Bhave raises UPSE`s hopes

The Uttar Pradesh Stock Exchange (UPSE) may get permission from Sebi for taking membership of the National Stock Exchange, NSE, as C B Bhave, the new Sebi chief, seems to be cooperative on the moves that had earlier been opposed by his predecessor.

Damodaran had, almost eight months back, rejected the application of the Madras Stock Exchange (MSE) for a tie-up with the NSE. But after Bhave took over, this permission has been granted. Thus the MSE has become a member of the NSE, where it will have to pay Rs 3 crore and many brokers will be able to work on the NSE platform.

The UPSE had made a similar application almost two years back. But Sebi had not taken any decision on it. It was thought that the permission will be withheld.

“Now, after permission to the Madras Stock Exchange is granted,” says KD Gupta, administrator, UPSE, “We may also be given the go-ahead.”

Asked about alternate platforms of trading, he said the proposal about coming together of Delhi, UP, Ludhiana, and Jaipur stock exchanges was only mentioned once in a meeting and has not been mentioned even once in the last four months.

Besides, the Delhi Stock Exchange (DSE) is also thinking of other combinations. Some other platforms which are being thought of may bring together Sidbi, IIBI, DSE and others. But all this is under discussion, he said.

Asked about the reports of Nasdaq taking interest in investing in the regional stock exchanges, Gupta said: “Nasdaq does have a person in India, but he is not authorized to take a decision. He can only come and talk .Therefore, there is no way any stock exchange will or is likely to have any tie-up with Nasdaq.”

Gupta said creating a trading platform was not easy. He added: “It is not just coming together of the various stock exchanges. Any third platform can only come about if its work is exclusively earmarked. For instance, if it said that all shares whose paid up capital is Rs 20 crore or less shall be exclusively listed on the third platform, you will find that large number of buyers will be available for stake. Before that happens, nobody will come and no alternative platform can get created.”

Monsoon Capital hit hard by slump in Indian stocks

The Monsoon India Inflection Fund LP has dropped 28.3% this month, through March 20. That leaves it down 45.9% so far in 2008, Prakash wrote in an update to investors. MarketWatch obtained a copy of the letter.

The Monsoon India Inflection Fund 2 LP is down 26.8% so far in March and is off 44.4% so far this year, Prakash reported.

India's Sensex Index has dropped more than 26% so far this year. More than half of that slump has come so far in March, with the benchmark off almost 15%. Shares of smaller Indian companies have done even worse, with the BSE Mid Cap Index down 23% this month and 41% so far in 2008. The BSE Small Cap Index has plunged 26% this month and 47% year-to-date.

The performance of Monsoon's hedge funds and the broader Indian market show how vulnerable developing markets are to the waxing and waning of risk appetite among investors in developed countries.

Surging economic growth in India, China and other large developing countries has raised hopes of "de-coupling," in which such nations keep on expanding despite problems in the U.S. While that may turn out to be true for economic growth, it hasn't helped the Indian stock market, or Monsoon Capital.

"The U.S. is mired in a housing collapse, a severe credit crunch and turmoil on Wall Street that threatens the survival of several financial institutions and has compelled the U.S. Federal Reserve to take actions that it has not taken since the Great Depression," Prakash explained in his letter to investors. "These series of events and the size of losses have severely undermined investors, who have reassessed the risk premium associated with equities."

"Raising this investment risk premium to a higher level has triggered a correction in equity markets across the world; both developed as well as emerging markets," he added.

Despite recent signs of slowing slightly, Indian economic growth will still be very strong in coming years and the country isn't as dependent on exports to the U.S. as other developing nations like China, Prakash said.

"Though India is not export-dependent... and therefore should be relatively less economically affected than its Asian neighbors, investors are not drawing this distinction at this point of the crisis," he noted.

De-leveraging

A broader de-leveraging by investors across the world may be partly to blame for the Indian stock market slump and Monsoon's losses.

De-leveraging happens when investors that use borrowed money to buy stocks and other assets are asked by their brokers to come up with more cash or collateral to support their positions. Some investors have to sell holdings to meet such margin calls, which causes more price declines and, in turn, more margin calls and forced selling. See story on the Great Unwind.

Prakash said Monsoon has continued to see distressed selling by retail investors and speculators who had bought Indian stocks with borrowed money. Total sales by this group are now over $15 billion in the past two months, he noted.

Foreign institutional investors have sold about $3.5 billion of Indian stocks so far this year, Prakash also noted. These types of investors are crucial to developing markets. They pumped roughly $55 billion into Indian markets during the previous seven years.

Some of these foreign investors may have also been using borrowed money to invest in Indian stocks. They may be having to de-lever and sell positions too.

Emerging-markets hedge funds have been among the top-performing and fastest-growing part of the $2 trillion industry. It's common for hedge funds to use leverage to try to enhance returns.

Managers focused on India and China returned more than 50% last year, according to HedgeFund.net, which tracks industry performance.

Hedge funds are supposed to generate steady positive returns, even if markets are falling, because they use short selling, a way of betting against stocks and other assets. But it's more difficult to sell short in emerging markets.

Hedge fund managers focused on India lost more than 15% on average during the first two months of 2008, while funds focused on China fell 7.3%, HedgeFund.net data show.

ADAG’s Reliance Entertainment plans to launch 20 TV Channels & 8 websites

Reliance Entertainment Pvt. Ltd, the media and entertainment arm of the Reliance Anil Dhirubhai Ambani Group (R-ADAG) is all set to launch 20 TV channels in the country.

The above move is a part of its plans to expand the reach in the fast-growing broadcast entertainment business.

The Rs 130-billion Reliance Entertainment Ltd has interests in the production, distribution and exhibition of films, besides foraying into FM radio, Internet and television content.

The firm plans to launch two new companies with the name of Reliance Big TV Entertainment Pvt. Ltd and Reliance Big TV News Pvt. Ltd.

Under the proposed plan, the news broadcasting company will launch 4 channels: two general news channels and two business news channels, one each in Hindi and English in both genres. While, the non-news broadcasting company will launch music and movie channels, 5 general entertainment channels, and dedicated channels focused on children and lifestyle.

The company has already applied for mandatory approval of these channels from the information and broadcasting ministry.

The company is scheduled to launch the Hindi general entertainment channel and 3 regional movie channels by August, this year.
Further, the company also plans to launch eight new websites - including a Job portal and a general classifieds portal.

Last month, the firm had announced that its investor George Soros had picked up a 3% stake in it for Rs 395 crore, giving Reliance Entertainment a valuation of Rs 13,035 crore.

Of Fed, RBI and inflation

A week ago, the US Federal Reserve had to invoke a Depression-era law so that it could lend to Bear Stearns, the fifth largest brokerage in the US.

The Fed then orchestrated the takeover of Bear Stearns by J P Morgan Chase & Co over the weekend. The deal staved off a possible Bear bankruptcy, which the central bank feared might have traumatised financial systems worldwide.

The last time it used this law was in 1971, when the commercial paper market seized up after Penn Central, the largest rail-road company at that time, collapsed. The fact that the Fed has acted in a similar manner now tells us how seriously it believes the financial system is at risk.

While “Helicopter” Bernanke is living up to his image of dropping dollars from a helicopter, he is being innovative. No one can accuse him of sitting on his haunches and doing nothing to prevent the economy from going into recession.

The Fed’s action is quite in contrast to its role in the 1930 collapse of the Bank of the United States. The failure was then the largest in US history and the Fed’s inability to arrange a rescue by Wall Street banks caused a devastating loss of confidence in the entire US banking system. That fuelled a panic that historians regard as a key cause of the Depression.

With interests rate now down to 2.25 per cent, the Fed is probably left with just 0.75 per cent to cut unless it wants to send the economy back to 1 per cent, a rate that is supposed to have given birth to the current crisis. I don’t see the Fed going beyond 1.5 per cent and may depend on other unconventional methods like outrightly buying the troubled securities rather than lending to the banks.

The opening up of the Fed window to anyone who needs money has made the Fed the lender of the first resort, a role it should not be playing but which Bernanke will increasingly play.

These steps show the resolve with which the Fed is ready to move. The turnaround seen in our markets on Wednesday largely stemmed from the better than expected quarterly results posted by Goldman Sachs and Lehman Brothers in the US.

After the sell-off seen in the stocks once in the Bear Stearns portfolio in India, the market men had been pouring over the portfolio of other US I-Banks. Those sheets have not been consigned to the trash bin as yet. They have carefully been saved on the desktop for ready reference later, should one of those go belly up.

Another area of discomfort is the pending conversion of FCCBs. Corporate India had very eagerly placed FCCBs with FIIs and other QIBs. These FCCBs are supposed to be converted into equity shares at a pre-decided formula or price.

As the stock prices have now fallen sharply from the levels seen in January, investors may not be interested in conversion at all or may want to rework the price lower. In both cases, the companies will suffer.

If the price is lowered, the addition to equity will be higher than envisaged earlier and if the conversion does not happen, interest rates will mount. And if the borrowing happens to be yen or any other currency that has appreciated, god forbid.

Inflation is another thorn in the flesh. For the week ended March 8, inflation has been reported at 5.92 per cent. This is way beyond the comfort level of the RBI. So any hope the markets may have had of a rate cut following the slashing of rates in the US will be nipped in the bud. There might be a case, on the contrary, for tightening the nuts.

The solace that the banking and real estate sectors were seeking is not on the horizon. These two sectors have also seen the largest losses from their January highs of 40.8 per cent and 48.8 per cent, respectively.

The BSE consumer durable is the only other sector that has fallen more — 49.3 per cent. The weakness in commodities may help reduce global inflation but not ours, which is in a time warp of its own.

RBI to let firms hedge oil purchases

The Reserve Bank of India is planning to allow domestic companies to hedge their oil purchases in a bid to lower the impact of volatility in oil prices.

Indian oil firms purchase crude from overseas and process it in India. This, in turn, is sold to the domestic companies at the spot price (the prevailing price at that point of time).

The companies cannot hedge their future payments to the domestic oil firms without getting the RBI’s approval. By the time approval is obtained, the oil prices go up. Even if the payments are done in rupees, the underlying base price is in dollars and keeps fluctuating.

The proposed norms will allow Indian companies to hedge their payments without seeking the RBI’s nod.

To begin with, oil companies will be able to hedge 50 per cent of their receivables based on the previous years’ turnover and book forward contracts upto one year maturity.

Similarly, the oil marketing companies are not allowed to hedge their refining margins, which are maintained in dollars, without the RBI’s prior permission. The refinery margin is the profit accruing from a barrel of crude oil in terms of the value of refined products such as petrol, diesel and heating oil.

The RBI will enlist the services of banks with proper risk management procedures to help the oil companies book forward contracts without its prior approval.

GMR signs deal to upgrade Istanbul airport

Having already built a new airport at Hyderabad, infrastructure major GMR Group, along with other consortium partners, today signed an agreement with the Turkish government to expand an airport at Istanbul, the commercial hub of the country.

The GMR-led consortium will be developing facilities for trebling the passenger capacity of the Sabiha Gokcen International Airport (SGAI) at Istanbul with an investment of euro 250 million (about Rs 1,600 crore).

According to a release issued by GMR today, in addition to making an initial investment to increase the capacity of the airport to 10 million passengers per annum in 30 months, the consortium will pay euro 1.92 billion concession fee spread over 20 years to the Turkish government.

It will recover the money through various aviation and related activities, upgradation of the Sabiha Gocken Airport, named after a woman combat pilot and adopted daughter of the father of modern Turkey, Mustafa Kemal Ataturk.

"This project will increase the international exposure of the GMR Group...It will also serve as the ideal reference for entering into other European countries," GMR international division chief executive officer Ranjit Murugason said.

BSNL gets permission to start CDMA services

Bharat Sanchar Nigam (BSNL) has received permission to offer CDMA services across the country (except Delhi and Mumbai) under the cross over technology policy. Under the policy existing operators who are in GSM are allowed to also offer service in CDMA and vice versa within the same licence after paying a fee.

BSNL is the third company-after Reliance Communications (which is in CDMA and wanted to operate GSM service) and Tata Teleservices (similar to Reliance) have been given a licence under the new policy. BSNL however is a large GSM players which now wants to get into CDMA across the country throuhg this policy.

However, another public sector telecom company - Mahanagar Telephone Nigam which has also applied for spectrum under the same policy - has not yet been granted this permission.

Sources added that MTNL's application is being studied and a decision would be taken shortly.

At the moment BSNL operates GSM services across the country and also has CDMA services which are restricted within a city or district. While BSNL has ambitious plans to expand its GSM operations the clearance will provide them an opportunity to also become a pan India CDMA player. As CDMA operations were been given by BSNL, according to experts under their basic service licence the operations were limited to only within a city or district.

The cross over technology policy has come under heavy fire from GSM operators who have challenged the matter in courts. However, the Government has already given Reliance Communications spectrum to roll out their GSM operations across key circles in the country. Tata Teleservices is also waiting in the queue for spectrum. GSM operators have questioned the introducing of cross over technology on malafide.

Inflation rises to 11-month high of 5.92%

Inflation surged by 0.81% to over 11-month high of 5.92% for the week ended March 8 as essential items like fruits and vegetables and pulses as well as some manufactured items turned expensive.

The whopping rise in inflation rate would not allow RBI to go for soft monetary stance as it is way above the central bank's tolerance level of 5% for this fiscal, analysts said.

The wholesale prices-based inflation stood at 5.11% in the previous week.

The spurt in inflation rate happened despite a high base of 6.51% a year ago.

During the week, food articles like arhar, gram, moong, maize, fruits and vegetables as well as condiments and spices went dearer.

Prices of furnace oil, which is an industrial oil, went up by 2%.

Manufactured products like imported edible oil, coconut oil, mustard oil, also turned dearer. The Government had announced a ban on export of all edible oils with effect from March 17 for a period of one year to curb their rising prices.

The Prime Minister's Economic Advisory Council Chairman C Rangarajan had said yesterday that inflation rate was little above comfort level, and it does not favour interest rates cut policy.

Rangarajan's statement had come when inflation rate was 5.11%. With the figures, released today, a possibility of such cuts have become more remote, analysts said.

BSE curtails filters of 15% `B` stocks

In what seems to be a damage control exercise, the Bombay Stock Exchange (BSE) curtailed the circuit breakers of nearly 15 per cent of the 1,900 actively traded counters in the ‘B’ group to 5 per cent from the existing 10 per cent for the past three days.

Although the stock exchange declined to comment on the matter terming it as a routine surveillance and supervision issue, market participants are of the view that the move by BSE, under the current circumstances, could be aimed at extending support to markets in case of a further steep fall and avoiding panic among investors.

A majority of ‘B’ group stocks fell in the range of 20 to 30 per cent last week as markets tested the August 2007 lows of 14,800 on the Sensex.

The exchange, however, had removed a majority of stocks from the trade-to-trade group originally attracting 5 per cent circuit last month and included them under ‘B’ group.

While this move by the exchange created some amount of temporary liquidity in the market, the stocks bore the burnt. On an average over 500 shares were hitting a lower circuit of 10-20 per cent daily.

Investors trading in the derivative segment, who used the small- and mid-cap stocks as margin or collateral have suffered a major loss as most of these stocks witnessed a erosion of over 60 per cent in their value after the benchmark index fell by over 6,000 points from its peak.

Sebi to allow short selling by funds from April 21

India's market regulator said on Wednesday it will allow short selling of shares by all institutional investors from April 21.

It will also introduce a scheme for lending and borrowing securities from the same day, Securities and Exchange Board of India (SEBI) said.

Currently, only individual retail investors are allowed to short sell, or sell shares that they do not hold but expect to buy later.

SEBI had proposed the two measures in December with a view to protect investor interest and developing the market.

Market ends off highs on profit sales, tracking Europe

Benchmarks could not sustain the strong opening on Wednesday as wary investors chose to sell at every rise. Weakness in European markets dampened sentiments further.

Market followed the upbeat Asian stocks after the Federal Reserve cut interest rates by 75 basis points to keep the US financial markets from tumbling further.

However, the rally was short-lived as uncertainties loomed over the strength of global markets. Fears of more negative news hitting overseas led investors to cut long positions.

Bombay Stock Exchange’s Sensex closed at 14,994.83, up 161.37 points or 1.09 per cent. The index drifted over 530 points from its day’s high of 15,465.81 to touch a low of 14,930.08.

National Stock Exchange’s Nifty ended at 4573.95, up 52 points or 0.90 per cent. It touched a high of 4718.40 and low of 4533.90.

BSE Midcap Index closed at 5,964.10, down 1.16 per cent and BSE Smallcap Index ended 1.94 per cent lower at 7,222.20.

“Most players are worried over the global turn. Investors chose not to take long positions. We have a long weekend ahead and they (traders) don’t want to get caught on the wrong foot due to any negative development. Markets may stabilise at current levels but uncertainies remain,” said Sonal Srivastava, head of research, PCG, MF Global.

Volume on the NSE remained low at 53.87 crore shares compared with 60.53 crore shares Tuesday.

“There is lack of confidence from retail and HNI investors. Whatever activity is seen, is from institutions and FIIs,” he added.

Sensex gainers were Satyam Computer (up 5.24%), Tata Motors (5.08%), Wipro (4.64%), M&M (3.49%), HDFC Bank (3.11%) and L&T (2.72%).

Hindalco (down 4.09%), Hindustan Unilever (2.49%), DLF (1.85%), Reliance Energy (1.72%), Grasim Industries (1.35%) and TCS (0.89%) were the index losers.

“Market movement will be event based. By March end, recessionary indications in US will be clear. More banks and financials may report write-offs. Negativism still prevails in the market,” Srivastava said.

He advises cherry picking at these levels and at further declines.

RBI panel recommends more inflation indices

The annual inflation rate, supplemented with month-over-month price movements could provide a better signal on price dynamics in the Indian economy, a Reserve Bank of India (RBI) panel said.

The panel, set up to study seasonal movements in inflation, has said that all price series in India like wholesale and consumer price indices have peak and trough months around the same time of the year mainly due to seasonality in food prices.

India follows the annual wholesale price inflation (WPI) rate and the data is published weekly. The WPI is more closely watched than the consumer price index (CPI) because it includes more products and is updated more frequently.

CPI is released monthly and with a longer time lag than WPI.

"Analysis of annual point-to-point inflation reveals that, these are susceptible to the base effect. An alternative method of measuring inflation could be month-over-month variation in WPI, using seasonally adjusted data," the panel said.

To read the full report: go to the RBI's Web site www.rbi.org.in

Corruption: India ranked at 72nd position among 180 countries

Noting that India is presently ranked at 72nd place among 180 countries by the Transparency International in its latest Corruption Perception Index (CPI), the Centre on Wednesday said it has taken several measures and is "moving progressively" to eradicate the menace.

"Government is fully committed to implement its policy of Zero tolerance against corruption. It is moving progressively to eradicate corruption by improving transparency and accountability," the Minister of State for the Ministry of Parliamentary Affairs Suresh Pachouri said in Lok Sabha.

"Measures for strengthening the Anti-Corruption Bureau in various states are taken by the concerned governments while the Centre has decided to strengthen the CBI and departmental vigilance organisations," he told the lower house.

"This include modernisation and upgradation of infrastructure of the CBI, appointment of CVOs on the recommendations of the CVC, formulation and implementation of annual action plans for vigilance activities through pro-active involvement of various ministries and departments, issuance of comprehensive instructions on transparency in tendering and contacting processes by the CVC," Pachuri added.

Parry Agro to delist from BSE

The members of Parry Agro (Q, N,C,F)* Industries at the extra ordinary general meeting (EGM) held on Mar. 07, 2008 decided to de-list the equity shares of the company from the Bombay Stock Exchange.

The company swung to a loss for the quarter ended December 2007. During the quarter, the company saw a loss of Rs 24.9 million as compared with a profit of Rs 3.70 million in the corresponding quarter of the previous year.

Shares of the company closed down Rs 33.75, or 1.79% at Rs 1856.25. The total volume of shares traded at the BSE was 225. (Wednesday).

HOT STOCKS FOR 19 - 03 - 08

STATISTICS :

Market today can see a bounce back with a gapup opening of about 100+ points in nifty to 4700 levels, Nifty will trade within 5550 - 5750 levels, After fed cut 75 bps this could be a temporary rally, Nifty has some support @ 4550 and resistance @ 4680 levels.

INTRADAY :

GMRINFRA : buy for a tgt of 143+, sl @ 136

RCOM : buy for a tgt of 515+, sl @ 495

RNRL : buy for a tgt of 107+, sl @ 102

INDIABULLS : buy for a tgt of 430+, sl @ 400

FUTURES :

RELIANCE : buy for a tgt of 2230+, sl @ 2160

ZEEL : buy for a tgt of 252+, sl @ 240

UNITECH : buy for a tgt of 300+, sl @ 275

SBI : buy for a tgt of 1660+, sl @ 1600

ICICIBANK : buy for a tgt of 813+, sl @ 765

IDEA : buy for a tgt of 99.5+, sl @ 92

HDFC BANK : buy for a tgt of 1310+, sl @ 1225

NIFTY : buy for a tgt of 4800+

OPTIONS :

Nifty : buy call 4600 for a tgt of 220+, sl @ 100

RELIANCE : buy call 2220 for a tgt of 80+, sl @ 40

RNRL : buy call 100 for a tgt of 12+, sl @ 6

IDBI : buy call 100 for a tgt of 4+, sl @ 1

HEDGE CALLS :

1 > Nifty : buy call 4600 for a tgt of 220+,

.... Nifty : sell call 4800 above 60

2 > RELIANCE : buy 1 lot fut for a tgt of 2280+

..... Reliance : sell 1 lot call 2280 @above 40 rs

Bear bite: 17% penny stocks trade below paid-up value

About 308 of them touched life-time highs in Jan first week.

After hitting the roof on January 8 this year when the Sensex peaked to an all-time high, the penny stocks are now biting the dust.

As many as 488 stocks are now trading below their paid-up values on the Bombay Stock Exchange (BSE). As many as 308 of these stocks had, ironically, touched lifetime highs in the first week of January.

When the markets hit new highs on January 8, around seven per cent of the stocks were trading below their paid-up value. With the Sensex having corrected by 30 per cent, almost 17 per cent of the actively traded stocks are now quoting below their paid-up values.

Most of the penny stocks became multi-baggers during Sensex’s momentous journey despite reporting net losses in the quarter ended December 2007. As many as 214 of the 488 companies announced aggregate net losses of Rs 392 crore in October-December quarter.

The aggregate market value of the 488 stocks has declined by 60 per cent from their highs. On the other hand, the combined market value of mid-cap stocks declined 40 per cent and small-cap stocks went down by 47 per cent from their respective highs.

Among the stocks trading below their paid-up values, 78 per cent (379) are from the B group, 71 from Z group, 27 from S group and the remaining 11 are from T group.

A total of 83 stocks are quoting at one-year lows, including Ginni Filaments, Interface Finance, Svam Software, TN Telecom, Vishnu International and Virat Crane Industries.

Chandni Textiles fell by 78 per cent from Rs 26.47 on January 8 to Rs 5.85 on Tuesday. Tripex Overseas declined 74 per cent to Rs 7.05 (Rs 27.45), while Torrent Gujarat Biotech weakened 73 per cent to Rs 7 (Rs 25.70).

Orchid's Rao says learnt a lesson in choppy markets

Kailasam Raghavendra Rao, founder and MD of Chennai-based drugmaker Orchid Chemicals & Pharmaceuticals, has said he repents borrowing money to buy more shares in his company and that he will never do it again. Mr Rao, who incurred a personal loss of Rs 75 crore when his lenders sold off 7.5% stake from his family's holdings on Monday, also denied market talk that the company had suffered forex losses.

But the bigger worry for Mr Rao would now be the vulnerability of the company for a takeover, as its market value at a mere Rs 750 crore is just a third of what it was just two months ago. With only 17% stake, the cash-strapped founders may find it difficult to resist such an eventuality, some market sources said. Ironically, it was this vulnerability that forced Mr Rao to try raising his stake with borrowed money.

Investors were rattled again on Tuesday as Orchid shares lost a further 10.3% to close at Rs 113.95 on BSE. “It has hurt me. And it has hurt so many other stakeholders,” Mr Rao, a first-generation entrepreneur and son of a railway clerk, told ET. “Borrowing to raise stake was an inappropriate thing to do.

It is a big lesson for me.” In March-April 2007, Mr Rao said he borrowed around Rs 85 crore from Indiabulls and Religare Finvest to raise the promoter stake from 17% to 24%. In an improvised system called promoter funding, brokerages lend money to company founders against a pledge of their shares. Indiabulls typically lends Rs 25-33 against shares worth Rs 100. Religare lent Mr Rao half the value.

“There are thresholds specified when the margin calls would come into play if the price falls,” Indiabulls CEO Gagan Banga said. Mr Rao had repaid around Rs 5 crore to these firms, but the market plunge invoked the thresholds last Friday. The two firms asked him to pay up the margins, which Mr Rao could not manage by Monday.

“I was in a village near Bangalore and the suddenness of the whole thing took me by surprise,” he said. When the stock fell further, partly as the beleaguered Bear Stearns sold off a million shares, the brokerages sold off a good portion of the pledged shares and recovered their money. Mr Rao's family lost about Rs 150 per share.

While Mr Rao has cleared his dues to these two firms, he still owes nearly Rs 65 crore to FIs and his current stake is pledged to them. “It is my priority to repay all those loans with my salary, dividend and profit share,” Mr Rao said.

Analysts said the bitter episode has shaken investor confidence on the integrity of the management and the stock is bound to reflect that. “While the company's operations are OK, this thing will set a wrong precedent. People will ask why promoters have dabbled in it,” said Sarabjit Kour Nangra, VP for research at Angel Broking.

Orchid's consolidated revenues for Q3 ended December 2007 rose 40% to Rs 347.38 crore while net profit rose 94% to Rs 49.96 crore. At Tuesday's price, Orchid shares were trading 7.2 times the company's expected 2007-08 earnings.

Analysts have been citing strong earnings visibility over the next two years and new product launches as reasons for their optimism on the stock. Just two weeks ago, LIC bought an additional 2.3% in the company to raise its stake to 7.8%.

Around the same time, Citigroup Global Markets had set a target price of Rs 386 for the stock with a ‘buy' recommendation. Domestic and foreign institutions hold more than 35% in the company while foreign companies hold about 15%.

Advance taxes buck slowdown

Advance tax collections, a bellwether of corporate profitability, have grown strongly in the fourth quarter of 2007-08, prompting analysts to say that the expected slowdown in economic growth has not yet impacted corporate bottom line.

Latest indications suggest advance tax collections, which are paid on the basis of internal estimates of profits, are likely to be over Rs 50,000 crore in the fourth quarter till March 15 this financial year across India. Companies are required to pay the tax in four quarterly instalments, the last being on March 15 every year. Finance ministry sources said the trend shows that advance tax collections have grown at a similar pace as overall direct tax collections, which have grown over 40 per cent so far this fiscal. The list of top 10 companies paying advance tax was led by public sector oil major ONGC, which retained its position of pre-eminence, although its tax payout declined 25 per cent.

When the markets hit new highs on January 8, around seven per cent of the stocks were trading below their paid-up value. With the Sensex having corrected by 30 per cent, almost 17 per cent of the actively traded stocks are now quoting below their paid-up values.

Most of the penny stocks became multi-baggers during Sensex’s momentous journey despite reporting net losses in the quarter ended December 2007. As many as 214 of the 488 companies announced aggregate net losses of Rs 392 crore in October-December quarter.

The aggregate market value of the 488 stocks has declined by 60 per cent from their highs. On the other hand, the combined market value of mid-cap stocks declined 40 per cent and small-cap stocks went down by 47 per cent from their respective highs.

Among the stocks trading below their paid-up values, 78 per cent (379) are from the B group, 71 from Z group, 27 from S group and the remaining 11 are from T group.

A total of 83 stocks are quoting at one-year lows, including Ginni Filaments, Interface Finance, Svam Software, TN Telecom, Vishnu International and Virat Crane Industries.

Chandni Textiles fell by 78 per cent from Rs 26.47 on January 8 to Rs 5.85 on Tuesday. Tripex Overseas declined 74 per cent to Rs 7.05 (Rs 27.45), while Torrent Gujarat Biotech weakened 73 per cent to Rs 7 (Rs 25.70).

New phone cos to be allowed to bid for 3G

India’s department of telecommunications, or DoT, plans to allow new telecom aspirants, apart from foreign companies such as AT&T Inc. and BT Group Plc. to bid for fresh telecom licences for offering so-called third generation, or 3G, phone services in the country.

Indian telecom regulator Trai had recommended in September 2006 that only existing firms be allowed to bid for such licences as they can then pair the spectrum with existing networks.

“We could allow other new, prospective services providers to bid for these licences, but they will have to obtain a UAS licence after they succeed in bidding,” said a senior DoT official who did not want to be named. Indian telecom regulations mandate signing of a universal services access licence, or UASL, by telecom aspirants to be able to offer phone services in the country.

The 3G mobile phone services allow users to surf the Internet or download content, including music and video, at speeds faster than allowed by current technologies deployed on Indian cellular networks.

The government could earn around Rs20,000 crore from an auction of radio spectrum to phone firms offering 3G mobile phone services later this year.

“It has been DoT’s philosophy to introduce as many players as possible in order to lower the tariffs, allowing the market to decide on the number of players needed,” said Romal Shetty who heads research firm KPMG’s telecommunications practice. “This move will further allow foreign companies such as Deutsche Telecom AG and AT&T to enter the Indian market.”

Union information technology and communications minister Andimuthu Raja hadsaid in November that the government would auction up to 25MHz of frequency required for delivering 3G phone services, allowing up to five companies to offer such services.

However, it wasn’t immediately clear whether DoT would allow new entrants to participate in the auction or limit them to phone firms already offering services in the country.

Meanwhile, Indian mobile phone firms, such as Bharti Airtel Ltd and Reliance Communications Ltd are readying more profitable offerings as their average customer billings shrink with a service that is predominantly led by voice.

The average revenue per user for 3G services “could range anywhere between Rs500 and Rs700 depending upon the pricing strategies adopted by the operators,” a Mumbai-based telecom analyst at a foreign brokerage house, who did not want to be named, had told Mint in February.

“We could see around 15 million 3G customers in the first year of launch.”

Merrill Lynch acquires 12% in Sharekhan

Baring Private Equity has pipped financial services giant Merrill Lynch to acquire a 12% stake in Mumbai-based Brokerage firm Sharekhan in a deal worth Rs 240 crore.

This deal values the brokerage company at Rs 2,000 crore. The transaction is through a mix of secondary sale by the largest shareholder of the brokerage firm Citigroup Venture Capital (CVC) and additional infusion of funds into the company’s capital.

ET had reported in its edition dated December 24, 2007 that Baring is among the group of investors negotiating to pick a minority stake in Sharekhan. Earlier, Merrill Lynch was believed to be the front-runner to pick this stake. Last year, CVC along with IDFC had invested around Rs 650 crore to pick 85% stake in Sharekhan. This translates into valuation upside of more than 125% in ten months. CVC owns 75% in Sharekhan while IDFC holds 10% and the management and employees hold the remaining 15%.

CVC India country head Ajay Relan confirmed that Sharekhan has inducted new investors in the firm, but declined to comment on valuations. Baring Private Equity India chief Rahul Bhasin could not be reached for comments and an email sent to him did not elicit any response.

Last year, CVC and IDFC together had acquired 37% equity owned by Sharekhan promoter Shripal Morakhia while 48% was acquired from other shareholders including GE, Intel Capital and some funds advised by HSBC PE India. As reported earlier, CVC was believed to be keen on diluting its stake in Sharekhan due to some regulatory issues. CVC, part of banking major Citigroup, had a significant majority stake in the brokerage firm.

A private equity firm holding substantial equity stake in an unlisted company would be classified as a promoter. If that company goes public, the PE firm’s sahres would have a lock-in period and cannot exit for a certain period. This could be one reason why CVC intends to dilute its stake, though it could not be verified independently.

A classification as a promoter also brings other aspects such as disclosure norms into the picture.

According to a source close to the deal, the latest transaction involved additional capital infusion by existing shareholders including IDFC which invested proportionately to maintain its 10% holding in Sharekhan pursuant to Baring investing in the brokerage’s equity capital. However, CVC’s stake has now come down to 63% from 75%. Incidentally, Baring already has an exposure in the sector through JRG Securities. It had picked a 44.8% stake in the Kochi-based brokerage firm for $35 million (Rs 140 crore) about a year ago.

Financial services firms, especially those with brokerage business, have been commanding high valuations in the stock market. While many of them have got corrected substantially by 40-50% in the recent market crash, some of them are still valued in the billion-dollar plus bracket.

Indiabulls Financial, even after spinning off its brokerage business into a separate firm Indiabulls Securities, which is to list soon, is the most valued firm at about $3 billion. It is followed by investment banking-cum-brokerage firm Edelweiss Capital which is valued at $1.25 billion, India Infoline ($1.15 billion) and JM Financial ($1.1 billion).

Sharekhan valued at Rs 2,000 crore is at the same level as that in December 2007. While other listed brokerage outfits have seen their value cut by as much as half in the stock market, Sharekhan, as an unlisted firm, has managed to retain its implicit valuation. Now it is valued ahead of Motilal Oswal which till recently carried a market cap of Rs 4,500 crore.

HOT STOCKS FOR 18 - 03 - 08

STATISTICS :

Market after a week closing will tend to rebound, Can see some shorts being covered during second session ahead of fed rate cut, so Nifty will tend to be at the range of 4450 - 4650 levels. Nifty has some support @ 4460, Resistance @ 4610 levels, Volatiltiy will continue within these levels.

INTRADAY :

INDIABULLS FINANCIALS: buy for a tgt of 430+, sl @ 395

ADLABS : buy for a tgt of 595+, sl @ 567

BEL : buy for a tgt of 1262+, sl @ 1230

GMRINFRA : buy for a tgt of 140+, sl @ 131

FUTURES :

IFCI : buy for a tgt of 50+, sl @ 43

ZEEL : buy for a tgt of 250+, sl @ 232

SUNTV : buy for a tgt of 305, sl @ 285

RNRL : buy for a tgt of 110+, sl @ 98

RPOWER : buy for a tgt of 325+, sl @ 312

ICICI BANK : buy for a tgt of 795 levels , sl @ 750

RCOM : buy for a tgt of 505+, sl @ 475

OPTIONS :

RELIANCE : buy call 2220 for a tgt of 85+, sl @ 40

Nifty : buy call 4600 for a tgt of 135+ upto 220+ , sl @ 60

HEDGE CALLS :

1 > Nifty : buy 1 lot fut for a tgt of 4650+ upto 4720 levels

..... Nifty : sell 1 lot put 4500 above 100

2> Nifty : buy 1 lot call 4600 for a tgt of 135+ upto 220+

...... Nifty : sell 1 lot call 4800 above 50

RBI likely to cut rates by 50 bps in 2008: Goldman Sachs

RBI may cut benchmark policy rates by 50 basis points to boost slowing growth but it is unlikely to do so in its next policy review on April 29 as inflation concerns persist, Goldman Sachs said on Monday.

"The macro environment is worsening with growth slowing and inflation rising," Tushar Poddar and Pranjul Bhandari, economists at the bank said in a note. The benchmark wholesale-price inflation index printed in at 5.11 per cent in early March, staying above the RBI's comfort zone of 5 per cent for the second week in a row due to elevated food prices and rising manufactured prices.

Industrial output in January grew 5.3 per cent from a year earlier, well below economists' expectations and the previous month's 7.7 per cent.

"A weaker-than-expected industrial production growth of 5.3 percent year-on-year in January has increased prospects for an early rate cut," it said.

P/E ratio of BSE scrips dips to 17.24 times

The market-wide weighted price to earnings (P/E) multiple, which soared to an unsustainable level of over 28.1 when the Sensex hit its all-time high of 21,282 on January 8, has come down to 19.19, with the benchmark index hovering around 15k levels.

The weighted P/E of the BSE stocks has also declined from 27.4 to 17.24. This is largely on account of the 30 per cent plus correction in the market prices between January 8 and on Monday. In simple terms, an investor who was willing to pay Rs 28 for a rupee earned per share on January 8 is now willing to pay only Rs 19 for the same stock.

This has happened largely due to the global meltdown following the sub-prime crisis and projected slowdown in the US economy in the first two quarters of CY08.

The current weighted P/E multiple has been compiled by taking into account the net profits of 2,060 companies for the trailing 12 months (TTM) ended December 2007.

The P/E as on January 8 was based on the TTM net profit ended September 2007. The weighted P/E is the total market capitalisation of 2,060 companies divided by their net profit in the latest TTM period.

If one expects the corporate profits to grow by 15-20 per cent in FY09, the Sensex’s forward P/E at the current value is 17-17.8 times and the market wide P/E is 15.5-16 times.

The P/E of A group stocks has fallen from 28.3 to 19, the stocks of B group and S group have reacted sharply to the market meltdown with the P/E of these groups plunging from 23.6 times on January 8 to the current 15.

While the marketwise P/E multiples have come down, as many as 650 stocks are trading above their average P/Es. The P/Es for 1,463 stocks have been relatively cheaper, with multiples of 10 and below.

Among the Sensex stocks, Larsen & Toubro is trading at a P/E of 41.4 (down from 71 on January 8). Reliance Communication is not going cheap either, as it is trading at a P/E of 36.2 times.

Though HDFC, HDFC Bank, DLF, BHEL and Reliance Energy have declined by 25-50 per cent from their January 8 highs, they are still trading at P/E multiples over 25-30 times.

Sensex tanks 951 points

Markets closed weak on Monday with the benchmark index Sensex shedding 6 per cent or 951 points. It closed at 14, 810 levels. It is the second biggest intra-day loss for the index ever.

In broader markets, Nifty closed in red by 243 points or 5.1 per cent. It closed at 4,503 levels. Selling was visible in real estate, oil & gas, banking and metal counters.

“The industries are disgusted with the markets. Banking stocks are beaten down because of forex situation and subprime. But then it does not justify the reason why financial companies are taking a hit,” said Ambareesh Baliga, VP, Karvy Stock Broking.

“Nifty has got an immediate support at 4,448 levels. People now in panic can sell their delivery holding which would be negative. As of now the buyers are negative,” added Mandar Jamsandekar, Director, Precision Technicals.

The other Asian markets also closed weak on Monday. Hong Kong's Hang Seng, Japan’s Nikkei and South Korea's Kospi were in red territory by over 1.6 per cent each.

ICICI Bank at Rs 757 shedding 13.8 per cent or Rs 121 was the biggest loser in the BSE-30 pack. Jaiprakash Associates, HDFC, Hindalco, Reliance Energy and Tata Steel were some of the other major losers.

Among the NSE-50 scrips, HCL Technologies, ABB, Nalco and Grasim Industries were in the red by over 7.1 per cent each.

Banking weakens

The BSE banking index shedding 9.8 per cent or 812 points was worst hit among the sectoral indices. Kotak Mahindra, Axis Bank, ICICI Bank and Yes Bank are the major losers in this pack.

Tanla Solutions cut to size after nod for stock split

Meanwhile, the BSE Sensex was down 694.93 points, or 4.41%, to 15064.21 as the fire sale of ailing US bank Bear Stearns and the Federal Reserve's emergency cut in its discount rate intensified concerns that there could be more victims of the global credit crisis.

On BSE, 12,860 shares of the scrip were traded. The stock had an average daily volume of 15,102 shares on BSE in past one quarter.

The scrip was trading at the session’s low. It had touched a high of Rs 552 so far during the day. The stock had hit a 52-week high of Rs 820 on 2 January 2008 and a 52-week low of Rs 297.90 on 15 March 2007.

The scrip had underperformed the market in the one month to 14 March 2008, falling 11.76% as against the Sensex's 11.29% fall. It had, however, outperformed the market in the past three months, sliding 19.05% against the Sensex's 21.32% slide.

The mid-cap telecom software maker has an equity capital of Rs 10 crore. Face value per share is Rs 2.

At the current price of Rs 510, the scrip trades at a PE multiple of 28.82, based on Q3 December 2007 annualised EPS of Rs 17.69.

The net profit of Tanla Solutions rose 5.03% to Rs 22.11 crore on 5.93% rise in sales to Rs 33.53 crore in Q3 December 2007 over Q2 September 2006.

The net profit rose 59.3% to Rs 22.11 crore on 56.8% rise in sales to Rs 33.53 crore in Q3 December 2007 over Q3 December 2006.

Tanla Solutions is the provider of integrated telecom infrastructure solutions and products. The company has got strong domain expertise in the non-voice mobile telephony industry. Its business is mainly targeted at the exponentially growing non-voice mobile messaging and data services market.

LIC and Reliance Life log good health insurance sales

Health is wealth - and that's certainly the case for Indian life insurers. Nearly 40 days after their entry into the long-term unit-linked health insurance business, the two life insurers - Life Insurance Corporation of India (LIC) and Reliance Life Insurance Company Limited - have been logging good business.

The Asian insurance giant LIC averages around 1,200 policies per day.

"We have earned around Rs 52 crore till date. We are confident of closing this year with a premium of Rs 400 crore from our unit-linked long-term health insurance policy Health Plus," D.D. Singh, executive director (Health), LIC, told IANS.

According to him, LIC has sold 50,000 policies till date at an average premium of around Rs 10,000 per policy.

Given the poor penetration of health insurance products achieved by the 13 non-life insurers in India, LIC's achievement is quite commendable.

Pleased with the positive response received from LIC's strong agency force for the product, Singh said, "Our agents have understood this product well and that is reflected in the sales numbers."

However the process of selling this product is different from selling other life insurance policies.

Talking about his experience in selling Health Plus, A. Suresh Kumar Oza, an LIC agent, said, "It takes more time to educate a prospect on the policy features and how it works. They are more conversant with the traditional mediclaim insurance sold by non-life insurers."

"Long-term unit-linked health insurance cannot be sold as easily as any other unit-linked life insurance policy or traditional endowment or money back policies as a tax saving product," he added.

That apart, the necessity of submitting photographs for the issuance of identity cards and medical reports delay enrolment in the scheme.

A combination of all these factors plus the absence of clarity on the income tax rebate available under Health Plus perhaps made LIC to revise its target to a Rs 400 crore premium from an ambitious Rs 5000 crore for this fiscal.

Confident of achieving the revised target, Singh said, "Normally LIC experiences accelerated sales after the second week of March. We will book Rs 350 crore premium with Health Plus."

Speaking about Reliance Life's experience in selling its Reliance Wealth + Health Plan, its CEO P. Nandagopal said, "The retail response is very, encouraging, especially from the southern markets. The average premium per policy is Rs 15,000."

Reliance Life launched the policy soon after LIC came out with its health product.

Declining to give any sales numbers and the target for the year, he said, "We do not believe in having product-wise business targets as we encourage our agents to adopt a solution oriented approach."

Queried about the training given to the company's 160,000 agents, Nandagopal said, "All our sales force has been fully trained with audio visual aids to pitch properly. The retail response is very encouraging, especially from the southern markets."

Reliance Life used tools like video tutorials, multi-media messaging service (MMS) audio clips and weekly refresher programmes to drive home the salient features of the product to its field force.

Reliance Power acquires Indonesian coal mine for 10 bln rupees

Anil Ambani-controlled ADAG Group's Reliance Power Ltd has acquired a 100 pct stake in an Indonesian coal mine for 10 bln rupees, the Economic Times reported.

The coal mine, which has resources of 2 bln tonnes, is located in South Sumatra and valued around 200 bln rupees based on reserves, said the report.

The greenfield mine will be the prime source of fuel for Reliance's power project in Krishnapatnam in India's southern state of Andhra Pradesh, said the business daily. The report further added that the project would require about 14 to 15 mln tonnes of coal every year.

HOT STOCKS for 17-03-08

STATISTICS :

Markets today can see a gapdown opening with 100 points in nifty @ 4600 levels. Today we can see a rangebound session between 4500 - 4800 levels. Volatility can be seen with recovery in the second session. Nifty has a support @ 4600, and a resistance @ 5700 levels.

INTRADAY :

RPOWER : sell for a tgt of 314 levels, sl @ 330

Reliance : sell for a tgt of 2250 levels, sl @ 2330

IFCI : sell for a tgt of 47, sl @ 50.45

FUTURES :

Nifty : buy below 4550 levels for a tgt of 4900+ can go upto 5000+ levels

RPOWER : buy below 312 for a tgt of 350+, sl @ 300

RNRL : buy below 100 for a tgt of 115+, sl @ 90

RCOM : buy below 500 for a tgt of 530+, sl @ 490

SAIL : buy below 190 for a tgt of 210+, sl @ 182

OPTIONS :

Nifty : buy call 4600 below 100 for a tgt of 250+, sl @ 60

IDBI : buy call 100 below 2 for a tgt of 4+, sl @ 1.3

RNRL : buy call 100 below 6 for a tgt of 15+, sl @ 4

RELIANCE : buy call 2250 below 60 for a tgt of 140+, sl @ 35

HEDGE CALLS :

1> Nifty : buy 1 lot of fut below 4600 for a tgt of 4900+

.....Nifty : sell 1 lot of 4500 put above 120+, sl @ 160

2> RNRL : buy 1 lot of fut below 98 for a tgt of 118+

.....RNRL : sell 1 lot of put 90 above 7 , sl @ 12