Bear hug costs Sensex 1392 pts in 8 days; Hero Honda up 6%

The mood on Dalal Street has not improved yet after the key rates hike and hawkish tone set by the RBI governor Duvvuri Subbarao in a policy meeting on May 3. The Sensex shed nearly 259 points on Thursday, with continuing downtrend for eighth consecutive session.

Experts see earnings downgrade in the quarter ended June 2011 after the 50 basis points hike in repo and reverse repo rate. Interest cost of the companies will increase going ahead as banks have slowly been increasing their lending rates.

Deven Choksey of KR Choksey Shares & Securities feels that people basically want to sit on cash for a simple reason that there is a kind of possibility of earning downgrade happening going forward once this particular oil price hike is announced.

Inflation is a major cause of concern, says Finance Minister Pranab Mukherjee. "Food and oil prices are major inflation factors," he said. Food articles inflation for the week ended April 23 was at 8.53% as against 8.76% in previous week. Fuel group inflation was unchanged at 13.53% during same period. RBI governor has made the move to contain inflation without hurting country's growth.

Robert Prior-Wandesforde, Credit Suisse says that the Indian economy and markets are facing a particularly unpleasant combination of macroeconomic circumstances right now. "This includes high inflation, rising interest rates and the likelihood of downside growth surprises. This situation may continue for some months making us pessimistic about the equity market outlook," he said.
The 30-share BSE Sensex dropped 258.78 points or 1.40%, to close at 18,210.58 and the 50-share NSE Nifty closed below the 5500 mark for first time since March 23, down 77.30 points or 1.40% to 5,459.85, dragged down by 42 shares out of 50.

Choksey feels that the Nifty could possibly stay in range of 5400-5700 because the option traders are basically taking a strong long bet on the 5400 level.

Amit Dalal, Executive Director, Tata Investment Corporation said there would be some more pressure mainly because people have to still adjust their portfolios worldwide. "So there maybe some largecaps where there maybe selling based on global perspective," he said.

Realty, power, FMCG, healthcare, banking, metal, technology and capital goods stocks saw selling pressure today, with respective indices falling 1-3%.

Bharti Airtel plunged more than 3% after less than expected bottomline reported in fourth quarter on dip in margins. India's largest telecom operator reported net profit of Rs 1,401 crore on consolidated basis as against street expectations of Rs 1,740 crore.

Largecaps like TCS, NTPC, ITC, ICICI Bank, Sterlite, HDFC Bank, HUL and BHEL were down 1-3%. Tata Power, Reliance Power, PNB and Reliance Communications plunged 5-6%.

Ranbaxy Labs was the biggest loser on Nifty, with falling 6%. US Federal prosecutors are negotiating a settlement with Ranbaxy that could result in fines and payments exceeding USD 1 billion, as mentioned in the Fortune Magazine, for fraudulent conduct alleged by the FDA, reports CNBC-TV18 quoting sources.

ACC and Ambuja Cements tumbled about another 4% after Holcim increased stake above 50% in both companies.

However, Hero Honda showed outstanding performance today, with rising 6% on short covering. Analysts feel that company's fourth quarter EBITDA performance was better than street expectations.

The broader indices too were down around 1%. Midcap stocks like HDIL, Shriram City, Redington, Hathway Cable and Marico lost 5-8%.

However, Jyothy Labs, Apollo Hospital, United Phosphorous, Tulip Telecom and Religare Enterprises gained 3.5-7%. Rs 474.75 3.51%

About 899 shares advanced as against 1955 shares declined on Bombay Stock Exchange.

Hold Bharti Airtel; target of Rs 410: KRChoksey

KRChoksey has maintained hold rating on Bharti Airtel with a target price of Rs 410 in its May 4, 2011 research report.

“Bharti Airtel, India’s the largest telecom service provider may raise up to USD 1 billion in the form of debentures and will have a tenure of 10 years. The proposal will be put up before the company's board on May 4, when it meets to discuss results for the financial year-ended March 11. The proposal is expected to be cleared during the meeting.Banks and individuals in the global market will subscribe the debentures. The final amount to be raised will depend on the interest rate the company gets and the response from promotional roadshows, the official added.The proceeds of the issue will go towards refinancing part of the debt raised by Bharti to acquire Kuwaiti Zain's operations in 15 African countries.”

“Bharti has debt of USD 13.5 billion as on end of Q3FY11. The average interest rate for the same is 5.5% per annum. We assume that the company will raise USD 1 billion via bonds with coupon rate of 3.5%. Considering this money will be used to retire debt taken for Zain acquisition, it would have a very small impact on net profit margin. Although net profit margins will improve, we believe it will have a neutral impact on valuation as net debt remains unchanged.”

“In the current environment which is growing increasingly competitive, Bharti’s leading market share and diversified business model will give it a strategic advantage over peers. While the results of Q1FY10 clearly indicate a plateau in terms of profitability from the mobile business, the company’s dominant volume growth, visibility of earnings and diversified business model justify its premium compared to peers. 3G roll out; increasing revenues from African market will boost revenues going forward. We have HOLD recommendation on the stock with target price of Rs 410, by assigning 9.5 EV/Ebitda to FY12E earnings,” says KRChoksey research report.

FIIs holding more than 30% in Indian cos

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Attachments : BhartiAirtel_KRC_050411.pdf

Markets continue to trade lower, bankex slips

Markets continue to trade in the red after opening lower due to weakness in banking and PSU shares. The Nifty declined 27 points, at 5,722 and the Sensex was down 74 points, at 19,065.

Selling pressure was witnessed in Bank Nifty; the index was down 1.8%, at 11,276 due to short build up of positions ahead of the monetary policy tomorrow. Economists expect 25-50 bps rate hike as food prices continue to remain at elevated levels.

Markets may decline further due to selling pressure in State Bank of India (down 3%), ICICI Bank (down 0.8%) and HDFC Bank (down 1.2%) which is dragging the Nifty down.
Navneet Daga, Derivative Analyst, KR Choksey Securities said, "options data is indicating a further decline on the index to sub 5629 levels and 5600 may act as support because it has maximum open interest build up." Daga added, "If Nifty fails to hold above 5750 on closing basis for next two to three sessions, we may see selling pressure getting intense in the market towards 5620 levels and a close below 5750 would lead to further long liquidation of positions."

Selling pressure was also witnessed in BSE PSU index as well, it was down 1.8%. Top losers were mainly PSU Banks-UCO Bank, down 6.7%, Bank of India declined 5.6% and United Bank dipped 4.6%.

BSE Consumer Durables shares continued to the lead the gains; the index was up 1.2%. Videocon Industries zoomed 2.2%, Titan Industries added 1.8% and Gitanjali Gems gained 1.8%. Investors are betting on the consumer driven sectors for the next led of rally. TS Harihar, Co-Head-Institutional Derivatives, ICICI Securities, “the next 10 years belong to consumer driven industries that will benefit from the spending power. Long-only fund managers are betting on consumer driven companies which will experience a multiplier effect on their bottom-line because of increasing demand and shifts in demand patterns."

From the broader markets, midcap and smallcap indices were down 0.5% each. Market breadth was negative, 1442 stocks declined for 982 stocks which advanced.

Nifty ends above 5900; 2G linked stocks decline

The markets have begun the week on a strong note with the NSE benchmark Nifty closing above the psychological 5,900 mark. The Sensex rose 281 points to 19,701 while the Nifty advanced 82 points to 5,908.

The markets have witnessed a terrific rally in the last fortnight. Banking and IT stocks have been on the forefront of this rally.

IT stocks led today's rise as well. The BSE IT index rose 2.18 per cent. TCS and Infosys gained 2-3 per cent. Together, the two stocks added close to 75 index points on the Sensex. Wipro closed 1 per cent higher.

Capital goods stocks surged after BHEL reported good numbers. The company posted 40 per cent growth in profits. BHEL surged 2.84 per cent. L&T closed 2.4 per cent higher.

Banking stocks gained 1.8 per cent. All other sectoral indices closed in the green. On the Sensex, 23 stocks finished higher. M&M was the top gainer, rising 4.75 per cent. Jaiprakash Associates gained 3.25 per cent. HDFC Bank advanced 2.8 per cent.

2G scam linked stocks declined after the CBI named Reliance Telecom, Swan and Unitech Wireless as the beneficiaries in its chargesheet on Saturday. Reliance Comm saw the biggest cut on the Sensex, ending 2.2 per cent lower. Unitech declined 1.3 per cent while DB Realty fell 2.3 per cent.

Today’s buying was not limited to index stocks. Midcap and small cap stocks outperformed the benchmark indices and that was evident in the market breadth. 85 per cent stocks advanced on the BSE 500 index.

Deven Choksey of KR Choksey Securities said, "The overall trend looks positive. One would not like to venture into aggressive buying at least on the index front but look at selective individual stocks that are likely to outperform the markets in the next 2-3 months."

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