Monday, September 12, 2005

Sensex moves past 8,100


The party continues. The market firmed up further today with the Sensex
surging to a lifetime high, at above 8,100. Steady to firm global markets
and data showing robust FII inflow on Thursday (8 September 2005) – the day
the Sensex soared 106 points - set off a fresh rally. FIIs bought shares
worth a massive Rs 543.30 crore on 8 September 2005. Index heavyweight
Reliance Industries (RIL), ONGC, PSU banks, two-wheeler firms, AV Birla
Group companies, and cellular services major Bharti Tele-Ventures (BTL) were
at the forefront of today’s market surge. The 30-share BSE Sensex jumped
78.41 points or 0.97% to an all time closing high of 8,138.42. The S&P CNX
Nifty gained 28.70 points or 1.1% to a lifetime closing peak of 2,484.15
However, turnover declined sharply. BSE clocked a turnover of Rs 3,082 crore
much lower than Friday’s Rs 3,808 crore.
The market has been on the roll, with robust inflow from FIIs boosting the
bourses. In the past nine trading sessions, the Sensex has risen 503.99
points or 6.6% from a recent low of 7,634.43 on 29 August 2005. The market
has been on a bull run for a while now but the latest surge has been quite
sharp and swift – it took just 55 days for the Sensex to move to the 8,000
level after it had first hit the 7,000 level on 20 June 2005.
The market has risen sharply in the past four months on the back of robust
FII inflow, and boosted by strong corporate earnings. From a low of 6,195.15
on 2 May 2005, the Sensex has risen a staggering 1,943.27 points or 31.3% to
the current 8,138.42. The cumulative FII inflow in equities in calendar 2005
(till 8 September 2005) has reached Rs 34634.70 crore ($ 7.93 billion). In
the whole of calendar year 2004, the inflow aggregated Rs 38,965.10 crore ($
8.5 billion).
Over the last two years, the market has rocketed on solid FII inflow. What
had initially started as value buying (due to attractive valuation)
transformed into a bull market on solid corporate earnings growth. From a
low of 2,924.03 on 25 April 2003, the Sensex has risen 5,214.39 points or
178% to the current 8,138.42. In calendar year 2003, FIIs put in Rs 30458.70
crore ($ 6.59 billion), followed by an inflow of $ 8.5 billion in 2004 and $
7.93 billion in the first eight months of calendar 2005. The rise in the
small- and mid-cap universe has been much steeper over the last two years
than their large cap peers.
Indo Gulf Fertilisers and Birla Global Finance made solid headway today
following a favourable ratio for the merger (based on the ruling market
prices of the three scrips) of three group companies Indo Gulf Fertilisers,
Birla Global Finance and Indian Rayon. But Indian Rayon plunged.
PSU banks edged higher on expectation of merger among some of the PSU banks
after Finance Minister P Chidambaram on Saturday urged the country's largest
state-owned banks to take the lead in merging with one another or smaller
banks to form more globally competitive lenders.
Paper scrips and auto-component makers were in demand. Though market breadth
was strong, it was weaker than that witnessed in early trade when breadth
was much more pronounced with 2.4 gainers for every loser on BSE. 1,509
scrips advanced on BSE as compared to 1,117 scrips that declined. 47 stocks
were unchanged.
Stocks like Jindal Stainless, DSP Merrill Lynch, Insilco, India Infoline,
Marsons, Creative Eye, India Gelatine, Poddar Pigments, Ramco Systems, Kotak
Mahindra Bank, Tata Yodogawa, Alstom, GTC Industries, Murudeshwar Ceramics,
Uniproducts, Malwa Cotton, TRF, Patel On-Board, Valecha Engineering,
National Plastic, VBC Ferro Alloys, Swastik Roofing, Morepen Laboratories,
Andhra Cement, and OM Metals rose between 10% to 20%.
Buying was also witnessed in Escorts, Hindustan Organic Chemicals, Patni
Computer Systems, Sutlej Industries, Aarti Industries, Wockhardt, Wartsila
India, DCW, EIH, Kesoram Industries, and Shree Rama Multi-Tech. Indian Rayon
plunged 7% to Rs 574.10. 3.4 lakh shares changed hands in the counter on
BSE. In contrast, Indo Gulf Fertilisers jumped 10% to Rs 186. Indian Rayon,
Indo Gulf Fertilisers and Birla Global Finance will be merged to form Aditya
Birla Nuvo Ltd. As per the merger ratio, 1 share of the new company, Aditya
Birla Nuvo Ltd, will be issued in exchange for every 3 shares held in Indo
Gulf Fertilisers. The ratio is same for the shareholders of Birla Global
Finance (1 share of the new company Aditya Birla Nuvo Ltd will be issued in
exchange for 3 shares held in Birla Global Finance). The consolidation set
Grasim, another A V Birla Group company, surging. The stock jumped 6.7% to
Rs 1,390. Another A V Birla Group firm Hindalco Industries rose 1.4% to Rs
146.75. Housing finance major HDFC gained 2.5% to Rs 939 and software major
TCS rose 2.2% to Rs 1,423. Expectations of a pick-up in festive demand
following a good monsoon in July – a crucial month of sowing - boosted
two-wheeler firms. Bajaj Auto gained 2.3% to Rs 1,590 and Hero Honda rose
0.78% to Rs 697.
But car major Maruti Udyog lost 0.5% to Rs 509 and Tata Motors shed 0.16% to
Rs 511.85 on concerns about a slowdown in vehicle sales following a recent
hike in prices of petrol and diesel. The government, last week, hiked petrol
price by Rs 3 per litre and diesel by Rs 2 per litre.
A positive outlook boosted FMCG scrips. HLL gained 2.3% to Rs 169.45 and ITC
rose 2.1% to Rs 1,871 RIL gained 1.7% to Rs 754.30 – a lifetime closing
high. 6.2 lakh shares changed hands in the counter on BSE. State Bank of
India gained 1.2% to Rs 866 extending a recent surge in the counter. 5.6
lakh shares changed hands in the counter on BSE. ONGC gained 1.32% to Rs
1,006 on the back of high global crude oil prices. 1.5 lakh shares changed
hands in the counter on BSE. Strong cellular subscription figures for August
2005 further boosted Bharti Tele-Ventures. The stock rose 1% to Rs 335.50
Auto parts maker Talbros Automotive Components jumped 5% to Rs 142.40
boosted by the strong response to its just completed public issue. The
strong response to the public issue of Talbros Automotive also triggered
buying in a host of other auto component makers. Munjal Showa jumped 6% to
Rs 391.55, Fairfield Atlas gained 6% to Rs 91.35, Sundaram Clayton gained
4.6% to Rs 778, Automotive Stampings gained 4.5% to Rs 132, Sona Koyo
Steering gained 4.5% to Rs 81.95, Clutch Auto gained 3.7% to Rs 122.85 and
Ucal Fuel gained 3.5% to Rs 281. A mere announcement by the company that its
board would meet on 15 September 2005 over the proposed de-merger of its
offshore oilfields services division was enough to prompt a rally in GE
Shipping. The stock rose 4.2% to Rs 216.10. Newly listed Sasken
Communication Technologies dropped 4.6% to Rs 442.90 on profit taking. A
massive 30.7 lakh shares changed hands in the counter on BSE. Patni Computer
gained 7% to Rs 457. Patni Computer last week announced that it had been
awarded an application development outsourcing contract from ABN AMRO. UTV
Software jumped 7% to Rs 169.10 after the television content provider said
on Friday it has formed a joint venture with Astro All Asian Networks Plc of
Malaysia to launch two children's TV channels in South East Asia. While
Astro would make the capital investments, UTV would provide content, format
and marketing. Gas transmission and distribution major Gail India rose 3% to
Rs 250.80 on renewed buying interest. Metallurgical coke producer Gujarat
NRE Coke gained 2% to Rs 141.50 after the company said it has acquired a
strategic 5% stake in Australia's Resource Pacific Holdings. Gujarat NRE
Coke has also agreed to buy up to 5 million tonnes of coal from Resource
Pacific over the next 10 years. The latest economic data showed that India's
annual industrial output rose 6.7 percent in July, lower than the 11.7
percent in June, dragged down by a decline in mining and electricity output.

Recent order still bolsters Patni Computer


Patni Computer is currently up 7.25% to Rs 457 on volumes of 1.14 lakh
shares. The day's trading range so far was between Rs 427 and 466.40 . The
stock surged sharply from the close of Rs 376.95 on 23 August 2005 to Rs
437.25 on 5 September 2005, largely due to a significant long-term overseas
order win for the company. Patni Computer last week announced that it had
been awarded an application development outsourcing contract from ABN AMRO.
The contract is the result of ABN AMRO's plans to further streamline its
global cross-SBU IT organisation. Under the terms of the contract, the
company will be one of the top five preferred partners to support the bank's
global IT needs through application development, enhancement and support
services.

Lincoln Pharma linked to gains on order win


Lincoln Pharma is currently up 6.20% to Rs 61.10 on volumes of 70,898
shares. The stock hit a high of Rs 54 and low of Rs 50 in intra-day trades.
Earlier, the counter surged sharply form the close of Rs 29.80 on 8 August
2005, to close at a high of Rs 53 on 8 September 2005. Lincoln
Pharmaceuticals advanced today after reports that it bagged an export order
worth Rs 5 crore from Heko Pharmacy of Tanzania. In July 2005, Lincoln
Pharmaceuticals had allotted 16.10 lakh equity shares of Rs 10 each for cash
at a premium of Rs 24.50 per share to four different entities on a
preferential basis. The latest equity share capital after the above
preferential issue was Rs 7.61 crore. Lincoln Pharmaceuticals is an
Ahmedabad-based pharma company, engaged in the manufacture of pharmaceutical
formulations like tablets, capsules, liquid and powder syrups, and
ointments. The company’s products are registered and supplied in different
African countries like Kenya, Uganda, Tanzania, Zimbabwe, Nigeria, Ghana and
Latin American countries. For the quarter ended 30 June 2005, the company
reported a 14.3% fall in net profit to Rs 0.72 crore (Rs 0.84 crore). Net
sales rose 33.16% to Rs 12.89 crore (Rs 9.68 crore).

Uptrend continues as index heavyweights prove firm


The market proved upbeat in mid-afternoon trade. HDFC, ONGC and Bhel moved
higher in the same period of time. Index heavyweight Reliance Industries
(RIL) and State Bank of India (SBI) did well too. At 14:49 IST, the Sensex
was up 76 points at 8,136. It hit a high of 8,138.67 – a new all time high.
The S&P CNX Nifty was up 27.20 points or 1.1% to 2,482.65 Steady to firm
global markets, and data showing robust FII inflow on Thursday (8 September
2005) – the day the Sensex soared 106 points - set off a fresh rally on the
bourses today. Though market breadth was strong, it was weaker than that
witnessed in early trade when breadth was much more pronounced with 2.4
gainers for every loser on BSE. 1,577 scrips advanced as compared to 1,033
scrips that declined. 53 stocks were unchanged. Tata Chemicals, Gateway
Distriparks, and Bank of Baroda, rode higher in mid-afternoon trade. In
contrast, Indian Rayon lost ground following the announcement of a major
consolidation. Select stocks witnessed volatility. Mercator Lines was one
such stock that witnessed volatility. Profit taking pulled down stocks like
Hotel Leelaventure, Torrent Cable, ABG Heavy Industries, TVS Motor, Sesa
Goa, Swaraj Engines, and Era Construction.
Indian Rayon plunged 5% to Rs 584.50. 2.4 lakh shares changed hands in the
counter on BSE. In contrast, Indo Gulf Fertilisers jumped 11% to Rs 189.
Indian Rayon, Indo Gulf Fertilisers and Birla Global Finance will be merged
to form Aditya Birla Nuvo Ltd. As per the merger ratio, 1 share of the new
company Aditya Birla Nuvo Ltd will be issued in exchange for every 3 shares
held in Indo Gulf Fertilisers. The ratio is same for the shareholders of
Birla Global Finance (1 share of the new company Aditya Birla Nuvo Ltd will
be issued in exchange for 3 shares held in Birla Global Finance). RIL gained
1.5% to Rs 752. 8.1 lakh shares changed hands in the counter on BSE. State
Bank of India gained 1.5% to Rs 867 extending a recent surge in the counter.
3.9 lakh shares changed hands in the counter on BSE. ONGC gained 1.2% to Rs
1,005 on the back of high global crude oil prices. 1.1 lakh shares changed
hands in the counter on BSE. HDFC rose 1% to Rs 926. Following a
consolidation among other group companies Grasim Industries (up 2.9% to Rs
1,340) and Hindalco Industries (up 1.8% to Rs 147) firmed up. A positive
outlook boosted FMCG scrips. HLL gained 2.3% to Rs 169.50 and ITC rose 1.8%
to Rs 1,867.

Gujarat NRE Coke gains on overseas initiative


Metallurgical coke producer Gujarat NRE Coke gained nearly 2% to Rs 141.25
after the company said it has acquired a strategic 5% stake in Australia's
Resource Pacific Holdings. 2.1 lakh shares changed hands in the stock on BSE
by the first one hour of trade. After a sharp rally during the period late
July 2005 to early August 2005, the Gujarat NRE Coke stock turned volatile.
The stock ranged between a low of Rs 135 and a high of Rs 147 since 12
August 2005. Earlier, the stock had climbed to Rs 140.90 on 11 August 2005
from a recent low of Rs 118.80 on 26 July 2005. Gujarat NRE Coke has
acquired 5% stake in the Australian firm for 8.1 million Australian dollars
($ 6.25 million). Gujarat NRE Coke has also agreed to buy up to 5 million
tonnes of coal from Resource Pacific over the next 10 years. It may be
recalled that in early July 2005, Gujarat NRE Coke’s Australian joint
venture company, Gujarat NRE FCGL Pty Ltd. acquired the coal mining leases
of old Avondale Colliery and part of Huntley Colliery in the southern
coalfields of New South Wales. Gujarat NRE Coke is the largest standalone
manufacturer of low-ash metallurgical coke in India. Metallurgical coke is
an essential raw material for many industries. Integrated steel plants, the
secondary steel sector, foundries among others use the product as fuel. For
Q3 June 2005, Gujarat NRE Coke reported a 37.9% growth in net profit to Rs
45.20 crore (Rs 32.76 crore).

Valecha Engineering jumps following preferential issue nod


Valecha Engineering is currently quoting at Rs 287, up 5.26%, on volumes of
47,702 shares. The stock flared up to Rs 298 in early trades, which happened
to be a new 52-week high . The low for the day so far was Rs 280. The stock
surged 20% to close at Rs 272.65 on Friday ahead of the announcement. The
counter has witnessed solid surge from the close of Rs 174.35 on 24 August
2005 to close at high of Rs 272.65 on 9 September 2005. Valecha Engineering
jumped up today after its board approved issue of convertible warrants into
equity shares on preferential basis to promoters and other investors (up to
20,48,900 warrants) at a premium of Rs 189.55 per warrant aggregating to Rs
40.88 crore. Meanwhile, the company’s board also decided to issue equity
shares in the form of Global/ American Depository Receipts up to Rs 60 crore
with green shoe option to retain 15%. Over the years, Valecha has undertaken
turnkey projects for highways, bridges, canals, tunnels, dams and commercial
real estate, as well as for airports. The company’s focus in on road
projects. For Q1 ended June 2005, Valecha Engineering reported a 2.7% fall
in net profit to Rs 2.17 crore (Rs 2.23 crore). Net sales declined 13.52% to
Rs 35.62 crore (Rs 41.19 crore).

Favourable merger ratio sends Indo Gulf Fertilisers, Birla Global Finance surging higher


Indo Gulf Fertilisers surged 20% to Rs 203.10 and Birla Global Finance
jumped 5% to Rs 150 boosted by a favourable ratio for the merger of Indo
Gulf Fertilisers, Birla Global Finance and Indian Rayon. Shares of Indian
Rayon were up 1.7% to Rs 628.20. 42,855 shares changed hands in Indo Gulf
Fertilisers, 2,735 shares got traded in Birla Global Finance and 41,311
shares changed hands in Indian Rayon by the first few minutes of trade. The
market had probably got wind of the merger of the three companies in advance
as the share prices of all the these three companies had rallied in the run
up to the announcement which was made public on Sunday (11 September 2005).
From a recent low of Rs 140.70 on 30 August 2005, Indo Gulf Fertilisers had
moved strong to Rs 169.25 on 9 September on the eve of the announcement.
Birla Global had witnessed a much steeper rise. From a low of Rs 82.10 on 14
July 2005, the stock zoomed up to Rs 142.90 by 9 September. Indian Rayon had
spiraled up to a lifetime closing high of Rs 617.45 by 9 September 2005 from
a low of Rs 413.85 on 13 July 2005.
Indian Rayon, which will emerge as a complex combination of brick and mortar
and new-age businesses post-merger, will be renamed Aditya Birla Nuvo Ltd.
As per the merger ratio, 1 share of the new company Aditya Birla Nuvo Ltd
will be issued in exchange for every 3 shares held in Indo Gulf Fertilisers.
The ratio is same for the shareholders of Birla Global Finance (1 shares of
the new company Aditya Birla Nuvo Ltd will be issued in exchange for 3
shares held in Birla Global Finance). The merged entity has consolidated
turnover of Rs 3,980 crore for FY 2005 (year ended 31 March 2005). The
merger will take effect from 1 September 2005. The consolidation of the
three companies has been driven primarily by the desire to deploy the steady
stream of cash thrown up by the traditional businesses for ramping up the
growth of new age businesses. The combined entity will have nine businesses.
While textiles, insulators, carbon black and VFY will form the brick and
mortar segment, life insurance, mutual funds, garments, telecom and
information technology will constitute the new-age businesses. Regulation in
the fertiliser industry had triggered the move, because further
profitability in fertilisers was limited due to price controls. In India,
fertiliser prices are controlled by the government to protect the interests
of farmers. So cash generated from fertilisers would help other businesses
like telecom and financial services to grow.

The Week Ahead - FII inflow holds key


Inflow from FIIs and mutual funds will prove the key. There has been a pick
up in FII inflow in the past few days. An intermittent surge in FII inflow
was instrumental in triggering a solid surge on the bourses last week. FIIs
bought shares worth a huge Rs 543.30 crore on Thursday (8 September 2005) –
the day the Sensex climbed 106 points. Earlier, Tuesday (6 September) had
witnessed a sudden slowdown in inflow. FIIs had bought shares worth a net Rs
70.70 crore on that day. The barometer index gained 21.54 points on Tuesday.
On Monday – the day when the Sensex rose 25.47 points - FIIs pumped in a net
Rs 247.90 crore. The market remained closed on Wednesday (7 September 2005)
on account of Ganesh Chaturthi. A lot of liquidity has been chasing stocks
because economic fundamentals are strong and industrial growth is being
maintained. The cumulative FII inflow in equities in calendar 2005 (till 8
September 2005) has reached Rs 34,634.70 crore ($ 7.93 billion). In the
whole of calendar year 2004, the inflow aggregated Rs 38,965.10 crore ($ 8.5
billion).
A section of the market expects correction to take hold of the bourses after
a sharp recent surge. In the past eight trading sessions, the Sensex gained
425.58 points or 5.5% from a recent low of 7,634.43 on 29 August 2005.
However, correction may materialise only in the event of a slowdown of FII
inflow. Meanwhile, investors in the Asian region will also be keeping a
close watch on the outcome of a FTSE Country Classification Committee
meeting (due on Wednesday, 14 September 2005) on whether to upgrade the
South Korea and Taiwan markets to developed market status from emerging
market status. This will have repurcussions for Indian market. The
classification of South Korea and Taiwan to developed markets status will
augur well for the Indian market as it will mean that India will get a
greater share of FII inflows to Asian emerging markets.

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