Market Mantra
Market outlook
Resilience in the midst of risk!
Investment planning is about structuring exposure to risk factors.
While main indices are coming crashing down, there are a number of mid-caps which have been moving higher, some even hitting upper circuits. We expect a soft start for the key indices. Friday's commendable recovery in the face of a worldwide sell-off could be tested at start following yet another triple-digit loss for the Dow.
What could possibly save the bulls from further misery would be stronger than expected earnings announced from the likes of RIL, Maruti and ITC. Hopefully, other big results this week will not let the market down.
On the flip side the market will have to contend with a deluge of earnings, the F&O expiry and the RBI policy. The market will be shut on Tuesday on account of Republic Day.
As far as
M&M is expected to report 84.8% jump in sales and 362% jump in PAT. Hero Honda is expected to register 31.7% rise in sales and 69.8% jump in PAT.
Trading ideas (Time period: 1-3 days)
Bharat Forge (BUY, CMP Rs283, Target Rs300): On the weekly chart, the stock has been moving in a range of Rs295-270 from September 2009. On number of occasions, the stock has bounced back from the lower band of this trading range. In fact, weekly candlestick chart suggests formation of multiple bottoms around the levels of Rs270. On Friday, the stock witnessed a strong bounce from day’s low. We expect the stock to continue its recovery and attempt the levels of Rs300 in the short-term. We recommend traders to buy the stock at current levels and on declines up to the levels of Rs278 with a stop loss of Rs273 for an initial target of Rs300.
Unitech (SELL, CMP Rs79, Target Rs73): The stock rallied smartly from a low of Rs72 in October 2009 to a high of Rs91, which acted as a critical resistance levels for the stock. Volumes in the pull-back rally were not convincing, making a breakout from the above levels unlikely. Since then, the stock witnessed a sharp decline with stock falling below its key short-term moving averages. A break below the level of Rs89 will see the stock confirming the declining trend for immediate price target of Rs74-72 levels. Traders should look to sell on a break below the Rs79 with a stop loss placed at Rs82 for target of Rs73.
Derivative strategies (Time period: Till expiry)
± Long Bank of India Jan Future @ Rs393 for the target price of Rs410 and stop loss placed at Rs387.
Remarks: Net maximum profit of Rs16,150 and net maximum loss Rs5,700.
± Long ITC Jan Future @ Rs248 for the target price of Rs259 and stop loss placed at Rs244.
Remarks: Net maximum profit of Rs12,375 and net maximum loss Rs4,500.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Feb | Sell | 16520-16530 | 16470, 16430 | 16555 |
| Silver - Mar | Buy | At 26700 | 26850, 26980 | 26580 |
| Copper - Feb | Sell | 342-343 | 339, 336 | 345.2 |
| Zinc - Jan | Sell | Around 109 | 107.5, 106 | 110.2 |
| Lead - Jan | Sell | Below 102.4 | 101.05, 99.6 | 103.4 |
| Aluminum - Jan | Sell | At 102.5 | 101.2, 100 | 103.2 |
| Nickel - Jan | Sell | 856-858 | 843, 827 | 867.3 |
| Crude Oil - Feb | Sell | Below 3440 | 3410, 3380 | 3465 |
| Natural Gas - Jan | Buy | Above 272 | 275, 278 | 269.3 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Feb | Sell | 13450-13480 | 13300, 13150 | 13540 |
| Jeera - Feb | Sell | Below 11900 | 11760, 11630 | 12010 |
| Turmeric - Apr | Buy | Around 6770 | 6810, 6850 | 6740 |
| COCUDAKL - Feb | Sell | Below 1175 | 1163, 1150 | 1186 |
| Chana - Feb | Buy | Around 2300 | 2340, 2380 | 2270 |
| Guar seed - Feb | Sell | Below 2365 | 2330, 2300 | 2395 |
| Soya bean - Feb | Sell | Around 2190 | 2160, 2140 | 2210 |
| Soya oil - Feb | Buy | Above 460 | 463.4, 466 | 457.2 |
| Mustard seed - Apr | Buy | Above 515 | 518.5, 522 | 512.3 |
| Mentha oil - Jan | Buy | 588-589 | 593, 596 | 585.6 |
**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 | Rs91.1 | | 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: Reliance Industries (Q3 FY10) – Market Performer
CMP Rs1,053, Target Price Rs1,038, Downside 1.4%
± Revenues at Rs568bn, higher by 80% yoy and 21% qoq; better than our estimates
± OPM falls 320bps yoy and 161bps qoq driven by fall in refining margins yoy and sequential decline in petrochemical segment EBIT margins
± 23.4% yoy fall in other income was on account of lower yields on investments
± Gas production from KG-D6 field has been ramped up to 60mmscmd currently but future increase dependent on expansion of GAIL’s HVJ pipeline
± Pending litigations with RNRL, tax holiday dispute for KG-D6 and valuation of LyondellBasell will keep valuations under check. Maintain Market Performer rating
Result Update: Bharti Airtel (Q3 FY10) – BUY
CMP Rs321, Target Price Rs388, Upside 20.8%
±
± Wireless rev/min drops to 52p vs. 56p in Q2; MOU remains flat as compared to 3.7% qoq rise for Idea Cellular
± Higher SG&A and access charges lead to margin contraction of 153bps
± Reported PAT above estimate on net interest income
± Best bet to weather near term earnings concern; retain BUY with TP of Rs388
Result Update: Maruti Suzuki (Q3 FY10) – BUY
CMP Rs1,440, Target Price Rs1,750, Upside 21.6%
± Net sales jump 62.2% yoy driven by 48.7% yoy volume growth, increased realizations owing to improving product mix towards higher priced products
± OPM jumps 870bps yoy and 239bps qoq driven by benefits of operating leverage and lower raw material costs
± Net profit grows more than 3 times compared to Q3 FY10 on account of improved operational performance
± Company announced capacity expansion of 250,000 cars per annum at Manesar plant with an investment of Rs17bn
± Maintain our BUY recommendation and target price of Rs1,750
Result Update: ITC Ltd (Q3 FY10) – BUY
CMP Rs149, Target Price Rs291, Upside 16.8%
± Revenues beat expectations, register 18% yoy growth driven by strong 17% yoy rise in cigarettes and 46% yoy in agri revenues
± Cigarettes EBIT margin expands by 50bps to 29.6%. Losses in the FMCG-others segment reduce further to Rs860mn
± Operating margin registered 130bps expansion to 36.6%. Net profit above expectations, up 26.7% yoy at Rs11.4bn driven by healthy revenue growth and improved operating efficiency
± We expect the company to witness a 14.6% CAGR in revenue and 19.3% in net profit over FY09-11. Maintain BUY
Result Update: Tech Mahindra Ltd (Q3 FY10) – SELL
CMP Rs1,135, Target Price Rs810, Downside 28.7%
± Disappointing revenue performance excluding the re-structuring fees received from BT
± Classification of one-time non-recurring restructuring fees as revenues is aggressive accounting
± OPM contracts by 200bps qoq; PAT higher by 2.3% qoq on lower interest outflow
± Downgrade to SELL on lower estimates and expected de-rating of valuation
Result Update:
CMP Rs1,185, Target Price Rs1,319, Upside 11.3%
± Revenue jumps 21.9% qoq to Rs22.2bn led by higher realisations
± Metal production growth remained strong at 5.8% qoq; whereas sales of concentrate declined 5.5% qoq
± Increase in royalty outgo restricted OPM expansion to 192bps qoq
± Cash and cash equivalents stood at Rs107bn (Rs253 per share)
± Maintain BUY with a target price of Rs1,319
Result Update: Grasim Industries (Q3 FY10) – Not Rated
CMP Rs2,608
± Topline grew by 14.0% yoy driven by strong VSF division performance.
± OPM significantly above our estimate due to 29ppts jump in VSF segment operational efficiency.
± Reported PAT surged 81% - above our estimate despite higher depreciation.
Mutual Funds Thermometer as on January 22, 2010
Given below is the summary of performance of the mutual fund industry in
Key observations
± After a good start for the year, the equity markets ended in the red on a fortnightly basis. In line with the markets, equity diversified funds also ended on a negative note. The category average was down by 1.9%, whereas BSE Sensex was down by 3.2% this fortnight. The advance:decline ratio for the category stood at 18:172. Midcap and small funds continued to outperform the large cap funds. Among the large corpuses, DSPBR Micro-Cap (+3.6%), SBI Magnum Emerging Businesses (+1.3%) and ICICI Pru Emerging S.T.A.R (+2.8%) were the top gainers.
± Led by encouraging results by the Tech companies, Information Technology (IT) funds gained momentum during this fortnight. The top-5 gainers in the sectoral funds belonged to IT; namely Franklin Infotech (+4.3%), ICICI Pru Technology (+4.2%) and DSPBR Technology.com (+4.1%). Infrastructure and energy funds underperformed the sectoral category. Sundaram BNP Paribas Energy Oppor (G) UTI Infrastructure Adv-1(G) and JM Agri & Infra(G) were the major losers.
± Most of the Equity Linked Saving Scheme (ELSS) ended in negative territory on a fortnightly basis. Funds with the large corpuses were able to contain their downside viz. HDFC TaxSaver (G), ICICI Pru R.I.G.H.T (G) and ICICI Pru Tax Plan (G). SBI TAX Advantage-I (G) was the only ELSS fund to delivered a positive returns (+0.8%).
± Due to the negative bias in the equity market, balanced funds with maximum equity exposure declined the most during this fortnight. Out of 55 balanced funds, only eight funds’ NAVs ended in green with marginal returns. These funds, which were part of the top-quartile belonged to the capital protection category viz. DWS Cap Prot Oriented (G), SBI Cap Prot Oriented I (G), Birla SL Capital Protection Oriented -3Yrs (G).
± Short term and long term debt funds ended on a flat note. On an average the income fund category delivered a nominal return of 0.3% and gilt funds delivered 0.5% this fortnight. However, outperforming the category, Edelweiss GILT (G), ICICI Pru Gilt-Invest-PF and Templeton India G-Sec-LTP (G) funds delivered a return of 2.7%, 1.3% and 1.2% respectively.
± On a fortnightly basis, all ETF funds ended in red. Among them, Gold ETF declined the least by 2.2% on account of rising US dollar and selling pressure across the globe. PSU Bank ETFs declined the most and was at the bottom of ETF chart namely PSU Bank BeES (-4.8%) and Kotak PSU Bank ETF (-4.8%).
Insurance Monthly Update – December 2009
Indian Life Insurance industry strongly held its growth momentum in December ‘09 on the back of strong inflows. The industry total Annual Premium Equivalent (APE)# grew by 59.3% yoy vis-à-vis 22.4% yoy in the previous month. Both LIC and private players contributed to the industry growth. With 63.4% APE growth private players outperformed LIC, which witnessed 53.7% yoy in December ‘09. On a YTD basis, LIC continues to lead the industry growth, its APE grew up by 29.1% yoy whereas, private players APE grew by just 2.9% yoy. The performance of last quarter of FY10 would be closely watched as historically it has been contributing +35% of the annual numbers.
Weekly Update: Debt Market - week ended January 22, 2010
± On a weekly basis, G-Sec bond yields soften with the 10-year benchmark bond yield declining 8bps at 7.56%. Even shorter term G-Sec yields witnessed correction; 2-year G-Sec was down by 26bps this week.
± G-Sec volumes increased by 52% this week at Rs692bn vis-à-vis Rs454bn in the previous week. The top traded G-sec for the week was 6.35% G.S 2020, which witnessed a volume of Rs334bn with 4,601 trades.
± For the week ended Jan 9, food inflation stood lower at 16.8% vis-à-vis 17.3% in the previous week due to lower fruit and vegetable prices. However, primary article inflation rose by 11bps to 13.9% vis-à-vis 13.8% in the previous week.
± The World Bank raised growth forecast from 7.8% in November to 8.1% for the developing
± Finance ministry agreed for a cash subsidy of Rs120bn (US$2.63bn) to the state-run oil firms to compensate for selling fuel below market price.
± World Bank will provide US$770mn loan to
Corporate Snippets
± Maruti Suzuki announced that it would invest Rs17bn in a second line at its Manesar factory; new line would start operations by April 2012. (BL)
± DLF exits asset management venture with Prudential Financial. (BL)
± Bharti Airtel said that it is looking at listing one of its tower units Bharti Infratel or
± Larsen & Toubro formed a joint venture with Malaysia-based Sapuracrest Petroleum to install pipelines and construct offshore rigs and platforms in
± Lupin is planning to set up three new manufacturing facilities at an investment of Rs2bn. (BS)
± Suzlon Energy plans not to proceed with proposed Rs5bn wind energy projects at two locations in
± LIC acquires nearly 2% stake in Essar Oil for Rs3.09bn through open market transactions. (ET)
± Biocon signs MoU with
± Wockhardt sells nearly 18 acres of land at Mulund for Rs2bn to Runwal Group, and a real estate fund. (ET)
± Piramal Healthcare is looking to review its plans to set up a new unit to make codeine. (ET)
± DLF sells its 15-acre property in
± GMR
± JK Paper board approves Rs15bn expansion. (BL)
± Usha Martin raises Rs4.7bn through QIP. (BL)
± JK Tyre has decided to set up a Rs16bn automotive tyre manufacturing facility in Tamil Nadu. (BL)
± Unity Infraprojects plans to develop two mixed-use housing projects with an investment of around Rs500 crore. (ET)
± Karnataka Bank raises Rs1.6bn through QIP. (BL)
± Tata Teleservices has overtaken BSNL to become the fifth largest mobile operator in terms of subscriber base. (BL)
± Apollo Hospitals signs MoU with the
± Tata Steel and NMDC sign an MoU to explore possible areas of strategic alliance, including forming JVs in the fields of steel production and mining in India and oversea. (TOI)
± Glenmark arm gets USFDA nod for hypertension drug. (FE)
± Godrej Properties said it would invest over Rs10bn in the next fiscal on ongoing and new realty projects. (FE)
± Maytas Infra’s new owner IL&FS is negotiating with lenders to convert around Rs6bn of the company’s debt into equity. (TOI
± Shipping ministry is evaluating the disinvestment process in SCI and Dredging Corp of India and will take a final call on the issue early-next fiscal. (FE)
± Time Technoplast is looking to acquire an industrial packaging company in Europe, preferably in
± HDIL plans to launch its QIP issue next week. (BS)
Economic snippets
± 4G prospects won't keep off telecom companies from bidding for 3G, says Union Minister Mr Raja. (BL)
± The six ‘core' infrastructure industries have registered a 6% yoy growth during Dec’ 09 compared with 0.7% a year ago. (BL)
± Foreign exchange reserves rose by US$899mn to US$285bn for the week ended January 15. (BL)
± Domestic crude oil production in December rose 1.1% yoy to 2.9mn tonnes. (BL)
± Petroleum Minister has written to the Finance Minister to consider setting up a fund that will aid domestic PSUs in acquiring oil and gas assets overseas. (BL)
Results table
| Companies | Revenue | YoY growth | PAT | YoY growth |
| Reliance Industries | 568,560 | 80 | 40,080 | 14 |
| Bharti Airtel | 103,050 | 7 | 22,369 | 13 |
| United Spirits | 16,468 | 60 | 969 | 217 |
| Godrej Cons | 3,160 | 16 | 562 | 44 |
| Bharat Forge | 4,959 | (11) | 380 | (35) |
| NIIT Ltd | 1,459 | 18 | 12 | - |
| Essar Oil | 99,270 | 18 | (2,260) | - |
| Chambal Fert | 11,417 | (8) | 797 | 6 |
| Maruti | 73,727 | 62 | 6,875 | 222 |
| 3i Infotech | 5,962 | (2) | 610 | (6) |
| Punj Lloyd | 29,040 | (7) | 125 | - |
| Grasim | 47,884 | 4 | 7,153 | 56 |
| Zee News | 1,706 | 19 | 191 | 27 |
| Tech Mahindra | 11,873 | 5 | 1,728 | (22) |
| Dish TV | 2,772 | 44 | (762) | - |
| | 22,167 | 115 | 11,487 | 211 |
| Fortis Health | 2,295 | 45 | 217 | 329 |
| | 2,518 | 125 | 889 | 220 |
| Neyvelli Lig | 12,517 | 50 | 3,711 | - |
| Mcleod Russel | 3,358 | 38 | 1,379 | 6 |
| BEL | 5,921 | 39 | 341 | 222 |
| CEAT Ltd | 7,398 | 27 | 240 | (6) |
| ITC | 45,319 | 18 | 11,442 | - |
| Jayshree Tea | 1,411 | (4) | 332 | 56 |
| HCC | 9,026 | 10 | 148 | 27 |
| CESC | 7,790 | 4 | 1,020 | (22) |
| NDTV | 1,645 | 101 | 741 | - |
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