Dead Presidents! - India Equity Research

Monday, September 24, 2007

Post Market Commentary

The market closed the session on a strong positive note as BSE Sensex surged by 281.6 points to close at 16,845.83 and Nifty grew by 94.65 points to close at 4,932.20.The BSE mid cap and Small cap closed firmly as it was up by 110.22 points and 68.13 points at 7,310.14 and 8,963.43 respectively.

BSE Metal index surged by 217.71 points to close at 13,030.47 as Jindal steel (5.34%), SAIL (2.72%), Sterlite industries (2.32%), Hindalco (1.89%), JSW steel (1.76%) and Tata steel (1.09%) closed in green.

BSE bankex index grew by 221.65 points to close at 8,961.49 as Andhra bank (5.42%), PNB (5.01%), BOB (2.58%), Allahabad bank (4.01%), ICICI bank (3.18%), HDFC bank (1.78%) and SBI (1.38%) closed higher.

BSE oil & gas index advanced by 311.12 points to close at 9,651.17 as RPL (8.03%), GAIL (7.11%), Reliance industries (3.62%), CAIRN India (3.57%), HPCL (2.46%) and BPCL (1.25%) closed higher.

BSE Capital goods index closed firmly as it was up by 317.54 points at 14,837.71 as Jyoti structures (6.17%), Areva (4.76%), L&T (4.09%), Crompton greaves (3.39%), BHEL (2.24%), Siemens (0.78%) and ABB (0.33%) closed in positive.

BSE IT index closed lower by 78.51 points at 4,349.83 as Infosys (3.22%), Satyam (2.32%), Patni computers (2.02%), Tech Mahindra (1.22%) and TCS (0.89%) closed lower.

BSE Health Care Index closed up by 8.99 points at 3,663.23 as Opto circuits (5.82%), Fortis (3.97%), Glennmark (3.39%), Ranbaxy (2.75%) and Novartis (1.17%) closed in positive.

BSE FMCG index closed flat at 2,153.57. United breweries (10.47%), Marico (2.70%), HUL (2.15%), Colgate (1.06%) and Dabur (0.60%) closed higher.

Market Close: New high.. headed up !

After recording highest gains during last week market continued to extend its gains. Reliance group companies, Oil, Banks and Metal stocks contined to support the index. But market gave some of its earlier gains on profit booking however eventually managed to keep its head up to make yet another all time high. Open Interest made a record and hit 1 lakh crore mark. This will be the biggest series ever rolled over on F&O expiry day. Energy & Power stocks continued to hog the limelight. Techies stocks still under selling pressure due to strong rupee at 39.77 against Dollar. Europe was a little cautious and is trading almost flat.

Sensex ended up by 272 points at 16836. It was helped up by gains in REL. ENERGY (1092+8.22 percent), MARUTI SUZUKI (980,+5.5 percent), NTPC (196,+5 percent), L&T (2900+4.2 percent) and RELIANCE (2352.80,+3.45 percent). Restricting the gains were INFOSYS (1760, 3.37 percent), Satyam (407.45, 2.72 percent).

HDFC reduced new home loans by 50 bps. The home loan rate cut is for disbursements up to October. It will decide on continuation of rate cut post announcement of the credit policy. The decision has been taken in view of the lower cost of funds, the benefit of which is being passed on to the customers. HDFC is not alone in this venture. Bank of Baroda too has cut its home loan rate for Rs 20 lakh loan from 10.75 % to 10.25 per cent for tenure of 20 years. Similarly a host of large PSU banks including the State Bank of India, Union Bank and Punjab National Bank are all looking at cutting home loan rates by nearly half a percentage point. However ICICI Bank is currently not looking at slashing rates. According to sources cost of funds is still high and hence there is as of now no scope to offer lower rates even temporarily for the festive season. The stock performed well on the back of news and ended marginally higher.

Low budget carrier Air Deccan lost market share in July-August monsoon season this year to 16.1% down by 2 % point?s month on month basis. SpiceJet?s share stood at 7.7% during the month as against 7.7% in June. The hike in fairs is probably the reason.. Jet the market leader increased its share to 22.7% as compared to 22% in the previous month. Kingfisher increased its market share to 13% in July as compared to 12.9% in June. The market share of Indian Airlines went up to 20.5% in July as compared to 19.8% in June. Domestic airlines carried 24.85 million passengers during January-July period registering a growth of 37.81%. Spice is where our eyes on.. Spicejet has revised its fleet size expansion plans for FY08. It will add 6 new aircraft against 8 new planned earlier. It expects 2 aircrafts to be back from Transaaria which were leased out in July 2007. Near term high crude prices is something which will weigh. But an industry growing by 35%+ is in now way to be ignored. Spicejet was more benefited which ended up by 5% while Air Deccan was marginally impacted by the news.

Technically Speaking: Markets traded well on the back of strong sentiment. Sensex touched intraday high of 16869 and low of 16599. Over all market turnover was fantastic for the day at Rs 4715 Cr. Market breadth was in favor of Advances. The Decliners stood at 760 while Advances was 1971. Sensex is in a runaway mood. The trend is up and no negative signs as of now, trade up.

Sensex, Nifty strike all-time highs

The market kept on advancing as the day progressed on steady buying demand for index pivotals throughout the day, except for an hiccup in early trade. Turnover was healthy today and it crossed Rs 7,500 crore on BSE. Both the niche indices BSE Sensex and S&P CNX Nifty struck all time highs. Sensex is now eyeing 17,000 and the S&P CNX Nifty is eyeing 5,000 mark.

European markets which opened after Indian market, were mixed. Asian markets which opened before Indian market settled higher today, 24 September 2007. US markets posted gains on Friday, 21 September 2007.

The 30-shares BSE Sensex was up 281.60 points or 1.70% to 16,845.83, an all time closing high. It had opened on an upbeat note at 16,697.89 tracking firm global cues. Its low for the day was at 16,599.66. It surged to an all time high of 16,869.64 in late trade. Sensex oscillated 268.98 points for the day

From a recent low of 13,989.11 on 21 August 2007, Sensex has surged 2856.72 points or 20.42% in just 24 trading days to current 16,845.83.

The S&P CNX Nifty was up 94.65 points or 1.96% to 4,932.20, an all time closing high. It struck an all time high of 4,941.15. The Nifty September 2007 futures settled at 4938, a premium of 5.80 points as compared to spot closing.

Despite solid rally in market, the market breadth was negative on BSE with 1454 shares declining as compared to 1302 that advanced. 51 remained unchanged. The breadth was strong in opening trade.

The BSE Mid-Cap index rose 1.53% to 7,309.84. It hit an all-time high of 7,321.02 today. BSE Small-Cap index gained 0.77% to 8,963.48. The index hit record high of 9,013.35 today.

The total turnover on BSE amounted to Rs 7,744 crore as compared to Rs 8,279.52 crore on Friday, 21 September 2007.

The NSE’s F&O turnover amounted to Rs 79397.68 crore as compared to Rs 75928.77 crore on Friday, 21 September 2007.

All the sectoral indices on BSE posted gains except the BSE IT index. BSE Realty index (up 2.03% to 9,369.68), BSE Auto Index (up 2% at 5,297.26), BSE PSU index (up 2.30% to 7,959.92), BSE Metal Index (up 1.70% at 13,030.47), BSE Capital Goods Index (up 2.19% at 14,837.71), BSE Oil and Gas Index (up 3.33% at 9,651.17) outperformed the Sensex.

However BSE TecK index (up 0.09% to 3,641.41), BSE Consumer Durables index (up 0.17% to 4,756.01), BSE FMCG Index (up 0.03% at 2,153.57), BSE Health Care Index (up 0.25% at 3,663.23), BSE Bankex (up 2.54% at 8,961.49) and BSE IT Index (down 1.77% at 4,349.83) were underperformers

Among the 30-member Sensex pack, 25 advanced while the rest declined.

India’s top private sector utility company in terms of revenue Reliance Energy (REL) surged 8.17% to Rs 1092.10 on 21.52 lakh shares. The stock hit all-time high of Rs 1130.70 in intra-day trade. It was the top gainer from Sensex pack. As per reports, the government cleared the two transmission line projects of REL worth Rs 3,500-crore projects which includes the western region system strengthening (WRSS) II and the Parbati-Koldam hydro projects in Himachal Pradesh. These projects were delayed due to issues raised by the public-private partnership appraisal committee (PPAC).

National Thermal Power Corporation, the country’s largest power generation company by net sales jumped 4.96% to Rs 196.80 on 46.18 lakh shares. It replaced Dabur India in the S&P CNX Nifty index from today.

India’s top small-car market by market share, Maruti Suzuki India galloped 7.47% to Rs 999. Last week, Foreign Investment Promotion Board (FIPB) cleared Maruti's proposal to form a joint venture for setting up an exhaust parts manufacturing facility in Haryana with Japan's Futaba Industrial Company. Futaba will hold 51% in the venture.

Bharti Airtel, India’s largest listed cellular services provider by market share rose 2.52% to Rs 941.50. As per reports, it has got licence to start Direct-To-Home (DTH) services in the country and announced an investment of Rs 150 crores in the first phase to launch nation-wide operations, a move that would bring in much required competition in the DTH segment. Also another set of reports state that Bharti Airtel may get extra spectrum for Delhi and Mumbai under the existing subscriber-base norms.

India’s largest power equipment maker in terms of revenue Bhel gained 1.82% to Rs 2002. It hit lifetime high of Rs 2025. As per recent reports, Bhel it is looking at mergers and acquisition to fuel inorganic growth and it targeting a turnover of Rs 45,000 crore by 2012.

Banking pivotals advanced on fresh buying. ICICI Bank (up 3.19% to Rs 996), HDFC Bank (up 2.37% to Rs 1354.05), and State Bank of India (up 0.75% to Rs 1821.90), edged higher.

India’s largest private sector entity by market capitalisation and oil refiner Reliance Industries (RIL) rose 3.63% to Rs 2357 on 7.87 lakh shares. It hit an all time high of Rs 2375 in intra-day trade. RIL said on Saturday, 22 September 2007 that it has struck oil in the deepwater block KG-D4 located in the Krishna Basin. The commercial viability of the discovery is being evaluated. RIL holds 100% participating interest in this block, which spans over an area of 8100 sq. kms. The rumors about RIL’s oil find had already hit the market on Friday, 21 September 2007.

India’s second largest telecom services provider market capitalisation Reliance Communications jumped 3.26% to Rs 598.25 on high volumes of 38.27 lakh shares. A block deal of 14.10 lakh shares was struck on at Rs 590 per share in early trade on BSE.

Larsen & Toubro (L&T), the country’s second largest engineering & construction company in terms of market capitalisation, soared 4.49% to Rs 2908. As per recent reports, it is close to acquiring a stake in Feedback Ventures, a leading integrated infrastructure services firm. The stock hit an all time high of Rs 2910 on BSE

IT shares were weak throughout the day. India’s second largest software services exporter Infosys Technologies was the top loser from Sensex pack. It slipped 3.30% to Rs 1761.90 on 2.83 lakh shares

Other IT pivotals, Satyam Computers (down 2.76% to Rs 407.30), TCS (down 1.08% to Rs 1004), were not spared either.

ITC (down 1.47% to Rs 188) and Grasim (down 0.07% to Rs 3445) were the other losers from Sensex pack.

IFCI was the top traded counter on BSE with turnover of Rs 531.37 crore followed by Reliance Natural Resources (Rs 454.34 crore), Reliance Petroleum (Rs 368.57 crore), DLF (Rs 242.13 crore), and Reliance Energy (Rs 232.84 crore).

Reliance group stocks were in spotlight for second straight day on momentum buying. Reliance Petroleum (up 8.10% to Rs 167.50), Reliance Natural Resources (up 22.03% to Rs 93.60), Reliance Capital (up 1.90% to Rs 1571.25), Reliance Industrial Infrastructure (up 10% to Rs 1147.40), Adlabs Films (up 1.12% to Rs 555) and IPCL (up 3.25% to Rs 465.50) surged.

Adhunik Metaliks jumped 6.40% at Rs 99 after its board approved acquiring a majority stake in V Cube Forge (India) for an undisclosed amount. Pune-based V Cube Forge manufactures forged and machined parts for automobiles, railways, and aerospace.

IFCI surged 19.32% to Rs 98.80 on huge volumes of 5.68 crore shares. Nearly 1.10 crore shares changed hands through multiple block deals on BSE and NSE combined.

IVRCL Infrastructures & Projects slipped 1.25% to Rs 409.90. It received new orders worth Rs 394.24 crore. The Pune region of the company has received these orders for its building division and for power division.

Hindustan Petroleum Corporation was up 2.32% to Rs 256.10 on reports that Lakshmi Mittal may buy a stake in the unit of the company, Prize Petroleum.

Tata Tea rose 0.10% to Rs 785 on reports that the firm is in talks to buy UK-based speciality tea company Liberty Tea. The move is aimed at expanding company’s presence in the global beverages market. Unlisted Liberty Tea is a popular brand in Europe.

Unitech advanced 3.90% to Rs 350.55 after it announced after trading hours on Friday, 21 September 2007, that it would enter mobile telephone services in services in 22 out of 23 circles of the country.

ING Vysya Bank surged 7.17% to Rs 262.45 on reports that it is in talks with Centurion Bank of Punjab and Kotak Mahindra Bank for acquisitions.

GAIL soared 7.23% to Rs 375.75 on reports that it is considering an issue of bonus shares to its equity stakeholders.

Hindustan Construction Company rose 2.37% to Rs 146.75, after the company said its joint venture with Alphine Mayreder Bau GMBH and Samsung Corporation has received a contract from Delhi Metro Rail Corporation, Delhi for design and construction of two underground stations and tunnel between New Delhi station and Talkatora Garden. The value of the order is worth Rs 774.64 crore. HCC's share is the total value of the contract is 33% to Rs 255.63 crore.

Syndicate Bank moved up 1.83% to Rs 91.60 on reports that the state-run bank is planning a follow-on public offer (FPO) during this fiscal year, subject to regulatory approvals.

Aftek rose 3.63% to Rs 77, after the company said Goldman Sachs Investments Mauritius has acquired 20 lakh shares or a 2.29% in the company to raise its stake to 5.74%.

European markets which opened after Indian market, were mixed today, 24 September 2007. Key benchmark indices in France (up 0.12% to 5,707.67), and United Kingdom (up 0.51% to 6,489.40) rose. However, Germany’s DAX was down 0.12% to 7,785.44

Asian markets which opened before Indian market settled higher today, 24 September 2007. Hong Kong's Hang Seng (up 2.52% at 26,495.15), Shanghai Composite (up 0.56% to 5,485.03), and Singapore's Straits Times (up 2.73% at 3,639.02) advanced. Stock markets in Japan, South Korea and Taiwan were closed for public holidays.

US stocks posted steady gains on Friday, 21 September 2007 capping a strong week for Wall Street, as investors drew confidence from strong results at Oracle Corp. and a continued sense that lower interest rates should help bolster the economy. The Dow Jones industrial average rose 53.49, or 0.39%, to 13,820.19. Broader stock indicators also rose. The Standard & Poor's 500 index advanced 7.00, or 0.46%, to 1,525.75, while the Nasdaq Composite index rose 16.93, or 0.64%, to 2,671.22.

Indian market may, however, turn volatile this week ahead of the expiry of September 2007 futures & options (F&O) contracts on Thursday, 27 September 2007.

Crude oil prices dipped on Monday, 24 September 2007 as oil and gas producers in the Gulf of Mexico restored more output after a mild storm triggered evacuation and production cuts. US crude for November delivery fell 22 cents to $81.40 a barrel.

As per the data released on Friday, 21 September 2007, inflation based on the wholesale-price-index rose 3.32% for the week ended 8 September 2007 as against 3.52% in the previous week.

Firm global indices keep market buoyant

The market exhibited strong optimism as buoyancy in overseas markets triggered a major rally across the board. After registering strong gains on Friday, the Sensex resumed with a positive gap of 134 points at 16698. However, profit booking in heavyweights, information technology, pharma and cement stocks dragged the Sensex to its day's low of 16600. But, the Sensex recovered on hectic buying at lower levels and set another all-time high of 16870. Firm close in other Asian indices also helped the market to rally. The Sensex finally closed the session with gains of 282 points at 16846. The Nifty closed by adding 95 points at 4932.

Among the sectoral indices, the Oil & Gas Index led the upsurge with gains of 3.33% at 9651 followed by the BSE Bankex (up 2.54% at 8961), the BSE PSU Index (up 2.30% at 7960) and the BSE Realty Index (up 2.03% at 9370). However, the market breadth was negative. Of the 2,837 stocks traded on the BSE 1,467 stocks declined, 1,313 stocks advanced and 57 stocks ended unchanged.

Out of the 30 Sensex stocks, 23 managed to end in the green while seven stocks ended with losses. Reliance Energy was the leading gainer and soared 8.33% at Rs1,094. Maruti Udyog jumped 5.45% at Rs980, NTPC shot up by 4.83% at Rs197, L&T advanced 4.09% at Rs2,897, Reliance Industries moved up by 3.62% at Rs2,357, Reliance Communication added 3.26% at Rs598 and ICICI Bank gained 3.18% at Rs996. Among the laggards, Infosys dropped 3.22% at Rs1,763, Satyam Computer shed 2.32% at Rs409, ITC declined by 1.55% at Rs188 while TCS, Grasim, Dr Reddy's Lab and Cipla closed with marginal losses.

Over 5.69 crore IFCI shares changed hands on the BSE followed by Tata Teleservices (5.32 crore shares), Reliance Natural Resources (4.92 crore shares), Ispat Industries (4.81 crore shares) and Himachal Futuristic Communication (3.55 crore shares).

IFCI registered a turnover of Rs531 crore on the BSE followed by Reliance Natural Resources (Rs457 crore), Reliance Petroleum (Rs369 crore), DLF (Rs242 crore) and Reliance Energy (Rs234 crore).

Hop on, its a joyride

The US Federal Reserve’s move to cut interest rates by 50 basis points is its first in the past four years. It is a reaction to the disruptions triggered by the US sub-prime crisis. This will set the tone for the Indian market to break out and move to the next orbit.

Markets across the globe cheered this move, and India was no exception. The Sensex closed above the 16000 mark for the first time on Wednesday. The question uppermost on investors’ mind is: will the Sensex sustain these levels? We remain optimistic about India because of fundamental or macro-economic reasons, as well as technical or liquidity reasons.

Macro-economically speaking, India has never had it so good. We have entered the 9%-plus real GDP growth band, and it looks like these growth rates will be sustained. Apart from agriculture, both manufacturing and services are firing on all cylinders. This growth will have a trickle-down effect on the rest of the economy.

Travel anywhere in India, and you will see the impact of retail spending and the telecom revolution. However, infrastructure remains a big bottleneck. Certain states have woefully inadequate infrastructure, but it looks like slowly, the powers to be have realised the need to invest in this sector. We’re optimistic that in the medium term, this issue will be resolved. Commodity prices are also stabilising after being volatile in the past. This will benefit all old economy stocks.

India was relatively unaffected by the subprime mess. The only visible impact was in FII selling, primarily due to hedge fund redemptions. The Fed rate cut signals that the phase of rising interest rates is finally ending and from now onwards, interest rates will stabilise, if not fall.

The Reserve Bank of India (RBI) is expected to follow suit. Inflation rate has fallen to 3.5%, the lowest in almost a year-and-a-half. Hence, chances of RBI reversing its stance on interest rates are quite high. A fall in interest rates will revitalise all interest rate-sensitive sectors like housing, banking and automobiles.

With the Fed rate cut, emerging markets will re-emerge as the investment destination of choice. Decoupling notwithstanding, a shift of funds from dollar to non-dollar assets is expected, with a growing interest in high-growth destinations like India and China. We expect the domestic capital market to see a surge in foreign funds, which spells good news for both stock prices and indices.

Earlier, foreign money was the first to shy away from emerging markets during global upheavals. FIIs’ intense selling pressure, coupled with drying up of liquidity, is a double whammy. But the case is different this time in India due to deep domestic liquidity.

The direction of the market is no longer determined solely by FII inflows — as was the case in the past — but also by domestic institutions like mutual funds and life insurance companies, which have ample cash to invest in the market and do bottom-fishing.

These domestic institutions are one of the prime reasons why the market remained stable, despite FIIs being net sellers to the tune of $2 billion during July-August ’07. Hence, the domestic stock market is no longer as dependent on ‘foreign funds’ as it used to be, since Indian institutions themselves are now of a size to be reckoned with.

A surging economy, coupled with healthy corporate numbers, will set the tone for the market to reach new highs. The only spoilsport can be political instability. Domestic consumption, capex cycle and the Indian outsourcing story will be the key investment themes.

Technically speaking, the market has broken free from the critical resistance levels of 15973. So, too many eyebrows may not be raised if the Sensex breaches the 18000 mark on ‘Mahurat’ trading day. Be ready to enjoy fireworks this Diwali as the best is yet to come. Come and join the joyride!

Prabhudas Lilladher - Tanla Solutions

Prabhudas Lilladher has buy rating on Tanla Solutions and revised its price target to Rs 944.

"We expect Tanla to clock revenues of Rs 410 crore in 2007-08 (Apr-Mar) and Rs 620 crore in 2008-09. At the current market price of Rs 614, the stock trades at 19.8 times the 2007-08 estimate earnings per share of Rs 31.1 and at 13 times 2008-09 estimate earnings per share of Rs 47.2. We have increased the target price as we have factored in the contribution from Ireland and we believe that this stock is on a path of re-rating," the brokerage said in its Sep 21 report.

The company has forayed into Ireland. "Tanla has tied up with all the Irish operators which include 3, O2, Vodafone and Meteor. The total addressable market for Tanla is around Rs 1,000 crore. Revenues would start flowing in from second quarter of 2007-08. The margins in Ireland will be at par with the company level as there is no major capex involved here," the report adds.

Tanla’s US subsidiary has begun operations and revenues are likely to flow in three months. It is also looking for acquisitions there.

Reliance Industries, RPL, Sun TV, GSPL, Petronet LNG

Weekly Update, Redington, HCL Tech

Sensex spurts 272 points

Maytas Infra IPO in Rs 320-370 price band

Maytas Infra, a construction and infrastructure development company, is entering the capital markets with an initial public offering of 8.85 million shares at a price band of Rs 320-370 a share. The company will mobilize Rs 283.20 crore to Rs 327.45 crore at lower and upper end of the price band. The issue will open for subscription on September 27, and will close on October 4, 2007.

The issue will constitute 15.04% of the fully diluted post-issue equity share capital of the company. Out of the total equity float, at least 60% of the issue shall be allocated on a proportionate basis to qualified institutional buyers, out of which 5% would be available for allocation on a proportionate basis to mutual funds.

Incorporated in 1988, Maytas Infra has adopted an integrated business model with a diversified order book. The company has historically focused on the irrigation, road and bridges, and buildings infrastructure sectors, a press release said.

Sensex ends up 272pts at 16,836

The Sensex opened with a significant positive gap of 134 points at 16,698 - up 134 points from the previous close. After extending gains in early trades the index pared some gains and touched a low of 16,600.

The index, thereafter, exhibited steady upmove on the back of unabated buying in heavyweights like Reliance, ICICI Bank, Bharti Airtel, Reliance Communications and NTPC. The index touched a fresh all-time intra-day high of 16,848.

The Sensex finally ended (provisional) with a gain of 272 points at 16,836.

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