Thursday, March 08, 2007
Indian indices made an not so expected sharp recovery today. Sensex gained 500 points, which is the fourth largest single day gain in its history so far and the largest gain since 15th June 2006. The initial hour of trade saw a choppy session with value buying across the board, for through out the day. Value buying was seen in index heavy weights, small caps, mid caps and all the sectors like Metals, Banks, Cement, Automobile and Software. Asian indices ended in strong while European indices currently trading in green.
Sensex closed up 470 points at 13049.35 helped up by gains in HLL (183.8,+10 percent), Guj Ambuja (112.9,+8 percent), BHEL (2175.45,+8 percent), Dr Reddys (677,+7 percent) and Ranbaxy (328.8,+6 percent). Interesting to note that there were no Sensex components in the negative.
FIIs have stopped being sellers and thats some relief. FIIs have been the sentiment drivers. This turnaround has brought in some buying on hopes that there is now value available. However having said that its important to note that we are not out of the woods. The bogey of inflation still stands overhead and the valuations for many still remain a bit wanting. More than that its sentiment which has been hurt and that really will take time to heal. Expect Markets to be quite volatile.
Century was the star for the day and it was part of the hunters pick. Gujarat Ambuja sold 2 acres of a plot of land in Kalina.. a suburb of Mumbai for Rs 333 cr. Century holds 30 acres of land in the heart of the city of which roughly of 10 acres, was taken on lease from Bombay Dyeing on a 999-year lease and can be extended for another 999 years apart from Century Bhavan at mid-town Worli. This in similar benchmark accounts for Rs 500 per share. The stock made a smart 14% gain for the day.
With China expected to cut steel production Steel stocks were stars as well. Sail saw gains of over 15% as well. All part of hunters pick.
PSU stocks traded firm for the day. Indian Oil Corporation plans to invest about Rs 25,000 cr for setting up a new 15 mn tonnes refinery and petrochemicals complex at Ennore in Tamil Nadu to maintain its position as India's largest refiner. IOC plans to build the 15 mn tonnes refinery at Ennore, mainly catering to the export market. The 15 mn tonnes Paradip refinery is scheduled for commissioning in 2011 and our Ennore refinery will come up sometime in 2015-16. The refinery-cum-petrochemicals complex would be set up in joint venture with Chennai Petroleum Corp Ltd, an IOC arm. IOC wants to set up a naphtha cracker and aromatics complex at Ennore to utilise the products from the refinery. IOC has a total refining capacity of 60 mn tonnes, which it plans to increase to 80 mn tonnes by 2012 while pushing up revenues to $60 billion (Rs 270000 cr). IOC closed marginally up for the day and its peer BPCL and HPCL closed marginally up as well.
Pharma stocks traded in green for the day. India's largest pharmaceutical company, Ranbaxy, has been taken to court in the US by a consumer health group, which supports the sale of low-priced generic medicines. The organisation has filed a suit against Ranbaxy and three other generic companies - Mylan, Teva and Barr as well as Cephalon Inc for allegedly delaying the US launch of 'Modafinil', the generic version of Cephalon's sleep disorder drug 'Provigil'. Indian companies like Ranbaxy have been fighting long and expensive battles with MNC pharmaceutical companies to enter the generics market in the West. In this, they have received support from groups that work for bringing down the cost of drugs. However, the suit against Ranbaxy alleges that Cephalon paid US$ 136 mn (Rs 612 cr) to Ranbaxy, Mylan, Teva and Barr to postpone marketing 'Modafinil' until 2011 or 2012, thereby blocking the availability of a cheap generic medicine. The US FDA had tentatively approved Ranbaxy's abbreviated new drug application (ANDA) for 'Modafinil' 100 mg and 200 mg tablets in August 2004. Cephalon, after initiating legal proceedings against the generic companies that had got the US FDA's nod, chose to settle the patent litigation out of court in December 2005. Ranbaxy closed up by 5% and its peers Dr. Reddy's and Nicholas Piramal closed up by 5% and 7% as well.
Technically Speaking: It was a bullish session for the whole day before closing. Sensex touched intraday high of 13099 and low of 12596. Sensex has started its journey up to fill the gap it left open between 13300 and 13440. Resistance at 13260, 13310 and 13400. Support at 12900, 12590 and 12390. Market turnover stood at Rs 3599 cr. Overall breadth was in favor of Advancers where the Advancers to Decliners ratio stood at 2.3:1.
The Sensex started the trading session on a firm note at 12650 and maintained an upward bias throughout the day. A strong bout of buying in heavyweight, metal, banking and capital goods stocks saw the Sensex surge past the 13000 mark and touch an intra-day high of 13100. The Sensex ended the day with gains of 470 points at 13049 while the Nifty surged 135 points to close at 3762.
The breadth of the market was extremely positive. Of the 2,580 stocks traded on the BSE, 1,752 stocks advanced, 771 stocks declined and 57 stocks ended unchanged. Among the sectoral indices, the BSE Metal Index surged 4.58% followed by the BSE Consumer Goods Index (up 4.51%), the BSE Bankex (up 4.45%), the BSE HC Index (up 3.76%), the BSE PSU Index (up 3.46%), the BSE Teck Index (up 3.46%), the BSE CD Index (up 3.32%) and the BSE FMCG Index (up 3.18%). The other indices were up 2% each.
All the Sensex stocks ended at higher levels. HLL was the day's star performer and shot up by 9.54% at Rs184. Among the other gainers Jaiprakash surged 13.02% at Rs576, SAIL vaulted 12.99% at Rs105, Century Textiles spurted 12.17% at Rs500, IPCL jumped 12.15% at Rs260, Hinduja TMT soared 11.30% at Rs517, CESC advanced 10.98% at Rs332, India Cements added 9.66% at Rs167 and Reliance Capital rose 8.90% at Rs635. Among the laggards HCL Infosys slumped 4.86% at Rs136, JB Chemicals dropped 3.87% at Rs77 and Ramco Systems slipped 2.47% at Rs130.
Metal stocks sparkled on the back of firm overseas commodity markets. SAIL vaulted 12.99% at Rs105, Nav Bharat Venture soared 12.94% at Rs96, Adhunik Metals zoomed 9.38% at Rs35, JSW Stainless advanced 8.02% at Rs446, Sterlite Industries gained 6.54% at Rs468 and Sunflag Iron & Steel added 6.12% at Rs13. Hindustan Zinc, Lanco Industries and Binani Industries gained 5% each.
Over 2 crore IFCI shares changed hands on the BSE followed by Indus Fila (1.22 crore shares), Broadcast (69.68 lakh shares), Tata Teleservices (55.39 lakh shares) and Evinix (54.99 lakh shares).
Value-wise Reliance Industries registered a turnover of Rs199 crore on the BSE followed by IPCL (Rs91.64 crore), SBI (Rs83.64 crore), Reliance Communications (Rs82.14 crore) and Tata Steel (Rs81.55 crore).
The market made a strong comeback today. The Sensex had surged over 500 points at of time in late trading, to breach the psychologically important 13,000 level. Strong Asian markets triggered a rebound on the domestic bourses, which had seen a huge value erosion over the past few days. Short-covering in derivatives aided the surge.
Blue-chips rose almost across-the-board, and a host of small-cap and mid-cap shares too were in demand. Cement, banking shares, power equipment makers, construction, telecom shares and pharma pivotals led the charge.
The 30-share BSE Sensex vaulted 469.60 points (3.7%), to 13,049.35. It was the biggest single-day point rise in the Sensex recorded since mid-June 2006. On 15 June 2006, the Sensex had spurted 615.62 points to 9,545.06 from a closing of 8,929.44 on 14 June 2006. Once again, the trigger came from the overseas market. It was a rebound in global markets, which had lifted the Sensex on 15 June 2006.
The S&P CNX Nifty jumped 134.80 points (3.7%), to settle at 3,761.65. The Nifty March 2007 futures were at 3,768.80, compared to the spot Nifty closing of 3,761.65
On Thursday (8 March 2007), Asian markets extended their recovery from a recent steep fall triggered by steepling losses in Chinese stocks and jitters about health of the US economy. Key benchmark indices in the region were up 1 - 2%. Domestic bourses had recovered on Tuesday (6 March 2007) when Asian markets first recovered from the steep fall. However, they had declined on Wednesday (7 March 2007) in volatile trade.
Indian stocks had tumbled in the last few days due to a sell-off in global markets, with the Union Budget 2007-08 of 28 February 2007 only compouding their woes. The fall was accentuated as margin calls were triggered. The Sensex had tumbled 541 points on Budget day itself. The market had recovered the next day (on 1 March 2007) on the back of a rally in IT shares under a reckoning that their earnings will be impacted only to a small extent following an increase in tax in the Budget. The Sensex had surged 221 points, to 13,159.55 on 1 March 2007. However, a sell-off had gripped the bourses again, which saw the Sensex hurtle down to 12,415.04 on 5 March 2007.
While there was no cut in the 10% corporate surcharge as expected, the dividend distribution tax was raised to 15% from 12.5%. The Budget also raised direct/indirect taxes for cement, construction and IT sectors.
In today’s trade, the BSE Small-Cap Index gained 157.50 points (2.5%), to 6,245.81. The BSE Mid-Cap Index gained 132.38 points (2.5%), to 5,246.79.
All sectoral indices on BSE had gained. The biggest gainer in percentage terms was the BSE Metal Index. It jumped 356.52 points (4.58%), to 8,132.68. The BSE Capital Goods Index gained 376.84 points (4.51%), to 8,730.82. BSE’s banking sector Bankex rose 275.69 points (4.45%), to 6,466.36.
The BSE clocked a turnover of Rs 3599 crore, lower than Wednesday’s Rs 4328 crore. Turnover on NSE’s futures & options segment declined to Rs 32218.18 crore from Wednesday’s Rs 36254.09 crore.
FMCG giant Hindustan Lever jumped nearly 10% to Rs 184.50, after influential brokerage CLSA in a report released today put 'buy' on the stock with a 12-month price target of Rs 240, citing attractive valuation after the steep correction in the counter of late. From a recent peak of Rs 224.10 on 22 January 2007, the HLL stock had tumbled 25% to Rs 167.80 by 7 March 2007.
Battered cement shares looked up. Gujarat Ambuja Cements rose 8% to Rs 112.65 and Grasim rose 6.9% to Rs 2250. Cement scrips had declined on Wednesday, with the government hinting at a ban on cement exports.
ACC was up 2.7% to Rs 836. The Sekhsaria group-Holcim combine has raised its stake in ACC by over 2% in the last fortnight through the secondary market.
Pharma pivotals were in demand. Dr Reddy’s Lab surged 6.4% to Rs 674.95, while Ranbaxy gained 6.9% to Rs 331. Ranbaxy’s subsidiary, Terapia, in Romania, has reported 50% growth in sales for 2006.
Bank shares edged up on bargain-buying after a recent steep fall. HDFC Bank rose 7.7% to Rs 987, ICICI Bank gained 4.5% to Rs 864 and State Bank of India gained 3.6% to Rs 1000.
Wipro gained 4% to Rs 581, on reports it was close to buying a US-based aerospace services firm for about $90 million.
Telecom shares rose for the second day in a row, ahead of the listing of Idea Cellular. Reliance Communications surged 5.8% to Rs 434.90, and Bharti Airtel gained 5.8% to Rs 764.70.
Idea Cellular debuts on the bourses on Friday (9 March 2007). Idea Cellular had priced its IPO at the upper end of Rs 65 - Rs 75 price band following a strong response to the issue. The company has a large equity base of Rs 2592.86 crore. The post- issue, FII-holding in Idea Cellular is 11.65%, while promoters hold 57%. At the IPO rate of Rs 75 per share, the issue was priced 48 times its annualised April-December 2006 (nine-month) EPS of Rs 1.55.
Reliance Industries (RIL) advanced 3.6% to Rs 1336.85 and IPCL jumped nearly 12% to Rs 259.20. RIL on Wednesday (7 March 2007) said that its board will meet on 10 March 2007, to consider a proposal for merging subsidiary, IPCL, with the company. The annoucement happened after trading hours on Wednesday.
Steel shares bounced back on renewed buying due to firm global steel prices. Sail jumped 15% to Rs 107, and JSW Steel rose 8% to Rs 447.70. Steel firms had raised prices on 1 March 2007, but had partially rolled them back to cooperate with the government on inflation.
Tata Steel gained nearly 4% to Rs 428.90, off the session’s low of Rs 399. Shareholders of the Corus Group have agreed to Tata Steel’s $12 billion takeover of the European steelmaker. Investors representing 97% of the shares backed the purchase, Corus said on Wednesday.
Battered power equipment makers surged. Bhel gained 7% to Rs 2165, Crompton Greaves rose 6.5% to Rs 188, ABB rose 5.6% to Rs 3434, Voltamp Transformers gained 5.6% to Rs 563, Thermax rose 5.3% to Rs 366.75, Areva T&D rose 5% to Rs 1064, Alstom Projects gained 4.7% to Rs 421 and Siemens gained 4.4% to Rs 1037.
Construction shares spurted. Jaiprakash Associates jumped 12.7% to Rs 575, Hindustan Construction gained 9.7% to Rs 104.45, Gammon India gained 8.7% to Rs 287, Nagarjuna Construction gained 7.7% to Rs 155.90, Gayatri Projects rose 6.6% to Rs 238, Punj Lloyd gained 5.8% to Rs 777 and L&T rose 5% to Rs 1527. Removal of a tax holiday benefit under Section 80 IA in the Union Budget 2007-08 had spooked construction stocks.
Era Constructions rose 5% to Rs 316.95, after the Reserve Bank of India said foreign funds will be allowed to purchase equity shares and convertible debentures of the company up to 40% of the paid-up capital of the company, through the primary and secondary markets in India.
Some real estate developers, which had been battered over the past few days, edged up. Akruti Nirman vaulted 12.7% to Rs 420, Sobha Developers gained 8.7% to Rs 689, Parsvanath Developers rose 7% to Rs 244, and Mahindra Gesco Developers advanced 5% to Rs 541.
Chemicals maker SRF rose 1.7% to Rs 119, after the firm's board approved setting up an equal joint venture in China to make anhydrous hydrogen fluoride. The project will cost an estimated $9 million.
Power cable maker Diamond Cables rose 5% to Rs 141. The company said Thursday its board would meet on 20 March 2007, to consider the acquisition of power transformer making companies.
Software firm ICSA India gained almost 4% to Rs 980. The company said on Thursday it planned to raise up to $24 million through various means including overseas and domestic equity or debt issuances. The company's board had also decided to allot 0.35 million fully convertible warrants to Goldman Sachs International, each warrant being convertible into an equity share within 18 months. This will constitute 5.3% of ICSA's outstanding equity.
HFCL Infotel surged 4.8% to Rs 21.80. The stock came sharply off day’s low of Rs 19.80. The market regulator on Wednesday put on hold the offer for sale document filed by the telecom services company.
Indus Fila settled at Rs 135 NSE. The stock debuted at Rs 158.90, a discount over the IPO price of Rs 170. A strong 1.1 crore shares changed hands in the counter on NSE.
FIIs were net buyers to the tune of Rs 84 crore on Wednesday (7 March), the day when the Sensex lost 117 points in volatile trade. Foreign funds had sold nearly $600 million worth of Indian stocks in the five trading sessions ending Tuesday (6 March 2007).
Adhunik Metaliks (ADHMET)
Price: Rs 37 Target: Rs 52.50 OUTPERFORMER
Adhunik Metaliks Ltd (AML), a value-added steel manufacturer, is expected to
more than double its top line and quadruple its bottom line during FY06-09E
on the back of capacity expansion into high-margin products along with
backward integration into critical raw materials such as iron ore and coal.
We believe these initiatives would result in a significant de-risking of its
business model and lend stability to earnings. The stock appears attractive
on various valuation parameters and we rate it an Outperformer.
Capex to transform business model: AML is implementing a capex programme
that would transform its business profile from a secondary steel
manufacturer to an integrated steel player with linkages across the entire
value chain from critical raw materials such as iron ore and coal to
value-added steel products. Post expansion, we expect the company to emerge
as one of the lowest cost integrated special steel manufacturer in the
country by 2008.
Capacity to double: The company is executing a expansion programme which
would double its capacity from 250,000 tonnes per annum (tpa) to 440,000 tpa
by 2008. Apart from making the company more competitive, we expect the
expansion would result in improved realizations from value-added products,
as prices in this segment are higher and more stable than those for base
Backward integration to drive profitability: AML is integrating backwards
with captive ownership of critical raw materials, viz. iron ore and coal
mines, which would enable it achieve a 36% reduction in iron ore costs and
more than 40% savings on coal even on an expanded capacity base, resulting
in annual combined savings of about Rs 50 crore annually.
Valuation: We believe the current stock prices do not reflect the forward
and backward integration benefits over a two-year investment horizon. We
expect RoCE to expand from 14.58% in FY07E to 25.65% in FY09E. RoNW is
expected to jump from 24.69% in FY07E to 27.54% in FY09E. Net profit margins
are expected to expand by 186 basis points to 11.61% in FY09E. At the
current price of Rs 37, the stock discounts its FY08E EPS of Rs 13.13 by
2.82x and FY09E EPS of Rs 15.02 by 2.46x. We believe the stock is a
re-rating candidate and even without at a lower P/E band of 4x FY08E
earnings, it offers an upside of 42% to Rs 52.50 levels.
The NIFTY futures saw a gain in OI 2.0% with prices closing at 3610.0 indicating that lot of short covering happening initially & new shorts took place as market moved on with volatility as finally foreign markets recovered which forced bears to cover their positions and weak longs liquidating their positions as market recovered We feel that till the market doesn't sustains above 3750 levels we may not see aggressive short covering and fresh money coming in the market.
The nifty futures discount narrowed again indicating aggressive short BEING BUILT UP .The FIIs were buyers in futures to the tune of 1041 crs .The PCR has come DOWN from 0.95 to 0.91 levels indicating some RESILIANCE in the market .The volatility has come UP from 30.80 to 31.50 levels indicating some un-certainty in the market.
Among the Big guns, ONGC saw gain of OI to the tune of 4.25% with prices coming down 0.54% indicating long positions are liquidated in the counter as the counter moved down not showing much of strength whereas RELIANCE saw gain of OI to the tune of 2.91 % with prices coming down by 0.71 % indicating that the counter saw lot of short positions in line with the market.
On the TECH front, TCS, INFOSYSTCH, SATYAMCOMP, WIPRO saw rise of OI with sharp fall in prices indicating lot of short positions being built in these counters performing in line with market.
BANKING counters saw gain in OI with prices going down indicating that shorts positions being built and fresh long positions liquidated in the counter which may give some support to the falling markets whether be P.S.U'S or P.V.T banks.
In the METALS like other sectors across the board selling took place and without exceptions as all stocks were hammered to pulp by the bears as if we had no tomorrow, however we saw lot of short coverings in HINDALCO at the fag end of the market.
Considering the overall recovery in the market after the initial rise and later the massacre and which was respite by a pull back at the end, we feel the temporary worst would be over if the markets close today in the positive , we could feel comforted , however traders are still warned and buying with strict stop losses is the need of the hour.
Sunset or passing cloud
Restlessness and discontent are the first necessities of progress.
As we have been saying for some time, the sun outage period is often a frustrating time to be in the markets for traders. We are in for another choppy day of trade as trend across global equity markets is quite unclear this morning. US stocks ended slightly lower amid lingering concerns about the state of the economy, particularly the weakening housing sector. Asian markets are all on a firm footing. The Nikkei, which was earlier in the red has rebounded sharply. Oil prices have inched closer to the $62 per barrel mark. Against this backdrop, we expect a cautious to higher opening and plenty of uncertainty.
FIIs were net buyers of just Rs280.3mn (provisional) in the cash segment yesterday. But, on the F&O side, they poured in Rs10.42bn. Foreign funds pulled out Rs5.7bn from the cash segment on Tuesday. Mutual Funds were net sellers of Rs166.2mn on the same day.
RIL and IPCL will be in action post the announcement of the Board meeting on Saturday for a merger. The swap ratio is likely to be in favour of RIL. So, be careful before rushing to buy IPCL.
Shares of Indus Fila will get listed today. Going by the mood of the market, the stock is more likely to fall than rise.
Stunned by the electoral defeats in Punjab and Uttarakhand and with the UP polls looming large, the Government has stepped up its in fire-fighting efforts against inflation. But, in doing so, it has rattled India Inc. and therefore the markets a great deal. The budget too had its fair share of unfavourable tax measures for the corporate sector. All this has made matters worse for the market. This showdown is going to continue for a while. As a result, we may witness some more pain in the market, especially for the "targeted" sectors. The RBI too is continuously taking steps to curb run-away credit growth. Reports say the central bank has asked banks to furnish details of borrowers who have taken multiple housing loans besides the default rates.
Globally too, things have turned bad, with talk of an engineered slowdown in China and a housing-led downturn in the US. To go with this we have the unwinding of the so-called carry trades with the strengthening of the yen. Former Fed chief Alan Greenspan says yen carry trade cannot last longer. Expect some more pain on this front as well, especially if the Bank of Japan raises rates further. Easy money has been one of the main drivers of the global rally. With liquidity getting squeezed, markets have started bleeding. Risky players like hedge funds seem to be pressing the eject button. This could go on for some more time. So, one should be ready for a tough time, at least in the next 2-3 months or even longer than that. Only long-term investors should dare to venture into this kind of a market.
US stocks fell on Wednesday after the second-largest homebuilder said that a year-long housing slump will continue in 2007 and the Federal Reserve cited slowing growth in several local economies. Treasuries rose, pushing yields near the lowest in three months. Crude oil surged the most in two weeks.
The S&P 500 declined 3.44 points, or 0.3%, to 1391.97. The Dow Jones decreased 15.14 points, or 0.1%, to 12,192.45. The Nasdaq slipped 10.50 points, or 0.4%, to 2374.64.
DR Horton Inc. CEO Donald Tomnitz said the company's home closings will likely fall below last year's levels, adding to concern that a slowing housing market could hurt the world's largest economy.
Chicago Federal Reserve Bank President Michael Moskow reiterated Fed's concern that a rise in inflation is a greater risk to the US economy than a slowdown in growth. Separately, Greenspan said that a bottom has been hit in the decline of US home sales.
US light crude oil for April delivery jumped $1.13 to settle at $61.82 a barrel on the New York Mercantile Exchange. Prices rose after a morning report showed a bigger-than-expected dip in weekly crude oil inventories.
In currency trading, the dollar slipped versus the yen and the euro. Treasury prices rose, lowering the yield on the 10-year note to 4.48% from around 4.53% late on Tuesday. COMEX gold for April delivery rose $6.70 to settle at $652.90 an ounce.
Among the Indian ADRs, Patni shed 3.7%, VSNL dropped 1.3%, Infy slid 2.1%, Wipro fell by 1.7%, Satyam declined 1.2%, Tata Motors was gave up 1.1%, Dr. Reddy's rose 0.3%, HDFC Bank and ICICI Bank lost 1.2% each and MTNL added 0.3%.
WNS was up 0.2% after the Indian BPO major announced that it had acquired Marketics Technologies for about $65 million in cash. EXL Service gained 1.2%, Rediff was unchanged and Sify jumped nearly 2%.
European stocks posted modest gains. The German DAX 30 closed up 0.3% at 6,617.75 and the French CAC 40 rose 0.3% to 5,455.07. The UK's FTSE 100, in which a number of companies traded without dividend rights, also added 0.3% to 6,156.50.
The pan-European Stoxx 600 index climbed 0.5% to 361.65, after it closed higher on Tuesday for the first time in five sessions.
Majority of Asian markets rose this morning. The Morgan Stanley Capital International Asia-Pacific Index added 0.2% to 141.03 at 11:59 a.m. in Tokyo.
Japan's Nikkei 225 Stock Average was up 156 points at 16,921, while the Hang Seng in Hong Kong advanced 125 points to 19,044. The Kospi in Seoul climbed 11 points to 1422 and the Straits Times in Singapore gained 32 points to 3091.
Key indexes in Taiwan, Malaysia and Indonesia also climbed. However, Australia's S&P/ASX 200 Index slid 0.7%, the region's biggest loser.
In the emerging markets, the Bovespa in Brazil was down 1.3% to 42,667 while the IPC index in Mexico lost 0.65% to 26,184 and the RTS index in Russia added 0.2% to 1767.
Surana Telecom Ltd: Shri Narender Surana, Managing Director has purchased from open market 47107 equity shares of Surana Telecom Ltd from 19th Feb to 15th March, 2007
Shringar Cinemas Limited: Mr. Balkrishna Shroff, Director has purchased from open market 3000 equity shares of Shringar Cinemas Limited on 6th March, 2007.
The turnover on NSE was up by 6% to Rs88.82bn. BSE Metal index was the major loser and lost 2.82%, BSE Bank index (down 2.56%), BSE FMCG index (down 2.09%) and BSE PSU index (down 1.24%) were among the other major losers. However, BSE Auto index gained 0.38%.
IFCI, MindTree, Broadcast Initiatives, Gujarat Ambuja, R Com, Ashok Leyland, SAIL, IDFC, TTML, India Cement, ITC, MTNL, IVRCL, RNRL, Satyam, Balrampur Chini, Tata Steel, NTPC, Reliance, Century Textiles, HCC and Hindalco.
Lower Circuit Filters:
Ansal Infrastructure, GMR Ind, Kesoram, Mangalam Cement, Nelco, Shah Alloys, Vyapar Indu, Anant Raj, Shree Precoated, Swan Mills, Action Construction, Electrotherm, BSEL Infra, Garware Offshore, Gemini Communications, Goldiam International, KS Oils, KEI Ind, Vakranjee Software, Taneja Aerospace, Atlanta and Tanla.
Adlabs, Cipla, Dhampur Sugar, GSK Pharma, HDFC, Indian Hotels, IOC, L&T, MTNL, Rolta, Suzlon and Tata Power.
Amtek Auto - Buy from Emkay with target of Rs510
Satyam – Buy from Motilal Oswal with target of Rs540.
Long Term investment:
Major News Headlines:
Chidambaram says no reason to believe inflation won't slow
Sharad Pawar says no plans to decontrol sugar sector
Govt to invite bids for 9 UMPPs in 12 months
RIL Board to mull IPCL merger on 10th March
Corus shareholders approve $12bn takeover by Tata Steel
Tantia Constructions gets orders worth Rs1.6bn
Punj Lloyd approves a 5:1 stock split
Ranbaxy's Romania unit gets market authorizations for 20 products
Parsvnath buys out partner's stake in JV
M&M to consider interim dividend on 21st March
Alembic Ltd: Not rated
Alembic Ltd, established in the year 1907 has a strong presence in the domestic market with focus on the acute segment. The company derives 70% of its revenue from the domestic market which is estimated to grow at 15% annually over the next two years. Acquisition of Dabur Pharma’s non oncology division (growing at 17% annually, FY07E revenue of Rs800mn) has given the company an opening in the chronic therapy segment. The management is confident of growing this division at over 25%. However the full potential of the acquisition would be realized post H2 FY08 given the time required for integrating the existing divisions with the newly acquired business.
The next wave of growth would be from the regulated markets for supply of formulations and APIs. The management is looking at generating US$100mn from the export market by FY09-10. While there is increasing visibility on the domestic market growth, gaining a strong foothold in the regulated markets would remain a challenge for the company considering the intense competition it is likely to witness due to for its ‘Para III’ product portfolio. At Rs60, the stock is trading at 10.4x 9M FY07 annualized EPS of Rs5.7.
Volatility likely to persist
Yet again, we had a roller-coaster ride with indices swinging in & out of positive territory. After a positive opening, markets pared their gains on back of selling in Cement, Bank, Metal, FMCG and Technology stocks. However, it managed to claw its way back from day’s low as buying emerged at lower levels. The markets today witnessed Ferocious swings as benchmark Sensex swung over 500 points and Nifty index fluctuated nearly by 200 points during intra-day period. Bears were all over the bourses, volatility, profit booking at every rise and weak close by Asian markets also dragged the key indices lower.
The BSE Metal index was the major loser the index fell 2.82%, BSE Bank and Technology index followed suit. The Mid-Cap and small cap index also participated in the downfall as all round selling dragged the benchmark Sensex below the 12400 levels. Finally, the 30-share benchmark Sensex slipped 97 points to close at 12599. NSE Nifty lost 28 points to close at 3626.
Earlier in the day, the bulls were in jubilant mood tracking positive cues from the US markets overnight. US stocks rallied on Tuesday as a rebound in overseas markets pushed the Dow Jones Industrial Average to their biggest gain in more than eight months. The Dow climbed 157.18 points, or 1.3%, to 12,207.59. The S&P 500 Index added 21.29 points, or 1.6%, to 1395.41. For the S&P 500 and Dow, it was the best performance since July 24. The Nasdaq increased 44.46 points, or 1.9%, to 2385.14.
Wipro dropped over 4% to Rs553. The company announced a strategic alliance with Ingres Corporation to develop open source business solutions on the Ingres platform and undertake joint go-to-market activities worldwide. The scrip touched an intra-day high of Rs591 and a low of Rs543 and recorded volumes of over 22,00,000 shares on NSE.
M&M paced ahead nearly by 5% to Rs761 after Board of Directors of the company approved bidding for 43% in Punjab Tractors. The scrip touched an intra-day high of Rs777 and a low of Rs711 and recorded volumes of over 10,00,000 shares on NSE.
ITC slipped 2.4% to Rs158. According to reports the company may raise cigarette prices. The scrip touched an intra-day high of Rs164 and a low of Rs157 and recorded volumes of over 58,00,000 shares on NSE.
Cement stocks further lost ground after Government announced that it would consider banning cement exports to bring down prices, says Commerce Minister Kamal Nath. Gujarat Ambuja lost over 8% to Rs103, ACC declined 3.5% to Rs822, Mangalam Cement lost over 4.5% to Rs150 and India Cement dropped over 5% to Rs153.
Telecom stocks stood firm in a weak market. Heavy weight Reliance Communication advanced over 3% to Rs412, Bharti Airtel was up 0.8% to Rs726 and MTNL added 1.7% to Rs143.
Pharma stocks attracted buying interest towards the end. Cipla rose over 4% to Rs231, Glaxo Pharma advanced 3.5% to Rs1175, Dr Reddy’s Lab was up by 2% to Rs635 and Sun Pharma added 0.2% to Rs948.
Sugar stocks were a mixed bag today. According to reports the Government is considering decontrolling the sector from April. Renuka Sugar surged by over 2% to Rs321, Dhampur Chini was up 1.7% to Rs69; Balrampur Chini was flat at Rs59. However, Bajaj Hindusthan lost by over 3.5% to Rs164.
Market Grape Wine :
In House :
Nifty at a support of 3550 & 3580 with resistance at 3720 & 3745 levels .
Reduce your position at all higher levels as markets to see selling at
higher levels .
Buy : DrReddy
Sell : Bank of India
Buy : Bharti in F&O with stop loss
Out House :
Sensex at a support of 12414 & 12345 levels with resistaance at 12656 &
12786 levels .
Buy : RIL at dips
Buy : ONGC at dips
Buy : INFY at dips
Buy : Glenamrk at 510 s/l 504 target 532 levels
Buy : ABB at dips
Markets to be choppy and volatile maintain strict stop loss with selling at
higher levels not ruled out .
Sensex might try 11800 levels in short term so be cautious and liquidate
your positions at all levels .
Dark Horse : RIL , ONGC , Bharti , EKC , Praj & ABB
Intra-day volatile moves in the market is likely to persist in the near-term on the back of a slightly bearish sentiment. Overnight fall in the US indices and the subdued Asian indices so far may see the market remain edgy. And, also on the negative side, the market continues to witness strong fund outflows from both FIIs and the local fund houses, which could help the sentiment remain bearish in the long run. Among the key local indices, the Nifty faces resistance in the 3700 while on the downside it has a short-term support at 3566 and a break below could see it decline towards the 3480 level. The Sensex has a likely support at 12500 and could test higher levels of 12800.
US indices fell marginally on Wednesday, while the Dow Jones tumbled 15 points at 12192, the Nasdaq was down 11 points at 2375.
Indian floats also took a sharp beating on the US bourses. Patni Computers crashed over 3.72% while infosys plunged by over 2%. Among the other laggards Satyam, Wipro, Tata Motors, ICICI Bank, HDFC Bank and VSNL shed around 1% each. However, MTNL and Dr Reddys bucked the downtrend and ended with steady gains.Rediff However, remained unchanged.
Crude oil prices gained, the Nymex light crude oil for April delivery gaining by $1.13 to close at $61.80. In the commodity space, while the Comex gold for April series gained $6.70 to settle at $652.90 respectively.
Nifty and Sensex have exhibited bearish candlesticks.
Technically, one may use the level of 3450 (Nifty) and 12000 (Sensex) as the stop loss level.
Nifty faces resistance at 3750 and Sensex at 12800.
BSE Smallcap and BSE Midcap Indices have exhibited a bearish candlestick.
CNX IT has exhibited a bearish candlestick.
In the Punter's zone we have a sell in Century Textiles & buy in Bharti Airtel and Tata Motors.
In the technical zone we have a sell in Siemens & buy in Reliance Comm and L&T.
The market may edge higher with most Asian markets hovering in the green on Thursday extending their recovery from a recent steep fall that was triggered by steepling losses for Chinese stocks and jitters about the health of the US economy. Key benchmark indices in Hong Kong, China, Singapore, South Korea, Japan and Taiwan were up by between 0.09% to 0.8%.
US stocks ended with modest losses on Wednesday, hurt by persistent concerns about slower growth and weakness in the housing market, amid a diminishing appetite for risk. The Dow Jones industrial average fell 15.14, or 0.12 percent, to 12,192.45. The Standard & Poor's 500 index declined 3.44 points, or 0.25 percent, to 1,391.97 and the Nasdaq composite index lost 10.50 points, or 0.44 percent, to 2,374.64.
Back home, high volatility characterized Wednesday’s trading when Sensex ended with a fall of 117 points, having recouped its losses from an intra-day 300-point decline.
Foreign funds sold nearly $600 million worth of India stocks in the five trading sessions ending Tuesday (6 March 2007). As per provisional data, FIIs were net buyers to the tune of Rs 28 crore on Wednesday, the day when Sensex had lost 117 points in volatile trade
FIIs were net buyers to the tune of Rs 749 crore in index-based futures on Wednesday. They were net buyers to the tune of Rs 335 crore in individual stock futures on that day.
Oil was steady at $61.82 a barrel after surging 2 percent a day earlier on falling US crude stocks
A stock price has many definitions. One of the most sophisticated definitions is that it values the forecasted free cash flows of a company. There are many financial models that try to capture this conceptual definition (e.g. EV/EBIDTA, EPSxP-E, Cash EPSxCash P-E).
The most popular among them is the discounted (free) cash flow (DCF) valuation. Mainly popularized by Mckinsey and some other strategic consultants, it sought to value 'free cash flows' (operating margins, net of investment in working capital and routine capex, after adjusting for the tax benefits of leverage) over the visible period (also called the explicit period). Mckinsey also imputed a terminal value, which assumes a steady growth rate going to infinity. This perpetually growing cash flow often created a terminal value, which accounted for up to 90 per cent of the enterprise value (EV) in a fast growing company There are problems with this model. It often arrives at valuations that are considered 'theoretical' by markets. My understanding is that the 'strategic' valuation that the DCF is prone to recommend (5 to 8 years) is simply too long for the market. The real reason why the market often undervalues a given cash flow is that it is simply too myopic.
That seems to have been the disconnect in the Tata-Corus deal. Phrases like 'winner's curse, 'arrogant acquisition' 'overpayment' and 'value destroying' have been used. The difference in perspective, I think, is purely over the visible forecasted period. Tata Steel's strategists are valuing the free cash flow over a longer competitive advantage period. This goes back to the Buffetian argument that the valuation of the stock should take into account not only the size and growth rate of a cash flow but also the competitive advantage period. This articulates a long-standing disagreement between the steel industry and the stock markets. The steel industry is a long gestation industry. The typical project (concept to free cash flow) is set up over most of the typical business (or interest rate/liquidity) cycle. Hence any steel company has to ride out a period of high liquidity and a cash crunch every time it sets up a greenfield capacity. Steelmen, therefore, are used to thinking in terms of a gestation period of 8 to 12 years. They simply have longer visibility than the financial markets.
On the flip side, they also know that an embedded player has a huge advantage. Sometimes you make extra money simply because you are sitting there. The Tatas have possibly projected a certain free cash flow grown at certain rate over a longer competitive advantage period than the markets are used to defining.
So who is right? Financial market players (my mental stereotype is of the Ketan Parekhs, Harshad Mehtas and the hedge funds of the world) or the steel industrialists? Are these market players any richer than the Tatas? Long-term investors don't necessarily do worse than spectacular wealth creators, found so commonly in the financial markets. You just have to decide what you want to be.
When Warren Buffet said, “Buy the business, not the scrip”, this was what he meant. Let me explain this in detail.
I don't think too many people, bar the most cynical, are arguing that the Tata-Corus deal is going to reduce the total free cash flow (FCF) of the combined entity. Yes, there is a certain view that if the steel cycle turns, the FCF being projected will drop, but will it turn negative? And if it doesn't, then the payback will happen. Only the rate at which the payback will happen might get extended. That would increase the number of years taken to digest the acquisition.
This is what a value investor should seek. Whenever Mr Market turns apoplectic, but you find long-term, 'strategic' players who want to 'buy the business, not the scrip' on your side; go ahead, jump. This is the Buffet model. Once you know where the market stands, you should stand apart from the market. At this point in time, the broader market is definitely morose about Tata Steel. Yet, nobody is arguing with Mr Ratan Tata on his claims of “long-term value”. The difference of opinion is only about the investment horizon.
Most of my regular readers would know that I am usually bearish, skeptical, 'negative'. This is especially true of the last couple of years, when I have been negative, even as I have myself joined the large mass of India's nouveau riche. Well, here is my recommendation - buy Tata Steel, and keep trading in the stock for five years (which is the payback period estimated by many analysts on current cash flows of the combined entity).
How do you trade? As you find the short-term (Mr. Market) marketmen get out, pace yourself and get in. Just like you buy a systematic investment plan (SIP), keep buying this stock on declines. Every time the stock recovers back to its previous high, sell what you bought at lower levels; then buy back the stock as it declines. This way, target to keep your average holding cost lower than the prevailing stock price. The stock will make a long, saucer-like pattern. Your average holding cost should track the falling price of the stock. As your average price drops, keep adding to your total holding. In other words, take your trading profits in the form of stock, not cash.
I will not speculate on how long the coming (down cycle?) will continue. The RBI has just hiked CRR rates again, clearly telling the country that they are determined to squeeze out liquidity till inflation slows down. As interest rates rise, the cost of capital in the markets will rise much more. That should bring temperance to the stock markets (and real estate, but that is a different story).
If you don't know how to trade, then you must buy and hold. That is a more difficult way to earn money, but Warren Buffet has proved that it can be equally profitable. For buy-and-hold investors, this would still count as a 'Buffet event', i.e., a sharp, apparently disastrous incident that looks spectacular, but does not impact the long-term prospects of the company. That is a cue for value investors to go bottom-fishing.
Cluster: Ugly Duckling
Price target: Rs552
Current market price: Rs370
- Wockhardt's Q4CY2006 net sales grew by 43.7% to Rs526.4 crore, led by a 22.1% growth in its domestic business and a 56.6% rise in its international business. The sales growth was above our expectations. The massive increase in the international business was largely due to the Pinewood acquisition.
- Despite sharp escalations in the material cost and the staff cost, the company's operating mazgins remained flat at 23.2%. This was due to the lower research and development (R&D) expenses, which were capitalised instead of being expensed. On excluding the R&D costs, the company's margins actually declined by 190 basis points year on year (yoy). The decline in the margins was on account of the low-margin Pinewood & Dumex acquisitions. Back-of-the-envelope calculations indicate that the Pinewood acquisition alone has impacted the margins by approximately 150 basis points. Wockhardt reported an operating profit (OP) of Rs122.1 crore, a growth of 43.6% yoy.
- The net profit grew by 19.5% to Rs87.1 crore in Q4CY2006. The net profit was impacted by substantially higher interest and depreciation costs, but was nevertheless much higher than our estimate of Rs77.1 crore.
- For CY2006, Wockhardt's net sales grew by 22.4% to Rs1,729.1 crore, as against our expectation of a 17.0% growth. The Dumex and Pinewood acquisitions contributed significantly to the growth. Excluding the acquisitions, the like-to-like growth stood at 14%. The reported net profit grew by 17.3% to Rs301.7 crore. However, the company had incurred extraordinary expenses to the tune of Rs60 crore in the beginning of the year, due to which the adjusted net profit declined by 6.1% to Rs241.3 crore.
- Wockhardt plans to achieve sales of $1 billion by 2009. Of this $1 billion, $700 million will come through organic growth while $300 million will come as contribution from inorganic initiatives. For CY2007, the company is targeting to cross sales of $500 million and maintain the net margins in the range of 16-18%.
- Based on the management's vision and strategy presented at the recently held analyst meet, we are introducing our CY2008 estimates for Wockhardt. We believe that Wockhardt's top-line will grow at a compounded annual growth rate (CAGR) of 21.3% over CY2006-08E, with revenues touching Rs2,544.3 crore in CY2008E. Over the same period, the net profit is estimated to grow at a CAGR of 31.3%, with the profits reaching Rs415.8 crore in CY2008E, translating into earnings of Rs34.8 per share.
- At the current market price of Rs370, the stock is available at 12.2x its estimated CY2007E earnings and at 10.6x its estimated CY2008E earnings, on a fully diluted basis. The valuations seem very attractive at these levels and should be viewed as a strong buying opportunity. We maintain our Buy recommendation on the stock with a price target of Rs552.
Cluster: Ugly Duckling
Price target: Rs56
Current market price: Rs39
Good growth at attractive valuations
- Ashok Leyland Ltd (ALL) has reported good vehicle sales numbers for the month of February 2007 with an overall growth of 33%. The truck segment recorded a 33% growth and the bus segment grew by 27% during the month.
- The company is all set to surpass its sales target of 80,000 vehicles for the current fiscal. We maintain our positive outlook on the growth prospects of Ashok Leyland on the back of the continuing buoyancy in the commercial vehicle segment.
- The company is expected to spend about Rs4,000 crore in the next three-four years, including about Rs1,200 crore for setting up a plant in Uttaranchal.
- ALL is also a front runner for the acquisition of a stake in Punjab Tractors Ltd (PTL). The acquisition, in case it goes through, would give ALL an entry into the fast growing tractor market in India, and the acquirer would also be able to take advantage of the strong brand equity of PTL and its strong distribution network. However, the acquisition would come at a high price, and the acquirer would have to shell out anything between Rs1,200 crore and Rs1,500 crore, which would necessitate further raising of funds by the company.
- A sharp correction on the bourses following a global meltdown has seen the stock price of Ashok Leyland take a heavy beating. Considering its strong growth outlook, we believe that this is a good buying opportunity, as the stock is available at very attractive valuations, which are at a considerable discount to its peers. At the current market price of Rs39, the stock discounts its FY2008E earnings by 9.5x and quotes at an enterprise value/earnings before interest, depreciation, tax and amortisation of 5.3x. We maintain our Buy recommendation on the stock with a price target of Rs56.
Cluster: Emerging Star
Price target: Rs2,430
Current market price: Rs1,780
Price target revised to Rs2,430
Aban Offshore Ltd (AOL) has announced the signing of a contract with affiliates of Addax Petroleum and Sinopec to deploy its deepwater drill ship, Aban Abraham, in the offshore block located at the Gulf of Guinea. The contract to drill five firm wells (with an option to drill another five wells) over a duration of 300 days is worth $123 million (can be increased to $246 million). It works out to a charter rate of $410,000 per day (around 36.6% higher than the charter rate of $300,000 for its contract starting from July 2007). The recently acquired contract is effective from end of May 2008 and would positively affect the earnings of FY2009.
RBI seeks to limit inter-bank lendings
The Reserve Bank of India (RBI) has asked banks to put in place a comprehensive framework for managing its inter-bank liabilities (IBL). Currently there are no defined limits on IBL for banks and with this measure the RBI wants banks to be aware of the potential risks associated with such a liability and contain the liquidity risk arising out of excessive dependence on such liabilities.