The National Stock Exchange (NSE) has dominated the single stock futures market ever since it launched these products in November 2001. That’s because it was one of the few markets in the world to offer these products. But trading has now picked up in other markets like JSE (Johannesburg), Euronext.liffe and Eurex.
JSE has beaten NSE in volume terms on a number of occasions. But in value terms, JSE’s turnover of $3.3 billion (Rs13,530 crore) last month pales in comparison to that of NSE ($98.7 billion). In value terms, NSE is still the clear leader but Euronext.liffe and Eurex seem to be closing in. They reported single stock futures turnover of $78.1 billion and $45.1 billion, respectively, in May.
It’s important to note here that trading volumes pick up substantially in European exchanges in the April-June quarter. In fact, Euronext.liffe and Eurex had both overtaken NSE on the turnover front last May. Of course, none of this may be bothering NSE, whose only competitor, the Bombay Stock Exchange, lags behind with a less than 1% share of the stock futures market.
The other point is that, unlike the other exchanges, NSE’s business performance has taken an upturn because of stock futures trading. In May, stock futures turnover was nearly double that of the cash market. But for Euronext.liffe, stock futures were just 15% of the turnover done in the cash market on the Euronext, while in the case of JSE it was less than 10%. While the other bourses may be catching up in terms of turnover, the NSE retains its unique position as an exchange that gets most of its transacted business from the stock futures segment.
Net profits at ABG Shipyard, India’s largest private shipyard, rose a mere 6.7% in the March quarter, compared with the year-ago period. Sales growth too was flat. But it doesn’t make much sense to look at quarterly results for a shipbuilder. The management says the reason for the low year-on-year growth is because four ships required additional work so their revenues could not be booked in the last quarter. They will, instead, be booked in the current quarter.
For FY07, net profits rose a decent 39%, on the back of a 30% increase in revenues. The stock, which quotes at a trailing price-earnings ratio of around 18, has gone up in line with earnings growth.
ABG Shipyard’s order book is at Rs4,100 crore, or at 5.08 times FY07 revenues. That provides earnings visibility, with current orders expected to last up to 2011. The industry is going through a boom globally, thanks to phasing out of old ships, tougher environmental norms and an increase in global trade. Indian shipbuilders also gain from business shifting away from high-cost locations.
The company expects that the long-awaited subsidy payments by the government may soon materialize. It is also building more specialized vessels, such as icebreakers, which involve higher value addition, and the management is confident of maintaining margins. Work at the Dahej facility is on track and should be completed ahead of the April 2008 target. Orders worth Rs1,000 crore have already been obtained for the new shipyard. ABG’s acquisition and subsequent modernization of Vipul Shipyard too will yield results from FY09.
ABG Shipyard’s decision to enter the oil rigs business also makes sense, though it will take on substantial additional debt for it. The global market for oil rigs is very tight. Given the rapid rise in oil and gas activity off India’s coasts, the need for rigs will rise manifold. In short, while the industry is notoriously cyclical, currently, there are no clouds on the horizon.
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