Reliance Capital
India Equity Analysis, Reports, Recommendations, Stock Tips and more!
Search Now
Recommendations
Friday, December 14, 2007
Daily Trading Calls
Nifty (6058) Sup 5986 Res 6106
Buy IOC (674)
SL 668 Target 684, 688
Buy AB Nuvo (1795)
SL 1770 Target 1845, 1855
Sell Pantaloon (661)
SL 668 Target 649, 645
Sell Crompton Greaves (411)
SL 416 Target 402, 400
Buy IDBI (174)
SL 170 Target 181, 183
No firm plans for weekend!
Reality is that which, when you stop believing in it, doesn't go away.
After Wednesday's smart gains, the bulls decided to have a reality check and took a breather of sorts. Most global markets were down in red yesterday as nagging worries over the turmoil in world credit markets refuse to go away . Even a concerted effort led by the Federal Reserve to boost global liquidity failed to have any sobering effect on global markets. As a result, the Sensex and the Nifty slipped into the negative zone around noon and failed to recover . At the same time, small-cap and mid-cap shares continued their winning streak, which explains the positive market breadth.
The outlook for today is a cautious undecided start. The key indices will remain choppy, and the broader market will continue to attract buyers. Trends across the global markets will continue to drive sentiment here in India . A recovery in Asia or later in Europe could prop up the mood, but one should not read too much into that. Banking stocks are expected to see positive action in the coming days.
FIIs have been net sellers for the past couple of days. This could have a bearing on the undertone, especially they do not resume their buying spree. Being the last month of the year, historically, FIIs are not expected to be very active. Local Funds have been steadily picking up shares even as their overseas counterparts have turned net sellers.
We expect the market to be rangebound and sideways for the rest of the month. In the near year, the direction will hinge on latest quarterly results, pre-budget speculation, liquidity flows and of course the global markets. Till then, investors should remain on the fringes and do selective buying in quality scrips or in stocks where they have some firm information. Large, aggressive purchases can be postponed for a while. And, be careful of the almost non-stop movement in certain small-cap and mid-cap stocks . Book profit before you are refused an exit.
US stocks closed mixed after a late recovery on Thursday. Trading was choppy amid continuing worries about the state of the US economy. A report showed a big jump in wholesale prices. On the positive side though, a strong reading on retail sales cooled some concerns about consumer spending.
After dropping more than 100 points during the session, the Dow Jones Industrial Average gained 44 points, or 0.3%, to 13,517.96, led by a 5% rally in Honeywell International. The S&P 500 index finished flat at 1,488.41 and the Nasdaq Composite Index fell 3 points, or 0.1%, to 2,668.49.
Market breadth was negative. About three stocks declined for every two that rose on the New York Stock Exchange.
Financial shares remained under pressure on concerns that a coordinated attempt by central banks in North America and Europe to relieve the tension in the credit markets will fail. Bear Stearns, Goldman Sachs and Merrill Lynch led declines in brokerages after Lehman Brothers said some precautions against mortgage losses were ineffective.
JetBlue Airways shares surged over 14% on news that German carrier Deutsche Lufthansa will buy a roughly 19% stake in the discount air carrier for $7.27 per share, confirming earlier rumors. Dow Chemical said it will sell a 50% stake in five of its businesses to a Kuwaiti company for $9.5bn. Shares jumped 6%.
The Producer Price Index (PPI) jumped 3.2% in November, due in large part to a spike in energy prices, the government reported. PPI was well above forecasts and followed a rise of 0.1% in October. So-called "core" PPI, which excludes food and energy prices, also rose more than expected.
A separate report showed a stronger-than-expected jump in November retail sales and in sales excluding autos. Another report showed a bigger drop in weekly jobless claims than economists were expecting. Meanwhile, business inventories rose 0.1% in October, shy of forecasts.
Treasury prices slipped, raising the yield on the 10-year note to 4.2% from 4.09% late on Wednesday. In currency trading, the dollar rose versus the euro and yen. US light crude oil for January delivery fell $2.09 to settle at $92.30 a barrel in New York. COMEX gold for February delivery fell $14.80 to $804 an ounce.
Most Asian stocks fell this morning, led by raw material shares after metals and oil prices dropped on speculation that a US slowdown will slow demand for commodities. BHP Billiton and Rio Tinto led the decline.
The MSCI Asia Pacific Index fell 0.2% to 159.40 as of 9:50 a.m. in Tokyo, extending a two-day, 3.4% drop. Seven of the 10 industry indexes on the benchmark fell.
Japanese exporters rose, paced by Nintendo and Sony after the yen weakened against the dollar, boosting the value of overseas sales. The Nikkei in Tokyo was up 96 points at 15,632.
The Hang Seng in Hong Kong was nearly flat, down only 24 points at 27,720. The Kospi in Seoul fell 10 points to 1906 and the Straits Times in Singapore dropped 14 points to 3465.
European shares tumbled with banks such as HSBC bearing the brunt of the sell-off, amid growing doubts about a Federal Reserve-led move to boost global liquidity will ease the global credit crisis. The pan-European Dow Jones Stoxx 600 index lost 2.5% to 365.61. The UK's FTSE 100 closed down 3% to 6,364.20, while the German DAX 30 slid 1.8% to 7,928.31 and the French CAC-40 dived 2.7% to 5,590.91.
Brazilian stocks fell as the government failed to win an extension for a key tax measure. Mexican stocks too ended its session with losses. In Sao Paulo, the benchmark Bovespa index slid 2.9% to close at 62,861. In Mexico, the IPC index of 35 most-traded issues fell 0.8% to 30,088.04. Argentina's Merval stock index fell 1.3% to 2,196.48 and Chile's IPSA was down 2.6% at 3,009.55.
In other emerging markets, the RTS index in Russia was down 1.8% at 2317 and the ISE National 30 index in Turkey slumped 3% to 70,419.
All eyes on global markets
Markets opened with a positive gap hitting the days high of 20,498, thereafter key indices gradually lost ground snapping a three day winning streak. Markets lost ground as weakness in the Asian and the European markets dampened the sentiments of the traders on D-street dragging the benchmark Sensex over 400 points and Nifty index over 100 points from their respective highs. Finally, 30-share Sensex slipped 271 points to close at 20,104 and Nifty closed at 6,058 losing 101 points.
Kolte Patil Developers a real estate developer got listed at Rs230, translating into a premium of 58% or Rs85 against issue price of Rs145 per share on NSE. However, the stock was unable to hold on to its gains as it closed at Rs180, up 24%.
The company develops and constructs properties mainly in Pune and Bangalore. Since its incorporation in 1991, it has completed 25 projects, including 22 in Pune and three in Bangalore, covering 4.01mn sqft of saleable area. The scrip touched an intra-day high of Rs230 and a low of Rs176 and recorded volumes of over 1,00,00,000 shares on NSE.
Bharti Airtel slipped over 6.5% to Rs988. The company had its debt rating raised to investment grade by Standard & Poor's which cited stronger-than- anticipated earnings. The scrip touched an intra-day high of Rs1064 and a low of Rs983 and recorded volumes of over 39,00,000 shares on NSE.
Hindustan Zinc gained 1.1% to Rs822 after the company announced that it kept zinc prices unchanged and had cut lead prices to Rs1,15,900 per ton. The scrip touched an intra-day high of Rs847 and a low of Rs816 and recorded volumes of over 2,00,000 shares on NSE.
BHEL lost 2.1% to Rs2591. The company announced that it had won Rs1.2bn contract. The scrip touched an intra-day high of Rs2688 and a low of Rs2585 and recorded volumes of over 10,00,000 shares on NSE.
L&T was down 1.2% to Rs4239. Reports stated that the company is floating a JV with Technip a French company to expand its play in the offshore exploration sector and secure global orders. The scrip touched an intra-day high of Rs4334 and a low of Rs4221 and recorded volumes of over 4,00,000 shares on NSE.
Reliance Energy also fell 1% to Rs1912. The company yesterday bagged an EPC contract worth Rs37.25bn from Damodar Valley Corporation to set up 1,200MW coal based power station in West Bengal. The scrip touched an intra-day high of Rs1960 and a low of Rs1905 and recorded volumes of over 14,00,000 shares on NSE.
Ispat Industries gained over 6% to Rs76 after reports stated that the company would sign pact with MP Government. The scrip touched an intra-day high of Rs78 and a low of Rs71 and recorded volumes of over 9,00,00,000 shares on NSE.
Sterlite Industries was down 2.7% to Rs1074. Reports stated that the company’s power arm secured nod for 2400 MW. The scrip touched an intra-day high of Rs1115 and a low of Rs1061 and recorded volumes of over 25,00,000 shares on NSE.
JSW Steel surged by over 7.5% to Rs1336 after media reports stated that the company would launch Energy unit IPO before FY08. The scrip touched an intra-day high of Rs1389 and a low of Rs1252 and recorded volumes of over 16,00,000 shares on NSE.
What the FIIs are doing
FIIs were net sellers of Rs4.02bn (provisional) in the cash segment on Thursday while the local institutions pumped in Rs2.27bn. In the F&O segment, foreign funds were net sellers of Rs11.3bn on the same day.
Stocks in News:
Reliance Industries (RIL) is planning to directly market petroleum products in US and Europe. (FE)
Videocon Industries is planning to spin-off its energy business in to a separate company. (ET)
The DoT has cleared Idea, Vodafone Essar and Aircel requests for grant of 2G spectrum where they currently hold licenses; rejects Bharti and Idea's offer for buying additional spectrum. (ET)
AstraZeneca files litigation against seven drug makers, including Sun Pharma and Aurobindo to protect its rights over US$2bn cholesterol pill, Crestor. (DNA)
Lanco Infratech has secured a mandate to supply 390MW of power to Haryana and 600 MW to Madhya Pradesh. (BL)
GMR Infra mulls acquisition of coal mines which will be partly funded by the recent QIB issue. (BL)
SBI has asked prospective partners for its general insurance foray to pay Rs33.5bn as entry premium. (BS)
Tata Tele to invest Rs3bn to rollout mobile services in Assam and North East by April/May 2008. (ET)
Ispat Industries to invest Rs15bn in Madhya Pradesh for setting up a coke oven plant. (DNA)
Oman Oil in talks with Tata Group for jointly setting up industrial salt and soda ash plants in Oman. (FE)
TV18 Group to launch a business magazine in India in partnership with Forbes. (BS)
TVS Motors launches a four-stroke 125cc bike Flame at Rs45,000. (DNA)
Vivimed Labs is close to acquiring a Germany-based cosmetics chemicals manufacturing firm. (FE)
Ford looking to partner M&M all over again including for a possible alliance for passenger vehicles. (ET)
The Government is set to fix onetime spectrum fee for all new players planning to offer 2G mobile services. This will be in addition to Rs16.5bn entry fees. (ET)
The Government has proposed to raise expenditure on education to 19% of the planned outlay during the 11th plan (2007-12) (FE)
The Government has invited exploration bids for 57 oil & gas blocks under the seventh New Exploration Licensing Policy (NELP VII). (ET)
The Government may offer 51% stake in the proposed Delhi-Mumbai Industrial Corridor Development Corporation to financial investors. IDFC, IL&FS, Srei Capital and IFCI in talks to pick up stake. (ET)
S Kumars Nationwide
We recommend a buy in S.Kumars Nationwide at current market price. From the weekly chart of S.Kumars Nationwide it is evident that it has been on steady long-term uptrend since March 2007 low of Rs 59. The stock has multiplied three times since this low. However, from the daily chart, we note that after touching an all-time high of Rs 177 on March 16, the stock began moving sideways. Moreover, we see that the stock has been constantly bouncing from the support around the 2 1-day moving average line. The daily as well as weekly momentum indicators are featuring in the bullish region. The moving average convergence divergence is in the positive region and is signalling bullishness. The immediate support for the stock is pegged at Rs 146 and the subsequent support is at Rs 128. Currently the stock is testing the resistance at Rs 165. Considering the above bullish arguments, we expect the stock to break through the current resistance and move up to Rs 185 in the short-term. Short-term investors can buy the stock with stop-loss at Rs 149.
Via Businessnline
Crude eases partly
Crude prices slip by almost $2 after gaining more than $4 yesterday
Crude prices eased partly today after traders speculated that recession in the US is avoidable as Federal Reserve will inject cash in the system. Profit booking was another reason as to why prices eased today after rallying by almost 5% yesterday.
For the day ending Thursday, 13 December, 2007, crude-oil futures for light sweet crude for January delivery closed at $92.62/barrel (lower by $1.8/barrel or 1.9%) on the New York Mercantile Exchange. Price earlier slipped by more than $2/barrel during the day. Prices reached a high of $99.2 on 21 November. Prices are up 47% from a year ago.
Yesterday, Fed came up with new plans and said it would inject cash into money markets through some term-auction facilities. The Fed, along with the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Canada, will provide cash to the money market to get through in the coming months.
In the currency market today, the dollar rose against the euro, yen and pound, after data showed bullish retail sales and wholesale inflation at a 34-year high in November reduced investors' expectations of further aggressive interest rate cuts by the U.S. Federal Reserve. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, rose 0.6% at 76.595.
On 11 December, Tuesday, Federal Reserve lowered the federal funds rate by a quarter-point to 4.25%. The Fed also lowered its discount rate, the interest it charges on direct loans it makes to banks, by a quarter-point to 4.75%.
Yesterday, EIA had reported in the weekly inventory report that U.S. crude inventories dropped for a fourth week in the week ending 7 December, down 700,000 barrels. At 304.5 million barrels, U.S. crude inventories were at their lowest since March, 2005, but are still in the upper half of the average range for this time of year. U.S. refineries operated at 88.8% of their operable capacity last week, down from the previous week's 89.4%.
Brent crude oil for January settlement fell $1.84 (2%) to $92.18 on the London-based ICE Futures Europe exchange.
Natural gas gives up earlier gains
Natural gas futures in New York today gave up earlier gains and finally finished lower for the day. EIA reported that U.S. supplies last week declined more than expected. Stockpiles fell 146 billion cubic feet to 3.294 trillion cubic feet in the week ended 7 December as against an expected figure of 130 billion cubic feet.
Against this backdrop, January reformulated gasoline fell 3.88 cents to $2.347 a gallon and January heating oil dropped 2.37 cents at $2.6195 a gallon.
Members of the Organization of Petroleum Exporting Countries left production targets unchanged at the 5 December meeting in Abu Dhabi. The group, which produces 40% of the world's oil, will review output at a 1 February meeting in Vienna.
As per EIA, global oil markets will likely remain tight through 2008 and monthly average oil prices are expected to near $85 per barrel over the next year. World oil consumption in 2008 is projected to rise by 1.4 million barrels.
Precious metals register fall
Gold prices tumble to three weeks low and silver drops more than 4%
Gold and silver prices fell today, Thursday, 13 Decemebr, 2007, as dollar strengthened against its rivals. Gold was back trading below $800/ounce in the morning hours. It was the lowest trading price of gold in three weeks. Gold generally moves in the opposite direction of the U.S. currency.
Comex Gold for February delivery fell $14.8 (1.8%) to close at $804 an ounce on the New York Mercantile Exchange today. Last week, prices rose by more than 1.4%. On, 7 November, prices had touched $848/ounce. It was the highest price after a record $873 on 21 January, 1980.
Comex Silver futures for March delivery dropped 60 cents (4%) at $14.225 an ounce. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 11% this year.
Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.
In the currency market today, the dollar rose against the euro, yen and pound, after data showed bullish retail sales and wholesale inflation at a 34-year high in November reduced investors' expectations of further aggressive interest rate cuts by the U.S. Federal Reserve. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, rose 0.6% at 76.595.
Yesterday, the Federal Reserve said it would inject cash into money markets through some term-auction facilities. On Tuesday, 11 December, Federal Reserve lowered the federal funds rate by a quarter-point to 4.25%. The Fed also lowered its discount rate, the interest it charges on direct loans it makes to banks, by a quarter-point to 4.75%.
In the energy market, oil prices slipped by more than $1/barrel.
Gold had climbed 26% this year till date as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Dollar is still 11% down against the euro this year.
In 2006, silver had jumped 46% while gold gained 23%.
Dollar had been witnessing a free fall since Federal Reserve cut interest rates in September. Before 11 December, Federal Reserve had cut the fed funds rate by a quarter-point to 4.50% on 31 October, 2007. Prior to that, Federal Reserve had cut interest rates by half percentage point on 19 September, 2007.
Market may hit 21000 soon
With a rate cut in the US and its prior expectations driving the Sensex beyond 20,000 mark, analysts expect the next thousand point milestone well before the US central bank's next rate review meeting in January.
Sensex has gained close to 450 points in the past two days and today settled above the 20,000 mark for the second consecutive day.
Wednesday's rally came on the back of a 25 basis points rate cut by US Federal Reserve last night, while marketmen said that expectation to this effect had contributed to yesterday's gain.
"The markets are going to rally from here onwards. Gain of 500 or more points is not a big thing now a days as the base of the market has increased. A level of 21,000 for Sensex and 6,500 for Nifty is quite achievable," domestic brokerage firm SMC Global vice-president Rajesh Jain said.
"Consequent to this rate cut by the Federal Reserve, there would be more liquidity in the market. However, it would be marred with volatility," Asika Stock Brokers Research Head Paras Bodhra said.
Markets have absorbed the adverse news on subprime, which was a tremendous global shock, Bodhra added.
"The Fed cut of 25 basis points is not all that bad. The markets were expecting a 50 basis points cut. But the current decision is a neutral one," Jain added.
US markets plunged after the decision that was opposed to the widely anticipated 50 basis point cut.
The Indian equity market is moving in a different orbit as against the way the Asian fraternity is progressing. Markets are showing a high level of decoupling factor, analysts added.
Market Gossip
Maharashtra Seamless up on order buzz
The stock price of Maharashtra Seamless has risen around 24% in the past one month. Market talk is that the DP Jindal Group company has bagged an export order worth Rs 160 crore from the US and Latin America. Dealers tracking the counter expect the announcement to be made over the next couple of days.
When contacted, company officials declined to comment on the issue. The stock closed at Rs 613, down 3% from the previous day. Last month, JP Morgan had initiated coverage on the stock with an overweight rating and a target price of Rs 580.
According to the broking house, margins could be under pressure during the current financial year because of high price of steel billets, which the company buys in the spot market. JP Morgan expects margins to improve in the next financial year as new orders would be booked at higher realisations.
Acquisition talk breathes life into Wockhardt stock
Until some days ago investing in pharma stocks was not considered a wise decision by market mandarins. However, over the past two trading sessions there has been sustained buying in the counter of Wockhardt.
According to market sources, domestic funds and operators are buying Wockhardt on expectations that the company will soon go in for one more acquisition in the US. The company recently acquired US-based Morton Grove Pharmaceuticals, a liquid generic and speciality dermatology company, for around $80 million.
A section of the market, however, feels while the company would be scouting for acquisitions, but it maybe some time before Wockhardt signs a deal. Wockhardt ended 2.5% higher at Rs 408 on BSE on Thursday.
Aditya Birla Nuvo gains from Rel Cap valuation
Aditya Birla Nuvo stock was in demand despite the overall weakness in the market on Thursday. The stock hit a new high of Rs 1,820 before closing at Rs 1,797.50, up 6.4% over the previous close. Dealers tracking the counter say the sudden flurry of activity on Thursday was largely sentiment driven and could have to do with the valuation assigned to Reliance Mutual Fund following Eton Park buying a 5% stake for Rs 501 crore.
Reliance Mutual Fund has been valued at Rs 10,000 crore, which works out to 13% of its total assets under management. If a similar yardstick is applied, the valuation of Birla Sun Life AMC — in which Aditya Birla Nuvo holds 50% — works out to around Rs 4,500 crore.
Indian Hotels, Mahindra and Mahindra
AMCs to see a change in benchmark valuations
Asset Management Companies (AMCs) in India could see a change in their benchmark valuations after the recent deal involving Reliance Capital and Eton Park, a global investment fund. The benefit of such change in valuations is likely to impact listed players like Reliance Capital, HDFC, ICICI Bank and State Bank of India (SBI) who have AMC as subsidiaries. SBI, Punjab National Bank (PNB) and Bank of Baroda (BOB) also stand to gain as they hold 25% each in UTI AMC (likely to be listed soon).
STOCK UPDATE
Indian Hotels Company
Cluster: Apple Green
Recommendation: Buy
Price target: Rs180
Current market price: Rs150
On the right(s) track
Result highlights
- Indian Hotels Company Ltd's (IHCL) Q2FY2008 revenues grew by 15.7% year on year (yoy) to Rs341.4 crore. Room revenues continued to grow robustly and grew at 19% yoy for H1FY2008, as the average room rate (ARR) grew by 17.7% yoy to Rs8,581. The growth in room revenues appears strong considering the fact that a fair proportion of room inventory was under renovation in H1 (off season) and the fact that weak dollar adversely impacted the revenues.
- Stringent cost controls and operating leverage due to higher ARR's improved the operating profit margin (OPM) by 420 basis points yoy to 29%. The net interest charge was up by a hefty 64.4% yoy to Rs25.7 crore as proceeds from foreign currency convertible bond (FCCB) were fully deployed for recent international acquisitions. Incremental debt raised during the quarter also contributed to a rise in interest cost.
- Profit before tax (PBT) increased by 25.7% yoy to Rs77.7 crore, however a higher tax incidence at 31.5% in Q2FY2008 against 25.7% in Q2FY2007 led the net profit rise by 16% to Rs53.2 crore.
- IHCL acquired an 11.01% stake in Orient Express Hotels Ltd during the quarter and has further raised its stake to 11.5%. IHCL seeks a strategic alliance with the later, however Orient Express has rejected IHCL's offer for such a strategic alliance.
- We believe IHCL's strategy of expansion both in domestic and overseas markets and better profitability of its international operations would ensure that IHCL maintain the growth momentum. At the current market price of Rs150, IHCL trades at 20.9x its consolidated earnings per share (EPS) of Rs7.2 (post dilution on account of the rights issues) for FY2009E. We maintain Buy recommendation on the stock with a price target of Rs180.
Mahindra & Mahindra
Cluster: Apple Green
Recommendation: Buy
Price target: Rs900
Current market price: Rs794
New launches to drive growth
Key points
- A diversified play in the auto sector Mahindra & Mahindra (M&M) aims to become a speciality player and continue its domination in the utility vehicle (UV) segment.
- In the current year, the automotive segment has grown by 22% year till date (ytd). The growth was driven by UVs other than Scorpio (such as Bolero and Maxx Maxi Truck) and revenues from exports.
- Farm equipment contributing 35% to sales has under performed in the current year. Year-till-date (y-t-d) volumes were down by 5% as compared with 6% decline witnessed by the auto industry as a whole. The focus of integration of recently acquired Punjab Tractors Ltd (PTL) is recovery of outstanding dues.
- The new UV platform code named Ingenio is slated for launch in August 2008. A new Sports UV is planned to be launched from its Chennai facility. The joint venture (JV) with International Truck for manufacturing medium and heavy commercial vehicles (M&HCV) is expected to start by CY2009.
- The management continues to unlock value in its various subsidiaries and group companies. We have estimated value of Rs40 per share from its subsidiary Mahindra Holiday Resorts which is to be listed in 2008. Any higher value on listing would further add to its holding.
- All new product launches would commence from FY2009 onwards, triggering good growth.
- At the current market price of Rs794, the stock quotes at 11.4x its FY2009E consolidated earnings. We continue to value M&M on the sum-of-the-parts basis and maintain Buy with a price target of Rs900.
Subscribe to:
Posts (Atom)