RELIANCE IND may be impacted by recent newsflow:-

• The Supreme Court refused to stay a verdict of the Bombay High Court in the long-standing gas dispute between RIL and RNRL. The apex court has announced July 20 as the last date for responding to the appeals filed by each other. The matter will come up for hearing on the same day. 

Last act of RIL-RNRL gas saga begins http://www.livemint.com/2009/07/08005802/Last-act-of-RILRNRL-gas-saga.html

• Union Budget has raised rate of Minimum Alternate Tax from 10% to 15% and the move can have negative effect on bottomline of RIL. 

Reliance Industries’ tax outgo in 2007-08, as per its cash flow statement for that period, was around Rs2,484 crore. The new proposal will increase the tax outgo by at least Rs1,200 crore, if the book profits are maintained at the current level. http://www.livemint.com/2009/07/06225913/Higher-MAT-to-impact-cash-flow.html

• This Union Budget inserted a new provision to allow 7-year income tax holiday for gas production from blocks allotted under NELP VIII (launched in April 2009 and to close in August 2009). Now if this applies to gas produced from blocks allotted under NELPI to NELPVII is still uncertain. As RELIANCE has most of the blocks from previous NELP schemes and if the courts in India don't allow for tax holiday on them from here on, it will be a major impact on profits for this company.

Technically speaking:-
The stock of RELIANCE has started showing lower tops and bottoms and now trades in a down channel. The stock may test Rs 1650-1700 levels so one can wait for those levels to invest in this company owing to uncertainty over RNRL-RIL matter, increased Tax outgo because of MAT and dubiousness about the NELP tax holiday; Crude has fallen nearly 15% from its recent peak and that makes things a little worse for the company as GRMs (Gross Refining Margins) may get hit. 200DMA at 1787 and stock staying below that will put extra pressure on it.

Previous posting on RIL-RNRL case:- http://tanmaygopal.blogspot.com/2009/07/update-on-rnrl-reliance-gas-dispute.html

Dow Jones and S&P 500 to continue downtrend:- 
Last time we saw how Dow Jones was showing weakness (On 10June2009, refer that post http://tanmaygopal.blogspot.com/2009/06/view-about-dow-jones-dow-jones-8763-is.html
It has achieved our target of 8400 but now shows more downside also. Dow Jones has formed a bearish Head & Shoulders pattern and as of now it has already broken the neckline at 8200 (this graph doesn't have the breakdown bar). The target for this formation comes near 7700-7800, so US markets look still bearish from here.

S&P 500 looks bearish:-
S&P 500 had formed a bearish wedge along with a Head & Shoulders. Wedge was broken a fortnight back but H&S also got broke down last night. The next target for S&P500 can be 710-720.

The Data flow continues to be negative in US as unemployment rate hit 26-year high http://business.timesonline.co.uk/tol/business/economics/article6623953.ece
Obama Adviser Says U.S. Should Mull Second Stimulus  http://www.bloomberg.com/apps/news?pid=20601087&sid=aStWHJXsvePA

Update on RNRL & RELIANCE Gas dispute moves to Supreme Court
RNRL Moves Supreme Court Over Gas Dispute
MUMBAI (Dow Jones)--RNRL, Friday filed an appeal in India's highest court in its gas dispute with former group company Reliance Industries Ltd. "We have approached the Supreme Court against the last part of the Bombay High Court order wherein it has asked us to negotiate (with Reliance Industries)," RNRL's counsel Mukul Rohatgi told reporters. He said the court shouldn't have asked RNRL to negotiate with RIL after specifying the price, the quantity and the tenure of gas supply. The High Court June 15 directed RIL, to sell gas from its offshore D6 block in the Krishna-Godavari basin off eastern India to RNRL at $2.34 a million British thermal unit, 44% less than the government-recommended price of $4.20/mbtu. The court had upheld an earlier agreement signed by Mukesh Ambani and his estranged younger brother Anil Ambani, who controls RNRL, as part of a division of the family-run businesses in 2005.
The court had also ordered both the companies to reach a final agreement on the modalities of the gas supply. "The appeal has been forced due to Reliance Industries' obstructionist attitude toward a settlement," Rohatgi said. "The government's revenue will not be affected and we don't want the government to lose even a single pie." RNRL has been seeking 28 million metric standard cubic meters a day, or MMSCMD, of gas from RIL for 17 years for projects of group companies including Reliance Power, citing a family MOU based on which the Reliance group was divided. "We want the gas immediately," Rohatgi said, declining to elaborate. He also said that the gas supply obligation was a result of corporate restructuring of RIL and its not a private arrangement and protects the interest of over 25 lakh share holders.  When asked about the usage of the gas since none of Anil Ambani Group's power projects are currently operational, he said: "We will decide once we get the gas." RNRL still doesn't have a single gas-based plant and unlikely to come up with one over next 2 years and as they are not allowed to trade in gas, it is still uncertain as to what they will do with this gas. RNRL's plea for gas at $2.34/mbtu was based on a tender of NTPC Ltd, in which RIL had agreed to sell gas to the state-run company's power projects at that price. In 2007, however, a group of ministers set the price at which RIL could sell gas to RNRL at $4.20/mbtu. RIL began gas production from its Krishna-Godavari basin April 2. It has also signed gas supply agreements with several fertilizer and power companies to supply about 26 MMSCMD of gas from the D6 block. RIL is embroiled in a separate court case with NTPC over the tender to supply up to 12 MMSCMD of gas at $2.34/mbtu. http://www.moneycontrol.com/india/news/business/ril-gas-dispute-rnrl-files-special-leave-petitionsc/404423

Reliance Industries (RIL) has made the government a party in its petition before the apex court challenging the Bombay High Court verdict on the gas supply dispute with Anil Ambani group company Reliance Natural Resources (RNRL).  http://www.business-standard.com/india/news/ril-makes-govt-party-to-gas-supply-disputernrl/66621/on

What should an investor do?
RNRL still doesn't have any business to do as they don't have any plant, except for some office space in Mumbai, they don't have an asset base itself to boast of. What they are trying to do is to be a party buying gas from RIL and selling it to RPOWER, earning commission in-between. But now as it has moved SC regarding this matter, the decision is going to take more time as once again hearings will start. As it doesn't have a growing business model yet, I feel one should not touch RNRL for investment buying, how can one ascertain the value of the stock if it doesn't have a business itself? About RIL, it has run up very well since it had been recommended in October around Rs 1100 and now the good news looks priced in for the time-being. Wait for clarity on this matter and don't hurry expecting favourable decision for RIL or even RNRL. They say, one going to court and winning is still a beggar and the loser is a dead man!

Budget 2009-10 : What to expect?

UPA Government won the elections against the overall opinion of a hung parliament and markets gave a big thumbs up to this. But after discounting the election results on 18May09, indices haven't moved much further as Sensex is up by just 4.4% from that day's closing. Will things be different as we go into the big event called Union Budget on Monday 06July09?

Expectations - Sunny Side First:-

Insurance Bill - FDI in Insurance to be taken to 49% from current 26%. This proposal, if passed, can benefit stocks like EXIDE, DABUR, HDFC, ICICI BANK, RELCAP, SBI, ADITYA BIRLA NUVO as they are having exposure to Life Insurance JVs.
Education and Healthcare spending should receive a boost. Spending on these sectors remains very bad – the Indian Government spent just 4% of GDP on these areas as compared to 12% of GDP by the US Government.
Priority Sector and Infrastructure spending will also rise and more PPP (Public Private Partnership) initiatives can come to the fore. Infrastructure finance companies such as IDFC, PFC, REC can get some facilities to raise cheaper funds, e.g. through tax-free bonds.
• If Budget re-introduces Section 10 (23G) which allows income from investment in infrastructure, both via equity and debt, to be exempted from tax would benefit IDFC, IDBI & IFCI. 
• Extension of Section 80IA beyond 2010, if implemented, to benefit infrastructure developers like IVRCL, NAGARCONST, L&T’s Infrastructure SPV, and GMR INFRA.
• Introduction of Section 80M which provides for deduction in dividends received from subsidiaries for computation of dividend distribution tax - likely beneficiaries being companies which form SPVs like LT, GMR INFRA, IVRCL, HCC, NCC
• Economic Survey suggested removal of price controls on all drugs except on essential drugs - LUPIN, DR REDDY, RANBAXY, GLENMARK, BIOCON, CIPLA, GLAXO to benefit immensely
• Exemption under Section 80 for promoting R&D in Pharmaceuticals will benefit almost every Pharmaceutical company.
• Deregulation of Oil Prices - Oil marketing companies (mostly PSU) to benefit: HPCL,BPCL, IOC, MRPL, CHENNAI PETRO. Other beneficiaries include ONGC and GAIL as their subsidy burden will go down.
• Allowing Retail FDI up to 100% - key beneficiaries include companies that have exposure to retail trade like RELIANCE, BHARTI (with Walmart), PANTALOON
Fiscal Stimulus to export sectors - Indian exports have dropped for 8 consecutive months on the back of global recession and Imports also have fallen largely on account of reduction in Oil prices. Some sectors like Textiles have sufferred the most and likely to get some relief. Other major exporters are Auto Ancillary, Gems & Jewellery and Software Exports. Extension of STPI (Software Technology Parks of India) scheme will benefit smaller IT stocks.
• Will the corporate tax rate be cut - It is unlikely to happen given large fiscal deficit but if it happens, the companies that pay large taxes can benefit, such as SBI, ONGC, PNB, BOI, BOB, HDFC, NABARD, ICICIBANK and other bigger PSUs like NTPC, BHEL 
• Disinvestment - There must have been a lot of betting on this one and investors are looking very optimistically this time around with Left not present in the current UPA government. Eco Survey has suggested Rs 25000 Cr target each year for divestment. Given the large funding requirements for Infrastructure and other expenditure, Government may come out with a disinvestment target and likely candidates for that. NHPC, OIL, COAL INDIA, BSNL, Clarity on 3G auctions is also expected.
Some key structural reforms can be discussed in this Budget, such as GST (Goods and Services Tax). A lot of stress has been laid on this front but we will know if it will really be implemented by April 2010, the Budget is likely to provide concrete details in this respect.
• Incentives for setting up urea capacities and paying subsidies in full cash instead of bonds + cash - TATACHEM, CHAMBAL, NAGARFERT, RCF to benefit
• Maintaining Zero Customs Duty on Newsprints or setting up of import duty to benefit TNPL, JAGRAN, HT MEDIA, DCHL
• Capital infusion into PSU banks by Government - likely beneficiaries PNB, IDBI
• Infrastructure status to Healthcare Industry will help APOLLO HOSP, FORTIS HEALTH, MAX HEALTH, WOCKHARDT HOSPITALS, they will be able to increase investment but in addition to that easy funds availability will also be possible.
• Infrastructure status to hotels - positive for all hotels (INDIAN HOTELS, EIH, HOTEL LEELA, ROYAL ORCHID, KAMAT HOTELS)
• Abolition of FBT - positive for many Tech companies, especially large to medium like INFOSYS, MPHASIS, TCS, WIPRO, TECHM, KPIT, PATNI
• FDI in Aviation up to 49% - beneficial for aviation companies in reducing debt (KINGFISHER, SPICEJET)
• Steel industry demanding safeguard duty which if implemented fully can benefit HRC makers like SAIL, TATASTEEL, JINDAL STEEL, JSWSTEEL
• Increase in income tax exemption for interest payments on home loans to Rs 2.5lakh/year - positive for realty companies focusing on residential projects (UNITECH, PARSVNATH, DLF, OMAXE)
• Reduction in excise duty on Textile Machines - to benefit LMW and textile sector as a whole.
• JAIN IRRIGATION should benefit from a government focus on farm productivity, rural development, water infrastructure development and a potential increase in outlays for a micro Irrigation subsidy
• Bankruptcy Law:- Eco Survey suggested introduction of a separate Bankruptcy Law or a new section in Companies Law to facilitate exit of old/failed management easily. Also strengthening existing Companies Act to avoid re-occurrence of events like SATYAM.
• Reduction in STT and details on complete abolition - overall boost for stocks

What is the catch? 

Fiscal stimulus given some months back may be reverted to bridge the fiscal gap because money has to come from somewhere. If Economic Survey talks of phasing out STT/FBT/CTT and surcharges, that loss of income has to be taken care of by some rise in existing taxes. The FM has to walk the tightrope of raising taxes to increase Government income but still making people feel about the sops given out. Excise duty was slashed in Fiscal Stimulus package by around 2-4% which hit the Government income by Rs 30,000 Cr and if it gets to previous levels once again, Cement (excise duty may rise from 8% to 12%)/Auto (may rise from 8% to 10%)/FMCG (duty on cigarettes may rise)/Metals (may rise from 8% to 10 or 12%) may be impacted. If reduction in STT brings back Long Term Capital Gains Tax, it may have a negative effect. The government is almost certain to expand the 2009/10 budget deficit beyond the 5.5% set in an interim and pre-election budget in February. Any level of Fiscal Deficit past 6.5% of GDP will put pressure on bond prices. If it fails to bring forth a concrete plan  to bring the deficit back under control in subsequent years, the credit rating of India may also come under pressure, sparking selloff in equity markets as well.

Take informed decision, never hurry for locking money in stocks thinking of them like FDs forever:-

Many expect reforms to continue in a big way as UPA got clear majority, well they can continue but no government can eradicate all of Indian poverty in a single budget, every household in India has to get drinking water and electricity in their house but that can't happen in a single year, India can't beat China in a single term of a government. We have to keep in mind that these all are long-term developments and India can get there one day, so long-term is very bullish for this country. Any investor looking beyond 2-3 years is going to benefit by growth of India but many have a GetRichQuick attitude which normally gives GetPoorQuicker result. All want quick money but that can backfire also, so take informed decision and remember things can't change in a single day or a single announcement. There are many proposals pending to be executed even after being finalized 10 years back. This budget will also be approved clause-by-clause in the session of parliament after full debate and there is always time for implementation of any policy. Market is always forward looking and that is why "Buy On Rumours And Sell On News" strategy works many times. 

Update on M&M (CMP Rs 691):- 
This is an update to previous posting on MAHINDRA & MAHINDRA (http://tanmaygopal.blogspot.com/2009/06/mahindra-mahindra-cmp-rs-755-book-value.html)
New targets:-
M&M is near our previous target of Rs 640-650 but now it has broken the up-channel and also forming a bearish H&S pattern. Sustained move below Rs 670 will indicate more weakness and the stock may test even Rs 550-560 levels after breakdown. Only break of Rs 740-750 on consistent basis will negate this view.