In recessionary times like these, it is wise for companies’ to invest in CRM and consumer research to know what the customer really wants. No doubt the prime focus would still be to attract maximum number of people to the store, but one cannot take customers for granted. In order to induce them to actually buy, it is advisable to sell the right product at the right price. A recent report on retail realised by consultancy firm KPMG states that the current slowdown is expected to last 12 – 18 months. Discretionary spend has taken a beating and people are spending on the basic necessities. As it is evident from the sales breakup of the large retailers, value retail is paving way for lifestyle goods. Food retailing and FMCG would be the trendsetters for the coming season. In fact private label will be the leader, be it food or grocery or apparel as margins in these are very high. Private label penetration for emerging markets continues to be at 6% as against Europe’s 23% which has the highest penetration. This is precisely the reason why private label is growing the fastest (at 17%) in these emerging markets. Back home, Trent has the highest share of private label at 90%. Retailers have been offering discounts to liquidate slow moving goods and reduce inventory. “Slowing sales resulting in lower inventory turnover and increasing working capital requirements to fuel growth have resulted in liquidity pressures for many domestic retailers. Companies have been trying to reduce the inventory and shorten working capital cycles,” said Ramesh Srinivas, National Industry Director – Consumer Markets, KPMG in India. However all hope is still not lost. Attractiveness of India’s demographic and economic environment will continue to add momentum and the future prospects for retail expansion are still very attractive. Infact this period of uncertainty is seen as an important consolidation imperative for the industry. Source: ET | |||
|
| Subscribe to latestequityresearchreports |
| Visit this group |
Thursday, April 2, 2009
Invest in consumer research to make the most
Sharekhan recommends ‘buy’ on Cadila Healthcare
Sharekhan has recommended ‘buy’ on Cadila Healthcare with a target price of Rs.372. At the current market price of Rs272, the stock is available at attractive valuations of 11.6x FY2009 and at 9.7x FY2010 estimated earnings. Zydus Cadila (Zydus) has signed a new collaborative drug discovery and development deal with US-based Eli Lilly to develop drugs focusing on the area of cardiovascular diseases. As per its earlier deals with Piramal Healthcare, Jubilant Organosys and Suven Life sciences, Eli Lilly has adopted a similar approach and will pay Zydus for finding new drug candidates and taking them to mid-stage trials, at which point Eli Lilly will have the option to step in and licence the most promising therapies. According to Sharekhan, Zydus will work to discover and develop potential molecules against a novel target, primarily in the cardio-vascular research space. Zydus will initiate the drug discovery and identify the potential drugs. It will also conduct animal trials (i.e. pre-clinical trials) on the potential drugs and take them up to mid-stage human trials (i.e. Phase- II Human Proof-of-Concept). Eli Lily will provide chemical starting points as well as expertise and feedback regarding clinical and regulatory aspects as needed to potentially increase the probability of success of the programme. The collaborative research programme may continue for a span of up to six years. As part of the agreement, Eli Lily will have the option to license any promising molecule at different stages. Under the deal, Zydus could receive up to $300 million in potential milestone payments and royalties from sales upon successful launch of any compounds derived from the research programme. Through this deal, according to Sharekhan Cadila will reap in cash flow benefits in long term, although the deal would fructify in the longer term (as currently Zydus would incur all the expenses for the research), yet this alliance seeks to increase productivity in drug discovery and development by synergising the unique strengths of both the companies. A Sharekhan report on the stock-watch mentions, “the deal showcases Zydus’ R&D capabilities as it follows a high risk-high return model and if successful would result in a significant upside for Zydus. We maintain our positive stance on Zydus, given the strong traction across its business segments. The strong traction in the domestic and the US businesses, and the increasing visibility of the business from the Hospira jointventure reinforce our view on Zydus’ continued growth prospects.” Source: ET | |||
Gap-up opening likely as Asia rallies
Smart gains across overseas markets will set the mood for a gap-up opening on Indian bourses Thursday. However, given that the market will be shut on Friday on account of public holiday and a truncated week of trade ahead, traders may want to keep their positions light. “The near term technical signals from the MACD and Parabolic-SAR are quite strongly bullish still but the fast MACD is showing signs of turning down so one must watch that closely for signs of a potential cross. Also, the Parabolic-SAR will turn negative if we have a down day on Thursday but that is looking unlikely given Wall Street's performance overnight,” said a Reuters technical analysis note. India's annual inflation data is expected later Thursday. The wholesale price index is forecast to have dropped closer to zero in the third week of March. Analysts expect a 0.18 per cent rise in the wholesale price index in the 12 months to March 21, below the 0.27 per cent rise the previous week. Meanwhile, US stocks rose on Wednesday as factory and home sales data raised hopes the economic downturn is moderating, sparking a broad advance. The Dow Jones Industrial Average added 152.68 points, or 2.01 per cent, to end at 7,761.60. The Standard & Poor's 500 Index gained 13.21 points, or 1.66 per cent, to 811.08 and the Nasdaq Composite Index rose 23.01 points, or 1.51 per cent, to 1,551.60. Stocks across the Asia-Pacific region rallied after encouraging US home and factory sales data sparked optimism about the world's largest economy. The Nikkei surged 3 per cent and Topix advanced 3.34 per cent. Hong Kong’s Hang Seng rose 4 per cent, Singapore’s Straits Times climbed 2.67 per cent and South Korea’s Kospi Index jumped 2.9 per cent. Back home, the new financial year commenced on a strong footing with the Bombay Stock Exchange benchmark Sensex surging nearly two per cent on fag-end buying sparked by firming trends in the Asian region. The BSE Sensex closed at 9,901.99, higher by 193.49 points or 1.99 per cent from the previous close. Intraday, the 30-share index moved between 9,921.96 and 9,546.29 - a band of around 375.67 points. The Nifty ended at 3060.35, up 39.4 points or 1.3 per cent over Tuesday's close. The NSE benchmark saw a high of 3069.30 and low of 2965.70 during the day. After pulling back nearly Rs 1,266 crore in the last three trading sessions, foreign institutional investors Wednesday emerged as buyers and invested a net Rs 173.73 crore in equities. Domestic institutional investors were also seen in investing mood and were the net purchaser of stocks worth Rs 11.60 crore. Source: ET | |||
Asian markets rally; Nikkei gains 252pts
Asian markets have rallied smartly this morning helped by positive cues from the US markets.
The Hang Seng has soared 528 points to 14,048. The Nikkei has rallied 252 points to 8,603.
The Taiwan Weighted index has zoomed 113 points to 5,428. The Straits Times index has surged 44 points to 1,747, and the Seoul Composite index has gained 35 points at 1,269.
The Shanghai Composite index is up 17 points at 2,425.
Source: BS
Wheat prices crash on weight of record crop, higher stocks
| Procurement doubles; mills, private trade may keep off Haryana, Punjab. |
M.R. Subramani
Chennai, April 1 As the official rabi arrival season began on Wednesday, wheat prices crashed on the weight of a record crop in the offing and higher buffer stocks.
Prices dropped to Rs 900-925 a quintal in Uttar Pradesh, while in Kota, Rajasthan, it was quoted at Rs 1,020 a quintal, much below the minimum support price (MSP) of Rs 1,080 fixed by the Centre for the current season.
“Wheat is being delivered to mills in Karnataka from Uttar Pradesh at Rs 1,240-1,260 a quintal. Most of the private purchase seems to be taking place there in the absence of any worthwhile procurement by Government agencies,” trade sources said.
Last year, Uttar Pradesh contributed about 55 lakh tonnes (lt) to the buffer stock. Agency reports said the Centre had procured nearly two lt of wheat so far this year against 86,000 tonnes last year and traders said procurement began in Punjab on Wednesday. “It is set to begin in Haryana tomorrow,” they said, adding that private trade and flour mills would not be buying from those States.
Of the two lt procured, 1.56 lt were from Madhya Pradesh against 79,000 tonnes last year. Buffer stock, meanwhile, was reported at 140 lt, above the norm of 50 lt for April 1.
“In Punjab and Haryana, the Centre will have to buy all the wheat brought to the markets by farmers. Private and multinationals will keep off as total procurement cost there works out to nearly Rs 1,300 a quintal due to market cess, traders’ commission, labour charges and packaging,” said Mr Raj Sud, a trader from Khanna, Punjab.
Even in New Delhi, prices were quoted at Rs 1,142 a quintal. “If you work backward, taking off labour, packaging and transportation charges, it works out to around Rs 950,” said a miller in Punjab.
Mr Sud said the crop was good in almost all parts of the country and production could be better than last year’s 78.4 million tonnes.
There are two issues to the current situation, according to traders. One, how long would the flour mills or private trade procure even from Uttar Pradesh. “Flour mills are buying only two months of their requirement. One month requirement is in the mills and another month’s in the pipeline,” said a miller from Karnataka.
“Mills in the North already have stocks of last year. Therefore, they may not enter the market at all for now,” said Mr Sud.
In Kota, private purchase is nearly 3,000 tonnes now, while the Government is procuring only 500 tonnes a day.
Second is what would happen once official procurement ends on June 30. “Prices could crash. But we have to wait for the next Government. We don’t know what will be its policy. Also, global prices are lower with chances of recovery being remote,” said trade sources.
“The Government can hardly store 20-23 lakh tonnes in Punjab and Haryana, from where 50 per cent of the total procurement takes place,” said the sources. With officials saying procurement will be on as scheduled, a clear picture may be available after two weeks.
Source: HBL
Shipbuilding subsidy: ABG can claim Rs 1,700 cr, Bharati Rs 1,000 cr
ABG Shipyard can claim Rs 1,700 crore as shipbuilding subsidy from the Government, followed by Pipavav Shipyard (Rs 1,050 crore) and Bharati Shipyard (Rs 1,000 crore) over the next four-five years.
Larsen and Toubro can claim Rs 375 crore, Tebma Shipyards Rs 270 crore and the Government-owned Cochin Shipyard can claim Rs 255 crore, according to sources in the know.
The Government, in the last week of February, approved a move to disburse about Rs 5,100 crore as shipbuilding subsidy to domestic shipyards for orders secured till August 15, 2007. The subsidy will be disbursed when the shipyard concerned delivers the ships to its customers. So, in case a buyer cancels his order due to any reason, the shipyard will not receive any subsidy for that order.
ABG Shipyard has deliveries lined up till 2013, for which it can claim the Rs 1,700 crore subsidy. "Based on our current delivery position, a subsidy of Rs 120 crore is already due. The Rs 1,700-crore subsidy is for orders that will be delivered till 2013," Mr Dhanajay Datar, Chief Financial Officer, ABG Shipyard, told Business Line.
ABG currently has an order book of Rs 11,400 crore and says that till date it has not seen any move to delay or cancel orders from its buyers.
Bharati Shipyard, meanwhile, has already delivered vessels for which the Government has to disburse subsidies of "about Rs 300 crore."
"Most of the vessels, for which we can claim the Rs 1,000-crore subsidy will be delivered by 2011 and some by 2012," Mr V. Kumar, Managing Director, Bharati Shipyard, said.
On whether Bharati Shipyard has seen any order cancellations from its buyers for these ships, Mr Kumar replied in negative. "We have seen some delays in payments but no cancellations," Mr Kumar said.
Meanwhile, there is Pipavav Shipyard, which secured orders before August 15, 2007, but has not started delivering as yet. The domestic shipbuilders have also demanded extension of shipbuilding subsidy beyond 2007.
Source: HBL
Sensex to eventually break 8000: Ramesh Damani
Ramesh Damani, Member of the Bombay Stock Exchange (BSE) feels that the markets will spend some time at the higher end of the
range as bear confidence is at a historic high. However, possibility of the market hitting new lows cannot be ruled out, he rues. "But this
won't happen in a hurry," Damani said. The Sensex, according to him, will eventually break 8,000.
Talking about the impact elections might have on the market, Damani said, the markets could remain volatile during elections and he
expects uncertainty two weeks prior and post elections.
However, Damani does not see a bull market for the next five years and expects contraction of economic activity.
Q: What have you made of the last few weeks, where we have had a fairly spectacular and sharp 25% rally?
A: The bad news, of course, is that, it is a bear market rally. The good news is that you can view the market from many prisms; you can view
it from earnings, expectations and de-coupling theory. However, if you view it purely from the angle of sentiment, I have never seen the
bears more confident in the 25 years that I have been watching the markets. The way they are talking is like Armageddon-2 is going to
happen and it is going to happen tomorrow. The market is obliged in that direction. Thus, if I have to make a call, I will say that the market is
not going to go back to the bottom of this trading range in a hurry. It is going to spend some time at the higher end of the trading range,
maybe even take out 10,500. I just think the confidence in the bears is so supreme that the market will test them also.
Q: Eventually, after the scare that you are predicting for the bears, do you think it will still remain a bear market, in which case the recent
lows of 2,500 Nifty still stands under threat of a retest or a breach, or do you think we have passed that fear?
A: Unfortunately no. If you go back and study the evidence of any great bull market in the history of the world, it really makes a bottom in the
first year of its lows. There is a very long and very painful period ahead of us. I don't want to play light on those prospects, because we are
still in a bear market and this has also the symptoms of a classic bear market rally, only the small leadership advancing, absolutely giving
you no time to think.
Bear markets are very painful, and the market will eventually break the 8,000 barrier. There is a very good chance that it would test and
break the lows. But I don't think it is going to happen in the next one to three months.
Q: You do see it happening at some time in 2009. What makes you less willing to subscribe to the theory that perhaps equity markets, or
Indian markets, have seen the worst in terms of a bottom for this year?
A: The theory that the bulls advance to all is that India is different, and that we have a great domestic economy growing—our GDP growth
would be somewhere north of 5%. All that is probably true. The problem is that markets don't change—they are never different.
If you go back and study any of the great bull markets in history, whether it is Japan or the US bull markets in 1968, or Thailand or Taiwan,
once that bull market ends, the forces that propelled it higher, end. There is a huge time for the market to regain its old highs.
When I am talking about a new bull market beginning, we have to take out 21,000 to take that seriously. And, that might not happen for
another five years, to be optimistic, because that is just the kind of pain that the markets inflict. There will be a whole generation of people
who will forget about investing will have to get to that kind of sentiment level.
When this rally happened over the last week, the bulls were supremely confident that the worst was over; the worst is in the prices. On
Monday, it was the bears—the market will tend to make both of them complacent before it moves out in either direction.
But if you look at the historical evidence, it is absolutely clear-cut. In fact, there is no dispute in my mind that we are in a bear market and
this is a bear market rally. Ultimately, the market will test its lows and break it. It is just not going to do it in a hurry as the bears think.
Q: If you were to look at the market through the prism of economic data, how are you feeling about that? The catalyst, for this bear market
rally we have had, was that maybe things were coming into place in the financials maybe the data wasn't going to be as bad as what we
live through in 2008?
A: The data can be looked at so many different ways—You can say that auto sales were up so that is a good indicator of cyclical recovery,
so yes the bad news is behind us or the cement prices are up that is a good leading indicator, so yes the economic recovery is ahead of
us. But, I can give you equal data to argue the bearish point of view, like you always heard about the first world and the second world and
the third world—the first world being of course the nuclear super powers or rich and Western industrialised economies, but you don't have
to look at them any more. You have a country like Britain, which is basically tittering on the edge of insolvency. Therefore, the whole world, in
terms of those analyses, looked pretty grim. You are going to have an economic contraction in the world back-to-back the worse economic
contraction in the US, liquidity markets have rallied what a lot of analysts are pointing out is that credit markets are still pricing in a very high
risk of defaults. Hence, the global economic picture means that the global economy is going to slowdown and that is generally not good for
stock markets and besides even if the economy does well, the markets don't have to do well. There is no law that says if the gross
domestic product (GDP) is 6%, the market will perform at 12% or some number like that. Hence, it is wishful thinking to think that the
market can go back to 21,000 in one or two years. I would read that as a very small probability of that happening.
Q: So where do you see upsides capped for 2009? What is that point at which the bears start throwing in the towel and say maybe things
are changing, and we should not be so complacent about the downside risk in the market, and the point where the bulls start saying that
things have turned once again for the mend? Is it 10,000, 11,000 or 12,000, what is the upper limit in your eyes?
A: A few months ago, I would have said 10,500. That was the day the Satyam debacle broke. It was around 10,500. My sense is that the
market will take it out and go up to say between a broadband of about 11,500-12,500. If you remember, 12,700 represents the peak it
reached in May 2006, before the market had one of those most ferocious bull market falls. So, I would say 12,700, or spikes around that
region, would be the higher end of the range. It may never get there. But if it crossed 12,700 in a very decisive manner, you would certainly
have to look and say that maybe your analysis needs to be rethought out.
Q: How cautious are you about the outcome of the elections or what gets thrown up in terms of a coalition combination? How material do
you think it is for the market's life?
A: I read a great quote from "The White Tiger". It says, there are three kinds of fevers to worry about in India – cholera fever, typhoid fever
and election fever. And probably, the election fever is the worst.
It is hard to say. But the good news is that the Indian democracy and markets are fairly mature. They will be very volatile around the
elections. But ultimately, the market figures out and keeps moving in the direction that it has to.
So, yes, there would be a lot of uncertainty, two weeks before and after the election. But the Indian democracy over a 50-year period, and
Indian markets over a 30-year period, have shown themselves to be very resilient. This is a good market with a lot of depth in there. Hence,
the market would respond to the kind of cues that we get. If we get a Third Front government, the market would tend to be weak. If you see
the Congress or BJP seem within eyeshot of having a majority, the market would respect and react positively to that. I am thrilled to hear
the Congress plan and Dr Manmohan Singh saying that he is going to disinvest all the PSUs so that the Indian public can have ownership
of the PSUs. That will bring accountability to the sector and give a great opportunity for Indian investors to buy some great companies at
what would be very good valuations.
Q: How are you reading the global situation, since you track that closely, this whole optimism in the last few weeks has stemmed from
there—first the financial sector then some bits of positive news came out from the US and that unleashed a bit of money into emerging
markets (EMs) as well?
Do you think it is a durable turnaround that you are beginning to see out there in the West or it is just a few positive data points which are
leading no more than a bear market rally there as well?
A: On January 20, when President Obama was inaugurated, the Dow—which is the oldest, most matured, most widely followed market in
the history of Western civilization—was at 9,000. Within the next six weeks, it went to 6,400 - but 2,500 points knock in the Dow after it had
fallen 40%, it was clearly vastly oversold. The market gave a good 50% retracement.
If you look back and say what is going to happen in the futures, I don't see any good economic news lasting and this is going to be a
jobless recovery taking place—unemployment is going to trending higher, banks are not going to be in a position to lend; whether they are
banks in India, banks in Western, they are all putting the money into T-bills rather than lending out, there is going to be an economic
contraction of activity. This whole model that the Western world has built up on terms of easy credit availability that everything is priced by
markets, probably will recheck and the first signpost of that will be the G-20 summit that is taking place in London in early April. However, I
think, the global economy has enormous challenges and the easy money policy that we followed for the last twenty years has come to an
end. Hence, businesses will have to earn a return on capital and that takes a very tough winning away process.
Q: What are you doing right now in the market? You have always been a long-term investor, you like to pick good businesses at reasonable
value and many non-index largecaps or midcaps above USD 100 million marketcap are trading at 10% off their peak value in just about 12
months time. Is it time to go out hunting or do you think it will take a very long time for any of these stocks to come back in a meaningful
way?
A: I have been hunting, but it has been a very disappointing process. Even in this rally, the midcaps have virtually not moved at all and that
is because the investing public is not back in there. They have been so burnt—it is the trading communities, the hedge funds, the domestic
institutions and they always tend to buy the 50-100 most liquid stocks. Thus, the B group stocks are still available, still great companies at
great prices but we are not seeing any – despite this whole 20% rally, the portfolio of midcap stocks that you might own have barely
budged.
But my suggestion to a few investors is that eventually new bull market will start, a lot of the bears also have this feeling that this time it is
different and that we are going to rewrite the rules of investment that investing is never going to be the same again and I will respectfully tell
them to remember that in the stock market, nothing is different, everything keeps changing all the time but it comes back to the same
principles.
Whenever the next bull market starts, it might be years away, these stocks will tend to move before that bull market starts. I think the two
sectors which I find vastly unpopular this time are airline sector and oil marketing companies. From Warren Buffet down to the clerk in my
office, everyone knows not to invest in airline stocks, the balance sheets are hugely challenged but at some price the bottom of this bear
market Jet was at Rs 120 so implied marketcap of about 800 crore which is ridiculous for an airline running 20 years in India. I own a
small amount of Jet for disclosure purposes, so I would buy that. Also, oil-marketing companies are extremely unpopular but they offer
good, solid businesses that in a more uncertain time would rebound. You want to buy things like Novartis, Ingersoll, which is doing
buyback, you can fairly easily predict which companies are going to do this buyback privatisation in the next one to two years. There are
some good returns to be made for that and for the rest you have to grin and bear it, there is nothing that says that you allow 20% return
every year in the stock market.
Q: What about commodities in that case? They have been a large feeder of this rally that we have seen up to 3,100. Any thoughts on
whether you would want to dip your feet into anything over there now?
A: In that case, I'd always wear yellow glasses. The only commodity I am actually really bullish upon is gold. I think it will be a big gainer
based on the global economic environment. People tend to think that gold will do well only in an inflationary environment. However, if you
read history, it does well in a deflationary environment too, because one of the properties of gold is that it acts as a store of value.
Given the fact that people had a lot of disrespect for paper currencies, for fiat currencies and for stock markets, I think over a period of time,
people will shift to gold. It is now in a trading range, consolidating at the higher end. At some point, it would perhaps breakout over USD
1,000-1,030 per ounce and then a new bull market will start in gold. If it does start, it is going to be a very vicious bull market.
Q: Just because of the momentum we had last week, for a lot of people, it seemed like this was going to be the big bear market rally where
we would conquer 3,100, do a lot more by way of price appreciation. Do you see that as a likely prospect over the next couple of weeks?
A: I would think so, and I am basing this purely on sentiment. I think the results really—markets will be volatile. However, the market is not
going to go down barely because of a bad set of results. I think it is just the sheer sentiment I am finding in bears. Like I told you, they are
expecting Armageddon-2 to happen and happen tomorrow.
The market may eventually get where they are saying it would get. I just don't see that happening over the next month. Therefore, I think, if I
was a bear, I would be circumspect about selling. I would not be a very aggressive seller at these points. Sometimes, even in a bear
market, you can have a very strong bull market that can extend in duration for a period of time.
My thought process, after looking at the players and listening to everybody, is that we are in such a phase that the market might actually be
healthy for the next few weeks and months.
Q: Real estate—a sector that you have never been in love with. Has enough damage been done for you to reconsider your stance on the
sector or not quite yet?
A: I think so. I've never been in love with it; it's only that it has just been priced atrociously in the market. I think values are coming down
there. Avoid the companies that are leveraged. But, if you can find within that, companies that have good business models, housing at the
Rs 20-40 lakh level, I think there are stocks within that sector. I would certainly be a buyer out there.
All I am saying is that, a bear market doesn't necessarily mean the end of the world. I think there are great opportunities for stock-pickers to
buy stocks—to build a portfolio of the future. I don't like to believe anyone who says 'this time it is different'. In a bull market they said, this
time it is different, India would never go down, India will decouple completely. Now, the bears are saying this in a bear market. I think go
back to basics, do your homework, find the principles. The principles of investing don't change. If they change, they won't be principles.
range as bear confidence is at a historic high. However, possibility of the market hitting new lows cannot be ruled out, he rues. "But this
won't happen in a hurry," Damani said. The Sensex, according to him, will eventually break 8,000.
Talking about the impact elections might have on the market, Damani said, the markets could remain volatile during elections and he
expects uncertainty two weeks prior and post elections.
However, Damani does not see a bull market for the next five years and expects contraction of economic activity.
Q: What have you made of the last few weeks, where we have had a fairly spectacular and sharp 25% rally?
A: The bad news, of course, is that, it is a bear market rally. The good news is that you can view the market from many prisms; you can view
it from earnings, expectations and de-coupling theory. However, if you view it purely from the angle of sentiment, I have never seen the
bears more confident in the 25 years that I have been watching the markets. The way they are talking is like Armageddon-2 is going to
happen and it is going to happen tomorrow. The market is obliged in that direction. Thus, if I have to make a call, I will say that the market is
not going to go back to the bottom of this trading range in a hurry. It is going to spend some time at the higher end of the trading range,
maybe even take out 10,500. I just think the confidence in the bears is so supreme that the market will test them also.
Q: Eventually, after the scare that you are predicting for the bears, do you think it will still remain a bear market, in which case the recent
lows of 2,500 Nifty still stands under threat of a retest or a breach, or do you think we have passed that fear?
A: Unfortunately no. If you go back and study the evidence of any great bull market in the history of the world, it really makes a bottom in the
first year of its lows. There is a very long and very painful period ahead of us. I don't want to play light on those prospects, because we are
still in a bear market and this has also the symptoms of a classic bear market rally, only the small leadership advancing, absolutely giving
you no time to think.
Bear markets are very painful, and the market will eventually break the 8,000 barrier. There is a very good chance that it would test and
break the lows. But I don't think it is going to happen in the next one to three months.
Q: You do see it happening at some time in 2009. What makes you less willing to subscribe to the theory that perhaps equity markets, or
Indian markets, have seen the worst in terms of a bottom for this year?
A: The theory that the bulls advance to all is that India is different, and that we have a great domestic economy growing—our GDP growth
would be somewhere north of 5%. All that is probably true. The problem is that markets don't change—they are never different.
If you go back and study any of the great bull markets in history, whether it is Japan or the US bull markets in 1968, or Thailand or Taiwan,
once that bull market ends, the forces that propelled it higher, end. There is a huge time for the market to regain its old highs.
When I am talking about a new bull market beginning, we have to take out 21,000 to take that seriously. And, that might not happen for
another five years, to be optimistic, because that is just the kind of pain that the markets inflict. There will be a whole generation of people
who will forget about investing will have to get to that kind of sentiment level.
When this rally happened over the last week, the bulls were supremely confident that the worst was over; the worst is in the prices. On
Monday, it was the bears—the market will tend to make both of them complacent before it moves out in either direction.
But if you look at the historical evidence, it is absolutely clear-cut. In fact, there is no dispute in my mind that we are in a bear market and
this is a bear market rally. Ultimately, the market will test its lows and break it. It is just not going to do it in a hurry as the bears think.
Q: If you were to look at the market through the prism of economic data, how are you feeling about that? The catalyst, for this bear market
rally we have had, was that maybe things were coming into place in the financials maybe the data wasn't going to be as bad as what we
live through in 2008?
A: The data can be looked at so many different ways—You can say that auto sales were up so that is a good indicator of cyclical recovery,
so yes the bad news is behind us or the cement prices are up that is a good leading indicator, so yes the economic recovery is ahead of
us. But, I can give you equal data to argue the bearish point of view, like you always heard about the first world and the second world and
the third world—the first world being of course the nuclear super powers or rich and Western industrialised economies, but you don't have
to look at them any more. You have a country like Britain, which is basically tittering on the edge of insolvency. Therefore, the whole world, in
terms of those analyses, looked pretty grim. You are going to have an economic contraction in the world back-to-back the worse economic
contraction in the US, liquidity markets have rallied what a lot of analysts are pointing out is that credit markets are still pricing in a very high
risk of defaults. Hence, the global economic picture means that the global economy is going to slowdown and that is generally not good for
stock markets and besides even if the economy does well, the markets don't have to do well. There is no law that says if the gross
domestic product (GDP) is 6%, the market will perform at 12% or some number like that. Hence, it is wishful thinking to think that the
market can go back to 21,000 in one or two years. I would read that as a very small probability of that happening.
Q: So where do you see upsides capped for 2009? What is that point at which the bears start throwing in the towel and say maybe things
are changing, and we should not be so complacent about the downside risk in the market, and the point where the bulls start saying that
things have turned once again for the mend? Is it 10,000, 11,000 or 12,000, what is the upper limit in your eyes?
A: A few months ago, I would have said 10,500. That was the day the Satyam debacle broke. It was around 10,500. My sense is that the
market will take it out and go up to say between a broadband of about 11,500-12,500. If you remember, 12,700 represents the peak it
reached in May 2006, before the market had one of those most ferocious bull market falls. So, I would say 12,700, or spikes around that
region, would be the higher end of the range. It may never get there. But if it crossed 12,700 in a very decisive manner, you would certainly
have to look and say that maybe your analysis needs to be rethought out.
Q: How cautious are you about the outcome of the elections or what gets thrown up in terms of a coalition combination? How material do
you think it is for the market's life?
A: I read a great quote from "The White Tiger". It says, there are three kinds of fevers to worry about in India – cholera fever, typhoid fever
and election fever. And probably, the election fever is the worst.
It is hard to say. But the good news is that the Indian democracy and markets are fairly mature. They will be very volatile around the
elections. But ultimately, the market figures out and keeps moving in the direction that it has to.
So, yes, there would be a lot of uncertainty, two weeks before and after the election. But the Indian democracy over a 50-year period, and
Indian markets over a 30-year period, have shown themselves to be very resilient. This is a good market with a lot of depth in there. Hence,
the market would respond to the kind of cues that we get. If we get a Third Front government, the market would tend to be weak. If you see
the Congress or BJP seem within eyeshot of having a majority, the market would respect and react positively to that. I am thrilled to hear
the Congress plan and Dr Manmohan Singh saying that he is going to disinvest all the PSUs so that the Indian public can have ownership
of the PSUs. That will bring accountability to the sector and give a great opportunity for Indian investors to buy some great companies at
what would be very good valuations.
Q: How are you reading the global situation, since you track that closely, this whole optimism in the last few weeks has stemmed from
there—first the financial sector then some bits of positive news came out from the US and that unleashed a bit of money into emerging
markets (EMs) as well?
Do you think it is a durable turnaround that you are beginning to see out there in the West or it is just a few positive data points which are
leading no more than a bear market rally there as well?
A: On January 20, when President Obama was inaugurated, the Dow—which is the oldest, most matured, most widely followed market in
the history of Western civilization—was at 9,000. Within the next six weeks, it went to 6,400 - but 2,500 points knock in the Dow after it had
fallen 40%, it was clearly vastly oversold. The market gave a good 50% retracement.
If you look back and say what is going to happen in the futures, I don't see any good economic news lasting and this is going to be a
jobless recovery taking place—unemployment is going to trending higher, banks are not going to be in a position to lend; whether they are
banks in India, banks in Western, they are all putting the money into T-bills rather than lending out, there is going to be an economic
contraction of activity. This whole model that the Western world has built up on terms of easy credit availability that everything is priced by
markets, probably will recheck and the first signpost of that will be the G-20 summit that is taking place in London in early April. However, I
think, the global economy has enormous challenges and the easy money policy that we followed for the last twenty years has come to an
end. Hence, businesses will have to earn a return on capital and that takes a very tough winning away process.
Q: What are you doing right now in the market? You have always been a long-term investor, you like to pick good businesses at reasonable
value and many non-index largecaps or midcaps above USD 100 million marketcap are trading at 10% off their peak value in just about 12
months time. Is it time to go out hunting or do you think it will take a very long time for any of these stocks to come back in a meaningful
way?
A: I have been hunting, but it has been a very disappointing process. Even in this rally, the midcaps have virtually not moved at all and that
is because the investing public is not back in there. They have been so burnt—it is the trading communities, the hedge funds, the domestic
institutions and they always tend to buy the 50-100 most liquid stocks. Thus, the B group stocks are still available, still great companies at
great prices but we are not seeing any – despite this whole 20% rally, the portfolio of midcap stocks that you might own have barely
budged.
But my suggestion to a few investors is that eventually new bull market will start, a lot of the bears also have this feeling that this time it is
different and that we are going to rewrite the rules of investment that investing is never going to be the same again and I will respectfully tell
them to remember that in the stock market, nothing is different, everything keeps changing all the time but it comes back to the same
principles.
Whenever the next bull market starts, it might be years away, these stocks will tend to move before that bull market starts. I think the two
sectors which I find vastly unpopular this time are airline sector and oil marketing companies. From Warren Buffet down to the clerk in my
office, everyone knows not to invest in airline stocks, the balance sheets are hugely challenged but at some price the bottom of this bear
market Jet was at Rs 120 so implied marketcap of about 800 crore which is ridiculous for an airline running 20 years in India. I own a
small amount of Jet for disclosure purposes, so I would buy that. Also, oil-marketing companies are extremely unpopular but they offer
good, solid businesses that in a more uncertain time would rebound. You want to buy things like Novartis, Ingersoll, which is doing
buyback, you can fairly easily predict which companies are going to do this buyback privatisation in the next one to two years. There are
some good returns to be made for that and for the rest you have to grin and bear it, there is nothing that says that you allow 20% return
every year in the stock market.
Q: What about commodities in that case? They have been a large feeder of this rally that we have seen up to 3,100. Any thoughts on
whether you would want to dip your feet into anything over there now?
A: In that case, I'd always wear yellow glasses. The only commodity I am actually really bullish upon is gold. I think it will be a big gainer
based on the global economic environment. People tend to think that gold will do well only in an inflationary environment. However, if you
read history, it does well in a deflationary environment too, because one of the properties of gold is that it acts as a store of value.
Given the fact that people had a lot of disrespect for paper currencies, for fiat currencies and for stock markets, I think over a period of time,
people will shift to gold. It is now in a trading range, consolidating at the higher end. At some point, it would perhaps breakout over USD
1,000-1,030 per ounce and then a new bull market will start in gold. If it does start, it is going to be a very vicious bull market.
Q: Just because of the momentum we had last week, for a lot of people, it seemed like this was going to be the big bear market rally where
we would conquer 3,100, do a lot more by way of price appreciation. Do you see that as a likely prospect over the next couple of weeks?
A: I would think so, and I am basing this purely on sentiment. I think the results really—markets will be volatile. However, the market is not
going to go down barely because of a bad set of results. I think it is just the sheer sentiment I am finding in bears. Like I told you, they are
expecting Armageddon-2 to happen and happen tomorrow.
The market may eventually get where they are saying it would get. I just don't see that happening over the next month. Therefore, I think, if I
was a bear, I would be circumspect about selling. I would not be a very aggressive seller at these points. Sometimes, even in a bear
market, you can have a very strong bull market that can extend in duration for a period of time.
My thought process, after looking at the players and listening to everybody, is that we are in such a phase that the market might actually be
healthy for the next few weeks and months.
Q: Real estate—a sector that you have never been in love with. Has enough damage been done for you to reconsider your stance on the
sector or not quite yet?
A: I think so. I've never been in love with it; it's only that it has just been priced atrociously in the market. I think values are coming down
there. Avoid the companies that are leveraged. But, if you can find within that, companies that have good business models, housing at the
Rs 20-40 lakh level, I think there are stocks within that sector. I would certainly be a buyer out there.
All I am saying is that, a bear market doesn't necessarily mean the end of the world. I think there are great opportunities for stock-pickers to
buy stocks—to build a portfolio of the future. I don't like to believe anyone who says 'this time it is different'. In a bull market they said, this
time it is different, India would never go down, India will decouple completely. Now, the bears are saying this in a bear market. I think go
back to basics, do your homework, find the principles. The principles of investing don't change. If they change, they won't be principles.
Tuesday, March 31, 2009
Enter Maruti Suzuki, Hero Honda on dips: Gujral
Technical Analyst, Ashwani Gujral is of the view that one can get in to Maruti Suzuki or Hero Honda Motors on dips in auto pack.
Gujral told CNBC-TV18, "I think you would use these dips to probably get into some of the auto stocks Maruti, Hero Honda maybe even a Reliance because when the market comes back, these strongest stocks are likely to come back the fastest. I still do believe that we will sort of go for a retest of 3,100 maybe tomorrow we will try that out. So you could easily have 2-3% type of rally tomorrow on these stocks."
Technical Analyst, Ashwani Gujral is of the view that one can get in to Maruti Suzuki or Hero Honda Motors on dips in auto pack.
Gujral told CNBC-TV18, "I think you would use these dips to probably get into some of the auto stocks Maruti, Hero Honda maybe even a Reliance because when the market comes back, these strongest stocks are likely to come back the fastest. I still do believe that we will sort of go for a retest of 3,100 maybe tomorrow we will try that out. So you could easily have 2-3% type of rally tomorrow on these stocks."
Buy SAIL (April) at Rs 101: Emkay Global
Emkay Global Financial Services has recommended to buy Steel Authority of India, SAIL (April) at Rs 101 with a price target of Rs 122.50 and a stoploss of Rs 87.60 in its March 30, 2009 research report.
Emkay Global Financial Services has recommended to buy Steel Authority of India, SAIL (April) at Rs 101 with a price target of Rs 122.50 and a stoploss of Rs 87.60 in its March 30, 2009 research report.
Stocks to watch: Fortis Healthcare, Tata Motors, Jet Airways, Satyam, DLF
Oil prices were higher on Tuesday as concerns of uncertainty in global markets continued. New York's main futures contract, light sweet crude for May delivery, rose to $48.96 per barrel. Brent North Sea crude for delivery in May climbed to $48.64.
The Indian rupee inched up Tuesday on expectations of capital inflows after gains in Asian stock markets. At 9:20 a.m. the partially convertible rupee was at 50.97/98 per dollar, stronger than its previous close at 51.17/19.
Fortis Healthcare has emerged as the front-runner to acquire a substantial stake in the unlisted Wockhardt Hospitals. Fortis' promoters have reached a broad agreement with Wockhardt's founder Habil Khorakiwala on a possible deal to acquire up to 74% in the hospital chain for close to Rs 750 crore, valuing the business at over Rs 1,000 crore.
The government plans to extend higher depreciation benefit of 50% on commercial vehicles by three months till June 2009. The higher depreciation rate, which translates into lower tax liabilities and lower insurance premiums for buyers of commercial vehicles, is set to lapse by the end of March. Extension of the benefit will help commercial vehicle makers such as Ashok Leyland, Eicher Motors and Tata Motors to sell more units.
Come Wednesday, aviation turbine fuel (ATF) prices will go up by at least 15 per cent. Two independent sources in private carriers told ET that they have got feelers from oil marketing companies about the impending rise in ATF prices. The rise will confirm the trend of increasing ATF prices which, after an incessant fall since September, rose marginally on March 15.
It marks a distinct shift in bargaining power, perhaps for the first time in years. With barely a day to go for annual price contracts for FY10, domestic steelmakers — Sail, JSW Steel and Ispat — are gearing up for intense negotiations to induce price cuts of 40-70 per cent on key raw materials such as iron ore and coking coal.
Six suitors, including billionaire investor Wilbur Ross, have inked non-disclosure pacts with Satyam Computer Services, a pre-requisite to do due diligence on the assets and liabilities of the beleaguered IT firm.
Tata Power Company on Monday said its Strategic Electronics Division has got a contract worth Rs 182.46 crore to manufacture 16 Akash missile launchers scheduled to be delivered in 33 months.
Realty major DLF plans to exit from wind energy business. The company say reports has appointed E&Y to find a buyer for 250 MW of wind power across four states—Karnataka, TN, Gujarat and Rajasthan. DLF is expecting Rs 1100 crore from its alternate energy business and due diligence for the same is has begun.
Sahara has filed an execution application against Jet Airways in the Bombay High Court. It has alleged that Jet has partly defaulted in payment of yearly instalments to Sahara.
Source: ET
Moser Baer (51.50): Buy
We recommend a buy on Moser Baer India stock from a short-term trading perspective. It is apparent from the charts of Moser Baer that it was on an intermediate-term downtrend from its May high of Rs 201 to its March low of Rs 41.
However, the stock reversed direction from this low, which is also a 52-low. Since then the stock has been on a short-term uptrend. On March 27, the stock gained 6 per cent, penetrating its intermediate-term down trendline and 21-day moving average. Moreover, it jumped 7 per cent, with high volume, on March 30, reinforcing the bullishness. The stock has a significant long-term support in the band of Rs 45-50. We also notice a prolonged positive divergence in the weekly moving average convergence and divergence indicator, confirming the trend reversal.
The daily relative strength index is rising in the neutral region towards the bullish zone. We are bullish on the stock from a short-term perspective. We anticipate it to move up until it hits our price target of Rs 57 in the forthcoming sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 48.
Source: HBL
FIIs net buyers of Rs 2,226 cr in 6 days
While foreign institutional investors (FIIs) may be buoyed by Timothy Geithner’s $1 trillion rescue plans, domestic institutional investors (DIIs) are using this recent rise in stocks to sell some of their holdings.
According to the Bombay Stock Exchange’s (BSE’s) provisional data, DIIs, which include mutual funds, banks and insurance companies, have been net sellers of Rs 275.83 crore in the last six trading sessions. While FIIs have bought as much as Rs 2,678.24 crore during the same time, they have sold only Rs 452 crore.
Since March 23, DIIs have bought only Rs 471.39 crore on a net basis. The BSE Sensex moved up almost 6.7 per cent in just six days. Experts say a lot of investment managers might be looking at this as an opportunity to book profits.
“Some people are booking profits because probably, they want to stay in cash. Others might not be sure about the sustainability of this rally, so they are cashing out”, said a fund manager.
Last week, Sensex touched the psychological 10,000 mark after a hiatus of two-and-half months.
Vikram Kotak, Chief Investment Officer, Birla SunLife Insurance, said, “Most India-dedicated FIIs are sitting on large amounts of cash and domestic institutions are also more or less in a similar position. Strong insurance flows in March may lead to further buying in equities, going forward.”
Besides, there are no redemption pressures from investors, said distributors. “Though there were apprehensions from some fund houses that there may be some redemptions when the market goes up, we have not seen it so far,” said a distributor of a renowned broking firm.
As insurance companies do not generally buy or sell on a day-to day basis, experts said it would be mutual funds who are selling. Mutual funds have been maintaining high cash levels of 15-18 per cent but with the air of optimism, they might look at deploying this preserved cash.
Anil Chopra, CEO, Bajaj Capital, said, “Mutual fund investors are not redeeming because people who had invested a year or two ago are still in losses. So, it does not make sense. On the other hand, some investors are bringing fresh money but on a cautious note.”
Source: BS
Asian markets mostly up; Nikkei gains 73pts
Asian markets are mostly up this morning despite negative cues from the US.
The Hang Seng has rallied 169 points to 13,625. The Nikkei has gained 73 points at 8,309.
The Taiwan Weighted index has moved up 56 points to 5,261. The Straits Times index has advanced 25 points to 1,699, and the Seoul Composite index has added 24 points to 1,222.
The Shanghai Composite index however has declined 24 points to 2,334.
Markets skid on auto suggestion
After a strong rally last week, the Bombay Stock Exchange Sensitive Index, or Sensex, wiped out almost 50 per cent of the gains today.
The Sensex, which had closed in the green for the past three weeks, fell 480.35 points, or 4.8 per cent, to close at 9,568.14 points. The CNX Nifty slipped 4.2 per cent to 2,978.15 points.
The slide was caused largely by rising uncertainties over the US government’s auto industry package to General Motors (GM) and Chrysler (see accompanying story on this page) and continuing problems in banking and some profit booking by foreign institutional investors (FIIs).
On Friday, US Treasury Secretary Timothy Geithner said some US banks may need more government aid. As a result, US markets closed in the red and were down sharply on early Monday trading (see table).
“This correction was expected due to a weak closing in the international markets on Friday. During the weekend, the news worsened because of the uncertainty regarding further US government’s assistance to auto majors General Motors and Chrysler,” said Amitabh Chakraborty, head (equities), Religare Securities.
In the domestic market, the sell-off was seen largely in banking, realty and metals. Besides healthcare and consumer durable indices, which rose 0.52 and 8.52 per cent respectively, all other sectoral indices fell in today’s trade.
| Price (Rs) | % Chg* | |
| SENSEX LOSERS | ||
| Jaiprakash Asso | 78.50 | -12.34 |
| ICICI Bank | 337.95 | -12.27 |
| Tata Steel | 196.15 | -12.24 |
| Reliance Infra | 502.45 | -11.43 |
| DLF | 165.55 | -9.34 |
| SBI | 1022.00 | -9.18 |
| TCS | 522.75 | -9.12 |
| Hindalco | 50.20 | -8.81 |
| Tata Motors | 172.30 | -8.74 |
| HDFC | 1450.55 | -8.72 |
| * over previous close | ||
The banking index took the biggest hit, slipping 8.58 per cent today, followed by metals (7.40 per cent), realty (7.24 per cent) and information technology (4.43 per cent).
% Chg* | |
| AMERICA+ | |
| Nasdaq | -3.12 |
| Dow Jones | -3.65 |
| EUROPE** | |
| FTSE 100 | -3.49 |
| ASIA** | |
| Hang Seng | -4.7 |
| Nikkei 225 | -4.53 |
| Straits Times | -4.15 |
| Shanghai | -0.69 |
| + till midnight (IST) ** closing trade | |
FIIs were net sellers of Rs 452.32 crore worth of equities, according to BSE provisional data on Monday. FIIs had pumped in Rs 2,597.81 crore in the past week. Domestic institutional investors were net sellers of Rs 49.38 crore.
Ridham Desai, managing director and co-head of Morgan Stanley, recently pointed out in a research report that the pressure on the income statement of banks is likely to be quite intense going forward.
“We estimate 6 per cent non-performing loans in their base case, whereas the bear case could take it to 8 per cent,” the report said.
Technical analysis so far shows that the markets have support levels at 2,800 points. Divyesh Shah, CEO, India Bulls Securities, said, “The Nifty has strong support at 2,800 levels. On the upside, there is resistance at around 3,100 points.
Source: ET
Subscribe to:
Comments (Atom)
