Market looks edgy

After correcting sharply in yesterday's trades, the market is likely to witness sideways movement. However, on the other hand, the undertone still looks bearish on the back of strong selling by the FIIs. For the Nifty, the key resistance level is at 3850 and has a likely support at 3760 on the downside. The Sensex has a likely support at 13237 and resistance at 13430.

US indices finished on a flate note on Tuesday. As a result, the Dow Jones surged by 30 points at 12471 while the Nasdaq was down 6 points at 2430 respectively.

Indian ADRs were largely weak on the US bourses. VSNL led the downfall by 3.95% followed by Satyam, Dr Reddy's and MTNLwere down nearly 2% each while Infosys, Wipro, Tata Motors, ICICI Bank, HDFC Bank & Rediff were declined by 1% each. However, Patni Computers was only closed in positive territory.

In the crude oil front, the Nymex light crude oil for february series surged by 67 cents at $63.46 a barrel. In the commodity segment, the Comex gold for February delivery advanced $7.50 to settle at $625.40 an ounce.

Market to recover

Thailand government’s late night decision on Tuesday to partially roll back currently control measures and a record closing for Dow Jones Industrial Average on Tuesday would trigger a rebound on the domestic bourses today. Thailand will exclude equities investments from a central bank measure aimed at curbing speculation in the baht, Thailand’s Finance Minister Pridiyathorn Devakula said on Tuesday after the stock market suffered its worst fall in 16 years. The news sent Thailand’s stock market up 8.8 percent at the open on Wednesday.

Asian stock markets rebounded on Wednesday as worries about Thailand eased after the government reversed restrictions on foreign investments in its share market. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.78% to 1.1%.

Sensex had tumbled 349 points on Tuesday (19 December) in a broad based decline in Asian markets after Thai central bank's currency controls heightened concern about emerging markets. As per provisional data, FIIs were net sellers to the tune of Rs 823 crore on that day. They were net sellers to the tune of Rs 831 crore in index-based futures and they net sold Rs 49 crore in individual stock futures.

FIIs were net sellers in three out of four trading sessions from 13 December to 18 December. Their net outflow was Rs 182.70 crore on 18 December compared to an outflow of Rs 46 crore on Friday 15 December. FII activity is likely to be muted till the end of this month, as foreign fund managers will be on vacation for Christmas and New Year.

Volatility may remain high in the next few days ahead of expiry of December 2006 derivatives contracts next Thursday (28 January).

Technical analysts feel that the Nifty has a strong support at 3,700 and Sensex at 12,800-12,900.

The near term trigger for domestic bourses is Q3 December 2006 results. Market men expect December 2006 quarter to be another strong quarter in terms of earnings growth. The Q3 results would start trickling in from about 12 January 2007.

The Dow Jones industrial average finished at a record high on Tuesday, spurred by a rise in oil prices that boosted shares of Exxon Mobil Corp. But the Nasdaq fell as technology stocks dropped after disappointing financial results from industry bellwether Oracle Corp. The Dow Jones industrial average rose 30.05 points, or 0.24 percent, to end at a record 12,471.32. The Standard & Poor's 500 Index advanced 3.07 points, or 0.22 percent, to finish at 1,425.55. But the Nasdaq Composite Index slipped 6.02 points, or 0.25 percent, to close at 2,429.55.

US crude oil for January delivery rose 94 cents, or 1.5 percent, to settle at $63.15 a barrel on the New York Mercantile Exchange on Tuesday. The rise in oil prices was attributed to expectations that US crude inventories fell in the past week due to shipping delays along the coast of the Gulf of Mexico. US oil inventory data will be released on Wednesday.

1,100 cos hit 52-wk lows during bull run

Skeptics of the stock market rally never tire of pointing out that only a handful of shares have participated in the recovery between June till now.

In the past 100 trading sessions, even as benchmark equity indices continued to soar, 1,100 companies listed on the BSE hit 52-week lows. But, supporters of the bull run argue there is a strong reason for the market to have ignored these companies. A majority, if not all, of these companies have seen their earnings decline over the past one year.

For the purpose of analysis, recent listings and companies whose comparative net profit figures were unavailable were excluded, leaving a total of 946 companies. These firms were categorised in the different groups and their group-wise four-quarter trailing net profit from September 2005 to September 2006 was analysed.

The hardest hit has been companies in the B2 Group comprising 420 companies, followed by B1 with 172 and S Group having 149 firms. At the same time, these B2 group companies posted a combined 24% decline in net profit over the past four quarters. This included 50 companies whose bottomlines slipped into the red during this period.

The combined net profit of the 946 companies has shown an increase of 23%, but that is mainly because high profits by a handful of them. In the A group, the combined net profit has risen by 28% from Rs 4,805 crore to Rs 6,157 crore. Here again, the increase is due to companies like National Aluminium, Canara Bank and Dena Bank, which together comprised about Rs 1,750 crore of increase in profit.

Similarly, the combined 25% rise in net profits in the B1 group was mainly because of companies like EID Parry and UB Holdings that together posted a net profit of over Rs 500 crore. In the Z group, the increase of 140% is due to the effect of one or two companies.

Harendra Kumar, head-research, ICICIDirect, says, “When a company hits a 52-week low, there is something fundamentally wrong with it. Just because the rally is happening, it does not mean that all companies in the industry are performing accordingly. There are large numbers of them unable to catch up with the growth witnessed by the industry.

Their stock prices could have tumbled down due to various reasons like rising operational costs, increasing input costs and margin pressures, lacklustre sales growth and lack of entrepreneurial skill sets et al. It is the big companies that benefit first when the growth in the economy takes place.”

He says some of these stocks also provide an opportunity as investment candidates. This cannot be interpreted as a buy signal, but there are many stocks that represent value and investing opportunity for those who complain that they have missed the bus.

“There has been a sharp increase in the profitability of large companies like information technology, financial and financial services like banking that witnessed a four-month rally, beginning late July on the back of falling bond yields, lower loan losses and investment provisions, as seen in the September quarter profits. Many small industries have not been able to catch up with the productivity factor and that is reflecting the stock prices of these companies,” says another analyst.

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Thai currency control measures to have limited impact

The market plunged in a broad based decline in Asian markets after Thai central bank's currency controls heightened concern about emerging markets but market men see limited impact of the development for the domestic bourses.

The Thai situation is very localized and all the Asian markets would recover to levels that their fundamentals command individually and this shouldn’t take a long time, said Shaheena Mukadamm, head of research, IDBI Capital Market.

The Thai development came at a time when the market sentiment was cautious after the provisional data showed substantial FII sales of Rs 369 crore on Monday (18 December), the day when Sensex had risen 116 points in volatile trade.

The current fall, in fact, offers a buying opportunity for medium term and long term investors, Mukadamm reckons. Sensex plunged 349 points or 2.5% today to settle at 13,382.01. Thailand’s central bank said international investors will have to pay a 10% penalty on funds withdrawn out of the country within a year.

The near term trigger for domestic bourses is Q3 December 2006 results. Market men expect December 2006 quarter to be another strong quarter in terms of earnings growth. The Q3 results would start trickling in from about 12 January 2007.

But volatility may remain high in the next few days ahead of expiry of December 2006 derivatives contracts next Thursday (28 January). At the beginning of today’s trading session, the market wide open interest in derivatives was about Rs 52500 crore.

FII activity is likely to be muted till the end of this month, as foreign fund managers will be on vacation for Christmas and New Year.

Technical analysts feel that the Nifty has a strong support at 3,700 and Sensex at 12,800-12,900.

Ashtavinayak Cine Vision IPO

Shree Ashtavinayak Cine Vision (SACVL) was incorporated on 23 October 2001 to produce television serials. It was taken over by current promoter 24-year-old Dhilin Mehta on 1 April 2002. The company discontinued producing television serials and commenced production of full-length films and subsequently entered film distribution with a strong hold in the Mumbai territory, i.e., Mumbai city, Gujarat, Western Maharashtra and Northern Karnataka. It has also distributed a film in the Delhi territory. SAVCL has entered exhibition with tie-up with 31 theatres across Mumbai Territory. The company has distributed 23 films, the last being Jaan-e-man, and produced five films including Bhagam Bhag releasing on 22 December 2006.

SAVCL had earlier entered into an agreement with K Sera Sera Production to produce 10 films. The tie-up was terminated on 16 October 2006 due to non-compliance of obligations. The company had to repay Rs 3.05 crore. Similarly, the company has a memorandum of understanding (MOU) with Studio 18 to produce four films.

The net proceeds from the issue are to finance the estimated expenditure of Rs 45.90 crore to produce three films of about Rs 45.90 crore, to purchase Rs 14.12-crore equipment for film production, and for general corporate purposes and prepayment of debt.

Strengths

• The Indian film Industry’s is expected to double its present valuation of Rs 6800 crore by 2010. The country has about 12,000 single-screen theatres. Multiplexes are expected to grow from 328 screens in 2005 to over 1,000 screens by 2008. The revenue of the film industry is expected to grow at a CAGR of 18%. Territorial break-up of domestic theatrical sales of the industry shows that the Mumbai territory contributes the highest, at about 36%, and the northern territory 33%.

• The management is targeting producing at least one film in every quarter. SAVCL’s recent production Bhagam Bhag will be released on 22 December 2006. The company plans to produce eight films over a period of two years and has signed some directors, writers and actors for the same. The management has indicated it will release one more movie in March 2007.

Weaknesses

• The revenue and profitability are dependent on movie releases. The revenue tends to rise/fall depending on the number of films released and the success of these films in a financial year. Investors should be prepared for sharp volatility in revenue and profit quarterly as well as yearly.

• The shelf life of a commercial theatrical screening of films has reduced from more than a year to less than six weeks. With many players planning large-scale production of films, value and success rate of films are bound to come down.

Valuation

In FY 2006, SAVCL produced one film and distributed eight films. Film production accounted for 52%, distribution 45%, and exhibition 1% of the sales revenues. In the four months ended July 2006, the company produced one film and distributed three. Film production contributed 60% and distribution 40% of the revenue. Going forward, the release of Bhagam Bhag on 22 December 2006 will drive the production revenue in the remaining part of FY 2007. Financials of FY 2006 and the four months ended July 2006 were impacted by loss in securities trading: Rs 97.59 lakh and Rs 2.64 lakh, respectively. The company has indicated this would not recur.

The FY 2006 EPS on post-issue equity works out to Rs 10.6. At the price band of Rs 140- Rs160, PE works out to 13.2–15.1. Though this is substantially lower than TTM PE of around 40 for the entertainment and media sector, one should bear in mind the volatile nature of its profit. Stock market’s experience with similar companies in the past has been far from encouraging. Mukta Arts, Pritish Nandy Communications and K Sera Sera are trading below their IPO offer prices.

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Picking Winners - By Dhirendra Kumar

Sensex crosses 14K intra-day. Sensex touches 14K peak on strong fund support. Sensex hits 14Kmark. Freak surge sends index beyond 14K. Sensex crosses14,000 mark. Sensex kisses 14K. Sensex touches 14K mark. Crazy kiya re: Sensex kisses 14K. Sensex scales 14K peak, finally.

These were some of headlines that newspaper in the country carried on Wednesday, 6th December. Yes, I know it's strange that three out of ten (presumably) independently-written headlines thought of the word 'kiss' but that's what happened. However, some big headlines and the usual collection of permanently breathless TV anchors aside, there was precious little excitement among real investors.

To us symbolism-seeking humans, Big Round Numbers (I hereby coin the abbreviation BRN) always seem to have a deeper meaning than they actually have. See how many people expressed shock recently when Chinese foreign currency reserves reached 1 trillion dollars. But investors aren't really excited by the Sensex' BRNs any more. They've seen far too many of them in far too short a time. They've got BRN fatigue. From 6,000 to 14,000, there have been nine first-time BRN events and nine is one too many to get excited about. Also, even though the professional excitement peddlers studiously ignore the arithmetic, a thousand points of the Sensex isn't what it used to be. When this bull-run began four years back, the journey from 3,000 to 4,000 meant a gain of 33.3 per cent. From 13,000 to 14,000, the gain is just 7.7 per cent. Investors are now so used to big gains that 7.7 per cent just doesn't hold any excitement. I think the next BRN that anyone should seriously get excited about is 20,000 but whether that will come around in one year or ten, I have no idea.

I'm serious. I didn't put that ten year range in that last paragraph just to frighten you. Ten years to reach 20,000 is just as possible as one year. Equity markets are like that. There's nothing you can do about it. There is a great deal of fear in markets and many of the best fund managers had configured their portfolios defensively. Conventionally, this means loading up with large companies which are assumed to be more stable in a falling market. In the Indian markets, this is true only on a relative basis. When the markets fall, large companies fall a lot but they do fall a lot loss then the small unknowns that have been punted up by the tips being circulated by speculators. The difference is that eventually the big scrips rebound but the purely speculative ones don't, having served the basic purpose of transferring wealth from the clever to the impatient.

I think the real action lies in being able to identify the next lot of companies that will one day join the ranks of the big blue chips. Everyone knows that the big stocks are safer and everyone knows that smaller stocks are riskier. But there are many medium-sized companies that are knocking on the doors of blue chip status. A very large number of them are being pitched as potential blue chips. When the goings gets a little less easy, only a small number of them will be recognised as having made the mark. I suppose some serious rewards will go to those who will manage to correctly foretell which ones will these be. Or perhaps just make some lucky guesses.

Close: Another selloff .. ready to test 12800 ! it appears

As indicated, whenever the news is good markets tend to use that as an opportunity. The cue for today was from FIIs which were sellers yesterday. The market started in red and then led on to deep red after looking for direction in early trades. Market was down by almost 500 points in intraday. The weak global cues added more fuel to the market, heavy selling pressure was seen in all sectors like Automobile, Cement, Pharma, Banks and Engineering. The selling pressure was seen not only in large caps but also in small and mid caps. The Asian and European Markets traded in Red.

Thai stocks had their biggest tumble in eight years after regulators ordered banks to lock up 30 percent of new foreign-currency deposits for a year to curb speculation. This brought back memories of the Asian currency of 1996. As per the new rules..Overseas investors buying baht starting tomorrow will only be able to invest 70 percent of what they transfer, and only recoup all of their funds if they keep the money in Thailand for more than a year, central bank Governor Tarisa Watanagase told a briefing in Bangkok today. Those who withdraw the reserved amount in less than a year will be penalized 33 percent of that 30 percent portion. This is an extreme step and the FIIs reacted with their feet. The repurcussions were felt across the region though such rules are unlikely to be replicated anywhere else.

Sensex closed down 349 points at 13382. Weighing on the Sensex were losses in NTPC (134.25,-5 percent), BHEL (2286.55,-4 percent), L & T (1415.75,-4 percent), RCVL (451.15,-4 percent) and TCS (1141.65,-3 percent). Losses are restricted by gains in Hero Honda (752.8,+0 percent). topnew.gif (1104 bytes)

News driven action.. But ferocity of the fall surprised yet again. Performance as always!

Among other news.. Indian Oil Corp is coming up in marketing of kerosene in portable containers to make the product available in the open market to customers not covered under the public distribution system. This step is to trap the urban and semi-urban kerosene markets. Currently, kerosene meant for PDS is diverted and used for activities like cleaning, polishing and even to workshops for industrial use. As per estimates, almost 17-18 per cent PDS kerosene is diverted and sold at higher prices for such activities. The company is looking at next June to commence production and marketing of kerosene in small containers to fill this gap, it is being considered to market kerosene in small containers, which would also ensure easy availability of the product for public utilisation. The PDS kerosene, which is being supplied at Rs 9 per litre, is perhaps one of the lowest prices in any non-oil producing nation. The cost of the packaged kerosene is estimated to be more than Rs 30. This move towards marketing of Kerosene in small containers and making availability of kerosene in free open market which is max used in urban and semi-urban area will have good movement on kerosene sales. This is positive for the company in a sense though the bigger issue is the under recoveries. We have a cautious view on refineries given their

Among other news, Nalco, the second biggest aluminum producer is undergoing a major capacity expansion within the domestic market and also plans to set up a plant in Indonesia, Vietnam, West Asia and Tajikisthan. The company plans to invest approximately Rs 4100 cr for the project, which includes capacity addition of 0.5 MT a year in smelter, captive power and mining. For the overseas venture the company has earmarked an Rs 16000 cr, which awaits government approval. Nalco has an installed capacity of 3.45-lakh tonnes of aluminium and 1.6 MT of alumina in the domestic market. After the stated capacity expansion, the company will have 1.2 MT of exportable surplus of alumina, which will be by 2008. Currently, exports contribute to around 50% of the company's total revenues. The aluminum stocks closed down in weak market the Nalco closed down by 1.7%.

Technically speaking: Overall market ended red. Volumes were at Rs 4162 cr. The breadth has been in favor of Decliners as they were at 1652 while Advances at 909. The Resistance was at 13641 - 13950 while Support at 13130 - 12928 levels. Technically Sensex is headed for 13450 levels and that could come early in the tomorrow itself given the downward trend.

However the positive is that almost everyone on the street is now negative and thats a positive. However one thing is clear, all upsides will be used as an exit opportunity. So the upsides seem to be a bit capped for now. Such correction was really on cards and it has come. Everyone was expecting one but the Markets surprised the markets by the ferocity of the fall yet again. At this level this should not be surprising.

FII: - Rs182 cr, MF + Rs 45.5 cr

FII Gross purchases Rs 2266 Cr Gross Sellers Rs 2449 Cr Net Sellers Rs 182.7
Cr
MF Gross Purchases Rs 499.3Cr Gross Sellers Rs 453.85 Cr Net buyers Rs 45.5 Cr.

Thats a big selloff and this will reflect in markets tomorrow morning. Also important to note that the FIIs were sellers on Monday as well and thats a day when markets closed in momentum.May be the Thailand baht control is used as an excuse but really our markets have been waiting for one for a full blooded correction

SKP Research - Hindustan Sanitaryware

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