Sunday, May 24, 2009
Satyam Computer is likely to sack most of its non-billable staff of up to 8,000 working in marketing, HR and administration wings
A Satyam official said there is no doubt that there will be large-scale sacking mostly of the support and non-billable staff (other than hardcore software engineers) once Tech Mahindra (the new owner of the company) directors come on board from June 1.
The surplus staff is about 10,000-12,000 and the 'least painful' ways of sacking is asking the bench, non-billable and support staff to go.
The company spokesperson, when contacted, said that at the moment these are mere speculations.
Sources also said the outsourcer may opt for "virtual pool" sacking method whereby the company would ask some of the staff to take 75 per cent of its salary and take one-year off and look for a job elsewhere with the fragile assurance that they would be recalled, if required.
Tech Mahindra CEO Vineet Nayyar, who will also come on board of Satyam from June after it acquired fraud hit company last month, had said last week that Satyam has about 10,000 surplus staff and "we are looking at the least painful ways to tackle the problem."
Satyam has already called back most of its onsite staff to avoid further costs and most of them may be asked to quit, said the official.
About 3,000 people are on the bench and there is a surplus manpower even in the R&D and engineering units, sources said.
Dwindling revenues are the primary reasons for Tech Mahindra to opt for such a cost-cutting measure, Tech Mahindra official said.
Kiran Karnik, chairman of Government-appointed board of Satyam, said revenues are falling and cost-cutting measures have to be taken up. But he had ruled out lay-offs.
A healthy order book, improved volumes in the March quarter, low debt and revival in activity in the transmission and distribution space buttress the earnings visibility for Voltamp Transformers. Investors with a two-three-year perspective can consider investing in the stock of Voltamp. At the current market price of Rs 691, the stock trades at seven times its expected per share earnings for FY-10.
Given the recent surge in the stock market and the consequent run up in the stock of Voltamp, investors can consider buying the stock in small quantities on declines linked to broad markets. Note that the stock’s small market cap can expose it to higher volatility in price.
After a dip in revenues in the December quarter, Voltamp’s sales once again picked up in the three months ended March ‘09 with a 23 per cent increase over a year-ago numbers. Net profits too grew at a healthy pace of 40 per cent compared to March 2008 quarter.
The key positive aspect of the result is the improvement in volumes. Sales in MVA terms rose by 27.5 per cent to about 2450 MVA, suggesting that the order execution has gained pace. Realisations, however, dipped marginally to Rs 6.7 lakh/MVA. This decline, perhaps a result of an aggressive pricing policy despite the slowdown, may continue for the next couple of quarters until industrial demand revives.
Realisation from orders
Unlike a good number of transformer companies, Voltamp has traditionally received over 90 per cent of its revenues from industries such as pharmaceuticals, power, automobiles and metals. Larsen & Toubro, Reliance Industries and Jindal Steel are some of its customers. However, as capex plans across sectors have been curtailed over the last few quarters, Voltamp has begun to selectively explore opportunities to sell to state utilities.
The current order book of Rs 450 crore (8,340 MVA) includes orders from SEBs as well. The realisations from these orders could be less attractive than historical realisations. However, the shift in focus from industrial orders to SEBs was inevitable in the current slowdown.
While realisations and profitability could suffer in the next six-eight months (0.7 times FY-09 net sales) when these orders translate into revenues, we believe that for a small company like Voltamp, holding on to volumes may be a higher priority than profit margins to manage competition.
Further, given that the company enjoys superior profit margins to players such as Bharat Bijlee or Emco, the profitability may yet remain superior to the industry average.
A move to higher margin industrial orders appears possible in the second half of FY-10 given the indications provided by some industries regarding their capex plans. That the company has gone ahead with its plan to expand capacity by 4,000 MVA to 13,000 MVA (after putting it on hold for sometime) also suggests that it may have received positive feedback from customers. At least a part of this planned addition is expected to be operational by the second half of FY-10.
Voltamp’s ability to manage its expansions so far with internal accruals, appears commendable given the stiff working-capital conditions prevailing for the transformer industry. This feature not only adds strength to the balance-sheet but also ensures that borrowing costs do not strain profits in future.
A key macro pointer to a revival in the transmission and distribution industry is the increase in orders awarded to T&D companies from Power Grid Corporation since January. Stability at the Centre, post-elections, is also likely to ensure that the order flows are not disturbed.
After cooling off in December, raw material prices, especially that of copper, have been increasing steadily since January. A continuation of this trend could lead to a marginal dent in profit margins.
Investors can retain their holding in HCL Infosystems, keeping a two-three-year horizon, in light of the company’s ability to tap into domestic IT hardware market, especially from the government and banking sectors.
At Rs 115, the stock trades at nine times its likely 2008-09 per share earnings, which is about the levels which its peer CMC is trading at despite the fact that the latter enjoys much higher profit margins. HCL’s EBITDA margin stands at 4 per cent as against the 22 per cent margins enjoyed by CMC.
The HCL stock, however, gave a dividend yield of nearly 5 per cent at its current market price. Hardware, especially personal computers, shipments have gone down significantly in October-December 2008 for most players across the world and may take a few quarters to pick up. Penetration levels in PC, telecom and office automation products in India, are still very low in India and hence the demand is likely to be much higher compared to western geographies.
Given that HCL Infosystems continues to make inroads in most e-governance initiatives and win substantially large deals (in the range of Rs 500 crore), its intact leadership in desktop PC sales in India and improved contribution to revenues from high-margin services component augur well for revenue visibility and margin expansion. These apart, the company’s partnership with Nokia (leader in domestic mobile handsets) for handset distribution, which now includes selling Nokia’s value added services, may provide volume growth given that mobile subscriber addition is still robust.
In the recent March quarter, HCL saw its revenues grow by a marginal 0.5 per cent to Rs 2,996.2 crore over the same period in 2008. But in terms of segmental revenues, its computer systems and products division has witnessed a 5 per cent growth in revenues over this period. But revenues from its telecom products and office automation division, which predominantly involves reselling of hardware has witnessed a marginal decline.
Computing products and solutions shine
HCL continues to be among the top three players in the Indian computer sales (desktops and laptops) business. It enjoys a combined market share of 9.6 per cent in computer sales and shares the top slot with HP in desktop sales with a 10.6 per cent market share, according to a recent IDC report. Given that laptop sales are increasing and the fact that HCL has tied up with Microsoft to provide low-cost laptops (which enjoys higher margin), there is scope for profit margin growth.
According to IDC, the domestic IT Hardware market in 2009 is expected to grow by 7.1 per cent over 2008 to Rs 63,703 crore. This is likely to be driven by government spending on IT enablement across various ministries, e-governance initiatives and spending by verticals such as banks, power, railways and the like. HCL Infosystems with existing relationship is likely to gain substantially from catering to these segments.
Recent large deal executions for various segment such as the railways for ticket-vending kiosks, BSNL for convergent billing and the Airforce for building VoIP network, Himachal State Electricity Board for billing solutions, meter reading etc, a government of India project executed in Africa are testimony to the fact HCL has a wide-ranging capabilities across sectors. Most of these deals are over Rs 100 crore; some of them are very large in the Rs 500-crore category.
In the private sector, the company has deal wins from several banks and insurance companies and media and entertainment companies (including broadcasting) which are end-to-end in nature and provide long-term revenue visibility.
The repeat order scenario also looks favourable to HCL. These include orders from the railways, banks, insurance companies, state electricity boards and media companies. HCL has also won a deal to automate judiciary operations across the country.
In all these cases, given the transaction intensive nature of businesses, HCL may benefit from updates and upgrades that may be required periodically.
Another interesting development over the last one year has been the thrust on system integration based deals that involve substantial service components and enjoys relatively higher margins. In the recent March quarter, services revenues were up by 48 per cent over 2008 and stood at Rs 193 crore.
Finally, with the re-election of the UPA government, e-governance initiatives may continue at a faster clip, which gives HCL an edge in furthering its relationships,
Telecom products to drive volume growth
HCL’s distribution of Nokia handsets albeit within a smaller geography may rake in volume led growth for the company. The fact that telecom operators continue to add around 8-9 million subscribers every month, further amplified over the last four-five months after Reliance Communications’ GSM foray, may bode well for the company as Nokia enjoys market leadership in the mobile handset space.
The relationship between Nokia and HCL is set to strengthen further with the formation of a JV that would be engaged in selling value added services for mobile customers.
The company sells a whole host of ‘digital lifestyle’ products of global brands such as Apple, Ericsson, Kodak, Microsoft, and Toshiba.
Recently, it has tied up with Cisco Linksys, for distributing networking products. Although hardware sales around the world may slow down, in India, this may not be as pronounced, given that IT and hardware enablement is still nascent.
Competition in government deals, especially from Wipro Infotech which has won a large number of such orders, is a factor to watch out for. CMC which has shifted focus from pure hardware sales to system integration deals may offer price competition.
Investors can consider buying the Rural Electrification Corporation (REC) stock as it has immense growth prospects. However, phased buying is recommended given the run-up in PSU stocks and the likelihood of a volatile market. The NBFC has managed a high rate of growth, thanks to a transition from being a rural electrification financier to a player with a presence across the power value chain. REC’s advances have grown at 19 per cent compounded annually in the 2003-08 period. At the current market price of Rs 138, REC trades at 1.85 times its estimated book value and 9.9 times its estimated 2008-09 earnings. Secured lending (more than 90 per cent advances backed by government guarantees), improved asset quality (0.13 per cent gross NPAs in December 2008), sustainable spreads (3 per cent) on the back of low-cost borrowing and zero mandatory reserve (it doesn’t fall under RBI supervision) requirements, are key positives for the company, relative to other financial stocks.
REC acts as a nodal agency for the APRDP-II programme and the Rajiv Gandhi Grameen Vidhyuthikaran Yojana (RGGVY, outlay of Rs 33,000 crore), which ensures steady demand for funds. Its cost of funds is low (at 7.7 per cent), as 34 per cent of the borrowings come from tax-free bonds. The rest of the borrowings also come at relatively low rates, given the sovereign bond rating. REC is also assured of good appetite for its bonds, as some of these issuances (for example, energising pumpsets) are eligible for priority sector lending by banks.
REC’s net profit for first nine months of 2008-09 (March numbers yet to be declared) grew at 44 per cent, aided by improving spreads and advances growth. Its ability to source funds at low cost and also lock into loans at higher rates, led to margins expanding to 3.24 per cent. The management envisages a 4 per cent spread for the March quarter. Yields may see improvement as loans amounting to Rs 2,800 crore and Rs 7,800 crore are coming for reset in rest of FY2009 and FY2010.
Disbursals have grown at 50 per cent over last year and REC expects to disburse Rs 17,000 crore by end of the year. As of December 2008, the gap between sanctions and disbursement widened further to Rs 1,20,000 crore, and stood at 2.4 times its outstanding borrowing. The gap points to strong advances growth in coming quarters. The advance book is skewed towards the transmission projects (50 per cent of the total advances) with a higher percentage of incremental sanctions to be given to the generation sector.
Interest cost may see some increaseas the proportion of 54EC capital gain bonds is coming down. Delays in projects may affect profitability and could also require restructuring. Disinvestment by the Government (currently holds 82 per cent in REC) will be a positive trigger to the stock, improving liquidity.
Investors with medium-term perspective can consider buying Aries Agro. The long-term downtrend in the stock halted in March 2009 and a nascent uptrend is on since then. Prolonged positive divergence in the weekly oscillators implies that the stock could have formed a sustainable trough at Rs 24.5 in March. That the stock has penetrated its long-term down trend-line recently is also a positive from a long-term perspective.
Medium-term investor can accumulate the stock in the range between Rs 35 and Rs 48 with a stop at Rs 24. Once it breaksout beyond Rs 56, the stock has the capacity to rally to Rs 80 and Rs 110. Short-term investor can buy with the target of Rs 55 and stop at Rs 36
Fears of future inflation and ongoing financial uncertainty saw investors continue to flock to gold in the first quarter of 2009, seeking out its proven wealth preservation qualities. Total demand for gold in Q1’09 rose 38% year on year to 1,016 tonnes, representing a 36% rise in value terms to US$29.7bn.
According to figures published today by World Gold Council (WGC) in its Q1’09 Gold Demand Trends report, identifiable investment demand for gold, which includes exchange traded funds, (ETFs) and bars and coins, was the major source of growth in the quarter, reaching 596 tonnes, up 248% on Q1’08.
The figures, compiled independently for WGC by GFMS Limited, reveal a record level of investment into ETFs with demand soaring 540% to 465 tonnes at a value of US$13.6bn.
Net retail investment (total bar and coin demand) remained highly robust, rising 33% year on year to 131 tonnes, despite some bar and coin dishoarding in eastern markets as investors took profits. Germany was the single biggest bar and coin market in Q1’09, where demand rose 400% on Q1’08 to 59 tonnes, with inflation concerns being a key buying motivator. Switzerland was the second largest bar and coin market, up 437% to 39 tonnes on Q1’08, followed by the US, rising 216% to 27.4 tonnes.
The impact of the recession on consumer discretionary spending continued to take its toll on both jewellery and industrial demand. Gold jewellery demand was down 24% on year earlier levels, with most countries suffering a decline as consumers responded to the high and volatile gold price, which reached record levels in some countries, compounded by difficult economic conditions. China bucked this trend recording a positive 3% growth in jewellery demand. This reinforces the view that China’s economy, although unquestionably suffering from a sharp deceleration, nonetheless remains resilient relative to most other nations.
Total demand in India, traditionally the world’s largest gold market, declined significantly under pressure from record rupee prices and a major deterioration in the domestic economy. Demand fell 83% on year earlier levels to just 17.7 tonnes.
Industrial demand for gold in Q1’09 was 31% down on Q1’08, with the electronics sector being the major contributor to this decline. End user demand for electronics goods has been badly affected by the downturn in consumer spending on items such as laptops and mobile phones.
Aram Shishmanian, CEO of World Gold Council, commented:
“There has been a seismic shift away from capital appreciation towards wealth preservation and we believe this trend will define investment behaviour in the next decade. Gold, as one of the few assets that has held its value during the current economic crisis, has been sought out by investors who are drawn to its proven protective attributes as well as safeguarding themselves from the erosive effects of future inflation.
“The shift in the balance of demand that we have witnessed this quarter, where the gold price has risen despite a severe drop in jewellery and industrial demand, perfectly demonstrates the robust nature of gold’s fundamental supply and demand dynamics. While jewellery demand is unlikely to return to more positive territory in current market conditions it remains a key market driver. Affinity for gold jewellery remains and we are confident that demand will grow as consumer confidence and purchasing power returns.”
Demand in the Middle East in Q1’09 was down 26% on Q1’08 to 53.6 tonnes. Both jewellery and investment recorded similar declines in percentage terms (-26% to 49.5 tonnes and -28% to 4.1 tonnes respectively). With 90% of total consumer offtake in the region in the form of jewellery, this decline was largely down to the combination of the high gold price and a tightening of consumer spending.
In the US, total demand for gold was 15% higher than in Q1’08 at 55.2 tonnes, driven by retail investment demand which rose 216% to 27.4 tonnes. Conversely, difficult economic conditions continued to weigh heavily on jewellery demand, which fell 30% to 27.8 tonnes.
Total supply surged 34% on the same quarter last year to reach 1,144 tonnes in Q1’09. With a 55% increase on Q1’08 to 558 tonnes, the primary source of the increase was scrap gold coming back into the market as high prices and difficult economic conditions encouraged record levels of recycling. Also contributing to the increased supply was a sharp slow down in the levels of producer de-hedging (from -129 in Q1’08 to -10 in Q1’09). Mine production was relatively stable, increasing by just 3% to 560 tonnes while lower levels of central bank sales, which fell 54% to 35 tonnes, had a dampening effect.
The full First Quarter 2009 Gold Demand Trends report can be viewed at: http://www.research.gold.org/supply_demand/
Japan's economy contracted at a record pace in the first three months of the year as domestic demand continued to slide and exports too remained weak amid a worldwide economic downturn, official data showed. The world's second-largest economy has now shrunk for a record four quarters in a row. Gross Domestic Product (GDP) in Japan declined at an annualised rate of 15.2% in the January to March period, or 4% from the previous quarter, according to the preliminary data released by the Cabinet Office. The contraction marked the quickest pace since comparable data were available in 1955. The drop followed an annualized fall of 12.1% in the October-to-December quarter and a revised decline of 3.8% in the fourth quarter of last year. The official first-quarter GDP reading was still better than economists' forecast. On average, economists had expected an annualized 16.5% drop and a decline of 4.4% on the quarter.
Ahluwalia Contracts India (ACIL), a long-established construction contractor, operates primarily in the commercial, residential and industrial contracts space. The stock, at its current price of Rs 62.3, trades at 6.5 times its trailing four-quarter earnings. Investors with a two-three year perspective can consider buying the stock of ACIL
The current price provides a good entry point for this construction contractor. A healthy — and growing — order book of Rs 4,143 crore, expanding margins, execution capabilities across a wide range of projects and low debt levels provide earnings visibility for this company.
ACIL started out as a pure-play civil construction contractor, later migrating to new avenues with the result that it picked up a broad mix of projects. Besides turnkey construction services primarily in the commercial and residential space, the company has a ready-mix concrete division (now hived off into a wholly-owned subsidiary), project design consultancy and electro-mechanical works. A separate subsidiary deals with aluminium works.
Government contracts, which make up 27 per cent of the order book of Rs 4,143 crore (as of March 2009), may be a key focus area for the company in the coming quarters. This could be a positive at a time when order flows from private players remain sedate. Electrical and plumbing contracts form 4 per cent of the order book, with the remaining 69 per cent from private players.
Skewered towards real estate residential projects (which form about a third of the order book), a fair bit of projects are industrial and commercial in nature, countering, to an extent, the currently tepid residential real estate. The company also aims to reduce its dependence on residential real estate.
To this end, ACIL’s wide-ranging project portfolio could give it a leg-up in the infrastructure space. It has started on BOT project bids and has secured one, involving development of bus depot and commercial complexes at Kota. It also has an order for the construction of a passenger terminal for the Birsa Munda Airport, Ranchi.
Growing order book
ACIL’s order book, on an average, has a timeline of 24 months, throwing good light on future earnings. In the past two months alone, the company has announced projects worth Rs 572 crore. The March ’09 order book has grown 32 per cent in the year 2007-08 and now stands at 4.7 times FY-08 sales.
Sales grew at a CAGR of 43 per cent in the past three years, while profits posted a growth of 116 per cent on account of improved operational efficiency.
Quarterly growth, too, has been healthy; the company posted 30 per cent plus growth rates in sales and over 15 per cent growth in net profits in the quarters between April and December 08 (March ’09 quarter and FY 09 results will come out in late June), among the highest related to its peers.
Returns — on capital employed and net worth — have been on an upswing, the former moving up from 28.5 per cent to 56 per cent in the space of three years (2005-08); with the latter up from 16 per cent to 51 per cent in the same period.
Margins have shown a marked improvement as well. At the operating level, they moved from 6.3 to 12.8 per cent and from 1.7 to 5.8 per cent at the net profit level in the years between 2005 and 2008. On a quarterly basis, margins slipped in the September ‘08 quarter compared to the same period in the previous year due to higher raw material and employee costs, but picked up again in December.
Relatively low debt levels (debt-equity ratio was 0.5 times as of March-08) and positive operating cash flows to leverage further to fund projects. Capex for the year, though, was revised to Rs 50 crore from the earlier Rs 75 crore, suggesting a more cautious approach on the back of an economic slowdown and funding constraints.
Delays in payments led to an extension of the working capital cycle from 75 to 90 days between September and December 2008. Turnover of assets has also been on the wane, moving from 6.7 times in 2005 to 5.8 times in 2008. Depreciation and taxes have consistently chipped away a good part of margins for the past few quarters.
The company may yet face trouble on its residential project portfolio given that the sector is yet to demonstrate clear signs of a revival. The company may also have to depend on consortiums for the time being to gain a firm foothold in BOT projects in the infrastructure space. This may lead to less lucrative returns until it gains independent qualification.
Standard & Poor's (S&P) cut its credit-rating outlook on the United Kingdom to 'negative' from 'stable' though it affirmed the country's 'AAA' sovereign credit rating. "We have revised the outlook on the UK to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term," S&P credit analyst David Beers said. "We base our opinion on our updated projections of general government deficits in 2009-13. These projections reflect our more cautious view of how quickly the erosion in the government's revenue base may be repaired, the extent to which the growth in government spending can be curtailed, and consequently the pace at which historically high fiscal deficits are likely to narrow," Beers said. Britain’s top-level credit rating is more likely to be cut by S&P, as the government’s finances deteriorate amid the worst recession since World War II. The British government’s budget deficit this year will reach 175 billion pounds (US$273bn), or 12.4% of gross domestic product (GDP). The UK plans to sell a record 220 billion pounds of bonds in the fiscal year through March 2010.
Punj Lloyd has decided to quit the real estate business by ending its two-year-old joint venture with realty firm Ramprastha group. Punj Lloyd will sell it’s 50% stake in the joint venture company that was supposed to develop 29-acre residential project in Ghaziabad. "We are no more interested in being a developer. Ramprastha will buy our stake and a deal is being worked out," Punj Lloyd chairman Atul Punj said. Punj Lloyd was supposed to do the entire construction for the Ghaziabad housing project. Punj Lloyd said that it will continue to take housing construction orders, but had abandoned its ambition to become a developer. The company is also executing some state-promoted housing projects in the Middle East. The company has a order backlog of US$4bn. It has increased its average ticket size of orders from US$25mn three years ago to US$225mn.
Dr. Reddy's Laboratories Ltd. announced that effective July 1, the Drug Discovery operations at Hyderabad will be absorbed into Aurigene, a wholly owned independent subsidiary of the company. Aurigene is a partnership based Drug Discovery biotech headquartered in Bangalore. The Discovery Research resources - employees, facility and infrastructure will transition into being resources of Aurigene, which will now operate out of two sites - Bangalore and Hyderabad. In addition, Dr. Reddy's will be creating a new group to focus on Proprietary Products development, which will be responsible for building the proprietary, branded R&D portfolio in collaboration with various partners and service providers. As part of the reorganization, the company will close the Atlanta Research facility in the US.
Separately, Dr. Reddy's announced that the first human subjects were successfully dosed in a Phase I study with DRL 17822, a selective inhibitor of CETP, for the treatment of dyslipidemia, atherosclerosis and associated cardiovascular diseases. The compound shows potent elevation in HDL-C and reduction of atherosclerotic plaques in animals, and has a clean safety profile in preclinical studies. The two other IND’s are for the treatment of COPD and dyslipidemia
Indiabulls Real Estate Ltd. announced that the authorised Committee of the Board of Directors decided to close the bid period for the Qualified Institutions Placement (QIP), and approved the issuance of up to 14,35,94,593 Equity Shares at a price of Rs 185 apiece aggregating to Rs26.56bn. The issue price was 6% lower than May 18 price of Rs197.50, when the Sensex soared by over 2,111 points. The issue price is 60% higher than the company's six-month average price of Rs115.66. The company has further announced that the floor price in respect of the QIP is Rs141.32 per share and the Relevant Date for this purpose is May 18. Indiabulls Real Estate opened its US$600mn QIP issue on May 18, and received subscription worth US$2bn (Rs94bn). Among the investors that picked up Indiabulls Real Estate shares in the QIP include private equity and hedge funds like Farallon, TPG Capital, Och Zoff, Moon Capital and Fidelity.
The Wholesale Price Index (WPI) for the week ended May 9 rose by 0.2% to 232.0 from 231.6 for the previous week. The annual inflation, calculated on a point to point basis stood at 0.61% during the week under review compared to 0.48% in the week ended May 2. Inflation was at 8.57% during the comparable week of the previous year. The Government also revised inflation rate for the week ended March 14 to 0.71% from a preliminary forecast of 0.27%.
The index for Primary Articles rose by 0.5% to 256.0 from 254.7 in the previous week. The index for Manufactured Products rose by 0.1% to 203.3 from 203.0 in the previous week. The index for Food Products group rose by 0.4% to 231.4 and the index for Textiles group rose by 0.6% to 141.2 from 140.4. On the other hand, the index for Fuel, Power, Lights & Lubricants remained unchanged at its previous week's level of 323.7 and the index for Paper & Paper Products group declined by 0.2%.
Rupee completed the biggest weekly gain in 13 years on hopes that Prime Minister Manmohan Singh, will revive efforts to sell public sector companies to attract foreign investment. The rupee advanced 4.9% this week, the most since March 1996, to close at 47.125 per dollar. The rally took gains this month to 6.5%, the best performance among the 10 most-active Asian currencies. The currency climbed to a 5 months high as Sensex this week rallied the most since 1992. The Government will sell stakes in companies as promised by the Congress party in its election manifesto, former finance minister Palaniappan Chidambaram, quoted as saying on May 18. The new administration, to be sworn in today, may start by resuming share sale plans for electricity producer NHPC Ltd., explorer Oil India Ltd. and fuel retailer Hindustan Petroleum Corp., according to Mumbai-based brokerage Religare Capital Markets Ltd. FIIs increased share purchases than they sold by US$1.1bn on May 19, the most since June 2007, taking the net this month to US$3bn. Sensex jumped 14.1% this week. India’s "modest" dependence on exports will help the economy weather the global recession and recover this year, reducing the need for further stimulus, central bank Governor Duvvuri Subbarao said today. Asia’s third-biggest economy expanded at the slowest pace since 2003 in the quarter ended Dec. 31. Offshore contracts indicate that the rupee will trade at 47.22 to the dollar in a month, compared with expectations for a rate of 49.70 at the end of last week. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the rupee.
Dr. Manmohan Singh created history by becoming only the second Prime Minister of India to be sworn in for a second successive five-year term after completing the first one. In doing so, he emulated none other than Jawaharlal Nehru, independent India's first ever Prime Minister. Nehru led the Congress to victory in the 1951, 1957 and 1962 Lok Sabha elections.
Congress veteran Pranab Mukherjee may be named the new Finance Minister, a post he held in the 1980s. Kapil Sibal has been tipped by some media reports to be External Affairs Minister, while P. Chidambaram will likely retain the Home portfolio. The Congress party, which heads the UPA coalition with 206 Lok Sabha seats, will also retain some of the other key ministerial portfolios. Only 15-20 ministers were sworn-in along with Dr. Singh. All the ministers will hold a cabinet rank, although, their portfolios were not announced.
Dr. Singh took oath of office as the country's prime minister along with 19 cabinet members, the Prime Minister's Office (PMO) said in a statement. Rahul Gandhi was not inducted in the new Union Cabinet. Those who took the oath as cabinet ministers included Mukherjee and Chidambaram. The remaining cabinet members were Sharad Pawar, A.K. Antony, Mamata Banerjee, S.M. Krishna, Ghulam Nabi Azad, Sushil Kumar Shinde, M. Veerappa Moily, S. Jaipal Reddy, Kamal Nath, Vayalar Ravi, Meira Kumar, Murli Deora, Kapil Sibal, Ambika Soni, B.K. Handique, Anand Sharma and C.P. Joshi.
"This will be followed in the next few days by an expansion of the council of ministers, including other cabinet ministers, ministers of state with independent charge as well other ministers of state," the PMO said. "This expansion will give due representation to allied parties."
Meanwhile, the distribution of ministerial portfolios snowballed into a controversy, with the DMK refusing to accept the Congress formula and deciding to stay out of the administration. The DMK said it would offer its 18 MPs only as outside support to the coalition. DMK supremo and Tamil Nadu chief minister M Karunanidhi and his son and MP from Madurai, M Azhagiri, left for Chennai, probably in protest against Congress turning down its demands. Senior Congress leader Ghulam Nabi Azad was likely to visit Chennai to hold talks with Karunanidhi in a bid to break the deadlock.
But, notwithstanding the acrimony over ministerial berths, all DMK MPs attended the swearing-in ceremony. The Congress party claimed the support of 274 lawmakers before the DMK exit, two more than needed for a majority in the Lok Sabha. "We have support of 322 parliamentarians and we are not worried about falling short at all," Janardhan Dwivedi, a senior Congress leader, said.
After a freezing start the market did melt some of its excesses. The coming week will see cabinet with many old faces with hopefully renewed vigour as the UPA-led government moves in office for the second term. Besides the global cues, the market will pay close attention to the GDP growth number which is expected to be around the 5% mark. The monsoon forecast will also have some temporary bearing on the sentiment.
The mid-cap and small cap counters are seeing a flurry of activity and retail as well as institution interest is building in. Stock-specific activity will continue. More than getting into the market, getting out at profits could be the near term goal. For the long term investors, making money in the short-term will do no harm.
If the outcome of the Lok Sabha elections was unbelievable and stunning, then what happened on the Indian bourses was even better. May 18th was a momentous occasion in the history of India, both in terms of politics and capital markets. While the decisive verdict that the Indian voters delivered in the just concluded Lok Sabha polls was the best that Indian parliamentary democracy has got in a long, long time, then the reaction of the stock market was unimaginable. It may not be repeated ever again. For the first time ever, the key Indian stock indices hit an upper circuit - not once, but twice. Trading was first halted for a couple of hours within just a few seconds of opening bell, when the Nifty soared by over 17% upper circuit. When trading resumed at 11:55 am, it took just a few seconds for the market to freeze again, this time for the rest of the day. There was some buzz that the largest life insurance company may step in with basket selling, which could have kept the trading going. However, that was not to be.
The BSE Sensex rocketed by 2,110 points or 17.24 % to 14,284 while the NSE Nifty shot up 651 points or 17.35% to 4,323. However, neither the brokers nor the exchanges benefited from the frenzied buying. Total trade turnover in the market was Rs3,103 crores Cash + F&O. Only 842 stocks were traded on the BSE while 202 stocks witnessed action on the NSE.
PSU stocks were on a roll on hopes that the new Government may revive the disinvestment programme given that there is no Left to put up a stiff resistance to any such proposals. The Government badly needs to undertake some sort of disinvestment and raise money to partially offset the ballooning fiscal deficit, which is likely to cross double digits for a second year in a row in FY10. Shares of Neyveli Lignite, SCI, MMTC and PFC were among the prominent gainers. Infrastructure shares too jumped on expectations that the mush stronger UPA will boost spending on roads, bridges, power plants and metro rails to sustain a high growth rate in the coming years. L&T, JP Associates, BHEL, Gammon India, Punj Lloyd, GMR Infra and IVRCL Infra were some of the stocks that rose. Shares of insurance companies rallied on hope that the Government may hike the FDI limit in the sector, from the current 26% to 74%.
However, the market gave up some of the Monday's gains in the following days as traders booked profits amid persistent concern over the health of the Indian and global economy. Mid-Cap and Small-Cap shares, a space that missed out the magical gains of May 18, surged in a catch-up rally. Meanwhile, key global stock markets weakened amid renewed bad news about developed economies and the US housing market. While Japan reported a record drop in its GDP for the January-March quarter, the Federal Reserve said that it will take 5-6 years for the US economy to fully recover from the current recession. US housing starts and building permits hit record lows in April. S&P cut UK's AAA rating outlook to negative from stable.