Saturday, December 22, 2007
The key stock market indices - the Sensex and the Nifty - dropped over 4% each during the week ended December 20 as foreign institutional investors (FIIs) sold heavily to meet their redemption pressure.
FIIs pulled out over Rs 5,400 crore (including Thursday's provisional figures) from the cash market, and sold shares worth Rs 2,445 crore in the futures & options segment.
The Sensex logged the second biggest fall of 769 points in absolute terms on Monday reacting negatively to the global meltdown. The Sensex finally ended the week at 19,162.57 - a net fall of 868.26 points (4.33%) from the last weekend close of 20,030.83.
The Nifty dropped 281.20 points (4.65%) to close the week at 5,766.50 as against the previous weekend close of 6,047.70.
FII Gross purchases Rs 2585 Cr, Gross sales Rs 3678 Cr, Net Sellers Rs 1093 Cr.
MF Gross Purchases Rs 1055 Cr, Gross Sales Rs 932 Cr, Net Buyerss Rs 123 Cr.
Jitters from the global front continue and they are one of the primary reasons for the FII’s to sell. The direction is still not clear. Holiday mood would add to the choppiness and keep the markets ranged. F&O expiry scheduled next week would add to it. Stock specific approach is advocated at this point. Slow down in the mid cap counters can be considered as an buying opportunity for the long term investors.
Boosted by dollar weakness and rising crude, gold gains more than 2% for the week
Precious metals ended higher today, Friday, 21 December, 2007 after the dollar slipped against almost all its rival currencies barring yen. The greenback fell despite a strong economic report suggesting higher consumer spending in the US. Though this suggested that Fed might not be heading for another interest rate cut, it pushed up crude prices considerably higher today. Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength.
Comex Gold for February delivery rose $12.2 (1.5%) to close at $815.4 an ounce on the New York Mercantile Exchange today. For the week, gold gained $17.4/ounce (2.2%). Last week, prices rose by almost 0.3% ($2.2/ounce). On, 7 November, prices had touched $848/ounce. It was the highest price after a record $873 on 21 January, 1980.
Comex Silver futures for March delivery rose 14.8 cents (1%) to $14.488 an ounce. Silver prices have been rallying since the past three days as copper prices rallied. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 12% this year.
Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.
In the currency market today, The dollar gained on the yen but gave up a bit of ground to other major rivals in thin pre-holiday market conditions.
In the energy market, oil prices ended marginally lower today after going through some volatile session. Price closed lower by 20 cents at $91.04/barrel. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.1% at 77.70.
Gold had climbed 27% this year till date as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Dollar is still 9% down against the euro this year.
In 2006, silver had jumped 46% while gold gained 23%.
Strong data on US consumer spending for the month of November, 2007 pushed up crude prices considerably higher today. Crude oil prices rose more than $2/barrel after data showed that US consumer spending in November was strongest in last two years. This gave rise to speculation that demand from world’s largest oil consumer will not be slowing in coming months and that’s why crude rallied. A weak dollar also contributed to the rising crude.
For the day ending Friday, 21 December, 2007, crude-oil futures for light sweet crude for February delivery closed at $93.31/barrel (higher by $2.25/barrel or 2.5%) on the New York Mercantile Exchange. Futures rose as high as $93.84 earlier in the day. Prices are 53% higher than the year before.
The Commerce Department reported today that U.S. nominal consumer spending increased 1.1%, the most in two and a half years. This was against an expected figure of 0.9%.
In the currency market today, the dollar gained on the yen but gave up a bit of ground to other major rivals in thin pre-holiday market conditions. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.1% at 77.70.
Brent crude oil for February settlement today rose $1.58 (1.7%) to $92.46 on the London-based ICE Futures Europe exchange.
Today, January natural gas rose 5.3 cents to $7.190 per million British thermal units. Yesterday, the EIA reported today that U.S. natural gas inventories dropped 121 billion cubic feet to 3,173 billion cubic feet in the week ending 14 December, less than expected figure of 129 billion cubic feet.
Against this backdrop, January reformulated gasoline rose 5.19 cents to $2.3795 a gallon and January heating oil edged up 1.96 cents to $2.6091 a gallon.
As per EIA, global oil markets will likely remain tight through 2008 and monthly average oil prices are expected to near $85 per barrel over the next year. The IEA, an adviser to 27 nations, said global demand in 2008 will rise 2.5% to 87.8 million barrels a day.
Target Price: NA
CLSA has initiated coverage on Bharti with a ‘buy’ rating on the back of expectations that the company would do well as India’s mobile subscriber base is set to grow at 33% CAGR to 383 million by FY10, implying a penetration of 31%.
“Bharti’s subscriber growth is on track to meet our forecasts of 108 million by FY10 CL and despite an intensely competitive environment, it has raised market share (up 200 bps y-o-y) as well as expanded margins (368 bps y-o-y to 42.8% in Q208).” The success of Bharti’s growing suite of value-added services will aid in mitigating ARPU decline.
The company’s key strengths are management’s proven execution skills, nationwide GSM network and a strong brand, the report says. “The outcome of key pending regulatory issues remain uncertain with the expected long drawn-out legal battle. However, if Trai recommendations on spectrum are implemented, Bharti’s FY09-10 EPS would be hit by 4.4-5.5%, which will be offset by impending upgrade following the positive surprise in the Q2 EBITDA margins,” the report said.
Target Price: Rs 195
Citigroup has assigned a ‘sell’ rating on IDFC, taking into consideration the high valuation of the stock. The brokerage has, however, lowered the target price to Rs 195 on higher earnings, core business multiples, returns on P/E business and unrealised equity gains.
“Our quantitative team puts the stock in the glamour quadrant — momentum, but low relative value, which also suggests little room for valuation upsides,” the report says. As far as reasons for selling goes, valuations at 3.5 times FY09 PBV (price-to-book-value) are high relative to returns. Relative to private banks, we believe IDFC should trade at a discount to quality private banks.
“We are not arguing against the business. But key risks include continued low interest rates, steepening yield curve, strong capital markets, regulatory easing on NBFCs and higher premium on opportunity and quality management,” the report adds.
Target Price: Rs 88
IL&FS Investsmart has assigned a ‘buy’ rating on SpiceJet, which is expected to capitalise on emerging opportunities in the domestic aviation industry. The brokerage expects the airline’s sales to jump by 81% CAGR, from Rs 6,40.4 crore in FY07 to Rs 2,102.7 crore in FY09 and to see a turnaround in EBITDAR (before lease rentals) level from losses of Rs 27.4 crore in FY07 to a profit of Rs 419.7 crore in FY09.
“This is on the back of strong operational performance and also on the launch of additional sectors. Favourable industry scenario includes a booming economy, route expansion, surging demand from the Indian middle class and growth prospects in the domestic aviation industry,” the report said.
Target Price: Rs 474
Kotak has initiated coverage on Colgate Palmolive (CPIL) with a ‘buy’ rating. The brokerage expects the company to do well on low-penetration levels of oral care and growing awareness in the semi-urban and rural Indian markets.
According to Kotak, CPIL has consciously undertaken rural initiatives and entered into strategic tie-ups to increase its reach in lowly-penetrated areas. “We are projecting the net profits to grow to Rs 238 crore in FY08E and to Rs 283 crore in FY09E. This delivers an EPS of Rs 17.5 and Rs 20.8 in FY08E and FY09E, respectively,” the Kotak report said.
According to Kotak, low-penetration level of toothpastes, toothbrush and dentifrices in semi-urban and rural India will keep up the demand for toothpaste. Rising oral healthcare awareness and affluence levels will accelerate the growth.
“At current price, CPIL is trading at 22 times and 19 times FY08 and FY09 EPS estimates of Rs 17.5 and Rs.20.8, respectively. After the share capital reduction that took place recently, the company enjoys a leaner balance sheet and has a negligible debt position. We initiate a ‘buy’ on the stock with a price target of Rs 474 over a 12-month period. At our exit price, the stock will trade at 23 times FY09 earnings,” the report said.