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Recommendations
Wednesday, September 12, 2007
Trading Calls
Nifty (4497) Sup 4471 Res 4531
Buy IDFC (133) SL 130
Target 139, 141
Buy Colgate (403) SL 398 Target 411, 414
Buy PNB (493) SL 488
Target 504,504
Sell Wipro (457) SL 462
Target 447, 445
Sell Deccan Chronicle (234) SL 238 Target 224, 223
Something to cheer about
Small cheer and great welcome makes a merry feast.
Bulls may be welcomed in style after a mixed week so far. The US market rallied overnight after two days of declines. Buoyed by the gains on Wall Street, stock benchmarks across Europe, Latin America and other emerging markets too ended higher. Asian markets have also opened up this morning. So, its quite natural that the Indian bulls will also resume their buying spree and lift the key indices close to their previous lifetime highs. Investors should do well to use the rally to exit weak stocks and move into better quality scrips or wait with cash for buying towards the end of the month. The big question is whether the merry feast will last beyond lunch time.
There is no panic as of now, with the market having bounced back smartly from late August. Still, with chances of the US economy slipping into a recession (or has it already done so?) growing by the day, one will have to keep oneself abreast with the global events. The standoff between the Congress and the Left also seems to continue, and various parties have already started preparing for the impending mid-term polls. We are all set for a good day ahead. The near-term outlook remains sluggish amid concerns about the economic downturn in the US and its wider global fallout, including that on India.
US stocks rallied the most this month on growing evidence that consumer spending was holding its own amid an economic slowdown and that corporate profit growth remained good.
General Motors posted the biggest advance in the Dow Jones Industrial Average after saying demand is strong. McDonald's climbed on sales that topped some analysts' expectations. Western Digital shares had its best gain in two weeks after the world's second-largest maker of hard-disk drives increased its profit forecast.
The Standard & Poor's 500 Index added 19.79 points, or 1.4%, to 1,471.49. The Dow surged 180.54 points, or 1.4%, to 13,308.39. The Nasdaq Composite Index rose 38.36 points, or 1.5%, to 2,597.47. Each index posted its biggest gain since Aug. 29.
Wall Street is betting that the Fed will lower the benchmark lending rate for the first time in four years to keep credit market losses from slowing economic growth. Fed fund futures contracts show a 72% chance the central bank will reduce its target rate for overnight bank lending by half a percentage point, up from 54% a week ago and down from 76% yesterday.
Speaking to the German central bank in Berlin, Fed chairman Ben Bernanke said the global saving glut was still helping to keep interest rates low, and borrowing costs may not rise much even if the pool of excess capital dwindles in coming decades. He didn't comment on interest rate policy or the economic outlook.
The National Association of Realtors reduced its home sales forecast for the ninth time this year and said the housing slump will extend into 2008. In other news, the July trade deficit narrowed to $59.2bn from an upwardly revised $59.4bn in the previous month. Economists expected a reading of $59bn.
Treasury prices fell, raising the yield on the 10-year note to 4.37% from 4.32% late on Monday. In currency trading, the dollar fell versus the euro and rose against the yen. COMEX gold for December delivery rose $8.90 to settle at $721.10 an ounce.
US light crude oil for October delivery rose 73 cents to settle at $78.22 a barrel on the New York Mercantile Exchange, an all-time high. OPEC agreed to boost its crude output by 500,000 barrels a day. The surprise move would take effect Nov. 1, the cartel said.
European stocks gained ground as hopes for US interest-rate cuts boosted some of the hardest-hit companies over the last month. The pan-European Dow Jones Stoxx 600 index rose 1.7% to 368.41. The UK's FTSE 100 closed up 2.4% at 6,280.70, while the German DAX 30 gained 1.1% to 7,457.90 and the French CAC 40 advanced 1.7% to 5,478.94.
Emerging markets too closed higher. The Bovespa in Brazil jumped 2.4% to 53,921 while the IPC index in Mexico gained 1% to 30,191. The RTS index in Russia added 0.7% to 1911 and the ISE National-30 index in Turkey climbed 1.6% to 61,949.
Most Asian markets were trading up this morning. The Nikkei in Tokyo advanced 56 points to 15,934 while the Hang Seng in Hong Kong shot up by 254 points to 24,206. The Straits Times in Singapore gained 21 points to 3516 while the Kospi in Seoul fell by 15 points to 1831.
The Morgan Stanley Capital International Asia-Pacific Index added 0.7% to 151.43 at 10:50 a.m. in Tokyo, with all 10 of the benchmark's industry groups advancing. Australia's S&P/ASX 200 Index rose 0.5%. South Korea and New Zealand were the only markets open for trading to decline.
Swinging market ended in red as benchmark Sensex swung nearly 200 points and Nifty swung over 50 points during the day. After opening with a positive bias key indices lost ground throughout the session as selling pressure in the IT and Auto stocks dragged the markets to close in negative territory. Mid-Cap and the Small-Cap indices also witnessed profit booking. On the other hand Power and Metal stocks were in demand. Finally, BSE 30-share benchmark Sensex slipped 54 points to close at 15542. NSE Nifty slipped 10 points at 4497.
Shares of Motilal Oswal Financial Services Ltd rose on debut. The scrip started trading at Rs938 on BSE against the issue price of Rs825 and finally ended on a premium of 18% at Rs973 touching an intra-day high of Rs997 and a low of Rs911 and recorded volumes of over 62,00,000 shares on NSE.
Idea gained by 1% to Rs123 after the local mobile-phone operator’s board approved a plan to put its wireless towers and other infrastructure into a separate company. The scrip touched an intra-day high of Rs125 and a low of Rs122 and recorded volumes of over 36,00,000 shares on NSE.
IFCI surged by over 5% to Rs77 following reports that Blackstone Group LP and Citigroup Inc. are among contenders to buy a 26% stake in IFCI. The scrip touched an intra-day high of Rs78 and a low of Rs75 and recorded volumes of over 7,00,00,000 shares on NSE.
Rallis spurred by over 3% to Rs325 following reports that the agrochemicals company belonging to the Tata group plans to bid for Japan's Arysta LifeScience Corp., the world's largest privately held crop-protection company. The scrip touched an intra-day high of Rs335 and a low of Rs320 and recorded volumes of over 11,000 shares on NSE.
Kinectic Engineering was frozen at 20% upper circuit following reports that the company has secured order from Tata Motors. The scrip touched an intra-day high of Rs138 and a low of Rs114 and recorded volumes of over 35,000 shares on NSE.
Gammon India after slipping nearly by 10% in the previous trading session ended 0.5% higher at Rs423. The stock yesterday fell following reports that the company faced criminal charges after a flyover being built by the company in the southern Indian city of Hyderabad collapsed. The scrip has touched an intra-day high of Rs439 and a low of Rs420 and recorded volumes of over 6,00,000 shares on NSE.
Rajesh Exports advanced by 2.5% to Rs698 amid reports that it is looking at buying jewellers in South India. The scrip touched an intra-day high of Rs709 and a low of Rs682 and recorded volumes of over 3,00,000 shares on NSE.
Cairn gained by 1.8% to Rs159 after the company announced that it has secured Government approval to build pipeline. The scrip touched an intra-day high of Rs161 and a low of Rs156 and recorded volumes of over 37,00,000 shares on NSE.
Power stocks sparked off. Suzlon surged by 3.8% to Rs1326, PFC was up by 2.2% to Rs195, NTPC gained 2.6% to Rs196 and APIL added 1.8% to Rs772.
IT stocks ended lower as rupee further strengthened against the USD. TCS was down by 2.2% to Rs1023, Infosys slipped by 2.6% to Rs1822, Wipro lost by 2% to Rs455 and Satyam Computer shed by 2% to Rs433.
Auto stocks were in reverse gear as selling pressure dragged them lower. Tata Motors slipped by 2% to Rs689; Maruti was down by 1.5% to Rs861, M&M slipped by 0.6% to Rs697 and TVS Motors declined by 2.5% to Rs71.
Banking stocks also were under pressure. SBI dropped by 1% to Rs1622, ICICI Bank was down by 1% to Rs901 and HDFC Bank edged lower by 0.7% to Rs1187. Bank of India, Bank of Baroda and Syndicate Bank were the major losers among the Mid-Cap stocks.
Global cues will again play an important role for the markets. The equity markets across the globe are now awaiting the outcome of the FED meet on September 18. Investors may well stay on the sidelines before the all-important announcement by Ben Bernanke. Also, one needs to be cautious with fresh concerns of inflation emerging from China. The ongoing consolidation will continue with intra-day gyrations and stock specific movement due to the lack of immediate triggers. Although stock specific activity will continue depending on the flow of news, the market is expected to consolidate at higher levels.
Stocks In News
Essel Propack could gain as a financial daily reports that it is in talks with Alcan for buying the latter's packaging unit. Hanung Toys might be another gainer amid reports that it has won a Rs6bn order from a Swedish company. Top IT companies may attract some attention as a newspaper report says they are among the suitors for bagging the $125mn deal from Dutch financial giant ING.
IDFC and Sintex Industries will advance as the RBI has increased the investment limit for FIIs in the two companies. General Atlantic has opted to exercise their conversion option of 1,055,570 preference shares into unregistered ADRs, represented by 10,555,700 equity shares @ Rs142.10 per share. General Atlantic had invested Rs 300 crores in Hexaware through a preferential allotment in early 2006.
Fund Activity:
FIIs were net buyers of Rs2.57bn (provisional) in the cash segment on Tuesday and the local institutions pulled out Rs4.45bn. In the F&O segment, foreign funds were net buyers of Rs4bn.
On Monday, FIIs were net sellers to the tune of Rs629mn in the cash segment. Mutual Funds were net sellers of Rs1.88bn on the same day.
Major Bulk Deals:
ABN Amro Bank has bought Deccan Chronicle while Fidelity Investment has sold it;
Macquarie Bank has sold GIC Housing Finance; Merrill Lynch has picked up GTC Industries; Blackstone Asia has sold HBL Power Systems; Morgan Stanley has purchased HTMT Global; Franklin Templeton MF and Goldman Sachs have bought
Motilal Oswal; CLSA Mauritius has sold OBC; Bear Stearns has sold Simplex Infra; Morgan Stanley has sold Sujana Tower; Sundaram MF has picked up Time Technoplast; Credit Suisse has purchased Vijaya Bank while Merrill Lynch and HSBC Financial have sold it.
Upper Circuit:
Usher Agro, ABG Heavy, Jayant Agro, Marksons, Kinetic Engineering, IID Forgings,
Shree Precoated, Time Techno, ION Exchange, Manali Petro.
Major News & Announcements:
SBI approves $800mn - $1bn loan to Tata Steel
RBI allows Foreign Funds to buy up to 74% in IDFC and Sintex
EKC to consider plan to sell Rs1bn of shares
Kinetic Engineering secures order from Tata Motors – Reports
Bhagyanagar Board to consider Preferential issue warrants
Sonata Software to spend Rs1bn to develop facility
Areva secures multimillion Euro contract
Wipro to make fresh investments in Mexico, says Premji
HCL Tech to offer IT Management service to Awalnet of Saudi Arabia
Classic Diamonds to open 4 outlets in UAE by 2007, ties up with retailer at UAE
Godawari Power board to consider raising funds on September 25
Venus Remedies secures approval to sell drug in Ukraine
Nagarjuna Construction secures order worth Rs2.72bn
Cairn gets Government approval to build pipelineTata Steel September 2007 futures most active
Futures settle at discount
The Nifty September 2007 futures settled at 4488.20, a discount of 8.85 points as compare to spot closing of 4,497.05.
The NSE F&O turnover was Rs 41739.52 crore as compared to Rs 37333.48 crore on Monday, 10 September 2007.
Tata Steel September 2007 futures settled at premium, at 714, compared to the spot closing of Rs 709. It was the most active contract with turnover of Rs 1810.75 crore.
Reliance Industries September 2007 futures settled at premium, at 1985.60, compared to the spot closing of Rs 1992.
IDBI September 2007 futures settled at premium, at 138.25, compared to the spot closing of Rs 137.45.
In the cash market, the S&P CNX Nifty was down 10.80 points or 0.24% at 4,497.05.
Daily Technical Analysis
Nifty — The index opened on a positive note yesterday, but was unable to sustain the higher levels. It drifted down throughout the day’s session and ended the day with a loss of 11 points.
Range-bound — The index is stuck in a trading band of 4,547 on the upside and 4,446 on the downside for the last 7 trading sessions. Until it sees a breakout from the 4,547-4,446 range, range-bound trading can be expected. Breakout from the trading band will likely result in a directional move.
Resistance can be expected around 4,534 and 4,547 (the higher end of the band).
Support can be expected around 4,446 (the lower end of the band) and 4,404 (50 dma).
Conclusion — Expect range-bound trading between 4,547 and 4,446.
IT Earnings, BHEL, Top Equity funds
Q2FY2008 IT earnings preview
After tough Q1, the frontline tech stocks are estimated to report a marked improvement in their performance during the current quarter. Traditionally, Q2 is one of the best quarters for Indian IT companies. Moreover, the rupee has also stabilised in the range of Rs40.5-41/USD and the average realisation in Q2 could be around Rs40.7/USD, which is almost at the same level as reported by the tech companies in the previous quarters. Consequently, the frontline tech companies are estimated to show a growth of around 9% in their cumulative revenues on a sequential basis.
STOCK UPDATE
Bharat Heavy Electricals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,954
Current market price: Rs1,910
Annual report review
Key points
- Bharat Heavy Electricals Ltd (BHEL) had a splendid FY2007, registering a 29% growth in its revenues to Rs18,739 crore and a 44% increase in its net earnings to Rs2,414.7 crore. The operating profit margin (OPM) expanded marginally (by 60 basis points) to 19.1%.
- The power business registered a healthy growth of 28% in its revenues while the industrial business recorded a rise of 32% in its revenues during the year.
- It was a remarkable year for BHEL in terms of order inflow, which grew at 88.2% year on year (yoy) to Rs35,643 crore. Consequently, the order backlog at the end of the year stood at Rs55,000 crore.
- BHEL's cash pile stood at a huge Rs5,808 crore at the end of FY2007, thanks to reduced working capital requirement and lower capital expenditure during the year.
- The company has crafted a "Strategic plan 2012" targeting a turnover of $10 billion by 2012 vs $4 billion at present.
- In our view, the government's focus on increasing power generation in order to meet its mission of providing "power for all by 2012" would be one of the key catalysts for BHEL's order inflows, providing clear visibility to the company's earnings.
- We believe in future, the execution capability is going to be a key differentiating factor in this business and BHEL, which is a large player, will be better placed to secure the best orders in the industry. Hence, we remain bullish on the stock and reiterate our Buy recommendation with a price target of Rs1,954. At the current market price Rs1,910 the stock is trading at 30.4x its FY2008E earnings and 24.4x its FY2009E earnings.
Alphageo India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs517
Current market price: Rs416
Annual report review
Key points
- In FY2007, Alphageo India’s (Alphageo) revenues increased by around 128% year on year (yoy) to Rs54.3 crore. The operating profit rose by 128% yoy to Rs25.5 crore as compared with Rs11.2 crore in FY2006. However, the operating profit margin (OPM) remained almost flat at 46.9% in FY2007. The net profit grew at 78.3% yoy to Rs7.5 crore.
- The company witnessed a significant improvement in its project mix in FY2007, where the 3D projects made up around 77% of the total revenues as compared with around 44% in FY2006.
- The company's order book as on April 30, 2007 stood at Rs117.1 crore, which is around 70% higher than that of Rs68.8 crore on April 30, 2006. Around 85% of the company's current order book comprises of 3D projects.
- During the year, the company received a Rs58.4 crore contract from ONGC in the operational blocks of the Cauvery basin, Tamil Nadu. The contract will reduce company's excessive dependence on non-monsoon assignments.
- The Company added one more 3D crew in FY2007. The crew strength of the company now stands at five of which three are 3D crew and two are 2D crew.
- Alphageo is the largest private sector player with five crew (three 3D crew and two 2D crew) in operation for 2D and 3D seismic services. The company is well versed with almost all the terrains in the country, which makes the company one of the most experienced (private sector) players in the country to take the advantage of the ongoing boom in oil and gas exploration in the country. At the current market price of Rs416, the stock discounts its FY2009E earnings by 8.0x and is available at enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.0x. We maintain our Buy recommendation on the stock with a price target of Rs517.
SECTOR UPDATE
Steel
Sustained upturn in steel prices
The average international hot rolled coil prices has increased by approximately 6% in the last one month to $570 per tonne. Following the global buoyancy in the international market and the increase in feedstock prices, international companies such as POSCO and Hyundai steel have raised the prices for the second time in the last two months. We believe cost-push factors will keep the steel price firm for the medium term and increasing consolidation will ensure reduced volatility over the longer term.
MUTUAL GAINS
Sharekhan's top equity fund picks
We have identified the best equity-oriented schemes available in the market today based on the following 3 parameter : the past performance as indicated by the one and two year returns, the Sharpe ratio and Fama (net selectivity).
The past performance is measured by the one and two year returns generated by the scheme. Sharpe indicates risk-adjusted returns, giving the returns earned in excess of the risk-free rate for each unit of the risk taken. The Sharpe ratio is also indicative of the consistency of the returns as it takes into account the volatility in the returns as measured by the standard deviation.
FAMA measures the returns generated through selectivity, ie the returns generated because of the fund manager's ability to pick the right stocks. A higher value of net selectivity is always preferred as it reflects the stock picking ability of the fund manager.
Reverse brain drain
With India becoming a favoured destination of several multi-national companies, thousands of Indian IT professionals in the United States are returning to their homeland with good pay packets, according to a survey.
The survey conducted by Indus Entrepreneurs, an association of Indian IT professionals settled in the US, found that around 60,000 professionals have returned to India in recent years, Michael M Bala, Business Head of recruitment portal clickjobs.com, said.
Several couples in age group of 27 to 35 were looking forward to come back to India, he said, quoting the survey.
“Most young Indian couples preferred to return to India to protect their kids from the Western culture and to educate them in Indian atmosphere,” he said.
Infrastructure development and job opportunities at the more or less same salary in India were cited as the factors behind the trend.
Bala, who recently conducted a job fair in New Jersey to recruit personnel for multi-national companies, said more and more Indians were coming forward to return to their motherland with the country becoming favoured destination of several MNCs, financial institutions and IT companies.
“The growth of these institutions in India have thrown open the doors to talented people, who had so for thought that the West was their only resort,” he said.
In the recently held job fair, over 3,000 people, mostly couples, had come forward to attend interviews for companies like Yahoo, Canon, IBM and HP, he said.
Encouraged by this, the portal would be conducting another fair in the US within six months, he said.
Best paymasters in IT companies
If you work for an information technology company, it makes sense to be in the R&D function. According to a recent study conducted by technology research firm IDC India Ltd for Dataquest magazine, multinational firms in the R&D business pay the highest salaries in the Indian IT industry.
The top three paymasters in the industry, according to the study, are companies that hire people largely for R&D work in India: Cadence Design Systems (India) Pvt. Ltd, Sun Microsystems India Pvt. Ltd, and Honeywell Technology Solutions Lab Pvt. Ltd. “For R&D, you need the best brains and you can’t get them cheap,” says E. Balaji, CEO, Ma Foi Management Consultants Ltd.
The study also found that foreign IT firms such as IBM India Pvt. Ltd, Capgemini Consulting India Pvt. Ltd and Computer Sciences Corporation India Pvt. Ltd pay higher salaries than their Indian counterparts.
According to the study, the average salary hike received by software professionals in 2007 was 18.7% compared with 18.3% in 2006; and the average salary of people in the IT industry, across all management levels barring the top management has grown 11% to Rs6.2 lakh per annum. This average salary increase is considered significant because large IT firms have been hiring a large number of people at the entry-level. “It is generally expected that, with the on-campus recruitment of thousands of freshers, the average salaries should go down,” says Shailendra Gupta, senior manager, research, IDC India.
The survey also found out that there is no correlation between salaries and the satisfaction of employees with salaries. “We knew that high salary didn’t always mean high satisfaction, but the sheer extent of disconnect is amazing. There was less than 8% correlation between salary and satisfaction with salary,” says Prasanto Kumar Roy, chief editor, Dataquest. Thus, Cadence, that ranks No.1 in terms of salary, comes in at No.10 in terms of satisfaction of employees with salaries. And HCL Infosystems Ltd, that ranks No.1 in terms of satisfaction of employees with salaries, ranks No.23 in terms of salaries.
The survey found that companies that manage to keep their employees happy can afford to pay lower salaries. “Although salary is one of the biggest deciding factor, a lot depends on the kind of growth potential and work environment the company offers,” adds Ma Foi’s Balaji.
The survey, which excludes top management, covered 2,806 professionals across 31 software companies.
Tuesday, September 11, 2007
Kaveri Seed Company Limited Subscription Details
Qualified Institutional Buyers (QIBs) - 5.5867 times
Non Institutional Investors - 5.0456 times
Retail Individual Investors (RIIs) - 3.2623 times
Employee Reservation - 3.2623 times
OVERALL - 4.51 times
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