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Monday, February 12, 2007
Small-caps, mid-caps in troubled waters
Small-cap and mid-cap shares declined for the second day in a row today.
Some major losers in this space were Aptech (down 11% to Rs 187), Entertainment Network India (down 10.9% to Rs 306), Peninsula Land (down 9.5% to Rs 415.80), Unitech (down 8% to Rs 429.80), Spanco Telesystems (down 9% to Rs 186), Max India (down 7% to Rs 1101), Mahindra Gesco Developers (down 8% to Rs 591.80), Adani Enterprises (down 7.9% to Rs 208), Srei Infrastructure Finance (down 7.5% to Rs 61), Suzlon Energy (down 7% to Rs 1149), Jyoti Structures (down 6% to Rs 159), India Infoline (down 7% to Rs 332.90), and Escorts (down 6.7% to Rs 131).
The market-breadth was quite. For 2006 shares declining on BSE, 263 rose. Just 24 shares were unchanged. Losers outpaced gainers by a ratio of 7.6:1.
The CNX Nifty Junior Index, which comprises small-cap and mid-cap shares, was down 207.20 points (2.8%), at 7,138.95. It has lost 368.40 points (4.9%) in the past two trading sessions from 7,507.35 on 8 February 2007.
A surge in inflation to its highest level in more than two years, which has raised concerns of a further rise in interest rates, has damaged small-cap and mid-cap shares in the last two days.
There was a solid recovery by small-cap and mid-cap shares since mid-December 2006. From a low of 6,931.25 on 10 January 2007, the CNX Nifty Junior Index surged 578.50 points (8.3%) in about a month, to 7,509.75 by 7 February 2007.
Nifty Junior currently trades at a PE multiple of 20.24 (based on its closing of 7507.35 on 8 February 2007) compared to Nifty’s PE multiple of 20.31.
PowerYourTrade Trading Calls
Ashwani Gujral
Sell Parsavnath Developers with a stop loss of Rs 400 for target of Rs 250
Buy GSFC with stop loss of Rs 190 for target of Rs 250
Deepak Mohoni
Buy Network18 Finance below Rs 398 with stop loss of Rs 388. This is a day-trading recommendation
Short sell TVS Motors above Rs 75.25 with stop loss of Rs 77. This is a day-trading recommendation.
Rajat K Bose
Sell Aurobindo Pharma around last close with stop loss above Rs 761 for target of Rs 732
Sell Canara Bank around last close with stop loss above Rs 235.50 for target of Rs 223.
From the Research Desk
Dishman Pharmaceuticals and Chemicals Limited.
Dishman Pharmaceuticals and Chemicals Limited’s (Dishman) Q3 FY07 results were in line with expectations. Sales recorded a growth of 181% to Rs1.7bn driven by CRAMS which includes the full impact of Carbogen Amcis (CA-sales Rs820mn) for the first time. Sales for EM (Eposartan Mesylate) to Solvay are back on track after a sluggish H1 FY07 and on target to record Rs1bn for FY07. Operating profit margin (OPM) declined by 110bps to 28.2% as CA has lower margins as compared to other business segments of Dishman. Consolidation of CA which has led to higher depreciation and interest outgo restricted PAT growth to 25% to Rs244mn, translating into an annualized EPS of Rs12 on a fully diluted basis.
Post result conference call with the management has further reaffirmed our view that Dishman would be one of the best bets in the growing outsourcing space. Starting with Solvay as its only client in 2003, Dishman has made significant progress in this space, emerging as a preferred supplier for big pharma companies (GSK, Merck, Krka, AZN, Sanofi Aventis). CA business is gaining increasing momentum surpassing its own estimates for CY06. With capacity at Amcis nearing saturation, a few customers have expressed an in principle approval to shift operations to Dishman India. This we believe is a very positive sign for both Dishman and the industry at large as it shows confidence in Dishman’s IPR adherence.
Apart from CRAMS, Dishman has also made significant progress in the Electrolyte QUATs business and has signed a couple of long term contracts with global majors. One contract with Ferro Corporation worth US$6mn annually is progressing smoothly. In addition, Dishman has broadened its top management by appointing a COO and a CFO, which indicates robust growth in the years to come.
We are very positive on Dishman’s CRAMS strategy and believe Dishman will be able to leverage strongly on the relations developed with big pharma companies in CRAMS. At Rs236, the stock is trading at 22.7x FY07E EPS of Rs11 and 14.9x FY08E EPS of Rs16.8. We maintain BUY with a target price of Rs286 based on 17x FY08 earnings.
Intra-day Stock Ideas
NIFTY (4187) SUP 4153 RES 4205
BUY NELCO (128.75)
SL 124 T 136, 138
BUY NAGARCONST (220.35)
SL 216 T 228, 230
SELL GDL (185.90)
@ 187 SL 191 T 177, 175
SELL POLARIS (220.30)
@ 223 SL 227 T 214, 212
SELL CORPBANK (301.9)
@ 304 SL 309 T 295, 293
STRATEGY INPUTS FOR THE DAY
Daily Market Strategy - Choke off waste
The secret of all power is - save your force. If you want high pressure you must choke off waste.
Looks like its going to be the year of mega deals involving Indian companies, be it inbound or outbound. After the Tata-Corus blockbuster, we now have the Hindalco-Novelis deal and the Vodafone-Hutch Essar thriller. As far as stock market is concerned Hindalco shares could come under pressure just like Tata Steel owing to worries about the high debt component of the transaction. But, for those who have the patience to wait can look at buying the stock at lower levels. Reliance Communications and Bharti Airtel are likely to gain, as Vodafone has valued Hutch Essar at 24.6 times EBIDTA. The Idea Cellular IPO also opens today. So keep an eye on the telecom counters.
Coming to the broader market, we expect a subdued opening, as worries about inflation and fears of more rate increases could offset the resurgence in FII inflows and strong economic numbers. The government will release the latest industrial production data at noon today. Though there may be some cooling, overall numbers are expected to be strong, further fanning the fears over more rate hikes by the RBI. Global cues are not encouraging either. US stocks closed in the red on Friday. Barring the Nikkei in Japan, most Asian markets are trading weak. Oil remains above $59 per barrel.
We would advise investors to be cautious as the near-term outlook has turned weak on the back of the sharp spike in inflation and its fallout on interest rates. The budget too may not have too many triggers for the market. Valuations are already quite high. The F&O segment also doesn't hold too much promise. The Nifty February futures are trading at a discount. The Put-to-Call (PCR) is pretty high as is the cost of carry. A stock specific approach is the order of the day as volatility has increased and some correction is imminent. Keep your portfolio at manageable levels and your cash position high. You may just be able to pick your counters at lower levels.
India Infoline’s report on the Indian Transformer Industry will be mailed to you today. The Rs55bn Indian transformer industry will benefit from the strong demand expected from reforms in the power sector. We expect the industry to witness a CAGR of 30% plus in value terms over the next five years against approximately 17% CAGR in the past three years. Improved realizations and higher volumes will largely drive this growth. The government intends to add massive capacity to the generation side and create a National Grid for distribution of this power, both of which should boost demand for transformers. The funding issues for the same have been taken care by the World Bank (WB) and Asian Development Bank (ADB).
Our top picks: Indo Tech Transformers Ltd (ITTL) – BUY, Target price Rs375; EMCO Ltd (EMCO) – BUY, Target price Rs1,067; Voltamp Transformers Ltd (VTL) – HOLD, Target price Rs816; Bharat Bijlee Ltd (BBL) – HOLD, Target price Rs1,675.
A summary note with a link to the entire report will be mailed to you during the day.
FIIs were net buyers of Rs3.18bn (provisional) in the cash segment on Friday. However, in the F&O segment they pulled out Rs5.72bn. On Thursday, foreign funds pumped in Rs6.99bn in the cash segment. Mutual Funds were net sellers of Rs1.93bn on the same day.
The IPOs of Indus Fila and Evinix Accessories will open for subscription today. Shares of Technocraft Industries India will get listed today.
Ansal Properties & Infrastructure's Board will meet today for considering a bonus issue. Syngenta India's Board will meet today to consider the audited accounts and recommend dividend for the year ended December 31, 2006. Federal Bank's Board will meet today to consider expansion of the bank's share capital by way of Public / Rights / Domestic / International share issue.
Insider Trades:
Century Textiles & Industries Ltd: Reliance Vision Fund - Scheme of Reliance Mutual Fund has sold in open market 100000 equity shares of Century Textiles & Industries Ltd on 1st February, 2007.
Market Volumes:
The turnover on NSE was down by 4.2% to Rs91.75bn. BSE Metal index was the major loser and lost 1.74%. BSE Pharma index (down 1.49%), BSE Capital Good index (down 1.36%), BSE Oil & Gas index (down 0.84%) and BSE PSU index (down 0.83%) were among the other major losers.
Volume Toppers:
Pochiraju Industries, IDBI, TTML, SREI Infrastructure, SAIL, Zee Entertainment, NTPC, R Com, Satyam Computer, SCI, ITC, Indiabulls, Autoline Industries, Hindalco, Shree Ashtavinyak, Hindustan Motors and Gujarat Ambuja.
Delivery Delight:
Bajaj Auto, EID Parry, Financial Technologies, GAIL, GTL, HDFC Bank, Infotech Enterprises, Maharashtra Seamless, NTPC, Nagarjuna Construction, OBC, Punj Lloyd, Tata Motors and UTI Bank.
Lower Circuit Filters:
Ansal Infrastructure, Goldstone Technology, PSTL, Saksoft Ltd, Radha Madhav, Swan Mills, Nesco Ltd, Aurionpro Solutions, Ansal Housing, Ganesh Housing, Heritage Foods and Nirlon.
Brokers Recommendations:
Gujarat Ambuja Cement – Buy from ABN Amro with target of Rs160
Punj Lloyd – Outperform from Macquarie Research with target of Rs1315.
Long Term Investment:
Bajaj Auto
Major News Headlines:
Inflation accelerates to 6.58%, the fastest pace in more than two years
ABB denies bonus news
Deccan Aviation plans to create separate helicopter unit
Tata Motors says report of bid for Punjab Tractors speculative
KEC International receives order worth Rs912mn
Moser Baer to enter Karnataka Home Video market
Suzlon join hands with Portuguese builder Mota-Engil SGPS SA to buy German windmill maker for 1.02bn euros
HOW MARKET FARED
Market likely to consolidate
Volatile markets ended flat with benchmark Sensex closing at a new all time high. The markets were in red throughout the trading session as volatility and selling pressure in the heavy weights like Bajaj Auto, Satyam Computer and Bharti Airtel dragged the benchmark index to hit a low of 14523.16. However, the markets recovered from their lows as blue chips like Infosys and L&T witnessed fresh buying. Also, PSU stocks attracted buying interest after Government announced plan to sell 7% stake in BEML. Finally, the BSE benchmark Sensex was flat at 14652. NSE Nifty was also flat at 4223.
L&T gained by 0.9% to Rs1756 after the company announced that they have signed a MoU with Boeing Company for the joint exploration of business opportunities in India's defense sector. The scrip touched an intra-day high of Rs1767 and a low of Rs1702 and recorded volumes of over 6,00,000 shares on NSE.
Global Broadcast News Ltd. made an impressive debut on the bourses. The stock listed at Rs425.10 as against the issue price of Rs250, and ended at Rs505 translating into a premium of 102%. The scrip touched an intra-day high of Rs518 and a low of Rs425 and recorded volumes of over 1,00,00,000 shares on NSE. The company entered the capital market with an Initial Public Offering ( IPO) of equity shares, totaling up to Rs1.05bn. The issue was subscribed 48.74 times.
Patni surged over 2.5% to Rs436 after the company announced its Q4 result with net group profit at Rs1.14bn (up 73%) and revenue at Rs6.841 (up 23%). The scrip touched an intra-day high of Rs459 and a low of Rs426 and recorded volumes of over 12,00,000 shares on NSE.
Reliance Industries also edged higher 0.4% to Rs1397 after the company won 7 Oil Exploration areas in India. The scrip touched an intra-day high of Rs1403 and a low of Rs1381 and recorded volumes of over 10,00,000 shares on NSE.
Metal stocks were the top losers as metal prices on LME slipped. Hindalco slipped by over 3.5% to Rs175, Sterlite Industries fell 2.15 to Rs479, SAIL was down 1% to Rs115 and Tata Steel edged lower by 0.5% to Rs462.
Telecom stocks were a mixed bag today. Bharti Airtel slipped 0.9% to Rs766 and VSNL was down 0.4% to Rs500. However, Reliance Communication gained by 0.7% to Rs489 and MTNL was flat at Rs164.
Banking stocks recorded smart gains. Heavy weight ICICI Bank advanced 1.7% to Rs999, SBI was up 0.9% to Rs1205 and HDFC Bank gained 0.7% to Rs1109. Among the Mid-Cap stocks OBC, Corp Bank and Bank of India were among the major gainers.
Capital Good stocks ended with gains. ABB, Punj Lloyd and BHEL were among the major gainersMarket may recover
The market may open upbeat with British telecom giant Vodafone winning the bid for a majority stake in the fourth largest cellular services firm, Hutch-Essar, for a stunning $19 billion. The large bid could boost shares of mobile service providers such as Bharti Airtel and Reliance Communications.
FII inflow remains strong. FIIs were net buyers to the tune of Rs 698.90 crore on Thursday (8 February 2007), the day when the Sensex had gained 9 points. The inflow of funds from FIIs for February (till 8 February) stands at Rs 2440.20 crore. As per provisional data, FIIs were net buyers to the tune of Rs 318 crore on Friday (9 February 2007), the day when the Sensex lost 113 points.
But foreign funds were net sellers to the tune of a substantial Rs 560 crore in index-based futures on 9 February. They were net sellers to the tune of Rs 202 crore in individual stock futures that day.
The latest inflation data raised concerns of a further rise in interest rates. The wholesale price index rose 6.58% in the 12 months to 27 January 2007, the biggest rise in more than two years, and higher than previous week's annual increase of 6.11% due to higher food prices. At its quarterly policy review on 31 January 2007, RBI had raised its key short-term rate, the repo rate, by 25 basis points. Recently, private sector ICICI Bank raised its benchmark reference rate on corporate loans and home loans by 100 basis points.
Asian stocks fell on Monday, with Samsung Electronics and other tech shares under strain after top US memory chip maker Micron Technology forecast bearish prices. Key benchmark indices in Hong Kong, Singapore, South Korea and Taiwan were down between 0.5 - 1.4%. The Japanese markets were closed.
US stocks closed lower on Friday after an extensive sell off in stocks inspite of new upgrades announced by Ford Motor and General Motors. The sell-off was prompted by a rise in crude futures, remarks by Federal Reserve officials leaving open the possibility of more rate hikes and concern by Micron Technology executives about memory chip demand and pricing. The Dow Jones Industrial Average closed lower by 56.8 points at 12,580.83, and Nasdaq lost 28.85 points, to 2,459.82.
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