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Monday, August 25, 2008
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Greaves Cotton
Emkay recommended a BUY on Greaves Cotton at the current market price of Rs 175.
The analysts at Emkay say that Greaves Cotton`s (GCL) Q1FY09 results are below their expectations. Both infrastructure equipment division and the engines segment reported disappointing set of numbers. Revenues for Q4FY08 grew by 13.5% to Rs 3.2 billion as compared to Rs 2.8 billion in the same quarter last year. The company recorded PAT of Rs 264.5 million for the quarter, a decline of 22.3%.
For FY08 the company has reported muted growth of 9.4% to Rs 13.5 billion. The analysts say that due to high raw material prices, EBITDA margins contracted by 150bps, resulting in EBIDTA of Rs 1.6 billion. Net Profit was down by 14.3% to Rs 1.1 billion. FY08 was primarily driven by strong performance on Infrastructure Equipment Division. However with slowdown in construction activity, especially the road construction segment, the growth of this division will be impacted going ahead. Also, engines business will primarily be driven by launch of twin cylinder engine. The analysts say that they will revise their numbers downwards due to slow growth in the Infrastructure Equipment Division due to slow down in construction space, especially roads and real estate and higher base impact. The stock trades at 8.3x FY08 earnings.
A dull day for bullion metals
Gold and silver drop on Friday but manage to gain for the week
The strong dollar and falling crude prices once again took their toll on bullion metals on Friday, 22 August, 2008 and both gold and silver losses for the day but gained for the week that ended on that day. Barring five sessions, gold and silver prices had registered losses in all the trading sessions in the current month of August, 2008. Silver prices also fell on Friday.
On Friday, Comex Gold for December delivery fell $5.5 (0.65%) to close at $833.5 an ounce on the New York Mercantile Exchange. It fell to an intra day low price of $828 earlier. For the week, the yellow metal ended higher by 5.2%. With Friday’s loss, gold has lost 9.1% in August, 2008 till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (18.65%) since then.
This year, gold prices have lost a marginal 0.4% till date as the dollar rallied against the euro. It has lost almost $88 in August till now. Gold ended July, 2008 lower by $11 (1.1%).
Prior to that, the yellow metal ended second quarter with a marginal gain of 0.7%. It ended June, 2008 with a gain of 4.1%. In May, it ended with a gain of higher by $22.5 (2.5%). Before May, in April, prices closed lower by 6.3%. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.
On Friday, Comex silver futures for September delivery fell 25 cents (1.8%) to $13.477 an ounce. A day before silver registered largest one day gain in almost two years. With Friday’s loss today’s rise silver has lost almost 9% in 2008 till date. It ended July 2008 with a gain of 3%. For the second quarter, it had gained a paltry 1.4%. Silver had gained 16% in Q1. The metal also had gained for seven straight years.
Gold and silver prices have dropped 19% and 33% from their all time highs that they reached earlier this year.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies. 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 and vice versa.
At the currency markets on Friday, the U.S. dollar rose strongly mainly against the British pound. The pound lost ground after revised data showed the U.K. economy ground to a halt in the second quarter. The move aided a broad rebound by the dollar, which was also buoyed by falling crude-oil prices and a round of weak industrial new orders data for the euro zone. The dollar index, which measures the greenback against a trade-weighted basket of currencies, was at 76.81, up from 76.030 a day before.
Fed Chairman Ben Bernanke said on Friday that the declines in commodity prices and the stability of the dollar are encouraging as their trends are likely to slow inflation. He also stated that inflation will be further helped as the U.S. economy falls short of its growth potential for a time. Still, the inflation outlook is highly uncertain.
At the crude market on Friday, crude-oil futures dropped more than 5%, reversing the rally in the previous session, as a stronger U.S. dollar and ongoing concerns about a slowdown in demand pressured crude prices. Crude prices for October delivery closed at $114.59 (lower by $6.6 or 5.4%). For the week it managed to end higher by a little 0.6%. Prices also fell after tensions between Georgia and Russia eased a bit with the later pulling out its forces from Georgia borders.
Earlier this year, the weakening dollar and higher global demand for raw materials had led to records this year for commodities including gold. Gold reached a record in March as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. The Federal Reserve halted cuts to its target bank lending rate in April, after slicing it in seven steps to 2% from 5.25% in September.
Gold had witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Silver had climbed 16% in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.
At the MCX, gold prices for October delivery closed lower by Rs 6 (0.05%) at Rs 11,701 per 10 grams. Prices rose to a high of Rs 11,707 per 10 grams and fell to a low of Rs 11,653 per 10 grams during the day’s trading.
At the MCX, silver prices for September delivery closed Rs 63 (0.31%) lower at Rs 20,053/Kg. Prices opened at Rs 20,024/kg and fell to a low of Rs 19,951/Kg during the day’s trading.
Crude gives up more than previous day’s gains
Prices settle lower as tensions between Georgia and Russia ease and dollar strengthens
Crude oil prices registered substantial drop on Friday 22 August, 2008 as tensions between Russia and Georgia eased. Prices also fell as the dollar strengthened against its rivals, mainly the British pound. At the end, prices ended marginally higher for the week.
Crude-oil futures for light sweet crude for October delivery closed at $114.59/barrel (lower by $6.62 or 5.4%) on the New York Mercantile Exchange. A day earlier, on Thursday, prices had shot up by almost $5.6. For the week, crude prices ended higher by 0.6%. Crude had lost $15.92 (11%) in July, 2008, the biggest ever in dollars. Prices are 68% higher than a year ago. Prices reached a high of $147 on 11 July but have dropped 21% since then.
At the currency markets on Friday, the U.S. dollar rose strongly mainly against the British pound. The pound lost ground after revised data showed the U.K. economy ground to a halt in the second quarter. The move aided a broad rebound by the dollar, which was also buoyed by falling crude-oil prices and a round of weak industrial new orders data for the euro zone. The dollar index, which measures the greenback against a trade-weighted basket of currencies, was at 76.81, up from 76.030 a day before.
Concerns over Russia's conflict with Georgia also eased a bit on Friday, after reports that Russia said its pullback from most Georgian territories was complete.
The Energy Information Administration reported last Wednesday that motor gasoline supplies dropped for a fourth straight week but crude supplies rose the most in a week since 2001.
In a monthly oil report issued last week, the Organization of the Petroleum Exporting Countries (OPEC) said that oil demand has been "badly hurt" this summer by the slowing economy and high oil prices. Transport and industrial fuels declined the most, sending USA’s total oil demand down by 3.8%, or 0.8 million barrels per day in the first seven months of the year.
Crude prices had gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. It ended June 2008 higher by 9.9%. For the year, crude is up by 12% till date.
Against this background, September reformulated gasoline closed down 17.7 cents, or 5.8%, to end at $2.8686 a gallon. It was still 0.3% higher for the week. September heating oil slipped by 17 cents, or 5.1%, to end at $3.1311 a gallon, finishing 0.4% higher for the week.
September natural gas slid 40.9 cents to close at $7.843 per million British thermal units. It ended the week with a loss of 3.1%.
At the MCX, crude oil for September delivery closed at Rs 4,998/barrel, lower by Rs 73 (1.43%) against previous day’s close. Natural gas for October delivery closed at Rs 358.7/mmbtu, lower by Rs 3.8/mmbtu (1.04%).
Sunday, August 24, 2008
Rakesh Jhunjhunwala - Bullish long term
Stock markets in the country will remain bullish in the long run but with intermittent downtrends as they are facing now, according to equity investor Rakesh Jhunjhunwala.
"I strongly believe that India's economic growth is based on structural factors and not on cyclical factors. I see no reason why the stock markets cannot remain bullish," Jhunjhunwala said at "Sensational Sensex-Retrospect and Prospect," as part of the Thought Leader Lecture Series, organised by CII, Hyderabad Chapter here.
Jhunjhunwala said his predictions were based on factors like strong economic growth, superb corporate performance, huge under-exposure to equities, growth in financial savings and tectonic shift of investments from the western world to emerging markets like India.
The only problem is to predict how frequently and for how long would markets experience bearish trends, he added.
Terming the Sensex as "sensational", for the kind of returns it has offered investors over the last 29 years, he said no other investments on any sector would have given about 18 per cent compound return on investments per annum for the last three decades as the Indian stock markets have.
He pointed out that India enjoys certain growth enablers such as its culture of tolerance, educational base, skilled individuals, economic factors like a well-developed entrepreneurial class, vast natural resources, strong resilience, strong democratic foundations, secular fabric, young population and finally its nuclear power.
All these would definiely catapult the sensex in the coming years, he added.
Rakesh Jhunjhunwala at CII - Sensational Sensex - Retrospect and Prospect
The Indian stock market is a function of the country’s economic growth, return on equity and return on capital employed, said Mr Rakesh Jhunjhunwala, Partner, RARE Enterprises and eminent equity investor.
Delivering a lecture organised by Confederation of Indian Industry titled ‘Sensational Sensex – Retrospect and Prospect’ he said: “Also, infrastructure to attract local money, growth of the Indian financial savings, correction of Indian under-exposure to equities are some of the other factors that will drive the markets,” he said.
He said the movement of the Sensex from 3,000 to 21,000 over a five-year period (2003-2007) and now back to 14,000 was no mean achievement.
“In this entire journey, we have had a few significant price-wise corrections but almost no time-wise correction. This is the first significant time-wise and price-wise correction being witnessed,” he said.
Analysing the genesis of the Indian downturn, Mr Jhunjhunwala said, until now we have had three bear markets. “In April 1992, the peak PE was at 63.1 per cent and we have the scam of Mr Harshad Mehta, then in 1994 we peaked at 42 times the earnings, then in December 1999 we peaked at 30 times the earning and had the Ketan Parekh scam. In 2008, we peaked at 21 times the earnings with no scams. While there was euphoria and mania, this time we have peaked at a far more reasonable valuation and are still below peak PE levels of the past,” he said.
Factors to watch
According to Mr Jhunjhunwala, the key factors to watch for are the US economy and world slowdown, global financial system stability, commodity prices, local and global inflation. “Also political elections, the performance of the Indian IT sector, base forming patterns in equity indices and Indian and foreign fund flows are other key factors to watch for the markets,” he said.
He noted that the aftermath of the 25-year-old US bull market cannot be pretty and the end of the easy money era in the financial markets will shake many out of complacency.
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