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Monday, July 06, 2009
Market may exhibit strong volatility
The presence of a sharp intra-day volatile trend due to lack of clarity may see the market remain edgy and move on the either side of the zone. Mixed fund inflows into the domestic equities and the global market trend will be closely monitored for further direction. Among the key local indices, the Nifty has good support around 4400 and upside till 4470-4500 levels. The Sensex has a likely support at 14750 and may face resistance at 15050.
US indices remained closed on Friday on account of Independence Day.
Indian floats trading on the US bourses were traded weak. Among the laggards Rediff lost 6.01% while Infosys & Patni Computers move down over 3% each. Tata Motors, ICICI Bank, HDFC Bank and MTNL ended in negative territory. However, Satyam and Wipro ended with steady gains.
Crude oil prices in the international market edged lower, with the Nymex light crude oil for August delivery lost by $2.58 to close at $66.73 per barrel. In the commodity space, the Comex gold for August series lost $10.30 to settle at $931 a troy ounce.
Daily trend of FII/MF investment in equities
On July 02 2009, FIIs were net buyers of stocks to the tune of Rs402 crore (purchases worth Rs2,303 crore and sales of Rs1,901 crore) while domestic mutual funds were net sellers of stocks to the tune of Rs207 crore (purchases worth Rs756 crore and sales of Rs963 crore).
Stocks with positive bias:- Powergrid (SL – 110.55), infra stocks (GMR infra, IRB, IVRCL), GE shipping, JP associates.
Stocks for investments:- IDBI, Balrampur chini , Bajaj Holdings,Emco
Union budget to set the direction for market
Investors may remain cautious ahead of the Union Budget. However market may see a subdued start tracking weak Asia. The Union Budget 2009-2010 at 11:00 IST today, 6 July 2009, will play a key role in dictating further market direction as it will help to gauge the new government's policy stance. The mega event becomes all the more important in the wake of the global financial crisis.
The market is expecting a big bang economic reforms by the Congress-led government after its thumping victory in the 15th Lok Sabha elections. Sector specific action may be seen as finance minister may announce measures to support growth and incentives for sectors like infrastructure, auto, realty, textiles, education, agriculture, steel, healthcare among others.
Asian stocks declined today as commodities prices and shipping rates dropped amid concern the global economic recovery will falter. The key benchmark indices in Hong Kong, Japan, Singapore and Taiwan fell by between 0.4% to 1.58%. The key benchmark indices in China and South Korea rose by between 0.23% to 0.6%.
Trading in US futures indicated Dow could fall 46 points at the opening bell today, 6 July 2009.
The US markets had remained shut on Friday, 3 July 2009 on account of their Independence Day.
Back home, the broad expectations from the budget are thrust on infrastructure, including easier financing of long-gestation infrastructure projects, a plan for disinvestment, some reforms such as hiking foreign direct investment limit for insurance and a clear road map to rein in the high fiscal deficit in the future. Consumption is likely to be shored up through the various rural spending programmes. At the same time, the government may rollback tax sops given to sectors doing well such as services.
The corporate sector is expecting a removal of the fringe benefit tax (FBT). Under the current dispensation, an employer has to pay FBT at 30% on the fringe benefit, the taxable value of which is determined in accordance with a formula. FBT is a tax levied on perquisites-or fringe benefits -provided by an employer to his employees.
Domestic brokerages and fund houses want the government to remove securities transaction tax (STT) on trading in securities in the Budget. The Securities & Exchange Board of India (Sebi) members have already forwarded the demand of premier stock exchanges, BSE and NSE, to Finance Minister Pranab Mukherjee for scrapping STT in the Budget.
STT, which was introduced in the Union Budget 2004-05 by the then Finance Minister P Chidambaram, taxes every purchase and sale of securities entered into in a recognised stock exchange in India in securities like shares, debentures, bonds, and units of mutual funds. Equity investors pay an STT of 0.125% for every transaction in cash for the delivery of shares.
The Economic Survey for 2008-09 presented by Finance Minister Pranab Mukherjee in Parliament on 2 July 2009 said that India's industry is recovering from a slowdown in the last financial year. There are positive signs the Indian industry may have weathered the most severe part of the shock and is moving toward a recovery, the survey indicated.
Meanwhile, the Employees' Provident Fund Organization (EPFO) on Saturday deferred the decision on investing 15 per cent of its corpus of about Rs 1.82 lakh crore into equity, a move which could have seen Rs 25,000 crore flowing into the capital markets. EPFO has decided to retain the interest rate at 8.5 per cent for year 2009-10 for 50 million provident fund subscribers.
As per the provisional figures on NSE, the foreign funds bought shares worth Rs 210.82 crore and the domestic funds bought shares worth Rs 298.58 crore on Friday, 3 July 2009.
Daily News Roundup - July 6 2009
RNRL moves Supreme Court to make Reliance Industries’ execute Bombay HC order. (BL)
SBI has offered a loan of up to US$1bn to Bharti Airtel to partly fund its planned stake buy in South Africa’s MTN.(TOI)
Centre has advised SBI not to pursue with the RBI the issue of acquisition of State Bank of Indore.(BL)
Ashok Leyland June sales down 44% yoy.(BL)
ACC has reported a marginal rise of 1% in dispatches at 1.81mn tonnes in June.(BL)
NTPC may sign gas deal with Reliance Industries, says a top executive.(Mint)
JSW Steel output up 45% to 1.4mn tonnes in Q1 FY10.(FE)
Tata Capital, a subsidiary of Tata Sons, has tied up with Japanese securities firm Mizuho Securities to raise a private equity fund in Japan.(DNA)
SAIL scraps Rs20bn contract with POSCO.(Mint)
HUL to streamline its product portfolio.(DNA)
ABG Shipyard to raise US$150mn.(FE)
Government likely to raise Rs18.5bn from NHPC IPO.(FE)
Reliance Communications gets shareholders’ approval for stake sale.(FE)
JSW Steel plans to infuse up to Rs1bn into JSW Severfield Structures, its UK-based JV with Severfield Reeve Structures.(DNA)
Shriram Transport Finance to raise Rs10bn via NCDs.(FE)
Sesa Goa, JSW Steel and Rashtriya Ispat Nigam, amongst others are in race for acquiring mining rights for the largest iron ore deposit in Afghanistan. (BS)
Bharti Airtel and MTN which are in US$23bn merger talks, to approach SEBI to grant an exemption to the South African firm from making an open offer here following the deal. (ET)
Wockhardt is in talks with a few MNCs to sell two of its best-selling brands Protinex and Farex. (ET)
DLF to raise funds worth Rs5bn in the coming weeks by selling land. (ET)
JP Hydro plans to raise up to Rs15bn through issue of financial securities in the market and merge Jaiprakash Power Ventures with itself. (BS)
Hindustan Construction raised Rs4.8bn through the issue of shares to QIBs through private placement. (BS)
Chennai Petroleum plans to invest over Rs70bn in the next five years on its expansion plan and on connectivity projects. (BS)
Uco Bank to invest Rs450mn in its general insurance company, which would be operational by March next year. (BS)
GMR Infra plans Rs25bn Vemagiri Power expansion, to put up an additional capacity of 750 Mw in Vemagiri, adjacent to its existing natural gas-fired combined cycle power plant of 388.5MW. (BS)
BSNL plans to offer stake to a foreign telecom entity, as an alternative to an IPO. (BS)
Hero Group shelves plans to enter the commercial vehicle segment. (BS)
Pantaloon Retail plans to invest close to Rs3.5bn over the next one year to expand its value hypermarket chain Big Bazaar. (BS)
Cinemax to invest around Rs180-200mn by the end of financial year 2009-10 on expansion plans in Gujarat. (BS)
Dalmia Cement to set up a second manufacturing facility in Tamil Nadu with an investment of around Rs8bn. (BS)
SREI Infrastructure emerges as the lowest bidder for the Rs11.41bn road project on National Highway-91 in Uttar Pradesh. (BS)
SpiceJet to look for acquisition opportunities. (ET)
Essar may pick up operating stake in GSPC’s Gujarat block.(BL)
Foreign exchange reserves increased by US$932mn to US$265bn for the week ended June 26.(BL)
Railway Ministry appoints Sam Pitroda as the head of an expert committee for suggesting schemes to use its optical fibre cable network commercially.(BL)
SEBI has made it mandatory for foreign venture capital investors to obtain firm commitment of at least US$1mn from their investors for eligibility to apply for registration.(BL)
EPF interest rate maintained at 8.5%.(BL)
Government cancels coal linkages of 25 captive power plants with combined capacity of 1,292MW.(FE)
Cargo traffic at major ports sees 2% growth.(Mint)
Telecom Dispute Settlement Appellate Tribunal has asked DoT to decide on the policy for allocating 2G spectrum within six weeks.(BL)
Average assets under management of mutual funds up 5% at the end of June.(TOI)
Commerce and Industry Ministry has proposed a marginal hike in FDI limit in FM radio-from 20% to 24%.(TOI)
Department of Telecom has sought sector regulator TRAI’s views on auctioning new bands of airwaves outside the spectrum bands allotted to service providers so far. (ET)
Department of Industrial Policy and Promotion to meet on July 10 to discuss the foreign direct investment policy in the cigarette industry. (BS)
It’s time for Plan B
Plans are only good intentions unless they immediately degenerate into hard work.
Finance Minister Pranab Mukherjee will deliver his first full budget after 25 years. Quite a few measures have already been revealed. Not all of those will find a place in the budget though. Crucial road maps such as the ones on Disinvestment, GST, STT and FBT could come through. It’s a no-brainer that allocations towards UPA’s pet social schemes will be bolstered. There will also be a renewed thrust on infrastructure.
A return to fiscal prudence will most likely be postponed till the global economy revives. A statement of intent towards a few critical reforms should cheer the markets. Take a call only after going through the fine print. After all, this remains a one-day event. Keep in mind that the global scene doesn’t look promising. Doubts continue to emerge on the pace and timing of the global recovery.
We expect a nervous start. Don’t bet too much on the budget. Other variables like earnings, liquidity, monsoon and global conditions are likely to drive the sentiment going forward. In case the budget remains high on rhetoric, better have Plan B ready.
FIIs were net buyers in the cash segment on Friday at Rs2.11bn while the local institutions too poured in Rs2.98bn. In the F&O segment, the foreign funds were net buyers at Rs9.1bn.
Asian stocks are mostly down this morning amid renewed concerns that the nascent global economic recovery could run out of steam. The MSCI Asia Pacific Index lost 0.1% to 102.74 as of 9:50 a.m. in Tokyo. The regional benchmark has slipped 2.4% since climbing to an eight-month high on June 12. The index has rallied 45% since falling to a more than five-year low on March 9. Japan's Nikkei 225 Stock Average and the Hang Seng index in Hong Kong are down 1-1.5%.
United States' Vice President Joe Biden says that the Obama administration misread how bad the economy was, when the stimulus package was being put together at the beginning of the year. Unemployment, at 9.5%, is far higher that the 8% top promised at the time the stimulus was passed. But Biden said in an interview it was too early to say whether additional stimulus money was needed.
The experts are divided on whether the green shoots of global recovery, which have led to a worldwide rally in the past three months, are for real. One school of thought says the so-called recovery might turn out to be a chimera. Others predict that any global recovery, even if it does materialise, may not sustain for long before the same starts to fizzle out. The optimist cap is of the view that historically, deep depressions/recessions have been followed by strong rebounds.
What we would suggest is that amid all the gloom and doom, India does promise to outperform, especially if the raingods keep showering their blessings. However, one should not get carried away, as here too, the recovery may not be as fast as one expects it to be. Also, valuations have soared to levels where one may not be too comfortable buying stocks. There is more likelihood of the market falling then rising from current levels. So, wait for a while before forming a broader view on the markets.
In New York, the US financial markets were closed on Friday for the July 4 holiday.
The European markets ended nearly unchanged on Friday, as most market players chose to remain guarded at the end of another bad week, after a few economic reports put a question mark on claims that the global economic slump may be moderating. What made the matters worse was lack of cues from the US markets, which were shut on account of the Independence Day holiday.
After rising sharply on Wednesday, a worse-than-expected US jobs report dealt a blow to recovery hopes on Thursday and pulled European shares sharply lower in the afternoon of that session. On Friday, the pan-European Dow Jones Stoxx 600 index finished almost unchanged at 204.08 amid low volumes.
The UK's FTSE 100 index ended 0.1% higher at 4,236.28, while the French CAC-40 index rose 0.1% to 3,119.51, while the German DAX index slipped 0.2% to 4,708.21.
The Dow Jones Stoxx 600 index, which is a regional benchmark, fell 0.2% on the week after reports showed that unemployment in Europe and the US rose. The regional stock benchmark is down 4.8% since June 12 on speculation that the recent spurt in share prices has been overdone without a commensurate improvement in the economic outlook.
National benchmark indexes fell in eight of the 18 western European markets last week. The UK’s FTSE 100 slipped 0.1% on the week, while Germany’s DAX dropped 1.4%. France’s CAC retreated 0.3%.
Unemployment in the 16-member euro region increased to 9.5% in May from a revised 9.3% in April, the European Union (EU) statistics office in Luxembourg said this week. The US unemployment rate rose to 9.5% in June, the highest since August 1983. A separate report showed confidence among US consumers slipped unexpectedly in June. The Conference Board’s sentiment index decreased to 49.3 from a revised 54.8 in May.
Data released on Friday showed the second straight month of expansion for the UK services sector in June, though the reading was below consensus estimates. Euro-zone retail sales fell 0.4% in May and the Euro-zone June composite PMI increased to 44.6.
In last week's other important development, European Central Bank (ECB) President Jean-Claude Trichet signaled that the central bank has no immediate plans to cut interest rates again and said the euro region’s economy will start to recover in the middle of 2010. The ECB kept its key lending rate at a record low of 1%.
Asian stocks fell last week, the second weekly decline in three, as government data in the US and Europe revealed that the labour markets in two of the world's biggest economies remains in doldrums.
The MSCI Asia Pacific Index lost 0.8% last week, retreating from last weeks 2.2% gain. That pared the regional stock benchmark's record 28% in the three months ended June 30 on optimism that the global economy is stabilizing.
The Asian stock benchmark has now climbed 47% since reaching a more than five-year low on March 9.
The BSE Sensex surged 257 points at 14,915 after touching a high of 14,946 and a low of 14,499. The index had opened at 14,553 against the previous close of 14,658.
The NSE Nifty surged 75 points or 1.8% to shut shop at 4,424.
Asian markets ended mixed; the Nikkei index in Japan slipped 0.7% at 9,816, Australia's S&P/ASX ended down 1.2% at 3,828. Hang Seng index gained 0.2% at 18,203.
Elsewhere in the Europe, stocks were trading in the red. The FTSE index was flat at 4,234. The DAX index was flat at 4,716. CAC 40 index was down 0.3% at 3,106.
Coming back to India, among the BSE Sectoral indices BSE Bankex index was the top gainer gaining 2.2%, followed by the BSE Capital Goods index up 2.1%, BSE Pharma index up 2% and BSE Power index up 2%.
The BSE Mid-Cap index ended marginally higher by 0.8% and BSE Small-Cap index was up 0.3%.
In the Sensex, the major gainers were HDFC, Tata Steel, JP Associates, M&M, L&T, SBI, ICICI Bank and Reliance Infra.
On the other hand, major losers were Hindalco, Hero Honda, Sterlite, RCom, Grasim and DLF.
Among the big gainers in the broader market were Jain Irrigation, Shriram Transport, Glenmark, Chambal Fert, IDFC and Ashok Leyland.
Outside the frontline indices, the top losers included GMDC, REI Agro,KSK Energy, Jai Corp, Bhushan Steel, Apollo Hosp, BEML and Exide Ind.
Sunday, July 05, 2009
Cummins India
Shareholders can stay invested in Cummins India (CIL), a leading manufacturer of diesel engines. Though the stock is not inexpensive at Rs 273 (13 times its FY09 per share earnings), what lends confidence is its strong position in the domestic market. With the new government likely to increase thrust on improving road and power infrastructure in the country, Cummins appears well-positioned to leverage on the opportunity.
However, a drastic fall expected in its high margin export revenues may still mute overall sales and profits for the year.
Hit by recessionary trends in the overseas markets, the company expects its export revenues — in spite of the backing of its MNC parent, Cummins Inc — to be hit during the year.
Results scorecard
For the year-ended March 2009, Cummins India reported a sales and earnings growth of over 40 per cent and 54.5 per cent respectively. The topline growth, however, was helped by the increased contributions from Cummins Sales and Service and Cummins Auto Services, two subsidiaries that the company had amalgamated with itself during the year.
Excluding contributions from the two, the company’s revenue and profit growth was limited to about 23 per cent and 32 per cent respectively.
On the margin front too, the company managed to better itself, what with operating margins expanding by 1.4 percentage points to 14.6 per cent, helped primarily by lower raw material cost.
Cummins’ performance for the last quarter, however, does not reflect a healthy picture. Net sales (excluding the amalgamated subsidiaries) declined 8.2 per cent, while its profits dropped by over 18 per cent.
Interestingly, the company saw its exports contribution equal that of its domestic revenues during the quarter.
While increased sourcing by Cummins Inc drove the export revenues, the management does not expect a continuance of such volumes in exports in the coming quarters.
On the contrary, it expects the export revenues to slide drastically due to the recessionary trends in the overseas target markets.
Cummins India’s guidance projects a fall of over 50-70 per cent in its export revenues for the year. While on the face of it such guidance may appear a tad too pessimistic considering that there have been slight signs of revival in most global economies, it still may not be way off the mark.
Any revival in global economies may take a couple of quarters to translate into orders for Cummins India. Besides, Cummins Inc itself has given a guidance with a 30 per cent fall in revenues this year.
Even so, channel inventories of its parent may be the first to get cleared in the event of revival in demand; curtailing export revenues for the Indian arm.
This may call for a greater reliance by the company on the domestic market.
key to growth
Cummins India appears well-placed to benefit from the government’s thrust on improving infrastructure, with its domestic operations straddling high potential sectors such as infrastructure, road development, telecom, construction, mining, auto and power.
While the bulk of its domestic revenues are made up from power generation (30-35 per cent) and industrial (10-15 per cent), revenues from the auto sector (5 per cent) may perk up in the coming years.
The JNNURM (Jawaharlal Nehru National Urban Renewal Mission) scheme, under which the government is aiming to provide improved public transport system in 63 cities, may help the company rake in decent growth in the auto segment, as the scheme would provide assistance to States as a one-time measure for the purchase of buses for the urban transport system. The company has already won the Delhi tender for the Commonwealth Games for the supply of engines for 2,500 buses.
Besides, with the availability of natural gas likely to improve, the demand for its gas-based generators and engine may also look up. That said, it still remains to be seen how far Cummins succeeds in capturing a meaty share of the domestic market, even as the shrinking overseas market is certain to attract competition.
While the company has made clear its intention not to participate in any price war, CIL may lose volume growth if competitors do cut prices.
However, to its credit, CIL’s strong balance-sheet with little debt and high cash (Rs 400 crore), not to mention its long-standing relations in the industry, do make it a strong contender in the domestic market.
Trends in order and revenue inflows over the next couple of quarters may, therefore, bear a close watch.
via BL
EPF interest rate retained at 8.5% for 2009-10
Over 45 million subscribers will get 8.5% return for 2009-10 on their provident fund deposits at a time when banks are lowering the deposit rates across the board.
Two days before the budget, the Employees` Provident Fund Organisation (EPFO) decided to retain the interest rate at 8.5% for the fifth consecutive year.
The decision to retain the interest rate was taken by EPFO`s policy-making body, Central Board of Trustees (CBT) which was chaired by labour minister M Mallikarjun Kharge.
The decision will now go to the finance ministry for ratification.
The payment of 8.5% interest rate on provident fund deposits, which are of the order of Rs 1,820 billion, is expected to leave a surplus of Rs 64 million during the current fiscal.
The EPFO has decided to retain the interest rate even as the interest being paid by the banks has been coming down in the recent past.
The country`s largest bank SBI recently decided to cut deposit rates by 25 to 50 basis points in May, while several others followed suit.
The decision to pay 8.5% interest rate was on expected lines as payment of a higher amount would result in a deficit in the EPFO`s account.
Container Corporation
Investors with a long-term perspective can consider accumulating the stock of Container Corporation of India (Concor). An established player in multi-modal logistics, Concor appears best placed to benefit from the uptick in domestic trade and the likely revival in export-import volumes by the second half of the current year. While the government’s focus on implementing the dedicated freight corridors is a positive for Concor, any Budget proposal to step up infrastructure spending would also aid the company’s prospects. Public spending programmes will require substantial logistics support for transporting materials and goods and given its huge wagon inventory Concor will be a direct beneficiary from such a boost to improving infrastructure. With its extensive rail network, Concor also provides the best hinterland connectivity.
At the current market price of Rs 1,010, the Concor stock trades about 14 times its likely FY10 per share earnings. While this is not cheap, Concor’s dominance of the container rail business and its strong balance-sheet with no debt and significant cash (over Rs 1,763 crore) justify its premium valuation. For the year-ended March 2009, Concor reported only a 2 per cent growth in sales. However, helped by improved realisations, reflecting its ability to pass on tariff hikes to customers, the company managed to register a 9 per cent growth in profits. This capacity to build on revenues and earnings through a difficult 2008 lends confidence to its ability to sustain growth in the coming year as well. Concor’s diversified customer base and its strategic tie-ups with potential competitors in the container rail logistics space also do away with the fear of competition nibbling away a chunk of its market.
That said, much of the growth in the coming year is expected only from the domestic market and not from the high-margin Exim segment. Recessionary trends globally, as reflected by the poor trade volumes, are expected to take a toll on the company’s Exim business. In the just ended June quarter, Concor saw a 14 per cent growth in domestic traffic, whereas the international movement dipped by about 9 per cent. But even as the management expects the Exim volumes to pick up from the second half of year, Concor has increased it focus on improving its share in the domestic market. This may help it offset some of the fall in contributions from the Exim segment
via BL
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