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Tuesday, June 05, 2007

STRATEGY INPUTS FOR THE DAY


Bulls and bears walk side by side

No matter what side of the argument you are on, you always find people on your side that you wish were on the other.

The bulls and bears appear to be strolling neck to neck. While the bulls have a psychological milestone to cross in terms of an all time high, the bears get their few minutes of fame with the indices in the red. We expect a cautious opening given a flat close on Wall Street and a mixed trend in Asian markets. The Chinese market is remains deep in the red.

All eyes will be on Nitin Fire Protection Industries Ltd., which is listing the shares on BSE and NSE. The issue price been fixed at Rs190 per share. Expect some fireworks on this counter as it is likely to make spectacular debut.

The Sensex seems to be struggling to get to a new peak. Weakness in Chinese markets and routine profit booking dragged the key indices down yesterday. The sideways movement may continue for a while before the bulls get back on track. The slugfest between the bulls and the bears may slowly lead to an escalation in intra-day volatility.

Things appear to be stable on the domestic front. Economic growth is strong; inflation has cooled off and interest rates may possibly be topping out. What is heartening for the bulls is the resurgence in liquidity in the past couple of months, especially from overseas investors.

However, there are a few cracks developing in the global markets. The Chinese economy and its stock market are over heating, prompting the government to unleash a slew of tightening steps. There are also worries about the state of the other key economies like the US and Japan. Brent crude prices have inched past the $70 per barrel mark. Oil may remain on the boil due to the onset of summer in the US and the start of the ‘hurricane’ season. These issues may cast their spell on the generally buoyant Indian markets. Hence, one should adopt a stock centric approach.

The Dow Jones Industrial Average, S&P 500 index and Russell 2000 all closed at record highs on Monday. Higher oil prices and a steep decline in Chinese stocks weighed on the sentiment.

The S&P 500 added 2.84 points, or 0.2%, to 1539.18. The Dow increased 8.21 points, or 0.1%, to 13,676.32. The Nasdaq Composite Index climbed 4.37 points, or 0.2%, to 2618.29.

Oil prices jumped amid concerns about a cyclone approaching the Arabian peninsula. US light crude oil for July delivery rose $1.13 to settle at $66.21 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery fell 60 cents to settle at $676.30 an ounce. Treasury prices rose, lowering the yield on the 10-year note to 4.92% from 4.95% late on Friday. In currency trading, the dollar fell versus the euro and the yen.

European shares weakened modestly. The pan-European Dow Jones Stoxx 600 index shed 0.3% to 399.02, reversing course after having traded at its highest in six and a half years during the session.

The French CAC-40 lost 0.7% to close at 6,125.81, while the UK's FTSE 100 slipped 0.2% to 6,664.10 and the German DAX Xetra ended down 0.1% at 7,976.79.

In the emerging markets, Brazilian stocks finished lower. In Sao Paulo, the Ibovespa, which closed at a record on June 1, lost 180 points, or 0.3%, to end at 53,242.68. In Mexico City, the IPC rose 150 points, or 0.5%, to 32,096.21, a record high.

Asian markets are mixed this morning. The Nikkei in Tokyo is up 33 points at 18,007 while the Hang Seng is down 38 points at 20,691. The Kospi in Seoul is down 5 points at 1731 and the Straits Times in Singapore has shed 4 points to 3574.

The Morgan Stanley Capital International Asia-Pacific Index added 0.2% to a record 152.79 at 10:45 a.m. in Tokyo. But, the Shanghai Composite index in China is down 207 points or 5.7% at 3462.

Markets lost ground on the first day of the week as bulls were unable to hold on to early gains. Index heavy weights like Infosys, L&T, Reliance Industries, Tata Motors and ACC led the downfall. Further, Shanghai SE Composite slipped by over 8% dampening the sentiments of the investors on Dalal Street. However, banking and Metal stocks bucked the negative trend as SBI, HDFC Bank and Hindalco were among the major gainers. Finally, the 30-share Sensex slipped 74 points to close at 14495. NSE-50 Nifty was down 30 points to close at 4267.

ACC slipped by 2.6% to Rs837. The company announced its May Cement Dispatch figures at 1.82mn tonnes (up 18.9%). The scrip touched intra-day high of Rs861 and a low of Rs834and recorded volumes of over 200,000 shares on NSE.

Development Credit Bank slipped 1.6% to Rs100. According to reports there are expectations of a minor stake sale and improvement in the fundamentals. The scrip touched intra-day high of Rs105 and a low of Rs100 and recorded volumes of over 7,00,000 shares on NSE.

Rain Calcining was locked at 20% upper circuit to Rs42.50 after the company decided to acquire all of the outstanding equity of CII Carbon LLC for $595mn. The scrip touched intra-day high of Rs42.50 and a low of Rs39.50 and has recorded volumes of 1,00,000 over shares on NSE.

Oil refinery stocks lost ground after the company companies declined jet fuel prices by 1.9%. IOC declined 3.2% to Rs450, HPCL was down by 4% to Rs284 and BPCL dropped by 1.3% to Rs355.

Oil exploration stocks also were under selling pressure. ONGC dropped by 1% to Rs902 and Reliance Industries was down by 0.5% to Rs1744.

Metal stocks shined brightly led by gains in Hindalco as the scrip surged by over 4% to Rs146 amid speculation the company may become a takeover target. Alcan Inc. may partner Sterlite Industries Ltd. to make a bid for Hindalco in an attempt to fend off a hostile takeover attempt by New York-based Alcoa Inc, Hindustan Zinc spurred by over 4.5% to Rs677 and Jindal Steel spurred by over 12% to Rs3705.

Technology stocks continued to be on the receiving end as the Indian rupee further strengthens against the US Dollar closed at Rs40.52 per US Dollar. Index heavy weight Satyam Computer slipped by 2.6% to Rs465, Wipro dropped 2% to Rs533 and Infosys was down by 0.8% to Rs1916. Mastek, i-Flex and Mphasis BFL were the major losers among the Mid-Cap stocks.

Real Estate stocks were in limelight. Mahindra Gesco surged by 5.6% to Rs634, Bombay Dyeing spurred by 1.5% to Rs568 and Akruti gained by 0.5% to Rs372.

FMCG stocks ended with smart gains. Dabur surged by 2% to Rs100, ITC was up by 2.4% to Rs165, Marico gained by 0.6% to Rs57. However, Tata Tea dropped by over 4% to Rs912 and Nirma was down by over 3% to Rs189

Insider Trades:
Man Industries (India) Ltd: ICICI Prudential Life Insurance Company Ltd has purchased from open market 400000 equity shares of Man Industries (India) Ltd on 30th May, 2007.

AMD Metplast Limited: UBS Securities Asia Limited - A/C Swiss Finance Corporation (Mauritius) Ltd has sold in open market 1223668 equity shares of AMD Metplast Limited on 30th May, 2007

Abhishek Mills Ltd: HSBC Financial Services (ME) Limited has sold in open market 501362 equity shares of Abhishek Mills Ltd on 31st may, 2007.

Lower Circuit:
United Breweries, Assam Company, Tanla, Rasoi, Donear Industries, Mount Everest and IID Forgings.

Upper Circuit:
Rain Calcining, SREI Infrastructure, Suven Life, Rain Commodities, Swan mills, Kernex, Shree Precoated and Ashapura Minechem.

Delivery Delight (rising Price & rising delivery):
Alfa-Laval, Aurobindo Pharma, Aventis Pharma, Cadila Healthcare, Dabur India, Federal Bank GlaxoSmithKline Pharma,
iGate Global, IPCL, Punjab Tractors, Siemens, SAIL, Tata Elxsi and VSNL.

Abnormal Delivery:
Escorts, Hindustan Motors, Balaji Telefilms, Titan Industries, Balrampur Chini Mills, Tata Chemicals, Kesoram Industries, Nirma, EID Parry and India Cements.

Results Today:
NIIT and Rain Commodities

Bulk Deals:
Merrill Lynch has picked up Allsec Technologies while selling Asahi Songwon Colors; Reliance MF has bought Aurobindo Pharma while Standard Chartered MF has sold it; Tata MF has bought Electrosteel castings; Fidelity has sold Everest Kanto; Citigroup has sold Gayatri Projects; HSBC holdings has sold McDowell Holdings; Fidelity has sold NIIT; Citigroup has purchased Pyramid Symira while selling Rain Calcining; Birla MF has picked up Taj GVK Hotels.

Major News:
Govt may increase size of sugar stockpile, says Sharad Pawar

ONGC signs an agreement with Brazil's Petrobras on swapping of interests in offshore blocks in India and Brazil

Hindalco shares jump amid reports that Canada-based Alcan and Sterlite were planning to bid for the company

Moser Baer to sell $150mn convertible bonds in two Tranches

Gujarat Ambuja Cement May sales at 1.53mn tones (up 3.3%)

Corus raises flat rolled prices in UK between 5-12%

Glenmark to mull stock split on June 11

ACC May Cement Despatches at 1.82mn tonnes (up 18.9%)

Nagarjuna Construction Company Ltd (NCC)

Recommendation: HOLD
CMP: Rs168
Target Price: Rs182


Nagarjuna Construction Company Ltd. (NCC) posted a healthy topline growth of 56% yoy during FY07. Though the numbers were close to our estimates for the year, it was lower than management guidance of Rs30bn. With its present order book of Rs73bn, NCC is well placed to reach Rs40bn revenue target for FY08E. However, high order intake accretion is needed during FY08 to meet our revenue estimate for FY09E (46.4% of FY09E revenues on account of assumed new orders). While turnover CAGR is expected to be 37.3% during FY07-09E, margin upside during FY08-09E seems ruled out as new orders result in higher initial costs. Further, there is a capital raising plan, which is likely to result in an 18-20% equity dilution, not factored into our projections. We recommend a HOLD.