Market Mantra
Market outlook
Doubts and faith
Doubt is a feeling too lonely to know that faith is its twin.
The quarterly numbers so far give faith that companies have done well not just by cutting costs but also by improving sales. Even as most numbers have beaten street expectations, skeptics have their doubts; they would rather wait till many more numbers are seen. The result season will switch into a higher gear even as the market awaits the RBI’s policy action.
Inflation has jumped quite a bit in recent times, especially on the food front. Though monetary policy has no direct impact on prices, the RBI is under pressure to reign in inflation expectations. A CRR hike has been discounted while a rate hike will definitely surprise the markets.
Today we expect a soft opening as most global markets are in the red. The sluggish market provides an opportunity to get out of weak counters and enter relatively stronger ones. Medium to long term outlook for
Trading ideas (Time period: 1-3 days)
REC Ltd (SELL, CMP Rs268, Target Rs254): On the daily charts, REC has given a close well below its resistance levels between Rs274-270. Moreover, the stock has broken below its short-term moving average. We expect the weakness to continue in the near term with daily RSI also showing a downward trend. Movement of the momentum indicators denote that the stock could trudge lower over the near term. Any fall from these levels could drag the stock lower towards Rs255 and below. We recommend a high-risk sell on the stock between the levels of Rs272-265 with a stop loss of Rs275 for an initial target of Rs254.
Tata Motors (SELL, CMP Rs797, Target Rs765): On the daily chart, the stock has been trading in a narrow range Rs806-770 since early January 2010. Last week, we saw the stock breaking below its multiple support levels. The recent decline was accompanied by higher volumes. Friday’s decline confirms the breakdown from the multiple support zone. Furthermore, on the weekly chart, it has broken down from a small consolidation pattern, confirming the negative trend. We recommend traders to initiate short positions in the range of Rs794-804 for a target of Rs765. A stop loss of Rs812 is recommended on all short positions.
Derivative strategies (Time period: Till expiry)
± Long MRPL Jan Future @ Rs85.50 for the target price of Rs92 and stop loss placed at Rs83.
Remarks: Net maximum profit of Rs28,925 and net maximum loss Rs11,125.
± Long Television Eighteen India Ltd Jan Future @ Rs94.50 for the target price of Rs101 and stop loss placed at Rs92.
Remarks: Net maximum profit of Rs11863 and net maximum loss Rs4,563.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Feb | Buy | 16810-16820 | 16865, 16910 | 16780 |
| Silver - Mar | Buy | At 28220 | 28350, 28450 | 28170 |
| Copper - Feb | Buy | At 340 | 342.5, 345 | 338.4 |
| Zinc - Jan | Sell | Below 111.7 | 110.7, 110 | 112.4 |
| Lead - Jan | Buy | 111.5-111.8 | 113, 114 | 110.8 |
| Aluminum - Jan | Buy | Above 105.1 | 106, 107 | 104.3 |
| Nickel - Jan | Buy | Above 856.5 | 870, 885 | 845.5 |
| Crude Oil - Jan | Sell | Below 3605 | 3670, 3640 | 3630 |
| Natural Gas - Jan | Sell | Below 261 | 258, 255 | 263.2 |
| Steel long - Feb | Buy | 26000-26050 | 26250, 26400 | 25930 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Feb | Sell | Around 13500 | 13350, 13200 | 13570 |
| Jeera - Feb | Sell | Around 12690 | 12550, 12415 | 12780 |
| Turmeric - Apr | Sell | Below 7080 | 7040, 7000 | 7110 |
| COCUDAKL - Feb | Sell | 1203-1207 | 1190, 1175 | 1214 |
| Chana - Feb | Sell | Below 2440 | 2420, 2400 | 2450 |
| Guar seed - Feb | Sell | Below 2535 | 2505, 2470 | 2557 |
| Soya bean - Feb | Sell | Below 2190 | 2165, 2140 | 2210 |
| Soya oil - Feb | Sell | Below 462 | 459, 455.5 | 464.8 |
| Mustard seed - Jan | Buy | Above 593 | 596, 597.5 | 590.5 |
| Mentha oil - Jan | Buy | Above 609.5 | 612.8, 616 | 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 | Rs93.5 | | Entry load | Nil | |||
| NAV 52 high/low | Rs93/44 | | 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 (84%), Debt (0%), Cash (16%) | |||
| Options | Growth & dividend | | Expense ratio | 1.9% | |||
| | | | | | | | |
Result Update: TCS Ltd (Q3 FY10) – Market Performer
CMP Rs792, Target Price Rs825, Upside 4.2%
± Robust volume growth for third consecutive quarter; US$ growth of 6.3% qoq
± Broad-based growth across verticals; discretionary services and
± OPM hits 4-year peak with 100bps qoq expansion; net profit grew by 10.7% qoq
± Volume growth momentum to continue though margin could decline
± Maintain MP on TCS due to substantial stock price rally post Infosys numbers
Result Update: HDFC Bank (Q3 FY10) – BUY
CMP Rs1,691, Target
± Loan growth continues to exceed deposits growth; overall business growth was below expectations though
± NIM improve by 10bps qoq aided by expansion in spread and higher C/D ratio
± Non-interest income lowered by G-Sec trading losses; C/I deteriorate marginally partly due to robust branch expansion
± Asset quality improves; capital adequacy strengthens on warrant conversion by the parent
Revise earnings estimates by 7-10%; maintain BUY with target price Rs2,270
Result Update: Axis Bank (Q3 FY10) – SELL
CMP Rs1,078, Target Price Rs961, Downside 10.8%
± Loan growth disappoints, balance sheet shrinks sequentially.
± Net profit grew by 31% yoy, NIM improved by 48bps qoq on lower cost of funds.
± Non-interest income declined sequentially, fee income reported healthy 29% yoy growth.
± Asset quality continues to deteriorate; provision coverage ratio inched to 88% after adjusting for technical write-off.
± Valuations to de-rate due to significant moderation in loan book growth and risk of rising NPLs.
Result Update: Shree Renuka Sugars (Q1 F9/10) – BUY
CMP Rs233, Target Price Rs291, Upside 24.9%
± A surge in sugar realizations, 126% yoy rise in volumes \and higher trading revenues drive Q1 topline
± OPM expands 10ppts yoy on improved sugar prices
± Reported PAT jumps 24x yoy on the back of robust operating environment
± We factor in improved sugar realizations in the current fiscal and upgrade to BUY with revised TP of Rs291
Result Update: Ultratech Cements (Q3 FY10) – SELL
CMP Rs1,037, Target Price Rs840, Downside 19.0%
± Revenue rise of 2.0% better than expected on higher volume growth
± OPM contracts by 268bps, below our expectation of 25.7%, primarily due to sharp increase in raw material cost
± Weak operational performance and higher tax outgo drags PAT lower by 17.8%; below our estimates
± Valuation expensive at 16x FY12 PER; downgrade to SELL
What’s In, What’s Out – December 2009
Given below is the snapshot of mutual fund activity in Indian equities. The information includes performance of mutual funds, current cash levels and stocks which are in and out of flavour.
Key observations
± After a winning streak of two months, the Indian Mutual Fund Industry ended 2009 on a dismal note. In December ‘09, Mutual Fund (MF) industry’s Average Assets Under Management (AAUM), reported a decline of 1.62%mom, after touching all-time highs in November ‘09 at Rs808,500cr. Being the last month of the quarter, heavy outflows were witnessed from banks and corporates in income and liquid funds, which together constitute 66% of the total industry corpus.
± Reliance MF, held on to its leadership position, but saw a decline of 1.9% mom. Its AAUM fell by Rs2,271cr in December ‘09 to Rs119,982cr. Among the top-10, only three funds outperformed the industry and peers by posting a growth in AAUM viz. LIC MF (+5.7%), Franklin Templeton MF (+4.8%) and ICICI Prudential MF (+0.4%). However, the biggest fall among the top-10 was witnessed by HDFC MF whose AAUM was down 5.1% mom. The top-10 fund houses’ AAUM collectively fell by 1.2% mom, less steeper than the decline witnessed by the overall industry. Out of 37 fund houses, 25 reported a decline on a mom basis. However, Benchmark MF was the only fund house which posted a double-digit AAUM growth.
± December, being the last month of the third quarter, witnessed heavy outflows from the corporates and financial institutions in income and money market funds. Income and money market fund category saw an outflow of Rs155,056cr and resulted in a loss of market share by 700bps. Equity funds, which constitute 26% of the total industry corpus, also witnessed an outflow of Rs2,185cr.
± The top-12 fund houses have been overweight on metals & mining companies. Tata Steel, Gujarat NRE Coke and SAIL were among the top five additions made by them. From the power space, Suzlon was added by Franklin Templeton MF, Kotak MF and Tata MF. Unitech also witnessed buying interest by IDFC MF, SBI MF and Tata MF. In December ‘09, many of the top fund houses have reduced their exposure to banking stocks viz. Punjab National Bank and Yes Bank.
± In the debt market, Foreign Institutional Investors, after being net buyers for consecutive three months turned net sellers. In December ‘09, they sold debt worth Rs1,522cr. However, they were overweight on Indian equity market and bought equities worth Rs10,233cr. MF industry continued to remain net sellers for the fourth consecutive month, sold Rs1,762cr worth of equities. However, Indian MF remained net buyers in the debt segment, but with weaker participation as compared to the previous month. In December ‘09, fund houses bought debt worth Rs2,221cr vis-à-vis Rs16,099cr, down by 86.2% mom.
± Aggregate cash levels among the top-12 MFs reduced to 5.8% in December ‘09 as against 7.3% in November ‘09. Only two of the 12 fund houses maintained cash cushion in double digits in their equity fund portfolios viz. ICICI Prudential MF (10.7%) and IDFC MF (10%). Reliance MF, which holds the highest cash in absolute terms, trimmed down its cash level from 11.3% in November ‘09 to 8.9% of its total equity schemes.
Weekly Update: Debt Market - week ended January 15, 2010
± On a weekly basis, G-Sec bond yields ended flat. The 10-year benchmark bond yield was down by 3bps at 7.64%. However, one-year G-Sec yield ended higher at 4.37% vis-à-vis 4.31% last week, up by 6bps.
± RBI conducted auction on Friday and set a cut-off yield of 7.64% for the 6.35% G-Sec bond maturing in 2020 at the price of Rs91.11. This was in line with expectations.
± WPI Inflation ascended to a year’s high of 7.3% in Dec ‘09 vis-à-vis 4.8% in Nov ‘09. It was mainly driven by a 20% rise in food prices on account of weak monsoon. However, on a weekly basis food inflation decelerated to 17.28% for the week ended Jan 1 vis-à-vis 18.2% in the previous week.
± The Indian Government has offered Rs5bn stimulus package for exports to accelerate momentum in the dwindling sector.
±
± The People’s Bank of China raised deposit reserve requirements by 50bps from 15.50% for big banks and 13.50% for smaller banks with effect from January 18.
Corporate Snippets
± Lyondell creditors want audit of Reliance Industries bid appraisal. (ET)
± Tata Motors reported an 84% jump in its global sales at 74,707 units for December 2008, compared to the corresponding month in 2008. (ET)
± Suzlon Wind Energy, the international business arm of Suzlon Energy, has received its first order of Rs250mn from
± Cabinet Committee on Economic Affairs will soon take up the Steel Ministry's proposal to offload 10% stake in SAIL. (BL)
± Mundra Port and SEZ will invest at least Rs10bn in the first phase of development of non-LNG port facilities at Hazira in
± L&T, Reliance ADAG and GMR are among the eight bidders who have filed qualification documents for the Rs121bn Hyderabad Metro Rail. (BL)
± ONGC Videsh gets Cabinet panel nod to invest in Nigerian blocks. (BL)
± DLF plans to exit from its mutual fund venture DLF Pramerica mutual fund by selling its entire stake to the overseas partner, the us-based prudential financial. (ET)
± Suzlon in talks with lenders to recast Rs86.5bn debt. (ET)
± Shree Renuka Sugars is in the race to acquire a majority stake in
± Reliance Infratel, a subsidiary of Reliance Communications, has received the SEBI nod to go ahead with its public issue. (BL)
± L&T decides to put its heavy engineering SEZ near
± NMDC is in talks with ArcelorMittal for a possible joint venture. (DNA)
± Power Grid Corp. might raise US$1bn through bonds next fiscal, to develop the transmission network of Tilaiya UMPP. (DNA)
± Bharat Forge board approved raising US$150mn through equity-cum-debt issue for expansion into non-automotive areas like power and oil and gas. (ET)
± Maruti Suzuki announced a marginal increase of up to 2% in prices. (BS)
± HCC says ICICI Bank has invested Rs2.5bn in its subsidiary, Lavasa. (FE)
± SpiceJet is mulling various fund-raising options to fuel its expansion plans. (ET)
± Dalmia Cement is planning to raise Rs12bn by equity sale to part finance its plans to double capacity in four years. (ET)
± Apollo Tyres expects its Chennai facility to start commercial production of truck, bus and passenger car radial tyres beginning February-March this year. (BL)
± The Bombay High Court refused to grant interim relief to Kingfisher Airlines, which sought stay on a preliminary inquiry ordered against it by the Competition Commission of India (CCI). (ET)
± Jindal Stainless is planning to come out with rights or GDR issue with a size range of Rs3 to 5bn. (BS)
± NTPC-NPCIL may get nod for nuke plant in 2-3 months. (BS)
± PE firm 2i Capital sold 3% stake in Pipavav Shipyard for Rs1.1bn. (ET)
± Wockhardt-Abbot deal gets high court go-ahead. (BS)
± Crompton Greaves plans to buy companies to expand the company and add capacity. (BS)
± IOC’s US$500mn five-year bond issue gets subscription of 13 times. (BS)
± Dabur Ltd plans to re-expand its pharma research. (BS)
± ABG Shipyard has acquired more than 15.23% stake in Great Offshore for Rs2.94bn through open offer route. (ET)
± Hindustan Copper has decided to walk out of a pact with National Aluminium Co to jointly develop its Banwas copper mine in Rajasthan. (DNA)
± Pyramid Saimira has moved the Securities Appellate Tribunal against SEBI's order which banned the company in November 2009 from trading in the Indian securities market for seven years. (BS)
± Engineers India follow-on offer may hit market in July. (BL)
± Reliance Retail to acquire three brands from Henkel
± Ruchi Soya Industries, one of the leading edible oil processors, announced a major farm land acquisition in
± BSNL floats tender for dedicated defence network. (BS)
± Anil Ambani plans a takeover of the Metro-Goldwyn-Meyer Hollywood studio. (BS)
Economic snippets
± Cement dispatches in December stood at 17.74mn tons, recording the highest sequential growth rate at 12.78%, whereas on the year-on-year basis, the growth was in double digits at 10.8%. (BS)
± Foreign exchange reserves rose US$741mn during the week ended January 8 to US$284.3bn. (ET)
± SEBI sends proposal to Finance Minister, wants STT cut by a third. (ET)
± The Maharashtra government has decided to extend its policy of selling sugar at a subsidised rate of Rs20 per kg even to people above poverty line (APL) for another three months. (ET)
± To ensure competition in the third generation mobile segment, DoT is likely to impose a ban on mergers between operators who win the auction to be held later this year. (BL)
± Union Government has decided to limit the number of Ultra Mega Power Projects awarded to a single company to a maximum of three projects. (BL)
± Oil firms may get Rs120bn compensation from Finance Ministry. (BL)
± Cargo traffic at major ports up 5% in April-Dec '09. (BL)
± After two months of price cuts, the state-run oil companies hiked ATF price by 6.5% in step with hardening international rates. (TOI)
± DoT may halve 3G auction slots to two. (TOI)
± Union steel minister says Central government wants to discourage export of iron ore to promote export of value addition and finished products. (DNA)
± 3G winning bid to be new base price for spectrum. (Mint)
± CERC has issued new regulations fixing trading margins for inter-state trading in electricity. (Mint)
Results Table
| Companies | Revenue | YoY growth | PAT | YoY growth |
| Ultratech Cem | 16,693 | 2.0 | 1,960 | (17.8) |
| DCB | 326 | (38.6) | (181) | - |
| TCS | 58,834 | 0.1 | 15,543 | 28.3 |
| RIIL | 133 | (27.2) | 59 | 3.5 |
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