Stocks
Nifty, Sensex in no man’s land as we enter 2016
Nifty has to stay above 7850 for the uptrend to continue
 
We had mentioned in previous week’s closing report that benchmarks Nifty and S&P BSE Sensex may remain listless; however if Nifty manages to close above 7,900 it may result in the index moving higher. On Monday itself, the 50-stock index broke this level and for three of the four trading sessions during this week, managed to close above the level. This is the third consecutive week for the NSE benchmark to close in the positive. Market now awaits the third-quarter earnings.  The trends of the indices over the week’s trading are given in the table below:
 
On Monday, for the fifth consecutive session, Nifty managed hitting a higher high and closed near to the day’s high. Nifty closed at 7,925.15 (up 0.82% or 64.10 points). Among the major movers that day, SMS Pharma, the top gainer of S&P BSE Healthcare, rose 7.32% to close the day at Rs132. SMS Pharma received approval from the US FDA for manufacturing facility (unit 7) located at Kandivalasa village in Andhra Pradesh. Tata Steel was the top loser in the Sensex 30 pack, S&P BSE 100 and CNX Nifty 50 stock.
 
On Monday, we anticipated Nifty to show strength next day. The 50-stock index closed Tuesday flat at 7,928.95 (up 0.05% or 3.80 points). On Wednesday, the sideways move on the Nifty continued for most of the trading session. It finally closed in the red, thus wiping off the nearly half of the gains of past two trading sessions. Nifty closed Wednesday at 7,896.25 (down 0.41%, 32.70 points). Unwinding of long positions ahead of the derivatives expiry, coupled with profit bookings, subdued Indian equity markets on Wednesday.
 
On Wednesday, we mentioned that a close below 7,850 on Nifty mean that the uptrend since 15th December was over for now. On Thursday, the flat opening on the index was followed by Nifty trying to move higher. After taking support at Wednesday’s close, the benchmark finally managed to regain strength after 1pm. Nifty closed near to the day’s high at 7,946.35 (up 0.63%, 50.10 points). The index moved higher on huge volume of 105.18 crore on the NSE due to expiry of the futures and options (F&O) for December. SpiceJet Ltd rose 3.44% to Rs75.25. It was in news as the company said it has received its shareholders’ approval to raise funds worth up to Rs5,000 crore through various instruments. The company is likely to use this fund to expand its fleet. Currently, the company has some 41 planes in its fleet, including 25 Boeing 737s, 14 Bombardier Q400s and two leased Airbus 320 family. Cadila Healthcare, top loser in S&P BSE 200, fell 14.89% to Rs327.80 after the company said in a notice to BSE that it received warning letter from the US FDA for its Moraiya formulation facility and Ahmedabad API facility.

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Fiscal deficit in eight months touches 87 percent, likely to overshoot target
New Delhi : The country's fiscal deficit has touched 87 percent of the budgeted amount, showing a worrying trend in government expenditure which is likely to overshoot what has been approved by parliament.
 
The total fiscal deficit till November-end for the 2015 was Rs. 4.84 lakh crore compared to the budgeted amount of Rs.5.55 lakh crore for the full year, with four months still to go, according to the details released by the Controller General of Accounts. 
 
Total receipts for the eight months were Rs.6.58 lakh crore or 53.9 per cent of the full year budgeted figure of Rs.12.2 lakh crore compared to expenditure of Rs.11.4 lakh crore till November, putting pressure on government borrowings. The full year expenditure has been budgeted at Rs.17.77 lakh crore.
 
Fiscal deficit is the amount of money that the central government raises through borrowings to meet the gap between receipts and expenditure.
 
Of the financing through borrowings, the government has already reached 88 percent of the money that has been budgeted to be raised through domestic sources at Rs.4.80 lakh crore. 
 
Roughly speaking, in eight months to November 2015, the fiscal deficit should have been around two-thirds of the budgeted amount. With it touching more than four-fifths of the benchmark, the chances of the fiscal deficit for the whole fiscal year overshooting its target of 3.9 per cent of the gross domestic product are very high. This should ring some alarm bells in the finance ministry.
 

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Treehouse Merger with ZeeLearn to hide something?
Irrational price movement raises concerns
 
Pre-school chain Treehouse Education and Accessories went public in august 2011. The IPO was priced at Rs135-153 a share. Education is a sunrise sector and the stock was well-received. Its net profits were steadily moving up over the quarters. From a reported Rs5.22 crore in June ’11, net profit jumped to over Rs8 crore in June 2012, to Rs12.30 crore in June 2013, to over Rs16 crore in June 14 and then to Rs18 crore in June 15. June is the best quarter for the company. This remarkable growth was not matched by stock price growth, though. The stock made a high of Rs161.50 in August ’11 when it was listed. Despite huge growth year after year, the stock was languishing. In February ’14 it was just at around Rs224. From this point, the stock suddenly started shooting up and in just seven months it doubled after which it stagnated. In February it made a high of Rs548 sand started declining, despite rising profits, falling to around Rs340 by August 2015. Thereafter the stock simply collapsed as happens if a company is hit by a scam. On 30th November the stock was at a lower circuit, hitting Rs152.10, a crash of 60% in three months. All the gains of the four years were wiped out. 
 
 
The stock had made a 52-week high at Rs548 in February and a 52-week low at Rs138 in December. Immediately thereafter, the share price jumped from an intraday low of Rs138.10 on 1st December 2015 to Rs233 on December 7 2015 – a huge upmove of more than 50% in a matter of five trading sessions. And then the company suddenly announced a merger with its competitor, Zee Learn, its main competitor, becoming the largest pre-school chain in India. However, the news of the merger was not taken kindly by the street. The shares of Treehouse had fallen back to Rs171 after the deal was announced. Interestingly, Treehouse founders Geeta Bhatia and Rajesh Bhatia sold off 9.5% stake in the company, which around one third of their holdings, on December 3, 2015, at around Rs202. The promoters held 29.97% in the company on 30 September 2015. This brought down the promoter stake to a little more than 20%. 
 
The shareholding pattern on September 30 2015 revealed that the total number of pledged/encumbered shares was at 54,82,000 amounting to 43.23% of the total promoter holding. The number of pledged shares increased later. Subsequently, promoters have released 1,01,20,300 shares out of 1,01,47,000 pledged shares on December 17 2015, as per filing with BSE. 
 
There are many unanswered questions about this company. Why was the share price stagnant for years despite excellent results? Why did the share price shoot up in seven months? Why did the price crash by 60% for no apparent reason? Why had promoters pledged more than 43% of their holdings? Why did they sell of a third of their stake at such a low price? Is there a problem with Treehouse’s declared financial results?
 
A few months ago Business Standard had reported high levels of trade receivables. The receivables had increased from Rs29 crore on March 31, 2014 to nearly Rs43 crore on March 31,2015. Out of these Rs43 crore, Rs17.6 crore were overdue for more than six months. Proxy advisory Stakeholders' Empowerment Services (SES) contended that given the nature of the business, this amount was too high. Treehouse responded to these concerns raised by SES and subsequently others. However, JN Gupta, the Managing Director of SES, was not satisfied with the explanations and indicated that there was more scope for transparency. 
 
Many analysts are baffled as regards to the terms of the merger. Treehouse shareholders will receive 53 equity shares of Re1 each in Zeelearn for every 10 shares of Rs10 each in Treehouse. The networth of Treehouse was Rs644 crore on March 31 2015 as compared to the networth of Rs234 crore. Analysts believe that the terms of the merger are prejudicial to the interests of minority shareholders of Treehouse, based on the reported numbers. However, maybe the promoters of both the companies know something about Treehouse that outsiders don’t.

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