Motilal Oswal - Pharma
Thursday, May 10, 2007
Market Close: Yet the same.. Start with a bang and end with a whimper !
All eyes were on ECB and BOE which had their meeting today. Market across saw profit booking. US markets endd up on the back of Fed's decision to keep interest rate unchanged. Indian Indices rallied at the start but selling engulfed after Europe started off weak fuelling the sell off in Indian markets. Buying activity was witnessed across all sectors along with small caps and mid caps. Companies like AIA Engg, Rolta, Everest Kanto, Educomp, Financial Tech etc rallied after the news that they will be in FNO segment from Monday 14th, 2007. Rupee depreciated today as it closed at Rs 41.28 per Dollar.
It was a cautious start in Europe ahead of interest rate decisions. The Bank of England has raised its benchmark interest rate by 25 bps to a six year high of 5.5%. While ECB kept its Interest rate unchanged. Asian Indices closed Tomorrow the UP election results will trickle in. Inflation number is expected to come in at 5.73%. There are talks of a SLR cut. The banking stocks were up in anticipation. There are reports of some policy changes here but really tough to even guess what could that be.
Sensex closed down by 10 points at 13771.23. Weighing on the Sensex were losses in ONGC (889.35,-2 percent), NTPC (151.1,-2 percent), Ranbaxy (385.9,-2 percent), Tata Motors (714.45,-1 percent) and L & T (1690.75,-1 percent). Losses were restricted by gains in HDFC (1680,+5 percent), TISCO (576.25,+2 percent), Bajaj Auto (2609,+2 percent), ITC (163.45,+2 percent) and HDFC Bk (1012.25,+2 percent).
It was a start with a bang and Indices raced up to almost 200 points gain. However after a choppy mid afternoon session, markets tumbled into negative on reports of some large basket selling by an FII. Reasons could be largely excuses attributed to the UP elections uncertainty and to the European Interest rate issues as well.
Maruti Udyog ended a percent lower. The bids for 2.96 cr shares or 10.27% stake in the company which is held by Govt. were invited. The floor price for the sale was placed at Rs.760 per share by the Govt. Shares were issued to 32 bidders out of the 36 bidders who had submitted their bids. Life Insurance Corporation of India which already holds 8% stake in the company was allotted 1 cr shares through the deal. Reliance Mutual was allotted 20 lakh shares. 12.3 lakh shares were given to Punjab National Bank while 10 lakh shares were allotted to HDFC mutual. SBI mutual got 7 lakh shares through this transaction. While Birla MF and SIDBI were not allotted any shares.The average realization for the transaction came to Rs.796 per share. The whole stake generated a revenue of Rs.2,368 to the Govt. The company is already feeling the impact of increased interest rates. The sale of stake is an event which is over with. We expect Maruti to see weakness in the face of increasing competition.
Domestic passenger car sales grew by 11.25 per cent in April at 82,934 units as against 74,542 units in the same month a year ago. Domestic motorcycle sales during the month stood at 4,63,091 units as against 5,12,695 units in the same month a year ago, down by 9.7 per cent. Overall two wheeler sales also dipped by 6 per cent to 5,70,381 units for the month ended April as against sales of 6,06,495 units registered in the corresponding month a year ago. Sale of commercial vehicles in the country grew by 6.5 per cent at 30,836 units as against 28,967 units in the corresponding month a year ago. However, The two wheelers have shown surprising weakness. The Passenger vehicles and CVs have shown strength. We would have actually expected otherwise. Strong interest rates are expected to have an impact in the coming quarters.
Technically Speaking: Sensex ended flat with Breadth in favor of Declines. Rs. 4,289 cr was the Overall term churned in BSE. Sensex Resistance lies at 14,000 levels while the support is at 13,630 levels.
US Home Sales, Fed Rates
Attached is a chart on major housing indicators for the US - housing starts, new home sales and existing home sales. At a trend level (measured by the 12mma of month-on-month growth), all three are de-growing. The sharpest de-growth is visible housing starts, the most closely tracked housing indicator.
The National Association of Realtors' forecast seems to suggest that existing home sales de-growth maybe close to its bottom, new-home sales are likely to witness a far sharper slowdown going forward.
The Fed has noted the cooling off in the housing market . In its March FOMC statement it noted that " Recent indicators have been mixed and the adjustment in the housing sector is ongoing." In its statement for May, to be released at 11:45 pm India time today, it is likely to reiterate the slowdown in the housing market. Rising asset prices had been a key concern for the Fed when it started hiking rates in 2003.
Reliance to unlock some treasury stock
India's largest private company, Reliance Industries, is on a huge fund-raising drive. After completing a preferential issue of 120 million warrants to promoters in February this year for Rs. 16,824 crore, the Mukesh Ambani controlled company is now planning to mop up around Rs 10,000 crore through a combination of convertible bonds and treasury stock.
According to highly placed industry sources, the company is likely to issue foreign currency convertible bonds/ warrants/convertible debentures to be converted within 12-18 months at Rs. 1,900-2,100 a share. The Reliance Industries scrip is trading at Rs 1,597 and the company has the highest market capitalization of Rs. 2,22,557 crore on the Indian bourses.
At the time of conversion, Reliance Industries would use treasury stock and not issue fresh equity in lieu of the convertible instruments, investment banking sources said on condition of anonymity.
Asked about the issue, a Reliance Industries spokesperson said, "We do not wish to comment on market speculation."
After absorbing IPCL, Reliance Industries holds around 13.6 per cent, or 198 million shares, as treasury stock. Since the conversion is planned at around Rs 2,000 per share, the company could issue nearly 20 million shares, which would result in a dilution of the promoters' indirect interest by around 1.2 per cent to 53.8 per cent.
In February, Reliance Industries issued 120 million convertible warrants to its promoter, Mukesh Ambani, at Rs 1,402 per warrant to be converted into shares within 18 months. This will prop up Ambani's stake in Reliance Industries to 55 per cent on an enhanced paid-up capital of Rs 1, 573.5 crore--after the IPCL merger and the warrants issue--from 51 per cent of the current paid-up capital of Rs 1,393.5 crore. With a dilution of 1.2 per cent treasury stock, the promoters' holding will still remain significantly above 51 per cent.
At the proposed conversion rate and on the enhanced equity base, the market capitalisation of Reliance Industries will jump to over Rs 3,00,000 crore at the time of conversion.
The funds thus raised will be invested in the petrochemicals business and also in exploration for and transportation of gas. As Reliance industries embarks upon a massive expansion plan, the company intends to mobilise funds through equity and not entirely through the debt, according to sources.
According to the media report below RIL plans to mop issue FCCB worth INR 100 bn from FCCB @INR1900-2000/share and issue treasury shares in lieu of the same.
We believe that RIL does not require equity issuance to fund its capex programme considering it low debt/equity ratio of 0.2x. Issuing FCCB may not be required until RIL has some larger plans of capex. On the other hand, it is positive if RIL uses treasury shares that it holds with itself (worth INR 300 bn) to issue shares.
Issuance of FCCB without a corresponding capex announcement may be dilutive to current shareholders (less likely). Therefore, we would like to not give too much into the news item until we hear announcements from the company on the same.
We had downgraded RIL to ACCUMULATE from BUY . We believe that the stock has run up too fast and that there is limited upside from current levels. At INR 1600, RIL trades at 21.8x FY08E EPS.
Sharekhan Mutual Funds Report "What's In-What's Out" dated May 10, 2007
An analysis has been undertaken on equity and mid-cap funds' portfolios, indicating the favourite picks of fund managers for the month of April 2007. Equity funds comprise all diversified, index, sector and tax planning funds, whereas mid-cap funds include a universe of 18 funds such as Reliance Growth, Franklin India Prima Fund, HDFC Capital Builder, Birla Mid-cap Fund etc.
Sharekhan Mutual Funds Report "What's In-What's Out" dated May 10, 2007
Market drifts lower as caution prevails ahead of UP poll outcome
In stark contrast to the strong intra-day rebound witnessed on Wednesday 9 May 2007, a late sell-off pulled the market in the red at closing bell. A sudden and sharp fall materialised in the last two hours or so of trade.
Caution ahead of the outcome of assembly poll results in Uttar Pradesh tomorrow, 11 May 2007, and subdued European markets pulled down domestic bourses lower in late trading from earlier strong gains.
As per market talks, there was basket sales worth about Rs 200 crore in Nifty stocks from one of the market participants.
A host of Sensex constituents, ONGC, NTPC, Ranbaxy, Reliance Industries (RIL) and Reliance Energy (REL), came under selling pressure in the second half of the trading session.
The 30-share BSE Sensex lost 10.28 points, or 0.07%, to 13,771.23. Before the sharp slide that materialised at the tail end of the trading session, the market was firm but range bound in afternoon trade, when the Sensex had moved between 13,920 to 13,960, which was a gain of about 140 to 180 points for the day.
Earlier in the day, the market had opened firm, tracking buoyant global markets and on US Federal Reserve’s decision on Wednesday, 9 May 2007, to keep interest rates steady. The Sensex had firmed up further in mid-morning trade and risen almost 200 points for the day.
The S&P CNX Nifty shed 12.50 points, or 0.31%, to 4,066.80. Nifty May futures turned to discount from premium over spot price. Nifty May 2007 futures provisionally settled at 4044.10, a discount of 22.70 points over the spot price. On Wednesday,9 May 2007, Nifty May futures had ended at a premium of 14.05 points over the spot price.
The market breadth ended negative in contrast to a strong breadth earlier during the day: 1,328 shares declined on BSE as compared to 1,238 shares that rose,while 68 were unchanged. Losers outpaced gainers by a ratio of 1.07:1.
BSE clocked a turnover of Rs 4289 crore compared to average daily turnover of Rs 4314.41 crore in the first five trading session of this month( from 3 to 9 May 2007). The average daily turnover was Rs 3931 crore in April 2007.
The Sensex had gained 16.05 points, or 0.12%, to settle at 13,781.51 on Wednesday, 9 May 2007,making a solid rebound from an intra-day fall of 153.42 points. The intra-day recovery on that day followed a similar trend in other Asian markets.
Polling for the seventh and final phase got over on Tuesday, 8 May 2007. Counting of votes is due on 11 May 2007, and results expected the same day. The UP vote is seen as a barometer of national political trends. The state is headed for a hung assembly, exit polls said on Wednesday, 9 May 2007, and ebbing support for Congress, which rules nationally, could see it delay reforms.
European shares fell on Thursday, 11 May 2007, led by declines in mining stocks as bid talk surrounding Rio Tinto evaporated, while banking stocks dipped ahead of two key central bank meetings on monetary policy. The Bank of England raised interest rates to a six-year high of 5.5 percent on Thursday as it voiced concern that diminishing spare capacity in the UK economy and greater pricing power skewed inflation risks to the upside. The European Central bank (ECB) is likely to hold its rates steady at 3.75%, but signal a hike in June in its meeting later (IST) today.
BSE’s sectoral indices were mixed. The metal index rose 139.86 points, or 1.4%, to 10,106.75 on the back of gain in Tata Steel. The FMCG index advanced 15.39 points, or 0.85%, to settle at 1,819.39. The banking sector index, Bankex, moved up 12.55 points, or 0.18%, to 6,863.90.
The oil & gas index lost 74.31 points, or 1%, led by the fall in ONGC and Reliance Industries(RIL). The IT index lost 9.45 points, or 10.9%, to 4,878.17.
Small-cap and mid-cap indices edged up a bit. The BSE Small Cap index gained 32.89 points, or 0.48%, to 6,951.49. The BSE Mid Cap index gained 23.97 points, or 0.4%, to 5,816.12. The two indices have witnessed consolidation of late after their recent rebound.
Oil exploration major ONGC lost 3% to Rs 882. This was in contrast to an early 2.2% rise in the stock to Rs 929.70 that was triggered by reports the government had decided to reduce the subsidy share of upstream companies by nearly Rs 5000 crore.
NPTC, Ranbaxy, L&T, Reliance Industries, Bharti Airtel, Tata Motors and Reliance Energy dropped between 1% to 2%.
TCS shed 0.5% to Rs 1230. The stock had risen as much as 1.8% to Rs 1260 in early trade, boosted by comments by the Federal Reserve that the US economy is growing at a moderate pace, and core inflation, while elevated, is likely to slow.
Car major Maruti Udyog shed 1.3% to Rs 792. The stock had risen as much as 1.1% to Rs 835 in early trade. The Group of Ministers likely to finalise later today the allotment of the government’s residual 10.27% stake in the car maker. The stake is to be sold to banks, mutual funds, and financial institutions.
Housing finance major HDFC, which was up 5.3% to Rs 1681.80, held firm right from the onset of the trading session. Concerns about rising domestic interest rates eased a bit following the Fed decision on Wednesday, 9 May 2007, to keep interest rates steady.
Though Tata Steel was up 2.8% to Rs 578, it was down from the session’ s high of Rs 584.70. The company is seen reporting strong numbers when it unveils its FY 2007 (year ended 31 March 2007) results on 17 May 2007 on higher steel prices. Last month, it had announced an attractively priced rights issue at Rs 300 each in 1:5 ratio.
Bajaj Auto rose 1.5% to Rs 2605 but the stock came off higher level from an intra-day 4% rise. After trading hours today, 10 May 2007, the two-wheeler maker said its board would consider proposal for demerger along with FY 2007 results on 17 May 2007. Bajaj Auto's (BAL) demerger proposal is intended to unlock shareholder value by splitting the manufacturing and financial assets into two separate companies.
Mid-Day Multimedia jumped 7% to Rs 47.70. The stock had declined sharply over the past two days after it had reported a net loss in Q4 March 2007 versus a net profit in Q4 March 2006.
Page Industries rose 20% to Rs 439.95. Page Industries posted a 49% jump in its net profit to Rs. 17.02 crore in the year ended March 2007 compared to Rs 11.39 crore in FY 2006. Net sales shot up 34% to Rs 135.94 crore, from Rs 101.18 crore
Fortis Healthcare inched up almost 1% to Rs 100.95. Volumes in the stock were a huge 54.2 lakh shares on BSE. The stock had settled at Rs 100 on BSE on Wednesday, on its debut, at a discount of 7.4% over the IPO price of Rs 108.
Power Finance Corporation surged on heavy volumes, rising almost 9% to Rs 132.40. On BSE, 49.7 lakh shares changed hands.
Telecoms software provider Subex Azure dropped nearly 4% to Rs 602.95 even as the company said on Thursday, 10 May 2007. it won a contract from telecom services firm mCel in Mozambique to provide fraud management and revenue assurance services.
FCI OEN Connectors jumped 10% to Rs 349.15. Late last month, it had reported a 10.2% growth in net profit to Rs 5.49 crore in Q1 March 2007. Sales rose 27.1% to Rs 49.66 crore (Rs 39.07 crore).
Lupin was flat at Rs 709. The company said today, 10 May 2007, it had made an equity investment in Symbiotec Pharmalab, a company focused on steroids, for a majority stake.
Rolta India, Moser Baer, Patel Engineering, Educomp Solutions and Deccan Aviation were up by between 5% to 10% after their inclusion in the futures and options (F&O) list by the National Stock Exchange from 14 May 2007. This may increase liquidity in these stocks on account of higher interest in them.
United Phosphorus dropped 0.7% to Rs 291.30 after a block deal of four lakh shares was registered in the stock at Rs 297 per share on BSE.
Mahindra Ugine Steel gained 1.4% to Rs 92.20 after a block deal of 10 lakh shares, or 3.1% of the company's equity, on BSE.
GVK Power & Infrastructure jumped 10% to Rs 366.50 after the company said it plans to raise Rs 1221 crore through an issue of shares priced at Rs 325 each.
Sterlite Optical Technologies rose 4.23% to Rs 184 after the company said its export order book for power transmission conductors was at $62 million.
Bharat Gears gained 1.5% to Rs 71.60 after the company said its foreign Collaborator ZF Friendrichshafen AG, Germany had sold its 20% stake in the firm to promoter Surinder P Kanwar on 30 April 2007.
A strong rebound on the domestic bourses had materialised as the initial Q4 March 2007 results were strong and Infosys issued a strong guidance for FY 2008 on 13 April 2007. From 12,455.37 on 2 April 2007, the Sensex had surged 1,773.51 points (14.2%) to 14,228.88 on 26 April 2007. It has since turned volatile.
India’s long-term growth prospects remain strong. The long-term growth drivers are a favourable demography (large share of young population), robust domestic consumption and acceleration in infrastructure creation.
Key economic data due on Friday, 11 May 2007, are of industrial production in March 2007. The market expects between 9% to 11% per annum growth in industrial production in the month. Industrial production had risen 11% per annum in February 2007, which was slightly lower than the 11.4% per annum growth in January 2007.
Another important data due on Friday is inflation. India's wholesale price inflation rate is forecast at 5.73% for the 12 months to April 28, lower than the annual 5.77% a week before. The data will be released at about 12:00 IST on Friday, 11 May 2007.
FIIs were net buyers of Rs 23.30-crore equities on Wednesday, 9 May 2007, in contrast to their outflow of Rs 222.10 crore on Tuesday, 8 May 2007. FIIs had made heavy purchases in April 2007, helping the market stage a solid rebound from lower level. Their inflow in April 2007 totaled Rs 6679.20 crore.
As per provisional data, FIIs were net buyers to the tune of Rs 153.27 crore today. Domestic institutional investors were net buyers to the tune of Rs 386 crore.
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