Wednesday, February 14, 2007
Markets suffered yet another sell-off on back of CRR hike reported yesterday, with this effect banking stocks came under pressure and witnessed heavy selling. Selling was seen across the board but Auto and Banking had blood bath. The sessions were extremely volatile for the day. Market recovered at the closing session largely on back of gains in Cement and Telecom counter. Market is heading towards major events...first in line is F&O settlement followed by Budget. When inflation concern hangs around the economy and Budget is scheduled ahead investors prefer to play safe. The case is no different at present. The volumes were not exciting as it is always and conditions are expected to remain same till the inflation worry and Budget is over. Expect market to trade range and volatile ahead.
Sensex was down by 81 points at 14009. Weighing on the Sensex were losses in SBI (1101.25,-6 percent), HDFC Bk (1016.65,-5 percent), ICICI Bk (915,-4 percent), Maruti (857.4,-4 percent) and Grasim (2655.8501,-3 percent). Losses were restricted by gains in Hindalco (146.4,+3 percent), Bharti Tele (760.9,+3 percent), RCVL (451.3,+2 percent), Wipro (650.45,+2 percent) and ONGC (900.1,+2 percent).
Banking stocks ended in red. The hike in the cash reserve ratio by the Reserve Bank of India took its toll on Banking and other related stocks down. The hike will lead to increase in corporate loan rates, home loan rates, auto loans and rates for personal loans. The central bank said the cash reserve ratio will rise to 6 per cent from 5.5 per cent in two stages, the first on 17 February 2007 and the second on 3 March 2007, to rein in inflation and credit growth. Major loser were SBI (-6.2%), HDFC (-5%) and ICICI (-4%). However we feel that markets had already priced in a large part of the negatives from inflation in the last two days and hence there is a feeling that it may be the bottom of the fall already. However there are two issues which are of concern. Coming within 2 weeks from the credit policy where this could have been done. It leaves a taste that the RBIs feel on the economy was not right. Secondly the extent of the hike at 50 basis points really implies that a panic button has been pressed.
FMCG sector traded mixed. According to a leading business daily, unexpectedly heavy winter rains in India's wheat-growing states have raised hopes of a better harvest. As the government formally banned wheat exports for the rest of the year. Announcement of the ban was posted by the government on Wednesday. India, the world's second-largest wheat producer, exported no wheat last year after shortages forced it to import wheat for the first time in six years but did not declare a foreign sale ban. The jump in prices of essential goods, such as wheat, has been a significant factor in pushing India's inflation to a more than two-year high of 6.58 %. Wheat prices alone have risen by 11.74 % year-on-year. The cost-of-living has become a key issue for the Congress-led government, which is facing a slew of state elections this year. The government has called the wheat supply crunch as a temporary event and says there is no danger to the green revolution in which use of US hybrid seeds led to bigger yields and food independence for the world's second most populous nation. Until unless Government takes corrective measure to increase production, it is difficult to maintain the demand and supply curve. Britannia was the major gainer here today as Govt. announced ban on wheat exports. The wheat prices may not come down in near term but the Britannia and its compititor has reduced the size of the pack (keeping at same price) so as to offset the high wheat prices impact. We are positive on this one.
Technically Speaking: It was a volatile session for the whole day. Sensex touched intraday high of 14036 and low of 13805. Sensex has formed a hammer on the daily charts and Nifty futures have also closed in a high premium in recent times. All indicates that we are going for a pul back rally which could move up to 14400-14500. Volume was low at Rs 3998 cr. Overall breadth was in favor of Declines. The Resistance lies at 14113-14190 lies while Support at 13882-13728 levels.
The share prices slid 0.58 per cent in choppy trade on Wednesday on concerns that further monetary tightening could slow growth after the RBI moved to cut liquidity late on Tuesday.
Block deals on the BSE
The 30-share BSE Sensex index fell 2.02 per cent in early trade to a day's low of 13,805.36 before recovering to close at 14,009.90, down 81.08 points. But the S&P CNX Nifty finished 02.55 points higher at 4047.10. The markets have now shed 4.38 per cent in four straight days, from a record close of 14,652.09 on February 8.
Banking, construction and infrastructure stocks were hardest hit in a market, which has tested successive record highs over the past few months.
"The markets reacted to the monetary tightening but appear to be bottoming out at these levels. We could see a surge closer to the union budget," said an analyst.
he market took a sharp dip in early trades and continued moving down, as shares across sectors witnessed substantial selling pressure on the RBI’s announcement about the increase in the cash reserve ratio. The Sensex began the trading session with a negative gap of 100 points at 13990 and exhibited weakness through the day. The selling pressure in front-line stocks kept the banking and auto stocks in the red that dragged down the index to an intra-day low of 13805. The Sensex pared some losses on selective buying in metal stocks and ended the session with losses of 81 points at 14010. The Nifty was up three points and closed at 4047.
The breadth of the market was negative. Of the 2,564 stocks traded on the BSE, 1,491 stocks declined, 1,012 stocks advanced and 61 stocks ended unchanged. Among the sectoral indices the BSE Bankex shed 3.99% at 6977 followed by the BSE Auto index (down 1.09% at 5479) and the BSE PSU index (down 0.37% at 6119). On the other hand the BSE Metal index was up 1.56% at 8618.
Among the Sensex stocks, SBI tumbled 6.09% at Rs1,101, HDFC Bank plunged 5.15% at Rs1,017, ICICI Bank slumped 4.09% at Rs915, Maruti Udyog dropped 3.77% at Rs857, Grasim shed 3.45% at Rs2,656, HDFC lost 2.30% at Rs1,683, Tata Motors was down 1.71% at Rs850 and Infosys declined 1.05% at Rs2,284. The other front-line stocks were down around 1% each. However, Hindalco was marginally up at Rs146, Bharti Airtel gained 2.88% at Rs761, Reliance Communication advanced 2.32% at Rs451 and Wipro was up at Rs650.
Over 3.26 crore IFCI shares changed hands on the BSE followed by IDBI (1.09 crore shares), IDBI (56.68 lakh shares), HFCL (50.05 lakh shares) and RNRL (44.35 lakh shares).
Infosys was the most actively traded counter with a turnover of Rs105 crore on the BSE followed by Tata Steel (Rs102 crore), Reliance Communications (Rs95 crore), SBI (Rs91 crore) and HDFC Bank (Rs76 crore).
IFCI topped the volume chart for the second day in a row after NSE allowed fresh positions in the derivatives segment of the scrip.
Newly-listed Cinemax India followed by IDBI, Himachal Futuristic Company, Reliance Natural Resources, Infrastructure Development Finance Company, Gujarat Ambuja Cement, Hindalco Industries and Tata Teleservices were the other volume toppers for today.
IFCI surged 8.07% to close at Rs 28.80, on a massive 3.26 crore shares after NSE removed curbs on fresh positions in the derivative contracts of the company. The scrip has clocked an average daily volume of 61.75 lakh shares in the past one year.
Theater chain operator Cinemax India debuted today and a huge 1.09 crore shares changed hands. The stock debuted at Rs 175, hit a low of Rs 145 as also a high of Rs 178.90. The scrip closed at Rs 152.35 compared to the IPO price of Rs 155.
On the third position, IDBI rose 3.67% to close at Rs 91.90 on a huge volume of 56.68 lakh shares, compared with an average daily volume of 11.04 lakh shares in the past one year.
The other high volume gainers were Himachal Futuristic Company, at 74.76 lakh compared with yesterday’s volume of 46.97 lakh shares (The scrip’s average daily volume is 26.49 lakh shares in the past one year), Reliance Natural Resources at 44.35 lakh shares compared with yesterday’s 50.64 lakh (33.45 lakh shares was the average daily volume in the past one year), Infrastructure Development Finance Company at 23.54 lakh shares (18.22 lakh shares), Gujarat Ambuja Cement at 40.75 lakh shares compared with yesterday’s 48.12 lakh shares (16.82 lakh shares), and Tata Teleservices at 36.61 lakh shares compared with yesterday’s 48.83 lakhs (17.19 lakh shares).
The bourses were gripped by extreme volatility running for the fourth straight day, as a host of factors including a hike in CRR rates outweighed any bullish sentiment. The Sensex managed to settle above the 14,000 level, as strong buying, most of which can be attributed to short-covering in derivatives, at lower level kept the losses within manageable limits.
The 30-shares BSE Sensex lost 81.08 points, at 14,009.90. It had opened lower, at 13,990.41, and plunged to 13,805.36 under intense pressure. Value-buying, however, propelled the Sensex from the lower level in the late-afternoon session. The BSE Sensex also hit a fresh high of 14,036.61, as buying picked up.
Surprisingly, the S&P CNX Nifty was up 2.55 points, to 4,047.10, due to a higher weightage of Wipro, which sustained strength throughout the day.
The market lost for the fourth straight day on fears of a further rise in interest rates, a hike in the cash reserve ratio (CRR), heavy unwinding in the derivatives market and a large number of IPOs lined up for the next few weeks. The bourses were gripped by extreme volatility in all the four trading sessions.
The 30-shares BSE Sensex lost 81.08 points, to end at 14,009.90. It had opened lower, at 13,990.41, and plunged to 13,805.36 under intense pressure. The Sensex managed to settle above the 14,000 level, as strong buying, most of which can be attributed to short-covering in derivatives, at the lower level kept the losses within manageable limits.
Value-buying, however, propelled the Sensex from the lower level in the late-afternoon session. The BSE Sensex also hit a fresh high of 14,036.61, as buying picked up.
Surprisingly, the S&P CNX Nifty was up 2.55 points, to 4,047.10, due to a higher weightage of Wipro, which sustained strength throughout the day. Technical analysts feel that Nifty has a strong support in the range of 4,000 – 4,040. Nifty also has a strong resistance at 4,135 and will turn bullish for a short-term only if it breaks 4,135 mark. In such a case, Nifty may again test its all-time high of 4,245.
The market-breadth, an indication of the overall health of the market, finished weak, but did not look as miserable as it was in opening trade. A weak breadth has been the feature of trading since the last few days, as small-caps and mid-caps are being offloaded heavily. Just 1,073 shares advanced, against 1,490 declining on BSE. Also, 70 scrips remained unchanged. The BSE Mid-Cap rose 14.74 points at 5,800, while the BSE Small-Cap index lost 20.33 points, at 7,067.82.
The total turnover on BSE amounted to Rs 3998 crore.
Among the 30-Sensex pack, 16 declined while the rest advanced.
Banking stocks were impacted the most by the CRR hike of 50 basis points. The BSE Bankex was the top loser among the BSE sectoral indices, down 290.14 points (3.99%), to 6,976.60.
State-run SBI was the top loser, down 5.86% to Rs 1104, on a volume of 8.31 lakh shares. It had recovered from a low of Rs 1085.55.
ICICI Bank (down 4.30% to Rs 913) and HDFC Bank (down 5.12% to Rs 1016.90) followed closely on the heels of the SBI debacle. Bank of India (down 4.6% to Rs 169.40), Bank of Baroda (down 3.05% to Rs 227), Punjab National Bank (down 4.72% to Rs 461.25), Oriental Bank of Commerce (down 7.33% to Rs 217.95) and Vijaya Bank (down 2.68% to Rs 45.35) were among the other major ones to suffer. However, they have recovered from their early lows.
Maruti Udyog (down 3.47% to Rs 860), Grasim (down 3.35% to Rs 2659) and HDFC (down 2.53% to Rs 1679) were the other eminent losers.
Bajaj Auto (BAL) was down 0.69% to Rs 3025. The company is targeting revenues of Rs 10,000 crore for the current fiscal with total sales of 28 lakh vehicles. Bajaj Auto launched its 200 cc Pulsar DTS-i for Rs 65,497 ex-showroom, New Delhi. It will be the first bike with an oil-cooled engine of 18 BHP power.
Index heavyweight Reliance Industries (RIL) ended up 1.56%, at Rs 1388, and off the day’s low of Rs 1356.60. The stock played a key role in the recovery from the lower level.
Aluminium major Hindalco was the top gainer, up 3.87% to Rs 147.60, on a volume of 40.04 lakh shares. It had advanced to a high of Rs 150, its low being Rs 139.
Telecom stocks -Reliance Communications (up 2.63% to Rs 452.65) and Bharti Airtel (up 3.15% to Rs 763) advanced due to the strong response received by an IPO of Idea Cellular by the end of the second day of the issue. Foreign investors put in bids for 122.69 crore shares compared to 19.15 crore reserved for the entire qualified institutional bidders (QIB) category by end of Tuesday (13 February 2007). By 4:00 IST on Wednesday, the IPO had received bids for 166.24 crore, which was five times the issue size of 32.69 crore.
ONGC (up 2.05% to Rs 903) and Tata Steel (up 1.93% to Rs 440.60) advanced. ONGC’s overseas arm, ONGC Videsh, picked up 20% stake in Italian ENI's deepwater block in Congo Brazzaville.
As per reports, ONGC is also in talks with Brazil's Petrobras for offering each other a stake in their respective oil and gas blocks. ONGC is likely to offer Petrobras a stake in a block in deepwater Krishna-Godavari basin, in which it recently discovered gas. In return, Petrobras is expected to offer ONGC a stake of equal value in blocks in the Campos basin, off Brazil's coast. ONGC Videsh already owns 15% stake in an offshore block in Brazil.
Further, the state-run firm has chalked out plans to drill ultra high-tech wells at all its on-shore assets. ONGC also proposes to drill 15 sidetrack ultra-short radius drain holes. By the end of this financial year, it hopes to complete drilling two - three wells in Mehsana, Gujarat.
Theater chain operator Cinemax India, which debuted today, settled at Rs 152.35, a slight discount. A huge 1.09 crore shares of Cinemax India changed hands on BSE. The stock debuted at Rs 175, hit a low of Rs 145 and also a high of Rs 178.90. The company had offered shares at Rs 155 per share in the recently concluded IPO.
IT services and BPO firm Mphasis BFL surged nearly 8% to Rs 294.20 on renewed buying at the lower level after a recent sharp correction. The stock had declined almost 15% to Rs 272.85 on 13 February 2007, from Rs 320.90 on 6 February 2007. The decline was after a solid 14.8% post Q3 results rally in the scrip to Rs 320.90 by 6 February 2007 from Rs 279.45 on 31 January 2007.
Punjab Tractors gained 6.8% to Rs 334, recovering from a three-day slide. Aggressive bidding is expected for a stake in the tractor firm as multiple players have joined the race, boosting the stock sharply in the last few days. Hinduja group's Ashok Leyland (ALL) is the latest entrant in the race for the 43.5% stake held by Actis and the Burmans together in Punjab Tractors (PTL).
IFCI surged 8.07% to close at Rs 28.80, on a massive 3.26 crore shares after NSE removed curbs on fresh positions in the derivative contracts of the company.
SRF surged 4.88% to Rs 170.05, after the NSE allowed building fresh positions in the derivatives contracts, and lifted the curb on the stock.
Sanwaria Agro Oils advanced 3.69% to Rs 45, after the company decided to set up a wind-based power plant in Madhya Pradesh. The greenfield project will be implemented in two phases. The wind power generated in Phase-I will be for captive use, while the power generated in Phase-II will be marketed.
Educomp Solutions gained 1.11% to Rs 933.20, after it bagged a Rs 18 crore contract to implement ICT-based education under the Ict@schools project in 264 government high schools of Karnataka. The project has to be completed within five years.
Greaves Cotton declined 1.19% to Rs 331, despite a subsidiary's plan to buyout Germany’s Bukh-Farymann Diesel for an enterprise value of 4.24 million euros. Bukh-Farymann is a profit-making company and manufactures Farymann diesel engines and components. This acquisition will facilitate Greaves Cotton to go global, and will also boost the Indian company's export initiatives.
South East Asia Marine Engineering & Construction (Seamec) surged 10% to Rs 206.25, after reporting 64.60% surge in net profit during Q4 December 2006. Seamec reported a 64.60% surge in net profit in the Q4 December 2006 to Rs 25.86 crore (Rs 15.70 crore). Net sales for the quarter surged 124.6% to Rs 61.59 crore (Rs 27.41 crore).
The central bank said the cash reserve ratio (CRR) will rise to 6% from 5.5% in two stages, the first on 17 February 2007 and the second on 3 March 2007, to rein in inflation and credit growth.
A higher CRR requirement will deprive banks of lendable resources, sucking out Rs 14000 crore from the system. Banks do not earn any interest on CRR funds kept with the Reserve Bank of India (RBI). The move is likely to make corporate loans, home loans, auto loans and personal loans more expensive.
Strong credit growth in a booming Indian economy has pushed up both lending and deposit rates of banks over the past few years. Recently, private sector ICICI Bank raised its benchmark reference rate on corporate loans and home loans by 100 basis points.
Non-food credit grew 30.2% year-on-year up to 2 February 2007 against a growth of 33.2% a year ago, while aggregate deposits expanded 23.2% year-on-year to 2 February, over and above 17.5% a year ago.
Ahead of the CRR hike, Indian bond yields ended at a 5-1/2-month high on Tuesday after a key central bank official said he was concerned by rising inflation, stoking nervousness that monetary policy may have to tighten further. The 9-year bond yield rose further on to 8.14% in initial trade from Tuesday's close of 7.96%.
Data on last Friday (9 February)showed annual inflation rose to a two-year high of 6.58% in late January, above the central bank's target range of 5 - 5.5% for the end of the fiscal year to March 2007.
At its quarterly policy review on 31 January 2007, the RBI had also raised its key short-term rate, the repo rate, by 25 basis points.
The fall started on Friday (9 February), when the Sensex lost 113 points. The Sensex tanked 348 points on Monday (12 February 2007), partly due to weak Asian markets, and partly on concerns about a further rise in interest rates. The Sensex declined a further 100 points lower on Tuesday (13 February 2007) in highly volatile trade.
Meanwhile, most stock markets around the world were trading higher. Hong Kong's Hang Seng Index rose 0.39%, while the Nikkei 225 Index gained 0.74%.
FIIs turned net buyers in index-based futures on 13 February 2007, after their heavy sales of Rs 1764 crore in the previous two trading sessions, from 9 February to 12 February. FIIs were net buyers to the tune of Rs 129 crore in index-based futures on 13 February 2007.
As per provisional figures in the cash segment, FIIs were net sellers of equities worth Rs 385 crore on 13 February 2007.
MFs sold shares worth a net Rs 389 crore on 12 February 2007. As per the latest data, NSE F&O open interest increased by Rs 99 crore to Rs 58,189 crore, the marketwide rollover stood at 9%, while the Nifty rollover was 16%.
A lack of support from mutual funds has also led to the sharp correction in the market. Mutual funds are turning net sellers in the equity markets in a strategy aimed at piling up cash, anticipating a post-budget churning of portfolios, analysts said. Between 2 - 12 February 2007, mutual funds were net sellers of stocks worth Rs 1,083.50 crore. Mutual fund houses were net sellers in equities to the tune of Rs 1,342.23 crore in January too.
In contrast, foreign institutional investors (FIIs) were net buyers of equities during the same period (2 - 12 February 2007), propelling the benchmark stock indices to record levels last week. Since 2 February, FIIs have lapped up equities worth Rs 2,713 crore. The Sensex jumped to an all-time high twice last week.
US stocks jumped on Tuesday, led by gains in the Dow industrials as talk that aluminum maker Alcoa may become a takeover target bolstered optimism about deals, and energy shares gained with a sharp rebound in oil prices.
The Dow Jones industrial average climbed 102.30 points, or 0.81%, to end at 12,654.85. The Standard & Poor's 500 Index shot up 10.89 points, or 0.76%, to finish at 1,444.26. The Nasdaq Composite Index rose 9.50 points, or 0.39%, to close at 2,459.88.
US crude oil shed 19 cents to $58.87 a barrel on Wednesday after rising above $59 overnight as the International Energy Agency raised its 2007 demand forecast and said it expected oil market fundamentals to tighten.
Meanwhile, domestic financial institutions (FIs) are expected to take away a substantial chunk of equity being offered by India’s premier stock exchange, the Bombay Stock Exchange (BSE), under the demutualisation scheme. According to reports, local financial institutions will be given priority while divesting 51% stake of broker shareholders in the corporatised exchange.
Reports add that Germany's Deutsche Boerse is reported to have bought 5% in Asia's oldest bourse, the Bombay Stock Exchange(BSE). Deutsche Boerse had bought the stake for $42.7 million. The BSE will sell a further 21% to private equity funds.
The BSE intends to reduce the stake held by its brokers by offering 26% to strategic investors and a further 25% through an IPO for listing of shares on the exchange. Any one strategic investor's stake is limited to 5%. Analysts have valued the BSE, which was established in 1875, at about $1.1-$1.3 billion.
The Singapore Stock Exchange has also expressed its desire for a stake in BSE. The Nasdaq Stock Market and the London Stock Exchange are also in the running. The NYSE Group in January paid $115 million for 5% in the National Stock Exchange (NSE). Private equity firm General Atlantic, SoftBank Asian Infrastructure Fund and investment bank Goldman Sachs also bought 5% each in NSE.
The BSE is also expected to rope in one or more global stock exchanges as equity partners. Under the corporatisation and demutualisation scheme approved by Sebi in 1995, the BSE is required to bring down brokers’ collective stake from the current 100% to 49% to facilitate segregation of ownership and management of trading rights of members.
Orchid Chemicals & Pharmaceuticals
Cluster: Emerging Star
Price target: Rs390
Current market price: Rs242
FCCB issue to be EPS accretive
- Orchid Chemicals & Pharmaceuticals (Orchid) has raised $200 million through a zero coupon foreign currency convertible bond (FCCB) offering of $175 million, with a greenshoe option of $25 million. The bonds are convertible into equity shares at an initial conversion price of Rs348.34.
- Further, the company is proposing to issue 5 million warrants to the promoter group, which are convertible into equity shares of face value Rs10 at a conversion price of Rs202.58 within 18 months of their effective date of issue in January 2007.
- With majority of its capital expenditure (capex) over, Orchid intends to use the entire funds to repay a large portion of the Rs1,012-crore debt that it has on its books. With this, we believe that the company will save interest costs of approximately Rs81 crore in FY2008, leading to an incremental earnings per share (EPS) of Rs0.6.
- At the initial conversion price of Rs348.34, the FCCB issue is likely to result in an equity dilution of 37%. Despite the equity dilution, we believe that the FCCB issue will be earnings accretive for the company as it will reduce its debt level and interest burden going forward.
- In order to incorporate the effect of the equity dilution from the FCCB issue and the resultant savings in the interest cost due to the reduced debt burden, we are revising our FY2008 earnings estimate for Orchid; we are however keeping our FY2007 estimate unchanged. We are also maintaining our revenue projections for both the years. We have upgraded our FY2008 earnings estimate by 2.2% to Rs26.1 per share on a fully diluted basis.
- At the current market price of Rs242, Orchid is trading at 9.3x its estimated FY2008 earnings. In view of the bright prospects for the company, we retain our positive stance on Orchid and maintain our Buy call with a price target of Rs390.
Cluster: Apple Green
Price target: Rs380
Current market price: Rs295
Price target revised to Rs380
- Corporation Bank's results are slightly above our expectations; its profit after tax (PAT) grew by 27.2% to Rs146.4 crore compared with our estimates of Rs135.9 crore due to a higher than expected non-interest income led by a higher treasury income.
- During the quarter, one of the wholly-owned subsidiaries of the bank, Corp Bank Homes, was merged with the bank. Due to the merger the current quarter numbers include an additional provision of Rs16.8 crore excluding which the PAT growth would have been higher at 41% to Rs162.4 crore.
- The net interest income (NII) was up by 1.5% to Rs333.3 crore compared with our estimates of Rs343 crore. The net interest margin (NIM) was down five basis points to 3.15% for the nine-month period ended December 2006 compared with 3.2% for H1FY2007.
- The non-interest income increased by 49.6% to Rs159.3 crore, mainly due to a higher treasury income, which increased by 212.5% year on year (yoy) to Rs40 crore compared with a treasury income of Rs12.8 crore in Q3FY2006 and a treasury loss of Rs5.4 crore in Q2FY2007. The fee income was up 20.3% yoy and 3.3% quarter on quarter (qoq).
- With the net income up 13.2% yoy and the operating expenses up only 3.1% yoy, the operating profit was up by 21.4% yoy and 24.4% qoq to Rs293.1 crore.
- Provisions declined by 8.4% to Rs83.2 crore despite a one-time higher provision charge on account of the merger mainly due to nil standard assets provisions. A moderate operating profit growth and a decline in the provisions helped the PAT grow by 27.2% to Rs146.4 crore.
- The asset quality of the bank continues to be healthy with the net non-performing asset (NPA) in percentage terms at 0.47%, down from 0.8% yoy and 0.5% qoq. The capital adequacy ratio (CAR) remains at a comfortable 13.7% with the Tier-I capital at 12.3%. However with the implementation of the Basel II norms the same is expected to come down to 12.5%.
- The bank has witnessed serious pressure on the NIM front, which we feel would sustain considering the rise in the deposit rates and the bank's inability to mobilise more low cost deposits. The non-interest income growth excluding the treasury income remains weak and going forward the incremental recovery amounts would decrease. Hence the overall non-interest component would also not add significantly to the operating level. The above concerns have led us to decrease the FY2008E PAT estimate by 5.4% to Rs628.5 crore from the earlier projection of Rs664.6 crore. We have also revised our one-year price target from Rs425 to Rs380.
- At the current market price of Rs295, the stock is quoting at 6.7x its FY2008E earnings per share (EPS), 3.3x pre-provision profits (PPP) and 1x book value (BV). We maintain our Buy call on the stock with a revised price target of Rs380.
Mahindra & Mahindra
Cluster: Apple Green
Price target: Rs1,050
Current market price: Rs870
Bidding for Punjab Tractors
- Mahindra & Mahindra (M&M) has made a non-binding bid to acquire the private equity fund Actis' 29% stake and the Burman Family's 14.5% stake in Punjab Tractors Ltd (PTL).
- PTL, with an installed capacity to manufacture 60,000 tractors, enjoys an overall market share of 10% in the domestic tractor market. We believe that acquiring PTL makes good strategic sense for M&M as it would help consolidate its presence in the 31-40 horse power (HP) category, and help it to acquire a dominant status in the >51HP category. This would be a huge positive as a strong growth is expected in the higher-end tractor segment.
- Further, M&M can take advantage of the strong brand equity of PTL and its strong distribution network.
- The deal could cost M&M somewhere between Rs1,200 and Rs1,500 crore (includig the open offer). Though PTL's valuations appear to be a bit stretched due to the recent run-up in its stock price, we do feel that the acquisition would yield substantial long-term benefits to M&M considering that the deal would give M&M a dominant status in the tractor industry (particularly in the higher HP category), and a strong distribution network.
- Many other players including TAFE, Escorts, Tata Motors, the Sonalika group and Ashok Leyland are also in the race to acquire a stake in PTL, which may heat up the valuations further.
- At the current levels, M&M trades at 13.1x its FY2008E consolidated earnings. We maintain our Buy recommendation on the stock with a price target of Rs1,050.
Sharekhan's top equity fund picks
We have identified the best equity-oriented schemes available in the market today based on the following parameters: the past performance as indicated by the returns, the Sharpe ratio and Fama (net selectivity).
The past performance is measured by the returns generated by the scheme. Sharpe indicates risk-adjusted returns, giving the returns earned in excess of the risk-free rate for each unit of the risk taken.
FAMA measures the returns generated through selectivity, ie the returns generated because of the fund manager's ability to pick the right stocks. A higher value of net selectivity is always preferred as it reflects the stock picking ability of the fund manager.Download here
NIFTY (4044) SUP 4000 RES 4089
BUY WIPRO (637.8)
SL 633 T 647, 649
BUY BALAJITELE (124.8)
SL 120 T 135, 137
SELL BRFL (170.65)
@ 174 SL 178 T 164, 162
SELL MPHASIS (274)
@ 278 SL 282 T 268, 266
SELL ERACONS (425.7)
@ 430 SL 435 T 415, 410
Major Bulk Deals:
UBS has sold Advani Hotels; Reliance capital has purchased Avaya Global while HDFC MF has sold the stock; HDFC MF has sold Cranes Software while Swiss Finance has bought it; Reliance Capital has picked up Macmillan India while Bear Stearns and Citigroup have sold the scrip; Reliance has also purchased Navneet Publication but Bear Stearns has sold it; Goldman Sachs has picked up Prajay Engineers; Merrill Lynch has bought Tulip IT.
Global Broadcast News Limited: Reliance Capital Limited has purchased from open market 1675000 equity shares of Global Broadcast News Limited on 12th February, 2007.
Shringar Cinemas Limited: Mr. Balkrishna Shroff, Director has purchased from open market 5091 equity shares of Shringar Cinemas Limited on 12thFebruary, 2007.
Sakthi Sugars Ltd: M.Manikam, Vice Chairman & Managing Director has purchased from open market 15000 equity shares of Sakthi Sugars Ltd on 1st and 2nd February, 2007.
Punj Lloyd Limited: HDFC Mutual Fund - HDFC Equity Fund, HDFC Prudence Fund, HDFC Top 200 Fund has purchased from open market 600000 equity shares of Punj Lloyd Limited on 7th February, 2007.
The turnover on NSE was up by 12% to Rs100bn. BSE Metal index was the major loser and lost 1.52%. Bank index (down 1.31%), BSE Capital Good index (down 0.97%) and BSE FMCG index (down 0.92%) were among the other major losers. However, BSE Oil & Gas index gained 1.10%.
IFCI, TTML, IDBI, Hindalco, SAIL, R Com, Nagarjuna Fertilizers, Unitech, Cairn India, IDFC, ITC, HLL, Ashok Leyland, Akruti, India Cement, Tata Steel, Indiabulls, Parsvnath and HCC.
Lower Circuit Filters:
Ansal Infrastructure, GMR industries, Nelco, BSEL Infrastructure, KEW Industries, Tanla, Saksoft, Fedders Lloyd, Swan Mills, Ansal Housing, Ganesh Housing, Heritage Foods, KS Oils, Nirlon and BF Utilities.
Hindalco - Out performer by Enam with target of Rs245.
Long Term Investment:
Major News Headlines
RBI to raise CRR to 6% in two stages to curb inflation
Tech Mahindra ties up with SITONICS
S&P says Central Bank moves will help 'mute' inflation
TCS says unit has won 'Multimillion Dollar' order from China
Greaves Cotton unit to acquire Germany’s Bukh-Farymann Diesel
Taneja Aerospace signs MOU with BEML
Alstom India gets 3 Hydro Power orders worth Rs7.5bn
Subex Azzure gets contract from South African Phone company
Deccan Chronicle plans to start newspaper in Bangalore
Bulls CRRy…Teddy bear, Reddy bear
True love stories never have endings…
Happy Valentine’s Day and in keeping with the spirit of the day you will see bears all around. The Indian growth story has not ended as yet. But the bulls sure are heart-broken and the latest monetary tightening step from the RBI has added to the tears. The central bank has decided to up the ante against spiraling inflation by hiking the CRR by 50 basis points to 6%. The message is clear from the RBI. It wants to reign in prices at any cost. The CRR hike is aimed at reducing the amount banks can lend. The RBI is particularly weary of lending to the sensitive areas like the capital market and real estate, besides personal loans and credit cards. Be prepared for a knee-jerk reaction this morning. We expect the banking and real estate sector to be the biggest losers of this move. Hike in CRR in all likelihood will prompt for another round of PLR hikes, which would pull down consumer loan growth and especially mortgage loans. The ripple effect of this would be felt by the real estate sector, where this could form the much awaited trigger for drop in real estate prices, which have held on despite rising interest rates (small correction in some parts).
In the first week of December, when the last CRR hike was announced the market had lost a lot of ground, led of course by the banking shares. The same scenario could get repeated yet again. Inflation is turning out to be the unexpected party pooper for the bulls. Things are unlikely to improve soon, as the slew of monetary and fiscal measures announced to tame inflation will take time to take effect. The writing is on the wall. Those who have the cash, buy for the medium to long term as frontline counters will be available at much attractive levels these days. Strong global cues are unlikely to lend much support initially. And like Tuesday, don’t get trapped in any short bounce backs.
FII inflows have also started waning after the revival last week. Foreign funds were net sellers to the tune of Rs3.85bn (provisional) in the cash segment yesterday. In the F&O segment, they were net buyers of Rs6393.5mn. FIIs pumped in Rs2.19bn in the cash segment on Monday. With this, their net investment this month stands at $544.8mn. On the other hand, Mutual Funds withdrew Rs3.89bn on Monday.
US stocks snapped a three-day decline on Tuesday with the Dow Jones Industrial Average registering its biggest rally this year as takeover speculation boosted mining shares and General Motors jumped after an analyst upgrade.
Alcoa gained the most on a report that BHP Billiton and Rio Tinto are preparing bids for the world's largest aluminum maker. GM climbed to an 18-month high after Merrill Lynch said a $17bn pension surplus may cover some costs of a new labor contract.
The Dow rose 102.30, or 0.8%, to 12,654.85, the best performance since Dec. 27. The S&P 500 added 10.89, or 0.8%, to 1444.26, with all 10 of its industry groups posting gains. The Nasdaq Composite Index advanced 9.50, or 0.4%, to 2459.88. Since reaching a six-year high on Feb. 7, the S&P 500 has dropped as much as 1.2%.
Citigroup to Shed Red Umbrella Trademark, Symbol Weill Embraced for Empire Citigroup Inc. decided it's better off without Sanford Weill's umbrella.
US light crude oil for March delivery rallied $1.25 to settle at $59.06 a barrel in New York. Oil prices slid 3.5% on Monday after the oil ministers of Saudi Arabia and Qatar said that OPEC may keep crude output unchanged at its March meeting. Oil was 11 cents up at $58.95 in extended trading.
COMEX gold for April delivery rose $1.20 to $668.50 an ounce. Treasury prices inched lower, raising the yield on the benchmark 10-year note to 4.81% from 4.80% on Monday. In currency trading, the dollar fell versus the euro and yen following the trade gap report.
Barring Wipro and MTNL all Indian ADRs closed in the red.
European shares closed higher. The pan-European Dow Jones Stoxx 600 index closed 0.2% higher to 378.72. The UK's FTSE 100 rose 0.5% to 6,381.80, while the German DAX Xetra 30 added 0.5% to 6,895.34 and the French CAC-40 advanced 0.7% to 5,682.69.
Asian stocks had the biggest jump in two weeks on Wednesday, led by BHP Billiton and Nippon Mining Holdings, after copper and oil prices rallied.
Samsung Electronics and Kookmin Bank led gains in South Korea after North Korea agreed to end its nuclear-weapons program in exchange for aid.
The Morgan Stanley Capital International Asia-Pacific Index rose 0.8% to 144.44 at 11:05 a.m. in Tokyo, set for its biggest advance since Feb. 1.
Japan's Nikkei 225 Stock Average gained 120 points to 17,727.74. The Hang Seng in Hong Kong advanced 84 points to 20,216. The Kospi in Seoul climbed 20 points to 1439 and the Straits Times in Singapore rose 31 points to 3180.
Australia's leading share index hit a lifetime high, led by gains in BHP Billiton, Rio Tinto and other resource shares after industrial metals and crude oil prices rebounded.
Sydney's benchmark S&P/ASX 200 was up as much as 0.5% at 5,968.90, easing back from an intraday record of 5,975.9. The gains eclipse its previous lifetime high of 5,947.3 set on Tuesday.
In emerging markets, the Bovespa in Brazil surged by 2.9% to 45,197 while the IPC index in Mexico added 1% to 28,262 and the RTS index in Russia climbed 1.5% to 1866.
Bear hug, will it tighten or loosen?
The markets lost ground for third consecutive trading session as wild intra-day gyrations continued on Dalal Street. After registering a weak opening, the key indices recovered in the afternoon trades on back of buying in the Auto, Oil & Gas and Technology stocks lifting the benchmark index to hit an intra-day high of 14363.75. However, lack of buying support at higher levels, brought the markets lower. The benchmark Sensex swung over 400 points before finally settling 99 points down at 14090 and NSE Nifty slipped 14 points to close at 4044.
HCL Tech gained by 1.8% to Rs654 after the company announced a strategic alliance with Eckler Ltd with an objective of deepening the Company's Insurance Domain expertise. The scrip has touched an intra-day high of Rs655 and a low of Rs601 and has recorded volumes of over 66,000 shares on NSE.
Orchid Chemicals plunged over 9.5% to Rs241. The company raised $200mn selling bonds. The scrip touched an intra-day high of Rs269 and a low of Rs236 and recorded volumes of over 16,00,000 shares on NSE.
Ashok Leyland was in reverse gear the scrip fell over 2.5% toRs43. The company announced that they have placed bid to buy Punjab Tractors. The scrip has touched an intra-day high of Rs46 and a low of Rs43 and has recorded volumes of over 47,00,000 shares on NSE.
Alstom Projects advanced over 2% to Rs458 after the company received 3 Hydro Power orders worth Rs7.5Bn. The scrip touched an intra-day high of Rs474 and a low of Rs435 and recorded volumes of over 2,00,000 shares on NSE.
Technology stocks are trading higher. Mid-Cap stocks like Moser Baer has spurred nearly by 7% to Rs342, NIIT Ltd have surged by 6% to Rs577 and Polaris is up by 3.5% to Rs209. Among the heavy weights Wipro and Satyam Computer are among the major gainers.
Oil exploration stocks recorded smart gains. Reliance Industries advanced 0.5% to Rs1366 and ONGC gained 2.2% to Rs885.
Select Pharma stocks also lost ground towards the end. Glaxo slipped 1.8% to Rs1105 and Cipla was down 2% to Rs243. However, Ranbaxy gained 0.6% to Rs411 and Sun Pharma edged higher 0.3% to Rs1015.
Market is likely to witness cautious trend as the RBI has surprised the market by hiking the cash reserve ratio by 50 basis points to curb inflation coupled with the last two negative closes may weigh on the local indices in early trades and thereafter could exhibit volatility during intra-day trades. However, overnight gains in the US and strong Asian indices in the morning trades markets may add to the market advantage and help the sentiment turn positive. Among the domestic indices, the Nifty may slip to 4000, while on the upside it could edge higher to 4150. The Sensex has a likely support at 14000 and may face resistance at 14300.
US indices ended in the green on Tuesday on optimism about Alcoa merger talks. While the Dow Jones jumped by 102 points to close at 12655, the Nasdaq ended 10 points higher at 2460.
Indian ADRs except Wipro and MTNL all ended in the red on the US bourses. HDFC Bank fell sharply and tumbled by 6% and ICICI Bank slipped 5% while Satyam, VSNL, Tata Motors, Rediff, Patni Computers, Infosys and Dr Reddy's declined over 1-3% each.
Crude oil prices are moving up for the last few sessions. The Nymex light crude oil for March delivery rose $1.25 to close at $59.06. In the commodity space, the Comex gold for April series moved up $1.20 to settle at $668.50 a troy ounce.
The market is likely to open on a weak note following the surprise hike in the cash reserve ratio (CRR) by the Reserve Bank of India (RBI) late on Tuesday (13 February) after trading hours. The move is likely to raise corporate loan rates, home loan rates, auto loans and rates for personal loans.
The central bank said the cash reserve ratio (CRR) will rise to 6% from 5.5% in two stages, the first on 17 February 2007 and the second on 3 March 2007, to rein in inflation and credit growth. Data on last Friday showed annual inflation rose to a two-year high of 6.58% in late January, above the central bank's target range of 5 - 5.5% for the end of the fiscal year to March 2007. At its quarterly policy review on 31 January 2007, RBI had raised its key short-term rate, the repo rate, by 25 basis points. The CRR hike will suck out Rs 14000 crore from the banking system.
Fears of a further rise in domestic interest rates, and a large number of IPOs lined up for the next few weeks has weighed on the market sentiment of late. The Sensex had tanked 348 points on Monday (12 February 2007) partly due to weak Asian markets, and partly on concerns about a further rise in interest rates. It had ended 100 points lower on Tuesday (13 February 2007) in highly volatile trade.
FIIs turned net buyers in index-based futures on 13 February, after their heavy sales of Rs 1764 crore in the previous two trading sessions, from 9 February to 12 February. FIIs were net buyers to the tune of Rs 129 crore in index-based futures on 13 February.
In the cash segment, FIIs were net sellers of equities worth Rs 385 crore on 13 February 2007, as per provisional figures.
Asian markets edged higher on Wednesday, tracking overnight gains in US stocks. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up between 0.5 - 1.4%.
US stocks jumped on Tuesday, led by gains in the Dow industrials as talk that aluminum maker Alcoa Inc may become a takeover target bolstered optimism about deals and energy shares gained with a sharp rebound in oil prices. The Dow Jones industrial average climbed 102.30 points, or 0.81%, to end at 12,654.85. The Standard & Poor's 500 Index shot up 10.89 points, or 0.76%, to finish at 1,444.26. The Nasdaq Composite Index rose 9.50 points, or 0.39%, to close at 2,459.88.
US crude shed 19 cents to $58.87 a barrel on Wednesday after rising above $59 overnight as the International Energy Agency raised its 2007 demand forecast and said it expected oil market fundamentals to tighten.