Monday Closing Report: Bull looks tired

The market ended in the positive zone for the second day in a row. Although the indices got an early boost from the global markets this morning, the gains could not be sustained and the jittery market ended a tad higher.

The market, which touched its intraday high soon after the opening bell on positive cues from the global front, gave up some gains by mid-morning and was trading in a narrow range. Profit booking resulted in the indices moving lower but a green opening of the influential European markets pushed the domestic barometers a bit higher albeit sideways. The market continued to trade in a tight range and closed the day with marginal gains.

The Sensex ended at 20,340, up 89.63 points (0.44%). It touched an intraday high of 20,461 and a low of 20,250. The Nifty gained 32.40 points (0.53%) to settle at 6,136. The index swung between a high-low of 6,187 and 6,106, intraday.

The overall market breadth was positive. Of the 30 Sensex stocks, 18 ended in the green while 12 ended lower. The Nifty ended with 34 advancing stocks and 16 on the declining side. The broader indices outperformed the benchmarks today; the BSE Mid-cap index gained 0.79% and the BSE Small-cap index surged 1.30%.

The top gainers on the Sensex were Tata Motors (up 4.05%), Sterlite Industries (up 3.13%), Reliance Communications (RCom) (up 2.08%), Reliance Infrastructure (R-Infra) and Tata Steel (up 2.06% each). The losers were led by Bharti Airtel (down 2.48%), Hindustan Unilever (HUL) (down 0.83%) and HDFC Bank (down 0.73%).

In the sectoral space, BSE Auto (up 1.93%), BSE Metal (up 1.57%) and BSE Oil & Gas (up 1.29%) finished at the top while BSE TECk (down 0.31%), BSE IT (down 0.12%) and BSE Fast Moving Consumer Goods (FMCG) finished at the bottom of the list.

Giving reprieve to transporters and other users of the fuel, the government has said it was not the right time to deregulate diesel prices, as inflation continued to be high.

"I don't think it will be a wise or prudent thing to do (deregulate price of diesel) at a time when inflation is running so high," finance secretary Ashok Chawla said at a panel discussion on a TV channel.

The Asian pack ended mostly in the green, and boosted optimism about the global economic recovery. Investors also anticipate that the quarterly earnings reports from corporates will bring some cheer to the markets.

The Shanghai Composite jumped 2.49%, Hang Seng surged 1.15%, Jakarta Composite was up 0.05%, KLSE Composite gained 0.41% and Straits Times rose 0.32%. On the other hand, Seoul Composite was down 0.38% and Taiwan Weighted shed 0.82%.

The Vedanta Group today ruled out increasing the open offer price to minority shareholders of Cairn India, saying its current offer was "lucrative."

"There is no question (of increasing the open offer price). The price is final and that is a very lucrative offer," Vedanta group chairman Anil Agarwal said. Vedanta Resources is buying 40%-51% stake from Cairn Energy Plc and its subsidiary Sesa Goa has filed papers for an open offer for an additional 20% stake.

The US markets ended in the positive zone on Friday on hopes that the Federal Reserve will provide further stimulus to boost the sagging economy, as the jobs market witnessed more-than-expected job cuts in September. According to a monthly government report, a total of 95,000 jobs were slashed last month, marking the fourth consecutive decline. Though the unemployment rate held steady at 9.6%, it has now breached 9.5% for 14 straight months, the longest stretch since the 1930s. The Dow gained 57.90 points (0.53%) to 11,006. The S&P 500 index gained 7.09 points (0.61%) to 1,165. The Nasdaq gained 18.24 points (0.77%) to 2,402.

Foreign institutional investors were net buyers of Rs586 crore worth of stocks on Friday. Domestic institutional investors were net sellers of equities worth Rs1,002 crore.

Vivimed Labs Ltd (up 0.75%) has informed the Bombay Stock Exchange that the company has received 'in-principle' approval from the government of India, ministry of commerce & industry, for development, operation and maintenance of a sector-specific Special Economic Zone (SEZ) for chemicals & pharmaceuticals over an area of 131.68 hectares at Srikakulam District of Andhra Pradesh.

IT major Patni Computer Systems (up 1.75%) has opened its first centre in China. The state-of-the-art facility with a planned capacity of 500 seats is located in the Suzhou Software & Technology Park (SSTP).

The ITO delivery centre will focus on delivering development and support services to cater to Japanese, US, European and local multi-national corporations.

Ahmedabad-based Deep Industries (0.33%) has obtained a Letter of Intent (LOI) from GSPC for hiring of work over rigs on a firm basis. This includes work over operations, testing plugging operations for all exploration/development blocks and fields of onshore blocks. The approximate value for this contract is Rs6.40 crore.

Earlier, the company obtained notification of awards for hiring of services for compression of natural gas at Kesanapalli (w)-GGS for a period of five years from Oil and Natural Gas Corporation (ONGC). The value of the said contract was about Rs11.50 crore.


Vedanta hopes to acquire govt’s residual stake in Balco by March

Mumbai: Vedanta Resources today said the long-drawn arbitration process for buying government's remaining 49% stake in Bharat Aluminium Company (Balco) is over and the group expects to complete the acquisition by the end of this fiscal, reports PTI.

"Arbitration process is concluded. Award is expected soon. By March, we hope to acquire government's residual stake," Vedanta Resources chairman told PTI in an interview.

The metal and mining group is also hopeful of taking forward the process to buy the government's residual stake in another erstwhile public sector undertaking (PSU) Hindustan Zinc Ltd (HZL).

"The Balco arbitration is about whether call option of is a valid or not. If it is established (that call option is valid) then it would be valid for Hindustan Zinc Ltd as well," he added.

The government now holds 49% stake in Balco and 29.5% in HZL.

The government earlier this year had said that it will sell its residual stake in the two firms for a much higher price as the strategic sale of equity in these companies was done in "haste."

"Disinvestment in Balco and Hindustan Zinc (HZL) was done in haste. I personally feel it needs to be more priced," mines minister B K Handique had said.

During the tenure of the National Democratic Alliance (NDA) government, the NRI billionaire Anil Agarwal-led firm had bought 51% stake in Balco for Rs551 crore and over 64% in Hindustan Zinc for over Rs750 crore. Later, Vedanta Group increased its holding in HZL by a small margin.

Sterlite Industries was slated to exercise its call option to acquire the residual stake in Balco in 2004. The Comptroller and Auditor General valued the residual stake much higher and the then attorney general even termed the mining firm's call option as illegal.

The issue of residual equity in Balco had created a rift between Vedanta and the government, and the matter reached the Delhi High Court in 2006.

Call option is an agreement that gives the buyer a right to buy some part of an asset at a specified price at a specified time frame.

The acquisition of the residual equity in the two companies is crucial for Vedanta's overall corporate restructuring programme into a commodity-focused vertical, which it is hoping to complete in the current fiscal, Mr Agarwal had earlier said.


Q2 Earnings Preview–III: Metals, financials, engineering and retail to show strong numbers; cement, telecom and real estate could be underperformers

The quarter ending September has been full of exciting developments for both the economy as well as corporate India. The BSE Sensex has crossed 20,000 and the markets are eagerly waiting to see the Q2 numbers before taking fresh direction. Here is what analysts are expecting in the metal, oil & gas and pharmaceutical sectors

The second quarter of FY11 has turned out to be one of the best quarters for Indian markets with the Bombay Stock Exchange (BSE) Sensex breaking away from a tight range and reaching new highs. Between 1st July and 30th September, the Sensex rose 15% to 20,069 points.

However, during the quarter, markets were driven mostly by foreign institutional investors (FIIs) and not by domestic buyers. In Q2, FIIs infused almost $12 billion into equity markets, taking their total inflows to $14 billion for the first half that ended 30th September. At the same time, domestic institutional investors turned sellers. During Q2, domestic investor sales were at around Rs23,800 crore or $5 billion.

According to analysts, metals, financials, petrochemicals, engineering and retail sectors would come out with good numbers. Sectors like cement, telecom and real estate are most likely to be underperformers. Fast moving consumer goods (FMCG), capital goods and information technology (IT) sectors are likely to perform in line with the Sensex growth.

Although India Inc is expected to come out with strong sales figures, the net profit growth would not match top-lines due to decline in operating margins. "For 2QFY, while we have estimated net sales of Sensex companies to increase by about 20% year-on-year (y-o-y), net profit is expected to post 13.5% growth. A part of the same would be because of about 54 basis points (bps) dip in operating margins (OPMs). Overall, OPMs are expected to be around 25.6%, while net profit margins (NPMs) would decline to 14.4% for the quarter," said a brokerage in a note.

With all companies set to announce their second quarter profit & loss numbers, here is a preview of metals, oil and gas and pharmaceuticals…


During the second quarter, there was an increase in steel sales volume, as imports from China fell considerably and steel companies started clearing up inventory. On the other hand, higher prices of iron ore helped companies like NMDC. Metal companies are also expected to see an increase in Q2 earnings, such as NALCO, as alumina sales pick in the quarter, and Sterlite, as power business starts contributing.

The Indian steel ministry has raised its FY11 forecast for steel consumption to 10% from the earlier target of 9% because of increased demand from the automobile segment. While steel consumption rose 9.7% in the five months of FY11 to 24.8 million tonnes (MT), steel output increased by a mere 2.7% during the period.

Motilal Oswal Securities Ltd, in a research note said, "We believe steel prices will trend sideways due to lower global capacity utilisation rates and modest growth in global demand. There will be less volatility in the prices of raw material iron ore and coking coal."

"Aluminium producers have a key cost advantage due to the availability of high quality bauxite and coal in close proximity. But we expect the cost of production to rise gradually due to higher manpower costs, mining taxes, challenges in opening new bauxite mines and rising dependence on coal imports due to slower growth in coal production in India," the brokerage added.

Higher volume growth and stable metal prices are likely to result in a sequential rise in revenues for most non-ferrous companies. However, a rise in fuel cost and other expenditure may partially affect operating margins during the second quarter.

Factors to watch in the metals sector are price movement of raw material and steel.

Click to view earnings projections

 Source: IDFC Securities


For the oil & gas sector, the second quarter would be broadly in line with market expectations. During Q2FY11, crude prices moved in the narrow range of around $71-$83 per barrel (bbl). Natural gas prices, which were ruling firm at around $4.5-$5 per million British thermal unit (mmbtu) in the latter part of the previous quarter, showed weakness at around $3.75-$4.25 per mmbtu towards the end of the second quarter. During the quarter to end-September, the Moneylife Petrochemicals Index rose 14% to 246.1 points from 215.2 points as on 1st July.

The government, on one hand, doubled the administered price mechanism (APM) gas price to $4.2 per mmbtu and on the other deregulated petrol prices and increased kerosene and cooking gas (LPG) prices.

"Quarter-on-quarter (q-o-q) mildly lower crude realisations would hurt top-lines of upstream producers, but Mangala volume increases for Cairn India and lower subsidy and higher gas prices for ONGC and OIL more than offset the impact. Oil marketing companies (OMCs) are expected to post slender profits on the back of full effect of gasoline deregulation, and improved gross refinery margins (GRMs), despite no cash reimbursement being assumed for the quarter. No ramp-up in KGD6 and poor pet-chem margins should be offset by continually improving GRMs for Reliance Industries (RIL). Escalated spot cargo imports fill in the gap created by Panna-Mukta-Tapti (PMT) shutdown, providing Petronet with an earnings kicker and helping GAIL maintain transmission volumes," said Macquarie Research, in a note.

According to a report by Motilal Oswal, although RIL's KG-D6 gas production increased gas availability in India by 55% to 170 million standard cubic metres a day (mmscmd), there is a huge demand led by the power and fertiliser sectors. "RIL's indication that it will not ramp up KG-D6 gas volumes is unlikely to negatively affect the sector and given an expected sharp rise in gas availability after FY13, we expect infrastructure investment (pipelines and CGD) to peak in 2-3 years," the brokerage added. 

Factors to watch out for the oil & gas sector is lack of clarity on the subsidy-sharing mechanism and the timing of diesel de-regulation. The decline in petrochemical prices and capacity addition coming up in the Middle East and China may also put pressure on margins.

Click to view earnings projections
Source: Sharekhan Ltd


During the second quarter to end-September, the Indian pharmaceutical sector is expected to post modest growth on the sales front. The rupee's appreciation against the dollar, the muted revenue growth and the ongoing US Food and Drug Administration (USFDA) issues are taking their toll on the performance of select companies, especially Cipla, Dr Reddy's Laboratories and Ranbaxy.

Sharekhan said in a report, "We expect the pharmaceutical (pharma) companies to report a moderate growth for Q2FY11 as the earnings get into consolidation mode due to high base and lack of exclusivity income. The growth is expected to be driven by new product launches in the US, a strong growth in India, higher penetration in the emerging markets and the rebounding contract manufacturing business. A faster pick-up in the abbreviated new drug application (ANDA) approvals, updates on research & development (R&D) pipelines and out-licensing deals would act as rerating factors for companies like Glenmark Pharmaceuticals, Cadila Healthcare, Lupin and Sun Pharma under our coverage universe."
Focus on profitable growth adopted by leaders in the sector has started to pay dividends. "We have a positive outlook on the global generic pharmaceutical market, contract research and manufacturing services (CRAMS) and domestic pharma consumption. Dr Reddy's Lab is our preferred picks among the large-caps, as it now has got its act right in key markets of India, Russia and the US, which would drive the earning momentum. Among the mid-caps, Glenmark and Jubilant are our preferred pick given strong outlook and attractive valuations," said Macquarie Research, in a note.

Factors to watch out for in the pharmaceutical sector are key product launches in the US, revenues from emerging markets, domestic sales growth, product pipeline and ANDA approvals.

Click to view earnings projections
Source: Motilal Oswal Securities Ltd

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security).


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