RBI thinking about currency futures for Re-$

Only RBI must regulate currency futures: Curr Fut draft

The Currency Futures Draft says that RBI should be single regulator for currency futures. The panel is divided on setting up special exchange Vs using existing bourses.

The margining of credit risk will be with exchanges, it added. The overall control for position limits will remain with the RBI, it added. The panel suggested that the RBI should stipulate participants and fix participant-wise position limit. The RBI should also decide contract design, the Panel advised.

The panel prefers single contract over multiple contracts. The contract size must be small if target audience is retail, it says. It also prefers cash settlement of currency futures contracts. The RBI panel wants currency futures contracts to mature mid-month. The currency future markets should be for residents - FIIs, NRIs should only be there as hedgers, it feels. Brokers and banks may be allowed as intermediaries. Only dollar-rupee contract will be permitted initially, the draft says.

Source: Moneycontrol.com

US economy may see $2 trillion shock

The impact of the U.S. mortgage market crisis on the underlying economy could be "dramatic" as leveraged investors may need to scale back lending by up to USD 2 trillion, according to investment bank Goldman Sachs.

Chief U.S. economist Jan Hatzius said a "back-of-the-envelope" estimate of credit losses on outstanding mortgages, based on past default experience, was around USD 400 billion.

But unlike stock market losses, which are typically absorbed by "long-only" investors, this mortgage-related hit is mostly borne by leveraged investors such as banks, broker-dealers, hedge funds and government-sponsored enterprises.

And leveraged investors react to losses by actively cutting back lending to keep capital ratios from falling -- A bank targeting a constant capital ratio of 10 percent, for example, would need to shrink its balance by USD 10 for every USD 1 in losses.

"The macroeconomic consequences could be quite dramatic," Hatzius said in the note to clients. "If leveraged investors see USD 200 billion of the USD 400 billion aggregate credit loss, they might need to scale back their lending by USD 2 trillion."

"This is a large shock," he said, adding the number equates to 7 percent of total debt owed by U.S. non-financial sectors.

"It's basically another downside risk to the macroeconomy at a time when the macroeconomy already isn't doing that well," Hatzius told CNBC. He said such a shock could produce a "substantial recession" if it occurred over one year, or a long period of sluggish growth if it occurred over two-to-four years.

Hatzius underscored the macroeconomic nature of the shock in his interview with CNBC. "I don't think there's a direct stock market implication from this, perhaps with the exception that it does point to a slow-growth environment, significant risk of recession, and that's probably in an envrionment in which the cyclical sectors are going to underperform."

One of a number of caveats outlined in the report was that baseline economic forecasts may already include significant reductions in the pace of mortgage lending.

But the conclusion remained a gloomy one regardless. "The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized," he wrote.

"While the uncertainty is large, the associated downward pressure on lending raises the risk of significant weakness in economic activity."

Courtesy cnbc.com...

Sensex corrects for more than two days, confirms a short-term top above 20K

Last time I said, "Despite Index hitting our target of 20000, where I've said profit-booking would be the most sensible thing to do, Index is yet to show a major weakness. Strength would, therefore, continue ... until we see more than two bear candles on the chart."

It has been my observation for a while that strong rallies do not create more than two bear candles. As a corollary, one may also say that a third bear candle would indicate weakness in the rally.

Each of the Daily candles during the week gone by was a Bear Candle. Therefore, at least a short-term top is confirmed at our target level of 20000. I had advised last week that "Having reached the target level ... it may be better to live by the day." Sensex has already lost 1500 points in eight trading sessions so far.

While Sensex lost over 5% during the week, BSE Small-Cap and Mid-Cap Indexes finished flat, powered by individual performances in the broader market.

With its low at 18737 during the Moorat session, Index has corrected about 50% of its previous 6-day rally from 17171 to 20238. With only 50% loss in more number of trading sessions, the time-price ratio still remains positive.

We'll, therefore, watch if the Index finds support close to 50% or 61.8% correction levels, which are at 18700 and 18340, respectively. Levels lower than these would put the bulls in danger. On the other hand, bulls may charge, as they have been, if any of these correction levels are held above.

By: Vivek Patil, India's foremost expert in Elliot Wave Analysis
Source: ICICIDIRECT.COM

Commentary on Today's Market

Indian shares rose almost 5% on Wednesday, posting its biggest percentage gain in three weeks, as worries over US credit-related losses eased boosting world markets. Banking, oil & gas, IT and metal stocks were star performers. The 30-share BSE Sensex ended up 893.58 points or 4.69% to 19,929.06. This was its biggest ever single day rise. The broader Nifty gained 242.5 points or 4.26% to 5,937.90. Reliance Industries surged 7.11% to Rs 2,887.50. Essar Oil surged 36.50% to Rs 120.80. Punjab National Bank soared 9.46% to Rs 601.35, Oriental Bank jumped 7.60% to Rs 256.20 and Axis Bank gained 4.20% to Rs 989.15. State Bank of India rose 2.20% to Rs 2,346.15. Hindalco Industries jumped 6.95% to Rs 217.65 on reports the company had raised prices of primary aluminium by Rs 2,000 a tonne. Neyveli Lignite rose 5.41% to Rs 214.15, Tata Power gained 4.13% to Rs 1309.95 and Reliance Energy rose 3.59% to Rs 1920.35. Fertiliser stocks soared on reports that the government will issue bonds worth Rs 7500 crore to fertiliser firms by end-November 2007 to compensate them for selling the commodity at discounted prices. Rashtriya Chemicals and Fertilisers soared 20% to Rs 72.10, Fertilisers and Chemicals Travancore spurted 10% to Rs 35.85, National Fertilizers soared 10% to Rs 76.10 and Mangalore Chemicals & Fertilisers jumped 8.59% to Rs 41.10. DLF rose 2.38% to Rs 926.70 on reports that the real estate firm is buying Singapore-based luxury chain Amanresorts for around $250 million. KEC International moved up 4.24% to Rs 855.90 on reports it had secured orders worth Rs 637 crore for transmission line projects in Abu Dhabi and Algeria.

Watch out for these stocks!

Ranjit Kapadia, Head-PCG Research, Prabhudas Lilladher said that his top three picks are Bhagwati Banquets, Time Technoplast and Kansai Nerolac Paints.

Kapadia likes Bhagwati banquets as the stock is attractively trading at 16.3 times ’08 and nine times ’09 valuations. He likes Kansai Nerolac as the company is insulated against the rise in crude prices due to rupee appreciation.

Excerpts from CNBC-TV18’s exclusive interview with Ranjit Kapadia:

Q: Kansai Nerolac is one of your picks. With crude as these levels, would you still go ahead buying it, with concerns on the margin picture?

A: Crude prices have gone up and correspondingly, the raw material prices have also gone up. That is because the solvents and chemicals are based on crude derivatives. But because of the strengthening of the rupee, it has insulated to some extent, as the imports have become slightly cheaper. There is a pressure on margins, because of material cost. But they are still partly insulated, because of the rupee appreciation.

Q: How about Bhagwati Banquets?

A: Bhagwati Banquets is deriving revenues from three major sources. One is the Banquets Hall facility and they have got four halls in Ahmedabad.

They have also been doing club management for three major clubs, like Rajpath Club, Karnavati Club and Gujarat Cricket Association Club and the revolving restaurant called Patang Restaurant. The third source is outdoor catering.

Now, 36% of revenues comes from the banquet facility, 24% comes from club management and around 17% revenues comes from outdoor catering. So, these are the three major areas.

As these are seasonal businesses, if one of the businesses gets affected, the other two businesses can support them. Currently, the stock is attractively trading at 16.3 times ’08 and nine times ’09 valuations. They putting up a 5-star facility in Surat, with a club facility. This is going to be starting from December ’09.

Q: What is your call on Time Technoplast and what is the target that you are laying for this one?

A: Time Technoplast is currently trading at 19 times ’08 and 14 times ’09. I expect the stock to go up to Rs 900 in one-year’s time. The company has five major sources of revenue.

One is from the plastic drums, pails and containers business. 70% of the company revenues are derived from that business. The second business is automobile fuel tanks, anti-spray flaps and radiator tanks, where the company derives about 12% revenues. The third is garden furniture and doormats. Around 13% revenues come from that. The next two segments, which are growing fast are health care, where they have developed an auto disable syringe.

In case of construction material, they have developed safety nets. These are the two growing areas. Recently, they have acquired NED Energy, Hyderabad. It has a 70% stake in NED Hyderabad, which is making high-grade batteries and this is will be a complementary business with their plastic business.

Disclosures:
I am holding Kansai Nerolac Paints.

Source: Moneycontrol.com

Experts: Markets to remain volatile in November

The bulls broke their shackles in late afternoon trade today, energised by news that the Indo-US nuclear deal may indeed see the light of day. This, after the Left said it would allow the government to discuss the deal with the IAEA, a move it had been opposing for so long.

The Nifty closed 78 points higher, at 5,695, and the Sensex shut shop 298 points higher, at 19,035.

The bulls staged a strong comeback, which helped markets close with hefty gains. The day started flat, with buying seen in midcaps and smallcaps, but moved ahead with heavy buying seen in frontline banking, power and capital good stocks. The Sensex was up 350 points and the Nifty scored almost a century ending near the 5,700 mark.

On the macroeconomic front, the Left has given the nod to the government to proceed negotiations with IAEA on the nuke deal and that acted as a positive trigger. Amitabh Chakraborty of Religare Securities said that the markets are expected to be volatile in November. He added that liquidity in the system will be quite low.

“Our call for November is that the market would be very volatile, post P-Note issue. Unless those people become FIIs, they cannot buy. So, if there is a seller in the market, no one is there to buy the stock. So, the impact cost for any selling effort will be very high. The market will become very volatile and the liquidity in the system will be quite low. Having said that, the trend is very positive and we believe that we will be seeing 6,200 on the Nifty by early December. We have to accept intra-day 600-700 points volatility,” said Chakraborty.

“I am not very worried about the political situation at this point of time. The fundamentals of India are strong enough. That gives a fillip and that is why we have seen that post the news flash, there has been some movement. But actually, we are very confident in Religare that 6,200 levels will be seen by the first week of December,” he added.

Rajat Bose of rajatkbose.com said that he is not bothered by volatility or a 100-200 point movement in the Sensex. Bose observed that markets are heading towards 5,800-5,850 and there is not much worry in the short-term.

“Volatility is almost a daily affair now and we are not really bothered by 100-200 points movement in the Sensex these days. If the Nifty were to actually close above 5,700, that would be very positive. If the Nifty manages to close above 5,680, it is good enough. I am still confident that we are at least heading towards 5,800-5,850 and unless we fall again below 5,550, I do not think there is much to worry, at least in the short-term," said Bose.

Dazzling picks to light up your Diwali!

It's Diwali time! Which stocks have caught the imagination of market experts this festive season? Which stocks do they feel, will rise like a rocket this time round and brighten up this Diwali? Market experts pick their favourite stocks....

Sanju Verma, ED & Head Of Institutional Business, HDFC Securities said the derivative indicators (F&O) indicators are positive as it shows the markets are not over bought. She advised that investors should shift out of RPL and move to Reliance Industries. According to Verma IT companies have been able to manage scalability, attrition and hire rates for their contracts.Meanwhile, Welspun Gujrat is Verma’s Diwali pick.

Verma on Welspun Gujarat:

One stock which we as a house have been very bullish on, I can say this with absolute conviction, I don’t think anyone initiated or marketed Welspun when it was trading at Rs 74 in October 2006. We released a report then as part of our sector report on pipes and tubes. In September we had again initiated a follow up on the stock at the price of Rs 231 with a price target of Rs 420 which stands revised to Rs 500 post the excellent second quarter results posted by Welspun.

I think Welspun is not just another pipes company, it is a proxy to the larger oil and gas play given that oil is trading at USD 100. I don’t think it will come down to anything less than USD 80, at least over the next one year, if things stand as they are today. Welspun certainly stands to benefit a great clientele by way of Exxon Mobil. Other pipe companies have operating margins in the region of 10-12%. This company has operating margins in the region of 15-16%, slated to go up to 20% plus in the next six months.

If you look at ’08 numbers, Welspun is certainly expensive. So it’s not for the faint hearted who have six month horizon. But it you are looking at FY09, the stock, even at our exit multiple, even at our target price of Rs 500, would be trading at just about 16 times or thereabouts. So, for somebody with an 18 month view, this is certainly the stock to be in, if you are still looking at a multi-bagger despite the sheer out-performance in the last one year from the company.

Mehraboon Irani of Centrum Broking's views on Kilitch Drugs:

I like the stock because of the new unit, which the company has set up at Himachal Pradesh, which started operations in January and if you look at the numbers over the last two quarters the sharp increase in sales and profit is mainly because of this. Not only contributed in turnover but whole lot of excise benefit and other tax benefit the company gets because of the its unit at Himachal Pradesh is very important. The company is presently operating at the new unit at around 25-30% capacity and as the capacity grows the numbers also topline as well as the bottomline should grow. The company presently has equity of around Rs 13.2 crore promoters own around 70% of that. For the current year, for the first six months the net profit of Rs 5.2 crore I expect to be around Rs 14.5 to 15 crore which should possibly be more than double when the company operates at nearly 100% capacity and I am looking at the net profit of around Rs 20-30 crore which gives it an earnings of around Rs 23 to 24 per share for 2008-09. So I think even if we give it a very conservative PE multiple the share should atleast minimum double from here and this would be my script for Diwali.

Shahina Mukadam of IDBI Capital Markets expects Man Industries to do very well going forward. She is also positive on Pidilite Industries.

Shahina Mukadam on Man Industries:

The company is benefiting tremendously from crude oil prices moving close to USD 100. This has led to a lot of E&P investment across the globe. Indian companies have a lot of stake in the opportunity that is evolving in Africa and the Middle East. They account for almost one-third of execution of orders out there.

Man Industries is one of the four players, which are there in the Indian market. In terms of growth, they are showing very strong, healthy growth of close to about 20% on a turnover basis. In fact, they have got an order book of around Rs 220 crore, which is almost 1.5 times ’08 estimated revenue and close to 1 time FY09 revenue. So, they have got a very strong order book position.

In terms of capacity, they are building capacity. They are increasing capacity from 800-1000 metric tonnes per annum to over 1 million tonnes over the next three to six months. And in terms of valuations also, it is pretty attractively valued at just about 8 times FY08 EPS of close to about Rs 15. I think it does offer value.

Shahina Mukadam on Pidilite:

Pidilite is the largest manufacturer in India of adhesives with very strong brands including Fevicol. So, we basically like the positioning of the company not only in its existing brands but also in the line extensions that the company is introducing in various segments. For example, they have recently launched a product, a coating type of paper, which prevents unwanted paint to come on to your furniture. So, I think very interesting products. And over and above that, the company has announced an FCCB very recently and the conversion price is at a substantial premium to I would say the existing price, which again shows the positive sentiment that is there for the company. In terms of valuations, the company remains pretty attractively priced. It is not a cheap stock. It is above 22 times its FY08 EPS of about Rs 9. So, it is not very cheap. But I think in terms of growth, they have had a PAT growth of close to 70%. So, I think in terms of relative valuations and in terms of a peg basis, it still looks attractive.

Regarding future targets, Mukadam said, "For Pidilite I would say Rs 250-260 looks definitely achievable and for Man Industries, we have a target of close to Rs 190." Ashish Chugh, Invesment Analyst & Author of Hidden Gems is positive on Ansal Housing and Blue Coast Hotels. Regarding Ansal Housing, he said that the company has good execution capabilities; they have been in this business for more than 20-25 years and there is a visible scalability in the business in terms of the new projects.

Chugh on Ansal Housing:

I would go with Ansal Housing; Ansal Housing is basically a real estate company. It started its projects mainly in Delhi and NCR. Now it has expanded to other parts of the country also. This company is doing a total 22 townships, which include townships in almost all the states in northern India and they are doing projects in Madhya Pradesh; they are doing few projects in Indore and Bhopal and besides these states they are doing two residential projects in Mumbai; in Worli and other in Mulund. This company is developing an IT Park and a residential complex in Bangalore also. Also, they have got housing project in Sri Lanka.

So as far as real estate business is concerned this company is currently present in almost all the sectors and real estate - be it commercial or residential township and they also have plans to make hotels wherever they are doing the townships.

The total value of the projects, which the company is doing, is close to Rs 6,000 crore. If one looks at the financials of the company for FY06-07, this company did total revenue of about Rs 200 crore; profit after tax was about Rs 43 crore, which results in an EPS of Rs 25. For the first half of the current financial year, this company has locked in a growth of about 30% in sales revenues and 57% growth in profit after tax. For full year, we expect the company to achieve a profit after tax of about Rs 55 crore which would translate into an EPS of Rs 35.

If one looks at the valuation of the company, you have a company doing a PAT of about Rs 55 crore, market cap is just about Rs 280 crore. They have total value of projects of about Rs 6,000 crore, market cap is just Rs 280 crore, and stock is trading at a price to earning ratio of about 5 on the current price and on 07-08 earnings at a PE ratio of 7 on last year’s earnings.

They have got good execution capabilities; they have been in this business for more than 20-25 years and there is a visible scalability in the business in terms of the new projects, which they are doing. So I don’t think in the current market one will find too many real estate stocks with that kind of under valuation.

Chugh on Blue Coast Hotels:

This is more of an illiquid counter; will have hardly any trading volumes taking place in this counter and it’s not a stock for a trader because getting the stock and selling the stock is a problem here. But if one looks at the fundamentals of this company, this company belongs to the Delhi based Morepen Group; they own the Park Hyatt Resort & Hotel in Goa. This hotel is built on about 45 acres of sea front land and this hotel has got location advantage in terms of its proximity to the Goa airport. They have been promoting this hotel as high-end luxury retreat with one of the world’s best spas and if one compares this hotel with a peer group, namely Advani Hotels; the annual calculation - Advani Hotels currently has a market cap of about Rs 370 crore. They have a debt of close to Rs 25 crore which translates into an enterprise value of Rs 400 crore. As against that, Blue Coast Hotels has got a market cap of Rs 110 crore; they have a debt of another Rs 110 crore and a preference capital of about Rs 81 crore. This would translate into an enterprise value of around Rs 300 crore. If one sees the size of operations of Advani and Blue Coast; Advani is just about 40% of Blue Coast in terms of revenues. Advani Hotels is built on a 23-acre land as against 45-acre land for Blue Coast.

If one assumes that on a very conservative basis that the enterprise value of Blue Coast is same as Advani, this would mean a 100% increase in price over its current price and again to be on conservative basis, if one assumes that the enterprise value of Blue Coast is 50% more than that of Advani, this would mean a four-fold increase in the price of Blue Coast.

If one sees the financials of Blue Coast, for FY06-07, the total revenues were about Rs 83 crore, PAT was about Rs 10.25 crore. This company has got a small equity of about 6.6 crore. So this translates into an EPS of about Rs 15. In the first half of the current financial year, they have manage to increase their sales by about 18% and generally first half of the financial year is not that good for hotels in Goa. In spite of that this company has made profit of about Rs 1.6 crore as against the loss of close to Rs 2 crore for similar period last year.

For full year this company is expected to achieve a PAT of about Rs 15-16 crore which would result in an EPS of about Rs 23-24. So at the current price of about Rs 170, this stock is trading at just about 7 times its earnings and if you compare it with the peer group, the stock looks grossly undervalued.

Rahul Mohindar, viratechindia.com prefers Vijaya Bank. He said, “The stock we like is Vijaya Bank and clearly we are looking at this from a medium to long-term perspective. If the stock really sustains past Rs 64 it is going to breakout and short-term traders could be looking at Rs 76 price target. On the long term our sense is that the stock will get into Rs 84 levels. So definite buy at these levels at from my side and by chance if it goes lower Rs 53 is also very good support that’s the point I would call a buy.”

Disclosure: Some of the experts and/ or their clients may have an investment interest in the stocks they have discussed.

Courtesy: moneycontrol.com