Monday, November 12, 2007
Prabhudas Lilladher has initiated coverage on Core Projects and Technologies Ltd with a ‘buy’ for a target of Rs 290.
Core Projects has witnessed tremendous growth in the last two years. Revenue increased 130 per cent to Rs 199.70 crore in 2006-07 (Apr-Mar) from Rs 86.70 crore in the pervious year. Net profit grew 215 per cent to Rs 33.40 crore from Rs 10.60 crore in 2005-06. The company acquired five companies which contributed 65 per cent to topline and bottom line in 2006-07.
Prabhudas Lilladher expects Core's revenue and earnings to grow at compounded annual growth rate of 87.4 per cent and 60.6 per cent respectively over 2007-08 and 2009-10. The growth will be fuelled by the huge domestic education infrastructure opportunity, Core’s recent tie-up with Centre of Higher Learning of US, inorganic growth and cross selling of products of recently acquired companies.
In a report dated Nov 5, the brokerage gives a multiple of 13 times to its 2009-10 earning per share of Rs 19 from its on-going business, which gives a per share value of Rs 246 to its IT business. On the other hand, the brokerage have given a multiple of 2 times to its NPV from the BOT project, which gives a per share value of Rs 44. The combined per share value comes to Rs 290, leaving an upside potential of 27.8 per cent from the current levels.
Core Projects has entered into a joint venture with IETS subsidiary of IL&FS to provide IT and infrastructure solution in the education space. The JV is expected to set up complete infrastructure for schools. It will also install and implement a comprehensive MIS that can be used by central government, state government, school administrators, teachers and students to monitor the progress and benefits under SSA dispensation.
The company will set up 175 centres during three years, which will fetch it one-time revenue of Rs 2.80 crore per centre. These centres will be set up for IL&FS and IGNOU and will be operated by the JV between Core and IL&FS. The JV will earn annual revenue of $1.3 million from each centre
The benchmark Sensex on Monday fell by over 170 points on frantic selling by funds in heavyweight stocks, triggered by weakening global trend.
The Sensex, which has been in a bearish mode in the last few trading sessions, shed another 170.33 points to 18,737.27 after touching the day's low of 18,333.21 points.
The S&P CNX Nifty on the NSE fell by 46.15 points to 5,617.10. It touched the day's low of 5,477.50 and a high of 5,660.60 points.
Selling pressure gathered momentum following a steep fall in other Asian stock markets.
Major pullers were stocks from realty, oil and gas, and information technology segments
Festive mood for market seems to be over. So far India markets rallied really high irrespective of global woes. But now once again global cues shows the direction for the Indian Markets. US is bleeding on financial crises. Indian markets started off with gap down and but recovery was not as fast as it used to be. Rally so far was very strong but post P-notes issue the fund flow has slowed down and fresh entrant would wait for lower levels to get in. Any high may be used as opportunity to book profits. Overall weakness prevailed across the board except power stocks especially mid caps and FMCG. Some stock specific action was seen in mid caps.
Sensex ended down by 170 points at 18737. Weighing on the Sensex are losses in Bharti (8375, -4 percent), HDFC Bk (1478,-4 percent), Satyam (413.1,-5 percent), ONGC (1173,-5 percent) and Infosys (1644,-3.48 percent). Losses are restricted by gains in NTPC (257,+5 percent), ITC (177.85,+5 percent), Cipla (182,+3 percent), SBI (2240,+3.5 percent).
FMCG showed some sign's of revival in weak markets. This counter normally assumed to defensive in weak market. Britannia is our pick in FMCG counter. The company was bleeding badly in high raw material scenario and intense competition. However, the company has managed well to get out of all the odds and perform well. Numbers for this quarter was extremely good. Only worry is tag of war between the promoter's (Wadias vs Danon). However company is doing well in spite of all odds and that gives us some confidence. Do read our note on this one to get more insights.
Solar Explosives is the one which has been exploding in last few months. The company is into explosive which goes for mining. Explosive sector was extremely fragmented among small players earlier. Making money was really tough and small player were wiped out which brought in consolidation and changed the business dynamics. Company performance was good..but there is lot more here to come. The coal mine allocation is key here. With new mining areas being allocated Solar stands to be biggest beneficiary. Today the company announced acquisition of 74% stake in Navbharat Coalfields. Navabharat has applied for coal mines and Solar expects to bank on that. For now its really difficult to comment on this. We will update you more on this one soon.
Technically Speaking: The indices opened with a negative bias in morning managed to erase some of the losses. From the lows the Sensex has recovered close to 400 points and the Nifty over 145 points. These points to some support kicking in although the only sectoral indices that registered some gains were the FMCG. If there can further help from the Global picture, we can see some pull back upto 5800 on the Nifty. The markets are not out of the woods yet, traders are advised to wait for further evidence of strength in the following sessions. Nifty 5800 ~ 19600 on Sensex.
The market witnessed a solid correction on the back of a meltdown in the major global indices coupled with the paring of foreign funds’ exposure in domestic markets. The Sensex began the trading session 267 points lower at 18641 and shed another 308 points to slip below the 18350 mark and touch the day's low of 18333. The market witnessed a dramatic turnaround in the afternoon as substantial buying at lower levels helped the index scale above 18800. However, heavy selling in information technology, oil and auto stocks kept the index in negative territory. The Sensex finally closed the session with a loss of 170 points at 18737 while the Nifty shed 46 points to close at 5617.
The market breadth was weak. Of the 2,769 stocks traded on the BSE, 1,699 stocks declined, 1,015 stocks advanced and 54 stocks ended unchanged. Except a few most of the sectoral indices finished in the red. The BSE Realty Index was the major loser and dropped 3.08% followed by the BSE IT Index (down 2.78%), the BSE Teck Index (down 2.71%) and the BSE Oil & Gas Index (down 2.28%). However, the BSE FMCG Index bucked the trend and gained 2.50% while the BSE Power Index and the BSE PSU Index closed with moderate gains.
Most of the Sensex stocks witnessed selling pressure and fell by over 1-4%. ONGC led the losers’ pack and crumbled by 4.78% at Rs1,180. Among the other major losers Bharti Airtel plummeted by 4.29% at Rs833, HDFC Bank dropped 4.08% at Rs1,476, Infosys tumbled by 3.60% at Rs1,642, Satyam Computer shed 6.99% at Rs658, ITC declined by 5.44% at Rs146, Maruti slumped 6.56% at Rs702, Reliance Industries fell by 4.88% at Rs859 and Wipro dipped 3.24% at Rs413. However, ITC jumped 5.30% at Rs178, NTPC surged 5.03% at Rs254, SBI gained 3.455 at Rs2,237 and HLL moved up by 2.85% at Rs199.
Over 4.38 crore Ispat Industries shares changed hands on the BSE followed by Reliance Natural Resources (2.19 crore shares), Essar Oil (1.57 crore shares), Mangalore Refineries (1.27 crore shares) and Reliance Petroleum (1.11 crore shares).
Value-wise Reliance Natural Resources registered a turnover of Rs316 crore on the BSE followed by Reliance Industries (Rs283 crore), Bharti Airtel (Rs253 crore), Reliance Petroleum (Rs240 crore) and Reliance Energy (Rs222 crore)
Values buying in the mid-afternoon led the market to recover from a sharp slump. Disappointing industrial production data for September 2007 and weak global markets weighed on sentiments. FMCG, power and PSU stocks ended higher. Realty, IT and oil & gas stocks were major contributors in today’s decline. European markets were mixed.
India's industrial output in September 2007 rose 6.4% from a year earlier, sharply lower than annual growth of 10.7% in August 2007 due to sluggish manufacturing and electricity output, government data released in early afternoon today, showed. Manufacturing production rose 6.6% in September 2007 from a year earlier, compared with a provisional annual growth of 10.4% in August 2007.
Asian markets declined sharply on worries the fallout from the US subprime markets is spreading deeper into the credit markets and will eventually slow the growth of the US economy. The concerns were rekindled on Friday, 9 November 2007, when Wachovia Corp, the fourth-largest US bank, reported a potential $1.7 billion loss on mortgage-related debt.
The 30-share BSE Sensex ended down 170.33 points or 0.90% to 18,737.27. At the day’s low of 18,333.21, the Sensex lost 574.39 points.
The broader S&P CNX Nifty was down 46.15 points or 0.81% to 5617.10.
BSE clocked a turnover of Rs 6411.42 crore compared to Thursday (8 November 2007)'s Rs 6729 crore.
The NSE futures & options (F&O) turnover was at Rs 56771.23 crore compared to Thursday (8 November 2007)'s Rs 54391.37.
The Nifty November 2007 futures were at 5641.70, a premium of 24.6 points over spot closing of 5617.10.
The market breadth was negative. On BSE, 1699 stocks declined, while 1015 stocks moved up and 48 remained unchanged. 18 out of 30 stocks in Sensex were in red.
The BSE Mid-Cap was down 0.85% to 7,945.16 and the BSE Small-Cap was down 1.41% to 9,619.64. The Mid-Cap index outperformed the Sensex, while the Small-Cap index underperformed the Sensex.
Index heavyweight, Reliance Industries, India's largest private sector company in terms of market capitalisation and oil refiners, fell 2.15% to Rs 2676.95 after the company reportedly signed a contract for a second deepwater exploration block off the coast of Gulf state Oman. The exploration block is 100% owned by Reliance subsidiary, Reliance Exploration & Production DMCC.
The BSE Bankex fell 0.26% to 10,186.32. It outperformed the Sensex. ICICI Bank moved up 0.32% to Rs 1146.65. The stock came off session's low of Rs 1086.
State Bank of India spurted 3.45% to Rs 2237.15. As per reports, the Union Cabinet is likely to take a call by 22 November 2007 on State Bank of India's proposed plan to raise about Rs 18,000 crore through a rights issue. Incidentally, the winter session of Parliament is beginning on 15 November 2007 and the government will have to get the Parliament.
Telecom stocks declined. Reliance Communication fell 2.08% to Rs 694.80 and Bharti Airtel slide 4.29% to Rs 833.25.
The BSE Realty index fell 3.08% to 9,799.06. It underperformed the Sensex. Indiabulls Real Estate dropped 7.30% to Rs 590.80, Puravankara Projects fell 5.3% to Rs 385.05, DLF moved down 4.67% to Rs 871.20. Unitech gained 0.80% to Rs 365.50.
The BSE Oil & Gas index fell 2.28% to 11,369.24. It underperformed the Sensex. ONGC slumped 4.78% to Rs 1179.50, GAIL (India) gave away 3.50% to Rs 447.05, HPCL shed 3.18% to Rs 258.45 and Reliance Petroleum skid 2.48% to Rs 218.25.
Export-driven software services companies, which are already under pressure because of a firmer rupee extended losses on concerns over a possible downturn in the United States, which accounts for more than half their revenue. The BSE IT index shed 2.78% to 4,135.14. it underperformed the Sensex. Infosys Technologies slipped 3.60% to Rs 1,641.95, Satyam Computers fell 3.24% to Rs 413.10, TCS slipped 2.215 to Rs 963.70 and Wipro dropped 0.55% to Rs 457.45.
The BSE FMCG index gained 2.50% to 2,057.01. It outperformed the Sensex. ITC soared 5.30% to Rs 177.85 after Macquarie Securities raised its 12-month target price on the stock by 12% to Rs 225. Hindustan Unilever moved up 2.85% to Rs 198.75 and Dabur India rose 0.38% to Rs 105.75.
Recently launched, BSE Power index rose 0.16% to 4,394.15. It outperformed the Sensex. Neyveli Lignite surged 16.52% to Rs 194.70, NTPC soared 5.03% to Rs 253.50, Power Grid Corporation of India rose 2.62% to Rs 152.80 and Tata Power grew 0.66% to Rs 1221.25. Reliance Energy gave away 1.04% to Rs 1818.90.
Ispat Industries jumped 8.19% to Rs 38.95, its 52-week high, after 44.4 lakh shares changed hands on the BSE in several block deals at a price of between Rs 36.55 – Rs 38.20 each.
United Spirits was down 1.76% to Rs 1816.40. Liquor maker Diageo is said to be exploring the possibility of acquiring 10-13% stake in the comapny for $500-600 million.
Britannia Industries was down 1.55% to Rs 1527.50. The company is reportedly set to re-enter the snacks segment with a nationwide push behind Chutkule brand.
Suryachakra Power Corporation surged 19.89% to Rs 33.45 after it tied up with China's state-run China Guodian Corp for a proposed 1,200 mega watt coal-based power project in India. It has also tied up coal supplies with Indonesia's Central Korporindo International Tbk for steam coal.
Reliance Natural Resources clocked the highest turnover of Rs 316.76 crore on BSE. Reliance Industries (Rs 283.80 crore), Bharti Airtel (Rs 253.62 crore), Reliance Petroleum (Rs 240.78 crore) and Reliance Energy (Rs 222.32 crore), were other turnover toppers in that order.
Ispat Industries registered highest volumes of 4.38 crore shares on BSE. Reliance Natural Resources (2.19 crore shares), Essar Oil (1.57 crore shares), Manglore Refineries & Petrochemicals (1.27 crore shares) and Reliance Petroleum (1.11 crore shares), were the other volume toppers in that order.
In Europe, UK FTSE 100 gained 0.18% to 6,316.20. France’s CAC 40 shed 0.40% to 5,501.95 and Germany’s DAX fell 0.49% to 7,773.81.
Asian markets were weak today, 12 November 2007. Hong Kong's Hang Seng (down 3.88% at 27,665.73), Japan's Nikkei (down 2.48% at 15,197.09), Taiwan's Taiwan Weighted (down 3.35% at 8,670.61), Singapore's Straits Times (down 2.76% at 3,500.48) and South Korea's Seoul Composite (down 3.37% at 1,923.42), edged lower. Nikkei dropped to a 15-month low, erasing all gains made in 2007.
Japan’s yen strengthened against the dollar as a slump in Asian stocks prompted investors to cut carry trades funded with money borrowed in Japan. In carry trades, investors get loans in countries with lower benchmark borrowing costs, such as Japan's 0.5%, and buy assets in places with higher interest rates.
US markets ended on weak note on Friday, 9 November 2007 after major banks warned of further losses on their debt portfolios, raising investor concerns that the credit market worries are not yet over. The Dow Jones industrial average lost 223.55 points, or 1.69%, to 13,042.74. The Standard & Poor's 500 index declined 21.07 points, or 1.43%, at 1,453.70, while the Nasdaq Composite index fell 68.06 points, or 2.52%, to 2,627.94.
As per latest data released by the Association of Mutual Funds in India (AMFI), existing open-ended equity schemes of mutual funds witnessed a net outflow of Rs 3312 crore in October 2007. Equity schemes mopped up Rs 3748 crore in new fund offering (NFO) in the month. This pertains to collections in those NFOs with respect to which allotment was completed in the month.
The market ended the session on a negative note but it manages to pare most of its initial losses as the investors showed some buying interest. After a volatile trade, the BSE Sensex finally closed at 18,737.27 with a loss of 170.33 points and Nifty fell 46.15 points to close at 5,617.10. Almost all the sectoral indices closed in red but FMCG, PSU and Power indices manages to close in green. The market lost direction at the initial stage on the back of weak global cues. Also the domestic cues was not good as the India''s Industrial output for the month of September 2007 grew by only 6.4% from the last year which was much lower than 10.7% growth in August 2007. The Sensex touched an intraday low of 18,333.21 and high of 18,815.11. The overall the market breadth was weak as 1699 stocks closed in red while 1015 stocks closed in green. The BSE Mid Cap and Small Cap closed lower by 68.47 points and 137.24 points at 7,945.16 and 9,619.64 respectively.
The oil and gas index dropped by 265.14 points to close at 11,369.24. Pushing it down are ONGC (4.78%), GAIL (3.50%), HPCL (3.18%), RPL (2.48%) and IOCL (1.50%) closed lower.
The Reality index declined by 310.93 points to close at 9,799.06. Pulling it down are Indbul Real (7.30%), Purvankara (5.33%), Ananat Raj (4.99%), DLF (4.67%) and Sobha Dev (2.75%) closed in red.
The IT index fell by 118.11 points to close at 4,135.14 as Patni comp (4.39%), Infosys (3.60%), Satyam (3.24%), HCL (1.96%) and Wipro (0.55%) closed lower.
BSE Metal index declined by 98.16 points to close at 16,766.06 Pulling it down are JSW Steel (3.73%), Jindal Saw (3.36%), Sterlite Industries (3.09%) and Tata Steel (2.26%) closed in red.
The FMCG index remained in the limelight as it grew by 50.19 point to close at 2,057.01 as ITC (5.30%), HUL (2.85%) and Dabur (0.38%) closed in green.
Uncertainty is likely to prevail on rising worries about credit crises in US, lack of fund buying in the domestic market and the trend in the international indices. A sharp fall in Asian indices in the ongoing trades may see the market resume on a weak note and could slip further during intra-day trades on sharp volatility. Among the local indices, the Nifty may slip to 5650 while on the upside it could test the 6000 level. The Sensex has a likely support at 19000 and could test higher levels at 20500.
US indices slipped on worries about subprime turmoil, as the Dow Jones slumped 224 points to close at 13043 while the Nasdaq ended 68 points lower at 2628 on Friday.
With the exception of Dr Reddy's and Rediff, rest of the Indian floats fell in tune with the broader market. ICICI Bank, HDFC Bank, VSNL slipped over 4-7% while Wipro, Tata Motors, Infosys, Satyam, Patni Computers and MTNL dropped 1-3%.
The Nymex light crude oil for December delivery moved up by 86 points a barrel at $96.32 per barrel. In the commodity space, the Comex gold for December series slipped $2.80 to settle at $834.70 an ounce.
The market is expected to undergo further correction on weak global cues. The market entered correction mode last week as it posted losses in all the five trading sessions as worries about US credit crisis arising from sub-prime mortgage defaults resurfaced. The BSE 30-shares Sensex lost 1068.63 points to 18,907.60 in the week ended Friday, 9 November 2007. The S&P CNX Nifty declined 269.15 points to 5663.25 in the week.
The Index of Industrial Production (IIP) data for September 2007 is due today, 12 November 2007. IIP rose 10.7% in August 2007 from 10.3% growth in August 2006. IIP improved 9.8% in April-August 2007 compared with 11.9% growth in April-August 2006
Asian markets were weak today, 12 November 2007. Hong Kong's Hang Seng (down 3.06% or at 27,901.56), Japan's Nikkei (down 2.4% at 15,208.78), Taiwan's Taiwan Weighted (down 2.91% at 8,710.12), Singapore's Straits Times (down 2.72% at 3,501.82) and South Korea's Seoul Composite (down 3.04% at 1,929.93) edged lower.
US markets ended on weak note on Friday, 9 November 2007 after major banks warned of further losses on their debt portfolios, raising investor concerns that the credit market worries are not yet over. The Dow Jones industrial average lost 223.55 points, or 1.69%, to 13,042.74. The Standard & Poor's 500 index declined 21.07 points, or 1.43%, at 1,453.70, while the Nasdaq Composite index fell 68.06 points, or 2.52%, to 2,627.94.
Trading for the Samvat year 2064 began on a cheerful note. However, the market later slipped into the red due to weakness in global equities. The BSE 30-shares Sensex slipped 151.33 points or 0.79% to 18,907.60 on Friday 9 November 2007. The broader based S&P CNX Nifty slipped 35.50 points or 0.62% to 5663.25. This is the first time in last ten years when markets ended in the red on Muhurat trading session.
Samvat 2,063 was an eventful year. Sensex galloped by whopping 6,322 points. Though this is the biggest point move in a single year, it's not the highest in terms of percentage gains. In Samvat 2,063, the index appreciated 49.6% from the 12,736 points it had closed last Diwali.
Oil fell more than $1 on Monday, 12 November 2007, after Saudi Arabia said the cartel would discuss boosting oil output at an upcoming meeting to cool surging oil prices. US light crude for December delivery was down 90 cents at $95.42 per barrel. London Brent crude fell 67 cents to $92.51 a barrel.
As per provisional data, FIIs purchased shares worth a net Rs 34.99 crore, while domestic institutional investors (DIIs) were net sellers of shares worth Rs 0.53 crore on Friday, 9 November 2007.
Indian market is likely to have negative opening as the US market closed in red as well as the Asian markets is trading lower. On Friday i.e. on the auspicious day of Diwali does not prove to be good for the investors as the market tumbles as the BSE Sensex fell by 151.33 points to close at 18,907.60 and Nifty dropped by 35.5 points to close at 5663.25. We expect the market to consolidate its gains further a during the trading session.
On Friday, the US markets closed in red. The Dow Jones Industrial Average (DJIA) dropped by 223.55 points to close at 13,042.74 along with NASDAQ Composite and S&P 500 closed lower by 68.06 points and 21.07 points at 2,627.94 and 1,453.70 respectively.
Indian ADRs ended in negative. In banking sector, ICICI bank and HDFC bank fell by (7.11%) and (5.48%) respectively. In technology sector, Patni computers dropped by along with Wipro by 2.67%, Satyam by 1.95% and Infosys by 0.87%. In telecommunication sector, VSNL and MTNL slipped by (4.08%) and (2.26%) respectively.
The major stock markets in Asia are trading weak. Japan''''s Nikkei is trading down by 374.64 points at 15,208.78. Hang Seng fell by 881.85 points to trade at 27,901.56. Taiwan weighted is trading lower by 260.80 points at 8,710.12. Seoul Composite slipped by 60.54 points to trade at 1,929.93.
On Thursday, the FIIs stood as the net buyer as the gross equity purchased by them was Rs4,156.90. (in crores), and the gross debt purchased was Rs.146.70 (in crores) as against the gross equity sold was Rs.4,119.20 (in crores) and the gross debt sold was Rs.121.60 (in crores). The net investment of equity was Rs.37.70 (in crores) and the net debt investment was Rs.25.10 (in crores).
Today, Nifty has support at 5,552 and resistance at 5,698 and BSE Sensex has support at 18,511 and resistance at 18,992.
The stock market this week is hoping for signs that the economy is surviving the problems in the financial sector -- and that the Federal Reserve will come to the rescue if it's not.
Investors are slowly getting a clearer picture of how much in risky and deteriorating debt securities the world's major financial institutions are holding, and they don't like what they see.
Wall Street already expects banks' portfolios to lose at least $20 billion in the fourth quarter, after announcements of anticipated writedowns of mortgage-backed securities and other debt instruments by such financial institutions as Citigroup Inc., Morgan Stanley and Wachovia Corp.
Investors have been bracing for fourth-quarter writedowns for a while, but the amount was larger than many were prepared to hear. As a result, volatility has returned to virtually all corners of Wall Street.
After huge swings in either direction, the Dow Jones industrial average finished last week down 4.06 percent, and the Standard & Poor's ended down 3.71 percent.
The Nasdaq composite index was hit the hardest last week, as investors' optimism vanished about the technology sector being isolated from the slowing economy and problems in the financial markets. The Nasdaq ended the week down 6.49 percent.
We have been quite optimistic in the last three months, ever since the sub prime problem happened and that was at around 14,000. Our take was that it was probably going to see numbers north of 20,000 and it just kind of kissed that number a while back.
But we changed our stance about 7-8 days back. Now our stance is that we think markets are headed substantially lower globally. I mean for us, India is just another market in a larger global equity bull market and for whatever it is worth, I don’t think India will just simply sit aside if global equities sell-off sharply. We will participate, we’ll participate to a lesser extent on the way down and more on the way up, but we will not remain immune to that. So lets not forget, there has been a 4-5 year global equity bull market, we are squarely in the middle of it.
The global context that right now we are extremely negative on, we think you’re going to look at pretty much across the world sort of economic numbers, the macro number and the micro numbers look very weak. In that environment, we think equity prices are headed lower, we think India will also head lower. However, having said that, we think India will suffer a lot less largely because subterranean India, in terms of the stock market, is looking in very good shape.
Unfortunately, the large end of the market, the largecap end of the market is looking terrible. I have never ever seen a market that has been sort of run along on the basis of 4-5 stocks in the fashion that it has. If you look at pure fundamentals, I don’t see where the earnings numbers are going to come from. You look at the auto pack, pharmaceuticals, IT, cement, you look at some parts of the midcap sectors like even the banks have had NIM pressures, I don’t see how you are getting a situation wherein 9% GDP growth is not delivering any kind of sustainable earnings numbers, at least visible for the next couple of quarters, for any of the core industry that we are talking about. Even the construction company numbers have been disappointing by and large save for the odd Larsen and Toubro.
I am saying that there is a big divergence between the economic growth numbers and on the ground reality of businesses, I think it’s the time that something’s got to give. I think the markets will correct, they will reach levels of sanity and I think the markets will give you another terrific chance to buy in probably 15-20% lower than that.
Now you can say that’s short-term view and so what’s the long-term view. Frankly I have no idea what the long-term view is. I think India is largely a secular bull market. But having said that, I have seen consensus go wrong too many times to just stick out my neck and say five years from now will be substantially higher, the world can change a lot of things can change.
Immediately I do see significant downside and limited upside. A year out, I would still do hazard a guess that we’ll be higher than where we are. But what is causing me concern are those basic big divergences in economic numbers, macro numbers and the micro numbers of companies and their growth numbers. That’s really causing us a lot of discomfort.
With bad news pouring in from the US with regard to the subprime turmoil and Asian markets plunging this morning, we would like to desist from giving any intra-day trading calls for the day. We advise investors to be very cautious as the undertone has suddenly turned a little weak amid slowing FII inflows and lack of catalysts in the near term.
If the facts don't fit the theory, change the facts. - Albert Einstein.
Unfortunately for the bulls, they can't ignore what has been happening in the US and other parts of the world. Though the bulls had a blast in the run up to Diwali, fresh turbulence in the global markets ensured that there were no fireworks when it mattered the most i.e. during the main Diwali week. As it turned out, the Sensex lost over 1,000 points last week (including the mahurat trading). So, Samvat 2063 ended with a whimper, though the Indian market (represented by the Sensex) after another spectacular year for the bulls. The new year has begun on a disappointing note, with the global markets deeply in the red, thanks to the resurfacing of the US sub-prime mess.
The news coming from Wall Street has not been good at all in the past couple of weeks. Top US banks have revealed more losses linked to the collapse of the housing sector. The dollar's downward spiral against major currencies has accelerated, fueling renewed concerns about the unwinding of the yen carry trade. This morning in Tokyo, the yen rose to a one-and-a-half-year high against the dollar as a slump in Asian stocks prompted investors to cut holdings of higher-yielding assets bought with money borrowed in Japan.
Asian stocks declined for a third day with the Nikkei 225 Average in Tokyo hitting a 52-week low of 15,139.26 in the morning session and the Hang Seng plunging by over a 1,000 points. Stock benchmarks slid in other Asian markets open for trading. China's CSI 300 Index slumped after the government ordered banks to increase their reserves to 13.5% of deposits, up from 13%. The move comes as the government seeks to cool an economy that expanded 11.5% in the third quarter.
In Friday's trading on Wall Street, the Standard & Poor's 500 Index slumped 1.4% after Wachovia Corp. announced losses on subprime-related investments, while Bank of America and JPMorgan Chase also said their earnings may suffer. After huge swings in either direction, the Dow Jones Industrial Average finished last week down 4%, and the S&P 500 ended down 3.7%. The Nasdaq Composite index was hit the hardest last week, finishing the week down 6.5%. Meanwhile, gold lifted further above $800 an ounce to its highest levels since 1980, and crude-oil briefly breached $98 a barrel, as the dollar plunged.
Federal Reserve Chairman Ben Bernanke said on Thursday that economic growth would slow noticeably in the US in the coming months while rising oil costs would boost inflation pressures. This week, global investors will turn to the September pending home sales index, October retail sales, and regional manufacturing surveys for November, for the latest snapshot on the ailing US economy. Bad economic data may lift market odds that the Fed will continue lowering interest rates, although Bernanke's uncertainty last week in testimony to Congress left some investors confused.
Coming to the local market, we expect a weak opening amid a global meltdown. Add to it the sharp slowdown in FII inflows and lack of new triggers, and what one can infer is that the undertone has turned bearish for the time being. One should not venture into the market in the near term as there are more chances of the key indices going down than rising to new highs. Wait for a clear direction to emerge from the ongoing volatility. Stick to a stock centric approach and buy only for the long term i.e. more than six months and above.
Redington India could be in action as the company is in the process of acquiring Delhi based NBFC called Easyaccess Financial Services. The NBFC would be focusing on meeting the financial requirements in the IT industry.
Bulls on holiday
The struggled continued for fourth straight trading session as bulls look to have gone on holiday. Weak negative cues from the US and the Asian markets dragged the key indices to open with negative bias as the session progressed key indices further lost ground as selling pressure in the index heavyweights like ICICI Bank, ONGC, SBI and Reliance Communication.
All the BSE sectoral indices ended on the receiving end with BSE Bankex and BSE Realty index being among the major losers.
Finally, benchmark Sensex lost 217 points to close at 19,072. NSE Nifty fell 72 points at 5,710.
M&M slipped 1.6% to Rs754. The company announced that they revised its interest to bid for Ford brands. The scrip has touched an intra-day high of Rs765 and a low of Rs746 and has recorded volumes of over 3,00,000 shares on NSE.
Maruti Suzuki edged lower by 0.5% to Rs994. The company yesterday announced that they secured order from multinational fleet operator Orix for 300 units of Versa. The scrip has touched an intra-day high of Rs1010 and a low of Rs961 and has recorded volumes of over 4,00,000 shares on NSE.
Bharati Shipyard marginally gained 0.4% to Rs709 after the company announced that they bagged an order worth Rs2.1bn from Germany based Opieolok Bereederungs to build two vessels. The scrip has touched an intra-day high of Rs720 and a low of Rs685 and has recorded volumes of over 14,000 shares on NSE.
IOC advanced 1.8% to Rs512 as reports stated that the company is in talks with various African countries to buy stakes in discovered oil and gas blocks. The scrip has touched an intra-day high of Rs530 and a low of Rs496 and has recorded volumes of over 11,00,000 shares on NSE.
Biocon was up by over 4% to Rs592 as the company announced that they are seeking to buy companies in US and
Amtek Auto dropped by over 6.5% to Rs436. The company declared that they purchased
Stocks in News:
Wipro seen in a Euro60 per share bid for French IT giant, CapGemini, according to international media reports.
Sterlite Energy, part of the UK listed Vedanta Resources plans to raise US$2bn from an IPO.
L&T in negotiations with global ship owners to build ships worth US$1bn in its shipyard.
Sale of 26% stake in IFCI may be delayed till March 2008 on debt conversion issue.
GAIL looking for an Indian partner for building a petrochemical and LNG terminal in Saudi Arabia.
KEC International may bag overseas contracts worth Rs9bn in the transmission and rural electrification segment.
NTPC, SAIL, amongst others, to form a SPV to acquire coal mines abroad.
Areva T&D may buy Indian manufacturers of power transmission and distribution equipment.
Reliance Power may bag its second Ultra Mega Power Project in Andhra Pradesh.
Power Grid Corporation to float Rs60bn tender for building transmission capacity to move excess power from North East.
Reliance Infrastructure may develop airports in Tier II and III towns in partnership with Jet Airways.
Adani Power to increase Mundra power plant capacity by 2,000MW; may go in for an IPO.
BSNL may award entire 23mn GSM line contract to Ericsson.
Satyam would invest Rs8bn to create IT infrastructure in Tamil Nadu in 3-4 years.
Reliance Industries seeks fourth extension for its second most prospective oil and gas block, D6, in the Mahanadi basin.
Diageo may buy 10-13% stake in United Spirits for US$500-
Wockhardt is planning to spin off its innovative R&D business
into a separate company.
Power Grid Corporation is in talks with several telecom companies to share its infrastructure.
Unitech plans to raise US$700mn through an IPO in the Singapore Stock Exchange.
M&M has joined hands with leading American private equity, Apollo, in its race for Jaguar and Land Rover.
Money Supply (M3) increased by 22.5% in two weeks through October 26, the fastest growth in a decade
Inflation drops to five year low of 2.97% in the week ended October 27.
Government may regulate iron ore exports.
Eleventh five year plan targets GDP growth of 9%
The EPF Board may consider a proposal to invest in the stock market.
Dedicated East West Freight Corridor may take 10 years to complete instead of targeted five years
FII Investment Trend:
FIIs were net buyers of just Rs349.9mn (provisional) in the cash segment on Friday while the local institutions were net sellers of Rs5.3mn.
In the F&O segment, FIIs were net sellers of Rs2.19bn.
|If the 5650 support breaks, the market could slide to 5525 before hitting the next serious support.|
|The week was uniformly bearish including the ceremonial trading on Muhurat. This trend appears unlikely to alter.|
|The Sensex closed on Friday at 18907 points for a loss of 5.35 per cent. The Nifty closed at 5663 points for a loss of 4.54 per cent. The Defty was down 3.95 per cent as the rupee provided a cushion. The Junior was down comparatively less at minus 1.69 per cent.|
|Breadth was quite negative and volumes were down on every successive session. The BSE 500 was down 3.42 per cent while the NSE Midcaps were down 0.5 per cent.|
|Sector indices like the CNX IT and the Bank Nifty lost disproportionate ground. The FIIs were net sellers and, while the mutual funds were net buyers until Thursday, they didn’t buy enough to redress the balance. Most of the operator volume disappeared as it usually does during Diwali.|
|Outlook: All the signals suggest a continuation of the downtrend. However the Nifty did land on what looked like a reliable support around Nifty 5600. In the absence of volume it is however likely to test and break that support early next week.|
|Rationale: Low volumes, poor breadth and dipping price lines are a clearly bearish short-term combination. If the 5600 support breaks, the market could slide till 5525 before hitting the next serious support.|
|In addition, the market has been in an intermediate uptrend since late August – after 10 weeks, the trend must be maturing and near-reversal.|
|Counter-view: If institutional attitude, especially FII attitude changes next week, the market could rise again.|
|This has happened several times in the past three years when fresh liquidity has changed all the technical expectations. It doesn’t seem likely given weakness in US markets but it could happen.|
|Bulls & Bears: It was one of those weeks when bulls were not very easy to find. There were some speculative action in PSU refiners such as BPCL and HPCL based on the hopes that fuel prices would be hiked.|
|However RPL saw a massive sell off, dropping about 20 per cent. There were isolated winners such as Bhel, Gail, Hindalco, Nalco, Biocon and NTPC – aluminium seems to be favoured among metals.|
|Most banks hit the Southern highway in contrast. Among tech stocks, both Infosys and TCS seemed to break crucial supports.|
Current price: 462.6
Target price: 490
|The stock is generating high volumes and moving up despite the generally weak market. It made a breakout on Wednesday when it closed above 440. The target is in the range of 490-500. Keep a stop at 455 and go long.|
Current price: 2771
Target price: 2850
|The stock appears to be consolidating above support at 2750 although the volumes are not very good. It has a likely intra-day target of 2850 in the next four sessions and it will see resistance at 2795. Keep a stop at 2750 and go long. Book some profits above 2795.|
Current price: 202.5
Target price: 220
|Friday‘s trading showed a positive engulfing pattern with a high-low range larger than the previous session, higher volumes and a positive trend. The stock has a minimum target projection of 215 with a likely rise till 220. Keep a stop at 195 and go long.|
Current price: 223
Target price: 200
|The stock has found some support at the current price after dropping from the heights of 285. It’s likely to test support at 200 level again, at least on an intra-day basis. Keep a stop at 225 and go short. Cover below 205.|
Current price: 985.25
Target price: 960
|The stock closed below a key support at 995. It now has a downside target of about 960. Keep a stop at 995 and go short. Cover below 965. If it closes below 955, go short again with 965 as a stop and a target of 925. If the support at 955 is broken, the stock is likely to hit support at 925.|
Company: Reliance Petroleum
CMP: Rs 221
CLSA downgrades Reliance Petroleum’s rating to ‘underperform’ with a target price of Rs 195 per share based on an average of the earnings multiples and replacement cost benchmarks. Reliance Petroleum has quadrupled since the initiation in April ’07 and now implies an asset value of $4,129/complex-bpd – 2.4x those of its US peers and a 50-70% premium to even the most expensive refinery new-build quotes in the market ($2,500). Its premium valuations ($57,800/bpd) are justified to an extent, however, given its higher earnings potential because of (a) lower capital costs ($740/complex-bpd, reflected in lower interest, depreciation), (b) tax savings due to SEZ-unit status and (c) savings from substitution of liquid fuels with lower-priced natural gas. In hindsight, CLSA’s April ’07 earnings estimates now appear too low and is upgrading FY09-12CL EPS by 52-71%. The refinery remains well-ahead of schedule as well and the FY09CL estimate builds a phased start-up from 2QFY09 (60% overall utilisation). CLSA’s fair value estimate for RPL is Rs158/share but the market is likely to look at alternative methods like earnings multiples, replacement costs, asset valuations and M&A benchmarks.
Research: ABN Amro
CMP: Rs 534
ABN Amro retains its ‘Buy’ recommendation on Punjab National Bank. However, it has lowered the target price despite the rollover of valuations to FY09F. PNB’s stock has underperformed the BSE Sensex by 32% in the past one year. This underperformance has been due to declining NIMs and an increase in bad loans over the past two quarters. The decline in NIMs was partly due to a decline in low-cost deposits as a proportion of total deposits, an increase in the cost of funds and a reversal of interest income on the increased bad loans. ABN now forecasts a dip in the ratio of low-cost deposits from 46.1% for FY07 to 45.4% in FY08, and further to 43.4% by FY10 and expects NIMs to fall from 3.47% in FY07 to 3.27% in FY08, before rising marginally to 3.29% in FY09-10. PNB’s low-cost deposit ratio, at about 44%, is still among the highest for an Indian stateowned bank, which makes it better placed relative to peers in terms of ability to protect declining net interest margins. PNB’s low funding costs also compensate for the bank’s higher intermediation costs relative to peers. At 2.2% of average working funds in FY08F, the bank’s operating expenses are higher than those of many of its peers. At a revised target price of Rs 605, the stock would trade at 9.2x earnings and 1.6x adjusted book value for FY09F after writing off 100% pre-tax net NPLs.
Company: Reliance Comm
Research: Morgan Stanley
CMP: Rs 705
Morgan Stanley maintains its ‘Overweight’ rating on Reliance Communications and revises upward the ’08/09 estimates by 1-3% based on F2Q08 results. They introduce ’10 estimates, increase net adds, raise their longer-term ARPU estimates by 7-8%, incorporate revised exchange rate estimates, and lift their price target to Rs 891. FY’07-10E operating and net profit growth are 40.2% and 42.0% p.a. respectively. Key positives include strong net adds and quarterly results, RCom’s unlocking of value in the tower business and its international operations through Flag Telecom, and Rcom’s getting the GSM spectrum for its new circles. RCom’s overall margins expanded 69 bps, to 42.8%, due to lower sales and distribution costs, as well as lower interconnect costs, despite higher network costs. Absolute EBITDA missed the estimate by 2.8%, even as RCom accounted for Rs 170 crore worth of income from the government pertaining to previous years. Still, lower depreciation charges, as well as lower tax rate and interest costs, led to net profits coming in 5.2% above the estimate. Aggressive rollout plans for ’08: RCOM invested $1.3 bn in 2Q ’08 and plans to invest $4-5 billion in ’08, the highest capex by any private operator in the country. This should enable it to enhance its passive infrastructure to 40,000 towers covering 23,000 towns and 600,000 villages and reaching 90% of India’s population.
Research: Merrill Lynch
CMP: Rs 2, 794
Merrill Lynch maintains BHEL as its top pick with a target price of Rs 3,000. On October 31, BHEL emerged as the sole bidder for yet another super-critical order – the 2x800-MW Krishnapatnam power plant of APGenco in a global competitive bid. This not only demonstrates BHEL’s ability to win supercritical orders in a competitive bid; but also takes it closer to reach a threshold level of 10 sets to achieve 90% indigenisation. BHEL is now the lowest bidder tied up for a total of six supercritical sets totalling to 4,520 MW in the last two months. Merrill Lynch expects solid new order inflows from supercritical technology to be the core driver of surprises ahead. It’s raining super-critical orders at BHEL.. The response to the global tender indicates tightness of the quality supply of super-critical power equipment. Merrill Lynch expects BHEL to outperform as the company a) addresses Chinese competition, b) gets super-critical orders in ’07, and c) looks to improve competitiveness through operating leverage - ~50% capacity expansion with less than 10% rise in labour.
Research: Deutsche Bank
CMP: Rs 2,562
Deutsche Bank maintains the `Buy’ rating on HDFC with an increased target price of Rs. 2,925 from Rs 2,200. HDFC remains one of the finest examples of steadiness - the mortgage business volume growth has stayed above 25% in the last four quarters when the rest of the sector has clearly decelerated. Asset quality is intact and spreads have actually broken out of the 2.15-2.2% band and moved closer to 2.3%. Life insurance is back to aggressive growth after the rapid increase in distribution investments. Two distinct upside possibilities to the assumption of tempered growth are real estate prices coming off and commercial banks competing less intensely than before. Dynamic resource-raising, no duration mismatch on the balance sheet and increased access to deposits should help HDFC maintain loan spreads. Asset quality is expected to remain under control, due to the rapid rise in individual income and HDFC’s historically low ticket size. Deutsche estimates gross NPLs to remain at the current level of ~1% and values HDFC on a sum-of-parts, at Rs 2,925. The core business is valued at 24x Mar ‘09E EPS. The life business is valued on appraisal value; the asset management business on AUM, the stake in HDFC Bank at the latter’s target price and the rest on earnings.
Company: Suzlon Energy
CMP: Rs 1,888
Citigroup increases its target price on Suzlon Energy to Rs 2,227 from Rs 1,700 as they factor in: (1) A higher P/E multiple of 26x (from 23x earlier) in line with the multiple for BHEL on FY07-10E earnings CAGR of 49% (from 44% earlier); and (2) Roll forward of our multiple to Sep ’09. Citigroup also accorded Rs 43 per fully diluted share of Suzlon for REPower and change thier risk rating to Low from Medium as (1) Uncertainties on the REPower acquisition are a thing of the past; (2) Confidence of EBITDA margins being in the 15–17% band over the medium term; (3) Reduced component shocks as Suzlon backward integrates. ~16.1% EBITDA margins look achievable — Suzlon delivered 1,000MW in 1HFY08 and is set to deliver 1,500+MW volumes in 2HFY08.