Bulls set for a firm start
The day you take complete responsibility for yourself, the day you stop making any excuses, that's the day you start to the top.”
The bulls caught most of us unawares on Friday as they beat aside all concerns including weak global markets and staged a smart bounce back. After a choppy week, which ended on a strong note, we expect the bulls to begin the new trading week on a positive note. This is purely because of relentless FII inflows and firm global markets, though rising crude oil prices are a cause for concern. But, the market may remain volatile ahead of the F&O expiry on Thursday.
A lot of stock centric action will continue. Small-cap and mid-cap shares will remain in the limelight. Having said that one has to be extremely careful while buying these stocks as they may turn out to be millstones around one's neck when the market corrects. With the Sensex having recovered nearly 2000 points from the March lows, there are a few worries with regard to valuations. As a result, it may be prudent for one to lock in some gains and keep some cash handy for better bargains in future.
Among the key results today are M&M, IOC, Unitech, IVRCL, Nagarjuna Constructions and Jindal Stainless. Binani Cement, a subsidiary of Binani Industries, will make its debut on the bourses today. Expect the stock to be under some pressure as the issue was not heavily subscribed. TCS may gain as the company has bought outs its partner in its Brazilian joint venture. Tata Tea may appreciate a bit more after it sold its 30% stake to Coke for US$1.2bn.
Hero Honda may be in action as it launches a new bike today. Idea Cellular may attract some attention amid reports that it is contemplating a merger with Spice Telecom. Sangam India may rise amid market grapevine that it is selling a small stake to Nimesh Kampani. Tyre companies are also expected to do well due to positive business outlook. ACC is likely to gain as the RBI has permitted fresh purchases by overseas investors.
FIIs were net sellers to the tune of Rs2.04bn (provisional) in the cash segment on Friday. Local institutions pumped in Rs1.71bn on the same day. In the F&O segment, foreign funds offloaded stocks worth Rs7.82bn. On Thursday, FIIs were net buyers of Rs3.19bn in the cash segment. Mutual Funds were net sellers of Rs4.1bn on the same day.
On Wall Street, more M&A news helped stocks end higher on Friday in light trading ahead of the extended holiday weekend at the end of an otherwise lower week. After rising for seven straight weeks, the Dow Jones Industrial Average and the S&P 500 ended down on the week. The Nasdaq Composite finished flat during the week.
On Friday, the Dow was up 66.15 at 13,507.28, after hitting an all-time intraday record in the previous session. For the week, the Dow lost around 0.4%. The S&P 500 rose 8.22 to 1,515.73, just about 12 points below its all-time closing high of 1,527.46 from March 2000. On the week, the S&P 500 lost about 0.5%. The Nasdaq gained 19.27 to 2,557.19, after touching a six-year high earlier in the week and ended the week barely lower.
A reading on April existing home sales came in weaker than expected. But investors didn't seem too concerned, especially following the strong reading on new home sales released Thursday. This week is a busy one on the economic front, with reports due on housing, manufacturing, consumer confidence, GDP, inflation and the labor market. The lone earnings report of interest is Dell, which is due to report results on Thursday.
Treasury bond and commodity markets closed early ahead of the holiday. Treasury prices slipped, raising the yield on the 10-year note to 4.86% from 4.84% late on Thursday. COMEX gold for June delivery rose $2 to settle at $655.30 an ounce. In currency trading, the dollar slipped versus the euro and the yen, giving up gains after the weak housing market report. US light crude oil for July delivery rose $1.02 to settle at $65.20 a barrel on the New York Mercantile Exchange.
European shares traded in a tight range ahead of a long holiday weekend for most countries. The pan-European Dow Jones Stoxx 600 index was virtually unchanged at 393.37. The UK's FTSE 100 closed up 0.1% at 6,570.50, the German DAX Xetra 30 added 0.5% to 7,739.20 and the French CAC-40 rose 0.2% to 6,057.49. Most European equity markets will be closed on Monday.
Most emerging markets closed higher. The Ibovespa in Brazil was up 2.15% at 51,617 while the IPC index in Mexico advanced 1.2% to 30,700 and the RTS index in Russia was up 0.2% at 1794.
Most Asian markets are up this morning after metals prices increased and the yen weakened against the dollar and euro. The Morgan Stanley Capital International Asia-Pacific Index rose 0.4% to 148.30 at 12 p.m. in Tokyo, ending a two-day, 1.5% drop.
China's CSI 300 Index climbed above 4,000 for the first time. The benchmark has tripled in the past year. South Korea's Kospi index also rose to a new high, while Japan's Nikkei 225 Stock Average added 0.7% to 17,599.43, rebounding from its biggest loss in a month.Markets rose for the first time in three days as bulls fought back to find some direction. Satyam Computer, Wipro and Infosys led from front on expectations the rupee may decline against the dollar from a nine-year high, improving their earnings from sales to the U.S. Suzlon, Patni, Zee Telefilm and RPL were the star performer of the day out performing the key indices.
All the key sectoral indices finished in green except for the Bank and Consumer Durable index. Finally, the 30-share Sensex ended higher by 120 points to close at 14338. NSE-50 Nifty gained 43 points to close at 4248.
L&T surged by 2% to Rs1738 as reports stated that the Government would give the Raksha Udyog Ratna status for lucrative defence procurements and defence contracts. The scrip touched intra-day of Rs1743 and a low of Rs1670 and recorded volumes of over 5,00,000 shares on NSE.
Tata Tea rallied by over 3.8% to Rs915 on reports that Coca Cola agrees to buy Glaceau. The scrip touched intra-day of Rs941 and a low of Rs860 and recorded volumes of over 12,00,000 shares on NSE.
ITC edged higher by 0.5% to Rs166 after the company announced its Q4 result with net profit at Rs6.5bn and net sales at Rs34.66bn and also has announced that they would pay dividend of Rs3.1 per share. The scrip touched intra-day of Rs168 and a low of Rs163 and recorded volumes of over 38,00,000 shares on NSE.
Suzlon rallied by over 19% to Rs1376 as the company has finally won the bid for acquiring Germany's REpower. The scrip touched intra-day of Rs1418 and a low of Rs1139 and recorded volumes of over 39,00,000 shares on NSE.
Patni Computer spurred 8% to Rs549 after RBI approved the increased investment limit in Patni, overseas investors can now buy as much as 74%. The scrip touched intra-day of Rs553 and a low of Rs501 and recorded volumes of over 15,00,000 shares on NSE.
Technology stocks were back in action. Satyam Computer gained by 3.2% to Rs471 Wipro was up by 2% to Rs543 and Infosys added by 0.4% to Rs1985.
Metal stocks gained momentum towards the end. Sterlite Industries advanced by 2.5% to Rs546, SAIL gained by 1% to Rs148 and Hindalco added 0.2% to Rs144. However, Tata Steel dropped by 1.4% to Rs623, and Hindustan Zinc declined by 1.8% to Rs656.
Telecom stocks were a mixed bag. Index heavy weight Bharti Airtel edged lower by 0.3% to Rs834, VSNL was down 1.4% to Rs466. However, Idea advanced by 4% to Rs125 and Reliance Communication added 2% to Rs504.
Auto stocks witnessed fresh buying interest. Tata Motors was up by 2% to Rs726, Hero Honda gained 0.7% to Rs679 and Bajaj Auto added 0.2%t o Rs2170.
Volume Toppers:
RNRL, RPL, Nagarjuna Fertilizers, Idea, SAIL, TTML, R Com, Tata Steel, NTPC, Suzlon, ITC, Satyam Computer, Deccan Aviation, Voltas, HLL and Essar Oil.
Upper Circuit:
Raj Tele, United Breweries, Aurionpro Solutions, PTC India, Thomas Cook, Eicher Motors, DCHL, Tripex Overseas, Torrent Pharma and Anant Raj Industries.
Delivery Delight:
Alstom Projects India Ltd, Bank of India, BEML, BHEL, BPCL, Corporation Bank, Crompton Greaves, Gujarat State Fertilizers, HCL Technologies, Hero Honda, HLL, HPCL, ONGC, Satyam Computer and Wipro.
Abnormal Delivery:
Balrampur Chini Mills, Rolta, J&K Bank, Wockhardt, BEL, Bank of India, Gujarat State Fertilizers & Chemicals Ltd, Aurobindo Pharma and Crompton Greaves.
Stock Futures with largest increases in OI:
Crompton Greaves, Deccan Aviation, Financial Technologies, Moser Baer, Ansal Property, United Spirits, Suzlon and GAIL
Stock Futures with Decreases in OI:
Voltas, Tata Motors, Indian Bank, Aban Offshore, JP Associates, Strides Arcolab, Infosys, NTPC and BPCL
Results Today:
Aegis Logistics, Asahi India, Dwarikesh Sugar, HOV Services, IOC, Dishman Pharma, M&M, Northgate Technologies, IVRCL, Jindal Stainless, Nagarjuna Constructions, Saksoft, Unitech and IGL.
Results Corner:
IPCA Labs Q4 net profit at Rs276.5mn (up 5.3%), revenues at Rs2.22bn (up 27.5%).
Brokers Recommendation:
R Com - Outperform from CLSA with target of Rs514.
Long Term investment:
Wipro
Major News Headlines:
Inflation rate was 5.27% in week ended at May 12
Tata Tea sells its 30% stake in Glaceau to Coke for US$1.2bn
IOC signs agreement with Sri Lanka Government
HDFC to sell shares at Rs1730 apiece to Citigroup, Carlyle units
Strides Arcolab receives USFDA approval for its Sterile facility
Triveni Engineering to sell stake in Abohar Power generation
RBI allows FII investors to buy more shares of ACC
SAIL to spend Rs80bn on adding capacity
ITC approves setting up strategic business unit for home & personal care products
Reliance says no refinery shutdown planned this year
Suzlon wins the bid for acquiring Germany's REpower
Overseas investors can now buy as much as 74% of Patni
Apollo Tyres Ltd.
Q4 FY07 Result Update
ATL’s operating margin has gone up yoy by 340 bps to 11% for Q407. For full year operating margin has gone up by 90 bps to 9.4%. NR price has gone up on an average by 21% in Q4FY07 on yoy basis. ATL has hiked tyre prices for most of its variants in the region of 15-20% in FY07. NR price has started coming down in the past one month due to sluggishness in international markets and rupee appreciation. We expect ATL’s margins to improve to 9.7% and 9.9% in FY08 and FY09 respectively.
ATL’s sales volumes have increased by 7% for Q4FY07 on yoy basis and 9% for FY07 vs FY06. Capacity utilization for the full year was at 95%. We estimate volume growth to be around 7-7.5% for next two years as major capacities are coming in second half of FY09. Improved performance is expected in PCR segment and moderate growth is expected in CV segment for ATL.
NR price has started coming down in the past one month and ruling at Rs84 per kg presently in domestic markets. We have considered a Rs2 reduction in our per kg estimate for FY08 and FY09 to Rs94 per kg. We expect tyre companies to pass on the benefit to improve volumes and counter increasing imports if the average rubber price comes down sharply.
Dunlop Tyres (South Africa)
has made 10bn sales with EBIT margin of 9.8% and 1.9% PAT margin for FY07. EBIT margin has improved from 7.7% in H1FY07 to 12.4% in H2FY07. We expect volume growth of 10% for DTL in FY08 and FY09.
We have revised upwards our EPS estimates for FY08 and FY09 from 27.0 and 31.2 to 29.0 and 33.5 respectively to give effect for rubber price reduction. We expect tyre companies to improve volumes as economy progresses well and not to get affected due to slowdown in automobile sales. We revise our target upwards from Rs397 to Rs424. Our target discounts FY09 estimated earnings by 12x and giving Rs22 per share for Dunlop Tyres (South Africa), earnings.