Saturday, December 15, 2007
If you had invested Rs10,000 on April 1, 2002, how much would that money have grown by now? The answer is simple. It depends on where you had invested it. Rs10,000 invested in real estate company Unitech’s stock would have been worth Rs1.20 crore by now. If you had missed out on Unitech, the next best bet would have been BF Utilities. Rs10,000 invested in BF Utilities, a company formed by the demerger of the financial services and windmill divisions of Bharat Forge, would have bloated to Rs66.8 lakh by now.
The other top wealth creators since 2002 are stocks like Anant Raj Industries, Praj Industries, Aban Offshore, Kirloskar Brothers, Gujarat Flourochem, Sesa Goa, Areva T&D and Pantaloon Retail. “These are clear examples of hyper wealth creation. If you were lucky enough to have any one of these stocks it would have changed the performance of your entire portfolio,” says Raamdeo Agrawal, joint managing director and co-promoter of broking house Motilal Oswal Securities Ltd.
The problem: how does one spot these companies before they hit the big time? “Bargains are found when the markets are blind to change. You have to buy when the company is not visible to the market,” says Agrawal, whose company has been tracking wealth creating companies for the last decade and more.
The study gives out some hints. The trick is to find young companies which are less than 10 years old. These tend to report higher growth in profits. Take the case of BF Utilities: it was formed only in 2001. The study also indicates an inverse relationship between the market valuation of the company and the returns it generates.
In other words, the smaller the market valuation, the larger the returns over time. Stocks with a market capitalisation of less than Rs2,000 crore in 2002 have given a return of 136% per year from 2002 to 2007. The bulk of the wealth created has come from stocks that, at that point of time, had a price-to-earnings (P/E) ratio of less than 10. (P/E is the price of a share divided by the company’s net profits per share).
Other than this, private sector companies on the whole performed much better than their public sector counterparts. The study attributes this to deregulation in most sectors. Multinational companies (MNCs) underperformed their Indian peers. Having said that, the Indian markets still believe in the long-term potential of MNCs, as indicated by their higher price to earnings ratios.
However, such fantastic growth in the days to come might be difficult to sustain. “I expect the next financial year to be a year of modest performance with returns of around 15-16%” says Agrawal.
So what are the sectors that will perform well in the days to come? “Predominantly domestic businesses such as banking, real estate, engineering and construction are likely to enjoy a higher share of wealth created,” the study points out. There will be continued rise in the demand for luxury goods and services such as cars, ACs and travel.
Comforts such as low-end household appliances (TVs, refrigerators), cellphones, healthcare and education will also grow much faster than necessities. Hence, listed entities in these areas will make for good buys.
Mid and small-cap shares remained in focus on Friday, as investors continued to mine the broader market in search of value bets. With the valuations of frontline shares perceived to be stretched, investors restricted activity in this segment to a few, resulting in equity benchmarks closing marginally lower in a listless trade on Friday.
The Sensex closed at 20,030.83, down 73.56 points, or 0.37%. Nifty ended at 6,047.70, down 10.4 points, or 0.17%. In the broader market, the small and mid-cap indices rose 1-2%. Gainers led losers at 2,082:830 on BSE, indicating that the bullish streak is intact. Analysts and fund managers said investors are lapping up mid- and small-cap shares because many of them trade at a discount in valuation to their frontline counterparts.
“Mid-caps are now trading at a 20-25% discount to large caps, the highest over the past 4 years. Therefore, the trend witnessed in November, where benchmark indices declined while the broader market indices outperformed, may continue for next few weeks,” Merrill Lynch said in a recent note.
Experts feel that the frontline shares, which constitute the benchmark indices, are unlikely to rally in the near term, unless foreign institutions return to India in a big way. The Sensex is trading at roughly 20 times the 2008-09 estimated earnings.
Many foreign institutions prefer to stick their bets to frontline shares due to higher liquidity and that
these companies are perceived to follow better corporate governance standards.
Foreign institutional investors (FIIs), according to provisional data on NSE, on Friday net sold Indian shares worth Rs 647.1 crore, while domestic financial institutions net bought to the tune of Rs 105.18 crore.
Since the US Federal rate cut on Tuesday, selling by foreign institutions have risen, while domestic institutional buying has been fading. So far this year, FIIs have net bought Indian shares worth Rs 70,421, according to Sebi data.
Elsewhere in Asia, markets extended losses on Friday, with Japan’s Nikkei and Topix indices falling close to a percentage each. Hong Kong’s Hang Seng dropped 0.6% and Singapore’s Straits Times ended roughly 0.4% lower.
Back home, the inflation index rose to a three-month high mainly due to the statistical effect of a lower base. The whole price index (WPI) rose to 3.75%, in the week ended December 1 from the same period last year, up from the previous week’s 3.01%.
The benchmark indices, Sensex and Nifty, closed above the 20,000 and 6,000 levels, respectively, for the first-time ever during the week ended December 14.
The market was strong throughout the week on the back of the smart rally in small-cap and mid-cap shares. The small-cap and mid-cap indices, too, hit new closing peaks on sustained buying.
Frontline stocks, however, were under pressure as foreign institutional investors (FIIs) booked profits in high-priced stocks.
The main index of the Bombay Stock Exchange, the Sensex, ended the week at 20,030.83 - a net gain of 64.83 points (0.32%) over the previous weekend close of 19,966.
The S&P CNX Nifty of the National Stock Exchange hit an all-time high of 6,185.40 before ending the week at 6,047.70 as against the last weekend close of 5,974.30 - a net rise of 73.40 points (1.23%).
The US Federal Reserve's decision to lower interest rates by 25 basis points helped sentiment to some extent even though it had already been factored in, analysts said.
The robust growth in the index of industrial production to 11.8% in October from 4.5% in the year-ago period also boosted sentiment.
Considering the Sensex's slide below the 20K mark on Friday from the Thursday's all-time intra-trade high of 20,498.11 and weakness in the global markets, market players are not ruling out further correction in the coming week.
Pitti Lamination up on talk of REL buy
The stock of Pitti Lamination has risen 48% over the past week on buzz that Reliance Energy (REL) is eyeing a minority stake in the company. Pitti manufactures electric-grade steel stampings and laminations, the key components in motors, rotors and other electrical components. Its clients include ABB, BHEL, Siemens, Suzlon and GE (US).
Dealers tracking the counter say REL is looking to have strategic tie-ups with key vendors for effective inventory management as it will be handling large projects. When contacted, REL spokesman refused to comment on the issue. At roughly 9 times trailing full-year earnings — the company reported an EPS of Rs 11.35 for FY07 — the stock may not appear overly expensive. But the performance for the first six months of the current financial year has been anything but impressive, with the company clocking an EPS of Rs 3.59. Local mutual funds do not appear to be hot on this stock.
Total institutional holding in the stock as on September 30 was 6.4% and all of it foreign. Also, there have not been any major institutional purchases in the stock over the past couple of months, as per data on BSE website. The stock on Friday closed at Rs 98.75, up 14% over its previous close.
Zenith Birla soars on capacity expansion buzz
The scrip of Yash Birla group company, Zenith Birla, is soaring on the bourses on talk that the company is planning to expand its pipe mak-ing capacity. Shares were up 4.9% on Friday, and 28% in the past week.
Confirming the move, a company official said a greenfield project will be put up on the west coast — Gujarat or Maharashatra — in-creasing capacity to 320,000 tonnes from 120, 00 tonnes. The company currently produces its pipes at its existing plant at Khopoli, about 80 km from Mumbai, which has two lines of production.
Such pipes are mainly used for oil and gas distribution through cross-country pipelines. Zenith has some presence in the global market, chiefly in the US and West Asia, with about 60% of its turnover com-ing from exports.
Tata Chemicals counter witnesses’ frenzied activity
Tata Chemicals has appreciated by over 20% in the past one week. The counter is witnessing sustained accumulation by various institutional investors. According to market sources, the Life Boat Fund — a biggie among domestic investors — has sold about 10-15 lakh shares at an average price of Rs 365, which in turn has been accumulated by informed investors.
The story doing the rounds is that the cash-rich company would post improved quarter-on-quarter performance and would also benefit from the rising soda ash prices (up about 25%). Its strategic tie up with Praj Industries is another positive. The stock closed at Rs 381, up 1.5% from the previous close.
As 2007 comes to its closure, Indian Inc. rated the performance of UPA Government under Prime Minister, Dr Manmohan Singh "more than satisfying" in the last three and half years, particularly under compulsion of coalition politics, both on internal and external front, giving it 7 marks out of 10 and describing its Business Confidence Index as investment-friendly to fair extent.
The just conducted assessment carried out by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) on UPA Government's performance in the last three and half years is based on a random Opinion Poll in which nearly 400 CEOs and MDs of large, medium and small size industries participated. It concludes with 70% of these head honchos feeling that the Government's performance was good in terms of keeping average GDP growth at around 8.3%.
Exports registered a growth of 18-20% despite rupee appreciation and savings rates grew at over 31%, further felt the 70% lot of the CEOs. According to them, inflation however remained a prime concern for the Government in the past three and half years which despite its best effort, stayed at 6% and caused a great deal of criticism for the UPA Government, said ASSOCHAM President Venugopal N. Dhoot.
35% of the CEOs and MDs have rated the current government performance, describing it just an average, arguing that neither employment increased substantially nor reforms in labour market were introduced and therefore, the growth rate cannot be termed as `inclusive’.
85% of CEOs, however, felt that Dr. Singh did all humanly possible ever since he took over as the Prime Minister on almost all front under coercion of coalition politics and particularly in maintaining an excellent foreign policy with equally balanced approach towards economies of scale and those of developing countries. FTA’s performance and foreign exchange reserves were appreciated by 85% of CEOs.
Nearly 30% of CEOs and MDs have hailed the leadership of Dr. Manmohan Singh in handling the nuclear issue with United States of America without any offensive and belligerent approach to some of its nuclear partners, saying that such a delicate issue was handled with much more maturity and statesmanship and at times, the government faced embarrassment on this issue because of domestic political reason.
Nearly 70% CEOs said that Dr. Singh’s leadership deserves only 7 marks out of 10 because prices of agricultural commodities showed a sharp rise in the 3 and half years of the UPA rule primarily due to stagnating production and rising demand. Commodities prices like pulses, wheat and edible oil have seen a jump of 40-100% thereby contributing to overall inflation.
Majority of the CEOs appreciated the allocation of UPA government towards education. Compared to 2001-02, financial outlays for the Sarva Shiksha Abhiyan increased fifteen-fold from Rs6.65bn and stood at Rs106.71bn in 2007-08.
The CEOs also appreciated the launch of Bharat Nirman programme of UPA government with a massive public-private partnership that envisages providing infrastructural amenities with the collaboration of private sector. While the performance of Dr. Singh government in the power sector has been dismal – just about 50% of the targeted 41,000 MW was added in the 10th plan period – it can take credit for paying open the nuclear door for India.
Over 80% of the CEOs complimented the UPA government for taking the Sensex to all time high heights of 20,000 marks, the credit for which goes to the Finance Minister and the UPA government in particular as the capital market maintained almost a good pace in the last 3 and half years and the pace accelerated substantially in latter part of 2007.
As many as 90% of the industry leaders agreed that the buoyancy in the steel, cement, banking, metals, construction material is a result of the boost given to the infrastructure and housing sectors apart from a global firmness in prices.
With big time investments taking off in the construction of roads, bridges , ports and railway, many of the infrastructure companies like Larsen and Toubro and Hindustan Construction have been re-rated among the investment bankers and the stock market. The performance of railways have also been appreciated by 95% of CEOs, complimenting the Rail Minister, Mr. Lalu Prasad for railway’s turnaround.
The corporate results show that despite certain sectoral glitches, the companies have been maintaining a net profit growth ranging between 15 and 20%. Corporate firms in most of the sectors, be it steel , cement, fast moving consumer goods, real estate, manufacturing, retailing, banking , infrastructure finance, hospitality or aviation have remained beneficiaries of the booming conditions in the demand-driven markets. In fact, in certain sectors like aviation, the Indian picture is quite different from the rest of the world.
However, there are challenges as well and the government along with the Reserve Bank of India have to remain extremely cautious about some of the global developments which could have a damaging impact on the Indian economy which is well integrated and not free from the international economic architecture.
The telecom saga continues...
The Telecom Ministry will start awarding start-up spectrum to new wireless telecom operators, Solicitor General Goolam Vahanvati said during the hearing of COAI's petition against the new spectrum allocation norms. Carriers with dual-technology licenses, including Reliance Communications (RCOM) may now be given spectrum to launch nationwide GSM services, Vahanvati said. Vahanvati also said that Tata Teleservices' application for use of cross-over technology would also be considered favourably. The TDSAT refused to stay the issuance of new spectrum to companies who had applied before Sept. 25. TDSAT Chairman Arun Kumar said this was a matter of pubic policy and that he would let the Government decide on it. The telecom tribunal said the next hearing on the dispute over the allocation of additional radio frequencies and use of crossover technology will now be held on January 9.
Prime Minister Dr. Manmohan Singh said spectrum should be allocated in a transparent and equitable manner to new entrants for encouraging competitiveness. Telecom Minister A Raja ruled out auctioning of 2G spectrum to the new players to maintain level playing field between new and existing service providers. He was responding to recent offers from Bharti Airtel and Idea Cellular for 4.4 MHz additional spectrum. While Bharti offered Rs26.5bn reserving the right to increase the bid further, Idea said it was ready to match the amount paid by RCOM.
Meanwhile, the DoT reportedly cleared a proposal to award outstanding 2G spectrum to Vodafone Essar, Idea Cellular and Aircel, in circles for which they already have the requisite licences. The DoT also rejected the offer by Bharti Airtel and Idea to pay Rs26.5bn and Rs16.5bn for 4.4 MHz of 2G spectrum across the country. Separately, a financial daily reported that the Government was considering a plan to fix a one-time entry fee for all new players who plan to offer 2G mobile services. This start-up fee will be in addition to the Rs16.5bn entry fee. In a related development, RCOM is believed to have filed a caveat in the Delhi High Court to ensure the court hears its side in the event of rival GSM-based mobile operators challenging telecom tribunal's decision on new licences and spectrum allocation.
Industrial output growth accelerates in October
India's industrial production rebounded in October after two months of slackness, as demand increased from consumers as well as companies. October generally marks the beginning of a pick up in economic activity. The Index of Industrial Production (IIP) stood at 261.50, which is 11.8% higher compared to the level in October 2006, the Government said on Wednesday. The IIP had expanded by 4.5% in the same month last year. Industrial production grew at the fastest pace in seven months in October. Economists had forecast a 10% growth in the industrial output for October. The Government also revised upwards September's IIP growth, to 6.8% from the provisional estimate of 6.4%.
Most of the improvement in the IIP in October was due to manufacturing, which grew by an impressive 13.3% versus just 3.8% in the same month last year. At the same time, mining sector output fell to 3.7% from 5.9%, and that of electricity was down at 4.2% as against 9.7% in October 2006. The cumulative growth in IIP during April-October 2007-08 was 9.7% as against 10.1% in the corresponding period of the pervious fiscal year. Year-to-date, manufacturing sector's output was slightly down at 10.4% compared to 11.1% last year. Production in the mining sector grew by 4.8% versus 3.6% last year. Output of the electricity sector expanded by 7.2% as against 7.1% last year.
In terms of industry, as many as 16 out of the 17 groups showed a positive growth during the month compared to the corresponding month of the previous year. ‘Wood & Wood Products’ registered the highest growth of 73.7%, followed by 34.2% in ‘Other Manufacturing Industries’ and 32.2% in ‘Leather & Leather Products’. On the other hand, ‘Metal Products & Parts’ witnessed a negative growth of 19.8%. Growth rates in Basic Goods, Capital Goods and Intermediate Goods was 60.2%, 20.5% and 14.2%, respectively. Consumer Durable and Consumer Non-durable recorded growth of 9.3% and 13.9% respectively, with the overall growth in Consumer Goods being 12.5%.
Foreign institutional investors (FIIs) were net sellers of Rs 647.10 crore (provisional) today, according to data released by BSE.
While FIIs made gross purchases of Rs 3,776.02 crore, gross sales totalled Rs 4,423.12 crore.
Domestic institutional investors (DIIs) were net buyers of Rs 105.18 crore today. While DIIs made gross purchases of Rs 1,398.27 crore, gross sales totalled Rs 1,293.09 crore.
FIIs were net buyers of Rs 1,082.10 crore on Thursday, December 13, according to data released by Sebi today. While FIIs made gross purchases of Rs 6,909.50 crore, gross sales totalled Rs 5,827.40 crore.
Mutual funds (MFs) were net sellers of Rs 180.90 crore on Thursday. MFs made purchases of Rs 1,010.70 crore and sales of Rs 1,191.60 crore.
14-DEC-2007,ICSA,ICSA (India) Limited,GOVERNMENT OF SINGAPORE,BUY,210035,415.00,-
14-DEC-2007,AMDMET,AMD Metplast Limited,LOTUS GLOBAL INVESTMENTS LIMITED DEUTSCHE BANK,BUY,500000,60.00,-
14-DEC-2007,HCIL,HIMADRI CHEMICALS AND IND,SUNDARAM BNP PARIBAS MUTUAL FUND,BUY,200000,637.00,-
14-DEC-2007,INDIACEM,India Cements Ltd.,MORGAN STANLEY INVESTMENT MANAGEMENT INC,BUY,1741628,326.25,-
14-DEC-2007,STROPTICAL,Sterlite Optic Tech Ltd,MORGAN STANLEY DEAN WITTER MAURITIUS CO. LTD,BUY,477502,367.67,-
14-DEC-2007,IVRPRIME,IVR Prime Urban Developer,DEUTSCHE SECURITIES MAURITIUS LIMITED,SELL,335000,492.89,-
14-DEC-2007,MICROTECH,Micro Technologies (India,GOLDMAN SACHS INVESTMENTS MAURITIUS I LTD,SELL,59500,286.43,-
The race for picking up 26% stake in IFCI has narrowed down to three players. While the consortium formed by WL Ross, GS Capital Partners VI Fund and Standard Chartered Bank has opted out, three consortia submitted financial and technical bids on Friday. Those in the fray include consortium led by Sterlite Industries of Anil Agarwal, Shinsei Bank and Cargill Financial.
While Sterlite Industries has tied up with Morgan Stanley, the Shinsei Bank consortium includes Punjab National Bank and JC Flowers & Co. According to sources familiar with the proposed stake sale, the bid from Cargill Financial is in tie-up with Texas Pacific Group.
While there was no official word about the bids, the IFCI board is expected to consider them on December 17. Once the board picks a winner, the consortium concerned has to get approvals from regulatory bodies.
The process of inducting a strategic partner for IFCI started in August and is expected to be completed in a month from now.
Initially, nearly 10 suitors had expressed interest in buying stake in IFCI. However, only eight were shortlisted by the IFCI board, with Kotak Mahindra Bank and Newbridge Capital exiting the race at this stage. Of the shortlisted eight, only four undertook due diligence of IFCI.
With the WL Ross-led consortium not bidding, the race has now narrowed down to three players. The induction of a strategic partner is aimed at bringing in financial resources and management expertise without diluting the basic character of IFCI as a development financial entity.
It is believed that IFCI has fixed Rs 107 per share as a rate for converting bonds issued to public sector banks and insurance companies into equity. The institution had plans to convert Rs 900 crore of optionally convertible bonds issued to PSBs into equity.
However, it was decided later that the conversion would be limited to Rs 579-crore worth of bonds. This will ensure that public sector insurance companies retain their shares at the existing level of 13%, even after offloading 26% to a strategic partner. After the conversion and induction of a new partner, the stake of banks in IFCI would be more than 25% and government-controlled organisations would hold over 38%
How do you think will pick up stake ? Our prediction is Sterlite consortium