its currency. China's decision is expected to allow regional currencies to strengthen against the US dollar
and increase the regional attraction to global investors. During July 2005-July 2008, on the back of 21 per
cent yuan appreciation, the Thai baht rose 26%.
The Brazilian Real gained 1.2% as global oil prices surged on Caribbean hurricane fears. Despite continuing
concerns over debt in the euro zone, traders said prospects that the Fed will maintain U.S. interest rates
extremely low until 2011 on slowly improving macroeconomic data is boosting risk appetite for emerging market
assets. This means cheaper dollars may be used in euro-zone investments as well as in emerging markets
including Brazil. Figures released by the Brazilian Census Bureau, or IBGE showed a softening of consumer
inflation as measured by the IPCA index, to 0.43% in May from 0.57% in April, adding to the positive
investor sentiment on emerging markets. A more buoyant Brazilian economy is expected to bring in more
foreign capital. The Brazilian Central Bank boosted the Selic base interest rate by 75 basis points. The move
puts the benchmark Selic rate at 10.25%. Higher interest rates in Brazil typically attract heavy foreign inflows
from investors seeking better rates of return. Brazil has also been a favored destination for carry trade
players, who borrow cheap cash overseas and invest in Brazil.

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The dollar rose against the Korean Won by 1.6% on speculation inflows into the nation’s stocks and gains in
the Chinese yuan will be limited because of a faltering global economic recovery. The currency touched a
one-month high on June 21 but retreated from these levels as foreigners cut their holdings of Korean
shares. Dealers claim that the won is seeing a correction after China’s announcement that it will allow greater
currency “flexibility”. South Korea’s central bank has said it will bar banks from providing foreign-currency
loans for domestic use from July 1, boosting efforts to curb volatility in capital flows and the won. Rules
unveiled on June 13 will cap foreign lenders’ positions in foreign-exchange forwards, options and swaps to
250% of equity capital, a limit that must be met within two years. The cap for local banks has been set at
50%.

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Comparison of Equity Returns in various markets - MSCI Indices in US$ terms
Y ear to Y ear to
Monthly 3 Month date 1 Y ear Monthly 3 Month date 1 Y ear
MSCI Index Last Returns Returns Returns Returns MSCI Index Last Returns Returns Returns Returns
Emerging Mark ets Developed Mark ets
BRI C 300.2 -1.0% -10.4% -9.7% 17.0% EUROPE 1,177.0 -0.9% -16.4% -18.4% 2.7%
EM (EMERGING MARKETS) 918.0 -0.9% -9.1% -7.2% 20.6% G7 INDEX 894.9 -4.3% -12.8% -9.9% 8.0%
EM ASIA 381.9 1.1% -5.9% -4.9% 20.4% THE WORLD INDEX 1,041.3 -3.6% -13.3% -10.9% 8.0%
EM EUROPE 408.0 -4.4% -16.8% -11.8% 23.8%
EM EUROPE & MI DDLE EAST 346.8 -4.4% -16.5% -10.8% 21.9% SWI TZERLAND 3,214.6 4.3% -12.7% -9.8% 14.8%
EM LATIN AMERI CA 3,639.6 -3.4% -12.7% -11.6% 22.4% SI NGAPORE 3,455.9 3.6% -1.4% -2.8% 25.1%
SWEDEN 5,141.4 2.9% -8.6% -2.0% 27.3%
CHI NA 59.8 0.9% -6.2% -7.7% 8.5% HONG KONG 6,908.7 2.9% -7.2% -5.2% 11.0%
INDIA 476.8 3.9% -2.9% 1.8% 30.2% DENMARK 4,362.9 0.9% -5.6% 3.1% 18.2%
INDONESIA 721.0 5.5% 3.3% 13.6% 62.4% GERMANY 1,339.2 -0.3% -14.6% -17.0% 4.5%
KOREA 310.5 0.9% -7.6% -5.1% 30.6% JAPAN 2,123.0 -2.1% -10.2% -3.6% -0.9%
MALAYSIA 368.8 3.0% -0.3% 7.9% 30.2% USA 979.9 -5.5% -12.0% -7.7% 12.0%
PHILIPPI NES 284.4 2.5% 2.1% 5.7% 31.8% FINLAND 368.0 -6.9% -27.8% -20.0% -13.0%
TAI WAN 230.2 -2.0% -9.4% -12.9% 12.8% I RELAND 104.2 -7.5% -19.9% -21.3% -9.3%
THAI LAND 245.9 3.7% -3.3% 8.9% 30.5% AUSTRI A 1,056.7 -8.0% -23.9% -24.8% -13.1%
BRAZI L 3,028.0 -4.5% -16.0% -16.5% 18.6% GREECE 213.1 -10.7% -41.3% -49.1% -47.8%
CHI LE 2,082.8 1.0% 1.5% 1.5% 23.0%
COLOMBIA 895.5 4.5% 2.9% 13.3% 48.8% Frontier Mark ets
MEXICO 5,009.6 -3.0% -9.5% -2.5% 28.9% FM (FRONTIER MARKETS) 488.5 -2.5% -12.1% -3.1% -3.6%
PERU 1,252.7 0.1% 2.8% 2.9% 48.7%
CZECH REPUBLI C 452.9 -5.4% -16.7% -16.8% -6.8% SRI LANKA 197.7 12.0% 13.6% 18.1% 44.3%
HUNGARY 576.2 -10.6% -31.1% -22.4% 14.1% MAURITIUS 752.8 7.8% -5.5% -11.1% 10.2%
POLAND 726.7 -8.6% -22.8% -19.5% 19.4% UKRAI NE 276.4 6.6% -15.3% 25.9% 29.6%
RUSSIA 707.5 -4.2% -16.7% -11.1% 24.2% PAKISTAN 81.1 4.5% -7.9% -1.1% 26.8%
TURKEY 514.5 0.7% -6.2% -2.6% 40.3% UNITED ARAB EMI RATES DO 245.2 -8.3% -21.6% -17.3% -9.4%
EGYPT 745.2 -8.9% -14.2% -5.1% 8.0% ROMANI A 321.1 -9.0% -32.6% -18.2% 15.1%
MOROCCO 410.9 -2.0% -7.5% -1.3% -14.8% BAHRAIN 256.9 -10.9% -19.7% -22.8% -39.8%
SOUTH AFRICA 437.3 -3.6% -10.2% -6.6% 15.6% KAZAKHSTAN 577.9 -12.1% -26.7% -25.4% 9.9%

14

Comparison of Equity Returns in various markets - MSCI Indices in US$ terms
The equity markets across the globe closed the month of June 2010 mostly lower. The World Index and G7
Index shed 3.6% and 4.3% respectively while Europe ended lower by 0.9% and US down 5.5%. The combination of
European debt troubles, a possible Chinese slowdown and the specter of faltering growth in the U.S. was a
recipe for stock market sell-off. Amongst the developed markets, Switzerland, Singapore, Sweden and Hong Kong
rose posting gains of between 2.9% to 4.3%. Greece, Austria, Ireland and Finland fell between 6.9% and 10.7%.
Other markets to end lower included Germany, Japan and the US that lost 0.3%, 2.1% and 5.5% respectively.
Switzerland posted gains of 4.3%, but has posted declines of 12.7% over the past 3 months. This was on concerns
that a sovereign-debt crisis in Europe will slow growth and speculation the Chinese authorities are moving to cool
the world’s largest emerging economy. However the G20 meeting in Toronta led to some relief as the leaders
pledged to work to spur economic growth as nations tackle budget deficits. Singaporean markets rose as bargain
hunters came into the market after May’s sharp fall. Greece has been the symbol for European fiscal woes and
continued its free fall for another month, ending the month 10.7% lower. Greece has lost 41.3% according to
MSCI data over the past 3 months. Greek treasury bills worth 4.56 billion euros mature next month. The planned
return to debt markets is Greece's first after it was narrowly saved from default last month by a 110-billion-euro
(134-billion-dollar) rescue loan from the European Union and the International Monetary Fund. US markets too
ended lower as May employment data showed private-sector employers still were slow to hire. The
disappearance of a federal tax credit for home buying led to a worse-than-expected decline in May U.S.
home sales. In late June, the Fed held rates steady at near zero, and offered wary assessment of the U.S.
economy. Lastly, losses in Germany were capped. Some analysts see Germany outperforming other European
markets going forward because of the euro, which tumbled versus the dollar during the second quarter. That
devaluation is a boon to Germany's massive export sector.
Emerging Markets also ended lower for the month of June barring EM Asia. The EM index lost 0.9% during the
month. Gains of 1.1% in EM Asia were restricted by losses of 4.4% in EM Europe, 4.4% in EM Europe and Middle
East and 3.4% in Latin America. Amongst the Latin American markets, Columbia and Chile gained 4.5% and 1%
respectively while Mexico and Brazil lost 3% and 4.5% respectively. Peru ended on a flat note. Brazil’s central
bank raised its growth and inflation outlook for 2010, suggesting that Latin America’s largest economy could
hike interest rates even more than expected to cool the economy from overheating. Mexico’s economy is more
tightly tied with the fortunes of the US. Growing fears that the US economy could slow has weighed on the
Mexican markets and the Peso. Columbia and Chile seem to be a new favored investment destination amongst
Latin American markets. Colombia is rich in natural resources - with oil production currently increasing rapidly -
although the country also has a vibrant agricultural sector.

15

The Emerging Markets - Asia outperformed, rising 1.1% with Indonesia, India, Malaysia and Philippines rising
between 5.5% - 2.5%. China and Korea also ended marginally higher while Taiwan lost 2%. Indonesian markets
gained 5.5% during the month as these markets seem to be providing a shield against external volatilities.
This is particularly so given that 67% of Indonesia’s GDP is comprised of domestic consumption with net export
just 10% of GDP, effectively cushioning Indonesia against global economic uncertainties. Similarly, India too
outperformed as the Government took active measures on the reform front and fiscal conditions appear to have
improved due to the 3G / BWA auctions and lower subsidy burden expected from sale of fuel. Taiwan
manufacturing sector growth slowed for a third consecutive month in June, a survey conducted by Markit
Economics showed. The HSBC manufacturing Purchasing Managers’ Index stood at 53.8 in June, down from May’s
57.4. However, analysts claim that Taiwan’s economy is cooling off and not due for a hard landing. However,
stock market prices cooled off as money supply, export orders and a ratio of semi conductor bookings to
shipments saw declines.
The Emerging Markets – Europe ended lower by 4.4%. Hungary, Poland and Czech Republic lost 10.6%, 8.6% and
5.4% respectively. Warnings by Hungary’s new government that it had only a slim chance of avoiding a debt
crisis similar to that of Greece during the start of the month re-ignited market concern about the fiscal
health of countries in Eastern Europe. However, by the end of the month Hungary said it would be able to
meet its creditor-approved 2010 budget-deficit target of 3.8% of gross domestic product. The government is in
talks with lenders about a plan to help foreign-currency borrowers who have difficulty making payments and
plans to complete the discussions by 31 Aug, 2010.
BRIC index ended the month with a loss of 1%. While India and China posted gains of 3.9% and 0.9% respectively,
Brazil and Russia lost 4.5% and 4.2% respectively. Announcements by the Chinese Government to allow the yuan
to be more flexible triggered some buying interest in China. India continues to be a key beneficiary of fund
flows as its economy gathers momentum; reforms take center stage and it fiscal health shows signs of
improvement. Brazil and Russia, being commodity-oriented economies fell as global commodity prices cooled off
on fears that a slowdown in Europe and the USA could reduce demand for commodities. Also, China is Brazil's
largest customer. China will continue to slow fixed asset investment; both infrastructure and real estate.
This could adversely impact iron ore demand and hence exports from Brazil.

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HOME

Frontier markets ended the month down by 2.5%. Sri Lanka, Mauritius and Ukraine were the top 3 gainers, up
12%, 7.8% and 6.6% respectively. Losers included UAE (down 8.3%), Romania (down 9%), Bahrain (down 10.9%)
and Kazakhstan (down 12.1%). Sri Lanka renewed its deal with the IMF in the month of June and asked the IMF to
lift the medium to long term debt ceiling of 1,750 mn US dollars. The deal itself has been extended for another
year and the IMF released 400 mn US dollars to Sri Lanka which boosted foreign reserves to 5.5 bn US dollars.
Further, Sri Lankan listed firms posted profit gains of 170% for the March 2010 quarter. Most industries did well
including hotels, banks, telecom, oil palms etc as peace was restored in the country and inflation and interest
rates were low. Overall Sri Lanka has been seeing increased flows and interest as the past issues of war, high
budget deficit and inflation seem to be getting addressed. However, it has now become one of the most
expensive markets, trading at a P/E of about 23x. Kazakhstan lost 12.1% during the month of June, as there
was a flight to safety. Further, there are concerns of the impact of the European debt crisis on borrowing rates
and credit spreads. Kazakhstan is reportedly planning to sell between $500 million and $750 million in bonds to
investors abroad in the autumn. The bonds will probably be denominated in dollars and will be used to set a
benchmark for corporate borrowing.

17
Monthly Equity Commentary

Outlook going forward
Global market outlook:
The global markets have finished H1CY10 on a mixed note. Most developed markets like the Dow, FTSE and
Japan have lost 6.3%, 9.2% and 11% respectively. Emerging markets like China, Hang Seng and Brazil have also
shed 26.9%, 8% and 11.2% respectively. Amongst developed markets, Germany stands out with gains of 0.1%.
Emerging market outperformers include India (Nifty) and Indonesia (Jakarta Composite), which have closed gains
of 2.1% and 15% respectively. A closer study reveals that S. Asian economies like Sri Lanka, Indonesia,
Malaysia and Thailand have outperformed their global counterparts.
Signs of increased risk aversion and its impact

DOW JONES 30-Wkly.11/08/06-30/06/10 W-14479
Price
14000 W 30/06/10
13000
12000 O 10143
11220.81 11000 H 10202
10000 L 9754
9000 C 9774
8000 V 3940265
V 391335
7000
06 N 07 A J O 08 A J O 09 A J O 10 A
CBOE VOLATIL-Wkly.11/08/06-30/06/10 W-157327
Price
80 W 30/06/10
70
60
50 O 29.20
40 H 35.39
30 L 28.47
C 34.54
20 V 0.00
15.24 V 0.00
06 N 07 A J O 08 A J O 09 A J O 10 A 10
The chart above depicts the relationship between the Dow and the CBOE VIX. Typically when volatility is high, and
fear factor is rising, the VIX rises and the Dow corrects and vice versa. The VIX has started to rise, has made a
higher bottom and could rise even further. This portends further risk aversion and correction in the Dow.

18
Monthly Equity Commentary - Outlook going forward contd…

Impact on Developed Markets:- Impact on Precious Metals & Currencies:-
Increased risk aversion
Developed economies
could remain soft due
to fiscal and debt
issues Gold, Silver and US dollar could
other precious remain in
metals could demand
remain in demand (despite weak
Deterioration in and their prices fundamentals)
fundamentals and could keep rising
increased risk aversion
Impact on Commodity prices and
Commodity Dependent Economies:-
Nasdaq could fall Fall in equity market
more as it is valuations and formation of
more expensive lower lows in indices and Slow World Growth
and has fallen stocks across US, Europe and
less so far Japan (except probably
Germany to some extent, Markets of Australia,
Commodity
However Greece could Canada (both resource
prices (incl.
breach 12 year lows shortly) dependent) Brazil
Crude oil and
metals) could (fears of rising interest
remain soft rates and China
deceleration) and
Russia (crude oil/gas
dependent) being
dependent on above
could under perform

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Monthly Equity Commentary - Outlook going forward contd…

Impact on Interest Rates:- Impact on Asian markets:-
Heightened risk Increased risk aversion

aversion
India, Indonesia (resilient economy,

Lower investments in expectations of accelerated reform),
equity/outflows from Srilanka, Thailand (healthy GDP growth in
equities Q1CY10 and healthy corporate and
sovereign balance sheets) and Malaysia
(improving bilateral ties with Singapore,
moves towards reforms and subsidy
Long term yields Short-term interest rationalization) markets have
remaining soft in a rates could remain outperformed so far
band (due to lack volatile with
of alternative upward bias due to Domestic economies of these countries
investment currency and could continue to do well and large
avenues) inflation impact exporters could benefit out of Chinese
Yuan revaluation (could hasten a bit due to
other global factors)
Currencies of these economies could
depreciate (due to capital outflows) and
make their exports more competitive
Their GDP growth rates could improve and

make them attractive for FII inflows
whenever risk aversion stabilizes

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Monthly Equity Commentary - Impact on India contd…

China equity markets could continue to underperform India continues to be in a better spot
and make lower lows, driven by cutback in liquidity compared to other BRIC countries
growth, policy tightening, fears of slowing economy (technically and fundamentally)
BSE SENSITIV-Wkly.11/08/06-30/06/10 I-1
Price
20000
18000
16000
14000
12000
10000
06 N 07 A J S D 08 M J S N 09 M M A N 10 A J 8000
US DOLLAR IN-Wkly.11/08/06-30/06/10 W-157355

Price
88
85
82
80
78
75
72
06 N 07 A J S D 08 M J S N 09 M J A N 10 A J
From the above it is clear that till about Nov 2009, the Sensex was broadly inversely correlated with the US dollar
index or .DXY. Hence when the dollar index fell, the Sensex rose and vice versa. This was also a function of the
risk appetite of investors getting reflected in the US dollar rate (vs a basket of six currencies) and consequently
the FII inflows/outflows.
This inverse correlation has stopped working after Nov 2009. Hence even as the US dollar kept appreciating
against the other currencies (due to Eurozone issues), the Indian markets did not fall suggesting that increased
risk aversion did not result in significant FII outflows from India. The moot point is whether this relation will
revert back to its mean and India will begin to see impact of increased risk aversion or the relationship has
broken for ever. We feel that some mean reversion is possible but under the changed circumstances, this
relationship has ended over the medium term.
This could mean that India could get hit temporarily due to the expected weakness in the global markets but
less than other markets and it could be one of the first ones to bounce back.

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Monthly Equity Commentary – Indian Market Outlook contd…

India in a sweet spot?
The Indian markets have outperformed the developed markets as well as some other emerging markets like
China, Brazil, Taiwan etc over the past few months. We believe that the Indian markets could continue to
outperform their global counterparts due to a number of reasons. However, at the outset let us state that
India is a key beneficiary of fund flows and as global risk aversion rises, capital outflows from India could
increase causing nasty and sharp corrections. The rise and fall in risk aversion is an on-going cycle (manifested
in the DXY, VIX, Gold prices, Credit spreads etc) and as risk aversion subsides, India could be a preferred
investment destination. India is well poised to benefit from liquidity flows (Debt & Equity) considering relative
attractiveness (strong growth outlook, appreciating INR, improving fiscal position, potential reforms and
reasonable valuations). Key risks that could derail India’s economy include capital outflows, rising oil prices and
a poor monsoon. As highlighted earlier, with demand for commodities like oil and base metals to remain
subdued due to problems in developed markets, India, which is a net importer, could stand to benefit from
soft prices and hence this risk seems to be mitigated for the time being.
Catalyst or non-event – the Monsoon
We believe that a normal monsoon is already priced into the markets given India’s outperformance vis-à-
vis its global peers in the month of June. Hence if the monsoon does turn out to be normal, the markets
may not react much. However, if the monsoon is deficient then that could act as a catalyst for a correction
in Indian markets that are trading slightly above their historical valuations of about 15x.
India's southwest monsoon has been 16% below normal in June 2010 but showed an improvement of 60% over
the same period last year, according to the Indian Meteorological Department (IMD). Although it is still early
days, the question that remains that is this a cause for concern? Monsoon worries may heighten inflation
expectations and can dampen sentiments. This could also lead to the RBI hiking rates faster than expected and
slowdown private consumption. Without sounding overly bearish, high inflation and rising rates could strike
a double whammy for private consumption, particularly urban consumers. Rural demand was resilient last
year but could come under pressure in case monsoons were to worsen.
Following its 1st stage forecast for the summer rains (June-Sept) released in April, which predicted that rainfall
would be 98% of the Long Period Average of 89cm; the Indian Meteorological Department's (IMD) released a 2nd
revised forecast. New forecasts estimate rainfall at 102% of the LPA (this falls within the 'normal' category of
96-104% of the LPA). Rainfall in July and August is estimated to be at 98% and 101% of LPA respectively. Given
the current trend, these forecasts bode well for the crucial crop sowing months. But, apart from the quantum
of rainfall, the timeliness and distribution are equally important. Further, how reliable are the IMD’s forecasts?
Considering the worst scenario where the monsoon is below normal, we believe that while inflation and
rural spending could be impacted to a certain extent, the monsoons are playing a diminishing role in
growth over the last few years. As seen last year, despite the worst drought in nearly four decades, headline
GDP growth remained over 7% with agriculture coming in at -0.2%. With an improved manufacturing sector,
India may still fare better this year. Further, the Government’s employment guarantee program would help
support rural consumption. Thus, should a monsoon related market scare (assuming the worst case) be used as
an opportunity to buy into the markets?

22
Monthly Equity Commentary – Indian Market Outlook contd…

Reforms in fast track mode
The month of June was remarkable from a reform perspective on two counts (1) the second draft of the
direct tax code was released (2) the Government finally took a call on deregulation of petrol and diesel
prices.
Revision of the direct (with the Direct Tax Code) and indirect tax structure (with the Goods and Sales Tax) in
the country has been one of the cornerstones of the reform agenda of the government. After the success of the
recent 3G and BWA auctions, the focus is back on these reforms, first proposed last year. Among the many
changes proposed in the first version of the DTC were (1) Revised tax treatment of capital gains - concessions on
long-term capital gains to be abolished (2) Rescinding of double taxation treaties - the DTC would have equal
precedence with all bilateral tax agreement signed by India (3) Reduced tax burden - revision of direct tax
slabs, tax slabs are significantly revised upwards while keeping tax rates low and (4) MAT to be levied on assets
rather than profits. Overall, the changes in DTC could be viewed as neutral to negative (the STT ambiguity,
taxation of foreign investors and of long-term capital gains would remain overhangs) for the markets.
However, what’s important to note is that the Government seems focused on reform and this is a positive
for capital flows. In any case, the FM has clarified that the Finance Bill when introduced in the Parliament
would override the DTC. Hence the issue has not yet seen its finality.
Next, the first wave of petroleum sector reforms came through with the Empowered Group of Ministers (EGOM)
approving full deregulation prices of petrol, partially in diesel, and minor increases in kerosene (up 33%) and
LPG (up 11%). This reduces the under-recoveries of the PSU oil companies from around US$18bn to US$12bn (oil
price assumption of US$75/bb). Overall, the reforms are positive, but pose risk to inflation, which has been
one of the key worries.
Q1FY10 Earnings Seasons to dictate the trend – more stock specific action expected
India Inc will soon embark on its Q1FY11 earnings season. The Q4FY10 numbers suggested that the recovery,
which started in Q2FY10, was well underway now and had gained momentum with signs of volume offtake
strengthening. The numbers clearly showed that companies made a shift from a combination of sluggish sales and
moderate profit growth to strong sales and profit growth over the past two quarters. This offers cause for
optimism because topline growth may be a better indicator of the overall demand environment than profit
expansion. However, the numbers also showed profits lagging sales in growth rates as companies struggled with a
rebound in input costs. This suggests that pricing power, or the lack of it, will hold the key to corporate
performance from here on. We believe that in Q1FY11, companies could continue to report decent topline
and bottomline growth, with bottomline growing at a slower pace than topline. Interest rates continue to
remain low, however, operating margins could be flat to down in most cases as most commodity prices are
higher on a y-o-y basis. Volume growth and an increase in demand could be some key upsides. Companies in
sectors that are able to pass on their cost increases to consumers may enjoy greater stock market fancy than
those that are forced to absorb them. Further, companies focused on the domestic economy & consumption
could continue to do well and get a higher rating than companies exposed to the headwinds of the world
economy (export oriented or commodity based).

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Monthly Equity Commentary – Indian Market Outlook

CY10 – a year of consolidation
In our January 2010 monthly report we had stated, “After a spectacular 2009, 2010 could turn out to be a year
of modest gains amid volatility. Historically, years of substantial returns were succeeded by years of marginal
returns (with an exception of 1991, where returns of 82.1% in CY91 were followed up with returns of 37% in CY92).
This seems to be the most likely scenario for 2010. A fully valued secondary market could also face pressure from
primary market issues and government divestment. The markets will also be influenced by the pace of economic
recovery, the expected timing of US interest rate hikes and policymakers' strategies for unwinding emergency
stimulus plans introduced during the global financial crisis.”
The year 2009 saw the BSE Sensex gain 81%, its best annual return since 1991 (when it recorded an 82.1%
gain). Till date, in H1CY10, the Sensex and Nifty are up only 1.4% and 2.1%. Hence, we continue to believe
that the markets could continue to trade in a broad range of 16,000 – 18,000 in the near term.
Moving on, we had also stated, “Overall, although the year 2009 was among the best in more than a decade, 2010
could churn out modest returns. Investors wanting to outperform the broader markets may have to look beyond
the large caps – mid-cap / small-cap valuations are still selectively reasonable. It looks like 2010 could be a lot
more difficult, requiring selection and market timing to bring in the best results. Rise in interest rates, fiscal
deficit, withdrawal of stimulus packages, threat to liquidity flows etc could play spoilt sport for the markets. On
the positive side, if the Indian government surprises the markets on reforms (like implementation of GST and the
new Direct Tax Code), divestment, FDI in certain sectors and insurance bill among others, it could help boost
investors’ confidence.”
The BSE Midcap and Smallcap indices have outperformed the frontline indices by gaining 6.4% and 8.5% in
H1CY10. Further, as highlighted above the Government has been proactive on the reform front. The
Government’s finances are expected to improve due to lower under-recoveries and buoyant collections from the
3G / BWA auctions. We maintain our view on the Indian markets. However, one point to highlight is that the
Indian markets have outperformed their global peers thus far (with a number of global indices trading below
their 200 DMAs) and it could prove to be more difficult to continue to outperform going ahead. Lastly, the
corrections in the equity market could be sharper and more volatile, while the recovery could be slower and
to a lesser degree. Heightened risk aversion and global factors could put pressure on the Indian markets in
the near term.

24
Technical Commentary
Market Outlook & Strategy
Summary:
The Sensex has 6 trading sessions to breach 17,920 for a ‘Faster Retracement’ of the previous downmove to
take place and it is about 500 points away from it. So the chances of retracing the previous down move faster
exists.
So far, the Sensex has corrected 38.2 % of the previous up move from 16,561 to 17,920, which is called as
bullish retracement. The next two levels of retracement are 50%, which is at 17,241 and 61.8%, which is at
17,081.
If this correction gets halted at these levels, then the upward rally, which started from 15,960 will continue.
However, if it goes below 17,000 level then it will raise a serious doubt about the strength of the rally, which
started from 15,960.

25
Technical Commentary contd…
Date Bottom Date Top

19/8/09 14,684 17/10/09 17,493
9/11/2009 15,331 6/1/2010 17,790
8/2/2010 15,652 7/4/2010 18,048
25/05/10 15,960 21/04/10 17,920 (So Far)
In the last 10 months, the Sensex has created four significant intermediate bottoms and four significant
intermediate tops at various levels and if we drawn a trendline, all the bottoms almost fall on this line.
In the same manner, if we join all significant tops, the value of this blue trendline is at 18,400. The probable
targets for the new top will be in the range of 18,300 to 18,500.
The Sensex has made a triple tops at around 18,000. If this level is tested again, there is a high likelihood of this
level getting breached and the Sensex making a sharp and significant upmove thereafter.
Retracement Theory

26
Technical Commentary contd…
The move from 15,960 to 16,971 took 4 trading sessions and in 1 day it got retraced by 61.8 % (It was because
of a freak Reliance trade). This was the maximum retracement of the move as after that it has formed a
‘Higher Bottom’ at 16,561 as marked on the chart above.
The move from 16,971 to 16,561 took 6 trading sessions, which fulfills the time requirement for the
corrections i.e. the time corrections should consume at least the same time as the main move.
Later ‘Higher Top Higher Bottom’ was formed, the Sensex went up to 17,920 forming ‘Higher Highs’ and
‘Higher Lows’ for the next 9 trading sessions (barring 1 day). For the last 8 trading sessions, the Sensex is
retracing the current up move from 16,561 to 17,920 and it has barely retraced 38.2% of this move in the last 8
days.
The normal retracement that can be expected is 50%, which is at 17,241 and 61.8% which is at 17,081. If this
correction gets halted at these levels, then the upward rally, which started from 15,960 will continue.
However, if it goes below 17,000 level then it will raise a serious doubt about the strength of the rally which
started from 15,960 and we will have to think in different perspective about the current rally.
So far, this entire rally has taken 27 trading sessions, and it has got 6 trading session to fully retrace the down
move from 18,048 to 15,960, which consumed 33 trading sessions.

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Technical Commentary – Month Gone By
The Sensex opened the month of June at 16,943 and on the same day the markets made an intraday low at
16,318, which was the low for the entire month of June.
The Sensex rose for the next 3 trading sessions and it made 17,150 as an intermediate high. For the next 2
trading sessions, it came down and finally on 2nd day it formed a bottom at 16,561,which was higher than the
bottom formed on 1st June 2010.
Once the ‘Higher Top’ and the ‘Higher Bottom’ was formed, the bulls took charge of the situation and in 9
trading sessions the Sensex went up to 17,920 without any significant correction forming ‘Higher Highs’ as well
as ‘Higher Lows’.
Once the intermediate top at 17,920 was formed, for the last 8 trading sessions, the Sensex is correcting the
current up move from 15,960 to 17,920 and so far it has corrected 38.2 % of this upmove.

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Learning Technical Analysis
Flag Pattern
A technical charting pattern that looks like a flag with a mast on either side. Flags result from price fluctuations
within a narrow range and mark a consolidation before the previous move resumes.
The flag formation is a parallelogram in which the rally peaks and reaction lows can be connected by two lines
that run parallel to each other. In the rising market, the flag is usually formed with a slight downtrend, whereas
in a falling market, it has a slight upward bias. Flags may also be horizontal.
Flag is among the most reliable of continuation patterns and only rarely produce a trend reversal. A flag
occurs when there is a straight up move in a stock. This movement is often nearly vertical, and at the very
least is extremely steep. The move is very rapid. Typically, the move occurs on very strong volume and lasts a
few trading days. Gaps will often be present within this part of the move.
This rapid upside movement is called a "flagpole." Gradually, however, buyers are no longer willing to bid the
stock up. Sellers, many of whom are showing extremely nice profits in a short period of time, move in to nail
them down. But rather than sell off sharply, prices decline very gradually as eager buyers who missed the
initial move snap up the stock.
The flag is thought of as a consolidation pattern. A stock typically leaves a consolidation pattern in the same
way it enters it. The flag is therefore expected to eventually move higher.

29
Derivatives Commentary
In the month of June 2010, the markets started on a shaky note but soon the bulls took charge and the
benchmark indices made a one-way upmove to close significantly in the green. The Nifty closed the month at
5312 i.e. 226 points or 4.44% higher as compared to the previous month.
In the cash market, Foreign Institutional investors’ volumes in June 2010 decreased moderately as compared to
May 2010. The cash volumes were Rs.90,654.6 crores last month (upto June 29) as compared to Rs.1,05,260
crores in May 2010. FIIs were net buyers to the tune of Rs. 8,385 crores in June 2010 (upto June 29) as
compared to being net sellers of Rs.10,226 crores in May 2010 in the cash market.
In the F&O market, FIIs were net buyers to the tune of Rs.15,913 crores in June 2010 vis-à-vis being net buyers
of 16,829 crores in May 2010. In the F&O market, the FIIs transacted volumes of Rs. 4,61,800 crores in June
2010 as compared to Rs. 5,14,622 crores in May 2010.

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Derivatives Commentary contd…

Mutual Funds saw a moderate fall in the cash market volumes to Rs.25,751 crores in June 2010 from Rs.29,326
crores in May 2010. They were net sellers to the tune of Rs.1092 crores in June 2010. In May 2010, they were
marginal net sellers of Rs.379 crores.
The June series started with the marketwide OI rising moderately as is typical in the initial sessions after the
beginning of a new series. The market wide OI was Rs.85,946 crores at the June series expiry vis-a-vis Rs.81,409
crores at the May series expiry. The July series started with the marketwide OI being about Rs.94,948 crores on
the first day of the new series.
The marketwide rollovers at June expiry remained same at 85% as compared to May series expiry. Stock Futures
rollover went up to 86% vis-à-vis 85% last month. The index futures however saw a significant rise in the
rollovers i.e. 71% this month vis-à-vis 66% last month.
Coming to stock specific rollovers, the highest rollovers were seen in GTL, India Cement, Glaxo, GMR Infra and
United Phosphorus. The lowest rollovers were seen in BGR Energy, ABB, Rolta, Union Bank and Gail.
After touching a high of 2.01, the Nifty OI PCR has slid down to 1.40 levels. This sudden fall in the PCR could be
a foretelling the correction in the markets in the next few days. The Nifty IV continues to trade higher than the
HV. The IV is 20.15%, which is higher than the HV of 17.06%. This indicates that we could see the volatility
continuing in the markets this month.
There is increased build up in the 5200 and 5000 Put option. Thus, in case of corrections, the 5200 level could
act as the first crucial support for the markets. On the upside 5400 could be the first resistance to cross with
significant OI build up seen in the 5400 Call options.

31
Learning Derivative Analysis

Arbitrage using options
In the options market, arbitrage trades are often performed to earn small profits with little or no risk. To
setup an arbitrage, the options trader would go long on an underpriced position and sell the equivalent
overpriced position.
If puts are overpriced relative to calls, the arbitrager would sell a naked put and offset it by buying a
synthetic put. Similarly, when calls are overpriced in relation to puts, one would sell a naked call and buy a
synthetic call. The use of synthetic positions is common in options arbitrage strategies.
The opportunity for arbitrage in options trading rarely exists for individual investors as price discrepancies
often appear only for a few moments. However, an important lesson to learn from here is that the actions by
traders doing reversals and conversions quickly restore the market to equilibrium, keeping the price of calls
and puts in line, establishing what is known as the put-call parity.
Conversion and Reversal
Conversion:
Floor traders perform conversions when options are overpriced relative to the underlying asset. When the
options are relatively underpriced, traders will do reverse conversions, otherwise known as reversals.
A conversion is an arbitrage strategy in options trading that can be performed for a riskless profit when
options are overpriced relative to the underlying stock. To do a conversion, the trader buys the underlying
stock and offset it with an equivalent synthetic short stock (long put + short call) position.
Conversion Construction
Long 100 Shares
Buy 1 ATM Put
Sell 1 ATM Call
Limited Risk-free Profit
Profit is locked in immediately when the conversion is done and it can be computed using the following
formula:
Profit = Strike Price of Call/Put - Purchase Price of Underlying + Call Premium - Put Premium

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Learning Derivative Analysis contd…
Reversal
. :
A reversal, or reverse conversion, is an arbitrage strategy in options trading that can be performed for a
riskless profit when options are underpriced relative to the underlying stock. To do a reversal, the trader
short sells the underlying stock and offset it with an equivalent synthetic long stock (long call + short put)
position.
Reversal Construction
Short 100 shares
Sell 1 ATM Put
Buy 1 ATM Call
Limited Risk-free Profit
Profit is locked in immediately when the reversal is done and it can be calculated using the following formula:
Profit = Sale Price of Underlying - Strike Price of Call/Put + Put Premium - Call Premium

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Extract of Calls during June 2010

Index Futures Calls
Date B/S Trading Call Entry at Sloss Targets Exit Price / CMP Exit Date % G/L Comments Time Horizon Avg. Entry Abs. Gain/Loss
16-Jun-10 S Nifty Fut 5235-5248 5252.0 5200.0 5252.0 17-Jun-10 -0.3 Stop Loss Triggered 1-2 days 5238.1 -13.9
Stock and Nifty Options Calls
Date B/S Trading Call Entry at Sloss Targets Exit Price / CMP Exit Date % G/L Comments Time Horizon Avg. Entry Abs. Gain/Loss
11-Jun-10 B Nifty 5200 Call Option 39.8-32 35.0 60.0 50.0 14-Jun-10 35.1 Premature Profits Booked 3 days 37.0 13.0
17-Jun-10 B Nifty 5200 Put Option 46.80-40 35.0 60.0 35.0 17-Jun-10 -19.4 Stop Loss Triggered 2 days 43.4 -8.4
10-Jun-10 B JP Associates 120 Call Option 6-4.5 4.0 11.0 8.0 15-Jun-10 35.6 Premature Profits Booked 1-2 days 5.9 2.1
10-Jun-10 B SAIL 450 Call Option 4.5 3.0 8.0 7.7 11-Jun-10 71.1 Premature Profits Booked 2-4 days 4.5 3.2
Trading/BTST/Futures Calls
Date B/S Positional Call Entry at Sloss Targets Exit Pric e / CMP Exit Date % G/L Comments Time Horizon Avg. Entry Abs. Gain/Loss
14-Jun-10 B RNRL 54-52 50.0 62.0 57.3 14-Jun-10 6.5 Premature Profits Booked 7 days 53.8 3.5
9-Jun-10 B Tata Sponge 311-300 298.0 340.0 331.0 10-Jun-10 6.4 Premature Profits Booked 7 days 311.0 20.0
7-Jun-10 B Essar Shipping 84.65-82 81.0 92.0 88.7 8-Jun-10 5.0 Premature Profits Booked 2-3 days 84.5 4.2
8-Jun-10 B Mahindra Ugine 59.55-57 55.0 66.0 61.8 11-Jun-10 4.8 Premature Profits Booked 2-3 days 59.0 2.8
23-Jun-10 B Ruchi Infra 44.3-41 39.0 55.0 43.4 30-Jun-10 -2.1 Premature Exit 10 days 44.3 -0.9
2-Jun-10 S JSW Steel Fut 1035-1046 1050.0 1000.0 1050.0 3-Jun-10 -1.1 Stop Loss Triggered 2-3 days 1039.0 -11.0
Positional Calls
Date B/S Positional Call Entry at Sloss Targets Exit Price / CMP Exit Date % G/L Comments Time Horizon Avg. Entry Abs. Gain/Loss
14-Jun-10 B Hind Copper 468-460 440.0 510.0 510.0 15-Jun-10 9.4 Target Achieved 15 days 466.0 44.0
28-Jun-10 B Everonn 430-410 405.0 460/480 460.0 29-Jun-10 7.5 Target Achieved 30 days 428.0 32.0
21-Jun-10 B TCS 787.6-777 765.0 840.0 765.0 25-Jun-10 -2.8 Stop Loss Triggered 30 days 787.0 -22.0
14-Jun-10 B Finolex Industries 73.5-70 69.0 84.0 80.4 17-Jun-10 9.5 Premature Profit Booked 1-2 weeks 73.5 7.0
15-Jun-10 B Fortis Healthcare 153.5-150 148.0 165.0 148.0 22-Jun-10 -2.7 Stop Loss Triggered 1-2 weeks 152.1 -4.1

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FII & Mutual Fund Flow and indices moves during June 2010
Total FII Inflow s/Outflow s during the month of June 2010 (A ll figures in Rs. Cr.)
W eek Ended Buy Sold Net Cumulative
7/6/2010 9763.2 10151.1 -387.9 -387.9
14/6/2010 10914.9 9726.0 1188.9 801.0
21/6/2010 13815.8 9212.6 4603.2 5404.2
28/6/2010 12515.0 9333.4 3181.6 8585.8
30/6/2010 1805.3 2005.7 -200.4 8385.4
Total 48814.2 40428.8 8385.4

* Da ta no t a va lia ble o f 30th J une 2010
Total MF Inflow s/Outflow s during the month of June 2010. (A ll figures in Rs. Cr.)
W eek Ended Buy Sold Net Cumulative
7/6/2010 2833.1 2628.6 204.5 204.5
14/6/2010 3143.5 2443.1 700.4 904.9
21/6/2010 2312.6 2616.1 -303.5 601.4
28/6/2010 2809.0 4509.8 -1700.8 -1099.4
30/6/2010 1231.4 1224.3 7.1 -1092.3
Total 12329.6 13421.9 -1092.3
BSE Indic es 30-Jun-10 31-May-10 % c hg BSE Indic es 30-Jun-10 31-May-10 % c hg

Sensex 17700.9 16944.6 4.46 Realty 3196.8 3097.9 3.19
Smallcap 9071.2 8547.2 6.13 Bankex 10765.0 10656.7 1.02
Midcap 7149.2 6834.4 4.61 Consumer Durables 4735.8 4502.2 5.19
500 7092.2 6782.4 4.57 Metal 14704.3 15146.7 -2.92
200 2248.1 2152.2 4.45 IT 5319.2 5174.7 2.79
100 9442.6 9041.2 4.44 Capital Goods 14710.0 13657.4 7.71
Power 3150.1 3032.6 3.87 PSU 9508.7 9133.9 4.10
FMCG 3230.2 2980.6 8.38 Healthcare 5748.8 5490.3 4.71
Auto 8323.3 7699.9 8.10 Oil & Gas 10874.1 10180.7 6.81

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Gainers & Losers – June 2010
Top Gainers From F&O Top Losers From F&O

Pric e Pric e Pric e Pric e
Sc rip 5/31/2010 6/30/2010 % c hg Sc rip 5/31/2010 6/30/2010 % c hg
RCOM 145.0 198.3 36.8 APOLLO TYRE 71.4 64.9 -9.1
RELMEDIA 175.0 234.0 33.8 FEDERAL BANK 345.3 317.3 -8.1
HIND.PETROL 363.7 469.5 29.1 SESA GOA LTD 381.9 352.7 -7.7
GTLINFRA 36.7 47.2 28.6 TULIP 940.7 874.1 -7.1
RNRL 52.4 66.0 25.9 STEEL AUTHOR 206.5 192.7 -6.7
BRFL 207.0 259.7 25.4 PIRHEALTH 514.2 480.8 -6.5
DISHTV 38.6 47.4 23.0 YESBANK 288.0 269.3 -6.5
MAHANGR TELE 55.5 66.4 19.5 PATNI EQ 553.2 518.2 -6.3
ORCHID CHEM 139.8 166.5 19.1 PETRONET EQ 82.5 77.7 -5.8
ABAN 711.6 842.5 18.4 SOBHA 304.2 289.2 -4.9
Top Gainers From CNX 500 Top Losers From CNX 500
Pric e Pric e Pric e Pric e
Sc rip 5/31/2010 6/30/2010 % c hg Sc rip 5/31/2010 6/30/2010 % c hg
ASTRAZEN 817.0 1355.5 65.9 IBSEC 31.3 27.3 -12.6
FKONCO 127.4 187.2 46.9 APOLLO TYRE 71.4 64.9 -9.1
SHASUN CHEM. 61.6 87.1 41.3 3IINFOTECH 66.1 60.3 -8.7
BOC EQ 205.4 290.1 41.2 SUNDAR.FAST. 49.7 45.5 -8.4
FCH 150.4 207.6 38.0 FEDERAL BANK 345.3 317.3 -8.1
PROVOGUE 43.0 59.0 37.2 ENGINEERS (I 340.4 312.8 -8.1
RCOM 145.0 198.3 36.8 SESA GOA LTD 381.9 352.7 -7.7
CANFIN HOMES 87.9 117.9 34.1 BOM DYEING 521.8 482.3 -7.6
SHOPERSTOP 429.0 568.5 32.5 ZUARI AGRO 732.1 677.6 -7.4
VIP INDUS. 258.8 340.8 31.7 TULIP 940.7 874.1 -7.1

36
RETAIL RESEARCH TEAM
Head of Research Fundamental Analyst

Deepak Jasani Mehernosh Panthaki
Technical/Derivatives Harshal Patil
Analyst
Bhavna Jagwani
Adwait Sapre
Sneha Venkatraman
Subash Gangadharan
Tiju K Samuel
Aditi Junnarkar
Kushal Sanghrajka
Siddharth Deshpande
Mutual Fund Analyst
Dhuraivel Gunasekaran
Production
Sushma Chavan
HDFC Securities Limited, I Think Techno Campus, Bulding –B, ”Alpha”, Office Floor 8, Near Kanjurmarg Station,
Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone (022) 30753400 Fax: (022) 30753435
Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for
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Monthly Report July 2010 Retail Research

Monthly Report July 2010 Retail Research

Monthly Equity Commentary

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

in June 2010, led by declines in metals on

(up 6.4%), Coffee (up 16.7%), Cotton (up 4.4%),

5/1/10 Orange juice (up 7.7%), Sugar (up 8.9%) and

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary

Signs of increased risk aversion and its impact

Monthly Report July 2010 Retail Research

Monthly Equity Commentary - Outlook going forward contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary - Outlook going forward contd…

Heightened risk Increased risk aversion

India, Indonesia (resilient economy,

Their GDP growth rates could improve and

Monthly Report July 2010 Retail Research

Monthly Equity Commentary - Impact on India contd…

US DOLLAR IN-Wkly.11/08/06-30/06/10 W-157355

Monthly Report July 2010 Retail Research

Monthly Equity Commentary – Indian Market Outlook contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary – Indian Market Outlook contd…

Monthly Report July 2010 Retail Research

Monthly Equity Commentary – Indian Market Outlook

Monthly Report July 2010 Retail Research

Monthly Report July 2010 Retail Research

Technical Commentary contd…

Date Bottom Date Top

Monthly Report July 2010 Retail Research

Technical Commentary contd…

Monthly Report July 2010 Retail Research

Technical Commentary – Month Gone By

Monthly Report July 2010 Retail Research

Learning Technical Analysis