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Banks, metals steal the show - Views on News from Equitymaster
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  • Mar 28, 2009

    Banks, metals steal the show

    The Indian markets put up a good show during the week with the BSE-Sensex (up 12%) leading the pack of gainers in Asia. The other Asian markets such as Hong Kong (up 10%), Japan (up 8.6%) and China (up 4.1%) closed the week on a strong note as well. It is believed that Asian stocks posted their biggest weekly gain since August 2007 amid optimism that governments worldwide will succeed in reviving lending and global growth.

    Other global market ended the week on a firm note as well. The US and Brazil led the pack of gainers by recording gains of nearly 6.8% and 4.6% respectively. They were followed by the European indices, with Germany, France and UK recording gains of 3.3%, 1.8% and 1.5% respectively.

    Coming to the performance of sectoral indices in India, stocks forming part of the banking and metal sectors emerged as the top gainers during the week. The BSE-Bankex and BSE-Metal indices recorded gains of 19.1% and 16.2% respectively. On the other hand, the BSE-Smallcap Index (up 4%) and the BSE-Realty Index (up 5.1%) remained the lowest gainers.

    Punjab National Bank (PNB) was amongst the top gainers during the week, gaining by nearly 32%. At the end of last week, a leading business daily reported that the bank is likely to merge PNB Gilts, its subsidiary with itself during the next fiscal year. It may be noted that this merger will improve PNB's capital adequacy ratio (CAR), which in turn will give it additional head room for lending. In addition, the management expects the group's advances to grow by nearly 25% YoY.

    After being the top gainer of the BSE A Group in the previous week, the stock of Akruti City was the top loser of the group, crashing by nearly 52% over the last week's closing price. Last week, the NSE announced that Akruti City would be removed from the equity derivatives segment and its contracts would not be available for trading from March 27. This was announced following the unusual jump in the company's share price during the previous week.

    Steel stocks ended the week on a strong note with Tata Steel and JSW Steel recording gains of nearly 27% and 24% respectively. This was on the back of news of lower coke prices (key raw material) and a revival in demand for steel. During the week, a leading business daily reported that BHP Billiton, the world's largest miner has negotiated new prices for coking coal in the range of around US$ 115 to US$ 129 fob (free on board) per tonne with Japanese steel producers recently. As per the report, these prices are lower by around 60% on a YoY basis. It may be noted that the prices entered into by Japanese steel firms are considered as a benchmark for the steel companies globally. Japanese steel mills are planning a production cut of around 20% in 2009. This means that Japan will require around 12 m tonnes less coking coal in 2009. This is likely to have a positive impact on the domestic steel industry as most of the companies enter into annual contracts during the month of July, by when the prices would have come down significantly.

    In addition, it is also believed that India's steelmakers are now operating at full capacity. This is good news for the industry considering that steelmakers had cut production significantly a few months back. Last October most of the steel companies were forced to cut output by up to 40% due to a sharp fall in demand for steel. One of the reasons for this increase in demand may be on account of the fiscal and monetary measures taken by the government and RBI in recent times. It may be noted that Tata Steel recorded a 47% YoY jump in sales in February, with long products registering an increase of 65% YoY.

    Tata Motors launched the Nano earlier this week. The company has priced the base model of the car at around Rs 134,000, while the high end version is priced at around Rs 180,000. It may be noted that the price of the highest version of the car is lower than the base model of the next cheapest car, the Maruti 800, which is priced at Rs 190,000. As such, the launch of the Nano may jeopardize the future bookings of Maruti Suzuki's small car. Speaking to the media regarding the same, the management of Maruti Suzuki believes that the Nano will impact the sales of the Maruti 800 going forward. However, it added that the company has no intention to lower its vehicle's price.

    The stock of Novartis gained by nearly 25% during the week. This was on the back of its parent company, Novartis AG offering to purchase an additional equity stake of 39%. The purchase price for the same is fixed at Rs 351 per share. On completion of this open offer, the parent company will hold nearly 90% stake in Novartis. Currently it holds a stake of nearly 50.9%. With this increase in stake one cannot rule of the option of Novartis India getting delisted. This is not the first case of its kind as several MNCs in the past have chosen to delist their Indian subsidiaries. The same, however, is detrimental to the interests of Indian investors. Considering the growth potential of the Indian market and the company's extremely strong fundamentals, we believe the offer, which values the company at about 10 times its trailing twelve month earnings, is way too underpriced. We won't be surprised if there are very few takers for the offer. Furthermore, it also raises concerns over the intentions of the parent, which is looking to transfer wealth from minority shareholders to itself. If at all the parent company had best intentions in mind, a share buyback would have been a more prudent option.

    Source: Yahoo Finance Source: Yahoo Finance

    Source: SEBI Source: BSE

    Source: BSE Source: BSE

    Movers and shakers during the week
    Company 20-Mar-09 27-Mar-09 Change 52-wk High/Low Change from 52-wk High
    Top gainers during the week (BSE-A Group)
    Deccan Chronicle 33 45 36.0% 165 / 26 -72.7%
    Unitech 27 36 33.2% 331 / 22 -89.2%
    PNB 333 441 32.4% 575 / 286 -23.3%
    Aban Offshore 325 421 29.5% 4,190 / 224 -89.9%
    Onmobile Global 243 314 29.3% 720 / 185 -56.4%
    Top losers during the week (BSE-A Group)
    Akruti City 1,608 778 -51.6% 2,012 / 550 -61.3%
    REI Agro Ltd 46 41 -10.1% 179 / 36 -77.2%
    Crompton Greaves 127 118 -6.8% 288 / 100 -58.9%
    Piramal Healthcare 185 175 -5.4% 379 / 164 -53.8%
    EIH Ltd 92 88 -3.8% 170 / 74 -48.2%
    Source: Equitymaster

    Inflation for the week ending March 14 dropped to 0.27% from 0.44% recorded a week earlier. While the general consensus may be that it would give room to the Reserve Bank of India (RBI) to take further monetary steps, it may be noted that prices of some commodities like cereals and vegetables rose during the week. It is believed that the latest inflation number is the lowest recorded in nearly 33 years.

    The committee that looks after EPFO (Employees' Provident Fund Organization) investments has rejected a proposal that 15% of its funds be invested in the Indian stock markets. The rejection was on the grounds of the stock markets being too volatile at present.

    After US Fed's announcement of it buying long dated US Government bonds worth US$ 300 bn to make credit supply easier, the country's treasury secretary recently announced that the US would throw as much as US$ 1 trillion of the taxpayers' money at the troubled financial markets. The plan involves forming a bank like institution that will buy toxic assets from other banks so that the latter's balance sheets could be unclogged. The US government intends to partner with private investors whereby both of them could contribute equity in equal proportion, which could then be leveraged 7-8 times over by loans provided by FDIC (Federal Deposit and Insurance Corp).



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