Good Evening - May 18 2007

Key share indices were up over 1% buoyed by gains in Asian and US indices. Bank shares extended gains from the previous session as analysts upgraded their ratings. SBI, up 3% at Rs 1,322 was the top Nifty gainer. ICICI Bank was up 2.5% at Rs 943 after Credit Suisse upgraded the stock to "neutral" rating from "sell". At 10:35AM, Sensex was 14295.51, up 168.20 points or 1.2%. Nifty was at 4211.05, up 40.00 points or 1%. The CNX Midcap Index and S&P CNX 500 Index were up 1% each. On BSE, advances led declines 3:1 in the morning session. Shares of oil retailers rebounded on a newspaper report the petroleum ministry is mulling a proposal to hike fuel prices due to rising global prices. HPCL was up 2.5% at Rs 305 and BPCL was up 2% at Rs 375. Tata Steel was up 2% at Rs 600 as the company is expected to report 50% on year rise in Jan-Mar net profit. VSNL was up 3% at Rs 467 on plans to enhance the footprint of its Wi-Fi services in India. NALCO, down 1% at Rs 254, was the worst hit on Nifty. Bajaj Auto was down 0.3% at Rs 2,672 ahead of its board meet that will detail the company's Jan-Mar earnings and mull demerger of its financial services and manufacturing business. Delhi-based real estate major Unitech was up 7% at Rs 572 on news of 10 block deals in the stock today. Suzlon Energy was 2% at Rs 1,156 after the company said it would raise $300 mn through foreign currency convertible bonds. The FCCBs have a maturity of 5 years and 1 day, and are convertible at Rs 1,800 a share, a 59% premium to Wednesday's closing price of Rs 1,134 on NSE. In the mid trading session, Markets gained further. At around 12.30PM, Sensex was up 193 points at 14320 levels. Nifty was trading at 4220 level, up 48 points. Though market breadth weakened as the A: D ratio declined to 1.2:1 for overall markets. The A: D ratio was 4.8:1 for Sensex and 6.1:1 for Nifty. Usha Martin was up 2.1% at Rs 247.50. In Q4, its net profit jumped 45% at Rs 29 cr from Rs 20 cr in Q4 last fiscal. The company also announced 1:5 stock split. Spicejet was up 1.8% at Rs 44.40. The airlines will raise $100 mn in Jun-Jul 2008 to fund aircraft buy. The company is fully funded for the current financial year. Unichem was up 0.7% at Rs 264. The company reported 20.5% jump in net profit at Rs 18.8 cr from Rs 13.5 cr in Q4 last fiscal. Orient Paper was up 4.5% at Rs 477. The company’s board will meet on May 24 to consider the price and record date for its Rs 175 cr rights issue. Bajaj Auto recouped losses and gained 2% at Rs 2,729 after it approved plan to demerge its manufacturing and financial services businesses. Bajaj Auto reported Jan-Mar net profit of 3.1 bn, down 11% on year. Shares of metal companies fell as zinc and copper prices declined in Shanghai on oversupply. NALCO and Sterlite Industries were down 1% each. Shares of Patni Computer Systems were up 9% at Rs 517 on talk the company may be bought over by IBM Key shares indices ended up over 1% led by gains in bank, oil and gas shares. Firm trend in No. of Scrips Value (Crs.) Advances 515 9585 Declines 547 2767 Unchanged 28 4 Total 1090 12356 Asian and European markets helped market rise. BSE Auto Index, down 1%, was the sole laggard among BSE sectoral indices, weighed down by 7% fall in Bajaj Auto shares. Bajaj Auto shares plunged 7% to Rs 2,504 on concerns the valuations of its insurance business would come off sharply if its partner Allianz SE hiked stake in the company to 50% from 26% now. Sensex ended at 14299.71, up 172.40 points or 1.2% from Wednesday. Intraday it moved between 14217.31 and 14352.98. Nifty ended at 4219.55, up 48.60 points or 1.2%. Intraday it moved between 4172.10 and 4232.45. Turnover on both the exchanges was roughly Rs 182 bn, compared to Rs 132 bn Wednesday. The CNX Midcap Index and S&P CNX 500 Index ended up 1%. Oil retailers were top gainers on Nifty on a newspaper report the petroleum ministry is mulling a proposal to hike fuel prices by Rs 1-2 per 1 L. HPCL, up 3.4% at Rs 307, was the top Nifty gainer. BPCL was up 3% at Rs 379.5. Banks shares ended up amid news of consolidation in the sector and as analysts upgraded their ratings. SBI was up 3.4% at Rs 1,327 and gained 8% since it got approval Tuesday to dilute its stake in its subsidiary banks to 51%. Tata Steel rose 2% to 598 rupees after it reported Jan-Mar net profit of Rs 11 bn, up 41% from a year ago. Dabur Pharma ended up 4% at Rs 68 after Jan-Mar net profit surged 13 times to Rs 27 mn from Rs 2.1 bn a year ago. Deccan Aviation surged 23% to Rs 145 on buying by hedge funds. Unitech gained 5.5% to Rs 565 on news of 10 block deals in the stock on NSE today. United Spirits surged 9% to Rs 974 after the company Wednesday acquired Glasgow-based Whyte & Mackay for 595 mn pounds. Bajaj Auto shares hogged the limelight today. The stock was slightly down due to the announcement of its demerger plans and Jan-Mar earnings. It shot up 2% after the company approved a proposal to set up two separate companies to split the group's automobile and finance businesses. All automobile businesses will be transferred to Bajaj Holdings and Investment Ltd., and wind power, insurance, consumer finance business to Bajaj Finserv Ltd. However, the share ended down 7%, worst hit on Nifty, after the company said cost pressure would continue for next two quarters. Today, the company posted a 11% on year fall in Jan-Mar net profit at Rs 3 bn. Shares of metal companies ended down as zinc and copper prices declined in Shanghai on oversupply of the metals. Sterlite Industries and NALCO were down 2% each, at Rs 558 and Rs 252, respectively. Siemens India ended down 2% at Rs 1,222 after gaining 3% in the last three sessions. Tech stocks ended up with exception. Infosys was up at Rs 1983.50 with volumes of Rs 423.45 crs, Satyam was up at Rs 452.55 with volumes of Rs 189.45 crs, Patni was up at Rs 514.75 with volumes of Rs 97.49 crs, and Rolta closed down at Rs 442.55 with volumes of Rs 95.19 crs. Pharma stocks witnessed mixed trend. Dr Reddy was up at Rs 678.45 with volumes of Rs 75.11 crs, Cipla closed down at Rs 208.50 with volumes of Rs 45.30 crs, Glenmark was up at Rs 668.05 with volumes of Rs 33.75 crs, and Ranbaxy closed down at Rs 394.75 with volumes of Rs 25.49 crs. Banking stocks ended up. In the Public Sector banks SBI closed up at Rs 1327.15 with volumes Rs 317.83 crs & Bank Of India closed up at Rs 208.10 with volumes Rs 50.64 crs. In the private sector ICICI Bank closed up at Rs 938.05 with volume of Rs 220.23 crs & HDFC Bank closed up at Rs 1042.05 with volumes of Rs 120.87 crs. Auto Stocks ended positive with exception. Tata Motors closed up at Rs 750.60 with volumes of Rs.115.03 crs & M&M closed up at Rs 728.10 with volumes of Rs 96.30 crs. While in the 2 wheeler segment stocks, Bajaj Auto closed down at Rs 2503.90 with volumes of Rs 490.37 crs & Hero Honda closed up at Rs 678.30 with volumes of Rs 8.59 crs. Cement Stocks ended positive. India Cement closed up at Rs 189.85 with volumes of Rs 39.62 crs, GACL closed up at Rs 123.40 with volumes of Rs 36.39 crs, ACC closed up at Rs 888.45 with volumes of Rs 33.86 crs and Shree Cement closed up at Rs 1110 with volumes of Rs 15.56 crs. Nifty ended at 4220 up by 49 points.

Sharekhan Riveting Metals dated May 18, 2007

Sharekhan Riveting Metals dated May 18, 2007

Sharekhan Investor's Eye dated May 18, 2007

Canara Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs268
Current market price: Rs251

Higher provisions restrict profit growth

Result highlights

• Canara Bank's results have been much above our and market expectations with the profit after tax (PAT) reporting a growth of 2.3% to Rs505 crore compared with our estimate of a 10% year-on-year (y-o-y) decline to Rs444 crore. The profit growth was higher than expected mainly due to a substantial jump in the non-interest income driven by a higher treasury income and cash recoveries.
• The net interest income (NII) was up by 11.3% year on year (yoy) and 5.5% quarter on quarter (qoq) to Rs1,014 crore compared with our estimate of Rs1,030 crore. The NII has been adjusted for a one-time cash reserve ratio (CRR) interest income and the interest received on the income tax refund. Our calculations suggest that the adjusted net interest margin (NIM) declined on both y-o-y and sequential bases due to a rise in the cost of funds, as the low-cost deposits remained stable but bulk deposits increased, putting pressure on the cost of funds.
• The non-interest income zoomed by 58% yoy and 120% qoq to Rs626.2 crore, primarily driven by a 172% y-o-y and 186% sequential growth in the trading income to Rs92 crore. The miscellaneous income, which increased by 57% yoy and 247% qoq to Rs343 crore, also contributed to the growth in the non-interest income.
• The operating expenses grew by a marginal 1% yoy to Rs633 crore. The operating profit was up by 48% yoy and 65% qoq to Rs1,007 crore, driven primarily by the higher non-interest income.
• The provisions increased by 66.1% yoy and 54% qoq to Rs497 crore mainly on account of higher depreciation on investments provided on the marked-to-market investments book. A higher standard asset provisioning requirement also kept the provisions elevated as the non-performing asset (NPA) provisions declined by 67% yoy to Rs102 crore from Rs306 crore in Q4FY2006. Although the operating profit increased by 48% yoy, yet the higher provisions restricted the overall profit growth to 2.3%.
• Higher cash recoveries to the tune of Rs1,025 crore during the year as against Rs972 crore during the previous financial year helped the bank to bring down its gross NPAs. In absolute terms, the gross NPAs have reported a sequential decline of Rs380 crore while the net NPA ratio has declined sequentially from 0.96% to 0.94%.
• The margins may remain under slight pressure, however the business growth is likely to boost the NII. The bank has also reduced the interest rate risk on its book by bringing down the duration of its "available-for-sale" category to 2.48 years from 3.76 years earlier and stated that the duration is expected to further come down below two years. At the current market price of Rs251, the stock is quoting at 6.6x its FY2008E earnings per share, 3.3x pre-provisioning profits and 1.1x FY2008E book value. We maintain our Buy recommendation on the stock with a price target of Rs268.

Unichem Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs360
Current market price: Rs265

Q4 results above expectations

Result highlights

• In Q4FY2007 Unichem Laboratories (Unichem) reported a sales growth of 26.7% to Rs134.1 crore, which is much higher than our expectations of Rs124.2 crore. The sales growth was achieved on the back of a superb 71% jump in the exports to Rs41.4 crore and an 11.8% rise in its domestic sales to Rs94.4 crore.
• The operating profit margin (OPM) narrowed by 210 basis points to 16.0% in the quarter, largely due to a higher product filing cost which restricted the growth in the operating profit to 12.2% at Rs21.4 crore.
• Subsequently, an over five-fold jump in the other income, an 18% fall in the interest expenses and a lower than expected tax provisioning during the quarter resulted in a 32.1% growth in the profit after tax (PAT; profit before extraordinary items) to Rs20.5 crore in Q4FY2007. The net profit was above our expectation of Rs15.5 crore for the quarter.
• For FY2007, Unichem reported a 20% growth in its net sales to Rs545.60 crore, a flat OPM of 20% and a 26.9% growth in the bottom line to Rs88.9 crore. For FY2007, both sales and net profit were higher than our expectations of Rs530 crore and Rs85.5 crore respectively.
• At the current market price of Rs265, the stock is trading at 9.3x its estimated FY2008 earnings. In view of the positive outlook for the company, we maintain our Buy recommendation on Unichem, with a price target of Rs360.

Tata Motors
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,075
Current market price: Rs743

Q4FY2007 results: First-cut analysis

Result highlights

• Tata Motors' Q4FY2007 results are slightly below our expectations, primarily on the margin front. The Q4FY2007 net sales (excluding the foreign exchange [forex] gain) of the company grew by 20.0% to Rs8,206.8 crore, driven by a volume growth of 16.2% and a realisation growth of 3.3%.
• Excluding the effect of the forex gain/loss, the operating profit margin has fallen by 160 basis points year on year (yoy) and by 130 basis points sequentially to 11.0%. This was mainly on the back of a higher raw material cost and a sequential drop in the realisation due to a change in the product mix. Consequently, the operating profit grew by just 5.1% to Rs906 crore.
• The other income was higher at Rs60.4 crore against Rs4.4 crore last year. Further, lower interest cost and taxes, and stable depreciation aided the company to record a 25.9% growth in its profit to Rs576.7 crore.
• For the full year, the net revenues grew by 33% to Rs27,404.8 crore against Rs20,672 crore last year, while the net profit grew by 25% to Rs1,913.5 crore.
• Looking at the consolidated results, the consolidated sales for the quarter grew by 24% to Rs9,759.2 crore while the net profit grew by 31% to Rs682.3 crore.

Sharekhan Investor's Eye dated May 18, 2007

Nitin Fire Protection Industries Ltd. Subscription Details

Qualified Institutional Buyers (QIBs) - 49.9106

Non Institutional Investors - 101.3204

Retail Individual Investors (RIIs) - 30.2937

OVERALL - 48.48 times

KRC Investment Ideas - RPL

KRC Investment Ideas - RPL

KRC Cherry Picks - May 12 2007

KRC Cherry Picks - May 12 2007

Indiainfoline - Bajaj Auto, Allsec Technologies, State Bank of India

Bajaj Auto

Allsec Technologies

State Bank of India

Market to test all time high

The market is likely to head higher, and test all time high in the coming week, as buying is likely to continue at higher levels, led by robust set of results from India Inc

The BSE Sensex settled above the 14,300 level at 14,303.41 on Friday, and is likely to test it’s all time high of 14,723.88 struck on 9 February 2007. Technically it has given a break-out above 14,300 and is likely to face next resistance in the range of 14384-14479. While strong support exists 14160 and 14100 levels.

Similarly, the S&P CNX Nifty also breached a major hurdle of 4200 and is eyeing all time high of 4245.30. It has resistance in range of 4245-4280, while support exists at 4,180 and 4,120 range.

With liquidity remaining abundant with both domestic and overseas investors turning bullish, the market is likely to test all time highs

Inflation which has been a concern in the past few weeks, seems to coming in cooling. These will boost the sentiment further. The Reserve Bank of India (RBI) Governor Y V Reddy has kept inflation target of 4.0-4.5% for the medium term.

Also the progress of the June-September monsoon will hold the key to the direction of the domestic bourses. The Indian meteorological department forecasted annual monsoon rains would arrive in Kerala on 24 May 2007. The weather office said last month that this year's monsoon rains were likely to be 95% of the long-term average, with a 5% margin of error. The annual monsoon is vital for India's economic health as it provides the main source of water for agriculture, which generates more than a fifth of gross domestic product (GDP).

On the flip side, brent crude oil prices advanced to strike a fresh eight-month high above $70 a barrel, as US refinery problems fanned concerns about potential gasoline supply bottlenecks just before the summer-driving season begins. Any sharp rise from this levels, may dampen the sentiment.

Jindal Steel & Power, Steel Authority of India, Bank of India, Bharat Forge, Punjab National Bank, NIIT Technologies, Bombay Dyeing, BPCL, ITC, Godrej Industries and Bank of Baroda are the major results to be unveiled in the coming week

Torrent Pharmaceuticals, Alembic, Gokaldas Exports, TV Today Network, Punjab Tractors, New Delhi Television, Divi's Laboratories, Monsanto India, Adani Enterprises, Orbit Corporation, Parsvnath Developers, Everest Kanto Cylinder and City Union Bank will also declare their results in the next week

Indiainfoline - Weekly Stock Ideas

BUY DS Kulkarni (285.5)
SL 270 T 320, 326

BUY Crompton Greaves (225)
SL 218 T 242, 247

BUY Bata India (174)
SL 167 T 192, 197

BUY Prithvi (314)
SL 300 T 350, 356

BUY IVRCL Infrastructure (335)
SL 327 T 353, 359

Indiainfoline - Weekly Newsletter

Bajaj Auto demerger...split wide open

Bajaj Auto Ltd. said on Thursday that its Board had approved the proposed demerger of the company into two new entities - one for its two and three-wheeler manufacturing and the other for the financial services businesses. As part of the Scheme for Demerger, the company will form two subsidiaries, Bajaj Holdings and Investment Ltd. and Bajaj Finserve Ltd. The automobile manufacturing business will merge into Bajaj Holdings while the financial services and the wind power businesses will vest in Bajaj Finserve. Bajaj Auto shareholders will receive one share each in Bajaj Holdings (face value Rs10 per share) and Bajaj Finserve (face value Rs5 per share) for every share held. They will continue to hold one share of Bajaj Auto of Rs10 each fully paid up.

As part of the restructuring, Bajaj Holdings will be renamed as Bajaj Auto Ltd. and the existing Bajaj Auto Ltd. will be renamed as Bajaj Holdings. Rs15bn in cash and cash equivalents will be transferred to the new Bajaj Auto Ltd. while Bajaj Finserve will receive cash and cash equivalents of Rs8bn. After the issue of new shares, the existing shareholders of Bajaj Auto would hold around 70% shares in the new companies in the same ratio as their current holding, while the remaining 30% will be owned by Bajaj Holdings (existing Bajaj Auto). It is expected to be completed by the end of the calendar year 2007, and the two new companies will also get listed on the stock exchanges during the same period.

But, the market was not excited by the demerger, especially with the disclosure that Allianz has a call option to hike its stake in the insurance joint ventures at a much lower price than many had hoped for. Munich-based Allianz has partnered Bajaj Auto in two insurance ventures and has the option to raise its stake in the general insurance business to 50% from 26% and life insurance business to 74% from 26%. But, what took most market players by surprise was the announcement on the price at which Allianz can exercise this call options for hiking its stake in the two insurance JVs. The call options are valid up to April 22, 2016.

The fixed price formula agreed upon by the two parties in April 2001 clearly left investors highly disappointed as independent valuations by a few brokerages and merchant bankers have pegged the value of the two insurance JVs much higher. As a result, foreign brokerages such as UBS, Credit Suisse and DSP Merrill Lynch downgraded the stock while CLSA and Goldman Sachs kept a neutral stance on the stock. Bajaj Auto shares plunged 15.9% on the week to finish at Rs2286.80, with the stock falling 15% in two days since the demerger announcement. Its low points for the week was Rs2179.

UB to buy Scotch maker Whyte & Mackay

It was a total contrast for United Spirits Ltd. The market cheered the acquisition of Whyte & Mackay by the Vijay Mallya-promoted UB Group for £595mn (US$1.2bn). The stock surged by 22.8% during the week to close at Rs1067.70 after hitting a high of Rs1174 on Friday. The UB Group will provide Whyte & Mackay access to India and other large emerging markets such as China. Whyte & Mackay recorded sales of 9mn case and case equivalents in the last 12 months. United Spirits recorded sales of 66mn cases for the year ended March 2007. With this acquisition, it will have consolidated sales of 75mn cases per annum.

The Glasgow-based independent Scotch Whisky maker is a leading distiller, owning brands including The Dalmore, Isle of Jura, Glayva, Fettercairn, Viadivar vodka and the eponymous Whyte & Mackay blended Scotch. The company also owns several other Scotch Whisky brands such as Mackinlays, John Barr, Cluny and Clayrnore. At a time when global demand for Scotch Whisky is showing strong growth and prices are increasing rapidly, Whyte & Mackay's bulk scotch inventories of 115mn litres are not only very valuable but allow the company an opportunity to meet its own growing requirement for its brands in India, United Spirits said.

The Invergordon Distillery, near Inverness, is one of the largest Scotch Whisky distilleries with a capacity of producing 40mn litres of alcohol per annum. This production resource will provide the company with a perennial source of Scotch Whisky to meet its global requirements, United Spirits said. In addition, Invergordon will remain a key strategic provider of bulk Scotch Whisky to industry majors. Whyte & Mackay also owns four malt whisky distilleries in Scotland and a bottling facility in Grangemouth with a capacity of producing 12mn cases per annum.

So far so good in May

The month of May so far has taken most people by surprise. When most people on Dalal Street was sounding warning bells of another sell-off in May, the bulls took a U-turn and managed to record healthy gains, especially this week. The NSE Nifty advanced by 137 points (3.38%) to close at 4214 and the BSE 30-share Sensex added 507 points or 3.68% to end the week at 14303.

Bears appear to be hiding away from Dalal Street and must be singing only one song at the moment - 'Killing me Softly'. Heavyweights have led the rally this time with good support from small-cap counters.

In a broad-based rally across the sectors, Banking, Real Estate Construction, Oil & Gas, Capital Good and PSU stocks led from the front. After closing lower last week, they have been on a roll and have started an impressive rally taking the indices closer towards their all time peak. Value buying in technology stocks minimized the losses over the week for the tech firms. Banking stocks were on the move yet again on speculation that interest rates may be nearing their peaks. Even FMCG stocks attracted buying interest after MET announced the early arrival of monsoon rains. According to MET, rains may fall over parts of Kerala, from 24th May, a week early.

Announcement of arrival of early monsoon rains and faster rate of growth in India's industrial production in March to12.9% from a year ago boosted the FMCG stocks. Monsoon expectations drove FMCG stocks over the week. Tata Tea surged nearly by 8% to Rs841, heavy weight HLL rose over 4% to Rs193 and Godrej Consumer spurred by over 5.5% to Rs144.

Bank stocks continued to zoom higher on speculation that RBI will cut CRR after series of hike in recent times Also, strong quarterly performance by Banking major SBI contributed towards the rally in the banking sector. SBI Q4 profit was at Rs14.93bn (up 75%), total revenue was at Rs72.14bn (up 21.9%). Banking index was the top gainer and the index rallied by over 10% during the week. SBI jumped by over 15% to Rs1325, the scrip was the top gainer among 30-scrip's of BSE Sensex. ICICI Bank surged by over 12% to Rs950 and HDFC Bank gained 7.5% to Rs1072.

Interestingly, smart rally was observed over the week in interest-rate-sensitive sectors like Banking, Construction and Real-estate stocks, barring Auto stocks on speculation that interest rates may have reached their peaks and there want be further tightening measures implemented by the RBI for the time being. Also, India's inflation, based on the Wholesale Price Index (WPI), declined to a five-month low of 5.44% in the week ended May 5 due to a high base last year. Among the Real Estate stocks, Unitech sky rocketed by over 23% to Rs566, Sobha Developers added 9% to Rs941 and Parsvnath surged by over 10.5% to Rs344.

Technology stocks managed to minimize the losses after bearing the brunt of rising Rupee over the last quarter. However, concerns are still far from over for the time being. The Rupee closed at 9-year high of 40.71 against the Dollar after China allowed faster Yuan rise on Friday. Satyam Computer edged higher 0.2% to Rs455, HCL Tech bucked the negative trend and surged by 7% to Rs353, Financial Technology also rose over 6.5% to Rs2071 and Patni jumped by over 9.5% to Rs513. However, heavy weight Infosys dipped nearly by 1% to Rs1982 and Wipro edged lower by 0.4% to Rs543.

Bajaj Auto hogged the limelight for all the wrong reason, the scrip was the major loser among 50-scrip's of NSE Nifty dropping over 15% to close at Rs2286. The scrip hit the weeks high of Rs2747 and a low of 2179. Bajaj Auto Ltd. had its biggest drop in three years after market men judged the plan to let Allianz raise stakes in joint ventures could lead to erosion of the value of the shareholders. Bajaj Auto will split into automotive, finance and new businesses after reporting its first quarterly profit decline in more than two years.

Refinery stocks were the star performers over the week amid speculation that Government may raise the price of the petroleum products. However, later on the cabinet denied the reports. Reliance Industries rose by over 6.5% to Rs1699. RIL, discovered natural gas in two areas off the east coast of the country, raising the chances of boosting output of the fuel.

Mid Cap stocks also attracted buying interest during the week. Aban Offshore surged by over 5.5% to Rs2411, Bajaj Hindusthan rose over 7% to Rs30 and Century Textile jumped 7% to Rs618. Others like Dena Bank, Raj TV and NDTV were among the other major gainers

Keep cash in case of a crash!

With all the results factored in this week’s rally, the bulls will find it hard to keep the ball rolling on Dalal Street. So can we expect a crash? There are no major domestic triggers to drive the markets in the near future except developments of monsoon. As often in the past, bulls will be looking towards their regional neighbours and counterparts in US to provide some direction.

Mid-cap and small cap stocks will continue to be in action as investors could shift their attention from large cap counters after the recent gains.

Nifty is just around 30 points away from crossing its all time peak, However, it remains to be seen whether they can hold on to these gains. Bulls may start feeling dizzy at the current top. There is no point in getting euphoric as the bulls appear to be overheated and valuations also look stretched after recent gains. Traders with short term view should take the opportunity and book profits in counters which have run up. Keep a close eye on the commodities space as the international metal market will provide some direction. International crude oil prices and the movement in local currency are other factors to watch for while the markets continue with their intra-day gyrations.

Dayanidhi Maran resigns from Cabinet

Telecom and IT Minister Dayanidhi Maran resigned following his expulsion from the Dravida Munnetra Kazhagam (DMK) in what appears to be a major internal party feud. The DMK rules Tamil Nadu and is a member of the Congress-led ruling coalition at the Centre. According to media reports, a major rift broke out between the Marans and the Karunanidhi family after three employees of Tamil newspaper Dinakaran, owned by Maran's brother, were killed last week following an attack on the paper's office by the supporters of one of Karunanidhi's sons, M.K Azhagiri. Azhagiri's loyalists were furious after the paper published a poll showing that most people preferred Azhagiri's younger brother, Stalin, to succeed Karunanidhi as the next DMK chief. The survey gave 70% votes to Stalin, the Local Administration Minister, and 2% votes to Azhagiri, Karunanidhi’s elder son.

LS clears bill to unlock value in SBI units

The Lok Sabha approved amendments in the State Bank of India (Subsidiary Bank Laws) Amendment Bill to enable the seven subsidiaries of State Bank of India (SBI) to raise fresh capital. SBI's seven subsidiaries will be allowed to raise their authorized capital, split shares to increase trading and lift the ceiling on purchase of shares by individual investors, Finance Minister P. Chidambaram told the lower house of the parliament. "The Government can't infuse additional money in these banks," Chidambaram said, adding the SBI subsidiaries will need Rs 31.6bn to meet the new Basel II capital rules from March 2008. The 200-year-old SBI owns 75% stake in State Bank of Bikaner & Jaipur and State Bank of Travancore and 92.33% of State Bank of Mysore. State Bank of Hyderabad, State Bank of Indore, State Bank of Saurashtra and State Bank of Patiala are not listed. The amendments to the Bill will have to be approved by the Rajya Sabha and signed by the President to come into effect.

Monsoon to hit Kerala on May 24: IMD

The southwest monsoon is likely to hit the Kerala coast a week ahead of schedule on May 24, the Indian Meteorological Department (IMD) said. The monsoon generally sets in on the Kerala coast on June 1. The monsoon, which is key for the growth of India's agriculture sector, set in over parts of southeast Bay of Bengal, Nicobar islands and Andaman Sea on May 10. Rains arrived on the east coast about eight days earlier than normal. They typically start in the east coast by May 18. The monsoon will be 95% of the long-term average, the weather department said in its April 19 forecast.

BSE completes demutualisation

The Bombay Stock Exchange (BSE) announced that it had successfully completed the process of demutualisation mandated by the capital market regulator SEBI. Asia's oldest exchange was required to ensure that at least 51% of its equity shares are held by public other than shareholders having trading rights. The BSE has entered into strategic tie-ups with two leading exchanges of the world - Deutsche Börse and Singapore Exchange with fresh issue of equity shares representing 10% of its total equity capital. Additionally, shares tendered by member-shareholders in an offer for sale have been placed with 19 domestic and overseas investors. The investor group includes pedigreed marquee domestic and overseas institutions as well as select domestic corporates and HNIs, BSE said. Both the fresh issue of shares and placement of shares have been priced at Rs5200 per share, placing the market cap of the exchange at around US$1bn

HDFC Bank to raise US$1bn

HDFC Bank Ltd. announced that its Board has approved a proposal to raise an additional share capital US$1bn or Rs42bn, whichever is higher. The proposed equity offering will result in the reduction of the present shareholding of the promoter group - the HDFC Group, which stands at 21.56%. In order to maintain the shareholding of the promoter group at or about 23% of the enhanced capital, HDFC Bank plans to offer 13,582,000 shares of Rs 10 each to HDFC on a preferential basis. These shares will be issued to HDFC at Rs 1023.49 per share, which is the price determined in accordance with the specified formula as per SEBI (Disclosure and Investor Protection) Guidelines 2000. The balance amount of the proposed equity will be raised either through a domestic public offering or as a public or private offerings in one or more international markets, HDFC Bank said.

RIL unveils 2 new oil & gas discoveries

Reliance Industries Ltd. (RIL) announced two new discoveries, one in the deep waters off the East Coast and another in the shallow waters off the West Coast of India. These are in the well KG-D6-R1 in block KG DWN 98/3 (KG D6), and in the well GS01 B1 in block GS-OSN-2000/1 (GS01). RIL has successfully completed drilling of it’s 50th exploratory well KG-D6-R1. This well has been notified to the DGH and concerned authorities as a new discovery, namely Dhirubhai 34, which is the 18th discovery in this block. This Block was awarded to the consortium of RIL (90%) and NIKO (10%) under the NELP I round of bidding. In addition, RIL announced a discovery in the well GS01 B1 in block GS-OSN-97/1, off the west coast in Gujarat - Saurashtra basin. This well has also been notified to the DGH and concerned authorities as a new discovery, namely Dhirubhai 33, which is RIL’s first discovery in carbonate reservoirs in the West coast. This shallow water block was awarded to the consortium of RIL (90%) and Hardy Exploration (10%) under the NELP II round of bidding. The commerciality of the above discoveries is currently under evaluation.

Aditya Birla launches retail business

The Aditya Birla group will invest Rs80-90bn in its retail venture in the next three years, chairman Kumar Mangalam Birla announced on Friday. The group formally unveiled its retail business, which will be called Aditya Birla Retail Ltd. The company will have basically two formats - Hypermarkets and Supermarkets. It will be an unlisted company and the group plans to launch the first store in Pune this month. "We are really going it alone, without a joint venture partner," Birla said. He also said that the group was looking at more inorganic opportunities but reports of it buying Piramyd Retail were speculative.

Sundaram Clayton to spin off brakes biz

Sundaram Clayton Ltd. said that its Board had approved the proposal to spin off its brakes business into its wholly owned subsidiary - WABCO-TVS India Ltd. The non-brakes business will continue to remain with the company. The face value of Sundaram Clayton shares will be reduced from Rs10 each to Rs5 each. One share of Rs5 each of WABCO-TVS will be issued for every share of Rs5 each of Sundaram Clayton. There will be an inter se transfer of shares between the promoters - TVS group and Clayton Dewandre Holdings Ltd. (belonging to the WABCO Group), within two years from the listing of WABCO-TVS. Majority control and management of WABCO-TVS will remain with Clayton Dewandre Holdings. Similarly, majority control and management of Sundaram Clayton will remain with the TVS Group.

Domestic M&A Roundup

Housing Development Finance Corporation Ltd. (HDFC) said it will buyout the stake of joint venture partner Chubb Global Financial Services Corporation (Chubb Global) in their general insurance joint venture. The housing finance major plans to acquire 32,500,000 equity shares of Rs 10 each held by Chubb Global in HDFC Chubb General Insurance Company Ltd., representing 26% of the paid up share capital of the general insurance venture. The transaction is subject to the receipt of requisite approvals. After this acquisition, HDFC Chubb General Insurance Co. would become a wholly-owned subsidiary of HDFC.

Gujarat NRE Resources NL, part of Gujarat NRE Coke Ltd., is acquiring the Elouera coal mine in Australia from BHP Billiton Ltd. for A$49mn (US$41mn) as demand for coal shoots up among domestic steel producers. The mine has measured resources of 12mn tons, according to BHP's 2006 annual report, and total resources of 41mn tons. Buying Elouera will enable the company to tap rail links and storage, which will help it start production at its other mines, Gujarat NRE said in a statement to the Australian Stock Exchange today. The company plans to start production at its Australian mines before June 30.

Infotech Enterprises Ltd. announced that it will acquire a 74% stake in Hyderabad-based Geospatial Integrated Solution Pvt. Ltd. (Geospace Integra) for Rs29.6mn to address Geospatial business opportunities in India and the Middle East. Infotech has reserved the right to buy the remaining 26% after three years depending on Geospatial's performance. The geospatial market in India and Middle East is estimated at Rs12bn and is expected to see a 12% growth rate over the next five years. The global growth rate is between 5-6%.

Alfa Laval vaults on higher offer from parent

Shares of Alfa Laval India Ltd. rallied after its Swedish parent agreed to increase the price for buying back the outstanding shares in its Indian subsidiary. Alfa Laval said that it was raising its public offer to Rs1,300 per share from the initial offer of Rs875 a share. The Swedish engineering major owns 64% of Alfa Laval India which has around 11,000 minority shareholders. Alfa Laval aims to raise its stake in the Indian arm to 90%. Of the remaining 35.9%, institutions (including FIIs) hold 19.5%, while the public holding is at 14.8%. Alfa Laval has made an open offer to acquire a maximum of 702,500 shares, or 25.9%, of the paid-up equity share capital of Alfa Laval India. The public offer opened on May 7 and will close on May 26. The stock gained 17.4% on the week to end at Rs1231.80 after touching a 52-week peak of Rs1253 on May 16.

Idea, Nokia Siemens sign US$500mn deal

Nokia Siemens Networks (NSN) won a US$500mn contract from India's Idea Cellular to expand the latter's network in the country. Under the two-year deal, NSN will supply Idea with GSM, GPRS and EDGE networks. Under the deal, Nokia Siemens Network will expand Idea's GSM networks in six circles of Delhi, Haryana, eastern and western Uttar Pradesh, Andhra Pradesh and Kerala. The contract, valid for two years, includes supply and services of GSM equipment, value-added services and packet core equipment.

China widens yuan trading band, lifts rates
China on Friday announced that it will expand the trading band for its currency besides hiking interest rates and the reserve requirement for banks to cool its export-fired economy. The People's Bank of China said it was widening the yuan trading band to plus or minus 0.5% per day against the US dollar, from a previous band of plus or minus 0.3% per day. The yuan has traded in a limited band against the dollar since July 2005. The yuan closed at the highest since China ended a peg to the US currency in July 2005, rising 0.1% for the week to 7.6686 per dollar, according to the China Foreign Exchange Trade System. The central bank has allowed the yuan to increase 7.9% since the end of the fixed exchange rate.

The Chinese central bank also lifted the bank reserve requirement ratio by a half percentage point, besides increasing its benchmark lending and deposit rates. The one-year benchmark lending rate will be raised to 6.57% - the highest in more than eight years - from 6.39%, starting tomorrow, the People's Bank of China said today on its Web site. The one-year deposit rate will be increased to 3.06% from 2.79%. It's the first time since 1993 that China has raised deposit rates more than lending rates. In addition, banks must put aside 11.5% of deposits starting from June 5, up from 11%, the People's Bank of China said. That is the fifth increase in banks' reserve ratios this year, compared with three in all of last year.

Japan's economy slows sharply

The Japanese economy cooled off substantially in the first quarter of the year from the previous three months as companies cut spending amid concerns over the state of the US economy, the nation's largest export market. The Cabinet Office said that the GDP grew at an annual rate of 2.4% in the first quarter, slowing from a revised 5% rate in the fourth quarter of last year. Economists had forecast first-quarter GDP gain of 2.7%. The fourth-quarter figure was revised to 5%, still the highest in three years, from the preliminary prediction of 5.5%. In non-annualized terms, Japan's economy expanded 0.6% from the previous quarter, compared with 0.3% growth in the US and 0.6% in the euro region.

China's industrial output remains strong

China's industrial production grew by over 17% for the second month running, spurred by surging exports and rising retail sales, figures released by the National Bureau of Statistics (NBS) showed. China's industrial output grew by 17.4% in April as against a growth of 17.6% in March. The reading was close to the 17.5% forecast by economists and 0.8% higher than the year-ago period. The report is likely to add pressure on the authorities to cool down the world's fourth largest economy. The figures indicate that fixed-asset investment is accelerating in China and that's not what the government wants. There is every likelihood of yet another interest rate increase and more bank reserve ratio hikes if investment in factories, properties stocks picks up again. The Government is scheduled to release fixed-asset investment. For the first four months of 2007, industrial output rose 18% from the same period last year. Growth for all of 2006 was 16.6%

EU economy expands more than forecast
The euro-zone economy grew more than forecast in the first quarter of the year though compared to the previous quarter there was a slowdown in the economic expansion of the 13-nation bloc that uses the euro as a single currency. On a sequential basis, the 13-nation EU grew by 0.6% from the fourth quarter, when it had expanded by 0.9%, the European Union's Luxembourg-based statistics office Eurostat said. Economists had forecast a growth rate of 0.5% in the first quarter. On an annualised basis, the euro area economy slowed a little in the first quarter from the previous one even as the German economy expanded at a faster clip than France, Eurostat said. The EU economy expanded by 3.1% annualised rate in the first quarter of 2007 as against 3.3% in the last three months of 2006, its fastest rate since 2000. Separately, the European Commission (EC) said it expected growth to remain strong in the second and third quarters before slowing in the final three months of the year.

Cerberus Capital to buy Chrysler

Private equity firm Cerberus Capital Management LP will acquire a majority stake in the troubled US auto major Chrysler for €5.5bn (US$7.4bn). Cerberus will also take on Chrysler's pension and healthcare obligations. DaimlerChrysler said that an affiliate of Cerberus will acquire 80.1% in the new Chrysler Holding LLC. The German-American automaker will continue to hold the remaining 19.9%. The transaction will be completed in the third quarter. "We will be the leading manufacturer of premium vehicles and a provider of premium services in every market segment we serve worldwide," DaimlerChrysler CEO Dieter Zetsche said. United Auto Workers President Ron Gettelfinger said he supported the deal, terming the takeover in the best interests of our UAW members, the Chrysler Group and Daimler. For DaimlerChrysler, which will rename itself as Daimler AG, the deal will hurt 2007 profit by US$4.1bn to US$5.4bn. It will also result in a cash outflow of US$650mn besides an US$878mn prepayment compensation for discharging long-term Chrysler liabilities. Juergen Schrempp, architect of the mega merger, may have few equals in German business. The company he created lost US $12.6bn in market value in the nine years following the merger.

Thomson, Reuters agree on takeover terms

Its official now. Thomson Corp. has agreed to acquire Reuters Group Plc for about £8.7bn (US$17.2bn) to create the world's largest financial news and data firm. The acquisition of Reuters will increase Toronto-based Thomson's sales to US$11bn and triple its share of the financial data market to 34%, based on 2006 figures compiled by Inside Market Data. It will overtake Bloomberg LP, which has 33%. The deal has the support of the Reuters Founders Share Company but still needs regulatory clearance, the two companies said in a joint statement. However, the deal is likely to face scrutiny from regulators, especially from European Union antitrust authorities, according to analysts. Reuters CEO Tom Glocer will become CEO of Thomson-Reuters, and Thomson Chairman David Thomson will hold the same post at the combined company. The company will be dual-listed, with shares traded in Canada, the US and the UK. Thomson-Reuters will have revenues of about US$12bn and almost 49,000 employees.

HeidelbergCement to acquire Hanson

HeidelbergCement AG, Germany's largest cement maker, agreed to buy UK-based Hanson Plc for about £8bn (US$15.8bn) to create the world's second-largest firm in construction materials. The offer would be the biggest takeover in the sector. HeidelbergCement will pay £11 a share in cash for London-based Hanson, the two companies said today in a regulatory filing. Including debt, the deal is valued at £9.5bn. The deal represents a multiple of about 12 times Hanson’s Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). The price also represents a significant premium to other recent deals in the sector, including Cemex ’s US$14bn (£7.1bn) takeover of Rinker at 10.4 times EBITDA, and Vulcan Materials’ US$4.6bn purchase of Florida Rock Industries at 11.2 times EBITDA, according to Merrill Lynch.

Other global M&A News

In other M&A news, Saudi Basic Industries Corp., the world's biggest chemical company by market value, will buy General Electric's plastics unit for about US$11bn, two people familiar with the negotiations said. Rupert Murdoch, seeking to woo Dow Jones & Co.'s controlling Bancroft family, offered members a seat on News Corp.'s board if they accept his US $5bn takeover offer. French IT firm Atos Origin ended talks to sell itself. The official supplier of computer services to 2008 Beijing Olympics said no firm offers came through, sending its shares sharply down. Xstrata Plc, the world's fourth- largest nickel producer, increased an offer for LionOre Mining International Ltd. to C$6.2bn (US$5.6bn) to fend off a competing proposal from Russia's OAO GMK Norilsk Nickel. Macquarie Bank Ltd. and its buyout partners abandoned plans to revive a takeover bid for Qantas Airways Ltd. after shareholders rejected their A$11.1bn (US$9.2bn) offer for Australia's largest airline as too low. Bausch & Lomb Inc., the eye-products maker rocked last year by financial restatements and the recall of its contact-lens solution, agreed to be bought by private equity firm Warburg Pincus for US $3.67bn in cash.