Indian stock market and companies daily report (June 29, 2012, Friday)

The Indian markets are expected to open in green tracking positive cues from SGX Nifty. Asian shares and the euro were under pressure as European leaders argued over how to ease borrowing strains in Italy and Spain and stop the euro zone debt crisis spreading, with investors fearful of US reaction to the deadlock.
US stocks saw significant weakness throughout much of the trading day on Thursday, the markets staged a significant recovery attempt in the final hour of trading. The major averages climbed well off their worst levels of the day but still closed in negative territory. Lingering concerns about the financial situation in Europe contributed to the early weakness on Wall Street along with a negative reaction to the Supreme Court's decision to uphold President Obama's healthcare reform law, including the law's individual insurance mandate.
Continued expectations of government action to revive domestic growth helped Indian shares shrug off weak global cues on Thursday. The rupee also traded firm, bolstered by dollar selling by banks and exporters after PM sought to give a big push to the sagging economy.

Markets Today
The trend deciding level for the day is 16,981 / 5,145 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,043 – 17,096 / 5,164 – 5,178 levels. However, if NIFTY trades below 16,981 / 5,145 levels for the first half-an-hour of trade then it may correct up to 16,928 – 16,866 / 5,130 – 5,111 levels.

Coal India gets NTPC's de-allocated coal mines
Media reports suggest that Coal Ministry has given three de-allocated mines to Coal India (CIL) and has asked CIL to appoint mine developers to begin the production from these blocks at the earliest. The three allocated blocks include Brahmini, Chichro Patsimal and Damogoria blocks. We believe CIL will start developing these blocks, but it is unlikely to commence production from these blocks in the near term. Hence, we await further clarity on this matter. Thus, we maintain our estimates on CIL and recommend a Neutral rating on the stock.

SBI cuts its lending rates for exporters by 50bp
State Bank of India (SBI) has reduced its lending rates for export credit by 50bp w.e.f. June 23, 2012, responding to recent RBI action of enhancing the limit for export credit refinance (ECR) from 15% to 50%. We expect the bank to report NIM of 3.7% and 3.4% for FY2013 and FY2014, respectively. At the CMP, the stock is trading at 1.2x FY2014E ABV (after adjusting for value of subsidiaries). We recommend a Buy rating on the stock with a target price of Rs.2,469.

CG inaugurates new EHV switchgear manufacturing facility in Brazil
CG (Crompton Greaves Ltd) commenced operations of its new Extra High Voltage (EHV) Switchgear manufacturing facility in Brazil. It will manufacture a full range of EHV switchgear targeted at the Brazilian Utility market segment. It intends to differentiate by introducing its latest models and provide Brazilian customers with a 30 per cent reduced lead time. CG expects to reach $50mn during the first year of operations. CG has already received more than USD 6 million worth of orders from Utilities such as CEMIG, CPFL, CEEE, RGE and Toshiba. We maintain our Buy on the stock with a target of Rs.142.

Petrol price cut by Rs.2.46/litre
Oil marketing companies (OMCs) have reduced petrol prices by Rs.2.46/liter. OMCs had already cut petrol prices by Rs.2.02/liter on June 3, 2012. Petrol prices have been lowered due to declining global crude oil prices over the past one month. Brent crude oil price has declined from US$103/bbl on May 31, 2012, to US$93/bbl as on June 28, 2012. Since petrol prices are not included in the calculation of under-recoveries, we do not change our estimates for underrecoveries for FY2013. We maintain our Buy rating on ONGC with a target price of Rs.321 and maintain our Accumulate rating on GAIL with a target price of Rs.389.

DoT to slap penalties Rs.1,594cr on five mobile phone firms this week
The telecoms department (DoT) will this week formally slap penalties totaling Rs.1,594crore on five mobile phone firms, after it rejected their defence against charges that accused them of understating revenues and paying less levies. The DoT plans to send demand notices to Bharti Airtel, Idea Cellular, Vodafone, Tata Teleservices, Tata Communications and RCom by the month-end. Earlier this year, these companies were slapped with showcause notices after a DoT appointed panel endorsed the findings of external auditors, which said these operators had understated revenues by Rs.10,268cr during 2006-07 and 2007-08. Since telcos pay 6-10% of their annual revenue as license fee and 2-6% as spectrum usage charges, reporting lower revenue brings down the component they have to share with the government. The DoT had also obtained the law ministry's approval prior to sending out showcause notices. But all telcos had denied any wrongdoing and slammed the DoT panel's findings.
The department has estimated that Bharti Airtel will have to pay penalties to the tune of Rs.292cr while for Vodafone it will be Rs.254cr. The penalty for Idea works to Rs.113cr, Tata Teleservices at Rs.273cr and Tata Communications at about Rs.120cr while RCom will have to pay about Rs.551crore. This includes interest and other related fines for the alleged violations. We continue to maintain our Neutral view on the overall telecom sector owing to regularity uncertainties as well as increase in interest payments of various companies (Bharti Airtel, RCom) which has got forex debt in their books due to sharp INR depreciation.

PM moves to soften GAAR
As per media reports, Prime Minister Manmohan Singh has kicked off a review of the controversial changes that scared away foreign investors. PM has asked finance ministry officials to examine the whole gamut of tax issues concerning portfolio investors which include the General Anti-avoidance Rules (GAAR) intended to check tax evasion by creating structures sans commercial substance. With regard to the new provision to tax overseas transactions involving Indian assets for capital gains, the sources did not even rule out a clarification that no past deals would be taken up in such cases even if the assessment process was not complete. The PMO has sought clarifications on all tax issues (pertaining to investors) and expects clarifications on indirect transfers pertaining to FIIs will be issued in a few weeks.

EU summit works on short-term support for Spain, Italy
Italy and Spain, battling searing market pressure in the euro zone's widening debt crisis, blocked agreement on measures to promote growth at a European Union summit on Thursday to demand urgent action to bring down their borrowing costs. As per three EU sources, work was focused on using the euro zone's temporary EFSF rescue fund and a future permanent ESM bailout fund to buy new Spanish and Italian bonds as they were issued to underpin their bond auctions. The funds will have a maximum firepower of €500bn once the ESM is fully stocked in 2013, minus €100bn already earmarked to aid Spanish banks. It is expected that an agreement could be clinched at a meeting of the 17 euro zone leaders today after the regular 27-nation EU summit ends.
In draft summit conclusions, subject to amendment today, the leaders were set to ask the EU's top four officials to produce a detailed, time-bound roadmap in December leading to a genuine economic and monetary union. European Council President and European Commission President have set long-term goals of creating a euro zone treasury to issue joint bonds in the medium-term, and establishing a banking union with central supervision, a joint deposit guarantee and a resolution fund.

Economic and Political News
- Private airlines may get subsidy for flying to northeast
- Petrol price cut by Rs 2.46/litre, scope for more reduction
- Indian economic confidence slips in May on weak rupee, inflation
- Land deals in India to drop by 20% this yr to Rs 15k cr: C&W

Corporate News
- SAIL consortium may sigh pact with Afghanistan next month
- Bajaj Auto may hike prices as rupee fall raises input costs
- Gati forms JV with Japanese firm to reduce debt, interest cost
- Lanco commissions Bangalore-Mangalore toll road

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Is the European crisis turning into a global crisis?

     The recession fear is looming large again. The European sovereign debt crisis has been worrying the global market since a while now.  These tremors have crossed several continents and have reached the Indian shores too. Remember, India is a developing country and has some form of aid or other with the European Union.

     To explain the European crisis in the most basic, simple form, it is just that many countries in Europe have taken way too much debt, so much that they now a stand huge risk of being unable to pay it all back.

     Although some European countries are comparatively sound and better off financially, some are very over leveraged, which when translated means to excessive debts almost to the size of their economies. The eurozone officials have been working overtime and hard to pacify these effects. The 17 nation body that uses the euro as its currency since 1999 now faces a huge, hair-raising possibility of more than one country defaulting in its debts.  This can result in a possibility of more than one country in the eurozone defaulting in payment of its debts. 

This can result in adverse effects in the financial world, which can cause investors to panic and could possibly trigger an enormous banking and financial shock. Countries like Portugal, Ireland, Italy, etc. have been grouped under the unfortunate acronym PIIGS – i.e. some of the most highly leveraged countries and it is said that if a disaster takes place, it will start with any of these countries.

     Ireland is in 109% debt of its economy, Italy’s figure is 121% and for Greece it is a staggering 165%.

      India regularly imports and export in the Eurozone. Transactions of more than a billion dollars have been taking place under several bureaucratic and diplomatic relations. Under these circumstances, it is possible that many of these nations may stop transacting and trading not just with India but several other nations, which will result in a sudden halt of foreign investments.

Although India is suitably equipped to tackle the situation, the everyday unearthing of new scandals, increase in corruption and day-to-day rise in cost of living has made things worse for India. The FII’s are slowly withdrawing their support towards Indian investments and many of these companies are facing financial crunches which are resulting in an either abrupt shut-down or debt crisis for these countries.

Because a majority of these companies are in the private sector, it is very difficult for the Indian government to bail these companies out.

      Though India is trying its best to improvise its economic reforms, the broader picture is bleak and only time will tell about the effects on Indian economy.

The Banking & Financial Industry in India

The Financial & Banking Industry in India is more than 150 years old. It dates back to 1850s when four Gujaratis and a Parsi stockbroker would gather under the banyan trees which were in front of Mumbai’s town hall.  The meetings continued regularly though at different venues. During this period, the number of brokers increased as well.

Gradually, with the numbers of members increasing, the group moved to Dalal Street in 1874 and in 1875, they became an official organization which came to be known as, ‘The Native Share & Stock Brokers Association.’

In 1956, under the Securities Contracts Regulation Act, the BSE became the first stock exchange which was recognized by the Indian Government.

On the recommendation of the Pherwani Committee in 1991, the National Stock Exchange of India was set up by the then Government of India. It was promoted by leading Financial Institutions essentially led by IDBI on the behest of the Government of India. Incorporated in November 1992, as a tax paying organization, it was recognized as a stock exchange in April 1993 under the securities contracts (Regulation) Act, 1956.

The Banking industry in India is adequately capitalized and regulated. The economic and financial conditions are much better here. Liquidity, credit and market studies have proven Indian banks to be flexible. They have negotiated the ups and downs in the global economy reasonably well.

The RBI or Reserve Bank of India is the topmost body that monitors and governs the banking industry in India.  Any shortcoming or discrepancies in the banking industry are dealt with by the RBI.

Schedule and Non-scheduled banks are a key division of the banking industry in India. There are an approximate 67,000 scheduled bank branches located in India. They consist of co-operative and commercial banks. The Public Sector Banks form the base of the banking sector in India.

The total assets of these public sector banks account for 78% out of the total assets in the banking sector in India. The private sector in banking is slowly making its way up. They are the leaders so far in mobile banking, phone banking, ATM’s and Internet Banking sectors.

With global recession looming large, the investment in the banking industry in India still prevails though the volumes may have gone down considerably. FDI in India grew by a whopping 145% in between 2006 and 2007 and by a decent 46.6% during 2007-2008. The FDI in 2009 was down to 18.6%. However, with the recession extending its session, the investments are liable to rise during this period.

The government of India has started encouraging foreign investment in the banking sector, as a result of which the foreign players will help in the growth of this sector. FDI in Indian Banking may lead to improved efficiency, better capitalization and an improved adaptability.  While the government of India is attracting FDI, FII and NRI investment in this field, the Indian banking and financial industry has immense potential to grow even further and expand.

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The difference between a financial and an investment advisor

Investment Advisor is either a firm or an individual that provides advice or guidance to its clients regarding securities (financial).

It guides and advices on securities such as investment in stocks, bonds, mutual funds, or exchange traded funds are investment advisers. Some investment advisers manage portfolios of securities.

The main difference between an investment advisory and a financial planner is that almost all financial planners are investment advisers but not all investment advisers are financial planners. Some financial planners assess every aspect of an individual’s financial life which includes savings, investments, insurance, taxes, retirement and in some cases estate planning as well. After their assessment, they help the individual to develop a detailed strategy, insurance, taxes, retirement and estate planning.

They also help you to develop a strategy or a financial plan for meeting your day to day financial goals.

Before hiring the services of any financial professional, one must know what kind of services is exactly required and what kind of a background does the financial professional hold. After all you are going to invest your hard earned money therefore it is very necessary for you to know everything about your investment advisory.

1)            To how many people do you provide advices regarding investments?

2)            What is your educational background?

3)            With which stock broking organization are you associated with?

4)            Which are the licenses you hold?

5)            What products and services do you offer?

6)            What is the commission that you charge for your services?

Also one needs to know how the investor advisers are paid in order to make better use of the services that are provided to them.

1)            A percentage of the total value of the assets that they manage for you.

2)            An hourly or daily fee on the basis of their handling of your work.

3)            A fixed fee for the services that they offer you.

4)            A commission on the basis of the securities that they buy/sell for you.

5)            A small combination of everything mentioned above.

All the compensation methods have potential benefits and possibly drawbacks, based on your individual needs. You must ask the investment advisory to explain you all the differences thoroughly before you do any business with them.

One must also ask if these service fees are negotiable or they are a onetime fixed amount. Based on your needs and requirements, the investment advisers will provide you with various strategies that will cater to your financial needs.

Indian stock market and companies daily report (June 08, 2012, Friday)

The Indian markets are expected to open in the red tracing negative opening in most of the Asian bourses and the SGX Nifty. Asian stocks were trading lower after comments by Federal Reserve Chairman Ben S. Bernanke overshadowed China’s first interest-rate cut since 2008.
The People’s Bank of China has lowered its benchmark lending and deposit rates by 25 basis points. The announcement, two days before China is due to report inflation, investment and output figures, may signal that the economy is weaker than the government expected. Bernanke said the central bank will need to assess conditions before deciding if more measures are needed to stoke an economy threatened by Europe’s debt crisis and U.S. budget cuts.
Meanwhile Indian shares extended recent gains on Thursday after the rupee breached the 55 mark to hit a two-week high against the dollar reflecting a return of appetite for risk. Talks of the government giving a big push to infrastructure development bolstered sentiments. Although there were reports of the Union Cabinet deferring a decision on the Pension Bill due to lack of consensus, the benchmark indices ended the trading day with significant gains.

Markets Today
The trend deciding level for the day is 16,617/5,039 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 16,713 – 16,777/5,070 – 5,091 levels. However, if NIFTY trades below 16,617/5,039 levels for the first half-an-hour of trade then it may correct up to 16,552 – 16,456/5,018 – 4,987 levels.

China cut borrowing costs
China reduced interest rates for the first time since 2008 and loosened controls on banks’ lending and deposit rates, in its bid to combat a deepening slowdown as Europe’s ongoing debt crisis threatens global growth. The one-year lending rate and one-year deposit rate were reduced by 25bps to 6.31%, and 3.25%, respectively. Banks are now given more leeway to offer upto 10% higher than benchmark deposit rate to depositors and to charge upto 20% lower than the key benchmark lending rate (previously 10%).

RIL plans a capex of Rs.100,000cr over next 4 years
Reliance Industries (RIL) conducted its Annual General Meeting (AGM) for FY2012. With cash and equivalents of ~Rs.80,000cr as of March 31, 2012 on RIL’s balance sheet, Chairman Mr. Mukesh Ambani announced that the company plans to invest Rs.100,000cr across business segments over the coming four years. It targets to invest ~US$3.5bn on shale gas. On its core petrochemical business, RIL aims to increase its capacity to 25mn tonnes from the current 15mn tonnes and also invest in operational efficiency projects. RIL aims to become a market leader in retail business and targets to achieve top-line of Rs.40,000-50,000cr over the next threefour years (current top-line Rs.7,600cr). Further RIL informed that although KG D6 production has declined over the past one year to 34mmscmd, it aims to raise total gas production to 60mmscmd by 2015. On profitability front, Mr. Ambani said that RIL aimed to double its operating profits in the coming five years. RIL has bought back 2.79cr shares at a cost of Rs.1,929cr under its share-buyback program. Alongside decline in KG D6 gas output, deployment of huge cash pile was amongst the key concerns on the stock. Clarity over deployment of cash is positive in our view. We maintain our Buy rating on the stock with a target price of Rs.879.

L&T bags orders worth Rs.2,410cr
L&T’s construction arm has won Rs.2,410cr new orders across various businesses during April-June 2012. The Buildings and Factories IC has secured new orders worth Rs.1,921cr. The orders are from leading developers for the construction of major residential towers across various cities in the northern part of the country. L&T Infrastructure IC has won orders to the tune of Rs.345cr for the design and construction of viaducts and three elevated stations from Delhi Metro Rail Corporation which also includes additional orders from various ongoing projects. Water effluent and treatment business has bagged new orders worth Rs.244cr from Bangalore Water Supply and Sewerage Board for upgrading the existing water distribution systems including additional orders from various ongoing projects.
At the CMP of Rs.1,277, the stock is trading at 16.7x FY2014E earnings and 2.4x FY2014E P/BV on a standalone basis. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to Rs.1,553, which provides 21.6% upside from current levels. We recommend Buy on the stock.

Economic and Political News
- People’s Bank of China cuts interest rates as economy continues to slide
- Monsoon 36% below average in first week: IMD
- PM's push for infra sector to boost investor confidence: CII
- Cabinet defers decision on pension reforms bill

Corporate News
- Tata Steel to set up Rs.30,000cr plant in Karnataka
- Suzlon to invest Rs.15,000cr to set up a 2,500 MW wind farm in Karnataka
- Dr Reddy's launches generic Parkinson's disease tablets in US
- BHEL commissions 250MW unit at UP thermal power project
- Jubiliant Life Sciences to invest ~Rs.1,000cr across businesses in Karnataka

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