Broker Recommendations

Bharati Shipyard Reco price: Rs 579 Current price: Rs 589.90 Target price: Rs 798 Brokerage: Anand Rathi

The booming shipbuilding industry, along with government subsidy of 30 per cent for the industry has brought the sector to centre stage.

Globally, orderbooks for shipbuilders are pegged at an estimated $118.7 billion, and India has less than 1 per cent market share, since Indian shipbuilders can build vessels less than 100,000 DWT. Indian shipbuilders are therefore expanding capacities to grab a greater share of the pie.

Bharati Shipyard has planned a greenfield capacity in Mangalore to build six 60,000 DWT vessels, investing about Rs 450 crore. At full capacity, this capacity can generate a turnover of Rs 1400-1500 crore, according to Anand Rathi.

This facility would turn operational from Q2 FY08; however peak sales would come at full utilization in 2010. It has been awarded SEZ status; hence, it would benefit from the five-year tax holiday.

Overall, Bharati Shipyard scores well on the profitability front. The operating margin, at 18 per cent, is expected to be consistent (excluding the subsidy).

In offshore supply vessels and rigs, the operating margin is as high as 18.5 per cent whereas it is 17 per cent in the cargo segment. The company’s present order book amounts to Rs 4,000 crore, with the unexecuted portion to be around Rs 3,300 crore, providing a fair visibility of earnings.

The brokerage expects Bharati Shipyard’s bottom line to grow by 39 per cent in FY08 and 61 per cent in FY09. At Rs 579, the stock traded at 15 times estimated FY09 earnings, and the brokerage recommended a “buy” with a target price of Rs 798.

Housing Development & Infrastructure (HDIL) Reco price: Rs 609 Current price: Rs 626.55 Target price: Rs 760 Brokerage: PINC

HDIL has built huge competence in the niche of Slum Rehabilitation and Development. It has developed 2 million sq ft of rehabilitation housing area and another 5.5 million sq ft of slum rehabilitation development is underway.

The company has a land bank of nearly 112 million sq ft to be developed over the next five years. It now plans to foray into other geographies such as Kochi and Hyderabad.

Its land holding in the Mumbai Bandra Kurla Complex (1.1 million sq ft) has high monetising potential (approximately Rs 20,000 per sq ft).

Besides, the significant opportunity being presented by redevelopment of Dharavi and slums around the Mumbai airport, have the potential of propelling HDIL’s financial and operational parameters.

On the commercial real estate front, HDIL has focussed mainly on medium-sized projects targeted at financial and service sector companies. Currently, it has around 19 million sq ft of retail space under construction to be completed by FY12. It also has plans to build multiplexes, either as stand-alone structures or within malls.

Recently, the company has also incorporated a wholly-owned subsidiary known as HDIL Entertainment for its multiplex business, which could provide value unlocking going forward.

PINC expects HDIL’s net sales to grow by 76 per cent to Rs 2,120 crore in FY08 and by 80 per cent to Rs 3820 crore in FY09. At Rs 609, the stock traded at 7.5 times estimated FY09 earnings.

Kirloskar Electric Company Reco price: Rs 262 Current price: Rs 270.70 Target price: Rs 361 Brokerage: IndiaInfoline

Kirloskar Electric underwent a turnaround in FY06 via restructuring, transfer of certain assets and liabilities to a subsidiary and relocation of manufacturing facility.

The company’s new transformer unit in Mysore is likely to help capitalise on robust demand expected over the next five years. Average realizations for transformers and motors divisions, which contribute majority of the revenues, witnessed an improvement of 45.6 per cent and 32 per cent respectively in FY07.

Strong demand arising out of government and private sector capex should further improve Kirloskar Electric’s realizations. IndiaInfoline expects the company to witness a strong revenue growth at a compounded annual rate of 38 per cent between FY07 and FY09, owing to the sharp focus on core operations.

The growth in the bottom line is expected to outdo the top line growth at a compounded annual rate of 53 per cent over FY07-FY09, as a result of improving margins due to higher realizations.

At Rs 262, the stock traded at 14.6 times and 10.9 times estimated FY08 and FY09 earning per share of Rs 18 and Rs 24.1, respectively. IndiaInfoline recommends a “buy” with a one year price target of Rs 361, an upside of 38 per cent.

Worst US Recession in 25 years?

On September 18 the Fed cut its target for the fed funds rate by 50 basis points (0.5 percentage points), from 5.25% to 4.75%. The move surprised many analysts who had been expecting a more modest cut of 25 basis points.

For those versed in the Austrian theory of the business cycle, as developed by Ludwig von Mises and elaborated by Friedrich Hayek, the aggressive Fed "stimulus" is ominous indeed. Not only will it pave the way for much higher price inflation than Americans have seen in decades, but it will also exacerbate what could be the worst recession in twenty-five years.

How the Fed "Sets" Interest Rates

Before discussing the history of interest rate manipulation by the Fed, a primer will be useful. When people say the Fed did such-and-such to "interest rates," they are specifically referring to the Fed's target for the federal funds rate. The Federal Reserve itself is neither a borrower nor a lender in this market; the fed funds rate is the interest rate that banks charge each other for overnight loans of reserves. Recall that in our fractional reserve banking system, the Fed mandates that banks keep a certain amount of reserves (either cash in the vault or deposits with the Fed itself) in order to "back up" their total outstanding deposits. At any given time, some banks have more reserves than they need, while others have less. The banks with excess reserves can thus loan them to those with deficient reserves, and the (annualized) interest rate is the fed funds rate.

Now a further complication: the Fed itself does lend reserves to banks, but it does this at the so-called "discount window," and the relevant interest rate is the discount rate. In recent years the Fed has traditionally maintained a margin between the fed funds target and the discount rate, in order to encourage banks to borrow from each other, rather than coming hat in hand to the (more expensive) Fed. Some readers may recall in mid-August that the Fed Dlashed the discount rate (not the fed funds rate) and encouraged banks to borrow from it in an effort to restore liquidity and calm to the credit markets.

It is clear enough how the Federal Reserve can set the discount rate: since the Fed is the one loaning these reserves, it can insist on any rate it wants. (Of course, if the rate were too high it might not get any takers.) But how does the Fed influence the federal funds rate, if it doesn't directly participate in this market? Is the target enforced the way, say, the government in some areas controls apartment rents or minimum wages?

The process is much more complicated. Very briefly: the Fed can control the quantity of reserves held by banks, and thus indirectly can control the price the banks charge each other for lending out reserves. If the Fed thinks banks are charging each other too much for reserves — in other words, if the actual fed funds rate is higher than the target — then the Fed will engage in an "open market operation," buying assets such as US Treasury bonds from banks. The Fed pays for these purchases by adding numbers to the accounts the selling banks have with the Fed.

This is the precise point of entry for the new money that the Fed creates out of thin air. To repeat: When the Fed buys (say) $1 million in bonds from Bank XYZ, Bank XYZ surrenders ownership of the bonds but sees that its deposits of reserves at the Fed go up by $1 million. But the Fed didn't transfer this money from some other account. No, it simply increased the electronic entry representing Bank XYZ's total reserves on deposit. There is no offsetting debit anywhere in the banking system. Bank XYZ now has $1 million more in reserves, while no other bank has less. Bank XYZ is now free to go out and loan more reserves to other banks, or to make loans to its own customers. (In fact, due to the fractional-reserve system, the bank could make up to $10 million in new loans to customers.) The money supply has increased, putting upward pressure on prices measured in dollars.

But back to our original theme, the injection of reserves obviously increases their supply and thus (other things equal) pushes down the rate Bank XYZ will charge other banks who might want to borrow reserves from it. The open market operation has thus achieved the Fed's goal of pushing the actual fed funds rate down to the desired target. Of course, going the opposite way, if the actual fed funds rate were too low, the Fed would sell assets to the banks, thereby destroying some of the total reserves in the system.

Austrian Business Cycle Theory

According to Ludwig von Mises and his followers, the boom-bust cycle is not inherent in the free market, but is rather caused by the government's interference in the credit markets, specifically its manipulation of interest rates. The government causes the boom period when it injects new credit into the system (pushing down rates), and then the unsustainable, non-economic investment projects put into motion necessitate a bust at some future date.

Generally speaking, the chart indicates an inverse relationship between the two series. This accords with the commonsense view that cutting interest rates provides a stimulus while hiking them is contractionary. However, what the Austrian approach provides is the understanding of the real forces behind the boom-bust cycle. In other words, most financial commentators think that today's interest rates affect today's economic growth, end of story. But if a previous boom period has led to massive malinvestments, there must be a bust period to liquidate the various projects (for which there is an inadequate capital structure to complete).

To put it another way, many commentators seem to believe that if the Fed held interest rates low indefinitely, then we'd never have high unemployment, just rampant price inflation. And yet, the recent experience shows that this is dead wrong. The Fed didn't cause the recent problems by "responsibly" hiking interest rates. No, rates had been steady at 5.25% for some time, and then the housing bubble burst and the mortgage market faltered, thus "forcing" the Fed to take action.

Looking back at the chart above, we can see why the worst may be yet to come. In (price) inflation-adjusted terms, the early-2000s levels of the actual fed funds rate is the lowest since the Carter years. And many readers may recall the severe recessions of 1980 and 1982 that followed that period.

Conclusion

In the Austrian view, the boom-bust cycle is caused by the ed's maintenance of artificially low interest rates, which causes businesses to expand, hire workers, buy other resources, and so forth, even though these projects are not justified by the true supply of savings in the economy. The greater the "stimulus" the worse the malinvestments.

From 2001–2004, the Fed kept (real) rates at the lowest they've been since the late 1970s. One of the consequences that has already manifested itself is the housing bubble. But a more severe liquidation seems unavoidable. The recent Fed cut may postpone the day of reckoning, but it will only make the adjustment that much harsher.

Robert Murphy is the author of The Politically Incorrect Guide to Capitalism

Reliance Power - Fourth largest IPO

Reliance Power’s $3 billion initial public offer (IPO) is the fourth largest in the world this year. It will be the biggest in India, toppling the recent record held by DLF when it was launched on June 15 and was worth Rs 9,188 crore.

Data sourced from Thomson Financial revealed that the Indian IPO volumes totalled Rs 39,621 crore (excluding Reliance Power) from 70 issues in the first nine months, marking its highest on record and also toppling all full year IPO volumes previously.

The largest IPO floated in the current calender year globally was by a Russia-based bank, OAO VTB Bank, valued at $7.99 billion. China Citic Bank floated the second largest IPO worth $5.95 billion, while Blackstone Group that mobilised $4.75 billion was the third largest.

With the IPO mobilisation of $6.84 billion so far in the current calendar year, India is the seventh largest IPO market in the world with a 3.5 per cent market share - up from just 1.6 per cent in the corresponding period last year.

If one adds the proposed $3 billion worth IPO of Reliance Power and $1.50 billion by Emmar MGF, the total IPO mobilization will cross $11.35 billion in the current calendar year. This will placed India at sixth position, after United Kingdom.

RBI may clamp down on real estate sector

Reserve Bank may tighten its grip on the country's real estate sector further in its forthcoming mid-term review of the monetary policy on October 30, Ernst and Young has said.

"With real estate prices continuing to appreciate, we foresee that the (RBI's) policy baton may tighten in near future as well," E&Y said in a study on the country's real estate sector.

This will leave real estate developers with little option but to resort to more expensive financing options, it said.

Already concerned about the growing exposure of sceduled commercial banks (SCBs), the apex bank has clamped down on foreign debt into the real estate sector, hiking risk weight for home loans and increasing provisioning requirements of banks.

These measures had some dampening impact on the housing demand, though overall absorbtion remained healthy. These also helped to keep specualtors away from the market, it said.

Exposure of the SCBs to real estate sector grew by alomst 80 per cent in 2006 over the previous year, E&Y said, adding that the sector constitutes 91 per cent of their lendings to sensitive sectors.

"With limited bank credit and restriction on infusion of foreign debt into the sector, going forward, financing real estate projects may become more challenging especially for developers with limited development experience and management background," E&Y said.

This will lead to more pressure on the profit margin of the real estate developers, who are already bearing the brunt of rising input and overhead costs.

"The cost for key input material such as steel and cement has been growing in the last couple of years. It is estimated that the cost of cement has increased by 30 per cent and that of steel by 10 per cent, translating into a 15-20 per cent hike in overall cost of construction," E&Y said.

The impact of such a rise has not been witnessed extensively as the same has been set off by rapidly rising capital values for real estate, it added.

E&Y also believes that with increasing global integration, the Indian real estate sector is no more isolated from possible tremors in the global economy.

It exposes the sector to global risks, including rising global oil prices and the downturn in the US economy.

In such cases, any such adverse movement could be a dampener to real estate sector's growth momentum.

RBI will certainly consider these risks while drafting the mid-term policy to "cool off" the country's real estate sector, it said.

Rakesh Jhunjhunwala - bull market thoughts

It is difficult to believe that the largest holder of the US treasury bonds is China. To me, I think it is geo-politically very sensitive issue and if I were to be the President of America I would redeem them the next day. They have forgotten where Hindi-Chini bhai-bhai led (Indians) to.

Having said that, the US economy was the engine of economic growth worldwide. It was an unsustainable methodology of growth, where you borrow, borrow,borrow and consume, consume, consume. Also we had a 25-year bull market in America and all bull markets, regardless of regulators, always produce excesses. Excesses are not products of loose regulations but more products of bull markets because then markets make people lose their sense and they become absolutely greedy.

I personally believe that the US housing market is not going to bottom in the next 36 months; because you built 21 million houses in 2 years as against 16 million every year. So you build one million extra and at least out of those 16 million normal ones, 40% of the houses in the last two years have been sold to subprime and allied alternatives.

In Miami, you have a building boom amongst the housing bust. So I think the world is underestimating the consequences of this subprime or the meltdown of the US housing. There was a vicious cycle in America where you gave money to people on credit to people who could not afford USD 50,000 - you gave them half million dollars; not based on their ability to pay, but on the value of their capital assets. They primarily drove the buying of houses in the last 24 months.

On interest rates:

It is not the question of interest rates. No one in his right sense now is going to give loans to sub-prime mortgages again. The resets are just starting.

So I foresee a few things.

One, the problem in the housing market problem is going to get worse because there will be a lot of foreclosures. Two, there is lot of housing under construction which cannot be stopped immediately. And third, people say there is full employment in America. But housing is 70% of America’s GDP and that itself would lead to a slowdown in America.

This slowdown in the housing industry is going to lead to a slowdown in the US economy. This again, would mean lower wages and lower employment, which could result in greater housing loan repayments defaults.

I read an economist saying that Europe has had faster increases in housing prices than America. There is a very large subprime market even in Britain. So I think this will continue to transfer itself even to Europe.

I believe there have been great excesses in the US bull market. That bull market, in my opinion, is coming to an end and the real excesses will be exposed only after the bull market is over.

Though at the moment we are all very happy and feeling that this is something like long-term capital management or the Russian debt crisis, where the Fed reduces interest rates and all problems go away. I do not believe that because credit is not only available on cost; it is also a question of risk appetite to borrow and risk appetite to lend.

So I think that credit is no longer going to be available in America or if it is, it is going to be available in a measured manner. There is going to be a slowdown in America.

There are various opinions that if US interest rates comes down money will flow into emerging markets. Let us put the impact in two parts – one, how they will affect economic activity and how they will affect asset prices.

On India:

As far as India is concerned, I personally foresee a big slowdown for the software industry. I do not think that if America slows down; more work will come to us. I think if America slows down, more work could come 36 months later. I think 25%-30% IT budgets are discretionary and there will be big cuts in IT budgets.

As far as other Indian exports are concerned, I do not think they are going to be affected very substantially. As far as commodity prices go, I think they will come down. Interest rates also will be down, which is good for India.

US is a very dynamic economy; it has great self-correcting measures. This recession in America depends on factors like whether it is going to be orderly, or create a lot of disequilibrium etc. If it is an orderly one, I think Indian markets will be not be affected to a very large extent. But if it is a huge disequilibrium, then things are going to be quite unpredictable.

Rakesh Jhunjhunwala - excitement before climax coming soon

Indian shares could correct sharply in coming weeks after hitting a series of record highs on unprecedented overseas fund flows, analysts say.

Lifted by a tide of foreign money, Indian shares have climbed 25.4 percent this year to hit a record 17,291.1 points last Friday.

The rise ‘has been too dramatic,’ said Atul Mehra, capital markets head at Mumbai brokerage JM Financial. “Share valuations definitely appear stretched,” he said. Indian shares have risen by over 10 percent just since September 18 when the US Federal Reserve cut interest rates by a surprise 50 basis points, resulting in a flood of money into emerging markets as investors sought better returns. A key signal of a potential looming correction in the Indian market is that so-called ‘market breadth’ has weakened, analysts said.

More shares have lost ground than gained in a rising market for five consecutive trading sessions, suggesting weakness ahead, they said. “This is the excitement before a climax,” key independent Mumbai equity broker Rakesh Jhunjhunwala said. “The markets may rise a bit more — towards 18,000 or even 19,000 points — but there is a huge correction coming.”

Also price-earnings (PE) ratios — a common measure of whether a share is overvalued that divides the price of a stock by its earnings per share — are looking high, analysts say. Right now the average price-earnings ratio is 16.8 times which represents “a 15 percent premium to the long-term average of 14.6 times,” UBS analyst Manishi Raychaudhuri said in a report.

UBS has its Sensex target for end 2007 at 16,300 points while HSBC Securities is more bearish with its target at 14,250 points.

Foreign funds have invested 12.23 billion dollars in Indian equities in 2007, lured by record economic expansion, beating the previous record of 10.7 billion dollars set during full-year 2005. India logged first-quarter growth of 9.3 percent — the world’s fastest after China. Investor bullishness on India has been bolstered by the view that the country should escape major fallout from the US subprime credit turmoil thanks to its largely insulated economy.

While the nation of 1.1 billion people has been gradually easing rigid state controls on trade and investment and opening up its economy, analysts say it remains far less exposed to global financial upheaval than many countries. Indian shares have risen nearly 18 percent since July when significant credit concerns surfaced in the United States. Andrew Holland, strategic investment director at DSP Merrill Lynch in Mumbai, forecast that 2008 would be “a difficult year for equities, including India. “We could see greater flows in the form of foreign direct investment (FDI) rather than overseas fund flows (into shares),” he said. Political uncertainty also hangs as a question mark over the market, analysts said. The ruling Congress party and its communist allies are locked in a standoff over a civilian nuclear technology deal with the United States which the Left says makes New Delhi’s foreign policy subservient to Washington.

“The strongest catalyst to uncertainty in 2008 could be an early general election. Election outcomes are usually sources of significant volatility in Indian markets,” UBS’s Raychaudhuri said. “In that event, not only could valuations suffer, but the capex (capital expenditure) cycle could also slow temporarily,” she said. afp

Crompton Greaves

Crompton Greaves

Market Buzz

Buzz gets louder on RPL project completion

Market talk of Reliance Petroleum’s Jamnagar refinery going on stream much before its scheduled time is getting stronger by the day. Grapevine has it that Larsen & Toubro (L&T), India’s largest engineering company, has completed the construction and delivery of the fluidized catalytic cracking (FCC) reactor for the 27 million tonne per annum Jamnagar refinery.

L&T has com-pleted the job much before the scheduled time, prompting analysts to say that the refinery may also be up and working by the middle of 2007, around three months before schedule. FCC reactor is considered to be the core part of refineries.


Investors stock up on Grindwell Norton shares

Traders are accumulating shares of Grindwell Norton in anticipation of a significant improvement in its bottomline over the next few quarters. The company has raised the price of all its products by 12% in the past couple of months, and analysts expect a major part of this increase to feed into the bottomline.

Further, the company is setting up a new plant in Uttaranchal, which is expected to be operational in a year’s time, giving the company significant tax benefits. The buzz in the market is that the company may announce a spe-cial dividend of Rs 5 from the proceeds it received recently by selling its entire shareholding in its JV with Lincoln Hellos India. Company officials declined to comment on this issue. The stock closed at Rs 146.50, up 1% over the previous close.


Carol Info gains on Wockhardt IPO buzz

Carol Info Services has risen 21% over the past one month, which dealers attribute to its holding in Wockhardt Hospitals (WHL). The company holds 67.5 lakh shares of WHL, which is coming out with an initial public offer shortly. The issue is likely to be priced at Rs 400 per share, according to broking circles.

Further, the company owns properties in Mumbai, which are valued around Rs 300 crore. In 2006-07, the company earned Rs 11 crore as rent from these properties. Dealers expect this figure to rise as the lease is coming up for renewal shortly. The stock price closed at Rs 80, down about 2% over its previous close.

Vodafone expands rapidly

Vodafone Group Plc.’s Indian operation, Vodafone Essar Ltd (until recently Hutchison Essar Ltd), has, in the four months ended August, signed on more customers in the 16 licensed areas in which it operates than its bigger rival and India’s largest mobile telephony firm, Bharti Airtel Ltd.
Bharti Airtel, which runs operations in 22 Indian telecom circles, on Monday announced that its customer base at the end of September had crossed 50 million, including some three million fixed-line phone subscribers. Latest figures for Vodafone Essar, which unveiled the Vodafone brand in India last month, will be available in a week’s time. Last available figures put Vodafone Essar’s subscribers (all mobile) at 34.11 million at the end of August.
Hutchison Essar, until March, was India’s fourth largest mobile phone services firm.
Vodafone Essar is now the third largest (only Bharti and Reliance Communications Ltd are ahead of it), and nearly five months after the Newbury, UK-based Vodafone Group bought a controlling two-thirds stake in Hutchison Essar mid-March and renamed it Vodafone Essar, the Indian operations are clearly setting the pace for Bharti Airtel and other large phone firms such as state-owned Bharat Sanchar Nigam Ltd.
Vodafone acquired the controlling stake in the company at a time when Hong Kong-based Hutchison Telecom International Ltd, the earlier parent of the Indian mobile phone firm, was spending just about enough on network expansion and having to put up with friction with local partner, the Mumbai-based Essar Group.
Hutchison Essar was lagging far behind Bharti Airtel in terms of net addition of subscribers in the 16 common circles, with the market leader adding around 300,000 and 380,000 customers more in January and February, respectively.
Vodafone, which is the world’s largest mobile phone services company, announced its intent to acquire a 67% stake in the Indian firm owned by Hutchison Telecom in a $11.1 billion deal on 11 February. By 15 March, it had won over the support of Essar, which holds 33% stake in Vodafone Essar.
The acquisition won regulatory approval in early May, by when the Arun Sarin-led Vodafone was clearly in charge. That month Vodafone added just more than 1.5 million subscribers, about 108,650 more than what Bharti Airtel added in the same 16 licensed areas (or circles) in which Vodafone Essar operates. Vodafone Essar is awaiting licences in other circles.
Vodafone has committed $2 billion in network expansion this financial year, nearly double the amount spent in fiscal 2007. “Hutch has not been the first mover; it has been a follower,” said a Mumbai-based telecom analyst, who did not wish to be identified. “Vodafone has brought more aggression compared to Hutch.”
Since May, Vodafone Essar has added more subscribers than Bharti Airtel in the common circles every month. The New Delhi-headquartered Bharti Airtel has been able to bring down the difference to 28,112 in August; Vodafone Essar added 1.68 million customers in August.
“(The) global expertise of Vodafone in managing telecom business has started reflecting in terms of subscriber growth post acquisition,” said Sumit Modi, an analyst with Emkay Share and Stock Brokers Ltd. “The (Indian unit) was lacking management focus before the acquisition by Vodafone.”
Vodafone Essar managing director Asim Ghosh declined comment.
“We should look at long-term trends in the telecom market to asses realities,” said Sanjay Gupta, chief marketing officer, mobile services, Bharti Airtel.
India, the fastest growing mobile phone market in the world by customers with about eight million additions a month, has around 200 million wireless phone subscribers; as a percentage of the country’s population, that is less than one-fifth.
“Given the supply driven nature of the market and aggressive coverage expansion plans of operators, we believe that (the) peak in net additions is yet to come,” Citigroup Global Markets Inc. analysts Rahul Singh, Gaurav Malhotra and Anand Ramachandran wrote in a recent research note.

Bulls have fun for 10 days

Bulls returned home triumphant for the 10th session in a row on Monday, with benchmark indices touching new highs. As the quarterly earnings season gets underway in a few days, the burden of expectations will be weighing heavily on companies that have seen a spectacular run-up in their stock prices. Market observers feel that current valuations are already factoring in the best possible performance.

In a volatile session, the Sensex slumped to an intra-day low of 17,144.58 and then went on to hit a record of 17,425.34. It finally closed at 17,328.62, a gain of 37.52 points. The 50-share Nifty hit a new peak of 5089.30 before closing at 5,068.95, up 47.60 points.

“Though the advance tax numbers are good, the market has already discounted them. We are advising our clients to remain invested, however, buying should be avoided at these levels,” says Arihant Capital Markets head-institutional business Anita Gandhi. She said European funds were heavy buyers in index stocks.

Dealers attributed the intra-day volatility mainly to fresh rumblings on the political front, which seem to indicate that a mid-term poll may not be too far off. While domestic funds continue to adopt a cautious stance and book profits at every opportunity, foreign funds remained aggressive buyers.

As per provisional data, overseas investors net bought Rs 1,721 crore worth of shares, while local mutual funds net sold Rs 930 crore worth of shares. While talk of expensive valuations are getting louder, some players feel it is inevitable given the strong liquidity in the system.

In its latest India strategy note, brokerage house Lehman Brothers has said: ”The declining global interest rate environment coupled with strong flows could mean that the market remains expensive. We believe that the important trends are slower global growth, a strengthening rupee, correction in interest rates on the downside and political uncertainty in the run-up to the elections.

We think capex spending by corporates and spending on infrastructure are likely to remain strong, at least for the next 2-3 years.” The immediate trigger for the market will be the third-quarter performance by key companies.

“Any upside from these levels will be contingent on the companies outperforming market expectations by a wide margin,” Sharekhan senior VP and head of research Sandeep Nanda said. He is expecting an average growth of 20% in companies that are part of the Sensex. He is of the view that sustained foreign fund flows and a cut in interest rates could deflect the attention from corporate performance in case they are below expectations.

Post Market Commentary

The market rallied at the end to close the session in a positive territory. The BSE Sensex grew by 37.52 points to close at 17,328.62 while Nifty grew by 47.6 points to close at 5,068.95. The benchmark indices i.e. BSE Sensex touched its lifetime high of 17,425.34 during the trading session. This boost was mainly on the back of heavy buying from the oil and gas as well as PSU scrips, which outperformed the Sensex to close higher. Overall, the market breadth was strong as 1637 stocks are closed in green while 1131 stocks are ended in green. Both the BSE mid cap and small cap closed higher by 106.21 points and 84.59 points at 7,528.64 and 9,184.52 respectively.
The oil and gas index closed the session on a firm note as it grew by 120.64 points to close at 9,682.59. Leading this pack are BPCL 4.79%, Essar oil 4.63%, GAIL 4.62%, IOCL 4.46% and RPL 3.81% that closed in green.
BSE health care index jumped by 52.94 points to close at 3,837.15 as Divis labs (10.12%), Novartis 4.60%, Biocon 3.52% and Matrix 2.14% closed higher.
The capital goods index increased marginally by 9.12 points to close at 14,688.95 as Suzlon energy 1.90%, Crompton greaves 4.18%, Lakshmi machine 4.06% and praj industries 1.50% closed higher.
BSE Metal index dropped by 45.62 points to close at 13,899.77. The main losers are NALCO (2.80%), Tata steel (1.10%), JSW Steel (1.27%), SAIL (0.63%).
BSE bankex index slipped by 73.48 points at 9,395.78 on the back of speculation that RBI may rise the CRR ration in the coming period. Leading the loss are SBI (2.93%), HDFC Bank (2.44%), AXIS Bank (1.82%) and Andhra Bank (0.72%)
BSE auto index closed down by 15.93 points at 5,316.33 as Hero Honda (1.56%), Punjab Tractors (0.87%) and Maruti Udyog (0.78%) are closed in red.
Bajaj Auto is ended lower by (2.19%) as the company has registered a sharp fall in its vehicle sales in the month of September by 23% to 2,32,496 units

Market Close: Consolidation??

A volatile start for the week as indices traded ranged after a green opening. Asian Indices traded in green. It was a sea-saw ride for the Indian indices as it juggled both the sides. Indices felt the pinch of profit booking as it slipped over 100 points at the mid session, later buying in index heavy weights helped to recover from lows. Sensex extended the gains and made fresh all time high before ending the with marginal gains. Profit taking was seen in Auto, Banking, Metals, FMCG and IT stocks. Cement, Power and PSU stocks cheered the day. Cement stocks rallied ahead of its monthly sales numbers.

Reliance Energy was the star performer for the day; it stood as the top gainer and ended up by 12%. Reliance Power a part of Anil Ambani group, where REL holds 50% stake will raise Rs 12000 cr through IPO. The money is used for various projects like Sasan project etc. As result of this all the energy stocks rallied for the day. Investors preferred to buy mid and small caps which outperformed the front line index. Asian markets closed in green, Europe trading in green.

Sensex closed up by 38 points at 17328.619. It was helped up by gains in Rel Energy (1349.4,+12 percent), NTPC (206,+6 percent), RCVL (611.9,+4 percent), ONGC (997.1,+4 percent) and Cipla (188.65,+3 percent). Restricting the gains are SBI (1893.5,-3 percent), HDFC Bk (1404,-2 percent), Bajaj Auto (2484.1001,-2 percent), BHEL (1990.05,-2 percent) and ITC (185.95,-2 percent).

We met with Ashco Industries over the weekend. The company has a 102 bed clinical research centre in Mumbai. The company is into transition from Medical Equipment trading business to Clinical research outsourcing. The company has about 120 core professionals ready for this work including 4 PHDs, 3 MBBS Postgraduates. They have the past experience in Phase I and clients include Pfizer, Cipla, Torrent etc. This is a small company having big plans. $ 80 bn worth drugs are expected to go off patent in the next 3 years. The existing companies are likely to increase efforts to create new IPRs and Ashco is well placed for that with its facilities. However, the hurdles are large before that can happen. It needs the necessary certifications for its facilities. Interesting company, but hurdles bit too many to deal with. Vimta is another in the same space we mentioned a couple of weeks ago. However, a space which certainly as the prospects, but still need to find one with scale and size to make it big.

State Bank of India (SBI) informed that it may cut interest rates on new housing loans in the forthcoming festival season and might cut home loan rates to existing customers. The move is on back of hope that RBI may bring down interest rates in its upcoming policy review. RBI is schedule to announce its half yearly credit policy review on October 30th and all the major players in the housing loan segment are waiting for the Central bank's decision on interest rates. SBI is currently offering home loans at 12.75% on fixed interest rate while the floating interest rate ranges between 10.75-11.25% depending on tenure. ICICI bank and HDFC have also cut interest rates on loans booked till October. IDBI also reduced the fixed interest rates on home loans by almost 1% with effect from September 1st. However, there is some market speculation that RBI may raise CRR rates in near future. As result of this banking stock traded mixed.

Technically Speaking: It was a sea saw session for the whole day before closing. Sensex touched intraday high of 17425 and low of 17145. Overall breadth was in favor of Advances, where the Advances stood at 1601, while Declines at 1145. The turnover was good at Rs 7197 cr. Sensex rallying with a lot of mid caps. The trend is up and likely to see more mid caps and small caps moving up. The market is a clear buy on dips for mid caps and small caps.

DLF to develop New Bangalore

The Karnataka government today awarded the 9,187-acre Bidadi Knowledge City, which will be positioned as New Bangalore, to the country’s largest realty firm DLF Ltd.

This project is three times the size of DLF City, the realty firm’s flagship integrated township in Gurgaon.

The project will entail an investment of over Rs 60,000 crore and will be developed in a 50:50 joint venture with the Dubai-headquartered Limitless Holdings, a sister company of Nakheel and a part of the diversified Dubai World group.

DLF and Nakheel already have a 50:50 joint venture for developing two townships of 20,000 acres each at Gurgaon and south Maharashtra at an initial investment of Rs 40,000 crore.

DLF will be sponsoring a $1-1.5 billion fund to finance the three townships it is developing with Nakheel. The company will sell a part of its equity in the townships to the fund.

The township will be based on the ‘walk-to-work’ ideology. It will comprise high-quality office space, residential developments, shopping malls, multiplexes, hotels and service apartments. Of the entire area of 9,178 acres, 6,000 acres can be developed by the realty firm.

The Knowledge City is located around 30 km from Bangalore and 15 km from Mysore, between NH-209 and Bangalore-Mysore Expressway, and will look to supplement the existing urban infrastructure of Bangalore.

The project is conveniently located on the Bangalore-Mysore railway line and has an additional advantage of being on the Southern Freight Corridor.

In addition to that, New Bangalore is approximately 30 km from the existing international airport and 60 km from the upcoming Bangalore International Airport, to which to which it will be connected by an expressway.

The city will also have a dedicated Metro Rail connectivity to Bangalore. DLF, however, is also planning to develop airports and metro stations within the township.

The project was awarded to DLF, following a global tender issued by the Bangalore Metropolitan Regional Development Authority (BMRDA).

In all, 32 consortiums, formed by over 100 companies, had filed for the request for qualification (RFQ). DLF, however, had emerged as the sole bidder.

Nifty futures at discount

Turnover rises

The Nifty October 2007 futures were at 5062.95, at a discount of 6 points as compared to spot closing of 5068.95.

The NSE F&O turnover was Rs 61,451.29 crore, higher than Rs 56,998.5 crore on 28 September 2007.

Reliance Capital October 2007 futures settled at premium, at 1809, compared to the spot closing of Rs 1808.15.

Reliance Petroleum (RPL) October 2007 futures settled at premium, at 160.20, compared to the spot closing of Rs 159.40.

Tata Steel October 2007 futures settled at discount, at 830.95, compared to the spot closing of Rs 841.50.

In the cash market, the S&P CNX Nifty rose 47.6 points or 0.95% at 5068.95 an all time closing high. It struck an all time high of 5,089.30 in intra-day trade.

US Market at record high

Market takes bad news from finance sector in good spirit and indices rally

It was once again a day for record high at US Market. Traders took bad news in terms of profit earning from two top companies in good spirit and indices rallied today, Monday, 01 October, 2007. The Dow Jones industrial Average crossed the 14,000 mark for the first time since July 2007 and reached a new all-time high. Nine of the ten S&P 500 sectors finished the day in the green.

The Dow Jones industrial Average closed higher by 191 points at 14,087. The Nasdaq Composite Index, finished higher by 39 points at 2,741. S&P 500 finished higher by 20 points at 1,547.

All but two out of thirty Dow stocks ended in green today. Mc Donalds, Citigroup, American Express, Boeing and IBM were the top Dow winners. General Motors remained one of the two Dow laggards and shares slid 1.8%.

Today, Citigroup warned that its third quarter earnings would fall approximately 60% from a year ago due to the credit turmoil. But the company did say it expected fourth quarter earnings to be back to normal.

On the other side, the CEO of UBS, reportedly said in an interview that the company expects to take a $3.4 billion write-down and a third quarter loss due to credit market woes.

ISM Index for September comes below expectations

When market opened in the morning, stocks rallied right out of the gate.

The Institute of Supply Management (ISM) index on national manufacturing conditions was a bit below expectations at for September. The ISM Index, which is a gauge of national manufacturing activity, dipped to 52.0 for September from 52.9 in August. The data were slightly lower than the consensus estimate of 52.5. The reading shows manufacturing are expanding, as a number above 50 reflects growth.

The fact that market reacted positively to news from Citigroup and UBS gives a sense that investors are aware of the fact that the worries regarding the financial mess are already priced in the market.

Among Indian ADRs, all closed in the green except for Rediff.com and Patni whose shares closed slightly lower. VSNL was the top gainer closing up by 11.8%. MTNL and WNS Holding followed with gains for 5.9% and 5.8% respectively. On the finance sector, HDFC Bank and ICICI Bank closed up by 1.7% and 3.5% respectively.

Crude prices back at $80

Crude oil futures, gasoline futures and heating oil – all dropped today. The main reason behind slipping crude prices was profit taking. Prices also slipped on speculation that demand from refineries will decline as they earn less from selling fuels.

Crude-oil futures for light sweet crude for November delivery closed at $80.24/barrel (lower by $1.42/barrel or 1.74%) on the New York Mercantile Exchange. Prices are up 28% from a year earlier.

Volume on the New York Stock Exchange topped 1.4 billion shares, and advancing stocks outran decliners by more than 3 to 1. On the Nasdaq, 1.9 billion shares exchanged hands, with advancers outpacing decliners by more than 2 to 1.

For tomorrow, investors will once again look for economic data to help set the tone of trading. The August Pending Home Sales report is released at 10:00 ET. Also garnering attention will be Auto/Truck Sales for September, which is expected to hit the wires at 17:00 ET.