Market Mantra: Technicals - Oracle Financial (OFSS) (Buy), Dr. Reddy (Buy); F&O - United Spirits (Long), Firstsource Solutions (Long); Reports- Bharti Airtel (Buy), Nestle Ltd (Buy), Bajaj Hindusthan (Q4 F9/09), Banking Fortnightly (December 04, 2009)

 

 

 

Market Mantra

 

Market outlook

Have a nice time!

 

Observe due measure, for right timing is in all things the most important factor.

 

Gurus of market have spoken about the time in the market which is important rather than timing the market. Investors sure will benefit with the extended trading hours. Come Friday, those directly and indirectly linked to the stock market will start early as trading begins at 9 am.

 

For the day, we expect another muted start as global markets remain indecisive. The Fed has not done nothing unexpected nor has it made any surprise statements. Rates in the US will remain at record low for quite some time, though the fire-fighting steps may gradually be reversed. Sovereign debt default scare still remains with S&P now downgrading Greece.

 

Though economic recovery is well underway, data points are likely to be erratic. Valuations are not cheap and there is concern that liquidity may be lower next year as central banks start unwinding the monetary stimulus.

 

Technically, the Nifty will find support near 5000 levels. With bulls and bears in holiday mood, expect the indices to remain in a narrow range for now. Have a nice time, in the market and outside the market.

 

Trading ideas (Time period: 1-3 days)

Oracle Financial Services Software (OFSS) (BUY, CMP Rs2182, Target Rs2260): On the daily chart, the stock has been moving in a range of Rs2030-2300 from second week of November 2009. On number of occasions, the stock has bounced back from the lower band of this trading range. During the last trading session, the stock bounced back from its 50-DMA with impressive volume on Wednesday’s trading session. The bullish formation was confirmed after the stock gave a close above its 5-DMA and 13-DMA with positive divergences in momentum oscillators. We recommend traders with high risk appetite to buy the stock in the range of Rs2180-2190 for a short term target of Rs2260. A stop loss of Rs2,140 should be maintained on all long positions.

 

Dr. Reddy (BUY, CMP Rs1143, Target Rs1200): On the daily chart, Dr. Reddy is attempting to break out from a 2-month resistance zone placed at Rs1,160. Since past few weeks, the stock was moving in a range of Rs1075-1160. With cluster of moving averages are proving good support to the stock at current levels and momentum indicator exhibiting positive divergence. We expect the stock to stage a smart rally in the near term and break out on the upper side. Traders can buy the stock with a strict stop loss of Rs1,115 for a target of Rs1180-1200.

 

Derivative strategies (Time period: Till expiry)

±       Long United Spirits Dec Future @ Rs1,307 for the target price of Rs1,365 and stop loss placed at Rs1,295.

Lot size: 250

Remarks: Net maximum profit of Rs14,500 and net maximum loss Rs3,000.

 

±       Long Firstsource Solutions Dec Future @ Rs35 for the target price of Rs38 and stop loss placed at Rs33.

Lot size: 9,500.

Remarks: Net maximum profit of Rs28,500 and net maximum loss Rs19,000.

 

Commodities – Metals (Time period: Intra-day)

Trade recommendation

Commodity	Strategy	Levels	Target	Stop-Loss
Gold - Feb	Buy	Around 17125	17180, 17240	17095
Silver - Mar	Buy	Above 27720	27967, 28100	27590
Copper - Feb	Buy	Above 330.5	333.7, 337	327.8
Zinc - Dec	Buy	Above 112.5	113.8, 115	111.4
Lead - Dec	Buy	Around 110	111.2, 112.5	109.3
Aluminum - Dec	Sell	At 105	103.5, 102	105.7
Nickel - Dec	Buy	Above 812	826.5, 840	798.3
Crude Oil - Dec	Buy	Above 3415	3440, 3460	3395
Natural Gas - Dec	Buy	253-254	257.5, 260	251.6

 

Commodities – Agro (Time period: Intra-day)

Trade recommendation

Commodity	Strategy	Levels	Target	Stop-Loss
Pepper - Jan	Buy	Above 14380	14535, 14650	14260
Jeera - Jan	H. Sell*	Below 14300	14150, 14000	14417
Turmeric - Apr	Buy	Above 7015	7050, 7085	6985
COCUDAKL - Jan	H. Sell*	1245-1250	1230, 1215	1257
Chana - Jan	H Sell*	2550-2555	2520, 2500	2570
Guar seed - Jan	Sell	Below 2750	2720, 2700	2770
Soya bean - Jan	Buy	Above 2460	2485, 2505	2440
Soya oil - Jan	Buy	Above 495	498, 501	493.6
Mustard seed - Jan	Buy	Above 630	633, 635.5	627.7
Mentha oil -  Dec	Buy	Above 595	598.5, 602	592.3

 **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	Rs130		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%

 

 

Company Update: Bharti Airtel – BUY

CMP Rs326, Target Price Rs388, Upside 19.1%

 

After an aborted bid for South Africa’s MTN, Bharti Airtel reportedly plans to acquire Warid Telecom International, Bangladesh’s fourth largest mobile operator. According to media reports, Bharti would acquire 70% of Warid, currently owned by Abu Dhabi Group, in a deal worth US$900mn. As of Oct’ 09, Warid had ~2.8mn subscribers, or just over 5% of the wireless market, which is led by Telenor’s Grameenphone. We forecast US$1.3bn in free cash flows in current fiscal for Bharti hence the reported deal size of US$900mn may not adversely impact Bharti’s debt position. However, Warid is far from a being a serious challenger to its larger rivals; so Bharti would have to probably play the tariff card, similar to that being witnessed in the Indian context. We believe Airtel is the best bet to ride out the current sector turmoil and reiterate BUY with a TP of Rs388.

 

Company Update: Nestle Ltd – BUY

CMP Rs2,568, Target Price Rs2,915, Upside 13.5%

 

We believe Nestle is one of the best plays on the healthy growth potential in the Indian food processing sector. Nestle enjoys a strong ~85% market share in the Rs15bn Baby food and Nutrition segment and 80% in the ~Rs13bn Instant Noodles category with its Maggi brand. The increased focus at the bottom of the pyramid through launching SKUs at <Rs10 price points has helped Nestle in increasing customer base and product penetration, especially in the smaller towns and rural areas. Increasing consumer demand for packaged food, fast growing organized retail and limited competition augurs well for the company. With the healthy growth momentum in the domestic business and revival in growth in exports, we expect Nestle to witness 17.7% CAGR in revenues and 24.6% in profit over CY09-11. The strong pricing power and robust brand portfolio will help the company in maintaining operating margins despite firm raw material prices. The management is bullish on maintaining a strong revenue growth momentum in the domestic business. Maintain BUY rating with a revised one-year price target of Rs2,915.

 

Result Update: Bajaj Hindusthan (Q4 F9/09) – Market Performer

CMP Rs207, Target Price Rs204, Downside 1.5%

 

±       A ~64% yoy surge in sugar realization and Rs700mn gain on US$125mn ECB hedges drive 5.5% Q4 revenue growth

±       Sugar volume sales decline ~40% yoy as 2008-09 sugar production fell ~50%; distillery sales too plummet 90%

±       OPM jumps to 36% on decline in RM, overhead costs; co reports net profit of Rs691mn vs. loss last year

±       Tweak F9/11 EPS estimates but retain MP as sugar prices stay firm and debt burden eases over next two years 

 

Sector Update: Banking Fortnightly – December 04, 2009

The recent data released by the RBI reveals that the system credit growth continues to remain subdued at 10.5%yoy as against 26.3%yoy in the corresponding period of the previous year. However, with improvement in industry outlook as reflected from Q2FY10 GDP of 7.9% and monthly IIP numbers (up 10.3% yoy for the month of October, 2009), we expect credit demand to pick up in coming period. Deposits growth has moderated to 18.3%yoy and investment growth has slowed down to 26%yoy. With rising inflation (up 4.78% for the month of November, 2009), the concerns over reversal of accommodative monetary policy stance prevail. In our view, the central bank would wait for private consumption and investment to pick up before it starts its exit strategies.

 

Corporate Snippets

±      Bharti Airtel may buy 70%v stake in Bangladesh’s Warid Telecom for US$300mn. (ET)

±      Tata Motors and M&M have shown interest in taking over the Termini Imerese plant owned by Fiat. (BS)

±      ONGC loses Rs47.4bn on APM gas sales in FY09. (FE)

±      Gas reserves at Essar Oil’s Raniganj field have been increased by 43% from earlier estimates. (BS)

±      DLF consolidated debt to rise by Rs22bn on arm integration. (BL)

±      KEC International hopes to bag its first railway infrastructure project next months. (BL)

±      Glenmark has entered into an agreement with Switzerland based drug firm Strat Pharma AG to distribute and market skin care products Strataderm in India. (FE)

±      Final hearing on Daiichi- Zenotech case likely in January 2010. (BL)

±      HCL Axon, a subsidiary of HCL Technologies has signed a five year global IT service deal with Glaxo Smithkline. (BL)

±      Raymonds may use a part of its 126acres complex in Thane for building premium apartments. (ET)

±      Shree Renuka Sugars has decided to discontinue its negotiations with Saraogi family for Balrampur Chini. (ET)

±      Godrej Consumer Products to raise Rs30bn over the next two months to fund its domestic and international acquisitions. (ET)

±      Valiant gets FIPB approval to buy 9% stake in JM Financial ARC. (ET)

±      Sumitomo to buy minority stake in Bhushan Steel Bengal project. (ET)

±      Orchid Chemicals has sold of its generic injectable Pharma business for US$400mn to fund its debt repayments and pursue new growth opportunities. (ET)

±       Sistema Shyam Tele Services announces half a paise per call plan. (ET)

 

Economic snippets

±      FM radio operators urge the government for an extension of license term by 5 years. (ET)

±      Government cleared several road projects worth Rs48.4bn on December 16, 2009. (ET)

±      Government may announce next month fresh sops for select labour intensive export sectors such as textiles, leather and engineering goods. (ET)

±      Credit growth quickens to 10.5% for the fortnight ended December 4. (BS)

±      Steel prices to rise Rs1,000-2,000 per ton in January. (FE)

±      RBI could tighten monetary policy in December says Economic Advisor C. Rangarajan. (BS)

±      Minimum wages have been raised from Rs80/day to Rs100/day. (FE)