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Monday, October 22, 2007
Good sector to be in - Banking
Bank on the banking space, say experts. With interest rates going down and the liquidity scene much under control, banks are attracting investor attention.
Banking shares posted significant gains on Monday compared with the rest of the market. At 1:15 pm, the BSE Bankex was up nearly one per cent. The index touched a high of 9, 043.57.
ICICI Bank rose 2.25 per cent, Union Bank gained 1.59 per cent, Yes Bank climbed 5.19 per cent and State Bank of India was up 0.67 per cent.
"Increase in comfort levels on the liquidity front has boosted the banking sector," said Alpesh Mehta, banking analyst with Angel Broking.
Foreign institutional investors, major drivers of liquidity in the market, have pulled out over Rs 4,500 crore ever since the Securities and Exchange Board of India's clampdown on participatory notes, sucking out the increased liquidity in the system.
According to reports, the market is expected to maintain an average surplus liquidity of Rs 20,000-25,000 crore.
"Stellar performance from premier banks this quarter has also boosted sentiment," Mehta said.
ICICI Bank's net profit rose 32 per cent to Rs 1,002.60 crore for the July-September quarter compared with Rs 755.01 crore for the same previous period. HDFC Bank's second quarter net profit was up 40 per cent at Rs 368.48 crore.
All eyes are on Reserve Bank's review of the monetary policy on Oct 30.
A cash reserve ratio hike appears unlikely following SEBI's proposed measures on participatory notes. The measures are meant to moderate capital inflows.
“The sudden crash in the stock market and the subsequent weakening of the rupee has now reduced the chances of a fresh CRR hike. But the RBI is known to spring surprises, so nothing can be predicted" said Mehta.
Kashyap Jhaveri, banking analyst with Emkay Share and Stock Broking feels that even if the RBI were to hike CRR, banks will remain unaffected.
“RBI may hike CRR by 50 basis points considering the current liquidity in the system. However, it will not really affect the banking space as it is not likely to affect their profitability," he said.
Angel Broking has recommended investors to buy ICICI Bank with a target price of Rs 1,240 and Punjab National Bank with a target of Rs 615 while Emkay Share is positive on midcaps like Bank of Baroda and Union Bank of India.
Market Close: Eventful week gives a cautious start..
No clear direction as markets traded volatile looking at global markets. SEBI is said to meet FII's today for P note investments and as well the UPA and Left meet also scheduled today which saw Investors to trade bit cautious. This week is the FNO expiry which also added to the volatility. Banking, FMCG and engineering counters traded in green. However, Realty, metals and Auto index failed to attract buyers. Rupee depreciation against the Dollar which failed to support the technology stocks. Small caps and Mid caps which were out of interest last week were in demand today and out performed the index heavy weights. Stock specific movement was seen on the back of good results. Global markets traded weak as US slipped over 300 points down in its previous session. Europe trading in red Asian Indices also ended in red.
Market has some major events scheduled for the week. Today UPA and Left meet was scheduled any negatives could hammer the markets which already got slammed. SEBI to meet for the P-Notes discussion on October 25 2007 followed by F&O expiry on the same day. RBI is scheduled to meet on 30th October 2007 for the Credit Policy. And finaly the US Federal Reserve is set to meet on October 31, 2007. Either, one these events could move the direction of the market. Lets hope good happens now..
Sensex closed higher by 54 points at 17613.99. It was helped up by gains in HDFC (2572.55,+7 percent), Guj Ambuja (145.35,+4 percent), ICICI Bk (1062.35,+4 percent), Rel Energy (1370,+3 percent) and ACC (1018.2,+3 percent). Restricting the gains were Bharti Tele (927.65,-4 percent), TCS (1074.4,-3 percent), Satyam (448.45,-3 percent), RIL (2412.75,-2 percent) and Maruti (1053.8,-2 percent).
Greenply Ind a company which is into manufacturing of Plywood, Laminates, Veneer and Particle board. Plywood contributed 51% of the revenue while laminates 49%. This industry is dominated by unorganised sector but dynamics seems to be changing now. However, the strong brand that the company has is the most powerful investment rationale in favor of the company. That would also be the company's edge over the unorganized segment of the industry. Normally demand picks up with a lag of 18 months to housing demand. This is the experience shared by the Greenply Management and seems logical as interiors get done up once the housing picks up. There was some slow down in the demand now. But, the long term story remains intact. The valuations are on the higher side and one can wait before taking any position now. We had a wow call on the company that was booked partially with good profits as well. We would update you with the results Analysis. Greenply ended up by 4% ahead of results.
Shanthi Gears Ltd (Shanthi) reported good results for the Q2 FY2007. The top line grew by 26% to Rs 59 cr from Rs 47 cr. The bottom line grew by 52% to Rs 10 cr from Rs 7 cr on yoy basis. The EBDITA grew by 33% to Rs 23 cr from Rs 18 cr, while the EBIDTA margins jumped by 300% bps to 40% on yoy basis. Improved efficiency and better economies of scale fueled the company to improve margins. In raw materials, 54% accounts for steel rods and steel forgings, 24% for foundry and rest 22% for bearings. Because of backward integration company is able to enjoy higher margins compared to its peers. Valuation seems to be attractive at the current market price of Rs 74 the stock trades at 15 times of trailing earnings. Compared to the peers like Elecon Eng, Shanthi is well placed to capitalise the opportunities. Future seems to be bright as the industry boom is expected to continue and the capex in steel, cement and power will boost the revenues of the company. The main raw material is steel; increase in prices will have impact the margins. Shanthi's business is directly dependent on industrial activity, it tends to be cyclical. Any slow down in the growth of the economy will have a major impact on a company's revenues. We will update you more here.
Technically Speaking: Sensex swung over 500 points from days low as it made an intra day high of 17,705 and low of 17,320. Advacnes marginally outnumbered Declines for the day. There were 1,341 advances against 1,314 declines. Sensex support lies at 17400 and 17150 levels. Resistance levels are at 17700 and 17930 levels.
Post Market Commentary
The market ended the day mixed, as Nifty closed in red and Sensex managed to close in green. The weakness in the opening session was attributed to the weak global cues. High volatility and lot of choppiness was witnessed during the session as most of the investors did intraday trading. Selective buying was seen in cement, power, capital goods, banking and FMCG stocks, whereas Realty, IT, telecom, metal and consumer durables were under heavy selling pressure. 50% of the key BSE indices ended with marginal gains and rest of the others like IT, Metal, Oil & Gas and Realty index closed in red. The benchmark index Sensex registered marginal growth of 54.01 points to close at 17,613.99, whereas Nifty closed at 5,184 down by 31.30 points. Overall, the market breath was flat for the day as 1345 stocks advanced while 1340 stocks declined on BSE. Further, BSE Midcap and BSE Smallcap closed marginally high by 24.83 points and 51.15 points at 7,263.41 & 8,851.47 respectively.
The Oil and Gas index ended with the loss of 162.48 points to close at 10,079.97 as Reliance (2.29%), RPL (0.47%), HPCL (1.50%), Gail (1.64%) and ONGC (0.93%) closed in negative.
BSE IT index also stood in the red territory for the day as it ended with the loss of 66.74 points to close at 4,619.17. The draggers are Tech Mahindra down by (4.87%), TCS (2.92%), Satyam (2.52%) and Rolta India by (1.74%).
The Reality index slipped by 59.42 points to close at 8,994.22. Drifting it down are Ansal Infrastructure (3.4%), Shobha Developers (3.32%), Anant Raj (2.69%), DLF (2.00%), Mahindra Ges (1.86%) and Unitech Ltd (1.75%).
BSE Bankex managed to closed with the gain of 191.54 points to close at 9029.09 . Scrips surged are Yes Bank (6.65%), ICICI Bank (3.74%), SBI Bank (2.70%), and Union Bank (2.49%).
BSE Capital goods also closed at 15,568.76 with a gain of 139.47 points. Pushing it up are Lakshmi Machinery Work Ltd (3.43%), Larsen & Toubro (2.47%), and Kalpat Power (2.24%)
FII: - Rs 3216 cr; MF - Rs 232 cr
FII Gross purchases Rs 6794 Cr, Gross sales Rs 10,010 Cr,Net Sellers Rs 3216 Cr.
MF Gross Purchases Rs 1037 Cr, Gross Sales Rs 1269 Cr, Net Sellers Rs 232 Cr.
Our View:
The huge sell off seem to be triggered off on the back of lack of clarity regarding the regulatory policies of P notes. Increase in number of sell side bulk deals seem to support that as well.
The sebi meeting was concluded today and policy clarifications can be expected. Hoverer, sessions continue to be choppy. That has created opportunities in the mid cap and well as large cap counters for the long term investors. Value added service by experts can go a long way in maximizing the gains in such circumstances.
Market recovers lost ground in late buying
The Sensex lost its initial grip as a lack of buying interest and sustained selling in front-line stocks dragged the index to negative territory despite a smart recovery of over 380 points in the mid-morning trades. The Sensex, which was in a bear grip in the last few sessions, resumed in negative territory, tracking weak global cues, and fell sharply within a few minutes on heavy selling in blue chip stocks such as Reliance, Infosys and ACC. But, the index recovered as bargain hunters started buying at lower levels and touched the day's high of 17705. However, the Sensex entered in the red by afternoon on profit booking in heavyweights, information technology, oil and realty stocks. While the market maintained its negative bias for the better part of the day, the mood turned bullish towards the close and the index jumped into the green. The Sensex finally ended the session with a gain of 54 points at 17614 while the Nifty slipped 31 points to close at 5184.
The breadth of the market was neutral. Of the 2,754 stocks traded on the BSE, 1,330 stocks declined, 1,354 stocks advanced and 70 stocks ended unchanged. Most of the sectoral indices ended weak. The BSE Oil & Gas Index lost 1.59%, the BSE Teck Index declined by 1.54% and the BSE IT Index shed 1.42%. However, the BSE Bankex rose 2.17% and the BSE FMCG Index jumped by 1.16%.
Several heavyweights recovered on late buying. HDFC led the pack and shot up by 7.27% at Rs2,573. Ambuja Cement soared 4.12% at Rs145, ICICI Bank surged 3.74% at Rs1,062, M&M flared up by 3.58% at Rs754, Reliance Energy jumped by 2.76% at Rs1,370, ACC added 2.73% at Rs1,018, SBI advanced by 2.70% at Rs1,713, L&T moved up by 2.47% at Rs2,098 and Hindalco was up 2.03% at Rs178. However, Bharti Airtel slipped 4.21% at Rs928, TCS shed 2.92% at Rs1,074, Satyam Computer declined by 2.52% at Rs448, Reliance Industries fell by 2.29% at Rs2,413 and Maruti Udyog lost 1.92% at Rs1,054.
Over 5.44 crore Ambuja Cement shares changed hands on the BSE followed by Power Grid Corporation (1.61 crore shares), Reliance Natural Resources (1.54 crore shares), Tata Teleservices (97.09 lakh shares) and Reliance Petroleum (73.08 lakh shares).
Value-wise Ambuja Cement registered a turnover of Rs808 crore on the BSE followed by Reliance Energy (Rs553 crore), United Breweries (Rs509 crore), Reliance Industries (Rs480 crore) and Reliance Communication (Rs235 crore).
Rally in HDFC, ICICI Bank helps Sensex post gains; Nifty settles in red
The market bounced back after an initial slump caused by on worries about the US economic outlook. But while the BSE Sensex managed to post gains, the S&P CNX Nifty settled with losses.
Volatility was high due to alternate bouts of buying and selling. European and Asian markets were trading lower today, 22 October 2007 on worries about the US economic outlook.
The BSE 30-share Sensex rose 54.01 points or 0.31% at 17,613.99. It opened 300.33 points lower at 17,259.65 and slipped to a low of 17171.45 within minutes after commencement of trade. At the day’s low of 17,171.45, the Sensex had lost 388.53 points for the day. From here it staged a solid rebound. Sensex hit a high of 17,704.83 in the day. At day's high of 17,704.83, Sensex had risen 144.85 points for the day. Sensex oscillated 533.38 points in the day.
However, the broader based S&P CNX Nifty lost 31.30 points or 0.60% at 5,184.
The surge in Sensex even when the Nifty ended in the red was due to rally in HDFC and ICICI Bank. These two stocks have much higher weightages in Sensex than in Nifty. The HDFC stock jumped 7.27% to Rs 2572.55 and ICICI Bank rose 3.74% to Rs 1062.35. While Housing Development Finance Corporation (HDFC) has about 5% weightage in Sensex, it has only about 2% weightage in Nifty. ICICI Bank has a significantly higher weightage of about 9% in Sensex as compared to a weightage of a little under 4% in Nifty.
Steel Authority of India (down 4.02% to Rs 213.60), National Aluminium (down 3.14% to Rs 279.20), and ABB (down 2.79% to Rs 1376.95), which are part of Nifty but are not part of Sensex, also dragged Nifty lower.
The Nifty October 2007 futures settled at 5189, a premium of 5 points as compared to spot closing. Volatility is expected to remain high in the coming few days ahead of expiry of October 2007 derivatives contracts on Thursday, 25 October 2007.
The BSE Mid-Cap index was up 0.34% to 7,263.41, while the BSE Small-Cap index rose 0.58% to 8,851.47. Both these indices outperformed the Sensex
Of the 30 shares of the Sensex, 17 rose while the rest slipped. The market breadth was just about positive on BSE. 1341 scrips advanced as compared to 1314 that declined, while 70 remained unchanged.
The total turnover on BSE amounted to Rs 7486 crore, lower as compared to Rs 9611 crore on Friday, 19 October 2007
The NSE F&O turnover was Rs 71454.20 crore, lower as compared to Rs 83102.28 crore on Friday, 19 October 2007
Sectoral indices on BSE displayed mixed trend. Bankex (up 2.17% to 9,029.09), BSE Health Care Index (up 0.41% at 3,729.99), BSE Consumer Durables index (up 0.52% to 4,801.72), BSE FMCG Index (up 1.16% at 2,045.03), BSE Capital Goods Index (up 0.90% at 15,568.76), outperformed the Sensex.
BSE Oil and Gas Index (down 1.59% at 10,079.97), BSE Metal Index (down 0.33% at 14,432.72), BSE Auto Index (up 0.08% at 5,301.00), BSE PSU index (down 0.40% to 8,178.11), BSE IT Index (down 1.42% at 4,619.17), BSE TecK index (down 1.54% to 3,857.17), BSE BSE Realty (down 0.66% to 8,994.22), were underperformers.
India’s largest private sector mortgage financer in terms of net profit Housing Development Finance Corporation (HDFC) vaulted 7.27% to Rs 2572.55 on 2.25 lakh shares. It was top gainers from Sensex pack. The company will declare its Q2 September 2007 results on 29 October 2007
ICICI Bank, the country’s largest private sector bank in terms of net profit rose 3.74% to Rs 1062.35. Its net profit rose 32.7% to Rs 1002.60 crore on 41% growth in total income to Rs 9588.41 crore in Q2 September 2007 over Q2 September 2006. The results hit the market after trading hours on Friday, 19 October 2007.
State Bank of India (up 1.94% to Rs 1700), Union Bank of India (up 2.64% to Rs 141.95), and Kotak Mahindra Bank (up 1.42% to Rs 840), were the other gainers from banking pack.
North India’s largest cement manufacturer, Ambuja Cements gained 4.48% to Rs 145.85 on 5.44 crore shares after three block deals of 1.57 crore shares each were executed on the counter on BSE in opening trade at an average price of Rs 144.42 per share. It was the top traded counter on BSE with total turnover of Rs 787.18 crore
Reliance Energy (Rs 551.86 crore ), United Breweries (Holdings) (Rs 510.05 crore ), Reliance Industries (Rs 479.92 crore ),and Reliance Communications (Rs 235.06 crore ), were other turnover toppers on BSE.
Mahindra & Mahindra (up 3.96% to Rs 757), ACC (up 3.92% to Rs 1030) and ITC (up 2.35% to Rs 179), were the other gainers from Sensex pack.
Shares from capital goods space made a late comeback. India’s largest power equipment maker in terms of sales, Bharat Heavy Electricals (Bhel) gained 1.48% to Rs 2080. The company informed BSE that due to some unavoidable circumstances, its board meet to consider Q2 September 2007 results scheduled to be held on 25 October 2007 has been postponed to 29 October 2007. Itss day’s low was at Rs 1970
Larsen & Toubro (L&T), the nation's largest engineering and construction company by sales, gained 3.04% to Rs 3115. Its day’s low was at Rs 2912.
Reliance Energy, the country’s second largest power utility company in terms of sales, rose 2.38% to Rs 1370 on 39.97 lakh shares, off its day’s high of Rs 1465. The stock surged sharply from early lows of Rs 1255, on value buying. The stock had plunged 18.52% in past one week to Rs 1333.25 on 19 October 2007.
India’s largest oil exploration company in terms of market capitalisation Oil and Natural Gas Corporation declined 1.38% to Rs 1090. As per reports that its joint venture firm ONGC-Mittal Energy had acquired a 30% participating interest in an exploration block in Turkmenistan. The report did not disclose the deal value.
India’s largest private sector entity by market capitalisation and oil refiner Reliance Industries (RIL) was down 1.98% to Rs 2420.20 on 19.74 lakh shares. It recovered sharply from early lows of Rs 2395. As a part of a restructuring exercise, RIL has reportedly decided to hive off Reliance Fresh into a separate company, Ranger Farm, for single point accountability. Reliance Fresh sells food, fruits and vegetables and consumer products.
IT stocks stayed under selling pressure throughout the day and dominated the list of top losers, on worries about a downturn in the United States, where the firms earn more than half their revenue. India’s fourth largest sofftware services exporter Satyam Computer lost 3.14% to Rs 445.60 on 7.01 lakh shares. It was the top loser from Sensex pack.
Satyam Computer announces Q2 September 2007 results tomorrow. A total of 9 brokerages expect a between 2.4% fall to a 6.2% growth in Satyam’s consolidated net profit as per Indian GAAP to between Rs 369.10 crore to Rs 410.80 crore as compared to net profit of Rs 378.32 crore in Q1 June 2007. They expect a between 6.3% to 9.3% growth in revenue to between Rs 1945.50 crore to Rs 2000.90 crore as compared to revenue of Rs 1830.19 crore in Q1 June 2007.
Analysts expect Satyam’s operating profit margins to slide on a sequential basis due to salary hikes effected in Q2 September 2007.
TCS (down 2.96% to Rs 1074), Wipro (down 1.31% to Rs 494) and Infosys (down 1.54% to Rs 1878.15), edged lower.
India’s largest listed cellular services provider by sales, Bharti Airtel recovered sharply from day’ s low of Rs 909 to settle 1.49% lower to Rs 954. The early fall was triggered by on concerns that the launch of nationwide GSM services by rival Reliance Communications would eat into its market share. The stock lost 9.43% in past one week to Rs 968.45 on 19 October 2007.
Reliance Communications was down 0.71% to Rs 722, off its day’s high of Rs 741. Reliance Communications (RCom), on Friday, 19 October 2007, got nod to launch nationwide GSM-based cellular services from Department of Telecom (DoT).
Tata Motors (down 2.27% to Rs 765), and Maruti Suzuki India (down 2.21% to Rs 1050), were the other losers from Sensex pack.
Among stocks with high volumes, Power Grid Corporation slipped 1.29% to Rs 129.85 on 1.61 crore shares. Reliance Natural Resources lost 0.85% to Rs 87.10 on 1.53 crore shares. Tata Teleservices (Maharashtra) rose 0.76% to Rs 39.90 on 96.36 lakh shares.
United Breweries (Holdings) was down 0.82% to Rs 923 after a block deal of 27.82 lakh shares was struck on the counter on BSE at Rs 901 per share in opening trade.
Havells India rose 2.06% to Rs 621 after the company said private equity firm Warburg Pincus will pick up stake in the company.
Rolta India declined 2.10% to Rs 579.90 despite announcing good Q1 September 2007 results and also a 1:1 bonus issue during market hours today, 22 October 2007.
GTL rose 4% to Rs 242.35 on reporting 494.63% spurt in net profit to Rs 45.43 crore on 145.89% rise in sales to Rs 357.92 crore in Q2 September 2007 over Q2 September 2006. The company announced the results during the market hours today, 22 October 2007.
LIC Housing Finance gained 4.52% to Rs 225.25 after its net profit rose 53.25% to Rs 116.37 crore on 36.84% rise in total income to Rs 526.58 crore in Q2 September 2007 over Q2 September 2006.
India Infoline soared 3.46% to Rs 893.70 after its board approved raising foreign fund investment limit to 100% of the company’s paid-up capital.
Zee Entertainment Enterprises gained 6.28% to Rs 319.20. The company will declare its Q2 September 2007 results tomorrow, 23 October 2007.
India Cements climbed 3.91% to Rs 279 on reporting 89.78% rise in net profit to Rs 222.65 crore on 51.49% rise in sales to Rs 896.09 crore in Q2 September 2007 over Q2 September 2006. The company announced the results during the market hours today, 22 October 2007.
Tech Mahindra slumped 5.22% to Rs 1260. Its consolidated net profit rose 6.7% to Rs 181.6 crore on 2.4% growth in revenue to Rs 897.6 crore in Q2 September 2007 over Q1 June 2007. The results hit the market after trading hours on Friday, 19 October 2007.
Welspun India rose 3.14% to Rs 64. Its net profit declined 8.3% to Rs 16.81 crore on 6.3% growth in net sales to Rs 293.79 crore in Q2 September 2007 over Q2 September 2006. The results hit the market after trading hours on Friday, 19 October 2007.
Shanthi Gears surged 9.23% to Rs 74 on reporting 52.39% rise in net profit to Rs 10.5 crore on 26.18% rise in sales to Rs 59.37 crore in Q2 September 2007 over Q2 September 2006.
Gujarat Narmada Valley Fertilizers Company jumped 6.30% to Rs 141.75 on reporting 63.05% rise in net profit to Rs 120.58 crore on 66.67% rise in total income to Rs 1,164.84 crore in Q2 September 2007 over Q2 September 20066.
PTC India rose 2.15% to Rs 95 on its plans to sell up to 40% stake in its financial services subsidiary PTC India Financial Services.
A crucial meeting of the panel set up by the government to look into Left front’s concerns over the Indo-US nuclear deal holds its fifth meeting today, 22 October 2007, with Left front demanding a clear statement that the deal is off.
The Securities and Exchange Board of India chairman, M Damodaran, is currently holding a video conference with overseas investors to clarify all issues arising from the draft proposal on participatory notes (PNs) released by the regulator on Tuesday, 16 October 2007.
After trading hours on Tuesday, 16 October 2007, Sebi issued draft proposals wherein the market regulator proposed restriction on use of the popular participatory notes (PNs) route of FII inflow and it also recommended unwinding of some PNs within 18 months. PNs are financial instruments used by foreign investors that are not registered with Sebi, to invest in Indian shares. FIIs and their sub-accounts buy Indian securities and then issue PNs to foreign investors with these securities as the underlying.
European markets opened lower today, 22 October 2007. Key benchmark indices from United Kingdom (down 1.26% to 6,445.50), and Germany (down 1.27% to 7,748.01) declined.
Asian markets were trading weak today, 22 October 2007, in the wake of a sell-off on Wall Street on Friday, 19 October 2007. Hong Kong's Hang Seng (down 3.70% at 28,373.63), Japan's Nikkei (down 2.24% at 16,438.47), Taiwan's Taiwan Weighted (down 2.61% at 9,360.63), Singapore's Straits Times (down 2.81% at 3,642.64) and South Korea's Seoul Composite (down 3.36% at 1,903.81) all edged lower.
US markets tumbled on Friday, 19 October 2007, amid lackluster profit reports and credit concerns on Black Monday Anniversary. The Dow Jones Industrial Average plunged 366.94 points, or 2.64%, to 13,522.02. The Standard & Poor's 500 index fell 39.45 points, or 2.56%, to 1,500.63, and the Nasdaq Composite index dropped 74.15 points, or 2.65%, to 2,725.
India's wholesale price index rose 3.07% in the 12 months to 6 October 2007, lower than the previous week's 3.26% rise, government data released on Friday, 19 October 2007 showed. It was the lowest annual rise in 5 years.
Crude oil prices fell on Monday, 22 October 2007 on profit taking from record highs, but hovered near $88 on simmering geo-political tensions and a weak dollar. US light crude for November delivery fell 77 cents to $87.83 a barrel. On Friday, 19 October 2007, it touched an all-time high of $90.07. London Brent crude fell 46 cents to $83.33 a barrel.
Nifty settles in the red even as Sensex gains
The market saw a complete trend reversal today - it bounced back after an initial slump caused by on worries about the US economic outlook. Volatility was high due to alternate bouts of buying and selling. Sustained buying in blue-chip stocks at lower levels and short covering helped the market break its four-day loosing streak. European and Asian markets were trading lower today, 22 October 2007 on worries about the US economic outlook.
The BSE 30-share Sensex was up 84.70 points, or 0.48%, to 17,644.48, as per provisional closing. It opened 300.33 points lower at 17,259.65 and slipped to a low of 17171.45 within minutes after commencement of trade. At the day’s low of 17,171.45, the Sensex had lost 388.53 points for the day. From here it staged a solid rebound. Sensex hit a high of 17,704.83 in the day. At day's high of 17,704.83, Sensex had risen 144.85 points for the day. Sensex oscillated 533.38 points in the day.
However, the broader based S&P CNX Nifty lost 22.70 points, or 0.44%, to 5,192.60, as per provisional closing.
Of the 30 shares of the Sensex, 17 rose while the rest slipped. The market breadth was just about positive on BSE. 1341 scrips advanced as compared to 1314 that declined, while 70 remained unchanged.
The total turnover on BSE amounted to Rs 7486 crore as compared to Rs 6013 crore by 14:30 IST.
India’s largest private sector mortgage financer in terms of net profit Housing Development Finance Corporation (HDFC) vaulted 5.92% to Rs 2540 on 2.25 lakh shares. It was top gainers from Sensex pack.
ICICI Bank, the country’s largest private sector bank in terms of net profit rose 4.74% to Rs 1072.45. Its net profit rose 32.7% to Rs 1002.60 crore on 41% growth in total income to Rs 9588.41 crore in Q2 September 2007 over Q2 September 2006. The results hit the market after trading hours on Friday, 19 October 2007.
North India’s largest cement manufacturer, Ambuja Cements gained 4.48% to Rs 145.85 on 5.44 crore shares after three block deals of 1.57 crore shares each were executed on the counter on BSE in opening trade at an average price of Rs 144.42 per share. It was the top traded counter on BSE with total turnover of Rs 787.18 crore
Mahindra & Mahindra (up 3.96% to Rs 757), ACC (up 3.92% to Rs 1030) and ITC (up 2.35% to Rs 179), were the other gainers from Sensex pack.
Shares from capital goods space made a late comeback. India’s largest power equipment maker in terms of sales, Bharat Heavy Electricals (Bhel) gained 1.48% to Rs 2080. The company informed BSE that due to some unavoidable circumstances, its board meet to consider Q2 September 2007 results scheduled to be held on 25 October 2007 has been postponed to 29 October 2007. Itss day’s low was at Rs 1970
Larsen & Toubro(L&T), the nation's largest engineering and construction company by sales, gained 3.04% to Rs 3115. Its day’s low was at Rs 2912.
Reliance Energy, the country’s second largest power utility company in terms of sales, rose 2.38% to Rs 1370 on 39.97 lakh shares, off its day’s high of Rs 1465. The stock surged sharply from early lows of Rs 1255, on value buying. The stock had plunged 18.52% in past one week to Rs 1333.25 on 19 October 2007.
India’s largest oil exploration company in terms of market capitalisation Oil and Natural Gas Corporation declined 1.38% to Rs 1090. As per reports that its joint venture firm ONGC-Mittal Energy had acquired a 30% participating interest in an exploration block in Turkmenistan. The report did not disclose the deal value.
India’s largest private sector entity by market capitalisation and oil refiner Reliance Industries (RIL) was down 1.98% to Rs 2420.20 on 19.74 lakh shares. It recovered sharply from early lows of Rs 2395. As a part of a restructuring exercise, RIL has reportedly decided to hive off Reliance Fresh into a separate company, Ranger Farm, for single point accountability. Reliance Fresh sells food, fruits and vegetables and consumer products.
IT stocks stayed under selling pressure throughout the day and dominated the list of top losers, on worries about a downturn in the United States, where the firms earn more than half their revenue. India’s fourth largest sofftware services exporter Satyam Computers lost 3.14% to Rs 445.60 on 7.01 lakh shares. It was the top loser from Sensex pack.
TCS (down 2.96% to Rs 1074), Wipro (down 1.31% to Rs 494) and Infosys (down 1.54% to Rs 1878.15), edged lower.
India’s largest listed cellular services provider by sales, Bharti Airtel recovered sharply from its day’ s low of Rs 909 to settle 1.49% lower to Rs 954. The early fall was triggered by on concerns that the launch of nationwide GSM services by rival Reliance Communications would eat into its market share. The stock lost 9.43% in past one week to Rs 968.45 on 19 October 2007.
Reliance Communications was down 0.71% to Rs 722, off its day’s high of Rs 741. Reliance Communications (RCom), on Friday, 19 October 2007, got nod to launch nationwide GSM-based cellular services from Department of Telecom (DoT).
Tata Motors (down 2.27% to Rs 765), and Maruti Suzuki India (down 2.21% to Rs 1050), were the other losers from Sensex pack.
A crucial meeting of the panel set up by the government to look into Left front’s concerns over the Indo-US nuclear deal holds its fifth meeting today, 22 October 2007, with Left front demanding a clear statement that the deal is off.
The Securities and Exchange Board of India chairman, M Damodaran, will hold a video conference with overseas investors today, 22 October 2007, to clarify all issues arising from the draft proposal on participatory notes (PNs) released by the regulator on Tuesday, 16 October 2007.
After trading hours on Tuesday, 16 October 2007, Sebi issued draft proposals wherein the market regulator proposed restriction on use of the popular participatory notes (PNs) route of FII inflow and it also recommended unwinding of some PNs within 18 months. PNs are financial instruments used by foreign investors that are not registered with Sebi, to invest in Indian shares. FIIs and their sub-accounts buy Indian securities and then issue PNs to foreign investors with these securities as the underlying.
European markets opened lower today, 22 October 2007. Key benchmark indices from United Kingdom (down 1.26% to 6,445.50), and Germany (down 1.27% to 7,748.01) declined.
Asian markets were trading weak today, 22 October 2007, in the wake of a sell-off on Wall Street on Friday, 19 October 2007. Hong Kong's Hang Seng (down 3.70% at 28,373.63), Japan's Nikkei (down 2.24% at 16,438.47), Taiwan's Taiwan Weighted (down 2.61% at 9,360.63), Singapore's Straits Times (down 2.81% at 3,642.64) and South Korea's Seoul Composite (down 3.36% at 1,903.81) all edged lower.
US markets tumbled on Friday, 19 October 2007, amid lackluster profit reports and credit concerns on Black Monday Anniversary. The Dow Jones Industrial Average plunged 366.94 points, or 2.64%, to 13,522.02. The Standard & Poor's 500 index fell 39.45 points, or 2.56%, to 1,500.63, and the Nasdaq Composite index dropped 74.15 points, or 2.65%, to 2,725.
India's wholesale price index rose 3.07% in the 12 months to 6 October 2007, lower than the previous week's 3.26% rise, government data released on Friday, 19 October 2007 showed. It was the lowest annual rise in 5 years.
Volatility is expected to remain high for in coming few days ahead of expiry of October 2007 derivatives contracts on Thursday, 25 October 2007.
As per provisional data, foreign institutional investors (FIIs) sold shares worth a net Rs 1750.76 crore, while domestic institutional investors (DIIs) were net buyers of shares worth Rs 186.26 crore on Friday, 19 October 2007.
Crude oil prices fell on Monday, 22 October 2007 on profit taking from record highs, but hovered near $88 on simmering geo-political tensions and a weak dollar. US light crude for November delivery fell 77 cents to $87.83 a barrel. On Friday, 19 October 2007, it touched an all-time high of $90.07. London Brent crude fell 46 cents to $83.33 a barrel.
The BSE 30-share Sensex plunged 438.41 points or 2.44% to 17,559.98, on Friday, 19 October 2007. The broader based S&P CNX Nifty lost 135.70 points or 2.54% at 5,215.30 on that day.
The Sensex settled the week ended 19 October 2007 with a loss of 859 points or 4.7%. The S&P CNX Nifty lost 212.95 points or 3.9% to 5215.30 in the week.
SEBI nervous about P-Notes
Markets have pronounced their judgment. After the mayhem in the stock markets last week, there’s no doubt they’ve condemned the Securities and Exchange Board of India’s (Sebi) move to regulate participatory notes (PNs). And they’ve done it in the way they know best, by voting with their feet to pull the Sensex down 7.83% (1,492 points) in just three trading sessions after the regulator made its draft proposal on regulating participatory notes public. But markets are fickle creatures. So while market reaction is important, it is seldom a good measure of long-term policy soundness. Hence it would be inadvisable to pay undue attention to it.
The more important question is, how will posterity judge the regulator. And here the consensus opinion, once the hullabaloo has died down, will be far more forgiving. The reason is that Sebi’s proposals are in the long-term interests of the market. To understand why it is necessary to look beyond and see why is the Indian stock market out of bounds to PN-holding investors. Is it cussedness on the part of the authorities? Red tape? No. Because if that were so, we would not have more than 1,500 FIIs and close to 3,500 sub accounts registered with FIIs. Rather, the reason why some investors resort to the PN route is because they are unwilling to comply with simple regulatory requirements.
Today, any entity regulated overseas can register as an FII in India. There are no onerous obligations. All it entails is some minimal disclosures about track record, top five investors and other such details that investors should normally not have any problems disclosing. The basic distinction between funds that come through the PN route and through FIIs, therefore, is that there is no audit trail in the case of the former. There is no knowing either the quality of the money or the ultimate beneficial interest. Which is why when FIIs and PNs come to dominate the market—75% of the floating stock is reportedly now in FII hands, with as much as 52% of the assets under custody of FIIs being in the form of PNs—there is reason for concern.
Like the dog that did not bark in Silver Blaze, Sherlock Holmes’ story of the racehorse that disappeared, the existence of a class of investors unwilling to comply with simple disclosure requirements is reason to doubt its motives. More so when the rise in the number and amount of PNs outstanding has gone in tandem with the ‘excessive’ rise in the Sensex. Admittedly, it is always difficult to say at what point a market is over-valued. But there’s no denying the Sensex has run up faster than warranted by historical trends.
In such a scenario, any regulator would have reason to be anxious and want to know more about the players in the market that is all. In this, SEBI is not unique. The US Securities and Exchange Commission is just as nervous of hedge funds. And if it has not acted as yet, it is only because US markets are highly developed and can deal with the large capital flows.
But as the subprime crisis has shown, even deep, well-developed markets can be laid low, especially when there is lack of transparency. So imagine how much more havoc could be caused by lack of transparency in the Indian context. Merely saying the market reflects underlying fundamentals does not make it so. The reality is that the best of markets is not immune to sudden surges of capital, inflows or outflows. Each extracts a price—inflows, in terms of a sharp appreciation of the domestic currency or if that is a no-no, of a surge in liquidity that can be as damaging. Sudden outflows, however, are far more destabilising. They can set economies back by years, as the East Asia experience showed. Do we want to go the same way? The answer must be an unequivocal ‘no’.
Trading Calls
Buy Divis Lab with a stop loss of Rs 1300 for a short-term target of Rs 1560.
Buy Kaveri Seeds Co with a stop loss of Rs 194 for a short-term target of Rs 262.
Pre Market Watch
Indian market is likely to have a negative opening, as the Dow and Asian markets are down about 2-3%. On Friday, the benchmark index Sensex slipped by 438.41 points to close at 17,559.98, whereas Nifty closed at 5,215.30 down by 135.70 points. We expect that the market may trade volatile during the day. The investors may show cautious approach, as they are not sure about the market movement. Further the CPI(M)''s demand for a complete ban on participatory notes may have a severe impact on the market.
Wednesday, the US markets closed with heavy losses as the Dow Jones Industrial Average (DJIA) dropped by 366.94 points to close at 13,522.02. Further the NASDAQ Composite & S&P 500 (SPX) index also plunged by 74.15 points & 39.45 points to close at 2,725.16 & 1,500.63 respectively.
Indian ADRs ended with heavy loss, in telecommunication sector, VSNL & MTNL slipped by (7.36%) & (5.53%) respectively. In metal sector, Sterlite Industries plunged by (9.53%). ICICI bank & HDFC bank dropped (1.09%) and (1.98%) respectively. In technology sector, Satyam decreased by (3.06%) along with Wipro by (4.11%) and Infosys by (1.58%).
The major stock markets in Asia are also trading in red territory. Hang Seng is trading with heavy loss of 943.35 points at 28,521.70. Japan''s Nikkei slipped 537.27 points to trade at 16,277.10. Along with these, Singapore''s Straits Times index is also trading lower by 82.53 points at 3,665.45 and Seoul Composite is down by 71.51 points to trade at 1898.59.
On Friday, FIIs stood as net buyers as the gross equity purchased was Rs.8355.00 (in crores), and the gross debt purchased was Rs.59.50 (in crores) as against the gross equity sold was Rs.8229.40 (in crores) and the gross debt sold was Rs.29.40 (in crores). The net investment of equity was Rs.125.60 (in crores) and the net debt investment was Rs.30.10 (in crores).
Today, Nifty has support at 5,060 and resistance at 5,295 and BSE Sensex has support at 17,180 and resistance at 17,769.
Grey Market - Varun Industries, SVPCL, Rathi Bars
MAYTAS Infra 370 125 to 130
Circuit Systems (India) Ltd. 35 4 to 5
Rathi Bars 35 3 to 4
Allied Computers 12 3 to 3.50
Varun Ind. 60 8 to 10
SVPCL 40 to 45 4 to 5
Reliance Power - Issue may be delayed
Market to stay under pressure
The market is expected to stay under pressure in choppy session of trade, on weak cues from global markets. It may extend losses after last week’s setback caused by FII selling due to official attempts to moderate inflows. Stock market regulator Securities and Exchange Board of India (Sebi) is expected to take a decision on 25 October 2007 on its proposal to partially curb participatory notes, an instrument used by foreign investors to buy Indian shares without being registered with the regulator.
Also the crucial meeting of the panel set up by the government to look into Left front’s concerns over the Indo-US nuclear deal holds its fifth meeting today, 22 October 2007.
Asian markets were trading weak today, 22 October 2007, in the wake of a sell-off on Wall Street on Friday, 19 October 2007. Hong Kong's Hang Seng (down 3.2% at 28,521.70), Japan's Nikkei (down 3.2% at 16,277.10), Taiwan's Taiwan Weighted (down 3.06% at 9,317.62), Singapore's Straits Times (down 2.2% at 3,665.45) and South Korea's Seoul Composite (down 3.63% at 1,898.59) all edged lower.
US markets tumbled on Friday, 19 October 2007, amid lackluster profit reports, credit concerns on Black Monday Anniversary. The Dow Jones Industrial Average plunged 366.94 points, or 2.64%, to 13,522.02. The Standard & Poor's 500 index fell 39.45 points, or 2.56%, to 1,500.63, and the Nasdaq Composite index dropped 74.15 points, or 2.65%, to 2,725.
The BSE 30-share Sensex plunged 438.41 points or 2.44% to 17,559.98, on Friday, 19 October 2007. From an all time high of 19198.66 struck on 18 October 2007, the Sensex is down a sharp 1638.68 points. The broader based S&P CNX Nifty lost 135.70 points or 2.54% at 5,215.30.
The Sensex settled the week ended 19 October 2007 with a loss of 859 points or 4.7%. The S&P CNX Nifty lost 212.95 points or 3.9% to 5215.30 in the week.
India's wholesale price index rose 3.07% in the 12 months to 6 October 2007, lower than the previous week's 3.26% rise, government data released on Friday, 19 October 2007 showed. It was the lowest annual rise in 5 years.
Volatility is expected to remain high for in coming few days ahead of expiry of October 2007 derivatives contracts on Thursday, 25 October 2007.
As per provisional data, foreign institutional investors (FIIs) sold shares worth a net Rs 1750.76 crore, while domestic institutional investors (DIIs) were net buyers of shares worth Rs 186.26 crore on Friday, 19 October 2007.
Crude oil prices fell on Monday, 22 October 2007 on profit taking from record highs, but hovered near $88 on simmering geo-political tensions and a weak dollar. US light crude for November delivery fell 77 cents to $87.83 a barrel. On Friday, 19 October 2007, it touched an all-time high of $90.07. London Brent crude fell 46 cents to $83.33 a barrel.
SEBI probes into fall
Securities markets regulator SEBI is probing the role of various market players, especially top foreign portfolio investors, in the stock market collapse on Wednesday when the BSE Sensex fell by over 1,700 points within minutes after market opening.
Confirming the development, a senior SEBI official told ET on condition of anonymity that the regulator has already commenced a “patch analysis” (jargon for an analysis of market movements in a short period, or a patch to check manipulation).
The record fall in Sensex within minutes after the market opened last Wednesday happened on the back of relatively small volumes. Trading was temporarily halted on BSE and NSE after the indices breached the first trigger point for the day’s circuit filter.
According to regulatory officials, this suggests the trades had deliberately been done at prices that were way off the market. SEBI has called for details of these sales transactions and is in the process of culling the necessary information.
Trading resumed an hour later after the circuit filters were removed and the market recovered 1400 points to close at 18,715.82, down 336.04 points over the previous day’s close. It is understood that large purchases were made by entities that are also among the largest issuers of participatory notes (PNs).
The probe will ascertain whether some of these players had indulged in price manipulation, sources said, as it is possible the same set of foreign investors who had put sell orders on opening were also the first to snap up stocks after the market reopened after an hour.
According to some market players, the events of last week seem to be a repeat of what happened on May.17, 2004, now known as Black Monday. That day, the Sensex plunged by 842 points intraday and trading was stopped twice on BSE and NSE. This was the time when the NDA government had been voted out and the new UPA government had not assumed office.
A SEBI probe later found that UBS Securities, a foreign portfolio investors registered with the regulator, had sold stocks worth Rs 188.35 crore through its proprietory sub-account in the cash market. A few days earlier, UBS had built up Nifty future short positions worth Rs 434 crore and stock futures and options aggregating Rs 292 crore. The regulator tried to ascertain whether the firm had violated its regulations relating to fraudulent and unfair trading practices.
However, UBS did not furnish details citing client confidentiality in some cases, leading to a SEBI order banning it from the market for a year. This was contested at the Securities and Appellate Tribunal, which struck down the order later.
Officials concede that gaining conclusive evidence to prove that these portfolio investors acted with the motive of manipulating stock prices could prove to be tough. This would call for plugging into hours of taped conversations in dealing rooms of brokerages and offices of the foreign portfolio investors and identifying the ultimate investors.
Not that such probes have not been carried out in the past. For instance, Deutsche Borse had punished a top global securities firm for indulging in unfair market practices in the bond market a couple of years ago.
Index Outlook
Sensex (17559.9)
Investors in the Indian stock markets were subjected to a horrendous week caused by the flip-flop statements emanating from the governing authorities. If the intention of our policymakers is to arrest the rally in stocks, then why turn turtle at the first sign of a crash and issue ‘assuaging’ statements that only add to the confusion?
Despite the wild gyrations in the Sensex last week, our medium term view is unaffected. We had expected the Sensex to consolidate in the band between 17000 and 19000 for a few weeks before the uptrend resumes. The Sensex did not stray too far from this band last week. Our medium term trend deciding level of 16910 has also not been breached yet. We move the medium term support a little lower to 16550 now. The Sensex is not expected to fall below this level in the medium term. However, if it does, then the next target would be 15851.
As per e-wave counts, the sharp falls and recoveries of last week could be the fourth and fifth wave from the 12316. Completion of an impulse move from 12316 will usher in a fourth wave of a larger degree that can keep the index oscillating wildly in the band between 16550 and 20000.
That does not sound so alarming. But the need for caution stems from the fact that the rapid increase in the Sensex over the last two months has brought the index very close to its long-term targets. The second target for the fifth wave from 2003 low falls at 20031. We have almost achieved that level. What follows now can be the final stages of the bull market that can be intensely volatile.
For the week ahead, the Sensex would get support from the band between 17200 and 17100. A bounce from these levels will take the index to 17817, 17980 or 18445. A rally above the third resistance will take the Sensex to a new high again. Fall below 17100 will make the Sensex fall towards 16554. Both traders as well as investors are advised to stay out of the markets until the volatility subsides. Use rallies to pare your short-term positions in stocks.
Nifty (5215.3)Nifty achieved our medium term target of 5739 in the early part of last week before crashing to an intra week low of 5102.
The Nifty has medium term support at 5087 and then at 4910. The medium term outlook for the index will turn negative only if it falls below 4910. The preferred view is a sideways move between 4900 and 5800 for a few weeks before the next wave up unfolds. But a move below 4900 will take the Nifty to 4400.
For the week ahead, supports will be at 5070 and then at 4910. If these supports hold, the index can rally higher to 5291, 5343 or 5493.
Global CuesAfter the blow-off rally in the equities, it is the turn of crude now. Nymex crude prices rising above $90 on Friday has caused considerable consternation among the investor community that is now re-working the implications of the crude prices at the three-figure mark. As per E-wave counts, Nymex crude is currently charting the fifth wave of the move that commenced in 1998. The last leg of this wave has the minimum target of $127. The near term targets are $94 and then $103. The ascent in crude will continue as long as it remains above $84.
Friday’s crash in US markets has wreaked havoc with the medium term outlook for the Dow Jones Industrial average. The index could fall further towards 13100 over the next two weeks. But a fall below the August low of 12500 is needed to signal that the long-term trend has reversed in this index. The S&P 500 too is signalling the commencement of a medium term correction though the Nasdaq is relatively unaffected.Titan Industries: Hold
Shareholders can continue to hold the stock of Titan Industries (Titan). The stock has been re-rated in the last three months, appreciating about 30 per cent on the back of a better-than-expected earnings performance.
Although its has cooled off from its highs, the stock (at Rs 1,550) still trades at a high valuation of about 30 times its 2008-09 earnings per share.
A strong branded presence, scope for tie-ups with international brands for retailing of watches and other accessories and forays into untapped, high-growth segments are among the factors that could ensure that the stock remains richly valued. In the near-term, the onset of the festival season and the expansion of retail outlets is likely to translate into strong revenue growth.
Investors can use steep declines linked to market weakness to buy into the stock. However, further rise in gold prices, especially amid a stable or declining rupee environment, could curb demand growth in the jewellery segment, which now leads revenue growth. This is a key risk to earnings estimates.
Clocking strong growthTitan Industries has, over the past year, entered into high-growth stage, with revenues expanding at 40-50 per cent. Provisioning for earlier losses of its international operations and margin pressures curtailed earnings growth till the last fiscal.
However, with such one-time expenses out of the way, profit growth is likely to catch up, led by volume growth in both its jewellery and watches categories.
The jewellery segment operates the “Tanishq” chain of retail outlets and recently launched “Gold Plus” chain of stores that aims at tapping the demand for gold in Tier-2 and Tier-3 cities.
The segment has grown at a rapid pace of 50 per cent over the last couple of years and now accounts for about 60 per cent of the turnover. Branded jewellery retailing is relatively untapped, leaving a lot of headroom for growth for Tanishq.
The watches segment, in which Titan is practically a household name, is also recording a strong double-digit growth rate of 15-20 per cent. While Titan focuses on the mid-priced segment with its “Titan” and “Fastrack” brands, it has brands straddling across price points, with “Sonata” penetrating the sub-Rs 1,000 category and “Xyls” and “Nebula” at the premium categories.
The luxury segment, which caters to a price range above Rs 10,000 and is the fastest growing, has till now been dominated by international Swiss brands.
But Titan, through its licensing arrangement with the Movado group, is now well placed to tap this segment through the marketing of premium brands such as “Tommy Hilfiger” and “Hugo Boss”. Success in retailing Hugo Boss watches may see more international brands choosing to tie up with Titan for retailing of their brands. Luxury brands have so far limited their presence to posh hotels and upscale malls, allowing Titan to build its presence as a watch retailer.
Tapping new areasTitan has also forayed into other untapped segments, with its precision engineering division, which caters to the automotive and aerospace sector, and the prescription eye wear segment.
The latter is a more recent move. Titan has opened a couple of pilot optical stores called “Titan Eye +”, that will offer accurate eye tests and a range of frames and contact lenses. There are few players in this segment and Titan hopes to extend its expertise in design and fashion in watches to eyewear. Titan is also expanding into international markets. Having run into rough weather with the launch of its “Titan” brand of watches in the European market, the company is taking a more cautious approach to its US expansion.
It will be setting up a pilot “Tanishq” store in the US.
The launch of its jewellery in the international markets may find takers with the non-resident Indian diaspora. Tapping a broader clientele would, however, involve extensive brand-building efforts considering the competition in those segments and the market’s lack of familiarity with Indian brands. However, these forays are unlikely to be significant contributors to revenues in the medium term.
Benign marginsTitan’s earnings growth is likely to be led by volume growth in the watches and jewellery category. With an increasing share of the low-margin jewellery business, operating margins are likely to be contained at about 8-9 per cent levels.
A couple of aspects will have a bearing on operating margins in the coming quarters:
One, a sharp rise in the price of gold. Gold prices are already up 20 per cent this year, but only 8 per cent in rupee terms, thanks to the strong domestic currency. This may have limited the impact on demand for jewellery, which typically has an inverse relationship with gold prices.
The company passes on much of the price movements in gold to its customers. If the rally in gold continues, but the rupee remains at these levels or actually depreciates, volumes could take a hit.
There could be some impact of this in the September quarter, when gold prices in rupee terms rose 8 per cent. Coupled with the postponement of purchases to the festive season, the revenue growth in this segment is likely to be more sedate for the quarter.
Two, aggressive store rollout in the watches segment. This has already affected margins in April-June quarter. More than 50 “World of Titan” stores are to be opened by the end of the fiscal. It will take a while for these stores to break even.
Three, higher advertising spends. Titan’s operating margins in the first quarter of the fiscal would have declined had it not been for the sharp slash in advertising spends. Advertising as a proportion of sales stood at 9 per cent in FY-07.
It is likely to remain a significant expenditure for the company, as it introduces new ranges, enters new segments and steps up its brand-building effort to take on competition from entrants such as Rajesh Exports, Gitanjali Gems which also have plans for the domestic market.
Volume-led growthTitan will have to focus on improving its product mix, such as increasing the share of premium and mid-priced watch brands and studded jewellery to tackle the above pressures on margins.
For now, however, the company appears focussed at driving volume growth to boost profits. The strategy has worked well so far, as borne out by the high returns generated on its capital employed. But it exposes the company to changes in the demand environment, arising out of lower affordability or increasing competition.
Kalpataru Power Transmission: Buy
Steady growth, timely foray into businesses that hold potential and the ability to sustain profit margins despite pressures support an investment in the shares of Kalpataru Power Transmissions.
Investors can consider taking exposure to the stock with a time horizon of two-three years, by which time the company’s profits may start reflecting the revenue flows from recent forays.
The stock is now trading at a discount (on trailing earnings) to peers such as Jyoti Structures. The price-earnings multiple on its likely earnings for FY-2009 is 15.
ConsistencyKalpataru’s sales and net profits have seen a robust growth of 64 per cent and 122 per cent respectively over the last three years. This growth has been quite steady without sudden spikes, as sales grew by over 50 per cent and profits r by over 100 per cent in each of the last three years. It’s operating profit margin at 16 per cent now has also been consistently superior to peers.
The present order-book at Rs 2,300 crore lends visibility for revenue and earnings.
Kalpataru’s strength is predominantly in design, fabrication, construction and erection of transmission lines and sub-station structures. Backed by domestic strength, the company has been successful in winning orders in the African markets, which have also been active on power reforms.
With more players eyeing the domestic transmission and distribution segment, we view Kalpataru’s presence in overseas T&D markets as a cushion against erosion of margins as a result of increased competition and any slowdown in local spending. The company earned 25 per cent of its revenue from international markets in FY 2007.
Diversified modelIn recent years, Kalpataru entered the lucrative pipeline segment and quickly bagged orders from Bharat Petroleum and GAIL. While the order flow in the pipeline sector has not been as robust as expected, this could be viewed as a mere delay than any decline in prospects.
A number of new gas and crude pipelines are being planned and Kalpataru has been increasing its investments in this segment indicating that it could well be an earnings driver in future.
The company’s foray into bio-mass power generation (using agricultural residue) has been successful with two plants running at about 93 per cent plant load factor.
While revenue contribution from these segments is now insignificant, the profit margin appears superior. Further, given the high potential for small-scale bio mass generation projects in rural areas with limited capital employment, we see this segment to buttress overall profit margins even if it does not result in high earnings accretion.
Recent foraysKalpataru has forayed into logistics and real estate through subsidiaries. The logistics subsidiary is into high-end warehousing, cold storage and logistics activities and has already procured land in several areas of Gujarat and Rajasthan for adding more warehouses.
Increased retailing activity in the country especially in the food segment, warrants the need for integrated warehousing and transportation solutions.
While the bigger players may invest in-house for the same, a good number of mid-rung companies are likely to look at outsourcing — also called third-party logistics. If the subsidiary is able to convert its timely entry into some reasonable market share, it may add value to the consolidated picture.
JMC Projects, another subsidiary, has been a successful turnaround story after Kalpataru’s investment in the company.
This subsidiary is likely to act as a good support for the company’s foray into infrastructure projects.
Price variable clauses in domestic markets have effectively shielded Kalpataru’s operating profit margins from any hike in raw material costs. However, its increasing exposure to foreign currency could dent net margins if not effectively hedged.
Patel Engineering: Powered by high margin businesses
Patel Engineering’s consolidated results for the quarter-ended September 2007 reflects the company’s increasing focus on high-margin businesses as well as the gaining traction of its subsidiaries.
While consolidated revenues rose 39 per cent to Rs 340 crore, net profits also grew by 39 per cent. Operating profit margins jumped by 130 basis points to 16.4 per cent. On a standalone basis, the OPMs stood at close to 18 per cent for the quarter, indicating increased contribution of high margins projects from the hydro power sector. With hydro power projects continuing to account for 56 per cent of the current order-book of Rs 5,400 crore, the company is likely to enjoy strong profit margins in future too.
That the subsidiaries have been ramping up their revenues is evident from the Rs 100 crore increase in consolidated sales (relative to standalone sales).
The company’s realty subsidiary may soon accelerate the earnings growth rate, what with plans already underway for the land bank.
Interestingly, unlike a few other infrastructure companies which hold land bank, but through their subsidiaries, Patel has chosen to retain all its land bank in the parent company and has instead granted development right to the subsidiary Patel Realties India. Therefore the benefit arising out of the land could well percolate into the per share earnings of the parent company, thus benefiting shareholders. While the company’s foray into power generation (thorough its subsidiary) as an independent power producer in Gujarat for 1,200 MW for thermal power is at a preliminary stage, this segment may also add to revenues over the long term.
Container Corporation of India: Buy
Investors can consider buying the stock of Container Corporation of India (Concor), a leading multi-modal logistics service provider, with a three-four year holding period perspective. Concor’s superior infrastructure, backed by its strategic tie-ups with other players, its cold-chain initiative and an inimitable business model are key positives that support our investment view.
Besides, Concor is well-positioned to benefit from any increase in export-import traffic, given its strong network of inland container depots and wagon rakes.
However, in the light of increasing pressure on margins and a skewed export-import distribution (resulting in running of empty rakes), earnings over the next year may remain subdued. This could cap the upside in stock price over the near-term.
At the current market price of Rs 1,865, the stock trades at about 14 times its likely FY-09 per share earnings. Investors can, however, buy the stock in lots to capitalise on the volatility in the broad markets.
Strong infrastructureThe growing popularity of containerisation combined with an increase across ports’ handling capacity augurs well for most players in the logistics space. Given Concor’s scale of operations and market presence, it is likely to emerge as a relatively bigger beneficiary of such an expansion in market.
Our view is based on two factors. One, Concor’s infrastructure consisting of a total base of over 8,500 wagons and a network of 57 rail-linked terminals which makes it the biggest player in the sector. This not only helps Concor score the highest in terms of hinterland connectivity, it also makes it difficult for other players to replicate its network. The other factor that lends confidence is the company’s strategy of forming tie-ups with potential competitors.
Concor has formed strategic alliances with most of the 14 players which have entered the container rail space. Also, it has formed a joint venture with Reliance Logistics to jointly promote end-to-end logistics business. This strategy, apart from providing Concor an additional source of revenue, also discourages direct competition. It also reduces the possibility of infrastructure duplication by these players.
Furthermore, Concor’s presence in cold chain through its wholly-owned subsidiary, Fresh and Healthy Enterprises, also holds promise. With the business potential in this space driven by increasing retail activity, prospects of this initiative appear bright. Besides, the absence of any well-established player in the segment also leaves tremendous scope for growth.
margin pressureNotwithstanding the mammoth infrastructure network, Concor has been facing competition from the road transport players due to the unfavourable railroad economics over short-to-medium distance.
To combat this, Concor has adopted a discount pricing strategy, offering about 10-15 per cent discount to FEUs (40-feet containers).
While such pricing tactic has helped Concor attract more volumes, it has also increased pressure on margins. For the quarter-ended September 2007, despite a robust growth in volumes, lower realisation led by discounts capped growth in revenues at about 7 per cent. Overall margins fell by about 6.7 percentage points to 25.9 per cent. Profit margins also suffered on account of the absorption of surcharge cost and skewed import-export mix, which led to higher running of empty rakes.
The drop in export volumes forced Concor to run empties, thus resulting in a higher operational cost. Fall in earnings, however, was arrested at about 8 per cent due to the 74 per cent increase in ‘other income’. Other income was propped by the interest income earned on Concor’s cash reserves.
However, since the current growth in volumes has largely been driven by discounts, pressure on margins could remain till Concor records volume growth that could support margins.
In this context, firm oil price outlook and the restriction on truck overloading could translate into long-term positives, diverting some of the road transport cargo towards rail.
Moreover, margins could also see some expansion with a possible rebalancing of exim volume mix.
Bias may remain bearish
The sentiment is likely to remain bearish following weakness in the Asian and US indices, and the continued relentless selling pressure in the domestic market. Also FIIs remained net sellers of stocks in last three straight sessions may further dampen the investors' sentiment. Key indices, the Nifty may get support at 5100 level and on the upside it could test higher levels at 5506. The Sensex has a likely support at 17300 and may face resistance at 18494. Bhushan Steel, Dish TV, Eicher Motors, Finolex Industries, GTL, HCL Infosys, Hindistan Zinc, LIC housing Finanace and Rolta are expected to announce their quarterly numbers.
US indices declined sharply on Friday on concerns of economic slowdown on the back of slower corporate earnings, record-high oil prices and more problems in the bank sector. While the Dow Jones slipped almost 367, seeing its third biggest fall of the year to close at 13522, the Nasdaq lost 74 points to close at 2725.
Indian ADRs trading on the US bourses, too, succumbed to heavy losses. Among the major losers VSNL, Rediff, MTNL and Wipro shed over 4-7% each. Infosys, Satyam, Dr Reddy's, Tata Motors, ICICI abnk, HDFC Bank and Patni Computers were down around 1-3% each.
Crude oil prices declined marginally, with the Nymex light crude oil for November delivery slipping by 87 cents to close at $89.47 a barrel. In the commodity space, the Comex gold for December series lost 30 cents to settle at $768.40 a troy ounce.
No Trading Calls
Too volatile for the market to trade.
If you think, you are getting panic prices, go ahead and buy for long term
October opportunity, buy for next Diwali
Most successful people have not achieved their distinction by having some new talent or opportunity presented to them. They have developed the opportunity that was at hand.
We’ve had enough of fireworks in September and October so far. So why worry about where the indices will be this Diwali? Today, we see another weak opening on the back of a sharp fall across global markets, sparked by Friday's big fall in US stocks, apart from of course the worries over the P-Note imbroglio. Opportunities will be available in plenty this week. Those who have the money can buy sound counters for the medium to long term. Fears of a lower circuit could be laid to rest as SEBI is reportedly investigating Wednesday’s crash when the indices were frozen for an hour amid extremely low volumes.
We expect the intra-day volatility to continue with a negative bias. The anxiety over the P-Note issue will continue at least till Thursday when SEBI will take a final call on the matter. There is hope that the market regulator will soften its stance just a little bit. It is also proposing to ease rules for hasten the registration process for overseas investors. In fact, it is expected to make the registration process public. SEBI chairman M. Damodaran is also holding a video conference with FIIs to clear the air over the P-Note issue. So, expect more statements on the P-Note issue through Thursday.
Plus, we have the meeting of the Congress-Left panel on the Indo-US nuclear deal. The communists are upping the ante and have asked the Government to make a formal announcement on the deal. Unofficially speaking, the deal is headed for cold storage, which is bad news for the country. What's worse, having tasted blood, the Left is likely to step up its resistance to a slew of big-ticket reforms over the next 18 months. Next week, we will have the RBI's mid-term review on Oct. 30. No rate cuts are expected, due to excess liquidity and higher consumer price inflation. The Federal Reserve will also announce its decision on interest rates the next day. Though most on Wall Street expect another rate cut from Ben Bernanke & Co., a school of thought believes he may not oblige.
Havells India could see some action amid reports that private equity major Warburg Pincus will pick up an 11.2% stake in the electrical equipment and power distribution company for $110mn. Patni Computer may attract some attention as a financial daily says its proposed stake sale is back on track. Sun Pharma may gain after US drug major Wyeth decided to issue a covenant 'not-to-sue' to the Indian company for preventing the latter from seeking an approval for launching a generic version of its anti-depressant Effexor XR.
Record high oil prices, weak corporate earnings and more trouble for the financial sector sent US stocks sliding on Friday, even as Wall Street marked the 20th anniversary of the 1987 market crash. Weak earnings from blue chip titans - Caterpillar, Honeywell and 3M - revived worries about the health of the world's largest economy amid a continuing slump in the embattled housing sector.
The Dow Jones Industrial Average tumbled after Caterpillar said the US economy will be near to, or even in, recession next year. Several industries it serves already are in recession, it said. The grim comments from bellwether Caterpillar helped drag down the shares of other big industrial companies and sparked a shift from stocks to the relative safety of treasury bonds.
The Dow lost 367 points and closed at the lowest since the Fed cut its benchmark lending rate Sept. 18. The S&P 500 Index slipped 39 points, or 2.6%, to 1,500.63. The Dow declined 2.6% to 13,522.02. The Nasdaq slid 74 points, or 2.7%, to 2,725.16. It was the worst percentage drop for the Dow and the S&P 500 since Aug 9.
The fall pushed benchmark indexes to their biggest weekly loss since July. The S&P 500 fell 3.9% this week and the Dow lost 4.1%. The Nasdaq declined 2.9%. The Dow suffered its third-biggest point loss of the year, its worst since the steep sell-off in early August in the midst of the credit and mortgage market mess.
The decline brought back memories of events in October 1987, when the US stock market plunged on Oct. 16 (a Friday), before collapsing the following Monday. On Oct. 19, 1987, the Dow fell 22.6% or 508 points in a single day. It was the second biggest market crash in Wall Street's history.
US light crude oil for November delivery fell 87 cents to settle at US$88.60 a barrel on the New York Mercantile Exchange. Oil briefly hit a record of US$90.07 a barrel in electronic trading.
Treasury prices rallied, lowering the yield on the benchmark 10-year note to 4.39% from 4.49% late on Thursday. Two-year Treasury notes rallied the most since September 2001 as investors sought the safety of government debt. COMEX gold for December delivery fell 30 cents to settle at US$768.40 an ounce.
Worries galore for bulls!
It was one of those days, in fact one of those weeks which investors and traders would not like to bear in mind as the Participatory notes issue kept the markets jittery for third straight session. Friday’s session was another highly volatile one as benchmark Sensex gyrated over 800 points in intra-day and NSE Nifty over 250 points.
Even better than expected Inflation figures that declined to a five year low was unable to spurt up the sentiments on Friday. India's inflation for the week ended October 6, 2007 fell to 3.07% from 3.26% in the week ended September 29, the lowest level since October 19, 2002, when it was at 3.01%.
Among the BSE sectoral indices, BSE IT index was the only gainer adding 0.21%. Other like Capital Good, Realty and FMCG index were down over 2.5% each. Even the Mid-Cap and the Small-Cap indexes were down over 2.5% each.
Finally, the benchmark Sensex dropped 438 points to close at 17,559 and NSE Nifty slipped 135 points to close at 5,215.
Tata Motors was down 0.3% to Rs781. Reports stated that the company entered into a strategic partnership with Jamna Auto as per which the latter would buy one of the Tata Motors shut units in Jamshedpur to make critical parts for CVs and SUVs. The scrip touched an intra-day high of Rs791 and a low of Rs760 and recorded volumes of over 2,00,000 shares on NSE.
TCS lost 1% to Rs1106. The company announced that they won the biggest ever Indian IT outsourcing deal worth US$1.2bn from the Dutch media and marketing information provider The Nielsen Company. The scrip touched an intra-day high of Rs1151 and a low of Rs1080 and recorded volumes of over 2,00,000 shares on NSE.
Rcom advanced by 2.3% to Rs727 after DOT granted GSM technology to the company in its existing license areas. The scrip touched an intra-day high of Rs748 and a low of R691 and recorded volumes of over 57,00,000 shares on NSE.
Accentia Technology slipped 1.1% to Rs231. The company announced that it is considering acquisition in billing claims. The scrip touched an intra-day high of Rs243 and a low of Rs224 and recorded volumes of over 11,00,000 shares on NSE.
Kirloskar Oil dropped by over 5.5% to Rs353. The company announced that they may restructure Auto components division. The scrip touched an intra-day high of Rs370 and a low of Rs315 and recorded volumes of over 67,000 shares on NSE.
Ashapura Minechem slipped 2.2% to Rs254. The company announced that they would consider free share plan. The scrip touched an intra-day high of Rs267 and a low of Rs240 and recorded volumes of over 57,000 shares on NSE.
Capital Good stocks continued to be on the receiving end. ABB slipped over 6% to Rs1410, Siemens lost by over 2.8% to Rs1603 and Punj Lloyd dropped 7.1% to Rs344.
IT stocks recorded smart gains as rupee pared gains. The currency declined for the fourth day on concern of overseas investment rules to be set next week will restrain capital inflows into the markets. It bellwether Infosys advanced 1% to Rs1908, Wipro edged higher by 0.8% to Rs500, and Patni added 3% to Rs440.
Stocks in News:
Ballarpur Industries, the largest domestic producer of paper, to expand capacity at its Pune unit by 0.2mn tons; to invest Rs9bn
Coal India to sell 10% of its output, or 38.4mn tons, through e-auctions under the new coal policy
Gujarat State Petronet to expand gas distribution network to emerging economic hubs of Mundra and Pipavav ports and Morbi in Gujarat
Tata Teleservices, which provides CDMA based mobile services in 20 circles, may apply for GSM spectrum
Reliance Industries has decided to hive off Reliance Fresh into a separate company, Ranger Farm, for single point accountability
Mother Diary is eyeing a turnover of US$1bn in the next two year
Bharti Airtel to venture into IPTV and DTH services
IFCI has raised the total investment limit for foreign institutional investors to 74% in the company
Jai Corp would raise about Rs21.1bn from investors and promoters
Shri Lakshmi Cotysn has earmarked an investment of over Rs.5bn for expansion plans
Adani group’s Mundra Port and special economic Zone is planning to raise Rs.15bn through an IPO to part fund the development of the port
KPIT Cummins’ plans to get its joint venture with Symbio in China operational by the next quarter
Inflation declines to five year low of 3.07% for week ended October 6th
Power and fertilizer would get coal on a priority basis as per their requirements at pre-determined prices as per the new coal distribution policy
The Board of Approval approves 14 proposed SEZs; Reliance ADAG SEZ at Noida unlikely to get nod
IIFCL, the state owned financial institution, is likely to open a subsidiary in Singapore or London; to get US$5bn from forex reserves to finance infrastructure projects .
Fund Activity:
FIIs were net sellers of Rs17.51bn (provisional) in the cash segment on Friday and the local institutions pumped in Rs1.86bn. In the F&O segment, foreign funds were net sellers of Rs8.96bn.
FIIs were net buyers to the tune of Rs1.26bn on Thursday. Mutual Funds were net sellers of Rs2.66bn on the same day.
Major Bulk Deals:
Upper Circuit:
Reliance Industrial Infrastructure, IID Forgings, Jai Corp and TCI Industries.
Lower Circuit:
Bag Films, Radha Madhav Corp, Lloyd Steel, Evinix, Deep Industries, GTC Industries, Bartronics, Raj Tele, Malu Paper, Carol Info, Swan Mills, Karuturi Networks, DS Kulkarni, Goldstone Tele, Rap Media, ABG Heavy, Vakrangee Software, Assam Co, Ferro Alloys, ION Exchange, IT People and Marathon Nextgen.
Markets likely to continue wobble
The stock markets may well remain wobbly as they head into a new week, carrying over last week's confusion surrounding the proposed curbs on participatory notes (P-note). A a video conference between the Securities and Exchange Board of India and leading foreign investors after close of trade on Monday may, however, provide much-needed clarity and, hopefully, bring stability back to the markets, dealers said.
P-notes, an offshore derivative instrument which has Indian stocks as underlying, are issued by FIIs to anonymous overseas investors. More than 30% of the capital inflows into the country’s capital markets are through the P-note route.
Dealers said they anticipate further slide in stock prices judging by the recent frenzied rise in prices that made several stocks "excessive". Cues from the US, where the Dow lost 367 points on Friday, are also negative.
Proposals to curb rising inflows into stock markets through P-notes triggered a sell-off in the stock markets last week. Sensex, which had gained 36% since the lows of mid-August, corrected nearly 8% after hitting a record 19051.
Also, if the dollar continues to fall, one could see more inflows as foreign investors buy shares in India as a hedge against the US currency. The rupee closed at 39.74 against the dollar on Friday, down 0.06%. The currency has appreciated 10% since late 2006.
Second quarter results announced by many companies this week have not been very stunning, though they are in line with market expectations. Reliance Industries, India's most valuable company, posted 28% increase in net profit. However, software companies bore the brunt of the strong rupee as Infosys results failed to keep up with expectations'of analysts. The upcoming week will see other IT majors such as HCL and Satyam along with heavyweights Tata Steel and ITC announcing their results.
Sebi, at its board meeting on Thursday, will decide how to curb the $88 billion P-note investments. Foreign investors unwound Rs 14,000 crore worth exposures into stocks and derivative positions in the last three days. With the markets already absorbing the pain, some commentators expect Sebi to go ahead with the P-note move.
Deepak Parekh, chairman, HDFC, welcomed the P-note curb proposals, saying the huge inflows through the instrument were a cause of concern. "The BPO industry is operating at margins of 10-15%, which are pretty thin. Further, rupee appreciation will render several people jobless," he told reporters on the sidelines of a seminar on Friday.
Sashi Bhushan, head of equities at IL&FS Investsmart said: "There is some more pain left for the market. We will see stability at 16000-16500 levels. We could see some buying coming at those levels.”
Market participants also fear that margin calls may get triggered on Monday, if there is further unwinding of positions by FIIs. Margins calls are triggered when brokerage houses (and stock exchanges, in extreme situations) unwind their clients leveraged exposures in the market to meet margin requirements when prices fall sharply.
Investors can expect a bumpy ride this week
Don’t say a day was bad as the next could be worse, says a famous Chinese proverb. And investors in Indian equities may well pay heed to this maxim as the coming week may see stocks at their volatile best with intermittent bouts of buying and selling. Global cues could also act as a spoilsport.
Volatility is expected to remain high ahead of expiry of October 2007 derivatives contracts on October 25, 2007. The P-Notes issue continues to hang like the sword of Damocles over the market and all eyes are now on the SEBI board meet scheduled on Thursday to discuss suggestions put forth by market players to its proposal.
If the proposals are implemented, equity analysts warn of a sharp downside. However, many choose to believe that SEBI may adopt a milder stance while converting the proposals to norms. The market will also look for signals from the video conference to be convened by SEBI chairman, M Damodaran with overseas investors to discuss issues arising from the draft proposal on participatory notes (PNs).
It had been a tumultuous week and benchmark indice lost almost 4.66% or 859 points in that period. The Sensex and the Nifty which had also touched historic highs in the last week, snapped an eight-week rally post the SEBI proposal on P-notes.
Including the provisional figures issued by exchanges for Friday, foreign funds sold shares more than worth $450 million on the last three days of the week. Although, market experts are divided on how the market will behave in the near future, stay invested is what they all advice.
A Merrill Lynch report issued last week said that given sub prime concerns across the developed markets, more money will now come to Asia. The Wall Street firm has upgraded India to market weight saying within Asia, India has the second-strongest growth, and the second-largest economy, after China.
“With the MSCI Asia ex-Japan index’s total twelve month return now in excess of 60%, there must be some itchy trigger fingers in the fund management community,” Merrill’s Hong Kong based strategist Mark Matthews says in his report. It also points out that on the past three occasions when Asian stock markets rose by this much in such a short period of time, subsequent returns were mediocre.
The near term trigger for the market is RBI’s mid term review of annual policy due on 30 October 2007. It remains to be seen whether the central bank does away with a hawkish stance in the policy. However, a near term rate cut by RBI looks unlikely with consumer price based inflation and liquidity remaining high.
Then there is panel meeting-set up by the government to look into Left front’s concerns over the Indo-US nuclear deal-on Monday, 22 October 2007. An action packed week and definitely no place for the faint hearted any more.
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