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Saturday, December 27, 2008

Weekly India News - Dec 27 2008

SEBI said it was probing allegation of price manipulation in the shares of Pyramid Saimira Theatre Ltd. (PSTL), which claimed that it received a fake letter from the capital market regulator asking it to make an open offer several times higher than the current market price. SEBI clarified that no order or letter has been issued by it to PSTL Chairman and MD, P.S Saminathan on Dec. 19. "It appears that the said letter is being circulated with ulterior motives," the market watchdog said. It was widely reported in the media that SEBI vide its order dated Dec. 19, directed Saminathan, to make an open offer for acquisition of shares of the company at a price of not less than Rs250. SEBI said that it is separately investigating into the matter, including the origin of the letter. The regulator is also separately inquiring into the dealing in the scrip following the press reports. The regulator earlier denied that it had issued a letter directing Saminathan to pay Rs250 a share to minority investors. The stock declined % in the week to Rs. Saminathan said that the letter which it had received from SEBI had been forged. The company has requested the BSE and NSE not to issue the pay out and to conduct a thorough enquiry. PSTL is also planning to launch a formal complaint with Central Bureau of Investigation (CBI) in this regard.

Cairn India makes another discovery in Rajasthan

Cairn India announced that it has made an oil and gas discovery adjacent to the Raageshwari oilfield in its Rajasthan block. Raageshwari East 1/1Z well encountered about 10 metres of net oil pay and 1.4 metres of gas pay. Cairn has made several oil and gas discoveries in its Rajasthan Block RJ-ON-90/1 and in the first phase is developing Mangala, Bhagyam and Aishwariya oil finds to produce 175,000 barrels per day of crude oil in the second half of 2009. The discovery is located about 1.5 km east of the Raageshwari 1 well in the southern part of the Mangala, Aishwariya, Raageshwari and Saraswati development areas, Cairn India said. The adjacent Raageshwari field is commercial and has an approved field development plan. "The success of this well on the eastern flank of the Raageshwari structure extends the productive reservoir in a new trapping style and proved a deeper oil column. The well also demonstrates the potential for the addition of incremental reserves from the areas around the discoveries already made," said Cairn India CEO Rahul Dhir.

Dr. Reddy's settles patent dispute on Clarinex

Dr. Reddy's Laboratories announced that it has entered into agreements with Schering and Sepracor which will allow the company to manufacture and market generic versions of the CLARINEX D-12 Hour and CLARINEX D-24 Hour products, with six months marketing exclusivity, and the CLARINEX REDITABS product, with six months marketing co-exclusivity, starting in 2012. Dr. Reddy's will also market a generic version of the CLARINEX 5 milligram tablet six months after the launch of the first generic version of that product. The agreements resolve all pending patent infringement actions filed by Schering and Sepracor against the company in the US District Court for the District of New Jersey, Dr. Reddy's said. The agreements are subject to review by the United States Federal Trade Commission and Department of Justice, Dr. Reddy's said. CLARINEX, a non-sedating anti-histamine, offers relief from seasonal allergic rhinitis and perennial allergic rhinitis, as well as chronic Idiopathic urticaria, or hives of unknown cause. CLARINEX D 24 Hour Extended Release Tablets is the only once-daily prescription antihistamine and decongestant combination treatment on the market to provide 24-hour relief of nasal and non-nasal allergy symptoms. Total US sales for all formulations of CLARINEX products were US$362mn in 2007.

Unitech-Telenor deal to close in January

Unitech announced that the telecom deal with Telenor is expected to close in January instead of December. The closing of the transaction is subject to certain conditions being fulfilled. Unitech and its partner, Telenor, anticipate that not all conditions for losing will be fulfilled before December. Both the parties thus expect to close the transaction during January. Unitech signed a binding agreement with Telenor on October 28, and was now completing all the formalities. Both the parties have made significant progress on the transaction. During this period, the companies have also made a lot of progress on various launch related activities, e.g. network order placement, tower sharing, recruiting and acquisition of offices / facilities in circles amongst many other things.

Jaypee Hotels announced that its Board has approved the amalgamation of the company with Jaiprakash Associates Ltd. with effect from April 1, 2008 being the Appointed Date. In terms of proposed Scheme of Amalgamation, the shareholders of Jaypee Hotels will be allotted one equity share of Rs2 in Jaiprakash Associates for every one share of Rs10 held in the company. Diversified group is also merging its cement, real estate and construction subsidiaries - Jaypee Cement (JCL), Gujarat Anjan Cement (GACL) and Jaiprakash Enterprises (JEL) with the flagship public-listed company. The share swap ratio for the merger will be 1:11 for GACL (one share of Jaiprakash Associates for 11 share of GACL), 1:10 for JCL and 3: 1 for JEL. The transaction, which will be cashless, will bring down promoters’ stake in Jaiprakash Associates from 45.28% to 37.65%. The cross-holding of the company shares will be transferred to the trusts being created by the respective companies. The benefit of the shares to be held with the trust shall accrue to Jaiprakash Associates.

Bajaj dispute close to settlement

Bajaj family members were in the final stages of negotiations to end a six year old family dispute. Rahul Bajaj is all set to sell a 29.6% stake in Bajaj Hindusthan to his brother Shishir Bajaj, thus giving full control over the sugar company. Reports stated that Rahul Bajaj will buy 29.2% of the company's equity capital from group investment firms and other Bajaj family members at the market price as on December 30. He will then sell it, along with his present stake (0.4%), to Shishir Bajaj for zero consideration in terms of a new family agreement signed between the brothers. The shares to be purchased by Rahul Bajaj is worth Rs2.58bn at Dec. 22 price. Rahul Bajaj said the shares will be bought from Bachhraj & Co. and Jamnalal in an inter-se transfer of shares amongst the promoters. This stake will be transferred to Shishir Bajaj through an off-market deal. Shishir's stake in Bajaj Hindustan will go up from 2.85% to 32.47% after the deal is concluded.

Tata Motors to inject cash into JLR

Tata Motors has reportedly agreed to inject "tens of millions" of pounds into the troubled - Jaguar Land Rover (JLR) - to help the British luxury marquees cope with rising cash crunch. According to The Finance Times (FT), the emergency aid to JLR was on top of hundreds of millions of working capital the Indian auto giant has provided since it bought the carmakers for US$2.3bn from Ford Motor Co. in March. Separately, London-based The Times newspaper reported that the prospect of British government assistance worth "tens of millions" of pounds to help keep JLR afloat had helped the company's owners to secure last-minute funding from the banks. British Prime Minister Gordon Brown, Chancellor Alastair Darling and Business Secretary Peter Mandelson have agreed that assistance for JLR would be necessary to prevent its collapse. Last week Mandelson confirmed that he had held talks with JLR.

NALCO to build aluminium smelter in Indonesia

National Aluminium Co. (NALCO) has reportedly signed a preliminary deal with United Arab Emirates (UAE) government-linked RAK Minerals and Metals Investment (RMMI) to build US$4bn worth of projects in Indonesia. According to reports, NALCO and RMMI will build a US$2.5bn aluminium smelter and a US$1.5bn 1,250 megawatts (MW) power plant in South Sumatra province to support the facility. The projects, which will have a capacity to produce 500,000 tons of aluminium metal per year and require one million tons of alumina for its feedstock, are expected to be completed in 2013. "The smelter requires a lot of electricity and we have a lot of energy in India...but still we find that it make senses to put the power plant near coal mining here in Indonesia," said, NALCO's director, B.L. Bagra. He said the power plant will help to keep the cost of production from the aluminium smelter competitive. NALCO has 76% stake in the projects, while RMMI has a 24% stake.

Govt lifts ban on cement exports

The Government lifted a ban on cement exports, as price pressures eased and domestic demand remains subdued due to a slowdown in construction activity. The Government had banned cement exports in May as part of efforts to increase local supplies and check rising prices. In the past few months, construction activity has slowed as high interest rates cut demand for new homes while companies deferred expansion plans due to a credit crunch. Cement output was 14.34mn tons in November versus 14.76mn tons in October. In December, the Government and the RBI announced a slew of steps, including interest rate cuts, a massive spending plan and duty cuts, to arrest the slowdown.

Govt introduces insurance bills in Rajya Sabha

The Government introduced two insurance bills in the Rajya Sabha to enable higher FDI into the sector, notwithstanding stiff opposition from the Left parties. The draft legislation was tabled in the upper house even as CPI(M) members tried to snatch the paper away from the Minister of State for Finance. The UPA government introduced the Insurance Laws (Amendment) Bill, 2008 in the Rajya Sabha after high drama. Through this bill, the foreign direct investment in the private sector can be raised to 49% from 26%. The Life Insurance Corporation (Amendment) Bill was introduced in the Lok Sabha after an unsuccessful attempt by the Left parties to stall it by division of votes. The Bill seeks to raise the capital of LIC from Rs50mn to Rs10bn.

Govt hopeful of strong bids in 3G auction

The Government is hopeful that the auction for third-generation (3G) frequencies next month will see much higher bids than the reserve price of Rs20bn (US$415mn), a top government official said. The global financial crisis will not affect the auction for 3G services, said R. Ashok, member (finance) in the Telecom Commission. The Centre will conduct a global auction for 3G wireless spectrum starting January 16 and has set the reserve price for spectrum in all the service areas. Foreign telecom firms who win 3G spectrum will also be eligible for second-generation (2G) frequencies, Ashok said. "For a new entrant in 3G who has obtained a will be in the queue for 2G spectrum," Ashok told operators at a pre-bid conference. Firms interested to participate in the 3G auction are required to submit applications between December 26 and January 5. The auctions for 3G spectrum are set to be delayed beyond its scheduled date of January 16 and may take place in February, a top official in the Telecom Ministry was quoted as saying.

ONGC and RIL sign contracts for new oil & gas blocks

The Government signed contracts with ONGC, RIL, and others for exploring 44 oil and gas blocks that were auctioned under the seventh round of the New Exploration Licensing Policy (NELP VII). A total of 57 blocks were offered in the auction but bids were received only for 45, with about US$1.5bn minimum investment committed towards exploration. Cairn Energy's bid for a Mumbai basin deepwater block was, however, rejected. Of the 57 areas offered in NELP VII, seven deep sea, two shallow water and three onland blocks did not receive any bid. ONGC and partners signed PSCs for the maximum number of 20 oil and gas blocks. RIL forged an alliance with British Petroleum (BP), but could manage only one Krishna-Godavari basin block. BHP Billiton and GVK Power inked agreements for seven deepsea blocks. The petroleum ministry is planning to auction over 100 prospective areas for oil and gas exploration by March 2009 under the eighth round of New Exploration Licensing Policy (NELP-VIII). "It would be our endeavour to launch NELP-VIII in first quarter of 2009," petroleum minister Murli Deora said.

WB ban hits Satyam's credibility further

The already tainted image of IT major Satyam took another beating with the World Bank confirming that it had banned the company from doing any business with it for eight years. India's fourth-largest exporter has been declared ineligible for direct contracts with the World Bank from September. The World Bank said its decision followed a temporary suspension in February. "Satyam was declared ineligible for contracts for providing improper benefits to Bank staff and for failing to maintain documentation to support fees charged for its subcontractors," it said. Since 2003, Satyam had been writing and maintaining all software for World Bank across all locations. This also included maintenance of software in back-end offices. According to US-based Fox News, in 2005, the World Bank's chief information officer, Mohamed Muhsin, was sacked after being accused of improperly buying preferential stock options from Satyam, even as he awarded the firm major contracts. After an internal investigation, Muhsin was banned permanently from the World Bank in January 2007. But Satyam was allowed to remain in control of the World Bank's information network till early October, Fox News website said.

Weekly Global News - Dec 27 2008

US GDP contracts 0.5%

The gross domestic product (GDP) fell by the annual rate of 0.5% in the summer, according to the final revision from the Bureau of Economic Analysis. The report compares the three month period that ended Sept. 30 to the preceding quarter. The measure was unchanged from the government's prior revision for the third quarter, and it matched economists' expectations. The 0.5% decline marks the biggest drop since the first quarter of 2001. A 3.8% slump in personal consumption during the third quarter helped drag down the overall GDP, according to government figures. GDP rose by an annual rate of 2.8% in the second quarter, according to Commerce Department. Growth at that time was spurred by economic stimulus payouts and strong exports. For the current quarter, economists are predicting a sharp decline of around 6%. This would be the biggest drop since the early 1980s.

UK third-quarter GDP revised down

The UK economy shrank the most since 1990 in the third quarter and mortgage lending dropped to the lowest in 14 years as tightening credit exacerbated the slide into recession. Gross domestic product (GDP) contracted 0.6% from the second quarter, the Office for National Statistics said. The drop was bigger than the previous estimate of 0.5%, which economists had expected would be confirmed. From a year ago, the economy grew 0.3%, the same pace as estimated a month ago. Last year’s growth of 3% for the whole of 2007 was the strongest since 2000. The Centre for Economics and Business Research (CEBR) predicted that the economy will shrink by 2.9% in 2009 - more than at any time since the 1940s. It expects consumer spending to decline and investment in business to slump.

Japan's industrial output shrinks sharply

Industrial production in Japan shrank in November at a record pace, as companies slashed output and cut jobs to ward off the threat from the worst financial crisis in several decades. Separately, core consumer prices fell faster than forecast, putting the Japanese economy on course for another spell of deflation. The grim data could push the Bank of Japan (BOJ) to implement unconventional monetary easing measures as it has little room left to cut interest rates after reducing them to 0.1% to 0.3% last week. Factory output plunged 8.1% in November from October, the Trade Ministry said. This was the largest fall on record and exceeded a median forecast for a 6.8% drop. Industrial output is expected to fall a further 8% in December and 2.1% in January, data from the Ministry of Economy, Trade and Industry showed.

Annual core consumer inflation slowed sharply to 1% in November from 1.9% in October, largely due to the drop in oil prices, and a little bit below a median market forecast of 1.1%. Excluding food and energy, prices were flat, after having finally started to rise in June this year. Other data showed that the jobs-to-applicants ratio for November fell to 0.76, matching a low hit in February 2004, from 0.80 in October. The reading, which fell short of a median market forecast of 0.77, means 76 jobs were available per 100 applicants. The number of new job offers fell 23.7% in November from a year earlier after an 18.1% drop in October. Japanese wage earners' total cash earnings fell 1.9% in November from a year earlier, the first drop in nearly a year.

Ireland injects €5.5bn in three top banks

The Irish government will invest €5.5bn (£5.12bn) in the country's three main lenders, taking majority control of Anglo Irish Bank after a loan scandal there rocked an already beleaguered industry. Dublin will invest €2bn each in market leaders Bank of Ireland and Allied Irish Banks via preference shares giving 25% voting rights over what the government described as key issues. Pressure on the Irish government intensified after Anglo Irish revealed its chairman had kept shareholders in the dark about €87mn (£80mn) worth of loans he had received from the lender. Its shares slumped to a record low of 19 euro cents and the financial regulator launched a probe into directors' loans at all major Irish banks.

Canada offers loans to carmakers

The federal and Ontario governments pledged US$4bn in emergency loans to support the Canadian subsidiaries of US automakers Chrysler and General Motors (GM). The aid package, announced by Prime Minister Stephen Harper and Premier Dalton McGuinty in Toronto, came a day after the White House unveiled a US$17.4bn plan to shore up the US auto sector. Harper said Canadian auto parts suppliers will also get improved insurance while vehicle buyers will get more access to credit. The financial help for Canada's troubled auto sector amounts to 20% of the US aid package.

Big Three's debt ratings cut

General Motors (GM) and Ford had their debt cut further below investment status by Standard & Poor’s (S&P) and Moody’s. GM’s unsecured debt was trimmed one level to C, or 11 grades below investment quality, by S&P. Moody’s lowered its rating on US$26bn in Ford debt by two grades to Caa3, or nine below investment quality. The moves reflect unease over effects on debt holders of the $13.4bn emergency US aid plan for GM and Chrysler, which comes with conditions including labor-cost cuts. S&P said unsecured lenders can expect negligible recovery should GM default, and Moody’s said Ford will need to restructure debt to win union concessions similar to those at GM and Chrysler. The risk of bankruptcy remains high for US automakers, S&P said. The global credit rating agency also cut its corporate credit rating on Chrysler. S&P cut the rating by three notches to "CC," a speculative grade that is just two notches above "D", or default.

The People's Bank of China cut its benchmark lending rates and deposit rates by 27 basis points (bps). The Chinese central bank also cut banks' reserve ratios by 50 bps effective Dec. 25 and reduced refinancing interest rates as well. It said that the moves were part of a moderately loose monetary policy to bolster economic growth amid fears of a prolonged global recession. The cost of one-year bank loans will fall to 5.31% from 5.58%, while the benchmark one-year deposit rate falls to 2.25% from 2.52%, the People's Bank of China (PBOC) said. This was the fifth rate cut move by the Chinese central bank since mid-September. The five biggest banks in China will have to hold 15.5% of their deposits in reserve at the PBOC, down from 16%. The requirement for other lenders drops to 13.5% from 14%. The PBOC last cut required reserves on Nov. 26.

Weekly Newsletter - Dec 27 2008

The bulls were hoping to be on seventh heaven this week but ended up losing around 7% in the major indices. Market activity will be dull at the start of the week and could pick up towards the end as foreign funds get more active. The market behavior, like the seasons keep changing. January no longer is the month where funds will come in droves after a break. In fact, the hunt for cash and bailouts continue across sectors. Automakers will be in focus as they report monthly sales. One could also hear something on the new fiscal stimulus and/or rate cuts.

From India's point of view, geo-political tensions will have a major play. Fears (it will remain just fears) of a military conflict with Pakistan have been brewing ever since the Nov. 26 terrorist strikes in Mumbai. The Indian army, navy and air-force have been asked to gear up for any eventuality while Pakistan too has stepped up air surveillance and is reported to have increased troops on the Indian side of the border. A lot of war of words will take place and for lack of other reasons, market could dance to the rhetoric.

2009 Outlook

2009 Outlook

2009 Outlook, Sectors, Themes, Stock Picks

2009 Outlook, Sectors, Themes, Stock Picks

Also, take a look at DP visitors' Multibaggers for 2009 and leave a comment of what you think would be the best picks

Maruti Suzuki, Hero Honda

Maruti Suzuki, Hero Honda

Piramal Healthcare

Piramal Healthcare

Deepak Fertilizers

Deepak Fertilizers

LIC Housing Finance

LIC Housing Finance