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Monday, October 15, 2007
Nifty futures at premium
Nifty October 2007 futures were at 5,704.90, at a premium of 34.50 points as compared to spot closing of 5,670.40.
The NSE futures & options (F&O) segment turnover was Rs 76,830.02 crore, which was lower than Rs 90,419.66 crore on Friday, 12 October 2007.
Reliance Industries October 2007 futures were at premium, at 2,690, compared to the spot closing of Rs 2,666.35.
Tata Steel October 2007 futures were at premium, at 916, compared to the spot closing of Rs 912.
Punj Lloyd October 2007 futures were at discount, at 390.55, compared to the spot closing of Rs 393.
In the cash market, the S&P CNX Nifty surged 242.15 points or 4.46% at 5,670.40. Nifty recorded an all-time high of 5,682.65 today.
Consolidated Construction - Bulk Deals
15-OCT-2007,CCCL,Consolidated Construction,LEHMAN BROTHERS ASIA LTD,BUY,200000,764.65,-
5/10/2007 532902 CONSOL CONST LEHMAN BROTHERS ASIA LTD AC GRA FINANCE CORPORATION LTD B 200000 765.12
15/10/2007 532902 CONSOL CONST SWISS FINANCE CORPORATION MAURITIUS LTD B 270000 771.00
15/10/2007 532902 CONSOL CONST FRANKLIN TEMLETON MUTUAL FUND AC FRNAKLIN INDIA HIGH G CO FUND B 389840 791.94
15/10/2007 532902 CONSOL CONST TEMPLETON MUTUAL FUND AC FLEXI CAP FUND B 389840 791.94
15/10/2007 532902 CONSOL CONST GMOEMERGINGILLIQUID MAURITIUSFUND B 255324 770.00
Looks good to hold, Any other opinions - Leave us a comment!
Overseas Jewellery coming to India
Overseas jewellery and diamond manufacturers, hit by slow sales in traditional bases, are now eyeing Indian buyers as the country becomes a major consumer driven by rising income and demand, industry players said.
From providing training and certification to the diamond polishing industry a decade ago, gem and jewellery firms from Asia, Europe and the U.S. are test-marketing products through local retailers, trade events and actively seeking tie-ups.
“It’s tough but there are a lot of rewards awaiting those who are willing to invest time, energy and money,” said Mordy Rapaport of diamond services group Rapaport, whose presence spans New York, Antwerp, Dubai and Hong Kong.
“Now everyone is realising there is lot of actual consumption especially as America is getting pretty full,” he said.
EMERGING MARKET
In 2005, the U.S. was the world’s largest jewellery market, accounting for almost a third of world jewellery sales. However, accelerating economic growth and rising income levels in India and China could translate into higher spend on jewellery, bring the two on par with the U.S., a KPMG-Gem and Jewellery Export Promotion Council report said.
“There is opportunity for large retail houses,” said Kenneth Gassman, founder president of U.S.-based Jewellery Industry Research Institute, referring to the potential market in bigger cities such as New Delhi, Mumbai and Bangalore.
India’s appreciating rupee is also attracting U.S. firms to India, he added. The Indian rupee has risen more than 12% in 2007, the strongest among emerging market currencies.
Though foreign players say they are hampered by undocumented cash deals, lack of proper infrastructure for luxury retail and restrictions on foreign brand retailing, they feel there is a niche for their products and services.
NEW ARRIVALS
Among the arrivals is Belgium’s Mishal Manufacturing NV. The diamond firm, which has a manufacturing unit in China, began test-marketing its diamonds in south India a year ago.
Hong Kong’s Kinetic Artwork, which sells to retailers in South East Asia, is also in India. “I see the time is right to enter as tariffs have come down... people have disposable income to spend on luxury,” says Kinetic head Prakash Sadarangani.
Also marking their presence are retailers such as Italy’s Bulgari
“We need new markets like India, Russia and China...Indians have the money,” said another Italian retailer who was in the city recently for a trade event. Diamond certifiers, who initially set up shop in India to service the large manufacturing base, are also expanding. India polishes more than half the world’s diamonds.
International Gemological Institute, which has been in the country for a decade, has 11 certification labs servicing over 65 retailers and other traders. Of its 500-plus gemologists, over a third are in India, said chief executive officer Roland Lorie.
“India’s position as a manufacturing hub has changed. Now, India is manufacturing, trading and retail,” he said. “I’m really bullish on India. This is where we need to be,” Gassman said.
20000 soon?
Market analysts have predicted the benchmark index Sensex will cross the 20,000-milestone in another record breaking 1000-point journey on the bourse, fuelled by liquidity in the market.
"For crossing the 20,000-mark, the journey of another 1000-points would not matter much as the market is going ahead on a furious pace and is unpredictable ...maybe it could take just 2-3 days," Asika Stock Brokers' Paras Bodhra said.
The benchmark index Sensex today scaled the 19,000-mark in a record of four trading sessions on frantic buying in a number of front-line stocks.
The 30-share index registered a whopping gain of 676 points to touch an intra-day high of 19,095.75 before closing at Rs 19,058.67, up 639.63 points today.
"With the markets going forward so fast...20,000 can happen in two days. But the pace is really worrisome and investors should be really cautious," Arun Kejriwal of Kejriwal Research and Information Services (KRIS) said.
Premium Investments' S P Tulsian believes the milestone represents the strong appetite for Indian stocks and it is a liquidity-led rally.
FIIs are going strong with their investments in the Indian markets and 20,000 could be achieved by the month-end, he said.
Analysts have advised retail investors to remain cautious and invest carefully to gain from the soaring markets.
Market Close: Phenomenal 19K conquered..What?s next?
It was a fantastic run-up for the market today. A good come back from the Friday's low. Asia traded mixed but Indian market traded by itself and continued to hit life time high 19096 level during the closing trades. Easing of political worries and improved Index of Industrial Production (IIP) figures for August 2007 supported the bourses for northward journey. Indices traded further into the green as heavy buying activity intensified during the final hour of trades. Huge monetary in flows and abundant liquidity continue to take markets at new peaks. Heavyweights have notched up further; metals were the top gainers for the day. Smallcap and Midcap indices ended up by 2.5% each. Value buying was seen in stock like Power and Energy while selected Oil & Auto stocks were out of favor for the day. This was the first time markets ended above 19K mark. Asian markets ended in green while European market trading in mix.
Sensex took 4 days to hit 19000 marks. This rally is considered as the fastest ever 1,000 Point rally for market. Main contributors for 1000 points were RIL -153 Pts, ICICI Bank -120 Pts, ONGC -119 Pts, L&T -108 Pts, Bharti Airtel -96 Pts. Top 5 stocks contributed 60% of the rally from 18K to 19K.
Sensex ended up by 640 points at 19058.67. It was helped up by gains in Rel Energy (1847.35,+13 percent), ONGC (1191,+9 percent), TISCO (911.4,+7 percent), Maruti (1160.35,+6 percent) and Hindalco (188.85,+6 percent). Restricting the gains were HLL (219.2,-1 percent), Infosys (1928.75,0 percent).
Chennai-based Consolidated Construction Consortium Ltd made an impressive debut on the bourses at Rs 801 with a premium of 57 % against issue price of Rs 510. CCCL is an ISO-certified company. It has a pan-India presence and is engaged in construction, engineering, procurement and project management. The Initial Public Offer (IPO) of CCCL received tremendous response from investors with the issue getting subscribed over 80 times. CCCL had entered the capital market with an IPO of 3.7mn shares at a price band of Rs 460-510 per share. The company has raised Rs 188.70 crore from the issue at price of Rs 510 per share, at the higher end of price band. The company plans to use the proceeds to finance acquisition of construction infrastructure, for investment in subsidiaries, skill and management development center, repayment of loans and general corporate purposes. The realty sector is currently one of the prefers stock looking at the infrastructure growth coming in India. CCCL traded up by 50% and ended up by 57%. We have a report on the company please go through the detailed note in our site.
Solar explosives had good results. The worst seems to be behind this one. The numbers were exceptional even though this is the weak season. Usually production during first two quarters is slow as construction and mining activities are restricted during the monsoon season. On a consolidated basis, the company posted revenue of Rs.64 crs against Rs 35 cr in the same quarter last year with a growth of 80%. The Ebidta margins had fantastic jump from 11% last year to 21% this year. The business is good with strong barriers to entry and Solar has the edge with its high market share and explosive experts. The stock trades at Rs 235 which is a valuation of 21 times trailing earnings for FY 07. A P/E of 17 for FY 08 on a conservative seems expensive.. but we believe earnings in 2009 and 2010 will explode as private sector gets going on its mining activities. 60% of revenues come from coal India and now this is the post consolidation phase for the Industry.
Technically Speaking: Markets traded well on the back of strong positive breadth. Sensex touched intraday high of 19096 and low of 18526. Over all market turnover was fantastic for the day at Rs 9943 Cr. Market breadth was in favor of Advances, where the Decliners stood at 880, Advances were stood at 1868. Sensex medium term support lies at 18300. Traders are advised to trade long and maintain stoploss of 18500 for tomorrows intraday.
ITC launches soaps, shower gels
India's top cigarette maker, ITC Ltd, said on Monday it had launched soaps and shower gels to a growing portfolio of personal care goods that analysts say is aimed at taking on big consumer goods makers.
ITC, which is also extending its range of packaged foods, has launched Fiama Di Wills premium shower gels following the launch of shampoos, and the Superia range of natural soaps and shampoos.
Hindustan Unilever Ltd has a dominant share of the soaps and shampoo market, with brands including Lux and Sunsilk.
Procter & Gamble India, Godrej Consumer Products, Dabur India and some regional firms also compete in a market that is growing quickly on the back of rising incomes and the expansion of modern retail.
ITC, in which British American Tobacco Plc has 31.7 percent, also has interests in hotels, retail and information technology, and is expected to also launch home care products.
Consolidated Construction Consortium ends at 55% premium
At Rs 791.45 on BSE
Consolidated Construction Consortium settled at Rs 791.45 on BSE, a premium of 55.18% against the IPO price of Rs 510.
The stock debuted at Rs 801, a premium of 57.05% against the IPO price. It touched a high of Rs 825.25 and a low of Rs 736.20.
On BSE, 58.28 lakh shares of the scrip were traded.
At the current price of Rs 791.45, the PE multiple works out to 61.35, based on the year ended March 2007 EPS of Rs 12.9.
The company had set Rs 460-510 per share price band for IPO.
The IPO had received total bids for 30.03 crore shares as against total IPO size of 37 lakh shares. The qualified institutional buyers (QIBs) category was subscribed 118 times. The non-institutional investors category was subscribed 68 times. The retail investors category was subscribed 13 times.
The company intends to use the proceeds to finance investment in subsidiaries, expenditures towards its skill and management development centre, and repayment of loans.
Consolidated Construction’s order book stood at over Rs 2,000 crore as on 31 July 2007. For year ended March 2007, it reported net profit of Rs 47.68 crore on sales of Rs 863.34 crore.
The company undertakes turnkey building contracts for corporate, infrastructure and realty players. It has clients in sectors such as IT, manufacturing, retailing and education.
Consolidated Construction Consortium had reported a profit after tax of Rs 47.68 crore on sales of Rs 863.34 crore in the year ended March 2007.
Post Market Commentary
The market closed the trading session on a strong positive note as BSE Sensex closed with handsome gains of 639.63 points to close at 19,058.67 while Nifty grew by 242.12 points to close at 5670.40. The Sensex touched the psychological mark of 19,095.75, which is its intraday high. The Sensex covers the journey of 18000-19000 in straight four trading session which is the fastest ever 1000 point rally. The market opened on a strong note and kept on moving northward directions throughout the trading session. This rally was backed by positive domestic cues like easing down of political concerns over the early election as PM hinted that the government will continue its full term as well as the good industrial production figures and easing down of inflation. The metal index remained in the limelight by making a one day gain of 1358 points on the expectations of good quarterly results for the month of September. Almost all the sectoral indices closed in green. Overall, the market breadth was weak as 1,899 stocks closed higher while 875 stocks closed lower. The BSE Mid Cap and Small Cap closed up by 187.37 points and 213.32 points at 7,716.91 and 9,311.97 respectively.
BSE Metal index closed with handsome gains of 1358.74 points at 16,200. Leading the rally are SAIL (15.41%),Sterlite (14.37%), Sesa Goa (13.16%), JSW steel (12.06%), Tata Steel (7.46%) and Nalco (5.03%) closed in green.
The capital goods index surged by 505.01 points to close at 17,119.70. Pushing it up are Punj Lloyd (11.15%), Seimens (7.94%), ABB (3.75%), Suzlon energy (3.72%) and BHEL (3.05%) closed in green.
BSE bankex index closed higher by 396.02 points at 9,706.81 as Axis bank (9.45%), Yes bank (6.13%), SBI (5.08%), ICICI bank (4.15%), HDFC bank (4.17%) and PNB (2.72%) closed in positive.
The Oil and Gas index closed with healthy gain of 476.86 points at 11,052.81 as ONGC (9.11%), GAIL India (8.65%), RPL (4.38%), Reliance industries (3.79%) and Cairn India (3.55%) closed higher.
Sensex moves past 19,000 as blue chips soar
The market witnessed another spectacular bull run today, with the Sensex hitting 19,000 milestone in late trade. Metal stocks hogged the limelight. The market had consolidated throughout the day after an initial surge. Easing of political worries and improved Index of Industrial Production (IIP) figures for August 2007 boosted the bourses today. Besides metal shares, banking and capital goods stocks were in demand. Reliance Energy spurted. All the BSE sectoral indices rose today. Asian markets were in green. European markets were mixed. Market breadth was strong.
The BSE 30-share Sensex provisionally ended up 665.28 points, or 3.61%, to 19,084.32. Sensex surged past 19,000 mark in late trade. It hit an all time high of 19,095.75 in late trade.
Sensex completed the journey of 18000-19000 mark in just four trading sessions. It had first hit 18,000 mark on 9 October 2007.
The broader based S&P CNX Nifty was up 251 points, or 4.62%, to 5,679.25. It hit a fresh all-time high of 5,682.65 in late trade.
Of the 30 shares of the Sensex, 27 had moved up, while the remaining were trading down. The market breadth was strong on BSE: 1,858 scrips advanced, 883 declined, while 359 remained unchanged.
BSE Mid Cap index gained 2.56% to 7,722 and BSE Small Cap index rose 2.38% to 9,314.87.
BSE clocked a turnover of Rs 9943 crore, compared to Friday (12 October 2007)'s Rs 9,602.57 crore.
Emerging markets-dedicated equity funds posted strong inflow for yet another week. For the third consecutive week, emerging markets equity funds recorded inflow in excess of $5 billion at $5.1 billion, in the week ended 10 October 2007. Funds dedicated to emerging Asia had the most inflows in the seven-day period, or $2.13 billion.
India's industrial output in August 2007 rose 10.7% from a year earlier, higher than upwardly revised annual growth of 7.5% in July 2007 due to mining, manufacturing and electricity production, data released by the government showed on Friday, 12 October 2007.
Elections are still far away and the government has one-and-a-half years to complete, Prime Minister Manmohan Singh said on Friday, 12 October 2007. The prime minister said if the India-United States civil nuclear deal does not come through, it will be a disappointment. He said the government was trying to reconcile the divergent points of view on the issue within the ruling coalition. Dr. Singh said it is his hope that on the nuclear deal, common sense will ultimately prevail.
He said it is his hope and expectation that the government will stay the course and noted there is a lot of unfinished agenda left to be completed. Left front which is supporting the government from outside has been against operationalisation of the nuclear deal with the US, which had caused a rift between the government and the Left front.
Metal stocks hogged the limelight as BSE metal index surged more than 9%. Hindalco Industries rose 5.11% to Rs 188.05 and Tata Steel rose 8.02% to Rs 916. Tata Steel hit 52 week-high of Rs 918.90 today. Sterlite Industries rose 14.22% to Rs 930. It hit an all-time high of Rs 964.50 today. Steel Authority of India (Sail) rose 15.57% to Rs 259.10. It hit an all-time high of Rs 267.40 today.
Reliance Energy surged 14.22% to Rs 1,869. It hit an all-time high of Rs 1,886 today and was the top gainer from Sensex pack.
ONGC rose 9.58% to Rs 1,196.20. It hit all-time high of Rs 1,200 today.
Bharti Airtel rose 6.51% to Rs 1,138.90.
State Bank of India rose 5.08% to Rs 1,956.95. It hit an all-time high of Rs 1,975.70 today.
Maruti Suzuki India surged. The stock rose 5.03% to Rs 1,152. It hit an all-time high of Rs 1,174.70 today.
Capital goods stocks also gained. Larsen & Toubro (up 1.61% to Rs 3,415), Bharat Heavy Electricals (up 2.97% to Rs 2,422) and Suzlon Energy (up 3.88% to Rs 1,763.95) edged higher.
NTPC surged 4.25% to Rs 226.75 after it signed a memorandum of understanding (MoU) with the state government of Bihar and the Bihar State Electricity Board (BSEB) to promote a joint venture company for establishing and operating a 3x660 mega watt coal-based thermal power project at Nabinagar in Aurangabad district of Bihar.
India’s largest private company in terms of market capitalization and oil refiner Reliance Industries (RIL) rose 4.08% to Rs 2,671.50.
The Bombay High Court in its operative judgment today asked Mukesh Ambani-promoted Reliance Industries (RIL) and Reliance Natural Gas Resource (RNRL), controlled by Mukesh's younger brother Anil Ambani, to renegotiate the dispute on the gas allocation from the Krishna-Godavari Basin.
The court has asked the companies to hold the negotiations as per the MoU (Memorandum of Understanding) signed by the two brothers before. It said that the existing "gas supply master agreement" (GSMA) between RIL and RNRL is one-sided and favours Mukesh's RIL. The companies have to come back to the court in four months time with a report on the renegotiations.
Meanwhile, the court has also restrained RIL from selling gas during the interim period of four months. The high court, in its order on 20 June 2007, had prevented RIL from creating any third party interest in its gas from the D6 block in the Krishna-Godavari basin as the peak production of 80 mcmd of gas is locked up with NTPC, RNRL and for RIL's captive use.
Hindustan Unilever (down 0.81% to Rs 219.60), Ranbaxy Laboratories (down 0.21% to Rs 429) and Infosys (down 0.02% to Rs 1,930) edged lower.
Side counters, Punjab Communications (up 20% to Rs 40.15), Sharyans Resources (up 20% to Rs 337.85), Dhandapani Finance (up 20% to Rs 49.80), Shri Dinesh Mills (up 20% to Rs 1,498.90) edged higher.
Ultramarine & Pigments (down 10.3% to Rs 38.30), and Nicco Parks & Resorts (down 9.54% to Rs 74) and Jeypore Sugar (down 9.22% to Rs 207.30) edged lower.
European markets which opened after Indian markets were trading mixed. France’s CAC 40 (up 0.33% to 5,863.29) and UK’s FTSE 100 (up 0.26% to 6,748.20) edged higher. Germany’s DAX (down 0.07% to 8,034.87) edged lower.
Most of the Asian markets were trading higher today, 15 October 2007. Japan's Nikkei (up 0.16% at 17,358.15), Hang Seng (up 2.44% at 29,540.78), Singapore's Straits Times (up 0.12% at 3,862.02) and South Korea's Seoul Composite (up 0.44% at 2,035.39) edged higher.
US markets ended higher with moderate gains on Friday, 12 October 2007, as technology stocks advanced on takeover news and economic data gave indication that the economy looks healthy.
Dow Jones Industrial Average gained 77.96 points, or 0.56% at 14093.08. The Nasdaq composite index advanced 33.48 points, or 1.21% at 2805.68. The Standard and Poor's 500 Index surged 7.39 points or 0.48% to close at 1,561.80.
Crude oil prices were little changed on Monday, 15 October 2007 hovering within sight of last week's record high of $84.05 a barrel as mounting tension between Turkey and Iraq added to a rally fuelled by winter supply worries and dollar weakness. US light, sweet crude for November delivery fell 12 cents to $83.57 a barrel. London Brent crude fell 34 cents to $80.21 a barrel.
As per provisional data, foreign institutional investors (FIIs) purchased shares worth a net Rs 315.36 crore, while domestic institutional investors (DIIs) were net sellers of shares worth Rs 883.68 crore on Friday, 12 October 2007.
India's wholesale price index rose 3.26% in the 12 months to 29 September 2007, lower than the previous week's 3.42% rise, government data showed on Friday, 12 October 2007.
Sensex 19k in just five sessions
The benchmark Sensex zoomed around 600 points at noon to touch the 19000 mark on revival of buying in metal, refinery and banking stocks. The Sensex, which lost nearly 395 points on Friday, resumed its record-setting journey despite mixed global cues and gained 677 points to touch the all-time high of 19096 as most of the metal stocks led by Tata Steel rose smartly. Today the market rallied on the government's plans to serve its full term, helping the Sensex to hit the 17th record high in 18 sessions. The Sensex finally ended the session with gains of 3.47% and was up 639 points at 19059. The Nifty advanced 4.46% and was up 242 points at 5670.
The market breadth was highly positive, with the gainers outpacing the losers in the ratio of 2.15:1 on the BSE. Of the 2,838 stocks traded on the BSE, 1,899 stocks advanced, 875 stocks declined and 64 stocks ended unchanged. All the sectoral indices notched up significant gains. The BSE Metal Index was the biggest gainer and soared 9.16% followed by the BSE PSU Index (up 5.57%), the BSE Oil & Gas Index (up 4.51%) and the BSE Bankex (up 4.25%).
Except HLL and Infosys all the stocks in the Sensex basket ended at higher levels. Reliance Energy led the upsurge and flared by 12.90% at Rs1,847. Among the other major gainers, ONGC surged 9.11% at Rs1,191, Tata Steel moved up by 7.46% at Rs911, Maruti Udyog advanced 5.79% at Rs1,160, Hindalco vaulted 5.56% at Rs189, Bharti Airtel shot up by 5.38% at Rs1,127, SBI added 5.08% at Rs1,957 and Reliance Communication rose 4.87% at Rs753.
Metal stocks were the star attraction during the day and rallied sharply. Sail surged 15.41% to close at Rs259, Sterlite Industries soared 14.37% at Rs931, Sesa Goa jumped 13.16% at Rs3,318, JSW Steel added 12.05% at Rs991 and Bhushan Steel gained 8.26% at Rs1,073.
Over 2.96 crore Reliance Natural Resources shares changed hands on the BSE followed by Jai Corp (2.19 crore shares), Tata Teleservices (1.57 crore shares), Reliance Petroleum (1.32 crore shares) and Ispat Industries (1.30 crore shares).
Jai Corp was the most actively traded counter on the BSE and registered a turnover of Rs2,275 crore followed by Reliance Energy (Rs484 crore), Consol Construction (Rs452 crore), Reliance Industries (Rs369 crore) and Reliance Natural Resources (Rs285 crore).
Pre Open Market Commentary
Indian market is likely to have a positive opening as the US market closed in green. On Friday, the Indian markets closed in a negative territory as the BSE Sensex closed lower by 395.03 points at 18,419.04 while Nifty slipped by 96.6 points to close at 5,428.25. We expect that volatility will sustain in the market and investors may book profits at higher levels.
Friday, the US markets closed in a positive territory. The Dow Jones Industrial Average (DJIA) grew 77.96 points to close at 14,093.08. The S&P 500 (SPX) index increased by 7.39 points to close at 1,561.80 while the NASDAQ Composite (RIXF) advanced 33.48 points to close at 2,805.68.
Indian ADRs ended in mixed. In technology sector, Patni computers grew by (3.32%) along with Wipro by (2.79%) and Satyam by (0.30%) while Infosys fell (0.17%). In banking sector, HDFC bank and ICICI bank advanced by (6.81%) and (0.49%) respectively. MTNL and VSNL grew by (2.55%) and (1.15%) respectively. In auto sector, Tata Motors slipped by (0.58%).
The major stock markets in Asia are trading mixed. Japan''s Nikkei advanced by 43.72 points to trade at 17,374.89. Hang Seng Index grew by 12.53 points to trade at 28,850.90. Singapore''s Straits Times index increased by 9.43 points to trade at 3,866.68. Seoul Composite trading lower by 10.87 points to trade at 2,015.57.
Yesterday, FIIs stood at the net buyer as the gross equity purchased was Rs.6,301.70 (in crores), and the gross debt purchased was Rs 984.20 (in crores) as against the gross equity sold was Rs5,310.70 (in crores) and the gross debt sold was Rs34.30 (in crores). The net investment of equity was Rs991 (in crores) and the net debt investment was Rs949.90 (in crores).
Today, Nifty has support at 5,341 and resistance at 5,495 and BSE Sensex has support at 18,129 and resistance at 18,615.
Market to consolidate at higher level
The market is expected to consolidate at higher levels after a sharp recent rally. The 30-share BSE Sensex jumped 645. 68 points or 3.63% to 18,419.04, while the S&P CNX Nifty gained 242.40 points or 4.6% to 5428.25 in the week ended Friday, 12 October 2007.
Asian markets were trading lower today, 15 October 2007. Japan's Nikkei (down 0.10% at 17,313.70), Hang Seng (down 0.08% at 28,814.90), Singapore's Straits Times (down 0.03% at 3,856.15), and South Korea's Seoul Composite (down 0.54% at 2,015.57) edged lower.
US markets ended higher with moderate gains on Friday, 12 October 2007, as technology stocks advanced on takeover news and economic data gave indication that the economy looks healthy.
Dow Jones Industrial Average gained 77.96 points, or 0.56% at 14093.08. The Nasdaq composite index advanced 33.48 points, or 1.21% at 2805.68. The Standard and Poor's 500 Index surged 7.39 points or 0.48% to close at 1,561.80.
Crude oil prices were little changed on Monday, 15 October 2007 hovering within sight of last week's record high of $84.05 a barrel as mounting tension between Turkey and Iraq added to a rally fuelled by winter supply worries and dollar weakness. US light, sweet crude for November delivery fell 12 cents to $83.57 a barrel. London Brent crude fell 34 cents to $80.21 a barrel.
As per provisional data, foreign institutional investors (FIIs) purchased shares worth a net Rs 315.36 crore, while domestic institutional investors (DIIs) were net sellers of shares worth Rs 883.68 crore on Friday, 12 October 2007.
India's wholesale price index rose 3.26% in the 12 months to 29 September 2007, lower than the previous week's 3.42% rise, government data showed on Friday, 12 October 2007. India's industrial output in August rose 10.7% from a year earlier, higher than upwardly revised annual growth of 7.5% in July due to mining, manufacturing and electricity production, data showed on Friday, 12 October 2007
Morning Call
Market Grape Wine :
In House :
Nifty at a supp of 5400, 5343 and 5210 with resis at 5525 and 5543
Range bound move expected.
Intra day: Buy Amarrajabatt above 161.50 with a TGT of 173 and a SL of 156
Buy Relcapital above 1818 with a SL of 1793
F&O: Buy GESHIP above 396 with a TGT of 410 and a SL of 390
Sell Bank baroda below 311 with a TGT of 297 and a SL of 316
Out House :
Markets at a support of 18220 & 18018 levels with resistance at 18675 & 18786 levels .
Buy : RIL
Buy : REL
Buy : Tisco &Sail bullet
Buy : RComm & RNRL
Buy : JpAsso
Buy : Ibullsreal & IBUlls
Buy : Centextile
Buy : Maruti & M&M
Buy : Skumar & Aban
Dark Horse : ABAN , SKumar , REL , Colgate , RIL , Jp , Maruti & SBIN
Bullet for the Day : JpAsso , REL & RNRL with stop loss .
Grey Market - Maytas, Supreme Infra, Saamya Biotech
Dhanus Tech 295 90 to 95
Consolidated Construction 510 300 to 310
Supreme Infra 108 75 to 80
Saamya Biotech 10 11 to 12
MAYTAS Infra 370 150 to 155
Circuit Systems (India) Ltd. 35 5 to 6
Reliance Power - 45
Market may open low
The market is likely to open on a negative note tracking weak Asian markets and may exhibit some volatile moves in later part of the day. Lack of clarity and FIIs remaining net sellers in equities may also hold investors from taking fresh positions. Axis Bank, IFCI, Indian Bank, Jaiprakash Associates, Petronet LNG, TCS, UCO Bank and Welspun Gujarat are expected to announced their quarterly numbers.
In the US markets, the broader Dow Jones scaled up on Friday by 78 points at 14093 on a potential merger in the software industry, while the tech-heavy Nasdaq gained by seven points to close at 2806.
Crude oil prices in the international market moved up, with the Nymex light crude oil for November series gaining by 61 cents to close at $83.69 a barrel. In the commodity segment, the Comex gold for December delivery slipped by $2.90 to settle at $753.80 a troy ounce.
Crude finishes week 3% higher
Prices soar and touch $84 mark during the week on Energy Department report
Crude-oil future prices for sweet light crude for November delivery which had ended at $81.22/bbl last week (05 October) finished $2.47 (3%) higher this week (12 October) at $83.69/bbl. Prices continued to stay above the $80/bbl mark throughout the whole week. Prices increased after Energy Department report showed unexpected drawdown in oil inventories.
As per this week’s inventory report by the Energy Dept, stockpiles fell 1.67 million barrels in the week ended 5 October. At 320.1 million barrels, U.S. crude-oil inventories are still above the upper end of the average range for this time of year. Refinery activity rose to 87.8% from 87.5% the previous week.
The data also showed motor gasoline inventories rose by 1.7 million barrels last week. Distillate fuel supplies (which include heating oil) fell by a larger-than-expected 600,000 barrels.
OPEC has said previously that a falling dollar justified higher prices because oil- producing countries sell crude oil in dollars and often buy goods in euros.
OPEC has planned to boost daily oil production by 500,000 barrels. OPEC's production target is 27.2 million barrels a day, beginning 1 Nov. OPEC, has decided to raise their daily output by 500,000 barrels per day, starting 1 November.
US Market manages to post gains
With Oracle fuelling Friday’s rally, indices close higher for the week
US Market posted decent gains for the week ended Friday, 12th October, 2007. But it was mainly Friday’s, 12 October’s, 2007 gains that helped the market close higher for the week. The most important event for the week was the release of the minutes of Federal Reserve’s 18 September meeting details on Tuesday, 9 October. Earnings season started with Alcoa declaring the first earnings report of the season.
Among major stories of the week, Google crossed the $600 mark for the first time and touched an closed at all time high of $ 637 on Friday. Boeing announced that it is delaying the delivery of its Dreamliner models and said that the delay might be beyond six months. Boeing shares did take a toll on the Dow Jones Industrial Average for a couple of days during the week.
Nevertheless, The Dow Jones Industrial Average gained 27.07 points for the week. Tech - heavy Nasdaq gained 25.37 points and S&P 500 gained 4.21 point.
The gain for the week mainly came due to Friday’s (12 October) gains. The indices rallied that day mainly based on the news that Oracle made a $6.7 billion all-cash offer to acquire BEA Systems. With this news, the tech sector resumed its leadership position and carried the broader market higher along with the materials and energy sectors. Dow, Nasdaq and S&P 500 gained 78, 34 and 8 points respectively.
The minutes of the 18 September meeting, where the Fed cut the interest rate from 6.25% to 5.75%, stated that in "their discussion of the economic situation and outlook, meeting participants focused on the potential for recent credit market developments to restrain aggregate demand in coming quarters." The minutes also added that “participants regarded the outlook for economic activity as characterized by particularly high uncertainty, with the risks skewed to the downside."
The middle of the week witnessed some sell-off. Dow plunged more than 100 points on Thursday, 11 October. The sell-off was reportedly prompted by some comments from the European Central Bank.
On the earnings side, Alcoa got third quarter reports off to a poor start, as profits were below expectations. General Electric reported in line with expectations. Costco and PepsiCo beat Wall Street forecasts. Wal-Mart and McDonald's provided upbeat outlooks.
Among other economic news hitting the market during the week, new claims for unemployment for the week ended 6 October dipped to 308,000 from 320,000 the prior week. Layoffs remain at low levels. The August trade balance dropped to $57.6 billion from $59.0 billion in July.
U.S. retailers reported poorer-than expected September same-store sales. Target, JC Penny cut their forecasts. September retail sales rose a slightly stronger than expected 0.6%. September core PPI rose a modest 0.1%, bringing the year-over-year increase down to just 2%.
Executive Summary
For the week, Nasdaq outperformed the other indices. DJIx was up by 0.19% and S&P 500 was up by 0.3%. Nasdaq was up by 0.91%. Apple, RIMM and Google supported Nasdaq. Crude oil prices closed the week at $83.69 a barrel after reaching a record high above $84. The yield on the 10-year note rose to 4.68% from 4.64% the previous week.
For the year, Dow is up by 13.1%, Nasdaq is up by 16.2% and S&P 500 is up by 10.1%.
The third quarter earnings season has kicked off. The major focus of the market in the coming weeks will remain on the fourth quarter earnings guidance.
Trading Calls
Nifty (5428) Sup 5329 Res 5466
Buy Hero Honda (756) SL 750 Target 769, 772
Buy Bharat Forge (290) SL 285 Target 299, 301
Buy ACC (1251) SL 1238
Target 1278, 1283
Sell NDTV (365) SL 370
Target 357, 355
Sell Cummins (428) SL 433 Target 420, 418
Bulls and bears set to battle
Sometimes it pays to stay in bed in Monday, rather than spending the rest of the week debugging Monday's code”.
After Friday’s fall, the bulls may have rested over the weekend hoping it was just an aberration. Bears too got an opportunity and are unlikely to easily give in to the bulls in the coming week. For the day, we see a positive opening on the back of encouraging signals from the US market as well as rest of the world. But the current choppiness is here to stay. Reliance may have not announced a split/bonus as many market participants would have wanted to. But, the results day may spring some surprise. So watch that counter closely.
What remains to be seen now is whether the bulls will resume their shopping spree this week as the pace of the result announcements accelerates. As has been the case over the course of the past two months or so, much will hinge on the liquidity factor. As long as the FIIs are pouring money into Indian stocks, the bulls will remain in complete command, barring an odd bad day in office like it was on Friday.
The rally will get renewed thrust with the Congress leadership now backing off from the potential confrontation with the Left parties over the Indo-US nuke deal, which now seems headed for the cold storage. On the flip side, the communists and other UPA allies could make life even more difficult for the Congress till the general election in 2009. So, tough reforms in key areas like insurance, banking, pension funds, retail, FDI, etc. will take a backseat. Still, the Indian economy is expected to clock 8-9% growth over the next few years, that's more than good news for the bulls.
What perhaps could play a spoilsport is the RBI's mid-term review on Oct. 30 and a pause by the Federal Reserve at its meeting the next day. With the rupee showing no signs of holding back versus the beleaguered dollar and the Finance Minister apparently hinting at the Government's discomfort over the relentless appreciation in the local currency and the "copious" foreign inflows, the central bank might just go for a CRR hike. So, those betting on lower rates may well have to wait for a while.
The strong IIP numbers for August will make the case for another liquidity tightening measure even stronger. If this indeed comes true, the market naturally will react, and we may see some correction/consolidation at that time. But, we will have to carefully interpret the tenor of the RBI's statement to determine the mood on the Mint Street. In the meantime though, the earnings and global trends will drive the market.
Results Today: Axis Bank, BOC India, IFCI, Indian Bank, Jaiprakash Associates, KLG Systel, Orbit Corp, Petronet LNG, Reliance Industrial Infrastructure, Sasken, TCS, UCO Bank, Vakrangee Software and Welspun Gujarat.
Shares of Consolidated Construction Consortium Ltd. will get listed on the bourses today. CCCL has announced an issue price of Rs510 per share after a fairly successful IPO. The stock could appreciate by at least Rs200 today.
Himatsingka Seide has announced the opening of the second international store for "Atmosphere", in Singapore, on October 12. The first overseas store of "Atmosphere" opened in Dubai in May. Sical Logistics' shareholders have approved the proposal for increasing the investment ceiling for FIIs, from 24% to 49%.
Advanta India has have signed independent MOUs with TEAM and CALSA for the development of its Nutrisun healthy sunflower oil.
US technology shares jumped on Friday on fresh M&A news in the sector, while broader gains were limited. Oracle's bid for BEA Systems, McDonald's improved earnings forecast and GE's strong quarterly results highlighted the session's positive corporate news.
Wall Street also welcomed a strong report on retail sales and a mild reading on inflation. Those reports may have also dented hopes that the Federal Reserve will cut interest rates at its next policy meeting that ends Oct. 31, as was evident by rising Treasury bond yields.
However, concern that the world's largest economy might be at risk of accelerating too much were tempered by weaker-than-expected reports on business inventories and consumer sentiment.
The Dow Jones Industrial Average and the S&P 500 index both gained around 0.5%. Both major gauges hit all-time intra-day highs on Thursday. The Nasdaq Composite added 1.2%. The tech-heavy index hit a fresh 6-1/2 year high on Wednesday.
For the week, the Dow and S&P 500 ended barely higher, while the Nasdaq gained nearly 1%.
Market breadth was positive. On the New York Stock Exchange, winners topped losers 9 to 7 on volume of 1.10 billion shares. On the Nasdaq, advancers beat decliners 3 to 2 as 2.01 billion shares changed hands.
Crude oil prices settled at a record high Friday on news of dwindling stockpiles, potential trouble with Turkey and projections for a colder winter. US light crude oil for November closed at a record high of $83.69 per barrel. Oil briefly hit a record trading high of $84.05 during the session before pulling back.
Treasury prices slumped, raising the yield on the benchmark 10-year note to 4.68% from 4.63% late on Wednesday. In currency trading, the dollar gained versus the yen and euro. COMEX gold for December delivery fell $2.90 to $753.80 an ounce.
European shares reversed earlier losses to close slightly higher on Friday. The pan-European Dow Jones Stoxx 600 index inched 0.1% higher to 390.63. The UK's FTSE 100 closed 0.1% higher at 6,730.70 and the German DAX 30 added 0.1% as well at 8,041.26. The French CAC-40 closed down 0.3% at 5,843.95.
In the emerging markets, the Bovespa in Brazil fell by 1.2% to 62,456 while the IPC index in Mexico rose 1.5% to 32,473. The RTS index in Russia was down 0.5% at 2163 and the ISE National-30 index in Turkey gained 1.4% at 74,222.
Asian markets were trading mixed this morning. Stock benchmarks in Hong Kong, Shanghai set intra-day records while Japanese and other regional indexes retrenched from morning highs as investors booked profits.
Market to be choppy
After opening with a positive bias, markets witnessed selling pressure after comments from the Finance Minister; P. Chidambaram hampered the sentiments of the trades on the bourses. A four day wining streak was snapped as all round selling pressure in the scrips across the sectors dragged the key indices from the days high.
Finance Minister was quoted as saying that, expect key Sensex to ‘Cool Down’ after a while. Also, according to Chidambaram, Rupee is not in a comfort zone.
Finally, BSE 30-share benchmark Sensex ended 395 points lower or lost 2.1% to close at 18,419. NSE Nifty lost 96 points or 1.75% to close at 5,428.
Koutons Retail
The IPO of apparel retailer was subscribed 45.21 times and the company has set an issue price of Rs415 per share. It could open at a premium of over Rs100 at least.
Punj Lloyd slipped 1% to Rs353. The company announced that they would construct pipeline for
ONGC surged by over 2.5% to Rs1093 after the company announced that they are seeking stake in
Exide Industries dropped 2.5% to Rs67. The company announced its Q2 result with net profit at Rs622.4mn (up 42.2%) and net sales at Rs6.68bn (up 48.1%). The scrip touched an intra-day high of Rs74 and a low of Rs66 and recorded volumes of over 27,00,000 shares on NSE.
HDFC Bank dropped by 2% to Rs1432. The company announced its Q2 result with net profit at Rs3.65bn (up 39.9%). The scrip touched an intra-day high of Rs1461 and a low of Rs1420 and recorded volumes of over 4,00,000 shares on NSE.
Rolta surged by over 7.5% to Rs624 after the board of Directors of the company announced that they would meet on October 22 to mull Bonus issue. The scrip touched an intra-day high of Rs651 and a low of Rs591 and recorded volumes of over 23,00,000 shares on NSE.
Unity Infrastructure advanced 1.8% to Rs689 after the company announced that they have secured order worth Rs1.48bn. The scrip touched an intra-day high of Rs743 and a low of Rs646 and recorded volumes of over 2,00,000 shares on NSE.
Gitanjali Gems edged lower by 0.5% to Rs359. Reports stated that the company plans to buy another leading jewellery retailer having over 100 outlets across the country for around US $100mn. The scrip touched an intra-day high of Rs380 and a low of Rs350 and recorded volumes of over 3,00,000 shares on NSE.
Rajesh Exports slipped 1.8% to Rs91. The company announced that they have secured orders worth Rs7.43bn from Gold Star Jewellery. The scrip touched an intra-day high of Rs935 and a low of Rs880 and recorded volumes of over 2,00,000 shares on NSE.
IT stocks continued its downtrend as rupee further strengthens against the USD. Infosys was down by 2.4% to Rs1929, TCS slipped by 1% to Rs1063, Satyam Computer dropped 2% to Rs439 and Wipro edged lower by 0.3% to Rs293.
Stocks in News:
Reliance Industries to invest US$9bn in the next four years at its petrochemical and refining complex in Jamnagar, Gujarat
United Phosphorus to team up with a Japanese PE fund to bid for Arysta LifeScience Corp.
Cadila Pharma to buy an European specialist in neurology and opthamology medicines for US$80mn
Idea, HFCL and ByCell could be among the first to get spectrum as DoT continues with existing ‘first come-first served’ basis for allocation of radio frequency
Cairn India and ONGC are likely to submit a proposal for joint development of Ambe and North Tapti satellite fields in western offshore by end of this fiscal
L&T is planning to enter the nuclear power sector; may manufacture boilers and turbines of nuclear reactors
Reliance Industries plans to double its hydrocarbon reserves to over 10bn barrels of oil equivalents from current 4.4bn barrels
Reliance Industries has submitted a bid for Tuntex, an integrated producer of polyester with PTA production in Thailand.
DLF plans to invest Rs160bn over the next four years to develop about 20 large shopping malls across the country
Ashok Leyland has decided to set up a plant in AP with an initial capacity to make 0.1mn LCVs p.a.
JSW will invest Rs170bn to increase production capacity to 10mn tons by 2010
Bombay Dyeing has entered in a partnership with a Dubai-based luxury lifestyle retailer Rivoli Group
M&M plans to spend about US$1bn in the next four years to double automobile production capacity
Dishman Pharma has earmarked US$50mn to acquire US and European companies operating in the CRAMS space
BPCL ties up with Godrej Aadhaar to foray into the agri-retail segment
Bilcare to invest Rs1bn in clinical research training
The Index of Industrial Production rose 10.7% in August vs. 10.28% a year ago, reversing a fourth month trend
Inflation declines to 3.26% for week ended September 29th
Production from 40 wells with 80mn cubic feet of gas in K-G basin to begin from June 2008, according to DGH
The Government may allow 100% FDI in oil and marketing companies
Average shortage of power more than halved to 4.8% in September from 10.4% at start of current fiscal.
IFC to increase its exposure to infrastructure projects in India to US$500mn in the current year (July-June) from US$300mn in the previous one.
Fund Activity:
FIIs were net buyers of Rs3.15bn (provisional) in the cash segment on Friday while the local institutions pulled out Rs8.84bn. In the F&O segment, foreign funds were net buyers at Rs13.72bn.
FIIs were net buyers of Rs9.91bn in the cash segment on Thursday. With this, their net investment in the month has crossed US$4.3bn and year-to-date the same is US$16.54bn.
Major Bulk Deals:
Reliance Capital has bought Emami while Sundaram MF has sold it; UBS has picked up Genus Power; Macquarie Bank has purchased JK Tyre but HDFC MF has sold the same.Upper Circuit:
RIIL, Evinix, Deep Industries, Tourism Finance, Usher Agro, IID Forgings, Jai Corp and Assam Company
Lower Circuit:
Malu Paper, Goldstone Tele and Rei Agro
Be watchful this week
Volatility is likely to be the highlight of the market in the week ahead. Cautious investors may utilise upsides to trim exposure to a market that has risen briskly and without any major pause till Friday. With foreign funds expected to continue pouring money into Indian equities unless there are indications that there would be no further rate cuts by the US Fed on October 30, the bias is broadly positive.
But, as of now, valuations of most shares are stretched and corporate earnings are showing signs of a slowdown. Optimists can take heart from robust industrial production figures and the latest comments by top Congress leaders that mid-term polls are highly unlikely. But experts argue that current market factors in most positives and leaves little room for disappointments.
There is a perception that catalysts for a sharp correction could be external such as a sudden selloff in the US markets. The absence of a rate cut by the US Fed, as expected by the market, could trigger a sharp correction in most emerging markets including India.
The Sensex has risen 20% since the US Fed rate cut on September 18, sparking sharp foreign inflows into many frontline shares, with several investors pulling out money from the US to invest in higher-yielding assets of emerging markets.
CLSA Asia-Pacific Markets’ analysts, in a recent note, says, “The extent of the rally and the lack of breadth suggest that in the event of any reversal in global risk appetite, deterioration in global credit markets or an escalation in political tensions domestically, the correction could be fairly sharp.”
As per CLSA’s findings, 68% of the Sensex’s gains so far this year is attributable to just five shares, constituting only about 36% of the index’s free-float market capitalisation. These five shares include Reliance Industries, Bhel, L&T, Bharti and HDFC.
Concerns about further tightening of domestic liquidity by the RBI is a cause of concern for investors. With the industrial production growth back on track this August after a sharp decline in July, analysts are almost certain that RBI would mop up excess money supply in the system through a hike in cash reserve ratio.
Investors in interest-rate sensitive sectors such as banks, real-estate and auto, fear that banks may not cut lending rates further in case of more absorption of money supply from the system.
“An increase in CRR or expectation of an increase in CRR is likely to cause some weakness in financial stocks. We would use this weakness to buy into our preferred stocks–HDFC, IDFC and the State-owned banks,” Morgan Stanley analysts said in a recent note to clients.
Stocks you can buy this week
IDFC
Research: Morgan Stanley
Rating: Overweight
CMP: Rs 177
Morgan Stanley has maintained its ‘overweight’ rating on Infrastructure Development and Finance Corporation (IDFC) with an increased price target of Rs 200. IDFC is entering a phase where loan growth is strong, spreads are improving and fees are very strong. During financial year 2005 and 2007 , IDFC delivered the best core earnings progression among Indian private banks and financial institutions at a 55% componded annual growth rate (CAGR). This trend will continue, resulting in out-performance. Morgan Stanley has raised it FY08 earnings estimates by 5%. IDFC has launched the first tranche of its proposed $2 billion project equity fund along with Citi.
This will result in a doubling of assets under management in 1-2 months. Moreover, its investment in the National Stock Exchange (NSE) is performing strongly, as NSE’s turnover is now averaging close to $18 billion. Given IDFC’s 8% stake in NSE, this can be very valuable. SSKI (IDFC owns two-thirds of SSKI) is also performing well. The stock is trading at 24.8x F2009E earnings, in line with private banks.
However, private equity (PE) and proprietary investments are not contributing significantly to earnings but provide almost 30% of value. Hence, core valuations are lower at 19x (cheaper than private banks, with better earnings profile) and could rise, given strong earnings growth expectations.
Bharati Shipyard
Research: Citigroup
Rating: Buy
CMP: Rs 614
Citigroup has reiterated its ‘Buy’ rating on Bharati Shipyard with a medium risk and a price target of Rs 790. Bharati Shipyard last week announced a $89-million order for constructing four AHTS vessels from Shipping Corporation of India for delivery in 2011. With this, the company has now announced order wins of ~Rs 1,600 crore over the past six months, primarily for offshore supply vessels, reiterating Bharati Shipyard’s strong global presence in this space, which now accounts for over 60% of the company’s current order book. With the new order win, Bharati
Shipyard’s total order book now stands at Rs 4,400 crore, with the unexecuted portion providing a cover of 5.3x FY08E sales. More significantly, the cumulative ship-building revenue forecast of Rs 3,400 crore over FY08-10E is now completely covered by the company’s unexecuted order book, providing comfort to earnings estimates. Its Mangalore expansion remains largely on track with the project likely to be commissioned this quarter. Following the acquisition of Swan Hunter’s equipment in April, the company is further exploring options to increase the Mangalore facility capacity to build larger vessels (up to 100,000 DWT).
Tata Steel
Research: UBS
Rating: Buy
CMP: Rs. 848
UBS has maintained its ‘Buy’ rating on Tata Steel with a price target of Rs 875. Tata Steel’s 1:5 rights issue is unchanged at a price of Rs 300. But, it has changed the terms of its cumulative convertible preference shares. It will issue cumulative convertible preference shares (with a face value of Rs 100) amounting to Rs 5,480 crore ($1,380 million) in the ratio of 9:10, 6 of which will be converted into equity shares at Rs 600 on September 1, ’09.
The new financing terms would cut the number of fully diluted equity shares issued from 851.2 million to 822.1 million (-3.5%). Tata Steel may also not make an ADR issue, which was earlier part of the dilution assumptions for FY09.
A lower issue of shares and the timing difference in the dilution assumptions has led UBS to raise FY08E EPS target from Rs 107.2 to Rs 112.05 and FY09E EPS from Rs 112.1 to Rs 119.79 Wire reports indicate that Tata Steel may sell off the Corus’ aluminium business. This could result in a small inflow of less than $100 million, which will not have any material impact on the financing requirements or earnings of the combined entity Changing product prices and increasing raw material costs can have a material impact on Corus’ earnings in ’08.
Infosys
Research: Credit Suisse
Rating: Outperform
CMP: Rs. 1930
Credit Suisse has maintained its ‘outperformer’ rating on Infosys as it finds the valuation of Infosys reasonable on a 12-month basis. Infosys reported strong September ’07 results. Revenues were 1% above estimates, EBIT margins 180 bps above the numbers and operating profit 8% above estimates. Lower financial income and higher tax led to EPS coming 2% below expectations. The company raised FY3/08 EPS guidance to $1.99 (from $1.92-1.94) or Rs 79.49-79.88 (from Rs 78.2-79).
Revenue guidance was increased by 3% in dollar terms and 1.3% in rupee terms. Operating numbers also remain strong, with a 2.5-3.0% increase in pricing and 7.7% QoQ growth in volumes. While quarterly gross hiring was lower than guidance (actual 8,500, guidance 11,000), this could be due to timing mismatch. For the full year, company increased its gross hiring target to 28,500 (excluding acquisitions) from 26,000. However, visibility remains limited both on further rupee appreciation and US macro environment. This could impact the near-term performance of the share .
Bharat Electronics
Research: CLSA
Rating: Buy
CMP: Rs 1,895
After four year of stagnation in order backlog, BEL ended FY07 with record new order inflows at Rs 6,450 crore and order backlog of Rs 9,130 crore, up 38% YoY. It launched 25 new products and the share of revenues from indigenized products increased from 73% in FY06 to 81% in FY07.
During FY07 share of revenues from civilian products increased from 14% in FY06 to 26%, with the MTNL project of convergent billing being a major part of it. The balance sheet remains strong with negligible debt. BEL will be a likely beneficiary of the estimated $10 billion opportunity arising from offset agreements. To capitalise on the opportunities BEL has entered into MoUs with leading aerospace companies like Lockheed Martin, Northrop, Boeing and EADS. BEL will also provide its international partners with ‘Build to Print’ and ‘Build to Spec’ services. Over a period of time, BEL will also be able to indigenise these designs.
BEL is also open to acquiring high-end niche technology companies, Indian as well as those overseas which it can fund through its Rs 2,300 crore in cash reserves. The elevation to the ‘Navratna’ status gives BEL operational freedom for capex and investments. Adjusting for Rs 260/share of cash, the stock is trading at an attractive 13.0x FY09CL. The risks to stock performance are from lumpy quarterly performance and possible decline in margins in quarters were incidence of imports is high.
Events to drive the markets rather than earnings?
At various points in this four-year bull run investors have wondered where and when a bubble situation would arise. Last week showed the first clear signs of irrational exuberance. While the Sensex level of 17,000 was itself a bit stretched, the rise thereafter has been crazy. Fundamentals would hardly explain the kind of frenzied rise.
At these levels, the Sensex is trading at a trailing PE ratio of around 25x. Once again, this is not sustainable, since earnings of Indian corporates cannot rise at 25x over a sustained period. Over the past five-year period, beginning FY03, earnings have risen by around 35% annually. This performance is getting increasingly difficult to continue. The first quarter of FY08 saw a net profit growth of only 8%, if you stripped out other income.
Investors, and even broking firms, seem to have missed this altogether. The second-quarter results, many of which will come this week onwards, will finally set the tone for FY08, but drastic improvements are unlikely.
The reasons for a likelihood of earnings growth slowdown in FY08 aren’t hard to see. Interest rates are now 20-40% higher than three years ago when corporates weren’t borrowing anyway. Earlier, an average corporate could borrow at 7-8%, now they need to pay over 10%. While this looks like only 200-300 basis points, investors should look at it in proper context. A 3 divided by 7 is 43%.
So if interest rates go up from 7% to 10% for a corporate (or a home loan), cost of borrowing is up 43% and not 3%. Higher interest costs are affecting profitability and causing demand slowdown. It is visible in two-wheelers, and will now become visible in housing and cars if interest costs remain high.
With this background, lets pose two key issues:
Why did the market run up so fast, and from here, how do we spot outperformance? In both the cases, deals or rumours play a key role. The market’s run, post-Sensex level of 17,000, appears partly speculative, and partly deal news driven. Most of the scrips that have led the rally seem driven more by deal news, rather than the changing perception of earnings growth. Both Bharti Airtel and Reliance Communications seem to have benefited from tower business hive off.
There is something brewing in R Comm’s subsidiary Flag Telecom as well. Reliance Energy (REL) has gone from around Rs 600 to Rs 1,700 levels in maybe a month. This surge seems driven by the listing plans of Reliance Power, where REL holds 50%.
While there’s been no specific news in Reliance Industries, rumours abounded last week. One such was a possible large float from the retail business. The same pattern may persist if the market stays around these levels. With little hope of earnings driving outperformance, new triggers can best come from news flow.
Saturday’s newspapers, for example, had an announcement of a massive $9-billion investment plan from Reliance Industries. Reliance Industries chairman and managing director Mukesh Ambani said the company will invest $8-9 billion in the next three to four years at its Jamnagar ‘super site’.
It was not clear whether this is a new announcement or a reiteration of an earlier plan. Mr Ambani also talked about plans for ‘acquisition mode of growth’ and ‘forging new partnerships’. In other words, organic growth alone would not suffice for Reliance going forward.
Investors may take a cue from this line of thinking as well. Organic growth will rarely lead to earnings growth beyond 25%. In sectors that are growing faster than this, like telecom, growth is anyway priced in. Bharti Airtel is quoting at 43x trailing P/E, for example. Corporate action, either an acquisition/divestiture, or entering a new area, may be necessary to generate market excitement from hereon.
The reverse of this logic also appears visible. Scrips that lagged last month or so are perhaps the ones that haven’t made any great announcement to catch shareholders’ attention. ICICI Bank, another index biggie, for example, has lagged in this recent surge.
A lot of corporate activity happened in this stock around the time of its follow-on issue in June. Since then, things have been quiet on this counter. The bottomline for investors: absolute returns maybe hard to get for sometime, unless they are event driven.
Friday's correction could continue
| Support levels for Nifty are 5350 and 5250. Extent of correction depends on FII fund flow. |
| Three very bullish sessions were sandwiched in-between two corrections. The Nifty hit highs of 5549 before easing off to 5428 points for a week-on-week gain of 4.67 per cent. |
| The Defty was up 4.89 per cent as the rupee closed at 39.33 versus USD. The Sensex blinked only after it had hit a high of 18845 and closed up 3.63 per cent at 18419 points. The Junior was up 2.6 per cent at just above 10020. |
| While volumes were excellent, breadth was less bullish. The BSE 500 was up only 3.03 per cent and smaller stocks less fancied. The Advances to Declines ratio was marginally positive for the week and very negative on Friday. The reason was clear. |
| The FIIs have poured money into the top 200-odd stocks. Indian funds have been net sellers for 15 sessions. Operator interest is concentrated on big stocks and retail investors have stayed out or booked profits. |
| Outlook: The correction could continue. Key support levels are Nifty 5350 (Sensex 18250) and 5250 (Sensex 17950). The market looked distinctly nervous by Friday evening. The depth of correction will, to a great extent, depend on FII attitude. |
| Rationale: In the past 7 weeks since August 24, the Nifty has climbed from 4100 levels without significant correction. That intermediate trend could last another 4-5 weeks in theory but every momentum indicator is overbought and breadth was negative on Friday. Also, volumes rose while prices fell, indicating that supply increased as traders fought to book profits. |
| Counter-view: The rally has come on the back of FII purchases driven by rupee strength coupled to an US Fed rate cut. Through October, Indian funds have been net sellers. If the FIIs stay positive, they have deep enough pockets to force the markets up. If they change attitude, there could be a significant correction. |
| Bulls & Bears: Breadth was exceedingly negative through Friday’s trading. The worst affected were finance and banking stocks with bellwethers SBI and Infosys taking a hammering and the other stocks in the two sectors following in their wake. |
| Among financial stocks, only Bank of India held out while Rolta was among the few gainers in the IT sector. Another erstwhile favourite, telecom major RComm also faced heavy selling. |
| There were isolated winners everywhere but the advance:decline ratio was 1:4 or worse across most market segments. Gail and ONGC were among the best performers. Powergrid continued to register gains through its second week of listing. Hind Unilever, Hindalco, IPCL, Mahindra and Mahindra and Reliance Energy were among the few big stocks that showed strength. |
| MICRO TECHNICALS |
| INFOSYS Current Price: 1929 Target Price: 2000 |
| Since it declared Q2 results, Infy has been sold down from a high of 2140 to a low of 1903 in three sessions. It has excellent support at current levels and may be due for a technical recovery till the 2000 level. Keep a stop at 1900 and go long. |
| MAHINDRA & MAHINDRA Current Price: 828 Target Price: 900 |
| M&M appears to have managed a high volume, upwards breakout despite the poor overall market trend. The projected target with this formation would be about 900. Keep a stop at 815 and go long. |
| ONGC Current Price: 1094 Target Price: 1150 |
| The stock seems to have performed a classic uptrending breakout on high volumes. Depending on your chart interpretation, it has a target of between 1150 and 1225. Keep a stop at 1070 and go long. Book partial profits above 1130. |
| R COMM Current Price: 718 Target Price: 700 |
| The stock saw a burst of selling on Friday after testing highs of around 750. It has good support between 700-710 but it is likely to test those supports again before it makes another upmove. Keep a stop at 730 and go short. If the stock closes below 700, repeat the short position with a stop at 710. |
| SBI Current Price: 1862 Target Price: 1800 |
| The stock has seen selling that pushed it back to support at 1850 before a small recovery. If that support is broken, the next reliable support is at about 1800. There is clear resistance at 1880. Keep a stop at 1880 and go short. Increase the short position if the stock drops below 1850. |
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