Market Watch & Insider Trades

Insider Trades:

BSEL Infrastructure Realty Limited: Blackmore Investment and Trading Company Private Limited has purchased from open market 26000 equity shares of BSEL Infrastructure Realty Limited on 20th March, 2007.

Housing Development Finance Corporation Ltd: Shirish B. Patel, Director has sold in open market 4600 equity shares of Housing Development Finance Corporation Ltd. on 16th March, 2007.

Market Volumes:

The turnover on NSE was up by 4.1% to Rs82.03bn. The BSE FMCG index was the major loser and lost 1.20%. BSE Technology index (down 0.46%), BSE PSU index (down 0.41%) and BSE Oil & Gas index (down 0.16%) were among the other major losers. However, BSE Capita Good index gained 1.75%.

Volume Toppers:

IFCI, SAIL, ITC, Yes Bank, Gujarat Ambuja, Idea Cellular, TTML, R Com, India Cement, Bank of India, IDFC, IPCL, Century Textile, HLL, Dabur, Hindalco, Ashok Leyland, Indiabulls and Balrampur Chini.

Lower Circuit:

GMR Industries, Max India, Nahar Exports, Atlanta, McLeod Russel, Indiabulls Reality and Mefcom Agro.

Delivery Delight:

Century Textiles, Corporation Bank, Crompton Greaves, Cummins India, Dabur India, Divi's Laboratories, Escorts, HCL Technologies, HDFC, IFCI, IPCL, Jaiprakash Associates, L&T, Maruti, Sterlite Industries, Sun TV, Tata Elxsi, UTI Bank, Wipro and Yes Bank.

Brokers Recommendations:

Hindalco – Sell from Citigroup with target of Rs142

Yes Bank – Outperformer from ICICIdirect.com with target of Rs170

Long Term investment:
Punj Lloyd

Market may remain uncertain

The market may remain uncertain owing to lack of clarity and may witness sideways movement on the back of presence of intra-day volatility. Mixed fund inflows into domestic equities and global market trend will weigh on the local indices. Among the domestic indices, the Nifty has likely support at 3800 and may face resistance at 3900. The Sensex has a likely support at 13000 and may face resistance at 13400.

US indices ended mixed on Friday amid fresh rise in crude oil prices. While the Dow Jones moved up by 20 points to close at 12481, the Nasdaq ended three points lower at 2449.

Indian ADR losers pipped gainers on the US bourses. VSNL fell sharply and tumbled over 3% and Tata Motors and Infosys declined over 1% each while Patni Computers, Rediff, MTNL, HDFC Bank, Dr Reddiy's lab lost marginally. ICICI Bank rose over 1% while Satyam, Wipro ended with steady gains.

The Nymex light crude oil for May delivery rose 59 cents to close at $62.28. In the commodity space, the Comex gold for April series declined $6.90 to settle at $664.20 a troy ounce.

Oil price rise may cap upside

A surge in crude oil price may weigh on the bourses ahead of the expiry of March 2007 derivative contracts on Thursday (29 March). However, a resumption in FII-buying as well as steady-to-firm Asian markets may cap the downside.

Asian markets were mostly in the green on today, as a 3.9% rise in sales of existing US homes in February, the largest in three years, helped ease worries about a broader US economic slowdown. However, gains across the region were muted. Key benchmark indices in Hong Kong, China, South Korea, Singapore and Taiwan were up between 0.01 - 0.71%.

US blue-chip stocks crept higher on Friday, as tension in the Middle East lifted oil prices and hence shares of energy companies. The Dow Jones industrial average rose 19.87 points, or 0.16%, to end at 12,481.01. The Standard & Poor's 500 Index inched up 1.57 points, or 0.11%, to finish at 1,436.11. But the Nasdaq Composite Index slipped 2.81 points, or 0.11%, to close at 2,448.93.

US crude oil futures reached their best level of the year so far at $62.79 barrel amid rising global political tension over Iran's nuclear programme. Iran, the world's fourth-largest oil exporter, said on Sunday it would not stop its atomic programme, which it says is only for peaceful purposes, and that it will limit cooperation with the UN's nuclear watchdog in retaliation for new financial and arms sanctions. The West fears the programme can be used to develop nuclear weapons.

The UN Security Council unanimously approved the sanctions on Saturday for Tehran's refusal to suspend its programme, but major powers also offered new talks and renewed an economic and technological incentive package offer. The developments have renewed market concerns that Iran could one day cut oil exports to strike back at the West.

At home, volatility may remain ahead of next week’s expiry of March 2007 derivative contracts. With the market scheduled to remain closed tomorrow (27 March) for a public holiday, only three trading sessions are left for the expiry of the March 2007 contracts.

FIIs substantially stepped up buying of Indian equities on Thursday (22 March), the day when the domestic bourses had surged in a rally across global bourses triggered by hopes of a cut in interest rates in the US. FIIs were net buyers to the tune of Rs 713.10 crore on Thursday compared to an inflow between Rs 136 crore and Rs 165 crore in the earlier two trading sessions, on Tuesday (20 March) and Wednesday (21 March). As per provisional data, FIIs were net buyers to the tune of Rs 127 crore on Friday (23 March 2007).

The next major trigger for the domestic bourses is Q4 March 2007 earnings, reports of which by corporates will start next month. Analysts expect Q4 results to be strong. Market men will closely watch what company managements have to say about the outlook for FY 2008.

The Indian bourses last week recorded its first weekly gain after five consecutive weekly losses till the week ended 16 March 2007, partly due to short-covering in derivatives and partly due to firm global markets.

STRATEGY INPUTS FOR THE DAY

Defer your decision

When it is not necessary to make a decision, it is necessary not to make a decision.

After a successful week the bulls would like to consolidate their hold over the market. However, a public holiday on Tuesday and F&O expiry on Thursday may lead to extra volatility. Last week's rally, which came after five weeks of losses, was on lower volume. The market breadth was also negative on most days. It would be safer deferring to investment decisions by a couple of days. And if you are more or less fully invested, lock in some gains at every rise as a fresh fall is possible.

Expectations are this week will sail through with gains. For today, we expect a cautious to higher opening given the mixed closing on Wall Street on Friday and a similar trend in Asian markets this morning. Some short covering is likely to help lift the key indices, with some help from the foreign funds.

A combination of local and global factors will continue to drive sentiment in the near term, though the long-term outlook remains bullish. Inflation and interest rates will also continue to cast a spell on the markets. In a few days time, the quarterly earnings will start to flow in. Though most good news on corporate earnings is in the price, companies that exceed expectations will see some positive movement. Looks like we may not have a spectacular year of gains as has been the case in the past four years. At best one can expect good to moderate returns. Having said that, there are lots of opportunities in the small and mid-cap space if one hunts for them carefully.

FIIs were net buyers of Rs1.27bn (provisional) in the cash segment on Friday. In the F&O segment, they were net sellers to the tune of Rs1.68bn. On Thursday, FIIs poured in Rs7.13bn in the cash segment. Mutual Funds too were net buyers of Rs869mn on the same day.

Shares of Sparsh BPO Services Ltd. (formerly Intelenet BPO Services Ltd.) will be listed and permitted for trading with effect from Monday, March 26.

US stocks were mixed on Friday, but all the three major indices had their best weekly advance in eight months. The Dow Jones Industrial Average was up 19.87 points or 0.2% at 12,481.01 and managed to move back into the plus column for the year. The blue-chip average's weekly point gain of more than 370 was the best since March 2003, when it gained more than 660 points in a week. The broader S&P 500 gained 1.57 points to 1,436.11 and the Nasdaq was down 2.81 points at 2,448.93. All three major gauges rose at least 3% last week.

A strong housing market report and strength in auto stocks gave a boost to blue chip stocks. But broader gains were prevented by reports that 15 British marines were taken hostage by Iranian naval vessels. The news revived worries about instability in the Middle-East, and sent oil prices higher, with US light crude oil for May delivery adding 59 cents to settle at $62.28 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 23 cents higher at $62.51 a barrel in extended trading in Asia.

COMEX gold for April delivery fell $6.90 to settle at $657.30 an ounce. Treasury prices slumped, raising the yield on the 10-year note to about 4.61% from 4.58% late on Thursday. In currency trading, the dollar gained versus the euro and was little changed versus the yen.

European stocks closed higher on Friday. The pan-European Dow Jones Stoxx 600 index rose 0.5% to 375.98. The German DAX Xetra 30 advanced 0.6% to 6,899.06, the French CAC-40 gained 0.7% to 5,634.75 and the UK's FTSE 100 added 0.3% to 6,339.40.

Asian stocks are mixed this morning. Markets in China, Taiwan and Hong Kong are in the green. The rest are marginally down. The Morgan Stanley Capital International Asia-Pacific Index slid 0.2% to 145.71 as of 10:49 a.m. in Tokyo, sliding from its highest since Feb. 27.

In the emerging markets, the Bovespa in Brazil rose 0.2% to 45,532 while the IPC index in Mexico added 0.05% to 28,272 and the RTS index in Russia surged 1.3% to 1914.

HOW MARKET FARED

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Bulls take a breather

Bulls took a breather on Friday as four days of winning streak came to an end. However, markets finally recorded first week of gains after falling for five consecutive week’s. The markets lost some steam as profit booking was witnessed in the FMCG, Technology, Auto and PSU indices. Today again the Mid-Cap and small cap index ended almost flat. However, buying interest in the heavy weights like BHEL, HDFC, HLL and Bharti Airtel lifted the NSE Nifty above the 3900 mark. Finally, the 30-share benchmark Sensex fell 22 points to close at 13285. NSE Nifty was down 14 points to close at 3861.

ITC declined by over 3.5% to Rs144 as Maharashtra also decided to impose a 12.5% VAT on all tobacco products except bidis. The scrip touched an intra-day high of Rs150 and a low of Rs143 and recorded volumes of over 1, 0,00,000 shares on NSE.

IFCI rallied by over 7% to Rs31 after the state-run term lender said it has appointed Ernst & Young, for advising the company on the induction of a strategic investor. The scrip touched an intra-day high of Rs32.20 and a low of Rs29.50 and recorded volumes of over 15,00,00,000 shares on NSE.

Torrent Pharma lost by over 3% to Rs197. According to reports the Ahmedabad-based company along with Israel's Teva is the only ones left in the race for the generic business of Germany's Merck. The scrip touched an intra-day high of Rs203 and a low of Rs195 recording volumes of over 19,000 shares on BSE.

Dabur surged by over 3.5% to Rs94 amid reports that it is to acquire Singapore's Unza Holdings. The scrip touched an intra-day high of Rs94.60 and a low of Rs90 and recorded volumes of over 31,00,000 shares on NSE.

Deccan Aviation slipped by 2% to Rs97 as yesterday the company announced that it was open to a search by the nation's airline regulator on an allegation that it overbooked passengers. The scrip touched an intra-day high of Rs99 and a low of Rs95 and recorded volumes of over 1,00,000 shares on NSE.

Auto stocks were in reverse gear. Tata Motors slipped by 2% to Rs789, Bajaj Auto has declined by 1.5% to Rs2529, TVS Motors was down by 0.8% to Rs62 and Ashok Leyland lodt 1.2% to Rs40.95.

Metal stocks shined brightly as metal prices on LME were firm. Sterlite Industries surged by over 5% to Rs486, JSW Steel gained 2% to Rs471 and SAIL added 0.9% to Rs112 and Hindustan Zinc was flat at Rs550.

Cement stocks also lost their gains towards the end on back of profit booking. ACC lost 1.2% to Rs744, Gujarat Ambuja was down 2.2% to Rs105, Grasim fell by 0.3% to Rs2080 and India Cement declined 0.7% to Rs164.

FMCG index was the major loser among all the sectoral indexes slipping by 1.20%. ITC fell over 3.5% to Rs144, Nirma was down by 1.9% to Rs163 and Tata Tea edged lower by 0.2% to Rs625. However HLL nearly rose by 1% to Rs198.

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Stocks you can pick up this week

MOST OF THESE REPORTS ALREADY AVAILABLE ON DP.

Hindalco
Research: Citigroup (March 22, ’07)
Rating: Sell
CMP: Rs 136 (Face Value Rs 1)
12-Month Price Target: Rs 142

Hindalco is a low-cost integrated aluminium producer with access to captive power and bauxite. It paid a high valuation for Novelis, whose profits are not expected to improve substantially over the next couple of years. Hence, the profits will not be able to compensate for Hindalco’s high interest outgo, resulting in earnings dilution.

In copper, TC/RC margins averaged US37c/lb in H1 FY07, benefiting from high copper prices and price participation. But these are already trending down and are expected to average US15c/lb in FY08 and FY09. For a copper smelter like Hindalco, profits are determined largely by TC/RCs rather than copper prices.

For aluminium, average prices are likely to decline 7% YoY in FY08 to $2,480/tonne and remain around that level in FY09. The target price of Rs 142 is based on: (1) 7x FY08E earnings (Rs 128); and (2) adding the value of Hindalco’s investment holding in associate companies and discounting it by 25. The proposed acquisition of Novelis raises its risk profile, increases gearing and reduces consolidated margins.

Based on consensus earnings and preliminary analysis, Citigroup sees no substantial improvement in Novelis’ earnings in ’07 and ’08. Additionally, Citigroup does not see any upside trigger to the stock price based on its outlook of falling global aluminium prices and substantial decline in copper TC/RCs.

Canara Bank
Research: HSBC (March 21, ’07)
Rating: Overweight
CMP: Rs 202 (Face Value Rs 10)
12-Month Price Target: Rs 312

As for most Indian banks, the first three quarters of FY07 saw a fall in the net interest margin (NIM) of Canara Bank. Yield on loans rose by 56 bps YoY, but interest expense grew faster than interest income. The bank reported a 22 bps fall in NIM, relative to FY06. The weakness in NIM is partly due to slow growth in low-cost deposits compared to new private banks.

HSBC lower its forecast for Canara Bank’s FY07 net profit by 8.5% to Rs 1,308 crore (-2.6% YoY). The revision is driven by decrease in forecast of net interest income and non interest income. For the nine-month period ended December ’06, the latter decreased by 9.6% YoY.

This revision pulls down HSBC’s DCF-based target value from Rs 327 to Rs 311. During ’06, the bank’s P/E ranged between 5.7x and 10.7x with a mean of 8.3x. Its P/B ranged between 1.0x and 1.7x with a mean of 1.4x. Applying the mean P/E and P/B to the forecasts for FY08 results in target prices of Rs 324 and Rs 300, respectively.

The blended target price of Rs 312 is a weighted average, where the DCF is assigned a weight of 50% and the P/E and P/B derived forecasts are assigned weights of 25% each. It values the stock at 8x FY08f EPS and 1.5x March ’08f book. The stock has underperformed the Sensex over the past quarter. The discount in the P/E of Canara Bank, relative to the Sensex P/E, has deepened to 65% — near a two-year low.

VSNL
Research: Merrill Lynch (March 22, ’07)
Rating: Neutral
CMP: Rs 407 (Face Value Rs 10)
12-Month Price Target: NA

VSNL carries ~3.6bn incoming ILD minutes annually on a standalone basis. Assuming one quarter of full ADC savings on incoming ILD, Merrill Lynch estimates VSNL’s FY08E earnings upside at ~13% (i.e. ~Rs 54 crore). Over the medium term, however, VSNL may pass the entire ADC cut to customers via lower tariffs.

Trai has announced cuts in ADC across services — for incoming ILD, ADC from April ’07 has been lowered to Re 1/min, compared to Rs 1.6/min currently. Media reports suggest the government is reviewing its options with regard to surplus real estate of ~773 acres that it controls in VSNL. Reports suggest that the revenue department has recommended auction of the land.

Merrill Lynch recognises that there have been several false starts with regard to value unlocking of real estate and believes its valuation is conservative. Pricing pressures in VSNL’s core business of wholesale carriage (data & voice) and low visibility on cost synergies from Tyco & Teleglobe drive Merrill Lynch’s 12-month ‘neutral’ rating.

National Aluminium
Research: Citigroup (March 22, ’07)
Rating: Sell
CMP: Rs 231 (Face Value Rs 10)
12-Month Price Target: Rs 241

Nalco has a smelter capacity of 345,000 tpa in eastern India. It has enough deposits of bauxite to meet more than 50 years’ requirements of its expanded alumina capacity (2.1m tpa from 1.58m tpa by end-’08). Good quality bauxite, open cast mines and low bauxite transport costs make Nalco one of the lowest-cost producers of alumina in the world.

The company sells its surplus alumina (27% of FY06 sales) in international markets and it is India’s largest alumina exporter. In the power-intensive business of producing aluminium, Nalco’s 960-mw thermal power capacity meets all its in-house requirements at 33% of the grid cost, and surplus power is sold to the state grid.

Low costs for power, alumina and labour make Nalco one of the lowest-cost aluminium producers in the world. Prices have recovered in recent weeks due to a strike and martial law in Guinea, the world’s second-largest bauxite producer. Nalco is already operating at full capacity and there is limited scope for volume growth until FY10. In the past six years, the stock has traded at a P/E range of 6-8x.

During this period, it has decisively crossed 8x only three times. Merrill Lynch has valued Nalco at 8x, the top end of its historical P/E band, which gives a target price of Rs 241. This appears justified based on Nalco’s position among the lowest-cost producers of alumina globally.

Hotel Leelaventure
Research: Macquarie Research (March 21, ’07)
Rating: Buy
CMP: Rs 57 (Face Value Rs 2)
12-Month Price Target: Rs 79.9

The analysis of average room rates (ARR), occupancy and revenue per available room (RevPAR) of the company’s hotels from April 1, ’06 to March 15, ’07 shows that the company’s average RevPAR is likely to rise 16.6% YoY to Rs 8,794 for FY3-07. Its ARR is likely to improve by 17% YoY, while occupancy is likely to remain at 77%, the same as last year.

Leela’s Mumbai hotel is likely to be the star performer, with RevPAR up 43.2% YoY to Rs 7,454. Leela’s Bangalore hotel is likely to show only 6.8% YoY growth in RevPAR to Rs 13,481 because occupancy may decline by 5.7% to 74%. The company is sacrificing occupancy at the expense of higher ARR for its Bangalore hotel.

Hotel Leelaventure’s capacity is set to rise from four luxury hotels with 1,015 rooms to nine luxury hotels with 2,565 rooms in the next two years. Macquarie expects its 81-room Udaipur hotel to come on stream by January ’08; the 419-room hotel-cum-service apartment in Gurgaon is expected to come on stream by October ’07; the 300-room Hyderabad hotel, 380-room Chennai hotel and 260-room Pune hotel are expected to come on stream around April ’09.

Leelaventure trades at 12.1x its FY3-08E earnings, versus the hotel industry consensus average of 16.9x FY08E earnings.

Research Calls

SAIL

KR Choksey Research recommends a �buy� on Steel Authority of India (SAIL) at a price of Rs 103, as it expects that rise in prices of steel internationally will lead to improved realisations for the company.

Globally, steel prices have risen about 7-8 per cent over the last couple of months and are expected to remain strong following healthy demand in Asia, Europe and the US.

SAIL is the largest integrated steel company in India, with a hot metal production of about 15 million ton and a market share of 25 per cent. It operates four integrated steel plants and three special steel plants in the country.

Further, it also has its own captive iron ore, dolomite and limestone miles. It now plans to increase its hot metal production capacity from the existing 14.6 million ton to 23 million ton a year by 2012.

In addition, to meet the increased power requirement due to augmented capacity, it plans to set up two power plants of 500 mw each in two separate joint ventures with NTPC at Bhilai and with Damodar Valley in Jharkhand. At the price of Rs 103, the stock is valued at about 8 times its trailing twelve month earnings.

Shasun Chemicals

Angel Broking recommends a �buy� on Shasun Chemicals at a price of Rs 101, with an 18-month target of Rs 145. Shasun Chemicals is a generic drug-maker with a small foray in active pharmaceutical ingredients (APIs) and plans to enter the formulations exports, especially in regulated markets of Europe and the US.

The company has forged an alliance to market 22 products of Glenmark Pharmaceuticals and Alpharma, and expects a United States Food and Drug Administration (USFDA) approval of its facilities in order to launch its products by the first half of FY08.

In FY07, the company acquired assets of Rhodia�s custom synthesis business along with some proprietary technologies. The assets included USFDA and Medicines and Healthcare Regulatory Agency, UK (MHRA) approved contract manufacturing and custom synthesis manufacturing units, and technologies like hydrolytic kinetic resolution (HKR), aromatic bond formation (ABF) and trifluoro methylation.

This business clocks sales of �40 million (approximately Rs 343 crore) and has a pipeline of around 14 products in advanced stages of clinical trials and about 20 products in the preclinical phase.

The company is expected to grow at a compound rate of 45.1 per cent and 24.3 per cent in sales and net profit over FY06-FY09. At Rs 101, the stock is valued at 8.8 times and 7 times its expected FY08 and FY09 earnings respectively.

KPIT Cummins Infosystems Emkay Private Client Research recommends a hold on KPIT Cummins Infosystems at a price of Rs 114 with a target price of Rs 144.

Despite the negative impact of the appreciating rupee and lower billing days, EBITDA (earnings before interest, tax and depreciation) margin for the quarter has marginally declined by 30 basis points to 15.2 per cent.

On the other hand, lower effective tax rate of 3.2 per cent, on accounts of deferred tax assets, resulted a 10 per cent growth in the net profit to Rs 137.23 million.

Overall the December quarter proved to be quite a mixed bag. In revenue terms there was decent growth, however rupee appreciation and lower number of billing hours dampened the growth in the rupee term.

However a strong positive has been the company's ability to maintain its margins. Going forward strong medium term growth drivers are discerned from the strong ramp up in the non-Cummins Star customers accounts and improved performance from the acquired companies.

Emkay expects KPIT Cummins revenue and profit to grow at a CAGR of 37 per cent and 46 per cent to Rs 4,682 million and Rs 6006 million and Rs 535 million and Rs 698 million respectively.

KPIT Cummins trades at a P/E of 14.6 times estimated FY08 earnings. Adjusted for the recently concluded bonus issue and stock split, at the target price of Rs 144, the stock is valued at 15.5 times for estimated FY08 earnings.