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Friday, January 12, 2007

Morgan Stanley - India Financial Services

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iPhone: Is It Worth $500?

Apple Inc.'s feverishly anticipated iPhone combines the music and video features of an iPod with the communications functions of a smartphone. The question is how many consumers will be willing to pay the hefty price for the combo.

The iPhone has a sleek design and is only 11.6 millimeters thick. A 3.5-inch screen, bigger than on most iPods, extends for almost the entire length of the nearly button-free device. Instead of the iPod's iconic scroll wheel, users will navigate through their song collections, make phone calls and perform other tasks by tapping their fingers on the iPhone's touch-sensitive screen. Users of the iPhone will make calls or type emails on a virtual keyboard that pops up onscreen as needed.

Apple, of Cupertino, Calif., has an exclusive agreement with AT&T Inc.'s Cingular, the nation's largest cellular carrier by subscriber, to sell the iPhone in the U.S. for $499 and $599 -- well above mass-market cellphones -- with a commitment to a two-year wireless plan. Although it has been on a hot streak, Apple doesn't always hit it big when it enters new markets. The company collaborated with Motorola Corp. on a phone called ROKR that plays songs from users' iTunes music collections, but it was seen by many as a disappointment because of limited storage capacity.

Price Cut?

It's unclear if and when the prices for the iPhone might come down, as prices for electronics gear such as flat-screen television sets and video camcorders tend to do. While prices for the iPod have generally stayed in the same range over the years, consumers have been getting more features on new generations of iPods, essentially getting more for their money each time. With cellphones, the historical model has been for prices of such devices to come down quickly, with wireless carriers sometimes taking a loss on the products in order to get consumer subscription revenue.

In defense of the price of the iPhone, Apple Chief Executive Steve Jobs said in a speech at the start of the Macworld conference in San Francisco that consumers normally have to pay $199 for a comparable iPod nano and $299 for a smartphone, which would lack many of the whiz bang features of the iPhone at roughly the same price.

With Cingular, Apple developed a feature the companies described as a major innovation, calling it "visual voice mail." Instead of having to wade through voice mail messages in the order in which they were left, iPhone users will see a list with the names and phone numbers of people who left them voice messages and tap to listen the messages in whichever order they like.

There are also sophisticated sensors within the product that, for instance, adjust the brightness level of the screen to make it more legible based on ambient lighting conditions. Another sensor automatically shifts the screen-orientation of the iPhone to landscape from portrait mode when a user holds the device between two hands, which will allow users to view movies and television shows in wide-screen mode.

Initially, users will load music, video and other content onto the iPhone from their computers, not wirelessly over the Cingular network. Executives in the music industry say Apple will need to negotiate new licensing agreements with music labels to obtain rights to sell songs wirelessly on the iPhone.

Market: Its better than an Esselworld ride !

What a week it was.. Sentiments turned from negative to positive and this is for the nth time that this has happened. Certainly this beats Esselworld in terms of the volatility and investors with a weak heart really would have felt the jerks. The common part is that the ride at both places ended with a smile on the faces of the investors.

The week started off on a very weak note with global cues negative. There was no reason to be positive as stocks across the globe collapsed. There were worries of increasing interest rates in Japan and to add to that Emerging markets saw a selloff on back of developments in Venezuela. Venezuelan President announced that they would be nationalising the oil and Telecom companies. This was bad enough to snuff out the strength in equities. The impact was felt in India too. There was a surprise rate hike by the Bank of England has overnight rate now at 5.25%, matching that of the Fed funds rate but really markets finally ignored this. Metal prices crashed in the beginning of the week and the impact was felt across board with Hindalco, Nalco, Hindustan Zinc, Sterlite

Crude had a major selloff this week touching 20 month lows. Cut threats by OPEC dont seem to be taken seriously. Open had decided on a cut of 1.2 mn barrels per day in November and is expected to cut a further half a mln barrels per day starting February. The refineries had a ball and they surged. The airlines stocks also flew with Jet doing extremely well on the bourses. Reliance rallied too after many days of ranged action. Lower crude prices helps its profitability of the refined products. However the gains are limited as it exports 30% of its refined products. Also there is a risk that the Government may consider to reduce fuel prices further. But Reliance has the benefit of now being a play on retail and also SEZs where its expected to get huge value.

Mid caps were in action on Tuesday though the large caps saw selling. Investors were waiting for the results season. Infosys officially kicked it off well. Infosys results on Thursday was awaited with baited breath. The fact that they did not positively surprise was what was a disappointment. However Markets then rallied strongly on Thursday even though Infosys numbers were not as exciting as they normally are. TCS and Wipro were big gainers. TCS is expected to post the best ever numbers. Results are expected on the 15th that is Monday evening. The reason for the rally on Thursday was known only on Friday and that was the big trigger from the FM who gave a big boost to the banks. Seems like smart people knew about it in advance. The RBI has been given the power to change SLR floor and ceiling rates of 25% and 40%. Banks have been strugglng to raise resources and what this does at one shot is that it would help release funds for the banks. ICICI also has raised $2 bn for lending into the Indian markets and that led the Sensex on to an all time new high. Weighing this week for the initial part of the week were global cues but domestic policy coupled with global recovery brought back the glory of last week.

Sensex ended the week up almost 200 points closing at 14056 which is the highest ever weekly close.

The gainers in the Nifty were MTNL +10%, Mah +4%, TCS + 5%, Wipro +4%, Bharat Petroleum + 4%. Bharti Airtel + 4%, ICICI bank +6%, ITC + 4%, Jet +6%, Reliance +4%, Sun Pharma +4%. There were a few large losers including Suzlon -3.7%, Rel Com - 3%. topnew.gif (1104 bytes)

IFCI moved up sharply, Zee babies got listed.. Results season got of to a good start.. !

IFCI rallied strongly this week. IFCI sold off 5% stake in NSE which managed to sell 20% stake to strategic investors including New York Stock exchange. However the big kicker was the talk that the company had land which was under sale and that would be a big kicker to its bottomline as per valuation. The stock had a surge of over 66% this week. We are not enthused though. There is no continuing business for the company.

Zee babies got listed this week. This was the Wire and Wireless ltd and Zee News Ltd. The split was done so as to bring in clarity and also meet the norms with regards to foreign ownership in a News channel. We have been positive on this stock for quite some time and the demerger did create value. Zee will further demerge with the DTH business at the end of the month. The results however are unlikely to be exciting.

The power ministry has announced ultra mega transmission projects for private sector participation on a build-own-operate basis. The ministry has identified 14 such projects entailing a total investment of over Rs 22,000 crore. They are likely to be commissioned by 2011-12. Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) have been appointed as the nodal agencies to oversee implementation of these projects. A bidders' conference is in progress from January 10, 2007. The Ministry, PFC and REC have already invited expressions of interest (EoIs) for the Rs 4,200-crore evacuation system for the Maithon (1,000 mw), Kodarma (1,000 mw) and Bokaro extension (500 mw) projects. They have also invited EoIs for a project to bring surplus power from the east and northeast to the northern region, entailing an investment of Rs 1,800 crore. Besides, EoIs have also been invited for the evacuation system for North Karanpura (1,980 mw) costing Rs 4,100 crore. Other transmission projects include the southern-western region synchronous inter-connector (Rs 800 crore), as well as evacuation systems for Barh II (1,320 mw, Rs 1,200 crore), Nabinagar (1,000 mw, Rs 800 crore) and Daripally (3,200 mw, of which 800 mw in the 11th plan, Rs 4,000 crore).

The first two Ultra Mega Power projects of 4,000 Mw each at Sasan (Madhya Pradesh) and Mundra (Gujarat) were awarded last month to Lanco and Tata Power, respectively. The next two will be Krishnapatnam in Andhra Pradesh to be awarded by March and Tilaiya in Jharkhand by July-end.

Thus the scene for the power sector remains extremely robust. Bhel, Siemens, ABB rallied at the end of the week.

HDFC bank posted decent growth numbers in a crunch scenario Infosys numbers were quite good. UTI bank also surged on the back of decent numbers. It has been a fair start for the results season and more will be known as results unfold.

Technically Speaking: We had mentioned in our Technical Analysis that the Sensex was ready to make a new high with support at 13180 and surprise surprise it did that. Going ahead 14180 - 14380 is an expected range and then some correctives could be expected.

Fundamentally: The results have yet to come in and that certainly does not portend well. Experience tells us that results of the large caps normally leads to profit taking. Next week is the interest rate meeting for Japan and that could be a dampener. Mid caps is where the action is more likely to shift as the performance is expected to be good but it will be selective action. The FIIs who have been sellers so far will be keenly watched. Its very much possible that FII buying will be selective and sombre at these kind of levels. So its more likely to be a choppy market.


Nov industrial output grows by 14.4% yoy

India's industrial production grew by an impressive 14.4% in November as against just 6% in the same month last year, the Government said on Friday. At the same time, the Government revised the industrial growth figure for October, from the provisional level of 6.2% to 4.4%. The November expansion in the Index of Industrial Production (IIP) was led primarily by the manufacturing sector, which surged by 15.7% compared to 7% in the corresponding month a year earlier. Cumulative growth in IIP during April-November 2006-07 was up 10.6% versus 8.3% in the same period a year ago. As many as sixteen 16 out of the 17 industry groups showed a positive growth during the month compared to the corresponding month of the previous year. ‘Basic Metal and Alloy Industries’ clocked the highest growth of 25.4%, followed by 23.2% in ‘Rubber, Plastic, Petroleum and Coal Products’ and 21.8% in ‘Transport Equipment and Parts’. But, ‘Metal Products and Parts except Machinery and Equipment’ showed a negative growth of 1.5%. Basic Goods and Capital Goods, and Intermediate Goods grew by 11.6%, 25.3% and 16.7%, respectively. Consumer Durables and Consumer Non-durables recorded a growth of 11.4% and 12.1%, respectively, with the overall growth in Consumer Goods being 11.9%.

Growth hampered by supply constraints: PM

Prime Minister Dr. Manmohan Singh said that the country's economic growth was being constrained by supply side bottlenecks like shortage of power, ports and skilled workforce. "Be it power, be it port capacity, be it supply of skilled manpower - a variety of supply bottlenecks are holding the growth rate back," Dr. Singh told the FICCI Annual General Meeting in New Delhi. "A major responsibility for us in the Government is to help relax these supply constraints." The Prime Minister announced that he would ask the Finance Ministry and the Investment Commission to suggest an institutional mechanism whereby large scale projects both in the public and private sectors are facilitated so that they take off as originally planned. The Prime Minister also reiterated the Government's plan to increase spending on infrastructure projects such as roads, ports and airports to US$320bn in the five years ending 2012. The Government also plans to increase spending to produce a more skilled workforce, Dr. Singh said.

Bidding war for Hutch Essar heats up

As expected (or rather reported), Vodafone CEO Arun Sarin landed in the country to press the case for the British cellular phone service provider. He met top Government officials like Kamal Nath, P. Chidambaram and Dayanidhi Maran to enlist their support for the Hutch Essar deal and apprise them about the company's India plans. Sarin also held talks with Sunil Mittal, though both refused to divulge the details of the nature of their dialogue. He said that Vodafone will make its bid for Hutch Essar in the next few weeks. Sarin also said that Vodafone was open to joining hands with other bidders and that Essar was a natural partner. Separately, Reliance Communications Board reaffirmed the company's interest in Hutch Essar and authorised Chairman Anil Ambani to take all necessary steps in this regard. The very next day, and a day after Sarin's visit to the corridors of power in New Delhi, Anil Ambani too met the Finance Minister and the Telecom Minister to shore up its support base. Reliance Communications also began the due diligence of Hutch Essar and the Hinduja Group was expected to do so next week. The Essar Group maintained its individual interest and said it had also started a confirmatory due diligence. Meanwhile, S&P said that Vodafone's ratings were not under any threat if its offer for Hutch Essar doesn't exceed US$19bn. However, if the Vodafone bid crosses US$19bn, the global credit rating agency could downgrade the ratings of the London-based wireless operator.

NYSE, 3 others to buy 20% stake in NSE
Once again the National Stock Exchange of India Ltd. (NSE) managed to beat the Bombay Stock Exchange Ltd. (BSE). Even before Asia's largest bourse decides on a stake sale and a proposed public issue as part of its demutualisation process, four global investors have picked up 5% each in NSE. The New York Stock Exchange (NYSE), Goldman Sachs, General Atlantic Partners and Softbank Asian Infrastructure Fund entered into an agreement with ICICI Bank, IFCI, IL&FS, PNB and GIC for the purchase. The domestic promoters will sell part of their holdings in NSE. While ICICI Bank and IL&FS sold 5% each, PNB offloaded 1%, GIC 2% and IFCI 7%. NYSE will purchase the shares of NSE for US $115mn in cash from the consortium of selling shareholders. Other bidders reportedly paid higher price for their stake. The deal is expected to close during the first quarter of 2007, subject to obtaining certain approvals from various government agencies. NSE is India's largest exchange and ranks third globally by number of trades in the equities market. In 2006, the average daily traded value in equities was around US$2bn and the notional average daily traded value in equity derivatives was around US$7bn. The development comes close on the heels of the guidelines issued by the Reserve Bank of India (RBI) on foreign investment in Indian stock exchanges. The central bank has allowed foreign investment of up to 49% in local stock exchanges, with FDI capped at 26%.

RBI gets flexibility in setting SLR limits

The Government allowed the RBI to fix the floor and ceiling of the Statutory Liquidity Ratio (SLR). The Cabinet approved the promulgation of an ordinance to amend the Banking Regulation Act, 1949, which will give the central bank the flexibility to set the statutory liquidity ratio (SLR) for banks. At present, banks are required to maintain at least 25% of their deposits under SLR by investing in government securities. "The RBI has been given the flexibility to go below the SLR. If it decides to do so, it will increase liquidity," Finance Minister P. Chidambaram said after the Cabinet meeting. The RBI can lower SLR once the presidential decree is issued. The proposed move would have no impact on the Government's borrowing programme, he said. The reduction in the SLR will improve liquidity in the system amid a strong demand for credit. Banks have been reeling under the cash crunch after the RBI hiked the Cash Reserve Ratio (CRR) by 50 basis points to 5.5%. The deposit growth at around 20% continues to lag credit expansion, which is growing at 30%. The outflows towards advance tax payments by companies last month has also added to the tightening. Lowering of the SLR limit would help banks boost credit in a fast growing economy and ease pressure on interest rates. Morgan Stanley says the move is an enabling provision. "We believe that the move will be a long term positive, but in the short run it’s likely to be neutral. This is because the RBI has been tightening liquidity in the last few months, and is unlikely to take a step back and lower the SLR requirement from 25% currently."

Sugar stocks smile as export ban goes

Sugar stocks rose after the Government lifted a six-month ban on the export of the sweetener. Sugar companies will gain from the move, as they will be able to export surplus production. India is expected to have a 3 million-ton sugar surplus this year. The resumption of exports may push up local sugar prices, which have declined about 17% since July 2006. Sugar mills are expected to export 1.1mn tons of sugar this year, SL Jain, Director General of Indian Sugar Mills Association was quoted as saying. Finance Minister P. Chidambaram said the country has replenished inventories to comfortable levels from a record crop this year, helping to lift the ban. India is the world's second-biggest producer and the largest consumer of sugar. He told reporters after a cabinet meeting that the restrictions had been removed as domestic sugar prices had come down. But he added that exporters would need clearance for their planned sales from the Government. India's sugar production may rise to a record 24mn tons in the year ending September 2007, Agriculture Minister Sharad Pawar said last week. That is 6% more than the 22.7mn tons estimated by the Government in November and has increased the pressure to boost exports and avoid a domestic glut. The Government had halted sugar exports on July 4, 2006 to boost domestic supplies and curb inflation. On Dec. 18, mills that imported raw sugar duty-free in 2005 under the advance license to meet a shortage, were allowed to export an equivalent amount.

Inflation climbs to 5.58%

India's inflation, based on the Wholesale Price Index (WPI), rose to 5.58% in the week ended December 30, 2006 due to a rise in food and fuel prices, the Government said on Friday. It was at 5.48% in the previous week and 4.56% in the comparable period last year. The figure was lower than a forecast of around 5.6%. The WPI rose by 0.05% to 208.1 from 208 in the previous week. The index of Primary Articles (weight: 22.02%) rose by 0.05% to 212.5. The index of Fuel, Power, Light & Lubricants (weight: 14.23%) rose by 0.1% to 321.9. The index of Manufactured Products (weight: 63.75%) remained unchanged at its previous week's level of 181.2. Prices of furnace oil (2%) and naphtha (1%) increased. However, prices of bitumen (2%) declined. Poultry chicken (9%), fish-marine (8%) and arhar (2%) became dearer. However, prices of eggs (8%) and gram (3%) fell. Meanwhile, Finance Minister P. Chidambaram asked India Inc. to refrain from jacking up product prices in the short-term view of making profits in a booming economy. This would only harm the industry in the long run and push up interest rates further.

Year-to-date tax revenues surge
With the economy on a roll, the Government too is set to benefit a great deal as tax revenues swell. The total indirect tax collection in the first eight months of the current fiscal year (April-Nov 2006-07) was up 22.5% at Rs1.49 trillion. Within this basket, Customs & Excise receipts grew by 17% to Rs1.44 trillion while Service Tax mop-up surged by 65% to Rs217.79bn. In November, indirect tax receipts jumped 28.5% to Rs203.19bn. Customs & Excise collections grew by 14.9% to Rs172.52bn while service tax revenues were up 65.3% at Rs29.87bn. The net direct tax collections as on Dec 31, 2006 stood at Rs1.44 trillion, up 41.8% over the corresponding period last year. The net direct tax collections have so far outpaced the targeted growth of 27.5% over last year as per the Budget Estimates for fiscal 2006-07. Corporate tax mop-up was up 51.8% at Rs924.63bn while personal Income-Tax (including FBT, STT & BCTT) was up 27.1% at Rs515.65bn. STT and BCTT stood at Rs32.26bn and Rs3.57bn, up 87.8% and 98.1% respectively. FBT grew by 65.2% to Rs29.33bn.

Govt to cut fuel prices if oil falls under US$50

The Government will review petrol and diesel prices on January 31 and a reduction is likely if international crude prices fall below US$50 per barrel, Petroleum Secretary MS Srinivasan said. "There will be a review on January 31. If the current average continues there will be no cut. For a reduction to happen prices have to fall further," he added. The Indian basket of crude oil is currently averaging around US$51 a barrel and a reduction in petrol and diesel prices was possible only if crude prices slip below US$50 a barrel on a sustained basis. In November, petrol and diesel prices were cut by Rs2 and Re1 a litre, respectively when the basket of crude that Indian refiners buy was at US$56.8 per barrel. The Indian basket has since fallen to just under US$53 per barrel, the lowest in FY07. Public sector oil marketing companies are currently incurring a loss of Re0.22 per litre on petrol and Rs1.42 a litre on diesel, Srinivasan said. Kerosene is being sold at a loss of Rs13-14 per litre and domestic LPG at a loss of Rs50 per cylinder. Indian Oil, BPCL, HPCL and IBP together are losing about Rs1bn a day on fuel sales. Meanwhile, Petroleum Minister Murli Deora said that he had asked the Finance Ministry to make changes in tax rates for petroleum products, for the forthcoming union budget, to make fuels cheaper. Deora also said that his ministry had sought same tax breaks for gas pipeline projects, as is provided to various other infrastructure schemes.

Cairn India stock gets hammered on listing

As expected, shares of Cairn India plunged on the maiden trading day on January 9, as investors preferred to exit amid the ongoing dispute with MRPL over the offtake of crude from the company's Rajasthan oil fields. The stock opened at Rs140 on the Bombay Stock Exchange (BSE), as against the issue price of Rs160 per share. It hit a low of Rs128.65 and a high of Rs155. It finally ended the week at Rs134.90. The beleaguered Cairn India found it tough to sell its mega issue and had a rocky ride all through with its IPO failing to fully subscribe. Then, merchant bankers to the issue had to come to the rescue and put in the money from their own pockets. The Indian arm of Cairn Energy Plc raised US$1.93bn from its IPO at Rs160 per share, the lower end of its price band of Rs160-190 a share. Most analysts expected the stock to come under pressure amid uncertainty over the offtake of crude from the company's Rajasthan block. Cairn India's oil production may get delayed because MRPL, which has been designated by the Government for buying the crude from Cairn India's Rajasthan fields has demanded that the latter share the cost of building the pipeline to carry the crude. The pipeline, which Cairn India claims is to be built by MRPL, is 311 miles (498 kilometers) long and expected to cost Rs20bn, according to ONGC Chairman RS Sharma. Analysts say the dispute between the two companies could delay the construction of the pipeline to transport oil from Cairn India's fields in Rajasthan to ports in Gujarat for shipment to the MRPL refinery. Meanwhile, shares of Shree Ashtavinayak Cine Vision Ltd. jumped on the company's stock market debut on January 10. The scrip opened at Rs189.90 as against the issue price of Rs160 per share on the BSE. It touched a high of Rs240.30 and a low of Rs185.10. It closed the week at Rs225.90.

Wireless user base keeps expanding

The calendar year 2006 proved to be the best ever for the GSM service providers in terms of subscriber growth. The GSM industry added 4.6mn new subscribers in December 2006, taking their total user base to 105.4mn, the Cellular Operators' Association of India (COAI) said. The subscriber additions for the entire year were far higher at 47mn compared to just 21mn additions for the year ended December 2005, representing a jump of 124% in new subscriber additions. CDMA operators added 1.8mn subscribers in the month of December 2006. Reliance Communications added 1.4mn subscribers on its wireless network both (CDMA and GSM). The company added over 4mn wireless subscribers during the October – December 2006 quarter, taking the total wireless subscriber base close to 30mn mark.

India Inc seeks more tax sops from FM

Despite the strong momentum in business for the last 4-5 years and growth in scale after several years of restructuring, India Inc. still wants tax benefits from the Government, especially for big-ticket acquisitions abroad. In its pre-Budget memorandum to Finance Minister P. Chidambaram, the Indian industry sought a reduction in corporate tax outgo, besides the long-term demand for the removal of the Fringe Benefit Tax (FBT). The head honchos of the industry urged Chidambaram to support domestic companies seeking to go in for large acquisitions overseas, like the Tata Steel's proposed bid for Corus and Videocon's offer for Daewoo Electronics. They also want him to drastically cut the incidence on total tax, from about 38% currently to 25%.

December car sales up 23% yoy

A slew of new launches combined with the proposed price hikes in January to shore up sales in December. The last month of a year is generally considered weak as potential buyers put off purchases to new year due to re-sale considerations. The Society of Indian Automobile Manufacturers (SIAM) said that domestic car sales in December grew by 23% to 81,026 from 65,853 in the same month a year earlier. Cumulative car sales for 2006-07 stood at 765,131 units, up 22.7% from 623,782 in the same period a year earlier. Sales of commercial vehicles (CV) rose by 49.6% to 41,952 in December while the for first nine months of the current fiscal year CV sales were up 37.2% at 327,039 units. Sales of motorcycles was up 5.3% at 592,247 units in December while year-to-date bike sales grew by 13.4% to 5,900,965 units from 5,201,485 units in the same period a year earlier.

More IPOs in pipeline

House of Pearl Fashion Ltd., a multinational, ready-to-wear apparel company, is entering the capital market with an IPO of 5,984,994 equity shares of Rs10 each through a 100% Book-building process. The price band for the IPO has been fixed between Rs525 to Rs600 per share. The issue opens for subscriptions on January 23 and closes on January 23.

Global Broadcast News Ltd. (GBN), the operator of CNN IBN and IBN 7 news channels, announced that it aims to raise Rs1.05bn through an IPO of equity shares. The company, part of the TV18 Group, has fixed the price band of Rs230 to Rs250 per share for the public issue. The IPO will open on January 15 and will close on January 18.

Cinemax India Ltd., one of the largest exhibition theatre chains in India announced a price band of Rs135 to Rs155 for its forthcoming IPO. The issue comprises 8,920,000 equity shares of Rs10 each, including a fresh issue of 7,000,000 equity shares and an offer for sale of 192,000 equity shares by the selling shareholders.

Akruti Nirman Ltd., a real estate development company, proposes to enter the capital market on January 15 with a public issue of 6,700,000 equity shares of Rs10 each through a 100% book building process. The issue closes on January 19 and the price band for the IPO has been fixed at Rs475 to Rs540. The issue will constitute 10.04% of the post-issue capital of the company.

Oil falls below US$52 per barrel
Oil prices fell under the US$52 per barrel mark for the first time since June 2005 after demand for petroleum products in the US slipped to its lowest level in more than two years. US light, sweet crude for February delivery rose 82 cents to US $52.70 a barrel in after-hours electronic trading on the New York Mercantile Exchange on Friday. The contract fell US $2.14 to settle at US $51.88 a barrel on January 11, but not before reaching a low of US $51.80 a barrel, a level not seen since May 2005. Brent crude on London's ICE Futures exchange rose 92 cents to US $52.62 a barrel. Crude oil has tumbled 15% so far this year in a huge sell-off that was kicked off by investment funds last year and then stoked by a historically warm US winter that has left supplies of heating fuel barely touched. A US Government report said this week that consumption, based on deliveries from refineries, dropped 4% last week as mild weather lowered the demand for heating oil. As a result, stockpiles of heating oil and other distillates jumped the most in three years. US crude stockpiles are 7.1% higher than the five-year average at 314.7mn barrels. Separately, OPEC President Mohamed al-Hamli said that crude at US$53 a barrel was unacceptable, and urged members of the oil producers' cartel to comply with pledged cuts to check the recent slide in prices. al-Hamli, who is also UAE Oil Minister said, "It's very difficult to have 100% compliance, but we need to make the cuts that we have agreed." OPEC had agreed in the fourth quarter to cut oil output by 1.7mn barrels per day by February 1.

Bank of England hikes rate; ECB holds

In a surprise move, the Bank of England (BoE) jacked up its key interest rate by a quarter percentage point to 5.25%, the highest level in more than five and half years. The move is aimed at containing inflation. The 25 basis points increase caught most economists off guard. Most analysts had expected the central bank policymakers to hold rates steady at least this month, and possibly raise borrowing costs in February. In a statement announcing its decision, the BoE said it expected consumer inflation to rise further in the near future. Inflation is already well above the Government's 2% target and some analysts believe it will exceed 3% when the latest figures are published this month. Consumer price inflation has recently risen to 2.7%, the highest level in more than a decade. The BoE had increased the cost of borrowing twice last year in an effort to reign in rising inflationary pressures. Meanwhile, the European Central Bank (ECB) left its benchmark interest rate unchanged as President Jean-Claude Trichet awaits more evidence of accelerating inflation before raising borrowing costs. ECB policy makers, who last month increased the refinancing rate for the sixth time since December 2005, kept it at 3.5%. Futures trading indicates investors expect two quarter-point increases by September. "Acting in a firm and timely manner to ensure price stability in the medium term is warranted," Trichet said.

Apple unveils iPhone; Cisco sues over trademark
Apple finally unwrapped the much-awaited iPhone on January 8. The iPhone will serve both as an iPod as well as 3G phone, somehow cramming a 3G radio, iPod functionality, and even a version of OS X into the phone-size package. The phone itself is dominated by a giant touchscreen, the patent Apple applied for in February. Apple's iPhone will be available in June for US$499 to US$599. But, the euphoria didn't last long, as Cisco filed a lawsuit against Apple in the District Court for the Northern District of California, seeking to prevent the latter from infringing upon and deliberately copying and using it's registered iPhone trademark.

Cisco obtained the iPhone trademark in 2000 after completing the acquisition of Infogear, which previously owned the mark and sold iPhone products for several years. Infogear’s original filing for the trademark dates to March 20, 1996. Linksys, a division of Cisco, has been shipping a new family of iPhone products since early last year. On Dec. 18, Linksys expanded the iPhone family with additional products. Cisco said that Apple had approached the company several years ago seeking to use the name, and the two Silicon Valley tech giants have been negotiating ever since to hammer out a licensing agreement. But Cisco said the talks broke down just hours before Apple's chief executive, Steve Jobs, took to the stage on Tuesday at the annual Macworld Conference and Expo to introduce the company's latest multimedia device.

Arcelor Mittal won't sue Dutch trust over Dofasco

Arcelor Mittal announced that the respective Boards of Directors of Mittal Steel Co. NV and Arcelor SA decided not to initiate litigation seeking to dissolve the Strategic Steel Stichting, an independent Dutch foundation, with a view to obtaining the transfer of the 89% shares of Dofasco Inc., the North American steelmaker, currently held by the Stichting. Mittal Steel had agreed to sell Dofasco to Germany's ThyssenKrupp if it was successful in gaining effective management control of Arcelor. In addition, under a Consent Decree with the US Department of Justice, which was filed on Aug 1, 2006, Mittal Steel had agreed to use its best efforts to sell Dofasco to ThyssenKrupp or, if Dofasco cannot be sold due to the Stichting, to sell certain alternative assets. The Stichting's holding of the Dofasco shares currently prevents their sale without the Stichting’s consent. By resolutions adopted respectively on Sept 25 and on Oct 11, 2006 the Boards of Mittal Steel and Arcelor formally requested that the Stichting be dissolved and return Dofasco shares to Arcelor. On Nov 10, 2006 the Stichting’s Board unanimously decided not to dissolve and to retain the Dofasco shares, thereby continuing to prevent their sale. On Dec 22, 2006, ThyssenKrupp initiated legal proceedings against Mittal Steel in Rotterdam alleging that Mittal Steel had breached the agreement by failing to cause Arcelor to initiate legal proceedings against the Stichting.

China's growth slowed in 2006

The Chinese economy slowed in the fourth quarter as government measures to curb lending and investment appeared to be working its way through the world's fastest-growing economy, a statement from the top economic planning agency showed. GDP expanded by 10.5% in 2006 from a year earlier, National Development and Reform Commission head Ma Kai said in a statement. That is down from 10.7% over the first three quarters. GDP topped 20 trillion yuan (US$2.6 trillion) last year, Ma said. The final figures are due to be released by the statistics bureau in Beijing on January 25. The statement didn't give a separate figure for the fourth quarter. The slowdown in investment and loans is not stable, according to Ma. The pace of economic growth is still fast, the planner said, adding that China's Government will continue to strengthen and improve macro-economic controls.

Yuan rises above HK dollar

The yuan surged against the US dollar and rose above parity with the Hong Kong dollar's peg to the US currency for the first time in over a decade. Traders took the rise through parity at 7.80 as a sign that China's central bank was now willing to let the currency appreciate a little faster. The Hong Kong dollar is pegged at 7.8 to the US dollar, although it can trade between 7.75 and 7.85. It was the first time that the yuan rose above the Hong Kong dollar peg since China unified its dual exchange rate system in 1994 and launched its domestic foreign exchange market, the China Foreign Exchange Trade System. However, the one-year offshore non-deliverable yuan forwards did not respond to the spot market's jump, suggesting that despite the short-term volatility, the market did not think that China was changing its year-end target for the yuan.

Euro slips to 1 1/2 month low vs dollar

The euro fell to a one and a half month lows against the dollar after European Central Bank (ECB) chief Jean-Claude Trichet signaled that the next rate hike would come in March rather than February. The euro hit an 18-month low against the pound sterling after the surprise rate hike from the Bank of England. The dollar hit a 13-month peak against the yen, as investors noted that even if the Bank of Japan raises interest rates to 0.5% next week as expected, the yen will remain the lowest yielder among the major currencies.

Special Story

Volume rise ahead of results!

Trends could be astonishing. One trend witnessed during the current year was that share prices of companies and their volumes (number of shares traded) started increasing as the date for declaring their financial numbers neared. Moreover, stock prices of companies were usually at their peak on their results day and fell after the announcement of results if the results were in line or below analysts’ expectations. However, other factors could also affect the movements.

An analysis of few quarters revealed that sensex and Nifty companies that stock prices of 38 companies (implied probability of 85%) started to increase around two weeks prior to their results announcement and moved up till their numbers were declared. Share prices increases are as high as 30%. There was nothing significant apart from approaching deadlines of their results announcements that made their stock prices shoot up.

Further, stock prices of companies were usually at their peak on their results day and generally fell the following day after their results announcement. This stands true even if the results are in line with analysts’ expectations and are not bad per se. This statement stands true for 28 of the 50 Sensex and Nifty companies that have declared their results thus far, a probability of around 60%. Much of this fall could be contributed to the over bought positions in these counters on account of expectations of good results. A further 16 stocks just hovered around their pre-result levels moving nowhere after the announcement of their results. But, counters got hammered if results were below market expectations or a profit warning was issued.

Volumes in all the counters too start to increase on account of increased interest on counters approaching results, but they shoot up enormously a couple of days ahead of the results. Volumes spurted around 5-35 times around the results day. But these are exceptional cases. On an average volumes increase 2-6 times and then fall back to average levels.


Kite season…indices on a high

Wish you a happy Makar Sankranti.

Makar Sankranti is a day when the glorious Sun-God begins its ascendancy and entry into the Northern Hemisphere. Right enough, the bulls seem to flying with the indices to new highs. The earnings season has got off to a bright start with Infosys registering relatively moderate results in Q3 FY07, which were just in line with expectations. How long the bulls can hold on to the winds of change remain to be seen, especially in the coming weeks. India's industrial production expanded at the fastest pace in 11 years in November. Production at factories, utilities and mines rose 14.4% from a year earlier, the fastest since September 1995 and new banking law are just some of the positive news boosting the sentiments on D-street. With major chunk of biggies yet to announce their quarterly report card one should cautiously ride the bullish run in the market. Don’t be carried away and get sucked into the rally. Also, the flow of the foreign money and the pace of it will be watched closely ahead of the budget.

The week ahead will see the likes of Reliance Industries, TCS, Wipro, HCL Tech, Bajaj Auto, Infotech Enterprises, Bharat Bijlee, REL, Siemens India, Satyam Computers and Jet Airways declaring their quarterly numbers, so activity will remain centered around the news flow. There are some uncertainties like rising inflation and hardening of rates in the near term, which may put some brakes on the raging bulls. Among the smaller stocks, which could see action, are KS Oil, Zenith Computer and Rama Pulp.


Bulls find a Magic Lamp

A whole new world
A new fantastic point of view
No one to tell us no
Or where to go
Or say we're only dreaming

This Aladdin theme song seems to calmly suit if not soothe the bears who courageously fought back after a disastrous start this week. The bulls seem to have found the Magic Lamp from somewhere. How else would you describe the sudden spurt after a subdued start? That too with Infosys failing to positively surprise. Bulls appear to be floating smoothly above the magical 14k mark and surely dreaming of greener pastures for months to come. The gains were led by heavyweights like Wipro, Reliance Industries, ICICI Bank and TCS. After an overwhelming victory on a Fantastic Friday, the bulls have seem to have entered into a whole new world, where it seems like no one could stop them from marching ahead. (We know FII liquidity and profit booking could spoil the party anytime). The key indices rose to a record high, posting its third weekly gain with benchmark Sensex adding 196 points or 1.41% to close at 14057 and NSE Nifty adding 1.73% or 69 points to end the week at 4052. The markets managed to recover well from a shaky start to the week as nervousness ahead of the Infy results kept the traders on the sidelines. Despite Infosys ‘failing to positively surprise’ in its quarterly numbers the bulls rebounded after a three-day losing sequence. Lower crude oil prices and firm global markets also contributed towards the meteoric rise over last tow trading sessions.

The markets had a dream run in last two trading sessions, as stocks rose the most in almost six months on Friday, overcoming concerns of a possible price cut by Industry Finance Minister Chidambaram asked industry not to take advantage of growing demand to increase prices. Finance Minister asked India's industry to cut prices in a bid to reduce the inflation rate. Oil prices continued to slide, as they have since the start of the year, due to warm US weather and easing supply fears. US light crude oil for February delivery fell $2.14 to settle at $51.88 a barrel on the New York Mercantile Exchange, pushing the auto and Aviation stocks higher. Sugar, Cement, Bank, FMCG, Oil & Gas and Small cap stocks were among the other major gainers this week.

Tech stocks were a buzz over the week following Q3 numbers by Infosys. Infosys recorded a sequential revenue and net profit growth, which was in line with market expectations at 5.9% and 5.8% respectively. TCS and Wipro were among the other major gainers across the sector ahead of their results on Monday. TCS jumped nearly by 5% to Rs1325 and Wipro rose by 4.5% to Rs626. Among the Mid-Cap stocks HCL Tech advanced 2.8% to Rs633, Patni gained 2.6% to Rs412 and i-Flex was up by 2.4% to Rs2019.

Auto stocks were up during the week as crude continued to slide lower, the sentiments also got a lift after India announced that Government would review diesel and gasoline prices on 31 January, 2007. A possible cut in fuel prices should augur well for the auto stocks. M&M paced ahead by over 4% to Rs933, Tata Motors gained by 0.9% to Rs940 and Ashok Leyland rose 2.5% to Rs46.

Oil & Gas stocks rose over the week as crude oil fell sharply. BPCL rose over 4.5% to Rs368, HPCL advanced 2.2% to Rs304 and IOC added 1.4% to Rs482. Oil exploration majors also gained during the week. ONGC rose 3.2% to Rs924 and Reliance Industries was up by 4% to Rs1339.

FMCG stocks returned to action yet again ahead of the announcement of Q3 results. HLL led the rally by recording an advanced of over 3% to Rs219. The company has recently raised prices of its several products, which should do well in its earnings. ITC advanced 3.5 % to Rs171; Nestle surged over 6% to Rs1245, Marico spurred by over 4% to Rs565 and Dabur gained 1.1% to Rs153.

Banking stocks managed to reverse losses on Friday on optimism a rule change allowing the RBI to lower the limit of government bonds lenders must hold, will free up more cash to meet demand for loans from companies and individuals. Private Bank major ICICI Bank was among the major gainer and gained 6.5% to Rs970 and HDFC Bank was up by 0.9% to Rs1063. Among the Mid-Cap stocks UTI Bank spurted over 5.55 to Rs499 and PNB added 1% to Rs516.

Finally, Sugar stocks turned sweeter over the week as the ban on exports was lifted. Bajaj Hindusthan Ltd. and Dwarikesh Sugar were among the major gainers after the removal of a six-month ban on exports of the commodity-boosted chances of a recovery in domestic sweetener prices. Bajaj Hindusthan gained 2.3% to Rs209, Oudh Sugar rose nearly by 6% to Rs88, Sakhti Sugar was up by 1.4% to Rs99 and Dwarikesh Sugar added 3.2% to Rs90.

IFCI: IFCI was the star performer of the week. The scrip skyrocketed over 67% to Rs21 touching a high of Rs23.5 and low of Rs13.31 during the week. The stock was in the limelight after selling its 7% stake for Rs7.8bn in the NSE to a group of investors led by NYSE Group. Market buzz that the company has called for bids for its 750 acres land at Sultanpur, is likely to be just a rumor.

Tech Mahindra: The scrip rose 12% to Rs1845 after hitting a high of Rs1871 and a low of Rs1637 during the week. The Indian software venture of BT Group Plc set up a software development center in Hyderabad, to employ 3000 workers. We may continue to see further action in the counter as the company declares its earnings on 18th January.


No sparkle this time from Infosys

Infosys results may have been more or less in line with expectations and their guidance. While some foreign brokerages lightened their positions on the Infosys counter ahead of the results, Morgan Stanley and Citigroup are positive on the counter. Infosys announced its results for the fiscal third-quarter ended Dec 31, 2006. The Bangalore-based IT major declared a net profit of Rs9.83bn for the October-December quarter of the current fiscal year as against Rs9.30bn in the second quarter, representing a sequential growth of 5.8%. The company posted a 5.9% quarter-on-quarter growth in revenues for the reporting quarter at Rs36.55bn compared to Rs34.51bn in the quarter ended Sept 30, 2006. EPS for the third quarter of FY07 increased to Rs17.64 from Rs16.75 in the July-Sept quarter.

Morgan Stanley in a post result note stated that Infosys’ numbers were "reasonably strong, especially in the backdrop of the 3.8% rupee appreciation against the US$...While the element of positive surprise has been a lot lower than that in the prior two quarters (and which was in a way expected as well), we think that the stock and the sector continue to be well placed for 2007." The brokerage, which has an "Over Weight" rating on Infosys, added that "overall fundamentals remain strong for offshore outsourcing and any improvement in pricing could be a strong driver of consensus earnings, as well as the stock price."

Citigroup in its note post the results stated "Infosys had their third consecutive quarter of double digit $ term growth with revenues growing by 10.1% qoq – as against our expectation of 9%. In rupee terms, revenue growth was 5.9% qoq." Citigroup added that the biggest positive was that offshore pricing improved 1.7% sequentially while onsite pricing improved 1.9% sequentially (partially on the back of service mix change). Citigroup has reiterated a BUY/Low Risk on the stock stating that Infosys trades at 25.7x FY08E and continues to report industry leading growth rates.

Street abuzz with big-ticket deals

India Inc. continues to scout for inorganic growth in the overseas markets in 2007 after a bumper year of Mergers and Acquisitions (M&As) last year. Domestic pharma major Ranbaxy Laboratories Ltd. said it was interested in buying the generic business of Germany's Merck KGaA. But, it won't be easy for Ranbaxy as global biggies like Teva, Sandoz and Sanofi-Aventis as well as some private equity majors such as KKR and Blackstone were also eyeing the big-ticket deal, reportedly valued at up to US$5bn. Texas Pacific Group, Cinven and Permira Advisers may also bid for the generic-drug division of Merck.

In another development, media reports stated the Reliance Industries Ltd. could enter the race to buy the plastics business of General Electric (GE). There was no independent confirmation of the same. GE's underperforming plastics business is estimated to be valued at about US$10bn. Global newspapers reported that GE was planning to sell the plastics business and that a few private equity players, including Blackstone and Kohlberg Kravis Roberts (KKR), were interested. Dow Chemical, BASF and Dupont could also be interested in acquiring the company, if it was up for sale, analysts said.

Meanwhile, Alcan Inc. denied media reports that it was selling its US business for US$8bn to US$10bn to Hindalco Industries Ltd. Dow Jones Newswire on Thursday quoted India's business news channel CNBC-TV18 as saying that Hindalco would bid for Alcan in the next few weeks. ONGC said that ONGC Videsh, its overseas arm, was invited by Maersk Oil to participate in the bidding for buying a 30% stake in two Caspian Sea blocks. OVL has been short listed for further negotiations. The agreements are likely to be signed in the near future, subject to the approval by the host Government. Denmark-based Maersk Oil holds an 80% stake in blocks 11

Anand Rathi - Weekly Technical Note

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KRC - Kale Consultants

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Results Calendar

Jan 13 2007 Aban Offshore Ltd
Jan 13 2007 Eskay K`nIT(India) Ltd
Jan 13 2007 Jay Bharat Maruti Ltd
Jan 13 2007 Key Corp Ltd
Jan 13 2007 Lakshmi Precision Screws Ltd
Jan 13 2007 Modern India Ltd
Jan 13 2007 Reliance Industrial Infrastructure Ltd
Jan 13 2007 Sanghi Corporate Services Ltd
Jan 13 2007 Triochem Products Ltd
Jan 13 2007 Unitex Designs Ltd

Karvy - Container Corp

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ASK RJ - Infosys

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Heavyweights lift Sensex above 14000

The Sensex continued to rally upwards for the second consecutive session and gained 426 points to close at 14057. Taking the positive cues from the global markets, the Sensex started the trading session on a firm note at 13729 and maintained a steady upward bias throughout the session. A strong bout of buying in heavyweight, banking, oil, capital goods and technology stocks triggered a rally that saw the index surge past the 14000 mark to touch an intra-day high of 14071. The Nifty notched up gains of 110 points to close at 4052.

The breadth of the market was positive. Of the 2,722 stocks traded on the BSE, 1,631 stocks advanced, 1,050 stocks declined and 41 stocks ended unchanged. All the sectoral indices closed with significant gains. The BSE Bankex was the major gainer and soared 6.79% followed by the BSE Oil & Gas index (up 2.77%), the BSE PSU index (up 2.75%), the BSE Teck index (up 2.41%) and the BSE CG index (up 2.24%).

From the 30 Sensex stocks 20 ended in the green. Attracting strong buying support ICICI Bank surged 8.49% at Rs970, HDFC Bank soared 6.39% at Rs1,063, SBI jumped 6.39% at Rs1,223, BHEL advanced 4.77% at Rs2,257, Bharti added 4.34% at Rs665, HDFC zoomed 4.20% at Rs1,586, TCS gained 3.77% at Rs1,325, Reliance vaulted 3.47% at Rs1,340, Cipla was up 3.35% at Rs255 and Satyam Computers closed stronger by 3.23% at Rs496. Other front-line stocks also moved up by 1-2% each.

Banking stocks witnessed sustained buying support. After ICICI Bank, Federal Bank surged 7.43% at Rs255, Bank of India soared 7.10% at Rs207, Oriental Bank added 6.49% at Rs226, Bank of Baroda advanced 6.35% at Rs240 and Punjab National Bank gained 6.14% at Rs516. Canara Bank, UTI Bank and Union Bank were up 3-5% each.

Over 59.14 lakh SAIL shares changed hands on the BSE followed by Reliance Communication (27 lakh shares), Cairn India (24 lakh shares) and IDBI (23 lakh shares).

Reliance Industries was the most actively traded counter on the BSE and registered a turnover of Rs154 crore followed by Reliance Communication (Rs117 crore), SBI (Rs70 crore), TCS (Rs61 crore) and Infosys (Rs60 crore).

Industrial data, Asian markets evoke epic response from Sensex

The market posted impressive gains for the second consecutive day. Strong industrial production data for November 2006, firm Asian and US markets as well as short-covering in the derivatives segment took Sensex and Nifty to all-time highs. Banks spurted, and so did Reliance Industries and Bharti Airtel. IT pivotals extended Thursday’s gains. Cement and auto shares nudged higher.

The Sensex jumped 426 points (3.1%) to a lifetime closing high of 14,056.53. The barometer index hit a life high of 14,070.88 at 15:15 IST. The S&P CNX Nifty gained 110.20 points (2.8%), to a lifetime closing high of 4,052.45. Nifty struck an all-time peak of 4,059.15 in late-trading.

After a fall of about 500 points in first three trading sessions this week, due to large-scale FII sales, the benchmark index rose nearly 700 points in two trading sessions (on Thursday and Friday).

The earnings season has started upbeat with Infosys, HDFC Bank and UTI Bank unveiling strong numbers in the last two days. The major December 2006 quarter results scheduled next week are TCS, HCL Tech, Wipro, Bajaj Auto, Ranbaxy Laboratories and Satyam Computer.

The market-breadth was strong today. Against 1,607 shares rising on BSE, 1,071 declined. Just 46 stocks were unchanged. Gainers outpaced losers by a ratio of 1.5:1.

The BSE clocked a turnover of Rs 4585 crore, compared to Thursday’s Rs 4430 crore.

Banks spurted after the Union Cabinet, on Thursday, approved the change to a banking law, to give RBI more flexibility for lowering the statutory liquidity ratio requirement (SLR). The law mandates banks to keep a minimum of 25% funds with the central bank as their SLR requirement. A reduction in SLR, which the amendment to the law aims to do, will release more funds to banks for lending. With the growth in banks’ loan portfolios outstripping the growth in their deposit base, several banks have been selling their SLR holdings in excess of the 25% limit and are now close to the stipulated threshold.

ICICI Bank jumped nearly 8% to a lifetime closing high of Rs 965. State Bank of India jumped 6% to Rs 1222, HDFC Bank rose 6.8% to Rs 1067. HDFC Bank, on Thursday, reported a 31.7% growth in net profit to Rs 295.64 crore.

Housing finance major HDFC gained nearly 5% to Rs 1596.

Reliance Industries surged 3.6% to a lifetime closing high of Rs 1343. A newspaper today reported that Reliance Industries is exploring possibility of joining the bidding race for General Electric (GE)’s plastic business, valued at about $10 billion. GE is reportedly reviewing its plastic division’s future, which has been hit by rising costs of raw materials and natural gas. Meanwhile, promoter Mukesh Ambani, today said the company plans to invest Rs 67,000 crore ($15 billion) for a refinery, city gas distribution and for developing a port city in Gujarat.

Bharti Airtel jumped nearly 5% to Rs 667, on renewed buying on expectations of strong Q3 results.

PSU power equipment major Bhel rose nearly 5% to Rs 2260, boosted by strong industrial production data for November.

IT shares extended Thursday’s surge following a rise in their ADRs on Thursday. TCS jumped 4% to Rs 1330. TCS unveils Q3 results on 15 January. Eight brokerages expect between 4.4 - 13.9% sequential growth in TCS’ December 2006 quarter consolidated net profit as per US GAAP, between Rs 1035.30 crore and Rs 1128.80 crore, compared to a net profit of Rs 991.50 crore in September 2006 quarter. These eight brokerages expect between 6.2 - 8.2% sequential growth in TCS’ Q3 consolidated revenue as per US GAAP, between Rs 4759.30 crore and Rs 4848.90 crore.

Infosys was up 1.5% to Rs 2217, after its ADR rose 3.6% on Thursday to $56.22. Infosys’ Q3 results announced during trading hours on Thursday, were in line with estimates. The company’s operating margins rose on a sequential basis, despite a rise in the rupee against the US dollar. However, its Q4 guidance was muted.

Satyam Computer gained 2.4% to Rs 492, after its ADR gained 5.3% on Thursday to $24.26.

UTI Bank rose 3.9% to Rs 499.45. The private sector bank today reported 40.1% growth in net profit for December 2006 quarter to Rs 184.61 crore (Rs 131.71 crore). Net interest income rose 44.56% to Rs 415.84 crore (Rs 287.44 crore), while other income surged 61.3% to Rs 279.74 crore from Rs 173.42 crore in the corresponding quarter of the previous fiscal.

KEC International rose 13% to Rs 403, after it reported a 116% surge in net profit in December 2006 quarter at Rs 38.21 crore (Rs 17.67 crore). Net sales rose 25% to Rs 572.27 crore from Rs 457.53 crore.

IFCI jumped 5% to Rs 21.75, and the stock rose on a massive volume of 6.3 crore shares on BSE. The stock extended its recent solid surge after the company unlocked a part of its holding in NSE on Wednesday.

Steel Authority of India (SAIL) rose nearly 5% to Rs 90.55, after a block deal of 35.5 lakh shares was executed in the counter on BSE at Rs 88.60. Steel Minister Ram Vilas Paswan said Friday Sail will invest more than $20 billion to expand its annual output to 40 million tonnes by 2020 from 14 million tonnes now.

State-run oil refiners Indian Oil Corporation, BPCL, HPCL and IBP were up between 3.9% to 6.1% on falling crude prices.

Sugar companies Balrampur Chini Mills, Dhampur Sugar Mills and Bajaj Hindustan rose between 4 - 6.4% after the Central Government on Thursday lifted the ban on sugar exports.

Southern Iron & Steel jumped 13% to Rs 28.25, after it said its board will meet on 19 Jan 2006, to issue shares at a premium of Rs 52 each to financial institutions and banks against a term loan the company had availed.

Automotive Axles shed 0.5% to Rs 635. The company reported 38.6% growth in December 2006-quarter net profit to Rs 13.56 crore (Rs 9.78 crore). Net sales rose 47.2% to Rs 167.77 crore (Rs 113.96 crore).

Finolex Cables rose 4% to Rs 101.05, after a block deal of 7,48,441 shares on BSE at Rs 100 each.

Marico gained almost 5% to Rs 567.40, after its board approved a 10-for-1 stock split. The board also approved a financial restructuring through adjustment of intangible assets against special reserves.

Ispat Industries rose 4.4% to Rs 12.80. Ispat Industries said on Friday, it has entered into a preliminary agreement with the Jharkhand government to set up a 2.8 million tonne steel plant for Rs 6750 crore.

Industrial production rose 14.4% in November 2006 from a year earlier, far higher than market expectations due to a strong surge in manufacturing output, government data showed on Friday. Output growth for October 2006 was revised down to an annual 4.4%, from a previously reported 6.2%. Manufacturing production, which represents more than 75% of industrial output, rose 15.7% in November from a year earlier, compared with a provisional 6% annual growth in October.

Another data showed inflation rising at 5.58% in the 12 months to 30 Dec 2006, higher than previous week's annual rise of 5.48% due to a rise in food and fuel prices, data showed on Friday. The figures were slightly lower than estimated 5.6%

Asian exporters led Asian shares higher on Friday. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore, and Taiwan were up between 1.1 - 1.8%.

US stocks mounted a broad advance on Thursday, as investors snapped up technology shares such as Microsoft Corp and optimism about the economy boosted industrial stocks, pushing the Dow to a record close. Dow rose 72.82 points, or 0.59%, at 12,514.98. The Standard & Poor's 500 Index was up 8.97 points, or 0.63%, at 1,423.82. The Nasdaq Composite Index was up 25.52 points, or 1.04%, at 2,484.85, and hit a six-year high

US crude futures edged above $52 a barrel on Friday. It had slumped to below $52 on Thursday, hitting a fresh 19-month low as selling by funds intensified.

Kotak - Infosys

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Sharekhan Highnoon dated January 12, 2007

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Sharekhan Commodities Buzz dated Jan 12, 2007

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Edelweiss - Infosys

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Various Reports

The First Call (Daily Technical Note)
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ENAM Aluminium
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BRICS PCG - Infosys

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Edelweiss - Power Tranmission Towers
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Anagram Daily

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Various Reports

ISEC - Media - Q3FY07
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Market may move northwards

The market is likely to witness upward trend as major Asian gauges like the Nikkei, the Hang Seng index, the Kospi index and the Jakarta index have gained substantially in current trades of over 1% each and US Market also ended with a positive note. The domestic indices also gained by strong volatility on Thursday and saw the index gained during intra-day trades to finally closed above 13600 marks.

US indices on Thursday rallied sharply, with the Dow Jones closing firm above the level at 12500, up 73 points, while the Nasdaq moving up by 26 points to close at 2485.

All Indian floats, also, gained in US market and ended higher. ICICI Bank, MTNL, Satyam and Wipro where the heaver gainers by over 4-5%, while Infosys, Dr Reddy, Tata Motors, HDFC Bank and VSNL were up by 2-3% each. while Rediff & Patni Compuetrs was up around a percent.

In the crude oil front, the Nymex light crude oil for february series declined by $2.14 at $51.88 a barrel. In the commodity segment, the Comex gold for February delivery advanced 50 cents to settle at $613.90 an ounce.

Bullish trend to last if Nifty crosses 3,972

The market recovered impressively on Thursday, primarily due to short covering. According to a technical analyst with a domestic brokerage, the bullish trend will be confirmed only when the Nifty crosses 3,972. It had settled at 3,942.25 on Thursday (11 January), following a 92-point surge.

Heavy FII selling pulled down the market sharply in three trading sessions, from 8 January 2007 to 10 January 2007.

As per provisional data, FIIs were net sellers to the tune of Rs 24.66 crore on 11 January, the day when the Sensex and Nifty had surged 269 points and 92 points, respectively. They were net buyers to the tune of Rs 1003 crore in index-based futures. They were also net buyers to the tune of Rs 70 crore in individual stock futures that day.

FIIs were net sellers to the tune of Rs 1107 crore in the spot market on 10 January, the day when the Sensex lost 204 points.

Asian exporters led Asian shares higher on Friday. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore, and Taiwan were up by between 0.8 - 1.6%.

US stocks mounted a broad advance on Thursday as investors snapped up technology shares such as Microsoft Corp. and optimism about the economy boosted industrial stocks, pushing the Dow to a record close. Dow rose 72.82 points, or 0.59 percent, at 12,514.98. The Standard & Poor's 500 Index was up 8.97 points, or 0.63 percent, at 1,423.82. The Nasdaq Composite Index was up 25.52 points, or 1.04 percent, at 2,484.85, and hit a six-year high.

US crude oil futures slumped almost 4% on Thursday, as prices fell below $52, hitting fresh 19-month lows as fund selling intensified. On the New York Mercantile Exchange, February crude settled down $2.14, or 3.96%, at $51.88 a barrel, the lowest since front-month crude settled at $51.85 on 27 May 2005.

Infosys’ Q3 results announced during trading hours on Thursday, were in line with market expectations. The company’ s operating margins rose on a sequential basis despite a rise in the rupee against the US dollar. But its Q4 guidance was muted.

5 Intra-day Stock Ideas

NIFTY (3942) S 3904 R 3980

BUY REIAGRO (203.25) S 199 T 212, 215

BUY HINDLEVER (217.85) S 213
T 228, 230

BUY NICOLASPIR (250.8) S 246
T 258, 260

SELL UNIONBANK (117.4) @ 119 S122 T 112, 110

SELL KPIT (126.05) @128 S 131
T 120, 118


Strong start, only carry what you can

Results are what you expect, and consequences are what you get.

The bulls expected Infosys to take them out of the woods. But it was the bears who actually rescued the bulls, thanks to short covering. The outlook for today looks encouraging with markets in the US and Asia on a strong wicket and oil still trading below $53 per barrel mark. We expect the market to open higher, but things could cool off later ahead of the weekend. Indices will be deceiving in the coming days so again keep a close watch on your own portfolio instead of getting euphoric by the swings.

Despite Infosys ‘failing to positively surprise’ the bulls managed to rebound after a five-day losing sequence. Lower oil prices and firm regional markets partly helped their cause. Majority of the rally was due to short-covering of positions on the derivative side. The Nifty Futures closed at a premium to the Spot Nifty and open interest too declined. Players had built up short positions in the F&O in anticipation of a crack in the Nifty under 3800. But, as the expected correction didn't materialize. The bears then rushed to cover their short positions, in the process lifting the key indices.

The major concern is the selling by FIIs. They were net sellers of Rs246.6mn yesterday notwithstanding the sharp and swift bounce back. In the F&O segment, they pumped in Rs13.21bn. Foreign funds were net sellers of Rs11.07bn on Wednesday and Rs3.68bn on Tuesday.

As we have said before, the market is unlikely to go up too far from these levels given the rich valuations. The only way it can do so is if FIIs start pumping in a lot more than what they are doing at the moment. That may take a while. Everything looks good but it pays to remain cautious despite the bounce back.

The Dow Jones Industrial Average closed at its highest level and the Nasdaq Composite ended at its best level in almost six years.

Oil prices continued to slide, as they have since the start of the year, due to warm US weather and easing supply fears. US light crude oil for February delivery fell $2.14 to settle at $51.88 a barrel on the New York Mercantile Exchange. The contract was quoting 71 cents higher at $52.59 in extended trading in Asia.

Among the Indian ADRs, VSNL advanced 2.3%, Infy rose 3.7%, Wipro surged 5%, Satyam jumped 5.3%, Tata Motors gained 3.9%, Dr. Reddy's was up 2.5%, HDFC Bank put on 2.4%, ICICI Bank climbed 4.8% and MTNL shot up 5.3%.

Most markets in Asia were firm this morning. The Nikkei in Tokyo surged 280 points to 17,118 while the Hang Seng in Hong Kong was up 261 points at 19,647. The Kospi in Seoul surged 19 points to 1384 and the Straits Times in Singapore gained 31 points to 3001.

Results Today: UTI Bank, Ess Dee Aluminium, KEC International, S. Kumars Nationwide, Tata Sponge, Logix Micro, Rallis India, Supreme Industries.

Major Bulk Deals:
Lehman Brothers has picked up Champagne Indage; HDFC MF and Reliance MF have bought JK Industries while Fidelity has sold the stock; Deutsche Securities has purchased Nilkamal while Kotak Mahindra UK and Bear Stearns have sold it; HSBC Financial has bought SKF India while Fidelity has sold it.

Insider Trades:
Surana Telecom Ltd: Shri Narendra Surana, Managing Director has purchased from open market 34071 equity shares of Surana Telecom Ltd from 16th December, 2006 to 9th January, 2007.

Market Volumes:
The turnover on NSE was up by 14.9% to Rs98.55bn. BSE FMCG index was the major gainer and gained by 3.25%. BSE Consumer Durable index (up 2.67%), BSE Technology index (up 2.50%), BSE Auto index (up 1.94%) and Capital Good index (up 1.59%) were among the other major gainers.

Volume Toppers:
IFCI, IDBI, Cairn India, R Com, ITC, TTML, Satyam Computer, SAIL, HLL, Deccan Aviation, Shree Ashtavinayak, Polaris, IDFC, Infosys, MTNL, Gujarat Ambuja, Ashok Leyland, IVRCL Infrastructure and Bajaj Hindusthan.

Upper Circuit Filters:
Flex Industries, GTC Industries, Zandu Pharma, Shyam Telecom, Atlanta, Tulip IT, RPG Transmission, Tanla Solution, Ganesh Housing, Nirlon and Tricom India.

Brokers Recommendations:
Buy Tanla Solutions from Emkay with price target of Rs613.

Long Term Investment:

Major News Headlines:
Infosys Q3 profit up 5.8% at Rs9.83bn (QoQ); revenues are up 5.9% sequentially at Rs36.55bn
HDFC Bank Q3 profit at Rs2.95bn (up 31.6%) and total income at Rs21.3bn (up 44%.4)
GEI Hammon gets orders worth Rs292.10mn
Ashok Leyland sets up unit in UAE
Patel Engineering bags Rs1.44bn order
PBA Infrastructure bags contract worth Rs603mn from NHAI
Tech Mahindra to set up software development centre in Hyderabad
Great Offshore Q3 profit at Rs375.4mn, revenues at Rs1.49bn
Hindustan Zinc Q3 profit at Rs13.35bn (up 305%), revenues at Rs25.4 (up 173%)

How Market Fared

Market snaps 5-day losing streak

The markets broke its five-day losing streak today as bulls were back on the bourses with vengeance. The markets rose, despite moderate quarterly earnings by Infosys. Initially the markets had a weak opening, as IT bellwether failed to provide any positive surprise. However, the markets rebounded exhibiting a sharp recovery as all round buying in scrips across the sectors lifted the benchmark BSE Sensex to hit an intra-day high of 13667.80 and NSE Nifty rising over 100 points in intra-day. All the key indices ended in green with heavy weights like HLL, RIL, R Com, Satyam Computer, Bharti Airtel and ACC leading from the front. However, GAIL, Zee Telefilms and HDFC were among the major losers in the Nifty 50. Finally, the BSE benchmark Sensex surged by 268 points to close above the 13600 level at 13630. NSE Nifty advanced 91 points to close at 3942.

Infosys gained momentum towards the end on back of fresh buying, the scrip gained by 0.9% to Rs2183 after the company registered modest 5.8% rise in Q3 at Rs9.83bn versus Rs9.29bn in previous quarter and Revenues for reporting quarter are up 5.9% sequentially at Rs36.55bn. The scrip touched an intra-day high of Rs2214 and a low of Rs2095 and recorded volumes of over 42,00,000 shares on NSE.

IFCI spurred nearly by 30% to Rs20 after the company sold its 7% stake for Rs7.8bn in the NSE to a group of investors led by NYSE Group. The scrip touched an intra-day high of Rs21 and a low of Rs16 and recorded volumes of over 23,00,00,000 shares on NSE.

Ashok Leyland paced ahead by 3.7% to Rs45 after the company announced that they have set up unit in UAE. The scrip touched an intra-day high of Rs46.90 and a low of Rs43 and recorded volumes of over 32,00,000 shares on NSE.

HDFC Bank edged lower 0.3% to Rs996. The Company announced its Q3 result with profit at Rs2.95bn (up 31.6%) and total income at Rs21.3bn (up 44%.4). The scrip touched an intra-day high of Rs1017 and a low of Rs981 and recorded volumes of over 10,00,000 shares on NSE.

FMCG stocks were in the limelight on back of sustained buying. Heavyweight HLL led from front, the scrip advanced 4.4% to Rs218, ITC surged by over 3.5% to Rs169, McDowell advanced 1.8% to Rs813 and Dabur was up 1.5% to Rs152.

Capital Good stocks were on the move. L&T gained 2% to Rs1439, Siemens was up 1.9% to Rs1068, Punj Lloyd surged 2.5% to Rs1019 and BHEL was up 0.35 to Rs2151.

The Aviation stocks were flying higher as crude oil prices fell under $54 per barrel. Air Deccan surged higher by over 7% to Rs155, Jet Airways rallied 7.5% to Rs679 and Spice Jet was up 1.5% to Rs55.

Cement stocks were up on back of value buying. ACC advanced 2.9% to Rs1048, Gujarat Ambuja gained 2.3% to Rs139, Grasim was up 0.5% to Rs2781 and Mangalam Cement added 1.4% to Rs227.

Telecom stocks were also in demand. Heavy weight Bharti Airtel spurred 3.7% to Rs636, R Com surged by over 5% to Rs427 after the Board of Directors of the company approved raising $1bn in overseas bond and MTNL added 3% to Rs160. However, VSNL slipped by 0.3% to Rs420.

Results Today

an 12 2007 Aro Granite Industries Ltd
Jan 12 2007 ATV Projects India Ltd
Jan 12 2007 Automotive Axles Ltd
Jan 12 2007 Bharat Fertilizers Industries Ltd
Jan 12 2007 Ess Dee Aluminium Ltd
Jan 12 2007 Jaybharat Textiles & Real Estate Ltd
Jan 12 2007 K E C International Ltd
Jan 12 2007 Logix Microsystems Ltd
Jan 12 2007 Modella Woollens Ltd
Jan 12 2007 Neelamalai Agro Industries Ltd
Jan 12 2007 Rallis India Ltd
Jan 12 2007 Tata Sponge Iron Ltd

2007 Forecasts

IT stocks will do well

I am quite happy with the results of Infosys today. The market was expecting it to out do its earnings guidance. It didn’t happen and so the stock fell during early trade. But one needs to understand that the quarter was a difficult one for the IT sector as a whole in the light of depreciating dollar and there were lesser working days. The company has certainly lived up to the earnings estimates if not out done them. When this seeped in, the stock gained strength later. There has been a decent growth in top line and bottom line. The company bettered its margins on a sequential basis. Product revenues accounted for a higher proportion of the total income and this segment enjoys better margins. On the negative side, the attrition rate has risen. But this is something that the sector will have to live with. Not much can be done about it the way not much can be done about the rising rupee. Companies in the sector that handle this problem better will command better valuations. Companies like Infosys handle it better and so they command their valuations. If I am to advice someone to invest in the sector, I would recommend large caps. Though Infosys and Satyam are my favourites, TCS and Wipro wouldn’t be bad choices. Mid caps in the sector are having comparatively cheaper valuations but they come at the cost of higher perceived risk.

I am bullish about the sector’s prospects and see no major concern for the coming one year.

- Harit Shah, IT and Telecom sector Analyst, Angel Broking

Bullish trend yet to be confirmed

The markets recovered impressively today but I would still be cautious. Today’s rise was primarily on short covering and only partly on fresh new long positions. For a confirmation of the bullish uptrend having resumed, there need to be more new long positions being taken and the Nifty should cross 3972. The volumes were good today.

Before taking a stance, I would prefer to see how tomorrow’s session pans out. The markets are volatile and the result season is on. We might see “sell on news” trades with companies coming out with good results and these might have a negative pressure on the markets. The results to watch out for are Reliance Industries, ONGC, TCS and Wipro. They would have a say in the market’s further direction.

- Vineet Birla, Technical Analyst, Pranav Securities

IDBI Capital- AOL

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Citigroup Reports

Citigroup - HDFC Bank
Citigroup - Infosys (Detailed)
Citigroup - Infosys
Citigroup - Suzlon Energy

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