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Tuesday, February 27, 2007
FII: – Rs 582 Cr, MF +Rs 270 Cr
FII Gross purchases Rs 2483 Cr Gross Sellers Rs 3065 Cr Net Sellers Rs 582 Cr.
MF Gross Purchases Rs 821 Cr Gross Sellers Rs 550 Cr Net Buyers Rs 271 Cr.
The numbers are major Negative. There was a complete selloff yesterday and the numbers match the provisional numbers for yesterday for FIIs.
MFs were buyers... may be thats the reason the market recovered at close. Today also there was a selloff and the provisional numbers in excess of Rs 500 Cr. Probally were driven by the Chinese selloff or worries that inflation is too high for confort and growth numbers may disappoint in the face of rising interest rates. However these numbers are key.
Budget - A non event ! but its an opportunity for the FM
A non event expected really. The budget has normally been the biggest event in the year for the markets. However it has been losing its significance in the face of restrictions faced by the FM politically and financial conditions of the Governments so far. Only 3 out of the last 10 budgets have seen positives for the Markets . Can the FM improve this number this time. Well ! we think, banking on the budget would not be wise. We think there is nothing spectacular which the FM can do to overcome the negatives of high valuations, increasing inflation and slower growth numbers on high base which will be seen. However what we do agree is that company after company that we met with seem to be having huge confidence on business visibility. There was one which said.. that ?Analysts were too optimistic expecting 100% growth.. we will ?only? grow by ?35%? for the next 3 years.?
It could be sweet as well as bit sour but its a big opportunity.. Will he take it ? The budget for FY08 will be presented as always in the last week of Feb (unless there is a new Government). This will be the second last budget ahead of elections so really in a sense it is a big opportunity for the FM. The negative is that the assembly election results which were out today did not have the Congress winning any major state. They were cleaned out which means that the theme of 'common man' or some populism would creep in but guess thats too late for now.
The Budget will focus on rationalisation of taxes and tariffs with an eye on keeping inflationary down. Maintaining growth through continued investment plan into infrastructure should be expected. Widening of the tax base would be another theme.
All in all we guess that there could be some negatives.. The negatives this budget could be no reduction in Corporate taxes. A levy of capital gains tax on Long term gains and increase in Short Term Capital Gains tax by 5%. May be some negative on the FIIs in the form of revamp of Mauritus treaty which could have negative implications. However all of these negatives we believe are less likely though pressure from the Leftists certainly is high for the same.
Relentless selling sees Sensex slip below 13500
The report card of the nation's economy, the Economic Survey 2006-07 was tabled today before the Parliament. The survey cautioned the government to arrest the rising prices and pursue policies that would ensure a 9% growth in the economy. This triggered a major fall in the market. The Sensex began the trading session at 13703 but succumbed to substantial selling and slipped only to recover in mid-morning trades. However, the market once again slipped into the red on the weakness in the heavyweight, fast moving consumer goods, banking and auto stocks that dragged the index to an intra-day low of 13409, down 294 points form the day's high. The Sensex managed to erase some losses and closed at 13479, down 171 points. The Nifty shed 48 points and closed at 3894.
The broader market was strong. Of the 2,597 stocks traded on the BSE, 1,330 stocks advanced, 1,205 stocks declined and 62 stocks ended unchanged. All the sectoral indices ended in negative territory. The BSE FMCG index dropped 1.92% at 1777, the BSE Bankex shed 1.58% at 6695 and the BSE IT index was down 1.39% at 5172.
Among the major losers Hero Honda dropped 3.64% at Rs680, ICICI Bank slumped 3.34% at Rs876, Bajaj Auto shed 3.18% at Rs2,724, ITC lost 3.05% at Rs165, Satyam Computers declined 2.38% at Rs450 and Tata Motors slipped 2.14% at Rs822. However, HDFC Bank notched up gains of 2.58% at Rs976, ACC rose 1.60% at Rs961 and Maruti added 1.53% at Rs888. Ranbaxy, Reliance Communications, NTPC and Dr Reddy's closed with marginal gains.
FMCG stocks came under sharp selling pressure. United Spirits tumbled 3.76% at Rs785, Tata Tea slipped 2.49% at Rs637, HLL slumped 1.98% at Rs185 and Bata India fell 1.36% at Rs163. United Breweries and Dabur India closed with losses of around 1% each.
Over 35.47 lakh India Cements shares changed hands on the BSE followed by Reliance Industries (32.98 lakh shares), Reliance Capital (32.20 lakh shares), Polaris (29.17 lakh shares) and SAIL (27.09 lakh shares).
Value-wise JSW Steel registered a turnover of Rs163 crore on the BSE followed by Power Finance Corporation (Rs126 crore), Reliance Industries (Rs118 crore), Tata Steel (Rs87 crore) and Reliance Communications (Rs74 crore).
Select stocks surge amid broader weakness on Budget eve
The market extended the few days old correction to one more session, as a defeat in the state polls stares the Congress in the face and weakness in Asian markets embittered sentiment in the Indian market. Nevertheless, select stocks edged up in a weak market, as investors bet on sector-specific budget sops.
The 30-share BSE Sensex lost 170.69 points (1.2%), to 13,478.83. It had bounced back after an initial fall in the morning. From 13,538.67, a drop of 110.85 points for the day, the Sensex surged to 13,689 by 11:20 IST. The recovery, however, proved short-lived. Volatility kept marketmen on tenterhooks for the second day in a row today. The barometer Sensex swung 294.85 points, between a low of 13,408.56 and a high of 13,703.41.
The S&P CNX Nifty lost 48.10 points (1.2%), to 3,893.90. The Nifty March futures were at 3,872 compared to the spot Nifty closing of 3,893.90.
The BSE clocked a turnover of Rs 4007 crore compared to Monday’s Rs 3957 crore.
The incumbent Congress party is set to demit power in Punjab and Uttarakhand. The counting for assembly elections in the three states, including Manipur, began early today. The results in Punjab and Uttarakhand are seen as a barometer of voters' concerns about inflation and economic reforms. However, the results will in anyway not jeopardise the Congress-led UPA Government at the Centre.
The finance minister today also presented the annual economic survey to the Parliament. The pre-Budget Economic Survey 2006-07 on Tuesday expressed concern at rising prices and advised 'calibrated' measures to contain inflation while sustaining high growth - an indication that Wednesday's (28 Feb 2007) Budget may continue the overall trend of moderating taxes.
Weak Asian stocks weighed on domestic markets today. Stocks in China, which topped 3,000 points for the first time on Monday (26 February 2007), plunged almost 9% on Tuesday, their biggest drop in 10 years. China Minsheng Banking Corp led the decline in moneylenders, as the central bank raised the reserve ratio this week for the fifth time in eight months, to cut lendable resources for banks.
Stocks in South Korea, Australia and Singapore fell from record highs on concerns about stronger oil. Shares in Japan also dropped. The BSE Small-Cap Index rose 23.84 points (0.35%), to 6,918.29, and the BSE Mid-Cap Index added 9.69 points (0.17%), to 5,706.40.
All sectoral indices of BSE ended in the red today. The BSE FMCG Index was the biggest loser in percentage terms, shedding 34.88 points (1.9%), to 1,777.38.
Cigarette major ITC lost 3% to Rs 165.25. The key trigger for the ITC scrip, in the near term, is developments pertaining to value added tax (VAT) on cigarettes. A 12.5% VAT on cigarettes will lead to a steep hike in cigarette prices, which may impact volumes. The concern for the cigarette industry is higher taxes may lead to a shift in tobacco consumption, to low-end products such as bidis and chewing tobacco.
The BSE Auto Index shed 60.65 points (1.1%), to 5,305.07. Weakness was conspicuous in two-wheeler shares. Hero Honda dropped 4% to Rs 677, and Bajaj Auto dropped almost 4% to Rs 2702.90. Car major Maruti Udyog advanced expecting cuts in excise duty on cars. The car major gained 1.6% to Rs 888.90. The expectation is that excise duty on all cars will be brought down to 16% from 24%. In the last budget, the excise duty was cut to 16% from 24% only on small cars.
Banking sector benchmark, the BSE Bankex, lost 107.63 points (1.5%), to 6,694.82. The banking sector's budget expectations centre around measures like restoration of tax deduction on interest income up to Rs 15000 under section 80L and reduction in the lock-in period for savings under section 80C from the stipulated five years. Such steps will lure more term deposits for banks. There are also expectations that FII-ceiling for state-run banks may be raised from 20% to 24%.
The BSE IT Index lost 73.02 points (1.3%), to settle at 5,172.40. With regard to the IT sector, the key thing to watch out for is whether tax exemption under section 10A for units set up in software technology parks (STP) is extended beyond 2009. The benefit under this sector expires in 2009.
The BSE Healthcare Index lost 9.23 points (0.25%), to 3,613.07. The pharma sector expects that 150% weighted deduction on expenditure incurred on R&D, a sop available till 31 March 2007, may be extended for another 5 - 10 years.
Construction shares surged as the sector is seen benefiting from an increased thrust on infrastructure development. Nagarjuna Construction jumped 5% to Rs 189.90, Tantia Construction rose 6.7% to Rs 124.75, Patel Engineering gained 5% to Rs 385, Pratibha Industries gained 5% to Rs 188.90, Hindustan Construction rose 4.5% to Rs 122.25 and Jaiprakash Associates rose 2.2% to Rs 594. Market men also expect tax benefits available to build, operate and transfer (BOT) projects and power projects under sector 80 IA to be extended to other infrastructure projects.
Select cement shares edged higher. ACC rose 1.7% to Rs 962, UltraTech Cement gained 4% to Rs 943, Madras Cement rose 2% to Rs 3100 and Birla Corporation advanced 2.7% to Rs 265. With regard to the cement sector, a ban on exports is being expected from the budget. Changes are also expected in the excise duty on cement, which is currently pegged at Rs 408 per tonne.
Oil exploration major, ONGC, dropped even as global crude oil held firm. The stock was down 2.4%, to Rs 814.90.
Gujarat Ambuja Cements lost 2.3% to Rs 124.50, after the cement maker said it sold 11% stake in Ambuja Cements India to Swiss cement maker, Holcim, for Rs 527 crore.
Index heavyweight Reliance Industries (RIL) shed 0.2% to Rs 1401. The stock moved between a low of Rs 1390.15 and a high of 1414.40. A newspaper report on Tuesday said the company aims to acquire a global petrochemical giant, or a 300,000 barrels per day US refinery.
The annual economic survey warned that the monetary policies aimed at containing inflation were also behind hardening rates of interest. In the current year, the survey speculates, pressure on inflation may persist due to a mismatch in supply and demand for some primary articles and firm international prices.
The expectations of higher corporate investment and earnings, robust GDP growth and government's commitment to carry forward economic reforms are also expected to scale up foreign institutional investors interest to retain India as one of the preferred destinations, the economic survey states.
High volatility has made Indian stock markets more 'uncertain' than their counterparts in developed economies like the US and South Korea, and the government should firm up regulatory mechanisms to usher in stability, the finance ministry's survey said on Tuesday. The survey also called for regulatory and other necessary steps to further facilitate enhanced institutional investment in equity markets, pointing out that this would counter-balance and cushion the impact of swings in stock prices. The price-to-earnings ratio, which partly reflects the investors' expectations of future corporate earnings, was higher than 20% at end-2006, compared to 17-18% a year ago, it said.
Fears of nasty surprises in the Union Budget 2007-08, have caused a sharp correction on the bourses in the past few days. The fall has also been due to concerns that rising interest rates may impact equity valuations and big IPO pipeline may suck out liquidity from secondary market. At current 13,478.83, Sensex is off 8% from the lifetime high of 14,652.09 attained on 8 February 2007. It is down 2.2% in calendar 2007 so far.
Marketmen fear that short-term capital gains tax on the sale of shares may be hiked from 10% to between 12.5%-15% in the Budget. The securities transaction tax (STT) may also go up further. The STT was raised in the previous budget. The removal of 10% corporate surcharge may be offset by removal of certain open-ended exemptions. On the flip side, analysts also expect the finance minister to give a big impetus to agriculture and infrastructure in the budget
Earnings growth for India Inc remains strong. Growth in recent years has hovered near the breakneck pace of more than 20%. The long term India story remains intact. India’s long-term growth drivers are a favourable demography (large share of young population), robust domestic consumption and acceleration in infrastructure creation.
The Securities & Exchange Board of India (Sebi) said on Tuesday it had raised the amount of foreign portfolio investment inflow into India so far in 2007 by Rs 3430.75 crore ($773.91 million) due to capturing of fresh data under the new reporting system. The restatement led to the revision of net inflow into equities this year to Rs 8729.50 crore ($1.96 billion), data on Sebi website showed on Tuesday. The adjustments reflected on the data for Monday (26 February 2007), showed net inflows by foreign funds on that day at Rs 4287.20 crore ($967.10 million).
Anand Rathi - Daily Fundamental Snippets
House of Pearl Fashions Ltd has bagged orders for USD 7.5 Mn (Rs 30 Crs) from US Buyers, including JC Penney / H & M/ GAAP / KOHLS.
Autoline Industries Ltd and Stokota NV have entered into a MOU to execute a merger of the two Companies where in the Company will acquire a 51% stake in Stokota's Global Operations for a consideration of approximately INR 66.8 Cr in cash and equity.
HOV Services has acquired Lason Inc for $ 148 million.
GE Shipping has entered into an agreement to sell its investment held in Routes Travel.
Plethico Pharmaceuticals Ltd will raise $75 million from overseas markets.
Petron Engineering Construction Ltd has received LOI for orders worth Rs 4.82 crore.
Bharat Heavy Electricals Limited (BHEL) has bagged an Rs 144 crore order from Power Grid Corporation of India Limited (PowerGrid).
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Anand Rathi - Daily Strategist
The NIFTY futures saw a rise in OI 8.15% with prices showing lot of volatility finally took support of 3850 levels and closed at the end of session at 3953.95 levels marginally positive. The nifty futures closed at 10 points premium to spot nifty indicating that the sharp recovery led to heavy short covering in futures .The whole day saw a lot of volatility with bulls and bears both becoming aggressive as indicated by price movement and heavy volumes in both the nifty futures and F&O market as a whole . The FIIs were a seller in nifty futures to the tune of 1036 crs The PCR has come down from 1.44 to 1.35 levels again indicating weakness in the market .The volatility is in a range of 27 indicating volatile trading sessions ahead.
Among the Big guns, ONGC saw OI flat with prices going up indicating that both bulls and bears were not aggressive in the counter as market became very volatile & RELIANCE saw OI coming up significantly to the tune of 4.48 with prices after showing lot of volatility closing above 1400 levels which is positive for the counter if market recovers this counter may gain quicker.
On the TECH front, we saw OI rising in TCS & SATYAMCOMP with prices goinh up indicating long positions are formed in these counters indicating strength in these counters whereas WIPRO & INFOSYSTCH saw OI rising with fall in prices indicating short positions are formed in these counters indicating weakness in these counters..
The BANKING counter lead by SBIN, BANKBARODA,BANKNIDIA saw OI coming down and prices going up indicating short covering in these counters whereas ICICIBANK saw fall in OI with prcies flat to negative indicating liquidation of positions by both bulls and bears ,HDFCBANK saw built up of short positions.
In the METALS TATASTEE, HINDALCO, STER,JSWSTEEL saw fresh buying coming in these counters indicating further strength in metal pack, Considering the overall scenario and the markets being volatile and wobbly, we feel one should hedge the positions as uncertainties prevail as budget is near . Traders are advised to place strict stop losses.
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Market may remain edgy
Market may resume on a weak note as Asian markets are trading down followed by overnight fall in the US markets. Yesterday, the Sensex swung over 300 points during the intra-day trades on budgetary jitters and gained marginally which may release some pressure on investors sentiment. However, caution should be maintained on prevalence of intra-day volatility. On the positive side, FII have turned net buyers for last few sessions. Among the local indices, the Nifty may trade higher in the 3980-4010 band , while on the downside the index has a support at 3900. The Sensex has a likely support at 13568 and may face resistance at 13780.
Major US gauges ended weak on Monday as investors maintained caution over a $45 billion deal in utilities. While the Dow Jones slipped by 15 points at 12632, the Nasdaq was down by 11 points at 2505.
Indian ADRs had a mixed outing in the US bourses. MTNL gained over 2% while Satyam, Tata Motors, Rediff and Patni Computers ganined around 1% each. Among the laggards HDFC Bank declined by 2.06% and Infosys, Wipro, DR Reddy's Lab, ICICI Bank, and VSNL ended with marginal losses.
The Nymex light crude oil for April delivery rose by 25 cents to close at $61.39. In the commodity space, the Comex gold for April series moved up by $3.10 to settle at $689.80 a troy ounce.
ICICIDirect - Suven Life Sciences - Initiating coverage (Price: Rs 153, HOLD)
Suven Life Sciences (SUVPHA)
Current Price: Rs 153 HOLD
Suven Life Sciences, a pioneer in Contract Research and Manufacturing
Services (CRAMS), has successfully leveraged its R&D expertise and
relationships with top MNC pharmaceutical firms by venturing into drug
discovery and development support (DDDSS) and collaborative research partner
(CRP) services. It also has its own drug discovery research program and is
expected to file an application for an investigational new drug (IND) for
its lead molecule in the therapeutic area of central nervous system (CNS) in
Q1FY08. We initiate coverage on the company with HOLD rating.
Steady growth in base businesses: Suven's main businesses are CRAMS, DDDSS
and clinical research. We expect these businesses to grow at a CAGR of 22%
over FY06-08E to Rs 133.89 crore. The CRAMS model will continue to be the
mainstay of the company. The company will leverage its business
relationships with global life science majors. It is also forging new
alliances with other players in the life sciences industry across the globe.
Big break expected from out-licensing of lead molecule: The company's
focused R&D is in the therapeutic area of central nervous system (CNS). It
has developed tremendous in-house R&D competencies and has in-house drug
discovery research pipeline of 30 molecules. It is likely to file an
investigational new drug (IND) application for its lead candidate for
Alzheimer's disease in Q1FY08, which would trigger clinical trials. The
company can be in for windfall gains if the molecule shows encouraging
results in the clinical trials.
Robust clinical research order book: The company is sitting on an order book
position of Rs 14 crore from CRO services. It expects to realize Rs 5 crore
in FY07E, Rs 8 crore in FY08E and rest in FY09E. We expect further traction
in the business going forward as the company leverages its competencies and
infrastructure.
Valuations: We expect that the company would report an EPS of Rs 4.01 in
FY07E and Rs 5.34 in FY08E from its base businesses. However, in FY08E we
expect significant gain in the form of a milestone payment from
out-licensing deal for its lead molecule for Alzheimer's. We believe the
company would be able to strike a deal between US$50-250 million. On the
basis of the few out-licensing deals in the Indian pharma industry, we have
simulated various deal sizes and the pay-offs. On a minimum deal size of
US$50 million, the estimated EPS would flare up by around 54% to Rs 8.23. At
the upper end of the deal size, the EPS would spike by 555% to Rs 35. The
FY08E P/E would be in the range of 4.43x to 18.83x depending on the actual
deal size.
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Intra-day Stock Ideas
NIFTY (3942) SUP 3908 RES 3975
BUY CESC (351.6)
SL 346 T 361, 363
BUY IOB (108.9)
SL 105 T 117, 119
BUY BHARATFORG (334.55)
SL 330 T 344, 346
SELL IOC (416.5)
@ 421 SL 425 T 409, 407
SELL INFOTECENT (353.6)
@ 358 SL 363 T 347, 345
STRATEGY INPUTS FOR THE DAY
No lull before the storm
There are some things you learn best in calm, and some in storm.
You often hear the advice - don't time the market. But when it is time for an event risk, it is prudent to resist the temptation of budget gains (if any). If a storm is what investors expect in the market tomorrow, don't expect a lull today. It was indeed a Manic Monday after all yesterday. Lalu Prasad Yadav's budget happened to be at the right time. We really can't rule any correlation between the railway budget and bounce back.
Though the bulls managed to rebound after a highly volatile day, one should not take it to mean that things are going to be easy. In fact, yesterday's session goes to show how choppy the market has become off late. Today, we expect a flat to lower opening as markets in the US fell overnight and Asian stock indices are also in the red. Keep an eye on the Parliament as there could be further disruption on the back of the release of Ottavio Quattrocchi in Argentina. This could affect the tabling of the Economic Survey by the Finance Minister. We are also going to have the results from the assembly polls in Punjab and Uttarakhand. So, brace yourself for another rocky and topsy-turvy ride.
The uncertainty will continue to cast its shadow on the market for a while. The trend will become clear over the next few days. One should stay cautious and guarded as trading at this juncture is fraught with a lot of risks. Plus, we have the usual worries over inflation and rising interest rates. Oil prices have crossed the $61 per barrel mark. Global markets are not exhibiting any clear signs.
FIIs were net sellers to the tune of Rs5.96bn (provisional) in the cash segment yesterday. In the F&O segment, they offloaded stocks worth Rs6.46bn. On Friday, they pumped in Rs42.87bn or $967mn in the cash segment. Market regulator SEBI says the amount includes some prior adjustments, including sub-accounts from January 1.
Corporation Bank's Board will meet today to discuss the takeover of Primary Dealer Business activity by the bank from its wholly owned subsidiary - CorpBank Securities Ltd. Nirlon's Board will also meet today to consider the development of the company's IT Park at Goregaon.
CRISIL will announce audited financial results and recommend dividend, if any, for the financial year ended December 31, 2006. Thomas Cook India's Board has decided to sub-divide the face value of its shares from Rs10 to Re1.
HOV Services could be in action after the company said that its 100% subsidiary in the US will acquire Lason for $148mn. ORG Informatics might also attract some attention as it has acquired 17.94% equity stake in Six Dee Telecom Solutions for Rs26.5mn.
IT People India is proposing to make a Follow-on Public Offering (FPO) of equity shares to the tune of Rs452.5mn through 100% book building process and has filed its Draft Red Herring Prospectus (DRHP) with SEBI and Bombay Stock Exchange (BSE).
US stocks ended lower on Monday, extending their week-long decline as persistent concern about mortgage defaults overshadowed the biggest leveraged buyout in history.
The S&P 500 closed nearly flat at 1449.37 for its fourth day of losses. The Dow dropped 15.22, or 0.1%, to 12,632.26, the lowest since Feb. 12. The Nasdaq decreased 10.58, or 0.4%, to 2504.52.
Stocks initially rose after TXU agreed to a $45bn offer from Kohlberg Kravis Roberts and Texas Pacific. Dow Chemical advanced amid reports that the largest US chemical maker may receive a takeover offer worth as much as $54bn from private equity investors within the next few weeks.
Oil prices advanced for a fourth day to the highest close this year. Crude oil futures increased 0.4% to $61.39 a barrel in New York on speculation that an Energy Department report this week will show US fuel inventories declined.
Treasuries rose on expectations weakness in housing will slow the economy and the dollar fell against the yen. Gold futures climbed near $690 an ounce, sending the benchmark contract to a seven-month high.
European shares rose, with several indexes breaching new highs. The pan-European Dow Jones Stoxx 600 index rose 0.4% to 382.17. The German DAX Xetra 30 increased 0.5% to 7,027.59, after the stocks benchmark hit a fresh multiyear high of 7,040.20 in the session. The index broke through 7,000 last week for the first time since November 2000.
The French CAC-40 climbed 0.8% to 5,762.54, after hitting a high not seen since February 2001 of 5,771.69 during the session . The UK's FTSE 100 rose 0.5% to 6,434.70.
In Asia, most big markets were down sharply. The Nikkei in Tokyo was down 97 points at 18,117 while the Hang Seng in Hong Kong slumped 226 points to 20,282. The Straits Times in Singapore was down 64 points to 3243 and the Kospi in Seoul fell 8 points to 1461.
Stocks in Mexico fell nearly 2%. Meanwhile, higher crude-oil prices helped stocks in Brazil finish higher. In Mexico City, the IPC index fell 460 points, or 1.6%, to 28,046.16, extending a 0.9% decline on Friday. In Sao Paulo, the Bovespa index rose 192 points, or 0.4%, at 46,207.40.
Market Watch & Insider Trades
Insider Trades:
Vishal Exports Overseas Limited: Pradeep S Mehta, Director has sold in open market 3826920 equity shares of Vishal Exports Overseas Limited from 20th Feb to 23 Feb, 2007.
Orchid Chemicals & Pharmaceuticals Ltd: HSBC Global Investment Funds - A/C HSBC Global Investment Funds (Mauritius) Limited along with the PAC - Halbis Capital Management (Hong Kong) Limited has sold in open market 189000 equity shares of Orchid Chemicals & Pharmaceuticals Ltd on 20th February, 2007.
Market Volumes:
The turnover on NSE was down by 9.8% to Rs90.46bn. BSE Metal index was the major gainer and gained 2.29%. BSE FMCG index (up 1.45%), BSE Bank index (up 0.63%) and BSE Auto index (up 0.54%) were among the other major gainers. However, BSE technology index lost 0.87%.
Volume Toppers:
IFCI, Power Finance, Firstsource, SAIL, ITC, TTML, IDFC, Tata Steel, Gujarat Ambuja, Zee News, India Cement, Balrampur Chini, Satyam Computer, Ashok Leyland, IVRCL Infrastructure, Rolta, Aptech, Indiabulls and Praj Industries.
Lower Circuit Filters:
Anant Raj Industries, GMR industries, Shree Precoated, SwanMills, Ansal Housing, BSEL Infrastructure, Country Club, Crew BOS, DS Kulkarni, Heritage Foods, Ganesh Housing, KS Oils, BF Utilities, Tanla, Atlanta, Shah Alloys, PSTL, Shree Ashtavinyak and Autoline Industries.
Delivery Delight:
ABG Shipyard, Bajaj Hindustan, Balrampur Chini, BEML, CESC, Dr Reddys Laboratories, Gateway Distriparks, IVRCL Infrastructures, Jyoti Structures, Maruti, Nagarjuna Construction, Reliance Capital, Rolta, Satyam Computer, Sesa Goa and Tisco.
Brokers Recommendations:
Suzlon – Buy from Edelweiss
Wockhardt – Overweight from Morgan Stanley
Long Term investment:
BEML
Major News Headlines
Govt cuts Rail freight rates on Diesel, Petrol by 5%; on Iron ore by 6%
Network 18 Board to mull rights issue on 5th March
NTPC bids for acquiring power project in Egypt
Nissan, to build car plant with Renault, Mahindra in Chennai
BHEL gets order worth Rs1.44bn
House of Pearl gets orders worth Rs300mn from US Buyers
Shoppers Stop, Hyper City retail sign preliminary accord
McNally Bharat gets Rs5.5bn order
GE Shipping to sell stake in unit
Plethico Pharma to raise funds for acquisition in US
Ram Informatics receives letter of indent from Sunrise Systems
Autoline Industries acquires 51% stake in Stokota of Belgium for Rs668mn
Petron Engineering secures orders worth Rs48.1nm
Kaveri Telecom bags contract from Idea Cellular
HOV Services buys Lason Inc for US$148mn
From the Research Desk - Sun Pharma
Sun Pharma Industries Ltd.
Q3 FY07
Rating: Maintain BUY
CMP: Rs981.65
Target Price: Rs1,119
Sun Pharma Industries Ltd (Sun) reported yet another consistent quarter with sales growing by 27.2% to Rs5.4bn and profitability growing by 35.9% to Rs2bn. Export formulations recorded a growth of 48% to Rs1.9bn with Caraco recording sales of US$31.3mn for the quarter (51% growth yoy) with a profit of US$10.1mn. Domestic formulations witnessed a growth of 18.5% to Rs2.9bn whereas for 9M FY07 it increased by 16.4% to Rs8.7bn. The market has grown at 18.5% for the quarter. Sun holds 3.2% market share as per the latest data. Margins have remained flat at 32.1% on account of higher material cost due to change in product mix and increase in R&D spending. PAT witnessed a growth of 36% to Rs2bn, translating into an annualized EPS of Rs41.9.
We remain positive on Sun’s business prospects given its lean cost structure and specialty focus. With focus on niche areas with specific technology, Sun has a strong pipeline of products to be launched over 2007-09. We estimate US sales to witness a CAGR of 38.1% to Rs9.7bn over FY06-09. For the European market, Sun is looking at a partnership model approach rather than setting up its own front end. We estimate Sun to witness earnings CAGR of 24.4% to Rs11bn over FY06-09. We maintain BUY on the stock with a target price of Rs1,119 (21x FY09E). With a war chest of US$500mn, an acquisition is round the corner, which holds potential upsides to our estimates. We believe Sun will target acquisition of a distressed asset and turn it around in three-four years time.
HOW MARKET FARED
Hope the worst is over
Bulls were back on the bourses fighting against all odds as the markets staged a strong recovery towards the end led by gains in heavy weights like ACC, SBI, Tata Motors, ITC and Hindalco. After opening in green the markets derailed in the opening trades with benchmark Sensex hitting a low of 13383.88, but managed to come on track in the closing hours of the day. Auto stocks regained momentum, Bank and Pharma stocks also were back lifting the markets to close higher. Finally, the 30-share benchmark Sensex gained 16 points to close at 13649. NSE Nifty was up 3 points to close at 3942.
Hindustan Zinc spurred over 8% to Rs668 after the company raised prices for the second time in 10 days to match global rates. Prices were raised by Rs6900 a metric ton, or 4.2%, to Rs170600. The scrip touched an intra-day high of Rs676 and a low of Rs633 and recorded volumes of over 3,00,000 shares on NSE.
Petron Engineering edged lower 0.2% to Rs138 after the company announced that they have received Letter of Intents for a total value of Rs48.1mn from Vedanta Alumina Ltd. The scrip touched an intra-day high of Rs149 and a low of Rs135 and recorded volumes of over 3,000 shares on NSE.
Metal stocks stood firm throughout the trading session. Tata Steel advanced 2.2% to Rs470, SAIL was up 1.8% to Rs113 and Hindalco added 1% to Rs145, Nalco spurred by over 2.5% to Rs236 and Sterlite Industries added 1.7% to Rs508.
Select stocks like Hind Rectifiers and Stone India were in the limelight today benefiting from the outcome of Rail Budget. Hind Rectifiers surged by over 4.5% to Rs800 and Stone India was up by 3.5% to Rs159.
FMCG stocks also ended with gains. McDowell rose over 3% to Rs819, Tata Tea was up 1% to Rs656 and Dabur added 1% to Rs99. While ITC was the major gainer among the heavy weights the scrip gained 2% to Rs170.
Select Auto stocks also shifted to higher gear towards the end. Tata Motors advanced by 2.8% to Rs839, Maruti was up by 1.7% to Rs878. However, Bajaj Auto, Hero Honda were among the major losers.
Caution may prevail
Market may take direction from outcome of assembly polls in three states; caution may prevail ahead of budget
The market will take direction today from the outcome of assembly elections in three states. The counting for assembly elections held in Punjab, Uttarakhand and Manipur began at 8:00 IST today. The performance of the ruling Congress party in Punjab and Uttarakhand holds key, given that Congress leads the UPA government at the Centre.
The market witnessed a strong intra-day rebound after a near sharp fall on Monday 26 February 2007 following the announcement of the Railway budget where freight rates on petrol, diesel, iron ore and limestone were cut by 5-6%. Nifty March futures settled at 3953.95, a premium of 11.95 points over spot Nifty closing of 3942.
Fears of nasty surprises in the Union Budget 2007-08 have caused a sharp correction on the bourses in the past few days. It plunged 723 points last week (week ended 23 February). At current 13,649.52, it is off 6.8% from the lifetime high of 14,652.09 of 8 February 2007. It is down about 1% in calendar 2007 thus far.
Market men fear that short-term capital gains tax on the sale of shares may be hiked from 10% to between 12.5%-15% in the budget. The securities transaction tax (STT) may also go up further. The STT was raised in the previous budget. The removal of 10% corporate surcharge may be offset by removal of certain open-ended exemptions. On the flip side, analysts also expect the finance minister to give a big impetus to agriculture and infrastructure in the budget.
FIIs pressed heavy sales in index-based futures for the second day in a row on Monday. FIIs were net sellers to the tune of Rs 1036 crore in index based futures on Monday. They were net buyers to the tune of Rs 219 crore in individual stock futures. As per provisional data, FIIs were net sellers to the tune of Rs 596 crore in the spot market on Monday.
Asian markets drifted lower on Tuesday (27 February). Key benchmark indices in Hong Kong, Japan, South Korea and Singapore were down by between 0.26% to 1.7%.
US stocks skidded on Monday as resurgent economic worries and a jump in oil prices outweighed excitement about a bid for Texas power company TXU Corp., which would be the largest private-equity buyout ever. The Dow Jones industrial average declined 15.22 points, or 0.12 percent, to end at 12,632.26. The Standard & Poor's 500 Index slipped 1.82 points, or 0.13 percent, to finish at 1,449.37. The Nasdaq Composite Index dropped 10.58 points, or 0.42 percent, to close at 2,504.52.
US crude rose for a fifth day, up 23 cents to $61.62 a barrel on Tuesday and just below a 2007 peak, as a cold snap in the United States ignited heating fuel demand, and as world powers decided to work on a new UN sanctions resolution to pressure Iran over its nuclear programme.
Anand Rathi - First Call - Daily Tech
Nifty and Sensex have exhibited a DOJI - like candlestick.
Technically, one may use the level of 3855 (Nifty) and 13380 (Sensex) as the stop loss level.
Nifty faces resistance at 4065 and Sensex at 13380.
BSE Smallcap exhibited a DOJI - like candlestick and BSE Midcap Indices have exhibited a bullish candlestick.
CNX IT has lost ground.
In the Punter's zone we have a Buy in A.C.C., IVRCL Infra & POLARIS
In the Technical call section, we have a Sell in S.B.I. & Buy in Satyam Computers and India Cements.
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Thanks Yash
Investsmart - Morning Call
Market Grape Wine :
In House :
Maintain strict stop loss as markets to be under pressure at all higher
levels .
Nifty at a support of 3915 & 3872 levels with resistance at 3987 & 4030
levels .
Buy : Sail above 115.6 target 121 s/l 113
Buy : TCS above 1295 atrget 1330 s/l 1280
Buy : CMC positional target 1300 s/l 1040 above 1100
Out House :
Economic Survey today .
Sensex at a support of 13515 & 13383 levels with resistance at 13786 &
13833 levels .
Maintain strict stop loss as markets to see selling pressure at higher
levels .
Buy : RIL & RelCap
Buy : ONGC
Buy : Polaris & Mphasis
Buy : NDTV & Adlabs
Buy : IFCI , RNRL & NagarFert
Buy : M&M
Buy : Gitanjali & Glenmark
Dark Horse : Sesagoa , Sail , JSW , Gitanjali , Glenmark , UtiBank , KTK ,
Adlab , NDTV & IFCI
Thanks Yash
Value, not momentum - Chetan Parikh
In a brilliant book, Hedge Hogging, the author, Barton Biggs, writes about buying on the basis of value and not momentum.
“Investing on the basis of value, not price momentum, is our religion.
Warren Buffett articulated this philosophy best with his manic-partner analogy. At a talk I attended, in one of his musings, he expressed it something like this:
Suppose you are an equal partner in a good business with a manic-depressive partner named Mr. Market. From time to time, Mr. Market will only see the favorable factors affecting your business and will then become so euphoric about the prospects of the business that he will come to you and offer to buy your half at a ridiculously high price. So, of course, you should sell it to him.
At other times, seeing only trouble ahead for your firm, he becomes deeply and in his despair offers to sell you his share at an outrageous discount to its intrinsic value. Then, you should buy it from him.
Buffett went on to say that it was irrational, the height of foolishness, to sell an asset you were confident was undervalued just because its price was falling. In other words, Mr. Market can be an old fool (or maybe a young fool) who, from time to time, becomes hysterical. Sometimes, in his madness, he sees ghosts. At others, he imagines the good fairy touching him with her long golden fingers.
You are perfectly free to ignore Mr. Market or to take advantage of him, but it will be disastrous if you fall under his influence. Suppose the price you could sell your home at was quoted every day. For several months the quotation steadily declined. Would you then sell your home, the home you were comfortable in and satisfied with, just because its price was declining? Of course not! In this sense, an attractive investment is similar to a home you are happy to inhabit.
Mr. Buffett’s value philosophizing sounds eminently sensible, but it doesn’t work when you are trafficking in commodities and you have short-term-performance sensitive clients.”
Citigroup - L&T, India Cement Sector, Indian IT Services, Reliance Industries
L&T
- Downgrade to Hold — Downgrade L&T to Hold/Low Risk on account of (1) significant stock outperformance, (2) fair valuations, and (3) lower margin of error on operating performance. Our new target price of Rs1,733 (up from Rs1, 579.5) leaves limited upside potential, and hence we downgrade the stock.
- Significant outperformance — L&T has outperformed the BSE Sensex over the past year. The outperformance has been even more significant in the past 6 months, as the company has been consistently surprising analysts on EBITDA and earnings. But now the stock looks fairly valued.
- Fairly valued — Post 44% yoy earnings growth in FY07E, momentum should moderate to ~30% in FY08E-09E as high base effects on revenue growth and core EBITDA margins parameters are bound to catch up. The stock trades at an adjusted P/E (adjusted for value subsidiaries) of 22.7x FY08E, which in our view fairly captures the growth profile of the parent business.
- Lower margin of error — We expect L&T to end FY07E with a core EBITDA margin of 8.8%, a 231bp YoY increase. Although improvements of ~50bps from these levels cannot be ruled out, progressively this becomes tougher given the nature of the business. Further, at current valuations the margin of error in terms of sales growth and EBITDA margins is lower.
- Fairly priced — Although we think L&T remains the best E&C company from an operational point of view, the stock looks fairly priced.
- Reports of cement export ban, higher excise duty — Stock prices of Indian cement majors have come off 7-14% in the past week. Reasons behind this fall are media reports of (1) a possible ban on cement exports in the budget and (2) introduction of a differential excise duty for cement to control inflation.
- Export ban would be a potentially bigger negative — About 10mn tonnes of cement and clinker (6% of FY07E demand) are likely to be exported in FY07. Any ban would disproportionately affect the largest exporters, Gujarat Ambuja and UltraTech. The cement flowing back would then create oversupply in Gujarat (capacity 17m tpa, demand 9m tpa, more than 70% of cement exports).
- Differential excise duty regime — Expected to remain at Rs408/t (Rs20/bag) upto a certain price level and may be higher, reportedly Rs600/t (or Rs30/bag), if the price crosses a certain benchmark. While the industry would be able to pass on this hike, it would limit the price upside available to producers.
- New regime could be ambiguous and difficult to implement — Cement is largely billed ex-factory and a plant may have to pay a higher excise duty only because a higher freight cost means a higher price. The price differs in each locality is subject to various discounts and incentives and hence difficult to define.
- Fundamentally positive; Grasim top pick — The industry has considerable pricing power in the next 6-9 months. However, the direction of cement stock prices would be determined by the severity of measures announced in the budget. Our top pick remains Grasim, for its cheapness and defensiveness.
- Demand remains very strong — Our interaction with Indian players (including Cognizant) highlighted that demand conditions remain very strong – particularly in US and Europe. A sharp US slowdown would likely be the only speed breaker. Offshoring is a key theme across the US and European players we met. However, Indian companies have a long way to go in Continental Europe.
- "Defend and Extend" strategy as MNC's turn aggressive — Accenture's "Defend and Extend" strategy highlights that MNC's are ready to take on Indian vendors in smaller contracts and at their price points to stop them from entering clients and ramping up.
- Domain knowledge and GDM appear to be the key differentiators — Domain knowledge and global delivery capabilities are becoming key differentiators – Tier I companies are investing more in subject matter expertise, global delivery and customer penetration.
- Supply and linearity cited as challenges — Supply in terms of hiring large numbers, training and retaining employees remains the top concern across the sector. With hiring requirements increasing as companies grow, companies are also trying to find ways to reduce linearity in the business model.
- We prefer Tier I; TCS and Infosys are our top picks — With deals getting bigger and complex and more services being bundled, Tier I companies appear better placed on demand. This coupled with better ability to manage supply should give them the winning edge.
- Promoters infusing equity — RIL Board has approved preferential issue of 120m warrants to the promoter group ( 8.6% dilution), potentially taking promoters' stake to 54.5% (from 50.6%). Notwithstanding healthy internal accruals, under-leveraged balance sheet and treasury stock to fund capex plans (E&P, retail), we see this intent as positive for short-term sentiment. Though fundamentally difficult to attribute value to, it could also be a precursor to (1) increasing visibility and hence higher capex in E&P and (2) strategic sale in E&P assets.
- Warrants exercisable over 18 months — Promoters would make upfront payment of 10%, with remainder at the time of exercise. The pricing will be decided post the shareholder approval (which could take 30-60 days) based on SEBI formula – higher of two weeks and 26-weeks average closing price. At current market price, the equity infusion would be Rs169bn (US$3.8bn).
- New petrochemical unit at Jamnagar — RIL also announced a 2mtpa petrochemical unit at Jamnagar at a total cost of US$3bn, to be commissioned by 2010-11. The unit, which will produce ethylene/propylene from refinery off gases/byproducts is aimed at competing with the gas-based crackers coming up in the Middle East. Besides being super-sized, it improves RIL's feedstock mix and competitiveness in the long run.
- KGD6 update — RIL also disclosed two additional gas discoveries (AA-1 and Q-1) in a new seismic area besides reiterating its development time lines for gas and oil. While the two gas discoveries (partially included in our SOP) have been notified to DGH, there is no estimate of the prospective reserves as yet. Our valuation of E&P assets at Rs408/share includes Rs240/share for KGD6 based on ultimate recovery of 16.3tcf and a development capex of US$7.0bn.
- Retain Hold/Low Risk — We believe the current valuations factor in a large part of the core business fundamentals, value accretion from KG gas reserves, as well as the new initiative of organized retailing. We retain Hold/Low Risk (2L) rating with a target price of Rs1,450.
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Sharekhan Investor's Eye dated February 26, 2007
PULSE TRACK
-
Interest on CRR to be positive for the sector
RAILWAY BUDGET SPECIAL
Railway Budget 2007-08
Railway minister Lalu Prasad Yadav continues to guide the Indian Railways (IR) on a profitable growth path. Announcing his fourth budget for the IR today, he indicated that the capital expenditure (capex) binge of IR would continue. In a move to boost IR’s key revenue stream (ie freight), the minister also extended major concessions on the freight rate front. He also reduced the passenger fares in a bid to increase the passenger traffic. The other salient features of the Railway Budget 2007-08 are an impressive reduction in the operating cost of IR, significant policy shifts to turn around the loss-making businesses of the national carrier, continued freight rationalisation and an increase in the capex of IR to make the railways more competitive.
The major beneficiaries of these moves are likely to be Texmaco, Kalindee Rail Nirman Engineers (Kalindee Rail) and Stone India. A few days back, in our special note “Turnaround Express going strong”, dated February 22, 2007, we had mentioned how we expected companies like Hind Rectifiers, Simplex Casting, Stone India and Texmaco to show a healthy growth in their earnings on the back of the growing capex of IR.
Besides these companies, oil refiners, cement, steel and iron ore companies would benefit from the railway budget due to the reduction announced in the freight rates, though the impact on earnings is expected to be marginal.
SECTOR UPDATE
Information Technology
Policy tangles
The Indian information technology (IT) service companies have been demanding the extension of the prevailing tax exemptions on software technology park (STP) registered units under the Section 10A/10B of the Income Tax Act. As per the current guidelines, the tax exemptions for such units would cease to exist with effect from March 2009. But the industry associations are lobbying for the extension of the exemptions for another ten years in line with the proposed tax exemptions for the units located in the special economic zones (SEZs).
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Railway Budget 2007-08: Sharekhan Railway Budget Special dated February 26, 2007
Railway Budget 2007-08
Railway minister Lalu Prasad Yadav continues to guide the Indian Railways (IR) on a profitable growth path. Announcing his fourth budget for the IR today, he indicated that the capital expenditure (capex) binge of IR would continue. In a move to boost IR’s key revenue stream (ie freight), the minister also extended major concessions on the freight rate front. He also reduced the passenger fares in a bid to increase the passenger traffic. The other salient features of the Railway Budget 2007-08 are an impressive reduction in the operating cost of IR, significant policy shifts to turn around the loss-making businesses of the national carrier, continued freight rationalisation and an increase in the capex of IR to make the railways more competitive.
The major beneficiaries of these moves are likely to be Texmaco, Kalindee Rail Nirman Engineers (Kalindee Rail) and Stone India. A few days back, in our special note “Turnaround Express going strong”, dated February 22, 2007, we had mentioned how we expected companies like Hind Rectifiers, Simplex Casting, Stone India and Texmaco to show a healthy growth in their earnings on the back of the growing capex of IR.
Besides these companies, oil refiners, cement, steel and iron ore companies would benefit from the railway budget due to the reduction announced in the freight rates, though the impact on earnings is expected to be marginal.
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