Stock Tip: Indian Overseas Bank

Hindu Business Line have given a buy on Indian Overseas Bank from a short-term trading perspective. They have given a stop loss of 104 with a target of Rs 122. CMP is Rs 110.45.

HOW SAFE IS INDIA?

Part – A: The Lehman Story

The deepening upheaval on Wall Street has been creating ripples throughout New York.
The fall of Lehman Brothers which headed for the biggest ever bankruptcy filing ever, sale of its
competitor Merrill Lynch & Co Inc in a $50 bn stock deal to Bank of America and the efforts of
insurer American International Group all headquartered in Manhattan definitely shook up the
Global economy.

Indian Government says:

The Government of India seems to be putting up a brave face. The government believes the
bankruptcy filing by America’s fourth largest investment bank will not impact India directly. India
has been more or less insulated from the sub prime crisis in the past and prima facie, the crisis in
the US may not have any impact on India.
The details in developments would have to be watched however. Bankruptcy experts pointed that
Western investment companies might be forced to sell off their assets in India at throwaway prices.

Our Outlook:

• Cost to Indian real estate could be dear given Lehman’s existing investments worth $500
mn in realty firms especially for firms which haven’t received funds yet from Lehman.
• Signals of a deepening credit crisis for Indian developers should be watched.
• Any distress sale by Lehman will impact valuation of existing realty projects.
• IT companies might find financial clients’ appetite for considering “transformational”
change in their business models practically gone.
• The shift to quality from cost could get hastened.
• Large Indian IT firms might include innovative products from smaller IT firms under their
umbrella.


Part-B: Losing sleep over the Rupee

The rupee which has in the recent months been battered to almost 47/US $ and the call money
rates spiking at 16%, triggered the RBI to come up with a slew of measures last evening to stanch
market instability. Comparisons with the 1997 Asian Financial Crisis seem to be springing up.

Our View:

Forex reserves with RBI seem reassuringly large at $288.81 billion week ended 5 September.
We say this because; we considered the following areas which are inherent to decide comfort
levels in Forex and we did get positive vibes:
a) Do we have enough forex to maintain stability in times of global turmoil?
b) How many months of imports can be bought with our forex?
c) Does forex exceed the foreign debt levels and are they larger than money
supply?etc

We think India looks safe.

However our concerns are as follows:

• Our dependence on volatile capital inflows to finance current account deficits puts us in a
highly risky situation. This is part of deeper alterations in our balance of payments.
• Foreign institutional investors (FIIs) have already sold close to $8 billion of Indian equities
this year, and it is quite likely that there will be further selling in the weeks ahead if the
global financial system slips into deeper trouble.
• The rupee has already dropped

Till now the focus was on oil and inflationary pressures but we think there could be growing
pressure on the Indian economy and RBI may have to use more of its reserves to protect the rupee.


From the Economist’s Desk
UTI Mutual Funds

Post Market Report - September 18, 2008

About-turn

An across-the-board rally saw the market bounce back sharply from its early losses of more than 700 points to end 52 points higher.
Today the market saw a smart rally despite weakness in global markets. Despite slipping over 700 points in early trades, the Sensex witnessed a relief rally led by across-the-spectrum buying.

The index recovered from its lows and closed posstive, as value buying emerged at lower levels. The Sensex received major support from banking, oil & gas and power stocks. The market gathered steam towards the close and the Sensex crossed the mark of 13,300 and touched the day's high of 13,347 before closing at 13,263, up 53 points. The Nifty too bounced back sharply and advanced 30 points to close at 4,038.

The breadth of the market was extremely negative, as of the 2,690 stocks traded on the BSE, where only 676 stocks advanced, 1,944 stocks declines. 70 stocks ended unchanged. Most of the sectoral indices closed with significant gains. The BSE Bankex was the major gainer and soared 2.68% followed by the BSE Oil & Gas index (up 2.36%) and the BSE CG index (up 0.95%). However, the BSE Realty and BSE CD index slipped over 4% each. The BSE IT index, BSE Teck index, BSE HC index and the BSE Metal index closed with marginal losses.Attracting strong buying support, Sterlite Industries surged by 3.43% at Rs454.50, HDFC Bank shot up by 3.17% at Rs1,222, Reliance Industries jumped by 3.16% at Rs1,932.85, NTPC advanced by 3.05% at Rs174, ICICI Bank scaled up 2.78% at Rs575.85, Maruti Suzuki India zoomed 2.70% at Rs718.45, Mahindra & Mahindra added 2.46% at Rs550.55, Reliance Infrastructure vaulted by 2.43% at Rs849.60, ONGC firmed up by 2.14% at Rs999.15 and ACC climbed 2.02% at Rs601.35. Among the laggards, Ranbaxy Laboratories slipped 10.06% at Rs340.95, Jaiprakash Associates shed 6.73% at Rs127.40, Satyam Computer Services declined by 4.16% at Rs335, while Infosys Technologies, Tata Steel, DLF, Tata Power and HDFC fell 1-4% each.
Banking stocks witnessed sustained buying support. Indian Overseas Bank soared 7.49% at Rs110.45, Bank of Baroda added 5.80% at Rs327.35, Kotak Bank scaled up by 4.72% at Rs579.45 and Punjab National Bank gained 4.38% at Rs517. Over 1.97 crore shares of Reliance Natural Resources changed hands on the BSE followed by IFCI (1.34 crore shares), S Kumars (1.33 crore shares), KS Oils (1.20 crore shares) and Jaiprakash Associates (1.10 crore shares).

Movers & Shakers
Pratibha Industries lost despite receiving orders worth Rs156 crore from Delhi Jal Board.

- Sharekhan

Rising Dollar $$$$

The movement of Rupee is one among several factors affecting revenues of an IT company.

Rupee Vs Dollar the most visible parameter greatly influences the stock price movement in IT sector.

Dollar has reached an all time high of Rs 45.4 and this has once again created a buzz around IT stocks!!!

The stocks of major IT firms like TCS, Infosys, Satyam, Wipro etc have already gained a good margin.

This depreciation in Rupee might result into good Quarter results for IT firms.

Keep Investing!!

Rally may not last long

Ajay Bagga CEO, Lotus India AMC, said the underlying economics or fundamentals are still quite rocky.

“I don’t expect this rally to last too long. It is a relief rally globally, and could take us higher. The fundamentals need to be worked out and that will take time. The credit and liquidity contraction that is happening can’t be whished away and that will take time to go away.”

"We may see little sideways action in coming weeks before the markets actually forms newer lows. We will retain our bearish stance unless the market crosses 4,650. Currently, the market is seeing a bounceback from 3,800. So, one leg down is still left. In the last 10-15 days, there has been a lot of selling by FIIs. After a strong lull, we are seeing renewed vigour coming into selling. The markets are completely in favour of a bearish set up. Right now, one should be very careful about any longs. Safer players may look at buying puts and the more adventurous ones can go for selling Nifty shorts."

RPL to start production from new unit by Sep

Reliance Petroleum (RPL), a subsidiary of Reliance Industries (RIL), will likely start production from it`s new refinery by early September, reports Business Standard.

The company has already finished with the technical work on the refinery and has started testing the refinery. The company will test various quantities of crude oil by processing them into petroleum products, the entire testing will take around two months.

The company will increase production gradually before December to reach full capacity of 580,000 barrels per day.The 580,000-barrels-per-day refinery at Jamnagar in Gujarat is being commissioned at cost of Rs 270 billion and is world`s sixth largest refinery and is commissioned earlier than expected.

The stock is expected to grow steadily but will take pace in next 4 months target expected 250 in next 8-10 months

TTML launches `Instachat` voice conferencing service

Tata Teleservices (Maharashtra) (TTML) is partnering with Kodiak Networks, a provider of advanced wireless voice systems, to launch `Instachat` conferencing service to all its customers in Maharashtra and Goa.

TTML is the first CDMA operator in the world to offer this service which is accessible from any Tata Indicom post-paid handset. By dialing a single number, Tata Indicom subscribers will be able to simultaneously reach a group of up to 9 other telephone users.

The group calling application is aimed at large corporates, small and medium enterprises, community groups and families, wherever there is a need for instant, voice-based group communication.

The unique, revenue-enhancing voice application is enabled by the all-IP, standards-based Kodiak Real-time Exchange System