Market Mantra
Market outlook
Bulls seek a foundation!
If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.
Consolidation seems to be the name of the game as bulls seek a strong foundation amid uncertainty over the prospects for 2010. Bulls and bears both seem to be lacking conviction for the moment; perhaps waiting for further clarity on economic recovery and corporate earnings. Events scheduled for this week and the month could help shape the opinion about the outlook in near future.
IIP data for November will be out on Tuesday while the monthly inflation report is due out on Jan. 14. Infosys, TCS, Bajaj Auto, HDFC Bank, Axis Bank and UltraTech Cement will announce results this week. Later this month, the RBI and the Fed will hold policy meetings. The ECB meets on Thursday but is unlikely to alter its monetary policy just yet.
We expect a slightly positive start as most Asian markets are in the green. Things should turn choppy again later in the day. Strength in brokerages has lifted
Trading ideas (Time period: 1-3 days)
Nagarjuna Constructions (BUY, CMP Rs175, Target Rs185): The stock continues to be in an uptrend after breaking out from consolidation between range of Rs145-180 from first week of November 2009. The momentum indicator RSI is exhibiting positive movement suggesting further upside in the near term. Moreover, volumes have also picked up substantially as the stock breached the upper end of the consolidation range mentioned above. Keeping in mind the above mentioned technical parameters, we recommend traders to buy the stock in the range of Rs173-177 with a stop loss of Rs169 for a target of Rs185.
DLF (BUY, CMP Rs390, Target Rs415): DLF has been consolidating from last week of October 2009 between the range of Rs395-340. On Friday, the stock attempted to break past the top-end of the consolidation phase. The move was supported by strong volumes and against a weak trend in the broader indices. On observation of the daily chart we can visualize that the stock is yet to break out of the consolidation phase. DLF is now believed to be very close to an upside breakout, a development that should lead to a rapid advance towards the levels of Rs415-430. We recommend traders to buy the stock between the levels of Rs387-393 with a stop loss of Rs378 for a target of Rs415.
Derivative strategies (Time period: Till expiry)
± Long Welspun Guj St Jan Future @ Rs282 for the target price of Rs299 and stop loss placed at Rs275.
Remarks: Net maximum profit of Rs27,200 and net maximum loss Rs11,200.
± Long KFA (Kingfisher Airlines) Jan Future @ Rs65.50 for the target price of Rs68 and stop loss placed at Rs64.
Remarks: Net maximum profit of Rs10,625 and net maximum loss Rs6,375.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Feb | Buy | Above 16920 | 16980, 17050 | 16880 |
| Silver - Mar | Buy | Above 28250 | 28400, 28550 | 28140 |
| Copper - Feb | Buy | Above 345 | 348, 351 | 343 |
| Zinc - Jan | Buy | 115.5-115.8 | 116, 117 | 114.7 |
| Lead - Jan | Sell | Around 117 | 115.8, 114.5 | 117.9 |
| Aluminum - Jan | H. Buy | 104-104.3 | 105.6, 106.9 | 103.4 |
| Nickel - Jan | Sell | 840-844 | 826, 810 | 852.5 |
| Crude Oil - Jan | Buy | At 3790 | 3815, 3840 | 3770 |
| Natural Gas - Jan | Sell | Below 261.5 | 258, 255 | 263.8 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Jan | Sell | Below 13730 | 13580, 13450 | 13857 |
| Jeera - Jan | Sell | Below 13530 | 13400, 13300 | 12627 |
| Turmeric - Apr | Sell | Below 7450 | 7405, 7370 | 7480 |
| COCUDAKL - Jan | Buy | 1185-1188 | 1195, 1200 | 1181 |
| Chana - Jan | Sell | Around 2345 | 2310, 2280 | 2367 |
| Guar seed - Jan | Sell | Below 2635 | 2600, 2570 | 2657 |
| Soya bean - Jan | Sell | At 2320 | 2290, 2270 | 2335 |
| Soya oil - Jan | Sell | Below 480 | 476, 473 | 482.8 |
| Mustard seed - Jan | Sell | Below 603 | 600, 597 | 605.7 |
| Mentha oil - Jan | Buy | Above 625 | 628.5, 631 | 622 |
**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 | Rs92.6 | | Entry load | Nil | |||
| NAV 52 high/low | Rs93/44 | | 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% | |||
| | | | | | | | |
Initiating Coverage: ICICI Bank – ‘Light at the end of tunnel’ – BUY
CMP Rs874, Target Price Rs992, Upside 13.5%
ICICI Bank, the largest private sector bank has been consolidating its balance sheet for the next phase of credit cycle. Significant moderation in loan book, deterioration in asset quality and concerns pertaining to international exposure has hampered bank’s valuation over the past few quarters. With material reduction in these apprehensions, valuation is likely to re-rate, however not significantly due to continuance of low return ratios. The improvement in economic environment as reflected in better IIP numbers and strong GDP growth points towards a substantial revival in credit demand soon. ICICI Bank with dominant market share in niche segments would be a key beneficiary of credit upcycle. We recommend BUY.
Result Update: Bajaj Hindusthan (Q1 F9/10) – Buy
CMP Rs232, Target Price Rs280, Upside 20.5%
± Topline surges ~74% as free sugar realization jumps to Rs32/kg, an increase of 79% yoy
± Higher sugar prices aid in margin expansion of over 24ppts
± Company posts a profit of Rs852mn vs. a loss a year ago
± Raise sugar price assumption by 22% and 28% for F9/10 and F9/11 respectively and upgrade to BUY with TP of Rs280
Management Mantra: Banmali Agrawala, Executive Director, Strategy & Business Development,Tata Power Ltd.
Banmali Agrawala, Executive Director, Strategy & Business Development, Tata Power Ltd. is a Mechanical Engineer from the Manipal Institute of Technology. He has a deep understanding of the Indian power industry as well as the global renewable business. Prior to joining Tata Power Ltd., he was the Managing Director of Wartsila India Ltd. He has also worked with Bajaj Auto’s Research & Development division. He has 23 years of professional experience in the industry and has held several positions in industry bodies.
Mutual Funds Thermometer as on January 08, 2010
Given below is the summary of performance of the mutual fund industry in
Key observations
± The equity markets bid farewell to the year 2009 on a high note and continued to scale higher at the start of 2010. Participating in the recent rally, all the equity diversified funds posted positive returns during the fortnight. Out of 198, 157 funds outperformed the BSE Sensex and 83 funds outperformed the category average. The top quartile was dominated by the mid-cap and small-cap oriented funds. Among the large corpuses, Reliance Long Term Equity (+5.7%), IDFC Premier Equity-A (+5.5%) and DSPBR Small & Mid Cap-Reg (+5.4%) were the major gainers on a fortnightly basis.
± On the sectoral front, all fund NAV’s ended in green, except Information Technology funds - namely Birla SL New Millennium (-1%), ICICI Pru Technology (-1.2%), SBI Magnum IT (-2.5%) and Franklin Infotech (-2.5%). During the fortnight, a major rally was observed among the shares of infrastructure companies. As a result, the infrastructure oriented mutual funds outperformed the sectoral category. These funds delivered the returns in the range of 6.8% to 2.2%. Among the large corpuses, UTI Infrastructure (3.6%), Tata Infrastructure (+2.9%) and SBI Infrastructure-I (+2.6%) were the top gainers.
± Due to the recent upward move in the equity market, funds with maximum allocation to the equities ended higher compared to others under the balanced fund category. Out of 54 funds, 23 funds outperformed the benchmark Crisil Balanced Fund Index. Major gainers were Kotak Dynamic Asset Allocation Fund (+5.6%), HDFC Prudence (+4.5%) and Tata Balanced (+4.1%). The benchmark Crisil Balanced Fund index was up by 1.4%.
± During the fortnight, 10-year G-sec bond yields hardened by 10bps to 7.67% on concern that rising food prices could prompt the RBI to tighten the monetary policy. However, income and gilt funds’ NAV’s ended on mixed. Among the gilt fund category LICMF G-Sec-Reg, SBI Magnum Gilt-STP and SBI Magnum Gilt-STP were the major gainers among the large corpus on a fortnightly basis. Among the income funds,
± In the ETF category, Gold ETF remained subdued during the fortnight and delivered ~0.4% returns. However, the top quartile of ETF category was conquered by the small-cap and bank oriented ETFs. Junior BeES (+3%), Kotak PSU Bank ETF (+2.9%) and PSU Bank BeES (+2.9%) topped the fortnightly ETF chart.
Weekly Update: Debt Market - week ended January 08, 2010
± During the week, long-dated bond yields remained firm in anticipation of a rate hike in the upcoming central bank policy review scheduled on Jan 29. The 10-year G-Sec hardened by 10bps to 7.67% nearing its 15-month high.
± RBI had set a cut-off yield for 6.90% G-Sec bonds maturing in 2019 at 7.77%, lower than the market expectation. For the 7.32% bond maturing in 2014, the cut-off yield was set at 7.27%.
± Government is considering allowing NRI’s to invest in infrastructure bonds to facilitate greater inflow for key projects ensuring their participation in country's development.
± Petroleum Ministry is seeking Rs310bn either in cash or in bonds in the current fiscal to compensate the PSU OMCs for losses incurred on sale of cooking fuels.
± RBI has directed banks to disclose details of remuneration received through their bancassurance business from FY10 in order to enhance transparency in financial statements.
±
Corporate Snippets
± Reliance Industries raises Lyondell bid to US$13.5bn. (TOI)
± L&T plans 6,500 Mw power generation capacity in 4 yrs. (BS)
± The steel ministry is planning to set up a special arm under SAIL to spearhead overseas acquisitions, particularly in the mining sector. (BS)
± Telenor Group increases its stake in Unitech Wireless from 49% to 60.1% with an investment of Rs15bn. (BL)
± IOC plans 26% stake in nuclear power venture with NPCIL. (BS)
± Government plans to raise Rs110bn by divesting 5% stake in NTPC. (BL)
± RBI may not hike rates in the next six months, says SBI chairman. (TOI)
± Ranbaxy Laboratories eyes Bangalore-based biotech company Biovel Life Sciences; deal size is said to be around Rs500mn. (DNA)
± National Aluminium plans to set up three subsidiaries to make investments in new businesses. (DNA)
± Essar Group plans to acquire a majority stake in
± Sunil Hi Tech Engineers has been awarded a Rs4.9bn Balance of Plant contract by Maharashtra State Power Generation Co. (BL)
± Raymond plans to open over 200 stores across the country in the next one and half years to grow its business. (ET)
± Setco Automotive plans to invest Rs1bn over the next two years for setting up a new plant for clutch units in Africa (ET)
± Natco Pharma to shortly launch its breast cancer drug Albupax. (ET)
Economic snippets
± Foreign exchange reserves rose by US$22mn to US$284bn, for the week ended January 1. (BL)
± Union Government has approved road projects worth Rs61.5bn in five States for upgrading nearly 562km of highways. (BL)
± FM has offered a proposal to the states for absorbing 50% of the losses likely to be incurred by them while shifting to the GST regime. (DNA)
± Successful bidders at the upcoming auction of 3G services will be allowed to split their payment into two parts. (Mint)
± Steel consumption rose close to 8% during April-December 2009, over the year ago period. (ET)
± Telecom regulator Trai is planning an alternate solution against moving to 11-digit mobile numbers where it will retain the current 10-digit format but open up digits 2 to 9 for mobile numbers. (ET)
± Domestic tourism sector bounces back, about 6.46 lakh foreigners visited the country during December 2009, up 21% compared to 5.34 lakh in the corresponding month the previous year. (ET)
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