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Monday, June 04, 2007
Market may add gains
A positive opening in most of the Asian indices in ongoing trades and prevailing strong bullish sentiment may help the local market advance further. However, bouts of strong intra-day volatile moves may weigh on the sentiment. Among the key indices, the Nifty has a resistance at 4300 and has a key support at 4260 in the near-term. The Sensex has a likely support at 14400 and may face resistance at 14600.
Us indices set new records on Friday, while the Nasdaq hit its highest in last six years and Dow hitting its new high as investors welcomed upbeat readings on job growth, manufacturing and inflation, as well as a strong earnings report from Dell. While the Dow Jones gained over 40 points, the Nasdaq moved up by 9 points.
Indian floats trading on the US bourses fared better on Friday, the gainers were, MTNL registering the highest gains over 13% while VSNL,Tata Motors, Infosys, Wipro, Dr Reddy's, HDFC Bank, Patni Computer and ICICI Bank gained around 1-2% each. Rediff, however, dropped around 1%.
Crude oil prices moved up, while the Nymex light crude oil for July delivery rose by $1.07 to close at $65.08 a barrel. In the commodity segment, the Comex gold for August series flared up $10.20 to settle at $676.90 an ounce.
Daily Market Snippets
US markets were POSITIVE & Asian markets are trading POSITIVE.
Levels for NIFTY - support at 4283-4269-4255 & resistance at 4311-4326-4340.
Bias for markets is Cautious for the day…
Crompton Greaves Ltd's (CGL) revenues grew by 25% year on year (yoy) in Q4FY2007 to Rs990.0 crore. The revenues were slightly below our expectations. We have revised price target to Rs280.
View Point on SREI Infrastructure Finance. SREI Infrastructure Finance (SREI) and BNP Paribas Lease Group (BPLG), the leasing arm of BNP Paribas, have reached an agreement regarding a strategic partnership in equipment finance in India.
Tata Tea will acquire 10.74% from promoters & also they will apply for preferential offer of 15%. That will make 24% of Mount Everest of capital.
Trina M (sharekhan): Rumor in the market about Cement import norms eased (Business Line).
Imp. Results today: Balkrishna Ind, Mcleod Rusel, Nocil, Onward Technologies,
Stocks with +ve bias: MTNL, Punj Lloyd,
Stocks with short term Delivery: Aurobindo Pharma, 3i Infotech, MICO, HOEL
Stocks for investment: Bharat Bijlee, HDFC Bank, CEAT, Crompton Greaves, Ahmednagar forging, Indotech Transformers, JP Associates, Saregama India, Thermax
Maruti Udyog Ltd
Maruti Udyog Ltd
CMP: Rs810
Recommendation: HOLD
Maruti Udyog Ltd (MUL) registered a 35.2% yoy increase in net sales during Q4 FY07. This was higher than our expectation of 30.4% yoy growth. However, this growth came at the cost of substantial margin reduction of 240bps yoy during the quarter. Factoring in margin pressures, we projected a 13.9% OPM for the quarter. However, the actual fall in OPM was even severe on account of loss at Manesar plant due to power issues.
Maruti sold a 674, 924 units, including exports of 39,295 units during FY07. The company has been building a good product portfolio. While it had planned to launch five new vehicles in five years, it has been successful in doing so in 2.5 years itself. Besides introducing the WagonR Duo and the Zen Estilo during FY07, MUL entered the diesel car segment with Swift Diesel.
Pressure on operating profit margins is expected to continue with high marketing and promotion expenses. With the ongoing cricket world cup, other expenses have been high. Competitive pressures and promotions for new launches will keep margins in check. Mr. Khattar stated that he expects input pressures on account of rising commodity prices to continue. He also stated that near term focus would be on gaining market share rather than margins. We project a 100bps yoy decline in OPM during FY08 for MUL. While input cost and other expenses are likely to remain high, we expect MUL’s realizations to marginally improve during the period.
The net profit for MUL grew by 24.3% yoy during Q4 FY07, significantly higher than our expectation for the quarter. The prime reason for the same was the huge jump in other income earned during the quarter, growing by 77.8% yoy and accounting for 30.7% of the PBT income. The Board has recommended a final dividend of Rs4.5 per share for the year.
Indiainfoline - Intraday Stock Ideas
NIFTY (4297) RES 4308 SUP 4278
BUY GNFC (111.85)
SL 108 T 119, 121
BUY HCL-INSYS (168)
SL 164 T 176, 178
BUY PARSVNATH (326.35)
SL 321 T 336, 339
SELL TATACHEM (251.25)
@ 254 SL 258 T 244, 241
SELL TVTODAY (153.65)
@ 156 SL 160 T 145, 142
Market Watch
Insider Trades:
HDFC Ltd: D N Ghosh, Director has sold in open Market 3000 equity shares of Housing Development Finance Corporation Ltd on 28th May, 2007.
Upper Circuit:
SREI Infrastructure, GTC Industries, DCB, DCHL, Dewan Housing, TVS Electronics, Saksoft Ltd, Dawn
Mills, Shreyas International, Genus Overseas, Asian Electronics, Marg Construction, Helios Matheson, UTV
Software, Taneja Aerospace, Accel Frontline and Swan Mills.
Delight Delight (Rising Price & Rising Delivery):
Cipla, Crompton Greaves, Federal Bank, Geometric Software, Gujarat State Fertilizers & Chemicals, ICICI
Bank, Indian Hotels, NALCO, Satyam Computer and TVS Motor.
Abnormal Delivery:
Mastek, J B Chemicals, Jindal Steel & Power, BPCL, IOC, Tata Elxsi, CEAT, IPCL, Ucal Fuel, SCI, Andhra
Bank, Union Bank of India and Balaji Telefilms.
Results Today:
Balkrishna Industries, McLeod Russel, Nahar Export, Nahar Spinning, NOCIL, Onward Technologies, Greenply Industries, Southern Ispat, VIP Industries and Williamson Magor.
Delivery Momentum Call:
Jyoti Structure Ltd. is in the business of erecting power transmission tower, electricity sub-station structures and railway electrification systems, the company has been turnaround story due to the Electricity Act that freed transmission to the private sector.
The current order book of Jyoti structure ltd stands at Rs2000Cr in comparison to Rs11bn last year.
The existing orders form Powergrid, higher rural electrification job New Higher power orders will enhance
revenue; it is expected to grow at a CAGR of 32% for the next 2 financials years. It is seen that the
margins have really improved this year with Operating profit margin standing at 12.31% in comparison of
10.42% YOY.
The management has given a guidance of 12% operating margin for the next 2 financial years. The company Joint venture Gulf-Jyoti will commence trial run in June 2007. The company has already bagged one order from Dubai electric and water agency. The company has a 45% stake in the net profit under the Joint venture agreement. Jyoti Structure stock trades at a P/E of 11.90x FY08E EPS of Rs11.90 and 8.20x FY08E EPS of Rs14.88.
STRATEGY INPUTS FOR THE DAY
Peek at peak
Dreams are the windows of the soul--take a peek and you can see the inner workings, the nuts and bolts.
The bulls have had a dream run mainly on account of select stocks. The big question (and the question only gets bigger) is whether this rally can sustain. Concern arises if you look at the nuts and bolts, read valuations and lack of fresh catalysts. There could be some bumps ahead once the so-called landmarks are achieved. The NSE Nifty, has crossed the 4300 mark and is sitting pretty at a new all-time high. The Sensex is trying to follow suit. Given the current momentum, strong inflows (from both overseas and local institutions) and firm global markets, the Sensex could have its 'moments' of glory. Will it happen today itself? Well, the bulls appear confident enough to not only lift the Sensex to a new life-time peak, but could also take the benchmark index near 15,000 in the near term. While a new high for the Sensex this week is a foregone conclusion, the ride to mount 15k may face resistance.
We expect a positive opening as US stocks advanced further on Friday on the back of a slew of positive economic reports. Asian markets, barring China, are all up today. Oil is trading above $64 per barrel mark and may pose some threat in the coming days due to the onset of summer and the hurricane season in the US. Though everything looks rosy at the moment, one must be on guard for any unforeseen negative surprises as the market is at or near historic peak.
As usual, a lot of stock specific action is likely to continue. Among the scrips to keep an eye on include Indian Hotels. The Tata Group company is expected to announce good results this week and a new acquisition. Development Credit Bank is also expected to do well amid expectations of a minor stake sale and improvement in the fundamentals.
Media Video is another stock one can watch out for, as it is likely to sign a deal with the Godrej Group and is also planning to unlocking value through the demerger of its infrastructure business. It is also foraying into real estate and has already announced a township project. Rain Calcining and Rain Commodities are likely to be in the limelight. Rain Calcining has decided to acquire all of the outstanding equity of CII Carbon LLC for $595mn.
FIIs were net buyers of Rs3.73bn (provisional) in the cash segment on Friday. While the local institutions pumped in Rs3.19bn on the same day. In the F&O segment, they were net buyers of Rs6.93bn. Foreign funds were net buyers of Rs3.1bn in the cash segment on Thursday.
US stocks rose on June 1, lifting the Standard & Poor's 500 Index to a record. US employers added 157,000 non-farm jobs in May after boosting payrolls by 80,000 in April, a government report showed. Economists surveyed had expected an increase of 132,000 jobs in May.
European shares advanced on Friday. The pan-European Dow Jones Stoxx 600 index added 0.8% to 399.95. The UK's FTSE 100 closed up 0.8% at 6,676.70 and the German DAX Xetra 30 rose 1.3% to 7,987.85. The French CAC-40 increased 1.1% to 6,168.15.
In the emerging markets, the Bovespa in Brazil rose 2.2% to 53,422 while the IPC index in Mexico was up 1.7% to 31,946 and the RTS index in Russia climbed 2.8% to 1829.
Asian stocks were trading higher this morning after government reports showed that employment and manufacturing growth in the US expanded more than expected and metals prices gained.
The Morgan Stanley Capital International Asia-Pacific Index added 0.5% to 152.12 as of 11:16 a.m. in Tokyo, extending a two-day, 2% rally. Benchmarks in South Korea, Australia and Singapore climbed to new highs. New Zealand's market is closed for a holiday.
In Japan, the Nikkei 225 Stock Average added 0.2%. Stocks also rose after a Ministry of Finance report showed that the country's largest companies increased spending more than expected in the first quarter.
China's stocks fell to a five-week low today after official media said that the slide in shares since stamp duty was tripled last week is a normal correction, suggesting that the government won't act to stem the decline.
The benchmark CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, declined 213.03, or 5.6%, to 3590.92 as of 10:14 a.m. local time, set for its lowest close since April 30.
Markets greeted good Buy to May as bulls welcomed June on a flat note. Bulls managed to survive the so called May Mayhem as the benchmark Sensex instead on tanking added on over 3% during the month. And history says the month of June is always the month of bulls, but with no major triggers on the horizon and the result season far away, market players would look upon Global developments, dollar concerns and crude oil prices.
On Friday markets managed to close with marginal gains as selling pressure in the Oil & Gas, FMCG and Consumer Durable index dragged the markets to wipe off almost all its intra-day gains. However, BSE Technology, Bank and Auto index bucked the negative trend holding the markets from a huge fall. Finally, the 30-share Sensex gained 26 points to close at 14570. NSE-50 Nifty was flat at 4297.
MTNL rallied almost by 7% to Rs163 after the company said that it plans to announce Noida Property Developer in 10 days. The scrip touched intra-day high of Rs165 and a low of Rs151 and recorded volumes of over 59,00,000 shares on NSE.
Bajaj Auto gained momentum towards the end as the scrip added 0.7% to Rs2242. The company announced its May sales which were at 193437 units (down 12%). The scrip touched intra-day high of Rs2252 and a low of Rs2211 and recorded volumes of over 3,00,000 shares on NSE.
M&M gained by 0.5% to Rs758 after the company announced its May auto sales which was at 18116 units (up 49.5%). The scrip touched intra-day high of Rs770 and a low of Rs751 and recorded volumes of over 8,00,000 shares on NSE.
Tata Tea further gained ground for second consecutive after reports stated that the company would buy majority stake in MT Everest. The scrip surged by over 3.5% to Rs952 touching an intra-day high of Rs970 and a low of Rs938 and recorded volumes of over 1,00,000 shares on NSE.
Lupin advanced by 1.7% to Rs711 after the company announced that they have secured FDA approval for Cefadroxil Capsules. The scrip touched intra-day high of Rs733 and a low of Rs714 and recorded volumes of over 2,00,000 shares on NSE.
Consumer Durable stocks were on the receiving end as after being in the limelight for previous couple of trading session. Videocon Industries declined by over 4.5% to Rs470 and Gitanjali Gems was down by 0.4% to Rs189. However. Rajesh Exports and Titan managed to buck the negative trend as Rajesh Export gained by 2.5% to Rs515 and Titan was up by 1.4% to Rs1140.
Oil & Gas stocks also witnessed some selling pressure. ONGC declined by 0.5% to Rs910, RNRL was down by 1.3% to Rs35.60, RPL dropped by 1.5% to Rs99.05 and BPCL edged lower by 0.6% to Rs357.
Banking stocks recorded smart gains led by gains in the heavy weight ICICI Bank surged by 1.3% to Rs930, HDFC Bank was up by 0.5% to Rs1153 and SBI added 1.8% to Rs1378. Canara Bank, OBC and PNB were the major gainers among the Mid-Cap stocks.
Capital Good stocks also ended on a firm note. BHEL advanced 1.4% to Rs1418, ABB gained 2.5% to Rs4720, Gammon India advanced by 3.6% to Rs399 and Punj Lloyd added 1.8% to Rs222.
Citigroup -India – 2 Wheeler Majors
Citigroup in their report on 2 Wheeler Majors say,
Growth Rates Decline — Two-wheeler majors' May sales declined c10%Y/Y – motorcycle sales were significantly lower – down 13%Y/Y, as rising interest rates continued to curb growth. Market leader Hero Honda motorcycle sales also declined 6% Y/Y after positive growth in April 07. Bajaj Auto and TVS' sales degrew ~15% and ~37% respectively.
Rising Interest Rates to Moderate Growth — Interest rates have risen sharply over the last few months (~18-20% IRR at present) and should continue to remain at these levels over the near term. We believe this will moderate volume growth in FY08. BJAT has already guided to c10% volumes growth in FY08E – far lower than its previous guidance of >20%.
HROH market share gains continues — Hero Honda's market share has improved by 495bps in May 07 from Jan 07 which we believe is on back of its success in the entry level segment driven by aggressive promotions and discounts. This segment has little product differentiation (with price being the key driver) hence we don’t think these gains are sustainable.
New Model Launches — Key model launches next fiscal are TVS' relaunch of the Victor in early FY08E), BJAT's launch of a new motorcycle platform in 2QFY08E. These are the most eagerly awaited new product launches for FY08E, and the market response to these will be keenly monitored.
Relative Performance — Over the past month, the sector underperformed the market by 790bps, largely due to strong underperformance of Bajaj Auto on the back of demerger announcement. In relative performance, Hero Honda was the best performer over the month.
Concerns Persist — We believe the two-wheeler segment is witnessing intense competition and a challenging cost environment. We maintain our negative view on
the sector. We reiterate our Sell recommendations on Hero Honda (HROH.BO - Rs717.10; 3L) and TVS Motor (TVSM.BO - Rs69.20; 3M), and Hold rating on Bajaj
Auto (BJAT.BO - Rs2,235.00; 2L).
Citigroup - India Weekly Technicals
Citigroup in their Weekly Technical Report advise,
Nifty — The index opened on a positive note towards the opening session of the week. Mid-week it gyrated in a narrow band of 4307-4241. It closed the week on a positive note up 49 points.
Channel — The index from the low of 3617 (2 April 07) is trading in a upwards sloping channel finding support at the lower end and resistance at the upper end of the channel. Channel support for the current week's trading is around 4230.The index maintaning above the lower end of the channel on a closing basis should be considered positive
Momentum oscillators — The momentum oscillators on the daily charts are exhibiting negative divergence (i.e. Index has posted a higher high whereas the oscillators has posted a lower high). RSI (14) – Relative Strength Index, MACD, Stochastic (5, 3) on the daily charts are exhibiting negative divergence .This indicated range-bound trading can be expected during the current week with support around the lower end of the channel around 4230.
Support — The support levels for Nifty during the current week’s trading are around 4263 (10dma) and 4230 (lower end of the channel). Break of support around 4230 will see nifty exhibit intra week volatility and dip down towards 4141 (low of 25 May 2007).
Higher levels — Last week's trading saw index confined in a trading band of 4307 on the upside and 4241 on the downside, a breakout from this trading band (i.e. a close above 4307) can see it move up towards 4373 levels.
Conclusion — Stay focused on upside towards 4373 while prices hold above 4230 (on a closing basis).
HSBC - India Power Utilities
HSBC in their report on India Utilities is very bullish on PTC
We see distinct opportunities in India’s deregulated power sector, with growth driven by consumer demand for a cheaper and more efficient power supply and industry players who will make higher margins than in the regulated market, especially those with first mover advantage.
In a country with a severe power shortage, we believe there is a bigger growth story here than the market is factoring in. Our analysis yields a 71% CAGR for deregulated power from FY07-12e and our estimates for companies discussed in this report are 0-40% above consensus. We believe government initiatives to increase competition –
including the ultra mega power policy – will increase deregulated power capacity from just 2.6GW (less than 2% of the country’s total) to 38GW (18%) by FY12e. While regulated plants’ ROE is currently 14%, deregulated plants should average 20-25%. We forecast that merchant power plants – those permitted to sell power to the spot
market – will be the most profitable segment, with expected ROEs of 25%.
PTC India should be a key beneficiary; we estimate net profit CAGR of 42% over FY06-11e and initiate coverage with an Overweight (V) rating and target price of INR99. Tata Power (Overweight), with 77% capacity in the deregulated segment
by FY12, should also gain significantly.
PTC India: market leader in trading Target price: INR99; rating: Overweight (V)
PTC India has a pipeline of 5GW of projects to be developed over the next five years, most of its capacity is in merchant power and it has innovative propositions like tolling (a virtual power plant agreement wherein the company will pay fixed charges to the plant developer, supply fuel and get power in return). We initiate coverage with Overweight (V) and a target price of INR99 (average of DCF fair value of INR114 and sumof- the-parts fair value of INR84/share). It trades at 15.5x FY08e and 12.7x FY09e earnings.
Our forecasts for trading volumes are higher than consensus, as we have factored in fee-based income from its non banking finance company (NBFC). Our EPS forecasts are 13% and 18% above consensus for FY08e and FY09e respectively.
Tata Power: right place, right time Target price: INR732; rating: Overweight Tata Power is likely to have more than 40% of its capacity in the deregulated segment by 2010,
compared to its current capacity of less than 20%.
NTPC
Target price: INR176; rating: Neutral
NTPC, the biggest player in the power sector, will also benefit from deregulation. However, we think valuations have run up recently and maintain our Neutral rating on the stock. If NTPC wins the Tilaiya or Krishanapatanam ultra mega power projects we think it stands to gain. It trades at 14.3x FY08e and 12.3x FY09e earnings.
We have factored in very high utilisation rates (88%) for coal plants, and so our EPS forecasts for FY08e and FY09e are 20% and 23% above consensus, respectively.
Reliance Energy
Target price: INR589; rating: Neutral
We think Reliance Energy is a cautious player and has taken a small step towards deregulation. If it wins the Tilaiya project, its earnings could grow above our forecasts. It trades at 12.2x FY08e and 10.7x FY09e earnings. Our forecasts for other income are higher than consensus because we factor in higher interest and foreign exchange income. Our EPS forecasts are 16% and 17% above consensus for FY08e and FY09e, respectively.
Global Statistics Analysis
Global Statistics Analysis (28-05-07 to 01-06-07):
1) The US & EU Markets:
· US markets bounced back in this week trading on government reports that showed an improving economic outlook. The S&P 500 index moved towards its all time high trading during this period. The closing of US markets were in the range of 1.09% to 1.60% for this week closing whereas for the month of May'07 it's in the positive range of 3% to 4%.
· In EU markets we observed a negative start for the week but by the end of closing session on Friday it has rose to its highest close since Sep 2000, buoyed by a flurry of US data. On the statistics we can observe that it has gained 1% in this week whereas in the month of May'07 it has gained 2.67%.
2) The Asian Markets:
- Nikkei, Hang Seng & Strait Times are showing signs of strong developing markets. They have gained in the range of 0.36% to 2.11% in this week and 1.5% to 4.5% in the month of May'07.
- Taiwan and Korea have gained 1.14% and 3.56% respectively in this week and for the month of May'07 we observe upside at 3.42% and 10.25% respectively for these markets. Further, upward movements can be expected with some global positive cue in these developing countries of Asia.
- Federal Reserve Chairman Greenspan had commented on May 23 that Chinese stocks may undergo a "dramatic contraction" in near future. Well, as we had predicted that China stock market is overvalued and the equity bubble can burst on any negative cues. This is what we saw in this week trading sessions after the government tripled the stamp tax on stock trading to 0.3% from 0.1%. Until today the index had more than doubled this year and its stocks traded at 48 times earnings, almost 3 times the multiple for those in the US Dow Jones Industrial Avg. The statistic chart is showing southwards movement of 6.37% for this week ending and in the month of May it has still sustained positive signs at 7% (approx). We still expect further downtrend in this market. There is speculation surrounding the likelihood that government officials would once again attempt to tighten liquidity through tax measures.
- In India, for the last one month (May) we had a well balanced economic picture; control on inflation, good earnings and economic growth for FY07 has also been reported at 9.4% which is second only to China's about 10%. We don't see many concerns in a short term for the markets to slide down but clearly valuations are stretched and upside from here is very limited. It seems the markets will remain in a consolation phase. The positive trigger from here on to achieve new highs is depended much on monsoons, what happens in China and paradigm shift in the outlook for interest rates in India. Also, in this month market is expecting large amount of inflows from FIIs and investors because there are upcoming IPO's of DLF, ICICI holdings etc. lined up which seems attractive and requires large amount of liquidity for their expansion plans. In this week Nifty & Sensex gained 1% and 1.25% respectively whereas in the month of May gained 5% (approx).
3) Emerging Markets:
- In Bovespa (Brazil) and Bolsa (Mexico) we are observing gains of 2.5% and 1.84% respectively for this week in our statistics. As well as for in the month of May'07 they have managed to gain 7% to 8 % approx. These markets bounced back after correction phase in last week. They seem to be strong emerging markets.
- Russia has shown the sign of uptrend after long correction phase in this week closing. It has gained 2.15% in this week and still seems to be attractive investment destination for FIIs and investors because in the month of May it has corrected by 9% (approx).
- Karachi market is moving upwards slowly and steadily as we can observe on the statistics. It has gained 5% in the month of May'07 and in this week managed to gain 0.8%. It still has the potential to move upwards in coming trading sessions on some positive global cue.
4) Commodity:
- Crude Oil prices have climbed in this week due to supply concern. At, the end of week it has climbed up by 0.68%.
- Gold and silver are showing positive signs after a correction phase which lasted for 2 weeks (approx). In this week they have gained 2.36% and 5.16% respectively. At the end of May'07 on statistics it seems silver was almost flat whereas gold was down 1.89%.
- Similar, is the case for metals which have shown positive signs after a correction phase. Copper, Aluminum and Zinc have gained in the range of 1.3% to 3.63% (approx) whereas Nickel is still in down by 1%.
5) Currencies:
- The dollar hit its highest in nearly 4 months against the Japanese Yen in this week.
- Baht, Rouble and Peso currencies are depreciating must faster against a dollar comparing to other major export oriented countries such as India, China, etc. These are not good signs for other major export oriented countries.
- A rupee has broken the Rs40.5 mark in this week trading against a dollar. It seems in near future it will trade in the range of Rs.38 to Rs.40 per dollar. The IT sector has already increased their hedging position due to rupee appreciation which is major a concern for them.
6) Bond Yield:
- US 10 Year treasury notes rose to 4.95%, the highest level in more than 9 months. Higher bond yields make dividends bearing stocks less attractive.
India 10 Year benchmark bonds were flat in the trading.
Global Statistics
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