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Tuesday, February 20, 2007
Close: A profit taking day on the back of no positive triggers !
What started off as a lacklustre market, ended on a weak note of profit taking. Market were weak . The markets were a bit volatile in the morning session and in the absense of any news or positive triggers closed in deep red. Investors played in a safer side ahead of FNO expiry. The FNO expiry for February Futures and Options expires this Thursday. There was not much support from the global markets. Selling pressure was witnessed across all the board only selective stock had buying activity like Media, FMCG, Energy and Steel stocks. The Asian markets traded mixed for the day and European markets were in red. The Key would be interest rates in Japan. Bank of Japan will announce its decision. A hike in interest rates could bring in downsides. Low interest rates in Japan have been the source of easy money across the world and may be its time for this to flow back.
Sensex closed down by 150 points at 14253.38. Weighing on the Sensex were losses in ONGC (875.6,-3 percent), Grasim (2570.8999,-3 percent), Rel Energy (520.9,-3 percent), HLL (199.65,-3 percent) and RCVL (452.15,-2 percent). Losses are restricted by gains in Ranbaxy (395.5,+1 percent), ITC (175.8,+1 percent), Cipla (254.55,+0 percent), NTPC (142.1,+0 percent) and TISCO (444.15,+0 percent).
Automobile stocks closed in red for the day. As per reports Bajaj Auto Ltd is close to setting up a new manufacturing plant at Chakan near Pune for its foray into the four-wheeler segment. There are also plans to set up a production unit in Brazil for two wheelers. Bajaj is under negotiations to get land for new plant. The plan is to set up new goods carrier manufacturing facility in Chakan, Pune, and the new goods-carrier would be of one tonne capacity on the lines of Tata Ace. Bajaj is also planning to set up a two wheeler plant in Brazil. Its diversification but really in essense its not. The company's 3 wheelers have been doing well in the goods segment as well. ACE threatens to take that market and the natural reaction would be to counter that with an aspirational product like the Ace. However near term the increase in interest rates could see worries on demand. The margins are under pressure as the company has chosen the competitive route. Bajaj closed down by 1.2% and its peer Hero Honda closed marginally down as well.
FMCG stocks traded mixed for the day, Hindustan Lever Ltd (HLL) posted results for the fourth quarter and full year ended December 2006 which came in lower than expectation. For FY06 the company has posted a topline growth of 9.4% at Rs 12,103 cr yoy, operating margins expanded by 60 basis points due to stock related adjustments, lower interest charges. Bottomline growth was 13.7% at Rs 1855 cr yoy (excluding the extraordinary). For Q4 it has posted the topline growth of 6% at Rs 3156 cr, bottom line growth of 10% at Rs 483 cr on yoy basis. Food business grew by 11% on yoy basis. Results for the quarter are not comparable to those of 4FY06 to the extent of amalgamation of Vashisti Detergents Limited and the demerger and subsequent disposal of Doom Dooma and TEI plantation divisions. HLL closed down by 2.78% and its peer Colgate, P&G, Dabur also closed in red.
Technically Speaking: It was a volatile session for the whole day before closing. Sensex touched intraday high of 14466 and low of 14230. It has good support at 14230 and resistance at 14500. Expect a pullback to 14500 as the expiry gets closer. Market turnover stood at Rs 3871 cr. Overall breadth was in favor of Decliners where they stood at 1908 and Advancers stood at 707. The Resistance level was at 14400-14551 while Support at 14164-14079 levels.
Sensex sheds 150 points
In early trades it appeared that the market would continue its upward march as the Sensex opened with a positive gap of 46 points at 14449 and moved up to touch an intra-day high of 14467. However the Sensex came off its high on sustained selling pressure and remained subdued with a negative bias through the afternoon. The resumption of substantial selling towards the close saw a sharp fall in auto, banking, consumer durables and heavyweight stocks that dragged the Sensex to an intra-day low of 14230. The Sensex finally ended the session with losses of 150 points at 14253. The Nifty shed 58 points to close at 4107.
The breadth of the market was weak. Of the 2,630 stocks traded on the BSE, 1,892 stocks declined, 684 stocks advanced and 54 stocks ended unchanged. Among the sectoral indices, the BSE CD index dropped sharply and shed 1.58%. The BSE Auto index, the BSE Bankex, the BSE CG index, the BSE PSU index and the BSE Teck index were down around 1% each.
The fall in the Sensex was led by the heavyweights. ONGC slipped 3.24% at Rs876, Grasim slumped 3.01% at Rs2,571, Reliance Energy shed 2.76% at Rs521, HLL lost 2.66% at Rs200, HDFC was down 2.34% at Rs1,653 and Reliance Communication tumbled 2.34% at Rs452. Maruti, SBI and Wipro shed around 2% each. Among the gainers Ranbaxy rose 1% at Rs396. ITC, Cipla, NTPC and Tata Steel ended with modest gains.
Consumer durables stocks slipped sharply. Blue Star dropped 3.69% at Rs215, Gitanjali Gems declined 2.82% at Rs231, Titan Industries lost 2.55% at Rs955, Lloyd Electric slipped 2.49% at Rs166 and Videocon Industries closed with marginal losses.
Over 60.41 lakh Reliance Petro shares changed hands on the BSE followed by SAIL (33.41 lakh shares), HLL (26.87 lakh shares), IDBI (22 lakh shares) and Hindalco (21.09 lakh shares).
Reliance Industries was the most actively traded counter with a turnover of Rs165 crore on the BSE followed by HLL (Rs54 crore), Reliance Petro (Rs42 crore), TCS (Rs42 crore) and SAIL (Rs39 crore).
Worry weary Sensex sheds 150 points
The market drifted lower today in what was a broad-based correction. The undertone was cautious due to rising domestic interest rates, and also due to concerns that the short-term capital gains tax may be hiked in the Union Budget 2007-08, which will be tabled in Parliament on 28 February 2007. Caution was also partly due to worries of a possible interest rate hike by the Bank of Japan.
The 30-share BSE Sensex lost 149.52 points (1%), to 14,253.38. The S&P CNX Nifty lost 57.60 points (1.3%), to 4,106.95.
The market-breadth was quite weak. For 1,908 shares that declined on BSE, 707 rose. Just 58 shares were unchanged. Losers outpaced gainers by a ratio of 2.69:1.
While the BSE Small-Cap index shed 102.20 points (1.4%) to 7,214.73, the BSE Mid-Cap index lost 73.05 points (1.2%) to 5,877.90.
Nifty February futures were at 4,115.55, compared to the spot Nifty closing of 4,106.95. Nifty March futures were at 4,115 compared to the spot Nifty closing of 4,106.95. The turnover on NSE’s derivatives segment surged to Rs 39,292 crore from Monday’s Rs 32,491 crore.
February 2007 derivatives contracts expire this Thursday (22 February). The rollover in Nifty contracts, till end of Monday’s trading, was 36%. The overall rollover in individual stock futures was about 25%. The rollover was strong, at 50 - 60%, in Reliance Petroleum, Satyam Computers, Balrampur Chini Mills and Bajaj Hindustan.
The cash segment turnover on BSE dropped to Rs 3873 crore, from Monday’s Rs 4217 crore.
All sectoral indices of BSE ended in the red today. The BSE Auto index lost 84.05 points (1.5%), to settle at 5,537.42. BSE’s banking sector index, the Bankex, shed 102.86 points (1.41%), to settle at 7,186.24. The BSE Capital Goods index shed 142.69 points (1.48%), to 9,503.10. The BSE Oil & Gas index shed 49.98 points (0.7%), to finish at 6,683.43.
The Sensex is up 3.3% in calendar 2007 so far. It is down 2.7% from the lifetime closing high (14,652.09) of 8 February 2007.
State-run State Bank of India (SBI) today joined some other state-run banks in raising the benchmark prime lending rate (PLR). Interest rates on working capital loans are linked to PLR. Any rise in PLR increases borrowing cost of working capital loans for corporates. Last week three state turn banks Bank of India, Bank of Baroda and Punjab National Bank raised their prime lending rate by 50 basis points each following a hike in cash reserve ratio by RBI on 13 February 2007.
Following the announcement, SBI shares dropped 2.4% today to Rs 1103.15. ICICI Bank shed 0.7% to Rs 971, while HDFC Bank lost 0.7% to Rs 1025.35.
Housing finance major HDFC lost 2.4% to Rs 1651, on concerns that rising interest rates may impact demand for housing loans.
Oil exploration major, ONGC, dropped 3.5% to Rs 873, following reports that the Directorate General of Hydrocarbons (DGH) had disallowed gas discovery in the Krishna-Godavari basin. ONGC is likely to contest DGH views, reports suggest.
Cement shares edged lower on market talk that the government may impose a ban on exports in the budget to check cement prices. Grasim lost 3% to Rs 2565, and Gujarat Ambuja Cements shed 2.2% to Rs 129.50.
FMCG major Hindustan Lever (HLL) lost 2.5% to Rs 199.80 amid post-results' volatility. The stock had weakened to Rs 200.70 by 12:04 IST ahead of the results, which hit the market in afternoon trade. HLL had firmed up to a high of Rs 207.85 by 13:43 IST. As many as 26.8 lakh shares changed hands in the counter on BSE. HLL’s net profit declined 1.9% in the December 2006 quarter to Rs 511 crore from Rs 521 crore in the December 2005 quarter.
Telecom shares edged lower. Reliance Communications shed 2.3% to Rs 452.10, and Bharti Airtel shed 1.1% to Rs 788.10.
Reliance Industries (RIL) dropped 0.3% to Rs 1412.85. The stock weakened in the latter part of trading. It rose as much as 1.8%, to a high of Rs 1444.80, by 13:32 IST. This is a new all-time high for the stock. In intra-day trade, RIL’s market-cap crossed Rs 2,00,000 crore today. At end of the trading session, RIL’s market cap was Rs 1,97,118.96 crore.
As per reports, global oil major, Chevron Corporation, may assist RIL in developing an exploration block in the fertile Krishna-Godavari (KG) basin.
Auto shares drifted lower. Maruti Udyog lost 2% to Rs 895.20. The stock had surged in the last couple of days after the cut in retail prices of petrol and diesel. While Tata Motors lost 1.6% to Rs 854, Bajaj Auto dropped 1.1% to Rs 2991.
State-run crude oil refiner, HPCL, rose 1.6% to Rs 286.55 on reports of Mittal Investments having picked up 49% stake in HPCL’s new refinery under construction in Punjab. The refinery at Bathinda will have an annual capacity of 180,000 barrels per day.
Real estate developers barring Unitech dropped. Parsvnath Developers dropped 5.5% to Rs 312.20, Akruti Nirman shed 5% to Rs 423.50, Sobha Developers lost 4% to Rs 795, and Mahindra Gesco Developers shed 2.6% to Rs 602. Unitech surged 4.5% to Rs 421.80.
Sesa Goa rose 1.6% to Rs 1934, following reports that mining giant Anglo American had joined the race to bid for Japan's Mitsui & Co's 51% stake in the Indian iron ore exporter. Other companies reported to be in the fray for Mitsui's stake are Arcelor-Mittal, Australia's Rio Tinto, London-listed Vedanta Resources, Australia's BHP Billiton and Aditya Birla Group.
Tata Tea lost 1.4% to Rs 663.30. The company said on Monday it will offload 80% stake in its North India Plantation Operations (NIPO) to a group of investors and employees. Amalgamated Plantations, the company to which the Tatas will transfer its NIPO business, covers Tata Tea’s 20 plantations in Assam and five in Dooars (West Bengal), spread over 24,000 hectares.
A key trigger for the market in the near-term is Union Budget 2007-08. Concerns that the government may raise short-term capital gains tax on sale of shares from the current 10% have gained currency. The securities transaction tax (STT) may also go up further. The previous budget had increased STT. The removal of a 10% corporate surcharge may be offset by removal of certain open-ended exemptions.
Market men also expect the finance ministry to give a big impetus to agriculture and infrastructure in the budget.
The immediate trigger for global markets is the Bank of Japan’s two-day policy meeting ending on Wednesday (21 February 2007). Analysts are divided over whether it will lift rates to a decade-high of 0.5% from 0.25% currently. Hedge funds, who benefited from low rates in Japan, may resort to cutting of positions in global assets including equities following any rate hike, or a signal of a rate hike.
India Economics - Pre Budget Expectations
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Market may remain volatile
Rising interest rates are a cause for concern. The State Bank of India (SBI) on Tuesday (20 February 2007) joined some of the other state-run banks in raising the benchmark prime lending rate (PLR). Interest rates on working capital loans are linked to PLR. Any rise in PLR increases borrowing cost of working capital loans.
After staying cautious for a while, FIIs have once again stepped up buying. FIIs bought shares worth a net Rs 617.10 crore on 15 February, which was much higher than their purchase of Rs 210.50 crore on 14 February 2007. FIIs had stepped up buying since the onset of February 2007, but turned austere later.
Foreign funds turned net sellers on 13 February 2007. The FII inflow was a robust Rs 2909.90 crore in five trading sessions, from 2 February 2007 to 8 February 2007. The strong inflow was triggered by an upgrade in India's sovereign rating to investment grade by global rating agency, Standard & Poor's, on 30 January 2007.
But provisional data showed that FIIs were net sellers on Monday (19 February 2007) to the tune of Rs 6 crore. The Sensex had risen 47 points on that day.
Volatility may heighten this week ahead of the expiry of the February 2007 derivatives contracts on 22 February 2007. On Monday, Nifty February 2007 futures settled at 4,176.45, a premium of 11.90 points over the spot Nifty closing of 4,164.55. Nifty March 2007 futures settled at 4,175.80, a premium of 11.25 over the spot Nifty closing of 4,164.55. FIIs were net buyers to the tune of Rs 437 crore in index-based futures on Monday (19 February). They were net buyers to the tune of Rs 116 crore in individual stock futures that day.
A key near term trigger for global markets is the Bank of Japan’s two-day policy meeting ending on Wednesday (21 February 2007). Analysts are divided over whether it will lift rates to a decade-high of 0.5% from 0.25% currently.
Ahead of the Union Budget, the market will focus more on sectors, which are expected to benefit from the budget proposals. Meanwhile, concerns that a short-term capital gains tax on sale of shares, which is currently at 10%, getting hiked abound. The securities transaction tax (STT) may also go up further. The previous budget had increased STT. The removal of a 10% corporate surcharge may be offset by removal of certain open-ended exemptions.
Most Asian markets were closed on Tuesday for the Lunar New Year holiday. Markets in China and Taiwan are shut for the entire week. Japan’s Nikkei 225 average was down 0.5%, whereas South Korea’s Seoul Composite index was up 0.15% on Tuesday. US markets were closed on Monday.
Intra-day Stock Ideas
NIFTY (4164) RES 4150 SUP 4178
BUY AIRDECCAN (132.3)
SL 128 T 140, 142
BUY ORIENTBANK (229.55)
SL 224 T 238, 240
BUY STERLINBIO (178.50)
SL 174 T 186, 188
SELL IVRCLINFRA (367.80)
@ 370 SL 375 T 359, 356
SELL ZEETELE (260.5)
@ 263 SL 267 T 253, 251
STRATEGY INPUTS FOR THE DAY
HLL, Reliance to be in focus
My interest is in the future because I am going to spend the rest of my life there.
The market seems to be more interested in the immediate future. With the futures and options expiry almost here and a perk up in budget hype, the immediate future becomes even more uncertain. In short, the market may reflect the weather out there - dull and cloudy. Stay light and if you should buy, do it keeping in mind next year's budget, not the one coming up in a few days. The bulls would look to consolidate their hold on the market after last week's carnage. Global cues are limited as the US markets were closed yesterday on account of the Presidents Day. Many Asian markets are shut owing to the Chinese Lunar New Year. The Nikkei in Japan is down ahead of the announcement on interest rates tomorrow. The Bank of Japan begin its two-day meeting today and will declare its decision on Wednesday. Opinion is divided on what the Japanese central bank will do. But looks like the BOJ may choose to keep its benchmark rate steady till further signs emerge on the strength of the world's second-largest economy.
We expect a more stock specific action. HLL will be in action as it announces its fourth quarter and annual results. Reliance Industries is another stock to keep an eye on. Reports say Chevron is likely to pick up a stake in the company's energy exploration and production business. SBI may attract some buying after the banking giant hiked lending and deposit rates. Airlines might gain amid reports that FIIs will be allowed to buy shares from the secondary market outside the 49% sectoral cap on FDI. HPCL is also expected to be in the spotlight. A national daily says steel baron Lakshmi Mittal is to buy a 49% stake in the company's Bhatinda refinery.
HFCL is also likely to rise after a financial daily reported that it is putting its 74% stake in Hindustan Teleprinters on the block. Bombay Rayon Fashions will rally after the RBI approved a hike in investment limit for the FIIs up to 40% of the company's equity share capital. Garnet Construction may gain as the company will tomorrow announce a strategic global marketing alliance.
The poison may appear to be out of the system for the time being. But any new additions or deletions in the budget could change the current health and wealth of the indices for the near term. So, it pays to be safe than sorry.
FIIs were net sellers to the tune of Rs58.1mn (provisional) in the cash segment yesterday. In the F&O segment, they pumped in Rs6.61bn. Foreign funds poured in Rs6.17bn in the cash segment on Thursday, when the Sensex rallied by 345 points. Mutual Funds were net buyers of Rs1.05bn on the same day.
Asian stocks fell from a record this morning. Mitsubishi UFJ Financial Group led Japanese shares lower on concern that the Bank of Japan may keep interest rates unchanged after politicians urged it to support economic growth.
The Morgan Stanley Capital International Asia-Pacific Index lost 0.3% to 146.54 as of 11:28 a.m. in Tokyo. Japan's Nikkei 225 Stock Average lost 0.6% to 17,841.38, while the broader Topix index fell 0.6%.
Markets fell in New Zealand and Australia, and rose in South Korea and the Philippines. Financial markets were closed for the Lunar New Year holiday in China, Hong Kong, Malaysia, Singapore and Taiwan.
European shares reached multiyear highs on Monday. The pan-European Dow Jones Stoxx 600 index advanced 0.4% to 382.26. The French CAC-40 closed up 0.5% at 5,739.90, the German DAX Xetra 30 climbed 0.4% to 6,987.08 and the UK's FTSE 100 gained 0.4% to 6,444.40.
In the emerging markets, the Bovespa in Brazil was up 0.2% at 45,849 while the IPC index in Mexico advanced 0.35% to 28,590.17 and the RTS index in Russia gained 0.4% to 1904.84.
From the Research Desk
Hexaware Technologies Ltd. Result Update for Q4 CY06
Hexaware delivered decent performance in the quarter with revenues growing 6.8% qoq and earnings de-growing 2.7% qoq marred by the impact of sharp rupee appreciation. The Dollar revenue growth of 10.7% qoq was impressive in the quarter. For the full year CY06, revenue and profit growth stood strong at 39.9% and 99% respectively excluding PeopleSoft ISC. Company has entered CY07 with a strong order book of ~US$170mn (for the year) and confidence of doubling its operations over the next 8-10 quarters. FocusFrame integration is running ahead of schedule and is expected to complete by end CY07. Management has issued a guidance of a robust topline growth and subdued bottomline growth in Q1 CY07.
Outlook
Market Watch , Insider Info, Trades
Insider Trades:
Larsen & Toubro Limited: Mr. K. Venkataramanan, Whole-time Director has sold in open market 5000 equity shares of Larsen & Toubro Limited on 2nd and 5th February, 2007.
Market Volumes:
The turnover on NSE was down by 28% to Rs77.62. The BSE Bank index was the major gainer and gained 1.48%. BSE Oil & Gas index (up 0.42%), BSE Metal index (up 0.34%) and BSE PSU index (up 0.33%) were among the other major gainers. However, BSE Consumer Durable index lost 1.49%.
Volume Toppers:
Zee News, Redington India, IDBI, Cinemax India, IDFC, GBN, Bajaj Hindusthan, TTML, Hindalco, Aftek Ltd, Unitech, Reliance Communication, Ashok Leyland, Indian Hotels, TV Today, KPIT Cummins, ITC and India Cements.
Upper Circuit Filters:
SSI, Trigyn Tech, Suashish Diamond, Tele Data Informatics, KEW Industries, Swan Mills, Donear Industries, DS Kulkarni, Genus Overseas, KLG Systel, Sahara One, Steel Strips and Swaraj Mazda.
Brokers Recommendation:
Buy - Hexaware from Motilal Oswal with target of Rs220
Long Term Investment
Siemens
Major News Headlines
Aban Offshore ups stake in Sinvest to 97%
Biocon to invest Rs5bn in five years in Vishakhapatnam
Diamond Cables gets large turnkey order
L&T Infotech signs accord with Dassault Systems
Reliance Industries finds more gas in KG basin block
L&T wins $250mn order from Maersk Oil Qatar
Spanco Tele to raise up to Rs1.25bn for expansion
Nucleus Software wins order from United Bank of Africa
Teledata Informatics buys Majority stake in eSys Tech for $105mn
Core Projects to consider stock split on 22nd February
Shopper Stop plans JV with Swiss Nuance Group
Parsvnath wins bid to buy 290,000 Sq Mt of Land at Noida
Suprajit Engineering gets Rs400mn car cables order from Tata Motors
JSW Steel shuts 20% of hot metal capacity after fire
Tata Tea to sell stake in North India PlantationHOW MARKET FARED
Market may turn choppy
In a lackluster trading session, the markets closed higher led by gains in Reliance Industries and ICICI Bank. Also uncertainty among the investors ahead of the F&O expiry and Budget brought the key indices lower from day’s high. After a impressive recovery on Thursday last week, the markets closed on a quiet note with benchmark Sensex settling at 14402, higher by 47 points and NSE Nifty adding 18 points to close at 4164.
Among the index heavy weights Hindalco, Reliance Energy, Satyam Computer, HDFC Bank witnessed selling pressure, dragging the benchmark index to a low of 14372.07 after posting a robust opening. However, Banking stocks were the star performers of the day, adding over 1.4%. SAIL, ICICI Bank, ABB and TCS were among the notable gainers among the 50 Nifty stocks.
Aban Offshore was in the limelight adding over 8.5% to Rs1950, the company now owns about 97% equity stake in Sinvest ASA after the mandatory open offer for the Norwegian company ended on Feb 16. The scrip touched an intra-day high of Rs1955 and a low of Rs1795 and recorded volumes of over 3,00,000 shares on NSE.
Reliance Industries gained 1% to Rs1420 following reports of gas discovery at KG basin. The scrip touched an intra-day high of Rs1430 and a low of Rs1410 and recorded volumes of over 15,00,000 shares on NSE.
L&T edged lower by 0.2% to Rs1693. The company won order from Maersk Oil Qatar for largest export project worth a quarter of billion dollars for its Block 5 development in Qatar. The scrip touched an intra-day high of Rs1728 and a low of Rs1662 and recorded volumes of over 5,00,000 shares on NSE.
Banking stocks surged smartly led by gains in ICICI Bank on hopes that hike in lending rates would help maintain its profit margins, the scrip surged 3.2% to Rs980 and SBI was up by 0.9% to Rs1132. Among the Mid-Cap stocks Corp Bank, OBC and Canara Bank were among the major gainers.
Capital Good stocks also recorded smart gains. ABB surged over 3% to Rs3919, Jyoti structures spurred by over 4% to Rs178 and Siemens advanced by 3.2% to Rs1198. However, BHEL slipped 0.4% to Rs2376 and BEL was down 2.4% to Rs1685.
Consumer Durable stocks were the major losers as profit booking dragged them down. Titan slipped 2.3% to Rs980, Gitanjali Gems lost 2.5% to Rs238, Videocon Industries was down by 0.5% to Rs449 and Rajesh Exports slipped 3.2% to Rs435.
Sugar stocks were a mixed bag today. Bajaj Hindusthan surged 2.3% to Rs164, Dhampur Sugar was up 0.3% to Rs77 and Sakhti Sugar edged higher 0.3% to Rs75. However, Balrampur Chini lost 3.5% to Rs61 and Renuka Sugar declined nearly by 5% to Rs305Firm trend may continue
The upturn in the market may continue on strong fund inflows in the last few sessions. However, mixed Asian indices in morning trades may put pressure on the domestic indices. Among the Asian indices, Nikkei has slipped around 0.55% while Kospi and Jakarta are trading with steady gains. Caution should be maintained on account of the prevalence of a intra-day volatility and global crude oil prices trading above $59 a barrel. The Nifty could test higher levels between 4185 and 4200 and may dip around 4150, while the Sensex has a likely support at 14300 and may face resistance at 14480.
Brokers bullish on Tata motors, Birla Corp, India cement
Sharekhan has kept buy rating on Tata motors; with a target of Rs 1075.
SSKI has maintained outperformer rating on Jain irrigation.
Motilal oswal has maintained buy rating on Birla Corp; with a target of Rs 495.
Motilal oswal has maintained buy rating on India cement; with a target of Rs 280.
Karvy upgraded Jubilant Organosys to outperformer rating; with a target of Rs 296.
Anandrathi has kept buy rating on Technocraft Ind; with a target of Rs 150.
Networth has maintained buy rating on Grasim Ind; with a target of Rs 2922.
Unexpected events - Chetan Parikh
In a great book, "The art of Contrary Thinking", the author, Humphrey B. Neil, recounts events where contrary thinking helped.
“I’m sometimes asked about unexpected (and unsuspected) events of the past, when contrary ruminating might have been useful in mental preparedness and when contrary planning might have saved losses to nations as well as to peoples. Here are a few; many more might be added.
| 1914 | Little general apprehension of war. Newspapers carried scarcely any mention of strained relations prior to mid-July, 1914. | Yet—black headlines soon appeared: Aug. 1— Aug. 2— Aug. 4— Aug. 5— |
| A stunned world looked on believing | ||
| 1916 | Sensational rise in stocks of “war babies” and general stockmarket boom expected to continue. | Year-long bear market set in in November, 1916. By December, 1917, market average almost returned full cycle. |
| 1919 | Immediate postwar depression generally expected and predicted. | Inflation boom occurred, to be nicknamed the “silk shirt era.” |
| 1926 | Fears of another bear market and depression. | “New Era” commenced, with greatest market rise in history. |
| 1929 | Permanent plateau of prosperity. | New Era delusions shattered. |
| 1930’s | Economics: We reached the age of “maturity.” World Politics: Why worry about the little paperhanger and his Nazis? | Economic maturity laughable, but Hitler no laughing matter! War in 1939 expected but “it can’t last long.” Hitler “has no money and no powerful armies.” |
| 1940 | Hitler could never breach famed French Maginot line; | The “blitzkrieg” overran |
| 1945-1946 | Immediate postwar slump expected, with eight to twelve million to be unemployed. | As in1919, a postwar “replacement” boom made all predictions look silly. |
| 1949 | | September 18, pound devalued to $2.80; currencies of 29 other nations following suit—and as many more since. |
| 1947-1954 | Persistent predictions of a slump were common. | Booming conditions largely prevailed; there were only brief interruptions. |
| 1955-1957 | The years when fears of slumps vanished and the idea of perpetual prosperity became the fad. | Stock market collapsed in mid-’57 just when the future looked brightest. |
| 1961 | Mania for growth. Stocks fomented a great speculative era; hundreds of companies “went public”; and a greedy public grabbed for the shares at fast-rising prices. | As in manias of the past, the cruel awakening came in the summer of ’62, as stock prices plunged. Again, it paid to be contrary! |
And so we come to the end of our narratives and essays on THE ART OF CONTRARY THINKING.
The writer’s hope is that you, the reader, will follow through with persistent thinking on the Theory of Contrary Opinion to the end that it may develop into clearer thinking on the world’s intense and complex subjects.”
Sharekhan Investor's Eye dated February 19, 2007
Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs558
Current market price: Rs392
Ranbaxy's US offices face surprise
On February 14, 2007, US federal office of criminal investigation, USFDA conducted a surprise search of Ranbaxy Laboratories' US corporate offices and a manufacturing facility in New Jersey. The manufacturing facility belongs to Ohm Laboratories (a 100% subsidiary of the pharma major). Paper and electronic documents were seized in the raids.
Andhra Bank
Cluster: Cannonball
Recommendation: Buy
Price target: Rs109
Current market price: Rs81
Operating performance shows improvement
Result highlights
- For Q3FY2007 Andhra Bank (ANDB) reported a 5.8% year-on-year (y-o-y) growth in its net profit to Rs136.3 crore. The same is in line with our profit after tax (PAT) expectations of Rs138.5 crore.
- During the quarter the bank's net interest income (NII) grew by 22.8% year on year (yoy) and by 9.9% quarter on quarter (qoq) to Rs363.5 crore. ANDB has been one of the few banks which have shown an improvement in their net interest margin (NIM) yoy and maintained the NIM stable on a sequential basis.
- The non-interest income of the bank increased by 11.8% yoy to Rs132.9 crore despite a 21.6% y-o-y decline in the treasury income. The non-interest income excluding the treasury income was up 18.7% yoy and 5.1% qoq.
- The operating profit was up 28.5% yoy and 16.9% qoq while the core-operating profit (excluding the treasury income) increased by 33.8% yoy and 19% qoq.
- Provisions and contingencies showed a significant jump to Rs64.5 crore mainly on account of higher investment depreciation and provisions related to non-performing assets (NPAs).
- The net NPAs increased from 0.1% to 0.44% on a sequential basis while the gross NPAs declined by four basis points to 1.72% qoq. However, in absolute terms, both the net NPAs and the gross NPAs showed an increase. Despite the rise in the NPAs the asset quality of the bank continues to be one of the best in the industry.
- The bank has reported numbers in line with our expectations and also improved on its operating performance. The capital adequacy levels are comfortable at 12.8% with the Tier-I capital at 11.4%. Also, despite some increase during the quarter the asset quality of the bank continues to be among the best in the industry.
- At the current market price of Rs81, the stock is quoting at 6.1x its FY2008E earnings per share (EPS), 3.7x pre-provision profits (PPP) and 1.1x book value (BV). The bank is available at attractive valuations, given its low price to book multiple with an average return on equity (RoE) of 18.5% compared with its peers. We maintain our Buy call on the stock with a price target of Rs109.
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