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Friday, January 05, 2007
Weekly Ideas
NIFTY (3962) SUP 3929 RES 3994
BUY Sobha Developers (1094)
SL 1060 T 1155, 1161
BUY IPCL (288.5)
SL 279 T 307, 312
BUY BPCL (352)
SL 340 T 370, 376
BUY Kesoram Industries (550)
SL 538 T 574, 580
BUY Dr Reddy's Lab (810)
SL 796 T 839, 845
From Research Desk
Bharti Airtel Ltd
BUY
The buyout of Hutch’s stake (51% direct holding, 67% total holding) in Hutch Essar has been in the media over the past few weeks. The 67% stake is up for grabs by several telecom majors like Vodafone, Reliance Communications, Verizon Communications and the Essar group. According to media reports, the floor price of the bid has been fixed at US$14bn. In the light of these developments, one company that is likely to seek higher valuations in the near term is Bharti Airtel.
We are considering three possible bid prices -US$15bn, US$16bn and US$17bn. We have used EV/Subscriber method to value Bharti Airtel. At US$16bn, Hutch EV/Subscriber works out to be US$717, which is at 11% premium to Bharti. We believe, Bharti should trade at least 10-12% premium to Hutch Essar considering Bharti’s
1. Pan India presence
2. Superior operating margins
3. Superior managerial skills
Consequently if the deal is valued at US$15bn, Bharti’s EV is likely to increase by 10-12% to US$30.5bn and the share price could rise to Rs700+ levels. At CMP of Rs635, the stock is trading at 33.5x FY07E EPS of Rs18.8, 25.2x FY08E EPS of Rs25 and 18.7x FY09E EPS of Rs33.75.
Indraprastha Gas Ltd
BUY
Indraprastha Gas Ltd (IGL) was setup in 1998 to supply CNG and PNG in the city of Delhi. Since then all DTC buses, taxis and auto rickshaws running on the street of Delhi have been converted to CNG and around 40,000 households have been connected with PNG. Going ahead with increased conversions of private vehicles and disallowance of registration of new diesel run LGVs (only CNG run LGVs to be registered) will drive growth for CNG. In the PNG segment the penetration is only at 4% and with real estate growth in Delhi PNG revenues are expected to clock a CAGR of 51.9%. Operating margins are expected to sustain over the current levels of above 40%. The company is also in initial stages of setting up city gas distribution infrastructure in the NCR region, which are expected to contribute to revenue in FY09. These factors will drive CAGR of 17.3% and 21.4% in revenues and PAT respectively. We believe that low business risk and growth prospects of the company will drive valuations for the stock and hence we recommend a BUY on the stock with a target price of Rs162.
Genus overseas electronics ltd
BUY
Genus Overseas Electronics Ltd (GOEL) is amongst the largest electronic meters manufacturers in the country and the pioneer in implementing Automatic Meter Reading (AMR) technology in metering. GOEL stands to be the largest beneficiary of the on going Accelerated Power Development and Reform Program (APDRP), under which the government intends to implement 100% metering. Coupled with this the government also plans to provide electricity to all households in the country, which will be metered. The company has an order book of Rs4bn, which comfortably covers it for FY07 with a partial spill over into FY08.
The meters division is expected to witness 111.3% CAGR over the next couple of years, which will be mainly driven by the governments focus on rural electrification and implementation of APDRP under which it emphasis on 100% metering. This division has an executable order book of about Rs2.2bn.
GOEL diversified into manufacturing inverters and undertaking power distribution projects where meter requirement is high. This exposes the company to huge investments in the T&D space that is being outlined by the government. Its access to sophisticated technology for AMR will give it an edge over its peers while bidding for metering projects.
We expect the company to register a topline and bottomline growth of 52.5% and 58.6% CAGR respectively over FY06-08E. GOEL is currently trading at 10.7x and 7.2x times its FY07E and FY08E earnings of Rs19.6 and Rs28.9 respectively. We recommend a BUY with a one year price target of Rs269, an upside of 39%.
Arihant Foundation and Housing Ltd
Chennai and its suburbs are fast turning into a hot spot for the IT/ITES sector. Skilled labour along with quality Grade A & B space is driving demand for real estate. Arihant Foundation and Housing Ltd (AFHL) with 2 IT Park projects and 15 residential projects in hand is well poised to benefit from the pick up in Chennai real estate demand. We expect the company to report 76% revenue and a 116% profit CAGR over F9/05-08 period respectively. We initiate coverage with a BUY rating and price target of Rs602, implying a 64% upside.
Most IT companies have started setting up shop in tier II cities due to the dwindling cost competitiveness in tier I cities. Chennai offers them with quality grade A & B real estate with abundant skilled manpower. We expect Chennai to fast grow into the next outsourcing destination in line with Hyderabad and Pune.
With 17 in hand projects, AFHL is well poised to benefit from the growth in the property boom in the Chennai market. 15 of the 17 projects are residential in and around the Central Business District (CBD) and Old Mahabalipuram road (OMR), while the remaining 2 are IT parks in the upcoming Ambattur and OMR area.
The company is fast adding size and has planned two townships, one out of which is a 50:50 JV with a national developer. We view the company’s slow evolvement in bringing bigger projects in its fold as a positive sign towards revenue sustainability. We estimate revenue CAGR of 76% over F9/05-F9/08.
Most old projects with low gross margins (GM) are expected to get completed in F9/06. New projects would improve GMs by 500bps in F6/07 to 37%, which is still 5-7% lower than current prevalent. This would aid a profit CAGR of 116% over F9/05-F9/08.
A major portion of the future revenues, 27% in F9/07 and 65% in F9/08 are expected to come from new projects, which are either recently commenced or would be launched in the next 8-12 months. Delays in launch and execution, could impact profitability and there by valuations.
DOMESTIC NEWS & GLOBAL NEWS
Manufacturing growth slackens in December
India's manufacturing sector grew at its slowest pace in five months in December on the back of the central bank's series of monetary tightening measures, according to a private purchasing managers' survey. The seasonally adjusted Purchasing Managers' Index (PMI) fell to 56.6 in December from 58.9 in November as the strong momentum of previous months eased off due to slower domestic and external demand. The PMI is compiled by UK-based NTC and sponsored by ABN AMRO Bank. PMI reading above 50 signals an improvement in business conditions while anything below 50 means contraction in manufacturing activity.
In October, the index showed that manufacturing expanded at its fastest pace since the survey was introduced in April 2005. The export order index fell to 54.1 in December from 58.4 in the previous month, while backlogs of work rose at their weakest pace since April. According to the survey, the input price inflation softened. The seasonally adjusted input price index fell to 55.1 in December from 58.9 in the previous month. The output price index fell to 51.9 in December from 52.1, signalling that inflation at the manufacturers level is moderating.
States agree to end CST: FM
The Government and the states agreed to phase out the Central Sales Tax (CST) starting April this year, Finance Minister P. Chidambaram said. The tax, levied at 4% by the Government on a variety of goods, is passed on to states. The schedule of phasing out the sales tax will be decided later. The CST will be phased out over three years - from 4% to 3% in FY08, to 2% in FY09 and finally to 1% in FY10. The tax will be completely phased out in 2010-11. States will be fully compensated for any revenue loss that may occur due to the phase-out. This will be done through a package of measures, which includes transfer of 77 services to states, on which they will be able to levy and collect taxes. If required, the Centre will also provide budgetary support to states.
Govt to lift ban on sugar exports completely
The Government will completely lift a ban on sugar exports within the next 20 days, Agriculture Minister Sharad Pawar said. The Centre formally approved the partial lifting of the ban on sugar exports as domestic prices have eased and supply have increased. Only those sugar mills which had imported raw sugar with an obligation to re-export the refined product can export the sweetener, according to the notification by the Director General of Foreign Trade (DGFT). The Cabinet on Dec. 18 had eased a total ban on exports imposed in July. This would apply to advance license holders who could not meet export obligations before July 4, 2006 when the Government imposed the ban on sugar exports in view of the soaring local prices and depleting supply.
Deals keep rolling in
The rush to garner a piece of the fast-growing organised retail sector continues in 2007. In what is it's first major investment in the high-profile retail space, the Aditya Birla Group acquired the Hyderabad-based supermarket chain Trinethra Super Retail for an undisclosed sum. The acquisition was done through the unlisted retail outfit of the group, Aditya Birla Retail and includes Trinethra's rapidly growing Internet-based shopping arm, Fabmall. The Trinethra Group had annual revenues of Rs2.5bn and more than 172 retail outlets spread across Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. It has an employee base of 2,500. i-flex Solutions Ltd. announced that its Singapore headquartered subsidiary, i-flex Solutions Pte Ltd, had acquired the Singapore subsidiary of Capco - The Capital Markets Company Pte Ltd. This acquisition will strengthen i-flex Consulting’s ability to provide high end consulting to banks in the Asia Pacific region. The expertise and service offerings of Capco Singapore’s consulting business align well with those of i-flex Consulting. Nicholas Piramal India Ltd. announced that its pathology labs subsidiary, Wellspring had acquired Jankharia Imaging, the most successful radiology and imaging centre in Mumbai. The new entity would be renamed as Wellspring-Jankharia Imaging. Following the acquisition, Wellspring would be the first corporate diagnostic provider to enter into high-end health imaging services.
IPO...DLF files revised prospectus
After aborting an attempt to tap the capital market early last year, real estate giant DLF filed a revised Draft Red Herring Prospectus (DRHP) with the market regulator SEBI. The size of the much-anticipated IPO is likely to be around Rs105bn. DLF is scheduled to issue 175mn shares, comprising 10.2% of its equity capital. In August, it scrapped an IPO of as many as 219mn shares. The size of the offering is smaller than planned earlier because DLF Chairman KP Singh and his family are not selling shares held by them and no stock will be sold before the sale. DLF has hired Merrill Lynch and Kotak Mahindra Capital to manage the share sale. Citigroup, ICICI Securities, Lehman Brothers Securities, UBS, Deutsche Equities India and SBI Capital Markets will help with the sale. Last month, DLF resolved differences with minority shareholders regarding allotment of debentures. That paved the way for the revival of the IPO for the Delhi-based company. Minority shareholders had filed a complaint with SEBI alleging that they did not receive the letter of offer of the debenture issued in December 2005.
Ranbaxy, Aurobindo & Lupin win USFDA approvals
Ipca Laboratories Ltd. said that the strategic alliance between the company and Ranbaxy Pharmaceuticals Inc had received the approval from US Food and Drugs Administration (USFDA) to manufacture and market Atenolol Tablets USP 25mg, 50mg and 100mg. This was the second such product approval received under the alliance with Ranbaxy from the US FDA. In September 2006, it had received the clerance for selling Furosemide tablets in the US. Aurobindo Pharma Ltd. announced that it had received two more approvals from the USFDA for Bisoprolol 5 mg, 10 mg and Amoxicillin Oral Suspension 200 mg\5ml, and 400mg\5ml. Amoxicillin is a Betalactam antibiotic used often in treating respiratory infections. GlaxoSmithKline (GSK) is the inventor of this antibiotic and is marketed under the brand name Amoxil. Lupin Ltd. said that the USFDA had granted a tentative approval to it's ANDA for Sertraline Hydrochloride Tablets, 25mg, 50mg and 100mg. Sertraline is indicated for the treatment of major depressive disorder. Lupin's Sertraline tablets are generic equivalent of Pfizer's Zoloft tablets. Annual product sales in the US were about US$3.1bn for the 12-month ended July 2006, based on IMS data. The company intends to launch the generic version of Zoloft on final approval from the USFDA, which is expected upon expiration of the marketing exclusivity for the product in February.
L&T, Praj & ABG Shipyard win orders
Larsen & Toubro Ltd. (L&T) announced that it had secured an order worth Rs4.18bn (US$94.33mn) from the Abu Dhabi Water & Electricity Authority for the construction of six major electrical substations in the Al Ain sector of Abu Dhabi. The project, which includes design and construction of civil building and over 120 km of 33kV cabling, will be completed within 18 months. Praj Industries Ltd. said that in the last quarter of 2006 (Oct-Dec) the company received the second phase orders from Cilion for its Imperial County project, besides another order from Missouri Valley Energy for its Meckling, South Dakota project. Praj also received an order for USA’s first sugarcane based ethanol project. The total value of these orders is in excess of Rs1.7bn. ABG Shipyard Ltd. said that it had bagged a repeat order from Gujarat Ambuja Cements Ltd. The company received an order for the construction of a Self Loading and Unloading vessel of 4,000 DWT bulk cement carrier worth US$9.9mn or about Rs450mn. With this new order, the company has an Order Book of about Rs24.45bn.
DaimlerChrysler signs MoU for new plant
DaimlerChrysler India's proposed new factory in Pune will have an initial installed capacity to produce 5,000 vehicles annually, DaimlerChrysler India CEO Wilfried Aulbur said. However, he declined to divulge the size of the investment. The company presently makes about 2,000 cars annually in a facility leased from Tata Motors Ltd. in Pune. The Indian unit of the German luxury carmaker signed an agreement with the Maharashtra Government to set up a greenfield plant in the Chakan MIDC area. The plant will produce the Mercedes-Benz S-Class, E-Class and C-Class models for the Indian market. Aulbur said that the first cars from the plant would roll out in January 2009.
Nissan to build new plant in India
Nissan Motor Co., Japan's second-largest car maker, will set up a greenfield plant in India, a local Japanese newspaper reported on Jan. 1. The new factory will have an initial capacity to produce 200,000 units per year, the Nikkei said. To support the Japanese auto maker's production, about 10 auto parts suppliers from Japan will also start local operations, bringing the group's total investment to around 100 billion yen, said the Japanese business daily. The plant will begin commercial operations in 2009. The Japanese major plans to make a new small car with an engine displacement of around 1000cc. About a third of the total production will be sold in India, while the rest will be exported to Europe and other countries.
Tanla Solutions, Pyramid Saimira jump on debut
Shares of Tanla Solutions Ltd. surged on Friday in their stock market debut. The scrip opened at Rs379.80 as against the issue price of Rs265. The stock was frozen at the 2% upper circuit as Rs379.80 was the base price fixed by the exchanges based on the scrip's closing on the Hyderabad Stock Exchange on Jan. 4. Traded volume on the counter surged to 3.26mn shares. Tanla Solutions entered the capital market with a public issue of 1,58,85,000 equity shares of Rs2 each in the price band of Rs230 to Rs265. The issue was subscribed 38.65 times. The company proposes to part finance its expansion plan.
Shares of Pyramid Saimira Theatre Ltd. jumped 35% on their maiden trading day on Friday. The stock opened at Rs135 compared to the issue price of Rs100. It reached a peak of Rs163.85 before and a low of Rs125 before closing at Rs158.20. Traded volume on the counter stood at 16.97mn shares. The Chennai-based digital theatre chain entered the capital market with an IPO of 84.44 lakh shares of Rs10 each. The issue was subscribed 16.26 times.
Auto sales...Maruti, Bajaj, Tata Motors shine
Maruti reported a 23.7% jump in its total sales for December 2006. The company sold 56,985 units in the last month of the year 2006 as against 46,079 units in the same month a year earlier. Sales in the domestic market were up 26.3% at 54,640 units while exports fell by 17.1% to 2,345 units. Tata Motors said its vehicle sales rose 37% in December to 48,792 units from 35,598 units a year earlier. Exports were up 7% at 4,098 units. Sales of the company's commercial vehicles climbed 50% to 28,179 units from 18,730 units, while sales of passenger vehicles rose 27% to 16,515 units. M&M said its total vehicle sales (excluding tractors) rose by 38% to 15,132 units last month from 10,953 units a year earlier. M&M sold 6,759 tractors in December, up 21% from 5,597 units a year earlier. Ashok Leyland Ltd. said its sales in December rose 29.6% to 5,890 vehicles.
Hero Honda Motors said that it sold 252,462 units in December, up 3% from 245,104 sold a year earlier. Domestic sales grew by mere 2.6% to 245,141 units and exports were up 16.5% at 7,321 units. Bajaj Auto Ltd. posted a 26% rise in its motorcycle sales in December at 187,063 units while the overall two-wheeler sales were up 21% at 187,179 units. Sales of three-wheelers grew by 50% to 27,749 units. Exports more than doubled to 39,385 from 18,534 units a year ago. Total sales climbed 24% to 214,928 units from a year ago. TVS Motor Co. Ltd. said that it sales fell by nearly 4% to 103,188 units in December. It was the first fall in monthly sales since February 2005. The Chennai-based company's motorcycle sales were down 14.5% at 58,756 units, while sales of scooterettes rose to 16,616 from 16,051 units. The company said that exports rose 17% to 7,088 units.
Cement sales weaken
ACC Ltd. said it's cement dispatches in December rose by 3.13% to 1.65mn tons from 1.6mn tons in the same month last year. Cement output in the month was up 3.8% at 1.63mn tons as against 1.57mn tons in December 2005. For the year 2006, ACC's cement shipment grew by 6.6% to 18.62mn tons from 17.46mn tons in the previous year. Cement production in 2006 was up 7% at 18.64mn tons versus 17.42mn tons in the year 2005. Gujarat Ambuja Cements Ltd. said its cement shipment grew by 11.3% in 2006 to 16.33mn tons from 14.67mn tons in the previous year. Cement production in the year stood at 16.34mn tons as against 14.63mn tons in the year 2005. Aditya Birla Group, which includes the No.2 and No.3 cement companies, said that its shipments in December fell 3.2% to 2.5mn tons. Cement production, including those of UltraTech Cement Ltd. and Grasim Industries Ltd., in December was down 2% to 2.51mn tons.
Steel sales perk up
Tata Steel Ltd. said its sales grew by 11.7% in the first nine months of the current fiscal year to 3.53mn tons. Domestic sales of long products increased by 30%. Hot-metal production rose to 4.1mn tons, while crude steel output reached 3.7mn tons. Saleable steel production rose 11% to 3.66mn tons. Steel Authority of India Ltd. (SAIL) said its sales during the quarter ended Dec. 31 rose 8% to 3mn tons and production climbed 6% to 3.3mn tons. Sales reached a record 8.4mn tons in the nine months ended December and output rose to 9.33mn tons, the New Delhi-based company said in a statement.
Fed still worried about inflation
The Federal Reserve is still concerned about inflation, the minutes of last month's policy meeting shows even as the US central bankers pondered over the slowdown in the world's largest economy. Members of the FOMC agreed unanimously in December that inflation remained the primary risk to the US economy, although they acknowledged that the economy may have been a touch softer than they had previously believed, according to minutes of the Dec. 12 meeting. The cautiously worded message from Ben Bernanke & Co. surprised Wall Street. The US markets have been anticipating that the Fed will slash interest rates soon to stem the slide in economic growth following the series of interest rate increases since June 2004. Some investors fear that the US economy is in a worse shape than previously thought. Some economists say that Wall Street may be worried that the Fed won't cut interest rates as soon as it expects it to. The Fed's next meeting is at the end of this month. The Fed has held a key short-term rate steady for the past four meetings after raising it 17 straight times. The fed funds rate now stands at 5.25%. That is the highest that interest rates have been since Jan. 2001, though they are still relatively low by historical standards. A reduction in the Fed's target rate is likely by the end of August, based on the price of futures on the Chicago Board of Trade. Five weeks ago, the contracts reflected a cut by the end of March.
US manufacturing rebounds in December
The US manufacturing sector surprisingly bounced back in December after a contraction in November, the Institute for Supply Management (ISM) reported. The ISM manufacturing index rose to 51.4 in December from 49.5 in November, when activity contracted for the first time in more than three years. A reading over 50% indicates expansion while anything under 50 means contraction. It was the first increase in the index since July. Economists had expected the manufacturing index to rise to 50. For the second month running, more factories reported a shrinking labor force, the ISM survey indicates. The group's employment index was 49.7, up from 49.2 in November. New orders and production rose, while inflationary pressures eased. The new orders index rose to 52.1 from 48.7. The production index rose to 51.8 from 48.5. The prices-paid index fell to 47.5 from 53.5. The ISM supplier deliveries index, which covers how long it takes companies to receive goods, rose to 53.4 last month from 52.8. The measure of orders in backlog declined to 45 from 46.5 in November. The inventory index fell to 48.4 in December from 49.7.
Toyota is now No.3 in US auto mart
Toyota broke into the Big Three club of US automakers in 2006, leaving behind DaimlerChrysler as Japanese auto companies continued to make inroads into the lucrative North American market. Toyota's December sales rose more than 16% when adjusted for an extra selling day a year earlier. Its December figures brought the full-year sales to 2.54mn, topping DaimlerChrysler's 2.39mn sales mark. Toyota secured a 15.4% share of the US market. It trails only General Motors (GM), with a 24.6% share, and Ford, with a 17.5% share. Toyota is expected to overtake GM as the world's largest automaker in 2007 and take second place in the US. The adjusted sales of GM and Ford fell about 10% each last month. DaimlerChrysler AG's Chrysler unit was the lone US automaker to post gains with adjusted sales rising 4%. Toyota and Honda led growing sales by Asian automakers last year. Asian automakers accounted for a record 39.4% of 2006 US sales, up 2.7% from 2005. Honda said US December sales rose 3% and Nissan North America Co. said sales were up 4.4%. Industry-wide sales stood at an annualized 16.8mn vehicles for December, in line with average estimates and down from 17.1mn a year earlier.
Bulgaria, Romania Join EU
The European Union (EU) gained two more member states on January 1, 2007 with the accession of Bulgaria and Romania, making a historic New Year for the two nations. The EU now has 27 member states and over half a billion people, stretching from the Atlantic Ocean to the Black Sea. Bulgaria and Romania applied for EU membership in 1995 and began formal accession talks in February 2000. They missed out on the big expansion of 2004, however, after being told they were not ready. Compared with EU standards, the two countries are still relatively poor, with a GDP at 33% of the EU average. Salaries are also low, with an average monthly income of €180 in Bulgaria and around €300 in Romania. Nevertheless, economic prospects are good as Bulgaria looks back on a growth rate of 5.5% of GDP in 2006 - Romania’s growth in 2006 amounted to 7% of GDP. Fears of a new wave of labour immigration spread in some parts of the EU, such as the UK, which has put restrictions in place. Other countries, such as Sweden and Finland, decided not to restrict the free movement of labour. Bulgarian and Romanian officials claim that the largest part of labour migration has already taken place.
Singapore's economy picks up pace
Singapore's economic growth unexpectedly accelerated to the fastest pace in a year in the fourth quarter, spurred by sharp rise in tourist arrivals and increased consumer spending even as electronics exports slowed. Southeast Asia's fourth-largest economy grew at an annualized pace of 7.6% after expanding at a revised rate of 5.6% in the third quarter. Economists had expected a 4.1% gain. From a year earlier, Singapore's economy expanded by 5.9% in the fourth quarter after growing at a revised pace of 7% in the previous three months, the government said. The economy grew 7.7% last year. Manufacturing, which accounts for a quarter of Singapore's economy, grew by 7.3% in the fourth quarter from a year earlier, following a revised 9.5% gain in the previous three months. That was the slowest pace in six quarters. Services expanded by 6% and construction gained 2.4%, the report said. The report was based largely on data for October and November. The figures will be revised in February.
Russia, Belarus cross swords over energy trade
Belarus imposed export duty on Russian oil crossing its territory as President Alexander Lukashenko hit back at Moscow in an energy row. Belarus Prime Minister Sergei Sidorsky said his government was imposing a duty of US$45 per ton on Russian oil that transits his country en route to customers in Europe. About one million barrels of Russian crude a day - over a fifth of Russia's total exports - are shipped via the Druzhba pipeline that passes through Belarus. Most of it goes to customers in Germany and Poland. Russian oil pipeline monopoly Transeft said that Belarus had no right to impose the duty. The dispute erupted when Russia imposed duties on oil sales to Belarus, forcing the latter to pay double for gas imports. Moscow also banned imports of sugar refined in Belarus. But, despite the trading row, both sides said that there would be no disruptions to the two-fifths of Russia's total crude exports that are shipped through Belarus.
INVESTMENT STRATEGY
In force for Infosys
The choppy movement, especially during the last two days shows that the bulls are taking a cautious stand. Infosys is slated to announce its earnings on January 11. A lot of expectations are built into the stock prices. Any negative surprise in the results could trigger a correction. Stay extremely cautious as the markets are close to their current peaks. IT stocks should continue to be the center of attraction in anticipation of stellar results. HDFC Bank, Hind Zinc, JP Associates, UTI Bank, BASF India and iGate are among the major companies announcing their quarterly numbers in the comingIndiainfoline MARKET MOOD
No hang over for bulls
Think about it all the time
Never let it out of my mind
cause I love you
I've got the sweetest hangover
I dont wanna get over
Sweetest hangover
The bulls started the New Year from where they had left in 2006, pushing the Sensex past the 14k mark yet again. No hangover effect was visible on the bulls, as the New Year party continued on Dalal Street. The bulls continued their shopping spree with market players putting aside all concerns like hardening interest rates, uncertainty over FII flows, slowdown in the US, etc.
The main indices turned volatile in the middle of the week after crossing key levels. In choppy trading, the bulls managed marginal gains on the back of sustained buying in IT, Auto and Mid-Cap stocks. The benchmark BSE Sensex closed above 14k, but profit booking in heavyweights brought it below 13900 by the end of the week. Finally, it added 0.5% or 74 points to close at 13861 and the NSE Nifty gained 0.43% or 17 points to end at 3983.
Bajaj Auto, L&T, Satyam, Tata Motors and ONGC were the major gainers in the Sensex. Refinery stocks rose after a steep fall in crude oil prices. Crude in New York trading fell under US $56 per barrel due to mild weather in the US and rising stockpiles. HPCL surged by over 6.5% to Rs297, BPCL was up 4.4% to Rs351 and IOC added 5.7% to Rs476. Auto stocks advanced after yet another month of strong volume growth in December. Bajaj Auto gained 5.5% to Rs2783, Maruti was up 1.3% to Rs935 and Tata Motors rose 3% to Rs933.
IT stocks were in action ahead of the quarterly results to be announced next week. Infosys rose 1.2% to Rs2274, TCS put on over 4% to Rs1262 and Satyam added 2.4% to Rs501. Among the Mid-Caps Sasken jumped over 10% to Rs584, Polaris climbed over 11% to Rs192 and Moser Baer rose 10% to Rs338.
ONGC was in the news following reports that it may announce details of the new discovery in the Krishna Godavari Basin in two weeks. Reports also said that ONGC was close to buying up to 33% in two Caspian sea blocks offshore of Turkmenistan. The scrip added over 2.1% to Rs895. Reliance Industries rose 1% to Rs1288.
Buying was also seen in select banking stocks. ICICI bank was up 1.2% to Rs910 and SBI gained 1% to Rs1244. Among the Mid-Caps Canara Bank was up 2.4% to Rs283 and Kotak Mahindra Bank added 2.9% to Rs411.
Cement stocks lost ground after heavy weights like ACC and Gujarat Ambuja announced disappointing dispatch numbers for December, ACC lost over 1.7% to Rs1055, Gujarat Ambuja slipped by over 4% to Rs138 and Birla Corp was down 1% to Rs331. However, Grasim, Prism Cement and Mangalam Cement were among the major gainersSugar stocks continued to be in the news after Agriculture Minister Sharad Pawar said the Government may end a ban on export of sugar in three weeks. Also, reports that Ethiopia will open a tender for 40,000 metric tons of sugar on Jan. 6, for delivery between April and June boosted sugar stocks. Renuka Sugars rose by over 6% to Rs463. Bajaj Hindusthan fell by over 6.5% to Rs203, Balrampur Chini slipped 4.1% to Rs81, Sakhti Sugar was down 3.5% to Rs98 and Dhampur Sugar edged lower by 0.9% to Rs93.
Nissan Copper had a dream debut on Dalal Street as the stock surpassed everyone's expectations and touched a peak of Rs135.70 after making a debut at Rs42.80. However, the scrip came under pressure following news that market regulator SEBI was all set to probe its unprecedented rise. The scrip was later shifted to the Trade-to-Trade category. The scrip closed at Rs 98.85 on Friday.
Sesa Goa skyrocketed by over 22% to Rs1727 on speculation that Japan's Mitsui & Co. is set to sell its controlling stake in the company. Reports said that Arcelor Mittal, Tata Steel and OP Jindal Group were eyeing a controlling stake in the iron ore producer.
TOP STORIES FOR THE WEEK
Vodafone steps up effort for Hutch Essar buy
The takeover battle for Hutchison Essar intensified. Vodafone officials met the Department of Telecommunications (DoT) to seek clarity on FDI policy in India even as Goldman Sachs, JP Morgan and shareholder State Street warned the British firm about overstretching itself. A few interesting developments emerged. The Hinduja Group, which had earlier sold its stake in Hutch Essar, now wants a controlling stake in India's fourth-largest mobile service provider. Reports also suggested that US-based Verizon Communications has also evinced interest in Hutch Essar. Also, Hutchison Telecommunications International Ltd. (HTIL) disputed the claims by the Ruias of the Essar Group that they have the Right of First Refusal (RoFR). The Ruias on their part maintained that they should be first given the opportunity to buy the 67% stake held by its Hong Kong-based partner. Meanwhile, Reliance Communications has convened a Board meeting on January 10 to consider fund raising options as it gears up for a long drawn out bidding war.
Vodafone, the world's No.1 wireless telecom operator, reportedly agreed to raise its valuation of Hutch Essar to US$20bn. But, it would find it tough to convince shareholders about the deal. In May, the London-based company announced it M&A criteria, whereby the return on investment must exceed local risk-adjusted cost of capital in 3-5 years. Further, the internal rate of return (IRR) should exceed local risk-adjusted cost of capital by at least 2%. If Vodafone goes ahead with the Hutch Essar buy, it may not be able to meet these criteria, as the Indian company has been valued at US$21bn. HTIL itself is looking at a valuation of above US$14bn for its 67% stake in Hutch Essar. A JP Morgan note said that at US$22.8bn, it estimates that the return on invested capital would reach 7% in five years.
Cash returns from Hutch Essar would be below 5% till 2010, compared with a cost of capital of at least 10%. The rate of return too is not likely to exceed the local risk-adjusted cost of capital by the required 2%, says JP Morgan. Meanwhile, Goldman Sachs said that Vodafone’s balance sheet would be stretched if it paid over US$20bn for a controlling stake in Hutch Essar.
Videocon's Daewoo Electronics deal in trouble
Venugopal Dhoot's dream of stitching up another big-ticket acquisition in the global market turned sour. International media reports suggested that creditors of Daewoo Electronics Corp. spurned an offer by India's Videocon Industries Ltd. to slash the offer price by 13%. Videocon and RHJ International, the holding company of the US buyout fund Ripplewood, were picked as a preferred bidder in September 2006 to acquire the ailing Korean company for around 700 billion won or US$752mn. After due diligence, Videocon sought to cut the price by 13% from the initial agreement and make partial payment through convertible bonds, the Korea Economic Daily reported. But, experts said that the Korea Asset Management Corp., the main creditor with a 57.4% stake, and other creditors cast a "no" vote. Separately, a financial daily reports that Videocon could settle for a less than 10% reduction in the original offer price.
Woori Bank represents creditors owning 99% of Daewoo Electronics. It had sent a letter last week asking creditors of Daewoo Electronics whether they would accept the renewed offer by Videocon. Any offer required approval from at least 75% of votes held by creditors. The Memorandum of Understanding (MoU) signed in October between the Videocon-led consortium and Daewoo Electronics creditors expired on Dec. 22 without signing the main contract. The rejection would deal a blow to the Videocon's bid but it does not mean the end of the road. Regardless of the vote, the negotiation could continue with Videocon, as it is still the most likely buyer, creditor Woori Bank said. The only change will be that Videocon will no longer be the preferred bidder. Daewoo Electronics was a unit of the Daewoo Group, which collapsed in 1999 under US$80bn in debt. Shares of Videocon fell in Mumbai on the news.
2007 would be a year of small-caps and mid-caps
I feel the markets would trade flat for a couple of trading sessions. The Sensex is trading at a really high valuation of 23 – 24 times trailing twelve months earnings. The commensurate number, if one were to take estimated FY 2007 earnings, would be 18 to 19 times. Even this is quite on the higher side compared to the earnings multiple of other emerging markets. I would say the year 2007 would be the year for mid caps and small caps. But when I say that, one should be extremely selective when picking up stocks in these segments. I see some IT mid caps making for good buys at their current price levels and valuations.
Cement and metal stocks have seen technical correction in the past couple of sessions. Cement stocks would certainly strike back considering that the Q3 results that are to come out would be exceptionally good. There was a 2% appreciation in cement prices during the quarter gone by and this would be reflected in their quarterly numbers. A further Rs.3 to Rs.5 hike in cement prices is expected. There is no doubt that cement would continue to do well. I however wouldn’t hold the same for metal stocks. There has been a sharp correction in individual metal prices, say zinc, copper, lead etc. Copper for instance is trading at 8 month low. The sector I feel will take some time to recover.
I would suggest that investors be very selective in stock picking. We would see substantial growth now only in 8 to 10 percent of the companies listed on the bourses. The growth otherwise across the board would be nominal and in line of standard market returns.
- Nehal Shah, Research Analyst, Ventura Securities
Infosys results to dictate trend
The market is expected to stay sideways amid high volatility, ahead of Infosys results on 11 January 2007.
While strong Q3 results are expected from India Inc, they have already been factored into share prices. Market players will closely watch what the company managements have to say about the outlook for Q4 March 2007 and FY 2008 (year ending 31 March 2008).
After Q3 results, the Union Budget for the year 2007-08 will be avid watched. A build up of long positions is likely on expectations of favourable policy announcements in the budget, according to dealers.
Also the recent decline in global crude oil prices augurs well for the market. Oil for February delivery was hovering around $55.45 per barrel.
Infosys Technologies, Mastek, HDFC Bank, KLG Systel, Eastern Silk Industries, Rama Newsprint and Papers, Atlanta, BASF India, Sintex Industries, iGate Global Solutions, The Tinplate Company of India, Hindustan Zinc, Ucal Fuel Systems, Great Offshore, Jaiprakash Associates will announce their December quarter results in the forthcoming week.
Small-cap, mid-cap stocks hog limelight
The first trading week of the New Year began on a positive note. However, after beginning the year with a bang, the market cooled off later.
For the week ended 5 January 2007, the barometer index BSE Sensex gained 73.61 points or 0.53% to settle at 13,860.52. The S&P CNX Nifty gained 17 points (0.42%) for the week to settle at 3983.40.
Small-cap and mid-cap stocks outperformed the market. BSE Small-Cap Index rose 299.23 points or 4.3% to settle at 7,191.55. BSE Mid-Cap Index gained 131.49 points or 2.26% to settle at 5,936.67.
The markets entered the year 2007 on a positive note. On Tuesday (2 January), the first day of trading this year, the Sensex settled at 13942.24 gaining a good 155.33 points. IT and auto stocks played anchor on the day in pulling up the Sensex. The IT stocks gained in anticipation of good Q3 results while the autos found increased buying interest on the back of favorable December month sales volumes that were announced on the day.
On Wednesday, the start was not pronouncedly bullish but the markets recovered in mid afternoon trading. During intra day trading, the Sensex had marginally crossed its all time high level of 14035.30. The Sensex closed the day 72.68 points higher at 14024.49.
Thursday was a day of volatility. However the volatility was not as strong as witnessed in sessions a fortnight back. The Sensex swung intra day 210 points. It opened strong on reports of the center and the state having agreed to phase out Central Sales Tax (CST) over the next 4 years. It touched an all time high of 14060.35. Then the correction came in with selling pressure on FMCG, IT and metal stocks resulting in the Sensex closing at 13871.71, which was 143.21 points below its previous day close.
The markets were plainly flat on Friday. Sensex closed marginally lower by 11.19 points at 13860.52. The Nifty closed lower by 5.40 points to settle at 3983.40.
Index heavy weight Reliance Industries gained 1.44% for the week to Rs 1288.60.
Infosys gained 1.53% for the week at Rs 2274.80. Infosys would be coming out with its Q3 numbers on 11th January.
Banking major ICICI Bank gained 2.25% for the week and settled at Rs.910.40. As per reports, its offshore dollar-denominated debt offering had received a strong response.
Satyam Computer firmed up. Apart from the anticipated favourable Q3 results, there are also rumours in the market that Anil Ambani is in talks with company chairman Ramalinga Raju for a stake in the company. The stock gained 3.63% for the week to close at Rs 501.50. Satyam announces Q3 results on 19 January 2007.
Ranbaxy rose 5.5% for the week to Rs 413.45. The company’s alliance with Ipca Laboratories received USFDA approval to sell atenolol tablets in the United States. Atenolol is indicated in the management of hypertension. Ranbaxy settled at Rs 413.45 to close the week.
Allcargo Global Logistics was a major gainer among side counters. It acquired Hindustan Cargo, a subsidiary of travel and forex major Thomas Cook India. Hindustan Cargo is predominantly an airfreight and logistics service provider. The stock surged by Rs.221.90 or 20.89% on the back of the development and closed the week at 1284.10.
Air Deccan grew about 5% during the week on news that it had managed to post nominal profits in the October – December quarter.
Indian real estate developer DLF has filed a prospectus for an initial public offering (IPO) after pulling a planned issue last year. As per reports, the sale of 10.2% of the company could raise more than $2 billion. This offer is said to India's biggest ever-public issue.
Commodity prices continued to correct during last week. Copper fell sharply to touch $5700 per tonne levels. The metal saw its 8-month low price being hit last week. Sterlite and Hindalco, both having copper in its product portfolio, did not lose much and closed the week more or less flat. Hindalco lost Rs.3 over the week and closed at 171.10. Sterlite lost a meager Rs.0.10 (-0.02%) over its previous week’s close and settled at Rs 543.30.
On Friday, Pyramid Saimira Theatre settled at Rs 158.20 on BSE on high volume of 1.69 crore shares, compared to IPO price of Rs 100. The stock debuted at Rs 135. It hit a high of Rs 163.85 and low of Rs 125. The company had priced its IPO at the higher end of the Rs 88 to Rs 100 price band.
On the same day, Tanla Solutions finished at upper circuit of Rs 379.80 on BSE, compared to IPO price of Rs 265. 32.63 lakh shares changed hands in the counter on BSE on the day of its debut. Tanla Solutions had priced its IPO at the upper end of the Rs 230 to Rs 265 price band.
FIIs were net buyers to the tune of Rs.3892.90 crore for January 2007 till 4 January 2007. This included FII subscription to the mega IPO of Cairn India. FII allotment in the Cairn India IPO was to the tune of Rs 3030 crore.
Mutual Funds were net buyers to the tune of Rs 164 crore by the first three trading sessions of the New Year.
Oil & gas scrips outperform
The Sensex slipped in the red, as selling pressure emerged in late afternoon session of trade, after staying firm in the first half of the day. However oil & gas stocks advanced following renewed buying interest.
Sensex shed 11.19 points to 13,860.52. It opened on a weak note at 13768.79 on account of weak global markets, slipped to an intra-day low of 13763.39 as selling continued in early trade. Sensex had hit intra-day high of 13971.82 in mid-morning trade, as buying interest intensified.
The S&P CNX Nifty lost 5.40 points (0.14%), to 3,983.40.
The market breadth was strong on BSE, as buying continued for small-cap and mid-cap stocks. On BSE, 1640 shares advanced as compared to 1007 that declined. 53 remained unchanged. The BSE Mid-Cap index closed down 5.32 points to 5936.67 while the BSE Small-Cap index gained 41.42 points to 7191.55.
The total turnover on BSE amounted to Rs 4146 crore as compared to Rs 4532 crore on Thursday.
Among the Sensex pack, 18 declined while the rest advanced.
Reliance Communications was the top loser, down 3.90% to Rs 447.10 on 14.80 lakh shares. The stock had hit a high of Rs 489 in early trade.
Maruti Udyog was down 3.06% to Rs 938 on 3.31 lakh shares. The stock slipped to a low of Rs 930 on reports that the Government may rewrite small car specification for excise duty.
ITC (down 2% to Rs 165.50), Hindalco (down 2.52% to Rs 170.50) and Gujarat Ambuja Cements (down 2.59% to Rs 139) edged lower.
ONGC was the top gainer, up 2.81% to Rs 899.25 on 4.85 lakh shares following reports that it is close to buying up to 33% stake in two Caspian sea blocks offshore of Turkmenistan. ONGC's overseas investment arm, ONGC Videsh, will soon sign a deal to this effect with the operator, Denmark's Maersk Oil, and German oil and gas firm Wintershall, which is also a major stake holder. ONGC would pay $33.97- $45.29 million for a stake in two properties -- blocks 11 and 12.
The BSE Oil & Gas index sector jumped 81.46 points or 1.30% to 6338.55, and was the biggest gainer among sectoral indices. HPCL (up 3.34% to Rs 297.35), GAIL India (up 3.94% to Rs 275.55), BPCL (up 2.13% to Rs 351.75), IOC (up 1.32% to Rs 476.10) and MRPL (up 0.86% to Rs 41.20) gained.
ICICI Bank advanced 2.21% to Rs 910.10 on 7.53 lakh shares following reports its offshore dollar-denominated debt offering had received a strong response. It had hit a high of Rs 918.50.
Housing finance major HDFC rose 1.90% to Rs 1611.15 following reports it had raised prime lending rates by 50 basis points from 1 January 2007. This is HDFC’s third PLR hike during the current financial year. HDFC has, however, left fixed rates unchanged at 11%.
Index heavyweight Reliance Industries (RIL) advanced 0.60% to Rs 1288 on 9.36 lakh shares. It moved in a range of Rs 1311.70 and Rs 1278.
Pyramid Saimira Theatre settled at Rs 158.20 on BSE on high volumes of 1.69 crore shares, compared to IPO price of Rs 100. The stock debuted at Rs 135. It hit a high of Rs 163.85 and low of Rs 125. The company had priced its IPO at the higher end of the Rs 88 to Rs 100 price band.
Tanla Solutions finished at upper circuit of Rs 379.80 on BSE, compared to IPO price of Rs 265. The stock debuted at Rs 379.80, which was also its high so far. It hit a low of Rs 365. 32.63 lakh shares changed hands in the counter on BSE. Tanla Solutions had priced its IPO at the upper end of the Rs 230 to Rs 265 price band.
Frontline IT stocks witnessed profit booking ahead of December quarterly results. Infosys Technologies (down 0.48% to Rs 2274.80), TCS (down 0.10% to Rs 1262.55), Wipro (down 1.16% to Rs 598.80) and Satyam Computers (down 0.10% to Rs 501.50) edged lower.
ICSA (India) lost 1.40% to Rs 936.20 after the software firm secured an order worth Rs 15.28 crore from a power utility in the southern state of Andhra Pradesh.
Biocon rose 1.13% to Rs 377.85 after the company entered into a joint-venture with Neopharma, a Abu Dhabi-based pharmaceutical company, to manufacture and market a range of bio-pharmaceuticals for the Gulf Cooperation Council (GCC) countries. The joint venture would leverage the position of Neopharma in the region and would expand Neopharmas existing portfolio with a range of Biocon's generic and novel therapeutics that encompass diabetes, CVS, oncology, auto-immune and immunosuppressive drugs, Biocon said in a statement.
Iron ore exporter Sesa Goa jumped 11.32% to Rs 1727.25 following reports it will start negotiations on annual price contracts with major global customers from February 2007.
Ashok Leyland slipped 1.85% to Rs 45.15 on 11.89 lakh shares. The company said on Friday its total vehicle sales in December rose 29.6% to 5,890 units from 4,544 a year earlier. Ashok Leyland’s domestic sales rose 47.6% in December 2006 to 5,413 units from 3,667 units, while exports fell to 477 units from 877 a year earlier.
Dabur Pharma jumped 5.13% to Rs 81 after the company on Thursday announced the launch of its new nano technology based chemotherapy agent, Nanoxel, in the country.
Centurion Bank of Punjab was down 0.65% to Rs 30.50. The bank had received the Reserve Bank of India's approval for a preferential issue of equity shares. The bank plans to issue 75 million shares, representing about 4.8% of its total outstanding shares, at Rs 24.54 per share. The shares will be issued to India Advantage Value Fund V, managed by ICICI Venture Funds Management.
India's wholesale price index rose 5.48% in the 12 months to 23 December, which is higher than the previous week's annual rise of 5.43% due to an increase in some food and manufactured product prices, data showed on Friday. The annual inflation rate was 4.62% during the corresponding week of the previous year.
The Nikkei average booked lost 1.51% as investors took profits in Honda Motor Co. Ltd., steel firms and others that logged aggressive gains in a year-end rally. Exporters such as Honda and Fanuc Ltd. were also hurt by gains in the yen, which rose on speculation the Bank of Japan could lift interest rates as early as this month, while energy firms were hit by a decline in oil prices. The Nikkei slid 262.08 points to 17,091.59, its lowest close since 21 December
Asian markets were trading weak. The key benchmark indices in South Korea (down 0.83%), Singapore (up 0.17%), China (down 2.74%), and Taiwan (down 1.25%), edged lower.
The next major trigger for the market is Q3 December 2006 results. While strong Q3 results are already factored in share prices, market players will be closely watching what the company managements have to say about outlook for Q4 March 2007 and FY 2008 (year ending 31 March 2008). Infosys kickstarts Q3 earnings season on 11 January.
After Q3 results, the market will be eyeing the Union Budget 2007-08. A build up of long positions is likely on expectations of favourable policy announcements in the budget, according to dealers.
As per provisional data FIIs were net sellers to the tune of Rs 231 crore on Thursday. They were net sellers to the tune of a substantial Rs 698 crore in index-based futures on that day. They net bought index based options to the tune of Rs 520 crore. They were net sellers to the tune of Rs 22 crore in individual stock futures.
US stocks rose on Thursday, driving the Nasdaq up more than 1 percent, as technology and biotech stocks gained after positive analyst comments and a drop in oil prices below $56 a barrel increased optimism about corporate profits. The Dow Jones industrial average gained 6.17 points, or 0.05%, to end at 12,480.69. The Standard & Poor's 500 Index added 1.74 points, or 0.12%, to finish at 1,418.34. The Nasdaq Composite Index climbed 30.27 points, or 1.25%, to close at 2,453.43.
US crude dropped sharply on Thursday after weekly oil inventory data showed a larger-than-expected rise in US gasoline stockpiles, extending a loss in crude futures from the previous session to cause its biggest two-day percentage loss in more than two years. US crude oil for February delivery fell $2.73, or 4.7 percent, to settle at $55.59 a barrel
Market slips amid volatility
The market continued to witness strong volatile moves as the key indices kept swinging between positive and negative zones throughout the session. The Sensex began the trading session with a negative gap of 103 points. The market moved into positive territory on substantial buying support that propelled the index to an intra-day high of 13972. The index drifted into the red once again in the afternoon to touch the day's low of 13763. After witnessing an intra-day swing of 209 points the Sensex closed at 13861, down 11 points. The Nifty was down five points at 3983.
The market breadth was positive. Of the 2,672 stocks traded on the BSE, 1,630 stocks advanced, 998 stocks declined and 44 stocks ended unchanged. In a volatile market, the BSE Oil & Gas index rose 1.30% while the BSE PSU index, the BSE Bankex, the BSE CD index and the BSE Metal index ended with steady gains. However the BSE Auto index shed 1.51%.
Dragging down the market, Reliance Communication shed 3.79% at Rs447, Maruti dipped 3.31% at Rs936, Gujarat Ambuja lost 3.12% at Rs138, Hindalco tumbled 2.17% at Rs171, Dr Reddy’s was down 2.06% at Rs809 and ITC closed weaker by 2.01% at Rs166. L&T, ACC, Tata Motors, Wipro, Reliance Energy, Hero Honda and Bajaj Auto were down 1% each. However, ONGC advanced 2.43% at Rs896 and ICICI Bank was up 2.24% at Rs910. HDFC, Grasim and HLL ended with gains of 1% each.
Over 22.15 lakh ITC shares changed hands on the BSE followed by Welspun Gujarat (20.02 lakh shares), Sobha Developers (17.32 lakh shares), Reliance Capital (14.93 lakh shares) and Sterlite Biotech (12.95 lakh shares).
Sobha Developers was the most actively traded counter on the BSE with a turnover of Rs185 crore followed by HDFC Bank (Rs139 crore), Reliance Industries (Rs121 crore), Reliance Capital (Rs110 crore) and ICICI Bank (Rs86 crore).
Morning Call 05/01/07
Market Grape Wine :
In House :
Nifty at a support of 3968 & 3944 levels with resistance at 4003 & 4030
levels .
Buy : Mphasis
Sell : IntraDay : Bhel , ITC below 167.5
Buy : Medium term : GMR , Ivrcl , PunjLLoyd , 3I , DhanBank & ParaDyne Info
Out House :
Sensex at a support of 13786 & 13756 levels with resistance at 13949 &
13987 levels .
Buy : RIL & RComm at dips
Buy : IOC , HP & BPCL
Buy : Titan & CenturyTex at dips
Buy : Voltam , EKC & ACe at dips
Buy : SesaGoa , Aban & LT
Buy : Mphasis & Polaris at dips
Buy : Divis , Glenmark & Lupin looks good
Dark Horse : CenturyTex , Voltam , ACE , EKC , SesaGoa , Naukari , Aban &
Titan
Bullet for the day : BPCL , HP & IOC
Sell : IntraDay : HLL , Sterlite , ITC , Tisco & Hindalco with strict stop loss
TGIF : Thank God Its Friday : Buy low Sell High call of the day maintain strict stop loss
Thanks Yash
Brokers bullish on Int Combustion, RIL, Reliance Comm
JM Morgan Stanley has kept underweight rating on SBI; with a target of Rs 800
Sushil Finance has kept buy rating on International Combustion; with a target of Rs 435
Enam has kept outperformer rating on Essel Propack
Karvy has kept market performer rating on Bajaj Hindustan; with a target of Rs 235
Karvy has kept market performer rating on Anant Raj Ind
DSP Merrill Lynch has kept buy rating on RIL; with a target of Rs 1320
Citigroup has kept buy rating on Reliance Communications; with a target of Rs 570
Citigroup has kept buy rating on Tata Teleservices; with a target of Rs 24
5 Intra-day Stock Ideas
NIFTY (3988.8) SUP 3968 RES 4010
Buy ROLTA (269.55)
SL 265 T 279 , 281
Buy DRREDDY (823)
SL 818 T 835, 838
SELL JPASSOCIAT (714)
@ 718 SL 722 T 708, 706
SELL PNB (509)
@ 513 SL 517 T 503, 501
SELL CUMMINSIND (273)
@ 277 SL 280 T 267, 265
STRATEGY INPUTS FOR THE DAY
Season to forget reason
Conscience is our magnetic compass; reason our chart.
A magnetic compass always points north. Or does it? What happens if you were at the north or south pole. Where would it point? From the limited knowledge that we have (we know limited knowledge is dangerous), the compass would spin freely. Our markets appear to be at a temporary north pole. And that perhaps will explain the free north south movement in the coming days.
Whenever the market falls, we look for reasons. Take for instance Thursday's drop. Weakness in Asian markets, meltdown in key metals on the LME, uncertainty over the Federal Reserve's stance, rich valuations and normal profit booking. The fact remains that the Indian market has rallied sharply in the last four years.
We see a cautious opening today in light of the mixed closing on Wall Street and weakness across Asian markets. The big positive, however is going to be the sharply lower oil prices. Tanla Solutions and Pyramid Saimira Theatres will make their debut today.
We expect the market to remain choppy in the next few days till the major IT results show direction. The RBI policy review and Budget will also have some bearing on sentiment. But, the biggest trump card will continue to be the FIIs. The money they allocate towards the emerging markets, and particularly to India will decide the fortunes of the market this year.
At current valuations, major stock indices appear richly valued. Even large caps outside the Sensex and the Nifty appear to have peaked out. Some pockets of the market like the small- and mid-cap shares do offer opportunities as they have not kept pace with their frontline peers since the crash in May and June last year. But, low liquidity and high volatility are major turn offs.
FIIs were net sellers of Rs2.31bn in the cash segment yesterday on a provisional basis. In the F&O segment too, they were net sellers at Rs2.03bn. On Wednesday, they pumped in Rs2.08bn in the cash segment. On Tuesday, they were net buyers of Rs33.53bn. Mutual Funds poured in Rs1.98bn on Wednesday.
US stocks ended higher for the first time in a week, spurred by late buying in technology shares though retailers were under pressure as they reported disappointing holiday sales.
Intel led the Nasdaq to its biggest gain in a month after Banc of America Securities raised its profit estimate for the world's No.1 chip maker. Biotech firm Amgen rose following an upgrade by Bear Stearns.
The Nasdaq added 30.27 points, or 1.3%, to 2453.43. The S&P 500 finished flat at 1418.34. The Dow Jones added 6 points to 12,480.69.
Oil dropped below $56 a barrel, the lowest in 18 months. Crude oil has tumbled 8.9% in the last two days to a level not seen since June 2005 as mild US weather curbed heating-fuel use. Futures fell 4.7% to $55.59 in New York.
In other markets, US Treasuries rose the most in about two weeks as growth in service industries slowed, while the dollar climbed to a two-week high against the euro. Gold fell for a second day.
Among the Indian ADRs, Patni was up over 1%, VSNL fell 2.6%, Dr. Reddy's gained 2.2% and MTNL was down 2.1%.
Asian stocks fell for a third day on Friday. BHP Billiton and Nippon Mining declined after crude oil plummeted to an 18-month low and copper and gold prices dropped. The Nikkei in Tokyo was down 261 points to 17,092 while the Hang Seng in Hong Kong advanced 28 points to 20,053.
China and New Zealand were the region's only markets to advance.
European shares dipped. The pan-European Dow Jones Stoxx 600 index declined 0.3% to 368.68. The UK-based FTSE 100 closed down 0.5% at 6,287.00 while the German DAX Xetra 30 lost 0.3% to 6,674.40 and the French CAC-40 fell 0.7% to 5,574.56.
In the emerging markets, the Bovespa in Brazil shed nearly 1% to 44,019 while the IPC index in Mexico lost 0.2% to 26,566 and the RTS index in Russia was up 0.6% at 1921.
Select buying was seen in sugar stocks following reports that Ethiopia will open a tender for 40,000 metric tons of sugar on Jan. 6, for delivery between April and June. The country imported 37,200 tons of sugar from India and Brazil last year. The new tender represents about 13% of expected national demand this year.
Major Bulk Deals:
SBI MF has bought Ansal Housing while Merrill Lynch has sold it; Citigroup and Merrill Lynch have sold Asian Electronics; Lotus Global has sold GV Films; Citigroup has purchased Gitanjali Gems; CSFB has sold GTL; UBS has sold JHS Svenguard; Goldman Sachs has sold Lakshmi Overseas; Morgan Stanley has picked up Lumax Industries and NRB Bearings; Kotak Mahindra Bank has sold NK Industries; Prudential ICICI MF has sold Viceroy Hotels; Citigroup has sold Wyeth.
Insider Trades:
Nilkamal Plastics Ltd: Sundaram BNP Paribas Select Midcap has purchased from open market 7000 equity shares of Nilkamal Plastics on 27th Dec 2006.
Market Volumes:
The turnover on NSE was up by 4.9% to Rs85.56bn. BSE FMCG index was the biggest loser and lost 2.08%. BSE Metal index (down 1.72%), BSE IT index (down 1.48%) and BSE Metal index (down 1.72%) were among the other major losers.
Volume Toppers:
IFCI, Nagarjuna Constructions, Polaris, HFCL, HCC, SAIL, ITC, DCB, HLL, Hindalco, Four Soft, GTL, BSEL Infra, NDTV, Ashok Leyland, Info Edge India, Mercator Lines and Deccan Aviation.
Delivery Delight:
ABG Shipyard, Aptech, Arvind Mills, Balaji Telefilms, Bank of India, Bharati Shipyard, Bombay Dyeing, Dr Reddys, Educomp, Goldiam International, Helios & Matheson, Hindustan Construction Co, HPCL, I-Flex, Indraprastha Gas Ltd, Jet Airways, L&T, ONGC, Sadbhav Engineering, SRF, Strides Arcolab, Tulip and Wockhardt.
Upper Circuit Filters:
Champagne Industries, Flex Industries, Goldiam International, Sonata Software, McNally Bharat, Sadbhav Engineering and Taneja Aerospace.
Brokers Recommendations:
Orchid Chemicals – buy from Religare Securities for target price of Rs305.
Long Term Investment:
Hindustan Construction
Major News Headlines:
Nicholas Piramal unit buys majority stake in Jankharia Imaging
JSW Steel hikes price of galvanised steel products
Citigroup raises stake in IVRCL Infra to 6.15%
Asian Electronics denies comment on reports of share buyback
Polaris wins a deal from a Global Top 10 bank
Cubex Tubings bags order from NTPC
Units of Aban Offshore ups stake in Norway’s Sinvest to 50.01%
Hindustan Zinc cuts zinc prices by 4.2% to Rs212000 a ton
From Research Desk - Bharti Airtel Ltd.
Bharti Airtel Ltd.
BUY
CMP Rs630
The buyout of Hutch’s stake (51% direct holding, 67% total holding) in Hutch Essar has been in the media over the past few weeks. The 67% stake is up for grabs by several telecom majors like Vodafone, Reliance Communications, Verizon Communications and the Essar group. According to media reports, the floor price of the bid has been fixed at US$14bn. In the light of these developments, one company that is likely to seek higher valuations in the near term is Bharti Airtel.
We are considering three possible bid prices -US$15bn, US$16bn and US$17bn. We have used EV/Subscriber method to value Bharti Airtel. At US$16bn, Hutch EV/Subscriber works out to be US$717, which is at 11% premium to Bharti. We believe, Bharti should trade at least 10-12% premium to Hutch Essar considering Bharti’s
1. Pan India presence
2. Superior operating margins
3. Superior managerial skills
Consequently if the deal is valued at US$15bn, Bharti’s EV is likely to increase by 10-12% to US$30.5bn and the share price could rise to Rs700+ levels.
At CMP of Rs635, the stock is trading at 33.5x FY07E EPS of Rs18.8, 25.2x FY08E EPS of Rs25 and 18.7x FY09E EPS of Rs33.75.
How Market Fared
Bulls take a breather
The Markets snapped up a 2-day winning streak on the New year and closed lower with Sensex closing 13872, down by 143 points and NSE Nifty losing 35 points to close at 3989. Profit booking was seen in Infosys, Bajaj Auto, Wipro and SBI. However, select Mid-cap stocks rallied further. In addition, the mood was dampened weak Asian markets. Hang Seng Index lost over 380 points. While, The Nikkei 225 Stock Average climbed 0.7% to an eight-month high. However, US stocks erased an initial rally in 2007's first trading day after minutes from the Dec. 12 meeting of Federal Reserve policy makers suggested that the central bank was still concerned about slowing economic growth and accelerating inflation.
The only positive factors this morning was the fact that oil prices have fallen towards the $58 per barrel mark, which lifted the refinery stocks higher. BPCL, HPCL and IOC were among the major beneficiaries.
Technology stocks witnessed some profit booking after being in the limelight in the recent trading sessions. Satyam, Wipro and Mphasis BFL were among the major losers. HCL Tech lost 1.8% to Rs620 and Infosys was down by over 1% to Rs2285.
Pharma stocks recorded healthy gains. Ranbaxy, Sun Pharma, Glaxo and Dr Reddy's Labs were among the major gainers. Lupin edged higher to Rs609 after the company received Tentative nod for Generic of Pfizer's Zoloft. Ranbaxy added 0.5% to Rs413, Dr Reddys Labs was up by over 2% at Rs828.
Heavy profit booking was seen in FMCG stocks led by drop in ITC. The scrip lost nearly 4% to Rs169 on concerns that Value-Added Tax may be put on Cigarettes and HLL was down by 1% to Rs211. Others like Archies, Colgate and Marico Industries were among the major losers.
Market may lose further ground on weak Asian bourses
Weak Asian markets and data showing that FIIs were net sellers in both and futures segment on Thursday (4 January 2007) may pull the market down further today. Sensex had lost 143 points on Thursday on account of profit taking in pivotals. As per provisional data FIIs were net sellers to the tune of Rs 231 crore on that day. They were net sellers to the tune of a substantial Rs 698 crore in index-based futures on that day. They net bought index based options to the tune of Rs 520 crore. They were net sellers to the tune of Rs 22 crore in individual stock futures.
The next major trigger for the market is Q3 December 2006 results. While strong Q3 results are already factored in share prices, market players will be closely watching what the company managements have to say about outlook for Q4 March 2007 and FY 2008 (year ending 31 March 2008). Infosys kickstarts Q3 earnings season on 11 January.
After Q3 results, the market will be eyeing the Union Budget 2007-08. A build up of long positions is likely on expectations of favourable policy announcements in the budget, according to dealers.
Asian markets were in the red on Friday (5 January). Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were down by between 0.11% to 1.8%. There are talks that Japanese interest rates could rise this month.
US stocks rose on Thursday, driving the Nasdaq up more than 1 percent, as technology and biotech stocks gained after positive analyst comments and a drop in oil prices below $56 a barrel increased optimism about corporate profits. The Dow Jones industrial average gained 6.17 points, or 0.05 percent, to end at 12,480.69. The Standard & Poor's 500 Index added 1.74 points, or 0.12 percent, to finish at 1,418.34. The Nasdaq Composite Index climbed 30.27 points, or 1.25 percent, to close at 2,453.43.
US crude dropped sharply on Thursday after weekly oil inventory data showed a larger-than-expected rise in US gasoline stockpiles, extending a loss in crude futures from the previous session to cause its biggest two-day percentage loss in more than two years. US crude oil for February delivery fell $2.73, or 4.7 percent, to settle at $55.59 a barrel.
Market may remain edgy
After correcting nearly 140 points in yesterday's trades, the market may witness further downward movement on the back of a further weakness in most of the heavyweight counters and ongoing weak Asian Indices. However, overnight gains in the US market may keep the market in good stead. Among the benchmark domestic indices, the Nifty is likely to test stiff resistance 4015, while on the downside it has a support at 3980-3960. The Sensex has a likely support at 13850 and could test higher levels of 13920.
US indices notched up significant gains on Thursday amid steep fall in the crude oil prices and a report that showed strong retail sales. While the Dow Jones advanced 6 points at 12481, the Nasdaq gained 30 points to close at 2453.
Indian floats largely had a mixed outing on the US bourses. VSNL & MTNL were the major loser and lost over 2% each while Infosys, Wipro, Tata Motors, ICICI Bank and HDFC Bank ended with a negative note. Among the gainers Dr Reddy gained 2.21% at Rs18.5 while Satyam, Rediff and Patni ended with steady gain.
The Nymex light crude oil for february delivery slumped by $2.73 to close at $55.59 a barrel, while the in the commodity segment, the Comex gold for January 07 delivery lost $3.20 to settle at $623.90 an ounce.
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