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Circuit Breaker 3rd August 2013

MBA Capital Markets


NEWSMAKERS Holcim to hike stake in Ambuja Cements Holcim, the world’s fourth largest cement maker, is restructuring its Indian subsidiaries (Ambuja and ACC). This exercise will make Ambuja as its flagship company. The deal is as follows: Ambuja will acquire 24% in Holcim India for Rs. 3,500 crore. Holcim India will then be merged into Ambuja in all-stock merger. 58.4 crore equity Ambuja will be issued to Holcim. Holcim’s stake in Ambuja will rise to 61.39 percent. Ambuja’s stake in ACC will become 50.01 percent. Ambuja will become flagship entity for Holcim’s India operations with ACC as a subsidiary, both companies will continue to operate as listed entities with their existing brands.

India’s Manufacturing PMI falls in July India’s manufacturing sector output dropped by a fraction -- its third straight fall in as many months -- but managed to stay above the 50point mark, which divides growth from contraction, amid plunging new orders, a weakening economy, and a shortage of raw materials brought on by a weak rupee. HSBC PMI fell to 50.1 from 50.3 in June. This index measures the overall health of the manufacturing sector.

Goldman Sachs downgrades Indian equity to underweight Goldman Sachs has downgraded India to underweight this Thursday, advising investors to be selective. Major reasons cited for this downgrade were slow recovery in growth, measures taken by RBI to halt rupee depreciation which led to tightening liquidity condition and other macro vulnerabilities. It expects corporate earnings to grow 5% this year and 11% next year, below expectations. Govt. sells stake in Neyveli, STC, and ITDC On 2nd August, Government’s stake sale got fully subscribed garnering Rs 395 crore for the exchequer. The 3.56 per cent stake sale in Neyveli Lignite Corporation (NLC) fetched Rs 360 crore to the exchequer with all of the shares being picked up by five Tamil Nadu government firms. Besides, the sale of 5 per cent stake, or 42.88 lakh shares, in ITDC fetched over Rs 30 crore. Another Rs 4.54 crore came in from STC disinvestment of 1.02 per cent, or 6.13 lakh shares. The stake sale would now make the three PSUs compliant to the minimum 10 per cent public holding norm of market regulator.

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Movement in Equity Markets 2.00% 1.00%

Percentage change

0.00% -1.00%

22 jul 23 jul 24 jul 25 jul 26 jul 29 jul 30 jul 31 jul 1 aug 2 aug

-2.00%

nifty

-3.00%

dow jones

-4.00%

FTSE Nikkie

-5.00% -6.00% -7.00% -8.00%

Date

Dollar and Euro Movement W.R.T Rupee 4.00%

Percentage change

3.00% 2.00% dollar

1.00%

euro 0.00% 22 jul 23 jul 24 jul 25 jul 26 jul 28 jul 27 jul 29 jul 30 jul 31 jul 1 aug 2 aug -1.00% -2.00%

Date

Note: Upward movement shows that Rupee has depreciated against other currency

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Nifty Options Open Interest (OI) Analysis 24th july 12000000

Open Interest

10000000 8000000 6000000

call option

4000000

Put option

2000000 0 5400 5500 5600 5700 5800 5900 6000 6100 6200 6300 6400 6500 6600 Nifty Level

Open Interest

2nd August 8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0

call option Put Option

5000 5100 5200 5300 5400 5500 5600 5700 5800 5900 6000 6100 6200 Nifty Level

   

Maximum Call OI has changed from 6100 level to 6000 level. Maximum Put OI has changed from 5900 level to 5700 level. Significant Call interest has built up at 6000 level. Significant Put interest has built up from 5600-5800 level. Page | 3


FUTURES Vs. OI 30000000

6200

25000000

6100 6000

20000000

5900 CUM-OI

15000000 5800 10000000

Futures prices

5700

5000000

5600

0

5500 22 jul 23 jul 24 jul 25 jul 26 jul 29 jul 30 jul 31 jul 1 aug 2 aug

  

The CUM-OI was consistently high during the first half of the fortnight. The CUM-OI on the start of new month has been low than the previous month’s expiry with the lowest level being observed on 1st August. The fortnight closed around 5.3% down in futures price to end the fortnight at 5705.55

FII Statistics Gross Selling 2143.9 2305.1 3261.4 4469.8 2496.7 2380.5 2296.6 4823.5

Net

22-July-13 23-July-13 24-July-13 25-July-13 26-July-13 29-July-13 30-July-13 31-July-13

EQUITY Gross Buy 1763.2 2525.7 2870.1 4223.1 2786.1 2171.4 2523.8 5000.7

1-August-13

3704.4

3423.3

Date

 

Gross Selling 196.7 221.3 1112.1 623.5 1050.4 1521.4 669.4 739.1

Net

380.7 220.6 391.3 236.7 289.4 209.1 227.2 177.2

DEBT Gross Buy 85.2 274.2 139.6 1228.8 1216.2 1284.8 783.5 125.3

281.1

151.2

296.2

145

111.5 52.9 972.5 605.3 165.8 236.6 114.1 613.8

FII were net Sellers of equities for the fortnight. FII were net sellers of Debt for the fortnight due to concern of rupee depreciation against the dollar and rupee hovering in the range of 59-61 Page | 4


ECONOMIC CALENDAR FOR NEXT FORTNIGHT Date 5 August

Currency INR

7th August

INR

9th August

INR

14th August

EUR

Event Indian HSBC Services PMI Indian M3 Money Supply Indian Bank Loan Growth GDP(QoQ)

15th August

USD

CPI(YoY)

16th August

EUR

CPI(YoY)

th

Forecast

1.6%

Previous 51.7 12.8% 14.2% -2.1% 1.8% 1.6%

Companies that will declare their results in next fortnight DATE

COMPANY NAME

DATE

COMPANY NAME

5th August

Aptech, NDTV, Spicejet, Tata Chemicals

10th August

Godrej Ind.

6th August

Bajaj, Gillette India, Standard Chartered, Tata Power

12th August

India Cements, ONGC, SBI

7th August

Lupin, Apollo Ranbaxy Lab, Motors

Tyres, Tata

13th August

Indian Oil Corp., Hindalco, M&M, Voltas

9th August

Cipla, Goodyear India, Sun Pharma, TVS Motors

14th August

LIC Housing Fin., National Aluminium

SAIL,

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CB Café’ NSEL Fiasco – What Went Wrong? st

On 1 August, an army of brokers thronged the NSEL office in Mumbai, demanding commodity bourse pay up. The exchange could not meet its payout commitment after it suspended trading on several contracts that were disapproved by the Govt. Trading positions worth Rs. 5,500cr are pending on NSEL i.e. National Spot Exchange Limited, which have halted trading for fortnight. Let’s see how NSEL managed to get into this mess In simple terms NSEL mechanism was used by farmers/any party to take loans keeping items such as castor seeds, cotton, etc as security as these items are considered safe and loan amount used to be around 60-70 % of the market value of those items. Consider a situation where a farmer wants a loan, enters into an agreement with a trader who is an intermediary between investor and farmer. In consideration of the loan the farmer deposits his seeds (or any registered item) on T day at the warehouse and receives the loan on (T+3) day. Now, the farmer has to pay back this amount on (T+36) day (mostly) and can take back his security. In practice, the farmers used to involve in a rollover transaction wherein they did not used to pay back the whole amount on T+36 day but only give some payment (mostly interest with the principal due to be paid on a later date) to the exchange which was then passed on to the investor. So, in a way it became a regular source of income for investors. Traders used to lure their clients by promising them 13-15% fixed return through such transactions.

Source: NSEL

But a few days ago, the Govt. issued a directive to NSEL to cancel these forward contracts as they should not be more than 11 days. So, NSEL cancelled those long term contracts and issued 11 day contracts. So, ideally, after the 11th day investors should have received their payments but the farmers did not have the money as they had got into a habit of paying interest after 38 days. Also, hearing the news of issue of new contracts most of the investors did not want rollovers and wanted their entire money back. But farmers were not ready to pay back the entire sum and there was liquidity crunch at the exchange. This resulted in payout demand exceeding the money that they used to get from investors via rollover transactions. This led to a cash crunch and NSEL had to suspend its working for 15 days. Although the NSEL management has said that it has enough warehouse commodities or cash to cover the counter party risk the market does not believe so and it led to stock of its promoter company Financial technologies plummeting by 65% and 40% respectively in last 2 days. Page | 6


The Editorial Team of Investocraft Chakshu Aggarwal

Editor in Chief

Pratik Jain

Circuit Breaker

Khushboo Shah

Communications

Ravi Srikant

Content Head

Tanvi Mittal

IT Head

Shekhar Kaushal

Design Head

Visithttp://www.investocraft.com for more updates on the latest happenings from the Indian Capital Markets

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Circuit breaker 3rd august