Weekly Close: P Note Changes the Sentiment

Bull markets don?t turn bears overnight ! But Indian market is really unpredictable. The sharp rally for past month from 17k to 19k was just washed out in few minutes on Wednesday as SEBI announced curb on P-notes. The market slipped over 1700 points to hit lower circuit for second time in history. The run up from 17k to 19k was largely on back of FII inflow and curb of P-notes means putting a halt to foreign investment. However it was later clarified by FM as he said nothing to panic the FIIs can get register themselves and put the money in market. However, FM also added the sharp rally in not comfortable and this brought in profit taking. The sessions for the whole weak were extremely choppy and volatile. However, it?s the Government who wants to slowdown the strong liquidity inflow and to stop the rapid appreciation of rupee. After all "They can?t kill the goose that lays golden eggs.? But in one way it sounds good for banks as slow inflow of FII would slowdown liquidity and hence chance of CRR hike is reduced.

Crude touched intraday high of $ 90 before it trade near $89.49. This was jumped was due to Turkey?s military incursion into northern Iraq and also the fall in Dollar along with global supply worry added to the raise. Indian Oil market companies have been urging to hike the fuel price but due to political worries it?s not possible. This could favor sugar companies as Sugar cane could get diverted to Ethanol production.

Semsex swung over 1900 points for the week and nifty by over 600. Sensex ended down by 4.6% for the week and nifty ended down by 4%. Sensex Gainers were Satyam +4.97%, TCS, +4.04% , ONGC +2.42% and Wipro +2.79% while Losers were ACC slipped by over- 20% followed by REL (-18.6%), BHEL (-12.06%), LNT (-10.05%) and SBI (-9.79%).

We have entered into the results season, many biggies reported good results. Like HDFC, Infosys etc. Mukesh hinted of surprise from RIL on 18th Oct as it announced its results good numbers on the face but was helped by other income, lower interest lower taxes etc. But lacked the bonus and split news which saw some negative for the day. Reliance Communication of Anil Ambani received the formal approval to launch GSM technology of mobile. However the company has been operating GSM services in Northern and North Eastern parts of India. This is healthy new for RCom but could hamper Bharti Airtel?s market share in GSM. Rcom rallied for the day. An IPO plan for Reliance Power was rejected by the SEBI which derailed Reliance Energy stocks for last 2 days.

ACC , the cement major reported unimpressive results for Q3 FY07. The top line grew by 24% to Rs 1679 cr and the bottom line grew by 30% to Rs 292 cr. The EBIDTA profits grew by 23% to Rs 449 cr from Rs 366 cr on yoy basis. The EBIDTA margins remained unchanged at 27%. The decrease in cost of raw material helped to offset the increase in power and fuel cost. ACC Cement dispatch stood at 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 included the other income of Rs 28 cr which is the sale proceeds of its subsidiary ACC Nihon Casting Ltd and dividend income. However, there was a price hike in the month of August and September which helped to maintain the margins. But due to monsoon season sales have come down by 10% and net profits by 17% on QoQ basis. Do read our Results analysis here.

Rubber prices touched Rs 100 per kg. That a big negative for the tyre companies. Natural rubber accounts for 60% of the total input costs. Tyre companies now are increasing their dependence on Synthetic rubber. Earlier the ratio of natural and synthetic rubber was 80:20 but has been increased to 75:25 recently. Shift towards the synthetic rubber would fail to provide lower input costs as commonly used synthetic rubbers (SBR and PBR) are crude derivatives. With crude nearing $ 90 a barrel there is no relief from that counter as well. Crude derivatives account for 25% of the input costs. Expect the impact of higher crude and natural rubber to be reflected in the margins of tyre companies. Tyre companies were no exception and bore the brunt of chaos in market as well. Major tyre companies are available at an attractive a valuation of 10 times their trailing earnings. That seems to be attractive and can be considered as an entry point from the long term point of view. We are positive on Apollo tyres and Balkrishna Ind. Check out our result analysis here .

Baja Auto results the Sept ended quarter were marginally lower at Rs 2539 cr against Rs 2583 cr in the same quarter last Year. The net profit improved by 28% YoY. Net profit for the quarter stood at Rs 366 cr vs Rs 287 cr in the same quarter last year. Sept quarter is usually not a very exiting quarter for the 2 wheeler industry on account of sradh and Monsoon season. Expect sales to pick up in the next quarter on account of festivals. Bajaj recently had reduced the price of its Platina bike to Rs 30,000 and so have been by Hero Honda, its arch rival on selective models. However, the availability of credit options seems to have impacted the growth of two wheeler sales in the country. Watch out for our results analysis here soon.

Solar explosives had good results. It seems worst has left behind. The numbers were exceptional even though this is the weak season. Usually production during first two quarters is slow as construction and mining activities are restricted during the monsoon season. On a consolidated basis, the company posted revenue of Rs.64 crs against Rs 35 cr in the same quarter last year with a growth of 80%. The Ebidta margins had fantastic jump from 11% last year to 21% this year. The business is good with strong barriers to entry and Solar has the edge with its high market share and explosive experts. Valuation of 21 times trailing earnings for FY 07. But we believe earnings in 2009 and 2010 will explode as private sector gets going on its mining activities. 60% of revenues come from coal India and now this is the post consolidation phase for the Industry.

We worked on Allcargo logistics. This is a play on the logistics sector. It has a couple of CFS (container freight stations) and few more Inland container depots. The company gets a bulk of revenues from the MTO (multimodal Transport operator) which is the NVOCC (non vehicle owned container carrier) business. The company board approved for the acquisition of the business including the assets and liabilities of the projects and equipment division of Transindia Freight Services (TFSPL). TFSPL is a company owned by the promoter-family of the Allcargo and is primarily engaged in the business of contracting transportation of containers and project-related cargo and hiring of cranes, reach stackers and forklift trucks. The share swap ratio of 518 fully paid-up equity shares of the company for every 100 fully paid-up shares of TFSPL. The valuation of TFSPL would be around Rs 206 crore. The promoters who already hold 79.6% stake in the company (holding over 1.61 crore shares out of the total issued shares of 2.02 crore shares) promoters holding in the company will move up to 80.16% after the proposed swap. By this Allcargo leverages the balance sheet for a much higher growth potential which is in equipment and project division. Stock rallied ahead of its quarterly results.

Among the results, Kavveri Telecom had a blowout set of results. Exide was superb and this in the face of higher lead prices. Rallis numbers were good too. And many more results to be out in coming weeks.

Technically speaking: Sensex support lies at 17226 and Resistance at 18032. Sensex is ready for a bounce back from here. Traders can long with stoploss below 17300.