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Tuesday, March 20, 2007

Sharekhan Investor's Eye dated March 20, 2007

Canara Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs320
Current market price: Rs186

AMC JV between Canara Bank and Robeco

Key points

  • Canara Bank has decided to sell its 49% stake in its asset management arm, Canbank Investment Management Services (CIMS), to the Netherlands-based Robeco Groep NV for Rs115 crore.
  • The proposed venture has got the nod of the Reserve Bank of India. However approval from the capital market regulator, Securities and Exchange Board of India, and the Foreign Investment Promotion Board are awaited.
  • The company plans to float five new equity-based products and aims to capture 5% market share in the next five years.
  • The assets under management (AUM) of the bank stood at Rs2,200 crore, which is comparatively lower than that of industry leaders like Prudential ICICI (AUM of Rs43,280 crore as on February 2007).


Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs552
Current market price: Rs362

US FDA nod for painkiller
Wockhardt has received the approval of the US Food and Drug Authority (US FDA) for marketing painkiller tablets, containing a combination of Dextropropoxyphene napsylate and Acetaminophen (DPN+APAP), in the US market. The DPN+APAP combination is the generic version of Xanodyne Pharma's patented product, Darvocet-N. It is one of the more potent analgesic drugs and is widely used all over the world for control of various kinds of pain.

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Sharekhan Eagle Eye (equities) & Derivatives Info Kit for March 21, 2007

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B&K - Sanghvi Movers

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Market up amid lacklustre trades

The market gained 61 points during the day amid lacklustre trades. The sentiment was positive for the second consecutive session as the rupee appreciated to an 18-month high against the dollar and remained positive on expectations of renewed capital inflows. The Sensex rose over 1% in early trades on firm Asian markets, which were up on Bank of Japan’s decision not to raise interest rates. The market remained range-bound thereafter. In the afternoon, selling intensified in some of the front-line stocks that saw the Sensex shed its early gains and touch the day's low of 12675, down 120 points from the day's high. Selective buying in banking, pharma and cement stocks towards the close lifted the Sensex to an intra-day high of 12799. The Sensex finally closed with gains of 61 points at 12706. The Nifty added 19 points and closed at 3698.

The breadth of the market was positive on the BSE. Of the 2,635 stocks traded, 1,367 stocks advanced, 1,201 stocks declined and the remaining stocks ended unchanged. Except the BSE IT Index and the BSE Teck Index all the sectoral indices ended with gains. The BSE Bankex added 1.18% at 6291 and the BSE HC Index gained 1.13% at 3525. The BSE CG Index, the BSE Metal Index, the BSE PSU Index and the BSE Oil & Gas Index ended with marginal gains.

Among the gainers Ranbaxy surged 6.15% at Rs336, Reliance Energy gained 4.09% at Rs476, Grasim jumped 4.02% at Rs2,124, Gujarat Ambuja added 3.36% at Rs111, Hindalco advanced 3.30% at Rs133, HDFC Bank was up 2.97% at Rs954 and Satyam Computers advanced 2.84% at Rs446. However, BHEL dropped 1.70% at Rs2,044, Infosys shed 1.55% at Rs2,054, Wipro dipped 1.35% at Rs571 and Tata Steel declined 1.31% at Rs424. Hero Honda, ITC, NTPC, TCS, Bajaj Auto and ONGC closed with marginal losses.

Over 31.13 lakh Idea Cellular shares changed hands on the BSE followed by IDBI (26.97 lakh shares), ITC (25.27 lakh shares) and Orchid Chemicals (21.76 lakh shares).

Value-wise Reliance Communications registered a turnover of Rs85 crore on the BSE followed by Reliance Capital (Rs69 crore), Orchid Chemicals (Rs57 crore), SBI (Rs52 crore) and Reliance Industries (Rs52 crore).

Market extends recovery, albeit on low volumes

The market edged higher for the second day in a row, tracking firm Asian markets. Volumes were low for the second successive day, an indication that there was lack of conviction in the recovery. Volatility was high in IT, telecom shares and index heavyweight Reliance Industries (RIL). Banks and cement shares also gained.

The 30-share BSE Sensex gained 60.95 points (0.48%), to settle at 12,705.94. The benchmark index had pared gains after a solid mid-afternoon surge of 153.81 points, to 12,798.80.

The domestic bourses had retained strength till early-afternoon trade, adding about 100 points for the day till then. However, a fall out of the blue found the Sensex hovering at 12,674.77 by 13:07 IST, just 29.78 points ahead for the day, the low from which the barometer index bounced back in mid-afternoon trade.

The Bank of Japan (BOJ) today decided to keep interest rates unchanged at 0.5%. BoJ Governor Toshihiko Fukui stuck to previous comments by saying the bank would adjust rates gradually. Asian shares were mostly in the green. Japan’s Nikkei ended almost 1% higher. Key benchmark indices in Hong Kong, China, Singapore and South Korea were up between 0.05 - 0.5%.

The S&P CNX Nifty gained 18.70 points (0.51%), to settle at 3,697.60. Nifty March 2007 futures were at 3,672 compared to the spot Nifty closing of 3,697.60.

The BSE clocked a turnover of Rs 2841 crore compared to Monday’s Rs 2676 crore. Monday’s turnover of Rs 2676 crore was the lowest in nearly five months, since late-October 2006.

As per provisional data released by NSE, FIIs were net buyers to the tune of Rs 147 crore today.

The market-breadth was positive. Against 1,367 scrips rising on BSE, 1,201 declined. A total of 67 shares were unchanged. Gainers outpaced losers by a ratio of 1.13:1. However, the breadth weakened in late trading, when the Sensex pared gains from a strong mid-afternoon surge. The advance-decline ratio was at about 1.47:1 at about 14:45 IST.

The Sensex had posted weekly losses for five consecutive weeks up to Friday (16 March 2007). Global volatility had impacted the domestic bourses since late-February 2007. This period also coincided with the Union Budget 2007-08 announced on 28 February 2007, which sank a million hearts.

The bulls were looking for some sops like a cut in corporate surcharge for a post-Budget rebound, which did not materialise. Instead, the dividend distribution tax was raised in the Union Budget 2007-08. The Sensex had tumbled a massive 541 points on Budget day after the government raised direct/indirect taxes for IT, construction and cement sectors. The steep fall on the day of the Budget was also partly due to a global sell-off.

In the near term, the domestic bourses are likely to track global markets. US Federal Reserve’s two-day meeting ends on Wednesday (21 March 2007). The Fed is expected to keep interest rates unchanged. Analysts keenly await the Fed’s accompanying statement for cues to the US economic outlook. Global liquidity still remains strong.

The next major trigger for the domestic bourses is Q4 March 2007 earnings, reports of which by corporates will start next month. Market men will closely watch what company managements have to say about the outlook for FY 2008.

Among sectoral indices, BSE’s banking sector index, the Bankex, was the top gainer today. It rose 73.08 points (1.18%), to settle at 6,291.27. The BSE Healthcare Index gained 39.33 points (1.13%), to close at 3,525.45. But the BSE IT Index lost 29.07 points (0.59%), to settle at 4,938.28.

Volatility may rise over the next few days ahead of the expiry of the March 2007 derivative contracts next Thursday (29 March 2007). With the market scheduled to remain closed next Tuesday (27 March) for a public holiday, only six trading sessions are left before the expiry of the March 2007 contracts.

Sensex heavyweight Reliance Industries gained 0.5% to, Rs 1,321.05 on market speculation it may form a joint venture with US-based Dow Chemical Co. The scrip moved between a low of Rs 1318 and a high of Rs 1332.05 compared to Monday’s closing of Rs 1314.

Bank shares edged up on short-covering in the derivatives segment. HDFC Bank gained 2.8% to Rs 953 and State Bank of India rose nearly 3% to Rs 955. Traders had built short positions in leading bank counters last week.

Strong capital inflows powered the Indian rupee to an 18-month high against the dollar on Tuesday. At noon, the rupee stood at 43.98/99 per dollar, having hit a high of 43.9225 per dollar, its strongest since late-September 2005. It had closed at 44.11/12 on Friday. The rupee market was closed on Monday (19 March 2007) for a holiday.

The rupee’s rise weighed on IT shares. Infosys shed 1.6% to Rs 2052. Wipro shed 1.3% to Rs 571.25 and TCS shed 0.8% to Rs 1250. TCS and Wipro fluctuated between positive and negative territory during the day. IT shares derive a lion’s share of their revenue in dollar terms. A higher rupee, therefore, may lead to a fall in their revenue and profits to that extent.

Ranbaxy surged 5.6% to Rs 334.60, on a report that the company had pulled out of the bidding war for Merck's generic-medicines unit, citing high valuations. The company exited the race on concerns that the acquisition would not add to earnings, a television report said. As many as 8.6 lakh shares changed hands in the counter on BSE.

Cement shares edged up on a report that the government may offer a five-year tax break to cement plants set up after 1 April 2007. Grasim rose almost 4% to Rs 2123.50, Gujarat Ambuja Cements gained 3.3% to Rs 110.90 and ACC was up 0.3% to Rs 742.

Hero Honda lost 0.7% to Rs 635.30, on reports that Honda Motorcycle & Scooters India, a wholly-owned subsidiary of Japan’s Honda proposes to entry-level 100-cc motorcycle segment. Hero Honda currently generates over 75% of its sales volume from the entry-level segment.

Tea shares extended Monday’s strong gains on the back of rising tea prices. Jayshree Tea jumped 10% to Rs 135, Ledo Tea gained 7% to Rs 49.90, Asian Tea gained 7% to Rs 32, Bombay Burmah Trading surged 5% to Rs 312.95, Harrisons Malayalam rose 5% to Rs 76.10, Mcleod Russel rose 5% to Rs 70.90 and Goodricke Group gained 5% to Rs 72.15.

Chemicals and pesticides maker United Phosphorus rose 1.5% to Rs 314.50 after its unit, Advanta India, set a price band of Rs 600 - Rs 650 for its 3.38-million-share initial public offering (IPO).

Essar Shipping lost 6.4% to Rs 40.15, after it said an offer from its parent, Essar Shipping & Logistics, to buy shares from the public and delist had failed.

Torrent Pharmaceuticals rose 2.5% to Rs 198. As per a report, the company had bid for the generic drugs unit of Merck KGaA along with unnamed private equity firms.

IVRCL Infrastructures rose nearly 4% to Rs 290, after the company said it was allotted 33 acres (13.36 hectares) of land for Rs 228 crore at Noida, outside New Delhi.

Astral Poly Technik ended at Rs 104.55 on the first day, a 9 % discount over the IPO price of Rs 115. It got listed at Rs 115, which also remains the high for the day. The scrip also hit a low of Rs 100.20. As many as 54.19 lakh shares changed hands in the counter on BSE.

Astral Poly Technik had entered the capital market with a public issue of 29,71,000 equity shares of Rs 10 each, at a fixed price of Rs 115 per equity share, aggregating Rs 3416.65 lakh. The company also had a pre-IPO placement of 4,00,000 shares at Rs 104, which was nearly 10% lower compared to the IPO price of Rs 115.

Astral Poly Technik is a manufacturer and provider of CPVC (Chlorinated Poly Vinyl Chloride) piping and plumbing systems in India since 1999, having production facilities at Gujarat & Himachal Pradesh (HP). The company has a techno-financial (14% post-issue equity stake) joint venture with Specialty Process, USA, for technical expertise for CPVC pipes and fittings for home and industrial application.

IFCI clocked 1.39 crore shares on BSE, and was the top-traded counter in terms of volumes on the bourse. The scrip shed 2.2% today, to settle at Rs 26.20.

The undercurrent on the bourses remains cautious due to high inflation and rising interest rates. Strong industrial production data released early last week makes a strong case for the Reserve Bank of India (RBI) to raise interest rates at its annual policy review for FY-2008 on 24 April 2007. Industrial output rose 10.9% in January 2007 from a year earlier. The wholesale price index rose 6.46% in the 12 months to 3 March 2007, up from the previous week's annual increase of 6.10% due to higher edible oil and naphtha prices.

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 an acceleration in infrastructure creation.

Kotak - AIA Engineering

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Thanks Dunbaka

Geojit - Weekly Recommendations

Stock Recommendation from Geojit for the week March 19, 2007 to March 23, 2007

Scrip Name     Price     Recommendation 

Biocon           469.30    Buy

Eimco Elecon  238.10    Buy

Garware Wall Ropes   76.80   Buy

M&M    731.00     Buy

Madras Cement    2748.60    Buy

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Sharekhan Commodities Buzz dated March 20, 2007

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Sharekhan Highnoon dated March 20, 2007

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Investsmart - Morning Call

Market Grape Wine :

In House :

Nifty at a support of 3645 & 3613 levels with resistance at 3715 & 3753
levels .

3785 as Trend Reversal level .

Markets sentiments negetive exit long position at all higher levels .

Buy : ACC above 739 target 756 s/l of 731

Buy : Renuka Sugar above 369.9 target 379 s/l of 364

Buy : TCS in F&O above 1262 target 1291 s/l of 1246 levels .

Buy : TataTea in F&O above 635 target 652 s/l 627 levels .

Out House :

Sensex at a support of 12595 & 12456 levels with resistance at 12786 &
12842 levels .

Buy : RIL & RelCap

Buy : Telco & M&M

Buy : Polaris & Mphasis

Buy : Aban , SesaGoa , INFY , TechM & ABB

Buy : EKC , GujFluro , Voltam , Gitanjali & PRAJ

Buy : Centextile , ACC & Grasim

Buy : Network18 , Naukari & TV18

Dark Horse : Aban , Skumar , Gujfluro , PRAJ , RIL , SesaGoa & IcicBank

Bullet for the Day : Bharti & Sail with strict stop loss

Edelweiss - Daily Market Outlook

Market Snapshot

The Sensex opened with a positive gap of 55 points at 12,485. Lackluster movement in early trades saw the index slip a wee bit to 12,427, before bouncing back to higher levels. Fresh buying in select stocks like BHEL, ONGC and Reliance Communications saw the index surge to a high of 12,655. The index finally settled with a gain of 215 points at 12,645.Nifty ended with a gain of 70 points to close at 3679.

The NSE and BSE cash volumes were significantly lower compared to the previous day at INR 49 bn and INR 26 bn respectively. The F&O volumes were also lower at INR 244 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has slightly decreased to 30-33% levels. The WPCR of Nifty Options decreased to 1.13 compared to the previous day while the 5 day average is 1.02.


The markets are expected to stabilize after yesterday’s rise, and we expect that short covering will continue to accentuate the rally further. NIFTY made a higher bottom by not testing the earlier low of 3554, and if is able to cross the intermediate top of 3750, it will gain further strength. We recommend holding on to long positions, as we believe that NIFTY will make an attempt to test the high of 3750.

Cement sector should see some respite after the news that government would allow tax breaks to new capacities announced on or after April 1st 2007. Though the news would not have a significant impact on the earnings potential of the companies, but we expect that it would turn the sentiments slightly positive, which can fuel up short covering in the oversold counters. IT sector is expected to remain an out performer and position in the sector against Nifty could be taken.

On Nifty, 200 DMA (3585) once again acted as a very strong support and markets staged a recovery from those levels. In shorter term, the Nifty has a support at 3660 followed by 3646, while the resistance is at 3721 (13 DMA) followed by 3750 (intermediate top). For a sustainable rally, it is imperative for the NIFTY to breach the above resistance levels of 13DMA.

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Anagram - Daily Call

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Motilal Oswal - Daily F&O Margin

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Anand Rathi - Daily Fundamental Snippets

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Anand Rathi - Daily Technical Note

Nifty and Sensex have exhibited a bullish candlestick.

Technically, one may use the level of 3600 (Nifty) and 12400 (Sensex) as the stop loss level.

Nifty faces resistance at 3780 and Sensex at 13100.

BSE Smallcap and BSE Midcap exhibited bullish candlesticks.

CNX IT has gained ground.

In the Punter's zone we have a BUY in Praj Ind & Titan Industries and SELL in HDFC Ltd.

In the Technical call section, we have a BUY in Aban & Punj Lloyd.& SELL in Bhel.

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Motilal Oswal - Market Diary

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Market may extend gains

The market may extend gains tracking firm global markets. However upside may be capped with data showing that FIIs were net sellers on Monday 19 March 2007. On that day Sensex had jumped 215 points in a rally across Asian stocks. FIIs were net sellers to the tune of Rs 5 crore on that day, as per provisional data released by the National Stock Exchange (NSE).

Volatility may rise over the next few days ahead of expiry of March 2007 derivatives contracts next Thursday 29 March 2007. As the markets are closed next Tuesday (27 March) due to public holiday, only 7 trading sessions are left for expiry of March 2007 contracts.

FIIs were net buyers to the tune of Rs 353 crore index based futures on Monday 19 March. They were net sellers to the tune of Rs 133 crore in individual stock futures on that day.

The undercurrent remains cautious due to high inflation and rising interest rates. Strong industrial production data released early last week means that RBI may raise interest rates at its annual policy review for the year 2007-08 next month (on 24 April 2007). Industrial output rose 10.9% in January 2007 from a year earlier. The wholesale price index rose 6.46% in the 12 months to 3 March 2007, up from the previous week's annual increase of 6.10% due to higher edible oil and naphtha prices.

The next major trigger for the domestic bourses is Q4 March 2007 earnings, reports of which by corporates will start next month. Market men will closely watch what company managements have to say about the outlook for FY 2008.

In the near term, domestic bourses would track global bourses as central banks in Japan and US hold a meeting to decide on interest rates. Global liquidity still remains strong.

As per reports which have just filtered in the market, the Bank of Japan (BoJ) has unanimously voted to keep interest rates unchanged at 0.5%. The focus is now on BoJ Governor Toshihiko Fukui's post-meeting news conference for indication on future rate hikes.

US Federal Reserve’s two-day meeting ends on Wednesday. The Fed is expected to keep interest rates unchanged. Analysts keenly await the Fed’s accompanying statement for cues to the US economic outlook.

US stocks rallied on Monday after Britain's Barclays Plc and Dutch bank ABN AMRO confirmed they were in talks to merge, helping the financial sector recover from its recent hammering in the subprime mortgage market turmoil. The Dow Jones industrial average ended up 115.76 points, or 0.96 percent, at 12,226.17. The Standard & Poor's 500 Index closed up 15.11 points, or 1.09 percent, at 1,402.06. The Nasdaq Composite Index finished up 21.75 points, or 0.92 percent, at 2,394.41.

Asian markets edged higher for the second day in a row on Tuesday. Key benchmark indices in Hong Kong, Japan, Singapore and Taiwan were up by between 0.4% to 1.1%

Anand Rathi - Daily Strategist - Mar 20

The NIFTY futures saw a drop in OI 2.05% with prices up by 1.63% indicating that short covering took place as market opened with gap which forced bears to cover their positions as market recovered .we feel that till the market doesn't go below 3600 levels we may not see aggressive short positions built up in the nifty futures and longs liquidating their positions . .The nifty futures discount narrowed indicating aggressive short covering .The FIIs were buyers in the nifty futures to the tune of352.27 crs .The PCR has come up from 0.89 to 0.91 levels indicating some support in the market .The volatility has come down from 31.70 to 30.85 levels indicating some buying support in the market.

Among the Big guns, ONGC saw drop in OI to the tune of 2.68% with prices coming up by 1.70% indicating short positions are covering their positions in the counter as the counter moved up showing much of strength whereas RELIANCE too saw drop of OI to the tune of 1.85 % with prices coming up 1.03 % indicating that the counter saw lot of short covering in the counter.

On the TECH front, TCS, , WIPRO,INFOSYSTCH saw drop of OI with sharp rise in prices indicating lot of short covering seen in these counters performing in line with market whereas SATYAMCOMP saw rise in OI with prices almost flat indicating that both bulls and bears are aggressive in the counter.

The BANKING counters saw OI decrease with prices up indicating that short covering in the major counters SBIN,HDFCBANK,BANKINDIA finally bears covered positions ir-respective of whether P.S.U'S or P.V.T banks. ICICIBANK saw marginal rise in OI with prices 1.64 % indicating that apart from short covering fresh buying happening in the counter.

The metals across the board TATASTEEL, HINDALCO ,STER Saw rise in OI with price flat to negative indicating that both buyers and sellers were aggressive in these counters indicating selling pressure prevailing in these counters, whereas SAIL ,JSWSTEEL saw fall in OI with rise in price indicating that their was heavy short covering in these counters.

Considering the overall scenario and the markets recovery the market may move up today and we would see bears running for cover if the market sustains above the 3630 level .Traders are advised not to go aggressively short on the market unless important support level of 3600 is breached and any position taken today should be with strict stop losses to be adhered too.

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NIFTY (3679) SUP 3643 RES 3719

SL 155 T 169, 171

SL 375 T 390, 392

SL 244 T 258, 261

@ 130 SL 133 T 122, 120

SELL BRFL (159.2)
@ 162 SL 166 T 151, 149

Bulls hope for an encore!

The most difficult part of attaining perfection is finding something to do for an encore.

Like the bulls, the men in blue, shrugged off their blues and launched a scathing attack. On record, wow. It's a world record. But come to think of it, they knocked up a stunning 413 against Bermuda, eventually winning by a record margin of 257 runs. The bulls on the other hand left the sun outage behind and emerged triumphant, though with lower volumes. There is no guarantee of an encore from either of them. For Rahul Dravid & Co. the next big hurdle is Sri Lanka, while for the bulls there are a few issues to be sorted out. The biggest among them is the lack of confidence and conviction as the rally didn't have the kind of punch that could have signaled some revival in sentiment.

Rallies in a weak market are often more of a trap. While the main indices could be rising, the broader market is clearly under-performing the big boys. That shows the fragility of the market and any fresh bad news might crack the market further. Having said that, for long-term investors this remains an ideal time for snapping up battered and bruised stocks. Today, we expect a healthy start but the key indexes could struggle to hold on to the gains by the end of the day. Cement stocks could see some revival in sentiment following reports of some tax benefits for adding new capacities. Here again, the devil is in the details so remain cautious.

Maruti is one stock to keep an eye on, as it has jacked up the price of its diesel Swift. Torrent Pharma is also likely to see some action as a financial daily reports that it is also in the race for buying the generic business of Germany's Merck. SAIL, BHEL, PNB, PFC and Unitech could gain amid reports that they have paid much higher advance tax for the October-December quarter compared to last year.

Diamond Cables's Board will meet on March 20, to consider acquisition of company / companies engaged in the business of manufacturing of Power Transformers.

FIIs were net sellers at Rs50mn (provisional) in the cash segment. In the F&O segment they pumped in Rs4.74bn. On Friday, they were net buyers to the tune of Rs185mn. Mutual Funds offloaded stocks worth Rs2.06bn on the same day.

US stocks rallied on Monday with the Dow Jones Industrial Average surging by over 100 points. The second-biggest gain of the year was helped by $17bn in M&As and expectations that the Federal Reserve will keep interest rates on hold when it concludes its two-day meet on Wednesday.

However, options traders have started to bet that Fed policy makers will lower interest rates to counter the effects of falling real-estate prices and fuel more acquisitions as the year progresses.

The Standard & Poor's 500 Index added 15.11 points, or 1.1%, to 1402.06 as all 10 of the benchmark's industry groups advanced. The Dow rose 115.76 points, or 1%, to 12,226.17. The Nasdaq Composite Index gained 21.75 points, or 0.9%, to 2394.41.

US light crude oil for April delivery fell 52 cents to settle at $56.59 a barrel on the New York Mercantile Exchange.

Treasury prices slipped, raising the yield on the 10-year note to about 4.56% from 4.54% late on Friday. In currency trading, the dollar rose versus the euro and the yen. COMEX gold rose 40 cents to settle at $654.30 an ounce.

European shares started the week on a positive note. The pan-European Dow Jones Stoxx 600 index rose 1.5% to 364.45. ABN Amro led the sector, rising 9.5% amid press speculation that it was in line for an 81bn-pound ($157bn) bid from Britain's Barclays.

The UK's FTSE 100 closed up 1% to 6,189.40, the German DAX Xetra 30 rose 1.4% to 6,671.41 and the French CAC-40 climbed 1.4% to 5,458.95.

Asian stocks climbed for a second day, led by Japanese exporters after the yen extended a slide against the dollar and euro.

The Morgan Stanley Capital International Asia-Pacific Index added 0.6% to 143.09 as of 10:46 a.m. in Tokyo. Japan's Nikkei 225 Stock Average gained 1% to 17,180.27. New Zealand's key stock index was the only benchmark to decline among markets open for trading.

BHP Billiton and Mitsubishi Materials climbed after the price of copper reached a three-month high. Toyota and Honda led the advance among the exporters.

Latin American equities rose, following the lead of higher performances in stock markets worldwide and as Brazilian investors turned their attention to a $4bn merger deal involving Petrobras in the oil and gas sector.

Brazil's benchmark Bovespa index climbed 2.3% to finish at 43,712.55. Argentina's Merval rose 2.3% to 2,030.60 and Chile's IPSA gained 1.4% to close at 2,958.65. Mexican markets were closed for a national holiday in observance of former president Benito Juarez's birthday.

Market Watch & Insider Trades

Insider Trades:
Prajay Engineers Syndicate Limited: Goldman Sachs Investments (Mauritius) I Limited ("GSIMI") has purchased from open market 63000 equity shares of Prajay Engineers Syndicate Limited on 15th March, 2007.

Eimco Elecon (India) Ltd: HDFC Mututal Fund - HDFC Growth Fund has purchased from open Market 205000 equity shares of Eimco Elecon (India) Ltd on 15th March, 2007.

Market Volumes:
The turnover on NSE was down by 42.1% to Rs49.65bn. The lacklustre turnover was because of a bank holiday on account of Gudhi Padva. BSE PSU index was the major gainer and gained 2.62%, BSE Technology index (up 2.23%), BSE Capital Good index (up 2.09%), BSE Consumer Durable index (up 2%) and BSE Bank index (up 1.81%) were among the other major gainers. However, BSE FMCG index lost 0.32%.

Volume Toppers:
IFCI, AMD Metplast, Idea Cellular, R Com, Gujarat Ambuja, India Cement, Mind Tree, IDFC, SAIL, Indiabulls, TTML, MTNL, Bank of India, Parsvnath, Rolta, Satyam Computer, Page Industries, Hindalco, Ashok Leyland and NTPC.

Upper Circuit:
GMR Industries, Max India, Jayshre Tea, Alps Industries, Mcleod Russel, Nirlon, Borosil, Gemini Communication, Nucleus Software and Tanla.

Delivery Delight:
Adlabs Films, Aptech, Assam Company, Bajaj Auto, Birla Corporation, Bombay Dyeing, Cipla, Divis Laboratories, Gateway Distriparks, GVK Power & Infrastructure, HCL Technologies, MTNL, Maruti, Nicholas Piramal, NIIT Technologies, Orchid Chemicals, Praj Industries, Punj LLoyd, Satyam Computer and Titan.

Brokers Recommendation:
Tata Steel – Outperformer From SSKI

Long Term investment:

Major News Headlines:
ITC falls after WB Govt plans to levy VAT on tobacco products

RCom gets court nod for demerger of tower business

Diamond Cables gets order worth Rs440mn

Govt to divest residual stake in Maruti in FY08

Canara Bank sells 49% stake in unit to Robeco for Rs1.15bn

Shopper's Stop to buy 19% of Hypercity Retail

RSWM buys 48% in Cheslind Textiles at Rs25 per share

Punjab Chemicals plans venture with US based Source Dynamic


Profit booking possible

Markets ended in green following strong close by major global markets. The key indices took off in the later half of the session led by gains in the Technology, Telecom, Capital Good, Banking and Auto stocks. Mid-Cap and the small cap stocks also participated in today’s rally with both the indexes gaining almost 1% each. Among the four listings only AMD Metaplast particularly stood firm, rest of three scrips were lackluster. Tea and Mid-Cap IT stocks also were in the limelight today contributing to the upswing. Finally, the 30-share benchmark Sensex surged 214 points to close at 12644. NSE Nifty was up 70 points to close at 3678. BHEL, Tata Tea and Gail were the major gainer however, ITC, Hero Honda and Dr Reddy’s Lab were the major losers among the 50-scrip’s of NSE Nifty.

AMD Metaplast engaged in the business of manufacturing crowns, plastic closures and PET preforms for carbonated soft drinks and bottled water was listed Rs65 versus an offer price of Rs75 translating a discount of 13%. However, the scrip recovered its losses and was up by 4.4% to Rs78 touching an intraday high of Rs82.55 and low of Rs64 and recorded volumes of over 1,00,00,000 shares on BSE.

Punj Lloyd gained 2.5% to Rs784 after the group announced that it would construct UK's First World Scale Bio-ethanol Plant. The scrip touched an intra-day high of Rs792 and a low of Rs760 and recorded volumes of over 2,00,000 shares on NSE.

Technology stocks were in the limelight. Mid-Cap stocks led from front, i-Flex surged by over 6% to Rs1981, Mphasis BFL was up by 4.7% to Rs293 and Rolta gained 4.5% to Rs367. However, Wipro, Infosys and Satyam Computer were major gainers among the heavy weights.

Pharma stocks were in good health. Cipla gained 0.9% to Rs224, Ranbaxy was up 0.3% to Rs316, Divi’s Lab advanced by 1.7% to Rs2907 and Glenmark Pharma added 1.2% to Rs588.

Telecom stocks were ringing with gains. Reliance Communication spurred over 5% to Rs397, Bharti Airtel gained 2.3% to Rs733, VSNL was up by 2.2% to Rs377 and MTNL surged over 4% to Rs147.

Auto stocks also shifted in top gear towards the end. Tata Motors paced ahead 3% to Rs771, M&M gained 1.3% to Rs738, Maruti was up 1.2% to Rs788, Bajaj Auto gained 1% to Rs2515 and TVS Motors added 2.4% to Rs62.

Firm global indices signal positive outlook

Market is expected make further headways on firm global cues and yesterday's recovery after a sleepy start is likely to weigh on the market bias. Among the Asian indices, Nikkei has gained around 1% while Hang Seng, Kospi and Jakarta are trading with steady gains. Also a further decline in global crude oil prices could help the sentiment turn positive. However, dwindling FII inflows in the domestic market may hurt the investors sentiment. Action could be seen in banking, cement and oil stocks. Among the local indices, the Nifty could face resistance around 3700 and has a likely support at 3620.

U.S. stocks rallied on Monday after Britain's Barclays Plc and Dutch bank ABN AMRO confirmed they were in talks to merge. While the Dow Jones advanced by 116 points at 12226, the Nasdaq moved up by 21 points at 2394.

All the Indian floats finished in the green on the US bourses. Satyam Computers led the surge with gains of over 5% while Tata Motors, ICICI Bank, MTNL, HDFC Bank and VSNL rose over 3% each. Infosys, Dr Reddy's, Patni Computers and Rediff ended with steady gains.

While the Nymex light crude oil for April delivery fell by 52 cents to close at $56.59 a barrel. In the commodity space, the Comex gold for April series moved up by 40 cents to settle at $653.90 an ounce.

Contrary thinking -Chetan Parikh

In a book “Rediscovering the Wheel: Contrary Thinking and Investment Strategy’, the author, “Bradbury K. Thurlow, writes about the formulation of a contrary thinking strategy.

“If 95 per cent of all stock investors — amateur or professional — lose substantially relative to the general market over prolonged periods of time, they must be doing domething wrong. It follows that those who pursue a precisely contrary course of conduct will win (less commissions and taxes) actual profits equivalent to the losses suffered on the other side. When the amount of new money coming into the market is in balance with the supply of new issues coming to market, the odds on speculative and investment success, as measured by actual realized profits and losses, are essentially the same as those on betting on the red or black on a roulette wheel, with the brokers and the Government taking their cut as croupiers on every trade. What makes speculation more interesting than roulette is that a numerical majority of the players almost always bets on the wrong color.

The most primitive formulation of a contrary thinking stock-market strategy would be to keep tabs on what the small investor is thinking and doing and then study to think and do the opposite. If that were all there was to it this book could end right here, and this may be the most con­vincing explanation of why no one — to my knowledge — has yet written any kind of detailed study dealing with contrary thinking approaches: In earlier times, when the stock market was primarily influenced by emotional and uninformed small investors, every professional worth his salt knew enough to take the opposite side of the little fellow who was obviously acting foolishly. No one would bother to write — much less to read — a book telling one nothing more than that.

Fortunately or otherwise, the stock market during the 60s and 70s became enormously larger and more 'efficient' than it had ever been and its behavior is now primarily, almost exclusively, governed by the actions of highly sophisticated professionals handling portfolios worth hundreds of millions of dollars. These people are well paid, well trained, and well above average in intelligence. They are avaricious learners of facts and techniques, are supported by high priced staffs, and relish tough competition.

The fact remains that in the aggregate they make the same mistakes the amateur investing public used to make. The same small percentage do better than the market; the same high percentage buy at tops and sell at bottoms. Clearly knowledge and experience alone are not the major determinants of success in today's stock market.

After being mesmerized by this question for ten years, I wondered whether a possible explanation might not be found by using old and basic contrary thinking techniques, but gearing them up to match the complexity and sophistication of the present-day problems with which they must now deal.

In short, would it be possible to attack what is essentially a question of group behavior by building a disciplinary approach specifically designed to deal with behavioral problems? That seemed an obvious first step, but it immediately raised the question as to how much of the behavioral problem was individual psychology as we know it and how much was social — an area on which little of practical value seems to have been written.

I still do not know the proper mixture of ingredients and this book, consequently, presents a whole series of experimental mixtures designed to deal with specific aspects of the problem. These mixtures include both well-established psychological evidence and social evidence which must still be considered largely untested and hypothetical.

One of the most arbitrary and, I believed, significant assumptions to be included in this approach was to equate contrary thinking — which even in its simplest form is dialectic in nature, proceeding to synthetic conclusions by questions and answers that develop opposing points of view — with such so-called formal dialectic disciplines as have been developed under Marxism. For two and a half years I worked on a series of essays seeking to develop a non- or anti-Marxist 'individualist' dialectic that could be applied to extremely broad areas of human behavior. At the conclusion of that study I was satisfied that there was enough evidence to justify using the same methods in dealing with the full range of issues raised in making investment decisions.

In this context, one can define contrary thinking as a decision-making technique using dialectic methods at three distinct levels: 1) identification and criticism of a thesis, 2) exploration for tactical antitheses, and 3) development of a strategic synthesis.

The problem with definitions is that if they are concise and precise enough to satisfy those who made them, they may be thoroughly obscure to those to whom they are being explained. My definition uses terms from the German philosopher Hegel because they describe most accurately and efficiently what I want to say, but, except for these few words, one need not be a student of philosophy — let alone of Hegel — to understand contrary thinking.

A thesis, as here used, means an idea we are studying; the dialectic method is a way of pulling that idea apart by finding contradictions or inconsistencies in its various meanings. One of the best ways of finding the meanings of an idea is to look at all of its possible inferences from different subjective points of view and to test each by inquiring whether opposite interpretations could be equally valid.

Someone holds out a red flower and says: "This is a rose." Assuming he is not a liar, his statement is an assumption of fact and is not a thesis. A second person observes: "Yes, I know that, because roses are red." This is a thesis — a statement of belief. It is not necessarily a deliberate falsehood, but it is a conclusion based on the observation that the rose in question is red. Because the conclusion is based on observation, it is subject to cri­ticism. Using the dialectic method, one can examine the thesis by asking a number of questions: "Are all red flowers roses, or can there be other red flowers?" "Of course there are other red flowers, but this one is shaped like a rose." "Here is a flower of the same shape, but it is white. Does this mean it is not a rose?" "No, there are white roses as well as red roses." "Then you didn't know it was a rose because of its color alone, but because of its color and its shape. Isn't that right?"

This exchange is a primitive example of the method we have in mind. Its assumption is that the theses it examines are like the statement of the observer — partly true, partly false, based on inaccurate, incomplete, and undisciplined observation of more or less familiar experience. The anti­thesis, by showing that a flower could be red without being a rose, led to a revision of the original thesis: A rose is a rose because it is shaped like a rose. The observer knew that perfectly well to begin with, but had simply not thought his observation through.

In dealing with stock-market problems, experience has long shown that imperfect observation is not the exception, but the rule. Otherwise highly intelligent people are led to oversimplify observations when the data become too complex. Dr. Jerry Felsen, in his Cybernetic Approach to Stock Market Analysis (Exposition Press, NY, 1975) opines that it is difficult even for the most highly trained human mind to concentrate on more than four variables at a time.

What, then, does the investor do when faced with a barrage of facts and differing interpretations? He oversimplifies — his basic concepts, his interpretations, the data he is willing to consider, his analytical tools, everything that goes into his decision-making process. He then wonders why he makes so many wrong decisions.

How many of us have bought a stock because we thought the market was going up? Is this not as weak a thesis as saying a rose is a rose because it is red? Like the rose thesis, it may be supported by subconscious knowledge that gives it validity, but how does one know until one asks the right questions? The thesis could be equally based on what one had for breakfast that morning, with no rational foundation whatever.

Contrary thinking does not solve the information problem by enabling us to cope with more variables, but it does, by allowing us to examine the problems and the approaches to them in different lights, help us to avoid waste motion and to concentrate our efforts in the areas we pick out for ourselves as being most profitable to study. Our judgment will still be faulty, but if we continue to identify and criticize the theses we are using, we should, in the slow learning process, come to eliminate some, improve others, and discover new ones more suitable to work with.

If we are engaged in any form of selling activity (Who is not, at one time or another?) we are taught from our earliest days to think positively. Seeing the good in people and ideas is in the best interests of society and makes us socially attractive to others; moreover, it is a natural human instinct that increases our enjoyment of life.

The problem that comes up in dealing in any marketplace where assets are freely exchanged is that our natural goodwill toward man may prevent us from recognizing that some assets are increasing in value while others are declining. Owners of deteriorating assets will rationally try to exchange them for assets that are appreciating; to do this they must find takers. To find takers they must make the assets attractive, either by lowering their price or by emphasizing their good qualities and obscuring their defects. At the same time they will resist as far as possible paying high prices for ap­preciating assets and will, as bargainers, emphasize their defects and obscure their good qualities.

These attitudes are basic to all trading operations, be it horses or blue-chip securities. The person of goodwill will be impressed by the commendations of others and will tend to underestimate the value of what he owns if no one else is praising it; socially he will be inclined to exchange his good assets for assets of lower quality. He is the dupe of the marketplace, the born speculative loser.

Contrary thinking, without attempting to change the morals of the marketplace — which have been the same for millennia — enables one to recognize them for what they are and to counteract the destructive effects of indiscriminate goodwill through the antidote of rational negative thinking.

To arrive at constructive conclusions contrary criticism begins destruc­tively, negatively. Its method is to find the weaknesses in an idea and attack them with gusto. If the trunk of the idea can survive the pruning, new branches may grow or can be grafted on; if it does not survive, it is just so much dead wood.

One of the most concrete and practical forms of stock-market ideas or theses are our approaches to the raw data of the market­place. There is so much material available that we must spend a con­siderable effort determining which parts of it are useless and a waste of time to study. This determination will rest in part, of course, on the total amount of time we have available; the professional can, and should, absorb a good deal more information than the part-time amateur.

The amounts are so overwhelming, however, that everyone must be ruthlessly selective. In practice we must work through and from the digests of others: the summary studies of specialists, the theoretical interpretations of generalists, the background reports of news and economic analysts, and the interpretations of market psychologists.

Every piece of information that is interpreted by others before it reaches us is subject to distortion. Tolkien called it subcreativity — the process by which we arrange all the data we receive subjectively in our own minds. By applying criticism to our sources we come to recognize these distortions and factor them out. Some are individual and are learned only after long ac­quaintance; others are institutionalized: brokers' reports are usually too optimistic, technicians tend to be dogmatic, economists do not like to stray from the consensus, newsmen emphasize the ephemeral and miss the main story, almost everyone is uncomfortable and timid in dealing with psy­chology — except those who do not know what they are talking about — and so it goes.

There is a good deal of contrary criticism in this book. Much of it is bla­tantly destructive and directed against institutions in the financial communi­ty that are almost as sacred as motherhood. Its sole purpose is to suggest how the hard-pressed investor can avoid wasting valuable time. The occa­sional constructive criticisms represent syntheses in the dialectic process and suggest how some of the expertise in the investment world might be put to more useful purposes.

Moving from criticism to the second activity of contrary thinking — exploration for tactical antitheses — brings us into a sort of game that can have all the pleasures of individual competition. The tactical antithesis is based on the assumption that a given thesis is wrong and that going opposite to it, as in the example given at the beginning of this chapter, can be profitable.

Finding and exploiting tactical antitheses has been developed into a whole investment discipline by Humphrey Neill in his Theory of Contrary Opinion — which I shall discuss at some length in later chapters. I perhaps do not do my old friend justice in using the adjective tactical. Contrary Opinion Theory is as good a method as has ever been developed for sensing major stock-market turning points, and, lacking every other ability, the investor who can do that with any degree of success should be well on his way to a brilliant future.

Most of the time, however, the opportunities to identify a major turning point will occur only rarely and will be of fairly short duration. For this reason, although the theory fits in admirably with a larger investment strategy, it is essentially tactical in nature: a means for timing purchases and sales under certain special conditions.

Strategy is the most difficult of investment concepts and by definition, is eclectic; it takes in everything it can use and at the same time keep under control. Contrary thinking, by itself, is neither a synthesis nor a strategy, but it is both synthetic and strategic in its problem-solving approach. As an exercise in disciplined skepticism it pushes the mind toward disbelief while restraining it this side of inactivity; the only purpose of the decision- making process, after all, is to make decisions.

If this constant criticism, exploration, and balancing of positive and nega­tive ideas does not come naturally to the stock-market investor, it is perhaps a good idea to remind ourselves, when we find contrary thinking most irritating, that our natural inclination, nineteen times out of twenty, will lead us to the wrong stock-market choice. The statistical odds at any given moment may be 50-50 that a stock will move either way, but as members of a crowd — even if we have no physical contact with its other members — we are susceptible subconsciously to all the influences by which crowds are swayed. Statistical probabilities would rank low in any such list.

This means that to recognize contrary thinking as a useful tool is only a first step toward learning to use it effectively. As a discipline it, like giving up tobacco, requires practice day after day. The critical part comes easily enough to us if we constantly keep in mind that we do not want to throw the baby out with the bath water. The discipline in criticism comes in salvaging and rehabilitating what is left after our attacks have done their worst.

The tactical exercises are a kind of game. In practicing them at random we shall find in a good many instances that the thesis we attack turns out to be right, or that if we are right in judging it wrong we may choose the wrong alternative to it. To many questions there will only be one right answer and a thousand wrong ones.

Arriving at a synthesis involves making many revisions as one proceeds. In a field as dynamic as investments, where ideas bloom like cactus flowers that live only a few hours after months of preparation, the revision process does not stop when the basic strategy has been worked out. Most of the time, that will only be the beginning.

Contrary thinking is a deliberate shaking of the mind back and forth, reversing and reaffirming plausible views to separate out the non-essential much as the gold panner shakes out unwanted pebbles. It is worth the effort because it frees the mind of at least certain kinds of misconceptions that show their inconsistencies under dialectic analysis.

The most important and persistent of these misconceptions, as I see it, are based on the 'historical' assumption that a knowledge of the past enables one to predict the future. A mathematician will immediately spot the weak­ness in this proposition by the lack of precision with which we usually define knowledge of past human behavior. Richelieu, who may have been the most able strategist since Julius and Augustus Caesar, once remarked that "The past bears no reference to the present; the relationship between times, places, and persons is always an entirely different one."

I do not believe the great Cardinal was depreciating his own deep under­standing of history and human behavior, but rather observing that know­ledge of these things was worthless without dialectic analysis to determine and discard the non-essentials. Stock-market investment and speculation under modern conditions is a game closely resembling the politics and diplo­macy of an era when the best minds were intent on family greatness and national power. Accepting Richelieu's antithesis to the thesis that historical knowledge is valuable, one can dialectically arrive at the synthesis that the past can frequently be the most instructive to us when it seems to have the least superficial resemblance to the present. Human nature, after all, does not change and native intelligence does not improve.

The foregoing exercise in contrary thinking is only a little more sophisti­cated than our earlier primitive discussion of the rose and is probably about as complicated intellectually as contrary thinking is likely to be. The purpose of dialectics is not to make things difficult, but to reduce them to the simplest possible terms. Obviously one antithesis or synthesis does not exclude any number of other possibilities. We choose what appeals to us subjectively and build from there.

But isn't this the exact opposite of a discipline? By admitting a totally subjective choice, what claim do we then have of keeping our objectivity?

One answer to this dilemma is that if we do not make our choice sub­jectively, it will be imposed on us from outside and will simply be someone else's subjective choice passed on to us by suggestion which we shall have accepted without considering the alternatives. All decisions are subjective, whether we make them ourselves or submit to having them made for us. The discipline in contrary thinking consists in processing the pros and cons through our minds so that we have at least been through the exercise of' hearing both sides of the case' before taking action.

In practice one will find that the deliberate suspension of judgment until a decision must be made goes contrary to our natural vanity and becomes habitual only after long discipline. Dialectical analysis, which is only another name for contrary thinking, deliberately puts roadblocks in the way of ideas we receive to protect us against making hasty decisions — which have a better than even chance of also being unwise decisions.”

Emkay Morning Notes, Kirloskar Oil Engines

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Board Meetings - March 23 2007

Mar 23 2007 B & A Multiwall Packaging LtdAccounts
Mar 23 2007 Centurion Bank of Punjab LtdCenturion Bank of Punjab Ltd has informed BSE that a meeting of the Board of Directors of the Bank will be held on March 23, 2007, inter alia, to consider augmenting of long-term debt capital resources.
Mar 23 2007 Datamatics Technologies LtdInterim DividendDatamatics Technologies Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007 to consider declaration of interim dividend for the year 2006-2007.(As Per BSE Announcement Website Dated on 15/03/2007)
Mar 23 2007 Federal-Mogul Goetze (India) LtdAccounts ( Nine months)
Mar 23 2007 Hester Pharmaceuticals LtdHester Pharmaceuticals Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007 to discuss the issues related to the commencement of production in the new manufacturing facility.
Mar 23 2007 Mahindra & Mahindra Financial Services LtdMahindra & Mahindra Financial Services Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007, inter alia, to consider declaration of Interim Dividend on the Equity Shares of the Company for the Financial Year ending March 31, 2007.
Mar 23 2007 Mahindra Ugine Steel Company LtdMahindra Ugine Steel Company Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007, inter alia, to discuss and consider the declaration of Interim Dividend if any, for the year 2006-07 along with other business.
Mar 23 2007 Marico LtdMarico Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007, for declaration of a Fourth interim dividend for the financial year 2006-07.
Mar 23 2007 Sheetal Bio-Agro Tech LtdSheetal Bio Agro Tech Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007, inter alia, to change the Registered Office of the Company within the city.
Mar 23 2007 Shloka Infotech LtdShloka Infotech Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007, inter alia, to consider there at a Scheme of amalgamation between the Company with other six Companies, Shloka Academy Pvt Ltd, Shloka Graphics Pvt Ltd, Shloka Peripheral Pvt Ltd, Shloka Finance Consultancy Pvt Ltd, Shloka Software Pvt Ltd and Shloka Publications Pvt Ltd.
Mar 23 2007 Sundaram Multi Pap LtdSundaram Multi Pap Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007, inter alia, to consider the re-appointment including terms and conditions and remuneration of Mr. Amrut P Shah as the Managing Director of the Company and Mr. Shantilal P Shah and Mr. Hasmukh A Gada as the Whole-time Directors of the Company.
Mar 23 2007 Thomas Cook (India) LtdThomas Cook India Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007, inter alia, to consider the following:1. Audited financial Results for the fourteen months ended December 31, 2006.2. Recommending dividend for the year ended December 31, 2006, if any.3. Deciding on Book-Closure period.4. Considering proposal for Right Issue of Shares and other options of raising funds.
Mar 23 2007 Tyche Peripheral Systems LtdTyche Peripheral Systems Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007, to consider allotment of Equity Shares on conversion of Equity Warrants allotted on preferential basis on June 20, 2006.
Mar 23 2007 Wipro LtdWipro Ltd has informed BSE that the Board of Directors of the Company would consider and approve the Interim dividend by way of circular resolution effective March 23, 2007 and the record date for the interim dividend would be March 28, 2007. The decision of the Board of Directors regarding the proposed interim dividend per equity share would be intimated on March 23, 2007.
Mar 23 2007 Yash Papers LtdYash Papers Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on March 23, 2007, inter alia, for allotment of warrants on preferential basis.

Land banks come under Sebi scanner

In the surreal world of property valuations, this one perhaps takes the cake. A real estate company wanting to buy a piece of property roped in a reputed international consultant to do the valuation.

The consultant, eager to oblige, submitted a document valuing the property at Rs 4 crore. The company trumpeted the number to an investor, who promptly wrote a cheque buying a piece of the company. The company went to the owner, bought the property not for the value estimated by the consultant but for a much smaller amount—Rs 50 lakh.

K Raheja Corp recently valued a four-acre property in Bangalore’s Whitefields area at Rs 44 crore per acre. The actual going rate: Rs 7-8 crore per acre. Yet another company, just ahead of an IPO, valued its properties in Bangalore on what is called the macroanalysis method. They calculated the value based on the average of the highest transactions in the city in recent times.

Any responsible valuer would have done the valuation by visiting the properties, finding out the actual rates based on location, approach etc.

These are some instances of the fancy footwork employed by domestic real estate companies to jack up valuations and create hype. Consultants eager to make a quick buck and not wanting to miss out on a hot growth sector are willing to oblige. And gullible investors, who buy shares of these companies only to watch them sink, are often left in the lurch. But a backlash is brewing. As India’s superheated real estate market begins to cool, the methods used by real estate companies to dress up valuations are being questioned, criticised and condemned.

On Friday, Sebi chairman M Damodaran said there is lack of clarity in the disclosures of real estate companies, especially regarding their land banks.

“We sought clarity from those that have brought issues to us on matters like what does your land bank comprise, what are the valuation aspects that you have indicated,” Mr Damodaran said.

Real estate industry experts say there are two major issues here. One is the method of analysis, which is often cursory and lacks the detail and depth that a proper valuation commands. Many draft prospectuses contain reports from prominent consulting firms such as Cushman & Wakefield, Jones Lang LaSalle, Knight Frank etc. These are not valuation reports, only `opinion of value’, which is completely different.

A valuation is a proper, thorough exercise conducted by a government-approved valuer who spends time at the location, examines title deeds, land records and estimates the value of the land based on comparable rates.

What many of these firms do is to rely on data provided by real estate companies to estimate the value of the property. They don’t do a comprehensive analysis either of the title deeds or visit the property in question to determine whether it can command such a price.

Take, for instance, Cushman & Wakefield’s report for Sobha Developers, which did an IPO last year and is now a listed stock. “This report has been prepared on the basis of market information available from secondary sources only. We have not conducted a legal review of the documents for the subject property...This report is not based on a comprehensive market research for all possible market situations,” the firm said in its caveats and limitations.

“We are not giving any valuations to developers. What we are doing is evaluating the data of land provided by the developers. It is just a comparison of the location of land and the prevailing prices in that location,” says Knight Frank India chairman Pranay Vakil.

An analyst with Cushman & Wakefield said the consultants are not necessarily aware whether the land has been bought, paid for, or whether it has been paid only partially. The consultants are also not told about the exact location of the property or its immediate neighbourhood. So the vagaries inherent in property valuation in India are not taken into account fully.

DLF, which is in the spotlight after reports estimating its value at over Rs 1 lakh crore, has removed its valuation report in the draft prospectus filed with the market regulator in December. The earlier document filed in May 2006 contained a valuation report from Cushman & Wakefield and Jones Lang Lasalle.

A building may fetch completely different rates depending upon the view, access roads and location alone. In Mumbai, a building in the eastern part of the city fetches a different value compared with one located in the western part, which is closer to the sea.

Doing a macroanalysis in such a situation to determine value of a specific property would be madness, say experts. No two houses in one building sell for the same price—there is always a difference based on a corner house or the floor. This is applicable to the theory of land banks as well.

“With such fine elements determining price, how do you value a real estate company and its stock? Land is an illiquid asset in the market and one of the least transparent, with very high transaction costs,” said an analyst with a domestic brokerage.

The other problem is that examination of land and title deeds is not done in the reports. This is crucial as companies seldom own land completely at the time of a public issue or the land is owned by the promoters of the companies in their personal capacity.

The problems with land bank valuations could have serious implications in other areas as well. Real estate mutual funds, when they are allowed, could face problems in calculating the net asset value if there are wide disparities or disputes in valuation.

A leading Mumbai-based developer said, “There is no doubt that land banks are a deciding factor as far as the valuations of real estate companies are concerned. However, it all depends upon where the land is located, what kind of development is scheduled and how long the new construction takes to generate revenue. If I am saying that I have 200 acres of land in Pune and it has a value of Rs 100 crore, this does not make any sense. However, in case the land has an IT park that has started generating revenue, I can say the land has contributed to the valuations of my company.”

While valuing a real estate company, the investor needs to see not only the quantity but also the quality of land banks along with their location. Many of these are said to be around special economic zones, but the future of SEZ-led development is still not clear in India. The gestation time associated with the development of an SEZ may be very long.

Non-SEZ well-located land parcels too will take time to develop. This raises two questions. One, when will this land bank lead to cashflows? Second, at what price will the sale happen? The questions that crop up now are: with the rising cost of construction (both in inputs and labour), will companies be able to maintain margins in future, how much of the current demand is effective demand, and how much is supply-side push?

Geojit - Essel Propack

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