GDP Grows 8.8% for April to June Quarter

India's economy grew at its fastest clip in nearly three years in the quarter through June on strong manufacturing growth and farm output that may keep the Reserve Bank on its policy tightening path.

The 8.8% expansion compares with a median forecast of an annual rise of 8.7% in a Reuters' poll and an 8.6% expansion in the previous quarter. While a CNBC-TV18 poll had seen gross domestic product (GDP) growth at 8.9%.

The data underscores continued growth momentum in Asia's third-largest economy amid growing uncertainty over global recovery. The strong growth may allow the Reserve Bank of India (RBI) to focus more on containing near double-digit inflation.

India's domestic-demand driven economy is benefiting from a buoyant consumer demand that is pushing up car sales and making factories produce to their optimum capacity.

*Annual car sales in India rose 38% in July.

*June quarter manufacturing output jumped 12.4% on year compared with an annual rise of 3.4% in the year ago period.

*Its farm sector expanded 2.8% and is expected to see robust growth on good monsoon rains, which is likely to further boost consumer demand by lifting rural income.

The economy is expected to grow 8.5% in the current fiscal year to end-March 2011, after expanding an annual 7.4% in the previous year. But, a strong economic growth has also raised the spectre of capacity constraints, which analysts hold partly responsible for a persistently high headline inflation, which stood at 9.97% last month.

Although India's wholesale price index in July rose at its slowest pace in six months, underlying price pressures remain.

RIL acquires 14.12% in EIH through subsidiary

Reliance Industries has forayed into hospitality sector today. Through its wholly owned subsidiary Reliance Industries Investment and Holding Private Limited, it has acquired 14.12% in EIH for a total cost of Rs 1021 crore. The stake buy works out to Rs 184 per share. RIL’s subsidiary bought shares from Oberoi Hotels Private Limited and certain other promoters of EIH Limited.

*Earlier, Analajit Singh of Max India, who also holds under 5% stake in EIH, was interested in hiking stake his share. However, talks failed over differences in valuations.

*ITC, which holds 14.98% stake in EIH, declined to comment on the deal. However, it reiterated that it will not make a hostile bid for EIH.

So future of the stock looks bullish from hereon. One can invest in the stock with long term view.

Trade Policy

In an attempt to boost exports, the government has announced a bagful of stimulus measures in the review of the Foreign Trade Policy (FTP) 2009-2014. The fresh export promotion sops will cost Rs 1050 crore, says Commerce Minister Anand Sharma.

In the review, Sharma has announced a six-month extension of the Duty Entitlement Pass Book scheme (DEPB) which will now expire on 30 June 2011.

Even zero duty on Export Promotion Capital Goods Scheme (EPCG) scheme has been extended by a year.

The government has introduced bonus schemes for handicrafts and leather. Interest subvention plan of 2% each for leather, jute and textile have also been extended.

Informing that the govt is on track to achieve USD 200 billion export in FY11, Sharma said that recovery in exports have been so far fragile. The government is keen to cut down transportation costs by 40%.

Sharma is concerned that it is still difficult to make policy on trade due to uncertainty while exports are still facing challenges in global markets. He has also said that response to economy recovery will be aptly calibrated and is prudent to preserve with last year’s policy stance.

However on an optimistic note, he said that India’s pact with Association of Southeast Asian Nations (ASEAN) countries will provide new expansion avenues. He also informed that India is in talks for comprehensive trade pact with Japan and Malaysia.

Civil Nuclear Liability Bill

The union cabinet today has approved and passed the amended Civil Nuclear Liability Bill. 18 specific amendments are carried out to this bill after a sort of very contentious debate in the standing committee with opposition parties demanding several changes.  The passage of bill is very positive move and this will probably take markets to new highs in the coming weeks.

Contrarian Bet - Telecom

The sector has underperformed the Sensex by nearly 35 %.

A price war and higher than expected 3G fees is hitting companies on profitability and balance sheet fronts.

While cash flows are likely to take care of interest and expansion costs, the good news is that operating metrics seem to be improving.

An Anand Rathi report says June quarter results indicate the wireless business is back on a sustainable growth path, the declining trend in revenues per minute is stabilising, and there is robust growth in minutes (volumes).

If consolidation plays out, as expected in the next 18-24 months, expect competitive pressures to reduce and pricing power to return.

The key downside risks are price wars in the post-paid segment with the implementation of mobile number portability and implementation of Trai recommendations on spectrum usage.

Best Bets: If the bullish scenario prevails, expect a 30 % return on Bharti, Reliance Communications and Idea from these levels.

Contrarian Bet - Sugar

Stock prices in this sector have underperformed the Sensex by 27 % over the past year. The near-term outlook does not look promising, given the higher global production and normal monsoon, which has resulted in falling sugar prices.

A BNP Paribas report says companies will have to depend on higher volumes and by-products of sugar processing such as power to maintain profitability.

The biggest trigger for this highly regulated sector are measures such as removing the levy quota, release mechanism, stock holding restriction and freeing cane pricing.

Also the Government has passed the bill supporting the blending of ethanol with petro products. Ethanol is the By-product in the production of Sugar. So Sugar companies will get profit out of it.

Best Bets: While the entire sugar pack is likely to benefit from such a move, Balrampur Chini is expected to be the biggest beneficiary. Also Shree Renuka Sugar and Bajaj Hindustan are the best.

Contrarian Bet - Realty

The BSE Realty index is down nearly 30 % over the past year due to concerns over weak demand, excessive leverage and high prices.

While the growth picture continues to be a concern, debt and inventory levels have come down to some extent for most companies.

Focus on mid-income housing and higher sales volumes, year-on-year (aided by the low-base of last year), helped larger ones record an increase in revenues in the June quarter.

Commercial and residential sales are looking up on demand from the IT/ITeS sector but higher prices in certain parts of the country are playing spoilsport and impacting volumes.

Best Bets: Unitech, Orbit, HDIL and non-realty companies (willing to develope their land assets) with huge landbanks, especially in metropolitan cities withwith return expectations ranging 25-45 % over the next year, the leverage levels, volume growth and cash flows need to be monitored.

Contrarian Bet - Cement

Cement scrips have lost up to 28 % since their March-April highs due to concerns of oversupply and, consequently, lack of pricing power. Flat production numbers and sharply lower capacity utilisation in June and July (partly due to the high-base of last year and seasonal factors) has aggravated the problems.

Not surprisingly, June quarter results of leading players were disappointing, due to pricing pressures, higher costs and logistics issues. However, brokerage house Religare  believes these negatives are already factored in and demand upturn led by stronger consumption from the construction segment by end-2010 will mean the downside from current levels is limited.

Though EBIDTA per tonne for 2010-11 is likely to bottom out at Rs 400-1,000 for cement companies due to higher freight, power and fuel costs, this is higher than the Rs 200-300 recorded during the last downtrend in 2001-02.

Best Bets: Orient Paper (efficient diversified play), Shree Cement (diversified operations), UltraTech (largest player) and Birla Corp (best mid-cap scrip), Madras Cement (hovering around year low but has strong fundamentals)  to deliver returns in the region of 32-40 % over 12-18 months.

Contrarian Bets may provide good opportunities

Following a strategy that is different from the herd could sometimes help increase returns in a market trading at premium valuations.

With broader indices trading at premium valuations, it may be an opportune time to look at sectors and stocks which are currently unpopular but hold promise. These are also called contrarian bets, which mean stocks considered risky at the moment due to unfavourable circumstances.

It was the case a year earlier, when the IT sector was shunned due to demand concerns in key markets like the US and Europe, but it bounced back handsomely, rewarding investors who had bought IT stocks then.

Currently, 4 such sectors are there wherein the sentiments are negative. These sectors are – Cement, Realty, Sugar and Telecom.

Multibagger - VLS Finance

VLS Finance is a flagship company of VLS Group. It operates through four of its subsidiaries and VLS Investment is another peer into the same subsidiary group. VLS Finance is a very interesting as the stock is terribly undervalued. The market cap of this company is just Rs 60 Cr. The company had investments in Sunair Hotels, which is a Delhi metropolitan hotel, which is roughly worth Rs 800 Cr.

There is a pending litigation on the company with Gupta brothers. If the case should be in favour of the VLS Finance Group and then this stock can be a multi-baggier because the entire aspect—Rs 800 Cr of worth where the company would be holding approximately 87% after the case hearing is closed—that will mean that the value of the stock itself would be around Rs 600 Cr. Whereas it's current market cap is Rs 60 Cr.

Apart from this the company holds 14% in Relaxo Footwear along with its subsidiary, which again works out to be Rs 60 Cr that means you are having a free stock available for you where there is unlimited upside—5-6 times even from here—and almost no downside for the stock.

The stock last time in 2007, just before the hearing, was approximately hovering around Rs.80-90 levels.

With the case hearing coming near the stock could again go to those levels and if the case hearing is actually going to be in favour of the VLS Finance Group the market cap could be anywhere between Rs.400-600 Cr. Also. At Rs.600 Cr market-cap where there is no downside risk because of the holdings in Relaxo Footwear and other holdings like Gati etc, and there is unlimited upside potential and this stock could be a multi baggier from current levels.

RIL's Under Performance

Every one is wondering why Reliance Industries is under performing the broader index. And how long will it be so? There is no reason to worry about the company's fundamentals. In fact it posted very good numbers in Q1FY11. The reason behind it's under performance is that it will soon resume sale of its treasury stake. This will be the fourth tranche of the sale of its treasury shares & the value it will get will be around USD 1 Billion, as the part of the company's efforts to bring in cash for further expansion & acquisitions. 

Couple of weeks back, the market sources were believing that the sale price of each share will be Rs. 985. However now they feel that it will be at a more discount and could be around Rs. 950 or so. Looking at these developments, I would recommend to buy the shares on every decline. The reasons: There are no negative changes in fundamentals, RIL has shown remarkable performance in Q1FY11 & the booming economy like India needs lots of energy which can be provided by RIL.

Stellar Performance from Tata Motors

India's largest commercial vehicle maker Tata Motors announced its results for the quarter ended June 2010. It has reported consolidated net profit of Rs 1,989 Cr as against loss of Rs 328 Cr. Net sales jumped 64.25% to Rs 27,055 Cr from Rs 16,472 Cr.
Its standalone profit after tax stood at Rs 395.72 Cr as against Rs 513.76 Cr for the quarter ended June 30, 2009 and revenues for the same period came in at Rs 10,416.26 Cr versus Rs 6,404.02 Cr, a growth of 62.7% (Y-o-Y).
Its luxury brand Jaguar Land Rover (JLR) has reported profit before tax of GBP 233.82 million.
The company said, "With the positive market reception of the enhanced product range in an improved market environment as well as continued cost reduction efforts, the business was able to show sustained quarter on quarter improvement towards solid profitability in the quarter."
Tata Daewoo Commercial Vehicles Company reported a 20.9% growth in sales in the quarter. Tata Motors Finance, the company’s captive financing subsidiary, reported a net profit of Rs 23.52 Cr and improved its NPA performance through better collection efficiency.
In the domestic market, the company’s commercial vehicles sales increased by 38.7% to 100,186 units, mainly supported by medium and heavy commercial vehicles which grew by 62.4% year-on-year. Its market share in commercial vehicles segment was at 61%.
Views Of Brokerage Houses:
Edelweiss raised the stock rating to "buy" from "reduce," while Citi Investment Research raised its target price on the stock to Rs 1,197 from Rs 947 per share.
Bank of America-Merrill Lynch also raised its price objective on the stock to Rs 1,100 from Rs 924 earlier, while reiterating a "buy" rating.
Jaguar and Land Rover unit, which Tata bought from Ford Motor Co in 2008, is expected to fuel growth in coming quarters as demand for luxury brands increase, particularly in emerging economies.
The stock is up nearly 28% so far in this year, after gaining nearly five times in 2009. It has outperformed the 30-share BSE index which is up 4% so far this year, after rallying 81% in 2009.

Top 10 Employers in IT-BPO

Nasscom, on Wednesday, released the rankings of the top 20 IT-BPO organisations in the country that accounted for over 40% of the total employees in this sector.

The list is based on the India-based FTE headcount of firms with IT-BPO operations in India, as reported to the National Association of Software and Services Companies in its annual survey.

Based on publicly available information, few other multi-national corporations such as Accenture, Convergys, HP India and IBM would have also featured in the list however, as they did not participate in the survey, Nasscom did not have the required details and were unable to rank them.

Most companies on the list are engaged in information technology as well as business process outsourcing businesses.

1) Tata Consultancy Services:

Employee strength as on March 31, 2010: 160,429.

Key people: Ratan Tata (chairman); N Chandrasekaran (chief executive officer-cum-managing director).

2) Infosys Technologies:

Employee strength as on June 30, 2010: 114,822.

Key people: N R Narayana Murthy (chief mentor and non-executive chairman); Kris Gopalakrishnan (chief executive officer).

3) Wipro Ltd:

Employee strength as on july 23, 2010: 112,000

Key people: Azim Premji (chairman), Girish Paranjpye (joint chief executive officer), Suresh Vaswani (joint chief executive officer).

4) Cognizant Technology Solutions India Pvt Ltd:

Employee strength as on May 4, 2010: 80,300

Key people: Francisco D'Souza (president & chief executive officer); Lakshmi Narayanan (vice chairman).

5) HCL Technologies Ltd:

Employee strength as on March 31, 2010: 65,000

Key people: Shiv Nadar, (founder, chairman); Ranjit Narasimhan (chief executive officer).

6) Genpact:

Employee strength as on March 31, 2010: Over 41,000

Key people: Pramod Bhasin (president & chief executive officer).

7) MphasiS Ltd:

Employee strength: About 33,000.

Key person: Ganesh Ayyar (chief executive officer).

8) Intelenet Global Services Ltd:

Employee strength as in June 2010: Over 31,000

Key person: Susir Kumar (chairman and managing director).

9) Tech Mahindra Ltd:

Employee strength as in March 2010: 33,524

Key people: Anand Mahindra (chairman); Vineet Nayyar (vice chairman) and Sanjay Kalra (chief executive officer).

10) Aegis Ltd:

Employee strength: More than 39,000.

Key person: Aparup Sengupta (managing director and global chief executive officer)