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Friday, April 20, 2007
Sharekhan Investor's Eye dated April 20, 2007
STOCK UPDATE
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Inflation spurts above 6%
STOCK UPDATE
Wipro
Cluster: Apple Green
Recommendation: Buy
Price target: Rs708
Current market price: Rs580
Price target revised to Rs708
Result highlights
- Wipro's global information technology (IT) service business reported a growth of 5.1% quarter on quarter (qoq) and 32.6% year on year (yoy) to Rs3,035.7 crore (under US GAAP) for Q4FY2007. The numbers are largely in line with our expectations. In dollar terms, the revenues grew at a reasonably healthy rate of 7.8% sequentially to $690.7 million, which was contributed by a 7.4% growth in the IT service business and an 11.3% growth in the business process outsourcing (BPO) business. The sequential growth in the IT service business was driven by a volume growth of 5.4% and an improvement of 2% in the average realisations. On the other hand, the sequential growth in the BPO business was purely driven by a 13.9% improvement in the average realisation with a decline of 1.4% in the volumes.
- In terms of its operating profit margin (OPM), the adverse impact of wage hikes (a 3-4% hike to the onsite employees with effect from January 2007; a net impact of 60 basis points) and the rupee appreciation (a negative impact of 80 basis points) was partially mitigated by the smart improvement in realisation (in both the IT service and BPO businesses), an improvement in employee utilisation, lower losses in the acquired entities and other cost efficiencies. This resulted in a net impact of 20-basis-point sequential decline in the OPM (to 23.5%) of the global IT service business.
- On the flip side, the revenue growth guidance of $711 million implies a muted sequential growth below 3% in the revenues of the global IT service business during Q1. In fact, given the appreciation of the rupee, the growth in rupee terms could be flat or even negative during Q1FY2008. However, the first quarter tends to be generally slow for the company and doesn't reflect the robust demand environment and strong visibility of its revenue growth.
- In addition to a decent growth in the global IT service business, the robust sequential growth of 15.8% in the Indian IT service business enabled the company to report a healthy growth of 9.3% qoq and 42% yoy in its consolidated revenues to Rs4,334.5 crore. The OPM declined by 50 basis points to 18.9% largely due to higher sales, general and administrative (SG&A) expenses, resulting in a relatively lower growth of 6.2% qoq in its consolidated earnings to Rs791.4 crore (after adjusting for the tax write-back of Rs70 crore) during the quarter.
- We have slightly revised down the FY2008 earnings estimates to factor in the lower exchange rate and introduced the FY2009 earnings estimates. At the current market price the scrip trades at 23.5x FY2008 and 18.8x FY2009 estimated earnings. We maintain our Buy call on the stock with a price target of Rs708 (23x FY2009E earnings).
Satyam Computer Services
Cluster: Apple Green
Recommendation: Buy
Price target: Rs550
Current market price: Rs473
Q4FY2007—first cut analysis
Result highlights
- Satyam Computer Services (Satyam) reported a revenue growth of 7.1% quarter on quarter (qoq) and 35.4% year on year (yoy) to Rs1,779 crore during the fourth quarter. The revenue growth was higher than expectations and was driven by a healthy volume growth of 9.5% on a sequential basis. On the other hand, the 1.7% appreciation in the rupee limited the sequential growth in the revenue during the quarter.
- The operating profit margin (OPM) declined by 162 basis points to 23.1% on a sequential basis, largely due to the adverse impact of the charges related to restricted stock units (RSU; 91 basis points) and higher personnel cost (135 basis points). It was partly mitigated by a 64-basis-point saving in the selling, general and administrative (SG&A) expenses as a percentage of sales. Thus, the operating profit was flat on a sequential basis.
- However, the earnings growth was boosted by the steep increase in the other income component to Rs70.4 crore (up from Rs10.1 crore in Q3) as the company accrued better yield on investments and reported foreign exchange (forex) gains of Rs3.8 crore as against a forex fluctuation loss of Rs35.5 crore in Q3FY2007. Consequently, the consolidated earnings grew by 16.7% qoq and 38.3% yoy to Rs393.6 crore, which is much ahead of the consensus estimate of around Rs358 crore.
- On the full year basis, the consolidated revenues and earnings grew by 35.3% to Rs6,485 crore and 43.1% to Rs1,404.8 crore respectively. The OPM declined by 60 basis points to 23.7% in line with the revised guidance of the company.
- In terms of the guidance for FY2008, the consolidated revenues and earnings are guided to grow in a healthy range of 28-30% and 27-29% respectively. The growth in the rupee terms would be dented by the 600-basis-point appreciation in the rupee (exchange rate of Rs42.3 per US dollar assumed in guidance), resulting in the revenue and earnings growth guidance of 20-22% and 18-20% respectively. The margin is expected to remain flat in FY2008 as the cumulative adverse impact of around 6.2-6.5% from the rupee appreciation, wage inflation and RSU charges (around $20 million) are expected to be nullified by better realisation (200-300 basis points), better performance of its subsidiaries and other cost efficiencies (like offshore shift, lower SG&A as a percentage of sales, broadening of the employee pyramid and better management of the fixed priced projects). On the flip side, the earnings growth guidance for Q1FY2008 is quite subdued (flat or marginally negative).
- We would review the FY2008 earning and introduce the FY2009 estimates in the detailed note. At the current price the stock trades at 18x FY2008 estimated earnings (including the non-cash charges for the stock options). We maintain our Buy call on the stock.
ACC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs880
Current market price: Rs791
Price target revised to Rs880
Result highlights
- ACC's pre-extraordinary net profit for the first quarter of CY2007 grew by 39% year on year (yoy) to Rs344 crore, in line with our expectations.
- The net sales grew by 26.7% yoy to Rs1,674 crore of which Rs1,619 crore came from selling cement. Even though cement volumes dipped by 3.8% yoy on account of maintenance and shut-downs during the quarter, the drop was more than offset by higher realisations (a growth of 30% yoy).
- The expenditure grew by 15% yoy but remained flat on a quarterly basis at Rs1,167 crore. On account of a higher realisation growth, the operating profit grew by 60.9% yoy. The operating profit margin (OPM) expanded by 650 basis points on a yearly basis and by 140 basis points on a sequential basis.
- The earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne for the quarter stood at Rs1,040, clocking a year-on-year (y-o-y) growth of 67% and a quarter-on-quarter (q-o-q) growth of 6.7%.
- The interest cost stood at Rs4 crore whereas the depreciation provision dropped to Rs62 crore.
- To enhance its focus on the ready-made concrete (RMC) business, the company's board approved the transfer of the RMC business to a 100% subsidiary called ACC Concrete.
- Cushioned by an other income component of Rs28 crore, the profit after tax (PAT) grew by 39% yoy to Rs344 crore. Considering an extraordinary income of Rs19 crore on account of the sale of ACC's residual stake in Everest Industries, the net profit stood at Rs363 crore.
- In order to boost its volume growth in future, the company is carrying out a slew of measures that will result in higher capacity in each of the next three years. By the end of the current year, the company's total capacity will expand by 4 million metric tonne (MMT) on account of de-bottlenecking at its various plants.
- Taking cognisance of the price freeze for the next one year and expecting the fresh capacities to start kicking in by the second half of the next financial year, we have assumed a realisation growth of 6% for CY2007 and no growth for CY2008. Thus, we are downgrading our CY2008 earnings per share (EPS) estimate by 16% to Rs66. But considering the lower depreciation provided by the company in the quarter, we are marginally upgrading our CY2007 EPS estimate to Rs71.4.
- At the current market price of Rs791 per share, ACC is trading at 11.0x its CY2007E earnings and 12.0x its CY2008E earnings. On an enterprise value (EV) per tonne basis, the stock currently trades at USD127 per tonne on CY2008E capacity. The last three months have been tumultuous for the cement industry on account of uncertainties over prices due to excise duty hikes, price freeze etc. It may be recalled that we had mentioned in our previous note that we would be reviewing our price target. Now considering the revised earnings estimates for CY2007 and CY2008, we are downgrading our price target to Rs880 per share.
Indiainfoline - Weekly Stock Ideas
BUY ABB (3855)
SL 3815 T 3940, 3950
BUY ITC (160)
SL 155 T 168, 171
BUY JSW (592)
SL 580 T 620, 625
BUY Mphasis (319)
SL 312 T 333, 338
BUY REL (511)
SL 504 T 535, 540
Good Evening - Friday 20th April, 2007
Subdued trend in Asian markets pushed key indices down 1% today. Key Asian markets fell 1-2% as the dollar weakened against regional currencies, reducing the value of exports in the U.S. Shares here were down across-the-board on profit booking. At 10:33AM, Sensex was 13531.50, down 140.69 points or 1.0%. Nifty was at 3975.70, down 36.50 points or 0.9%. CNX Midcap was down 0.3% and S&P CNX 500 Index down 0.8%. On BSE, declines outnumbered advances 2:1 in morning. Technological companies were major laggards on bourses. BSE IT Index, down 2%, was the worst hit among BSE indices. Appreciation of rupee by over 9% between Aug 2006 and Apr 2007 has severely eroded profitability of exporters. Technology companies get 60% of their revenue from overseas. HDFC, down 2% at Rs 1,561, was the worst hit on Nifty. Advanta India, which is a supplier of agronomic seed, listed at Rs 665 on NSE against the issue price of Rs 640. The share was up 38% at Rs 885 despite the weak broad market. Wednesday, Reserve Bank of India barred foreign funds from buying more shares of Advanta India as the combined holding of foreign portfolio investors stood at the limit of 24%. Ambuja Cements, up 2% at Rs 115, was the top Nifty gainer as the company's Jan-Mar earnings Monday are expected to beat expectations. In the mid trading session, weak Asian markets, and uncertain dollar outlook, kept sentiment subdued in Indian equities. Metals and technology shares suffered the most. Chinese market fell 7% today after the government delayed a report on economic growth that could show further interest rate hikes may be needed. Sensex was at 13524.28, down 147.91 points or 1.1%. Nifty was at 3965.50, down 46.10 points or 1.1%. Losses in SBI were erased as its follow-on public issue, due Aug-Sep, is likely to be at 10-15% premium to the market price. The worst hit in the Nifty were Zee Entertainment Enterprises, down 4.5%, and Bajaj Auto, down 2.6%. ACC shares fell 3% to Rs 793 despite the company reporting 54.5% rise in Jan-Mar net profit to Rs 3.63 bn, slightly higher than analysts' estimates of 3.56 bn. Demand for bank shares and light short covering towards the end of the session lifted key indices from their lows. Sensex ended at 13619.70, down 52.49 points, from Wednesday. Nifty closed at 3997.65, down 13.95 points. The worst-hit was ACC, down 4%, after the cement major detailed its Jan-Mar earnings today. Satyam Computer Services ended 3% down, while Bharat Heavy Electricals shed 2%. Information technology shares ended down on concerns that an appreciating rupee against the dollar may hit revenue from U.S. The No. of Scrips Value (Crs.) Advances 435 4132 Declines 626 4057 Unchanged 26 6 Total 1087 8195 top Nifty gainer was SBI, up 2%, as its chairman said the bank is planning a follow-on public issue around Aug-Sep. Tech stocks ended down with exception. Infosys was down at Rs 2039.90 with volumes of Rs 323.61 crs, Satyam was down at Rs 447.80 with volumes of Rs 201.80 crs, TCS was down at Rs 1242.90 with volumes of Rs 98.05 crs, and Tech Mahindra closed up at Rs 1509.10 with volumes of Rs 89.98 crs. Pharma stocks ended positive with exception. Glenmark was up at Rs 681.10 with volumes of Rs 71.53 crs, Ranbaxy closed marginally up at Rs 340.70 with volumes of Rs 38.85 crs, Sun Pharma was up at Rs 1157.80 with volumes of Rs 28.74 crs, and Dr Reddy closed down at Rs 709.70 with volumes of Rs 23.55 crs. Banking stocks showed mixed trend. In the Public Sector banks SBI closed up at Rs 1053.25 with volumes Rs 227.19 crs & Bank of India closed down at Rs 186.85 with volumes Rs 88.45 crs. In the private sector ICICI Bank closed up at Rs 905.15 with volume of Rs 91.57 crs & UTI Bank closed down at Rs 464.60 with volumes of Rs 42.37 crs. Auto Stocks ended negative with exception. Tata Motors closed down at Rs 713.10 with volumes of Rs.108.67 crs & M&M closed down at Rs 733.90 with volumes of Rs 57.46 crs. While in the 2 wheeler segment stocks, Baja Auto closed down at Rs 2446.30 with volumes of Rs 37.90 crs & Hero Honda closed marginally up at Rs 657.15 with volumes of Rs 7.23 crs. Cement Stocks witnessed negative trend with exception. ACC closed down at Rs 788.75 with volumes of Rs 136.96 crs, GACL closed up at Rs 113.60 with volumes of Rs 67.71 crs, India Cement closed down at Rs 170.95 with volumes of Rs 55.37 crs and Birla Jute closed down at Rs 222.70 with volumes of Rs 2.48 crs. Nifty ended at 4012 up by 27 points.
Close: Sensex Breaks out of the shackles. !
It was a weak of strong gains for the Sensex as it took cues from the global and rallied strongly. Sensex ended up 3.89% at over 13904 levels helped by value buying across board. It was a great week really.
The Infosys results positive impact carried over on Monday as well and TCS too delivered good numbers. We had a derating note on Infosys and it was really a market underperformer. So also the other software stocks. However it was HCL Tech which created ripples with spectacular numbers. However, it was the strong rupee which was the talk of the town. Everyone seemed concerned on the fact that the FM believed that the rupee was competitive. The RBI did not intervene so really the balance between the rupee and excessive liquidity. The software sector continues to remain weak and this in the face of an appreciating rupee. The Rupee is near Rs 42.7 to a dollar which is a 9 year high. Weakness in the dollar continues.
The US markets made record highs amidst even negative news. The caution there is that Nasdaq has not made new highs which normally has been the case. Asian Markets have been rallying and they are near record highs.
Monsoons are expected to be near normal this year says the Met department. However its disappointing to note that the track record of the Met department is no where near good. So not much weightage can be given to this.
Inflation numbers came in at over 6% this week yet again and that troubled the market a bit. However it was taken as a blip and we would work more on it to give you our comments.
As for Market performance of the markets this week. The Mid caps have started delivering. Sensex was up 4%, Nifty up 4.2%, Mid caps up 2.7%, Small cap up 3.3%, BSE Bank index up 4%. The Metal stocks were up on the back of increased steel prices though Tisco rights pricing brought in a shock in terms of the dilution. The Telecom stocks were big winners. Thats a growth sector really. However the one man show was Reliance. The plans about its Gas exploration and also the gas find is whats keeping the stock moving just one way. Its unbelieveable to understand the kind of profits that it makes even in tough times. The software stocks were weak. The Cement stocks came in for profit taking post the results as was indicated in our note expectations. topnew.gif (1104 bytes)
Research panning out across our services and showing that research pays !
We booked wow calls in SKF bearings. We had a research note on it recently. The numbers are expected next week and there seems to be increased interest as the increased capacities will deliver higher profits. The company caters largely to the auto sector but the more interesting part is that its the replacement market where it is well placed with higher margins. SKF Sweden is converting India to a good sourcing base and the benefits of that are getting priced in. Do read our research on this one. Wow call here delivered over 25% over last 2 months. Results are slated
This week we booked gains in Honda Siel. Honda Siel is a Genset manufacturing company and is a subsidiary of Honda Japan. Its a small cap company. However the exciting part is that the poor power situation in the country is creating demand and more than that the need for portable power in the fields and other applications is whats driving up the revenues. The company has a couple of new product launches using LPG and thats another trigger which should bring in the growth. The company has Rs 75 cash per share and that makes is a good dividend candidate.
We booked gains in India Cements. The results were good helped by lower taxes. Apparently accumulated losses are high. The company continues to sell in all placed at over Rs 210 in most regions. The results analysis will be put out on Monday. Do have a look. This is one company which will have the benefit of its expansions coming in ahead of the others.
There was a Delivery delight call in Siemens. Wow adonis hit it bingo giving a short call and the stock was smashed. We believe that the company may not be able to live upto expectations of performance. The March quarter margins were expected to be under pressure and the appreciating rupee is expected to further aggravate that as a big business this quarter was to be from Qatar which was dollar denominated. Results are slated for Monday. We had a technical chart on this as well. Do see the same.
We closed a call on Alfa laval with super 10% + gains. The parent has an open offer on at Rs 875. Surely the process equipment manufacturing company has reason to expect a higher bid given the opportunity globally. Need for ethanol processing and other process equipment is high and where else but a low cost manufacturing base is where it should be got from. The Parent has denied any hike in offer prices... but eventually it would do that. Thats a small cost to pay for this opportunity.
Sensex churned good turnover of Rs 4301 crs. Sensex Support lies at 13760 and Resistance at 13988. Direction look the same upwards and looking for 14275. Next week is the RBI meeting on April 24th and thats unlikely to throw in any negative surprise. We dont expect any CRR hike.. but latest inflation figures have increased chances of a rate hike by 10%. The results are flowing in thick and fast and next week will see even more.
TOP STORIES, MARKET WATCH, Investment Strategy
FY08 export target set at US$160bn
Unveiling the Annual Supplement to the Foreign Trade Policy 2004-09, Commerce & Industry Minister Kamal Nath said that the export target of US$ 125bn for 2006-07 has been met. With this, India's share in global trade has crossed 1% as against last year's 0.76%. The Commerce Minister also set an ambitious target of US$ 160bn in 2007-08 and US$ 200bn in 2008-09 despite the slowdown in the US and the steep appreciation in the rupee. "We have factored in the appreciation of rupee which keeps on fluctuating. We have already requested the Reserve Bank of India (RBI) to provide concessional loans to exporters," he said. Clocking a 25% CAGR, exports have double over the last three years, from US$63.84bn in 2004-05 to US$125bn in 2006-07.
In what could prove to be a bonanza for exporters, Commerce Minister Kamal Nath announced exemption of service tax on services rendered abroad or in India to facilitate exports. The move is expected to provide benefits of Rs5.5bn to exporters. It would also provide relief to exporters hit by a rising rupee. Nath also extended the popular Duty Entitlement Passbook (DEPB) scheme till March 2008. He said that a new scheme to replace the existing one would be finalised by then. More items have been included in Vishesh Krishi and Gram Udyog Yojana for tax sops. Other highlights of the policy include extension of the export promotion capital goods (EPCG) scheme to spares and parts and introduction of flexibility in meeting export obligations under the EPCG scheme.
For effectively ensuring all inclusive growth for farmers and tribals, focus products scheme expanded further to include new agro and forest products. For diversifying exports to tap hitherto unexplored markets, scope of focus market scheme is being expanded to include 16 new countries including 10 CIS nations.
Exports and employment in handloom and handicraft sectors have been provided further push through duty free access to machinery and equipment for effluent treatment plants. To sharpen core strength of promising gems and jewellery sectors and handicraft sector, duty free access to tools, machinery and equipment proposed to be provided to give them competitive edge. Export of rhodium polished silver jewellery will be encouraged further. To reduce transaction cost for diamond sector, testing facility at Dubai incorporated in the list of certifying agencies.
Despite the controversy over tax sops special economic zones already enjoy, the government today widened the scope of incentives for SEZs by making developers and co-developers eligible for duty exemption and remission schemes. Terming SEZs as engines of employment, investment and export growth, Nath said that during FY08, additional investment of Rs400bn would go into the SEZs and 15 lakh jobs would be created.
IT Results...TCS subdued, others shine
In a big surprise to the market, HCL Tech, Wipro and Satyam reported much better performance for the January to March quarter even as TCS' numbers failed to excite the bulls due to higher other income. TCS reported net profit of Rs11.77bn for the fourth quarter as against Rs11.05bn, translating into a sequential growth of 6.6%. At Rs51.46bn, the topline is up 5.9% quarter on quarter from Rs48.61bn in the previous quarter. Operating profit margins (OPM) are down, from 25.6% in Q3 FY07 to 26.1% in the fourth quarter due to the sharp appreciation in the rupee during the quarter. If not for the higher other income from forex cover and stake sale in JV company, PBT would have grown by just 3.9% qoq. Management has indicated continuation of revenue growth momentum and stable OPM for FY08. Annualised EPS was at Rs48.1 versus Rs45.2 in the previous quarter.
HCL Tech posted a net profit of Rs3.32bn for the fiscal third quarter ended March 31, 2007 as against Rs2.86bn in the quarter ended December 31, 2006. This translates into a sequential growth of 15.9%. For Q3 FY07, HCL Tech's revenues are up 7.6% sequentially at Rs15.77bn versus Rs14.65bn in the previous quarter. At 38.3%, HCL Tech's Q3 FY07 Gross Margins are up from 37.8% in the October-December 2006 quarter. EBITDA Margins for the January-March 2007 quarter are also up at 23.3% as against 22.1% in the last quarter and 22.3% in the third quarter of last year. The Diluted EPS for Q3 FY07 stood at Rs19.33 compared to Rs16.75 in the preceding quarter and Rs11.38 in the same quarter last year.
Wipro Ltd. reported Q4 FY07 net profit of Rs8.56bn, up 11.9% compared with Rs7.65bn in the previous quarter. At Rs43.33bn, the company's Q4 FY07 revenues are up 8.9% over the revenues of Rs39.79bn in the quarter ended December 2006. Wipro's Q4 FY07 Global IT revenues have improved by 7% QoQ to Rs30.48bn. The company has beaten its own guidance on Q4 Global IT revenues. It had been looking for Global IT revenues of US$685mn, but has delivered US$697mn. However, Wipro's OPM for Global IT Services and Products for the quarter declined to 24% from 25%.
Satyam Computer Services Ltd. declared its results for the fourth quarter and fiscal year ended 2007 today. The company has reported a net profit of Rs3.94bn for the quarter ended March 31, 2007 as against Rs3.37bn in the quarter ended December 31, 2006. This translates into a sequential Quarter on Quarter (QoQ) growth of about 17%. Revenues for Q4 FY07 have gone up by 7% to Rs17.79bn from Rs16.61bn in the October to December quarter of the fiscal year 2006-07. EPS was Rs5.98; a YoY increase of 36% and a sequential increase of 16.2%. EBITDA margin for the quarter was 23.1%.
Market up for 2nd week running
Key stock indices rose for the second week in a row as the Indian bulls cheered results from IT biggies Infosys, TCS, Wipro, Satyam and HCL Tech. Also, the bulls did well to weather the Asian storm on Thursday, when a higher than expected Chinese first quarter growth triggered speculation of further tightening measures by Beijing. The key indices retraced smartly from their intra-day lows and carried on the momentum on Friday. The market also shrugged off a bigger than expected jump in inflation and uncertainty over the RBI's next move on April 24. Even FIIs are back on the bourses at least this month. Data from SEBI shows that they already have poured in over US$800mn with five more trading days to go.
Broad-based buying across counters like Capital Goods, Metals, Auto, IT, Oil & Gas and Banking led to the bull run this week after last week's 4% advance. The benchmark BSE Sensex closed at 13897, higher by 513 points or 3.84% over last week's close and the NSE Nifty added 4.24% or 166 points to close the week at 4084.
Capital Goods stocks were in the limelight, recoding impressive gains over the week on the back of buoyancy in the economy. ABB, BHEL and Punj Lloyd were among the major gainers. the BSE Capital Goods index gained 3.5%. L&T rose by over 5.5% to Rs1694. BHEL advanced 2.3% to Rs2536, Punj Lloyd rallied by over 11% to Rs185 and ABB added 2.7% to Rs3851.
Metal stocks continued their upward momentum amid firm international prices and expectations of strong earnings. Copper futures in Shanghai rose to a 10-month high on signs of growing demand for the metal. Hindalco climbed by over 4% to Rs146 on reports that the company may buy 45% stake in Utkal Alumina from joint venture partner Alcan. Tata Steel recouped a 6% fall on Wednesday as value buying offset concerns about higher than expected equity dilution to fund the Corus purchase. Tata Steel gained 4% to Rs533, Jindal Steel rallied by over 10% to Rs140; JSW Steel jumped by over 7% to Rs592 and SAIL surged by over 6.5% to Rs134.
Telecom stocks outperformed the key indices after the Government notified the enhancement of FDI in telecom from 49% to 74%. Bharti Airtel, Reliance Communications and Idea were among the top gainers. Bharti Airtel advanced by over 8% to Rs845. The scrip was among the top three gainers in the Nifty. Reliance Communications rose by over 8% to Rs456, VSNL gained 3.8% to Rs437, MTNL added 3.1% to Rs163 and Idea rose by over 11% to Rs114.
The BSE Oil & Gas Index was among the top gainers, led by Reliance Industries. RIL rallied by over 9% to close at a lifetime high of Rs1541. The scrip was also the top gainer in the Nifty stocks. RIL surged following reports that the company has found a significant amount natural gas off the country's western coast. ONGC jumped over 5.5% to Rs921, HPCL advanced 5.7% to Rs259 and IOC added 4.2% to Rs410.
Banking stocks also recorded smart gains during the week on expectations that the RBI won't increase interest rates next week. SBI spurred by over 7.5% to Rs1074, ICICI Bank advanced 4.7% to Rs914, HDFC Bank gained 1.6% to Rs994, Bank of India was up by over 4% to Rs188.
INVESTMENT STRATEGY
Bulls Reddy for 14k!
Journey is more important than the end or beginning
Are we heading towards 14k again? Last time when the bulls surpassed this milestone a bit too quickly and came down crashing in quite a similar pace. This time the bulls are back again hovering around 14k levels with heavyweights lending some good support. RIL, R Com and Bharti Airtel have aided the indices in the current rally. Over the long-term, concerns and worries come and go and a secular bull trend appears very much on. In the near term, one needs to continue looking at corporate results. Developments on the monsoon outlook, F&O expiry and the annual monetary policy meeting will keep the bulls and bears on tenterhooks next week. RIL, Bharti Airtel, Siemens, REL, Bank of India, Bata India, CEAT, Rolta, HDFC Bank, Maruti, Hexaware, M&M, MTNL, SUN TV, Grasim, Glenmark, IDFC, Maharashtra Seamless, NALCO, ABB, Cipla and Deccan Aviation are among the major companies declaring their earnings next week.
Biggest weekly gain for rupee in a year
The rupee had its biggest gains in a week in over a year on speculation that the Reserve Bank of India (RBI) will not step in to check gains as inflation still remains above its comfort zone. Renewed surge in foreign portfolio and direct investment coupled with the dollar's weakness abroad helped the currency register its seventh straight week of gains to close at the highest in almost nine years. The rupee rose 1.8% this week to 41.77, the highest close since June 2, 1998. The currency climbed to 41.645 on April 17, the highest intraday level since June 1, 1998. The rupee has gained 4.5% in the past month, the best performer after the New Zealand dollar among the 15 most- traded currencies in the Asia-Pacific region. Finance Minister P. Chidambaram said earlier this week that large inflow of capital from overseas was causing the currency to strengthen. Overseas funds were net buyers of Indian stocks for the ninth day, the longest stretch since November, according to the Securities & Exchange Board of India (SEBI). Foreign funds have pumped in US$801.8mn into Indian stocks this month so far, taking the year-to-date inflows to US$2.4bn. Foreign Direct Investment (FDI) almost tripled to US$16bn in the financial year ended March 31, and may rise 56% in the current year, according to the Commerce & Industry Ministry.
Inflation perks up again
India's inflation, based on the Wholesale Price Index (WPI), rose to 6.09% in the week ended April 7 from 5.74% in the previous week, the Government said on Friday. Inflation was higher than the consensus estimate of 5.79% and 3.81% during the corresponding week of the previous year. Meanwhile, the Government revised the inflation rate for the week ended Feb. 10, from a preliminary estimate of 6.63% to 6.52%. The Government revises inflation after a delay of two months on additional price data. The WPI gained 0.4% to 210.8 from last week's level of 210.0. The Primary Articles index climbed 1.4% to 218.9 from 215.9 in the preceding week while the Fuel & Power index was up 0.1% at 320.5 versus 320.1 and Manufactured Products index rose 0.1% to 183.5 from 183.4 in the previous week. The index of Fruits & Vegetables surged by 9.5% to 242.6 from 221.5 in the previous week.
Monsoon expected to be 5% below normal
Rainfall will be weaker than normal this year, according to the Ministry of Earth Sciences' annual weather forecast for the south-west monsoon season. The rainfall between June and September will be 5% less than the national average of 89 cm, said P.S. Goel, Secretary at the Ministry of Earth Sciences. The forecast, he said, had an error rate of plus or minus 5%. Earlier, a report quoting B.N. Goswami, Director of Indian Institute of Tropical Meteorology, said the monsoon rains would be above normal. "We will review the forecast in May before giving any final conclusion. We think the monsoon will enter the country via Kerala on June 1, but the final prediction would be made 10 days ahead," said R. C. Bhatia, Director General of IMD. There was favourable rains last year because of La Nina phenomenon and hoped similar conditions would prevail this year as well, according to Goel. "Last year we had predicted 93% rainfall but due to La Nina, we got 100%," he added. One should not read too much into the initial prediction of rains during monsoon as clear picture will emerge only after the second forecast in June. The second report is expected to give an idea of rain distribution and its impact on agriculture in July, when sowing takes place across the country.
FM's fresh diktat to public sector banks
In yet another classic case of Government intervention, Finance Minister P. Chidambaram called upon nationalised banks to moderate lending to sensitive sectors such as real estate, capital markets and Non-banking Finance Companies (NBFCs). Chidambaram also asked state-run banks to go slow on mobilising bulk deposits at higher rate, besides asking them yet again to hold interest rates on home loans worth up to Rs10 lakh. He also reiterated the demand that the public sector banks should rebalance their portfolio and lend more towards the productive sectors at correct prices. The Finance Minister also asked nationalised banks to open new branches in 103 minority-dominated districts. "We have advised banks that credit growth of about 30% has to be moderated therefore they have to rebalance their portfolio and moderate credit growth to what RBI calls high-risk sectors like commercial real estate, capital markets and systemically important NBFCs," Chidambaram told reporters after a meeting with the public sector bank chiefs. The Finance Minister also said that he was informed by chairmen of the state-run banks that they have started rebalancing of portfolios in the second half of 2006-07 and will proceed the debt in the first half of this fiscal.
NCAER sees FY07 GDP at 8.3%
After the IMF and industry chamber CII, its now the turn of the National Council for Applied Economic Research (NCAER) to warn that economic growth will slow down in the fiscal year 2007-08. The GDP is expected to fall in the current financial year that started in April to 8.3% from the estimated 9.2% in FY07, the independent think-tank said, citing higher interest rates, slower exports growth and sluggish capital inflows. The IMF sees the Indian economy growing at 7.8% in 2008 as against 8.4% in 2007 and 9.2% in 2006. The CII said India's economic growth is expected to slow down to 8.5% in 2007-08 due to monetary tightening measures and supply side constraints. The NCAER said that all three segments - agriculture, industry and services - would see lower growth this fiscal.
ONGC unveils Rs180bn capex for FY08
Oil and Natural Gas Corp Ltd. (ONGC) plans to pump in Rs180bn for exploration and production of oil and gas in the financial year 2007-08 as against Rs150bn spent a year ago, Chairman and Managing Director R.S. Sharma said. In addition, ONGC plans to raise up to Rs70bn over the next six months to fund the expansion of its Mangalore refinery. The project will raise the refinery's capacity to 15mn tons per annum by 2010, from the present from 9.6mn tons. Sharma said that ONGC is currently doing due diligence for a 15mn tons per annum refinery in Kakinada, at an estimated cost of Rs 190bn. A feasibility report should be completed in the next 2-3 months, he said. Engineers India and SBI Capital Markets are working on project details. He said ONGC will execute the refinery project via a Special Purpose Vehicle (SPV). MRPL holds 46% in the SPV, Andhra Pradesh Industrial Development Corp 3%, while the remaining is held by IL&FS, and other FIs.
Tata Steel unveils funding
Tata Steel's Board approved a Rights Issue of equity shares in the ratio 1:5 at a price of Rs300 per share. This would involve issue of equity shares of the face value of Rs1.22bn and would provide an amount of Rs36.55bn. The company's Board also cleared a Rights Issue of Convertible Preference Shares in the ratio of 1:7 having a coupon rate of 2% with conversion into equity shares after two years at a price in the range of Rs500 to Rs600 per share. This issue would provide a total amount of about Rs43.50bn. Tata Sons would stand-by to take up the unsubscribed portion of both the above issues in fulfillment of its support to Tata Steel for the Corus acquisition. Tata Steel Board also proposed a foreign issue of an equity-related instrument up to US$500mn (about Rs 21bn including the premium) in such form as may be considered appropriate. This issue would be made on an ex-Rights basis, subject to approval of the shareholders. The stock tumbled 6% the day after it announced the funding due to concerns about higher than expected equity dilution, but on the week it was up 4.5%.
Essar Steel on acquisition spree
Well, contrary to media reports its Essar Global Ltd. and not JSW Steel Ltd. that is acquiring Canada's Algoma Steel Inc. in an all-cash deal worth C$1.85bn (US$1.63bn). Algoma investors will receive C$56 per share in cash from Essar Steel Holdings Ltd. The price is 3.5% higher than Algoma's closing stock price on April 13, and a 48% premium to Algoma's volume-weighted average stock price for the 20-day period ended on Feb. 14. The deal will give Essar Steel, India’s fourth largest steelmaker, a foothold in the North American market, while Algoma, Canada’s No.3 steel producer, will gain access to low-cost manufacturing base in India. Essar Global, the holding company of the Ruia group, also announced the acquisition of the US-based Minnesota Steel for an undisclosed sum. Essar Global will invest US $1.65bn to set up a steel plant in the American company's facilities. According to reports, the deal could be valued at close to US$100mn. The privately-held Minnesota Steel controls iron ore resources of over 1.4bn tons. The proposed steel plant, will have a capacity of 2.5mn tons per annum.
PGCIL files draft prospectus with SEBI
Power Grid Corporation of India Ltd. (PGCIL) has filed its Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for its Initial Public Offering (IPO). PGCIL would issue 10% fresh equity while the Government will piggyback on the public sector power transmission major's public issue to offload a 5% stake. The state-run transmission major has a paid-up capital of Rs38bn and each share has a face value Rs 10. There is no clarity on the amount of money PGCIL wants to raise from the public issue. The company has lined up an investment of Rs65bn in the current fiscal year (2007-08) and an investment of Rs550bn in the Eleventh Plan period (2007-12). According to reports, PGCIL is aiming to hit the capital market by May or June. PGCIL posted a net profit of Rs7.99bn for 2006-07 and plans to make total investment of Rs550bn during 2007-12 to take inter-regional power transmission capacity to 37,000 MW from about 12,000 MW.
Dish TV, Advanta make contrasting debut
Shares of Dish TV India Ltd., the demerged Direct-To-Home (DTH) subsidiary of Zee Entertainment Enterprise Ltd., ended down on its maiden trading day on the Bombay Stock Exchange (BSE). The stock listed at Rs120 per share on BSE. However, it cooled off and touched a low of Rs100 before closing at Rs102.55. Dish TV ended the week at Rs109.75. Citigroup and Enam India Research had indicated the fair value of the scrip at Rs120. As part of its restructuring, Zee Telefilms Ltd. hived off its DTH business to ASC Enterprises Ltd. For every 100 shares of Zee Telefilms, shareholders received 57 shares of ASC Enterprises.
Advanta India Ltd. made its debut on the BSE by ending the first trading day at Rs 850.05, a premium of 32.82% over its issue price of Rs 640 per share. The scrip opened at Rs 640.00; touched an intra-day high of Rs992.90 and a low of Rs 591. It finished the week at Rs845.95. Advanta's IPO of 3,380,000 shares of Rs 10 each was decided through the 100% Book-Building process. The subscription to the issue opened on March 26 and closed on March 30. The issue was subscribed 3.98 times. A subsidiary of United Phosphorus Ltd., Advanta is an international agronomic seed company with principal operations in India, Australia, Thailand and Argentina.
Air Sahara to be rechristened Jet Lite
Naresh Goyal promoted Jet Airways India Ltd. announced it will operate the troubled rival as a separate company, which will be profitable in its first year. New Delhi-based Air Sahara will be renamed Jet Lite, Goyal said. "Air Sahara will not be fully low-cost but positioning fares lower than full service airlines," the Jet Chairman said. Jet Lite will be a 100% subsidiary of Jet though the operations of the two companies will be completely separate, he added. Unlike other low-cost airlines in India, Jet Lite will have basic food and beverage service onboard, Goyal said. To cut costs on Jet Lite, the airline will now review all the aircraft leases signed by the Sahara management and will try to renegotiate some of them, he added. The two airlines will have a combined fleet of 87 aircraft, which will grow to 120 planes in two years, and a combined net revenue of more than US$2.5bn by the end of the fiscal year to March 2008, Goyal said.
Reliance Capital to buy 20% more in TV Today
Anil Ambani has made its next move in the media and entertainment turf. Less than two years after announcing its intention to acquire Adlabs Films Ltd., Reliance Capital Ltd. is now looking to grab a share of the highly competitive news and current affairs space. The Anil-Dhirubhai Ambani Group (ADAG) company is making an open offer for buying an additional 20% stake in TV Today Network Ltd., which runs the popular Hindi news channel Aaj Tak and English news service Headlines Today. TV Today also runs Tez and Dilli Aaj Tak in Hindi. Reliance Capital presently holds about 14% stake in TV Today along with Reliance Capital Trustee. The open offer will be made from the existing shareholders at Rs130.50 per share, totaling about Rs1.5bn. The offer for up to 11.6mn shares is not subject to a minimum level of acceptance and would be open from June 6 to June 25. The open offer will not result in any change in the management and / or control of TV Today. Reliance Capital said it would fund the offer through internal accruals and domestic borrowings.
Indian costs amongst the lowest: Wagoner
Indian manufacturing costs are extremely competitive and among the lowest in the world said Rick Wagoner, Chairman, General Motors (GM) at the interactive meeting organised by the Confederation of Indian Industry (CII), Society of Indian Automobile Manufacturers (SIAM), Automotive Components Manufacturer’s Association (ACMA) and American Chamber of Commerce (AMCHAM). Wagoner said that over the next decade, emerging markets within the Asia Pacific region alone are expected to account for nearly 70% of global sales growth. He said that three of the top five fastest growing auto markets over the next decade are going to be in Asia Pacific including India. Wagoner predicted that India is expected be the second largest growing auto market in less than the projected ten years. The growth will be driven by overall economic growth, rising disposable income and a rapidly expanding middle class, he added
CESC to merge Spencer's holding co with self
CESC Ltd. announced that its Board of Directors has approved a proposal for merging Pathik Retail, the holding company of Spencer's Retail, with the company. As per the Scheme of Amalgamation, to be effective from April 1, one fully paid-up share of CESC for every 1.98 fully paid-up shares of the merging company will be issued, involving issue of around 31mn fully paid-up shares of the company. The promoters' stake in CESC will rise by about 12% after the company's merger with Spencer’s Retail Ltd. The Goenkas have a 40.94% stake in CESC. After the merger, it will go up to 53%. At present, Pathik Retail holds a 94% stake in Spencer’s. After the merger, CESC will hold that stake. Spencer's is a debt-free company and it will continue to be so for some time. Goenka, however, said they would consider raising capital in the next 6-12 months for the retail business. At present, the RPG group has 400 retail outlets, which are expected to go up to 2,000 by 2009 and 4,000 by 2011. Currently, there are 125 Spencer's stores across 25 cities, comprising eight hypermarkets, five Spencer’s Super Stores, 104 Spencer’s Daily, three Spencer’s Fresh, and five Spencer’s Express. The total contracted area for all Spencer’s stores across the country is over one million sq ft.
Fortis Healthcare IPO subscribed 2.78 times
The Initial Public Offering (IPO) of Fortis Healthcare Ltd. was subscribed by just 2.78 times at 16:00 hours (IST) on Friday, according to the National Stock Exchange (NSE). The Ranbaxy-promoted company got bids for 127.41mn shares as against the issue size of 45.75mn shares. The company entered the capital market with an IPO of 45,996,439 shares of Rs10 each through a 100% book building process. The price band for the issue was fixed between Rs92 and Rs110 per share. The issue had opened for subscription on April 16 and will close today. The net issue is expected to constitute 20.19% of the post-issue paid-up equity share capital of the company. The shares are proposed to be listed on BSE and NSE. Fortis had concluded pre-IPO allotments of 10,670,194 shares with four entities at prices ranging from Rs135 to Rs159.50 per share, totaling Rs1.54bn during the period between January and March. These entities included Raj Kumar Bagri (1,000,000 shares), Apurv Bagri .(1,000,000 shares), Trinity Capital (Eight) Ltd. (8,000,000 shares) and Vasco Inc. (670,194 shares).
Chinese economy accelerates further
China's economy grew by 11.1% in the first quarter ended March 31 from the first quarter of 2006 and its inflation rate rose to 3.3% in March. Both figures were higher than expected and sparked off concerns that Beijing will hike interest rates and may ask banks to set more aside more funds to moderate lending growth. Pressure is also mounting on authorities to allow the value of the currency, the yuan, to appreciate more quickly. The Shanghai Composite index dropped 4.5% on Thursday, and pulled other global stock benchmarks down with it. However, Asian and world markets regained some of the lost ground the next day as the selling was over done. While most economists called the quarterly growth figures surprisingly strong, they said the data was distorted somewhat by a huge injection of government money into the economy, which encouraged lending, as well as by exporters’ seeking to avoid foreign tariffs that may be imposed later in the year. While some economists say that China could take tough measures to cool things off, they expect the tightening to be gradual.
Pound pierces $2 mark
The pound breached the $2 mark this week to reach its highest since June 1981 when Margaret Thatcher was British prime minister. The UK currency soared after a report showed that inflation accelerated at its fastest pace in a decade, fueling speculation that the Bank of England will hike interest rates two more times this year. The last time the pound reached $2 was in September 1992 when George Soros led speculators forced it out of the European system of linked exchanged rates. The pound crossed $2 on April 17 after a report showed consumer prices in the UK, Europe's second-biggest economy, rose 3.1%, the fastest pace in a decade. The rate is more than a percentage point above the central bank's 2% target, and forced Governor Mervyn King to write a letter of explanation to the Chancellor of Exchequer for the first time since the bank was allowed to set interest rates independently 10 years ago. The currency has risen 12.8% in the past 12 months and is the fourth best performer of the 16 most-actively traded currencies in the past five days.
Global funds cautious despite market rebound
In spite of the handsome gains generated by emerging and developed equity markets during the early part of Q2 2007, institutional investors remain cautious, said Emerging Portfolio Funds Research (EPFR). Flows into most EPFR-tracked equity fund groups during the second week of April were modest at best as investors fretted about the outlook for the US economy. The notable exceptions were Global and Western European equity funds, according to Boston-based EPFR. Steady flows continued into Emerging Market equity funds, taking year to date flows back into positive territory, while US equity funds lost money for the third time in the last four weeks, notes the firm that tracks global funds flows. Investors continue to favor Global Utilities and Real Estate Funds while retreating from Energy and Technology funds, according to EPFR. All the four major emerging markets fund groups witnessed fresh inflows during the week.
Barclays, ABN AMRO extend deadline
Barclays and ABN AMRO extended the deadline of their merger talks, which had been due to end on April 18th. The British bank is offering to buy its Dutch rival, but a group of three other banks led by Royal Bank of Scotland Group Plc is hovering with a rival bid. "The discussions, which seek to incorporate the broad objectives set out on March 20, are progressing, but there can be no certainty that they will lead to a transaction or what form it will take," London-based Barclays and Amsterdam-based ABN Amro said in a joint statement. ABN Amro, which will meet with rival bidders led by Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank, on April 23. Separately, Barclays CEO John Varley told employees that the third-biggest UK bank has plenty of momentum and doesn't need to buy ABN Amro to grow. "We are examining the ABN Amro combination from a position of strength, and that means if we choose to walk away, we can," Varley wrote in a letter to staff that was posted on the company's internal Web site and filed with the U.S. Securities and Exchange Commission (SEC).
Areva extends offer period for Repower
Areva said that extended its offer period for Repower Systems in a bid to buy some more time to consider topping a bid by Suzlon. The world's largest manufacturer of atomic power stations also said that it will not make a minimum number of shares it acquires a condition of its €140 per share takeover bid for the German wind-turbine builder. Dropping the requirement that at least 50% plus one share be tendered allows the French energy major to extend the deadline to May 4 from April 20, the Paris-based company said. It didn't announce a higher bid though. The acceptance period for a rival bid by Suzlon will also be extended to May 4. Suzlon beat Areva's bid on April 10 with an offer of €150 a share. Areva already owns 30% of Repower. Suzlon is bidding together with Martifer, a unit of Portuguese builder Mota-Engil SGPS SA that owns 25% of Repower. Suzlon itself has bought a 7.7% stake in the Hamburg-based wind turbine builder.
Siemens chief to resign amid scams
Heinrich von Pierer, Chairman of Siemens AG said that he will resign from his post, but added that he was not taking responsibilities for the spate of corruption charges involving hundreds of millions of euros. Von Pierer, whose term is due to expire next year, will step down at the next supervisory board meeting on April 25. "I assume that electing a new chairman of the supervisory board will also make a contribution toward taking our company out of the headlines and bringing it back into calmer waters," Von Pierer (66) said. Siemens said that board member Gerhard Cromme would be nominated to take over the reigns from Von Pierer. Cromme is the chairman of ThyssenKrupp and heads the government-appointed panel that produced Germany's corporate governance code. Siemens has been a subject of probes in Germany, Italy and Switzerland over allegations that the company used internal funds to pay bribes and win telecom deals. Six current or former employees, including the ex-head of its telecom equipment unit, Thomas Ganswindt, are suspected of the misconduct going back to 2002.
Sensex ends buoyant
Buoyancy in the Asian markets backed by strong quarterly results from Wipro and Satyam lifted the market sentiment. The Sensex began the trading session with a positive gap of 65 points at 13685. Initial buying lifted the Sensex above the 13800 level in the first half of the trading session. The index notched up further gains in the afternoon to touch a high of 13899. The Foreign Trade Policy announcement triggered a rally in the capital goods stocks on easing of obligations and the BSE CG Index gained almost 146 points for the day. The market remained firm in the afternoon though the inflation figure was slightly higher than the market expectation. Sustained buying towards the close ensured that the Sensex closed firm with gains of 278 points at 13897, while the Nifty closed at 4084, up 86 points.
Among the sectoral indices the BSE Metal Index led the upsurge with gains of 3.51% at 9702 followed by the BSE Oil & Gas Index (up 2.74% at 7052) and the BSE Teck Index (up 2.18% at 3722). The market breadth was positive. Of the 2,664 stocks traded on the BSE, 1,502 stocks advanced, 1,078 stocks declined and 84 stocks ended unchanged.
Out of the 30 Sensex stocks, 27 stocks closed in positive territory. Satyam Computer was the leading gainer and soared 6.33% at Rs476. Tata Steel surged 5.77% at Rs534, HDFC gained 5.52% at Rs1,651 and Reliance Communications added 4.97% at Rs456. Among the other major gainers Bharti Airtel rose 3.41% at Rs846, Reliance Industries gained 3.24% at Rs1,541, ONGC added 2.91% at Rs921 and L&T was up 2.08% at Rs1,695. Among the laggards Wipro dropped 1.40% at Rs571, HLL shed 0.80% at Rs206 and Hero Honda declined 0.74% at Rs650.
Metal stocks were the star performers. Jindal Stainless vaulted 6.85% at Rs140, SAIL surged 6.68% at Rs134, Shree Precoated Steels jumped 4.99% at Rs346, Jindal Steel advanced 4.66% at Rs2,642, Nalco spurted 3.01% at Rs243, Jindal Saw soared 2.36% at Rs548 and Hindustan Zinc was up 1.62% at Rs660.
Over 95.47 Idea Cellular shares changed hands on the BSE followed by Tata Teleservices (92.64 lakh shares), IFCI (92.53 lakh shares), Hindustan Oil Exploration (68.17 lakh shares) and GV Films (60.97 lakh shares).
Tata Steel registered a turnover of Rs241 crore on the BSE followed by Advanta (Rs177 crore), Reliance Industries (Rs134 crore), Reliance Communications (Rs130 crore) and Unitech (Rs129 crore).
Outcome of events to dictate trend
A lot of events are scheduled in the forthcoming week, which is expected to swing the market either ways.
The first and the most significant of those is the Reserve Bank of India (RBI)’s monetary policy. The central bank is expected to hold interest rates steady at its policy review on Tuesday (24 April), although analysts say tightening is not over yet and may decide to take steps to curb capital inflows that have been driving up the rupee. The central bank will also set out its forecasts for the year, including inflation and growth.
Prior to this, it has already raised the reserve requirement for banks three times since December 2006 and raised its main lending rate five times since early-June 2006, to try and curb credit growth as well as inflation.
Price rise had been a cause of concern for quite a while now. Inspite of taking several measures to rein in prices, the government has not been able to bring it down. The wholesale price index rose 6.09% in the 12 months to 7 April 2007, higher than previous week's increase of 5.74%, latest set of data released showed on Friday (20 April). The annual rate had moderated to below 6%, recently, after hitting 6.69% on 27 January 2007, its highest in more than two years, on the back of Reserve Bank of India (RBI) tightening policy and the government cutting duties on a range of items to rein in prices.
Also, acute volatility is expected ahead of expiry of the April 2007 derivatives contracts on Thursday (26 April 2007).
A lot will also depend on how the global markets pan out. Over a past few months, local bourses have been tracking global cues in the similar direction. Any sharp correction will lead to a fall here as well.
Heavyweights Reliance Industries (RIL) announces its Q4 results on 26 April 2007, while Ranbaxy laboratories will declare its earnings on 27 April 2007 and Maruti Udyog on 24 April 2007.
Meanwhile, crude oil rose above $66 a barrel, supported by concern that week-end elections in Nigeria increased the risk to supply from the world's eighth-largest exporter. Any sharp rise from here will dampen the sentiment.
Market cheers Q4 earnings; Sensex vaults 513 points
The market extended its recovery that began early this month on the back of firm global markets, reports of a good monsoon in the offing this year and strong inflow of funds from FIIs.
The 30-share BSE Sensex gained jumped 513.33 points (3.8%), to settle at 13,897.41 in the week ended 20 April 2007, its highest closing in almost two months. The S&P CNX Nifty advanced 166.20 points (4.2%), to 4,083.55, a two-month closing high.
Small-cap and mid-cap stocks extended their recovery. The BSE Small-Cap Index advanced 217.91 points (3.2%), to finish at 6,974.37. The BSE Mid-Cap Index gained 122.58 points (2.1%), to settle at 5,699.08.
Trading for the week began firm, as the Sensex jumped 312 points on Monday. A rally in global markets and forecasts for a good monsoon in India, boosted the bourses. Stock markets of the world hit record peaks on Monday after top policymakers highlighted the strength and improving balance of global economic growth, encouraging already bullish investors to increase their appetite for risk. The G7 leaders said the US economy remained solid despite the weight of a housing slump, while Europe was showing a healthy upswing and Japan's economic recovery was on track.
Fall in IT stocks pulled the Sensex lower 86 points on Tuesday. IT stocks slipped after the rupee hit its highest level in nine-years.
Firm Asian markets lifted the Sensex 65 points on Wednesday. But the barometer index came off the higher level from an intra-day 155.88 point rise, to 13,762.92, its highest since 23 February 2007.
The market drifted lower on Thursday, reeling under the weakness spread across Asian markets after latest data showed strong GDP growth in China. The Sensex ended 52 points lower. Nevertheless, the barometer index staged a solid intra-day rebound from an initial 248.55 points fall. The strong Chinese GDP data sparked fears of a hike in interest rates in China, which, in turn, raised fears of a sharp fall in emerging markets.
The market returned to its winning ways on Friday, as strong guidance for FY 2008 by IT bigwig Satyam Computer and firm global markets together, propelled the Sensex to a two-month high. The Sensex jumped 278 points.
FIIs stepped up buying after Infosys gave a strong guidance for FY 2008 in dollar terms, putting to rest concerns about the impact of a slowdown in the US on India's IT sector. Their net inflow in three trading sessions, between Monday and Wednesday, aggregated Rs 2076.90 crore. However, foreign funds pulled out a net Rs 73.40 crore on Thursday. Their inflow for April 2007, till Thursday 19 April 2007, totaled Rs 4371 crore.
Reliance Industries (RIL) struck an all-time peak of Rs 1545 on Friday. The stock surged during the week after Chairman Mukesh Ambani said on Monday that the petrochemicals cycle was yet to culminate. RIL said on Wednesday its board will meet on 26 April 2007, to consider Q4 March 2007 and FY 2007 results.
Satyam Computer surged on Friday after it gave a strong guidance for FY 2008. Satyam Computer net profit rose 38% year-on-year in the March 2007 quarter, to Rs 394 crore. Just like Infosys, Satyam Computer has given strong earnings and revenue guidance in dollar terms as per US GAAP. Also, just like Infosys, Satyam Computer has given muted earnings and revenue guidance as per Indian GAAP.
Satyam Computer forecast 27 - 29% growth in basic earning per ADS for fiscal 2008, between $ 1.16 and $ 1.18. The US GAAP revenue is expected to rise 28 - 30%, between $ 1.87 billion and $1.9 billion for FY 2008. As per Indian GAAP, Satyam Computer has forecast between 18 - 20% growth in EPS for FY 2008, between Rs 25.32 and Rs 25.73. Satyam Computer has forecast 20 - 22% growth in revenue as per Indian GAAP for FY 2008.
On the same day, Wipro, too, reported strong Q4 results. It reported 44% year-on-year growth in net profit in the March 2007 quarter to Rs 861 crore as per US GAAP. It also forecast strong growth on more outsourcing and higher billing rates.
After trading hours on Monday, TCS reported 6.16% growth in sequential consolidated net profit as per US GAAP for Q4 March 2007 at Rs 1172.77 crore, compared to a net profit of Rs 1104.70 crore in Q3 December 2006. Consolidated US GAAP revenue rose 5.88% to Rs 5146.37 crore.
HCL Tech surged on Wednesday after it reported strong Q3 March 2007 results after trading hours on Tuesday. The consolidated net profit as per US GAAP rose 15.9% on a sequential basis to Rs 331.80 crore from Rs 286.20 crore in Q2 December 2006. Revenue rose 7.6% to Rs 1577.10 crore from Rs 1465.10 crore.
Dish TV was listed on the bourses on Wednesday. The stock settled at Rs 102.55 on BSE on the same day. Dish TV has nearly 2 million subscribers and competes with a joint venture between Tata group and News Corp as well as state-owned Prasar Bharti. Dish TV India, previously known as ASC Enterprises, got demerged from Zee Entertainment Enterprises (ZEEL) with effect from 12 February 2007, as part of the Zee group’s restructuring exercise.
Advanta India, a subsidiary of United Phosphorus, settled at Rs 850.05 on BSE, a premium of 32.8% over the IPO price of Rs 640, on Thursday. A day before its listing, the Reserve Bank of India (RBI) had on Wednesday (18 April) notified that no further purchases of equity shares of Advanta India should be made on behalf of foreign institutional investors (FIIs) under portfolio investment scheme (PIS) through stock exchanges in India. This is because FII investment in the company has reached the 24% limit
Cement shares edged up on expectations of strong March 2007 quarter results. On Thursday, ACC reported a 54.5% surge in net profit in Q1 March 2007 to Rs 363.75 crore from Rs 235.42 crore in the March 2006 quarter. Net sales surged 26.1% to Rs 1674.83 crore from Rs 1327.52 crore.
Banking stocks were in demand on value-buying and also on expectation of decent-to-strong Q4 results from private sector banks. On 17 April 2007, UTI Bank reported 40% growth in net profit in the March 2007 quarter.
ICRA witnessed volatile trade. After an initial surge, the stock succumbed to profit taking.
Tata Steel bounced back on Friday, after the scrip had come under selling pressure on Wednesday and Thursday on equity dilution concerns. The company after trading hours on Tuesday unveiled funding plan for its $12 billion takeover of Corus. The Indian steelmaker will offer a rights share at Rs 300 each in 1:5 ratio. Tata Steel also plans to raise Rs 4350 crore from the rights issue of preference shares, the company said. It was also looking at a foreign issue of an equity-related instrument to raise up to $500 million, with an issue of global depositary receipts (GDRs) being an option.
Commerce Minister Kamal Nath said on Thursday all service exports would be exempted from service tax. Announcing the annual supplement of the Foreign Trade Policy, Nath said the export target of $125 billion for 2006-07 had been met and the government hoped to achieve $160 billion in the current financial year.
India's annual June-September monsoon rains are likely to be 95% of the long-term average, the weather office said on Thursday, PS Goyal, a top Met Department official, told a news conference on Thursday.
The wholesale price index rose 6.09% in the 12 months to 7 April 2007, higher than previous week's increase of 5.74%, data showed on Friday. The annual rate had moderated to below 6% recently after hitting 6.69% on 27 January 2007, its highest in more than two years, on the back of Reserve Bank of India (RBI) tightening policy and the government cutting duties on a range of items to rein in prices
The Reserve Bank of India (RBI) reviews policy next Tuesday. It has raised the reserve requirement for banks three times since December and has raised its main lending rate five times since early June last year to try and curb credit growth and inflation.
Strong FY 2008 guidance by Infosys, firm global bourses and continued FII-buying, have boosted the bourses this month after the Sensex had tanked 617 points in a single trading session on 2 April following the Reserve Bank of India (RBI)’s surprise hike in interest rates announced after trading hours on 30 March 2007. From a low of 12,455.37 on 2 April 2007, the Sensex has gained 1,442.04 points (11.5%) in a short while.
Sensex’s all time peak is of 14723.88 which it had reached on 9 February 2007. Its all-time closing high is 14,652.09, of 8 February 2007.
The market may remain volatile next week, ahead of the expiry of the April 2007 derivative contracts on Thursday (26 April 2007). RIL announces Q4 results on 26 April.
Sensex collects 278 points, eyes 14,000 mark
Rallying by global markets and a strong FY 2008 guidance from IT major Satyam Computer propelled the domestic bourses higher, and the benchmark Sensex surged to a two-month high. Index heavyweight Reliance Industries (RIL) advanced to a record high, helping the key indices to a higher plane.
Sensex jumped 277.71 points (2%), to settle at 13,897.41, its highest closing since 22 February 2007. The S&P CNX Nifty gained 85.90 points (2.15%), to end at 4,083.55, its highest closing since 21 February 2007.
A surge in the benchmark Sensex in mid-afternoon trade was followed by a cooling of data released at 12:30 pm, showing a spike in inflation, driven by prices of food and manufactured goods, heightening concern that the central bank will again tighten policy at a review next week. But a rally once again gathered steam later after Finance Minister P Chidambaram said he expected annual inflation to ease to around 5.7% next week. Further moderation will depend on wheat arrivals, Chidambaram said. Shares of top banks recovered in volatile trade.
The wholesale price index rose 6.09% in the 12 months to 7 April 2007, higher than previous week's increase of 5.74%, data showed on Friday. The annual rate had moderated to below 6% recently after hitting 6.69% on 27 January 2007, its highest in more than two years, on the back of Reserve Bank of India (RBI) tightening policy and the government cutting duties on a range of items to rein in prices.
The market-breadth was strong. Against 1,483 scrips that rose on BSE, 1,096 had declined. Also, 95 scrips were unchanged. Gainers outpaced losers by a ratio of 1.35:1.
The BSE clocked a turnover of Rs 4303 crore compared to Thursday’s Rs 4170 crore.
Just like Infosys, Satyam Computer today gave a strong earnings and revenue guidance in dollar terms as per US GAAP. Also, just like Infosys, Satyam has given muted earnings and revenue guidance as per Indian GAAP.
Asian shares rebounded and European bourses rose solidly on Friday as fears faded that a sharp fall in Chinese stocks on Thursday could ripple through financial markets, as it did in February. MSCI's All-Country World Index rose 0.3% to 390.3 points, near its all-time peak and taking its year-to-date gains to 5.8%.
The FTSEurofirst 300 was up 0.6% at 1,568.1 points, and within sniffing distance of a high attained during December 2000.
In Asia, China's Shanghai Composite Index recouped most of Thursday's losses, adding 3.9%. The index is up 159% in the past 12 months. Japan's Nikkei clawed back 0.5% of Thursday's 1.7% slide -- its biggest fall in a month -- helped by exporters which benefited from the yen's retreat.
FIIs stepped up buying after Infosys gave a strong guidance for FY 2008 in dollar terms, putting to rest concerns about the impact of a slowdown in the US on India's IT sector. Their net inflow in three trading sessions, between Monday and Wednesday, aggregated Rs 2076.90 crore. However, foreign funds pulled out a net Rs 73.40 crore on Thursday. Their inflow for April 2007, till Thursday (19 April), aggregated Rs 4371 crore.
All sectoral indices of BSE gained today. On the back of a rally in Tata Steel, the BSE Metal Index was the top-gainer. It jumped 328.86 points (3.51%), to finish at 9,702.28. The BSE Oil & Gas Index rose 188.11 points (2.7%), to finish at 7,052.08. The BSE Tech Index, which is a free-float index comprising of IT, telecom and media shares rose 79.48 points (2.18%), to settle at 3,722.49. The BSE IT Index advanced 80.26 points (1.6%), to end at 5,055.09.
Reliance Industries (RIL) gained 3.4% to Rs 1543.75. The stock hit a high of Rs 1545, which is a lifetime high for the stock. The board of RIL meets on 26 April 2007, to consider Q4 March 2007 and FY 2007 results.
Housing finance major HDFC jumped 6.5% to Rs 1667. It was the top gainer from the 'A' group.
Satyam Computer jumped 6.4% to Rs 476.75, after it gave a strong guidance for FY 2008. Satyam Computer net profit rose 38% year-on-year in the March 2007 quarter, to Rs 394 crore. Just like Infosys, Satyam Computer has given strong earnings and revenue guidance in dollar terms as per US GAAP. Also, just like Infosys, Satyam Computer has given muted earnings and revenue guidance as per Indian GAAP.
Satyam Computer forecast 27 - 29% growth in basic earning per ADS for fiscal 2008, between $ 1.16 and $ 1.18. The US GAAP revenue is expected to rise 28 - 30%, between $ 1.87 billion and $1.9 billion for FY 2008. As per Indian GAAP, Satyam Computer has forecast between 18 - 20% growth in EPS for FY 2008, between Rs 25.32 and Rs 25.73. Satyam Computer has forecast 20 - 22% growth in revenue as per Indian GAAP for FY 2008.
Wipro lost 1.3% to Rs 571. Wipro today reported 44% year-on-year growth in net profit in the March 2007 quarter to Rs 861 crore as per US GAAP. It also forecast strong growth on more outsourcing and higher billing rates.
ONGC gained 3% to Rs 923. Oil prices rose as OPEC member, Nigeria, heads for weekend elections, ahead of the US May futures contract expiry later on Friday. Brent crude was up 51 cents at $66.45 a barrel, while US light crude added 83 cents to $62.66.
Tata Steel gained 6% to Rs 536. The stock had recovered from the last two days of a decline caused by equity dilution concerns after unveiling funding plans for its $12 billion takeover of Corus Group. The scrip rose on high volumes of 45.9 lakh shares on BSE.
State Bank of India (SBI) gained 2.3% to Rs 1078, after the largest lender said it planned to borrow up to Rs 10000 crore during 2007/08.
Bharti Airtel surged nearly 4% to Rs 848.80. The stock is now within striking distance of an all-time high of Rs 850, attained in February 2007. Bharti Airtel has launched a new set of prepaid cards, waiving processing fees. Named Airtel Happy Recharge, the cards will come in three denominations of Rs 299, Rs 399 and Rs 499 having a validity of 30 days. It will also have a single rate for local calls, and one rate for STD calls irrespective of the caller calling any other operator or even to a landline.
Reliance Communications gained nearly 5% to Rs 455.90. The company had registered strong growth in new subscriptions for the month just gone by.
Gujarat Ambuja Cements (GACL) rose 1.4% to Rs 115.10, after it said on Friday its net profit for the quarter ended 31 March 2007, rose to Rs 591 crore, including one-time gains
Telecom software firm Sasken Communication Technologies dropped nearly 3% to Rs 525. During trading hours today, the company reported a 86% year-on-year increase in consolidated net profit for the Jan-March 2007 quarter at Rs 11.70 crore. Consolidated revenues rose 73% to Rs 135 crore.
Vakrangee Softwares gained 2.6% to Rs 156.90, after posting a substantial increase in net profit in the January-March 2007 quarter to Rs 10.60 crore from Rs 3.17 crore in the Jan-March 2006 quarter.
India Cements lost 0.2% to Rs 170.50. It reported a surge in net profit in Q4 March 2007 quarter to Rs 139.81 crore (Rs 27.03 crore).
Mahindra & Mahindra rose 1.3% to Rs 743, after it said it would raise $300 million from the international market.
Balaji Telefilms gained 4% to Rs 168, on news it would invest up to Rs 60 crore for a 49% stake in a joint venture with News Corp.'s Star Group. The joint venture plans to launch a clutch of regional language channels in southern India.
Mukta Arts rose by its daily maximum limit of 5% to Rs 86.65, after the film producer posted a surge in net profit for the March 2007-quarter to Rs 14.98 crore from Rs 0.24 crore in the March 2006 quarter.
National Fertilizers rose nearly 4% to Rs 30.05, after its Jan-March 2007 quarter net profit surged.
CEAT rose nearly 3% to Rs 141, ahead of its Q4 March 2007 and FY 2007 results, which are due on Monday (23 April 2007).
Exide Industries rose 1.7% to Rs 45.60, after the company today reported 49% growth in net profit in the March 2007 quarter, to Rs 38.51 crore.
Shiva Cement dropped 4.5% to Rs 10, after its board approved issuing 14.5 million shares to ACC at Rs 11 a share, including a premium of Rs 9 per share.
Parsvnath Developers was down 0.5% to Rs 301.95. NSE has barred fresh derivative positions in the stock as the contracts had crossed the 95% market-wide position limit. Trading in Parsvnath Developers will be allowed only to reduce positions, NSE said.
Essel Propack fell almost 1% to Rs 72, after the packaging firm posted a 28% fall in the March 2007 quarter net profit to Rs 6.60 crore.
IFCI rose 2.1% to Rs 37.85, after the National Stock Exchange (NSE) lifted a ban on fresh positions in the scrip's derivative contracts.
Indiabulls Real Estate gained 6% to Rs 303.90. The Reserve Bank of India (RBI) has notified that under portfolio investment scheme (PIS), foreign institutional investors (FIIs) can now purchase equity shares and convertible debentures of Indiabulls Real Estate, up to 100% of its paid-up capital as the company has passed resolutions to this effect at the board of directors' and general body meetings.
Tanla Solutions (up 2% to Rs 400.65) extended gains after reporting strong March 2007 quarter results during trading hours on Thursday.
The Reserve Bank of India (RBI) reviews policy next Tuesday. It has raised the reserve requirement for banks three times since December and has raised its main lending rate five times since early-June 2006 to try and curb credit growth as well as inflation.
Strong FY 2008 guidance by Infosys, firm global bourses and continued FII-buying, have boosted the bourses this month after the Sensex had tanked 617 points in a single trading session on 2 April following the Reserve Bank of India (RBI)’s surprise hike in interest rates announced after trading hours on 30 March 2007. From a low of 12,455.37 on 2 April 2007, the Sensex has collected 1,442.04 points (11.5%) in a short while.
The Sensex’s all-time peak is of 14,723.88, which had been reached on 9 February 2007. Its all-time closing high is 14,652.09 of 8 February 2007.
The market may remain volatile next week ahead of the expiry of the April 2007 derivative contracts on Thursday (26 April 2007). RIL announces Q4 results on 26 April.
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