Category: Economy, Markets and Macro Views

Citigroup research in a report released just a while ago advises investors to accept Holcim’s open offer at Rs154/share for Ambuja Cements Ltd [ACL].

Citi rates ACL Sell/Medium Risk (3M) with a target price of Rs103. Although ACL is likely to trade at a premium to domestic peers, due to higher EBITDA margins, the stock is expensive given: (1) limited visibility on cement pricing moving up as a result of uncertainties arising from unfavorable government measures in CY07; (2) a 20% yoy expected decline in CY08E earnings as large capacities are expected domestically, particularly in North India; and (3) the risk to exports, as substantial new cement capacity is coming up in the Middle East, which would convert the current deficit in that region into a surplus.

Dalal Street Analyst Note:
Kindly note that shares tendered in Open Offer are liable for Long Term Capital Gains Income Tax because you are not paying the STT [Security Transaction Tax] when submitting through open offer. So decide if you want to SELL in the market or accept the open offer.

Maran family controlled Sun TV Networks stock has been rated as an under performer by Kotak Securities. The stock has collapsed over the past few weeks and is now trading below 12-month DCF-based target price of Rs310.

Expecting more clarity on the emerging competitive environment especially the performance of Kalaignar TV, the channel promoted by the family of the chief minister of Tamil Nadu. Also, Sun TV’s revenues and profitability, which may be at risk from increased competition. [Read Outlook Magazine Dynasty at War May-2007] The Marans of Sun TV had substantial income directly /indirectly from Karunanidhi, CM of Tamilnadu with whom they have badly messed up.

Sun TV will be able to retain its current high market shares in all its key markets. However, this remains to be seen in light of emerging competition, particularly in Sun’s key Tamil market where Sun has a dominant market share. Sun TV is expected to report an EPS of Rs 10 for FY08 and Rs 13.5 for FY09. Kotak rates the stock as an underperfomer.

Dalal Street Analyst:
We recommend investors to watch for more clarity on how the company will be managed aftermath family feud. We certainly do not recommend a BUY even though it is quoting below its DCF based target price.

With limited client exposure to sub-prime space, we do not see any near-term impact on the earnings of Indian IT players. Longer-term impact will depend on how events unfold – however, prior experience suggests that cost pressures on US/global corporate have led to higher offshoring. Most Indian IT services companies have significant exposure to BFSI – however exposure to mortgage processing or subprime is limited. The chart below shows IT companies exposure to BFSI.

FIIs have reduced positions to Indian IT stocks after the sub-prime crisis. F&O positions in Infosys Technologies are down significantly. HDFC Fund manager was the first to SELL IT stocks last month.

As data suggests, Wipro, Satyam and HCL Tech are relatively less exposed to the financial services. Tech Mahindra has Zero exposure to the BFSI. We expect some downgrades in the IT sector very soon but continue to remain upbeat on Large Cap IT Consulting companies.

Fertilizer stocks soared on media reports that the government, for the first time, had issued fertilizer bonds worth Rs 7,500 crore to part-finance the additional subsidy burden on the fertilizer companies due to rising price of imported feedstock and fertilizer.

As per reports, these bonds will be freely tradable in the market. The move came as the recoveries made by the government were not enough to pay for the additional subsidy.

The issue of fertilizer bonds was included in the supplementary Budget for 2007-08, under which the government sanctioned Rs 15,000 crore for the fertilizer ministry, comprising the bonds, Rs 6,550 crore as net cash outgo and Rs 950 crore as recoveries under crop husbandry.

At 15:00 IST, Chambal Fertilisers & Chemicals had moved up 19.39% to Rs 44.75, Coromandel Fertilisers was up 12.14% to Rs 94.60, Gujarat State Fertilisers & Chemicals up 13.03% to Rs 228, Mangalore Chemicals & Fertilisers was up 9.98% to Rs 29.75, National Fertilizers was up 13.54% to Rs 36, Rashtriya Chemicals & Fertilisers moved up 16.57% to Rs 52 and Tata Chemicals went up 7.33% to Rs 251.

American mortgage crisis has led to carnage in Asian markets. Hang Seng and Nikkei refused to recover – HangSeng is down 680 points and Nikkei is down 875 points.

Continuing its downward trend, the 30 share BSE SENSEX is down 500 points breaching all supports [Pity Technical analysts]. Infosys and Satyam from IT stable along with Bharti Airtel, RCOM, Tata Steel, NTPC and Maruti Udyog are all pulling the SENSEx down by more than 5%.

CNBC TV-18 polled some brokerage houses and just 25% of them dared to BUY at current levels [13,900].

IndiaBulls, Kotak Mahindra Bank, India Infoline and GE Shipping are all down by 10%. Amongst the real estate stocks, IndiaBulls Real Estate and Orbit Corp are the major losers.

The Indian rupee is now trading at Rs 41.50 against USD and inflation for the week is down to 4.05%. Dow Jones futures is down 154 points. London and Luxembourg indices are moving sideways.

Update at 3:30 PM
Indian markets recover from the days low but still close 225 points down at 14,131. Hang Seng recovered too but still closed down 285 points while Japanese stocks closed at their lowest, down 875 points.

Fund Managers are staying away from Realty and Metal stocks. ICICI’s Nilesh Shah advises that HNIs can start shopping stocks which are fundamentally good and are come off of their highs.

Bears took immediate control of Dalal Street by pulling the BSE-Sensex down 550 points just seconds after trading began for the day. The SENSEX was down by 637 points but marginally recovered and is still bleeding with a fall of 574 points at 14,427.

Banking, Metals and Real Estate Stocks are the major losers in Today’s Trade. Tata Steel, ICICI Bank, Reliance Capital, Union Bank, Axis Bank are all down over 7%. Bharti Airtel, SBI and BHEL are amongst the top losers in BSE-SENSEX.

• C. Jayram of Kotak Mahindra Bank expects the SELL-Off to continue for few more sessions. Crisis spreads to commercial paper.
• Marc Faber advises extreme caution on the Indian Markets.
• IVR Prime Urban Developer lists at 20% discount
• Indian Banks may not cut interest rates, says Bimal Jalan
• Yen hits 4 month high against USD. Indian Rupee weakens against USD. [Rs 41.03 / $]
• Merill Lynch downgraded Countrywide Financial in the US from BUY to SELL. Countrywide is weighing options to file for Bankruptcy.

Hopefully, the markets will find a bottom and consolidate soon before it can rise again. Any immediate rise should be taken as an opportunity to exit out of shady fly by night operator stocks.