Weekly Update 24 Oct, 2009 by Tanmay G Purohit

Nifty closed down 2.82% or 144 pts at 4997  in a shortened week. Indices fell for first 3 days on trot and Friday we had a little bounce which normally happens after 3-4 day correction. RELIANCE shares ended down 4% on Friday after HARDY OIL abandoned D9 block. Stock of HARDY fell 41% on London Stock Exchange yesterday on the back of this news. Hardy in May this year had said that it estimated the prospective resources at Block D9 at 10.8 trillion cubic feet of gas and 143 million barrels of oil, almost equal to the reserves in the country’s most prolific KG-D6 block, whose monetary value is estimated to be $50 billion. It was then pulled up by the Director General of Hydrocarbon (DGH) saying it was premature to publicize the prospects of reserves.  Reliance, which surrendered a third of the 45 exploration blocks to the government for unsuccessful exploration with sunk cost of Rs 1,400 crore, said on Friday it would not surrender this block, but would drill three more wells. The stock has weakened as it has closed below 75Day EMA and in case more negative newsflow for the stock continues with Supreme Court hearing between RIL-RNRL going on, Rs 1900 may become next support for RIL, the stock needs to be watched closely as it has more than 10% weightage in the Nifty and more than 13% in Sensex. 

Nifty has broken down from a rising wedge which indicates bearishness ahead and it is poised at make or break level as it trades near crucial support of 4900 which is lowest point in last 5 weeks. Move past 5120 is needed this week to show strength once again. FMCG stocks look good on the back of above-expectation results from ITC and HINDUNILVR would be good as an investment pick. Current stir going on in Gurgaon auto belt may impact AUTO stocks negatively. COAL INDIA has hiked coal prices by 11% which is first rise in last two years and GUJNRECOKE may also be benefitted. Hike in coal prices can impact METAL, CEMENT and POWER stocks . SAIL once again has denied any price increase owing to possibility of lack of demand and it indicates low pricing power for the PSU Steel company. RBI meeting on Oct 27 would set the trend for BANKING stocks. Current rally is driven by liquidity as earnings season is not giving so healthy signals, the growth in Sales for 426 companies announcing results so far has been 1.8% while PAT growth is 28% which is mostly driven by Other Income component which has risen 71% this September quarter. Most of the good news looks priced in and liquidity would be first to reverse at slightest of fears, so caution is advised. 

Supp 4930/4878/4782 Res 5055/5123/5185

RBI to hike cash reserve ratio by 50 bps on Oct 27: Moody's http://profit.ndtv.com/2009/10/23205012/RBI-to-hike-cash-reserve-ratio.html

Global trade flows slipped in August after rising for the two previous months, an indication that the economic recovery is more fragile and anemic than previous data have hinted. The Netherlands Bureau for Economic Policy Analysis said trade volumes fell 2% from July, according to an algorithm based on customs data from 23 developed countries and 60 emerging markets, accounting for 95% of global trade.   http://online.wsj.com/article/SB125634292388104937.html?mod=rss_whats_news_us

SEBI has allowed stock exchanges to extend the trade timing from 10-3.30 p.m to between 9 a.m and 5 p.m. The move adds nearly 2-1/2 hours of trading if both the exchanges - BSE and NSE - extend the trade timing as per Sebi permission. http://www.bloombergutv.com/stock-market/stock-market-news/35398/sebi-permits-extended-trading-hours.html

Cash Level Of Equity Funds Lowest Since Jan ’08 Peak, Is The Liquidity Tap Drying Out?

• After a swift rise in share prices since early March, cash available with equity mutual funds has fallen below 7 per cent of assets under management, a level last seen during the market peak in January 2008. Even till April end, equity fund managers were ca utious and held 14.35 per cent of their assets in cash. The scenario changed after the Congress-led alliance won a comfortable majority in general elections boosting investors’ confidence in political stability in the country. Between April 30 and September 30, cash available with 297 open-ended equity schemes declined from Rs 14,637.18 crore to Rs 9,675.15 crore, data available from Delhi-based mutual fund tracking firm Value Research showed. During this period, cash as a percentage of total equity assets declined from 14.35% to 6.25%. 
• After witnessing heavy inflows in July and August, mutual funds lost favour last month as investors pulled out over Rs 1.44 lakh crore, the highest monthly outflow so far this fiscal. The combined net outflow from the 36 fund houses stood at Rs 1,44,327 crore in September, as per the Association of Mutual Funds in India (AMFI) data. At the end of September, investors pulled out money from the four major fund schemes -- income, equity, balance and liquid or money market. 
• Domestic institutions had been pumping fresh money into the markets for the last four months putting in Rs 14,207 crore in total, unmindful of how FIIs behaved. Even in July when FIIs withdrew Rs 1,365 crore from the market, domestic institutions were investing and helped the Sensex close 8 per cent higher, by bringing in over Rs 5,800 crore. But the situation has changed in recent weeks. From the average Rs 4,000 crore brought in every month between June and August, domestic institutional investment in the market in September dipped to Rs 770 crore and turned to net sales in October. 

• Retail investors haven’t participated in the market’s rally since March and have pulled out Rs 13,355 crore (net) between March and now. Even in the post election surge that took markets up in May, retail investors didn’t join in. In September they took Rs 4,285 crore out of the market and in October till date they have pulled out Rs 462 crore.
• The mutual fund industry’s assets under management declined in September even as equity markets touched a 17-month high of 17,000 during the month. Profit booking by investors, the new no-entry load regime and redemption pressures from corporates and banks are exerting pressure on the mutual funds’ asset base. Mutual funds assets fell by almost one per cent during September, while the benchmark BSE Sensex rose by more than nine per cent. Of the 38 mutual fund houses, 21 of them reported a fall in their asset base, while the asset base of the rest increased. The average assets have dipped to Rs 7,42,919 crore in September compared with Rs 7,49,915 crore in August, according to the data released by Association of Mutual Funds in India.
• "Mutual funds are sitting on whopping Rs 13,957.4-crore of cash, but fund managers are anticipating correction before deploying it in the market," Sharekhan Ltd's Mutual Fund analyst, Sapna Jhawar, told PTI but in my view if one more month of AUM fall is seen, it may be enough for taking away all the cash they have as redemption pressure may lead to rapid selling to generate cash.
• Many believe October to be a cruel month for stocks as many of the biggest crash have happened in October only and by the end of this month we would come to know amount of redemption pressure on hedge funds industry as Sep 30 was deadline for them, this is the reason why we saw accentuated selling last October also. Not necessary that it will be repeated, but worth a caution! If new money is hard to come by, liquidity gets dried up and current rally has been fueled mostly by liquidity, but we have to remember that liquidity is one thing that is very fragile, it disappears at slightest symptom of fear also.
• Domestic institutional investors have, for the first time after May, turned net sellers in the stock market this month. In the 13 trading sessions in October, domestic institutions have taken out over Rs 2,600 crore on a net basis. This is the largest single month withdrawal since January 2008. 

Domestic institutions turn cautious, Take out Rs 2,600 crore this month. http://www.thehindubusinessline.com/2009/10/23/stories/2009102350751000.htm

Fall in MF assets under management in Sept http://www.thehindubusinessline.com/2009/10/03/stories/2009100350940900.htm

MFs set to deploy Rs 13,957-cr in the market http://www.mydigitalfc.com/mutual-funds/mfs-set-deploy-rs-13957-cr-market-675

Cash level of equity funds lowest since Jan ’08 peak http://www.mydigitalfc.com/mutual-funds/cash-level-equity-funds-lowest-jan-%E2%80%9908-peak-641

MFs see outflow of Rs 1.44 lakh crore in Sept http://www.mydigitalfc.com/mutual-funds/mfs-see-outflow-rs-144-lakh-crore-sept-523

Is October the Month that Markets Crash? http://seekingalpha.com/article/164701-is-october-the-month-that-markets-crash

Why Markets Crash in October http://blogs.abcnews.com/moneybeat/2008/10/why-markets-cra.html

MARUTI BLOWS REVERSE GEAR HORN!
MARUTI after nearly quadrupling itself from Dec-08 lows has broken the 8-month old up channel. Now the stock is showing a bearish H&S pattern and below Rs 1450 it may give downside of Rs 200-250 more also. 

Caution advised in this stock :-

• Exports were an important part of revenues for MARUTI in last 2-3 months and now with Rupee appreciating by more than 13% will impact negatively.
• GERMANY and AUSTRIA are not extending the Scrappage Incentive Scheme which was launched in EU this year to boost car sales, major beneficiaries were MARUTI and HYUNDAI and slowly these benefits will disappear as EU countries stop the incentives for car buyers.
• MARUTI has more than 50% market share in Indian car industry and it has hit all time high sales almost every month in 2009. This was on the back of stimulus from government, 6th pay commission and festive season recently but now higher base effect will impact sales as it is always difficult to raise the performance every month for an indefinite period.
• Crude Oil prices have touched above $81 which may  make policy-makers rethink on fuel pricing, any increase in Petrol/Diesel rates will impact the sales of MARUTI negatively.
• Metal prices have risen along with other commodities and rising input costs can be one more disturbing factor.
• Labour unrest in auto belt of Gurgaon has hampered production of many companies in that area and MARUTI is the one which was affected to some extent. 

The stock has gone up from Rs 433 to Rs 1737 in 10-months and 50EMA at 1332 would be a level to watch. Rs 1200 is strong support for the stock as it has been previous top for MARUTI. 50EMA-1477, 100-EMA1332, 200EMA-1132



[Dow Jones] Most auto shares down today, local analyst says sector after significant rise over last one year is likely due for correction. "The attraction for various auto players in India is the cost advantage, but the lack of labor reforms in the country and now with strikes at various units in recent times it is advisable to take profits in automobile shares," says A K Prabhakar, an independent analyst; adds, expects 1,600-2,000 point fall in BSE Auto index which now at 6,662.17 points, up 113.26 points on year, and much higher than its 52-week low on December 2, 2008 level of 2,127.86 points. Adds high raw material cost, high crude prices, generally stronger rupee vs dollar likely to hurt exports

http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx Please save in Favorite webpage - all the info about BSE listed stocks can be found. Always be an informed investor, never invest blindly!

Gurgaon workers plan stir after violence at Rico Auto

Sona Koyo Steering Systems Ltd, Hero Honda Motors Ltd, and Lumax Industries Ltd are among those likely to be affected

Gurgaon, Haryana: Workers at some 60 factories in Gurgaon and Rewari in Haryana plan to strike work on Tuesday protesting against the death of a worker at Rico Auto Industries Ltd on Sunday, a union representative said.

Sona Koyo Steering Systems Ltd, Hero Honda Motors Ltd, and Lumax Industries Ltd are among those likely to be affected, according to Suresh Gaur, president of the Gurgaon branch of the All Indian Trade Union Congress.

This development comes after one person died and several people were injured in a confrontation between two groups of workers at the factory gate late on Sunday evening. While authorities place the number of injured at between five and 11, Rico workers said at least 40 of their colleagues were injured.

Workers at Rico struck work on 21 September after 17 of their colleagues were expelled on disciplinary grounds. They allege their expelled colleagues had been victimized for helping form a trade union.

“After working for 13 years, I take home only Rs10,500 a month,” said Pankaj Kumar Singh, a worker. “Forming a union is the only way we can air our grievances.” His colleagues are also peeved with their annual raises that are capped at Rs500. Management employees are given much higher raises, they say.

The Haryana government termed the strike illegal on 1 October, after conciliation efforts between the workers and the company management failed. The state government has referred the matter to the labour court, said M.R. Anand, additional labour commissioner in Gurgaon.

The workers have demanded a judicial inquiry by a high court judge into Sunday’s incident. They alleged that the police fired upon them without provocation. They also want the 17 suspended workers to be reinstated.

The management at Rico Auto could not be reached despite repeated attempts.

The incident at the Rico factory represents growing unrest between company managements and workers across the country. In May this year, several hundred workers employed at Nestle India Ltd’s plants in Punjab, Harayana and Goa converged at the firm’s headquarters in Gurgaon to demand recognition for union activities. Mint reported in May that Nestle’s management had moved court in January, seeking a permanent ban on all union activities, including meetings, within 200m of its factories.

Worker trouble has also been simmering at Honda Motorcycle and Scooter India Pvt. Ltd, based in Manesar, Haryana, for about a month now.

Sunday’s incident was provoked by a group of striking workers who prevented their colleagues from entering the factory, according to S.S. Deswal, Gurgaon police commissioner.

The workers denied this and claimed that trouble began as a result of an altercation between private security personnel and the police, which later spilled out of the factory gates and engulfed the striking workers.

(Source: LiveMint http://www.livemint.com/2009/10/19214234/Gurgaon-workers-plan-stir-afte.html)

GAS DISPUTE ENTERS LAST LAP, CASE TO BE HEARD DAILY

http://www.livemint.com/2009/10/19215228/Gas-dispute-enters-last-lap.html?h=B

A three-member Supreme Court bench, headed by Chief Justice K.G. Balakrishnan, will on Tuesday commence the final hearing in the case between Mukesh Ambani-owned Reliance Industries Ltd (RIL) and Anil Ambani’s Reliance Natural Resources Ltd (RNRL) in the dispute over the supply of gas from RIL’s D6 block in the Krishna-Godavari (KG) basin. On Monday, the Union government, in a reply to RNRL’s contention, asserted its right to file a petition in the Supreme Court against the Bombay high court verdict of 15 June, claiming the high court verdict had adversely affected its sovereign rights over natural gas. The Bombay high court had ruled that RIL should honour a June 2005 family agreement to supply 28 million cu. m per day (mscmd) of gas at $2.34 per million British thermal unit (mmBtu) for 17 years to RNRL. While RNRL has sought the apex court’s intervention for the immediate supply of gas, RIL, in its affidavit, has opposed this, stating that the price is 44% lower than that mandated by the government and it cannot supply gas at a price not approved by the government and to a user not listed in the country’s gas utilization policy. 

Source: Mint research

Key milestones in the legal dispute:-

15 June: The Bombay high court rules in favour of Anil Ambani's RNRL, ruling that RIL should honour a June 2005 family agreement to supply 28 mscmd of gas from its KG basin fields at $2.34 per mmBtu for 17 years to RNRL.

3 July: RNRL appeals to the Supreme Court to restrain RIL from supplying natural gas up to 40 mscmd to any party other than itself and asks the court to give a specific direction to RIL to implement the family agreement for supply of gas.

4 July: RIL files a petition in the apex court against the Bombay HC order, claiming the high court erred in deciding the three terms—quantity, tenure and price—of gas supply to RNRL.

7 July: The Supreme Court refuses to stay the high court ruling and posted the matter for hearing on 20 July.

18 July: The government files a special leave petition in the apex court, asserting its sovereign rights over gas and stating that the KG basin gas is not a personal property of the Ambani brothers. It asks the court to declare the June 2005 family memorandum of understanding (MoU) as null and void.

20 July: The Supreme Court defers a hearing on the gas dispute until 1 September.

28 August:  The Supreme Court further defers the hearing to 20 October. 

1 September:The government files an amended petition in the Supreme Court asserting its sovereign rights over gas, but clarifying that it no longer wanted the family arrangement between the Ambani brothers to be declared null and void.

9 September:  RNRL files a detailed reply to RIL petition, alleging that Mukesh Ambani firm was changing its position on the MoU that had set the rules of the demerger of the Reliance businesses. It further stated that the MoU was not affected by the gas utilization of the country and RIL was wrongfully seeking to add government approval as a condition.

16 September: RNRL asks the Supreme Court to make state-run power utility NTPC a party in its legal dispute with RIL. 

18 September: RNRL urges the Supreme Court to dismiss the government petition, arguing that the Centre has no role in the legal spat over the KG basin gas between the Ambani brothers.

6 October: RIL, in its filings before the Supreme Court, challenges the Bombay high court verdict and presents new evidence such as minutes of board meetings, which seek to undermine RNRL’s claims. RIL also questions RNRL stand of seeking a majority share of KG D6 gas despite the fact that RNRL had not built any power plant to utilize the gas.

Billionaires at war: How Ambani dispute ups India's investment risks

http://news.in.msn.com/business/article.aspx?cp-documentid=3287284&page=0

Mumbai: The wrangle over an energy deal between billionaire Ambani brothers has highlighted the risks inherent in an economy dominated by big family businesses and spurred calls for the government to intervene.

The latest dispute between the feuding brothers could discourage investment in India's energy sector as the country scrambles to shore up its energy security.

It also tests governance standards for a nation that ranks a lowly 180 when it comes to enforcing contracts on the World Bank's index on ease of doing business. Only Benin ranks worse.

The near-three-year battle between India's top conglomerate Reliance Industries, headed by Mukesh Ambani, 52, and Reliance Natural Resources, led by estranged brother Anil, 50, will be heard in Supreme Court on July 20.

The two sides are fighting over terms of a gas-supply agreement struck when the Reliance empire was split in 2005. The Bombay High Court ruled last month that Reliance Industries should supply gas to Reliance Natural at nearly half the price it had set in an interim order in January.

The gas in dispute comes from the vast Krishna Godavari (KG) basin, and some in India have said terms of access to such a crucial resource in an energy-starved country should not be left in private hands.

"If a private MOU (memorandum of understanding) can involve something that belongs in the public domain, it gives the sense that large corporations can bend rules and influence policy -- that's surely got to be the biggest political risk," said Seema Desai, an analyst at risk consultancy Eurasia Group in London.

The government has largely been silent, which could make investors wary, said strategist Arun Kejriwal at KRIS Research.

"It sends a message that the law is different for different people. This is not trivial, it is a matter of national interest," said Kejriwal.

The chief minister of the state of Andhra Pradesh, where the KG basin is located, has also called for New Delhi to step in.

"The dispute over sharing of gas is not an issue to be settled by their mother. It is for the Centre (central government) to decide who should get the gas at what price," Y.S. Rajasekhar said on Sunday, according to the Times of India.

Family business

Big business families in India, as in many other countries, have long played an outsized role in the broader economy and have used political patronage to smooth their way. Some analysts say that too much is at stake now for the government to stay silent.

"The government's call is important ... the verdict could have an impact on the gas-allocation policy as it is likely to impact the flow of gas to priority sectors going ahead," Angel Broking wrote in a recent client note.

Macquarie estimates the proposed oil and gas production from just 4 percent of the KG-D6 block and Cairn Energy's Rajasthan block could add $20 billion to India's GDP, cut its oil imports by 23 percent and add $59 billion in government profit-sharing and taxes.

Disputes like this "may dissuade future exploration and exploitation of India's mammoth upstream potential," it said.

This is not the first time that a fight between two of the wealthiest men in the world has grabbed newspaper headlines and sparked debate about the balance of power in corporate India. Mukesh was ranked 7th by Forbes in its list of global billionaires in March, with a net worth of $19.5 billion. Anil was at No. 34 on the list, with a net worth of $10.1 billion.

Reliance Industries last year cited a first right of refusal clause in the agreement to sink a bid by Anil Ambani's Reliance Communications for a merger with South Africa's MTN.

The details of the family settlement, which was brokered by the Ambanis' mother, have not been made public, and at least a dozen issues still need resolution, analysts say, ranging from properties to shares in companies.

But some expect the rule of law to ultimately prevail.

"Family disputes among corporate houses in India, and the world over, are not new," said Manoj Vohra, director of the Economist Intelligence Unit in India.

"The rule of law in India is better than in several developing economies. Opportunities are massive and fundamental in nature and unlikely to be clouded by this slugfest.

Ambani gas dispute: Govt expands legal team http://www.business-standard.com/india/news/ambani-gas-dispute-govt-expands-legal-team/76164/on

BUSINESS CASE FACEOFF: Reliance vs. Reliance http://online.wsj.com/article/SB125177951575775119.html?mod=googlenews_wsj

Ambani dispute hurts markets, says Pranab http://www.financialexpress.com/news/ambani-dispute-hurts-markets-says-pranab/507649/

Oil industry body writes to PM against Adag http://www.livemint.com/2009/10/19145841/Oil-industry-body-writes-to-PM.html

Brothers at war: Ambani gas hearings must clarify policy http://in.reuters.com/article/businessNews/idINIndia-43212620091019

Ambani Gas Hearings Must Clarify Policy http://www.businessworld.in/bw/2009_10_16_Ambani_Gas_Hearings_Must_Clarify_Policy.html
Ambani vs. Ambani: A Dispute over Natural Gas Prices Flares Up http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4409