Saturday, March 03, 2007
It could have been worse. We started the week in anticipation of a Budget which would soothe sentiments but the selloff in China had global markets scrambling to take cash off the table. Monday was negative momentum of Friday carrying forth. However the markets recovered in hopes for the budget to do something. However Tuesday was a selloff with the Congress getting a drubbing in state elections in two states i.e. Punjab and Uttarakhand and the loss was terrible. It was under this backdrop that the budget was presented with global markets plumetting on fears of selloff as seen in China and also the US markets which its biggest fall in 5 years. Markets were hoping that the FM would pull out a rabit from the hat and change the ratio of market gains (3 out of 10 previous budgets).. but that was not to be. It turned out to be a missed opportunity. FM was conservative in approach with agriculture and education given big focus. However there was nothing for the middle class, nothing to stimulate growth or encourage demand. Thursday saw some recovery hopes but they were smashed. The worries are from winding up of the yen carry trades. Japanese money has been used as cheap source for funding investment across the globe. With increasing interest rate there and an appreciating currency the money is being withdrawn. Its all a game of money flow and we see that in the Indian Markets as well as FII numbers tend to be negative.
There were many fallen angels and of this the big losses were made by the cement stocks and the IT Stocks which were on the receiving end of the stick this budget.
ABB - 4% ACC -6%; Bajaj Auto -11%; BPCL - 5%; Bharti -7%; BHEL -9%; Cipla -7%; Grasim -9%; Ambuja -10%; HCLT -5%; HDFC -6%; HLL -4%; HPCL -5%; ICICI -6%; Infosys -6%; Jet - 7%; Larsen -9%; Mah -9%; Nalco -4%; ONGC -4%; Oriental Bank - 13%; Reliance -7%; Reliance Energy -6%; Satyam -4%; SBI -5%; Steel Authority -6%; Tata Motors -5%; Tata Power -7%; TCS -5%; VSNL -10%; wipro -9%; Zee Tele -11%. There were only two of the Nifty 50 stocks which ended the week positive but extremely marginally. These were ITC and Suzlon. ITC had the negatives already priced in ahead of the budget and no talk of VAT had the stock up. Suzlons open offer for Repower opened this week and that was the reason for strength.
The Finance Minister in his budget speech talked about 10% growth targets and 4-5% inflation growth. Largely this is an ideal level. However these targets dont seem to get reflected in the numbers. The Tax revenues growth at 17% is not bouyant and prices in caution to an extent. Corporate Tax is assumed to grow at 15% and thats a worry. This in a scenario where there is a 1% education surcharge which has been added. Income tax growth is expected to be more bouyant at 19%. Is this the effect of a wider base. Service tax is expected to be extremely bouyant. The revenue account expenditure growth is high and thats the cost of running the Government which does not seem to be in control. The plan expenditure growth is only 9% in a scenario where revenues growth is taken at 10% (excluding the SBI buyout from RBI). Fiscal consolidation with revenue deficit at 1.5% of GDP and fiscal deficit at 3.3%. seem to be on targets. Really not much to take away from here as India sits at a critical point where interest rates have sharply run up. How the economy reacts to that brings in this uncertainty. Government spend is not too high to stimulate the economy and the impetus to private sector investment into capacity is missing. It of course will do if consumption goes on at a high pace but the Budget also does not provide impetus for consumption as well.
All in all its insipid with some talk of higher education and some focus on Agriculture. Increasingly the budget has become a non event, just that it becomes an opportunity for the FM to showcase himself to the world in terms of some big steps. This trend started with Dr Manmohan Singh who became famous only on the back of his path breaking budget which started reforms. This was an opportunity missed. This was the first time an FM who had to present had such strong backing in terms of bouyant revenues, bulging forex reserves and an economy which is vibrant. What was lacking was conducive political climate and inflation worries which bogged him down. A Missed opportunity clearly. Next year will be no different as it would be the last one ahead of general elections and populism will be the name of the game.
SKF bearings was one of the stocks which was strong this week . The performance has been exemplary and the company is set to grow well. Outsourcing is what its intentions are manufacturing bearings for the global needs given the low cost manufacturing here in India. The stock has been a super performer in the adverse conditions. We believe there is more to it. Do read our research on that this week. There is also a note on FAG Bearings as well where we are excited. We had a wow call here and thats only partly booked in profits.
Technically speaking: 12800 seems to be a support level of sorts. This is likely to be tested next week. Technically the two most important levels are 12710 - 13300 which is a range of 600 points. If the markets break through 12710 then markets are headed for deep trouble as the selloff could be extensive. So next week is crucial really.
The market selloff in the last one hour came in with rumours of Mauritus FIIs being taxed etc but really thats more of an excuse in a market which has become heavy with no positive triggers and great expectations. The best performing sectors have been biting the dust. First it was the sugar sector and Banking. Then it was the construction and real estate stories which are biting the dust with no takers. This budget followed it up with Cement and IT . Its only Telecom which seems to be hanging in there. May be that will go to..
Strategically speaking: Inflation is the worry. The number at 6% does not leave much hope but we that to cool off given the base effect wearing off. We believe that with lack of positive triggers missing for the next couple of weeks markets will be directionless and lacklustre. Driving the markets will be FII numbers and more driven by global sentiment. For now the mood and sentiment is down. One could get many mid caps at attractive levels. These of course one has to get ready to see at much lower levels as the large caps will correct to more reasonable valuations than they are right now.
The day before the good old Sensex crashed 400 points last month, not once but twice in a row, a brave soul predicted that it (Sensex) would more than double to 30,000 in six years. I am always wary of economic pundits, but this one sounded near the bone.
After all, if the Sensex can double in the past six years, why shouldn't it repeat its performance in the coming six years? History does repeat itself, though first as a tragedy and then as a farce. Is it possible that the sequence might be reversed this time? This means that Infosys will be quoted at around Rs 5,000, maybe 10,000; Reliance Industries at 3,000; Larsen & Toubro also at 3,000, and believe it not, ABB at 8,000. Almost anybody who has a few shares up his sleeve will then be a millionaire five or 10 times over, while he sit hunched before his laptop, munching caviar and guzzling champagne as the screen explodes before his eyes.
But you can't be too sure. If things can go up, they can also go down, and almost always do. The other day I was going over my old diary - about 50 years old - listing some shares that used to be quite active at the time. Many of them have just vanished into thin air. Where is Metal Box now, or, for that matter, a company called Guest, Keen Williams? I had purchased most of these scrips for 10 rupees apiece. At that price, you can't buy even a hundredth of Infosys now.
I am not saying that Infosys will disappear six years from now, or Larsen & Toubro will break up, but who would have thought that a company like DCM would not only split up but nearly collapse? These oldies have been overtaken by companies like Reliance and Wipro, which did not even exist 50 years ago and Dhirubhai Ambani was manning petrol pumps in east Africa.
Fifty years ago, there was no Sensex. There were no pink financial papers either. Most newspapers devoted less than a page to financial news and the share market occupied a couple of columns. If a share went up from 10.50 to 10.75, we used to celebrate. Beer was cheap. I had a broker who lived in Bombay (as it was then called) and I worked in Calcutta, and since there was no STD and I had no telephone at home, we never spoke to each other. I would write long letters and he would reply in his squirrelly hand, telling me about his grandchildren and occasionally about some bluechips.
There were no sharp ups and downs, except maybe during Budget time, which came only once a year. Incidentally, there was no TV, no computers and, of course, no e-mails, since the economy was virtually closed, and so were most economies elsewhere. In fact, we didn't bother much about the market, or, for that matter, anything else. The politicians and their faithful servants, the babus, managed the economy for us, and since we had no idea about what was happening elsewhere in the world, we were or pretended to be a contented lot. Nobody had any dollars or pounds, and only bureaucrats and businessman traveled abroad. Even businessmen had to beg for foreign exchange, including people like Ghanashyam Das Birla, who once refused to visit Moscow on a delegation because Morarji Desai wouldn't to give him enough dollars.
It is the markets which now rule the roost, not the government but most people are still whistling in the dark. The Sensex may indeed touch 30,000 in six years but it may also sink to 3,000.
Inflation falls sharply
This is surely going to bring some relief to the Government, the Reserve Bank of India (RBI) and the consumers. After several weeks of persistent upward trend, inflation, based on the Wholesale Price Index (WPI), has fallen. The benchmark measure for wholesale prices in the country slumped to 6.05% in the week ended Feb. 17, the Government said on Friday. In the previous week it was at 6.63%. Consensus estimate was for a drop to 6.3%. In the week ended Feb. 3, inflation touched a two-year peak of 6.73%, setting off alarm bells in the Government and prompting the RBI to increase the Cash Reserve Ratio (CRR) by another 50 basis points to 6%. The UPA regime, led by the Congress, has been under tremendous pressure to contain rising prices of essential products, especially foodgrains and pulses. The steep jump in prices of these food items has been a major issue in recently concluded state assembly polls, with the Congress losing in Punjab and Uttarakhand.
GDP growth slows in Q3
Even as Finance Minister P. Chidambaram presented a rosy picture of the Indian economy in the budget, the Government announced that the Gross domestic Product (GDP) had slowed in the October-December quarter. Asia's fourth-largest economy grew by 8.6% in the quarter ended December 2006 from a year earlier, spurred by robust show by manufacturing and service sectors, even as farm sector growth moderated further. The annual growth rate in the third quarter of FY07 was lower than the upwardly revised GDP growth rate of 9.2% in the July-September quarter. It was also lower than the 9.3% growth recorded in the third quarter of the previous fiscal year. The Indian economy has grown at an average of more than 8% in the last three years and the Government expects it to clock a 9.2% growth in the current fiscal year ending next month.
...so does manufacturing
India's red-hot manufacturing sector cooled off a little in February as the slew of monetary and fiscal measures taken by the Government started to have a moderating effect on new business. The seasonally adjusted Purchasing Managers' Index (PMI) declined to 53.6 in February, its lowest since the PMI survey started in April 2005. It was at 55.3 in January. The index has declined steadily since peaking at 59.3 in October. The new orders index fell to 56.5 in February, also the lowest in the survey's history, from 59.7 in January. The new export orders index also slipped to its lowest in the survey's history at 51.2.
India's merchandise exports rose 5.5% in January to US$9.65bn from a year earlier, while imports were up 23.2% at US$15.43bn compared with the same period of the previous fiscal year. Trade deficit in January increased to US$5.78bn from US$3.38bn in the corresponding month a year earlier. Exports in April-January 2006-07 were up 20.15% at US$99.14bn while imports climbed 27.3% to US$149.73bn. As a result, trade deficit for the first 10 months of the current fiscal year stood at US$50.59bn versus US$35.13bn in the year-ago period. In the previous months, exports have been growing at a much faster rate. Also, with only two months to go, exporters have their task cut out if they are to meet the annual target of US$125bn in exports.
Govt bans futures trading in wheat, rice
With a view to contain spiraling prices of key food items and contain inflation, the Government banned futures trading in wheat and rice. Trading will stop once existing contracts expire on the nation's three exchanges. "Exchanges have been told not to launch new contracts in rice and wheat," said Anupam Mishra, Director at the Forward Markets Commission (FMC), the commodities market regulator. "Trading can continue in existing contract." The FMC order does not clarify how traders will liquidate existing contracts if no counter-party can build fresh positions. Separately, the Government decided to appoint an expert committee under the chairmanship of Prof. Abhijit Sen to examine the impact of forward trading in essential commodities on consumer prices. The panel will be requested to submit its report in two months.
Cabinet okays AI-Indian merger
The proposed merger of Air India and Indian (erstwhile Indian Airlines) got a green light from the Union Cabinet. With this clearance, the Government is all set to create not only India's largest carrier but also one of the biggest in Asia. "The merger of the two airlines would enable them to leverage combined assets and capital better and build a stronger and sustainable business," the Government said in a statement. Last month, a Group of Ministers agreed to merge the two state-run carriers into one single company with separate business units for engineering & maintenance, low-cost carriers and ground handling activities.
RIL, Hindalco announce preferential issue
Mukesh Ambani is all set to increase his holding in Reliance Industries (RIL). This will be done through a preferential issue. Mukesh Ambani and associates will subscribe to the equity-linked warrants of RIL on a preferential basis at Rs1402 per share. An amount equivalent to 10% of the price would be paid on allotment of warrants and the remaining 90% would be paid at the time of subscription to equity shares on exercise of rights attached to the warrants within 18 months. On exercise of such rights, the paid-up capital of RIL will increase from Rs13.93bn to Rs15.13bn. On Feb. 24, the RIL Board approved a plan to set up a new petrochemicals unit. The company would invest US $3bn in the petrochemicals project, designed to have an annual capacity of 2mn tons, and is expected to be completed by 2010-11. The cracker will make ethylene, propylene and other special derivative products, it said. RIL also reiterated its plans to raise up to US $2bn from overseas markets to fund a capital spending plan for its oil and gas business.
Separately, Hindalco said that its Board will meet on March 2 to consider preferential offer of equity shares or equity-linked instruments to the promoters. Last year too, the Birlas had increased their stake in Hindalco via a preferential allotment. Aditya Birla Group chairman Kumar Mangalam Birla had recently said the promoters' stake would be gradually increased through the creeping acquisition route. Though Hindalco didn’t specify the reasons for the preferential issue n or the size of the issue, the move appears to be aimed at part financing the proposed acquisition of US-based Novelis for US $6bn. Meanwhile, Novelis reported a US $275mn loss for 2006 because the company was unable to pass along higher costs to customers.
Cement, Steel, Auto Cos hike prices
A day after Finance Minister P. Chidambaram slapped a 50% increase on costlier cement bags, manufacturers in western and northern India hiked prices by Rs12 per 50-kilogram bag with immediate effect. Chidambaram raised the excise duty on cement priced above Rs 190 per 50 kg to Rs 600 per ton from Rs 400 in the budget for the fiscal year 2007-08. At the same time he cut the duty on cheaper cement bags to Rs 350. Post the hike, average wholesale price of cement in Mumbai would be Rs 233 per 50 kg bag while the retail price would be Rs 245, said Sanjay Ladiwala, President of the Cement Stockists & Dealers Association Bombay.
Tata Steel hiked prices for the first time this year following an increase in global steel prices. The price of hot-rolled coil (HRC), an industry benchmark, was raised by Rs1,000 per metric ton, or 4%. Prices of rebars, used in construction, was increased by up to Rs500 a ton. HRC sold at an average Rs26,000 a ton last month in the spot market. Jindal Stainless will increase prices by as much as 5% for some products because of higher raw material costs. India's No.1 stainless steel producer will raise prices of the 300-Series by as much as Rs10,000 per ton to Rs210,000 a ton. Prices of the 200-Series will be raised by Rs2,000 a ton. Others like Ispat Industries, Essar Steel, JSW Steel and SAIL were also likely to follow suit.
The Indian car industry decided to pass on the burden of additional 1% education cess proposed in the Budget 2007-08 to consumers. Market leader Maruti was the first to announce its decision to hike prices from March 15. Hyundai, the country's second largest carmaker, said it will increase prices of all its models. Tata Motors and Mahindra & Mahindra too increased prices of some of their models. Honda Car India will increase the price of its sports utility vehicle CR-V between Rs10,000-12,000. This is because the company's sales tax holiday is coming to an end in Uttar Pradesh from April 1. Others, including Ford and GM, were taking stock of the situation. DaimlerChrysler India and Toyota said they will keep prices unchanged. Meanwhile, Skoda Auto slashed prices across all models by up to Rs 24,000 citing reduction in customs duty on imported car parts. BMW also reduced prices.
Low base props up auto sales in Feb
Tata Motors announced its total vehicle sales (including exports) grew by 19% in February to 53,707 units from 45,113 units sold in February last year. Cumulative sales (April-Feb 2006-07) jumped 30% to 516,599 units. Maruti Udyog Ltd. said its domestic sales grew by 61.4% in February over the corresponding month last year. During the month, the company sold 59,095 vehicles versus 36,608 in the same month last year. Exports were down 13% at 3,904 units. Mahindra & Mahindra Ltd. (M&M) said its automotive sector sales grew by 19.2% in February to 13,746 units from 11,536 vehicles in the year-ago period. This figure includes exports of 480 vehicles as against 257 in February 2006. M&M's tractor sales posted a growth of 7% in February over the corresponding period last fiscal. The total sales volumes for the month stood at 7003 including exports, an 5% rise over last fiscal.
Hero Honda Motors Ltd. said on Thursday that its total sales climbed by 11.8% in February to 280,515 units from 250,695 units in the same month a year earlier. Bajaj Auto Ltd. said its total sales fell 1.7% last month due to production constraints. The Pune-based two-wheeler major sold 202,212 vehicles last month, compared with 205,776 a year earlier. Exports in the month jumped 46% to 38,228 vehicles from 26,237 a year earlier, Bajaj Auto said. TVS Motor Co. Ltd. said its motorcycle sales rose by 6% last month to 70,155 units from 66,391 units in the same month a year earlier. Overall sales climbed by 10% to 120,110 vehicles in February, compared with 108,923 units a year earlier. Exports rose 33% to 8,017 units.
M&M, Nissan, Renault to build Chennai plant
Mahindra & Mahindra Ltd. (M&M) signed a MoU with Renault and Nissan for setting up a car plant in Chennai. The facility will have an installed capacity of 400,000 units per year, seven years after its initial production. Renault, Nissan and M&M are committed to investing a minimum of Rs40bn (€ 686mn/US$902mn) in the Chennai plant during the next seven years. M&M will hold a 50% stake in the JV, while the balance will be owned by Renault and Nissan. The project will provide vehicle production for each carmaker, plus a powertrain facility for Renault and Nissan. The MoU will facilitate M&M and its partners to manufacture passenger cars and SUVs in the 925 acre (about 400 hectares) facility. Production is expected to begin in the second half of 2009.
Jindal Steel seals iron ore deal with Bolivia
indal Steel & Power Ltd. managed to salvage the mega iron ore exploration deal with Bolivia. Differences over natural gas prices and taxes had threatened to jettison the deal. Both parties signed preliminary agreements on the tax rate and gas prices for the iron and steel project, and will sign a definitive contract within 45 days. In June last year, Jindal Steel won an international bid to exploit 50% of the El Mutun iron ore reserve in a joint venture with the Bolivia government. The company committed to invest US$2.1bn in mining and steel manufacturing activities. Jindal Steel said it will create 4,600 direct jobs. Bolivia expects to receive some US$200mn a year in profit sharing and taxes from the 40-year concession. El Mutun, believed to contain one of the world's biggest iron-ore reserves, contains an estimated 40bn tons of iron ore of medium-grade quality. The deposit is located southeast of La Paz, near the Brazilian border.
Gujarat Ambuja Cements Ltd. (GACL) sold part of its stake in Ambuja Cement India Ltd. to Holcim Ltd. "GACL owns 33% stake in ACIL, and has exercised its put option for 11% of its holding," the company said. GACL sold 95,375,000 shares of ACIL for Rs5.27bn (US$119mn). By selling these shares, GACL realised a profit of Rs2.41bn. After this sale, GACL owns 22% in ACIL and Holcim holds the balance 78%. Holcim's stake in ACIL increases to 78%, while the remaining 22% is held by Gujarat Ambuja. ACIL holds 35% in ACC and 9.93% in Gujarat Ambuja.
Zensar Technologies Ltd. said its Indian promoter the RPG Group will purchase the entire stake held by the Japanese Joint Venture partner Fujitsu for an undisclosed sum. Fujitsu holds a 29% stake in Zensar through two group companies. As of March 1, Zensar's market cap was Rs5.64bn. So, Fujitsu's stake in the company works out to around Rs1.64bn. A financial daily reported on Feb. 23 that Fujitsu had sold its 29% stake in Zensar to the RPG Group citing strained relations between the two JV partners. It also stated that the Japanese company was keen to go solo in India was even eyeing acquisitions.
TV Today Network said that Reliance Capital Ltd., part of the Anil Dhirubhai Ambani Group, has picked up 11.93% stake in the company on Feb. 28 through the open market route. In a filing to BSE, the news broadcaster said that Reliance Capital purchased 6,918,327 shares. However, TV Today didn't say the price at which the shares were bought nor the sellers.
Autoline Industries said it will acquire a 51% stake in Stokota NV of Belgium for about Rs668mn in cash and equity. The two companies signed a MoU to execute a merger of the two companies. Stokota is a MNC with operations in Belgium, France, Poland, China, and India. It has partnerships in over 16 European Union (EU) and Eastern European countries. Stokota is the largest manufacturer of aluminum tankers in Europe and is a leader in the market for steel and stainless steel tankers. It's customers include Volvo, Scania, MAN, Iveco, Renault, DAF in Europe and FAW and Deng Fong in China.
Spice to issue 138mn shares in IPO
Spice Communications Ltd. plans to issue 137.99mn equity shares in an Initial Public Offering (IPO). The issue would constitute 20% of the fully-diluted post-equity capital of the company, shows its Draft Red Herring Prospectus (DRHP), filed with capital market regulator SEBI. Malaysia's TM International holds 49% in Spice through its wholly-owned unit, TMI India. The proceeds of the IPO would be used partly to repay long term debt, pay for licences and other capital expenditure requirements, Spice said. The company is also considering a private placement of shares before the issue. Spice provides cellular services on the GSM platform in Punjab and Karnataka. As of Dec. 31, 2006, the company had a subscriber base of 2.45mn. The company has applied for mobile services licenses to operate in 20 more circles and plans to provide ILD and NLD services.
Indian Bank listing
Shares of Indian Bank performed well on the company's stock market debut on Thursday. The stock opened at Rs105 on the Bombay Stock Exchange (BSE) as against the issue price of Rs91, translating into a premium of 15.4%. The scrip closed its maiden trading day at Rs98.30 after touching a low of Rs77. The company came out with an IPO of 85,950,000 equity shares of Rs 10 each. The public issue received a tremendous response from investors, especially foreign institutional investors. Overall the IPO was subscribed 32.16 times. The IPO constituted 20% of the post- issue fully diluted paid up equity capital of Indian Bank. Post-IPO, the Government of India will hold 80% of the public sector bank's equity share capital.
Global stocks slump as China melts
Stock markers tumbled across the world following a steep drop in Chinese stocks on Feb. 27. Chinese stocks registered the biggest fall in a decade after regulators said they would ban illegal activities in the stock market. The tighter regulation on stock market investments through borrowed funds was later withdrawn. The selloff was also partly attributed to profit taking after key indices reached record high last week. China's stock market was the biggest gain last year. The Dow Jones Industrial Average lost 3.2% in the last three sessions, while stocks across Europe and Asia also declined, extending their worst slump in four years. However, China's stocks rose on Friday as some investors judged this week's tumble, the biggest in four weeks, as excessive.
US recession possible, not probable: Greenspan
Former Federal Reserve Chairman Alan Greenspan said that a recession in the United States is possible, though not probable this year as inventory problems in the economy are being addressed quickly. "It is possible we can get a US recession toward the end of this year, but I don't think it's probable," international wire news agencies quoted Greenspan as saying in his speech at a forum in Tokyo organized by international brokerage CLSA. Earlier on Feb. 26, Greenspan said that a recession in the US was possible, though it was difficult to predict the timing, a comment blamed in part for the global market decline this week. "Things look reasonably good in the short run for the US and the world," he said. " But we can't just assume that this extraordinary period of recovery can extend indefinitely." Greenspan also said yesterday that the US has gone through the major part of adjustment in housing prices and the worst is over, though the housing market is expected to remain weak.
Major insider trading scam bust: US Govt
The US government charged 13 people, including employees at major Wall Street banks, with securities fraud, wire fraud, bribery and other charges in what could be one of the biggest case of insider trading in years. Prosecutors said that that all 13 people had been arrested, and four had pleaded guilty. Also, the Securities and Exchange Commission (SEC) charged 11 people and three companies in a civil suit related to the insider trading schemes. It was one of the most pervasive Wall Street insider trading rings since the days of Ivan Boesky and Dennis Levine, said Linda Thomsen, Director of enforcement with the SEC, at a joint news conference with the US attorney and the FBI on March 1. She was referring to major insider trading scandals of the 1980s. Prosecutors in New York and Washington accused an executive at UBS and a former compliance lawyer at Morgan Stanley of tipping off traders and brokers to new analyst ratings and secret takeover talks. At least four Bear Stearns professionals traded on information leaked from UBS and Morgan Stanley, SEC said. The scheme stretched over five years, included hundreds of tips and produced more than US$15mn in illegal profits, it added.
Japanese inflation falls to zero
Japan had zero inflation in January, underscoring the economy's struggle to overcome seven years of slumping prices. Japanese inflation as measured by the core consumer price index fell to zero in January, and wages fell the most in more than two years, underscoring the country's struggle to overcome seven years of slumping prices. Core consumer prices, which exclude fresh food, were unchanged from a year earlier, the statistics bureau said, matching the average estimate of e conomists. It was the first time prices failed to rise since May, and followed a 0.1% gain in December. A separate report showed that wages slumped 1.4% in January, the biggest drop since June 2004, damping prospects for faster inflation and higher interest rates in the world's second-largest economy. The Bank of Japan raised rates for the second time in six years last week and Governor Toshihiko Fukui said further increases will be gradual.
Buffett owns stake in Tesco, Posco
Shares in Tesco rose on news that billionaire investor Warren Buffett has a 2.9% stake in Britain's biggest retailer. According to Buffett's annual letter to shareholders, his insurance and investment company Berkshire Hathaway Inc. owned 229,070,000 shares of Tesco at the end of 2006, worth US $1.82bn. Buffett also disclosed that Berkshire Hathaway had a 4% stake in Korea's Posco, sending shares of the world's third-largest steelmaker soaring in Seoul. The letter didn't disclose when or how Berkshire Hathaway acquired 3.49mn shares of Posco for US $572mn. The Omaha, Nebraska-based firm's investment in Posco was worth US $1.16bn as of the end of last year, Buffett, 76, said in his annual letter to shareholders, released on March 1. Berkshire's other holdings included 12.6% of American Express and 8.6% in Coca-Cola. The only other Asian company listed was PetroChina, China's biggest state- run oil company, in which Berkshire had a 1.3% stake. Separately, the legendary investor said after more than 40 years overseeing Berkshire, he was looking for a new chief investment officer who will replace him when the time comes.
Oracle gobbles up Hyperion
Oracle Corp. agreed to buy Hyperion Solutions Corp., a leading global provider of performance management software solutions, for about US$3.3bn in cash. Hyperion investors will get US$52 a share, Redwood City, California-based Oracle said in a statement. The price is 21% more than Santa Clara, California-based Hyperion's closing price of US$42.84 yesterday. Hyperion has about 12,000 customers. The company reported second-quarter earnings in January that topped analysts' estimates as it won orders from BT, New York University and RadioShack. Revenue is expected to jump to as much as US $895mn this year. Excluding some costs, the acquisition will boost the company's EPS by at least 1 cent in fiscal year 2008, which ends in May, and by at least 4 cents in fiscal 2009, Oracle said. Including those costs, the purchase will be modestly dilutive in 2008, before starting to contribute to earnings, CFO Safra Catz said on a conference call. Oracle will reap cost savings because the companies target the same customers, Catz said. Even so, Hyperion has fewer products in common with Oracle than Siebel and PeopleSoft had, she said. "We have virtually no overlap with these folks," Catz said. "We should be up and running very quickly."
The markets have corrected and we feel the worse is not over yet. Chances are Monday morning will see another crash at open. Remain cautious especially till noon and prudently try and build a healthy portfolio for the medium to long term. Don't expect any mega gains immediately. However after over 12% correction from all time highs, the fundamental story of the economy is still intact with Average GDP growth rate at 8.6% in three years of UPA coalition Government and economy in stronger position than ever before.
One can consider taking investment calls at lower levels in:
- Gammon India
- Crompton Greaves
- Tech Mahindra
- Sun Pharma
Aam admi's budget from PC
Ten years after he presented the "dream budget," Finance Minister P. Chidambaram unveiled a budget that once again underlined the UPA regime's efforts to portray itself as a party for the aam admi or common man. The compulsion was even more this time, as the Government had received a lot of flak for its inability to contain the spiraling prices of essential products. Chidambaram was under pressure to bring out measures in the budget to reign in inflation, which reached a two-year peak earlier in February. He did oblige by holding back an increase in the service tax, though one could argue that a 1% additional cess for secondary education may just prove to be inflationary. Already, some car makers have jacked up prices, despite the FM's plea to India Inc that they should keep prices steady. The peak customs duty on non-agricultural products was slashed from 12.5% to 10%. There was no change in basic corporate and personal income tax.
So far so good. Then came the slew of tax proposals that didn't go down well with the industry and the markets. Dividend distribution tax was increased. Units under Section 10A/10B like IT companies and companies under EOUs brought under MAT. ESOPs to fall under FBT net. Dual excise duty structure on cement. Benefits under Section 80IA taken away from construction companies with retrospective effect from 2000-01. Service tax on rental income on commercial properties. Export duty on iron ore chromium ore. Individuals were also disappointed as the Finance Minister increased the exemption limit only by Rs10,000. The industry was expecting the corporate surcharge to go away, but that didn't materialise, though for SSIs the same was increased to Rs1.5 crores from Rs1 crores.
One major positive was the progress made on the fiscal front, with revenue deficit restricted to 2% of GDP, while the fiscal deficit is expected to be 3.7% of GDP. This is an improvement of 0.1% over the budget estimates. The finance minister has aggressively targeted the fiscal deficit at 3.3% of GDP while revenue deficit is pegged at 1.5% of GDP, bringer them closer to the FRBM targets originally envisaged. However, the pressure from non-plan expenditure is a cause for concern. Similarly, the trends in revenue and capital expenditure are not particularly healthy.
The budget assumes a nominal growth of 13% in gross revenues in 2007-08 over a high growth of 15% in 2006-07. This raises the Tax/GDP ratio from11.4% i n 2006-07 to 11.8% in 2007-08. The overall revenue receipts (net to the centre) are budgeted to grow by 16.7% in 2007-08 as against the observed growth of 28% in the previous year. The projected moderation in tax revenue growth appears quite realistic given that the base was high and the overall growth too is expected to moderate in 2007-08. Most of these targets are still well within reach unless the assumed slowdown in economic growth is worse than expected. As expected, the Finance Minister increased allocations towards education, healthcare, agriculture and infrastructure. But it remains to be seen if this is enough to address the issue of supply constraints in food, human resource and infrastructure that is plaguing the economy currently.
Passenger fares cut; freight rates rationalised
In order to keep its pro-people image in tact amid widespread resentment on spiraling prices, Railway Minister Lalu Prasad Yadav announced across the board reduction in Railway passenger fares. While presenting the Railway Budget for FY08, the RJD supremo said that passenger fares on Sleeper Class will be slashed by 4%. AC First Class fares will be reduced by 6% in lean season and by 3% in Busy Season, he added. Similarly, for AC 2-Tier, the busy season reduction is 2% and lean season 4%. The Railway Minister also lowered fares for all classes of high capacity new design reserved coaches which will be 4% for AC 3-Tier and AC Chair Car in busy season and 8% in lean season. Yadav announced that discounts for the busy season will be applicable in popular trains throughout the year.
Daily tickets for Non-suburban Second Class Ordinary trains and Non-superfast Mail/Express trains will be reduced by Re1 per passenger. Supplementary charges for Superfast Trains for Second Class will be reduced from Rs 10 to Rs 8.
Yadav announced reductions and discounts in the freight tariff on various commodities including diesel, petrol, steel, cement and further discounts for consignments of wheat and fertilizers etc. He proposed to reduce the classification for diesel and petrol of highest Class from 220 to 210, which would bring down the freight rate for diesel, petrol and ammonia etc, by about 5%. The Railway Minister announced that on the demand of mineral based industries like steel, cement etc., freight rates for transportation of all minerals including iron ore and limestone would be charged at Class 160 from Class 170, thus reducing the freight rates for these commodities by about 6%. The Railway Minister introduced a new commodity based tariff policy on an experimental basis from April 1 through an exclusive package for cement. He said the new policy is being developed to better address the needs of the customers for major commodities transported by rail and to provide a stronger base to railway’s competitive capabilities.
A bad budget week on D-Street
Nobody said it was easy
It's such a shame for us to part
Nobody said it was easy
No one ever said it would be this hard
Awe take me back to the start
How could it come down to this? Should we call it mayhem? Or bulls going for a bungee jumping or excessive gains over past seven months? Inflation worries, a lackluster budget and China-led sell off in global markets contributed towards a heavy fall on the bourses for the second week in a row. Indian indices recorded biggest weekly losses in seven months. Everything was looking bright and rosy at the start of 2007 with marketmen predicting 15k levels before budget. However, looking at the scary scenes on Dalal Street in February, the bulls have an uphill task to reach its previous peak.
Emerging markets were at the receiving end after a rout in China's equity market fueled concern that investors will shift their focus away from riskier assets. Higher excise duties on cement companies and proposals to tax IT and construction companies broke the back of the market. As compared to last year, the Union Budget lacked big-bang measures, which didn't enthuse the bulls. As a result, the benchmark BSE Sensex tumbled 746 points or 5.4% during the week to close at 12,886. While the NSE Nifty slumped 5.3% or 212 points to close at 3727. Selling was seen across the board with Capital Goods, Banking, Cement and Construction stocks were the biggest losers. However, Sugar stocks bucked the negative trend and closed higher after government allowed 6 lakh tons of export.Capital Goods stocks hogged the limelight for all the wrong reasons. L&T and Punj Lloyd and others pared gains towards the end on selling across the board. L&T fell by over 9% to Rs1464. The scrip was among the top three losers of the week. BHEL lost over 7.5% to Rs2099, ABB slipped by 4.6% to Rs3541 and Punj Lloyd declined over 5% to Rs788. The proposal to withdraw tax benefits under Section 80IA with retrospective effect sent shares of construction companies into a tizzy. HCC, GCC, Gammon, IVRCL, etc. were battered out of shape
Auto stocks were in reverse gear, despite strong monthly sales and news of price increases. The BSE Auto index was the top loser, slipping 6% on the week. Bajaj Auto declined over 10% to Rs2550, Tata Motors fell nearly by 5% to Rs774, Maruti lost 3.4% to Rs833 and Hero Honda declined 2% to Rs691.
IT stocks slumped after FM's proposal to extend MAT to IT firms. The BSE IT index fell 5.8% in the week. Heavy weights led the fall with Wipro being the top loser. The scrip declined over 8% to Rs573, Infosys was down 6% to Rs2103, TCS shed over 5% to Rs1208 and Satyam slid 4.7% to Rs427. HCL Tech, Financial Technology and I-Flex were the other major losers. Despite smart recovery on Thursday, IT stocks fell sharply ending the week lower.
Banking stocks also ended lower. The BSE Banking index lost 4.6%. ICICI Bank was the top loser, falling by over 6.5% to Rs845. Other frontline stocks like SBI lost nearly by 5% to Rs1008 and HDFC Bank slipped 1% to Rs947. PNB, Bank of India and Union Bank were the other key losers.
Cement stocks lost altitude following a steep hike in excise duty on cement, sold above Rs190 per 50-kg bag. For cement priced below Rs190 a bag, the tax will be lowered. Gujarat Ambuja was the top loser, in the Nifty. The scrip plunged by over 10% to Rs109, Grasim lost by over 7.5% to Rs2096, ACC slipped 6.5% to Rs855 and Mangalam Cement declined over 6% to Rs2096.
Sugar stocks turned sweeter. Shree Renuka was the top gainer, rising by over 18% to Rs330, Bajaj Hindusthan rose over 11% to Rs179, Balrampur Chini surged by over 10% to Rs62 and Sakhti Sugar added 4.4% to Rs69.
Sesa Goa, which is the subject of a takeover battle, was extremely volatile. The scrip swung by over Rs500 in the week before ending down 13% at Rs1661. It hit a high of Rs2025 and a low of Rs1485 during the week. Sesa Goa was one of the losers in budget following a proposal to impose tax of Rs300 per ton on Iron Ore exports. The company expects to lose Rs1.5bn in FY08.
Red Holi...Sun outage to cast a shadow
Bright colors, water balloons and melodious songs are the ingredients of perfect Holi. For the market participants, the color red is all around. Holi marks the beginning of summer season and so water balloons are burst to beat the heat. But indices seem to be cooling more than most players expect it to. And don't be surprised if doomsday prophets come and talk of levels below 11,000. That may seem a bit exaggerated now. But a few bad days are enough to reduce the Sensex by over a thousand points.
We hear that many market participants had hoarded shares expecting FIIs would lap them up post budget. However, the sentiment turned extremely negative and these 'players' were forced to let go. But then, the blood bath, could have more to do with the turbulent global cues rather than much-hyped Union Budget. The latest development in US regarding regarding case of biggest insider-trading since 1980’s may also cast it dark shadow on markets in India. Talking about shadows, sun outage will begin from next week, which sets in boredom to say the least. So, one should stay cautious and guarded as trading at this juncture is fraught with a lot of risks. With Budget out of the way, more will now depend on the Advance tax numbers by the corporates, to guide the markets further along with the overseas markets.
Export growth remains weak
Cluster: Apple Green
Price target: Rs1,075
Current market price: Rs774
- Tata Motors (TAMO) has reported decent numbers for February with an overall growth of 19% as its total sales rose to 53,707 units in the month from 45,113 units last February.
- The growth in the commercial vehicle segment continues to be strong despite the high base of last year. The segment recorded a 22% growth in February. The medium and heavy commercial vehicle segment saw a growth of 19.4% while the light commercial vehicle sales grew by 25.3% year on year (yoy).
- The passenger car sales were slower in February compared with that in the earlier months, with an overall growth of 12.8%. Indica reported sales of 12,580 units (up 19% yoy) while the Indigo family registered a decline of 6% in sales.
- The utility vehicle segment reported a phenomenal growth of 40.7% during the month, led by the strong sales of both Sumo and Safari. Safari sales grew by a staggering 258% to 2,009 units.
- TAMO's exports for the month stood at 4,526 vehicles as compared with 4,257 vehicles in February 2006. That's a growth of 6% yoy.
- At the current market price the stock is trading at 12.3x its consolidated FY2008E earnings and at an enterprise value/earnings before interest, depreciation, tax and amortisation of 6.4x. We remain bullish on the stock and maintain our Buy recommendation with a price target of Rs1,075.
Information TechnologyMinimal impact on earnings
There is a growing consensus among tax consultants and the management of the leading information technology (IT) companies that the levy of the minimum alternate tax (MAT) would have a minimal or absolutely no impact on the earnings of IT companies.
To put it in perspective, the IT companies would have to pay additional tax on income from the Software Technology Park (STP) registered units (@ of 11.3% now), resulting in cash outflow to the tune of 1-2.5% of their revenues. However, the same would not get reflected in their profit & loss account due to the creation of a deferred tax asset. That's because the MAT payable in FY2008 and FY2009 can be carried forward and be set off against the full tax payable on the income from the STP registered units with effect from FY2010. This largely eliminates the concerns related to a possible decline of 3-6% in the earnings
After yesterday's pullback, the market opened with moderate losses on the back of weak Asian markets. After erasing its early losses the Sensex recovered on sustained buying in metal, cement and consumer durables stocks and touched an intra-day high of 13254. The index firmed up in the afternoon on the gains in banking stocks on reports of a lower inflation rate. However the Sensex soon slipped into the red as selling intensified in the market towards the close and touched the day's low of 12837, down 417 points from the day's high. The Sensex ended the session with losses of 273 points at 12886. The Nifty shed 84 points and closed at 3727.
The breadth of the market was weak. Of the 2,637 stocks traded on the BSE 1,667 stocks declined, 922 stocks advanced and 48 stocks ended unchanged. All the sectoral indices ended in the red. The BSE CG Index shed over 3%. The BSE Teck Index, the BSE Oil & Gas Index and the BSE IT Index declined by over 2% each.
Selling was rampant in several index heavyweights. L&T at Rs1,465 and SBI at Rs1,008 slumped by over 4% each. TCS shed 3.76% at Rs1,208, Reliance Industries plunged 3.61% at Rs1,317, ITC crumbled by 3.45% at Rs167, HDFC Bank declined 3.40% at Rs948, BHEL dropped 3.34% at Rs2,099, and Reliance Communications was down 3.01% at Rs415. Wipro, Bharti Airtel, Grasim, Cipla, ACC, Infosys, Reliance Energy, Tata Steel, Gujarat Ambuja, Tata Motors, Satyam Computers and ICICI Bank shed 1-2% each. However, select counters managed to buck the downtrend and close in positive territory. Hero Honda rose 3.69% at Rs692, HLL added 1.70% at Rs179, HDFC was up 1.45% at Rs1,529 and Ranbaxy gained 1.22% at Rs347. Bajaj Auto, Hindalco and ONGC ended with the marginal gains.
Consumer goods stocks lost ground on selling pressure. Blue Star dropped 2.41% at Rs200, Gitanjali Gems slumped 2.22% at Rs205 and Lloyd Electric declined 2.09% at Rs152. Among the oil & gas stocks Bharat Petroleum slipped 3.15% at Rs299, Petronet LNG shed 1.82% at Rs43 and HPCL lost 1.50% at Rs263.
Over 50.16 lakh Indian Bank shares changed hands on the BSE followed by IDFC (35.48 lakh shares), Gujarat Ambuja (26.34 lakh shares), Tata Steel (25.18 lakh shares) and SAIL (23.77 lakh shares).
Value-wise Reliance Industries registered a turnover of Rs186 crore on the BSE followed by Tata Steel (Rs114 crore), Infosys (Rs91 crore), Reliance Communications (Rs67 crore) and SBI (Rs61 crore).
The Sensex shrunk below the psychological level of 13,000 for the week ended 2 March 2007. The market declined amid high volatility. Before the market could overcome the pre-Budget blues, a disappointing Union Budget 2007-08 and weak Asian markets pushed the market lower.
The BSE Sensex shed 746.40 points for the week ended 2 March 2007, to settle at 12,886.13, compared with the previous week’s closing of 13,632.53 on 23 February 2007. The S&P CNX Nifty lost 212.20 points, to settle at 3726.75 compared with the previous week’s closing at 3,938.95.
The BSE Mid-Cap shed 198.65 points for the week ended 2 March 2007, to settle at 5,466.24 compared with the previous week’s closing of 5,664.89. The BSE Small-Cap shed 258.62 points, to 6,645.81, compared to the previous week’s closing at 6,904.43.
On Monday (26 February), the day of the Railway Budget, the 30 shares BSE Sensex advanced 16.99 points (0.12%), to 13,649.52. However, the market exeprienced volatility and swung 1,000 points, between some of the vital intra-day tops and bottoms of the day. The market pulled off an almost incredible rebound after a steep intra-day fall in mid-afternoon trade. Cement, banking, auto and steel shares were behind the Sensex’s rebound. The rise in cement and steel shares was due to a cut in rail freight rate on key raw materials in their manufacture.
On Tuesday (27 February), the 30 shares BSE Sensex lost 170.69 points (1.2%), to 13,478.83 on weak Asian markets. Nevertheless, select stocks edged up in a weak market, as investors bet on sector-specific Budget sops.
On 28 February 2007 (Wednesday), the day of the Union Budget, the 30 shares BSE Sensex tumbled 540.74 points, to settle at 12,938.09 on heavy selling across the board. Sensex suffered their biggest fall in eight months after 13 June 2006. Increase in taxes for cement, IT and construction firms and weak global markets caused the huge fall on the bourses.
An increase in dividend distribution tax impacted trading on the bourses, and the market tumbled soon after the announcement. The dividend distribution tax for corporates has been raised to 15% from 12.5%. No changes have been made in corporate tax. The 10% surcharge for firms with a taxable income of Rs 1 crore, or less, has been removed. The market was expecting abolition of 10% surcharge for all corporates.
On the flip side, there is no increase in the securities transaction tax (STT), on short-term capital gain tax and on long-term capital gains tax on sale of shares. Long-term capital gains tax remains zero. The market also expected an increase in STT. Marketmen also had apprehension of an increase in short-term capital gains tax to 12.5- 15% from 10%.
The Sensex, which had been on a downtrend ever since striking an all-time high (14,723.88) on 9 February 2007, rebounded with great force on Thursday (1 March 2007). Bargain-hunting for battered index pivotals and short-covering in the derivatives segment helped to reverse the downtrend. Most of the gains came in the second half of the day’s trading session, triggered by short-covering. Volatility was also at its best.
On Friday (2 March 2007), the Sensex gravitated below the psychological level of 13,000 after a late sell-off gripped the market. The 30 shares BSE Sensex lost 273.42 points (2.08%), to settle at 12,886.13, its lowest closing level since late-October 2006. Index heavyweight Reliance Industries (RIL) dived and so did IT scrips, cement producers, banks and telecom shares.
Ranbaxy was down 2.54% for the week, to Rs 347.40. The stock came under pressure as market men continued to fret over possible equity dilution if Ranbaxy acquired Merck's generic drugs business. The stock has declined even as the company had dismissed media reports that it was planning an issue of shares in the US, or dilution in stake by founders to fund the acquisition.
Reliance Industries (RIL) dropped 6.76% to Rs 1317.35. RIL has a substantial 10.8% weightage in the Sensex. The company had on Friday called a board meeting on 10 March 2007, to consider the payment of interim dividend for FY 2007 (year ending 31 March 2007). The company has also set 22 March 2007, as a record date for paying interim dividend. The company’s announcement comes after the finance minister raised dividend distribution tax to 15% from 12.5% in Union Budget 2007-08. Paying dividend before the end of this financial year will ensure that RIL pays the existing 12.5% tax on dividend distribution.
IT shares drifted lower. IT major TCS lost 5.24% to Rs 1208.45, Infosys shed 6% to Rs 2103.15 and Wipro lost 8.03% to Rs 573.20. IT shares witnessed a heavy fall on the Budget after units set up in software technology parks were brought under minimum alternate tax (MAT) net. They had staged a rebound the next day under the reckoning that their earnings will be impacted only to a small extent following an increase in tax after the Budget.
Banks lost further ground. State Bank of India lost 4.72% to Rs 1008.45, HDFC Bank lost 1.02% to Rs 947.70, and ICICI Bank shed 6.84% to Rs 845.85. The wholesale price index rose 6.05% in the 12 months to 17 February 2007, sharply lower than previous week's annual increase of 6.63% due to a fall in fuel and food prices. The figure was lower than an expected 6.25%. The BSE Bankex lost 312.25% to 6,447.33 compared to the previous week’s closing at 6,759.58.
A sell-off gripped construction shares after the Budget proposed withdrawing tax breaks on construction contracts. Nagarjuna Construction slumped 14.02% to Rs 152.05, Gammon India plunged 21% to Rs 305.45, IVRCL Infrastructures dropped 9.65% to Rs 290.65 and Hindustan Construction dropped 11.02% to Rs 101.35. The budget proposed withdrawing the ten-year income tax breaks on infrastructure construction contracts available under section 80 IA, with retrospective effect from April 2000.
Cement makers were hammered after the government announced changes in excise duty based on retail prices. Higher duty will be levied for more expensive varieties of cement. Gujarat Ambuja Cements (down 10.79% to Rs 109.60), ACC (down 6.56% to Rs 855.55), Grasim (down 7.60% to Rs 2098.40), UltraTech Cement Company (down 2.81% to Rs 872) and Shree Cements (down 3.99% to Rs 1190) were the major losers in this sector.
Maruti Udyog flopped 3.40% to Rs 833.95, after the dream about the finance minister cutting excise duty on cars turned sour. In the previous Budget, excise duty was cut to 16% from 24% on small cars.
Cigarette major ITC edged up by 0.27% to Rs 166.55. Cigarette firms are seen passing on a 5% hike in excise duty the Budget proposed on cigarettes. The worst fears of the market were that cigarettes will be brought under value added tax with 12.5% VAT, spawning concerns that higher tax may lead to a shift in tobacco consumption, to low-end products such as bidis and chewing tobacco.
Further, the complete exemption of excise duty on all instant food mixes and biscuits, whose retail price does not exceed Rs 50 a kilo has also turned out to be a boon for ITC. Besides being the top cigarette maker, ITC also makes biscuits and ready-to-eat food. Relief from excise duty for biscuits and ready-to-eat foods augurs well for the company. The Budget also proposed a cut in duty on food processing machinery to 5%.
Gas transporter, Gujarat Gas Company, ended flat at Rs 1301.01. The company said on 23 February 2007 its net profit jumped 67% to Rs 18.23 crore (Rs 10.90 crore). Net sales for the same quarter surged 46.5% to Rs 234.49 crore (Rs 159.96 crore).
Copper producer Sterlite Industries lost 6.03% to Rs 508.05. Hindustan Zinc lost nearly 2.49% to Rs 604.05, despite the company raising prices by 4.2% Saturday (24 February 2007) onwards.
Oil exploration major, ONGC, dropped even as global crude oil held firm. The stock was down 3.64%, to Rs 800.
IFCI topped the volume chart on BSE in almost all of the trading sessions of the week. The scrip gained 2.16%, to close at Rs 28.40.
Four IPOs debuted this week. Indian Bank debuted at Rs 105 on BSE on 1 March 2007, compared to the IPO price of Rs 91. It settled at Rs 98.30 on the day of its debut.
In the Budget, the finance minister also said that measures will be taken to allow short-selling by institutional investors, which will have to be backed by delivery.
With regard to personal income tax, there is some relief to the taxpayers as the exemption limit went up to Rs 1,10,000 from Rs 1,00,000 earlier.
The Securities & Exchange Board of India (Sebi) said on Tuesday it had raised the amount of foreign portfolio investment inflow into India so far in 2007 by Rs 3430.75 crore ($773.91 million) due to capturing of fresh data under the new reporting system.
The market is expected to decline further on profit-booking. From an all-time high of 14,723.88 struck on 9 February 2007, the Sensex has corrected a sharp 1,838 points (14.27%) in less than a month. Lack of inflows at higher levels, high valuations, rising inflation and interest rates, fears of an earnings slowdown in the coming quarters, defeat of the Congress in Uttarakhand and Punjab and profit-taking at higher levels have bedevilled the market of late. Selling pressure is likely to continue further.
The market was expecting reforms in the Union Budget 2007-08, a key trigger for any future rally. However, the Budget fell short of all such expectations.
Global crude oil has once again topped $62 per barrel. Any sharp rise from here may also lead to a sell-off.
On the flip side, Inflation which had been a cause of concern over the few weeks started cooling for the second straight week. However, latest figures show inflation for week ended 17 February 2007 at 6.05% versus 6.63% in the previous week. The development will soothe many frayed nerves. The market had estimated inflation at 6.30%. The drop was largely due to a cut in petrol and diesel prices, and may provide some respite to the market.
Grindwell Norton, Micro Inks, Cambridge Technology Enterprises and ITD Cementation India and R Systems International will announce their results in the forthcoming week
A late sell-off gripped the market today and the Sensex fell headlong below the psychological 13,000 level. Index heavyweight Reliance Industries (RIL) dived and so did IT scrips, cement producers, banks and telecom shares. Traders refrained from buying ahead of the weekend.
The 30-share BSE Sensex lost 273.42 points (2.08%), to settle at 12,886.13, its lowest closing level since late-October 2006. The market had pulled off a strong intra-day rebound by early-afternoon trade, after the initial fall, following data showing a decline in inflation. The BSE Sensex had risen as many as 94.48 points, to 13,254.03, at 12:08 IST soon after the data.
The S&P CNX Nifty lost 84.45 points (2.2%), to settle at 3726.75. Nifty March 2007 futures were at 3670.50 compared to the spot Nifty closing of 3726.75.
Breadth was strong earlier during the day, but turned weak in late trading during the Sensex’s sharp fall. Against 1,717 shares declining on BSE, 890 rose. Just 51 shares were unchanged. Losers outpaced gainers by a ratio of 1.9:1. At 11:30 IST the adv/dec ratio was over 2:1. The BSE Small-Cap Index lost 67.05 points (1%), at 6,645.81. The BSE Mid-Cap Index shed 56.35 points (1%), at 5,466.24.
The BSE clocked a turnover of Rs 3993 crore compared to Thursday’s Rs 4397 crore. Turnover on NSE’s futures & options segment declined to Rs 32529 from Thursday’s Rs 33652 crore.
All sectoral indices on BSE ended in the red. The BSE Capital Goods index was the worst performer in percentage terms. It lost 273.98 points (3%), to 8,723.25. The BSE IT index lost 117.30 points (2.3%) to 4,954.05 and the BSE Oil & Gas Index lost 145.91 points (2.3%), to 6,192.91.
The market has corrected in the past few days. Weakness in global markets, concerns that rising interest rates will affect equity valuations and worries that a strong IPO pipeline may affect liquidity from secondary markets has triggered a sharp correction. From a lifetime closing high of 14652.09 on 8 February, the Sensex has lost 12%. It is down 6.5% in calendar 2007 so far.
The estimated EPS of 30-Sensex firms for FY-2008 has changed marginally due to the Budget, domestic brokerage Enam Securities notes in its post-Budget report. The brokerage has pegged FY-2008 ESP of Sensex firms at Rs 850, a 15% growth over the estimated FY 2007 EPS of Rs 738.
The education cess on all taxes has been raised by 100 basis points, the dividend distribution tax has been raised to 15% from 12.5%, and tax exemptions for certain sectors have been withdrawn in the Union Budget 2007-08. There was no removal of the 10% corporate surcharge. It was abolished only for firms with a taxable income of Rs 1 crore, or less. On the flip side, the Budget did not propose any increase in the short-term capital gains tax, as had been feared in the run-up to the day of presentation. Even the securities transaction tax (STT) remains unchanged.
The Union Budget 2007-08 allocated higher spending for infrastructure and agriculture, emphasised on fiscal consolidation, and reduced tariffs in an attempt to contain inflation. There were no significant initiatives for industry and services in the Budget.
In today’s trade, Reliance Industries shrunk 4% to Rs 1312. A strong 13.8 lakh shares changed hands in the counter on BSE. RIL has a 11.3% weightage in the Sensex. The company today called a board meeting on 10 March 2007, to consider the payment of interim dividend for FY 2007 (year ending 31 March 2007). The company has also set 22 March 2007, as a record date for paying interim dividend. The company’s announcement comes after the finance minister raised dividend distribution tax to 15% from 12.5% in Union Budget 2007-08. Paying dividend before the end of this financial year will ensure that RIL pays the existing 12.5% tax on dividend distribution.
IT shares drifted lower. IT major TCS lost 4% to Rs 1205, Infosys shed 2.8% to Rs 2093 and Wipro lost 3.4% to Rs 569. IT pivotals had surged on Thursday, recovering from Wednesday’s fall, under the reckoning that their earnings will be impacted only to a small extent following an increase in tax after the Budget.
The recovery in banks following lower inflation proved short-lived. State Bank of India lost 4.5% to Rs 1005. The stock rose as much as 2.1% to Rs 1074.90 at 12:13 IST following a dip in inflation. HDFC Bank lost 3.3% to Rs 948, and ICICI Bank shed 0.4% to Rs 851.90. The wholesale price index rose 6.05% in the 12 months to 17 February 2007, sharply lower than previous week's annual increase of 6.63% due to a fall in fuel and food prices. The figure was lower than an expected 6.25%.
Engineering & construction major L&T lost nearly 5% to Rs 1465. The stock had bounced back from the lower level on Thursday due to the Union Budget’s thrust on infrastructure.
PSU power equipment major Bhel lost 4% to Rs 2082.
Cigarette major ITC lost 3% to Rs 167. The Budget did not bring cigarettes under value added tax as was feared. Instead, excise duty on cigarettes was hiked by 5%.
Cement shares resumed their slide. Grasim lost 3.9% to Rs 2070, ACC lost 2.4% to Rs 855 and Gujarat Ambuja Cements shed 1.1% to Rs 110.50. In early trade, cement shares had firmed up.
Telecom shares, too, edged lower. Bharti Airtel lost 3.3% to Rs 703 and Reliance Communications shed 2.9% to Rs 415.50.
Eicher Motors lost 3.7% to Rs 335. The company said on Friday its sales rose 19% to 2,622 units in February 2007. Domestic sales grew 20% to 2,477 units, while exports rose 9% to 145 units, the company said in a statement.
M&M was down 3.7% to Rs 775. The company today launched the new Bolero, a sports utility vehicle. The new Bolero has been styled with a wide array of interior and exterior features that appeal to the younger generation of car lovers, it said.
Karuturi Networks lost 5% to Rs 182.10. The company’s board today recommended a 1:1 bonus issue.
Havell's India lost 1.1% to Rs 444.65. It came off the day's high of Rs 487.15, after it called off a news conference scheduled for Friday. The shares had risen more than 8% earlier in the day on talk that the company was likely to announce an acquisition.
Sugar shares edged up on firm international prices for sugar futures on Thursday. Bajaj Hindustan rose 2.5% to Rs 179.05, Balrampur Chini Mills gained 2.6% to Rs 62.10 and EID Parry rose 3% to Rs 125.50. The New York Board of Trade's May raw sugar contract rose 3.8% and London's May sugar futures closed up 3.5%.
Jindal Steel & Power lost 0.5% to Rs 2339.90. The company on Thursday reached an agreement with the Bolivian Government on the conditions for Jindal's $2.1 billion investment in the El Mutun iron ore deposit.
Jaiprakash Associates gained 2.6% to Rs 548.40. The board of Jaiprakash Associates has approved raising the ceiling for FIIs in the company to 45% of the equity capital.
European markets slipped into the red after an initial firm trend. London’s FTSE 100 Index was down 0.2%, and CAC 40 Index in France was down 0.3. Asian markets were mixed. Chinese shares rose across the board on Friday, led by real estate, as profit-taking in highly valued financial shares eased after this week's massive selling. The Shanghai Composite Index was up 1.2%. But Japan’s Nikkei 225 average was down 1.3%. Hong Kong’s Hang Seng was up 0.4%.
Although the US market ended in the red on Thursday (1 March), it finished well off lows thanks to an upbeat US manufacturing report, which assuaged some concerns about the world's largest economy. The Dow Jones industrial average closed down 34.29 points, or 0.28%, at 12,234.34. The Standard & Poor's 500 Index finished down 3.65 points, or 0.26%, at 1,403.17. The Nasdaq Composite Index fell 11.94 points, or 0.49%, at 2,404.21
In the short term, domestic bourses will continue to track global bourses. The Japanese currency yen is trading near a 10-week high against the US dollar after a sell-off in emerging-market stocks prompted some investors to cut carry trades, where they borrow cheaply in Japan and invest in countries with higher yields.
Risky high-yielding investments financed with the yen have been losing favour since a massive decline in the main Chinese stock index on Tuesday (27 February), and after worries about the US housing market on Tuesday sent the US blue-chips on their biggest daily decline since the 9/11 attacks on the twin towers of the World Trade Center in New York City. Investors are watching global stock markets intensely for indications of investor appetite for risk.
FIIs have pressed substantial sales over the past few days. Foreign funds were net sellers to the tune of Rs 438.70 crore on Thursday (1 March 2007), the day when the Sensex rose 221 points. As per provisional data, FIIs were net sellers of equities valuing Rs 613 crore today