MUMBAI: Absence of revision in the lot size structure of futures and options (F&O) on NSE in the past many months despite the sharp run up in stock prices, is proving to be unviable for retail investors. Analysts believe that this is unhealthy for the development of the F&O segment, particularly at a time when foreign inflows into this segment has shrunk after the curb on investments through P-notes.
Lot size refers to the number of underlying securities in an equity derivatives contract. Stock exchanges, in consultation with the market regulator Sebi, sets the minimum lot sizes and makes changes as and when required. The lot size is multiplied with the share price to determine the contract size whose value has to be at least Rs 2 lakh at the time of its introduction.
For instance, if ABC is trading at Rs 500/share and since the minimum contract has to be at least Rs 2 lakh, its lot size will be 400 shares. So, if ABC doubles to Rs 1,000/share and lot size remains at 400 shares, then the contract size rises to Rs 4 lakh.
Since the last major revision in the lot size structure earlier this year, many stocks with presence in the F&O segment have more than doubled. For instance, the current contract size of Jindal Steel is at around Rs 19 lakh from roughly Rs 5 lakh in August, Essar Oil is at Rs 17 lakh from Rs 2.9 lakh in August, Neyveli Lignite at Rs 15.6 lakh from Rs 4.4 lakh in August.
“Short-term traders, who function on thin stop losses, are incurring losses because of the sharp movements in many of these stocks,” Geojit Financial Services’ head of technical and derivatives research Alex Mathews said.
Several analysts believe the situation calls for a change in the lot size structure to bring in wider participation among investors as it is felt that the introduction of mini futures is still some time away. Dolat Capital’s vice-president (derivatives) Vijay Kanchan said, “They (authorities) can reduce the actual minimum value of the contract (from Rs 2 lakh currently), which will invite more participation.”
The finance ministry is believed to be in favour of reducing the value of the minimum contract size to Rs 1 lakh from the existing Rs 2 lakh. But, authorities in Mumbai are not keen on reducing it at the moment as they feel it should happen only after the market matures further.
A Mumbai-based broker said, “It will be an open invitation to unwanted speculation. Authorities are just about getting a grip on things after the recent surge. So I don’t think, they should spark another rally, which will lead to a bubble.”
Saturday, 22 December 2007
Hindujas eye Tide Water Oil
KOLKATA: After keeping a low profile in the mergers and acquisitions space, Hindujas have now decided to bid for lubricant maker Tide Water Oil, an associate company of diversified PSU Andrew Yule.
Andrew Yule & Company (AYCL), LIC and United India Insurance are planning to divest their combined holding of 40.3% in Tide Water Oil. Tide Water was originally floated as a joint venture with Caltex (now Chevron) 60 years back. Chevron still holds 22% in Tide Water through a subsidiary called Four Star Oil.
"We will look at the terms of reference for the Tide Water bid. If it suits us, then we may bid. There is a synergy between Gulf Oil and Tide Water," Hinduja group VC Subir Raha said.
Incidentally, ONGC had once evinced interest in Tide Water when the former was headed by Raha. "The valuation too was done, but due to some technical reason, an ONGC-Tide Water Oil deal did not materialise," sources said.
Tide Water is a key player in the diesel engine lubricant market and markets these under Veedol brand. Besides, it has recently introduced ‘Eneos’ brand for two-wheelers. Tide Water has a technical collaboration with Nippon Oil Corporation (formerly Mitsubishi Oil). The company posted a turnover of Rs 423 crore in 2006-07.
Currently, AYCL holds 26% in Tide Water. LIC and United India Insurance jointly hold 14.3% stake in the company. On Wednesday, AYCL CMD Kallol Datta had said the insurance companies too will divest their holding in Tide Water. Tide Water Oil’s stock is now hovering at around Rs 4,200-4,300 on BSE and NSE. In November, its share price touched a 52-week high of Rs 5,220 on the NSE when the stake sale decision was announced.
Sources said seven merchant bankers, which include Deloitte, SBI Capital Markets, PwC, ICICI Securities and Srei, are in the race for managing the Tide Water stake sale. "AYCL will appoint one or more merchant bankers on Saturday," sources added.
Sources said Chevron has so far not evinced interest to buy out AYCL’s holding in Tide Water.
Andrew Yule & Company (AYCL), LIC and United India Insurance are planning to divest their combined holding of 40.3% in Tide Water Oil. Tide Water was originally floated as a joint venture with Caltex (now Chevron) 60 years back. Chevron still holds 22% in Tide Water through a subsidiary called Four Star Oil.
"We will look at the terms of reference for the Tide Water bid. If it suits us, then we may bid. There is a synergy between Gulf Oil and Tide Water," Hinduja group VC Subir Raha said.
Incidentally, ONGC had once evinced interest in Tide Water when the former was headed by Raha. "The valuation too was done, but due to some technical reason, an ONGC-Tide Water Oil deal did not materialise," sources said.
Tide Water is a key player in the diesel engine lubricant market and markets these under Veedol brand. Besides, it has recently introduced ‘Eneos’ brand for two-wheelers. Tide Water has a technical collaboration with Nippon Oil Corporation (formerly Mitsubishi Oil). The company posted a turnover of Rs 423 crore in 2006-07.
Currently, AYCL holds 26% in Tide Water. LIC and United India Insurance jointly hold 14.3% stake in the company. On Wednesday, AYCL CMD Kallol Datta had said the insurance companies too will divest their holding in Tide Water. Tide Water Oil’s stock is now hovering at around Rs 4,200-4,300 on BSE and NSE. In November, its share price touched a 52-week high of Rs 5,220 on the NSE when the stake sale decision was announced.
Sources said seven merchant bankers, which include Deloitte, SBI Capital Markets, PwC, ICICI Securities and Srei, are in the race for managing the Tide Water stake sale. "AYCL will appoint one or more merchant bankers on Saturday," sources added.
Sources said Chevron has so far not evinced interest to buy out AYCL’s holding in Tide Water.
Weekly Wrap-up: Sensex tanks 868 points in the week
The market plunged into the negative for the first time in 3 weeks after some highly volatile sessions of trading. As the US subprime lending problems continued to swell, Asian markets reacted accordingly and big bouts of profit booking were seen in the pivotal stocks at the BSE and NSE. Also, December, historically not being a very good month for the markets, traders chose to book profits and cut down their long positions before entering into the fresh week.
The 30-share BSE Sensex declined 868.26 points to 19,162.57 in the week ended Dec. 21 2007 while the 50-share NSE Nifty slipped 281.70 points to 5,766.50 in the week.
On Monday (December 17), the Sensex opened weak at 20,032.67 on back of negative global cues. It continued to trade weak throughout the day due to heavy selling pressure in pivotal stocks. Intense profit booking was witnessed across board. The Sensex fell to an intraday low of 19,177.19, its second biggest single day fall.
The Sensex ended down 769.48 points, or 3.84%, at 19,261.35, while the broad-based NSE Nifty closed at 5,777.00, down 270.7 points, or 4.48%. It was the biggest single day fall for the Nifty.
On Tuesday (December 18), the market opened on a quiet note. It continued to trade in the positive for sometime and after touching an intraday high of 19,375.07, slipped into the negative terrain on weak cues from global counterparts. The benchmark, Sensex continued to trade in a volatile manner initially; however in the last lap of trade the market witnessed huge fall on back of strong selling pressure across the board. The market lost around 252 points to touch the day`s low of 19,009.35 but made some recovery in the last minutes of trade.
BSE Sensex declined 181.71 points, or 0.94%, to close at 19,079.64, while the broad-based NSE Nifty closed at 5,742.30.00, down 34.7 points, or 0.60%.
On Wednesday (December 19), the 30-share index, opened on a strong note. The opening was backed by positive global cues with most of the Asian markets opening in the positive. Within moments of the opening bell, the Sensex proceeded to a 300 points gain. Until mid day the index seemed to be in a consolidation mood. However, in the later half of the day the index slipped into the negative backed by heavy selling interest in the pivotal stocks. The index came off 453 points from its day`s high. The last hour saw some relief rally, the index managed to regain some ground and ended the day on a flat note.
The BSE Sensex ended at 19,091.96, up 12.23 points while the NSE Nifty closed at 5,751.15, up 7.85 points.
On Thursday (December 20), the Sensex opened on a strong note with a positive gap of 109 points from the previous close of 19,091.96. BSE Benchmark Index continued to trade in positive terrain and soon after opening it touched intraday high of 19,291.14 (up nearly 200 points) due to the strong buying in all the sectors especially in IT, Auto and Metal space. However Sensex was not able to maintain the same level and in the following sessions it traded in a range bound manner and finally ended with a gain of 70.61 points.
BSE Sensex gained 70.61 points, or 0.37%, to close at 19,162.57, while the broad-based NSE Nifty closed at 5,766.00, up 15.35 points, or 0.27%.
On Friday (December 21), the market remained closed on account of Bakrra Eid.
Companies In News
Reliance Communications (RCom) completed the Rs 12 billion-worth acquisition of US-based Yipes Holdings. The acquisition will give the company access to Rs 4,000 billion global enterprise data market. RCom received all necessary approvals from the US Federal Communications Commission (FCC) for the transfer of control of Yipes.
The board of directors of Deccan Aviation, which met on Dec. 19, 2007, decided to merge the scheduled airline business undertaking of Kingfisher Airlines with itself. The merged entity will be known as Kingfisher Airlines. Vijay Mallya will be the chairman and CEO, while Captain Gopinath will be the vice-chairman of the merged entity. The charter business of the company will be spun off into a separate entity to be jointly owned by Captain Gopinath and the UB Group.
Welspun India, a part of the USD 1.5 billion Welspun Group and amongst the top 4 terry towel manufacturing companies in the world, has acquired 76% interest in bath rug major in Portugal, Sorema - Tapates e Cortinas de Banho, SA (Sorema) for Rs 456 million.
The Tata Group will be soon declared as the winner of Ford`s, Jaguar and Land Rover brands. However, a final decision may come in the first week of the New Year, as per international media reports. It is said that the deal is valued at USD 2.05 billion. Mahindra & Mahindra and private equity firms One Equity Partners were the other bidders for the two luxury brands.
Bharat Heavy Electricals (BHEL) inked a joint venture agreement with NTPC on Dec. 17, 2007 for establishment and operation of joint venture company for taking up engineering, procurement & construction (EPC) business.
Sector Round-up
Four GSM mobile operators, Bharti Airtel, Vodafone, Idea and Spice will approach the Delhi High Court against the Telecom tribunal TDSAT`s interim order not to stay the spectrum allocation process. GSM lobby Cellular Operators Association of India (COAI) said in a statement, that the department of telecom`s (DoT) decision is an attempt to pass off second and new GSM licences to CDMA operators in the garb of dual technology allocation.
The centre, on Thursday (December 20) said that it would look into cartelisation of the cement industry after the anti-monopoly watchdog MRTPC pronouncing 44 manufacturers guilty of unfair trade practices. MRTPC held cement manufacturers including L&T Cement, Birla Cement, Grasim and ACC guilty of cartelisation under the aegis of Cement Manufacturers` Association. The Commission said that they had found direct as well as indirect evidence of concert.
Economic Developments
The National Development Council (NDC) approved the 11th Five-Year Plan that aims at sustaining a 9% economic growth. The five-year plan (2007-12) was approved by the NDC, the highest policy making body comprising the centre and the states, amid demands by the chief ministers for greater flow of funds to states for tackling the regional imbalances. Prime minister Manmohan Singh cautioned against the price pressures on food items and the adverse impact of global financial crisis on the economy. Attaching highest priority to agriculture, education and health, the Plan earmarks more than half of the budgetary support toward these areas. The total outlay for the plan is Rs 36,447.18 billion, of which budgetary support would be Rs 14,217.11 billion.
India`s wholesale price index (WPI) based Inflation moved to 3.65% for the week ended December 08, as against 3.75% in the previous week. Lower prices of food articles like fruits and vegetables, pulses and some manufactured items led the inflation to slowdown. The annual rate of inflation stood at 5.63% as on Dec. 09, 2006.
New Listing
Shares of leading FMCG player, Jyothy Laboratories after listing on bourses, settled with 13.04% premium on the NSE. The shares opened at a premium of Rs 205, or 29.71%, at Rs 895 as compared with the issue price of Rs 690 a share. It touched a high of Rs 895 and a low of Rs 741.15. It finally closed with a premium of Rs 90, or 13.04% at Rs 780. Total volume of shares traded was 5,136,540, while the total turnover was Rs 4,061.62 million.
The week ahead
Giving his outlook for the coming week, technical analyst Vishwas Agarwal said, ``If Sensex maintains 18,888, then the market looks good and in trading zone; above 19,350 more profitable trading is possible with a possible target of 19,888.``
He added, ``The course of the market will be decided by RIL and SBI, so its very important to watch these two stocks...January is a result session which will help in deciding the market move. Also the Gujarat election result is due which will also give some direction to the market. We can see some upside of 10-15% in the Gujarat based stocks if BJP wins this election.``
The 30-share BSE Sensex declined 868.26 points to 19,162.57 in the week ended Dec. 21 2007 while the 50-share NSE Nifty slipped 281.70 points to 5,766.50 in the week.
On Monday (December 17), the Sensex opened weak at 20,032.67 on back of negative global cues. It continued to trade weak throughout the day due to heavy selling pressure in pivotal stocks. Intense profit booking was witnessed across board. The Sensex fell to an intraday low of 19,177.19, its second biggest single day fall.
The Sensex ended down 769.48 points, or 3.84%, at 19,261.35, while the broad-based NSE Nifty closed at 5,777.00, down 270.7 points, or 4.48%. It was the biggest single day fall for the Nifty.
On Tuesday (December 18), the market opened on a quiet note. It continued to trade in the positive for sometime and after touching an intraday high of 19,375.07, slipped into the negative terrain on weak cues from global counterparts. The benchmark, Sensex continued to trade in a volatile manner initially; however in the last lap of trade the market witnessed huge fall on back of strong selling pressure across the board. The market lost around 252 points to touch the day`s low of 19,009.35 but made some recovery in the last minutes of trade.
BSE Sensex declined 181.71 points, or 0.94%, to close at 19,079.64, while the broad-based NSE Nifty closed at 5,742.30.00, down 34.7 points, or 0.60%.
On Wednesday (December 19), the 30-share index, opened on a strong note. The opening was backed by positive global cues with most of the Asian markets opening in the positive. Within moments of the opening bell, the Sensex proceeded to a 300 points gain. Until mid day the index seemed to be in a consolidation mood. However, in the later half of the day the index slipped into the negative backed by heavy selling interest in the pivotal stocks. The index came off 453 points from its day`s high. The last hour saw some relief rally, the index managed to regain some ground and ended the day on a flat note.
The BSE Sensex ended at 19,091.96, up 12.23 points while the NSE Nifty closed at 5,751.15, up 7.85 points.
On Thursday (December 20), the Sensex opened on a strong note with a positive gap of 109 points from the previous close of 19,091.96. BSE Benchmark Index continued to trade in positive terrain and soon after opening it touched intraday high of 19,291.14 (up nearly 200 points) due to the strong buying in all the sectors especially in IT, Auto and Metal space. However Sensex was not able to maintain the same level and in the following sessions it traded in a range bound manner and finally ended with a gain of 70.61 points.
BSE Sensex gained 70.61 points, or 0.37%, to close at 19,162.57, while the broad-based NSE Nifty closed at 5,766.00, up 15.35 points, or 0.27%.
On Friday (December 21), the market remained closed on account of Bakrra Eid.
Companies In News
Reliance Communications (RCom) completed the Rs 12 billion-worth acquisition of US-based Yipes Holdings. The acquisition will give the company access to Rs 4,000 billion global enterprise data market. RCom received all necessary approvals from the US Federal Communications Commission (FCC) for the transfer of control of Yipes.
The board of directors of Deccan Aviation, which met on Dec. 19, 2007, decided to merge the scheduled airline business undertaking of Kingfisher Airlines with itself. The merged entity will be known as Kingfisher Airlines. Vijay Mallya will be the chairman and CEO, while Captain Gopinath will be the vice-chairman of the merged entity. The charter business of the company will be spun off into a separate entity to be jointly owned by Captain Gopinath and the UB Group.
Welspun India, a part of the USD 1.5 billion Welspun Group and amongst the top 4 terry towel manufacturing companies in the world, has acquired 76% interest in bath rug major in Portugal, Sorema - Tapates e Cortinas de Banho, SA (Sorema) for Rs 456 million.
The Tata Group will be soon declared as the winner of Ford`s, Jaguar and Land Rover brands. However, a final decision may come in the first week of the New Year, as per international media reports. It is said that the deal is valued at USD 2.05 billion. Mahindra & Mahindra and private equity firms One Equity Partners were the other bidders for the two luxury brands.
Bharat Heavy Electricals (BHEL) inked a joint venture agreement with NTPC on Dec. 17, 2007 for establishment and operation of joint venture company for taking up engineering, procurement & construction (EPC) business.
Sector Round-up
Four GSM mobile operators, Bharti Airtel, Vodafone, Idea and Spice will approach the Delhi High Court against the Telecom tribunal TDSAT`s interim order not to stay the spectrum allocation process. GSM lobby Cellular Operators Association of India (COAI) said in a statement, that the department of telecom`s (DoT) decision is an attempt to pass off second and new GSM licences to CDMA operators in the garb of dual technology allocation.
The centre, on Thursday (December 20) said that it would look into cartelisation of the cement industry after the anti-monopoly watchdog MRTPC pronouncing 44 manufacturers guilty of unfair trade practices. MRTPC held cement manufacturers including L&T Cement, Birla Cement, Grasim and ACC guilty of cartelisation under the aegis of Cement Manufacturers` Association. The Commission said that they had found direct as well as indirect evidence of concert.
Economic Developments
The National Development Council (NDC) approved the 11th Five-Year Plan that aims at sustaining a 9% economic growth. The five-year plan (2007-12) was approved by the NDC, the highest policy making body comprising the centre and the states, amid demands by the chief ministers for greater flow of funds to states for tackling the regional imbalances. Prime minister Manmohan Singh cautioned against the price pressures on food items and the adverse impact of global financial crisis on the economy. Attaching highest priority to agriculture, education and health, the Plan earmarks more than half of the budgetary support toward these areas. The total outlay for the plan is Rs 36,447.18 billion, of which budgetary support would be Rs 14,217.11 billion.
India`s wholesale price index (WPI) based Inflation moved to 3.65% for the week ended December 08, as against 3.75% in the previous week. Lower prices of food articles like fruits and vegetables, pulses and some manufactured items led the inflation to slowdown. The annual rate of inflation stood at 5.63% as on Dec. 09, 2006.
New Listing
Shares of leading FMCG player, Jyothy Laboratories after listing on bourses, settled with 13.04% premium on the NSE. The shares opened at a premium of Rs 205, or 29.71%, at Rs 895 as compared with the issue price of Rs 690 a share. It touched a high of Rs 895 and a low of Rs 741.15. It finally closed with a premium of Rs 90, or 13.04% at Rs 780. Total volume of shares traded was 5,136,540, while the total turnover was Rs 4,061.62 million.
The week ahead
Giving his outlook for the coming week, technical analyst Vishwas Agarwal said, ``If Sensex maintains 18,888, then the market looks good and in trading zone; above 19,350 more profitable trading is possible with a possible target of 19,888.``
He added, ``The course of the market will be decided by RIL and SBI, so its very important to watch these two stocks...January is a result session which will help in deciding the market move. Also the Gujarat election result is due which will also give some direction to the market. We can see some upside of 10-15% in the Gujarat based stocks if BJP wins this election.``
Friday, 21 December 2007
A Bullish Call on Infosys
from US markets, By JMP Securities ($42.10, Dec. 20, 2007)
WE ARE INITIATING COVERAGE OF Infosys with a Market Outperform rating and a $51 price target, representing 19% upside from current levels.
Infosys is an India-based provider of information technology and business processing outsourcing (BPO) services to Global 2000 companies. Infosys obtains approximately 50% of its revenue from offshore delivery in India and 50% from on-site services to clients predominantly in the U.S. and Europe.
Infosys generates 91% of its revenues from IT services, which include: 1) application maintenance (28%); 2) custom development (20%); 3) package implementation (19%); and 4) testing (8%). Additionally, Infosys generates approximately 5% of its revenue from BPO, which is currently growing at 50%-plus annually.
We believe Infosys' American depositary shares have overreacted to concerns around rupee appreciation, and a potential slowdown in IT budgets, particularly in financial services. Although Infosys does have significant exposure to financial services, we believe Infosys is well positioned to weather a modest decline (2%-5%) in IT budgets.
![[infy]](http://s.wsj.net/public/resources/images/ON-AI387_bINFYc_20071220130446.jpg)
In regards to rupee appreciation, Infosys has a number of levers to offset margin pressure caused by currency appreciation, as it demonstrated earlier in the first quarter of 2007, when the rupee appreciated 7% in one quarter. Infosys' ADS are currently trading at an out-year (fiscal 2009) multiple of 17.3 times, an all-time low. On a calendar-year basis, Infosys trades at a calendar 2008 price/earnings multiple of 18.5 times, below the peer group median of 20.9 times. Our $51 price target implies a calendar 2008 P/E of 22.4 times, a slight premium that we believe is justified by Infosys' high operating margins, strong revenue growth, and Tier-1 position.
Our estimates call for FY'09 GAAP EPS of $2.43, above the consensus estimate of $2.39. Our revenue estimate for FY'09 is $5.34 billion, compared with consensus of $5.31 billion.
Key positives for Infosys include: First, Infosys is well positioned to weather a slight decline in IT budgets, in our view. Second, Infosys has a number of levers to offset margin pressure due to the appreciating rupee and wage pressure. Third, offshore IT services and BPO services are large, fast-growing, and unsaturated markets. Last, Infosys has introduced a number of new service offerings, which should allow it to sustain strong growth rates in range of high 20% to low 30% for the next three to five years.
Key risks that could prevent Infosys from achieving our price target include margin pressure due to appreciating rupee and wage inflation, increased competition from domestic players (Accenture, IBM), and reduced profitability due to expiration of tax holidays.
SEBI permits short selling in stocks
Securities traded in F&O segment will be eligible
Settlement cycle for SLB transactions will be on T+1 basis
MUMBAI: The Securities and Exchange Board of India (SEBI) has decided to permit short selling by institutional investors. Until now, only retail investors were allowed to short sell.
Further SEBI has also been decided to put in place a full-fledged Securities Lending and Borrowing (SLB) scheme for all market participants in the Indian securities market “in order to provide a mechanism for borrowing of securities to enable settlement of securities sold short.”
The introduction of a full-ledged SLB scheme would be simultaneous with the introduction of short selling by institutional investors.
Short selling is defined as an act of selling a stock which the seller does not own at the time of trade. The SEBI asked all Stock Exchanges and the depositories — National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Limited (CDSL) — to put necessary systems in place to operationalise the mechanisms for short selling and SLB.
The securities traded in the Futures & Options (F&O) segment would also be eligible for short selling. Further, SEBI may review the list of stocks that are eligible for short selling transactions from time to time.
Institutional investors are asked to disclose upfront at the time of placement of order, whether the transaction is a short sale. However, retail investors would be permitted to make a similar disclosure by the end of the trading hours on the transaction day.
SEBI also stated that the brokers are mandated to collect the details on scrip-wise short sell positions, collate the data and upload it to the stock exchanges before the commencement of trading on the following trading day. “The stock exchanges then consolidate such information and disseminate the same on their websites for the information of the public on a weekly basis.”
Stock lendingSEBI stated that the tenure of lending and borrowing would be fixed as standadised contracts and “to begin with contracts with tenure of 7 trading days may be introduced.” While the settlement cycle for SLB transactions would be on T+1 basis, the settlement of lending and borrowing transactions would be independent of normal market settlement.
Position limitsOn position limits, the SEBI stated that: the market-wide position limits for SLB transactions shall be 10 per cent of the free-float capital of the company in terms of number of shares; No clearing member shall have open of more than 10 per cent of the market-wide position limits or Rs 50 crore (base value), whichever is lower; For a Foreign Institutional Investor (FII) or Mutual Fund (MF), the position limits shall be the same as of a clearing member; and the client level position limits shall not be more than one per cent of the market-wide position limits.
SEBI further stated that the SLB would be operated through clearing corporation or clearing house of stock exchanges having nation-wide terminals, which will be registered as approved intermediaries. The date of implementation of this scheme will be announced in due course.
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