Weekly Close: 19K missed but some relief on Politics !

It was the Formula one race for the indices this week and indices crossed historical level. Market zoomed ahead in spite of political uncertainties and crossed the 18k levels in beginning of the week. Since then the rally was very much strong but it marginally fell short to touch 19k. Volumes were extremely high led by huge liquidity inflow by foreign funds. The jitters on politics some what eased as Congress gave indication that it would miss the nuclear bus and try to avoid early election. This further gave boost to the market. Reliance group continued to be all time beloved of investors. Capital good too continued to flare on huge order book. Sugar stocks became sweet with some favourable changes in the Govt policy. However, Small and mid caps were left out in the recent run up. Infy was disappointment with it quarterly numbers.

Market Performance for the week: Sensex up by 700 points or 3.8% up for the week. Nifty up 4.5%. Mid cap 0.5% up; Adlabs 23% up; Mercator Lines 20% up. Small cap index flat; Metal Index 5.5% up; SAIL 11% up; Nalco 6% up Capital Goods index 5.5% up; L&T 9.5% up; BHEL 8% up; Index gainers VSNL 17% up; Rel Comm 11.5%; ONGC 12% up..

Infosys declared numbers this week and that was a disappointment as the markets had been building up greater expectations. The company posted just 1.9% growth sequentially in its second quarter numbers at Rs 1100 cr as against Rs 1,079 cr in previous quarter of the same year. It's consolidated net sales surged by 8.8% sequentially to Rs 4,106 cr versus Rs 3,773 cr. The operating profit margin increased to 31.27% from 28.73%. We were not very disappointed though. The company has increased the targets of employee additions for the year which is the positive. Do read Economy : Taking stock to get more thoughts on this.

We had lots of research this week. There was research on VIP industries.. where we believe that the company is cruising for a take off. The company has been fighting with unorgainsed market and key here is Brand. VIP is well placed with brand. But what excites us here is the size of luggage industry globally. Globally Luggage industry is quite big and also highly fragmented.. VIP will have over 70% of the Indian Market .. but the hurdles remain.. Do read our detailed note here.

We had a research note on Asian Paints. We like the busniess.. but the valuation is where we are not very happy. Interesting observation was that 65% of paints go for repainting. A booming economy like India with 112 crs (around 25 mn households assuming 4-5 per house) of population provides a great opportunity. Current size of middle class is estimated to be 30% of the population which is likely to touch around 45%- 50% between 2007 and 2015. This would be the actual earning population which will be ready to spend more for better living. In addition to this around 4.5 million houses are added per year, which includes 2 million housing units under the weaker section housing policy. A Large consuming population and high economic growth gives great potential here. Clearly the demand for paints will be higher. So really this element is really large and will be the driving force in future. Do read our note.

Allcargo Global Logistics (AGL) a multimodal transporters & CFS operator in India. AGL drives major part of revenues from MTO segment while in CFS business it has 12% in the market. The company has approved acquisition of Transindia Freight Services (TFSPL). TFSPL is an unlisted company owned by the promoter-family of AGL and is primarily engaged in the business of contracting transportation of containers and project-related cargo and hiring of cranes, reach stackers and forklift trucks. The share swap ratio will be 518 fully paid-up equity shares of AGL for every 100 fully paid-up shares of TFSPL. TFSPL will issue 2.10 Cr shares and the valuation will be around Rs 206 Cr @ Rs 982 / share. For this purposed the company raised up to Rs 300 crore. Promoters holding is 79.6% stake in AGL. Now after adding TFSPL equity, AGL?s new equity will be 2.23 Cr. With this promoter holding would move up to 81.61% after the proposed swap. This merger will help AGL to get some synergies in terms of overheads and lower taxes. The event has been priced in the stock after the merger news. Do read our note to get more insights.

We had research on Kesoram and also Madras cement. These are South focussed companies. Next 18 months is likely to be very exciting for the mid caps. As such cement counter seems expensive but Kesoram and Madras cement can provide some opportunity. Our detailed note on site would give you more idea about this.

Our research on Solar explosives paid off. We had a research note just a few weeks back on this one. The stock has exploded and the consolidated results were spectacular. The demand for explosives is directly linked to the growth in mining and infrastructure sector. Demand for explosives is more in Coal mining, Infrastructure development and Metal mining. Mining industry is expected to grow in the core segments like coal, iron ore, and limestone. Coal mining remains the largest application for Explosives worldwide accounting for almost 70% of total explosive consumption. With the increasing allocation of coal fields to private sectors, the demand for explosives will continue to grow. Solar Explosive is the best bet in this sector as the industry has a huge entry barrier for the new player as it's a licensed industry where you have to procure license for producing, transportation and can sell to sell only to those company having a license. Do watch for more gains here in future. We will have our results analysis out early next week on this one.

Another stock moving up was Navneet. The education company has finally made a big entry into the e-education space which was dominated by Educomp. In a matter of 3 months the company has developed the animated software which covers the school syllabus for 1st - 10th for the state of Gujarat. This it has already launched and has more than 50 schools to its credit. The low pricing really has the schools willing to buy and use the same in the audio Video room. Navneet believes that in an environment driven by marks, a product which helps the student score higher markets will be a winner. Near term the results for the September quarter should be good helped by the spillover effect from the previous quarter sales. We are really bullish on this one as it provides tuff competition to Educomp which has become too expensive but still is the market leader. Navneet has along way to go but we see that the company has the potential to deliver.

Todays pullback was one of profit taking. The big trigger of the Reliance AGM was over but the more important one was from the HT Summit where Sonia Gandhi indicated that the Government was attempting to persuade the Left, but surviving the full term seemed more important. The Nuclear deal seems to be a casualty. So really all political cues are now discounted. The results is what will drive the markets ahead. We believe that the Domestic Mutual Funds have a left out feeling and they would be bouncing back at the first opportunity. We believe that the Mid caps where the results are better than expected.. will be the stocks which will jump. It is this segment where we will see mid caps turn into larger mid caps. The valuation stretch is missing here and the risk appetite has gone up. There are talks of correction and that may come.. but really all these pull backs will have the buyers waiting to get in.

Great performance for the week. Wowcalls had wonder gains in Solar Explosive in a day. Delivery Delights by Adonis was another super one with Graphite India delivering 10% gains. Shiv Vani, Idea delivered marvellous gains in Delivery Delights. Quickies call also had great returns for investors. Our Research will follow. We will be back with exciting ideas in coming weeks.