Market Mantra
Market outlook
Trigger in RBI's hands
You live and learn. At any rate, you live.
There is no time to live with the gains of yesterday. A positive close came in after six successive days of losses. The little smiles could get wiped out early this morning as most global markets are down. Asian stock markets got off to a shaky start after the overnight fall on Wall Street. However, the Shanghai Composite has recovered and is trading just in the green.
We expect a weak start and the Nifty could slip below 4800. Hopefully, some semblance of buying will give support else the Nifty could drop to as low as 4650-4680. Resistance is expected between 4900 and 4950. We do not rule out the possibility of a rebound above 5000, if the RBI hikes only the CRR.
Volatility is likely to remain elevated in the near term due to the global jitters and relentless selling by the FIIs. The spate of primary market issues, especially from the Government could also cause a few temporary hiccups. Going further ahead, speculation over the Budget will take precedence and one hopes the UPA doesn’t disappoint this time.
Trading ideas (Time period: 1-3 days)
SAIL (SELL, CMP Rs219, Target Rs208): On the daily chart, the stock seems to have appeared on an interesting juncture. After trading in a range of Rs15-20 points for last few weeks, it has struggled to cross the upper trendline. Inability for the stock to close above the upper trendline last week has seriously dampened any hopes of a legitimate recovery. The daily MACD has generated a crossover sell signal, suggesting build-up of momentum on the downside. We recommend traders to sell the stock in the range of Rs221-216 with a stop loss of Rs225 for a target of Rs208.
JP Associates (SELL, CMP Rs135, Target Rs125): The stock had corrected from a recent
Derivative strategies (Time period: Till expiry)
± Short IFCI Feb Future @ Rs47.40 for the target price of Rs45 and stop loss placed at Rs48.30.
Lot size: 7,880
Remarks: Net maximum profit of Rs18,124 and net maximum loss Rs7,092.
± Short EKC Feb Future @ Rs126 for the target price of Rs121 and stop loss placed at Rs128.
Lot size: 2,000.
Remarks: Net maximum profit of Rs10,000 and net maximum loss Rs4,000.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Feb | Sell | 16340-16350 | 16290, 16240 | 16375 |
| Silver - Mar | Sell | Below 25490 | 25340, 25200 | 25627 |
| Copper - Feb | Buy | Above 318.5 | 321.5, 324 | 317 |
| Zinc - Jan | Sell | Below 97.8 | 96.5, 95.5 | 98.7 |
| Lead - Jan | Sell | Below 93.4 | 92.1, 91 | 94.35 |
| Aluminum - Jan | Sell | Below 95.4 | 94.2, 93 | 96.3 |
| Nickel - Jan | Buy | 831-835 | 850, 865 | 823.4 |
| Crude Oil - Feb | Sell | At 3440 | 3410, 3380 | 3463 |
| Natural Gas - Feb | Sell | 243-244 | 239, 235 | 246.2 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Feb | H. Buy | Above 13700 | 13850, 13980 | 13570 |
| Jeera - Feb | Sell | Below 11550 | 11418, 11290 | 11630 |
| Turmeric - Apr | Buy | Above 7335 | 7380, 7420 | 7305 |
| COCUDAKL - Feb | Sell | 1160-1162 | 1148, 1135 | 1168.6 |
| Chana - Feb | Sell | Below 2170 | 2130, 2100 | 2193 |
| Guar seed - Feb | Sell | 2320-2325 | 2290, 2260 | 2345 |
| Soya bean - Feb | Sell | Around 2120 | 2090, 2060 | 2137 |
| Soya oil - Feb | H. Sell* | At 453 | 450, 447 | 455.6 |
| Mustard seed - Apr | Sell | Below 494 | 491, 488 | 496.7 |
| Mentha oil - Feb | Buy | 593-594 | 597, 601 | 591.4 |
**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 | Rs89.7 | | Entry load | Nil | |||
| NAV 52 high/low | Rs94/44 | | Exit load | 1% <1 year | |||
| Latest AUM | Rs1,822cr | | Latest dividend (under dividend option) | 12% (21-Aug-09) | |||
| Type | Open-ended | | Benchmark | S&P Nifty | |||
| Class | Equity-diversified | | Asset allocation | Equity (78%), Debt (0%), Cash (22%) | |||
| Options | Growth & dividend | | Expense ratio | 1.9% | |||
| | | | | | | | |
Result Update: Tata Steel (Q3 FY10) – SELL
CMP Rs586, Target Price Rs513, Downside 12.4%
± Revenue growth of 12% qoq to Rs63.8bn was mainly led by a rise of 9.6% qoq in volumes
± Realisations improved 2.5% qoq to Rs35,534 against our expectation of a fall of 4% on account of better product mix
± Decrease in raw material and power lowered the impact of higher employee cost on OPM
± EBIDTA/ton for steel increased to Rs10,113/ton from Rs9,774/ton in Q2 FY10, lower on account of one time expenses
± Downgrade to SELL, while maintaining our price target of Rs511
Result Update: Jindal Steel and Power (Q3 FY10) – Market Performer
CMP Rs652, Target Price Rs607, Downside 6.8%
± Standalone revenues increased by 10.7% qoq led by strong steel realisations
± The growth in topline was restricted by a 2.3% decline in sales volume
± OPM remained flat on a qoq basis, as the positive impact of higher realisations was negated by a jump in over all costs
± JPL’s PLF increased back to 96% in Q3 FY10 from 84% in Q2 FY10, as last quarter one of the plants was under maintenance shutdown
± Average power realisations under JPL declined to Rs4.9/unit from Rs5.2/unit in Q2 FY10
± JPL registered a 13.1% qoq growth in PAT to Rs5.8bn, accounting for 66.6% of consolidated PAT
± Upgrade to Market Performer with a target price of Rs607 on better visibility over commissioning of new steel plants
Result Update: Cairn
CMP Rs270, Target Price Rs247, Downside 8.7%
± First full quarter of crude oil production from Rajasthan field translates into 135% yoy growth in revenues
± Realization for crude oil was higher by 42% yoy, while that of natural gas was up 12.5% yoy
± OPM jumps 25ppts yoy on account of higher inventory available of crude oil for sales
± Higher exploration write-offs, increase in interest costs and lower other income restrict net profit growth
± Rajasthan sales volume ramp up slower than our earlier estimates, lowering estimates and factoring in DCF value
± Target price reduced to Rs247, maintain Market Performer rating
Result Update: Canara Bank (Q3 FY10) – BUY
CMP Rs373, Target Price Rs420, Upside 12.5%
± Disappointing headline growth; advances were flat qoq while deposits register modest growth
± NIM improved in line with expectations aided by lower cost of deposits
± Other income decline was lower than expected; operating expenses remain flat qoq despite robust branch expansion
± Asset quality deteriorates resulting into bank making higher loan-loss provisions; capital adequacy remains healthy
± Retain BUY but lower target price to Rs420
Result Update: Bank of
CMP Rs371, Target Price Rs351, Downside 5.3%
± NII declined 1.8% yoy, net profit, however was down by sharp 54% yoy.
± Loan book grew at healthy 4.5% qoq pace; international loan book reported sturdy 7% qoq growth.
± Deposits were up 3.7% qoq; the share of bulk deposits has in total book has declined to 2.6%.
± NIM was up by mere 3bps qoq to 2.6%; cost-of-funds declined by 36bps sequentially.
± Capital adequacy remains strong, asset quality continues to deteriorate.
± Reduce our FY10 and FY11 net profit estimates by 26% each on expectations of higher provisioning. We expect the strategic and organizational restructuring evaluation exercise to enable the bank ensure calibrated growth in coming period.
± We value the bank using our proprietary bank 20 valuation model and assign a 1.4x FY11PB to arrive at a value of Rs351. Maintain MP
Result Update: Bharat Petroleum Corp (Q3 FY10) – SELL
CMP Rs543, Target Price Rs450, Downside 17.1%
± Net sales remain flat yoy as lower realizations are offset by 2.3% yoy increase in market sales
± Upstream companies shared under recovery burden worth Rs11.2bn in Q3 FY10 v/s Rs12.4bn in Q3 FY09
± Throughput surged by 15.1% yoy to 5.55mn tons, highest in nine quarters
± Uncertainty continues to persist even over FY10 subsidy sharing pattern leave apart FY11 and FY12, downgrade to SELL
Result Update: Colgate-Palmolive (
CMP Rs698, Target Price Rs794, Upside 20.8%
± Revenues in line with expectations at Rs4.9bn – an increase of 17% yoy growth, driven by overall volume growth of 13%. Core toothpaste segment registers strong 15% volume growth
± Drop in raw material and overhead cost fuels operating margins to 20.6%
± Healthy topline growth coupled with improved operating efficiency drives net profit by 49.7% yoy to Rs1.2bn
± We expect the company to witness a 15.6% CAGR in revenues and 19.9% in net profit over FY09-12. Maintain BUY
Result Update: Crompton Greaves (Q3 FY10) – BUY
CMP Rs426, Target Price Rs490, Upside 14.9%
± De-growth in power division is offset by 23% yoy jump in consumer products division, revenues grow by mere 4.5% yoy
± Savings in raw material cost helps operating margin expand by 375bps yoy, nine month margins at 13.2%
± Improved margin, higher other income and lower interest expense boosts PAT by 62% yoy to Rs2bn
± Announced bonus of three shares for every four held
± Upgrade estimates to build in higher margins and introduce FY12 earnings, expect 21% earnings CAGR over FY09-12E, upgrade to BUY for a target price of Rs490
Result Update: Marico (Q3 FY10) – BUY
CMP Rs98, Target Price Rs116, Upside 17.8%
± Marico records ~8% yoy growth in revenues at Rs6.7bn driven by ~14% volume growth
± International FMCG business crossed Rs4.5bn mark in revenues with a growth of ~24% yoy, Kaya venture records modest 10% yoy revenue growth at Rs440mn
± OPM expands by 200bps to 14.8% aided by sharp decline in raw material cost; sharp rise in adspend restricts further expansion
± Net profit records 22.2% yoy growth driven by improved operating efficiency and lower interest burden
± We expect the company to witness 13.6% CAGR in revenues and 19.1% CAGR in net profit over FY09-12. Maintain BUY
Result Update: Aban Offshore (Q3 FY10) – BUY
CMP Rs1,130, Target Price Rs1,571, Upside 39.0%
± Income from operations lower than expected on account of lower utilization of assets
± OPM at 61.7%, down 270bps qoq impacted by sharp increase in insurance costs and overheads
± Lower other income further impacted profitability
± Higher utilization of assets to drive revenue and profitability growth ahead
± Maintain BUY with a target price of Rs1,571
Result Update: Britannia Industries Ltd (Q3 FY10) – BUY
CMP Rs1,601, Target Price Rs1,763, Upside 10.1%
± Records modest revenue growth of 7.7% yoy at Rs8.8bn, as a result of unfavorable sales mix and lower consumer offtake
± Operating margins declined by 370bps to 4.3% due to sharp rise in raw material cost and adspend
± Lower revenue growth and sharp rise in operating costs pulled down net profit by 36.9% yoy to Rs291mn.
± Due to lower earnings visibility, we revise our price target downwards to Rs1,763
Corporate Snippets
± RIL leases gasoline storage in the
± BHEL inks JV with Madhya Pradesh Power Generation Company Ltd for 1,600MW unit. (BS)
± NTPC chalks out ambitious expansion plan in Gujarat. (FE)
± Tata Steel forms JV with Nippon Steel for production and sales of automotive cold-rolled flat products at Jamshedpur. (ET)
± HPCL plans Rs250bn investment for 15mtpa refinery. (ET)
± HCL Tech inks US$50mn deal with UK-based Meggitt to provide engineering services. (BS)
± Cairn India to supply Rajasthan crude to IOC. (BL)
± DOCOMO can get controlling stake in JV if Tata Teleservices fails to meet targets. (ET)
± Essar Steel to double retail outlets and add new products. (BL)
± SREI-led consortium buys 57% in DPSC for Rs1.72bn. (ET)
± Havells buys Standard Electricals for Rs1.2bn. (ET)
± Aptech acquires Maya Academy for Rs760mn. (ET)
± Ceat mulls entry into OTR tyre maintenance business in the next fiscal. (BL)
± Graphite India to set-up 50MW plant at Durgapur. (BL)
± LMW to make parts for aerospace and defense sectors. (BL)
Economic snippets
± Food price inflation rises to 17.4% for the week-ended January 16 2010. (ET)
± RBI survey ups FY10 and FY11 GDP forecast to 6.9% and 7.9% respectively. (BS)
± IRDA has asked life and general insurance companies to publish their financial statements on a half-yearly basis. (ET)
± Telecom companies add record 19mn users in December 2009. (ET)
± Indian Auto industry growth to accelerate 10-12% in 2010, says Fitch. (FE)
± Government okays Rs7.32bn worth of FDI proposals. (BS)
± Center clears Rs78bn port development projects. (FE)
Results table
| Companies | Revenue | YoY growth | PAT | YoY growth |
| | (Rs mn) | % | (Rs mn) | % yoy |
| BPCL | 321,612 | 0.9 | 3,791 | (52.6) |
| Tata Steel | 63,748 | 32.5 | 11,917 | 155.6 |
| Canara Bank | 46,878 | 1.3 | 10,525 | 50.0 |
| Bank of India | 44,862 | 3.3 | 4,055 | (53.5) |
| Central Bank | 31,313 | 15.0 | 3,064 | (13.3) |
| JSPL | 26,871 | (8.9) | 8,743 | (3.2) |
| Oriental Bank | 26,716 | 11.3 | 2,894 | 14.8 |
| IOB | 25,701 | (1.1) | 1,017 | (73.8) |
| Motherson Sumi | 18,148 | 225.8 | 749 | 194.9 |
| LITL | 16,107 | (11.5) | 1,311 | 8.9 |
| Tata Tea | 15,400 | 20.5 | 922 | (76.7) |
| Cipla | 14,385 | 7.3 | 2,890 | 29.4 |
| Kesoram Inds | 12,732 | 20.5 | 368 | (6.1) |
| IVRCL Infra | 11,840 | (0.5) | 458 | (1.5) |
| United Phos | 11,111 | 6.4 | 641 | (0.8) |
| Federal Bank | 9,446 | 7.8 | 1,103 | (45.9) |
| Britannia | 8,814 | 7.7 | 361 | (31.4) |
| Aban Offshore | 8,413 | 0.5 | 894 | (65.1) |
| Marico | 6,696 | 7.8 | 631 | 24.0 |
| Jain Irrigation | 6,410 | 19.2 | 574 | 3.2 |
| Madras Cements | 6,106 | (0.1) | 160 | (74.5) |
| Havells | 5,913 | 21.6 | 589 | 416.7 |
| CAIRN | 4,955 | 135.0 | 2,909 | 23.1 |
| EIL | 4,938 | (6.6) | 1,111 | 61.2 |
| Colgate | 4,906 | 17.0 | 1,164 | 49.8 |
| CCCL | 4,509 | 4.5 | 212 | 61.8 |
| IRB Infra | 4,331 | 81.1 | 914 | 139.3 |
| Mah Seamless | 3,726 | (36.6) | 721 | 12.5 |
| SREI | 2,572 | 46.3 | 442 | 402.3 |
| UTV | 2,207 | 37.8 | 378 | 28.6 |
| EMCO | 2,081 | 0.1 | 100 | 22.0 |
| EIH Hotels | 481 | (11.3) | 67 | (9.5) |
