Market Mantra
Market outlook
Quest for Brigh-test!
“To be on a quest is nothing more or less than to become an asker of questions.”
Dhoni’s boys have triumphed in their quest for the pinnacle of Test Cricket. The Indian stock market is struggling to make new highs. Dhoni & Co. will find that life at the Top is not as easy as it appears. The real test of their character begins now. The same applies to the stock market. After having rebounded in a spectacular fashion from March lows, the market is finding it a bit tough to advance further.
The market is in a consolidation phase and the same is healthy. The key indices are likely to remain sideways in a range. The Nifty will face resistance around 5180-5200. It has to close above this level with good volumes for a few days to provide fresh impetus to the bulls. If at all it manages to cross 5200, the Nifty might struggle to surpass 5300 and is likely to hit a wall near 5360.
Non-index counters may see some action. High beta is avoidable after a runaway rally. Defensive plays like IT, FMCG and Pharma would be safer.
Trading ideas (Time period: 1-3 days)
Mphasis (BUY, CMP Rs699, Target Rs735): On the daily chart, the stock has been moving in a range of Rs716-670 from last week of November 2009. On number of occasions, the stock has bounced back from the lower band of this trading range. In fact, daily candlestick chart suggests formation of multiple bottoms around the levels of Rs670-675. We expect the stock to continue its recent uptrend and attempt the levels of Rs730-735. The daily momentum indicators like RSI and MACD are exhibiting positive divergences. We recommend traders to buy the stock at current levels and on declines up to the levels of Rs693 with a stop loss of Rs683 for a target of Rs735.
Lanco Infrastructure (BUY, CMP Rs590, Target Rs625): In the last week, the stock advanced by over 10% and closed at week’s high suggesting continuation of an intermediate uptrend, which began from the low of Rs452. From the detailed study of the daily chart, it is clearly evident, that the stock has broken out from an ascending triangle pattern. The horizontal trendline (as shown in the chart) represents an overhead supply that prevented the stock from moving past zone of Rs579-582 since last five weeks. On Friday, the stock had given a close above its cluster of moving averages. Based on the above-mentioned technical evidences, we recommend traders to buy the stock at current levels and up to the levels of Rs585 for target of Rs620 and Rs625. A stop loss of Rs575 is recommended on all long positions.
Derivative strategies (Time period: Till expiry)
± Long Opto Circuits DEC Future @ Rs224 for the target price of Rs235 and stop loss placed at Rs219
Remarks: Net maximum profit of Rs22,440 and net maximum loss Rs10,200.
± Long TV18 Dec Future at Rs86-86.50 for the target price of Rs91.50 and stop loss placed at Rs83.50.
Remarks: Net maximum profit of Rs10,038 and net maximum loss Rs5,475.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Feb | Sell | Below 17580 | 17530, 17770 | 17615 |
| Silver - Mar | Sell | Below 28700 | 28560, 28400 | 28810 |
| Copper - Feb | Buy | 328-329 | 332, 335 | 326.8 |
| Zinc - Dec | Sell | 110-110.3 | 108.8, 107.5 | 111.3 |
| Lead - Dec | Sell | 110.1-110.4 | 109, 108 | 111.2 |
| Aluminum - Dec | Buy | Above 99.5 | 100.7, 102 | 98.4 |
| Nickel - Dec | Sell | 757-760 | 745, 730 | 768.9 |
| Crude Oil - Dec | Buy | 3510-3515 | 3540, 3570 | 3495 |
| Natural Gas - Dec | Buy | Around 213 | 217.5, 220.5 | 210.4 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Jan | Sell | 15740-15770 | 15600, 15450 | 15870 |
| Jeera - Jan | Sell | Below 14750 | 14623, 14500 | 14845 |
| Turmeric - Dec | Sell | Below 8700 | 8640, 8580 | 8743 |
| COCUDCAKL - Jan | Buy | Above 1250 | 1258.5, 1270 | 1242.5 |
| Chana - Jan | Sell | Below 2645 | 2615, 2590 | 2668 |
| Guar seed - Jan | Sell | Below 2850 | 2820, 2790 | 2875 |
| Soya bean - Jan | Buy | 2475-2480 | 2510, 2535 | 2460 |
| Soya oil - Jan | Sell | Below 497 | 493, 489 | 500.3 |
| Mustard seed - Jan | Buy | 636-637 | 641, 644 | 634.3 |
| Mentha oil - Dec | Buy | 616-617 | 621, 625 | 613.5 |
**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 | Rs132.0 | | Entry load | Nil | |||
| NAV 52 high/low | Rs132/49 | | 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: Canara Bank Ltd – BUY
CMP Rs408, Target Price Rs465, Upside 13.9%
Canara Bank has witnessed a healthy loan book expansion of 6% in H1 FY10, higher than system and comparable PSBs. It is targeting advance growth of 22%+ in current fiscal implying a robust 8% CQGR over Q2-Q4 FY10. Aggressive branch expansion and acceleration in credit demand should enable the bank to achieve its FY10 target. Even in FY11, Canara Bank intends to grow loan book at least 3-4% ahead of the system. The bank is adequately capitalized for brisk asset growth in the medium term with CAR at 14.5% and Tier-1 capital at 9%. Bank’s NIM is likely to improve in H2 FY10 aided by reduction in CoD and an elevated C/D ratio. Average CoD is set to decline materially over Q2-Q4 FY10 with the bank having re-priced a significant portion of its high-cost deposits in the past 2-3 months.
Canara Bank’s provisioning cover has jumped to ~76% after the central bank’s notification last week to include technical write-offs. This has eluded the bank from making any additional provisions. The bank expects the decline in GNPL% and NNPL% to continue. Overall asset quality of the bank is in-line with peers with restructured assets at 3.6% of loans and NNPL + restructured assets at 60% of networth. Canara Bank has witnessed significant valuation re-rating over the past 3 months driven by multiple factors. We believe there is still decent headroom for further re-rating as the bank has traded above current valuations of 1.2x 1-yr rolling fwd P/BV for long time in the previous credit cycle. Also, the valuation discount to SBI is near multi-year high. Using our proprietary valuation model, Bank 20, we assign a multiple of 1.4x to Canara Bank’s FY11 adj. BV and arrive at 1-yr price target of Rs465.
Management Mantra:
Weekly Update: Debt Market - week ended December 07, 2009
± On a weekly basis, G-Sec bond yields hardened. The 10-year benchmark bond yield increased by 43 bps to 7.61%. Even shorter term G-Sec yields inched up in the range of 13-15bps.
± RBI conducted auction for Rs100bn on Friday. It offered the cut-off yield of 7.39% for 6.9% GS 2019 and 7.31% for 7.02% GS 2016.
± Central bank absorbed excess cash worth Rs1,141bn through the reverse repo window under LAF. Overnight rates merely changed during the week on account of the flush liquidity in the system. Call money rates stayed in the range of 3.27% – 3.10%.
± The food inflation surged to 17.47% for the week ended Nov 21 vis-à-vis 15.58% last week. It was mainly fuelled by higher prices of onions and other staple items. Primary articles index was up by 12.53% yoy.
± Indian economy grew by strong 7.9% in Q2 FY10 vis-à-vis 6.1% in Q2 FY09 aided by government stimulus, strong growth in manufacturing and services sectors and higher farm output.
± Reserve Bank of
Corporate Snippets
±
± Tata Steel
± GVK Power and Infrastructure has acquired 17% stake in Bengaluru International Airport from L&T Infrastructure Development Projects for Rs6.9bn. (BL)
± Bharat Forge-Alstom JV to make power equipment at an investment of Rs24bn is setting up the plant in the Mundra SEZ. (BL)
± Aban Offshore along with its Singapore-based subsidiary Aban Singapore has Rs166.35bn of debt on its balance sheet, has admitted that it has failed to meet some of the conditions set by its bankers. (ET)
± Reliance Infrastructure-led consortium has won the Rs17bn NHAI project to construct a six-lane highway between Pune and Satara in
± The governments of Maharashtra,
± L&T and EADS plans to send a revised proposal to FIPB, with a new joint venture structure in which the European defence giant would hold 26% stake. (BS)
± Reliance Exploration and Production, a venture of Reliance Industries, has divested 20% stake in two Colombian deepwater blocks to Ecopetrol, Colombia's national oil company. (BL)
± Mahindra Satyam won Rs1bn outsourcing contract from Airbus to manage its internal quality and processes. (ET)
± GMR Infrastructure is close to raising about Rs130bn from domestic banks for funding its four power projects and two road projects. (BS)
± JSW Steel may sell its coal mine in
± HDFC rejigs top management, Deepak Parekh to step down on December 31. (BS)
± Reliance MediaWorks partners with In-Three Los, Angeles to establish an India-based facility that convert 2D films and videos into 3D. (ET)
± Reliance Power plans to commission the first phase of its 1,200MW Rosa Power project in Uttar Pradesh before the end of December 2009, three months ahead of schedule. (ET)
± REC looks to raise Rs45bn through follow-on offer. (BL)
± Both BSNL and MTNL are set to miss the mobile number portability deadline of December 31. (TOI)
± Godrej Properties has fixed a price band of Rs490-530 a share for its Rs5bn IPO. (BL)
± JSW Energy raises Rs4.65bn through the issue of shares to seven anchor investors under its public offer. (BS)
± PTC India says it is planning to list its financial services arm, PTC India Financial Services; IPO likely to be floated by the next fiscal. (FE)
± After settling the dispute for its Orissa plant, Essar Steel is going ahead with its US$600mn, 6mt pa pelletisation plant and expects it to be operational by September next year. (FE)
± Future Group plans a JV company by bringing together Future Money, its consumer finance business; Future Generali, its insurance business; and Centrum Direct. (BS)
± United Bank of India received the Centre's approval for an IPO. (BL)
± Infotech Enterprises will be acquiring the operational assets of US-based IDT Inc in
± SBI gets government nod for acquiring State Bank of Indore. (DNA)
± Core Projects ties up with the
± Dunlop, acquired by the Ruias in 2005, will start trading on the bourses once again after a gap of seven years. (BS)
± Mascon Global plans to entirely acquire C-SAM Inc, the Sam Pitroda-founded mobile commerce company. (BS)
± Vodafone Essar cuts roaming charges by over 50%. (TOI)
± Indian Bank may float subsidiary for NPA management. (BS)
± Viceroy Hotels is planning to raise about Rs1.5bn through private placement to part finance its Rs10bn expansion. (DNA)
± Ruia Group plans to raise Rs1bn in listed entity Falcon Tyres through private placement of shares. (ET)
Economic snippets
± Foreign exchange reserves rose by US$1.4bn to US$287bn, for the week ended November 27. (BL)
± Government is discussing scrappage incentives so that vehicle owners get rid of old vehicles and invest in new and more fuel-efficient vehicles, which have low emissions. (BL)
± Department of Atomic Energy has raised civil nuclear power generation to 30,000MW by 2020 against the earlier target of 20,000MW. (BL)
± TRAI may look into tariffs being offered by mobile operators based on the cost structure of the telecom companies. (BL)
± Government tables a bill protecting it from potential liabilities to the tune of Rs140bn arising from levy sugar requisitioned from sugar mills in the past. (BL)
± RBI has hinted that it may not immediately hike interest rates in spite of spiralling food inflation. (TOI)
± FDI into the country increased by over 56% to US$2.3bn in October. (TOI)
± Prime Minister says 3G spectrum would be auctioned soon, thus ending the uncertainty generated by reported differences between ministries of telecom and defence on vacation of airwaves. (TOI)
± The mobile number portability to take effect from “early next year” Prime Minister Manmohan Singh said.
± Gems and jewellery exports fell 8% to US$2.11bn in October compared to the same period last year. (BS)
± Ulips likely to pump Rs400bn into the bourses. (ET)
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