Sensex Surges again Zooms into 16000 Level

The Sensex opened with a bang at a new all-time high of 15,941 - up 272 points from its previous close - on the back of positive global cues. The US Fed, on Tuesday, cut its benchmark rate by 50 basis points, for the first time in four years, to 4.75%. A move that resulted in a strong rally across the globe. The buying momentum was so strong that the Sensex soon crossed a new landmark of 16,000, and went on to extend gains as the day progressed. The index hit an all-time, intra-day high at 16,335 - up 666 points from the previous close. The Sensex finally ended with its biggest-ever single-day gain of 654 points at 16,323.

The index took only 52 trading sessions to move from 15,000 to 16,000. While the BSE Mid-cap index advanced nearly 2% to 7117, the Small-cap index added 1% to 8871. The BSE Realty index surged 5.8% to 8465. The Bankex and Oil & Gas indices rallied nearly 5% each to 8691 and 8924, respectively. The market breadth was positive - out of 2,850 stocks traded, 1,541 advanced, 1,233 declined and 76 were unchanged.

BIG MOVERS… All the Sensex stocks ended with gains today. HDFC and HDFC Bank zoomed nearly 8% each to Rs 2,354 and Rs 1,326, respectively. Bharti Airtel soared 6.5% to Rs 886. ONGC surged 6% to Rs 902, and Maruti was up 5.8% at Rs 926. Reliance rallied 5.5% to Rs 2,173. Reliance Communications and ICICI Bank gained 5% each at Rs 564 and Rs 970, respectively. Tata Steel and Bajaj Auto moved up 4.7% each to Rs 745 and Rs 2,512, respectively. While Mahindra & Mahindra and SBI advanced 4.5% each to Rs 741 and Rs 1,770, respectively, Tata Motors and ITC added 3.7% each to Rs 722 and Rs 187, respectively. Hindalco and Infosys were up 3% each at Rs 159 and Rs 1,853, respectively. ACC surged 2.7% to Rs 1,153.

MOST ACTIVE COUNTERS DLF topped the value chart with a turnover of Rs 255.70 crore followed by Reliance (Rs 227 crore), ICICI Bank (Rs 148.70 crore), Reliance Capital (Rs 137.65 crore) and Renuka Sugar (Rs 127.80 crore). IKF Technologies led the volume chart with trades of around 1.85 crore followed by Ispat Industries (1.82 crore), Balrampur Chini (1.08 crore), IFCI (89.70 lakh) and Himachal Futuristic (87 lakh).

Sensex at16000: Experts say more gains to follow The Sensex closed above 16,000-mark for the first time, and market experts feel more gains will follow with some hiccups on the way.Though nobody is taking a call on where the index will be in the near-term, experts, across-the-board, continue to be bullish on Indian equities.

Nimesh Kampani, chairman, JM Financial : The basic issue is that the way the markets have gone up. The flow of FII money will increase in India and that is the expectation of the market. With the interest rates being cut, the appreciation of rupee, and looking at the rise in Asian markets today, it can be assumed that there has been a flow of FII money into the Asian markets. Sectors such as infrastructure, cement, steel and power look good, as we expect growth in these sectors.

Rakesh Jhunjhunwala, billionaire investor and stock trader : I’m and I have been bullish on the Indian markets. There is no change in my view

S Ramesh, COO, Kotak Investment Banking : Markets will be driven by liquidity, and money will move into markets like India where the growth story remains intact. The rise from this level will be driven by sectors like banking, construction and engineering. We are just coming out of a global meltdown, and the rise from here will be sector-specific and global-event driven.

Krishnamurthy Vijayan, CEO, JP Morgan Asset Management : We believe that since India is one of the best investment opportunities in the next few years, we will continue to attract investments - onshore and offshore. We have been consistently overweight on sectors that capture the Indian growth story, and have been underweight on auto and downstream oil.

Vijai Mantri, CEO, Deutsche AMC : We are very positive on India. The Indian growth story is completely driven by domestic demand. While there may be some bouts of volatility, I don’t see any constraint on corporate earnings growth. We are very bullish on capital goods, engineering and power. I think Indian markets are fairly valued but India may see a rate cut taking cues from FOMC.

Alok Vajpayee, CEO, Dawnay Day AV : The Indian market is following the global trend. I will not be surprised to see it at a much higher level. Some ups and downs will be there, but we will continue to see markets moving up. There could be a rate cut in India. There is lot of momentum in liquidity in Indian markets and I think they are at a fair valuation. Investors should look at specific companies rather than across-the-board buying. Second quarter results will be in line with our expectations.

Ramesh Damani, member, BSE : Markets have clinched 16,000 with a huge bang. Bulls are going to be in command. It reflects the strength of the Indian economy. We can say that it is India’s time under the sun. The road from here onwards looks very good. India’s domestic story is being driven by corporate fundamentals and earnings that are very strong. I am bullish on domestic sectors like logistics, cement, banking and underweight for the time being on technology. May be by Diwali this year, we can expect a rate cut.

Amar Ambani, Vice President (research), India Infoline : The 50bps rate cut by the Fed, the first in over four years, has keyed up global markets as well as Indian equities with investors breathing a sigh of relief. Talking about Indian markets in particular, the Fed cut, along with control over inflation and an improved political situation, has helped boost enthusiasm. A look at the advance tax figures also suggest that quarterly numbers are likely to be healthy. The feel-good factor of the Fed verdict will continue for some more time with increasing inflows in India where there are some very good investment opportunities.

Suyash Choudhary, Fund Manager, StanChart Asset Management : By delivering a 50 bps cut in the federal funds rate yesterday, the Fed has aimed at countering the detrimental effect on the broader economy arising from the tight credit conditions. The move has been accompanied by a cut by 50 bps on the discount window, which will further facilitate liquidity transmission into the financial system. While bonds world-wide are still cautious, equities have reacted very positively to the Fed move. Given that the move will help in restoring global financial stability, it is likely to positively affect domestic asset markets as well.

Ritesh Jain, Fund Manager (Debt), Principal Mutual Fund : The change in the Fed policy reinforces our near-term view on the benign interest rate environment. Inflation risk should continue to subside in this environment and will lend an element of flexibility to policy. The foreign flows in emerging markets may look up putting pressure on the domestic currencies to appreciate. The central bank may have to intervene aggressively to stem the uptrend in local currencies adding to domestic liquidity. While equity flows into emerging markets are likely to be good, the markets will also be watching for the corporate earnings in the current quarter. We expect the markets to remain strong. With the global interest rate environment turning benign and with most of the prominent central banks changing their stance in favor of growth than their concern on inflation, we may see even the domestic yield curve shifting lower over a period of time.

Kaushal Sampat, Chief Operating Officer, Dun & Bradstreet India : The cut in the Fed rate is likely to have some impact on the Indian economy. The widened interest rate differential between India and the US could result in a further surge of capital inflows (especially FIIs), which may lead to an appreciation of the rupee. The RBI may be under pressure to intervene in the forex market to preclude appreciation of the rupee beyond its comfort zone. The RBI could consider a decline in interest rates given the recent dip in the growth rate of industrial production and inflation being at a 17-month low thereby allowing the excess liquidity to flow into the economy through increased credit off take.

Sandeep Nanda, executive vice president (research), Sharekhan : The 50bps rate cut by the US Fed was ahead of expectation and thus a positive surprise. This prompt action has allayed concerns about a slowdown and will be positive for equities across the world including India. We expect cyclical and interest rate sensitive sectors such as banks, autos, metals to do well. There will now be greater pressure on the RBI to cut interest rates in India, which should boost earnings growth in FY2009.

Kunj Bansal, CIO (portfolio management services), Religare : With the FOMC announcing a 0.5% cut in the rate, the debate of an impending slowdown in the US has only increased. Moreover, the exact magnitude of the subprime crisis is yet to play out. Signals from Europe and Japan are not as salutary as they were in July. Crude has resumed its relentless pursuit of a three-figure price after a brief pause. These developments portend a steady increase of lows to those economies, which are essentially growing due to the domestic demand factor.

Therefore, India would stand to benefit as a consequence. That does not mean that everything is fine in the domestic space and that we are likely to see an out performance across sectors. The political undercurrents are far from positive. Further, the latest set of IIP numbers has revived the talk of a possible slowdown in the industrial growth going forward. The performance of the monsoon, on the other hand, has given sufficient reason for cheer. In essence, what we are saying is that whereas directionally there is nothing much to worry as far as the way forward is concerned, and the markets shall continue their northward journey. However, intermittent blips cannot be ruled out.

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Ventura Commodities : Watch what the Fed does, and not what they say

It’s pretty clear now that US economy is facing problems on credit front and investors can expect that the Fed would not fight inflation at the expense of growth. But is Fed doing enough to restore the falling investors confidence??? Fed came to rescue of bankers by flushing billions of dollars into the system. Credit crunch that has roiled global financial markets, forced Fed to act on the deteriorating credit situation by cutting the Discount rate by 0.5%.

“ Discount Rate is nothing but the interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank”

The discount rate cut will not help the markets to ease the liquidity fear, as it is still one-half point higher than the funds rate, which is at 5.25 percent. That means that banks must pay the Fed more for direct loans from the discount window than they have to pay other banks to borrow for them on an overnight basis. The Federal Reserve reported that the daily borrowing averaged $1.315 billion for the week ending Wednesday. That was the highest average borrowing since the attacks of Sept. 11, 2001. The data released by the Fed helps us to know how banks are responding to the Fed’s encouragement for banks to borrow directly from the central bank through a loan facility know as the Discount Window . Four of the nation’s biggest banks — Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and Wachovia Corp. — announced they had borrowed a total of $2 billion. ECB has followed Fed and has poured billions of Euros into the system, who is also facing liquidity problems due to sub prime mortgage default With so much of ongoing crises Fed fund rate cut expectations are hardening. Fed fund rate the interest banks charge each other — has been at 5.25 percent for more than a year. A reduction in this rate translates immediately into a cut in commercial banks’ prime lending rate, the benchmark for millions of consumer and business loans. The prime rate currently stands at 8.25 percent. Will the market bounce back even if Fed cuts the rate by 0.25 or 0.5 bps? It will definitely ease some pressure from banks but will banks pass on the benefit of rate cut to end consumers by slashing their PLR? Will Fed be able to restore the investors’ confidence? Confidence game is such a difficult one… Once the market is convinced it can trade without fear, players will come out, one by one, to deal again. But confidence isn’t there yet. Credit crisis is deeper and more dangerous to the economy than anybody realizes it.

“The only thing that is certain is that more uncertainties in the direction of asset prices and volatility are on their way”

Effect on Gold Gold ends its suffocating trend last week when it broke the psychological resistance of $700 rallying upside till $723 (on 11 th Sep’07). Technical break out led to heavy buying among gold investors. The upshot is that if the markets decide that the gold price deserves to be higher then the gold price will go higher regardless of direct intervention by the Fed or any other central bank. The main driver of this rally is ETF; heavy buying is seen from gold Exchange Traded Funds. New York’s StreetTRACKS reported heavy buying, as on date (12 th Sep’07) it holds 566.95 tonnes. From the chart its pretty clear that investors are parking money in gold ETF. Gold seems to have regained its safe haven role during financial market turmoil. We expect robust buying from gold ETF to continue in near future.

Current Fundamental reasons leading gold to rally are: - Weak Dollar: - The current gold rally is being driven primarily by fears that the debt crisis will lead to a breakdown in the Dollar Index and secondarily by the contraction of liquidity. Dollar is further likely to face the pressure against the euro as investors bet the U.S. interest-rate advantage over Europe will narrow amid the housing market slump. U.S. existing home sales will fall 8.6 percent in 2007, exceeding the 6.8 percent drop estimated a month ago, according to the National Association of Realtors. Problem is further likely to occur if Fed cuts the fund rate, which market is desperately waiting for on 18 th Sept 2007. Over all weak dollar outlook is likely to keep gold upside intact.

Unemployment: - The dollar slid to a 15-year low against a basket of currencies after data showed U.S. employers cut jobs for the first time in four years stoked expectations for a hefty Federal Reserve rate cut this month. Companies cut 4,000 jobs last month, the first such decline since August 2003. The unemployment rate remained at 4.6%, large number of people dropped out of the labor market. The report, raised fears that the plunging housing sector and worldwide turbulence in financial markets could push the economy toward recession. The August decline in employment centered in the goods-producing sector of the economy. The construction industry lost 22,000 jobs during the month, while factory payrolls plunged by 46,000. Manufacturing employment has fallen by 215,000 in the past year. Factory job declines in August went beyond housing, including auto plants and semiconductors, as well as wood products and furniture.

Rise in Physical Buying: - Global gold demand increased 11 per cent in the first half of the year, compared with the same period a year ago, despite high prices, according to the World Gold Council. Demand for gold jewelry showed the strongest surge reaching record levels in the second quarter of 2007 rising 37% y.o.y. on the back of strong demand in India, China the Middle East and Turkey. Heavy buying is expected from India with upcoming festival season. Physical buying has not catched up the pace it should due to concerns in international markets. Traders are waiting for a dip in prices to stock gold for festive season. India’s total gold holdings under exchange-traded funds rose in August compared to the previous month. Total gold holdings under the ETFs were at 3.33 metric tonnes at the end of August, up from 3 tonnes in July.

Dehedging on rise: - Gold miners typically hedge more — contracting to sell nuggets not yet mined at fixed prices — when they think bullion prices are in long-term decline. Rise in Dehedging from mining companies has further supported bullish trend in gold prices. Australia’s Newcrest Mining Ltd. said its gold buying spree that scooped more than 2 million ounces of gold in the last few weeks had helped fuel a sharp rise in world bullion prices. Newcrest planned to buy a further 1.7 million ounces of gold over the next 12 months as part of its plan to exit its gold hedges. Dehedging is anticipated to range between 2.5 to 3.5 million ounces (78 to 109 tonnes). The pace is expected to slow in the second half of the year. Dehedging is currently in the range of approximately 8 to 10 million ounces (250 to 310 tonnes). [Source GFMS]

Crude Oil breaches $80 mark: - Gold was further supported by high oil prices recently due to ongoing problems on refinery and supply fronts. Though OPEC ministers agreed to boost output by 500,000 bpd effective Nov. 1 at their regular meeting in Vienna in a bid to keep oil prices under control, series of attacks on Mexico’s fuel pipelines this summer has raised fears the key energy supplier could struggle to keep its oil and gas flowing. Analysts expect rising instability in Mexico, a normally reliable supplier, could add as much as $10 a barrel to world oil prices. Violence in big oil producer nations in the Middle East, Africa and Latin America has helped drive red-hot oil markets. Such many more attacks on oil fields would likely have a more significant impact on the global oil markets. Investors often turn to gold as a hedge against inflationary signs, including high oil prices. Indeed, while countries like India, China and Brazil still use much less oil than the developed nations, especially on a per capita basis, they are responsible for much of the growth in global demand for crude. This has led to projected strong demand for crude over the next few years, and concerns that supplies will not be able to keep up the pace, we expect crude to remain strong for coming days thereby supporting bullish trend in gold.

(Areas of concern) Hedge Fund Losses: - Hedge funds, deploy leverage to enhance their exposure to markets, When things are moving in the right direction this results in phenomenal profits. However, the ‘bets’ get bigger and bigger and its only a matter of time before the ‘gamblers’ find themselves on the wrong side of the market. It was the case with Two of Bear Stearns Hedge funds, which placed highly leveraged bets on packages of subprime mortgage derivative products. When the value and credit worthiness of these bond packages called collateralized debt obligation (CDO’) was cut due to the subprime defaults, Bear Stearns virtually wiped out the total value of the funds that had previously been rated as low risk. The CDO packaging enabled institutions to mix good risk and bad risk debt all in one box and label it as good risk. Therefore the financial institutions earned a higher rate of return on what seemed like a relatively low risk CDO package. Bear Stearns weren’t the only people betting on the subprime mortgage market using highly leveraged derivatives.

“As per Moody’s Investor Report there’s a roughly 50% chance of a big fund collapse”

As per the Report there are many hedge funds that are likely to collapse further due to there over leveraged positions and could further disrupt the market. It is unknown how much damage will be done, but the downtrend in financial market will be the clue that one should keep an eye upon. As financial institutions are forced to ‘cover their bets’ by making provisions for bad debts, they are in effect withdrawing liquidity from the market place and making it more difficult for borrowers across the board to borrow money for whatever economic activity. This means that it will have greater impact on the economy and thus depress the US housing market further.

(Areas of concern) Unwinding of Carry Trade: - The low borrowing costs of the yen is responsible for financing massive bets in a variety of high-risk markets such as commodities and emerging markets. The carry trade is expected to be reversed as the Japanese economy strengthens and prices begin to rise. Over the past few years, the financial markets have become very speculative and highly leveraged. Risk appetite is plunging as investors bail out of nearly all assets. Investors’ risk appetite fell sharply in recent sessions on fears of the potential knock-on impact from subprime lending market woes. Risk aversion is rocketing today.

There are no official statistics on the size of the carry trade. Some economists estimate the total size could range from $200 billion to as high as $1 trillion. The whole system is reliant on Japanese interest rates remaining low and the Yen weak. If the yen strengthens then the value of the debts increases and thus a rush for the exit as people look to liquidate positions further strengthening the yen and carry trade losses. A sharp reversal of these positions would have significant negative impact on financial markets. We expect Yen unwinding to further continue thereby taking yen to Y108.9/ dollar (till this year end).

(Areas of concern) CBGA Sales: - Gold can face some pressure from European Central Banks sales under CBGA. Though ECB will be falling short of there quota (500 tones/year) this year, we expect Italy, Spain, & Swiss Bank to be the major sellers in 4 th year of the CBGA agreement. Switzerland announced relatively recently that it planned to sell 250 tonnes of gold by the end of the 2009 sales period. The Italian parliament approved a reserve plan allowing the government to look into using the Bank of Italy’s substantial gold reserves to cut the country’s huge debt. Italy has some 62% of its foreign exchange reserves value in gold at about 2,452 tonnes. Italy’s debt is the world’s third highest in absolute terms. Part of the gold and currency reserves of the Bank of Italy will be used to attack Italy’s enormous national debt, currently the equivalent of 107 per cent of GNP. But in recent times despite of heavy gold sales from ECB under CBGA we could see that market could very well absorb the selling pressure which is a good sign for gold investors. But one cannot rule out the impact the central bank selling can have on the gold market. We expect robust selling from ECB in 4 th year of the CBGA Agreement.

(Areas of concern) Strengthening of Rupee: - Strengthening of Rupee is another gauge for gold prices to rise domestically. Government is likely to intervene to keep rupee above 40 levels in order to protect the interest of exporters. We expect rupee to consolidate around INR 40/ dollar with upside potential till INR 38.5/ dollar.

Conclusion From investors point of view one should keep an eye on “What Fed does and not on what they say” . Fed has hardly done anything to restore confidence not only among consumers but also among banks as banks are refusing to deal with one another hits at the heart of the entire system.

We expect two events in next week: -

• 1. Fed might cut the Fund rate by 0.25% (which every one is expecting) OR
• 2. Fed might cut discount rate by 0.5% (from 5.75% to 5.25%)

We think Fed might not cut the interest rate and could opt for 2 nd option of cutting the discount rate by 0.5%. One needs to wait and watch what action Fed takes on 18 th Sept 2007. If Fed does not cut the Fund rate we expect gold premium that has been built on the expectations of rate cut, to come down drastically. And if it does cut then gold can breach previous 26 years high of $732.

Technical Comments: - Gold has been trading consistently above $700/ounce for past two weeks. MACD is above the zero line indicating further bullishness in gold. We expect upside rally to continue with some correction as gold is trading in overbought zone. All eyes will be on FOMC announcement on 18 th Sept 2007. Gold can face some resistance around $733. Two consecutive close above $733 opens ground for $773 level. We eye support at around $698 and good trendline support at $683, which is also 100 days moving average. On short term basis two consecutive close below $712.5 can take gold to $698 level. Overall trend remains bullish, These are the following trading strategies: -

1. If Fed Cuts Funds Rate: - Buy MCX Gold Oct contract above 9410 for target of Rs.9590/9850 with stop loss at Rs.9275 (Call is on closing basis)
2. If Fed doesn’t cut Fund Rate: - Sell MCX Gold Oct contract below 9245 for target of Rs.9125/9045 with stop loss at Rs. 9340/-(Call is on closing basis)

Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.

ICICI Direct : Buy Adhunik Metaliks (ADHMET)

(BSE: 532727 | NSE: ADHUNIK | ISIN: INE400H01019)

Company Background Adhunik Metaliks Ltd (AML) is the flagship of Rs 1,000 crore Adhunik Group based in Kolkata with manufacturing facilities at Rourkela, Orissa. The company began operations as a sponge iron manufacturer in FY04 and set up a pig iron and steel-making facility in FY06. The company is undertaking an expansion that would fully integrate it over the entire value chain. At present, the company has a capacity of 250,000 tonnes per annum (tpa) with sponge and pig iron capacities of 150,000 tpa and 187,500 tpa respectively, and carbon and alloy billet capacity of 250,000 tpa.

Investment Rationale Capex to transform business model AML is implementing a capex programme that would change its business profile from a secondary steel manufacturer to an integrated steel player with linkages across the entire value chain from critical raw materials such as iron ore and coal to value- added steel products. It is also creating an integrated business model that would give it more control over critical raw materials like iron ore and coal. It is also integrating forward in an effort to lower earnings sensitivity due to product prices. post expansion, we expect the company to emerge as one of the lowest cost integrated special steel manufacturer in the country by 2008.

Capacity to almost double The company is executing an expansion plan that would almost double its capacity from 250,000 tpa to 440,000 tpa by 2008. It has set up a sponge and pig iron capacity of 150,000 tpa and 187,500 tpa respectively, along with a continuous casting unit for manufacturing billets (alloy steel). We expect that the expansion would result into high realization from the value added product, as prices in this segment are higher and more stable than base grades products.

Backward integration to drive profitability The company is integrating backwards with captive ownership of critical raw materials, viz. iron ore and coal mines which would enable it to withstand pricing pressures and face competition better compared to its peers. It would insulate the company from a sustained upward pressure on iron ore & coal prices. In addition, it is setting up a power plant, which would lower its dependence on the grid power. This integration would result in annual combined savings of about Rs. 50 crore annually.

Risk and Concerns Steel is subject to price fluctuations and in the last eighteen months, global steel prices have come off their top. Global steel prices may soften further due to lower Chinese steel consumption, post-2008 Olympics which would have an adverse impact on company’s earnings and valuation as well.

Financials In FY07, the company reported a top line of Rs 735.76 crore and bottom line of Rs 77.48. In Q1FY08, sales grew 21.86% y-o-y to Rs 208.12 crore, while bottom line grew 14.22% to Rs 17.75 crore. During the quarter under review, the company acquired Orissa Manganese & Minerals Pvt Ltd as a 100% subsidiary, which has mining rights with reserves of 15 million tonnes for manganese ore and 35 million tonnes for iron ore. These mines do not have captive clause and the manganese ore and iron ore can be sold in the open market to various end users. We expect the benefits from these mines to accrue partially this year and for the full year of FY09. The integration and acquisition of mines would drive the company’s top line at a CAGR of over 40.70% during FY06-09E to Rs 1,180.37 crore and bottom line at a CAGR of around 59.58% to Rs 137.00 crore.

Valuation The company is expected to double its top line and quadruple its bottom line on the back of capacity expansion into high margin value added products along with the backward integration into critical raw materials such as iron ore and coal. At the current price of Rs 75, the stock is trading at 6x the FY09E EPS. We expect the integration and the mines acquisition, to drive the growth momentum going forward and expect the stock to touch Rs 90, an upside of 20%, within a 3-6 month timeframe..

Technical Outlook The stock has been in a strong uptrend since April this year. The weekly charts display good support on the rising trend channel. The stock has shown a bullish candle in the previous week, which is positive. The stock is likely to test new highs as the RSI momentum indicators have began moving up.

Other Info: Corporate Announcements | Board Meetings | Financial Results | Corporate Actions
Company Address | Shareholding Pattern | Results Comparison

Every week, the ICICIdirect recommends a stock based on fundamental and/or technical parameters, which is likely to give a return of 20% or more over a 6 month perspective.

Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.

ICICI Bank mandates 10 international banks for $1.5 b loan

Close on the heels of raising $5 billion through a public offer, country’s largest private lender ICICI Bank has mandated ten international banks to arrange a Japanese Yen equivalent loan of $1.5 billion (about Rs 6,100 crore).

The funding would be the biggest-ever offshore syndicated loan facility by an Indian financial institution and is likely to be announced tomorrow, sources said.

The funds would be used for general corporate purposes. The ten banks mandated for the funding include BNP Paribas, Galyon, Goldman Sachs, HSBC, Standard Chartered Bank and Sumitomo Mitsui, the sources added.

When contacted, an ICICI Bank spokesperson declined to comment on the issue.

The debt raising exercise follows the bank’s follow-on public offer in domestic and international markets in June this year.

ICICI Bank had raised about Rs 10,000 crore from the domestic market through issue of equity shares, and an equivalent amount through a secondary offering of American depository shares in the US.

ICICI Direct : Buy Man Industries (India) (MANIN)

(BSE: 513269 | NSE: MANINDS | ISIN: INE993A01018)

Company Background Man Industries (India) Ltd, the flagship company of the Man Group, UK, manufactures steel line pipes for high and medium pressure applications such as oil and gas, petrochemical and water transportation, anti-corrosion coating systems and aluminum extrusion products. The company started operations in 1989 as an aluminium extrusion company with an installed capacity of 4,000 tonne per annum (tpa). In 1994, it set up a Submerged Arc Welded (SAW) pipe plant in Pithampur, Madhya Pradesh. In 1998, it became an integrated SAW pipe manufacturer with its own polyethylene-coating facility as part of its forward integration plan. It also set up a spiral pipe-making mill. In FY05, the company expanded capacity by setting up another plant in Anjar, Gujarat. Post expansion, the combined capacity increased to 2,000 km of pipes per annum.

Investment Rationale Robust global demand boom Demand for SAW pipes is likely to remain firm in next five years due to burgeoning crude prices and depleting oil reserves. We expect global demand to be in the range of 67 million tonnes with around 66% flowing in from Middle East, Asia & US, the key markets for the Indian players. While demand in Europe and Russia would be met by internal supplies, demand in Middle East and US is likely to be met through imports. This high demand, coupled with supply constraints, would keep prices firm at for least two years through CY08 and 09, escalating to mid 2010, where after it may start softening.

Diversification the key attraction Man Industries’ business would be split equally between LSAW and HSAW pipes from December 2007. HSAW pipes are manufactured from hot-rolled (HR) coils, which is easily available at comparatively lower price. In contrast, LSAW are manufactured from plates, which are in short supply. Though the two types of pipes are interchangeable, the high price of LSAW pipes may put pressure on demand. The diversification would de-risk its business. Despite their high price, we believe LSAW pipes would continue to score better than the HSAW in terms of profitability as manufacturing cost of LSAW is around 50% that of HSAW. Further, the scrap generated from LSAW is also minimal. The yield in HSAW is 90-96% while that in LSAW is as high as 99.5 100%. Currently, the difference in prices for plates (raw material for LSAW) and hot rolled coils (raw material for HSAW) is between US$250-300 per tonne for different grades of steel. A lot of units to manufacture plates are being set up and we expect prices to decline in the next few years. We expect prices of plates to fall and the price differential between plates and coils will decline to US$0-100. We believe lower raw material prices would result in LSAW prices decline.

Timely capex, robust order book gives earning visibility Man Industries is in capex mode and post expansion, its capacity of 1 million tonnes would be more than 2x the existing capacity, equally distributed between LSAW and HSAW pipes. This would reduce the risk and increase the size of addressable market. With a robust order book position of Rs 2,400 crore, we expect the top line to grow at a CAGR of 51% over FY07-09E and net profit by 67%. Capacity utilization should be at about at 40% in FY09E.

Risk and Concerns Man Industries exports its products mainly to companies in the Middle East. About 90% of the current orders are from abroad. Any appreciation in the rupee could impact the company’s financial performance. Freight cost is an important cost for pipe manufacturers. A rise in freight charges could the bottom line. Capacity expansion by other players around the world or by new entrant may put pressure on realizations. A large number of players could result in the bargaining power of buyers increasing and manufacturers would not be able to pass on rises in raw material costs to buyer.

Financials In FY07, the company reported a top line of Rs 1,133.10 crore and a bottom line of Rs 55.30. In the Q108, sales grew 54% y-o-y to Rs 320.99 crore while bottom line grew 67% y-o-y to Rs 17.35 crore. The plant at Anjar started operations whereby the company increased the execution of new orders. Moreover, the company also witnessed traction in capacity utilization to around 45% on the current capacity of 600,000 tpa. From Q408, we expect the company would operate at the total capacity of 1 million tonnes. We expect the robust order book to drive the company’s top line at a CAGR of over 51% during FY07-09E to Rs 2,116.25 crore and bottom line at a CAGR of around 67% to Rs 153.71 crore.

Valuations Man Industries is set to capitalize on the rising global demand for pipelines. At the current price of Rs 255, the stock is trading at 4.42x the FY09E EPS. We expect orders from oil & gas clients to drive the growth momentum going forward and expect the stock to touch Rs 306, an upside of 20%, within a 3-6 month timeframe.

Technical Outlook The stock has broken above a long-term resistance at Rs 240. It had thereafter hit a high of Rs 320. It has now begun consolidating and is finding support at Rs 240. It has also formed a bullish rounding bottom formation. Momentum indicators remain in overbought zones. They are expected to come down after the consolidation before the next bullish impulse begins.

Other Info: Corporate Announcements | Board Meetings | Financial Results | Corporate Actions
Company Address | Shareholding Pattern | Results Comparison

Every week, the ICICIdirect research team selects a stock based on fundamental and/or technical parameters, which is likely to give a return of 20% or more over a 3-6 month perspective.

Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.

NTR Yamadonga Review!

katha:Donga ga chinnappude career start chesthadu Raja(NTR flashback lo).oka santha lo Zamindar grand daughter Maheswari(little Priyamani)ni rakshisthadu.
fast forward chesthe...
Zamindar chanipoyaka Maheswari ni pani pilla kante darunam ga treat chesipenchutharu Idharu Mavayyalu(Jayaprakash Reddy,Raghu babu).Maheswari ni champesi Zamindar property motham kotteyyalani plan chestharu.Donga ga manchi form lo unna NTR,Ali oka gown kottesi ivvataniki MS Narayana tho Rs.10Lakhs deal kudurchukuntaru.aa pani lo unna NTR,Ali anukokunda Priyamani ni save chestharu.12 years tarwatha malli save chesina NTR ni love chesthundhi Priyamani.Zamindar family ki Priyamani ni appaginchi Rs.50Lakhs tesukundham ani plan chestharu NTR,Ali.
Gown dorikina excitement lo MS Narayana chanipothadu.Rs.10Lakhs raledhani feel avuthu MS Narayana ni ,MS ni teesukellipoyina Yamudu(Mohan Babu) ni boothulu thidathadu NTR.Kopam vachina Yamudu NTR ki narakam chupinchalanukuntadu.Priyamani Mavayyalu chethilo murder ayipoyi Yamalokaniki vasthadu NTR.Akkada evaru evariki Narakam chupincharu ? Maheswari love story emayindhi anedhi remaining story.Highlights:
NTR-Rajamouli combination lo high expectations tho vachina Yamadonga almost expectations ni reach ayindhi.
NTR Rocks in every aspect.Rajamouli created this subject only for NTR.Yamudi ga NTR acting superb.Yamudu ga NTR cheppe dialouges ni Dana Veera Sura Karna lo Legend NTR dialogues,NTR public speeches format lo create chesaru.NTR succeeded in reminding his grand father.Dance gurinchi 'manchi EASE undhi,manchi EASE tho chesadu'ani regular ga vintu untam.But no one knows what it is exactly.EASE ante ento Yamadonga lo NTR dance chusthe artham avuthundhi clear ga.
past 10-12 years lo 2 cinemalu(Pedharayudu,Rayalaseema Ramanna Chowdary)tappa Mohan babu acting talent,dialogue delivery ki tagina cinemalu ,charecters raledhu Mohan babu ki,aa chance malli Yamadonga tho vachindhi.Intelligent casting by Rajamouli,excellent performance by Mohan babu.
E cinema ki Man of the Match Rajamouli.Yamagola,Yamudiki Mogudu,Yamaleela--3 block busters vachina concept ni,andaru chusesina concept ni malli 12 years tarwata kotha ga cheppatam ante easy kadhu.Rajamouli succeeded in narrating it fresh and entertaining .Storywise it is not upto the mark with the above three but entertainment wise it is on par with all the above.That's the magic of Rajamouli.
MM Keeravani music (songs& rerecording)is first class.NTR Yamudu getup lo kanipinchinappudu Dana Veera Sura Karna lo Duryodhanudu ki vadina background score ni recreate chesaru Keeravani.
The movie is visually rich and colourful.Yamadonga is one of the most expensive film in Tollywood History.Normal ga producers pettina expenses screen meedha complete ga kanipinchedhi rare cases lo.we can see it in Yamadonga.it is possible by coordination between art(creative&huge sets by Anand Sai)-camera(excellent lighting done by cinematographer Senthil)-styling(Rama Rajamouli) departments.Graphics bagunnayi.
Mamata Mohandas,who was ousted from two big films earlier,proved those film makers are wrong.She proved her talent in Yamadonga,she looks cute.Priyamani is Ok.
Comedians-Brahmanandam,Ali,MS Narayana,Raghubabu done their job well.
And above all--It is Legend NTR's appearance for 2 minutes got the biggest applause.NTR appears in Gajadonga getup.It's a feast for Nandamuri fans to watch Legend NTR and NTR jr. dancing for lyrics Aanati Ramudu,eenati Manavadu...Animation,compositing,dialogues everything were well done.

Side lights:
Story wise goppa cinema emi kadhu.
Lengthy film(3hours).
The pace was down a couple of times in the second half,but bore anipinchadhu.Director dramatised the screenplay towards the climax to add a bit weight to the subject(Fun alone,like Yamagola,can't survive these days).This might leave a feeling to some sections of audience a bit let down compared to the first half which is totally entertaining.
Much expected O lammi thikka reginda...song was a let down visually.situation and picturisation are not upto the mark.

Public Talk: Bagundhi,Must watch
Industry Talk:Superhit

ICICI Direct : Buy NTPC - National Thermal Power Corporation

(BSE: 532555 | NSE: NTPC | ISIN: INE733E01010)

Company Background NTPC is the largest thermal power generating company in India . A public sector company, it was incorporated in 1975 to accelerate power development in the country. At present, the government holds 89.5% of the total equity and balance 10.5% by domestic banks, FIIs and public. Over the last three decades, NTPC has emerged as a national power company, with power generating facilities in all the major regions of the country. NTPC’s share of the total installed capacity in the country as on March 31, 2006 was 19.51%. It contributed 27.68% of the total power generation of the country during 2005-06. During FY06, the company acquired a 28.33% stake in Ratnagiri Gas and Power Private Ltd (RGPPL) for Rs 500 crore. RGPPL is a joint venture between NTPC, GAIL, domestic FIs and the Maharashtra SEB Holding Co. Ltd. to take over the 2,150 MW gas-based Dabhol Power Project.

Investment Rationale Power sector on cusp of huge growth Although India ’s power generation capacity has increased substantially in recent years, it has not kept pace with the growth in demand or the growth of the economy generally. India ’s electricity consumption is amongst the lowest in the world at 569 units per capita in 2006. This contrasts with 1,484 units per capita in China , 2183 units in Brazil and 13,456 units in the US . To boost generation, the government has unveiled a plan to set up five ultra mega power projects of 4,000 MW each. Further, in a bid to improve fuel supply to power producers, it has allocated 26 coal blocks with reserves of 8,581 million tonnes and four lignite blocks with reserves of 755 million tonnes.

Expansion plans to drive future growth At present, NTPC has an installed power generation capacity of 26,194 MW. During the 11th Five-Year plan (2007-11), it plans to enhance the capacity by an additional 21,941 MW. We believe the massive capacity addition will help the company retain its position as the largest generating utility in the country. It already has the advantages of a high plant load factor (PLF), secured coal supplies and low receivables.

Backward integration to secure fuel supplies NTPC has a policy of entering into long-term tie-ups for its fuel requirements. It has now evolved a strategy for backward integration into coal mining and oil & gas exploration. We believe these steps will give it secured fuel supplies and also mitigate risks to its capacity expansion plans.

Proximity to fuel sources Most of NTPC’s coal-fired stations are located close to the mines that supply coal. We believe the proximity of its plants to fuel sources will help it generate electricity at competitive rates.

Diversification moving up the value chain The company plans to diversify its business by taking advantage of opportunities created by regulatory and economic reforms. It has ventured into power trading and is considering downstream integration into distribution business. It also plans to enhance its current consulting services capabilities in the domestic and international markets. We believe that these initiatives will enable the company achieve greater vertical integration and create new avenues for revenue and margin growth.

Risks & Concerns The Central Electricity Regulatory Commission (CERC) has issued new tariff regulations for the period from April 1, 2004 to March 31, 2009 , under which the post-tax rate of return on equity has been reduced to 14% from the 16%, which was allowed until March 31, 2004 . NTPC’s operations and expansion plans have significant fuel requirements. In case, it’s unable to secure fuel at competitive prices, its operational and financial performance could be impacted.

Financials We expect revenue from sale of electricity to increase to from Rs 26142.9 crore in FY06 to Rs 32,579.08 crore in FY08 as a result of the increase in commercial capacity by 7,290 MW, higher PLF of existing capacities and higher variable charges. We expect net profit to grow at a CAGR of 20.61% from Rs 5,825.30 crore in FY06 to Rs 10,226.80 crore in FY08 on account of a fall in depreciation, higher incentives due to high PLF and unscheduled inter-unit charge. We expect EPS to be at Rs 12.40 in FY08.

Valuations We believe NTPC’s aggressive capacity expansion, coupled with its high PLF and unscheduled interchange charge would drive earnings growth at a CAGR of 20.61% over FY06-08E and improve its RoE to 14.30% from the regulated 14%. Using a DCF valuation, we arrive at an intrinsic value of Rs 201 per share.

Technical Outlook The stock has been an outperformer in an otherwise weak market. It has been moving in a ascending triangle pattern and awaiting a breakout above the Rs 170 levels. The MACD indicator has been moving up smoothly and is finding support on the channel. The RSI is also finding good support. What is more encouraging is huge volume price up-moves in the stock in the last few sessions

Other Info: Corporate Announcements | Board Meetings | Financial Results | Corporate Actions
Company Address | Shareholding Pattern | Results Comparison

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Every week, the ICICIdirect research team selects a stock based on fundamental and/or technical parameters, which is likely to give a return of 20% or more over a 3-6 month perspective.

Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.

Investors suck out Rs 2,40,000 crore from Dalal Street

The US subprime mortgage meltdown has shaved off Rs 2,40,000 crore market capitalisation on the Bombay Stock Exchange in fourteen sessions. The benchmark Sensex has declined by 5.87% (900 points) from its peak of 15795 on July 24, 2007. Currently the Sensex is trading at 14500 levels. Dalal Street loses Rs 1.7 tn; loss on subprime woes hits Rs3.3 tn The Bombay Stock Exchange’s 30-share benchmark index Sensex on 16 August plunged by 642.70 points, its second biggest one-day fall in absolute value terms The Sensex opened with a huge negative gap of 416 points at 14,585 on the back of a sell-off in the global markets triggered by the subprime crisis in the US. The Sensex, after languishing over 500pts lower for most of the trading session, slipped again towards the close to a low of 14,345. The index finally ended with a hefty loss of 643 points at 14,358 - the second biggest loss in absolute terms in history.

The BSE Metal index slumped 6.5% to 10,300. The Bankex and Realty index plunged 5.5% each to 7421 and 6980, respectively. The Oil & Gas index hsed 4.5% at 7505. The Auto and FMCG indices dropped over 3% each to 4662 and 1855, respectively. Declining stocks beat advancing shares by a margin of over 2:1 - Out of 2,751 stocks traded, 1,869 declined, 842 advanced and 40 were unchanged today.

ALL FALL DOWN All the 30 index stocks ended in negative territory today. Tata Steel crashed over 10% to Rs 575. Bharti Airtel slumped nearly 7% to Rs 801. SBI, Hindalco and Reliance Communications plunged over 5.5% each to Rs 1,522, Rs 145 and Rs 495, respectively. ICICI Bank, Reliance and BHEL tumbled 5% each to Rs 832, Rs 1,739 and Rs 1,603, respectively. Reliance Energy and HDFC Bank dropped around 4.8% each to Rs 718 and Rs 1,094, respectively. Larsen & Toubro, ONGC, ITC, Tata Motors and Cipla slipped over 4% each to Rs 2,319, Rs 819, Rs 158, Rs 663 and Rs 183, respectively. Maruti and TCS shed 3.7% each to Rs 791 and Rs 1,088, respectively. Ranbaxy was down 3.4% at Rs 361. Bajaj Auto, Grasim, HDFC, Mahindra & Mahindra and NTPC declined around 3% each to Rs 2,310, Rs 2,793, Rs 1,885, Rs 658 and Rs 168, respectively.

VALUE & VOLUME TOPPERS Debutant IVR Prime led the value chart with a turnover of Rs 329 crore followed by Reliance (Rs 202 crore), Tata Steel (Rs 154 crore), DLF (Rs 150.30 crore) and Reliance Capital (Rs 116.70 crore). Nagarjuna Fertilisers topped the volume chart with trades of around 3.10 crore shares followed by IKF Technologies (1.44 crore), IFCI (1.43 crore), Bellary Steel (1.28 crore) and Reliance Natural (Rs 1.28 crore).

Mkts looking at cues from the US: Experts It was an extremely weak session for the markets as they ended in deep red tracking its global peers. The sub prime problem has impacted stock markets globally Dow has slipped below 13,000 level and Asia closed down 4-6%. Even European markets have opened in red. Also the yen has appreciated against the dollar and is trading at 115.

All the BSE sector indices were in deep red ranging between 3-5%. Banking, relaty and metal stocks are the worst hit space today. All the Sensex and Nifty stocks are in red. Top losers on the indices were Tata Steel & Sterlite down over 8%, Bharti Airtel down &VSNL down over 6% and BHEL & ICICI Bank down 5% each.

Sensex was down 642.70 points or 4.28% at 14358.21, and the Nifty down 191.60 points or 4.38% at 4178.60. Deven Choksey of K R Choksey Securities, says “As long as Sensex stays above 14,150, for the time being stability will take place around this level and maybe some recovery along with the global market recovery, as I would put it across. To begin with,on the upper side one will have to say that around 14,900 could be the crucial level after which only decisive upside will take place. But as of now, talking range wouldn’t make much sense because market opens with a gap. So if some positive cues coming today evening, then next morning one will find 300-400 point gap opening. So, to an extent, it is not making sense. But if one wants to take some kind of a cautious look, 14,150 would be the first level; if it breaks, then we will have some more selling coming in our market technically.”

Rajat Bose of rajatkbose.com says, “The notable feature of today’s price activity is that Nifty spot which was trying to cross 4,206 in the morning and it actually could not do that. This level is pretty much significant because this happens to be the100-day simple moving average level based on August 14 close. This level is acting today as a resistance and unless and until we see the Nifty crossing 4,206 and sustaining above that, I really do not think that we should be betting on a recovery immediately. On the other hand, the 200-day moving average levels are not very far away from here. 4,062 -4,050 are the levels for both, simple moving average and exponential moving average for the 200-day moving and that should act as a major support level as of now but whether one should buy into that support or not that is a difficult question because each time you thought of one should buy major support, you had a nasty surprise once you go into the evening. So I really do not have much confidence to buy. I even do not know whether one can do value buying here or not.

SV Prasad, Chairman of Chime Consulting says, “I’m not a great believer in market timings but I think I this kind of a market discretion is better part of valor though I always believe tops and bottoms are for fools. I still have a hold on for a little bit more to get clear signals, especially from the US markets. But if I were to stick my neck up out I would certainly look at Telecomm especially the leaders because their numbers are looking good maybe its good idea to look at some of the leading IT stocks as well because it looks like the rupee appreciation which was one way movement which we were seeing there seems to be a halt to that therefore these are two clearly sectors which I would clearly look at.”

He has other things to say too – words of caution. “I appreciate that we look at this as second biggest fall in terms of absolute points after May 2006. I think it would also be relevant to look at the percentage drops because if you are dropping from 14,000-15,000 levels, you are dropping to 600-points; is very different from if you are dropping from 11,000 by 800-points. I think these percentage numbers would perhaps give us slightly more different story and second a word caution -one, the fact that some of the midcaps and small caps have not fallen so much because sometimes what happens is that there are not enough volumes. So, sometimes, somebody wants to sell. But he or she or the institution feels ‘there are not going to be buyers, so I would much rather sell the large caps where the liquidity is lot more’. When one looks at these trends, one has to read between the lines and read them with lot more caution.,” he says.

Looking forward, Choksey suggests, “There is no need to go on a short selling at this point of time because one is awaiting major data from US market this evening and if this data turns out to be positive then definitely there is no way in which one would like to go short in this market on the contrary one would wait for some amount of recovery to come before selling the long position if one is holding on to so to a greater extent I would rather play safe at this point of time. But importantly in falling market, one gets an opportunity in specific stocks where the fundamentals are strong. So to a great extent one need not time the market but given the valuation at which they are available some of the selective sectors in some of the highquality stocks are available if they start availing at a lower price then it’s a time to buy, I would put it this way; not wholeheartedly but some percentage buying of one’s cash portfolio has to take place.”

CLSA : Change in RBI ECB Guidlines

The government has notified fresh restrictions for external commercial borrowings (incl. FCCBs) by corporates, so as to curb capital inflows.

Going forward, ECBs of >US$20m would be allowed only if expenditure (for permissible end-uses) is in foreign currency; funds raised will need to be parked overseas and cannot be remitted into India.

While ECBs of

This measure will stall ECB issuances based purely on funding cost arbitrage and thus curb capital inflows into India. In 4QFY07, commercial loans had accounted for c.40% of capital inflows; even in FY08, fresh approvals for ECBs had nearly doubled, to US$8.7bn.

The current move, though only pre-emptive in nature, follows a number of other steps that RBI has been taking to contain system liquidity.

The move will also be supportive for loan growth and lending yields for domestic banks, since the alternative of ECB funding may, in some cases, be restricted or uncompetitive (where imports are costlier).

Rates at the short-end may not move up, however, given the +Rs700bn liquidity surplus in the banking system.

While we do see near-term weakness in the rupee, the large pipeline of equity issuances in 2H 2007 will bring in significant FX in flows and create upward pressure on the rupee later in the year.

The move will boost sentiment towards IT stocks (on expectations of rupee weakness) and other exporters (including pharma); commodities such as steel, petchem, priced off import parity, will also gain.

Importers such as autos, companies with large outstanding FX liabilities (including telcos) will be losers. Capital goods could also be impacted, since the choice of imports/local supplies will also get tied- down to the means of funding to a greater extent.

Sentiment towards mid-caps is likely to be impact, given their higher reliance on FCCBs for funding.

Impact for Tech stocks Current Rupee rate: Rs40.415/$

• CLSA assumption for rest of FY08,FY09,FY10: Rs41.00/$
• Assumption in current Infosys guidance: Rs40.58/$
• Assumption in current Satyam guidance: Rs40.50/$

This policy is a technical trigger for tech stocks though EPS upgrade scenario builds only if Rupee depreciates beyond Rs41/$. Based on growth and margin fundamentals, SATYAM remains our top pick and only BUY rated stock. Infosys and HCL Tech rated OUTPERFORM.

Impact on Banks Short term Positive for banks as the credit demand (which has moderated in recent months) would pick up. Effectively this would mean banks would be able to deploy their high cost deposits into profitable lending opportunities; as we had highlighted in our results round-up, incremental loan-deposit ratio has been running at just 20%.

Impact on Banks Long term As the credit demand runs strong and liquidity tightens, the lending rates may go up which while would be positive for spreads would be negative for asset quality. However, we believe RBI has a number of tools, including reversal of recent CRR hikes, to take appropriate action.

Appendix: RBI’s recent moves on monetary, exchange rate management

• In its quarterly credit policy, RBI raised CRR by 50bps to 7% and removed the daily limit of Rs30bn on reverse-repo (absorption), its short-term liquidity management mechanism.
• With the hike in CRR it has been able to instantly absorb part of the excess liquidity resulting from forex buying without incurring any sterilization cost.
• With the removal of cap on the daily reverse-repo window, the RBI will be able to actively participate in the forex market and at the same time manage liquidity.

RBI has absorbed over Rs900bn from the system in just 2 days Text of RBI’s notification on ECBs As per the RBI notification,: ECB more than US$20m per borrowing company would be permitted only for foreign currency expenditure for permissible end-uses of ECB. Accordingly, borrowers raising ECB more than US$20m shall park the ECB proceeds overseas for use as foreign currency expenditure for permissible end-uses. The above modifications would be applicable to ECB exceeding US20m per financial year both under the Automatic Route and under the Approval Route."

These conditions will not apply to borrowers who have already entered into loan agreement and obtained loan registration numbers from the Reserve Bank. In early June-07, we had highlighted that strong capital inflows would drive rupee appreciation unless the RBI were to intervene through sterilization and indicated potential for hike in CRR. The key risk now is the depreciation of the US dollar against global currencies where RBI will have limited room to maneuver. The rupee has appreciated 15% against the USD over the past 12 months.

Key to CLSA investment rankings: BUY = Expected to outperform the local market by >10%; O-PF = Expected to outperform the local market by 0-10%; U-PF = Expected to underperform the local market by 0-10%; SELL = Expected to underperform the local market by >10%. Performance is defined as 12-month total return (including dividends).

Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.

UTI Bank to be called Axis Bank

UTI Bank, the country's third largest private lender, on Monday said the board of directors have approved a proposal to change its name to Axis Bank.

The board in its meeting held today approved change of name to avoid confusion as several unrelated entities were using the UTI brand, R Ashok Kumar, UTI Bank executive director (corporate strategy), said.

The UTI brand is owned by UTI Asset Management Company.

"The name will take effect consequent to the approval of shareholders, Reserve Bank of India and the central government (Registrar of Companies). It is anticipated this should occur by end-June 2007, and the re-branding process is expected to be completed within another three months," he said.

The annual general meeting is being held on June 1. After approval from AGM, the bank would seek regulatory clearances from authorities, he said.

On re-branding strategy, Kumar said the bank has hired advertising firm O&M to help in creating awareness of the new brand across the country.

The bank would change logo and colour of logo, he said, adding, the bank is likely to spend around Rs 50 crore (Rs 500 million) in the re-branding exercise.

"We will work out advertisement strategy with the advertising agency," he said.

The board also approved appointment of P J Nayak as whole-time chairman of the bank with effect from August 1, 2007.

ICICI Direct : Buy Punjab National Bank (PUNBAN)

(BSE: 532461 | NSE: PNB | ISIN: INE160A01014)

Punjab National Bank (PNB) is the third largest PSU bank in India with a dominant presence in north India . The bank has adopted a strategy of moderate growth, focusing more on margin protection thereby improving its profitability and return ratios. We expect earnings to grow at a CAGR of 21% over FY07-09E to Rs 2,243 crore. We initiate coverage on the bank with an outperformer rating.

Extensive branch network with 50% rural presence to boost fee income PNB has got an extensive branch network of 4563 branches, with 50% in rural areas giving it an unparalleled advantage of higher CASA and consequent lower cost of funds. Its reach is expected to help the bank’s ambitions to grow fee based income through cross selling, as rural markets will be providing sizeable opportunities to sell insurance, mutual funds, etc products as compared to matured & penetrated markets. Higher NIMs sustainable with asset quality on a roll We expect PNB will be able to sustain its NIM’s at 3.75% levels, higher than its peers, on account of 46% CASA. We believe net NPA’s to stay at 0.7-0.9% levels which should be a commendable achievement considering the size of the bank.

Good play in the Consolidation Space PNB has made seven acquisitions till date giving enough agility to emerge as a better suitor to absorb smaller & weaker banks during consolidation activity expected in the sector going forward.

Valuations We expect ROA to rise from 1% in FY07 to 1.1% levels in FY09 with ROE improving from 15.6% to 17.4% during the same period. At CMP of Rs. 498, PNB is trading at 1.2x its FY09E ABV and 7x its FY09E EPS of Rs.71.1 which is quite attractive. Higher CASA with higher return ratios should boost bank’s valuations going forward. Expansion in RoE with cost of equity at 13.2% gives a theoretical P/BV at 1.4x. At 1.4x FY09E core ABV, we get a price of Rs 627. PNB has a 25% stake in UTI AMC on account of which a further Rs 20 per share is added to valuation. This gives a target price of Rs 647, an upside of 30% over a 9-12 month time frame.

Company background Punjab National Bank is northern India based third largest PSU bank in India with 4563 Offices including 421 extension counters through which it serves its over 3.5 crore customers. PNB was established in 1895 at Lahore , undivided India . From its modest beginning, the bank has grown in size and stature to become a front-line banking institution in India at present. It has strong correspondent banking relationships with more than 217 international banks of the world. In FY07 total business grew 21% to Rs. 2,36,456 crore. PNB has got two subsidiaries PNB Gilts Ltd and PNB Housing Finance Ltd. Out of these PNB Gilts is listed on the bourses and currently trades at Rs. 21. PNB had come out with its follow on public offering recently in FY05 at a premium of Rs.380 per share. PNB, after upgrading its representative office at London into a wholly owned subsidiary, is also looking to open an offshore banking unit at Singapore and a subsidiary at Canada . PNB has already been granted a licence by the Hong Kong Monetary Authority for setting up a branch at Hong Kong .

Investment Rationale Strong deposit franchise giving highest CASA PNB has got one of the highest CASA deposit levels among PSU banks. CASA deposits account for about 46% of total deposits. Historically, the bank has had a high CASA level and is expected to maintain it going forward, being a large player in rich northern belt of India . A higher portion of low-cost deposits has seen the bank manage its interest expense effectively resulting in comparatively lower erosion of its NIM’s and reduce volatility in earnings.

PNB has a strong network of 4,563 branches, which it uses efficiently to fund its resource requirement. We expect new branches addition only to the tune of 50 -100 to cover some major non-banked regions only. Also, a few unwarranted branches may be closed. PNB’s chairman has articulated its intentions of opening smaller branches or extension counters with lesser staff in rural areas to garner more deposits and expand business in future. Total deposits have grown 16.9% y-o-y in FY07 to Rs 1, 39,860 crore. We expect deposits to grow at a CAGR of 17% to Rs 1,91,562 crore with process re-engineering on way to move to mass banking from class banking under new leadership.

Loan growth remains healthy The bank’s loan book grew at 29.4% y-o-y in FY07 to Rs 96,596 crore. The growth was triggered by robust increase in corporate advances. PNB is strong in agricultural sector with priority sector lending at 44%. Retail advances grew at a lower rate of 21%. The retail loan portfolio accounted for 22% of total credit. Going forward agriculture, SME and retail advances will be the main thrust areas for the bank. We expect credit to grow at a CAGR of 21% over FY07-09E to Rs 1,405,611. According to the latest June quarter results (Q1FY08), corporate and SME advances accounted for 37% of total advances, retail (22%) and priority sector (41%). PNB had hiked its deposit rates in FY07 along with other banks. The impact should be felt in FY08 to the tune of at least 40-50 bps based on partial repricing of deposits. We have seen a rise in costs of funds from 4.16% to 4.40% in FY07 and we expect them to rise further to 5.01% by FY09E. In FY09, a steep rise in cost of funds is not expected as the management has taken a conscious decision to discontinue high-cost deposit schemes in Q1FY08. The bank’s PLR was hiked 3-4 times leading to a rise in yield on advances to 8.93% in FY07 from 7.91% in FY06. We expect yields to rise to 9.25% during FY08E. We believe the benefits of these increase in yields and costs will show its full impact in FY08 and FY09 and NIMs will remain stable from 3.77% in FY07 and to 3.76% in FY08E and 3.75% in FY09E. PNB operating expenses to average assets ratio has improved from 2.9% in FY05 to 2.2% in FY07. With over 4,000 employees due to retire in the next three years, we expect employee costs to grow at a CAGR of 15% over FY07- 09E and overall operating expenses at a CAGR of 14%. As there is no major addition in branches, operating expenses to average assets ratio is expected to come down to 2% by FY09. These ratios are excluding provision for transitional liability. The transitional liability on account of pension due to revised AS-15 is estimated at Rs.1000 crore which we are amortizing against profits over a 5 year period in our estimates.

Fee income growth initiatives taking shape In FY07, PNB witnessed one of the best growths in its fee income with commission, exchange and brokerage income rising 29% y-o-y to Rs 970 crore from Rs 752 crore. Profit from exchange transactions grew a healthy 44%. PNB plans to foray into life insurance by forming a joint venture. It is also among the front runners for managing the government’s pension fund. But these steps may take time to generate revenue. We have factored a conservative growth in fee income at a CAGR of 19% over FY07-09E to Rs 1,373.5 crore.Total non-interest income dipped 15% in FY07 on account of a loss of Rs 386.70 crore due to transfer of securities to HTM category. After Q1FY08, about 83% of the bank’s SLR is in HTM category, thereby reducing MTM losses to some extent. We expect PNB to deliver non-interest income growth at 24% over FY07-09E to Rs 1,605 crore from Rs 1,042.3 crore.We expect initiatives on cross-selling of a wide range of banking services and insurance, credit and investment products to its customers to take shape as a critical aspect of its retail strategy.

Healthy asset quality for a sizeable bank We are expect marginal rise in net NPA levels from 0.75% to 0.86% in FY08 on account of loan loss provisioning seeing a slight slowdown as excess pension liability provision kicks in. However, FY09 should bring loan loss 10% provisioning back on track above 75% levels as profits will be adequate % enough to take care. We expect net NPA levels to hover around 0.7 -0.9% in next couple of years. Asset quality has improved a lot since FY05 declining from a peak of 6.19% to 3.5% and with recoveries expected to be in line with fresh slippages gross NPA are estimated to decline further to 2.58% by FY09E. PNB has got excess floating provisions to the tune of Rs. 980 crore which it can utilize for future offsetting with RBI’s approval.

Headroom available for future capital raising The government’s stake at 57% leaves space available for raising capital in future to boost the balance sheet growth. However, strong internal accruals and moderate credit growth would help it avoid tapping the capital markets in near future. In FY07, the bank’s capital adequacy ratio (CAR) was 12.29% and with internal accruals and debt issuances, the bank is expected to maintain its CAR above 10%.

Opportunities at Consolidation time… With Tier I funding cushion available, we expect the bank to play a bigger role in the consolidation of the banking sector from 2009 onwards. We believe the biggest player, SBI, will focus on consolidating its subsidiaries first. PNB, besides Canara bank are the two biggest players in the PSU banking space based on their size to absorb smaller PSU banks. PNB has till date made seven acquisitions giving enough agility to emerge as a better suitor in consolidation activity expected in the sector going forward.

Valuation We expect ROA to rise from 1% in FY07 to 1.1% levels in FY09 with ROE improving from 15.6% to 17.4% during the same period. At CMP of Rs. 498, PNB is trading at 1.2x its FY09E ABV and 7x its FY09E EPS of Rs.71.1 which is quite attractive. Higher CASA with higher return ratios should boost bank’s valuations going forward. ROE’s expansion with cost of equity at 13.2% gives a theoretical P/BV at 1.4x. At 1.4x FY09E core ABV we get a target price of Rs 627 for bank.

Opportunity for value unlocking of stake in UTI AMC PNB has got a 25% stake in UTI AMC of which 12.5% is expected to be offloaded by the end of FY08 on account of UTI AMC’s listing. UTI AMC’s 25% stake is valued at Rs.662 crores (valued at 5% of UTI AMC’s FY09E AUM of Rs.52993 Crores), giving Rs.21 per share of PNB. Thereby, Rs 20 per share can be added to the stock price. Based on the above two factors we arrive at a target price of Rs.647 an upside of 30% over the time frame of 9- 12 months.

Quarterly performance Net Profit for Q1FY08 saw a growth of 15.2% to Rs. 425 crore from Rs.367.5 crore in line with expectations. However, Net Interest Income growth was marginally slower at 6.6%. Deposits and advances grew 21.7% and 23.3% y-o-y respectively thereby leading to business growth of 22.4% to Rs.238249 crore. Non-Interest income excluding the loss incurred on transfer of securities increased by 47% to Rs 432 crore at the end of June 2007 from Rs 293 crore at the end of June 2006. Overall the quarter showed moderate growth across all sectors, barring a slight dip in CASA which was seen across the industry due to shift by investors to term deposits from savings deposits

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Source ICICI Direct Research Services

RATING RATIONALE ICICIDirect endeavours to provide objective opinions and recommendations. ICICIdirect assigns ratings to its stocks according to their notional target price vs current market price and then categorises them as Outperformer, Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified and the notional target price is defined as the analysts’ valuation for a stock.

Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.

Gossip: Mohan Babu in Prabhas, Puri film?

The latest buzz doing rounds in Filmnagar is that Mohan Babu is likely to take up the tempting offer from director Puri Jagannadh. Mohan Babu is already doing a special role as Lord Yama in Yamadonga. He is likely to play same 'key' role in director Puri Jagannadh's next film starring Prabhas and Trisha.

As per our sources, producer Puri and producer K S Ramarao have approached Mohan Babu for this 'important role' and asked him to agree. Let's wait and see whether he agrees or not.

Phalke award for Shyam Benegal

Shyam Benegal

Noted film-maker Shyam Benegal was honoured with the coveted Dadasaheb Phalke Award by the government in appreciation of his "outstanding contribution" to Indian cinema.

The prestigious award, carrying a cash component of Rs 2 lakh, a golden lotus and a shawl, will be conferred on Benegal by President Pratibha Patil at a ceremony later this year. The award was announced on Wednesday, August 08, 2007.

There were earlier speculations that Ramanaidu would get this award this year. But it was bestowed on one of the greatest living film directors in India. Shyam Benegal who hails from Hyderabad was earlier bestowed with Padma Shri in 1976 and Padma Bhushan in 1991.

Benegal had made a debut with the feature film Ankur, broke new grounds in cinematic trends in the seventies.

His films have been seen and acclaimed widely in India and at international film festivals for the past three decades. His films influenced many a generations of new directors. Manirathnam and Ram Gopal Varma were chief among his admirers of the new generation directors.

The Government’s Plan To Ban Smoking at Workplaces

SMOKE SIGNALS THE GOVERNMENT’S PLAN TO BAN SMOKING AT WORKPLACES HAS COME UNDER FIRE FROM VARIOUS QUARTERS. VIREN NAIDU FINDS OUT WHY SOME PEOPLE THINK THIS PLAN REEKS OF UNFAIRNESS…

Many of us first experimented with the guilty pleasure of smoking during our college years. As we grew older, some of us carried this vice into our workplaces as well. Today, there is scarcely a single office building in India that doesn’t have nooks and stairways used by smokers for chit-chatting or relaxing. However, with the Union Health Minister, Anbumani Ramadoss’s decision to broaden the anti-tobacco law to curb smoking at workplaces, finding a place to smoke at work can be a daunting task. The effort is obviously to prevent individuals from jeopardising others’ health and perhaps also force them to quit (since most of us spend a large portion of our waking hours at work). But is this fair? The reactions pouring in from corporate India are mixed.

SUCH A DRAG… You don’t smoke because you are very well aware of the hazards involved. But perhaps you may have office pals who request your ‘company’ for a smoke in the corridor. Your health and productivity at work may be affected by your mere proximity to a smoker. Therefore, several companies cite the dangers of passive smoking as one of the reasons for not allowing smoking at work. However, experts believe that smokers aren’t always blind to their colleagues’ preferences. “Most professionals who smoke out of choice are well aware of the issues associated with passive smoking and respect the non-smokers’ decision,” says Manish Porwal , MD India - South and West, Starcom.
The ill-effects of smoking are said to include decrease in productivity levels and absenteeism. But even this point comes in for rebuttal. “I don’t think smoking is the reason for lower productivity and absenteeism. Unless and until a person is a chronic smoker, he/she will not resort to taking breaks just to get away and smoke,” says Shrikant Dikhale, VP-HR, Kansai Nerolac Paints Limited. Having said that, Porwal adds, “Smokers usually don’t intend to bring any negative issues to the organisation but may unknowingly add to them. Managers face the problem of first identifying such issues, linking them with smoking and then curbing them. But having said that, there surely will be exceptions.”

HOLY SMOKE… Some people smoke at the workplace when under stress; some say they need a break (just like a tea break), while a few get together for ‘brain-storming sessions’. The excuses are many. “Birds of a feather flock together. People with similar habits do get along faster and bond quicker,” says Ajit Menon, Executive Vice President and Head –Leadership Learning and Change (LLC), Mudra Communications. Naresh Mallik, CEO, Pixion Studios agrees, “We are all social animals; therefore we have this compulsive desire to bond. If not this then we will find some other reasons.” Dikhale, too, puts forth an interesting point, “It is true that smoking can lead to people getting together in groups. In a way, it increases bonding when individuals share a common habit. However, the same is applicable in the case of alcoholics also.
Bonding in such ways may not lead to productive discussions about work, but may end up more as social bonding exercises.” Porwal adds, “Smoking (like drinking) allows informality and ice-breaking within groups and allows impromptu brain-storming which may be good for employees working in creative fields. In high pressure and people led industries, informal smoke groups often help come up with ideas which boardroom brainstorming sessions may not generate.” Having said this, experts do believe that the cons far outweigh the pros.

PUFFED UP... So will the government’s ‘no smoking’ ban work for employees? Dikhale says, “In our view, levelling higher taxes/levies on tobacco products should be the right way of restricting smoking rather than imposing ‘no smoking’ zones in offices. I don’t think this ban will be accepted by employees who smoke. They will probably request for dedicated smoking zones within the office.” Mallik, too, has a similar opinion, “We are localising the enforcement; therefore acceptance should not meet too much resistance. It is like you can’t be drunk while driving, whereas you do not care if you drink at home.” Menon opines, “Smoking professionals would not like any rule that forbids them from smoking. But I have yet to see a smoker making a huge hue and cry of the smoking ban. If a guy really needs a nicotine fix, then he/she should find a place where it is allowed to smoke freely. The other outlets to curb smoking are nicotine patches and nicotine chewing gums which do not cause any hassles for non-smokers or smokers alike. The railways, airports and BPOs have been following this policy for long. And nobody seems to be affected by it. If somebody cannot do without a smoke, then he/she needs rehab.” Porwal agrees, “We are absolutely game for it as long as there is a way to quarantine or create smoking zones near or within the office premise. At Starcom, smoking is not allowed inside the building, but there are smoking zones created outside where smokers enjoy little breaks. If the rule still overlooks this method of easy co-existence, it might be a bit harsh on the smokers, but as good corporate citizens, it will be accepted.” Each year, the third Thursday in November marks the Great American Smokeout where smokers are encouraged to abstain from lighting up for 24 hours in anticipation that they just might quit smoking forever. In India, one day wouldn’t suffice. However, a solution that accommodates both non-smokers and smokers has to be better than one which discriminates against - and possibly hurts - the sentiments of a very large group of people.