In India, Investors 'Buy Anything'

India's reinvigorated stock market is sparking a rush by companies and the government to raise cash.

So far this year, issues of new shares have been scarce. But with the Bombay Stock Exchange's benchmark index at a 10-month high, many companies have plans to raise capital to bolster balance sheets and fund growth, bankers say.

The new government's budget, scheduled for release in early July, also could usher in new sales of stakes in public companies. The frenzy may be welcome news to investors looking to ride a rapid rise in India's stock market over the past few months.

Since India's election result May 16, which yielded a surprisingly strong victory for the ruling Congress party and its allies, the BSE's Sensitive Index, or Sensex, is up 27%. On Wednesday it closed at 15466.81, up 2.3%, and is up 60% year to date.

From its lowest point on March 9, the market has surged nearly 90% on signs of revival in the Indian economy, hopes that the new government will do more to drive growth, and a general rise in stocks around the world. India's gross domestic product increased 5.8% in the three months to March 31.

But the anticipated rush of new issuance also raises the risk that too many new shares could flood the market and quickly soak up demand.

"Can the market get saturated or, indeed, deals downsized? There is a distinct possibility," said Tarun Kataria, head of global banking and markets for HSBC in India. "Given current euphoria, investors are keen to play India and, it would appear, will buy anything. At some point soon, there will be a flight to quality."

Data provider Thomson Reuters expects $50 billion of new shares to be issued in India this year. So far, there has been just $1 billion.

Many of the new corporate share issuances are expected to be qualified institutional placements, in which only certain investors -- including foreign investors registered with the Securities and Exchange Board of India, and Indian banks and mutual funds -- can participate. Initial public offerings also are likely, bankers say, from both government-owned and private-sector businesses.

"Most of the balance sheets have been starved of equity over the last one year, so everybody's seeing this as an excellent opportunity to go and raise some," said Dilip Kadambi of ABN Amro Global Banking & Markets in India.

Shareholders of real-estate company Sobha Developers Ltd. will vote June 17 on whether to approve a $318 million fund raising. The company is looking to raise the money through a qualified institutional placement, company secretary N. Venkatramani said.

Infrastructure company Hindustan Construction Co. will ask shareholders on June 22 for the right to also raise $318 million. The form the fund raising will take hasn't been decided.

Real estate company Parsvnath Developers Ltd. hopes to raise $529 million over the next 12 months and will put the plan to shareholders on June 20.

On the IPO front, state-owned hydro-power outfit NHPC Ltd. and oil-exploration company Oil India Ltd. are expected to issue shares. On Monday, Rahul Khullar, the outgoing top bureaucrat in the department in charge of state company disinvestment, said the government is likely to sell stakes in NHPC and Oil India by September, followed by six to seven other companies before March 31, 2010.

The government's budget could offer further divestment plans amid the need to stimulate the economy without severely worsening the fiscal deficit.

Air India, India's national airline, and state-run telecommunications company Bharat Sanchar Nigam Ltd., or BSNL, are likely to sell some shares, market watchers say.

—Vibhuti Agarwal and Mukesh Jagota contributed to this article.

Write to Jackie Range at jackie.range@wsj.com

M&M sees biggest gain in shareholder wealth

The combined market capitalization of the Mahindra and Mahindra Group gained by 210% to Rs42,845.96 crore on Wednesday, from Rs13,809.02 crore on 31 December

Auto-to-software group Mahindra and Mahindra Ltd, run by the uncle-nephew duo of Keshub and Anand Mahindra, has emerged the biggest gainer in market capitalization in calendar year 2009 among India’s top business conglomerates.

Market capitalization is arrived at by multiplying the share price and the number of shares outstanding. Sandeep Bhatnagar / Mint

The combined market capitalization of the Mahindra and Mahindra Group gained by 210% to Rs42,845.96 crore on Wednesday, from Rs13,809.02 crore on 31 December.

During this period, Sensex, India’s 30-stock benchmark equity index, rose 60.32%. Mahindra and Mahindra, the group’s flagship company, is part of the Sensex with a 1.44% weight.

Market capitalization is arrived at by multiplying the share price and the number of shares outstanding. It provides a total value for the company’s shares and thus for the company as a whole.

Mint’s analysis of market capitalization took two sets of timelines into consideration. The first looks at the appreciation in market capitalization from the beginning of the calendar year to 10 June and the second tracks the effect of market capitalization on business groups since the election results on 16 May.

Since January, many Indian business groups, including public sector enterprises, have regained a large portion of the shareholder wealth they had lost following a sharp drop in the Sensex after touching a lifetime high of 21,206.77 points in mid-January 2008.

A study of the share price movements of the group companies of big industrial conglomerates since 15 May, ahead of the Sensex’s 2,100-point leap, shows that public sector enterprises were among the biggest beneficiaries of the market re-rating after the Congress-led United Progressive Alliance government came back to power with a comfortable majority.

Market capitalization of public sector enterprises appreciated 42.84% to Rs16 trillion from Rs11 trillion between 15 May and 5 June. There are around 70 listed public sector enterprises. The government’s stake in these companies varies between 20.18% and 99.59%.

The trigger for the appreciation in value for public sector enterprises stocks could be attributed to the President’s speech in the new Lok Sabha. President Pratibha Patil spoke about the right of Indian citizens to own a part of the shares in public sector undertakings, even as the government retained majority control in public sector enterprises.

“My government will develop a road map for listing and people-ownership of public sector undertakings while ensuring that government equity does not fall below 51%,” she said, outlining the agenda of the new government.

Prime Minister Manmohan Singh in his reply to the debate on the President’s speech in both houses of Parliament, made a strong pitch for divestment to raise resources for social programmes.

Four Sensex stocks outperform index in past 18 months

Analysts are not surprised by the performance of these stocks as two of them belong to the so-called defensive sectors & all four have good track records.

In the past three months, the country’s most tracked equity index, the Sensex, recovered a large part of the ground that it had lost after rising to its lifetime high in mid-January 2008, but it is still about 5,800 points away from the 21,206.77 peak. At least four stocks, part of the 30-stock Sensex, however, are trading at higher prices now than their January 2008 prices.

In other words, these four stocks have outperformed the Sensex.

Overall, 92 listed stocks have done better than the benchmark index in past 18 months.

The four Sensex stocks that have outperformed the index are MarutiSuzuki India Ltd, Infosys Technologies Ltd, Hindustan Unilever Ltd and Sun Pharmaceuticals Industries Ltd.

Maruti that makes 50% of cars sold in India was trading at Rs1,009 in January 2008. On Thursday, it closed at Rs1,094.65.

Infosys, the country’s second largest software services firm, closed at Rs1,803.25 on Wednesday, higher than its January 2008 level of Rs1,785. However, it closed at Rs1,751.55 on Thursday.

Similarly, Hindustan Unilever, the country’s biggest household product maker, has gained 6.51% during this period, from Rs244.1 to Rs260 and Sun Pharmaceuticals Industries, the country’s biggest drug maker by market value, gained 9.82%, from Rs1,220 to Rs1,339.75.

Among the four, Infosys has the maximum weightage in Sensex—7.66%, followed by Hindustan Unilever at 2.55%, Maruti Suzuki at 1.42% and Sun Pharma at 1%.

Analysts are not surprised by the performance of these stocks as two of them belong to the so-called defensive sectors and all four have good track records.

A stock that tends to remain stable under difficult economic conditions is called a defensive stock.

Pharmaceutical and fast-moving consumer goods stocks belong to this category as consumers do not stop buying medicines and personal care products even in the worst of times.

Nitin Khandkar, senior vice-president of the research division of Keynote Capitals Ltd, a Mumbai-based brokerage, said most of the companies whose stocks are trading above their January 2008 levels now, have a long track record and strong balance sheets.

“Some of them such as Hindustan Unilever and Sun Pharma are from what can even be called recession-proof sectors. To some extent, declining interest rates have helped them. These stocks were beaten down but were the first ones to get investor funds once the sentiment started improving,” Khandkar said.

He also has a word of caution. “The run-up in prices have been quite sharp and one would need to be cautious at the current levels,” he said.

Deepak Jasani, head of retail research, HDFC Securities Ltd, said the rise in these stocks “could be a reflection of micro triggers like capacity additions”.

According to him, quite a few sectors such as software and fast-moving consumer goods did not participate proportionately in the last rally and they could now be catching up with other sectors.

“For example, Maruti’s financial performance was commendable even in bad times. Hence, people would expect it to perform even better in times of economic revival,” Jasani added.

Prominent among other top traded stocks of Bombay Stock Exchange that have outperformed the Sensex are Hero Honda Motors Ltd; Mphasis Ltd; LIC Housing Finance Ltd; GlaxoSmithkline Pharma Ltd; Nestle India Ltd; Godrej Consumer Products Ltd; Colgate-Palmolive (India) Ltd; Lupin Ltd and Cipla Ltd.

A Mint analysis of stocks traded across the exchange shows that among the 92 stocks that have out-performed the Sensex, many belong to the defensive sectors. There are eight pharmaceutical firms and nine personal care firms among them. The list also includes eight software companies and 16 finance firms.

Foreign institutional investors, or FIIs, the main driver of Indian market, pulled out $13 billion from equities last year and another $6.9 billion in the first two months of 2009, pushing the index down to its 40-month low of 8,160.4 in the second week of March.

Since then, the Sensex has risen 88% even as FIIs have pumped in $7.19 billion since March.

NSE slashes lot sizes of 143 stocks; F&O volumes to rise

In a move that may give relief to retail participants in the market, the National Stock Exchange (NSE) has reduced the lot sizes for derivative contracts of 143 stocks. The move came after a nearly two-fold rise in stock prices of many companies in the past couple of months.

In February, the exchange had increased the lot sizes of 243 stocks, which had caused liquidity concerns in the derivatives segment as more margin was required for trading. The current revision was made to meet the previously set value of each contract at Rs 2 lakh.

The lot sizes of 19 stocks — including GVK Power, Jaiprakash Associates, LIC Housing Finance, Mahindra & Mahindra, Aurobindo Pharma, Bajaj Auto, Bajaj Hindusthan, Balrampur Chini, Dish TV, Financial Technologies, GMR Infrastructure, Maruti Suzuki, Nagarjuna Fertilizer and Steel Authority of India (SAIL) -- were reduced to one-fourth as their current underlying values have gone up to over Rs 8 lakh.

Similarly, the lot sizes of 122 stocks were halved after their underlying values crossed the Rs 4 lakh-mark. These stocks include Adlabs Films, Allahabad Bank, Alstom Projects India, Andhra Bank, Ashok Leyland, Asian Paints, Associated Cement, Axis Bank, Bank of Baroda, Bharat Earth Movers, Bharat Forge and Bhel.

These revisions will take effect from June 26.

Bull charge may take index beyond 4,800

Large-cap stocks were back in action on Wednesday, after moving sideways in the last couple of days, pushing the Nifty past the crucial resistance level of 4,650. The index closed at 4,655 on strong buying in heavyweights, such as Reliance Industries, ICICI Bank and Larsen & Toubro. HDFC Bank, Reliance Communications, Reliance Infrastructure and Tata Power surged over 5 per cent on fresh long positions.

Unwinding has been observed in the 4500 and 4600 call options in the last three days as participants who had taken short positions covered their positions. This means the support for the Nifty is expected to move up from 4,500 to 4,600.

Traders were seen buying the 4,700 and 4,800 calls on the expectation that the bulls may take the index beyond the 4,800 levels going forward. The options traders were seen selling the 5,000-5,100 strike calls as they see resistance above these levels.

According to technical analysts, the bigger picture hints at substantial upside from the current level, but after a healthy short correction. The 4,500 put added an open interest (OI) of 514,700 shares, mostly through sell orders. The 4,300 and 4,400 puts too witnessed fresh OI build-up, which suggests that the Nifty has strong support around the 4,300-4,500 levels.

The Nifty June futures, which has closed at par with spot on Tuesday, added 5 points in premium on Wednesday. It added an open interest of 1.91 million shares intraday, mostly through buy orders.

After the closing session, the open interest in the Nifty futures increased by 705,100 shares, indicating unwinding of short positions intraday and fresh long build-up thereafter.

FIIs pour money back into Indian stock market

Foreign institutional investors (FIIs) have invested more than $5 billion (over Rs 25,000 crore) in Indian stock markets so far this calendar year, with as much as $3.2 billion coming since the UPA government came to power.

A little over a third of this has come in just the first nine trading days of this month — net investments were $1.15 billion (Rs 5,436 crore) on these days. Data with the Securities and Exchange Board of India (Sebi) show that FIIs made net purchases worth $5.4 billion, or over Rs 25,910 crore, since the year began, with a major part of this coming in the past three months.

Between March 12 and June 9, FIIs made net investments of $7.2 billion (Rs 35,039 crore), against a net outflow of $1.8 billion (Rs 9,118 crore) till March 9. The Bombay Stock Exchange (BSE) Sensex has appreciated 89 per cent from 8,160.40 on March 9. It closed at 15,411.47 On Thursday.

Since the beginning of this fiscal year, FIIs have started putting money in domestic stocks, including blue-chips. In May alone, FIIs made gross purchases worth Rs 74,776 crore and sold shares worth Rs 54,659 crore, resulting in a net investment of Rs 20,117 crore ($4.1 billion).

After pulling out a record $13.1 billion (Rs 52,987 crore) from the Indian stock markets in 2008, which saw the Sensex plunging 51 per cent, FIIs turned net buyers during the last week of March.

Delisting: Shareholders get one year to tender shares

Shareholders of a de-listed company will be allowed at least one year after the date of delisting to tender their shares to the promoters of the company, according to the delisting regulations that were notified this week.

The existing delisting guidelines of SEBI, after which the notified regulations have been fashioned, allow a period of six months only. Rules under the Securities Contracts Regulations Act have also been prescribed to legally enable the process of delisting which subject is covered by this Act.

The regulations make delisting possible at every level of promoter shareholding in a company. To make for a successful delisting, the minimum stake to be held by promoters and persons acting in concert must be brought to 90 per cent, or the level to which half of the shares to be tendered would take their holding to, whichever is higher.

This would mean that the 90 per cent limit would apply to companies with up to 80 per cent promoter shareholding, while the second situation would apply when promoter stakes are above 80 per cent.

At least two-thirds of the public shareholders must approve by postal ballot, the Board resolution for delisting of the company.

The earlier meaning of promoter shareholding has been narrowed down to “persons other than promoters.” Earlier, it was “persons other than promoters/acquirers/persons acting in concert.”

The regulations are silent on whether the promoters’ stake rising to 90 per cent as a result of their buying the unsubscribed portion of a rights issue would entitle them to acquire the balance shares for delisting. This would imply that such a promoter would have to go through the entire bidding process (where shareholders quote a selling price in a reverse bid) for delisting.

Promoters should not use the funds of the company for acquisition for delisting purposes.

ATUL Ltd - Multibagger from Anand Rathi

Atul Ltd is a diversified Specialty chemical company, engaged in manufacturing of - agrochemicals, Bulk chemicals, Dyes, intermediates and polymers. It is also undertaking toll manufacturing of herbicides & custom manufacturing of bulk drugs for large MNCs. Company is also increasing capacities of various products mainly by de-bottlenecking, so as to involve less capital expenditure. It is also expanding capacities of - bulk chemicals & Intermediates; Vat & Reactive dyes; Pharma & Intermediates and in polymers divisions. They will mostly go on stream in current year and thus lead to significant growth for company from current year onwards.

To add value, Atul is moving up from basic building block kind of chemicals to niche value added down stream products in each category. It is increasing the sales of branded products significantly.

Company is world's largest manufacturer of - Para cresol, Para Anisic aldehyde, Para Anisyl alcohol and curing agent. It is also second largest manufacturer of - high performance colourant and Vat dyes. Its third largest manufacturer of - Indoxcarb insecticides and fourth largest for 2,4-D herbicides. [see details of products on next page.]

Company is technologically very advanced and has perfected a number of difficult chemical processes/technologies e.g. Phosgenation, Hydrogenation, Bromination and Sulfonation. The research led technology improvements and cost reduction in these processes, makes it quite competitive and quality producer of a number of key products.

Attractive Valuations:
Based on current year's earnings outlook, which is quite robust, the stock is available at about 2.5X 2010 earnings.

If we go by Price to book value, stock is again available at less then half of the 2010 expected book value of about Rs 140/-.

If we go by sales to Mkt cap valuations, the stock is available at 1/6th of the valuation, while recent sale of Mfg assets of Gwalior Chem was valued at around 1:1 to sales.

Further if we value company's Mfg assets, R&D assets and other non core assets [residential & land in Atul town] the total replacement costs may come to many times of present Mkt cap.

From the CMP of Rs 63, the stock can easily touch Rs 150 to Rs 180 within the next 18 months.

Dalal Street Investment Journal Short Term Money Makers

Scrip Reco Date Reco Price Peak % CMP PNB Mar 16, 2009 303.75 45.23 613.25 BankofIndia May 07, 2009 228.95 42.95 323.65 ICICI Bank Apr 13, 2009 376.55 24.27 750.30 Renuka Sugar May 07, 2009 110.15 20.15 148.75 Praj Inds May 21, 2009 100.25 16.95 111.35 NagrjnConstC May 21, 2009 120.55 15.18 135.55 Bharti Airte Apr 13, 2009 662.95 12.78 854.60 Lupin Mar 16, 2009 593.50 11.43 871.80 Dish TV Apr 23, 2009 29.30 10.75 44.00 Everonn Sys Apr 23, 2009 164.80 5.52 426.60

Dalal Street Investment Journal’s Long Term Wealth Creators

Scrip Reco Date Reco Price Peak % CMP Emco Ltd. Apr 09, 2009 40.45 137.82 84.15 Munjal Auto Mar 02, 2009 30.70 126.54 59.90 JK Cement Apr 13, 2009 53.25 116.24 100.30 Tata Elexi Mar 16, 2009 76.75 109.05 153.75 Greaves Jan 19, 2009 72.00 104.16 130.65 Vimta Labs May 07, 2009 22.90 75.98 30.85 BHEL Mar 02, 2009 1379.00 70.61 2271.45 Simplex Cast May 07, 2009 40.90 66.01 64.90 Goa Carbons Apr 23, 2009 50.45 63.03 77.25 TataPowerCom Jan 19, 2009 766.45 58.34 1192.55 BHEL Apr 13, 2009 1517.00 55.09 2271.45 Lupin Jan 19, 2009 570.00 54.12 871.80 CarnatnNutAn Feb 16, 2009 70.00 49.14 90.95 Guj Gas Co Mar 16, 2009 231.80 44.19 323.40 SyndicateBan Feb 02, 2009 60.50 38.01 76.00 MangalCement May 21, 2009 95.00 31.73 122.35 Cipla Feb 16, 2009 192.00 31.11 239.35 BASF India May 21, 2009 235.00 30.29 267.45 Marico Feb 02, 2009 59.15 28.82 71.50 Rallis India Apr 23, 2009 526.20 26.74 638.65