METALS, CEMENT AND OIL & GAS DRAG SENSEX

The Sensex was down by 100 points despite net buying by FIIs to the extent of Rs 358Cr. Hindalco, Sterlite, Grasim, Ambuja, DLF and SAIL were down from 3 to 6% . HUL was the top gainer with almost 7% gain and closed at Rs 374 after touching all time high of Rs 378. In spite of its bad numbers Maruti closed in the positive. ICICI bank reacted positively to its number and recovered from the days low of Rs 921 and closed at Rs 931. Axis and Kotak Bank stocks closed in the positive.

The stocks that will be active with bias towards upward movement in the next 2-3 trading sessions are L&T, Coal India, RIL, HINDALCO, Hero Motor corp, Axis bank, SBI and ICICI bank.

IPO ANALYSIS: CARE – TRUSTWORTHY OFFER - INVEST

The Canara and IDBI Bank promoted CARE will be shortly hitting the market with an IPO, an offer for sale.

Being a rating agency which has graded many IPOs knows the importance of right pricing. The IPO would be priced be priced appropriately, keeping in mind the retail investors interest.

CARE is a leading, full service credit rating company and in terms of rating income, for the year ended March 31, 2011, CARE is the second largest rating company in the country.

The primary focus has been to provide credit rating services. CARE has 18 years of experience in rating debt instruments and related obligations covering a wide range of sectors, such as manufacturing, services, banks and infrastructure. The list of clients includes banks and other financial institutions, private sector companies, central public sector undertakings, sub-sovereign entities, small and medium enterprises and micro-finance institutions, among others.

Strengths:

1. Established presence in rating debt instruments and bank loans.

2. Domain experience across a range of sectors.

3. Strong rating credibility and brand presence.

4. Strong origination capabilities and relationship management.

5. Experienced management.

6. Strong financial position and profitability - the total income has increased from Rs. 301.39 million for the financial year 2007 to Rs. 1,766.28 million for the financial year 2011, at a CAGR of 55.6% during such period. The profit after tax has increased from Rs. 135.61 million for the financial year 2007 to Rs. 910.59 million for the financial year 2011, at a CAGR of 61.0% during the same period.

AWAIT DEATILED ANALYSIS.

METALS, INFRA AND BANKS STOCK RALLIES, SENSEX UP BY 500 POINTS

Positive news from euro zone coupled with selective buying by Institutions has pushed the Sensex by more than 500 points. Hindalco, Rel infra, Sterlite, Tata Steel, Jindal Steel, Tata Motors, DLF, JP Associates, SAIL and ICICI bank were up from 6% to 10%.

FIIs have turned very bullish on our market and net purchased in excess of Rs 2100Cr, for the first time in recent months, in cash market.

DIIs have net sold Rs around Rs1100Cr in cash market.

Delivery, as a percentage of traded volume, is in excess of 60% for TCS, Hero, Infy, Axis, Hindalco,RIL,Cairn, Coal India,HDFC Bank,Tata Power,ITC,BHEL,ONGC,Sun Pharma,Dr Reddys and ICICI. For L&T, Sterlite and ACC it is in excess of 50%.

The NIFTY is likely to test 5500 level next week.

HINDALCO, SBI AND ICICI BANK POISED FOR SUBSTANTIAL UPWARD MOVEMENT

Muhurat trading was modest with NIFTY gaining just 10 points. However, the under current is very strong after FIIs turned net buyers in the last two trading sessions, barring yesterday. Banks stocks were hammered on 25th, fearing profitability concerns, the new guidelines likely to have on the banks. SBI staged a smart recovery in the brief trading session indicating bias for upward movement tomorrow. Similarly ICICI bank's stock is likely to trade in the positive territory tomorrow.

HINDALCO counter is likely to be active with positive bias ahead of its Q2 results.

SAVINGS RATE DEREGULATION WILL NOT DENT PROFITABILITY OF BANKS

The popular perception of the new guidelines issued by the RBI on savings rate is that that will considerably hit the profitability of banks.

This is based on the view that there would be rate war among banks and savings deposit rate would move up. Close examination of components of total bank deposits and the likely impact of the new guidelines on the profitability reveal a different story.

On an average CASA accounts for 40% of the total deposits of a bank and SA accounts for less than 20% in CASA. And in that 20% more than 90% of the accounts falls under the category of Rs 1lac or less, for which fixed uniform rate applies. In effect, the savings account which may qualify or compete for higher rate will be around 1% of a bank’s total deposit. The outgo of additional interest on account of this would be negligible and would not affect the NIM of banks.

The banks to offset the additional interest out go on savings accounts, due to new guidelines, will revisit the interest rates for loan products to maintain the desired NIM.

The new guideline is likely to attract more deposits, which hither to invested elsewhere. And this will help the banks in improving the overall profitability.

BUY WELL MANAGED BANK STOCKS. WE RECOMMEND BUYING - SBI, AXIS,CANARA AND ICICI AT CMP.

RATE HIKE ON EXPECTED LINE PUSHES NIFTY BY 100 POINTS

RBI, as expected hiked the repo and reverse repo rates by 25 basis points. The governor also hinted this could be the last hike, as inflation is expected to fall from the current level. This positive news, coupled with short covering on the expiry day pushed the NIFTY up by 100 points. The rally was led by IT, Auto, Metals, Cement and Infra stocks. Reliance too staged a smart rally, up by Rs 30, to close at Rs 877. The delivery percentage too is healthy indicating further upward movement in these stocks.

Barring Kotak and ICICI, other bank stocks in the NIFTY, closed in the negative, reacting to the rate hike and policy announcement made by RBI in respect of savings rate deregulation.

FIIs net bought in excess of Rs 400Cr in cash market.

HAPPY DIWALI TO ALL OUR READERS, WELL WISHERS

STOCK WATCH : BUY L&T, CMP RS 1274

Notwithstanding ratings downgrading by agencies First Choice IPO recommends buying of L&T at the current price. The stock after hitting 52 week high of Rs 2212 is trading around 52 week low. If one believes in India growth story one should stay invested in this construction and engineering major. There are major state assembly elections in 2012 and 2013. The progress card of UPA, so far, in ushering infrastructure development projects are far below the expectations. Major thrust will be given to this sector in the coming months. The major beneficiary would be L&T and other infra firms. The company has finest pedigree, management and capability. The stock will give 25-30% return on YOY basis from the current level.

FIIs TURNS NET BUYER

After net selling for almost a week FIIs turned net buyers today. Barring Axis bank other banking stocks were subdued fearing another 50 basis point rate hike by RBI. The negativism on L&T is over done and the stock is likely to reverse the downward trend from tomorrow. This has pulled down the otherwise 100 points NIFTY rally. Auto, Metal and IT stocks staged smart rally. The delivery volume as a percentage of total traded quantity is good in these segment. The upward movement in Sensex is likely to continue tomorrow.

The controversial IPO Vaswani Industries got listed today. As against the issue price of Rs 49, the stock closed at Rs 19.

EXPECT GAP UP OPENING ON MONDAY

The Asian stock markets on Monday are expected to open and trade in green. The U S markets on Friday closed strongly. The net selling by FIIs in the last 3 trading sessions is likely to be reversed. Some short positions are still to be covered in pivotols which may further push the Sensex. And this may continue for one or two trading sessions.

L&T, MARUTI AND BHARTI PULL DOWN NIFTY

Market did not take the L&T's not so rosy guidance in the right spirit. The company reported decent numbers for Q2. Revenue stood at Rs 11245Cr with net profit at Rs 798Cr. The company's result was in line with market expectations. However the guidance was short of market expectations and the stock was hammered by 3.5%, to close at Rs 1336. The other major loser were Tata Motors and Bharti Airtel. Auto stocks had good run led by Bajaj Auto. Reliance and SBI too closed in the green. The under current continues to be strong ahead of expiry on 25 Oct.

FIIs net sold to the extent of Rs 234Cr and DIIs net purchased to the extent of Rs 73Cr in cash market. NIFTY stocks turnover (CM) was one of the lowest.

NIFTY POISED FOR POSITIVE MOVEMENT

Notwithstanding net selling of stocks to the extent of Rs 600Cr by Institutions in cash market, NIFTY was marginally down by 47 points. Among others, Tata Steel, Maruti, Infy and SBI closed in the positive. Brisk activity was also witnessed in RIL, Axis Bank, Coal India and L&T counters. These stocks will see more action from tomorrow till the expiry, on 25-Oct. Keep a watch on these stocks.

P E INVESTORS IN SKS MICRO SUFFER HUGE LOSSES

SKS Micro IPO was managed by Kotak Mahindra Capital Company, Citigroup Global Markets and Credit Suisse Securities (India). The IPO was priced at Rs 985, with Rs 50 discount to retail investors. The BRLMs justified the high premium basing on the company’s past CAGR, future growth prospects and picking of equity by well-known PE investors.

The IPO was sold telling investors that this company is next Infosys and TCS. Investors believed them.

The PE investors included Sandstone, Kismet, Bajaj Allianz, ICP Holdings, Catamaran, Quantum and Tree Line Master Fund. The total holdings of these investors are around 25% of SKS Micro’s paid up capital. The first five picked at Rs 300 per share and the last two picked up at Rs 636 per share. Apart from opportunity cost, all these investors have suffered huge losses.

What perplexes the investing community is how come the PE investors paid such a huge premium for a company which had limited track record and no record of dividend payment.

Not only they have suffered huge losses, they made many retail investors to lose their money too, who had invested relying on the expertise and wisdom PE investors.

There are unconfirmed reports that Quantum and ICP Holdings have exited SKS, booking losses.

SHORT COVERING PUSHES SENSEX BY 300 POINTS

Both the FIIs and DIIs were net sellers in cash market today. In spite of this, Sensex zoomed by 300 points, mainly due to short covering in pivotals. NIFTY stocks volume (CM) is one of the lowest in recent days. FIIs and DIIs have net sold more than Rs 470Cr in the last 3 trading sessions. We had indicated earlier that 6 stocks would be active and they were active today with upward movement.

Taksheel and Flexituff to list on 19-10-11.

SIX STOCKS WHICH WILL BE VERY ACTIVE ON 18-10-11

The following stocks will be very active tomorrow with bias towards upward movement.

1. HINDALCO

2. MARUTI

3. CAIRN

4. SBI

5. HERO MOTOR CORP

6. AXIS BANK

JOYALUKKAS GETS GRADE 3 FROM CRISIL

Joyalukkas, Kochi-based Company engaged in retail jewellery business, which is planning an IPO, has been assigned grade 3 by CRISIL.

Through the IPO, Joyalukkas plans to issue 18 mn new shares and has outlined a capex of Rs 5.2 bn.

KNOW YOUR BRLM – KOTAK MAHINDRA CAPITAL COMPANY

From Nov 1 this year, BRLMs have to disclose their past track record in managing the IPOs. Starting from today First Choice IPO will publish the track record of all merchant bankers. We shall start with the so called number ‘one’ merchant banker in the country – Kotak Mahindra Capital. The statistics is for the period starting from 01-01-10 till date. Along side, the recommendations of the First Choice IPO are also mentioned. Judge yourself.

NAME OF THE COMPANY	MONTH	ISSUE PRICE	CMP 13-10-11	FIRST CHOICE RECOMMENDATIONS
VASCON	2010 JAN	165	49	AVOID
DB REALTY	JAN	468	52	AVOID
JUBILIANT FOOD	JAN	145	900	AVOID
NTPC	FEB	201	174	AVOID
HATHWAY	FEB	240	102	AVOID
REC-FPO	FEB	193	178	INVEST
NMDC-FPO	MAR	300	252	INVEST
NITESH ESTATES	APR	54	17	AVOID
JAYPEE INFRA	MAY	102	51	AVOID
STD. CHRTD. BK IDR	MAY	104	88	INVEST
SKS MICRO	JUL	985	218	AVOID
HM MEDIA VENTURE	JUL	166	146	INVEST
BAJAJ CORP	AUG	660	510	INVEST
GPPL	AUG	46	73	INVEST
TECPRO	SEP	355	213	INVEST
EROS	SEP	175	253	INVEST
OBEROI REALTY	OCT	260	231	INVEST
COAL INDIA	OCT	245	332	INVEST
PRESTIGE ESTATES	OCT 2010	183	109	AVOID
TATA STEEL FPO	JAN 2011	610	454	INVEST
MUTHOOT FINANCE	APR 2011	175	170	INVEST
FUTURE VENTURES	APR 2011	10	9	AVOID

STOCK WATCH: COAL INDIA - BUY

The share price of Coal India has corrected more than 10% in the last few trading days, due to the following reasons:

1. The clearance of draft mining bill by the cabinet.
2. Threat of strike by employees for better pay and bonus.
3. The decision of the coal ministry agreeing to the demand of power ministry to divert a portion of e-auction sale of coal to the power sector.

The consequences:

The draft bill envisages that the companies would have to share 26% of the profit with locals. This is applicable to all mining companies, including Coal India. Being the largest producer and reserve holder of coal, it would not be difficult for the company to adjust its pricing and maintain profitability. In the long run, what is good for the locals will be good to Coal India too. Growth in any sector / region should always be inclusive. This policy move of the government is in the right direction.

Coal India is one of the largest employer in the country, has successfully implemented many wage settlements in the past. The company reviews the coal prices regularly. They should have factored the possible wage increase and other demands of the workers in to it. Hence this may not have any impact on its earnings.

The company, in the e-auction, sales around 10% of its total productions, gets a premium of Rs 900 a tonne, compared to the regular sales. By diverting a portion to coal starved power sector, as agreed by respective ministries, its profitability to some extent may be hit. However Coal India may rework its coal prices for both e-auction and others, to maintain and improve its profitability. Coal India has almost monopoly power over production, pricing and supply of coal in India. Coal India’s prices are cheaper by 30-35% compared to international prices.

At Rs 335 the share is trading around 10 PE of its FY 13 earnings, which is very attractive. Investors can accumulate at this level.

VERY BULLISH UNDER CURRENT

FIIs are net buyers for the third consecutive day in cash market. DIIs too are cautiously bullish and net bought in excess of Rs 100Cr today. Tech stocks reacted negatively ahead of Infosys results tomorrow. The under current is still bullish and lot of short positions are yet to be covered in Banks and Metal stocks.

PERFORMANCE OF IPOS RECOMMENDED BY FIRST CHOICE IPO

NAME OF THE COMPANY	ISSUE PRICE	CMP
GODREJ PROPERTIES	490	660
TANGAMAYI	75	154
REC	193	161
UBI	66	72
NMDC	285	237
PERSISTANT	310	300
PRAKASH STEELAGE	110	121
MANDHANA	130	211
HM MEDIA VENTURES	166	126
MOIL	375	266
PFC	90	98
PSB	120	65
GRAVITA	125	370
COAL INDIA	245	338
ACROPETAL	90	15
VATECH#	1310	1945
EROS	175	235
OMKAR	98	68
BAJAJ CORP#	660	500
INVENTIVE	117	81
GPPL	46	68
ASHOKA BUILDCON	324	240
MUTHOOT	175	159
TREE HOUSE	135	173
EIL	276	249

# ADJUSTED TO SPLIT.