Stocks
Sensex, Nifty will be in a narrow range: Friday Closing Report

It will probably take 2-3 trading days to form a clear direction

 

The market settled in the red on a bleak outlook for FY13 given by software major Infosys this morning. After making a higher high and higher low, the Nifty ended in the negative. We may continue to see the weakness prevailing on the bourses. However, in case the benchmark manages to close above the previous day’s high in consecutive trading sessions for a few trading days, we may see the trend reversing but the probability of this happening is weak. The National Stock Exchange (NSE) saw a volume of 80.90 crore shares and advance decline ratio of 776:923.
 
The marked witnessed a gap down opening on a dismal outlook for the current fiscal by IT services major Infosys. The company cut its earnings per share (EPS) guidance for the full year to Rs160.61 a share from Rs166.46 a share earlier and also reduced constant currency dollar revenues guidance to 5.7% versus 6%. 
 
Select buying resulted in a gradual improvement with the benchmarks emerging into the positive around 10.45am. The gains helped the market hit its intraday high a short while later. At the highs, the Nifty rose to 5,725 and the Sensex climbed to 18,844.
 
However, volatility kept a check on the gains and a fresh bout of selling and a weak opening of the key European markets pushed the local indices into the red in noon trade.
 
The selling intensified in the last hour, dragging the benchmarks to their lows. At this point the Nifty slipped to 5,659 and the Sensex dropped to 18,638. 
 
A minor recovery helped the market settle off the lows, albeit in the red. The Nifty fell 32 points (0.56%) down at 5,676 and the Sensex declined 130 points (0.69%) to finish at 18,675.
 
The broader markets closed marginally higher; the BSE Mid-cap index added 0.08% and the BSE Small-cap rose 0.03%. 
 
The gainers in the sectoral space were BSE Consumer Durables (up 0.60%); BSE Healthcare (up 0.49%) and BSE Fast Moving Consumer Goods (up 0.21%). The top losers were BSE IT (down 2.59%); BSE TECk (down 2.26%); BSE Realty (down 0.88%); BSE Auto (down 0.73%) and BSE Capital Goods (0.43%).
 
Fourteen of the 30 stocks on the Sensex closed in the positive. The key gainers were GAIL India (up 1.16%); Cipla (up 1.01%); HDFC Bank (up 0.94%); TCS (up 0.66%) and Hindustan Unilever (up 0.60%). The major losers were Infosys (down 5.36%); Bharti Airtel (down 2.58%); BHEL (down 2.46%); Wipro (down 2.01%) and Hero MotoCorp (down 1.61%).
 
The top two A Group gainers on the BSE were—J&K Bank (up 4.67%) and Century Textiles & Industries (up 4.25%).
The top two A Group losers on the BSE were—TTK Prestige (down 9.55%) and Infosys (down 5.36%).
 
The top two B Group gainers on the BSE were—Microsec Financial Services (up 18.17%) and Bio Green Industries (up 16.36%).
The top two B Group losers on the BSE were—Paradip Overseas (down 19.95%) and Koa Tools India (down 15.38%).
 
Out of the 50 stocks listed on the Nifty, 20stocks settled in the positive. The key gainers were ACC (up 3.92%); Lupin (up 2.89%); Ambuja Cement (up 2.28%); Jaiprakash Associates (up 1.43%) and Grasim Industries (up 1.37%). The losers were led by Infosys (down 5.65%); BHEL (down 2.64%); Bharti Airtel (down 2.53%); Wipro (down 2.32%) and IDFC (down 2.27%).
 
Markets across Asia settled mostly higher on gains in mineral stocks. However, worries about the slowing economic growth and its impact on corporate earnings made investors nervous.
 
The Shanghai Composite added 0.10%; the Hang Seng surged 0.65%; the Jakarta Composite climbed 0.62%; the Straits Times gained 0.30% and the Seoul Composite settled 0.01% up. Among the losers, the KLSE Composite slipped 0.13%; the Nikkei 225 fell 0.15% and the Taiwan Weighted was down 0.20%.
 
At the time of writing, the key European markets were lower while the US stocks futures were trading marginally in the positive.
 
Back home, foreign institutional investors were net buyers of shares totalling Rs1,043.01 crore on Thursday whereas domestic institutional investors were net sellers of stocks aggregating Rs573 crore.
 
Electrosteel Castings, part of Electrosteel Steels on Thursday began trial production at its rebar rolling mill with bought out billets. The mill is expected to produce 0.5 million tonnes of TMT bars next year. The rebar rolling mill is part of ESL’s 2.51 million tonnes-a-year and Rs 9,562 crore steel plant project, located in the Bokaro district of Jharkhand. Electrosteel Castings closed 1.35% up at Rs22.45 on the NSE.
 
Srei Infrastructure Finance and BNP Paribas have invested around Rs200-crore worth equity in their equal joint venture—Srei Equipment Finance. The equity infusion will take the networth of Srei Equipment Finance to over Rs1,660 crore, according to a company press statement. Srei Infrastructure Finance rose 0.18% to close at Rs27.75 on the NSE.
 

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LIC says ready to pick SUUTI's stake in Axis Bank, L&T and ITC if asked

SUUTI, created in 2002 after the then UTI was wound up, owns stakes in ITC, Axis Bank and L&T, which the government is planning to en-cash as its effort to meet the fiscal deficit target

 
Mumbai: State-run Life Insurance Corp of India (LIC) on Friday said it has not been approached by the government to pick up stakes in Axis Bank, L&T and ITC, currently held by the Special Undertaking of Unit Trust of India (SUUTI), but added if it is so asked, it will definitely look at it, reports PTI.
 
"As far as LIC is concerned, we have not been approached (to buy the government's stakes in Axis Bank, L&T and ITC). In case they approach us, we will definitely have a look at it," DK Mehrotra, chairman of LIC told reporters on the sidelines of a capital markets summit organised by industry body FICCI.
 
SUUTI, created in 2002 after the then UTI was wound up, owns strategic stakes in three listed blue-chip entities: ITC (11.54%), Axis Bank (23.6%) and L&T (8.3%).
 
Besides, SUUTI also owns significant stakes in unlisted companies such as the Stock Holding Corporation of India (SHCIL), in which it owns 16.96% that is valued at about Rs300 crore.
 
The government is planning to en-cash these holdings which are worth over Rs40,000 crore, as part of its efforts at meeting the fiscal deficit target by divestment.
 
The plan is to sell the SUUTI stakes to an special purpose vehicle (SPV). The SPV holding will not pledge shares but will borrow funds by way of negative liens, under which it cannot sell the shares without the permission of lenders and the government.
 
When asked about the 10% equity exposure cap, Mehrotra said: "The corporation has been approaching the regulators and the finance ministry on this issue for quite some time. I think, both of them have taken it very positively. Hopefully, something should come and we will get some headroom".
 
LIC, which had bailed the government last March when the follow-on option of ONGC was bombed by picking up almost the entire stake worth over Rs12,000 crore, plans to invest Rs2.4 lakh crore this fiscal.
 
"We propose to invest Rs2.4 lakh crore this fiscal and have invested Rs65-70,000 crore so far," Mehrotra said, adding of the total investment, 10-15% constitute pure equity investments out of which it has invested Rs7,000-Rs8,000 crore as of now.
 

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Another chance to sell BHEL?

Euphoria over power sector reforms ignores severe concerns on fuel shortage, says Nomura and downgrades BHEL to ‘reduce’. It sees the current rally as an excellent opportunity to exit the stock

 
Revival of new orders in the power equipment sector is unlikely and the euphoria on SEB (State Electricity Boards) restructuring ignores severe concerns on fuel shortage, says the Nomura Equity Research. BHEL outperformed the Sensex by about 20% over the past three weeks on the back of the new restructuring plan for SEBs. While the plan is likely improve the health of the power sector, it does not change the outlook for new equipment orders, in Nomura’s view, as fuel supply concerns continue:
 
 As per estimates, despite building in an optimistic 620 million tonne increase in coal supply per annum over FY12-17F (at 18.3% CAGR), the annual order inflow for BHEL is unlikely to exceed 6GW per annum
 In contrast, a realistic assessment suggests that actual coal increase will be less than 377 million tonnes (at 12.5% CAGR) implying 32GW of existing orders will have to be cancelled; BHEL faces risk to about 28% of its order book.
•  Further, rising competition and falling utilisation during times of negligible order pipeline could have a cascading effect on margins.
 
BHEL is expensive even on best-case coal supply outlook, argues Nomura. It maintains its estimates which build in the best-case coal outlook and, despite that, it arrives at a DCF-based (discounted cash flow) target price of Rs199 per share. 
 
Nomura factors in deteriorating margins (down to 12-14% post FY14 from 21% currently) and medium-term order inflow of about 6GW per annum. Given about 20% potential downside, the brokerage firm downgrades BHEL to ‘Reduce’ and sees the current rally as an excellent opportunity to exit the stock. Instead, Nomura recommends playing the SEB reform story through power lenders such as PFC (Power Finance Corporation) and REC (Rural Electrification Corporation).
 
The most critical warning from Nomura in this context is that coal supply estimates indicate limited incremental equipment opportunity over FY13-17F. Fuel supply for power plants has not kept pace with the significant capacity addition that developers in India are planning. Nomura has been highlighting its concerns for a while, and still emphasises that coal availability will be the key bottleneck apart from land and environmental clearances in deciding the finalisation of new projects. In the best-case scenario, Nomura estimates that coal supply can increase to 1.09 billion tonnes per annum from 469 million tonnes per annum currently (for the power sector). Despite building these numbers, the brokerage firm thinks that there is scope for only 22GW of additional equipment ordering over the next two to three years.
 
Whatever little order inflow comes up in the power equipment sector, post the challenges in the coal sector, will face the litmus test of severe competition in the domestic market. Compared with a near-monopoly status in the past in the context of NTPC orders, BHEL’s market share has fallen to just 36% in the recently concluded bulk tendering for NTPC orders (both the phases put together). Ironically, this is despite the preferential treatment given to BHEL. It was awarded 2-4 units in all the orders subject to it matching the lowest bid. Nomura sees a bigger threat looming in the future, since NTPC does not have any more similar tenders lined up and, moreover, all the future tenders will have no preferential treatment for BHEL. 
 
Moreover, Nomura notes that the 36% share in NTPC orders is fraught with the risk of lower margins, since BHEL will get these orders by matching the prices quoted by the lowest bidder, which seems way below BHEL’s normal pricing. 
 

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COMMENTS

crmohanraj

5 years ago

A clear fortnight ahead this article gave advice to use current rally to exit the stock, BHEL.

Today the prediction came true with a bang.

BHEL had steep fall of 6.58% {Rs15.95} in big volumes {1,09,55,053}

Well done Money life digital team.

Mohan Raj

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