Weekly Close: Another week of new highs !

Markets had another week of gains. Sensex closed the week with yet another all time high in a holiday shortened week. Sensex gained 130 points this week which is about 0.75% gains.

Global markets were by and large positive and the positive or negative cues for the start were largely followed in the same direction. US markets also closed at all time highs and Indian Markets imitated that. The US Fed meeting this week kept interest rates unchanged and the data was more positive than negative. The bouyancy continues. Crude saw strength but remained ranged this week impacting the refineries which gave away much of their gains.

Markets started off on a cautious note ahead of the credit policy and the bidding for Corus. Tisco emerged winner but markets gave a clear thumbs down for the stock. On all valuation parameters the acquisition was expensive. Though it was a day of pride for an Indian Company to become the 5th largest in the world.. its a big risk that Tisco has taken. Stock was smashed down 9% this week.

S&P upgraded India to investible grade and that was a positive in a way though markets ignored it. The other two big rating agencies, Moodys , Duff and Phelps already have India in that grade. What this does is that now many Funds would be allowed to invest into Indian Debt as many mandates do not allow investment unless all 3 agencies have an investment grade.

The credit policy came in as a mixed surprise. The cost of liquidity for the Banks was raised through a repo rate hike. All other controls of reverse repo, CRR and SLR were left unchanged. The provisioning norms for the retail sector loans in credit card, personal loans, auto loans were increased. Only home loan provisions were left unchanged. The banks saw negatives in this. There was an across the board selloff. Sensex saw some supports around 14060 levels and then it was one way. Maket was surprised positively by the FM who announced that SBI holding would change hands with the RBI selling its 59% holding to the Government at market determined rates of around Rs 1300 as per the Sebi formula. The banks developed wings and rallied and so also the markets. It was no looking back. The Telecom companies saw strong interest on TRAIs suggestion to cut International call rates. Surprisingly even VSNL rallied. Most of these negatives have been discounted it appeared. Also helping was the fact that Idea is intending to have an IPO in the next couple of days and that would bring in more interest in the already listed companies. Bharti and Reliance Communitication were the biggest gainers for the week.

The big gainers this week were. Rel Communication + 12%, Bharti Airtel +7%, Glaxo +4%, Hindalco +4%, Larsen +4%, Ranbaxy +4%, Reliance Energy +6%, Zee +4%. Drag was from Tisco -9%, HLL -3% HPCL -5%, ICICI Bank -4%, Suzlon -4%.

There were a couple of results we covered this week. They included the ones where we have been positive on .. these included Titan which made its grand entry into the 4 digit stock on talks of bonus. Bonus or not.. we believe that the stock is well placed to deliver.

Titans results were good and really the scope remains good. The jewellery offtake despite high gold prices was good. It was surprising to see high margins in Jewellery business. Contributing to high margins were benefits of scale, sales of higher margin products such as diamond jeweller and colored stone jewellery. Jewellery now accounts for around 70% of revenues, This is likely to be the way forward given the size of the Jewellery market. Valuations at about 38X earnings FY07 remains a bit expensive. But good things do not come cheap. We like this business.. Do read the detailed note.

The Tatas beat Brazil's CSN to acquire Anglo-Dutch steelmaker Corus Group Plc at slightly more than $11 billion in an all cash deal. Tata Steel raised its final offer to 608 pence a share by the time the auction entered the concluding ninth round from 500 pence a share at the start of the auction. Tata Steel's winning bid of $11.3 billion puts Corus Group's enterprise value, which includes debt, at more than $13 billion. The takeover marks the largest acquisition by an Indian company and would propel the combined entity led by Tata Steel to the fifth rank in steel output in the world.

As per valuation Arcelor valuation EV/Tonne of $650 with margins at 17% EV/EBIDTA at 7. Corus is significantly higher that Corus valued at EV/Tonne of $745 with margins at 11% and EV/EBIDTA of 9.9. Corus is Europe's second-largest steel maker with a capacity of 19 mn tonnes and Tisco with 7 mn. Together they would form the 5th largest steel company. We were not enthused. Acquisition at the peak of the cyle is certainly not exciting. Tatas may benefit because of the feeling of being left out is now covered and they now are a global company. However its not very good for the shareholders of Tisco who will have to wait through the digestion period. Already Zinc prices are heading down indicating slower demand and China is an exporter in steel. The risk reward certainly is not in favour. We were negative. The stock reacted exactly as we anticipated down 9% for the week.

The numbers from Greenply for third quarter 2006-07 were mindblowing. The top line up 48% to Rs.108cr on yoy basis. Operating profits jumped 72% to Rs. 14crs. Ebidta Margins up 1.80 basis points as Uttaranchal plant stabilized for plywood. Net profits up 77% to Rs. 6.5 crs. Profitability from timber improved considerably and added to margins. The company has been conservative and provided for excess tax this quarter .. could come off next quarter adding to bottomline. The company management body language was good. The demand scenario remains robust. There is an order book of 1 month now from the earlier days of less than 10 days. The demand picks up normally after 18 months of cement demand as new housing goes in for construction activity. The company raised plywood prices by about 4%. Also raised for other products by larger amount indicating good demand. The most interesting words were? ?The unorganized sector is expected to lose 5% share every year?.. Well that?s a huge number.. and the story panning out as envisaged ! Valuations etc remain mouth watering.. Wonder why the stock rating remains low.. ? As Warren buffet puts it.. Buy a good business.. the valuations will follow. At the current level stock trades times its 5 times its FY2008 . We had a wow call and the stock delivered well.

Eveready posted a loss in the December quarter. Interesting to note that it experienced the worst shock ever with Zinc prices rallying to $ 4800 per tonne from less than half that. Zinc accounts for 50% of costs for making batteries and that had its effect. The company countered that with numerous price increases but Zinc prices have overwhelmed. Interesting to note that Zinc prices have now crashed and thats good reason to buy. We had a wow call here.. and the stock is delivering well.

Another story we had in our Hunters pick section found takers with the stock hitting up for the week. the Management is XL telecom is on a road show in Mumbai and hence the interest seen in the stock. The company has a good story in terms of manufacturing CDMA handsets where it expects to get orders for 25 k handsets a month from Rel Com after doing the pilot. Also its part fo the BSNL and MTNL initiative in the CDMA business. The company intends to enter the Photovoltaic cells business. However the negative is that the company also has plans in the Ethanol business. We are not that excited though some trading gains could be on cards.

ITC numbers were in line. Bottom line was higher by 23.2% yoy. The revenues from the non cigarette business were up by 31% which are 52% of the company's turn over.The lifestyle retailing business grew by 38%, Gifts, Stationary and Greeting card business saw a growth of 27%. Hotel business was also up by 28%. The near term worries extend from the fact that the Government intends to bring cigarette under VAT. This uncertainty will keep the interest muted. ITC is normally on the receiving end of all budgets and there is likely to be no exception this time. We have been cautious on ITC and its desire not to give away larger cash accruals as dividend.. hence the non focussed approach. The stock ended the week down 1.5%.

The results season is over and most results are discounted. The numbers have been extremely exciting overall and almost nothing to complain. With a GDP growth upgraded to at 9%+ and S&P upgraded Indian debt to investible grade there is little to ask for, except may be cheaper valuations. But important to note.. that when the going seems good.. its time to exercise caution !

Sensex has closed on a bouyant note and the momentum continues. However the one thing missing is the FII numbers. FIIs were sellers for most of the week. But we saw the market up. Clearly the power is there in Domestic buyers as well. Reliance has turned into the largest Fund house in the country. Reliance Capital rallied on the back of that news. It was a good week for ADAG with Reliance Communication, Reliance Capital and Reliance Energy hitting highs on specific news. The budget is on cards and that will drive markets going ahead. Do we expect a pre budget rally. Well no ! we don't. We think that markets are looking heavy. The recent upmove of the markets has been post consolidation and thats supportive that downsides may not be high.. but there seem to be sectors which are losing steam and could be a drag.

Technically speaking: Sensex broke out of the range of the 14050 - 14320 levels and that brought in large short covering. Another day or two here would have technical targets raised to 14740 levels. 14300 becomes a support line but the stronger support is at 14020.