Market Mantra
Market outlook
New high in the offing
Reach high, for stars lie hidden in your soul. Dream deep, for every dream precedes the goal.
After a really long weekend, the market could be headed for a new high before bidding farewell to the year 2009. However, with only three trading sessions and F&O expiry one will have to brace for a volatile week. Trading might be thin, both here as well as overseas, as many players would have opted for an extended year-end holiday. As for today, we see a modestly higher opening for the key indices and sideways movement. We would urge some caution at this juncture, as the market has already had a spectacular rally this year.
The headroom for further advance is limited. One will have to be extremely choosy and careful. Factors like rising inflation, an impending hike in interest rates and high fiscal deficit could weigh on the sentiment.
There are also worries as to how different nations go about withdrawing the emergency stimulus measures, and how it may affect the economic recovery. On the corporate front, future earnings growth will have to reflect pick-up in demand rather than just cost cutting.
Trading ideas (Time period: 1-3 days)
HCC (BUY, CMP Rs151, Target Rs160): On the daily chart, the stock has given a bullish breakout. A detailed analysis of the volumes of HCC reveals that maximum interest has been displayed by the traders in this stock since last week of October 2009. On Thursday, it made a convincing move above the top of the trading range. The daily momentum oscillators i.e. RSI and MACD are suggesting strength in the upmove. Keeping in mind the above-mentioned evidences, we suggest high risk traders to buy the stock between the levels of Rs149-152 with a strict stop loss of Rs146 for a short-term target of Rs160.
Reliance Infra (BUY, CMP Rs1,103, Target Rs1,160): The stock is trading 28% lower than its 52-week high of Rs1,404 in October 2009, but higher than its low of Rs45 in March 2009. A detailed study of Reliance Infra shows a distinctive pattern emerging which signals a temporary bottom. The stock has broken out (as seen in the daily chart) from the overall base-like pattern carved during the past five-weeks. In fact, the last couple of trading weeks represents a high level bullish congestion area between Rs1,092-1,056. We believe that the current bullish consolidation is likely to lead to a potential upside, once the 50-DMA is broken. We recommend traders to buy the stock in the range of Rs1,095-1,110 for a target of Rs1,160. We advise traders to maintain a stop loss of Rs1,080.
Derivative strategies (Time period: Till expiry)
± Long Noida Toll Bridge Company Jan Future @ Rs38.50 for the target price of Rs41 and stop loss placed at Rs37.
Remarks: Net maximum profit of Rs20,500 and net maximum loss Rs12,300.
± Long Deccan Chronicle Holdings (DCHL) Jan Future @ Rs173 for the target price of Rs181 and stop loss placed at Rs170.
Remarks: Net maximum profit of Rs27,200 and net maximum loss Rs10,200.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Feb | Buy | 16750-16755 | 16790, 16840 | 16725 |
| Silver - Mar | Buy | Around 27450 | 27570, 27700 | 27370 |
| Copper - Feb | Buy | 339-339.5 | 342, 345 | 337.8 |
| Zinc - Dec | Buy | At 117 | 1118, 119 | 116.3 |
| Lead - Dec | Sell | Below 108.1 | 107, 106 | 108.7 |
| Aluminum - Dec | Sell | At 105 | 103.5 | 105.6 |
| Nickel - Dec | Buy | 890-893 | 905, 917.8 | 882.5 |
| Crude Oil - Jan | Buy | At 3651 | 3680, 3710 | 3630 |
| Natural Gas - Dec | Buy | Above 277 | 281, 284 | 274.7 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Jan | Sell | 14450-14500 | 14300, 14150 | 14580 |
| Jeera - Jan | Sell | Below 14280 | 14150, 14030 | 14375 |
| Turmeric - Apr | Buy | Above 7300 | 7340, 7380 | 7270 |
| COCUDAKL - Jan | Sell | 1225-1228 | 1205, 1190 | 1242 |
| Chana - Jan | Sell | Below 2495 | 2465, 2430 | 2515 |
| Guar seed - Jan | Buy | At 2751 | 2785, 2820 | 2730 |
| Soya bean - Jan | Sell | Below 2390 | 2367, 2345 | 2410 |
| Soya oil - Jan | Sell | Below 484 | 480, 477 | 486.8 |
| Mustard seed - Jan | Sell | Below 599 | 595, 592 | 602 |
| Mentha oil - Jan | Sell | 597-598 | 593, 590 | 601.2 |
**Strict Stop-Loss *Book Partial Profits
Mutual funds
| Fund focus | |||||||
| ICICI Prudential Dynamic Plan | Invest | ||||||
| Fund manager | Sankaran Naren | | Min investment | Rs5,000 | |||
| Latest NAV | Rs91.0 | | Entry load | Nil | |||
| NAV 52 high/low | Rs91/44 | | Exit load | 1% <1 year | |||
| Latest AUM | Rs1,753cr | | Latest dividend (under dividend option) | 12% (21-Aug-09) | |||
| Type | Open-ended | | Benchmark | S&P Nifty | |||
| Class | Equity-diversified | | Asset allocation | Equity (84%), Debt (0%), Cash (16%) | |||
| Options | Growth & dividend | | Expense ratio | 1.9% | |||
| | | | | | | | |
Sector Update: ‘Credit cards – High-risk high-returns’
The advent of credit cards (popularly known as plastic money) has enabled access to easy money to the cardholder. The huge demand for this form of credit has resulted in sharp spike in number of credit cards in circulation. Financial institutions including banks have started increasing their exposure to this high-risk high-return business to tap the rising demand. Over the years, the business has gained momentum and has witnessesed a 44% CAGR over FY05-09. However, its percentage to total system loan book remains low at 1.08%. Despite the recent downturn where-in the financial institutions reduced their exposure; with revival in economic environment, these organizations are likely to tap the increasing demand.
Sector Update: Commodity Monthly Update – December 2009
The unprecedented run-up in base metals extended further in December, with most of the base metals ending at their respective year-highs. Most of the base metals have doubled from their 2008-09 lows and the rally shows no signs of exhaustion. Over the last one month, the performance of the base metals pack has surprised many as they managed to end on a strong note despite a stronger dollar and rising concerns over the state of a few European economies. Global inventory levels too have gradually inched up in the Q4 2009. Spot iron ore prices have rallied sharply over the last 45 days, rising towards its 2009 high. The rally in prices has been led by a surge in offtake by Chinese steel manufacturers and on expectations that contract prices for 2010 will be 20-30% higher than 2009. We believe that a strong demand recovery in the steel market in 2010 and a tight iron market will lead to iron ore contract price being settled at 30% higher than benchmark contracts in 2009.
Management Mantra: Ramachandran Nair R, Director & CEO, LIC Housing Finance Ltd
Ramachandran Nair R, Director & Chief executive, LIC Housing Finance Ltd, is actively involved in the operations of the company. He established a new Joint Venture Insurance Company in
Mutual Funds Thermometer as on December 24, 2009
Given below is the summary of performance of the mutual fund industry in
Key observations
± On a fortnightly basis, NAVs of most equity diversified funds ended in the red with advance:decline ratio at 19:170. Category average was down by 1.2%. However, mid-caps continued to be in the top quartile. Top three gainers this fortnight were Taurus Ethical (+3.7%), Canara Robeco Emerging Equities (+1.8%) and Reliance Equity Opportunities (1.8%). Large-cap funds continued to underperform the category and the benchmark indices.
± Among the sectoral funds, Information Technology and Pharma oriented funds led the charts on a fortnightly basis. Top three gainers were ICICI Pru Technology (+2.7%), Birla SL New Millennium (+2.6%) and UTI Pharma & Healthcare (+2.0%). On an average, pharma funds’ NAV delivered a return of 1.8%, whereas Banking and Finance oriented funds’ NAVs ended down. Top three losers belonged to this sector, namely UTI Banking Sector (-4.6%), Religare Banking-Reg (-4.9%) and JM Fin Services Sector (-5%).
± Tax- saving funds also exhibited poor performance as their NAVs ended lower. The category average was down by 1.4% this fortnight. Funds with large corpuses were able to contain the downfall, namely ICICI Pru Tax Plan (-0.2%), HDFC TaxSaver (-0.3%) and Reliance Tax Saver (-0.6%). However, funds with smaller corpuses saw a drastic fall in their NAVs, viz. LIC MF Tax Plan, Edelweiss ELSS and JM Tax Gain. Their NAV was down by ~2.4% on a fortnightly basis.
± Among the balanced fund category, most of the fund NAVs declined on a fortnightly basis. However, capital oriented funds with lower equity exposure fell compared to others. Birla Sun Life Capital Protection Oriented -3Yrs, HDFC Balanced and DWS Capital Protection Oriented were the only three funds to deliver a positive return of 0.1%. The benchmark Crisil Balanced Fund Index was down by 1.6% on a fortnightly basis.
± Gold continued to under-perform this fortnight. Gold ETF NAVs were down by ~4.1%. Banking ETFs, especially Public Sector Undertaking, underperformed on the ETF charts on fears of an impending monetary tightening. Junior Bees, though down by 1%, topped the ETF chart on a fortnightly basis.
Weekly Update: Debt Market - week ended December 24, 2009
± The benchmark 10-Year G-Sec yield ended flat this week at 7.56%, after touching a high of 7.61%. However, shorter tenure G-sec yields ended higher on a weekly basis except for 3-year G-Sec bonds, which witnessed some buying interest from the trader. Its yield softened by 7bps during the week.
± RBI conducted T-bill auction for Rs60bn on Wednesday at a higher cut-off yield than previous week. The 91-days T-bill was issued at 3.76% vis-à-vis 3.68% in the preceding week while, the 182-days T-bill was issued at 4.34% vis-à-vis 3.82%.
± ICICI Bank is in the process of raising funds up to Rs12bn via bonds. Bank plans to raise at least Rs5bn by issuing Tier-II bonds with an option to raise further if the issue is oversubscribed.
± Food inflation softened by 120bps to 18.65% for the week ended Dec 21 vis-à-vis 19.95% last week due to lower inflation in some of the staple items, fruits and vegetables. Primary articles index was also down at 14.66% vis-à-vis 14.98% in the previous week.
± Central Bank of
Corporate Snippets
± Reliance Industries has updated its non-binding proposal to acquire LyondellBasell, as per media reports; RIL’s new offer has a higher cash component of US$5-6bn from the earlier offer of US$2bn. (FE)
± SAIL and Tata Steel have hiked steel prices by up to Rs 2,000/ton with immediate effect on the back of rising demand. (ET)
± Reliance Power has started power generation at its 1,200MW Rosa Power Project in Shahjahanpur district of Uttar Pradesh. (BS)
± SBI to set up wind power projects in three states with a combined capacity of 15.5 Mw for captive consumption at various offices and branches. (BS)
± Bajaj Auto has phased out two more models thereby phasing out four bike models in four months. (BS)
± Reliance Power Transmission Ltd, a subsidiary of Reliance Infrastructure, is believed to have bagged two transmission projects worth Rs 41bn connecting six states. (BS)
± Idea secures Rs95bn credit line for 3G push. (ET)
± Dr Reddy’s Labs plans to launch new generic drugs in various therapeutic segments to push domestic operations. (BS)
± US FDA has issued a warning letter to Ranbaxy’s American subsidiary, OHM Laboratories, for violating current good manufacturing practice. (ET)
± Dabur
± OBC plans to expand its footprint in
± Glenmark Generics receives tentative approval from US FDA for generic pramipexole dihydrochloride tablets used in the treatment of
± ICICI Bank plans to raise Rs40bn of capital through Upper Tier-II and Tier-I perpetual bonds to support business growth. (BS)
± ONGC has awarded US$162mn engineering and construction contract for an oil well platform project at the Mumbai High Field to Abu Dhabi-based National Petroleum Construction Company. (BS)
± Goldman Sachs is poised to invest US$115mn in Max India which will be used by the company to fund its insurance, healthcare and specialty plastics businesses. (BS)
± Jet Airways has received the Cabinet Committee on Economic Affairs approval to raise up to US$400mn. (FE)
± PowerGrid plans 7 transmission corridors at an investment of Rs500bn to wheel power from new projects to North, West regions. (BL)
± Thermax is designing and building a 250KW solar power plant at Shive village, near Pune. (BL)
± Infosys Technologies has been selected to implement a Rs3.9bn IT project for Karnataka's power distribution utilities. (FE)
± Fortis Hospitals plans to invest Rs2.5bn to expand its facilities pan-India. (FE)
± Promoters of GMR Group are looking to exit their sugar business. (TOI)
± Tata Motors says all existing bookings of the Nano will be delivered at current prices, notwithstanding the rising input costs. (TOI)
± Government hopes to raise over Rs230bn from the disinvestment of NMDC; the follow-on offering for the PSU is likely to take place in Mar’ 10. (TOI)
± Generation Corp. of AP has secured the State Government nod to go ahead with the first phase of 2,100MW gas-based power project planned at Karimnagar district of the State. (BL)
± Hansen Transmissions sees opportunities in the Chinese market after Suzlon Energy sold its controlling stake. (DNA)
± Domestic airlines such as Jet Airways, Air
± The government to appoint a global consultant to evolve a pricing formula for crude produced at RIL’s Krishna-Godavari basin fields and Cairn
± Unitech plans to raise US$700mn through FCCBs has run into trouble with the finance ministry and the RBI objecting to exempt it from a three-year lock-in clause applicable to such investments in construction. (ET)
± Ansal API will raise around Rs6.5bn through QIP. (FE)
± Infosys and Patni Computers amongst 14 firms eligible to bid for
± L&T and Lanco Infratech are developing two key hydropower projects in the hilly Rudraprayag district of Uttarakhand to face the heat of the ‘save river campaign’. (BS)
± BoI to offer home loans at 8%. (ET)
± Andhra Bank has raised funds to the tune of Rs6bn by issuing bonds. (ET)
± Rolta India has bought back FCCBs worth US$15mn from the international market at a discount rate. (ET)
± Binani Cement has signed long-term supply agreements with shipping companies to save on logistical costs. (ET)
± Lingaraj open cast coal mines under the command area of Mahanadi Coalfields Limited (MCL), linked to the 3,000MW NTPC Kaniha plant, the second largest power plant in the country, is facing closure due to problems in land availability. (BS)
± UTV and Sun are in talks for Tamil movie channel under which UTV will dub movies from Hindi, English and other languages. (BS)
± Ennore Coke plans to raise Rs1.3bn through PE. (BS)
Economic snippets
± The auction of spectrum for third generation (3G) mobile services would be delayed by over a month and is likely to start by the end of February. (BS)
±
± Foreign exchange reserves fall by US$2.1bn to US$284bn, for the week ended December 18. (BL)
± RBI’s recent diktat to augment their loan loss coverage ratio to 70% by Sep’ 10 has prompted some banks to put a part of their bad loans portfolio on the block. (BL)
± Finance Ministry to raise the export duty on iron lumps from the current 5% to 10%; government also imposes a 5% export duty on iron ore fines. (BL)
± Food Inflation eases to 18.65% for the week ended December 12, from 19.95% in the previous week. (ET)
± Six core industries grew at a three-month high annual rate of 5.3% in November 2009. (ET)
± SEBI may hike open offer size to 100% from 20%. (TOI)
±
± GST introduction may be delayed by a year. (TOI)
± Petroleum ministry plans to build in-competition principles in the functioning of the proposed regulator for long-distance gas pipeline networks so as to reduce natural monopolies in the gas distribution sector. (FE)
± Foreign direct investment for the month of November surged by 60% to US$1.7bn. (FE)
± The Railways has decided to link freight rates for different commodities to their respective price index or other benchmarks including prices on the derivatives exchanges. (ET)
± The date for rolling out the Goods and Services Tax could be announced on January 8, 2010. (ET)
± The government may modify the draft direct tax code to retain tax shelters on interest and principal repayments for home loans to make the proposed new code more attractive. (ET)
± RBI has hiked the daily ceiling for mobile banking to Rs50,000 from Rs15,000. (ET)
± Private fuel retailers may also get subsidies. (ET)
± Government clarified that manufacturers that carry out production as well as repackaging activity in the tax-free zone of Himachal Pradesh and Uttarakhand will be able to enjoy tax exemption. (ET)
± Government approves a plan to develop 352km of highways with an investment of Rs297mn. (ET)
± Government extended for the third time the ban on import of dairy products, including chocolates, from
± FDI policy to be updated every six months. (ET)
± Peak customs duty unlikely to be lashed this year. (ET)
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