Inflation falls to 13-month low
India's inflation, based on the Wholesale Price Index (WPI), declined to a 13-month low in the week ended June 16 on the back of lower prices of food, food products and cereals. The annual point-to-point inflation fell to 4.03% from 4.28% in the previous week, the Commerce & Industry Ministry said. The annual inflation rate was the lowest since the end of April 2006. Analysts had forecast a reading of 4.13%. It was also lower than the 5.5% rate registered during the corresponding week of the previous year. With this, inflation is now close to the lower end of the Reserve Bank of India's (RBI) medium-term target of 4-4.5%. In its annual monetary policy statement, the central bank had said it would like to contain inflation in FY08 close to 5%. As a result, the central bank may hold its key short-term rate unchanged at the next policy meeting on July 31. A pause in the monetary tightening will help bolster economic growth
Infosys, Capgemini shares rise on deal talk
Shares of Infosys Technologies Ltd. climbed as much as 2.5% on Friday amid media reports that the Bangalore-based IT major was planning a bid for Capgemini SA, Europe's largest computer-services company. However, the spokesperson of both the companies denied the rumours that lifted the shares of Capgemini on the Euronext, Paris. Capgemini was a key gainer, on the back of rumours that India's Infosys was mulling a takeover bid. Infosys shares ended at Rs1,929 after touching a high of Rs1975. Infosys shares are down 13.4% this year, compared with a 5.8% rise in the Sensex due to the concerns over rupee appreciation. For FY07, Infosys had revenues of US$3.09bn, while Capgemini clocked a turnover of US$10.3bn in the calendar year 2006. In terms of profitability Infosys is far superior than Capgemini. The operating margin for Infosys is at 27.57% while for Cap Gemini it is at 5.8%.
Within striking distance
I tried so hard
And got so far
But in the end
It doesn't even matter
The month of June has been nothing to write home about for the bulls after a terrific performance in April and May. The week too wasn't all that exciting though there was a big rally on the last day, which helped the key indices end the week with a gain of 1% each. The Sensex failed to scale a new peak as the bulls continue to face stiff resistance every time the 30-share BSE index gets close to the new milestone. The market managed to overcome the volatility on account of the F&O expiry and closed slightly higher.
Immediate concerns over interest rates eased after the Federal Reserve kept its benchmark interest rates unchanged and looks set to do so for the rest of this year. Also, inflation declined to a 13-month low of 4.03%, which lifted the spirits at the end of a dull month for the market. Short covering helped the indices climb after a weak start to the week. F&O expiry was in line with expectations, though concerns remain about high open interest and rising cost of carry.
Cement and Sugar stocks were in the limelight. Capital Goods, Power and Real Estate stocks too were among the gainers. However, IT stocks continued to be a major laggard with nagging concerns over the appreciation of the Rupee. Frontline stocks like ACC, BHEL, Tata Power, SBI, Reliance Energy and L&T were the major gainers in the Sensex. The Sensex climbed by 183 points or 1.3% during the week to close at 14650.51 and the NSE Nifty advanced 66 points or 1.6% to 4318.30.
Sugar stocks were in momentum during the week after Finance Minister P. Chidambaram said the government might announce more sops for the troubled industry. Plus, the Food Ministry said that sugar mills will be allowed to store an additional three million tons of sugar. Balrampur Chini rallied by over 12% to Rs76, Renuka Sugar rose over 8% to Rs652, Sakhti advanced by 7% to Rs88 and Bajaj Hindusthan added 4.8% to Rs169.
Cement stocks were back in flavor after the Finance Minister's statement that the government hasn't asked companies to freeze prices. Prism Cement soared 25% to Rs43, Mangalam Cement rallied by over 16% to Rs159. Among the heavy weights, ACC was up by over 9% to Rs933, Gujarat Ambuja was almost up by 7% to Rs124 and Grasim was up by 5.5% to Rs2636.
IT stocks continued to be sluggish as the rupee recorded its biggest quarterly gain in more than three decades. The Indian currency rose 6.8% in the April to June quarter as the government allowed it to advance to contain inflation. Index heavy weight Infosys lost 1.1% to Rs1929, Wipro was flat at Rs518. However, Satyam gained 1.1% to Rs467.
Capital Goods shares were the major gainers. The BSE Capital Goods index rose by over 5% on the week. BHEL gained by over 6.5% to Rs1538, L&T rose by over 4% to Rs2196, Siemens surged 6.4% to Rs1396 and ABB rallied by over 15% to Rs1095.
Banking stocks continued their good run, led by SBI. The BSE Bankex was up 2.2%. SBI led from the front after its chairman said the bank will conclude a share sale by December and will unlock value by hiving off life insurance and asset management business into a NBFC. The scrip was up 4.6% to Rs1525. HDFC Bank rose nearly by 4% to Rs1146. Others like Yes Bank, IndusInd Bank and Kotak Mahindra Bank were the major gainers among the Mid-Caps.
Sensex set for new peak
The peak seems to have evaded the Sensex a couple of times in the recent past. Given the breakout seen on Friday it could once again be the turn of Index heavyweights to lead the charge? While it now appears that the Sensex may hit a new peak, the big question is will it be able to sustain at higher levels. Any negative news on the global front could take a toll on the local bourses though Indian markets have managed to chart its own path. Crude oil prices have been moving upwards. The benchmark Sensex is less than 100 points away from its lifetime high. Investors will also keep an eye on fund flows, which have been slowing off late.
A lot of speculation and comments will flow in regarding expectations from the quarterly numbers. As always Infosys’ results will kick off the earnings season after a week. Till then expect lackluster markets. Of course, the noise of a new peak and profit booking thereafter will some swings to what would otherwise be a stagnant market.How does advance tax affect market?
Every quarter advance tax numbers of companies are eagerly awaited by equity market players. Most investors take cue from these numbers to plan their investment strategy. ET delves into the importance of advance tax figures and its impact on the stock market.
What is an advance tax?
Like the name suggests companies have to estimate their profits and pay advance tax accordingly. Under the Income Tax Act, companies are required to spread their tax liability through the year namely June, September, December and March. The tax has to be paid by the 15th of the specified month based on the estimated profits that a company is likely to earn during the year.
How is advance tax paid by companies?
Companies have to pay 15% of their total tax in the first quarter, i.e. June 15, of any fiscal year. In the next quarter (September 15), 45% of the total tax needs to paid; followed by 75% by December 15; and finally by March 15, 100% of the estimated tax for the year has to be paid.
How are advance tax figures used by equity market?
Advance tax is an important yardstick for analysing a company's performance. Market players compare advance tax paid by a company during the quarter with that of the corresponding year to understand the performance of that company during the year. Analysts use this figure as a parameter for valuing a particular company.
Why is it that these figures often lead to a jump in share prices?
Advance tax figures along with various other indicators are used as proxy to estimate a company's profits during the given quarter and for the full year. Profits determine the valuation of a company.
If it is felt that a company will declare a higher profit than expected, the market will push up the share price accordingly. Similarly, if it is expected that a company will post lower profit during the period, share price of that company may take a hit.
Does a lower advance tax always show a negative indication for the company?
A lower advance tax shows that the profit will be lower, but the main question is whether the market has factored it in the stock price. If the market gets an indication that a company may post lower profits and if it is already built into the stock price, then the advance tax numbers will just be a reiteration of this figure.
There will be nothing new based on which the stock price will change, and due to this the impact may not be negative. The impact of advance tax has to be considered in tune with market expectations.
Preference shares norms relaxed
There's some relief for Indian companies wanting to raise funds abroad by issuing non-convertible, optionally convertible or partially convertible preference shares. The Government now says foreign investment in all such preference shares will be treated as equity and not debt if companies have taken verifiable and effective steps prior to April 30. However, companies claiming benefit under this exemption would have to complete the process of issuing the shares and mobilising resources by the end of July. The relaxation is likely to benefit companies that had announced plans to raise money through this route before the new guidelines were introduced. However, they will have to conform to sector-specific FDI caps.
MF investment...SEBI extends deadline for mandatory PAN
Mutual fund (MF) investors have been given a breather as the July deadline for submitting the permanent account number (PAN) mandatory for MF investments has been extended till December 2007. "However, all MF investors will have to compulsorily provide the proof that they have applied for PAN while making MF investment," according to A.P. Kurian, Chairman, Association of Mutual Funds in India (Amfi). In his budget speech, the Finance Minister had made PAN as the sole identification for all securities market transactions above Rs50,000, including MFs. However, fund houses sought an extension of the deadline on concern that it could force small retail investors to shy away from MFs, especially systematic investment plans (SIPs).
FIPB rejects ICICI Bk application on new unit
The Foreign Investment Promotion Board (FIPB) rejected ICICI Bank’s proposal to sell 24% stake in ICICI Financial Services, the holding company for its insurance and asset management ventures, to foreign investors. FIPB rejected the proposal on the grounds that it did not comply with the 26% cap on FDI in insurance ventures. Later on, reports suggested that the FIPB is likely to reconsider its decision in its next meeting scheduled for July 13. FIPB is not likely to consult the Law Ministry on the issue, but might approach the Banking Division and insurance regulator IRDA.
SBI sees share sale by December
State Bank of India (SBI) would hit the market with the proposed capital raising plan as early as December, Chairman Om Prakash Bhatt said. The fund raising move includes issue of preference shares and a possible follow-on public offer, Bhatt said. The bank would finalise the fund raising option a week after the proposed amendments to the SBI Act is cleared by parliament, he said. SBI plans to raise as much as Rs500bn over the next three years to fund future growth in business amid a rapidly expanding economy. The bank would raise Rs150bn in the current financial year and has already raised Rs50bn. SBI's seven associate banks would need additional capital of Rs80bn by 2009, he said. SBI Chairman also said the bank would set up a non banking financial company (NBFC) by consolidating its life insurance and asset management businesses and is also seeking partners to foray into general insurance. The bank will sell up a 10% stake to 3-4 strategic investors for price discovery and would seek to list the NBFC in FY09. On general insurance, SBI will finalise a partner in the next couple of months.
Govt buys RBI stake in SBI
The Government bought the Reserve Bank of India's (RBI) entire 59.7% stake in State Bank of India (SBI) for over Rs350bn on Friday, a day before the central bank closed its annual book of accounts. The Centre picked up 31.43 crore shares of SBI for Rs353.51bn. It did not have to borrow from the market due to buoyant tax collections. The Government had earlier raised Rs50bn outside the scheduled borrowings to part-finance the deal. Finance Minister P. Chidambaram, in his budget speech, had said RBI's stake in SBI would be transferred to the Centre in order to separate ownership and regulatory functions of the central bank. Once the RBI sells its stake, the Government will hold 59.73% stake in SBI. An amendment to the SBI Act is likely to be cleared by parliament during the monsoon session, allowing for a reduction of the government’s stake to 51%.
Bajaj Auto sees flat bike sales in July, Aug
Bajaj Auto Ltd. said that motorcycle sales in the next two months were expected to be flat and would revive only in October after the launch of a new model. The company sold 167,008 bikes in May, a drop of 15% from the year-ago period. It has also cut bike production by 20,000-30,000 units as demand slowed due to high interest rates. Bike sales will rise to more than 200,000 units a month from October, Managing Director Rajiv Bajaj said after launching 220cc Pulsar DTS Fi. The company, which is developing a small four-wheel commercial vehicle, is also toying with the idea of developing a small car, Bajaj said. "We are experimenting on a small car... if we have an interesting concept, then we will like to show it," he said. "It will be a small car, it will be a high-tech car. It will be more like a Pulsar on four wheels."
Air India kicks off cargo operations
Air India has started its cargo operations with two Airbus planes. Civil Aviation Minister Praful Patel kicked off the national carrier's first flights to Europe with the freighters, converted from old A310 passenger planes at a cost of US$16mn. Air India has a share of about 11% of cargo export from the country and 7% share of imports. Prior to the launch of the new Airbus freighters, Air India was carrying cargo in passenger planes. The public sector airline would operate four flights a week to Frankfurt and Paris with the two A310s. The first cargo flight from Mumbai to Frankfurt would have stopovers in Bangalore and in Dammam, Saudi Arabia, it said. India's growing trade has boosted demand for cargo flights. At present, only Blue Dart Express has its own dedicated cargo planes. The rest of the airlines plan to start cargo flights by buying new planes or converting passenger aircraft.
Kesoram spurts on BK Birla succession plan
Shares of diversified cement maker Kesoram Industries Ltd. surged after Basant Kumar Birla surprisingly named Kumar Mangalam Birla as the inheritor of the Kolkata-based firm. Speaking at the AGM of Century Enka in Kolkata, BK Birla suggested that all of his group companies, barring Jay Shree Tea Ltd., would now go to Kumar Mangalam Birla. Kesoram, which was expected to go to veteran industrialist's daughter Manjushree, would also be handed over to Kumar Mangalam Birla. BK Birla has cited Kesoram's big size as the reason for the change oh heart. According to BK Birla's 2001 succession plan, Kesoram was to go to Manjushree, who is currently a Director on the Board of the company. Talking to reports after the AGM, BK Birla said it had not been decided as to which companies would go to Manjushree. Kesoram shares gained more than 18% on the week to end at Rs453.
MICO shares fall below open offer price
Shares of Motor Industries Co. Ltd. (MICO) fell after the revised open offer price announced by the company's German parent left investors disappointed. Robert Bosch, the world's largest auto-parts maker, raised its offer for an additional 20% stake in the Indian arm, to Rs4600 per share from the earlier offer of Rs4000 a share. MICO shares fell below the offer price, which was about 2% lower than the company's closing price of Rs4685.75 on June 26. The stock closed the week at Rs4481.95, down Rs303 or 6.3% from last Friday's close. On April 27, Robert Bosch made an open offer to buy 6,410,292 shares in MICO at Rs4000 a share. It already owns a 60.55% stake in the Bangalore-based company. Robert Bosch wants to increase its stake in MICO to 80.55%.
Cadila, United Phosphorus announce deals
Cadila Healthcare Ltd. on Monday announced that it would acquire Quimica e Farmaceutica Nikkho do Brasil Ltda. (Nikkho), a privately held mid-sized company based in Brazil. The acquisition is being made through Zydus Healthcare Brasil Limitada, the step-down wholly-owned subsidiary of the company. Headquartered in Rio de Janeiro, Nikkho is a profit making company and had sales of US$26mn for the year 2006. The consideration paid represents sales multiple of around one. The Brazilian pharma market is the largest in Latin America at US$8bn. Nikkho currently markets 22 products under 13 different brands. It also has nearly 50 registered brands which are yet to be launched.
United Phosphorus Ltd. said it has acquired the global triphenyltin hydroxide contact fungicide (TPTH) and fenbutatin-oxide miticide (TNTO) businesses from DuPont. The two products are marketed primarily as Super Tin and Vendex, respectively. Triphenyltin hydroxide is a contact fungicide used mainly on potatoes, sugar beets and pecans. Fenbutatin-oxide is one of the largest tin acaricide used on various crops such as citrus and pome fruit. Both the products will strengthen the company's position in the fruit, nut, vegetable and row crop markets, United Phosphorus said. Under this agreement, United Phosphorus and its subsidiaries throughout the world will be selling triphenyltin hydroxide and fenbutatin-oxide and its formulations from October 1. Until then, DuPont will be acting as agent for United Phosphorus and its subsidiaries.
Spice IPO subscribed over 37 times
The IPO of Spice Communications Ltd. was subscribed more than 37 times. The company received bids for 4.25bn shares as against the issue size of 113.11mn shares, latest data available on the Bombay Stock Exchange (BSE) shows. Spice Communications had fixed a price band of Rs41 to Rs46 per share for its maiden public issue. The company would raise Rs57.57bn at the lower end of the price band and Rs63.22bn at the upper end of the price band. The BK Modi Group owns 51% in Spice Communications while Telecom Malaysia holds the balance 49%. Post IPO, their shareholding will be 41% and 39%, respectively.
The Follow-on Public Offering (FPO) of Bharat Earth Movers Ltd. (BEML) was fully subscribed on the first day itself. Majority of the bids came from the Qualified Institutional Buyers (QIBs). This portion of the FPO was subscribed more than two times. Even within this space, there was heavy demand from local financial institutions and mutual funds. The company has set a price band of Rs1,020 to Rs1,090 per share. The issue, which opened for subscription today, would close on July 3.
New listings...Nelcast slips, Meghmani rises
Shares of Nelcast Ltd., a maker of castings and components for commercial vehicles and tractors, closed below the issue price after an initial spurt. The stock opened at Rs252 on the Bombay Stock Exchange (BSE) as against the issue price of Rs219. The scrip finished the week at Rs188.80, after being as high as Rs284.70 and as low as Rs186.50. Nelcast entered the capital market with an IPO of 4.35mn shares. The issue was subscribed seven times.
Shares of pigments and agrochemicals maker Meghmani Organics Ltd. climbed as much as 79% in their debut on Thursday. But, the stock cooled off a little bit as the initial euphoria faded. The stock opened at Rs33.25 on the BSE as against the issue price of Rs19 per share. The scrip finished the week at Rs26.05 after being as high as Rs34 and as low as Rs25.65. The public issue of Meghmani Organics was subscribed nearly 24 times.
Fed leaves rates steadyAs expected, the US Federal Reserve left its benchmark short-term interest rate static and said it was still worried about inflation. This means that the American central bank will leave rates steady for a while instead of cutting them notwithstanding the sluggish US economy. The central bank decided to hold its target for the key federal funds interest rate at 5.25%. The vote was unanimous. The fed funds rate is the rate at which banks lend each other money overnight. The Fed has held rates steady for the past year after completing an unprecedented series of 17 straight 0.25% rate increases to check inflation. The FOMC said the predominant policy concern remains the risk that inflation will fail to moderate as expected. The Fed committee dropped the phrase "elevated" for describing the core inflation, saying that "readings on core inflation have improved modestly in recent months." But, it added that "a sustained moderation in inflation pressures has yet to be convincingly demonstrated."
China growth to accelerate this year
China's economy may expand at the fastest pace in 12 years in 2007 and inflation will exceed the central bank's target, according to a report by economists at the People's Bank of China research department. Gross Domestic Product (GDP) may grow by 10.8%, said the report published in the Beijing-based China Securities Journal. Consumer prices may rise 3.2%, the fastest pace since 2004 and more than the central bank's 3% cap. The World Bank and the Organization for Economic Co- operation and Development (OECD) expect China's economy to grow 10.4% in 2007. The International Monetary Fund (IMF) and the Asian Development Bank (ADB) forecast a 10% expansion.
Oil prices cross US$70 per barrel
Oil prices rose above the psychologically important level of US$70 per barrel on worries about gasoline supplies in the US. The Nymex crude contract reached as high as US$70.52 and traded above US$70 for several hours - the first time it did so in the past 10 months. This jump was driven by concerns over summer supplies following the release of a weekly US government report that showed gasoline inventories dropped unexpectedly. With most US refineries expected to increase output in the coming months after finishing maintenance, pressure on gasoline was expected to drop. Still, prices could remain high because increased refinery capacity puts greater demands on crude availability.
POSCO talks cooperation with Arcelor Mittal
POSCO of South Korea said it was discussing cooperation with Arcelor Mittal, the world's largest steel maker, but no major progress had been made. "Both sides have discussed cooperation in various ways such as overseas projects and raw material development...But we have made no specific progress and no details have been decided yet," a POSCO official said. The comment came after a Korean newspaper reported that Mittal and POSCO may strike a partnership deal which could remove a potential takeover threat against POSCO. Both companies have talked about possible business cooperation since a senior official at Mittal visited POSCO in February, the official said. "But talk of a strategic alliance between the two companies is not going too far," he added.
GM to sell Allison Transmission
Shares of General Motors (GM) hit a two-year high after the automaker said it had agreed to sell its Allison Transmission commercial and military business to an investment conglomerate and a private equity firm. The sale to Onex Corp. and the Carlyle Group includes seven manufacturing plants in Indianapolis and its global distribution network and sales offices. A production facility in Baltimore, which makes conventional and hybrid transmissions for pickup trucks and SUVs, will remain with GM. The automaker said the deal, expected to close as early as the third quarter of this year pending union and regulatory approval, is part of an effort to raise money and focus on its core business.
iPhone goes on sale
After six months of unprecedented hype, thousands of people will get their hands on the iPhone, the new cell phone from Apple. Short lines of eager customers were camped out at Apple and AT&T stores across the US. The gadget combines the functions of a cell phone, iPod media player and wireless Web browser. Since its unveiling in January, the company's stock is up more than 40% amid expectations that iPhone will become yet another blockbuster product for Apple after Macintosh computers and iPod portable music players. Apple itself has set a target of selling 10 million units worldwide by 2008, gaining roughly a one-per-cent share of the cell phone market. Despite the handset's price tag of US$499 for a four-gigabyte model and $599 for an eight-gigabyte version, on top of a minimum US $59.99-a-month two-year service plan with AT&T Inc., the phone's exclusive carrier, some bullish Wall Street analysts have predicted sales could hit as high as 45 million units in two years.