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Saturday, August 04, 2007

Close: Ready for subprime levels !

This week market had roller coaster ride. The global woes had Indian markets on their knees. The huge liquidity was seen flowing out of the system. US market had the subprime market worries with the crises expected to spillover beyond the credit markets. Globally markets buckled on US woes. The worry was also fuelled by CRR hike expectations which did come in Given that these were in line with expectation, Markets rallied only to fall sharply the next day on Global woes. Though markets recovered from this, the impact will be seen gradually.

Sensex lost less than 1% this week about 105 points. There was a 670 points swing in Sensex for the week between a high of 15569 and low of 14896. Madcap index was 0.3% up. IT down 3.5%. Auto down 3%. Capital goods index 2% up. Oil and Gas 2.5% down.. The big losers included Infosys (-4%), Mahindra (-12%), MTNL -5%, Nalco - 10%, Suzon -5%, Tata Motors -6%, TCS -5%, Wipro -4%, Zee-5%, SBI was the only hewavyweight gainer up over 4% for the week clocking +9% gains.

We covered Reliance with some cautious comments on Reliance earlier in the week and the stock got whacked. Do read our views on he same in Economy: Stocks in action:

We had a note on Greenply which has been a wonderful performer. We believe that the business is now ready to catch momentum even though its up significant since we initiated coverage. The benefit of taking marketshare from the unorganised sector is expected to flow in and this is the large player with a fantastic distribution set up well placed to exploit it.

We had a detailed research note on ABG shipyard. The stock gained 14% this week. The Industry is well placed to exploit the global opportunity of ship building. The Government is backing it with a subsidy. The company managed to bag a large order and the orderbook now stands over 5500 crores. We believe that the business is good but valuations are pricing in too fine an execution. Do read the note.

There was more research as well.. including the results analysis for MoldTek, Nestle and so many more..

Technically speaking.: On a weekly closing there Sensex close was comfortable though on a daily basis the closing was below the trendline support. 15230 is a resistance but the big ones are near 15380 - 15497. In terms of support 14890 is a support but 14830 is crucial and below this markets may see more pressure.

The momentum is now broken and value buying by locals feeling left out is more likely to be met with profit taking.. making it more of a consolidative phase. We fail to find catalysts other than global bounces for markets to see further inflows and test the recent highs.

Fundamentally speaking: The results are all out and there are not many triggers left. There are hopes for an interest rate cut but with crude a $ 77 thats unlikely to happen. Growth in certain sectors has started to slow. The sectors performing are the ones which depend on Government spend. Markets may see some value buying but on valuaton basis the risks have increased given the volatility. This itself should lead to lower valuations. All in all.. we dont seem to be positive. But, thats not out of choice. We believe that the global risk of subprime lending is not play out and we have not heard the last of it. Understanding the way it works, it could grow on itself. Also the Yen carry trade is another issue we have to live with. A US rate cut is what many in the US markets are hoping for, but that would imply a weaker dollar. Having said all this we believe that there would be opportunities and we will be there looking for them for you at Its not going to be easy and sifting through will be a tough job.

US stocks slide

Stocks fell sharply Friday amid fresh concerns that soured subprime mortgages will ignite a credit crunch and following weaker-than-expected economic readings. The Dow Jones industrials fell more than 230 points.

The final session of a volatile week also saw a notable rise in the bond market, with the yield on benchmark 10-year Treasury note falling to 4.70 percent from 4.77 percent late Thursday. Bond prices move opposite yields.

Stocks pulled back Friday afternoon after comments from Bear Stearns Cos. Chief Financial Officer Sam Molinaro stirred concerns that weakness in the credit market was widespread.

Coming off two straight days of triple-digit gains in the Dow, stocks fell earlier after the government said jobs growth was not as strong as expected last month and a trade group reported that the nation's service sector grew at a slower pace than expected in July.

Credit concerns, which have dogged investors for months and have roiled markets since last week, weighed on investor sentiment again Friday. Standard & Poor's Ratings Services lowered its credit outlook on Bear Stearns Cos. to negative from stable because of the investment bank's exposure to the distressed mortgage and corporate buyout markets. The stock at times fell to levels not seen since November 2005; in the early afternoon it was down $3.06, or 2.7 percent, at $112.57.

"I think there is a tremendous amount of uncertainty with regard to the credit markets and how the situation will ultimately settle," said Mike Malone, trading analyst at Cowen & Co.

In late afternoon trading, the Dow fell 232.57, or 1.73 percent, to 13,230.76.

Broader stock indicators also lost ground. The Standard & Poor's 500 index dropped 31.01, or 2.11 percent, to 1,441.19, and the Nasdaq composite index fell 52.74, or 2.05 percent, to 2,523.24.

The stock market made late-day surges both Wednesday and Thursday, but trading has been nervous and wavering. Investors remain worried that problems in subprime mortgages -- those made to borrowers with poor credit histories -- will force lenders to make credit less available. When people and companies can't borrow money as easily, the economy tends to slow down.

"There is not going to be one sort of clear signal that suggests everything is OK," Malone said, referring to the subprime worries. "I think it's going to take time and the equity markets are going to experience heightened volatility."

Investors could be in for more volatility in the coming week, which not only includes economic figures on productivity and consumer credit, but also brings a meeting of the Federal Reserve's Open Market Committee, which has left short-term interest rates unchanged for the past year. Investors will likely be looking to its statement following its meeting for any word on the mortgage and credit markets.

The unease over the mortgage market and tightening credit Friday again dragged down financial stocks, which have been hard hit in recent weeks. Lehman Brothers Holdings Inc. fell $3.87, or 6.4 percent, to $56.54; its previous 52-week low was $58.85. Merrill Lynch & Co. fell $2.60, or 3.6 percent, to $69.95. During the session the stock fell below its previous 52-week low of $69.14.

Investors also fled lenders. American Home Mortgage Investment Corp. confirmed late Thursday it has stopped taking mortgage applications and is laying off most of its 7,000 staffers. American Home dropped 74 cents, or 51 percent, to 71 cents.

Countrywide Financial Corp. fell $1.68, or 6.3 percent, to $25.09. The nation's biggest mortgage lender said Thursday it has adequate access to cash and isn't facing the liquidity crunch that is hitting dozens of other smaller players.

In economic news, which didn't provide much reason for investors to look past the mortgage and credit concerns, the Labor Department said nonfarm payrolls rose 92,000 last month, less than the 132,000 jobs created in June and below the average forecast of about 135,000. Also, unemployment ticked up to 4.6 percent -- a six-month high -- from 4.5 percent in June. Still, overall unemployment remains low, analysts noted.

Also, the Institute for Supply Management said its non-manufacturing index for July fell to 55.8 from 60.7 in June. Wall Street had expected a reading of 59, according to Thomson Financial/IFR.

Investors still uncertain about the effect of rising subprime mortgage defaults on the broader economy have regarded the stable job market and consumer spending as signs the economy might hold up despite a tighter lending climate. That's because people with steady paychecks are more likely to keep spending and pay back their debt. At the same time, some pullback in employment might ease some concerns about wage inflation.

"I think the ISM and the jobs numbers are going to accelerate the general consensus view that maybe the economy is slower than anticipated," said Subodh Kumar, global investment strategist at Subodh Kumar & Assoc.

"The market has become very much driven from data point to data point because of uncertainty of a number of issues," he said, citing unease over credit, oil prices, and a weak dollar.

In other corporate news, Procter & Gamble Co., one of the 30 components of the Dow industrials, reported a rise in quarterly profit that beat expectations and announced plans to repurchase stock. P&G rose 18 cents to $63.48.

Toyota, poised to overtake General Motors Corp. this year as the world's biggest automaker, said profit in the most recent quarter soared 32 percent amid strong overseas sales and a weaker yen. Toyota rose 89 cents to $119.48.

Crude oil futures settled down $1.38 at $75.42 per barrel on the New York Mercantile Exchange after the employment report suggested the economy could slow and demand for oil could fall. Crude closed at a record $78.21 a barrel on Tuesday, though ended the week 2 percent lower.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 1.77 billion shares.

The Russell 2000 index of smaller companies fell 25.11, or 3.20 percent, to 758.88.

In Asian trading, Japan's Nikkei stock average fell 0.03 percent, Hong Kong's Hang Seng index rose 0.4 percent, and China's Shanghai Composite Index rose 3.5 percent.

In European trading, Britain's FTSE 100 fell 1.21 percent, Germany's DAX index fell 1.31 percent, and France's CAC-40 fell 1.48 percent.

Weekly Stock Ideas

Buy Mphasis BFL 304 with SL of Rs298 Target 318, 322

Buy Voltas at Rs139 with SL of Rs134 Target of Rs148, 151

Buy Punj Lloyd at Rs275 with SL of Rs269 and Target of Rs288, 292

Buy NTPC at Rs166 with SL of Rs161 and Target of Rs174, 176

Buy Sobha at Rs865 with SL of Rs857 and Target of Rs890, 895

Weekly Newsletter

Global markets crack, but rebound quickly

After last week's massacre across global equity markets, the bulls got another big thrashing this week. The reason remained the same. Concerns about the trouble in the US subprime mortgage market and its wider repercussions across the global financial sector. The Dow Jones Industrial Average fell by almost 150 points on July 31, triggering off a worldwide selloff, which left a trail of destruction. However, things stabilised in the next two days, with the Dow itself climbing more than 200 points. Markets also recovered around the world.

But, despite the rebound, one can't tell whether global markets are out of the woods, as the credit woes spread to other parts of the world. IKB Deutsche Industriebank, a mid-sized lender in Germany, is being bailed out by a group of banks after admitting to steep losses stemming from its exposure to America's subprime mortgage market. Macquarie Bank, Australia's largest securities firm, said two of its high-yielding funds could post losses due to the ongoing trouble in the US subprime mortgages. Shares of Macquarie Bank had their biggest drop in five-and-a-half years.

The news came after Wall Street major Bear Stearns halted redemptions from a third hedge fund after investors demanded their money back. Two collapsed hedge funds run by Bear Stearns started bankruptcy proceedings, according to a letter sent to investors by Jeffrey Lane, CEO of the bank's asset management business. Asia Genesis Management, a hedge fund based in Singapore, said it had increased cash holdings to 95% of its assets to avoid losses.

US mortgage lender Accredited Home Lenders Holding revealed in a SEC filing it was not certain it would continue to operate. Shares of the company tumbled nearly 38% on August 2. A report stated that American Home Mortgage Investment Corp. will shut shop, just two days after the mortgage lender said it was considering liquidation. Market experts expect more pain from the US subprime mortgage market. The credit squeeze has already dampened US consumer spending and is likely to do so for a while. The US subprime-market rout has got a long way to go, said Jim Rogers. " Further losses may be in store even as shares rebounded this week. This was one of the biggest bubbles we've ever had in credit." Rogers said.

YV Reddy surprises CRR by 50 bps

The Reserve Bank of India (RBI) Governor YV Reddy has made it a habit of surprising the markets. In an unexpected move, he hiked the Cash Reserve Ratio (CRR) by 50 basis points, from the current level of 6.5%. The revision will come into effect from August 4. The bank rate, the repo rate and the reverse repo rate have been kept unchanged at 6%, 7.75% and 6%. At the same time, Reddy kept the central bank's target of GDP growth and inflation rate unchanged.

The RBI also removed the Rs30bn cap on accepting excess funds from banks under the daily reverse repo auction to reduce liquidity. this move will come into effect from August 6. The RBI, however, retained the discretion to re-impose a ceiling as appropriate. Simultaneously, the second LAF, which was introduced from November 28, 2005 and is conducted between 3.00 p.m. and 3.45 p.m. on a daily basis, is withdrawn with effect from August 6.

The RBI said it will continue with its policy of active demand management of liquidity through appropriate use of the CRR stipulations and open market operations (OMO) including the MSS and LAF, using all the policy instruments at its disposal flexibly, as and when the situation warrants.

Bond prices declined while the yield on the benchmark 10-year Government bond climbed post the RBI announcement. The stock market too fell sharply initially, but rebounded sharply to close nearly 300 points up on the day.

The latest central bank measures are mainly aimed at containing inflation and mopping up excess liquidity, which could potentially put upward pressure on prices going ahead. This move will also allow the RBI to continue buying dollars to prevent rupee from appreciating further. Call rates will inch up to the level of the reverse repo rate.

Lending rates are unlikely to rise from here, though a reduction that may were looking for will not happen soon. Deposit rates, especially on the special schemes, will come down by up to 100 basis points. Some banks have already announce a cut in deposit rates. The big question is whether the RBI will be able to stem the relentless inflow of foreign money.

Bulls recover after bumpy ride

In an action packed week, bulls tried to overcome each & every battle, however, in the end they fell short to shut the week on a lower note. Ride for the bulls was bumpy following turmoil in global equity markets, high crude oil prices and CRR hike by the RBI. Volatility was at its peak, as bulls & bears struggled to find any direction, causing the indices to swing between gains & losses. Even the FIIs flows, let the bulls down, as they offloaded heavily over the week. Finally, the benchmark Sensex closed 96 points lower or down by 0.6% at 15138 and NSE Nifty fell by1 % or 44 points to close at 4402.

Profit booking was seen in Metal and Oil & Gas and Pharma stocks. While, Banking stocks advanced smartly on speculation that interest rates may slow down after inflation slowed to 4.36% in the third week of July. Oil marketing companies were on the receiving end as international crude oil prices were ruling very close to record levels. US light crude for September delivery rose 40 cents to $76.93 a barrel on the New York Mercantile Exchange.

Banking stocks recovered lost ground shrugging off impact of a 50bps hike in CRR. BSE Bank index advanced 1.6% over the week with SBI rallying by over 9% during the week, the scrip was also the top gainer among the 30-scrip’s of Sensex. Others like Kotak Bank gained 6.7% to Rs762, Bank of Baroda advanced 2.6% to Rs296 and Corp Bank added 2% to Rs363. However, HDFC Bank lost 1.2% to Rs1152.

FMCG stocks continued its upward journey led by gains in Colgate, the scrip was up by over 7.5% to Rs402, Hindustan Unilever surged by over 4% to Rs204. However, ITC lost 1.2% to Rs169 on account of profit booking.

Auto stocks were in reverse gear after major auto companies announced a decline in its monthly sales figures. India's biggest motorcycle maker posted a 15% drop in sales in July after demand for the Glamour and CBZ X-treme fell. The scrip over the week lost by over 4%. M&M plunged by over 13% to Rs678, Tata Motors dropped over 6% to Rs656 and Ashok Leyland slipped 3% to Rs. However, Maruti added 2.5% to Rs850.

IT stocks continued its downward trend with BSE IT index losing by 3.5%. TCS lost by over 5% to Rs1090, Wirpo was down by 5% to Rs467, Infosys slipped by 5% to Rs1907 and Satyam Computer declined 0.5% to Rs470.

Capital Good stocks recorded smart gains. The index gained 1.8% during the week. Frontline stock L&T surged nearly by 4% to Rs2520, BHEL was up by 3.7% to Rs1720 and Punj Lloyd rose by over 3.5% to Rs275.

With major results out of the way, much will depend on the liquidity flows and the trend across the global markets.

The outcome of the US Federal Reserve meeting, which will be held on Aug 7, will be closely tracked by the Indian markets. The indices will trade in a range for the coming week with global cues playing a major role, especially at start of every trading day. Investors could take comfort in defensive counters and stay invested for the long term. Adopt a strategy of sticking to ‘prime’ stocks and avoiding ‘sub-prime’ counters. As the recent meltdown proves, it better to remain in the prime bracket and ride the tide than choose sub-prime category of stocks, which could drown you.

Though, much has been talked about overstretched valuations of Indian Indices and India being considered to be the most expensive market among the emerging economies space. However, Indian markets are far behind Hang Seng Index and Shanghai’s SEC Index, which in the current year gained over 70% compared to 10% returns by the Sensex in the same period.

Sleeping on your account?

In case of inactive accounts, you cannot operate it through the ATM, phone or internet banking

Shyam Kumar has three bank accounts. He routes all his transactions through two of his accounts. He never remembered when was the last time he used the third account. One fine morning, when he ran a balance enquiry, he realised that his balance amount was lower than expected. He called up the bank to find out the reason. The customer care executive replied: "Your account is inactive Sir. So we have deducted Rs 1,000 from your existing balance".

When is your savings account classified as dormant or inactive?
If you don't withdraw or carry out any transaction in your account - be it via the ATM, branch or internet, for a period of more than a year - banks consider your account as inactive. Explains a Mumbai-based branch manager of HSBC: "Usually when a customer does not operate his/her account for a year, it is classified as inactive. When the account is kept unused for almost two years, it is classified as dormant. In case of inactive accounts, you cannot operate it through the ATM, phone or internet banking."

The official also adds that: "The bank systems do not identify inactive accounts. So a customer has to walk into the branch to reactivate these accounts."

It's important to know that a bank does not consider system-generated debits (default charges or debit interest) as withdrawal. So if you do not use the account for more than a year, it will be treated as inactive even if the bank statement may depict some debit charges.

However, banks differ on the time period after which they term the account as inactive. For example, HDFC Bank terms an account as inoperative if it's out of action for a year. ICICI Bank, on the other hand, takes 15 months while foreign banks such as Citibank, HSBC and Standard Chartered classify an account as inoperative if no transactions take place in two years. While freezing the non-operative account is of a little concern, as the same can be reactivated later, what is worrisome is that most banks also slap a fee on such inactive accounts.

But there are a few others who do not levy such penal charges. But at the same time you have to exercise caution as banks might end up forfeiting your interest for the inactive period. What hurts is that the bank customer is likely to bear all these traumatic measures despite maintaining the average quarterly or monthly balances. And in case the account does not have sufficient funds to recover the penalty amount, then banks can take the liberty to close them.

Explains a senior Indian Banks Association (IBA) official: "As per the IBA model policy on bank deposits, banks have the right to transfer such unused accounts to a separate dormant or inoperative account status. This is both in the interest of the depositor as well as the bank. However, the bank will have to inform the customer, prior to freezing his/her accounts."

How do you reactivate your accounts?
If your bank account has been inactive for less than a year, you can walk into the branch for a withdrawal transaction using your cheque book. Otherwise, in the age of e-banking, you can send a message to the bank from your personal internet banking ID, instructing the bank to pass Re 1 debit and credit entries into your account. If it has been inactive for more than a year, you have to give a letter for activation of the account signed by each of the account holders. You are also required to submit a photo identity like passport or driving licence for each account holder.

How can you keep your account active?
Instead of bearing a penalty or running to the branch to reactivate your account, you can simply carry out a transaction once in a while on such unused ban accounts. This saves you from the trouble of reactivating the account and the costs attached to it. You can carry out a transaction from your account by withdrawing cash, making a cheque payment, transferring funds through either of the banking channels at least once a year.

This will ensure that your account remains active at all times. Even if you have missed to carry out that occasional transaction, you still have a last chance. A bank is liable to inform you three months prior to terming your account as inoperative.

What do banking codes say?
The onus is on the bank to inform the customers as to what period of inoperativeness could render the account as being classified as dormant or inoperative. The bank has to impart this information at the time of opening the account. Again you are bound to be informed by your bank, three months in advance that your account is likely to be classified as dormant, inoperative or treated as unclaimed account.

The consequences of not getting your account reactivated on time, including the charges for reactivation are required to be mentioned in the tariff schedule. These codes also mandate banks to tell you the procedure to be followed if you want to activate the account.

Now you know what it takes to keep your account inactive. So, once in a while, do pay a visit to your bank branch and ensure authorities that you are still alive and kicking!

Indo-US N-deal: 123 agreement made public

The 123 agreement, which will make the Indo-US nuclear deal operational, was finally made public earlier today. In the text of the deal there is a clause that says that the agreement will in no way be a hindrance to India's strategic programme. What is clear from the draft of the 123 agreement is that there is no legal binding commitment on India to never test again. If India does conduct a nuclear test, it will not be violating any international treaty or agreement because there is no mention of testing or detonation in this bilateral agreement.

"The United States will support an Indian effort to develop a strategic reserve of nuclear fuel to guard against any disruption of supply over the lifetime of India's reactors," the text said. "Nuclear material, equipment and components so transferred shall not be used by the recipient party for any nuclear explosive device, for research on or development of any nuclear explosive device or for any military purpose," it said.

Puravankara Projects cuts IPO price band

Price band revised from Rs500-525 per share to Rs400-450 per share, citing adverse developments in the financial markets. Bangalore-based real estate firm Puravankara Projects Ltd. said on Friday that it had decided to revise the price band of its ongoing Initial Public Offering (IPO) due to volatile market conditions. The company has revised the price band of the issue, from Rs500-525 per share. to Rs400-450 per share. "The decision was taken in view of the adverse developments in the financial markets in India over the last few days," Puravankara mentioned in a statement.

Accordingly, the issue closing period has been extended by three working days. The issue will now close on August 8 instead of the earlier closing day on August 3. The bids and any revision of bids will continue to be accepted between 10.00 am and 3.00 pm till August 8. "The shortfall in the funds raised on account of the revision in the lower end of the price band is intended to be adjusted against the general corporate requirement which has been specified in the Red Herring Prospectus," Puravankara said. The IPO of Puravankara opened for subscription on July 31.

Bird flu contained in Manipur: Govt

The Government said it had managed to contain the outbreak of Avian influenza at Chingmeirong in East Imphal district of Manipur, nine days after the so-called the so-called bird fly was notified. But, authorities are not taking any chances and continue to monitor the situation. Authorities completed health checks on thousands of people, and cleared four boys who had been suffering from fever after handling dead or sick poultry. Throat swab and tissue samples of the four boys had been sent for testing but no sign of the H5N1 virus was found. There has been no report of any unusual mortality form the surveillance zone or in any other part of Manipur, the Government said, adding that the clean-up and dis-infection was under progress.

SBI stake purchase lifts Q1 fiscal deficit

India's fiscal deficit in the first quarter of the current fiscal year touched 74.5% of the annual target, data published by the Government showed. At the end of June, the fiscal deficit stood at Rs1.12 trillion as against the budget estimate of Rs1.51 trillion. In the same period last year, the fiscal deficit was 52.3% of the annual budget projection. The Government said that the fiscal deficit was higher due to additional spending to acquire the Reserve Bank of India's (RBI) 59.7% stake in State Bank of India (SBI). After excluding this transaction, the fiscal deficit up to June is Rs768.73bn. This expenditure will be neutralized by realising an equal amount of receipts from the RBI during the course of this financial year, the Government said today.

June exports up 14% yoy

India's merchandise exports grew by 14% to US$11.87bn in June from US$10.41bn in the same month a year earlier, the Government said. In May, exports were up 18% at US$11.86bn while in April they rose by 23% to US$10.58bn. Imports jumped by nearly 37% to US$19.2bn from US$14.04bn in June 2006. As a result, the trade deficit for the month is up at US$7.33bn as against US$3.64bn in the corresponding month last year. Cumulative exports during April-June 2007-08 were up 18.1% at US $3434.3bn as against US $29.04bn during the same period last year. Year-to-date imports were up 34.3% at US$54.91bn versus US$40.89bn in the same period last year. The trade deficit for April-June, 2007 was estimated at US $20.61bn compared to US $11.84bn during April-June 2006-07.

Mfg sector slows in July: PMI

Manufacturing activity in India touched its lowest level in more than two years, as the series of monetary tightening measures started pinching the industry and a rising rupee hurt exports. The ABN Amro Bank purchasing managers' index (PMI) fell to a seasonally adjusted 52.9 in July from 53.2 in June. It was the lowest reading since the series began in April 2005. A reading above 50.0 signals expansion while anything below 50.0 means contraction. The PMI hit a peak of 59.3 in October 2006. It has been falling since then, as the Reserve Bank of India (RBI) unleashed a slew of monetary tightening steps to reign in inflation amid a fast-growing economy. The central bank has raised its key lending rate five times since June 2006, and jacked up Cash Reserve Ratio (CRR) four times since December 2006.

REL wins revised auction for Sasan project

Reliance Energy Ltd. (REL) won the revised bid for the Sasan Ultra Mega Power Project (UMPP). The Anil Dhirubhai Ambani Group (ADAG) company bid Rs1.19 per unit for the 4,000-MW project in Madhya Pradesh. It may be recalled that last week, the Government officially disqualified the Lanco Infratech-Globeleq consortium, alleging misrepresentation of financial data and the subsequent withdrawal of Globeleq from the consortium. Lanco had apparently bid Rs1.19 per unit in the first auction. REL had previously bid Rs1.29 per unit. Other suitors in the race for the Sasan project were NTPC and Jaiprakash Associates.

IFCI vaults as stake sale optimism improves

Shares of IFCI jumped after a financial daily reported that the public sector term lender's Board would meet on August 4, to consider inviting bids for the proposed stake sale. IFCI proposes to sell up to 26% stake in the company, and the process is expected to be completed in six months. The newspaper also reported that British bank Barclays is willing to offer a huge premium. The stock closed the week at Rs60.70. The paper also said that Citigroup, Lehman Brothers, BNP Paribas, Deutsche Bank and several Indian banks have shown interest in acquiring stake in IFCI. Ernst & Young (E&Y) has been appointed as the consultant for the proposed stake sale in IFCI.

JSW Steel to buy US plant: report

JSW Steel Ltd. plans to acquire a US steel plant for as much as US$1.2bn, Managing Director Sajjan Jindal was quoted as saying by a foreign newswire agency. "We're close to buying a steel-plate mill in the US," Jindal said in an interview on July 26. However, he refused to comment on whether the target was a plant owned by pipe maker Jindal SAW Ltd., which plans to sell its steel-plate mill in the US. Some of the semi-finished slabs from India will be shipped to the US mill, according to Jindal. "The cost at the US plant can be significantly lowered if we ship the steel from India and add value there," Jindal said.

Tata Steel ups contribution for Corus buy

Tata Steel decided to increase its contribution towards the takeover of Corus from US$6.7bn to US$7.4bn, to cover additional costs and working capital requirement of the Anglo-Dutch steel maker. This increase will essentially be covered by increasing the amount of the Rights Issue of 2% Convertible Preference Shares from Rs43.5bn up to about Rs60bn, Tata Steel said. The Rights Issue will remain the same i.e. in the ratio of 1:5 at a price of Rs300 per share, it added. In April, Tata Steel announced the acquisition of Corus for about US$12.9bn. This was to be funded by Tata Steel UK’s debt of about US$6.14bn, and equity contributions from Tata Steel and Tata Steel Asia. But, the consideration did not include the working capital of Corus. After the acquisition, the enterprise value, including all the debt and costs, is estimated to be about US$13.7bn. The balance funds required would be raised through appropriately structured issues in the foreign markets, Tata Steel said.

Air Deccan takeover...SEBI seeks details from UB

The Securities and Exchange Board of India (SEBI) sought details from United Breweries (Holdings) and its merchant banker Edelweiss on the funding options for acquiring an additional 20% stake in Deccan Aviation. The capital market regulator pulled up UB Holdings for wrongly stating that it had not raised any questions on the proposed open offer for Deccan Aviation. SEBI termed UB Holding's announcement as inaccurate, adding that the company and its merchant bankers have not furnished details about the financing despite repeated reminders. The draft letter of offer was submitted with SEBI on June 19. The offer was to open on July 25 and close on August 13. However, on July 25, UB Holdings said the open offer schedule will be revised, as it had not received any observation SEBI.

Boeing ups aircraft projection for India

Boeing increased its estimate for new aircraft requirements from India to 911 new planes over the next 20 years from an earlier projection of 856 aircraft. These planes will be worth more than US$86bn as against an earlier estimate of US$72bn. "The Boeing company detailed its current market outlook for India projecting India's need for 911 new commercial airplanes worth more than US$86bn over next 20 years," Dinesh Keskar, Senior Vice-President (Sales), Boeing said in a statement. India would need at least 53 more twin-aisle aircraft, Keskar said

Genpact shares rise nearly 20% on NYSE debut

Genpact Ltd. made a sparkling debut on the New York Stock Exchange (NYSE) on August 2 after raising less than expected US$494mn in the biggest ever US listing by an Indian company. The stock surged by 19.64% to close the maiden trading day at US$16.75 after touching a high of US$17.10 and a low of US$13.63. Traded volume on the counter were 18.49mn shares. Genpact had priced 35.29mn shares at US$14 apiece. The company had announced a pricing of US$16-18 per share in its filings with the Securities and Exchange Commission (SEC) till as late as July 30. The IPO gives Genpact an initial market capitalisation of about US$2.9bn.

Punj Lloyd forms realty JV with Ramprastha Group

Punj Lloyd Ltd., a global EPC player in the energy and infrastructure sector, signed a Memorandum of Understanding with the Ramprastha Group for the development of multi-storied residential housing through a 50:50 joint venture (JV). The MOU envisages development of residential apartments in Ghaziabad on a 29-acre land in the first phase, Punj Lloyd said. In the second phase, substantial real estate development is proposed in Indrapuram and Gurgaon, where the Ramprastha Group holds a large land bank, it added. Punj Lloyd (or its affiliates) is expected to invest Rs1.8bn in the JV and a similar investment is planned by the Ramprastha Group.

Separately, Punj Lloyds also signed an agreement to acquire a 25.1% stake in Pipavav Shipyard Ltd. for Rs4.03bn. The investment is subject to receipt of corporate and statutory approvals and satisfaction of certain conditions precedent. This is a strategic investment by the company to support the growth of its business in the offshore sector, Punj Lloyd said.

Everonn Systems shares quadruple on listing

Everonn Systems Ltd. made a spectacular debut on the bourses on August 1 despite an overall weakness in the market, as investors scrambled to buy the shares of the knowledge solution company. The stock opened at Rs245 on the Bombay Stock Exchange (BSE) as against the issue price of Rs140 per share. The scrip ended the week at Rs474.90 after touching a high of Rs560.

Shares of Simplex Projects Ltd. jumped as much as 75% on August 3 after the Initial Public Offering (IPO) of the civil construction company received an overwhelming response. The stock opened at Rs323.75 on the Bombay Stock Exchange (BSE) as against the issue price of Rs185 per share. The scrip finished at Rs272 after touching a high of Rs323.75 and a low of Rs266.70.

Take Solutions IPO subscribed 1.15 times

The Initial Public Offering (IPO) of Take Solutions Ltd. has been subscribed by 2.23 times. The company received bids for 4.81mn shares as against the issue size of 2.1mn shares. The oversubscription is thanks largely to the Qualified Institutional Investors (QIB). The shares reserved for this category were fully subscribed, while the non-institutional and retail categories had not seen any action so far. The issue will close for subscription on August 7. The price for the IPO has been fixed between Rs675 and Rs730 per share.

Central Bank fixes issue price at Rs102

Central Bank of India has fixed the issue price at Rs102 per share for the Initial Public Offering (IPO) of 80,000,000 shares of Rs 10 each. The price has been determined through the 100% book building process. The issue opened for subscription on July 24 and closed on July 27. It was subscribed approximately 62 times and received over 7.80 lakh applications. The QIB portion was subscribed about 89 times, non institutional 69.47 times and retail 16.01 times. Employee portion was subscribed 1.76 times. Post the issue, the shareholding of the Government of India in the bank will come down to 80.20%.

Oil hits new lifetime high; retreats later

Crude oil for September delivery fell 16 cents to US$76.86 a barrel in the first four days of trading this week on the New York Mercantile Exchange. Futures touched a record US$78.77 a barrel on Aug. 1 after a US Government report showed a larger than expected drop in crude inventories. However, oil prices declined on the next two days as the report showed a steep jump in refinery activity and an increase in gasoline inventories. The build in gasoline stockpiles was particularly significant in that it comes at the height of the summer driving season. US oil supplies fell 6.5mn barrels to 344.5mn barrels last week, leaving inventories 12% above the five-year average, Energy Department figures showed. Gasoline, diesel and heating oil supplies rose as refineries operated at 93.6% capacity, the highest since the week ended June 23, 2006. Light, sweet crude for September delivery fell 29 cents to US$76.57 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe, on Friday. September Brent crude dropped 15 cents to US$75.61 a barrel on the ICE Futures exchange in London.

BOE, ECB keep key rates unchanged

The Bank of England (BOE) and the European Central Bank (ECB) left their benchmark interest rate unchanged, as both the central banks assess the impact of the previous tightening measures. The BOE held its key rate steady at a six-year high of 5.75% following five increases in less than a year. Economists had expected the British central bank to maintain status quo this month. The ECB left its benchmark interest rate at a six-year high of 4% after eight increases since late 2005. However, most economists expect ECB President Jean-Claude Trichet to signal another rate increase at a press conference. Meanwhile, the BOE plans to wait for new inflation and growth forecasts before deciding whether further moves are needed. Inflation in the UK has held above the central bank's 2% target for 14th month in a row.

Japan's industrial output rebounds in June

Japan's industrial production expanded for the first time in four months in June, ending the worst manufacturing slump in almost two years, thanks to improved performance by electronics parts makers and automobile industry. Production rose a seasonally adjusted 1.2% from May, halting three months of declines, Japan's Ministry of Economy, Trade & Industry said. Economists had forecast a gain of 1% in Japanese industrial output. What's more, manufacturers expect the output to grow by 1.8% in July and 4.9% in August, the Trade Ministry said. Industrial output had fallen marginally the previous three months, by 0.3% in May, 0.2% in April and 0.3% in March.

China asks banks to set aside more funds

In yet another move to curb excess lending, China's central bank announced it would increase reserve requirement ratio by 0.5% for commercial banks beginning from August 15. The latest increase in the reserve requirement, announced by the People's Bank of China, is the sixth such increase this year, and was widely anticipated. It will take the ratio to 12% from 11.5%. The Chinese central bank said the move was aimed at strengthening management of liquidity in the banking system and rationalising lending growth. "The increase in the reserve ratio will help control liquidity in the banking system and slow loan growth," the People's Bank of China said. The move came barely 10 days after China raised its interest rates by 0.27%, and cut the tax on interest from bank deposits to 5% from 20%.

Murdoch clinches Dow Jones deal

After dragging its feet for three months, the Bancroft-family finally said yes to Rupert Murdoch's proposed offer for buying Dow Jones & Co., the publisher of The Wall Street Journal. The Dow Jones Board yesterday approved the US$5.5bn bid from News Corp., says The Journal. Murdoch's US$60-a-share bid is 65% higher than Dow Jones's stock price on April 30, the day before Murdoch's proposal was announced. The Australian media tycoon (76) will get the most coveted newspaper brand in the US. The Journal will now become part of News Corp's global media portfolio, which ranges from the Fox television network to the Times of London. The Journal reports that a key Bancroft family trust reversed its decision and agreed to support the News Corp. deal, meaning that votes representing about 37% of Dow Jones' shareholder vote are now in favor of selling to Murdoch.

ABN Amro no more backing Barclays bid

ABN Amro, subject of a pitched battle between Barclays and a consortium led by the Royal Bank of Scotland (RBS), said it was no longer recommending the offer by the British bank. The Dutch bank said that while the Barclays offer is in line with its "strategic vision," its managing and supervisory boards are not currently in a position to recommend it from "a financial point of view". ABN Amro said it could not recommend the consortium offer either, citing significant unresolved questions about the proposed break-up of the company. The Dutch lender said it would further engage with both parties with the aim of continuing to ensure a level playing field. Barclays' cash-and-shares offer is worth €65.6bn (US$90bn) while the RBS consortium has made a bid of €72bn (US$98.3bn). As at July 27, an offer from the RBS group was at a premium of 8.5% to the ABN Amro market price and of 9.6% to the Barclays bid.

Domestic bourses to track global equities

Domestic bourses have been closely tracking global markets for the past few days since US sub-prime worries heightened, causing global risk aversion. They will continue to track global equities in the near term. Asian markets have been rocked by fears that the fallout from the US subprime mortgage crisis and tighter lending conditions will ultimately hit US economy. Early in the new week, Asian markets will react to any surprises in the US non-farm payrolls report due later on Friday, 3 August 2007.

Markets will also closely watch out of US Federal Reserve's policy meeting on Tuesday, 7 August 2007. Any soothing comments from the US central bank about the health of the world's biggest economy may support global equities.

Strong domestic liquidity may support Indian bourses at declines. Domestic private insurance firms have been putting in money raised through unit linked insurance plans (with a very high weighting in equity) in equities. Further, domestic mutual funds have raised Rs 6,000-7,000 crore in the past month or two, of which very little has been deployed in the market so far.

Corporate fundamentals remain strong. ITC, Reliance Industries, HDFC, HDFC Bank, State Bank of India, Maruti Udyog, L&T, Bharti Airtel, Reliance Communications, Ranbaxy Laboratories, Dr Reddy’s Lab, ACC, Grasim reported decent-to-strong Q1 results. But the earnings of IT firms were hit by wage hike and appreciation of the rupee verses the US dollar.

India’s long-term growth drivers are a favourable demography (large share of young population), robust domestic consumption and acceleration in infrastructure creation.