Weekly Newsletter

Absolutely speaking...Fourth largest fall for the Sensex
The global meltdown saw Indian shares recording its fourth biggest fall in absolute terms on Friday. In case you need comfort, in percentage terms, the fall ranks much lower at 64. Concerns that a worsening US housing market may curb growth in the US market triggered a sell-off among most global markets. Sectoral indices were all in the red. The biggest losers were realty, oil & gas and capital goods.

After falling to a low 15,159.68 points, The Sensex closed 542 points lower at 15,234.57 while the Nifty ended 175 points down at 4445.20.

Select stocks managed to shine. ITC, Ranbaxy Laboratories and Ambuja Cements were the Sensex gainers. Losers on the Sensex included Tata Steel (down 7.37 per cent), BHEL (4.74 per cent), Reliance Communications (4.70 per cent), Hindalco (4.62 per cent) and HDFC Bank (4.43 per cent).

Declines on the BSE stood at 1,951 while advances were at 570. On the NSE declines were at 993 while advances stood at 143.

Following is a list of the Top 5 falls for the Sensex

1. May 18, 2006: Sensex fell by 826 points (6.76 per cent) to close at 11,391.
2. April 28, 1992: Sensex fell 570 points (12.77 per cent) to close at 3,870. This was due to the Harshad Mehta scam.
3. May 17, 2004: Sensex fell 565 points, its third biggest fall ever, to close at 4,505. Ruling NDA government lost power. Trading was suspended as the Sensex hit the lower circuit twice before regaining some ground at close.
4. July 27, 2007: Sensex fell 542 points to close at 15,234.57. Global meltdown following fears of US housing market slump.
5. May 15, 2006: The market fell by 463 points to 11,822 points.

Auto…A billion dollar acquisitions club in sight

There is no official word regarding Tata Motor's planned bid for Ford's marquee British brands - Jaguar and Land Rover. The question may well get answered when Tata Motors meets the media on Tuesday to announce their results. In fact, the other short-listed Indian candidate for the deal is Mahindra & Mahindra (M&M). Earlier, reports had stated that two Indian companies (Tata Motors and M&M) would be competing with several private equity firms like TPG Capital, Cerberus Capital Management, Ripplewood Holdings and One Equity Partners for purchasing Jaguar and Land Rover from Ford.

And to add to the auto buzz in India, reports say French carmaker Renault is in talks with two-wheeler major Bajaj Auto for a possible project to build economy vehicles costing around $3,000. The alliance will set up new platform at a new site. The cars and goods carriers made would be sold in India as well as abroad.

"Merger & acquisition (M&A) deals in the sector worth more than $515mn from 17 deals so far this year is almost equal to the value and volume of deals done by the sector in the whole of last year." said Bundeep Singh Rangar, Chairman, IndusView Advisors, the India-focused cross-border advisory firm. "Between Tata Motors and Mahindra & Mahindra, whoever walks away with the deal, the moment will be historic as it will mark the automotive sector's entry into the elite billion dollar acquisitions club." said Rangar

The other reason why this deal will be significant is that it will further reinforce the prominence of the Indo-U.K. merger & acquisitions deal activity which has already seen the country's two of the largest deals - the acquisition of Hutchison Essar Ltd India's second largest GSM mobile service provider by the U.K.'s Vodafone Group Plc and the acquisition of the U.K.'s largest steel maker Corus Group Plc by India's Tata Steel Ltd.

Aspirations have seen over 5,000 luxury cars added to the Indian roads in 2006, up from 3,000 in 2005 and just 1,000 in 2004, according to estimates. It's just a matter of time, expect the global luxury car brands Volkswagen, Lamborghini, Rolls Royce Phantom, Bentley, Porsche, Aston Martin and Ferrari roll out their India plans in full steam.

And all fall down!

Are you lost or incomplete?
Do you feel like a puzzle, you can't find your missing piece?

Wall Street came crumbling down after long. US stocks fell on signs of further weakness in the housing sector. The domino effect came into play into the Asian as well as European Marekts with most of the Asian markets closing deep in the red. Habit of staging a record close almost everyday, finally took a toll on the bulls as they appear to be lost at the peaks on Dalal Street.

Bulls across the globe fell in a heap as Bears struck back in style dragging the key indices lower for the first time in last six weeks. China's stock market was a survivor in the global carnage and gained around 7% for the week. After May's record high , the government hiked the stock trading tax to cool speculation, causing shares to plunge. But better-than-expected corporate profits announced in recent days have reignited the bull run.

Key Indices in India fell the most in four months on concerns that U.S. housing slump will slow growth i the world's biggest economy and prompt investors to shun riskier assets. Tata Steel, Grasim,Gujarat Ambuja Cement and Hindalco were among the major losers for the week dragging the BSE 30-share Sensex down by 330 points or 2.1% to close at 15235. NSE Nifty fell 121 points or 2.6% to close at 4445.

Unwinding of positions on account of F&O expiry, turmoil in global equity markets, profit booking and jitters ahead of the RBI meet on credit policy spoiled the game for the bulls. Though, the rates are expected the stay unchanged, RBI has often in the past has thrown up plenty of surprises.

Selling was seen in Cement, Banking, Metal, Mid-Cap, Auto and Capital Good stocks. While FMCG stocks bucked the negative trend led by gains in ITC and HLL. While some stability returned in the technology stocks after the Indian Rupee fell from its nine year high of 40.19.

Cement companies were under pressure amid news reports that trade practices regulator MRTPC has ordered an investigation into an alleged price cartelisation by top 14 cement manufacturers. Cement socks also were badly beaten up frontline stock ACC lost over 10% to Rs990, Gujarat Ambuja declinwed over 7% to Rs125, Grasim lost over 5% to Rs2849 and Mangalam Cement slipped 5% to Rs163.

Some action was seen in Technology stocks, as Rupee ended its six weeks of gain after the stocks on the bourses tumbled sharply over the week. Indian Rupee fell 0.5% to 40.53 against the Dollar. Infosys was in the limelight after the company won a seven-year, US$250mn contract from Philips. Finally the scrip added 1% over the week. However, other IT stocks didn't fared well, Wipro lost over 2.2% to Rs493, TCS was down by 2% to Rs153.

Drop in prices on metal prices on LME dragged the metal stocks lower on Dalal Street. Tata Steel, SAIL and JSW Steel were among the major losers within the metal pack. Index Heavyweight Tata Steel plunged by over 9.5% to Rs647, the scrip was the second biggest loser among the 30-scrip's of Sensex, SAIL was also down by over 5.5% to Rs147 and Jindal Steel lost 0.2% to Rs3892.

ITC stood firm amid volatile week on expectations that strong Q1 growth in cigarettes sales will continue to drive the profits. ITC posted Q1 profit at Rs7.83bn (up 20%) and sales at Rs33.25bn (up 16.6%), above our expectations. ITC rose 5.4% during the week and was the top gainer among the 30-scrips of Sensex and Hindustan Unilever rose over 1.3% to Rs196. HUL was in the limelight after the company announced last week that the company is considering a buyback later this month. On Sunday, HUL will announce its half yearly financial results.

Profit booking was seen in Capital Good stocks. After a terrific run up in last couple of weeks, we saw some cooling off, as investors judged the current rally as excessive. L&T was among the top loser, the scrip lost over 2% to Rs2424, Siemens dropped over 4.3% to Rs1285 and Punj Lloyd fell by 2.5% to Rs265.

Having good cards is not enough. You should know to play them well.

The crash has finally come and as expected it was more to do with the global meltdown. Could Friday be termed as signs for things to come? Bulls and bears will have a lot of pondering to do over the weekend. But again a lot depends on global factors which are to an extent beyond our control. Investors will closely watch the developments of the RBI's meet on Tuesday. Though indices took a severe beating on Friday, concerns on valuations will continue.

Expectations of a quick 1000 point gain to 16K may have died down for the time being. In fact, today's fall suggest that market could fall below the 15K level briefly before staging a bounceback. The FII activity will be of utmost importance. Any pipe-burst in the FII flow could temporarily put the brakes on the march upwards. In times like these, earnings momentum and any positive development may be ignored by the markets. During the run-up, most negative news were also ignored.

The indices could well stage a smart bounce back on Monday. Only another global meltdown can keep the bears in control. Among the major firms announcing their earnings next week include, BEML, BHEL, Easun Reyrolle, HPCL, i-Flex, GE Ship, IB Real Esate, Hindalco, Tata Motors, Jet Airways, Nagarjuna Const, Tata Steel, Unitech, FT, and SUN TV. Market players will closely watch RIL earnings on Saturday and HUL's numbers expected on Sunday evening. India Infoline estimates RIL PAT to be up by 12.8% to Rs29.1bn and Net sales to be up 12.3% to Rs275bn.

Just yesterday, 23-year-old Shivani Singh was basking in the glow of a dividend cheque worth Rs 1,000 from her mutual fund investment. That the additional income was tax-free added to the joy she felt about investing smartly. But the joy turned into a worry overnight after the morning papers showed that the net asset value (NAV) of her mutual fund was now lower than the price at which she bought the scheme. After calling her fund agent, she came to know that since NAVs of all schemes fell after they issued dividends, there was no cause for concern. But that did not convince her as she believed that something was amiss.

Ms Singh is not alone. Many first-time investors like her don't realise that receiving dividends from mutual funds is unlike receiving the same from shares. In the case of mutual funds, part of the investment is actually paid back as the dividend, resulting in a reduction of the pre-dividend value of the investment.

The truth is that people like Ms Singh must understand various mutual fund scheme options, before trusting blindly on agents. Here are some simple questions, which new investors would do well to ask before they chose a dividend or growth scheme.

How is a dividend scheme different from a growth scheme?
Mutual funds generally provide their investors an option to invest their money either in a growth scheme or a dividend scheme. Dividend schemes are further classified as dividend payout and dividend reinvestment schemes. However, investing in dividend schemes does not imply that the mutual fund would distribute its share of profit as dividends. Getting a share of the profit has always been the privilege of shareholders. In case of mutual funds, those investing in the units are mere buyers of a financial product sold by the fund house. Investors gain only if the value of the stocks held by the fund appreciates over a period of time.

Dividend payout & dividend re-investment scheme
Since mutual fund dividend is nothing but the part payment of the investor's money back to him, its NAV deflates to the same extent as and when the fund pays dividend. That is the reason why the NAV of the dividend scheme is always lower compared with the NAV of the growth scheme of the same fund.

Dividend payout scheme
Say you have invested Rs 10,000 in a fund where a unit of face value Rs 10 is currently quoting at a NAV of Rs 40. This would give you 250 units in the fund. Let's say in six months, the NAV becomes Rs 50 and your investment is now worth Rs 12,500. Now, if the fund declares a dividend of 20% on face value, you would end up getting Rs 500 (250 units * Rs 2) as dividend. But post-dividend, the NAV will decline proportionately to Rs 48/- per unit. If you sell all your units now, you will receive Rs 12,000 (250 units * Rs 48). Thus, the total return in your hands would add up to same sum of Rs 12,500/- (Rs 12,000 + Rs 500).

Dividend reinvestment
Under this option, the fund does not repay the dividend to investors. Instead, the dividend is used to purchase additional units of the fund at the NAV arrived at after the declaration of dividend. To continue with the above example, the NAV of the fund declines to Rs 48 post-dividend. However, since you have opted for reinvestment of dividend, the dividend amount of Rs 500/- shall be used by the fund to allocate additional 10.42 units (Rs 500 divided by Rs 48) to you. The total number of units that you would now have would be 260.42 (250 units+10.42 units). Redemption of these units at the revised NAV of Rs 48/- would again end up giving the same returns of Rs 12,500 (260.42 units * Rs 48).

What is a growth option?
In this case, the earnings are ploughed back into the fund rather than distributing it to the investors. You can encash the profits only at the time of redemption. Unlike the dividend reinvestment option, the number of units will also remain constant throughout the period of investment. However, the NAV of the fund would always be higher vis-?-vis the other two options, thereby ensuring that you get the same returns as your peers from the other two options. In this example, as the NAV went up from Rs 40 to Rs 50 per unit, you would get Rs 12,500 (250 units * Rs 50) if redeemed at this price, thereby booking a profit of Rs 2,500. If you stay invested, the NAV would either increase or decrease from the level of Rs 50/-.

So when do I opt for a growth scheme and when for a dividend?
If you are sitting on idle cash and looking for a long-term investment option, then go for a growth scheme. But if you are looking for a steady cash flow and cannot afford to tie up your money for long, dividend payout is the one to opt for.

It has been proven empirically that in the long run, markets don't disappoint despite the fluctuations in the short run. This, however, is for investors who are willing to stay invested for at least five years.

However, if you are looking for a steady cash flow and cannot afford to tie up your money for a long time, the dividend payout is the one to opt for. Just remember though that declaring dividends is always the prerogative of the fund house and investment in mutual funds does not carry a guarantee card for periodic dividends.

Global fall triggers correction

The market was gripped with intense selling pressure throughout the day's trading session, following sharp fall in US and Asian stocks. There was bloodbath on the street with all most sectoral indices on BSE posting sharp losses. Despite the sharp fall, the turnover was very high today, 27 July 2007.

All the Asian markets settled with sharp losses while most European markets were trading weak.

The BSE 30-share Sensex plunged 541.74-point, or 3.4%, to 15,234.57, its biggest rout in a single trading session in nearly four months. The Sensex had tumbled 617 points on 2 April 2007 following the Reserve Bank of India (RBI)'s surprise hike in interest rates announced after trading hours on 30 March 2007.

Sensex opened lower today, 27 July 2007 at 15,487.76 and recovered some ground to hit a high of 15,495.51. But the index was not able to sustain the recovery and succumbed to intense selling pressure. It slumped to a low of 15,159.68 at 12:24 IST. At day's low, the index suffered a sharp fall of 616.63 points

The S&P CNX Nifty plunged 174.20 points or 3.78% at 4,445.20. The Nifty August 2007 futures was at 4,392.85, a sharp discount of 52.35 points as compared to spot closing

All the Asian indices settled with sharp losses. Japanese stocks led Asian markets lower in a broad-based retreat today, 27 July 2007, as export stocks such as Canon Inc. and Honda Motor Corp. were hit hard on concerns over the outlook for the US economy. Nikkei tumbled 2.36% at 17,283.81.

Hang Seng (down 2.76% at 22,572.95), Taiwan Weighted (down 4.22% at 9,162.28), Singapore's Straits Times (down 2.43% at 3,492.70) and South Korea's Seoul Composite (down 4.09% at 1,883.22) declined sharply.

Shanghai Composite was down 0.03% to 4,345.35

Wall Street suffered one of its worst losses in this year so far on Thursday, 26 July 2007, as investors succumbed to months of worry about the mortgage and corporate lending markets. The Dow Jones plunged 311.50 points, or 2.26%, to 13,473.57. Broader market indicators also slid. The Nasdaq Composite index declined 48.83 points, or 1.84%, to 2,599.34, while the Standard & Poor's 500 slipped 35.43 points, or 2.33%, to 1,482.66.

The fall on the domestic bourses materialised after a recent solid surge as FIIs stepped up buying on strong Q1 June 2007 results and in anticipation of good results from companies which were yet to unveil their numbers. The Sensex has gained 5.5% in the past one month and nearly 42% in the past one year.

Small-cap and mid-cap shares lost ground. The BSE Mid-Cap index lost 192 points or 2.8% 6,598.32 to while the BSE Small-Cap index slipped 219 points or 2.7% to 7,926.45. The market breadth was weak on BSE with 630 shares advancing as compared to 1,991 that fell, while 62 remained unchanged.

Even as the markets declined, the turnover vaulted. The total turnover on BSE amounted to Rs 6,593 crore as against Rs 5,758 crore on Thursday, 26 July 2007.

The NSE F&O turnover was Rs 65,777.96 crore. The NSE F&O turnover was a record Rs 79,995.85 crore on Thursday, 26 July 2007, on the day of expiry of July 2007 derivative contracts.

Among the Sensex pack, 27 slumped, while three stood tall in the bloodbath.

India's largest cigarette manufacturer ITC jumped 2.67% to Rs 171 after its net profit rose 20% to Rs 782.87 crore in Q1 June 2007 over Q1 June 2006, exceeding market expectation. ITC raised cigarette prices by about 20% in the first quarter due to tax increases. Sales were up 16.6% to Rs 3,325.23 crore in Q1 June 2007 over Q1 June 2006. Sales growth was within market expectations. It was the top gainer from the Sensex pack.

The BSE FMCG Index outperformed the market. It shed just 0.12% to 1,927.86, led by ITC. Tata Tea rose 0.64% to Rs 759.60, after it on Thursday, 26 July 2007, said it has become the number one domestic packet tea company in terms of volume. For the first time ever, Tata Tea outperformed its nearest competitor Hindustan Unilever (HUL) in June 2007 by garnering a volume share of 19.2%, compared to HUL's 18.6%.

Ranbaxy Laboratories, India's largest pharma firm by sales, was up marginally by 0.16% to Rs 374. The stock rose for the second straight day after Ranbaxy yesterday, 26 July 2007, reached an agreement with GlaxoSmithKline (GSK) to end the litigation in the US on Valtrex (valacyclovir hydrochloride tablets) used in the treatment of herpes. The stock had jumped 9.95% to Rs 375 on Thursday, 26 July 2007, boosted by the announcement.

North India's largest-selling cement company Ambuja Cements rose 0.76% to Rs 125.35. Other cement stocks also recovered from their lows, still ending the day lower. UltraTech Cement Company (down 6.93% to Rs 865), India Cements (down 5.38% to Rs 195), and ACC (down 3.10% to Rs 990) slipped.

Metal stocks tumbled on intense selling pressure, with BSE Metal Index plunging 5.3% to 11,501.52. It was the biggest loser among the sectoral indices on BSE. India's largest private sector steel producer Tata Steel slumped 7.92% to Rs 647.75 on 11.53 lakh shares. It was the top loser from the Sensex pack.

JSW Steel (down 2.82% to Rs 727), Hindustan Zinc (down 5.52% to Rs 704), Sterlite Industries (down 4.54% to Rs 628), Hindalco Industries (down 5.68% to Rs 172.55), and Sail (down 5.10% to Rs 147.70) were the other losers from metal pack.

The BSE Bankex lost 3.2% at 7,920.19. Canara Bank (down 6.34% to Rs 263), Bank of Baroda (down 3.74% to Rs 292), HDFC Bank (down 3.54% to Rs 1175.90), State Bank of India (down 3% to Rs 1504.10), and ICICI Bank (down 3.18% to Rs 915), all edged lower.

Capital goods duo, the recent favourites of the market, suffered steep losses. India's largest power equipment maker Bhel lost 5.14% to Rs 1665 while L&T plunged 4.61% to Rs 2424.90. The BSE Capital Goods index was down 3.8% at 12,748.77.

India's largest power generation firm National Thermal Power Corporation slipped 4% to Rs 161.10 after it signed a joint venture agreement with Rashtriya Ispat Nigam to set up a 150-MW power plant at Vishakapatnam, Andra Pradesh.

The BSE IT Index lost 2.5% at 4,876.34. Infosys (down 1.25% to Rs 2009.50), Satyam Computers (down 4.67% to Rs 471.50), Wipro (down 4.18% to Rs 490.25), and TCS (down 2.56% to Rs 1155), slipped.

Telecom stocks declined on fresh selling. Reliance Communications, the country's second largest listed telecom company, plunged 5.40% to Rs 537 while Bharti Airtel, the country's largest telecom company based on subscribers, slumped 3.61% to Rs 892.

The country's second largest motorcycle maker Bajaj Auto declined 3.77% to Rs 2,310. French car maker Renault today confirmed that it is in talks with Bajaj Auto for producing a car for around Rs 1.20 lakh ($ 3000).

India's largest truck maker Tata Motors slumped 4.06% to Rs 701, after it announced that its small car would hit the market in the first half of 2008.

India's largest private sector company Reliance Industries (RIL) was down 4.12% to Rs 1861, on 21.90 lakh shares. RIL unveils its Q1 June 2007 results tomorrow, 28 July 2007.

The top losers from small-cap and mid-cap space were Sterling Biotech (down 11.8% to Rs 173.60), Tele Data Informatics (down 10.8% to Rs 61.45), NIIT Technologies (down 9.7% to Rs 491.10), Wire & Wireless India (down 8.2% to Rs 57.50), Bombay Rayon (down 8% to Rs 202.70), Emkay Share & Stock Brokers (down 9.5% to Rs 99), KS Oils (down 8.9% to Rs 52.70), Energy Development Corporation (down 7.9% to Rs 58.20) and Nectar Lifesciences (down 7.9% to Rs 227.65).

Select stocks, however, rose in an otherwise weak market: Timex Watches (up 10% to Rs 29.70), Triveni Engineering (up 9.7% to Rs 57.15), Assam Company (up 6.5% to Rs 17.80) and JK Tyres (up 5% to Rs 147.95), surged.

Shares from the real estate pack were hammered brutally, with the BSE Realty index declining 5.25% to 7,823.91. DLF (down 4.78% to Rs 602.55), Unitech (down 6.06% to Rs 557.60), Mahindra Gesco Developers (down 3.70% to Rs 572.95) and Sobha Developers (down 2.13% to Rs 893) declined from the real estate sector.

Venky's (India) jumped 14.31% to Rs 172.10 after its net profit jumped 197% to Rs 9.06 crore in Q1 June 2007 over Q1 June 2006. Sales moved up 37.88% to Rs 124.07 crore in Q1 June 2007 over Q1 June 2006.

GlaxoSmithkline Consumer Healthcare rose 3.63% to Rs 595 after its net profit moved up 36.80% to Rs 42.30 crore in Q2 June 2007 over Q2 June 2006. Sales were up 17.41% to Rs 315.60 crore.

Tata Chemicals lost 2.76% to Rs 250. It posted a 60.79% rise in net profit to Rs 121.16 crore in Q1 June 2007 over Q1 June 2006. Total income decreased 10.4% to Rs 681 crore in Q1 June 2007 over Q1 June 2006.

Moser Baer India rose 1.97% to Rs 311 after the company said its photo voltaic unit has entered into a agreement with Norway's REC Group for sourcing silicon wafers over an eight-year period beginning from 2008.

Ballarpur Industries jumped 7.29% to Rs 131.65. With an aim to create a large asset base company overseas, the company will transfer ownership of its three units at Bhigwan, Ballarpur and Kamalapuram to an overseas subsidiary for Rs 1,950 crore.

Alok Industries gained 5.54% to Rs 67.60 as buying continued after the scrip's 10.81% rally yesterday, 26 July 2007. The company will declare its Q1 results on 31 July 2007.

Lanco Infratech rose 0.81% to Rs 211 after its consolidated net profit spurted 1,103% to Rs 51.28 crore over Q1 June 2006. Total income rose 136.89% to Rs 603.27 crore. The results were announced after market hours on Thursday, 26 July 2007.

Crompton Greaves rose 2.45% to Rs 285 after its net profit rose 89.1% to Rs 68.76 crore in Q1 June 2007 over Q1 June 2006. Sales moved up 21% to Rs 896.07 crore. The diversified engineering company made the announcement after market hours yesterday, 26 July 2007.

India's third largest power generator and distributor in terms of revenue Tata Power Company dropped 0.86% to Rs 700 even as it reported a 56.09% rise in net profit in Q1 June 2007 to Rs 190.20 crore over Q1 June 2006. Sales rose 9.80% to Rs 1,511.48 crore.

Wholesale price-based inflation rate increased to 4.41% in the week ended 14 July 2007 from 4.27% in the previous week mainly on higher prices of fruits and vegetables, ragi, wheat, jowar, condiments and spices. The inflation numbers are still within the 5% annual target of the Reserve Bank of India, which is set to review the monetary policy on 31 July 2007. The annual rate of inflation was 4.62% in the corresponding week last year.

Meanwhile, a development that could increase domestic liquidity is the approval given by the Cabinet Committee on Economic Affairs on Thursday, 26 July 2007, to public sector companies enjoying Navratna and Miniratna status to invest up 30% of their surplus funds in equity mutual funds. The total surplus of central PSUs in 2005-06 was estimated at about Rs 2,39,500 crore, according to public enterprises survey. This means that about Rs 70,000 crore may flow to equity mutual funds. However, investments would be allowed only in public sector mutual funds.

A good rollover was witnessed to the August 2007 series from the July 2007 series when the July 2007 contracts expired on Thursday, 26 July 2007. According to one brokerage report, overall 83% positions have got rolled to August 2007 from July 2007. A good rollover of 73% was witnessed in index futures as well. Institutional investors rolled over short positions in Nifty following the hedging of their positions in the cash market.

Oil rose on Friday, 27 July 2007 holding firm above $75 a barrel as traders bet that fears of tight summer supplies would offset a fresh wave of risk aversion that struck US equities and dragged oil down a day ago. London Brent crude gained 41 cents to $75.59 a barrel. US crude rose 43 cents to $75.38

Biggest scare since 2 April 2007

The BSE 30-share Sensex's 541.74-point, or 3.4%, decline to 15,234.57 is its biggest rout in a single trading session in nearly four months.

The previous biggest point fall in Sensex had occurred in early April 2007. The Sensex had tumbled 617 points on 2 April 2007 following the Reserve Bank of India (RBI)'s surprise hike in interest rates announced after trading hours on 30 March 2007. RBI had raised its short-term lending rate, the repo rate, by 25 basis points (bps) to 7.75%. It had also raised its cash reserve ratio (CRR) by half a percentage point.

On 27 April 2007, the Sensex had witnessed a big fall of 320 points when feeble Asian markets weighed on domestic bourses.

Today's fall was triggered by a setback in Asian markets. Stocks across Asia fell today, 27 July 2007, after the US market dropped 2.3% on Thursday, 26 July 2007, on signs of further weakness in the US housing market and deteriorating conditions for corporate buyouts. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were down between 2.4% to 4%

The fall was broad based. All the sectoral and niche indices on BSE ended in the red. The market breadth was weak: 1,951 shares declined on BSE as compared to 570 that rose, while 55 were unchanged. Losers outpaced gainers by a ratio of 3.4:1.

The fall materialised after a recent solid surge as FIIs stepped up buying on strong Q1 results and in anticipation of good results from companies which were yet to unveil their numbers. Ths Sensex had gained 5.5% in the past one month and nearly 42% in the past one year.

The top losers from small-cap and mid-cap space were Sterling Biotech (down 11.8% to Rs 173.60), Tele Data Informatics (down 10.8% to Rs 61.45), NIIT Technologies (down 9.7% to Rs 491.10), Wire & Wireless India (down 8.2% to Rs 57.50), Bombay Rayon (down 8% to Rs 202.70), Emkay Share & Stock Brokers (down 9.5% to Rs 99), KS Oils (down 8.9% to Rs 52.70), Energy Development Corporation (down 7.9% to Rs 58.20) and Nectar Lifesciences (down 7.9% to Rs 227.65).

Select stocks, however, rose in an otherwise weak market: Venky's (India) (up 16% to Rs 175.25), Timex Watches (up 10% to Rs 29.70), Triveni Engineering (up 9.7% to Rs 57.15), Assam Company (up 6.5% to Rs 17.80), JK Tyres (up 5% to Rs 147.95), Ballarpur Industries (up 7% to Rs 131.65), and Alok Industries (up 5.5% to Rs 67.65)

Turnover surged on BSE to Rs 6,593 crore compared to Thursday's Rs 5,758 crore

The key event next week is the review of the monetary policy by RBI on Tuesday, 31 July 2007. RBI is likely to keep rates steady. However, it remains to be seen whether the central bank will raise CRR to suck out excess liquidity in the banking system.

Data released today, 27 July 2007, showed India's wholesale price index rose 4.41% in the 12 months to 14 July 2007, higher than the previous week's 4.27% due to increase in food prices

Meanwhile, a development that could increase domestic liquidity is the approval given by the Cabinet Committee on Economic Affairs on Thursday, 26 July 2007, to public sector companies enjoying Navratna and Miniratna status to invest up 30% of their surplus funds in equity mutual funds. The total surplus of central PSUs in 2005-06 was estimated at about Rs 2,39,500 crore, according to public enterprises survey. This means that about Rs 70,000 crore may flow to equity mutual funds. However, investments would be allowed only in public sector mutual funds.

Global meltdown leads to market crash

The market witnessed the biggest carnage today, as widespread selling caused the index slip below the 15,500 mark shortly after the opening bell. A sharp slump across the international markets saw the Sensex resume 288 points lower at 15,488 and shed 616 points to touch the day's low of 15,160. The market soon moved above the 15,250 level but traded below 15,500 through the session as intense selling continued in metal, realty, capital goods, oil and other counters. The Sensex finally ended the session with a loss of 542 points at 15235. The Nifty, too, came under selling pressure and lost 175 points to close at 4445.

The market breadth was extremely weak, with losers outnumbering gainers by 3.44:1 on the BSE. Of the 2,576 stocks traded on the BSE 1,951 stocks declined, 570 stocks advanced and 55 stocks ended unchanged. All the BSE sectoral indices continued to trade weak and dropped around 2-5% each. The BSE Metal Index was the major loser and lost 5.53% while the BSE Realty Index shed 5.11%.

Majority of the 30 stocks of the Sensex ended in the red. Among the major losers Tata Steel shed 7.83% at Rs648, Reliance Communication plunged 6.30% at Rs534, Hindalco crumbled 5.47% at Rs173, HDFC crashed 5.21% at Rs1,946, BHEL slipped by 5.14% at Rs1,665, Reliance Energy tumbled 4.99% at Rs760, Tata Motors lost 4.60% at Rs697, L&T dropped nearly 4.48% at Rs2,428, ONGC slumped 4.38% at Rs905 and Satyam Computer crashed 4.37% at Rs473. Select front-line counters ended in the green. ITC rose 3.12% at Rs172 while Ranbaxy and Ambuja Cement closed with moderate gains.

Metal stocks witnessed a steep fall. Shree Precoated Steel plummeted 7.23% at Rs358, while Hindustan Zinc crashed 5.55% at Rs704. SAIL at Rs148, Jindal Saw at Rs655, Welspun Gujrat at Rs246, Sterlite Industries at Rs628, Jindal Stainless at Rs166 and Nalco at Rs280 tumbled over 4% each. Among the realty stocks Parsvanath Developers plunged 7.21% at Rs359, Peninsula land fell by 6.14% at Rs455, Unitech lost 5.75% at Rs559, Ansal Infrstructure shed 5.64% at Rs265 and Indiabulls Real Estate declined 5.47% at Rs564.

Over 2.41 crore IFCI shares changed hands on the BSE followed by Bellary Steel (2.31 crore shares), Suryachakra Power Corporation (1.70 crore shares), Mangalore Chemical & Fertilizers (1.29 crore shares) and Harig Crankshafts (1.08 crore shares).

Valuewise, Reliance Industries registered a turnover of Rs414 crore followed by Housing Development & Infrastructure (Rs296 crore), Reliance Energy (Rs239 crore), DLF (Rs235 crore) and L&T (Rs172 crore).

Sensex recovers on late buying

The market resumed in the green despite weak Asian cues and rallied sharply led by capital goods and auto stocks. Energy majors Reliance Industries and ONGC also supported indices. The Sensex came of its high as profit selling began in mid-morning trades and slipped into the red as investor confidence waned. The index majors ACC and Bharti Airtel led the slump and the Sensex touched the intra-day low of 15,654. The market remained subdued thereafter but recovered on a hectic buying in heavyweights, IT and pharma stocks towards the close. The Sensex finally wrapped up the session with the gains of 77 points at 15,776. The Nifty closed 31 points up at 4,620.

The breadth of the market was positive, with gainers outnumbering losers in the ratio of 1.42:1. Of the 2,657 stocks traded on the BSE 1,529 stocks advanced, 1,062 stocks declined and 66 stocks ended unchanged. Among the sectoral indices the BSE IT Index flared up by 1.92%, the BSE Realty Index rose 1.54%, the BSE Oil & Gas Index and the BSE HC Index moved up by 1.49%. However, the BSE Bankex Index, the BSE CG Index and the BSE Metal Index closed in the red.

Among the index heavyweights, Ranbaxy was the star performer and surged 9.49% at Rs373. Cipla spurted 4.19% at Rs194, Maruti Udyog scaled up 3.88% at Rs841, Wipro soared 3.24% at Rs515, TCS advanced 3.21% at Rs1,186, Reliance Energy moved up by 2.80% at Rs780 and M&M added 2.36% at Rs801. However, ACC tumbled 4.56% at Rs1,022, Ambuja Cement slipped 2.84% at Rs125, Bharti Airtel fell 2.28% at Rs925, BHEL was down 1.93% at Rs1,755 and HDFC Bank shed 1.82% at Rs1,219.

IT stocks registered significant gains. Rolta India surged 4.35% at Rs493, Mphasis soared 3.29% at Rs278, Infosys firmed up by 2.26% at Rs2,035 and HCL Technologies added 1.81% at Rs327.

Over 2.84 crore IFCI shares changed hands on the BSE followed by Manglore Chemical & Fertilizer (1.47 crore shares), Suryachakra Power Corporation (1.36 crore shares), IDFC (1.31 crore shares) and IKF Technologies (80.04 lakh shares).

HDFC was the most actively traded counter on the BSE and registered a turnover of Rs369 crore followed by IFCI (Rs160 crore), Reliance Industries (Rs153 crore), IDFC (Rs151 crore) and DLF (Rs145 crore)

Market may remain volatile

The market may witness cautious trend as US indices closed on a firm note yesterday and Asian indices are exhibiting mixed trends in the morning trades. Although the bias remains positive, investors should maintain caution as profit taking at higher levels may pull down the market. The market is likely to remain under pressure on account of unwinding of position ahead of July series derivative contracts. Among the local indices the Nifty could test 4550 and 4500 on the downside while on the upper side it may move up to 4300. The Sensex has a likely support at 15480 and may face resistance at 15850.

US indices advanced on Wednesday, influenced by positive earnings news surging off credit and housing market jitters. While the Dow Jones gained 68 points to close at 13785, the Nasdaq advanced by 12 points at 2651.

Indian ADRs had a mixed outing on US bourses. VSNL lost 2.97% while Satyam and ICICI Bank shed over 1% each. Among other laggards Infosys, Tata motors, HDFC Bank, Patni Computer and Rediff closed with the marginal losses. However, MTNL gained 2.80%, Wipro and Dr Reddy's Lab moved up marginally.

In the crude oil front, the Nymex light crude oil for September series surged by $2.32 to close at $75.88 per barrel. The bullion Comex gold for August delivery tumbled $11 to settle at $673.80 a troy ounce.

Bulls set to swing

Win as if you were used to it, lose as if you enjoyed it for a change.

The bulls will hope to get back to their winning ways after taking a break on Wednesday. Global weakness has not caused a major dent to the sentiment as yet. We may see the main stock indices touching new highs. Though provisional data shows marginal net sale figure by the FIIs on Wednesday, it may just be an aberration rather than a potential change in trend.

Coming to today's session, we expect a smooth rollover in the F&O segment. Despite, Wednesday's weakness, bulls continue to have an edge over the bears. Some consolidation or correction going ahead could always take place. The derivative settlement is also likely to increase the intra-day gyrations. A few key results may also have some bearing on the direction of the market today.

The outlook on the Indian economy is strong with inflation softening considerably from a two-year high hit in January. Interest rates seems to have stabilised, albeit at a higher level. The RBI is unlikely to jack up key short-term lending rates at the upcoming review of its annual policy, on July 31. However, the abundant liquidity in the banking system and the non-stop rise in the rupee may prompt some kind of a response from the central bank. One has to watch out for that.

Globally, the housing market crisis and trouble in the credit markets in America, higher crude oil prices and overheating in China are some of the key issues to keep an eye on. Also, interest rates may go up in key economies like the UK, Europe and Japan over the next few months. The uncertainty over what could be the next move by the Federal Reserve is also keeping investors across the globe on tenterhooks.

Wipro may be in action amid reports that the company, along with Coke and Danone are in the race for acquiring Bisleri, the popular bottled water business from Ramesh Chauhan. Sun Pharma will attract some attention as Sanofi Aventis has sued the domestic pharma major to prevent it from launching a generic version of the French drug maker's blockbuster cancer treatment Eloxatin.

Public sector Oil Marketing Companies (OMCs) will be in focus amid media reports that pressure is mounting on the Government to raise local retail prices of petrol and diesel following the spike in crude oil prices. Firstsource is the stock to watch out for as the BPO firm is reportedly eyeing a big-ticket acquisition in the US. Karuturi Networks is also expected to be in the limelight as a financial daily reports that it is looking at acquisitions in the US.

US stocks managed modest gains on Wednesday on the back of positive earnings from Amazon.com and Boeing, while investors shrugged off credit and housing market jitters. Energy shares rallied on a surge in oil prices.

The S&P 500 added 7 points, or 0.5%, to 1518.09. The Dow Jones Industrial Average advanced 68 points, or 0.5%, to 13,785.07. The Nasdaq Composite Index gained 8 points, or 0.3%, to 2648.17.

In its so-called Beige Book report, the Federal Reserve revealed modest economic growth in the United States, and further declines in homebuilding and real estate in most regions.

Early gains quickly vanished after the National Association of Realtors said that the pace existing home sales fell more than expected in June.

Adding pressure to stocks was news that private equity firm Cerberus Capital was experiencing difficulties tapping debt markets for the $20bn needed for the purchase of Chrysler fanned credit market fears.

Oil prices surged above $75 a barrel in New York. US light crude soared $2.34 to $75.90 a barrel on the New York Mercantile Exchange. Treasury prices edged higher, leaving the yield on the 10-year note at 4.9%, down from 4.91% on Tuesday. The dollar gained against the euro and the yen.

European stocks closed lower as investors reacted with dismay to earnings and outlooks from Volvo, Randstad and Siemens and the postponing of a sale of Chrysler's bonds.

The pan-European Dow Jones Stoxx 600 lost 0.9% to 385.80. The German DAX 30 declined 1.5% to 7,692.55 and the French CAC-40 fell 1.2% to 5,837.11. The UK's FTSE 100 dropped 0.7% to 6,454.30.

Major Latin American equity markets closed mixed. Mexican stocks succumbed to pressure from a weak report on US housing sales while Brazilian equities pushed through the sluggish data to finish higher.

In Sao Paulo, the Bovespa stock index closed up 207 points, or 0.4%, at 56,001.30. In Mexico City, the IPC index fell 359 points, or 1.1%, to 31,103.53. The Merval index in Argentina finished nearly flat at 2,242.78. But the IPSA index in Chile fell 30 points, or 0.9%, to 31,103.53.

Among the other emerging markets, the RTS index in Russia shed 0.1% to 2047.

It is a mixed picture in Asian markets this morning. The Nikkei in Tokyo was down 46 points at 17,811 while the Hang Seng in Hong Kong was up 141 points at 23,502. The Kospi in Seoul was flat at 2004 and the Straits Times in Singapore dropped 6 points at 3627.

The Morgan Stanley Capital International Asia Pacific Index lost 0.4% to 160.03 as of 10:44 a.m. in Tokyo, after falling 0.5% yesterday. Australia's S&P/ASX 200 Index dropped 1%, the only other loser among markets open for trading.

Bears were back on the street ahead of F&O expiry as a volatile session in red. Global weakness and profit booking in the Realty, Auto, Capital Good and Metal stocks dragged the benchmark Sensex below the 15700mark and NSE Nifty below the 4600mark. Cement stocks led the downfall after reports stated that trade practices regulator ordered an investigation into an alleged price manipulation by top 14 cement manufacturers. Even broader market i.e. Mid-Cap and the Small Cap indexes also were on the receiving end. However, FMCG index was the only index that ended in green led by heavyweight ITC and Hindustan Lever. Finally, BSE 30-share Sensex slipped 95 points to close at 15699. NSE-50 Nifty lost 32 point to close at 4588.

ONGC gained by 2% to Rs934 after the company announced its Q1 result with net profit at Rs46.1bn (up 12%). However, its net sales were at Rs136.88bn (down 6.2%). The scrip touched an intra-day high of Rs940 and a low of Rs905 and recorded volumes of over 13,00,000 shares on NSE.

Reliance Capital surged by over 3.5% to Rs1243 after the company announced its Q1 group result with net profit at Rs3.25bn (up 187%) and net sales at Rs11.11bn (up 212%). The scrip touched an intra-day high of Rs1255 and a low of Rs1190 and recorded volumes of over 30,00,000 shares on NSE.

SAIL lost by over 5% to Rs153. The company announced its Q1 result with net profit at Rs15.25 (up 10%) and net sales at Rs80.4 (up 6.3%). The scrip touched an intra-day high of Rs161 and a low of Rs152 and recorded volumes of over 1,00,00,000 shares on NSE.

Educomp Solutions rallied by over 7.5% to Rs2408 after the company announced that it has signed agreement with Government of Chattisgarh to set up centers in 323 locations. The scrip touched an intra-day high of Rs2433 and a low of Rs2200 and recorded volumes of over 9,00,000 shares on NSE.

Nagarjuna Construction was down by 3% to Rs202. The company announced that it has secured a Civil Construction Contract valued at Rs2.85bn comprising of Design, Engineering, Construction, Development of a Road Project from Pondicherry to Tindivanam. The scrip touched an intra-day high of Rs208 and a low of Rs200 and recorded volumes of over 22,00,000 shares on NSE.

Cement stocks lost ground amid news that trade practices regulator MRTPC has ordered an investigation into an alleged price cartelisation by top 14 cement manufacturers. ACC dropped by over 4.5% to Rs1065, Grasim was down by 2% to Rs2966 and Gujarat Ambuja declined over 4% to Rs128.

IT stocks also were under the pressure as forward contracts in the foreign exchange market has turned into discounts from premium and the rupee also constantly strengthening against the dollar as it hit a nine-year high of 40.27 per dollar. Satyam Computer dropped by over 5.5% to Rs487, Wipro was down by 1.5% to Rs498, Polaris declined by 4% to Rs125 and i-Flex declined 3% to Rs2267.

Capital Good stocks were on the receiving end as of profit booking dragged them lower. ABB lost by 1.2% to Rs1134, BHEL was down by over 2.5% to Rs1786 and L&T dropped by over 3.5% to Rs2568.

FMCG stocks stood firm in a choppy market led by gains in the heavyweight ITC as the scrip surged by over 9% to Rs165 on speculation that cigarette sales will beat estimates, Hindustan Unilever gained by 1% to Rs201 and Colgate edged higher by 0.5% to Rs371 and Dabur marginally added 0.3% to Rs100.

Auto stock were in reverse gear as heavyweight Bajaj Auto fell over 3.5% to Rs2353, Tata Motors was down by 2.8% to Rs726, M&M dropped 1.7% to Rs781 and Maruti declined 1.2% to Rs809.

Pharma stocks were in poor health. Glenmark lost 2.6% to Rs687, Dr Reddy's Lab was down by 1.7% to Rs660, Cipla declined 1.2% to Rs186 and Ranbaxy lost 1% to Rs346.

Results Today:

ABB, Alfa Laval, Apollo Tyres, Apar Industries, AstraZeneca Pharma, Bajaj Electricals, Balaji Telefilms, Bharti Airtel, Crompton Greaves, Cummins India, Dabur Pharma, Dena Bank, EIH, Everest Kanto, Federal Bank, Gayatri Projects, GSK Consumer, GSK Pharma, Gujarat State Petronet, Gujarat Gas, Hikal, ICRA, Indraprastha Gas, ING Vysya Bank, Jyoti Structures, Lanco Infratech, MRF, Maruti, Patni, Punjab Tractors, Rajesh Exports, Shree Renuka Sugars, RPG Transmission, Shree Ashtavinayak, Subex, Sterlite Optical, Taj GVK Hotels, Tata Power, VIP Industries and West Coast Paper.

Fund Activity:

FIIs were net sellers of Rs354.7mn (provisional) in the cash segment on Wednesday. On the other hand, local institutions were net buyers at Rs1.5bn. In the F&O segment, FIIs were net sellers at Rs11.75bn.

On Tuesday, FIIs poured in Rs12.86bn in the cash segment. Mutual Funds were net sellers of Rs3.68bn.

Major bulk Deals:

Birla Sunlife has bought Esab India; Merrill Lynch has picked up Fact Enterprise; Citigroup and Goldman Sachs have purchased Fedders Lloyd; Reliance Capital has bought ICRA; Goldman Sachs and fidelity have purchased Lloyd Electric; Merrill Lynch has picked up Modison Metals and Abn Amro Bank has sold Suryachakra Power.

Insider Trades:

Gitanjali Gems Ltd: Goldman Sachs Investments (M) I Limited has purchased from open market 1000000 equity shares of the company on 19th July, 2007.

Lower Circuit:

Hindustan Oil exploration, Kothari Products, Prism Cement, IID Forgings and Vakran Software.

Upper Circuit:

Ganesh Forgings, TCI Industries, Anant Raj Industries, Oil Country and Jaybharat Textiles

Delivery Delight (Rising Price & Rising Delivery):

Indian Hotels, NDTV, IDFC, Ashok Leyland and HCC.

Abnormal Delivery:

Punjab Tractors, Adlabs, CESC, GAIL and L&T.

Major News & Announcements:

Infosys wins a seven-year, US$250mn contract from Philips

ONGC Q1 profit at Rs46.1bn (up 12%) and net sales at Rs136.88bn (down 6.2%)

Bombay Dyeing Q2 net profit at Rs691mn(up 100%), net sales at Rs3.04bn (up 6%)

Yes Bank Q1 profit at Rs360mn (up 113%) and revenue at Rs3.48bn (up 169%)

APIL Q1 profit at Rs175mn (up 50%), revenue at Rs2.5bn (up 8.2%)

Educomp Solutions signs agreement with Govt of Chattisgarh

BHEL wins Rs4.31bn order from IOC

Nagarjuna Construction secures order worth Rs2.85bn

Chambal Fertilizers Q1 profit at Rs617mn (up 92%) and revenue at Rs6.4bn (up 20%)

Nicolas Piramal Q1 net profit at Rs343.9mn (down 32%) and sales at Rs3.95bn (down 0.17%)

PNB Q1 net profit at Rs4.25 (up 15.4%) and revenue at Rs37.95bn (up 29.8%)

SAIL Q1 profit at Rs15.25bn (up 10%), net sales at Rs80.4bn (up 6.3%)

Reliance Capital Q1 group profit at Rs3.25bn (up 187%), net sales at Rs11.11bn (up 212%).

Infrastructure, India's most attractive sector: HSBC

Michael Preiss, Associate Director-Investment Advisory Group, HSBC said the Yen appreciation might prove to be a dampener for equities.

 

He added that there is a big flush of money waiting to enter Indian markets and a lot of money coming in the markets may be borrowed money.

 

Excerpts from exclusive interview with Michael Preiss:

Q: What will happen to global equity markets over the next month or so? Are we getting into a bit of a sticky patch now?

 A: Most probably, yes. It is a bit like a replay of what we saw in February. There was a question on whether the US housing issue and the subprime mortgage issue is just contained in the United States or whether it can even spread to other parts of the world.

The market seems to imply that even in Europe, the cheap credit financing bubble is actually about to burst and a lot of these deals are actually going sour. So, to some extent that is actually putting pressure on global equities.

The question is whether we should really go long or reduce exposure or whether to go short. Most people would agree that, at the moment, it is better to take some money off the table, go a little bit on the sideways and watch and see.

Q: What is the call on India because we are only beginning to catch up and reports indicate there is a big flush of money waiting to come into the market?

A: The words you used are right. There is a big flush of money. But let us not forget that a lot of that money is actually borrowed money. It is a lot of money done on leverage out of the carry trade, whether it is Swiss Francs or Japanese Yen. Both of these currencies are rising.

So, the real question is whether we see risk aversion rising around the world. The economic fundamentals in India and many emerging markets are excellent.

The only question is whether the financial market is ahead of itself. We see spreads widening and hence, basically people take a more cautious approach, and that could ripple through the system.

That is why we had this big sell-off in the United States yesterday. People realised that there could be systematic risk out there. Hence, they scaled back some of these positions, and in addition to that, the Yen is rising.

Rising Yen and widening spreads is exactly what you would like to see if you want to consider a short position in equities.

Q: Pertaining to India though, what sort of queries do you get from your HNI clients and what sectors at this look the most attractive?

A: Generally speaking, the most attractive sector as a long-term investor, is still infrastructure. Chidambaram said the same thing that India needs to spend more on infrastructure development. That is definitely a long-term investment trend where you cannot go wrong.

On the other hand, HSBC, and some old friends at Wall Street, always were underweight on India, irrespective of the fact that the Indian economy and the Indian market, performed very strongly. But the house view is still that investors, in a well-diversified portfolio, should have less assets in India. Their view hasn't really changed because of valuations.

Which stocks to hit, which to miss?

Sharmila Joshi of Asit C Mehta Investment Intermediates said that she found the quarterly numbers of companies like PTC, Havells and Aptech interesting. She is, however, disappointed with the results of Sesa Goa and HOEC. 

 

On the markets, she said, "They have just done a complete turnaround today and the way they have gone up, has taken us to this new high."

Excerpts of exclusive interview with Sharmila Joshi:

 

Q: Let us start with PTC, a stock that got a bad reaction from the market but has subsequently recovered. How do the numbers look?

 

A: The numbers look all right, especially for this quarter. We have seen that the company has done reasonably well whether sales or profits is concerned.

 

Perhaps, what has not really been so great for the company is the fact that they have actually seen a bit of a slowing down of demand. What they say is that their volume pick up was slightly lower largely because of weather conditions. So the demand for power was not strong.

 

Overall, on the back of interest that has been shown in their financial arm by private equity players, I think it's quite a decent set of numbers in this quarter. Perhaps you will see the stock recover. Of course, it had run up too much, so possibly because of that it corrected. But as far as numbers goes, I think the numbers were quite good.

 

Q: What about Sesa Goa? Was that a disappointment?

 

A: Yes, I think so. If you look over their last year's numbers, they seemed to be on a bit of a downward slide. Also the news that Vedantas had to really put off its open offer may also come as a bit of a blow. 

 

But going ahead, perhaps things could look better with Sesa Goa because you are seeing that the demand for iron ore is strong. So one can take heart from that.

 

But if you just look at the kind of numbers that they given in this quarter, maybe due to the kind of realisations that they have had, that's showing in their overall income numbers. But it has been a disappointing quarter, I would say for Sesa Goa. 

 

Q: What would you say for HOEC?

 

A: Really speaking, as compared to the last quarter, the profit numbers are higher. In the last two quarters, their expenditure items were high. But if you compare it with the corresponding quarter last year, whether it is in terms of the income that they have got or the kind of profit that they have got, both are lower.

 

We had more or less expected this to happen with Hindustan Oil going forward, because they would directly depend on the amount of output that they were getting and that was showing slow down. So this was more or less expected, but I think as far as numbers go, this quarter is a bit of a disappointment.

 

Q: What about Havells and what sort of price target would you set on the stock now, given what you saw in their numbers?

 

A: Once again, a very good set of numbers from Havells. If you look at the yearly performance that they have given, there is a steady improvement, whether it is in terms of income or profit over the year.

 

If you are looking at a company, which is in the electrical equipment space, and you are seeing that they are growing inorganically, now they have SLI Sylvania and they are going to be working this year in integrating SLI Sylvania into their company. So I am sure, they are going to continue this trend.

 

My guess is it's trading very close to its 52 week high. But to my mind, there is an upside from this level, especially if you see SLI Sylvania starting to add in. I wouldn't like to set a target, but there is an upside from this price.

 

Q: Is that on its way to be corrected?

 

A: We have actually commissioned a plant in India. In one of our existing plants, we have built a plant to make this product. So, we will be completely vertically integrated and will come out of the situation in the next few weeks. 

 

Q: There have been issues with the Salutas supplies, and the overall price erosion in the German market. How soon do you think you will be out of this? What is the status of shifting products from Germany back to India?

 

A: Yes, it should take another two quarters to complete the shifting of the major products. The top 10 products, which contribute 70-80% of the revenues in Betapharm, will be made by Dr. Reddy's, within our own plants.

 

And the work required for the shifting has been done, and all processes have been completed. We are filing almost every month a couple of products, with the regulatory agencies, and we are going to wait for regulatory approval. That should take about six to nine months to complete and after that, we will be completely independent.

 

Q: Aptech hasn't reacted too well to its quarterly numbers, but you thought they were okay?

 

A: Yes, I definitely thought so. For sometime, the company has said that they would be internally restructuring themselves, getting themselves better organised to face the business in the coming years. I think that's beginning to show in their results.

 

If you see in terms of whether it is the kind of income they have got or the kind of profit after tax they have got, they have shown significant improvement. So definitely this is a number that I liked.

Expect further correction, say experts

Expiry jitters seems to have gripped the markets. The Indices came under sustained selling pressure. However they saw an all-time high F&O turnover of more than Rs 72,000 crore. It was a record total market turnover of Rs 91,063 crore.

 

The Nifty closed at 4,589 down 32 points, while the Sensex shut shop at 15,699, down 96 points

 

Ashu Madan, National Head at Religare feels that suddenly there were too many voices saying that this could be the fastest 1,000-point from 15,000 to 16,000. He adds, "Complacency was expected and weak global markets have triggered this; but the important thing to watch is how long will this continue? Will it continue for another 200 points?"

 

He feels that it depends on the liquidity inflows, the global markets and the short positions, which were within the system.

 

"For the first time I have noticed that probably in the recent past this is the first major correction, though it is 150 points. But whatever we had witnessed in the past, by that standard, it is a major correction; I see some visible short covering happening. Because of sheer tiredness and frustration, some short positions are being covered and as we were disusing yesterday we were caught in a situation where Nifty in particular is short, but in general all the stocks are plus."

 

He adds that the markets have been primarily led by strong liquidity inflows, but it depends to be seen whether suddenly the liquidity flows are stopped, global markets are correcting and short positions are covered. "You might see more correction, that still has to be seen," he said.

 

Shahina Mukadam, Head Of Research, IDBI Capital Market  feels that the selling that has come about or the correction that has come about, has really been driven by the global markets.

 

"The main factor being the strengthening of the yen - surprisingly it was very strong in the last two days. That was, I think, the reason for all the markets to correct and Indian markets now being part of the global markets, we followed the trend. Over the next couple of days or weeks, I think the market may remain weak. In fact our technical analyst is talking of a downside of almost 200 points on the Nifty and equivalent about 1000 points on the Sensex. So we are looking at a bit of a correction. But with the market having run up so much, I don't see that as a major negative, I see that as a buying opportunity going forward."

 

She feels that it will be mainly the international news driven flows that could possibly lead to further corrections or reactions.

ITC could be your next multibagger

Research firms CLSA and Credit-Suisse have come out with their reports on ITC. According to them ITC, which has been an underperformer on concerns of VAT implementation and subsequent impact on cigarette volume, will outperform now on expectations of increase in cigarette volumes and earnings growth.

 

Both research firms have raised their target price on ITC. CLSA is bullish on the stock and has recommended a 'buy' on it with a target of Rs 184, which implies 20% potential upside and Credit-Suisse has recommended 'outperformer' rating with a target of Rs 188, which implies 22% potential upside.

 

CLSA report on ITC:

 

Volume surprise likely

 

ITC has underperformed the market by 24% YTD on the concerns of VAT implementation and subsequent impact on cigarette volume and earnings growth. We believe that the current stock price already factors in the worst and cigarette volumes and earnings growth will likely surprise on the upside. We have reduced our FY08 cigarette volume drop assumption from 7.5% earlier to 3% now and raised earnings by 6%. Our new target price of Rs184/share offers an 20% upside and we upgrade the stock to a BUY (U-PF earlier).

 

Underpeformance is now behind

 

The stock has underperformed the market by 40% over the last 12 months and by 24% YTD on the concerns of VAT implementation. Then it was the concerns on whether the industry / ITC would be able to pass on the tax increases. Once ITC (and also the industry) effected nearly 18-20% weighted average price increase, passing on the entire tax hike, which in turn lead to concerns on volume growth. We believe that ITC will likely surprise on the positive on this front.

 

Cigarette business ebit will likely surprise on the positive

 

Our initial feedback, which now stands corroborated by the results of VST Industries (3rd largest cigarette manufacturer with 8% market share), indicates that cigarette volume degrowth is turning out to be much lower than our initial expectation of 7.5%. We have lowered the cigarette volume drop to 3% and upgraded earnings by 6%. Additionally, savings on entry tax (which now becomes VATable) will bring in a positive surprise on the margins.

 

Target price raised to Rs184/share; upgraded to 'BUY'

 

Our 12-m target price of Rs184 per share (earlier Rs 150) is based on sum of parts. The key reason for the target price upgrade is the 6% increase in earnings and upward revision in our target cigarette business PE to 17x, due to more confidence on cigarette volume trend. Cigarette business accounts for 70% of sum of parts. With the target price offering 20% upside we upgrade the stock to BUY (U-PF earlier).

 

Risks to our recommendation

 

The key risks to our recommendation remains more increase in VAT rates (currently 12.5%) the next year, a step-up in capex – particularly on the paper business. On the upside, as the state government of Uttar Pradesh joins VAT, the taxation in the state may go down from existing 33% to the usual 12.5%. Also the company has already stepped up the dividend payout to 50% and we do not see any risk to that despite a rising capex. 

 

 

Credit-Suisse report on ITC:

 

Steady growth, low expectations

 

Event:

 

We initiate coverage on ITC with an OUTPERFORM rating and a target price of Rs188, which implies 22% potential upside.

 

View:

 

ITC's cigarette profits tend to grow even in an adverse tax environment. Furthermore, net price realisations tend to outpace volume falls in a declining market, resulting in net sales growth. However, total costs fall, as most costs are linked to sales volume, resulting in margin expansion. ITC has effected a price rise of some 20%, which should result in about a 9.4% rise in net realisations. We expect EBIT margins from cigarettes to increase 150 bp and absolute EBIT to grow 6% in FY08E, resuming doubledigit growth thereafter (10.5% p.a. from FY08-10E). Paper should benefit from pulp capacity expansion, while supply-demand in the hotel business remains conducive to profitable growth. Its foods business is likely to turn profitable by early FY09, although entry into the HPC business is expected to drag down segmental profitability. We expect EPS to grow 14.8% p.a. from FY07-10E and ROE to remain steady at about 25%, despite high investments.

 

Catalyst:

 

In our view, the market is excessively focused on short-term volume growth in cigarettes, or the lack of it, and would be positively surprised by segmental profit growth. We believe that consensus is for underestimating the extent of a net realisation rise in the cigarette business.

 

Valuation:

 

ITC has underperformed the market by 41% in the past 12 months and now trades at 19.3x FY08E, which is at a 10% premium to the broader market. We set a sum-of-the-parts (SOTP) fair value of Rs 188, based on Rs 110 for cigarettes (16.5x FY09E cigarette earnings).

 

Key risks comprise a further cigarette tax hike and cyclicality in other businesses.