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Sunday 30 September, 2007

US bull market coming to an end: Rakesh Jhunjhunwala

Source: Moneycontrol.com

Rakesh Jhunjhunwala, Investor and Trader said that the US housing market is unlikely to bottom in mid-term. He added that US economic growth was unsustainable.

According to Jhunjhunwala the bull market in the US had signs of excesses. He said that he believes that the US bull market is coming to an end. Jhunjhunwala forsees a big slowdown for techs if the US markets slow down.

He added that interest rates and commodity prices will also come down.

Excerpts from Rakesh Jhunjhunwala's speech at Capital Markets Seminar:

It is difficult to believe that the largest holder of the US treasury bonds is China. To me, I think it is geo-politically very sensitive issue and if I were to be the President of America I would redeem them the next day. They have forgotten where Hindi-Chini bhai-bhai led (Indians) to.

Having said that, the US economy was the engine of economic growth worldwide. It was an unsustainable methodology of growth, where you borrow, borrow,borrow and consume, consume, consume. Also we had a 25-year bull market in America and all bull markets, regardless of regulators, always produce excesses. Excesses are not products of loose regulations but more products of bull markets because then markets make people lose their sense and they become absolutely greedy.

I personally believe that the US housing market is not going to bottom in the next 36 months; because you built 21 million houses in 2 years as against 16 million every year. So you build one million extra and at least out of those 16 million normal ones, 40% of the houses in the last two years have been sold to subprime and allied alternatives.

In Miami, you have a building boom amongst the housing bust. So I think the world is underestimating the consequences of this subprime or the meltdown of the US housing. There was a vicious cycle in America where you gave money to people on credit to people who could not afford USD 50,000 - you gave them half million dollars; not based on their ability to pay, but on the value of their capital assets. They primarily drove the buying of houses in the last 24 months.

On interest rates:

It is not the question of interest rates. No one in his right sense now is going to give loans to sub-prime mortgages again. The resets are just starting.

So I foresee a few things.

One, the problem in the housing market problem is going to get worse because there will be a lot of foreclosures. Two, there is lot of housing under construction which cannot be stopped immediately. And third, people say there is full employment in America. But housing is 70% of America’s GDP and that itself would lead to a slowdown in America.

This slowdown in the housing industry is going to lead to a slowdown in the US economy. This again, would mean lower wages and lower employment, which could result in greater housing loan repayments defaults.

I read an economist saying that Europe has had faster increases in housing prices than America. There is a very large subprime market even in Britain. So I think this will continue to transfer itself even to Europe.

I believe there have been great excesses in the US bull market. That bull market, in my opinion, is coming to an end and the real excesses will be exposed only after the bull market is over.

Though at the moment we are all very happy and feeling that this is something like long-term capital management or the Russian debt crisis, where the Fed reduces interest rates and all problems go away. I do not believe that because credit is not only available on cost; it is also a question of risk appetite to borrow and risk appetite to lend.

So I think that credit is no longer going to be available in America or if it is, it is going to be available in a measured manner. There is going to be a slowdown in America.

There are various opinions that if US interest rates comes down money will flow into emerging markets. Let us put the impact in two parts – one, how they will affect economic activity and how they will affect asset prices.

On India:

As far as India is concerned, I personally foresee a big slowdown for the software industry. I do not think that if America slows down; more work will come to us. I think if America slows down, more work could come 36 months later. I think 25%-30% IT budgets are discretionary and there will be big cuts in IT budgets.

As far as other Indian exports are concerned, I do not think they are going to be affected very substantially. As far as commodity prices go, I think they will come down. Interest rates also will be down, which is good for India.

US is a very dynamic economy; it has great self-correcting measures. This recession in America depends on factors like whether it is going to be orderly, or create a lot of disequilibrium etc. If it is an orderly one, I think Indian markets will be not be affected to a very large extent. But if it is a huge disequilibrium, then things are going to be quite unpredictable.

Simple Calculators for Simplifying your Finances

Look at some tools and calculators for your personal finance decisions

How to invest in Stock Markets?

Tips and advice for stock market investors:

1. You will never succeed in Share Markets if your investment decisions are based on tips from Brokers and friends. You should study the markets, analyze the trends, take calculated risks and then invest in stocks.

2. Learn lessons from failures. Even great investors like Warren Buffett suffered losses in his early days.

3. Identify your risk profile basing on your age, economical status, risk bearing capacity and future needs.

4. Never put all your money in single investment portfolio. Diversify them.

5. There are no shortcuts to earn money in share markets. You should work hard to make money in stocks as in other fields.

6. Never follow herd mentality. Buy valuable stocks when panic investors are selling them. Sell over valued shares when all are buying them. Never afraid to buy a fundamentally strong but undervalued stock. This is the key to the success of Warren Buffett. This is called Value investing.

7. Large caps are secure while midcaps give high returns. Identify the future sector and find the best stock in that sector. Accumulate those stocks. Power and Shipping are the future growth sectors in India.

8. Never invest in Z category stocks or rupee stocks just for the sake of high returns.

9. Never invest without stop loss and target. Never change them without any specific reason.

10. Read at least 2 business news papers and investment magazines.

Take care, happy investing!

When to sell a Stock?

Selling a stock at the appropriate price is the most difficult task for any Stock Market investor. Basic rule of Investing is minimizing the losses and maximizing the profits.

When to sell a stock?

1. Has the stock reached your target? Never change your target without any specific reason.

2. Has the share price fallen dramatically? It is a warning signal.

3. If Company’s recent results are not good or Company’s growth prospects are poor.

4. If the price of the stock reaches new highs within a small time.

5. If stock price does not justify the inherent strength of the company.

6. Is company feeling the pressure on its margins?

7. Is there any good stock available at valuable price in the same sector whose growth prospects are better than the present company?

8. Are there any recent allegations on the management? Ethics are more important in the long term.

9. Never buy/sell a stock just based on the recommendation of a broker or Friend. Do your own research before buying or selling any stock.

10. If you are a long term investor, never sell a stock due to decline in price in 2 or 3 trading sessions.

Advice is easy but practice is difficult. Learn the art of selling a stock by booking maximum profits.

Tough road ahead for Indian share markets... !

Indian shares could correct sharply in coming weeks after hitting a series of record highs on unprecedented overseas fund flows, analysts say.

Lifted by a tide of foreign money, Indian shares have climbed 25.4 per cent this year to hit a record 17,291.1 points last on Friday. The rise "has been too dramatic," said Atul Mehra, capital markets head at Mumbai brokerage J M Financial.

"Share valuations definitely appear stretched," he said. Indian shares have risen by over 10 percent just since September 18 when the US Federal Reserve cut interest rates by a surprise 50 basis points, resulting in a flood of money into emerging markets as investors sought better returns.

A key signal of a potential looming correction in the Indian market is that so-called "market breadth" has weakened, analysts said. More shares have lost ground than gained in a rising market for five consecutive trading sessions, suggesting weakness ahead, they said.

"This is the excitement before a climax," key independent Mumbai equity broker Rakesh Jhunjhunwala said. "The markets may rise a bit more, towards 18,000 or even 19,000 points, but there is a huge correction coming." Also price-earnings (PE) ratios, a common measure of whether a share is overvalued that divides the price of a stock by its earnings per share, are looking high, analysts say.

Right now the average price-earnings ratio is 16.8 times which represents "a 15 per cent premium to the long-term average of 14.6 times," UBS analyst Manishi Raychaudhuri said in a report. UBS has its Sensex target for end 2007 at 16,300 points while HSBC Securities is more bearish with its target at 14,250 points.

Foreign funds have invested $12.23 billion in Indian equities in 2007, lured by record economic expansion, beating the previous record of $10.7 billion set during full-year 2005. India logged first-quarter growth of 9.3 per cent, the world's fastest after China.

Investor bullishness on India has been bolstered by the view that the country should escape major fallout from the US subprime credit turmoil thanks to its largely insulated economy. While the nation of 1.1 billion people has been gradually easing rigid state controls on trade and investment and opening up its economy, analysts say it remains far less exposed to global financial upheaval than many countries.

Indian shares have risen nearly 18 per cent since July when significant credit concerns surfaced in the United States. Andrew Holland, strategic investment director at DSP Merrill Lynch in Mumbai, forecast that 2008 would be "a difficult year for equities, including India.

"We could see greater flows in the form of foreign direct investment (FDI) rather than overseas fund flows (into shares)," he said. Political uncertainty also hangs as a question mark over the market, analysts said. The ruling Congress party and its communist allies are locked in a standoff over a civilian nuclear technology deal with the United States which the Left says makes New Delhi's foreign policy subservient to Washington.

"The strongest catalyst to uncertainty in 2008 could be an early general election. Election outcomes are usually sources of significant volatility in Indian markets," UBS's Raychaudhuri said. "In that event, not only could valuations suffer, but the capex (capital expenditure) cycle could also slow temporarily," she said.

How far will the rally go?


The last seven days have been a dream run for equity investors. Even before many investors anticipated the recovery of the markets, the recent 1,000 point Sensex rally has come as a relief. As in the past, new levels are being projected simply because of the momentum in the market place. In such a scenario, those who advice caution may look out of place but here is why one needs to be cautious.

High crude prices

Till a couple of years ago, stock market analysts kept a close watch on global crude prices. But that has been replaced by interest rates, and as a result, the current surging oil prices have been completely ignored. However, one needs to keep an eye on this key raw material which could have a spiraling effect on production costs. Though the consumer has been insulated by the rising prices, the higher costs are being absorbed in the system through other mechanisms. Ultimately, such costs would have to be borne by domestic users.

Interest costs

The interest rate has been the most debated topic in recent months and this got a further fillip thanks to the soft interest rate regime in the US. Interestingly, in India, there has not been much impact on the domestic lending rate with banks continuing to maintain their prime lending rate in the region of 14 percent. In the case of home loans, there is not much change as those who have lowered the lending rates have done so purely for a shorter period of time. Such rate cut announcements have been largely due to the relatively low off-take.

Historic perspective

While it may be tempting to assume that the current momentum and liquidity in the system would carry the Sensex to a new high on a regular basis, history has shown that every momentum rally has been followed by a good corrective phase for a healthy equity market. The current rally may extend up to the results season or even beyond that, but the law of averages is bound to catch up with the Sensex and one can surely expect a healthy correction in the short term.

That should, however, be a concern for short-term investors, and long-term investors will have to keep in mind the volatility. Those who make fresh investments at current levels may have to be prepared for pain in the short term. But in the long term, the Indian equity story remains intact. Not only because the Indian corporate sector has continued to post annual growth rates of over 20 percent, but also because for global investors, the Indian equity market has become a necessary asset class.
Investing in a bull market
The stock markets are brimming with optimism. Money is pouring into the market like never before. The index has embraced unimaginably new highs. For now, it appears that the bull-run is at the horizon. For a true bull market, at least 20-25 per cent of the stocks must be on an increase and that too for a sustained period say two years. An upswing market is considered a good time for the investor.

What sort of a strategy must investors adopt to make it rich in a bull run? It is not unusual to find some stocks faring poorly in a bull market and some doing exceptionally well in a bear market. A bull run implies a booming economy, low unemployment rate, high production of goods, and low inflation.
The market ups and downs follow cyclic patterns.

For now, it is the time of rising index and increasing volatility. In a bull run, investors follow the formula 'buy low and sell high'. It is now time for investors to sell their stocks and book profits. Investors need to make well-educated and investigated investments in the markets.

Mere speculation can prove costly. Suppose in a bear market one stock fares poorly. An investor who has done enough research will know the reason for its fall. There may be something fundamentally wrong with the stock and the company policies.

Or the slide in the stock's price will be a reflection of general pessimism pervading a bear market. If an investor knows that it is the latter, he will stay calm and may be even add more stocks of the company to his portfolio. On the other hand, if he believes that something is fundamentally wrong with the stock, he may decide to sell it and stop further loss.

The scenario holds much the same in a bull market. Some stocks may become highly overpriced. An overpriced stock in a heated market is sure to burst when the bull run ends. Some investors prefer to sell all their shares and make profits. Another strategy is to sell some of the shares and buy back the stock when the price falls back to reasonably low levels.

The value of equities tends to rise fast in a bull run. Predictably, the equity investments in your portfolio will become disproportionately higher. Depending upon your age, objectives and financial obligations, you would have arrived at an asset allocation plan.

In order to stick to the asset allocation, make a judicious down-sizing of the equity component. This will provide ample cushion in case the bubble bursts and markets fall. In a bull run, investigate the real value or worth of the stocks. Do not invest in overpriced stocks. It is advisable to sell overvalued stocks. Exit immediately if you feel the prices have gone up adequately.

Invest regularly. The power of compounding and systematic investment plans goes a long way in wealth accumulation. Finally, bear in mind that there are no permanent bull and bear markets. Disciplined investing and avoiding speculation will help investors

Source - ET

Global real estate funds to invest $ 5 Bn in India

International real estate funds are expected to pump in $ 5 billion into the Indian real estate market by the first quarter of 2008 in addition to the $ 3 billion they have already invested in the country, according to private equity players, reported FE. While Yatra, a company listed on the European bourses, will raise Rs 500 crore, Canada-based Trinity Capital too may hike its exposure in the Indian real estate market. Besides this, PE firm Blackstone, Deutsche Bank, Morgan Stanley and Warburg Pincus are all planning big in India, and so are global real estate developers such as Tishman Speyer, Hines, Ascendas, Nakheel and Emaar.

Explaining the rationale behind the move, Anuj Puri, country head and chairman of global property consultant Jones Lang LaSalle Meghraj, explained, “These international real estate funds have already invested in the Indian real estate market. The real estate segment here provides better returns on investment to global investors and developers as compared to countries of their origin or most other countries of the world. The return on investment on development projects vary from 25% to 35% per annum. The return on rental incomes vary from 7% to 9% on residential properties and 10% to 12% on commercial properties. The real estate market in India, at present, is of the size $ 12 billion, and is likely to grow to $ 50 billion by 2009-2010.”

According to Ganesh Raj, senior partner and head, real estate practice, Ernst & Young India, “In order to meet the increase in urbanisation, rise in population, denuclearisation of families and demographic shifts, around 10 million new housing units are needed to be added every year, which translates into 5 billion sq ft of additional space to be built per year, assuming the size of an average dwelling unit at 500 sq ft.”

Besides this, there is also an added demand for 25 million sq ft of retail space in the country every year. There is an estimated demand of 60 million sq ft of office space per year for the next five years, requiring an estimated investment of $ 7 billion per annum. “Without international real estate funds and international developers pumping in huge money, it is difficult to meet such huge growing demand in these fields. Also, there will be more transparency in the organised investment system,” added Puri.

Inflation at 5-yr low

Inflation at 5-yr low 3.23% due to decline in food prices


The inflation number has come surprisingly lower and that is a huge development for the bond markets. One was expecting a higher inflation of 3.47% or 3.50% but actually the week-on-week inflation has dipped rather considerably.


The inflation number has come surprisingly lower and that is a huge development for the bond markets. One was expecting a higher inflation of 3.47% or 3.50% but actually the week-on-week inflation has dipped rather considerably.

Inflation is quite lower than the market expectation and expectation of RBI as well. Till the end of November, it is largely a statistical play, which will show but the headline and inflation index has actually come off the four ticks lower. So it might be a beginning. Primary articles are showing some softness very clearly and may see inflation hovering well below 4% until November. The key to all this is how does the government decide about the fuel prices, is it completely the burden on the oil bonds or does it really pass some bit of it on the consumers as well? Even if it does, estimate shows that it is unlikely to cross even 4.75-5% through the year.

Inflation is a positive factor where interest rate scenario is concerned. Interest rates by RBI estimates are not likely to be looked as its more the liquidity management. Currently if one look at the RBI intervention in the forex markets, clearly the pressure is once again on liquidity. RBI did MSS off dated bonds few days ago but the MSS trigger is close to 1,35,000 and the first option that RBI would look at is see for a ceiling of MSS limit rather than go in for a CRR hike. There is a huge influx of liquidity despite lower inflation, RBI may not look at a rate cut.

Inflation has come in at close to a five year low of almost 3.23% for the week ended September 15 due to a decline in food prices. These numbers are below expectations. 3.5% was what the market was expecting. But inflation has actually come in lower, both week-on-week and year-on-year, inflation has fallen. So, there is no taking away from the importance of that number and inflation number has fallen largely because primary products have fallen, that means food articles have fallen, which is a very good sign.

This kharif has been better than what market expected. This kharif season, it was expected that the long range monsoon forecast will be about 2 percentage points lower than the long-term average. It has actually turned out to be 5% better than the long-term average. So, kharif is better than expected and that perhaps has started to impact food prices. That is genuinely a positive. We cannot run away with the thought that inflation will continue to go lower. The base effect is wearing off. Also, a look at crude prices and a look at the global metal prices, perhaps the trend will not continue, but no taking away from the positive part of this news. Inflation is lower, and largely because of food articles which is good.

Alternately, the other way to suck out the liquidity is to increase CRR, cash reserve ratio means the amount of cash that banks have to keep as a percentage of their deposits is being increased. At the moment 6.5% they can hike it to 7% that is another way of keeping out cash. Now the pros and cons of a CRR hike. If you do hike the CRR hike in the past it has sent a rate hike signal to the market. Now that could be justified by the RBI Governor because even if the Wholesale Price Index is coming down, the Consumer Price Index, which was announced today, is at a high of 7.25% for industrial workers for the month of August. Also credit loan growth by banks which was falling in the first half in this last reported fortnight of September has actually gone up. So, perhaps the RBI Governor could be justified in hiking the CRR. On the other hand, the market is also of the opinion that even if CRR is hiked, perhaps rates will not go up. So, the whole point is that because of this rush of liquidity, there is a speculation that CRR could be hiked. But going by market rates today, it looks like the CRR is not being expected at least till October 30, that is the credit policy.

BOARD MEETINGS


Abbott India Ltd
30/09/2007
Quarterly Results



Arihant Foundations & Housing Ltd.
01/10/2007
To issue convertible warrants



CHD Developers Ltd.
01/10/2007
To convert preferential warrants



Modi Rubber Ltd.
01/10/2007
Quarterly Results



CCL Products India Limited
01/10/2007
Quarterly Results



Ashco Industries Ltd.
01/10/2007
Interim Dividend



Cenlub Industries Ltd.
01/10/2007
Others



Oricon Enterprises Ltd.
01/10/2007
Audited Results & Dividend



Jumbo Bags Ltd.
03/10/2007
Preferential Allotment



Silverline Technologies Ltd.
03/10/2007
To review the process and progress



Kaashyap Technologies Ltd.
04/10/2007
To consider the Preferential allotment



Supreme Petrochem Ltd.
04/10/2007
Amalgamation



SPL Polymers Ltd.
04/10/2007
Amalgamation



Radhe Developers (India) Ltd.
04/10/2007
To consider further issue of shares



Bala Techno Global Ltd.
04/10/2007
Scheme of Arrangement



I-Flex Solutions Ltd.
04/10/2007
Additional investment & ESOP



Steel Strips & Tubes Ltd.
04/10/2007
General



Garden Silk Mills Ltd.
04/10/2007
Audited Results & Dividend



Southern Online Bio Technologies Ltd.
05/10/2007
To consider the Preferential Issue



Mega Fin (India) Ltd.
05/10/2007
Audited Results



Refex Refrigerants Ltd.
05/10/2007
Quarterly Results



Sintex Industries Ltd.
06/10/2007
Quarterly Results



Shiva Fertilizers Ltd.
08/10/2007
Change in object Clause of the Co.



Prime Securities Ltd.
09/10/2007
Quarterly Results



Prism Cement Ltd.
09/10/2007
Quarterly Results



iGATE Global Solutions Ltd.
10/10/2007
Quarterly Results



Power Finance Corporation Ltd.
10/10/2007
Quarterly Results



Phil Corporation Ltd.
10/10/2007
Audited Results & Quarterly Results



Spice Communications Ltd.
10/10/2007
Quarterly Results



South Indian Bank Ltd.
10/10/2007
Quarterly Results



Infosys Technologies Ltd.
11/10/2007
Quarterly Results & Interim Dividend



Aban Offshore Ltd.
12/10/2007
Quarterly Results



Tata Metaliks Ltd.
12/10/2007
Quarterly Results



GRUH Finance Ltd.
12/10/2007
Quarterly Results



Infrastructure Development Finance Company Ltd.
14/10/2007
Quarterly Results



Tayo Rolls Limited
15/10/2007
Quarterly Results & Right Issue



Xpro India Ltd.
15/10/2007
Quarterly Results



Reliance Chemotex Industries Ltd.
15/10/2007
Quarterly Results



BOC India Ltd.
15/10/2007
Quarterly Results



HCL Technologies Ltd.
17/10/2007
Quarterly Results & Interim Dividend



Infotech Enterprises Ltd.
17/10/2007
Quarterly Results



Kirloskar Oil Engines Ltd.
18/10/2007
Quarterly Results



Chowgule Steamships Ltd.
18/10/2007
Quarterly Results



Maharashtra Scooters Ltd.
18/10/2007
Quarterly Results



CMC Ltd.
19/10/2007
Quarterly Results



Bajaj Auto Ltd.
19/10/2007
Quarterly Results



Millars India Ltd.
22/10/2007
Quarterly Results & Interim Dividend



Foseco India Ltd.
22/10/2007
Quarterly Results & 3rd Int. Dividend



Rajesh Exports Ltd.
22/10/2007
Bonus Issue & Stock Split



Shree Cements Ltd.
23/10/2007
Quarterly & Half Yearly Results



Dabur India Ltd.
24/10/2007
Quarterly Results



Hindustan Motors Ltd.
24/10/2007
Quarterly Results



Bata India Ltd.
26/10/2007
Quarterly Results



Stovec Industries Ltd.
26/10/2007
Quarterly Results



Hindustan Construction Company Ltd.
26/10/2007
Quarterly Results



Kansai Nerolac Paints Ltd.
27/10/2007
Quarterly Results



Electrosteel Castings Ltd.
29/10/2007
Quarterly Results



Mahindra & Mahindra Ltd.
29/10/2007
Quarterly Results



Neelkanth Rockminerals Ltd.
30/10/2007
Quarterly Results



Housing Development Finance Corporation Ltd.
30/10/2007
Quarterly Results



Nestle India Ltd.
30/10/2007
Quarterly Results

Saturday 29 September, 2007

IFCI soars after short-listing 8 bidders

Shares of IFCI shot up by more than 10% on Friday after a financial daily reported that the public sector term lender has shortlisted eight bidders for the proposed sale of a 26% stake.

The newspaper report says that the list of shortlisted bidders includes the consortiums led by Wilbur L Ross and Shinsei Bank. However, the names of those bidders who have been left out have not been disclosed.

At 12:56 p.m., IFCI was quoting at Rs98, up Rs5.20 or 5.6% over the previous close. The stock earlier touched an intra-day high of Rs102.45 and a low of Rs94.15. The stock has gained over 18% in the past one week and a whopping 58% in the past one month.

As many as 10 bidders had submitted bids for acquiring a 26% stake in IFCI. Other members of the consortium led by Wilbur Ross include Standard Chartered Bank, HDFC and Goldman Sachs. Punjab National Bank (PNB) and JC Flowers are part of the consortium led by Shinsei Bank.

Others who had submitted EoIs included Blackstone, IDFC, Kotak Mahindra Bank, GE Capital, Cargill, Newbridge Asia, Natixis and a consortium between Sterlite and Morgan Stanley.

IFCI sources have been quoted as saying that, at this stage, it would not make sense to reduce the number significantly and therefore impact the competitive pricing of the valuation.

The shortlisted bidders would be informed latest by October 1. A pre-bid conference is scheduled for October 3. Thereafter, the shortlisted suitors would be asked to undertake due diligence.

Requests for Proposal (RFP) would be issued a week later. By November, financial bids would be submitted. The Board would then finalise the name of the strategic investor.

There is a lock-in period of three years for the entity or the consortium that would be selected. In addition, the bidders should be in the business of financial services with a long-term interest in the institution.

Thursday 27 September, 2007

Idea Cellular - Multibagger

Deven Choksey, KR Choksey


On EV/EBIDTA basis, Idea is trading at 21.5x which is at a discount to TTML and a premium to RCom and Bharti. We believe Idea looks attractive considering its entry into new circles and improvement of margins in the existing ones.

Idea Cellular is a part of the US $ 24 billion Aditya Birla Group and a leading GSM mobile services operator with licenses to operate in 13 telecom service areas in India. The company has operations in Delhi, Himachal Pradesh, Rajasthan, Haryana, Uttar Pradesh (W) & Uttaranchal, Uttar Pradesh (E), Madhya Pradesh & Chattisgarh, Gujarat, Maharashtra & Goa, Andhra Pradesh and Kerala. With the planned expansion into Mumbai, Bihar & Jharkhand.

Idea's footprint will cover nearly 70% of India's telephony potential. Idea Cellular had 16.13 Million subscribers as on June 30, 2007, and had a market share of 15.4% as on June 30, 2007 in its 11 service areas of operation. We think Idea looks impressive due to the following reasons:-

Higher subscriber addition
We expect that the company will see a robust growth in its subscriber base in the coming months in both new as well as existing circles. Moreover it is expected to be allotted spectrum in Mumbai in the coming months.

Improvement in EBITDA margins
The EBITDA margins are expected to improve both in the existing and the new circles. As more and more subscribers will be added and company will enter into new circles, revenue flow will also be higher.

Hiving off tower business
Following the footsteps of Bharti and RCom, Idea Cellular has also decided to hive off its tower business into an independent subsidiary. The Board of Directors (BoD) has approved the demerger plan. So value unlocking is on the cards.

Key Developments
Hiving off tower business
The Board of Directors of the company has approved the demerger of its tower business into an independent subsidiary for possible transfer of passive infrastructure which would lead to substantial value unlocking going forward.

Financial Performance
In Q1 FY08, Idea Cellular’s net profit grew by 259% to Rs 308.5 crore and revenues were at Rs 1477.2 crore showing an increase of 64% on year on year basis. This growth was mainly on account of robust subscriber addition. EBITDA margins stood at 34.7% which also improved on a year on year basis from 33.7% which was largely on account of improvement in network and marketing expenses.

Industry Scenario
While India is now the world’s fastest growing telecom market, our tele-density continues to be lowest at about 20%, taking into account both wireline and wireless phones. It is clear that India has a long way to go before we catch up with the rest of the world or even with other emerging markets. It is expected that telephony will continue to grow at the present rate of 6 to 7 million additions per month over the next several years to reach the 500-million connections mark by the year 2010.

Further growth in the subscribers is likely to come from circle 'c'. Telecom companies have geared up to achieve the target growth in the subscriber numbers and are expected do a capex of Rs 60000 crore in the coming years. Few major developments that are likely to happen in the sector are:-
• Consolidation and M&A in the sector
• Listing of tower subsidiaries
• Launch of 3G services,IPTV,DTH and WIMAX
• Mobile number portability
• "Do-Not-Call Registry"
• Entry of global players


Spectrum Crunch: - Besides, almost each telecom company is facing acute shortage of spectrum which is the indispensable resource for this sector. This problem of spectrum crunch might hinder the growth targets of the companies and also cause deterioration in the quality of service (QoS). Spectrum is yet to be vacated by the defence ministry.

Though the government is keen to carry out the bidding for the additional spectrum, COAI (association of GSM operators) has strongly opposed it and taken the stand that the current policy is based on subscriber base is very clear. They have even hinted to file legal proceedings against the govt. However, AUSPI (association of CDMA operators) have opposed the current policy and is of the opinion that GSM players have already been allotted the extra spectrum. Department of Telecom (DoT) has formed a committee to look at this issue and come out with a report. Seeing the deficiency of spectrum a study regarding the efficient utilization of this
scarce resource will also be conducted.

Tower business hive off
These days almost every telecom operator is hiving off its tower business into an independent subsidiary. Seeing the growth in the subscriber base passive sharing of the infrastructure is a viable option especially when the growth has to come from circle “C” where ARPU is comparatively lower. Total tower requirement is estimated to be at 330000 towers by FY10. Such a model has enormous potential to succeed in India because there are 7-8 operators in India as compared to Europe and China where there are only 2-3 operators. Moreover it is better for an operator to start tower business because their payback period is comparatively lower.

The company has planned to hive off its tower business for possible transfer of passive infrastructure. It would result in significant value unlocking. The company had 13,160 cell sites as of Q1FY08 compared to 10,114 cell sites at the end of Q4FY07. Around 4500 towers are on sharing basis. Out of 8.662 towers about 4,900 are roof top towers and 3,700 are ground based. They have a tenancy ratio 0f 1.3x. Company is expected to increase its cell sites to 20000 by FY08.

Aggressive method of recognizing revenue
Idea recognizes entire processing charge from Lifetime prepaid schemes as revenue upfront, while RCom and Bharti amortize the same over 48 months and 24 months, respectively. Thus, Idea’s ARPU, revenues and margins, to that extent are inflated. In Q1FY08 more than 30% of net additions were from new lifetime prepaid scheme. We believe that the policy of booking entire processing fee as revenues upfront would have contributed almost Rs6 to ARPU.

EBITDA margins increase by 100bps to 34.7%.
EBITDA grew by 69% Y-o-Y. The EBITDA margins in its ‘established’ circles including Delhi, Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Haryana, Kerala and Uttar Pradesh (W) expanded by 40bps Q-o-Q to 38 percent. Losses in 3 new circles have come down to Rs 24.6 crore (-40% of revenues) from Rs 330 m (-76% of revenues) in last quarter. Company saw reduction in network and marketing expenses as percentage of sales by
160 bps. However access charges increased slightly. PAT increased 259% Y-o-Y due to margin expansion, lower depreciation and interest expense.


At CMP, Idea is quoting at P/E multiple of 44.8x based on TTM basis June 07. EV/Subscriber and EV/EBIDTA for Idea is Rs22630 and 21.5x respectively on TTM basis June 07.

Risks: The risks that could hinder the earnings growth of Idea in time to come are as under:
- Inadequacy of spectrum required for future subscriber additions may hamper the growth process of the company and may even deteriorate the quality of service

- Competitive structure of the industry poses further threat to the company’s vision and it may even hit the operating margins substantially in order to carve a niche in the market.

- Telecom is a highly regulated sector and as such needs many approvals for undertaking a new project. Moreover there is generally a lot of pressure from NGO’s in case of a minor increase in fares. Such oppositions and delay in projects may also cause harm.

- Mobile number portability, if allowed might increase the churn rates.

- If the company enters new circles, incremental revenues will be less than the expenditure done by the company because marketing and license fees will have to be incurred.

Growth: The growth for the company in the coming years is likely to be fueled by the following factors:

- Further penetration into the Indian markets would lead to huge subscriber additions per month.

- Entry into the new circles subject to allotment of spectrum will fuel the growth prospects.

- Inorganic growth may be an option to consolidate its position in the Industry.

- Issue of NLD and ILD licenses to Idea will boost the revenues.

Idea is currently trading at P/E multiple of 44.8x on TTM basis June 07 which is at premium to RCom but at discount to Bharti. On EV/EBIDTA basis, Idea is trading at 21.5x which is at a discount to TTML and a premium to RCom and Bharti. We believe Idea looks attractive considering its entry into new circles and improvement of margins in the existing ones. However if it enters new circles its expenditures would spiral up and will have to face tough competitions from its arch rivals Bharti and Rcom. Hence long term investors can buy the stock.

Disclaimer: As per SEBI requirements it is stated that,Kisan Ratilal Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation.

NIFTY @ 5000 !

The market opened on buoyant note tracking firm global markets as weak US economic data reinforced expectations for another interest rate cut from the Federal Reserve, following a steep half-point reduction to 4.75% last week. Both the niche indices BSE Sensex and S&P CNX Nifty struck all time high in opening trade. Nifty hit all-time high above 5,000 in opening trade. Market breadth was strong on BSE

At 10:29 IST, the 30-shares BSE Sensex was up 158.46 points or 0.94% to 17,076.56. It opened higher at 17,059.61 and advanced further to hit an all time high of 17,158.49. Its low for the day so far is at 17,051.03.

At the day’s high of 17,158.49, the Sensex had gained 237.10 points for the day.

The S&P CNX Nifty surged 45.50 points or 0.91% to 4,985.60. It struck an all time high of 5,015.55 in early trade

The market breadth was strong on BSE with 1332 shares advancing as compared to 604 that declined. 62 remained unchanged

The total turnover on BSE amounted to Rs 896 crore by 10:30 IST

Among the 30-member Sensex pack, 27 advanced while the rest declined.

India’s second largest power utility company in terms of revenue Reliance Energy (REL) surged 3.29% to Rs 1060 on 1.62 lakh shares. It was the top gainer from Sensex pack. As per reports REL is believed to be restructuring its businesses under three verticals — utility, infrastructure and real estate.

ACC (up 3% to Rs 1195), Cipla (up 2.20% to Rs 174.55) and Tata Steel (up 2.23% to Rs 767.55), were the other gainers from the Sensex pack.

India’s largest company in terms of market capitalisation and oil refiner Reliance Industries rose 1.03% to Rs 2345.90 on 65,459 shares

Hindustan Unilever, the country’s largest FMCG company in terms of sales slipped 0.69% to Rs 223.70 on 27,265 shares. It was the top loser from Sensex pack

Bajaj Auto (down 0.53% to Rs 2495.50), and Grasim (down 0.20% to Rs 3438), were the other losers from Sensex pack

Among side counters, Graphite India (up 11.11% to Rs 61), Usha Martin (up 9.15% to Rs 65) and Engineers India (up 7.21% to Rs 645.10), surged

Market is expected to see volatility as derivative contracts for September 2007 series expire today, 27 September 2007. As per market data, marketwide rollover from September 2007 series to October 2007 series stood at 64% while that of Nifty was 59% at end of Wednesday (26 September 2007)'s trading.

Asian markets extended early gains today, 27 September 2007 after stocks rallied on Wall Street overnight. Hang Seng (up 2.06% at 26,971.09), Japan's Nikkei (up 1.78% at 17,080.24), Taiwan Weighted (up 1.32% at 9,379.82), Singapore's Straits Times (up 1.46% at 3,703.44) and South Korea's Seoul Composite (up 1.29% at 1,943.93), all edged higher.

US stocks rallied yesterday, 26 September 2007 led by rally in financial shares after a larger-than-forecast decrease in durable goods orders reinforced expectations of more rate cuts. The Dow Jones Industrial Average gained 99.5 points or 0.7%, to 13,878.15. The Nasdaq Composite Index increased 15.58 points or 0.6% to 2,699.03. The Standard & Poor's 500 Index added 8.21 points or 0.5% to 1,525.42.

As per provisional data, foreign institutional investors (FIIs) purchased shares worth a net Rs 727.99 crore, while domestic institutional investors (DIIs) were net sellers of shares worth Rs 701.43 crore on Wednesday, 26 September 2007

Crude oil prices held above $80 on Thursday, 27 September 2007 as traders balanced rising stockpiles in the United States against fears that a brewing storm could impact production in the Gulf of Mexico. US crude for November delivery rose 25 cents to $80.55 a barrel and London Brent crude rose 34 cents to $77.77 a barrel.

The 30-shares BSE Sensex rose 21.85 points or 0.13% at 16,921.39, an all time closing high, on Wednesday, 26 September 2007.

From a recent low of 13,989.11 on 21 August 2007, Sensex surged 2932.28 points or 20.96% in just 26 trading sessions to 16,921.39 on Wednesday, 26 September 2007

The S&P CNX Nifty gained 1.65 points or 0.03% at 4,940.50, an all time closing high, on Wednesday, 26 September 2007.

Wednesday 26 September, 2007

Exit Strategy for reasonably Assured Profits

Suggested Exit Strategy for reasonably Assured Profits

Exiting a stock, which is otherwise known as selling your open position is one of the most difficult activities in Stock Trading. And this is not just for you, as a common trader/investor, it is even for me (at times :>>). So, how do you make sure to lock in profits after all.

Eixt Strategy and lock in assured profits

Stocks always trade in Waves, also popularly known as Wave Theory. Which means the stock will continue to go up by say 15% and come down about 10% and go on this way until it hits the top, which again nobody can really predict with precision.
If stocks move up in waves, then why should you just exit at the very first downturn? Meaning, if the stock moved up 15% and then it started moving down and it is down 5%, should you sell. Most people would think, Oh My! if at all i sold the stock at 15% i would have made more and look what happened now, i am down over 5% from the top. And if the stock continues to go down, the fear factor increases. Oh, What if the stock actually goes to the place where i bought it. All of this confusion and fear eventually forces you to Get out of the stock at the Most inappropriate time, usually the bottom. Ever wondered why a stock starts climbing up after you sold and vice versa?

So, how to NOT get into such fearful situations and how to actually make sure you get the maximum profits out of your trades. Let us take an example. I picked up Century Textiles Chart for our demonstration, though this theory can be applied to almost all stocks.

Chart Analysis

* The stock had a major breakdown early this year. The trendline (moving down) was eventually broken on 12th March 07. But if you are an experienced trader, you would wait to see if the trendline is held by the stock and would have eventually bought(say 300 shares) the stock on 16th or 19th march at or around Rs.500. Why only at this price. Because whole numbers play a major role in a stock movement.
* Take the last noted low before this Wave. Let us take 8th march low at Rs.435. This will serve as your Stop loss. Unless of course you are following a different strategy mentioned in my other article. This stop loss will be a trailing stop loss.
* Say, i target 20% profit for my first leg. Which means i will have a Sell order at Rs.600. 24th April stock hits 600. You sell 1/3 of your position, 100 shares pocketing a neat Rs. 10,000 profit.
* Now you change your strategy. Place a Trailing stop loss using the initial difference (500-435 = 65). Your new trailing stop loss would be (600-65) at Rs.535. Next profit expectation is again say 20% which would be at Rs.720 (20% of 600). So, now you have target of 720 with a trailing stop loss at Rs. 535 with 200 shares on hand.
* On 4th July 07 the stock hit 720 target and you sold another 1/3 of the original shares, 100 shares. Now you have pocketed 720-500 = 220*100 = 22000. At this time you have 100 shares left. Now your SL will move to 720-65=Rs.655. Let us say, you again have a 20% profit expectation. Now the equation would be, you have 100 shares at a cost basis of Rs.500, expecting to hit Rs.864 with a trailing stop loss of Rs.655.
* The stock comes down quite a few times but fortunately never hits our stop loss and hence we continue to ride along. We would still be holding the 100 Shares with a paper profit of Rs.816-500=316*100 = Rs.31,600.

Total Profit = Rs.63600 on an investment of Rs.1,50,000 within 7 months. A whopping 43% profit on a stock that moved up about 64% with all the whipsaws removed from the puzzle. If you were to day-trade or even swing trade with any other method, you would have definitely caught on the wrong foot, not once, but many times. And it would be highly unlikely that you traded the same stock many times without any loss on your trade.

The above methodology is NOT fool-proof and may not work always, but it sure is a great way to trade and exit a stock gradually.

Safe way to Invest in Stocks - Hedge it!

I got so many requests to write-up something on Hedging, protecting investments and F&O that i finally decided to jot down this article on those lines. Hedging is the process of offsetting the price risks inherent in any cash market position by taking an equal but opposite position, usually in the Futures/Options market. It is not as complex as it sounds. Let us take a live example to understand this better.

How to Hedge your investments

I will take a live example to demonstrate how an investment decision gone bad did not really affect the investor at the end of the day. For this demonstration i have chosen ITC trading on NSE. Take a look at the Chart alongside this commentary.

* On July 25th ITC broke long term downtrend with a Huge volume and Price Gain.
As you can see from the chart, the trendline was broken and it was a great time
to enter the stock.
* For all practical purposes, let us assume that we identified this stock at the End of the day on the 25th and decided to enter it on the 26th. Let us see how the trade went and how would have one hedged his/her position. Remember, the stock soared up almost 9% and which means it was reasonably risky to invest in it on any day after the 25th. Hence, not being 100% sure that the stock will go up, one would have played it the following way to reduce risk.
* On 26th, Buy 1000 Shares of ITC @ Rs.166. However, since we are not sure if the stock will continue to rally, we would Hedge this position to reduce risk. One should have Bought 23 165 Aug Put contracts that were trading at Rs.7.15. A total investment of Rs. 16,445. Now how the hell did we come up with the figure of 23 contracts? Since this investment was purely from a Swing Trading perspective, it was assumed with a 10% profit and 8% loss. The tight gap between profit and loss makes up overtime as swing trading is usually pretty short term, at the most a few days to a max of 1 month. 10% profit of 166000 investment is about 16600. Aug 165 call was being traded at 7.15 on this day and hence a max of 23 contracts could have been bought for this amount. Which means, we are risking our entire expected profits and buying Put options to safeguard our investment to the extent it can.
* So to sum up, on the 27th July we are having 1000 Shares of ITC at 166 and 23 Aug 165 Put contracts @ 7.15.
* Stock goes up for a few days and then it eventually decides to give the lower trendline a try. Remember, all along we had a Stop loss in place at 152(8% below 166, choosing the lowest Whole number). Though confident, we never sold our stocks or options.
* On the 21st of August, we really got nervous as our Stop loss hit and we were forced to sell our stock @ a loss of 14000 (166-152=14*1000). However, your options are now worth more. Options on 21st aug were being traded @ 12. Which means you would have been at a profit of Rs. 27600(23 contracts sell price) - 16445(23 contracts buy price) = Profit, Rs.11155. If you tally, your loss was NOT 14000, but only 2845. Because you hedged your position you were able to curtail your loss by over Rs.11100. Without such hedging approach you would have been at a loss of Rs.14,000.
* Of course, it is a different story that you should have probably waited and bought on the 21st of August because every breakout eventually tests the previous resistance which now becomes the support lines. If you did that, you would probably be sitting on a cool Rs.34000+ profit on your 160000 investment.


Hedging is a great tool to minimize risk and trade like a Pro. However for the indian markets it is limited to only a handful of stocks as not all stocks are optionable.

Finance Minister on Rupee rise

FM: Rupee rise way beyond comfort levels, exporters have to live with these levels



Finance Minister P. Chidambaram has said the Indian rupee's current exchange levels against the U.S. dollar were "way beyond comfort levels," Press Trust of India reported today.

The finance minister, however, said exporters have to "learn to live with this" levels. Unless the U.S. government does something about the dollar, there is nothing much I can do about the rupee, as far as the rupee-dollar parity is concerned," the news agency quoted Chidambaram as saying. Chidambaram, who is currently in New York, was speaking at Peterson Institute for International Economics.

Without being frivolous, he expressed his concerned about this rapid appreciation of the currency. Since January, the Indian rupee has risen about 11.5% against the dollar, on strong capital inflows. Tuesday, the Reserve Bank of India liberalised overseas investment norms for Indian companies and mutual funds in an apparent bid to stem the rupee's rise.

The central bank allowed Indian companies to invest up to 400% of the net worth in overseas ventures and pre-pay up to $ 500 million external commercial borrowings without prior approval. Despite the RBI measures, the rupee continued to rise against the dollar.

Currently the rupee was trading at 39.70 against the dollar compared with Tuesday's close of 39.74.

Chat with Rajat K Bose on 26th September 2007

Rajat K Bose: Good evening. Thanks for joining in. let\'s begin.

shrutigame06: dear sir i purchase reliance energy @1090 kindly can u suggest me wat to do i will hold or book the loss and also kindly say me abt parswanath, alok ind. i have 1 lakh kindly suggest some scripts for investing for 3-4 months

Rajat K Bose: REL in the short term looks overbought on the charts. Wait for some time before making fresh commitments.

sundarlx: what is trg of ifci

Rajat K Bose: above 103; it may test 107 and 112. however, quite overbought i suggest booking profits in trading positions in this counter.

shaista_57: Mr Bose can i buy GMR Infra now to get the benefit of stock split?

Rajat K Bose: the benefit is already priced in; doesn\'t warrant a buy at current mkt price for delivery buying.

vikrammandloi: where do you see reliance infrastructure one year down the line.

Rajat K Bose: its chart pattern and the current vertical rise do not give a clear picture for one year forecasting. In the short run there could be a lot of volatility while the long term trend remains up.

chucks_1977: Views on ICICI Bank

PLease suggest at what level should I book profit??

Rajat K Bose: Book profits on rallies. If it were to fall below 980 get out of any short term position.

Rajat K Bose: Book profits on rallies. If it were to fall below 980 get out of any short term position.

dynrahul: I am having Mindtree 25 @ 425 (IPO price)

PLease suggest at what level should I book profit??

Rajat K Bose: When the current rally in IT stocks comes to an end, book profits.

dynrahul: Your view on Bharti 25@ 880

Rajat K Bose: Book at least part profits in the current upswing.

purusharth: Dear Sir, what is the target of RNRL, could I buy now

Rajat K Bose: If I were u I would book profits in the counter if I already purchased earlier; does not look like a buy here. It is too risky on the long side.

RRAMAIMS: please tell me the prospectus of Renuka sugars

Rajat K Bose: If you are a long term investor then only buy it.

banarasi_saand: sir, what do u think sail rate on expiry?

Rajat K Bose: Wish I knew it.

sagarmal_khetan: sir, whn will we see a correction in the market??

Rajat K Bose: Market movements are comparable to September 2005. Really don\'t know when the correction would happen; however, prudence calls for risk control at current juncture. Lots of small and mid caps and stocks with prices below 100 in F&O are shooting up. Most of the commentators are too confident for the mid and long term. Nobody is willing to go short this market and you are getting n number of recos to buy. These are situations when corrections generally begin. However, I have no idea how long this heady momentum will continue. CONTROL YOUR RISK IN WHICHEVER WAY POSSIBLE.


raghu370: I am an Investor, I have Polaris bought at 115, should I hold or ??

Rajat K Bose: I don\'t think you should.

gnanakannan: hello rajat, I had purchased 5000 Nfcl @40, What is the target for next 1 month?

Rajat K Bose: You are getting quite a good profit already, why don\'t you book some. put a stop below 48 for the rest.

dhirej: sir purchased ptc 1000 @ 84 shall i book profit? why this share is not participating in the run

Rajat K Bose: May be it will since others have already been bid up but surely book some profits.

Holding Gillette India 20 @870. Please advice

Rajat K Bose: If I were you I would convert it to some other stock. Sell now and wait for some time, buy some energy stocks on declines.

Rajat K Bose: So much for today. We would chat again next week. Thanks for being with me. No specific disclosures to be made from my side.

IFCI strategic stake sale may get derailed

IFCI is in trouble, one may ask what's new, its been that way for the lat 9 years. But 9 years hence, ever wondered what could be one thing that could derail the entire restructuring process at IFCI?



IFCI is in trouble, one may ask what's new, its been that way for the lat 9 years. But 9 years hence, ever wondered what could be one thing that could derail the entire restructuring process at IFCI - And with short of shooting myself in the leg I would say the very speculative activity that has taken the IFCI stock price beyond Rs 100. I say it because the more I speak to people around the process the more I sense the apprehension at the way the IFCI stock has been moving.

The art of strategic turnaround hinges on what price is the asset been acquired for. Will the investor turnaround the institution in 3 years and will it generate returns during this period. As I look at it IFCI for long has been the most speculative stock in the last 6 months at least. For a stock trading below par and rising 10 times to over Rs 100 in a year is as alarming as it can be. And this despite the fact that it still does not have the capital adequacy to lend, the profit it declares is out of asset sales and NPA recoveries, and above all which will continue for another two years atleast.

A few months back we had a leading daily naming Barclays as suitable bidder and valuing IFCI at Rs 85. But as we stand at a point of shortlisting (Only 10 turned up) investors who submitted EOI, NO one yet has bothered to ask where is Barclays including the financial daily that named Barclays. The stock has moved from a 52 week low of Rs 9.30 to a 52 week high of over Rs 105 per share. Has anyone asked Barclays why it didn't bid and if it did not intend to bid on what basis it valued IFCI at Rs 85 per share.

That said, let me get to the most disturbing fact - Derailment of the IFCI restructuring. IFCI has been posting profits for the last 2 quarters, and this has been one thing that has turned on the fancy of the investor. But even more disturbing is the fact that this fancy has turned into an irrational speculation on the stock that may eventually see all investors withdrawing from the process.

Two key details that one should realise is that, First, the strategic investor if and when he puts in a bid will have to follow the SEBI preferential issue guidelines. And secondly they will have to follow the Open Offer guidelines as per SEBI norms. In both cases, the guidelines are clear, the acquirer will have to pay a price that will be an average of 6 month price or 15 day average price or whichever is higher. The more the speculative action pushes the price up, the more expensive IFCI becomes and so the further the investor is likely to move away from the restructuring.

In August this year, a 26% stake & open offer would have cost the investor little over $ 367 m, today at current market price of over Rs 100 the cost of the acquisition would be over $ 734 m. As if the street buzz is anything to go by, by the time the financial bids are invited in November this year, the cost would touch close to a $ 1 bn. BUT is the investor willing to shell out nearly a billion is a question that I am told even the IFCI management is afraid to answer. Leave alone the people who are closely associated with the process.

One might argue that the market forces determine the intrinsic value of a company, but one should realise that market can't force a strategic investor to pay a price that it may think is irrational and influenced by undue speculation in the market. At nearly $ 1.5 billion market cap it is even more important for the company and its administrator to decide whether they indeed want to safeguard the process which is under threat from speculators that I feel don't understand even the basics of the company.

The board of IFCI is all set to announce the shortlisted investors that would go ahead into the due diligence process. But as these investors enter the second phase the challenge is yet to come and the skeletons yet to come out. The first would be the interest subsidy that the government gives to IFCI for servicing debt that have been rolled over for over 10 years at interest rates as low the Japanese interest rates.

The second would be the debt that IFCI owes to the govt, IDBI, PSBs. These debt have been converted into FCDs convertible at par as and when IFCI has positive networth.

The third biggest challenge would be the decision on grant that govt has decided to provide IFCI for few years and which has been part of the Budget. Would the government continue with the grant if a new management takes over the financial institution.

Fourth, it is almost certain now that in all probability a foreign investor or consortium will be the front runner for IFCI, considering it hardly had any domestic public sector bank envisaging interest. But will the foreign investor take the plunge considering that the cost of acquisition is likely to increase by nearly 2x by the time the preferential issue is made in Jan 2008. To make it simple to understand for

This is the first time perhaps that a financial institution undergoing a restructuring will pose challenge not only to the management, the stock exchanges, the regulator, the advisors and potential investors. Can IFCI trading be suspended pending completion of the process & preferential allotment. If that happens what happens to shareholders some may ask, if the current price is overvalued this price is atleast assured to the shareholders, if IFCI is undervalued the investor's bid will reflect the same. In both the case, the open offer will be available to the minority shareholders. But that is only if the intention is ensure a safe completion of process. The chances of which are diminishing with every rise in price. Who will take that decision?

Whatever, the market may value IFCI at, it is highly likely that there might be a mismatch in the making. And the fear is just getting worse for the people associated with the restructuring process.

STOCK SWITCH - ICICI Direct

The Day That was.....

Indian shares ended higher on Wednesday at a record close on Wednesday, but off their highs as profit-booking pared gains. Software, banking and refinery stocks rallied, while real estate and oil & gas stocks witnessed selling pressure. The Sensex ended up 21.85 points, or 0.13%, at 16,921.39, an all-time closing high. It had opened higher at 16,969.45. It advanced to hit an all-time high of 17,073.87 and a low of 16,887.07.

The Nifty was up 1.65 points, or 0.03%, at 4,940.50, an all time closing high. It struck an all time high of 4980.85. SBI rose 0.60% to Rs 1,850. HDFC surged 3.51% to Rs 2,478.50. Satyam Computers soared 5.05% to Rs 432.30. Wipro surged 4.76% to Rs 456.50 on reports that it has bagged a five-year, $130 million contract from British utility Thames Water. Tata Steel rose 1.19% to Rs 752.55. Reliance Industries slipped sharply from the day’s high of Rs 2,425.90 and settled 3.08% to Rs 2,325.75.

Indiabulls Real Estate gained 7.07% to Rs 613.71 on its plans to raise Rs 2,322 crore through issue of convertible warrants to promoters and directors at Rs 540 each. GMR Infra was down 4.18% to Rs 826.90 and IFCI dipped 3.64% to Rs 98 after the NSE barred further F&O positions in 95% of marketwide limit was reached on Tuesday.

GAIL (India) surged 3.16% to Rs 375 on reports that the company is considering bonus and or stock split of equity shares before its next annual general meeting. BAG Films & Media vaulted 5% at Rs 68.40 after its board approved issuing 1.03 crore shares to a unit of Fidelity at an undisclosed price.

Tuesday 25 September, 2007

Crude eases for second day

Crude prices drop as storm chances dissipate but natural gas soars


Crude oil prices softened today after the storm threat at Gulf of Mexico dissipated. The Gulf accounts for about 25% of U.S. oil production. With this, crude slipped for the second consecutive day.

For the day ending Monday, 24 September, 2007, crude-oil futures for light sweet crude for November delivery closed at $80.95/barrel (lower by $0.67/barrel or 0.82%) on the New York Mercantile Exchange. Futures touched $83.90, on 20 Sept, the highest intraday price till date. Prices are up 33% from a year earlier.

BP, Royal Dutch Shell Plc and other oil companies sent workers back to the Gulf after a tropical depression made landfall without becoming a storm.

Brent crude oil for November settlement fell 39 cents (0.5%) to close at $78.91 a barrel on the London-based ICE Futures Europe exchange.

Natural gas rallies on storm prediction

Natural gas rose in New York on speculation three possible tropical weather systems may become storms, possibly threatening Gulf of Mexico production. Gas for October delivery rose 28.7 cents (4.7%) to settle at $6.367 per million British thermal units.

Against this backdrop, October reformulated gasoline closed at $2.0834 a gallon, down 3.11 cents. October heating oil closed down 2.56 cents at $2.2306 a gallon.

OPEC planned to boost daily oil production by 500,000 barrels. OPEC's production target is 27.2 million barrels a day, beginning 1 Nov. OPEC, has decided to raise their daily output by 500,000 barrels per day, starting 1 November.

Attacks on oil facilities in Nigeria have curtailed shipments and tight supplies from OPEC have bolstered crude prices this year. As per the U.S. Energy Information Administration, tight global energy supplies are expected to keep energy prices high through 2008.

Valuations ahead of Fundamentals

Stock valuations have raced ahead of fundamentals, but bulls hit the Street again on Monday, driving up the Sensex by another 281.60 points. The benchmark index rose to a record high for the fourth straight session. A section of the market expects the upward momentum to continue, led by robust foreign inflows.

On Monday, the Sensex closed at 16,845.83 points, rising 1.70%; the Nifty ended 94.65 points or 1.96% higher at 4932.20 points. Since the cut in a key interest rate by the US Federal Reserve on September 18, both indices have risen roughly 7-8%.

“Our momentum indicators are still supportive, but our value indicators are increasingly suggesting that momentum is the main source of support. The ultimate sell signal would be a reversal in momentum. That, coupled with where valuations currently stand, would spell trouble,” Citigroup analysts said in the latest note to clients.

Most observers believe that the current momentum is unlikely to break soon, as the Fed rate cut has created more opportunities for carry trades. This involves investors borrowing money in countries with lower rates and investing in shares or high-yielding government paper in emerging markets like India for higher returns. Given that the US Fed is expected to cut rates further, brokers expect more foreign money to flow into India.

According to Almondz Global Securities technical analyst and derivative strategist Gurudatta Dhanokar, “The current move of the market is up and the open interest is increasing that will reinforce the trend. In the near future, when the market will turn, it will be very sharp. One of the best sectors looking at the charts in medium to long term is power. It will outperform the market and downside is limited. Stocks that look attractive are power and telecom. Overall the charts are suggesting good upside in medium to long term. The investors can avoid IT stocks as if the market corrects, crack will be more in IT stocks.”

Since the Fed rate cut, foreign funds have invested over Rs 5,000 crore in India. Prior to the rate cut, foreign institutions had net invested roughly Rs 4,800 crore in Indian shares in September. The strong foreign fund inflows pushed the rupee to a fresh nine year-high of 39.77 against the dollar on Monday.

The stronger rupee continued to weigh down sentiment in software shares, which fell roughly 1-3% on Monday. Since software exporters derive a major chunk of their revenues in dollars, a weaker dollar impacts their revenues and margins.

Stocks of both Mukesh and Anil Ambani group companies extended their dominance on Monday. Fund managers seemed slightly baffled by the kind of surge seen in most Reliance shares in the past 3-4 sessions. “It is true that Reliance shares are considered as one of the proxies for the Sensex.

But I am not sure whether this kind of euphoria in these shares is justified,” said the fund manager with a private mutual fund. Reliance Industries, Reliance Energy and Reliance Communications have gained 13-20% in the past four sessions against a 7% rise in the Sensex.

Mathew Easow tips for 25/09

Buy Reliance Communication with a stop loss of Rs 569
for a short-term target of Rs 650

Buy Intense Technologies with a stop
loss of Rs 63 for a short-term target of Rs 88

Ispat Industries leads gainers in 'A' group


Integrated steel maker Ispat Industries soared 18.06% to Rs 26.80 and it topped gainers in BSE’s A group. Earlier, reports suggested that the company is planning to invest about Rs 10,000 crore within five years to ramp up domestic production, and is also planning to expand overseas through capacity expansion and backward integration.

Mid-cap IT services provider Rolta India moved up 8.89% to Rs 569.40 and it stood second among top gainers in A group. Earlier on 20 September 2007, Macquarie Research had ranked the company as an outperformer by saying that unlike most Indian IT firms, Rolta derives 60% of its revenue from the domestic market. This enables it to participate in India’s growth story and mitigate currency risks.

PSU refiner Bongaigaon Refinery & Petrochemicals gained 8.42% to Rs 65. It was the third biggest gainer in A group. The current surge in global crude oil prices along with a worldwide shortage of refining capacity has resulted in higher gross refining margins (GRMs). The GRMs of oil firms are expected to higher on year-on-year basis. The Bongaigaon Refinery stock gained 21.97% in the past three months to 21 September 2007 compared with the 14.49% rise in the Sensex.

State run National Fertilizer was up 8.35% to Rs 44.75. It came fourth among top gainers in A group.

Power generator and distributor Reliance Energy rose 8.33% to Rs 1093.70 and came fifth among top gainers in A group. Morgan Stanley has raised the price target of the company to Rs 1,209 by saying the Mumbai-based company's infrastructure projects and new power plants will boost its profit.

Monday 24 September, 2007

Grey Market Premiums

Power Grid Corporation 44 to 52 21.50 to 22

Dhanus Tech. 280 to 295 95 to 98

Koutons Retail 370 to 415 75 to 80

Consolidated Construction 460 to 510 205 to 208

Supreme Infra 95 to 108 65 to 67

Saamya Biotech 10 3.50 to 4

Circuit Systems (India) Ltd. 35 3.5 to 4

Kaveri Seeds 150 to 170 15 to 17

CEMENT - Bolstered bags

Niren Shah / Mumbai September 24, 2007

Beaten down after the Budget, cement stocks are back in the reckoning.

From experience, people in the corridors of power have realised that even an onion can shake the foundations of a strong government. Cement, as it is, turns out to be stronger than an onion. When cement prices rose for over a year by about 15 per cent, the Ministry of Finance considered meddling with the uptrend by imposing fiscal disincentives for high-priced bags of cement.

Budget 2007 brought along a revamped excise duty structure with higher duties for expensive domestic cement as well as cuts in domestic levies on imported cement. In January, the import duty on cement was cut down to zero from 12.5 per cent in order to encourage import of cement to resolve the seemingly perennial demand-supply mismatch.

After the Budget, cement manufacturers and the government engaged in long running discussions over holding the prices, in vain. Cement prices, however, have continued to rise. Owing to such an uncertainty over the industry dynamics, investors penalised cement stocks, and the sector has continuously underperformed the broader markets over the past ten months.

The rise in the prices has been around 15 per cent y-o-y as on August. Considering the demand-supply deadlock, the infrastructure and real estate boom, as well as with the overall macroeconomic conditions looking good, it doesn`t look like the scene is changing anytime soon.

We therefore, look into the various reasons why umpteen numbers of market players have once again turned bullish on the sector. Almost all foreign brokerages, including Deutsche Bank, JP Morgan, Macquarie and UBS are bullish on the sector recommending a `buy`. Only Citigroup is an exception, which has recommended otherwise.

Price puzzle
The past one year has witnessed cement prices rising by almost 15 per cent across the country. The national average price per bag of cement was Rs 200 in July 2006, which was around Rs 230 a bag in July 2007, and analysts estimate that it has gone up further to around Rs 235-240 now.

If it were just for the mismatch between demand and supply of cement across the country, the equation would have been simpler. However, the rise in cement prices over the past 12-15 months has more to it.

Apart from growth in supply lagging behind demand growth, there are factors such as rising costs of raw materials, of which in turn, the industry is running shortages. Imports could have been a solution, if there was enough supply available. On digging a bit further, the outlook that emerges for the industry is bright enough for investors to start looking at the sector.

Demand deadlock
Between April and August 2007, cement consumption grew nearly 10 per cent y-o-y, which is quite unusual, considering that in monsoons construction activity is subdued. Normally, demand during monsoons is much lower, and cement prices too drop marginally.

However, this year, prices too have gone up. This is mainly due to the incessant demand from the infrastructure and real estate sectors. Analysts are in unison that the growth in production has fallen short of the growth in demand, which has resulted in higher prices. As monsoon comes to a close and construction activities pick speed, the demand for cement is set to take off further.

The boom in domestic cement consumption becomes evident from the fact that the exports of cement and clinker have declined from an average of about 10 million tonne a year in 2004-05 to nearly 8 million tonne a year now.

Burgeoning order books of infrastructure and engineering companies and huge project outlays of real estate players guarantee strong growth in demand for cement for the next couple of years.

The past year has demonstrated that in spite of fears of a decline in real estate prices and the resulting concern that real estate developers may postpone their projects, cement demand has only increased. Therefore, demand is expected to continue to grow at a compounded annual rate of 10-11 per cent over FY07-FY10.

Stifling supply
Over the past year, capacity utilisations at cement manufacturers have scaled to an all-time high of over 90 per cent, at times over 100 per cent. This becomes evident from the demand converging with supply over the past couple of years.

In FY08, cement production and consumption are estimated at around 163 million tonne. Last fiscal, the production was 155 million tonne, while domestic consumption was at 154 million tonne. A deficit of approximately 15-25 million tonne is expected to set in over FY09-FY10.

Collectively, cement majors have plans to add about 150 million tonne capacity by FY10. However, analysts expect just around 75-80 million tonne to actually go on-stream by FY10 due to lack of capacity at the equipment manufacturers` and project implementers` ends to finish the projects in time, as well as due to regulatory hurdles.

However, considering the growing demand, this is unlikely to suffice. Citigroup alone fears pricing pressure due to a supply surplus in the sector owing to capacity additions as well as imports.

Imports infeasible
Cement is a highly perishable commodity, with a shelf life of less than 90 days. This factor alone reduces the geographical radius of possible destinations to source cement. Some manufacturers of Pakistan have applied for approvals from Bureau of Indian Standards, as Pakistan is likely to have a cement surplus of nearly 15 million tonne in FY08.

The landed cost of this cement in India is estimated to be around Rs 205 a bag, around 15 per cent lower compared with domestic prices. Add in the logistics cost to transport the cement from port to its destination, and the imported cement should be about 5-10 per cent cheaper.

However, this route is fraught with bottlenecks. As Indian ports are running at near-full capacities, there are hardly any facilities to handle bulk of cement at ports, resulting in high demurrage. Ports in Pakistan too, are constrained by their loading capacities according to analysts.

A September 13 report in Pakistan`s Daily Times focused on another problem: despite surplus production of cement, the industry faces an acute crunch in procuring sufficient plastic bags to pack and despatch their product!

Flourishing financials
As cement companies shuffle their raw material usage from expensive imported coal to cheaper domestic coal, go for captive power plants and improve efficiencies on their logistics front, the resulting savings in various costs are likely to give a boost to their operating profit margins. For instance, a large part of coal is sourced domestically by ACC, as compared to the rest of the players.

Among the large-caps, Grasim and UltraTech are in the midst of commissioning captive power plants of over 90 MW each, while mid-cap players like JK Lakshmi and Mangalam too, have recently commissioned 36 MW and 17.5 MW captive power plants respectively.

Already, major players clock operating profit margins in the vicinity of 30 per cent and more. Going forward, this is likely to range at around 35 per cent, by FY09. Top lines will be bolstered by the string of capacity additions that every player is engaged in, as well as firm prices.

Modest multiples
The sector has underperformed the broad markets since February, and is now showing signs of recovery. At present, the sector trades at an average price-earning multiple of 10 times trailing twelve month earnings.

Going by consensus, the sector is likely to trade at estimated FY08 EV/EBITDA (earnings before interest, tax, depreciation and amortisation) multiples of around 7-9 times, and price-earnings multiples of 12-15 times estimated FY08 earnings. Larger players like ACC, Grasim and Ambuja are already trading at higher multiples compared to the industry, commanding a premium and are scaling newer highs.

On an EV/tonne basis, ACC, Ambuja and UltraTech appear slightly expensive. This will change, as new capacities are added resulting in higher production. On this parameter mid-caps appear attractive, as almost all players have their capacity additions going on-stream. Analysts foresee a scope for higher realisations for Ambuja as well as UltraTech.

Expect strong volume growth for ACC, Grasim and Shree Cements over FY08-FY09. Although growth appears assured for all the counters, Grasim among the large-caps and Shree Cements among the mid-caps appear the least expensive stocks, both by earnings and asset based multiples. Those who hold the sector are fortunate. Those who do not, may want to ride the rising trend. Investors may buy on dips.