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Shares of Cipla inched up on heavy volumes on Friday, after the company’s first quarter earnings beat the consensus estimate. On the BSE, the stock closed at Rs 315.45, up 0.5% over its previous close, with 2.84 lakh shares — twice the 2-week average daily volume —being traded. Dealers tracking the stock said the ‘Big Daddy’ of insurance companies was a key buyer. However, traders who had built up positions in anticipation of good quarterly numbers, chose to book profits, thus restricting gains in the stock.

Mumbai: The Reserve Bank of India (RBI) Friday announced a host of measures to attract foreign currency inflows, aimed at strengthening external buffers, even as the six-member rate-setting committee voted to keep the policy rate unchanged at 5.25% and maintained a neutral stance.

RBI took steps to attract overseas investors into government bonds and equities, provided public sector units time-bound incentives to raise external commercial borrowings (ECB), and agreed to bear the hedging cost on fresh three- to five-year FCNR(B) deposits, among other measures.

“As a result of these measures on FCNR(B) and ECBs, and initiatives taken by the government on bonds and trade agreements, we are quite confident of a very healthy balance of payments, compared to what it would have been otherwise,” said RBI governor Sanjay Malhotra at the post-policy press meet.

The central bank revised inflation forecast upward to 5.1%, from 4.6%, and lowered its growth forecast for FY27 to 6.6%, from 6.9% projected in the previous policy.

“Adverse implications of extended disruptions in supply chains and elevated energy prices are reflected in moderation of growth and increase in inflation projections from the April policy,” the governor said, while revising forecasts in his second policy following the West Asia crisis. He stated that “although risks of higher inflation have amplified, the MPC felt it would be prudent to wait for greater clarity to emerge.”

The measures to attract inflows come amid outflows of $13.7 billion by foreign institutional investors from the equity market and are likely to support the rupee, which has fallen 4.1%, or about four rupees, since the start of the US-Iran conflict.Malhotra said he expects strong inflows but declined to put a number to them while adding that he expects banks to pass on the benefits of lower hedging costs to customers. Chairman State Bank of India CS Setty said, “These steps should help enhance capital inflows, deepen bond markets, improve liquidity and provide support to the rupee.”

Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, said the measures would result in a potential capital flow of at least $40 billion, a pullback in the rupee toward 92-93 levels, and a pause in the August policy.

Madhavi Arora, chief economist, Emkay Global Financial Services, expects inflows of $30-50 billion over the year, while Aastha Gudwani, chief economist at Barclays, said the measures could add about $5 billion a month.

Economists said the policy is supportive of growth but has overlooked rising inflation risks. These would stem from higher oil prices following the West Asia crisis.

However, the governor defended the stance, stating that the 4% inflation target is “not in abeyance” and remains “sacrosanct.”

“This target is to be met over a period. It is a medium-term target, and it is not advisable to take action for every small deviation, as that could have disproportionate consequences for growth,” Malhotra said. The governor highlighted that the economy is facing uncertainty over the nature and duration of the conflict, as well as the time needed for the restoration of supplies. He also noted uncertainty around the monsoon and the impact of El Niño, both of which have implications for inflation and growth.

The NSE Nifty 50 index declined 0.21% to 23,366.7. The 10-year government bond yield fell four basis points to close at 6.97%, while the rupee gained 84 paise to close at 94.95 on Friday.

Upasna Bhardwaj, a senior economist at Kotak Mahindra Bank, expects a 50-basis point rate hike in October, while Arora said RBI will raise rates only if inflation becomes entrenched. The governor reiterated that RBI would “look through” shocks unless inflation becomes broad-based and persistent or starts getting embedded in expectations.

On the upward revision in inflation forecasts, RBI said in its statement that the pass-through of higher oil prices could exert upward pressure in the coming months as firms pass on input costs.

MUMBAI: Lovable Lingerie is the third-best performing stock among companies listed this year, with it doubling in value, as traders bet it could repeat the performance of Page Industries, sellers of Jockey innerwear.

It gained a third in about a week. But the small float and low delivery volumes is an alert against wagering on it for some who fear it may have risen beyond its fundamentals when many other newly-listed companies are trading below their sale price.

“The rally in Lovable Lingerie is more a momentum play with hardly any genuine interest,” says Sharad Rathi, associate director at Almondz Global Securities.

“The valuations seem to be a bit out of whack.” Lovable that sold shares at Rs 205 apiece, has risen 109% to Rs 428.5 on Friday after touching a high of Rs 462.50. Some of the top shareholders include HDFC Mutual Fund, SBI Funds, UTI Asset management and Fidelity, filings show.

Total outstanding shares of the firm is at 1.68 crore and public holding is about 50 lakh shares. The Sensex was down 2.6% during the period and the BSE IPO index was up 1.6%. Fineotex Chemical and C Mahendra Exports are the two companies that have returned more than Lovable, among this years’ IPOs.

The stock trades at 31 times forecast earnings for fiscal 2012, compared with Page Industries’ 27 times its earnings. Although the stock had been among the top traded in the last few days, gaining to limit on some days, the number of shares that changed had remained negligible. The quantity of shares actually changing hands — was in single digit for many days.
The delivery ratio was 2% to 9% between June 10 and 17 when the stock moved up 33% on BSE, exchange data show. This follows the performance of Page Industries which has gained 396% since its IPO in March 2007. Shares that were sold at Rs 396 apiece are trading at Rs 1,784. “Rising disposable incomes and growing awareness about personal hygiene are boosting growth of the innerwear market in India,” said Anand Rathi Secutities in a recent report. “Also enhancing this growth is the rising modern trade malls, shopping complexes etc,” said the brokerage which has a target price of Rs 430.

The Mumbai-based company’s Rs 93-crore IPO drew good response with it getting subscribed 21.8 times the institutional portion, 98.5 times among wealthy individuals and 20.5 times in the retail category. Rise in raw material prices and intensifying competition are the two risks for earnings growth, the report said.

Shares of cigarette companies have rallied over the past one month, with the three leading cigarette makers ITC, Godfrey Philips and VST Industries hitting record highs. All the three stocks have posted robust returns in the past one year, significantly outperforming the benchmark Sensex, helped by favourable taxation and increase in cost of competing tobacco products.

Unlike previous years, the central government has not increased excise duty on cigarettes in the budget for this fiscal, though states have varyingly raised value added tax (VAT). While northern states such as Rajasthan have significantly raised VAT on cigarettes, all the southern states have spared the sector from a major increase. In contrast, competing tobacco products such as ‘pan masala’ and chewing tobacco have witnessed cost increases in the form of higher taxation and a rise in raw material cost.

Also, prices of tobacco have remained benign compared with higher prices of ‘tendu’ leaves that are used for manufacturing ‘beedis’. The cigarette industry has cashed in on the rise in beedi prices by competitively pricing low-end and micro filter cigarettes to lure ‘beedi’ smokers to cheaper cigarettes. Also, contrary to its earlier plans the government decided to issue less gory pictorial warnings on cigarette packets, which has aided sentiment in the stocks.
In the quarter ended June, VST Industries reported a 90% year-on-year jump in net profit. ITC, which is yet to declare its first quarter earnings, is expected to have witnessed a pick-up in cigarette volumes despite price increases in some of its products. Going forward, the rally in cigarette companies is likely to continue as all factors seem to be positive for the sector.
Analysts expect cigarette companies to report strong earnings growth driven by higher volumes, price increases and lower expenses.

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NEW DELHI: The poor financial health of state electricity boards could pose significant business risks for power traders in the country, says rating agency Fitch.

In a report released today, Fitch Ratings said the credit risk of power traders has become “riskier” due to profitability and liquidity constraints faced by state power utilities.

“If these utilities are having liquidity problems which are leading to delays or defaults in their obligation to power traders, then this in turn increases the business risk for power traders,” it noted.

This could lead investors in power trading companies to either seek higher return on the investments or seek alternate avenues for investment.

Leading power traders include PTC India and Tata Power Trading Company.

Going by estimates, over the past four years, the top five trading licensees have controlled over 80 per cent of the market in terms of volumes.
Some of the large loss making state power utilities come from the states for Tamil Nadu, Uttar Pradesh, Madhya Pradesh. These are also largest buyers of short-term electricity through power traders, Fitch Ratings said.”The financial health of state power utilities, the major customers of power traders, has deteriorated with aggregate annual book losses widening to Rs 295 billion (Rs 29,500 crore) in FY 10 from Rs 70 billion (Rs 7,000 crore) in FY 06, leading to an increase in counterparty risk,” the report said.

As per Planning Commission‘s estimates, electricity distribution losses totalled a whopping Rs 70,000 crore in 2010-11.

According to Fitch, the biggest short-term buyers — SPUs in Tamil Nadu and Rajasthan — face huge energy deficits with largest cash losses on a revenue and subsidy-realised basis.

“Hence, these states will remain net-buyers on short-term power markets and continue to act as major counterparties for power traders. This increases the risk for undiversified power traders significantly,” it added.

The report pointed out that traders with strong equity base and high cash balance are better placed since they have the buffer to absorb any increase in the working capital cycle in the event of delays or defaults by SPUs.

Director in Fitch’s Asia Pacific Utilities team Salil Garg said the agency expects larger traders to face low business risk due to many factors, including economies of scale and diversified customer base.

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