Saturday, September 22, 2007
The country's second-largest real estate firm Unitech Ltd said it would apply to the Department of Telecom (DoT) for a countrywide telecom licence, a declaration that adds to long list of companies that have lined up to enter the lucrative Indian telecom services market.
This is the second instance of a realty firm foraying into telecom in less than a month. In August, Delhi-based Parsvnath Developers had submitted an application to the DoT for a Unified Access Service licence in 22 circles.
Unitech already has a telecom transmission tower manufacturing business, the details of which were not revealed by the company. "The continuous rapid growth in India's telephone services business indicates the enormous potential for future growth in this business. Further, it would help boost
the group's telecom and transmission tower manufacturing business. Thus, investment in this sector would provide immense potential for value addition to the group," Unitech informed the National Stock Exchange today.
The company’s board of directors today decided that eight of its wholly owned subsidiaries would apply to DoT for a "Unified Access Services" licence which allows an operator to run operations using a combination of telecom technologies, including CDMA or GSM. Once it is granted a letter of intent, Unitech will join other applicants for spectrum (the crucial radio-frequency that enables wireless communications) from the DoT.
"We are in talks with leading telecom players and also financial investors for partnership," said Sanjay Chandra, managing director, Unitech Ltd.
Unitech’s market-capitalisation at close of trade today stood at Rs 54,774 crore. In 2006-07, the company’s consolidated income stood at Rs 3,388.40 crore, with a net profit was Rs 1,305.5 crore.
The government is currently reviewing the policy on spectrum allocation and grappling with plans to introduce next generation high-speed mobile services in India. Since telecom licensing norms were changed in 2003 to allow for universal access (before this licences were dependent on the technology being used), the government has granted over 97 such licences.
A pan-India licence usually costs around Rs 1,500 crore.
Established in 1972, Unitech's’s land bank today stands at around 10,700
acres, with its portfolio includes residential, office and retail developments, hotels, amusement parks and special economic zones.
Most investors envy Rakesh Jhunjhunwala and most of them wonder how much money he must be making on a day when Sensex and Nifty gained over 4 per cent each.
Estimates of Rs 6,000 to Rs 10,000 crore have been done the rounds. He is convinced of India's rock solid performance based not on the US but on the domestic consumption story.
However he does add a disclaimer, "I am convinced that India will outperform but investors have to face the fact that the kinds of returns that the Indian equity markets have given over the last five years will not be repeated, but India will outperform. I think the P/E multiple would swing between 14 to 15 times to 20 times," Jhunjhunwala said.
His new large cap buy has been Ranbaxy Laboratories and he has added more to his Titan shares, taking his stake in the company to 11 per cent after having sold BEML and offloading part of his stake in Praj Industries holdings.
While his other investments like Nagarjuna, Punj Lloyd, Pantaloon Retail, Bilcare, Geometric Software and banking stocks like Karur Vysya are intact he is staying away from IT and real estate companies.
Apart from about 25 listed stocks, he is also becoming private equity player having taken up his list of investments to 15 over the last one-year. His latest private equity deal was a retail play by buying a 15 per cent stake in Metro Shoes.
Is Jhunjhunwala worried about industrial production growth which fell to 7.5 per cent in July? He says it is too early to tell but it does not worry him right now. What is required though is some softening on RBI's stance.
"I salute the RBI for having controlled the growth the way that have but now they need to reduce interest rates to some extent for the future," Jhunjhunwala said.
A bullish outlook as always, the only real risk says the big bull is a sudden nosedive in global growth, which could shrink valuations not just in the west but in Asia as well.
The US Federal Reserve's decision to cut interest rates provided impetus to the stock markets which saw them kissing historic peaks during the week.
Key index, Sensex, hit the 16,000 mark while Nifty soared to cross the 4,000-level respectively.
Both the indices registered their biggest ever weekly gains in absolute terms and the Sensex completed its five-week winning streak with a sharp gain of 2,422.21 points or 17.13%.
The 30-share barometer, BSE, showed a weak trend at opening but recovered from Tuesday on the back of expectations of US interest cut.
The US Federal Reserve on Tuesday night slashed key lending rates by a surprise 0.50% and discount rate by 0.50% to ease concerns of the world's biggest economy slipping into recession on account of sub prime woes, giving a major boost to the emerging markets like India and China.
As a result, the Sensex spurted to a new life-time intra-trade peak of 16,616.84, before concluding the week at 16,564.23, a record rise of 960.43 points or 6.16 % over the last weekend's close of 15,603.81.
Similarly, the broad-based S&P CNX Nifty of the National Stock Exchange also flared up to a new all-time intra-day peak of 4,855.70 before ending the week at 4,837.55 from preceding weekend's close of 4,518.00, a steep rise of 319.55 points or 7.07 %.
Power Grid Corporation 44 to 52 21.50 to 22
Dhanus Tech 280 to 295 95 to 98
Koutons Retail 370 to 415 75 to 80
Consolidated Construction 460 to 510 205 to 208
Supreme Infrastructure 95 to 108 65 to 67
Saamya Biotech 10 3.50 to 4
Circuit Systems 35 3.5 to 4
Kaveri Seeds 150 to 170 15 to 17
21-SEP-2007,RNRL,Reliance Natural Resource,CLEAN FINANCE & INVESTMENT LTD,BUY,7440941,71.19,-
21-SEP-2007,RNRL,Reliance Natural Resource,LATIN MANHARLAL SECURITIES PVT. LTD.,BUY,8827690,69.02,-
21-SEP-2007,RNRL,Reliance Natural Resource,P R B SECURITIES PRIVATE LTD,BUY,13293387,70.79,-
21-SEP-2007,RNRL,Reliance Natural Resource,CLEAN FINANCE & INVESTMENT LTD,SELL,7430941,71.30,-
21-SEP-2007,RNRL,Reliance Natural Resource,LATIN MANHARLAL SECURITIES PVT. LTD.,SELL,8907690,69.10,-
21-SEP-2007,RNRL,Reliance Natural Resource,P R B SECURITIES PRIVATE LTD,SELL,13214737,71.04,-
Now that the great housing bubble in the US is bursting, attention has already shifted to where the next bubble will be. A large number of stock market strategists believe that it will be in emerging markets.
Why should we have another bubble? That’s an easy one—with the US Federal Reserve cutting rates by 50 basis points on Tuesday, Ben Bernanke has sent a powerful signal that he is willing to inject liquidity into the markets, brushing aside arguments that those who had lent imprudently should be left to stew in their own juice and that helping them out would create moral hazard, which would encourage further irresponsible risk-taking.
It’s a clear admission that the notion that markets have to go through periodic purges to get rid of their excesses is a non-starter in an age when financial markets are so large that they’re the tail that wags the economy dog.
There’s a school of thought which says that the markets have been having one long serial bubble for decades. It all started with the oil price rise of the 1970s, with the Gulf oil producers accumulating vast surpluses, most of which were funnelled to US banks. That led to a big rise in money supply in the US, setting the stage for a heady bout of lending by mortgage companies, which culminated in the Savings & Loan disaster of the 1980s.
Also at the same time, oil surpluses were lent by the banks to governments in Latin America. Later on in the 1980s, when interest rates rose and the dollar appreciated, these loans turned bad and led these countries into a debt trap.
The 1980s are often spoken of as a “lost decade” in terms of development for Latin America. In the US, the rise in interest rates led to the bust in the savings and loan associations and the biggest rescue operation by the US government in history. That was when, worried by the continuous rise in the value of the dollar and the loss of competitiveness to Japan, the US forced the Plaza Accord down Japan’s throat, forcing it to let the yen appreciate. That led to a fall in the value of the dollar, capital repatriation to Japan and a lowering of interest rates there to rock bottom to keep exports going. It created the mother of all bubbles in Japan, with the Nikkei going up to a stratospheric 39,000 and real estate values going through the roof.
But all bubbles have a nasty habit of popping, and when the Japanese bubble burst, it sent the country into a prolonged depression from which it is yet to recover.
After the bust in Japan, the Asian tigers became the next bubble, with capital flowing like water to these emerging markets. When that huge bubble burst during the Asian crisis, the money hotfooted back to the US, where the tech bubble was waiting to happen.
We all know how that ended and how Alan Greenspan’s rate cuts set the stage for the housing bubble in the US and, in keeping with the spirit of globalization, led to the first truly global bubble.
Coming back to the present, there are two arguments why emerging markets will be the next bubble. One of them, long supported by Michael Hartnett, global emerging markets equity strategist for Merrill Lynch, is that the rate cuts will lead to additional liquidity which will flow into emerging markets with their fast-growing economies.
Their argument is the familiar one of the current credit crisis being 1998 in reverse: while Fed easing in 1998, when there were massive credit problems in Asia, led to a flood of liquidity flowing into largely US tech stocks, this time the credit crunch is in the US and so the money will go to emerging markets.
The other, related view is the one advocated by research firm CLSA’s Russell Napier, who writes: “A new world order is emerging, where Asia and probably Europe lead global economic growth. The future increasingly looks like one where foreign private capital will seek non-US dollar exposure, forcing foreign central bankers to step up support for the US dollar and domestic liquidity creation. Such a seismic shift in global financial markets augurs the birth of a new world order.”
In other words, the weak dollar will force central banks to intervene in the foreign exchange markets to mop up dollars and that will release a flood of liquidity into their markets, creating a bubble.
Where’s the catch?
The catch is that the US economy must avoid a recession. Says Hartnett: “Financial crises followed by recession have resulted in bear markets (e.g., US/S&L 1990, Japan/land bubble 1990, US/tech collapse 2000). In contrast, financial crises not followed by recession have resulted in great buying opportunities (e.g., 1987 crash, Mexico 1995, Russia/LTCM 1998). We believe the latter will prove the case this time around for emerging markets.”
But won’t the US slowdown affect other economies as well? It will, but it’s all a question of relative performance. And a country like India, not very dependent on export demand, should do well.
What about the fact that the price-earnings multiples of markets such as China and India are already very high? It’s in the nature of bubbles and manias to forget about valuations. Remember the valuations of tech stocks at the height of the so-called “New Economy” bubble? If Merrill Lynch and CLSA are right, the blowout phase of the bubble could be just beginning.
India imported around 664 tonnes of gold in January-August, up 86.5 percent from a year ago, a World Gold Council official said on Saturday.
Ajay Mitra, WGC managing director for India, told Reuters that by the end of this month imports could top those in the whole of 2006.
India imported 715.5 tonnes of gold in 2006, according to WGC data.
In an interview last month, WGC's managing director and chief marketing officer, Philip Olden, said India's 2007 gold imports could be 50 percent above last year's level.
After starting the day on a quite note, the Sensex swung in and out of the positive zone in morning trades before surging to new highs. The index opened a tad (four points) higher at 16,352, slipped to a low of 16,308, but rebounded later on the back of fresh buying in select heavyweights.
The buying gained momentum in late noon trades and the index rallied to a fresh all-time intra-day high of 16,617 - up 308 points from the day's low.
The Sensex finally ended with a gain of 216 points at 16,564.
The BSE Oil & Gas index soared 3.5% to 9340. The Realty index surged 1.5% to 9183, and the Auto index gained 1% at 5193.
The market breadth was negative - out of 2,843 stocks traded, 1,629 declined, 1,166 advanced and 48 were unchanged today.
Reliance zoomed 3.8% (Rs 82) to Rs 2,274. Bharti Airtel soared 3% to Rs 918, and SBI surged 2.8% to Rs 1,808.
Reliance Communications, Reliance Energy, Grasim, Hindustan Unilever, Maruti and ONGC rallied 2% each to Rs 579, Rs 1,010, Rs 3,447, Rs 219, Rs 930 and Rs 923, respectively.
Wipro, TCS and HDFC advanced nearly 1.5% each to Rs 440, Rs 1,015 and Rs 2,372, respectively.
Larsen & Toubro, Tata Motors, Infosys and BHEL were up over 1% each at Rs 2,783, Rs 741, Rs 1,822 and Rs 1,966, respectively.
Reliance Natural Resources (RNRL) zoomed 35% (Rs 20) to Rs 77 amid reports that the company has sought permission to start gas distribution service in Mumbai & Delhi.
...AND THE SHAKERS
ITC shed 1.6% to Rs 191, and Hindalco slipped 1.4% to Rs 160.
Cipla and NTPC were the other prominent losers at Rs 167 and Rs 187, respectively.
VALUE & VOLUME TOPPERS
Ambuja Cements topped the value chart with a turnover of Rs 1,081 crore followed by Reliance Natural Resources (Rs 673.50 crore), Reliance Petro (Rs 437.50 crore), Reliance (Rs 194.50 crore) and IFCI (Rs 170 crore).
Reliance Natural Resources led the volume chart with trades of around 9.53 crore shares followed by Ambuja Cements (7.05 crore), Tata Tele (3.50 crore), Reliance Petro (2.89 crore) and IFCI (2.05 crore).
“Price is what you pay. Value is what you get. The dumbest reason in the world to buy a stock is because it’s going up,” says investment guru Warren Buffet.
Trashing conventional principles of investing, Indian investors are on a shopping spree, buying all that is going up, without considering the price or the value of stocks. Price to earnings (PE) ratio, as a concept, appears to have lost its relevance for the time being as investors are busy trying to guess the next level that benchmark indices are likely to touch in the near term.
The 30-share Sensex on Friday soared to a new high of 16,616.84 as investors are counting on stronger foreign fund flows in the coming days, given India’s better resistance to a likely recession in the US compared with other emerging markets.
A study on the trading volumes of topline stocks on BSE reveals that investors are accumulating ‘high PE’ stocks — trading in the range of 30-160 times — in large numbers. PE ratio gives investors an idea as to what the market is willing to pay for the company’s earnings.
The higher the PE, the more the market is willing to pay for the company’s earnings. PE, as a stock market indicator, helps the investor in deciding whether he should invest in a particular stock or not.
A scrip trading at a PE of 15-18 times is generally regarded as a ‘fairly valued’ stock across markets, provided the company has decent earning potential. In the Indian context, with the Sensex trading at a PE of 22 times, stocks trading in the range of 18-20 times are not seen as overvalued.
“PE can be a bit more higher in the case of high-growth sectors like realty and telecom,” said a fund manager. Conversely, a low PE may indicate low investor confidence in the stock. It could also mean that the scrip is a ‘sleeping multi-bagger’ that the market has overlooked. Known as value stocks, many investors made their fortunes spotting such stocks before the rest of the market.
So, considering the current trend, how relevant is PE?
Generally, in a uptrend, investors with a higher risk profile (those investors who are not investing for the long term) invest blindly without considering much about the fundamentals or value proposition of stocks. This is a dangerous trend, as stocks appreciating on ‘sector-goodies” plummet once sentiments change, says experts.
“PE, as an easy analytical ratio, is still relevant for investing in stocks. But in a surging market, people generally don’t buy stocks by considering the PE ratio,” says Indiabulls Securities CEO Divyesh Shah.
There is no simple method to spot the right PE for a stock. If an investor is willing to pay more for a particular company’s stock, he believes the company has good long-term prospects over and above its current position. “Though PEs don’t tell you the underlying story, it will give you an idea as to how the stock is valued.
High-demand stocks, with low free-float, will also have high PEs. Therefore, along with the PE, investors should also consider the long-term growth prospects of the company they are investing in,” sums up ASK Wealth Advisors CEO Rajesh Saluja.
There has been a reshuffle in the top order of India’s most valuable companies during the Sensex’s journey from 15K to 16K in the past two-and-a-half months. Riding on the back of realty and stock market boom, Delhi-based real estate giant DLF has taken a big leap to emerge among the top five companies in market-cap ranking.
The company, with a market-cap of Rs 1,27,097 crore as on Friday, has shot up to the fifth position from the eighth as on July 6, 2007, when the Sensex scaled 15,000 level for the first time. The investor wealth in DLF jumped by Rs 29,000 crore, or 30%, during the period.
In the past, realty stocks witnessed high volatile movements caused by fears of a correction in prices and slowdown in demand. These fears seem to have eased for the time being, which is reflected in the sharp rise in realty stocks including DLF. Analysts expect the Reserve Bank of India (RBI) to cut rates after the US Federal Reserve reduced interest rates by 50 bps this week.
This could result in home loan rates taking a dip. The BSE Realty index, which soared 580 points on Thursday, closed at a new high of 9,183, gaining 139 points, or 1.5%, on Friday.
Reliance Communications (RCL), ICICI Bank and public sector heavyweights Bhel and SAIL have all improved their positions. They are now ranked sixth, eighth, 10th and 12th, respectively, compared with seventh, ninth, 11th and 15th at 15-K levels. Their market caps range from Rs 79,655 crore to Rs 1,18, 455 crore currently.
The top four wealth creators, however, have maintained their positions during the 1,000-point rally. Reliance Industries continued to be the market-cap topper with Rs 3,16,940 crore, followed by ONGC, (Rs 1,97,495 crore), Bharti Airtel (Rs 1,74,276 crore) and NTPC (Rs 1,54,603 crore).
Despite a bullish market, India’s top-rung IT companies remained laggards in the wealth creation race as an appreciating rupee and fears of a slowdown in the US triggered concerns about the prospects of leading exporters like TCS, Infosys Technologies and Wipro.
Investors , in fact, have lost over Rs 30,000 crore in these companies. Their rankings have taken a beating, falling to ninth (fifth at 15K Sensex), seventh (sixth) and 17th (12th), respectively. “IT stocks have been on a decline since the beginning of 2007, driven by an appreciating rupee in the first half and concerns over a slowdown in the US economy,” said brokerage house JP Morgan in its report on the Indian IT sector.
The report also said that while the brokerage is not so worried about the rupee appreciation, the subprime crisis is a concern for the Indian IT sector. A slowdown in the US economy (or even in the financial sector) could have a significant negative impact on the Indian IT sector, the report said.
CMP: Rs 733.9
Target Price: Rs 812
HSBC Securities has maintained its 'overweight' rating on Thermax, and raised the price target on the stock from Rs 635 to Rs 812, expecting a 40% compounded growth in earnings between FY07 and FY10. "Industrial boiler market looks set to continue to remain robust driven by new investment, expansion and replacement demand from various sectors," the HSBC note to clients said.
"Thermax is setting up a new manufacturing facility in Vadodara for high-capacity boilers up to 200 tph, and expects this to go on stream by April 2008. It is a leading player in the captive power plant segment, and expects to continue to benefit from the captive power plant capacity addition by new as well as existing customers," the note added.
CMP: Rs 979.35
Target Price: Rs 1,279
Merrill Lynch has reiterated its 'buy' rating on Sun Pharmaceuticals with a price target of Rs 1,279 after Wyeth's request to block Sun/Teva's generic launch of a hyperacidity drug was denied recently. The investment bank feels Sun could look for a settlement with Wyeth on this issue or look to launch the generic with a joint venture partner.
"Given the high risk involved for both the innovator and generics players, and the uncertainty of the final litigation outcome, we believe there is a strong chance of a settlement. This could allow launch of generic Protonix before the January 2011 patent expiry," Merrill said in a note.
"Assuming Sun were to launch on a profit sharing, but low-risk, basis with another generics player, we estimate the company could generate sales of $115 million and profits of $100 million (Rs 20 EPS, 34% upside) during the shared-exclusivity period (with Teva and an authorised generic). In terms of NPV, we believe this one-time opportunity could be worth around $152 million or about Rs 30 per share," it added.
CMP: Rs 918.35
Target Price: Rs 1,050
Citigroup has rated Bharti a 'buy', with a 12-month price target of Rs 1,050, citing strong growth prospects as the main reason. "We believe robust wireless market expansion and Bharti's ability to capture this growth profitably will be a recurring theme. We estimate FY07-10 earnings CAGR (compounded annual growth rate) of 32.7%, to more than double the broader market," the investment bank said in a note.
"We also expect the tower company's (Bharti Infratel) hive-off to be a value accretive looking beyond the immediate impact on margins, given Bharti's stated intentions to be a minority stake owner in the tower company," it added.
Larsen & Toubro
CMP: Rs 2,783.15
Target Price: Rs 2,921
Edelweiss Securities has reiterated its 'buy' rating on L&T, valuing the company at Rs 2,921 per share. "Positive surprises to our base case SOTP (sum-of-the-parts) valuation can come from higher-than-expected order inflows, better operating performance from international ventures, and margin uptick.
We believe that the risk-reward ratio for L&T is favourable and recommend long-term investors to view any weakness in the stock as a buying opportunity," the brokerage said in a note to clients.
CMP: Rs 238.20
Target Price: NA
Prabhudas Lilladher is positive on the prospects of Praj Industries, but has not rated or assigned a price target to the stock, citing opportunities available in ethanol manufacturing worldwide as the key reason.
"Praj has been an innovator and has continuously introduced new technologies for production of green fuels and is currently in the final stages of developing cellulosic-based technology for ethanol manufacturing," the brokerage said. According to Prabhudas, the company's earnings per share for 2007-08 is estimated at Rs 7.4.