Stock and Market Views

Global crisis won’t affect India much: Macquarie Capital


Michael Carapeit, ED and global head of Macquarie Capital, is no stranger to India. Of Armenian descent, Mr Carapeit was born in Kolkata and studied in the city till 1974, after which his family migrated to Australia. His message to Indian companies looking to expand overseas is: dominate your home market before setting your sights abroad. In an interview with ET, Mr Carapeit says that the second half of 2010 will be much better for equity markets globally. Excerpts:

Is the worst of the European debt crisis over? Do you see some more unpleasant surprises?

We have a pretty good view of what the issues are, but the actual solutions are country and organisation-specific. From our point of view, we broadly see the economies moving into a positive territory. There will always be pain and there will always will be good times, regardless of market sentiment.

From an investment banking point of view, there are lots of M&A transactions happening right now, be it in the financial institution space or governments privatising infrastructure and utilities. A falling euro has seen many manufacturing firms across Europe becoming very competitive on a pricing basis than they would have been 18 months ago.

In Asia, we have a high single-digit growth and the actual ability to now source quality European equipment far more cheaply. It is a much more compelling proposition, and as a result, we see the manufacturing sector in countries, such as Germany, doing quite well. Financial services are going to be a challenge for a while, and obviously, the sovereign debt problem is there for everybody to see.

Do you see more M&As happening from Asia into Europe?

Yes, much more. We have seen Indian companies do this progressively over time. Larger players have had international operations for a while. The strategic issue for many companies is when you have such strong domestic demand where do you allocate your scarce capital.

In my opinion, unless you dominate your home market, it’s pretty hard offshore. I see many companies, very often, say that well, the domestic market is very competitive, so let me try elsewhere. It is quite rare that a niche player in the home market can go offshore and suddenly become successful.

How do you see India faring relative to other emerging markets?

Very well, actually. The vast majority of the Indian economy is driven on a domestic basis. While not totally immune to what is happening around the world, it is a much more domestic demand-driven story rather than an international story for most of your companies.

Mega companies that have operations around the world will have to take these changes into account. The bulk of the Indian economy and majority of the Indian companies are going to see a 7-8% growth this year and if you are linked to GDP that is quite a good place to be to what is happening elsewhere.


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On the verge of a collapse

On the verge of a collapse

With the S&P 500 now closing at a new low for the year 2010, the US markets are now on the verge of a collapse. A clear downward break out has not happened in the Dow as yet, but if the neckline of the head and shoulders formation breaks, it could be catastrophic in these days of high frequency trading market that shoots first and asks questions later.

The S&P closed at 1041 after touching 1035, a fall of 33 points or 3.10%. What’s more important, it closed below the closing low of 1050 (7th June) and broke the intraday low of 1040 (25th May).

The Dow closed at 9870 after touching 9812, a fall of 268 points or 2.65%. The Dow’s lows are still intact. The closing low of the Dow is 9816 (7th June) and intraday low of 9757 (8th June).

The technical behavior of the markets yesterday had more do with fundamentals than mere weak technical of Asia.

The Conference Board, a private research firm, on Tuesday cut its leading indicator index for China, sending stocks and commodities across the globe sharply lower. The research group said it revised down the index - which aggregates six indicators that measure economic activity in China -- to growth of 0.3% for the month of April, down from the previously reported 1.7% gain. With the revision, the index has now slowed from March's 1.2% rise. The research firm cited a "calculation error" for the dramatic change.

Also weighing on the Chinese market, Agricultural Bank of China's initial public offering saw a lower-than-expected pricing range.

European markets fell as investors eyed the $545.5 billion coming due for banks to the European Central Bank on Thursday. In addition to concerns about whether banks will be able to meet their repayments, investors also worried that debt obligations would leave banks with liquidity shortfalls.

A dip in the consumer confidence also made matters worse for the US markets as they ignored a 0.8% rise in home prices in April, according to the Case-Shiller home price index.

What happens to our markets?

Our markets had discounted the revision in the Chinese advanced economic indicators yesterday and by the close, a 100-point dip in the Dow was also accounted for. What has not been discounted is the lower levels seen by the S&P 500 and the possibilities of the Dow now going the S&P way in follow up trading.

Our markets have had buoyancy of their own with Government and the Reliance groups doing their bit to keep the embers hot. But one can’t swim against the current. So any larger positions in these recently loved stocks need to be pruned and those that have missed the bus earlier can try and get on one when these stocks reverse, with an eventual objective of either booking profits in the usual intraday rally that happens after the first two minutes of mourning or get their trades stopped out if the markets continue their fall.

From a fundamental perspective, while the US and European troubles ca still be resolved, there is no panacea for Chinese trouble, even acupressure. We, along with the rest of the world were waiting for the trouble signs to appear in the Chinese economic landscape. This is one.

In plain simple English, the times are getting tougher and we are sitting on huge gains. Don’t be greedy. Take them. Especially in the commodities.

Disclosure : No holdings or trading positions in stocks mentioned or recommended to clients

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Heard on the street: Bajaj Finserv back on punters’ radar

Bajaj Finserv back on punters’ radar

Shares of Bajaj Finserv rose for the fifth consecutive session on Tuesday amid speculation that the company may retain a controlling stake in both its insurance arms even if foreign direct investment (FDI) norms in the sector are relaxed in the future. The stock closed at Rs 436.50, with around 15 lakh shares being traded on both the exchanges, more than twice the two-week average daily volume.

On the National Stock Exchange (NSE), less than one-third of the 10.46 lakh shares that were traded resulted in delivery, underscoring the speculative action on the counter. Bajaj Finserv has an agreement with its foreign insurance partner Allianz SE, whereby the latter can increase its stake in both the life and general ventures once the FDI limit is raised.

Bajaj Finserv currently holds 74% in both the insurance arms, while Allianz has 26%. The stock had taken a beating around 10 days ago when the insurance regulator clarified that Reserve Bank of India’s (RBI) pricing guidelines for equity share transfer to foreign investors will not apply to insurance companies.

Investors were worried that this will result in Allianz being able to hike its stake in Bajaj Finserv at a pre-determined price, which is lower than current valuations, according to analysts’ estimates. The stock had risen to a high of Rs 557.55 in May this year, as analysts felt RBI’s pricing guidelines will lead to higher valuations for the company.

Large mutual fund stocks up on Jay Shree Tea

A heavyweight mutual fund owned by a private sector bank is said to have bought Jay Shree Tea shares for one of its sector funds. The stock closed at Rs 295.30, down marginally over the previous close. The stock, however, has risen over 20% in the past one month, defying the volatile market trend.

Brokers tracking the fund house say it has been a regular buyer in fast moving consumer goods over the past month. But much of these purchases have been of short-term nature, with the fund house sometimes booking profits within a week.

ICICI Pru’s PMS head may move to Reliance MF

Shahzad Madon, who previously headed the portfolio management services (PMS) division of ICICI Prudential Asset Management, is said to be joining Reliance Mutual Fund (MF) as head of its PMS division. Madon, who is learnt to have put in his papers at ICICI Prudential earlier this month, could not be reached for comment. Reliance Mutual Fund officials too were not available for comment.

(Contributed by Deeptha Rajkumar, Harish Rao & Nishanth Vasudevan)

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DowJones Sinks 200 pts in early trade

Stocks Tumble on Global Economic Worries; Dow Sinks More Than 200 Points-

NEW YORK (AP) -- Stocks and interest rates are extending their losses after consumer confidence dropped because of concerns about the economy.

The Conference Board says Tuesday its Consumer Confidence Index fell nearly 10 points to 52.9, down from a revised 62.7 in May. Economists had forecast only a modest drop.

U.S. markets were already down before the consumer report. They followed Asian markets, which fell after data showed that Japan's recovery has slowed. European indexes fell after Greek workers walked off the job to protest budget cuts.

The Dow Jones industrial average is down 238 at 9,901. It had been down 175 ahead of the confidence report. The Standard & Poor's 500 index is down 27 at 1,047. The Nasdaq composite index is down 66 at 2,154.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

NEW YORK (AP) -- Stocks and interest rates tumbled Tuesday after fresh signs of a global economic slowdown spooked investors.

U.S. markets are following those in Asia, which fell when Japanese data showed that the nation's recovery has slowed. And then European indexes fell sharply after Greek workers walked off the job to protest steep budget cuts.

Interest rates fell in the bond market with investors seeking the safety of Treasurys. The yield on the 10-year note dropped to as low as 2.97 percent, the first time it has fallen below 3 percent since April 2009. The yield, which is used as a benchmark for many consumer loans and mortgages, bounced off its low and edged up to 2.99 percent.

Falling yields are a sign that investors are willing to forego potential big gains in stocks for more certain, but smaller profits in bonds.

Investors are worried that the global rebound is weakening. Consumers may be similarly shaken. A report due out Tuesday on consumer confidence is expected to show confidence fell in June after three straight months of gains.

Economists polled by Thomson Reuters forecast the Conference Board's consumer confidence index fell to 62.8 from 63.3 last month. The index needs to climb above 90 to indicate the economy is on solid footing.

Companies have indicated things are getting better, yet there are few signs they are ready to hire in big numbers. The Labor Department's monthly employment report due out Friday is expected to show the unemployment rate rose 0.1 percent to 9.8 percent in June.

In early morning trading, the Dow Jones industrial average dropped 129.01, or 1.3 percent, to 10,011.40. The Standard & Poor's 500 index fell 15.14, or 1.4 percent, to 1,059.43, while the Nasdaq composite index plummeted 39.55, or 1.8 percent, to 2,181.10.

A report that showed home prices rose in April did little to affect trading. The S&P/Case-Shiller home price index 20-city home price index rose 0.8 percent between March and April. The gains, though, are likely being written off because April was the final month when buyers could receive a tax credit. Nearly all housing indicators got a boost in April from the credit, but have since shown a slowdown in the market



Src:Yahoo Finance

Heard on the Street:

Heard on the Street: Sugar stocks get a booster shot on levy hike

Sugar stocks get a booster shot on levy hike

Some mutual funds, including Star Sign Mutual Fund and market operators, are believed to be buying shares of sugar companies. The news that the government is planning to increase levy sugar prices by 30% for the current September-October season has spurred the buying, according to dealers.

The step will help sugar companies post better profits in this quarter. Balrampur Chini surged close to 10% to finish Rs 86.15, supported by heavy volumes. According to dealers, most of the purchases by mutual funds and operators are for the short-term and they could even offload their positions within a week.

IDFC prices QIP at Rs 168.25 a share

Infrastructure Development Finance Company(IDFC) is learnt to have priced its qualified institutional placement(QIP) at Rs 168.25 apiece. India’s leading infrastructure lender plans to mop up close to $575 million through the issue. It has roped in four bankers including Credit Suisse, Morgan Stanley, CLSA and IDFC-SSKI to manage the share sale. The stock closed at Rs 169.90 on Monday, up 0.95 % over the previous close.

(Contributed by Harish Rao & Reena Zachariah)



Look Beyond the Indices

Most market participants pay too much attention to the gyrations of the Sensex or the Nifty and unnecessary worry about their volatility. There are numerous stocks that have more convincing reasons to buy or sell and these may give you more returns in day then what the indices can give you in a month.

Not those individual investors buy the indices but it does distract them from individual stocks. It is difficult for analysts to change their mind sets quickly and by the time you get to see an affirmations of a move from them, its too late in the day.

Take R.Com for instance. The first fundamental recommendation by a large house has come after a 5 weeks and 53% surge. That does not mean the stock does not have more upside, but it only goes to affirm that investors have to carry their own cross.

A few weeks back, we had spoken about the sugar stocks, as to how they seem to have formed a bottom. Yesterday they have broken out of the range bound pattern and demonstrated enough strength to warrant a buy.

The reason we gave at that time was that the industry is expecting some sops from the Government. While the sops are yet to be announced, the surge in the international prices has lit a fire under the sugar pot.

Expect the Government to impose a duty on white sugar imports and to cut the levy sugar quota from the current 20% to something like 16%. Levy quota was last raised form 10% to 20%. More cane crushing expected this year will ensure a higher power output and the raw material prices could be low, giving some relief to the beleaguered sector.

The US markets were confused yesterday. It now dawned on them that if the G-20 is infact going to cut deficits, then where is the growth going to come from?

We will continue to have data from the US that is bearish and stock specific announcements like GTL Infra will continue to present opportunities. If the Saudi investors are going to put money in the stock at 20-25% premium to the then prevailing price, then what stop you from going for the kill now.

We will have to train ourselves in limiting our greed and taking those small profits that come our way or just watch the indices oscillate up and down, worrying a lot but doing nothing.

The choice is yours.

Disclosure : No holdings or trading positions in stocks mentioned or recommended to clients

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Stock Exchanges – BSE and NSE There are two national stock exchanges in the country, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Most large brokers hold membership cards in both exchanges, offe...

Types Of Market Transactions You will find it easier to transact in the stock market once you attain a basic understanding of market mechanics. Before a share is purchased or sold, the investor must instruct his broker ...

Settlement Once you have bought or sold shares, the transaction is complete only when you have got the shares you purchased, or received money for the shares you sold. This is called settlement in stoc...

Auctions An auction is resorted to when there is a default in delivery by a broker. An auction is the exchange’s mechanism through which, in a settlement, a buyer broker gets shares in the eventualit...

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Fuel price hike may be big drag on Dalal Street

Fuel price hike may be big drag on Dalal Street

MUMBAI: Domestic shares may be under pressure early this week on fears that the government’s decision to hike fuel prices will boost inflation. Investors are concerned that a further rise in prices could prompt the Reserve Bank of India (RBI) to take stronger steps in monetary policy to combat inflation. Shares of automakers are likely to be subdued on concerns that higher fuel prices could dent demand for vehicles. Shares of oil marketing companies (OMCs) such as HPCL, BPCL and IOC and explorers, including ONGC, could rise. “We may see these stocks (oil) going higher in the next few days because they had been lacklustre for a very long time,” said Ambareesh Baliga, vice-president, Karvy Stock Broking. He added that auto stocks should be avoided, as they will see some profit-booking, after a good rally in the past few weeks. Though the move to raise oil and gas prices is expected to improve the government’s finances in the long run, a section of the market is concerned about the timing of the increase, as inflation is still high. Also Read → ONGC, IOC could hit market soon with FPO → How to make exit decisions in volatile market → Private oil companies to go full throttle with expansion Inflation, as measured by the wholesale price index (WPI), rose to 10.16% in May. A silver lining for the stock market would be the better-than-expected progress in the monsoon, which is likely to bring down food prices. “A good monsoon will take care of food inflation and will boost the agricultural sector, which is one of the key constituents of economic growth,” said Mr Baliga. Mid-cap shares are likely to see more activity than their frontline peers, if futures and options data are any indication. “There have been aggressive rollovers in the mid-cap space. So, they will witness an increase in trading activity in the days to come,” said Bhavin Desai, manager-derivatives, Motilal Oswal Financial Services. Analysts said the drop in volumes in the futures segment, despite a strong rollover to the July series, suggests investors have become more risk-averse. Global investors will closely watch the outcome of the G-20 meeting over the weekend. On Friday, overseas markets ended weak on concerns that the decision by European governments to cut down on spending and increase taxes could delay global recovery.

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Stock Views

Trading in Futures

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Reliance Comm, GTL Infra sign $11 billion deal

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Check out Top Value Style Mutual Fund Schemes

Check out Top Value Style Mutual Fund Schemes

Stocks with strong fundamentals and better growth prospects are likely to gain whereas those with weaker fundamentals and poor earnings visibility might face the wrath of investors.

In this scenario, 'stock picking' should emerge as the key differentiator between out-performance and underperformance. The ability of a fund manager to pick winners among stocks will determine the 'alpha' that he is going to produce which will ultimately determine the out-performance and/or underperformance of the scheme.

By definition, value style funds are meant to be better 'stock pickers'. Value investing, as a process, involves better understanding of a company's business and ascertaining its intrinsic value through rigorous research and then looking for an opportunity to buy that stock at a price lower than its intrinsic value. Value investors are not momentum players. They pick stocks that are trading at a considerable discount to their intrinsic value, thereby enhancing the margin of safety.

Value investing has 2 important benefits

▪ Looks to invest in stocks which are trading at a discount to their fair value, it gives margin of safety to the portfolio of the investors over a long term.

▪ It may also help in reducing volatility in the portfolio.

Here, we present an article on Top Value style funds. (See Note and Disclaimer)

Data Source: valueresearchonline



UTI Dividend Yield Fund

The fund in last 1 year has generated an annualized return of 45.58% as on 18th June 2010.

Performance Analysis

The fund has consistently given an above average performance and has also out-performed its benchmark BSE-100 in the periods 3 months, 6 months, 1 year, 2 years, 3 years and 5 years registering an annualised return of 21.17% in last 2 years while in the same period the category average returns is 17.50% and its benchmark has given 6.85% return.

Table I below shows the growth of Rs100000, if invested in UTI Dividend Yield Fund on 18th June 2007.

Return 3 Years
Absolute %	Annualised %
70.33	19.42
Amount Inv 18-Jun-07	Current Corpus 18-Jun-10
100000	170327

Risk Return Analysis

The fund has registered a Sharpe Ratio of 0.53 while the category average is 0.38 which shows the fund's capacity to generate above average returns. It also has a standard deviation of 30.81% which is lower than the category average of 34.62% and has a beta of only 0.83 which shows that it is a low risk and less volatile fund when compared to its peer group. See Table II

Scheme Name	Sharpe	Std Dev	Beta
UTI Dividend Yield	0.53	30.81	0.83
Category Average	0.38	34.62	0.92

It is low risk and low volatile fund coupled with a capacity to generate above average returns. For definition of Sharpe ratio, Standard Deviation and Beta see bottom of the page.

Portfolio Analysis

The fund as per May 2010 has 89.21% exposure to equity in the form of 54 stocks in its portfolio, 1.45% in Debt in the form of short term deposits and holds 9.34% of the portfolio in cash. The fund has diversified its equity portfolio by investing 67.82% in Large Cap stocks, 22.73% in mid cap stocks and 8.87% in small cap stocks.

Its Top 5 stocks include Infosys Technologies Ltd.(6.12%), ICICI Bank Ltd. (4.80%), NTPC Ltd. (4.75%), ONGC Ltd. (4.30%), GAIL (India) Ltd (3.97%).

More @ Check out Top Value Style Mutual Fund Schemes



Src: Economictimes.Indiatimes Via Valueresearchonline

ET:Heard on Street

Heard on Street: Indian Hotels gains 3%

SBI ropes in six i-banks for $1 billion overseas debt

State Bank of India plans to raise $1 billion from overseas markets in July and has identified six merchant bankers for it. Insiders say that it’s not yet clear if the bank plans to raise money in the form of bonds or by issuing medium-term notes. The six merchant bankers include UBS, Bank of America Merrill Lynch, Citibank, Deutsche Bank, Royal Bank of Scotland and HSBC. Insiders say that the bank is likely to raise money for five years and the issue will be in the form of senior debt and not subordinated debt. This will be SBI’s first overseas borrowing this year, after the turmoil in European markets. Many Indian banks are following SBI’s overseas borrowing, since they will plan their overseas borrowing based on the pricing and the response that SBI receives for its forthcoming issue.

Indian Hotels gains 3% as ‘operators’ buy shares

Having taken losses on their trading bets due to the recent market volatility, market operators now seem to have turned to the tried and tested formula of investing blue-chips. The Old Fox of Dalal Street, and the operator who shares his first name with the Union Agriculture minister, are said to be accumulating shares of HLL, ITC and Indian Hotels over the past few sessions. Indian Hotels shares rose 3% to close at Rs 104.80. On the BSE, 5.41 lakh shares were traded, compared to the two-week average daily volume of 1.75 lakh shares.

Domestic funds use rally to book profit in Sesa Goa

Select domestic mutual funds were seen booking profits in Sesa Goa on Thursday. The stock gained close to 1% to Rs 378.95, after touching an intraday high of Rs 385.90. According to dealers, these funds had bought Sesa Goa shares at around Rs 320-325 almost a month back, when the stock was reeling under selling pressure led by a fall in global commodity prices. In the past week or so, the stock has risen roughly 7%. Analysts don’t recommend buying the stock at these levels citing steep valuations.

Contributed by Sangita Mehta, Santosh Nair & Harish Rao



Aqua offers action-packed fare


Aqua Logistics, a recently listed mid-cap player in the logistics sector, is witnessing higher investor interest following the current boom in demand from key user industries including auto, construction and pharma.

The stock touched a 52-week high of Rs 545 intra-day on Thursday before it ended the day at Rs 541.3. Since its listing on February 23, the stock has more than doubled compared to an 8.7% rise in the broader Sensex.

During the same period, the stock of its larger peer Transport Corporation of India gained 32% while Allcargo Global Logistics scrip declined 6.2%.

Apart from the strong growth in the domestic economy, investor sentiment has also been boosted by Aqua Logistics’ recent expansion into the booming East Asian market. As part of this strategy, Aqua Logistics had recently completed the acquisition of a 60% stake in three Hong Kong-based companies for $7.1 million (nearly 32.5 crore). The company via its recent IPO had raised Rs 150 crore and funding this acquisition should not be a problem.

However, Aqua Logistics’ operating margin declined 40 basis points 10.1% in FY10, despite the year-on-year 51% jump in its income from operations. Pressure on its operating margin was due to higher operating expenses. Nevertheless, the company’s net profit increased 84% to Rs 20.5 crore in FY10.

Aqua’s stock may continue to see some more action in the coming days given its plans to split shares. The company’s board is considering the sub-division of its share, from the current face value of Rs 10. It is likely to declare the exact split ratio next week. Though the move will not change its paid-up capital, the number of traded shares will increase, adding to the stock’s liquidity.

In addition, the company plans to seek shareholders’ approval for a fresh issue of shares of a size not exceeding $70 million (nearly Rs 320 crore). Aqua’s stock currently trades at 37.7 times its trailing 12-month earnings. This makes it one of the most expensive stocks in the sector.

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