The power of hope!

I hope our wisdom will grow with our power, and teach us, that the less we use our power the greater it will be. – Thomas Jefferson.

A week after its disappointing listing, there is some hope for Reliance Power investors. In a desperate attempt to boost investor confidence and shore up the Ambani brand, the Anil Dhirubhai Ambani Group is using all the power available. A board meeting on Feb 24 will consider issue of bonus shares to all investors, excluding the promoters
We see a positive opening today on the back of a firm trend across Asian markets. Wall Street emerged unscathed despite some negative news. However, other world markets actually closed in the red on bleak US economic reports. This week may be critical for the bulls. It remains to be seen if they can continue the momentum of last week or will cave in once again to any fresh onslaught from the bears.

Among other news, UTV will make a strategic announcement with a large media entity later today. Meanwhile, reports suggest that US media giant Disney is keen on raising its stake in the Indian entertainment and media company.

Ess Dee Aluminium will also be in action amid reports that it is likely to acquire India Foils from the Anil Agarwal promoted Madras Aluminium. Canara Bank is also expected to do well as the RBI has allowed fresh buying by overseas investors.

TVS Motor will be on the backfoot after the Madras High Court restrained the company from making and selling the 125 cc bike, Flame. The court passed the order on a suit filed by Bajaj Auto.

Sesa Goa is likely to gain amid reports that Japanese steelmakers, led by Nippon Steel Corp., have reportedly agreed to a 65% increase in annual iron ore prices. Shares of KNR Constructions Ltd. will get listed on the bourses today.

The bulls showed admirable resilience last week after a week start. The Sensex and the Nifty gained more than 3.5% each, buoyed by short-covering and a rebound in global equity markets. The recovery process may continue in the lead up to the budget.

Last week's rally was led mainly by short covering. The key indices have to sustain the positive momentum for a few more days to qualify the current rally as a fresh intermediate up-trend. Though the sell-off by the FIIs has tapered off, the same may resume on any fresh bad news on the US economy.

Remember the proverb 'one swallow doesn't make a summer'. Be careful in interpreting last week's rebound, lest one will have to repent later. Wait for some more positive signals before jumping to any conclusions regarding the market's direction. At the same time, long-term investors may consider picking up quality stocks at current levels, albeit at a gradual pace.

Next week will again be a big one, as the Government will announce the Railway Budget and Union Budget for FY09. Historically, our market witnesses a small pre-budget rally. This hasn't been the case so far due to global concerns. The tradition may resume as we still have a few days to go before the B-day. But, for that to happen, we should not get any further bad news from the US, which is a bit too much to ask for given the outlook for the world's biggest economy.

FIIs were net buyers of Rs2.61bn (provisional) in the cash segment on Friday. Local institutions were net buyers of Rs1.39bn. In the F&O segment, FIIs were net buyers of Rs1.74bn. On Thursday, foreign funds pulled out Rs11.83bn from the cash segment.

Most Asian markets are trading up this morning despite the fresh set of negative economic reports emanating from the US. The Nikkei in Tokyo was up 174 points at 13,797 while the Hang Seng in Hong Kong gained 248 points to 24,396. The Kospi in Seoul added 17 points to 1711 and the Straits Times in Singapore rose 30 points to 3118. The Shanghai Composite in China was up 50 points at 4548 and the Taiex in Taiwan gained 87 points at 7963.

US stocks ended lower on Friday but managed to register weekly gains after declines in US consumer confidence and factory activity in the New York region revived worries about the threat of a recession.

The Dow Jones Industrial Average dropped 28.8 points, or 0.2%, to 12,348.2, giving the blue-chip index a weekly jump of 1.4%. The S&P 500 reversed course in the final moments of trade, to finish mostly flat at 1,349.99, a gain of 1.4% from the prior week.

The Nasdaq Composite shed 10.74 points, or 0.5%, to 2,321.8, giving the technology-laden index a 0.7% rise on the week.

Trading was fairly quiet ahead of the long holiday weekend. All financial markets in the US will be shut on Monday for the Presidents' Day holiday. On Tuesday, reports are due on consumer prices, housing starts and building permits. Also, quarterly earnings are due from Wal-Mart and Hewlett-Packard.

The New York Empire State index, a regional manufacturing report, showed a surprise reading of -11.7 versus forecasts for a positive reading of 7. A negative reading suggests contraction in the sector.

In addition, the University of Michigan's February consumer sentiment index showed a bigger-than-forecast drop to 69.6 from 78.4 in the previous month. Economists had forecast a fall to 76.5.

Industrial production almost stagnated, according to another government report that showed flat capacity utilization in January. And finally, January import and export prices jumped from the previous month, according to another report.

FGIC Corp., one of the largest bond insurers in the world, asked to be split in two, possibly separating its municipal bond business from more troubled exposures that have been hit hard by the mortgage crisis.

Leading US electronics retailer Best Buy cuts its full-year earnings forecast, citing weaker-than-expected revenue growth in January.

Market breadth was negative. On the NYSE, decliners beat advancers 9 to 7 on volume of 1.5bn shares. On the Nasdaq, losers beat winners 9 to 5 on volume of 2.03bn shares.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.78% from 3.8% late on Thursday. In currency trading, the dollar fell versus the yen and euro. US light crude oil for March delivery rose 4 cents to settle at $95.50 a barrel in New York.

Gold futures ended lower. Gold for April delivery dropped $4.70 to end at $906.10 an ounce.

Platinum futures extended their record-breaking run, spurred by persistent worries about supply disruptions in South Africa. Platinum for April delivery soared as high as $2,079.90 an ounce, beating the previous record set on Thursday. The contract finished up $57.80 at $2,063.70 an ounce. Platinum futures soared $179.70, or nearly 10%, this week from last Friday's closing level of $1,884.

Stocks in Europe closed sharply lower. The pan-European Dow Jones Stoxx 600 index dropped 1.9% to 317.46. The UK's FTSE 100 shed 1.5% to 5,791.20, the French CAC-40 fell 1.9% to 4,767.28 and the German DAX 30 slid 1.8% to 6,835.18.

Most emerging markets too ended in the red. The Bovespa in Brazil was down 0.9% to 61,271 while the IPC index in Mexico fell 1.35% to 28,744. The RTS index in Russia slipped 1.8% to 1989 while the ISE National-30 index in Turkey plunged nearly 3% to 55,322.

Not another manic Monday

On Friday bulls extended their gains to third straight trading session tracking firm cues from the Asian and European markets also buying momentum in the large cap stocks towards the end lifted the nifty index to close above the 5,300 mark. Finally, the 30-share Sensex closed at 18,115 surging 348 points. The NSE Nifty closed at 5,302 adding 100 points.

Overall about 1,988 stocks advanced, 759 stocks declined while 46 stocks remained unchanged. Among the BSE 30 index 25 stocks advanced while 5 stocks declined.

Igarashi Motors rallied by over 13% to Rs77 after the company announced that it agreed to venture with Robert Bosch. The scrip touched an intra-day high of Rs78 and a low of Rs68 and recorded volumes of over 86,000 shares on NSE.

Refinery stocks continue to be in demand as Government hiked petrol and diesel prices by Rs2 per litre and Re1 per litre respectively. IOC surged by 4.5% to Rs561, HPCL gained 3.5% to Rs309 and BPCL added 1% to Rs469.

Telecom stocks also ended with gains. Report stated that DOT planned to change spectrum usage charges levied on telecom companies, to a fix percentage of revenue for each category circles. Rcom gained 0.5% to Rs612, Bharti Airtel gained 0.6% to Rs882, Idea advanced 3.5% to Rs112 and Tata Communication added 1.1% to Rs508.

Hanung Toys gained 3% to Rs204 after the company announced that it opened their first Retail store for soft toys in Delhi on February 14, 2008. The scrip touched an intra-day high of Rs209 and a low of Rs191 and recorded volumes of over 12,000 shares on NSE.

Bhushan Steel was down 0.3% to Rs1035. The company announced that it proposed to execute MOU with wholly owned Undertaking / Govt. of Madhya Pradesh for setting up manufacturing facilities in the state of Madhya Pradesh for 1 MTPA Coke Oven Plant and 5 MTPA Cement Plant, with the total investment of approximately Rs40bn in phases. The scrip touched an intra-day high of Rs1055 and a low of Rs988 and recorded volumes of over 43,000 shares on NSE.

Cadila gained 1.7% to Rs251 after the company announced that it introduced an NDDS product 'Nudoxa' for the treatment of various cancers. One of the critical drugs used in chemotherapy, Nudoxa heralds a new approach in cancer therapy. With chemotherapy being a common mode of treatment in cancers, there has been a long standing need for a drug that is stable and long lasting with reduced toxicity and side effects. The scrip touched an intra-day high of Rs254 and a low of Rs245 and recorded volumes of over 6,000 shares on NSE.

News Snippets:

Coal India would have to spend Rs18bn for import of 200mn tons of coal in the 11th plan.(BS)

Jindal Power, a subsidiary of the BC Jindal group, plans 4,500MW generation capacity in four years.(BS)

Gammon India sets up a logistics company and plans to invest Rs3bn in the first year.(Mint)

Ambuja Cements to invest Rs35bn on capacity expansions; total production capacity seen at 25mn tons pa in two years.(TOI)

Reliance Industries has completed 94% of drilling for production of natural gas from its KG-D6 block.(ET)

Jindal Saw would invest Rs3.5bn to expand its seamless tube business.(DNA)

NTPC to expand generation capacity to 55,000MW by end of 11th plan; aims to produce 75,000MW by 2017.(BL)

Rural Electrification Corp seeks a partner an infrastructure firm to enter electricity distribution.(ET)

The Government withdraws the facility to SBI to use its rights issue bonds for meeting the mandatory SLR requirements.(FE)

Canada has asked a Ranbaxy subsidiary to withdraw its generic painkiller from the market due to safety concerns.(BS)

Tech Reliance, the IT arm of Reliance Communications is likely to have an alliance with Accenture.(DNA)

Tata Advance Systems forms an alliance with EADS to bid for Indian Army’s US$1bn advanced tactical communications systems.(FE)

Emami may acquire an overseas firm in the hair care segment for Rs6bn.(DNA)

Tata group has tied-up with US helicopter firm Sikorsky to manufacture chopper cabins in India.(TOI)

L&T Infotech, the IT arm of L&T, says would acquire a US firm in the manufacturing vertical for US$300mn within a year.(BL)

GAIL India studying the possibility of floating a subsidiary to set up CNG outlets along the highways where it has its pipelines.(BS)

Maharashtra Seamless will set up billet plant.(DNA)

Shell to expand capacity of its LNG import terminal at Hazira to 3.5mn tons over the next few months.(FE)

Hindustan Construction Company and Dabur plan to foray into wine business.(TOI)

Canara Bank plans to foray into broking business.(ET)

Binani Cement acquires a plant in Dubai.(BL)

Economic Front Page

Government says the issue of granting of SLR status to oil bonds under consideration.(FE)

CMIE revises down GDP growth estimate to 8.9% for FY08 from 9.1%.(BL)

Drug price regulator to focus on pricing trends of 74 bulk drugs that come under government notified price controlled list.(BS)

Auction of telecom spectrum legally possible, says Finance Ministry.(BL)

Income Tax department suggests differential dividend distribution tax on companies in its pre budget suggestions to CBDT.(BS)

Finance Ministry is planning to withdraw the Rs300 per ton export duty on iron pellets.(ET)

The Government is considering a sovereign investment fund with an initial corpus of US$5bn to acquire companies abroad.(ET)

Textiles and apparel exports grew marginally by 1.5% in CY07 as against 9% last year.(BS)

Iron ore exports drop by 2.6% in the eight months to November to 53mn tons.(BL)

The Government is preparing the largest agricultural debt relief package, worth Rs320bn; proposals may be unveiled in forthcoming budget.(Mint)

Sugar production is estimated to have decline by 0.9mn tons in the first quarter of 2007-08.(ET)

The Government will allow companies to raise funds abroad against the value of their investments in shares of listed group companies.(FE)

The Government is likely to review the banking cash transaction tax.(ET)

Commerce Ministry is not in favour of an across-the-board cut in the basic customs duty and has called for selective cuts on certain imported products.(BS)

Today's Pick - Tata Communications

We recommend a buy in Tata Communications from a short-term perspective. It is clearly evident from the charts of this company that it had been on a medium-term uptrend between August 2007 and early January 2008 (from a low of Rs 360 to a 52-week high of Rs 783). However, the stock reversed direction from this peak and has been on a downtrend since then. This downtrend got arrested around Rs 450 level, recently. Supported by positive divergence in the daily momentum indica tor, the stock is currently in a short-term up-trend since the trough at Rs 450. The daily momentum indicator has entered the neutral region from the bearish zone and the weekly momentum indicator has bounced up from 40 levels. We notice a crossover in the daily moving average convergence divergence, which indicates establishment of bullishness. We are bullish on the stock in the short-term. We expect it to continue further to our target price of Rs 595 in the short-term. Investors with a short-term perspective can buy the stock with stop loss at Rs 445.

Via Businessline

Precious metals end week down

Gold prices fall as sellers step in before extended holiday weekend

Bullion metals ended lower on Friday, 15 February, 2008. The drop in precious metal prices was mainly witnessed due to the sell-off that was spurred for the early close of many markets on Friday and the close of all markets for the Presidents' Day holiday on Monday, 18 February. Silver prices ended lower for the day.

Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength.

Comex Gold for April delivery fell $4.7 (0.5%) to close at $906.1 an ounce on the New York Mercantile Exchange. On 30 January, 2008 prices had hit a high of $941 in the after hours trading. This year, prices have gained 9% till date. In January, prices gained 11%, the highest monthly gain since April 2006.

For the week, gold prices suffered a loss of $16.2/ounce (1.8%). Last week, gold prices closed higher by $8.8 (0.96%) against previous close of $913.5.

Comex Silver futures for March fell by 13.8 cents (0.8%) to $17.118 an ounce. Silver has gained 13.5% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years. In January this year itself, prices climbed 14%.

U.S. stocks fell on Friday after reports showed confidence among U.S. consumers fell to a 16-year low and manufacturing in New York contracted this month for the first time in almost three years.

Gold had been dropping since this week after the Group of Seven officials meeting in Tokyo over the last weekend said they supported the International Monetary Fund's effort sell its gold reserves in order to invest in higher-yielding assets. The IMF is the third largest holder of gold in reserves after the U.S. Federal Reserve and the German central bank.

As per the London-based World Gold Council, the global gold demand dropped to 843 metric tons from 1,013.4 tons in the last three months of 2007. Buyers from India, the world's biggest user, reduced purchases by 64% in the last quarter to 83.9 tons. About 68% of gold demand last year came from jewelers and jewelry use dropped 17% in that time.

Gold might rebound in the coming week on speculation a slowing economy will spur the Federal Reserve to lower borrowing costs in the U.S, boosting the appeal of the precious metal as an alternative investment to the dollar.

Crude ends week 4% higher

Prices are almost $8 more than this month’s low

Crude prices ended higher for the week that ended on Friday, 15 February, 2008. Prices ended higher by $3.7 (4%). Price rose and fell initially earlier in the week but the movement was restricted to one dollar or a little more than that.

Prices rose during the week due to a couple of factors. In the earlier part of the week, threat by Venezuelan President to cut off oil supplies to US and shutdown of a refinery by Valero Energy were the major reasons for this rise. Venezuela is South America's second largest oil producer and one of the world's top exporters to the U.S.

In the second half of the week, price rose after EIA’s weekly inventory report showed that crude stockpiles for last week rose less than expected.

For the week ending Friday, 08 February, crude-oil futures for light sweet crude for February delivery closed at $95.5/barrel (higher by $0.5) on the New York Mercantile Exchange for the day. Prices fell to $93.29 during intra day trading. Earlier in February, prices slipped to $87/barrel.

As per the weekly inventory report by EIA on Wednesday, U.S. crude inventories rose for a fifth week, up 1.1 million barrels to 301.1 million barrels in the week ending 8 February. Market was expecting a rise of 2 million barrels. U.S. crude imports averaged 9.7 million barrels per day last week, down 777,000 barrels per day from the previous week. U.S. refineries operated at 85.1% of their operable capacity last week, up from the previous week's 84.3%.

In a monthly report released this week, EIA said the world oil market is poised to ease over the next two years with production increases offsetting moderate growth in oil demand.

Last week, two ministers of Organization of Petroleum Exporting Countries (OPEC) hinted that the cartel might go for a production cut in its next meeting at March, 2008. At its 1 February meeting at Vienna, OPEC members decided to keep current output levels unchanged.

An eventful week for US Market

Market manages to eke out some gains despite cautious comments coming from Fed Chairman

Lots of events dominated the US during the week that ended on Friday, 15 February, 2008. But the best part was that indices registered gains for the week after, each shedding more than 4% last week. Market closed higher in the first three days of the week but slipped in the later two.

The Dow Jones Industrial Average gained 166 points for the week. Tech - heavy Nasdaq gained 17 points. S&P 500 added 18.7 points.

On Monday, 11 February, it was reported that effective 19 February, 2008, Bank of America and Chevron will be added to the Dow Jones Industrial Average in place of Altria Group and Honeywell respectively. But on that very day, another Dow component AIG led to Dow’s downslide.

AIG was a major drag on the market on Monday after the company clarified its prior disclosures regarding CDOs saying that it has yet to determine the decline in value of its portfolio, and is still accumulating market data to update its valuation. The stock slipped by 12% and Dow would have ended the day higher, if not for AIG.

But the biggest news of the week was on Tuesday, 12 February, when it came to light that Warren Buffett's Berkshire Hathaway has made an offer to several flagging bond insurers. Berkshire Hathaway has sent an offer to reinsure the municipal bond holdings of Ambac, MBIA and FGIC. Berkshire offered to take a liability of $800 billion, adding $5 billion of its resources. Berkshire pledged there would be no distribution or management fees taken for 10 years. Dow ended the day higher by more than 100 points.

On 13 February, Wednesday, good earnings reports and encouraging retail sales data help market close higher for third straight day. The Dept. of Commerce said January retail sales grew by 0.3%, and also grew by 0.3% excluding autos. Market was in fact expecting a decrease of 0.3% for retail sales, and rise of 0.2% when excluding autos. With regard to earnings, Coca-Cola and Applied Materials topped expectations. Dow and Nasdaq ended the day higher by 179 points and 54 points respectively.

On Thursday, 14 February, Federal Reserve Chairman, Ben Bernanke expressed his worries about the US economy in the near term. Though market opened modestly higher in the morning, sellers took position quite soon after Bernanke’s testimony.

Bernanke alluded to the possibility the U.S. is nearing a recession and continued to emphasize downside risks to the economy. He clearly indicated that the Fed will likely continue to ease interest rates, if required. The Fed Chairman stated that financial companies will likely face further write-downs. Market ended its winning steak and market gave up all of its Wednesday’s gains.

On Friday, 15 February, market once again ended lower after a couple of disappointing economic reports and cautious guidance. Best-Buy lowered its 2008 forecast, as the Minneapolis-based electronics retailer cited soft customer traffic in January. The disappointing economic reports included lowest reading in a New York region manufacturing survey since May 2003 and the lowest consumer sentiment reading reported by the University of Michigan since February 1992.

Though Dow was more than 100 points down earlier during the day, it managed to shed off most of its loss while going into close. A buying spree in the financial sector helped market in making this turnaround.

Yahoo's board met over last weekend and concluded that the $44.6 billion offer from Microsoft "substantially undervalues" the company and "is not in the best interests" of the company and its shareholders.

On the economic front during the week, Jobless claims report for the week ended 9 February came in. The figure fell to 348K from the previous reading of 357K. The number was basically in-line with expectations. Separately, the December trade deficit fell to $58.8 billion from $63.1 billion.

Executive Summary

For the week, indices registered modest gains. DJIx and S&P 500, each closed up by almost 1.4%. Nasdaq closed up by 0.75%. Market closed higher during the first three days of the week, but closed lower in the last two days. Crude prices ended the week almost 4% higher.

After gaining for three straight days, market ended with losses on Thursday after Bernanke alluded to the possibility that the U.S. is nearing a recession and continued to emphasize downside risks to the economy. He clearly indicated that the Fed will likely continue to ease interest rates, if required. Other than that, a couple o discouraging economic reports took out some steam from the market on Friday.

For the year, Dow, Nasdaq and S&P 500 are down by 7%, 12.5% and 8% respectively. The market is closed Monday, 18 February in observance of Presidents Day.

Oil Price Hike

Oil Price Hike

Reliance Industries

Reliance Industries

India IT Sector

India IT Sector

India Banking Sector

India Banking Sector

Weekly Track - Feb 18 2008

Weekly Track - Feb 18 2008

Weekly Technicals - Feb 18 2008

Weekly Technicals - Feb 18 2008

V-Guard Industries IPO Review

Ppromoted by Kochouseph Chittilappily, V-Guard Industries manufactures and markets voltage stabilisers under the brand name, V-Guard. The product basket includes insulated electrical cables (for housing and industrial users), electric pumps, water heaters, solar water heaters, uninterrupted power suppliers (UPS) and fans. All the products are marketed und the V-Guard brand. The company has discontinued marketing water-level controllers, wall clocks, electric motor starters and water purifiers. About 42% of the revenue came from voltage stabilisers, 20% from cables, 19% from pumps, 7% from electric water heaters, 4% from solar water heaters, and 3% each from fans and UPS in the year ended March 2007 (FY 2007).

With a well-established position in south India, V-Guard Industries recently ventured into Maharashtra, Haryana, Madhya Pradesh, Orissa, Himachal Pradesh, Chhattisgarh, Uttarpradesh, Gujarat, Punjab and Rajasthan

Located at Comibatore in Tamilnadu, the facilities to build cables has a capacity to manufacture 1,38,000 coils per month of standard length of 90 meters. The remaining products are largely sourced from various suppliers and marketed under the V-guard brand. Supplies sourced include voltage stabilisers, pumps, UPS, electric water heaters and fans. These are manufactured to specifications.

To cater to rising demand, a second building-cable manufacturing plant is to be set up at Kashipur in Uttaranchal. It will have a capacity of 2,00,000 coils a month of standard length of 90 metres. Moreover, a low-tension cable manufacturing plant and an enameling plant, with a processing capacity of 100 tonnes, is to be put up at Coimbatore, where the existing building-cable unit is located. Development-cum-pilot plants are to be built at Coimbatore (for pumps) and in Himachal Pradesh (for fans and water heaters). Service and distribution centers are to be put up at strategic locations in India. All the projects are to be commissioned by December 2008. An initial public offer (IPO) will partially fund these expansion plans.

Strengths

The V-Guard brand enjoys strong recall and credibility, specially in south India.

Weakness

A regional player, with over 90% of the revenue (in FY 2007) coming from southern states and Goa. Of this, around 44% is derived from the market in Kerala. As has ventured into the north Indian markets recently, there will be no benefit of the strong brand name for leverage on. Thus, has to face strong competition from established players apart from small players

Valuation

Sales clocked a CAGR of 19% to Rs 222.27 crore in FY 2007 from FY 2003. Pofit after tax posted a CAGR of 29% to Rs 13.50 crore. The reported profit was Rs 18.41 crore in FY 2007,after accounting for an EO income of Rs 4.91 crore on account of profit on sale of investment in two amusement parks at Cochin and Bangalore. The EPS on adjusted net profit excluding EO was Rs 4.5 on post-IPO equity for FY 2007. The five-month annualised EPS for the current year on post-IPO equity works out to Rs 6. On the offer price of Rs 80-Rs 85, the P/E works out 17.8 – 18.9 times FY 2007 earning and 13.3 – 14.1 times latest five-month annualised EPS. Much larger players with much more well known brands like Finolex Cables and Bajaj Electric trade around TTM P/E of 16 times. Numeric Power, leader in UPS, trades at TTM P/E of 11 times.

Reliance Power bonus to drive the market

When Reliance Power announced an initial public offering (IPO), it got attention for its size. The hype and marketing blitz that followed stoked public imagination and when the issue opened, it was sold out in seconds.

Contrary to public expectations though, when it listed, the markets hammered the stock down and the company continued to stay in the headlines. Just when the shock was beginning to settle, in an unprecedented move, Reliance Power has proposed to issue bonus shares to stakeholders in the company.

Seemingly a first for any company in the world that is just about a week old on the stock exchange, the company’s board will meet in Mumbai on February 24 to consider the proposal and decide the bonus ratio. The company, however, will not issue any shares to its promoters, a spokesperson for the group said.
Market veterans say group chairman Anil Ambani took it very personally as the stock markets pounded the scrip. Add to this a few million rattled retail investors and the risk of eroding what ‘Brand Ambani ’ stands for in the stock market . All these reasons, analysts said, are compelling the company to come up with a dramatic plan like issuing a bonus to restore confidence.

Once these bonus shares are issued , the cost of acquiring each share will fall to below Rs 430 for retail investors and Rs 450 for institutional and other categories of investors , a company release said. “Several companies have listed at below their offer price and have done nothing to compensate shareholders ... To that extent, this is a trendsetting move,’’ the spokesperson said.

Usually, companies issue bonus shares from their reserves. But in this case, R-Power is a new entity and has no reserves to fall back on. It will have to use its share premium account to issue the bonus. Of the Rs 11,560 crore mobilized through the recent IPO, roughly Rs 11,300 crore is in the share premium account. How much of this will be utilized will depend on the ratio of shares it will issue as bonus.

Market players, although surprised , are divided on what it means. There is a school of thought which argues that this is the promoters’ way of acknowledging they had overpriced the issue, an argument hotly contested by Reliance Power.

SHOCK THERAPY

Largest IPO in Indian history mobilises Rs 11,560 crore. The issue was priced at Rs 430/share for retail investors and Rs 450 for others. When the bids opened on Jan 15, within 60 seconds it was oversubscribed two times.

Funds committed on Day 1 was a staggering $25 billion or about Rs 1 lakh crore. The IPO closed on Jan 18, with book-size of $190 billion or Rs 7.5 lakh crore. It was subscribed 73 times from 50 lakh applications l Listed on the bourses on Feb 11, opens trading at Rs 548.

Within seconds, falls to Rs 430. Stock hammered in first three sessions, with all-time low of Rs 333 and a high of 599. On listing day, the sensex crashes 834 points. Current price Rs 385, Current market cap Rs 87,000 crore and Total investor wealth lost since listing Rs 1,352 crore

REPL bonus proposal, FIIs, global cues to drive market

MUMBAI: A surprise bonus proposal from the recently-listed Reliance Power is sure to propel market sentiment on Monday. While the global cues are not negative, with the US markets closing flat on Friday, market players are expecting foreign funds to return to the Indian bourses soon. The week would also see the build-up of budget expectations, scheduled during the end of the current month, they said.

On Sunday, RelPower, which was listed on the bourses on February 11 following a highly-subscribed IPO, said it was proposing a bonus issue for non-promoter shareholders and its board would consider the proposal on February 24.

Market players believed this is sure to drive the stock on Monday and is expected to bring it closer to its IPO price of Rs 450 per share from its current price of Rs 385 on the BSE. This particular move coincides with the scheduled opening of the IPO for Rural Electrification Corporation on Tuesday.

On the global markets front, cues are not negative. On Friday, the US markets closed flat and Monday being a holiday there, speculators here could use the extra day to push up shares prices on Monday.

Last week, after two consecutive sessions of fall, the sensex had made a strong recovery in the next three sessions to end 650 points higher on a weekly basis as fears of a severe economic slowdown receded. This, market players believe could bring back the foreign fund managers who have so far this year have mostly been on the selling side.

Institutional dealers and top broking house officials believe unless foreign institutional investors (FIIs) come back to the market, it would be difficult for domestic institutions and retail investors to take the market higher.

Week Ahead - Outlook

Three successive winning sessions has put some heart back in the bulls. The Nifty closed on Friday at 5302.9 points for a week-on-week gain of 3.57 per cent. The Sensex gained somewhat more (+3.72 per cent) closing at 18,115.25 points. The Defty was up 3.58 per cent by the weekend.

Breadth was positive in terms of advances versus declines but volumes remained lacklustre on the recovery. Broader indices had smaller gains. The Midcaps was up merely 0.81 per cent, while the Junior was up 1.91 per cent. The BSE 500 gained 2.62 per cent however, suggesting that some retail investors were in action. Unusually for a week when the market recorded gains, FIIs (until Feb 14) and DIIs (till Feb 13) were net sellers. Anecdotal evidence suggests that both set of "IIs" bought on Friday.

Outlook: The recovery will run into resistance immediately above the current levels but it could climb till the 5400-5550 zone, where it will run into a key resistance. Whether it crosses that level or not will determine the intermediate trend.

Rationale: The intermediate trend has been down since January 9. The bottom on Monday at Nifty 4803 was higher than the panic bottom of 4448 on January 22. This suggests that the intermediate trend could be turning around. However we need a higher top as well to confirm an intermediate reversal and that means the Nifty will have to climb above resistance at 5483 (closing) and ideally, 5545 intra-day at the least.

Counter view: Lack of volume and lack of institutional faith are two factors that could impact the recovery pattern negatively. If the resistance at 5483 is not beaten, the market is likely to continue range-trading with support at 5100-5150 and lower, at 4800-4900.

Bulls & bears: The positive breadth is apparent across the F&O stocks at least. However, we can focus on the stocks where positive price action was accompanied by volume expansion. There were quite a few of these. Capital goods players like ABB and BHEL did well and so did PSU refiners and marketers such as IOC, BPCL and HPCL also received a big boost as did Essar Oil, RPL and RIL. There was a lot of buying in Unitech and DLF. Of the financial majors, ICICI and IDBI generated the most impressive comebacks though SBI and other banking stocks also rose. There was stock-specific investment coming into ACC Adlabs, Hindalco, HUL, Punj Lloyd, Nagarjuna Fertilisers and Tisco, where sectorial moves were less apparent.

MICRO TECHNICALS

Adlabs Films Current Price: 925.4 Target Price: 1,000

Big volumes have backed a move from the 725 level. There's potential for a rise until 1000. There's also a big downside risk. Go long with a stop at 815 and if that is broken, go short with a stop at 880.

BHEL Current Price: 2,263 Target Price: 2,350

A sharp recovery from 1850 has come on higher volumes. If the stock fulfils its projections, it could run till the 2450 level but it's likely to hit severe resistance at 2350 and is unlikely to close above that level. Keep a stop at 2250 and go long.

IDBI Current Price: 120.8 Target Price: 130

Volumes spurted on Friday. The stock has a likely target of 130-135 where it will hit a huge resistance. Keep a stop at 115 and go long. Book some profits at above 125. If it does close above 135, it could have a run up till the 145 level before it hits the next serious resistance.

Punj Lloyd Current Price: 378.5 Target Price: 400

The stock has the potential to climb to somewhere between 400-420. It's generated enough volume to hope for the higher target. In the timeframe of 6 weeks it has a target projection of 470. This will depend on two or three successive closes above the 400 level.

Unitech Current Price: 417.1 Target Price: 445

The stock has jumped from the 300 level with a big volume expansion. It has the potential to rise till 445 before hitting serious resistance and if the volume is maintained, it could go till 510. Keep a stop at 410 and go long.

Warren Buffet - Rules of Investing

• "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."

• "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

• "You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else."

• "Our favourite holding period is forever." Letter to Berkshire Hathaway shareholders, 1988

• "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact."

• "Risk comes from not knowing what you're doing."

• "If you don't know jewellery, know the jeweller."

• "If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes."

• "There seems to be some perverse human characteristic that likes to make easy things difficult."

• "One’s objective should be to get it right, get it quick, get it out, and get it over... your problem won’t improve with age."

• "A public-opinion poll is no substitute for thought."

• "In the insurance business, there is no statute of limitation on stupidity."

• "If a business does well, the stock eventually follows."

• "The most important quality for an investor is temperament, not intellect... You need a temperament that neither derives great pleasure from being with the crowd or against the crowd."

• "The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values."

• "We will only do with your money what we would do with our own."

• "Occasionally, a man must rise above principles."

• "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

• "Of one thing be certain: if a CEO is enthused about a particularly foolish acquisition, both his internal staff and his outside advisors will come up with whatever projections are needed to justify his stance. Only in fairy tales are emperors told that they are naked."

• When asked how he became so successful in investing, Buffett answered: "we read hundreds and hundreds of annual reports every year."

• "I never buy anything unless I can fill out on a piece of paper my reasons. I may be wrong, but I would know the answer to that. “I’m paying $32 billion today for the Coca Cola Company because...” If you can’t answer that question, you shouldn’t buy it. If you can answer that question, and you do it a few times, you’ll make a lot of money."

• "You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making, or whatever it may be. And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it."

• "I really like my life. I've arranged my life so that I can do what I want."

• "Someone's sitting in the shade today because someone planted a tree a long time ago."