Market rebounds, scales above 16,150

The market witnessed a dramatic turnaround in early noon trades, as a change of guard from lower levels helped the index scale above 16,150 at close and clock gains of more than 340 points after the second session of the trading. The Sensex in the first half however traded exactly the opposite of what it did in the second half. It resumed 114 points lower at 15,694 and shed another 121 points to slip below the 15,600 mark and touch the day's low of 15,573 amid weak US and Asian markets. While the market languished in negative territory and was on a recovery mode thereafter, the index rolled back into green in noon trades and surged to an intra-day high of 16,249 on fresh buoyancy in heavyweights, IT, Technology and health care stocks. The Sensex finally signed off the session with gains of 2.19% or 346 points at 16,154, while the Nifty advanced 2.13% or 102 points to close at 4,880.

The market breadth was positive. Of the 2,709 stocks traded on the BSE (Bombay Stock Exchange), 1,789 stocks advanced, 872 stocks declined and 48 stocks ended unchanged. Out of 13 sectoral indices, all indices ended higher. The BSE IT index scaled up by 5.55% followed by the BSE Teck index (up 4.08%), the BSE HC index (up 3.32%) and the BSE CD index (up 2.78%). However, the BSE Auto and the BSE Metal index ended with marginal gains.

Heavyweights spurred the late rally and notched up significant gains. Ranbaxy Laboratories soared 8.62% at Rs481.80, TCS advanced 7.37% at Rs975.10, Infosys added 6.21% at Rs1,510.80, Reliance Communications scaled up 5.38% at Rs519.80, Wipro rose 4.52% at Rs424.65 and HUL jumped 4.36% at Rs245.40. Satyam Computer, DLF, NTPC, ONGC, ICICI Bank, RIL, Cipla and Jaiprakash Associates gained over 2% each. Among the laggards Hindalco dropped 1.59% at Rs173.55, HDFC Bank lost 0.95% at Rs1,315.25, Ambuja Cement declined by 0.89% at Rs116.55, HDFC was marginally down at Rs1,264 and ACC lost 0.24% at Rs810.65.

IT stocks registered strong gains in the late rally. Mphasis advanced 7.10% at Rs226.95, HCL Technology gained 6.78% at Rs245.80. Patni Computers, I-Flex, Tech Mahindra, Rolta India and NIIT were up over 3% each. Among the Teck stocks Zee News, HFCL, WWIL, Adlabs Films, Deecan, Aptech, flared up over 1.7% each.

Over 2.27 crore RNRL shares changed hands on the BSE followed by Orchid Chemical (1.65 crore shares), RPL (1.59 crore shares), Sita Shree Food Products (1.42 crore shares) and BL Kashyap (1.33 crore shares).

Orchid Chemicals was the most actively traded counter on the BSE with a turnover of Rs453 crore followed by RIL (Rs373 crore), RPL (Rs299 crore), RNRL (Rs233 crore) and Reliance Capital (Rs196 crore).

Sensex vaults 346 points as Infy exudes confidence about future outlook

The battered stock market found a solace in IT bellwether Infosys Technologies' good future outlook. That triggered a broad-based rally in IT stocks. Healthcare and oil & gas stocks marched ahead as well. Ranbaxy Laboratories was the top gainer from the Sensex pack.

The 30-share BSE Sensex rose 346.02 points or 2.19% at 16,153.66. The index gained 441.82 points at session's high of 16,249.46, hit in mid-afternoon trade. The Sensex slipped 234.61 points at day's low of 15,573.03, hit in early trade.

The S&P CNX Nifty was up 101.85 points or 2.13% at 4879.65. Nifty April 2008 futures were at 4914.90, at a premium of 35.25 points as compared to spot closing of 4879.65.

The BSE Mid-Cap index underperformed the Sensex, gaining 1.24% at 6,604.42. The BSE Small-Cap index underperformed the Sensex, gaining 1.52% at 8,204.39.

The market breadth was strong: on BSE, 1784 stocks gained, 875 stocks declined and 50 stocks were unchanged.

BSE clocked a turnover of Rs 5827 crore as against the turover of Rs 5,586.86 crore on Friday, 11 April 2008.

The NSE's futures & options (F&O) segment turnover was Rs 46369.75 crore, which was higher than Rs 41003.92 crore on Friday, 11 April 2008.

India's second largest software exporter by sales Infosys Technologies rose 6.21% at Rs 1510.75. At the time of announcing Q4 March 2008 results, Infosys management today said there are significant growth opportunities for the company in the medium to long term. The company, however, may face short-term challenges due to global economic uncertainties. Another major booster for the counter was the company's announcement that it has decided to increase the dividend payout ratio to up to 30% of net profits from the current year from 20% thus far

Infosys has given guidance of a between 16.3% to 18.3% growth in earnings per share (EPS) to between Rs 92.32 to Rs 93.92 for the year ending March 2009 over the year ending March 2008. It has given guidance of a between 19.2% to 21.1% growth in revenue to between Rs 19894 crore to Rs 20214 crore for the year ending March 2009 over the year ending March 2008

As per US GAAP, Infosys has given guidance of a 16.7% to 18.7% growth in earnings per American Depository Shares at between $2.31 to $2.35 for the year ending March 2009 over the year ending March 2008. It has given guidance of a between 19% to 21% growth in revenue as per US GAAP to between $4.97 billion to $5.05 billion for the year ending March 2009 over the year ending March 2008

Infosys reported 1.46% rise in consolidated net profit to Rs 1249 crore on a 6.34% growth in revenue to Rs 4542 crore in Q4 March 2008 over Q3 December 2007.

Infosys' strong outlook comes at a time when there has been a gloom surrounding India Inc's earnings due to mark-to-market losses on forex derivatives, rise in input costs and due to concerns about delays in project execution for the capital goods sector.

A steep decline in the value of the US dollar against the Japanese Yen and the Swiss Franc hit Indian corporates which have used these two currencies (Yen and Franc) extensively to swap their rupee denominated debt. As per estimates by a domestic brokerage, the mark-to-market losses of corporate India under forex derivatives could be around $4 billion.

The BSE IT index outperformed the Sensex, gaining 5.55% to 3,862.48. TCS (up 7.37% at Rs 975.10), Mphasis (up 7.10% at Rs 226.95), HCL Technologies (up 6.78% at Rs 245.80), Wipro (up 4.52% at Rs 424.65), and Satyam Computer (up 4.35% at Rs 452.05), soared.

The BSE Healthcare index outperformed the Sensex, gaining 3.32% to 4,049.35. Orchid Chemicals & Pharmaceuticals (up 16.50% at Rs 288.10), Glenmark Pharmaceuticals (up 5.97% at Rs 533.80), Wockhardt (up 5.38% at Rs 299.90), Bilcare (up 4.81% at Rs 950.35) and Dr Reddy's Pharmaceuticals (up 4.22% at Rs 615.95), moved up.

India's largest drug maker by sales Ranbaxy Laboratories surged 8.62% to Rs 481.80 after the company said Anglo-Swedish drugmaker AstraZeneca had settled US patent litigation against the company over its top-selling drug, ulcer pill Nexium.

The BSE Oil & Gas index outperformed the Sensex, gaining 2.77% to 11,333.93. Essar Oil (up 8.65% at Rs 261.95), Reliance Natural Resources (up 6.61% at Rs 105.70), Reliance Petroleum (up 4.31% at Rs 189.80), BPCL (up 3.84% at Rs 408.50) and ONGC (up 2.45% at Rs 1,024.80), soared.

India's largest private sector firm by market capitalization and oil refiner Reliance Industries rose 2.30% at Rs 2608.80.

The BSE Bankex underperformed the Sensex, gaining 1.28% to 8,002.40. Kotak Mahindra Bank (up 5.97% at Rs 677), Union Bank (up 2.85% at Rs 155), Punjab National Bank (up 2.27% at Rs 519.45), Axis Bank (up 1.73% at Rs 774.90) and State Bank of India (up 0.55% at Rs 1,677.05), flared up.

India's largest private sector bank by assets ICICI Bank rose 2.34% at Rs 806.90.

New age lender Yes Bank rose 3.39% at Rs 166.25 on reports the bank plans to raise $300 million (about Rs 1,200 crore) by December for its expansion plans.

Brokerage firm Motilal Oswal Financial Services soared 4% at Rs 683.80 after the firm said its board will meet on 21 April 2008 to consider the subdivision (split) of the equity shares of the company.

Automobile tyres maker JK Tyre & Industries spurted 4.34% at Rs 121.40 after the firm on Friday, 11 April 2008 announced the acquisition of a $200 million Mexican tyre-producing company Tornel for Rs 270 crore.

Anil Dhirubhai Ambani-controlled Reliance Power moved up 6.37% at Rs 384.35 after the Reserve Bank of India (RBI) reportedly approved a proposal by the company to raise $2 billion (about Rs 8,000 crore) for its Sasan ultra mega power project.

Bhagyanagar India, which makes non-ferrous metal products, surged 16.71% to Rs 45.75 after the company said it has scheduled a board meet on 22 April 2008 to consider buy back of equity shares.

Cement maker Grasim Industries rose 0.11% to Rs 2553.45 after the company said it has increased its stake from 25% to 45% in AV Cell Inc, a joint venture company in Canada for a total consideration of around Canadian dollar 6 million.

Orchid Chemicals & Pharmaceuticals clocked the highest turnover of Rs 453.41 crore on BSE. Reliance Industries (Rs 373.44 crore), Reliance Petroleum (Rs 299.24 crore), Reliance Natural Resources (Rs 233.98 crore) and Reliance Capital (Rs 196.31 crore), these were the turnover toppers on BSE in that order.

Reliance Natural Resources reported the highest volume of 2.27 crore shares on BSE. Orchid Chemicals & Pharmaceuticals (1.65 crore shares), Reliance Petroleum (1.59 crore shares), Sita Shree Food Products (1.42 crore shares) and Kaashyap Technologies (1.33 crore shares), these were the volume toppers on BSE in that order.

Asian markets, which were mixed earlier, were mostly in green. Key indices in China, Hong Kong, Japan, Singapore, and Taiwan were up by between 0.36% to 1.57%. However, South Korea's Seoul Composite index was down 0.26%. European markets, which opened higher, however, slipped into red after positive start. Key indices in Germany and France were down 0.04% to 0.12%. However, UK's FTSE 100 was up 0.86%.

US markets slipped yesterday, 14 April 2008, after Wachovia declared an unexpected first quarter loss. On the other hand, a US government report declared better-than-expected growth in retail sales. The Dow Jones industrial average slipped 23.36 points, or 0.19%, to 12,302.06. The S&P 500 index was down 4.51 points, or 0.34%, to 1,328.32, and the Nasdaq Composite index dropped 14.42 points, or 0.63%, to 2,275.82. US markets had suffered sharp losses on Friday, 11 April 2008.

Besides concerns about corporate earnings, moderation in economic growth, prospects of further rise in interest rates and fears of funding crunch for some corporates amid credit crisis in the United States, spooked the Indian market in the past three months. Fears of redemption pressure for mutual funds following steep market fall looms large on the bourses.

Sensex has gained 1344.17 points or 9.07% from a low of 14,809.49 on 17 March 2008. It is off 5,053.11 points or 23.82% from a record high of 21206.77 hit on 10 January 2008.

Infosys guidance to dictate trend

The key event to watch out for in the coming week is the IT bellwether Infosys Technologies' Q4 March 2008 earnings on 15 April 2008. A depreciation of the rupee against the dollar is likely to drive good results from the IT sector on a sequential basis in Q4 March 2008 over Q3 December 2007, though the focus here is on guidance for the year ending March 2009.

Volumes may take a hit in the forthcoming week due to holidays. The market remains closed on Monday, 14 April 2008 on account of Dr. Babasaheb Ambedkar Jayanti and on Friday, 18 April 2008 on account of Mahavir Jayanti.

Q4 March 2008 results of India Inc. will dictate the near term trend on the bourses. Analysts will be closely watching what the company managements have to say about the outlook for the year ending March 2009 (FY 2009). Analysts will also scrutinize disclosures that companies may make regarding foreign exchange derivatives products that they have bought on the advice of their bankers. A steep decline in the value of the US dollar against the Japanese Yen and the Swiss Franc hit Indian corporates which have used these two currencies (Yen and Franc) extensively to swap their rupee denominated debt.

Morgan Stanley expects 23% growth in net earnings of 104 out of 108 firms in its Indian coverage universe in Q4 March 2008 over Q4 March 2007.

Prospects of further outflow by foreign funds to offset losses incurred by them in the US sub-prime mortgage market continue to weight on the market sentiment. In the calendar year so far, FIIs sold shares worth a net Rs 11455.60 crore (till 9 April 2008), to offset their huge losses in the US sub-prime mortgage market. Mutual funds were net sellers to the tune of Rs 379.80 crore in the month of April 2008 (till 9 April 2008).

The wholesale price index rose 7.41% in 12 months to 29 March 2008, accelerating from the previous week's annual rise of 7%, government data showed on Friday, 11 April 2008, sparking concerns that the Reserve Bank of India may tighten monetary policy. The rate is the highest reading since 13 November 2004 when it was 7.68%. The annual inflation rate was 5.94% during the corresponding week of the previous year.

India's industrial output (IIP) rose 8.6% in February 2008 from a year earlier, rising from the previous month's upwardly revised 5.8% growth, data showed on Friday, 11 April 2008

GSPL

The Gujarat State Petronet Ltd. (GSPL) stock has been very active in the last couple of weeks. It has gained about 20 per cent from the low of Rs 51 that it touched on March 19 even as other mid-cap stocks are languishing.

The stock had earlier undergone a drastic correction, halving in value from its high of Rs 109, registered in January, before the recovery over the last two weeks. At the current market price of Rs 63, the stock can be bought by investors willing to wait for returns over the medium term.

GSPL has a focussed business model as a transporter of natural gas in Gujarat without any exposure to commodity price risk. It is well-positioned in the Gujarat gas market with its pipelines connecting gas sources to existing and developing markets. GSPL is also venturing into city gas distribution through investment in group companies engaged in the lucrative and growing business.

However, the investment in rapid expansion of pipeline network is beginning to show up on the company's financials.

Rising interest cost and depreciation charge are exerting pressure on profit growth. Besides, the regulatory policy on pipeline transportation and city gas distribution is evolving and is a risk to be taken note of.

Right place, right time


GSPL is fortunate to be in the right place at the right time. The mature gas market of Gujarat is set to witness all the action when Reliance Industries starts pumping out its KG Basin gas later this year. The company now transports about 18 million metric standard cubic metres of gas a day (MMSCMD) but this will double with volumes from just two contracts.

GSPL has signed a 15-year agreement with Reliance to transport 11 MMSCMD and another one with Torrent Power to transport 4.5 MMSCMD for 20 years. The long-term agreements lend visibility on usage of capacity and on revenues.

Supply of regasified LNG (liquefied natural gas) is also set to increase in a significant manner adding to transportation volumes for GSPL. Petronet LNG and Shell are expanding the capacity of their LNG regasification plants while BG India is planning to use Shell and Petronet's terminals to bring in LNG on a spot basis.

GSPL's existing pipeline network of 1,130 km will double in the next two years if the company's expansion plans are implemented on time.

Importantly, they will connect high consumption, industrial areas of the State such as Morbi, Vapi, Pipavav and Mundra with gas sources or intermediate tap-off points of cross-country pipelines.

The company's revenue model offers visibility over the long-term. GSPL's transmission contracts are on a "take-or-pay" basis which means that the user has to pay a fixed charge if he fails to transport gas during the contract period.

Diversification


GSPL has picked up strategic stakes in group companies — GSPC Gas, Sabarmati Gas and Krishna Godavari Gas Network Ltd — that are setting up city gas businesses in Gujarat and Andhra Pradesh. City gas distribution, which includes supply of compressed natural gas for automobiles, will be a natural diversification for GSPL from its transportation business.

In the medium to long-term, the company also plans to venture beyond Gujarat into neighbouring States such as Rajasthan and Maharashtra to set up pipeline networks. Given the interests of its parent, GSPC, in the KG Basin where it has struck gas, a foray into Andhra Pradesh is also not ruled out.

Bottomline growth pangs


Though GSPL's profit at the operating level is impressive, the company has posted a decline in net profits over the last few quarters. This is because of a rapid rise in interest cost and depreciation charge.

For instance, in the third quarter ended December 2007, interest cost doubled to Rs 20 crore following a similar trend in the previous quarter. Interest cost was higher by a third in the first nine months of 2007-08 compared to the whole of 2006-07.

Similarly, depreciation charges are also rising as the company capitalises its new pipelines. This trend is unlikely to reverse in the near term because GSPL is still in the investment phase. However, the higher charges should be absorbed comfortably as gas transportation volumes rise over the next few quarters.

Investors can buy the stock with a medium-term perspective

Aegis Logistics

Investors can consider buying the stock of Aegis Logistics, which offers a unique exposure to the growing business of liquid logistics and auto gas retailing.

The company appears well placed to capitalise on these opportunities, given its established business presence and well-timed expansion strategies; it proposes to ramp up its autogas retail presence and liquid logistics capacity significantly.

Strong fundamentals notwithstanding, the recent market sell-off has seen the stock price fall considerably, rendering its valuations attractive.

At the current market price of Rs 210, the stock is available at about eight times its likely FY-09 per share earnings. This offers a good entry point into the stock for long-term investors.

Business


Aegis Logistics has a presence across two business segments — liquid logistics and gas. The liquid logistics segment provides supply chain services to importers and exporters of petroleum products and chemicals.

The gas division, on the other hand, imports, markets and distributes bulk propane and liquefied petroleum gas (LPG) to a variety of industrial customers and sells autogas through retail outlets.

While Aegis' liquid logistics division may benefit considerably from the increased need for oil and gas logistics solutions, its autogas retailing business may attain critical mass sooner than expected.

Any hike in domestic petrol price in the future may only hasten the penetration of autogas usage given its favourable cost economics.

Capacity expansion


The company has embarked on an expansion drive to augment its presence in both segments. Its Mumbai operations added capacity of over 75,000 kl to its existing 162,000 kl after it acquired Sealord Containers in September 2007.

Further capacity will be added when Aegis' third Mumbai terminal becomes operational (expected to commence operations by FY-10). Besides this, Aegis has a presence in Kochi. Currently, the company is looking at expanding presence across cities.

It has acquired land in Haldia and Mangalore and plans to set up facilities there (likely to become operational by FY-11). An expansion of Aegis' geographical footprint will help it improve the scope of its existing operations.

Aegis also proposes to aggressively ramp up its autogas retailing presence. From over 27 outlets in December 2007, the company plans to increase the number to 100 by FY-09. The management seeks to achieve this using a predominantly franchise-based model.

The autogas dealers, under the franchise model, will be provided with a fixed margin and will be able to sell gas at the same price as oil marketing companies.

This way, Aegis would be able to accelerate its network expansion even as it limits additional capital expenditure. The franchise model may not require Aegis to provide for significant incremental investments.

Aegis recently acquired Hindustan Aegis LPG (HALPG), which owns two refrigerated gas tanks of 20,000 tonnes capacities each. It has issued 36 lakh new shares to the shareholders of HALPG and will assume a debt of about Rs 30 crore. With this acquisition, the company appears to have circumvented its gas storage capacity constraints, which could have limited its expansion plans for the autogas retailing segment.

Results


For the quarter ended December 2007, helped by the addition of capacities, Aegis reported a 73 per cent increase in earnings on the back of a 40 per cent growth in revenues. This was driven by a 1.7 percentage point expansion in operating margins to about 14.2 per cent.

However, since the company's revenue model is volume-driven and may not be able to sustain any price hikes, margins may not see any drastic improvement.

Considerable growth in volumes handled, however, may offset this. In terms of risk, delays in the rollout of expansion plans and waning of demand for LPG may affect the company's earnings negatively.