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Monday, October 29, 2007
Strong global cues lift Sensex to new high
The Sensex extended its gains for the sixth straight session and touched the 20,000 mark on the back of strong global cues. Driven by a strong surge in banking, capital goods, and oil stocks, the Sensex zoomed to touch the all-time high of 20,024 by afternoon. Investors seemed optimistic about the rate cut ahead of the Reserve Bank of India's mid-term review of the annual policy and the US Federal Reserve meeting on October 31. Substantial buying in HDFC, BHEL, and L&T also helped the Sensex touch its record new high. The market witnessed hectic activity during the last hour of the trading session and the Sensex closed the session with a gain 735 points at 19,978. The Nifty, too, surged on substantial buying and moved up by 204 points to close at 5,906.
The broader market was positive. Of the 2,841 stocks traded on the Bombay Stock Exchange (BSE), 1,579 stocks advanced, 1,200 stocks declined and 62 stocks ended unchanged. The BSE Capital Goods index led the surge in the sectoral indices and rose 7.05% at 19,848, followed by the BSE Oil & Gas index (up 5.01%), while the BSE Bankex index and the BSE PSU index gained over 3% each.
Buying was led by L&T, which notched up gains of 10.33% at Rs4,277. Among the other gainers HDFC advanced 9.63% at Rs2,813, BHEL added 7.42% at Rs2,612, ONGC moved up 7.15% at Rs1,239, HDFC Bank jumped by 5.99% at Rs1,639, ICICI Bank gained 5.48% at Rs1,249 and Reliance Industries was up 5.03% at Rs2,828. However, Tata Steel tumbled 9.06% at Rs900.90, while M&M, Bajaj Auto, Ranbaxy, Tata Motors, Cipla, TCS and Dr Reddy's Lab closed marginally down.
Over 4.19 crore Reliance Natural Resources (RNRL) shares changed hands on the BSE followed by Tata Teleservices (3.53 crore shares), Reliance Petroleum (2.50 crore shares), Himachal Futuristic Communication (1.31 crore shares) and Power Grid Corporation (1.14 crore shares).
Value-wise, Reliance Petroleum registered a turnover of Rs542 crore on the BSE followed by L&T (Rs469 crore), Reliance Natural Resources (Rs448 crore), Reliance Industries (Rs314 crore) and Reliance Energy (Rs248 crore)
Mukesh Ambani Richest!
Billionaire Mukesh Ambani on Monday became the richest person in the world, surpassing American software czar Bill Gates, Mexican business tycoon Carlos Slim Helu and famous investment guru Warren Buffett, courtesy the bull run in the stock market.
Following a strong share price rally on in his three group companie, India's most valued firm Reliance Industries, Reliance Petroleum and Reliance Industrial Infrastructure Ltd, the net worth of Mukesh Ambani rose to $63.2 billion (Rs 2,49,108 crore).
In comparison, the net worth of both Gates and Slim is estimated to be slightly lower at around $62.29 billion each, with Slim leading among the two by a narrow margin.
Warren Buffett, earlier the third richest in the world, also dropped one position with a net worth of about $56 billion.
Ambani's wealth of about Rs 2,49,000 crore includes about Rs 2,10,000 crore from RIL (50.98 per cent stake), Rs 37,500 crore from RPL (37.5 per cent) and Rs 2,100 crore from RIIL (46.23 per cent).
Slim's wealth has been calculated on the basis of his stake in companies like America Movil (30 per cent), Carso Global (82 per cent), Grupo Carso (75 per cent), Inbursa (67 per cent), IDEAL (30 per cent) and Saks Inc (10 per cent).
According to information available with the US and Mexican stock exchanges where these companies are listed, Slim currently holds shares worth a total of $62.2993 billion, with more than half coming from Latin American mobile major America Movil. Slim is closely followed by Gates with a net worth of $62.29 billion currently.
Earlier last month, US business magazine Forbes had named Gates as the richest American with a net worth of $59 billion, calculated as on August 30. The magazine had said that a movement of two dollars in the share price for Microsoft, the world's biggest software maker, could "add or subtract a billion dollars" from his wealth.
Since August-end, Microsoft's share price has risen by $6.58 (based on yesterday's closing on Nasdaq at $35.03), which results into a gain of $3.29 billion in Gates' wealth based on Forbes assumption.
Besides a stake in Microsoft, Gates' wealth also includes the commission and license fees earned by him and gains through his shares in an investment holding company that invests across the market.
Gates is followed by Buffett at the fourth place in the league of the world's richest with a net worth of $55.9 billion through his holding in his investment vehicle Berkshire Hathaway and in other companies. At the end of August, Buffett's wealth stood at $52 billion, as per the Forbes magazine. Berkshire Hathaway's share price has gained by about 7.5 per cent since then.
Earlier on September 26, Ambani had overtaken steel czar Lakshmi Mittal to become the richest Indian in the world.
Mittal currently ranks as the fifth richest in the world with a net worth of $50.9 billion through his 44.79 per cent stake in world's biggest steel maker ArcelorMittal.
While most of Mittal's wealth comes from his steel empire, though he has also spread his wings into businesses like oil and real estate, those of Ambani and Gates are mostly through petrochemicals and software respectively. However, Buffett and Slim are making money from investments across a host of sectors.
Market Close: 20k crossed...time to book profits..
Support from the global front coupled with continues buying by the retail investors ensured that there was no looking back for the Indian indices. After a strong start the rally continued to zoom ahead and reached in the final leg of the 19,000 levels. Some signs of slow down were witnessed past the 19,950 levels but finally the 20,000 levels were breached in the final trading sessions. The index heavy weights like Reliance, Suzlon, SBI and L&T dominated the rally which was later joined by the small and mid caps. The gainers for the day were on the Banking, Reality and Consumer Durables counters. Strong rupee continued to weigh on IT. Tomorrow RBI will meet to discuss on interest rate. If interest rate is cut then it may restrain the rupee rally and help IT. European indices were firm.
Sensex closed at 19,977 higher by 735 points. Supporting the sensex were the gains in L&T (+10.20%), HDFC (+9.94%), BHEL (+7.33%), ONGC (+5.97%). Restricting the gains were the losses in Tata steel (-9.45%). M&M (-1.71%), Baja Auto (-0.62%) and Tata motors (-0.42%).
Jet Airways reported its September ended quarter results. The top line increased by 26% at Rs 2,254 cr against Rs 1,787 cr in the same quarter last year. The net profit for the quarter stood at Rs 28 cr vs a loss of Rs 55 cr in the September ended quarter last year. Higher crude seems to have impact the aviation industry in the country the most. Aviation Turbine Fuel (ATF) accounts for 40% of the cost for an airline. ATF is sold at 60% higher prices in the country compared to the international prices. PSU?s have monopoly in the marketing of ATF in the country. Aviation minister intends to break that monopoly. That could be in favor of the airline in the long run. Jet has the first mover advantage and is the only private airline in the country that can fly overseas apart from the state owned Air India. King fisher intends to go international by the end of March 2008 through its subsidy Deccan aviation where it has 46% stake. That could create some competition for the Jet. The industry is into transition mode. However for now it is largely affected by ATF but we think that industry is ready to take off. We like Spicejet in this space. Do read our note to get insights on this one.
Mahindra & Mahindra (M&M) ended a percent lower after the company announced its September ended quarter results. M&M?s net profit fell 26 % to Rs 285.95 cr compared with Rs 386.48 cr in the same quarter of previous year. Net sales increased by 12 % to Rs 2,871.55 cr for the quarter from Rs 2,563.42 cr for the same period last year. The slow down in the auto sales was expected with the hardened interest rates on auto loans. Festive season may see some growth in sales. Interest rate seems to be peaked off for now and seems to be directed down. Auto counter could see some relief.
Technically Speaking: Senses traded between an intra day high of 20,025 and low of 19,621. Advancers out numbered decliners. There were 1,558 advances against 1,196 declines. Support is at 19,700 levels. The volume for the day stood at Rs 8,884 cr. Markets seem to have over brought. Expect movement to be sideward and correction can not be ruled out at this stage.
Post Market Commentary
After climbing one more step (1000 points) of the growth path, the benchmark index BSE Sensex touched a new milestone of 20k points for the first time and finally ended on a firm note. It seems that the Indian bulls are very confident for all the news to come in their way right from the quarterly results to the RBI''s review of the monetary policy. It just took 10 trading sessions for the Sensex to move from 19000 to 20000 levels. Top 6 stocks contributed to 90% to the 1000 point rally from 19,000 to 20,000. L&T and ICICI Bank were the top contributors with 50% contribution of last 1000 points rally. Further the large caps like L&T, BHEL, RPL, Siemens, HDFC, HDFC Bank were among the star performers in today''s rally. The benchmark index Sensex ended with a gain of 734.50 points at 19,977.67 after touching the all time high of 20,024.87, whereas Nifty also closed with a good gain of 203.6 points to close at 5905.90 after touching the all time high of 5,922.50. Further, BSE Midcap and BSE Smallcap also closed higher with a gain of 161.88 points and 154.25 points at 8,082.54 & 9,705.20 respectively.
BSE Capital goods stood as the start performer of the day as it closed with the highest gain of 1307.51 points at 19,847.66. Fueled it up are Siemens with the highest gain of (12.17%), L&T (10.33%), BHEL (7.42%), Areva (7.24%), and Punj Lloyd (6.71%).
Keeping the others behind, BSE Oil & Gas stood at the second position with the gain of 556.19 points to close at 111,659.65. Scrips gained are Reliance Petroleum (9.80%), Reliance (5.03%), ONGC (7.15%), & GAIL India (2.09%).
BSE Metal also shared the gaining rally with a gain of 445.18 points to close at 17,189.74. Scrips supported are, Jindal Saw (19.99%), Jindal Steel (5.99%), Maharashtra Sea (5.91%), & Sesa Goa (4.62%).
BSE Bankex also followed the gaining rally to closed higher by 376.18 points at 10,649.71. Scrips surged are HBFC Bank (5.99%), ICICI Bank (5.48%), Yes Bank (4.54%), PNB (2.88%).
Sensex soars 735 points on Fed rate cut hopes
Sensex hit 20,000 mark in late trade after remaining range-bound close to this mark for most of the afternoon trade after an initial surge. Reliance Industries surged to all-time high in afternoon trade. Expectations that the US Federal Reserve would cut interest rates this week and that it will ease monetary policy further in the coming months, boosted the bourses today. European markets started on a positive note today. Asian markets were firm. BSE Mid-Cap and BSE Small-Cap indices underperformed Sensex. Market breadth was strong.
HDFC surged to hit all time high in late trade. Capital goods, metal, Oil & Gas and banking stocks surged. Bharat Heavy Electricals, Larsen & Toubro, NTPC, State Bank of India, Grasim Industries, HDFC Bank, ICICI Bank, Maruti Suzuki, ONGC hit all-time highs today. Maruti Suzuki pared gains after its Q2 results hit the market in afternoon trade.
BSE Sensex ended up 734.50 points or 3.82% to 19,977.67. It opened with an upward gap of 378.22 points at 19,621.39. Sensex hit fresh all time high of 20,024.87 in late trade. At day's high of 20,024.87, Sensex had risen 781.7 points.
The broader based S&P CNX Nifty ended up 203.6 points, or 3.57%, to 5,905.90. It hit an all-time high of 5,922.50 in late trade today.
The Sensex achieved the journey of 1,000 points from 19,000-20,000 in ten trading sessions. Sensex had first crossed 19,000 mark on 15 October 2007.
From a low of 13,989.11 on 21 August 2007 the Sensex gained 5,988.56 points or 42.8% to 19,977.67 on 29 October 2007. FII buying was primary driver of the rally.
The NSE F&O turnover was Rs 69,537.38 crore today as compared to Rs 73836.74 crore Friday, 26 October 2007
Nifty November 2007 futures contract was trading at 5,918, at a premium of 12.1 points or 0.2% over spot price of 5,905.90.
A major breather by the market regulator Securities & Exchange Board of India with respect to stringent norms on restriction on participatory notes (PNs) enabled the market to regain its form after a sharp correction recently. Sebi, on Monday, 22 October 2007, allowed FII sub-accounts to convert into foreign institutional investors status. This helped eased concerns arising from possible huge sales from liquidation of outstanding PNs from FII sub-accounts, with all the 20 PN issuing sub-accounts informing Sebi about their intension to convert to FII status.
It may be recalled that Sebi had simultaneously proposed liquidation of outstanding PNs by sub-accounts within 18 months when it had first proposed ban on fresh issue of PNs by sub-accounts in its draft proposals on 16 October 2007. Later, the Sebi board approved the draft proposals which came into force from Friday, 26 October 2007.
BSE clocked a turnover of Rs 8884 crore today, compared to Friday (26 October 2007)'s Rs 9,005.17 crore.
The market breadth was strong on BSE: 1,540 scrips advanced as compared to 1,201 that declined while 320 remained unchanged. 22 of the 30 members of the Sensex pack were trading with gains.
The BSE Mid Cap index (up 2.04% to 8,082.54) and BSE Small Cap index (up 1.62% to Rs 9,705.20) edged higher. Both these indices underperformed Sensex.
BSE Capital Goods index (up 7.05% to 19,847.66) & BSE Oil& Gas index (up 5.01% to 11,659.65) outperformed Sensex.
BSE Auto (up 0.7% to 5,656.43),BSE Bankex (up 3.66% to 10,649.71),BSE IT (up 0.84% to 4,674.65),BSE Metal (up 2.66% to 17,189.74), and BSE Realty (up 2.54% to 10,275.01) underperformed Sensex.
Q2 September 2007 results announced so far have been decent to strong.
Reserve Bank of India (RBI) holds mid-term review of annual policy due on Tuesday, 30 October 2007 and US Federal Reserve’s meeting on Wednesday, 31 October 2007 on interest rates. As per reports, some bankers and economists expect a marginal cut in key short-term rates, while others feel that RBI might not do so in the face of inflationary expectations looming large due to surging global oil prices.
Meanwhile, analysts speculate that Fed would cut rates by 25 basis points at its policy meeting on Wednesday, 31 October 2007.
Oil & gas stocks surged. India's largest oil exploration firm ONGC rose 7.15% to Rs 1,238.60. It hit an all time high of Rs 1,252.95 today.
India's largest private sector entity by market capitalisation and oil refiner Reliance Industries (RIL) rose 5.03% to Rs 2,827.65. It hit an all time high of Rs 2,844 today. RIL is reportedly in talks to acquire some manufacturing facilities from Arvind Mills, mainly in the denim segment. The proposed acquisition is part of RIL’s increased focus on the apparel business. Reliance Petroleum (up 9.8% to Rs 221.90) and GAIL India (up 2.09% to Rs 415.15) edged higher.
India's biggest dedicated housing finance firm HDFC rose 9.63% to Rs 2,813.05. It hit an all time high of Rs 2,838 in late trade today.
Maruti Suzuki India rose 0.61% to Rs 1,188.45. The stock came off higher level. It had hit all-time high of Rs 1,252 earlier during the day. Maruti Suzuki India’s net profit rose 26.94% to Rs 466.5 crore on 33.74% rise in total income to Rs 4,735.83 crore in Q2 September 2007 over Q2 September 2006. The results hit the market during trading hours today.
Capital goods stocks rose sharply. India's biggest power equipment maker in terms of revenue Bharat Heavy Electricals rose 7.42% to Rs 2,612.10. It hit an all-time high of Rs 2,697.90 ahead of its results today. India's biggest engineering & construction firm by revenue Larsen & Toubro surged 10.33% to Rs 4,277.45. It hit an all-time high of Rs 4,300 today. Suzlon Energy (up 2.56% to Rs 1,997.90) edged higher.
India's biggest power generation firm National Thermal Power Corporation rose 1.97% to Rs 233.25. It hit an all-time high of Rs 240 today. Net profit of NTPC rose 30.64% to Rs 1925.50 crore on 17.66% rise in sales to Rs 8016.90 crore in Q2 September 2007 over Q2 September 2006. The results were announced on Saturday, 27 October 2007.
Banking majors surged. State Bank of India rose 1.63% to Rs 2,118. It hit an all time high of Rs 2,179.70 today. State Bank of India's net profit rose 36.04% to Rs 1611.42 crore on 33.42% rise in total income to Rs 13658.22 crore in Q2 September 2007 over Q2 September 2006. The results were announced on Saturday, 27 October 2007.
HDFC Bank rose 5.99% to Rs 1,638.70. It hit an all time high of Rs 1,660 today. ICICI Bank rose 5.48% to Rs 1,249.40. It hit an all time high of Rs 1,265 today.
Grasim Industries rose 1.52% to Rs 3,830. It hit an all-time high of Rs 4,074 today. The Aditya Birla Group company on Saturday, 27 October 2007 said it registered a 47.90% jump in net profit to Rs 499.78 crore on 25.30% rise in net sales to Rs 2519.23 crore in Q2 September 2007 over Q2 September 2007.
World’s sixth largest steel maker Tata Steel declined 9.06% to Rs 900.90 and was the top loser from Sensex pack. The stock turned ex-rights from today.
Tata Motors (down 0.41% to Rs 807.10), Bajaj Auto (down 0.54% to Rs 2,502), Ranbaxy Laboratories (down 0.52% to Rs 422.95) edged lower.
Mahindra & Mahindra was down 0.67% to Rs 796.35. Mahindra & Mahindra’s net profit declined 26.01% to Rs 285.94 crore on 12.02% rise in total income to Rs 2,871.54 crore in Q2 September 2007 over Q2 September 2006. The company announced the results during the market hours today.
Side counters, MRF (up 20% to Rs 6,748.65), Welcast Steels (up 20% to Rs 1,123.70), Nesco (up 20% to Rs 2,230.35, LIC Housing Finance (up 31.42% to Rs 360.30), Texmaco (up 20% to Rs 1,383.05) edged higher.
Reliance Natural Resources clocked the highest volume of 4.19 crore shares on BSE. The scrip rose 10.67% to Rs 109.90. Tata Teleservices Maharashtra clocked second highest volume of 3.54 crore shares on BSE. The share price rose 9.83% to Rs 47.50. Reliance Petroleum clocked the third highest volume of 2.51 crore shares. It rose 9.8% to Rs 221.90. Himachal Futuristic Communications clocked fourth highest volume of 1.32 crore shares. It declined 1.89% to Rs 28.50. Power Grid Corporation of India clocked fifth highest volume of 1.14 crore shares. The stock rose 2.1% to Rs 143.65.
Reliance Petroleum clocked highest turnover of Rs 543.11 crore on BSE. Larsen & Toubro (Rs 469.25 crore), Reliance Natural Resources (Rs 448.45 crore), Reliance Industries (Rs 314.53 crore) and Reliance Energy (Rs 248.99 crore) were other turnover toppers on BSE.
European markets opened strong. France’s CAC 40 (up 0.68% to 5,834.44), Germany’s DAX (up 0.6% to 7,997.21) and FTSE 100 (up 1.96% to 6,705.30) edged higher.
Asian markets advanced today, 29 October 2007, following a spurt on Wall Street on Friday, 26 October 2007, with Hang Seng and Seoul Composite hitting record highs. Hong Kong's Hang Seng (up 3.89% at 31,586.90), Japan's Nikkei (up 1.17% at 16,698.08), Taiwan's Taiwan Weighted (up 1.85% at 9,809.88), South Korea's Seoul Composite (up 1.74% at 2,063.47), and Straits Times (up 1.28% at 3,819.78), edged higher.
US crude oil futures jumped more than $1 a barrel to surpass $93 for the first time on Monday, 29 October 2007, supported by news of a halt to one-fifth of Mexico's oil output as well as the weak US dollar and geopolitical tension. It was up $1.28 a barrel at $93.14.
Annual inflation, based on the wholesale price index (WPI), remained unchanged at 3.07% in the week ended 13 October 2007 compared with the week ended 6 October 2007, data released on Friday, 26 October 2007 showed.
Morning Call
Market Grape Wine :
In House :
Nifty at a supp of 5660 and 5620 with resis at 5782
Intra Day: Buy IDFC above 192 with a TGT of 199 and a SL of 189.50
Buy Tatasteel with SL
Out House :
Markets at a support of 18786 & 19090 levels with resistance at 19494 & 19591 levels .
Buy : RIL & RPL
Buy : REL & RNRL
Buy : Tisco & Sail
Buy : Adlabs bullet
Buy : JpAsso
Buy : Ibullsreal & IBUlls bullet
Buy : Centextile & arvindMill
Buy : SBIN , HDFCBANK & IciciBank
Dark Horse : ABAN , GeShipping , REL, Centextile , RIL , Jp , Maruti & SBIN
Bullet for the Day : REL & IBulls with stop loss .
Reliance Power, Mundra, Varun Industries, SVPCL, Religare, Barak Valley Cement, Empee
Reliance Power 50 to 51
Mundra Port & Sez 400 to 440 320 to 330
Circuit Systems (India) Ltd. 35 3 to 4
Rathi Bars 35 3 to 4
Allied Computers 12 15 to 16
Varun Ind. 60 39 to 40
SVPCL 40 to 45 5 to 7
Religare Enterprises 160 to 185 270 to 275
Barak Valley Cement 37 to 42 12 to 15
Empee Distilleries 350 to 400 125 to 130
Pre Market Watch
Indian market is likely to have a positive start for the day, as the issue pertaining to the P-Notes has almost faded. Further the global markets are also giving supportive cues. On Friday, the benchmark index Sensex ended with a gain of 472.28 points at 19,243.17 after touching the all time high of 19276.45, whereas Nifty also closed with a gain of 133.35 points to close at 5702.30. We expect that the market may trade a little cautious ahead of the RBI''s monetary policy on 30th Oct.
On Friday, the US markets ended in green territory as the Dow Jones Industrial Average (DJIA) ended up by 134.78 points to close at 13,806.70. Further the NASDAQ Composite & S&P 500 (SPX) index also closed higher by 53.33 points & 20.88 points at 2,804.19 & 1,535.28 respectively.
Indian ADRs also ended positive. In telecommunication sector, VSNL & MTNL surged (8.70%) & (1.74%) respectively. In Metal sector, Sterlite Industries is up by (7.44%). In Banking sector ICICI bank & HDFC bank grew (11.01%) & (10.18%). Further in Technology sector, Satyam increased by (6.65%) along with Patni Computers by (4.18%), Wipro (3.19%) & Infosys (1.32%).
The major stock markets in Asia are trading strong. Hang Seng is trading with the record high gain of 1424.38 points at 31,278.87. Along with this, Japan''s Nikkei is trading higher by 195.16 points to trade at 16,700.79. Singapore''s Straits Times index is also trading positive by 24.94 points at 3,796.49 and Seoul Composite is up by 31.13 points to trade at 2,059.19.
On 26th October, the FIIs stood as the net buyers as the gross equity purchased was Rs.7678.50 (in crores), and the gross debt purchased was Rs.106.10 (in crores) as against the gross equity sold was Rs.7465.50 (in crores) and the gross debt sold was Rs.0.00 (in crores). The net investment of equity was Rs.213 (in crores) and the net debt investment was Rs.106.10 (in crores).
Today, Nifty has support at 5,608 and resistance at 5,805 and BSE Sensex has support at 19,100 and resistance at 19,403.
Market may scale new high
The market is expected to head higher and reach all-time high, following strong global cues. US markets settled on a firm note on Friday, 26 October 2007, while Asian markets were trading higher today, 29 October 2007.
The Sensex surged 472.28 points or 2.52% at 19,243.17, an all-time closing high, on Friday, 26 October 2007. It hit an all-time high of 19,276.45 in late trade. It surged 1,683.19 points or 9.59% to post biggest weekly gain in six-and-half years to settle at 19,243.17 in the week ended Friday, 26 October 2007.
The broader based S&P CNX Nifty jumped up 133.35 points or 2.39% at 5,702.30, a record closing high on Friday, 26 October 2007. It surged 487 points or 9.33% to 5,702.30 in the week ended Friday, 26 October 2007. Nifty hit record high of 5736.80 on 18 October 2007.
However, cautiousness may prevail ahead of the Reserve Bank of India's (RBI) mid-term review of annual policy due on Tuesday, 30 October 2007 and US Federal Reserve’s meeting on Wednesday, 31 October 2007 on interest rates. High volatility cannot be ruled out.
As per reports, some bankers and economists expect a marginal cut in key short-term rates, while others feel that RBI might not do so in the face of inflationary expectations looming large due to surging global oil prices. Analysts speculate that Fed would cut rates by 25 basis points.
Asian markets advanced today, 29 October 2007, following a spurt on Wall Street on Friday, 26 October 2007, with Hang Seng and South Korean indices hitting record highs. Hong Kong's Hang Seng (up 4.77% at 31,278.87), Japan's Nikkei (up 1.18% at 16,700.79), Taiwan's Taiwan Weighted (up 1.53% at 9,778.84), South Korea's Seoul Composite (up 1.53% at 2,059.19), and Straits Times (up 0.66% at 3,796.49), edged higher.
US markets advanced on Friday, 26 October 2007 as strong earnings from Microsoft Corp. and an optimistic outlook from Countrywide Financial Corp. outweighed investor concerns about the economy.
The Dow Jones industrial average gained 134.78 points, or 0.99%, to 13,806.70. The S&P 500 index gained 20.88 points to 1,535.28, and the technology-dominated Nasdaq Composite index advanced 53.33 points, or 1.94%, to 2,804.19.
As per provisional data, FIIs sold shares worth a net Rs 1237.35 crore, while domestic institutional investors (DIIs) were net buyers of shares worth Rs 965.96 crore on Friday, 26 October 2007.
US crude oil futures jumped more than $1 a barrel to surpass $93 for the first time on Monday, 29 October 2007, supported by news of a halt to one-fifth of Mexico's oil output as well as the weak US dollar and geopolitical tension. It was up $1.28 a barrel at $93.14.
Annual inflation, based on the wholesale price index (WPI), remained unchanged at 3.07% in the week ended 13 October 2007 compared with the week ended 6 October 2007, data released on Friday, 26 October 2007 showed.
Stock Alerts
Reliance Industries (RIL) is reportedly in talks to acquire some manufacturing facilities from Arvind Mills, mainly in the denim segment. The report suggests the proposed acquisition is part of RIL’s increased focus on the apparel business.
Power Grid Corporation of India is reportedly in the race to acquire a 10% interest in the sole transmission company of the Philippines.
Oil and Natural Gas Corporation (ONGC) is reportedly planning an initial public offer of ONGC Petro-additions (OPaL), the special purpose vehicle formed for the Rs 13,500 crore petrochemical complex at Dahej in Gujarat.
Blackstone is reportedly considering to back out of the race for acquiring 26% stake in IFCI. This will leave seven contenders in race for the strategic stake. As per reports, the reason behind Blackstone opting out of race was that the IFCI stock had run up in the recent past.
State Bank of India (SBI) has reportedly begun its due diligence to buy a small or medium size bank in South Africa. The South African bank, Capitec has an asset of around $350 million (Rs 1,400 crore) and 280 branches is a potential target, the report added.
Promethean India, a part of the Promethean private equity group UK, has reportedly acquired 8% stake in Nitco Tiles through participatory notes (P-notes). Promethean India has applied for a foreign institutional investor (FII) licence in India and hopes to get it soon with the Securities and Exchange Board of India (Sebi) liberalising the norms.
Following companies will declare September 2007 ended results today: BHEL, HDFC, Mahindra & Mahindra, Maruti Suzuki, Sterlite, Punjab National Bank, HPCL, Indian Overseas Bank, Jet Airways, Tata Tea, ABG Shipyard, Adani Enterprises, Aegis Logistics, Akruti Nirman, Alpa Laboratories, Bank Of India, Centurion Bank Of Punjab, EID Parry, Fortis Healthcare, GMR Industries, Hanung Toys, Hinduja TMT, House Of Pearl Fashions, ICRA, Indiabulls Real Estate, Ind-Swift Laboratories, IPCA Laboratories, Jagran Prakashan, JP Hydro, Jet Airways, Kalpataru Power, Karur Vyasa Bank, Kernex Microsystems, Lanco Industries, MphasiS, MRPL, Sical Logistics, Sobha Developers, SREI Infrastructure, Sundaram Fasteners, Tata Tea, Titan Industries, Torrent Power and United Phosphorous
The board of EID Parry India will meet today, 29 October 2007 for the purpose of considering the proposal for buy back of equity shares.
The board of Blue Star will meet today to consider merger of four investment companies viz. Admo Holdings, Sunag Investments, Sunashad Investments and Mohan T Advani Finance into Blue Star.
Foreign institutional investors (FIIs) were net sellers of equity worth Rs 1237.35 crore on Friday, 26 October 2007, while domestic institutional investors bought Rs 965.96 crore of equity on that day, according to provisional data released by NSE.
Crude kisses $92
Prices cross $92 for the first time ever after USA imposes fresh sanctions against Iran
Crude-oil future prices for sweet light crude for December delivery which had ended at $86.95/bbl last week (19 October) finished $4.91 (5.6%) higher this week (26 October) at $91.86/bbl. Worries over energy supplies and tensions in the Middle East propelled the crude market to a new peak during this week.
Oil also rose because the U.S. dollar declined against the euro on speculation the Federal Reserve will cut interest rates next week. Prices are 52% higher on a y-o-y basis.
As per this week’s inventory report by the Energy Department, crude supplies dropped by 5.3 million barrels to 316.6 million barrels in the week ending 19 October. U.S. crude-oil stockpiles for the week were 5% higher than the five-year average for the period. Market was expecting a build up in crude and gasoline inventories instead.
Gasoline stocks fell by 2 million barrels to 193.8 million barrels and distillate stocks declined by 1.8 million barrels to 134.5 million barrels. Refinery activity declined from 87.3% to 87.1%.
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.
On Friday, 26th October, oil rose above $92 a barrel for the first time in New York after the U.S. accused Iran's military of supporting terrorism and announced new sanctions on the country that holds the world's second-biggest oil reserves. It touched $92.22/barrel during intra day trading. On Thursday, USA announced new sanctions against Iran.
A strong finish for an erratic week
Technology and Financial sectors help indices register their maximum gains on the last day of the week
Relatively strong earning reports helped US Market post sizable gains for the week ended Friday, 26th October, 2007. Trading remained extremely erratic almost every day of the week. But upbeat reports on the earnings front somehow helped erase the weak credit and subprime conditions in investors minds for the time being.
A big loss from the Merrill Lynch stable did upturn sentiments during the middle of the week. Weak existing home sale figures added further salt to injury. But strong reports from Technology sector and couple of other Dow components helped market make a U turn.
The Dow Jones Industrial Average gained 285 points for the week. Tech - heavy Nasdaq gained 79 points and S&P 500 gained 35 points.
The gains came in spite of crude oil prices touching an all-time high of $92/barrel, dollar sinking to an-all time low against its rival currencies, mainly the euro, and gold prices surging to a new twenty-eight year high.
But half of the Dow’s weekly gains came on Friday, 26th October, itself fuelled by earnings reports from Microsoft and Countrywide Financials, USA’s largest mortgage company. Dow itself gained 134 points on that day. Nasdaq and S&P 500 gained 53 points and 20 points respectively.
Quite a few big names came out with blowout earnings reports during the week. AT&T, Apple, American Express, Boeing, Amazon.com, Du-Pont, Merck, Microsoft, UPS - all declared earnings reports beating market expectations.
But of the above, Boeing and Amazon.com failed to impress market despite their good reports. Amazon stock plunged 14% the next day after the company announced its report as investors were concerned about the online retailer’s shrinking profit margins.
The subprime story once again started during the week after Merrill Lynch reported a larger loss than expected. The company reported write-downs of $7.9 billion across U.S. collateralized debt obligations and sub prime mortgages, significantly greater than the $4.5 billion write-down disclosed earlier.
Among other economic news hitting the market during the week, the National Association of Realtors announced on Wednesday, 24 September that September existing home sales slid 8% to an annualized rate of 5.04 million. The figure was much above market’s expectation of a 4.6% decline to an annualized rate of 5.25 million.
After staying almost unchanged on Wednesday, 24th October, the market edged slightly lower on Thursday, 25th October, as reports on new home sales and durable goods orders, as well as a batch of mixed earnings, weighed on investor sentiment.
The Commerce Department reported new home sales rose 4.8% in September from the August level. On the other hand, durable goods orders fell 1.7% in September, after a 5.2% decline in August, raising concerns about business spending.
U.S. retailers had some disappointing stories to tell during the week. Wal-Mart said that it plans to trim capital expenditures for the current fiscal year more than forecast. On the other hand, Target lowered its third quarter guidance.
Then on Friday, 26th October, Microsoft announced a 23% increase in third quarter earnings, boosted by strong sales of Windows, Office, and the new Halo 3 video game. Microsoft stock soared by more than 9% and provided overall support to the broader market.
On the other side, though, Countrywide reported a $1.2 billion loss in the quarter, the company said that it would turn a profit in the fourth quarter and this sent the stock almost 13% higher during the day.
Executive Summary
For the week, indices registered good gains – all more than 2%. DJIx was up by 2.1% and S&P 500 was up by 2.3%. Nasdaq was up by 2.9%. Trading was extremely erratic during the days of the week.
Strong earnings reports from powerful Dow components failed to un-nerve investors who could otherwise be carried away by loss reported by Merrill Lynch and Countrywide Financials. Technology and Financial sectors led the indices on the final day of the week and market registered its maximum gains on that day for the week.
Crude oil prices closed the week at $91.86 a barrel, higher by 5.6% for the week. For the year, Dow is up by 10.8%, Nasdaq is up by 16.1% and S&P 500 is up by 8.2%.
Next week, the main economic focus will be on the 31 October Federal Open Market Committee policy statement.
Rally to continue
The market is likely to make further headways following the firm Asian indices in current trades. The expectations of further rate cut from US Federal Reserve in the next meeting may also help the market to advance further. However, the market may see some short-term profit bookings in frontline stocks creating a volatility in the afternoon trades. Among the indices, the Nifty could test higher levels around the 5870, while on the downside it has a key support at 5398. The Sensex has a likely support at 18300 and may face resistance at 19500. Key announcements like Bank of India, BHEL, Indiabulls Real-estate, Jindal Steel, Jet Airways, M&M, Maruti Udyog, Monsanto, Praj Industries, PNB, Sobha Developers, Sterlite and Tata Tea are expected to announce their earnings numbers.
US indices closed higher on Friday as upbeat earnings from Microsoft helped market sentiment to overcome any potential worries about a plunging dollar, surging oil and gold prices. While the Dow Jones gained 135 points at 13807, the Nasdaq added 53 points at 2804.
Indian floats ended higher on US bourses. ICICI Bank rallied sharply and gained over 11%. HDFC Bank, VSNL and Satyam rose over 10-6% while Dr Reddy's, MTNL, Rediff, Infosys, Patni Computer and Tata Motors gained over 1-4% each.
Global crude oil prices moved up, with the Nymex light crude oil for December series rose by $1.40 to close at $91.86 per barrel. In the commodity space, the Comex gold for December delivery rose by $16.50 to settle at $787.50 an ounce.
Don’t lose what you’ve made!
The only thing wealth does for some people is to make them worry about losing it.
Booking some profits today may help you budget your Diwali well in advance. Why go through the anxiety of where the indices would be on Diwali and spoil your festive spirit. The finance minister has often expressed his worry about the skyrocketing market. He’s in Mumbai today and don’t be surprised if the frenzied media gets a byte from him which could bite off some points from the indices.
We’ve had enough fireworks on the bourses so far. With SEBI delivering its final verdict on P-Notes and global markets rallying across the board, the stage looks set for the bulls to lift the Sensex beyond 20k mark before Diwali. The Sensex needs 750-odd points to reach the new milestone. Going by the recent past, where it has scored 1,000 points in just four days 20k could well be conquered shortly. Come to think of it, this can even happen in a single day.
The bulls don't need to look too far. This morning, the Hang Seng in Hong Kong was up over 1,000 points before retracing a little. The rest of Asia is also in a buoyant mood, fired by Friday's rally in US stocks. All Indian ADRs rallied on Friday. So, we are in for a big-bang opening to the week, as bulls are likely to tighten their stranglehold on the market despite the P-Note scare. A good opening should give you better opportunities to take some profit home.
Among the major areas of concern are record high oil prices (above $92 per barrel), unwinding on the part of the FIIs to comply with new SEBI rules, slowdown in fresh overseas inflows, possibility of another CRR hike and the X factor like a major conflict in the Middle East.
The RBI's mid-term review tomorrow is a big event for the local market. Given the deluge of overseas capital flows and the unrelenting rise in the rupee, the central bank may go in for another tightening measure. Key interest rates will be left unchanged and the target for GDP growth and inflation will also be maintained. On Wednesday, the Fed will declare its decision on interest rates and give its assessment of the US economy, particularly the housing sector. Most experts and the market are predicting a 25 bps cut in the fed funds rate. Though unlikely, a wider cut may cheer up global markets.
Back home, results will continue to pour in and will be watched keenly, though most of the positives on this count are already in the price. As far as fund flows are concerned, there is no real threat to the long-term 'India Shining' story. As a result, foreign investors looking to maximise returns will find a way to meet the new regulations and invest in Indian stocks. Though we mentioned book profits at start, long term investors, who don’t need immediate cash for Diwali can stay invested and ride the bull market. A few hiccups are bound to take place along the way, but that’s just part of the game.
Technology led to a broader rally on Wall Street on Friday, as Microsoft's upbeat earnings and Countrywide's optimistic outlook overshadowed worries over a weakening dollar and surging commodity prices. Growing optimism that the Federal Reserve will probably cut interest rates next week added to the day's gains.
The Dow Jones Industrial Average rallied 134 points or 1% to 13,806 on Friday, taking its weekly advance to 2.1%. The S&P 500 index gained 20 points to 1,535 and rose 2.3% on the week. But most of the gains were seen in the tech-heavy Nasdaq Composite index, which rallied 1.9% to 2,804 Friday for a weekly gain of 2.9%.
Following further evidence of weakness in the housing sector, and after the warnings from multinationals and financials, the market is now pricing in 100% odds that the Fed will cut rates by a quarter-percentage point at the end of its two-day meeting on Wednesday. Odds that the central bank will announce a half a point cut, as it did on Sept.18, remained under 20%.
US light crude oil for December delivery rose $1.40 to $91.86 a barrel on the New York Mercantile Exchange. Crude reached a record $92.22 in Asia trading overnight. COMEX gold for December delivery rose $16.50 to settle at $787.50 an ounce.
Treasury prices slipped, raising the yield on the benchmark 10-year note to 4.39% from 4.38% late on Thursday. In currency trading, the dollar fell versus the euro and the yen.
European stocks gained ground on Friday. The pan-European Dow Jones Stoxx 600 index rose 0.6% at 383.93. The commodity-heavy UK's FTSE 100 closed up 1.3% at 6,661.30, while the German DAX 30 increased 0.2% to 7,949.17 and the French CAC-40 advanced 0.6% to 5,794.87.
Brazilian equities hit a record high. Mexican stocks recovered from losses following the central bank's increase of its key interest rate. Argentina's Merval hit a record as well, rising 2% to 2,327.15 ahead of the country's presidential election on Sunday. Chilean stocks rose by 0.8% to 3,496.18. In Sao Paulo, the Bovespa closed up 3.1% at 64,275.58 while the Mexico's IPC erased an earlier decline to end up 0.8% at 32,136.76.
Asian stocks rallied this morning on the back of strong corporate earnings and higher commodity prices. BHP Billiton paced gains among mining stocks. Mitsubishi UFJ Financial Group led banks higher after a forecast from Countrywide Financial, the largest US mortgage lender, boosted speculation that the worst may be over from the subprime mortgage mess.
The Morgan Stanley Capital International Asia-Pacific Index gained 1.1% to 169.96 as of 9:35 a.m. in Tokyo, with all 10 of its industry groups advancing. The Nikkei 225 Stock Average rose 1% to 16,675.26. The Hang Seng in Hong Kong surged by 900 points to 31,306. South Korea's Kospi index gained 1.3%. Key stock indexes in all Asian markets open for trading in the region rose, except New Zealand, which was little changed.
Bulls eye 20k before Diwali
Markets ended with sharp gains as benchmark Sensex advanced over 450 points and Nifty index gained over 130 points. After a choppy start, key indices constantly gained momentum throughout the session as all round buying across the bourses lifted Sensex to cross its previous all time highs of 19,199.
Finally, Sensex closed at a new high of 19,243 surging 472 points and NSE Nifty rose 133 points to close at 5,702.
Tata Steel marginally slipped 0.2% to Rs987. The company announced its Q2 result with net profit at Rs11.91 (up 8.1%). The scrip has touched an intra-day high of Rs1048 and a low of Rs966 and has recorded volumes of over 56,00,000 shares on NSE.
I-Flex advanced 3.2% to Rs1586 after the company announced its Q2 result with net profit at Rs765.8mn and net sales at Rs4.35bn. The scrip has touched an intra-day high of Rs1640 and a low of Rs1550 and has recorded volumes of over 1,00,000 shares on NSE.
Kotak Bank surged by over 5% to Rs1027 after the company announced that their Q2 net profit rose 159% to Rs2.41bn. The scrip touched an intra-day high of Rs1052 and a low of Rs982 and recorded volumes of over 12,00,000 shares on NSE.
BHEL surged by over 6% to Rs2431 after the company announced that they have set up Thermal power project in Tamil Nadu. The scrip touched an intra-day high of Rs2448 and a low of Rs2290 and recorded volumes of over 14,00,000 shares on NSE.
Dr. Reddy’s Lab gained 1% to Rs617. The company announced that their performance in September 2007 quarter was affected due to a sharp decline in revenues from its German subsidiary Betapharm. The scrip touched an intra-day high of Rs625 and a low of Rs604 and recorded volumes of over 4,00,000 shares on NSE.
Gail India surged by over 3% to Rs407 after reports stated that the company is likely to partner with China Gas in developing coal bed methane in Mongolia. The scrip has touched an intra-day high of Rs420 and a low of Rs396 and recorded volumes of over 10,00,000 shares on NSE.
Stocks in News:
L&T would build two new ports at a total cost of Rs30bn on the west and east coast and a third shipyard; to float US$1bn infrastructure fund
ONGC plans an IPO of ONGC Petro-additions, the SPV formed for its Rs135bn petrochemical complex at Dahej in Gujarat
BHEL and Tamil Nadu Electricity Board to set up JV for two 800MW supercritical power projects in the state at a cost of Rs85bn
HPCL to formalize its Rs25bn term sheet agreement with Reliance Industries for gas supply from KG-D6 block to its Mumbai and Vizag refineries
Jetlite, the low cost carrier arm of Jet Airways, has applied for permission to fly to seven destinations in the Gulf
Delhi International Airport shortlists nine hotel and real estate chains to develop 45 acres of commercial land near international terminal; ITC, Indian Hotels and L&T are in the fray
Power Grid Corporation, in concert with Citadel Holdings, may acquire 10% in Philippines National Transmission Corp
BSNL to hire cellular towers from private players to roll out faster and cheaper services
MTNL may get ILD license by end of the year
Reliance Industries plans to cut LPG production at Jamnagar from 2.3mn tons pa to 1.6mn tons pa from middle of next year
Reliance Industries is likely to acquire some manufacturing facilities from Arvind Mills, mainly in the denim segment
Nagarjuna Fertilizers and Chemicals has decided to set up two ready-to-use fertilizer granule units in West Bengal
NTPC plans to diversify into hydroelectric generation and coal mining is likely to be delayed due to environment and land acquisition issues
Bajaj Auto has sold 65,000 units of its 125 cc DTS-Si bike XCD within the first 50 days of its launch
The Government is likely to take a decision on SBI's proposed rights issue in the next fortnight
Further capital controls are likely, if required, to curb rising capital inflows, says finance minister
Auction of spectrum or telecom license would be the optimal way to process nearly 600 applications to roll out telecom services, according to DoT
Consumer durables goods sector is expected to grow at 12% in 2007-08, according to a Ficci survey
According to CII-E&Y Textile and Apparel Report 2007, the Indian domestic and export markets for textile and apparel are expected to grow at 6.5% and 12% CAGR
Fund Activity:
FIIs were net sellers of Rs12.37bn (provisional) in the cash segment on Friday and the local institutions bought shares worth Rs9.66bn.
In the F&O segment, foreign funds were net buyers at Rs14.91bn.
On Thursday, FIIs pumped in Rs2.13bn in the cash segment. Mutual Funds were also net buyers of Rs7.12bn.
Weekly Technical Analysis
Nifty — The index closed on a negative note on the opening session of the week, after which it rallied toward 5717 for the remaining part of the week. It ended the week with gains of 487 points.
Moving Averages — The 50 dma = 4846, 20 dma = 5233, 10 dma = 5489. The index has closed above the 10 dma. Support during the week’s trading can be expected around the 10 & 20 dma.
Momentum Oscillators — On the daily chart , MACD is in sell mode but in positive territory. RSI (14) – Relative Strength Index is around 68.25 (reading above 70 signifies overbought). Stochastic (5,3) is in buy mode.
Resistance — The index faces resistance around the recent high around 5737 (high of 18 October 07). Close above the 5737 level will see the index exhibit further strength.
Support — The index has support around the 10 dma around 5489 .Intra-week declines should find support around the 10 dma level. Close below the 10 dma around 5489 can see the index decline toward 5300 levels.
Conclusion — Stay focused on the upside for the current week’s trading with support around 5489.
Market outlook positive
| There are tentative short-term targets of Nifty 5850 and Sensex 19450. |
| The market roared back into the black as it absorbed the impact of Sebi's clarifications on the participatory notes issue. The Nifty gained 9.34 per cent and shot up to 5702.3 points while the Sensex was up 9.59 at 19,243 points, hitting a new all-time high. The Defty gained 10.16 per cent as the rupee hardened again. |
| Volumes were decent during settlement but lower than in the previous week which featured heavy FII selling. Breadth was good with advances comfortably outnumbering declines. |
| Incidentally both FIIs and Indian funds were net positive through the week. The Nifty Junior gained 12.64 per cent while the Bank Nifty gained an astounding 17.9 per cent. The BSE 500 was up 10.34 per cent. |
| Outlook: Continuous volatility seems almost given in the new settlement but it does also seem that the fear of an extended bear market has receded. The short-term outlook also seems positive. |
| The Nifty should continue to log net gains in the coming week although momentum will slow. There is a tentative short-term target of Nifty 5850 (Sensex 19450). On corrections, the support at 5500-5575 should hold. |
| Rationale: We may see somewhat reduced, but nevertheless high-volume trading across both cash and derivatives through the November settlement. The pattern has settled back into a bullish one of higher highs which suggests that the long-term bull market is healthy. |
| Counterview: The one point of misgiving was that the sell-offs came on higher volume than the re-entry. If the FIIs have decided on an orderly PN exit policy, there may be a lack of demand to fuel the further rise of the market in the short-term. |
| Bulls and bears The movement was overwhelmingly bullish across large-caps and mid-caps. At least partially, this was driven by short-covering. The biggest gains came in the sectors such as finance that had been hardest hit when the PN news broke. Among banks, SBI, HDFC Bank, ICICI Bank and IndusInd all looked very strong. |
| Another sector which showed terrific strength was metals – both ferrous and non-ferrous metals such as Sterlite, Sail and Tata Steel did well. |
| There were also winners scattered across the infrastructure, engineering and construction sectors, such as L&T, Suzlon, VSNL Bharat Forge and Jaiprakash Associates. And of course, the Reliance and ADA group stocks all bounced big time after taking a hammering in the preceding week. |
| MICRO TECHNICALS |
| BHARAT FORGE Current Price: 336 Target Price: 360 |
| The stock has shot up on decent volume expansion. It has a likely short-term target of 360 and an obviously bullish formation that could take it a lot further in the long-term. Keep a stop at 325 and go long. Book at least partial profits above 355. Consider taking delivery with six weeks time frame. |
| INDUSIND BANK Current Price: 94.9 Target Price: 103 |
| The stock has generated huge volumes as it has moved from 80 to the current levels. It has fulfilled its initial price target but looks capable of a further upmove. Keep a stop at 90 and go long. |
| LARSEN & TOUBRO Current Price: 3873 Target Price: 4100 |
| The stock has climbed with a volume expansion. It has a target in the 4100 region. The problem with this move is that it has come so fast there are no supports near the current levels. Keep a stop at 3775 and go long. |
| SUZLON ENERGY Current Price: 1949.5 Target Price: 2400 (long-term), 1875-2000 (short-term) |
| A strong breakout on volume expansion seems to be now moving into a consolidation phase. The stock could swing between 1875-2000 for a few sessions. Buy anywhere below the middle of this range and accumulate, looking for a three-month target of 2400. Alternatively buy below 1940 and sell above 1970 for short-term trades. |
Stocks you can buy this week
Suzlon Energy
Research: Merrill Lynch
Rating: Buy
CMP: Rs 1,948
Merrill Lynch has raised its target of Suzlon Energy to Rs 2,150 on a 4-10% earnings upgrade over FY08-10E following Suzlon’s Street-beating result. An expanding order book at Rs16,300 crore ($4 billion) a +21%QoQ and 76%YoY growth in second quarter volumes led by an inventory sell-down and a 16% improvement in margins should reassure the stock market. Suzlon has also doubled its capacity expansion plans to 3 giga watts (gw) by FY09E to reach an installed base of 5.7 gw of wind turbines.
Merrill Lynch has reiterated its ‘Buy’ recommendation on the stock. Suzlon’s EBITDA margin rose to its long-term guidance of 16% (7.2% in Q1FY08) led by a 76%YoY growth in volumes led by resolving of law and order issues in the domestic market, improved deliveries in the international market and a sell-down of inventory. This, coupled with cost control, led to a 68%YoY growth in PAT at Rs 390 crore, much ahead of the Street estimate of Rs 250 crore.
Suzlon has announced capacity increase across its businesses — wind turbines to 5.7 gw vs 2.7 gw currently; Hansen to 14.6 gw (3.6 gw) and REpower to 1.7 gw (0.9 gw). WTG capex has now been increased to Rs 3,000 (Rs 1,500 crore). Suzlon also announced a $1.3-billion capital raising plan through equity/quasi equity. Suzlon’s global delivery model, macro tailwind and multi-fold expansion in the addressable market, are driving its 49% EPS CAGR over FY07-10E.
Hotel Leela Venture
Research: Citigroup
Rating: Buy
CMP: Rs 47
Citigroup has put a ‘Buy’ rating on Hotel Leela Venture with a target price of Rs 62 based on 18x September ’08 P/E. Hotel Leela Venture is a well-known hotel chain in India catering primarily to the premium segment. With rapid growth in room demand, the company plans to expand its presence in the growth cities of Hyderabad, Chennai, Pune and New Delhi through management contracts.
It is the flagship company of Leela Group, which holds a 49% stake in Hotel Leela Venture. Leela has a solid 65% earnings growth vs 38% for the sector in FY08E, leveraging on additional rooms operational in Mumbai and Bangalore (ahead of expected supply in mid-’08).On the flip side, Leela’s high dependence on the Bangalore market (where ARR growth is peaking) and lack of a presence in key growth markets are limitations.
However, with the completion of Mumbai refurbishments (133 rooms) and Bangalore room expansion (101 rooms) starting in Q4FY07, Citigroup see additional rooms and sustained high ARRs driving Leela’s out-performance with an earnings growth of 65%. While the risks of high dependence on Bangalore and lack of scale remain, Citigroup sees upside potential from current valuations of 13x September ’08E P/E (at a discount to the sector and below the stock’s two-year historical P/E band of 16-25x).
Opto Circuits
Research: CLSA
Rating: Buy
CMP: Rs 430
CLSA has reiterated its ‘Buy’ recommendation on Opto Circuits and raised the target price to Rs 700. Opto Circuits exceeded the expectations in its Q2FY08 reported results. Net sales grew 121% YoY and PAT grew 96% YoY. Net sales for the quarter stood at Rs 124 crore, up 121% YoY while for H1FY07, sales touched Rs 220 crore, up 110.6%.
EBIDTA for Q1FY08 was Rs 36.5 crore, up 100.8% YoY while the corresponding number for the first half was Rs 66.1 crore, up 107.1% YoY. PAT for Q1FY08 was up 96% YoY at Rs 34.1 crore and for the first half the corresponding number was Rs 61.9 crore (up 114.3% YoY). The pricing for most of Opto’s core business products are fixed around January.
Hence its pricing for CY07 was fixed on the basis of a Re/$ rate of 44 approximately. With of a 10% appreciation from those levels in the rupee, it’s almost entirely US-dollar denominated business lost about 3% EBIDTA margin on a YoY basis for the quarter.
The company’s paclitaxel drug eluting cardiac stent Taxcor has just undergone a trial of a non-controlled sample of 45 people. Results have been cited on the Minerva Cardioangiologica and the conclusions state “The paclitaxeleluting stent Taxcor appeared to be effective and safe up to six months following implantation”.
On the back of the strong traction in revenues and the expected turnaround in the operating margins by the year-end, CLSA has upgraded its FY08CL and FY09CL estimates by 12.2% and 12.4% respectively.
Finolex Cables
Research: HSBC
Rating: Overweight
CMP: Rs 81
HSBC has maintained its ‘Overweight’ rating on Finoloex Cables. However, it has lowered the target price from Rs 139 to Rs 124. In its Q2FY08 results, Finolex Cables reported sales growth of 21% YoY and EBITDA margin growth from 9.6% in Q1FY08 to 11.7% in this quarter.
Net profit was up 25% at Rs 26.8 crore, which includes other income of Rs 10.8 crore. The Board has approved capex of Rs 60 crore to enhance capacity for compact fluorescent lamps (CFL) and cables. New power cables capacities at Roorkee in Uttarakhand have been delayed to April ’09. EBITDA margin has recovered from the lows in Q4FY07.
But in spite of this recovery it will fall short of HSBC’s FY08e yearly EBITDA target of 12.1%. Thus, EBITDA margin forecast to 11.3% (-77bps) and 11.6% (-97bps) for FY08e and FY09e. The company has repaid its working capital loan which should mean savings on interest cost. HSBC, therefore, has cut its interest cost estimates by 26% and 22% respectively for FY08e and FY09e.
These changes affect HSBC’s EPS targets by -2.7% and -5.5% for FY08e and FY09e respectively. This is the mid-point of HSBC’s direct cash flows (DCF) fair value of Rs 117 and P/E multiple-based fair value of Rs 93 along with Rs 19 per share for Finolex Industries (FCL holds c32.4%). The stock is trading at a low P/E multiple of 10.2x FY09e EPS. Further fluctuation in copper prices remains the key risk to HSBC’s valuation.
Asian Paints
Research: Merrill Lynch
Rating: Buy
CMP: Rs 1,010
Merrill Lynch has reiterated its ‘Buy’ rating on Asian Paints. The company reported Q2 consolidated profit of Rs 113.9 crore, up 38% YoY. Results were 13% ahead of the estimates owing primarily due to better margins. There was a small benefit from higher other income.
Domestic EBITDA margin increased 160 bps to 17%. This was led primarily by a stronger rupee, which offset rising crude oil prices. In the international business, margin gains were much sharper — margins doubled to 12.6%. Scale benefits are beginning to come through, especially in the Middle East and South Asia. In addition, divestment of loss-making geographies is aiding margin expansion.
Domestic demand growth in Q2 at 13% was lower than the trend witnessed over the past few quarters. This was due to prolonged monsoon and the timing of the crucial Diwali festival sales — this was in Q2 last year and this year comes in Q3. For the full year, Merrill Lynch has forecast sales to grow 20% and does not see risk to its forecasts.
Asian Paints is a high-quality domestic consumption story, with market leadership and strong brands in a category where penetration of branded products is less than 30%. Merrill Lynch sees structural growth factors in branded paint demand driven by rising incomes and improving lifestyles.
Flush of IPOs to hit the makret
84 and still counting...
No, it’s not the number of runs scored by master blaster Sachin Tendulkar while chasing a ton, which is getting increasingly illusive for him these days; nor are we referring to the age of the evergreen film star, Dev Anand. It’s the number of companies that were listed on the bourses in calendar year (CY) ’07 till October 18. It easily surpasses the 78 new listings in CY06 and is expected to get even bigger as a few more IPOs will hit the market in the remaining period of the current year.
The surge in new listings in the current year gives an idea of the increased tempo in the primary equity market following the bull run.
The number of listed companies in the first 10 months of the current year and their cumulative issue size is the largest since ’01.
Given the enthusiasm with which companies are approaching the equity market, it is imperative to understand whether it is really profitable to take the IPO route of investment. ETIG studied the returns scorecard of the IPOs in CY07 so far and found that they give a worthy investment option to retail investors, provided the investment is made wisely considering the fundamentals of the companies.
In the past 10 months, companies have raised nearly Rs 32,000 crore from investors — 63% more than the total amount raised by companies in ’06. When it comes to listing gains (the difference between the listing price and offer price in percentage terms), investors made money in 51 out of 84 instances. These returns varied widely from as low as 3% to as high as 242% over the offer price. Out of the total IPOs, listing gains in 28 outpaced the Sensex return of 34.6% between January 2 and October 23.
All this sounds convincing enough, but are these returns sustainable over a period of time? We looked at the returns earned by these newly listed companies till date (October 23). Based on this parameter, nearly two out of every three companies listed in the current year have earned positive returns (difference between the price as on October 23 and offer price in percentage terms). The extent of return varied from 0.5% to 424%. Further, 29 IPOs out of total 84 were able to beat the Sensex returns.
In fact, 37 scrips have improved their returns since the day of listing. We considered only those stocks that are trading for more than a month (three stocks listed after September 20 were not considered). It shows that there is a fair chance for valuations to improve post-listing.
Financial performance of the companies post-listing and market anticipation of their future growth prospects play a major role in determining the post-listing returns. In our sample, 18 companies reported quarter-on-quarter growth in income and profits during the subsequent quarter after the listing date. Out of this, as many as 10 companies witnessed a jump in their share prices after listing. Some of the companies in this category include Tanla Solutions, Indian Bank, Power Finance Corporation, Idea Cellular and Ankit Metals.
Among all companies that were listed on the bourses till October 18, ’07, Orbit Corporation posted the highest post-listing gains of 424.8%. The stock was offered at Rs 110 per share, opened low at Rs 90 on its debut in April ’07 and is now trading at Rs 598. Everonn Systems, an educational information dissemination company, has seen a four-fold rise in its share price since its listing in early August. MIC Electronics, Global Broadcast News and Redington are some other companies that have reported multi-fold gains in their share prices.
However, the analysis will be incomplete without a special mention of companies from lesser-known or unconventional sectors such as floriculture, fire-protection, ceramics and granite and marbles. Companies in this bracket include Pochiraju Industries, Nitin Fire Protection and Euro Ceramics among others.
A majority of companies in these unconventional sectors have failed to excite the market. All the four granite and marble companies listed in the current year failed to provide listing gains, while only Euro Ceramics was able to provide returns of 21% so far. Flower exporter Pochiraju saw initial excitement from the investors as it gained 35% on listing. However, the stock is currently trading below its offer price. The only exceptions are Nitin Fire Protection and Everonn Systems.
Our study suggests that IPOs offer an effective way to include tomorrow’s performers in your portfolio today. However, such a decision needs to be supported by a clear understanding of the business profile and underlying risks for the listing company.
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