Weekly Close: India unplugged in Global Turmoil.

A week of mid cap mania. Heavy weight's saw some consolidation. Global markets saw turmoil with subprime worries and this time Indian market decoupled from global market ..anyways the recovery was strong. Mid caps bounced back and was a smart rally which has good participation. Looking at the political side, Left gave a nod to talk for nuke deal with IAEA which powered the power counters. The winter session of parliament started today and nuke topic will come to hearing on Nov 27 and 29th, this did bring some jitters in the market. However, the talks are still with IAEA the probability of consent for nuke deal has increased. IIP data was not encouraging and was blamed on strong Rupee. The week was driven partially by global cues and there is nothing much to discuss about.

Sensex and Nifty ended up by 4%. Midcap Index up 8%. BSE Small cap up 6%. BSE FMCG up 11%. Bank index up 8%. Oil andGas up 7%. Cap goods up 5%. Metals 4%. Tech stocks continues to drag?IT index down 1%. In large caps OBC +15%, PNB and Siemens +14%, suzlon HDFC, ICICI bank, HDFC Bank +10%; Nalco, Grasim up 9%, Suzlon, HDFC and CICI bank up 7%, Essar Oil +150%, KEC Infra up +66%, Chambal fert up 52%.Bongaigaon Ref up 48%, Utam Galva up 42%, RCF, Nag fert up 40%; BPCL up 23%, ITC up 22%, HPCL up 19% Hotel Leela up 36%, Neyveli and McLeod up 30%. Oswal Chem up 29%. Ispat and Chennai Petro up 27%. Induslnd bank 24%.

IT was weak and for now we don?t see any major action here. The two major factor influencing the business that is demand side (US market) and Rupee are not in favour of the industry. Fertiliser sector saw some fertility as Govt. issued bonds worth Rs.7500crs. However, this bond won?t help fertiliser much. There needs to some major policy change for fertiliser stocks to perform. Telecom was hit on spectrum and portability policy front. FMCG stands to be defensive play in weak market. ITC was the biggest gainer?but our pick is Britannia here.

Economy: Slowing ?
IIP (index of industrial production) decelerated sharply to 6.4% for September 2007 from 12% last year. This was largely driven by a drop in manufacturing (79% weight) to 6.6% in September 2007 from 12.7% last year and electricity (10% weigh). Sectors performing poorly were : rubber, plastic, petroleum and coal products; and machinery and equipment. Consumer goods saw negative growth of 0.6% because of sharply contracting consumer goods. However, the festival season last year was a month prior and that could be a base effect.

All in all the things were not good. October IIP growth may come in better on the back of the base effect. Oct 06 IIP was very low and it had the base effect of the festival season too. Provisionally indicated at 6.2% for October 2006 it was placed at less than 5% for the final figures.

Is there a case getting read for a rate cut ?. Growth is slowing and FII flows are a trickle. Inflation now certainly is at levels where the RBI will be very comfortable. Inflation came in low. An appreciating Rupee, suppressed fuel prices and a high base are the reasons for the same. Its another matter that no one believes the same. CPI (consumer price inflation) at 6.4% flies in the face of the RBI. We believe that the RBI would be inclined to cut rates but it would delay till its convinced that the slower growth is structural in nature.

The bad news continued to bog the Telecom sector. The Government decided to auction spectrum for third generation (3G) mobile services and wireless broadband services through technologies such as Wi-Max. The auction will be open to new companies wanting to foray into the telecom sector as well as established foreign telecom players. The existing operators had wanted the auction for 3G services to be limited to the license holders. Mobile Number Portability is finally here. The Government has decided to introduce this system in phases, starting with the four metros by fourth quarter of 2008. How much extra revenues it will generate is not clear.. but it certainly means that the networks would need to invest heavily to offer the services not to be left behind in a competitivce environment.

Clearly Reliance Communication is on the winning side for now. 3G services for CDMA dont seem to require high spectrum and thus their costs will be lower. Rel com also faces the least threat in number portability as we guess that this would be restricted to competition only from Tata Teleservices. Also having got entry into GSM it would be able to attract subscribers from competing networks on the number portability platform. On the face of it Bharti and Idea will be big losers.

For now power counter seems to be on everyones mind. Lots of orders announced and many are in pipeline. Power Grid announced a tender worth Rs.6,000 crore for the first phase of a high-voltage direct current lines. The project when complete will help move 46,000 MW of power will require an investment of Rs 46,000 crore,... It will add to transmission capacity that can move power from the North-Eastern part of the country and Bhutan to other parts where it is needed. Power Grid currently owns and operates 61,875km of transmission lines and transmits around 45% of the power generated in the country. India?s total transmission capacity of 16,500MW is not sufficient to handle the 78,570MW of additional power that the government wants to generate over the next five years. As per plans a national power transmission grid has been planned to more than double the transmission capacity in the country to 37,150 MW by 2012. The companies here to benefit will be the transformer companies, Crompton, Voltamp, Indotech. On the tranmission tower business there is Jyoti Structures, Kalpataru, KEC. On the Transmission lines there is Apar, Sterlite and Diamond cables.

Tea is also getting hot. Mcleod Russel is one of the largest producers in the world of the worlds cheapest beverage. It has over 35000 hectares under tea with 75 mn kgs production annually. It targets to have 100 mn kgs in the next couple of years. This can happen only through the inorganic route. Tea prices have been stable to positive this year so far. The worries of excess production in Kenya on the back of previous years drought has kept this as an underperformer. There are large tracts of land which will have its own story once the region loses the naxalite worries. Tea is a commodity whose prices are determined with many variables. Local production, weather conditions in Kenya, and more importantly economic conditions in countries like, Russia, Pakistan, UK, US. Jayshree Tea is another company with 20 mn kgs capacity and also having phosphatic fertilisers. In tea there is a possibility that we are at the bottom of the cycle. Will we start moving up or will it be a perennial wait is anyones guess. We are inclined to have tea for now.

Eveready finally took off. The company was really hit badly since it hiked the battery prices to offset high zinc prices. Major sales happen in rural area and this market declined to accept the price hike. As a results sales went for toss and company suffer badly. But, now the off take is small batteries (AA and AAA) has increased and Zinc has also come down to 2500 per tonne. Results were good for the quarter and worst is over here now ! Our note will follow here soon.
Sensex has failed to cross back above 20000 this week, yet in the previous week, we had talked about the significance of the level 19350 and as long as the Sensex holds above this, the market remains a buy on dips. Some value based buying is seen in select pharma and fmcg stocks, traders should look for opportunities here.