Don't bet on IT this quarter

Higher wage bills (on account salary hikes and new employee additions) and lower employee utilisation rate are expected to pull down the average net profit growth of frontline IT companies in the second quarter (July-September).

 

According to estimates by key brokerage houses, average quarterly net profit of the top five IT companies is expected to be 1.7% lower compared with the previous quarter (April-June). This, despite the fact that quarterly revenues have risen at an average 3% during the period under consideration.

 

While the growing strength of the rupee has been scaring away prospective investors in IT companies, analysts point out that the rupee has little to do with the sluggish performance of these companies during the latest quarter. While the rupee breached the psychological 40-mark to the dollar last month, it did not rise much in second quarter compared with the previous quarter. Consequently, companies that had entered into forward transactions as a hedge against the rising rupee did not gain much from these transactions. That has also contributed to the slackness in their bottomlines.

 

Moving forward, the strength of the rupee and the slowing down of the US economy will remain the two major challenges for the sector. "Indian IT companies have a huge exposure to the banking, financial services, insurance (BFSI) vertical. The subprime crisis may affect the discretionary spending which accounts for 20% of the total IT spend by clients," says Sushil Finance analyst Parikshit Kandpal.

 

However, he sees this as a temporary shock as a slowdown in the US could prompt more companies there to increase outsourcing to India in a bid to cut costs. IT shares have underperformed during the recent rally as investors expect margins to be under pressure because of strengthening rupee. These shares have been on a downtrend since March this year as the dollar began to weaken against the rupee.

 

The rupee gained 7.5% to the dollar during April-June and another 1.9% in the following quarter. "Expect September 2007 to be a quarter with strong sequential revenue growth, but unexciting profit growth," says Merrill Lynch in its preview note on the sector.

 

At the operating level, brokerage firms expect a mixed scenario across companies. Companies like TCS and Infosys, which declared a wage hike in the previous quarter, are likely to show higher sequential growth in operating profit for the September quarter. This is on account of absorption of salary hikes.

 

On the other hand, Satyam, Wipro and HCL Technologies are expected to report subdued operating profit since these companies have undertaken salary hikes in the second quarter. For instance, Wipro has given an offshore salary hike between 12% and 14%. "This will impact our operating margin by 160 basis points. Despite this, our broad call is that we will keep our margins flat," said Wipro IT business CFO KR Lakshminarayana while talking to ET in August.

 

Analysts are not too hopeful about companies raising their earnings guidance for the current financial year, especially since a recession appears to be looming over the US economy. "Given the economic uncertainty, we believe it is unrealistic to expect Infosys and Satyam to tweak their annual dollar revenue guidance by more than 3%," says Merrill Lynch.

 

Citigroup Global Markets too shares the similar view. "Upgrades in earnings per share (EPS) guidance will not be significant in our view due to further rupee appreciation of 2% since the previous guidance."

Rakesh Jhunjhunwala - Question and Answers

Q: From morning we have heard a variety of views on subprime and what impact it could have on India and emerging markets. What's your take on it?

 

 

 

A: I think the impact of the subprime crisis is going to be far worse than markets are expecting today. I do not think Fed rate cut can solve the subprime crisis.

 

 

 

I do not think that the US housing market is going to bottom for the next 24-30 months. I think the US economy will further slow; anyway at the moment the markets are quite elated with the Fed rate cut. Let's see what happens.

 

 

 

Q: You've been bearish on US saying that the bull-run over there has ended. We saw how this bubble has burst, the whole housing market has gone into a slump, and US stocks are down. What is your take on it?

 

 

 

A: The US market has not slumped; the Dow is nearly at a new high. The markets are perceiving that this problem will be surmounted, just like all other problems.

 

 

 

Q: You expect more Fed cuts to keep fueling the markets going forward?

 

 

 

A: I do not know what kind of Fed cuts will happen, because inflation also has to be looked at. But I do not think the Fed rate cuts can solve this problem.

 

 

 

Q: Our Indian markets, or almost all emerging markets are clued on to what is happening over there (US). Because of that, we are seeing heavy volatility coming into the markets. If you take a look at the past three days also, there has been heavy volatility?

 

 

 

A: I would disagree. About two-two and half years ago, the Sensex first crossed the Dow and today the Sensex is at least 20% higher than the Dow, in numerical terms. So you may have day-to-day reactions, but over a period of time you will decouple.

 

 

 

Q: From a longish point of view, what is your take on the bull run in India?

 

 

 

A: I think the longer-term bull market in India is very much alive.

 

 

 

The factors driving the bull market are alive and kicking and will be present in India for a very long time to come. Having risen from 3,000 to 18,000, we can always be prepared for corrections or some fall. Markets may not even go up for maybe another year. But I do not think the bull market is dead. We had a rise from 3,000 to 18,000 and if we consolidate and do not go up for a year or two, I do not think it's going to make any difference to the long-term bull market.

 

 

 

Q: Do you think we are going to consolidate from now on and then only progress further?

 

 

 

A: I do not know whether we will consolidate. But even if we were to consolidate and not go up much or go down a little, the longer-term bull market will still be alive.

 

 

 

Q: We heard Chris Wood say in the morning that the Sensex target, the long-term CLSA target, is 40,000. What is your take on that?

 

 

 

A: I can only have some idea of the directions; I have no targets.

 

 

 

Q: You been bearish on Indian IT for quite sometime now. What could happen to the US economy? When we talked to the tech companies, they say fundamentals have not changed, rupee is the only problem. What is your take on that?

 

 

 

A: Fundamentals today might not have changed. But if there is a big slowdown in the US economy, which I personally anticipate, then I think software will also come under pressure.

 

 

 

Earlier, we had all tailwinds for the software industry and in my opinion we have headwinds now. I do not say that software companies are going to go down. Although volume may or may not get affected, margins will be affected and therefore price earnings ratios can be affected.

 

 

 

Q: Midcaps have been very tepid over the past one-month. Is it just like in the middle of the storm? How do you see them bounce back?

 

 

 

A: I disagree. Midcaps are doing exceedingly well. I think 50% of all listed stocks have made new highs. So I do not agree that they have been tepid.

Maintain caution at higher levels

Profit booking at higher levels snapped the ongoing rally, with the BSE Sensex closing at 17,773, off its days' high of 17,979 and the S&P Nifty closing at 5,185.85 compared with the intra-day high of 5,248.55. Of the 30 Sensex stocks, 7 advanced and 23 declined. In the case of Nifty, 16 advanced and 33 declined.

 

According to market sources, Friday's profit booking was triggered by an article in New York Times on burgeoning valuations of Reliance Industries, DLF and Bharti Airtel.

 

However, Reliance Industries made handsome gains and closed at Rs 2484, up 2.53 per cent. Bharti Airtel too closed 3.32 per cent higher at 993.05. DLF, however, closed at Rs 851.70, down 1.24 per cent.

 

The Nifty October futures traded at a premium of eight points for a while, before closing at 5172, a discount of 12 points.

 

The open interest in Nifty October futures has increased by 20.8 lakh shares to 344.5 lakh shares. The increase in OI and Nifty futures discount suggests short positions at higher levels.

 

The Putall ratio of open interest in Nifty options moved up further to 1.44 from the previous day's level of 1.35. The Nifty Put Options added OI of 16.04 lakh shares, while Nifty Call Options added 2.25 lakh shares in open interest.

 

The out-of-the-money Call writers squared off their transactions at a profit. The Nifty 5200 call options open interest declined by 45,000 shares as its premium declined from the day's high of Rs 194 to close at 141.

 

The 5,100 call options too witnessed a decline in OI by 84,550 shares as its premium declined from a high of Rs 263 to Rs 195.25

305 applications DOT

 

 

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Your new mobile network - DLF-AT&T

Real estate major DLF Ltd is talking to US telecom giant AT&T as a strategic partner to roll out pan-India mobile services.

 

AT&T has also applied for a universal access service licence (UASL), which allows operators to offer services in both GSM and CDMA technology, with the Mahindra & Mahindra group, for 22 circles. The US company, however, has stipulated that it wants a majority equity stake in the mobile venture.

 

This will be AT&T's second coming in India after it exited Idea Cellular a few years ago.

 

DLF had also applied for a pan-India licence on its own and without a foreign partner. A senior DLF executive said: "We are in talks with various international telecom operators; all the big operators will approach us."

 

Sources close to the development, however, confirmed that DLF has been approached by AT&T. An AT&T India spokesperson said: "We do not comment on market rumours or speculation."

 

Insiders also said DLF is talking to other international telecom majors apart from AT&T.

 

With over 300 Indian companies applying for pan-India UASLs, the race is on to get international partners with experience in the telecom sector as strategic partners. This is because the industry expects the government to offer only two or three licences in each circle.

 

Most of the world's telecom majors, however, already have a presence in India — Vodafone, Singtel, Maxis and Malaysia Telekom among others.

 

Russian telecom giant Sistema has also entered the fray, indirectly applying for a pan-India licence through the acquisition of Rajasthan-based Shyam Telecom.

 

Sources close to the development said Japanese giant NTT DoCoMO and Deutsche Telecom had also shown interest in launching operations in India.

Gold shines back after faltering

 

 

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Stocks you can pick

Grasim Industries
CMP: Rs 3,543.95
Target price: Rs 4,450

 

Merrill Lynch has upgraded its rating on Grasim Industries to 'buy' with a price target of Rs 4,450. "We continue to believe that the cement industry will witness large capacity additions by March 2009(estimated). However, we think the market is not focused on FY09E risks yet and greater focus seems likely only by March-June 2008 when some of the large capacity expansions will commission (seeing is believing)," the Merrill Lynch note to clients said.

 

Bajaj Auto
CMP: Rs 2,612
Target price: Rs 3,065

 

Motilal Oswal Securities has initiated coverage on Bajaj Auto with a 'buy' rating and a price target of Rs 3,065, citing increased focus on premium segment motorcycles as a key trigger. "While we expect core business profitability to improve, its insurance business is a potential value driver. We believe that Bajaj Auto's earnings before interest, taxes, depreciation and amortisation (EBITDA) margin will improve 2QFY08 (July-October) onwards," the Motilal Oswal note to clients said. "Our view is based on the company's improving product mix, its reluctance to re-engage in price wars, completion of dealer inventory rationalisation, and accrual of higher duty entitlement pass book (DEPB) benefit," the note added.

 

Tata Power
CMP: Rs 944.10
Target price: Rs 1,198

 

HSBC Securities has maintained its 'overweight' rating on Tata Power, while raising its price target to Rs 1,198 from Rs 843 earlier. "We believe in Tata Power's ability to expand its generation capacity over next five years. We now expect it to implement 10.3GW by FY2013 against our earlier estimate of 9.4GW," the HSBC note to clients said. "The coal ministry has allocated coal mines in India to the company, which should reduce its fuel costs substantially." the note added. "We expect the coal mines to be operational by the end of FY11 and hence we reduce our fuel cost estimates by 14% and 13% for FY12 and FY13, respectively,"

 

PFC
CMP: Rs 207.90
Target price: Rs 242.70

 

ABN Amro Securities has initiated coverage on Power Finance Corporation (PFC) with a 'buy' rating and a target price of Rs 242.70, saying the company's high business growth visibility, largely stable margins and status as the government's infrastructure-financing firm make for a compelling proposition.

 

"PFC is treated as a government-financing firm and is therefore exempt from a number of Reserve Bank of India regulations applicable to non-banking finance companies. The status allows PFC much flexibility in lending to power sector projects and in managing its capital structure," the ABN note to clients said. "We believe this flexibility will be of even more value over the next few years as loan growth should surge ahead," the note said, adding that while valuations looked rich at current levels, they reflected strong growth prospects.

Mega tower company in the making

 

 

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US economy: a tale of two parallel markets

More and more buyers are being found for the "emerging markets bubble" theory, thanks to the huge amounts of money pouring into them, sending their stock markets to record highs. The reasons for the move are entirely rational. As the Bank Credit Analyst, a well-known global independent research firm, puts it: "Global portfolio investment flows continue to move towards equities, commodities and currencies that are farthest from the US housing market, i.e. away from the epicentre of economic weakness."
With the Damocles' sword of a recession hanging over the US, why would an investor want to be exposed to that market? It's a strong argument, made even stronger by the falling dollar. Since all other currencies are appreciating against the dollar, non-dollar assets and currencies deliver easy returns. While the Bombay Stock Exchange Sensex went up 25.3% this year to 2 October, the Dollex (the BSE index that tracks the performance of Sensex scrips in dollar terms) has gained 36.5% over the same period.
But if investors are fleeing US assets, how do we explain the Dow rising to new highs? Surely, if the US is facing a recession or, at least, an economic slowdown and if its banks continue to be exposed to the aftermath of the subprime meltdown, there's little reason for investors to buy US equities. For an answer, it's necessary to look a little more closely at the behaviour of the US market. Closer inspection shows that the stocks that are performing well in the US market are those which have an exposure to the global economy. While consumer discretionary and financials, the sectors that are a play on the domestic economy, are laggards, materials, industrials, energy and technology, all of which are dependent on global demand, are doing well. As a matter of fact, with a depreciating dollar, exports should do very well indeed, as will those companies with large overseas operations. US market experts are drawing attention to the fact that there are two markets in the US, with very divergent performances.
Given the increasing decoupling between the US and the global economy, it may be possible for a section of the US market to reach new highs while the economy slows down.
The mirror image of that trend is the turning away from tech stocks in the Indian market. These stocks are at least partially a play on the US economy and the strength of the dollar and investors in India are applying the same logic that's causing US investors to flee US-centric stocks. Nor is this view limited to savvy investment banks and other institutional investors. A recent study by US fund tracker Lipper found that inflows into US domestic stock funds had fallen to levels not seen since 1994. On the other hand, Morgan Stanley recently raised a $1.5 billion (Rs5,925 crore) buyout fund for Asia, nearly treble the bank's previous Asia fund raised two years ago. Inflows into emerging market funds, as EPFR Global points out, were at an 85-week high during the fourth week of September. As EPFR observed, "it was US, Japan and Europe equity funds that provided the cash which flowed back into emerging markets funds. Combined redemptions from these three fund groups totalled $13.04 billion for the week as dollar weakness and fears about the fallout from the turmoil in the US subprime loan market continued to weigh on sentiment."
That's not all. Some equity strategists that are long on Asian stocks are advising their clients to short US and European financial stocks as a hedge. The outperformance of one asset class would mean the underperformance of the other.
CLSA strategist Christopher Wood writes in a recent issue of his newsletter Greed & Fear that "it makes sense to remain structurally overweight Asia and global emerging markets— most particularly for genuine long-term investors such as pension funds. For a new round of Fed easing is akin to lighting a match to the Asian asset-reflation story". All the signs also point to several rounds of Fed rate cuts, thanks to the deep-seated problems in the US housing sector. Wood points out that the strengthening of currencies such as the euro could persuade the European central bank too to start cutting rates, using continued weakness in the credit markets as an excuse. That would open the floodgates into Asia even further. At the same time, Wood is also concerned about the impact of a US slowdown on commodities. He doesn't think that Chinese and Indian demand is enough to drive oil prices higher, for example. The current spike in commodity prices has more to do with a weaker dollar than with resurgent global demand. That's the reason Wood would "rather continue to own interest-rate sensitives in Asia ex-Japan geared to domestic demand rather than commodity cyclicals".
In the Indian market, it is sectors such as capital goods and banks geared to domestic investment demand that have been the leaders in this rally. Interest-rate sensitive stocks, which have lagged the market after rates started rising, have already moved up substantially from their lows. The bet that investors are making is that dollar inflows will be so strong that RBI will be forced to intervene in the forex markets to defend the rupee. That will unleash so much liquidity that, even if RBI does its best to mop up the liquidity, it may not be able to prevent interest rates from drifting down.
Globalization has led to dual markets everywhere—a set of stocks in every market tied to the domestic economy and another connected to the rest of the world. In the current rally, while those stocks that are connected to emerging markets will do well in the US market, stocks dependent on the domestic economy will outperform in the Indian market.

KS Oils - Multibagger (KR CHOKSY)

At the CMP of Rs 72.50, KS Oils is trading at commodity valuations of EV/Sales of about 1.6x and EV/EBITDA of abou 14.9x its TTM Sales, which is extremely low compared to its peers in the FMCG industry

 

KS Oils Ltd is the one of the reputed players in the domestic edible oil industry with major presence in Mustard Oil. It is the largest Rapeseed crusher in the country with largest crushing capacity of 1225 MT/day in India. Its manufacturing facilities have close proximity to raw materials and consumption markets i.e. Rapeseed growing and Mustard Oil consuming regions of Madhya Pradesh and Rajasthan.

 

This provides the company an edge over its peers by ensuring uninterrupted raw material supply and ready market for its products. KS Oils earns majority of its revenues from Crude Mustard Oil (otherwise known as Kachhi Ghani Mustard Oil, which has special preference in cold regions of India – North, East and North-East. KS Oils through its Double Sher and Kalash brands of Mustard Oil dominates the North-Eastern region with 50% market share.

 

After the recent expansion, the Company's total installed capacity stands at:
• 1225 MT/day Crushing capacity
• 400 MT/day Refinery capacity
• 600 MT/day Solvent Extraction capacity
• 150 MT/day Vanaspati manufacturing capacity The Company has been growing at a rapid pace in the recent past and is expected to do so in the coming two-three years due to the economics of packaged edible oil sector.

 

The Company operates through three divisions, namely:
• Mustard Oil, which is involved in crushing and processing of Crude Mustard Oil often termed as Kachhi Ghani Mustard Oil. This is sold in loose as well in branded form under two brands, Double Sher and Kalash.
• Refining division, which is involved in refining of Sunflower, Mustard and Soy Bean Oils. These oils are also sold in loose as well as branded form under KS and KS Gold brands.
• Other division, which comprises of Vanaspati division and Solvent Extraction division. The Vanaspati division is involved in the processing of Vanaspati which is marketed solely in branded form under Gold and Gold Plus brands. The Solvent Extraction and others division is involved in extraction of oil from pressed mustard seeds and exports of Soy Meal.

 

We are extremely bullish on the domestic packaged edible oil sector in general and companies like KS Oils in particular. We like KS Oils for the following compelling reasons:

 

Capacity expansion to fuel volume growth - KS Oils may go for inorganic growth or setting up Greenfield projects in order to capture increased market share. At the same time it may increase its capacity utilizations. The company has created a war chest of Rs 650- 750 crore which will be used to fund capacity expansion in new projects, acquisitions as well as the company's foray into the exciting wind power generation. Its expansion plan includes five plants out of which three are located in Madhya Pradesh and the other two in Rajasthan. The company expects to commission the projects over the next 24 months. The expansion will add 4000 tonnes per day to the company's oil seeds crushing capacity — 3000 tonnes per day in solvent extraction and 1000 tonnes per day in refining.

 

Transition from loose oil player to branded player – With strong brands under its fold, KS OILS has ascended from manufacturing & selling loose oil to manufacturing & selling branded oil in bulk and retail packs. Branded sales are likely to increase with higher contribution in revenues from small retail packs. The management's vision to become a Rs3000 crore company in next three years by increasing the share of its branded products would enable it to exercise pricing power as well as command higher margins compared to
loose bulk oil business leading to improved Return on Capital.

 

Edible Oil sector at crossroads – Indian packaged edible oil industry is expected to continue its high growth rate due to lower per capita consumption of oil, rising population, increasing disposable income from buoyant economic conditions, growing health & hygiene awareness promoting demand for packaged products and a boom in organized retail fuelling demand for branded products.

 

Economies of scale – KS Oils with its huge capacities and world class state of the art plant benefits from economies of scale as well as has an efficiency of more than 33% compared to other crushers. This improves its profitability from increased operating efficiencies. Diversification into bio-diesel business – KS Oils with spare capacities at its disposal plans to foray into lucrative high margin bio-fuels and palm plantation business in near future, placing it on a different growth trajectory.

 

Key Developments and Impact
Joint venture in Malaysia
KS Oils has entered into joint venture in Malaysia with a stake of 49% for the purpose of investments / acquisitions of palm plantations / manufacture of crude palm oil. This joint venture would enable the company's long term objective of backward integration and to secure raw materials sourcing for its crude palm oil requirement from South East Asia. The joint venture company is also in the process of acquiring its first plantation in Malaysia for a negotiated consideration up to 11.50 Malaysian ringitt.

 

Financials
Net Sales of the company grew by 69% to Rs 366.33 crore from Rs 216.48 crore on the back of robust branded sales growth. Operating Profits also grew at a much faster pace compared to sales, 259%, due to increasing contribution of branded sales, which enjoy substantially higher margins vis-à-vis unbranded sales. PAT has increased by 177.4% from Rs 8.5 crore to Rs 23.6 crore. Interest cost increased as a percentage of sales.

 

Valuations
At the CMP of Rs 72.50, KS Oils is trading at commodity valuations of EV/Sales of about 1.6x and EV/EBITDA of abou 14.9x its TTM Sales, which is extremely low compared to its peers in the FMCG industry.

 

Risks
The company operates in highly competitive oil business and any inability to pass on the increase in input costs could affect the margins.

 

Growth
• KS Oils has managed to pass on any increase in raw material prices to its consumers inpsite of operating in a commodity business. Hence we believe the company would be able to do so in the future also.
• Buoyant economic conditions leading to a tremendous rise in disposable income would lead to an increase in the per capita consumption (pcc) of oil. With global scale capacities created at low cost and presence in both premium and popular segments, KS OILS is best placed to tap this opportunity.
• India with fastest growth in population is also the largest edible oil market in the world, but has one of the lowest pcc of oil (12kg as compared to 15kg in China and much higher in other developed countries). Low pcc offers tremendous scope for expansion of market as well as share of individual players like KS Oils, which has already witnessed a strong surge in its market share recently.
• The growth in the branded segment has been extremely good contributing 61% of revenues. The small retail packs contributed around 30% to revenues. This segment is expected to keep its pace going.
• With the competition from the unorganized segment expected to be eliminated with the introduction VAT, it will give KS Oils an advantage to capture the market.

 

Disclaimer: As per SEBI requirements it is stated that,Kisan Ratilal Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation.

iGate Global Solutions leads gainers in 'A' group

Software firm iGate Global Solutions soared 10.01% to Rs 240.75 and it topped the gainers in the BSE's A group shares. The company will announce its Q2 September 2007 results on 10 October 2007.

 

Commodities trading firm Adani Enterprises jumped 9.26% to Rs 705.90. It was the second biggest gainer in A group. As per recent reports, the Adani group would invest over Rs 10,000 crore to set up a 2,640-mega watts (MW) coal-fired power plant in Ahmedabad. The project is being handled by Adani Power (APL), a wholly-owned subsidiary of Adani Enterprises.

 

Engineering firm Larsen and Toubro moved up 6.66% to Rs 3089.25 and came third among top gainers in A group. Global rating agency Moody's on Thursday, 4 October 2007 assigned 'Baa2', a medium grade rating, to the company with a stable outlook, on the basis of its strong financial profile and liquidity position.

 

Integrated steel maker Ispat Industries gained 6.33% to Rs 31.90. It came fourth among top gainers in A group.

 

The mid-cap real estate developer Puravankara Projects rose 3.58% to Rs 460.40 and came fifth among top gainers in A group.

Abbott India

Abbott India, which has presence in the urology, gastroenterology, palliative care, benign prostatic hyperplasia and specialised anaesthesia segments, is a subsidiary of Abbott Laboratories Inc, US.

The parent company is a leading player globally and is focused on the pharmaceutical and nutritional segment. Besides, the parent also offers diagnostic instruments and tests apart from medical and surgical devices.

Abbott India sells under popular brand names like Brufen, Digene, Obimet, Leptos, Thyronorm, Cremaffin, Hytrin and Norvir, among others.

On October 1, the company reported sales of Rs 158 crore, a growth of 15% y-o-y for the third quarter ended August 2007 (Q3; year ends in November). The operating profit, at Rs 31 crore, grew faster by 26%. Margins, at 20%, were marginally higher y-o-y and have been stable over the last few quarters.
Abbott India's manufacturing presence in India is nil and product

manufacturing is outsourced to other domestic contract manufacturers.

The faster growth in profits can be attributed to lower growth in material costs (including goods purchased). Lastly, net profit at Rs 20 crore was up 22%, thanks to a 36% rise in tax outgo.

Growth rates would have been better, had the company launched new products, which has not been the case.

Like most MNC pharmaceutical companies, even this company's parent appears to be waiting for further clarity on the product patent regime in India, which is a norm in most developed nations. Once this regime is in place, it should act as a major trigger for the pharma MNC pack as a whole as they may launch their new products in india in view of better safeguards on patent rights.

Abbott had made a buyback offer last year, which got postponed and was completed in March 2007. A little over a month later, its board of directors approved another buyback offer aggregating to Rs 52 crore, at a price not exceeding Rs 650 per share, subject to approval of the members.

If successful, the offer would be accompanied by a rise in promoter's contribution, which since the earlier offer has risen to 65% from 61.70% in December 2006. Clearly, it appears to be moving towards delisting coupled with the healthy cash and cash equivalents (about Rs 140 per share) on its balance sheet.

At Rs 579.60, the stock is trading at a PE of 15. Like most MNC companies, it has potential and investors may continue holding it as they may get an opportunity to exit with good returns in the event of a delisting.

US Market struggles to register modest gains

Investors become cautious ahead of tomorrow's crucial job and unemployment report

After an entire day of almost flat trading, US stocks inched in the green territory in the final hour of trading and the indices ended little higher for the day today, Thursday, 4 October 2007. Investors digested weak economic reports and waited for tomorrow's crucial job and unemployment report. Eight out of ten economic sectors registered gains.

The Dow Jones industrial Average closed higher by 6.26 points at 13,974.31. The Nasdaq Composite Index, finished higher by 4.14 points at 2,733.57. S&P 500 finished higher by 3.25 points at 1,542.84.

Eighteen of thirty Dow stocks ended in green. Merck, United Technologies, P&G and CoCo-Cola led the group of Dow winners. IBM, Exxon Mobil, Caterpillar and Citigroup were the major Dow decliners.

In the morning, the Department of Labor reported that weekly initial jobless claims (number of Americans filing new claims for state unemployment insurance) for the week ended 28 September rose to 317k, up from the previous reading of 301k.

After that, the Department of Commerce reported that factory orders in August slipped 3.3%, as against the consensus estimate that called for a decrease of 2.8%. Orders had rose 3.4% in July.

Blockbuster result from RIMM fails to impress market

After opening higher for the day, stocks fell in the face of a larger-than-anticipated drop in factory orders and a modest rise in jobless claims. Ultimately, at the end, indices managed to close in the green.

But the economic reports were not much of market movers. It seemed that investors wanted to keep money away today and rather wait for tomorrow's unemployment report.

Investors waited for Research in Motion (RIMM), the maker of Blackberry devices, to report earnings after the close today. The company reported a second-quarter profit that beat expectations. Earnings per share registered 100% increase on a y-o-y basis. The company crossed the 10 million subscriber mark and predicted strength for the rest of the year. But the company's stock struggled in after-hours trading.

Among Indian ADRs, all ended in green barring ICICI Bank and Rediff.com. tata Motors and MTNL were the top gainers gaining 1.7% and 1.95 respectively.

Crude oil futures were back above $81/barrel today. Prices rose after dollar once again weakened today against its rival currencies. Crude-oil futures for light sweet crude for November delivery closed at $81.44/barrel (higher by $1.50/barrel or 1.8%) on the New York Mercantile Exchange.

On the New York Stock Exchange, 1.1 billion shares were exchanged, with advancing stocks outpacing decliners 5 to 3. Volume on the Nasdaq topped 1.1 billion shares, and advancers outran declining stocks 4 to 3.

For tomorrow, investors will have U.S. Labor Department's September jobs report before the market opens. Also garnering some attention will be the August Consumer Credit report.

Ranbaxy Laboratories

Ranbaxy Laboratories is increasing its stake in Zenotech Laboratories from 7% to 45% for Rs 214 crore (Rs 160 a share). This will involve purchasing 22% stake from the current promoters and a preferential offer of 16% equity by Zenotech to Ranbaxy.

The mandatory open offer for another 20% stake, if fully subscribed, will lead to an additional outflow of Rs 92.20 crore. The buyout is expected to be funded through internal accruals and debt.

For Zenotech, with annual revenues of Rs 13 crore and net profit of Rs 3.63 crore, the market value works out to Rs 460 crore at Rs 160 per share. A scrutiny of the synergies and the space in which Zenotech operates may provide an insight into its valuation and Ranbaxy's interest in it.

Zenotech is present in the niche area of biosimilars, wherein the global market size is estimated at $65 billion. These are generic, non-proprietary versions of drugs produced through biotechnological processes using living cell-based material. Ranbaxy does not have major presence at the moment in biosimilars and hence the stake hike will strengthen its foothold here, particularly since Zenotech's pipeline of offerings addresses a third of this global market.

Zenotech is also present in the oncology (cancer treatment) therapeutic segment (55% of its product portfolio), which is one of the fastest growing with the global market size estimated at $35 billion. This segment is expected to grow at a CAGR of 18% till 2010 (biologics included), which is a huge opportunity.

Other key areas the company caters to are anesthesiology and neurology. Ranbaxy may also benefit from the approval received for Zenotech's oncology biopharmaceuticals.

Zenotech also has a strong pipeline with seven biologics in the pipeline and two monoclonal antibodies ready to enter clinical trials. This will be synergistic with Ranbaxy's global presence, as the products, if successful, will be marketed through the latter's marketing and distribution network spread over 125 countries. Also, with Ranbaxy's backing, funding prospects of Zenotech will only be enhanced.

The prospects of biosimilars have been further enhanced with the opening up of developed nations like the US and in Europe, though in the absence of regulations for biogeneric products, how soon these revenues can flow in is a big question and remains a major risk.

Litigation (relating to patents, as seen in the past), too, remains a risk for companies like Ranbaxy.

Meanwhile, the company plans to hive of its own new chemical entity research division into a separate entity by 2008 and its current pipeline consists of two molecules in the clinics and six-seven other molecules in pre-clinical stages.

This clear risk demarcation, associated with R&D and the generics business, will bring greater clarity to its valuations.

Ranbaxy has also announced the receipt of final approval from the US FDA to manufacture and market clarithromycin for oral suspension, which is a positive.

Ranbaxy has been an underperformer on the bourses and currently, at a PE of 25, the stock may be prescribed, only for those with a high risk appetite and a long-term perspective.

FIIs net buyers of Rs 948cr in cash mkt today

 

 

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Power Grid Corporation of India ends with 94% premium

 

 

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Power Grid doubles on listing

 

 

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SEBI to go the Dutch way on IPOs?

 

 

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Close: 18k so near yet so far !

Market had one more week of great rally. Huge liquidity inflow continued the rally in index heavyweights. It was just last week that Sensex touched 17k and today it was just at kissing distance from 18k but missed it. Globally too markets have overcome the subprime and recession worries. Clearly, two events consisting of UKs guarantee for Northern Rock and the large Fed cut had offset worries of a pending recesson. We believe that there is at least 4 - 5 months to live on this hope.. post which there will more clarity. The market also prices in the possibility that demand in Asia will be the engine of growth. Thus money flows have been strongly flowing into India which along with China and thats the reason to do well.

 

This was also the great week for Ambani brothers. Mukesh?s Reliance Ind and Anil?s Reliance energy were the stocks of the week. Reliance Energy is set to launch an IPO for the Power projects and that valuation had the Reliance Energy stock rerated. Reliance made a new high kissing 2500. Thats a huge move for the Sensex heavyweight.

 

The Oil index also coupled up. Capital goods index was another index mover with Larsen up 10% and ABB up 6%. Sensex gained 2.5% this week. Nifty up was 3%. Banking index however witnessed profit booking with SBI shedding 5%.

 

There were hopes that CRR/SLR may be cut. In one on our note earlier note we had argued that this cut is certainly not on cards.. given the flush of liquidity. RBI has been intervening. We believed that an excuse is building up for a rate cut and that is in a way to soften the rupee. This we believe will not happen before October 30th. The banks scaled highs on hopes of rate cuts last week. We would be surprised if the cut did happen earlier than October 30th. However on Thursday Govt. announced its intention to increase the ceiling on the MSS bonds (Market stabilisation bonds) which was in line with our thinking. The Auto monthly numbers?were not good enough to worth a discussion. All eyes are on October whether Bajaj can break out of that rut. whether Maruti can sustain its growth and whether the festival demand will pick. Of course its also the results season.

 

The Cement was one sector which saw strength amidst all negatives. In the strong demand sceanrio many companies increased price to take the advantage. ACC Ltd, India's second biggest cement producer reported that its September shipments rose 10.7% to 1.55 mn tonnes from 1.40 mn tonnes a year earlier up by 11%. Shree Cement reported its sales for the month of September at 0.47 mn tones vs 0.39 mn tones, up by 20% yoy. Ambuja cement sales for the month of Sept fell to 1.28 mn tones vs 1.34 mn tones, down by 5%. The reason for low shipments was that the plant had been shut down for few days in the month of September due to flooding. All the cement companies will report good numbers Valuations is where the worries are. We are positive on Kesoram Ind, Shree Cement and Madras Cement. Look for dips for investment opportunities.

 

We had a research note this week on Esab India and another one on SpiceJet. Esab is where there has been a wow call where the call captured the gains. This company manufactres welding equipment and consumables. The parent Charter Plc has increased stake through an open offer to over 55% from 37% and that a price higher than market price. We believe that its a good reason to be bullish.. and ofcourse there is much more than simply that which you will get when you read the report.

 

Spice Jet is a call which we booked this week with over 20% gains in a matter of 3 weeks. Its certainly good returns. However these are hopeful times for the airlines. The Industry has faced consolidation and thats a good reason to see Spicejet do better. The high crude prices is the negative..There are lots of hopes on this quarter. The stock is likely to see strength.

 

We had a research note on Allcargo global. Here we have a skeptical view.. and the reason is that the acquisiton of the global business of Eculine is unlikely to deliver much efficiency in the near term. Also the impendig merger of a promoter owned company will weigh on the stock till the merger ratio is indicated.

 

And there were more broker raps too on many upgrades and downgrades.. by large broking houses. !

 

Technically Speaking: Sesnex has taken support at the trending upline and thats at 17720. Should see some bounce there. The near supports are far and the markets are bit in the overbought zone. Worries to be seen only if Sensex breaks 17230 . The trend is up.

 

Fundamentally speaking: Vauations may appear expensive.. but it seems that the risk profile of India has been lowered and that because there is a domestic consumton economy. This is coupled with a scenario where rupee is getting stronger and flows continue to be strong. Thats driving up stocks and largely heavyweights. Next week will mark the beginning of the results season for September quarter. Normally the large cap stocks temper post the numbers.. but we believe that the mid caps will perform this time. 18000 for the Sensex is now only a formality and a matter of academics.. but fundamentally, these gains we believe would trickle down to the mid caps.

Sensex ends flat amid sharp volatility

 

 

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Strong US job data may lift Indian markets

Indian markets may be see an upside in the coming sessions, with stock-specific action based on corporate results. Although certain amount of profit booking cannot be ruled out.

 

US stock futures shot up in opening trades on Friday, 5 October 2007 after government data showed the economy added more jobs than expected in September 2007, easing worries about the outlook for growth and profits. The US Labor Department said the economy added 110,000 jobs.

 

Factors that would predict market trend in the coming weeks include quarterly results from Infosys and the board meeting of DLF to consider overseas acqusitions and raising funds offshore on Thursday, 11 October 2007. Quarterly results from HDFC Bank and Reliance Industries annual shareholder meeting on Friday, 12 October 2007.

 

The market will be keenly watching developments on the political front as India's political crisis over a controversial nuclear deal with the United States could enter a decisive phase as the government and its communist allies hold talks to resolve their bitter row. A joint panel formed to try and end the face-off will make a fresh attempt to convince communist leaders who have threatened to end their support to Prime Minister Manmohan Singh's coalition if it pursues the historic pact.

 

Annual inflation, based on the wholesale price index (WPI), moved up 3.42% in the week ended 22 September 2007 from 3.23% in the week ended 15 September 2007. The rise in inflation is due to increase in prices of manufactured products, with a 63.75% weight in WPI. Food products like salt and oil became dearer in the week.

 

Foreign institutional investors (FIIs) bought shares worth a net Rs 575 crore on Thursday, 4 October 2007, compared to their buying of Rs 3,161.50 crore on 3 October 2007. FII inflow of Rs 575 crore on 4 October 2007 was a result of gross purchases of Rs 4,403.80 crore and gross sales Rs 3,828.80 crore.

Bulls take a breather

Indian markets seem to have wearied after 11 sessions of bull run starting from 18 September 2007. The market was first breached on Thursday, 4 October 2007 when a combination of profit-booking and slackness in global markets acted against the market uptrend. But bears were denied a convincing win in the weak ended on Friday, 5 October 2007 where the broad indices closed flat after a volatile trading session.

 

In the week ended Friday, 5 October 2007 Indian shares slid from their record high to close down just 0.02%, led lower by ICICI Bank. Oil & gas and capital goods shares were the major gainers. The benchmark BSE 30-share index edged down 3.78 points to end at 17,773.36, after rising to a record high of 17,979.18 in afternoon trade, with 23 stocks declining. The 50-share NSE index was down 0.44% at 5,185.85.

 

The BSE Sensex has risen 2.8% in a week. The Sensex hit an all-time high of 17,953.07 on Wednesday, 3 October 2007. Its 11-day rally was its longest run of consecutive gains in four years. The index is up 27.05% from a three-month closing low on 21 August 2007.

 

The S&P CNX Nifty has gained 3.27% in the week to. It hit an all time high of 5261.35 on Wednesday, 3 October 2007.

 

The BSE Mid-cap index has moved up 0.84% to 7,485.51, while the BSE Small-cap index rose 0.02% to 9,101.87 in a week. Both these indices under-performed the Sensex.

 

The week began on Friday 28 September 2007 with the market continuing its winning streak on the strong rollover of the September 2007 futures to October 2007 futures on the previous day boosting trading. The Sensex ended up 140.54 points, or 0.82%, to 17,291.10. The S&P CNX Nifty had settled higher 20.80 points, or 0.42%, to 5,021.35.

 

On Monday, 1 October 2007, the market came sharply off higher level in late trade after it had struck lifetime high in late afternoon trade. A sharp fall in Reliance Industries (RIL) pulled the market off higher level during the closing hours. On that day, the Sensex ended up 37.52 points, or 0.22%, to a fresh closing high of 17,328.62. The broader S&P CNX Nifty scored over the Sensex, ending up 47.6 points, or 0.95%, to a fresh closing high of 5,068.95.

 

On Wednesday, 3 October 2007, the market had surged amid volatile trade, with both the broad market indices, Sensex and Nifty, striking all-time highs. The Sensex closed up 518.42 points, or 2.99%, to 17,847.04, an all-time closing high. The Nifty was up 141.85 points, or 2.8%, to 5,210.80, an all-time closing high.

 

On Thursday,4 October 2007, the Sensex settled 0.39% , or 69.90 points, lower to 17,777.14, snapping eleven straight days of gains, led by losses in ICICI Bank and Housing Development Finance Corporation. The 50-share Nifty closed 0.04% down to 5,208.65 points. Banks shares fell on expectation the central bank will raise the CRR by 25 bps. The RBI meets on 30 October 2007 for a mid-term review of the monetary policy. But the market expects there could be action on the CRR before that.

 

ICICI Bank lost 2.48% to Rs 1036.80 in a week. The stock declined on fears that the central bank may raise cash reserve ratio for banks to remove excess liquidity from the money markets. ICICI bank reportedly plans to raise $11 billion overseas in the next 12 months to fund its expansion abroad and credit growth in India. ICICI Bank's target to raise funds totals $13 billion in the next 12 months, including $2 billion of bonds it sold on 26 September 2007. It will raise the money through loans, bonds, shares and overseas deposits.

 

State Bank of India (SBI) slumped 4.48% to Rs 1863.25 in the week. The bank is considering shelving its planned Rs 8000-crore to Rs 12000-crore rights issue, following a slowdown in credit growth. SBI was planning to boost its capital requirement to fund credit growth and its capital adequacy ratio, but slowing credit growth would free up a significant amount of capital and, therefore, not require raising further capital. The bank paid Rs 1054-crore advance tax in the second quarter of the year ending March 2008, from a year earlier.

 

Reliance Energy (REL) gained 20.05% to Rs 1477.15 in the week. Reliance Power, the subsidiary of REL, proposes to sell 130 crore shares with a face value of Rs 2 each in its IPO. The company filed its Draft Red Herring Prospectus with SEBI on Wednesday, 3 October 2007. The issue will constitute 11.5% of the company's equity capital. It includes promoters' contribution of 16-crore equity shares to be allotted at the IPO price. The remaining 114-crore shares will constitute the net issue to the public.

 

Tata Steel fell 2.05% to Rs 832.90 in the week. The company raised prices of rebar, a benchmark long product, for immediate delivery by as much as 2%, or Rs 600 ($15) a tonne to about Rs 26,600, from 4 October 2007. Other Indian steel makers, too, raised prices as demand increases in China and India. On Monday, 1 October 2007, state-run steel firm Steel Authority of India (Sail) had raised prices of its products by Rs 500-Rs 800 per tonne in line with rising input costs. Tata Steel paid Rs 445-crore advance tax in the second quarter from a year earlier. Sail paid Rs 900-crore advance tax in the second quarter from a year earlier.

 

Reliance Industries soared 8.17% to Rs 2483.90 in a week. The company has reportedly ended the services of about 400 franchisees for its planned retail business in the eastern state of West Bengal. The company also cancelled its retail plans in Orissa because of protests from small traders. RIL paid Rs 649 crore advance tax in the second quarter from a year earlier.

 

Maruti Suzuki grew 3.52% to Rs 1034.70 in a week. The Indian government has approved Maruti Suzuki's joint venture plan with Japan's Futaba Industrial Corporation for manufacturing auto parts. Futaba will hold a 51% stake for an initial investment of Rs 45.9 crore.

 

Oil and Natural Gas Corporation (ONGC) went up 0.85% to Rs 966.05 in the week. ONGC will spend Rs 5713 crore on the second phase of the redevelopment of a key field off India's west coast. The redevelopment will help ONGC's Mumbai High South field to produce 22 million tonnes of incremental oil. The company paid Rs 2401-crore advance tax in the second quarter from a year earlier.

 

The BSE IT index rose 2.59% to 4,740.27 this week despite the fact that rupee rose to its strongest level against the dollar since April 1998. The software companies earn nearly 60% of the revenue from the United States.

Market ends flat amid volatility

The market recovered from its lower levels to end flat in the end trade amid volatility. The market breadth was negative. The mid- cap and small-cap indices declined further. Banking ,metal and realty stocks ended with losses. IT stocks slipped further on rupee concerns. Asian markets ended mixed, while European markets were trading up. Reliance Industries extended gains.

 

After galloping in mid-afternoon trade, propelling the Sensex to its all-time high, the market had slipped in the red during end trade to hit an intra-day low. Reliance Industries extended gains.

 

After opening on a positive tone, the market had remained range bound. In mid-afternoon trade, the market surfed in the positive and negative zones. Extending gains, it had hit a new intra-day high in mid-morning trade.

 

The BSE 30-share Sensex ended down 3.78 points, or 0.02%, to 17,773.36. It had opened with a gap of 54.54 points at 17,779.22 . The Sensex touched an all-time high of 17979.18 in midafernoon trade and a low of 17,708.80 in end trade.

 

The S&P CNX Nifty closed down 22.8 points, or 0.44%, to 5,185.85. It had hit a high of 5,248.55 in mid afternoon trade, and a low of 5,164.50 in end trade.

 

Of the 30 shares of the Sensex, seven had moved up, while the remaining were trading down. The market breadth was weak on BSE: 900 scrips had advanced, 1,834 declined, while 348 remained unchanged.

 

The BSE Mid-Cap index was down 90.76 points, or 1.2%, to 7,485.51 underperforming the Sensex,. The BSE Small-Cap index was down 40.05 points, or 0.44%, to 9,101.87, underperforming the Sensex.

 

Sectoral indices on BSE displayed mixed trend. The BSE Realty index (down 1.73% to 9,631.36) and the BSE IT Index (down 0.62% at 4,740.27) underperformed the Sensex.

 

The BSE TecK index (up 0.34% to 3,900.88), the BSE Oil and Gas Index (up 1.09% at 10,190.88), and the BSE Capital Goods Index (up 3.21% at 15,742.79) outperformed the Sensex.

 

Nifty F&O 25 October contract traded at 5,172, a discount of 13.85 points, or 0.26%, to the spot price of 5,185.85.

 

The NSE F&O segment clocked a turnover of Rs 64,188.48 crore today, 5 October 2007.

 

India's wholesale price index (WPI) rose 3.42 % in the 12 months to 22 September 2007, higher than the previous week's 3.23 %, due to a rise in manufactured product prices, data released today, 5 October 2007, showed. Banking stocks declined as WPI was more than expected. SBI (down 2.31% to Rs 1,863.25), ICICI Bank (down 2.31% to Rs 1,036.80) and HDFC Bank (down 1.59% to Rs 1,400.45) edged lower. HDFC shed 1.59% to Rs 2,455.05.

 

Reliance Communications (up 1.62% to Rs 644.75) and Bharti Airtel (up 3.32% to Rs 993.05) were among the major gainers in the Sensex pack.

 

NTPC (down 5.28% to Rs 214.45 and the top loser from the Sensex pack), Hindalco Industries (down 3.7% to Rs 169.20), Tata Steel (down 3.68% to Rs 832.90) and ITC (down 3.27% to Rs 178.75) and ACC (down 3.11% to Rs 1,176.60) were the major losers from the Sensex pack.

 

IT bigwigs declined as the rupee gained further. Infosys (down 0.27% to Rs 1,989.65), TCS (down 0.78% to Rs 1,070.20), Wipro (down 0.03% to Rs 461.15) and Satyam Computer Services (down 1.33% to Rs 444.45) were weak.

 

The BSE Capital Goods index was the major gainer from the sectoral indices. L&T (up 6.66% to Rs 3,089.25, hit an all-time high of Rs 3,197.50 today and was the top gainer from the Sensex pack) and Bhel (up 2.96% to Rs 2,153.55 , hit an all-time high of Rs 2,229 today) and Suzlon Energy (up 0.75% to Rs 1,651.55) edged higher.

 

The largest private sector company and oil refiner Reliance Industries rose 2.53% to Rs 2,483.90. It touched an all-time high of Rs 2,539 today on reports it may join state-run firms to set up a Rs 6000-crore petrochemicals complex in Visakapatnam.

 

Power transmission firm Power Grid Corporation of India ended at Rs 100.65 on BSE on its debut, a premium of 93.56% over the IPO price of Rs 52.

 

Hexaware Technologies was down 0.16% to Rs 121.10 on BSE after securing a large order from a leading German financial institution to upgrade its technology.

 

DLF was declined 1.24% to Rs 851.70 on reports that it is in talks with private equity firms and investment banks to raise Rs 2000 crore.

 

Exide Industries moved up 0.45% to Rs 66.80 after it said it would enter the lead smelting and recycling business to reduce dependence on import of lead.

 

Lanco Infratech declined 3.42% to Rs 417.85 on BSE even after bagging a Rs 7.30-crore order from Tirupati Tirumala Devasthanams, Tirupati, for constructing a university.

 

Bayer CropScience surged 2.79% to Rs 300.55 on reports that parent Bayer is keen to acquire full control of the company.

 

i-flex Solutions closed down 0.96% to Rs 1,895.40 on BSE after increasing its stake to 100% in Castek Software.

 

Parsvnath Developers traded up 0.90% to Rs 375 at 14:03 IST on reports that global financial investors Lehman Brothers and Morgan Stanley may invest in the company's special economic zones projects.

 

Hind Rectifiers had spurted 5.16% to Rs 184 at 15:36 IST on BSE after it signed a technical collaboration agreement with Infineon Technologies AG, Germany, for manufacturing a prime stack.

 

Refex Refrigerants had jumped 3.65% to Rs 177.20 on receiving a special import licence for importing 2,000 tonnes of hydrochlorofluorocarbon-based refrigerants from the Indian government.

 

Petron Engineering Construction had climbed up 3.78% to Rs 284, after it received a Rs 1.33-crore order from Vedanta Alumina for installation of anode, grouping and cleaning system for its aluminium smelter project.

 

Among the side counters, Phoenix International (up 19.83% to Rs 20.85) Tata Sponge Iron (up 19.23% to Rs 233.45), Shree Ram Mills (up 19.44% to Rs 427.10), and OCL India (up 19.71% to Rs 191.95) had advanced and were the major gainers.

 

Solectrun Centum (down 21.04% to Rs 220.10) and Ras Resorts (down 14.45% to Rs 37) and Almondz Capital (down 12.02% to Rs 35.15) were the major losers.

 

Asian markets, which opened before the Indian markets, were mixed today. Taiwan's Taiwan Weighted (down 0.11% to 9,617.26) and Japan's Nikkei (down 0.16% at 17,065.04) were in red. Hong Kong's Hang Seng (up 3.18% to 27,831.52) and Singapore's Straits Times (up 1.03% to 3,822.62) were in positive territory.

 

Most of the European markets were trading in green. These included France's CAC (up 0.04% to 5,806.66), Germany's DAX (up 0.38% to 7,975.76) and UK's FTSE 100 (up 0.23% to 6,562.80).

 

The market snapped its 10-day winning streak on 4 October 2007 as the Sensex ended down 69.90 points, or 0.39%, to 17,777.14 points. The S&P CNX Nifty closed lower 2.15 points, or 0.04%, to 5,208.65. It had touched a low of 5,126.05 in mid-afternoon trade.

 

Till then, the market had been on a roll, with the Sensex hitting a record high in the trading sessions from 19 September 2007 to 3 October 2007. Heavy FII buying and hopes of a further cut in interest rates by the US Federal Reserve at its next policy meeting on 30-31 October 2007 had boosted the bourses.

 

From a low of 13,989.11 on 21 August 2007, the Sensex has galloped a whopping 3,857.93 points, or 27.57%, to 17,847.04 on Wednesday, 3 October 2007.

RBI's daily mop-up crosses Rs 50,000 cr

 

 

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Gains pared

The market pared gains in late afternoon trade after the BSE 30-share Sensex hit an all-time high. The market breadth remained negative. The mid-cap and small-cap indices declined. Banking stocks were weak. IT stocks slipped further.Asian markets ended mixed, while European markets were trading up.

 

The market galloped in mid-afternoon trade, propelling the Sensex to its all-time high. Reliance Industries extended gains.

 

Remaining range bound in mid-afternoon trade, the market surfed in the positive and negative zones. Extending gains, the market had hit a new intra-day high in mid-morning trade.

 

At 15:57 IST, the Sensex was up 7 points, or 0.01%, to 17,954.15 in mid-afternoon trade. It opened with a gap of 54.54 points at 17,779.22 . The Sensex touched an all-time high of 17979.18 in mid-morning trade and a low of 17,731.14 in early afternoon trade.

 

The S&P CNX Nifty was down 21.8 points, or 0.42%, to 5,186.85. It had hit a high of 5,248.55 in mid-afternoon trade, and a low of 5,173.75 in early afternoon trade.

 

Of the 30 shares of the Sensex, seven had moved up, while the remaining were trading down. The market breadth was weak on BSE: 955 scrips had advanced, 1,760 declined, while 367 remained unchanged.

 

The BSE Mid-Cap index was down 85.13 points, or 1.12%, to 7,494.14 underperforming the Sensex,. The BSE Small-Cap index down 30.03 points, or 0.33%, to 9,111.89, underperforming the Sensex.

 

India's wholesale price index (WPI) rose 3.42 % in the 12 months to 22 September 2007, higher than previous week's 3.23 %, due to a rise in manufactured product prices, data released today, 5 October 2007, showed. Banking stocks declined as WPI was more than expected. SBI (down 1.86% to Rs 1,865), ICICI Bank (down 1.35% to Rs 1,047) and HDFC Bank (down 0.44% to Rs 1,398) edged lower. HDFC declined 1.71% to Rs 2,452.10.

 

Reliance Communications (up 2.13% to Rs 648) and Bharti Airtel (up 3.42% to Rs 994) were among the major gainers in the Sensex pack.

 

NTPC (down 4.37% to Rs 216.50 and the top loser from the Sensex pack), Hindalco Industries (down 2.55% to Rs 171.40), Tata Steel (down 2.77% to Rs 840.80) and ITC (down 3% to Rs 179.25) and ACC (down 2.58% to Rs 1,183) were the major losers from the Sensex pack.

 

IT bigwigs declined as the rupee gained further. Infosys (down 0.41% to Rs 1,988) ,TCS (down 0.8% to Rs 1,070), Wipro (down 0.55% to Rs 458.75) and Satyam Computer Services (down 0.94% to Rs 446.50) were weak.

 

The BSE Capital Goods index was the major gainer from the sectoral indices. L&T (up 6.62% to Rs 3,087.95, hitting an all-time high of Rs 3,197.50 today and the top gainer from Sensex pack), Bhel (up 3.03% to Rs 2,155 , hitting an all-time high of Rs 2,229 today) and Suzlon Energy (up 0.66% to Rs 1,650) advanced.

 

The largest private sector company and oil refiner Reliance Industries rose 2.79% to Rs 2,490.05. It touched an all-time high of Rs 2,539 today on reports it may join state-run firms to set up a Rs 6000-crore petrochemicals complex in Visakapatnam i n Andhra Pradesh.

 

Power transmission firm Power Grid Corporation of India was trading at Rs 101.40 on BSE on its debut, a premium of 94.71% over the IPO price of Rs 52.

 

Among the side counters, Phoenix International (up 19.83% to Rs 20.85) Tata Sponge Iron (up 20% to Rs 234.95), Artson Engineering (up 20% to Rs 57.35), and OCL India (up 20% to Rs 192.40) had advanced and were the major gainers.

 

Solectrun Centum (down 20.68% to Rs 221.10) and Ras Resorts (down 14.45% to Rs 37) were the major losers.

 

Asian markets, which opened before the Indian markets, were trading mixed today. Taiwan's Taiwan Weighted (down 0.11% to 9,617.26) and Japan's Nikkei (down 0.16% at 17,065.04) were in red. Hong Kong's Hang Seng (up 3.18% to 27,831.52) and Singapore's Straits Times (up 1.03% to 3,822.62) were in positive territory.

 

Most of the European markets were trading in green. These included France's CAC (down 0.03% to 5,802.88) edged lower. Germany's DAX (up 0.14% to 7,956.30) and UK's FTSE 100 (up 0.21% to 6,561.70).

 

American markets rose marginally on Thursday, 4 October 2007. The Dow Jones Industrial Average index ended up 6.26 points to 13,974.31 points and Nasdaq up 4.14 points to 2,733.57. US stocks barely rose on Thursday as investors shied away from making big bets before the release of the jobs data on Friday, 5 October 2007, to shed light on the economy and the outlook for interest rates. The American earnings season goes in full force in another one week.

 

Provisionally, as per NSE data, foreign institutional investors (FIIs) were net buyers of Rs 457.28-crore equities, while domestic institutional investors (DII) were net sellers of Rs 663.9-crore equities on Thursday, 4 October 2007.

 

The market snapped its 10-day winning streak on 4 October 2007 as the Sensex ended down 69.90 points, or 0.39%, to 17,777.14 points. The S&P CNX Nifty closed lower 2.15 points, or 0.04%, to 5,208.65. It had touched a low of 5,126.05 in mid-afternoon trade.

 

Till then, the market had been on a roll, with the Sensex hitting a record high in the trading sessions from 19 September 2007 to 3 October 2007. Heavy FII buying and hopes of a further cut in interest rates by the US Federal Reserve at its next policy meeting on 30-31 October 2007 had boosted the bourses.

 

From a low of 13,989.11 on 21 August 2007, the Sensex has galloped a whopping 3,857.93 points, or 27.57%, to 17,847.04 on Wednesday, 3 October 2007.

Govt cheats Private Telcos, allots spectrum to BSNL

 

 

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ITC's e-chaupal project

Anil Kashid, a farmer in Yedgoan, is just an hour's drive away from Pune now that an excellent road network has been developed. He has a small tract of land where he grows fruit and vegetables. Over the past six months, he has been supplying his horticulture products to ITC for two Choupal Fresh stores in Pune. While working with ITC's managers in the area, he has discovered that he is not dependent on just one crop and just one growing season for his livelihood. On a single patch of land, he can grow more than five types of vegetables. He has also invested in a wire-mesh so that he can grow veggies like cucumber and brinjal, essentially creepers.

 

Farmers like Kashid are part of the second phase of ITC's e-choupal project. The first phase of the project consisted of sourcing grains like wheat, soya etc directly from farmers, but ITC has now turned to horticulture produce The company has entered this space directly because the grain sourcing business is facing an imminent problem of decreasing return to scale – it won't be able to increase grain sourcing exponentially like it did in the first few years. S Sivakumar, chief executive, agribusiness, ITC Ltd, says, "We found that the bulk dry-grain sourcing could only be increased marginally once most of the area we wanted to reach was covered.

 

Hence, we decided incorporate horticulture and expand the scope of the project." The project will begin with three pilots in Maharashtra, Andhra Pradesh and Chandigarh. The first phase marked a seven-year run of grain sourcing, a total of 1.5 million tonnes of wheat, soya and other grains in Madhya Pradesh and UP by benchmarking against the market and providing farmers a higher price than the local mandi.

 

More importantly, this phase of expansion would have a greater fit with ITC's foods, exports and retail businesses. While most of the grain in the first phase was used by ITC in its then fledgling foods operations, three businesses will get the benefit of fruit and vegetables sourcing – foods, retail and exports. In foods, the Bingo brand of snackfood will require a huge quantum of potatoes, running into thousands of tonnes annually.

 

Choupal Fresh, the retail initiative which is present in all three states where ITC is piloting this project from, will receive a bulk of the fresh produce on a daily basis as will Big Bazaar and TruMart, which have entered into a sourcing contract with ITC. Besides this, ITC's exports division will require both fresh and processed fruit procured from farmers.

 

So how will ITC go about this phase of e-choupal? The first three pilot clusters for the fresh project have been set up near Chandigarh, Pune and Chandigarh. The pilots have a distinct advantage over places like Mhow, where ITC set up one its early e-choupal projects, since they are much better equipped with basic infrastructure. Linkages with the three cities are very good; all of them have an excellent road network, leading to the villages nearby.

 

In and around Pune, for instance, ITC has set up a supply chain network that ensures that the two Choupal Fresh stores receive supplies twice a day, and warehousing is kept to a minimum. ITC's trucks pick up nearly 15 tonnes of vegetables twice a day from hundreds of farmers in the region. As a result, Choupal Fresh, the retail store, gets vegetables that are harvested barely four hours ago at the farm. These are sold at a premium after ITC's insight that customers might be willing to pay more for premium and fresh products.

 

Of the Rs 5,000 crore earmarked for the entire e-choupal project by ITC, Rs 1,000 crore will go into this phase. Most of the investments, according to Mr Sivakumar, will have to be in technological inputs to farmers, and a greater investment in cold-chain and storage compared to when ITC was just sourcing grains. The company is investing in bringing in more sanchalaks and samyojaks — the former a representative of the farmer and the latter a representative of the company.

 

For horticulture, it's the samyojak who will play a dominant role since he would be the aggregator and also play a huge part in transportation. Currently the IT investments aren't significant, partly because the project is yet to scale up but also because of lower connectivity costs compared to 2001 when e-choupal had first begun.

 

A big advantage that ITC would have from this phase is the higher output per hectare in horticulture. Soya harvests don't exceed more than 1 tonne per hectare while wheat yields are 3-4 tonnes per hectare, but fruit and vegetables yield anywhere between 10-15 tonnes per hectare. So ITC's realisations per hectare would also be much higher. Of the targeted 100,000 villages in which ITC wants to extend the e-choupal project, it'll add another 40,000 villages in addition to the existing 40,000 villages that it has covered for grain sourcing. The company is attempting to keep the horticulture and grain sourcing as separate as possible.

 

But as the project scales up, there will be some overlap. ITC anticipates that nearly 10,000 villages will provide both grains and horticulture, thus covering a total of 70,000 villages, and a farmer population of nearly 4 million.

 

ITC's managers work extensively with the farmers to improve agricultural practices beyond the traditional methods. For instance, ITC has educated farmers to reduce the gap between individual potato plants in a single row so that more seeds can be sown without hampering the crop. They've also provided farmers with new iron ploughs that decrease the space between two rows by 5-6 inches while the individual plants grow without hindrance.

 

Says Hemant Gaur, head of ITC's horticulture sourcing, "These practices increase total yield from a single patch of land for the farmers, potentially running into a few tonnes per farm." There will be some teething troubles initially considering the seasonality of fruit. Mr Sivakumar admitted that they would have to get some items from Bangalore to tide over the shortages in Hyderabad for the retail part of the business.

Firm global indices indicate positive outlook

The market bias may remain positive on strong fund buying into the local market and surging international indices. However, caution should be maintained on account of the prevalence of a intra-day volatility. Among the local indices. Among the local indices, the Nifty could test 5260 on the upside and may slip to 5130 on the downside. The Sensex has a likely support at 17650 and may face resistance at 18200.

 

US indices moved marginally up despite drop in factory order, rise in weekly jobless claims and jump in oil prices. The Dow Jones gained by six points at 13974, the Nasdaq advanced by four points at 2734.

 

The Nymex light crude oil for November series advanced by $1.50 at $81.44 a barrel. In the commodity space, the Comex gold for December delivery rose by $8.10 to settle at $736.30 an ounce.

Power greed could 'shock' bears

When you doubt your power, you give power to your doubt.

 

No doubt power stocks will be in action yet again, as Power Grid Corporation of India makes its debut on the bourses today. The mini-ratna PSU major attracted huge response during its IPO, which was heavily subscribed by all class of investors. The company has set an issue price of Rs52. A premium of Rs30-40 is being talked about in the market.

 

But coming to the broader market, trading will continue to be volatile, as the signals emanating from the global markets are quite mixed. Plus, we have a whole host of events ahead of us, that could have a bearing on the market's direction going forward. A crucial meeting of the committee set up by the Government to sort out the differences with the Left parties over the Indo-US nuclear deal is taking place today. We also have meetings of both, the Federal Reserve and the RBI at the end of the month. Before that, we will have the quarterly earnings to deal with.

 

As a result, the market will remain choppy at least this month, though the bias remains positive. Avoid big-ticket purchases as of now unless one is prepared to hold on to the stock(s) for the long term. Short-term traders will face some difficulty amid high intra-day gyrations. Stay light cause Manic Mondays could give you the jitters.

 

What could add more sparkle to Power Grid debut is the fact that power generation shares like Reliance Energy, NTPC and Tata Power have been on a roll recently, on the back of announcement of a mega IPO by Reliance Power, a subsidiary of Reliance Energy. The Government appears aggressive on adding new generation capacity and these companies will power ahead. Other companies linked to the power sector like the power equipment manufacturers and turnkey contractors will also benefit from the Centre's continued thrust. So much so that UTI MF has relaunched its Petro Sector fund as UTI Energy Fund. So, watch out for some fireworks today, not only on the Power Grid counter but also in all stocks having some exposure to the red-hot sector.

 

Lanco Infratech has bagged an order worth Rs730mn from Tirupati Tirumala Devasthanams, Thirupati for Construction of Sri Venkateswara Vedic University at Alipiri, Tirupati.

 

Karnataka Bank's Board will meet today, to consider raising of capital through a preferential allotment and issue of Upper Tier 2 instruments through private placement. Separately, reports say that IFC, the private equity arm of World Bank, is likely to buy a 4-5% stake in the Mangalore-based bank.

 

Sinclairs Hotels' Board will meet on Oct. 11, to consider a preferential issue of shares and / or other instruments to promoters and strategic investors.

 

US stocks managed modest gains on Thursday, recovering from early declines, as investors remained cautious ahead of Friday's big monthly jobs report. Stocks had fallen in the morning as investors considered weak reports on the labor market and manufacturing sector. But the sentiment improved later in the day.

 

The Standard & Poor's 500 Index added 3 points or 0.2%, to 1,542.84. The Dow Jones Industrial Average increased 6 points to 13,974.31. The Nasdaq Composite Index gained 4 points, or 0.2%, to 2,733.57.

 

Market breadth was positive. On the New York Stock Exchange, winners beat losers 5 to 3 on volume of 810mn shares. On the Nasdaq, advancers topped decliners 8 to 7 on volume of 1.33bn shares.

 

In currency trading, the dollar gained versus the euro after the interest rate decision. COMEX gold for December delivery rose $8.10 to settle at $743.80 an ounce. Treasury prices inched higher, lowering the yield on the 10-year note to 4.51% from 4.56% late on Wednesday.

 

Oil prices reversed course, turning higher. US light crude for November delivery rose $1.50 to settle at $81.44 a barrel on the New York Mercantile Exchange.

 

After the close, Research in Motion reported higher quarterly earnings and revenue that beat expectations and boosted its current-quarter profit forecast. However, its shares fell more than 7% in extended-hours trading owing to profit booking.

 

Alcoa said it will sell two of its divisions and that it will restructure another one. Shares of the Dow component slipped 1% in extended-hours trading.

 

European shares ended mostly higher, as gains in the banking sector offset weakness in the mining sector. The Bank of England and European Central Bank kept interest rates on hold, as expected.

 

The pan-European Dow Jones Stoxx 600 index advanced 0.2% to 384.49. The U.K.'s FTSE 100 closed up 0.2% at 6,547.90. The French CAC-40 finished virtually flat at 5,804.39, and the German DAX 30 dipped 0.1% to 7,944.99.

 

In the emerging markets, the Bovespa in Brazil rose 0.5% to 60,407 while the IPC index in Mexico was down 0.3% at 31,078. The RTS index in Russia fell 0.1% to 2090 and the ISE National-30 index in Turkey was up 1.4% at 69,599.

 

Asian markets were trading mixed this morning. The Nikkei in Tokyo was down 28 points at 17,063 while the Hang Seng in Hong Kong surged by 566 points to 27,504. The Straits Times in Singapore gained 13 points at 3797 and the Kospi in Seoul dropped 10 points to 1993.

 

Indian stocks market indices fell from all time highs as bears finally managed to stage a small come back. Markets snapped its longest winning streak in almost four years after index heavyweights like ICICI Bank, HDFC and ONGC witnessed selling pressure. Further, IT stocks were yet again under pressure after rupee appreciated to the strongest in more than nine years.

 

Despite, weak cues from the International markets, benchmark index managed to recoup almost 280 points towards the end on back of gains in the Metal and Capital Good stocks.

 

Finally, BSE 30-share benchmark Sensex ended 111 points lower to close at 17,735. NSE Nifty ended flat to close at 5,208.

 

Exide Industries edged higher by 0.7% to Rs67 after the company announced that they would invest Rs250mn in local Smelter. The scrip touched an intra-day high of Rs67 and a low of Rs65 and recorded volumes of over 2,00,000 shares on NSE.

 

EKC slipped by 1.8% to Rs242. The company announced that they have planned to sell shares worth Rs 1bn. The scrip touched an intra-day high of Rs251 and a low of Rs239 and recorded volumes of over 3,00,000 shares on NSE.

 

Dabur India advanced 1.6% to Rs109 after reports stated that the company would announce entry in to new business segment. The scrip touched an intra-day high of Rs113 and a low of Rs106 and recorded volumes of over 1,00,00,000 shares on NSE.

 

Ranbaxy marginally gained by 0.7% to Rs442 after the company declared they acquired approval to sell Clarithromycin for Oral Suspension. The scrip touched an intra-day high of Rs449 and a low of Rs436 and recorded volumes of over 16,00,000 shares on NSE.

 

I-Flex advanced by 1% to Rs1909 after the company announced that they would invest Rs100mn in I-Flex Processing Services. The scrip touched an intra-day high of Rs1947 and a low of Rs1880 and recorded volumes of over 68,000 shares on NSE.

 

Educomp Solutions slipped 2.1% to Rs2902. The company announced that they are in accord with Singapore's Raffels Institution. The scrip touched an intra-day high of Rs2979 and a low of Rs2855 and recorded volumes of over 81,000 shares on NSE.

 

Banking stocks were on the receiving end on back of selling pressure in the index heavy weight, ICICI Bank, the scrip declined 1.7% to Rs1068, HDFC bank was down by 1% to Rs1409 and SBI edged lower by 0.3% to Rs1905. OBC Corp bank and Canara Bank were the major losers among the Mid-Cap stocks.

 

Capital Good stocks ended on a firm note. BHEL gained 1% to Rs2091, Siemens surged over 3.5% to Rs1423 and Punj Lloyd added 0.3% to Rs321.

 

IT stocks were under pressure after rupee rose to the strongest in more than nine years. Wipro was down by 1.8% to Rs462, Infosys edged lower by 0.3% to Rs1998 and NIIT Technology dropped over 8% to Rs135.

 

Metal stocks were shinning brightly. Frontline stock Tata Steel advanced 3% to Rs865, Bhushan Steel was up by 2% to Rs940, Jindal Steel surged by over 17% to Rs6291 and JSW Steel spurred by over 5% to Rs911.

 

Reliance Power plans to offer 5% to an overseas power utility or a private equity fund in addition to selling 10% through an IPO.

 

The DoT has allocates additional spectrum to BSNL for GSM mobile services in 17 circles.

 

DLF is in talks with private equity firms for raising Rs20bn.

 

Reliance Industries may join GAIL and HPCL to set up a mega 1mtpa petrochemical complex in Visakhapatnam.

 

Parsvnath Developers is in talks with global financial investors for divesting equity in its SEZ projects.

 

International Financial Corporation (IFC) is likely to pick up 4-5% in Karnataka Bank.

 

Tata Motors' next generation versions of Indica, Indigo and Sumo will hit market in 2008.

 

JSW Energy close to acquiring coal mines in Australia and Indonesia.

 

Hindustan Motors has earmarked Rs2.95bn for upgrading its Uttarapara plant which makes the Ambassador.

 

The West Bengal Government has signed a MoA with Videocon Industries and Jai Balaji Industries for setting up steel and power capacities with investments worth Rs310bn.

 

Kingfisher Airlines expects to break-even by the first half of FY09.

 

GoAir has scaled down expansion plans and plan an IPO or stake sale upto 26% by 2009.

 

The RBI has increased the limit for bond issuances under MSS from Rs1,500bn to Rs2,000bn for the current fiscal.

 

The TRAI introduces a cap of Rs5 per pay channel in monthly cable bills for cable TV homes in non-CAS areas.

 

The RBI has asked banks not to dispose off NPAs at prices below the value of the securities available.

 

The Government may relax ECB norms for infrastructure sector.

 

Rainfall in June-September 2007 has been 5% above normal.

 

Fund Activity:

 

FIIs were net buyers of Rs4.57bn (provisional) in the cash segment on Thursday while the local institutions pulled out Rs6.64bn. In the F&O segment, foreign funds were net sellers at Rs19.55bn.

 

On Wednesday, FIIs were net buyers to the tune of Rs31.62bn in the cash segment. With this, the net investment by overseas investors in the past 10 days has touched US$4.87bn.

 

Major Bulk Deals:

 

HSBC Financial has bought Bihar Tubes and Nitco Tiles; Fidelity has purchased CESC while Reliance Capital has sold it; Merrill Lynch has picked up Parekh Aluminum; UBS has purchased Pioneer Investcorp; Sundaram MF has sold Spanco Telesystems; DSP Merrill Lynch has sold Sparsh BPO.

 

Upper Circuit:

 

RIIL, Bag Films, AMD Metplast, Victoria Mills, Jai Corp, Dhanlakshmi Bank and IID Forgings.

 

Lower Circuit:

 

Malu Paper, KEI Industries and Swan Mills.