Year: 2008

Goldman Sachs – GS covers 105 stocks across 15 sectors in India. The research house expects slowdown across the board.

A modest deceleration in sales growth for stocks under GS coverage from 32% in 1Q FY09 to 28% this quarter. EBIT margins to compress from 22.5% in 2Q FY08 to 21.0% in 2Q FY09E (expect FY09E to be the second consecutive year when EBIT margins contract). These factors, combined with higher interest costs, are likely to result in a sharper slowdown to net income. As a result, expect net income to grow by 8% this quarter, versus 21% growth in 1Q FY09.

Sector specfic, expect metals, financials and cement to see a decline in net income this quarter. Utilities, oil & gas, healthcare, real estate and agriculture will see slower growth than last quarter. One-year forward multiples for GS coverage group have compressed sharply since markets peaked in January 2008. This does not mean that GS coverage group is oversold, since static multiples cannot adequately capture a slowing growth dynamic.

Reserve Bank of India (RBI) announced a cut in the cash reserve ratio requirement (CRR) for banks by 50 bp today to be effective from October 11, 2008. The cut is expected to infuse liquidity in the domestic money market which has seen a sharp squeeze as reflected in the overnight interest rates in the money market and high recourse to the RBI by the banks for liquidity recently. Going further, expect the RBI to relax CRR and statutory liquidity ratio (SLR) in order to manage liquidity if global conditions continue to deteriorate and expects the central bank to cut interest rate in 1Q2009.

P-Note Ban and Lifting the same Saga:
SEBI banned P-Notes few months ago and was speaking loud about the know-your-investor etc. However, it has lifted the same in view of the current market conditions to boost inflows into the market. I guess it is time for all the good men to come to the aid of poorly managed affairs in the Government.

Reliance Industries (RIL) has issued 120m shares to its promoters at Rs1,402/share. The shares were issued on the exercise of options attached to the 120m warrants issued preferentially to the promoters in April 2007.

Prior to exercising the warrants, RIL management did some book adjustments on transferring shares held by various group companies as treasury stocks without any voting rights. [Some analysts are unhappy by the way RIL has done this adjustment – price at which group companies benefited the shares etc]

RIL’s outstanding shares are up to 1,574m shares. The promoter’s stake in RIL is now up to 42.4% from 37.6% after issue of 120m shares. Another 12.6% of treasury shares are controlled by RIL management and held for benefit of all shareholders. Including treasury shares the stake controlled by promoters is up to 54.99% from 51.28% before issue of 120m shares