Market Mantra
Market outlook
Storm passes by!
It is the set of the sail that decides the goal, and not the storm of life
The worst of the storm has passed for the economy, says President Obama in the State of the Union address minutes ago. After having a torrid time over the last few sessions and suffering heavy losses, bulls could heave a sigh of relief today.
Things appear to be stabilising a bit after the recent storm. US stocks ended higher and a rebound in Asian markets. European stocks closed in the red, dragged down by losses in banks. We expect a higher opening on firm global cues. The SGX Nifty futures are pointing to a 1% gain at start.
Volatility could escalate due to the F&O expiry as also due to the near-term uncertainties. The Nifty could cross 4900 but it remains to be seen if it sustains above that level. The Nifty will find it tough to surpass 5000 unless FIIs turn buyers again and global mood improves.
The central bank is expected to hike CRR. The market could stage a meaningful recovery in the ensuing days if the RBI does not spring a nasty surprise.
Trading ideas (Time period: 1-3 days)
Cadila Healthcare (BUY, CMP Rs696, Target Rs735): On Wednesday, the stock surged sharply on impressive volumes above its critical resistance levels of Rs690. It now faces a resistance at Rs730 levels and should have a minimum upside till that level. Our argument is further validated after the stock gave an upside breakout in yesterday’s session as the price broke through the top of a trading range. Moreover, the stock has given a close above its short-term moving averages. We recommend traders with high risk appetite to buy the stock in the range of Rs690-702 with a strict stop loss of Rs682 for an initial target of Rs735.
Cummins (BUY, CMP Rs445, Target Rs480): The stock has rallied smartly from a low of Rs383 in December 2009 to the present levels. Despite the ongoing volatility in the market, the stock has managed to hold on to the support of its short-term trendline. On the daily charts, it has formed a pattern of a higher bottom. It is considered as the initial sign of a bottoming out process in the short term. The daily RSI is already in strong buy mode, indicating that the prices are set to rally from the current levels. A sustained move past the Rs440-445 levels will see the stock heading towards the levels of Rs480-485 in the medium term. We recommend high risk traders to buy the stock between Rs440-450 levels for a target of Rs480 with a stop loss of Rs432.
Derivative strategies (Time period: Till expiry)
± Short Praj Industries Ltd Feb Future @ Rs90 for the target price of Rs85 and stop loss placed at Rs92.
Remarks: Net maximum profit of Rs11,000 and net maximum loss Rs4,400.
± Long IVRCL Infrastructure & Projects Ltd. Feb Future @ Rs322 for the target price of Rs345 and stop loss placed at Rs315.
Remarks: Net maximum profit of Rs23,000 and net maximum loss Rs7,000.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Feb | Sell | Below 16420 | 16370, 16330 | 16455 |
| Silver - Mar | Buy | 26050-26080 | 26200, 26330 | 25980 |
| Copper - Feb | Sell | Below 330 | 326, 322 | 332.8 |
| Zinc - Jan | Sell | Below 101.4 | 100, 99 | 102.35 |
| Lead - Jan | Sell | Below 95.3 | 94, 93 | 96.35 |
| Aluminum - Jan | Sell | 100-100.3 | 98.8, 97.5 | 101.3 |
| Nickel - Jan | Sell | Below 835 | 821.7, 808 | 846.8 |
| Crude Oil - Feb | Sell | At 3470 | 3430, 3400 | 3497 |
| Natural Gas - Feb | Sell | Below 242 | 238.5, 235 | 244.3 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Feb | Buy | Above 13700 | 13850, 13980 | 13570 |
| Jeera - Feb | Sell | Around 11600 | 11465, 11320 | 11710 |
| Turmeric - Apr | Buy | Around 7040 | 7080, 7120 | 7007 |
| COCUDAKL - Feb | Sell | 1167-1170 | 1153, 1138 | 1178.6 |
| Chana - Feb | Sell | 2225-2230 | 2180, 2150 | 2255 |
| Guar seed - Feb | Sell | Below 2298 | 2260, 2230 | 2322 |
| Soya bean - Feb | Sell | Around 2160 | 2130, 2100 | 2180 |
| Soya oil - Feb | Sell | At 453 | 450, 447 | 455.6 |
| Mustard seed - Apr | Sell | 503-504 | 499.5, 496 | 506.7 |
| Mentha oil - Feb | Buy | 592-593 | 596, 599 | 590.3 |
**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 | Rs90.1 | | 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: Steel Authority of India Ltd - BUY
CMP Rs216, Target Price Rs243, Upside 12.5%
± SAIL’s Q3 FY10 revenue of Rs98.8bn was higher than our estimate of Rs96.4bn
± The outperformance was on account of higher realisations on a qoq basis, against our expectation of a 4% decline
± Sales volume of 2.9mn tons was slightly lower than our estimate of 3mn tons
± OPM expanded 231 bps qoq led by a fall in power and raw material costs, the rise in employee costs curtailed the expansion in OPM
± EBIDTA/ton increased to Rs8,770/ton in Q3 FY10 from Rs7,961/ton in Q2 FY10
± Upgrade to BUY with a revised target price to Rs243 on the back of strong price realisations in FY11E
Result Update: Punjab National Bank (Q3 FY10) – BUY
CMP Rs860, Target Price Rs988, Upside 14.9%
± Business growth behind expectations; Agriculture, SME and Retail drive advances growth
± NIM expands by 20bps qoq on sharp decline in deposits cost
± Other income rises by 7% qoq; C/I ratio improves by 130bps
± Sharp spike in NPLs; net profit grows by 9% qoq despite higher provisioning
± Maintain BUY on PNB with an upgraded target price of Rs988
Result Update: Bank of
CMP Rs522, Target Price Rs641, Upside 22.7%
± NII was up 9.5% yoy, Net profit, however, came in higher at 17.5% yoy.
± Loan book grew at healthy 4.9% qoq pace; domestic book was up 5.8% sequentially. Deposits growth moderates on a sequential basis, CASA deposits, however grew 5.7% qoq.
± NIM improved on back of sharp decline in cost of funds.
± Non-interest income declined 22% yoy, operating expenses was up by mere 3.5% yoy. Asset quality deteriorates; coverage remains healthy.
± Adequately capitalized; higher returns ratio remain command valuation premium
Result Update: Union Bank (Q3 FY10) – Market Performer
CMP Rs263, Target Price Rs274, Upside 4.2%
± NII was up 23% qoq, net profit, however, was up by mere 6% on a sequential basis.
± Loan book gather momentum, grew 7.1% qoq, with surge in demand across all segments.
± Deposit growth moderates, CASA deposits declined sequentially
± NIM expanded on by back of decline in cost-of-funds
± Non-interest income declined on a sequential basis, operating expenses remained flat qoq
± Capital adequacy remains healthy, asset quality deteriorates
± Raise FY10 and FY11 net profit estimates, assign 1.3x FY11PB using our proprietary Bank 20 valuation model and arrive at target price of Rs274. Maintain MP.
Result Update: National Aluminium Co – SELL
CMP Rs407, Target Price Rs322, Downside 20.8%
± NALCO’s revenue jumped 20.2% qoq to Rs14.2bn, led by a rise in aluminium and alumina realisations
± A decline in power and fuel costs coupled with strong realisations led to an OPM expansion of 887 bps qoq
± Power costs decreased on a qoq basis as last quarter’s performance was hindered by supply of wet coal
± Aluminium division reports an operating profit of Rs622mn, boosted by margin expansion and an increase in sales volume
± High tax rate coupled with a sharp fall in other income pushed Q3 FY10 PAT down by 2.7% qoq
± Maintain SELL with a target price of Rs322/share
Result Update: Everonn Systems (Q3 FY10) – BUY
CMP Rs376, Target Price Rs558, Upside 48.5%
± Robust growth in stand-alone revenues drives better-than-expected consolidated performance
± OPM contracts by 110bps driven by adverse revenue mix change and increased losses of subsidiaries; PAT grows by 3% qoq
± Maintain BUY on Everonn with target price Rs558
Result Update: Indian Hotels Company (Q3 FY10) – SELL
CMP Rs91, Target Price Rs79, Downside 13.2%
± Revenue decline better than estimated on improved occupancies across major markets; 9M FY10 revenues fall 14% yoy
± OPM surprises on the upside with tight control over staff cost
± Reported PAT above expectation on improved margin, RevPar performance
± Co to raise Rs7bn in debt to retire offshore debt worth US$185mn in international subsidiaries
± Earnings to improve in FY12 on volume growth, higher RevPar but stock trading above 5-yr average EV/E; raise TP to Rs79 but retain SELL
Result Update: Hindustan Petroleum Corp (9m FY10) – SELL
CMP Rs344, Target Price Rs300, Downside 12.9%
± In absence of data on quarterly apportionment of budgetary support received, 9m FY10 performance has been analyzed
± Net sales for 9m FY10 fall 22.9% yoy primarily driven by lower average realizations
± Upstream companies shared under recovery burden worth Rs19bn in 9m FY10 v/s Rs66bn in 9m FY09
± Throughput growth was muted at 1.8% as Q3 FY10 throughput was lower by 8.6%
± Uncertainty continues to persist even over FY10 subsidy sharing pattern leave apart FY11 and FY12, downgrade to SELL
Result Update: Dabur
CMP Rs155, Target Price Rs176, Upside 13.2%
± Records ~19% yoy growth in revenues at Rs9.3bn, driven by double-digit volume growth in all SBUs
± Retail venture records strong 81.9% yoy growth at Rs28mn during the quarter. Loss in this business reduced to Rs70.5mn in 9M FY10 from Rs157mn in 9M FY09
± The International Business Division registers healthy 18.2% yoy growth led by robust performance in GCC,
± Operating margins witnessed 260bps expansion at 19.1% aided by drop in raw material cost
± Strong revenue growth coupled with improved operating efficiency drives net profit by 27% yoy to ~Rs1.4bn
± Upgrade to buy with a revised target price of Rs176
Result Update: EIH (Q3 FY10) – SELL
CMP Rs126, Target Price Rs109, Downside 13.5%
± EIH reported Q3 FY10 revenue decline of 6.3% yoy, better than our estimate of Rs2.1bn, probably due to improved occupancies
± OPM dropped 148bps yoy as a tight leash on other expenses fails to counter margin pressure from lower room rates
± Reported PAT in line with estimate; 9M FY10 profit drops 69% yoy
± Raise TP based on 20% discount to Indian Hotels target EV/E but retain SELL on expensive valuation of 20x FY12 PE
Sector Update: Telecom Monthly Update – December 2009
Dec’ 09 saw yet another record wireless additions as two new players-Stel and Uninor entered what is already an overcrowded market. Subscriber adds grew 8% mom to ~19mn, surpassing the tally posted in the previous month. However, with operators acknowledging widespread multi-SIM usage, the monthly figures have to be viewed within that context. Uninor in its first month of operation netted over 1mn users while TTL with 3.3mn new users lead the pack yet again. Idea net adds dropped 32% mom while those for BSNL remained volatile as ever with 54% mom surge. Bharti, Rcom and Vodafone additions grew 0.5-2% o monthly basis.
Corporate Snippets
± The Ministry of Environment and Forests has denied permission to Adani Group for coal mining at Lohara near Tadoba Andhari Tiger Reserve. (ET)
± Board of Directors of HUL has approved a proposal to merge its wholly-owned subsidiary Bon with itself with effect from April 1, 2010. (ET)
± NTPC plans to sell at least 15% of its additional capacity through power exchanges to third party buyers. (ET)
± NTPC is inviting tenders for 11 super-critical units of 660MW from February 3, 2010. (BS)
± Bharati Airtel to outsource US$1bn cable business over a period of five years. (ET)
± Government may sell stakes in L&T and ITC to financial institutions. (ET)
± Wipro has signed a mulit-year outsourcing deal with British American Tobacco Company. (BS)
± Power Grid Corp Board has given in-principle approval for a FPO. (BS)
± Axis Bank to borrow US$140mn in two years.(BS)
± Jaiprakash Power to raise US$300mn by issue of bonds for meeting capital expenditure needs. (BS)
± ONGC has signed an agreement with Sonangol to bid for oil acreage in
± KEI Industries plans to set up manufacturing plants in Africa and
± Tata Steel awaits Jharkhand resettlement and rehabilitation policies to start a 12mtpa
± With cement demand in
± Easun Reyrolle is setting up a switchgear plant in
± Mega Mart, a retail chain division of Arvind Ltd, is eyeing revenue of Rs10bn in next 3-4 years. (FE)
± CESC Ltd is now leading the race to secure power distribution licence for
± Tata Communications plans to invest about US$50mn over the next two years into its newly-formed Global Media & Entertainment Solutions group. (BL)
±
± Container Corporation of India hopes to post an impressive growth in throughput in the fourth quarter and thus achieve overall 4-5% growth in FY10. (BL)
± Dolphin Offshore is planning to broaden its business canvas by entering into deep-water operations. (BL)
± Aegis Ltd IPO may hit markets by May 2010. (BS)
Economic snippets
± The government has allowed UMPP to use surplus coal for other power projects. (ET)
± Government approves four shipping projects under PPP route involving a total investment of Rs41bn. (ET)
± GST faces further delay as many states pitch for higher rates. (ET)
± The centeral board of excise and customs has recommended an overhaul on SEZ Act, 2005. (BS)
± Andhra Pradesh raises tax on aviation fuel from 4% to 16%. (BS)
± The total number of telephone subscribers in the country reached 562.1mn in December 2009, registering a growth of 3.5% mom. (FE)
± The Steel Minister is set to take up the issue of making operational the joint venture International Coal Ventures Ltd (ICVL) with his coal counterpart. (BL)
± From December 4, 2009 to January 1, 2010, bank investments in mutual funds have fallen by 75%. (FE)
± Government may allow UP mills to sell sugar lying at local ports. (BS)
± Bank credit fell by Rs119bn to Rs30,089bn for the fortnight ended January 15. (BL)
± Imports of sensitive items rose 34.5% in April-October 2009 at Rs355bn from Rs264bn during the corresponding previous period. (BL)
± Banks are seeking 80C relief for 3-year term deposits. (BL)
Results table
| Companies | Revenue | YoY growth | PAT | YoY growth |
| | 16,107 | (11.5) | 1,312 | 9.0 |
| GMDC | 2,697 | 4.7 | 712 | (4.7) |
| Indian Hotel | 4,379 | (4.1) | 649 | (22.6) |
| HUL | 132,080 | 5.8 | 16,208 | (5.8) |
| Century Textile | 10,681 | 21.4 | 596 | 110.5 |
| 3I Infotech | 18,362 | 8.4 | 2,006 | 4.8 |
| KEC International | 9,489 | 7.0 | 463 | 84.8 |
| | 8,660 | 8.7 | 438 | 769.0 |
| HPCL | 276,619 | (5.9) | 314 | - |
| Bank of | 16,012 | 9.5 | 8,325 | 17.5 |
| PNB | 23,291 | 18.6 | 10,113 | 0.5 |
| SAIL | 98,787 | 12.4 | 16,756 | 98.7 |
| Patel Eng | 6,330 | 28.0 | 444 | 34.6 |
| EIH | 2,383 | (6.3) | 223 | (32.9) |
| Union Bank | 10,647 | (5.4) | 5,341 | (20.5) |
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