January update

Jan 1,2008

• US currency fell Vs 14 out of 16 most actively traded currencies in 2007 as the Fed Reserve reduced borrowing costs three times to temper the worst housing slump since 1991.
• Auto parts supplier Delphi Corp. was spun-off from GM in 1999
• RBI permits short selling and utilizing stock lending and borrowing mechanisms (LBM) for FIIs registered with SEBI. This will lead to better price discovery and boost volumes on the exchanges and save the brokers from the bitter experience of auction of the shares against their short selling commitments.

Jan 4,2008

• Delhi high court said CDMA players will have to wait for the spectrum allocation & will subject to outcome of the appeal filed by the COAI-lobby for GSM.RCOM has already paid Rs 1650cr as licencing fees for GSM services. DoT said that it will allocate spectrum to companies such as Bharti Airtel Ltd., Vodafone Essar Ltd., & Idea based on TRAI’s recommendations, which proposed that existing operators serve up to 4 times the number of subscribers required to be eligible for more spectrum.
• Reliance – ADAG plans to sell 10.1% of Reliance Power later this month ,raising around Rs 11000cr (Price band – Rs 405-450).IPOs to hit market in 2008 :

o Emaar MGF Land

o Ideal Road Builders

o Wockhart Hospitals

o Oil India Ltd

o National Hydro Power Corp Ltd(NHPC)

o Rural Electrification Corp.

o Lodha Builders(FPO)

o Sterlite India(FPO)

o Jaiprakash Power Ventures(FPO)

o Coal India(FPO)

• TATAs clinch Jaguar and Land Rover deals from Ford in London. Price to be paid by Tata is still not disclosed(Analysts say price to be around $2bn). Ford bought Jaguar in 1989 for $2.5bn and Land Rover for $2.73bn. Although LR has boke even in 2^nd quarter of 2007 but Jaguar is still in losses. The deal comes in the interesting time when next week Tatas plan to display their Rs 1 lakh car in Auto Exposition in New Delhi. Lowest Land Rover sells for Rs 15.5 lakh in UK.
• Allowing sht selling from next month by Institutional Investors is considered a significant move after intro of derivatives in 2001(part of Asia trend).Initially SS will be allowed in only 5% of the publically traded securities, which happen to be stocks in which investors express –ve view by either buying put options or selling futures

Jan 7,2008

• BSNL-Largest telecom comp by revenues plans to start a tower comp.It as most of the towers in tier 2 towns/villages. Idea/Spice and others will rent out those towers to have pan India presence.

Total revenues : Rs 39715cr

Bharti Infratel sold 9% stake for $1bn to a consortium led by Singapore based Temasek Holdings.

BSNL : 31000 GSM towers

7500 CDMA towers

Plans to add 30000 towers this year

CDMA can have 5-6 tenants where GSM can only have 1-2

On 26^th Dec Spice sold around 875 towers for RS 600cr to Quipo Tele com Infrastructure Ltd

In Aug, RCOM sold 5% of RTIL to investors for $337m (13000 towers)

In Dec, Bharti(42%), Vodafone Essar(42%) and Idea Cellular(16%) formed JV called Indus towers with 70000 towers in 16 states.

Jan18,2008

• Last week spectrum was distributed to small players but it invited almost no protest presuming without spectrum ,companies posed little threat and they will be invisible w/o spectrum. DoT,s spectrum distribution policy has been not transparent & that includes the RCOM deal. DoT abandoned the competitive process has charged companies to get spectrum at 2001 prices. For Ex Idea got Mumbai licence for only Rs203cr but is valued several thousand crores. The decision to distribute license w/o an auction is slap in the face.

India is world most crowded market with almost 7 players in the circle. While more competition may be better, arbitrary dist of licenses w/o even hint of the clear policy defies the logic.

Jan21,2008

• Rights Issue : Company gives shared to only existing share holders. shares are typically offered at 30-50 % discount, hence company’s market price rises just before the rights issue.
• Follow on Public Issue(FPO) : When a listed company makes a public offer -> Secondary issue
• Simple Moving Average (SMA) : A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.

In other words, this is the average stock price over a certain period of time. Keep in mind that equal weighting is given to each daily price. As shown in the chart above, many traders watch for short-term averages to cross above longer-term averages to signal the beginning of an uptrend. As shown by the blue arrows, short-term averages (e.g. 15-period SMA) act as levels of support when the price experiences a pullback. Support levels become stronger and more significant as the number of time periods used in the calculations increases.

Generally, when you hear the term "moving average", it is in reference to a simple moving average. This can be important, especially when comparing to an exponential moving average (EMA).

• Moving Average(MA) : An indicator frequently used in technical analysis showing the average value of a security's price over a set period. Moving averages are generally used to measure momentum and define areas of possible support and resistance.

Moving averages are used to emphasize the direction of a trend and to smooth out price and volume fluctuations, or "noise", that can confuse interpretation. Typically, upward momentum is confirmed when a short-term average (e.g.15-day) crosses above a longer-term average (e.g. 50-day). Downward momentum is confirmed when a short-term average crosses below a long-term average

• Exponential Moving Average (EMA) : A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. Also known as "exponentially weighted moving average".This type of moving average reacts faster to recent price changes than a simple moving average.

·One way to judge the fair market value of India’s equity market is to look at the ratio of market capitalisation to nominal GDP (henceforth M-cap/GDP), which gives a broad indication. In India, that ratio touched 173% at the end of December 2007, a 73% increase in just a year’s time. The recent downward trend in the Indian equity market brought down overall market capitalisation to Rs 58,73,000 crore on January 21, which brought the ratio down to 147%.
if the M-cap/GDP ratio is greater than 100%, it is a sign that the market is overvalued. A value of around 50%, or a value that’s lower than the historical average of the market, is said to indicate undervaluation. According to Warren Buffet, if this ratio rises to unprecedented levels, it is a strong warning signal and if it approaches 200%, one is playing with fire. This rule of thumb has been proved to be true in the past. In 2000, M-cap/GDP ratio touched a historical high level of 153% in the US, a country with an average of around 50%. Later that same year, the dotcom bubble burst, and the US market fell by almost 63% till it bottomed out in October 2002. But even in China, the M-cap/GDP ratio at 130% is lower than India’s.

Jan 22,2008

• Foreign capital comes to India from 4 sources:
• FIIs who buy shares of Indian companies
• FDI
• NRI deposits which are done to take advantage of higher interest rates in India
• By Indian companies buying abroad- External commercial borrowing(ECB) to benefit from lower interest rates in intln market

Jan 23,2008

• the fed reduced the discount rate from 4.25 down to 3.5 per cent, the interest it charges to make direct loans to banks. Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarter of a percent on its prime lending rate, the benchmark for millions of business and consumer loans.

Jan,24 2008

Parameters to look out for:

o P/E

o How much away from 52 week high and low

o much away from 200 DMA

Sectors to look out for in 2008

Infrastructure and real estate

The economy is expected to grow at a healthy rate of over eight percent per annum. Domestic consumption and investments in infrastructure are the prime drivers of growth in the economy. Infrastructure and real estate sectors' activities go in high gear in a fast-growing economy. Infrastructure is one of the most talked-about sectors in India. There is a huge demand for infrastructure development in the hotel and hospitality industry, airports, housing, malls, special economic zones (SEZ) and rail/road infrastructure. Many new schemes are coming under the public-private partnership (PPP) scheme. Many real estate companies were listed in the stock markets in the last couple of years.

Power and energy

The economy is growing at around nine percent per annum. Since the demand for power and energy has a direct co-relation with the growth in the economy, India's per capita consumption of energy is growing quite fast. Companies are going in for capacity addition to fulfill the growing demand for energy. As a result, there is a lot of optimism in the power and energy sector stocks.

Banking

Banking services are not much in demand in India (especially in rural markets). Private and foreign banks increased competition in the banking sector by introducing new services. Indian banks are also looking at increasing their profitability by increasing their customer reach, technology usage and with innovative ways to better serve their customers. It is expected that a lot of value will be unlocked with consolidation among smaller banks (especially smaller PSU banks) and there is a good opportunity to make high returns in the next few years.

Retail

The retail sector is one of the hottest sectors in India. The share of organised retail sector is less than five percent of the total retail market in India. The share of the organised retail sector is growing rapidly year after year. Many big players have already jumped into the Indian retail sector and many others are showing active interest in this sector.

Telecom

India is one of the fastest-growing mobile markets in the world. The market of mobile companies is growing month after month. The telecom penetration in India is less than 25 percent which is quite less in comparison to near the 100 percent in developed economies. In the short term, telecom companies are showing sideway movement due to confusion in spectrum and license allotment by TRAI to telecom companies but there is a huge potential for growth for telecom companies in India. Investors should use the current situation to accumulate these stocks with a long-term perspective.

Bharti Airtel : NOV 2007

2Q08 show strong subscriber growth and margin expansions for both wire/wireless services but also 6% QoQ decline in ARPU. Market share rose to 24%(increasing 200bps YoY and 30bps QoQ).It says achieving 500m sub base by 2015 is achievable. Since ARPU is declining subscriber growth will come from marginal markets and Airtel will have to re use the freq(constrains of spectrum) & install capacity towers to support this growth.

Capex forecasts: Combination of higher subscribers growth, lower subscribers quality, lower incremental ARPU growth and MOU (minutes of use)….higher subscribers targets qualify for additional spectrum and higher capex.

Key downside risks: faster than expected decline in ARPU and extended delays in releasing spectrum.

Key upside risks: ability to monetize non core business like DTH, wimax wireless, broadband, or higher than expected valuation of tower business.

Forecasts for FY09: 6% decline in ARPU and MOU. 26% for overall capex.37% for FY10

The spectrum policy : spectrum allocations are fragmented with allocations on circle2circle, than operator 2 operator basis rather than through a uniform national auction system. New policy will raise subscribers targets for incumbents GSM players and new ones like RCOM. Allocations are well below intl benchmarks .Policy discourages large GSM players to further fragment spectrum resources. Lawsuit filed in TDSAT(telecom disputes settlement and appellate tribunal) and TEC(telecom engg centre ) has suggested new subscribers norms for incremental spectrum ,higher than TRAI’s -> divergent views among GSM players weaken future stand. Aircel n spice have already withdrawn from lawsuit.

TEC norms not likely to be adopted since they are mirror image of the TRAI’s and norms from TRAI will be implemented.

Players of Bharti’s league r well placed to accommodate marginal subscribers on the account of the early adopters and contract subscribers. They have managed to capture better quality subscribers on the back of their early move adv. DOT’s decision to move CDMA player RCOM to GSM sphere through a non transparent process raises real ques about politics of spectrum policy.

Spectrum constrains are restricted to urban areas & unlikely to hamper rural areas. Bharti offers one of the best plays on the Indian subscribers growth story and entry of new players is unlikely to threat Bharti’s mark share.

ARPU concerns: Bharti’s strong Q results confirms that company is well placed to accommodate marginal subscribers base that will be created by its aggressive drive to tap rural & semi urban areas. Furthermore its initiatives to cut local call rates 4 lifetime may boost usage.

Bharti will have to install 18k capacity towers in case new TRAI norms are accepted-> will lead to increased data revenues. Markets are not aware of the value proposition of the capacity towers. This will lead to addional voice capacity n reduction in network congestion. It will address mobile no portability (MNP).Tower sharing is yet to come.

1. Coverage towers : installed in new region to acquire new customers

2. Capacity towers : used to handle excessive voice traffic in particular service area. They increase overall voice capacity.

Impact of spectrum constrains will most pronounce in select urban areas unaffecting the rural ones.

Markets are over reacting to the spectrum constrains & appear to be pre-occupied with the notion of increase capex while ignoring the value proposition of the capacity towers. Significant part of new tower investments can be offset by the tower sharing. CTs will be concentrated to commercial locations. Supply side constrains such as high demand for land, high real estate prices & lower available of commercial building makes tower sharing a sense.

Improving data revenues: Bharti has been losing on this and have an opportunity to step up the data capacity by taking adv of lower network utilization (which puts upward pressure on network op costs). During high traffic it can open up its data timeslots to voice.

With RCOM entering the GSM space & MNP in the news: Globally, it suggests that MNP is most valuable to early adopters who view their no as social identity & are not tempted to by 10-15% price cuts. MNP will increase competition, expand customer choices & encourage operators to improve quality. RCOM stand to benefit from MNP.

GSM op will be allocated spectrum in 2100MHz band. Greater the freq higher the no of towers required. With the intro of the 3G services, tower req of Bharti will be twice the current no in service areas where it operated in 900MHz band and 1800MHz.

Financial impact of spectrum constrains: 18k CTs will consume $2bn in next 2 years.

• Call drops & congestion cause op to lose revenues.
• ARPU support will be available assuming it uses incremental capacity to boost data revenues.
• Churn rated expected to be lower with deployment additional capacity, reducing customer retention cost.
• ARPU decline on a/c of marginal subscribers is continue to decline but some stabilization

Bharti Tower Company (BTC) : Markets have still not completely priced in the valuations of the BTC due to lack of the sample deal as with other players. After the de merger we can expect some announcements.

Principal downside risks: possible acceptance of TEC norms, rapid drop in revenue/min, op-margin compression & derating of Indian equities.