Indian Stock Market Blog

News. December 31, 2006

Posted by Bhavin in Stock Articles.
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Inflation rises to 5.43%
India’s inflation, based on the Wholesale Price Index (WPI), rose to 5.43% in the week ended December 16 owing to a rise in the prices of manufactured products, the Government said on Friday. Economists had been looking for a reading of around 5.28%. Inflation was 5.32% in the previous week and 4.62% in the year-ago period. The WPI rose by 0.05% to 207.8 from 207.7 in the previous week. The index for Primary Articles (weight: 22%) declined by 0.1% to 211.8 from 212.1 in the previous week. The index for Fuel, Power, Light & Lubricants (Weight 14.23%) remained unchanged at its previous week’s level of 322.6. The index for Manufactured Products (Weight 63.75%) rose by 0.2% to 180.8 from 180.5 in the previous week. Meanwhile, the Government revised upwards the inflation rate for the week ended October 21, from a provisional figure of 5.41% to 5.61%. The final WPI for the same period stood at 208.8 compared to the preliminary level of 208.4.

Govt mulling FDI in select areas of retail
Foreign investors could get a new year’s gift from the Government. The bounty could come in the form of FDI in various areas of the organised retail. According to newspaper reports, the Commerce & Industry Ministry is preparing a detailed policy on further liberalisation of the retail sector. The official announcement on the same is likely to come before the budget. The Government is considering allowing 51% FDI in retailing of sports goods, electronics goods and building equipment, the papers report. Since there are no small manufacturers or retailers in these areas, the Government might permit FDI in both the front-end and in the back-end operations. Also on the anvil is a plan to allow multi-brand outlets in these areas. What is not clear, however is that whether the Government will allow FDI in these areas through the automatic route or through the Foreign Investment Promotion Board (FIPB). Another caveat is that the Government will have to get the green signal from the Left parties before going ahead with any such move.

Govt awards LOI for two UMPPs
The Government awarded the Letters of Intent (LOI) for awarding the first two Ultra Mega Power Projects (UMPPs) to the successful bidders, namely Tata Power Co. Ltd. and Lanco Infratech Ltd. Union Power Minister Sushil Kumar Shinde handed over the LOI to the consortium of Globeleq Singapore Pte. Ltd and Lanco Infratech Ltd. for Sasan UMPP in Madhya Pradesh while Tata Power bagged Mundra UMPP in Gujarat. Bids for these projects were received earlier and the successful developers were selected on the basis of lowest quoted tariff. The process of selection of successful developer for other UMPPs namely, Krishnapatnam (Andhra Pradesh) and Tiliaya (Jharkhand) is expected to be completed by April 2007. Request from Jharkhand for an UMPP is also under consideration. The Government of India has envisaged a capacity addition of 100,000 MW to meet its mission of ‘Power For All by 2012’. Achievement of this target requires the development of large capacity projects at the national level to meet the requirements of a number of states. The Government is working together for the development of 9 UMPPs through tariff-based competitive bidding.

No pulling out from Singur: Ratan Tata
Despite the controversy surrounding land acquisition in Singur, the Tata Group will not take a backward step on the proposed one-lakh car project, said Ratan Tata, the chairman of the group. The issue snowballed into a political hot potato, with Trinamool Congress leader Mamta Banerjee going on a hunger strike (which she ended later in the week) and the BJP backing her opposition to the proposed car factory. But notwithstanding the local resistance and political pressure, Ratan Tata has made it clear that the group intends to go ahead with its plans for the new plant in West Bengal. “I think the West Bengal government has been very steadfast in its support of the project and I think it would be wrong for us to say that we will pull out and go,” he told NDTV 24×7 in an interview, to be telecast on Saturday at 10 pm.

Anil Ambani confirms interest in Hutch Essar
Reliance Communications Ltd. (RCL) officially confirmed that it is interested in buying Hutchison Telecommunication International Ltd.’s (HTIL) 67% stake in Hutchison Essar, a joint venture between the Essar Group and HTIL. “RCL, as part of its overall growth strategy, is continuously examining several organic and inorganic growth opportunities. Hutch Essar is one such situation,” Anil Ambani, Chairman of RCL said. “A potential combination of this nature could create compelling value for all shareholders of RCL.” Ambani said that his company has exclusive financial support from leading international banks and financial institutions to acquire Hutch Essar. “Frankly, we have lost count of how many private equity players have lined up behind us,” the junior of the two Ambani brothers told a news conference in Mumbai. “The vast majority of the top 10 players are with us.” RCL will need funds to fend off competition from Vodafone, the world’s largest mobile-phone company, and Essar Group, which controls a 33% stake in Hutch Essar, India’s fourth-largest wireless company. According to reports, Vodafone and the Ruias of Essar Group have put forward their indicative prices which value Hutch Essar between US $16.5bn and US $18bn. This is substantially lower than the US$21bn sought by HTIL. Essar has the first right of refusal, or the right to be first offered the option of buying HTIL’s stake in Hutch Essar.

S&P affirms Reliance ratings
Standard & Poor’s (S&P) affirmed its long-term foreign and local currency ratings on Reliance Industries Ltd. (RIL) at ‘BBB’, indicating investment grade. The affirmation reflects RIL’s dominant competitive position, the relatively stable medium term prospects for its core refining and petrochemical businesses, and an overall moderate financial profile of the company, the global credit rating agency said in a statement. The ratings, with stable outlook, factor in the likelihood of timely completion of its ongoing projects, specifically the new refinery at Jamnagar. It is also underpinned by the expectation that RIL would pursue its non-core businesses, specifically the retail foray, in a phased-out manner, as an accelerated investment strategy can weigh on the company’s overall credit p rofile, S&P said.
The ratings remain constrained by RIL’s exposure to highly cyclical industries, large capital commitments in its refining, exploration and production businesses, and uncertainties in developing its reportedly large gas reserves, it added.

Dr. Reddy’s wins nod for generic Zofran
Dr. Reddy’s Laboratories Ltd. announced that the USFDA had granted final approval for it’s Abbreviated New Drug Application (ANDA) for Ondansetron Hydrochloride Tablets, in 4mg, 8mg, 16mg and 24mg strengths. As the first company to file an ANDA containing a paragraph IV certification for this product, the company has been awarded a 180-day period of marketing exclusivity, Dr. Reddy’s said. The company will commence the shipment of this product shortly, it added. Dr. Reddy’s Ondansetron Hydrochloride Tablets are the AB-rated generic equivalent of GlaxoSmithKline’s Zofran tablets, a product indicated for the prevention of nausea and vomiting associated with cancer treatment. The brand product has annual IMS sales (June 2006 MAT) of about US$639mn. “With six product introductions to date in the current year, we are making good progress in building a sustainable base generics business with potential upsides in the US in the medium term,” said G.V. Prasad, Vice-Chairman and CEO of Dr. Reddy’s.

Wockhardt launches Ondansetron injection in US
Wockhardt Ltd. said that its US subsidiary launched Ondansetron injection, the first working day after the patent for the product expired on Dec. 24. Ondansetron is the generic version of GlaxoSmithKline’s Zofran injection and is used in controlling nausea and vomiting following cancer chemotherapy. It is the largest selling anti-emetic product in the world. Sales of Zofran injection in the US during the 12 months ended Sept. 30, 2006, were US$628mn. According to the online magazine Drug Topics, Zofran was the 20th most expensive brand-name drug used in hospitals in the US in 2005, with total costs of US $839.26mn. Ondansetron injection is manufactured at the USFDA-certified sterile formulation plant at Waluj in Aurangabad. Wockhardt has two other sterile formulation plants approved by USFDA in India and the UK. “This is Wockhardt’s eighth product approval from USFDA in 2006 and the third injection product in the US market,” said Wockhardt Chairman Habil Khorakiwala. “We now market 15 products in the US, with 10 of them launched during 2006.”

Indian Hotels buys Amalgam Foods
Indian Hotels Co. Ltd. said that Residency Foods & Beverages Ltd. (RFBL), an associates company, has picked up 80.6% stake in Kochi-based Amalgam Foods & Beverages Ltd. (AFBL) for Rs 180mn. Residency Foods is an existing associate company of Indian Hotels with interest in the food & beverages business. The acquisition has been made by Residency Foods in a related line of activity, namely foods. Residency Foods is an unlisted company in which Indian Hotels holds a 25% stake. Amalgam Foods is part of the Rs2.5bn sea food exporter Amalgam Group and has a portfolio of frozen ready-to-eat products under the Sumeru brand. The company is currently selling its products through 2,000 outlets across the country.

Bajaj Hindusthan FY06 net up 36% yoy
Bajaj Hindusthan Ltd. reported a 36% increase in net profit at Rs1.91bn for the financial year ended September 30, 2006. The company’s net profit during 2004-05 stood at Rs1.4bn. Total revenue stood at Rs14.87bn for the year 2005-06 versus Rs8.55bn in the previous year, registering a growth of 74%. The company has recommended a dividend of 60%. Bajaj Hindusthan’s sugar sales volume increased 57% during the year to 720,798 tons. “The results could have been much better but for higher cane prices, lower recoveries due to earlier start of the crushing season and the Government’s ban on exports, which impacted the domestic sugar realisations,” Chairman and Managing Director, Shishir Bajaj said. He said that the expansion of the company’s subsidiary Bajaj Hindustan Sugar and Industries Ltd. (BHSIL) was on schedule and crushing was expected to start at 40,000 tons crushed per day (TCD) in the next crushing season.

Japanese industrial output hits new record
Japan’s industrial production rose to a new record in November, buoyed by increased demand for it’s cars, consumer electronics, liquid crystal displays and game consoles in the global market. Factory output rose by a seasonally adjusted 0.7% from a month earlier. The average estimate of economists was for an increase of 1%. The industrial production index climbed to 108.6, the highest ever as measured by the 2000 base year. The rise followed a 1.6% gain in October from September. Year-on-year, output rose 4.8% in November, the 16th consecutive month of increase. Manufacturers’ output – the core component of production – is expected to rise a further 0.7% in December but would slip 0.8% in January. The trade ministry maintained its assessment on industrial output, saying that it is on a rising trend. Despite a rebound in production and shipments, the inventory index rose a sharp 1.4% from the previous month to 97.2 in November, an all-time high. Record production, combined with recent reports that showed rising inflation and a drop in the jobless rate, may prompt the Bank of Japan to hike the lowest interest rates among Group of Seven (G7) countries as soon as next month. Central bank Governor Toshihiko Fukui and his policy board are scheduled to conclude their next rate meeting on January 18.

Taiwan quake affects undersea cables
Telecom and Internet services across South East Asia was badly affected after a major earthquake hit southern Taiwan on Dec. 26. The quake, measuring 7.1 on the Richter scale, damaged at least eight undersea fibre-optic cables that connect Asia with the rest of the world. The damage to the undersea cables disrupted voice as well as data traffic and hit business in the region. However, by the weekend, most telecom operators recovered most of their voice services and Internet access. China Network Communications and PCCW said they have normal voice services. Japan’s Softbank Corp. said 83% of its affected 152 corporate lines had recovered. The improvement in telecom services was due to operators rerouting traffic overland to Europe, then to the US, or via Southeast Asia to the US. Repairing the broken submarine cables may take two to three weeks.

Apple under scanner for stock options grant
Shares of Apple Computer fell on renewed concerns over the company’s stock-option granting practices. A California legal publication said that CEO Steve Jobs had hired a lawyer to represent him in federal inquiries and that some officials may have falsified documents. London-based Financial Times reported that CEO Steve Jobs was handed 7.5mn stock options in 2001 without the required authorization from the Apple’s board. The FT report said that records purported to show a full board meeting had taken place to authorize the stock options were later falsified. The story didn’t say who falsified the report. Jobs later surrendered his options before they were exercised, implying that he did not gain any direct benefit from them, FT reported. A spokesman for Apple said that the company had handed over the results of its previously announced internal probe to the Securities and Exchange Commission (SEC).

IBM, Siemens bag mega IT deal
International Business Machines (IBM) and Siemens announced that they had won a US $9.3bn deal to modernize the German military’s technology. The 10-year project, codenamed Herkules, foresees the modernization of the computers and communication networks for the German armed forces. According to a statement from the military, that covers more than 140,000 computer workstations, 7,000 servers, 300,000 telephones and 15,000 mobile phones. Siemens Business Services and IBM’s German unit jointly will hold 50.1% of a company being founded with the German government, named BWI Informationstechnik, to carry out the project. The federal government will hold the remaining 49.9%. IBM will be responsible for modernising the data centres, while SBS will take care of PCs, servers and phone systems at more than 1,500 locations around Germany.

Pfizer wins Viagra copycat case in China
Pfizer won a trademark case in China blocking drugmakers in the Middle Kingdom from copying its Viagra impotence pills’ blue diamond shape. A Beijing court ordered the three companies to pay a US$38,000 fine to Pfizer, stop producing the blue, diamond-shaped pills and print a public apology in a Chinese legal newspaper. This is the second intellectual property victory in China this year for New York-based Pfizer. In June, the same court sided with Pfizer in overturning a 2004 decision by China’s patent and trademark office that had invalidated Viagra’s patents. Pfizer has a separate lawsuit filed in China that would block companies from using Viagra’s Chinese name. Viagra is one of the world’s most copied drugs, according to the World Health Organization (WHO). Viagra was used by 23mn men and had worldwide sales of US $1.6bn last year.

Major News

Hindustan Zinc cuts prices by Rs3200 to Rs2,21,500

Aurobindo Pharma acquires Pharmacin International in Netherlands

Lanco Infratech secures 4000 MW Ultra Mega power Project in MP

SBI plans to raise Rs20bn by March 07

State Bank of Mysore raises prime rate to 12% from 11.5%

Unichem gets nod to sell generic Mobic in US

Insider Trades:

Aurionpro Solutions Limited: Mr. Sandeep Daga, Director has sold in open market 9695 equity shares of Aurionpro Solutions Limited on 26th December, 2006.

Gujarat Ambuja Cement Ltd: Shri P B Kulkarni (Director) has sold in open market 12000 equity shares of Gujarat Ambuja Cement Ltd on 27th December, 28th December and 29th December 2006.
GENERAL

1)Manipur, Punjab and Uttaranchal will go to the polls in February next,
the Election Commission announced on Friday. Manipur (60 constituen-
cies) will witness polling on February 8,15 and 23; Punjab (117 consti-
tuencies) on February 13 and Uttaranchal(70 constituencies) on February
21. The terms of the Assemblies are due to end on March 11,17 and 20.
Hindu

ECONOMY

2)INFLATIONARY pressures heightened at the close of the year, touching
5.43% for the week ended December 16, one basis point short of the
fiscal’s highest inflation rate. The inflation stood at 5.32% in the
previous week. Inflation had touched its highest-level of 5.44% this
fiscal on June 17, which prompted the government to relax imports of
wheat, pulses and sugar, besides banning exports of sugar to augment
supply of these essential commodities. Finance minister P Chidambaram
said that the government’s immediate goal is to control inflationary
expectations, with a view to contain inflation below the 5%-mark in
2006-07 and below the 4%-mark in the medium term.
ET
3)Industry body Assocham has demanded creation of a Rs 100 crore venture
capital fund to enable various domestic outsourcing industries to take
on global giants and retain their strength in the global market. The
fund should be created with public private partnership to provide easy
financing facilities to business process outsourcing(BPO), knowledge
process outsourcing(KPO) and business transformation outsourcing(BTO)
industry to grab larger domestic ITeS market size from competing coun-
tries, the chamber said in a statement.
BS

CORPORATE / INDUSTRY

4)Aban Offshore Ltd on Friday said that its wholly owned subsidiary Aban
Singapore Pte Ltd(ASPL) will present an open offer to acquire the
remaining shares of Sinvest ASA for approximately $800 million. Aban
had bought 33.76% stake in Sinvest in June this year for an equity
value of $1.32 billion nd an enterprise value of $2.25 billion. The
open offer will enable the company to acquire a majority stake in
Sinvest ASA, there by placing it in the league of top 10 offshore dril-
ling service providers in the world in terms of offshore drilling assets
under management, Aban said in a statement to the BSE.
FE
5)THE Lanco Group has signed a memorandum of understanding with the
government of Jharkhand for setting up a 2,640-mw thermal power pro-
ject in the state. As per the pact, the state government would assist
in land acquisition, infrastructure support and recommend captive coal
blocks required for the project. The MoU closely follows Lanco Group’s
recent win of the country’s first 4,000-mw ultra mega power project
estimated to cost Rs 16,000 crore by quoting a tariff of Rs 1.19 per
unit. With the Jharkhand project, Lanco’s total power generation
capacity would touch 12,000 mw.
ET
6)HYDERABAD-based Aurobindo Pharma has, through its subsidiary Agile
Pharma, Netherlands, acquired for E6 million Dutch generic pharma com-
pany Pharmacin International for an undisclosed sum. This is Aurobindo’s
second acquisition in Europe after it took over the UK’s Milpharm early
this year. According to a company statement, the acquisition will help
Aurobindo reduce its time to market in Europe and also build a broad
portfolio in the generic value chain. Pharmacin brings to the table
its strong presence in Europe with over 200 product registrations for
63 customers in Europe. With this acquisition, Aurobindo will gain
an opportunity to expand into several markets in Europe with Pharmacin’s
network.
ET

MONEY / BANKING

7)Despite an infusion of close to Rs 1,26,000 crore over a week by the
Reserve Bank of India(RBI) to ease the ongoing liquidity crunch, call
rates ended at a nine-year high of 18.5%-19.5% on Friday. The rates
recorded an intra-day high of 21% on the last reporting Friday of the
2006 calendar year.
FE
8)Oriental Bank of Commerce (OBC) has crossed another milestone, with
the total business of the bank touching the Rs 1,00,000 crore mark
on December 22. The public sector bank expects to close the current
calendar year with total business of over Rs 1,01,000 crore, its
chairman and Manging Director, Mr K N Prithviraj, said on Friday.
BL
9)Federal Bank plans to enter the capital market shortly to mobilise
fresh resources to fund some of its strategic investment projects. “We
should be entering the capital markets some time next fiscal either
through a rights or public issues,” said Mr M Venugopalan, Chairman.
BL

INSURANCE

10)THE INSURANCE Regulatory Development Authority(Irda) has said that
general insurance companies can alter premium rates only once in six
months even in a free pricing regime following detariffing. This
means that insurers will have to be very careful in pricing as they
will not be able to revise rates immediately if they find that their
quotes are not enough competitive or profitable enough.
ET

MARKETS

11)The Sensex and Nifty ended down on the last trading day of 2006 as in-
vestors trimmed positions ahead of the extended weekend. Equity market
will be closed on Monday for ‘BakrEid’. The indices erased early gains
as investors booked profits in heavyweights Hindustan Lever and Oil
and Natural Gas Corp. Metal shares gained the most as prices remained
firm on the London Metal Exchange, while shares of fast moving consumer
goods were the worst hit. The Bombay Stock Exchange Sensex ended at
13786.91, down 59.43 points or 0.4 per cent from Thursday. It touched
a low of 13770.06 and high of 13929.10 intraday. The National Stock
Exchange Nifty settled at 3966.40, down 4.15 points or 0.1 per cent.
BS
12)THE year 2006 was a rocking one for the stock markets. And a rocky
one too! Not only did the sensex show a whopping jump of 47%, it also
demonstrated the greatest volatility in the last five years in 2006.
An ETIG analysis reveals that the annualised volatility coefficient
for sensex stood at 26% for 2006, compared to 17% and 25% during 2005
and 2004 respectively. The benchmark index was significantly less
fluctuating in 2003 and 2002 also, with annualised volatility coef-
ficients of 19% and 17% respectively. The bourses witnessed huge see-
saw movements during the year, with a continous upward movement from
January to May, a sudden crash from May to June and then again a strong
recovery continuing throughout till December. On the one hand, sensex
touched an all-time high of 14,000. On the other, it witnessed its
single largest fall ever in one trading day since 1991. With Indian
markets getting more globally aligned, this year witnessed sharper reac-
tions to global macreconomic changes and domestic policy measures. An-
nualised volatility indicates the amount of fluctuations in market move-
ments during the year. The higher the volatility, the riskier it is
to invest for a short term.
ET
13)Dalal Street has been witness to a major roll-a-coaster ride this
calendar year as the equity markets staged an impressive come-back from
a massive fall in May this year, only to bounce back sharply, and breach-
ing new peaks, gaining 46% since January. Interestingly, of all the
BSE sectoral indices, only BSE Capital Goods(CG) index and BSE Tech
index were able to outperform the benchmark Sensex by a wide margin,
by registering a gain of nearly 56% and 50% respectively. All other
BSE sectoral indices have been under-performers, when compared with
the Sensex. “The companies under the Teck Sector has come out with
good quarterly numbers and hence are in great demand with the investors,”
said Amitabh Chakraborty, Head-Research, Brics PCG said.
FE
14)INFOSYS was the sole tech heavy weight amongst the top five Indian
IT service providers that managed to outperform the benchmark Nifty
index during 2006. The other tech stocks like Wipro, Satyam and HCL
Technologies, gave less returns (than Nifty). An analysis of the
scrips of the top 10 IT services companies(in terms of their market
capitalisation) reveals in the Tier-II software companies MphasiS
and i-flex churned-out spectacular returns for investors, while the
largest software exporter TCS’ stocks performed in line with the Nifty
returns of 43.2%. “Infosys got listed at the Nasdaq-100 index and this
had a very positive impact on its scrip at the domestic stock exchange.
Some of the other tech stocks have not performed very well at the index
this year, especially Patni, which lost some of its significant clients
to other IT companies,” said KPMG executive director & head markets,
Pradeep Udhas. The Nasdaq-100 index comprises 100 largest non-financial
stocks on the Nasdaq Stock Market in terms of market capitalisation.
Infosys’ addition to the elite list ensures that the company joins the
ranks of global tech giants like Google, Yahoo, Amazon, Oracle and
eBay. Infosys stock on Nifty, during 2006, gave investors Rs 151 for
every Rs 100 invested. During the same period, the Nifty index –
which rose from 2750 to 3940 points – generated returns of Rs 143.2
for every Rs 100 invested.
ET
15)The government on Friday ruled out extending the December 31 dead-
line for investors to submit their PAN details to depositories for
trading on the stock exchanges, according to finance ministry
sources.
FE
16)The BSE and the NSE are now working on a common portal for dis-
semination of filings of corporates listed on the stock markets and it
is expected to go live by January 1,2007, an official release said.
BL

IPO

17)Cambridge Technologies Enterprices Limited (CTEL) is coming out
with a public issue of 63,15,800 equity shares of Rs 10, for a cash
price of Rs 38 per equity shares, inclusive of premium of Rs 24 crores.
The issue opens December 29 and closes January 9,2007.
FE
18)Nelcast Limited is planning to come out with an Initial public Offer
(IPO) to raise capital to double their installed capacity from 72,000
TPA to 1,50,000 TPA by 2008. The company has filed its draft of red
herring prospectus with the market regulator said.
FE

MERGERS & ACQUISITIONS

19)India Inc’s cross-border acquisitions may have topped $20 billion in
2006, but that is just a dot in the global M&A space, whose volume
reached a record $4 trillion through 31,858 deals. However, India-
born steel tycoon L N Mittal and Arcelor emerged the world’s fourth
biggest deal this year. US telecom gaint AT&T’s $83.4 billion buyout
of Bell South Crop, announced in March, is this year’s top M&A deal,
according to data from global financial information provider Dealogic.
FE

COMMODITIES

20)Gold edged higher on the last working day of the year to trade just
below a three-week high, and was likely to extend gains in 2007, dealers
said on Friday. Lingering worries over Iran’s nuclear ambitions and a
weakness in the dollar against the euro kept market sentiment positive,
they said. “Having broken through key chart levels at $630 (an ounce),
further gains could be in store for gold should it be able above $630
and position for a break higher in the New Year,” Standard Bank said
in a daily report.
BL
21)The prices of pulses, particularly chana, have declined by about 10
per cent in spot as well as futures markets over the month, owing to
low demand and the expectation of a better chana crop this rabi season.
Owing to the overall bearish sentiment in pulses, urad futures have
also declined by about 6 per cent.
BS
22)Gold recovered smartly on the bullion market on Friday due to heavy
demand from stockists after firm global advices. Silver gained on in-
creased support along with higher London advices. Standard gold(99.5
purity) ended at Rs 9,145, up Rs 95. Pure gold (99.9 purity) hardened
to Rs 9,195. Ready silver (.999 fineness) pared initial gains to end
at Rs 19,430, a gain of Rs 75.
BL

REAL ESTATE

23)THE REAL estate industry is on an hiring overdrive with the top
realty companies out to double their headcount over the next one year.
Top real estate companies such as DLF, Emaar MGF, Unitech, Omaxe
et al are out to double their employee base in the next 12 months.
ET

COMMUNICATIONS

24)IF FREE SMSs in your pre-paid and post-paid mobile plans lured you
into taking your connection, then beware of going overboard on January
1. Consumers may be unaware, but even those who come under the plans
offering free SMSs will have to pay for the service on January 1.
Mobile operators claim that charging SMSs on New Year’s Day is a way
to ensure network decongestion. So, while you send mobile messages
to all your friends and family on New Year, keep a tab on your mobile
bill.
ET

INFORMATION TECHNOLOGY

25)IBM has been shortlised by the Income Tax department for supply of
servers for its proposed national data centre. IBM toppled HP and
Sun-Wipro in the race for the Rs 250-crore tender. The proposed
national data centre is crucial to the single data processing system.
The much-touted zone-free filing of income tax returns is contingent
to setting up of a single data centre. Under zone-free filing a tax
payer residing in one city or a locality can file his or her income
tax return anywhere in India. They would also be able to get their
income tax refund anywhere.
ET

INTERNATIONAL

26)Oil prices edged lower towards $60 a barrel on Friday as unusually
mild weather deterred buyers and the market looked poised for its
first year-on-year decline since 2001.
BL

Lanco bids LOWEST. December 21, 2006

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Lanco Infratech has emerged as the lowest bidder for the 4,000 MW Sasan ultra mega power project, outsmarting its nearest rivals Reliance Energy and Tata Power as well as seven other contenders.

The Lanco-Globoleq combine quoted a bid of Rs 1.196 per unit for the coal-fired project that will require an investment of Rs 16,000-20,000 crore.

Reliance Energy had quoted a tariff of Rs 1.29 and Tata Power Rs 1.41 per unit, while state-run NTPC Ltd bid much higher, Power Secretary R V Shahi said.

Power Finance Corporation, the nodal agency to conduct bidding for these projects, had received 10 bids for the Sasan project and six for the imported coal-based Mundra project.

The lowest bidder for the Mundra ultra mega power project is expected to be announced later in the day.

The Sasan project is likely to achieve financial closure within six months and the first unit of the Sasan project would start generation by the end of 11th plan.

BHEL. December 21, 2006

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Power equipment major Bharat Heavy Electricals Limited (Bhel) has bagged an order from Indian Oil Corporation (IOC) to set up an energy efficient and environment friendly co-generation power plant at its Haldia Refinery Complex. The project was awarded through international competitive bidding (ICB).

IOC has placed an order worth over Rs 165 crore for a Frame-5 Gas Turbine-based Co-generation power plant, on Lumpsum Turnkey (LSTK) basis. The project is being set up to meet the requirement of uninterrupted power supply, in addition to the steam needs of the refinery and is scheduled for commissioning in 22 months.

Bhel’s scope of work in the project envisages design, engineering, manufacture, supply, erection and commissioning of a Frame-5 Gas Turbine Generator and a Heat Recovery Steam Generator (HRSG) of 130 tons per hour capacity with associated auxiliaries and balance of plant, in addition to complete civil works and select spares.

While the Gas Turbine Generator will be manufactured at Bhel’s Hyderabad plant, the HRSG and state-of-the-art control system will be manufactured at the company’s Trichy plant and Electronics Division, Bangalore, respectively.

Bhel is already executing a similar turnkey contract for setting up a Frame-5 Gas Turbine-based Co-generation power plant at IOC’s Haldia Refinery Complex. Earlier, Bhel has supplied and installed several co-generation power plants of various capacities on turnkey basis, at IOC’s Gujarat, Panipat, Digboi, Barauni, Haldia and Mathura refineries. The plants are under successful operation and are meeting the power as well as steam needs of the refineries.

Bhel has emerged as the market leader in co-generation and captive power plants, offering units from 10 MW onwards for both steam turbine based and gas-based combined cycle power projects for total power and process steam requirements of various industries. So far, the company has supplied and commissioned more than 700 steam turbine and gas turbine-based plants for a host of industries like metal, paper, sugar, cement and process industries like refineries, petrochemicals, fertiliser.

Ansal Properties December 21, 2006

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It has been awarded a project on 2504 acres of land adjoining Greater Noida. The value of the project is expected to be over Rs200bn

Ansal Properties & Infrastructure Ltd. (APIL), a Sushil Ansal Group real estate developer, has been awarded a high tech city on 2504 acres of land adjoining Greater Noida. A MOU to this effect has recently been signed between the Government of Uttar Pradesh and a consortium where APIL is the main consortium member. The value of the project is expected to be over Rs200bn.

The proposed high-tech city will have an 18-hole golf course. The same is likely to be designed by Martin Hawtree, who has designed over 750 golf courses worldwide. Incidentally, he is also designing a golf course in Ansal’s Sushant Golf City in Lucknow. The company also proposes to develop golf apartments and golf villas on the golf course to bring people closer to nature. In order to fulfill its social obligation about 20% of the dwelling units will be built for EWS and LIG category.

The Greater Noida city also proposes to have a number of sporting facilities like the Mahesh Bhupathi Tennis Academy, a polo and an equestrian club. The city will also have a world-class stadium where proper training will be imparted to budding sportsmen and athletes. To promote hospitality and tourism, it is proposed to have five star hotels, service apartments, a convention centre and an exhibition hall in the proposed township. The township will have around 50% open space, consisting of lawns and roads to provide a pollution free environment.

“Ansal Plaza, our series of branded malls, will attract best of national and international retail brands. Emphasis will be to provide good social infrastructure like a world class hospital, nursing homes, schools and other institutions of excellence,” said P.N. Misra, ED, APIL.

The project is expected to generate lot of revenue for the state in the form of various taxes. It will also generate a lot of employment opportunities, including IT and Biotech professionals for both domestic and international organizations expected to set up their establishments in the township.

This will be one of the largest real estate development projects in NCR and will accommodate a population of over 30,000. A part of the cost of the project will be funded from the recently concluded QIP issue of the company totaling Rs6.82bn. The company placed 67.5 lakh shares of Rs 5 each with leading mutual funds and financial institutions of the country at Rs1010 per share and balance from internal accruals, loans and sale revenues.

Essar Buys Rigs. December 21, 2006

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Marking its re-entry in offshore drilling business, Essar Shipping and Logistics (ESOL), through its subsidiary Essar Oilfields Services, has acquired a semi-submersible rig for $ 220 million (nearly Rs 1000 crore).

The acquisition is in line with Essar Shipping’s plan to gain a significant presence in contract drilling sector. Essar Shipping has drawn up plans to invest over $ 400 million (nearly Rs 1,800 crore) for acquisition of a diversified fleet of on-land and offshore drilling rigs.

The company took the delivery of the rig in the UK. The rig, which will be christened as Essar Wildcat, is an anchor-moored, self-propelled system that is suitable for deployment in water depths of 1,350 feet and can be upgraded for deeper waters.

The rig has a drilling depth capacity of 25,000 feet and is equipped with top drive, automatic pipe handling systems and rough weather BOP launch system. Industry analysts pointed out the rates for rig had doubled in last six months and companies were scouting for brand new rigs.

“The shipyards building drilling rigs are overbooked and there are no second hand quality rigs available in the market. Great Offshore, Mercator Lines, Jindal and Aban Offshore are the leading players in the industry,” they said.

Essar has experience and track record in contract drilling services. It was the first Indian company to offer contract drilling services in 1985 both for onshore as well as offshore exploration and production (E&P) activity.

Essar Shipping, which is a part of Essar Global, has four operating companies under its umbrella, including Essar Oilfields, Vadinar Oil Terminal and Essar Logistics

SEBI Bars Gammon and Others. December 21, 2006

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The Securities and Exchange Board of India (Sebi) on Thursday barred Gammon India and four others from accessing the capital markets for a year for routing the company’s funds to subscribe to its Rs 19 crore rights issue in 2001.

Interestingly, in the Gammon India case, the regulator also banned Reliance Silicon India (RSPL) – which was the complainant against Gammon for irregularities – from accessing the markets for a year.

Ajitabh Bachan, who was the chairman of RSPL, had later withdrawn the allegations, but the Sebi went ahead with the investigations and found that “RSPL was conduit for funds with respect to the transactions”.

The Sebi order issued on Thursday also barred Nikhita Estate Developers, Devyani Estate & Properties and their controller Abhijit Rajan, who is also the chairman-promoter and managing director of Gammon India and Gammon India Infrastructure, from selling their stake in Gammon Infrastructure Projects for three years.

In Gammon case, Sebi said its investigations found that the promoter, Abhijit Rajan, was using the company’s funds to subscribe to the rights issue.

The case came up when RSPL filed a complaint against Gammon India with the Sebi, alleging irregularities in the company’s rights issue.

It also alleged non-disclosure of financial agreement between the two in the annual account of Gammon, which resulted into “understatement of loss, unauthorised use of banking accounts and overstatement of assets of Gammon subsidiary Nouveau Exports”.

Gammon’s 1:1 rights issue of 63.28 lakh shares of Rs 10 each at a premium of Rs 20 per share in 2001 was used by promoters to hike their stake using the company’s funds.

RSPL and Gammon subsidiary Nouveau had entered into an agreement for the installation of RSPL’s power plant during the same period, for which an account was opened with Allahabad Bank in Mumbai. The account was, in fact, used for routing money through RSPL for the Gammon rights issue subscription.

“Investigation revealed that this bank account was used for routing of funds of the company (Gammon) for subscription in the rights issue. In effect, the promoters did not use their own monies to subscribe to the issue, but the company’s funds were used. Funds were routed through RSPL and promoter (Rajan)-controlled entities, Devyani and Nikhita,” the order by G Anantharaman, whole-time director, Sebi, said.

The Sebi said it has referred the allegations of non-disclosures in the annual accounts of Gammon and Noveau to the ministry of company affairs and the Institute of Chartered Accountants of India.

In another unrelated order, the Sebi imposed a penalty of Rs 10 lakh on Kotak Securities for its default in maintaining proper margin requirement between 2001 and 2003.

Kotak Securities said in release that it was committed to maintain highest standards of compliance and continuously review its processes and systems to ensure that they are in line with latest guidelines and regulations prescribed by the regulators.

“We are in receipt of an order from Sebi, the observations in the order are based upon routine inspections carried for the time period of 2001-2003,” release added.

Moser Baer. December 21, 2006

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MUMBAI: In one stroke, Optical disk manufacturer Moser Baer has destroyed the business model of pirated movie seller and even the DVD libraries across the country. Delhi based optical disk maker is going to launch Hindi movies on DVD at Rs 38 and VCD at Rs 24.

The price of a Hindi DVD at the retail end varies from Rs 200 to Rs 400 and even higher if it’s a new release. Moser Baer’s comparable price is one tenth of the existing retail price for these disks. The MRPs for Moser Baer movies will be even lower than rentals from libraries or buying pirated DVDs or VCDs.

Moser Baer has developed new technology to bring the price down for the Digital Video Discs (DVDs) and Video Compact Disks. “We have filed for more than 30 technology patents to develop these new discs, and they use a new compound and proprietary technology to copy the content on the disk at the manufacturing stage. This has helped us bring down the cost, substantially,” said, Ratul Puri, Executive Director of Moser Baer.

Moser Baer is going to buy home video and DVD/VCD rights and distribute them across retail stores in the country. The company has started an entertainment division to sell and distribute these movies across the country.

The entertainment division is in the final stages of negotiating with production house to acquire copyrights or exclusive license for around 7,000 titles in all major Indian languages. “We want to acquire 40% of all the movie content produced in India in the coming years,” said Harish Dayani, CEO of Moser Baer’s Entertainment division. Mr. Dayani was earlier with Saregama-HMV, as head of the music business, he joined Moser Baer six months back to spearhead the new division.

Taking the price factor into account, the company is hopeful that it will be able to reach out to a much larger retail network.” We are looking at this product as an FMCG product, so it should be available at even a Kirana or paan shop,” Ratul Puri, says.

“Even video libraries are a potential distribution channel as they need not rent out DVD. The financial model can change to selling the movies to the customer, as they will make more money out of it,” Yograj Mathur CFO of Moser Baer says.

The copyright home video market in India is around Rs 200 crore, while the pirated market is Rs 20,000 crores, according to entertainment industry estimates. Moser Baer’s MRP is low, but the margin to the distributor will be comparable to a FMCG product.

Moser Baer has priced its products so that it lower than the price of two recordable VCDs or even one recordable DVD. This means that there is no margin left for a pirate, who would generally buy recordable disks and copy content on it to sell them. A pirated DVDs can sell for anywhere between Rs 70 to Rs 100 and a pirated VCDs for Rs 30 to Rs 45.

Top News Headlines. December 19, 2006

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The Economic Times

UK Takeover Panel likely to set deadline for Corus sale

Move aimed at pushing Tata Group, CSN to make their final offers and end uncertainty

Speedbreakers for insurers in tariff freeway

Rate Rattle: IRDA Concerned over Price War

Private firms ready to sell power dirt-cheap

Lanco Bags Sasan Project; Mundra Goes To Tata Power

The Hindu Business Line

Net direct tax collections up by 41%

Corporates expected to pay 75% of estimated tax dues

Scope of road cess use to be expanded

Financing rural projects and for repayment of loans

Tata Motors to invest Rs 120 cr in Thailand pick-up truck venture

To make ‘space cab’ for the Thailand market

The Financial Express

New norms to gauge toxins in colas soon

Pepsi, Coke in process of validating method to check pesticide levels in soft drinks

Hutchison, Ruias in talks to bury the hatchet

Hutch may call off sale if Essar patches up on Orascom issue

Markets on fire despite 15% dip in FII-MF inflows

Sensex and Nifty have risen 46% & 38% during the year to date

Daily News & Analysis – Money

PepsiCo’s trying to cut the fat, while keeping the fun

Healthier drinks, India-centric launches in the works

US strategists raise alarm with rally call

Wall St top firms say S&P 500 will touch a record high in 2007

All Weak!!! December 11, 2006

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Nifty has an important support at 3940, if that is broken then an intermediate downfall in the market is imminent. We might see nifty heading to 3800 levels.

Below 3940 we will see 3915-3910, below this 3885, from here a small bounce back is possible. All eyes will be on infosys since its getting listed on Nasdaq 100.

Resistance will be seen above 3991 to 4000, above 4000 we might see it back to 4030 level.

Cutting long story short, if Nifty remains below 4000 we will see weakness in it, above 4000, we should see its upward movement resuming again. Keep eyes on Reliance as well, its weakening a lot. Same for Tatamotors.

Broking House. December 8, 2006

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Brokerage houses are bullish on Amtek India, Zee, Monnet Ispat, Tata Tea, International Combustion, Grasim Industries, Sun Pharma, Allsec Technologies and HPCL.

Top Stories. December 8, 2006

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The Economic Times

Pvt equity companies may buy Hutch stake in Essar JV

Blackstone Group and Texas Pacific said to be interested

Kumar Birla sells Malaysian palm oil company for Rs 780 cr

Deal part of the group to exit from non-core business

Danone reviews split options

French major open to exiting joint venture or buying out the Wadias

The Hindu Business Line

Domestic majors dominate bids for ultra-mega power projects

NTPC, Tata Power, Reliance Energy among 16 in race; foreign players opt out

Rise of India, China should not worry the West: Manmohan

Dynamic Asia could power global growth and provide new opportunites

EPF rate issue to go to PM

Board seeks a bailout package to retain interest rate even at last year’s level

The Financial Express

NTPC-II in the works to take on Shinde

Powermin asks NTPC to get into equipment manufacturing

Airport regulatory Bill set to be tabled

Defence ministry recommends three changes in the Bill.

TCS first to start operations in the N-E, others to follow

Company has already hired 50 people for its centre at Guwahati in Assam

Daily News & Analysis – Money

Sebi says doors to open for hedge funds soon

But North Block mandarins say government will tread carefully, study global regulations first.

Big brother will watch airport operators

Regulator will curb monopolistic pricing of facilities.

Carlsberg will brew in Alwar

Beer unit in Rajasthan to become operational from 2008.

US Closes Down. December 8, 2006

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Stocks declined for a second straight session Thursday as Wall Street grew nervous ahead of the government’s November jobs creation report and its implications for the health of the overall economy.

The skittishness came despite upbeat news from the Labor Department, which said, as expected, that the number of newly laid off workers seeking unemployment benefits fell last week by the largest amount in six months. A spike in jobless claims last week stirred concern among investors that perhaps the economy was losing steam too quickly. Fluctuations tend to be wider around the holidays and Friday’s Labor Department report should provide some clarity about the labor market.

Wall Street hopes the job market will hold up well enough to safeguard consumer spending, though investors also are concerned that high employment levels will make it more expensive for businesses to hire and retain workers. As the Federal Reserve has said it remains vigilant about inflation, a rise in the cost of hiring and retaining workers could make it harder for the central bank to justify a cut in short-term interest rates.

Nicholas Raich, director of equity research at National City Investments’ private client group, contends that while Thursday’s jobs data and other economic findings seem to suggest an economic soft landing is in the offing, some investors are nevertheless looking to cash in some of their gains, thinking the market has topped out. “We think the market is moving closer to fair value,” he said. The Dow Jones industrial average fell 30.84, or 0.25 percent, to 12,278.41.

Broader stock indicators also fell. The Standard & Poor’s 500 index remained near a six-year high but was down 5.61, or 0.40 percent, to 1,407.29, and the Nasdaq composite index fell 18.17, or 0.74 percent, to 2,427.69. Weakness in energy, consumer discretionary and technology stocks added to overall selling pressure.

Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.49 percent from 4.48 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices rose. Light, sweet crude rose 30 cents to $62.49 a barrel on the New York Mercantile Exchange.

Raich said the latest job figures show the economy to be resilient. “It’s in a great spot right now in that it’s not too strong and not too weak.” He contends the data suggest the economy can pull off a soft landing rather than slowing too quickly and tipping into recession.

Investors are looking to Friday’s job creation number to gain further insight into whether such a gradual slowdown will occur. A continuation of robust consumer spending as important as it accounts for two-thirds of economic activity and has helped propel the economic expansion of recent years. Analysts are expecting Friday’s unemployment figure for November will total about 105,000.

Wall Street was pleased when the Labor Department report met expectations. The agency said jobless claims filed last week fell to 324,000, down 34,000 from the previous week. The decline had been expected by economists who regarded the previous week’s jump as an anomaly.

In corporate news, Vanda Pharmaceuticals Inc. surged $10.65, or 69 percent, to $26.15, after the company reported an experimental schizophrenia treatment proved effective in a late-stage clinical trial.

Weakness in Apple Computer Inc. shares hurt technology stocks. The company fell $2.79, or 3.1 percent, to $87.04 after a CIBC World Markets analyst warned he contends a widely expected mobile phone offering from the company could come to market later than some on Wall Street had expected.

Home Depot Inc. was the weakest of the 30-stock Dow index, falling 99 cents, or 2.5 percent, to $38.93 after it reported $200 million in unrecorded stock option expenses over a 26-year period.

Pharmaceutical company Eli Lilly and Co. fell 87 cents to $53.99 after the company said its pending acquisition of Icos Corp. will shave 10 cents per share off its 2007 profit, though it predicts the deal will add to sales starting in 2008.

Auxilium Pharmaceuticals Inc., a specialty drug maker, temporarily halted a late-stage clinical trial to investigate a manufacturing issue. The trial is for an injectable enzyme to treat Dupuytren’s contracture, an abnormal thickening of tough tissue in the palm and fingers that can cause the fingers to curl. The stock fell $1.49, or 9.3 percent, to $14.47.

Advance Auto Parts Inc. rose $1.09, or 3 percent, to $37.01 after a Citigroup analyst raised his rating on the auto parts retailer to “Buy” from “Hold” in part due to the possibility for reinvigorated profit growth.

The Russell 2000 index of smaller companies was down 3.65, or 0.46 percent, at 792.29. Declining issues outpaced advancers 3 to 2 on the New York Stock Exchange, where volume came to 1.45 billion shares compared with 1.53 billion shares traded Wednesday.

Brokerage House Reports: December 7, 2006

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Brokerage houses are bullish on Greaves Cotton, Premier Explosives, Bharti Airtel, Maruti Udyog and Marico.

Sensex – 40000!!! December 7, 2006

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CLSA, which has fixed 40,000 as the long-term target for the Sensex without specifying a timeframe and stated that India remains Asia’s best growth story with the highest valuations, has expressed serious concern about extreme-Left movement in the country.

Broking firm’s research report said the Naxalite movement is becoming stronger in the mineral rich pockets of Chhattisgarh, Orissa, Jharkhand, Madhya Pradesh, Maharashtra and Andhra Pradesh.

The report, drawing from the Prime Minister, Dr Manmohan Singh’s acknowledgement that the movement has spread to 160 out of 602 districts in the country, indicated that if the socio-economic discontent, particularly among tribals, was not addressed then it may seriously impact mega investments.

“Private sector investments, vital to the overall development of the region, may not take place if the Government cannot find a sustainable solution to what it insists is a law and order problem,” said the author of the report, Mr Anirudha Dutta, a CLSA analyst.

There are, however, hardly any sign to suggest that the Government is taking any urgent steps, report points out.

The report further warns that over the past five years, Naxalite activities have increased in the districts surrounding Bangalore.

Given the importance the Naxalite-affected regions in terms of natural resources and the $ 85 billion already committed investments, socio economic issues must be addressed with a sense of urgency.

Cautious But Invested. December 7, 2006

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Mutual funds are not facing any redemptions even as the stock markets climb new highs daily. Domestic investors, generally known to book profits at higher levels, are not doing so. In May, when the markets tanked, investors had pulled out.

The industry asset base has increased every month with the rise in market levels. The mutual fund industry grew by Rs 32,037.4 crore between November and December when Sensex gained 734 points to reach 13,700 levels.

Opinions

“Redemptions are not happening as investors have entered the markets gradually at all levels. The maturity of the industry and investors is being seen at these market levels,” said Mr Ved Prakash Chaturvedi, Managing Director, Tata AMC.

“Redemptions will happen if there are changes in fundamentals of companies. However, our GDP growth in the first half of the year has been the highest since 1991 and markets should continue to perform well. All factors support the investors to stay invested,” said Mr K. Umesh Kamath, fund manager, Canbank Investment Management Services Ltd.

Long-term bet

Fund managers back the long-term growth story in Indian markets. They opine investors have turned mature leading to a growth in the asset base of the industry.

“Investors are now entering mutual funds through the systematic investment plan (SIP) route at all market levels. This has helped them to remain invested without taking too many exposures. Also, even if markets tank, it may not reflect the overall equity outlook. Thus, redemptions are not happening and the `long-term’ realisation has come about in investors,” said Mr A. Balasubramanian, Chief Investment Officer, Birla Sun Life AMC.

Most fund managers say equity markets, by their very nature, can expect corrections and investors are aware.

“Investors have to look at the asset class value. Redemptions should occur only if there is a total negative outlook on the particular asset class. Investors need to concentrate on their portfolios and the asset class values,” said Mr Anup Maheshwari, Head – Equities and Corporate Strategy, DSP Merrill Lynch Fund Managers.

Cautious

However, investors have certainly become cautious at the current levels, say fund managers. “Money is being increasingly poured in new fund offers rather than existing schemes with investors becoming cautious,” said Mr Mihir Vora, Head of fund management – equities, HSBC AMC. To avoid redemptions, mutual funds have been talking of a long-term lock-in in equities. The industry has recently seen the launch of a spate of closed-ended funds based on this strategy.

Some fund houses have, however, raised their exposures to large cap stocks as it offers liquidity to meet any future redemptions. They believe in preserving returns rather than distributing returns.

CEMENT In News. December 7, 2006

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The continued uptrend in cement prices coupled with expectations of yet another price hike has been driving interest in cement counters on the bourses. Analysts also talk of a lot of M&A activity in this sector, which is expected to provide further impetus to cement company stocks.

There is also market talk of Holcim looking to up its stake further in Gujarat Ambuja.Most cement stocks, however, ended lower on Wednesday in line with the broad market trend. GACL ended at Rs 140 on the BSE, the total traded quantity of shares stood at 11 lakh shares against the two-week average of 9,07,253. ACC closed at Rs 1145.15, the total traded quantity of shares stood at 2,02,287 today as against the two-week average of 1,98,024. While ACC has gained more than 12 per cent month on month, GACL has seen a 9.25 per cent gain.

Top Stories. December 7, 2006

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The Economic Times

Sprite steals the thanda from Coke

Pushes Coke to No 3 in Coca-Cola India portfolio

Third-party motor premium to go up

In a fast-moving world it pays to have cover, but the cost is rising

Top guns soar with $50 mn jets

Mallya’s plan already in India, Mukesh’s is being custom-fitted

The Hindu Business Line

Cisco to locate unit in Chennai

India key to its global growth strategy

Advisory services banned in commodity derivatives

FMC has not formulated guidelines for portfolio services

IPO: Idea hopes to raise Rs 2,500 crore

Company likely to offload 10% stake

The Financial Express

Suzuki takes up Tata’s Rs 1-lakh car chanllenge

Plans to build a mini-car to compete with Tatas

Home min member on FIPB to speed up clearance

Move to deal with security aspects of proposals by foreign companies.

India wary of Lamy draft to save Doha talks

Lamy had recently warned that Doha talks could collapse

Daily News & Analysis – Money

Sebi asks Cairn India to answer MRPL

IPO-eve compalinet sends merchant bankers scurrying to comply before issue date of Dec 11.

Realty firm Yatra floats on Euronext

Raises euro 100 mn at euro 10 per share

Airline may seek cut in airport charges

Carriers prepare to drive a hard bargain using congestion charge

Another Big Story…Simple Storage!! December 5, 2006

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Thirty percent of India’s fruit and vegetable produce is wasted for the lack of a cold chain. It’s no wonder then, international players are already in the field cashing in on the opportunity, reports CNBC-TV18.

Presently, there are about 1300 cold storage facilities in India. However, a large percentage of these are under-utilized or completely unused for most of the year. The gap for stationary cold storage infrastructure is over 60% and a whopping 80% in mobile cold storage facilites like refrigerated trucks and rail wagons. And investments of over Rs 500 crore will be required meet these shortages.

Most of the refrigerated trucks found in India are smaller than international standards and hence not cost effective. The trucks and lorries used by countries like the Netherlands need to be imported and to encourage this, the government has reduced import duty by 10%.

Also, investments in cold chains could be given a 10 year tax holiday under section 80 1A of the Income Tax Act – international players are hoping to cash in on the opportunity.

Leading the pack is Netherlands, 11 Dutch companies are exploring the Indian retail market and we may soon see refrigerated lorries and refrigerated wagons enter the Indian market.

“Now, it’s worth investing in this facility since the price that you will be able to get for a product is payable by a large percent of the population and we can gain some money for ourself,” said Eric Ch Niehe, Ambassador of Netherlands.

These Dutch companies are expected to invest over Rs 150 crore in India. In fact, Indo Dutch Horticulture Technologies has been approached by Reliance and the Adanis to help improve productivity at their contract farms.

“With new players coming in because of the retail boom, we will need to expand by 10 times to meet the requirement,” said Amit Parashar, Director, Indo-Dutch Horticulture Technologies.

Even financial service players are looking to tap into the agri market. Holland’s Rabobank, will soon launch a USD 100 million private equity fund only for the food and agri bussiness in India.

Retail Next Big Story!!! December 5, 2006

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India should be to Unilever what China is to others: Unilever CEO.

Patrick Cescau, Unilever’s chief executive, is jetting around the world these days to make clear the direction that he wants the company to take.

The 56-year-old Frenchman, who has worked at Unilever all his life, says he wants to soak in India’s unbelievable success story, where consumer spending could shortly overtake that in developed countries in purchasing power parity.

“India has gone much beyond call centres. India should be to Unilever what China has been to other global companies,” Cescau said at a press briefing here today.

He wanted Hindustan Lever (which is among the top five operations in emerging markets) to not only increase its share in the company’s global revenue, but also be “a net provider of talent, ideas, and technology, from being a net recipient so far.”

The company would invest more in R&D operations in India to make its business grow through innovation.

The company’s Indian operations are currently growing at 8 per cent and eight out of its 10 top products are market leaders in their respective segments.

Cescau said he wanted it to grow manifold, so that emerging markets contributed more than 40 per cent to Unilever’s current sales revenue.

The potential for growth in India was substantial at every level of the economic pyramid and particularly at the base, where the company had long-standing strength and marketing expertise, he said.

Terming the emergence of huge retail chains in India as a great opportunity, he said Unilever had had a great relationship with the Wal-Marts of the world. The company was the number two supplier to Wal-Mart globally and was among the top three suppliers to the rest of the global retail chains.

“It’s a win-win situation for both the parties. We get the advantage of scale, while modern trade likes to do business with national market leaders like us. The growth of retail chains hasn’t had a negative impact on companies like Unilever. So I don’t think the situation would be different in India.” Partnership with retailers was the key, he added.

The company saw a huge potential for its foods business and was looking at both organic as well as inorganic growth.

Cescau admitted that margins were a problem because of the huge rise in input costs, but the top management was willing to fight to death for market share. “No one wants to play for a draw. I am happy that the company has put aggression in the marketplace back on its agenda,” he said.

Unilever also has a plan to save ¤1 billion ($1.3 billion) in costs. There had been a strong improvement in productivity and savings of about ¤200 million a quarter, though margins had not improved because of rising raw-material costs, Cescau said.

Dose On IT. December 5, 2006

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NEW DELHI: The United States will take up the issue of Totalisation Agreement with India next week.

An accord would mean Indians working in the US may be refunded the money they paid as social security contribution in the US — after they leave the country, said US undersecretary for international trade, Franklin L Lavin, here on Monday.

The Totalisation Agreement is a pact between the US and another country that eliminates dual social security coverage and taxes for social security programs.

Currently, European nations return the money to the overseas employee who accrues it under the social security head, but the US does not do so.

According to Nasscom estimates, the Indian IT industry loses about $300 million annually because of the absence of a Totalisation Agreement with the US.

“A chunk of H1B visa availed for going to US is used by the IT professionals. This category of visa is valid for only three years and can be extended by another three years. Therefore, an employee who pays the social security taxes for six years comes back without availing of its benefits. They become applicable only if a person lives in the US for 10 years or 40 quarters,” explained Sunil Mehta, vice-president, Nasscom.

In some cases, as much as 22.5% of an expat’s salary is deducted towards social security expenditure.

The US stand is that it will return the money if there is a similar social security scheme. The only similar scheme in India is the employees provident fund, which is not recognised by the US as an equivalent. Once there is a Totalisation Agreement with the US, the money could be given back to the company or the IT professional – in short, it could flow back to India.

The Indian IT industry had been lobbying with both the US and Indian government to ink the agreement and spell out clear-cut guidelines for employees working overseas and in India and pave the way for uniformity in the employee issues. The matter has assumed importance of late, as there has been ambiguity in the applicability of laws in companies, which have operation in both these countries. In fact, Nasscom, has been lobbying for this for the last 11 years adds Mehta.

Saturday 02-12-2006. December 2, 2006

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Markets might see the magical 14k by next week. At 13,800 level, analysts expect markets to touch the 14000 level soon. Factors like good corporate number, strong FII flows and steady world market will contribute to this magical figure.

Thomas Cook will acquire Travel Corporation India or TCI for over Rs 182 crore, in an allcash deal. Thomas Cook, which earns a significant percentage of its revenue from the forex business, says TCI will give it a firm foothold in the domestic market, reports CNBCTV18.

Ranbaxy Laboratories Ltd announced on Friday that it has acquired South Africa\’s fifthlargest generics player BeTabs Pharmaceuticals for $70 million (Rs 315 crore). The acquisition, subject to requisite approvals from South African authorities, is slated for completion in the first quarter of 2007.

Indian ADRs: Tata Motors gains 4.6%, Dr Reddy\’s up 2.5%.Tata Motors, Dr. Reddy\’s lab, VSNL, MTNL gained.

Wall Street stumbled Friday after a key survey showed manufacturing unexpectedly contracted in November for the first time in more than three years, stoking concerns that the economy won’t be able to achieve a soft landing. Wall Street stumbled yesterday after a key survey showed manufacturing unexpectedly contracted in November for the first time in more than three years, stoking concerns that the economy won\’t be able to achieve a soft landing. The major indexes ended the week with losses. 12/2/2006 2:08 PM

P Chidambaram tempered the optimism saying supply side-driven inflation was the only worrying factor. 12/2/2006 2:08 PM

You Think Easy Money Comes Easily? Try It. November 29, 2006

Posted by Bhavin in Stock Articles.
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1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position... not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it!

2. Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.

3. Mental Capital Trumps Real Capital: Capital comes in two types, mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.

4. This Is Not a Business of Buying Low and Selling High; it is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or Neutral, and in bear markets, one can only be short or neutral. This may seem self-evident; few understand it however, and fewer still embrace it.

6. “Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent.” These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe.

7. Buy Markets That Show the Greatest Strength; Sell Markets That Show the Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to sail the strongest winds, for they carry the farthest.

8. Think Like a Fundamentalist; Trade Like a Simple Technician: The fundamentals may drive a market and we need to understand them, but if the chart is not bullish, why be bullish? Be bullish when the technicals and fundamentals, as you understand them, run in tandem.

9. Trading Runs in Cycles, Some Good, Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well-researched trade will go awry. This is the nature of trading; accept it and move on.

10. Keep Your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve known have the simplest methods of trading. There is a correlation here!

11. In Trading/Investing, An Understanding of Mass Psychology Is Often More Important Than an Understanding of Economics: Simply put, “When they are cryin’, you should be buyin’! And when they are yellin’, you should be sellin’!”

12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and we move on.

13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions.

14. Be Patient with Winning Trades; Be Enormously Impatient with Losing Trades: The older we get, the more small losses we take each year… and our profits grow accordingly.

15. Do More of That Which Is Working and Less of That Which Is Not: This works in life as well as trading. Do the things that have been proven of merit. Add to winning trades; cut back or eliminate losing ones. If there is a “secret” to trading (and of life), this is it.

16. All Rules Are Meant To Be Broken…. but only very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.

So what you say now? Is Minting Money In Stock Market So Simple?

IT Firms Must Be On Watch. November 21, 2006

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Domestic IT firms are continuing their hiring juggernaut, but it is their bench strength or reserve employees that is growing at a higher rate than the overall pace of recruitments.
The total headcount of the fab-five club of Indian IT space — TCS, Infosys, Wipro, Satyam Computer and HCL Technologies — has increased by nearly 38 per cent with addition of more than 75,000 employees in the past one year.

At the same time, the bench strength of the top five players has grown at a higher rate of 48.5 per cent with approximately 28,000 employees being added to their reserves during the same period.

The high levels of attrition and job-poaching prevalent in the technology sector has always forced companies to maintain a strong bench staff team with them — which enables them to cope up with any sudden outgo of employees as well as in the times of any major contract win that requires a bigger talent pool.

However, the trend has been further shifting toward maintaining a bigger bench strength in the recent past, an analysis of total hiring patterns of the country’s top five IT firms over the past one year shows.

New Listings. November 21, 2006

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Info Edge (India), a provider of online recruitment, matrimonial classifieds and related services in India (through its Web sites naukri.com, jeevansathi.com, etc.), will list on stock exchanges on November 21, 2006.

The offer price was fixed at Rs 320 per share. It was oversubscribed 54.77 times.

It entered the capital market with an initial public offering, IPO of 53.24 lakh equity shares of Rs 10 each through a 100% book building process.

The company would use issue proceeds to purchase or lease real estate for their offices, to acquire companies and use alternative delivery models such as messages through mobiles, etc.

ICICI Securities and Citigroup Global Markets India were the book running lead managers to the issue.

Zenith Birla

Zenith Birla (India), a Yash Birla Group Co, will also list Bombay Stock exchange on November 21, 2006. Its BSE ID is 531845.
The company entered capital market with a follow-on public offer of 2.38 crore equity shares of Rs 10 each at a price of Rs 55 per share.

The proceeds of the issue aggregating to Rs 131 crore (Rs 1.31 billion) would fund a new facility to manufacture mechanical (CDW) tubes primarily for automotive application and also meet its working capital needs. The company currently makes steel pipes and machine tools.

The new plant at Khopoli in Maharashtra will have an installed capacity of 60,000 tonnes per annum and commercial production is scheduled for December 2007.

IDBI Capital Market Services and Keynote Corporate Services were the lead managers to the issue.

Stocks In News. November 21, 2006

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The equity shares of Info Edge (India) Ltd (Scrip Code : 532777) are listed and admitted to dealings on the Exchange in the list of ‘B1’ Group Securities.

The equity shares of Shivam Autotech Ltd (Scrip Code : 532776) are listed and admitted to dealings on the Exchange in the list of ‘B1’ Group Securities.

In September 2006, FDI inflows grew 225 per cent to 916 million dollars as compared to 282 million dollars in the same month last year.

Tata Group company Voltas is in talks with a Singapore-based knowledge process firm for a possible buyout, as it plans to bid for more projects in water treatment space.

Jain Irrigation buys Cascade Specialties.(Watch this stock.)

Govt considering lifting ban on sugar exports: FM

$5.1 billion bid by Nasdaq for London Stock Exchange – another sign of global top in stock markets. The stock markets always top long term with super valuation of exchange seats. This time it is even in a more mega scale. This time not the seats are getting treaded at super premiums but the exchanges are being bought and sold.

It\’s that time of the year when budget wishlists are being drawn up in various sectors and the power ministry seems to be the first one off the block with recommendations seeking a cut in excise duty and a waiver of customs duty for LNG and natural gas, reports CNBCTV18.

VK Sharma of Anagram Stock Broking is of the view that is of the view that Bajaj Hindustan has support at Rs 240.

Markets may be ruling at an all time high but individual industries in the market tell a different story. Most of the indexes have given a negative return between the period May 10, 2006 and October 30, 2006.

Stocks Watch. November 21, 2006

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The markets have been patchy since quite some time now. Though it is sitting well above the 13K levels, experts are advising caution. But amidst this caution, what would the experts buy? Here are two experts answering the question.

Amit Dalal of Amit Nalin Securities picks Sterlite, which according to him is a great play on commodities. “Both copper and zinc of commodity are doing fairly well. Aluminium is perhaps the only commodity, which hasn’t shown incremental reasons for seeing higher and higher profitability,” he explains.

He further adds, “The fact that it is going into power is perhaps another plus on it because it kind of balances out its earnings pattern. It is also going to be a huge consumer of power for itself.” He therefore recommends it, “It’s a stock, which one should very seriously consider. It’s expensive right now, but otherwise it’s an investment opportunity.”

Giving his choices among the aviation stocks, Dalal says, “If one believes that for instance, Deccan Aviation has got its pricing model, its capex ratios right, then that’s a stock that one should remain invested in because they are going to be here for another five-seven years at least. Whether it’s Jet or Kingfisher, they are going to have a national presence, which will be international in time to come and therefore one should remain invested there only because one believes in their ability to grow.”

But at the same time, he cautions as well, “As a space, it’s dangerous to be in, as there will be volatility and months or quarters on end, when one will not see profits.”

Coming to the index that saw a good amount of upside yesterday, Dalal confirms that he remains a fan of the private sector banks. “This year was a great year for banks because they got a big upside from the stock in trade position they had,” he says.

So what would he pick in this space now? “Given that an ICICI Bank or even a young bank like Centurion Bank or a DBS or Yes Bank, will give you greater growth than you will get from the public sector banks next year. This year, they will continue to do well,” he explains. “On the other side, the public sector banks are comparatively very cheaply valued, so there is going to be re-rating on their valuations,” he adds.

Technical analyst, Rajat Bose focusses on PSU bank, Bank of India. “It moved up pretty sharply. If you look at Bank of India, today’s Rs 185 level would be quite crucial and if it stays above that, then you might see it going upto about Rs 191 or even above that. The next target would be Rs 198.” But he voices his concern, “But one thing I have noticed is that whichever space moves up on one particular day, the same sector doesn’t move the very next day. So I am not sure whether the banking stocks will continue to move up today.”

Giving his picks in the media space, Bose says, “Zee Telefilms looks good. And if you go slightly offside, then I like Inox Leisure, although in entertainment and not typically a media stock.”

In the construction space, Bose discusses Mahindra Gesco Developers, which closed around a very strong resistance area of Rs 950. “This resistance area is going to give the stock some trouble. Initially it will shoot up, but after that it might have to come back to this level to consolidate.”

In the manufacturing space, Bombay Dyeing has notched up quite a bit of gains, yesterday about 57 points. So today, according to Bose, the crucial level would be yesterday’s high, Rs 762.

“So Rs 760 is the level I would be watching out, and if it can cross Rs 760-762, then you will see another 25-30 point move, but it has to sustain above that. If it doesn’t, then it can fall below Rs 745 and consolidate around those levels,” predicts Bose.

India Not Overvalued. November 21, 2006

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Suhas Naik, senior vice president (investments) IL&FS spoke to IRIS about the current market trend and shared his investment strategy and views on the India story.

A post-graduate in finance, Suhas is an experienced fund manager with over 12 years of experience with the stock market. He started his career as a research analyst and moved up to managing equity funds at IL&FS Mutual Fund. After UTI MF taking over IL&FS Mutual Fund`s schemes, he joined ING Vysya Mutual Fund as head of equity funds. Suhas today looks after the private equity business of IL&FS and is also on the FII advisory panel of IL&FS.

What is your investment strategy?

All these years I have followed the fundamental strategy. What that means is that eventually valuations tend to trend towards the fundamentals. It has always been a mix of both top-down and bottom-up approach. My experience has been that if you can identify a sector ahead of time, they deliver much better returns to you than an individual stock pick.

Having said that, I would like to add that in India as there are many companies listed which fall under the non-sectoral category, which have value potential, that`s where the bottom up approach comes in handy.

But I would like to reiterate that if you can take a macro call first and identify a sector ahead of time you will outperform the market by a significant margin.

At current valuations do you think the market is fairly priced?

Valuations cannot be discussed in isolation. It is a relative term. Relative to earnings, relative to the economy etc. So whether at 15 or 20 price earnings multiple, a market is overvalued or undervalued is difficult to say.

However, there are certain parameters for every sector to define the fair value of a business and you have different measures and tools to calculate that fair value. That fair value is an indicative price for that business or for the market as a whole. In a bull market, the market keeps trading above that fair value and in a bear market it trades significantly below the fair value. So if the momentum is positive (as it has been in the last couple of years) you are bound to see valuations above the fair value.

If you look at India as a market per se, and take, for example, the index as a benchmark. The index today is quoting at roughly 18 times FY`07 earnings and possibly 15.5 times FY`08 earnings. To find out whether its an overvalued market or an undervalued market you have go sector specific within the country.

As India is a very broad based market with every sector having a representation in the market today, if you analyze sector wise, say for example IT stocks today, they are trading at 30x in terms of PE multiples. Banking stocks are trading at 1.2 to 1.5 times FY`07 adjusted book value. Cement stocks are valued at USD 100 to USD 170 per tonne. So if you look at the sector-wise picture, I think that they are fairly valued. But I don`t think they have gone into a zone where you can say that the valuations are ridiculously high.

In terms of the regional context, is India an expensive market?

As I said, valuations have to be compared relatively. India has the strongest economic growth within the peer group that you are talking about. India has a strong domestic economy, which none of these economies have. India has a huge investment cycle, which is beginning, which again they do not have at this moment.

India has the potential to grow at 8% for probably a decade or two or may be longer.

India`s export contribution to GDP is just 16 to 17% (exports as a contributor to GDP). The other economies are dependent on exports as a GDP contributor to a large extent. You analyze and realise that there is not much of a comparison.

In addition if you look at the composition of the markets, those markets have got few sectors listed which are very dominant in terms of market cap. For example Hongkong property represents market cap to a large extent, if you look at Taiwan, it is semi conductors. These markets are not as broad based as India in terms of the breadth of the market.

India is an inward looking domestic economy, it is more insulated from global shocks than those economies. So looking at all these factors you feel that you are not comparing apples to apples but apples to oranges.

Only comparing a PE multiple of X country and saying that because X is trading at 10x and India is trading at 17x or 18x makes India an expensive market is incorrect.

What India`s PE is telling us today is that it is building a expectation of growth over the next few years and that confidence is reflected in the PE multiple. I think that when there will be a question of sustaining that growth momentum, only the will the question of de-rating the PE multiple arise and I do not see that happening soon.

How long do you expect the momentum to last?

You can`t put a number in terms of number of years. What one can see is that we have witnessed a consumption led cycle in the last 3 to 4 years and we are now at the beginning of a investment led growth cycle where huge investments are lined up in many sectors. Look at the corporate sector, look at infrastructure sector. If you look at the order book positions of construction companies or capital goods companies, they are reflective of the growth momentum. We are yet to see a significant amount of order inflow happening as many projects are in the finalization or closure stage.

If you look at estimates though, there is an estimate of a USD 200 billion spend by 2012 only from the government, and if you add private sector investment, the number will be much bigger. So capital formation is going to increase in the next few years which will lead to an investment led growth cycle and I don`t see this cycle weakening in the near future.

Do you expect FII flows to continue to remain strong in the near future?

Capital always flows to a place where one expects returns. Today if you compare globally, the economies offering the kind of growth potential that India does, there are not many – in terms of infrastructure, demographies, outsourcing.

All the factors that we are talking about are long term structural stories, they are not cyclical blips which last for 2-3 years. Hence, the confidence that the cycle will last comes from there.

Infrastructure is a long-term capex cycle. Once it starts, it gets into its own momentum. You talk about demographic changes – they happen over decades not over 2 or 3 years. Even the outsourcing story which has been built up over the last 4-5 years is now exploding.

Look at software and IT companies. They are growing at 50 – 60%. That is reflective of the outsourcing potential. We are yet to exploit similar potential in terms of auto, auto-ancillary, engineering, pharma etc.

Is the current rally driven by sentiment or is there a fundamental element to it?

It is difficult to comment on a two or three week rally, as such a rally can happen on sentiment, it can happen due to increased fund flows like we are witnessing in the past month. So the two week data is not indicative of anything.

But what it tells you is that there is a long term investor who believes in the story that we are discussing right now and believes that the story is here to stay for the next many years. He won`t stop buying in the market at these levels even if somebody else believes its an expensive market as he is taking a 5 year bet, like a pension fund or a trust fund or an endowment fund.

These investors are coming in as the market cap has gone upto 800 billion and will possible go up to a trillion dollars in the next two years. They are looking at a 12 to 15% annualized return and if India continues to grow at 8 per cent and Indian companies at 15 to 20%, that return is possible even without a PE expansion, which is what these investors are anyway here for.

You have to understand one thing. There is a different set of investors playing this market now. There is no single investor with a single mindset.

There is a hedge fund who is a short term player, there is a pension fund who is a long term player and then there is someone in between, say like a mutual fund who is neither short term or very long term. Each of these investors have a different objective and a different mandate and they may not coincide together.

The much awaited 13,000 level has been crossed when can we expect 14,000?

14,000 is just a number, but it should happen if it has to.

Before this calendar year?

Possibly. Sooner than later. See every 1,000 point rise from here is not much. Like from 13,000 to 14,000 the market has to appreciate by close to 8%.

Which are the sectors that you believe will be in focus for some time?

Banking, infrastructure, capital goods, cement, auto.

What is your long term view on the market?

In the long term, a 15% annualized return is possible to achieve from equities. If you just compound it, we should be at 20,000 in terms of index by Dec 2009, without any PE expansion.

November 21, 2006

Posted by Bhavin in Stock Articles.
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Suhas Naik, senior vice president (investments) IL&FS spoke to IRIS about the current market trend and shared his investment strategy and views on the India story.

A post-graduate in finance, Suhas is an experienced fund manager with over 12 years of experience with the stock market. He started his career as a research analyst and moved up to managing equity funds at IL&FS Mutual Fund. After UTI MF taking over IL&FS Mutual Fund`s schemes, he joined ING Vysya Mutual Fund as head of equity funds. Suhas today looks after the private equity business of IL&FS and is also on the FII advisory panel of IL&FS.

What is your investment strategy?

All these years I have followed the fundamental strategy. What that means is that eventually valuations tend to trend towards the fundamentals. It has always been a mix of both top-down and bottom-up approach. My experience has been that if you can identify a sector ahead of time, they deliver much better returns to you than an individual stock pick.

Having said that, I would like to add that in India as there are many companies listed which fall under the non-sectoral category, which have value potential, that`s where the bottom up approach comes in handy.

But I would like to reiterate that if you can take a macro call first and identify a sector ahead of time you will outperform the market by a significant margin.

At current valuations do you think the market is fairly priced?

Valuations cannot be discussed in isolation. It is a relative term. Relative to earnings, relative to the economy etc. So whether at 15 or 20 price earnings multiple, a market is overvalued or undervalued is difficult to say.

However, there are certain parameters for every sector to define the fair value of a business and you have different measures and tools to calculate that fair value. That fair value is an indicative price for that business or for the market as a whole. In a bull market, the market keeps trading above that fair value and in a bear market it trades significantly below the fair value. So if the momentum is positive (as it has been in the last couple of years) you are bound to see valuations above the fair value.

If you look at India as a market per se, and take, for example, the index as a benchmark. The index today is quoting at roughly 18 times FY`07 earnings and possibly 15.5 times FY`08 earnings. To find out whether its an overvalued market or an undervalued market you have go sector specific within the country.

As India is a very broad based market with every sector having a representation in the market today, if you analyze sector wise, say for example IT stocks today, they are trading at 30x in terms of PE multiples. Banking stocks are trading at 1.2 to 1.5 times FY`07 adjusted book value. Cement stocks are valued at USD 100 to USD 170 per tonne. So if you look at the sector-wise picture, I think that they are fairly valued. But I don`t think they have gone into a zone where you can say that the valuations are ridiculously high.

In terms of the regional context, is India an expensive market?

As I said, valuations have to be compared relatively. India has the strongest economic growth within the peer group that you are talking about. India has a strong domestic economy, which none of these economies have. India has a huge investment cycle, which is beginning, which again they do not have at this moment.

India has the potential to grow at 8% for probably a decade or two or may be longer.

India`s export contribution to GDP is just 16 to 17% (exports as a contributor to GDP). The other economies are dependent on exports as a GDP contributor to a large extent. You analyze and realise that there is not much of a comparison.

In addition if you look at the composition of the markets, those markets have got few sectors listed which are very dominant in terms of market cap. For example Hongkong property represents market cap to a large extent, if you look at Taiwan, it is semi conductors. These markets are not as broad based as India in terms of the breadth of the market.

India is an inward looking domestic economy, it is more insulated from global shocks than those economies. So looking at all these factors you feel that you are not comparing apples to apples but apples to oranges.

Only comparing a PE multiple of X country and saying that because X is trading at 10x and India is trading at 17x or 18x makes India an expensive market is incorrect.

What India`s PE is telling us today is that it is building a expectation of growth over the next few years and that confidence is reflected in the PE multiple. I think that when there will be a question of sustaining that growth momentum, only the will the question of de-rating the PE multiple arise and I do not see that happening soon.

How long do you expect the momentum to last?

You can`t put a number in terms of number of years. What one can see is that we have witnessed a consumption led cycle in the last 3 to 4 years and we are now at the beginning of a investment led growth cycle where huge investments are lined up in many sectors. Look at the corporate sector, look at infrastructure sector. If you look at the order book positions of construction companies or capital goods companies, they are reflective of the growth momentum. We are yet to see a significant amount of order inflow happening as many projects are in the finalization or closure stage.

If you look at estimates though, there is an estimate of a USD 200 billion spend by 2012 only from the government, and if you add private sector investment, the number will be much bigger. So capital formation is going to increase in the next few years which will lead to an investment led growth cycle and I don`t see this cycle weakening in the near future.

Do you expect FII flows to continue to remain strong in the near future?

Capital always flows to a place where one expects returns. Today if you compare globally, the economies offering the kind of growth potential that India does, there are not many – in terms of infrastructure, demographies, outsourcing.

All the factors that we are talking about are long term structural stories, they are not cyclical blips which last for 2-3 years. Hence, the confidence that the cycle will last comes from there.

Infrastructure is a long-term capex cycle. Once it starts, it gets into its own momentum. You talk about demographic changes – they happen over decades not over 2 or 3 years. Even the outsourcing story which has been built up over the last 4-5 years is now exploding.

Look at software and IT companies. They are growing at 50 – 60%. That is reflective of the outsourcing potential. We are yet to exploit similar potential in terms of auto, auto-ancillary, engineering, pharma etc.

Is the current rally driven by sentiment or is there a fundamental element to it?

It is difficult to comment on a two or three week rally, as such a rally can happen on sentiment, it can happen due to increased fund flows like we are witnessing in the past month. So the two week data is not indicative of anything.

But what it tells you is that there is a long term investor who believes in the story that we are discussing right now and believes that the story is here to stay for the next many years. He won`t stop buying in the market at these levels even if somebody else believes its an expensive market as he is taking a 5 year bet, like a pension fund or a trust fund or an endowment fund.

These investors are coming in as the market cap has gone upto 800 billion and will possible go up to a trillion dollars in the next two years. They are looking at a 12 to 15% annualized return and if India continues to grow at 8 per cent and Indian companies at 15 to 20%, that return is possible even without a PE expansion, which is what these investors are anyway here for.

You have to understand one thing. There is a different set of investors playing this market now. There is no single investor with a single mindset.

There is a hedge fund who is a short term player, there is a pension fund who is a long term player and then there is someone in between, say like a mutual fund who is neither short term or very long term. Each of these investors have a different objective and a different mandate and they may not coincide together.

The much awaited 13,000 level has been crossed when can we expect 14,000?

14,000 is just a number, but it should happen if it has to.

Before this calendar year?

Possibly. Sooner than later. See every 1,000 point rise from here is not much. Like from 13,000 to 14,000 the market has to appreciate by close to 8%.

Which are the sectors that you believe will be in focus for some time?

Banking, infrastructure, capital goods, cement, auto.

What is your long term view on the market?

In the long term, a 15% annualized return is possible to achieve from equities. If you just compound it, we should be at 20,000 in terms of index by Dec 2009, without any PE expansion.

Liquor November 19, 2006

Posted by Bhavin in Stock Articles.
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A few months ago, when SAB Miller snapped up the Foster’s beer business in India, a Dow Jones story began with a quote from American acting legend Humphrey Bogart, who once remarked that the problem with the world was that everyone was a few drinks behind. Having been in the wilderness for quite a while, liquor companies have proved Bogart wrong, catching up with their counterparts in more-fancied industries with a scorching run.

The fizz in the sector was conspicuous by its absence even three years ago. Then, such majors as United Breweries and McDowell’s (now called United Spirits) — the principal players — were trading at around Rs 10 (adjusted for the stock split) and Rs 80 respectively. Now, the stocks trade at Rs 180 and Rs 820 respectively, and the price move has been accompanied by a significant expansion in the earnings multiples accorded them.

In the past, if the bitterly competitive environment and several legal battles in the sector were not bad news enough, the significant bargaining power of suppliers and a hardening of input costs compounded the industry’s woes and made margins anaemic. It was not without reason that the stocks languished. The story is quite different now. The way the stocks have moved is clearly an index of Dalal Street’s optimism about the sector. Here’s a look at what drove the sector’s re-rating and what factors can keep the story sparkling.

United Spirits MD, Mr Vijay Rekhi,

Consolidation: If there’s one word that captures the essence of the sector’s improving outlook, it is consolidation. In pre-consolidation times, even as McDowell’s, Shaw Wallace, Herbertsons and Radico Khaitan slugged it out in the marketplace, it was their fragmentation that turned out to be the industry’s undoing. Moreover, the legal tussles involving the first three did not exactly make for bonhomie on the ground.

The complexion of the business changed with the UB Group finally acquiring the spirits businesses of both Shaw Wallace and Herbertsons. These two outfits, along with a few more, have been folded into McDowell’s to form United Spirits, which will control about 50 per cent of the total spirits market. Apart from giving the business scale, the acquisition also provides the UB Group combine with enough headway to change it cost structure, be it in rationalising facilities, phasing out tail-end brands or optimising advertising expenses.

Radico Khaitan Chairman, Mr Lalit Khaitan

Second, and more important, is the clout that the leading player will command with both suppliers and governments, who are large beneficiaries, courtesy the industry’s multiple tax payouts. Packaging constitutes a key component of costs; it is estimated that the entire UB Group’s demand for glass bottles (the primary packaging material) accounts for 40 per cent of the total demand for this product. From a situation where the supplier of bottles was calling the shots, the tables have been now turned. The industry is also experimenting with other variants, such as plastic bottles, laminated paper packs and cans, which should reduce dependency on glass. Bargaining power with governments should also improve, at least in terms of the industry being able to push through cost-based price increases. These moves should lead to the industry being able to cushion the impact on margins in the event of the cost of key raw materials heading north.

Demographic composition: India’s demographics will be the key driver of liquor consumption in the medium term. Close to half of India’s population is under the age of 25, and represents a growing target segment for alcoholic beverage companies. Juxtapose that with an economy that is in healthy shape and the proliferation of jobs in the services sector that leaves a sizeable disposable income in the hands of a young target audience, and it is clear why liquor manufacturers have good reason to smile.

The attractiveness of the market is also the key reason why we believe it is only a matter of time before foreign majors make an aggressive pitch to capture a slice of the action. In the beer business, leading names such as Anheuser-Busch and InBev, to name just two, could be potential entrants, what with several breweries under construction in the northern States. On the spirits side, Diageo, the largest drinks company in the world, has already inked a joint venture with Radico Khaitan for a new line of products. In time, choice, it seems, will be the buzzword for the Indian consumer.

Improvements in distribution: Changes on this front have been slow-paced, but whatever little has happened in recent times has been for the better. The principal change has been the move from an auction-controlled mode of distribution to a government-controlled one in the key States of Punjab and Haryana.

The former mode is characterised by cartelisation and is the least-preferred mode from a manufacturer’s standpoint. With distribution in more than two-thirds of the market under government control, regulatory imposition would continue to be stringent.

However, with governments also exhibiting signs of taking a favourable view on price increases — on account of input cost pressures — this should provide a leg-up to the industry’s profitability.

Sector outlook

We tend to view the industry’s prospects as attractive, given the inherent strengths of the incumbents, the high barriers to entry for new players in terms of procuring licences and tying up nation-wide bottling arrangements and the long gestation period involved in building brands, especially as there is a ban on direct advertising.

Within the sector, we are more inclined towards stocks of spirits companies, as opposed to beer businesses. It is strong versions of beer that are registering good growth and, given the extant tax structure and the resultant pricing, it could be argued that consumers will migrate to the spirits category. Though patterns are changing, beer consumption continues to display seasonal trends; further, the competitive intensity in this business is higher, as the market is a two-way fight between UB and SAB Miller, and the latter’s deep pockets cannot be discounted.

Stock view

In the listed space, we believe that United Spirits is a good play on the Indian consumption theme, more so after the consolidation has bestowed on it significant size and scale. But the stock’s sharp run-up in the homestretch to the completion of the restructuring exercise makes us adopt a cautious stance. We recommend an entry into the stock on dips from the current level; investors who have entered the stock at lower prices can retain their holdings. We also suggest that investors of United Breweries retain their holdings.

Investors can consider buying into Radico Khaitan in small lots. The company has made significant strides over the past few years and has a 12 per cent market share.

Its recent tie-up with Diageo for a new line of products can be viewed as a positive and opens up opportunities for Radico to capitalise on the former’s equity and take these new brands abroad. Also, its setting up of a grain-based distillery gives it a platform to export into European markets and also acts as a hedge domestically, if price movements of molasses turn adverse. Domestic prospects also look encouraging. Buy in small quantities, to give your portfolio a kick!

Real Estate Boom. November 19, 2006

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Foreign investors’ growing appetite for the booming Indian property market will enable the sector to increase its share in total FDI inflow into the country by at least 10% in FY07, a study by industry body Assocham said.

The study – Future of Real Estate Investment in India – projects that in FY07 the total foreign direct investments into India would be about $8 billion, of which the share of the real estate sector is estimated at 26.5%.

In FY06, the share of the realty sector in the total FDI of $5.46 billion stood at 16%.

Rising demand of office space from IT and ITEs sectors is attracting overseas investors to pump money into India, the study says. The overseas investments will also be finding larger space in Indian SEZs and shopping malls.

The study forecasts the Indian real estate market to grow by more than three times to reach $60 billion by 2010 from the present $16 billion, of which the share of foreign investments would be in the range of $25-28 billion.

The study attributed the massive flow of FDIs in India’s property market to China’s real estate market reaching its saturation level. Besides, foreign investors prefer to invest on freehold land, which is available more freely in India.

The sector has already evinced interest from a number of foreign investors, including Royal Indian Raj, Blackstone, Goldman Sachs and Emmar properties, who have announced their plans to collectively invest over $6 billion.

Royal Indian Raj International plans to invest $2.9 billion, followed by the Blackstone Group and Goldman Sachs with $1 billion each and Emmar Properties with $800 million.

Midcap Revised. November 12, 2006

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The mid-cap rally skidded in the May-June market meltdown after the sustained bull run of the past three years. Just before the meltdown, there was a point at which the mid-cap valuations of select stocks across different sectors had run ahead of the large caps. No wonder, the correction, when it happened, turned out to be pretty brutal and across-the-board for the mid- and small-caps.

Between May 10 and June 14, when the Sensex touched the earlier all-time closing high of 12,613 points and a low of 8,929 points, the statistics prove a point on the mid-caps and emerging large-caps languishing relative to the broad market.

We categorise mid-caps as stocks trading with a market capitalisation between Rs 500 crore and Rs 2,000 crore, and emerging large-caps at Rs 2,000-5,000 crore market cap.

Of the 400 stocks with market cap of Rs 150-6,000 crore, 320 shed over 30 per cent in value and 78 stocks shed more than 50 per cent in this period.

Despite the market shooting past the 13,000 mark earlier in the month, over 230 of these 400 stocks are still trading at levels that are at least 10 per cent lower than their earlier peak of May 10, of which 160 stocks are trading 20 per cent lower, 90 of them trading at least 30 per cent lower. Only about 85 stocks are trading higher than their May 10 prices.

In this backdrop, here are a few mid-cap/small-cap recommendations that are largely stock-specific across different sectors (see story below).

These stocks may be appropriate for investors who are looking at a 20 per cent return over a one-year time-frame.

We have used a whole host of financial variables, including computation of cash earnings and free cash-flows, to arrive at the stock picks across different sectors.

Apart from quantitative criteria, we have also kept in mind qualitative factors such as management quality and execution record, to some extent while selecting the stocks.

We are conscious of the possibility of a correction at these levels, if external variables turn negative on the interest rate or crude front. And the possibility that such a correction could hit the mid-cap stocks harder than the large-caps. But, this time around, since the valuation of most large-caps look stretched, relatively speaking, a correction may hit them more than the mid-caps.

However, our confidence in the underlying strength of the market stems from the strong macro-economic fundamentals that can trigger the re-rating among the mid-cap stocks.

Since the FII and mutual fund liquidity that had dried up after the meltdown is slowly coming back, the possibility of mid-cap stocks finding favour among FIIs is fairly high.

In the past, it has been found that FII re-rating has been a strong mover of stocks from the mid-cap to emerging large-cap category.

Since the valuation of large-cap stocks appears stretched, there is a good chance of investors moving down the pecking order in their search for value-cum-growth picks.

US Markets Down. November 10, 2006

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U.S. stocks were under pressure Thursday, weighed down by weaker-than- expected consumer sentiment data and higher crude prices, as the market broke from a recent vigorous rally.

The Dow Jones Industrial Average (DJI) last was off 60 points at 12,115, with 20 of 30 components contributing to losses.

Within the Dow industrials, losers were led by drugmakers Merck (MRK) , which was down more than 3%, and Pfizer (PFE) , which fell nearly 3%.

Hewlett-Packard Corp (HPQ) tacked on 1.8% to lead the winners.

The S&P 500 (SPX) slipped 4.10 points to 1,381.62, while the technology-rich Nasdaq Composite (RIXF) gave up gains to trade down 0.45 point at 2,384.48.

Thursday’s lower prices followed a boisterous rally Wednesday that saw the Dow industrials end at a record after Democrats, who called for greater fiscal responsibility, took control of the House of Representatives for the first time in 12 years..

“It’s a pretty quiet day,” said Paul Nolte, director of investments at Hinsdale Associates. “The S&P 500 and the Nasdaq are hardly moving, and the weakness in the Dow is mainly in a few pharmaceutical stocks.”

“To me this is a very minor correction, after a pretty good run-up. All the excitement today is in the gold and oil markets,” Nolte said.

“Investors are returning to company fundamentals today,” said Charles Campbell, senior trader for Miller Tabak. “The full and long-term implications from the elections have not yet been felt. Investors will become concerned if there is talk of protectionism in the weeks and months ahead.”

On the data front, the U.S. Commerce Department said the trade deficit narrowed by 6.8% to $64.3 billion, which was the largest narrowing since December 2004, and slightly below the consensus forecast of a $66.3 billion deficit.

Other data reports pointed to economic weakness. The University of Michigan’s consumer sentiment report fell to 92.3 this month from 93.6 in October. Economists polled by MarketWatch had expected a reading of 93.8.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the report showed that “the boost to confidence from the plunge in gas prices is over.”

The Commerce Department said wholesale inventories reached their highest level relative to sales in over a year.

In the broad market, there were 1.18 billion shares traded on the New York Stock Exchange, where declining stocks outnumbered advancing shares by 17 to 14. About 1.678 billion shares traded on the Nasdaq market, with 9 falling stocks for every 5 on the rise.

By sector, networkers (NWX) got a lift from Cisco’s results, and gold stocks ( GOX) rallied along with the precious metal. Other sector gainers included computer hardware (GHA) and oil services (OSXX) .

Pharmaceutical stocks (DRG) fell for a second day in a row on concern that the Democratic Party-controlled Congress could enact laws that might lead to lower drug prices.

Airline stocksalso fell, weighed by the rise in crude prices.

Dollar pulls back, crude spikes

The U.S. dollar erased earlier gains against the yen to trade mostly lower against its major counterparts, on reports that China’s top central banker said there were concrete plans to diversify its foreign-exchange reserves, which recently reached the $1 trillion mark.

Outside of currencies, other instruments China said it would use to diversify its reserves include oil and gold.

Crude oil for December delivery gained $1.11 to $60.94 a barrel, and reached a 2-week high of $61.20 earlier in the session, while natural-gas futures shot up nearly 4% on continued concerns over supply declines..

Gold futures rallied to a two-month high, in line with higher energy prices and concerns about the economy and dollar. The December gold contract closed up $18.50 at $636.80 an ounce, as they aimed to end a three-session losing streak.

The bond market seesawed around unchanged levels in volatile trade, with the 10-year Treasury note last up 1/32 at 101 28/32. The yield (TNX) was at 4.64%.

Corporate news

Networking sector bellwether Cisco Systems (CSCO) reported late Wednesday fiscal first-quarter earnings that rose 28%, and revenue that grew 25%, amid surging demand among telecommunications providers. UBS followed by upgrading the stock.

The results topped expectations, as did the company’s fiscal second-quarter outlook, sending the stock up 6.8% to $26.82.

Shares of media giant Viacom (VIA) were down 3.2% at $38.41. The company reported a 16% decline in third-quarter earnings, but the results topped analyst forecasts. The company also said its chief financial officer was resigning.

Dow component 3M Co. (MMM) said it would sell its global branded pharmaceutical business for a total of $2.1 billion. That stock lost early gains to trade down 50 cents at $78.92.

Hewlett-Packard (HPQ) , also in the Dow, rose after Goldman Sachs raised its earnings estimates and price target for the stock, ahead of what was expected to be strong fiscal fourth-quarter results. The stock gained 1.9% to $39.60.

Regulator Unconcerned!! November 5, 2006

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Index funds are among the best options for investors who do not have the time to research stocks and monitor their portfolio. But fund companies do not promote index funds because they do not want the investing public to know the obvious superiority of this particular product. Index funds simply buy all the stocks represented in a popular index and therefore the performance of such a fund tracks the movement of the index. Since this is too simple a method to follow for buying stocks, the fund management companies do not want to promote it. After all, their pitch to investors is that they extensively research sectors and companies, which involves spending crores of rupees to pick a few right stocks from among the thousands that will give you great returns. This pitch is often not true, as various articles in this magazine have proved.

In the US, however, index funds have proved greatly popular because most fund managers who are picking stocks (called active management) are not able to beat the popular indices. The longer the term, the better is the outperformance of indices. Since index funds merely replicate the index, which does not involve great stock-picking skills, the cost of running such funds should be really low and therefore the load on index funds should be a fraction of what actively managed funds charge. In the US, they are. In India they are not and the regulator does not bother to segregate index funds from the rest regarding the fund management fees. Index funds charge the same fee as actively managed funds, a ridiculous aspect of fund industry which seems to escape most expert commentators on funds.

This is bad enough. What is worse is LIC MF has just revised the load structure for all its plans under Index Fund i.e Nifty, Sensex and Sensex Advantage. From 1st September 2006 onwards, the fund company will charge an entry load of 2.25% irrespective of the amount of investment. This entry load was earlier restricted to fund investment below Rs 1 crore. There is also an exit load. This is adding injury to insult. LIC MF in fact is among the worst performing equity funds and should have gone for indexing in a major way. Besides, given the long-term, stable nature of investment portfolio that life insurance companies maintain, it should have been in the DNA of LIC MF to promote passive investing or index funds. Clearly, one cannot depend on fund companies to do the right thing. Unless the regulator steps in to force the costs down, retail investors will be deprived of the benefits of indexing. But the regulator seems unconcerned.

Rupee Rising. November 3, 2006

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The partially-convertible Indian currency rose 0.8% on the week to close at 44.82 per dollar. The rupee gained the most against the dollar in a week since January, spurred by strong foreign capital inflows into the stock market, lower crude oil prices and the dollar’s decline in overseas markets.

The partially-convertible Indian currency rose 0.8% on the week to close at 44.82 per dollar, a six-month high. It is up 0.2% from yesterday’s close of 44.8962. Last week, it closed at 45.1925. This is the sixth consecutive week when the rupee has risen against the dollar.

According to experts, the rupee may rise to 44.50 shortly, if foreign money keeps coming into the stock market and oil prices remain low.

Foreign Institutional Investors (FIIs) pumped in US$220.6mn into Indian shares on Oct. 30, the most since Oct. 13. FII inflows in October stood at US$1.46bn after investing US$1bn in the past couple of months. This helped the benchmark BSE Sensex to cross the 13,000 mark on Oct. 30.

The rupee, up close to 4% in the past three months, is the second-best performer among 15 currencies in the Asia Pacific. Against a basket of currencies of India’s main trading partners it is overvalued by 7.2%.

HEG On Buzz. November 3, 2006

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If news reports are to be believed, it appears that Mittal Steel’s Lakshmi Mittal is looking at acquiring stake in HEG.

A news item published in DNA states that “Steel tycoon Lakshmi Mittal is trying to build up repositories of raw material needed to make his favourite metal in India.”

Reacting to the news on a television channel, Ravi Jhunjhunwala, CMD of HEG termed the report as ‘speculative rumor.’ In a notice sent to the Bombay Stock Exchange, HEG stated that reports regarding Lakshmi Mittal acquiring a stake in the company are speculative.

Interestingly, the statement also adds that the company is focused on strengthening its technology and capability-led leadership status in the marketplace, where its high-quality products are accepted by a set of sophisticated and discerning customers that includes some of the largest steelmakers worldwide.

Will it be LK Mittal or some other ‘largest steelmaker’…. only time will tell.

GOLD and STOCKS any relations? November 3, 2006

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Gold had the best rally in twenty years. The gold bugs even cannot believe the same. This happened when the dollar index was relatively stable. The gold market that was manifesting stagflation for the last three years is now showing confirmation for something much moiré dangerous.

If gold market is correct, a global financial meltdown is evident. The world financial system heading for a crisis because on coming overt trade wars. America is protecting its farmers, so is EU and many other countries. That disagreement in World Trade Organization is going to spill over in other especially service sector.

History repeats itself. If you take the quantitative models that led to 1929 meltdown, you will find similarities. The difference between then and now is gold. That time gold was officially the currency (by default) that all could trust. The lack of gold standard now has created an artificial dip in gold market. Now the smart money is finding how they were totally wrong in neglecting gold and trusting major currencies.

The global currency meltdown is what gold is predicting in 2007 and 2008. That will collapse world stock markets and the world economies will plunge.