Current news & Rumours in the mkt

[alroyraj]

Mukesh eyes the EIH driver's seat
RIL & Oberois to have equal shares, post-rights.

Reliance Industries Ltd (RIL) and the Oberoi family will increase their shareholding in East India Hotels by buying the unsubscribed portion of a Rs 1,300-crore rights issue, which was cleared by the hotel major’s board today. EIH has decided to form a committee to decide on the rights issue price, ratio and other procedural formalities.

The Oberois hold 32 per cent — down from 46.43 per cent in August after RIL bought 14.8 per cent stake in EIH.
Sources familiar with the developments said RIL will make an open offer after the rights issue, as its stake will go beyond the 15 per cent threshold mandated by the market regulator. RIL and the Oberois will eventually have an equal stake in EIH.

ITC, which holds 14.8 per cent, may not be interested in raising its stake. Analjit Singh, who controls 4 per cent, will also prefer to exit EIH.

The sources said EIH is planning to float two new companies. One would operate the hotel chain and would be controlled by EIH, while the other would hold the hotel chain’s assets and be controlled by RIL, with Nita Ambani, wife of RIL chairman Mukesh Ambani, drafted as vice-chairman.

This fits well with the broad strategy that RIL will be in the driver’s seat as far as ownership of EIH is concerned, while the Oberois will operate the hotel chain. “It’s a deal between two friends – P R S Oberoi, who needs funds to expand his chain’s footprint abroad, and Ambani, who has the funds, and is happy to let the Oberoi family manage operations,” said a source.

RIL had picked up stake in EIH for over Rs 1,021 crore through wholly-owned subsidiary Reliance Investments & Holding. It bought the shares at Rs 184 each, paying a premium of 22 per cent on the market price. Three days after the deal, the petrochemical giant lost Rs 3,467 crore in market capitalisation, as its share price fell 1.12 per cent to Rs 937.15.

RIL’s scrip ended at Rs 997.70, down 2.11 per cent, and EIH closed at Rs 139.85, down 0.25 per cent, on the Bombay Stock Exchange on Thursday.

“RIL will certainly participate in the rights issue. As shareholders, whatever we are supposed to subscribe to, we would. However, Nita Ambani's appointment on the board depends on EIH's invitation,” said an RIL official.

An EIH spokesperson declined to comment on the rights issue.

One Mumbai-based hospitality analyst said the bifurcation of the properties and management of the chain is in tune with an asset-light model that the hospitality industry has been following.

While RIL and EIH have both maintained the transaction is a long-term financial investment in the luxury hospitality industry, experts differ. “RIL certainly wishes to be a long-term player in the segment. As far as generating cash by EIH for operations is concerned, with a debt-equity ratio of less than 1, EIH could have easily borrowed from lenders at any time,” said an analyst.

EIH Associated Hotels, another hotel company managed by the Oberois, is an equal-stake joint venture between them and the Raheja family, which has interests in real estate, the media and industrial batteries.

Sources said EIH needs money to expand abroad, especially in the US and UK, where EIH has a negligible presence. This is where RIL can help.

 

[praveen taneja]

No third party cheques for mutual fund investments

Next time you are investing in mutual funds, make sure you issue a cheque from your own bank account, as fund houses will soon start rejecting third-party payments.

The move is part of efforts to check fraudulent activities by mutual fund agents and distributors, some of whom have been found to be collecting cheques from investors and depositing them for investments in their own names.

After receiving several such complaints against agents and distributors, fund houses have decided not to accept third-party cheques for mutual fund investments with effect from November 15, 2010.

"In order to protect the interest of the investors, AMFI has issued best practice guidelines to all AMCs advising them not to accept third party cheques in respect of Mutual Fund Investments (with a few exceptions) effective from November 15, 2010," industry body Association of Mutual Funds in India (AMFI) said in a circular to all the fund houses.

Even in case of exceptions, the fund houses would have to ensure that the payments are coming from entities duly authorised by the actual investors.

The exceptions include payments by "parents/grand-parents /related persons on behalf of a minor for a value not exceeding Rs 50,000, payment by employer on behalf of employee under systematic investment plans (SIP) through payroll deductions and a custodian on behalf of an FII or a client."

In such cases, the fund houses would have to ensure compliance with mandatory Know-Your-Customer and other declaration norms by the investor and the person making the payments.

Such declarations would have to include details on the bank accounts from which payments are being made and the relation with the investor.

AMFI has also asked the fund houses to verify the source of funds to ensure that funds are actually coming from the drawer's account.

To further identify cases of third-party payments, the fund houses would ask investors for details of bank accounts linked to mutual fund investments and get a certificate from the bank for payments through instruments like pay orders, demand drafts and banker's cheques.

In case of payments being made through online transfer, such as RTGS, NEFT and ECS, the MF investment application would need to be accompanied by a copy of the instruction from the investor to the bank.

 

[alroyraj]

Satyam's skeletons finally bared

Nearly 18 months after the Mahindra Group acquired Satyam Computer Services following the admission of fraud by the latter’s then chairman B Ramalinga Raju, the new management of Mahindra Satyam today surprised analysts while restating the company’s financials for FY09 and FY10.

Even though the company had a net worth of Rs 1,800 crore and revenues of Rs 5,481 crore in FY10, from a negative net worth of Rs 880 crore and revenues of Rs 8,812 crore in FY09, the company clearly admitted that the extent of the irregularities was so deep, that it would take at least 18 more months to recuperate.


Net losses after tax in FY10 and FY09 respectively stood at Rs 124.6 crore and Rs 8,176.8 crore. However, due to the restatement efforts and the extent of the fraud, the company’s exceptional items in FY10 and FY09 were as high as Rs 416 crore and Rs 7,992 crore, respectively. After adjusting for these exceptional items, losses after tax in FY09 were Rs 184.8 crore, while it made a profit after tax of Rs 292.3 crore in FY10.
To draw a comparison with the last accounting period, the then Raju-controlled company had reported revenues of Rs 8,473.5 crore with a net profit of Rs 1,687.9 crore in FY08.

The Mahindra Satyam management said the financial irregularities committed over last several years had a total impact of Rs 6,800 crore on the profit & loss account, which impacted the balance sheet by Rs 6,900 crore, including unrecorded bank loans and debts.

“The last 16 months have been the most bruising, the most challenging in my career spanning over four decades,” said Vineet Nayyar, chairman of Mahindra Satyam. In the intervening period, the company had shrunk from 45,000 people serving over 500 clients to a company of 27,000 people with 350 clients. This is despite the fact that the company added 42 new clients in the last one year.

At the end of FY10, the company had cash and cash equivalent of Rs 2,176.8 crore, which mostly came from the Rs 2,900 crore that the new management had infused into the company after the acquisition on April 13, 2009. Around Rs 700 crore of that was used on extraordinary items, removal of debt, readjustment of real estate and expenses incurred towards restating the account.

The loan balance as of March 31, 2010 was Rs 422 crore. The company said owing to the magnitude of the financial irregularities, it employed over 100 forensic investigators to focus on the accounts from April 1, 2002 to September 30, 2008.

“Mahindra Satyam was literally crawling with investigating agencies and we ourselves employed about 100 forensic investigators who handled about 27,000 file cabinets full of box files, which is around 30 terabytes of data. They were responsible for processing over two millions emails, 300 computer hard drives and electronic data images, mostly pertaining to bank confirmations, bank recollections and over 200 bank accounts,” said Nayyar.

Other than finding financial irregularities to the tune of Rs 6,763.1 crore during this period, the investigating agencies found fictitious entries of Rs 395.5 crore, which included bank borrowing of Rs 139.2 crore. The forensic investigation also identified fictitious cash & cash equivalent of Rs 996.4 crore, debtor balances of Rs 55.7 crore and unrecorded loans of Rs 70 crore aggregating Rs 1,122.1 crore, which resulted in a net opening balance difference of Rs 1,122.1 crore as of April 2002.

"With this announcement today, we have fulfilled an important commitment and kept to our promise of transparency and agility. It also marks the beginning of a more significant journey of growth in the future," Nayyar added.

Operating margins are at 5% compared to analyst expectation of 8 to 15%.So not much to enthuse the markets. Eps is still at 5 compared to expectations of 7.5

 

[alroyraj]

Bulk SMS ban affects alert-driven trading
With the ban on bulk SMS imposed by the Government last week ahead of the judgment in the Babri Masjid case having silenced the voluminous SMS alerts being sent by share broking houses to their clients, the volume of transactions in the retail segment appears to have taken a mild hit with a section of the brokers here.

But what has come as a relief to them is that with the market booming, the retail investors have been on their own placing orders with the brokers based on market movement and the inputs they get through the electronic media, access to which is available even within the premises of broking houses during trading hours.

Volumes fall

Speaking to Business Line here on Tuesday, Mr K. Annamalai, Managing Director, Annamalai Capital Services (P) Ltd, Coimbatore, and a former President of the Coimbatore Stock Exchange, said since the ban came into force, he had seen a discernible fall in the volume of transactions carried out by retail clients. Normally, in counters about which the investors get alerts through SMS from major corporate broking houses, the volume perks up by about 10-15 per cent depending on price level with low priced stocks, inviting more speculative investment than high-priced counters based on the SMS alerts.

He said major broking houses such as Enam, SBICAP Securities, etc and some private analysts send alerts to their clients during the course of the trading hours, giving their inputs about the likely movement of certain stocks and such SMS have influence on the trading decision of retail clients. But with the mobile handsets falling silent during trading (only in so far as such equity-alert SMS are concerned), the volume of alert-driven trading that would have otherwise taken place, but for the SMS ban has fallen by about 10-15 per cent. Mr Annamalai, whose company is a sub-broker of Enam Securities Direct Pvt Ltd, said the SMS ban did not otherwise have any significant impact on trading as the investors had ready access to the electronic media, providing live inputs about market behaviour and information about corporate performances based on which the investors could take a call about their investment decisions. But more importantly, with the market on a song, investors are making their own decisions on investment and with most of them being day traders, they look for only small gain in their investment before squaring off.

But what he missed, despite the booming market, was the zest in investment among the retail clients. He said when the Sensex reached its peak of 21,000 points during 2008, there was frenzied trading even among the retail investors and there was constant clamour for raising the trading limits from them as stocks soared higher and higher. Though the market is inching towards its historical peak now after sinking to 8,000 levels during early 2009, the excitement among the retail investors is missing.

F&O norms

Mr Annamalai reasoned that a possible factor could be the market has not been able to correctly anticipate the sectors or the individual counters that would lead the (present) rally. Many of the stocks in which the investors had taken position such as the Reliance group (of both brothers) shares, stocks in the infrastructure and telecom space and even traditional speculative counters such as the IFCI have not been able to reach their previous peaks, and investors who entered the market at the previous high are unable to exit them as the current rally has by passed many of these stocks. The tightening of the F&O norms and the restrictions on carrying over short positions overnight has also led to cautious trading by retail investors.

 

[alroyraj]

Sugar futures set for comeback
The Forward Markets Commission (FMC), the commodity markets regulator, may allow re-launch of sugar futures tomorrow with the first revived contract to be made available for trading from November 1.

The Ministry of Agriculture had put the ball in FMC’s court. “We are examining various proposals sent to us by the commodity exchanges. We have not discussed the matter even internally, though,” said a senior FMC official. The official, however, confirmed that the agriculture ministry had authorised FMC to take the final decision.

The regulator had suspended sugar futures contracts in May last year in anticipation of high speculation on derivatives platforms, as the country was short of sugar in the previous two years. The year 2008-09 saw a total production of 14.7 million tonnes, which is expected to rise to 18.5 million tonnes this year, against the total consumption of 23 million tonnes.

The ban was imposed in May last year for an initial period of seven months ending December 2009. But, it was extended until September 30. As there is no further extension, the ban will automatically expire on October 1.

While FMC Chairman B C Khatua was not in favour of extending the ban anymore, Agriculture Minister Sharad Pawar recently hinted that the final call would be taken after assessing the sugarcane output 2010-11 for the crushing season (October-September). Prices of the sweetener have fallen nearly 33 per cent fromRs 45 a kg early this year to Rs 30 a kg now.

Last month, the regulator said the ban would be reviewed only after watching the progress of the June-September monsoon rain, which is vital for the cane crop.

Meanwhile, all commodity exchanges that were offering futures contract in sugar before the ban, are warming up for re-launch.

“Contracts specifications are ready. After getting it’s clear signal from the regulator, we will apply for contracts approval. We think it’s a matter of two-three days unless the regulator explores ambiguities in the contract specification and seeks clarifications on them,” an MCX official said.

Hopefully, the first contract will be available for traders since November 1. Sugar was one of the key commodities being traded on NCDEX in the pre-ban era.

“NCDEX is also ready with contracts. We are waiting for the regulator to allow us trade in the sweetener. The moment we get regulatory approval, we will start offering trade in sugar,” said Vijay Kumar, chief business officer of NCDEX.

The ministry of food and pubic distribution, however, had recommended to the FMC to extend the ban on trading of sugar futures till the festive season is over. The ministry had sent recommendations to the regulator to prevent any scope of speculation in the sugar prices at a time when prices of all commodities on an average are ruling high.

 

[alroyraj]

P/Es of auto, IT and FMCG stocks at new highs
As the Sensex marches closer to its all-time high of 21,207 points, last seen in January 2008, several sectors are trading at an even higher price to earnings (P/E) multiple than what was in January 2008. In particular, frontline stocks in FMCG, IT and auto sectors are trading at high P/Es (see table). Some analysts say that such high P/Es are not sustainable and there has to be some correction going ahead unless earnings expand.

Foreign institutional investors have invested $17.3 billion in the Indian equity markets, pulling the Sensex up 15.6 per cent year to date, which has resulted in higher prices for these sectors. V K Sharma, head private broking and wealth management at HDFC Securities said, “If there is a deluge of liquidity, markets can defy conventional logic and demand a higher P/E Ratio.”

FMCG: Valuations stretched, ITC best
The sector has run up as investments surge in defensive sectors when the caution gauge rises. HUL touched its 10-year high of Rs 319.6 on Monday. “At over Rs 315, I would take money off the table in HUL,” Gaurang Shah, assistant vice-president at Geojit BNP Paribas Financial Services, said.
Analysts said the above average monsoon, especially in some parts of the north might keep agri-commodity prices on the higher end, further escalating the pricing pressure for the entire FMCG pack.
Motilal Oswal Financial Services has reduced the rating on FMCG, although the business outlook remains positive due to strong demand led by rural income and rising urbanisation. “Stocks have become expensive. We are reducing our weights on the sector due to valuations. ITC remains the top bet for us to play the sector,” Rajat Rajgarhia, Director of Research at Motilal Oswal said. Geojit's Shah likes ITC as it is a diversified play with many verticals – from cigarettes to hotels is better placed compared to HUL. Amongst other biggies, analysts like Nestle and are neutral on Dabur India and Colgate Palmolive.

IT: A stock-specific story
Although there is a divide over the possibility of a double dip recession in the West, most of the analysts remain positive on the IT sector. Bellwether Infosys is trading at a P/E of 30 as compared to 20.6 which was in January 2008. Indian IT companies are better placed now compared to their position in January 2008, on the back of business outlook according to Rajat Rajgarhia. “Infosys has surprised positively with its guidance in the past two quarters, expect FY12 to be another year of strong growth,” Rajgarhia said.

Gaurang Shah said, “Infosys is a good buy at Rs 2700-2750, since it gives a value proposition. TCS, HCL Technologies, Satyam, Tech Mahindra and Rolta India are better placed compared to other peers in terms of performance.”

Auto: In top gear
Analysts expect the auto sector to have a smooth ride, although the growth momentum may slow down. “Investors should stay invested in stocks such as Tata Motors, Maruti Suzuki and Mahindra & Mahindra as FIIs are not looking at any particular company when they invest in Nifty 50 com whether somebody likes Tata Motors or not, the stock will be bought," VK Sharma said. “We are seeing good demand whether it is commercial vehicles or passenger cars, and this will help these companies to continue growing their top line and bottom line," Neeraj Dewan, director, Quantum Securities said. Among two-wheelers,

Bajaj Auto is preferred to Hero Honda.

http://www.business-standard.com/india/news/pesauto-itfmcg-stocks-at-new-highs/409546/

 

[alroyraj]

Testing market depth
A conservative trader shouldn't touch any stock outside the derivative sector until settlement. A correction could trap him badly

High liquidity and lots of depth are desirable attributes for stockmarkets. Liquidity and depth are easily understood intuitively but difficult to objectively quantify. A liquid share is traded continuously in large quantities. The depth is good if volume remains ample even on a big price swing.


But what is a “large” transaction? There is no single objective answer. The float (the percent of outstanding equity held by the general public) varies as does the total equity outstanding. Churn (percent of equity traded) also varies. The shares delivered (as opposed to settled) also varies. Liquidity can only be defined relative to these variables.
Nor is there a single objective answer for depth. Say, a stock trades Rs 10 lakh at Rs 100/ share. If similar volumes occur at Rs 95 and Rs 105, it has good depth on a 5 per cent swing. Very often, depth is asymmetrical. Volumes may rise as prices uptrend. If there’s a daily circuit filter, depth and liquidity can also be affected.

One way to get a handle is via an understanding of impact cost. The impact cost is the variation in prices caused by a transaction. Given enough data, impact cost is quantifiable. Look at the smallest bid-ask spread. Say, a seller is offering to sell 1,000 shares at Rs 100 and a buyer bids to buy 1500 shares at Rs 99. The bid-ask spread is Rs 1 and the average price is 99.50 is considered ideal.

If you wished to sell up to 1,500 shares, you could match the Rs 99 bid and you could buy 1000 shares at Rs 100 without problems. In either transaction, your impact cost would be Rs 0.5 because it is that distance from the ideal price Rs 99.5.

Now, suppose you buy 2,000 shares. You get the first 1,000 at Rs 100 but you the second 1,000 costs Rs 102. Thus, the averaged price is Rs 101. This is Rs 1.5 more than the ideal. The impact cost has been 1.51 per cent.

Obviously impact cost is dependent on the transaction size relative to liquidity and depth. The lower the impact cost for a given size of transaction, the more liquid the share.

Also, a low impact share is likely to have better depth. The NSE uses Rs 50 lakh as a cut off transaction size, when it comes to Nifty stocks. It reckons a Nifty stock will not see more than a 1.5 per cent impact cost on a Rs 50 lakh transaction.

If a share has high liquidity, good depth and low impact costs, it enhances the confidence of traders, investors and lenders. The USP of a stock market listing is that it offers continuous entry and exit options. That gives traders the confidence to bet big. A promoter with highly liquid listed shares can also more easily pledge equity at need to raise loans.

Impact cost, liquidity and depth are all variables that change rapidly. Overall market trading volumes in India can double or triple during bullish phases and individual shares often see much higher multipliers. This is similar to patterns in other markets with decent trading mechanism.

When we’re dealing with the broad market, the concept of depth is often associated with the related concept of breadth. Many companies, especially small caps, develop liquidity only during bullish phases. They may be traded much more infrequently or not at all during bear markets.

Daily trading volumes have risen by around 40-50 per cent in the past month. That’s consistent with the market’s bullish trend. Breadth has risen. Impact costs have also dropped – again, consistent.

A look at recent trading volumes suggest that there would be fair depth all the way down to Nifty 5,000. However, volumes would drop if there was a correction below 5,850 and more importantly, breadth would narrow with every 100-point fall.

The potential loss of breadth represents an insidious danger that most traders don’t cater to. It’s one thing to be braced for a fall and to keep stop-losses. It is another thing entirely to be unable to exit a position because the share ceases to be traded actively.

This is especially relevant during a settlement week when the focus is on derivative stocks and we see a trend of higher volumes allied to narrowing breadth. The conservative trader shouldn’t touch any stock outside the derivative sector until settlement. If a correction occurs in the next four sessions, he could be badly trapped.

 

[praveen taneja]

RELIANCE CAPITAL MUTUAL FUND BOUGHT YESTERDAY (590091 - TRINETHRA INFRA AT 58 odd) - 4.68 % stake

 

[praveen taneja]

Govt may fix Coal India IPO price on Oct 12










New Delhi, Sept. 24 The Government expects to finalise the pricing of Coal India's initial public offer (IPO) on October 12, said the Chairman, Mr P. S. Bhattacharyya, on Friday. Coal India, which recently received SEBI approval, proposes to enter the market on October 18. The Government is divesting 10 per cent stake in the company through the IPO.

The coal PSU, unlike its counterparts in the steel sector, may not seek relief from the Government proposal on profit sharing with people displaced by projects. “We are not seeking any concession in profit sharing,” Mr Bhattacharyya told reporters on the sidelines of the 3 rd Coal Summit. Stating that Coal India supported the proposed policy for distributive justice, he said: “It is important to sustain mining operations that are happening in the backward regions.”

As part of the new mining legislation, the Government proposes to make it mandatory for mining firms to share 26 per cent of their annual profits with affected people.

The Steel Minister, Mr Virbhadra Singh, had recently said that some consideration should be given for PSUs such as SAIL and NMDC for their historical role in meeting the social obligations.

Speaking to reporters on sidelines, the Coal Minister, Mr Sriprakash Jaiswal, said there was no proposal before the Group of Ministers on giving concessions to PSUs on profit sharing.

Commenting on the confrontation between environment protection and economic development, the Finance Minister, Mr Pranab Mukherjee, said: “We must work out a strategy so that both ends are met”. The solution does not lie in stopping mining but properly compensating the affected people. “Compensating those displaced is a challenge and we are addressing that issue,” Mr Mukherjee said inaugurating the Coal Summit.

Mr Mukherjee suggested that the country should take advantage of the technological developments, especially in the information technology sector, to resolve the apparent contradictions.

Coal India shares to begin trade around Nov 4

Shares in state-run , which plans to raise up to $3 billion in what would be the country's largest initial public offering, will begin trading on or around Nov. 4, according to a term sheet.

The company is selling roughly 631.6 million shares and will set a price range on or around Oct. 13 before opening order books on Oct. 18 and setting the final issue price on or around Oct. 23, according to the term sheet.

 

[praveen taneja]

Southwest Monsoon

Ending on a positive note




Ending on a positive note

The southwest monsoon that started with a lag, turning sluggish immediately after, picked up quickly with increased momentum, ends on a positive note. The monsoon has covered 102% of its full season. The rainfall for the week ended September 29, 2010 was, ~37% below its long period average (LPA). The cumulative rainfall for the week ended September 29, 2010 stood at ~2% above its LPA.

The number of divisions experiencing excess/normal rainfall remained unchanged at 31 from last week. The number of regions experiencing scanty rainfall stood at 5 and has not changed since the previous week.

Cumulative rainfall ends at ~2% above LPA

The season ending September 29, 2010, saw the cumulative rainfall deficit ending in the green at 2.5% above LPA. Rain dependent areas stood at ~4% above their LPA and rain-fed areas at 2.1% below theirs. Rainfall deficits in all regions have ended in positive territory with normal rainfall, except for the five regions that have been consistently hit by deficit. The regions with significant deficits in increasing intensities are Bihar, East Uttar Pradesh, Assam & Meghalaya, Gangetic West Bengal and Jharkhand.

Monsoon at 102% of its full season

The monsoon as a % of its full season stands at 102. Improvement in rain dependant areas has significantly contributed to this betterment with rainfall at ~103% of its full season. Well irrigated and rain-fed areas closed at ~90% and ~99% of their full season respectively.

Reservoir levels at 75% of their FRL’s

The reservoir levels stand at 75% of their full reservoir level (FRL) and at 114% of their LPA. Prospects of a good rabi crop seem promising with the robust pick up in reservoir levels.

Forecast rainfall for parts of south peninsula and east India

As the season comes to an end, so does the incidence of rainfall. The weekly rainfall for the previous week saw reduced momentum, indicating a gradual end to season. However, good showers are expected in the regions of Kerela, south Karnataka and west Tamil Nadu.
Acreage for kharif crops at ~1006 lakh hectares

Kharif crop acreage has touched 1006.24 lakh hectares (lh) as of 24th September 2010. This is a ~7% increase over the acreage of last year. Of the major crops, acreage for rice has seen an increase of ~7% over last year, pulses by ~22% and sugarcane by ~17%. Oilseed acreage has seen a meagre 0.5% increase over the same period last year and coarse cereals have seen a modest increase of 2.3%.Deficient rainfall in rice producing regions of West Bengal, Bihar and Jharkhand would affect the final production of rice.