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Wednesday, December 27, 2006

Sharekhan Investor's Eye dated December 27, 2006


New Delhi Television
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs260
Current market target: Rs230

Not quite the ugly duckling

Key points

  • New Delhi Television (NDTV)'s performance on the bourses has remained sluggish over the last few months due to increased competition and the company's unimpressive Q2FY2007 results.
  • While the other media companies like Zee Telefilms and Television Eighteen India (TV18) have soared on catching the investors' fancy, NDTV has lagged behind in the last three months. If we compare the market capitalisation to sales (Mcap/Sales) of the major media companies, we find that the gap between the valuation of these companies and that of NDTV is alarming. This leads us to believe that the market's reaction to NDTV's non-performance is overdone.
  • NDTV has two potential triggers. One, the demerger of Zee News and the listing of Global Business News (GBN), which would provide better valuation comparables. Two, a new business model that would provide more clarity about the news business, leading to improved valuations.
  • We see merit in NDTV's media property and evolving business model, and continue to maintain a Buy on the stock with price target of Rs260.

SECTOR UPDATE

Pharmaceuticals

Ondansetron: Impact on Indian players
Subsequent to the expiry of the Ondansetron patent on December 24, 2006, Dr Reddy's Laboratories (Dr Reddy's) got the marketing exclusivity for tablets while Wockhardt got the generic approval for injection. The impact of the developments has been discussed.

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Indian economy is not overheated


A vast majority of the country’s top CEOs and CMDs feel India has the capacity to absorb 8-9% growth for a long period

A vast majority of 74% of the country’s top CEOs and CMDs feel that the fast-growing Indian economy is not overheated and has the capacity to absorb 8-9% growth for a long period, provided the supply side is managed well and domestic saving encouraged. The ASSOCHAM Business Barometer (ABB) did a quick survey of 280 CEOs and CMDs from different segments of the industry and financial market and posed them a straight question: Is the Indian economy overheated?

As many as 74% of them said while inflation has remained an area of concern for the government and the policy-makers, it would be far- fetched to come to the conclusion of stating the economy was too much stretched. However, as many as 69% of the CEOs and CMDs polled by ABB survey said a continuous caution was required so that macro-economic stability was maintained to support pick up in investment and growth on a sustained basis.

"Most of the inflation related problems arise because of supply issues related to commodities like wheat and pulses. The answer lies in increasing the productivity and the output of the essential commodities by increasing investment in agriculture", ASSOCHAM President, Anil K Agarwal said.

He said the ASSOCHAM agreed with the forthright views expressed by Prime Minister Manmohan Singh stating that the dismal state of affairs in agriculture cannot be allowed to continue. The root of the inflationary problem lies in the hardening of primary commodity prices. According to official figures, the contribution of the primary articles with a weight of 22.03% in the WPI basket was 28.8% in the 34 weeks until November 18. Within the primary products, a major contribution to inflation was made by cereals; pulses; potatoes, milk, condiments and spices and minerals.

Over 88% of the respondents of the Survey said while in the short-term, the supply of the primary products could be augmented by measures like reduction in customs duty, the answer lies in improving production of these essential commodities by giving a boost to agriculture.

Investment and focused attention in agriculture would not only help the distressed farmers but would also improve the supply side of essential commodities so that the critical question of food security is addressed. "India should again become self-sufficient in food products", the ASSOCHAM President said. While the overall growth in the first half of the current financial year has been 9.1% , agriculture has remained subdued with average growth of 2.6% in the last eight quarters.

21% of the CEOs and CMDs included in the ABB survey did express fear of the economy getting overheated. They argued that besides the mounting problem of inflation , the mis-match between the investment and savings could lead to the problem of overheating. They said it was critical that the country’s fiscal deficit is curbed so that the resources can be better utilized for augmenting production and supplies rather than the money going into non-productive and non-Plan expenditure.

An overwhelming response emerging from the ABB survey was that the Indian economy is not growing beyond its potential . As many as 79% of the CEOs said it would be wrong to state that the 8-9% growth could be straining the country’s labour force and capital stock.

According to the Mid-Year Review of the Finance Ministry, even the current account deficit was not a matter of concern at the present moment. It quoted the Committee on Fuller Capital Account Convertibility indicating that a current account deficit to GDP ratio of 3% could be comfortably financed . The argument was confirmed by the Approach Paper to the 11th Plan While 24% of the respondents said that the RBI measures to curb excess liquidity was a welcome move, the majority of them said the central bank should not do anything that can stunt growth.

Over 89% of the respondents said they saw interest rates further going up and this would have an adverse impact on the industrial growth. The RBI should strike a balance between the growth and inflationary expectations, they said.

SKP Research - Deepak Fertilizers


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Sharekhan Eagle Eye (equities) & Derivatives Info Kit for December 28, 2006


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Angel - GMDC


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Asit C Mehta - ABG Shipyard


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Thanks Ashis

Asit C Mehta - Patel Engineering, Alstom Projects


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Tanla Solutions Allotment


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Emkay - I-Gate


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Thanks Sulagna

Sukhani not very upbeat on Dr Reddy's Lab


Technical Analyst, Sudarshan Sukhani not very upbeat in the short-term in Dr Reddys Laboratories .

“Dr Reddy’s has been a favorite and for the pharma sector as such I have always been a little inclined towards that but Dr Reddy’s charts are not at all good. For last 10-15 days its making patterns that are suggesting a state of complete confusion in the chart; now bullish patterns don’t usually start in this way. So many other opportunities in the market, investor might like to switch to some other better stock - IT or even autos or something else. I am not very upbeat in the short-term in Dr Reddy’s."

Invest in bank stocks


Rajesh Jain of Pranav Securities is of the view that banking space becomes focus for investment.

Jain told CNBC-TV18, "The banking group gave a tremendous opportunity because it was the CRR trigger, which took the markets down and creating tremendous opportunity for buying afresh into the banking space whether it is the leaders or the second rung private and public sector banks or even the smallcaps within this space. So I think it is come back with a vengeance as far as investing in the banking portfolio is concerned."

He further added, "If one looks at the fundamentals there the NIM ought to expand because the lending rates tend to go up faster than the deposit rates, when the interest rate scenario looks upward. So the NIM should look great for the quarter that is just getting over and going forward also the margins for the banking sector would look very upbeat. One couple that with sustained credit growth; corporate credit and retail credit growth has been good and now with the news of agricultural growth coming back on track, it would not be surprising to see even the priority sector lending portfolios looking good. And then one also has the restructuring possibilities just ahead of the budget, expect some smart give aways or restructuring announcements in the budget, so the baking space becomes focus for investment."

"In IT one had some question marks on the rupee appreciation vis-à-vis a dollar, which is perhaps held back by purported slow down in the US economy but aside of that if one look at everything else the recruitment numbers, the volume, the traction in terms of new orders, the restructuring, the acquisitions and whether it is the largecap big four or whether it is tier II, tier III companies, there is tremendous expectation from the numbers and I presume some sort of build up ahead of the first IT numbers from BFL or Infosys in the first 10 days of next month is already started. And like I said, the fall in December has created very good buying-in-zones for various levels of investors and traders."

Remain invested in Sonata Software


Technical Analyst, Hitendra Vasudeo is of the view that one should remain invested in Sonata Software and book partial profit at Rs 74 level.

Vasudeo told CNBC-TV18, "If one has already invested in, he can remain invested at Rs 58, maybe near Rs 74, which is the recent high where one can look for booking partial profits around that Rs 74 or so. But the moment it starts maintaining above Rs 70 whenever in future it can generate a potential to move towards Rs 99 plus area. So on the whole one can remain invested in the stock."

Century Textiles has target of Rs 818


Anil Manghnani of Modern Shares & Stock Brokers is of the view that Century Textiles and Industries has target of Rs 818.

Manghnani told CNBC-TV18, "Century Textiles and Industries is a pretty good one. It has broken out yesterday again. Rs 702 were the previous stop for the stock. It has made a new high, which in this market, any stock making new highs seems to really propel further ahead. I think now it has headed towards Rs 950-960 levels, but one will get enough trading targets. The first trading target would be around Rs 739 and then about Rs 818."

Stay away from LML: Vasudeo


Technical Analyst, Hitendra Vasudeo is of the view that one should stay away from LML as it has never been favourite.

Vasudeo told CNBC-TV18, "LML has never been any kind of favourite, this query has been asked many a times, right from Rs 15-20 and right now till Rs 10. If Rs 1-2 spread here and there its okay but nothing major is going to happen. Purely from a trading angle it can move upto Rs 13.50 or something like that but then much better stocks are available rather than to looking in this stock."

Buy BSEL Infra: Vasudeo


Technical Analyst, Hitendra Vasudeo is of the view that one can buy BSEL Infrastructure.

Vasudeo told CNBC-TV18, "After a long sideways movement BSEL Infrastructure is showing some signs of an upward movement. It has taken support on the 200-day moving average. It has crossed its lower top of Rs 58.70. So I think it is heading towards Rs 70 and if it is able to cross Rs 70 then we are into a very strong upmove. But till then we could expect a range bound movement of 270 or maybe on a downside on a 50-55. On the whole one can be on buying side. It looks to be heading up from hereon."

Exit TV 18 at current levels


Rajen Shah of Angel Broking is of the view that TV 18 has run-up a lot so investors can exit at current levels.

Shah told CNBC-TV18, “TV 18 has run-up a lot; no doubt the company is doing pretty well as all the channels are doing well -CNN-IBN, which was launched about a year ago is also doing substantially well, so the future is very good. But the stock has run-up a lot so I would rather exit the stock at the current levels and maybe wait for a good correction in the stock or maybe even switch over to NDTV, which looks compelling at the current levels."

Disclosures: Analyst holds NDTV, Zandu as well as some multinational pharma companies.

Book some profits in TV 18


Technical Analyst, Sudarshan Sukhani is of the view that it is time to take some profits in TV 18.

Sukhani told CNBC-TV18, “In TV 18, assuming that the price is somewhere around Rs 1200-1300 for the earlier scrip. Now this is a good time to take some profits."

Disclosures:Analyst is long in the Nifty and owns some midcaps.

Close: Northbound journey continues...


It was again a firm start with market continued from where it ended yesterday. Sensex consolidated the gains made in the early session and then traded ranged through out the day. Global cues helped the Indices to trade in the positive territory. In the last hour of trade some profit booking was seen as Sensex once above 13,900 ended well below that. Buying was also seen in Small and Mid caps. Banking, Energy, FMCG, Telecom and Technology sectors were in favour of the investors. Asian indices ended firm while Europe traded firmly.

Sensex ended up by 151 points at 13859.69. It was helped up by gains in Satyam (492,+3 percent), Tata Motors (906.85,+3 percent), HDFC Bk (1056.9,+3 percent), ICICI Bk (894.45,+3 percent) and Guj Ambuja (141.85,+2 percent). Restricting the gains are ONGC (873,-2 percent), Hero Honda (744.4,-1 percent), HLL (219.55,-1 percent), Rel Energy (524.75,-1 percent) and BHEL (2326.8999,0 percent).

Nagarjuna Construction Company bagged three new orders aggregating to Rs 370 Cr. The first order valued at Rs 282 Cr is from Additional Chief Engineer Ajmer, Bisalpur for water supply at Ajmer in Rajasthan. The project completion period is 24 months and operation and maintenance period is for five years. The second order valued at Rs 65 Cr is received from Sahara India Commercial Corporation for construction of 72 villas at Amby Valley city near Pune. The project completion period is 18 months. The third order received from chief engineer of military services, Chandigarh for augmentation of water supply of Ambala Cantt. is worth Rs 23 Cr. The project will be completed within a span of 24 months. The stock ended 3.4% up on the news of the orders bagged.

Reliance Communications Ltd reported that a meeting of the equity shareholders of the Company will be held on January 27, 2007 for the purpose of considering the approval with or without modification the Scheme of Arrangement between the Company (First Demerged Company) and Reliance Telecom Ltd (Second Demerged Company) and Reliance Telecom Infrastructure Ltd (Resulting Company) (the Scheme). Value unlocking seems to be the mantra of the markets. The big event for Reliance Communication is the probable acquisition for Hutch which seems to have got into a bidding war which is not positive. Business however is fantastic in terms of growth but valuations that reflect more. The stock ended 2% up.

Technically Speaking: Market was trading in a ranged manner. Sensex rallied between the channels of 13734 ? 13911 level. However, the breadth had been in the favor of Advances as they were 1.06 times the Decliners. As per Elliot Wave theory Market is trading in ?B? wave in which the internal structure of ?B? wave is of an irregular pattern. To maintain the Bull run, Market has to sustain 13780 level if it does then 14180 level could be witnessed but if it doesn?t the 13300 level could be seen.

Cairn now faces allotment hitch


The allotment of Cairn India (CIL) shares could face a temporary roadblock. This follows the registrar to CIL’s recently concluded IPO, Intime Spectrum Registry (ISRL) being restrained by a court in Kolkata from signing any new contract or acting in furtherance of any contract after August 18, 2006.

CIL is expected to file its basis of allotment with the Registrar of Companies (RoC) on December 29, 2006 and make its debut in BSE in January. Cairn’s director, communications, David Nisbet said, “We are comfortable with this and believe that the issue would be sorted out in due course.”

Industry sources believe that ISRL is likely to file a petition in the Supreme Court seeking a stay on the courts order so that the process of share allotment of Cairn’s IPO may not be affected. Merchant bankers are of the view that this is more of a regulatory issue than a company issue.

Said an advisor to the IPO, “Cairn is not the only IPO handled by ISRL. There are over 30 issues handled by ISRL after August 18. The BLRMs were not aware of these developments. We are trying to workout the issue.”

The court order of December 21, 2006, comes in wake of a suit filed by MCS Ltd, a share registry firm, where MCS has alleged non-compliance of agreement by ISRL that it entered with MCS.

Cairn had raised $1.18 billion from its IPO, which closed on December 15, at a bottom end of its price band of Rs 160 per share. This was after a getting a very lukewarm response from the investors mainly because of concerns over valuation and upliftment of the crude in Rajasthan. With this the company will have a market capitalisation of $6.32 billion, instead of $7.5 billion (if the company is valued at upper end of price band at Rs 190 per share). Cairn will also have to return around Rs 350 crore to the private equity investors for pre-IPO placement done at Rs 176 per share.

Sensex remains invincible


The market lived up to the promise it showed at the start of the session, the Sensex hitting an intra-day high above 13,900, at 13,911.59, in the late-afternoon session. Traders attribute today’s rally to short-covering ahead of an expiry of the December futures contracts tomorrow (28 December 2006).

The 30-shares BSE Sensex settled 151.35 points higher, at 13,859.69. It had opened with an upward gap at 13,734.01, as buying continued following a 237-point surge in the previous session (Tuesday). Its low for the day was 13,734.01. The Sensex has advanced 519.48 points in four straight session from a close of 13,340.21 on 20 December 2006.

The S&P CNX Nifty rose up 33.75 points, to 3,976.75.

The total turnover on BSE amounted to Rs 3,637 crore, as compared to Rs 3,045 crore on Tuesday (26 December).

The market-breadth was strong on BSE, with 1,358 shares advancing compared to 1,263 that declined. Interestingly, the advancers to decliners ratio is falling, an indication of pressure growing on small-cap and mid-cap stocks. A substantial 82 shares remained unchanged. The BSE Small-Cap index closed at 6,839.36, up 33.80 points (0.5%), while the BSE Mid-Cap index rose 46 points (0.8%), to 5,744.10.

Among the 30-Sensex pack, 23 advanced while the rest declined.

IT stocks witnessed renewed buying. Satyam Computers was the top gainer, up 3.24% to Rs 492, on a volume of 8.67 lakh shares.

Infosys Technologies rose 1.65% to Rs 2,256.05. As per media reports, Infosys is in talks with ten international banks for offering them Finacle, its banking software. The reports say big deals are likely in a couple of months. The company foresees big opportunity in the software replacement market in the US and Europe, apart from plans to enter the Latin American market. The company announces its Q3 December 2006 results on 11 January 2007.

TCS (up 0.15% to Rs 1192), Hexaware (up 4.64% to Rs 195), HCL Technologies (up 0.55% to Rs 621), and Wipro (up 1.78% to Rs 608) were the other gainers. Analysts’ expect these to post robust quarterly results.

Dr Reddy’s Laboratories (DRL) ended just 0.23% higher, at Rs 804, on a volume of 2.58 lakh shares, after surging to a high of Rs 840 in early trade. The drugmaker said the US FDA had approved its ondansetron hydrochloride tablets, the generic equivalent of GlaxoSmithKline’s Zofran, an antiemetic that prevents nausea and vomiting caused by chemotherapy and anaesthesia.

State Bank of India edged up 0.13% to Rs 1,247.50, after it announced a 50 bps hike in prime lending rate to 11.5%. SBI’s board met in Kochi yesterday and hiked the benchmark prime lending rate (PLR) by 50 bps to 11.50%. The hike comes into effect from today itself. As a result, home loans, corporate borrowings as well as personal loans by the PSU bank are set to become costlier.

Reliance Industries (RIL) was up 1.43% to Rs 1,296, on a volume of 8.61 lakh shares.

ONGC was the top loser, down 1.59% to Rs 874, after it went ex-dividend. The oil exploration PSU had announced an interim dividend of Rs 18 per share.

EIH settled 6% higher at Rs 109.80, after touching an intra-day high of Rs 114.90 following a block deal of 15.2 lakh shares on BSE, at Rs 111 per share. The scrip saw total volumes of 21.04 lakh shares.

TV 18 settled at Rs 611 on 39.72 lakh shares following a scheme of arrangement. It debuted on BSE at Rs 600, and moved in a range of Rs 500 – Rs 652.90.

Sesa Goa lost 1.34% to 1,390, after the company said there were no plans by Mitsui & Co to offload its stake in the iron-ore exporter.

i-flex Solutions gained 3.75% to Rs 2,017, after the company said all shares tendered in the open offer, which closed on 23 December 2006, will be accepted.

Gail surged 3.80% to Rs 268, amid reports that the petroleum ministry had extended the 7-year tax-holiday for the company.

Triton Corporation gained 4.69% to Rs 33.50, after its board cleared the a proposal to acquire a business process outsourcing firm, Maple eSolutions, for an undisclosed sum.

Punjab Tractors surged 8.87% to Rs 253.50, amid reports of M&M and Tafe eyeing Actis’ 29% stake in the company.

Nagarjuna Construction shot up 3.36%, to 204.55, after it secured three fresh orders valued at Rs 370 crore.

Component maker IST was locked at the upper limit of 5%, at Rs 396.10, on plans to sell two wholly-owned subsidiaries. As per a communique issued to the BSE, IST’s board of directors will meet on 30 December 2006 to consider a proposal for offloading the company’s stake in IST Steel & Power as well as Neil Builders.

Maharashtra Seamless gained 4.06% to Rs 478, after it said it had bagged a Rs 474 crore order for supplying seamless casing pipes to ONGC.

The Indian rupee rose to its highest in more than nine months, as banks and companies sold the dollar for a higher-yielding rupee due to a cash crunch in the domestic banking system. The partially convertible rupee was at 44.32/44.33 per dollar, a level it last tested on 6 March 2006, 0.25% higher than the previous closing of 44.44/44.45 per dollar on Tuesday.

The Nikkei share average rose to its highest in more than seven months on Wednesday, gaining 0.31% as shares of Toyota Motor Corp gained after a report that its chairman met the chief executive of Ford Motor Co, the first step towards striking a potential partnership. The Nikkei was up 53.96 points, at 17,223.15, its highest since early May.

As per provisional data, FIIs were net sellers of equities worth Rs 210.28 crore on 26 December 2006. The benchmark BSE Sensex rallied 237 points (1.76%), to settle at 13,708.34 that day.

The US market ended higher on Tuesday. The Dow Jones industrial average ended 27.48 points, or 0.22%, higher at 12,370.70. The Standard & Poor's 500 Index was up 4.35 points, or 0.31%, at 1,415.11, while the Nasdaq Composite Index was up 6.36 points, or 0.26%, at 2,407.54.

Oil futures plunged over a dollar to less than $61 a barrel on Tuesday, extending losses last week, as a mild weather in the US curbed demand for winter fuel. The slide wiped out early gains driven by worries Iran might disrupt oil flows in response to UN sanctions. US crude fell $1.56 to $60.85 a barrel by evening, while Brent crude dropped $1.54 to $60.88 a barrel.

How Warren Buffet made his billions


Warren Buffett is a man who has made millions but he also started working at his father's brokerage when he was 11 years old, that's an age when most other kids were playing hide-n-seek and didn't know how to spell 'brokerage'.

This financial wizard is by recent estimates, worth $46 billion but how he got there is the fascinating story.

It all began in the family grocery store back in Omaha. Buffett's great grandfather started the store in 1869 and it was in the Buffet family until 1969, till his uncle finally retired. But it's at this store, where he began going around his neighbourhood selling gum. This was before his stint at his father's firm.

Warren Buffett told CNBC's Liz Claman, "My grandfather would sell me Wrigley's chewing gum and I would go door to door around my neighbourhood selling it. He also sold me six Coca Cola for a quarter and I would sell it for a nickel each in the neighbourhood, so I made a small profit. I was always trying to do something like this."

From small beginnings come bigger things and so after selling gum, soft drinks and working with his father, by age 14, he had bought a 40 acres farm in Washington, Thurston County.

But he confesses that he never enjoyed the farm as much as he enjoyed investing in stocks. But the first stock he bought was "Citi Service preferred stock. I had three shares and made all of $5 on it. I had bought it at $38.25 and then I sold it around $40, it went down to $27 in between and after I sold it at $40, it went to $200!"

From that poorly timed stock sale in 1944, he learnt a lesson that became his legendary investment strategy - which is essentially - patience pays, so buy them and hold them. He figured out two other critical things about himself in the 1940s - what he is good at and what he likes to do.

This pivotal moment in his journey came in 1956, when he was just 25 years old. This man who was rejected by Harvard and now armed with contributions from family and friends and $100 of his own money starts a limited partnership with seven people.

Over the next nine years, Buffett turned a $105,000 into $26 million - a stunning 24,000 per cent increase! He had invested mostly in textile companies, farm equipment manufacturers and even a company making windmills.

Thirteen years later, Buffett forms another partnership that becomes one of the greatest teams in the history of investing. He convinces longtime friend Charlie Munger to quit his investment partnership to join Buffett as his Vice President of Berkshire Hathaway.

And now with the 82-year-old Munger, Buffett sits on top of the greatest holding companies ever.

So, it's understandable that this man is looked up to for investment and business advice all the time. But what's the secret gift he's got? How does he pick the right investments all the time? He explains, "I look for something that I can understand to start with, there are all kinds of businesses I don't understand."

"I don't understand what car companies are going to do 10 years from now, or what software or chemical companies are going to win/do ten years from now but I do understand that Snickers bars will be the number one candy company in the US - like its been for 40 years. So, I look for durable competitive advantage and that is hard to find. I look for an honest and able management and I look for the price I'm going to pay."

While Buffett's big acquisitions have made headlines; wise investments in companies like Coco Cola, the Washington Post and Gillette have provided the capital to make those acquisitions possible. Since taking control of Berkshire in 1964, the company has acquired 68 subsidiaries. In March of 1964, Berkshire acquired its first insurance company National Indemnity.

In 1972, See's Candies for $25 million, in September of 1983, Nebraska Furniture Mart and Borhseim's in 1989. In 1998, Berkshire acquired Dairy Queen and Geico in January, Net Jets in August and General Re Corp in December. In April of 2002, Fruit of the Loom and most recently Buffett is looking abroad for new business.

Recently, he bought 80 per cent of the Israeli Metal Works Company and he did it without even seeing it. He was approached by the promoter via a letter and what was in that letter convinced him that 'this was the kind of the person I wanted to do business with and it is the kind of business we wanted to own.' How does this 'daring bit of investment fit in with his usual careful way of investing?

He explains, "I had to size up the business but that's a background of being in stocks. If you put your whole net worth in stocks when you are 20-21 years old - you have not visited the businesses but you are really analyzing their financials, you are trying to assess whether they have durable competitive advantage, assess the quality of the management and the integrity of the management and then you try to figure out whether you are buying it at a reasonable price and that's it, that is all we do."

He's never had anything lacking - his acute business brain has made him a lot of money. He also feels that the youth of today are living better than John D Rockefeller. His own style remains the same - he lives in the same house for 48 years, carries no cellphone, has no computer on his office desk, does not move around with an entourage.

As he puts it, "I have had everything I wanted all my life. At 20, I was having the time of my life doing what I did. Today, I'm eating the same things I always eat - burghers, fries and cherry coke. Only my clothes are more expensive now but they look cheap when I put them on!"

At 76, he married his long-time companion, Astrid Menks at a low-key ceremony at his daughter Susan's house. He is also amazingly healthy for someone on a burghers-coke diet. He's also surprisingly down to earth. He moves around freely unencumbered by a security detail. He does have a few guards with him during the annual shareholders meeting but he says he doesn't feel the need to put himself in a cocoon.

Which probably explains, why he wasn't nervous about visiting a factory in Israel, which is close to the Lebanese border. He says of that visit, "Our plant there is about 8-10 miles from the Lebanese border and there were maybe a rocket or two that hit the parking lot or something like that but it can be dangerous being in this (US) country as well."

Buffett is comfortable in Omaha in part because people leave him alone with the exception of a random fan or two. This billionaire doesn't even have a chauffeur - he drives himself around in a 2006 Cadillac DTS, recently purchased after he auctioned off his old Lincoln Town Car, which was famous for its Thrifty license plate. And no, he does not want a yacht or many mansions. He just wants to be left alone to enjoy a good football game in his sweatsuit on a big screen television - with popcorn.

It's really no surprise that America's most prominent investor chooses to live far from the nation's wealthy-elite in New York, Los Angeles, Chicago and Miami. He says that when he was in New York, he had about a 100 ideas about where to invest but it was over-stimulation.

In Omaha, he needs one good idea in a year and he feels he can think better and with less distraction. He feels there is a sense of community in living there.

His investing theories have been talked about ad nauseum by almost every business/finance writer and is a cottage industry all by itself.

But one he finds closest to reflecting his views is a book written by Larry Cunningham - 'The Essays of Warren Buffett - Lessons for Corporate America' is required reading in a one of a kind course start at the University of Missouri School of Business.

The course is called Investment Strategies of Warren Buffett. It turns up Buffett is hot on campus too. The class now in its eighth year and is the brainchild of Buffett's friend Harvey Eisen.

Harvey Eisen recalls, "This course is a breakthrough in terms of reality meeting academics. I said why don't we have a course like this and the academics scratched their head and said 'well we don't' and I said 'why don't we' and then we got it done."

Dean of the University of Missouri School of Business Bruce Walker bought the idea. He says, "We want our students to be exposed to many different approaches to investing."

The Buffett playbook is taught, analysed and written about but it is best summed up like this.

Harvey Eisen explains it, "Number one - Don't lose the money and number two - don't forget rule number 1! Number three - look for unique companies that are hard to replicate - he calls that a moat around the business. Number four - he talks about the circle of competence, which means in simple English, do what you know.

"Everybody in the stock market knows about the economy or about the Federal Reserve. Warren focuses on what he knows and he has made enormous successes at that."

He does not want his managers to report in at any committee meeting of any kind and he lets them get on with the business of running their businesses. But there is one thing he requires of each CEO. Buffett says, "I asked them to send me a letter, that I would keep in a private place that will tell me what to do tomorrow morning, if they are not alive in terms of their successor."

But what about his own successor? He says, "The succession plan is very simple. Our board met a few days ago and we talked about that every in single meeting and we have at least three people inside Berkshire, who in many respects will do my job better than I do. I can't give you the names but the board knows which one of those three they would pick, if something happened to me."

Warren Buffett has also given away $31 billion of his fortune to the Bill & Melinda Gates Foundation and he 'hopes it will accomplish just what they have set out to accomplish. I have observed their Foundation very carefully and Bill & Melinda decided initially they were spending about a billion a year. They have decided they were going to try and figure how they are going to save most lives, relieve the most human suffering.'

Ultimately, that's what money is really meant for, isn't it?

Market on a roll, 151 points up


The market continued with its awesome display for the fourth consecutive session and scaled new peaks on the back of an all-round buying support. Resuming on a firm note at 13734, 26 points above its previous close of 13708, the Sensex rallied sharply and zoomed above the 13900 mark to touch a new intra-day high of 13912 on a strong upmove in most of the index heavyweights and the other side counters. However, profit taking, particularly in select counters, towards the close saw the Sensex pare its gains considerably and close at 13860, up 151 points. The Nifty also edged higher and advanced 33 points to close at 3974.

The breadth of the market was slightly positive. Of the 2,705 stocks traded on the BSE, 1,354 stocks advanced, 1,259 stocks declined and 92 ended unchanged. Among the sectoral indices, the BSE Bankex , Auto, CD, HC, IT and the Tech indices rose by over 1% each, while the BSE CG, FMCG, Metal, Oil & Gas and PSU indices ended with steady gains.

Among the movers of the index, Satyam Computers soared 3.24% at Rs492, Tata Motors rose 2.54% at Rs907, HDFC Bank scaled up 2.53% at Rs1,057, ICICI Bank added 2.51% at Rs894, Gujarat Ambuja Cements moved up by 1.79% at Rs142, Wipro gained 1.66% at Rs607 and Reliance Communication was up 1.65% at Rs475. Infosys, Cipla and HDFC gained over 1% each. However, ONGC came under profit booking and lost 1.70% at Rs873, while Hero Honda declined 0.63% at Rs744. HLL, Reliance Energy, L&T and Maruti Udyog ended with marginal losses.

Mahindra & Mahindra at Rs899, Garware Offshore at Rs300.25, NCL Industries at Rs64.40, Modern India at Rs164.60, Simplex Trading at Rs93.95, Setco Auto at Rs173.25, Texmaco at Rs1,170.10 and Millars India at Rs143.65 touched new intra-day highs on the BSE.

Over 21.15 lakh EIH shares changed hands on the BSE followed by Reliance Communication (15.74 lakh shares), Sterling Biotech (15.55 lakh shares), Ashok Leyland (14.78 lakh shares) and IndusInd Bank (14.50 lakh shares).

Prabhudas Lilladher - Marico


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Prabhudas Lilladher - Elecon Engineering


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Kotak - Aurobhindo Pharma


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ENAM - India Infrastructure


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Sharekhan Highnoon dated December 27, 2006


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Sharekhan Commodities Buzz dated December 27, 2006


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Karvy - Cadilla Healthcare


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5 Intra-day Stock Ideas


NIFTY (3940) S 3908 R 3978

BUY CANBK (271.4)
SL 267 T 280, 282

BUY BHARATFORGE (340.85)
SL 337 T 348, 350

BUY GTCIND (229.5)
SL 226 T 236, 239

BUY GMRINFRA (356.45)
SL 352 T 363, 365

SELL IOC (435.15)
@ 438 SL 442 T 428, 426

STRATEGY INPUTS FOR THE DAY


Enjoy the jingle

Enjoy when you can, and endure when you must

After starting the last trading week of the year on a strong note, the bulls would look to consolidate their hold on the market. However, there are doubts about the strength of yesterday's rally as it came on low trading volume. Also, FIIs were net sellers to the tune of Rs2.1bn (provisional) in the cash segment yesterday. In the F&O segment, they were net buyers of Rs7.32bn. This indicates that market players may be covering their short positions ahead of Thursday's derivative settlement. Some more short covering is expected today and may be even tomorrow, lifting the key indices higher. However, with FIIs having decided to remain in the sidelines for a while and no major positive triggers on the horizon for the next couple of weeks, the current rally may not sustain itself for long. Putting fresh money at this juncture is fraught with danger as valuations are not cheap. Volatility has increased in the last two weeks. The market is likely to be rangebound after the F&O expiry. One should wait for the latest quarterly results for clues on the direction of the market. The Budget will be another big event, especially if the Government announces a few reform-oriented measures. Till then, one should take the foot off the accelerator and switch to a lower gear.

Watch out for Dr. Reddy's. The company has received FDA approval for selling generic Zofran tablets in the US. The Dr. Reddy's expects $40-50mn from a six-month exclusivity.

US stocks rose on Tuesday as falling oil prices helped offset a weak report on holiday retail sales. Citigroup and Bank of America led financial stocks higher amid expectations that a slowing economy may prompt the Federal Reserve to cut interest rates next year. Airlines surged as oil had its biggest drop in a month.

The S&P 500 rose 6.14, or 0.4%, to 1416.90, aided by a rally in raw-material stocks after gold climbed the most in a week. The Dow Jones added 64.41, or 0.5%, to 12,407.63. The Nasdaq increased 12.33, or 0.5%, to 2413.51.

Crude oil fell more than 2% in New York, the biggest drop in six weeks, as mild US weather curbs heating-fuel consumption.

Treasury prices in the US edged higher, with the yield on the 10-year note slipping to 4.6% from 4.62% on Friday. The dollar was higher versus the euro and the yen. COMEX gold added $4.60 to $626.90 an ounce.

Among the Indian ADRs, Patni was up 3.6%; VSNL rose 2.75%; Infy advanced 2.6%; Wipro climbed 3.5%; Satyam surged 4.5%; Tata Motors added 3.5%; HDFC Bank was up 1%; ICICI Bank rose 3.25% and MTNL put on nearly 3%.

Major markets in Western Europe were closed. In the emerging markets, the Bovespa in Brazil was up 0.6% at 43,606 while the IPC index in Mexico climbed by over 1% to 25,705 and the RTS index in Russia was flat at 1852.

Asian stocks rose to the highest in more than seven months. Toyota and Sony led gains after the dollar strengthened against the yen, increasing the value of exporters' overseas sales.

Electronics goods makers like LG.Philips LCD gained after prices of crude oil dropped. Newcrest Mining advanced after prices of gold surged the most in a week.

The Morgan Stanley Capital International Asia-Pacific Index added 0.6% to 139.70 as of 10:35 a.m. in Tokyo, headed for the highest close since May 12. Japan's Nikkei 225 Stock Average climbed 0.5% to 17,247.85.

Stock indexes rose elsewhere in the region, except in South Korea. The Kospi index lost 0.9%, led by steelmakers including Posco, on concern that costs will increase after two Japanese rivals said they will pay 9.5% more to buy iron ore from a supplier.

Major Bulk Deals:
Lotus Global has sold Ennore Foundries and GV Films; Macquarie Bank has picked up Federal-Mogul; Citigroup has sold Gokaldas Exports while Prudential ICICI MF has bought the stock; Deutsche Securities has sold IOL Broadband; ABN AMRO Bank has bought Lok Housing and Lotus Global has sold it; Morgan Stanley has purchased Sujana Metal.

Market Volumes:
The turnover on NSE was down by 18% to Rs61.69bn. BSE IT index was the major gainer and gained by 2.81%. BSE Metal (up 1.20%), BSE FMCG (up 1.76%), BSE Bank (up 1.78%) and BSE Auto index (up 1.65%) were among the other major gainers.

Volume Toppers:
IFCI, Essar Oil, SAIL, Indiabulls, ITC, Zee, Century Textiles, Satyam Computers, Great Offshore, Polaris, Gujarat Ambuja Cements, Gateway Distriparks, ONGC, Tech Mahindra and Reliance Industries.

Delivery Delight:
ABB, ACC, Bharati Shipyard, Bharti Airtel, Bombay Dyeing, Cipla, Colgate, Dishman Pharma, Grasim Industries, HCL Technologies, ICICI Bank, India Infoline, Infosys, Jaiprakash Associates, Jet Airways, Moser Baer, Rajesh Exports, Reliance Capital, Reliance Industries, Sasken, Satyam Computer, Sun Pharma, TCS and Tata Motors.

Upper Circuit Filters:
Shree Precoated Steel, BF Utilities, Rajesh Export, Sonata Software, McNally Bharat, GVK PIL, BPL, KLG Systel, Sagar Cement and Flex Industries.

Brokers Recommendations:

Nagarjuna Constructions – Buy from Kotak

Long Term Investment:
Hanung Toys

Major News Headlines:

BPCL to pay interim Dividend of Rs6 per share
SBI raises prime lending rate by 50 basis points
Simplex Infrastructure wins orders worth Rs8.25bn
Maharashtra Seamless secures order worth Rs4.74bn from ONGC
Genus Overseas gets order worth Rs750mn from Rajasthan State Electricity
Unity Infrastructure wins Rs171mn order from LIC
Havells India to raise upto $150mn overseas


From Research Desk - Mangalam Cement


Mangalam Cement Ltd.

Mangalam Cement Ltd. (MCL) has performed strongly, wiping out its
accumulated losses in FY06 (Year Ended September). 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 17.5MW captive power plant (CPP), which is expected to go on steam by June 2007. CPP is expected to save Rs160mn per annum on the power front for the company. MCL is also adding 0.5mn ton of new cement capacity to take its total production capacity to 2mn ton by September 2007. We estimate MCL’s earnings for FY08 (Year Ended March) to be at Rs37.1. We find the valuations compelling and recommend a BUY
on the stock.

Cement prices have remained firm in the traditionally weak monsoon period also. Prices have started moving up from October. Average cement prices went up by Rs3 per bag in October and by another Rs5 in November. Going forward, we expect one more price revision during the peak demand period of January-March. Cement realisations for MCL has gone up by 7.2% qoq to Rs3253 for the quarter ended September 2006. We estimate FY07 (6 month period) realization to increase to Rs3335 per ton and further rise in FY08 (12 month period) to Rs3374 per ton.

Cement demand in the Northern region has grown at 11% in April-August 2006, the highest in India. The capacity addition has not matched this rapid pace in consumption growth. Major cement players have announced capacity additions in the last six months only. It takes normally 18-21 months to put up a cement plant. With huge orders piled up with the equipment suppliers we feel there is a possibility of projects getting delayed a bit. As a result, the current demand-supply mismatch will continue till the end of FY08. This is expected to keep cement prices at higher levels till FY08.

How Market Fared


Positive spillover likely

Led by renewed buying in tech stocks and auto stocks, the benchmark Sensex climbed higher to record its biggest gains since December 14. The Bulls remain merry as Christmas shopping continued on Dalal Street led by gains in index heavyweights like Wipro, TCS, Tata Motors and SBI and Satyam Computers. Finally, the benchmark Sensex closed at 13708, clocking whopping gains of 237 points and NSE Nifty added 69 points to close at 3941.

The Indian Bulls have made a habit of rising against the waves. The bulls had been tiring around moving in a narrow range for last 4 trading sessions. Despite the holiday mood around the globe and expiry of F&O contracts coming this week, markets marched higher on back of buying in counters like Auto, Metal, FMCG, IT and Pharma stocks. In a broad-based rally, IT stocks led from the front with biggies like Satyam and Wipro among the major gainers. Infosys added 2.10% to Rs2220, Satyam Computer surged over 3% to Rs477 and Wipro advance by 4% to Rs598 and HCL Tech added 2% to Rs617.

Capital good stocks were also in the limelight. BHEL added 1.5% to Rs2337, Punj Lloyd was up by nearly 3% to Rs1016, Siemens added 1.10% to Rs1135 and ABB was up by 1.7% to Rs3601.

Auto stocks were in top gear. Maruti gained 0.6% to Rs931, Tata Motors advanced 3% to Rs885, M&M was up 1.2% to Rs881 and Bajaj Auto added 1.9% to Rs2643.

Buying was also seen in the Banking stocks. Index heavy weight SBI gained 2.6% to Rs1247, PNB advanced 2% to Rs508, OBC was up 2.3% to Rs225 and ICICI Bank added 2% to Rs873.

Moser Baer climbed by 7% to Rs312 after the company announced that it has ventured into Entertainment space and has entered Home Video. The scrip touched an intra-day high of Rs315 and a low of Rs265 and recorded volumes of over 15,00,000 shares on NSE.

Market may spurt


The prevailing positive sentiment on global bourses may support the domestic exchanges as well. Firm Asian markets, on cue from an overnight gain in US stocks, may spark another rally in the domestic market.

Premier indices in Shanghai, Hong Kong, Singapore, South Korea and Taiwan had already shot up between 0.08-1.22%.

The US market ended higher on Tuesday. The Dow Jones industrial average ended 27.48 points, or 0.22%, higher at 12,370.70. The Standard & Poor's 500 Index was up 4.35 points, or 0.31%, at 1,415.11, while the Nasdaq Composite Index was up 6.36 points, or 0.26%, at 2,407.54.

However, lack of participation from FIIs due to a Christmas vacation and an overnight gain in price of crude oil may cap the upside today.

US crude oil price rose 25 cents to $62.66 a barrel after Iran threatened to use oil exports as a weapon following the UN Security Council's decision to impose sanctions on its trade in nuclear goods.

As per provisional data, FIIs were net sellers of equities worth Rs 210.28 crore. The benchmark BSE Sensex rallied 237 points (1.76%), to settle at 13,708.34 on 26 December 2006.

Trade may remain volatile due the impending expiry of the December futures contract on tomorrow (28 December 2006).

Emkay - Morning Notes + Cement Sector Update


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Buying may continue


After surging above the 13700 mark yesterday the market could notch up further gains owing to bullish sentiment. Also overnight gains in the US market and a strong Asian indices in early trades could weigh positively on the sentiment. Tech stocks may witness strong buying in the domestic market on healthy upsurge in tech ADRs on the US bourses. The benchmark indices, the Nifty could test 3900 and 3940 levels on the upside, while the Sensex has a likely support at 13620 and may face resistance at 13750.

US indices posted modest gains on Tuesday, thanks to a slide in the crude oil prices. While the Dow Jones added 64 points to 12408, the Nasdaq moved up 12 points to close at 2414.

All the Indian ADRs ended in the green. Satyam Compuetrs led the Indian ADR pack with gains of 4.52% followed by Patni Computers flared up by 3.58%, Wipro & Tata Motors (up 3.54%) and ICICI Bank (up 3.25%) while, MTNL, VSNL, Rediff and HDFC Bank gained over 1% each. However, Dr Reddy remained unchanged.

Crude oil prices in the international market declined, with the Nymex US light crude oil for February delivery falling $1.21 to close at $61.10 a barrel. In the commodity segment, the Comex gold for February delivery advanced $4.60 to settle at $626.90 an ounce.

ICICI Sec - Telecom


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KR Choksey - Megasoft


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Tamil Nadu joins the VAT club: Sharekhan Special dated December 26, 2006


Tamil Nadu joins the VAT club

VAT, or the value-added tax as it is popularly known, is clearly gaining ground, with Tamil Nadu state government also deciding to implement the new taxation system in the state from the first day of the next year. VAT, which seeks to simplify the tax structure and create a uniform common market within the country, replaced the sales tax in India on January 4, 2005. It was adopted by all but three states though: Tamil Nadu, Pondicherry and Uttar Pradesh. Now even Tamil Nadu has jumped on the VAT bandwagon. The development calls for a relook at the new taxation system.

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Sharekhan Investor's Eye dated December 26, 2006


Tamil Nadu joins the VAT club

VAT, or the value-added tax as it is popularly known, is clearly gaining ground, with Tamil Nadu state government also deciding to implement the new taxation system in the state from the first day of the next year. VAT, which seeks to simplify the tax structure and create a uniform common market within the country, replaced the sales tax in India on January 4, 2005. It was adopted by all but three states though: Tamil Nadu, Pondicherry and Uttar Pradesh. Now even Tamil Nadu has jumped on the VAT bandwagon. The development calls for a relook at the new taxation system.


STOCK UPDATE

Television Eighteen India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs500

Relisting of TV18 India

Key points

  • As per its ongoing restructuring process, TV18 India will list on December 27, 2006. Based on the valuations of the various properties within TV18 India and the new businesses ventured into post-restructuring, we have revised the price target for TV18 India to Rs500 per share (implied value of Rs700 in the market price of TV18 pre-restructuring).
  • Network 18, the holding company of TV18 having a ~39% holding in Global Broadcast News (GBN), is expected to list later in January 2007. Our fair value for Network18 after the revision in TV18 India's price target works out to Rs290 per share (implied value of Rs348 in the market price of TV18 pre-restructuring).
  • In due course, we also expect the initial public offering (IPO) of GBN in FY2007 and this, we believe, will unlock further value for both these companies.
  • We continue to have a positive outlook on TV18 India, given the strength of its broadcast and Internet properties as also the ability of the management to monetise each of the businesses. We maintain our Buy recommendation on TV18 India with a revised price target of Rs500.
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