Thursday, 2 October 2008

Home prices may drop upto 12%

Last week, at Mumbai’s Grand Hyatt Hotel, leading city-based real estate developers were closeted in an hour-long meeting. The agenda: to discuss ways to counter the slump in home sales which has persisted for almost an year now.

The outcome: The bitter realisation that the Indian developer has limited options before him to attract buyers. The builders unanimously agreed to allow customers to have a greater say in price negotiations — in other words, they decided to cut home prices.

The developers agreed to give a 10-12% reduction for all consumers, albeit couched in schemes such as ‘bearing’ 2-3% of the interest cost, flexible rates for parking and floor rise pricing. “Don’t be rigid on rates; allow the customer to have his say,” was how one participant who is involved in large housing projects in suburban Mumbai, described the conclusion of the meeting.

The developers’ move also assumes significance as a sharp correction in Mumbai home prices would have a ripple effect across the country. Though residential prices are down 20-25% across India, developers in Mumbai have been unwilling to cut prices, citing a huge demand-supply mismatch.

“This quarter was crucial for us,” said a developer who was present at the meeting. “Demand is still robust as far as residential markets are concerned. What we want is to convert the demand into actual deals. If pricing is hampering sales, we are willing to compromise on that,” he added.

Till now, developers were not ready to accept that demand at high prices would weaken. In fact, most developers were currently holding out and did not offer discounts. They could afford to do so, since they were sitting on huge profits accumulated over the past two years of bull run in realty market.

“But the same developers have realised that demand is unlikely now at the prices seen two years back,” said an analyst with Kotak Securities. “We believe demand can only come back if prices correct.”

Some of the developers who were learnt to have attended the Grand Hyatt meeting were Akruti City, Nirmal Lifestyles, Kanakia Builders, Evershine Builders, Rahejas and RNA.

In Delhi, several developers in the National Capital Region have started offering deeper cash discounts and have increased their marketing efforts. Developers are banking on more ‘genuinely-priced’ products, a good cash discount and more advertising to lure buyers. “We didn’t offer any discount during the festive season last year,” said Raheja Developers chairman Navin Raheja. “But this time, everyone is giving it, since market conditions have changed.”

3 of every 4 IPOs trade below issue price

2007 saw investors making big bucks with 9 out of 10 major public issues helping rake in the moolah. But 2008 has been quite the opposite. Out of the 40 companies that were listed this year, 32 are trading below their issue prices (ie at lower prices than was offered to the public), a TOI analysis shows.

The average initial public offer (IPO) has lost 31% from its date of listing this year, in line with the correction in broader market indicators such as Sensex that has lost 36% in the last nine months. IPO investors, who still hold shares, in companies such as Porwal Auto, Niraj Cement, Tulsi Extrusions, Manaksia, KNR Constructions, Precision Pipes etc. will be ruing their fate. As these are some of the names which figure in the biggest losers. They are not alone.

Two out of four IPOs are available at cheaper prices in the range of 40-80 % than their issue prices, data shows. “The end part of 2007 and the early part of 2008 were clearly times where the market accepted a lot of excess... in terms of valuation , price asked and unrealistic prospects. Indian stocks might have taken beating but correction is what has happened for some of the IPOs,” said the research head of a foreign brokerage house.

Just a few IPOs, eight of them in fact, such as tech firm Vishal Info, pharma company Anus Labs, textile firm Bang Overseas and Gokul Refoils have managed to give positive returns, data shows. “Still investors should do their due diligence before buying beaten down IPO stocks. A mere 50% below issue price is not the only indicator for buying a stock. The IPO (primary market ) is a clear reflection of what is been happening in the secondary markets,” a senior market analyst said.

The absence of any sector bias towards the correction of stock prices that has happened post-listing for 2008 IPOs is also worth the mention as companies involved in construction , information technology , infrastructure, healthcare , telecom all have casualties , the analysis reveals.

The only good news for investors could be that recently listed IPOs have had a fairly good experience than their earlier counterparts. “The onset of correction and lack of appreciation for the rich valuations demanded earlier might have compelled lead bankers and promoters to leave more on the table,” the research head of the foreign brokerage reasoned.

Volatile but buoyant - Markets on 01/10/2008

Led by buying in IT and banking stocks, the Sensex recovered smartly in afternoon and ended firm at 13,056.

The market wiped out a loss of over 163 points incurred in the first half after a strong bout of buying led by information technology (IT)and banking stocks triggered a wide-spread buying.

The Sensex started the day 147 points higher at 13,007 following weakness in Asian indices and crashed to the day's low of 12,697 on relentless selling. While the market recovered thereafter, the Sensex witnessed a sharp turnaround in afternoon as gains in heavyweights, IT, banking and consumer durable stocks propelled it to an intra-day high of 13,204. After gyrating 507 points during the intra-day trades, the Sensex gained 195 points to close at 13,056, while the Nifty ended 30 points higher at 3,951.

The market breadth was positive. Of the 2,672 stocks traded on the BSE, 1,476 stocks advanced whereas 1,123 stocks declined. Seventy three stocks ended unchanged. The BSE IT index led the pack and gained 3.97% followed by BSE Bankex (up 3.23%) and BSE CD (up 2.95%).

Satyam Computer Services was the star performer among the heavyweights and the stock soared 7.47% at Rs318.75. Among other major gainers, JP Associates advanced 7.02% at Rs118.90, HDFC Bank jumped 5.26% at Rs1,294, Grasim Industries rose 4.63% at Rs1,765.70 and Tata Power moved up by 4.46% at Rs946.50. Infosys Technologies advanced 4.03% at Rs1,453.90, ICICI Bank gained 3.10% at Rs551.45 and Tata Steel added 3.07% at Rs438.65. However, Larsen & Toubro, DLF and Reliance Industries inched lower.

Over 1.23 crore shares of Reliance Natural Resources changed hands on the BSE followed by IFCI (0.81 crore shares), JP Associates (0.71 crore shares), Chambal Fertilisers and Chemicals (0.55 crore shares) and Ispat Industries (0.49 crore shares).

Buy Alchemist

We recommend a buy in Alchemist from a short-term trading perspective. It is apparent from the charts of Alchemist that it was on a medium-term downtrend from its early August high of Rs 105 to September low of Rs 71.

However, after taking support at around Rs 70 recently, the stock bounced up sharply. On October 1, the stock surged 6 per cent, breaking through the medium-term down trendline. Moreover, the stock’s surge has also penetrated the 21-, 50-, 200-day moving averages compression conclusively. We notice very high volume over the past 6 weeks.

The daily relative strength index is on the verge of entering in to the bullish zone from the bearish region. The moving average convergence and divergence is signalling a buy. We are bullish on the stock from a short-term perspective and expect it to move up until it hits our price target of Rs 100 in the forthcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 84.

Day Trading Guide - 03rd October 2008

(The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. The stop-loss level provided with the recommendation is important. The original view would stand negated if the stop-loss level is breached. There is a risk of loss in trading)

Axon prefers HCL Tech’s offer to Infosys’

In a move that places HCL Technologies ahead in the race for the acquisition of the Axon Group, the Board of the UK company on Thursday dropped its recommendation of Infosys’ 600 pence a share offer, and said it would unanimously recommend HCL’s 650 pence a share bid to its shareholders.

This assumes significance as the recommendation by the Axon board establishes HCL’s offer as a ‘friendly bid’ and not a ‘hostile’ takeover, sources said. Moreover, while the shareholders in any case would have opted for a higher bid, the recommendation also means that HCL now has the option to convert its offer into a scheme of arrangement.

Punj Lloyd can touch Rs 335-350

Punj Lloyd can touch Rs 335-350 as per E Mathew.

Mathew told CNBC-TV18, "Punj Lloyd has the potential of keeping the stoploss of around Rs 270-275. The stock certainly has a potential slowly and rarely to move upto as high as Rs 335-350."

JP Associates can rally to Rs 135-145

As per E Mathew JP Associates can rally to Rs 135-145.

Mathew told CNBC-TV18, "Jaiprakash Associates is going to participate in a pullback rally. It has been massacred and I think the stock has the capability of rallying to Rs 135-145. But for all those people who are stuck at higher levels and including those who are now participating in a pullback rally, they would certainly have to bailout on the region between Rs 135 and Rs 145."

Buy ICICI Bank below Rs 500

E Mathew also believes that one should buy ICICI below Rs 500.

Mathew told CNBC-TV18, "ICICI Bank unlike the other PSU banks and unlike HDFC Bank has clearly been an underperformer but the stock looks extremely oversold. One cannot confidently give a buy; one can give a trading buy at best because as of now your stoploss is as low as around Rs 460-465. So I would suggest that rather than going short at higher levels in ICICI Bank, one should take a contrarion view of doing a buy when it drifts down below Rs 500. One could even look for a short-term target of around Rs 602 here. That is achievable since I feel that the banking stocks are the ones, which will clearly outperform including ICICI Bank."

Hero Honda has target of Rs 950-1000

Hero Honda Motors has a target of Rs 950-1000 (6-12 months perspective) according to Mr Rahul Mohindra of Viratechindia.

Mohindar told CNBC-TV18, "Hero Honda-we have a very good trend which has emerged. It has been an outperformer. If you look at the charts it has been one stock which is languishing at highs instead of lows. So very interesting move. My sense is that if you are looking at this from at least a six month perspective something like six-twelve months, you are in this stock for at least four digits. My guess is Rs 950-1,000 could be a possible price target for this and it is really an investment play here."

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.