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Tuesday, November 07, 2006

IPOs to woo you like never before

The primary market seems to be looking up. Real estate major Parsvnath Developers and Lanco Infratech came out with public issues on Monday with the companies collectively planning to raise Rs 2,400 crore. Parsvnath witnessed an impressive opening response for its Rs 1,000 crore initial public offer with the issue getting fully subscribed on the very first day. However, the response was relatively subdued for the Lanco Infratech issue. It received bids for about 30 per cent of total 4.44 crore shares on the offer. Bankers though say that the Lanco IPO could also pick up in the coming days, as it might also benefit from the upbeat sentiments over the infrastructure sector. Both the issues are scheduled to close on November 10.

According to Prithvi Haldea of PRIME DATABASE, the country’s premier database on the primary capital market, "the (IPO) lineup now really looks good for the next three or four months." As against RS 7,581 crore, the companies expect to raise Rs 3,057 crore only through 12 public issues. The first half of the current fiscal 2006-07 turned out to be poor for the primary market.

There are 12 issues in the pipeline with Sebi approval and around 75 companies have filed offer documents, awaiting Sebi approval. Power Finance Corporation (PFC) is planning to come out with a Rs 1500 crore issue, whereas another company by the name of Sobha is planning to raise Rs 600 crore through the public issue. MSPL is another company that would come out with a public issue to raise Rs 500 crore shortly.

According to PRIME, significantly, over 400 public offers are in active pipeline, which collectively intend to raise a phenomenal Rs. 1,50,000 crore. If even some of these make it to the market in the near future, it would not only help channelize household savings into the economy, but also give the long-awaited breadth to our secondary market.

Of the above, 88 issues are sure to hit the market in the near future. These includes 13 issues (Rs.2,730 crore) which are already holding Sebi approval and 75 issues (Rs.19,000 crore) which have filed offer documents with Sebi and are awaiting approval. The list includes several mega issues including Cairn Energy (Rs.9,000 crore), Fortis Healthcare (1000), PFC (1000), Parsvanath (1000), Sobha Developers (650), MSPL (500), Orbit (450), Gammon Infrastructure (375), Akruti Nirman (350), Ind Synergy (350) and House of Pearls Fashions (300).

Mr Haldea feels, this is as good a time as ever for the Government to enlarge the investors’ base and the capital market, and to raise money that it so desperately needs. For this, the Government should use the IPO route which is the most transparent, non-controversial route. PSUs should also be encouraged to raise fresh capital from the market for their expansion programmes.

Compare this to the first half of the year, when despite a great opening in April, the market turned bearish after the secondary market crash in mid-May. According to Haldea, the amount raised through public issues did not come anywhere close to market expectations at the beginning of the year, despite huge success of public issues of the past year.

The biggest disappointment for the primary market has been the lack of divestments by the Government. Not a single divestment took place in the current fiscal; in fact, the last divestment was in October 2004 of NTPC. The pipeline of divestment/PSU offerings continues to become larger by the day yet nothing of it seems to be materialising.

In terms of amount raised, the first half ended with a mobilisation of only Rs 7,581 crore as per PRIME, almost similar to the corresponding period of the preceding year which had seen issues worth Rs 7,622 crore.

According to PRIME, the current period comprised 32 companies that made IPOs aggregating Rs 6,909 crore (previous year Rs.4,641 crore) and 4 companies which made FPOs of Rs 672 crore (Rs 2,980 crore). On the other hand, Rs 6,945 crore (Rs.6,369 crore) was raised through fresh capital and Rs 635 crore (Rs 1,253 crore) through offers for sale.

According to Haldea, significantly, 35 of the 36 issues was made by existing companies with a track record; just a single greenfield project hit the market (Reliance Petroleum). The largest issue of the period was of Reliance Petroleum Rs. 2,700 crore), followed by GMR Infrastructure ( 788), Sun TV( 603), and Tech Mahindra ( 465).

Unlike last year, which had seen Rs 2,835 crore mobilised, the banking sector this fiscal did not mobilise any amount. Like last year, there was no bonds' issue during the first half. Smaller issues continued to hit the market during the period. The previous full fiscal had 102 issues raising Rs 23,676 crore giving an average size Rs 232 crore while the average size in the first half of the current fiscal was Rs 210 crore.

Most market analysts feel that this is as good a time as ever for the Government to enlarge the investors’ base and the capital market, and to raise money that it so desperately needs. For this, the Government should use the IPO route which is the most transparent, non-controversial route. PSUs should also be encouraged to raise fresh capital from the market for their expansion programmes. For the companies also this is the best time to raise money as the market conditions are good and issues are getting subscribed and sometimes over subscribed.

Sharekhan Top Picks

In the October 2006 issue, we had recommended the best 12 of our Stock Ideas as Sharekhan Top Picks. As on November 1, 2006, the return on this basket of stocks has been 4.3% as compared to the Sensex, which has given 5.2% returns and the S&P CNX Nifty, which has given 5.6% returns

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Indiainfoline - HPCL

Key takeaways from the Analyst Meet were as follows:

Breakup of Under recoveries

(Rs bn)

FY07 E


H1 FY07 (HPCL)

Gross Under recovery




Price Increases




Trade Parity/Refinery Discounts




Upstream Discounts




Oil Bonds




Net Under recovery




Refining segment

The current world refining capacity at 85mbpd seems to be tight as considering the fuel and loss the utilization rate is over 100%.

HPCL expects the demand of petroleum products to increase from the current levels of 109MMT to 135MMT by 2012. The refining capacity during the same period is seen to increase from 129.8MMT to 220MMT. The increased refining capacity will translate into higher dependence on imports of crude oil from current levels of 75% to 85% by 2012.

Against the name plate capacity of 13mtpa, the refinery has been operating at 16mtpa per annum over the last 3 quarters. For the first half the total throughput for the refineries was at 8.3MMT translating into a capacity utilization of 127%. This has been possible on the back of low cost modifications which the company carried out at the Mumbai and the Visakh refineries. The modifications include small expansions in primary and secondary processing capacities at Mumbai and also 30% increase in Diesel Hydrotreater capacity at Visakh refinery. Consequently, the yields have improved considerably. Production of LPG was up from 2.45% to 3.43% whereas for MS it was from 3.1% to 5.9% and for LOBS it increased to 4.4% from 4.1%. The total distillate yield at the Visakh refinery increased to 78%.

The crude basket too has improved for the company as the basket now consists of 89 types as against 20+ in FY03, thus reducing dependence on few suppliers. The Visakh refinery now processes 52% of sour crude against 44% last year.

All these initiatives have translated into a GRM improvement from US$5/bbl to US$5.87/bbl converting into gains of Rs6.3bn.

The company aims to start production of Euro III and Euro IV grade fuels from Q4 FY07 at Mumbai refinery (Rs18.5bn capex) and from Q1 FY08 at Visakh refinery (Rs21.5bn capex).

The company is taking further initiatives to improve the GRMs of the existing refineries, which include:

  • Mixed Xylene Plants

  • Propylene recovery units

  • LOBS – Group II plants

  • SPM – For VLCC handling at Visakh

  • Visbreaker

  • Delayed Coker at Visakh

  • Increase in FCCU capacity

  • Bulk bitumen exports facility

The company is initiating Oil price risk management activity and has appointed M/s Ernst and Young for the assisting them.

Marketing segment

By December 2007, HPCL will completely automate 2,000 of its retail outlets (Accounting for 70% of MS/HSD sales). This activity is likely to increase the throughput from the current levels of 135KL/day to over 150KL/day.

The company is putting up 750 low cost (Rs1.5-2.5mn) retail outlets in the rural areas, where it feels the IRR could be as high as 50%.

An LPG volume for HPCL increased by 68% and the company has a market share of 35% for the product.

HPCL is currently in process of constructing 2 pipelines, Mundra-Delhi and Pune-Solapur. It expects to save costs to the tune of Rs2.5bn post the commencement of the two pipelines.

Future strategies

  • Consolidating in downstream sector

  • Expanding Refining Capacity: The company is planning to increase the capacity at the Visakh refinery to 15MMTPA. Post expansion it is targeting a distillate yield of 83% and incremental GRMs of about US$4/bbl
  • It is also setting up a grass root refinery of 9mmtpa at Bhatinda in Punjab at an estimated cost of Rs167bn (including pipelines). The refinery will have a capacity to process 100% sour crude. Financial closure for the project is likely to happen in Q4 of FY07.
  • Significant Presence in Upstream Sector

  • The company has bid for 26 blocks in NELP 6 in partnership with ONGC/GAIL/GSPC/OIL, etc.
  • HPCL has been awarded: Block 56 in Oman in consortium with Oilex-Australia and others – HPCL Share 12.5%; A block in Carnivorn Basin Australia in consortium with Oilex and others – HPCL share 20%
  • The Joint Venture Company of HPCL – Prize Petroleum is working on 3 onshore marginal fields and has been awarded a cluster of 7 group in offshore near Mumbai High fields. Also it has been given a 50% share in Sanganpur marginal field near Mehsana, Gujarat.
  • Diversification into Petrochemicals

  • HPCL is also looking forward to setup a petrochemical complex at Visakh (SEZ).
  • Entry in Gas & Wind Power

  • Looking to make big strides into city gas distribution projects via JV with GAIL and tieups with GSPC in cities like Visakh, Vijaywada, Hyderabad, Indore, Kota (Rajasthan), Ahmedabad, Surat and Baroda.
  • It is exploring possibility of setting up a 5MMTPA LNG terminal at Mundra.
  • Also it is setting up 2 wind power projects each generating 25MW in 2 phases. The capital outlay for the firs phase is Rs1.4bn.


Despite several initiatives by the company to improve its operating performance, we continue to have a skeptical view about the future. Our skepticism is on the premise that of the Rs283bn worth of bonds, for which the in principle approval from the government has been received; only Rs143bn for the first half has been assured. For the remaining it is dependent on what the actual under recovery is. Also there are talks moving around that in the wake of the ensuing elections, Government might reduce petrol and diesel prices. This step if initiated could take the oil marketing companies back to red.

Sharekhan Eagle Eye (equities) & Derivatives Info Kit

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Banking Q2FY2007 earnings review

* After two relatively dull quarters, the latest quarterly results truly justified the run-up in the banking stock prices. The exuberance in the banking sector is based on the core fundamentals and improved visibility in the earnings of the sector, a glimpse of which we have seen during Q2FY2007.

* The net interest income (NII) witnessed a handsome growth, backed by a strong advances growth and the relatively stable net interest margins (NIMs). Higher growth in the fee income helped a commendable growth in the core operating profits.

* With the benchmark yields down almost 50 basis points from the quarter ended June 30, 2006, instead of a mark-to-market provisions charge that was seen in the previous couple of quarters, we saw most banks writing back excess provisions. This kept the overall provisions down and helped the robust growth in profits.

* Based on the improved visibility in the earnings for the banking sector, we have revised the earnings for certain banks. We feel that with the busy season ahead the banking sector is poised to see better times. Our top picks among the public sector banks remain Bank of India, Canara Bank and Punjab National Bank while in the private banking space UTI Bank is our preferred choice.

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Man Financial - Be Selective

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Thanks Vishesh

Indian Retailing - JP Morgan

Reliance Retail - Confident Debut

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Thanks Vishesh

Sensex snaps four-day winning streak

Profit-taking emerged in select frontline shares including index heavyweight Reliance Industries (RIL), which brought the Sensex down in a volatile trading session. Volatility in the Sensex was partly due to volatility in some of its constituents, namely, Reliance Industries, ICICI Bank and Bharti Airtel.

The 30-share BSE Sensex lost 30 points (0.23%), to end at 13,156.66. The S&P CNX Nifty dropped 10.50 points (0.28%), to end at 3,798.75.

The market remained volatile throughout the day. The benchmark index, which had weakened in late trading, had earlier surged over 100 points in opening trade tracking firm global markets, to hit 13,300 level for the first time.

Between some of the vital tops and bottoms of the day, the Sensex swung over 300 points. Between the day’s low of 13,135.21 and a high of 13,300.69, it swung 165.48 points.

The market-breadth turned weak during the course of trading compared to that in early trade. For 1,390 shares declining on BSE, 1,124 rose. Just 80 stocks were unchanged. Losers outpaced gainers by a ratio of 1.23:1.

The turnover on BSE surged to Rs 4,714 crore from Monday’s Rs 4,265 crore.

Select side-counters surged. Punjab Communications (Rs 52.70), Shyam Telecom (Rs 158.75), Development Credit Bank (Rs 49.80), Pantaloon Retail (Rs 2156), Action Construction (Rs 244.65), Revathi Equipment (Rs 643), Indo Asian Fusegear (Rs 130.45), Centum Electronics (Rs 227.50), Suryajyoti Spinning (Rs 49.90), Nucleus Software (Rs 536), Apollo Hospitals (Rs 489), Binani Industries (Rs 320), Motherson Sumi Systems (Rs 99), Voltamp Transformers (Rs 512.55), Sesa Goa (Rs 1294), and Aban Offshore (Rs 1200) rose between 6 - 20%.

Firm global markets, due to ample global liquidity, have propelled the Sensex to an all-time high above 13,000. The BSE Sensex surged 224.99 points (1.7%) in the past four trading sessions, from 12,961.90 on 31 October 2006. It rose in all those four trading sessions.

The Indian equity market has benefitted from strong global liquidity. The domestic bulls have been going strong for about two years now. During this period, the market staged a strong comeback after some major corrections. In calendar 2006 so far, the BSE Sensex is up almost 40%.

However, valuations appear stretched. At 21.6 times its trailing 12-month September 2006 earnings, the Sensex is trading at a premium over its regional peers.

Last few trading sessions have witnessed a rally in select small-cap and mid-cap shares. Even as the Sensex has surged to an all-time high, a number of small-cap and mid-cap stocks are yet to see their all time highs since May 2006.

In today’s trade, RIL shed 1.4% to Rs 1,286.60, in contrast to the firm early trend when it had hovered at about Rs 1,312. The stock surged since late last month on multiple triggers, and played a key role in the benchmark index's surge by virtue of being a heavyweight. RIL has a huge 11.8% weightage in the Sensex.

Software major Infosys rose 1.6% to Rs 2,105. Infosys' shareholders today approved an issue of up to 30 million American Depositary Receipts before markets opened. At the time of announcing Q2 results, Infosys said that it was planning a sponsored ADR issue.

Housing finance major HDFC added 2.5% to Rs 1,566, extending its recent upmove, which has been triggered by expectations of growth in demand for housing loans in Maharashtra after the state government last week announced incentives for the housing industry.

Dr Reddy’s Lab rose 2% to Rs 793. Last month, the company reported robust Q2 results.

Metal shares rose tracking firm base metal prices on LME. Hindustan Zinc jumped 5% to Rs 987.60. On the London Metal Exchange, zinc hit a record high of $4,460 a tonne, up from Monday's close of $4,405 a tonne. Zinc futures have gained nearly 134% so far this year, outperforming other base metals.

Shares of oil marketing firms edged lower as crude price surged. Indian Oil Corporation lost 2.2% to Rs 505, BPCL shed 3.3% to Rs 389.65 and HPCL lost 3.4% to Rs 310. Oil marketing firms continue to make losses on sale of diesel, kerosene and LPG, while making profit on petrol.

Two-wheeler makers slipped. Bajaj Auto lost 2.6% to Rs 2,720 and Hero Honda shed 3% to Rs 737. The two-wheeler industry has been witnessing pressure on margins due to rising input costs and intense competition.

Car major Maruti Udyog lost 1.2% to Rs 943.50, on reports that the ministry of commerce and industry had rejected the automaker’s application for granting special economic zone (SEZ) status for its manufacturing facility being developed at Manesar, in collaboration with Nissan.

Tata Steel shed 1.8% to Rs 496.50. Tata Steel is optimistic it will complete the agreed takeover of Corus Group by January, Tata Steel Managing Director B Muthuraman said on Monday. Some investors, including Standard Life Investments, the biggest shareholder in Corus, have said the agreed price of 455 pence per share was lower than expected.

FMCG giant Hindustan Lever ended flat at Rs 247.10. Volumes in the scrip were a hefty 28.2 lakh shares on BSE.

Iron ore exporter Sesa Goa jumped 6% to Rs 1,294, tracking a rally in mining stocks across global markets.

Hotel shares were in demand on strong prospects due to rising room rates and healthy occupancies. Indian Hotels rose 3% to Rs 148.75, Hotel Leelaventure rose 0.4% to Rs 64.65, EIH gained 5% to Rs 106 and Royal Orchid Hotels rose 2% to Rs 190.95. In terms of financial performance, the second half of the year – October-March period -- has been traditionally strong for the hotel industry.

GMR Infrastructure rose nearly 2% to Rs 353, after the Supreme Court on Tuesday rejected a petition filed by Anil Ambani's Reliance Airport Developers challengiing the government's decision to award bids for modernising Delhi and Mumbai airports to rival bidders. "We find no merit in the plea," a bench comprising of two judges said. GMR has won the bid to modernize the Delhi airport.

Punj Lloyd rose 3.4% to Rs 874, after the company said on Tuesday it had been offered contracts worth Rs 1,163 crore from state-run Indian Oil Corporation for their refinery project at Haldia, West Bengal.

Recently-listed Development Credit Bank jumped 10.7% to Rs 49.80. The stock rose on a heavy volume of 1.22 crore shares on BSE.

Meanwhile, National Council for Applied Economic Research (NCAER) has revised up its 2006/07 economic growth forecast to 8.1% from 7.9% previously due to good monsoon rains, robust exports and foreign investment inflows. It expects GDP to expand by an average annual rate of 8.2% in the next five years. Finance Minister P Chidambaram said on Tuesday the economy can sustain 8 - 10% growth in coming years with more reforms.

Market slips marginally on late selling

The market witnessed selling pressure towards the close, after an early rally had seen the Sensex notch up gains of 114 points on sustained buying support. The Sensex began the day with gains of 22 points at 13209 on the back of firm Asian indices and surged above the 13300 level to touch a new intra-day high of 13301. The Sensex held firm above 13200 amid a range-bound trend for the better part of the trading session before the resumption of selling dragged it to the day's low of 13135. The Sensex ended the session with losses of 30 points at 13157, while the Nifty was down ten points at 3799. However, the other Asian indices like the Nikkei, the Hang Seng, the Kospi and the Straits Times closed with marginal gains.

The market breadth was negative. Of the 2,601 stocks traded on the BSE, 1,134 stocks advanced, 1,387 stocks declined and 80 stocks ended unchanged. On the sectoral front, the BSE CD index rose 1.46% at 3319 while the BSE FMCG index dipped 1.04% at 6266.

Among the losers, Bajaj Auto shed 2.63% at Rs2,722, Hero Honda dropped 2.35% at Rs743, Tata Steel lost 1.72% at Rs497, NTPC tumbled by 1.69% at Rs131, BHEL was down 1.65% at Rs2,430 and REL declined 1.55% at 507. ACC, L&T, RIL, Maruti and ITC were down around 1% each. Satyam, Grasim, Ranbaxy, Reliance Communication, ONGC, SBI, Wipro, HDFC Bank and Bharti Airtel ended the day in the red. However, HDFC rose 2.18% at Rs1,560, Gujarat Ambuja jumped 2.07% at Rs131, Dr Reddy's added 2.04% at Rs792, Hindalco gained 1.82% at Rs191 and Infosys moved up by 1.54% at Rs2,102. Cipla, Tata Motors, ICICI Bank, TCS and HLL ended with marginal gains.

Over 1.22 crore Development Credit Bank shares changed hands on the BSE followed by IFCI (98.82 lakh shares), Himachal Futuristic (93.10 lakh shares), Welspun Gujarat (47.92 lakh shares) and GE Shipping (44.33 lakh shares).

Value-wise Hindustan Zinc registered a turnover of Rs227.10 crore on the BSE followed by GE Shipping (Rs152.32 crore), Reliance Industries (Rs134.10 crore), Jaiprakash Associates (Rs107.07 crore) and IVRCL Infrastructure (Rs91.88 crore).

Indiainfoline - Parsvnath Developers IPO

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Premium News - Eveready to raise battery price

Dry cell battery maker Eveready Industries India Ltd. plans to increase battery prices by 10-15 percent from Dec. 1, due to a rise in the price of key input zinc, a senior official said.

"Zinc prices are rising steeply and we have to pass it on to the consumers to an extent," Director Suvamoy Saha told Reuters.

The company, which plans to set up a factory in the northern Uttaranchal state, is now planning another unit at a cost of 500-600 million rupees.

PYT - Trading Calls

Buy Avaya Global with a stop loss of Rs 260 for target of Rs 350/400

Buy Godrej Industries below Rs 177 with stop loss of Rs 173; This is a day-trading recommendation

Buy Alstom Projects below Rs 470 with a stop loss of Rs 462; This is a day-trading recommendation.

Buy Asian Paints with a stop below Rs 692 for a target of Rs 714

Buy Glaxo SmithKline Pharma with a stop below Rs 1187 for a target of Rs 1239

Sharekhan HighNoon

The Nifty has been witnessing volatility and has slipped from its early high of 3840 to 3810...

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Sharekhan Commodities - Bullions: Buy on dips

We have been maintaining a cautious bullish view on gold for the last few days, and the counter has moved as per our expectation. A blip on Friday and Monday confirm the same

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Networth Stock - Morning Notes

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Action may continue

After gaining over 169 points in the last four trading session, the market may show more exuberance and advance further on the back of bullish sentiment amongst investors. Yesterday, the Sensex closed at 13187 amid buying in several heavyweight and sectoral stocks. Also the positive opening in the Asian indices like Nikkei, Kospi and Jakarta coupled with overnight gains in US & European indices may help the market to move in positive territory. On the technical side, the Nifty could test upper levels at 3820 and 3860 should find support in the 3780-3727 range, while the Sensex may face resistance at 13258 and test lower levels at 13020.

US indices registered decent gains on on Monday with the Dow Jones gaining 120 points at 12106 and the Nasdaq ending 35 points higher at 2366.

Baring MTNL all the Indian ADRs ended on a positive note on the US bourses. Patni was the leading from the front with gains of over 3%. Rediff, Infosys, HDFC Bank, ICICI Bank, and Dr Reddy's gained over 1% each while Satyam, Wipro and Tata Motors ended with marginal gains. However, VSNL ended with marginal losses.

Crude oil prices in the US market ended on positive note, with the Nymex Light Crude oil for December delivery gaining $0.88 to close at $60.02 a barrel and the London Brent crude adding $1.28 to close at $59.15 per barrel. However, in the commodity space, the Comex gold for December series declined $1.30 to settle at $627.90 an ounce.

On Nov 03 2006, FIIs were net buyers of stocks to the tune of Rs227.40 crore (purchases worth Rs1,683.10 crore and sales of Rs1,455.70 crore) while domestic mutual funds were net buyers of stocks to the tune of Rs77.65 crore (purchases worth Rs525.32 crore and sales of Rs447.67 crore).

Tech View: Up trend to continue!!

Sensex closed in green, up by 56 points at 13185 levels with decent volume of 4272 cr.

It was a choppy session on first day of week as Sensex opened with upside gap and slipped towards days low and again bounced back and managed to close in green.
It has formed a Body Gap up pattern which indicates the continuation in the up trend will remain as it is.
So far seen, Sensex has forming a Continuation pattern for last four days against 3 days rally started from 26th of Oct 2006 to 31st of Oct 2006 and maintained the important support of 12920 levels. This gives us a positive signal for the up trend. A small correction above 12920 levels on intraday basis but overall bias looks positive as long as Sensex hold 12930 levels.

Intraday Strategy :- if opens down and hold above 13100 level then buy for the target of 13260 level with sl of 13080 level.