India- Market mood & News
(Courtesy:Probity Research-India)
The market turned weak as the bulls liquidated their positions. The market is over bought which gets reflected in the high badla rates of 48%p.a.
* Probity IT Index touched the magical number 1000, but ended the week with 2.6% wow loss. Probity Pharma Index and Probity FMCG Index once again outperformed BSE Sensex, rose by 1.9% and 1.1% respectively.
* FII investments were net sellers to the tune of Rs263m. FIIs reportedly booked profit on some of the Pharma and software stocks.
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Investment strategy
* The market has rallied smartly after Yashwant Sinha's capital markets friendly budget. At these levels, the market appears over bought with investment fatigue having set in especially in the software and pharma sectors. Although in the long term, our view on the FPS trio is unchanged,in the short term we see a correction. We, therefore, recommend traders to book profits at higher levels, park the proceeds in badla (at current high rates) and look for opportune buying opportunities.
* For long term investors, we continue with our Overweigh equities
strategy. Our recommended sectors continue to be the FPS trio, ie FMCG,Pharma and Software. In pharma, we prefer companies with strong parentage and brands. Jelly filled telecom cable companies were in spotlight following release of DoT's orders.
* We are still not comfortable with most commodity sectors as concerns
continue on the economy and political front. *************************
News snippets
* FIPB cleared proposals worth Rs5bn, including some relating to
information and broadcasting. Applications of Walt Disney, Sony and
Bloomberg were cleared, while General Motor's proposal seeking royalty from its 100% subsidiary was rejected.
* Department of Telecommunication (DoT) has announced an across the board access charge of Rs.15,000/- per dial up port for telephone connection issued by Internet Service Providers (ISPs). This move has been criticised by ISPs as being arbitrary and violative of the licensing agreements. This is the latest round of “engaged lines” in the TRAI-DoT battle, which does not augur well to the industry and the user.
* According to the Metal Bulletin, Posco (Korea) has emerged as the No.1 steel maker in the world with an output of 25.57mn ton. India's SAIL, TISCO and Rashtriya Ispat rank 12, 57 and 85 respectively in the list. LN Mittal Group, based in U.K. has emerged as the 5th largest steel maker in the world with an output of 17.2mn ton.
* Moody's and Standard and Poor's, international rating agencies expressed fears on the health of the Indian financial system, especially the DFIs. They commented that due to political uncertainty, speed of reforms has slowed down.
* Unit Trust of India (UTI) has announced to link US-64's sale and
repurchase price based on its NAV. Its NAV will be declared daily in
future. This is an outcome of the Deepak Parekh Committee report.
* SEBI has finalised modalities to sell public issues through electronic trading network installed in the Stock Exchanges. The scheme is called “Online Securities Offer for IPOs”, which will prevent blocking of investor's funds and reduce issue expenses. This will hasten modernization of the Indian capital markets.
* On Friday, SEBI announced new guidelines for IPOs. SEBI has allowed ESOP at any discount to market price. There will be no restrictions for number of shares for a single employee under ESOP. The minimum lock in period for ESOP is 1 year. It also abolished par value concept for IPOs provided these are demat. Mutual funds will be allowed to trade in derivatives for hedging and portfolio balancing.
* ICICI, IFCI and IDBI have announced a 0.5% reduction in PLR to 13.5% This was in response to RBI's 1% cut in interest rates. Also, the move indicates that the interest rate war between the three has now finally run out of steam.
* The Industrial Development Bank of India (IDBI) has postponed its board meeting to discuss the status of projects in the steel industry. As reported earlier, DFIs have huge exposure to the steel industry (including Essar, Jindal, Llyod) which is facing rough weather. The decision to postpone the meeting would have been under pressure from Delhi. The fallout will weaken IDBI / other institution's already fragile financial health, unless there is direct central support.
* The Reliance Group has drafted a code of “ethics”, a set of business policies relating to fair market practices, trading, financial and accounting management , personal conduct, work ethics, health, safety and environment. This has to be followed by all employees. Reliance now joins the Tatas and Birlas. This act reflects an increasing trend to adopt corporate governance in India and will help in cleaning the much maligned corporate image of Reliance.
* The Netherlands based Van Leer group, a global packaging major is
supposed to pick 51% stake in the Rs1.7bn Paper Products through a
preferential allotment. According to our sources, the two parties are in an advanced stage of negotiations and an announcement is expected shortly. Allotment price is estimated at Rs140/- per share. The stock is witnessing an upswing and closed at Rs117/- on Friday.
* Akai, Japan is re entering India through a technical and financial
collaboration with the Rs3.2bn Videocon Group. Their 30:70 JV with
Videocon, will be called Akai India. Total investment is expected to be about Rs1bn Videocon and Akai have an old relation, thanks to Sansui.
* Air India, a loss making airline is planning wage cuts among all its employees as a result of its precarious financial condition. This is expected to result in savings of Rs1.8bn. As always, the labour union is expected to object. Air India has no choice but to resort to such drastic measures. Wage cuts / layoffs are common in the airline industry. Recently, both Singapore Airlines and Cathay Pacific announced lay offs and wage cuts.
* Modiluft has entered into an agreement with Verus Group based in
Vanconver, Canada, promoted by Ajmal Khan, a NRI. Modiluft will be revived in a new avatar called “Royal Airways” and the promoters seek to raise $35mn by debt and equity.
* Maruti 800 and Zen have emerged as leaders in their respective segment. “Omni” sales rose to 5657 in February from 2755 in January on the back of price cuts. Omni, at Rs.0.18mn is cheapest vehicle available, on Indianroads.
* Hindustan Lever Chemicals, the subsidiary of FMCG major Hindustan Lever Ltd. has raised Rs1bn through a private placement to FIs and FIIs. It placed 2.2mn shares at Rs.460 (24% premium To SEBI formula price of Rs.371). ICICI securities managed the issue.
* Dell computer Corporation, the world's third largest computer company, is setting up a 100% subsidiary in India. Dell (third after Compaq and IBM) has a worldwide market share of 8.8%. It hopes to sell its products through 10 distributors in India. It will continue its relationship with Tata Infotech for after sales services. Earlier it had a tie up with PCL.
* Microland, a Bangalore based IT company, promoted by Pradeep Kar is planning an IPO in the next 12 months. Planetasia, its subsidiary is expected to follow shortly. These IPOs will be preceded by a private placement to raise $7mn. These funds will help the company to strengthen its internet / software business.
* Chennai based Polaris Software, is planning an IPO by July, 1999. Enam Financial and Kotak Mahindra are the lead managers. The proceeds will be used to fund its NOIDA development centre. Citibank owns 18% stake in the company. This is one of the quality IPOs in the software market. Given the boom in valuation of software stocks, many more such IPOs can be expected.
* Satyam Infoway, the ISP subsidiary of Satyam Computers is planning a $45mn ADR issue. The Commonwealth Development Corporation has taken a 20% stake for $5mn, implying a valuation of $25mn. Satyam Infoway has a subscriber base of 30,000, which is expected to reach 100,000 by December.
* Goldman Sachs and AIG are rumored to buy a 26% in Chennai based DSQ
Software. Reports of this deal propelled DSQ to upper filter last week. The entry of these private investors will usher in new management also. Dinesh Dalmia is expected to take a non executive role.
* The fancy of the software stocks continues. Aptech, an IT training
company has raised Rs1.17bn through private placement at Rs875/-. The SEBI stipulated price was Rs.710/- The stock closed at Rs.938/- on Friday. Jardine Fleming was lead manager.
* On the global front, France announced privatization of Credit Lyonnais, thus ending an old story of global investment banking ambitions. This is in line with strategies followed by other European banks / countries, who wanted to match the big league American banks. The sale coincides with the merger of Societe Generale and Paribas, and BNP's controversial bid for its rivals.
* Organisation of Petroleum Exporting Countries (OPEC) announced another 2mn barrels per day cut. Except Venezuela, Mexico and Norway, all others have agreed for individual cuts of 7.3%. The trio has settled for cuts of 4-4.4% The Hague meeting (reported last week) resulted in a cut of 2mn barrels per day against a target of 3.1mn barrels per day. Delays in meeting compliance targets results in differences between members and also windows of arbitrage opportunities. A delinquent Saudi Arabia is more dangerous than a defiant Iraq. OPEC has no foolproof methods of implementing cuts, and apart from OPEC nobody else has the powers to do so.
Producers selfishly pump oil to meet revenue shortfall, most of them are weak developing nations with self centric governments. It is left to Saudi Arabia, in particular to wrest the initiative and educate others, else the bearish trend in crude prices will continue.
* Credit Suisse group reported a net profit of 3.07bn SF ($3.1bn) despite losses in Russia of about 1.8bn SF. This was better than market expectations and its shares gained 3.8% last week.
* Goldman Sachs, Wall Street's last private investment bank plans to end its 130 year old private partnership by a $3.45bn offering of common stock. It plans to sell 60mn shares at $40-50 each, valuing the company at $21-23bn. The firm had cancelled its plans for IPO late last year amid bond trading losses and turbulent market conditions.
* Bayer AG, West Germany, has decided to restructure its drug division by closing factories worldwide and divest unprofitable / old drugs. This will enable it to save about $400mn by 2001. It had earlier announced sale of Agfa, its photography unit The impact on Indian operations is not clear. |
