BULLS ON THE RAMPAGE

BULLS shrugged off the impact of the knock-out punch delivered on Tuesday by RBI, bouncing back strongly on the back of falling oil prices and firm global markets.
Concerns relating to the local economy, mainly inflation and rising interest rates, receded to the background as the 30-share Sensex ended Wednesday at 14 287, a gain of 495.67 points or 3.6% while the NSE Nifty rose 124 points or 3% to 4314. Wednesday’s rebound helped the market recoup a significant part of Tuesday’s losses caused by the steep hike in the benchmark — shortterm rate by 50 basis point. The Sensex had fallen 558 points and the Nifty by 142 points on Tuesday.
But there is a cautious undertone to the rally as according to brokers, the bounceback was more because of technical reasons than fundamentals at play. After pressing heavy sales during the last few days, traders rushed to cover their short positions ahead of the expiry of futures contracts on Thursday, said brokers.
Local institutional investors lent good support even while foreign portfolio investors who have so far sold over $6.8 billion worth of stock this year continued to be on a selling spree. Indian institutional investors bought equities worth Rs 672 crore while overseas investors were net sellers at Rs 628 crore on Wednesday.
“The rally was like a pullback from lower levels. We are yet to come out of the woods completely as the CRR hike was a big jolt to the market,” said Indiabulls Securities CEO Divyesh Shah. In the near term, the market will take a cue from the movement in oil prices and the weekly inflation numbers, he said.
On Wednesday, crude oil prices fell below $121 a barrel on reports that gasoline demand in Asia and the US may slow in the near term. Prices, in fact, have slipped more than $25 a barrel, or 17%, from their July 11 record levels.
Softening oil prices had its positive impact on global markets. In the US, the Dow Jones Industrial Average and Nasdaq Composite Index jumped 2.4% and 2.5% while key Asian markets led by Hong Kong rose between 0.7% and 2%. The global euphoria was also attributed to Merrill Lynch’s recent writedown, after which confidence among consumers appeared to have gone up.
Back home, brokers reckon that the market will take some time to absorb the shock of further monetary tightening. Analysts fear such measures would lead to a slackening of consumer demand and impact growth, particularly in interestsensitive sectors such as banking, auto and real estate.
These concerns took its toll on shares across sectors on Tuesday when the BSE Bankex plunged 8.3%, Realty 5.5% and Auto 4%. Wednesday, however, saw a reversal in the downtrend as the three indices bounced back 5.2%, 5% and 2.8%, respectively. Good buying was also observed in metal, IT, oil and gas and power stocks as the respective indices rose between 3.3% and 4.7%. Overall, the market breadth was positive with 1,784 gainers and 857 loser stocks on BSE on the day.
Source : the economic times dt 30 7 2008

Rain Commodities under funds radar

CALCINED Petroleum Coke (CPC) major Rain Commodities is under the radar of several funds after its recent inclusion in mid-cap index. It has risen by around 14% in the past one week. According to brokers, it is witnessing sustained buying by funds like Swiss Finance Corporation and Morgan Stanley, among others. The interest has emerged after it reported a PAT of Rs 94 crore in this quarter. Going forward, this is expected to go up substantially as average realisation of CPC was $355 per tonne for the second quarter and may go up to over $550 per tonne in the third quarter as it has recently booked some orders at $700 per tonne. Further, the series of rate cuts in the US is likely to save around Rs 60-crore interest every year as interest cost alone, which would be utilised for putting up a co-gen power plant in the US. According to analysts tracking the counter, the company is expected to report an EPS of nearly Rs 90-100 for Calendar Year 2008. Due to increasing consolidation and limited supplies, CPC may remain sellers market for next 4-5 years. The stock price closed at Rs 215, up 2% on Wednesday.
Source : the Economic times dt. 30 7 2008

Is the pull-back rally over?

MUMBAI: Constraining economic factors and fall of equities from all-time highs of 21,200 to recent lows of 12,514 leaves us in no doubt that we are in the midst of a bear market.

The recent rally in the market is being seen as a typical bull-run in the bear market. In just five days, the Sensex has rallied 2,366 points after which profit booking set in.

So is the short-term rally over? Economictimes.com spoke to marketmen to find out.

Chief Technical Analyst, Sandeep Waghle of Angel Stock Broking:

“Today’s (July 29) correction was event based which got discounted. It can’t be said that the rally is over. Buying can still emerge at these levels, the trend is still bullish. Top has been formed for some time at 15,200. The bottom of 12,500, which was formed some two weeks backs, will not be violated. We may see buying at 13,200-13,300 levels.”

Manas Jaiswal, Senior Technical analyst, Emkay Global Financial Services

“Nifty has already corrected 50 per cent of its recent rally from 3,790 to 4,539. If it remains below 50 per cent retracement level of 4,164, it can touch the recent low of 3,790. At a higher level, if it trades above 4,220 then the uptrend will continue and it can again come in the range of 4,350-4,400. Wednesday would be a critical day as it will decide the market trend.”
Arun Mewawalla, AVP-Alternative Research, ULJK Securities

“The recent short-term rally is over, as it was based on short-covering. We expect the market to be in consolidation phase between 4,000 and 4,500. Until July series expiry settlement, we could see volatility in the range of 4,100-4,250.”

Ram Chandran Iyer, head of institutional sales, at Kantilal Chhaganlal Securities

“The entire pull-back rally from 12,600 to 15,100 was event based, as traders covered shorts on expectations of UPA winning the vote of confidence in parliament. Soon after the survival of the government, selling emerged at 15,000 levels. Despite the fact that crude is around $123-125 per barrel, inflation is at an acceptable two-digit mark and earnings of most companies were not bad. However, investor confidence is missing. Unless foreign funds cease selling and there is renewed buying interest from domestic institutions, every rally will be sold off. Liquidity will be the main driving force for the market. We expect the market to consolidate near term. 12,600 will be a good buying opportunity to enter quality stocks with a two-three year perspective.”
Source : the economic times dt. 30 7 2008

Real estate prices in bubble zone

The question that bothers a lot of prospective home buyers is whether they will miss the bus if they wait any further. However, the right question should be: Can I afford to buy a house today? Even if you are one of those blessed ones, the thought should be: Is it a fair price for the house? Your house might not be an investment, but does that mean you should pay any price for it?

The prices currently being quoted are simply atrocious. From a time, not too long ago, when people talked about loans of Rs 10 lakh to Rs 50 lakh, today the average loan size is substantially higher.

A simple 2-bedroom house in Malad can cost up to Rs 1.2 crore (including stamp duty and registration charges). This is the price that sellers expect, but this does not mean they are actually getting it. The cost of a similar flat 4 years ago was close to Rs 30 lakh.

The entire real estate boom took off in 2003 on the back of very low interest rates and low prices. However, the situation has changed now with realty prices going up 3-4 times, while interest rates are 60-70% higher. Incomes have certainly not grown four-fold in the past four years. Today, even if you are earning Rs 25 lakh annually, it is extremely difficult to buy a 2-bedroom house in the suburbs.

Even if you make a down payment of Rs 20 lakh, you will still end up borrowing close to Rs 1 crore. This would mean an EMI of close to Rs 1 lakh per month. So, after tax and EMIs, a person with Rs 25 lakh gross income will be left with just Rs 5-6 lakh as disposable income for lifestyle and living expenses. Once you take EPF contributions, you will just be left with Rs 4 lakh annually.

Source : The Economic times dt. 30 7 2008


Lifestyle inflation (driving a car, visiting malls, eating out & entertainment), which is much higher than normal living expenses, eats up a significant portion of one’s income. Hence, it is just not possible even for someone earning Rs 30 lakh to service an EMI of Rs 1 lakh every month. Even if you do manage to do it, you will be left with no savings.

So, what should you do? Should you buy a house today? Real estate prices, though location-specific, have been witnessing a slowdown in demand. One might argue that luxury accommodations might not be impacted by this. However, there is a visible slowdown in real estate and prices are down on an average by 10-15% in places like Mumbai.

Unlike the stock market, there is no index for the real estate market and no price-discovery mechanism. In fact, the price discovery is very subjective and identical properties in the same building can go for two different prices.

If one had a real estate index, it would have had given details on number of transactions. Thus, enabling one to witness the slowdown that has started last year itself.

There have been several reports of builders borrowing at very high interest rates and some defaulting on their interest payouts. In fact, real estate stocks have been hammered the most and the basic assumptions on which their landbanks were valued are a matter of debate now.

I believe the stock market here is one leg ahead of the realty market and there is a lot more pain to come in the residential segment. One is also witnessing a lot of projects being delayed and redevelopment schemes being postponed.

Speculators have started to exit since late last year and investors trying to exit now are unable to get the price they could dictate some time back. With rising interest rates, demand should come down. However, location still rules and some premium commercial property could still fetch good money.

Not that it is any indicator, but if you look at the price-to-rent ratio (PR Ratio) similar to PE ratio, one can clearly see that the prices are in the bubble territory.


Since there are no margin calls in the realty space, the holding capacity of an investment can be substantially higher than a leveraged exposure in stock market, where margin calls have to be attended immediately. Hence, real estate prices generally do not fall drastically.

Small builders are cash-starved and are not getting into new projects. This is the case with mid-size developers. However, big builders with access to IPO funds and PE funds can wait for an extended period of time before cutting prices.

One can clearly see that the discounts offered in the form of stamp duty waivers or furnishings are nothing but a desperate attempt to get end-users.

Like in the stock market, it pays to be patient in the real estate market too. For realty market to sustain itself, there should be a steady inflow of end-users. Speculators and investors can only take it to a certain level. End-users can only come when prices are affordable and for that at least 30% correction is a must.

If you have been eyeing a property for some time, don’t just think twice, think several times before you sign on the dotted line. Be patient for the next 12-18 months and you are bound to come out as a winner.
Amar Pandit, Director of My Financial Advisor.

IDFC (Rs 88.80): Sell

We recommend a ‘sell’ in Infrastructure Development Finance Company (IDFC) from a short-term perspective. It is evident from the charts of IDFC that the stock has been on an intermediate-term downtrend from its January 2008 peak of Rs 235, forming lower peaks and lower troughs.

In May, the stock declined below the 200 and 50-day moving averages. The downtrend has continued and the stock conclusively breached the key support level Rs 110 recently. On July 29, the stock tumbled almost 9 per cent, reinforcing the downtrend. With this, the daily relative strength index (RSI) has entered the bearish zone from the neutral region and the weekly RSI is featuring in this zone. The moving average convergence and divergence is featuring in the negative territory. The stock is trading well below its 21 and 50-day moving averages.

Considering that the medium-term down trendline is intact, we are bearish on the stock in the short-term. We expect the stock’s decline to continue until it hits our price target of Rs 78 in the forthcoming trading sessions. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 94.

Yoganand D.
Source : the businessline dt.30 7 2008

Aggregating profits Tanla Solutions

Tanla Solutions is poised for strong growth on Openbit acquisition, foray into new geographies and improved penetration in existing markets.

Even as the number of mobile users globally continue to rise at a rapid rate, the mobile service operators are feeling the heat in the voice-based segment with their average revenue per user (ARPU) heading southward.

The trend points towards operators needing to constantly launch greater number of value added services (VAS) to drive aggregate ARPUs. This augurs well for aggregators like Hyderabad-based Tanla Solutions (Tanla), specialising in developing mobile applications and platforms, primarily for the mobile telecom industry.

Business
Over the last eight years, Tanla has evolved from a mere telecom product licensing company to providing integrated telecom products and services on a revenue / pay for use revenue model.

The company offers aggregation services (by acting as a single point interface between content developers like ESPN, Disney and mobile network operators like Airtel, Idea), telecom-signalling products to mobile operators and offshore services in the area of application hosting and infrastructure management.

With its focus on the sophisticated mobile VAS markets of UK and Ireland (estimated size $1.5 billion) that generate more than 95 per cent of the company’s revenues, the company has cornered a market share of about 5 per cent in these markets.

The company intends to increase its market share to about 8 per cent in FY09 by bundling solutions in billing and applications, and increasing its presence in the rich content arena.

In the aggregation business, relationships with global telecom operators are crucial and Tanla scores favourably on this front. The company has strong business ties with Vodafone, O2, T-Mobile, Virgin, Orange and 3 (Hutchison); encompassing relationships with all the mobile operators in UK, which gives it a strong lever to gain market share.

Growth strategies
Tanla recently acquired 85 per cent of Finland-based Openbit, a provider of global on-device payments for mobile applications for $18.6 million. Openbit is used as a payment gateway, which facilitates payment through mobile phones with support from credit card companies. Openbit’s clients include Nokia and some of the largest independent software vendors like Symantec, F-Secure and Quickoffice, and gaming companies like 3D Arts and Gamelion.

Openbit was installed in 1.4 million handsets during June 2008, which is typically a lean period for the company. This enabled Openbit to register revenues of Rs 7.4 crore and PAT of Rs 1.6 crore (revenue recognised for the month of June 2008 only).

The company plans to scale up the number of installations to 50 million by end-2008 and 190 million by 2009. The Openbit acquisition will help Tanla move higher up the value chain and provide rich media and business applications.

Tanla not only gets access to Openbit's proprietary technology and applications, but also its customer-base of 90 operator networks across 30 countries. The acquisition is expected to be 10-11 per cent EPS accretive in the first year of operations.

Tanla entered India in Q4FY08 and signed billing and messaging agreements with service providers such as Airtel, BSNL, Idea, Reliance, and Vodafone.

Apart from this, Tanla also entered into tie-ups with operators like Airtel and BSNL for FM radio service on the move and setting up voice portals across India, respectively.

The company is already live with all major operators for premium SMS, which would be further aided by its tie up with five TV channels for Interactive TV (ITV) services. As the name suggests, ITV helps media channels to run interactive services with their viewers.

Connectivity agreements were also signed with operators in South Africa, Dubai, Spain and Singapore.

Notably, revenues for all these engagements are expected to accrue from Q2 FY09 onwards. Tanla has an ambitious plan to expand geographically by expanding it footprints from nine countries currently to 40 countries with direct connectivity in 28 countries in FY09.

Financials
Tanla has consistently reported robust performance, with CAGR of 170 per cent in revenues and 132 per cent in net profit over FY06-08.

The company’s growth continues to be driven by both increased penetration into existing markets as well as expansion into newer markets, with the aggregator business remaining the key growth driver and focus area.

All the three businesses have high margins, upwards of 35 per cent.

ROBUST GROWTH
Rs crore FY08 FY09E FY10E
Net sales 459.8 689.0 938.0
Net profit 163.1 229.3 281.0
OPM (%) 46.8 46.0 45.6
NPM (%) 35.5 33.3 30.0
P/E (x) 13.1 9.3 7.6
E: Analysts estimates

The company is a debt-free company and a total cash on books stands at about Rs 200 crore, which gives the company fuel for further acquisitions.

Investment rationale
As per industry estimates, the global market for VAS stands at $25 billion in FY08, and is growing at 25-30 per cent annually.

With its suite of end-to-end solutions, Tanla appears well-poised to tap the opportunity going forward. Its key competitive advantages are its lower costs vis-à-vis competition in the overseas markets, wide product and service offerings and long experience.

One of Tanla’s key strategies to drive revenue growth going ahead is geographic expansion, which will not only provide momentum to its growth but also de-risk its business model.

Visibility for Tanla’s aggregator business appears strong with its entry into newer markets like Singapore, Dubai, Spain, South Africa and the US.

Going forward, Tanla’s revenues and profits are expected to grow at a CAGR of 42 per cent and 31 per cent over FY08-10, respectively. The lower profit growth is a result of contribution from the low margin business of Openbit, change in the revenue mix with increasing share of aggregation business and higher costs due to international expansion.

However, EBITDA margins above 45 per cent and net profit margins of 30 per cent still characterise the strong business model of Tanla. With the recent fall in the equity market, at Rs 213.45, the stock is attractive and can deliver over 30 per cent in a year.
Source : The Business Standard dt. 28 7 2008

Nu Tek's primary offer looks attractive

COMPANY: NU TEK INDIA
ISSUE SIZE: Rs 76.5-86.4 CRORE
PRICE: Rs 170-192
ISSUE DATE: JULY 29 - AUGUST 1, ’08

Telecom infrastructure services provider Nu Tek is coming out with an initial public offer (IPO) of 4.5 million shares. The IPO funds will be utilised for capital expenditure, working capital requirements and acquisition purposes. Post-listing, the promoters’ stake in the company will come down to 42.4% from the current 53.2%. The stock seems to be reasonably priced and investors can consider it for subscription.

Business:

The company provides telecom infrastructure services, including execution of turnkey projects, telecom implementation solutions, operation maintenance and resources. It carries out all civil and electrical work, such as installing passive and active infrastructure at the tower site. It also undertakes maintenance of this infrastructure on an ongoing basis.

Nu Tek gets its business from service providers, original equipment manufacturers (OEMs) and third-party telecom infrastructure leasing companies. It has executed projects for various service providers in the country and for major OEMs like Ericsson, Motorola and Nokia, among others.

Financials:

The company has reported robust growth over the past five years. Its net sales have more than tripled in the past three years to Rs 95 crore. It has managed to improve its operating margin significantly from 9% in FY03 to more than 30% in FY08. The reason for this is higher utilisation of human resources. As the company serves more and more customers in the same circle, this utilisation rate will increase further. Its three-year average return on equity is close to 24%, which is higher than that of its peers in the industry.

Growth drivers:

Though India is the secondlargest in terms of total number of subscribers, there is still substantial room for growth, as its tele-density (the number of telecom service users in the total population) is just over 26%. So, going forward, service providers will have to set up more towers and other operating assets to serve the rising subscriber base. The total number of towers in the country is expected to double by ’10.
This augurs well for Nu Tek, given its area of operations. Further, as and when its scale of operations increases on account of more opportunities, the company can provide the same service at a relatively lower price in those regions where it already has its presence.

Valuations:

The company’s net profit recorded a compound annual growth rate (CAGR) of more than 50% in the past three years. Even after assuming a conservative growth rate of 30% for the next two years, its earnings per share (EPS) works out to Rs 15.9 and Rs 20.7 for FY09 and FY10, respectively. This means that at the current offer price, the stock offers a P/E multiple of 12.1 and 9.3 at the upper price band for FY09 and FY10, respectively. This is relatively lower compared to its peers in the telecom industry. Considering these attractive valuations, investors can consider subscribing to this issue.

Risk factor:

The company has high working capital requirements due to the inherent nature of its business, which may have an adverse effect on debt repayment or distribution of cash to its shareholders.
Source : The Economic times dt 28 7 2008

Bull's Eye,

Aban offshore
RESEARCH: GOLDMAN SACHS
RATING: BUY
CMP: RS 2,695.15

GOLDMAN Sachs reiterates ‘buy’ rating on Aban Offshore with a P/E-based 12-month target price of Rs 4,375, implying potential upside of 64%. Discounted cash flow value is Rs 4,500/share. Aban’s FY08 pre-exceptional consolidated net profit stood at Rs 310 crore, beating the estimate of Rs 250 crore by 22%. Aban’s reported FY08 profit of Rs 120 crore had a one-time translation loss of Rs 180 crore due to adverse movement of NOK-USD exchange rates since March ’07. Strong operating results were offset by higherthan-expected interest cost.

Better-than-expected operating results and persistent market fears of large derivatives loss proving to be untrue will lead to re-rating of the stock. Goldman expects Aban to announce contracts for five assets - jack-up rigs Deep Driller III, VI, VII and VIII and semi-submersible rig Aban Pearl - over the next 1-6 months. Goldman estimates the jack-up day rates to be $180-185K for short-term contracts and at a 10% discount for long-term contracts. For Aban Pearl, Goldman has assumed a day rate of $275K. So far, Aban’s last nine contracts have been at rates higher than estimates.

Aban’s stock is trading at 5.8x FY10E EPS, which implies a discount of 23% to the global average for offshore drilling companies. Aban still has the best earnings growth profile in the medium term in its peer group, with EPS CAGR of 162% between FY08 and FY10E, even after cutting FY09E EPS by 3.5% to reflect delay in deployment of Frontier Ice at higher day rates.
Source : The Economic times dt. 28 7 2008

Geodesic Info finds favour

Some institutional players are said to be accumulating shares of software solution provider Geodesic Information Systems. According to analysts, the company’s strong presence in the low-cost solutions is an effective antidote to the cost cutting efforts by the industry due to signs of economic slowdown.

For example, it has products like mundu messaging system, VOIP solution and internet radio accessible through mobile. Besides, the company also has high-profile clients like Apple, Motorola and Idea. Further, it is looking for an acquisition in the US and European markets and has recently raised funds for this purpose.

Analysts expect the company to post a topline of about Rs 120 crore and a bottomline of Rs 58-60 crore for the quarter ended June 2008. The stock closed at Rs 171, up 2% on Friday, defying the overall the downtrend in the market.

(Contributed by Apurv Gupta & Ashish Rukhaiyar

Source : The Economic times dt. 26 7 2008

Investment strategy: Accumulating large-caps, timing momentums

The sharp decline in stock prices since January 2008 has left many wondering as to whether the market will ever climb up. Such gloom and doom is part of human nature. We always swing from bouts of optimism to spells of extreme pessimism. As the saying goes, greed and fear drive asset prices. And it is fear that is currently gripping the market. Several investors asked us the optimal strategy that they should adopt in current market conditions.

This article attempts to answer this question. It acknowledges the fact that not all investors and analysts are competent to find the market bottom. Small investors should, hence, consider accumulating large-cap stocks in their core portfolio. The satellite portfolio could primarily carry cash and some momentum stocks to moderate and adapt to investors’ emotional biases.
Accumulating inside core

The core portfolio contains large-caps and represents the long-term component of the total portfolio. Investors could now consider buying large-caps for their core portfolio. It is important to remember that the core portfolio is about value-investing, not market timing.

Suppose an investor with Rs 20 lakh wants to construct a portfolio that has two constraints. One, the portfolio cannot have more than 2 per cent risk exposure to a single stock. And two, the portfolio will have a sector cap of 20 per cent.

Now, suppose the investor decides to buy Tata Motors at Rs 400 but does not want to hold the stock if it closes below Rs 300. The capital-at-risk is Rs 100 per share and Rs 40,000 for the stock (2 per cent of Rs 20 lakh). This means that the investor can only buy 400 shares (Rs 40,000/Rs 100). The investor may, of course, overweight or underweight a stock in the portfolio.

The optimal strategy is to accumulate stocks (buy in tranches) at the current level. This strategy acknowledges the fact that the objective is not to engage in tactical asset allocation (or market timing). Rather, it is to simply buy value stocks at various price points.

This strategy allows generously for downside risk — the risk that any stock could decline after it has been included in the portfolio!

It is important to understand the difference between accumulation and downside averaging. Accumulation is buying the budgeted 400 shares of Tata Motors at prices ranging from, say, Rs 425 to Rs 350. The investor will not buy Tata Motors thereafter, even if the stock were to decline further. Downside averaging is about sinking more money into the stock even after buying the budgeted 400 shares. Such a strategy is harmful for the portfolio.
Cash is king?

The satellite portfolio carries short-term exposure to momentum stocks. Such stocks are easy to pick in a trending market. The current market is hardly one. So, generating higher returns from this portfolio may not be possible for now.

Investors should, therefore, consider holding cash equivalents in this portfolio till there is a confirmation of an uptrend in individual stocks. But all of investors suffer from emotional biases. One such bias is the need to trade regularly in the market and to expect cash-flows into the trading account.

To moderate and adapt to this bias, investor may allocate not more than 25 per cent of their satellite portfolio to take active bets in the current market. It is best to take such bets with strict risk management rules.

Sophisticated investors can also trade on shares “borrowed” from their core portfolio. Suppose an investor has a view that Tata Motors will find near-term resistance at Rs 500 and near-term support at Rs 370. She can let her satellite portfolio “borrow” half the number of shares of the stock held in her core portfolio and trade on them. The profit/loss on the trade will go to the satellite portfolio and the stock, back to the core portfolio.

Care should be taken not to indulge in this strategy. The reason is that portfolio will be exposed to risk if the stock does not decline and instead moves up.

Often, investors will be reluctant to buy back the shares at a higher level. This will lead to sub-optimal allocation of the core portfolio.
Conclusion

The core-portfolio should not hold more than 10-12 stocks. It is preferable to hold not more than five stocks in the satellite portfolio at any point in time. It is important to buy sector leaders in the core portfolio as such stocks provide good upside potential when the market turns after a corrective phase.

Finally, investors should remember this if nothing else. It is sometimes optimal not to trade at all in the satellite portfolio. And most of the times, it is better to ride the trend than move against it. Taoists call it Wu Wei.
Source : The Businessline dt. 20 7 2008

Trust won or not, market to remain shaky

MUMBAI: The trust vote in Parliament on July 22, which will decide whether the UPA government will stay in office, will also determine the fate of the market in the near term.

The first two days of the forthcoming week will see a decent amount of volatility. "I don't see too much of a rally from here at least till Tuesday. So basically, the market would be volatile but at lower levels," said Arun Kejriwal, strategist at KRIS Research.

If the Congress manages to prove its majority with new allies in tow, it will open up a Pandora's box of reforms, which had been kept on the backburner on account of resistance from the Left parties.

While there's hope for India Inc that the slow-moving economic reforms programme will be put on the fast track, there are views that even if it survives, the period for a major policy shift is too less with elections around the corner.

But the market largely seems to have accepted the fact that the government will sail through, which is why there has been a sense of euphoria that has set in over the last few days, say market experts.
Market already seems excited. If the trust vote tilts in favour of the Congress, we can expect a sustained rally," said Shahina Mukadam, head of research at IDBI Capital Markets.

On the other hand, if the government loses the vote, the country will face early elections and it would mean the probable demise of the landmark US-India nuclear deal. The market will be on tenterhooks again as political uncertainty will prevail, especially at a time of high inflation, high interest rates, signs of fiscal strain and slowing growth.

Shifting focus, the sharp drop in oil prices has offered some solace to the ailing equity market. Crude oil has plummeted after striking record highs above $147 per barrel last week. But experts are still unsure whether crude will stabilise at current levels but suggest that the speculation on oil prices is easing off.

On the data front, the rise in inflation in the week to July 5 to 11.91 per cent came as a surprise against expectations of 12.05 percent though up from previous week's 11.89 percent.

However, IDBI Cap's Mukadam feels we are yet to see worse inflation figures and that Reserve Bank of India, in its July 29 monetary review, will maintain a hawkish stance.

Last month, the RBI increased its key lending rate by 75 basis points to 8.5 per cent, it's highest in six years, and hiked banks' reserve requirements by 50 basis points in an aggressive effort to combat inflation. On July 29, it is widely expected to tighten monetary policy again.

For the week, Bombay Stock Exchange's Sensex ended 1.23 per cent higher at 13,635.40, after over 1200 points rally in the last two days.

National Stock Exchange's Nifty gained 1.08 per cent to 4092.25 from the earlier week.

Source : The Economic Times dt. 19 7 2008

TCS is on the growing path

The first quarter results of this financial year for India's largest IT services provider Tata Consultancy Services (TCS) were muted. The company made a net forex loss of around Rs 75 crore and could not gain from the rupee fall against the US dollar. S Mahalingam, chief financial officer and executive director of TCS, in an interview with Shivani Shinde, explained the company's hedging policy and strategy for the road ahead. s your $10 billion (approximately Rs 43,000 crore) target by 2010 still achievable given the current scenario?

Yes. We are very much on track. It's not that the growth will be at the same numbers but the momentum is certainly there. You need to understand that when you do these kind of predictions, we do that on the basis of the addressable market. During the last two years, we have done very well in terms of dollar growth. Besides the competence of the organisation to scale up in variety of things like broadening of the services basis, looking at different verticals and creating an intellectual property base will make it possible.

Your huge forex cover did not help you this quarter. What's the current position?

The cover would be in the order of $2.2 billion (over Rs 8,500 crore). Of which a substantial amount (around 80 per cent) would be in options. Once you plan a hedging strategy you can take a position. But the issue is the volatility and the premium attached and related cost. I can take a forward hedge, as there is no cost to it.

But the problem is that I lock myself at a level and when the rupee depreciates, I cannot take advantage of it. While I might have some protection it might not be good for TCS. Hence getting into Options is better but it requires capability to make it effective.

You said you are not hedged from May onwards. Could you explain?

Essentially you want to hedge future revenue. We started with $2.2 billion (over Rs 8,500 crore) of which $1.1 billion represented hedges for Q1. What I mean is I have not increased our revenue hedges beyond that point. In this quarter I have close to $650-660 million in Options and in case of $250 million, we have an upside participation of Rs 41.50.

That's why I say if the rupee continues to trade at Rs 43 we will end up making a loss. However, you cannot predict the rupee movement. We think it will be in the range of Rs 43-45 per dollar.

The company has $1 billion (nearly 43,000 crore) in cash. Any acquisitions on your mind?

(Smiles) It is a good number to have. But then you are also growing at the same time. For instance, we are going to different geographies and you need to start spending for scaling up. Besides you need additional investment for certain niche capabilities like in products' area and for which we might like to buy such assets.

It does not need to be big. Moreover, it is also a pschycological factor to have some cash just in case of a rainy day. While we are quite happy at this time, it is not a pile of money which can be used for acquisition or buybacks, etc.

So what is your acquisition strategy?

It will be for bridging certain competencies in the products or skills' arena. We could also look at an acquisition if it gives us enough regional penetration or it could be some specific kind of scaling up like in the BPO infrastructure, etc. We will look at all the option but more importantly anything that can make us jump start operations.

How is the company planning to grow its Europe business?

We are looking at countries like Germany, Nordic countries and some pockets like Switzerland from where we want to increase business. We are pushing ahead in the Western Europe. With a centre in Hungary, which takes care of a local presence and language capability, we are very much on track.

Going ahead what are your concerns?

We did talk about cautious optimism. So that has to be kept in mind. The second is the quality aspect and for which there are investment to be made.

Source : The Businessstandard dt. 17 7 2008

Most pain in mkts may be over: Raamdeo Agrawal

Raamdeo Agrawal, Director and Co-Founder, Motilal Oswal Securities, said it is too early to say if today's rally can be sustained. "One should not write off crude oil bulls so early as it is likely to resume its gains. We have not yet seen the worst in US financial markets."

Valuations are around 12-13 times earnings, so most of the pain may be over, he said. "We are seeing some stability in markets, but don't expect large buying."

Agrawal feels the profitability of steel companies will not suffer due to low cost structure.

Excerpts from CNBC-TV18s exclusive interview with Raamdeo Agrawal:

Q: Is the rally sustainable?

A: It is too early to say because after so many days of a sustained downturn, there is a good day of relief. After 7-8 days of major downswing, you get one-day of 600-700 points upmove on the back of USD 8-10 of decline in oil.

But I was speaking to a few people in global fund management and commodity markets. They were saying dont write-off the oil bulls so early because they seem to have a pretty good grip on oil prices and the producers are also more or less with them. So, it is too early to say that oil is completely off the curve and happy days are here. With respect to the kind of crisis unfolding in the US financial sector, we are yet to go to the worst in terms of write-offs and the challenges that are ahead. So, I would still be little cautious at this juncture.

Q: Do you think any upmove would be more in the nature of a relief rally or a trading rally at this point, not a final bottom?

A: Some stocks stories are actually good, whether in banks or telecom or auto. They should not be treated in the same league as other stocks. Till recently, everything was going down. Whatever you sell, you are right at any price. So that divergence must happen and this particular quarters results will also help in that process.

But at these levels in the market, clearly good stocks or great stories must start showing their strength. Firstly, there should be a divergence between a good stock and a bad stock. After that, some kind of broad rally will start.

Q: The only sector that got punished today was metals. What have you made of all the suggestions of a price band for steel and how that might impact the sector?

A: You keep getting conflicting views. Unfortunately, the industry is not a very generic industry. For example- its not like steel produced by every producer is of the same type. So, you cannot have price control.

Then, there is lot of value additions and the components are made and then the products are made. So, this is one industry where it is very difficult to actually dictate the price because one producer is integrated for one raw material and the other producer is integrated for other two raw materials also.

So, the profitability of the industry is dependent on scale and the level of integration and things like that. So, it will be very tough for the government to have a sensible price control kind of a mechanism over there.

Their compulsion is to control the so-called Wholesale Price Index (WPI) and there is some national objective to help the government in terms of managing inflation. But I dont think that eventually profitability will suffer big time because the cost structure is so low for Tata Steel and lot of other companies that they will still make lot of money in the days to come.

Q: How are you summing up the Ranbaxy situation after all the volatility of the last few days?

A: In Ranbaxy, we were very fortunate to do trade on the very first day or second day. But the way, things are opening up now and suddenly this US FDA inquiry is being given so much prominence, which was not there till the deal happened. Suddenly there are things that were not there in the picture. Whether the media is playing too much out of that or not is not clear.

Actually, even the US FDA is getting much more sensitive because the deal has happened. But somehow there is too much attack on the current deal. Going by whatever we have been hearing from the management and what we can read in the terms of the deal, the probability of the deal going through is far higher. I would put it more at like 80-85% than the deal not going through.

In any case, at Rs 440-450 whether the deal is going through or not, fundamentally it is a reasonably good buy.

Q: Do you still think that there is much more to go by way of time before this bear market gets over?

A: Yes, it looks like. There is still life in the bulls where there is one little excitement and people come and pull the market big time. Look at the severity of the problem in the US markets and what it can do to the global situation. It is just about six months since we saw the peak. Probably, this will be the year when you will see the top as well as the bottom.

So, in terms of declines, even at Rs 950-1,000 EPS and current valuations of about 12-13 times, we are done in terms of the bulk of the decline. Day before yesterday the markets were down almost 5%. If you look at the actual total market cap drop, it was less than 2%. There is a lot of noise and excitement in terms of the market going down and the actual damage is much less in terms of the decline in the prices of the broader market.

So, there is some stabilisation happening in terms of valuations. But I would not think that suddenly buying will emerge and we have created a bottom. There is still some more time there

Source : Moneycontrol.com dt. 17 7 2008

Tips to beat the soaring inflation

Inflation reduces your purchasing power, erodes your net worth and adversely affects your lifestyle in the long run.

Sadly, however, there seems to be no respite from this soaring inflation in sight, at least in the near future. Economists have already warned that inflation is bound to cross a 13-year high of 9 per cent from the current level of around 8 per cent, as a fallout of Wednesday's sharp hike in petrol and diesel prices.

Still you need to look out for some ways to keep your household budget intact. Here are some tips to shield you from this devil..

Rework Your Household Budget
In the times of rising prices, you need to spend your monthly household budget smartly. To maintain your lifestyle, you should limit the household expenses to 70 per cent of your monthly take-home income. "If it is exceeding the limit, you need to judiciously cut down on the unnecessary expense items," says Ramesh Dalal, V-P, Bajaj Capital Financial Planning Group.

For example, you should buy the seasonal fruits and vegetables and avoid the non-seasonal ones, as they are expensive. Control the use of electricity and telephone and try to reduce the expenses on wardrobe, partying, gifts etc. by a certain percentage.

You may also think of enhancing your earning capacity by changing to a better-paying job or doing some part-time work.

Insulate Your Long-Term Goals Against Inflation

Do not let inflation affect your long-term mandatory goals like house purchase, education and marriage of your children and regular income for the retirement years.

"With the help of a qualified financial planner, incorporate the inflation factor in your long-term goals and invest the required amount regularly towards meeting those goals," says Dalal.

For example, if you want to make provision of Rs 10 lakh for your 6-year-old daughter's higher education when she is 18, incorporating an inflation figure of 6 per cent p.a. will give you a figure of Rs 20 lakh at that point of time.

Therefore, you should start an investment plan from now, which will help you accumulate Rs 20 lakh after 12 years

Review Your Financial Goals and Portfolio

In the current scenario of staggering prices, there is a need to review your financial plans and investments as the expenses and corpus required to achieve financial goals may increase.

So, you need to balance your portfolio so that it can generate better inflation-adjusted returns.

Diversify Your Portfolio

Inflation impacts different sectors in different ways. "Due to current inflationary trends, one needs to have a well thought-out sector spread in his investment portfolio. While investing in companies, one should look at how they are being impacted by the rising input and borrowing costs," informs Ashish Kapur, CEO, Invest Shoppe India Ltd.

For example, manufacturing companies or heavy industries, though their stocks, will be available at tempting valuations. However, chances are high that they will further fall in short term, owing to negative sentiment.

Hence, investments should be made in large cap companies having economies of scale and their ability to handle input and borrowing costs.

Stay Invested in Equities

For long-term investment goals like child education, retirement etc, equity can generate handsome inflation-adjusted returns.

Therefore, In spite of the current volatile situation in the equity market, it is advisable to stay invested as this is a cyclical event and in the long run the markets are bound to rise.

Hence, to achieve such goals one should be able to take a calculated risk.

"Consider this bearish trend as a good entry point in garnering blue chip stocks," says Kapur.

Don't Let Your Money Lie Idle, Invest It Wisely

Don't keep on accumulating your money in the savings bank A/c.

Keep only 2-3 times of your monthly household expenses in the liquid form and invest the balance amount regularly in a well-diversified portfolio of equity, short-term debt, real estate, commodities and gold.

It will increase your cash inflows and help you reduce the burden of rising prices.

Check The Real Return On Investment Portfolio

Inflation eats into your net worth by reducing the real return on your investment portfolio. Real returns are inflation adjusted returns.

For example, if you have a bank FD, which earns returns at 8 per cent p.a., and inflation is 8 per cent, then the real return on this investment is zero.

Therefore, you should review your existing portfolio as well as make fresh investments to check whether your absolute returns are beating the rate of inflation by a good margin or not. Equity, commodities, gold and real estate are good investment options to generate a positive real rate of return.

For short-term requirements, you can consider investing in the short-term funds or floater funds. It is generally seen that a high inflationary trend is followed by an upward revision in the interest rates. Hike in the interest rates will adversely affect your long-term debt portfolio. Therefore, during inflationary periods, it is wise to invest in short-term funds and wait to reap high returns.

Add the Shimmer of Gold to Your Portfolio

Historically gold has proved to be the perfect hedge against inflation. After adding gold in your portfolio, the risk remaining the same, the overall inflation-adjusted returns of portfolio can be enhanced.

High inflation, in fact, puts an upward pressure on the interest rates, which in turn create uncertainty in the capital markets.

During such times of crisis, gold as an investment avenue is a good bet. Investment in gold can be made in the form of bullion, coins, jewellery and Gold Funds Exchange Traded Gold Funds, among others.

Avoid Investments In Illiquid Assets

Illiquid assets with low returns restrict the performance of a portfolio.

So, try to exit from such investments and redeploy the amount in asset classes that generate better inflation-adjusted returns.

For example, bank fixed deposits, post office recurring deposits, etc.

The Economic times dt. 14 7 2008

Plan your investment strategically

MUMBAI: The Sensex has fallen by around 34% from its peak of 21,113 in January 2008, and analysts are talking about a further fall to 12,000 levels, with some pessimists not ruling out the index at 10,000 levels.

At the same time, the Reserve Bank of India’s (RBI) measures to curb inflation by reducing demand has resulted in interest rates on the 10-year bond crossing 9%.

Banks are now offering 9.5% on fixed deposits. Given the way interest rates are moving, fixed income returns could touch double-digit levels soon. So, the big question before investors is: should they choose equity or fixed income.

Invest smartly

“Investing in debt is risky in the long-term, while equity carries only a short-term risk. You can go for debt if you are looking at a 2-3 year time horizon,” says financial planner Gaurav Mashruwala.

If you look back to the mid-90s, financial institutions offered as much as 14% on term deposits, but soon rates tumbled and interest rates fell to 8% levels when these deposits came up for renewal.

If you are looking to park a large sum at the moment, you can look at a liquid fund for the next 3-6 months time horizon. “You may not earn great returns, given the soaring headline inflation, but at least your capital will be protected,” contends Transcend India’s director Kartik Jhaveri.

Remember, although returns from debt funds may be high now, but they may be negative after adjusting for inflation.

Park your money accordingly

If your outlook is short term, you can definitely look at debt. If you park your money in fixed maturity plan (FMP), or even bank deposits, you will at least get 3.5%. You can consider FMPs instead of FDs as they offer relatively better returns. If you fall in the higher tax brackets, FMPs are advisable, else you can consider FDs.

But if it is long-term investments that you are looking at, then there is no justification for any panic reaction to the market crash. “There is nothing abnormal about what is happening this time. The market will pick up later. Investors can learn from the experience that comes with losing money and can be better prepared next time,” feels Mr Mashruwala.

Typically, financial advisors recommend staying invested till the storm blows over, but adopting a clear strategy, that is, knowing what kind of funds could work for you can cushion the impact of the turbulence.

SIP a good bet

SIPs average the ups and downs of the equity market. Volatility in the market cannot mask the fact that equity delivers higher returns compared to most asset classes, but investors need to understand that this can happen only in the long term.

“If you did a one-year SIP last year, it would have no merit given the market downturn. If you do an SIP for at least five years, then you will experience the fruits of one entire equity cycle,” says Mr Jhaveri.

Adds Mr Mashruwala: “SIP can be a good bet for a common man in any market situation. You should go for a SIP in an equity fund if your goal is 7-9 years away.”

Stick to equity funds

The next aspect that you should consider is the kind of fund that would suit your needs. In a falling market situation, experts say, you should stick to diversified equity funds which are less riskier than sector-specific funds.

You can look at sector funds provided the top-five holdings belong to a renowned large-cap company. “Any day, a large-cap company will bounce back from its lows faster than mid-cap or small-cap companies.

So investing in a large-cap and/or a diversified equity fund will be a safer bet,” reckons Mr Jhaveri.

Large caps safer for a market novice

Mr Mashruwala seconds the view: “Large-caps are definitely safer, especially if you are a novice in the market. Such investors should stick to index constituents.

Index funds are the safest, followed by large-cap funds, mid-cap as well as small-cap and contrarian funds, thematic funds and sector funds — in that order.”

International funds could be a good form of diversification and gold funds can be considered too, he feels.

The Economic times dt. 14 7 2008

A few bright spots

Higher input costs, rising interest rates and subdued other income? all point to the lowest quarterly profit growth in the last ten quarters. From the hunky-dory days just a couple of quarters back, times have changed for the worse for India Inc. Not so long ago, strong demand and expansion in margins led to robust sales and profit growth for companies. The same however, is not true anymore. On a broader level, while factors like high crude oil and commodity prices (including steel), and the rupee's depreciation has inflated topline growth, they have also led to increase in costs for companies. A few sectors are also expected to report a slowdown in revenue growth due to slackening demand. Importantly, the inability of most companies to completely pass on the increase in costs due to various reasons (including the government restraining companies to increase prices), mean that their EBIDTA (earnings before interest, depreciation, tax and amortisation) margins will slip further. Additionally, the consistently rising interest rates would mean higher expenses on loans taken by companies. And, the trend of high growth in other income (to an extent led by forex gains) seen in some cases in the earlier quarters is unlikely to persist. The rupee has depreciated by about seven per cent in the quarter as against a six per cent increase in Q1 last year, which is expected to have a significant impact on financials. All these factors put together, indicate that India Inc's profit growth will decelerate sharply to the lowest rate seen in the last 8-10 quarters. Various estimates peg the aggregate net profit growth between 9-15 per cent for the quarter ended June 2008 (Q1FY09) as compared to about 25 per cent for the quarter ended March 2008. Among the worst hit sectors are expected to be cement, auto, aviation and oil marketing companies. But, its not doom for all. There are certain sectors and companies that are expected to put up a decent performance, which includes telecom (wireless), steel (mainly integrated players like Tata Steel and SAIL), retailing, FMCG and capital goods. To know more, read on.

Auto
Higher input costs and waning demand due to higher interest cost have dealt a double blow to the auto sector with the worst performers being the heavy commercial vehicles and to a lesser extent the two wheeler segment. Passenger vehicles and light commercial vehicles however have been showing robust volumes aided by new product launches. Cost reduction programmes and productivity improvements coupled with setting up of manufacturing centres in tax free zones have helped offset rising costs. The outlook going forward has worsened as the RBI looks to continue with its monetary tightening policy resulting in a 50-100 bps rise in interest rates for auto loans. Despite a hike in fuel prices and increase in product prices, June figures indicate a 9.2 per cent increase in auto volumes and a growth for all sectors except three wheelers. While passenger vehicles grew nearly 20 per cent YoY, commercial vehicles and two wheelers put up a robust show with sales numbers registering growth of 7.1 and 8.1 per cent, respectively. While FY09 forward P/E at sub-15 for most auto stocks are quite attractive considering strong growth potential, investors should wait for the interest rates scenario to settle before making investments in the sector.

Banking & Financial services
The Banking sector has seen tough times in the recent past with the Reserve Bank of India (RBI) raising the repo rate by 75 basis points (BPS) to 8.5 per cent and the cash reserve ratio by 125 BPS (of this, 50 BPS is effective July 2008) to 8.75 per cent. That apart, the turmoil in capital markets and rising bond yields has only added to their woes. The RBI's moves have led to increased costs of borrowings for banks. High interest rates also make it attractive for customers to keep money in term-deposits than in current or savings account (CASA); the Zlatter offer low interest rates (0 to 3.5 per cent per annum), thus adding further pressure. Hence, banks with higher CASA are better placed. Although banks have hiked lending rates to offset the pressure, credit off-take has been healthy. However, with the overall economic outlook not very favourable, analysts also expect some increase in non-performing assets (NPA) and hence, increased provisioning for the same. Some private banks are also expected to see a slower growth in other (fee-based) income. Says Ashutosh Datar of India Infoline Institutional Research, "Non-interest income growth is expected to slowdown for new private sector banks and IDFC, on account of adverse capital markets. We forecast a 10 per cent YoY non-interest income growth for new private sector banks, as compared to 55 per cent YoY growth in 1QFY08." For public sector banks that have a high percentage of their non-SLR bond portfolio held under AFS, they may have to increase provisioning for mark-to-market losses thanks to the increase in bond yields. Says Ashutosh, ?-year bond yields hardened by 76 BPS to 8.7 per cent in 1QFY09 leading to rising MTM losses on bond portfolios." While banks are expected to report a healthy performance at the operating level, the lower growth in other income and impact of provisioning on bond portfolio and loans is expected to lead to a slower growth in profits.

Capital Goods & Engineering
Strong order books and favourable demand outlook has helped companies experience an upward trend in margins for the last few years. It is only lately that the market has started to doubt whether this trend will continue, thanks to lower margins reported by companies like BHEL, L&T and some others in the March 2008 quarter, as well as the dip in IIP in the last two months. With the price of steel up by over 50 per cent in the last few quarters, it will be interesting to see if companies are able to sustain margins. Their ability to do so, will also hinge on factors like long-term arrangements with suppliers, price escalation clause with customers and so on. Nevertheless, the broad consensus is that companies may see a marginal dip in margins ranging between 8-66 basis points, which is not a major concern. Among other factors to watch is the timely execution of projects/orders and ability to attract skilled manpower. Analysts expect BHEL, L&T and ABB to report robust growth in revenues as well as profits. For BHEL, contribution from new capacities should help boost revenues. For L&T, excluding the one-time exceptional gain reported in Q1 last year, profit and revenue growth should be in excess of 30 per cent.

Q1 EARNINGS ESTIMATES
Rs crore	Q1 FY09 Net Sales	% chg yoy	Q1 FY09 EBIDTA	% chg yoy	Q1 FY09 Net Profit	% change YOY
AUTO
Amtek Auto	1,328	26	233	26.6	106	7.7
Ashok Leyland	1,725	6.4	141	-4.5	62	-8.6
Bajaj Auto*	2,310	9.6	266	-5.5	175	-4
Bharat Forge	1,104	4	162	10.6	62	-22.6
Hero Honda	2,830	15.6	363	38	315	38.2
Mahindra & Mahindra	3,204	22.6	340	22.7	224	16.5
Maruti Suzuki	4,695	19.5	594	-1.8	432	-13.5
Tata Motors	6,665	10.1	569	4.2	267	-10.5
CAPITAL GOODS & ENGG
BHEL	4,135	27.9	390	25.4	345	25.2
Larsen & Toubro	6,005	33.3	594	32.2	380	30.6
Suzlon Energy	2,216	14	153	6.9	1	-94.5
ABB	1,768	26.2	209	27.6	140	29.6
Voltas Limited	1,011	22.9	81	13.5	59	17.7
CEMENT
Ambuja Cements	1,550	5.9	463	-15	302	-24.8
ACC	1,832	-1.2	458	-15.9	307	-12.6
Grasim Industries	2,726	11.5	685	-13.6	444	-13.3
UltraTech Cemco	1,471	7.8	430	-0.8	246	-5
CONSTRUCTION
HCC	900	23.4	101	27.9	23	58.4
IVRCL	926	36.8	83	39	39	5.2
Jaiprakash Associates	1,150	24	326	36.5	165	17.8
Nagarjuna Construction	1,013	33	103	28.9	170	22.3
FMCG
Colgate-Palmolive India	399	13.6	69	1.9	64	4.7
Dabur India	623	15.3	89	11.9	70	13.4
Godrej Consumer	357	24.8	64	24.7	50	30.3
Hindustan Unilever	4,075	17	623	16.3	540	14.5
ITC Ltd.	3,626	9.1	1,192	5.7	839	7.2
Marico Limited	554	18.2	74	11.6	47	16.4
Tata Tea	1,085	6.5	187	12.1	103	135.4
METALS
Hindalco	5,600	19.7	944	6.8	604	0.2
Hindustan Zinc	1,830	-7.1	1,123	-21.7	872	-26.3
JSW Steel	4,164	85.6	853	10.5	313	-25.4
SAIL	10,019	24.6	3,072	29.3	2,092	36
Sterlite Industries	6,342	3.3	1,846	-14.5	999	-11.3
Tata Steel	6,001	43	2,546	49	1,400	54
OIL, GAS & PETROCHEM
Reliance Industries	41,616	41	6,289	10.9	4,080	12.4
GAIL (India)	5,304	24.9	1,123	8.1	737	7.5
ONGC	16,698	26	9,368	18.2	5,343	15.9
PHARMACEUTICALS
Cipla	1,046	18.1	191	24.1	154	25.5
Dr Reddy's	1,368	14.2	205	-2.3	144	-21.7
Ranbaxy	1,900	16.6	251	10.8	41	-70.8
Sun Pharma	1,006	62.6	492	129.1	473	107.9
POWER UTILITIES
Reliance Infrastructure	5,971	26.8	572	25	375	24.7
Tata Power Co	1,811	19.8	314	13	177	-3.3
NTPC	10,210	13.8	2,672	-0.8	1,738	-1.5
REALTY
DLF	4,058	32	2,685	21.1	2,011	32.3
HDIL	567	28	324	36.3	247	21.7
Unitech	1,266	46.4	616	20.9	400	9.4
RETAIL
Pantaloon	1,624	59.3	116	104.7	34	84.5
Shoppers' Stop	322	43.4	19	38.6	2	11.1
Titan	881	34.1	47	25.6	21	50.4
SOFTWARE **
Infosys*	4,854	6.8	1,479	0.1	1,302	4.2
Satyam	2,636	9.1	629	14.4	505	8.3
Tata	6,326	3.8	1,565	0.8	1,230	-2
Wipro	5,922	3.8	1,232	19.9	931	6
TELECOM
Bharti	8,396	42.2	3,519	43.9	1,958	29.6
Idea Cellular	2,165	46.5	717	39.9	282	-8.4
Reliance Comm	5,699	33.1	2,483	37.8	1,470	20.5
BANKING & FIN SERVICES
	Total Income	% chg			Net profit	% chg
ICICI Bank	4,119	20.1	-	-	835	7.8
HDFC Bank	2,230	43.1	-	-	414	29
AXIS Bank	1,131	44.5	-	-	239	36.4
State Bank of India	6,039	13.1	-	-	1,347	-5.5
Bank of India	1,513	13.9	-	-	382	21.2
Punjab National Bank	1,924	6.3	-	-	489	15.1
HDFC	750	28.4	-	-	495	32.8
IDFC	339	13.4	-	-	200	10.5
*Actuals, **Change in net sales, EBIDTA and Net profit over previous period pertains to the March 2008 quarter; Numbers based on estimates of Motilal Oswal, Religare, Angel, Prabhudas Liladher, Emkay, Kotak Securities, India Infoline and IDFC-SSKI

Cement
Nearly all cement companies are expected to report a decline in EBIDTA margins on account of rising input costs (especially coal) and higher freight expenses. While the volume growth of the top four cement producers is not exciting (between negative 5 per cent and 3 per cent), some of the regional players like Madras Cement, India Cement and Shree Cement have done well. The temporary ban (for 45 days) on cement exports, too, impacted sales volume for the industry. On an average, cement realisation was higher YoY by 5-7 per cent. This along with higher volumes, analysts say, will lead to an increase in topline for most companies. However, the same is not sufficient to cover up for the cost increases. Within individual stocks, Ambuja Cement is expected to witness the steepest fall in EBIDTA margins (down by 7.34 percentage points) as prices of coal has shot up; it imports a large part of its coal requirements. For Grasim, apart from cement (49.2 per cent of revenues), the cost pressure in its VSF business (25.9 per cent of revenues) will together have a toll on its margins. Going forward, companies that have recently commissioned capacities and those expected to do so, should see their interest and depreciation costs rise. While most cement stocks have under performed the market since April 1, 2008, the silver lining is that valuations of quite a few have turned reasonable at below their replacement cost.

Construction
With a robust order book backlog, companies in this sector are expected to register y-o-y topline growth rates in the region of 25-40 per cent. This could be down sequentially as infrastructure companies tend to bring in higher revenues in the third and fourth quarters. Operating margins could be impacted by higher commodity prices, staff costs and fixed price contracts, which form 5-20 per cent of the order book. Players such as IVRCL, which have a higher share of its orders with price escalation clause, are better placed to ride out margin pressure concerns. Higher interest rates, which compound the liquidity crunch and a volatile stock market, are negatives for the sector as it could delay public-private partnership projects.

FMCG
The FMCG sector is no exception to rising cost pressures with prices of inputs like palm oil, wheat, milk, lab, soda ash and packaging materials have remained firm with an upward bias; the exception is sugar. Higher transportation costs have only added to the woes. However, FMCG companies have been able to pass on a large part of this cost increase either through price hikes or reduction in weight of packs. Apart from the price hikes undertaken in 2007, the effective product prices have been raised further by 2-15 per cent in the last few months. The favourable macro environment, with rising income levels (urban as well as rural) and expanding middle class, has led to higher purchasing power of consumers translating into robust growth in sales volume. Not surprisingly, most FMCG companies are expected to report double-digit (13-25 per cent) growth in topline, with a marginal fall in EBIDTA margins (up to one percentage point or 100 basis points) in most cases. Notably, many companies are expected to report a faster growth in bottomline, and for various reasons including higher production from factories in tax-incentive zones and higher interest income (incase of Tata Tea) among others. Among negative surprises, analysts point towards ITC, which has reportedly discontinued production of non-filter cigarettes in Q1 after a sharp increase in excise duty on the same. That apart, the non-cigarette FMCG business may also report slightly higher losses due to new launches and increased competition. Going forward, analysts expect volume growth to remain healthy, while raising concerns over the ability of companies to hike prices further (if input prices rise). They fear that it may lead to some down-trading (shift to lower priced brands) by consumers in the lower-income category.

Software
The rupee depreciation of about seven per cent is a positive trigger for the sector as a percentage point change improves operating margins by about 50 bps. Firms which have lower forex hedges (Infosys and Satyam) are expected to benefit the most from the depreciation. With the key US market slowing down, IT spending could be lower thus, impacting the revenues of key IT players. Results of Infosys indicate that revenue growth on a sequential basis (q-o-q; compared to March 2008 quarter) for leading IT companies will be in the region of 1-5 per cent. Operating margins are likely to be hit due to hikes in wages and visa costs (Infosys reported a sub 1 per cent OPM growth q-o-q). Delays in decision making on projects and calls for a cut in prices by customers, especially from banking and financial services and retail customers, points to difficult times for the Indian IT sector. The lack of improvement in the business environment means that revenue and earnings growth is likely to come from the fall of the rupee against the dollar. The challenging macroeconomic environment and Infosys guidance saw the IT sectoral indices slip by 7 per cent on Friday.

Metals
Despite doubling over the last five months, global prices of steel products continue to rise on account of raw materials shortage (coking coal and steel scrap). Flat product prices are up by 31 per cent and long product prices have increased by half in the same period in the domestic market. Domestic prices of hot rolled coil (HRC) are expected to catch up with international prices of $1,200. Robust demand, high prices and removal of export duty on steel products should help the sector with toplines of integrated steel players registering good growth rates. In non-ferrous metals, prices have been on the upswing increasing by about 10 per cent in the last quarter for copper and aluminium. While strong aluminium prices should aid Nalco and Hindalco in boosting their toplines, rising input costs could dent profitability.

Oil & Gas, Petrochemicals
Except for fuel marketing companies (OMCs) like HPCL, BPCL and Indian Oil, the other bigwigs are expected to report decent performance. Based on the subsidy sharing announced recently, analysts expect ONGC to report strong growth in sales, led by higher realisations. Some though believe that ONGC may have to bear a higher than estimated burden, and thus expect a lower growth in profits. On a consolidated basis, contribution from ONGC Videsh should boost revenue and profit growth led by high crude oil prices. For GAIL, increased gas transmission volumes and higher gas price should boost revenue growth. The enhanced petrochemicals capacity (up 33 per cent since January 2008) will also contribute to growth in Q1. However, a higher than estimated subsidy burden may tame profit growth. For Reliance Industries, higher crude oil prices are expected to drive revenue growth, which along with improved gross refining margins (GRMs) of $16.5-18.5 per barrel ($15.5 in Q1FY08) will drive profitability. However, weak margins in the petrochemicals business is expected to offset a part of these gains. Lastly, for OMCs, despite improved GRMs and potential inventory gains, a majority of analysts expect them to report losses due to higher share of subsidies and lower support in the form of oil bonds from the government.

Pharmaceuticals
The seven per cent depreciation of the rupee will boost the numbers of major pharmaceutical companies which derive a major chunk of their revenues from overseas locations. Costs, however, could go up on the raw material front as most active pharmaceutical ingredients and intermediates are imported from China. While pricing pressures remain in the regulated markets, settling patent suits with innovator companies and increased ANDA approvals (45 in June quarter v/s 36 in March quarter) will help keep export revenues and growth robust for top generic players. The recent acquisition of Ranbaxy by a Japanese innovator company could lead to more consolidation and acquisitions not just by innovators but also by generics players such as Israel's Teva. The domestic market is expected to record a 15 per cent growth for the June quarter aided by new product launches and increase in sale of drugs in the lifestyle category. The dampener for the sector could be the proposed new pharmaceutical policy, which is likely to bring 354 drugs under price control.

Power utilities
Except for Reliance Infrastructure (earlier Reliance Energy), the other two utilities don't seem to be heading for an exciting show in Q1. However, adjusting for the exceptional items pertaining to profit on sale of investments and forex gain (about Rs 43 crore) that Tata Power earned in Q1FY08, its standalone performance should be reasonably good with adjusted net profit likely to rise by 21 per cent. The commissioning of 90 MW of new capacity and higher fuel costs (which are pass through) will drive topline growth for the company. With coal prices ruling high, its stake in Bumi Coal mines should also lead to higher consolidated profits. For NTPC, analysts expect muted bottomline growth even as the company operates on a higher capacity base of 29,300 MW as against 27,400 MW as on April 2007. They however, expect a lower plant load factor at its coal and gas based plants. For Reliance Infrastructure, growth rates are expected to be the highest, which analysts indicate is on account of higher tariff and increased income from its EPC business.

Realty
A slowdown in property registrations in key cities due to hike in property prices is likely to dent sales numbers of realty players. On the operational front, higher borrowing costs due to monetary tightening and increase in construction costs due to 20 per cent spike in commodity inputs has led to delays in project completion. The hike in interest rates has also dented the consumer appetite for homes due to higher EMIs and difficulty in getting loans as banks cut their exposure to the sector. The dismal outlook is likely to continue for the current fiscal due to higher supply and muted demand. While the commercial segment has not been hit as badly, the outlook will be the worst for developers in the NCR region where the prices had gone up the highest and consequently come down the most. The realty index, which has lost more than half its value since the January highs, is expected to underperform the Sensex for a few quarters with fortunes turning around only on the back of positive macroeconomic changes.

Telecom
With over 8 million customers being added every month---about 25 million subscribers added in Q1--- and subscriber base crossing the 300 million mark, growth isn't a problem for the wireless telephony service providers. The worry for the players is falling operational metrics--- revenues on a per subscriber and on a per minute basis. Nonetheless, the top companies are expected to maintain EBIDTA margins in Q1 on the back of economies of scale. However, higher interest outgo and lower growth in other income is expected to shave-off a few percentage points of growth at the net profit level. Going forward, operational metrics may continue to slip as companies penetrate the Tier2 and Tier3 cities and towns. Also, while consolidation in the sector does provide some respite, rollout of services by new players and the imminent 3G launch will keep costs high and margins static or lower. Increased sharing of infrastructure should however, provide some relief at the cost front. Companies with tower portfolios either through joint ventures or standalone such as Bharti Airtel (Bharti Infratel), Idea (Indus) and RCOM (Reliance Infratel) could list unlocking value for shareholders. While RCOM deal with the largest African telco could give it a large footprint in the emerging market space, Idea's acquisition of Spice Communications and subsequent TMI investment will make it debt free and will help it to expand into new circles.

Business Standard dt. 14 7 2008