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Saturday, March 15, 2008

Weekly Close: Now Economic data ditches the Bull..

Investors once again faced an extremely volatile and lacklustred week. Sensex continues to lose momentum in line with global markets. Super Power US has once again proved that if it sneezes all across will catch the cold. Fed has once again pumped $200 bn to save the economy. But time will only tell how much deep the credit crises are. For now lets not jump on conclusion. Investor across the globe have lost confidence and now market is the facing crises of confidences. Foreign institutions have sellers for long. Market may take its own time to reverse the direction.

Sensex -1.1%, Nifty -0.3%, Mid cap -1.4%, Small cap -3.7%. Some counters which gained were Oil and gas +4%, Consumer Durables +4.6%. Losses were extended by IT index -6%, Wipro -11%, Metal -4%, Power -0.5%,.

Globally things are getting worse. However, today S&P gave some indication that credit market worse is over. Crude is getting dearer and that is adding to inflation across the globe. The surge is speculative and now it is becoming a bubble. But if this bubble burst things may get easy across the globe.

Economy: As expected inflation numbers were high. Inflation stood at 5.11% led by high primary articles and fuel prices. Given the supply side pressure .. there seems no sign for inflation of ease.

IIP was a really surprising. The growth stood at 5.2% vs 11.4% last year. And market did react to this negatively. Capital goods and Consumer Durable goods were major hit. It is said that the intense winter led to slowdown in production activity. We believe that this slowdown may not be a prolong one.

Politics: Next week would be major event as UPA would meet on Nuke deal..Very important event to be watched out for. If congress flags the green signal to the deal then we would see elections soon. Market always tends to be weak ahead of elections.

Saregama India Ltd (Saregama), a part of RPG group, is one of the leading music recording company in India. The dynamics of the Industry has changed over the time. The increased competition has forced the industry to lower the prices for audio and video CD's. But now the scenario is set to change with increasing mobile penetration and large numbers of radio channels set to be launched. Do read out note to get the full fledge idea here.

Simplex Infrastructure Ltd (SIL) is a construction company and provides integrated engineering, procurement and construction services for civil & structural construction and infrastructure sector projects. The company is positioned as mini L&T. The key strength is piling this helps to get large orders that certainly keeps growth of the company. The Foray into Multi level Car park is another exciting business to be watched out. There is something more exciting about Simplex..Do read our note for the same.

Transport Corporation of India (TCI) recent Q3 numbers were in inline with the expectations. Top Line witnessed normal growth of 11% to Rs 309 Cr on yoy basis because 3 ships out of 5 were on dry docking in the shipping division which impacted top line growth. However transport, XPS, and supply chain divisions continued to perform well with revenue growth. Ebidta margins were also down followed by higher interest costs impacting the profitability of the company. TCI intends to expand its infrastructure to maintain its competitive advantage. It has lined up a Capex plan of Rs 440 crore over the next two - three years. Valuations are not certainly cheaper at this price. Do have a look on our research note to know more in detail.

Technically Speaking: Sensex has broken the weekly support line at 16050 and closed lower. Yet we could see a doji been formed, which is likely to hold the fall which started from the peak. The correction might now happen timewise and move into sideways movement. Support levels for next week are at 15300 and 15030. Resistance is expected at 16100 and 16800 levels.

India Conference - March 13 2008

India Conference - March 13 2008

Weekly Positional Calls - March 15 2008


Buy Hindustan Univ

Buy Cairn


Buy JP Associates

Fed Lifeline and IIP Slump

India's industrial output growth slipped sharply in January as high interest rates sapped consumer spending in Asia's fourth-biggest economy even as a US-led global economic slowdown loomed, data released by the Government showed. What's worse, the investment scenario in the country could be headed for some slowdown as companies struggle to raise money amid a global credit crunch and investor apathy in local primary market. The capital goods sector showed a steep decline in January over the same month last year. Consumer spending continued to struggle with the consumer durables segment exhibiting a negative growth rate for the month.

Production at factories, mines and utilities rose by 5.3% in January as against 11.6% in the same month last year, data released by the Government showed. The reading was lower than average expectations of 7-8% expansion. December's industrial production growth was revised to 7.7% from the provisional estimate of 7.6%. The manufacturing sector grew by 5.9% in January as against 12.3% in the same month a year earlier, while growth in mining and electricity too decelerated to 1.8% and 3.3%, respectively from 7.7% and 8.3% in the year-ago month. Year-to-date, industrial output grew 8.7% versus 11.2% in the same month last year.

The Capital Goods sector witnessed a steep slowdown in January, with its expansion falling from 16.3% last year to just 2.1% this year. Sectoral growth rate in Basic Goods and Intermediate Goods stood at 3.5% and 7%, respectively versus 12% and 13.7% in January 2007. Consumer Durables segment shrank by 3.1% compared to a growth of 5.3% in the same month last year. Consumer Non-durables recorded a growth of 10.1% as against 9.1% in January 2007. The overall growth in Consumer Goods was 7% in January versus 8.2% in the year-ago period. It remains to be seen whether the RBI now acknowledges the slowdown and cuts rates in April.

After last week's big losses, global equity markets received some relief this week in the form of another face-saving move by the Federal Reserve, which is desperately trying to avoid a recession in the US. The Fed and other central banks unleashed a plan to halt the ongoing meltdown across global equity markets in the wake of the correction in the US housing sector and the ensuing stress in the credit markets. The Fed said it will lend up to US$200bn of Treasury securities to primary dealers in the bond market secured for a term of 28 days, rather than overnight, as in the existing program. The new term securities lending facility (TSLF) will accept as pledge mortgage-backed securities, including federal agency debt, Fannie Mae and Freddie Mac residential-mortgage-backed securities, and AAA-rated private-label residential mortgage-backed securities. The move bolstered the mood across global markets, with the Dow Jones Industrial Average leading from the front.

However, sentiment soon turned sour after the dollar slipped below 100 yen and a mortgage bond fund of private equity firm the Carlyle Group said it had failed to seal a refinancing deal with lenders and expects lenders to take over nearly all its remaining assets. The fund said it has defaulted on US$16.6bn of its debt and its remaining borrowing is expected to go into default soon as it is unable to meet margin calls on its portfolio of residential-mortgage-backed securities. Just when it seemed that global stock markets could face another Black Day, came the announcement from ratings agency S&P that the writedowns by top global banks and financial firms could end soon. The markets rebounded on the S&P's encouraging prediction and continued the recovery after data showed that consumer prices held steady in the US last month. The CPI data fueled speculation that the Fed could aggressively cut rates when it meets on March 18.

Weekly Newsletter - March 14 2008

The euphoria generated by Federal Reserve's US$200bn lifeline to the strained credit markets proved short-lived. News about near bankruptcy of a Carlyle fund and an emergency bailout of Bear Stearns raised fresh concerns about the ongoing turmoil in global credit markets. US stocks, after bouncing early on Friday on a benign CPI report, turned sharply lower after JP Morgan and the New York Federal Reserve agreed to provide funding to Bear Stearns after the securities firm said its cash position has significantly deteriorated. Shares in Europe too tumbled following the Bear Stearns news. FII figures for Friday (net sales of Rs3.58bn) will also hurt sentiment. So, expect another weak opening on Monday when trading resumes. The bulls are unlikely to get any sustained period of respite till the ongoing crisis in the US is settled once and for all. How much time this will take only time will tell. Till then the outlook remains negative. The Fed is expected to announce another rate cut on March 18. That could prop up the sentiment, but only temporarily. We also have to ponder over the sharp slowdown in the Indian economy and what it could mean for earnings growth going ahead. The advance tax numbers will be released next week and should provide some indication about India Inc's financial health. Stay light and don't buy anything unless one is prepared to hold onto the shares for considerably longer time. Having said that, one may get shares even cheaper if one is willing to wait a little longer