Dalal Street

The controversial Indian Oil Minister Mr. Murli Deora has proposed a 31% hike in the regulated domestic gas price to US$2.55/mmBtu from US$2.34/mmBtu to benefit Reliance Industries indirectly. This will also help ONGC to some extent, but you know the Ministry’s intention.

The fertiliser and power ministries are likely to oppose the steep price hike and we believe the final gas price could be lower than that proposed. The near term positive impact of higher gas price would be ONGC’s FY10E-11E EPS going up by around 2.0-2.5%.

Apart from this, there will be fuel pricing reforms any time soon, we prefer ONGC over the oil marketing companies (OMCs), whose earnings face greater uncertainty than ONGC.

India’s industrial economy has quickly bounced back from a two-year industrial slowdown in FY2008 and FY2009. IIP growth has averaged 8.9% over last four months, up from an average of 0.9% in the eight months after the collapse of Lehman. We expect IIP growth to move to double digits in 3QFY10E, moderate slightly in 4QFY10E and record a growth of about 8.5% in FY2010E.

We now see IIP growth for FY2010E at about 8.5%, led by a double-digit IIP growth in 3QFY10E. Strong IIP numbers in a rising inflationary environment make a case for an early exit from fiscal and monetary stimulus.

Leaders: Consumer durables continued to outperform, with 12.9% mom and 22.2% yoy growth. Capital goods output jumped 31.3% mom and 12.8% yoy, touching an 18-month
high production-level.

Laggards:
Dismal performance of some core infrastructure industries, viz., crude oil, refinery products, steel and electricity.