Weekly Close: Nearing New High But is it possible..

Indices across saw a chain of events which saw mixed interest in the Markets. China created the shock wave which was felt across the global. As it increases its interest rates and action on the currency saw Asian markets wobble remembering the earlier experience in February. The regulators trebled the tax on stock trades and that had the markets down by over 6%. However, the US markets performance has been exemplary, where mergers and acquisitions continue to drive up the indices. Slower US GDP growth of 0.6% against an earlier estimate of 1.3% for the 1Q of 2007 was shrugged off by the markets. This is data for the past after all. Even the broad based S&P 500 closed at an all time high this week. Constant restructuring, streamlining of businesses and higher earnings from exports with a weak dollar is the positive. The hopes for interest rate cut in the US have increased.

India?s GDP for FY07 has been placed at 9.4% on the back of revised growth numbers for Q1 and Q2 growth being revised upwards. The manufacturing and Services Sectors contributed to the jump in GDP number. Interesting to note that the growth revision is front ended and recent growth numbers are around estimates. Market to see large IPO?s including the top banks wanting to shore up their Capital adequacy ratio ahead of the Basle II implementation and also the real estate companies and many others wanting to strike when the iron is hot. What this will do is bring in huge FII flows and our guess is that the RBI will do something to keep the rupee from breaching Rs 40. We believe it a futile exercise for now as the FII money flow and interest as thats really the trend. However, to neutralise that the chance of a CRR hike has increased. The GDP growth of 9%+ is another reason to expect some more tightening (CRR). Logically this should not happen given the upbeat growth revision and most importantly the Inflation numbers at much comfortable levels of 5.06% for the week ended 19th May as compared to 5.27% for the previous week. So that wait and watch attitude is where we think the bias will lie. Banks will remain lacklustre we believe for now and will underperform as the worries of the CRR will act like a Damocles sword.

Sensex Gained 1.6% for the week and the Nifty gained 1.1%. Capital Goods Index Gained 6.8% for the week.

Major gainers from sensex were LNT (+15.30%), Cipla (+9.29%), HDFC bank (8.33%), SBI (+5.9%), Hero Honda (+ 5.30%). Sensex Losers were NTPC (-3.36%), ITC ltd (-3.24%), Infosys (-2.48%), Hindalco (-2.32%), Reliance Energy (-2.29%).

We had the FNO expiry which had nothing to surprise as was expected to be but kept the market volatile for the week. Tech companies got hit with the Rupee turning stronger against dollar at 40.28 before RBI's intervention saw the Rupee to slip as it closed Rs 40.53 a Dollar. RBI went in for Buying of Dollars worth 11000Crs. The surge of rupee was attributed to absence of dollar demand from oil companies at the month-end. Major Software stocks continued to dip down as the rupee hitting new highs.

LNT came out with splendid Results and surged to touch its new high of Rs 2058. LNT numbers were Fantastic on standalone and consolidated basis. Order inflow for the year stood at Rs.25,429 cr while the total order book of the company at present is at Rs.35,300 cr. Engineering and Construction segment reported a revenue of Rs.13,400 cr contributing 75% of the top line. LnT with its huge order booked and expertise in its core segments looks good. The stock is trading at new levels Keep a Stoploss of 1725 for Long term if take for delivery from current levels. The Tractor major MNM too rallied with subdued numbers for the Results. The bottom line slip due to increased input cost which could not be passed on the customer. Company had also launched its new model "Logan" which is being manufactured in partnership with Renault Ltd. The increased advertisement expenses also had an impact in deflating the bottom line. The increased interest rates also had an impact on the company's performance as it acted in halting the sales of its cars. The impact of higher interest rates has had its impact on all the other players in industry.

Greenply has launched 13 laminates categories under their Greenlam range targeting the growing interior infrastructure space. The laminations are available in the price range of Rs 600 to Rs 2,000 a sheet. The products would be marketed through its network of 27 branches and more than 3,700 dealers and stockists across the country. Company is well placed in the industry where 90% of the market is with the unorganized players. Brand name of the company is its key factor for success in the business. Implementation of VAT has been a big positive as it hits the unorganised sector and makes it more competitive. One can accumulate the stock at this level for long term investments. The story is damn good and we are bullish here. We have a note here to as well as call running here.

MIC electronics trades at Rs 400 which is more than double the offer rate of its IPO. The company has a couple of LED driven Bill boards which can Display media content and that too in broad daylight. Valuations may appear excessive now given the sharp rise.. but the potential is what drives it. From here we believe it would be better to wait for the company to deliver. We think valuations are now getting into excessive territory. After all its only a hardware company though it has its core competencies of software in its product.

It would be interesting to look at Adlabs, Mid day, ENIL in that sense as they have some outdoor media exposure. We remain bullish on the advertising business. Zee News is another company in this space with a regional bias. FII limits have been reached here. Zee has pulled out of the agreement with BCCI for the 25 Indian Team matches on neutral avenues. Thats not good news for the stock at least on sentiment. In pure economics we like this as cricket has lost its charm and second the mandatory sharing with Government broadcasting company takes away a big USP of being able to capitalize on the huge investment. This pulling out really brings in an event risk in terms of litigation. On the business front the company continues to extend its marketshare and that?s reflected in the stock.

Tata Tea the Indian tea majors went in for 11% stake in Mount Everst Mineral water which is also a listed company. Mount Everst Mineral water Ltd has its Mineral water Brand Himalaya which is prefered by the Shopping Mall, Multiplexes and Hotels. The Mineral wate company has total reveune of Rs 16 Cr for the FY06. And the company has already made Rs 16.5 Crs for 9 months of FY07. With CMp of Rs 128 the Market capitalisation comes to Rs 370 Cr. Tata tea acquiring 11% Values at Rs 155 Cr seems to be on the higher side. Tata Tea has some strategy and has put his hands in this company. Let?s wait and watch.

And there were Many news in the week like the CromptonGreaves the Electrical equipment maker intends to acquire Ireland-based Microsol Holdings for an enterprise value of around 10.50 million Euro (over Rs 57 crore). MHL is a part of the Microsol Group and has operations in the UK, US and Ireland. It provides sub-station automation for MV and HV to new sub-station and retro-fitting solutions for existing sub-stations. Cromton is well establised company in this field and this acquisition will help to strengthen in the area of high-end engineering and sub-station automation capabilities. There was news of Stock-Split in Hind Rectifier, we tracked this company which into making of Locomotive Transformers, Power Electronics component and Equipment manufacturer based out of Mumbai. It manufactures diodes and thyristors (types of semiconductor devices), rectifiers and inverters and Transformers which are used in Locomotives.

Technically speaking: Sensex made high of 14682 and was expected to see new high. Sensex Day low was 14540. The Turnover was good at Rs 4669 Cr. The breadth was taken over by Advances. Sensex Support lies at 14300 and sustenance above 14700 levels could take us to new high.