Monday, April 6, 2009

>Trade Winds (KARVY)

06 April 2009 to 12 April 2009

Spectacular equity MARCH…

Global stock markets witnessed a spectacular rally last week and also the whole of March.
The rally was due to broad-based buying across the globe after investors were of the view
that the pace of the global slowdown might be receding. The economic data released in
various parts of the globe also indicated that stimulus packages announced by governments
were working towards providing a soft landing for the global economy. Indicators like
pending home sales and consumer confi dence levels in the US, home prices in the UK,
and manufacturing data in China boosted sentiments in global equity markets. Moreover,
equities turned attractive after a steep fall which pushed them into the oversold zone.

The G-20 summit agreed to spend US$ 1.1 trillion to revive the world economy. The G-20 also recognized fi ghting protectionism and tightening banking and fi nancial services regulations as the other top priorities to get the world economy back on track. However, fears of rising unemployment in major economies, concerns over the deteriorating European economy, and excessive regulation on the fi nancial services sector are likely to be the hurdles of the rally in equity markets.

Indian stock markets rallied sharply during the week due to heavy buying interest across the
board. The Nifty closed the week above the 3200 levels. Select auto, BFSI, construction,
metals, energy and telecom stocks recorded signifi cant gains last week. However, the
domestic stock markets are likely to be infl uenced by global markets during this week due
to lack of major triggers, given that India is going to the polls. However, the possibility
of further rate cuts cannot be ruled out as the near-zero infl ation provides greater leeway
for doing so.

Overall, the Nifty is likely to trade in a range of 3000-3400 over the week with intermediate
resistance placed at 3250 levels. Energy, metals and technology stocks can be considered for
assuming long positions whereas FMCG, banking and construction stocks can be shorted
from higher levels.

To see full report: TRADE WINDS

>Karvy Bazaar Baatein

06 April 2009 to 12 April 2009

The optimism continues…

Last week, global markets continued to be infl uenced for all the right reasons by news and data flow emanating from the US. In fact, markets across the globe had cheered in the penultimate week over President Obama’s detailed bank rescue plan to buy US$1 trillion worth of toxic assets from the country’s ailing fi nancial institutions.

So has anything changed in a fortnight? Well, the answer is MAYBE. What we are witnessing today is a marked recovery in market sentiment, based on the belief that we could see an early recovery. Moreover, the continuous fl ow of positive economic data has strengthened investors’ belief that global markets may have bottomed out. First, US manufacturers’ new factory orders rose 1.8% M/M against a prior decline of 1.9%. Secondly, there was a marked improvement in both US domestic vehicle sales and construction spending. More recently, Obama’s US$3.5-trillion budget for fi scal 2010, which was aimed at overhauling the country’s education and healthcare system, was approved by the US House and Senate.

Last week, all eyeballs were focused on London, where the G-20 Summit is underway and efforts are on to put a consensus mechanism in place to tackle the current financial scenario. In many ways, the Summit has proved to be historic so far, as leaders backed the French and German demand for greater regulation of the financial sector, including hedge funds, which will prove to be a major setback for the free-market proponents. Clearly, this Summit has ushered in a New Era that will be less US-centric even as the role of emerging markets, such as India, China and Brazil, get increasingly underlined.

Back home, markets surged even as analysts debated on the fi ne point of whether there is a distinct shift in fundamentals or whether we are merely witnessing a bear market rally. However, we are still a long way as the world’s largest democracy braces itself for the general elections and market experts pray for a stable government that could take economic reforms a step further. Meanwhile, even as we are writing this, the US unemployment data has recorded a 25-year high of 8.5%.

To see full report: BAZAAR BAATEIN

>Infogram (ANAGRAM)


Though we are not out of the woods, Things are decidedly looking better.

The Nifty broke through the resistance at 3050 to close to post a monthly high of 3123.This is highest closing registered by the Nifty in the past two months. This rally has seen Nifty putting on 28%,a mark that cant be just frittered away.

We had seen a large rally in October- November 2008,When the Nifty jumped 28.15%.It zoomed 2525 to 3240 I n just 7 sessions. with both bottom & top days being counted. The current rally is slow by those standards, taking 14 sessions, double the time, to cover 3/4th of the distance. This rise & consolidation augurs well for the markets.

There is a change in the market sentiment for the better, Retail investors are tip toeing back in the markets & the domestic fund managers have begin to put their cash to work. After being net sellers for January and February, they have pumped Rs. 850 Cr in the month of March. The FIIs too have bought stock worth Rs. 687 Cr.

In the ensuing quarterly season we likely to see better numbers on a QoQ basis form the auto, cement & metal sectors.

To see full report: INFOGRAM

>Top Picks (SHAREKHAN)

Driven by unanticipated strong global cues the markets rallied hard during the past month. Benchmark indices Sensex and Nifty surged by 24.3% and 22.6% respectively in March 2009. Given the conservative composition of our Top Picks basket, the portfolio provided relatively lower returns of 11.8% in the same period.

We had removed Crompton Greaves from our portfolio during the month on account of an unexpected corporate development in the form of an unrelated investment in a group company. We are re-introducing the stock in our list because of the clarity provided by the management for its move and the expectations of healthy Q4FY2009 results.

Another change includes the replacement of UltraTech Cement with Grasim Industries due to a gap in their relative valuations (much steeper appreciation in the price of UltraTech Cement). We are also introducing India Cements in anticipation of a healthy Q4 performance and increased weightage on the cement sector. On the other hand, Bharat Electronics has been removed from the list as it has appreciated by over 21% in the last two months and the expected trigger in terms of its Q4 results has already played out.

  • Bharat Heavy Electricals
  • Bharti Airtel
  • Crompton Greaves
  • Grasim Industries
  • ICI India
  • India Cement
  • ITC
  • Lupin
  • Marico
  • Reliance Industries
To see full report: TOP PICKS

>India Wireless Sector (CITI)

TDSAT Order – Too Little Too Late and A Non-Event

Rights over 6.2Mhz? — While stating that the GSM operators don’t have rights beyond 6.2MHz, in the same breadth TDSAT has termed the interim subs criteria as “reasonable” and even questioned the need to give additional licenses and hinted at relaxed M&A rules. Given that allotted spectrum is unlikely to be taken back, worst case involves payment of a one-time fee,
which given upcoming elections and legal challenges carries implementation risk. A one-time spectrum fee, assuming 4Mhz of excess spectrum allotted to Bharti and Rs16.5bn paid for pan-India 6.2MHz spectrum, comes to ~Rs11bn (Rs6/share). We therefore think the market’s negative reaction to this news is unjustified. Bharti remains our Top Pick.

Relaxation in M&A norms, the way out — TDSAT, in the same order has also questioned the need to allocate new licenses given existing high competition, spectrum scarcity and low spectrum allotment/operator. It has therefore hinted to the DoT for relaxed M&A norms to achieve required spectrum efficiency.

New sub-based spectrum criteria – ad hoc but reasonable — While coming down on TRAI for lack of transparency on its revised subscriber linked spectrum allocation criteria, it also has held the interim criteria to be “reasonable”.

Technology neutrality — TDSAT has stated that dual technology existed in the license terms and as such didn’t find anything irregular in grant of GSM spectrum to RCOM/Tata-Tele. Although this removes the hangover on RCOM, we believe that too much water had flown under the bridge for TDSAT to have decided otherwise.

To see full report: INDIA WIRELESS SECTOR

>Lupin (CITI)

Buy: Brick by Brick – Entering Phillipines

Brick by Brick — Lupin took another step in its effort to build a global presence through small acquisitions by buying majority stake in Multicare Pharma of Philippines (4th acquisition in FY09 – list on page 2). We expect this deal, albeit small, to be EPS & RoI accretive in FY10. We like Lupin’s strategy to make small acquisitions (as against chasing large deals) as it keeps a check on valuations while providing market access in key markets.

About Multicare — A spin off from Astra Philippines, Multicare is focused on women's health & child care, with a basket of OTC & generics products & a sales force of 140 people (no manufacturing). It had sales of PHP272m (US$5.5m) in FY08 & was profitable – albeit slightly lower than Lupin. Lupin would look to drive growth by leveraging Mutlicare's franchise to launch its own products as well as exploit synergies in order to improve profitability. Multicare’s founder (Mr. Romeo Sy) will continue to run the biz as president.

A fast growing market — Philippines is one of the fastest growing markets in ASEAN, estimated at US$2.6b (OTC: US$730m; generics: US$290m) & set to grow to cUS$4bn in 2012E. Growth in generics is likely to be higher (c22% CAGR to US$640m) on pro generics regulation. We expect Lupin to be a key beneficiary of this growth post this acquisition.

Remains a top pick — Lupin fits well within our prescription for growth in a troubled generics industry, given its differentiated biz & improving profitability. It has made good progress in its effort to move up the value chain in terms of product (APIs to formulations) & markets (less regulated to regulated) & built global scale in key product categories. With good execution in difficult markets & accretive acquisitions we expect EPS CAGR of 25% over FY08-11E.

To see full report: LUPIN

>Batronics India (SUNIDHI)

Company Description:
Incorporated in 1990, BIL, the leading Automatic Identification and Data Collection (AIDC) solution provider in India. It offers Automatic Identification and Data Capture (AIDC) technologies, Radio-Frequency Identification (RFID), smart cards and point of sale (POS) solutions. During the year 2004-05, the company started a 100% Export Oriented Undertaking obtained the registration from Software Technology Park of India, Hyderabad. BIL made its IPO in January 2006 at a premium of Rs 65 per share aggregating Rs.48.75 crore.

BIL had already commenced its 80 million cards a year - first phase of Smart Card manufacturing unit in July, 2007. BIL started production of Smart Cards, Magnetic Stripe Cards, Scratch Cards and plain PVC Cards etc. This is India's first Smart Card manufacturing unit offering, "One Stop Customized Smart Card based Solutions & Applications".

BIL incorporated a wholly-owned subsidiary, Bartronics America Inc. (BAI), which recently made an acquisition in the US. BAI acquired Proximities & SRG America Inc., for US $50mn. Proximities, Inc. is a privately held company that develops; markets and supports secure RFID cashless payment, access control and age verification solutions.

BIL had raised $75mn for expansion and acquisition of which FCCBs of US$ 56 million (US$ 6 million – 2012 and US$ 50 million – 2013) are outstanding. It completed expansion of Rs 220 crore during 2007-08.

In the Smart Cards segment, BIL caters to the Telecom sector, manufacturing GSM SIM cards for companies like Airtel, R Com, Essar Vodafone and Idea. It has tied up with a leading German systems integrator, G&D, for supply of its SIM cards.

It derives 55 per cent of its revenues from India, 35 per cent from the US and the rest from countries such as Singapore and Malaysia. BIL’s corporate clients include TCS, Tata Steel, Tata Motors, Ranbaxy, ITC, HUL, Pantaloon, TVS Whirlpool, Voltas, Chennai Petroleum, TVS
Suzuki, Wipro, GE Systems, ITC, M&M and Hindustan Lever etc. .

BIL bagged two big orders from the Singapore Govt for RFID tagging in warehouses in the central prison and also in newly constructed buildings. These would generate revenues from Q4FY09 onwards.

To see full report: BATRONICS INDIA