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Tuesday, April 03, 2007

Research Calls

Bharti Airtel
Angel Broking recommends a "buy" on Bharti Airtel at Rs 776 with a 12-month target price of Rs 980. The stock trades at a price earnings ratio of 15.8 times estimated FY2009 earnings.

Angel has upgraded its topline forecasts for FY07, FY08 and FY09 by 1.9 per cent, 2.3 per cent and 1 per cent respectively, as the company's reported ARPU's have fallen lesser than estimates, as also stronger than anticipated performance of the other business segments viz Broadband and Telephone and enterprise business.

It has also raised its EPS forecasts by 8.2 per cent, 14.1 and 15.8 per cent respectively. Bharti Airtel's monthly subscriber additional have consistently improved in FY2007. The TRAI move to cut the industry access deficit charge (ADC) by 38 per cent in FY2008 is another positive, which will drive increased minutes of use.

The company’s EBITDA margins have increased at a significantly faster than expected rate and in 9 M FY2007, have soared to 39.7 per cent(up 233 bps y-o-y) on the back of strong operating leverage.

Gateway Distriparks

Sharekhan recommends a “buy” on Gateway Distriparks (GDL) at Rs 160, with a target price of Rs 250. The stock trades at 18.5 times and 13.2 times its expected FY07 and FY08 earnings respectively.

The company’s strategy to become an integrated player by entering into rail-based container movement business will tremendously improve its competitive position in the industry in the long run.

GDL recently formed a 51:49 joint venture with Container Corporation of India (Concor) through its subsidiary Gateway Rail to construct and operate a rail-linked double-stack container terminal at Garhi-Harsaru.

Further, it is also planning to enter the cold storage chain business, which is expected to add significant value to its business going ahead.

Tata Elxsi

Emkay Research recommends a “buy” on Tata Elxsi at Rs 284 with a target price of Rs 381. The stock trades at 12.8 times and 9.7 times its expected FY08 and FY09 earnings. The corresponding EV/EBITDA for the same period is 9.5 times and 7.2 times respectively.

Over the years, Tata Elxsi, has transformed itself from being a low margin system integration and support centric player to a high margin full lifecycle product design service provider.

It has also increased its presence in providing quality animation (2D and 3D), special effects, and gaming services to customers worldwide. The company’s sales and net profit are expected to grow at a compound rate of over 35 per cent and 40 per cent over FY04-FY06.

Balaji Telefilms

Anand Rathi recommends a “buy” on Balaji Telefilms at Rs 127 with a target price of Rs 160/190. The stock trades at a P/E multiple of about 10.8 times its estimated FY07 earnings.

Due to its leadership position, the company could benefit from the structural changes in the delivery model like DTH, IPTV and CAS.

Other upsides to the target price include its forays in the movies segment and focus on non-soap genres like reality shows, animation, ad films, low budget films, mythological programmes, etc.

BT is also focussing on increasing the share of regional languages in its overall content pie and has set up a subsidiary to produce serials for the middle east markets.


Prabhudas Lilladher - Reliance Communications

Going forward, we expect a 33% CAGR in revenue, following a 45% rise in the number of subscribers, and 34% and 40% CAGRs in EBITDA and PAT, respectively. At the CMP of Rs 420, the stock trades at a P/E of 21x FY08E earnings and at an EV/EBIDTA of 12.4x, based on the fully diluted equity.

"The stock appears more attractive on a sum-of-parts valuation as 13-15% of the present valuation is embedded in the Tower and Global parts of the business (listing of FLAG Telecom)."

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Motilal Oswal - Derivatives, Daily Margin, Corporate News, Market Diary

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Sharekhan Investor's Eye dated April 03, 2007

Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs558
Current market price: Rs344

GSK alliance strengthens discovery R&D focus
The new drug discovery research team of Ranbaxy Laboratories Limited (Ranbaxy) has achieved a significant milestone in its collaboration with GlaxoSmithKline (GSK). The steering committee, consisting of senior members from GSK's Center of Excellence for External Drug Discovery and Ranbaxy, has approved the candidate selection of a compound for respiratory inflammation.

Indian Hotels Company
Cluster: Apple Green
Recommendation: Buy
Price target: Rs175
Current market price: Rs139

Another acquisition

Key points

  • Indian Hotels Company Ltd has acquired Hotel Campton Place, San Francisco through its 100% US subsidiary company. The acquisition would be made at a cost of US$60 million (including estimated transaction costs).
  • Indian Hotels will acquire Hotel Campton Place in partnership with financial investors. The sale purchase agreement was signed on April 02, 2007 and the transaction closure is scheduled for April 30, 2007. The structure of the deal is yet to be disclosed.
  • At the current market price of Rs139 Indian Hotels is quoting at a price/earnings ratio (PER) of 22.5x FY2007E consolidated earnings per share (EPS) of Rs6.2. We maintain our Buy recommendation on the stock with a price target of Rs175.

Bharat Heavy Electricals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,650
Current market price: Rs2,254

Targeting $10 billion turnover

Result highlights

  • At Rs2,385 crore the FY2007 net profit of Bharat Heavy Electricals Ltd (BHEL) grew by 42% and the same is in line with our estimates. The turnover for FY2007 grew by 29% to Rs18,702 crore.
  • Order inflows during the year grew by a whopping 88% to Rs35,633 crore. In the power business, BHEL secured orders worth Rs27,722 crore and in the industry sector, it secured the highest order ever worth Rs6,008 crore during the year. The order backlog at the end of March 31, 2007 stood at Rs55,000 crore, which is around 3x its FY2007 sales.
  • In the international business, BHEL secured export orders of Rs1,903 crore during the year in comparison with an average yearly order book of Rs1,275 crore in the last five years.
  • At the current levels, the stock is trading at 18.0x its FY2008E earnings and 10.7x its FY2008E earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs2,650.
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Bulls take charge: Sensex closes 169 pts up

Market made a good start and surged to higher levels as the day proceeded. The bulls once again took charge of the reins; a day after bloodshed was witnessed on Dalal Street. Index pivotals proved their might as stocks like HLL, Bhel, Infosys, ONGC and Reliance held strong on Tuesday, with major gains.

Short-covering by speculators along with emergence of buying by funds at lower levels, helped the Sensex to recover part of yesterday's losses. Firm Asian market cues and stronger rupee boosted market sentiment. In the latter part of the day Midcap and Smallcap also traded higher.

Sensex closed for the day up 1.36 per cent or 169.21 points at 12,624.58. Nifty closed at 3,690.65; up 1.57 per cent. BSE Midcap index closed at 5,236 up 27 points or 0.52 per cent while the BSE Smallcap index ended at 6,313; up 19.58 points or 0.31 per cent.

All BSE sectoral indices closed in green. Oil and gas stocks closed higher at 1.86 per cent. ONGC and Reliance were the major gainers on the Sensex throughout the day.

Reliance Industries gained momentum on the back of huge volumes. The scrip recorded volumes of over 14, 00,000 shares on the NSE. Reliance shut shop at Rs 1,341 up 2.11 per cent and ONGC rose 1.63 per cent at Rs 841. Also, GAIL touched an intraday high of Rs 277 and an intraday low of Rs 266, and recorded volumes of 3,02,379 shares in the day. The scrip ended at Rs 279 up 4.85 per cent on the NSE.

IT stocks also drove markets higher, with Wipro up 4.58 per cent closing at Rs 534; Satyam up 2.78 per cent at Rs 458 and Infosys up 2.22 per cent at Rs 1,963.

Wipro Ltd, India's third-largest software services exporter announced that it had invested Rs 37.5 crore to expand its facility in the western city of Pune.

Satyam Computer Services Ltd said that the company earned the top spot in two categories in the 2007 Investor Relations Global Rankings by MZ Consult.

OBC which rose 5.58 per cent at Rs 177; Jet Airways up 4.84 per cent at Rs 632 and Bhel up 4.68 per cent at Rs 2,255 were among the top gainers on the Nifty. The top losers were Cipla, Bajaj Auto and HDFC.

PSU power equipment major Bharat Heavy Electricals Ltd (Bhel) announced that its net profit rose 42 per cent in FY 2007 at Rs 2385 crore from Rs 1679 crore in FY 2006, as per provisional figures. The provisional turnover rose 28.7 per cent in FY-2007 to Rs 18702 crore from Rs 14525 crore than a year ago. Bhel was the top-gainer on BSE.

The BSE cash turnover was Rs 2881 crore and the NSE cash turnover was at Rs 6729 crore. The total market wide turnover was at Rs 32961 crore.

Bulk Deals to Watch

03-APR-2007,ANANTRAJ,Anant Raj Industries Limi,MORGAN STANLEY DEAN WITTER MAURITIUS CO. LTD,BUY,135000,1074.96,-
03-APR-2007,SAKHTISUG,Sakthi Sugars Ltd.,CARLSON INVESTMENT MANAGERS.,SELL,700000,101.07,-

Anand Rathi - Hindustan Sanitaryware

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Emkay - Monthly Recommendations - April

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Citigroup - Emerging Markets Daily , BHEL, Patni Computers

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Citigroup - India Economics - Feb Trade

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Citigroup - India IT Services - Q4 Guidance

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Market recovers some lost ground

After witnessing a huge crash yesterday that wiped out almost 1.4 lakh crore of investors’ wealth, the market began the trading session on a positive note. The Sensex opened with a positive gap of 49 points at 12504 and moved up on buying in select heavyweight and information technology stocks. After an initial upmove to 12584 the Sensex eased on profit taking in Cipla, SBI, Bajaj Auto and select front-line stocks. The Sensex touched the day's low at 12482, down 176 points from the day's high. Short covering and the emergence of buying at lower levels saw the Sensex recover in the afternoon. The major support came from stocks like BHEL, NTPC, Wipro, Hero Honda and some information technology stocks that propelled the Sensex to an intra-day high of 12658. The Sensex closed the session at 12625 with gains of 169 points. The Nifty ended the session at 3691, up 57 points.

The breadth of the market was positive. Of the 2,514 stocks traded on the BSE, 1,382 stocks advanced, 1,047 stocks declined and 85 stocks ended unchanged. Among the sectoral indices the BSE PSU Index gained 2.16% at 5797 followed by the BSE IT Index (up 2.02% at 4767), the BSE Oil & Gas Index (up 1.86% at 6287) and the BSE CD Index (up 1.63% at 3505).

Most of the heavyweights ended at higher levels. Among the blue chips BHEL shot up by 4.66% at Rs2,255, NTPC soared 4.58% at Rs154, Hero Honda advanced 3.05% at Rs657, Satyam Computers added 2.78% at Rs459, Grasim gained 2.42% at Rs2,104, Infosys advanced 2.22% at Rs1,964 and Reliance Industries was up 2.11% at Rs1,341. Among the laggards Cipla, HDFC, Bajaj Auto, SBI and ICICI Bank closed with marginal losses.

Public sector units were in the limelight and closed with substantial gains. Oriental Bank of Commerce vaulted 5.81% at Rs178, Bank of India soared 5.58% at Rs163, GAIL surged 4.77% at Rs279 and Dena Bank advanced by 4.29% at Rs34. Dredging Corporation, SAIL, Bharat Electrical and Corporation Bank gained 2-4% each.

Over 1.50 crore IFCI shares changed hands on the BSE followed by Power Finance Corporation (52.32 lakh shares), Rana Sugars (50.30 lakh shares), Sakthi Sugars (41.06 lakh shares) and Reliance Petroleum (29.86 lakh shares).

Reliance Industries clocked a turnover of Rs112 crore on the BSE followed by Renuka Sugar (Rs110 crore), India Bulls (Rs68 crore), BHEL (Rs67 crore) and Kotak Bank (Rs67 crore).

Sensex climbs nearly 170 points

The market, which suddenly regained its touch in the early-afternoon session of trade, stood firm even in the latter part of the day, as buying continued at the higher levels. All sectoral indices on BSE settled with gains, and shares from the IT sector led the uptrend followed by PSUs, Metals and FMCGs.

The 30-share BSE Sensex rose 169.21 points (1.36%), to end at 12,624.58. The benchmark index had opened higher, at 12,503.75, as buying resumed after a sharp 617-point plunge on Monday. The benchmark Sensex marched ahead, struck an intra-day high of 12,657.75 in the late-afternoon session of trade, on the back of sporadic purchasing. The Sensex’s intraday low was 12,481.86.

The S&P CNX Nifty was up 57.05 points (1.57%), to end at 3,690.65.

The decision taken on Mint Street was expected to inflict the carnage on Dalal Street on Monday. What raised a few eyebrows was its severity. The Sensex shed 617 points, its second-biggest, single-day loss, ever, to close at 12,455. The benchmark index had plunged 826 points (6.76%), to close at 11,391, it's biggest ever, following heavy selling by FIIs, retail investors and a weakness in global markets on 18 May 2006.

On Friday, in a move that surprised many, the Reserve Bank of India (RBI), just a few blocks away from the Bombay Stock Exchange, raised two key policy rates. The attempt was to squeeze money out of the economy that policy-makers felt was the reason why prices were spiralling out of control, and something that the government is trying hard to rein in.

The RBI had lifted its short-term lending rate by 25 basis points to 7.75%, its highest in nearly 4-½ years, after trading ended on Friday (30 March). The central bank also raised the cash reserve ratio (CRR), the proportion of cash banks have to hold with the central bank on deposit, by half a percentage point to 6.5% in two stages, to siphon out Rs 15500 crore from the banking system.

The move had triggered panic over the weekend. Investors realised that with less money in the system, the cost of funds will go up. For corporates, going forward, their profitability could get dented. Which is why, traders hit the sell button on Monday and the Sensex opened 260 points lower than its previous close. Throughout the day, the Sensex lost ground and finally closed just a wee bit above its intra-day low of 12,425. The crash left investors poorer by Rs 1.42 lakh crore.

Market players feel the hike in interest rates could immediately affect sectors like automobiles, banking and real estate, since demand for these depend on bank loans and other such lending agencies.

The BSE cash turnover was Rs 2881 crore, while the NSE's F&O turnover was at Rs 23350.93 crore. The total market-wide turnover was at Rs 32961.21 crore.

The market-breadth was positive on BSE. Against 1,368 shares that had advanced, 1,079 declined and just 95 scrips had remained unchanged. Buying in smallcap and mid-cap counters kept the breadth on a strong footing.

The BSE Mid-Cap Index ended at 5,236.36, up 27 points (0.52%) for the day. The BSE Small-Cap Index ended at 6,313.64, up 20 points (0.31%) for the day.

Among the 30-Sensex pack, 23 advanced and only 7 declined.

PSU power equipment major Bhel spurted 4.85% to Rs 2258, after its net profit rose 42% in FY 2007, to Rs 2385 crore from Rs 1679 crore in FY 2006, as per provisional figures. The provisional turnover rose 28.7% in FY-2007 to Rs 18702 crore from Rs 14525 crore than a year ago. Bhel was the top-gainer. Riding on an all-time high order inflow, power equipment supplier Bharat Heavy Electricals today announced a target of 10 billion dollars (about Rs 44,000 crores) turnover by 2011-12.

"Our fresh order inflows have swelled by a whopping 88 per cent in 2006-07 to Rs 35,633 crores up from Rs 18,938 crores in the previous year. We have doubled the turnover in the last three years. Our next target is to reach 10 billion dollars by 2011-12," Bhel Chairman & Managing Director Ashok K Puri said.

Puri also announced an investment of Rs 3,200 crores to augment its capacity for supplying equipment for up to 15,000 Mw annually. The company is already in the process of increasing the capacity from 6,000 Mw to 10,000 Mw.

Powered by Bhel, the BSE Capital Goods Index advanced 1.1%, at 8,718.07.

NTPC advanced 4.41% to Rs 153.80, as 14.42 lakh shares changed hands in the counter on BSE. Hero Honda advanced 3.39% to Rs 661.

The BSE IT Index gained 2% at 4,766.97. Wipro advanced 3.42% to Rs 536, after investing Rs 375 crore at the Pune facility, ramping up capacity from 6,300 to 17,000 seats. The facility focusses on developing solutions for banking, insurance, and telecom industries.

Infosys Technologies advanced 2.33% to Rs 1966, while TCS rose 1.28% to Rs 1204 and Satyam Computers moved 2.62% higher, at Rs 458.

Tata Steel rose 1.16% to Rs 429, after completing its £6.2 billion (US$12 billion) acquisition of Corus Group. Tata Steel paid 608 pence per ordinary share in cash. The new expanded entity will have a pro forma crude steel production of 27 million tonnes in 2007, and will be the world's fifth-largest steel producer, employing 84,000 personnel across four continents.

Tata Steel on Monday said crude steel production of the company for the year 2006-07, crossed 5 million tonnes. Tata Steel said in a statement that production of hot metal touched 5.55 million tonnes, crude steel at 5.05 million tonnes and saleable steel at 4.93 million tonnes.

The BSE Metal Index closed at 8,219.63 (up 1.08%). SAIL (+ 3.35%), Sesa Goa (+ 2.12%) and Nalco (+ 1.74%) advanced for the day.

Tata Motors gained 1.16% to Rs 677, after saying on Monday vehicle sales in March rose 11% to 62,779 units from 56,406 units a year earlier. Sales of commercial vehicles rose 13% to 30,720 units -- its highest monthly sales to date -- from 27,289 units, while sales of cars and utility vehicles rose 14% to 25,760 units, also the highest monthly sales. Exports fell 3% to 6,299 units from 6,508 units. Vehicle sales in the fiscal year to March 2007, rose 28% to 579,378 units from 454,345 units in the previous year.

Index heavyweight Reliance Industries (RIL) gained 1.90% to Rs 1338.50, on a volume of 8.41 lakh shares. The heavyweight scrip had advanced from a low of Rs 1309.55, to a high of Rs 1346. The BSE Oil and Gas Index surged 1.9%, to 6,287.21. GAIL (up 5.15%), ONGC (up 1.70%), and Chennai Petroleum (up 1.3%) were the other gainers.

Bharat Electronics rose 3.13% to Rs 1502, after the state-run enterprise for defence equipments reported a 22% rise in profit before tax for 2006/07, as per provisional figures. The company announced the provisional figures on Monday (2 April). Bharat Electronics reported profit-before-tax of Rs 1040 crore on provisional revenues of Rs 3960 crore. Exports during the year were at Rs 50.33 crore. The company, which manufactures defence electronics equipment, estimates its order-book position at Rs 9100 crore (as on 1 April 2007).

Bharat Earth Movers (BEML) dropped 5% to Rs 1008, after the company on Monday reported a mere 10% growth in profit-before-tax for FY 2007, with provisional results recording an all-time high turnover of Rs 2600 crore, a growth of 18% over the corresponding figure last year. BEML's profit-before-tax of Rs 315 crore recorded a growth of 10% over that of last year. The export sales stand at Rs 110.05 crore, BEML informed.

Clariant Chemicals India plunged 9.32% to Rs 285.90, after the stock turned ex-dividend today. The company had declared a whopping dividend of Rs 18 per share.

Pitti Laminations jumped 9.27% to Rs 65.40, as its board of directors will consider an issue of 2.40 lakh equity shares, at Rs 120 a piece, for promoters, on 11 April 2007.

All Asian markets were trading with gains, expcept Malaysia (down 0.05%). All European markets had advanced. The Nikkei average climbed 1.27%, as investors returned to shares of Advantest Corp., Honda Motor Co and other stocks, hit by the previous session's sell-off. The Nikkei climbed 215.64 points, to 17,244.05, recouping some of its 1.5% loss of Monday. The broad TOPIX index was up 1.30%, at 1,704.32.

The Hang Seng Index was up 0.97%.

US stocks ended higher on Monday, as a $26-billion buyout deal for credit card processor, First Data Corp., fueled optimism about valuations, countering worries about weak factory activity and turmoil in the housing market. The Dow Jones industrial average was up 27.95 points, or 0.23%, at 12,382.30. The Standard & Poor's 500 Index was up 3.69 points, or 0.26%, at 1,424.55. The Nasdaq Composite Index was up 0.62 points, or 0.03%, at 2,422.26.

Volumes were muted, when the Sensex had tumbled 617 points on Monday (2 April 2007) due to a surprise interest rate increase, rattling investors. The volume of 16.3 crore shares on BSE, on Monday, was much lower than the average daily volume of 21.85 crore shares during March 2007 and 31.31 crore shares during February 2007.

Lack of buying may keep the market sluggish in the near term. Institutional investors may remain on the sidelines ahead of the earnings season, which Infosys flags off by reporting Q4 numbers on 13 April 2007. Traders/operators may start building positions in individual stocks, based on expectations of Q4 results.

Oil prices dropped on profit-taking, as a volatile market appraised the continuing Britain-Iran standoff and the latest kidnappings in Nigeria. Light, sweet crude for May delivery fell 39 cents to $65.55 a barrel in electronic trading on the New York Mercantile Exchange. Prices had risen consistently since 15 British sailors and marines were detained on 23 March 2007, by Iran for allegedly entering its waters.

The cumulative value of India’s exports for April-February 2007, was $ 109126.78 million ($ 109 billion) or Rs.495347.28 crore against $ 88760.40 million ($ 88.7 billion) or Rs 393157.16 crore during the same period last year, a growth of 22.95%, according to the provisional data for merchandise exports available from Directorate General of Commercial Intelligence & Statistics (DGCI&S). Exports during February 2007, were valued at $ 9701.71 million (Rs 42841.09 crore) during February 2007, compared with $ 7834.49 million (Rs.34729.43 Crore) in February 2006.

The cumulative value of India’s imports during April-February 2007, was $ 164985.32 million (Rs 748440.60 crore), which was higher than imports at $ 126336.01 million (Rs.558992.18 crore) during April- February 2006. Imports during February 2007, were valued at $ 14362.69 million (Rs 63423.19 crore) compared with $ 11040.09 million (Rs.48939.50 Crore) in February 2006.

Crude oil imports were valued at $ 4061.40 million in February 2007, compared with $ 4109.96 million in the corresponding period last year, thus registering a negative growth of 1.18%. Crude oil imports during April- February 2007, were valued at $ 52673.46 million, which was 32.52% higher than crude oil imports of $ 39748.35 million in the corresponding period last year.

Non-oil imports were estimated at $ 10301.29 million during February 2007, which was 39.77% higher than growth on non-oil imports of $ 7370.07 million in February 2006. Non-oil imports during April-February, 2007 were valued at $ 112311.85 million, which was 25.67% higher than the level of such imports valued at $ 89370.42 million in April- February 2006. The trade deficit for April-February, 2007 was estimated at $ 55858.54 million, which was higher than the deficit of $ 37575.61 million during April- February 2006.

The major trigger for the market is FY 2008 (year ending 31 March 2008) guidance by IT bellwether Infosys, which will unveil its FY 2008 guidance along with Q4 March 2007 results, on 13 April 2007. In a recent pre-guidance report on Infosys, Merrill Lynch placed a short-term 'sell' on the Sensex heavyweight expecting a conservative guidance from the company due to an uncertain US economic outlook, the appreciation of the rupee versus the dollar and other client-specific issues. Merill Lynch expects Infosys to give an EPS growth guidance in the early 20s.

Australia's central bank meets today, with economists and traders predicting it will raise the benchmark interest rate either this week or next month to stem inflation

Kotak - Derivatives: 3 Apr 2007

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Sharekhan Reports

Sharekhan Daring Derivatives for April 03, 2007
Sharekhan Commodities Buzz dated April 03, 2007

ENAM - India Strategy

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Sharekhan Highnoon dated April 03, 2007

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Kotak - Daily Morning Brief - 3 Apr 2007 + Four Wheeler Update

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Kotak - Market Morning - 3 Apr 2007

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Kotak - India Daily - India Strategy, Automobiles, Economy, Technology

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Edelweiss - Daily Market Outlook 3rd April, 07

Market Snapshot

After the Reserve Bank of India (RBI) decision to hike the Cash Reserve Ratio and Repo rate last Friday, the Sensex opened with a huge negative gap of 260 points at 12,812. Unabated selling, mainly in auto and banking stocks saw the index drift to lower levels as the day progressed. The index tumbled to a low of 12,426 before finally settling with a hefty loss of 617 points (4.7%) at 12,455. In the process, the index today recorded its second-biggest loss ever in absolute terms. Nifty lost 188 points to settle at 3633.

The NSE and BSE cash volumes were lower compared to the previous day at INR 68 and INR 29 bn respectively. The F&O volumes were higher at INR 281 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has increased to 30-29% levels. The WPCR of Nifty Options decreased to 0.88 compared to the previous day while the 5 day average is 0.91.


The sentiment in the market continues to remain weak and we could witness some selling today if the index rises above yesterday’s close. Nifty has taken support at its in 200 DMA.

Yesterday, FIIs were net sellers to the tune of 1432 INR cr in index future and 106 INR cr in single stocks future. The Nifty has seen an OI buildup of 4% on the short side yesterday and a buildup of 8% in the last two trading session along with significant contraction in the cost of carry.

Auto companies have come out with their monthly sales numbers and Bajaj Auto has posted a decline of around 10% in its sales along with a loss of market share. Also, IT companies would further face pressure on account of rupee appreciation which will be affecting their margins and an earning guidance revision downwards is also expected from Infosys.

The Nifty has a resistance at 3647 followed by 3693. The support for the Nifty is at 3630 which is its 200 DMA followed by 3577.

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Stock Talk

RBI continues monetary tightening- Hikes CRR and LAF Repo rate

Major highlights

    Ö CRR hiked by 50 bps in 2 stages effective from 14th and 28th April 2007

    Ö Cut in interest paid on excess CRR above 3% to 0.5% from 1% earlier

    Ö Repo rate hiked by 25bps to 7.75% widening interest rate corridor to 175bps

India’s Central Bank once again hiked policy rates to contain inflationary pressures in the economy. This is sighting high credit growth of 29.4% and inflation, which has sustained over 6% for 11 weeks in a row (currently at 6.46%). While the hike in CRR (by 50bps in 2 stages) and Repo rate (by 25bps with immediate effect) is not unwarranted, the timing of the move certainly is; as the Monetary Policy Review is scheduled on April 24, 2007. RBI has also reduced the rate of interest paid on excess CRR (above 3%) maintained with itself from 1% to 0.5%. While inflation is expected to come down from May 2007 due to the high base effect and impact of monetary measures, sustainable drop is likely with structural changes through capacity additions and better food grain supplies.

All the monetary measures are expected to make money dearer and we expect Banks to once again increase lending and deposit rates. The drop in interest rate on CRR is likely to impact margins marginally by around 2bps, which we expect this to be recovered through lending rates. Sharp rise in interest rates over the past 12 months has seen affordability reduce and could impact asset quality in the future. We maintain our neutral stance on the sector. PNB, BOI and BOB are our top picks, while Canara Bank is our top SELL in our coverage. We are in the process of updating our ratings and will realease it soon.


Top SELL- Canara Bank

Market Watch

Market volumes:

The turnover on NSE was down by 8.6% to Rs68.67bn. BSE Auto index was the major loser and lost 6.15%. Bank index (down 5.95%), BSE Capital Good index (down 5%), BSE Technology index (down 4.54%) and BSE Metal index (down 4.20%) were among the other major losers.

Volume Toppers:

Sakthi Sugar, Balrampur Chini, R Com, Rana Sugar, ITC, Bajaj Hindusthan, Satyam Compauter, Gujarat Ambuja, Reliance Industries, IVRCL Infrastructure, Tata Motors, Idea Cellular, Ashok Leyland, TTML, HLL, Tata Steel and Ranbaxy.

Lower Circuit filters:

Ansal Infrastructure, Crisil,. GMR Industries, Max India, Unitech, Simplex infrastructure, BSEL Infrastructure, McLeod Russel, Deccan Aviation, Atlanta, Dawn Mills, Nesco, Mefcom Agro, Shree Precoated, Country Club, HOV Services, Ganesh Housing, KS Oils, Taneja Aerospace and BF Utilities.

Delivery Delight:

Aurobindo Pharma, Balrampur Chini Mills, Colgate, Dhampur Sugar, GAIL, India Infoline and Sakthi Sugars.

Brokers Recommendation:

BHEL – Buy from Merrill Lynch

Long Term investment:


Major News

India's Feb imports rose 25.1% to $14.66bn vs a year earlier and Exports rose 8% to $9.7bn

ACC March cement sales at Rs1.81mn (up 3.42%)

Tata Motors March Sales Rise 11% on Truck, Bus Demand

Maruti March Sales at 71772 units (up 13.5%)

Bajaj Auto led group buys additional stake in Bajaj Hind

Rana Sugars FY07 profit to gain Rs100mn on Carbon credit

Bharti Airtel reduces Overseas call Tariffs

Ranbaxy to conduct Pre-clinical Trails on respiratory drug

Indian Refiners raises jet fuel prices by as much as 4.5%

Warburg Pincus units raises stake in Moser Baer


First a jerk, then a perk!

An investor would do better to just shop for cheaper expenses. Then you can buy your own perks.

As expected, it was a Manic Monday yet again with the first day of the new financial year wiping out Rs1430bn value in the stocks listed on the BSE alone. We mentioned last weekend that the crucifixion of bulls may take place well before Good Friday. An immediate resurrection cannot be expected by what bulls can hope for is a technical pull back. Given there are no major negative global cues, the markets could hope to see some pick up.

The Nifty futures saw a build-up of short positions in open interest (OI). This led to Nifty April series ending at a discount of 32 points to spot Nifty. Short positions were built up in Maruti, Tata Motors, M&M, HDFC, ICICI Bank, ONGC and HLL. Some stability on these counters could see a pullback.

Hexaware could see some action as the company inaugurates its new center at Gurgaon later today. M&M could also see some action as Mahindra Renault unveils its new car- the Logan. Sugar stocks gave sweet returns in a weak market. But avoid going overboard on these counters as profit booking could set in anytime. Bharti Enterprises and the world’s largest retailer, Wal-Mart Stores, will sign a legal agreement for their joint retail venture this month. Bharti Airtel’s DTH venture is expected to roll out by the end of this calendar year, chairman and managing director, Sunil Mittal said.

The Reserve Bank of India on Monday unveiled draft guidelines for mortgage guarantee firms, stipulating minimum net owned funds of Rs100 crore at the time of commencement of business, to be augmented to Rs 300 crore within three years from the date of commencement of business.

HDFC, HDFC Bank, UTI Bank, Srei Finance have hiked rates on Monday. HDFC has increased its retail prime lending rate (RPLR) on which its adjustable rate home loans (ARHL) are benchmarked, by 0.50% with effect from April 1, 2007. For all new home loan customers the ARHL loans will now be priced at 11.25% per annum, while the fixed rates will be at 13.25% per annum. HDFC bank has also hiked its rates across the segments rates by 1%.

Asian stocks gained as investors picked up counters which fell yesterday on concern a US manufacturing report would drive down equities. The Dow Jones added 0.2% and the Standard & Poor's 500 Index gained 0.3%. The Nasdaq too was just a tad higher.

U.S. light crude oil for May delivery rose 7 cents to end at $65.94 a barrel on the New York Mercantile Exchange.

The Lanco Group Chairman, Mr L. Madhusudhan Rao, has denied any misrepresentation in the Lanco-Globeleq combine's bid document submissions for the Sasan Ultra Mega power project. Lanco Infratech Ltd has won three construction projects in Karnataka and Tamil Nadu, valued at Rs 102 crore.

Ranbaxy Laboratories and GlaxoSmithKline have decided to develop a drug in the respiratory segment, as the first of their joint drug discovery collaboration.

BEML, Coal India Ltd and two leading tyre companies is setting off the indigenisation of some of the critical and heavier-range OTR tyres.

A report says Indian steel makers are hiking the export prices of steel. While JSW Steel Ltd has increased the export price of steel by Rs 1,500-Rs 2,500 per tonnes for various grades, other steel makers are likely to follow suit


Lower level buying likely!

It was Mayhem right from the start as hike in CRR rate and reverse Repo rate by the Reserve Bank of India on Friday acted as a huge negative trigger for the markets. Further interest rate hike by lending majors like ICICI Bank and HDFC dampened the sentiments of the investors on Dalal Street. All the sectoral indices finished in red as all round selling pressure in scrip’s across the bourses dragged the benchmark Sensex to close below the 13500mark.

The Auto were the worst hit sector as the index fell over 6%, others like Banking, Capital Good index fell over 5% each. The small cap and the Mid-Cap stocks also participated in the down fall. However, Sugar stocks held firm in a falling market. Finally, the 30-share benchmark Sensex plunged 616 points to close at 12455. NSE Nifty slumped 187 points to close at 3633.

Moser Baer fell by 2.2% to Rs292. The company’s arm acquired 40% in Slovenian Company and Warburg Pincus units raised stake in the company. The scrip touched an intra-day high of Rs309 and a low of Rs290 and recorded volumes of over 3,00,000 shares on NSE.

Lanco Infratech dropped 6.6% to Rs148. The Company announced that they have won the bid for three construction projects worth Rs.1.02bn in Karnataka and Tamil Nadu. The scrip touched an intra-day high of Rs158 and a low of Rs146 and recorded volumes of over 3,00,000 shares on NSE.

Hindustan Zinc gained by 1% to Rs570. The company lowered prices of lead by 2.3% to match global rates. The company cut prices by Rs2,200 to Rs94,400 a ton. The scrip touched an intra-day high of Rs584 and a low of Rs545 and recorded volumes of over 1,00,000 shares on NSE.

Ranbaxy declined by 3% to Rs341. The company announced that they would conduct Pre-clinical Trails on respiratory drug and could get $100mn payment for drug Development. The scrip touched an intra-day high of Rs363 and a low of Rs336 and recorded volumes of over 22,00,000 shares on NSE.

Auto was the worst hit sector the index was down by over 6%. Heavy weights led the down fall Maruti declined over 8.5% to Rs749. The company recorded its March sales at 71772 units (up 13.5%). Tata Motors dropped by over 9% to Rs633, M&M fell over 8.5% to Rs713 despite impressive monthly sales figures. The company registered March sales at 20263 units which rose by 25% and Bajaj Auto lost by over 6.5% to Rs2265.

Banking stocks plunged after the nation's central bank unexpectedly raised a key interest rate on March 30 to curb money supply. The shares of banks fell on concern higher rates will curb loan growth and locking away cash will force banks to pay higher interest on deposits, squeezing their spreads. The index heavy weight SBI dropped by over 6.5% to Rs930, ICICI Bank declined by 5.6% to Rs805 and HDFC Banks lost 5.6% to Rs900.

Sugar stocks traded firm in a falling market. Sakhti Sugar was up by 1.8% to Rs102, Dhampur Sugar gained by 2.3% to Rs76, Bajaj Hindusthan added 1.4% to Rs197 and Renuka Sugar advanced by 0.7% to Rs470.

Real Estate stocks were battered out after the central bank unexpectedly raised a key interest rate on March 30. Unitech was locked at 5% lower circuit to Rs368.10, Parsvnath declined by over 7% to Rs241 and Ansal Preperties also was frozen at 5% lower circuit to Rs501.

Capital Good stocks also witnessed heavy selling pressure. L&T dropped by 5.8% to Rs1524, BHEL was down 4.7% to Rs2154, ABB slipped by 4.3% to Rs3399 and Siemens declined by over 5% to Rs1035.

In a broad based sell off, the benchmark Sensex lost 600 points and Nifty over 180 points. For the coming day, we may continue to see further some more downside in the market. However, bulls might get some relief as value buying may be seen in the market at lower levels. The action on the bourses is likely to be more stock-specific and sector specific in a few cases like IT and Pharma. Others interest rate sensitive sectors like Banking, Auto and Real Estate could continue to trade lower. Global market movement can provide some direction at least in the early trades. One needs to see if the market can snap back from Monday’s fall.

Anand Rathi - Daily Fundamental Snippets

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ICICIDirect - RBI policy update

In a surprise move, the RBI on Friday hiked the short term interest rate
(repo rate) and cash reserve ratio (CRR). It raised the repo rate by 25
basis points to 7.75%. The central bank also raised the CRR by half a
percentage point. The CRR will rise to 6.50% in two tranches, the first on
April 14 and the other on April 28. The CRR hike will drain Rs 15,500 crore
from the banking system. Though the move may impact banks in the short-term,
we believe it would help economic growth over a longer term.

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Edelweiss - Daily Trading Notes

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Anand Rathi - Daily Strategist

The NIFTY futures saw a increase in OI 3.68% with prices closing down as expected indicating that lot of shorts positions were built and blood was seen on the street. The discount in nifty futures increased indicating that bears aggressively cornered the bulls and got them liquidated .We feel that till the market does not sustains above 3750 levels we may not see aggressive short covering and fresh money coming in the market as we have been mentioning day in and day out over the last week or so.

The FIIs were hug sellers in futures to the tune of 1122 crores of which they sold nifty futures alone to the tune of 1432crs and bought options worth 420 crs .The PCR is in a range of 00.87 indicating the trend in the market. .The volatility has remained in the range of 30 levels indicating the negative feel in the market.

Among the Big guns, ONGC saw huge gain of 22.43 OI with prices going down by 6.22% indicating that fresh shorts being built in the counter along with fresh genuine selling while RELIANCE as well continued gain of OI and there was a loss in the price as it continued its negative trend since last week.

On the TECH front, INFOSYSTCH, SATYAM, TCS & WIPRO saw decrease in prices showing weakness in the markets, and forced long positions to sell with some fresh shorts formed there.

On the other hand the BANKING counters saw open interest gaining with loss in value. Also we saw the genuine selling coming in P.S.U banks like S.B.I & P.N.B and across the board prices loosing value in the sector .The rest like ICICI BANK & HDFC BANK saw short positions being built and fresh bull liquidations.

In the METALS across the board selling coupled with short positions were formed in all counters forcing the bulls to run for cover with new genuine selling happening there in the sector.

Considering the market data, it suggests the most awaited negative expected trend has happened and finally set the decorum in the week for the new settlement and the new financial year , for the same it is advisable to traders to have strict stop losses.

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Market may remain range bound

Volumes were muted when Sensex had tumbled 617 points on Monday 2 April 2007 when an unexpected interest rate increase rattled investors. The volume of shares of 16.3 crore on BSE on Monday was much lower than average daily volume of 21.85 crore shares in March 2007 and 31.31 crore shares in February 2007.

The Reserve Bank of India lifted its short-term lending rate by 25 basis points to 7.75 percent, its highest in nearly 4-½ years, after markets had closed on Friday (30 March) to fight inflation. It also raised the cash reserve ratio, or proportion of cash banks have to hold with the central bank on deposit, by half a percentage point to 6.5 percent in two stages that would drain Rs 15500 crore from the banking system.

FIIs pressed substantial sales on Monday. As per provisional data, FIIs were net sellers to the tune of Rs 509 crore on that day. FIIs were net sellers to the tune of Rs 1432 crore in index based futures on that day. They were net sellers to the tune of Rs 106 crore in individual stock futures.

Lack of buying may keep the market sluggish in the near term. Institutional investors may remain on sidelines ahead of the beginning of the earnings reporting season. Infosys kickstarts the Q4 March 2007 earnings season on 13 April 2007. Traders/operators may start building positions in individual stocks based on Q4 results expectations.

The major trigger for the market is FY 2008 (year ending 31 March 2008) guidance by IT bellwether Infosys. Infosys will unveil its FY 2008 guidance along with the Q4 March 2007, results on 13 April 2007. In a recent pre-guidance report on Infosys, Merrill Lynch placed a short-term 'sell' on the Sensex heavyweight as its expects a conservative guidance from it due to an uncertain US economic outlook, the appreciation of the rupee versus the dollar and other client-specific issues. Merill Lynch expects Infosys to give EPS growth guidance in the early 20s

Asian markets were steady to firm on Tuesday 3 April. Key benchmark indices in Hong Kong, China, Japan, Singapore and Taiwan were up by between 0.26% to 0.93%.

US stocks ended higher on Monday as a $26 billion buyout deal for credit card processor First Data Corp. fueled optimism about valuations, countering worries about weak factory activity and turmoil in the housing market. The Dow Jones industrial average was up 27.95 points, or 0.23 percent, at 12,382.30. The Standard & Poor's 500 Index was up 3.69 points, or 0.26 percent, at 1,424.55. The Nasdaq Composite Index was up 0.62 point, or 0.03 percent, at 2,422.26.

US crude oil futures ended slightly higher on Monday as geopolitical tensions, especially Iran and its disputes over captive British military personnel and Tehran's nuclear program, kept support under already high-priced crude. On the New York Mercantile Exchange, May crude oil rose 7 cents, or 0.11 percent, to settle at $65.94 per barrel.

Investsmart - Morning Call

Market Grape Wine :

In House :

Nifty at a support of 3602 & 3570 & 3550 & 3485 levels with resistance at
3675 & 3708 levels .

Buy : ACC intraday above 704 target 726 s/l of 698

Reduce the position at all higher levels .

Markets to remain choppy and volatile .

Out House :

Sensex at a support of 12363 & 12313 levels with resistance at 12564 &
12737 levels .

Markets to be very choppy and volatile with short covering at lower levels

Buy : RIL & Relcap

Buy : ONGC at dips

Buy : Satyam & Wipro

Buy : Aban & I-Flex

Buy : SesaGoa

Buy : PrajInd

Buy : Bharti & VSNL

Dark Horse " Prajind , Ongc , RIL , VSNL , Satyam , Aban & Titan

Anagram - Daily Call

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Emkay - Morning Notes, Patel Engineering

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Anand Rathi - Daily Technical Note

Nifty and Sensex have exhibited bearish candlesticks.

Technically, one may use the level of 3550 (Nifty) and 12300 (Sensex) as the stop loss level.

Nifty faces resistance at 3820 and Sensex at 12825.

BSE Smallcap and BSE Midcap Indices have exhibited a bearish candlestick.

CNX IT has lost ground.

In the Punter's zone we have a sell in A.C.C. & buy in IDEA and TATA MOTORS.

In the technical zone we have a sell in INFOSYS TECHNOLOGY & buy in PRAJ INDUSTRIES and TITAN INDUSTRIES.

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HSBC - HT Media

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HSBC, UBS - India Utilities



US Stocks end higher despite weak ISM data

A slurry of deals imparts momentum in market which starts day amid weak economic data

A slew of deals, including a $29 billion leveraged buyout of First Data weighed against a weak manufacturing report and higher oil prices but pushed stocks higher at the US Market going into close for the day. Stocks lingered throughout the day on Wall Street but ultimately rebounded off session lows. After climbing as high as $66.69/bbl earlier, oil prices closed relatively flat on the day near $66/bbl. Utilities was the day's best performer following a couple of analyst upgrades.

13 put of 30 stocks closed higher today. For the day (2 April, Monday) the Dow Jones Industrial Average closed higher by 27.95 points at 12382.3, Nasdaq higher by 0.62 points at 2422.26 and S&P 500 higher by 3.69 points at 1424.55. Altria, Exxon Mobil, IBM and Merck were the main Dow winners while American Express, Citigroup and Du-Pont were the main Dow laggards.

A slurry of deals tried to impart some momentum into the market. Kohlberg Kravis Roberts has offered to take First Data private for $29 bln while Chicago real estate magnate Sam Zell has won the bidding war for Tribune. Xerox buying Global Imaging Systems for $1.5 bln was the other news. The first deal deal pushed First Data up nearly 21% to $32.45, the best percentage gain on the S&P 500.

Health Care got a lift from Merck which won FDA approval for its diabetes drug Janumet. Among technology shares, Apple gained 0.7% after it reached a deal with EMI to make music available without antipiracy software. Major Dow winner, Altria surged 3.5% as shareholders applauded its spin off of Kraft Foods.

Weak ISM weighs on market; Alt-A Mortgage concerns attack market

The second quarter kicked off slowly after a discouraging ISM report. The ISM index fell to 50.9 (consensus 51.0) from 52.3 in February as inventories, employment and order backlogs were all below the 50 mark that defines contraction. The prices paid index rose to 65.5, the highest since August. Market reacted negatively and indices were mostly in the red for the first half of the day.

Sun Microsystems dragged on the technology sector. Software and Internet were the weakest sections of Nasdaq today.

The broader telecom sector was weighed down after Nokia-Siemens, a venture between Nokia and Siemens said there were signs of a slowing in equipment spending over the last few months, resulting in a downgrade of its 2007 industry-wide spending forecast.

M&T Bank lowered its Q1 guidance citing weakness in the secondary market for Alt-A loans and this once again showed signs of housing problems in the economy and acted as an overhang all day. Investors were also worried with some commentary from St. Louis Fed President William Poole who said the Fed isn't likely to cut interest rates even as the economy slows.

Trading volumes showed 1.5 billion shares changing hands on the New York Stock Exchange and 1.75 billion trading on the Nasdaq stock market. Advancing issues topped decliners by 17 to 12 on the NYSE, while decliners led gainers by 15 to 12 on the Nasdaq.

March Auto Sales and March Truck Sales are the only major economic data on the schedule for tomorrow.

CRR hikes never made such a deep impact

Though no stranger to the central bank stepping in to stem inflation, the reaction of the equity market to the latest hike in the cash reserve ratio (CRR) has never been so extreme. Both, in absolute points or percentage basis, Monday’s fall of more than 600 points was the biggest-ever reaction to an increase in the CRR rate. The Sensex shed 617 points or 4.72% on Monday to end the day at 12,455.37. This was also the second-highest ever, single-day fall of the benchmark index.

Incidentally, the 50 basis points hike in the CRR announced on Friday, was the third such hike in the recent past. Earlier, on December 8, 2006 and February 13, 2007, RBI had announced a similar 50 basis points rise in the CRR.

As a result, the CRR has increased from 5.50% to 6.50% since December last year. However, if the performance of the benchmark Sensex is anything to go by, the earlier hikes did not impact the market in a way the latest one has. When the RBI announced a hike in the CRR from 5% to 5.50% on December 8, 2006, the Sensex reacted by falling by a little over 400 points. On percentage basis, it was nearly 3%. The next rise of 50 basis points that was announced on February 13, 2007, was followed by a fall of only 100 points in the Sensex.

Market experts say an inherent weakness was already visible for the past few days and this, coupled with the recent ‘surprise’ hike in CRR led to the bourses reacting in a negative manner. A moot point to note is that increasingly global central banks are expressing concern over interest rates and inflationary pressures.

“Monday’s fall needs to be looked into in the backdrop of the pace and the quantum of the recent CRR hikes,” says Jay Prakash Sinha, director & head (research), Ambit Capital. He further added that while the pace has been quick, the quantum has also been high. It clearly shows that the government is genuinely concerned about overheating and inflationary pressure build-up.

“The government wants asset prices across sectors to cool down,” said Mr Sinha.Interestingly, the RBI has announced eight CRR hikes since December 2001 and only on two occasions has the Sensex risen after the announcement. However, both rises have been marginal.

Investors lose their shirt, join men in blues

Dalal Street may have learnt to live with nasty soundbytes from the Left, jitters in Wall Street and Tokyo and even mysterious policymakers in China. But the Reserve bank of India (RBI), with its headquarters just a stone’s throw away from Asia’s oldest bourse, is an animal that the Street is yet to figure out.

On Monday, the BSE Sensex plunged 616.73 points—the second-largest single day fall (in absolute terms) since May 11, 2004, when the index had shed over 800 points—as bulls panicked after RBI governor YV Reddy’s weekend booster dose to the repo rate and cash reserve ratio (CRR) of banks in his efforts to tame the runaway inflation in the economy.

The questions that are top most in investors mind are: “Is Mr Reddy done with his seemingly endless rate hikes and money squeeze? Will he push at least one more hike?” The market isn’t hopeful. Soon after trading began on Monday, the market slipped and the 30-share Sensex fell 5% to close at a near six-month low of 12,455.37. Clearly, the market never expected that the CRR and rate hike announced on Friday would come so soon. The 50-share Nifty index crashed 187.95 points to close at 3,633.60.

The main worry nagging market watchers now is whether the upswing in interest rates that began late 2006 is likely to hurt demand in the economy and thereby the bottom line of India Inc.

The January-March quarter numbers of leading companies could give an idea if the rising rates have begun to hurt corporate India. Key Asian markets ended slightly higher on Monday, showing that the fall in Indian equities was clearly triggered by local factors, i.e. the 50-basis point hike in CRR and 25-basis point hike in repo rates, that was announced after market hours on Friday. Much of the decline in stock prices since the start of the current calendar has been mainly due to international factors.

The RBI had already raised the CRR by around 100 basis points since December 2006. As expected, sellers trained their guns on banking stocks, as the industry is likely to see its interest income dip by around Rs 2,000 crore due to the hike in CRR as well as the reduction in the interest that the RBI will pay on cash reserves.

The BSE Bankex index fell around 6% to close at 6,152.59. Automobile stocks were the other major casualties as a rise in interest rates is expected to affect demand for vehicles. Reflecting the grim mood in the sector, the BSE Auto index shed 6% to close at 4569.91. Among the prominent losers of the day, Maruti Udyog and Tata Motors fell 8% each, while State Bank of India, ICICI Bank and HDFC Bank were down around 5-6%.

None of the other sectors fared any better, as the market fears that the government’s effort to slam the brakes on inflation may achieve the desired result, but only at the cost of growth. All the 30 stocks in the Sensex closed in the red. With today’s fall, benchmark indices are around 15% off their peaks seen less than two months ago.

“The market was completely unprepared for the hike (in CRR), though there had been signals,” said Ramesh Damani, BSE broker, who feels the market is unlikely to recover in a hurry. “We are not yet in a bear market, but we are in for a bearish phase,” he said.

“The Sensex could move in a range between 12,000-15,000 for the next 2-3 months; unless interest rates show signs of easing, the market is likely to remain subdued,” he said. Technical analysts are hoping the Sensex holds above 12,300—a level below which the index has not fallen since September 27, 2006, despite coming very close on a few occasions. Frontline stocks bore the brunt of the selling pressure on Monday.

The BSE Mid cap and Small cap indices shed around 3%, but market watchers see it to be of little consolation. “Second line stocks have already been badly hammered since a long time now, “ pointed out a dealer at an institutional brokerage.

While corporate earnings so far have broadly matched market expectations, most analysts see high inflation as a major cause for concern. This has led many brokerage houses to take a cautious view on the market.

Sharekhan Investor's Eye dated April 02, 2007

South East Asia Marine Engineering & Construction
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs300
Current market price: Rs177

Annual report review

Key points

  • The robust financial performance of South East Asia Marine Engineering & Construction (SEAMEC) was driven largely by higher deployment days and an increase in charter rates. The strong growth momentum in earnings and tight working capital management resulted in a significant improvement in the return ratios during CY2006.
  • The outlook on charter rates continues to be bullish for the next two years. Moreover, the deployment of SEAMEC's recently acquired fourth vessel from mid-CY2007 would drive growth. It would also enable the company to more than nullify the impact of the revenue loss and expenses resulting from the planned periodic dry-docking of two vessels in the second half of CY2007.
  • A sharp appreciation of the rupee and an unexpected delay in the deployment of its fourth vessel are two key risks to our earnings estimates.
  • At the current market price the stock trades attractively at 7.2x CY2007 and 5x CY2008 estimated earnings. We maintain our Buy recommendation on the stock with a price target of Rs300.



CRR hike—negative for banks
The Reserve Bank of India (RBI) has surprised the market with another 50-basis-point hike in the cash reserve ratio (CRR) to 6.5% from 6.0% at present and a 25-basis-point hike in the repo rate to 7.75%. The CRR is a percentage of the net demand and time liabilities, read deposits, which the banks need to maintain in the form of cash balances with the RBI. The CRR hike would be in two stages of 25 basis points each (effective from April 14 and April 28 of this year). The hike is expected to absorb Rs15,500 crore of liquidity from the banking system. The RBI has also reduced the interest on CRR balances from 1% to 0.5%.


High interest rates affect two-wheeler sales
Hardening interest rates seem to be having a dampening impact on automobile sales, as the sales during March were lower than expectations despite the month containing a number of auspicious days like Gudi Padwa and Navratri. The impact seems to be more severe in the two-wheeler segment, particularly motorcycles, while four-wheelers continued to record decent growth.

Our checks also reveal that the auto finance companies have been extra careful while disbursing loans, hence the rejection rates have gone up in the past few months. To counter the effect of rising interest rates, auto-manufacturers are partnering with auto finance firms to offer loans at a lower rate to consumers. The cost of the same is being borne by the manufacturers, financers and the dealers. However, the same shall have a negative impact on the earnings of the companies.

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