Market Close: Profit booking or Correction..?

After yesterday?s rollercoaster ride, the markets once again witnessed same volatile ride today. SEBI?s regulation to limit derivative instruments like P-Notes continued to haunt the indices. The markets today recorded its second biggest fall of over 700 points after the initial rally of 500 points in the morning. However, the whole market mood turned after mid session as it pared all the gains as it slipped into the negative terrain with intense selling pressure witnessed across the board. Indices saw some panic selling which saw a free fall in the red zone with rumors floating in the market that margin calls may be triggered and that the NSE would increase margin requirements. But NSE declined it saying there was nothing like this. Rumours of political uncertainty also surfaced saying that the PM would resign which only compounded the fall.

We also feel that the FII?s preferred to reduce their positions in the form of P notes because of no tax benefits after converting to hedge funds which saw some heavy selling. We can only assume that the FII?s have been the seller on the basis of the provisional data which stated it as a seller to tune of Rs 1776 cr. All sectors ended in deep red, some selective stocks in IT and Consumer Durables were able to close in green. Power and Banking stocks were hit badly. Even the mid and small caps ended with losses. Asian markets ended the mixed while Europe was in red.

Sensex ended the day down by 717 points at 17998. The major losers were ACC (-12.53%), REL (-12.13%), SBI (-10%) and Bharti Airtel (-9%) while the major gainers were Wipro (+1.87%), TCS (+1.27%), Dr Reddy (+1.12%) and Satyam (+1%).

ACC, the cement major reported unimpressive results for Q2 FY07. The top line grew by 23% to Rs 1678 cr and the bottom line grew by 30% to Rs 292 cr. The Ebidta margins remained unchanged at 27%. ACC dispatch were 4.68 mn tones, higher by 10% on yoy basis. The average realization per ton stood at Rs 3587 higher by 13% on yoy basis. Net Profit includes the other income of Rs 28 cr. This includes the sale proceeds of its subsidiary ACC Nihon Casting Ltd. Even the top line growth is not impressive because even in the monsoon season the sales were not down. At the current market price of Rs 1052 the stock trades at 15 times of trailing earnings. On EV/Ton basis the valuations are placed at US $ 221 per ton. This seems to be expensive. Look for down side for trading opportunities. For details do read our updated quarterly analysis on this.

SKF India Ltd (SKF) has reported good results for the third quarter September 2007. The top line grew by 14% to Rs 387 cr from Rs 339 cr. The bottom line grew by 92% to Rs 43 cr from Rs 22 cr on yoy basis. The Ebidta profit grew by 76% to Rs 68 cr from Rs 39 cr on yoy basis. The Ebidta margins enhanced by 600 bps to 17%. The cost of raw material decreased by 7% to 59% of net sales, that?s the main reason for increase in Ebidta margins. Valuation seems to be attractive at current market price of Rs 390, the stock trades at 14 times of trailing earnings. However company was able to maintain the growth despite slow down in Auto sector as the growth was mainly seen in the industrial bearing segment. We are positive on the business. The overall demand outlook for the future remains good; the company expects pressure on margins on account of intense competition and price of steel which is the key raw material. We expect the growth momentum to continue for future. SKF parent CEO informed that the company expects the shortage of raw material and components had worsened its third quarter earnings. This give may give more outsourcing opportunity to Indian unit.

Technically Speaking: Markets started the day with a gap up and saw an early rally of 500 points. Later it had free fall as the market ended in red. Sensex touched intraday high of 19,199 and low of 17,771. Overall breadth was in favor of Declines, where the Advances stood at 935, while Declines at 1806. Markets have been seeing preety good volumes since past few sessions. But today it broke all the records as the market churned Rs 11,570 cr. Sensex has closed below a good support of 18,500. Markets might try to pullback above this level tomorrow, incase of a failure to sustain the up move, lower targets of 16800 will be opened.