Market Close: Momentum Comes back..But

Good day of trade in the Indian markets. US worries made Indian indices to start weak. But the buying momentum changed the day and helped to recover the losses. Ranged session till mid session but Midcaps and Smallcaps kept the momentum on. Strong buying in index heavy weights like REL, Grasim, Ranbaxy and ITC fueled the markets to surge up at last hour of trade. All the sectors ended in green. FMCG, Auto, Cement, Banking and Engineering cheered the day. Global markets recovered to trade in green, Asia Trade ranged but in red finally managed to end in green.

Sensex closed up by 170 points at 15616. Weighing on the Sensex gainers were REL (+4.5%), Grasim (+3.97%), Ranbaxy (+3.53%), HDFC (+2.82%) and SBI (+2.35%). The losses were Hindaco (-1.27%) and Bharti Airtel (-0.23%).

Reliance Energy Ltd (REL) is planning to demerge its engineering, procurement and construction (EPC) division into a new company. As per reports REL may also list the EPC arm to raise funds for its future projects. The EPC division has been valued at Rs 3000 cr. It has an order backlog of Rs 7000 cr. If one takes into account REL's business from new projects, including the 4,000 MW Ultra Mega Power Project (UMPP) in Sasan, the order book would jump to Rs 12,000 cr. In FY07, the EPC division had revenue of Rs 2082 cr nearly one third of the company's total turnover of Rs 6575 cr. The division accounted for 8% of REL's net profit of about Rs 800 cr. REL is planning to add 14,960 MW capacities in the next five years, for which the total investment required will be about Rs 60,000 cr. Out of this over 30% is required for EPC activities alone. REL, in tie-up with Chinese equipment supplier Shanghai Electric, has gained competitive advantage in this space as Shanghai Electric?s component costs are 10-15% less than Indian players. EPC earnings of the company is expected to achieve a compound annual growth rate of 29% over 2007-2010. EPC division's 33% order book gets booked annually as sales. EBITDA margin is around 9%-11%. The net profit of EPC is around 8%. The saw huge interest and was the major gainer ended up by 4.5% and Tata Power ended up by 2.6%.

Eveready industries we believe should do well, at least now. Zinc fell to below $ 2900 per tonne and with metal charts not showing the strength, the direction seems down. Though near term its Zinc which will drive the direction for the stock. The company also is asset stripping. It sold its land as indicated in our previous heard and read. There is more property on the books and more than justifies the price. The Management meets tomorrow for a preferential issue to Promoter group. Interesting to note that the company issued about 67 lac warrants for Rs 95 and even converted 9.4 lac warrants at that price. For the balance it had to pay 10% upfront. With the stock falling to half that levels the promoters are probably using this opportunity to average out now that the future looks promising. The Uttaranchal plant has started and ramp up happening. Really we believe that this time around the upsides may be more sustainable. Of course near term jump by Zinc could spoil the party. The stock ended marginally higher for the day.

Technically Speaking: Momentom seen across after a ranged session. Sensex touched intraday high of 15638 and low of 15350. Overall breadth was in favor of Advances, where the Advances to Declines ratio stood at 1.6:1. The turnover was pretty good at Rs 4646 cr. The uptrend is buoyant and above 15650 a new target of 16100 gets opened.