Global cues will continue to weigh on domestic bourses
The market was on a strong note on earnings optimism. However, concerns over overvaluation and possible further tightening of the monetary policy limited gains. The Sensex ended 101 points higher (0.5%) at 17,574 and the Nifty was up 24.5 points (0.4%) at 5,269. The market was up after subduing early volatility. In afternoon trading, it touched the intraday high. However, it pared a lot of its gains soon after, as it took a sharp slide from that point.
Asian stocks fell on Thursday as several major US firms issued disappointing profit outlooks, casting doubts over the strength of the global recovery, and as investors grew impatient for action over Greece’s debt crisis. Key benchmark indices in China, Hong Kong, Japan, South Korea and Taiwan fell by 0.15% to 1.27%. Key benchmark indices in Indonesia and Singapore rose by 0.25% to 0.26%.
US stocks remained flat on Wednesday as disappointing earnings outlooks from healthcare companies offset strong earnings from Morgan Stanley. The Dow edged up 7.86 points (0.07%), at 11,125. The S&P 500 dipped 1.23 points (0.1%) to 1,206. The Nasdaq inched up 4.3 points (0.17%) to 2,504. Germany has said that Greece may not avail of EU and IMF aid packages by mid-May.
Closer home, food inflation rose 17.65% in the year to 10 April 2010 and the primary articles’ index rose 14.14% in the year to 10 April 2010, latest government data showed.
The government is likely to issue new benchmark 10-year bonds by end-May or early-June. Iron ore exports declined in February as the government banned illegal mining. Exports were down 2.3% in February from the year-ago period. The government action taken on July last year has closed down 60 mines in Orissa.
The IMF has said that the global economy is recovering from the recession more quickly than expected. However, the rescue effort has put pressure on public finances. The entity projected India’s growth at 8.75% for calendar year 2010 and 8.5% in 2011. It expects demand in India to improve with the improvement in the labour market and investment.
Foreign institutional investors were net buyers on Wednesday of Rs82 crore. Domestic institutional investors were also buyers of Rs25 crore. The rupee gained in the late afternoon, on dollar sales.
Valecha Engineering (down 1.1%) has bagged two projects. The first project is for the Paradip project of Indian Oil Corporation. The second project is for the construction of a 35-km road in Chhattisgarh. Aban Offshore’s (down 1.3%) joint venture, Venture Drilling and Maersk Oil Angola (Maersk Oil) have reached an agreement to amend their drilling contract relating to drillship Deep Venture. Maersk Oil will redeliver the drillship upon completion of the Chissonga-2 well in Angola, around April 2010. XL Telecom and Engineering (up 10.1%) has said that that it will raise funds up to $100 million by issue of securities. The board of Sasken Communication Technologies (up 5.6%) in its meeting on 22 April 2010 has recommended a final dividend at the rate of Rs4 per share (40%) for the financial year ended 31 March 2010. Tata Motors (up 3.3%) has said that its Sanand plant will start production by 30th April and make up to 2.5 lakh Nano cars a year. Kale Consultants (down 1.2%) posted a growth of 34% and 73% in sales and operating profit in the March quarter, over the year-ago period.
Limited operations, poor track record and bad fundamentals make the stock hugely overvalued
Nitesh Estates Ltd, a Bengaluru-based real-estate firm, hits the market on 23 April 2010. The company was looking to price its shares in the band of Rs120-Rs128 but had to cut it by more than half to Rs54-Rs56, sensing that investor response would be poor. Indeed, it is quite audacious of Nitesh Estates to even think of coming up with the IPO. For the nine months ended 31 December 2009, the company suffered a loss of Rs1.32 crore. For the financial year ended March 2009, it had a negative cash flow of Rs46.87 crore.
Interestingly, the company has made a pre-IPO placement to Brand Equity Treaties Ltd (BETL), owned by Bennett, Coleman & Company Ltd, owners of the Times Group, at Rs143 per share on 19 February 2010 for 10 lakh shares aggregating to Rs15 crore. This is the main reason one can see large advertisements by the company in various publications of the group. Under such deals—called private treaties—the Times Group takes a stake in an upcoming company in return for low-rate advertisements.
Incorporated in 2004, Nitesh Estates primarily develops residential projects in Bengaluru, despite the fact that it has expanded its operations in Chennai, Kochi, Goa and Hyderabad. As of 20 March 2010, the company’s seven ongoing projects and four forthcoming projects comprised a combined saleable area of 3.64 million sq ft, out of which 2.65 million sq ft or 72.8% was located in Bengaluru. The company is also developing a hospitality project in Bengaluru and a residential and an office project in Kochi.
As on 20 March 2010, the promoters have pledged 3.01 crore (42%) pre-issue shares to lenders under a debt agreement. The lenders can sell these shares in the open market in the event of a default and can dilute the shareholders’ stake. As of 31 December 2009, the company’s total borrowings on a consolidated basis were Rs194 crore.
According to the prospectus filed with SEBI, the proceeds of the IPO will be utilised to acquire joint development rights for the company; fund existing subsidiaries and the associate company; for repayment/prepayment of loans; redemption of debentures; finance ongoing projects and financing the acquisition of joint development rights and to repay certain loans of the company.
ICICI Securities Ltd, Enam Securities Private Ltd, Kotak Mahindra Capital Company Ltd and JM Financial Consultants Pvt Ltd are the lead book-running managers to the issue.
The company plans to mop up Rs450 crore from the issue with a 100% book-building issue. The price band has been fixed at Rs54-Rs56 per share. The issue opens for subscription on 23 April 2010 and closes on 27 April 2010. Credit ratings agency CRISIL has assigned an ‘IPO Grade 2’ to the IPO, indicating ‘poor fundamentals’.
Spot iron ore prices are showing no signs of easing. The rise in prices, triggered by a supply bottleneck, may continue for some time
Iron ore spot prices are unlikely to ease anytime soon. Prices have touched a high of $192 per tonne, moving closer to the all-time high of $200 per tonne reached in 2008. According to the Metal Bulletin, spot iron prices traded at a high of $192 per tonne on 22 April 2010.
Iron ore prices have moved up significantly in the past few months from $115 per tonne in December 2009 to the current $192 per tonne. Stalled mining activities in India and Australia are believed to be a major contributor to the rise in spot prices.
As supply bottlenecks in the Indian ore market stand unresolved, there are no signs of softening in spot prices. With this supply deficit, what used to be a buyer’s market has now turned into a seller’s market. India is a major contributor to the global iron ore spot market. Indian exports alone contribute around 80 million tonnes (MT) to the total 120MT traded in the spot market globally. However, during the period of January 2010- March 2010, Indian exports have declined due to issues involving mines in the country.
The closure of the Oballapuram mines has severely affected Indian iron ore output. In addition, mining activities have been disrupted due to government action against illegal mining, along with environmental concerns.
On the other hand, supply from Australian mines is also believed to have declined. When ore prices fell to $60 per tonne in late 2008, a number of mines in Australia were believed to have been closed. This supply shortage issue coupled with a marginal demand of 4% globally has turned the tables, turning a buyer’s market into a seller’s market.
With spot prices shooting up, long-term prices are also likely to witness a similar trend. The increase in spot prices is expected to have a direct effect on quarterly contracts. The global iron ore market is controlled by a handful of producers such as CVRD of Brazil and the Anglo-Australian companies Rio Tinto and BHP Billiton.
The major buyers are Chinese companies. Big miners are now insisting on quarterly contracts against the earlier yearly iron ore supply contracts.
Most steel companies have agreed to this model, except for Chinese companies. However, China’s stance is not expected to change the demand-supply dynamics significantly. According to industry sources, a further increase of 10%-20% in iron ore prices is likely. If the prices were to rise beyond this point, it might place buyers in a tight position, leading to a situation similar to the one witnessed in 2008.