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Monday, August 20, 2007
Reliance Communications - Aircell takeover now ?
India’s second-largest wireless telecom firm, Reliance Communications Ltd, is in talks with Maxis Communications Berhad Ltd to potentially take a controlling stake in Aircel Cellular Ltd, the Indian unit of the Malaysian cellular operator, according to executives at the two companies and an independent consultant.
Aircel could be worth about $7 billion, or Rs29,000 crore, in a deal scenario, say analysts. Maxis, Malaysia’s biggest cellular phone firm, owns 74% of Aircel with the remaining 26% held by promoters of Hyderabad’s Apollo Hospitals Ltd.
Anil Ambani, who chairs Reliance Communications’ board of directors and also leads its affiliate, Reliance Telecom Ltd, which runs GSM-based cellular networks, has been trying to secure new licences for starting and expanding GSM cellular services across the country for over a year, but Aircel beat him to it by receiving approvals for the new countrywide licences in December. With new licences and wireless spectrum allocated to it in eight circles, or licensed areas (mostly states), and frequency allocations expected in another 13, Aircel is seen by analysts as among the most valuable telecom assets in India. (GSM stands for global system for mobile systems.)
Executives at both Reliance and Aircel refused details, saying in private that the two companies have been exploring options, such as a buyout or a joint venture. A Reliance official said it is too early to talk of specifics such as valuation ahead of regulatory issues at play. Sandip Das, chief executive of Maxis, referred queries from Mint to a company spokesperson who did not immediately revert with answers. Calls to Sangeeta Reddy, an Apollo Hospitals director, for comment were not returned.
A consultant with extensive experience in arranging mergers and acquisitions in India said Ambani was aiming at management control at Aircel. “The buzz has been that Anil Ambani is looking at a controlling stake,” said a partner at a New Delhi-headquartered consulting firm, preferring that he not be identified. “But whether that will be through a direct stake or a deferred stake, such as a call option, will depend on the changes to the crossholding regulations being put in place by the telecom regulator.”
Under telecom M&A regulations, no phone firm in India can hold more than 10% of a competitor in the same licensed area, preventing Reliance from acquiring a GSM operator to expand in the fast-growing market. Despite aggressive marketing tactics, including handset subsidies, Reliance, which runs services on CDMA networks, has found its wireless customer growth lag at around 1.2 million a month against nearly 2.1 million at its bigger GSM rival Bharti Airtel Ltd. Smaller competitor Vodafone Essar Ltd adds some 1.7 million customers despite being present in just 16 of the 22 licensed areas. (CDMA stands for code division multiple access, a cellular telecom standard.) The Telecom Regulatory Authority of India (Trai) is widely expected to recommend the scrapping or relaxation of the 10% cap this week in a review of the M&A rule.
Trai will also rule on whether or not firms can offer both CDMA and GSM based services under the same operating licence. Despite such a relaxation, Reliance is unlikely to be allocated GSM spectrum as Cellular Operators Association of India, a trade body representing GSM networks, has threatened to go to court if its members are not given the first claim over any spectrum made available in the future.
Analysts saw synergies in a Reliance-Aircel union. “There are many reasons why RCom and Aircel are a good fit,” said a Mumbai-based telecom stock analyst, requesting anonymity as the news of the talks isn’t official. “RCom needs the GSM licence and the spectrum that comes with it, and for Maxis, it is a matter finding the right partner to roll out and compete in an extremely competitive market.”
Though Aircel has licences in all 22 licensed areas in India, it has substantial operations in just one: the Tamil Nadu-Chennai circle, which accounts for nearly five of its 7.1 million customers. Analysts pointed out that without a partner, Aircel will have to build its own network infrastructure, or go for a passive infrastructure partner. Aircel will also have to invest in marketing its brand in the other circles as well as build a new management team.
Aircel’s valuation could command a significant premium compared to recent deals. If valued at the $950 per-user rate as February’s Vodafone Group Plc-Hutchison Telecommunications International Ltd’s deal for a two-thirds stake in Indian cellular operator Hutchison Essar Ltd (before it was renamed Vodafone Essar), Aircel’s value will be $7 billion.
But an expert said valuing a company which has realized only a fraction of its “market potential” in the form of subscribers typically involves two stages. “The first aspect is the circles where the company has been operational for some time and has got a decent marketshare. Here you can apply the traditional per-subscriber or multiple-of-revenues valuation,” said Alok Shende, head of the tech practice at consulting firm Frost & Sullivan in Mumbai. The second stage would take into account the target company’s licences in other areas where it is yet to start operations. “Here, we have to go for a five-years-from-now kind of a model where we expect it to have so much revenues or so many subscribers in five years and work backwards,” Shende said, adding that smaller companies are valued at a discount to ones with operations of larger scale and scope such as Hutchison Essar.
India funds witness huge outflow
India-focussed funds have seen the biggest outflow of $262 million in the Asia-Pacific region during the past couple of weeks, even as net redemption from all offshore Asian funds was low compared to the equity market meltdown earlier in March this year and May-June 2006.
The offshore country funds are those in which residents of foreign countries park their money and those funds in turn invest in stocks with exposure to the target countries -- thus giving the investors an indirect exposure to these market.
Net outflows from all offshore Asian funds were just $74 million in past two weeks when the markets were in turmoil -- $73.5 million in the first week of August followed by just $0.1 million in the second week, according to global brokerage house Citigroup.
When unwinding of yen carry trade hit Asian equities in March 2007, huge redemption of $4.5 billion was seen in three weeks, while outflow amid May-June market correction last year was $4.9 billion over a six-week period.
The current market fall has caught investors by surprise and they have yet to react, Citigroup analyst Elaine Chu wrote in a research note. “We would not be surprised to see more redemptions when Asian markets rebound in response to the Fed’s discount rate cut last Friday,” Chu said.
Money was withdrawn the most from India country funds, followed by China funds ($200 million) and Singapore funds ($159 million).
In the week ended August 15 also, India registered the biggest outflow at $122.6 dollars, followed by $51.3 million in Malaysia and $36.8 million in China.
However, for the past one month and year-to-date periods, outflow from China funds
were higher than India.
China-focussed funds saw highest outflow of $496.1 million in the four-week period and $3.6 billion so far in 2007, followed by $265.5 million and $1.96 billion respectively from India funds.
In the first seven and half months of 2006, China had seen the highest inflow of $3.7 billion, followed by $1.4 billion to India funds.
South Korea and Hong Kong equity funds were the only two categories reporting consecutive weeks of inflows month-to-date while outflows from Taiwan funds earlier were short-lived.
Citigroup said, however, that foreign investors were net sellers in the Korea market KSE reported net sell by all foreigners at $3.5 billion in the two weeks ended August 15, with anecdotic evidence suggesting that hedge funds were the major sellers.
Local institutions and individuals, however, supported the market, driving Korea’s benchmark Kospi index to outperform the broader Asia-Pacific, excluding Japan, markets.
Foreign interest in Indonesian stocks remains intact despite the country’s benchmark JCI index being the worst performer in Asia so far in August, while overseas investors continued to sell to local investors in India, the Philippines, Taiwan and Thailand.
India’s benchmark index had lost more than 1,350 points since the beginning of this month, before a recovery witnessed on the bourses on 20 August. FIIs have sold shares worth a net of more than $1.3 billion (Rs5,400 crore) so far this month, while domestic mutual funds have been net buyers of shares worth about $200 million (Rs811 crore).
Market surges 286 points
The benchmark Sensex surged by over 286 points on 20 August, on emergence of buying by funds in heavyweight stocks, triggered by a firming global trend.
The Sensex, which had been on a downward march since last few trading sessions, bounced back to surge 550 points during the day, before endingthe day 286.03 points up at 14,427.55.
The National Stock Exchange’s Nifty shot up 101 points to close at 4,209.05, after
touching the day’s high of 4,262.60 points.
The market regained strength as most of the global markets recorded handsome gains after the US Federal Reserve unexpectedly cut the rate at which it lends to banks by half a percentage point, easing concern about a widening credit crisis.
The Asian markets opened strong and European markets were trading higher, both influencing the bourses here.
“The financial markets seemed to be controlled temporarily and brought some relief to the stock markets,” said Mumbai-based broker Ratnesh Gupta.
The major support to the current firm trend came in from sectors like metal, banks, capital goods and oil and gas, which closed with significant gains.
However, information technology stocks remained weak on fears the volatile dollar in the forex market might effect the earnings of these companies as over 50 per cent of revenue comes from the US markets.
Early trade
The benchmark Sensex sky-rocketed by over 538.57 points in early trade on 20 August, on emergence of buying by funds in heavy-weight stocks, after the US Federal Reserve cut the rate of lending to banks.
The BSE-30 share index, Sensex, which was on a downward march in the last few trading on concerns over the unwinding subprime mortgage crisis in the US, bounced back by 538.57 points to 14,680.09 in first five minutes of trade on the BSE.
The wide-based National Stock Exchange’s Nifty shot up by 154.55 points to 4,262.60.
All Asian markets were up 3.5-5.5% during the morning trade on the back of a strong rally on Wall Street on Friday after the US Federal Reserve slashed a key US bank lending rate by 0.5 per cent in a bid to ease the credit crunch.
Grey Market Premium - Motilal Oswal,Take Solutions, Asian Granito
Central Bank - Rs 30.
SEL - Discount
Asian Granito India - Rs 3.
Puravankara - Discount
Take Solutions - Rs 250.
KPR Mills - Discount
Motilal Oswal - Rs 240.
Indowind Energy - Rs 4.
Magnum Ventures - Rs 4
Motilal Oswal premium steady, Central Bank has come down from 38 to 35 to 30 now.
Market Close: Crazy jump with global peers..
Strong support across the global as US FED finally cut the interest rate by 50 Bps to bring in liquidity in the market saw strong rally in US market. Indian Indices surged at the start to trade over 500 points but later part some levels of profit booking at higher. UPA and Leftist Talk kept Indices market in cautious mode. Buying was witnessed across all the counters indicating optimism among the investors. Techies weak the weak ones today while Banking, Metal and power stocks were among the top gainers. Large caps made a good comeback after huge sell-off last week. Mid & Small caps also kept the momentum. Asian markets bounced back to end with a smile as Hang Seng surged by over 1000 points (5% up) and Nikkei by 3%, Europe saw the same as its trading in line with the global trends.
Sensex surged by 286 points to end at 14427.55. It was helped up by gains in ICICI Bk (871.95,+6 percent), HDFC Bk (1125,+5 percent), ONGC (818.25,+5 percent), TISCO (568.8,+5 percent) and Bharti Tele (827.05,+4 percent). Restricting the gains were Satyam (432.5,-2 percent), Infosys (1829,-1 percent), Wipro (469.5,-1 percent), TCS (1054.55,0 percent).
Hanung Toys & Textiles Ltd. a well-known branded player in the toys market. Hanung today reported that the company has bagged an export order from home furnishing retailer IKEA Sweden for exporting soft toys / kids furnishing to the extent of Rs 600 crore (108 Mn Euros). In terms of above order the company expects the business with IKEA to reach a level of Rs 84 Cr in 1st year, Rs 126 Cr in 2nd year, Rs 165 Cr in 3rd year and Rs 224 Cr in 4th year from now. It has outperformed the market over the last few months. Hanung Toys & Textiles has also reported good set of quarter numbers with top line grew by 56% YoY to Rs 85.2 Cr. Recently management has slightly reduced FY 08 turnover to Rs 525-550 Cr & PAT at Rs 60 Cr keeping rupee appreciation as a major concern. The retail boom is supporting the company to grow well. The stock ended up by 5% on the back of bagging the order. We are positive on the stock. We have a detailed note check this out.
Steel Authority of India (SAIL) ran-up as it reported that the company has signed a MOU with Visakhapatnam Steel Plant (VSP) and National Mineral Development Corporation (NMDC) to set up a 4 mn tonne p a (MTPA) integrated steel plant in Chhattisgarh. The MoU envisages setting up a joint venture company with equal equity participation. The Chhattisgarh government will provide land, electricity, water and mining lease to the proposed project. The plant would help the company in increasing their capacity. Further SAIL has a capacity of 15 MT of steel and plans to increase it to 55 MT. The capacity of VSP is 3.6 MT which it plans to raise it to 16 MT. The stock ended up by 4%.
Technically Speaking: Markets traded firm tracking the uptrend in global equity markets overall market breadth was positive. Sensex traded in a north bound session today as it made a high of 14680 and low of 14407 with the Advances outnumbering Declines. Volumes were good as the market churned Rs 3819 Cr. The market is in a pull back trend, yet it is likely to be a laggard when compared to other Asian peers. On the lower side support is seen at 14340 & at the higher side 14650 as a key resistance.
Blackstone to acquire Gokaldas
The US-based Blackstone Group, a global private equity fund with $85 billion in assets under management, today agreed to acquire 50.1% stake in Bangalore-based apparel exporter Gokaldas Exports at Rs 275 per share valuing the enterprise at around Rs 1,000 crore.
Blackstone will also make an open offer for 20% shares, according to Sebi guidelines, at Rs 275 per share.
The total cost of the acquisition, including the public offer, will come to $165 million. This is one of the of the largest private investment in a public enterprise in the apparel sector.
According to Gokaldas Exports, the acquisition will help the company become a global player in the garment sector. "Blackstone is an ideal partner for us. They have a lot of investment in the textile and retail sector globally, which will help us get more partners to work with," Rajendra Hinduja, managing director, Gokaldas Exports said.
"Gokaldas is the leading company in India in an industry that has seen significant growth in the Asian region post the elimination of the garment quota regime in 2005. This favourable industry dynamic combined with our highest regard for the management team of Gokaldas Exports were key factors in our decision to enter into this partnership," Blackstone Advisors India chairman and managing director Akhil Gupta said.
Following the acquisition, Blakstone will have a representation on the board of directors while the founder-promoters would continue to lead the company with Madanlal Hinduja as chairman, Rajendra Hinduja as managing director and Dinesh Hinduja as executive director.
A part of the funds, which Blackstone will invest, is also expected to be used to finance its 400-acre, Rs 2,000 crore special economic zone at Kanakapura on the outskirts of Bangalore. A spokesperson said they were going through the process of getting approvals for this project, which is expected in the current financial year.
Gokaldas Exports, the biggest apparel exporter in the country, has 47,000 employees in 46 manufacturing facilities with a system capacity to produce and export 2.5 million garments a month. Gokaldas exports apparel to brands like Nike, Adidas, GAP, Tommy Hilfiger and Abercrombie and Fitch.
Gokaldas is now looking at tapping the domestic market as the rising rupee is hitting exporters.
Buoyancy in overseas markets help Sensex rebound
Correction took a back seat today as bulls returned in the market but with a cautious view providing a healthy support to the otherwise sagging market.The market, which had slipped for last three sessions, remained firm as hectic buying action was witnessed since early trades that lasted through the session. The Sensex received a major boost from the firm US and Asian markets and resumed with a huge positive gap of 370 points at 14,512. The relentless buying in index heavyweights, banking, metal, oil and capital goods stocks propelled the index to an intra-day high of 14,680, up 538 points over its last close. However, the profit bookings amid Sensex pivotal stocks saw the index shed 273 points to touch the day's low of 14,407 towards the close. But, the buying interest thereafter kept the Sensex stable and the index finally ended the session with the gains of 286 points at 14,428. The broad based Nifty surged 101 points at 4209.
Among the sectoral indices the Metal led the upsurge with a gain of 4% at 10,204 followed by the BSE Bankex index (up 3.91% at 7,639) and the BSE PSU index (up 2.44% at 6,703). However, the BSE IT index closed in negative territory. The market breadth was positive. Of the 2,763 scrips traded on the BSE 1,925 stocks advanced, 792 stocks declined and 46 stocks ended unchanged.
Out of the 30 Sensex stocks, 25 managed to end in the green while five stocks ended with a loss. Banking major HDFC Bank was the leading gainer and soared 5.49% at Rs1,128 and ICICI Bank advanced 5.21% at Rs869. ONGC moved up by 4.54% at Rs818, Tata Steel jumped 4.50% at Rs569, Bharti Airtel shot up by 4.34% at Rs829, Ranbaxy added 3.49% at Rs365 and BHEL was up 3.31% at Rs1,610. Among the laggards Satyam Computer dropped 1.75% at Rs433, Infosys shed 1.39% at Rs1,829, Wipro declined by 1.26% at Rs470, M&M slipped 1.24% at Rs642 and TCS was marginally down at Rs1,055.
The metal stocks were the star performers. Sterlite Industries vaulted 8.64% at Rs561, Shree Precoated Steel surged 4.90% at Rs283, Sail jumped 4.11% at Rs143, Welspun Gujarat scaled up 3.71% at Rs225, Nalco spurted 3.14% at Rs256, Maharashara Seemless soared 2.82% at Rs571 and Jindal Steel was up 2.61% at Rs3,865.
Over 4.13 crore Nagarjuna Fertilisers shares changed hands on the BSE followed by Ventura Textile (2.31 crore shares), Chambal Fertilisers (98.55 lakh shares), IFCI (86.76 lakh shares) and Ispat Industries (64.68 lakh shares).
Zylog Systems registered a turnover of Rs245 crore on the BSE followed by Nagarjuna Fertilisers (Rs148 crore), Reliance Industries (Rs120 crore), Orbit Corporation (Rs88 crore) and ICICI Bank (Rs66 crore)
Market rebounds in global recovery
The market rebounded today, 20 August 2007, after posting three straight sessions of losses, as global markets reversed their falling trend. However the turnover was low today. Short covering also propelled the domestic market. However, volatility was witnessed since mid-afternoon trade.
The strong opening of the Asian markets, which had begun trading earlier, exerted a strong influencing the Indian market. All the European markets, which opened later, were trading higher today, 20 August 2007.
The strong show by the global markets today followed the Federal Reserve' 50 basis-point cut in discount rate at which it lends to banks, on Friday 17 August 2007.
The BSE 30-share Sensex jumped 286.03 points or 2.02% at 14,427.55. It had opened with a huge upward gap of 370.76 points to 15,512.28 and advanced further to hit a high of 15,680.09 as buying continued. The benchmark index touched a low of 14,406.91 at the fag end of the trading session on profit booking at higher level.
The S&P CNX Nifty advanced 101 points or 2.46% at 4209.05. The Nifty August 2007 futures settled at 4205, a discount of 4.05 points as compared to spot closing
In the calendar year 2007, the BSE Sensex is up 641 points or 4.64% from its close of 13,786.91 on 29 December 2006
The turnover on BSE amounted to Rs 3,819 crore as against Rs 5,320 crore on Friday, 17 August 2007. The NSE F&O turnover was Rs 40,075.04 crore as compared to Rs 64879.41 crore on Friday, 17 August 2007.
The market breadth, in sync with overall buoyant market, was strong as small-cap and mid-cap stocks resumed their rally: 1,901 shares advanced as compared to 828 that declined, while 51 remained unchanged.
The BSE Mid-Cap Index rose 1.3% to 6,342.78 while the BSE Small-Cap Index gained 1.8% at 7,832.36. Both were underperformers when compared to the Sensex.
All the sectoral indices on BSE posted gains, except the BSE IT index which declined 0.92% to 4,459.07.
The BSE Metal index (up 3.95% to 10,199), BSE Oil & Gas index (up 2.61% to 7,620.91), BSE PSU index (up 2.61% to 6,713.14), BSE Realty index (up 2.19% to 7,173.66), and BSE Capital Goods index (up 2.50% to 12,330.37) outperformed the Sensex.
The BSE Consumer Durables (up 0.90% to 4,035.14), BSE FMCG Index (up 1.80% to 1,844.22), BSE Auto index (up 0.84% to 4,599.04), BSE Healthcare index (up 1.47% to 3,538.59), and the BSE TECk index (up 0.70% to 3,480.90) underperformed the Sensex.
The fertiliser sector was the star of the day as shares surged on reports that the government, for the first time, had issued fertiliser bonds worth Rs 7,500 crore to part-finance the additional subsidy burden on fertiliser companies arising from rising price of imported feedstock and fertilisers. As per reports, these bonds will be freely tradable in the market. The move came as the recoveries made by the government were not enough to pay for the additional subsidy.
Rashtriya Chemicals & Fertilisers (RCF), (up 19.04% to Rs 53.15), National Fertilizers (up up 13.39% to Rs 36), Coromandel Fertilisers (up 10.12% to Rs 93), Nagarjuna Fertilisers (up 16% to Rs 37.70), Gujarat Narmada Valley Fertilisers Company (GNFC) (up 13.23% to Rs 135.20) and Fertilisers & Chemicals Travancore (up 12.53% to Rs 26.05), all surged.
Chambal Fertilisers & Chemicals (CFCL) surged 19.92% to Rs 44.85. On Friday, 17 August 2007, CFCL said its Singapore-based subsidiary Chambal Biotech sold its entire holding in Australia's Technico to Russell Credit, Kolkata. Post- transaction, Technico has ceased to be a subsidiary of the company.
Among the 30-member Sensex pack, 25 advanced while the rest slipped.
IT stocks were laggards on concerns that the sector, which gets more than half of its revenue from United States, may face tougher market conditions if the US credit woes squeeze IT spending. Rupee was hovering at 41.06 against the US dollar, stronger than Friday (17 August 2007)’ close of 41.33/34.
India’s fourth largest software services exporter Satyam Computers lost 1.84% to Rs 432.10 on 9.32 lakh shares. It was the top loser from Sensex pack.
Wipro (down 0.68% to Rs 472.25) and Infosys (down 1.35% to Rs 1830) also declined. India’s largest IT services provider Tata Consultancy Services (TCS) slipped 0.10% to Rs 1055 on reports that it is close to securing an approximately Rs 6000 crore outsourcing contract with the UK-based Prudential Insurance. Prudential Insurance is one of the leading life and pensions provider in the UK and services over seven million customers. The stock came off day's high of Rs 1097.85
Just a couple of days ago, WNS Global Services, the country’s second largest BPO firm, announced that it has been hit by the turmoil in the US sub-prime lending market. Most US financial companies use Indian software firms for outsourcing technology services. There is a fear that if the credit problem worsens, then there might be a cutback in IT spending by them.
HDFC Bank, the counrty’s second largest private sector bank by net profit, jumped 5.68% to Rs 1130 on 58,368 shares. It was the top gainer from the Sensex pack.
India's largest private sector bank by net profit ICICI Bank surged 4.99% to Rs 867.20 on 7.61 lakh shares. The Foreign Investment Promotion Board (FIPB), on 18 August 2007, reportedly approved ICICI Bank's proposal to sell up to 24% stake in its newly-formed wholly-owned subsidiary ICICI Financial Services, the proposed holding company for its insurance and asset management ventures, to foreign investors. ICICI Bank’s ADR soared 12.80% or $4.89 to $42.92, on Friday 17 August 2007.
Other banking stocks Kotak Mahindra Bank (up 7.75% to Rs 684), Bank of India (up 2.35% to Rs 235), Axis Bank (up 4.74% to Rs 601.90), Andhra Bank (up 1.68% to Rs 78.75) and Vijaya Bank (up 1% to Rs 50.80) also posted gains
Telecom pivotals advanced on fresh buying. India's second largest cellular services provider Reliance Communications rose 2.97% to Rs 508 on reports that the company is in talks with Malaysia's Maxis Communications to buy a controlling stake in its Indian unit Aircel Cellular. Maxis is Malaysia's largest mobile operator. Aircel is valued at about $7 billion. Maxis holds 74% in Aircel while the owners of south India-based Apollo Hospitals Enterprises control the rest. Reliance Communications added 14.6 lakh mobile customers during the month of July taking its total subscriber base to about 3.7 crore. It added 14.5 lakh users in June 2007.
Bharti Airtel, the country’s largest cellular service provider in terms of sales surged 4.41% to Rs 829.50. As per reports, it has entered into an agreemnet with Selecto Systems for providing telecom network infrastructure and services for its IT SEZ-Haryana Technology Park (HTP).
India’s second largest bike maker Bajaj Auto rose 0.84% to Rs 2270 after its equity shareholders and unsecured creditors approved the scheme of arrangement between itself, Bajaj Holdings & Investment, and Bajaj Finserv in a meeting on 18 August 2007.
Maruti Udyog rose marginally by 0.02% to Rs 780.20, coming off the session’s high of Rs 812.75. Maruti Udyog has raised discounts on many of its car models amid slowdown in demand caused by higher interest rates.
India’s largest private sector entity by market cap and oil refiner Reliance Industries was up 1.95% to Rs 1786.90 on 6.69 lakh shares. As per reports, the D6 block in the Krishna-Godavari basin, jointly owned by Reliance Industries and Niko Resources, is likely to see investment of Rs 10,500 crore more in the current financial year. The entire D6 block is estimated to see total investment of $5.2 billion (Rs 21,359 crore).
ONGC (up 4.20% to Rs 815.50), Ranbaxy Laboratories (up 3.49% to Rs 364.90) and Bhel (up 3.47% to Rs 1613) were the other gainers from the Sensex pack.
Metal scrips rose tracking recovery in global industrial metals prices. Tata Steel, the country’s largest private sector steel maker rose 4.73% to Rs 570. India’s largest aluminium maker Hindalco gained 0.86% to Rs 141.20 and Sterlite Industries jumped 9.33% to Rs 564.90. India’s top zinc maker Hindustan Zinc moved up 1.6% to Rs 681 even as it cut zinc prices by 1.9% to Rs 1.51 lakh per tonne with effect from Saturday, 18 August 2007.
Among the side counters, Pioneer Embroideries (up 20% to Rs 139.65), Deltron cables (up 20% to Rs 97.20), Akar Tools (up 19.97% to Rs 43.55), Maharashtra Scooters (up 18.69% to Rs 282.90), and Siel (up 19.92% to Rs 28.60) advanced. Rasi Electrodes (down 9.98% to Rs 47.35), Milkfood (down 5.52% to Rs 303), Ankit Metal (down 9.38% to Rs 48.30), Khoday India (down 5% to Rs 376.40), and Camlin (down 6.35% to Rs 160) declined.
Aban Offshore jumped 7.10% to Rs 2761 on reports of Great Offshore was close to buying Norwegian firm, Petrojack SA. Reportedly Great Offshore is close to buying Norwegian firm, Petrojack SA for about $500 million. Aban holds 18.04 % in Petrojack.
Ajanta Pharma slipped 0.56% to Rs 97, after hitting a high of Rs 106.45. It would transfer the technology of its anti-scar product to Taiwan-based Orient Europharma. Under the agreement, Ajanta Pharma will transfer the technology of its anti-scar product, ‘Vaniza’ to Orient Europharma for Taiwan, Macau, Hong Kong, Singapore and Malaysian markets and Orient will manufacture the product at its plant in Taiwan. Ajanta did not disclose the value of the deal.
Pantaloon Retail India gained 2.30% to Rs 488 after its board of directors scheduled an extraordinary general meeting on 18 September 2007 for giving approval to initial public offering (IPO) of Future Capital Holdings.
Hanung Toys & Textiles soared 5.20% to Rs 141.65 after it secured a Rs 600-crore order from Sweden's IKEA for exporting soft toys and kids furnishings. The company expects the business with IKEA to reach a level of €15 million in the first year, €23 million in the second year, € 30 million in the third year and €40 million in the fourth year from now.
Real-estate firm Sobha Developers rose 1.03% to Rs 786.90 after the company said it plans to set up an integrated township project in Kerala involving an investment of Rs 5000 crore.
Punjab National Bank gained 1.87% to Rs 492.25 on media reports it may bid for acquiring 26% strategic stake in IFCI. IFCI was up 3.22% to Rs 64.20 .
JSW Steel rose 1.63% to Rs 577 after its board decided to meet on 21 August 2007 to consider buying a plate mill, double joining & coating, and pipe mill facility in the United States. The company made this announcement before the market hours today, 20 August 2007.
Patni Computer Systems surged 7.30% to Rs 390.50 on reports that two US private equity funds - Texas Pacific Group and Apax Partners - are set to buy the stake of two Patni brothers Ashok and Gajendra.
Hindustan Copper (HCL) gained 2.68% to Rs 157.20. It surged 21.46% in the past week from Rs 126.05 on 10 August 2007 to Rs 153.10 on 17 August 2007 on reports it plans to enter gold mining in India and is scouting copper mines abroad.
The benchmark BSE Sensex posted the fourth straight weekly loss, losing 726.73 points to 14,141.52 in the week ended Friday, 17 August 2007. The S&P CNX Nifty was down 225.30 points to 4,108.05 in the week. A whole host of factors from unwinding of yen carry trade positions, redemption pressure faced by hedge funds, heavy selling by foreign institutional investors (FIIs) and sub-prime concerns haunted local bourses throughout the week.
All the Asian markets settled higher today, 20 August 2007, including Japan's Nikkei (up 3% at 15,732.48), Hong Kong's Hang Seng (up 5.93% at 21,595.63), Taiwan's Taiwan Weighted (up 5.26% at 8,515.60), Shanghai Composite (up 5.33% to 4,904.56), Singapore's Straits Times (up 6.12% at 3,322.38) and South Korea's Seoul Composite (up 5.69% at 1,731.27).
US stocks rallied on 17 August 2007 after posting losses for six consecutive previous trading sessions as the Federal Reserve cut its key discount rate by 0.5% to 5.75 %. The Dow Jones Industrial Average surged 233.30 points, or 1.82 %, to 13,079.08. The Standard & Poor's 500 index rose 34.67 points, or 2.46 %, to 1,445.94, and the Nasdaq Composite index was up 53.96 points, or 2.20 %, to 2,505.03.
Meanwhile, in a bid to end the stand off with the Left on the nuclear issue, the Congress-led United Progressive Alliance government on Sunday, 19 August 2007, announced the setting up of an expert committee to look into the concerns raised by the Left on the Hyde Act passed by the US Congress. The debate on the nuclear issue in parliament will take place on 27 August and 29 August 2007.
Left parties warned the government on Saturday, 18 August 2007, of serious consequences if it pursues with a nuclear deal with the United States. The four communist parties have 60 members of parliament (MPs) in the 545-member lower house of parliament. Prime Minister Manmohan Singh's government could fall or be reduced to a minority if the left withdraws support.
India is committed to developing its nuclear energy capability and other sources of power as its oil bill will impose an "unbearable burden" as growth continues, the prime minister said on Monday, 20 August 2007.
Crude oil fell in New York on signs Hurricane Dean's more southerly track may mean it will miss the largest oil production regions of the Gulf of Mexico. Crude oil for September delivery dropped as much as 94 cents, or 1.3%, to $71.04 a barrel on the New York Mercantile Exchange
Trading Calls
Buy CESC, with a stop loss of Rs 415 for a short term target Rs 510
Buy Federal Bank with a stop loss of Rs 315, for a short term target of Rs 364
Buy Aban Offshore with a stop loss of Rs 2400 for a target of Rs 3000
Buy IFCI with a stop loss of Rs 58 for a target of Rs 84
Market may get Fed-Rate-Cut lift
On Friday US Federal Reserve cut its discount rate or the rate at which it lends to its member banks, by 50 basis points to 5.75%. All the European indices took the cue and rose over 2% on Friday. The same boosted the major Asian indices in early trades today and currently are up around 4-5%. Among the local indices, the Nifty could test 4170 on the upside and may slip to 4050 on the downside. The Sensex has a likely support at 14100 and may face resistance at 14500.
Major US indices registered significant gains on Friday after the Federal Reserve cut its discount rate, easing worries about the credit and mortgage markets. While the Dow Jones flared up by 233 points at 13,079, the Nasdaq moved up by 54 points to close at 2,505.
Except Dr Reddy's Lab and Patni Computer all the Indian ADRs traded firm on the US bourses. ICICI Bank led the pack with gains of over 12% while HDFC Bank, VSNL , Wipro and MTNL jumped over 5-8% each. Among other gainers Satyam, Infosys, Tata Motors and Rediff added around 1-4% each.
Crude oil prices advanced further, with the Nymex light crude oil for September delivery gaining by 98 cents to close at $71.98 a barrel. In the commodity space, the Comex gold for December delivery gained $8.80 to settle at $666.80 an ounce.
Morning Call - Aug 20 2007
Market Grape Wine :
In House :
Nifty at a supp of 3990 and a resis of 4250 and 4375 on a weekly basis.
Supp for the day exits at 4101 and 4061 and resis at 4190 and 4250
Intra day calls: Buy Relcap above 1005 with a TGT of 1035 and a SL of 990
Buy GMRINFRA above 763 with a TGT of 789 and a SL of 750
F&O: Buy SBIN above 1530 with a TGT of 1560 and a SL of 1513
Buy REL above 723 with SL 715
Out House :
Markets at a support of 14041 & 14101 levels with resistance at 14532 & 14747 levels .
Buy : SBIN & IciciBank
Buy : RIL & REL
Buy : IDFC & IDBI
Buy : Hanun & PunjLLoyd
Buy : Gacl & ACC bullet
Buy : Satyam & INFY
Dark Horse : Gacl , SBIN , IDBI , Satyam , INFY & REL
Bullet for the Day : Jpasso & Centextile with strict stop loss .
Market to head higher
The market is expected to rally, as global markets rebounded after recent fall. Local bourses posted losses for three previous trading sessions, tracking weak global markets. On Friday, 17 August 2007, the Sensex lost 216.69 points, or 1.51%, to 14,141.52, in a highly volatile trade, dancing to global cues. The S&P CNX Nifty shed 70.55 points, or 1.69%, to 4,108.05, on that day.
The benchmark index BSE Sensex posted fourth straight weekly loss, loosing 726.73 points to 14,141.52 in the week ended Friday, 17 August 2007. The S&P CNX Nifty was down 225.30 points to 4,108.05 in the week. A whole host of factors right from yen carry trade unwinding, hedge fund redemption pressure, heavy FII selling and sub-prime concerns haunted local bourses throughout the week.
Asian markets rebounded today, 20 August 2007 taking their cue from Wall Street's recovery on Friday, 17 August 2007, after the Federal Reserve cut a key interest rate. Japanese Nikkei (up 3.69% at 15,836.57), Hong Kong's Hang Seng (up 2.62% at 20,922.08), Taiwan's Taiwan Weighted (up 5.02% at 8,496.31), Singapore's Straits Times (up 4.65% at 3,276.35) and South Korea's Seoul Composite (up 4.79% at 1,716.51) all edged higher.
US stocks rallied on Friday, 17 August 2007, after posting losses for the 6 straight previous trading sessions, as the Federal Reserve cut its key discount rate by 0.5% to 5.75 %. The Dow Jones Industrial Average surged 233.30 points, or 1.82 %, to 13,079.08. The Standard & Poor's 500 index rose 34.67 points, or 2.46 %, to 1,445.94, and the Nasdaq Composite index rose 53.96 points, or 2.20 %, to 2,505.03.
As per provisional data, foreign institutional investors (FIIs) sold shares worth a net Rs 3535.76 crore, while domestic institutional investors (DIIs) were net buyers of shares worth Rs 1944.48 crore on Friday, 17 August 2007.
Crude oil fell in New York on signs Hurricane Dean's more southerly track may mean it will miss the largest oil production regions of the Gulf of Mexico. Crude oil for September delivery dropped as much as 94 cents, or 1.3%, to $71.04 a barrel on the New York Mercantile Exchange
Trading Stocks
Stocks with +ve bias: ICICI Bank, TISCO, Infy, Hcl Tech & Century Textiles
Stocks for Short term delivery: Axis Bank
Stocks for Investment: Aditya Birla Nuvo
Intraday Stock Ideas
Nifty (4108) Supp 4086 Res 4164
Buy ICICI Bank (826) @ 835-842 SL 830 Target 855, 860
Buy IDBI (116) @ 117-119
SL 114 Target 125, 128
Buy Punj Lloyd (263) @268-272 SL 265 Target 280, 282
Buy Century Textile (698) @ 705 -710 SL 700 Target 720, 725
Sell Cipla (186) @ 187-191
SL 194 Target 180, 178
Welcome bulls, Discount shop open
Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected. - George Soros.
On Friday afternoon, the bulls may not have had the confidence to step in. With the Federal Reserve throwing in an unexpected life jacket in the form of a 50 bps cut in the discount rate, a buying spree may take place on the local bourses today. Stocks across global markets have rallied, led by of course the Wall Street. The Dow jumped 1.8% while the Nasdaq did even better, climbing 2.2%. The FTSE 100 in London gained 3.5%. All Asian markets are up anywhere between 3.5-5% this morning. Expect a gap-up opening. But, investors will still have to deal with intra-day volatility and just as the market showed resilience on Friday and bounced back, there is every chance of some cooling at higher levels.
In all the euphoria, don't forget the rumblings going on in the national capital. The impasse between the UPA regime and the Left front just refuses to subside with both the camps maintaining their adamant stance. The Left has given an ultimatum to the Government, which is either have power at the Centre or the nuke deal. While the non-communist allies of the Congress party have thrown their weight behind Sonia Gandhi and the PM, the Left wants the Government to restrain from any further step till an expert panel's report on the fallout of the controversial deal is out. Watch developments in New Delhi closely as it could impact the stability of the Government.
In stock specific action, shares of Refex Refrigerants will list on the bourses today. The issue was subscribed 7 times and the company had fixed an issue price of Rs65 per share. Going by the current mood in the market, we won't be surprised if the stock falls below its issue price.
JSW Steel's Board is to meet tomorrow to consider an acquisition in the US.
Telecom stocks will be in action amid reports that the TRAI is considering scrapping the cap on the number of players in a circle, besides the proposal to allow a company to offer both GSM and CDMA services under the same license.
Century Textiles is likely to advance amid reports of an out-of-court settlement with the Wadias over the Mumbai land. In addition, there is a buzz in the market that the BK Birla Group company could go ahead and demerge its cement division and merge it with Grasim. Engineers India and Sanghvi Movers are good investment bets.
ICICI Bank will be among the gainers as the FIPB has cleared its plan to induct foreign investors in its proposed new wholly-owned subsidiary that will house its insurance and asset management businesses.
PNB and IFCI will attract attention as a financial daily has reported that the state-run bank is likely to bid for the 26% stake in the latter. Great Offshore is another stock that will be in the limelight on news of an acquisitionContinuous selling in the early trades and short covering in the later part of the session was the outline of the markets on Friday, not only in India, but also bourses across the globe followed the same pattern. After constantly losing ground in the first half; Indian bourses followed its Asian peers as an extraordinary pull back of over 1000 points by the Hang Seng market in Hong Kong lifted the sentiments of the traders at home.
However, Markets fell for the third trading session as the key indices recorded its worst weekly loss in five months. Tata Steel led the down fall as the world’s sixth largest steel maker lost 5.4% others heavyweights like Satyam Computer, ONGC and Infosys were the major lagging movers among the 30-scrip’s of Sensex. Finally, Sensex lost 216 points to close at 14141 and NSE Nifty slipped 70 points to close at 4108.
Sical Logistics lost by 1.5% to Rs222. The company yesterday announced that it acquired cutter section Dredger for $24.92mn. The scrip touched an intra-day high of Rs238 and a low of Rs200 and recorded volumes of over 14,000 shares on NSE.
IPCL gained by 1% to Rs350 as LIC raised stake in the company to 14.02%. The scrip touched an intra-day high of Rs354 and a low of Rs340 and recorded volumes of over 56,000 shares on NSE.
ICICI Bank declined 1% to Rs824. According to reports, India may give conditional approval to a plan of the company to set up a subsidiary to hold its insurance and mutual funds businesses. The scrip touched an intra-day high of Rs861 and a low of Rs806 and recorded volumes of over 57,00,000 shares on NSE.
Hindustan Zinc was down by 2.6%to Rs670 after the company yesterday announced that it had lowers lead prices to Rs137,000 per ton. The scrip touched an intra-day high of Rs704 and a low of Rs658 and recorded volumes of over 1,00,000 shares on NSE.
Siemens slipped by 1.3% to Rs1198 after the company announced that it secured an order for installing a new hot-strip Mill. The scrip touched an intra-day high of Rs1224 and a low of Rs1130 and recorded volumes of over 2,00,000 shares on NSE.
Petronet LNG declined 2.2% to Rs61. Asian Development Bank and KFW declared that they would lend $169mn to the company. The scrip touched an intra-day high of Rs63 and a low of Rs59 and recorded volumes of over 42,00,000 shares on NSE.
Fertilizer stocks ended firm in a falling market. Nagarjuna Fertilizer rallied by over 17% to Rs32. Chambal Fertilizer surged by 6%to Rs37 and Deepak fertilizer added 2% to Rs95.
Highly volatile Banking index lost 1% towards the end. Heavyweight SBI edged lower 0.2% to Rs1519, ICICI Bank was down by 1% to Rs824 and HDFC Bank lost 2.4% to Rs1068. OBC, Corp Bank and Andhra Bank were the major losers among the Mid-Cap stocks.
Realty stocks bucked the negative trend, as the index has gained by 0.5%. Unitech gained by 3.6% to Rs483, Sobha surged by over 5%to Rs780. However, Akruti slipped 2% to Rs486.
Fund Activity:
FIIs were net sellers of Rs35.36bn (provisional) in the cash segment on Friday and the local institutions pumped in Rs19.44bn. In the F&O segment, FIIs were net sellers at Rs10.49bn. On Thursday, foreign funds pulled out Rs28.5bn from the cash segment. Mutual Funds were net buyers at Rs2.39bn on the same day.
Major Bulk Deals:
Religare Securities has bought Alfa Transformers; Lotus Fincorp has picked up Diana Tea; Deutsche Securities has purchased PSL while Deutsche Bank has sold the stock; Citigroup Global has picked up Punj Lloyd; HSBC Financial has bought Century Bank of Punjab; HSBC Financial has sold Alok Industries; Citigroup Global has sold India Infoline; Citigroup Global has sold Orient Paper.
Insider Trades:
ITC Ltd: Mr Anup Singh (Wholetime Director) has sold in open market 20000 equity shares of the company on 10th August, 2007
Max India Ltd: Analjit Singh, Chairman has purchased from open market 28000 equity shares of the company on 10th and 13th August, 2007
Lower Circuit:
Goldstone Tech, Morepen Labs, Kothari Products, Yashraj Industries, Swan mills, IOL Broadband, Era Construction, Adhunik Metaliks, IID Forgings and BF Utilities.
Upper Circuit:
LML, Jai Corp and Assam Company.
Delivery Delight (Rising Price & Rising Delivery):
Assam Company, India Cements, Punj Lloyd, PNB and Sun Pharma.
Abnormal Delivery:
IPCA Labs, Chambal Fertilizers, NALCO, Gammon India and Bhushan Steel.
Major News & Announcements:
FIPB approves ICICI Financial Service stake sale to foreign companies - Reports
Inflation for the week ended August 4 was at 4.05%, against expectation of 4.30%
India's output at 6 key industries grew 5.3% in June
Educomp Solutions buys 51% stake in Authorgen Technologies
Gulf Oil Corp to consider stock split on 17th August
BHEL signs accord for 1000MW Sudan Project – Reports
Siemens bags an order for installing a new hot-strip mill.
Oriental Hotels
A popular research site says,
At the current market price of Rs 300, Oriental Hotel's stock is trading at a price to earnings multiple of 13.9 times its trailing 12-month earnings. Most of its properties are market leaders in their respective cities and we expect the ARRs to remain firm going forward till the new supply comes in. However, the company is renovating rooms in one of its prime properties. Though the work is expected to be completed by 3QFY08, the performance would be affected till then.
PNB
A popular research site says,
At the current price of Rs 503, the stock is attractively valued at 1.0 time our estimated FY10 adjusted book value. Sustenance of a healthy current and savings account mix and little deterioration in asset quality also reiterates the operating efficiency of the bank. Going forward, with technological upgradation and aggressive growth strategies, the growth prospects of the bank appear enthusing. Having said that, excessive reliance on treasury income and inability to grow its fee income base are our lingering concerns with regard to the bank. We maintain our positive view on the stock.
US Market incurs loss despite turnaround
Is Ferderal Reserve’s move too little and too late?
US Stock market rebounded back on Friday, 17 August, 2007. Federal Reserve cutting its discount interest rate was the main catalyst behind this turnaround. Nevertheless, all the three indices posted sufficient losses for the week ended Friday.
The market is in a stomach-churning ride with credit, the lifeline of the economy, supposedly drying up. Market continued to exhibit extremely volatility in all the trading sessions during the course of the week. The credit crunch that began with rising defaults in subprime mortgages - home loans made to people with weak credit histories - is supposedly spreading to other borrowers.
Countrywide Financial’s problems financing its business operations in the last two weeks were the major reason brought the recent turmoil in the forefront. The company said it was being forced to use its 100% lines of credit ($11.5 billion) to fund its operations because other sources of short-term credit were not available.
Countrywide's news fueled a 300 point drop in the Dow at one point on Thursday, 16 August.
On Friday, Federal Reserve reduced the discount interest rate (the rate at which it lends funds to banks) by a half percentage point to 5.75% from 6.25%. It surely saved the market from posting more sizable losses for the week and served as a welcome confidence boost. Market opened up more than 320 points up, but then ended the day being up by 233 points.
But still, The Dow Jones Industrial Average lost 160 points for the week. Tech - heavy Nasdaq lost 40 points while S&P 500 lost 8 points.
The Federal Reserve also added approximately $19 billion (including in repos) to help calm investors this week. , but worries about tight credit conditions and systemic risk continued to weigh on sentiment.
Regarding economic news, the Consumer Price Index report showed that consumer prices rose 0.1% in July, The number was in line with economists' expectations and down slightly from the 0.2% rise in June. The core number, which excludes volatile food and energy prices, rose 0.2% last month, also in line.
The Commerce Department reported that housing starts (the number of privately owned new homes on which construction has been started over some period) fell 6.1% in July to a seasonally adjusted annual rate of 1.38 million. That was the lowest level since January 1997.
Also, The National Association of Home Builders/Wells Fargo index of builder confidence fell to 22, from 24 in July. That was also the second weakest reading since the survey's inception in 1985.
On the earnings front, Wal-Mart, posted disappointing second quarter results and offered a bleak outlook for the remainder of the year, exacerbating concerns about consumer spending. Home Depot too reported its first quarterly sales decline in more than four years due to the housing slowdown. But H-P came out with a blowout report and also upped its guidance for next quarter.
Executive Summary
For the week, all the three indices registered losses. DJIx is down by 1.23%, S&P 500 is down by 1.9% and Nasdaq is down by 3.7%. The Dow is almost 1,000 points lower than its all time high of 14,000 mark which it touched a month back.
US Market seems to be plagued by a number of factors right now – liquidity crunch in credit markets, subprime problems, housing problems and some hedge fund related issues whose health seems to remain unknown for months. Federal Reserve also cut discount interest rates in addition to injecting liquidity. But investors seem to feel, its too little and too late.
For the year, Dow is up by 4.9%. Nasdaq is up by 3.7% and S&P 500 is up by 1.9%. No body is aware as to the extent of the credit crunch or the subprime problem. No one also knows whose fault is it anyway. But it seems that the problem has not been yet been addressed totally and will continue to take a toll on the market in the coming weeks.
Markets may stay volatile this week
US credit woes, political stand-off to loom over bourses.
Indian markets are expected to stay volatile this week following a further sell-off by foreign investors unless the differences between the ruling Congress and its Left allies over the Indo-US civil nuclear deal are reconciled and the US credit markets remain stable.
Till Saturday morning, most market players expected a sharp rebound this week on the lifeline extended by the Federal Reserve, whose surprise move to slash discount rates to banks lifted the Dow and the Nasdaq by nearly 2 per cent on Friday.
But by evening, the mood turned edgy again, with the growing feeling that the government is living on borrowed time following the Communist Party of India (Marxist) Politburo hardening its stand on the Indo-US nuclear deal.
“It is becoming a serious risk factor. But the market is mature and reacts only when some concrete development happens,” said Kamlesh Kotak, head, equity research, Asian Markets Securities.
The market is also likely to be impacted by the unwinding of the yen carry trade as a result of the appreciation of the Japanese yen from 120 to 112 a dollar over the past two weeks.
The yen carry trade refers to the practice of borrowing at low interest rates in the yen and using the loan to buy higher-yielding assets elsewhere.
Global investors have been borrowing from the Japanese market to take advantage of the low interest rates (0.5 per cent) to buy high-return assets in other markets, including India.
But the credit shortage fears in equities markets, following the sub-prime mortgage turmoil in the US, triggered unwinding of the yen carry trade.
Most markets across Asia saw big sell-offs by foreign funds, wiping off recent gains in these markets. India saw near $3 billion worth net sales by foreign institutional investors (FIIs) in the markets this month — their biggest single-month net sale ever.
As a result, the Sensex has shed nearly 11 per cent, or 1,727.33 points, from its high of 15,868.85 (on July 24). Experts said the fall was not severe due to big buying by local institutions, which were net buyers for Rs 5,956.82 crore (about $1.5 billion) this month.
Expectedly, most market experts are unwilling to make short-term predictions. Sumeet Rohra, analyst with Tricolour India Advisory, a foreign fund, said “We feel the worst is behind us since Indian markets have already bottomed out. The market has seen significant correction so far. This, along with strong corporate numbers, will push the market to new highs by the end of the calendar year.”
He said the GDP growth of 8.5 to 9 per cent and strong corporate expectations justified the premium at which Indian markets were trading.
More downturn in Week 4
| There may be a temporary recovery but the trend remains bearish. There was panic selling on two successive sessions. The Nifty closed out on 4108.35 points for a week-on-week loss of 5.19 per cent. The Sensex was down to 14141, dipping briefly below the 14000-mark to lose 4.89 per cent. The Defty lost 6.8 per cent as the rupee plunged as a direct result of FII redemptions. The Nifty Junior was down 5.94 per cent. Volume was extremely heavy on the sell-offs and breadth was almost totally negative. The BSE 500 was down 4.89 per cent. Domestic mutual funds were net buyers to a small extent but not enough to mop up anything close to the amount FIIs put under the hammer. Outlook: Clearly the trend has become more bearish. There may be a sharp but temporary, recovery next week. The Nifty is unlikely to cross resistance at 4200-4250. On the downside, support levels around 4000 will probably be tested again. Expect net losses through this settlement at the least. Rationale: Clearly the intermediate downtrend has gained momentum and completed its fourth week. At the daily level, indicators are oversold and the 200-DMA is around 4000 where the market found support on Friday. The intermediate trend is likely to stay down but there will be single-session recoveries as profits are booked in short positions. Counter-view: This has all the early warning signals of a new bear market. It could be a short, sharp correction as in mid-2006 when the market fell 30 per cent inside one quarter and recovered equally rapidly. If it is indeed the first wave in a big bear market, the trend could stay down for two months. Bulls & bears: Very few stocks can move in the opposite direction to a powerful market-wide move of this nature. However, stocks where FIIs and especially hedge funds are over-exposed will be hit the hardest. This is the reason why the CNX IT dropped 5.47 per cent despite the rupee softening. Telecom stocks have suffered for similar reasons. However, once the hot money has fled, these stocks will also see the quickest recoveries. Most stocks have broken key supports in the past week and could fall further. However, a small, select list seems to have "flushed" out the hot money and may be capable of quick bounces. This list of potential comebacks includes Bharti Airtel, Dr Reddy’s, Hindustan Unilever, ICICI Bank, LIC Housing, M&M, Reliance Industries, Reliance Energy, Sun Pharma and Tata Power. Liquidity is likely to disappear in small caps and mid-caps during the next week so avoid trading anything outside the F&O list. Expect the high volatility to continue till the end of the settlement at least. |
| MICRO TECHNICALS Bharti Airtel Current Price: 796.95 Target Price: 830 The stock has recovered to a key support level after hitting lows of 750 in intra-day trades. There is a reasonable chance of a pullback till the 830 level in the next two sessions. Keep a stop at 790 and go long. If 790 is breached, switch to a short position because there will be an intra-day downside till 760 levels. ONGC Current Price: 783.95 Target Price: 755 The sell-off broke a key support when the stock closed below 825 on Thursday. There is a likely downside till the 755 level. Keep a stop at 790 and go short. Cover below 760. Expect a high-low range of 745-815 during next week's sessions. Sun Pharma Current Price: 935 Target Price: 975 One of the few stocks that retained value during the downtrend of last week. It has the potential to rise till the 980 level. Keep a stop at 900 and take delivery with the perspective of three weeks. Book profits above 975. Tata Power Current Price: 701 Target Price: 665-765 (Range trade) The stock has developed a massive range and it could trade anywhere between 665 and 775 next week but there is a mildly bullish bias. Use the 685 level as a pivot. At current price, go long with a stop at 685 and cover above 750. If the stop is broken, go short and cover below 665. If it moves below 665, increase the short position. Tata Steel Current Price: 544 Target Price: 510 The stock has made a downside breakout on expanding volumes. It has a projected downside till the 510 level. Keep a stop at 550 and go short. Cover around 515. If the stock closes 550, go long and expect a recovery till the 575 level. |
Market to remain sideways
The Sensex took just 17 working days to test an intra-day low of 13779.88 points on August 17, 2007 from around 15868 points. The weakness in the world markets started on July 13, 2007, but remained sideways till July 23, and the markets came off their highs the next day. The global weakness was expected because of overbought situations, but what was not expected was the high intensity which we had seen in the past two weeks.
Indices like Dow and Sensex even fell below its 200 daily-moving averages and fortunately closed above on Friday, giving investors signs of consolidation. Technical analysts are giving high priority to 200-day moving averages of stocks and indices. Once stocks or indices fall and trade below their 200 DMA, they may remain weak, and higher levels of selling can be expected.
At present, the Sensex and Nifty are trading in oversold territories, which is helpful for the markets to recover from their lows. The weekly Relative Strength Index (RSI) of major indices, including Dow, Hang Seng, Nikkei, CAC 40, and Nasdaq is in the oversold territory, which may further help the markets recover in the short run.
On the other hand, monthly Indices’ Charts are still showing weakness. There is an indication that after consolidation, a weak or more of selling can be expected. This is further supported by the weekly moving averages of the world’s indices. Monthly indicators are suggesting sideways movement for one more month.
For the Sensex and Nifty, 13971 points and 4062 points are the 200 DMA levels, respectively. As long as the Indian markets are above their respective indices, we may see renewed buying interest, and the Sensex may move towards 14864 points and Nifty towards 4358 points, respectively.
But one has to keep in mind that monthly indicators can once again destroy market equilibrium at any point of time. Apart from the monthly indicators, some of the heavyweights are also trading below their key supports, and it is always a threat to the upward journey.
Majority of the index stocks are oversold, but some sectors are technically weak. Automobiles, pharma and oil are some of these sectors. On Monday and Tuesday, we may see a recovery, but counters like Tata motors, Mahindra and Mahindra, Cipla, Dr Reddy’s, BPCL, HPCL and IOC may attract major selloff.
ACC, Grasim, Gujarat Ambuja are heavily-oversold and recovery is expected, but the selloff again can bring these stocks down to further lows because these counters are absolutely weak. On the buying side, one expects upward movements in reality stocks like DLF, Unitech and GMR. Reliance Communication, Reliance Energy, IFCI and IDBI may witness sustained buying interest.
Longterm, we have a bull ride on
Indian equity markets are dancing to subprime tunes, giving investors sleepless nights. But if you are a mutual fund investor, you might as well take a vacation. In the past five years, 81% of diversified equity funds managed to outperform (give higher) Sensex returns. This is an encouraging statistic, underscoring the need for investors to look at a long-term investment horizon.
For short-term investors though, there are lots of grey areas. In fact, there is only bad news, since the extent of outperformance has been widely fluctuating. In 2007, 68% of equity funds have managed to outperform the Sensex. This is an improvement from the 21% level in 2006 and 40% in 2005.
A historical study reveals that fund managers have traditionally relied on mid-caps to beat the Sensex. So equity funds gave higher returns than the Sensex whenever mid-cap indices outperformed large-cap indices. Mid-caps, as measured by the S&P CNX Midcap, gave higher returns than the Sensex in the calendar year 2002, 2003 and 2004. And in all these years, the extent of outperformance was high, with upwards of 90%.
But subsequently, in 2005 and 2006, the Sensex ended up giving higher returns than mid caps. This led to many equity fund managers, especially those heavy on midcaps, underperforming the Sensex. Only 40% of equity funds managed to beat the Sensex returns in 2005 and 21% in 2006. During 2007, midcaps have managed to give slightly higher returns than the Sensex so far and the extent of outperformance has improved tremendously.
Is the fact that equity fund performance is linked to mid-cap performance a cause for concern? Not really for long-term investors. While over the single year periods, there has been greater vacillation in performance, the statistics are encouraging over the long-term periods. For instance, in the past five years, 81% managed to beat the Sensex returns. It is 59% and 58%, respectively, for one and three year periods.
Another interesting trend has been that of fund managers finding it relatively easy to beat the Sensex in a bull run than in a bear run. In the past 15 years, there has been four years of 10% plus correction in Sensex values in 1995, 1998, 2000 and 2001. And except during 1998 — when the outperformance was 90% — in all the other years, the outperformance figures were 50% or lesser. With bearish phases existing in the current market, this is a cause of concern for the short-term investor.
With the launch of many variants of equity funds, outperformance might become a tad tougher. This is because a mid-cap fund would be benchmarked with a mid-cap index and not Sensex or BSE 200. Similarly, a broad-market fund would benchmark with a broad-market index like BSE 200 and not a large-cap index like Sensex. While there used to be only one equity fund in the past, which invested across market caps, now there would be a greater focus. Expect lot of action ahead for active fund managers in the equity market.
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