Event specific news, which has driven the market in recent days, is likely to continue this week
The local market is likely to witness a range-bound opening as investors await headline inflation data for May which will be released around noon today. The numbers will have a bearing on the Reserve Bank of India’s policy review which follows on Thursday.
On the global front, the US markets managed to close in the green overnight, albeit on a flat note, supported by merger and acquisition (M&A) news. Markets in Asia were mostly higher in early trade on Tuesday ahead of the Chinese inflation data. The SGX Nifty, which opened lower, was two points down at 5,500 compared to its previous close of 5,502 on Monday.
Domestic economic uncertainties along with signs of a global slowdown resulted in the market settling flat amid a high degree of volatility yesterday. However, the gains in the broader indices helped to restrict the losses.
Tracking the downtrend in the global markets, the domestic bourses opened on a soft note today. Concerns over the possibility of the Reserve Bank of India (RBI) hiking key rates by an estimated 25 basis points in its policy review this week, also weighed on sentiments. The Sensex opened 27 points lower at 18,242 and the Nifty was down 16 points at 5.470. Oil & gas, IT, realty and metal stocks saw selling pressure in early trade.
Index heavyweights Reliance Industries (RIL) and Maruti Suzuki pushed the benchmarks to the day's low in mid-morning trade; the Sensex dropped 148 points to 18,121 and the Nifty was down 47 points to 5,437 from its previous close.
The market touched the day's high in noon trade as the Sensex touched 18,313 and the Nifty scaled to 5,497. But choppiness resulted in the market coming off the highs and the indices closed flat. At the end of trade, the Sensex and the Nifty lost three points each, settling at 18,266 and 5,483, respectively. The Nifty support lies at 5,415 and resistance is at 5,545. We don't expect any major moves beyond this until the RBI meeting on 16th June.
The US markets managed to close marginally higher on Monday even as concerns about the economic slowdown still remain. M&A deals, which boosted the markets, included VF Corporation’s nearly $2 billion buyout of footwear company Timberland and private-equity firm Roark Capital Group’s $430 million buyout of Arby’s Restaurant Group. In another news, Transatlantic Holdings has agreed to merge with fellow reinsurer Allied World Assurance in a stock deal valued at $3.2 billion. Although stocks have become cheap after the recent decline, investors are still vary of putting money into shares once again.
In economic news, the Office of the Comptroller of the Currency said it was extending by 30 days the time the banks have to file plans for how they will meet the foreclosure requirements laid out in an agreement entered into on April 13 with the agency.
The Dow rose 1.06 points (0.01%) to settle at 11,952.97. The S&P 500 added 0.85 of a point (0.07%) to 1,271.83 while the Nasdaq Composite shed 4.04 points (0.15%) to end at 2,639.69.
Markets in Asia were mostly higher in early trade this morning ahead of the release of Chinese inflation data and issues related to Greece’s debt problems. The Standard & Poor’s has downgraded Greece’s credit rating to CCC from B stating that the country is likely to face a debt restructuring and the first sovereign default in the Euro zone.
The Shanghai Composite gained 0.55%, the Jakarta Composite was flat, the KLSE Composite and the Nikkei 225 gained 0.16% each, the Seoul Composite surged 1.17% and the Taiwan Weighted climbed 0.96%. On the other hand, the Hang Seng was down 0.11% and the Straits Times shed 0.07%.
Back home, the Comptroller and Auditor General of India (CAG) has pulled up the oil ministry on charges of showing undue favours to Cairn India in going out of its way to grant over 856 sq km of additional area in the oil discovery Rajasthan block.
As per the Production Sharing Contract (PSC), the total contract area of Cairn India-operated RJ-ON-90/1 block in Rajasthan was 11,108 sq km. The oil ministry agreed to Cairn’s request for grant of additional 852.2 sq km in August 2004 and 856 sq km in March 2005.
The company made a public issue in January last year. The stock price has lost 27% since the announcement of the buyback in April
Infinite Computer Solutions India, which made an initial public offering (IPO) in January 2010, is undertaking a buyback of shares amounting to Rs27 crore, raising serious questions in the minds of shareholders.
Since the announcement of the buyback on 12 April 2011, the Infinite Computer Solutions stock price has lost 27%. Companies are known to undertake a buyback usually when they have surplus cash and have no plans to spend it any other way.
The company gave an interim dividend of Rs2 and a special dividend of Rs1 in November 2010. So why has the company decided to buy back its shares within such a short time after the public issue? What's even stranger is that even the company's managing director and some other officials are said to be selling their shares in the market since the buyback announcement.
The Infinite Computer Solutions public issue in January last year was oversubscribed 43 times. The issue received bids for 41.81 crore shares against the 97.7 lakh shares on offer. The portion reserved for qualified institutional buyers (QIB) was subscribed 48.44 times. The non-institutions portion was subscribed 106.1 times and the retail portion 11.07 times.
Now, the company is buying back shares from the market, at a price which it has said will not exceed Rs230 per share. The maximum offer will be up to Rs27 crore.
In a public notice, the company has informed that it has already bought back 4.01 lakh shares, about 59,000 shares through deals on the Bombay Stock Exchange (BSE) and 3.42 lakh shares on the National Stock Exchange (NSE), up to 10th June. For this, the company has paid out Rs6.33 crore.
On the matter of dividends, the company said in its annual report, "After careful assessment of the funds required by the company for expansion, your directors have recommended that the earnings of the company are to be ploughed back and hence do not wish to recommend any dividend for the financial year ended 31 March 2010."
One retail investor who has shares of Infinite Computer Solutions said, "If that is the case, then why did the company come with a buyback offer?"
It has been just 16 months since the company came out with a public issue and it has already announced a buyback of shares. Does it mean that the company generated enough profit to buy back its shares? A closer look at the financials suggests otherwise.
The operating margin for the March 2011 quarter crashed to 13.92% from 25.82% in the December 2010 quarter. Net profit fell to Rs7.24 crore compared to Rs12.40 crore in the previous quarter.
Little wonder then, that since the buyback announcement the stock has reacted sharply. Even today, the stock lost over 4% to close at Rs134.10 on the Bombay Stock Exchange.
According to information available, in the past few days the company's managing director and CEO, Upinder Zutshi, has sold 1.6 lakh shares in the market. Other associates, like whole-time director, Navin Chandra, has sold 14,097 shares, and compliance officer, Sanjeev Gulati, has sold 10,000 shares. This is strange considering that the management wants to buy back its shares.
"The CEO is selling shares at low current market price. They want to buy back as the stock price is well below its intrinsic value," the retail investor said, requesting anonymity.
Moneylife sent a detailed e-mail query to the company, but there has been no reply yet.