Nifty ends below 8,700; Tata Motors slumps 5%

[Editor: The news report says in the 1st paragraphs that "Benchmark indices ended lower for the sixth straight session on heavy selling in shares of auto companies with Tata Motors leading the decline on weak third quarter earnings". A Bombay based operator, who writes in various publications infact mentioned Tata Motors to be one of the cheapst stocks in the auto sector, based on his warped logic that "Investors tend to give high valuation to Auto and Brewery companies". 

Now, tell me did I warn you of an impending BUBBLE formation in the AUTO SECTOR, 2-3 months back? If you remember, I spoke in several platforms, a number of times, of a sudden crash coming in this space. Now ask all these operators who come in various forms, both in the Print and Electronics media (and as an Analyst in Brokerage houses), to explain their rationale of giving 50 plus P/E to many stocks in the sectors. If you want to make money on a consistent basis, then keep away from FAD STOCKS. For example, several technology, media and telecom stocks surged exponentially in the late 1990s, only to crash later]

Mumbai  February 6, 2015: Benchmark indices ended lower for the sixth straight session on heavy selling in shares of auto companies with Tata Motors leading the decline on weak third quarter earnings. Further, investors remained cautious ahead of the US jobs and wages data due to be released later in the day for further clues as to when the Federal Reserve might raise interest rates.

The Delhi assembly polls on 7 February is likely to dictate the trend on the bourses on Monday as market participants remain wary of the outcome.

The 30-share Sensex lost 133 points to end at 28,718 mark and the Nifty slipped 51 points to close at 8,661.

Among broader markets, BSE Midcap and Smallcap indices underperformed the benchmark indices- BSE Midcap and Smallcap indices plunged between 1-2% .

Meanwhile, foreign portfolio investors sold shares worth a net Rs 27.43 crore yesterday, 5 February 2015, as per provisional data.

Surprise rate cut by RBI coupled with additional liquidity announcement from ECB have led to excellent gains in the market. With reduction in policy rates, focus is now on government action on reforms and fiscal consolidation. Expected announcements in the Union Budget as well as action on recently passed ordinances would be closely watched out for in the near term, Dipen Shah, head- private client group research, Kotak Securities added.

Global Markets:

Japanese shares rose on Friday after oil prices rebounded, but investors remained cautious ahead of a U.S. jobs report later in the day that could give clues on the timing of the U.S. Federal Reserve's plan to raise rates. The Nikkei share average ended 0.8% higher at 17,648. For the week, the Nikkei fell 0.1 %.  Meanwhile, the Hang Seng index fell 0.4%, to 24,679.39, while the Shanghai Composite Index lost 1.9%, to 3,076 points.

Further, european stocks fall ahead of the U.S. non-farm payrolls report for January due later in the day with Germany dropping the most. The DAX is down 0.66% while France's CAC 40 has lost 0.27% and London's FTSE 100 is lower by 0.06%.

Rupee:

In line with equity markets, the rupee fell by three paise to 61.76 against the American currency on fresh dollar demand from banks and importers.

Key Stocks:

On the sectoral front, BSE Auto index was the top loser down nearly 3% followed by Healthcare, Bankex, Oil & Gas and Power indices down over 1%. However, BSE IT, Teck and FMCG emerged as the gainers and were up nearly 1% each. 

From the Auto space, Tata Motors, M&M, Hero Moto, Bajaj Auto and Maruti Suzuki slipped between 0.5-5%.

Shares of Tata Motors ended lower by 5% after India’s biggest automobile manufacturer missed estimates by a huge margin. Net profit fell 25.5 per cent to Rs 3,581 crore from Rs 4,804 crore in the year-ago period. Unfavourable revaluations of foreign currency debt, unrealised hedges, higher depreciation and amortisation and a provision for capital cost of buildings at Singur, amounting to Rs 310 crore, also impacted margins and profits.

Among banks, Axis Bank, HDFC Bank, SBI and ICICI Bank dipped between 0.5-2.5%.

HDFC Bank dropped over 2%. It has raised around Rs 10,500 crore through simultaneous share sales to institutional investors on Indian and US exchanges.  

Banking stocks gained focus in focus after the Reserve Bank of India said in its guidelines for implementation of Countercyclical Capital Buffer (CCCB) that the CCCB may be maintained in the form of Common Equity Tier 1 (CET 1) capital or other fully loss absorbing capital only, and that the amount of the CCCB may vary from 0 to 2.5% of total risk weighted assets (RWA) of the banks.

GAIL and Tata Steel slipped between 1-3% on caution ahead of the announcement of its Q3 results later during the day. 

Shares of Cipla lost over 1%.The pharmaceutical major, Cipla and Pune-based unlisted Serum Institute will plan a marketing tie up under which Cipla will sell Serum's products in selected markets abroad. Among its peers, Sun Pharma and Dr Reddy’s Lab lost between 1-2.5%.

BHEL, Tata Power, Coal India, ONGC and RIL were some of the notables losers and lost between 1-5%.

On the flip side, HDFC, Sesa Sterlite and ITC gained between 1-2.5%.

Shares of Infosys ended higher by 1.6% on the BSE after Infosys BPO secured an IT services deal with Dutch insurance services firm a.S.R. for supporting back-office operations. Among its peers, Wipro and TCS gained 0.75 each.

Orange SA has explored various acquisitions in Africa, including assets owned by Bharti Airtel Ltd, as the French company seeks to bolster its business in the region, according to people. The stock climbed 1%.

Markets breadth on the BSE ended weak with 2,010 shares declining and 863 shares advancing.

Courtesy: The Business Standard

DO YOU KNOW?

Public sector banks in the country have returned profit of Rs.37,000 crore last year.

In this context, Harwinder Singh, general secretary of the All India Bank Officers' Confederation (AIBOC), which represents 85% of officers in public sector banks in the country said: 

"The banks' profitability would have been better if they were not made to implement schemes such as the Jan Dhan Yojana or were compelled to open more branches in rural areas. Such schemes bring considerable strain on human resources without generating any profit. Besides, bad loans of corporates add to banks' burden." 

He further said that profits suffer also due to the government's insistence on extracting as much dividend as possible to shore up its own finances. 

Meanwhile, Deven Choksey managing director, KR Choksey Shares & Securities, in an interview with CNBC TV18, on 6 February, 2015, said: "One may buy some large PSU banks on correction". 

According to Deven Choksey, this is the time to buy with a long-term view in mind. "Buy and hold for at least three years and make sure you hold some cash to pump in during market corrections," say Choksey.

It is pertinent to mention here that credit demand has paled to 10.5% against 14.5% a year ago. In the absence of demand for loans, banks have been parking their surplus funds in government bonds. Analysts estimate that banks have parked close to 28% of their deposits in government bonds, against the 22% mandated by the RBI.

The move to reduce rates may also enable banks to post better profits, thereby easing pressure on the government for capital. "Some banks may be under pressure to show profits. Higher earnings will enable banks to plough back profits to shore up their tier-I capital," said Vaibhav Agarwal, research analyst at Angel Broking.

UCO BANK LTD: BUY

On last Friday (06/02/15), UCO Bank Ltd was recommended to the Premium Group members at around Rs.70.50, for a target of Rs.75. 

UCO Bank Ltd came out with satisfactory set of numbers for the Q3FY15. The net profit fell marginally by 3.5% to Rs.303.59 crore in the third quarter of 2014-15 financial year. The bank had registered a net profit of Rs.314.53 crore in the same quarter of 2013-14.

However, the total income of UCO Bank Ltd, increased from Rs.4,919.04 crore for the quarter ended December 31, 2013, to Rs.5,447.39 crore for the quarter ended December 31, 2014. On the asset quality, bank's gross non-performing assets (NPAs) or bad loans increased to 6.5% from 5.2% year ago. Net NPAs too increased to 4.25 per cent of net advances, from 3.06 per cent in the year ago period. 

In an interview with  CNBC TV18, on February 05, 2015, Arun Kaul, CMD of UCO Bank Ltd said, with the cost of fund coming down, he is hopeful of seeing net interest margin (NIM) improvement by 10-20 basis points in the fourth quarter from the current 2.58%.  He further said that for the third quarter the incremental slippages were at Rs.2700 crore and 60% of the slippages were restructured assets..

We  can understand the September, 2014 quarter performance of the UCO Bank Ltd a little better, if we compare the sequential figures. The total income of the bank came at Rs.5447.39 Cr in Q3FY15 as against Rs.5256.62 Cr in Q2FY15. The PBDT increased to whooping Rs.1425.14 Cr as against Rs.1055.77 Cr Q2FY15. The net profit of the company almost TRIPLED to Rs.303.60 Cr as against Rs.103.54 Cr. The EPS of the company for Q3FY15 came out to be Rs.2.99 as against Rs.1.02 Cr in Q2FY15.  Even the 9MEPS, for the UCO Bank is a massive Rs.9.15. 

The scrip should be crossing Rs.100, within a couple of months, as the RBI further lowers the Repo rate or cuts the CRR. Therefore this is a turnaround case, which most in the Indian Financial Media, failed to identify.

Besides, there were recent media report that the Government is likely to infuse Rs.6,990 crore in nine public sector banks including SBI, Bank of Baroda (BoB), Punjab National Bank (PNB) for enhancing their capital and meeting global risk norms.  This news augurs well for the whole of PSU banking sector. 

Moreover, in India, with SARFAESI Act (The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) in place, most of the bad loan can be recovered; depending upon how secure they are....!! 

Also, according to The Economic Times, January 16. 2015: State-run banks are going to benefit the most from the Reserve Bank of India's cut in interest rates by 25 basis points, as it would help them use the treasury gains to negate provision and write-offs of bad loans. The treasury gains of public sector banks alone are expected to be over Rs.2,000 crore as the value of their holdings in government bonds is likely to surge this quarter. A reduction in rate may also bring down the burden for debt-laden corporates, triggering a better investment climate.

Market Mantra

Nifty which opened at 8696.85 recovered during the day and touched 8726.20 intra-day. However, selling again started which dragged it down. Nifty is now trading at 8697.20 down marginally by 14.50 points. The Nifty is expected to trade in a narrow range in absense of any major clues, till the budget. 

However, there are high chances of seeing a recovery in the broader market at the end of the day, as there is lot of value in many of the beaten down mid and small-cap counters. The investors are suggested to look into Bank and Real Estate sectors, because the RBI has given a clear indication as where the interest rates are going, in future.

Today's Call: Buy UCO Bank Ltd at Rs.70.50, for a short term target of Rs.75. Keep a SL of Rs.66, for any short term trade. The came out with satisfactory set of numbers for the Q3FY15.

India Ratings (Ind-Ra) expects a sharp increase in demand for Tier 1 capital from 2015 towards the Basel III - the new capital norms for banks, a sector report released by the ratings firm said. It estimates a capital requirement of Rs.5,30,000 crore till FY'19 for all banks "Capital will be the key differentiator in 2015.". Midsized PSBs would be under pressure to consolidate their growth and focus on profitability. It further said, "Government's commitment towards their equity requirement would be a key rating driver." The Ind-Ra expects the GOI, to pump in Rs. 20,000 crore equity capital support for Public sector banks.
Today, the Premium (Paid) members were asked to the blue chip real estate firm, Unitech Ltd (Rs.16.95) at around Rs.16.70. The stock then moved to Rs.17.30. Unitech Ltd is a big name in the real estate space. Now when the RBI has given a clear direction as to, where the interest rates are going, one should buy such stocks and keep holding. 
Yesterday, Rohit Ferro Tech Ltd (Rs.8.70) moved up to above Rs.9.50, today it is another steel counter, Bhusan Steel Ltd (Rs.93). It is now a foregone conclusion that the government is bringing in a slew of measures to safeguard the  domestic steel sector. Hence, the price of steel stocks are likely to move up in the coming days. 
C Mahendra Exports Ltd (Rs.13) is a high risk, high gain counter. Those who have risk-appetite, should buy the stock and keep holding for some decent gains in the coming days. 

FIIs Selling were Negligible, while DIIs were Net Buyers

Yesterday, I mentioned in this blog that though both DIIs and FIIs turned out to be net sellers, ".......the bears will not be able to conquer the Bulls too easily". It is because 50D EMA is higher than 200D, 150D and 100D EMAs.

Today's move is clear enough to show that the Nifty could rebound before reaching 8600. The budget rally is expected to start from the next week and this time, I feel, Nifty will touch 9000.

The traders are suggested to buy stocks which has a story to tell. 

Indian govt could cut import duty on gold to 6-8 pct

[Editor: I recommended C Mahendra Exports Ltd (BSE Code: 533304) yesterday, based on some recent positive developments. Though the scrip tanked today to Rs.13.14, but I find value in it in the medium to long term. However, if you are considering short term gains, then  you can look for Gitanjali Gems Ltd (Rs.47.95) and/or SRL Ltd (BSE Code: 533569, CMP: Rs.26.25. Today though there was selling in the mid-cap space, many of the jewelry stocks, including Gitanjali Gems Ltd and P C Jewelers Ltd (Rs.271), did well; as any duty cut will be a big boost for the Gems and Jewelry sector--a move that could help boost exports and manufacturing of gems and jewelry]

Feb 5, 2015: The Indian government could cut the import duty on gold by 2-4 percentage points later this month from its current level of 10 percent, sources told FastMarkets.

With the country’s trade deficit easing due to falling oil prices and cheaper gold, there has been widespread speculation about a possible cut following November’s removal of the 80:20 rule.

India’s trade deficit shrank to a 10-month low in December when tumbling oil prices and weak gold demand provided some respite. At $9.43 billion, the deficit was at its lowest since February 2014, down 44 percent on November’s figure and down from $10.2 billion in December 2013.

New Delhi could announce the cut – to eight percent or even to six percent, sources claimed – in its annual budget, which is due on February 28.

Commerce and Industry Minister Nirmala Sitharaman hinted in January that the jewellery sector could benefit from incentives in February’s budget, sparking speculation that the duty could be scrapped altogether.

“I don’t think that they will surprise markets in the same way they did with the removal of 80:20 – I think this time it will be a much more measured and prepared approach,” one source said.

In December, total imports of gold fell to around 40 tonnes from 148 tonnes in October and 152 tonnes in November as the Indian wedding season wound down and demand following the Hindu festival season also began to fade.

Lower import duties would help to deter smuggling, the source added.

India raised the import duty in September 2013 to a record 10 percent – the third such increase in eight months – to tackle the country’s ballooning current account deficit.

Narendra Modi opted to maintain the 10-percent duty and, initially, the 80:20 rule when he became prime minister in May 2014

Courtesy: The Bullion Desk

Budget 2015: Government may consider 2-4% import duty cut on gold, say sources 

Photo: Market Watch

NEW DELHI, 5 Feb, 2015: With decline in gold imports, the government may consider 2-4 per cent reduction in import duty on it in the forthcoming Budget, a move that could help boost exports and manufacturing of gems and jewellery, sources said.

The industry has already sought reduction in customs duty on gold to 2 per cent, from 10 per cent now.

"Gold imports are declining continuously. Gems and jewellery sector contributes significantly in the country's total exports. On account of this, we are expecting a cut in the import duty. But it is up to the Finance Minister to take the final decision in the Budget," said a source. 

The government may consider cutting the duty by 2-4 per cent, sources said.

Commerce and Industry Minister Nirmala Sitharaman had last month hinted that the gems and jewellery sector, which employs about 3.5 million people, may get some incentives in the Budget.

The issues including the import duty related to this sector were widely discussed recently at a 'Make In India' workshop and a presentation was given to Prime Minister Narendra Modi on it by Commerce Secretary Rajee Kher.

The ministry suggested that import duty on gold and silver be reduced to 2 per cent from the current 10 per cent.

Gold imports in December declined sharply to 39 tonnes, from 152 tonnes in November. Exports of gems and jewellery too declined by 1.2 per cent year-on-year to USD 2.66 billion in December. 

The ministry suggested that import duty on gold and silver be reduced to 2 per cent from the current 10 per cent.

Gold imports in December declined sharply to 39 tonnes, from 152 tonnes in November. Exports of gems and jewellery too declined by 1.2 per cent year-on-year to USD 2.66 billion in December.

The sector is one of the 25 thrust areas identified under the 'Make in India' programme. The campaign aims at attracting domestic and foreign investments to boost manufacturing and create jobs.

The All India Gems and Jewellery Federation has suggested that the customs duty should now be reduced to help check the smuggling of the precious metal.

The government had raised the import duty on gold to contain the widening current account deficit. 

Courtesy: The Economic Times

DNA formulates policy report to revive India's gems and jewelry industry

Photo: Hard Assets

[Editor: Recently, there was a report from a research house which said that the Jewelry Market in India is set to Grow at a CAGR of 15.95% over the Period 2014-2019. Incidentally, today many of the jewelry stocks are up: Gitanjali Gems Ltd (Rs.49.15 up 6.04%), Shree Ganesh Jewelry House Ltd (Rs.27.25, up 5.42%), P C Jeweler Ltd (Rs.270.20 up 2.87%) and so on. Meanwhile, while the gold jewelry exports from India remained almost flat year-on-year at $ 554.45 million (Rs. 3,479.17 Crore) in Dec 2014, the silver jewelry exports surged higher by 26.68% year-on-year to $148.49 million, in accordance with the latest data released by the Gems and Jewelry Export Promotion Council (GJEPC). Moreover, the ongoing marriage season and upcoming festive season are also expected to keep the Jewelry market buoyant] 

Feb 03, 2015: MUMBAI (Scrap Monster): Daily News and Analysis (DNA) - the leading Indian broadsheet has launched a policy report on the gems and jewelry industry in the country. The report outlines various methods to trigger revival of the sector. It also focuses on enhancing the sector’s employment opportunities and boosting its revenue potential.

According to the Policy Document, the exports of cut and polished diamonds from the country have reduced by almost one-third since 2010. India’s domestic production of diamonds is very low, making it compulsory for the trade to depend on diamond roughs. However, India’s profitability has witnessed sharp erosion as cut and polished diamond prices failed to catch up with the rise in rough diamonds. Consequently, skilled diamond workforce in the country has tumbled from 8 lakh to around 3 lakhs.

India is the largest cutting and polishing centre in the world. However, the direct sale of rough diamonds to chain stores and diamond beneficiation centers in other countries has hurt the country a lot.

The DNA Policy Report proposes several policies that the industry should adopt for its revival. Firstly, a uniform duty of 2.5% on all cut and polished exports should be enacted. Secondly, the import of lab-grown roughs should also be exempted from duty. In addition, incentives should be announced for lab-grown diamonds being used in high technology applications. The government should include the industry to be part of ‘Make in India’ campaign, in order to attract foreign investments in the area of high-technology processing of diamond.

DNA believes that the Policy Document would be of use to the government.

Courtesy: Metal.com

DO U KNOW?

Last year (2014) C Mahendra Exports Ltd (BSE Code: 533304; CMP: Rs.13.70) said it allotted 5.67 lakh equity shares at Rs.234.95 per share to Bennett Coleman & Co. on preferential allotment basis. 

The Times (of India) Group (also referred as Bennett, Coleman and Co. Ltd) is the largest mass media company in India. 

WINNING STROKES: THINK DIFFERENT

Please Click on the Chart to Expand

FIIs/FPIs  and DIIs turned out to be net sellers today also, however, the momentum (of selling) has come down a bit. The FIIs/FPIs sold Indian equities worth Rs.83.8 Cr while the DIIs sold shares worth 72.35 Cr. The next support for Nifty comes around the psychological level of 8700. However, today's candle stick pattern showing three black crows with a "Doji" in between, is not giving too much room for the bulls. Also, PVO cutting the signal line from top and same in case of MACD does not augur too well for the bulls, If the correction continues even tomorrow, then the next logical level of Nifty comes around 8600. Having said this I would like to reiterate that since 50D EMA is higher than 200D, 150D and 100D EMAs, the bears will not be able to conquer the Bulls too easily. This is some sort of solace for the battered bulls. In the weekly chart too, the Nify support comes around 8600. If this is broken on the downside, the next support come around 8430. However, some of the oscillators are showing slightly oversold though a clear buy is yet to be given on the daily chart. The correction which started with a shooting star formation followed by dark-cloud cover is giving too much pains to the bull army. The traders are suggested to lighten their position in the large caps and invest in the small and mid cap space. 

Rohit Ferro Tech Ltd which moved intra-day to Rs.8.96, closed flat at Rs.8.77. As mentioned a number of times earlier, the government of India is likely to bring in a slew of measures to aid the domestic steel sector, very soon. Hence, in any case the stock would move up from here. The investors are suggested to buy the shares of the company in bulk and keep holding. 

Yesterday, C Mahendra Exports Ltd was recommended at around Rs.14.20, for a target of Rs.17. However, today at the end of the day, the scrip came down to Rs.13.69. This is normal for this stock and the investors should do well to accumulate the scrip before the Q3FY15 results. I will speak with the sources again tomorrow. 

Today, the block-buster BPO company, Firstsource Solutions Ltd which touched intra-day at Rs.33, closed at Rs.31.50, showing further bullishness on the chart. The scrip will be slowly moving towards Rs.41-42, in the coming days. The Q3FY15, results according to my close sources, will be along the expected lines. 

Today, I took some shares of Unitech Ltd (Rs.19.25) for some of my friends whose account I manage from my end in Bombay (Mumbai). Unitech Ltd is India's 2nd largest real estate company and hence it should trade above its book value of Rs.37.72. The shares fell after the company got embroiled in some controversies. However, it has come out of that phase and should move up in the coming days. I am expecting the scrip to touch Rs.31-32, by the end of next week. Stay invested. 

Overall most of my earlier recommended counters did well: 

(i) Anant Raj Moved to Rs.52+, intra-day

(ii) Pipavav Defence Ltd closed above Rs.50

(iii) J P Associates Ltd closed at Rs.28.50 and J P Power Ltd closed at Rs.12.04 after touching Rs.12.33, intra-day. 

(iv) ARSS Infrastructure Ltd closed at Rs.51.90. 

(v) Resurgere Mines and Minerals Ltd closed at Rs.1.30--the bears failed to pull it down further, inspite of bad publicity by vested groups in various platforms.

(vi) Jindal Saw Ltd touched Rs.85.35. intra-day. 

MARKET MANTRA

C Mahendra Exports Ltd today touched the Upper Circuits at Rs.14.95 and is now trading at Rs.14.47 with good volumes.  Moreover, last year the company allotted 567,780 equity shares at Rs.234.95 per share to Bennett Coleman & Co. on preferential allotment basis. C Mahendra Exports Ltd, an integrated diamond and diamond jewellery company came out with an IPO in 2011 (The issue closed for subscription on January 06, 2011), with a price band of Rs.95 to Rs.110 per equity share. Now with INR around Rs.61 Vs USD, the company could rake in huge mullah in the coming days. Today, I am expecting it to hit the UC at the at the end of the day. 

Firstsource Solutions Ltd today touched Rs.33 and is now trading at Rs.31.70. The scrip should gradually move up before the Q3FY15 results. It is from the reputed R-P Goenka group and ace investor Rakesh Jhunjhunwala holds substantial stake in the company. 

Today, Unitech Ltd is moving up and is currently trading at Rs.19.65, up 4.80%. I have taken positions, for some of my friends, whose accounts, I manage from my end. I am expecting the scrip to reach Rs.27-29, in the next few trading sessions. Company's consolidated net debt was Rs.6,381 crore in Q2 of FY 2015 and net debt to equity ratio during this period, was also also not very alarming at 0.58. Strong demand for office space and the renewed optimism of the last few months is likely to translate into improvement in demands for the residential housing space, in the coming days. Also, RBI has given a clear indication that the interest rates are going down in the near future, fueling demands for the residential and commercial properties. Meanwhile, Unitech is continuing with its interim strategy of monetizing those land parcels for which there are no immediate development plans. Company is also working towards accelerating the delivery of completed property in its various projects.
Today my recommended Jindal Saw Ltd touched Rs.85.30 and is currently trading at around Rs.84.30. The traders can book some profits and can wait for the scrip to clear Rs.85-86 ranges before taking fresh entry. However, long term investors can continue to add the scrip in all declines, keeping a strong SL of Rs.79.
Rohit Ferro Tech Ltd (Rs.8.65) is currently consolidating at around Rs.8.60--8.90 ranges, after a swift rally. The government is coming up with a slew of measures to protect the domestic steel and ferro-alloys sector and hence in any case the scrip will move up, in the coming days. Besides, there are lot of positive developments taking place in the company including the sale of one of this plants in Odisa (Orissa) to reduce debt. When a person is getting gold at the price of brass, then he/she should purchase it, isn't it? 

Oil Stocks May Be A Big Win In 2015

[Editor: This is good news for the shareholders of SAW Pipe (which is widely used in the energy sector for the transportation of oil and gas) companies like Jindal Saw Ltd (Rs.80.20), whose products are also used in the oil and gas sector]

Feb. 3, 2015:  The basics of oil production are pretty simple - companies drill a well and if they find oils they put it on stream. The major capital costs are upfront, and production follows for years to come. 

The variable costs of production are relatively low, and royalties and taxes are usually tied to selling prices and are variable costs. 

As a result, once a well is producing oil companies are loathe to shut it in since even at low prices the well is very likely to produce positive cash flows. 

Production is highest when the well is first placed into production and tends to decline each year thereafter, a phenomenon often called the "droop" or "decline rate".

In shale oil production basins like the Bakken, the "decline rate" is pretty steep.

Summary

• U.S. production of oil is still rising and may continue to rise for a while yet.
• But the drop in capital expenditures and a sharp decline in the rig count point to lower production by year end.
• In the Bakken and Eagle Ford alone, production could drop by as much as 1,250,000 barrels a day according to a TD Bank analysis.
• The industry has reacted swiftly to lower prices and the recovery should emerge by the fall.
• Now may be time to add to oils.

Oil sands production has a different set of dynamics more like mining. Capital costs are large and spread between the upfront costs and maintenance, and operating costs tend to be relatively high. At low oil prices, it may not make sense to continue to mine. Like metal mines, putting an oil sands mining project on care and maintenance at very low prices might make sense, although I don't recall such an event happening.

United States field production of oil today is 9.1 million barrels a day according to EIA. If no one drilled another well, it would decline possibly by as much 60% annually for new shale wells and perhaps 5% to 10% for wells that have been on production for several years. Across the industry, it is reasonable to assume a decline rate of 37% for the purposes of illustration, although the real figure varies widely by operator and by oil field.

The United States entered 2014 with oil production at about 8.1 million barrels a day. That means that without additional drilling, 8.1 million barrels a day would fall to 5.1 million barrels a day if all capital spending ground to a halt, using the 37% decline rate assumption to make the point.

United States capital expenditures for exploration and development totaled close to $250 billion in 2014, but my guess is that $100 billion of that went to natural gas drilling.

Now we are in 2015 and the base production level is 9.1 million barrels a day. At a 37% decline rate, production would fall to 5.7 million barrels a day without new capital spending. Capital efficiencies improve in industry downturns with rig operators charging lower day rates to keep busy in many cases.

Assuming a 20% improvement and using a $30,000 capital efficiency, capital expenditures in 2015 of $102 billion are needed to stand still. While the industry has announced plenty of cutbacks in spending, I think it is likely the industry will spend enough to more or less hold production at the 9.1 million barrel a day mark or perhaps slightly lower if WTI prices stay below $50 and capital cutbacks exceed $50 billion in the U.S. in 2015.

As it stands, oil production continues to grow in key regions - e.g., Bakken.

The point is that no one should expect an immediate dramatic fall in U.S. production. Higher prices will require greater consumption worldwide. Fortunately for oil investors, the U.S. consumption of oil continues to grow as the U.S. economy expands with imports growing from 6,856,000 barrels a day in the first week of January to 7,422,000 barrels a day in the week of January 23, according to EIA data. Those data are quite volatile and it is too early to predict a trend other than to say that in an expanding economy oil consumption tends to rise.


Looking out a few quarters, the glut may turn to shortage. TD Securities estimates that oil production in Eagle Ford could drop from over 1,500,000 barrels a day to about 750,000 barrels a day by year end based on an assessment of the rapid drop in rig count in the area.

TD sees the possibility of a drop of as much as 500,000 barrels a day of production from the Bakken using similar logic.

The fact is that the rapid drop in oil prices has seen a dramatic drop in capital expenditures for the energy industry already.

A big part of that reduction is a steep decline in the rig count across the U.S. oil patch.

Investors should expect quite a ride for the next couple of quarters and quite a few false starts before the oil price starts to show stability or give clear indications of a recovery. That will please traders but frustrate those who try to call the bottom.


Looking out a year or eighteen months, if the world economy does not slow and the pace of capital cutbacks continues globally, prices seem certain to recover and oil stocks should reward patient money. There is no need to heap risk on risk, so I will stick to quality names with solid balance sheets.

Note: The above are only excerpts from the main article on the website: Seeking Alpha

Courtesy: Seeking Alpha

India to ask US to remove 'wrongful' duties on HR steel exports

Photo: Business Korea

Tuesday, 03 Feb 2015: The Hindu Business Line reported that following the World Trade Organisation’s ruling against penal duties imposed by the US on hot rolled steel from Indian companies, New Delhi is compiling data on similar levies on other products in order to convince the US scrap them as well.

An official in the Commerce Ministry said that these items include lined paper products, PET film, commodity matchboxes, certain chemicals and at least 5 other steel products.

The Centre is also looking at how the US will implement the WTO ruling that held that CVD (countervailing duties) - levies to counter subsidised exports of a particular item - imposed by the US on hot rolled steel from India flouted global trade rules.

Proper implementation of the verdict would result in companies such as Essar, Jindal Steel and TATA Steel to resume their steel exports to the US. Indian steel companies had to almost stop all exports of hot rolled steel items to the US over the last few years as CVD ranging from 76% to 577% made their products highly uncompetitive.

Giving its verdict on a case filed by India against the US’ imposition of CVD or anti-subsidy duties on its hot-rolled steel products in December last year, the WTO upheld that the US practice of ‘cumulation’ or addition of subsidised and dumped imports while calculating the injury suffered by its industry due to subsidised imports was faulty.

Courtesy: Steel Guru

Steel makers poised to cut prices as imports flood market 

Prices of hot-rolled steel may fall by more than 4% and may not recover for a couple of quarters, unless the govt acts to curb imports, analysts say Abhishek Shanker.

Hot-rolled coil prices in Mumbai have declined 10% since July, when imports started rising, to about Rs34,000 a tonne, excluding taxes. Photo: Bloomberg

Mumbai, February, 2015: India’s largest steel makers are expected to cut prices to the lowest in almost a year to cope with a glut created by surging imports from China, Russia and South Korea. 

Prices of hot-rolled steel, used to produce sheets, wheels, pipes and railway tracks, may fall by more than 4% this month to Rs.32,500 a tonne, according to the average of six estimates compiled by Bloomberg from industry executives, government officials and analysts. Prices may not recover for a couple of quarters, unless the government acts to curb imports, they said. 

“The slowing Chinese economy is leading to higher exports from the country,” said Rahul Jain, a Mumbai-based analyst with CIMB Securities India Pvt. in Mumbai. “With surging imports, price cuts will happen at least in the near-term.” 

Hot-rolled coil prices in Mumbai have declined 10% since July, when imports started rising, to about Rs.34,000 a tonne, excluding taxes. The rates for similar products in China tumbled 22% in the same period, according to researcher Beijing Antaike Information Development Co. 

Earnings at Indian steel makers are already under pressure with Tata Steel Ltd, the top producer, expected to post its lowest profit in seven quarters for the period ended 31 December, according to the median of 20 analyst estimates compiled by Bloomberg. JSW Steel Ltd reported its lowest profit in five quarters in the three months ended 31 December.

“Prices of some of the imported steel products have come down to ridiculous levels and it’s forcing local producers to cut prices,” A.S. Firoz, chief economist at the steel ministry’s economic research unit, said on Tuesday by phone from New Delhi. “It’s a concern that our exports have fallen, while imports are flooding our markets.” 

Import pressure 

Imports accounted for 12% of India’s steel consumption in the nine months ended 31 December, compared with 8% in the same period year ago, according to steel ministry data. Local prices will remain restrained in the year starting 1 April due in part to higher imports, according to a 20 January report by India Ratings and Research Pvt., the local unit of Fitch Rating Ltd. 

“There’s pressure from steel imports this quarter,” JSW Steel director Jayant Acharya told reporters at an earnings press conference on 30 January. “The Chinese surplus is coming out into the international markets and Russia’s ruble depreciation has facilitated their exports.” 

China record 

Crude steel output in China, the world’s top producer, reached a record last year, while a fall in Russia’s ruble and a free-trade accord between India and South Korea has led to a surge in imports from those nations. India, which was a net exporter of steel last year, may become a net importer of 3 million tonnes this year, Firoz had said in January. 

“At the current rate, imports may reach as much as 1 million tonnes a month,” Acharya said. India’s total steel imports rose 59% to more than 6.5 million tonnes in the nine months through 31 December from a year earlier, according to steel ministry data. 

Chinese steel exports soared to 10.17 million tonnes in December from the previous month’s record of 9.72 million tonnes, according to data from the nation’s customs department. 

India’s steel makers are lobbying the government to restrain imports by raising taxes on shipments from overseas suppliers and also implement a December order to ensure uniform quality of the alloy being imported. 

The order makes quality certification from the Bureau of Indian Standards mandatory for imported steel products. 

“We are requesting the government to look at enforcing the quality order,” Acharya said. “We also expect some changes in the duty structure either in terms of normal customs duties or tariff barriers.” Bloomberg. 

Courtesy: Live Mint

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WINNING STROKES: THINK DIFFERENT

C Mahendra Exports Ltd, which was recommended to the Premium members, today hit the buyer freeze in the later afternoon trade at Rs.14.24 in the BSE. C.Mahendra Exports Ltd, a renowned and trusted name since 1974, is one of the leading diamantaire and jewelry company with a wide spread around the world. It fell from 52-week high of Rs.254.90, as the government of India put restrictions in the Gems and Jewelry Sector. C.Mahendra Exports has its presence in the diamond studded jewellery business. Ciemme Jewels Ltd., a subsidiary of the company, designs and manufactures, diamond studded jewellery which is retailed under the brand name "Ciemme" across the world. It has overseas sales and distribution associates in 6 countries:

• Hong Kong
• Thailand - Bangkok
• India - Mumbai
• UAE - Dubai
• Belgium - Antwerpen
• U.S.A.

Today the percentage of Deliverable Quantity to Traded Quantity was 42.83%, which is not at all bad. The scrip is expected to hit non-stop buyer freezes from here. Those who could not buy it today, can try tomorrow. 

As expected Firstsource Solutions Ltd, a CESC Ltd group company spurted today touched Rs.31.25, before closing at Rs.30.50 in the BSE. The company is coming up with Q3FY15 results on 6th February, 2015. In this scrip too, the ace investor, Rakesh Jhunjhunwala holds stake. 

Rohit Ferro Tech Ltd went in minor correction and the scrip closed at Rs.8.76 in the BSE. It is important to note that, Rohit Ferro-Tech, a smaller player in the ferro alloy and stainless steel segment, gained from the FY14 budget proposals when the GOI, hiked the custom duty from 5% to 7.5%. In the upcoming budget too, the government is expected to come up with a slew of measures to encourage demand for domestic products. Because of the lower demand and realizations, companies like Rohit Ferro are making losses. It has 274,000-tonne capacity to produce ferro alloys used in stainless steel making and 100,000-tonne stainless steel capacity. Rohit Ferro Tech Ltd acquired coal mines in Indonesia through its  100% subsidiary SKP Overseas Private Limited. It has both thermal, as well as, coking coal with the reserves of around 5 million metric tonne and 20 million metric tonne.

Nifty which today opened at 8823.15 gradually recovered and closed at 8756.55 down 40.85 points. Today also FIIs and DIIs net sold Indian equities worth Rs.264.35 Cr and Rs.137.31 Cr respectively. The Nifty would continue to get support around 8730 ranges. However, the action would now be seen in the small and mid cap space. Moreover, in the next few weeks as the EU starts to flood the globe with "Phantom Money", euphemistically called "Quantitative Easing" (QE), the naked swimmers in the emerging economies could get benefited. Also, the tangible impact of Bank of Japan's renewed benevolence in flooding the market with liquidity will also be positive for the EEs. Amid such bay watching, this is yet another opportunity for policymakers in emerging economies to assess, reliance and susceptibility of various sectors in their economy to foreign flows. Analysis of all factors such as gross domestic product (GDP) growth, interest rates, domestic institutional investor (DII) flows, foreign institutional investor flows (FII), corporate earnings and so on that typically move stock markets, reveals that FII flows alone was the single largest factor which gave mammoth movement in the BSE Sensex since 2000. The GOI should therefore, quickly find out the reasons for continuous FII selling in the Indian bourses, during the last few days. 

Market Mantra

Today is perhaps a day of the small cap counters, as many of them are either seen moving up or has hit the upper circuits. The large cap driven Nifty is down today by more than 60 points and is now trading at 8734.45. Yesterday, we saw both the FIIs and DIIs were net sellers and hence, the nervous investors are probably offloading the shares of the large caps and entering the small and mid cap counters. Keeping this in mind, the Premium Members were suggested to buy C Mahendra Exports Ltd at Rs.14.20 (BSE Code: 533304), the scrip has already hit the buyer freeze. 

Today Rohit Ferro Tch Ltd touched Rs.9.15, intra-day and is now trading around Rs.8.70. It is natural for the scrip to go for some profit booking after a continuous rally of some days. The investors should accumulate the scrip on declines and keep holding.
Even when the large caps are going for a correction, one stock which is still somewhat holding its territory, is Jindal Saw Ltd. The scrip is marginally down and is now trading at Rs.81. The company came up with satisfactory set of numbers for the Q3FY15 and should touch Rs.92, once the market stabilizes. The investors should stay put in this O P Jidal Group company. 
Reliance Capital Ltd which touched Rs.495.90 today in the NSE has come down to Rs.480, after profit booking started. Yesterday, it was mentioned in this blog, that the scrip has touched its short term target of Rs.492.
Firstsource Solutions Ltd (Rs.29.20) in which the ace investor, Rakesh Jhunjhunwala holds stake, is struggling to cross the resistance zone of Rs.29.5--29.70. However, it is interesting to note that in August, 2014, the brokerage firm, ICICI Direct valued the stock at Rs.50. Even Prakash Diwan of Altamount Capital, in a interview with ET Now on 27 January, 2015, said he is positive on Firstsource Solutions Ltd. The company recently announced that a meeting of the Board of Directors of Firstsource Solutions Ltd will be held on February 09, 2015, to consider, the audited standalone and consolidated financial results for the quarter ended December 31, 2014 (Q3).

India to offer extended mining lease tenure

2nd February, 2015: Paving the way for auctioning mineral mining licences and reforming the country’s mining sector, the Indian government is expected to frame rules for a uniform lease period of 50 years.

The mining lease tenure rules would be framed under the Mines, Minerals (Development and Regulation) Ordinance 2015, which would be placed before Parliament this month and would incorporate changes decided by law makers, an official in the Mines Ministry said.

The Mines Ministry started consultations with all mineral-bearing provinces prior to the framing of the rules to open up the sector, as local governments would be empowered to have their own systems of certification and monitoring for certain minerals. The federal government would have to approve these systems.

According to the Mines Ministry’s rules pertaining to mining leases, until recently, mineral mining lease tenure varied between a minimum period of 20 years and maximum of 30 years, and each renewal was valid for maximum of another 20 years.

The official said that all existing mining leases granted before the start of the ordinance in January 2015, would automatically be extended until the end of March 2020 in the case of noncaptive mines, and until the end of March 2030 in the case of captive mines.

When the lease period expired, the mining lease for the resource block would be put up for fresh auctions, he said.

The rule was expected to avoid logjams.

A large number of iron-ore and manganese mines operating in Odisha had been closed down under orders of the Supreme Court, which held that continued operation of these mines, with second or subsequent renewals of mining leases pending for several years, was illegal.

In a related move, the Mines Ministry would also frame rules for the imposition of a levy equivalent to 2% of the royalty payable by the miners to fund the National Mineral Exploration Trust to undertake exploration of mineral resources across the country.

A draft note on the proposed rules stated that the government would permit private exploration of mineral resources, which until now had been the exclusive domain of government agencies like Geological Survey of India (GSI) and Mineral Exploration Corporation Limited. The exploration fund would be used as a risk fund to support companies undertaking such projects.

According to the Ministry report, GSI identified 571 000 km2 of geological potential across the country but no projects had been undertaken to explore this potential largely owing to a shortage of technological and fund resources available with government agencies. 

Courtesy: Mining Weekly

DO YOU KNOW?

The FIIs have almost exited the IT-company, Allied Digital Services Ltd (Rs.31.60). The latest (December, 2014 quarter) shareholding pattern shows the FIIs holding as only 0.06% against the 2.96% of the September, 2014 quarter.

In such circumstances, it would be better to book complete profit in the counter and wait for it to come up with QFY15 results. If the results are good then we can look for fresh entry. 

The point of apprehensive is that: one of the key figures, have already left the company and now with dismal FIIs figures, it does not augur well for the shareholders. Anyway, let us hope for the best. 

WINNING STROKES: THINK DIFFERENT

There is no stopping of Rohit Ferro Tech Ltd. Today it, closed at Rs.8.98 up 6.27%, in the BSE; giving a bullish breakout on the daily candle stick chart pattern.  It is pertinent to mention here that the share has already given more than 15% return in the last two days. Moreover, the company earlier informed that, 7,12,05,000 (Seven Crores Twelve Lacs Five Thousand) Convertible Warrants of nominal value of Rs.10 each at a price of Rs.20 per Warrant (including a premium of Rs. 10 per Warrant) will be allotted to the promoters.  This gives some sort of datum for the shareholders, regarding its future price. Also, the company will be disposing of the Jajpur manufacturing unit located at Kalinganagar Industrial Complex, District: Jajpur, Orissa by the way of slump sale or otherwise, to further reduce the debt. The next targets for the scrip are Rs.9.60-10.4-11.20--12.30-14. Therefore, do not sell the shares in a hurry. Infact accumulate the share on intra-day declines. 

Reliance Capital Ltd today reached its 1st target of Rs.492, as it touched Rs.495, intra-day. The next target for the scrip is Rs.503, where some profit booking is expected. 

Today Jaiprakash Power Ventures Ltd (Rs.12.15) closed above a crucial resistance level. Hence, we could look for bullishness in the scrip in the coming days. Moreover, once Rs.12.60 is broken on the upside, we can look for targets of Rs.13.50-15.

The SAW Pipe manufacturer, Jindal Saw Ltd today closed at Rs.81.40 in the BSE, after touching Rs.83 in the morning trade. It is to be remembered that as the price of crude oil starts to move up in the international market, the company would also benefit, immensely. Meanwhile, Brent crude was up 1.3% at $53.65 a barrel, having reached $55, while US oil rose 1.7% to $48.52, as investors speculated that the falling cost of crude may have ended.

Firstsource Solutions Ltd (Rs.29.15), saw good delivery based buying today, as the percentage of Deliverable Quantity to Traded Quantity was 35.43% in the BSE. A meeting of the Board of Directors of Firstsource Solutions Ltd will be held on February 09, 2015, to consider, the audited standalone and consolidated financial results for the quarter ended December 31, 2014 (Q3). The next target for the scrip is Rs.32, once it closes above Rs.29.70.

Nifty which today closed at 8797.40, should get support at around 8740-8605 ranges; though today both the FIIs and DIIs were net sellers, as Obama effect died down.