Weekly close: Subprime credit..A nightmare !

Yo yo across with US subprime worries and housing concern haunting this week. US is the super power and no other market was in a position to overcome US excuse any way.. not even India. The fall started with day one of the week. Some bounce was seen on Tuesday or Wednesday but Firday proved to be black once again. Rupee continues to be strong and that?s make thing difficult for exporter. To make things bit easy here Govt. amended the ECB norms which helped market to bounce. But credit worries seems to be getting worsen as many major banks liquidated there positions resulting in global down fall. ICICI is one in India to have exposure to subprime market and it was badly hit. The new ECB norms curb the excess inflow of liquidity so as to curb the rupee strengthening. IT recovered form this but this really won?t help much we think. FM has asked the corporate to be ready for strong rupee without any sops. So exporter will have to manage themselves?short term pressure will continue here. Adding to this was Chinese threading US to liquidate its vast reserve of USD if Washington imposes trade sanctions to force a yuan revaluation. For now it seems to be a cold war?Let see how things pan out.

Sensex Ended down by 1.7% for the week. Amongst Gainers TCS (+4.16%), Wipro (+ 2.17%), Tata motors (+1.90%), Dr.reddy's (+1.30%),Satyam (+1.3%), Infosys (+1.59%) and Losers were Bharti Airtel (-8%), Hindalco (-6.22%), ICICI Bank (-5.5%), ONGC(-4.99%) Rcom (-4.34%), Maruti (-4.2%), HUL (-3.79%), LNT (-3%).

Weekly performance for the Markets : BSE IT index 1.5% up, Sensex down 1.7%, Reality down 4.5%, Metal down 4%, Index gainers Suzlons and Jet (4% up each), Index losers VSNL (8.35% down); ICICI Bank (5.5% down); Nifty down 1.4% ( 61 points down); Midcap 2% down; Small cap down 0.3%

Mid caps index slipped by 2%...But one should note that mid and small caps is holding the strength and that is really good sign. This indicates that there value buying. Market is more value driven rather than liquidated.

Wipro was in news on its acquisition of Info crossing. This company provides infrastructure management services, data centers, help desk, network management, data security and shared services including storage. With revenues of $229m and 18% EBIDTA..at $ 600 mn value, its certainly not come cheap. Wipro seems to be gunning for growth and the price paid certainly is not less. The capacity utilisation is 50% and thats some consolation but its clearly not a great deal. We believe that Wipro would have to work hard to make this deal look good. However let?s not belittle their efforts. Managing a company of their size, it?s certainly creditable. This may prove to be a good long term decision but near term it offers no excitement. With the subprime fallout, the impact on software companies will be felt. Financial services form bulk of revenues for most biggies and even the small companies. The Exposure for the companies to this space is as follows. TCS - 43%, Infosys - 36% Wipro - 24% Satyam 24% HCLT 28%. Over the last two quarters growth has been muted for Infosys in this space.. but TCS has seen good growth. We expect a fallout here over the coming quarters. At these valuations this risk is not priced in or may be we are wrong in assuming that no such risks exist.

Reliance is in the eye of the storm for now. The group of Ministers will decide on the pricing for gas. Anything left to Indian politics to be decided carries its share of negatives. Gas prices clearly cannot be market determined given that there is no market. Next few days will see hectic lobbying. RNRL and NTPC are beneficiaries from a negative for Reliance. The penchant to 'squeeze' the Private sector is in the blood of the politicians seen politically right. Thus RIL is more likely to be on the receiving end. The Fertiliser companies are ones who will also get the gas and that could be the driving factor for the pricing. Let?s see whether Reliance manages a coup up the needs.

TTK prestige?s performance for the quarter was brilliant with the bottom line witnessing a growth of over 80%. This is the period of consolidation for them as the company has decided not to have any more smart kitchens across the country. They already have 180. The sales growth was muted at only 9%. In a discussion with the Management we were informed that as SAP got implemented across the company, some sales got delayed into the current quarter. Margins were good on the back of higher margins Kitchen appliances selling more than the Cookers. Interesting to note that Mixies and Gas stoves drew the sales big way. This company too saw lower adspend this quarter though in absolute terms it?s the same. That seems to be the trend in brand driven companies. We remain positive and the stock is on its way to perform. Do refer our research note for details.

We Spoke with Mcnally Bharat Management. The company is expecting Rs 2000 crore orders from Iisco. The company has Rs 5000 crores of orders which it had already bid for. Going ahead steel based projects would comprise a bulk of its revenues, but its tie up for port based and power plant projects make?s it well placed. This group seems to be quite open about its businesses and accessible too. Steel projects have a life cycle of 36 months. This year will see muted growth in the bottom line on higher tax payouts. We are positive here. A company at 9x FY09 earnings with expected order book and jumping margins has limited downsides.

Tyres companies had great Quarter. Rubber prices jumped to trade at Rs.93 per kg. The increase is on account on heavy rainfall in Kerala which has made taping of rubber difficult. Adding to this Jump in prices is the Chikungunia disease in Kerala. This has created shortage in supply of rubber. However, the supply side constrains seems to be short term in nature and are expected to be sorted out within a month. No major impact of it is expected on the tyre companies. We have a positive view on Apollo tyres and Balkrishna Ind. We have note on both these companies just do read to get more idea.

Ambuja Cements Ltd., India's third-largest cement maker, recently stopped its operations at its plants in Gujarat due to floods. The total capacity in Gujarat is nearly 6 mn tones. Loss from the flood will be covered by insurance; this might not impact much for the company. Last week South Indian cement companies increased prices by Rs 3-5 per bag. The major players in south are ACC, India Cement, Kesoram and Madras Cement who are to benefit. Due to huge demand even in monsoon, a price hike is expected. ACC Sales for the month of July were goo as its witnessed a growth of 15% yoy. The company's production grew by 11% in July to 1.63 mn tonne from 1.47 mn tonne a year ago. During January - July, the company's production stood at 11.84 mn tonne against 11.15 mn tonne in the same period last year and despatches rose to 11.84 mn tonne from 11.10 mn tonne as compared to same period a year ago. Due to strong demand even in monsoon season we expect the company to deliver good numbers for the coming quarter. We are positive on this sector; one can look as an investment opportunities here.

Technically: Market waits for further lower levels. Traders should not confuse pull back as strength and take aggressive positions. For strength we need to see market consolidate between 15100 and 14900. The saving grace in this fall is that, markets have not violated the trend line supports around 14440 on the Sensex and 4200 on the Nifty and today's mild pull back came from 75% retracement level on the Nifty. These positives may not be enough for market to turn around and test of these levels are a distinct possibility in the next week. Let the fear wash itself out and wait for market to bounce off a strong support area, until then stay light on your portfolio or stay in cash.