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Friday, April 20, 2007
PowerYourTrade Trading Calls
Ashwani Gujral
Buy Syngenta with stop loss of Rs 530 for target of Rs 800
Buy Unitech with stop loss of Rs 330 for target of Rs 460
Deepak Mohoni
Buy Praj Industries below Rs 467 with stop loss at Rs 456. This is a day-trading recommendation
Buy JSW Steel below Rs 595 with stop loss at Rs 587. This is a day-trading recommendation
Rajat K Bose
Buy Moser Baer with stop loss below Rs 324 for a target of Rs 338, 342 and 347. This is a day-trading recommendation
Buy JSW Steel with stop loss below Rs 579 for a target of Rs 603, 608 & 615. This is a day-trading recommendation
Edelweiss - Daily Market Outlook 20th April, 07
Market Snapshot
With fears of a possible rate hike in China, the Sensex opened with a negative gap of 133 points at 13,539, and soon tumbled to a low of 13,424 - down 248 points from the previous close, however, fresh buying in banking and select heavyweights helped the index recoup losses as the day progressed. The Sensex finally ended with a nominal loss of 52 points at 13,620 while the NSE Nifty ended at 3,998 (down 14 points).
The NSE cash volumes were slightly lower compared to the previous day at INR 81 bn while the BSE cash volumes were better at INR 41 bn. The F&O volumes were also higher at INR 337 bn.
Sentiment Indicators
The Implied Volatility (IV) across Nifty strikes has increased to 26-28% levels. The WPCR of Nifty Options has increased to 1.03 while the 5 day average is also 1.13. The April futures in now trading at 20 points discount to spot.
Outlook
The markets are expected to open with a positive gap taking strength from its Asian peers. Nifty witnessed a bounce back yesterday indicating buying at low levels. 4019 can act a resistance for the Nifty and continued short covering at these levels can see the Nifty touch 4055 levels.
FII's were net sellers in Index futures to the tune of INR 942 cr. Net selling along with increase in FII OI in Index futures by 4% can be attributed to the contracting CoC and position buildup on the short side.
IT sectors can take cues from the result of Satyam and Wipro. HCL Tech remains to be buy pick among IT counters. Government's announcement over the credit growth for PSU banks can act as a negative sentiment. We recommend to long Parsvnath at current levels.
Nifty has a resistance at 4019 and 4055. The support levels for Nifty are 3984 followed by 3945
Edelweiss - Daily Market Outlook 20th April, 07
Anand Rathi - Daily Strategist, Technical Note, Anagram, Emkay Morning Notes, Bharati Shipyard
The NIFTY futures saw a rise in OI to the tune 3.73% with prices opened down due to global pressure but market took support around 3900 levels and closed near day's high indicating long positions being built up in the market and the discount which widened during the day around 20 plus points finally narrowed and came down to 11 points again indicating shorts covered their positions as market recovered and longs built up fresh positions. indicating long positions being built up in the market but at higher levels we saw selling pressure emerging in the market due to profit booking by longs and fresh short positions being built up in the nifty futures The discount in NIFTY spot and future was around 8 points which was almost same on last day indicating that both bulls and bears were aggressive. The FIIs sold index futures to the tune of 942 crs and buyers in index options to the tune of 209 crs indicating hedged positions built by them. The PCR has come up from 1.12 to 1.13 indicates that some buying support may emerge in the market. The volatility has come up from 24.65 to 26.50 levels indicating volatile trading sessions ahead.
Among the Big guns, ONGC saw 4.22% rise in OI with prices coming down 1.07% indicating that though counter closed in red it saw buying emerging at lower levels which may support the counter whereas RELIANCE saw 2.94% rise in OI with prices rising indicating fresh long positions being built up in the counter and the counter managed to close at higher levels indicating further strength in the counter.
In the TECH front, INOFSYSTCH & WIPRO saw rise in OI with prices coming down indicating short built up in the counter indicating further weakness in these counters. TCS saw drop in OI to the tune of 0.94 with prices flat to negative indicating liquidation of positions by both bulls and bears .SATYAMCOMP saw 7.36% rise in OI with prices coming down 2.58% indicating fresh short positions being built up in the counter. Its results are coming on Thursday which may help in setting the trend in the counter.
In the BANKING counters, SBIN, ICICIBANK saw RISE in OI with rise in price indicating long positions built up in the counter and short covering seen in the counter indicating further strength in the counter HDFCBANK saw marginal rise in OI with prices marginally down which suggests the counter may remain in a range before taking any sharp movement.
In the metal pack TATASTEEL saw drop in OI to the tune of 1.45% with price down indicating short positions being built up in the counter indicating weakness in the counter ,SAIL saw drop in OI with rise in price indicating short covering seen in the counter which may further support the counter .HINDALCO saw drop in OI with prices flat indicating liquidation by both bulls and bears .STER saw rise in OI with fall in price indicating shorts being built up in the counter indicating some weakness may be seen in the counter.
Considering the overall scenario and the markets behavior, market showing volatility as selling pressure emerging at higher levels and profit booking seen in the market. Unless market goes below 3900 levels (nifty futures) we may see fresh buying emerging in the market and shorts covering their positions. Traders are advised not to go aggressively short on the market unless important support level of 3900 is breached and any position taken should be with strict stop losses to be adhered too.
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Nifty and Sensex have exhibited a candlestick with a small real body and a longer lower shadow. Technically, one may use the level of 3920 (Nifty) and 13475 (Sensex) as the stop loss level. Nifty faces resistance at 4050 and Sensex at 13800. BSE Smallcap and BSE Midcap exhibited a narrow candlestick. CNX IT has lost ground. In the Punter's zone we have a BUY in Mphasis Bfl & SELL in A.C.C. and NTPC. In the Technical call section, we have a BUY in Reliance Capital , Seimens and Tata Motors.
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Anagram - Daily call
Emkay Morning Notes + Bharati Shipyard
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Intra-day Stock Ideas
NIFTY (3997.65) S 3972 R 4039
BUY Punj Lloyd at Rs185 with SL of Rs181 and target of Rs193, 195
BUY ITC at Rs159 with SL of Rs156 and target of Rs166, 168
BUY Bharti Airtel at Rs818 with SL of Rs812 and target of Rs830, 834
SELL M&M at Rs734 with SL of Rs741 and target of Rs723, 719
SELL Chennai Petro at Rs202 with SL of Rs206 and target of Rs194, 192
STRATEGY INPUTS FOR THE DAY
Wipro to perk up sentiment
Wait until it is night before saying that it has been a fine day.
We are looking at a bounce early in the morning, purely on the back of what looks like stronger than expected numbers from IT major Wipro. The company has reported a Q4 net profit of Rs8.56bn, up 11.9% quarter on quarter. Revenues are up 8.9% over the previous quarter at Rs43.33bn. Global IT revenues have improved by 7% QoQ to Rs30.48bn. The company has beaten its own guidance on Q4 Global IT revenues. It had been looking for Global IT revenues of $685mn, but has delivered $697mn. For Q1 FY08 Wipro has announced a subdued guidance of 2% sequential growth in Global IT revenues at $711mn. On the face of it, the Wipro Q4 result looks robust. The stock should advance along with other IT peers and so should the market. We still have to look a close look at the Wipro report card.
Investors will have to keep a close eye on the results of other IT major Satyam, inflation data and global news. The bulls did well to weather the Asian storm yesterday. The key indices retraced smartly from their intra-day lows. Though the provisional figures show selling by FIIs in both the cash and the F&O segment, foreign funds have been pumping up the volume of late. FIIs have already poured in a net of over $800mn in the cash segment and we still have six trading days to go this month. On the liquidity front things appear to be encouraging. If only inflation moderates further and the RBI goes slow on monetary tightening, the market could well continue its winning ways in the near term. Having said that, the Indian economy is likely to cool off a little in FY08 and there could be some slowdown in earnings growth as well. We also have a raft of global factors to grapple with.
Given the flat closing on Wall Street, lower oil prices and strong Asian markets we expect a firm opening. As usual, the wild card today will be the inflation data, due to be released at noon. Last week's sharp drop was largely due to a high base effect. In any case, inflation and high prices are more because of supply side constraints rather than too much demand. One also has to keep an eye on global factors like the state of the economy in the US, China and Japan. Plus there is the uncertainty over currency fluctuations globally, particularly the Japanese yen and its fallout on the so-called "carry trades." The market will also be looking forward to the latest quarterly numbers from IT majors Wipro and Satyam and their guidance for FY08.
Fortis Healthcare IPO has been subscribed by only 1.2 times. The IPO closes for subscription today. The IPO of Bhagwati Banquets has been subscribed by just 0.2 times.
FIIs were net sellers to the tune of Rs2.29bn (provisional) in the cash segment yesterday. On the other hand, domestic institutions poured in Rs2.74bn. In the F&O segment, FIIs were net sellers of Rs9.34bn. On Wednesday, they were net buyers of Rs6.4bn. Mutual Funds were net buyers at Rs190mn on the same day.
On Wall Street, the Dow Jones Industrial Average ended at an all-time high on Thursday, closing at a record for the second day in a row. However, the broader market struggled amid worries about global economic growth.
The US stock market was influenced by the declines earlier in the day across Asia and Europe amid concerns that China's economy was overheating. The S&P 500 index's fall ended a five-day advance.
The S&P 500 fell 1.77 points, or 0.1%, to 1470.73. The Nasdaq Composite Index dropped 5.15 points, or 0.2%, to 2505.35. The Dow added 4.79 points to 12,808.63.
US stocks opened lower after Chinese shares slumped the most since the Feb. 27 sell-off. China's economy grew at an 11.1% pace last quarter after a 10.4% rate in the previous quarter, fueling concerns that Beijing could hike interest rates to cool down the red hot economy.
European shares lost ground. The pan-European Dow Jones Stoxx 600 index declined 0.4% to 3824.40. The German DAX Xetra 30 was down 0.5% at 7,242.73, the French CAC-40 lost 0.1% to 5,829.04 and the UK's FTSE 100 shed 0.1% to 6,440.60.
In Brazil, the broader market as measured by the benchmark Ibovespa stocks index closed up 52 points, or 0.1%, at 48762.13. In Mexico City, stocks bounced back to post a modest gain, ending three straight losing sessions. The IPC index climbed 55 points, or 0.2%, to 29614.05.
Asian shares have rebounded this morning from their biggest drop in a month yesterday. The Nikkei in Tokyo was up 87 points at 17,459 while the Hang Seng in Hong Kong surged 234 points at 20,534. The Kospi in Seoul gained 15 points to 1529 and the Straits Times in Singapore jumped 56 points to 3347.
HOW MARKET FARED
Trend unclear
Weak Asian Markets compelled the domestic bourses to open in deep red dragging the benchmark index Sensex to hit a low of 13423.64. Heavy sell off was witnessed in Chinese Shanghai index due to rate hike concerns further dampening the sentiments of the investors on Dala Street. However, the key indices recovered from its days low as buying interest in the Banking and FMCG stocks and index heavy weights like SBI, ITC RIL and Bharti Airtel lifted the markets to close on a flat note. Finally, the 30-share benchmark Sensex slipped 52 points to close at 13619. NSE Nifty was down 13 points to close at 3997.
Advanta India had an excellent debut on the bourse today, likewise ICRA the scrip out performed the frontline indexes. The scrip rose by 32% finally to close at Rs845 hitting an intra-day high of Rs1000 and low of Rs585.35. The Company is an international agronomic seed company with principal operations in India, Australia, Thailand and Argentina, and a subsidiary of United Phosphorus Limited.
Cadila pared its intra-day gains by 0.6% to Rs331. The company announced that they purchased Nippon Universal. The scrip touched an intra-day high of Rs343 and a low of Rs330 and recorded volumes of over 15,000 shares on NSE.
Praj Industries gained 1% to Rs462 after the Company announced that they would set up Europe Venture with Aker Kvaerner. The scrip touched an intra-day high of Rs464 and a low of Rs401 and recorded volumes of over 22,00,000 shares on NSE.
ACC fell lower by 3.3% to Rs788. The company announced its Q1 result with net profit at Rs3.64bn (up 54.8%) and net sales at Rs16.75bn (up 24.8%). The scrip touched an intra-day high of Rs818 and a low of Rs782 and recorded volumes of over 17,00,000 shares on NSE.
IVRCL Infrastructures dropped 1.1% to Rs285. According to reports the company is planning to buy an oil explorer and may spend as much as $500 million for the purchase. The scrip touched an intra-day high of Rs286 and a low of Rs277 and recorded volumes of over 13,00,000 shares on NSE.
Select Capital Good stocks also were on the receiving end. BHEL was down 2% to Rs2446 and Siemens declined 1% to Rs1051. However, Punj Lloyd gained 1.2% to Rs184 after the company secured contract for USD44.90mn and ABB gained 1% to Rs3754.
Pharma stocks also were a mixed bag. Glenmark gained by2.7% to Rs681, Sterling Biotech advanced 3.7% to Rs172 after the company posted a net profit of Rs381mn for the quarter ended March 31, 2007 up 26% and total Income has risen from Rs1.3bn for the quarter ended March 31, 2006 to Rs1.8bn up 38% and Sun Pharma edged higher by 0.6% to Rs1157.
Banking stocks were firm in a volatile. Heavy weight ICICI Bank gained 0.7% to Rs905 and HDFC Bank was up 0.3% to Rs982. Syndicate Bank, PNB, Bank of India were the major gainers among the Mid-Cap stocks.
Technology stocks witnessed profit booking. Frontline stocks Infosys slipped 1.8% to Rs2039, Satyam Computer was down by 3% to Rs447 and Wipro dropped 1.7% to Rs575. However, Mid-Cap stocks like HCL Tech and i-Flex were major gainers.
Insider Trades:
Mercator Lines Limited: Mr. Harish Kumar Mittal, Chairman & Managing Director has sold in open market 250000 equity shares of Mercator Lines Limited on 17th April, 2007
Market Volumes:
The turnover on NSE was down by 4.7% to Rs81.94bn. BSE Technology index was the major loser and lost 0.94%. BSE Auto index (down 0.69%), BSE PSU index (down 0.67%) and BSE Consumer Durable index (down 0.45%) were among the other major losers. However, BSE Bank index gained 0.56%.
Volume Toppers:
IFCI, TTML, Dish TV, SAIL, Advanta, ITC, Aptech, Bank of India, Satyam Computer, NTPC, Tata Steel, R Com, Unitech, Sterling Biotech and Parsvnath.
Upper Circuit:
Deccan Aviation, Tanla, Donear Industries, Zenotesh Labs and Ruby Mills.
Results Today:
India Cement, KM Sugar, Sasken Communications, IDBI, LML, Satyam, Wipro, Vakrangee Software and Shree Renuka Sugar.
Delivery Delight:
Avaya Global, Bharat Forge, CEAT, EXIDE Industries, Glenmark Pharmaceuticals, ICICI Bank, IDBI, Larsen & Toubro, Matrix Laboratories, Ranbaxy and SBI.
Abnormal Delivery:
Mahindra & Mahindra Ltd, Polaris Software Lab Ltd, Bajaj Auto, Videsh Sanchar Nigam Ltd, Reliance Industries Ltd, Nicholas Piramal India Ltd, Federal Bank Ltd and Dr Reddys Laboratories Ltd.
Stock Futures with Largest Increases in OI:
Indian Bank, Andhra Bank, Satyam Computer, Bank of Baroda, Zee Telefilms, TTML, Balrampur Chini, Bank of India and Bajaj Hindusthan.
Stock Futures with Largest Decreases in OI:
Jindal Stainless, SCI, Crompton Greaves, Indian Hotels, Corp Bank, Shree Renuka Sugar, Tata Steel, Jet Airways, JSW Steel and Divi's Laboratories.
Results Corner:
Biocon Q4 profit at Rs607mn (up 27%) and net sales at Rs2.78bn (up 30%)
Sterling Biotech Q1 profit at Rs380.56mn (up 26%), revenue at Rs1.76bn (up 30%)
ACC Q1 profit at Rs3.64bn (up 54.8%), net sales at Rs16.75bn (up 24.8%).
Brokers Recommendations:
Aban Offshore – Buy from Citigroup with target of Rs2850.
UTI Bank – Outperform from Macquaire with target of Rs621.
Long Term Investment:
GE Shipping.
Major News Headlines
FM asks banks to slow loans to stocks, real estate
India to get above normal rainfall this year, according to MET
Zydus Cadila buys Nippon Universal
Kirloskar Brothers gets Rs3.36bn order
HCL Tech to partner with Saudi Arabian Company
Praj Inds to set up Europe Venture with Aker Kvaerner and also plans to acquire Company in Brazil
Punj Lloyd gets contract for USD44.90mn
Simplex Infrastructure gets orders of Rs7.08bn.Bias may remain positive
The market is expected to remain positive with a sideways movement during intra-day trades. While the Asian indices are exhibiting a firm trend in the ongoing trades, the US markets on Thursday struggled amid worries about global growth. Among the key domestic indices, the Nifty is likely to test 4055 on the upside and has a support at 3940. The Sensex has a likely support at 13400 and may face resistance at 13855.
In today's key announcements Exide Industries, Gujrat Ambuja Cement, IDBI, India Cement, Merck, Renuka Sugar, Satyam Computers, Tata Elxsi, Wipro, Zee News are scheduled to report their quarterly numbers.
US indices, the Dow industrials ended at an all-time high Thursday, while the broader market struggled amid China worries and about global growth. While the Dow Jones added 5 points at 12809, the Nasdaq was down 5 points at 2505.
Indian floats, barring Wipro and MTNL fell sharply on US bourses. Patni Computer was the worst performer and tumbled 4.55% while Rediff dropped 3.3%. Infosys, Satyam, Dr Reddy's, ICICI Bank, HDFC Bank and VSNL were down around 1% each. Among the gainers Wipro jumped over 1% and MTNL was up 0.26%.
The Nymex light crude oil for May delivery dropping by $1.30 to close at $61.40 a barrel. In the commodity space, the Comex gold for June series declined by $5 to settle at $688.30 a troy ounce.
Market to track Asian recovery
The market is expected to edge higher following a recovery in the Asian markets, which suffered a heavy fall on Thursday. Asian stocks rebounded on Friday, with investors returning to battered stocks like Canon as global markets took worries about blistering Chinese growth and a possible Chinese interest rate rise in their stride. China's economy grew at an 11.1% annual pace in the first quarter.
Concern about overheating had spooked markets in advance of Thursday's data, but there was no repeat of the global equity sell-off seen in late-February so Asian bourses rallied. China’s Shanghai Composite Index was up nearly 3%. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.4 - 1.6%.
Overnight gains in US stocks also aided the recovery in Asian stocks on Friday. The Dow managed to eke out a small gain and close at a record high for the second day, aided by strong profits from a few healthcare companies. It gained 4.79 points, or 0.04%, to end at a record 12,808.63. But the Standard & Poor's 500 Index shed 1.77 points, or 0.12%, to finish at 1,470.73. The Nasdaq Composite Index fell 5.15 points, or 0.21%, to close at 2,505.35
Wirpo has just now announced a surge in Q4 March 2007 net profit. The net profit as per US GAAP surged 44% to Rs 861 crore from Rs 597 crore in the March 2006 quarter.
Other important March 2007 quarter results due today are Satyam Computer and Gujarat Ambuja Cements (GACL). Stock-specific buying is expected in the near-term, especially during the ongoing earnings season.
The key data due today is that on weekly inflation. India's wholesale price inflation rate is expected at 5.79% for the 12 months to 7 April 2007, higher than an annual rise of 5.74% a week earlier. The annual rate hit 6.69% on 27 January 2007, its highest in more than two years, but has moderated after the Reserve Bank of India (RBI) tightened policy and the government cut duties on a range of items to rein in prices.
India's annual June-September monsoon rains are likely to be 95% of the long-term average, the weather office said on Thursday, PS Goyal, a top Met Department official, told a news conference on Thursday.
FIIs stepped up buying after Infosys gave a strong guidance for FY 2008 in dollar terms, putting to rest concerns about the impact of a slowdown in the US on India's IT sector. Their net inflow in three trading sessions between Monday to Wednesday totaled Rs 2076.90 crore. Their inflow for April 2007, till Wednesday 18 April, totaled Rs 4444.40 crore.
As per provisional figures, FIIs were net sellers to the tune of Rs 229 crore on Thursday (19 April). Domestic institutional investors were net buyers to the tune of Rs 274 crore on Thursday.
Commerce Minister Minister Kamal Nath said on Thursday all service exports would be exempted from service tax. Announcing the annual supplement of the Foreign Trade Policy, Nath said the export target of $125 billion for 2006-07 had been met and the government hoped to achieve $160 billion in the current financial year.
Dow reaches another high recovering from early sell off
Fuelled by good earnings report, Dow stumbles to another high though Asian markets’ sell off leads to a shaky start
U.S. stocks initially fell today but then turned a bit higher as investors shrugged off concerns about overheating in China and global growth and turned their attention towards better-than-expected earnings. The Dow Jones Industrial Average was down as much as 69 points right after the open and up as much as 25 points this afternoon but finally closed the day marginally up at 12,803, setting another record high. U.S. stocks once again closed mixed on Thursday, with Nasdaq and S&P 500 ending in red.
Only 16 out of 30 Dow stocks closed higher today. Six out of ten economic sectors posted losses today. For the day (19 April, Thursday) the Dow Jones Industrial Average closed higher by 4.79 points at 12808.63, Nasdaq lower by 5.15 points at 2505.35 and S&P 500 lower by 1.77 points at 1470.73.
Asian market once again started to haunt the US market after a big Chinese sell-off (4.5%) and Nikkei 225 falling 1.7% and Hong Kong's Hang Seng Index plunging 2.3%. Higher than expected GDP and CPI reports from China initially renewed concerns about the Chinese government coming up with a possible rate hike to combat inflation. The Chinese economy grew 11.1% in the first quarter exceeding expectations for growth of 10.3% and was also higher than the 10.4% growth seen in the fourth quarter of 2006.
On the earnings front, eBay reported higher quarterly results that beat analysts' forecasts and provided an encouraging outlook for the year. Still, its shares traded lower, losing more than 3% during the regular trading session after Deutsche Bank issued a “sell” on that stock. Dow component Merck beat Wall Street estimates, in terms of both topline and bottomline and reaffirmed its profit outlook for the year sending shares modestly higher.
Intel pushes Dow to another record high
Stocks opened lower in the morning with all three indices trading in red. 9 out of 10 sectors were trading lower paced by a 0.7% decline in Materials.
But Health Care gave a good boost within an hour and this changed the momentum to some extent for the market. A relief rally in Amgen, following upbeat results from a study regarding its blockbuster drug Aranesp, provided the bulk of sector support.
During the lunch hours, the Philly Fed checked in and was below forecasts at 0.2% in March. But it did not disappoint investors as the report showed overall activity in the region's manufacturing sector was steady this month and that new orders edged higher.
But Tech continued to give a hard time to the market even today. While market anxiously waited for Google’s result after close, Yahoo lost another 3% today adding to yesterday’s 11%. But one bright spot for tech was Intel which surged 2.2% after being upgraded. Also, Intel was an integral reason the Dow hit a new record again today and why the tech sector's decline was minimal.
Crude prices drop by more than $1.3 on Chinese growth figures and as Enbridge resumes shipment. Crude-oil futures for light sweet crude for May delivery closed at $61.80/barrel (lower by $1.33/barrel or 2.1%) on the New York Mercantile Exchange. Crude prices fell today after Enbridge, which supplies Canadian oil to the U.S. resumed shipments through a pipeline that was shut because of a leak. The upcoming expiration of the May contract at the end of Friday's close also likely intensified oil's latest move. Prices are down 14% from a year ago.
Trading volumes showed 1.6 billion shares exchanging hands on the New York Stock Exchange and 2.1 billion trading on the Nasdaq stock market. Breadth remained negative, with declining issues topping decliners by 20 to 11 on the NYSE and by 9 to 5 on the Nasdaq.
Google handily beat Wall Street expectations and its excellent results took the stock higher in the after-market hours. Like the rest of the week, investors will once again look for corporate earnings to help set the tone of trading for tomorrow when Dow components Caterpillar, Honeywell, McDonald's, and Pfizer report their quarterly results.
Sharekhan Investor's Eye dated April 19, 2007
Monetary policy preview
- The market is currently not expecting another 50-basis-point cash reserve ratio (CRR) hike and we also don't expect the same. The reason why we don't expect any further tightening is because we feel the RBI has already taken action on March 30, 2007, which was completely unexpected, by increasing the repo rate by 25 basis points and the CRR by 50 basis points.
- Further the inflation is expected to moderate going forward and the non-food credit and money supply growth have also shown some moderation, which favour a status quo. If the RBI goes ahead and hikes the CRR again it could be a setback for the markets.
- Liquidity management will remain high on the agenda for 2007-08, with the policy rates such as the repo rate, the reverse repo rate and the bank rate likely to remain unchanged.
- The gross domestic product (GDP) growth estimates for FY2008 could be in the range of 8-8.5% while the target zone for inflation may remain unchanged at 5-5.5%.
- A curb on foreign flows through the lowering of the NRI deposit rates to make them less attractive and lowering the external commercial borrowing limits may be undertaken to control capital inflows at least in the short term as long as the inflation is above the RBI's comfort zone.
- Some mention on the credit and fund flow to sensitive sectors like the commercial real estate may find its place in the policy, as the RBI is very concerned about the escalating real estate prices, which could lead to an asset price bubble.
- We feel the RBI should avoid excessive tightening so that concern over the economic growth potential in the next fiscal doesn't come under serious scrutiny.
STOCK UPDATE
South East Asia Marine Engineering & Construction
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs300
Current market price: Rs205
ONGC contract boosts Q1 performance
Result highlights
- South East Asia Marine Engineering & Construction (SEAMEC) has reported a 107.9% growth in its revenues to Rs56.1 crore for the first quarter ended March 2007. The growth was higher than expectation due to the two-month extension of the contract from Oil & Natural Gas Corporation (ONGC; with relatively high day rates) for one of its vessels.
- The operating profit margin (OPM) slipped from 61.3% to 48.2% primarily due to the incremental cost related to SEAMEC Princess (the fourth vessel that is undergoing modification and that didn't contribute to revenues in Q1). This coupled with the general wage inflation resulted in a four-fold jump in the staff cost to Rs20.2 crore as compared with Rs5.2 crore in Q1CY2006. Consequently, the earnings grew at a relatively lower rate of 61.2% to Rs24.4 crore.
- In terms of the outlook on charter rates, the company expects the day rates to remain firm on the back of the favourable demand environment. Even after the anticipated addition of multi-support vessels (MSVs) by some of the Indian companies (like Great Offshore) there would be a shortage of MSVs in the coming years due to the huge requirement to set up the required infrastructure to transport hydrocarbons produced from the large offshore fields discovered in India over the past few years.
- To factor in the robust performance of Q1 and the higher than expected dry docking expenses indicated by the management, we are revising downwards the CY2007 earnings estimates by 4.9% but maintaining the CY2008 earnings estimates.
- At the current market price the stock trades at 8.8x CY2007 and 5.8x CY2008 estimated earnings. We maintain our Buy call on the stock with a price target of Rs300.
Aban Offshore
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs2,528
Current market price: Rs2,280
Price target revised to Rs2,528
Result highlights
Aban Offshore (AOL) reported a marginal decline in its stand-alone revenues to Rs118.7 crore during Q4FY2007. This is in line with expectations as there was no re-pricing of any asset in the parent company. In fact, one of its assets Aban II was not operational for part of the quarter.
The operating profit margin (OPM) slipped sharply to 40.2% (down from 57.1% in Q4FY2006) due to lower revenues from Aban II, increase in the staff cost (380 basis points) and insurance charges (430 basis points) as a percentage of sales, and extraordinary expenses of Rs7.5 crore (incurred towards the issue of foreign currency convertible bonds [FCCB] and preferential shares).
However, the jump in the other income component to Rs34.9 crore (up from Rs3.7 crore) enabled the company to report a 34.5% growth in its earnings to Rs29.6 crore. The other income was boosted by the foreign exchange (forex) gains (on the forward hedges and FCCB proceeds) of around Rs17 crore. Moreover, the company would also have benefited from the interest on loans given to its Singapore subsidiary, Aban Singapore Pte (ASPL).
On the full year basis also, the stand-alone revenue growth was largely flat at Rs497.5 crore as compared to Rs490.2 crore in FY2006. The OPM declined by 740 basis points to 49.8%. However, the huge jump in the other income to Rs59.2 crore (up from Rs15.3 crore) enabled the company to post a 9.2% growth in the stand-alone earnings to Rs91.5 crore. It should be noted that the stand-alone results do not reflect the complete picture, as the company has been valued at its FY2009 estimated earnings on a consolidated basis.
Along with the results the company has announced the conversion of the $100 million FCCB at a price of Rs2,789 per share. Thus, the dilution in equity would be around 1.5 million equity shares (as against our base case estimate of the conversion at Rs1,400 per share.) Consequently, even though the estimates for FY2008 and FY2009 remain unchanged, the target price is revised upwards to Rs2,528 to factor in the lower than anticipated dilution in equity. We maintain our Buy call
Sharekhan Investor's Eye dated April 19, 2007
Monetary policy preview: Sharekhan Special dated April 19, 2007
Monetary policy preview
- The market is currently not expecting another 50-basis-point cash reserve ratio (CRR) hike and we also don't expect the same. The reason why we don't expect any further tightening is because we feel the RBI has already taken action on March 30, 2007, which was completely unexpected, by increasing the repo rate by 25 basis points and the CRR by 50 basis points.
- Further the inflation is expected to moderate going forward and the non-food credit and money supply growth have also shown some moderation, which favour a status quo. If the RBI goes ahead and hikes the CRR again it could be a setback for the markets.
- Liquidity management will remain high on the agenda for 2007-08, with the policy rates such as the repo rate, the reverse repo rate and the bank rate likely to remain unchanged.
- The gross domestic product (GDP) growth estimates for FY2008 could be in the range of 8-8.5% while the target zone for inflation may remain unchanged at 5-5.5%.
- A curb on foreign flows through the lowering of the NRI deposit rates to make them less attractive and lowering the external commercial borrowing limits may be undertaken to control capital inflows at least in the short term as long as the inflation is above the RBI's comfort zone.
- Some mention on the credit and fund flow to sensitive sectors like the commercial real estate may find its place in the policy, as the RBI is very concerned about the escalating real estate prices, which could lead to an asset price bubble.
- We feel the RBI should avoid excessive tightening so that concern over the economic growth potential in the next fiscal doesn't come under serious scrutiny.
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