Monday, September 10, 2007
The dollar slid to a 15-year low against a basket of currencies on Monday, 10 September, after data showing US employers cut jobs for the first time in four years, stoking expectations for a hefty Federal Reserve rate cut this month.
Friday’s data showing companies cut 4,000 jobs last month, the first such decline since August 2003, leading investors to see a bigger chance the Fed will cut rates by 50 basis points next week to protect the economy from the housing market crisis.
Investors again sold the dollar on Monday after the unexpected drop in US jobs.
“The trend in the dollar is clearly downward,” said Tsutomu Soma, a senior manager of foreign securities at Okasan Securities.
The dollar’s trade-weighted index against six major currencies fell to a low of 79.826, the lowest since September 1992. It later pared its losses and traded at 79.927.
The dollar fell to as low as 112.60 yen on electronic trading platform EBS early on Monday but trimmed its losses on buying by Japanese importers and stood at 113.31 yen down a tad from around 113.40 yen in late US trading on Friday.
A 2.2% fall in Japan’s Nikkei share average, following a decline on Wall Street, prompted investors to trim risky yen carry trades, pushing down the dollar and higher-yielding currencies against the yen.
But Japanese importers bought the dollar aggressively, helping limit its losses, traders said.
In yen carry trades, investors use the low-yielding yen to finance purchases of assets with higher returns elsewhere. That kind of trade played a big part in the yen’s fall to a trade-weighted and inflation-adjusted 22-year low in June
Analysts believe the Fed may opt for an unusually big cut in rates from the current 5.25% to help restore confidence among banks that have become reluctant to lend to each other, leading to strains in money and credit markets.
“A September Fed rate cut is a done deal,” said Hiroshi Yoshida, a forex trader at Shinkin Central Bank. “The market is now focused on whether it will be by 25 or 50 basis points.”
The Fed usually moves in 25 basis point increments, but worries about exposures and commitments of banks to US subprime mortgages, asset-backed commercial paper and structured investment vehicles has caused money market trading to dry up.
While the interbank lending problems have affected sterling and euro markets as well, investors are increasingly turning negative on the dollar as the US economy shows most evidence of taking a hit from the housing problems.
The euro edged up 0.09% to $1.3778 edging back towards a high of $1.3853 struck in July — the highest since the single currency was first launched in 1999.
It was little changed at 156.08 yen after falling to as low as 155.15 yen on EBS earlier on Monday.
The high-yielding Australian dollar fell 0.6% against the yen and the New Zealand dollar slipped around 0.4% versus the Japanese currency.
Japanese economy shrinks
Government data on Monday showed Japan’s economy shrank 0.3% in April-June from the previous quarter, against an initial estimate of 0.1% growth.
The gross domestic product data reinforced expectations the Bank of Japan is likely to leave interest rates unchanged at 0.5% at a 18-19 September policy meeting.
“If signs emerge that the global market turmoil has a negative effect on the real economy, the BOJ might be forced to put off a rate hike this year,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
The market shrugged off the Japanese data, however, as investors were more worried about the health of the US economy, expecting the dollar’s yield advantage over the yen to shrink if the Fed cuts the benchmark interest rate.
The European Central Bank held interest rates at 4% last week, citing increased market uncertainty as the reason for its wait-and-see approach.
The Sensex opened with a negative gap of 176 points at 15,414, and further dropped to a low of 15,364, on the back of weak global cues. However, the index soon pared losses owing to fresh buying at lower levels.
Steady buying in select heavyweights saw the index rebound into the positive zone in mid-noon trades. The index touched a high of 15,626 - up 262 points from the day's low. The Sensex finally a tad higher (six points) at 15,597.
While the BSE FMCG index soared nearly 2% to 2085, the IT index dropped nearly 2% to 4571.
The market breadth was fairly positive - out of 2,798 stocks traded so far, 1,653 advanced, 1,086 declined, and 59 were unchanged.
ITC zoomed 3.7% to Rs 185. Ambuja Cements soared nearly 3% to Rs 144.
NTPC and Ranbaxy surged over 2% each to Rs 191 and Rs 419, respectively.
Reliance Energy moved up 1.6% to Rs 864. Reliance and SBI advanced 1.3% each to Rs 1,987 and Rs 1,641, respectively.
...AND THE SHAKERS
TCS tumbled nearly 3% to Rs 1,047. Wipro shed 2.4% to Rs 467. Infosys slipped 2% to Rs 1,872, and Satyam declined 1.7% to Rs 442.
ONGC plunged over 2% to Rs 832. Hindalco dropped 1.5% to Rs 155.
HDFC and Cipla were down over 1% each at Rs 2,104 and Rs 179, respectively.
VALUE & VOLUME TOPPERS
IFCI topped the value chart with a turnover of Rs 164 crore followed by Reliance (Rs 123 crore), Aptech (Rs 106 crore), Reliance Petro (Rs 74 crore) and SBI (Rs 72.80 crore).
IFCI led the volume chart with trades of around 2.26 crore shares followed by Tata Tele (89 lakh), Nagarjuna Fertilisers (83 lakh), IKF Technologies (81 lakh) and Nandan Exim (64.30 lakh).
The markets closed flat as BSE Sensex closed little higher by 6.41 points at 15,596.83 and the Nifty closed little lower by 1.65 points at 4,507.85. The BSE mid cap and Small cap closed higher by 32.74 points and 80.85 points at 6,884.39 and 8,514.37 respectively. The market breadth was strong with 1,653 stocks advanced and 1086 stocks declined.
BSE FMCG index grew by 38.47 points to close at 2,085.10 as ITC (3.74%), United spirits by (2.71%), Tata Tea (2%) and Godrej (1.07%) closed in green.
BSE Capital goods index grew by 41.05 points to close at 13,654.29 as Jyothi structures (2.87%), Alstom projects (2.43%), ABB (1.58%), Punj Lloyd (1.44%), Bhel (0.51%) and Siemens (0.20%) closed higher.
BSE bankex index closed higher by 4.68 points at 8,100.37 as Kotak bank (3.76%), Andhra bank (1.42%), SBI (1.26%), Oriental bank (1.16%), Union bank (0.86%) and PNB (0.56%) closed in positive.
BSE Metal index dropped by 3.03 points to close at 11,606.95 as JSW steel (3.69%), Sterlite (1.45%) and SAIL (2.41%) closed lower while Sesa Goa (1.71%), Bhusan steel (1.36%), Jindal steel (1.08%) and Tata steel (0.72%) closed higher.
BSE Auto Index grew by 10.54 points to close at 4,900.37 as Tata Motors (0.91%), Ashok Leyland (0.13%) and Bajaj Auto (0.11%) closed in positive while Hero Honda (1.04%) and Mahindra and Mahindra (0.45%) closed in negative.
BSE oil & gas index increased by 74.16 points to close at 8,259.93 as RPL (4.48%), BPCL (3.65%), HPCL (3.39%) and IPCL (1.79%) closed higher while ONGC (2.19%) and GAIL (0.24%) are closed lower.
BSE IT index slipped by 88.81 points to close at 4,570.89 as HCL Tech.(5.23%), TCS (2.82%), Wipro (2.39%) Infosys (1.96%) and Satyam (1.67%) closed in red.
BSE Health Care Index closed higher by 15.13 points at 3,720.81 as Orchid chemeicals (4.28%), ranbaxy (2.17%), Divi''s lab (1.04%), Lupin (0.67%) closed higher while Glennmark (48.13%) closed in red due to stock split.
The US selloff on Friday had the Asian markets tanking in early morning trades. This had the markets open on a weaker note. Investors have been nervously sitting on worries that US is headed for a recession. Indices traded ranged manner throughout the day. Selected stocks in FMCG, Capital goods and Power provided some support at the lower levels. However IT pivotal were weak on fears of a very weak US economy which could affect business near term. Small cap and Mid cap indices outperformed the index heavy weights. Asian markets recovered some of the lost gains but ended in red, European indices started off in red.
Sensex ended up by 6 points at 15596.83. It was helped up by gains in ITC (184.5,+4 percent), Guj Ambuja (144.6,+3 percent), Ranbaxy (418.8,+2 percent), NTPC (191.15,+2 percent) and Rel Energy (864.25,+2 percent). Restricting the gains were TCS (1046.95,-3 percent), Wipro (466.95,-2 percent), ONGC (832.1,-2 percent), Infosys (1871.5,-2 percent) and Satyam (442.25,-2 percent).
We had a note on Navneet Publication. The company seems headed the Educomp way. It has managed to develop content which it has already sold to 20 schools in Gujarat. The e-content for Maharashtra is slated to be online by November. This e-initiative should change the face of the company from being a laid back one to one that is leveraging its position in the Education space using all available media. Do read the note and decide wether its ready for a rerating.
We had a note on Dhanus Technologies, the IPO has opened for subscription today. Clearly its overpriced and the promoters are leaving nothing on the table. The risks for the busniess are high and the business of Fleet Trac which we like is too fledgling to get this kind of valuation. Best to avoid this one is what we suggest.
Easun Reyrolle Manufacturer of the key elements that go into a substation transformers, tap changers, switchgear and power protection control and automation systems has reported that board has decided to raise long term funds upto Rs 245.42 crore for its expansion and diversification plans in the country and abroad. The GDR / fund raising plans had the stock up backed by the company's expansion plans. The stock ended up 10%.
Technically speaking: Markets traded narrow ranged with a smart recovery. Sensex touched intraday high of 15626 and low of 1363. Support is seen at 15,350 and Resistance is at 15,695 levels. Overall market turnover stood good at Rs 4026 Cr. Market breadth was in favor of Advances, where the Advances stood at 1682, while Declines were 1083. Technically Sensex remains upward biased unless it breaks 15270. Thats the level to watch out for. On the upper side Sensex needs to quickly create a new high.. else it will be termed as a weak bounce.
The market wiped out a loss of over 260 points incurred during the intra-day trades after a strong bout of buying led by ITC, Ambuja Cement and NTPC in the afternoon changed the sentiment to bullish. The Sensex resumed 176 points lower at 15,414 following the weakness in Asian indices and crashed to the day's low of 15,364 on relentless selling pressure amid high volatility. The market showed strong optimism thereafter and the Sensex witnessed a sharp turn-around as gains in heavyweight, FMCG, oil and consumer durable stocks propelled it to an intra-day high of 15,626. The market turned extremely choppy and gyrated between the positive and negative territories for the later part of the trading session and the Sensex closed with a gain of six points at 15,597. The Nifty ended two points higher at 4,508.
The market breadth was marginally positive. Of the 2,798 stocks that traded on the BSE, 1,650 stocks advanced, 1,087 stocks declined and 61 stocks ended unchanged. Most of the sectoral indices ended in the green. The BSE FMCG index advanced 1.88% at 2,085 followed by the BSE CD index (up 1.53% at 4,548) and the BSE Oil & gas index (up 0.91% at 8,260). However, the BSE IT index slipped 1.91% at 4,571, the BSE Teck index (down 1.01% at 3,605) and the BSE Metal index (down 0.03% at 11,606).
Among the Sensex stocks, FMCG major ITC was the leading gainer and its stock price soared 3.74% at Rs185. Among the other stocks, Ambuja Cement advanced 3.25% at Rs145, Ranbaxy jumped 2.17% at Rs419, NTPC gained 2.14% at Rs191, Relance Energy moved up by 1.63% at Rs864, Reliance Industries added 1.32% at Rs1,987 and SBI surged 1.26% at Rs1,641. Among the laggards, TCS slipped 2.82% at Rs1,047, Wipro shed 2.39% at Rs467, ONGC declined by 2.19% at Rs832, Infosys fell by 1.96% at Rs1,872 and Satyam Computer lost 1.67% at Rs442.
Over 2.25 crore IFCI shares changed hands on the BSE followed by Tata Teleservices (88.84 lakh shares), Nagarjuna Fertilisers (83.12 lakh shares), IKF Technologies (80.90 lakh shares) and Nandan Exim (64.28 lakh shares).
IFCI registered a turnover of Rs164 crore on the BSE followed by Reliance Industries (Rs122 crore), Aptech (Rs106 crore), Reliance Petroleum (Rs74 crore) and SBI (Rs72 crore).
The market which opened on a weak note, recovered all the lost ground to post marginal gains, on strong buying in index pivotals, especially Reliance Industries. However IT pivotals stayed weak, on fears of US economy heading towards recession. The market breadth was strong on BSE in contrast to initial weakness.
The market had opened on a weak note following a sell-off in US stocks on Friday, 7 September 2007, after data showed US firms cut 4,000 jobs last month, the first such decline since August 2003.
The BSE 30-share Sensex rose 6.41 points or 0.04% at 15,596.83. It opened with a 176.84 points downward gap at 15,413.58 and slipped further to touch a low of 15,363.53. However, the index witnessed a sharp pull-back from lower levels to hit a high of 15,626.28
At the day's low of 15,363.53, the Sensex had lost 226.89 points for the day. At day’s high of 15,626.28, it had gained 35.86 points for the day. Sensex oscillated 262.75 points for the day
The BSE Sensex is now 272.02 points away from its all time high of 15,868.85 hit on 24 July 2007.
The S&P CNX Nifty was down 1.65 points or 0.04% at 4,507.85. The Nifty September 2007 futures settled at 4,500, a discount of 7.85 points as compared to spot closing
The market breadth was strong on BSE, with 1,682 shares advancing as compared to 1,083 that declined, while 58 remained unchanged. This is in sharp contract to that of opening session, when 827 shares declined, 570 rose and 31 remaining unchanged.
The BSE Mid-Cap Index rose 0.48% to 6,884.39, while the BSE Small-Cap Index gained 0.96% to 8,514.37. Both these indices outperformed the Sensex.
The BSE Small-Cap Index hit an all time high of 8,525.39 in intra-day trade today. From a recent low of 7424.39 on 23 August 2007 the BSE Small-Cap index rose 13.59% to 8433.52 on 7 September 2007.
The BSE Mid-Cap index is within striking distance from its all time high of 6,909.25 hit on 7 September 2007.
The total turnover on BSE amounted to Rs 4,026 crore as compared to Rs 4,890 crore on Friday, 7 September 2007. The NSE F&O turnover was Rs 37,333.48 crore as compared to Rs 38,666.44 crore on Friday, 7 September 2007.
Most of the sectoral indices on BSE posted gains. The BSE Oil and Gas Index (up 0.91% at 8,259.93), BSE Consumer Durables index (up 1.53% to 4,548.44), BSE Realty index (up 0.81% to 7,531.12), BSE PSU index (up 0.54% to 7,327.62), BSE Health Care Index (up 0.41% at 3,720.81), BSE Metal Index (down 0.03% at 11,606.05), BSE Capital Goods Index (up 0.30% at 13,654.29), BSE Auto Index (up 0.22% at 4,900.37), BSE Bankex (up 0.06% at 8,100.37), and BSE FMCG Index (up 1.88% at 2,085.10) outperformed the Sensex.
However, the BSE TecK index (down 1.01% to 3,605.36), and BSE IT Index (down 1.91% at 4,570.89) were underperformers.
From the 30-member Sensex pack, 16 gained while the rest slipped.
IT shares were weak on fears that the US economy may be headed into a recession. India’s top software services exporter by revenue TCS lost 2.97% to Rs 1045.30 on 2.72 lakh shares. It was the top loser from Sensex pack.
Other IT pivotals - Infosys Technologies (down 2.06% to Rs 1869.45), Wipro (down 2.45% to Rs 466.70), and Satyam Computers (down 1.39% to Rs 443.50) - declined. IT firms derive over 50% of their revenue from exports to the US.
From a recent low of 4294.86 on 21 August 2007, the BSE IT index had risen 8.49% to 4659.70 on 7 September 2007.
The Indian rupee recovered from an initial fall that was caused by fears about a reversal in risk appetite after weak US job data triggered a sell-off in Asian equity markets. Rupee was hovering at 40.64, a bit stronger than Friday (7 September 2007)’s close of 40.6875/6975.
Oil & Natural Gas Corporation (ONGC), the country’s largest oil exploration company by market capitalisation, slipped 2.20% to Rs 832. It went Rs 13 per share ex-dividend from today. ONGC’s shares have face value of Rs 10 each.
ICICI Bank (down 0.76% to Rs 912), HDFC (down 1.65% to Rs 2095) and Hindalco Industries (down 1.56% to Rs 154.50) were the other losers from Sensex pack.
India’s largest cigarette manufacturer ITC advanced 3.80% to Rs 184.60 on 15.44 lakh shares. It was the top gainer from the Sensex pack. As per recent reports, after getting approval from the shipping ministry, Kolkata Port Trust (KoPT) may give land to ITC for expanding its existing cigarette factory
Cement stocks Ambuja Cements (up 2.82% to Rs 144) and Grasim (up 0.93% to Rs 3212) edged higher on fresh buying.
India’s third largest pharma company by revenue Ranbaxy Laboratories gained 2.21% to Rs 418.95. World Health Organisation (WHO) has included the company's three drugs for treatment of AIDS in its pre-qualification list. With the new additions, 15 Anti Retroviral (ARV) products of the company are now in the WHO's pre-qualification list.
NTPC, the nation’s largest power generation company, rose 2.48% to Rs 191.80. The stock hit a record high of Rs 192. As per reports, NTPC is in talks with established players to manufacture power plant equipment.
India’s largest private sector company by market capitalisation and oil refiner Reliance Industries (RIL) staged a sharp recovery from day’s low of Rs 1945. It rose 1.27% to Rs 1986.45 on 6.19 lakh shares. It is now at a striking distance of its all-time high of Rs 1999.30 hit on 5 September 2007. RIL today, 10 September 2007, reached an agreement to acquire assets of Hualon, a leading polyester producer in Malaysia. This acquisition will bestow RIL with more than 7% global market share in polyester fibre and yarn.
Auto stocks rebounded from early lows on value buying. Tata Motors (up 0.79% to Rs 702, off its day’s low of Rs 683.05), Maruti Udyog (up 0.81% to Rs 879.95, off its day’s low of Rs 860), and TVS Motor Company (up 13.44% to Rs 73, off its day’s low of Rs 63.90) recovered from their lows.
Among side counters, Godawari Power & Ispat (up 10% to Rs 208.65), International Conveyors (up 10% to Rs 272.05), Parsoli Corporation (up 10% to Rs 56.10), Easun Reyrolle (up 10% to Rs 252.90), Artson Engineering (up 14.33% to Rs 53.50) and BPL (up 14.96% to Rs 68.40) surged.
Roto Pumps (down 8.17% to Rs 68), ITD Cementation (down 6.08% to Rs 455), and Freshtrop Fruits (down 6.43% to Rs 137.60) slumped.
IFCI topped the turnover chart on BSE notching turnover of Rs 164 crore followed by Reliance Industries (Rs 123 crore), Aptech (Rs 106 crore), Reliance Petroleum (Rs 74 crore) and State Bank of India (Rs 72.80 crore).
Brokerage shares hogged limelight on momentum buying ahead of listing of Motilal Oswal Financial Services (MOFS) on Tuesday, 11 September 2007. Emkay Shares & Stock Brokers (up 20% to Rs 154.85), JRG Securities (up 11% to Rs 56.40), Khandwala Securities (up 3.04% to Rs 47.40), Prime Securities (up 4.60% to Rs 100), India Infoline (up 9.79 to Rs 743) and Geojit Financial Services (up 7.12% to Rs 45.90) surged
MOFS fixed the IPO price at the top end of the Rs 725 - RS 825 per share price band. At the IPO price of Rs 825, PE works to 31.7 based on the consolidated year ended March 2007 EPS of Rs 26. The IPO closed on 20 August 2007 with 27.41 times subscription.
Gammon India plunged 8.92% to Rs 420 after an under-construction flyover it was constructing in Hyderabad collapsed yesterday, 9 September 2007. The collapse of the flyover could affect Gammon's ability to get new contracts.
Hindustan Zinc rose 0.11% to Rs 713.35. As per reports, it has lowered prices of the metal by Rs 2900, or 2.10% , to Rs 136300 a metric ton. Lead prices were also lowered by 1.2%, to Rs 137500 a ton.
Corporation Bank rose 0.93% to Rs 338 after it said it said after trading hours on Friday, 7 September 2007, it has sold its stake in the National Stock Exchange for Rs 35 crore.
Carborundum Universal gained 0.31% Rs 180.40 after it said after trading hours on Friday, 7 September 2007, it had acquired Russian firm Volzhsky Abrasive Works for $37 million. The company had announced the acquisition in June 2007.
Compressor maker Ingersoll Rand (India) rose 2.49% to Rs 353.50 after its board approved sale of its utility equipment business to South Korean firm Doosan Infracore for Rs 103 crore
Steel pipes and industrial tools maker Zenith Birla (India) rose 5.16% to Rs 35.65 after it said after trading hours on Friday, 7 September 2007, its board would meet on 14 September 2007 to consider spinning off its tool manufacturing division.
TRF rose 3.88% to Rs 1095 after it said before trading hours on Monday, 10 September 2007, its board has approved buying 51% stake in YORK Transport Equipment (Asia) PTE Ltd of Singapore for an undisclosed sum.
Electrosteel Castings rose 5.42% to Rs 471.95 after it fixed 24 September 2007 as the record date for the purpose of stock-split of equity shares to 10 shares of Re 1 in lieu of 1 equity share of Rs 10 each. The company made this announcement after market hours on Friday, 7 September 2007
Nagarjuna Fertilizers & Chemicals rose 1.89% to Rs 43.20 while Bongaigaon Refinery & Petrochemicals jumped 5.92% to Rs 59.95. National Stock Exchange said after trading hours on Friday, 7 September 2007, fresh positions cannot be created in the derivatives contracts of Nagarjuna Fertilizers & Chemicals and Bongaigaon Refinery & Petrochemicals. The ban in these two derivatives contracts is because the open interest has crossed 95% of the limit.
Aptech rose nearly 4.14% to Rs 380.70. Aptech said late on Friday, 7 September 2007, Bear Stearns & Co has sold 1 million shares or a 2.32% stake in the company to reduce its stake to 3.5%.
Kirloskar Brothers rose 0.1% to Rs 485 after the company said during trading hours today, 10 September 2007, it had acquired Gondwana Engineers for Rs 7.63 crore. Gondwana specialises in various water, sewage and effluent treatment plants.
Most of the European markets, which opened after Indian markets, were trading lower. Key benchmark indices in Germany (down 0.01% to 7,435.63) and France (down 0.05% to 5,527.51) declined. However United Kingdom’s FTSE 100 index rose up 0.05% to 6,194
Asian markets which opened before Indian markets, 10 September 2007, settled lower. Japan's Nikkei (down 2.22% at 15,764.94), Seoul Composite (down 2.60% to 1,835.58), Taiwan Weighted (down 0.89% to 8,937.58) and Straits Times (down 1.35% to 3,441.84) slipped.
However, Hang Seng (up 0.07% at 23,999.70) and China’s Shanghai Composite (up 1.48% to 5,355.09) rose after initial weakness.
US stocks tumbled on Friday, 7 September 2007, following weak job data. Dow Jones Industrial Average tanked 2,49.97 points, or 1.87%, to 13,113.38. The tech-laden Nasdaq Composite index lost 48.62 points, or 1.86%, to 2,565.70.
The Sensex rose 271.82 points, or 1.77%, to 15,590.42 in the week ended 7 September 2007. The S&P CNX Nifty was up 45.5 points, or 1.01%, to 4,518.60 in the week.
US light crude fell 15 cents to $76.55 a barrel while London Brent crude declined 17 cents to $74.90 a barrel today, 10 September 2007.
Meanwhile, a panel set up by the government to look into Left front's concerns over Indo-US nuclear deal is expected to hold its first meeting on Tuesday, 11 September 2007.
Gold edged up today and held within sight of a 16-month high hit last week as its status as a safe investment came under the spotlight amid a sell-off in stocks, but a firmer yen put pressure on Tokyo futures.
Spot gold was at $700.50/701.30 an ounce as of 0307 GMT, edging up from $699.90/700.70 late in New York on Friday, when it rallied to its highest since mid-May 2006 at $707.10.
Capital inflows continued into gold-backed exchange traded funds (ETFs) listed overseas despite a slump on Wall Street after surprisingly bleak US jobs data, underlining investor confidence in bullion.
Analysts said the data worsened prospects for the dollar and encouraged bullion buying. A lower dollar makes gold, which is denominated in the U.S. currency, cheaper for investors holding the euro and other foreign currencies.
“Investors are getting more confident that bullion has hit a floor and is on the way back up,” said Yuki Sonoda, advisor at Daiichi Commodities Co Ltd.
“Finally, a gleam is in sight,” he said, adding that an increased amount of gold held by
ETFs showed steady appetite for gold by pension funds and other long-term investors.
The latest data showed gold held in New York-listed StreetTRACKS Gold Shares NYS, the world’s largest gold-backed ETF, rose to 549.42 tonnes, another record high, up 33.98 tonnes or 6.6 percent from the start of the month.
But yen-denominated gold futures on the Tokyo Commodity Exchange came under pressure from a weakening dollar versus the yen.
A higher yen deflates yen-based gold futures, encouraging domestic players who had bought to unwind long positions.
The benchmark August 2008 gold futures fell 19 yen per gram, or 0.7 percent, to 2,574 yen.
The dollar slid to a 15-year low against a basket of major currencies on Monday as Friday’s data showing companies cut 4,000 jobs last month, the first such decline since August 2003, prompted investors to expect a hefty Federal Reserve rate cut next week to protect the economy from the housing market crisis.
Against the yen, it fell 0.4 percent from late U.S. trade to 112.95 yen sliding back towards a 14-month low of 111.60 yen. The euro edged up to $1.3775 jumping back near a high of $1.3853 hit in July -- the highest since the single currency was first launched in 1999.
Platinum rose to $1,292.50/1,297.50 an ounce from $1,286.10/1,293.10 late in New York. It hit an intraday high of $1,295 an ounce on Monday -- its highest in five weeks.
The market received support from news on Friday that a South African labour union had called off a strike by some 1,500 workers at a smelter and two refining operation of Anglo Platinum , the world’s biggest platinum producer.
Palladium inched up to $333/338 an ounce from $332.50/336.70 an ounce.
Silver inched down to $12.50/12.54 ounce from $12.51/12.54 an ounce late in New York on Friday, when it rose to its highest in more than three weeks at $12.67. Precious metals prices at 0322 GMT Metal Last Change Pct chg YTD pct chg Turnover Spot Gold 700.40 0.20 +0.03 10.18 Spot Silver 12.50 -0.10 -0.79 -2.72 Spot Platinum 1292.50 3.00 +0.23 14.18 Spot Palladium 333.00 -1.30 -0.39 0.30 TOCOM Gold 2574.00 -19.00 -0.73 5.28 56423 TOCOM Platinum 4694.00 -46.00 -0.97 10.34 16455 TOCOM Silver 457.40 -4.90 -1.06 -7.28 1111 TOCOM Palladium 1240.00 -23.00 -1.82 -1.20 109 Euro/Dollar 1.3769 Dollar/Yen 112.95 TOCOM prices in yen per gram, except for silver which is in yen per 10 grams, spot prices in $ per ounce.
Power Grid Corporation 44 to 52 13 to 14
Magnum Venture 27 to 30 3 to 4
Dhanus Tech. 280 to 295 110 to 115
Kaveri Seeds 150 to 170 25 to 28
Allied Computer 12 0
Motilal Oswal 825 110 to 115
Equities are expected to open lower Monday tracking global cues. Just when the indices were set for new highs, the unexpected fall in US job data, which raised concerns of a recession in the economy, will hurt sentiment.
Friday, the Labor Department in Washington said that employers cut 4,000 workers from payrolls in August, compared with a gain of 68,000 in July, while economists had forecast 110,000 jobs were created. The news plunged US indices down nearly 2 per cent. Asian stocks too tumbled Monday on US economic fears.
Back home, the market will remain nervous for the next seven days of trade till September 18, when US Federal Reserve is expected to announce a rate cut, which will set the course for the market direction.
Friday, National Stock Exchange’s Nifty closed down 9 points or 0.2 per cent at 4509.5. The index touched a high of 4547.75 and low of 4499.9 intra-day. Bombay Stock Exchange’s Sensex ended down 26 points or 0.17 per cent at 15,590.42, making a high of 15,716.06 and low of 15,565.22.
Foreign institutional investors were net buyers of equity worth Rs 384.68 crore Friday, while domestic institutional investors net sold equity worth Rs 99.43 crore.
Market Grape Wine :
In House :
Nifty at a supp of 4403 and 4445 levels with resistance at 4550 and 4587 levels .
Sell : Intraday : RelCap : below 1224 target 1208 s/l of 1231
Buy : Intraday : GMrInfra : above 765 target of 786 s/l of 757
Sell L Intraday : in F&OHclTech : below 308 target 296 s/l of 312
Sell : Intraday : Gesco below 508 target 498 s/l of 515
Out House :
Markets at a support of 15324 & 15243 levels with resistance at 15616 & 15786 levels .
Buy : REL at dips
Buy : RIL at dips
Buy : Titan at dips
Buy : Indiacement at dips
Buy : SKumar at dips
Buy : JpHydro , TTML & Nagarfert at dips
Buy : Tisco at dips
Buy : IOlBroad & Aban
Dark Horse : RIL , REL, IOLBroad, NTPC , SBIN & Kajaria
Indian market is likely to have a negative opening on the back of negative global cues. On Friday, the Indian markets ended on a negative note, as BSE Sensex closed lower by 25.89 points at 15,590.42 while Nifty slipped by 9.1 points to close at 4,509.50. We expect the market to remain cautious during the trading session.
On Friday, the US market closed in red. The Dow Jones Industrial Average declined by 249.97 points to close at 13,113.38. The Nasdaq Composite Index fell by 48.62 points to close at 2,565.70. The S&P 500 index decreased by 25 points to close at 1,453.55.
Indian ADRs ended in negative territory. In technology sector, Patni computers dropped by (4.45%) along with Infosys by (2.65%), Satyam by (2.56%) and Wipro by (1.74%). In banking sector, HDFC bank and ICICI bank fell by (2.85%) and (2.12%) respectively. VSNL and MTNL closed lower by (4.88%) and (1.81%) respectively.
The major stock markets in Asia are trading weak. Japan''s Nikkei trading lower by 340.49 points to trade at 15,781.67. Hang Seng slipped by 370.12 points to trade at 23,612.49. Taiwan weighted dropped by 83.02 points to trade at 8,935.06. Singapore Strait times trading lower by 73.60 points at 3,415.37.
Today, Nifty has support at 4,340 and resistance at 4,605 and BSE Sensex has support at 15,240 and resistance at 15,630.
The market is expected to edge lower due to fresh worries about the US economy. Domestic institutions may step up buying at lower level in case there is a sharp fall. Domestic private insurance firms have been putting in money raised through unit linked insurance plans (with a very high weighting in equity) in equities.
On the other hand, foreign institutional investors (FIIs) may press sales due to slide in rupee against the US dollar. Rupee was hovering at 40.73 against the dollar in early deals, weaker than Friday (7 September 2007)’s close of 40.6875/6975. The rupee has been one of the best performing currency against the dollar in Asia in the current calendar year. But the current slide in the rupee may prompt hedge funds to sell Indian equities so that they can still capture some of this year’s strong currency gains.
FIIs have made substantial buying this month. Their net inflow in the first few days of September 2007 totaled Rs 2191.60 crore (till 6 September 2007). As per provisional data, FIIs bought shares worth a net Rs 385 crore on Friday, 7 September 2007. Domestic institutions sold shares worth a net Rs 99 crore on that day.
Asian markets edged lower today, 10 September 2007, after the data released on Friday, 7 September 2007, showed US payrolls shrank in August 2007 for the first time in four years which raised fears that the world's largest economy, Asia's top export destination, was headed into recession. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore, Taiwan, and Indonesia were down by between 0.8% to 2.5%.
US stocks tumbled on Friday, 7 September 2007 following weak job data. Dow Jones Industrial Average tanked 249.97 points or 1.87% at 13,113.38. The tech-laden Nasdaq Composite index lost 48.62 points or 1.86% at 2,565.70.
The BSE 30-share Sensex declined 25.89 points or 0.17% at 15,590.42 on Friday, 7 September 2007. The S&P CNX Nifty shed 9.10 points or 0.20% at 4509.50 on that day.
India's wholesale price index rose 3.79% per annum in the 12 months to 25 August 2007, lower than the previous week's 3.94% due to a decline in some food prices, government data showed on Friday, 7 September 2007. Inflation is at its lowest level since it touched 3.70% in the week ended April 15, 2006.
A new truth marries old opinion to new fact so as ever to show a minimum of jolt, a maximum of continuity.
Bulls will hope that the jolt is less and their winning ways continue. Just when the Indian bulls thought they could manage hoisting the indices at a new peak, comes another jolt from the global markets, especially from the US. Wall Street was stunned on Friday by an unexpectedly weak jobs report, sending the main indices into a tailspin amid concerns about the health of the world's largest economy. Markets around the world slumped following the grim payroll data and the subsequent declines on Wall Street.
There are serious concerns that the mess in the US housing sector is hurting the broader economy there. This could lead to another round of selloff across world markets, at least in the next couple of days (sometimes its just for a day) amid fears of a slowdown in global economic growth. Expectations are the Federal Reserve will come to the rescue and cut rates. The speculation now is by how much it will cut rates at its Sept. 18 meeting (or perhaps before that) and at its following meetings. Alas.
The trend in the local market will largely hinge on the global sentiment and the fund flows (inward or outward). Avoid any leverage and continue picking up your favorite counters expecting to sell them after a couple of years. Buy less but buy quality. No clear trend is expected for months to come. Open your ears to all and your purse to a few select stocks.
Vakrangee Software could gain as it has increased the investment limit for FIIs, from 24% to 49%. Also, Goldman Sachs Investments and Merrill Lynch have crossed the significant 5% holding mark in the company. Taneja Aerospace might rise amid market grapevine that it has struck a deal with GMR for its property in Bangalore.
Kesoram and Century Enka could advance amid reports that the promoters are hiking stake in the two BK Birla group companies. Oil PSUs may gain amid reports that the Government will go for a marginal fuel price hike shortly. Bajaj Auto and other two-wheelers will be in focus as the former is all set to launch its much-hyped 125cc bike, Exceed to take on rivals Hero Honda and TVS.
US stocks tumbled on Friday as a surprise drop in August payrolls raised worries that the contagion in the housing and financial markets were spreading to the rest of the economy. Treasury prices jumped as investors sought safety, while the dollar plunged. Gold prices jumped as well. Oil prices rose.
The Dow Jones Industrial Average was down 249.97 points or 1.9% to 13,113.38 while the broader S&P 500 index shed 25 points or 1.7% to 1,453.55. The tech-fueled Nasdaq Composite index was down 48.62 points or 1.9% to 2,565.70.
For the week, the Dow lost around 1.8%, the S&P 500 eased around 1.4% and the Nasdaq gave up 1.2%.
And, there could be more trouble ahead. After the close of trade, Countrywide Financial, the biggest US mortgage company, said it will cut between 10,000 and 12,000 jobs, or 20% of its work force, over the next three months.
The surprisingly weak jobs report added to optimism that the Fed will cut its benchmark fed funds rate, a key short-term interest rate, when it meets on Sept. 18.
Meanwhile, former Fed Chairman Alan Greenspan, speaking at an economics conference, said that the current market turmoil is similar to what happened in 1998, 1987 and other times in history when there were economic bubbles.
Treasury prices surged in a classic "flight to quality" move. The rally lowered the yield on the 10-year note to 4.37% from 4.5% late on Thursday. Gold prices also jumped in response to the report. COMEX gold for December delivery rose $5.10 to settle at $709.70 an ounce.
In currency trading, the dollar slumped versus the euro and the yen.
US light crude oil for October delivery rose 58 cents to $76.88 a barrel on the New York Mercantile Exchange.
OPEC will probably maintain its oil production targets at its Tuesday meeting, resisting calls for more supply because of concerns demand may falter as US economic growth slows.
European shares fell sharply on Friday. The pan-European Stoxx 600 index declined 2.2% to 365.58. The French CAC-40 closed down 2.6% at 5,430.10, while the German DAX 30 gave up 2.4% to end at 7,436.63 and the UK's FTSE 100 slipped 1.9% to 6,191.20.
In emerging markets, the Bovespa in Brazil was up 0.3% at 54,569 while the IPC index in Mexico was down 1.8% at 30,252. The RTS index in Russia shed 1.2% at 1898 and the ISE National-30 index in Turkey fell 1% to 61,690.
Asian stocks were down sharply this morning after the number of jobs in the US unexpectedly fell for the first time in four years and Japan's economy shrank at almost twice the pace forecast in the second quarter.
Mitsubishi UFJ Financial Group paced declines in Tokyo while Toyota dropped as the yen gained against the dollar.
South Korea's Samsung Electronics slid on concern that demand will cool in the world's two biggest economies. BHP Billiton slipped along with the price of metals.
The Morgan Stanley Capital International Asia-Pacific Index fell 1.8% to 149.71 at 10:35 a.m. in Tokyo, set for its biggest loss since Aug. 17. Japan's Nikkei 225 Stock Average dropped 2.3% while the Hang Seng in Hong Kong was down. All markets open for trading declined.
Japan's economy contracted for the first time in more than two years after companies cut spending last quarter.
The world's second-largest economy shrank at a 1.2% annual pace in the three months ended June 30, compared with the government's initial estimate for 0.5% growth. The average forecast was pegged at a deceleration of 0.7%.
Bulls slipped on to back foot as a volatile trading session ended in red. After carrying on the momentum in early trades key indices witnessed seesaw trades as alternate bouts of buying and selling pushed the key indices from positive to negative terrain. FMCG and Small-Cap stocks were in demand on the other hand shares of Auto, Realty and Oil & Gas stocks were offloaded. Finally, the BSE 30-share Sensex closed at 15,590 losing 25 points. NSE Nifty slipped 10 points to close at 4509.
Karuturi Networks surged by over 4.5% to Rs238 after investors approved $100mn fund raising plan. The scrip touched an intra-day high of Rs240 and a low of R227 and recorded volumes of over 8,00,000 shares on NSE.
ICRA advanced by 1.6% to Rs989 after reports stated that the company has signed MoU with SBI. The scrip touched an intra-day high of Rs1013 and a low of Rs968 and recorded volumes of over 1,00,000 shares on NSE.
ICICI Bank ended flat at Rs920. Reports stated that they are setting up a $2bn fund to invest in roads, ports, utilities, bridges and telecommunications. The scrip touched an intra-day high of Rs930 and a low of Rs915 and recorded volumes of over 28,00,000 shares on NSE.
Sadbhav Engineering slipped by 2.4% to Rs690. The company announced that they have secured Rs1.9bn orders. The scrip touched an intra-day high of Rs720 and a low of Rs685 and recorded volumes of over 10,000 shares on NSE.
Mastek surged by 3% to Rs289 after the company announced that they would raise Rs1.5bn selling securities overseas. The scrip touched an intra-day high of Rs291 and a low of Rs281 and recorded volumes of over 37,000 shares on NSE.
Ashok Leyland slipped 2.6% to Rs38 after the company yesterday announced its August dropped 6.6% to 6055 units. The scrip touched an intra-day high of Rs40 and a low of Rs38 and recorded volumes of over 37,00,000 shares on NSE.
Realty stocks were under selling pressure. DLF slipped by 2% to Rs622, Akruti was down by 1.7% to Rs594 and Ansal Infrastructure declined by 2.6% to Rs251.
FMCG stocks ended higher led by gains in McDowell surged by over 1.5% to Rs1540, Marico was up by 2.4% to Rs60, ITC gained by 1.6% to Rs177 and Tata Tea added 0.8% to Rs761
Auto stocks were on the receiving end. Tata Motors slipped by 2.3% to Rs695, Bajaj Auto slipped by 0.6% to Rs2324 and TVS Motor dropped 1.7% to Rs64.
Stocks In News
Petrol and diesel prices are likely to be increased by Rs2 and Re1 per litre respectively after monsoon session of parliament ends this week.
Domestic air travel to cost more as Jet Airways and Indian plans to increase fares shortly.
Ranbaxy Laboratories, India’s largest drug maker, may hive off its R&D activity into a separate company and raise resources by selling equity in the new entity.
TCS plans setting up third development centre in China by the end of current fiscal, to hire 4,000 more.
NTPC and BHEL may float a new JV company for executing power sector projects in India and abroad.
BPL Mobile Communications, which offers GSM services in Mumbai and run by the Essar group, has applied for licenses in the remaining 21 circles in the country.
Axis Bank sets up $500mn private equity fund to invest in domestic infrastructure sector.
AV Birla group to plans to invest $600mn in increasing carbon black capacities in India and abroad in the next four years.
Moser Baer plans Rs10bn investment in manufacturing facilities in a SEZ near Chennai .
Mahindra Gesco plans strong thrust in solid waste management and water treatment business.
Gammon India considering foraying into logistics sector in a move to expand its presence in infrastructure sector.
JSW Steel’s coal block plan suffers as its JV partner walks out.
FIIs were net buyers of Rs3.85bn (provisional) in the cash segment on Friday and the local institutions pulled out Rs994.3mn. In the F&O segment, foreign funds were net buyers of Rs4.15bn.
On Thursday, FIIs were net buyers to the tune of Rs6.23bn in the cash segment. Mutual Funds were net buyers of Rs452mn on the same day.
Major Bulk Deals:
Merrill Lynch has bought Amtek Auto; ILFS Investsmart has purchased Goldstone Tech; Crown Capital has sold IVRCL Infrastructures; Merrill Lynch has picked up; HDFC Core has sold Rico Auto; Merrill Lynch has bought Shree Precoated Steels; Bear Stearns has picked up Unity Infra Projects; A slew of deals on both sides took place in Proto Infosys.
Ambuja Cements Ltd: P.B. Kulkarni, Director of the company has sold 3000 equity shares of Ambuja Cements Ltd on 30th August 2007.
Lotus Global has sold Gremac Infrastructure and Kashyap Tec; Macquarie Bank has sold Hexaware; Pricipal PNB Long Term MF has bought Madhucon Projects while Bear Stearns has sold the scrip; Morgan Stanley MF has picked up Welspun Gujarat.
Delivery Delight (Rising Price & Rising Delivery):
Bharti Airtel, Crompton Greaves, Mangalam Cement and Praj Industries.
Bombay Rayon Fashions, Bank of Baroda, Sadbhav Engineering and Lupin.
Major News & Announcements:
Inflation for the week ended 25th August was 3.79% against expectation of 3.89%
Fortis Healthcare to buy Chennai-based Malar
Karuturi Networks shareholders approve $100mn fund raising plan
Gitanjali Gems enters into software, telecom business
NDTV, Astro launch news channel in Malaysia
Aurobindo gets UK-MHRA clearance for Unit VIIIMaruti receives 12,000 units export order from Indonesia.
|Power Grid Corporation is a great proxy to India’s power sector. Long-term investors can subscribe to its IPO.|
One of the best depictions of India’s power shortage was in the movie Swades. The residents of a village, who didn’t know what electricity was, assist actor Shah Rukh Khan to create a small power generation unit. The expression of curiosity on the old lady’s face before the bulb is lit and the 100-watt gleam on her face after the illumination is something that still needs to reach many parts of the country.
|This is better understood with statistics–we have one of the lowest per capita consumption of power. Besides domestic electrification, there is a huge demand for power from the industrial sector. And that is why the government is investing directly or encouraging private sector investments in power generation capacities.|
|Power transmission is the next step after generation, as the power needs to reach consumers. If new generation capacity is being set up, there is a need to transmit and distribute that capacity. Thus, companies operating in the generation sector will benefit.|
|Power Grid Corporation of India, the largest player in the power transmission sector, is coming out with an initial public offer of Rs 2,525-2,984 crore at a price band of Rs 44-52 per share. Like NTPC, Power Grid is a great proxy to India’s growing power sector. Its strong business model, operational efficiency and tariff based on assured returns on equity provide stable revenues and low risk. Besides, its huge future investment in the transmission sector will ensure long-term earnings growth.|
|“We think it is a good play on the growing power sector. The company is building about 31,000 km of transmission lines over the next five years. Compare this to the 68,000 km built over the last 60 years, and the number appears huge,” says Jigar Shah, director, KR Choksey.|
|Power generated at a plant is transmitted to a sub-station near a populated area. Due to the large amount of power involved, transmission normally takes place at high voltage (132 kV or above). Over a long distance, electricity is usually transmitted through overhead power transmission lines.|
|The company was incorporated in 1989 as a result of a government decision to form a national power grid. It managed the transmission assets of NTPC, National Hydro Electric, North-Eastern Electric and Neyveli Lignite till 1993, when these assets were transferred to Power Grid. Today, it owns and operates most of India’s inter-state and inter-regional electric power transmission networks—i.e from power plants to substations.|
|Power Grid generates about 90 per cent of its total income from transmission business. The company owns and operates 61,875 circuit km (ckm) of electrical transmission lines and 106 sub-stations. During FY07, the company transmitted about 298 billion units of electricity, representing about 45 per cent of all the power generated in India.|
|Sound business model|
|Power Grid has a strong business model with its transmission business providing stable returns with low risks. Central Electricity Regulatory Commission (CERC), which determines the tariff for the company, has stipulated an assured cost-plus-14 per cent return on equity. Besides, on the operational front, Power Grid has maintained an average system availability of above 99 per cent since FY02, leading to higher income under the incentive-based tariff structure.|
|Around 80 per cent of its revenue comes from the public sector state utilities, many of which have defaulted in the past. The company says about 105 per cent of the receivables are backed by letters of credit, and says that it manages to collect 100 per cent of receivables on a timely basis at present. Despite these measures, if state electricity boards default in future, the company could lose some money. Also, state electricity boards are in better financial health than in the past, so this risk is not too different today than in any other business.|
|With a large share in the transmission industry coupled with the expertise and operational efficiency, Power Grid has an important role to play in India’s growing power sector. Considering the growing economy this gap is further widening.|
India’s power generation capacity increased from 105,046 MW in FY02 to 132,329 MW during FY07 and is expected to reach 219,992 MW by FY12. This will also require large investments in power transmission for laying transmission lines across the country and inter-regional lines to facilitate distribution and ultimately providing power to consumers.
|The Eleventh Five Year Plan emphasises the enhancement of the national grid in a phased manner to increase the inter-regional power transmission capacity from 14,100 MW to 37,150 MW by FY12. This envisages an investment of Rs 1.4 lakh crore in the transmission sector in the Eleventh Plan. Power Grid targets an investment of Rs 55,000 crore as part of this plan till FY12.|
|Over the past four years, Power Grid has made a capital expenditure of Rs 18,248 crore. As on June 2007, the company had 45 transmission projects at various stages of development totaling to an investment of Rs 27,291 crore. These projects involve 30,536 ckm of transmission lines, which is 50 per cent higher than its existing capacity, as well as new substation capacities. The ongoing projects are scheduled to be completed by June 2009.|
|The successful implementation of these projects on schedule will translate into a total transformation capacity of 90,727 MVA (mega volt-ampere) by June 2009. Considering the FY07 realisation of about Rs 5.46 lakh per transmission MVA, the increased capacity has the potential of providing revenues of Rs 4,959 crore on completion, or 43.5 per cent higher than FY07 transmission revenues.|
|Besides, the company is also leveraging its capability and understanding of the transmission industry to diversify into the consultancy business. This accounted for 6 per cent of its FY07 total income and grew 46 per cent over previous year. Since 1995, this division has provided transmission-related consultancy services to over 90 clients involving about 200 domestic and international projects.|
|The company also facilitates the implementation of various government-funded projects for the distribution of electricity to end-users, such as the Accelerated Power Development and Reform Programme (APDRP) in urban and semi-urban areas and the Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY) in rural areas.|
|With its own overhead transmission infrastructure in place, the next logical step for Power Grid was to create a fibre optic cable network on this backbone. The company owns and operates a fibre optic cable network of over 19,000 km and connects over 60 Indian cities.|
The company leases bandwidth on this network to more than 60 customers, including major telecom operators such as BSNL, VSNL, Tata Teleservices, Reliance Communications and Bharti Airtel. This is the fastest growing business; it grew 106 per cent in FY07 y-o-y to Rs 77 crore. Since this business is new, it made losses till FY07 but has good potential. “We expect the trend to change from FY08 as the initial investment stage is over,” says, Misal Singh, analyst, Edelweiss Securities.
|At the lower end of the price band of Rs 44, Power Grid is priced at 1.3 times estimated FY08 book value and 1.2 times FY09 book value. At the upper end of Rs 52, the issue will be priced at 1.55 times estimated FY08 book value and 1.5 times FY09 book value.|
|Compared with the price-book value ratios of NTPC, Tata Power and Reliance Energy, which are trading at well above two times FY08E book value, Power Grid is cheaper. While valuing the company, some analysts also use the discounted cash flow approach.|
“We have a DCF value of Rs 62, which is 20 per cent higher then the price at the upper band” adds Edelweiss Securities’ Singh. Based on the price-earnings multiple, the issue is priced at 13-15 times FY08 and 9-11 times FY09 fully diluted estimated earnings. Power Grid provides a good opportunity for investors to capitalise on the infrastructure growth story.
|Issue opens: September 10|
Issue closes: September 13
|The demerger of Nicholas Piramal's R&D arm will improve cash flows and help the company focus on core business.|
First it was Dr Reddy’s followed by Sun Pharma to hive off their R&D units into separate entities. Now, Nicholas Piramal India too has joined this group of pharma companies trying to balance increasing R&D costs with rapid expansion of the core business. This idea is gaining further currency–Ranbaxy too is weighing its options on splitting R&D from its core manufacturing activity.
|The Mumbai-based company decided to demerge its R&D unit into a separate company called Nicholas Piramal Research Company (NPRC). With this demerger, the company will be left with two businesses – a domestic formulations business generating revenues of Rs 1,200 crore and custom manufacturing business with a turnover of Rs 1,100 crore. While Nicholas can now focus on improving its core businesses, why did it opt for separating its R&D arm and how do shareholders benefit?|
|The need for demerger|
|With all its five compounds in the research pipeline at the pre-clinical stage few years ago, Nicholas could fund its R&D costs from internal sources. Now, it has 13 compounds, four of which are in clinical stages. With R&D accounting for 5 to 6 per cent of sales (Rs 126 crore) and clinical stages accounting for two-thirds of the R&D costs, funding was becoming an issue.|
Says N Santhanam, CFO, Nicholas, “NPRC is expected to have a revenue expenditure of Rs 73 crore for FY08 which may move up to Rs 140 crore in the next fiscal depending on the number of compounds in the clinical phase.” After the demerger, NPRC can raise capital either by accessing the markets by way of listing or a rights issue; or by bringing in financial or strategic investors.
|Another reason for the demerger is that even though the company has a choice of out-licensing its compounds at an early stage, Nicolas has chosen to continue its development and bring the compound to market. Out-licensing is transferring costly clinical trials to another research company but retaining the patent, and sharing future revenues on the development.|
Nicholas believes that rewards would be optimal if it outlicensed after proof-of-concept stage which is the end of phase II clinical trials. For compounds such as cancer drug P-276, its best bet, the company may develop and market the product on its own as the patient size for clinical trials is a few hundreds and the drug needs a smaller team to market it.
|While shareholders will get one share of NPRC for every 10 shares held in Nicholas, a bank of 13 compounds at various levels of development and a few facilities, are there any growth prospects for the demerged research entity? The two sources of revenues for NPRC are from out-licensing its compounds or sales after the compound is launched.|
|In the best case scenario, the company expects to complete clinical trials for P-276 and launch it in FY11. Till then, it will have only expenses to show for its efforts, unless it outlicenses some of the compounds. Thus, shareholders aren’t going to get revenue growth in this high risk, high returns business of developing new chemical entities over the short term.|
|So how does the market value a pure research company? An indicator is the sole listed R&D unit, Sun Pharmaceuticals Advanced Research Company, the demerged R&D arm of Sun Pharma. This company got listed in July at Rs 87.20 and is currently trading at Rs 80 with a market capitalisation of nearly Rs 1,600 crore. It has one NCE lead, an antihistamine molecule, which is in phase II trials in the US and is few years away from being commercialised.|
|The market for the 13 compounds that NPRC is working on has a size of $48 billion, but it will be some time before benefits flow to the NPRC shareholders. But shareholders have the Nicholas Piramal stock to look forward to—it should clock 25 per cent growth over the next two years.|
|CMO and international operations|
|Thanks to the Morpeth acquisition in the UK last year, Nicholas’s custom manufacturing operations (CMO) business grew 41 per cent y-o-y in the first quarter. From a single customer — Pfizer – with which it has a supply arrangement till 2011, the company has added three more customers. This will help the Morpeth business to grow at 20 per cent and achieve operating margins of 15 per cent for FY08. The Morpeth facilities contribute 10 per cent to the total turnover.|
|The company has also been able to improve revenues at Avecia, its other UK operation acquired nearly two years ago. Says Santhanam, “A 20 per cent growth in revenues was achieved in the last fiscal by getting new clients and sourcing raw material from India.” This has resulted in cost savings and the business has turned around from a 13 per cent loss at the operating level to an estimated 5 per cent positive contribution in FY08.|
|Morpeth and Avecia’s Scottish operations are likely to be the growth drivers as far as Nicholas’ international operations are concerned with growth rates of 15-20 per cent. Going forward, the company expects the principal manufacturing centre of Avecia at Huddersfield in the UK to act as a feeder site for Indian operations. The share of Nicholas’s international operations would be around 25 per cent in FY08 revenues of around Rs 3,000 crore|
|The June 2007 quarter results have not been good for Nicholas Piramal. Due to government action on supply of codeine, sales of Phensedyl cough syrup slumped. This best-selling brand caused a top line erosion of Rs 25 crore and a Rs 15 crore drop at the operating level. But going forward, the management does not see any problems in sourcing codeine.|
After the demerger announcement of NPRC, Nicholas has raised its guidance from Rs 13 to Rs 17 for FY08 largely due to the reduction in R&D costs. At the current price of Rs 293, India’s largest Crams stock trades at 17 times its FY08 earnings, while peers in this category Divi’s (Rs 1210), Jubilant (Rs 291) and Dishman (Rs 310) trade at 31, 17 and 20 times their estimated current fiscal earnings.
|A dominant position in Mumbai and on-track expansion across the country gives Cinemax an edge over others.|
Over the past few weeks, the stock markets are reverting to the great Indian growth saga and those companies and sectors which are driven by the growth in domestic consumption are back in the limelight.
|As disposable incomes rise in the deep pockets of the country, the resulting spending spree is envisaged to be an unparalleled opportunity for sectors such as consumer goods, apparels, leisure and lifestyle. Among others, the multiplex players too are investing big bucks across the country to reap the resulting riches.|
|Players like Adlabs, Cinemax India, Inox Leisure and PVR Cinemas – all are racing to gain presence town and country. Cinemax India, which raised around Rs 138 crore via an initial public offering in order to expand its footprint out of Mumbai, appears to be well on track. A part of the Kanakia real estate group, the company is among the large multiplex operators with 39 screens and over 11,000 seats at 13 locations across Mumbai, Thane, Nashik, Himmatnagar (Gujarat) and Guwahati.|
|Mumbai is the largest contributing market to box-office revenues of movies in India, accounting for over 15 per cent box-office collections of all the Bollywood movies released. Cinemax is the largest operator in this regional market, as it has a majority of its operations concentrated in and around Mumbai and hence, stands to gain the most from its continuing demand. Of the total 39 screens, 31 are housed at 10 locations in Mumbai, Thane and Mira Road. Twenty-eight of the 31 screens are multiplex properties, spread across an area of over 155,000 square feet.|
|Beyond Mumbai, the company has plans to expand its reach in the northern and eastern parts of the nation.|
|Over the past 12-18 months, real estate prices across the country have zoomed out of the roof. The rise in real estate prices caused concerns of cost overruns of the rapid expansion plans of multiplex companies. “We have already signed up our properties for expansion well in advance,” claims Rasesh Kanakia, chairman, Cinemax.|
“Even though the overall property rates have gone up by about 10-25 per cent across different locations, we gain from a lag effect in the rates, from the time we sign up a property until the time a multiplex is launched. In addition, being an anchor tenant in a property, we can benefit from preferential rentals offered in the form of prime mover discounts, which ranges between 50-60 per cent,” adds Jitendra Mehta, chief financial officer, Cinemax. “So far, we have already signed up properties for 425 screens, which are expected to be up and running by FY11,” he adds.
|Over the past year, Cinemax has witnessed average ticket prices (ATPs) rising by nearly 19 per cent from Rs 105 in FY06 to Rs 125 over FY07. The average spend on food and beverages increased from Rs 21 to Rs 26 over the two fiscals. As a result, the average spending per head rose almost 20 per cent in a year. “We expect the ATPs to rise by about 15 per cent over the next year,” says Mehta.|
Further, footfalls too, are on a rise. For Q1 FY08, the footfalls increased by 7.1 per cent to 1.5 million over previous corresponding period. However, the average occupancy levels dipped during the quarter from 35 per cent over the same period last fiscal to 30-31 per cent. In defence, Mehta says: “During the first quarter this year, there were hardly any blockbuster releases. Further, with a greater number of Hollywood releases, the number of shows per day has gone up to five. If we calculate the occupancy rates in the traditional manner, considering the average number of shows to be four a day, the occupancy has actually risen.”
|Cinemax has come up with the innovative Red Lounge, which is a theatre with reclining seats and massage chairs, clocking an ATP of almost Rs 450. At present, there are two operational Red Lounges in Versova and Bandra in Mumbai. Now, the company plans to install one or two rows of reclining seats in each of its multiplexes, across all properties in order to boost its top line growth as well as profitability.|
|At present, the Cinemax stock trades at Rs 136 which is nearly 19 times estimated FY08 earnings, and around 14 times estimated FY09 earnings (See table: Running full house). With the demand going strong for all the multiplex players, and Cinemax’s execution of expansion well exceeding its plans, the company is on a good footing.|
The dominant position of the company in the Mumbai region gives it an edge over its peers such as PVR Cinemas and Inox Leisure, which trade almost at similar or slightly higher price-earnings multiples. While the global markets are in turmoil, Cinemax appears to be a good bet considering that the sector is entirely dependent on domestic demand and the widening middle class of the country
Humans are loss averse. And the individual, corporate and society, which understand it thrive despite odds.
“How did this stuff ever get published?" was what traditional economists asked when behavioural economists observed that human beings were loss averse. This aversion is at the heart of human psychology and asset pricing. And if professors are fighting over academic leadership over the subject you can understand why the only “loss” Google search can handle today is that of “weight”.
A weak job report on the last day of the week pulled down the US market considerably lower for the holiday-shortened week ended on Friday, 7 September, 2007. The indices had alternate bouts of journey during the four trading days of the week, rising on Tuesday, 4 September and Thursday, 6 September and skidding on the other two days.
The Labor Department's report on Friday showed that payrolls fell by 4,000 in August, the first decline since August 2003. It was well below analysts' expectations of a gain of 110,000. Unemployment rate held steady at 4.6% as expected.
The downward revision to both the June and July numbers totaling 81K further led to the negative sentiment among investors. July job growth was revised down to 68,000 from a previously reported gain of 92,000. June job growth was also revised down, to 69,000 from 126,000.
With the weak report, the major averages plummeted on Friday, 7 September, 2007 with the Dow Jones industrials falling nearly 250 points. The broader S&P 500 index fell 25 points and the Nasdaq composite index declined 49 points.
Twenty-nine out of thirty Dow stocks ended in red on Friday. Johnson & Johnson was the only stock to close marginally higher on that day.
The Dow Jones Industrial Average lost 245 points for the week. Tech - heavy Nasdaq lost 31 points and S&P 500 shed 20.45 points.
The month of September had kicked off on a strong note after Energy and Technology sectors helped the US market pushed stocks higher on Tuesday, 4 September, 2007. Stocks rallied inspite of the Institute for Supply Management reporting that its manufacturing index registered 52.9% in August, just shy of the consensus and down from 53.8% in July.
On Wednesday, 5 September, stocks fell once Federal Reserve’s Beige Book was released. The Beige Book suggested that the weakness in the economy is limited to two areas: residential real estate and motor vehicle sales. Renewed worries about credit markets and weak data on housing sector also took a toll on the stocks.
But on Thursday, 6 September, stocks got a good boost after Wal-Mart reported better than expected August same-store sales growth of 3.1%. Target too said same-store sales rose 6.1% during the month. The figures were of major importance as Costco had reported disappointing same store sales results for August just a day earlier reflecting increasing pressure on U.S. consumers.
Among other major stories during the week, Apple shares fell by almost 5% during the week. The company came under major firing from customers after the company dropped the prices of its new iPhone by $200 within two months of its launch.
On Friday, Apple CEO Steve Jobs asked for apology to original iPhone customers. He also added that Apple will give each of the early iPhone customers a $100 credit at the Apple store.
For the week, the indices closed down. DJIx was down by 1.9% and S&P 500 was down by 1.4%. Nasdaq was down by 1.2%. Market started off the week on a strong note but ended finally on a much weaker note.
The weak job report on Friday mainly pulled stocks down for the week. For the year, Dow is up by 5.2%, Nasdaq is up by 6.2% and S&P 500 is up by 2.5%.
It seems that investors are now in a dilemma about how to react to latest market news. On, one side, weak job report paints a weak picture for the economy. On the other, it might act as the main fuel to instigate Federal Reserve for a 25-50 bps rate cut in its forthcoming 18 September meeting. That will surely cheer investors.
Morgan Stanley research is bullish on Cairn India and has maintained overweight rating on stock with target price of Rs 191.
Morgan Stanley research report on Cairn India
We are increasing long-term earnings by 20% and upgrading Cairn India to Overweight and raising our price target to Rs191. Our global team has raised normalized long-term crude oil (WTI) price forecasts to USD65/billion from USD55/billion. Cairn is India’s most levered company to crude oil prices. At a 2008E EV/boe of 14.1x, Cairn trades in line with its global peers, though its major production is two years away.
However, on C2010 earnings it trades at 6x P/E compared to an average of 12-13x for its global peers, yielding attractive valuations. Cairn has underperformed the market by 20% since its listing, making entry look attractive at current levels. Mid-Cycle oil prices revised to USD65/billion – Our global team has raised normalized long-term crude oil (WTI) price forecasts to USD65/billion from USD55/billion, prompting us to also raise our 2007/08 assumptions from USD60/billion to USD65/billion.
We also factor in a weaker dollar and higher costs. We are also incorporating a weaker dollar and higher costs into our new estimates to reflect further tightening in the service industry. Every USD per billion change in crude oil prices changes Cairn’s earnings estimates by 3%.
As the Rajasthan crude is viscous in nature, handling is more difficult than for other crudes. Also, as it operates in an inland basin, the company has to create logistics handling systems to get the oil to its consumers. Finally, the amount of cess Cairn has to pay is unclear.
Cairn has an excellent track record, with three of the country’s seven landmark discoveries since 2000. It has made 30 hydro-carbon discoveries in India.
Overall, the company has working interests of 498 million boe of proved and probable oil reserves, and has the potential for 740 mmboe via enhanced oil recovery and resource optimization.
Our valuation methodology primarily assesses cash flow of individual fields owned by Cairn India based on its 2P reserves. For our base case, we used a 10.9% cost of capital in the initial seven years of the field.
Leverage on crude oil prices. If crude were to remain at USD70/billion in the long term, our price target would move to Rs210/share. Resolution of pipeline logistics.
Execution: Cairn faces the challenge of executing its projects in a timely manner. Crude volatility: Global crude prices are cyclical and volatile, so Cairn’s earnings, too, may correlate with sector cyclicality. • Crude oil sales agreement and pipeline logistics still not set.
Resistance Around 4534
Nifty — The index traded positive on the opening session of the week. It consolidated toward the opening sessions of the week and saw a rise toward 4548 toward the later part of the week. It ended the week up 45 points.
Momentum Oscillators — On the daily chart, MACD is in buy mode and has moved into positive territory. RSI (14) – Relative Strength Index is exhibiting a reading of 60.62 (reading above 70 signifies overbought). Stochastic (5,3) is in the overbought zone and in sell mode. Momentum oscillators suggest the index can consolidate at current levels.
Moving Averages — The 50 dma = 4397, 20 dma = 4321, 10 dma = 4432. Index has closed above the averages; intra-week declines should find support around the 50 dma levels around 4397. The key support for the week’s trading will be around the 50 dma; only a close below 4397 could see the index decline toward 4300 levels.
Resistance — The index faces resistance around 4534 (high of 31 July 2007). A close above the 4534 level with rise in volumes can see the index test the recent high around 4648. Until the index maintains below 4534 on a closing basis, consolidation can be expected.
Support — The index has support around the 10 dma and 50 dma in the 4432- 4397 band. Decline during the week's trading should find support around these levels.
Conclusion — Expect consolidation with support around 4397; close above 4534 will see the index exhibit strength during the week’s trading
Research: Merrill Lynch
CMP: Rs 612
Merrill Lynch has reiterated its ‘buy’ rating on Sterlite Industries. The company’s sustainable low-cost advantage implies that at Merrill Lynch’s long-term price forecasts, it will offer a high EBITDA margin of 57% in zinc and 29% in aluminium. Since Merrill Lynch has raised its estimates of metal prices as part of its global commodity price review, it has upgraded the company’s FY08E earnings per share (EPS) by 3% and FY09E EPS by 11%. In the near term, it offers a healthy compounded annual growth rate (CAGR) in volumes — 14% in zinc, 10% in aluminium and 11% in copper smelting. In addition, the management has a credible track record of project delivery and proven skills in identifying new growth businesses. It plans to increase its stake in its zinc subsidiary from 65% to 94% by the end of the year. Despite the company’s continuing hurdles in hiking stake in its other aluminium subsidiary, the probability of success is much higher in the case of zinc. This is due to precedence of a stake hike in ’03 and also because valuation may be more in sync with current market prices.
Bank of India
Research: IDBI Capital
CMP: Rs 249
Bank of India’s (BoI) Q1 FY08 results were impressive, with a 51% YoY jump in net profit. The loan loss provisions were lower, but were 18% higher YoY. Strong growth in net interest income (NII) and other income, and lower operating expenses boosted the bank’s operating income by 45% YoY.
The bank is likely to maintain its performance with strong business growth, robust margins and good growth in fee income. Operating expenses in FY08 may show a modest growth as a major part of core banking solutions (CBS) expenses were booked by BoI in FY07. The bank maintains a large workforce; it has a substantial branch network and overseas operations and has more than 1,100 branches out of a total 2,845 (including extension counters) under CBS.
The bank has good asset quality with gross non-performing assets (GNPAs) at 2.3%, while net NPAs are at 0.69%. BoI has tried to maintain most of its retail portfolio collateralised. This gives comfort on the asset quality front, going forward. Given the bank’s profit growth, its average book value (ABV) is likely to increase to Rs 130-135 in FY08. Hence, BoI’s fair value lies in the Rs 270-280 range.
Research: HSBC Global
CMP: Rs 780
HSBC Global has initiated coverage on GMR Infrastructure with ‘underweight’ rating. The company has a risk-mitigation strategy with a good mix of assets under operation and under-development across different sectors and a diverse list of clients.
The airport business has also benefited from real estate appreciation as GMR has 1,250 acres of land on a 60-year government lease, ready to be developed commercially as the Delhi and Hyderabad airport projects. HSBC Global estimates that this real estate contributes 41% to the company’s overall valuation. GMR has expanded outside India and has 40% equity stake in a consortium that has won a contract to operate Sabiha Gokcen International Airport (SGA) in Istanbul.
The company is trying to turn around its power portfolio, changing its strategy to focus on assured fuel supply. In the roads sector, GMR has unlocked value through financial engineering and securitising receivables. The company’s business fundamentals remain strong, but its valuation has run ahead of its one-year earnings prospects. HSBC Global has valued all of GMR’s projects as most of them are for fixed duration. Based on this, the company is valued at Rs 19,710 crore, or a per-share value of Rs 595 — 20.5% below its current share price.
Research: Goldman Sachs
CMP: Rs 181
Goldman Sachs has revised Cipla’s rating with a ‘sell’ recommendation based on the company’s guidance of lower profit for FY08. Even after Cipla’s recent underperformance (down 23% in the past three months), it is one of the most expensive stocks. It trades at a 31% premium to its peers on FY08E EV/EBITDA and has a P/E growth of 1.9x versus a sector average of 1.3x.
The stock has an implied growth rate of 18% versus the forecast of 13% sales growth over FY07-FY10E. Cipla’s premium rating reflects a de-risked business model (the management has been adverse to high-risk patent challenges) and a track record of delivering consistent growth in sales and earnings. The ‘sell’ recommendation for Cipla is based on the view that its track record is under pressure from higher overheads and a deteriorating business mix. Goldman Sachs believes Cipla will underperform its peers as the market narrows its premium in the face of slower growth and lacklustre margins.
CMP: Rs 305
Citigroup has revised Punj Llyod’s rating with a ‘buy’ recommendation. It has revised earnings by 14-16% over FY08E-10E on the back of: (1) 73% YoY sales and 101% YoY PAT growth in Q1 FY08; (2) 22% higher sales growth on faster execution of orders and 50 bps higher margins in Punj; (3) Dilution because of the recent equity placement and promoter warrants. L&T’s order backlog is 2.7x that of Punj Lloyd + Sembawang Engineers & Constructors, but its market capitalisation (m-cap) is 7.5x and is 32% more expensive than Punj Lloyd.
Citigroup expects this valuation and m-cap gap to narrow as it forecasts that Punj Lloyd will start delivering earnings growth at a pace superior to that of L&T over the next three years. Punj Lloyd is perhaps the only mid-cap engineering & construction company that can leapfrog into the next level, which is occupied by L&T with its diversified skill sets. The first sign that Punj Lloyd can actually deliver on its potential came when the company reported Q4 FY07 PAT of Rs 88.9 crore. In FY07, Punj Lloyd acquired Sembawang Engineers & Constructors, which scaled up its expertise to upstream oil & gas, airports, jetties and tunnelling.
Transport Corp of India
CMP: Rs 115
SSKI has initiated coverage on Transport Corporation of India (TCI) with an ‘outperformer’ rating. TCI, one of the largest cargo transportation (trucking) companies in India, occupies a 15% market share in the organised sector. It has built strong infrastructure in terms of a wide network (over 1,000 destinations), warehousing space (6.5 million sq ft) and tracking technology. This has enabled the company to grow at a strong pace in the transportation division and enter the fast-growing express distribution business.
TCI has also diversified into coast-to-coast shipping, rail and over dimensional cargo (ODC) to capture growth in these segments. In order to emerge as one of the largest supply chain solutions (SCS) providers, TCI is investing heavily into warehouses and trucks, which will enable its SCS revenues to witness 55% CAGR over FY07-09E.
TCI is trading at 12.8x earnings and 7.4x EV/EBITDA for FY09E (adjusted for Rs 15/share real estate value). The valuations are attractive, considering robust 28% earnings CAGR over FY07-09, TCI’s strong position in the express distribution (XPS) business, its ability to ramp up its SCS business at a fast pace and the fact that it trades at a 10-15% discount to its peers.