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Wednesday, July 18, 2007
Sideways movement may continue
The market is likely to witness sideways movement on the back of a strong intra-day volatile moves. Stocks across sectors along with heavyweights may gyrate sharply. Overnight weakness in the US indices and mixed Asian markets in mornings trades may further dampen the investors' sentiment. On the technical side, the Nifty has a stiff resistance at 4525-4550 levels and the downside strong support at 4470-4450, while the Sensex could test higher levels of 15370 and has a likely support at 15190.
Among the major results, Biocon, IL&FS Investment Managers, Reliance Natural Resources, Tanla Solutions and Austin Engineering Company and many more are expected to announce their quarterly numbers.
US indices ended higher on Tuesday, with the Dow Jones gaining 21 points to close at 13972 and the Nasdaq ended 15 points higher at 2713.
Most of the Indian ADRs fell on the US bourses. Reiff was the biggest loser and dropped over 7% followed MTNL declined 3%, while ICICI Bank, VSNL, Patni Computer Tata Motors and HDFC Bank were down around 1% each. However, Infosys soared over 1% while Satyam, Wipro and Dr Reddy's gained around 1% each.
Crude oil prices in the US market edged lower, with the Nymex light crude oil for August delivery down by 13 cents to close at $74.02 per barrel. In the commodity segment, the Comex gold for August series dropped by 40 cents to settle at $665.90 an ounce.
US Market closes mixed but at new highs
Lower crude price weighs on overall market as Dow falls a little shy of 14,000 mark
US Market closed at new highs today, Tuesday, 17 July, 2007, but closed mixed and Dow just fell a little short of touching the 14,000 mark while going into close. Though Dow crossed the 14,000 mark thrice during intra day trading, a drop in crude prices weighed on the Energy sector and the broader market later in the session.
The Dow Jones Industrials closed higher by 20.57 points at 13971.55. Tech heavy Nasdaq gained 14.96 points to close at 2712.29. Yahoo and Intel pushed the index higher ahead of their earnings report which was due after close. But S&P 500 closed marginally lower by 0.15 points 1549.37.
Sixteen out of the thirty Dow stocks closed in green today. Intel, American Express, Microsoft were the top most three Dow winners today.
Johnson & Johnson beat forecasts and backed its full-year profit outlook but lowered its 2007 sales growth guidance. Coca-Cola also checked in better than expected but continued weakness in North American sales weighed on the stock today. Lack of participation from both stocks inspite of beating forecasts failed to push the indices further higher.
The Dow and the Financial sector got an added boost from American Express. It was up nearly 4% after Goldman Sachs upgraded the stock to Buy.
The Producer Price Index unexpectedly fell 0.2% in June, its first decline since January. Market had been expecting a rise of 0.2%.The core PPI, which excludes volatile food and energy prices, rose 0.3%, higher than the 0.2% rise economists had expected. The increase was due in part to rising car and truck prices.
Producer Price Index slips for the first time in five months
When market opened in the morning, stocks open modestly higher as solid earnings reports and more deal making helped investors deal with mixed economic data. The indices extended their reach to the upside as the bulk of key industry leadership remained positive. Of the seven sectors trading higher, Materials paced the way.
Better than expected earnings from Dow components Johnson & Johnson and Coca-Cola and broker Merrill Lynch lent additional proof that Q2 earnings growth will not be as poor as previously thought.
But weakness in Financial sector was noticed after constituent Merrill Lynch shares slipped a bit. Though the share opened up more than 2% after posting a 31% jump in Q2 profits, its CFO later saying the market for subprime debt has yet to stabilize has prompted a reversal in the shares.
Intel and Yahoo, both disappoint Wall Street
After the close, Intel came out with its second-quarter earnings and disappointed investors. Intel said it earned 22 cents in the quarter on revenue of $8.7 billion. Intel shares were almost 4% down during after hours trading. Wall Street wasn't too happy with Yahoo earnings report either. Yahoo said it earned 11 cents a share, down slightly from a year ago and in line with Wall Street estimates.
Crude oil futures were steady today after rising to 11 month highs since the past couple of days. Though crude crossed $75 mark today during intra day trading, it fell in closing hours as gasoline futures slipped to their lowest levels in one month. Crude-oil futures for light sweet crude for August delivery closed at $74.02/barrel (lower by $0.13/barrel or 0.18%) on the New York Mercantile Exchange. Futures retreated from $75.35 reached earlier in the session. Prices are up 21% this year.
Trading volumes showed 1.4 billion shares exchanging hands on the New York Stock Exchange and 2.2 billion on the Nasdaq. Declining issues outpaced gainers by 18 to 13 on the NYSE, while gainers outpaced decliners by 15 to 14 on the Nasdaq.
A host of earnings report and Inflation report from CPI data will help set the tone of trading tomorrow. at 8:30 ET will be June Housing Starts and Building Permits. Energy Dept.'s weekly inventories report at 10:30 ET will also attract some added attention. On the earnings front, Dow components Altria, JP Morgan Chase, Pfizer, and United Technologies will be tomorrow’s headliners.
Intraday Stock Ideas
NIFTY (4497) Supp 4466 Res 4527
BUY Titan (1300) SL 1290
Target 1325, 1335
BUY Gail (326) SL 322
Target 334, 337
BUY HCL Tech (337) SL 332
Target 345, 348
SELL Aurobindo Pharma (725) SL 731 Target 714, 710
SELL Tata Tea (821) SL 827
Target 811, 808
Asian weakness could dampen opening
Make up your mind to act decidedly and take the consequences. No good is ever done in this world by hesitation.
Weakness across Asian markets this morning could cause hesitation at open. High crude oil prices are another source of discomfort. Locally, there is very little to worry about. Concerns of valuations and seemingly over-leveraged positions in the F&O segment are often brushed aside with liquidity coming in. The undertone continues to be positive on the back of strong liquidity and robust economic fundamentals. If you are not leveraged, ride the short-term volatility by staying invested in sound counters. But be careful while making fresh purchases at this stage as it is time to get very choosy.
In the near term, quarterly results will drive the action. Investors will keenly watch the RBI's review of annual monetary policy at the end of this month. We do not expect the central bank to go for any further tightening though it may keep all its options open. A stable interest rate environment or some softening in borrowing costs will only add to the bullishness. However, there may be some cooling largely due to technical factors. Today, we see a slightly lower opening, but things may turn around later in the day.
On Wall Street, the Dow Jones Industrial Average notched up another record for the fourth straight session after having pierced the 14,000 mark for the first time ever. A benign inflation report and several strong earnings reports pushed the key stock indices higher.
Exxon Mobil and Chevron declined after crude oil prices fell from a 11-month peak. About six stocks declined for every five that gained. Energy companies were the biggest drag on the Standard & Poor's 500 Index.
The Dow rose 20.57 points, or 0.2%, to 13,971.55. It had climbed as high as 14,021.95. Year-to-date, the blue-chip US index is up 12.15% and has notched 31 record closes so far. The S&P 500 finished flat at 1549.37. The Nasdaq Composite Index added 14.96, or 0.6 percent, to 2712.29.
Oil prices turned lower, after reaching an 11-month high. US light crude for August delivery lost 10 cents to $74.05 a barrel on the New York Mercantile Exchange. The front-month contract was quoting slightly higher at $74.19 a barrel in the extended trading in Asia.
Treasury prices fell, with the yield on the benchmark 10-year note rising to 5.07% from 5.04% late on Monday. The dollar held near a record low against the euro and was steady against the yen. COMEX gold for August delivery slipped 40 cents to $665.90 an ounce.
European shares declined, led by rate-sensitive financial shares. Industrial and auto shares lost ground as the dollar stayed near recent record lows against the euro. The pan-European Dow Jones Stoxx 600 index slipped 0.5% to 397.63. The German DAX fell 0.8% to 8,038.21. The UK's FTSE 100 closed down 0.6% at 6,659.10 and the French CAC-40 gave up 0.4% to 6,099.21.
In Latin America, Brazilian share prices closed at a fresh record. The benchmark Bovespa stocks index rose 285 points, or 0.5%, at 57,660. In Mexico City, the IPC index of 35 most-traded stocks fell 287 points, or 0.9%, or 31,979.14.
Key Asian markets were down this morning. The Nikkei in Tokyo was down nearly 200 points at 18,017 while the Hang Seng in Hong Kong dropped 24 points to 23,032. The Kospi in Seoul added 2 points to 1951 and the Straits Times in Singapore dipped by 10 points to 3641.
Canon and Nintendo led Japanese exporters lower as the yen strengthened against the dollar. BHP Billiton led mining companies lower after copper prices fell. Posco slid as some investors shrugged off the company's highest quarterly profit in two years and took recent gains as an opportunity to sell.
The Morgan Stanley Capital International Asia Pacific Index lost 0.6% at 11.54 a.m. in Tokyo. All markets open for trading in the region fell except Taiwan, Malaysia and the Philippines.
Three day winning streak came to an end as market lost ground led by fall in the heavy weights like Reliance Communication, Tata Steel, Bharti Airtel, BHEL and SBI. Further weak European markets also dampened the sentiments of the traders on Dalal Street. After staying strong till afternoon trades key indices pared all its early gains as all round selling dragged the market down. Finally, the 30-share Sensex declined 21 points to close at 15290. NSE-50 Nifty slipped 15 points to close at 4497.
Reliance Industries gained 3% to Rs1827 on news of a new gas discovery in the Cauvery basin. The scrip touched intra-day high of Rs1838 and a low of Rs1780 and recorded volumes of over 6,00,000 shares on NSE.
RPG transmission slipped 1.6% to Rs284. According to reports the group has announced that to invest Rs120bn in Power. The scrip has touched intra-day high of Rs308 and a low of Rs281 and has recorded volumes of over 32,000 shares on NSE.
MTNL declined by over 2% to Rs164. The company announced that they would pay 10% dividend. The scrip touched intra-day high of Rs170 and a low of Rs164 and recorded volumes of over 11,00,000 shares on NSE.
R Com slipped by 2.3% to Rs560. The company announced that they would spend Rs160bn on expansion this year, also yesterday announced that it has purchased Yipes Communication for $300mn and added 20mn users in last one year. The scrip touched intra-day high of Rs579 and a low of Rs559 and recorded volumes of over 17,00,000 shares on NSE.
Jubilant Organosys has gained by 1.8% to Rs314 after the company announced its Q1 result with net profit at Rs1.43bn (up 210%) and revenue at Rs5.4bn (up 31%). The scrip has touched intra-day high of Rs322 and a low of Rs307 and has recorded volumes of over 98,000 shares on NSE.
Banking stocks were also on the receiving end led by fall in the heavy weight SBI declined by over 1.8% to Rs1583, HDFC Bank was down 1.5% to Rs1199 and OBC declined by 1.5% to Rs256.
Select Realty stocks managed to hold on to its gains. IB Real Estate surged by over 6% to Rs592 and Akruti advanced by 5% to Rs516. However, DLF was down by 0.2% to Rs610 and Parsvnath declined by over 3.5%t o Rs365.
IT stocks recorded smart gains despite strengthening rupee. TCS surged by over 2.5% to Rs1154 after the company yesterday announced its Q1 result with net profit at Rs11.8bn (up 37%) and revenues at Rs52bn (up 26%), Satyam Computer gained by 1.6% to Rs489 and Infosys added 0.3% to Rs1938.
Metal stocks witnessed profit booking. JSW Steel slipped by 3% to Rs699, Sterlite industries dropped by over 4.5% to Rs633, Tata Steel was down by 2% to Rs681 and SAIL lost 3% to Rs153.
Auto stocks were in reverse gear as US light crude for August delivery added 22 cents to $74.15 a barrel on the New York Mercantile Exchange. Bajaj Auto dropped 1.5% to Rs2223, Tata Motors was down by 1.5% to Rs748 and Maruti edged lower by 0.5% to Rs824.
Results Today:
Alembic, Anant Raj Industries, Areva, Biocon, Four Soft, HEG, Hexaware, IDBI, IL&FS Investment Managers, Infotech Enterprises, Plethico, Polaris, Reliance Energy, RNRL, Sona Koyo, Tamil Nadu Newsprint & Papers, Tanla, Texmaco, Themis Medicare and Wipro.
Fund Activity:
FIIs were net buyers of Rs3.59bn (provisional) in the cash segment on Tuesday. On the other hand, local institutions were net sellers at Rs1.65bn. From the F&O segment, FIIs pulled out Rs875.3mn.
On Monday, FIIs poured in Rs16.6bn in the cash segment. Mutual Funds were net sellers of Rs3.72bn.
Major bulk Deals:
Credit Suisse and Kotak have sold Celestial Labs; CLSA and Crown Capital have picked up McDowell Holdings; HSBC Financial has purchased Nitco Tiles; Macquarie Bank has sold SB&T International; Prudential ICICI MF has picked up Solectron Centrum while Fidelity has sold the stock and Morgan Stanley has sold Sujana Metal.
Insider Trades:
ANG Auto Limited: Funds under the management of FMR Corp and its direct and indirect subsidiaries and Fidelity International Limited and its direct and indirect subsidiaries has purchased from open market 198019 equity shares of the company on 10th July, 2007.
Lower Circuit:
ESS DEE Aluminum, Radha Madhav and Prism Cement
Upper Circuit:
Noida Toll, Goldstone Tech, Crisil, Yashraj Containers, Vyapar Industries, Pearl Global, IID Forgings and Jaybharat Textiles.
Delivery Delight (Rising Price & Rising Delivery):
Bank of Baroda, HCL Tech, ICICI Bank, Satyam and Titan Industries.
Abnormal Delivery:
Sadbhav Engineering, Bank of Baroda, HCC, Mahindra Gesco, Mangalam Cement, BPCL, APIL, Canara Bank, TCS and Cipla.
Major News & Announcements:
RIL confirms gas discovery in Cauvery basin
R Com to spend Rs160bn on expansion this year
L&T bags another order worth Rs9.8bn from Tata Steel
Confidence Petro plans to raise $30mn overseas
Tata Tea Q1 profit at Rs430mn (down 3.5%) and revenue at Rs2.9bn (up 14.1%)
Satyam gets 4 major deals from Singapore, Australia & Gulf
RPG group to invest Rs120bn in power - Reports
Jubilant Organosys Q1 profit at Rs1.43bn (up 210%) and revenue at Rs5.4bn (up 31%)
Rupee Impact
It’s yet another earnings season and the appreciating rupee seems to have cast its long shadow over many companies—especially those that are heavily dependent on export revenues.
But how serious could the problem be in the long term? The general reaction seems to be uniformly pessimistic. Equity analysts have been busy cutting profit projections for software and pharmaceutical firms, and the early quarterly results show definite cause for concern. Business lobbies have sent dark warnings to the government about how small garment and textile exporters are headed for deep trouble. And the government is in the process of providing some fiscal sops to exporters hit by the rising rupee. Meanwhile, to provide a more optimistic view, economists are wondering whether a strong currency will actually bring down domestic inflation.
There is a common thread in these expectations—the assumption that a strong rupee will have a deflationary impact on Indian companies. Export revenues (and hence total revenues) in terms of rupees will be lower than expected. And cheaper imports will restrict the ability of companies to raise the prices of the stuff they sell. In other words, a strong rupee will hinder growth and help curb inflation.
These assumptions are well within the traditional debates on the impact of currency movements on the real economy of output and prices. But, are there other possibilities? By focusing exclusively on the deflationary effects, the current debate has ignored the other possibility—that a strong currency can, in certain cases, dramatically help certain companies (though with a lot of attendant risks).
The trick is to look not just at the revenue statements of companies, but also at their balance sheets. Many large companies that have borrowed money abroad in recent years are likely to benefit from the strong rupee. The value of their foreign debt in rupee terms will drop because of a sustained rise in the value of the Indian currency, helping lower capital costs.
Indian balance sheets have become increasingly globalized over this decade, as rising foreign exchange reserves have emboldened the government and the Reserve Bank of India (RBI) to allow domestic companies to borrow and buy abroad. A lot of fawning attention has been paid to this globalization on the asset side. International acquisitions make for good headlines and feed nationalist pride.
But an equally dramatic dose of globalization is evident on the liabilities side, too. Indian companies have borrowed billions of dollars over the past few years, through external commercial borrowings and convertible bonds. Much of this has been contracted in dollars—and has to be repaid in that currency. The value of this debt in rupee terms will drop as the Indian currency appreciates—companies will need fewer rupees to repay it.
This means the rise of the rupee will lead to significant savings for companies that have piles of foreign debt in their balance sheets. But rather perversely, it is the companies that have been on a global borrowing binge that will gain in comparison to those that have little debt on their books. Financial adventurism will pay more than financial prudence—at least till the next global financial earthquake shakes the adventurers out of their comfort.
Yet, till then, it would be interesting to see whether gains on the balance sheets of Indian companies more than cancel out the losses that will pop up in the revenue statements. Only then will we know for sure whether the negative effects of a strong rupee are as serious as currently assumed.
Does this seem far-fetched?
Look at what happened in East Asia in 1997 to see a mirror image of today’s dilemmas in India. Stable currencies and premature capital account convertibility in the early 1990s acted as an incentive for companies in the region to rush abroad to borrow at low interest rates. This cheap money was used to finance domestic investments. By the middle of 1997, many of the biggest companies in the region had warped balance sheets—with assets in local currencies being funded with dollar liabilities. They were sitting ducks in the event of a currency crisis.
And that’s precisely what happened. The sudden and sharp drop in regional currencies 10 years ago tore these balance sheets to tatters. The devaluation of Asian currencies thus led to an investment crunch and worsened the macroeconomic crisis. In other words, Asia in 1997 is almost a mirror image of India in 2007. The question is: Will currency appreciation have positive balance sheet effects just as currency depreciations had negative effects 10 years ago?
In other words, the situation is far more complicated than commonly assumed. It will be interesting to see how currency appreciation works itself through corporate revenues and balance sheets in India in the quarters ahead. In fact, a further rise in the rupee could pay large Indian companies a huge dividend at the cost of global banks and bond investors.
UBS - Idea Cellular
UBS on Idea Cellular,
Pure-play wireless operator
Our bullish view on Idea Cellular is based on its pure-play wireless business that has the potential to perform significantly better than the past, strong brand and a solid management team led by Mr. Sanjiv Aga and Mr. Anil Jhala that is focused on execution. Industry participants view Idea as the operator that has made significant strides in execution, that bodes well for shareholder value creation.
Idea has under achieved in the past = Significant upside potential The company has been historically marred by shareholder issues - three different shareholders in AT&T, Tatas and the Birlas each with different and conflicting objectives. With the Birla firmly in control of the company, we expect the focus and execution to improve significantly.
1Q08 results preview
Idea will announce 1Q08 results on July 24, 2007. We forecast revenues of Rs14.6b (growth of 9% qoq), EBITDA of Rs5.0b (growth of 6% qoq), and net income of Rs1.3b (decline of 31% qoq).
Valuation: Reiterate Buy with Rs.175 price target We maintain our estimates and Buy rating on Idea. We have revised our target price to Rs.175 (from Rs150) as we roll forward our DCF valuation to September 2008 assuming WACC of 10.8% and terminal EV/EBITDA of 6.5x. We rate Idea as one of our top picks in Asian telcos space.
Watch out for market unwinding
The markets opened on a subdued note and closed with minor losses as the benchmark indices surrendered their mid day gains on the lack of buying conviction within the bull camp. Traded volumes were higher than the previous session, which is a sign of caution coming on the back of a downtick session.
The negative market breadth confirms the weakness in the undertone as the BSE & NSE combined figures stood at 1335 : 2440. The capitalisation of the same was also negative as the combined exchange figures were Rs 8269 crs : Rs 10085 crs.
The F&O data for the previous session saw a net increase in long positions by 4.35 per cent amid lower volumes and a steady PCR.
The markets have not recovered from the weakness of the last hour of selling on Friday (July 13) and the charts have displayed a bar reversal as per western charts and a gravestone doji formation as per Japanese candlestick charts.
These are negative portends as the markets are now showing no signs of buying momentum that is required to keep up the bullishness.
My view remains as per yesterday’s forecast that rallies are likely to be elusive in the near term as the markets are appearing to shift gears and move closer to consolidation.
Whether this consolidation will turn to distribution, the coming few sessions will tell. Traders are cautioned again about enhancing exposure on the long side as the markets are appearing top heavy for now.
The outlook for the markets on Wednesday is that of abundant caution as some unwinding is likely to be seen in the near term. I continue to advocate abstinence from fresh aggressive long positions in the near future.
Intel profit falls
Intel Corp., the largest maker of computer processors, posted a 44 percent rise in quarterly profit on Tuesday but gross margins missed its target and shares fell nearly 5 percent.
The numbers underscored the challenges Intel still faces despite having clawed back market share in a continuing, bruising price war with rival AMD and despite restarting profit growth after five quarters of slumping performance,
Profit margins were hit as lower prices for personal computer processors and weak demand for memory chips for mobile telephones offset higher revenue and unit volumes.
Expectations that the technology bellwether is on the rebound have sent Intel shares up 30 percent so far this year, and almost 9 percent in the last month alone.
"It's definitely a mixed bag because the stock has been so strong. Given the strength, it was going to be very difficult to please Wall Street with performance and outlook," Stifel Nicolaus analyst Cody Acree said.
"Of course margins will expand, it's just a question of what will be the trajectory. Right now they are keeping expectations pretty low," Acree said.
Gross margin in the second quarter was 46.9 percent, short of the company's forecast of 48 percent. Intel said it expected the margin to be 52 percent, plus or minus "a few points," in the third quarter.
"We did see more pricing pressure than we expected, and that depressed margin by one point," Intel Chief Financial Officer Andy Bryant said, adding that weakness in flash memory also contributed to the low margin.
For its second quarter, Intel posted net earnings of $1.3 billion, or 22 cents per share, compared with $885 million, or 15 cents per share, a year earlier. Excluding a special gain of 3 cents per share related to a tax item, Intel's profit was 19 cents per share, in line with the average estimate.
Revenue was $8.7 billion, up 8 percent from a year earlier, and higher than the $8.5 billion forecast by Wall Street.
Intel, which lost market share to smaller rival Advanced Micro Devices Inc., has fought back with a slate of new chips and price cuts on older ones. AMD countered by slashing prices, and is set to roll out a new processor in August.
"They (Intel) had lower average selling prices, which I'd say reflects their move to sell older product or could be due to a more competitive AMD," said Jane Snorek, an analyst with First American Funds.
Margins also could have been hit by a shift away from more profitable notebook computers toward desktops, as well as a faster roll-out of advanced production techniques, which carry high start-up costs.
"We know they've been accelerating that and it does affect gross margin. And the fact that they are predicting such a large jump in gross margins, that would come with higher volumes following the ramp," said JoAnne Feeney, managing director with FTN Midwest Securities.
Intel also said it expected revenue for its current quarter to be $9 billion to $9.6 billion, compared with analysts' forecasts of $9.1 billion to $9.9 billion, as compiled by Reuters Estimates.
Intel shares, which rose 1.5 percent in regular trading to close at $26.33 on Nasdaq, fell 4.9 percent to $25.05 in extended trading after the results were announced. Shares in Intel have risen 30 percent so far this year, compared to a fall of 22 percent in those of AMD.
American Technology Research analyst Doug Freedman said Intel's profitability contrasts with what is expected to be another loss at AMD when it reports this Thursday.
"It's pretty clear who's won the battle," Freedman said.
Alpa Laboratories Limited
Qualified Institutional Buyers (QIBs) - 0.1789 times
Non Institutional Investors - 1.9922 times
Retail Individual Investors (RIIs) - 2.1404 times
OVERALL - 1.11 times
WHY ? Why did anyone apply in this? Did we not mention in Grey Market Premiums that this is going to trade at a discount ?
Tuesday, July 17, 2007
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