Market Mantra: Technicals - Educomp Solutions (Buy), Reliance Capital (Buy); F&O - Nagarjuna Fertiliser (Long), Hotel Leela (Long); Report - Ambuja Cement (Sell)

 

 

 

 

Market Mantra

 

Market outlook

Twist likely later…

 

Uncertainty will always be part of the taking charge process.

 

As bulls take charge of the proceedings at start, investors will try to grapple with whether valuations are justified. India has always commanded a premium; some more head room is always there. How much is anybody’s guess! The budget could play some role in shaping the roadmap for the economy and markets. Hopefully, the FM will not disappoint this time. A major concern right now is on inflation. Crude oil has crossed $80 per barrel. Key inflation barometers are hovering between 15-20%.

 

The start of the year wasn’t bad for the bulls across world markets. Strong manufacturing data and favourable comments from Fed officials did the trick. Back home too, the Government is no mood to reverse the fiscal stimulus as yet. Even the monetary tightening is not expected to be aggressive. Possible near-term trigger could come from India Inc’s report card. The critical factor would be the outlook for FY11.

 

Today, we expect another positive opening on the back of overnight rally on Wall Street. European markets too posted smart gains. However, Asian markets are mixed. The gains could be limited as profit booking is likely to set in sooner than later.

 

Trading ideas (Time period: 1-3 days)

Educomp Solutions (BUY, CMP Rs757, Target Rs790): On Monday, the stock broke out from the stiff resistance zone of 742-745. Since second week Of December 2009, the stock moved in the range between Rs745-697. The daily RSI is already in strong buy mode, indicating that the prices are set to rally from the current levels. On the weekly chart, the stock has broken past the downward sloping trendline from Last week of October 2009. Based on above technical analysis, we recommend traders to buy the stock at current levels or up to the levels of Rs750 for an initial target of Rs790. It is advisable to maintain a stop loss of Rs738 on all the long positions.

 

Reliance Capital (BUY, CMP Rs889, Target Rs930): The stock has seen a severe correction from the levels of Rs1,668 in June 2009 to a low of Rs681 in November 2009. This was a panic bottom and since then it has rallied higher without a retest of this low. On the daily charts, the price movements appear to have formed a higher bottom formation. On Monday, the stock broke out to break out from last one-week trading range. The bullish formation is confirmed after the stock gave a close above its short-term moving averages. Traders can buy the stock at current levels and on declines to the levels of Rs883 with a stop loss of Rs872 for a short-term target of Rs930 in the coming trading sessions.

 

Derivative strategies (Time period: Till expiry)

±       Long Nagarjuna Fertiliser Jan Future @ Rs38.90 for the target price of Rs45 and stop loss placed at Rs37.

Lot size: 5,250

Remarks: Net maximum profit of Rs32,025 and net maximum loss Rs9,975.

 

±       Long Hotel Leela Jan Future @ Rs51 for the target price of Rs55 and stop loss placed at Rs49.

Lot size: 7,500.

Remarks: Net maximum profit of Rs30,000 and net maximum loss Rs15,000.

 

Commodities – Metals (Time period: Intra-day)

Trade recommendation

Commodity	Strategy	Levels	Target	Stop-Loss
Gold - Feb	Buy	At 16800	16860, 16905	16770
Silver - Mar	Buy	Above 27260	27400, 27500	27170
Copper - Feb	Buy	345-346	349, 351	343.7
Zinc - Jan	Sell	Below 118.1	117.2, 116.5	118.7
Lead - Jan	Buy	114.7-115	116.2, 117.5	113.8
Aluminum - Jan	H. Sell	Around 105	104, 103	105.9
Nickel - Jan	H. Sell*	882-886	870, 860	893.6
Crude Oil - Jan	H. Buy	Above 3735	3765, 3800	3710
Natural Gas - Jan	Sell	271-272	268, 265	273.3

 

Commodities – Agro (Time period: Intra-day)

Trade recommendation

Commodity	Strategy	Levels	Target	Stop-Loss
Pepper - Jan	Sell	Below 14150	14040, 13900	14260
Jeera - Jan	Sell	Below 14430	14305, 14200	14515
Turmeric - Apr	Buy	Above 7790	7830, 7870	7757
COCUDAKL - Jan	Sell	1197-1200	1189, 1180	1206.5
Chana - Jan	Sell	2420-2425	2390, 2360	2447
Guar seed - Jan	Sell	Below 2690	2655, 2625	2715
Soya bean - Jan	H. Buy	Above 2396	2415, 2440	2380
Soya oil - Jan	H. Buy	Above 495	498, 501	492.7
Mustard seed - Jan	H. Buy*	612-613	616.5, 619	610.2
Mentha oil -  Jan	Buy	Above 610	614, 618	606.8

 **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	Rs92.4		Entry load				Nil
NAV 52 high/low	Rs92/44		Exit load				1% <1 year
Latest AUM	Rs1,753cr		Latest dividend (under dividend option)				12% (21-Aug-09)
Type	Open-ended		Benchmark				S&P Nifty
Class	Equity-diversified		Asset allocation	Equity (84%), Debt (0%), Cash (16%)
Options	Growth & dividend		Expense ratio			1.9%

 

 

Company Update: Ambuja Cements Ltd – SELL

CMP Rs106, Target Price Rs88, Downside 17.1%

 

Owing to lower clinker purchase, ACL CY10 OPM is likely to fall the least amongst its peers (albeit from a low base of 27% in CY09). We project earnings CAGR of 2% over CY09-11, vis-a-vis its peer group which is likely to report decline in earnings. Despite the above-mentioned positives, the stock remains relatively expensive (CY10 EV/ton US$149, 8.4x EV/EBIDTA and 13.4x PE). Retain SELL with a price target of Rs88.

 

Corporate Snippets

±      Reliance Industries raised Rs26.7bn by selling a part of its treasury stock to LIC, to create a war chest to acquire the bankrupt chemicals giant LyondellBasell. (BS)

±      Larsen & Toubro has bagged Rs9.9bn order from the GNFC for setting up a 1,120mn tons per day ammonia equivalent natural gas-based synthesis gas generation plant at Bharuch, Gujarat. (BL)

±      Suzlon Energy bags second order of about Rs1.6bn from ITC Ltd, for setting up 21MW wind turbines in Maharashtra and 6MW in Karnataka. (BL)

±      Marico has entered the hair-styling market in Malaysia by acquiring Code 10, a Colgate-Palmolive owned brand, for an estimated Rs2.8bn. (BL)

±      Ranbaxy Laboratories has launched a new skincare medicine Lulifin (Luliconazole) through an exclusive in licencing agreement with Japan’s Summit Pharmaceuticals International. (ET)

±      Central Bank of India plans to sell non-performing assets (NPAs) of 41 industrial units with an outstanding of Rs4.1bn to clean up its balance sheet. (BS)

±      Dr Reddy's diabetic drug has showed encouraging results in the final lap of human clinical trials. (BS)

±      M&M enters heavy CV segment in partnership with Navistar of US. (BS)

±      Lanco Infratech has bagged three contracts aggregating Rs21.1bn from one of its subsidiaries, Lanco Kondapalli Power Private Limited, for various works. (BS)

±      Bharat Forge plans to invest Rs15bn to expand its non-automotive business. (BL)

±      Ashok Leyland to roll out 25 products in the next eighteen months from its newly launched truck platform and will shift all existing products to it by 2013. (FE)

±      Novartis AG’s plans to acquire a majority stake in the world’s largest eye-care company, Alcon, will give a boost to its Indian operations as it will get a new basket of products. (BS)

±      ACC opens 4^th cement plant in Karnataka. (BS)

±      Zydus Cadila has received the approval of the Drug Controller General of India (DCGI) to conduct multi-centric clinical trials for the H1N1 (swine flu) vaccine in the country. (BS)

±       Renault plans to launch zero emission electric vehicles (EVs) in India by the middle of this decade. (BS)

 

Economic snippets

±      RBI to consider the introduction of credit default swaps. (ET)

±      Government may blacklist ethanol makers on failure to supply to OMCs.(BS)

±      The roll-out of the GST is certain to be delayed beyond its scheduled launch date of April 1 this year because of administrative and constitutional constraints. (ET)

±      India's exports rose at an annual rate of 18.2%yoy for the month of November to US$13.2bn. Imports dropped 2.6%yoy to US$22.8bn. (FE)

±       IRDA is set to link the amount of capital that companies need to earmark for their business with the economic cycle. (ET)