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Friday, June 08, 2007
India inflation sub-5 pct for first time in 10 months
India's annual inflation rate fell below 5 percent for the first time in 10 months at the end of May, data showed on Friday, but analysts said the unexpectedly sharp fall was unlikely to prompt a change in monetary policy.
The widely tracked wholesale price index rose 4.85 percent in the 12 months to May 26, slowing from 5.06 percent a week earlier and well below a two-year high of 6.69 percent in late January.
It was the lowest rate since the end of July last year, and was also lower than a median forecast of 5.05 percent in a Reuters poll of analysts.
"If everything remains unchanged, inflation could comfortably hover around 5 percent during July-August," said Saumitra Chaudhuri, economic adviser at domestic credit rating agency ICRA.
"I don't see any need for a cut or increase in interest rates at this moment."
The 10-year government bond yield edged down to 8.13 percent from 8.14 percent before the data, while the partially convertible rupee was unchanged at 40.96/97 per dollar.
The Indian economy, Asia's third-largest, grew 9.4 percent in the fiscal year that ended March, its fastest rate in 18 years and second only to China among major global economies.
The central bank aims to keep inflation close to 5 percent this fiscal year to March 31, 2008, and bring it down to 4.0-4.5 percent over the medium term.
It has raised interest rates five times since last June and raised banks' reserve requirements three times since December to rein in inflation and credit growth. It held rates steady at a policy review in April, but said it would act swiftly if needed.
The government has cut petrol and diesel prices to help tame inflation. It has cut import duty on cement, capital goods, steel, aluminium, copper and other industrial raw materials, as well as palm and sunflower oil and a string of other products.
The wholesale price index is more closely watched in India than the consumer price index, which is published monthly, because it covers a higher number of products and is published weekly.
Weekly Stock Ideas
Buy Wipro (548)
SL 539 T 565, 571
Buy Polaris (169)
SL 162 T 180, 185
Buy Praj Industries (523)
SL 514 T 543, 548
Buy Colgate (362.5)
SL 356 T 377, 383
Buy Bajaj Hind (168)
SL 160 T 182, 187
Weekly Newsletter
Global markets sink on rate worries
Global equity markets tanked this week on concerns that central banks may unleash another round of monetary tightening to reign in inflation amid healthy growth prospects. It all started with adverse comments on inflation by Federal Reserve Chairman Ben Bernanke, who maintained that inflation remained a bigger threat than a further downturn in economic growth. A couple of other Fed officials too echoed Bernanke's view on inflation, sending stock markets across the globe into a tailspin.
Across the Atlantic, the European Central Bank (ECB) jacked up its benchmark rate by 25 basis points to 4%, the highest since August 2001. What's worse, ECB Chairman Jean-Claude Trichet gave no hint that the tightening cycle was nearly over. Rates also went up in New Zealand to record high levels, and there was talk of monetary tightening in Australia as well. The Bank of Korea decided to leave the overnight call rate unchanged at 4.5%. The Bank of England (BOE) too left its key rate unchanged, but with the benchmark inflation running ahead of the central bank's target, there are chances of further tightening in future.
Global stocks sank further after the benchmark US Treasury yields rose above 5%, prompting bond guru Bill Gross to turn bearish on the bond market. Gross now expects strong economic growth worldwide to push up global interest rates and put a damper on the Treasury market. European 10-year note yields also climbed to 4.5%, a four and a half year high. Options on the Fed funds rate show that as of June 6, the odds of an interest-rate increase to 5.50% from 5.25% are at almost 41%. A month earlier, the odds were zero. Interest rates in the US, Europe, Australia, the UK and South Korea are at six-year highs and at a record in New Zealand. Rising interest rates, coupled with inflation concerns, are negative for equity markets. High rates also make it harder for consumers and companies to borrow money, resulting in lower growth in the economy and earnings.
Inflation falls below 5%
Reserve Bank of India (RBI) Governor Dr. Y.V. Reddy and Finance Minister P. Chidambaram can heave a sigh of relief with the benchmark inflation rate falling below 5%. This is the first time in 10 months that inflation, based on the Wholesale Price Index (WPI), has dropped below the central bank's target. The point-to-point inflation rate fell to 4.85% in the week ended May 26 from 5.06% in the previous week, the Ministry of Commerce and Industry said in a statement. That was much below the average estimates of around 5.05%. It was also the lowest rate since the end of July last year. In the annual monetary policy, announced in April, the RBI said that it aims to keep inflation close to 5% in the fiscal year ending March 2008, and will bring it down to 4-4.5% over the medium term. The central bank left its benchmark short-term rates unchanged at that meeting, but added that it would act swiftly if needed.
The WPI declined 0.1% to 211.7 from 211.9 in the previous week. The index of Primary Articles was down 0.3% at 220.5 versus 221.1 while the indexes of Fuel & Power and Manufactured Products were unchanged at 322.0 and 184.1, respectively. The Food Articles index dropped 0.5% to 220.5 from 221.6 while Food Products index declined 0.4% to 183.0 from 183.8. Fruits & Vegetables index slipped 2% to 244.9 from 250.0 while Edible Oils index was down 0.1% at 165.7 versus 165.8. However, the Cement index gained 0.2% to 212.4 from 212.0. Meanwhile, the Government revised the inflation rate for the week ended March 31 to 5.94% from the preliminary projection of 5.74%. Though its a big sentiment booster, the unexpectedly sharp fall in headline inflation is unlikely to prompt a change in monetary policy, unless there is a further moderation in prices.
Bears back after summer vacation
Summer has come and passed
The innocent can never last
wake me up when June ends…
Last two months had been terrific for the bulls. However, the month of June has proved to be an altogether different story so far. The sunny days of the summer have turned into dark, cloudy days. The market has become quite volatile since last week's F&O expiry, making it difficult for the bulls to stay on top. Apart from routine profit booking, weakness in the global markets has come back to haunt the bulls. Oil prices have also climbed in the international market, raising the specter of higher domestic fuel prices and its fallout on inflation. Capital Goods, FMCG, Banking, Oil & Gas, Auto and Pharma stocks were at the receiving end of the bear onslaught this week. On the other hand, a steep fall in the rupee helped boost the sentiment on IT stocks.
The Sensex struggled to move towards the previous lifetime high as FII inflows slowed and fears of further interest rate increases sent global markets into a tizzy. Despite lower inflation, the bulls failed to capitalise on the two-month rally that lifted the Nifty past 4300 to a historic peak last week.
The mega public issue of DLF, which starts next week, also led to traders pulling out money from the secondary market. Tata Motors, ACC, L&T, ITC, Maruti and BHEL were the major losers. After a fairly volatile week, the benchmark BSE Sensex closed at 14063.81, down 507 points or 3.48% while the NSE Nifty shut shop at 4145, down 3.54% or 152 points.
This week's ride was tough for the auto stocks. Rising interest rates and slowing auto sales coupled with the increase in sales tax on auto fuels by the Delhi Government proved to be costly for the auto stocks. Tata Motors fell by over 12% following reports that the company was planning to cut production of some trucks as buyers scrap or delay purchases because of rising interest rates. Also, top two-wheeler companies admitted to cutting output as demand slows in the wake of the slew of interest rate hikes. The BSE Auto index plunged by 6.6%. Maruti dropped by over 9% to Rs737, M&M slipped 5.8% to Rs717 and Ashok Leyland lost 7% to Rs36.
Oil & Gas shares were also among the major losers as Brent crude oil prices crossed the US$71 per barrel as a cyclone halted exports from Oman and OPEC said it is producing enough for the global markets. The index was down by 5.2% on the week, led by Reliance Industries. The stock lost by over 5% to close at Rs1657. ONGC fell by over 5% to Rs864. Refinery stocks also ended lower. HPCL dropped by over 11% to Rs261, BPCL slipped by 8% to Rs331 and IOC lost 6.7% to Rs434.
IT stocks bucked the negative trend and closed higher after the rupee fell, boosting the value of their overseas sales. Satyam, Wipro and Infosys were the major gainers. FMCG stocks also lost ground during the week. The BSE FMCG index was down nearly 6%. Tata Tea was a major loser. The scrip lost by over 12% to Rs830. United Sprits fell by over 7% to Rs1126. HLL was also down 6% to Rs188 and Nirma slipped by 2.2% to Rs191.
Banking stocks too declined, with the BSE Bankex sliding by 3.1%. HDFC Bank declined by over 5% to Rs1090, ICICI Bank was down 3% to Rs903 and SBI slipped 1.7% to Rs1356. Others like PNB, Bank of India and Canara Bank were the major losers among the Mid-Cap stocks. Capital Goods index fell by 3.6% due to profit booking. L&T dropped by over 6% to Rs1884, BHEL declined by over 7% to Rs1312, ABB was down by 3.5% to Rs4530 and Siemens lost 1.5% to Rs1272.
Drama on the bourses
It’s going to be a week of endless debates and analysis as mega IPOs become the talk of the town. While DLF will hope for a big bang opening of the issue, expect loud voices from ICICI Bank and BEML regarding the dates of their issue. Retail money will also flow into the newly announced issues like Vishal Retail and Roman Tarmat.
The dollar has appreciated against the rupee and inflation has cooled below the 5% mark. The outlook remains dull for the time being. Given the rise witnessed in recent times followed by the nervousness at higher levels, confidence is lacking among the bulls. The turmoil in the global markets seems to be aiding the bears. Any positive development in the global front could bring some relief to the market. Any short covering could also help the bulls stage a comeback.
IT stocks will be in action. Expect some buzz on Satyam counter. Praj Industries is another counter where some further action is expected. Reliance will remain volatile throughout the week affecting the indices.
Bike makers cut production as sales slow
Shares of Hero Honda, Bajaj Auto and TVS Motor declined after the two-wheeler manufacturers said they had slashed production as higher interest rates bite demand. Hero Honda said its sales in June will be down by 40,000 units compared with May, while Bajaj Auto admitted to a 10% reduction in motorcycle output and TVS said it had cut bike production by 5000 units per month. A financial daily reported that the top three motorcycle makers have cut production and trimmed dealer inventories as sales fall due to a steep rise in interest rates over the past few months. Earlier, the newspaper had reported that Tata Motors had pared production of some trucks at its Pune plant as rising interest rates force transport companies and truck operators to postpone or drop purchase plans. Sales of Tata Motors' commercial vehicles fell by about 6% in May, with medium and heavy commercial vehicle sales down about 17%. Bajaj Auto's motorcycle sales were down 15% last month, while TVS' bike sales plunged 37%. Hero Honda's overall sales were down over 6% in May.
April-May car sales up 10% yoy
Domestic passenger car sales grew by 9% in May at 96,922 units as against 88,863 units in the same month a year ago, , the Society of Indian Automobile Manufacturers (SIAM) said. Motorcycle sales during the month were down 16.4% at 477,901 units compared with 571,367 units in the same month last year. Total two-wheeler sales fell by nearly 10% to 606,187 units as against 672,671 units in the year-ago period. During the month, commercial vehicles sales rose marginally to 33,262 units from 32,914 units in the corresponding month a year ago. In the first two months of the current fiscal year, domestic passenger car sales jumped 10.84% to 181,144 units from 163,428 units in the same period last year. Sales of commercial vehicles grew by 3.6% to 64,116 units in April-May 2007 as against 61,881 units in the same period a year earlier, the industry body said.
Fuel prices rise in Delhi
Petrol and diesel became slightly costlier in the national capital after the Delhi Government decided to levy sales tax on the two auto fuels. From midnight, petrol prices will increase by 67 paise to Rs43.52 per litre while diesel prices will rise by 22 paise to Rs30.47 a litre. "Due to subsidy, we were not getting our value added tax and have been incurring a loss of Rs110mn per month since February," Delhi Finance Minister A.K. Walia said. On being asked about the impact of the fuel price hike on consumers, Walia said that it was just a marginal hike and won't burden people. When fuel prices were raised last year, Petroleum Minister Murli Deora had asked states not to levy sales tax on the incremental price. The Delhi Government did not levy sales tax on the increased fuel price but has now decided to levy 20% sales tax on petrol and 12.5% on diesel.
RIL's Haryana SEZ gets green light
Even as its Navi Mumbai SEZ remains in a limbo, Reliance Industries Ltd.'s (RIL) multi-services SEZ at Gurgaon, Haryana has been granted a formal approval by the Government. The Board of Approval (BoA) for SEZ cleared the 440-hectare SEZ. The BoA granted a formal clearance to the multi-product SEZ of Indiabulls Industrial Infrastructure Ltd. at Nashik, Maharashtra besides giving a green light to Wipro's IT/ITES SEZ in Andhra Pradesh. Gitanjali Gems Ltd. got an 'in-principal' approval for two gems & jewellery SEZs in Maharashtra. DLF's 100-hectare textile SEZ in West Bengal also received an 'in-principal' go-ahead from the BoA as did PSL's alternative energy equipment SEZ at Pipavav, Gujarat. Among the other notable projects to get an 'in-principal' approval from the BoA included Indiabulls Builders' multi-product SEZ at Thane and Rewas Ports' SEZ at Rewas in Maharashtra.
ONGC makes record five new discoveries
Oil & Natural Gas Corporation Ltd. (ONGC) said it had made a record five discoveries in May and that it will develop four marginal gas fields located North West of Mumbai High. ONGC said that it made second discovery in Mahanadi Basin on the East Coast, besides a gas find in the KG Basin. The company also struck gas and oil in Assam. The ONGC Board approved the development of four marginal gas fields North West of Mumbai High. The total cost of the project is about Rs12.85bn with a Foreign Exchange component of about Rs12.4bn. The public sector oil & gas company also said it had completed Mumbai High South Redevelopment Project, 19 months ahead of schedule on May 31. The project envisages incremental production of oil and gas with an investment of around Rs65bn. Separately, ONGC signed an agreement with Petrobras for swapping of interests in offshore blocks in India and Brazil.
Premji's son to join Wipro
In what could be a long-term succession plan, software major Wipro Ltd. said that Chairman and promoter Azim Premji's son Rishad Premji plans to join the company. "Rishad is going to join Wipro at a level commensurate with his background and experience," the company said. Rishad is currently working with a global consultancy firm in Europe. Since Rishad is a relative of a director, his employment will require shareholders' approval, Wipro said, adding that his employment was approved by the company's Board. Azim Premji, the 61-year-old Chairman and CEO of Wipro, owns more than 80% in the company, which has a market capitalisation of about US$20bn. He is also one of India's richest men.
Sterlite announces ADS offering
Sterlite Industries India Ltd. announced that it has commenced distribution of the preliminary prospectus in anticipation of a global offering of 125mn of its equity shares in the form of American Depositary Shares (ADS). These equity shares in the form of ADS will represent about 18.3% stake in Sterlite post-offering. The company has applied to have its ADS listed on the New York Stock Exchange under the symbol SLT. Sterlite expects to allocate 11.5mn equity shares in the form of ADS from the global offering to the Japanese offering. After the ADS offering is through, Sterlite is expected to have about 683mn equity shares outstanding, with Vedanta Resources Plc owning about 62.8% of those shares. All of the equity shares in the form of ADS are being sold by Sterlite. The company anticipates granting the merchant bankers an option to purchase up to an additional 18.75mn equity shares in the form of ADS to cover over-allotment, if any.
Mahindra Forgings sees Rs20bn sales post merger
Mahindra Forgings Ltd. said that a proposed merger with Mahindra Forgings Overseas Ltd. (MFOL), Mahindra Forgings Mauritius Ltd. (MFML) and Mahindra Stokes Holding Company Ltd. (MSCHL) will create India's second-largest forgings manufacturer with consolidates sales of over Rs20bn. Jeco Holdings AG, Schoneweiss & Co. GmbH and Stokes Group Ltd. will become close to 100% subsidiaries of the company after the proposed merger with MFOL, MFML and MSCHL. MFOL owns 100% of Jeco Holdings, while MFML holds a 100% stake in Schoneweiss & Co. and MSCHL owns 99.8% of Stokes. The merger will also help in efficient utilisation of resources and synergies from dove tailing of operations, the company said.
Buzz from the deal street
Shares of Automobile Corporation of Goa Ltd. climbed after 21.5% of its equity changed hands in what appeared to be an internal transfer by the Tata Group. About 10.6 lakh shares of Automobile Corporation were traded at Rs475 per share on the BSE. Tata International Ltd. sold its entire stake of 21.5% to Tata Motors Ltd. Tata Motors recently more than doubled its stake in Automobile Corporation, one of its major suppliers, in a bid to tighten its grip on the bus-body making business. Tata Motors, a co-promoter of Automobile Corporation, increased its stake from 10% to 21.5% through a rights issue.
Rain Calcining Ltd. said that it will acquire US-based CII Carbon LLC. for US$595mn in an all cash deal, making the combined entity the world's largest maker of calcined petroleum coke (CPC). The acquisition, which will be done through Rain Calcining's subsidiary Rain/CII Holdings Inc., is expected to be completed this month, the Hyderabad company said in a statement.
Amtek Auto Ltd. said it has acquired the entire assets of UK-based JL French's (Witham) Ltd. (JLF), a company engaged in the manufacture of HPDC aluminium for automotive application. This facility currently makes a variety of aluminium castings for the likes of Land Rover, Jaguar, Trellborg, Ford and PSA Peugeot Citroen. The company's current revenues are at about US$60mn with 60% capacity utilization. This facility has 18 HPDC lines between 400 and 1600 tons rating and is capable of generating revenues of US$120mn.
ISMT Ltd. announced that it has acquired Structo Hydraulics AB, one of the largest and well renowned manufacturer of tubular components for the hydraulic cylinder industry. Structo's factory is located at Storfors in Sweden. It has an extensive marketing network throughout Europe. Structo has an annual turnover of SEK 450mn (Rs3bn) and is an established supplier to many multinationals, particularly the ones in the construction and agricultural equipment industry.
Educomp Solutions Ltd. said that it would acquire Ask n Learn Inc., a leading education technology company headquartered in Singapore. The total acquisition price is S$5.98mn in cash, plus options worth S$1.05mn. The company has set up a Special Purpose Vehicle (SPV) to complete the acquisition.
Nitin Fire Protection sets market ablaze on debut
Shares of Nitin Fire Protection Ltd. soared as high as 165% on listing, making it one of the biggest stock market debuts in 2007. The stock opened at Rs332.50 on the Bombay Stock Exchange (BSE) as against the issue price of Rs190. It reached a high of Rs530 but slipped from the top to finish the week at Rs411.80. The company had entered the capital market on May 15 with an Initial Public Offering (IPO) of 33.90 lakh equity shares. The issue, which closed on May 18, was subscribed 48 times.
Vishal Retail, Roman Tarmat launch IPOs
Vishal Retail India plans to raise Rs1.1bn an Initial Public Offering (IPO). The company, which operates 50 retail stores across the country, has priced its issue in the Rs 230-270 band. Vishal Retail intends to invest nearly Rs1.04bn of the net proceeds in setting up new retail stores this financial year. The issue will open on June 11 and close on June 13. the promoters now hold around 78% and post-IPO, their holding would come down to 64%.
Roman Tarmat Limited, a Mumbai-based infrastructure construction company engaged in the business of highways, runways and other civil work, is entering capital market with an IPO of 2,900,000 shares of Rs10 each for cash at a price to be decided through a 100% Book-Building Process. The price band for the issue has been fixed between Rs150 and Rs175 per share. The issue opens on June 12 and closes for subscription on June 1.
Brent crude oil tops US$71
Brent crude oil rose above US$71 per barrel, nearing a nine-month high, as Cyclone Gonu disrupted Omani oil and gas exports and after OPEC President said that the group was pumping enough crude to satisfy world markets. The market was also briefly unnerved by a report that Turkey was launching a major incursion into northern Iraq. But, the Brent oil fell towards US $70 a barrel after Cyclone Gonu lost power allowing Oman to resume exports following a three-day halt. But, the decline was limited amid concerns that US refiners may not be able to produce enough gasoline to meet demand in the summer. London Brent crude, seen as more representative of the global market, was last quoted at US$70.34 a barrel, while US crude was at US$66.19. Prices were also underpinned by OPEC's reluctance to increase output. OPEC President said that there was no need for an emergency meeting. Consumers have been urging the group to reconsider its current production ceiling.
ECB ups rate by 25 bps
In a widely expected move, the European Central Bank (ECB) hiked its key interest rate by another quarter percentage point to 4%, the highest since August 2001. This was the eighth rate increase in 19 months by the ECB and comes amid a backdrop of solid economic growth in the first quarter. The Frankfurt-based bank will increase its key rate at least once more this year, say analysts. Eurozone interest rates may rise to 4.5% or higher. They last peaked at 4.75% in October 2000. ECB President Jean-Claude Trichet failed to give a clear signal, as some investors had hoped for, on interest rate increases later this year. Trichet also said that ECB monetary policy was still accommodative - seen as a signal that more rate rises could be approved in coming months but not necessarily at the next meeting of the bank's policymaking body.
BOE holds rate steady
The Bank of England (BOE) left its key interest rate unchanged at a six-year high, as it awaits the impact of its previous monetary tightening steps. The nine-member Monetary Policy Committee, led by Governor Mervyn King, kept the Bank Rate at 5.5%. The bank's Monetary Policy Committee voted to raise rates by 25 basis points at its previous meeting in May. But, it also considered a 0.5% hike, which indicates that a further hike is on the cards unless there are some signs of slower growth or falling inflation. The May vote was also the first unanimous one in the recent tightening cycle. As a result, most economists predict another rate hike before the end of the summer, as inflation continues to be above the government's target rate.
Australian economy accelerates
Australia's economy grew at the fastest pace in more than three years, pushing the nation's currency to the highest since 1989 on expectations that the central bank will raise interest rates to ward off inflation. The Australian economy boomed in the first quarter, buoyed by consumer spending, business investment and a mining upswing, setting the stage for a 17th consecutive year of expansion. The Gross Domestic Product (GDP) rose 1.6% in the first quarter from the fourth quarter of 2006 and rose 3.8% from the year-earlier period, the Australian Bureau of Statistics said. It was the fastest quarterly pace of growth since the fourth quarter of 2003. Economists, on average, had expected a 1.2% gain.
Meeting with Bancroft family constructive: Murdoch
In the first face-to-face meeting between the Bancroft family and News Corp.'s Rupert Murdoch, the two sides met on June 4 for more than four hours to discuss issues of journalistic independence for Dow Jones & Co. and its flagship, The Wall Street Journal. The meeting addressed News Corp.'s coverage and business activities in China and how an editorial board overseeing Dow Jones would be structured if the company was to be sold to News Corp., according to people close to the matter. After he left the session Murdoch, News Corp.'s chairman and CEO, called it "constructive." He was encouraged about the prospects for a deal, according to a person close to him. But there are different proposals being bandied about, and both sides need to take time to bridge their differences.
Silver Lake, TPG to buy Avaya for US$8.2bn
Avaya Inc. announced that it has entered into a definitive agreement with private equity firms Silver Lake and TPG Capital for the sale of its entire business for about US$8.2 bn or US$17.50 per share. Under the terms of the agreement, Avaya shareholders will receive US$17.50 in cash for each share of Avaya common stock they hold, representing a premium of about 28% over Avaya's closing share price of US$13.67 on May 25, the last trading day prior to published reports regarding a potential transaction. Avaya's board has approved the merger agreement and resolved to recommend that Avaya shareholders adopt the agreement.
The transaction is expected to be completed in the fall of 2007, subject to approval by shareholders and regulators.
Weekly Close: Flight to safety or just a correction?
Extremely choppy and volatile week for the market. Though the start was good but was really difficult to sustain the momentum and long list of reason for this correction. The vicious inflation once again seems to have spread its wing globally and thats not good news for equities. Fed Chairman indicated of growth to be fine but inflation was the worry which offset the hopes of rate cut. India's efforts to tighten liquidity continue..C Rangarajan, Chairman of PM's Economic Advisory Council, called for to control certain kinds of capital inflows. We think the hint is towards P Notes. This probably was the reason for the sell off in the market as P Notes have been in debate for some time and the guess is that there is a lot of politician money which comes in through this as the final beneficiaries are not disclosed. This worry of P-Notes dented the sentiment and of course there was bad news in the form of slowing off take.
Major IPO's are in queue to enter the market and this is said to be one of the reason for liquidity crunch. The month of June will see the issues of DLF Ltd, ICICI Bank Ltd and Central Bank of India Ltd raise roughly Rs21,000 crore from domestic investors, making it the highest mobilisation in one month in the history of the Indian capital market. DLF's estimated Rs 9,625 crore and ICICI Bank's estimated Rs12,000 crore. Issues will open by the end of June. Central Bank's Rs1,000 crore offering could hit the market anytime between these two issues. And this is not all. This is what we have been talking about since last two weeks. However, we believe that this money will be small in the overall scheme of things. But the thing to worry will be the flow of FII money into these issues and how those Dollars will be neutralised. Is there a CRR hike by end June.
Sensex and Nifty lost 3.5% for the weak. Auto was totally on reverse gear. Tata Motor (-12.4%), Maruti (-9.6%), M&M (-5.2), Bajaj (-5.6), Ashok Leyland (-6.5%), Escorts (-11.9%). Crude was up on back of cyclone in Oman leading to weak in Oil and Gas counters.. HPCL -11%, BPCL -8%, ONGC -4% and Reliance -5%. Metal too lost might.. SAIL -10%, TISCO 8.1%. Hindalco was the only exception up by 12%. Cement counters too slipped like ACC -10.6%, Grasim -5%, Guj Amb -4.8%, India Cem -6% Ultratech -2.4% JP -8%. HLL -6%, ITC -6% and Tata Tea -13%. IT bounced back..Infy, TCS, Satyam and Wipro gained marginally for the week
Telco witnessed 17% fall in sales in May. Reasons given are lesser cargo offerings from agriculture and manufacturing sectors, excessive overloading, shortage of trained drivers and an increase in the auto finance interest rates during the last six months. But there were also news that Tata Motors and Leyland have cut the tyre orders from trye manufacturers and they also plan to cut production. High interest rate is really seen as reason behind this. Hero Honda, Bajaj Auto and TVS Motor Co also announced cut in production in the face of slower demand. Interest rate hikes have begun to bite auto. Short term scenario doesn't seems to be in favour of auto..for now avoid this one.
Hindalco was the only winner in metal counter. Market expects that Sterlite along with Alcan intends to buy Hindalco. The A V Birla Group holds only 27% stake in Hindalco which would go to 35% after the preferential issue for Novellis acquisition. However, steel stocks were down on reports that Sail had cut prices. The very next day papers reported that they are planning a price hike. However, logic tells us that with China Olympics construction almost on its end.. the likelihood of steel prices coming off are high.
Selective mid caps continued to be in action. Some morning daily reported that Educomp Solutions is set to acquire another education technology company headquartered in Singapore called 'Ask n Learn'., This will be through an SPV. The total acquisition price is SGD 5.98 million in cash in addition to options worth SGD 1.05 million. This means about Rs 19 cr in total. Not a big price. 'ASK n Learn' provides internet-based e-learning solutions, content and services to over 120 institutions in Singapore, China, Thailand, the Philippines, Japan, Brunei, Vietnam and Kuwait. Its Customers include the National University of Singapore, Republic Polytechnic, SIM, MINDEF, over 100 Singapore schools, school clusters and zones, top regional universities, MOE Singapore, MOE Brunei, MOE Indonesia, and international schools. Educomp has been finding ways and means to leverage on its content and teaching methodology where it has competitive advantage. Valuations are a bit high.. but given the projections and if the company delivers, they would be well justified.
SKF announced another investment of Rs 270 crore to build a greenfield factory in India for manufacturing large size bearings. However, the big negative is that this investment will be through its 100% subsidiary. That's a big negative. It hits the India story badly. The factory is expected to start production in 2008 and will, when fully utilised, employ 300 persons. The investment is in response to the strong global demand for large size bearings in sectors of wind energy, mining, steel and off-road applications. This could have well come under the existing listed company. We have covered this stock since it was Rs 265 with a positive view and the stock was been a major performer. The annual report showed that profits for the previous here were muted by a large cost of SAP implementation which is now over. Over and above all this is lost in the confusion as to the further growth plans may appear stymied. Look for downsides here.
Financial Technology was another Hi-Tech gainer. It has lived up to our expectations. The stock rallied over 40% since our positive view. Papers report that The RBI will issue guidelines for allowing foreign investors to pick up stake in the country's commodity exchanges soon. There are many eyeing this and players like the New York Mercantile Stock Exchange will be allowed to buy up to 49 per cent stake in the bourses such as Multi Commodity Exchange and NCDEX. MCX is waiting for the RBI guidelines before launching its IPO, though the exchange earlier sold its 9 per cent stake to Fidelity International. New York Mercantile Exchange (Nymex) is keen to buy stake in both NCDEX and MCX. Financial Technologies has a 64 per cent stake in MCX. The reason for the run up as indicated earlier was that Dubai Gold and Commodities exchange started trading rupee Futures. FT owns about 49% stake here as well. The Forex trading platform, the agri spot exchange are other initiatives we believe will bring in the long term. We remain positive here as well.
Techically Speaking; Sensex has closed near our support level of 14000--14030. A break below this will take us to 13815 which is another key support level. On the upper side 14350 and 14445 are Resistance levels. Markets are still in Bull mode and longs to be avoided below 13800. The Turnover was decent for the day at Rs 4592 Cr with Declines outnumbering Advances in the ratio 1.5:1.
DLF IPO sets new commission standards
As real estate developer DLF Ltd markets its $2.4 billion IPO, India's biggest, amid investor fears that property prices could tumble, investment banks are pushing the IPO by paying out unprecedented cash incentives.
Brokers in India typically receive commissions of 0.2-0.4 per cent of the value of IPO shares allotted to their retail clients, but for the DLF issue brokers are being paid commissions of Rs 200-500 per application form - whether or not clients get the shares, say brokers and bankers working on the deal.
"We're paying more than normal, but different deals require different structures," said one banker associated with the issue. A primary market broker for nearly two decades, M A A Annamalai of Akshaya & Co said the incentive structure was new: "We've not heard of this sort of incentive in the primary market." Delhi-based DLF is raising money to buy land and build apartments and shopping malls as India's economy booms.
Its IPO, which opens to retail investors on Monday, is being handled by investment banks including Kotak Mahindra and DSP Merrill Lynch.
The stock should debut early next month. Officials at the banks declined comment. "I was a bit worried initially about the way the IPO would go, but the way bankers are pushing it, it looks like it would sail through comfortably," said one primary market broker
Some in the market are wary given DLF has failed in previous attempts to list because of disputes with minority shareholders, last year's stock market drop and high valuations, but, so far, the deal appears to be going well.
Sources have said the institutional order book was fully covered, with several orders of $200-$500 million and strong interest from domestic fund managers. But many Indian retail investors have been worried by media reports of a slowdown in India's property market.
About 40 per cent of the shares being sold are earmarked for retail and high net worth investors. Rising interest rates and sky-high property prices have slowed house sales, and there is less demand for space in malls and shopping complexes.
HIGH FEES
Bankers have big fees and prestige riding on the DLF deal after the near failure of Cairn India Ltd's $1.18 billion IPO in December, when some investors pulled out late.
While DLF's offer document says commissions for banks would be decided after fixing the IPO price, people with knowledge of the issue said fees would be around 1.5 billion rupees ($37 million), or 1.5 per cent, with potentially more later.
Since the fees are huge, there's nothing wrong in throwing in this kind of money, and it is not a losing proposition," said another banker associated with the issue. Already, DLF shares are trading in the grey market at around 590 rupees, well above the IPO's 500-550 rupee indicated range, brokers said.
"DLF is the best way to get exposure to Indian real estate, given its size, quality and credentials," Edelweiss Securities said in a note recommending subscription to the IPO.
"We consider the company a default play on the Indian real estate as well as a growth story going forward." Others reckon the issue is overpriced. "At the upper band of Rs 550, the stock trades at a significant premium to our base case valuation of 404 rupees," Enam Securities said, rating DLF a sector underperformer.
Via ET
Pair Strategy - Long RCOM, Short IDEA
Buy RCOM and sell IDEA on a rupee-neutral basis in anticipation of out performance of RCOM over IDEA in the near term. RCOM is trading at a cheaper valuation than IDEA largely due to the recent rally in IDEA on the back of speculative buying in anticipation of the merger of Spice Telecom, Aircel and Idea. RCOM is currently trading at 13 times FY08 EV/EBIDTA against 15 times on IDEA. Even on a EV per subscriber basis, RCOM is trading at USD 545 against USD 590 for Idea (March '07 ending subscriber numbers).
Potential upside in RCOM can also come from
1. Expected clarity on Spectrum allocation towards July end
2. Upcoming Overseas FLAG IPO
3. Demerger of the tower business
4. Launch of consumer broad band and IPTV
RCOM has also been consolidating in the range of 505 - 520 from past few trading sessions. The stock has attracted significant trading volumes along with jump in delivery volumes in the recent past. We expect the trade to generate a potential return of 6% to 7% on GEP.
Pair Strategy - Long RCOM, Short IDEA
Bears fight off two comeback attempts
Bulls failed twice Friday in their come back attempt. Once, after inflation came in lower than expected at 4.85%. And second on back of IT shares with the rupee easing against the dollar.
The Bombay Stock Exchange’s Sensex ended 122 points or 0.86% down at 14064 and the National Stock Exchange’s Nifty finished 30 points or 0.71% down at 4149.
Weak global cues did little to help. Tokyo's Nikkei 225 closed at 17779, down 274 points or 1.5%. Australia and South Korea closed 1% down.
European stocks were mostly lower, as a sell-off in bonds continued to exert pressure. London’s FTSE-100 lost almost 11 points or 0.2% at 6494.2. Paris CAC-40 Index was at 5882, almost 8 points or 0.1% lower. Frankfurt’s DAX was 23 points down at 7595.
“Selling pressure in heavyweights lowered indices. Markets across the globe are correcting, and that effect is seen here also. FIIs too are selling. The market is weak and a further downside cannot be ruled out,” said Hitesh Sheth, head of technical research at brokerage Prabhudas Lilladhar.
Barring technology and oil and gas, all other sectors posted losses.
ACC, Tata Steel, HDFC, Maruti Udyog, Tata Motors, Hero Honda, Ranbaxy, Dr Reddy’s, ITC and BHEL were the biggest losers on Sensex. Gainers were Hindalco, Satyam, ONGC, TCS and Wipro.
Auto and steel stocks were under pressure, and that is likely to continue next week also,” Sheth said.
Maruti Udyog was down 3.2% at Rs 737, Mahindra and Mahindra lost 2.7% at Rs 720, Hero Honda slid 2.4% to Rs 681 and Tata Motors was 3.5% lower at Rs 654. Tata Steel fell 4.8% to Rs 586, SAIL was down 4.1% at Rs 125 and Jindal Steel was 1.9% lower at Rs 3,467.
“Selective mid-cap stocks were stronger as FIIs are pumping money into them. Aurobindo Pharma, Dena Bank and BASF India saw strong volume today,” he added.
Aurobindo Pharma gained 4.20% at Rs 757, Dena Bank rose 7.9% to Rs 48 and BASF climbed 4.51% to Rs 270.
The BSE Mid-cap Index was down 32 points or 0.51% at 6156 and BSE Small-cap Index was 46 points or 0.62% lower at 7345.
“The market fell sharply this week, but the velocity of the down slide expected next week will recede,” Sheth said.
“The Sensex faces resistance at 14,300, while it could go down to 13,900-13,600 levels in the next couple of weeks. The Nifty has support at 4100-4000 levels,” he said.
Market back in bearish groove
The market was once again subject to strong volatile moves and swung nearly 218 points during the intra-day trades. Weakness in global markets triggered a major fall in the domestic market for the fourth day in a row as it opened on a bearish note at 14064, down 122 points. The rising crude oil prices also acted as a negative factor. Auto, FMCG and metal stocks bore the major brunt of selling and tanked around 1-2% in morning trades and the Sensex quickly touched the day's low of 14011, down 175 points from its previous close. But buying at lower levels in heavyweights, IT and oil stocks kept the Sensex moving northwards. The mood turned bullish as the lower than expected inflation numbers came in. The Sensex entered into positive territory, but remained range-bound for the latter part of the session with alternate bouts of buying and selling. However, the major blow came towards the close on selling in auto, consumer durables and metal stocks, and the Sensex shed 122 points to end the session at 14064. The Nifty closed at 4150, down 30 points.
The breadth of the market was extremely weak. Of the 2,494 stocks traded on the BSE 1,464 stocks declined, 956 stocks advanced and 74 stocks ended unchanged. With the exception of the BSE IT Index and the BSE Teck Index, all the other sectoral indices were down by around 1-2%. The BSE CD Index and the BSE Auto Index lost around 3% each while the BSE CG Index, the BSE FMCG Index and the BSE Metal Index declined by more than 1% each.
Selling was rampant in several index heavyweight stocks. Tata Steel at Rs587 and ACC at Rs769 slumped by over 4% each. Among the other major laggards, HDFC shed 3.63% at Rs1,754, Tata Motors plunged 3.50% at Rs654, Maruti Udyog crumbled by 3.16% at Rs737, ITC declined 2.81% at Rs151, Ranbaxy dropped 2.55% at Rs369, Hero Honda tumbled 2.37% at Rs681 and Dr Reddy's Lab fell by 2.30% at Rs632. Select counters, however, managed to buck the downtrend and ended in the green. Hindalco rose 2.97% at Rs158, Satyam Computers moved up by 2.95% at Rs495, TCS added 1.20% at Rs1,221, ONGC gained 1.18% at Rs865 and Wipro ended marginally higher at Rs548.
Consumer durable stocks lost ground on selling pressure. Titan Industries dropped 4.83% at Rs1,013, Rajesh Export slumped 4.14% at Rs521, Timex Watches declined 2.74% at Rs25, Videocon Industries lost 2.68% at Rs440, Blue Star fell by 1.58% at Rs231 and Samtel Color was down 1.47% at Rs17. However, a fall in rupee against the dollar helped the IT stocks to shrug off the bearish trend and end higher.
Over 1.19 crore IFCI shares changed hands on the BSE followed by Reliance Natural Resources (79.32 lakh shares), GV Films (69.39 lakh shares), Tata Teleservices (56.39 lakh shares) and Rana Sugars (54.12 lakh shares).
Value-wise Reliance Industries registered a turnover of Rs187 crore followed by Nitin Fire Protections (Rs148 crore), Infosys (Rs113 crore), SBI (Rs112 crore) and Satyam (Rs106 crore).
Sensex sheds 507 points
The market was weak, last week, as Sensex declined in four out of the five trading sessions. A whole host of factors right from weak global markets, large IPO’s in pipeline sucking out liquidity, fears of rate hike, and lack of fresh buying weighed on the indices. Volatility was to fore in the entire week.
The benchmark index, BSE Sensex lost 507 points or 3.61% to 14,063.81 in the week ended Friday, 8 June 2007. The S&P CNX Nifty shed 152 points or 3.66% to 4,145 in the week ended 8 June 2007.
The week started on a bearish note with the Sensex declining 74.98 points, to 14,495.77 on Monday, 4 June 2007. A sharp fall in Chinese markets weighed on domestic bourses with shares from auto and IT pivotals attracting heavy selling.
Sensex gained 39.24 points to 14,535.01, a day later, following a strong recovery in markets across the globe, led by rebound in China. Buying was seen in IT, banking stocks and in select pivotals.
On Wednesday, 6 June 2007, Sensex plunged 279.08 points at 14,255.93, as fresh selling emerged at fag end of the day. All the sectoral indices on BSE settled with losses, with shares from PSU, banking and oil & gas space bearing most of the brunt.
Sensex lost 69.75 points to 14,186.18, on Thursday, 7 June 2007, tracking weak global markets. However buying support was seen in IT pivotals.
The correction continued for the third straight day, with the 30-share BSE Sensex losing 122.37 points to 14,063.81 on Friday, 8 June 2007. Weak global markets triggered fall on domestic bourses.
Reliance Industries (RIL) lost ground in the week. The government on Tuesday, 5 June 2007, approved RIL’s Haryana special economic zone, proposed to be spread over 10,000 hectares. Also there are reports that RIL’s KG basin blocks will start gushing out in one year's time. The internal calculations about gas pricing are also complete and reports indicate that RIL is targeting first week of July for the bids to start coming in. The base price for KG gas is likely to be $4.6-4.75/mmbtu.
Shares from the auto pack suffered sharp losses, on weak sales in May 2007 which sparked concerns of slowdown in demand. Tata Motors’ sales declined 4% to 42,558 units May 2007. Pune headquartered Bajaj Auto’s bike sales (including exports) dipped 15% at 1,67,008 units in May 2007 from 1,96,120 units in the same month last year. Hero Honda Motors posted 6% fall in May 2007 sales to 2,85,109 units from 3,03,444 units in May 2006.
However, shares from the IT sector surged on renewed buying as rupee weakened to its lowest in nearly four weeks on Friday, 8 June 2007. Satyam Computers, TCS, Infosys Technologies and Wipro, all settled with gains.
Oil & Natural Gas Corporation (ONGC) slipped on selling pressure. The state-run explorer announced five new finds of oil and gas at its blocks in the east coast and the north east of the country and said it would invest Rs 1285 crore ($316 million) to develop gas fields in western India on 7 June 2007.
Aluminium and copper major Hindalco Industries gained on reports that Alcan may team up with Sterlite Industries to bid for Hindalco.
State Bank of India (SBI), the country’s largest lender, settled lower. It raised about Rs 2500 crore capital through upper tier- II bonds to support the business growth and meet the Basel II capital adequacy norms. This is the largest capital raising ever through upper tier II bonds in domestic market.
On 4 June 2007, Asahi Songwon Colors settled at Rs 89.95, a marginal discount over its IPO price of Rs 90 per share. The scrip listed on BSE at Rs 93 and moved in a range of Rs 87.65 to Rs 134.70. Its IPO was subscribed 1.85 times.
On 5 June 2007, Nitin Fire Protection Industries settled at Rs 484.10 on BSE, a premium of 155% over the IPO price of Rs 190. It debuted at Rs 332.50. Its IPO ended was subscribed 48.04 times.
On Wednesday, 6 June 2007, the European Central Bank (ECB) raised its key interest rate a quarter percentage point to 4% in the eighth increase in 18 months, and the highest reading for five and a half years. It also signalled a further hike could come - perhaps in September 2007- to combat inflation in a dynamic eurozone economy.
On 7 June 2007, the Bank of England left interest rates unchanged at 5.50%, as expected. Despite the verdict, however, interest rates are still expected to rise in coming months.
India's wholesale price index rose 4.85% in the 12 months to 26 May 2007, lower than the previous week's 5.06%, government data released on 8 June 2007 showed.
Global markets to dictate trend
The market is likely to extend losses, next week, as investors play it safe and lock in profits on a two-month rally after turbulence in global markets and in preparation from some large equity issues. A solid surge in April 2007 and May 2007 took Sensex to 14570.75 on 1 June 2007, its highest level in almost four months. From that high, Sensex has lost 506.94 points or 3.4% at current 14063.81.
The response to the DLF IPO, which opens next week, may dictate the trend, it being a large IPO.
The domestic bourses are also likely to follow trend on global markets. Asian stock markets are likely to be on the defensive in the week ahead as investors keep a close eye on global bond yields, which have risen sharply on fears interest rates around the world are heading higher. Loftier yields make bonds attractive relative to stocks and also lift long-term borrowing costs for companies, factors that could prompt stock investors to lock in some of the rally that has driven many Asian markets to record highs.
Reality major DLF is mopping up between Rs 8,750 crore and Rs 9,625 crore at the proposed price band of Rs 500 - Rs 550 per share. DLF IPO opens for subscription on Monday, 11 June 2007 and ends on Thursday, 14 June 2007. ICICI Bank had, on 15 May 2007, filed a draft prospectus with Sebi to seek approval for raising Rs 17,500 crore through an equity issue in the domestic and overseas market.
There are some supportive factors for the market. A fall in the rupee from nine-year highs against the dollar in late May 2007 has sparked interest in export-oriented outsourcing firms, which have been under pressure due to concerns their profits would be hit by the currency strength.
Shree Ashtavinayak Cine Vision, Hercules Hoists, Veejay Lakshmi Engineering Works, Precision Wires India and Glenmark Pharma will unveil Q4 March 2007 results on Monday, 11 June 2007. The board of Glenmark will also consider stock split proposal along with Q4 results.
On Tuesday, 12 June 2007, RPG Life Science and Berger Paints are slated to unveil Q4 results. The next day Wyeth, Bimetal Bearings and EIH Associated Hotels will unveil Q4 numbers.
Hind Rectifiers and LG Balakrishnan & Bros will unveil Q4 results on Thursday, 14 June 2007. Shipping Corporation of India, Royal Orchid Hotels, EIH, and Elecon Engineering Company will unveil Q4 results on Friday, 15 June 2007. The board of Elecon Engineering will also consider bonus issue proposal along with Q4 results.
Meanwhile, the Q1 June 2007 corporate earnings season will kickstart from about a month from now and, over the next few days, traders are likely to build positions based on Q1 results expectations. The Q4 corporate earnings were strong which had helped trigger a solid surge in domestic bourses since early April 2007.
Over the next few months, the progress of the July-September monsoon will hold key. The weather office said in April 2007 that this year’s monsoon was 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 is the main source of water for agriculture, which generates more than a fifth of the gross domestic product.
Market settles with losses for third straight day
The mood on the street was cautious with the market finishing with losses for the third straight trading session today. From 14,535.01 on 5 June 2006, the Sensex has declined 471.20 points in 3 trading sessions.
Fresh selling at higher levels, coupled with weak global markets and fears of CRR hike, dragged the market lower today. However some support emerged at lower level, at the fag end of the trading session in the form of value buying. Selling pressure was seen across the sectors with IT being an exception.
The 30-share BSE Sensex lost 122.37 points or 0.86% at 14,063.81. It opened lower at 14,063.94 and slumped to a low of 14,010.61 shortly, tracking weak global markets, before bouncing back. It also galloped to a high of 14,229.22, in mid-afternoon session, as buying intensified led by IT stocks.
The market was marred with intense volatility throughout the day’s trading session. The Sensex oscillated almost 220 points for the day. Going forward, Sensex has strong support at psychologically important 14000 level.
The S&P CNX Nifty lost 34.50 points or 0.83% at 4,145. Nifty June 2007 futures were at 4,124, a discount of 21 points over spot Nifty closing of 4,145.
The total turnover on BSE amounted to Rs 4599 crore and NSE F&O clocked a turnover of Rs 41,842.93 crore.
The market breadth though it remained negative, improved from the opening session. 1309 shares declined on BSE as compared to 1188 that advanced. 90 remained unchanged.
The BSE Small-Cap Index slipped 48 points or 0.7% to 7,342.59 while the BSE Mid-Cap Index settled 32 points or 0.51% lower at 6,156.22.
Among the Sensex pack, 25 declined while the rest advanced.
Aluminium and copper major Hindalco Industries advanced for the third straight day, and was up 3.30% to Rs 158.20, on 30.75 lakh shares. It was the top gainer from the Sensex pack. The market has been rife with speculation, this week that Alcan may team up with Sterlite Industries to bid for Hindalco.
Shares from the IT sector surged as rupee weakened. The BSE IT index vaulted 0.59% to 4,986.81, and was the top gainer among the sectoral indices on BSE. Satyam Computers (up 3.09% to Rs 496), TCS (up 1.30% to Rs 1222), and Wipro (up 0.20% to Rs 546.50), gained.
The Indian rupee extended its losses past 41 per dollar on Friday, 8 June 2007, to its lowest in nearly four weeks. In early afternoon trade, the partially convertible rupee was at 41.01/02, its lowest level since May 14. It had closed at 40.7350/7450 on Thursday, 7 June 2007.
IT stock have not performed in the market's recent surge due to the strong rupee. 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.
Oil & Natural Gas Corporation (ONGC) advanced 2.38% to Rs 875, after the state-run explorer announced five new finds of oil and gas at its blocks in the east coast and the north east of the country and said it would invest Rs 1285 crore ($316 million) to develop gas fields in western India. The announcement was made after trading hours on Thursday, 7 June 2007.
Cement major ACC slumped 5.10% to Rs 763 on 2.42 lakh shares, and was the top loser from the Sensex pack.
Tata Steel lost 5.07% to Rs 583.70 on 7.58 lakh shares. The stock was weak throughout the day. Led by Tata Steel, the BSE Metal Index declined 1.8% to 10,242.72.
HDFC declined 3.85% to Rs 1750. On National Stock Exchange (NSE), a block deal of 32,576 shares was executed at Rs 1800 per share.
Auto counters witnessed renewed selling on concerns of margin pressure and slowdown in demand. The BSE Auto Index closed lower by 2.3% at 4,700.71. Bike maker Hero Honda slumped 2.93% to Rs 677. Bajaj Auto shed 1.77% to Rs 2117. As per reports, bike sales have hit the slow lane, forcing bike makers to rationalise production and reduce dealer inventories.
Tata Motors slipped 3.14% to Rs 656 after 2.10 lakh shares changed hands in the stock in a single block deal on NSE at Rs 665 each. As per reports, the company has cut the production of passenger cars to the tune of 20% at its Pune plant. Reports also suggest that the launch of its new Indica, may be delayed to make adjustments for a drop in sales.
Car major Maruti Udyog edged lower by 3.77% to Rs 732, after 5 lakh shares changed hands in the stock in single block deal on BSE at Rs 740 each.
Index heavyweight Reliance Industries (RIL) declined 0.47% to Rs 1660.10, on 11.17 lakh shares. It recovered from low of Rs 1640. The final countdown has begun and gas from Reliance's KG basin blocks will start gushing out in one year's time. The internal calculations about gas pricing are also complete and reports indicate that RIL is targeting first week of July for the bids to start coming in. The base price for KG gas is likely to be $4.6-4.75/mmbtu.
Among the heavyweights, State Bank of India (SBI) was down 0.47% to Rs 1354. SBI, the country’s largest lender, raised about Rs 2,500 crore capital through upper tier- II bonds to support the business growth and meet the Basel II capital adequacy norms. This is the largest capital raising ever through upper tier II bonds in domestic market.
BSE's banking sector index Bankex was down 1% at 7,441.25, on fears of CRR hike. ICICI Bank (down 0.32% to Rs 906), Oriental Bank of Commerce (down 5.80% to Rs 211.25), Federal Bank (down 2.50% to Rs 273), Kotak Mahindra (down 2.21% to Rs 569.20), and HDFC Bank (down 2.04% to Rs 1087), edged lower.
Utility vehicle maker, Mahindra & Mahindra was down 2.71% to Rs 720. The company is reportedly in talks to buy an Italian gearbox company for $86-$98 million.
Biocon rose 0.31% to Rs 441 on entering into a memorandum of understanding with Deakin University, Australia, in the area of research & development.
Atlas Copco India slumped 4.90% to Rs 1090, after galloping 44% in a month’s duration, on market rumors of buyback offer at a higher price. However, the company today denied such rumors.
Educomp Solutions fell 1.27%% to Rs 1803 after the software training firm said it signed an agreement to acquire Singapore-based Ask n Learn Inc. for Singapore dollar 7.03 million.
Patni Computer Systems dropped 1.47% to Rs 553. There are media reports that General Atlantic Partners may acquire part of founders' stake. Gajendra and Ashok Patni, two of the three brothers who founded the software services firm, are looking to sell approximately around 28% stake in the firm. General Atlantic owns about 16% of the New York-listed Patni.
Gujarat State Petronet jumped 8.53% to Rs 58.50, as buying continued today, a day after announcement of good quarterly results on 7 June 2007. Gujarat State Petronet (GSPL)'s net profit rose 78.52% to Rs 19.28 crore in Q4 March 2007 from Rs 10.80 crore in Q4 March 2006. Sales rose 23.20% to Rs 83.12 crore in Q4 March 2007 as against Rs 67.47 crore in Q4 March 2006.
The net profit rose 91.45% to Rs 89.37 crore in the year ended March 2007(FY 2007) as against Rs 46.68 crore in FY 2006. Sales rose 20.53% to Rs 317.56 crore in FY 2007 as against Rs 263.47 crore in FY 2006.
Dena Bank surged 7.09% to Rs 47.60, on value buying. It is known to be improving its core operations with an improved loan book in current fiscal.
Optical storage media maker Moser Baer India flared up 5.43% to Rs 454.30. On Thursday, 7 June 2007, the optical storage media maker said its unit, Moser Baer Photo Voltaic, has orders worth more than $100 million. The unit has started commercial shipment of its solar photovoltaic cells.
BASF India added 4.51% to Rs 269.80. During trading hours on Wednesday, 6 June 2007, BASF India reported 26.31% fall in net profit to Rs 3.67 crore in Q4 March 2007 from Rs 4.98 crore in Q4 March 2006. Sales moved up 10.68% to Rs 160.70 crore (Rs 145.19 crore).
Entertainment Network India rose 0.81% to Rs 390 on signing a memorandum of understanding (MoU) with Shri Puran Multimedia (SPMT). SPMT holds valid and subsisting license from the Government of India to broadcast F.M. Radio in eight locations across India. As per the MoU, SPML has agreed to solely and exclusively utilize the sales support function offered by ENIL on a national level to facilitate the sale of airtime of radio stations of SPML.
SKF India plunged 15.40% to Rs on 398 on announcement by parent SKF Group that it will make an investment of Rs 270 crore to build a greenfield factory in India for manufacturing large size bearings. The factory is expected to start production in 2008. The investment in the new facility will be carried out through SKF's existing 100% subsidiary in India - SKF Technologies India. SKF Group holds 53.58% stake in SKF India.
Max India rose 2.42% to Rs 252.30 after 15 lakh shares changed hands in a two block deal on BSE and NSE at Rs 248 each. Two block deals took place in early trade. The first block deal struck on BSE where 7.50 lakh shares changed hands in the counter at Rs 248 per share. Second deal of 7.50 lakh shares was struck on NSE at Rs 248 each.
India's wholesale price index rose 4.85% in the 12 months to 26 May 2007, lower than the previous week's 5.06%, government data released today afternoon showed.
All the Asian indices and European indices were down sharply today, 8 June 2007, with China as an exception. The Shanghai Composite index was up 0.57% to 3,913.13.
Japan's Nikkei Average plunged as blue chips Sony Corp. and Mazda Motors declined after US and European stocks on Thursday, 7 June 2007, traded lower on concerns over rising global interest rates and surging bond yields in the US.
The Nikkei was down 1.52%. Hong Kong's Hang Seng (down 1.40%), Taiwan's Taiwan Weighted (down 0.65%), Singapore's Straits Times (down 1.54%) and South Korea's Seoul Composite (down 1.47%), all edged lower.
Wall Street fell sharply for a third straight session yesterday, 7 June 2007, after rising bond yields deflated hopes for an interest rate cut later in the year. The Dow Jones slumped 198.94 points, or 1.48%, to 13,266.73, bringing its three-day loss to about 410 points. It was the biggest three-session decline since stock markets began a short-lived pullback on 27 February, 2007. All 30 stocks in the blue chip average lost ground Thursday.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 26.66 points, or 1.76%, to 1,490.72, and the Nasdaq Composite index slipped 45.80 points, or 1.77%, to 2,541.38.
Oil slipped back under $71 on Friday, as Gulf producer Oman carried out tests to see if it could reopen its export terminal after a three-day closure due to a storm. London Brent crude was down 53 cents at $70.69 a barrel
Citigroup - Punj LLoyd
Citigroup in their report on Punj LLoyd
Time to Buy, target price Rs305 — Upgrade to Buy (1L) with a Rs305 target price, from Sell (3M) and a Rs175.4 target, on the back of an earnings revision and the rolling forward of our target P/E multiple to 23x FY09E (from 23x FY08E earlier), which is well supported by earnings CAGR of 38% over FY07-10E.
Starting to deliver on its early promise — Punj Lloyd is perhaps the only mid cap E&C company that could leapfrog to the next level which is occupied by L&T with its diversified skill sets. The first sign that Punj Lloyd can actually deliver on its potential came with a reported 4QFY07 PAT of Rs889mn, which was 59% ahead of CIR's estimate.
Painting on a larger canvas — In FY07 Punj Lloyd acquired Semb which scaled up its expertise to upstream oil & gas, airports, jetties, MRT/LRT and tunnelling. With these extended capabilities, Punj is now pre-qualified for larger/more complex projects. Indications of this scale-up are already visible (average order is up from US$30mn to US$100mn in FY07 and likely to go up to US$200mn).
More than just numbers — At the end of FY07 Punj Lloyd had the third largest order backlog of Rs159bn in our rated Engineering & Construction universe after BHEL (Rs550bn) and L&T (Rs369bn). The gap between Punj and the other mid-cap construction companies is not a mere numerical one but also one of skill sets, which Punj can leverage further in the coming years.
Trading Calls
Sell Ambuja Cements with stop loss above Rs 114 for a target of Rs 106 and Rs 103. This is a day-trading recommendation.
Sell Tata Tele (M) with stop loss above Rs 28.15 for a target of Rs 26. This is a day-trading
recommendation.
Short Sell Sun TV at Rs 1350 with stop loss at Rs 1375. This is a day-trading recommendation.
Short Sell SAIL at Rs 129 with stop loss at Rs 132. This is a day-trading recommendation.
Buy SRF Ltd with stop loss of Rs 162, (On Closing Basis), for a short-term target of Rs 196. (This target may be achieved within a month)
Buy Gujarat NRE Coke with stop loss of Rs 56, (On Closing Basis), for a short-term target of Rs 78. (This target may be achieved within a month)
Daily Fundamental Snippets - June 8 2007
TVS Motor Co Ltd has cut production of motorbikes as high interest rates slow demand, and expects sales to improve only from the second half of the fiscal year. TVS, India's third-biggest motorbike maker, is adjusting its production mix by cutting back on motorbikes and stepping up production of cheaper mopeds and scooters.
Ansal Properties & Infrastructure has launched an integrated township at Agra, Uttar Pradesh, which is strategically located near the Delhi-Agra highway, on the Ring Road, Agra.
International Finance Corp (IFC), the private sector arm of World Bank, will take 5.84 per cent stake in Lanco Infratech's subsidiary - Lanco Amarkantak Power Pvt Ltd - for 8 million dollars (about Rs 32.5 crore). IFC has signed an agreement with Lanco Amarkantak to subscribe to a stake of 5.84 per cent amounting to 8 million dollars.
Strides Arcolab has launched US $ 75-million direct, unsubordinated, unconditional and unsecured zero coupon foreign currency convertible bonds due 2012.
Moser Baer India's subsidiary Moser Baer Photo Voltaic (MBPV) had commenced commercial shipment of its solar photovoltaic cells. MBPV has firm customer orders and memorandum of understanding (MoUs) exceeding $100 million.
Ispat Industries reported Q4 net profit of Rs 82.12 crore versus loss of Rs 153 crore on YoY basis. During the corresponding quarters, its net sales was up at Rs 2105 crore versus Rs 1281 crore. Its operatinf profit margin stood at 24% versus 12% during the corresponding quarters.
PVR's Q4 net profit was up at Rs 2.20 crore versus Rs 1.67 crore on QoQ basis. During the corresponding quarters, its net sales was up at Rs 40.6 crore versus Rs 39.5 crore. Its operating profit margin stood at 16% versus 13.5% during the corresponding quarters.
Gujarat State Petronet has posted Q4 net profit at Rs 19.3 crore (Rs 193 million) versus Rs 10.8 crore (Rs 108 million) in corresponding quarter of previous year. Net sales stood at Rs 83.1 crore (Rs 831 million) as against Rs 67 crore (Rs 670 million).
Daily Fundamental Snippets - June 8 2007
Sharekhan Investor's Eye dated June 08, 2007
Nicholas Piramal India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs393
Current market price: Rs265
Annual report review
From being a formulation player in the domestic market, NIPL has emerged as a leader in the custom manufacturing space. Through strategic acquisitions and expansions, the company has achieved a good growth. Simultaneously, it has also maintained its focus on building its innovative pipeline of molecules. The company's strength in the R&D field is vindicated through its recent drug development deal with global pharma major, Eli Lilly.
Through steady growth in the branded formulation segment, ramp-up in the custom manufacturing contracts, the expansion of the path lab business and a ramp-up in the capacity utilisation at Morpeth and NPIL UK, NIPL is well-positioned to exhibit strong growth both in the domestic market and internationally. Further, with the operations of Avecia, turning profitable and the Rhodia business having been shifted to India, the margins of the company should show improvement.
Considering the strong revenue flows and enhanced profitability picture for the coming years, we remain positive on the company. At the current market price of Rs265, NIPL is quoting at 15.7x estimated FY2008 earnings. We maintain our Buy recommendation on the stock with a price target of Rs393.
Shree Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Rs1,500
Current market price: Rs1,187
Price target revised to Rs1,500
Result highlights
- Shree Cement's top line grew by a robust 68% year on year (yoy) to Rs378 crore in Q4FY2007. The growth was achieved on the back of a robust 36% growth in volumes and a 24% rise in realisations over last year.
- The operating expenditure grew by 67% yoy to Rs226.97 crore on account of higher power& fuel expenditure and employee cost.
- Consequently, the operating profit grew by 69% yoy to Rs151 crore whereas the operating profit margin (OPM) stood flat at 40% yoy.
- The company claimed an additional depreciation of Rs114 crore on its new unit (the fourth one) at Ras in the fourth quarter. This resulted in an overall depreciation cost of Rs134 crore. The interest cost reduced from Rs2.3 crore in Q4FY2006 to Rs1.64 crore in the quarter.
- The tax provision remained very low at Rs0.3 crore, thanks to a higher depreciation provision. On the back of high depreciation provision, the net profit remained low at Rs24 crore.
- With additional capacity of 4MMT coming up over the next two years, Shree Cement will witness a robust year-on-year (y-o-y) volume growth of 19% in FY2008 and of 26% in FY2009.
- In view of the high volume growth and strict control measures, we expect the company's profits to grow by 22% yoy in FY2008 and by 9% in FY2009, resulting in a compounded annual growth of 15% over FY2007-09.
- At the current market price of Rs1,187, the stock is trading at 9.4x its FY2008 earnings per share (EPS) and 8.7x its FY2009 EPS. On an enterprise value (EV)/per tonne basis the stock trades at USD84. Keeping our bullish view on the stock, we maintain our Buy recommendation with a price target of Rs1,500 per share.
Daily Strategist Note
The NIFTY futures saw a gain of 5.60 % in OI with prices coming down and closing low indicating aggressive short positions built up in the market thus suggesting if the follow up continues then we may see fresh built up in positions with bears more aggressive and forcing weak bulls to liquidate their positions .The nifty June series futures closed at 15 points discount to spot nifty suggesting aggressive short positions built up in the market. Market if it sustains below 4150 levels then we may see further short positions built up in the market and longs liquidating their positions. The FII were sellers in index futures to the tune of 1613 crs and buyers in index options to the tune of 396 crs. The PCR has come up down 1.41 to 1.37 indicates weakness may be seen in the market.
IV in the market was 26.95 and HV was 24.18.
Among the Big guns, ONGC saw 8.89% rise in OI with prices coming down indicating short positions built up in the counter suggesting the counter may show weakness in the coming days. Whereas RELIANCE saw 9.68% gain in OI with prices closing down indicating selling pressure emerging in the counter suggesting further weakness in the counter.
In the TECH counters INFOSYSTCH, TCS, WIPRO & SATYAMCOMP saw gain in OI with prices going up indicating long positions built up in the counter suggesting further strength may be seen in these counters and these counters can give strong support to market.
In the BANKING counters, SBIN, HDFCBANK & BANKBARODA saw gain in OI with decline in prices indicating liquidation of long positions and fresh built up of short positions indicating further weakness may be seen in the counter. ICICIBANK saw loss in OI with prices coming down indicating liquidation of long positions built up suggesting further weakness in these counters.
In the Metal pack, SAIL saw rise in OI with prices falling sharply indicating short positions built up in these counters suggesting further weakness may be seen in these counters. HINDALCO & NATIONALUM saw gain in OI with prices going up indicating long positions built up in this counter suggesting further strength may be seen in this counter. TATASTEEL saw decline in OI with prices coming down indicating liquidation of long positions by bulls as there is selling pressure on higher levels.
We feel that the volume and built up in OI suggests that market may show some weakness if it remains below 4180 levels where we may see fresh short positions built up in the market thus one should hedge the positions to avoid any unexpected direction the market. One should trade with strict stop losses to be adhered too.
Market to track weak global equities
The cues from the global markers are weak. In the past, local bourses have been very closely tracking global markets.
Asian stocks were down sharply in early trading today, 8 June 2007, with Japan's Nikkei Average plunging as much as 326 points as blue chips Sony Corp. and Mazda Motors declined after US and European stocks on Thursday, 7 June 2007, traded lower on concerns over rising global interest rates and surging bond yields in the US.
Japan's Nikkei plunged 296.59 points or 1.64% at 17,756.79. Hong Kong's Hang Seng (down 1.29% at 20,531.85), Taiwan's Taiwan Weighted (down 0.73% at 8,294.28), Singapore's Straits Times (down 1.33% at 3,499.01) and South Korea's Seoul Composite (down 1.55% at 1,725.8), all edged lower.
Wall Street fell sharply for a third straight session yesterday, 7 June 2007, after rising bond yields deflated hopes for an interest rate cut later in the year. The Dow Jones slumped 198.94 points, or 1.48%, to 13,266.73, bringing its three-day loss to about 410 points. It was the biggest three-session decline since stock markets began a short-lived pullback on 27 February, 2007. All 30 stocks in the blue chip average lost ground Thursday.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 26.66 points, or 1.76%, to 1,490.72, and the Nasdaq Composite index slipped 45.80 points, or 1.77%, to 2,541.38.
As per provisional figures, FIIs were net sellers to the tune of Rs 287.17 crore on 8 June while Domestic Institutional Investors were net buyers worth Rs 283.81 crore on that day.
Investsmart - Morning Call
Market Grape Wine :
In House :
Nifty at a support of 4130 & 4100 levels with Resis at 4200 & 4230 levels.
Sell : ND TV below 379 Tag 362 SL 386
Sell : JP Associats below 650 Tag 625 SL 660
F&O
Sell : Bajaj Auto below 2124 Tag 2088 SL 2140
Buy : Satyam Above 488 Tag 502 SL 482
Out House :
Markets at a support of 14044 & 13959 levels with resistance at 14234 & 14345 levels .
Buy : RIL at dips
Buy : IFCI at dips
Buy : Praj at dips
Buy : GujNre at dips
Buy : Lupin & GlenMark at dips
Buy : HDFC at dips
Buy : TataInvest & GMDC
Dark Horse : Praj , IFCI , GMDC , TataInvst , GujNre & Patni
Bulet for the Day : GujNre s/l of 59 , IFCI s/l of 48.4 & Praj s/l of 411
TGIF : Thank God Its Friday : Markets at a correction mode book profits at higher levels .
Rising crude and bond yield rattle US Market
Dow loses 410 points in three days after bond yields cross the psychological 5% barrier
Rate fears coupled with rising oil and higher bond yield rattled the US market today (Thursday, 7 June 2007) and it closed lower for the third consecutive day. Yield on 10-yr note soared above psychological 5% level for the first time since August. Oil almost kissed the $67/bbl level.
Global growth and rising interest rates in Asia and Europe have put the U.S. bond market under pressure, lifting yields to levels last seen nearly a year ago. Today’s upbeat economic data put further pressure on bonds.
All the 30 Dow stocks closed lower for the day. The Dow Jones Industrial Average closed lower by a huge 198.94 points at 13266.73. With today’s loss, Dow has almost lost 411 points in the past 3 days.
Nasdaq and S&P too suffered substantial double digit losses. Nasdaq closed lower by 45.8 points at 2541.38 and S&P 500 closed lower by 26.66 points at 1490.72.
IBM came to the closest for being a Dow winner. Major Dow laggards were Alcoa, Exxon Mobil, 3M and Wal-Mart.
May same store sales data mixed
When market opened in the morning, stocks open lower across the board again. All the 10 sectors were trading in the red. But Technology tried to inch up Dow in the green for a very brief period of time.
The tech sector's best performers were Google and Apple.. The latter was up 2.1% after UBS raised its price target. But the recovery was quite short lived.
May same-store sales were mixed at best. Wal-Mart Stores reported a 1.1% increase in same-store sales (excluding gasoline sales), below the consensus estimate of a 1.4% increase. The retail giant forecast that sales at stores open at least one year would be between flat and 2% for June. Target reported a 5.8% increase in same-store sales, in line with its 5%-to-7% growth forecast. Costco Wholesale has already reported a better-than-expected 7% increase in same-store sales for May.
Losses accelerated in the last half-hour of trading after PIMCO chief investment officer Bill Gross said global growth will likely keep bond prices under pressure, lifting yields further, over the next three to five years.
Crude surpasses $67 during intraday trading
Wal-Mart today lost almost 2% after it posted a modest gain in May same-store sales, narrowly missing Wall Street estimates, amid weakness in its apparel and home merchandise.
Crude oil futures rose today to the highest level in almost a month after fresh concerns about slowdown in refinery activity last week. Reports on delay in oil tanker loadings in Oman also boosted up crude prices. Crude-oil futures for light sweet crude for July delivery closed at $66.93/barrel (higher by $0.97/barrel or 1.47%) on the New York Mercantile Exchange. Prices crossed $67/bbl during intraday trading. Prices are 5.5% lower than a year ago.
Trading volumes showed 1.907 billion shares exchanging hands on the New York Stock Exchange and 2.388 billion on the Nasdaq stock market. Declining issues topped gainers by 15 to 1 on the NYSE and by 23 to 6 on the Nasdaq.
With little catalyst to bank upon tomorrow, investors will have the April trade report in terms of economic data to set the tone of trading. It is expected to hit the wires at 8:30 ET, and will be watched for overall trends in the trade balance.
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