Dead Presidents! - India Equity Research: 10/01/2007

Wednesday, October 31, 2007

ONGC, DLF, Sterlite, IOC, Nestle, Unitech, IOB, Mphasis, Tata Tea, Kalpataru, ABG Shipyard, Vardhaman Textiles, BHEL, HDFC, Max India, SREI,Economy,

ONGC, DLF, Sterlite, IOC, Nestle, Unitech, IOB, Mphasis, Tata Tea, Kalpataru, ABG Shipyard, Vardhaman Textiles, BHEL, HDFC, Max India, SREI,Economy, Banking, Real Estate

The market ended the day with marginal gains after trading with steady gain & loss of 100-200 points from its yesterday''s close. The market started the day with modest gains but turned volatile with a short span of time. Since the investors were waiting for the market to take some clues from the Fed policy announcement, the trading was happening on a cautious mood. No big movements were seen during the whole session as selective buying was happening across all the sectors ahead of the Fed meet announcement. After a long interval, BSE CGs index ended with negative figures as most of the player in the capital goods sector witnessed selling pressure on the back of profit booking. Along with CGs, BSE IT, FMCG & Realty also ended in red territory. Atlast, the benchmark index Sensex ended up with marginal gain of 54.48 points at 19,837.99, whereas Nifty also closed with a gain of 31.90 points to close at 5,900.65. Further, BSE Midcap and BSE Smallcap also closed higher with the gain of 87.14 points and 152.42 points at 8,135.21 & 9,796.86 respectively. The market breadth stood negative with 1402 stocks on the advancing side and 1346 stocks on the decline side.

BSE Metal closed in green with the highest gain of 582.71 points to close at 17,884.93. Scrips supported are, Jindal Steel, with the highest gain of (25.64%), Jindal Saw (11.99%), & Hindustan Zinc (4.38%).

BSE Oil & Gas stood at the second position with the gain of 132.18 points at 11,658.48. Scrips surged the index are RPL by (5.46%), Cairn India (3.80%), IOC (3.09%), and ONGC (2.32%).

BSE Bankex also gained 105.24 points to close at 10,655.33. Scrips gained are Bank Of Baroda (4.90%), PNB (2.91%), Canara Bank (2.54%), & HDFC Bank (2.15%).

BSE Capital goods stood as the top loser of the day with a loss of 211.25 points at 19,795.32. Dragged it down are Kalpataru Power down by (4.48%), Carbo Unilever (2.96%), Greaves Cotton (2.68%), Alfa Laval (2.78%) and Havell India (2.48%).

Market Close: Choppy day ends in green?

Markets managed to open a bit shaky before it gained some grounds from Midcaps and small caps. The 50bps CRR rate hike which seemed to be negative for the Banking sector did not matter much as banking sector ended +1% anticipating the US Fed rate cut which in turn would increase the inflow of capital to the Indian Markets. Sector like Metal, Oil & gas and PSU were among the gainers. On the results front, Bharti's results beat street expectations as non mobile business has helped in the out performance. Realty majors Unitech and DLF are trading in green on the back of good set of numbers. Market traded in both the zone with profit booking at every higher level of the day and managed to end marginally in green off day's high ahead of the Fed meet announcement. European indices trading strong in green.

Sensex ended up by 55 points at 18,838 level. Supporting the indices were gains in Rel. Energy (4.29%), Ranbaxy (+3.04%), HDFC Bank (+2.89%), NTPC (+2.16%) and ONGC (+2.09%). Restricting the gains were the losses in Hind.Unilever (-5.39%), BHEL (-2.05%), Tata Motors (-1.73%), Cipla (-1.66%) and L & T (-1.46%).

Bosch Chassis System India Ltd performance for the quarter was not good. Topline grew by 5% to Rs 131 cr on y-o-y basis. EBIDTA was down by 21% to Rs 16 Cr. EBIDTA margin was down by 400 bps to 12% due to increase in raw material cost and employee cost. PAT dropped down by 25% to 9.4. NPM was 300 bases down to 7%. BCSIL is expected to deliver strong growth over the next few years on the back of robust growth in passenger vehicle segment, use of ABS system for cars to be exported out of India & increased outsourcing from Bosch group. Operational improvement and cost reduction will provide some benefits in the long term perspective. At the current market price of Rs.400, the stock trades at 22 times annualized EPS. Business seems robust though the pricing pressure from OEMs is bearing on the company. Valuations certainly don't leave much on the table and the margins pressures is why this stock underperforming. We believe that over the next two years the margin pressures would subside. We remain positive on this for long term perspective. One can look to invest in this stock. Do read our detailed note to know more on this.

Numeric Power typically a mid cap stock has seen strong upsides. It?s up over 80 % since our last coverage. After inclusion of the views about this stock in our today?s Economy section it ended 20% up. Revenues and bottomline were up over 100% yoy. Clearly on valuations at 12 X trailing 4 quarter earnings. There is still some scope for upsides. It?s the illiquid nature of this Rs 1200 cr market cap company which keeps the funds away. This is the largest UPS manufacturer in the country. Expect liquidity to pick up as company gets larger in size.

Technically Speaking: Market trades volatile for the whole day ahead of the Fed meet. Sensex traded between an intraday high of 19984 and low of 19735. The breadth was in favor of Advance as there were 1537 advances against 1435 advances. The volume for the day stood at Rs.10018 Cr.

Market fails to surpass 20,000

The market went into a correction mode quickly after the opening bell, but recovered despite weak global cues. The market witnessed the pre-Fed rate cut rally today. The Sensex slipped below the 19,750 mark in early trades before a bout of buying support saw it rebound almost to touch the 20,000 mark by afternoon trades. However, sustained selling in information technology, capital goods, and FMGG stocks saw the index slide sharply and slip into the red again. The Sensex remained volatile thereafter but with a positive bias. The index finally wrapped up the session at 19,838, up 54 points, while the Nifty added 32 points and closed at 5,901.

The market breadth was positive. Of the 2,817 stocks traded on the Bombay Stock Exchange (BSE), 1,403 stocks advanced, 1,349 stocks declined and 65 stocks ended unchanged. The sectoral indices were largely positive. Among the sectoral indices the Metal led the upsurge with gains of 3.37% at 17,885 followed by the BSE Bankex index (up 1% at 10,703) and the BSE Oil & Gas index (up 1.15% at 11,658). However, the BSE CG index, the BSE FMCG index, the BSE IT index, the BSE Realty index, and the BSE Teck index closed in a negative territory.

Reliance energy was the leading gainer and soared 4.34% at Rs1,867. Ranbaxy advanced 2.94% at Rs427, NTPC moved up by 2.33% at Rs239, ONGC jumped 2.32% at Rs1,248, HDFC Bank shot up by 2.15% at Rs1,653, M&M added 1.90% at Rs755 and Hindalco was up 1.50% at Rs196. Among the laggards, HLL dropped 5.21% at Rs208, L&T shed 1.81% at Rs4,245, BHEL declined by 1.55% at Rs1,613 and Maruti Suzuki lost 1.32% at Rs1,074.

Over 2.82 crore Reliance Natural Resources shares changed hands on the BSE followed by Tata Teleservices (2.78 crore shares), Reliance Petroleum (2.31 crore shares), Nagrjuna Fertilisers (1.20 crore shares) and Power Grid Corporation (1.17 crore shares).

Reliance Industries registered a turnover of Rs648 crore on the BSE followed by Reliance Energy (Rs352 crore), Reliance Communication (Rs221 crore), Tata Consultancy Services (Rs168 crore) and Hindustan Lever Ltd (Rs147 crore).

Sensex gains 54 points ahead of Fed meet

The market ended with modest gainers as investors refrained from taking large positions ahead of US Federal Reserve meeting later in the day on interest rates. Volatility was high. Up about 170 points at one point of time in early afternoon trade, Sensex suddenly slipped into the red in mid-afternoon trade before recovering from lower level instantly. The market breadth was even, easing from a strong breadth earlier during the day.

Hindustan Unilever plunged after announcement of Q3 September 2007 results during trading hours. Capital goods stocks lost ground. IT stocks drifted lower. Metal stocks edged higher. Asian markets were mixed. European markets were in the green. Bank of Japan, today, kept interest rates unchanged at 0.5%.

The 30-share BSE Sensex ended with a gain of 54.48 points, or 0.28%, to 19,837.99. It had opened marginally higher at 19,827.40 and slipped to a low of 19,735.21 shortly. It rebounded from that low. Sensex hit a high of 19,984.13. At day's high of 19,984.13, Sensex had risen 200.62 points.

The broader based S&P CNX Nifty was up 31.9 points, or 0.54%, to 5,900.65

Q2 September 2007 results were decent to strong, which aided the solid surge on the bourses this month.

The market breadth was almost even on BSE: 1,369 scrips advanced as compared to 1,346 that declined while 361 remained unchanged. 17 of the 30 members of the Sensex pack were trading with gains.

The BSE Mid Cap index rose 1.08% to 8,134.92 and BSE Small cap index rose 1.58% to 9,796.86. Both these indices outperformed Sensex.

BSE Auto index (up 0.5% to 5,507.70) BSE Oil & Gas index (up 1.15% to 11,658.48), BSE Bankex (up 1% to 10,655.33), and BSE Metal (up 3.37% to 17,884.93), outperformed Sensex.

BSE Capital Goods index (down 1.06% to 19,795.32), BSE Realty index (down 0.14% to 10,502.77), BSE IT index (down 0.62% to 4,618.72) underperformed Sensex.

The NSE F&O turnover was Rs 71,090.73 crore today as compared to Rs 89,601.31 crore Tuesday, 30 October 2007.

Nifty November 2007 futures contract was trading at 5,924, at a premium of 23.35 points or 0.39% over spot price of 5,900.65.

BSE clocked a turnover of Rs 10020 crore compared to Tuesday (30 October 2007)'s Rs 10,980.56 crore.

Reliance Communications (RCom) rose 0.67% to Rs 771.95. RCom's net profit rose 73.53% to Rs 801.24 crore on 17.27% rise in total income to Rs 3,329.21 crore in Q2 September 2007 over Q2 September 2006. The company announced the results during the market hours today.

Shares of India's largest aluminium producer Hindalco Industries surged 1.6% to Rs 196.30 after it reported 7.56% rise in net profit to Rs 642.80 crore on 6.83% growth in total income to Rs 5069.50 crore in Q2 September 2007 over Q2 September 2006. The company announced the results during the market hours today.

Hindustan Unilever (HUL) declined 5.21% to Rs 207.60 and was the top loser from Sensex pack. The company's net profit declined 21.63% to Rs 408.06 crore on 9.72% rise in total income to Rs 3,470.49 crore in Q3 September 2007 over Q3 September 2006. The company said the results are not comparable to the extent of amalgamation of Modern Foods (India) and its subsidiary with the company. HUL announced the results during the market hours today.

Tata Motors rose 1.25% to Rs 757.70. Tata Motor's net profit rose 19.27% to Rs 526.84 crore on 1.09% rise in total income to Rs 6,743.31 crore in Q2 September 2007 over Q2 September 2006. The company announced the results during the market hours today.

Capital goods stocks declined after yesterday’s surge on profit booking. Bharat Heavy Electricals (down 1.55% to Rs 2,613.35), Larsen & Toubro (down 1.81% to Rs 4,344.55) and Suzlon Energy (down 0.34% to Rs 1,973.65) edged lower.

IT stocks declined as the Indian rupee inched towards a 9-½ year high on expectations foreigners will keep buying local shares and in anticipation of a US rate cut later in the day. Infosys (down 0.66% to Rs 1,839.10), Satyam Computer services (down 0.38% to Rs 477.65) and Wipro (down 0.96% to Rs 504.80) edged lower.

India's largest software services exporter Tata Consultancy Services (TCS) slipped 1.01% to Rs 1,037.90 on high volumes of 16.48 lakh shares, after three block deals were executed in early trade on BSE at discount to the then ruling market price. Two block deals of 3.01 lakh shares were executed at average price of Rs 1021 per share on BSE by 10:11 IST. A third deal of 3.60 lakh shares was struck at Rs 1023 per share at 10:12 IST.

Metal stocks climbed. Tata Steel (up 0.66% to Rs 904.50),Sterlite industries (up 0.44% to Rs 1,023) and Hindalco Industries (up 1.45% to Rs 196) edged higher.

India's second largest power utility by revenue Reliance Energy jumped 4.34% to Rs 1,866.80 and was the top gainer from Sensex pack. Its board yesterday, 30 October 2007, approved a proposal to transfer its infrastructure projects to a separate wholly owned subsidiary.

India's largest drug maker by sales Ranbaxy laboratories (up 2.94% to Rs 427.05) edged higher. Ranbaxy Laboratories after market hours yesterday, 30 October 2007, said it has secured a favourable verdict in its patent case against (Pfizer) Warner-Lambert's European Patent 409 281 (281), invalidating all relevant claims of this patent. The drug has annual sales of $137 million, Ranbaxy said in a filing with the Bombay Stock Exchange (BSE).

India’s biggest oil exploration firm by market capitalisation Oil and Natural Gas Corporation rose 2.32% to Rs 1,247.90 after it reported good Q2 results. ONGC's net profit rose 22.10% to Rs 5097.48 crore on 9.60% rise in net sales to Rs 15413.92 crore in Q2 September 2007 over Q2 September 2006. The results were announced after market hours on Tuesday, 30 October 2007.

India’s top listed cellular services provider by market capitalisation Bharti Airtel moved up 0.69% to Rs 1,006.60 after it reported a surge in net profit in Q2 September 2007 over Q2 September 2006. Bharti Aritel reported 82% rise in net profit to Rs 1619.15 crore on 44.94% rise in sales to Rs 6059.89 crore in Q2 September 2007 over Q2 September 2006. The results were announced during market hours today, 31 October 2007.

India’s largest private sector entity in terms of market capitalisation and oil refiner Reliance Industries was up 0.43% to Rs 2782.55.

HDFC Bank (up 2.15% to Rs 1,653.10) and NTPC (up 2.33% to Rs 239.40) edged higher.

Cipla declined 1.3% to Rs 178.75.

Side counters, Apcotex Industries (up 20% to Rs 47.70), Jindal Steel & Power (up 24% to 11,780), Fenoplast (up 20% to Rs 30.60, Atlas copco India (up 20% to Rs 1,184.30), Bombay Rayon Fashions (up 25.47% to Rs 284), soared.

Tulip Star Hotels (down 9.8% to Rs 103.55), Empee Sugars (down 9.77% to Rs 11.91) edged lower.

Reliance Natural Resources topped volume charts on BSE, clocking volumes of 2.82 crore shares on BSE. The stock gained 3.77% to Rs 119.85. Tata Teleservices (Maharashtra) slipped 1.09% to Rs 45.40 on 2.80 crore shares. It was the second most traded counter on BSE. Reliance Petroleum gained 6.10% to Rs 247.80 on volumes of 1.21 crore shares and stood third in terms of volumes. Nagarjuna Chemicals & Fertilisers occupied the fourth spot clocking volumes of 1.21 crore shares. The stock rose 4% to Rs 62.55. Power Grid Corporation of India advanced 2.05% to Rs 149.60. It notched volumes of 1.17 crore shares and secured fifth position.

Reliance Industries clocked highest turnover of Rs 651.42 crore on BSE. Reliance Petroleum clocked the second highest turnover of Rs 560.35 crore, followed by Jindal Steel & Power (Rs 422.52 crore), Reliance Energy (Rs 352.49 crore) and Reliance Natural Resources (Rs 338.12 crore) in that order.

US Federal Reserve holds a policy meeting later in the day to consider interest rates. Analysts speculate that Fed would cut rates by 25 basis points.

The Reserve Bank of India (RBI) in its mid-term review of the annual monetary policy yesterday, 30 October 2007, hiked cash reserve ratio (CRR) by a steep 50 basis points to 7.5%. CRR is the proportion of cash that the banks have to keep with RBI. The central bank left the reverse repo rate, the rate at which it absorbs excess cash from banks, unchanged at 6%. The bank rate, too, was unchanged at 6%%. The CRR hike which come into effect from 10 November 2007, will suck out Rs 16,000 crore from the banking system.

The bad news for the industry and the consumer is contrary to some expectations, interest rates are unlikely to soften in the near term.

European markets were in the green. France’s CAC 40 (up 0.26% to 5,818.91),UK’s FTSE 100 (up 0.22% to 6,673.70) and Germany’s DAX (down 0.21% to 7,994.33) edged higher.

Asian markets were mixed today, 31 October 2007. Hang Seng (down 0.9% at 31,352.58) and Taiwan's Taiwan Weighted (down 0.48% at 9,711.37) edged lower. South Korea's Seoul Composite (up 0.61% at 2,064.85),Singapore's Straits Times (up 0,.19% at 3,805.70) and Japan's Nikkei (up 0.52% at 16,737.63), edged higher.

Q2 September 2007 results announced so far have been decent to strong, which have aided a solid surge on the bourses this month.

Empee Distilleries

Empee Distilleries, part of the Empee Group promoted by M P Purushothaman and his family members, is manufacturing Indian-made foreign liquor (IMFL) since 1984 and sells it under own brands or through tie-ups with other companies. Its distillery located at Kanchipuram in Tamil Nadu has an installed capacity of 38.33 lakh cases per annum. Another distillery is at Palakkad in Kerala, with an installed capacity of 21.60 lakh cases per annum. The company is one of the major suppliers of IMFL products to the Tamil Nadu State Marketing Corporation (TASMAC) and one of the top ten selling brands in the IMFL 180-ml pack segment. The 2-MW windmill energy plant in the Coimbatore district of Tamil Nadu exports surplus power to the Tamil Nadu State Electricity Board.

The present public issue is to raise Rs 168 crore at the lower band (Rs 350) and Rs 192 crore at the upper band (Rs 400). The proceeds will be utilised to set up a 60-kilo litres per day (klpd) grain-based distillery in Andhra Pradesh to cater to the medium and premium categories, a 0.70-lakh cases per month bottling plant in Andhra Pradesh, and a 7.5-MW biomass-based power plant in Tamil Nadu.

Also on cards is expansion of the Tamil Nadu unit’s existing extra-neutral alcohol capacity from 20 klpd to 70 klpd and bottling capacity from 3.2 lakh cases per month to five lakh cases per month, and relocating and expanding the existing capacity of the distillery in Karnataka from 0.5 lakh cases per month to one lakh cases per month. Out of the surplus land available, there are plans to develop two lakh square feet of residential apartments in the Kanchipuram district in Tamil Nadu.

With these expansions will be used to enter new markets of Andhra Pradesh and Karnataka and strengthen existing position in Tamil Nadu. The total fund requirement for the expansion projects is estimated at Rs182 crore. A term loan of Rs 22 crore, internal accruals of Rs 9.50 crore, and the proposed IPO of Rs 192/168 crore, depending on price band of Rs 400-Rs 350 per share will be the sources of funds.

Strengths

In past, the Tamil Nadu government had not permitted any new entrants other than the existing six licensees to manufacture and market IMFL products. Even the national operators have to route their bottling operations through existing operators. Due to the entry barriers in the state, competition will not be severe. Also, opportunity to bag manufacturing contracts from national players.

The surplus land of 16.97 acres of the 20.88 acres in the Kanchipuram district in Tamil Nadu is to be utilised for development of 12.23-lakh sq ft of residential space. The project, approved by the directorate of town planning (DTCP)), is to be developed in three phases and is eligible for tax exemption under Section 80-IB of Income-Tax Act, 1961. Two-lakh sq ft of residential space is to be developed in phase I, expected to be completed by March 2009.

Apart from distillery revenue from the existing as well as upcoming plants, additional revenue stream will come from the proposed 7.5-MW biomass-based power plant in Tamil Nadu, likely to come on stream end November 2007. About 2% of the power generated will be for internal consumption and the balance sold to the Tamil Nadu State Electricity Board.

Weaknesses

Prices of liquor products are negotiated and fixed by the distributor agencies, controlled by the state government. It may not consider hike in prices to reflect increase in input costs in the same proportion. The government of Andhra Pradesh, where the grain-based distillery is to be started, has not approved rise in prices for the past many years. Similarly, Kerala State Beverages Corporation has not raised the prices of IMFL products, specially in the cheaper segment, despite the increase in prices of basic raw material such as extra-neutral alcohol by 70%. As a result, production of non-economical products had to be curtailed at the Kerala unit.

Further, the IMFL industry is politically sensitive, dependent on ideologies of the party ruling in the state and also prone to frequent changes in government policies on taxes, levies, and state excise duty. Any material changes in the duty structure might adversely impact financials.

The existing distilleries use molasses-based spirit as the basic raw material. Considering the 5% mandatory and 10% optional ethanol blending (in petrol) program, a demand-supply mismatch may push up cost and hit supply of the raw material.

Legal proceedings and pending claims in India amount to Rs 39.95 crore. An unfavorable outcome may dent profit and the finances. There are also related-party transactions of Rs 32.12 crore.

Valuation
On the annualised EPS of Rs 11.5 for the nine months ended June 2007 on post-issue equity capital, the P/E works out to 30.4 – 34.7 at the price band of Rs 350–400. The trailing 12-month (TTM) P/E of other listed IMFL players such as Radico Khaitan, Jagatjit Industries, Shaw Wallace and United Breweries is 63.9, 27.4, 43.2 and 117.4, respectively. Considering its regional presence, Empee Distilleries would trade at discount to players with leadership and national presence.

Mundra Port & Special Economic Zone

An Adani Group company, Mundra Port & Special Economic Zone is the developer and operator of Mundra Port. Incidentally, Mundra Port is one of the leading non-captive private sector ports in India based on cargo handled in the year ended March 2007 (FY 2007). Apart from operating the port, the company plans to use surplus land surrounding the port to develop a multipurpose special economic zone (SEZ) spread over 2,658.2 hectares (or about 6,568 acres). The concession period for developing and operating Mundra Port and related facilities is up to February 2031.

Once fully developed, Mundra Port &SEZ will have diverse revenue streams including income from offering port services, value-added logistic service income and lease and rental income from SEZ.

Since commencing operations in October 2001, Mundra Port & SEZ now offers facility to handle dry bulk, liquid/crude and containerised cargo. The port has four terminals. Of these, two are multipurpose terminals for handling solid and a liquid cargo and two container terminals. The company operates the solid- and liquid- cargo terminal as well as container terminal II. Incidentally, container terminal I is operated by a sub-concessionaire: Mundra International Container Terminal (MICT), part of Dubai Port World.

The Mundra port handled cargo of 19.8 million tones in FY 2007, a growth of 69% over FY 2006. In addition, the company also offers value-added port services including railway services. Adani Logistics, in which the company holds 50% stake with the balance held by the promoters, has got licence to operate container rail. Adani Logistics was operating one rail rake in the Delhi-Mundra corridor end September 2007. The company is developing the multipurpose SEZ land for industrial usage and allied social infrastructure.

Mundra Port has wide range of third-party customers that operate at or use the port, including the container sub-concessionaire MICT and the Indian Railways. Indian Oil Corporation, Indian Farmers Fertilisers Cooperative, Food Corporation of India and some of the Adani Group companies such as Adani Enterprises and Adani Wilmar are the major users of the port services. Strategic arrangement with the Indian Railways and MICT allows Mundra Port & SEZ to get revenue share for the infrastructure created by it. To connect Mundra Port with the Indian Railways network, the company has laid the Mundra-Adipur railway track and gets a share of the revenue on the cargo moved on this track. Similar revenue-sharing agreement is in place for the private container terminal operation at the port.

Mundra Port & SEZ intends to use the proceeds of the issue for 1) construction and development of basic infrastructure and related facilities in the proposed SEZ at Mundra and surrounding areas, 2) construction and development of terminal for coal and other cargo at Mundra Port, 3) investing in Adani Petronet (Dahej) Port, 4) investing in Adani Logistics’s container business, and 5) investing in Inland Conware ‘s inland container depot business.

Estimated fund requirement is about Rs 3160 crore. This covers Rs 700 crore for development of SEZ, Rs 2000 crore for coal terminal project, Rs 255 crore for Adani Petronet (Dahej) Port, Rs 49 crore for Adani Logistic, and Rs 156 crore for Inland Conware. Mundra Port & SEZ has already deployed Rs 174 crore. About Rs 1200 crore will be financed by debt, Rs 350 crore through internal accruals and the balance from the IPO proceeds.

Strengths

Mundra Port is an operational port with natural draft depth in the range of 15-32 meters at a short distance from shore, enabling it to handle large-sized future generation vessels. There are no major ports in India, either in the public or the private sector, with such a huge natural draft depth. As a result, only Mundra port is currently able to handle large new generation ships such as container liners of up to 8,000 twenty-foot equivalent units (TEUs) and modern capesize vessels (ships).

Port congestion in competing peer ports in the northern part of the western coast gives a natural advantage to Mundra Port. It currently has relatively lower congestion. The distance to northern hinterland is also shorter. This provides Mundra Port a strong growth opportunity.

Railways and roadways are important links for transportation of goods to and from any port to the cargo centres. Strong port connectivity by both rail and road; access to hinterland; and operational efficiency compared with its peers on the west coast, specially in Gujarat and Maharashtra, give an edge to Mundra Port in attracting cargo. With a capability of handling large bulk cargo vessels of more than 50,000 dead weight tonnage (DWT) equipped to handle approximately 20,000 tonnes of bulk cargo per day, the port’s vessel turnaround time was as low at 2.4 days in the quarter ended June 2007. Similarly, the vessel turnaround time at Container Terminal I stood at 14.5 hours, close to the average vessel turnaround time of 13 hours in leading ports in Asia, in the 15 months up to June 2007.

Strategic relationship with customers through long-term contracts assures stable cargo traffic and regular cash flow. Mundra Port & SEZ has long-term contracts with Indian Oil Corporation for providing port services. Similar agreement has also been inked with Guru Gobind Singh Refinery (GGSRL), a subsidiary of Hindustan Petroleum Corporation (HPCL), for single-point morring facilities and 310 acres of land for a crude-oil terminal at Mundra. Similar long-term port service agreements have been signed with Tata Power and Adani Power.

Mundra Port &SEZ is setting up a coal-handling jetty with a capacity of 30 million tonnes per annum to take care of the coal imports of about 22 million tonnes required by the Mundra ultra mega power plant (UMPP) of Tata Power and the 2,640-MW Mundra power project of Adani Power.

The around 15,665 acres of land that is owned by Mundra Port & SEZ includes the development and usage rights granted for 3,404 acres around Mundra Port under concession agreement for 30 years. Further, it also includes 2,658.2 hectares (or about 6,568 acres) of area notified as SEZ. In addition, it also has approximately 4,000 metres of undeveloped waterfront land it can utilised in growing its own port operations.

Freedom in fixing tariff is one of the major advantages enjoyed by Mundra Port & SEZ when compared with other major ports in the country that take orders from the Tariff Authority for Major Ports.

Weakness

MICT, the private operator of Container Terminal I, is contesting the operation of the second container terminal, citing the non-compete clause in the framework agreement with the private operator. The injunction sought by MICT was quashed by the city civil court. It ruled the framework agreement has been superceded by the subsequent sub-concession agreement between the parties. The matter has now been referred to arbitration by MICT. The private operator has also filed an appeal against the order of the city civil court in the high court at Ahmedabad. If the judgement is not favourable, assets will have to be transferred to MICT at consideration lower than the cost incurred by container terminal II under the frame work agreement. The non-compete clause, which will have to be adhered, will restrict operations.

The incremental growth in cargo handling was from Food Corporation of India’s (FCI) grain imports in FY 2007. FCI cargo accounts about 27% of the total bulk cargo handled by the port in FY 2007. The type and quantity of cargo largely depends on the government of India’s grain import-export policy.

Proactive steps by the Gujarat government and neighboring states such as Maharashtra in privatising minor ports could increase competition.

Since the SEZ Act came into place, a large number of SEZs have been approved. Gujarat had granted approvals for 29 SEZs as of 3 October 2007. This will heightened competition for potential investors.

The Securities and Exchange Board of India (Sebi) has prohibited the promoters of Adani Exports --- Adani Agro, Adani Impex, Crown International, Shahi Property Developers, Adani Properties, Advance Exports and International India --- from accessing the capital market and trading in securities for aiding and abetting entities associated with Ketan Parekh in manipulating the prices of equity share of Adani Enterprises. The Securities Appeal Tribune has stayed Sebi’s order. The matter is now up for hearing on 18 December 2007. Sebi has also filed a criminal complaint against Adani Enterprises and its promoters including Rajesh S Adani for executing offmarket deals.

Valuation

Income from operation grew at a CAGR of 51% from Rs 167.67 crore in FY 2004 to Rs 579.74 crore in FY 2007. Net profit was Rs 192.11 crore in FY 2007. EPS on post-issue equity of Rs 400.68 crore is Rs 4.7. P/E at the price band of Rs 400-440 work out at 85.1 and 93.6 times. There is no comparable player with presence in port and SEZ.

Mundra Port &SEZ has a double advantage of an operator of a functioning port as well as a developer of SEZ. Given the current craze for infrastructure projects, the long-term growth potential is likely to get discounted in the price well in advance and one may not need to go through the operational and regulatory uncertainties and gestation period that such large projects normally entail.

Morning Call

Market Grape Wine :

In House :

Nifty at a supp of 5830 and 5800 with resis at 5920 and 5980

Inrea Day: Buy Aban offshore above 4571 with a TGT of 4650 and a SL of 4539

Buy Bharatforge above 358 with a TGT of 370 and a SL of 354

Buy on Dips: Glenmark , REL and Abhshipyard

Out House :

Markets at a support of 19559 & 19494 levels with resistance at 19986 & 20240 levels .

Buy : RCap

Buy : REL

Buy : JpAsso bullet

Buy : RComm

Buy : IBull bullet

Buy : HCC

Buy : Glenmark & Geshipping bullet

Buy : Adlabs bullet

Buy : LT & Aban

Dark Horse : ABAN , LT , REL , Geship , RIL , Jp , Glenmark & Centextile

Bullet for the Day : IBulls , Geshipping & Glenmark with stop loss .

Market may remain range bound ahead of Fed meet

The market is expected to stay cautious ahead of US Federal Reserve’s meeting later in the day to consider interest rates. Analysts speculate that Fed would cut rates by 25 basis points on Wednesday, 31 October 2007. High volatility on the bourses cannot be ruled out. Cues from global markets were negative.

The Reserve Bank of India (RBI) in its mid-term review of the annual monetary policy yesterday, 30 October 2007, hiked cash reserve ratio (CRR) by a steep 50 basis points to 7.5%. CRR is the proportion of cash that the banks have to keep with RBI. The central bank left the reverse repo rate, the rate at which it absorbs excess cash from banks, unchanged at 6%. The bank rate, too, was unchanged at 6%%. The CRR hike which come into effect from 10 November 2007, will suck out Rs 16,000 crore from the banking system.

The bad news for the industry and the consumer is contrary to some expectations, interest rates are unlikely to soften in the near term.

Asian markets were trading lower today, 31 October 2007. Japan's Nikkei (down 0.13% at 16,629.85), Hang Seng (down 0.92% at 31,347.03), Taiwan's Taiwan Weighted (down 0.88% at 9,672.25), Singapore's Straits Times (down 0.25% at 3,788.99) and South Korea's Seoul Composite (down 0.26% at 2,047), edged lower.

US stocks ended lower yesterday, 30 October 2007, as investors turned cautious ahead of the Fed meet. The Dow Jones Industrial Average slipped 77.63 points or 0.56% to 13,792.63. The tech-laden Nasdaq Composite declined marginally by 0.73 points or 0.03% to 2816.71, while the broad-market Standard & Poor's 500 shed 9.96 points or 0.65% to 1531.02.

As per provisional data, FIIs sold shares worth a net Rs 389.12 crore, while domestic institutional investors (DIIs) were net sellers of shares worth Rs 177.24 crore on Tuesday, 30 October 2007.

Crude oil fell below $90 in Asian trade today, 31 October 2007 as investors took profit on expectations of an increase in US crude stocks. New York's main contract, light sweet crude for December delivery, was 56 cents lower at $89.82 a barrel. Brent North Sea crude for December delivery dropped 46 cents to $86.98.

The 30-shares BSE Sensex declined 194.16 points or 0.97% to 19,783.51, on Tuesday 30 October 2007. It hit an all-time high of 20,238.16 in intra-day trade on that day. The broader based S&P CNX Nifty lost 37.15 points or 0.63% to 5,868.75, on Tuesday 30 October 2007. It hit an all time high of 5,976 on that day.

Q2 September 2007 results announced so far have been decent to strong.

Pre Market Watch

Indian market is likely to have a flat opening for the day with marginal losses, as most of the market participants are unhappy with RBI''s policy review. Further the global markets are also weak. On Tuesday, the benchmark index Sensex ended up with a loss of 194.16 points to close at 19,783.51, whereas Nifty also closed with a loss of 37.15 points to close at 5,868.75. We expect that the market may trade with volatility. Further, stock specific buying can be seen & profit booking is expected at the later stages.

On Tuesday, the US markets ended marginally low as the Dow Jones Industrial Average (DJIA) ended with a loss of 77.79 points to close at 13,792.47. Further the NASDAQ Composite & S&P 500 (SPX) index also ended down by 0.73 points & 9.96 points at 2,816.71 & 1,531.02 respectively.

Indian ADRs also ended in loss. In telecommunication sector, VSNL & MTNL plunged by (5.72%) & (3.87%) respectively. In Pharma sector, Dr. Redddy''s Lab is down by (1.60%). In Banking sector ICICI bank & HDFC bank fell (3.56%) & (1.47%). Further in Technology sector, Patni Computers decreased by (1.19%), along with Wipro (0.75%) & Infosys (0.75%).

The major stock markets in Asia are trading weak. Hang Seng is trading with a loss of 291.19 points at 31,347.03. Along with this, Japan''s Nikkei is trading lower by 21.16 points to trade at 16,629.85. Singapore''s Straits Times index is also trading down by 9.46 points at 3,788.99 and Seoul Composite lost 5.37 points to trade at 2,047.

Yesterday, the FIIs stood as the net buyers as the gross equity purchased was Rs.4782.80 (in crores), and the gross debt purchased was Rs.16.80 (in crores) as against the gross equity sold was Rs.3735.40 (in crores) and the gross debt sold was Rs.7.90 (in crores). The net investment of equity was Rs.1047.40 (in crores) and the net debt investment was Rs.8.90 (in crores).

Today, Nifty has support at 5,730 and resistance at 5,928 and BSE Sensex has support at 19,570 and resistance at 19,900

Monetary policy review

Preference Issue Guidelines

Mundra Port and Special Economic Zone

Grey Market - Mundra, Religare, Reliance Power

Reliance Power 51 to 52

Mundra Port & Sez 400 to 440 335 to 340

Varun Ind. 60 41 to 43

Religare Enterprises 160 to 185 270 to 280

Barak Valley Cement 37 to 42 18 to 20

Empee Distilleries 350 to 400 138 to 140

Circuit Systems (India) Ltd. 35 2 to 3

Rathi Bars 35 3 to 4

Allied Computers 12 17 to 18

SVPCL 40 to 45 3 to 5

Daily Technicals, Market Outlook - Oct 31 2007

Daily Call - Oct 31 2007

Market may remain nervous

Nervousness in the market is likely to continue after the Sensex reported losses of around 200 points in the last session. Weakness in the global indices and major funds resorting to selling of equities in the last session could make the investors jittery from taking any fresh position. Among the key local indices, the Nifty could decline to 5800 - 5750 on the downside while on the upside there is a near term resistance at 6000. The Sensex has a likely support at 19000 and may face resistance at 20500.

US indices ended flat on Tuesday on the back of weaker economic news and lower oil prices ahead of an expected interest rate cut from the Federal Reserve today. While the Dow Jones slipped by 78 points to close at 13792, the Nasdaq was down marginally at 2817.

Major Indian ADRs, too, buckled under selling pressure on the US bourses. VSNL led the slump and tumbled 5.72% while Tata Motors declined 4.08%. Patni Computers, VSNL, MTNL, Infosys, Satyam, ICICI Bank, Dr Reddy's, HDFC Bank and Wipro lost over 1-3% each.

Crude oil prices declined sharply, with the Nymex light crude oil for December series sliding by $3.15 to close at $90.38 a barrel. In the commodity space, the Comex gold slumped $4.80 to settle at $787.80 a troy ounce.

Trading Calls

Nifty (5869) Supp 5815 Res 5998

Buy IOC (469) SL 464
Target 479, 481

Buy Glenmark (474) SL 468 Target 485, 488

Buy Rolta (699) SL 691
Target 711, 715

Sell Hero Honda (725) SL 732 Target 715, 712

Sell PNB (511) SL 516
Target 501, 498

Reddy steady, now wait for Fed

Rhythm is the basis of life, not steady forward progress.

The RBI rhythm if any was more or less as per expectations. After the phenomenal rally, profit booking coincided with the date of the CRR cut. The CRR hike is largely a pre-emptive move to check unbridled foreign capital inflows and check the rapid rise in the rupee. However, the latest tightening measures may not have much of an impact on fund flows and the rupee if the Fed cuts rates further, which is the most likely scenario as of now. Asian currencies will gain with the Fed rate cuts, and global investors will step up their investments in emerging markets like India. Also, the Indian economy will be less affected if there is any further weakness in the US housing sector and consequently in the global financial markets.

The Indian economy is on a firm footing and corporates earnings have been pretty good, barring an odd negative surprise. Downside risks are limited, though valuations may be expensive. Given the re-rating underway in the Indian market, its debatable whether conventional methods of stock valuation are still relevant or not. There may be a few bouts of selling, sometimes substantial, but on the whole there is no reason to be skeptical about the ongoing bull run.

Today, we will see some more cooling following the fall in the US and Asian markets. Bulls are most likely to regain composure soon. Volumes could dry down in the coming days. That could result in sharper upward or downward movement in select stocks.

L&T is set to bag Rs50bn (US$1.3bn) contract from the GVK-led Mumbai International Airport (MIAL), for construction of the airport buildings, new cargo complex, air-side redevelopment, and runway. The companies will jointly address a press conference in Mumbai tomorrow regarding the same.

Watch out for Gremach Infrastructure, as the company has tied up with BOMCO, a subsidiary of China National Petroleum Corp., for acquiring 40 onshore rigs and 4 offshore rigs in 3-4 years at about US$1bn. Idea Cellular and Cairn India are expected to do well as they will replace MTNL and HPCL in the Nifty from Dec. 10.

Pyramid Saimira could gain after the company said it will acquire 17 Screens in 4 locations in USA from FunAsia. Glenmark Pharma is likely to extend its good run after it announced a US$350mn licensing deal with Eli Lilly. Real estate stocks may do well on the back of strong results announced by DLF, Unitech and Parsvnath.

Sobha Developers is likely to be in the limelight as it has launched its first project in Pune. IT and oil companies may attract some attention after the RBI announced additional hedging options for these companies.

Prominent Results Today:

Aditya Birla Nuvo, AIA Engineering, Alok Industries, Amtek Auto, Amtek India, Ansal Infra, Ansal Housing, Aptech, Aurobindo Pharma, BOB, BPCL, Bharti Airtel, Birla Corp, Bombay Dyeing, Canara Bank, Central Bank, CESC, Cinemax, Deccan Aviation, DCB, Ess Dee Aluminium, Essar Oil, Essar Steel, Essar Steel, Eveready Ind, FT, Glenmark, Hindustan Unilever, Hindalco, HTMT Global, Indoco Remedies, IVR Prime, IVRCL, MTNL, Neyveli Lignite, Plethico, Power Grid, Punj Lloyd, P&G, Radico Khaitan, RCOM, Tata Motors, TV18, United Spirits, UB, Usha Martin, Videocon Industries, VSNL and Welspun India.

US stocks fell for the first time in three days on concern that the world's largest economy is weakening after Procter & Gamble's profit forecast trailed analysts' estimates, consumer confidence dropped to the lowest since 2005 and home prices declined.

Exxon Mobil, Chevron and ConocoPhillips dragged energy shares to their first loss in six days after oil retreated from a record. P&G tumbled the most since February. Citigroup led financial shares lower as the Federal Reserve began a two-day meeting to set interest rates.

The Standard & Poor's 500 Index lost 10 points, or 0.7%, to 1,531.02. The Dow Jones Industrial Average fell 78 points, or 0.6%, to 13,792.47. The Nasdaq Composite Index finished flat at 2,816.71. About five stocks declined for every three that rose on the New York Stock Exchange.

Fed policy makers meeting Tuesday and Wednesday are expected to cut the fed funds rate, a key short-term interest rate, by 25 basis points to 4.5%.

The Fed cut rates last month by 50bps in an attempt to ease up the credit market and stop the housing market collapse from sending the broader economy into a recession. It was the first rate cut in four years and at the time the bankers indicated that inflation fears had receded.

However, with oil prices near new record high and gold prices near 26-year peak, concerns remain about pricing pressure and the strength of the consumer spending. Investors will be looking for the statement accompanying Wednesday's Fed decision to address these issues, as well as other economic data, like third-quarter GDP growth report, the construction spending report and the Chicago PMI, a regional read on manufacturing.

US light crude oil for December delivery fell $3.15 to settle at $90.38 a barrel on the New York Mercantile Exchange after settling at a record $93.53 a barrel on Monday. Crude reached a record $93.80 during the session Monday.

COMEX gold for December delivery fell $4.80 to settle at $787.80 an ounce. Treasury prices were little changed, with the yield on the benchmark 10-year note at 4.38 percent, little changed from late Monday.

In currency trading, the dollar slipped a bit versus the euro after falling to another all-time low against the European currency on Monday. The dollar rose against the yen.

European stocks snapped a three-session winning streak. The pan-European Dow Jones Stoxx 600 index fell 0.4% to 384.94. Britain's FTSE 100 closed down 0.7% at 6,659.00, the German DAX 30 was down 0.4% at 7,977.94. In Paris, the CAC-40 lost 0.6% at 5,803.93.

Brazilian and Mexican stocks also fell. Brazil's Bovespa declined 1% to 64,383.13, following two consecutive sessions of closing at record highs. Mexico's IPC lost 1% to end at 31,783.62 and Chile's IPSA fell 0.3% to 3,478.02.

Asian stocks fell for a second day, led by BHP Billiton and Posco, after prices of crude oil and metals dropped. The Morgan Stanley Capital International Asia-Pacific Index lost 0.1% to 170.95 as of 9:51 a.m. in Tokyo, paring its gain this month to 4.7%.

The Nikkei 225 Stock Average was flat at 16,653. The Hang Seng in Hong Kong was down 186 points at 31,449. South Korea's Kospi index swung between gains and losses.

RBI is done, all eyes on Fed now

After hitting a new peak of 20,238 in the opening trades benchmark Sensex fell from on back of profit booking in the index heavyweights like RIL, SBI and HDFC. Markets then gradually lost ground led by the Banking and the Auto stocks after RBI hiked CRR by 50bps points. Finally the benchmark Sensex fell 194 points to close at 19,783 and Nifty close at 5,868 down 37 points.

Gayatri Projects slipped 1.2% to Rs291. The company engaged in the execution of major civil and construction works, has recorded a growth of 42.52% in net profit at Rs67.9mn during the quarter ended September 30, 2007 as against a net profit of Rs47.7mn in the same quarter previous year.

The net sales were up by 76.87% at Rs1.44bn during the quarter as compared to Rs817.3mn in the same quarter last year. The scrip has touched an intra-day high of Rs303 and a low of Rs294 and has recorded volumes of over 5,000 shares on NSE.

Gujarat Fluorochemicals slipped by 1% to Rs577. Reports stated that the company is diversifying into the power sector by investing over Rs60bn to produce 1,000 MW of wind energy within the next five years. The scrip touched an intra-day high of Rs595 and a low of Rs577 and recorded volumes of over 7,000 shares on NSE.

Maruti dropped 8.5% to Rs1087. According to reports the company has planned to invest US$1.8bn to achieve its target of producing 1mn cars by 2010-11. The scrip touched an intra-day high of Rs1203 and a low of Rs1080 and recorded volumes of over 20,00,000 shares on NSE.

Reliance Industries lost 2.2% to Rs2765. Reports stated that they have signed a production-sharing contract for two exploration blocks in Kurdistan region of northern Iraq. The scrip touched an intra-day high of Rs2854 and a low of Rs2740 and recorded volumes of over 39,00,000 shares on NSE.

Bajaj Auto was down 1% to Rs2483. The company announced that they are raising production of its 125cc motorbike to 75,000 units per month from November 2007. The scrip touched an intra-day high of Rs2565 and a low of Rs2462 and recorded volumes of over 93,000 shares on NSE.

L&T advanced by 1.2% to Rs43169 as reports stated that the company is likely to bag Rs50bn master contract for redevelopment of the Mumbai Airport. The scrip touched an intra-day high of Rs4450 and a low of Rs4226 and recorded volumes of over 17,00,000 shares on NSE.

Wipro marginally gained 0.2% to Rs510 after the company announced that it was broadening the segment focus of its technology vertical division to minimize exposure to telecom sector. The scrip touched an intra-day high of Rs516 and a low of Rs498 and recorded volumes of over 8,00,000 shares on NSE.

Banking stocks pared their early gains after RBI’s rate decision. SBI slipped 3% to Rs2055, HDFC Bank was down 1.6% to Rs1620 and PNB dropped 5% to Rs510.

Stocks in News:

HDFC sells 26% equity, 32.5mn shares, in its general insurance business to German insurer Ergo.

Singapore based SembCorp Marine and Standard Chartered Asia Private Equity have picked up 2.5% each in Pipavav Shipyard.

Jet Airways is all set to connect Bangalore and Hyderabad to US.

Jet Airways targets US$3bn revenues in three years.

Renault eyes truck alliance with Eicher Motors.

Infosys is expected to close 15 big deals worth US$100mn or more in the next 10 months.

Reliance Retail plans to hive off its various retail verticals into 40
separate entities.

Praj Industries commissions bio-ethanol plant in UK.

Ashok Leyland aims for 40% of Indian commercial vehicle market in 3-5 years; more than doubling capacity to 184,000 units pa by 2010.

GTL Infrastructure issues US$300mn FCCBs and plans to roll out 25,000 towers across India.

Bajaj Electricals to tie-up with Italian company to launch hobs, gas appliances and chimneys in India.

Wheels India will scale up capacity to 10mn by April with an investment of Rs1bn.

Cisco and Satyam announce JV with focus on healthcare.

Air Deccan has applied for global routes.

ABG Shipyard to make diesel engines for ships.

Lanco group plans US$100mn for power business expansion.

Fund Activity:

FIIs were net sellers of Rs3.89bn (provisional) in the cash segment on Tuesday and the local institutions too offloaded shares worth Rs1.77bn.

In the F&O segment, foreign funds were net sellers at Rs32.76bn.

On Monday, FIIs pumped in Rs10.47bn in the cash segment. Mutual Funds too were net buyers of Rs4.19bn.

Major Bulk Deals:
HDFC MF has sold Heritage Foods; Citigroup has bought Jaihind Projects; Prudential ICICI MF has sold Jain Irrigation.

Upper Circuit:
Deep Industries, MFR, Gremac Infrastructure, Prakash Industries, Marathin Nextgen, Empire Industries, Bajaj Electricals, Ferro Alloys, Prime Focus, ABG Heavy, Sulzer India and BF Utilities.

Lower Circuit:
HFCL, Jai Corp and IT People.

RBI Policy Document - Mid 2007

Andhra Bank, Federal Bank, Gokaldas, Grasim, Infoedge, JSW, Maruti, SBI, Tata Tea, United Phosphorus

Nifty futures at premium

Turnover in F&O segment increases

Nifty November 2007 futures were at 5892, at a premium of 23.25 points as compared to spot closing of 5868.75.

NSE’s futures & options (F&O) segment turnover was Rs 89,601.31 crore, which was higher than Rs 69,537.38 crore on Monday, 29 October 2007.

Reliance Capital November 2007 futures were at premium, at 2142, compared to the spot closing of Rs 2125.85.

Reliance Natural Resources November 2007 futures were equal, at 115.55, compared to the spot closing of Rs 115.55.

Power Grid Corporation of India November 2007 futures were at premium, at 148.55, compared to the spot closing of Rs 146.75.

In the cash market, the S&P CNX Nifty lost 37.15 points or 0.63% at 5868.75.

Crude plunges back to $90

Prices slip as Goldman Sachs announces that it is time to take profits

After marking record highs since the past couple of days, crude oil prices slipped today drastically and was back at the $90/barrel level. Prices slipped due to a number of reasons. Traders speculated that this week’s energy inventory report is expected to show rise in US crude inventories. Expected resumption in production at Petroleos Mexicanos also helped in easing prices. Top of it, there were reports that Goldman Sachs has urged investors to take profits.

For the day ending Tuesday, 30 October, 2007, crude-oil futures for light sweet crude for December delivery closed at $90.38/barrel (lower by $3.15/barrel or 3.4%) on the New York Mercantile Exchange. Prices rose to $93.8/barrel today earlier in the day during intraday trading. Prices are up 48% on a yearly basis. Futures prices for petroleum products also fell today, but natural gas bucked the trend.

Mexico's state-owned Petroleos Mexicanos, one of the largest crude suppliers to the U.S, said yesterday that it halted production of 600,000 barrels a day due to bad weather. The company plans to resume production in a couple of days.

As reported, Goldman said in a report it was closing its long position in New York oil futures. Long positions are bets that prices will rise.

Brent crude oil for December settlement fell $2.88 (3.2%) to close at $87.44 a barrel on the London-based ICE Futures Europe exchange.

In the currency market today, the dollar was little changed after falling to a record $1.4438 against the euro yesterday. Dollar had dropped on speculation that Federal Reserve might be going for another interest rate cut day after tomorrow.

petroleum products also fell today, but natural gas bucks the trend

Natural gas rose for a fifth session in New York on forecasts for below seasonal temperatures next week in the largest consuming regions. Gas for December delivery rose 4.7 cents (0.6%) to settle at $8.021 per million British thermal units.

Against this backdrop, November reformulated gasoline fell 8.46 cents (3.6%) at $2.2428 a gallon and November heating oil dropped 4.66 cents (1.9%) at $2.418 a gallon.

At the MCX, crude oil for October delivery closed at Rs 3599/barrel, lower by Rs 38 (1.04%) against previous day’s close. Natural gas closed at Rs 316.9/mmtbu as against previous close of Rs 312.9/mmtbu, higher by Rs 4/ mmtbu.

OPEC has planned to boost daily oil production by 500,000 barrels. OPEC's production target is 27.2 million barrels a day, beginning 1 Nov. OPEC, has decided to raise their daily output by 500,000 barrels per day, starting 1 November.

Attacks on oil facilities in Middle East and tight supplies from OPEC have bolstered crude prices this year. As per the U.S. Energy Information Administration, tight global energy supplies are expected to keep energy prices high through 2008.

The Energy Department will come out with the weekly inventory report on natural gas for week ended Friday, 26 October, tomorrow morning at Washington at 10.30 E.T.

Tuesday, October 30, 2007

FII: + Rs 1047 ; MF + Rs 419 Cr

Mkt Sources:

FII Gross purchases Rs 4783 Cr, Gross sales Rs 3735 Cr,Net Buyers Rs 1047 Cr.
MF Gross Purchases Rs 1460 Cr, Gross Sales Rs 1040 Cr, Net Buyers Rs 419 Cr.

Our View:

With the clearance on the P notes issues the FII inflows seem to have resumed. The Fed meet is scheduled tomorrow and the rate cut hopes are high. The further inflow of funds would depend largely on that. Any fresh positions at this point must be taken with caution as the indices have just sneaked in the 20,000 levels and are near the all time highs. Value added services by experts is recommended at this stage.

Arvind Mills, Kotak Mahindra Bank, Raymond, Voltas

Commodities, Metals

Barak Valley, Hindustan Zinc, Mahindra and Mahindra, Varun Industries, Religare Enterprises

Market Close: Volatile on Credit policy..

Great rally yesterday, Indices finally crossed the 20k mark in the early sessions. Indices touched all time high in early trades After the RBI meet indices witnessed profit bookings. Sensex lost its ground in the mid sessions and fell in the red zone after RBI raised the Cash Reserve Ratio (CRR) by 50 basis points to 7.5% but left the other rates unchanged. Indices some how managed a solid recovery after the initial fall as buying intensified in the heavy weights. But, the recovery was short lived as the market plunged down in negative zone during the final hour. Auto, Banking and IT stocks heavy profit taking while selective Capital goods and Metal stocks gained investors interest. Mid cap and Small cap both end marginally down. Asian markets ended in mix, while Europe followed the same mixed trend.

The central bank raised the CRR by 50 basis points to 7.5 % in its move to suck out the excess liquidity in the system, but kept its key lending rates unchanged. RBI also left the reverse repo and repo rate unchanged. Now everybody has its eyes on the Fed to see whether it cuts the interest rates or not. Market is expecting a cut of 25 bps but Crude at over $ 93 is a looming risk. So all eyes on FED meet?

Sensex ended at 19,779 lower by 199 points. Supporting the sensex were the gains in REL Energy (+4.20%), BHEL (+1.72%), L&T (+0.64%), NTPC (+0.45%) and Bharti Airtel.(+0.15%). Restricting the gains were the losses in Maruti (-8.12%). M&M (-6.36%), TATA Motors (-4.23%) and SBI (-2.26%).

Reliance Energy reported that it would transfer its infrastructure projects to a separate, wholly-owned subsidiary for which it has already obtained the approval of the board. The board has approved a proposal to further unlock overall shareholder value by transferring its infrastructure projects to a separate 100% subsidiary, subject to compliance with applicable laws. The infrastructure projects include roads, bridges, metro rail and real estate. The announcement comes on the heels of REL's plans to list another subsidiary Reliance Power to raise an estimated Rs 12,000 crore. REL has already transferred its power projects to Reliance Power. The stock was top gainer for the day and ended up by 4.20% at close.

ABG Shipyard reported good results for Q2 FY07. The revenues grew by 26% to Rs 212 cr and the bottom line grew by 26% to Rs 34 on yoy basis. The Ebidta profit enhanced by 33% to Rs 64 cr and Ebidta margins stood at 30% higher by 100 bps on yoy basis points. Decrease in Raw Material helped Ebidta margins to improve by 100 bps. Valuation appears rich at the current market price of Rs 740 the stock trades at 29 times trailing earnings. The worry to the business is subsidy issue; still the Govt has not taken any decision which got over in the month of August 2007. We expect the subsidy to continue if not Indian ship builders are not cost competitive in global scenario. As of now ABG order book is at Rs 7200 cr, of which 70% is for export. Expect a detailed note on this. The stock performed well on healthy result and ended up by 5%.

Technically Speaking: Market trades volatile for the whole day after the credit policy issue. Sensex traded between an intraday high of 20238 and low of 19694. The breadth was in favor of decline as there were 1760 declines against 1217 advances. The volume for the day stood at Rs.10949 Cr.

Jindal Steel Power,BHEL, HDFC, Maruti Suzuki, PNB, Pantaloon, HPCL, Jet Airways, Sobha Developers, OBC, JK Bank, Jagran Prakashan, Jyoti Structures,

Jindal Steel Power,BHEL, HDFC, Maruti Suzuki, PNB, Pantaloon, HPCL, Jet Airways, Sobha Developers, OBC, JK Bank, Jagran Prakashan, Jyoti Structures, RPL, IOB, Banking, Economy

UTV, Cadila, Peninsula Land, Nicholas Piramal - BUY; Bank of Maharashtra - HOLD; MindTree - SELL

DLF Q2 net profit up 32% at Rs 2018 cr

DLF Ltd, the country's largest real estate firm on Tuesday reported a 32 per cent increase in its consolidated net profit at Rs 2,018 crore for quarter ended September 30 against Rs 1,524 crore in the first quarter of the current fiscal fuelled by robust growth in volume.

The consolidated revenue grew by 7.3 per cent at Rs 3,349 crore during July-September quarter against Rs 3,121 crore in the previous quarter.

"Execution of projects and enhanced volume have led to the growth," DLF Vice Chairman Rajiv Singh told reporters.

It has also declared an interim dividend of 100 per cent, that is, Rs 2 on shares of face value Rs 2 each.

The net profit for the second quarter in current fiscal is more than the total profit for the entire 2006-07 financial year, which stood at Rs 1,933.65 crore.

DLF, which got listed on stock market in July by raising over Rs 9,000 crore through IPO, announced its entry into the mid-income segment in residential with first launch planned in the third quarter. It would launch projects in south India.

"We will launch 4-5 projects in next six months," Singh said, adding that mid-income segment for DLF would be Rs 35-50 lakh for a 3-bedroom apartment covering 1500 sq ft of area.

During the quarter, DLF has increased the developable area to 738 milion sq ft from 615 million sq ft. The area under construction at the end of second quarter stood at 54 million sq ft.

On the proposed investment in Bangalore township spread over 9,000 acre that it has recently bagged, Singh said it would be about Rs 10,000-12,000 crore in next 2-3 years, which would be shared between DLF and Dubai-based Limitless in form of equity and debt.

Industry reaction to CRR hike

Industry bodies Ficci, CII, Assocham, PHDCCI and FIEO today gave a mixed reaction to the 50 basis point increase in cash reserve ratio (CRR) announced by the Reserve Bank of India in its mid-term monetary policy review.

Ficci, Assocham and FIEO were of the view that the CRR hike may further hurt credit growth.

"While RBI has maintained the Bank Rate and Repo Rate at the earlier levels, the increase in CRR by 50 basis points will impound liquidity thus reducing lendable resources of the banks," Ficci said in a release.

Ficci president Habil Khorakiwala expressed hope that the CRR increase will not have an adverse impact on the lending rates, which are already at a high level.

Federation of Indian Export Organisations (FIEO) said the 50 basis points increase in the cash reserve ratio will adversely impact small and medium enterprises.

FIEO president Ganesh Kumar Gupta expressed disappointment that no significant measures had been taken to reduce the cost of credit to the SME export sector in view of the appreciating rupee impacting export growth.

"An increase in CRR by 50 bps will restrict credit for the SME sector, and could create a liquidity crunch adversely affecting trade and industry," he said.

Gupta also appealed for a package to bail out the SME export sector.

CII said RBI’s review of monetary policy was on expected lines. However, keeping in mind the international trends in interest rates, and particularly the indications coming in from the United States, RBI could have considered an interest rate (Repo Rate) cut to go along with the CRR hike of 50 bps, CII said.

Associated Chambers of Commerce and Industry of India (Assocham) said interest rates should have been reduced to help the industry. Assocham president Venugopal N. Dhoot said banks would now find it difficult to reduce the interest rates. CRR hike may also further hurt the credit offtake, he added.

Sanjay Bhatia, president, PHDCCI, said the increase in CRR should have been avoided. He, however, welcomed no change in Bank Rate, Repo Rate and the Reverse Repo Rate.

FICCI, CII and PHDCCI also welcomed measures announced by the RBI to permit importers and exporters having foreign currency exposures to write covered call and put options and permitting oil companies to hedge their foreign exchange exposures. These measures would help the relevant players deal with rupee appreciation more effectively, they said.

CRR hiked

Reserve Bank of India (RBI) today dashed hopes of interest rates easing in the near future as it hiked the cash reserve ratio (CRR) by 0.5% to 7.5% to suck out liquidity with effect from the fortnight beginning November 10, 2007.

The central bank, however, left all key rates (Bank Rate - 6%, Repo - 7.75% and Reverse Repo - 6%) unchanged in the mid-term review of the monetary policy.

CRR is the amount of cash banks need to park with RBI, which does not pay any interest on such deposits. Between December 2006 and July 2007, RBI has raised CRR by 2% to 7%, and has sucked out about Rs 56,000 crore from the financial system.

Unveiling the busy season monetary policy, RBI Governor Y V Reddy sent strong signals that the apex bank's hawkish stance would continue in order to ensure price stability, credit quality and orderly conditions in the financial market.

Flush with funds, commercial banks have been reducing deposit rates to bring down their cost of funds and slashing rates on new retail loans to improve credit offtake. This had raised hopes of interest rates falling further although bankers maintained there would be no change in the rate regime.

ICICI Bank joint managing director Chanda Kochhar said the CRR hike will stabilise liquidity, and "further hike in interest rates is unlikely."

The central bank left the economic growth projection for 2007-08 unchanged at 8.5% and continued to focus on keeping inflation low.

Though inflation has come down to 3.07%, RBI expects it to be in the vicinity of 5% by the end of 2007-08. Going forward, it resolved to contain inflation expectations in the range of 4-4.5% so that an inflation rate of around 3% becomes a medium-term objective.

Highlighting several challenges facing the conduct of monetary policy, RBI said management of capital flows, related liquidity implications and overall stability were the biggest challenges.

Yet another challenge was rapid escalation in asset prices, particularly equity and real estate, driven by capital flows which are often opaque, highly leveraged and largely unregulated, the RBI observed.

"Monetary policy will have to contend with the risks to overall macroeconomic stability and threats to inflation expectations emanating from fluctuations in asset prices, the re-pricing of risks and their diffusion across the financial system," it said.

It observed that the momentum in investment has been affected by changes in the interest rate cycle and spending on capital expenditure and infrastructure has weathered the transient slack in industrial activity in the second quarter.

Key monetary aggregates like the reserve money and money supply have been running well above initial projections, it said.

Asset prices remain at elevated levels although there is some anecdotal evidence of stabilising real estate prices, the RBI said.

The apex bank said equity prices were at record highs and although inflation, in terms of wholesale prices appears to have eased, remains high in terms of consumer prices.

To curb the menace of recovery agents, RBI has asked banks to prescribe specific considerations while engaging recovery agents.

The third quarter review of the annual policy statement will be undertaken on Tuesday, January 29, 2008, the central bank said.

Following is the press release issued by the central bank today:

Dr. Y. Venugopal Reddy, Governor, presented the mid-term review of annual policy for the year 2007-08 today in a meeting with chief executives of major commercial banks.

The Mid-term Review consists of two parts: Part I Mid-term Review of the Annual Statemenat on Monetary Policy for the Year 2007-08; and Part II Mid-term Review of the Annual Statement on Developmental and Regulatory Policies for the Year 2007-08.

Highlights

Bank Rate, Repo Rate and Reverse Repo Rate kept unchanged.

The flexibility to conduct overnight repo or longer term repo including the right to accept or reject tender(s) under the LAF, wholly or partially, is retained.

CRR increased by 50 basis points to 7.5 per cent effective fortnight beginning November 10, 2007.

GDP growth forecast retained at 8.5 per cent during 2007-08, assuming no further escalation in international crude prices and barring domestic or external shocks

Inflation to be contained close to 5.0 per cent during 2007-08 while resolving to condition expectations in the range of 4.0-4.5 per cent, with a medium-term objective of inflation at around 3.0 per cent.

Moderating net capital flows so that money supply is not persistently out of alignment with indicative projection of 17.0-17.5 per cent.

Covering of ‘Short-sale’ and ‘When Issued’ transactions to be permitted outside the Negotiated Dealing System – Order Matching (NDS-OM) system.

Systemically important non-deposit taking NBFCs (NBFC-ND-SI) to be considered as ‘qualified entities’ for accessing the NDS-OM using the Constituents’ Subsidiary General Ledger (CSGL) route.

Reinstatement of the eligible limits under the past performance route for hedging facility to be permitted.

Oil companies to be permitted to hedge foreign exchange exposures by using overseas over-the-counter (OTC)/ exchange traded derivatives up to a maximum of one year forward.

Importers and exporters having foreign currency exposures to be allowed to write covered call and put options in both foreign currency/ rupee and cross currency and receive premia.

Authorised Dealers (ADs) to be permitted to run cross currency options books subject to the Reserve Bank’s approval. ADs to be permitted to offer American options as well.

Working Group to be constituted for preparing a road-map for migration to core banking solutions (CBS) by Regional Rural Banks (RRBs).

RRBs and State/ Central Cooperative Banks to disclose their capital-to-risk weighted assets ratio (CRAR) as on March 31, 2008 in their balance sheets.

A road-map to be evolved for achieving the desired level of CRAR by these banks.

High Level Committee to be constituted to review the Lead Bank Scheme.
Financial assistance to RRBs for implementing information and communication technology (ICT) based solutions.

Working group to be constituted to lay down the road-map for cross-border supervision and supervisory cooperation with overseas regulators, consistent with the framework envisaged in the Basel Committee on Banking Supervision (BCBS).

Besides general market risk, specific risk, especially the credit risk arising out of deficient documentation or settlement risk to be covered under the supervisory process.

Action plan to be drawn up for implementation of National Electronic Clearing Service (NECS) with centralised clearing and settlement at Mumbai.

Domestic Developments

Real GDP growth during the first quarter of 2007-08 is placed at 9.3 per cent as against 9.6 per cent in the corresponding quarter a year ago.

The year-on-year (Y-o-Y) wholesale price index (WPI) inflation eased from its peak of 6.4 per cent on April 7, 2006 to 3.1 per cent by October 13, 2007.

The average price of the Indian ‘basket’ of international crude has increased to US $ 80.0 per barrel as on October 23, 2007 from US $ 72.1 per barrel in July-September, 2007.

The Y-o-Y CPI inflation for industrial workers showed a sharp increase to 7.3 per cent in August 2007 as against 6.3 per cent a year ago.

The Y-o-Y growth in money supply (M3) was higher at 21.8 per cent on October 12, 2007 than 18.9 per cent a year ago.

The Y-o-Y growth in aggregate deposits at Rs.5,69,061 crore (24.9 per cent) was higher than that of Rs.3,88,528 crore (20.4 per cent) a year ago.

Total credit exhibited a Y-o-Y growth of Rs.3,81,333 crore (23.3 per cent) as on October 12, 2007 on top of an increase of Rs.3,66,463 crore (28.8 per cent) a year ago.

The Y-o-Y growth in total resource flow from scheduled commercial banks (SCBs) to the commercial sector was 22.1 per cent, over and above the growth of 28.0 per cent a year ago.

Banks’ holdings of Government and other approved securities increased to 30.0 per cent of their net demand and time liabilities (NDTL) as on October 12, 2007 from 28.0 per cent at end-March 2007.

The overhang of liquidity under the LAF, MSS and the Central Governments’ cash balances taken together increased to Rs.2,22,582 crore by October 24, 2007 from Rs.85,770 crore at end-March 2007.

The Government of India, in consultation with the Reserve Bank, revised the ceiling under MSS for the year 2007-08 from Rs.1,10,000 crore to Rs.1,50,000 crore on August 8, 2007 and further to Rs.2,00,000 crore on October 4, 2007.

During the second quarter of 2007-08, financial markets remained generally stable with conditions of abundant liquidity and interest rates moderated in almost all segments of the financial system.

During April-October 2007, public sector banks (PSBs) decreased their deposit rates, particularly at the upper end of the range for various maturities, by 25-60 basis points.

During April-October 2007, the benchmark prime lending rates (BPLRs) of private sector banks moved from a range of 12.50-17.25 per cent to 13.00-16.50 per cent.

The range of BPLRs for PSBs and foreign banks, however, remained unchanged at 12.50-13.50 per cent and 10.00-15.50 per cent, respectively, during this period.

The BSE Sensex increased from 13,072 at end-March 2007 to 19,243 on October 26, 2007.

The gross market borrowings of the Central Government through dated securities at Rs.1,27,060 crore (Rs.1,17,548 crore a year ago) during 2007-08 so far (up to October 26) constituted 67.3 per cent of the budget estimates (BE) while net market borrowings at Rs.75,387 crore (Rs.65,951 crore a year ago) constituted 68.7 per cent of the BE.

External Sector

Merchandise exports rose by 18.2 per cent in US dollar terms during April-August 2007 as compared with 27.1 per cent in the corresponding period of the previous year while import growth was higher at 31.0 per cent as compared with 20.6 per cent in the previous year.

Non-oil imports rose by 44.3 per cent (10.9 per cent a year ago); oil imports, however, slowed down to 6.0 per cent (44.5 per cent), mainly on account of moderation in the price of the Indian basket of crude oil by 0.5 per cent during April-August 2007.

India’s foreign exchange reserves increased by US $ 62.0 billion during 2007-08 and stood at US $ 261.1 billion on October 19, 2007.

The rupee appreciated by 10.3 per cent against the US dollar, by 2.4 per cent against the euro, by 5.4 per cent against the pound sterling and 7.1 per cent against the Japanese yen during the current financial year up to October 26, 2007.

Global Developments

The downside risks to the global economic outlook have increased from a few months ago, accentuated by the recent financial market turmoil, firm inflationary pressures and high and volatile crude prices.

According to the IMF’s World Economic Outlook (WEO) released in October 2007, the forecast for global real GDP growth on a purchasing power parity basis has been retained at 5.2 per cent for 2007 as in the July 2007 update, down from 5.4 per cent in 2006, but forecast for 2008 has been revised down to 4.8 per cent in October from 5.2 per cent in the July 2007 update.

In the US, real GDP growth had risen to 3.8 per cent in the second quarter of 2007 as compared with 2.4 per cent a year ago - The IMF’s October 2007 WEO expects the US economy to grow at 1.9 per cent in 2007 and 2008 as against 2.9 per cent in 2006.

There was a sudden fall in credit market confidence in late July brought on by the spread of risks from exposure to the US sub-prime mortgages with credit crunch spreading into corporate bond markets and equity markets.

The European Central Bank and the US Federal Reserve, which have intervened since August 9 by providing liquidity to the inter-bank market, were joined by central banks in Canada, Japan, Australia, Norway and Switzerland.

Bank of England has provided liquidity support to a mortgage lending bank, while giving a blanket guarantee to depositors on the safety of their deposits.

Several central banks have cut policy rates during the third quarter of 2007 after financial markets were significantly affected by turbulence, such as the US Federal Reserve, the Banco Central do Brasil, Bank Indonesia (BI) and the Bank of Thailand.

The central banks that have tightened their policy rates include the European Central Bank; the Bank of England; the Bank of Japan; the Bank of Canada; the Reserve Bank of Australia; the Reserve Bank of New Zealand; the People’s Bank of China; the Bank of Korea; the Banco de Mexico; and the Banco Central de Chile.

A few central banks in Asia have used supplementary measures for tightening, besides increasing key policy rates. The only central bank that has kept policy rates steady is the Bank Negara Malaysia.

Overall Assessment

Some positive elements in the global economy are (i) the global economy is strong and resilient; (ii) EMEs, by and large, have a better macro-environment than before; (iii) globally, corporate balance sheets are strong and less leveraged than in the past; (iv) large financial intermediaries are perhaps adequately capitalised to absorb the shocks of credit infirmities; and (v) the inflation environment has been, on the whole, benign.

The global environment is fraught with uncertainties with international crude prices at new highs, having breached the level of US $ 90 per barrel while elevated food and metal prices would, in current circumstances, pass through to domestic inflation.

The US Federal Reserve has been the most aggressive in terms of easing monetary policy, with a higher than expected rate cut, reflecting the concerns over impact of housing issues on consumption and, hence, growth.

The most important issue for India is the possible impact of global financial market developments and policy responses by central banks in major economies.

The immediate task for public policy in India, therefore, is to manage the possible financial contagion which is in an incipient stage with highly uncertain prospects of being resolved soon.

On the domestic front, aggregate demand conditions have remained firm and on the uptrend.

Key monetary aggregates, i.e., reserve money and money supply have been running well above initial projections, reflecting the impact of higher than expected deposit growth and the exogenous expansionary effects of capital inflows as well as the drawdown of fiscal cash balances.

The incomplete pass-through of international prices of crude, metals, food and commodities in general to consumer prices is indicative of suppressed inflation which carries destabilising potential into the future.

The policy responses in the form of active liquidity management operations to modulate expansionary monetary and financial conditions were reflected in a generally orderly evolution of market liquidity.

Since late July, global financial markets have experienced unusual volatility, strained liquidity and heightened risk aversion.

While the trigger was the rising default rates on sub-prime mortgages in the US, the source of the problem was significant mis-pricing of risks in the financial system.

Easy monetary policy, globalisation of liquidity flows, wide-spread use of highly complex structured debt instruments and inadequacy of banking supervision in coping with financial innovations also contributed to the severity of the crisis.

At the current juncture and looking ahead, on the domestic front, the biggest challenge for monetary policy is the management of capital flows and the attendant implications for liquidity and overall stability.

Yet another challenge is the rapid escalation in asset prices, particularly equity and real estate, which are significantly driven by capital flows.

Over the next twelve to eighteen months, risks to inflation and inflation expectations would also continue to demand priority in policy monitoring.

Stance of Monetary Policy

Real GDP growth in 2007-08 is placed at 8.5 per cent for policy purposes, as set out in the Annual Policy Statement of April 2007 and reiterated in the First Quarter Review.

Policy endeavour would be to contain inflation close to 5.0 per cent in 2007-08 and the resolve, going forward, would be to condition expectations in the range of 4.0-4.5 per cent so that an inflation rate of 3.0 per cent becomes a medium-term objective.

Moderating the expansionary effects of net capital flows is warranted so that money supply is not persistently out of alignment with the indicative projections.

The Reserve Bank will continue with its policy of active demand management of liquidity through appropriate use of the CRR stipulations and open market operations (OMO) including the MSS and the LAF, using all the policy instruments at its disposal flexibly, as and when the situation warrants.

Barring the emergence of any adverse and unexpected developments in various sectors of the economy and keeping in view the current assessment of the economy including the outlook for inflation, the overall stance of monetary policy in the period ahead will broadly continue to be:

* To reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment that supports export and investment demand in the economy so as to enable continuation of the growth momentum.

* To re-emphasise credit quality and orderly conditions in financial markets for securing macroeconomic and, in particular, financial stability while simultaneously pursuing greater credit penetration and financial inclusion.

* To respond swiftly with all possible measures as appropriate to the evolving global and domestic situation impinging on inflation expectations, financial stability and the growth momentum.

* To be in readiness to take recourse to all possible options for maintaining stability and the growth momentum in the economy in view of the unusual heightened global uncertainties, and the unconventional policy responses to the developments in financial markets.

Monetary Measures

The Bank Rate has been kept unchanged at 6.0 per cent.

The repo rate under the LAF is kept unchanged at 7.75 per cent.

The reverse repo rate under the LAF is kept unchanged at 6.0 per cent.

The Reserve Bank has the flexibility to conduct repo/reverse repo auctions at a fixed rate or at variable rates as circumstances warrant.

The Reserve Bank retains the option to conduct overnight or longer term repo/reverse repo under the LAF depending on market conditions and other relevant factors. The Reserve Bank will continue to use this flexibility including the right to accept or reject tender(s) under the LAF, wholly or partially, if deemed fit, so as to make efficient use of the LAF in daily liquidity management.

CRR increased by 50 basis points to 7.5 per cent effective fortnight beginning November 10, 2007.

Developmental and Regulatory Policies

Financial Markets

Non-Competitive Bidding Scheme in the Auctions of State Development Loans (SDLs) to be operationalised by March 31, 2008.

Re-issuance of SDLs in the second half of 2007-08.

The facility of new issuance structure for floating rate bonds (FRBs) is being built into the new Negotiated Dealing System (NDS) auction system being developed by the Clearing Corporation of India Limited (CCIL).

The Reserve Bank is committed for permitting market repos in corporate bonds, once the corporate debt markets develop and the Reserve Bank is assured of availability of fair prices, and an efficient and safe settlement system based on delivery versus payment (DvP) III and Straight Through Processing (STP) is in place.

Covering of ‘Short-sale’ and ‘When Issued’ transactions to be permitted outside the Negotiated Dealing System – Order Matching (NDS-OM) system.

Systemically important non-deposit taking NBFCs (NBFC-ND-SI) to be considered as ‘qualified entities’ for accessing the NDS-OM using the Constituents’ Subsidiary General Ledger (CSGL) route.

The facility of permitting all exporters to earn interest on their Exchange Earners’ Foreign Currency (EEFC) accounts to the extent of outstanding balances of US $ 1 million per exporter is extended up to October 31, 2008 and banks are free to determine the rate of interest.

Reinstatement of the eligible limits under the past performance route for hedging facility provided that supporting underlying documents are produced during the term of the hedge undertaken.

Oil companies to be permitted to hedge their foreign exchange exposures to the extent of 50 per cent of their inventory volume as at the end of the previous quarter by using overseas over-the-counter (OTC)/ exchange traded derivatives up to a maximum of one year forward.

Importers and exporters having foreign currency exposures to be allowed to write covered call and put options in both foreign currency/ rupee and cross currency and receive premia.

Authorised Dealers (ADs) to be permitted to run cross currency options books, subject to the Reserve Bank’s approval. ADs to be permitted to offer American options as well.

Credit Delivery

Internal Working Group to be constituted to examine the recommendations of the Committee on Agricultural Indebtedness (Chairman: Dr. R. Radhakrishna) relevant to the banking system in general and the Reserve Bank, in particular.

Working Group to be constituted with representatives from the Reserve Bank, the NABARD, sponsor banks and RRBs for preparing a road-map for migration to core banking solutions (CBS) by RRBs.

RRBs and State/ Central Cooperative Banks should disclose the level of CRAR as on March 31, 2008 in their balance sheets. A road-map may be evolved for achieving the desired level of CRAR by these banks.

Working Group to be constituted to study the recommendations of Sengupta Committee report on ‘Conditions of Work and Promotion of Livelihood in the Unorganised Sector’ relevant to the financial system and suggest an appropriate action plan for implementation of acceptable recommendations.

High Level Committee to be constituted to review the Lead Bank Scheme.
Proposed to prepare a concept paper on financial literacy-cum-counseling centres detailing the future course of action.

Financial assistance to RRBs for implementing information and communication technology (ICT) based solutions, including installation of solar power generating devices for powering ICT equipment in remote and under-served areas.

Prudential Measures

Final guidelines on Credit Default Swaps would be issued by end-November 2007.

Banks are urged to follow prescribed specific considerations while engaging recovery agents. Abusive practices followed by banks’ recovery agents would invite serious supervisory disapproval.

Constitution of a working group to lay down the road-map for adoption of a suitable framework for cross-border supervision and supervisory cooperation with overseas regulators, consistent with the framework envisaged in the Basel Committee on Banking Supervision (BCBS).

In order to enhance the effectiveness of the banking supervisory system, the process of consolidated supervision to be integrated with the financial conglomerate monitoring mechanism for bank-led conglomerates.

It is proposed to cover, besides general market risk, specific risk, especially the credit risk arising out of deficient documentation or settlement risk, under the supervisory process.

Institutional Developments

Banks are urged to ensure that adequate disaster recovery systems are put in place to fully comply with the requirements.

Banks are urged to draw up time-bound action plans for implementation of CBS across all their branches.

An action plan to be drawn up for implementation of National Electronic Clearing Service (NECS) using the existing infrastructure of National Electronic Funds Transfer (NEFT) system with centralised clearing and settlement at Mumbai.

Working group to be constituted comprising representatives of the Reserve Bank, State Governments and the Urban Cooperative Banks (UCBs) to examine the various areas where IT support could be provided by the Reserve Bank to UCBs.

The Committee on Financial Sector Assessment (CFSA) (Chairman: Dr.Rakesh Mohan; Co-Chairman: Dr.D.Subbarao) submitted an interim report delineating its approach and reviewing the progress of work to the Finance Minister and Governor, Reserve Bank of India in July 2007. The CFSA is expected to complete the assessment by March 2008 and lay out a road-map for further reforms in a medium-term perspective.

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