Market Mantra: Technicals - Crompton Greaves (Buy), Polaris Software (Buy); F&O - Lupin (Long), HDIL (Long); Report - Everonn Systems India (Buy)

 

Market Mantra

 

Market outlook

Bulls on a holiday!

 

Don't celebrate a holiday before it arrives

 

It’s raining holidays in the coming weeks and the bourses have decided to wish investors Happy New Year by remaining closed on Jan 1. So far the plan is to usher in 2010 by starting at 9 am on Jan 4. But all this is few days away.

 

For today, we see the market opening in the red on the back of overnight losses on Wall Street. A disappointing outlook from FedEx added to concerns over unemployment. Asian markets too are all down. Stocks fell in Europe too following Greece’s downgrade.

 

Trading has been anemic over the past 2-3 weeks. Globally too, stocks have struggled as the dollar has been inching up. Sovereign debt concerns have added to the pressure. Economic outlook remains murky though overall the world seems better placed. For India, the immediate worry is the soaring food prices. That rates will rise and ‘exit’ strategies will gradually be executed is a given. Expect some action from the RBI in the coming days. Given this backdrop, we would urge some caution.

 

Trading volume could take a hit in the next few weeks due to a few holidays.

 

Trading ideas (Time period: 1-3 days)

Crompton Greaves (BUY, CMP Rs419, Target Rs432): The stock advanced by over 3% and closed above all its short-term moving average, suggesting continuation of an intermediate uptrend. Moreover, the swift movement in the stock was backed by impressive volumes. The stock has broken out from the overall base-like pattern formed during the past six weeks. In fact, the last trading sessions represents a high level bullish congestion area between Rs416-418. Based on the above-mentioned technical evidences, we recommend traders to buy the stock for target of Rs432 and Rs440. A stop loss of Rs412 is recommended on all long positions.

 

Polaris Software (BUY, CMP Rs183, Target Rs192):

The stock has been trading within a range of Rs178-192 in the previous three weeks. Yesterday, the stock rallied 1.6% with sharp surge in volumes. The daily RSI has also given a positive divergence, indicating that price would start moving up after facing stiff resistance around the levels of Rs181. The bullish formation is confirmed after the stock gave a close above its short-term moving averages. We recommend buy on the stock from the above mentioned technical observations. Maintain a stop loss of Rs178 and go long for a target of Rs192 in the coming trading sessions.

 

Derivative strategies (Time period: Till expiry)

±       Long Lupin Dec Future @ Rs1,457 for the target price of Rs1,500 and stop loss placed at Rs1,430.

Lot size: 350

Remarks: Net maximum profit of Rs15,050 and net maximum loss Rs9,450.

 

±       Long HDIL Dec Future @ Rs350 for the target price of Rs370 and stop loss placed at Rs340.

Lot size: 774.

Remarks: Net maximum profit of Rs15,480 and net maximum loss Rs7,740.

 

Commodities – Metals (Time period: Intra-day)

Trade recommendation

Commodity	Strategy	Levels	Target	Stop-Loss
Gold - Feb	Sell	Around 17025	16960, 16900	17055
Silver - Mar	Sell	Below 27150	27000, 26850	27279
Copper - Feb	Buy	324-324.5	326.8, 328.5	323.2
Zinc - Dec	Sell	Around 112.2	111, 110	112.95
Lead - Dec	Buy	108.5-108.7	109.7, 110.8	108.2
Aluminum - Dec	Sell	Below 102.8	101.6, 100.5	103.6
Nickel - Dec	Sell	Below 800	785, 770	811.6
Crude Oil - Dec	Buy	3360-3365	3390, 3410	3348
Natural Gas - Dec	Buy	Above 275.7	279, 282	273.3

 

Commodities – Agro (Time period: Intra-day)

Trade recommendation

Commodity	Strategy	Levels	Target	Stop-Loss
Pepper - Jan	Sell	Below 14230	14100, 14000	14328
Jeera - Jan	H. Sell*	Below 14300	14150, 14000	14417
Turmeric - Apr	Trade as per calls given during trading session.
COCUDAKL - Jan	H. Sell*	1245-1250	1230, 1215	1257
Chana - Jan	Sell	2555-2560	2525, 2500	2580
Guar seed - Jan	H. Sell	Below 2750	2720, 2700	2770
Soya bean - Jan	H. Buy	Above 2460	2485, 2505	2440
Soya oil - Jan	Sell	Below 489.5	486, 483	491.8
Mustard seed - Jan	Sell	625-626	620.5, 617	628.8
Mentha oil -  Dec	Sell	Below 591	587, 583	594.6

 **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	Rs131.1		Entry load				Nil
NAV 52 high/low	Rs133/49		Exit load				1% <1 year
Latest AUM	Rs1,769cr		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: Everonn Systems India – BUY

CMP Rs398, Target Price Rs558, Upside 40.0%

 

A large student base (413mn+), low literacy levels, inadequate public education infrastructure, high drop-out rates, low gross enrollment ratio and increasing per capital income makes India one of the largest markets for educational services and infrastructure. Government spending on education is estimated at US$30bn+ pa. India’s private education market is estimated at US$40bn by E&Y. Education spend is expected to increase 12x per household between 1995-2025E with rising per capita income. Everonn’s presence in the education sector is diversified across various businesses viz ICT for Government schools, virtual classrooms for private schools (iSchool) and colleges, retail learning centers for individuals and corporate training, online learning portal (Classontheweb.com), engineering test preparation (Toppers), educational material supply (Edures) and infrastructure consulting.

 

Everonn’s consolidated revenues is expected to witness a robust 63% CAGR over FY09-12E driven by strong growth in college learning centers, iSchools and subsidiary (Edures and Toppers) revenues. Consolidate OPM is expected to be sustained near 35% and therefore earnings are estimated to grow in-line with revenues. We expect Everonn to attain operating cash flow (OCF) breakeven in FY10 and generate significant positive cash flows from FY11. Balance sheet leverage would continue to be comfortable with net debt/equity below 0.5x despite majority capex funding via debt in FY10 and FY11. Current valuation at 6.4x FY12 P/E is attractive as Everonn, a proxy play on India’s fast growing education spending, is expected to deliver robust earnings growth over the next five years. We recommend BUY on Everonn with a 1-year price target of Rs558.

 

 

Corporate Snippets

 

±      Infosys and HCL Tech are in the race for Westpac’s US$500mn outsourcing contract. (ET)

±      Wipro has entered into a partnership for an out-tasking of testing services with Telefonica, Germany. (BL)

±      Tata Motors’ global sales soar 62% in November 2009. (ET)

±      GAIL has requested the Government to allow levy of marketing margin on APM gas. (BL)

±      A proposal to divest 20% stake in SAIL to be placed before cabinet by middle of January 2010. (BS)

±      SAIL, JSW, Essar and Bhushan Steel may raise prices in January 2010. (BS)

±      SBI ties-up with General Motors for car finance. (BS)

±      PNB extends its special home loan scheme. (ET)

±      Aurobindo Pharma gets US FDA nod for Cetirzine Hydrochloride syrup. (BL)

±      BOB to recruit 3,000 people this year. (BL)

±      HCC bags Rs3.1bn contract to construct an elevated road corridor in Kolkata. (BL)

±      Chettinad Cement to add 3mtpa capacity by end-2010 at an investment of Rs5bn. (BL)

±      Shoppers Stop to invest Rs3.5bn over next five years to set-up 32 new stores. (ET)

±      Ruchi Soya to invest Rs1.5bn in palm plantation in India. (ET)

±       NPCIL plans to raise Rs850n to fund projects. (ET)

 

Economic snippets

 

±      Inflation in food articles climbed to 19.95% for the week-ended December 5. (ET)

±      Government has announced 50paise/unit incentive scheme for grid-connected wind power projects. (BL) 

±      Moodys lift foreign currency deposit rating of 14 banks in India. (ET)

±      EGOM has rejected Road Transport and Highway Minister’s proposal seeking sovereign guarantee for funds raised by NHAI. (ET)

±      Cabinet panel clears six National Highway projects. (BL)

±      Government has signed an US$303mn agreement with World Bank for renovation and modernization of 640MW of coal-fired power plants. (ET)