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Monday, November 13, 2006
Market rolls on ! Sensex breaches 13400
Market opened flat note on the back of weak global cues. But later inroads into the positive territory was on the back of buying in Index heavyweight. For the first time in history Sensex breached the 13400 mark. Market was mainly supported by large cap stocks like Bharti Airtel, HDFC, Zee and Gail. FMCG, Telecom and software sector rallied the market. Selective buying was seen in midcap and small cap stocks. Selling was witnessed in select metals, auto and engineering stocks. Asian Market ended in mix while European Market is trading firm.
Sensex closed up 116 points at 13399. It was helped up by gains in NTPC (137.95,+6 percent), HDFC (1555.45,+4 percent), Bharti Tele (565.1,+4 percent), RCVL (403.5,+3 percent) and Rel Energy (534.7,+3 percent). Restricting the gains are Hero Honda (715.15,-1 percent), Hindalco (181.9,-1 percent), TISCO (497.15,-1 percent), ONGC (871.1,-1 percent) and Ranbaxy (397.35,0 percent).
Talks of some sops for the utilities had NTPC up. HDFC was up on the back of buy notes in US on this Housing Finance Company as banks are finding it tough on their resources. Bharti Tele and Reliance Communication jumped on the back of record growth in users in GSM and CDMA. Reliance Energy had the reverberations of higher rates of usage for Mumbai city. Metals were down as expected on global slowdown fears.. but really the juggernaut is rolling on.
Zee Telefilms closed up 3%. The company has acquired a 50% stake in the Dubai based sports channel Ten Sports for a consideration of Rs 256.5 cr. This strategic movement by Zee states the company's seriousness and belief in the genre of sports broadcasting. The Company has also won bid for all rights to the ICC cricket world cups and tournaments for the next eight years. Zee as off now seems to be the strong player. The fundamentals are strong and with more acquisition the company is playing a big gamble. However the risk is now increased given the increased risk that the company is taking.
As per a leading business daily, Aditya Birla Group flagship company Grasim Industries has signed a memorandum of understanding (MoU) with the Orissa government to set up a cement facility in the state with an investment outlay of Rs 12 bn. The unit will have a production capacity of 3.5 million tonne (MT) a year and a 50 MW power plant, to be commissioned in three years. The expansion intends to meet the demand and supply mismatch in this sector. This expansion will have a long gestation period. However Cement is the good story with better realization and strong growth. So one can invest in this stock with a long term perspective. The stock was marginally up
Reliance Industries, whose fuel retail business took a hit after it hiked rates early this year, has reduced the sale price of petrol and diesel by Rs 2.50 per litre to bring it on par with prices of petro products sold by public sector undertakings. The sale of the petroleum products of RIL have reduced by 90 per cent after the increase in April and may this year. From an average 20,000 litres sale per day it has come down to less than 2,000 litres per day after the increase. RIL has a little over 1,200 fuel retail outlets in the country. Smart move by Reliance in order to maintain profits and now that crude is down again, its back to selling at price at par for the Government owned retailing companies. Reliance at this time prices in lot of positives of SEZ and Retailing already. All new funds coming into the country will necessarily be buyers here. But really as a standalone we are not buyers because earnings predictability is low and cash will be utilised in the new businesses which has increased the risk profile.
Technically Speaking: Market traded firm. The resistance lies at 13491-13451 while supports lies at13328-13246. The volume was good at 3925cr. The breadth has been in favor of Advance, advance was 1445, while decline was 1093. The Market made a high of 13410 and Low of 13287. Expect the market to continue to trade firm.
Performance was good for the day. The BTST call on orchid delivered good gains. The BTST call on Bharti was closed on the same day even this call delivered good returns. There was a couple of good sell calls on VSNL, Reliance. The Sell call on SBI made a marginal loss of 1 Rupee. The Intraday call on Ceat made good profits. Marvelous gain of 10% was made in Tantia. There were calls on Premier Tyres in quickies and Veejay Lakshmi in wow calls..The overall gains were superb for the day. Do read our Track records and subscribe for wow calls, Quickies, Delivery Delights, Day Traders Paradise and BTST calls.
FII: +478.10 Cr & MF+129.87 Cr
FII Gross purchases Rs 2661.60 Cr Gross Sellers Rs 2183.50 Cr Net Buyer Rs 478.10 Cr
MF Gross Purchases Rs 647.41 Cr Gross Sellers Rs 517.54 Cr Net Buyers Rs 129.87 Cr
Provisional figures: Buy Value Rs 1624 Cr and Sell Value Rs 1178.17, Net Value Rs 445.83 Cr.
Strong positive numbers yet again. There were conferences on and that’s the impact Would be interesting to see if the flow continues... now certainly such flows will keep the market buoyant, Provisional figures are very positive. Should help in a strong start tomorrow.
Sharekhan Investor's Eye - Nov 13 2006
3i Infotech
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs244
Current market price: Rs187
On an acquisition binge
3i Infotech has announced an agreement to acquire a 51% stake in the US-based Professional Access with an understanding to acquire the remaining 49% stake over a period of time. Professional Access specialises in the area of providing e-commerce services and solutions to leading banks and financial institutions globally. The company has an impressive customer base that includes reputed names like Goldman Sachs, JP Morgan and CitiBank. It also has presence in the retail vertical.
Jaiprakash Associates
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs800
Current market price: Rs666
Up on expressway
Key points
- The Uttar Pradesh (UP) state cabinet has cleared the Taj Expressway project without any changes and allotted the project to Jaiprakash Associates (JAL).
- JAL will construct a 165km 6-lane access control expressway between Agra and Noida at a cost of Rs6,000 crore. We expect that JAL is likely to fund the project at a debt-equity ratio of 3:1, which implies an equity funding of Rs1,500 crore for the project.
- The construction period will be 5-6 years depending on the land acquisition. The concession period will be for 36 years.
- Around 6,050 acres of land across five locations will be given to JAL by the UP state government on a 90-year lease as the project sweetener. Each location will have 1,200–1,250 acres of land.
- JAL already has 600 acres of land in its possession out of the total 1,200 acres of land to be allotted in Noida. The balance land is expected to be alloted to JAL in next 12-18 months. We believe that out of the 1,200 acres of land at Noida, JAL will sell 300 acres of land to raise the equity component of the project. Consequently, the residual value attributable to the equity shareholders would be from the balance 900 acres of land at Noida.
- We have valued the 900 acres of land at Rs5.5 crore/acre as per the last auction price in Noida, which was won by Unitech in June 2006. JAL’s expressway land at Noida is diagonally opposite this land that Unitech won. Hence, the minimum value of the land would be Rs4,950 crore or Rs210/share of JAL. This is only the value of the land at Noida. We have not valued the entire Taj Expressway project on account of unclarity of traffic projections.
- We have valued JAL on the sum-of-the-parts (SOTP) measure. Factoring in the value of the land at Noida at Rs210/share, the revised SOTP price target works out to Rs800 per share. With a strong order backlog of Rs7,200 crore coupled with the sharp rise in the prices of cement we expect JAL’s consolidated earnings to grow at a compounded annual growth rate (CAGR) of 30% over FY2006-08. At the current levels JAL is trading at 22x its FY2008 consolidated earnings and 10x its FY2008 consolidated earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a revised price target of Rs800.
SECTOR UPDATE
Telecom
Bharti rings the loudest
The upswing in the Indian wireless telephony service industry continues with the addition of a brilliant 6.6 million new users during October (a growth of 5.1% over October 2006). The total user base now stands at 133.1 million. The falling tariffs and lucrative offers by the service providers continue to attract new mobile customers. Both the GSM and the CDMA segment rendered strong performances in the month.
INDUSTRY UPDATE
Strong fund flows strengthen equity AUM
The assets under management (AUM) for equity funds increased by 4.9% to Rs127,943 crore in October 2006. The strong fund flows arising out of new fund offering (NFO) collections aided the equity AUM.
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Strong fund flows strengthen equity AUM
The assets under management (AUM) for equity funds increased by 4.9% to Rs127,943 crore in October 2006. The strong fund flows arising out of new fund offering (NFO) collections aided the equity AUM.
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Citi: Upgrades Satyam to Buy
Citigroup has upgraded its rating on Satyam Computer Services to Buy with a target of Rs 510.
The report said: "We are upgrading Satyam to Buy / Medium Risk (1M) from Hold / Medium Risk (2M) on the back of strong quarterly performance, good top-line momentum and reasonable valuations. Satyam has underperformed sector leader Infosys by 14% and peer HCL Tech by 8% since the start of October.
"Satyam now trades at over a 32% discount to Infosys – which is close to a one-year high. We have upgraded our earnings estimates by 6-7% respectively, and we raise our target price to Rs510 from Rs475 (maintaining our target multiple of 21x FY08E EPS)."
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Indiainfoline - Nitco Tiles
The company is eyeing a turnover of Rs4.5bn in the current fiscal year, and aims to reach the Rs10bn mark in the next three years.
The ongoing strength in the realty sector has prompted Nitco Tiles to augment its overall manufacturing and supply chain in China. After signing its first contract manufacturing tie-up in 2004, the company has now entered into a partnership with the New Zhong Yuan (NZY) Group, the world’s largest manufacturer of tiles. The new deal will ensure uninterrupted supply of vitrified tiles to meet the continuously rising demand for tiles in India.
Nitco Tiles also plans to set up its own showrooms across India. It has already opened 10-15 showrooms. This will reach 100 in two years. It is also planning to enter the wall tiles segment. It will be either through an acquisition or a new facility at Alibaug. The company is also moving into the real estate sector through a 100% unit. It is eyeing a turnover of Rs4.5bn in the current fiscal year, and aims to reach the Rs10bn mark in the next three years.
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Cement Sector Update - November 2006
The bigger price increase of Rs5 after an increase of Rs3 shows the strong expectation of higher demand in the coming months by the Cement producers.
Cement prices moved up again from 1st of November 2006, as monsoon ended and post festive season construction activities started in West and North. Cement prices moved by Rs5 in November. This was over and above the cement price hike of Rs3 in the first week of October 2006. The bigger price increase of Rs5 after an increase of Rs3 shows the strong expectation of higher demand in the coming months by the Cement producers.
Our top picks in the sector are Kesoram Industries, Shree Cement and Ultratech Cement. Kesoram Industries is expected to commence production of cement from its new 1.65 mn ton capacity from mid of December 2006 and with rubber prices stabilizing its tyre margins are also set to improve. We expect Shree Cement to benefit from strong pricing environment and slew of capacity additions in FY07 and FY08. Our re-rating of the stock from HOLD to BUY stems from increase in capacity utilization of its expanded capacity from 107% in September 2006 to 124% in October 2006. We expect Ultratech Cement to benefit from strong prices and reduction in furnace oil and naphtha prices and maintain our BUY rating. We maintain our HOLD rating on ACC.
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Sensex, Nifty strike record closing highs
The market was on the ascent for the second day in a row today. A rally in select blue-chips triggered an over 100-point surge in the BSE Sensex today. It was the second day in a row that the barometer index clocked a triple-digit gain. Strong FII-inflows and a brokerages' revision in earnings estimates, have fuelled the latest bull-run on the bourses.
The 30-share BSE Sensex jumped 116.09 points (0.87%), to settle at 13,399, a lifetime closing high. The BSE Sensex also hit 13,410.08, which is an all-time high for the scrip.
The S&P CNX Nifty rose 24 points (0.63%), to end at 3,858.75, a lifetime closing high.
Select small-cap and mid-cap shares surged in continuation of the recent trend. The last few days have seen a surge in small-cap and mid-cap stocks on a selective basis as their valuations have turned attractive vis-Ã -vis the frontline shares.
The BSE clocked a turnover of Rs 3,925 crore compared to Friday (10 November’s) Rs 4,568 crore.
Expecting the momentum of earnings growth to last, FIIs have stepped up buying. Strong global liquidity has aided the surge in inflows. By the first few days of November 2006, FII inflow has reached Rs 2,237.90 crore (till 9 November). In October-2006, when corporate reported their earnings on the bourses, foreign investors sent in Rs 8,013 crore compared to Rs 4,643 crore in August and Rs 5,428 crore in September. FII-inflow in calendar 2006 stands at $7.14 billion. In calendar 2005, FII inflows stood at a record $ 10.7 billion. For Q2 September 2006, the aggregate net profit of 3,096 companies surged 46.7% to Rs 52,272 crore, a 30.8% growth in net sales (sales include other income for banking and finance firms) to Rs 5,14,841 crore.
In its recent `Greed & Fear’ series, Credit Lyonais Securities Asia-Pacific Markets has said that the rerating of the Indian stock market over the past three years, has been justified by the strong earnings growth. The barometer BSE Sensex is up 42.5% in calendar 2006 so far. The market has soared in the past two years. From 4,644 on 23 June 2004, it has galloped 188.5% in less than two and a half years.
For the Indian economy the report states that since the country is witnessing a secular pick up in growth, time will not be too far when country it will exceed China’s growth rates. The report also states that India could be growing at 9% plus on a trend basis, based on the anticipated strength of the investment cycle, which has very positive implications for earnings growth.
A section of the market attributes the solid surge on the Indian bourses to increasing recognition of India’s long-term growth prospects. India’s growth drivers are a favourable demography (large share of young population), robust domestic consumption and acceleration in infrastructure creation. Prime Minister Mahmohan Singh has promised a complete policy on infrastructure, including regulatory and institutional framework, to make it attractive for private participation in the near future.
The CLSA report, however, accepts that the market is no longer cheap. The Indian market continues to trade at a premium over its regional peers. The premier BSE Sensex trades at a PE multiple of 21.7, based on its trailing 12-month September 2006 earnings.
In today’s trade, Infosys rose 1.2% to Rs 2,165.30. The stock reached Rs 2,170, a lifetime high for the scrip. The stock had firmed up after shareholders recently approved the proposal for a sponsored ADR issue.
NTPC jumped 5.5% to Rs 137.85, while Reliance Energy rose 2.9% to Rs 536.
Cellular services major Bharti Airtel rose 4.6% to Rs 569.10. The stock hit Rs 570, an all-time high for the scrip. Bharti Airtel said on Monday it was roping in Microsoft Corporation, to offer software and other services to small and medium scale businesses in India.
Reliance Communications (RCL) rose 3% to Rs 403.50. The stock also hit Rs 404.40, a lifetime high for the scrip. RCL and state-run BSNL, have entered into an agreement enabling subscribers to access 1-800 numbers or toll free numbers provided by either operator. The toll free numbers help consumers call their suppliers or service providers without incurrring any extra charge.
Housing finance major HDFC jumped 4.6% to Rs 1,565.
Zee Telefilms rose 3% to Rs 341, after it bought 50% stake in Dubai-based Taj Television's Ten Sports channel for an undisclosed sum.
Tata Motors gained 2% to Rs 835. As per reports, Italy's Fiat plans to make Tata Motors' new 1-tonne, pick-up truck at its plant in Argentina. Car major Maruti Udyog rose 0.4% to Rs 912. Maruti is seen benefiting from upgradation by two-wheeler owners as per a recent survey.
HDFC Bank rose 1% to Rs 1,055, and ICICI Bank gained nearly 1% to Rs 840. Private sector banks have been on an upmove following earnings upgrade for FY 2007, by brokerages following strong Q2 results.
Index heavyweight, Reliance Industries (RIL), failed to capitalise on today's rally. The stock was flat at Rs 1,287.15, and fluctuated within a narrow range.
Jaiprakash Associates jumped 5% to Rs 671, extending its recent surge after a court order which paved the way for the company's land development projects.
Forbes Gokak jumped 20% to Rs 565.50, after the company said it had constituted a committee of directors to examine possibilities of restructuring.
Though Blue Dart Express ended flat for the day at Rs 605, it was gripped by volatility. It hovered between Rs 565 and Rs 629.50. Its parent DHL Express has decided not to pursue delisting. The reverse book-building for the purpose of determining the exit price ended on 10 November 2006, and the price determined as per this formula was Rs 950. Although DHL has not specified the reason for not proceeding with the delisting offer, it appears that the parent perceives the exit price of Rs 950 too stiff vis-a-vis the ruling market price (Rs 605).
The price discovery in Blue Dart at Rs 950 much above the ruling market price of Rs 600, lifted another logistics firm Gati. The stock jumped 12.9% to Rs 98.50.
Shree Cement jumped 10% to Rs 1,459.20, extending its recent upmove.
Tyre shares rose on renewed buying. MRF jumped 10% to Rs 4,497.70, CEAT gained 9.5% to Rs 126.80, JK Industries advanced 5% to Rs 128.15, Goodyear India added 5% to Rs 168.70 and TVS Srichakra gained 3.9% to Rs 125.10.
Computer maker HCL Infosystems rose 3.8% to Rs 164.35 after the company secured a Rs 591 crore order from state-run Bharat Sanchar Nigam to provide network facilities for a project.
PBA Infrastructure jumped 10% to Rs 133, after it got orders worth Rs 101 crore for road projects from the Jammu and Kashmir Government.
Oil and gas services company Deep Industries jumped nearly 10%, to Rs 34.85 after it received rig and compression services orders worth Rs 16.50 crore from state-run ONGC.
Software services provider iGate Global Solutions rose 3.8% to Rs 240.75, after it said it had signed a three-year technology services agreement with Radian Group.
Usha Martin rose 4% to Rs 177.05, after the wire rope maker said its joint venture with Germany's Gustav Wolf will start manufacturing tyre beads and expand its steel cord capacity.
Rally propels Sensex past 13400
The market was highly volatile on the first day of the week and remained buoyed by the fall in crude oil prices. The Sensex made a perfect start by commencing firm at 13295, 12 points above its previous close of 13283 and remained extremely upbeat in the second half of the trading session as strong gains in heavyweight, tech, banking and auto stocks lifted the index to a new intra-day high of 13410. The Sensex wrapped up the session with gains of 116 points at 13399, while the Nifty advanced 24 points to close at 3859. However, the other Asian indices like the Nikkei, the Hang Seng, the Jakarta Composite and the Straits Times closed with marginal losses.
The breadth of the market was positive, with the gainers outpacing the losers in the ratio of 1.36:1. Of the 2,626 stocks traded on the BSE, 1,474 stocks advanced, 1,080 stocks declined and 72 stocks ended unchanged. On the sectoral front the BSE TECk index led with a surge of 1.41% at 3380 followed by the BSE Bankex (up 0.82% at 6794), the BSE Auto index (up 0.82% at 5367) and the BSE CD index (up 0.79% at 3289).
Driving the rally, NTPC surged 5.67% at Rs138. HDFC advanced 4.02% at Rs1,555, Bharti Airtel gained 3.88% at Rs565, Reliance Communication surged 3.14% at Rs404, REL soared 2.65% at Rs535, Tata Motors jumped 1.90% at Rs834, Gujarat Ambuja Cements added 1.78% at Rs137, ICICI Bank gained 1.05% at Rs841, Wipro was up 1.03% at Rs542, Infosys added 1.02% at Rs2,161 and HDFC Bank was up 1% at Rs1,055. BHEL, Maruti, Dr Reddy's, TCS, ACC, Grasim, Satyam, SBI, Cipla and RIL also ended in positive territory. However, on the negative side, Hero Honda was a major loser and shed 1.43% at Rs715. Hindalco was down 1.11% at Rs182. Tata Steel shed 1.07% at Rs497 and ONGC closed weaker by 0.89% at Rs871. Ranbaxy, ITC, HLL, Bajaj Auto and L&T ended the day with marginal losses.
Over 1.09 crore GTL Infrastructure shares changed hands on the BSE followed by Shyam Telecom (71.34 lakh shares), Godrej Consumers (35.60 lakh shares), CCS Infotech (32.49 lakh shares) and Facor Alloys (32.23 lakh shares).
Shyam Telecom recorded a turnover of Rs114.33 crore on the BSE followed by Jaiprakash Associates (Rs109.86 crore), Hindustan Zinc (Rs92.00 crore), Reliance Communication (Rs74.97 crore) and RIL (Rs71.92 crore).
Prithvi Information Systems
Prithvi Information Solutions (Rs. 370) The stock has created a solid long-term base in the region of 300-340, which will act as a support zone during any correction. It has the potential to get back to its all-time high of 460 and even surpass it by a wide margin even as the downside is restricted. This makes the risk/reward scenario well in favor of the bulls. Some of the volume indicators hint at possible accumulation by the stronger hands in the last few weeks. A reversal H&S pattern can also be spotted with near perfect features. The daily RSI indicator has reversed from close to the OS line last week and seems to be heading towards the OB zone once again. STRATEGY: Buy in the region of 367-372 with a stop loss below 338 for a short and medium-term target of 405 and 450 respectively.
Support: 349 and 340 Resistance: 384 and 406
Copper tumbles in Shanghai
Copper prices took another tumble on Monday, with most Shanghai futures contracts falling by their daily downside limits as investors fretted over rising inventories, despite an otherwise robust market outlook.
Shanghai copper futures <0#SCF:> fell by their 4-percent daily limit at the opening and failed to recover as a plunge in London Metal Exchange three-month copper
"Copper's starting the week the way it ended last week, in negative territory," a metals trader said.
Most Shanghai copper futures closed limit-down, with the most-active January contract <0#SCF:> dropping to 65,060 yuan ($8,277) a tonne, against 67,450 yuan at last Friday's close.
A weaker U.S. dollar did little to spark interest in London Metal Exchange contracts, with copper for delivery in three months on the LME quoted at $6,850 a tonne.
The contract fell $410, or 5.6 percent to $6,900 in London on Friday after LME stocks leapt 1,625 tonnes to 148,200, up 54 percent from the start of the year.
"Fundamentals for copper still look strong, but the stocks can't be ignored," a second trader said.
China's strong appetite for copper to feed industrial growth has long fuelled copper prices.
Expectations that this trend will continue were underscored by news last week that copper smelters might continue to chase limited supplies of concentrate next year.
Chile's giant Escondida mine, majority owned by BHP Billiton Ltd/Plc
"That tells us that at least BHP thinks smelters are desperate for concentrate," the second trader said.
High copper prices, which hit a record $8,800 a tonne in May, had kept China off the world copper market for months. Imports of copper, including semi-finished products, fell 22.4 percent between January and October as it relied on its own stockpiles.
But with copper prices slumping and domestic stockpiles diminished somewhat, some analysts think China may turn buyer.
"There is no visible oversupply in China's copper market. A strong price rise may appear if buying interests of consumers and investors are prompted by a might-be shortage in domestic physical market," Xue Feng, an analyst at Maike Enterprise Group said in a market note.
Three-month nickel, which zoomed to a record $32,625 on Oct. 20, was up $100 at $29,500 a tonne.
Australia's Western Areas NL
The miner said it wanted to lift output of nickel in concentrate by 5,000 tonnes a year from 12,000 tonnes at its Flying Fox mine as it sees a strong nickel price going forward.
Nickel miners in the far western Australia outback, including Australian Mines Ltd.
Metal Last Net Change Pct Move LME Cu 6910.00 10.00 +0.14 SHFE Cu* 65060.00 -2390.00 -3.54 LME Alum 2705.00 10.00 +0.37 SHFE Alu* 20110.00 -390.00 -1.90 COMEX Cu** 307.75 0.00 +0.00 LME Zinc 4335.00 35.00 +0.81 LME Nickel 29500.00 100.00 +0.34 LME Lead 1675.00 0.00 +0.00 LME Tin 9750.00 -100.00 -1.02
Change so far in 2006
Metal Latest bid End prev year Pct Move LME Cu 6910.00 4395.00 +57.22 SHFE Cu* 65060.00 41720.00 +55.94 LME Alum 2705.00 2276.00 +18.85 SHFE Alu* 20110.00 19360.00 +3.87 COMEX Cu** 307.75 204.20 +50.71 LME Zinc 4335.00 1905.00 +127.56 LME Nickel 29500.00 13500.00 +118.52 LME Lead 1675.00 1051.00 +59.37 LME Tin 9750.00 6475.00 +50.58
Sharekhan Commodities- Wheat: Buy on dips
Wheat futures have been witnessing strong buying at lower levels. Delhi, Uttar Pradesh and Madhya Pradesh have seen good off take. The ports too have not seen much movement of imported wheat. The demand from millers has been good. Due to the wheat stuck at the ports and good demand, the prices are expected to remain firm.
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Market may slip in early trades
A look at how the indices fared at their closes: Sensex 13282.91 (+1.11%); Nifty 3796.40 (+0.51%); Nasdaq 2389.72 (+0.58%); Dow 12108.43 (+0.04%). On Nov 09 2006, FIIs were net buyers of stocks to the tune of Rs 526.90 crore (purchases worth Rs2276.80 crore and sales of Rs1749.90 crore) while domestic mutual funds were net sellers of stocks to the tune of Rs71.06 crore (purchases worth Rs451.52 crore and sales of Rs522.58 crore).
The market may slip initially following overnight fall in European markets and a sharp fall amongst major Asian indices in morning trades. As the overall sentiment remains bullish, the market may overcome early weakness and attract buying support as the trading progresses. On the technical front, the Nifty in the short term could test 3840-3860 range on the upside and has a support at 3790. The Sensex may face resistance at 13385 and could test lower levels at 13240.
US indices were marginally up on Friday as investors took the opportunity of the fall in crude oil prices. While the Dow Jones gained 5 points at 12108, the Nasdaq added 14 points to close at 2390.
Indian ADRs were largely positive on the US bourses. Tata Motors rose over 4%. ICICI Bank and Dr Reddy's were up over 1% each while while HDFC Bank, Satyam and Rediff ended with steady gains. However, VSNL was down by over 2% while Patni Computers, Wipro, MTNL and Infosys were marginally down.
Crude oil prices in the US market fell sharply, with the Nymex Light Crude oil for December delivery falling $1.57 to close at $59.59 a barrel, while the London Brent crude dropped $1.61 to close at $59.71 per barrel. In the Commodity space, the Comex gold for December series dropped $6.70 to settle at $630.10 an ounce.
Indian shares seen slipping on weaker Asia
Indian shares are likely to ease on Monday, tracking weaker Asian markets and as investors consolidate their positions after a record run the previous week.
But the downside is likely to be limited by strong foreign fund flows, which have topped $7 billion so far this year.
Tokyo stocks fell to their lowest level in 1- months on Monday, while weakness in major miners dragged Australian shares lower.
In India, cautious retail investors could depress shares.
"The indices have closed at the upper end of the intraday band and the market breadth and traded volumes indicate strength in the undertone," said Vijay Bhambwani, chief executive of BSPLindia.com.
"But a large portion of the retail segment lacks clarity and conviction in the markets."
India's benchmark BSE index <.BSESN> climbed to a new record close on Friday, off a new peak of 13,303.85 points. The index gained 1.2 percent last week and is up 41 percent so far this year, making it the best-performing index in Asia-Pacific.
Templeton Asset Management's Mark Mobius says the Indian stock market looks expensive in comparison to others, but there are still some bargains to be had for long-term investors. For details, double-click on [ID:nBOM35965].
STOCKS TO WATCH
* Usha Martin Ltd., after the wire rope maker said its joint venture with Germany's Gustav Wolf will start manufacturing tyre beads and expand its steel cord capacity.
* Grasim Industries Ltd., after its plans to invest 12 billion rupees to set up a cement plant with a capacity of 3.5 million tonnes a year in the eastern state of Orissa. For details, double-click on [ID:nBOM150736].
* Binani Industries Ltd., after it said its subsidiary Binani Cement Ltd. has filed initial papers with the securities market regulator for a public offer of shares.
* Suit and apparel maker Raymond Ltd. , after said it would form a 500 million rupee joint venture with Grotto S.p.A. to sell the Italian firm's "Gas" brand in India. For details, double-click on [ID:nBOM133625].
FACTORS TO WATCH
* Indian federal bond report [IN/]
* Indian rupee report [INR/]
* FOREX-Dollar falls again on forex diversification talk [FRX/]
* Oil slips towards $59, traders look to winter,
* GLOBAL MARKETS-Asian stocks, dollar, oil pressured
FII inflow to dictate the trend
A subdued to weak trend in Asian markets may trigger profit taking on the domestic bourses when key indices are at all time highs. Strong FII inflow and revision in earnings estimates by brokerages for companies following strong Q2 results has fuelled renewed surge on the bourses - Sensex jumped 145 points on Friday (10 November) to a lifetime closing high of 13,282.91. Last week, shares of private sector banks were in demand following revision in earnings estimates for FY 2007.
Tokyo stocks fell to a 1-½ month low on Monday (13 November) on worries about the health of the world's second-biggest economy, despite lower oil prices, while a weaker dollar weighed on major Asian exporters. Key benchmark indices in Hong Kong, Japan, South Korea and Taiwan were down by between 0.38% to 1%.
Back home, the open interest in the derivatives segment is on the rise and it may trigger short-term volatility on the bourses.
With expectations that the momentum of earnings growth would be sustained, FIIs have stepped up buying. Strong global liquidity has aided the surge in inflows. By the first few days of November 2006, FII inflow has reached Rs 2237.90 crore (till 9 November). In the month of October 2006, when the earnings poured in, their net inflow totaled Rs 8013 crore compared to an inflow of Rs 4643 crore in August and Rs 5428 crore in September. FII-inflow in calendar 2006 so far has reached $7.14 billion. In calendar 2005, FII inflow was a record $ 10.7 billion.
A section of the market attributes the solid surge on the Indian bourses to increasing recognition of India’s long-term growth prospects. India’s growth drivers are a favourable demography (large share of young population), robust domestic consumption and acceleration in infrastructure creation. Prime Minister Mahmohan Singh has promised a complete policy on infrastructure, including regulatory and institutional framework, to make it attractive for private participation in the near future. The market has soared in the past two years. From 4,644 on 23 June 2004, it has galloped 186% in less than two and a half years.
US stocks were supported on Friday (10 November) by sharply lower oil prices and strong profits from AIG. The tech-heavy Nasdaq Composite Index added 0.58 percent while the blue-chip Dow scraped out a gain of just 0.04 percent.
US crude slipped 4 cents to $59.55 a barrel, extending Friday's 2.6 percent slide after the International Energy Agency, a consuming countries' watchdog, reported a sharp rise in stockpiles for top consumers and forecast a decline in the world's need for OPEC crude.
Stocks you can pick up this week
Reliance Industries
Research: Enam Securities
Recommendation: Outperformer
CMP: Rs 1,286.25 (Face Value Rs 10)
12-Month Price Target: Rs 1,400
Reliance Industries (RIL) has filed a revised development plan with the Director General of Hydrocarbon (DGH) for the key KG-D6 block. In the amended plan, RIL has sought approval for 80mmscmd of gas production and has proposed proportionate increase in the capex.
Based on independent assessment, RIL expects the P2 (proved + probable) reserves at 11.3 TCF. This represents an almost 100% increase over earlier estimates. The management has not indicated the quantum of P1 reserves as of now, but it is expected to be around 6TCF (as per the filings of Niko Resources- RIL’s JV partner).
The management is likely to share details once the revised plan is approved by DGH. Enam believes the filing of revised development plan for KG-D6 is a significant event and strengthens the outlook on RIL’s new business initiative. Going ahead, improving policy outlook on gas pricing and achievement of project milestones will align RIL’s E&P valuation multiples to its regional peers.
Mangalam Cement
Research: India Infoline
Recommendation: Buy
CMP: Rs 204 (Face Value Rs 10)
12-Month Price Target: Rs 297
Mangalam Cement (MCL) has performed strongly, wiping out its accumulated losses in FY06. The strong demand for cement in the domestic market coupled with firm cement prices is expected to bring rich rewards for the company in the next 18 months. MCL is putting up a 17.5-mw captive power plant, which is expected to go on steam by June ’07.
MCL is also adding 0.5 million tonnes of new cement capacity to take its total production capacity to 2 mt by September ’07. The stock is trading at EV/tonne of $70 of its FY08 capacity of 2 mt. On EV/EBIDTA basis, it is quoting at 3.9 times, while on an EPS basis, it is trading at 5.6 times.
With improvement in the balance sheet and operational efficiencies, India Infoline feels the stock is undervalued and recommends a ‘buy’, with a target of Rs 297 within a year. The target price discounts estimated FY08 earnings by 8.0x and EV/EBIDTA by 5.5x.
KEI Industries
Research: ULJK Securities
Recommendation: Buy
CMP: Rs 361 (Face Value Rs 10)
12-Month Price Target: Rs 403
Kei’s revenue growth is strong for FY07, with an overall sales growth of 85%. Cables sales are expected to grow by 90%, stainless steel wire by 48%, winding flexible and house wire by 80% and others by 25%. Last year, KEI generated revenues worth Rs 23.5 crore through exports, of which Rs 10 crore accrued from the Gulf region.
The company is in the process of integrating backwards by setting up an aluminum properzi and PVC compounding plant, which is likely to be operational in six months at a capex of Rs 7-10 crore. This will strengthen the operating margins by reducing the cost of the company by Rs. 4-5 crore.
KEI plans to undertake a greenfield expansion with capex of Rs 180 crore in Uttaranchal in FY08. With the management’s above plan for capacity expansion and backward integration, KEI is set to enter higher growth orbit. ULJK estimates the fair value of the company at Rs 403 and expects the company will trade at a P/E of 7.9 times within 12 months.
KRBL
Research: BRICS PCG
Recommendation: Buy
CMP: Rs 143 (Face Value Rs 10)
12-Month Price Target: Rs 267
KRBL has posted a revenue growth of 28.4% y-o-y to Rs 230 crore during Q2 FY07 due to better volumes and higher realisations on both domestic and export sales. Higher sales led a 52.5% y-o-y rise in operating profit to Rs 31.46 crore, which expanded the operating margin to 13.8% compared to 11.6% in Q2 FY06.
Net profit stood at Rs 15.12 crore, registering 88% growth. The company plans to launch its own brand of rice bran oil in consumer packs by December ’07. It commissioned a 12.5-mw wind farm in August ‘06 at Dhulia, Maharashtra, and is planning a 3.5-mw power plant in Ghaziabad for captive consumption.
This will lead to power cost savings of around Rs 5 crore each year. BRICS maintains a ‘buy’ call on the scrip, but lowers its target price to Rs 267 from Rs 301 earlier, considering that the company’s integrated milling plant in Dhuri, Punjab commenced operations only in October ’06.
Taj GVK
Research: Pioneer Intermediaries
Recommendation: Buy
CMP: Rs 241 (Face Value Rs 2)
12-Month Price Target: Rs 325
Taj GVK Hotels & Resorts (TAJGVK) reported a jump of 38% in revenues to Rs 57.9 crore in Q2 FY07, on the back of higher average room realisations (ARR) and steady occupancy rates (OR) in Hyderabad. The average ARR across the three hotels of the group in Hyderabad at Rs 7,635 was higher by 41% y-o-y, while ARR in Chandigarh was ~Rs 6,000.
TAJGVK’s capital charges in Q2 FY07 remained stable y-o-y. While the interest burden stood at Rs 1crore in the quarter, against Rs 90 lakh last year, depreciation was static at Rs 3.2 crore. Net profit for the quarter rose to Rs 15.2 crore from Rs 9.4 crore in Q2 FY06 (+62% y-o-y). TAJGVK has commenced work on its 200-room, greenfield property in Begumpet in Hyderabad and is set to commission its 215-room property in Chennai by June ’07.
At the current market price, the stock is trading at a P/E of 19.1x its FY08 EPS of Rs 12.7. Pioneer Intermediaries makes its case for investment on the back of stability and visibility in the company’s earnings over the next 18-24 months, due to absence of significant room addition in Hyderabad and on account of potential upside in revenues from the Chandigarh property.
Spanco Telesystems
Research: Emkay Share
Recommendation: Buy
CMP: Rs 171 (Face Value Rs 10)
12-Month Price Target: Rs 217
Spanco Telesystems announced a robust set of independent results after the demerger of Sparsh — its domestic call centre business. The results are not comparable as Sparsh was not part of company in Q207. The total revenues of the company in Q207 were Rs 121.7 crore.
Telecom network integration business has surprised with total revenue of Rs 113.1 crore in Q207 compared to Rs 20.5 crore in Q206. EBIDTA for the quarter stood at Rs 16.6 crore, up 85% over the preceding quarter and PAT stood at Rs 9 crore. EPS for Q207 and H107 stands at Rs 5.7 and Rs 8.6, respectively.
Emkay Share expects the company’s PAT to be Rs 37.4 crore for FY07 and Rs 66.7 crore for FY08. Emkay values the listed entity at 9x FY07E EPS of Rs 24 or 5.2x FY08E EPS of Rs 42 and put target of Rs 217. Sparsh will be listed in due course with an expected target of Rs 47 (12x FY07E EPS of Rs 4).
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