IT results...TCS comes up trumps
After last week's disappointing results from Infosys, the spotlight shifted to the other IT heavyweights. Barring TCS, which managed to spring a positive surprise, the rest of the pack reported a drop in bottomline and announced muted guidance. While TCS and Tech Mahindra did not announce any guidance at all, Satyam cut its rupee EPS outlook for the full year and Wipro has projected a 7% sequential growth in its Global IT Services & Products revenue for the second quarter. Despite the relative underperformance from the IT biggies, the stock market did not punish the stocks the way it greeted Infosys' results and reduction in guidance. That's perhaps has to do with the fact that the market had already discounted a bad quarter for the IT sector already. In fact, some industry analysts advocate buying IT stocks at lower levels as a contrarian bet.
TCS surely was the biggest surprise packet. The company managed to beat street expectations through a mix of forex hedging, operational improvement and some help from the non-operating side. Overall, it was a solid operational performance despite a tough operating environment. Despite rupee appreciation and wage hikes, TCS managed to protect its net margins, with productivity gains and cost management. The picture was not so pretty for Wipro, Satyam and Tech Mahindra, all of whom witnessed a 1-2% decline in their operating profit margins. Looking ahead, the margin pressure will continue to haunt the IT sector, as the rupee is not showing any signs of a correction or moderation. For Wipro and Satyam, the task will be even more tougher as they will go for wage increases in the next two quarters respectively.
PM panel sees 9% GDP growth in FY08
The Indian economy is likely to continue its sterling show this year as well and inflation will remain under control, according to the Prime Minister's Economic Advisory Council. However, the council is worried about the relentless inflow of overseas money has suggested a three-pronged approach to tackle the same. "The economy grew at 9.4% last year (FY07). In the current year, our forecast is that the economy will grow at 9%. Agriculture will grow by 2.5%, industry by 10.6% and the service sector by 10.4%," said C. Rangarajan, head of the council. But, the former RBI Governor warned that sustaining the lower growth would be difficult in the years ahead if the agriculture and power sectors continued to lag. He listed two main risks to the Indian economy - the rising prices of crude oil and power shortage.
The report stated that inflation will continue to ease. For the year, it assessed the inflation level to remain close to 4% and Foreign Direct Investment (FDI) inflows would swell to US$15bn. Identifying the current spurt in foreign capital inflows as a challenge to liquidity management, the council has suggested a judicious mix of three options - to let the rupee appreciate up to a reasonable level; absorb the capital flows and sterilise the excess over what may be regarded as appropriate, and liberalise outflows by removing administrative and procedural impediments while discouraging inflows by putting restrictions on some areas like ECBs. Rangarajan also said that real estate is one sector where the foreign capital inflows can be moderated.
Market up for sixth straight week
It's something unpredictable, but in the end it's right.
I hope you had the time of your life.
It seems like the bulls just cant get enough of the gains. All the talk of a possible correction has gone for a toss, as relentless inflows from FIIs coupled with firm global markets have propelled the key indices to new all-time highs. Notwithstanding worries about overstretched valuations, a strong local currency, steep rise in crude oil prices and below par performance from IT majors, the bulls notched up yet another victorious week.
Just for the record, the main indices managed to close higher for the sixth week in a row. Metals, Cement, Capital Goods, Real Estate, Auto and Oil & Gas stocks led the rally this week. Finally, the benchmark BSE Sensex surged to a record close with Bharti Airtel, RCOM, RIL, Bajaj Auto and Hindalco leading from the front. The BSE index surged by nearly 2% or 302 points to end the week at 15554 and the NSE Nifty added 1.33% or 60 points to shut shop at 4564.
Reliance Industries was in the limelight on news of a new gas discovery in the Cauvery basin. However, other oil marketing companies bore the burnt of rising crude oil prices.
Auto stocks were mixed. The BSE Auto Index was up 1.4% during the week. Bajaj Auto was the top gainer within the Sensex. The stock surged by over 6.5% to Rs2324. The scrip has recovered smartly from its disappointing quarterly results last week. Also, reports that the company may be looking at acquiring UK's Triumph Motorcycles or Italy's Ducati Motor helped the two-wheeler giant. Hero Honda rose 1.2% to Rs683 and Hindustan Motors climbed by 3.3% to Rs32.5. However, Maruti was down by 0.2% to Rs830.
Metal stocks were up, with the BSE Metal index gaining 1.8% led by Tata Steel. The stock added 2.7% to Rs715. Firm metal prices on the LME and continuing M&A activity in the metal industry globally have supported stock prices recently. Jindal Steel advanced nearly by 5% to Rs4000 and JSW Steel added 0.3% to Rs724. On the other hand, SAIL lost 2.1% to Rs156 and Jindal Stainless slipped 3.3% to Rs152.
Oil exploration stocks led gains in the energy space. The BSE Oil & Gas index was up by 1% during the week. Reliance was the star performer of the week. The scrip rose over 6% to Rs1892. However, oil refinery stocks were on the receiving end as Brent crude came within 25 cents of its all-time high of US$78.65 a barrel. HPCL lost 3% to Rs254, BPCL lost 4% to Rs324 and IOC declined 1% to Rs430.
Banking stocks managed to end with some gains. The BSE Banking index rose 1.6% in the week. With interest rates peaking out and inflation concerns ebbing investors are bullish in the sector. SBI rose 1.5% to Rs1584, ICICI Bank w as up 1.3% to Rs985. Kotak Bank rallied by over 9% to Rs728, PNB added 3.4% to Rs572. However, HDFC Bank dropped 2% to Rs1200.
FMCG stocks under performed as the BSE FMCG index fell by 2% in the week. The FMCG index was the top loser among the sectoral indices. Tata Tea lost by over 10% to Rs770. HUL dropped nearly 4% to Rs194 and Nirma fell 5% to Rs170.
F&O expiry may increase volatility
Voices of concern are falling on deaf ears as the bulls continue their march ahead. Foreign Fund flows continue unabated sending the key indices to new highs. Expiry of the Derivatives contract for the month of July coupled with results could cause some choppiness. Buzz on the street is that select heavyweights will soar to new highs by expiry.
For the coming week, we have Century Textile, Jindal Steel, Rolta, Siemens, Sun Pharma, Union Bank, Balrampur Chini, Bharat Forge, DS Kulkarni, GTL, Hero Honda, Indiabulls, Kotak, IDEA, JSW Steel, ONGC, Patni, PNB, Reliance Cap, SAIL, STER, Bharti Airtel, BEL, Titan, Maruti, Tata Power, GAIL and ITC are among the major companies announcing their quarterly numbers. With so much activity on Dalal Street, bulls could feel uncomfortable at the temporary top.
For the week, FIIs have poured in above Rs60bn in the cash market alone (excluding Friday’s figures) and in last two weeks, they have pumped in above Rs88bn. As long as this tap doesn't run dry, the bulls can wade through any concerns.
While all seems fell for inflows, RBI may have a 'task' to perform given the appreciating Rupee. Indian Rupee climbed to a nine-year high of 40.32 against the Dollar on Friday. While Indian markets often chart its own course, global concerns like housing slump in US, overheating in China and rising oil prices cannot be completely ignored.RIL confirms oil & gas find in Cauvery basin
Reliance Industries Ltd. (RIL) confirmed media reports that it had found oil and gas in the Cauvery basin off the Tamil Nadu coast. The company said it met with success in its very first well in the Cauvery basin. This is the first time a hydrocarbon discovery has been made in the Cauvery basin, RIL said. The deep-water block CY-DWN-2001/2 (CY-III-D5) located in the Cauvery basin, with an area of 14,325 square kilometers, was awarded to RIL under the bidding round of NELP III. RIL holds a 100% participating interest in this block after Hardy Oil of UK relinquished its 10% stake. This discovery namely ‘Dhirubhai – 35’ has been notified to Government of India and Directorate General of Hydrocarbons (DGH). RIL didn't give an estimate on the size of the discovery.
BSNL halves GSM contract: reports
Under pressure from Telecom Minister A. Raja to reconsider the mega GSM tender of 45.5 million lines, state-run telecom titan BSNL trimmed the size by half. The BSNL Board agreed to halve the size of the tender to about 23 million lines. The BSNL Board would let the Department of Telecommunications (DoT) decide on the composition of the tender in terms of 2G and 3G lines. The DoT may limit the contract to only 2G lines as its two representatives on the BSNL Board favoured this option during the meeting. A separate tender for 3G would be floated later on, according to reports. In the earlier order, the short-listed equipment suppliers - Ericsson and Nokia Siemens Networks - had to supply 17 million GSM lines. Of this, the 2G-3G mix was fixed as 75:25. Telecom Minister cleared the revised tender on the grounds that another review will cause further delay. "There is no need for further consideration as it will delay the issue of the order," Raja said in response to a few concerns raised by Department of Telecommunications Secretary D.S. Mathur.
RCOM unit buys Yipes for US$300mnReliance Communications Ltd. (RCom) announced that Flag Telecom, its global telecom infrastructure subsidiary, had acquired US-based Yipes Holdings Inc. for US$300mn. Yipes is said to be profitable with an operating margin of 55%. The San Francisco-based company has 22,000 km of optic fibre network and its customers include the likes of Verizon and NTT. Yipes is the leading provider of managed Ethernet and application delivery services for the global enterprises. Infonetics Research forecasts the Ethernet services market will surge by over 30% CAGR from 2006 to 2010 when it will top US$25bn worldwide. Yipes is also present in London, Hong Kong and Tokyo. Northwest Venture Partners is one of the leading investors in Yipes along with JP Morgan and Sprout Group. Promod Haque, General Partner, Northwest Venture is the chairman of Yipes, and the management team is led by CEO John Scanlon.
Tata Motors eyeing Jaguar, Land Rover: Telegraph
Tata Motors and Mahindra & Mahindra (M&M) are reportedly evaluating separate bids for the Jaguar and Land Rover brands that are being put on the block by US auto major Ford as part of the latter's efforts to cut losses. London-based The Telegraph reported that Tata Motors has asked merchant bankers to start evaluating the merits of a joint offer for Jaguar and Land Rover. According to industry analysts, the two luxury brands could fetch around US$1.5bn. The British newspaper said evaluation of bids is at an exploratory stage, and that it may not lead to a formal bid for Jaguar and Land Rover from Tata Motors. Both Tata Motors and M&M have reportedly signed confidentiality agreements with Ford. A Tata Motors spokesman however declined to comment on the news. M&M Vice-Chairman Anand Mahindra too refused to comment.
Hindalco to buy out Alcan in Utkal
Hindalco Industries Ltd. said that it would acquire the 45% stake held by Alcan Inc. in their Indian Joint Venture (JV), Utkal Alumina International Ltd. The Aditya Birla Group company currently owns the other 55% of Utkal, which was established in 1992 to develop a bauxite mine and alumina refinery in Orissa. In April, Alcan had said that it wanted to sell its stake in Utkal. Hindalco had the first right of refusal on the Alcan stake in Utkal. The companies did not disclose terms of the transaction. Utkal, which is proposed to have a capacity of 1-1.5 million tons per annum, has been facing local opposition for quite some time. The JV partners were to invest US$1bn in the Utkal project.
Deal Street remains active
Biocon Ltd. said that it will sell its Enzymes business to Novozymes A/S for US$115mn. This will enable the company to strategically focus on its core bio-pharmaceuticals business. The enzyme business includes a broad range of industrial enzymes, food additives and process aids. This business vertical of Biocon had revenues of Rs950mn in FY07, accounting for 10% of the company's total turnover. Biocon said it will now concentrate its activities on its bio-pharma business verticals that include APIs, biologicals and proprietary molecules both commercialised and under development.
United Phosphorus Ltd. announced its UK subsidiary has acquired of ICONA and ICONA San Luis S.A., a manufacturer and distributor of crop protection products headquartered in Buenos Aires, Argentina. The share purchase includes all stocks, products registrations, manufacturing sites and all other property rights associated with the business of ICONA. ICONA is a debt free Company, having more than 35 registrations in Argentina. For the year ended September 30, 2006 ICONA's consolidated revenues were US$13mn.
Mastek Ltd. announced the acquisition of Vector Insurance Services LLC, a technology solutions provider and third party administrator that focuses on the North American life & annuity insurance industry. Mastek's wholly owned US subsidiary MajescoMastek will hold 90% equity stake in Vector. The consideration for this acquisition will be paid partly in cash and partly by way of future cash earn outs. The company had revenues of US$4.2mn in its financial year ended December 31, 2006. Vector has 26 employees, with significant domain expertise in the insurance space.
HDFC Bank prices ADS issue at US$92.10
HDFC Bank priced its public offering of 6,594,504 American Depositary Shares (ADS), at US $92.10 apiece. Each ADS represents three local equity shares of the bank. The price is equal to the volume weighted average price of the ADS on the NYSE on July 17. The offering price is equivalent to a price of Rs1,235.06 per share, which is a premium of 3% over the July 17 closing price on the National Stock Exchange (NSE). In addition, the underwriters - JP Morgan Chase Bank - to the ADS offering have the right to purchase up to an additional 989,176 ADS at the same price by way of green shoe option. Gross proceeds from the ADS offering are expected to be about US$607mn and will be used to strengthen the bank’s capital base to support future growth.
Omaxe IPO receives tremendous response
The IPO of property developer Omaxe received a stupendous response despite the muted show put up by the mega issue of real estate giant DLF not so long ago. As per the latest data available from the NSE, the issue was subscribed 67 times. The company received bids for 1.2bn shares versus the issue size of 17.8mn shares. The QIBs and the Non-institutional Investors contributed a great deal to the success of the issue. Even retail Investors, which shied away from the DLF issue, showed interest in the Omaxe issue. The company had fixed a price band of Rs265 to Rs310 per share. The issue would constitute 11.2% of the fully diluted post-issue capital of the company, if the green shoe option is exercised and 10.30%, if the option is not exercised. The proceeds of the issue would be utilised for payments related to land, repayment of loan and to fund the development and construction costs of some of the company's projects. DSP Merrill Lynch, Citigroup Global Markets India and UBS Securities India are the global coordinators for the Omaxe issue, while JM Morgan Stanley is the book running lead manager.
Spice Comm makes strong debut
Spice Communications Ltd., the wireless telecom service provider with presence in two circles of Punjab and Karnataka, made a strong debut on the Bombay Stock Exchange (BSE) on July 19. The stock opened at Rs55.75 as against the issue price of Rs46 per share. The scrip ended its maiden trading day at Rs60.65 after touching a peak of Rs67.05 and a low of Rs48.50. It lost 1.8% the next day to close the week at Rs59.55. The company raised Rs5.20bn through its IPO of 113mn shares of Rs10 each. The IPO was subscribed more than 37 times. The QIB portion of the issue was subscribed 57 times. Retail and Non-institutional part of the issue were subscribed 3 times and 19 times, respectively. Proceeds from the IPO will be mainly utilized towards repayment of debt, payment of license fee for national long distance and international long distance services and related capital expenditures. Telekom Malaysia holds 49% in Spice Communications.
IVR Prime sets price band of Rs510-600
IVRCL Infrastructures & Projects Ltd. announced that its urban infrastructure subsidiary, IVR Prime Urban Developers Ltd., is making an Initial Public Offering (IPO) of 14,150,000 equity shares of Rs10 each for cash with a price band of Rs510 to Rs600. IVR Prime is expected to raise Rs7.21bn at the lower end of the price band and Rs8.49bn at the upper end of the price band. The issue will open on July 23 and close on July 26. IVRCL Infrastructures holds 40mn shares or 80% of the pre-IPO share capital of IVR Prime. This will gets diluted to 62.35% post IPO. As per the Red Herring Prospectus, IVR Prime holds close to 2,500 acres of land, which can be valued at Rs32-35bn.
Glenmark buys two biological entities from Chromos
Glenmark Pharmaceuticals Ltd. announced its wholly-owned Swiss subsidiary Glenmark Pharmaceuticals SA has bought two New Biological Entities (NBEs) CHR-1103 and CHR-1201 from Chromos Molecular Systems Inc. of British Columbia, Canada. The two NBEs are humanized monoclonal therapeutic antibodies. Glenmark plans to initiate Phase I clinical trials in 2008 and complete Phase I on CHR-1103 by March 2009. CHR-1201 is an anti-thrombolytic humanized monocional antibody, which Glenmark plans to develop initially to treat acute stroke. The company plans to start Phase I on CHR-1201 by March 2009. "This is a very important addition to our pipeline of Novel Biological Entitles. These two NBEs would help accelerate our pipeline in the biologics space," said Glenn Saldanha, Managing Director & CEO of Glenmark.
L&T consortium wins Rs10.7bn orders from Tata Steel
A Larsen & Toubro (L&T) led consortium bagged orders worth Rs10.70bn from Tata Steel for supply and installation of Sinter Plant and other packages. Tata Steel is setting up six million tones per annum (MTPA) integrated steel plant in Kalinganagar Industrial Complex at Duburi in Jajpur district of Orissa, to be completed in two phases of 3 MTPA each. The orders are for the first phase of this Greenfield project. L&T in consortium with Outotec GmbH, Germany bagged EPC (Engineering - Procurement - Construction) contract for 5.75 MTPA Sinter Plant valued at Rs8.36bn. The company's share of this order is Rs6.23bn. This would be the single largest Sinter Plant to be built in India. This is scheduled for completion in 30 months.Brent crude backs off from near record
Oil prices stabilised at around US$78 per barrel, amid nagging concerns that rising demand will strain supplies already hurt by US refinery glitches and output disruptions in Africa. The price this week rallied to within sight of its all-time peak, spurred by a surprise fall in US gasoline inventories, accelerating economic growth in China and a brief supply outage in OPEC member Angola. London Brent crude for September was last quoted at US$77.88 a barrel. Earlier this week, Brent came within 25 cents of a record high of US$78.65, struck last August. US crude for August, which expires later on Friday, was at US$76.11. US gasoline stocks, which were expected to rise, instead fell by 2.3 million barrels in the week ended July 13, a government report said on July 18. Prices rose on July 19 after French oil major Total cut output by half at its 220,000-barrel-per-day Dalia field in Angola. The outage added to supply losses from Africa. In Nigeria, almost 550,000 bpd, or 18% of the country's oil capacity, remains shut because of sabotage attacks on the country's oil industry. In spite of the disruptions, OPEC has yet to relax supply curbs in place since last November and analysts do not expect the group to do so any time soon.
China's economy accelerates further; rates upped
Notwithstanding the series of steps taken by the government to cool down relentless investment in factories and properties, the Chinese economy continues to surge ahead. The GDP of the world's fourth-largest economy grew by 11.9% in the second quarter, the fastest pace in 12 years. The reading exceeded all optimistic estimates by economists and was much higher than the 11.1% growth registered in the first quarter ended March. It is also far ahead of the Government's 8% growth estimate and above levels that some economists consider sustainable. The yuan to the highest level against the dollar since China abandoned a decade-old peg to the greenback in July 2005. A key measure of inflation too flared up and investments in fixed assets surged, prompting speculation that the Government will announce further steps to prevent an overheating. The conjecture turned out to be true, as the People's Bank of China lifted the benchmark one-year lending rate by 27 basis points to 6.84%, the highest in more than eight years. The one-year deposit rate will rise to 3.33% from 3.06%. The People's Bank of China said that move was designed to guide credit and investment growth as well as to stabilize inflation expectations.
ABN Amro bid...RBS consortium ups cash portion
A consortium led by the Royal Bank of Scotland (RBS) boosted the cash element of its €71.1bn (US$98bn) offer for ABN Amro. RBS is bidding along with Banco Santander of Spain and Fortis of Belgium. The RBS consortium offered €38.40 a share for ABN Amro and raised the level of cash to 93% from 79%, the banks said. Barclays' all-stock offer of €34.49 a share is 11% lower. The offer will comprise €35.60 in cash plus 0.296 new RBS shares for every ABN Amro share. The banks said they had received assurance from ABN AMRO that their proposed offer will be dealt with on a "level playing field" with the Barclays offer. Both have until July 23 to submit formal offers for ABN. The increase in cash on offer follows a Dutch court ruling on Friday which allowed ABN to move ahead with the sale of its US-based LaSalle to Bank of America for US $21bn. Meanwhile, Barclays said it might sweeten its all-share bid by adding cash, which is generally more attractive to shareholders than stock. ABN Amro will meet with the team led by RBS about a revised offer. ABN Amro also will meet with London-based Barclays to discuss implications of the consortium's revised proposed offer, the Amsterdam-based bank said.
Dow Jones board recommends sale to Murdoch
Media baron Rupert Murdoch cleared another hurdle on his way to owning The Wall Street Journal as the board of Dow Jones & Co., the Journal's parent company, said it would sign off on a sale to Murdoch's News Corp. for US $5bn. The proposed still has to be ratified by the Bancroft family, Dow Jones' controlling shareholders. The Bancroft family will hold a historic meeting on July 23 in Boston to debate whether to sell. About 40 family trusts hold most of the shares that have extra voting power, so a clear majority decision among the trustees would determine whether the News Corp. bid succeeds. Meanwhile, Dow Jones director Dieter von Holtzbrinck resigned on July 19, citing fears that the publisher's journalistic values would strongly suffer after a sale to Rupert Murdoch's News Corp. Separately, The Wall Street Journal reported that David Li, another Dow Jones board member may face civil charges in a federal insider trading investigation linked to the company's proposed sale to Murdoch.
Basell to buy Lyondell Chemical
Having failed in its efforts to buy Huntsman Corp., Dutch chemical firm Basell said it would acquire another US-based rival Lyondell Chemical Co. for about US$19bn, including assumed debt. The price consideration works out to a premium of nearly 19% over Houston-based Lyondell's closing price of US$40.12 a share yesterday. Both companies' boards have approved the deal. Lyondell operates in three business segments - ethylene, propylene oxide, and refining - and these will complement and Basell's polyolefins business, the companies said. Just last week, Basell walked away from a US$5.6bn deal to buy Huntsman after being outbid at the last minute by private equity firm Apollo Management LP. The combined Lyondell-Basell would have annual revenues of more than US$34bn and more than 15,000 employees around the world.