Weekly Close: A world cup Holiday for the Bulls !

Market continued its slide this week and this was the 5 consecutive weeks of losses. Global selloff in US and the economic events triggered off worries across markets. Indian markets have been said to be fundamentally strong liquidity seepage led market to pare the gains further. Subprime mortgage lending default and yen carry trade unwinding were the spotlights and jargon learnt by Indian Investors this week. US markets was hit by delinquencies in the housing mortgage market and markets were hit badly. There is growing concern that tightening lending standards might further slow the housing market and the economy. It is the fiscal year end outflow of liquidity in terms of advance tax and corporates withdrawing cash from Mutual Funds was seen which added fuel to fire. Indian Markets were bogged by all these factors. All positives from Industrial production data were forgotten and so also the strong GDP growth numbers which came in. Its just that India is an emerging economy and hence seen as higher risk in the face of shrinking risk appetite. Technical supports were indicated near 12 12350 - 12400 which is also is the 200 Day Moving average and these levels were tested at the end of the week.

Sensex pared 3.7% for the week. Cement showed no sign of concreting. ACC lost 8%, GACL 6%. Other losers were the HDFC -7.7%, BHEL -6.4%, ITC -7%, Rcom -11% ICICI -6% and SBI -7.12.

The advance tax numbers were out. SBI numbers seem to be quite poor but thats because last year they had windfall gains from the Resurgent India bonds though this year too on apples to apples the number does not appear to be exciting. Century advance tax numbers were bad on the face of it but this we believe is because of the VRS payments, to clear the Mumbai factory to make way for land, which masks the profit growth they have had. All in all Cement stocks have had bumper year and that should continue. The agreement with the Government does not seem to be as negative for the cement manufacturers as was made out to be. However this reflects the past year and also indicates that profits to be reported will be good.. However Markets are more worried about Inflation. This number was reported today and at 6.46% it triggered a selloff. Next two weeks will be tough too for inflation but that will set up an opportunity.

Cement stocks were on the wrong end of the stick since the budget and then the price cap. Rationally thinking, the cement manufacturers have agreed to prices which are quite remunerative and that should show super profits for them in the quarters ahead. Secondly this arrangement of the manufacturers and that should stand even when the capacities come in. This sounds logical. Also beneficiaries will be the companies who sell at a discount to the big brands of Ambuja ACC and Ultratech as they would be able to sell higher at the agreed to prices. Valuations have come off significantly. We believe there could be value buying here. South is where prices are expected to remain strong. But more to add is that, in an informal discussion with one of the cement manufacturers we came across the fact that, the Price cap which was agreed to with the Government gives a leeway of further increase in prices. The prices in essence have been fixed at MRP of Rs 270. Cement was actually selling at Rs 250 a bag against this MRP. The dealer would get something extra from this depending on the customer. The large customers would manage a lower price as well from the dealer but the MRP is Rs 270. This price agreement means that MRP levels remains unchanged and the manufacturer can actually bill the dealers a bit higher. The final selling price can rise upto Rs 270 per bag. Second..comes the monsoons when prices normally are reduced. The volumes fall by around 30% as well. However, this time around the price arrangement will ensure that prices are not reduced. So certainly much higher profits. Valuations have corrected and the arrangement certainly does not look as bad as it appeared to be prima facie. Smart move by the manufacturers. It has saved the face for the Government whereas the cement manufacturers have ensured that profits will remain. Cement is a story which we believe will become stable now. Results will be good and that will keep investors interested. The buoyancy may be missing but downsides are limited as well.

Banks tend to be the worst hit in a rising inflation and interest rate scenario. Inflation was 6.46% for the week ended March 3 against market estimates of 6.31%. Inflation will ease off only in about 3-4 weeks. Banks continued to trade weak. However some recovery was seen on the news that Lok Sabha had passed a bill to remove the SLR Floor. There was ceiling of 40% and floor of 25% prescribed by government any changes to that needed Parliamentary approval, that has now changed and powers are vested with RBI with no floor. The ceiling at 40% still remains. In any case this was there in the offing for quite some time.

The launch of the Insat-4B satellite paved the way for the Sun Network's direct-to-home (DTH) venture. Insat-4B's launch will increase competition among the DTH players with the availability of over 200 additional channel offerings by Sun Direct, DD Direct and Dish TV. However there continues to be shortage of satellites and transponder space will mean that ADAG Reliance Bluemagic's and Bharti Group's DTH ventures will have to wait for a few more months. Reliance Bluemagic will have to wait till July for the launch of Insat-4CR, which will carry eight Ku-band transponders for the company. Bharti's DTH foray will be possible only in 2008, and that too if the Indian Space Research Organisation (ISRO) books transponders on Measat-3, a Malaysian satellite scheduled for lift-off. However what this does is that the broadcasting companies will see increased subscription revenues. Zee entertainment is our pick here and now its pure broadcasting company with DTH, CAS and News ventures spun off. We will update you on this one soon.

Suzlon was hit with the bid for Repower is getting more hot. REpower is the world's seventh-largest wind turbine producer. Areva has renewed its bit to Euro 1.14 which is 11% higher than that of Suzlon and teams last bid. The two bidders are Areva (which owns over 30 per cent) and the other party Suzlon with its Portugal partner Martifer, (which owns 25.4 per cent of REpower) REpower's product range of 1.5-5MW onshore & offshore turbines compliments Suzlon's portfolio of 0.35 - 2MW turbines and thats the reason in terms of synergy. But the price which both are ready to pay seems to indicate the desperation. Payback is being calculated in excess of 8 years and the deal will be dilutive as well. Suzlon may see further pressue.

Technically Speaking: Markets are still coming to terms with high valuations. 12300-12130 are really crusial levels to be look ahead. If market breaches this we can see further downsides. Resistance is at 12550-12800. Nect couple of weeks are crucial.