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Fundamentals February 27, 2013


Nik's Diary
The Indian market opened flat tracking similar opening in SGX Nifty and most other Asian markets. The US market moved mostly higher over the course of the trading day on Tuesday after seeing some volatility in morning trading. This volatility came as Federal Reserve Chairman testified before the Senate Banking Committee. The positive sentiment was on the back of upbeat reports on new home sales and consumer confidence. The US new home sales surged up by 15.6% in January 2013. With this increase, sales rose to their highest rate since July 2008. Also, consumer confidence index jumped to 69.6 in February 2013 from a revised 58.4 in January 2013. The European markets also showed significant moves to the downside on the day due to the uncertainty created by the results of the Italian elections. After two days of voting in crucial elections, Italy appears headed for political gridlock, sparking fears of eventual comeback of European financial crisis Meanwhile, Indian shares fell sharply on Tuesday, mirroring extremely weak Asian and European cues as inconclusive Italian elections stoked fears about the outlook for the Eurozone economy. The underlying sentiment remained cautious as investors await the upcoming Union Budget this week for directional cues.

Elections deadlock in Italy unfavorable for investor sentiments 
The FTSE-100 index closed 1.3% lower after an 84.93 point fall to 6270.44, while Italy's MIB plunged nearly 5% and markets in France and Germany fell by more than 2% as the deadlock is expected to make it harder for Italy to pass the reforms it needs to reduce its debts. Wall Street shrugged off the eurozone worries as the Dow Jones Industrial Average rose more than 50 points in early trade after US new-home sales saw the biggest jump in nearly two decades last month and as US Federal Reserve chairman Ben Bernanke reinforced his commitment to the Fed's bond-buying programme. This failed to ease declines on the London market as investor sentiment was also hit by weak manufacturing figures from China and the prospect of spending cuts in America ahead of a deal to trim the budget deficit. Yesterday's sharp decline for the FTSE comes after the top flight approached a fresh five-year high on Monday, despite the fall-out from the decision of ratings agency Moody's to strip the UK of its AAA status. The pound, which received a battering after the ratings blow, fell further despite euro weakness after Bank of England deputy governor Paul Tucker said he was open to more monetary easing and that the pound may need to fall further. Sterling fell to $1.51 and just under €1.16 as he also revealed to MPs that policymakers had discussed the possibility of negative interest rates. Banks were hardest hit in the market sell-off, with Barclays down 14.7p at 297p, Royal Bank of Scotland off 15.3p at 339.5p and Lloyds Banking Group 1.8p lower at 53.1p. They were joined by leisure group Whitbread after it reported slower sales growth in the 11 weeks to February 14. The figure of 2.7% compared with 3.3% in the previous quarter but the Premier Inn, Costa and Beefeater owner said some of the slowdown reflected the wintry conditions last month. Shares in the top flight stock fell 94p to 2469p. In the FTSE 250 Index, shares in Sports Direct International were 5% lower after it emerged that Mike Ashley has sold a 4% stake worth £100 million. The discounted price of £4 raised eyebrows, while there are fears Mr Ashley was calling the top of the share price after a rally that has seen the stock jump 46% over the past year. The disposal of 25 million shares will still leave Mr Ashley with a 64% stake. Sports Direct shares were 21.5p lower at 409p. Source: HeraldScotland
Railway Budget 2013 – 2014
Railway minister Pawan Kumar Bansal, presenting his maiden Rail Budget, tried to play to the gallery by not raising passenger fares, but he was forced to cut short his speech after MPs from Uttar Pradesh, Bihar, West Bengal and Tamil Nadu erupted in protest and trooped to the Well of the House. While passengers have been spared any direct hike, they will have to cough up more with the minister raising the Tatkal, reservation and cancellation charges. Bansal, facing a severe funds crunch, also unveiled an increase in freight rates averaging around 5.8 per cent that will give the Railways an extra Rs 4,200 crore a year. Also, passenger fares may be hiked soon after the Union Cabinet gives its approval to the setting up of the proposed Rail Tariff Authority. As the minister was speaking, members belonging to the Samajwadi Party, Trinamul Congress, JD(U) and AIADMK trooped into the Well of the House, accusing him of ignoring their states for new rail projects and new trains, shouting slogans like “Rail budget waapas lo (take it back)”. The BJP even went to the extent of calling this year’s Rail Budget as a “Rae Bareli budget”. Unperturbed, Mr Bansal continued with his presentation amid the din and was later helped by parliamentary affairs minister Kamal Nath to complete his truncated speech. In the evening, he also ruled out any rollback of the charges, saying these would affect only three per cent of total tickets booked, and the steps would deter touts. Prime Minister Manmohan Singh, praising Bansal, said: “The Budget presents a realistic picture of the Railways, which is reformist and forward-looking.” As reported earlier by this newspaper, Bansal has clearly favoured the parliamentary constituency of Congress president Sonia Gandhi: Rae Bareli has now got a wheel factory along with a Rail Neer plant, in addition to the Rail Coach Factory, besides a couple of new trains. Bansal, who represents Chandigarh in the Lok Sabha, has also prominently favoured Punjab and Haryana with broad gauge lines, new trains and projects. This year’s exercise is also significant for its thrust on mountain trains, as a link to Arunachal Pradesh has been proposed, which would also boost the movement of security forces. Also, the minister has proposed more rail connectivity to Manipur, Uttarakhand and Himachal Pradesh. Bansal has also brought cheer to Mumbai suburban passengers by proposing AC coaches in local trains, while further augmenting these services. Bansal, the first Congressman to present a Rail Budget in 17 years, announced introduction of a “dynamic” tariff revision system. He proposed “fuel adjustment component-linked revision for freight tariff”, which will be implemented from April 1, 2013. Apart from a freight tariff hike, the minister’s proposal to bring in hikes in other charges will give the railways an extra Rs 482 crore. The FAC will come in effect twice a year in response to diesel price revisions. Bansal stressed on safety and said a new generation e-ticketing system will be in place by the end of this calendar year. Tickets can also soon be booked by SMS. The minister announced 67 new express trains in his speech. The reservation charges and supplementary fee for superfast trains will now go up by Rs 5 on second class to Rs 25 on AC-1 and Executive Class, while Tatkal charges will be up by Rs 15 on sleeper class and `100 on Executive Class. Also, clerkage and cancellation charges will go up by Rs 5 on second class to Rs 50 on Executive Class. Source: Deccan chronicle

2G spectrum auction: No applicant for GSM waves
It's deja vu for India's spectrum auction to be held on March 11 as Sistema Shyam became the sole bidder for CDMA airwaves with no takers for GSM frequency. Monday was the last day for filing applications to participate in the upcoming 2G spectrum auction, and with just one bidder -SSTL- the auction is all but over even before it started. Three months back, in November auction, the government could garner only Rs 9000 crore against the expected Rs 40,000 crore, as the bidding process got over in just two days with many lucrative circles remaining un-auctioned. The failure of the November auction was attributed to high reserve price but despite slashing the base price by one third, the next spectrum auction also did not excite many bidders. Analysts say the base price is still too high and there are many loopholes and uncertainties in the current policy which discourages the operators to participate in the bidding. The government will begin the auction process on March 11 in 1,800 Mhz band for three circles - Delhi, Mumbai and Karnataka- that remained un-auctioned in November. This will be followed by the auction of 800 Mhz spectrum band where Sistema Shyam is the sole bidder. The company lost its license to operate in the country post the apex court's cancellation of 122 licenses in February last year. Finally, the auction for 900 Mhz spectrum will take place where the reserve price has been fixed at a double price that of 1,800 Mhz. Many incumbent operators stayed out of this auction as the government has linked the outcome of the auction to licence renewal and airwaves refarming fee. The licences of large operators like Vodafone and Bharti Airtel are set for renewal in 2014. Source: ciol

Hindalco locks out Silvassa plant
Aditya Birla Group flagship firm Hindalco Industries today announced a lock-out at its Silvassa plant in Dadra and Nagar Haveli following continuation of workers’ strike.“...due to continuation of illegal strike by workmen at company’s Silvassa plant, the company is forced to declare a lock-out there,” Hindalco said in a BSE filing. It said, however, that the company does not expect any adverse impact on financials due to the lock-out. Hindalco has eight other manufacturing facilities. When contacted, the company spokesperson declined to give the number of people who work at the plant. The Silvassa plant, covering 97 acres, is located 180 km from Mumbai. It has 30,000 tonnes per annum aluminium foil and converted products manufacturing capacity. The plant was up in technical collaboration with Reynolds Metal, USA, in 1998. It has five rolling mills, two foil separators, two re-winders and six annealing furnaces with inert gas facility among others. The Silvassa plant caters to Hindalco’s key customers in pharmaceutical packaging such as Glaxo Smithkline, Pfizer, Lupin, Aventis, Aristo, Macleods, Cadila and Torrent among others, according to company website. “The unit exports to over 11 countries across Europe, the Middle East, South Asia, Australia and the Far East,” it said. Source:thehindubusinessline







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