Broad based buying caps the day

Tue, 14 Dec Closing

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Buying activity intensified during closing hours as the indices tested new intraday highs. While the markets did come off a bit during dying minutes, gains notched up during the earlier hours ensured that indices ended on a firm footing today. The BSE Sensex closed with gains in the region of around 110 points whereas NSE Nifty gained around 40 points (up 0.6%) each. BSE Midcap and small cap indices also performed well, ending higher by around 1.5% each. Two stocks gained for every one that declined on the Sensex today.

Most Asian markets also closed strong today whereas Europe is trading mostly weak currently. The rupee was trading at close to Rs 45 to the dollar at the time of writing.

If the behaviour of the broader market in the past few trading sessions to go by is any indication, it appears as if it is looking for some direction. Just as it was being felt that the recent spate of scams would take the markets much lower, investor sentiment seems to have recovered pretty quickly and now that episode seems to be well behind us. To the long term investor though, it helped answer a very pertinent question. No matter how good the business prospects, if the management quality is not upto the mark, then sooner or later, one may well end up paying a heavy price. Thus, it is very important that one looks for only those businesses where the management has the interest of the minority shareholders close to its heart.

PSU majors like NTPC, SAIL and Coal India witnessed buying activity today and closed with small gains. As per a leading daily, International Coal Ventures Ltd (ICVL), a company floated by these behemoths along with a couple of other PSUs is likely to bid for Australia’s Riversdale mining. As per the top head honcho of one of the five companies, since Riversdale is a big asset, standalone bidding by any of these companies is not financially feasible and hence the decision to go in for bidding through ICVL. It should be noted that ICVL has an authorised capital of over US$ 2 billion. It isn’t that Riversdale already does not have an Indian owner. Tata Steel, India’s largest steel company is the second largest shareholder with a 24% stake. If ICVL does manage to put in its bid, it will compete against the likes of Rio Tinto that has already put in an informal US$ 3.5 bn bid for acquiring close to 50% stake in the company. Tata Steel though is in no mood to sell its stake in the firm. Apart from coking coal, Riversdale properties are expected to churn out thermal coal too, an important ingredient in power plants and the one that can be used by power producer NTPC.

If you thought a deal like Abbott and Piramal Healthcare is merely a flash in the pan, the latest acquisition by Reckitt Benckiser of the unlisted Paras Pharma may help you put things in perspective. It is becoming increasingly clear that multinationals want a pie of fast growing emerging markets like India and are not averse to paying a very steep price for the same. As per reports, Reckitt has shelled out more than US$ 700 m for Ahmadabad based Paras Pharma, valuing the company at a whopping 30 times EBITDA. The business fundamentals of Paras Pharma would no doubt be good but to the pay the kind of money that Reckitt has forked out is certainly not our idea of a value deal. It could take the company years to make good on its investment.