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Friday, January 12, 2007

DOMESTIC NEWS & GLOBAL NEWS


Nov industrial output grows by 14.4% yoy

India's industrial production grew by an impressive 14.4% in November as against just 6% in the same month last year, the Government said on Friday. At the same time, the Government revised the industrial growth figure for October, from the provisional level of 6.2% to 4.4%. The November expansion in the Index of Industrial Production (IIP) was led primarily by the manufacturing sector, which surged by 15.7% compared to 7% in the corresponding month a year earlier. Cumulative growth in IIP during April-November 2006-07 was up 10.6% versus 8.3% in the same period a year ago. As many as sixteen 16 out of the 17 industry groups showed a positive growth during the month compared to the corresponding month of the previous year. ‘Basic Metal and Alloy Industries’ clocked the highest growth of 25.4%, followed by 23.2% in ‘Rubber, Plastic, Petroleum and Coal Products’ and 21.8% in ‘Transport Equipment and Parts’. But, ‘Metal Products and Parts except Machinery and Equipment’ showed a negative growth of 1.5%. Basic Goods and Capital Goods, and Intermediate Goods grew by 11.6%, 25.3% and 16.7%, respectively. Consumer Durables and Consumer Non-durables recorded a growth of 11.4% and 12.1%, respectively, with the overall growth in Consumer Goods being 11.9%.

Growth hampered by supply constraints: PM

Prime Minister Dr. Manmohan Singh said that the country's economic growth was being constrained by supply side bottlenecks like shortage of power, ports and skilled workforce. "Be it power, be it port capacity, be it supply of skilled manpower - a variety of supply bottlenecks are holding the growth rate back," Dr. Singh told the FICCI Annual General Meeting in New Delhi. "A major responsibility for us in the Government is to help relax these supply constraints." The Prime Minister announced that he would ask the Finance Ministry and the Investment Commission to suggest an institutional mechanism whereby large scale projects both in the public and private sectors are facilitated so that they take off as originally planned. The Prime Minister also reiterated the Government's plan to increase spending on infrastructure projects such as roads, ports and airports to US$320bn in the five years ending 2012. The Government also plans to increase spending to produce a more skilled workforce, Dr. Singh said.

Bidding war for Hutch Essar heats up

As expected (or rather reported), Vodafone CEO Arun Sarin landed in the country to press the case for the British cellular phone service provider. He met top Government officials like Kamal Nath, P. Chidambaram and Dayanidhi Maran to enlist their support for the Hutch Essar deal and apprise them about the company's India plans. Sarin also held talks with Sunil Mittal, though both refused to divulge the details of the nature of their dialogue. He said that Vodafone will make its bid for Hutch Essar in the next few weeks. Sarin also said that Vodafone was open to joining hands with other bidders and that Essar was a natural partner. Separately, Reliance Communications Board reaffirmed the company's interest in Hutch Essar and authorised Chairman Anil Ambani to take all necessary steps in this regard. The very next day, and a day after Sarin's visit to the corridors of power in New Delhi, Anil Ambani too met the Finance Minister and the Telecom Minister to shore up its support base. Reliance Communications also began the due diligence of Hutch Essar and the Hinduja Group was expected to do so next week. The Essar Group maintained its individual interest and said it had also started a confirmatory due diligence. Meanwhile, S&P said that Vodafone's ratings were not under any threat if its offer for Hutch Essar doesn't exceed US$19bn. However, if the Vodafone bid crosses US$19bn, the global credit rating agency could downgrade the ratings of the London-based wireless operator.

NYSE, 3 others to buy 20% stake in NSE
Once again the National Stock Exchange of India Ltd. (NSE) managed to beat the Bombay Stock Exchange Ltd. (BSE). Even before Asia's largest bourse decides on a stake sale and a proposed public issue as part of its demutualisation process, four global investors have picked up 5% each in NSE. The New York Stock Exchange (NYSE), Goldman Sachs, General Atlantic Partners and Softbank Asian Infrastructure Fund entered into an agreement with ICICI Bank, IFCI, IL&FS, PNB and GIC for the purchase. The domestic promoters will sell part of their holdings in NSE. While ICICI Bank and IL&FS sold 5% each, PNB offloaded 1%, GIC 2% and IFCI 7%. NYSE will purchase the shares of NSE for US $115mn in cash from the consortium of selling shareholders. Other bidders reportedly paid higher price for their stake. The deal is expected to close during the first quarter of 2007, subject to obtaining certain approvals from various government agencies. NSE is India's largest exchange and ranks third globally by number of trades in the equities market. In 2006, the average daily traded value in equities was around US$2bn and the notional average daily traded value in equity derivatives was around US$7bn. The development comes close on the heels of the guidelines issued by the Reserve Bank of India (RBI) on foreign investment in Indian stock exchanges. The central bank has allowed foreign investment of up to 49% in local stock exchanges, with FDI capped at 26%.

RBI gets flexibility in setting SLR limits

The Government allowed the RBI to fix the floor and ceiling of the Statutory Liquidity Ratio (SLR). The Cabinet approved the promulgation of an ordinance to amend the Banking Regulation Act, 1949, which will give the central bank the flexibility to set the statutory liquidity ratio (SLR) for banks. At present, banks are required to maintain at least 25% of their deposits under SLR by investing in government securities. "The RBI has been given the flexibility to go below the SLR. If it decides to do so, it will increase liquidity," Finance Minister P. Chidambaram said after the Cabinet meeting. The RBI can lower SLR once the presidential decree is issued. The proposed move would have no impact on the Government's borrowing programme, he said. The reduction in the SLR will improve liquidity in the system amid a strong demand for credit. Banks have been reeling under the cash crunch after the RBI hiked the Cash Reserve Ratio (CRR) by 50 basis points to 5.5%. The deposit growth at around 20% continues to lag credit expansion, which is growing at 30%. The outflows towards advance tax payments by companies last month has also added to the tightening. Lowering of the SLR limit would help banks boost credit in a fast growing economy and ease pressure on interest rates. Morgan Stanley says the move is an enabling provision. "We believe that the move will be a long term positive, but in the short run it’s likely to be neutral. This is because the RBI has been tightening liquidity in the last few months, and is unlikely to take a step back and lower the SLR requirement from 25% currently."

Sugar stocks smile as export ban goes

Sugar stocks rose after the Government lifted a six-month ban on the export of the sweetener. Sugar companies will gain from the move, as they will be able to export surplus production. India is expected to have a 3 million-ton sugar surplus this year. The resumption of exports may push up local sugar prices, which have declined about 17% since July 2006. Sugar mills are expected to export 1.1mn tons of sugar this year, SL Jain, Director General of Indian Sugar Mills Association was quoted as saying. Finance Minister P. Chidambaram said the country has replenished inventories to comfortable levels from a record crop this year, helping to lift the ban. India is the world's second-biggest producer and the largest consumer of sugar. He told reporters after a cabinet meeting that the restrictions had been removed as domestic sugar prices had come down. But he added that exporters would need clearance for their planned sales from the Government. India's sugar production may rise to a record 24mn tons in the year ending September 2007, Agriculture Minister Sharad Pawar said last week. That is 6% more than the 22.7mn tons estimated by the Government in November and has increased the pressure to boost exports and avoid a domestic glut. The Government had halted sugar exports on July 4, 2006 to boost domestic supplies and curb inflation. On Dec. 18, mills that imported raw sugar duty-free in 2005 under the advance license to meet a shortage, were allowed to export an equivalent amount.

Inflation climbs to 5.58%

India's inflation, based on the Wholesale Price Index (WPI), rose to 5.58% in the week ended December 30, 2006 due to a rise in food and fuel prices, the Government said on Friday. It was at 5.48% in the previous week and 4.56% in the comparable period last year. The figure was lower than a forecast of around 5.6%. The WPI rose by 0.05% to 208.1 from 208 in the previous week. The index of Primary Articles (weight: 22.02%) rose by 0.05% to 212.5. The index of Fuel, Power, Light & Lubricants (weight: 14.23%) rose by 0.1% to 321.9. The index of Manufactured Products (weight: 63.75%) remained unchanged at its previous week's level of 181.2. Prices of furnace oil (2%) and naphtha (1%) increased. However, prices of bitumen (2%) declined. Poultry chicken (9%), fish-marine (8%) and arhar (2%) became dearer. However, prices of eggs (8%) and gram (3%) fell. Meanwhile, Finance Minister P. Chidambaram asked India Inc. to refrain from jacking up product prices in the short-term view of making profits in a booming economy. This would only harm the industry in the long run and push up interest rates further.

Year-to-date tax revenues surge
With the economy on a roll, the Government too is set to benefit a great deal as tax revenues swell. The total indirect tax collection in the first eight months of the current fiscal year (April-Nov 2006-07) was up 22.5% at Rs1.49 trillion. Within this basket, Customs & Excise receipts grew by 17% to Rs1.44 trillion while Service Tax mop-up surged by 65% to Rs217.79bn. In November, indirect tax receipts jumped 28.5% to Rs203.19bn. Customs & Excise collections grew by 14.9% to Rs172.52bn while service tax revenues were up 65.3% at Rs29.87bn. The net direct tax collections as on Dec 31, 2006 stood at Rs1.44 trillion, up 41.8% over the corresponding period last year. The net direct tax collections have so far outpaced the targeted growth of 27.5% over last year as per the Budget Estimates for fiscal 2006-07. Corporate tax mop-up was up 51.8% at Rs924.63bn while personal Income-Tax (including FBT, STT & BCTT) was up 27.1% at Rs515.65bn. STT and BCTT stood at Rs32.26bn and Rs3.57bn, up 87.8% and 98.1% respectively. FBT grew by 65.2% to Rs29.33bn.

Govt to cut fuel prices if oil falls under US$50

The Government will review petrol and diesel prices on January 31 and a reduction is likely if international crude prices fall below US$50 per barrel, Petroleum Secretary MS Srinivasan said. "There will be a review on January 31. If the current average continues there will be no cut. For a reduction to happen prices have to fall further," he added. The Indian basket of crude oil is currently averaging around US$51 a barrel and a reduction in petrol and diesel prices was possible only if crude prices slip below US$50 a barrel on a sustained basis. In November, petrol and diesel prices were cut by Rs2 and Re1 a litre, respectively when the basket of crude that Indian refiners buy was at US$56.8 per barrel. The Indian basket has since fallen to just under US$53 per barrel, the lowest in FY07. Public sector oil marketing companies are currently incurring a loss of Re0.22 per litre on petrol and Rs1.42 a litre on diesel, Srinivasan said. Kerosene is being sold at a loss of Rs13-14 per litre and domestic LPG at a loss of Rs50 per cylinder. Indian Oil, BPCL, HPCL and IBP together are losing about Rs1bn a day on fuel sales. Meanwhile, Petroleum Minister Murli Deora said that he had asked the Finance Ministry to make changes in tax rates for petroleum products, for the forthcoming union budget, to make fuels cheaper. Deora also said that his ministry had sought same tax breaks for gas pipeline projects, as is provided to various other infrastructure schemes.

Cairn India stock gets hammered on listing

As expected, shares of Cairn India plunged on the maiden trading day on January 9, as investors preferred to exit amid the ongoing dispute with MRPL over the offtake of crude from the company's Rajasthan oil fields. The stock opened at Rs140 on the Bombay Stock Exchange (BSE), as against the issue price of Rs160 per share. It hit a low of Rs128.65 and a high of Rs155. It finally ended the week at Rs134.90. The beleaguered Cairn India found it tough to sell its mega issue and had a rocky ride all through with its IPO failing to fully subscribe. Then, merchant bankers to the issue had to come to the rescue and put in the money from their own pockets. The Indian arm of Cairn Energy Plc raised US$1.93bn from its IPO at Rs160 per share, the lower end of its price band of Rs160-190 a share. Most analysts expected the stock to come under pressure amid uncertainty over the offtake of crude from the company's Rajasthan block. Cairn India's oil production may get delayed because MRPL, which has been designated by the Government for buying the crude from Cairn India's Rajasthan fields has demanded that the latter share the cost of building the pipeline to carry the crude. The pipeline, which Cairn India claims is to be built by MRPL, is 311 miles (498 kilometers) long and expected to cost Rs20bn, according to ONGC Chairman RS Sharma. Analysts say the dispute between the two companies could delay the construction of the pipeline to transport oil from Cairn India's fields in Rajasthan to ports in Gujarat for shipment to the MRPL refinery. Meanwhile, shares of Shree Ashtavinayak Cine Vision Ltd. jumped on the company's stock market debut on January 10. The scrip opened at Rs189.90 as against the issue price of Rs160 per share on the BSE. It touched a high of Rs240.30 and a low of Rs185.10. It closed the week at Rs225.90.

Wireless user base keeps expanding

The calendar year 2006 proved to be the best ever for the GSM service providers in terms of subscriber growth. The GSM industry added 4.6mn new subscribers in December 2006, taking their total user base to 105.4mn, the Cellular Operators' Association of India (COAI) said. The subscriber additions for the entire year were far higher at 47mn compared to just 21mn additions for the year ended December 2005, representing a jump of 124% in new subscriber additions. CDMA operators added 1.8mn subscribers in the month of December 2006. Reliance Communications added 1.4mn subscribers on its wireless network both (CDMA and GSM). The company added over 4mn wireless subscribers during the October – December 2006 quarter, taking the total wireless subscriber base close to 30mn mark.

India Inc seeks more tax sops from FM

Despite the strong momentum in business for the last 4-5 years and growth in scale after several years of restructuring, India Inc. still wants tax benefits from the Government, especially for big-ticket acquisitions abroad. In its pre-Budget memorandum to Finance Minister P. Chidambaram, the Indian industry sought a reduction in corporate tax outgo, besides the long-term demand for the removal of the Fringe Benefit Tax (FBT). The head honchos of the industry urged Chidambaram to support domestic companies seeking to go in for large acquisitions overseas, like the Tata Steel's proposed bid for Corus and Videocon's offer for Daewoo Electronics. They also want him to drastically cut the incidence on total tax, from about 38% currently to 25%.

December car sales up 23% yoy

A slew of new launches combined with the proposed price hikes in January to shore up sales in December. The last month of a year is generally considered weak as potential buyers put off purchases to new year due to re-sale considerations. The Society of Indian Automobile Manufacturers (SIAM) said that domestic car sales in December grew by 23% to 81,026 from 65,853 in the same month a year earlier. Cumulative car sales for 2006-07 stood at 765,131 units, up 22.7% from 623,782 in the same period a year earlier. Sales of commercial vehicles (CV) rose by 49.6% to 41,952 in December while the for first nine months of the current fiscal year CV sales were up 37.2% at 327,039 units. Sales of motorcycles was up 5.3% at 592,247 units in December while year-to-date bike sales grew by 13.4% to 5,900,965 units from 5,201,485 units in the same period a year earlier.

More IPOs in pipeline

House of Pearl Fashion Ltd., a multinational, ready-to-wear apparel company, is entering the capital market with an IPO of 5,984,994 equity shares of Rs10 each through a 100% Book-building process. The price band for the IPO has been fixed between Rs525 to Rs600 per share. The issue opens for subscriptions on January 23 and closes on January 23.

Global Broadcast News Ltd. (GBN), the operator of CNN IBN and IBN 7 news channels, announced that it aims to raise Rs1.05bn through an IPO of equity shares. The company, part of the TV18 Group, has fixed the price band of Rs230 to Rs250 per share for the public issue. The IPO will open on January 15 and will close on January 18.

Cinemax India Ltd., one of the largest exhibition theatre chains in India announced a price band of Rs135 to Rs155 for its forthcoming IPO. The issue comprises 8,920,000 equity shares of Rs10 each, including a fresh issue of 7,000,000 equity shares and an offer for sale of 192,000 equity shares by the selling shareholders.

Akruti Nirman Ltd., a real estate development company, proposes to enter the capital market on January 15 with a public issue of 6,700,000 equity shares of Rs10 each through a 100% book building process. The issue closes on January 19 and the price band for the IPO has been fixed at Rs475 to Rs540. The issue will constitute 10.04% of the post-issue capital of the company.

Oil falls below US$52 per barrel
Oil prices fell under the US$52 per barrel mark for the first time since June 2005 after demand for petroleum products in the US slipped to its lowest level in more than two years. US light, sweet crude for February delivery rose 82 cents to US $52.70 a barrel in after-hours electronic trading on the New York Mercantile Exchange on Friday. The contract fell US $2.14 to settle at US $51.88 a barrel on January 11, but not before reaching a low of US $51.80 a barrel, a level not seen since May 2005. Brent crude on London's ICE Futures exchange rose 92 cents to US $52.62 a barrel. Crude oil has tumbled 15% so far this year in a huge sell-off that was kicked off by investment funds last year and then stoked by a historically warm US winter that has left supplies of heating fuel barely touched. A US Government report said this week that consumption, based on deliveries from refineries, dropped 4% last week as mild weather lowered the demand for heating oil. As a result, stockpiles of heating oil and other distillates jumped the most in three years. US crude stockpiles are 7.1% higher than the five-year average at 314.7mn barrels. Separately, OPEC President Mohamed al-Hamli said that crude at US$53 a barrel was unacceptable, and urged members of the oil producers' cartel to comply with pledged cuts to check the recent slide in prices. al-Hamli, who is also UAE Oil Minister said, "It's very difficult to have 100% compliance, but we need to make the cuts that we have agreed." OPEC had agreed in the fourth quarter to cut oil output by 1.7mn barrels per day by February 1.

Bank of England hikes rate; ECB holds

In a surprise move, the Bank of England (BoE) jacked up its key interest rate by a quarter percentage point to 5.25%, the highest level in more than five and half years. The move is aimed at containing inflation. The 25 basis points increase caught most economists off guard. Most analysts had expected the central bank policymakers to hold rates steady at least this month, and possibly raise borrowing costs in February. In a statement announcing its decision, the BoE said it expected consumer inflation to rise further in the near future. Inflation is already well above the Government's 2% target and some analysts believe it will exceed 3% when the latest figures are published this month. Consumer price inflation has recently risen to 2.7%, the highest level in more than a decade. The BoE had increased the cost of borrowing twice last year in an effort to reign in rising inflationary pressures. Meanwhile, the European Central Bank (ECB) left its benchmark interest rate unchanged as President Jean-Claude Trichet awaits more evidence of accelerating inflation before raising borrowing costs. ECB policy makers, who last month increased the refinancing rate for the sixth time since December 2005, kept it at 3.5%. Futures trading indicates investors expect two quarter-point increases by September. "Acting in a firm and timely manner to ensure price stability in the medium term is warranted," Trichet said.

Apple unveils iPhone; Cisco sues over trademark
Apple finally unwrapped the much-awaited iPhone on January 8. The iPhone will serve both as an iPod as well as 3G phone, somehow cramming a 3G radio, iPod functionality, and even a version of OS X into the phone-size package. The phone itself is dominated by a giant touchscreen, the patent Apple applied for in February. Apple's iPhone will be available in June for US$499 to US$599. But, the euphoria didn't last long, as Cisco filed a lawsuit against Apple in the District Court for the Northern District of California, seeking to prevent the latter from infringing upon and deliberately copying and using it's registered iPhone trademark.

Cisco obtained the iPhone trademark in 2000 after completing the acquisition of Infogear, which previously owned the mark and sold iPhone products for several years. Infogear’s original filing for the trademark dates to March 20, 1996. Linksys, a division of Cisco, has been shipping a new family of iPhone products since early last year. On Dec. 18, Linksys expanded the iPhone family with additional products. Cisco said that Apple had approached the company several years ago seeking to use the name, and the two Silicon Valley tech giants have been negotiating ever since to hammer out a licensing agreement. But Cisco said the talks broke down just hours before Apple's chief executive, Steve Jobs, took to the stage on Tuesday at the annual Macworld Conference and Expo to introduce the company's latest multimedia device.

Arcelor Mittal won't sue Dutch trust over Dofasco

Arcelor Mittal announced that the respective Boards of Directors of Mittal Steel Co. NV and Arcelor SA decided not to initiate litigation seeking to dissolve the Strategic Steel Stichting, an independent Dutch foundation, with a view to obtaining the transfer of the 89% shares of Dofasco Inc., the North American steelmaker, currently held by the Stichting. Mittal Steel had agreed to sell Dofasco to Germany's ThyssenKrupp if it was successful in gaining effective management control of Arcelor. In addition, under a Consent Decree with the US Department of Justice, which was filed on Aug 1, 2006, Mittal Steel had agreed to use its best efforts to sell Dofasco to ThyssenKrupp or, if Dofasco cannot be sold due to the Stichting, to sell certain alternative assets. The Stichting's holding of the Dofasco shares currently prevents their sale without the Stichting’s consent. By resolutions adopted respectively on Sept 25 and on Oct 11, 2006 the Boards of Mittal Steel and Arcelor formally requested that the Stichting be dissolved and return Dofasco shares to Arcelor. On Nov 10, 2006 the Stichting’s Board unanimously decided not to dissolve and to retain the Dofasco shares, thereby continuing to prevent their sale. On Dec 22, 2006, ThyssenKrupp initiated legal proceedings against Mittal Steel in Rotterdam alleging that Mittal Steel had breached the agreement by failing to cause Arcelor to initiate legal proceedings against the Stichting.

China's growth slowed in 2006

The Chinese economy slowed in the fourth quarter as government measures to curb lending and investment appeared to be working its way through the world's fastest-growing economy, a statement from the top economic planning agency showed. GDP expanded by 10.5% in 2006 from a year earlier, National Development and Reform Commission head Ma Kai said in a statement. That is down from 10.7% over the first three quarters. GDP topped 20 trillion yuan (US$2.6 trillion) last year, Ma said. The final figures are due to be released by the statistics bureau in Beijing on January 25. The statement didn't give a separate figure for the fourth quarter. The slowdown in investment and loans is not stable, according to Ma. The pace of economic growth is still fast, the planner said, adding that China's Government will continue to strengthen and improve macro-economic controls.

Yuan rises above HK dollar

The yuan surged against the US dollar and rose above parity with the Hong Kong dollar's peg to the US currency for the first time in over a decade. Traders took the rise through parity at 7.80 as a sign that China's central bank was now willing to let the currency appreciate a little faster. The Hong Kong dollar is pegged at 7.8 to the US dollar, although it can trade between 7.75 and 7.85. It was the first time that the yuan rose above the Hong Kong dollar peg since China unified its dual exchange rate system in 1994 and launched its domestic foreign exchange market, the China Foreign Exchange Trade System. However, the one-year offshore non-deliverable yuan forwards did not respond to the spot market's jump, suggesting that despite the short-term volatility, the market did not think that China was changing its year-end target for the yuan.

Euro slips to 1 1/2 month low vs dollar

The euro fell to a one and a half month lows against the dollar after European Central Bank (ECB) chief Jean-Claude Trichet signaled that the next rate hike would come in March rather than February. The euro hit an 18-month low against the pound sterling after the surprise rate hike from the Bank of England. The dollar hit a 13-month peak against the yen, as investors noted that even if the Bank of Japan raises interest rates to 0.5% next week as expected, the yen will remain the lowest yielder among the major currencies.





Special Story


Volume rise ahead of results!

Trends could be astonishing. One trend witnessed during the current year was that share prices of companies and their volumes (number of shares traded) started increasing as the date for declaring their financial numbers neared. Moreover, stock prices of companies were usually at their peak on their results day and fell after the announcement of results if the results were in line or below analysts’ expectations. However, other factors could also affect the movements.

An analysis of few quarters revealed that sensex and Nifty companies that stock prices of 38 companies (implied probability of 85%) started to increase around two weeks prior to their results announcement and moved up till their numbers were declared. Share prices increases are as high as 30%. There was nothing significant apart from approaching deadlines of their results announcements that made their stock prices shoot up.

Further, stock prices of companies were usually at their peak on their results day and generally fell the following day after their results announcement. This stands true even if the results are in line with analysts’ expectations and are not bad per se. This statement stands true for 28 of the 50 Sensex and Nifty companies that have declared their results thus far, a probability of around 60%. Much of this fall could be contributed to the over bought positions in these counters on account of expectations of good results. A further 16 stocks just hovered around their pre-result levels moving nowhere after the announcement of their results. But, counters got hammered if results were below market expectations or a profit warning was issued.

Volumes in all the counters too start to increase on account of increased interest on counters approaching results, but they shoot up enormously a couple of days ahead of the results. Volumes spurted around 5-35 times around the results day. But these are exceptional cases. On an average volumes increase 2-6 times and then fall back to average levels.

INVESTMENT STRATEGY


Kite season…indices on a high

Wish you a happy Makar Sankranti.

Makar Sankranti is a day when the glorious Sun-God begins its ascendancy and entry into the Northern Hemisphere. Right enough, the bulls seem to flying with the indices to new highs. The earnings season has got off to a bright start with Infosys registering relatively moderate results in Q3 FY07, which were just in line with expectations. How long the bulls can hold on to the winds of change remain to be seen, especially in the coming weeks. India's industrial production expanded at the fastest pace in 11 years in November. Production at factories, utilities and mines rose 14.4% from a year earlier, the fastest since September 1995 and new banking law are just some of the positive news boosting the sentiments on D-street. With major chunk of biggies yet to announce their quarterly report card one should cautiously ride the bullish run in the market. Don’t be carried away and get sucked into the rally. Also, the flow of the foreign money and the pace of it will be watched closely ahead of the budget.

The week ahead will see the likes of Reliance Industries, TCS, Wipro, HCL Tech, Bajaj Auto, Infotech Enterprises, Bharat Bijlee, REL, Siemens India, Satyam Computers and Jet Airways declaring their quarterly numbers, so activity will remain centered around the news flow. There are some uncertainties like rising inflation and hardening of rates in the near term, which may put some brakes on the raging bulls. Among the smaller stocks, which could see action, are KS Oil, Zenith Computer and Rama Pulp.

MARKET MOOD


Bulls find a Magic Lamp

A whole new world
A new fantastic point of view
No one to tell us no
Or where to go
Or say we're only dreaming


This Aladdin theme song seems to calmly suit if not soothe the bears who courageously fought back after a disastrous start this week. The bulls seem to have found the Magic Lamp from somewhere. How else would you describe the sudden spurt after a subdued start? That too with Infosys failing to positively surprise. Bulls appear to be floating smoothly above the magical 14k mark and surely dreaming of greener pastures for months to come. The gains were led by heavyweights like Wipro, Reliance Industries, ICICI Bank and TCS. After an overwhelming victory on a Fantastic Friday, the bulls have seem to have entered into a whole new world, where it seems like no one could stop them from marching ahead. (We know FII liquidity and profit booking could spoil the party anytime). The key indices rose to a record high, posting its third weekly gain with benchmark Sensex adding 196 points or 1.41% to close at 14057 and NSE Nifty adding 1.73% or 69 points to end the week at 4052. The markets managed to recover well from a shaky start to the week as nervousness ahead of the Infy results kept the traders on the sidelines. Despite Infosys ‘failing to positively surprise’ in its quarterly numbers the bulls rebounded after a three-day losing sequence. Lower crude oil prices and firm global markets also contributed towards the meteoric rise over last tow trading sessions.

The markets had a dream run in last two trading sessions, as stocks rose the most in almost six months on Friday, overcoming concerns of a possible price cut by Industry Finance Minister Chidambaram asked industry not to take advantage of growing demand to increase prices. Finance Minister asked India's industry to cut prices in a bid to reduce the inflation rate. Oil prices continued to slide, as they have since the start of the year, due to warm US weather and easing supply fears. US light crude oil for February delivery fell $2.14 to settle at $51.88 a barrel on the New York Mercantile Exchange, pushing the auto and Aviation stocks higher. Sugar, Cement, Bank, FMCG, Oil & Gas and Small cap stocks were among the other major gainers this week.

Tech stocks were a buzz over the week following Q3 numbers by Infosys. Infosys recorded a sequential revenue and net profit growth, which was in line with market expectations at 5.9% and 5.8% respectively. TCS and Wipro were among the other major gainers across the sector ahead of their results on Monday. TCS jumped nearly by 5% to Rs1325 and Wipro rose by 4.5% to Rs626. Among the Mid-Cap stocks HCL Tech advanced 2.8% to Rs633, Patni gained 2.6% to Rs412 and i-Flex was up by 2.4% to Rs2019.

Auto stocks were up during the week as crude continued to slide lower, the sentiments also got a lift after India announced that Government would review diesel and gasoline prices on 31 January, 2007. A possible cut in fuel prices should augur well for the auto stocks. M&M paced ahead by over 4% to Rs933, Tata Motors gained by 0.9% to Rs940 and Ashok Leyland rose 2.5% to Rs46.

Oil & Gas stocks rose over the week as crude oil fell sharply. BPCL rose over 4.5% to Rs368, HPCL advanced 2.2% to Rs304 and IOC added 1.4% to Rs482. Oil exploration majors also gained during the week. ONGC rose 3.2% to Rs924 and Reliance Industries was up by 4% to Rs1339.

FMCG stocks returned to action yet again ahead of the announcement of Q3 results. HLL led the rally by recording an advanced of over 3% to Rs219. The company has recently raised prices of its several products, which should do well in its earnings. ITC advanced 3.5 % to Rs171; Nestle surged over 6% to Rs1245, Marico spurred by over 4% to Rs565 and Dabur gained 1.1% to Rs153.

Banking stocks managed to reverse losses on Friday on optimism a rule change allowing the RBI to lower the limit of government bonds lenders must hold, will free up more cash to meet demand for loans from companies and individuals. Private Bank major ICICI Bank was among the major gainer and gained 6.5% to Rs970 and HDFC Bank was up by 0.9% to Rs1063. Among the Mid-Cap stocks UTI Bank spurted over 5.55 to Rs499 and PNB added 1% to Rs516.

Finally, Sugar stocks turned sweeter over the week as the ban on exports was lifted. Bajaj Hindusthan Ltd. and Dwarikesh Sugar were among the major gainers after the removal of a six-month ban on exports of the commodity-boosted chances of a recovery in domestic sweetener prices. Bajaj Hindusthan gained 2.3% to Rs209, Oudh Sugar rose nearly by 6% to Rs88, Sakhti Sugar was up by 1.4% to Rs99 and Dwarikesh Sugar added 3.2% to Rs90.

IFCI: IFCI was the star performer of the week. The scrip skyrocketed over 67% to Rs21 touching a high of Rs23.5 and low of Rs13.31 during the week. The stock was in the limelight after selling its 7% stake for Rs7.8bn in the NSE to a group of investors led by NYSE Group. Market buzz that the company has called for bids for its 750 acres land at Sultanpur, is likely to be just a rumor.

Tech Mahindra: The scrip rose 12% to Rs1845 after hitting a high of Rs1871 and a low of Rs1637 during the week. The Indian software venture of BT Group Plc set up a software development center in Hyderabad, to employ 3000 workers. We may continue to see further action in the counter as the company declares its earnings on 18th January.

TOP STORIES for the WEEK


No sparkle this time from Infosys

Infosys results may have been more or less in line with expectations and their guidance. While some foreign brokerages lightened their positions on the Infosys counter ahead of the results, Morgan Stanley and Citigroup are positive on the counter. Infosys announced its results for the fiscal third-quarter ended Dec 31, 2006. The Bangalore-based IT major declared a net profit of Rs9.83bn for the October-December quarter of the current fiscal year as against Rs9.30bn in the second quarter, representing a sequential growth of 5.8%. The company posted a 5.9% quarter-on-quarter growth in revenues for the reporting quarter at Rs36.55bn compared to Rs34.51bn in the quarter ended Sept 30, 2006. EPS for the third quarter of FY07 increased to Rs17.64 from Rs16.75 in the July-Sept quarter.

Morgan Stanley in a post result note stated that Infosys’ numbers were "reasonably strong, especially in the backdrop of the 3.8% rupee appreciation against the US$...While the element of positive surprise has been a lot lower than that in the prior two quarters (and which was in a way expected as well), we think that the stock and the sector continue to be well placed for 2007." The brokerage, which has an "Over Weight" rating on Infosys, added that "overall fundamentals remain strong for offshore outsourcing and any improvement in pricing could be a strong driver of consensus earnings, as well as the stock price."

Citigroup in its note post the results stated "Infosys had their third consecutive quarter of double digit $ term growth with revenues growing by 10.1% qoq – as against our expectation of 9%. In rupee terms, revenue growth was 5.9% qoq." Citigroup added that the biggest positive was that offshore pricing improved 1.7% sequentially while onsite pricing improved 1.9% sequentially (partially on the back of service mix change). Citigroup has reiterated a BUY/Low Risk on the stock stating that Infosys trades at 25.7x FY08E and continues to report industry leading growth rates.

Street abuzz with big-ticket deals

India Inc. continues to scout for inorganic growth in the overseas markets in 2007 after a bumper year of Mergers and Acquisitions (M&As) last year. Domestic pharma major Ranbaxy Laboratories Ltd. said it was interested in buying the generic business of Germany's Merck KGaA. But, it won't be easy for Ranbaxy as global biggies like Teva, Sandoz and Sanofi-Aventis as well as some private equity majors such as KKR and Blackstone were also eyeing the big-ticket deal, reportedly valued at up to US$5bn. Texas Pacific Group, Cinven and Permira Advisers may also bid for the generic-drug division of Merck.

In another development, media reports stated the Reliance Industries Ltd. could enter the race to buy the plastics business of General Electric (GE). There was no independent confirmation of the same. GE's underperforming plastics business is estimated to be valued at about US$10bn. Global newspapers reported that GE was planning to sell the plastics business and that a few private equity players, including Blackstone and Kohlberg Kravis Roberts (KKR), were interested. Dow Chemical, BASF and Dupont could also be interested in acquiring the company, if it was up for sale, analysts said.

Meanwhile, Alcan Inc. denied media reports that it was selling its US business for US$8bn to US$10bn to Hindalco Industries Ltd. Dow Jones Newswire on Thursday quoted India's business news channel CNBC-TV18 as saying that Hindalco would bid for Alcan in the next few weeks. ONGC said that ONGC Videsh, its overseas arm, was invited by Maersk Oil to participate in the bidding for buying a 30% stake in two Caspian Sea blocks. OVL has been short listed for further negotiations. The agreements are likely to be signed in the near future, subject to the approval by the host Government. Denmark-based Maersk Oil holds an 80% stake in blocks 11

Anand Rathi - Weekly Technical Note


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KRC - Kale Consultants


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Results Calendar


Jan 13 2007 Aban Offshore Ltd
Jan 13 2007 Eskay K`nIT(India) Ltd
Jan 13 2007 Jay Bharat Maruti Ltd
Jan 13 2007 Key Corp Ltd
Jan 13 2007 Lakshmi Precision Screws Ltd
Jan 13 2007 Modern India Ltd
Jan 13 2007 Reliance Industrial Infrastructure Ltd
Jan 13 2007 Sanghi Corporate Services Ltd
Jan 13 2007 Triochem Products Ltd
Jan 13 2007 Unitex Designs Ltd

Karvy - Container Corp


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Heavyweights lift Sensex above 14000


The Sensex continued to rally upwards for the second consecutive session and gained 426 points to close at 14057. Taking the positive cues from the global markets, the Sensex started the trading session on a firm note at 13729 and maintained a steady upward bias throughout the session. A strong bout of buying in heavyweight, banking, oil, capital goods and technology stocks triggered a rally that saw the index surge past the 14000 mark to touch an intra-day high of 14071. The Nifty notched up gains of 110 points to close at 4052.

The breadth of the market was positive. Of the 2,722 stocks traded on the BSE, 1,631 stocks advanced, 1,050 stocks declined and 41 stocks ended unchanged. All the sectoral indices closed with significant gains. The BSE Bankex was the major gainer and soared 6.79% followed by the BSE Oil & Gas index (up 2.77%), the BSE PSU index (up 2.75%), the BSE Teck index (up 2.41%) and the BSE CG index (up 2.24%).

From the 30 Sensex stocks 20 ended in the green. Attracting strong buying support ICICI Bank surged 8.49% at Rs970, HDFC Bank soared 6.39% at Rs1,063, SBI jumped 6.39% at Rs1,223, BHEL advanced 4.77% at Rs2,257, Bharti added 4.34% at Rs665, HDFC zoomed 4.20% at Rs1,586, TCS gained 3.77% at Rs1,325, Reliance vaulted 3.47% at Rs1,340, Cipla was up 3.35% at Rs255 and Satyam Computers closed stronger by 3.23% at Rs496. Other front-line stocks also moved up by 1-2% each.

Banking stocks witnessed sustained buying support. After ICICI Bank, Federal Bank surged 7.43% at Rs255, Bank of India soared 7.10% at Rs207, Oriental Bank added 6.49% at Rs226, Bank of Baroda advanced 6.35% at Rs240 and Punjab National Bank gained 6.14% at Rs516. Canara Bank, UTI Bank and Union Bank were up 3-5% each.

Over 59.14 lakh SAIL shares changed hands on the BSE followed by Reliance Communication (27 lakh shares), Cairn India (24 lakh shares) and IDBI (23 lakh shares).

Reliance Industries was the most actively traded counter on the BSE and registered a turnover of Rs154 crore followed by Reliance Communication (Rs117 crore), SBI (Rs70 crore), TCS (Rs61 crore) and Infosys (Rs60 crore).

Industrial data, Asian markets evoke epic response from Sensex


The market posted impressive gains for the second consecutive day. Strong industrial production data for November 2006, firm Asian and US markets as well as short-covering in the derivatives segment took Sensex and Nifty to all-time highs. Banks spurted, and so did Reliance Industries and Bharti Airtel. IT pivotals extended Thursday’s gains. Cement and auto shares nudged higher.

The Sensex jumped 426 points (3.1%) to a lifetime closing high of 14,056.53. The barometer index hit a life high of 14,070.88 at 15:15 IST. The S&P CNX Nifty gained 110.20 points (2.8%), to a lifetime closing high of 4,052.45. Nifty struck an all-time peak of 4,059.15 in late-trading.

After a fall of about 500 points in first three trading sessions this week, due to large-scale FII sales, the benchmark index rose nearly 700 points in two trading sessions (on Thursday and Friday).

The earnings season has started upbeat with Infosys, HDFC Bank and UTI Bank unveiling strong numbers in the last two days. The major December 2006 quarter results scheduled next week are TCS, HCL Tech, Wipro, Bajaj Auto, Ranbaxy Laboratories and Satyam Computer.

The market-breadth was strong today. Against 1,607 shares rising on BSE, 1,071 declined. Just 46 stocks were unchanged. Gainers outpaced losers by a ratio of 1.5:1.

The BSE clocked a turnover of Rs 4585 crore, compared to Thursday’s Rs 4430 crore.

Banks spurted after the Union Cabinet, on Thursday, approved the change to a banking law, to give RBI more flexibility for lowering the statutory liquidity ratio requirement (SLR). The law mandates banks to keep a minimum of 25% funds with the central bank as their SLR requirement. A reduction in SLR, which the amendment to the law aims to do, will release more funds to banks for lending. With the growth in banks’ loan portfolios outstripping the growth in their deposit base, several banks have been selling their SLR holdings in excess of the 25% limit and are now close to the stipulated threshold.

ICICI Bank jumped nearly 8% to a lifetime closing high of Rs 965. State Bank of India jumped 6% to Rs 1222, HDFC Bank rose 6.8% to Rs 1067. HDFC Bank, on Thursday, reported a 31.7% growth in net profit to Rs 295.64 crore.

Housing finance major HDFC gained nearly 5% to Rs 1596.

Reliance Industries surged 3.6% to a lifetime closing high of Rs 1343. A newspaper today reported that Reliance Industries is exploring possibility of joining the bidding race for General Electric (GE)’s plastic business, valued at about $10 billion. GE is reportedly reviewing its plastic division’s future, which has been hit by rising costs of raw materials and natural gas. Meanwhile, promoter Mukesh Ambani, today said the company plans to invest Rs 67,000 crore ($15 billion) for a refinery, city gas distribution and for developing a port city in Gujarat.

Bharti Airtel jumped nearly 5% to Rs 667, on renewed buying on expectations of strong Q3 results.

PSU power equipment major Bhel rose nearly 5% to Rs 2260, boosted by strong industrial production data for November.

IT shares extended Thursday’s surge following a rise in their ADRs on Thursday. TCS jumped 4% to Rs 1330. TCS unveils Q3 results on 15 January. Eight brokerages expect between 4.4 - 13.9% sequential growth in TCS’ December 2006 quarter consolidated net profit as per US GAAP, between Rs 1035.30 crore and Rs 1128.80 crore, compared to a net profit of Rs 991.50 crore in September 2006 quarter. These eight brokerages expect between 6.2 - 8.2% sequential growth in TCS’ Q3 consolidated revenue as per US GAAP, between Rs 4759.30 crore and Rs 4848.90 crore.

Infosys was up 1.5% to Rs 2217, after its ADR rose 3.6% on Thursday to $56.22. Infosys’ Q3 results announced during trading hours on Thursday, were in line with estimates. The company’s operating margins rose on a sequential basis, despite a rise in the rupee against the US dollar. However, its Q4 guidance was muted.

Satyam Computer gained 2.4% to Rs 492, after its ADR gained 5.3% on Thursday to $24.26.

UTI Bank rose 3.9% to Rs 499.45. The private sector bank today reported 40.1% growth in net profit for December 2006 quarter to Rs 184.61 crore (Rs 131.71 crore). Net interest income rose 44.56% to Rs 415.84 crore (Rs 287.44 crore), while other income surged 61.3% to Rs 279.74 crore from Rs 173.42 crore in the corresponding quarter of the previous fiscal.

KEC International rose 13% to Rs 403, after it reported a 116% surge in net profit in December 2006 quarter at Rs 38.21 crore (Rs 17.67 crore). Net sales rose 25% to Rs 572.27 crore from Rs 457.53 crore.

IFCI jumped 5% to Rs 21.75, and the stock rose on a massive volume of 6.3 crore shares on BSE. The stock extended its recent solid surge after the company unlocked a part of its holding in NSE on Wednesday.

Steel Authority of India (SAIL) rose nearly 5% to Rs 90.55, after a block deal of 35.5 lakh shares was executed in the counter on BSE at Rs 88.60. Steel Minister Ram Vilas Paswan said Friday Sail will invest more than $20 billion to expand its annual output to 40 million tonnes by 2020 from 14 million tonnes now.

State-run oil refiners Indian Oil Corporation, BPCL, HPCL and IBP were up between 3.9% to 6.1% on falling crude prices.

Sugar companies Balrampur Chini Mills, Dhampur Sugar Mills and Bajaj Hindustan rose between 4 - 6.4% after the Central Government on Thursday lifted the ban on sugar exports.

Southern Iron & Steel jumped 13% to Rs 28.25, after it said its board will meet on 19 Jan 2006, to issue shares at a premium of Rs 52 each to financial institutions and banks against a term loan the company had availed.

Automotive Axles shed 0.5% to Rs 635. The company reported 38.6% growth in December 2006-quarter net profit to Rs 13.56 crore (Rs 9.78 crore). Net sales rose 47.2% to Rs 167.77 crore (Rs 113.96 crore).

Finolex Cables rose 4% to Rs 101.05, after a block deal of 7,48,441 shares on BSE at Rs 100 each.

Marico gained almost 5% to Rs 567.40, after its board approved a 10-for-1 stock split. The board also approved a financial restructuring through adjustment of intangible assets against special reserves.

Ispat Industries rose 4.4% to Rs 12.80. Ispat Industries said on Friday, it has entered into a preliminary agreement with the Jharkhand government to set up a 2.8 million tonne steel plant for Rs 6750 crore.

Industrial production rose 14.4% in November 2006 from a year earlier, far higher than market expectations due to a strong surge in manufacturing output, government data showed on Friday. Output growth for October 2006 was revised down to an annual 4.4%, from a previously reported 6.2%. Manufacturing production, which represents more than 75% of industrial output, rose 15.7% in November from a year earlier, compared with a provisional 6% annual growth in October.

Another data showed inflation rising at 5.58% in the 12 months to 30 Dec 2006, higher than previous week's annual rise of 5.48% due to a rise in food and fuel prices, data showed on Friday. The figures were slightly lower than estimated 5.6%

Asian exporters led Asian shares higher on Friday. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore, and Taiwan were up between 1.1 - 1.8%.

US stocks mounted a broad advance on Thursday, as investors snapped up technology shares such as Microsoft Corp and optimism about the economy boosted industrial stocks, pushing the Dow to a record close. Dow rose 72.82 points, or 0.59%, at 12,514.98. The Standard & Poor's 500 Index was up 8.97 points, or 0.63%, at 1,423.82. The Nasdaq Composite Index was up 25.52 points, or 1.04%, at 2,484.85, and hit a six-year high

US crude futures edged above $52 a barrel on Friday. It had slumped to below $52 on Thursday, hitting a fresh 19-month low as selling by funds intensified.

Kotak - Infosys


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Sharekhan Highnoon dated January 12, 2007


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Sharekhan Commodities Buzz dated Jan 12, 2007


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