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]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_thOGuLgwT2ozXicTnSKPrRfggkG0uoDjuakGPvmYFEDvhsU9Prd_4ziH7ZZk_2xAuFt9v0fQpSo170xpMzaJpeSfAibGY8U-jtluBebyf3pOMUsX15KM3nXiGpO0wXu4WunAU1gMEjkAK_AfFL=s0-d)
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.
Edelweiss Capital to replace Ceat in BSE-500 index
Mumbai: Newly-listed domestic brokerage firm Edelweiss Capital will replace tyre maker Ceat Ltd in the BSE-500 index from 26 December.
Edelweiss Capital would replace Ceat Ltd from the BSE-500 index, a circular issued by the Bombay Stock Exchange said.
The circular further stated that Ceat Ltd would be also excluded from trading in the BSE Small Cap index.
Edelweiss Capital which listed on the bourses early this month had recorded a gain a 83% on its debut trade. The initial public offer (IPO) of Edelweiss Capital was subscribed over 110 times and the issue price per share had been fixed at Rs825.
The BSE-500 index represents nearly 93% of the total market capitalization on the Bombay Stock Exchange. This means BSE-500 index ideally represents total market. This index represents all 20 major industries of the economy.
Thursday, 20 December 2007
Suzlon sells shares to raise $552 million to part-pay debt
India’s biggest maker of wind turbine generators Suzlon Energy Ltd raised $552 million (Rs2,186 crore) by selling shares to select investors to repay part of the debt raised to fund the acquisition of Germany’s Repower Systems AG.
Comfortable: Suzlon Energy Ltd chairman Tulsi Tanti says the share sale will cut the company’s debt to Rs5,275 crore from Rs6,400 crore.
Suzlon’s board approved the sale of 11.4 million shares for Rs1,917 apiece, the Ahmedabad-based firm said in a statement to the Bombay Stock Exchange (BSE) on Wednesday.
The company’s euro 1.2 billion (Rs6,840 crore) acquisition of Repower this year and a euro 465 million purchase of Belgian gearbox maker Hansen Transmissions International NV. last year increased debt to 0.75% of equity, straining Suzlon’s balance sheet.
“We funded two large acquisitions by raising debt and that was a concern for our investors,” chairman Tulsi Tanti said. “Our balance sheet is more comfortable now.”
The share sale will cut Suzlon’s debt to Rs5,275 crore from Rs6,400 crore, Tanti said. As many as 25 investors bought Suzlon shares, of which roughly 60% are Indian financial institutions and rest are foreign investment firms, he said. He declined to name the investors.
Suzlon rose Rs37.70 a share, or 2.02%, to Rs18,99.50 on BSE on Wednesday.
Roughly half the funds will be used to repay the debt Suzlon incurred to fund acquisitions of Repower and Hansen Transmissions, Tanti said.
Suzlon beat Areva SA., the world’s largest builder of nuclear plants, for Repower with a euro 1.2 billion offer in February this year.
Part of the funds raised on Wednesday will fund the expansion, he said. Suzlon plans to spend Rs2,600 crore on boosting generation capacity in India to 5,000MW next year from 2,700MW.
The shares sold amount to 3.8% of Suzlon’s total equity, the company said in an emailed statement. “We expected Suzlon to dilute equity to remedy its debt burden but had expected a better price,” said Mukul Jain, analyst at Mumbai-based brokerage Prabhudas Lilladher Pvt. Ltd. “The sale gives Suzlon better leverage for raising funds for its expansion plans.” Jain has an “outperform” rating on Suzlon.
The company calculated the share sale price by allowing a 2% discount to the average of Suzlon’s share price in the last seven days, Tanti said. The price was at a 3% premium to Tuesday’s closing price of Rs1,861 a share.
The company has overseas bonds worth $500 million due for conversion into equity over the next 24 months, Tanti said.
This may add additional equity of as much as 4%. Suzlon may raise more debt next year for its capacity addition plans, he said.
Suzlon will need to make an offer to buy a 30% stake that Areva continues to hold in Repower next year, according to its takeover agreement.
A similar offer will need to be made the following year to buy out partner Martifer SGPS SA., the Portugal-based metal structures maker, according to Jain.
Martifer and Suzlon Energy hold 57% of Repower Systems AG after a takeover offer for Repower.
Indian shares higher in early trade; IFCI declines, Deccan Aviation up
MUMBAI, Dec. 20, 2007 (Thomson Financial delivered by Newstex) -- Indian shares opened higher Thursday on back of good buying by domestic funds and bargain hunting by foreign investors.
'There is hardly any fresh activity and most of the action seems centred on profit taking in blue chip shares,' said a leading dealer.
At 0455 GMT, the Bombay (OOTC:BBAO) Stock Exchange's (BSE) 30-share Sensex rose 0.24 pct to 19,138.64 while the National Stock Exchange's (NSE) 50-share S&P CNX Nifty was up 0.06 pct at 5,754.45 points.
Industrial Finance Corp of India fell 21.77 pct to 78.35 rupees while Deccan Aviation (OOTC:DVIAF) rose 3.12 pct to 304.50 rupees a share.
Rashtriya Chemicals & Fertilizers rose 5 pct to 97.70 rupees, while Dr Reddy's Laboratories (NYSE:RDY) Ltd gained 2.87 pct on the NSE at 718.95 rupees.
Jammu & Kashmir Bank fell 5.67 pct to 765 rupees on the BSE, while Bharat Petroleum Corp Ltd declined 1.51 pct to 416.05 rupees on the NSE.
'There is hardly any fresh activity and most of the action seems centred on profit taking in blue chip shares,' said a leading dealer.
At 0455 GMT, the Bombay (OOTC:BBAO) Stock Exchange's (BSE) 30-share Sensex rose 0.24 pct to 19,138.64 while the National Stock Exchange's (NSE) 50-share S&P CNX Nifty was up 0.06 pct at 5,754.45 points.
Industrial Finance Corp of India fell 21.77 pct to 78.35 rupees while Deccan Aviation (OOTC:DVIAF) rose 3.12 pct to 304.50 rupees a share.
Rashtriya Chemicals & Fertilizers rose 5 pct to 97.70 rupees, while Dr Reddy's Laboratories (NYSE:RDY) Ltd gained 2.87 pct on the NSE at 718.95 rupees.
Jammu & Kashmir Bank fell 5.67 pct to 765 rupees on the BSE, while Bharat Petroleum Corp Ltd declined 1.51 pct to 416.05 rupees on the NSE.
Wednesday, 19 December 2007
HOT STOCKS for 19-12-07
STATISTICS :
In last 4 days Nifty had come off 400 points from level of 6140 to 5745 levels. This kind of selloff can lead to gap up openings, today is this kind of a day were one can witness a strong opening, which could remain till the closing session. Nifty can trade between levels 5850 to 5730. But can see some sort of volatility if FII's continue to sell. Nifty has a strong resistance @ 5850 level. Nifty has a support @ 5700, below this level can go to 5600 level.
I would suggest one to book profits at higher levels can be @ 5850 levels. Stocks which have corrected 10% in last 4 days or more can have a run up today. So below mentioned are the stocks one can watch out for todays trading.
INTRADAY :
RELIANCE : buy for a tgt of 2770+, sl@ 2715
AIRDECCAN : buy for a tgt of 328+ , sl @ 310
INDIAINFOLINE : buy for a tgt of 1500+, sl @ 1434
DELIVERY :
RCF : buy for a tgt of 120+, time frame is 2 weeks
L & T : buy for a tgt of 4800+ , time frame is 2 months
FUTURES :
SAIL : buy for a tgt of 267.5+, sl @259
GMRINFRA : buy for a tgt of 245+, sl @232
RELIANCE : buy for a tgt of 2800+, sl @ 2732
NIITTECH : buy for a tgt of 233+, sl @ 223
INFOSYS : buy for a tgt of 1900+ :: for jan expiry
OPTIONS :
NIFTY : buy call 6000 for a tgt of 90+, sl @ 30
NIFTY : buy call 5800 for a tgt of 180+, sl @ 90
RELIANCE : buy call 2900 for a tgt of 32+ , sl @ 20
INFOSYS : buy call 1620 for a tgt of 60+, sl @ 32
In last 4 days Nifty had come off 400 points from level of 6140 to 5745 levels. This kind of selloff can lead to gap up openings, today is this kind of a day were one can witness a strong opening, which could remain till the closing session. Nifty can trade between levels 5850 to 5730. But can see some sort of volatility if FII's continue to sell. Nifty has a strong resistance @ 5850 level. Nifty has a support @ 5700, below this level can go to 5600 level.
I would suggest one to book profits at higher levels can be @ 5850 levels. Stocks which have corrected 10% in last 4 days or more can have a run up today. So below mentioned are the stocks one can watch out for todays trading.
INTRADAY :
RELIANCE : buy for a tgt of 2770+, sl@ 2715
AIRDECCAN : buy for a tgt of 328+ , sl @ 310
INDIAINFOLINE : buy for a tgt of 1500+, sl @ 1434
DELIVERY :
RCF : buy for a tgt of 120+, time frame is 2 weeks
L & T : buy for a tgt of 4800+ , time frame is 2 months
FUTURES :
SAIL : buy for a tgt of 267.5+, sl @259
GMRINFRA : buy for a tgt of 245+, sl @232
RELIANCE : buy for a tgt of 2800+, sl @ 2732
NIITTECH : buy for a tgt of 233+, sl @ 223
INFOSYS : buy for a tgt of 1900+ :: for jan expiry
OPTIONS :
NIFTY : buy call 6000 for a tgt of 90+, sl @ 30
NIFTY : buy call 5800 for a tgt of 180+, sl @ 90
RELIANCE : buy call 2900 for a tgt of 32+ , sl @ 20
INFOSYS : buy call 1620 for a tgt of 60+, sl @ 32
Securities in ban period for trade date December 19, 2007- F&O segment
The derivative contracts in the below mentioned securities have crossed 95% of the market-wide position limit and are currently in the ban period. It is hereby informed that all clients/ members shall trade in the derivative contracts of said securities only to decrease their positions through offsetting positions. Any increase in open positions shall attract appropriate penal and disciplinary action in accordance with the Circular No. NSCC/F&O/C&S/365 dated August 26, 2004.
| 1 | ALOKTEXT |
| 2 | APTECHT |
| 3 | ESSAROIL |
| 4 | GITANJALI |
| 5 | IFCI |
| 6 | NAGARFERT |
| 7 | POWERGRID |
RCF smells a goldmine, plans to sell city land
MUMBAI: Amid spiralling realty prices, it’s difficult to resist a deal when you are sitting on large tracts of unused land. But it can be a tough call when the landowner is a state-owned firm sensitive to controversies that a land deal could spark. So, what do you do? Take the first baby steps to cash in on a booming property market. The government-controlled Rashtriya Chemicals and Fertilisers (RCF) is doing just that. The fertiliser major, which owns about 800 acres in and around Mumbai, is initially planning to develop a commercial complex over about 200,000 sq ft that will be used partially for in-house purposes while the rest will be sold commercially. The company board has already approved the decision to build the commercial complex — to be tentatively called Priyadarshini II — and has called for a panel of architects for designing the project. RCF would develop the complex on its own and would not tie up with any developer for the complex that would come up adjacent to the company’s existing office building at Chembur. It’s the latest of Mumbai-based companies planning to develop surplus, unutilised land available with them to gain from firm land prices. Sources close to the development said response to this project would be used by the company to chalk out future development plans subsequently. Although the company owns about 800 acres of land, most of it houses RCF’s factory and residential areas. Despite repeated efforts, senior officials at RCF declined comment. “The company doesn’t want to go all out with the move... It would prefer to sell small parcels over a long time period,” said a source. RCF owns large tracts of land as per norms for a chemical and fertiliser company. The company makes and markets a wide range of chemical fertilisers and a series of industrial chemicals through its plants at Trombay and Thal. RCF’s move is in line with the trend seen among large corporate houses who initially sold land and subsequently tied up with developers to jointly build projects. According to a real estate company, recent difficulties in tying up finances for buying land have forced developers to team up with companies owning land. The developer contributes a small equity while the land ownership remains with the company. Once the project is developed by the developer, the proceeds from the commercial sale could be divided between the two. In the case of government-owned firms like RCF, there are also options of leasing out portions of land to manufacturing companies who are pressed for space and can’t buy land due to high prices. During the past two years, more than 25 companies, including Bata India, Indian Hume Pipe and Gulf Oil Corporation, have either sold or developed their real estate assets. “This trend is not peculiar to India. Globally, companies have done it from time-to-time. Even in India, several companies have done it in the past. The difference is, it is more visible now,” said an analyst with an European brokerage. “At best, such activities would constitute 5 to 10% of the total real estate development activity,” he added. Sharp demand for houses and commercial spaces have led prices of land to double in the past two years, especially in cities such as Mumbai, where land availability is at a premium. The market also seems to have got a whiff of RCF’s proposed plans as shares of the company have already hit the upper trading limit twice in the past week. On Tuesday, RCF shares again ended 4.9% up at Rs 88.65 on the BSE. |
Tuesday, 18 December 2007
India's Big Three Tech Firms
Shares of India's three biggest tech and outsourcing companies by sales -- Infosys Technologies, Tata Consultancy Services and Wipro -- have had a tough year. But some analysts say now is a good time to buy their stocks, if investors can handle some near-term volatility.
A sharp appreciation of the rupee against the dollar and fears of a U.S. slowdown, amplified by the credit crisis, have hammered tech companies' shares even as the broader Indian stock market has hit record highs. Infosys's Mumbai-listed shares are down 26% this year, TCS is down 14% and Wipro is off 19%. Meanwhile, the Bombay Stock Exchange's benchmark index, the Sensex 30, is up 45%.
There are grounds for optimism. Fears over a strong rupee's impact on earnings could be overdone, analysts and investors say. Some industry watchers also say the Indian government might extend a tax benefit that has helped tech companies' profits. Many analysts also believe the three big Indian tech companies will continue to post solid earnings as they win bigger jobs from global clients.
![[chart]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_s9hhUh0AHOG2PUaDFtBOV9MaXjgDNUIkjatL15Ps17-IQKEtpGxATRWt1K7HjM2E65btK8KQliWlRZk3_pizxLSzSSGeNUmuWbIPz3IvfOw5r92-PpoSxY9RO3UqupZ9-Sj8MNA4rjutQeuFm1sA=s0-d)
"It's good to buy these tech stocks with the expectation that within nine to 12 months select stocks are going to give you returns in excess of 20%," says Viju George, senior technology analyst for Edelweiss Securities, a financial-services firm in Mumbai. He's advising clients to buy Infosys and TCS, which he sees as best-positioned to increase their market shares of the global services industry.
Just over 10% of the $400 billion-to-$450 billion-a-year global technology-services market is now outsourced to foreign service providers, industry watchers estimate. Indian companies have more than 70% of that market segment. Analysts say the outsourcing trend will grow as companies look to cut costs; that should help offset the impact of a possibly weaker U.S. economy.
As dominant players, TCS and Infosys stand to benefit if there is another wave of outsourcing amid U.S. economic trouble. Further, the Indian companies can gain by moving up the value chain and handling more complex jobs. Rather than "mere maintenance work," clients now outsource "newer and newer streams" of tech requirements, Mr. George notes.
To be sure, some analysts have seen India's big tech companies as attractive for a while, yet the stocks have continued to slide. Mr. George cautions that these shares have a potential downside of 10% to 15% from current levels, as valuations yo-yo on news of the U.S. economy. A large chunk of the Indian giants' revenue is still from American customers, though they are trying to boost their non-U.S. sales.
But Mr. George contends that "the risk of a slowdown is very much captured in current valuations," barring a full-fledged U.S. recession.
Even if customers' tech budgets come under pressure, there could be a silver lining for the Indian firms that get outsourced work, says Chennai-based Sukumar Rajah, chief investment officer for equities at the Indian arm of U.S. fund company Franklin Templeton. "Any sharp economic slowdown could result in increased outsourcing by Western firms to protect margins," he argues.
Mr. Rajah expects "well-managed Indian IT companies will do well in the medium to long term." Franklin Templeton holds Infosys, TCS and Wipro shares in a number of its equity funds.
So far, outsourced work is increasing as a proportion of corporate tech budgets, says analyst Pankaj Kapoor at ABN Amro Equities in Mumbai. In recent years, the global technology-services industry has grown at an annual rate of 5% to 6%, industry watchers say. But the Indian tech-services industry on its own is growing at around 35% a year. So, even if there is little or no increase in overall corporate tech budgets, Indian companies are likely to increase their market share.
One factor holding down tech stocks -- the rupee's appreciation against the dollar -- also appears to have abated somewhat, says Sanjay Sinha, chief investment officer at SBI Mutual Fund. The rupee has strengthened nearly 13% against the dollar in 2007, but the steepest gains came earlier in the year.
Upcoming US reports may add to market turbulence
BL Research Bureau
Indian markets succumbed on global cues on Monday after a resilient performance last week. Most global markets reversed last Tuesday after the Federal Reserve reduced interest rates by a minimal 25 basis points. The US markets received another blow on Friday when the US consumer price index surged 0.8 per cent in November, the largest one-month gain since September 2005.
The Dow Jones Industrial Average tumbled 1.3 per cent on that day on fears that the Federal Reserve would once again turn its attention to inflation fighting ruling out the possibility of further interest rate cuts. Indian stock markets moved in tandem with the other Asian markets .
There are many important events lined up over the next two weeks that can cause the Indian stock prices to remain edgy. A slew of economic reports are scheduled to expected out of the US this week; the more important among them being the housing report, the GDP figures and the Core PCE numbers.
Beleaguered brokerages
These apart, some of the beleaguered brokerage firms such as Bear Stearns, Goldman Sachs and Morgan Stanley will report their quarterly numbers this week. Any bad news from these companies will exacerbate the negative sentiment prevailing in the credit and financial markets.
The Bank of Japan is meeting on the 19 and 20 this month. Investors will keenly watch the outcome of this meeting across the globe as any change in the interest rates in Japan could seriously destabilise the yen carry-trade.
The event that is looming large in the domestic calendar is the expiry of the December contracts in the futures and options segment.
Due to two intervening holidays, our markets have to rollover an extremely heavy series in just six days. The unwinding of the positions in the derivative segment can cause downward pressure on stock prices in India.
Indian markets succumbed on global cues on Monday after a resilient performance last week. Most global markets reversed last Tuesday after the Federal Reserve reduced interest rates by a minimal 25 basis points. The US markets received another blow on Friday when the US consumer price index surged 0.8 per cent in November, the largest one-month gain since September 2005.
The Dow Jones Industrial Average tumbled 1.3 per cent on that day on fears that the Federal Reserve would once again turn its attention to inflation fighting ruling out the possibility of further interest rate cuts. Indian stock markets moved in tandem with the other Asian markets .
There are many important events lined up over the next two weeks that can cause the Indian stock prices to remain edgy. A slew of economic reports are scheduled to expected out of the US this week; the more important among them being the housing report, the GDP figures and the Core PCE numbers.
Beleaguered brokerages
These apart, some of the beleaguered brokerage firms such as Bear Stearns, Goldman Sachs and Morgan Stanley will report their quarterly numbers this week. Any bad news from these companies will exacerbate the negative sentiment prevailing in the credit and financial markets.
The Bank of Japan is meeting on the 19 and 20 this month. Investors will keenly watch the outcome of this meeting across the globe as any change in the interest rates in Japan could seriously destabilise the yen carry-trade.
The event that is looming large in the domestic calendar is the expiry of the December contracts in the futures and options segment.
Due to two intervening holidays, our markets have to rollover an extremely heavy series in just six days. The unwinding of the positions in the derivative segment can cause downward pressure on stock prices in India.
Videocon to hive off businesses
Mumbai: Videocon Industries Ltd announced on the BSE that the company plans to create separate verticals for its power, oil and natural resources businesses. “We will have different verticals for thermal power, oil & gas and mining of natural resources including coal and renewable energy and solar energy,” said a company official.
These verticals will be housed in one or more Special Purpose Vehicles wholly owned by the company.
When asked whether shares in the SPVs will be allotted to existing shareholders and the same listed on the stock exchange, the company official refused to clarify. “We are taking this step to strengthen the company and its global assets. We want to create a strong energy vertical and all our steps are aimed towards that,” he said.
Further information on the matter will be released only in January, he added.
Some companies, in the past, issued shares in the hived off of business and listed them on the stock exchange in order that the shareholder wealth is completely impounded both pre and post restructuring of the businesses. A case in point is that of Reliance Industries which allotted shares to the shareholders in the telecom business when the latter business was hived off as part of the family settlement.
The company has allotted 1,018,523 shares at a price of Rs 448.59 per equity share through conversion of 10,350 Foreign Currency Convertible Bonds, according to a BSE release. Also, the company has allotted 1,349,726 shares at a price of Rs 477 per equity share through conversion of 13,900 FCCBs.
Videocon’s scrip on Monday closed on the BSE at Rs 616.15 down 5.04 per cent from the previous day’s close of Rs 648.85.Essar to Raise $4 Billion to Triple Refining Output
Dec. 18 (Bloomberg) -- Essar Oil Ltd., operator of India's newest refinery, plans to raise $4 billion, half of it overseas, to more than triple capacity at the facility.
The funding plan will be completed next month, Naresh Nayyar, managing director, said in an interview in Mumbai. Shareholders today approved a plan to sell $2 billion of shares to the group, controlled by billionaire brothers Shashi and Ravi Ruia, to pay for the remainder of the Gujarat, western India-based plant.
Essar, whose shares have risen five-fold this year, needs money to narrow the gap with Reliance Industries Ltd., which is using record profits to build the world's biggest refinery complex. The Indian refiners are reliant on exports because state-set retail prices make it impossible to profit from selling gasoline, diesel and heating oil at home.
``It will be hugely ambitious to grow as big as that by 2010,'' said Tony Regan, energy consultant at Nexant Inc. in Singapore. ``From 2009 we'll see significant volumes coming up, mostly from Reliance. So we're expecting refining margins to come off quite sharply.''
Essar Oil's Jamnagar refinery started last year almost a decade after it was first planned, as the group's steel unit faced losses because of falling prices of the commodity. In the interim, Reliance has built a plant in the same city that's three times larger than Essar's and will next year almost double capacity again with a new facility.
``By mid-2009, we should have in hand all the equipment needed to run the refinery at full scale,'' Nayyar said yesterday, without saying whether Essar will sell bonds or obtain loans. ``We've already placed orders for all critical items.''
Shares Rise
Shares rose 31.3 rupees, or 12.2 percent, to 287.3 rupees at 2:34 p.m. local time on the Bombay Stock Exchange today. They earlier rose as much as 16.8 percent.
Essar Oil has gained 50 percent since the group last month scrapped a plan to delist from the Bombay Stock Exchange and National Stock Exchange and said it would spend $6 billion in expanding the refinery.
Construction by Essar, Reliance and Indian Oil Corp. will increase India's ability to process crude by 92 million metric tons a year by 2012 from 149 million tons now, boosting exports, Dinsha Patel, junior minister for oil and gas, said Aug. 16.
India had a surplus of 20.1 million tons of fuels in the year ended March 31, of which diesel accounted for more than half.
``We were aware of the tightness in the equipment market thanks to all the expansion plans by Asian refiners,'' Nayyar said. The company has ordered all equipment that it needs up to 24 months for delivery, he said.
Increase Capacity
Essar will increase capacity at the western India-based refinery to 34 million tons a year, or 680,000 barrels a day, from 10.5 million tons now.
Reliance Petroleum Ltd., a unit of Reliance Industries, is building a 580,000 barrel-a-day refinery adjacent to a 660,000 barrel-a-day plant owned by its parent.
Indian Oil, the nation's biggest state-run refiner, and third-ranked Bharat Petroleum Corp. are also planning expansions.
Essar Oil has about $2 billion of debt outstanding, Nayyar said. Parent company Essar Group last month secured a $3.59 billion loan against its stake in a mobile-phone venture with Vodafone Group Plc. BNP Paribas SA, Citigroup Inc., Commerzbank AG and Standard Chartered Plc arranged the loan.
Heavier Crude
Essar has placed orders to buy heavier varieties of crude oil from the Middle East, Nayyar said without elaborating. The company also plans to buy sour crude varieties from Mexico, Brazil and Venezuela.
``Our goal is to process 1 million barrels crude a day, of which 700,000 barrels a day will be processed in Jamnagar,'' Nayyar said. The company plans to build or buy overseas refining capacity of up to 250,000 barrels a day.
Essar plans to sell 80 percent of the fuels processed at its refinery in overseas markets. The company plans to market gasoline and diesel from its Jamnagar refinery in Southeast Asia including China and Middle East, he said without elaborating.
``Though the demand isn't huge now, marketing in east African countries will make economic sense for us,'' Nayyar said. Essar is looking to buy a stake in fuel retailing companies in African countries such as Kenya, Tanzania and Nairobi, he said.
Nayyar declined to comment on reports the company is planning to buy a 50 percent stake in a Kenyan refinery. Essar plans to buy a 50 percent stake currently owned by Chevron Corp., Royal Dutch Shell Plc and BP Plc, Press Trust of India reported on Dec. 10.
Exploring Oil
Essar Oil will bid for rights to explore oil and gas areas offered by the Indian government on Dec. 13, Nayyar said. The country offered a record 57 areas last week.
The Indian government expects companies to invest $3.5 billion in areas they secure in the auction, M.S. Srinivasan, secretary to India's oil ministry said on Dec. 13. The previous six rounds had drawn cumulative investments worth $8 billion.
The company may look for partners to jointly bid for areas auctioned, Nayyar said.
HOT STOCKS for 18-12-07
STATISTICS :
Markets globally are very volatile, so can expect the same from our markets also, Nifty will again have a range bound session can see up in opening with fluctuations on either sides, Nifty will trade @ 5720 levels to 5840 levels, Nifty has a support @ 5720 so below this levels can expect nifty @ 5665, and Nifty is strong above 5870 levels.
Can expect this trend of Fluctuations continue till this year end so trade cautiouslt with stock specific strategies with strict stop loss
INTRADAY :
IFCI : sell for a tgt of 100, sl @ 111
EDELWEISS : buy for a tgt 1500+, sl @1416
DELIVERY :
CENTRALBANK : buy for a tgt of 175, time frame is 3-6 months.
BHARTI : buy for a tgt of 1200+ , time frame is 6 months
FUTURES :
L&T : buy for a tgt of 4120+, sl @ 4020
RELIANCE buy for a tgt of 2830+, sl @ 2779
INFOSYS : buy for a tgt of 1645+, sl @ 1620
SATYAM : buy for a tgt of 415+, sl @ 402
BHARTI : buy for a tgt of 924+, sl @ 900
OPTIONS :
NIFTY : buy call 6000 for a tgt of 60+, sl @ 34
INFOSYS : buy call 1740 for a tgt of 25+, sl @ 5rs
RELIANCE : buy call 2900 for a tgt of 45+, sl @ 28
Markets globally are very volatile, so can expect the same from our markets also, Nifty will again have a range bound session can see up in opening with fluctuations on either sides, Nifty will trade @ 5720 levels to 5840 levels, Nifty has a support @ 5720 so below this levels can expect nifty @ 5665, and Nifty is strong above 5870 levels.
Can expect this trend of Fluctuations continue till this year end so trade cautiouslt with stock specific strategies with strict stop loss
INTRADAY :
IFCI : sell for a tgt of 100, sl @ 111
EDELWEISS : buy for a tgt 1500+, sl @1416
DELIVERY :
CENTRALBANK : buy for a tgt of 175, time frame is 3-6 months.
BHARTI : buy for a tgt of 1200+ , time frame is 6 months
FUTURES :
L&T : buy for a tgt of 4120+, sl @ 4020
RELIANCE buy for a tgt of 2830+, sl @ 2779
INFOSYS : buy for a tgt of 1645+, sl @ 1620
SATYAM : buy for a tgt of 415+, sl @ 402
BHARTI : buy for a tgt of 924+, sl @ 900
OPTIONS :
NIFTY : buy call 6000 for a tgt of 60+, sl @ 34
INFOSYS : buy call 1740 for a tgt of 25+, sl @ 5rs
RELIANCE : buy call 2900 for a tgt of 45+, sl @ 28
SEBI plans new products in F&O
MUMBAI: The Securities and Exchange Board of India (SEBI) on Monday proposed the introduction of new products in the derivatives segment, including mini contracts in equity indices, which would help individual investors to hedge an underlying portfolio, index futures and options contracts closely following the price movement of their respective underlying indices.
In continuation with the SEBI board decision to introduce new products in the derivatives segment, based on the interim recommendations of the Derivatives Market Review Committee headed by Prof. M. Rammohan Rao, it has come out with a note on new products in the futures and options (F&O) segment for public comments and suggestions on or before December 21.
The SEBI proposed to introduce initially, mini contracts in both index futures and index options with BSE Sensex or NSE Nifty as underlying. Mini contract will be fraction of normal derivative contact.
Smaller contract size, apart from helping the individual investor to hedge risks of a smaller portfolio, offers lower levels of risk in terms of smaller level of possible downside compared to a big size contract, SEBI stated.
Other instrumentsOther instruments SEBI proposed are: Options contracts with longer life or tenure; volatility index and F&O contracts; options on futures; bond index and F&O contracts; exchange-traded currency (foreign exchange) F&O contracts; and exchange-traded products involving different strategies.
On proposing contracts with longer life or tenure, SEBI stated that many investors who have a long-term view on the market do not find a direct options product with which this could be achieved.
Heavy trading volume, marginal rise in turnover
Mumbai, Dec 17 The sharp and swift fall in the stock prices of Monday indicates the fact that investors were caught laid back and had not anticipated such a large fall in a single session. The trading volume on the Bombay Stock Exchange (BSE) surpassed its rival's National Stock Exchange (NSE) for the first time in recent times. The BSE recorded total number of shares traded in the cash market at 99.02 crore shares as against 98.98 crore shares traded on the NSE.
BSE witnessed an average trading volume in the range of 67 crore share to 79 crore shares till last Friday. The trading volumes spurt up suddenly on Monday and out paced NSE's volume which has averaged daily trading volume in the range of 83 crore shares to 88 crore shares in the last one week.
According to market analysts, the sharp rise in the BSE's traded volume indicates the fact that more trading took place in the small- and mid-cap stocks compared to average daily trading volume. The higher volume on BSE is also on account of more number of stocks listed on the exchange compared to NSE. BSE has a population of over 7,700 listed Companies of which almost 2,900 stocks are traded on a daily basis, while NSE, on other hand, has a population of listed and permitted Companies in the range of 1,100 and most of them are liquid and traded on the exchange on daily basis.
A leading market analyst said, the sudden rise in trading volume on both the exchanges on Monday was on account of triggering of stop losses, which investrors and brokerages adhere to when Markets are volatile. The fall at the fag end of the session was so swift that prices fell to the level of the stop loss level and investors did not get a chance of squaring up their position. This must have resulted in moderate to heavy losses to the investors, who could not reverse their position in time, he added.
This fact can be proved from the point that though the trading volume has jumped sharply, the turnover has not kept pace, indicating sharp fall in stock prices, thereby resulting in the loss. BSE on Monday recorded a turnover of Rs 9,641 crore while NSE clocked a turnover of Rs 20,428 crore, which is in line with the average turnover witnessed in the previous week.
Securities in ban period for trade date December 18, 2007- F&O segment
| Securities in ban period for trade date December 18, 2007- F&O segment The derivative contracts in the below mentioned securities have crossed 95% of the market-wide position limit and are currently in the ban period. It is hereby informed that all clients/ members shall trade in the derivative contracts of said securities only to decrease their positions through offsetting positions. Any increase in open positions shall attract appropriate penal and disciplinary action in accordance with the Circular No. NSCC/F&O/C&S/365 dated August 26, 2004. | |||||||||||||||||||||
|
Monday, 17 December 2007
Indian shares crash tracking global meltdown
MUMBAI (Thomson Financial) - Indian shares closed lower as indices crashed in late trading on Monday, tracking the meltdown in global markets and other Asian markets.
Asian shares extended their losses as the Wall Street slumped Friday over concerns of inflation accelerating in the US, which could make it difficult for the US Federal reserve cut rates further.
'The markets are down due to meltdown in global markets. Indian markets can't be decoupled from the happenings around the globe,' Rajiv Sampat, director of Mumbai-based Parag Parikh Financial Advisory Services Ltd said.
The Bombay Stock Exchange's (BSE) benchmark 30-stock Sensex fell 769.48 points, or 3.84 pct, to 19261.35, its second-biggest points fall in a single day, while the National Stock Exchange's S&P CNX Nifty, which registered its biggest points fall in a day, dipped 4.27 pct at 5,789.20 points.
With the year end festival season round the corner, FIIs turned sellers and investors locked in profits across all sectors, which added to today's fall, Sampat added.
Contrary to the dealers' forecasts in the morning, the mid-cap and small-cap shares tumbled too. The BSE's midcap index was down 3.87 pct at 9,105.58 points, while the smallcap index fell 2.91 pct to 11,840.02 points.
An analyst at a hedge fund, however, said, 'It (the fall) is a temporary action and midcaps are likely to do well even in the coming days as this phase passes. Shares of sugar companies are likely to outperform the markets in the medium term, but auto companies are likely to come under pressure.'
Among the biggest losers today were, Housing Development Finance Corp (HDFC) which fell 5.93 pct to close at 2877.55 and state-owned Bharat Heavy Electricals Ltd which dipped 5.32 pct to 2425.25.
Small-, mid-caps go bullish
| Small- and mid-cap stocks are shining on the bourses compared with large-cap scrips by posting a higher price appreciation and cornering a bigger share in turnover on both BSE and NSE. |
| The BSE Small-Cap Index (up 34 per cent) and the BSE Mid-Cap Index (up 28 per cent) have outperformed the Sensex (up 16 per cent) in the last two-and-a-half months, while the NSE Junior Nifty (up 25.4 per cent) and the NSE Mid-Cap Index (up 30.2 per cent) have beaten the S&P CNX Nifty (up 20.4 per cent) during the same period. |
| The frenzied buying in small- and mid-cap stocks is also reflected in the turnover, which has gone up substantially during the period. |
| The small- and mid-cap stocks (non-A group), which accounted for 38 per cent share in the total turnover of BSE prior to October 2007, account for 53 per cent now. |
| On NSE, the share in turnover of small- and mid-cap stocks has increased from 49.3 per cent to 64.4 per cent in the same period. |
| According to Siddhartha Bhamre, a derivatives and equity analyst at Angel Broking, FIIs are inactive and not buying large-cap stocks on account of their stretched valuation and also because of many lucrative large-cap public offerings in the last three months. |
| Meanwhile, retail and high networth individuals (HNIs) are buying small- and mid-cap stocks instead of going in for large-cap stocks. |
| The retail and HNI investors are buying small-cap stocks such as those of Hotel Leela, Tata Teleservices and Ashok Leyland instead of going for Reliance Industries, Larsen & Toubro, Bharti or Reliance Communication. Traders and operators are buying and selling small- and mid-cap stocks on account of positive cost of carry for derivatives contracts. |
| Stock broker Shailesh Bhatia said FIIs had achieved the upper limit of investment in most of the large-cap stocks and hence could not buy more such stocks. |
| The retail participation was seen in momentum stocks, though not for delivery, but for intra-day selling, said Bhatia. |
| Stocks traded under the B group were the largest gainers on BSE. Their market share more than doubled from 3.27 per cent in October to 8.68 per cent in December. During the same period, the market share of the B1 group stocks increased from 29.30 per cent to 39.37 per cent. |
| The market price of 234 non-A group stocks went up by over 100 per cent in the last two-and-a-half months and the price of 559 stocks appreciated between 50 per cent and 100 per cent. |
| Of the 2,682 actively traded non-A group stocks, the daily average turnover of 53 per cent or 1,441 stocks more than doubled and the average of 235 stocks rose in the range 50 per cent to 100 per cent. |
HOT STOCKS for 17-12-07
STATISTICS :
Global markets today are under pressure can see almost all indices down by 1% and more. Chances of our market fowwloing the same path can see noticed. Opening will be flat to negative due to global pressure. Nifty is rangebound and volatile can trade @ 5995 - 6080 levels, can see buying coming in second session, markets will tend to recover, Market is still stock specfic, one can watch out for the below mentioned picks for today and coming days.
INTRADAY :
IFCI : buy for a tgt of 124+, sl @ 107
EDELWEISS : buy for a tgt of 1530+, sl @ 1445
DELIVERY :
NIIT TECH : buy for a tgt of 310+, time frame is 1 month
HFCL : buy for a tgt of 65+, time frame is 1 month
FUTURES :
IFCI : buy for a tgt of 124+
SATYAM : buy for a tgt of 450 , go for jan expiry
MOSERBAER : sell for a tgt of 285, sl @ 297
RPL : buy for a tgt of 230+
EDELWEISS : buy for a tgt of 1530+ , sl @ 1450
BHARTI : buy for a tgt of 980+, sl @ 935
OPTIONS :
EDELWEISS : buy call 1500 for a tgt of 90+, sl@ 40
EDELWEISS : buy call 1560 for a tgt of 55+, sl @ 16
NIFTY : buy call 600 below 145 for a tgt of 180 , sl @ 120
RCOM : buy call 740 for a tgt of 50+, sl @ 25
Global markets today are under pressure can see almost all indices down by 1% and more. Chances of our market fowwloing the same path can see noticed. Opening will be flat to negative due to global pressure. Nifty is rangebound and volatile can trade @ 5995 - 6080 levels, can see buying coming in second session, markets will tend to recover, Market is still stock specfic, one can watch out for the below mentioned picks for today and coming days.
INTRADAY :
IFCI : buy for a tgt of 124+, sl @ 107
EDELWEISS : buy for a tgt of 1530+, sl @ 1445
DELIVERY :
NIIT TECH : buy for a tgt of 310+, time frame is 1 month
HFCL : buy for a tgt of 65+, time frame is 1 month
FUTURES :
IFCI : buy for a tgt of 124+
SATYAM : buy for a tgt of 450 , go for jan expiry
MOSERBAER : sell for a tgt of 285, sl @ 297
RPL : buy for a tgt of 230+
EDELWEISS : buy for a tgt of 1530+ , sl @ 1450
BHARTI : buy for a tgt of 980+, sl @ 935
OPTIONS :
EDELWEISS : buy call 1500 for a tgt of 90+, sl@ 40
EDELWEISS : buy call 1560 for a tgt of 55+, sl @ 16
NIFTY : buy call 600 below 145 for a tgt of 180 , sl @ 120
RCOM : buy call 740 for a tgt of 50+, sl @ 25
Securities in ban period for trade date December 17, 2007- F&O segment
The derivative contracts in the below mentioned securities have crossed 95% of the market-wide position limit and are currently in the ban period. It is hereby informed that all clients/ members shall trade in the derivative contracts of said securities only to decrease their positions through offsetting positions. Any increase in open positions shall attract appropriate penal and disciplinary action in accordance with the Circular No. NSCC/F&O/C&S/365 dated August 26, 2004.
| Sr. No. | Symbol |
| 1 | ADLABSFILM |
| 2 | ALOKTEXT |
| 3 | BONGAIREFN |
| 4 | ESSAROIL |
| 5 | GITANJALI |
| 6 | GMRINFRA |
| 7 | HOTELEELA |
| 8 | MRPL |
| 9 | NAGARFERT |
| 10 | NEYVELILIG |
| 11 | POWERGRID |
| 12 | RAJESHEXPO |
| 13 | TTML |
SEBI panel suggests compensation for retail investors
MUMBAI: This could well signal a new beginning in the country’s financial sector in terms of compensating investors who have been defrauded.
Thousands of retail investors in the primary market could be in line to be compensated monetarily for potential losses suffered by them due to manipulation in the initial public offering (IPO) allotment process of 21 companies two years ago.
A SEBI-mandated committee has recommended that individual investors who were short-changed in IPOs between 2003 and 2005 be compensated in monetary terms. The Justice Wadhwa committee has worked out a compensation of Rs 92 crore for investors who had applied for shares in the retail category in 21 IPOs in 2005-06.
This is based on the closing price on the listing day for all these IPOs, which include IDFC, Jet Airways and Suzlon.
In essence, investors who lost out in these IPOs should be paid the difference between the offer price and the closing price on the listing day, the committee has said in its report, according to sources. This is reckoned to be the unjust gain made by scamsters who cornered shares meant for individual investors.
Sources said the report has recommended that the first to be compensated should be retail investors who failed to get any allotment, followed by those who were allotted fewer shares than they had applied for. Orders to disgorge ill-gotten gains are common in the US, the world’s largest financial market.
Finance Minister P Chidambaram had said last year that he wanted to send out a strong signal to those attempting to defraud investors by compensating them for the losses they had incurred. He had told SEBI to work out a mechanism to ensure this.
The SEBI board will now have to consider the Wadhwa committee’s recommendations and then take suitable action. This would mean going back to old records with market intermediaries and identifying thousands of investors, which can be a cumbersome exercise.
In almost all 21 IPOs, the shares were listed at a premium to the offer price. The compensation can be paid out by selling securities worth over Rs 140 crore of those operators involved in the IPO scam which have been frozen in their depository accounts based on an order issued by SEBI.
The 2005-06 scam featured a clutch of operators who put in thousands of fictitious applications in several IPOs in the retail category of a small value. After allotment, these operators transferred the shares to another set of players, who in turn transferred them to financiers who had provided the funds for investing in the IPOs.
These shares were then sold on the first day of listing, landing them a windfall, the price difference between the IPO price and the listing price. Thousands of bank accounts and demat accounts were opened in the names of fictitious entities, which SEBI investigators unearthed in 2006 after checking over 100 IPOs.
During the probe, it came to light that key operators had cornered shares representing 0.52% of the total number of shares allotted to the retail investors in the Jet Airways IPO. In the Suzlon offering, 3.74% of shares were allotted to operators using over 21,000 different accounts while in the NTPC issue, the operators used 12,853 accounts to corner 1.30 % of the total number of shares allotted to investors.
Thousands of retail investors in the primary market could be in line to be compensated monetarily for potential losses suffered by them due to manipulation in the initial public offering (IPO) allotment process of 21 companies two years ago.
A SEBI-mandated committee has recommended that individual investors who were short-changed in IPOs between 2003 and 2005 be compensated in monetary terms. The Justice Wadhwa committee has worked out a compensation of Rs 92 crore for investors who had applied for shares in the retail category in 21 IPOs in 2005-06.
This is based on the closing price on the listing day for all these IPOs, which include IDFC, Jet Airways and Suzlon.
In essence, investors who lost out in these IPOs should be paid the difference between the offer price and the closing price on the listing day, the committee has said in its report, according to sources. This is reckoned to be the unjust gain made by scamsters who cornered shares meant for individual investors.
Sources said the report has recommended that the first to be compensated should be retail investors who failed to get any allotment, followed by those who were allotted fewer shares than they had applied for. Orders to disgorge ill-gotten gains are common in the US, the world’s largest financial market.
Finance Minister P Chidambaram had said last year that he wanted to send out a strong signal to those attempting to defraud investors by compensating them for the losses they had incurred. He had told SEBI to work out a mechanism to ensure this.
The SEBI board will now have to consider the Wadhwa committee’s recommendations and then take suitable action. This would mean going back to old records with market intermediaries and identifying thousands of investors, which can be a cumbersome exercise.
In almost all 21 IPOs, the shares were listed at a premium to the offer price. The compensation can be paid out by selling securities worth over Rs 140 crore of those operators involved in the IPO scam which have been frozen in their depository accounts based on an order issued by SEBI.
The 2005-06 scam featured a clutch of operators who put in thousands of fictitious applications in several IPOs in the retail category of a small value. After allotment, these operators transferred the shares to another set of players, who in turn transferred them to financiers who had provided the funds for investing in the IPOs.
These shares were then sold on the first day of listing, landing them a windfall, the price difference between the IPO price and the listing price. Thousands of bank accounts and demat accounts were opened in the names of fictitious entities, which SEBI investigators unearthed in 2006 after checking over 100 IPOs.
During the probe, it came to light that key operators had cornered shares representing 0.52% of the total number of shares allotted to the retail investors in the Jet Airways IPO. In the Suzlon offering, 3.74% of shares were allotted to operators using over 21,000 different accounts while in the NTPC issue, the operators used 12,853 accounts to corner 1.30 % of the total number of shares allotted to investors.
Sunday, 16 December 2007
Indian markets among most expensive globally?
Price- to-book value ratio of Sensex stocks is at record 6.5
Chennai, Dec. 15 With the key stock indices at new highs, the Indian markets may now look quite expensive by most valuation parameters.
But do you know that India is now among the most expensive major global markets, based on the price-to-book value ratio (PB ratio)?
The Sensex PB ratio is now at a record high of 6.5, making the Indian benchmark the most richly valued among the global indices on this valuation parameter. The PB ratio is a measure of the value that the stock market is willing to assign to a company, based on the tangible assets on its books.
It is computed by dividing the market price by the book value per share. The PB ratio is the most widely used measure, after the PE multiple, to value stocks.
While the Sensex PB ratio rules at 6.5, data published in Forbes.com in mid-November, reveals that the developed markets in US and Europe trade at PB ratios of between 2.4 and 2.8.
Emerging markets such as Brazil (4.3) and Mexico (3.5) sport PB ratios that are a tad higher than developed markets, but they are still well below Indian levels.
Even the Shanghai Composite Index hovers pretty close to the Sensex, if you go by its PB ratio.
Rapid rise
The current PB ratio of the Sensex is 80 per cent above its eight-year average. What is more, it has climbed from 4.8 in August to the current value of 6.5, in less than three months. The rapid increase in the stock prices over the last three months could be partially responsible for the distortion in this gauge.
Another bit of disturbing news is that it is not just the 30-stock Sensex that is stretched on this parameter. The more broad-based BSE 500 index too is ruling at a PB ratio of 6.2.
This indicates that the widespread rally in recent months has expanded valuations across-the-board.
However, PB ratio for the BSE Small-cap index is at a relatively modest 3.4.
Understated values
However, there is a section of investors who believe that a high PB ratio isn’t particularly worrying for Indian stocks.
Explains Mr Shriram Iyer, Head of Research at Edelweiss Capital: “Price to Book Value, as a valuation measure, usually sets a floor for valuing a stock. It doesn’t capture future earnings potential.” He explains that while a company’s book value typically captures the cost incurred to build assets, it doesn’t reflect the earnings that can be generated by these assets over the next few years.
Mr Iyer also feels that “book value” in the Indian context tends to be understated in balance sheets due to several reasons. He cites the example of natural resource companies.
“The value of mining rights, gas reserves or other resources held by companies such as ONGC, Reliance Industries, Tata Steel, SAIL and so on has risen sharply in recent times, but these assets are captured at cost in the company’s books. To that extent, the price-to-book value may not reflect the earnings potential of such companies.”
“There could also be several intangibles that are not reflected in the books. The value of an insurance subsidiary for a financial service company or the earnings potential of land held by a realty company will not be reflected in book value; yet they may have high earnings potential.
However, it would be difficult to comment on whether a PB ratio of over 6 is expensive for the Indian market,” he adds.
Chennai, Dec. 15 With the key stock indices at new highs, the Indian markets may now look quite expensive by most valuation parameters.
But do you know that India is now among the most expensive major global markets, based on the price-to-book value ratio (PB ratio)?
The Sensex PB ratio is now at a record high of 6.5, making the Indian benchmark the most richly valued among the global indices on this valuation parameter. The PB ratio is a measure of the value that the stock market is willing to assign to a company, based on the tangible assets on its books.
It is computed by dividing the market price by the book value per share. The PB ratio is the most widely used measure, after the PE multiple, to value stocks.
While the Sensex PB ratio rules at 6.5, data published in Forbes.com in mid-November, reveals that the developed markets in US and Europe trade at PB ratios of between 2.4 and 2.8.
Emerging markets such as Brazil (4.3) and Mexico (3.5) sport PB ratios that are a tad higher than developed markets, but they are still well below Indian levels.
Even the Shanghai Composite Index hovers pretty close to the Sensex, if you go by its PB ratio.
Rapid rise
The current PB ratio of the Sensex is 80 per cent above its eight-year average. What is more, it has climbed from 4.8 in August to the current value of 6.5, in less than three months. The rapid increase in the stock prices over the last three months could be partially responsible for the distortion in this gauge.
Another bit of disturbing news is that it is not just the 30-stock Sensex that is stretched on this parameter. The more broad-based BSE 500 index too is ruling at a PB ratio of 6.2.
This indicates that the widespread rally in recent months has expanded valuations across-the-board.
However, PB ratio for the BSE Small-cap index is at a relatively modest 3.4.
Understated values
However, there is a section of investors who believe that a high PB ratio isn’t particularly worrying for Indian stocks.
Explains Mr Shriram Iyer, Head of Research at Edelweiss Capital: “Price to Book Value, as a valuation measure, usually sets a floor for valuing a stock. It doesn’t capture future earnings potential.” He explains that while a company’s book value typically captures the cost incurred to build assets, it doesn’t reflect the earnings that can be generated by these assets over the next few years.
Mr Iyer also feels that “book value” in the Indian context tends to be understated in balance sheets due to several reasons. He cites the example of natural resource companies.
“The value of mining rights, gas reserves or other resources held by companies such as ONGC, Reliance Industries, Tata Steel, SAIL and so on has risen sharply in recent times, but these assets are captured at cost in the company’s books. To that extent, the price-to-book value may not reflect the earnings potential of such companies.”
“There could also be several intangibles that are not reflected in the books. The value of an insurance subsidiary for a financial service company or the earnings potential of land held by a realty company will not be reflected in book value; yet they may have high earnings potential.
However, it would be difficult to comment on whether a PB ratio of over 6 is expensive for the Indian market,” he adds.
An introduction to open offers
There has been a string of open offers in recent months, on the back of a wave of takeovers and stake hikes by the promoters of India Inc. The stock prices of companies for which offers have been made have also zoomed.
Just what are open offers? How are they triggered? How do stocks behave in response to open offers? Read on to find out.
Warning. Some of what you are about to read might seem a bit like regulatory mumbo-jumbo. Here goes.
When there is a takeover, or a substantial quantity of shares or voting rights being acquired, regulations require the acquirer to provide an exit option to the target company’s shareholders, as there is a change in control of the company. The acquirer makes an open offer to buy shares to the extent of 20 per cent of the share capital from the public, at a particular price, during a defined time period. A public announcement is made to this effect, providing details such as the background of the acquirers, the justification of the offer price and the intentions and plans of the acquirer.
Triggers for open offers
Open offers can be voluntary. For instance, a promoter may wish to increase his stake in the company. According to SEBI regulations, promoters holding more than 55 per cent of the capital can increase their stake only by making an open offer to the public. If they hold less than 55 per cent, they can add up to 5 per cent a year to their stake, after making suitable disclosures to the stock exchanges. If they wish to acquire more than 5 per cent in a year, then too, an open offer will have to be made.
Most open offers are, however, triggered when a new acquirer buys a significant stake into a company and his shareholding in the company crosses the 15 per cent threshold limit stipulated by SEBI. In this case, an open offer has to be compulsorily made, barring a few exceptions, and involves a hefty cash payout. This is why acquirers who have a purely investment or financial interest in the company try to maintain their stake at below 15 per cent levels. It is also why the open offer route is rarely used for complete 100 per cent buyouts.
Offer price
The price at which the acquirers buy shares from the public will be based on parameters such as the rate at which shares are acquired from promoters, the price at which shares have been allotted to the acquirers in the six-month period preceding the offer and the stock price behaviour in weeks preceding the offer, whichever is higher.
Confused? Essentially, you can expect the offer price to be at least equivalent to the market price before the offer, or higher. If the acquirer is keen on garnering a higher stake in the company, he is likely to price the offer at a significant premium to the current market price, to induce most shareholders to tender their holdings.
Stock market response
So how does the stock market typically respond to an open offer? While the acquirer is busy complying with regulatory norms, the stock market is busy digesting the idea of a change in control of the company. There is usually an interlude between the time the public announcement is made and the actual offer period. The behaviour of the stock during this period has an immediate bearing on the success of the open offer. Here is how.
The usual response to an offer, especially if the offer price is at a premium, is a sharp run-up in the stock price. Say, an open offer is made for a stock at Rs 125 and its current market price is Rs 100. Who can pass up the opportunity to make a quick 25 per cent gain? A spurt of buying immediately leads to a stock run-up to near Rs 125 levels.
Great expectations
But sometimes the market sees benefits beyond the premium, in this case 25 per cent. It might expect the new management to pump in more money, re-structure operations, help a loss-making company turn around or a small company scale up operations.
The market may expect an ultimate merger with the acquiring company, which could mean a better valuation. Given these expectations, it is only natural that the market price jumps way beyond the offer price.
This has been a recurring phenomenon with a majority of recent offers: Reliance Capital’s offer for TV Today, Kingfisher’s offer for Deccan Aviation, or the promoter’s offer for Tata Investment Corp.
If the market price shoots up beyond the offer price, the acquirers would have to revise the offer price upwards, if they wish to acquire a higher stake.
Alfa Laval, for instance, had to revise its offer price upwards by nearly 50 per cent after its first open offer price of Rs 875 was rejected by shareholders. But with expectations that the Swedish parent would ultimately de-list the Indian subsidiary, even the higher offer price has not found many takers.
Low acceptance ratio
Sometimes, however, the stock price may not run up even if the offer price is at a premium to the current market price. For instance, private equity player Blackstone made an offer of Rs 275 per share to shareholders of Gokaldas Exports, a significant premium to the then prevailing offer price.
Textiles stocks have also been out of favour, as a strong rupee has been hurting off-take and margins of garment exporters. There is, therefore, a good incentive to tender shares to the offer. However, the stock price continues to trade below the offer price.
Here is where the acceptance ratio comes into play. The acquirer offers to buy only 20 per cent of the shareholding. Therefore, if the public shareholding is say 40 per cent, and almost all shareholders accept the open offer, the acquirer will only buy a part of the shares tendered.
That is, you might be able to tender only a part of your holdings to the offer and will have to offload the remaining in the open market. In this case, the company will accept only one of every two stocks tendered. This is known as the acceptance ratio.
So if the acceptance ratio is low, chances are the premium between the offer price and the current market price would never be bridged.
No easy choice
Clearly, there are several factors that influence the stock during an open offer, making the decision to tender shares to the offer no easy choice. Of course, when the stock price runs up ahead of the offer price, your decision is made simpler.
In other instances though, you have a window of opportunity to make a quick gain. Your own expectations from the new management, your investment horizon and target return would ultimately determine your choice.
Just what are open offers? How are they triggered? How do stocks behave in response to open offers? Read on to find out.
Warning. Some of what you are about to read might seem a bit like regulatory mumbo-jumbo. Here goes.
When there is a takeover, or a substantial quantity of shares or voting rights being acquired, regulations require the acquirer to provide an exit option to the target company’s shareholders, as there is a change in control of the company. The acquirer makes an open offer to buy shares to the extent of 20 per cent of the share capital from the public, at a particular price, during a defined time period. A public announcement is made to this effect, providing details such as the background of the acquirers, the justification of the offer price and the intentions and plans of the acquirer.
Triggers for open offers
Open offers can be voluntary. For instance, a promoter may wish to increase his stake in the company. According to SEBI regulations, promoters holding more than 55 per cent of the capital can increase their stake only by making an open offer to the public. If they hold less than 55 per cent, they can add up to 5 per cent a year to their stake, after making suitable disclosures to the stock exchanges. If they wish to acquire more than 5 per cent in a year, then too, an open offer will have to be made.
Most open offers are, however, triggered when a new acquirer buys a significant stake into a company and his shareholding in the company crosses the 15 per cent threshold limit stipulated by SEBI. In this case, an open offer has to be compulsorily made, barring a few exceptions, and involves a hefty cash payout. This is why acquirers who have a purely investment or financial interest in the company try to maintain their stake at below 15 per cent levels. It is also why the open offer route is rarely used for complete 100 per cent buyouts.
Offer price
The price at which the acquirers buy shares from the public will be based on parameters such as the rate at which shares are acquired from promoters, the price at which shares have been allotted to the acquirers in the six-month period preceding the offer and the stock price behaviour in weeks preceding the offer, whichever is higher.
Confused? Essentially, you can expect the offer price to be at least equivalent to the market price before the offer, or higher. If the acquirer is keen on garnering a higher stake in the company, he is likely to price the offer at a significant premium to the current market price, to induce most shareholders to tender their holdings.
Stock market response
So how does the stock market typically respond to an open offer? While the acquirer is busy complying with regulatory norms, the stock market is busy digesting the idea of a change in control of the company. There is usually an interlude between the time the public announcement is made and the actual offer period. The behaviour of the stock during this period has an immediate bearing on the success of the open offer. Here is how.
The usual response to an offer, especially if the offer price is at a premium, is a sharp run-up in the stock price. Say, an open offer is made for a stock at Rs 125 and its current market price is Rs 100. Who can pass up the opportunity to make a quick 25 per cent gain? A spurt of buying immediately leads to a stock run-up to near Rs 125 levels.
Great expectations
But sometimes the market sees benefits beyond the premium, in this case 25 per cent. It might expect the new management to pump in more money, re-structure operations, help a loss-making company turn around or a small company scale up operations.
The market may expect an ultimate merger with the acquiring company, which could mean a better valuation. Given these expectations, it is only natural that the market price jumps way beyond the offer price.
This has been a recurring phenomenon with a majority of recent offers: Reliance Capital’s offer for TV Today, Kingfisher’s offer for Deccan Aviation, or the promoter’s offer for Tata Investment Corp.
If the market price shoots up beyond the offer price, the acquirers would have to revise the offer price upwards, if they wish to acquire a higher stake.
Alfa Laval, for instance, had to revise its offer price upwards by nearly 50 per cent after its first open offer price of Rs 875 was rejected by shareholders. But with expectations that the Swedish parent would ultimately de-list the Indian subsidiary, even the higher offer price has not found many takers.
Low acceptance ratio
Sometimes, however, the stock price may not run up even if the offer price is at a premium to the current market price. For instance, private equity player Blackstone made an offer of Rs 275 per share to shareholders of Gokaldas Exports, a significant premium to the then prevailing offer price.
Textiles stocks have also been out of favour, as a strong rupee has been hurting off-take and margins of garment exporters. There is, therefore, a good incentive to tender shares to the offer. However, the stock price continues to trade below the offer price.
Here is where the acceptance ratio comes into play. The acquirer offers to buy only 20 per cent of the shareholding. Therefore, if the public shareholding is say 40 per cent, and almost all shareholders accept the open offer, the acquirer will only buy a part of the shares tendered.
That is, you might be able to tender only a part of your holdings to the offer and will have to offload the remaining in the open market. In this case, the company will accept only one of every two stocks tendered. This is known as the acceptance ratio.
So if the acceptance ratio is low, chances are the premium between the offer price and the current market price would never be bridged.
No easy choice
Clearly, there are several factors that influence the stock during an open offer, making the decision to tender shares to the offer no easy choice. Of course, when the stock price runs up ahead of the offer price, your decision is made simpler.
In other instances though, you have a window of opportunity to make a quick gain. Your own expectations from the new management, your investment horizon and target return would ultimately determine your choice.
Subscribe to:
Posts (Atom)
