Citigroup - VSNL, BHEL

Citigroup in their report on VSNL say

We maintain our Hold/Medium Risk (2M) rating with a target price of Rs450. Speedy implementation of land sale could provide upside to our target whereas adverse ruling on FLAG compensation could be a negative. However, the concerns relating to reselling of IPLC by operators are unfounded.

Citigroup in their report on BHEL say

Raise target price to Rs3,344 — We are raising our target price to Rs3,344 (from Rs2,764 earlier) given an earnings revision and rolling forward of our P/E multiple (20x) to FY09E. We now expect sales CAGR of 24% to drive earnings CAGR of 27% over FY07-10E with RoEs in the 25–30% range.

Under-performance since January 2007 implies this is a good time for investors to build long-term holdings in the stock as BHEL remains our top pick in the Indian Electric Equipment space.

Angel - PNB, Angel -TCI,B&K - Bharat Forge, B&K - Indus Ind Bank, B&K - Kalpataru Power Transmission

Angel recommends BUY on PNB

We expect the bank to maintain its margins on the back of a high level of CASA. The bank has already taken proactive steps for AS 15 provision for employees. Currently, PNB holds around 38% of its investment portfolio in the AFS category and we expect the share of AFS in the total portfolio to fall further in FY2008. We expect PNB to demonstrate stable performance in NII and Fee-based income, However, further deterioration in asset quality could warrant higher provision in FY2008. We maintain a Buy on the stock with a Target Price of Rs615.

Angel recommends HOLD on TCI

We expect TCI's revenues to grow at a CAGR of 14.8% to Rs1,433cr and earnings to grow at 29.3% CAGR of Rs51cr over FY2007-09E. Overall operating margin of the company is expected to improve from 6.4% in FY2007 to 8.5% in FY2009E on the back of higher margins of 5-7% clocked by the XPS and SCS Divisions compared to its core business of transportation, which enjoys low 2-3% margins. At the CMP, the stock trades at 12.1x FY2009E Earnings and 5x EV/EBITDA. Owing to a huge capital outlay, which will generate positive cash flows over a longer period of time, we have valued the company using the DCF model and have arrived at a 12-month Target Price of Rs77. We maintain a Hold on the stock.

B&K recommends BUY on Bharat Forge

Bharat Forge's (BHFC) results for the quarter were below our expectations as despite capacity ramp-up, margins contracted on a sequential basis. Another disappointment was the lower growth in exports. The lower proportion of dollar exports coupled with ramp-up in capacity utilisation should have led to better margins; however margin expansion continues to elude. Exports have been impacted by severe drop in exports to China. Despite good growth in exports to US, overall exports were only marginally up. At the consolidated level, China joint venture has incurred losses of Rs. 70 mn for April-December 2006 and management is aiming for break-even in the current year. Considering the disappointing performance during the year and lower growth in domestic and subsidiary operations, we are downward revising our FY08E and FY09E consolidated earnings by 7.5% and 2.5% to Rs. 17.9 and Rs. 23.8, respectively. The stock is currently trading at 18.4x and 13.8x our FY08E and FY09E consolidated earnings, maintain BUY.

B&K recommends SELL on IndusInd Bank

IndusInd Bank (hereinafter IIB) has reported a net profit of Rs. 214 mn in Q4FY07 as against a loss of Rs. 624 mn in the corresponding quarter last year. The results were below our estimates both at the top and bottom line due to lower than expected other income and higher operating expenditure. However after seven consecutive quarters of y-o-y de-growth, NII of the bank has shown marginal improvement during the quarter. Operating profits were also up by 50% y-o-y to Rs. 460 mn. However the concerns over business mix and asset quality still remains. Maintain Sell


B&K recommends BUY on Kalpataru Power Transmission

With impressive result for the quarter, Kalpataru Power closed FY07 with 140% jump in net profit, on the back of 81% growth in revenues. Growth was driven by good performance by transmission line segment, leading to strong volume growth and expansion in EBITDA margin (240 bps for the year). Its subsidiary JMC Projects also reported much-improved earnings growth during the year. With increasing share of exports and an order book of Rs. 23 bn, we believe Kalpataru is expected to post strong growth over the next two-three years. While growth in power transmission line continues to be robust, the company's growing presence in civil infrastructure business through JMC and foray into logistics business should provide long-term benefits to shareholders. We have raised EPS estimates for FY08E and FY09E by 3% and 8%, respectively, and maintain BUY with a revised target price of Rs. 1,686.

Flawed Mental Model - By Dhirendra Kumar

Here's a joke that has a great pedigree in the investment world. The father of value investing, Benjamin Graham, apparently used to narrate this story to his students and draw a parallel to the behaviour of stock market punters.

So this oil prospector dies and goes to heaven. At the gate, St Peter reads the account of his life and tells him that he's qualified for heaven, but there was a problem. “See that crowd over there? They're all oil prospectors who've arrived before you. And the way things work here, you can' get in until after them. So I' afraid this looks like a long wait for you.” “Not a problem", replies the man, “I know how to get rid of that crowd.” So he turns towards that crowd of oil prospectors and shouts out, "Hey, did you hear? Oil has been discovered in Hell.” And sure enough, as soon as they heard him, every single one of them ran off towards hell. Looking at this, St Peter reluctantly said, "Well, it seems your way is clear. You can enter heaven now." But the oil prospector had his doubts. “You know what? I think I'll follow the guys. The rumour could be true.”

As Graham used to point out, the oil prospector's behaviour has much in common with what passes for investment research nowadays. As sophisticated commentators would point out, their mental model of how the market works probably leads them to believe that if a lot of people believe in something, then it must be true. A mental model of something is our idea of how it works internally.

A flawed mental model can be a problem. For example, in the early days of email, a friend of a mine believed that if you reduced the font size in an email message, then the message would become smaller and therefore easier to send. It was a flawed mental model, or rather, it was the fax mental model being applied to email.

I believe one of the fundamental reasons why so many people have trouble investing in the stock markets is that they have severely flawed mental models of what determines a stock price. While there are many mental models of how the stock markets work, some are more common than others. Here's the commonest. “There are people who know when a stock's price is about to rise. If one of them tells me, then I can make money.”

This is the 'tip' model of the stock markets. It isn't so much a mental model as the lack of one. Unfortunately, this is a very common one. There seem to be a lot of people who believe that someone out there knows which way things will move and everything depends on somehow getting to know these secrets.

A little broader than the 'tip' model is the 'operator' model. Under the operator model, people believe that there are people (“operators”) who manipulate stocks and what one needs is to figure out what the operators are doing and then somehow, manage to ride the stock while the operator is pushing it. This model is actually realistic. Outside the big, high volume tickers, many, many stocks are routinely manipulated by the so-called 'operators', at least in the short-term.

However, this model is useful only for the operators themselves. To succeed, operators need greater and greater fools to buy into the stock they are operating on. Basically, if you are not an operator yourself, you are under considerable risk of giving away your money to an operator. There is, of course, yet another model. This one is about observing how much companies earn and estimating how much they'll earn in the future and how they'll compete and other things like that. But compared to the other two models, few seem to believe in it so I suppose it can't be very important.

JP Morgan - Torrent Pharma, Centurion Bank of Punjab

Torrent Pharmaceuticals Ltd, Overweight

Torrent has delivered 63% profit growth in FY07 and will double profits over next two years on the back of strong domestic and Brazilian branded business. We reiterate that this leverage will continue to drive growth even beyond FY09, as besides these markets, Torrent will drive growth even from other markets.

We increase our FY08 and FY09 estimates 8% and 5% respectively and set a new Mar-08 target price of Rs330, based on 15x FY09E EPS. The key risk to our call is if Heumann or domestic operations perform worse than our expectations.

Centurion Bank of Punjab, Overweight

Provisions more than doubled sequentially to Rs 563 mn .About Rs 132 mn was due to one time catch up impact of RBI's requirement for additional standard provisioning on certain categories of loans which pulled down pre-tax profit growth to 74% yoy. High effective tax rate of 40% resulted in 8% yoy growth in net profit.

Near term catalyst for the stock is lower foreign holding after RBI approves the LKB merger.

We are reviewing our numbers.


Consumer
India Consumer: Off the Shelf
Key highlights of our fourth edition of the consumer fortnightly:

Domestic : 1) HLL extends its premium soap brand 'Dove' into hair care segment with the launch of shampoos, conditioners and treatments under this brand to counter rising competition from L'Oreal in premium segment, 2) Godrej Consumer is planning to enter the shampoo segment with the launch of a mass market brand in near future. This is likely to intensify competition in this space which is currently dominated by HLL and Procter & Gamble, and 3) Diageo-Radico JV launches Masterstroke whisky targeting mid-premium segment in Maharashtra.

Key commodity trends: Palm oil prices continued their uptrend rising almost 5% over the fortnight. Expected tightness in soyabean (closest substitute) supply and increased demand for bio-diesel is leading to new highs for palm oil (now at over M$2500/tonne). On the other hand prices for wheat softened by 2% over the past fortnight on the back of steady crop arrivals.

International: 1) Luxury brand Christian Dior Couture is planning to set up its subsidiary in India and expand its operations, reflecting confidence of foreign luxury brands in India's fast growing luxury retailing market (35-40% growth p.a.), 2) UK based Cobra beer has announced plans to set up two Greenfield breweries in India.

Market Close: Profit booking ahead of F&O settlement

Markets were expected to be firm on good global cues...and it met the expections. No negative cues also added to the rally. Buying kept market bouyant across the board. Howeve IT counters continued to struggle as rupee hit new highs at 40.28 against dollar. After mid sessions markets gave up its gains along with IT. Banking counter is bit strong as inflation seems to be easing. But this is the base effect really. This effect will taper off next week on till about August from when again some moderation may happen. Auto again recovered particularly M&M post results.

The rupee turned stronger against dollar and quoted at 40.53/54 and buoyed by strong trend in equity markets. Market anticipated that the RBI's intervention as the rupee neared the crucial 40.50 level. In active trade at the Interbank Foreign Exchange (forex) market the local currency resumed higher at 40.55/57 a dollar from Friday's close of 40.58/59. It was later quoted at 40.28 in the trading session. The surge of rupee was attributed to absence of dollar demand from oil companies at the month-end. Major Software stocks continued to dipdown as the rupee hitting new highs.

Sensex ends up by 59 points at 14397.89. It was helped up by gains in HDFC Bk (1125.4,+5 percent), L & T (1785.05,+3 percent), Guj Ambuja (116,+2 percent), Maruti (825,+2 percent) and Cipla (208.25,+2 percent). Restricting the gains were HLL (200.5,-1 percent), Infosys (1964.65,-1 percent), Rel Energy (550.5,-1 percent), NTPC (162.3,-1 percent) and Satyam (469,-1 percent).

Electrical equipment maker Crompton Greaves intends to acquire Ireland-based Microsol Holdings for an enterprise value of around 10.50 million Euro (over Rs 57 crore). MHL is a part of the Microsol Group and has operations in the UK, US and Ireland. It provides sub-station automation for MV and HV to new sub-station and retro-fitting solutions for existing sub-stations. This acquisition will increase the company's strengths in the area of high-end engineering and sub-station automation capabilities. Power sector is the one where huge interest lies in. Crompton Greave is well established player here. We are positive on this one. The stock surged up by 7% on this news.

Oil Companies traded week. Indian Oil Corporation (IOC) reported its consolidated net profit of Rs 7867 Cr for the year ended March 31, 2007. Total income is Rs 202692.Cr for the year ended March 31, 2007 whereas it was Rs 162798 Cr for the year ended March 31, 2006. For the quarter ended March 31, 2007, the company posted a net profit of Rs 1609 Cr for the quarter ended March 31, 2007 whereas it was Rs 4030 Cr for the quarter ended March 31, 2006. Total income for the quarter ended March 31, 2007 was Rs 55412.07 Cr whereas it was Rs 51420 Cr for the quarter ended March 31, 2006. With the merger of IBP with IOC taking effect in the current quarter (January-March 2007) the previous year's figures do not include the financials of erstwhile IBP and hence are not comparable to those of the current year. The results met the market expectations. The stock closed up by 1.5% while its peers were marginally up by 1%.

Technically Speaking: Overall market traded at higher levels but profit booking triggered at the end. Sensex touched intraday high of 14570 and low of 14368. Sensex was unable to cross the major Resistance of 14520--14530 levels. We might see continued selling pressure till the expiry. On the lower side support at 14250 and 14160. Overall market turnover stood good at Rs 4148 Cr. Market breadth was in favor of Advances, where the Advances stood at 1470, Declines stood at 1094. Market is expected trade ranged as F&O expiry week.

Ramakrishna Forgings, EKC, Centurion Bank of Punjab, BPCL, Offshore Service Providers

Man Financial says Ramakrishna Forgings's topline is higher than
expectations, but faced pressures in the bottom line due to higher
depreciation and tax provisioning. They maintain a BUY with a target of
197

ICICIDirect recommends a BOOK PROFITS on EKC. At the current price of Rs
1063, the stock is richly valued at 20.79x its FY09E earnings per share of Rs 51.12. They believe that investors should book profits.

SSKI recommends OUTPERFORMER on Centurion Bank of Punjab

CBoP has reported Rs280m net profit (9% yoy growth) for Q4FY07 in line with our expectation of Rs282m. Higher standard asset provisioning led by one time hit of Rs198m (as expected) largely offset the benefits of the continued momentum in core income streams . Given its inherent duration mismatch, the bank was vulnerable to rising deposit rates leading to pressure on margins. CASA ratio also declined to 31% (decline of 300 bps QoQ ) considering the rapid balance growth . A latent significant operating leverage continues to be the key attractions of the bank. We have marginally downgraded numbers by 2.5% and 1% in FY08 and FY09 to reflect the higher provisioning. Going forward, we expect 46% CAGR in CBoP's earnings over FY07-09E. Though valuations of 4.2x FY08E and 3.8FY09E Adj P/BV appear expensive, they do not price in the high RoE generating capacity of the retail focused business model and low market cap/assets vis-à-vis peers . Maintain Outperformer.

SSKI Recommends OUTPERFORMER on BPCL

Bharat Petroleum Corporation's (BPCL) Q4FY07 results ¿ net profit of Rs 6.7 bn ¿were in line with our estimates of Rs 6bn. During the quarter, BPCL received Rs 9 bn in the form of oil bonds and Rs 11.84bn as upstream share that more than compensated for the negative impact of total under recoveries of ~Rs18.5bn. We upgrade the stock to Outperformer to factor in an expected improvement in fuel marketing margins driven by lower crude prices. Reiterate outperformer with a price target of Rs431.

Emkay recommends investing in Offshore Service Providers

We believe that fundamentals for offshore service providers remain extremely strong. Adding icing on the cake is the long term nature of contracts, which we believe provides unprecedented visibility of future earnings. We believe that the Indian offshore oil field services are very attractively valued with the group trading at an average two year forward P/E multiple of 8X. We believe a confluence of strong fundamentals, high earnings visibility, attractive valuation and strong possibility of re-rating should ensure superior stock performances by the entire pack of Indian offshore oilfield service providers. We initiate coverage on the sector with a positive view and BUY ratings on all the companies under coverage. Our top picks in the sector remain Aban, Great Offshore and Garware Offshore.


Sharekhan Recommends Aurobhindo Pharma

At the current market price of Rs684, Aurobindo is trading at 14.9x its FY2008E and 12.0x its FY2009E earnings. We initiate coverage on Aurobindo with a Buy recommendation and a one-year price target of Rs914 (an upside of 34% from the current levels). The price target discounts the FY2009E earnings by 16x.

Sensex settles just below 14,400

The BSE Sensex, which stayed above the 14,500 level, for most past of the day, suddenly started declining in late afternoon trade, on heavy profit booking.

It gained 59.44 points uor 0.41% to settle at 14,397.89. It opened higher at 14,467.85 and surged to strike an intra-day high of 14,527.47 in early trade, buoyed by strong buying momentum for index pivotals. Positive cues from US and Asian markets also helped the early momentum. It touched a low of 14,368.40, just couple of minutes before the closing bell.

Sensex is 325-odd points away from all time high of 14,723.88 struck on 9 February 2007.

The S&P CNX Nifty, which had struck an all-time high of 4,295.60 points in early trade today, settled with gain of 8.40 points or 0.20% to 4,256.55. Its earlier all time high was 4,291.40 of 23 May 2007.

Asian and European markets were trading mixed. Japan's Nikkei was up 0.61% or 106.38 points at 17,587.59 and Hong Kong's Hang Seng rose 0.04% or 9.10 points at 20,529.76.

The market breadth, which indicates overall health of the market was strong on BSE with under 1.50 gainers for every loser. 1470 shares advanced as compared to 1094 that declined, while 97 remained unchanged. It was much stronger at 10:30 IST, with over 3.5 gainers for every loser. 1143 shares had advanced as compared to 348 that declined, at that time.

The BSE Mid-Cap index was up 1.03% to 6,206.70, while the while the BSE Small-Cap index advanced 0.95% to 7,334.64

The market is expected to stay volatile over the next few days, ahead of the expiry of derivative series for the month of May 2007 scheduled on Thursday, 31 May 2007.

The total turnover on BSE amounted to Rs 4,194.04 crore, while the NSE F&O turnover amounted to Rs 39,304.2 crore.

Among the Sensex pack, 19 advanced while the rest declined. In early trade, all the Sensex constituents had advanced.

Shares from banking & financial sector staged a strong comeback today on renewed buying, with the BSE Bankex advancing 1.39% at 7,564.08, and was the top gainer among sectoral indices on BSE.

HDFC Bank surged 5.20% to Rs 1,125 on volumes of 1.01 lakh shares, and was the top gainer. Other shares from banking & financial space ICICI Bank (up 1.20% to Rs 924) and State Bank of India (up 0.43% to Rs 1304) advanced.

The BSE Bankex had declined on Friday, 25 May 2007, on rumours of the RBI, which has already raised the CRR thrice since December 2006, contemplating another hike, though only on incremental deposits this time. CRR is the percentage of deposits that banks are required to keep with the RBI. The RBI is particularly concerned about absorbing excess liquidity since it has lowered the inflation target from 5-5.5% to 4-4.5% for 2007-08.

Meanwhile, ICICI Bank has sought the approval of the Foreign Investment Promotion Board (FIPB) to offload up to 24% equity in its investment company, ICICI Holdings, proposed to be set up as a wholly owned subsidiary. ICICI Bank plans to transfer its investments in the ICICI companies, comprising ICICI Life, ICICI General, ICICI AMC and ICICI Trust, to ICICI Holdings at the book value of each of the respective investments, aggregating to Rs 222.8-crore as of 31 March 2007.

Housing finance major HDFC gained 1.66% to Rs 1849, following its announcement of raising Rs 3,114 crore by issuing equity on a preferential basis to US based Carlyle Group and Citigroup, for funding growth of HDFC’s banking and insurance subsidiaries. It will issue fresh capital amounting to 7.11% of its equity on a preferential basis. After the issue, HDFC’s total foreign holding will be 80.4%, up from the existing 78.9%. The shares would be priced at Rs 1,730 per equity share of Rs 10 each.

Andhra Bank (up 5.14% to Rs 91), Allahabad Bank (up 3.93% to Rs 88.50), Bank of Baroda (up 2.06% to Rs 275.95) and Oriental Bank of Commerce (up 1.04% to Rs 232.40) moved upwards.

PSU engineering major Bharat Heavy Electricals (BHEL) was up 0.85% to Rs 2725 after reporting 32.54% rise in net profit in Q4 March 2007 to Rs 1150.37 crore from Rs 867.95 crore in Q4 March 2006. Sales rose to Rs 6919.68 crore, from Rs 5515.69 crore in March 2006. The net profit rose to Rs 2414.70 crore in the year ended FY 2007, from Rs 1679.16 crore in FY 2006. Sales rose to Rs 17237.53 crore in FY 2007, compared with Rs 13228.26 crore in FY 2006. The results were announced after trading hours on Friday, 25 May 2007. Bhel had set 1 June 2007 as record date for a liberal 1:1 bonus issue.

ACC gained 1.16% to Rs 868, after RBI allowed FIIs to buy further shares of the cement major as their holding had slipped below 22%.

The ONGC scrip rose 0.52% to Rs 912, on reports, ONGC Videsh, the overseas arm of state-run Oil and Natural Gas Corporation (ONGC), plans to acquire Royal Dutch/Shell's 33% stake in a deep-sea gas field off Egypt for $160 million and bring the fuel in liquefied form (LNG) to India. Petronas of Malaysia has pre-emption right - it can match OVL's bid within 30 days.

Ranbaxy Laboratories rose 0.22% to Rs 382.50 after its wholly owned subsidiary, Ranbaxy Laboratories Inc. acquired from Bristol-Myers Squibb Company (BMS) the US rights to a group of 13 dermatology products. These brands will be sold in the US market under the Ranbaxy Laboratories Inc. label.

Index heavyweight Reliance Industries (RIL) slipped 0.45% to Rs 1719 on 3.24 lakh shares. The stock was highly volatile throughout the day, and moved in a range of Rs 1715 to Rs 1749.85. It will begin natural gas production from its Krishna Godavari fields in Bay of Bengal from July 2008 as planned.

After opening firm, IT pivotals declined, as Indian rupee was rangebound near a nine-year high on Monday, 28 May 2007, with state-run banks buying dollars possibly on behalf of the central bank. The BSE IT Index lost 0.9% at 4,915.25, and was the top loser among BSE sectoral indices.

Infosys Technologies lost 1.42% to Rs 1958.10 on 3.90 lakh shares, and was the top loser among IT pivotals. Wipro (down 0.83% to Rs 538), TCS (down 0.63% to Rs 1222) Satyam Computers (down 1.20% to Rs 466.20), HCL Technologies (down 2.97% to Rs 340) and i-flex Solution (down 2.06% to Rs 2180) declined. A rise in the rupee directly impacts revenue and profit of IT firms, which derive a lion’s share of revenue from exports to the US.

Tata Consultancy Services (TCS) increased its stake from 51% to 100% in the joint venture IT services Company TCS do Brasil. It acquired Grupo TBA's 49% stake for a consideration of $ 33.4 million. TCS do Brasil recorded a top line of $ 66.5 million for the year ended 31 March 2007.

Binani Cement settled at Rs 68.65 on BSE, a discount of 8.40% over IPO price of Rs 75 per share. The scrip listed on BSE at Rs 75, and surged to hit a high of Rs 79 and a low of Rs 67.45. The counter clocked high volumes of 57.62 lakh shares on BSE. The Binani Cement IPO was subscribed 1.36 times.

Brokerage firm India Infoline surged 32.39% to Rs 589.80 after four top officials - Bharat Parajia, H Nemkumar, A Dange, V Jagannath, from rival brokerage CLSA joined the company. It was the top traded counter on BSE with total turnover of Rs 134 crore. Unitech (Rs 124 crore), Advanta (Rs 120 crore), Reliance Natural Resources (Rs 109.50 crore) and Reliance Capital (Rs 98 crore) followed India Infoline, in that order.

Reliance Natural Resources (RNRL) topped the volumes chart with volumes of 2.89 crore shares on BSE followed by Reliance Petroleum (79.55 lakh shares), Dish TV (60 lakh sares), Binani Cement (57.60 lakh shares) and Nagarjuna Fertilisers (46 lakh shares).

Detergent maker Nirma surged 20% to Rs 198.30, after last week it received a green signal from Gujarat High Court to acquire pharma company Core Healthcare, rejecting opposition from minority lenders. Nearly 60% of the lenders to Core Healthcare sold their loans to Asset Reconstruction Company of India (ARCIL) after the company failed to service its dues.

iGate Global surged 9.27% up at Rs 352.20. Early last month, it had reported strong Q4 March 2007 results. iGate Global’s net profit surged 308% to Rs 21.42 crore in Q4 March 2007 as against Rs 5.25 crore in Q4 March 2006. Net sales rose 29.65% to Rs 195.19 crore in Q4 March 2007 from Rs 150.55 crore in Q4 March 2006. The net profit rose 1482.26% to Rs 49.05 crore in the year ended 31 March 2007. Net sales rose 32.62% to Rs 747.27 crore in FY 2007.

Thermax soared 9.27% to Rs 480.90 on expectations of strong results for forthcoming quarter due to an expected increase in captive power generation and strong growth in industrial tariffs. Products and solutions aimed at environment protection will also be important revenue-drivers for the company, going forward.

Welspun Gujarat Stahl Rohren rose 6.79% to Rs 172.10. The Welspun scrip has been in continuous uptrend since it announced good quarterly performance on 14 May 2007 and its healthy order book also kept the momentum alive in the stock over the past few days.

Net profit of Welspun Gujarat Stahl Rohren soared 113.92% to Rs 41.50 crore in the quarter ended March 2007 (Rs 19.40 crore). Sales rose 13.06% to Rs 728.10 crore in the quarter ended March 2007 (Rs 644.00 crore). Welspun's current unexecuted order book stands at Rs 4000 crore. This will be executed in the next 12-18 months.

Mahindra & Mahindra rose 0.72% to Rs 737 even as it during trading hours today, 28 May 2007, reported 26.5% fall in net profit in Q4 March 2007 to Rs 236.04 as compared to Rs 321.18 crore same period previous year. Sales rose 20.9% to Rs 2782.81 crore in Q4 March 2007 (Rs 2302.61 crore). Net profit soared 24.7% to Rs 1068.39 crore in the year ended 31 March 2007 compared to Rs 857.10 crore in FY 2006. Sales rose 23% to Rs 10245.22 crore in FY 2007 (Rs 8326.54 crore).

Crompton Greaves soared 7.59% to Rs 243 on company’s plan to acquire a European firm Microsol Holdings together with other companies in Microsol group for 10.50-million euros. Microsol Holdings is based in Ireland with operations in UK, USA and Ireland and is engaged in the business of providing sub-station automation for MV and HV sub-stations. This acquisition will increase Crompton Greaves' strengths in high-end engineering and sub-station automation capabilities.

Tata Tea gained 2.56% to Rs 937 after selling its stake in US-based Glaceau to Coca-Cola It announced after market hours on Friday, 25 May 2007, that it would receive about $1.2 billion for selling its 30% stake in vitamin water maker Glaceau to Coca-Cola. This is nearly twice what it paid for it. Tata Tea’s UK subsidiary, Tata Tea (GB) investments held a 25%stake, and its holding company Tata Sons the other 5%.

Suzlon Energy slumped 7.21% to Rs 1279 on volumes of 6.97 lakh shares on BSE. It had surged 18.94% to Rs 1378.45 on high volumes of 17.46 lakh shares, after the world’s sixth largest wind turbine generator finally secured German REpower as French major Areva opted out of the race. Suzlon's last bid for REpower was also at 150 euros per share, valuing it at 1.5 billion euro.

According to Tulsi Tanti, Suzlon's chairman, his company effectively holds 62% stake in REpower through its partnership with Portugal's Martifer and as per the agreement with Areva. The acquisition will be EPS accretive from FY 2008, and will make Suzlon the fourth largest wind turbine maker in the world with an integrated power generation capacity of 3400 megawatt, which includes REpower capacity.

Ashapura Minechem jumped 4.19% to Rs 267.50 after two block deals of 5 lakh shares each (amounting to a little under 2% stake changing hands) were struck on the counter on BSE at an average price of Rs 264.05 per share by 11:42 IST. The counter saw high total volumes of 13.56 lakh shares on BSE.

Northgate Technologies soared 10% to Rs 1122 after its board recommended a liberal 1:1 bonus issue (one equity share for every one equity share held) for equity shares.

Real estate developer Unitech surged 8.66% to Rs 594.40, after its board also recommended issue of 1:1 bonus issue. This is the second bonus issue from the company in the last 12 months.

Unitech posted nearly 15-fold spurt in consolidated net profit to Rs 1,305.49 crore for the year ended March 2007, when compared with Rs 87.64 crore in the same period a year ago. Consolidated total income jumped over three times to Rs 3,388.36 crore (Rs 954.50 crore).

US stocks rose on Friday as takeover news, including Nasdaq's plan to buy Nordic exchange company OMX, boosted investor optimism, although trading was light ahead of a long holiday weekend. The Dow Jones industrial average gained 66.15 points, or 0.49%, to end at 13,507.28.

The Standard & Poor's 500 Index rose 8.22 points, or 0.55%, to finish at 1,515.73. The Nasdaq Composite Index climbed 19.27 points, or 0.76%, to close at 2,557.19. All US financial markets will be closed on Monday, 28 May 2007, in observance of the Memorial Day holiday.

Foreign institutional investors were net sellers to the tune of Rs 147.10 crore on Friday, 25 May 2007.

Crude oil fell in New York on speculation US fuel prices may ease as refiners increase output to meet summer demand. Crude oil for July delivery fell as much as 47 cents, or 0.7%, to $64.73 a barrel, in after-hours electronic trading on the New York Mercantile Exchange today.

Brent crude oil for July settlement was at $70.35 a barrel, down 34 cents, on the London-based ICE Futures exchange.

Meanwhile, as per report, the Securities and Exchange Board of India (Sebi) is set to roll out a more sophisticated version of short-selling in equity markets for both domestic and foreign institutional investors (FIIs) in the first week of July. This comes after a gap of more than six years.

Under the proposed scheme, short selling in individual scrips will be capped at 10% of the free float of shares of any company. The free float of a listed security is the proportion of shares available for purchase in the market by investors.

It may be recalled that short-selling was banned by Sebi on 7 March 2001, following a crash in stock prices.

Market gains 59 points

The strong global markets and prevailing strong bullish sentiment helped the Sensex to open with a huge positive gap of 130 points at 14468. The wide-based National Stock Exchange's Nifty hit an all-time high of 4296 points within the mid-morning trades. The Asian indices like China's Shanghai Composite Index and South Koria's KOSPI Composite Index also hit news highs, while a rally in metal prices and a stronger dollar helped to add gains in the Japanese export shares. Mirroring the same the Sensex gained 189 points on touching the day's high of 14527. The buoyancy in heavyweights and banking stocks kept the market bias up but the market moved in a narrow range throughout the session. Profit booking in a few front-line stocks towards the close dragged the Sensex to the intra-day low of 14368. The Sensex finally wrapped up the session with the gains of 59 points at 14398. The Nifty closed the session at 4257 by adding nine points.

The breadth of the market was positive. Of the 2,661 stocks traded on the BSE, 1,470 stocks advanced, 1,094 stocks declined and 97 stocks ended unchanged. Among the sectoral indices the BSE Bankex advanced by 1.29% at 7564 followed by the BSE Auto index (up 1.19% at 4918) and the BSE HC (up 1.26% at 3793). However, the BSE IT index, the BSE Metal index and the BSE Teck index closed in negative territory.

Select front-line stocks notched up significant gains. HDFC Bank rose 5.23% at Rs1,125, L&T advanced 2.65% at Rs1,785, Gujarat Ambuja Cement climbed 1.93% at Rs116, Maruti Udyog surged 1.87% at Rs825, Cipla scaled up 1.61% at Rs208, Bajaj Auto added 1.49% at Rs2,203, HDFC jumped 1.45% at Rs1,845, ACC moved up by 1.39% at Rs870, Reliance Communications gained 1.28% at Rs510 and ICICI Bank was up 1.01% at Rs922. Among the laggards, HLL slipped by 1.28% at Rs201 and Infosys dropped 1.09% at Rs1965 while Reliance Energy, NTPC, Satyam Computer, Wipro, TCS and Bharti Airtel ended with marginal losses.

Banking stocks were in the limelight. Andhra Bank soared 5.43% at Rs91, Allahabad Bank jumped 4.99% at Rs89, Bank of Baroda scaled up 2.14% at Rs276, Oriental Bank advanced 1.85% at Rs234 and Canara Bank gained 1.63% at Rs262.

Over 3 crore Reliance Natural Resources shares changed hands on the BSE followed by Reliance Petroleum (79.56 lakh shares), Dish TV (60.16 lakh shares), Binani Cement (57.62 lakh shares) and Nagarjuna Fertilizers (46.09 lakh shares).

Value-wise India Infoline registered a turnover of Rs134 crore on the BSE followed by Unitech (Rs123 crore), Advanta (Rs119 crore), Reliance Natural Resources (Rs109 crore) and Reliance Capital (Rs98 crore).

IPCA, NIIT Technologies, Tera Software, Carborundum Universal, ITC

Emkay in their report on IPCA say

Ipca Laboratories (Ipca) is a integrated pharmaceutical company with a strong thrust
on exports (contributes 53% of sales). In 9MFY07, Ipca¿s net profit rebounded by 100% on account of a) successful shift of focus from generic formulations to branded
formulations, b) new products launches in fast growing life style segments such as
cardiovascular, central nervous system and pain management , c) partial recovery of
its business in the UK and d) focused approach on key customers to build long term
relationships. We expect Ipca¿s revenues and EPS to grow at a CAGR of 15% and 20% over FY07-09E respectively, with an EPS of Rs. 68.6 in FY09E. At CMP of Rs.624, the stock trades at 11x FY08E and 9.1xFY09E earnings. We initiate coverage on Ipca with a BUY rating and a target price of Rs.820, i.e. an upside of 31%. Our price target for Ipca is based on 12x FY09E earnings.

Emkay in their report on NIIT Tech say

NIIT Technologies Ltd. (NTL) reported very strong set of Q4FY07 numbers. Revenues
grew by 5.2% qoq to Rs 2,435 mn in line with our expectations. ROOM Solutions
reported 5.4% qoq growth and BPO grew 7% qoq. Operating margins of BPO improved from 4% in Q3FY07 to 10% in Q4FY07. EBITDA, on a whole, improved by 60 bps to 21.9%. EBITDA grew by 8.5% qoq to Rs 534 mn, slightly above our expectations of Rs 525 mn. With higher yield on investments, write back of doubtful debts and refund of withholding taxes, other income jumped 70% qoq to Rs 56 mn. With higher other income and lower depreciation and taxes, PAT grew by healthy 33% qoq to Rs 460 mn, above our expectations of Rs 367 mn. EPS for Q4FY07 stood at Rs 11.8. The company has declared dividend of Rs 6.5 and maiden bonus of 1 share for every 2 shares held.

Karvy in their report on Tera Software

The company has healthy order book of worth Rs. 2,500 mn which is growing with new project wins. Also, the current Central and State Government spending in this area is estimated to be Rs. 20 bn a year and is expected to increase significantly in the future. Thereby creating huge opportunities for players in this segment Given the historical growth in government spending and considering that at present only
seven states are working on this front, gives us further confidence of the good times ahead.

SSKI maintains OUTPERFORMER on Carborundum Universal

SSKI maintains OUTPERFORMER on ITC, In their report,

We expect a marginal decline in cigarette sales over the next couple of quarters because of VAT and the consequent price hikes. However, we believe that with an average cigarette revenue growth of 13.3% over the last eight quarters, ITC will be able to tide over any slow-down and expect sales to be back on track. Furthermore, we still expect ITC to exhibit strong revenue growth in FY08, as we think the other segments like foods, agri-business and hotels will continue to show strong growth momentum. We continue to remain impressed with ITC's business model and its capacity to stay invested in new ventures. While the stock has underperformed the Sensex over the last 12 months because of the uncertainty over VAT, we believe there are substantial growth triggers in place and continue to see value in ITC. At 16.4x FY09E earnings, we reiterate our Outperformer rating.

Trade with bulls

The market opened up with a gap of around 100 points and picked up from where it had left last Friday. With bulls dominating the opening session the short-term traders are trading with a positive frame of mind. As KST in the hourly chart shows a clear buy signal, we expect further buying in the second half of the trading session
as bears are likely go for short covering. The market breadth is indicating a positive bias with 1,515 advances and 587 declines. The index is likely to have strong
support around 14358 level, which was Friday’s close, and on breaching this level it is likely to take support around 14101, which is 100-hour moving average. The index is
likely to have resistance around 14600 level, which is our medium-term target, and on breaching this level it is likely to touch an all-time high of 14724. Our short-term bias is
positive with the target of 14400 already achieved and upgraded to 14600. Our medium-term bias is positive with target raised from 14600 to 14700.

We have a positive bias on Bombay Dyeing as it has strong support around Rs566, which is around 10-day moving average, and resistance around Rs769-781 levels. We have a positive bias on Canara Bank, which is having resistance around Rs261-265 levels and support around Rs252 level. We have a positive bias on REL with support around Rs552 level and resistance around Rs569-576 levels.

Daily Trading Calls

RNRL below Rs 35.25 with stop loss at Rs 34.75. (Intraday)
Patni Computers below Rs 555 with stop loss at Rs 545.( Intraday)

Polaris Software with stop loss of Rs 152, for a short-term target of 183.
SMS Pharmaceuticals with a stop loss of Rs 332, for a short-term target of Rs 394 and medium-term target of Rs 425.

SKF India with stop loss of Rs 460 - Target of Rs 600.
Patni Computers with stop loss of Rs 500 - Target of Rs 650.

Mphasis with stop loss below Rs 304 - Target of Rs 323 and 329 (Intraday)
Infosys Technologies with stop loss below Rs 1975 - Target of Rs 2042 (Intraday)


IFCI at Rs 46.55. Stop Loss at Rs 45.50 (Intra-day)
Essar Oil at Rs 58.40. Stop Loss at Rs 57 (Intra-day)

SAIL above Rs 150. Stop Loss at Rs 146 (Intra-day)
BHEL at Rs 2754-2668-2593. Stop Loss at Rs 2395. Target of Rs 3521-5230
Reliance Communication at Rs 517. Stop Loss at Rs 510 (Intra-day Call)

House Chitter Chatter - May 28 2007

SSKI maintains OUTPERFORMER on BHEL as they believe valuations are
attractive.

Kotak PCG recommends HOLD on Suzlon Energy with a target of Rs 1500. In
their report, they say at the EPS estimate of Rs.49.2 in FY08 and Rs.66.1 in FY09, the stock is trading at 28x and 21x FY08 and FY09 estimates, respectively. The impact on the revenues of Suzlon from the acquisition would be marginal in FY08. Suzlon deserves to be re-rated because it is in the forefront of technology in wind power. The company also has an edge over other wind power majors in terms of control over wind power components like gear box (which is currently facing a supply crunch). The stock had a very sharp re-rating on Friday, rising 22% in a single day itself.
Kotak retains their HOLD rating on the stock with an enhanced price target of Rs.1500.

Kotak PCG recommends BUY on BHEL, Bhel's audited results are close to the provisional results it had earlier reported for FY07. For the quarter, the company has reported a 33% rise in earnings. Bhel continues to focus on its growth
strategy and endeavors to maintain its dominant market share in
installing power generation capacity in India. The company has doubled
its turnover over the last three years and plans to reach US$10 bn by
2011-12 from US$4.25 bn currently. The record date fixed for the purpose
of 1:1 bonus is June 1, 2007. Kotak reiterates the BUY call with a price target of Rs.2850.

ENAM puts UNDERPERFORMER on Suzlon Energy with a target of Rs.1100

CLSA maintains UNDERPERFORM on ITC with a target of Rs.150


Kotak Institutional in their report on ITC say "ITC reported 24.5% net sales growth, 15.9% EBITDA growth and 14.7% PAT growth during 4QFY07 against our expectation of 8.9%, 16.9% and 11.5% respectively. ITC retained growth momentum across businesses—cigarettes, FMCG, hotels etc reporting high double-digit revenue growth. However, EBITDA growth lagged the sales growth due to faster revenue growth in low margin agri-commodity business. We believe that a robustbusiness environment (both in urban and rural markets) will likely help ITC in maintaining cigarette volumes despite a hefty 20-24% price hike being taken to recover the higher incidence of excise (increased by 6%) and introduction of VAT at 12.5%. Several state governments have issued the notification for levy of 12.5% VAT on cigarettes. We retain our OP rating on the stock with DCF based target price of Rs215/share."

Kotak Institutional maintains Outperform rating on the Mothersun Sumi with our SOTP target price unchanged at Rs120. This is based on a DCF value of Rs107 for MSSL
stand-alone and Rs13 for value in key subsidiaries at 12X contribution to FY08 EPS.

Kotak Insitutional maintains Outperformer on IPCA with a target price of 800, and say "We expect net profit growth of 20% for the next two years, on the back of
18% revenue growth. Focus is on branded sales (emerging economies) and a low cost
structure—maintain OP."

Kotak Institutional recommends Inline on HDFC and retain IL rating with target price of Rs1,550.

Kotak Institutional on Suzlon Energy say "Suzlon Energy has announced a cooperation agreement with Areva to end the bidding war. As per agreement Areva would vote along with Suzlon (providing voting control) while Areva gets option to exit after one year. Accelerated volume growth, integration of complementary product portfolio and R&D and component availability for Repower would provide synergy benefits. We estimate that Repower acquisition is marginally value destructive but strategic benefits such as European presence and offshore technology overweighs such concerns. Deferred payment structure moderates near term impact on Suzlon's balance sheet and creates window of opportunity to complete the committed capital expenditure before payouts to Martifer and Areva. We maintain our outperform
rating on the stock on back of (a) increasing government support for renewable energy across the globe and (b) Suzlon's positioning to leverage those opportunities to gain further market share. Sharp 19% appreciation has led to attainment of our price target of Rs1,390/share, however, we believe that there would be further upside when we reset our target price on FY2009 basis. Key catalysts would be (a) capacity expansion plan, (b) visibility of synergies and consolidation of stake in Repower (c) order inflows building visibility for FY2009 and FY2010. Key risk for this deal includes the fact that the price of Areva's exit is not fixed and another bidder may queer the pitch of Suzlon."

Kotak Inst have a target price of 420 for Indiainfoline

Kotak Inst have a target of 400 for ABG Shipyard

Morning Call - May 28 2007

Market Grape Wine :

Out House :

Markets at a support of 14104 & 14253 levels with resistance at 14465 & 14532 levels .

Buy : RIL & REL

Buy : Divis & Suzlon

Buy : IDEA & IDFC

Buy : UTV & RajTV

Buy : CenturyTextile

Buy : Sail

Buy : Praj & RNRL

Dark Horse : Asian , RNRL , Praj , TataTea , PSTL , IDFC , IDEA , Redington & Sail

Bullet for the Day : Patni , RNRL & PSTL with strict stop loss .

Morning Notes

US markets were POSITIVE & Asian markets are trading POSITIVE.
Levels for NIFTY - support at 4229-4212-4198 & resistance at 4264-4291-4319.

Bias for markets is Positive for the day…

Possible target for NIFTY – 4280-4310

Coca-Cola Company has approved the purchase of vitamin water maker Glacèau for $4.2 billion in cash and coke stock due to this; Tata tea will make profit of Rs 247 per share but Tata tea has told that the sale proceeds will be used to acquire other companies.

ITC - Q4FY2007 net profit grew by 14.7% year on year (yoy) to Rs650 crore against market Expectation of Rs 678 Cr, which was below our expectations - At the current market price of Rs165, the stock is attractively quoting at 20.8x its FY2008E earnings per share

Sector Update – FMCG - The rising prices of vegetable oils has forced FMCG companies to effect price hikes across products.

We have introduced Aurobindo Pharma as new stock idea.

Results today: Asahi India, Dishman Pharma, HOV Services, IOC, Indraprashtha Gas, IVRCL infra, Jindal Stainless, M&M, Nagarjuna Construction, Rane Madras, Sagar Cement, Unitech

Stocks with +ve bias: M-phasis, Gail, R cap,

Stocks with short term Delivery: NTPC, Sesa Goa, HCL Tech, Essar Oil,

Stocks for investment: NIIT tech, JP Associates, Saregama, Infosys, Lupin, Thermax, Unichem Labs

Intraday Stock Ideas

NIFTY (4248) SUP 4198 RES 4305

BUY JSTAINLESS (163.60)
SL 159 T 171, 173

BUY GAIL (294.75)
SL 290 T 302, 305

BUY WIPRO (543.40)
SL 538 T 555, 585

SELL GHCL (133)
@ 135 SL 139 T 123, 120

SELL BANKINDIA (207.80)
@ 210 SL 214 T 200, 198

STRATEGY INPUTS FOR THE DAY

Bulls set for a firm start

The day you take complete responsibility for yourself, the day you stop making any excuses, that's the day you start to the top.”

The bulls caught most of us unawares on Friday as they beat aside all concerns including weak global markets and staged a smart bounce back. After a choppy week, which ended on a strong note, we expect the bulls to begin the new trading week on a positive note. This is purely because of relentless FII inflows and firm global markets, though rising crude oil prices are a cause for concern. But, the market may remain volatile ahead of the F&O expiry on Thursday.

A lot of stock centric action will continue. Small-cap and mid-cap shares will remain in the limelight. Having said that one has to be extremely careful while buying these stocks as they may turn out to be millstones around one's neck when the market corrects. With the Sensex having recovered nearly 2000 points from the March lows, there are a few worries with regard to valuations. As a result, it may be prudent for one to lock in some gains and keep some cash handy for better bargains in future.

Among the key results today are M&M, IOC, Unitech, IVRCL, Nagarjuna Constructions and Jindal Stainless. Binani Cement, a subsidiary of Binani Industries, will make its debut on the bourses today. Expect the stock to be under some pressure as the issue was not heavily subscribed. TCS may gain as the company has bought outs its partner in its Brazilian joint venture. Tata Tea may appreciate a bit more after it sold its 30% stake to Coke for US$1.2bn.

Hero Honda may be in action as it launches a new bike today. Idea Cellular may attract some attention amid reports that it is contemplating a merger with Spice Telecom. Sangam India may rise amid market grapevine that it is selling a small stake to Nimesh Kampani. Tyre companies are also expected to do well due to positive business outlook. ACC is likely to gain as the RBI has permitted fresh purchases by overseas investors.

FIIs were net sellers to the tune of Rs2.04bn (provisional) in the cash segment on Friday. Local institutions pumped in Rs1.71bn on the same day. In the F&O segment, foreign funds offloaded stocks worth Rs7.82bn. On Thursday, FIIs were net buyers of Rs3.19bn in the cash segment. Mutual Funds were net sellers of Rs4.1bn on the same day.

On Wall Street, more M&A news helped stocks end higher on Friday in light trading ahead of the extended holiday weekend at the end of an otherwise lower week. After rising for seven straight weeks, the Dow Jones Industrial Average and the S&P 500 ended down on the week. The Nasdaq Composite finished flat during the week.

On Friday, the Dow was up 66.15 at 13,507.28, after hitting an all-time intraday record in the previous session. For the week, the Dow lost around 0.4%. The S&P 500 rose 8.22 to 1,515.73, just about 12 points below its all-time closing high of 1,527.46 from March 2000. On the week, the S&P 500 lost about 0.5%. The Nasdaq gained 19.27 to 2,557.19, after touching a six-year high earlier in the week and ended the week barely lower.

A reading on April existing home sales came in weaker than expected. But investors didn't seem too concerned, especially following the strong reading on new home sales released Thursday. This week is a busy one on the economic front, with reports due on housing, manufacturing, consumer confidence, GDP, inflation and the labor market. The lone earnings report of interest is Dell, which is due to report results on Thursday.

Treasury bond and commodity markets closed early ahead of the holiday. Treasury prices slipped, raising the yield on the 10-year note to 4.86% from 4.84% late on Thursday. COMEX gold for June delivery rose $2 to settle at $655.30 an ounce. In currency trading, the dollar slipped versus the euro and the yen, giving up gains after the weak housing market report. US light crude oil for July delivery rose $1.02 to settle at $65.20 a barrel on the New York Mercantile Exchange.

European shares traded in a tight range ahead of a long holiday weekend for most countries. The pan-European Dow Jones Stoxx 600 index was virtually unchanged at 393.37. The UK's FTSE 100 closed up 0.1% at 6,570.50, the German DAX Xetra 30 added 0.5% to 7,739.20 and the French CAC-40 rose 0.2% to 6,057.49. Most European equity markets will be closed on Monday.

Most emerging markets closed higher. The Ibovespa in Brazil was up 2.15% at 51,617 while the IPC index in Mexico advanced 1.2% to 30,700 and the RTS index in Russia was up 0.2% at 1794.

Most Asian markets are up this morning after metals prices increased and the yen weakened against the dollar and euro. The Morgan Stanley Capital International Asia-Pacific Index rose 0.4% to 148.30 at 12 p.m. in Tokyo, ending a two-day, 1.5% drop.

China's CSI 300 Index climbed above 4,000 for the first time. The benchmark has tripled in the past year. South Korea's Kospi index also rose to a new high, while Japan's Nikkei 225 Stock Average added 0.7% to 17,599.43, rebounding from its biggest loss in a month.

Markets rose for the first time in three days as bulls fought back to find some direction. Satyam Computer, Wipro and Infosys led from front on expectations the rupee may decline against the dollar from a nine-year high, improving their earnings from sales to the U.S. Suzlon, Patni, Zee Telefilm and RPL were the star performer of the day out performing the key indices.

All the key sectoral indices finished in green except for the Bank and Consumer Durable index. Finally, the 30-share Sensex ended higher by 120 points to close at 14338. NSE-50 Nifty gained 43 points to close at 4248.

L&T surged by 2% to Rs1738 as reports stated that the Government would give the Raksha Udyog Ratna status for lucrative defence procurements and defence contracts. The scrip touched intra-day of Rs1743 and a low of Rs1670 and recorded volumes of over 5,00,000 shares on NSE.

Tata Tea rallied by over 3.8% to Rs915 on reports that Coca Cola agrees to buy Glaceau. The scrip touched intra-day of Rs941 and a low of Rs860 and recorded volumes of over 12,00,000 shares on NSE.

ITC edged higher by 0.5% to Rs166 after the company announced its Q4 result with net profit at Rs6.5bn and net sales at Rs34.66bn and also has announced that they would pay dividend of Rs3.1 per share. The scrip touched intra-day of Rs168 and a low of Rs163 and recorded volumes of over 38,00,000 shares on NSE.

Suzlon rallied by over 19% to Rs1376 as the company has finally won the bid for acquiring Germany's REpower. The scrip touched intra-day of Rs1418 and a low of Rs1139 and recorded volumes of over 39,00,000 shares on NSE.

Patni Computer spurred 8% to Rs549 after RBI approved the increased investment limit in Patni, overseas investors can now buy as much as 74%. The scrip touched intra-day of Rs553 and a low of Rs501 and recorded volumes of over 15,00,000 shares on NSE.

Technology stocks were back in action. Satyam Computer gained by 3.2% to Rs471 Wipro was up by 2% to Rs543 and Infosys added by 0.4% to Rs1985.

Metal stocks gained momentum towards the end. Sterlite Industries advanced by 2.5% to Rs546, SAIL gained by 1% to Rs148 and Hindalco added 0.2% to Rs144. However, Tata Steel dropped by 1.4% to Rs623, and Hindustan Zinc declined by 1.8% to Rs656.

Telecom stocks were a mixed bag. Index heavy weight Bharti Airtel edged lower by 0.3% to Rs834, VSNL was down 1.4% to Rs466. However, Idea advanced by 4% to Rs125 and Reliance Communication added 2% to Rs504.

Auto stocks witnessed fresh buying interest. Tata Motors was up by 2% to Rs726, Hero Honda gained 0.7% to Rs679 and Bajaj Auto added 0.2%t o Rs2170.

Volume Toppers:
RNRL, RPL, Nagarjuna Fertilizers, Idea, SAIL, TTML, R Com, Tata Steel, NTPC, Suzlon, ITC, Satyam Computer, Deccan Aviation, Voltas, HLL and Essar Oil.

Upper Circuit:
Raj Tele, United Breweries, Aurionpro Solutions, PTC India, Thomas Cook, Eicher Motors, DCHL, Tripex Overseas, Torrent Pharma and Anant Raj Industries.

Delivery Delight:
Alstom Projects India Ltd, Bank of India, BEML, BHEL, BPCL, Corporation Bank, Crompton Greaves, Gujarat State Fertilizers, HCL Technologies, Hero Honda, HLL, HPCL, ONGC, Satyam Computer and Wipro.

Abnormal Delivery:
Balrampur Chini Mills, Rolta, J&K Bank, Wockhardt, BEL, Bank of India, Gujarat State Fertilizers & Chemicals Ltd, Aurobindo Pharma and Crompton Greaves.

Stock Futures with largest increases in OI:
Crompton Greaves, Deccan Aviation, Financial Technologies, Moser Baer, Ansal Property, United Spirits, Suzlon and GAIL

Stock Futures with Decreases in OI:
Voltas, Tata Motors, Indian Bank, Aban Offshore, JP Associates, Strides Arcolab, Infosys, NTPC and BPCL

Results Today:
Aegis Logistics, Asahi India, Dwarikesh Sugar, HOV Services, IOC, Dishman Pharma, M&M, Northgate Technologies, IVRCL, Jindal Stainless, Nagarjuna Constructions, Saksoft, Unitech and IGL.

Results Corner:
IPCA Labs Q4 net profit at Rs276.5mn (up 5.3%), revenues at Rs2.22bn (up 27.5%).

Brokers Recommendation:
R Com - Outperform from CLSA with target of Rs514.

Long Term investment:
Wipro

Major News Headlines:

Inflation rate was 5.27% in week ended at May 12

Tata Tea sells its 30% stake in Glaceau to Coke for US$1.2bn

IOC signs agreement with Sri Lanka Government

HDFC to sell shares at Rs1730 apiece to Citigroup, Carlyle units

Strides Arcolab receives USFDA approval for its Sterile facility

Triveni Engineering to sell stake in Abohar Power generation

RBI allows FII investors to buy more shares of ACC

SAIL to spend Rs80bn on adding capacity

ITC approves setting up strategic business unit for home & personal care products

Reliance says no refinery shutdown planned this year

Suzlon wins the bid for acquiring Germany's REpower

Overseas investors can now buy as much as 74% of Patni

Apollo Tyres Ltd.

Q4 FY07 Result Update

ATL’s operating margin has gone up yoy by 340 bps to 11% for Q407. For full year operating margin has gone up by 90 bps to 9.4%. NR price has gone up on an average by 21% in Q4FY07 on yoy basis. ATL has hiked tyre prices for most of its variants in the region of 15-20% in FY07. NR price has started coming down in the past one month due to sluggishness in international markets and rupee appreciation. We expect ATL’s margins to improve to 9.7% and 9.9% in FY08 and FY09 respectively.

ATL’s sales volumes have increased by 7% for Q4FY07 on yoy basis and 9% for FY07 vs FY06. Capacity utilization for the full year was at 95%. We estimate volume growth to be around 7-7.5% for next two years as major capacities are coming in second half of FY09. Improved performance is expected in PCR segment and moderate growth is expected in CV segment for ATL.

NR price has started coming down in the past one month and ruling at Rs84 per kg presently in domestic markets. We have considered a Rs2 reduction in our per kg estimate for FY08 and FY09 to Rs94 per kg. We expect tyre companies to pass on the benefit to improve volumes and counter increasing imports if the average rubber price comes down sharply.

Dunlop Tyres (South Africa)
has made 10bn sales with EBIT margin of 9.8% and 1.9% PAT margin for FY07. EBIT margin has improved from 7.7% in H1FY07 to 12.4% in H2FY07. We expect volume growth of 10% for DTL in FY08 and FY09.

We have revised upwards our EPS estimates for FY08 and FY09 from 27.0 and 31.2 to 29.0 and 33.5 respectively to give effect for rubber price reduction. We expect tyre companies to improve volumes as economy progresses well and not to get affected due to slowdown in automobile sales. We revise our target upwards from Rs397 to Rs424. Our target discounts FY09 estimated earnings by 12x and giving Rs22 per share for Dunlop Tyres (South Africa), earnings.

Morning Murmur

Markets are likely to begin the week on a buoyant note. Coaxing the stocks higher will be the bullish sentiment that prevailed on Friday, when Dalal Street downed its shutters for the week. The international cues this morning would only fuel this morning rally. The US markets would be closed today for the Memorial Day holiday. So the local punters could call the shots on Tuesday as well as there would be no US clue.
Both the Nifty and the Sensex have taken support from the upward sloping trendline formed by joining the April 2 and May 11 lows. The bounceback for both indices occurred around the support levels on this trend line, bringing credibility to thebounce and the line. The biggest thing to watch would be the IT sector, where OI has risen by Rs 1977 Cr and the CNX IT has not gone anywhere, though the Nifty has inched up by 1.7%. The IT stocks are likely to open higher and could lead the rally. They can also pose the greatest risk, whenever the rally stalls. Meanwhile, a report in the press, saying that the SBI will extend its footprint to one lakh more villages in the next two years could give sleepless nights to the MNCs in the
business.

Last week, when Dalal street downed its shutters for Friday, the Open Interest (OI), a sum total of all contracts in the Futures and Options segment , reached an all time high mark of Rs 66,427 Cr. The earlier record was Rs 63,586 cr seen on January 24th this year.

This has prompted some alert Television anchors to raise an alarm over the weekend. It is customary for the media, whether print or electronic, to raise a red flag, whenever earlier records are broken. Ever since the global market Pundits blamed the high OI at that time, Rs 54, 156 Cr to be precise, for the May debacle that sliced off 3872 points of the Sensex, the markets have shivered whenever OI has gone up.

While on the surface, a higher OI is a logical concern, but a study of the composition tells you that the heavens are not going to fall because of this. The markets are better place than what they were last May, from a derivatives perspective.
The first reason is that the share of the Nifty OI out of the Total OI , is 48% today as compared to just 30% then. Trading in the Nifty is more liquid . Puts and Calls are also more liquid in the Nifty. If a trader has a bullish view and has bought the Nifty futures, he can conveniently buy a Put in the Nifty, which prevents any further losses at the same time keeping his upside gains open.

The Puts and Calls in individual stocks are not that liquid. In a stock like Glaxo, you may not find a seller of Call or Put and even if you do, it will be at a price, which will be closer to the moon than terrafirma. So a high proportion of Nifty OI means, that the traders are in a relatively safer terrain, where exit is possible, with limited losses.
That brings us to the second piece of vital statistics. What is the proportion of Stock Futures to the total OI. 64.92% of the OI in May 2006, consisted of Stock Futures. The ratio at present is only 45.80. This is again very healthy.

And here is the clinching evidence. Aggregate Stock Futures in absolute terms today stand at Rs 30,277, lower than what they were in May, 2006, at Rs 34,784 Cr.
This is despite a higher Index , a higher total OI and more number of stocks in the F&O segment. The number of stocks in the segment last year were 118. Today they are 186. This data effectively puts things in perspective.

Other Recommendations.

Emkay Shares meanwhile has put a HOLD on Shree Cement with a target price of 1200. They say, Shree Cements commissioned its incremental capacity of 1.5 million tonnes in FY08.

With about 6.0 million tonnes of incremental capacity expected we feel demand –
supply gap would still be maintained. In such a scenario, Shree Cement would gain
on account of increased volumes. At the current price of Rs 1095, the stock trades
at a PE of 10.9x FY09 and an EV/EBITDA of 5.1x and would like to put a target of 1200.

Merrill Lynch - The second half of the bull

In the first half of the bull market (Oct 2002 to May 2006), global growth was strong, led by the United States. A falling US dollar boosted commodity prices and liquidity (as appreciating currencies in EM allowed interest rates to fall). EPS in EM rose sharply, and asset price returns were very strong with deep value commodity-sensitive sectors such as energy leading the way. In fact, the four global cyclical sectors (energy, materials, tech and consumer discretionary) contributed 56% of the total returns in all emerging markets between Oct 2002 and May 2006.

In the second half of the bull market (which we believe began in June 2006), emerging economies are likely to spend more of their savings to fund strong domestic economic activity. EPS should become less dependent on G7 demand. Domestic demand themes such as the consumer and infrastructure spending should wrestle leadership within the equity market away from the commodity cyclical and export groups. Returns should be positive, just less dramatically so, and domestic demand stocks should assume leadership. Micro drivers and the ability to deliver EPS likely will grow in importance, as should leverage in the corporate sector

Merrill Lynch is however Underweight on India as it is an Expensive GEM market with inflation, CB tightening. A Cheaper market would change their view.

Stocks you can pick this week

Bharat Forge
Research: Man Financial (May 24, ’07)
Rating: Downgrade from buy to outperformer
CMP: Rs 329.35 (Face value Rs 2)

Bharat Forge disappointed in Q407 since its operating margins fell 190 bps to 24.1%. This was largely on account of higher material and manufacturing expenses. At Rs 64.3 crore, its standalone net profit was also below expectations. The company’s standalone sales grew by 17.7% YoY to Rs 516 crore.

Consolidated net sales rose by 16.6% to Rs 1,110 crore, while net profit grew by 16.4% to Rs 80 crore. Domestic buoyancy aided growth, while export ramp-up remained lacklustre. Falling margins and rising capacity utilisation indicate the company has not been able to capitalise on the operating leverage and is facing pricing pressures in India and abroad.

Man Financial believes the revenue growth visibility is fading in the automotive space. Any material upside from the high-margin non-automotive space is possible only after FY10. It hints at a correction in the valuation premium that the company has been enjoying vis-à-vis industry peers in view of falling earnings visibility.

Cairn India
Research: Merrill Lynch (May 23, ’07)
Rating: Buy
CMP: Rs 150.1 (Face value Rs 10)

Merrill Lynch is bullish on Cairn India following potential upside in peak output from the Rajasthan oil field and likelihood of higher reserves. Cairn India expects peak oil output of 150,000 barrels per day (bpd) from the Mangla and Bhagyam oil fields. Another 10,000-15,000 bpd of peak output is expected from the Aishwarya field. Thus, peak output at 160-165k bpd could be 7-10% higher than 150k bpd expected earlier.

The potential upside to ’10-11E earnings will be 6-15%. A commensurate increase in reserves is also likely. Hence, proven plus probable (2P) oil reserves from the three oil fields could be 7-10% higher at 466-481 mmboe. An addendum to the Mangala development plan is likely to be filed with the regulator in end ’07. Clarity on upside is likely when the addendum is approved, which is expected by Q108E.

This does not include additional upside from a proposed enhanced oil recovery (EOR) programme or from tight oil in the Balmer Hill formation, which could be substantial. An EOR implementation plan is expected by end ’07. Merrill Lynch believes the stock offers compelling value, exceptional growth, sector-leading returns, strong management, combined with exploration and M&A appeal.

GMR Infrastructure
Research: Macquarie Research (May 23, ’07)
Rating: Outperformer
CMP: Rs 496.4 (Face value Rs 10)

GMR Infrastructure is the only pure-play infrastructure company listed on the domestic stock exchanges. It has a number of projects, both operational and under implementation, in sectors like airports, roads and power. Indian aviation is in a high-growth phase with 23% CAGR in passenger traffic in the past three years.

Macquarie is positive about continued traffic growth due to the hugely under-penetrated air travel market, continued strong growth in the overall economy and increasing affordability, driven by declining air fares and increasing per capita incomes. GMR’s airport portfolio consists of Delhi airport — the country’s second-largest airport — and Hyderabad airport — the sixth-largest and the fastest-growing among major airports. GMR has development rights over 250 acres of land near Delhi airport, located in the middle of a fast-growing metropolis.

Macquarie has valued this land at Rs 43.8 crore per acre and the 700-acre site near Hyderabad airport at Rs 8.4 crore per acre. The net present value (NPV) of its existing asset portfolio is Rs 18,600 crore, representing 18% upside from current levels. Macquarie believes there is significant upside potential to these valuations, as real estate near airports attracts a premium, and given the management’s indication of higher valuations. GMR raised Rs 1,336 crore during FY07, compared to its total funding commitment of Rs 1,170 crore. The current portfolio will start to generate significant cash flows from FY11 onwards, enabling it to fund future projects without further dilution.

ICICI Bank
Research: Morgan Stanley (May 23, ’07)
Rating: Equal-weight
CMP: Rs 913.1 (Face value Rs 10)

ONE of the key factors driving ICICI Bank’s stock in the past few months has been the proposed spin-off of ICICI Bank’s stake in life insurance, general insurance and asset management subsidiaries into a separate holding company, ICICI Holdings, and its plans to issue shares in this new entity — thereby monetising its stake in these businesses.

The bank is looking at conducting a private placement of its stake in ICICI Holdings. This places the value of the business at Rs 2,200 crore ($527 million) or Rs 19 per share of ICICI Bank. Morgan Stanley values ICICI Holdings at about $7.5 billion. However, since ICICI is conducting a private placement of a small part of this business, significant value may be attributed to this business.

This is because the private equity firm may take a very long-term view to value this firm. On the base case assumptions, to arrive at a value of $10 billion, the private equity player will have to value the business at value due in three years in the DCF analysis. Hence, the base case value for ICICI Holdings will translate into a contribution of Rs 260 per share of ICICI Bank.

The bull case scenario will value the business at Rs 346 per share of ICICI Bank. The bear case scenario will be a 20% holding company discount on the base case scenario to arrive at a value of Rs 208 per share of ICICI Bank. On the banking business, Morgan Stanley expects returns to remain muted as the bank’s net interest margins remain lukewarm and credit costs continue to escalate due to continued weakness in retail asset quality.

Thermax
Research: Citigroup
Rating: Initiate with buy
CMP: Rs 440.1 (Face value Rs 10)

Thermax is the market leader in the small and mid-sized boilers market, with a share of 21%. Bharat Heavy Electricals (Bhel), which is the market leader in the big-boiler segment, has a share of 69%. Bhel is concentrating on higher capacity boilers, leaving the lower capacity market for Thermax. The company is expected to do well due to an expected increase of 63% in captive power generation and strong growth in industrial tariffs. Products and solutions aimed at environment protection will also be important revenue-drivers for the company, going forward.

Ultratech Cement
Research: Edelweiss
Rating: Reduce
CMP: Rs 824.2 (Face value Rs 10)

The cement cycle can reverse over the next few years as 60 million tonnes of new capacity will come up between FY07 and FY09 and another 32 million tonnes is expected to be added in FY10. Ultratech Cement has traded at one-year forward EV/EBITDA multiples of 6.5-10 during the current cycle upturn. The company is currently in the last leg of the upturn and a middle of the range valuation multiple of 7.5 may be more appropriate.

Earnings estimates for FY08 and FY09 have been revised upwards due to the increase in cement prices. The company will also save Rs 140 crore per annum due to 142 mw of captive power capacity, which is likely to be commissioned in FY09.

Buying stocks that your broker says you should? You might just lose

Have you lately bought an existing stock or IPO on your broker’s recommendation and then seen its price fall substantially some time later? Well, chances are that your stock broker may have offered you the recommendation just before he wanted to sell out his own position on the same stock. Surprised? Read on.

Most stock brokers, other than buying and selling stocks for their clients, also buy and sell stocks on their own account. At times, they might decide to build positions in a not-so-great stock and then start recommending it around. First, they go to their bigger clients (mutual funds, foreign investors, high networth individuals, etc) and make a sales pitch for that stock. Selling the stock to their bigger clients helps them jig up its price. Till this point, the recommendation on a particular stock goes exclusively to their bigger clients. Along with bidding up the price of the stock, the brokers make commissions on the way as well for buying stock for their clients.

In the next phase, the recommendation through newspapers and television channels reaches the so called ‘small investor’. Influenced by the recommendations, he starts buying up. And when this happens, it is time for the brokerage house and its bigger clients to sell the stock to those who want to buy. The broker now makes money on two counts: a) by charging you a commission for buying stock b) by selling out on the proprietary position it has built up. So, the small investor is the sucker in the entire game.

For a broker, it makes sense that investors keep buying and selling all the time. No broker has ever made money with an investor holding on to his stock investments.

As Adam Smith (not to be confused with Adam Smith the famous economist) writes in The Money Game, “They could put you in some stock that would go up ten times, but then they would starve to death, they only get commissions when you buy and sell. So they keep you moving.”

Logically, the retail investor should be able to figure out the goings on after a while. But, that does not seem to be the case.

As Smith writes, “…the investors who really follow the market, the ones who call up all the time, ninety percent of them really don’t care whether they make money or not….If they make a little money, they’re happy, if they lose a little money, they’re not too unhappy. What they want to do is to call you up. They want to say, ‘How’s my stock? Is it up? Is it down? What about the earnings? What about the merger? What’s going on? And they want to do this every day, they want a friend, they want someone on the telephone, they want to be a part of what’s going on.”

And to all the questions investors have, brokers always seem to have an answer. Very few brokers seem to be in the habit of saying ‘I don’t know’.

The IPO game, though, works a little differently. Most brokerages also have investment banking divisions, which help bring these IPOs to the market. Technically, there are supposed to be Chinese walls between the brokerage and the investment banking decisions. But, that is rarely the case.

As Andy Kessler writes in Wall Street Meat, in reference to a particular IPO, “The burning question was where to price the stock. There is always tension in an investment banking firm when it comes to pricing IPOs. The banker who is charging a 7% fee to do the IPO wants the deal priced as high as possible.”

If an investment bank is handling an IPO, then its brokerage division usually writes out a positive recommendation on the stock. Given this scenario, brokerage analysts write research reports that their investment banking clients would like investors to read, which may or may not give the real picture. This ensures that this client and other clients keep coming back to the brokerage. Nobody likes firms whose analysts give negative coverage to a company and this can lead to the investment banking business going to other firms.

Like Mitch Zacks points out in his book, Ahead of the Market, “Hell hath no fury like a CEO who has lost several million dollars due to some smart-aleck analyst. You can bet that for the next several years - and perhaps for as long as that CEO is in power - that the aggrieved company is not going to do any business where the pessimistic analyst works (and it’s also possible that the analyst will be fired). While most investors may forget about the sell recommendation in a couple of months, corporate management tends to have a much longer memory. When you lose several million dollars worth of stock options - as the CEO of a downgraded firm will attest - you tend to take it very personally.”

A negative recommendation also has an impact on the portfolio that the brokerage firm has built on its own account. A sell recommendation can also have an impact on the portfolio that the stock brokerage has built up on its own account. So, you rarely get a sell recommendation on any stock from a brokerage house.

As Adam Smith points out in his book, The Money Game, “And take selling. You think they tell you when to sell? Never. First they sell themselves, then you watch the stock going down day after day, you can’t get them on the phone, finally you get them, they say, ‘While the outlook near term is uncertain, long term holdings need not be disturbed.’

“That means, ‘I sold last Tuesday, Charlie, and I forgot you were still in that dog.’ You know how long the long term they talk about is? Five hundred years. May be seven hundred years. But whatever happens, they make it, coming and going. You make money, they take those commissions. You lose money, they take commissions. You leave your account alone, they call you up and tout you, they don’t make money when it’s sitting still.”

DNA

Citigroup Weekly Technicals

Citigroup expects the strength to continue.They believe the index has support around 4209 & 4141 during the current week. Resistance can be seen around 4291 (high of 23 May 07) which is likely to be tested during the current week. They think the Nifty can move towards the 4300 level while 4141 is the support.

Citigroup - ITC, Tata Tea

Citigroup recommends a Sell on ITC after 4QFY07 as One-Time Costs Pare Profits, No Visible Re-rating Triggers

ITC’s 4Q net profits (pre-exceptional) grew 14.6% yoy, below our estimates of 18% growth. Growth would have been stronger at about 20% but for one-time expenses on transiting the branding of seven key hotels from ‘Sheraton’ to Starwood’s ‘luxury collection.’ In addition, aggressive launch expenses for ITC’s wafers brand ‘Bingo’ impacted profitability.ITC’s foods business is expected to break even by FY09E. Target price of 130.

Citigroup recommends Buy on Tata Tea. Glaceau Stake Sale Positive, but Growth Opportunity Lost. While they view positively Tata Tea’s sale of its stake in Glaceau to Coke, we believe that a potential long-term growth opportunity may have been lost. In the circumstances though, they believe that selling out and using the funds more judiciously, rather than remaining a minority stakeholder, is the best possible outcome . They raise the target price for Tata Tea shares to Rs1,150 from Rs960 based on 15x mid-FY09E P/E. The target increase is driven by 1) increasing FY08E-FY09E EPS estimates by 6.9%-20.2%, and 2) rolling forward their earlier 15x target multiple to mid-FY09E.