Weekly Close: Mid Cap Mania...

Jittery start for the week with US Unemployment data brought in worries across the globe of recession in US. Indian Indices trade volatile for the week but the mid cap and Small Cap counters kept the Investors interest and were the outperformers. Crude moved again to its high of $80 per barrels which saw some reason for hike in Fuel prices but Ministry mentioned of no hike. The Industrial growth which dropped to 7.1% in July from 13.2% in July 2006. IIP declined to 9.6% between April-July from 11.1% in the corresponding period of the previous fiscal which added to the worries. Telecom stocks too had to feel the pinch of the spectrum woes and the new TRAI norms. Fertilizers counter rallied ahead of the Subsidy news but went for profit booking as the meeting got postponed.

SBI intend?s to raise money worth Rs 10000 Crs which means higher equity clearly more FII stake will be vacated. This news brought in some strength in SBI. Reliance was yet again in the news with its buying out of polyestor capacity in Malaysia.

Globally speaking: Higher Unemployment data brought in hints of Fed cutting rates but also added the worries of recession along with it. Japan took the resignation of the PM in its stride.

Inflation numbers came lower at 3.52%, a two-year low, for the week ended September 1, from 3.79% a week before. The number came out lower despite higher food grain prices and increasing crude oil prices which might remain a threat to inflation in coming weeks.

Sensex and Nifty ended Flat for the week. Midcaps and Small Cap index ended up 1 % and 1.5% resp.

Weekly gainers are: HDFC (+4.22%), Rel Eng (+3.82%) RIL (+3.58%) and SBI (+2.34%) while the Losers for the week are: Wipro (-6.04%), TCS (-5.14%) Cipla (-4.65%), Satyam (-4.21%)

Bajaj Auto launched its New bike ? Exceed? which is in Executive segment priced at the rate of 100 CC. Honda reacted by saying that it will launch an array of products through its two subsidiaries Hero Honda and Honda Motorcycle & Scooters India (HMSI) to retain its combined 60% market share in the two-wheeler market. The new launches will be between 130 cc and 150 cc in the festive month of October when sales spurt due to auspicious buying during Dussehra and Diwali. Bajaj Auto and TVS Motors?s new bikes are of the twin-spark plug technology platform. A big negative for Honda is that Bajaj Auto?s 125-cc bike 'XCD 125' is at Rs 41,000 about Rs 3,000 lower than the cheapest bike of Hero Honda in that segment. Hero Honda is dependent on Honda to get it the technology and there is confusion now that Honda intends to have a 125 cc bike as well. Bajaj has showed some strength till now but hereon the wait will be whether the consumer will bite or not. We believe the consumer will but we are worried whether there will be all round growth. So performance for Bajaj hereon will be based on its dispatches and that?s not what we want to bet on right now.

Opto Circuits India is looking for acquisitions in Europe and US. The acquisition cost could be in the region of Rs 600-800 cr or less. The company is planning to develop Rs 400 cr special economic zone (SEZ) at Nanjanagud near Mysore where it plans to establish new manufacturing facilities for various healthcare and hardware electronic products. The Company is growing aggressively through the inorganic route, but still its big risk for this as a small one. The current plant location at Bangalore which is a 100% EOU; the new SEZ will let the tax benefit continue. However, the stent business itself is too technically oriented and carries a high risk of failure. In our talks with the management, the sales of the stents have been exceeding expectations. We like Opto as a business... But the risk from USFDA for Stents carries huge risk and that makes us wary at current prices. These talks of acquisitions will give some more wind to its sails.

ABG Shipyard is set to take over Western India Shipyard (WISL) for Rs 200 cr report papers. ABG will get management control of WISL and the 40% stake held by financial institutions led by ICICI Bank. It is a court initiated sale as WISL has more debt in its book. The current outstanding debt is Rs 280 cr. WISL is a one of the India?s largest composite ship repairer at Goa. WISL Revenues were placed at around Rs 53 cr. Assuming Rs 200 cr for the 40% stake valuations are placed at Rs 500 cr and also there is this extra 280 cr of debt giving an enterprise value of 780 cr. The ABGs Enterprise value to sales is 4.8:1. However, WISL is a loss making company and hence utilisation levels would be low. ABG has an order book of Rs 5000 cr which probably could be handled better using the facilities; this acquisition helps ABG to with a foot into ship repairing business and that should be a good fit. The acquisition seems strategically good for ABG. But the acquisition price is something where data is lacking to give a fair comment. Meanwhile the uncertainty of the subsidy continues...

Navneet exploded. The stock is up over 30% in last couple of days. There is some news on the Sarva Shiksha Abhiyan. The Central Government was earlier funding about 70% of the money to the schools and balance 30% was funded by the State. This has now been changed to 65% and 35% with an intention to go to 50% : 50% over the next couple of years. This creates an issue of sorts as States tend to make payments after all other expenses are met. Perennial budget deficits is their problem. We believe that could be a negative here. However for now Navneet is into a rerating mode. Educomp is one who pioneered here.. and Navneet has taken a leaf out of the book of Educomp. We believe Navneet with its brand and relationships with Educatoinal institutions is better placed to have its Animated educational software sold to schools. However they need to make it interactive the way Educomp has.

Few more Stocks rallied this week. Poly Medicure which is into manufacturing of health care disposables and medical device products in India. The Stock moved over 15% for the week. The Company was waiting for USFDA; we suppose that the company got the nod from USFDA. Eveready is another stock were we see great gains in coming as Zinc is the one which kept us worrying but even it got cooled off.