Bears set to enjoy weak end
Dig where the gold is…unless you just need some exercise.
While you were sleeping, the US indices came crashing down. So after a topsy turvy ride so far in the week, the bulls should brace for a big jolt early in the morning. Given the fact that we have to contend with UP election results and inflation today we expect the key indices to open sharply lower. Unless the regional indices recover, we fear that bears may just have an upper hand ahead of the weekend.
Gold diggers can keep their list and cash handy as opportunities will come in today to buy your picks at lower rates. But don’t pick up counters simply because they are falling. Be prudent in your investments.
Wider than anticipated trade deficit, weaker than expected retail sales and higher oil prices led to the US indices ending in the red. Other global markets in Europe, Latin America and Asia have taken their cues from Wall Street and have fallen sharply.
Investors should remain cautious as the undertone seems to have turned a little weak. Fresh buying should be avoided unless one is a long-term investor. The market needs fresh impetus to move forward. One may have to wait for a while before the major indexes hit new historic peaks.
As we have mentioned in our recent editions, FII inflows have slowed considerably after a bumper April. Plus, we have a volatile rupee to deal with. There are no major triggers on the horizon for a tired market to look forward to except for the monsoon and weekly inflation figures.
The Indian economy is likely to slow in FY08 following the series of monetary tightening steps. One such signal is the slowdown in automobile sales in the month of April. The industrial output numbers to be released shortly may also confirm a slowdown. Corporate earnings are also likely to fall as interest and other costs are on their way up.
Airline companies like Air Deccan, SpiceJet, Kingfisher Airlines (UB Holdings) and GoAir (Bombay Burmah Trading) will be in the limelight amid reports that the Government is considering relaxing the five-year limit for local carriers to fly abroad. Jet Airways may also gain from reports that the Gulf sector will be opened up soon for private airlines. Piramyd Retail could attract some attention as a financial daily states that the Aditya Birla Group is looking to buy the Mumbai-based organised retail player. Reliance Communications is another stock to keep an eye on. The company says that it has sold a million handsets after launching the Rs777 scheme last week.
FirstSource is also expected to be in action amid reports that Khemkas of Sun Group are likely to buy a 9% stake in the BPO major from Sequoia Capital. Bajaj Auto will also be in the spotlight as it will consider the much-awaited demerger plan on May 17. UB may gain amid reports that beer consumption rose 27% in FY07 to around 137mn cases. Maruti is another stock to keep an eye on as the Government has sold its remaining 10.27% stake in the car major at an average price of Rs796.
US stocks tumbled on Thursday, with the Dow Jones Industrial Average leading the way a day after ending at an all-time high. Higher oil prices, weak economic news and lackluster April retail sales spooked investor sentiment.
Citigroup and JPMorgan dragged the Standard & Poor's 500 Index from its six-year high and the Dow Jones from a record on concern that a weaker economy will hurt credit demand. Retailers like Wal-Mart and Federated Department Stores reported drop in April sales.
The trade gap widened more than market expectations in March on higher oil imports, fueling fears that the government may slash its first-quarter GDP estimate. The report came a day after the Fed kept its benchmark interest rate unchanged and said that inflation remains a bigger threat than economic downturn.
The S&P 500 fell 21.11, or 1.4%, to 1491.47, its steepest drop since March 13. The Dow Jones Industrial Average lost 147.74, or 1.1%, to 13,215.13. The Nasdaq Composite Index decreased 42.60, or 1.7%, to 2533.74.
US light crude oil for June delivery rose 26 cents to $61.81 a barrel on the New York Mercantile Exchange. The front-month contract was 6 cents down at $61.75 a barrel in extended hours of trading in Asia.
COMEX gold for June delivery fell $15.50 to settle at $667 an ounce. Treasury prices rose, lowering the yield on the 10-year note to 4.64% from roughly 4.66$ late on Wednesday. In currency trading, the dollar gained against the euro and slipped versus the yen.
European shares too closed in the red. The pan-European Dow Jones Stoxx 600 index slipped 0.5% to 388.49. The UK's FTSE 100 closed down 0.4% at 6,524.10, the German DAX Xetra 30 slipped 0.8% to 7,415.33 and the French CAC-40 lost 0.6% at 6,012.76.
Major Latin American markets declined as well. In Brazil, the Ibovespa stocks index closed 1,065 points, or 2.1%, at 50,234.68 points. Mexico's IPC index of 35 most-traded issues fell 339 points, or 1.1%, to 29,653.82.
Key Asian stock indices are bleeding profusely this morning after raw-material prices dropped and reports showed falling retail sales and a wider trade deficit in the US, the region's largest export market.
All 10 industry groups making up the Morgan Stanley Capital International Asia-Pacific Index retreated. BHP Billiton posted its biggest drop in two weeks as copper and zinc declined. Canon slid by the most in two months on concern that demand for its digital cameras will falter as the US economy slows.
The Nikkei is down 243 points at 17,493 while the Hang Seng in Hong Kong is down 289 points at 20,456. The Kospi in Seoul is down 11 points at 1587 and the Straits Times in Singapore is down 27 points at 3441.
Key indices ended in the red as uncertainty was witnessed ahead of outcome of UP election and Inflation numbers tomorrow. Cautious investors favored to book profits dragging the benchmark index Sensex to close in negative terrain.
Markets registered strong opening after The FOMC left its key overnight lending rate unchanged at 5.25% for a seventh consecutive meeting. Buying interest in the frontline stocks like Tata Steel, ITC, Bajaj Auto, Reliance Communication and ABB also aided benchmark Sensex to hit day’s high of 13976.79. However, markets pared all its gains in the second half of the session as the Oil & Gas, Technology and Capital Good stocks was hammered out on back of profit booking.
Finally, the 30-share benchmark Sensex slipped 10 points to close at 13771. NSE Nifty was down 12 points to close at 4066.
Subex Azure declined by over 3% to Rs608. The company announced that it has won a contract to provide fraud management and revenue assurance solutions for MCEL, the largest GSM operator in Mozambique. The scrip touched intra- day high of Rs649 and a low of Rs608 and recorded volumes of over 41,000 shares on NSE.
Autoline Industries was frozen at 10% upper circuit to Rs237.90 after the company executed an agreement with the promoters of Detroit Engineered Products INC. USA to acquire 51% stake in the Company as strategic investor. The scrip touched intra-day high of Rs237.90 and a low of Rs217 and recorded volumes of over 77,000 shares on NSE.
GVK Power also locked 10% upper circuit to Rs366.15 after the company announced its plans to raise Rs12.21bn through an issue of shares priced at Rs325 each. The company would raise the money through a Qualified Institutional Placement (QIP). The scrip has touched intra-day high of Rs366.15 and a low of Rs335 and recorded volumes of over 1,00,000 shares on NSE.
Ansal Properties also saw only buyers as the scrip was locked at 5% upper circuit to Rs298.15 after the company announced that a MOU has been entered between the Company and Deyaar Development PSC, a real estate Company in UAE, with head quarters in Dubai, (in short Deyaar), for developing a mega mixed use township comprising of residential, commercial, institutional and industrial properties in India. The scrip touched intra-day high of Rs298.15 and a low of Rs293 and recorded volumes of over 3,00,000 shares on NSE.
Steel stocks shined today as reports stated that Government announced that it would not intervene to control rising steel prices. Tata Steel surged 2.5% to Rs576 SAIL was up 0.7% to Rs134 and Jindal Steel gained 1% to Rs2929.
FMCG stocks stood firm till the end. ITC surged 2% to Rs163, Britannia surged over 6% to Rs1586, Marico advanced 1.3% to Rs57 and Colgate added 0.8% to Rs376. However HLL was down 0.5% to Rs190.
Select Technology stocks continued to be on the receiving end. Mphasis BFL, Polaris and HCL tech were the major losers among the Mid-Cap stocks. Infosys was the major losers among the IT heavy weights, the scrip fell 0.5% to Rs1974. However, However Satyam Computer and Wipro each gained 0.5%.
Select Consumer Durable stocks again ended with smart gains. Titan rose over 2.5% to Rs998, Rajesh Exports advanced by over 4.5% to Rs393.
Insider Trades:
Micro Technologies (India) Limited: Goldman Sachs Investments (Mauritius) I Limited ("GSIMI") has purchased from open market 174328 equity shares of Micro Technologies (India) Limited on 4th May, 2007.
ACC Limited: Ambuja Cement India Private Limited has purchased from open market 7691499 equity shares of ACC Limited on 9th May, 2007.
Indiabulls Financial Services Limited: Goldman Sachs Investments (Mauritius) I Limited ("GSIMI") has purchased from open market 227500 equity shares of Indiabulls Financial Services Limited on 4th May, 2007.
Index Moves:
BSE Oil & gas index was the major loser and lost 1.03%. BSE PSU index (down 0.98%), BSE Capital Good index (down 0.72%), BSE IT index (down 0.27%) and Auto index (down 0.19) were among the other major losers. However, BSE Metal index gained 1.40%.
Volume Toppers:
IFCI, RNRL, IDBI, TTML, PFC, IDFC, Tele Data Informatics, HFCL, SAIL, RPL, IBREAL, Tata Steel, ITC, Orbit Corp, Rolta, IDEA, IVRCL Infrastructures, Dena Bank and Bank of India.
Upper Circuit:
Tele Data Informatics, GVK Power, Ansal Infrastructure, Deccan Aviation, Autoline Industries, PSTL, Ess Dee Aluminum Educomp Solutions, Amara Raja, Saksoft, Tanla, Pantaloon and Patel Engineering.
Delivery Delight:
Alstom Projects, Andhra Bank, Apollo Tyres, Aurobindo Pharma, Bank of India, Bharat Forge, Colgate, HDFC Bank, Hindalco, HDFC, Tata Chemicals, Tata Steel, UTI Bank and Wipro.
Abnormal Delivery:
Corporation Bank, Bank of Baroda, Indian Overseas Bank, Century Textiles, Lupin, Union Bank, MTNL and Kotak Mahindra Bank.
Results Today:
Chennai Petro, Dalmia Cement, Eveready Industries, Hero Honda, MRPL and Novartis India.
Brokers Recommendations:
R Comm – Outperform from CLSA with target of Rs486
DCHL – Buy from CLSA with target of Rs217.
Long Term investment:
BHEL
Major News Headlines:
Govt won't intervene to control rising steel prices
Govt sells 10.27% stake in Maruti at an average price of Rs797
ONGC finds Oil & Gas in Iran
Bajaj Auto to mull demerger on 17th May
Pratibha Industries gets Rs2.23bn contract from BMC
Cairn makes two new discoveries in Rajasthan
BSEL Infra to sell convertible securities at Rs77 to promoters
RESEARCH
Dabur India Ltd (FY07)
CMP: Rs94 May 10, 2007
Consolidated revenues grew 18% yoy to Rs22bn driven by healthy double-digit growth
witnessed across segments.
Operating margins improved marginally to 15.7% due to firm raw material prices.
Adjusted net profit rose by 32% yoy to Rs2.8bn.
Dabur plans to enter into country's US $12bn organized retail market by setting up retail outlets based on the health and beauty platform, across the country. The company plans to open 350 stores (first store is expected to open in Q1 FY08) and targets to generate revenues of Rs17bn in the next five years. The company plans to infuse Rs1.4bn as
equity into the wholly-owned subsidiary (H&B Stores Ltd under a separate brand name) and may look for additional debt after a couple of years.
The company expects its retail venture to breakeven by the third year and generate profit
in the fourth year of operations.
Dabur is aggressively expanding its homecare portfolio and has a full pipeline of new products to be launched. The international business division contributes 13% to the total revenues and the company expects it to increase to 16% by 2010. The company plans to scale up presence in skin category and built up OTC portfolio, which is currently very small. At the current market price of Rs94, the stock is trading at 23.3x FY08E consolidated EPS of Rs4 per share. We recommend a ‘Market Performer’ rating on the stock.