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Friday, June 08, 2007
India inflation sub-5 pct for first time in 10 months
India's annual inflation rate fell below 5 percent for the first time in 10 months at the end of May, data showed on Friday, but analysts said the unexpectedly sharp fall was unlikely to prompt a change in monetary policy.
The widely tracked wholesale price index rose 4.85 percent in the 12 months to May 26, slowing from 5.06 percent a week earlier and well below a two-year high of 6.69 percent in late January.
It was the lowest rate since the end of July last year, and was also lower than a median forecast of 5.05 percent in a Reuters poll of analysts.
"If everything remains unchanged, inflation could comfortably hover around 5 percent during July-August," said Saumitra Chaudhuri, economic adviser at domestic credit rating agency ICRA.
"I don't see any need for a cut or increase in interest rates at this moment."
The 10-year government bond yield edged down to 8.13 percent from 8.14 percent before the data, while the partially convertible rupee was unchanged at 40.96/97 per dollar.
The Indian economy, Asia's third-largest, grew 9.4 percent in the fiscal year that ended March, its fastest rate in 18 years and second only to China among major global economies.
The central bank aims to keep inflation close to 5 percent this fiscal year to March 31, 2008, and bring it down to 4.0-4.5 percent over the medium term.
It has raised interest rates five times since last June and raised banks' reserve requirements three times since December to rein in inflation and credit growth. It held rates steady at a policy review in April, but said it would act swiftly if needed.
The government has cut petrol and diesel prices to help tame inflation. It has cut import duty on cement, capital goods, steel, aluminium, copper and other industrial raw materials, as well as palm and sunflower oil and a string of other products.
The wholesale price index is more closely watched in India than the consumer price index, which is published monthly, because it covers a higher number of products and is published weekly.
Weekly Stock Ideas
Buy Wipro (548)
SL 539 T 565, 571
Buy Polaris (169)
SL 162 T 180, 185
Buy Praj Industries (523)
SL 514 T 543, 548
Buy Colgate (362.5)
SL 356 T 377, 383
Buy Bajaj Hind (168)
SL 160 T 182, 187
Weekly Newsletter
Global markets sink on rate worries
Global equity markets tanked this week on concerns that central banks may unleash another round of monetary tightening to reign in inflation amid healthy growth prospects. It all started with adverse comments on inflation by Federal Reserve Chairman Ben Bernanke, who maintained that inflation remained a bigger threat than a further downturn in economic growth. A couple of other Fed officials too echoed Bernanke's view on inflation, sending stock markets across the globe into a tailspin.
Across the Atlantic, the European Central Bank (ECB) jacked up its benchmark rate by 25 basis points to 4%, the highest since August 2001. What's worse, ECB Chairman Jean-Claude Trichet gave no hint that the tightening cycle was nearly over. Rates also went up in New Zealand to record high levels, and there was talk of monetary tightening in Australia as well. The Bank of Korea decided to leave the overnight call rate unchanged at 4.5%. The Bank of England (BOE) too left its key rate unchanged, but with the benchmark inflation running ahead of the central bank's target, there are chances of further tightening in future.
Global stocks sank further after the benchmark US Treasury yields rose above 5%, prompting bond guru Bill Gross to turn bearish on the bond market. Gross now expects strong economic growth worldwide to push up global interest rates and put a damper on the Treasury market. European 10-year note yields also climbed to 4.5%, a four and a half year high. Options on the Fed funds rate show that as of June 6, the odds of an interest-rate increase to 5.50% from 5.25% are at almost 41%. A month earlier, the odds were zero. Interest rates in the US, Europe, Australia, the UK and South Korea are at six-year highs and at a record in New Zealand. Rising interest rates, coupled with inflation concerns, are negative for equity markets. High rates also make it harder for consumers and companies to borrow money, resulting in lower growth in the economy and earnings.
Inflation falls below 5%
Reserve Bank of India (RBI) Governor Dr. Y.V. Reddy and Finance Minister P. Chidambaram can heave a sigh of relief with the benchmark inflation rate falling below 5%. This is the first time in 10 months that inflation, based on the Wholesale Price Index (WPI), has dropped below the central bank's target. The point-to-point inflation rate fell to 4.85% in the week ended May 26 from 5.06% in the previous week, the Ministry of Commerce and Industry said in a statement. That was much below the average estimates of around 5.05%. It was also the lowest rate since the end of July last year. In the annual monetary policy, announced in April, the RBI said that it aims to keep inflation close to 5% in the fiscal year ending March 2008, and will bring it down to 4-4.5% over the medium term. The central bank left its benchmark short-term rates unchanged at that meeting, but added that it would act swiftly if needed.
The WPI declined 0.1% to 211.7 from 211.9 in the previous week. The index of Primary Articles was down 0.3% at 220.5 versus 221.1 while the indexes of Fuel & Power and Manufactured Products were unchanged at 322.0 and 184.1, respectively. The Food Articles index dropped 0.5% to 220.5 from 221.6 while Food Products index declined 0.4% to 183.0 from 183.8. Fruits & Vegetables index slipped 2% to 244.9 from 250.0 while Edible Oils index was down 0.1% at 165.7 versus 165.8. However, the Cement index gained 0.2% to 212.4 from 212.0. Meanwhile, the Government revised the inflation rate for the week ended March 31 to 5.94% from the preliminary projection of 5.74%. Though its a big sentiment booster, the unexpectedly sharp fall in headline inflation is unlikely to prompt a change in monetary policy, unless there is a further moderation in prices.
Bears back after summer vacation
Summer has come and passed
The innocent can never last
wake me up when June ends…
Last two months had been terrific for the bulls. However, the month of June has proved to be an altogether different story so far. The sunny days of the summer have turned into dark, cloudy days. The market has become quite volatile since last week's F&O expiry, making it difficult for the bulls to stay on top. Apart from routine profit booking, weakness in the global markets has come back to haunt the bulls. Oil prices have also climbed in the international market, raising the specter of higher domestic fuel prices and its fallout on inflation. Capital Goods, FMCG, Banking, Oil & Gas, Auto and Pharma stocks were at the receiving end of the bear onslaught this week. On the other hand, a steep fall in the rupee helped boost the sentiment on IT stocks.
The Sensex struggled to move towards the previous lifetime high as FII inflows slowed and fears of further interest rate increases sent global markets into a tizzy. Despite lower inflation, the bulls failed to capitalise on the two-month rally that lifted the Nifty past 4300 to a historic peak last week.
The mega public issue of DLF, which starts next week, also led to traders pulling out money from the secondary market. Tata Motors, ACC, L&T, ITC, Maruti and BHEL were the major losers. After a fairly volatile week, the benchmark BSE Sensex closed at 14063.81, down 507 points or 3.48% while the NSE Nifty shut shop at 4145, down 3.54% or 152 points.
This week's ride was tough for the auto stocks. Rising interest rates and slowing auto sales coupled with the increase in sales tax on auto fuels by the Delhi Government proved to be costly for the auto stocks. Tata Motors fell by over 12% following reports that the company was planning to cut production of some trucks as buyers scrap or delay purchases because of rising interest rates. Also, top two-wheeler companies admitted to cutting output as demand slows in the wake of the slew of interest rate hikes. The BSE Auto index plunged by 6.6%. Maruti dropped by over 9% to Rs737, M&M slipped 5.8% to Rs717 and Ashok Leyland lost 7% to Rs36.
Oil & Gas shares were also among the major losers as Brent crude oil prices crossed the US$71 per barrel as a cyclone halted exports from Oman and OPEC said it is producing enough for the global markets. The index was down by 5.2% on the week, led by Reliance Industries. The stock lost by over 5% to close at Rs1657. ONGC fell by over 5% to Rs864. Refinery stocks also ended lower. HPCL dropped by over 11% to Rs261, BPCL slipped by 8% to Rs331 and IOC lost 6.7% to Rs434.
IT stocks bucked the negative trend and closed higher after the rupee fell, boosting the value of their overseas sales. Satyam, Wipro and Infosys were the major gainers. FMCG stocks also lost ground during the week. The BSE FMCG index was down nearly 6%. Tata Tea was a major loser. The scrip lost by over 12% to Rs830. United Sprits fell by over 7% to Rs1126. HLL was also down 6% to Rs188 and Nirma slipped by 2.2% to Rs191.
Banking stocks too declined, with the BSE Bankex sliding by 3.1%. HDFC Bank declined by over 5% to Rs1090, ICICI Bank was down 3% to Rs903 and SBI slipped 1.7% to Rs1356. Others like PNB, Bank of India and Canara Bank were the major losers among the Mid-Cap stocks. Capital Goods index fell by 3.6% due to profit booking. L&T dropped by over 6% to Rs1884, BHEL declined by over 7% to Rs1312, ABB was down by 3.5% to Rs4530 and Siemens lost 1.5% to Rs1272.
Drama on the bourses
It’s going to be a week of endless debates and analysis as mega IPOs become the talk of the town. While DLF will hope for a big bang opening of the issue, expect loud voices from ICICI Bank and BEML regarding the dates of their issue. Retail money will also flow into the newly announced issues like Vishal Retail and Roman Tarmat.
The dollar has appreciated against the rupee and inflation has cooled below the 5% mark. The outlook remains dull for the time being. Given the rise witnessed in recent times followed by the nervousness at higher levels, confidence is lacking among the bulls. The turmoil in the global markets seems to be aiding the bears. Any positive development in the global front could bring some relief to the market. Any short covering could also help the bulls stage a comeback.
IT stocks will be in action. Expect some buzz on Satyam counter. Praj Industries is another counter where some further action is expected. Reliance will remain volatile throughout the week affecting the indices.
Bike makers cut production as sales slow
Shares of Hero Honda, Bajaj Auto and TVS Motor declined after the two-wheeler manufacturers said they had slashed production as higher interest rates bite demand. Hero Honda said its sales in June will be down by 40,000 units compared with May, while Bajaj Auto admitted to a 10% reduction in motorcycle output and TVS said it had cut bike production by 5000 units per month. A financial daily reported that the top three motorcycle makers have cut production and trimmed dealer inventories as sales fall due to a steep rise in interest rates over the past few months. Earlier, the newspaper had reported that Tata Motors had pared production of some trucks at its Pune plant as rising interest rates force transport companies and truck operators to postpone or drop purchase plans. Sales of Tata Motors' commercial vehicles fell by about 6% in May, with medium and heavy commercial vehicle sales down about 17%. Bajaj Auto's motorcycle sales were down 15% last month, while TVS' bike sales plunged 37%. Hero Honda's overall sales were down over 6% in May.
April-May car sales up 10% yoy
Domestic passenger car sales grew by 9% in May at 96,922 units as against 88,863 units in the same month a year ago, , the Society of Indian Automobile Manufacturers (SIAM) said. Motorcycle sales during the month were down 16.4% at 477,901 units compared with 571,367 units in the same month last year. Total two-wheeler sales fell by nearly 10% to 606,187 units as against 672,671 units in the year-ago period. During the month, commercial vehicles sales rose marginally to 33,262 units from 32,914 units in the corresponding month a year ago. In the first two months of the current fiscal year, domestic passenger car sales jumped 10.84% to 181,144 units from 163,428 units in the same period last year. Sales of commercial vehicles grew by 3.6% to 64,116 units in April-May 2007 as against 61,881 units in the same period a year earlier, the industry body said.
Fuel prices rise in Delhi
Petrol and diesel became slightly costlier in the national capital after the Delhi Government decided to levy sales tax on the two auto fuels. From midnight, petrol prices will increase by 67 paise to Rs43.52 per litre while diesel prices will rise by 22 paise to Rs30.47 a litre. "Due to subsidy, we were not getting our value added tax and have been incurring a loss of Rs110mn per month since February," Delhi Finance Minister A.K. Walia said. On being asked about the impact of the fuel price hike on consumers, Walia said that it was just a marginal hike and won't burden people. When fuel prices were raised last year, Petroleum Minister Murli Deora had asked states not to levy sales tax on the incremental price. The Delhi Government did not levy sales tax on the increased fuel price but has now decided to levy 20% sales tax on petrol and 12.5% on diesel.
RIL's Haryana SEZ gets green light
Even as its Navi Mumbai SEZ remains in a limbo, Reliance Industries Ltd.'s (RIL) multi-services SEZ at Gurgaon, Haryana has been granted a formal approval by the Government. The Board of Approval (BoA) for SEZ cleared the 440-hectare SEZ. The BoA granted a formal clearance to the multi-product SEZ of Indiabulls Industrial Infrastructure Ltd. at Nashik, Maharashtra besides giving a green light to Wipro's IT/ITES SEZ in Andhra Pradesh. Gitanjali Gems Ltd. got an 'in-principal' approval for two gems & jewellery SEZs in Maharashtra. DLF's 100-hectare textile SEZ in West Bengal also received an 'in-principal' go-ahead from the BoA as did PSL's alternative energy equipment SEZ at Pipavav, Gujarat. Among the other notable projects to get an 'in-principal' approval from the BoA included Indiabulls Builders' multi-product SEZ at Thane and Rewas Ports' SEZ at Rewas in Maharashtra.
ONGC makes record five new discoveries
Oil & Natural Gas Corporation Ltd. (ONGC) said it had made a record five discoveries in May and that it will develop four marginal gas fields located North West of Mumbai High. ONGC said that it made second discovery in Mahanadi Basin on the East Coast, besides a gas find in the KG Basin. The company also struck gas and oil in Assam. The ONGC Board approved the development of four marginal gas fields North West of Mumbai High. The total cost of the project is about Rs12.85bn with a Foreign Exchange component of about Rs12.4bn. The public sector oil & gas company also said it had completed Mumbai High South Redevelopment Project, 19 months ahead of schedule on May 31. The project envisages incremental production of oil and gas with an investment of around Rs65bn. Separately, ONGC signed an agreement with Petrobras for swapping of interests in offshore blocks in India and Brazil.
Premji's son to join Wipro
In what could be a long-term succession plan, software major Wipro Ltd. said that Chairman and promoter Azim Premji's son Rishad Premji plans to join the company. "Rishad is going to join Wipro at a level commensurate with his background and experience," the company said. Rishad is currently working with a global consultancy firm in Europe. Since Rishad is a relative of a director, his employment will require shareholders' approval, Wipro said, adding that his employment was approved by the company's Board. Azim Premji, the 61-year-old Chairman and CEO of Wipro, owns more than 80% in the company, which has a market capitalisation of about US$20bn. He is also one of India's richest men.
Sterlite announces ADS offering
Sterlite Industries India Ltd. announced that it has commenced distribution of the preliminary prospectus in anticipation of a global offering of 125mn of its equity shares in the form of American Depositary Shares (ADS). These equity shares in the form of ADS will represent about 18.3% stake in Sterlite post-offering. The company has applied to have its ADS listed on the New York Stock Exchange under the symbol SLT. Sterlite expects to allocate 11.5mn equity shares in the form of ADS from the global offering to the Japanese offering. After the ADS offering is through, Sterlite is expected to have about 683mn equity shares outstanding, with Vedanta Resources Plc owning about 62.8% of those shares. All of the equity shares in the form of ADS are being sold by Sterlite. The company anticipates granting the merchant bankers an option to purchase up to an additional 18.75mn equity shares in the form of ADS to cover over-allotment, if any.
Mahindra Forgings sees Rs20bn sales post merger
Mahindra Forgings Ltd. said that a proposed merger with Mahindra Forgings Overseas Ltd. (MFOL), Mahindra Forgings Mauritius Ltd. (MFML) and Mahindra Stokes Holding Company Ltd. (MSCHL) will create India's second-largest forgings manufacturer with consolidates sales of over Rs20bn. Jeco Holdings AG, Schoneweiss & Co. GmbH and Stokes Group Ltd. will become close to 100% subsidiaries of the company after the proposed merger with MFOL, MFML and MSCHL. MFOL owns 100% of Jeco Holdings, while MFML holds a 100% stake in Schoneweiss & Co. and MSCHL owns 99.8% of Stokes. The merger will also help in efficient utilisation of resources and synergies from dove tailing of operations, the company said.
Buzz from the deal street
Shares of Automobile Corporation of Goa Ltd. climbed after 21.5% of its equity changed hands in what appeared to be an internal transfer by the Tata Group. About 10.6 lakh shares of Automobile Corporation were traded at Rs475 per share on the BSE. Tata International Ltd. sold its entire stake of 21.5% to Tata Motors Ltd. Tata Motors recently more than doubled its stake in Automobile Corporation, one of its major suppliers, in a bid to tighten its grip on the bus-body making business. Tata Motors, a co-promoter of Automobile Corporation, increased its stake from 10% to 21.5% through a rights issue.
Rain Calcining Ltd. said that it will acquire US-based CII Carbon LLC. for US$595mn in an all cash deal, making the combined entity the world's largest maker of calcined petroleum coke (CPC). The acquisition, which will be done through Rain Calcining's subsidiary Rain/CII Holdings Inc., is expected to be completed this month, the Hyderabad company said in a statement.
Amtek Auto Ltd. said it has acquired the entire assets of UK-based JL French's (Witham) Ltd. (JLF), a company engaged in the manufacture of HPDC aluminium for automotive application. This facility currently makes a variety of aluminium castings for the likes of Land Rover, Jaguar, Trellborg, Ford and PSA Peugeot Citroen. The company's current revenues are at about US$60mn with 60% capacity utilization. This facility has 18 HPDC lines between 400 and 1600 tons rating and is capable of generating revenues of US$120mn.
ISMT Ltd. announced that it has acquired Structo Hydraulics AB, one of the largest and well renowned manufacturer of tubular components for the hydraulic cylinder industry. Structo's factory is located at Storfors in Sweden. It has an extensive marketing network throughout Europe. Structo has an annual turnover of SEK 450mn (Rs3bn) and is an established supplier to many multinationals, particularly the ones in the construction and agricultural equipment industry.
Educomp Solutions Ltd. said that it would acquire Ask n Learn Inc., a leading education technology company headquartered in Singapore. The total acquisition price is S$5.98mn in cash, plus options worth S$1.05mn. The company has set up a Special Purpose Vehicle (SPV) to complete the acquisition.
Nitin Fire Protection sets market ablaze on debut
Shares of Nitin Fire Protection Ltd. soared as high as 165% on listing, making it one of the biggest stock market debuts in 2007. The stock opened at Rs332.50 on the Bombay Stock Exchange (BSE) as against the issue price of Rs190. It reached a high of Rs530 but slipped from the top to finish the week at Rs411.80. The company had entered the capital market on May 15 with an Initial Public Offering (IPO) of 33.90 lakh equity shares. The issue, which closed on May 18, was subscribed 48 times.
Vishal Retail, Roman Tarmat launch IPOs
Vishal Retail India plans to raise Rs1.1bn an Initial Public Offering (IPO). The company, which operates 50 retail stores across the country, has priced its issue in the Rs 230-270 band. Vishal Retail intends to invest nearly Rs1.04bn of the net proceeds in setting up new retail stores this financial year. The issue will open on June 11 and close on June 13. the promoters now hold around 78% and post-IPO, their holding would come down to 64%.
Roman Tarmat Limited, a Mumbai-based infrastructure construction company engaged in the business of highways, runways and other civil work, is entering capital market with an IPO of 2,900,000 shares of Rs10 each for cash at a price to be decided through a 100% Book-Building Process. The price band for the issue has been fixed between Rs150 and Rs175 per share. The issue opens on June 12 and closes for subscription on June 1.
Brent crude oil tops US$71
Brent crude oil rose above US$71 per barrel, nearing a nine-month high, as Cyclone Gonu disrupted Omani oil and gas exports and after OPEC President said that the group was pumping enough crude to satisfy world markets. The market was also briefly unnerved by a report that Turkey was launching a major incursion into northern Iraq. But, the Brent oil fell towards US $70 a barrel after Cyclone Gonu lost power allowing Oman to resume exports following a three-day halt. But, the decline was limited amid concerns that US refiners may not be able to produce enough gasoline to meet demand in the summer. London Brent crude, seen as more representative of the global market, was last quoted at US$70.34 a barrel, while US crude was at US$66.19. Prices were also underpinned by OPEC's reluctance to increase output. OPEC President said that there was no need for an emergency meeting. Consumers have been urging the group to reconsider its current production ceiling.
ECB ups rate by 25 bps
In a widely expected move, the European Central Bank (ECB) hiked its key interest rate by another quarter percentage point to 4%, the highest since August 2001. This was the eighth rate increase in 19 months by the ECB and comes amid a backdrop of solid economic growth in the first quarter. The Frankfurt-based bank will increase its key rate at least once more this year, say analysts. Eurozone interest rates may rise to 4.5% or higher. They last peaked at 4.75% in October 2000. ECB President Jean-Claude Trichet failed to give a clear signal, as some investors had hoped for, on interest rate increases later this year. Trichet also said that ECB monetary policy was still accommodative - seen as a signal that more rate rises could be approved in coming months but not necessarily at the next meeting of the bank's policymaking body.
BOE holds rate steady
The Bank of England (BOE) left its key interest rate unchanged at a six-year high, as it awaits the impact of its previous monetary tightening steps. The nine-member Monetary Policy Committee, led by Governor Mervyn King, kept the Bank Rate at 5.5%. The bank's Monetary Policy Committee voted to raise rates by 25 basis points at its previous meeting in May. But, it also considered a 0.5% hike, which indicates that a further hike is on the cards unless there are some signs of slower growth or falling inflation. The May vote was also the first unanimous one in the recent tightening cycle. As a result, most economists predict another rate hike before the end of the summer, as inflation continues to be above the government's target rate.
Australian economy accelerates
Australia's economy grew at the fastest pace in more than three years, pushing the nation's currency to the highest since 1989 on expectations that the central bank will raise interest rates to ward off inflation. The Australian economy boomed in the first quarter, buoyed by consumer spending, business investment and a mining upswing, setting the stage for a 17th consecutive year of expansion. The Gross Domestic Product (GDP) rose 1.6% in the first quarter from the fourth quarter of 2006 and rose 3.8% from the year-earlier period, the Australian Bureau of Statistics said. It was the fastest quarterly pace of growth since the fourth quarter of 2003. Economists, on average, had expected a 1.2% gain.
Meeting with Bancroft family constructive: Murdoch
In the first face-to-face meeting between the Bancroft family and News Corp.'s Rupert Murdoch, the two sides met on June 4 for more than four hours to discuss issues of journalistic independence for Dow Jones & Co. and its flagship, The Wall Street Journal. The meeting addressed News Corp.'s coverage and business activities in China and how an editorial board overseeing Dow Jones would be structured if the company was to be sold to News Corp., according to people close to the matter. After he left the session Murdoch, News Corp.'s chairman and CEO, called it "constructive." He was encouraged about the prospects for a deal, according to a person close to him. But there are different proposals being bandied about, and both sides need to take time to bridge their differences.
Silver Lake, TPG to buy Avaya for US$8.2bn
Avaya Inc. announced that it has entered into a definitive agreement with private equity firms Silver Lake and TPG Capital for the sale of its entire business for about US$8.2 bn or US$17.50 per share. Under the terms of the agreement, Avaya shareholders will receive US$17.50 in cash for each share of Avaya common stock they hold, representing a premium of about 28% over Avaya's closing share price of US$13.67 on May 25, the last trading day prior to published reports regarding a potential transaction. Avaya's board has approved the merger agreement and resolved to recommend that Avaya shareholders adopt the agreement.
The transaction is expected to be completed in the fall of 2007, subject to approval by shareholders and regulators.
Weekly Close: Flight to safety or just a correction?
Extremely choppy and volatile week for the market. Though the start was good but was really difficult to sustain the momentum and long list of reason for this correction. The vicious inflation once again seems to have spread its wing globally and thats not good news for equities. Fed Chairman indicated of growth to be fine but inflation was the worry which offset the hopes of rate cut. India's efforts to tighten liquidity continue..C Rangarajan, Chairman of PM's Economic Advisory Council, called for to control certain kinds of capital inflows. We think the hint is towards P Notes. This probably was the reason for the sell off in the market as P Notes have been in debate for some time and the guess is that there is a lot of politician money which comes in through this as the final beneficiaries are not disclosed. This worry of P-Notes dented the sentiment and of course there was bad news in the form of slowing off take.
Major IPO's are in queue to enter the market and this is said to be one of the reason for liquidity crunch. The month of June will see the issues of DLF Ltd, ICICI Bank Ltd and Central Bank of India Ltd raise roughly Rs21,000 crore from domestic investors, making it the highest mobilisation in one month in the history of the Indian capital market. DLF's estimated Rs 9,625 crore and ICICI Bank's estimated Rs12,000 crore. Issues will open by the end of June. Central Bank's Rs1,000 crore offering could hit the market anytime between these two issues. And this is not all. This is what we have been talking about since last two weeks. However, we believe that this money will be small in the overall scheme of things. But the thing to worry will be the flow of FII money into these issues and how those Dollars will be neutralised. Is there a CRR hike by end June.
Sensex and Nifty lost 3.5% for the weak. Auto was totally on reverse gear. Tata Motor (-12.4%), Maruti (-9.6%), M&M (-5.2), Bajaj (-5.6), Ashok Leyland (-6.5%), Escorts (-11.9%). Crude was up on back of cyclone in Oman leading to weak in Oil and Gas counters.. HPCL -11%, BPCL -8%, ONGC -4% and Reliance -5%. Metal too lost might.. SAIL -10%, TISCO 8.1%. Hindalco was the only exception up by 12%. Cement counters too slipped like ACC -10.6%, Grasim -5%, Guj Amb -4.8%, India Cem -6% Ultratech -2.4% JP -8%. HLL -6%, ITC -6% and Tata Tea -13%. IT bounced back..Infy, TCS, Satyam and Wipro gained marginally for the week
Telco witnessed 17% fall in sales in May. Reasons given are lesser cargo offerings from agriculture and manufacturing sectors, excessive overloading, shortage of trained drivers and an increase in the auto finance interest rates during the last six months. But there were also news that Tata Motors and Leyland have cut the tyre orders from trye manufacturers and they also plan to cut production. High interest rate is really seen as reason behind this. Hero Honda, Bajaj Auto and TVS Motor Co also announced cut in production in the face of slower demand. Interest rate hikes have begun to bite auto. Short term scenario doesn't seems to be in favour of auto..for now avoid this one.
Hindalco was the only winner in metal counter. Market expects that Sterlite along with Alcan intends to buy Hindalco. The A V Birla Group holds only 27% stake in Hindalco which would go to 35% after the preferential issue for Novellis acquisition. However, steel stocks were down on reports that Sail had cut prices. The very next day papers reported that they are planning a price hike. However, logic tells us that with China Olympics construction almost on its end.. the likelihood of steel prices coming off are high.
Selective mid caps continued to be in action. Some morning daily reported that Educomp Solutions is set to acquire another education technology company headquartered in Singapore called 'Ask n Learn'., This will be through an SPV. The total acquisition price is SGD 5.98 million in cash in addition to options worth SGD 1.05 million. This means about Rs 19 cr in total. Not a big price. 'ASK n Learn' provides internet-based e-learning solutions, content and services to over 120 institutions in Singapore, China, Thailand, the Philippines, Japan, Brunei, Vietnam and Kuwait. Its Customers include the National University of Singapore, Republic Polytechnic, SIM, MINDEF, over 100 Singapore schools, school clusters and zones, top regional universities, MOE Singapore, MOE Brunei, MOE Indonesia, and international schools. Educomp has been finding ways and means to leverage on its content and teaching methodology where it has competitive advantage. Valuations are a bit high.. but given the projections and if the company delivers, they would be well justified.
SKF announced another investment of Rs 270 crore to build a greenfield factory in India for manufacturing large size bearings. However, the big negative is that this investment will be through its 100% subsidiary. That's a big negative. It hits the India story badly. The factory is expected to start production in 2008 and will, when fully utilised, employ 300 persons. The investment is in response to the strong global demand for large size bearings in sectors of wind energy, mining, steel and off-road applications. This could have well come under the existing listed company. We have covered this stock since it was Rs 265 with a positive view and the stock was been a major performer. The annual report showed that profits for the previous here were muted by a large cost of SAP implementation which is now over. Over and above all this is lost in the confusion as to the further growth plans may appear stymied. Look for downsides here.
Financial Technology was another Hi-Tech gainer. It has lived up to our expectations. The stock rallied over 40% since our positive view. Papers report that The RBI will issue guidelines for allowing foreign investors to pick up stake in the country's commodity exchanges soon. There are many eyeing this and players like the New York Mercantile Stock Exchange will be allowed to buy up to 49 per cent stake in the bourses such as Multi Commodity Exchange and NCDEX. MCX is waiting for the RBI guidelines before launching its IPO, though the exchange earlier sold its 9 per cent stake to Fidelity International. New York Mercantile Exchange (Nymex) is keen to buy stake in both NCDEX and MCX. Financial Technologies has a 64 per cent stake in MCX. The reason for the run up as indicated earlier was that Dubai Gold and Commodities exchange started trading rupee Futures. FT owns about 49% stake here as well. The Forex trading platform, the agri spot exchange are other initiatives we believe will bring in the long term. We remain positive here as well.
Techically Speaking; Sensex has closed near our support level of 14000--14030. A break below this will take us to 13815 which is another key support level. On the upper side 14350 and 14445 are Resistance levels. Markets are still in Bull mode and longs to be avoided below 13800. The Turnover was decent for the day at Rs 4592 Cr with Declines outnumbering Advances in the ratio 1.5:1.
DLF IPO sets new commission standards
As real estate developer DLF Ltd markets its $2.4 billion IPO, India's biggest, amid investor fears that property prices could tumble, investment banks are pushing the IPO by paying out unprecedented cash incentives.
Brokers in India typically receive commissions of 0.2-0.4 per cent of the value of IPO shares allotted to their retail clients, but for the DLF issue brokers are being paid commissions of Rs 200-500 per application form - whether or not clients get the shares, say brokers and bankers working on the deal.
"We're paying more than normal, but different deals require different structures," said one banker associated with the issue. A primary market broker for nearly two decades, M A A Annamalai of Akshaya & Co said the incentive structure was new: "We've not heard of this sort of incentive in the primary market." Delhi-based DLF is raising money to buy land and build apartments and shopping malls as India's economy booms.
Its IPO, which opens to retail investors on Monday, is being handled by investment banks including Kotak Mahindra and DSP Merrill Lynch.
The stock should debut early next month. Officials at the banks declined comment. "I was a bit worried initially about the way the IPO would go, but the way bankers are pushing it, it looks like it would sail through comfortably," said one primary market broker
Some in the market are wary given DLF has failed in previous attempts to list because of disputes with minority shareholders, last year's stock market drop and high valuations, but, so far, the deal appears to be going well.
Sources have said the institutional order book was fully covered, with several orders of $200-$500 million and strong interest from domestic fund managers. But many Indian retail investors have been worried by media reports of a slowdown in India's property market.
About 40 per cent of the shares being sold are earmarked for retail and high net worth investors. Rising interest rates and sky-high property prices have slowed house sales, and there is less demand for space in malls and shopping complexes.
HIGH FEES
Bankers have big fees and prestige riding on the DLF deal after the near failure of Cairn India Ltd's $1.18 billion IPO in December, when some investors pulled out late.
While DLF's offer document says commissions for banks would be decided after fixing the IPO price, people with knowledge of the issue said fees would be around 1.5 billion rupees ($37 million), or 1.5 per cent, with potentially more later.
Since the fees are huge, there's nothing wrong in throwing in this kind of money, and it is not a losing proposition," said another banker associated with the issue. Already, DLF shares are trading in the grey market at around 590 rupees, well above the IPO's 500-550 rupee indicated range, brokers said.
"DLF is the best way to get exposure to Indian real estate, given its size, quality and credentials," Edelweiss Securities said in a note recommending subscription to the IPO.
"We consider the company a default play on the Indian real estate as well as a growth story going forward." Others reckon the issue is overpriced. "At the upper band of Rs 550, the stock trades at a significant premium to our base case valuation of 404 rupees," Enam Securities said, rating DLF a sector underperformer.
Via ET
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