Share prices to see staggered upmove: Tuesday Closing Report

Nifty may continue to see an upmove to the level of 5,000

The market brushed aside early hiccups and closed with good gains for a second day in a row. A recovery in the global markets assisted the gains. The Sensex and the Nifty opened higher from Monday's highs, but the indices couldn't sustain the levels and slipped into the red, but bounced back later.

The two days of gains have cancelled out the losses of 19 August 2011 and this also indicates that we are seeing a weak upmove. As we mentioned yesterday, the Nifty was near the 4,975 level (intra-day high of 4,966). However, it couldn't sustain that level and gave up some of the gains to close up 50 points.

If the upmove is sustained, it could be a slow move up till 5,000. However, if it falls from here, it may go down to 4,750.

The market opened in the green, following the positive trend in the Asian pack in morning trade. The Nifty opened with a gap-up of 26 points at 4,925 and the Sensex resumed trade at 16,447, a gain of 105 points over its previous close. However, the market soon dipped into the red in choppy trade.

Profit booking on yesterday's gains led the indices to their intra-day lows in the first hour of trade. At the lows, the Nifty fell to 4,864 and the Sensex to 16,213. The market perked up in subsequent trade on support from IT, technology, consumer durables and capital goods sectors.

The market resumed its northward journey in the post-noon session with the indices scaling intra-day highs. At the day's high, the Nifty rose 67 points to 4,966 and the Sensex advanced 207 points to 16,549. The market pared some of the gains and was range-bound in late trading, before closing 1% higher. At the close, the Nifty was 50 points up from its previous close at 4,949 and the Sensex gained 157 points to close at 16,498.

The advance-decline ratio on the National Stock Exchange (NSE) was 1120:557.

Among the broader indices, the BSE Mid-cap index closed 0.95% up and the BSE Small-cap index rose 1.16%.

With the exception of the BSE PSU index (down 0.02%), all other sectoral gauges registered gains. The top gainers were BSE IT (up 3.94%), BSE TECk (up 3.17%), BSE Capital Goods (up 1.69%), BSE Consumer Durables (up 1.48%) and BSE Bankex (up 0.81%).

TCS (up 6.66%), Bajaj Auto (up 4.27%), Infosys (3.64%), BHEL (up 2.65%) and Bharti Airtel (up 1.99%) were the main gainers on the Sensex. The laggards were led by ONGC (down 2.65%), Cipla (down 2.59%), NTPC (down 2.03%), Tata Motors (down 1.02%) and Maruti Suzuki (down 0.91%).

The major gainers on the Nifty were TCS (up 7.08%), Bajaj Auto (up 4.30%), Infosys (up 3.34%), Axis Bank (up 2.94%) and BHEL (up 2.88%). The top losers were ONGC (down 2.78%), Cipla (down 2.76%), Power Grid Corporation (down 2.08%), NTPC (down 1.72%) and Ranbaxy (down 1.38%).

Markets in Asia, which were upbeat following marginal gains in US markets overnight, also ended positive. Easing of China's manufacturing output in August, indicated by the flash HSBC PMI data, also supported the gains.

The Shanghai Composite rose 1.52%, the Hang Seng advanced 1.99%, the Jakarta Composite climbed 1.06%, the KLSE Composite gained 0.69%, the Nikkei 225 and the Straits Times surged 1.22% each, the Seoul Composite jumped 3.86% and the Taiwan Weighted settled 3.25% higher.

Back home, foreign institutional investors were net sellers of equities worth Rs786.32 crore on Monday. On the other hand, domestic institutional investors were net buyers of stocks worth Rs143.44 crore.

Reliance Industries has withdrawn from an offshore oil exploration block in the Sea of Oman, according to a media report. The decision follows an exploratory drilling campaign that failed to unearth any significant prospects. The stock gained 1.14% to close at Rs765.60 on the NSE.

Indian Metals & Ferro Alloys has announced that it has commissioned a 30MW dual-fuel captive power plant and has synchronized the same with the grid. The unit is running smoothly and the load will gradually be increased. As such, the company expects stable operations at optimal load within a month. The stock fell 0.89% to Rs375.05 on the NSE.

Hindalco Industries, the metals flagship of the Aditya Birla group, plans to raise about Rs8,000 crore through a debt issue. The proceeds will be used to part fund its Aditya Aluminium refinery project and a captive power plant in Orissa. The company's shares rose 0.59% to close at Rs145.25 on the NSE.


Barclays appoints India equity research, sales trading heads

Barclays Capital has appointed Bhuvnesh Singh as head of its equity research team and Neel Shahani as the head of equity sales trading

The investment banking arm of UK-based Barclays Bank Plc, Barclays Capital has appointed Bhuvnesh Singh as head of its equity research team in India and Neel Shahani as the head of equity sales trading in the country.

Singh, who earlier worked at Credit Suisee, will be responsible for establishing and developing Barclays Capital's Indian equity research business, Barclays said in a statement.

Shahani, who joins from India Infoline Ltd, will establish and manage its execution and sales traders team in India, the statement added.


A total of 768 companies had pledged their shares—amounting to a total value of Rs1,536.60 billion—as on June 2011

Pledging shares against debt is a sure recipe for disaster, especially in a falling market. Around 30 companies have actually pledged shares of more than 50% of their paid-up capital. Among the top companies with the highest value of pledged shares were TCS, Adani Power and JP Power—with a pledged value of $4.20 billion, $2.10 billion and $1.20 billion respectively

On 19th August, Moneylife had reported on how KS Oils saw its share price plummeting by 32% on the Bombay Stock Exchange (BSE), after months of steady decline (Private equity funds slip as KS Oils slides).

KS Oils had pledged around 80% of its shares against loans. On 16th August, KS Oils crashed by a whopping 32% after Edelweiss Finance and Investment Limited sold around 44.50 lakh shares on the BSE at Rs9.13 a share. Earlier, on 12th August, Sicom had sold 25.78 lakh shares of KS Oils at Rs12.96 on the National Stock Exchange. KS Oils has seen its scrip plunge by 90% since January 2010.

Pledging shares against debt has proven to be a sure recipe for disaster.  

There are 768 companies that have pledged their shares-amounting to a total value of $33.40 billion (Rs1,536.60 billion) as on June 2011.The subsequent fall in the market since then could spell disaster for these companies. Around 30 companies have pledged shares of more than 50% of their paid-up capital.

As per a recent Morgan Stanley Research report, at yesterday's prices, the pledged value of shares was at $27 billion versus $33 billion at the end of the June quarter, a drop of 18%, with the number of pledged shares remaining the same. The Sensex dropped by 13% from 18,846 to 16,341 points during this period. However, if the company's share price goes below a certain level, the company will have to make immediate payment in cash—or pledge more shares—to maintain its margin. If the company cannot do this, lenders will resort to selling the shares to recover the money, thereby reducing the promoter's stake as well as the price of the shares.

Therefore, out of the 768 companies that reported promoter pledging in June 2011, 79 have revoked their pledges on shares and are out of the list. An additional 30 companies have reported promoter pledging during the quarter. This could be on account them having to maintain their margin with banks.

The pledged value as per the market cap of stocks of these companies has fallen to the lowest level since March 2009 at 9.9% versus 10.7% in the previous quarter. Compared to India's total market capitalisation, the value of pledged shares was 2.2%.

Among the top companies with the highest value of pledged shares were TCS, Adani Power and JP Power—with a pledged value of $4.20 billion, $2.10 billion and $1.20 billion respectively. The value of pledged shares as per the total share value for these companies were 8%, 39% and 52% respectively. Tata Motors, Asian Paints and Tata Power also figure among the top six companies.

Falcon Tyres had the highest percentage of pledged shares as of paid-up capital with 79%. It was one of the 30 companies which have pledged 50% and more of their shares.

During the quarter, at the sectoral level, the materials and healthcare sectors saw an increase in the absolute pledged value while the rest saw a fall with industrials seeing the maximum fall. In terms of share in total pledges to total pledged (in value terms), materials saw the biggest increase in the share of pledges and industrials saw the biggest fall.

The Morgan Stanley report further states that assuming a 50% margin, the bank credit given to the promoters would be around $16.20 billion. This accounts for 2% of outstanding bank credit of the companies with pledged shares.

In the consumer discretionary sector, value of pledged shares amounted to $5.50 billion. This accounted for 16.5% of the total share value. The top three companies according to pledged value in this sector were Videocon Industries, Hero MotoCorp and Sun TV network.


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