Market Mantra
Market outlook
Unsteady from start to end!
This isn't good or bad. It's just the way of things. Nothing stays the same.
Bulls will hope for a bounce back at regular intervals during the interim rough patch being seen on the bourses. At the same time bears will continue to scout for money making opportunities. One should remain on guard as volatility could escalate ahead of Thursday’s F&O expiry. Don’t get hurt while the bull-bear tussle is on.
The Nifty is likely to oscillate between 5100 and 4900 depending on the newsflow and fund flows. With the key indices up smartly from March lows, the upside may be limited from here on. There are some concerns on the pace of the rally amid a somewhat murky outlook but no need to panic as such.
Globally, risk appetite may start easing a bit as we approach the year end. Demand for defensive plays may shoot up. Dollar’s movement will continue to determine the near-term fate of global equities. Economic data will of course continue to have a bearing on sentiment. The overseas Christmas holiday season will also be keenly followed. For
Trading ideas (Time period: 1-3 days)
DLF (BUY, CMP Rs375, Target Rs398): The stock has seen impressive volume in Friday’s trading session and appears to have taken support between Rs350-355 zone. The bullish formation is confirmed after the stock gave a close above its 13-DMA with positive divergences in momentum oscillators. Volumes accompanying the breakout are encouraging, thereby adding confirmation to the bullish outlook. We recommend traders with high risk appetite to buy the stock in the range of Rs372-378 for a short term target of Rs398. A stop loss of Rs365 should be maintained on all long positions.
Vijaya Bank (BUY, CMP Rs53.50, Target Rs57-58): On the weekly chart, Vijaya Bank is attempting to break out from a 19-month resistance zone. Since past few weeks, the stock was moving in a range of Rs48-52. On Friday, the stock made an attempt to break out from the top of the above trading range also. Moreover, cluster of moving averages are proving good support to the stock at current levels. We expect the stock to stage a smart rally in the near term. Traders can buy the stock with a strict stop loss of Rs50 for a target of Rs57-58.
Derivative strategies (Time period: Till expiry)
± Long IB Real estate Dec Future @ Rs226 for the target price of Rs236 and stop loss placed at Rs221.
Remarks: Net maximum profit of Rs13,000 and net maximum loss Rs6,500.
± Short Reliance Capital Nov Future @ Rs870 for the target price of Rs852 and stop loss placed at Rs881.
Remarks: Net maximum profit of Rs4,968 and net maximum loss Rs3,036.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Dec | Buy | Above 17400 | 17470, 17550 | 17370 |
| Silver - Dec | Buy | Above 28550 | 28700, 28850 | 28427 |
| Copper - Nov | Buy | Above 323 | 326, 328 | 320.6 |
| Zinc - Nov | Buy | Above 104.8 | 106, 107 | 103.9 |
| Lead - Nov | Buy | Above 109.8 | 111, 112 | 108.9 |
| Aluminum - Nov | Buy | |||
| Nickel - Nov | Sell | At 800 | 783, 765 | 808.6 |
| Crude Oil - Dec. | Sell | Around 3660 | 3640, 3620 | 3673 |
| Natural Gas - Nov | Buy | At 204 | 208, 212 | 201.7 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Dec | Sell | At 15250 | 15100, 14950 | 15330 |
| Jeera - Dec | Buy | Above 14980 | 15100, 15200 | 14890 |
| Turmeric - Dec | Sell | Below 10350 | 10300, 10250 | 10380 |
| COCUDCAKL - Dec | Sell | Below 576 | 572, 569 | 578.8 |
| Chana - Dec | Buy | Above 2620 | 2650, 2670 | 2597 |
| Guar seed - Dec | Buy | 2720-2725 | 2750, 2770 | 2707 |
| Soya bean - Dec | Buy | Above 2400 | 2425, 2445 | 2380 |
| Soya oil - Dec | Buy | Around 493 | 496, 499 | 490.2 |
| Mustard seed - Dec | Buy | Above 615 | 618.5, 621 | 612.5 |
| Mentha oil - Nov | Buy | Above 583 | 586.5, 590 | 580.4 |
**Strict Stop-Loss *Book Partial Profits
Mutual funds
| Fund focus | ||||||
| Sundaram BNP Paribas Select Midcap Fund | Invest | |||||
| Fund manager | S. Ramanathan | | Min investment | Rs5,000 | ||
| Latest NAV | Rs126.7 | | Entry load | Nil | ||
| NAV 52 high/low | Rs127/49 | | Exit load | 1% <1 year | ||
| Latest AUM | Rs1,690cr | | Latest dividend (under dividend option) | 15% (20-Nov-09) | ||
| Type | Open-ended | | Benchmark | BSE Midcap | ||
| Class | Equity-diversified | | Asset allocation Equity (89%), Debt (0%), Cash (12%) | |||
| Options | Growth & dividend | | Expense ratio | 2% | ||
| | | | | | | |
Initiating Coverage: HDFC Bank Ltd – BUY
CMP Rs1,756, Target
HDFC bank has witnessed strong loan book expansion of 15% in H1 FY10, significantly higher than system (3.7%) and most other banks. More importantly, the growth has come despite a purposeful run-down in CBoP advances, now comprising only 5-6% of overall loan book. We expect bank’s loan book to grow by 26% in FY10 and 27% in FY11, materially ahead of the system growth in both years. HDFC bank has managed NIM in a narrow band of 4.1-4.3% in the past 6-7 quarters despite heightened interest rate volatility, reversal in monetary stance by RBI, significant slowdown in credit demand, integration of relatively low-margin CBoP book and change in stand-alone advance mix. Despite a downward bias in lending rates, HDFC bank expects to maintain NIM at 4%+ in the near-term aided by re-pricing of significant term deposits during Q3 FY10. Bank’s GNPLs declined by 6% in Q2 FY10 after increasing 1.4x in preceding five quarters. HDFC Bank has maintained NPL coverage at ~70%, one of the highest amongst private banks, thereby adequately covering the increase in GNPLs. The bank has negligible restructured assets at ~0.6% of advances, probably the lowest in industry. Also, consensus seems to be building about retail NPLs having largely peaked-out. Therefore, we expect further slippages, if any, would be minimal for the bank. GNPL % would remain stable or decline gradually over next 2-3 quarters.
In our view, HDFC Bank offering industry-best growth, profitability and asset quality is the best play in the ensuing credit upcycle. During the previous cycle (FY05-FY09), the bank traded at or above the current valuations of 3.6x 1-yr fwd rolling P/BV for a long time. We therefore believe that a re-rating towards 5x P/BV is impending as we proceed further in the new credit cycle. This could happen soon with the bank poised to deliver superior results than peers in next few quarters. Using our proprietary valuation model for banks, Bank 20, and an adjudged premium, we assign FY11 P/BV multiple of 4.6x and arrive at 1-yr price target of Rs2,259.
Result Update (Q4 F9/09): Shree Renuka Sugars Ltd – MP
CMP Rs230, Target Price Rs252, Upside 9.4%
± Surge in sugar volumes (up 48% yoy) and realizations (up 84%) drive 73% jump in revenues
± Margin expands 373bps on the back of all round decline in costs
± PAT rises nearly three-fold on robust operating performance and lower effective tax rate
± Post earnings call, we increase our cane cost and sugar realization assumptions for F9/10 but retain MP with revised TP of Rs252
Sector Update: Telecom Monthly Update – October 2009
In Oct’ 09,
Pricing war, which started with Tata DoCoMo’s novel per second billing, has now spilled over in to the roaming arena as Bharti cuts roaming tariffs. Consolidation is likely to rationalize competition but the timing of the same remains uncertain, especially given the lack of enabling regulations. Despite the current turmoil, we believe Bharti is the best bet in the sector, given strong cash flows and healthy return ratios, and retain it as our top pick.
Weekly Update: Debt Market - week ended November 20, 2009
± On a weekly basis, 10-year G-Sec bond yields ended lower by 11bps at 7.23% vis-à-vis 7.34% last week. Rally in prices of corporate bonds continued for second consecutive week. The AAA 10-year bond yield was down by 15bps at 8.52% vis-à-vis 8.67% in the last week.
± A sharp spurt was witnessed in G-Sec volumes this week, which were at Rs941bn vis-à-vis Rs537bn in the previous week. The top traded G-sec for the week was 6.90% G.S 2019 which witnessed a volume of Rs312bn with 3,919 trades.
± The food inflation inched-up further at 14.5% for the week ended November 7 mainly fuelled by higher prices of staple items. The fuel index was down 1.51% yoy.
± As on Nov 6, scheduled banks’ investments (at book value) in the central and state government securities stood higher by 27% yoy at Rs1,395bn.
± In Oct’09, FDI into
± Bank of Japan maintained the uncollateralized overnight call rate at 0.10% thereby continuing to provide steady support for the economy to return to a sustainable growth path.
Corporate Snippets
± Reliance Industries has made "a preliminary non-binding offer" to acquire LyondellBasell, the world's third largest petrochemical company, based in Rotterdam, Netherlands for upto US$12bn. (ET)
± BSNL has been instructed to float a global tender for setting up the optical fibre cable network for the defence forces on December 7. (BL)
± Shell in talks to buy 10% of Essar Oil. (DNA)
± TATA DoCoMo, the GSM brand of Tata Teleservices, announced the extension of its seconds-based billing to roaming services as well. (BL)
± ICICI Bank raises US$750mn through overseas bond issue. (BL)
± HPCL-led consortium has temporarily put on hold its proposed Rs 300bn petrochemicals complex at
± Bajaj Auto plans to raise the monthly production of its Pulsar bike to 90,000 units per month in the next six months and targets to sale one million units per annum by the end of next financial year. (ET)
± GVK Power & Infrastructure expressed its intent to further hike its holdings in
± GVK in talks to acquire L&T's holding in
± GVK Power & Infrastructure to raise up to Rs18bn. (BL)
± Tata Steel to switch 56% of securities into convertible bonds. (BL)
± Bharti Airtel announced a new plan whereby subscribers can avail themselves of national roaming services for as low as 60paise/min, which is 60% lower than existing tariffs. (BL)
± JK Lakshmi Cement to raise around Rs8bn through debt and equity to part-finance setting up a
± US-based Medicis Pharmaceutical Corporation has filed a case in a
± Emami is scouting for acquisitions over Rs8bn in both domestic and overseas markets. (BS)
± NALCO is in talks with an Islamic bank in
± Gammon Infrastructure Projects receives an order worth Rs8.5bn from the NHAI. (DNA)
± Bharat Hotels will invest around Rs23bn in 42 hotels over the next four years. (FE)
± JSW Steel seeks partners for its alumina, cement plans. (FE)
± Ranbaxy Laboratories has recalled from the
± HDFC Standard Life plans to come out with an (IPO) in the next financial year. (BL)
Economic snippets
± Foreign exchange reserves rose by US$962mn to US$286bn, for the week ended November 12. (BL)
± DoT and the Ministry of Defence have struck an agreement whereby the armed forces will release 25 MHz of radio frequency. (BL)
± Centre has decided to spare state governments the burden of bearing the cost of higher sugarcane procurement prices paid by mills. (FE)
± Government mulls tax to phase out fuel-inefficient vehicles. (BL)
± The number of telephone subscribers increased to 526mn with more than 16mn new mobile users added in October. (BL)
± TRAI fixes mobile switchover charges at Rs19. (TOI)
± TRAI is learnt to be working to come out with its recommendation on spectrum management and licensing terms for 2G services, before the 3G auction deadline of January 14. (DNA)
± UP government asks sugar mill owners to hike incentives for sugar cane growers. (FE)
±
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