ONGC

ONGC

DLF Limited

DLF Limited

Mahindra Ugine

Mahindra Ugine

Lloyd Electric & Engineering

Sustained growth in the production of white goods, as suggested by the consumer durables index (in the IIP) indicates that air-conditioners (ACs) are back in demand, after a slump last year. This provides a good case for investing in the stock of Lloyd Electric and Engineering, a manufacturer of AC coils and fully-built AC units, mostly on a contract basis. Jump in the company’s sales and operating profit margin in the September quarter also suggesta recovery, after a lacklustre FY-09. Lloyd Electric’s clients include leading brands such as Samsung, Voltas and Electrolux.

Investors can consider the stock of Lloyd Electric with a one-two-year perspective. At Rs 56, the stock trades at eight times its trailing one-year earnings.

While the discount to larger players such as Voltas and Blue Star may be justified given Lloyd Electric’s smaller size, the company’s earnings growth is likely to outpace the valuations currently awarded.
The company

The company’s sales grew at a compounded annual rate of 24 per cent over the last five years to Rs 585 crore in FY-09. Lloyd Electric’s heat exchanger coils now go into all major branded ACs such as Voltas, Blue Star, LG Electronics and Samsung.

This apart, the company is also into making of AC units for rail coaches and the normal window and split-type AC units for the retail market.

Last year, the company set foot in the European coil market with the acquisition of Luvata Czech. Luvata Czech sells heat exchangers for AC and refrigeration units. This acquisition has not only helped mere geographic diversification but also provided access to high-end technologies in coil manufacture.
Sales drivers

After a blip in FY-09 (with sales down 12 per cent), the company has seen a significant recovery in sales in the last two quarters, coinciding with the revival in the consumer durables index — a constituent of the Index for Industrial Production (IIP). The pick-up in demand for air-conditioners from the household segment has worked well for Lloyd Electric.

Though the company’s direct share in the retail market isn’t high, its sales have been growing as a result of coil demand from branded AC players. After a 6 per cent decline in the March quarter and a flat growth in the June quarter, the company’s sales grew 30 per cent in the September quarter.

The company’s European operation is also expected to gather steam once slowdown worries subside and corporate spending resumes. This would provide further traction to sales growth.

In the domestic market, the lull in demand in the office space — a key driver for the company’s revenues, appears to be making a slow revival especially in the metros. Industry reports suggest that the demand for office space is likely to be higher by 53 per cent in 2011 compared with 2009.

Lloyd Electric has benefitted from the increased government spending. The company has large metro rail orders from the Government. More metro projects/addition of metro rail coaches can be expected to translate into higher orders for Lloyd Electric, given its prior qualification in this segment.
Profit derives support

Lloyd Electric has been making efforts to reduce costs.But the unprecedented rise in commodity prices swallowed the savings made in FY09. Besides, lower demand for its product may also have forced the company to lower prices. Lloyd Electric’s operating margins fell 3 percentage points to 9 per cent in FY-09.

The company’s contract business, however, appears less vulnerable to cost increases as majority of contracts have been booked on a cost-plus margin basis. Lloyd Electric’s business of manufacturing AC units for OEMs also support overall profit margins, given its backward integration of using coils produced in-house.

FY-09 was a bad year for the company with profits eroding by close to 60 per cent to Rs 20 crore on fall in sales and rise in commodity prices. However, between 2004 and 2008 profits after tax grew 70 per cent annually.

Unity Infraprojects

Investors with a two-three-year perspective can buy the stock of Unity Infraprojects (Unity). Primarily a construction contractor, Unity’s project portfolio comprises infrastructure and civil contracts. At Rs 479, the stock trades at 8.8 times its trailing 12 month per share earnings, at a discount to peers such as Ahluwalia Contracts and Patel Engineering.

Trading well below its IPO price in 2006, the company now asks for far more reasonable valuations. Besides, a diverse and growing order-book, increase in infrastructure contracts, and steady margins have improved its earnings prospects over the last couple of years.
order composition

Order-book size has almost doubled in the first half of FY-10 to Rs 4,040 crore, up from the 12 per cent growth of FY-09, indicating increasing ability to secure a larger number of contracts. At 39 per cent, civil contracts spanning townships, hospitals, airports, commercial and residential buildings, make for the bulk of the order book. 15 per cent comes from the transportation space, where the company undertakes construction contracts for road widening, micro tunnelling and road development. Water supply and irrigation contracts account for the balance. The order book, at 3.1 times FY-09 sales, has an average execution period of around 30 months, allowing medium-term earnings visibility. There is also an almost even split maintained between private and government contracts over the past three years allowing the spreading of risk while maintaining the ability to capitalise on opportunities thrown up by both segments.

Contribution of civil contracts has reduced in favour of those in the infrastructure space; transportation made up a mere 5 per cent of the order-book in FY-07. This segment, especially micro tunnelling , may see more activity in the coming quarters and help support profit margins.

The company will remain focussed on urban infrastructure; schemes such as JNNURM leave ample opportunities. Unity will also move into electrical contracts.
Combined bids

Unity does not have projects on a build-operate-transfer (BOT) model. Instead, it bids in consortium with developers as a preferred engineering procurement construction (EPC) contractor. It, however, does not have in-house design capability and outsources the same. Unity also undertakes projects on a joint-venture basis, securing last week an Rs 1145-crore water supply tunnel project with IVRCL Infrastructures and Projects.

Such partnering with varied developers, while helping the company secure larger orders or enter new geographical areas, may eventually provide it with technical qualification to bid on its own. The company has earlier partnered Nagarjuna Constructions, Patel Engineering and Pratibha Industries, among others. Unity also has interests in real-estate development which is not a significant contributor to revenues and plans to go slow on these projects.
Maintained margins

Compounded annual growth rate of sales and net profits over a three-year period stand at 85 and 84 per cent respectively. The company kept up sales growth of 28 per cent for the first half of FY-10 compared with the same period in FY-09. Net profits similarly increased 11 per cent.

Operating margins have hovered around 14 per cent over the past three years and into the first half this year as well. With price escalation clauses in 85 per cent of the contracts, the company appears to be able to maintain margins at this level.

Debt on books has seen massive increases, standing at Rs 432 crore as of March ’09 against Rs 90 crore seen two years ago; interest costs almost doubled in FY-09 over FY-08. Gross margins are, thus, left at 10.6 per cent for FY-09 against the 11.6 and 12.4 per cent in FY-08 and FY-07. Margins have remained lower in the first half of FY-10 than the same period in FY-09.

However, share of interest costs in sales has remained at 2.5 to 3 per cent, suggesting debt has helped generate sales.

Net profit margins were 6.2 per cent for FY-09, down 100 basis points from that in FY-08, slipping to 6 per cent for the first half of this year. The company can raise up to Rs 250 crore through a Qualified Institutional Placement issue; if undertaken, it could help trim debt and boost margins.
Concerns

Given the sluggish climate of FY-09, some projects have been delayed, albeit no outright cancellation of projects. The company is also highly concentrated in the West, primarily in Maharashtra and Mumbai with close to 58 per cent of contracts in the west.

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Whirlpool India

Investors with a two-year perspective can consider investing in the stock of the home appliances major — Whirlpool of India.

Continuing the trend of strong growth through the downturn, the company saw its September 2009 quarter sales (volume) expand by an impressive 37 per cent. The visible uptrend in consumer durable sales in recent months, the company’s entrenched position in the key durable segments and its improving profitability suggest that the stock is a good addition to the defensive investor’s portfolio.

At Rs 119, the stock is trading at 15 times its trailing 12-month earnings.

The company plans to enter small towns with an investment of Rs 100 crore a year over the next few years. Expansion into the Tier 2 and Tier 3 markets at a time when consumer spending is rising may help the company sustain robust top-line growth.

Whirlpool of India turned profitable at the net level only in 2007-08. Growth in profits has continued at an impressive pace since then. In FY09, profits after tax doubled to Rs 70 crore. Strong sales volumes, rising revenues from after-sales services and a tight rein on costs have helped Whirlpool’s profit growth in recent years.

Rigorous brand-building activities have enabled the company to sustain a robust 17 per cent compounded annual sales growth over the last five years. Microwave ovens have been the fastest growing segment with volumes growing almost 50 per cent on an annualised basis between 2005 and 2009.

Other segments in the order of growth are air conditioners, washing machines and refrigerators.

FY09 was a challenging year for the company with sales growing at a slower space, due to the cutback in consumer spending and higher commodity prices which impacted input costs. However, the situation has improved over the last two quarters.

While profit margins have expanded on falling raw material costs, the April-June quarter saw a 13 per cent sales growth and the July-September period saw a strong 32 per cent growth, signalling a clear revival in consumer spending.

Whirlpool of India is all set to tap the rising demand for more affordable white goods, from the urban centres as well as the tier-II centres. The company plans to raise marketing spends on product development and advertising and promotions, while enhancing penetration in the smaller urban markets.

Better cash flows, with improved margins and the falling debt burden (0.6:1) have freed up funds for brand building activities. The company’s operating costs have declined by 3 percentage points in FY09 on cost reduction initiatives.

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Cox and Kings (India)

Investments with a long-term perspective can be considered in the initial public offering of the global tour operator Cox and Kings (C&K). The company’s strong brand image, wide geographical reach — both within the country and across major global markets — synergies of operations between its various subsidiaries and the economies of scale it thus enjoys are positives to the offer.

Despite last year’s declining trends in the global travel and tourism space, C&K managed to not just grow it revenues but also improve its operating margin and profits. C&K’s strong domestic market position helped by improving discretionary spends by Indian consumers and its newly acquired presence in high potential markets of the US and Australia offers it bright growth prospects.

The highly fragmented domestic travel market, with few organised tour operators, also leaves sufficient scope for market share gains. The valuation, though a tad stiff given the current market conditions, is at a discount to that of Mahindra Holidays and Resorts (29 times its likely FY10 per share earnings).

The offer price of Rs 316-330 discounts the C&K’s likely FY-10 per share earnings by 22-23 times on post-offer equity base. The company’s superior growth rates, high operating margin in this business and the likely scarcity premium for the business do offer room for premium valuations.
Business prospects

The company’s domestic business straddles leisure travel, corporate travel, forex and visa processing. While it designs packages for both individuals and groups for their domestic and international travel-tagged outbound travel, it also offers destination management and ground handling services for foreign tourists visiting India.

C&K has also built a web of subsidiaries that complement each other’s business offerings. For instance, while on the one hand, its overseas presence through its subsidiaries help attract business for the domestic inbound business, on the other, it also helps keep a check on service levels and costs.

Similarly, its UK subsidiary, ETN, that does destination management for European sites stands to gain from its acquisitions in Australia and the US, both of which enjoy a high outbound travel volume to Europe. The high synergies and travel volumes afford the company better bargaining power with airlines and hotels, in turn, helping it competitively price its products and services.

Other ventures such as Maharaja Express, a luxury train to be launched in January 2010 in collaboration with IRCTC and visa-processing business for which it has received approvals from six countries, also offer long-term growth potential.
Marketing presence

On the whole, C&K has presence in 19 countries. In India, which made up more than half its overall revenues last year, the company has 255 points of presence covering 164 locations through a mix of owned and franchised sales shops, general sales agents and preferred sales agents.

The company, may need toimprove its reach in order to keep competition at bay. Its franchise distribution model holds potential in this regard. Not only does it offer a cheaper expansion mode, it may also help convert potential competitors into partners; the established client relationships of converts offering an added advantage.

C&K may also have to fight with vacation ownership companies for consumers’ wallet share. In that, however, tour operators appear relatively better placed as besides being asset light, they offer a wider basket of travel destinations.
Results and IPO proceeds

Over the last three years, C&K has grown its revenues and profits at a compounded annual growth rate of about 66 per cent and 80 per cent, respectively. In the same period, it managed to expand its operating profit margin by 10 percentage points to 42 per cent. Attributable mainly to increasing interest burden, the company’s NPM fell to 22 per cent from 28 per cent. With C&K seeking to use a portion of the IPO proceeds (Rs 129.6 crore) to repay loans, its interest outgo can be expected to come down significantly. C&K also plans to earmark IPO proceeds for acquisitions (Rs 150 crore), invest in overseas subsidiaries and upgrade corporate office.
Offer Details

The company seeks to raise Rs 584-610 crore from the issue, which also comprises an offer for sale of 3,046,640 equity shares by Lehman Brothers Opportunity Ltd, Deutsche Securities Mauritius Ltd and Merrill Lynch Capital Markets Espana.

The offer is open from November 18-20.

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ITC

Investors can consider booking profits in ITC shares, as the stock valuations (30 times trailing earnings, at Rs 254) seem to have outpaced the medium-term growth prospects. Forays into businesses less profitable than the core tobacco business and the likely moderation in growth rates for tobacco are the primary reasons for the recommendation.
CIGARETTES

ITC holds close to 70 per cent of the domestic market for cigarettes with the segment’s contribution to the topline averaging 65 per cent and profits 85 per cent for the four years ended March 2009. With strong pricing power to pass on excise duty hikes, operating margins have averaged a healthy 25 per cent, much higher than rivals such as Godfrey Philips. In-house production of cartons, filters and paper, coupled with efficient raw tobacco procurement, have made ITC a highly integrated player.

While the implications of the GST tax regime are unclear, further increase in taxes appear unlikely, given that current rates are already stiff. Despite ITC’s dominance in the cigarette business, challenges remain.

Under the current taxation structure , licensed products are at a disadvantage to smuggled or unlicensed low-end filter cigarettes and the grey market. This restricts the potential for uptrading, with fewer consumers being able to make the jump from beedis and chewing tobacco to filter cigarettes, but facilitates the reverse. That is one reason why cigarettes account for just 14 per cent of tobacco consumption in India.

The government’s efforts at creating awareness through a public smoking ban and graphic images may so far not have had a big impact on tobacco products. However, the broader consumer trend towards health and wellness is a negative for long-term growth in cigarettes.

All said, ITC may remain the market leader in the cigarette business, growing in high single-digits in terms of volumes. ITC’s ‘mindshare’ among consumers, not to mention a distribution system that will require years to replicate, is going to be hard to dent by rivals such as Philip Morris and Godfrey Philips. Over the medium term, the business is likely to remain the major cash cow, continuing to fund efforts to diversify into other businesses.
Non-cigarette FMCG

To diversify its revenues and profits, ITC has charted several forays into consumer products such as garments, confectionery, consumer staples, bakery products, snacks and stationery products.

However, the new businesses do have a long gestation period and establishing a market share has required big investments in advertising and distribution. The non-cigarette FMCG business showed a loss margin of 12.7 per cent on sales of around Rs 1,600 crore for the half year ended September 2009.

In the FMCG business, ITC has over the past couple of years moved from segments such as matches, snacks and consumer staples such as atta into the more highly competed soaps and personal products.

While ITC does enjoy a competitive edge in bakery products or consumer staples by virtue of its well established agri-product supply chain, the same cannot be said of the soap or personal products segments that are more brand-driven and far more saturated. Building a brand reputation in this business may entail high spending, considering well-entrenched competitors such as HLL, Colgate Palmolive and P&G whose operating margins range between 13-16 per cent.

The early signs for ITC’s biscuit brand, Sunfeast, and snack brand, Bingo, have been encouraging with estimates of its market share at 11 to 13 per cent. But, here again, well endowed incumbents such as Britannia, Parle, Pepsico’s Frito Lay have moved zealously to guard their turf.

While ITC has managed to win share in Round one of the battle, the business may continue to call for high investment and features lower margins (between 9 and 12 per cent).
HOTELS

One segment with the profit margins to give tobacco a run for its money is hotels. ITC operates 100 hotels under four brands generating close to Rs 1,100 crore of business in FY-09 and an average segmental profit margin of 35 per cent over the four financial years ended 2008-09, in line with the industry averages. Business slipped by over 20 per cent between FY-08 and FY-09 on account of the deteriorating business conditions, coupled with the terrorist attack.

Here, ITC’s focus on the premium and business travel segment, ensures that the strong signs of recovery across the economy will translate into better occupancy over the medium term. The company may be well-poised to capitalise on expected demand growth by virtue of being an early mover and an established brand.
paper and packaging

This segment generated revenues of over Rs 2,800 crore in FY-09 with internal sales accounting for 41 per cent and operating margin has averaged around 19 per cent for the last four years. Growth expectations are similar between 7 and 15 percent for various products.
AGRIBUSINESS

The agribusiness segment, procures rice, soya, coffee, wheat, tobacco, potatoes for trading and internal consumption.

ITC’s much-admired e-choupal, which is part of this segment, essentially provides information to farmers, procures directly from them and also doubles up as a mechanism for distribution of FMCG products and other services. For now, operating margin in this segment tends to swing quite sharply with the commodity prices and is likely to remain on the lower single-digit figures. In the half-yearly FY-10 results the segment saw a spike in segment margin to 14 per cent on the back of several commodity prices rising significantly from the lows in the second half of FY08.

ITC’s balance-sheet generates annual operating cash flows of about Rs 3,200 crore, allowing the company to make sizeable investments over the medium term into its diversification forays.

But even the winning outcome, with higher market share and volumes in non-cigarette businesses, is likely to leave ITC with lower net profit margins and lacks the dominance that it currently enjoys in tobacco. The size of the moat surrounding the ITC fortress is likely to shrink over the medium term

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RIL leads 4% Sensex surge

Strong buying across-the-board lifted the market higher last week after a recent steep correction. The sentiment was helped by the government's push towards disinvestment, along with its plan to exit fiscal stimulus in a phased manner.

The BSE 30-share Sensex rose 690.55 points or 4.27% to 16,848.83 in the week ended 13 November 2009. The S&P CNX Nifty rose 202.8 points or 4.22% to 4998.95.

The BSE Mid-Cap index underperformed the Sensex, rising 2.63% to 6,418.65. The BSE Small-cap index also underperformed the Sensex, gaining 3.33% to 7,409.70.

The key benchmark indices spurted on Monday, 9 November 2009, as the US dollar fell sharply against major rivals after finance ministers and central bankers from the Group of 20 leading economic powers pledged to keep massive stimulus measures in place until the global recovery strengthens. The BSE 30-share Sensex rose 340.44 points or 2.11% to 16498.72. The S&P CNX Nifty jumped 102.25 points or 2.13% to 4898.40.

The key benchmark indices snapped previous four sessions' gains on Tuesday, 10 November 2009, closing with small losses due to profit taking. The BSE 30-share Sensex fell 58.16 points or 0.35% to 16440.56. The S&P CNX Nifty fell 16.70 points or 0.34% to 4881.70.

The key benchmark indices soared on Wednesday, 11 November 2009, tracking firm global stocks after China reported continued strength in industrial production growth, keeping alive hopes of a recovery in the global economy. The BSE 30-share Sensex rose 409.04 points or 2.49% to 16,849.60. The S&P CNX Nifty rose 122.25 points or 2.5% to 5,003.95.

Interest rate sensitive banking, auto and realty stocks led the slide on Thursday, 12 November 2009, as mostly lower Asian stocks triggered profit taking on the domestic bourses after a sharp rally in the past few days. Stocks fell despite strong industrial production data. The BSE 30-share Sensex fell 153.57 points or 0.91% to 16,696.03. The S&P CNX Nifty fell 51.30 points or 1.03% to 4952.65.

India's industrial output rose 9.1% in September 2009 over September 2008, data released by the government on Thursday showed. The government revised upwards the industrial production growth for August 2009 to 11% from 10.4%. Consumer durable goods output surged by an annual 22.2%, manufacturing production rose 9.3%, mining output was up 8.6% and power generation rose 7.9% in September 2009 over September 2008.

Equities ended a volatile session in the positive terrain on Friday, 13 November 2009. The BSE 30-share Sensex rose 152.80 points or 0.92% to 16,848.83. The S&P CNX Nifty rose 46.30 points or 0.93% to 4998.95.

Shares of public sector units were the flavour of last trading week after Prime Minister Manmohan Singh on 5 November 2009, approved divestment in public sector companies to raise funds for social welfare.

NMDC (up 28.80%), Hindustan Copper (up 14%), Rural Electrification Corporation (up 9.84%), Rashtriya Chemicals and Fertilisers (up 3.60%), Engineers India (up 13.09%), and Neyveli Lignite Corporation (up 13.40%), soared.

However, MMTC (down 0.33%), Dredging Corporation Of India (down 3.43%), and NHPC (down 1.23%), declined.

Mr Singh's government believes that divestment is not selling family jewels, but it is essential to save the nation's finances. The government is staring at a fiscal deficit of 6.8% this year, a 16-year high. If the estimated sale happens, Mr Singh would break the divestment record set by the Atal Behari Vajpayee government, which raised $6 billion between 1999 and 2004.

Use of disinvestment proceeds would free up government resources to that extent or bring down its fiscal deficit in line with targets set in the road map. The government targets fiscal deficit at 5.5% in 2010-11 and 4% in 2011-12.

India's largest private sector company by market capitalisation Reliance Industries (RIL) rose 8.17% in the week. Mukesh Ambani's RIL and Anil Ambani led Reliance Natural Resources (RNRL) are slugging it out in the Supreme Court over the supply of gas from RIL's D6 block in the Krishna-Godavari (KG) basin. While RNRL has sought the apex court's intervention in a special leave petition for immediate supply of 28 mscmd of gas from KG D6 at $2.34 per mmBtu for a period of 17 years, RIL has opposed this saying the price is 44% lower than that mandated by the government. RIL says it cannot supply gas at a price not approved by the government and to a user not listed in its gas utilization policy.

RIL, on 10 November 2009, said reports of a meeting between the billionaire Ambani brothers to settle a gas-pricing dispute were baseless. RIL said in a statement the matter would be decided by the Supreme Court, which is currently hearing the case.

RIL, on Tuesday, 10 November 2009, announced its first oil discovery in its exploration block in the Cambay Basin off Gujarat. Reliance holds 100% participating interest in the block. This block was awarded to Reliance under the fifth round of the New Exploration Licensing Policy.

India's biggest state-run oil exploration firm by revenue Oil & Natural Gas Corporation (ONGC) rose 2.10% on television reports the oil ministry has proposed a sharp hike in administered gas prices.

Meanwhile, the government has allowed ONGC Videsh - the overseas arm of state-run Oil and Natural Gas Corporation (ONGC) to invest an additional Rs 322 crore in an oilfield in Brazil. The approval of the Cabinet Committee on Economic Affairs (CCEA) will raise the total investment in the project to Rs 1,762 crore.

India's largest thermal power producer by sales NTPC rose 2.16%. A 5% stake sale in state-run power producer could fetch the government Rs 8100 crore ($1.7 billion), Sunil Mitra, a senior finance ministry official, said on Friday. Last week, the government mandated more sales of shares by state firms and changed the rules on how it can use the proceeds, as it seeks to boost revenues and rein in a widening budget deficit

Last month, the cabinet approved share sales for NTPC, Satluj Jal Vidyut Nigam and Rural Electrification Corp. The stake sales will be completed by March next year, Mitra said. Rural Electrification Corporation soared 9.84%.

Rate sensitive realty shares fell after the Reserve Bank of India (RBI), last month, raised the provisioning requirements for loans to commercial real estate from 0.4% to 1% in its monetary policy review meet on 27 October 2009. Unitech (down 3.78%), Indiabulls Real Estate (down 5.75%), DLF (down 3.06%), fell.

The latest RBI move will result in increase in borrowing costs for realty firms which depend heavily on borrowing. In view of large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely non-performing assets (NPAs), the central bank said in its quarterly policy review.

Banking shares rose on hopes of likely reforms in the financial sector. India's largest private sector bank by net profit ICICI Bank rose 7.15%. The bank's net profit rose 2.6% to Rs 1040.13 crore on a 12.7% decline in total income to Rs 8480.73 crore in Q2 September 2009 over Q2 September 2008. The result was announced during trading hours on 30 October 2009.

India's second largest private sector bank by net profit HDFC Bank rose 5.06%.

India's largest bank by net profit State Bank of India (SBI) rose 4.26%. State Bank of India said on 9 November 2009, that it had entered into an agreement with T. Rowe Price to sell a 6.5% holding each in UTI Asset Management Company and UTI Trustee Company. State Bank currently holds 25% in each of the companies and after the sale its holding would be reduced to 18.5%, it said in a statement.

SBI announced after market hours on Friday, 6 November 2009 it has revised downwards interest rates on deposits by 25-50 basis points for a few maturities effective from 9 November 2009. The bank's consolidated net profit rose 28.29% to Rs 3,133.16 crore on 22% rise in consolidated income to Rs 33,101.65 crore in Q2 September 2009 over Q2 September 2008. The results were announced on 31 October 2009.

Prime Minister Manmohan Singh said on Sunday, 8 November 2009, financial reforms, such as building up a domestic bond market and expanding foreign investment in sectors like insurance, would be pushed forward.

As per reports, the government plans to introduce two key bills in parliament by December 2009. It plans to introduce bills proposing the raising of foreign stake limits in insurers to 49% from the present 26% and opening up the pension sector to private and foreign firms.

Rate sensitive auto stocks rose as low interest rates and attractive benefits offered by companies pushed up sales in October 2009.

India's largest small car marker by sales Maruti Suzuki India rose 0.44%. The company's total sales grew 32.4% to 85415 units in October 2009, compared with 64490 units posted in the same month a year ago.

India's largest truck marker by sales Tata Motors rose 8.77%. The company's total sales grew 18% to 20,011 units last month against 17,014 units in the same period last year.

India's second largest motorcycle marker by sales Bajaj Auto rose 0.62%. Carlos Ghosn, chief executive of French car maker Renault and Japan's Nissan Motor Co, said on Tuesday an agreement had been signed with Bajaj Auto for a low-cost car which would come to India in 2012.

India's largest bike marker by sales Hero Honda Motors rose 3.22%. The company reported a marginal increase in October sales at 354,156 units as against 352,449 units in the same month last year

India's largest tractor maker by sales Mahindra & Mahindra rose 6.03%. The company's overall sales climbed 32% in October this year to 18,410 units against 13,935 units in the same month last year. Mahindra and Mahindra (M&M) reportedly plans to launch a motorcycle next year. The company is also looking at acquisitions in the electronic scooter space. The auto major had entered the two-wheeler market market by acquiring the assets of Pune-based scooter manufacturer Kinetic Motor in 2008.

Car sales in India rose an annual 34% to 132,615 units in October 2009, boosted by festival demand and easier availability of loans, an industry body said on Wednesday 11 November 2009. Sales of trucks and buses, a gauge of economic activity, rose 52% to 42,562 units in October 2009, the data showed.

Technology stocks rose as investor bought shares, following a recent correction, and on hopes that the environment for spending on information technology was improving. Last week, the software services trade body, National Association of Software and Services Companies, said it expects the industry to regain double-digit revenue growth from April 2010.

India's second largest software company by sales Infosys Technologies rose 6.36%. Infosys BPO, the business processing outsourcing subsidiary of Infosys Technologies, on Thursday announced the signing of a definitive agreement to acquire all of the outstanding interests of McCamish Systems LLC, a premier business process solutions provider, based in Atlanta, Georgia in the United States.

The acquisition is expected to be completed later this year subject to the satisfaction of certain closing conditions. The upfront consideration for the deal is $38 million with up to an additional $20 million payable to the sellers if McCamish Systems achieves certain financial targets in the future. The announcement was made before market hours on Thursday 12 November 2009.

India's third largest software company by sales Wipro rose 5.63%. Wipro, sees robust deal pipeline on the back of improving IT demand worldwide, Suresh Vaswani, joint chief executive said on Tuesday 10 November 2009. The company said on 5 November 2009 it had agreed to buy some personal care businesses of Yardley for about $45.5 million, adding to its consumer goods business. Wipro said it had signed an agreement with UK-based Lornamead group, which owns the Yardley brand, for the businesses in Asia, the Middle East, Australasia and some African markets.

India's largest software company by sales Tata Consultancy Services (TCS) rose 7.98%. The company recently secured a 150 million pounds software implementation contract for 15 years from Cardiff city council, UK.

Metal stocks rose on strong demand. Hindalco Industries (up 4.02%), Sterlite Industries (up 4.13%), National Aluminium Company (Nalco) (up 3.24%). Nalco recently hiked the prices of aluminium products by Rs 1000 a tonne reflecting the recent uptrend in prices on the London Metal Exchange.

Tata Steel, the world's eighth largest steelmaker by output, rose 4.31%. The company said on Thursday 12 November 2009 it approved a new convertible bonds offer in exchange for an existing $875 million securities to reduce costs and ease repayment obligations. The company said on Friday 6 November 2009 steel sales at its Indian operations rose 38% to 462,000 tonnes in October 2009 over October 2008.

Demand for steel remains strong from auto, rural construction and infrastructure sectors. Also demand for construction grade steel has improved post monsoon season, and has resulted into higher sales.

Domestic bourses to take cue from global equities

With no major domestic trigger, the equity market is expected to move in tandem with the global markets. But upward momentum is likely to continue as sentiment in the market remains positive.

Sentiments in the Indian market are closely linked to the sentiment of the foreign investors as they have been large buyers in equities over the past few months and have been the main driver of the recent bull run. Foreign institutional investors (FIIs) inflow in November 2009 totaled Rs 2,727.10 crore, while the FII inflow in the calendar year 2009 totaled Rs 71,168.20 crore (till 11 November 2009).

The market will also keep a close watch on the US dollar. Investors are borrowing money at cheap rates in US dollars and buying risky assets like emerging market stocks and commodities. Experts believe that a rebound in the US currency may possibly lead to outflows from the emerging equity markets like India.

The Dollar Index, which measures the currency's value against six major units including the euro, gained on Thursday, 12 November 2009, after a weekly jobless report triggered strength in the currency. The US Dollar Index rose as much as 0.8% to 75.743 on Thursday. The dollar index gained strength on the back of risk aversion that led to a decline in equities and higher demand for the safe-haven dollar.

The 30-share BSE Sensex, which has doubled from its 2009 low in March, was one of the worst performers in October falling over 7% as investors began taking profits ahead of the close of the calendar year. The index, however, resumed its upwards march in November 2009, rising over 8% to 16696.03 on 12 November 2009, from a recent low of 15404.94 on 3 November 2009.

However, market participants are expected to remain cautious of accelerating inflation which tends to put upward pressure on interest rates and undermine equities. The government will unveil monthly inflation data for October 2009 on Saturday, 14 November 2009.

Although the Reserve Bank of India (RBI) held its main policy rates unchanged, as widely expected, at its review last month, the central bank gave enough indications that monetary tightening was round the corner with the focus shifting to tackling inflationary pressures.

Chairman of the Prime Minister's economic advisory council C. Rangarajan said on Wednesday stimulus measures may need to be withdrawn next year. He said excise duties, which were lowered twice between December 2008 and February 2009, needed to be adjusted while the government's expenditure needed to be cut in 2010/11 to reduce the fiscal deficit by 1% to 1.5%.

Rangarajan, a former central bank governor, said the economy could grow 7-8% in 2010/11 (April-March), but Finance Secretary Ashok Chawla said on Wednesday the economy cannot return to the 8-9% growth trajectory until exports revive.

Exports declined 11.4% in October from a year earlier, their 13th drop in a row, and trade secretary Rahul Khullar said exports would start growing only from January.

India's industrial output rose 9.1% in September 2009 over September 2008, data released by the government on Thursday showed. The government revised upwards the industrial production growth for August 2009 to 11% from 10.4%.

Consumer durable goods output surged by an annual 22.2%, manufacturing production rose 9.3%, mining output was up 8.6% and power generation rose 7.9% in September 2009 over September 2008

HP to acquire 3Com for US$2.7bn

HP will purchase 3Com, a leading provider of networking switching, routing and security solutions, at a price of US$7.9 per share in cash or an enterprise value of around US$2.7bn. The terms of the transaction have been approved by the HP and 3Com boards of directors. Under the terms of the merger agreement, 3Com stockholders will receive US$7.9 for each share of 3Com common stock that they hold at the closing of the merger. The acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of 3Com’s stockholders. The transaction is expected to close in the first half of calendar 2010. HP anticipates that the transaction will be slightly dilutive to fiscal 2010 non-GAAP earnings.

Intel and AMD settle legal disputes

Intel is to pay Advanced Micro Devices (AMD) US$1.25bn to settle all legal disputes, marking an end to what has been a protracted and acrimonious battle between the world's biggest makers of personal computer chips. The move comes just days after Intel was sued by New York state for antitrust violations and follows a US$1.5bn fine slapped by the European Commission for antitrust offences. In their joint statement, the companies said: "While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development." AMD will drop all pending cases, including one before a federal court in Delaware and two cases pending in Japan. The company also agreed to withdraw all of its regulatory complaints worldwide. Intel CEO Paul Otellini termed the settlement as a painful, but pragmatic, compromise.

China...industrial output strong; prices drop

China said that its industrial production and retail sales accelerated at a faster-than-expected pace, but consumer prices and producer prices fell more than anticipated. Industrial production for October surged 16.1% from a year earlier, outpacing a 15.5% rise forecast by economists, while retail sales climbed 16.2%. The consumer price index (CPI) fell 0.5% from a year-earlier period and the producer price index (PPI) shrank 5.8%, with each dropping more than economists' estimates but still showing an increase from the previous month's data. The growth in urban fixed-asset investments in the first 10 months of this year (January-October 2009) also slowed to 33.1%, easing from the 33.4% growth in the first nine months of 2009. The latest batch of economic reports underscore China’s rapid economic recovery, thanks in part to a huge stimulus package unleashed by the government. Car sales, for instance, have been booming (up by 72.5% in October) because of a cut in sales tax on new vehicles. But as in the US and Europe, experts are wondering what will happen when the stimulus measures end.

Gold continues record rally

There is no stopping the gold bulls, as the US dollar continued to be under pressure amid prospects for a fragile economic recovery in the world's biggest economy. A weak greenback tends to bolster the appeal of gold as a safe haven investment. The precious metal had gained 5% last week on fund buying after the Reserve Bank of India (RBI) bought 200 tons of gold from the International Monetary Fund (IMF) and the dollar weakening further. Gold has gained more than 25% in 2009, driven by persistent weakness in the US currency, and growing doubts over its future as the world's reserve currency.

China's Prime Minister Wen Jiabao exhorted the US to keep its deficit in control to stabilize the dollar exchange-rate, according to media reports. China is the largest foreign holder of US Treasurys. Since early March, the US dollar index, which tracks the dollar's value against a basket of major rivals, has fallen about 15%, in part due to the Federal Reserve's loose monetary policy. Meanwhile, the IMF signaled that record low US interest rates are funding global carry trades and the dollar is still overvalued as concerns mount that new financial imbalances are forming.

Some countries expressed concern that the increasingly weak dollar might hamper recovery. US Treasury Secretary Timothy Geithner reiterated his belief in a strong dollar. Responding to the IMF’s comment that the yuan was "significantly undervalued", China’s central bank said that its foreign-exchange policy would take into account "capital flows and major currency movements".

Weekly Wrap - Nov 14 2009

Weekly Wrap - Nov 14 2009