Market Mantra
Market outlook
Subdued sentiment!
Let the fear of danger be a spur to prevent it; he that fears not, gives advantage to the danger.
Interest rate concerns cast a shadow across world equity markets after the Chinese central bank moved to tighten liquidity in the money markets. This could lay the groundwork for an eventual rate hike in
On the positive side, US retailers posted modest gains in sales last month. A weekly report on first-time jobless claims also came in ahead of estimates. Meanwhile, the Bank of England and Bank of Korea have left interest rates steady. All eyes are now on Friday’s non-farm payroll numbers in the
We expect a flat to slightly positive start for the Indian market as global cues are indecisive and uncertain. Overall, sentiment should remain subdued for a while. The Nifty could face some selling pressure but is likely to find support at around 5225. If it crosses 5310, it could head for 5350 in the near term. Beware of the irrational rise in small and mid-cap stocks.
Trading ideas (Time period: 1-3 days)
Siemens (BUY, CMP Rs616, Target Rs655): On the daily chart, the stock has given a bullish breakout. It suggests that its short-term trend has turned up. Over the last eight weeks, the stock was consolidating in the range of Rs605-540. On Thursday, the stock crossed above the upper end of this trading band. The upmove was well supported by healthy volumes. Further, supportive technical oscillators are also positive. We recommend traders to buy the stock at current levels and on declines to the levels of Rs610 for an initial target of Rs655. It is advisable to maintain a stop loss of Rs597.
TCS (SELL, CMP Rs714, Target Rs680): On the daily chart, the stock has broken below the small consolidation pattern. It presents great opportunity for the traders to jump in on the downtrend. An occurrence of this event indicates further selling and continuation of the downtrend. The stock had been moving in the range of Rs760-715 since last week of December 2009. A break below Rs710 could see the stock testing levels of Rs690 and below. The daily RSI has also shown a reversal from a neutral position along with the price movement. We recommend traders to sell the stock for a target of Rs680. It is advisable to maintain a stop loss of Rs730 on all short positions.
Derivative strategies (Time period: Till expiry)
± Long Praj Industries Jan Future @ Rs112 for the target price of Rs125 and stop loss placed at Rs107.
Remarks: Net maximum profit of Rs28,600 and net maximum loss Rs11,000.
± Long GAIL Jan Future @ Rs428 for the target price of Rs450 and stop loss placed at Rs420.
Remarks: Net maximum profit of Rs24,750 and net maximum loss Rs9,000.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Feb | Sell | Below 16810 | 16765, 16730 | 16840 |
| Silver - Mar | Buy | 27750-27780 | 27950, 28100 | 27670 |
| Copper - Feb | Buy | Above 346 | 349, 351 | 343.7 |
| Zinc - Jan | Buy | At 116 | 117.5, 119 | 115.2 |
| Lead - Jan | Sell | Below 116.5 | 115.2, 114 | 117.6 |
| Aluminum - Jan | Buy | 104-104.3 | 105.6, 106.9 | 103.4 |
| Nickel - Jan | Sell | Below 844 | 830, 816 | 856.7 |
| Crude Oil - Jan | Sell | Below 3765 | 3735, 3710 | 3788 |
| Natural Gas - Jan | Buy | Around 262.5 | 266, 269 | 260.6 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Jan | Sell | Below 13650 | 13500, 13450 | 13780 |
| Jeera - Jan | Sell | Below 13600 | 13465, 13350 | 13680 |
| Turmeric - Apr | Sell | Below 7350 | 7305, 7270 | 7380 |
| COCUDAKL - Jan | Sell | Around 1180 | 1165, 1153 | 1190.8 |
| Chana - Jan | Buy | At 2351 | 2380, 2400 | 2337 |
| Guar seed - Jan | Buy | At 2625 | 2655, 2680 | 2605 |
| Soya bean - Jan | Sell | |||
| Soya oil - Jan | Sell | Below 481 | 478, 475 | 483.6 |
| Mustard seed - Jan | Sell | Below 601 | 597.5, 594 | 603.8 |
| Mentha oil - Jan | Buy | 610-611 | 615, 620 | 607.3 |
**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 | Rs92.9 | | 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% | |||
| | | | | | | | |
Q3 FY10 Sector Previews:
Automobiles
A strong base effect is expected to translate into a second straight quarter of robust performance for the Indian automobile industry. On a yoy basis, volume growth for our universe companies ranged from 22% to 101.4% driven by improved consumer sentiment and better availaibility of finance. Sequentially, growth was muted for the two wheeler space but CVs and passenger cars registered a strong growth in demand. On a yoy basis, benefits of lower raw material cost and advantages of operating leverage shall result in OPM expansion for all companies under our coverage. However, on a qoq basis margins are expected to witness marginal pressure owing to a sharp jump in raw material prices over the past few months.
Banking
We expect our banking universe to report a modest 3% qoq growth in net profit. On yoy basis, the net profit is expected to decline by 6% due to exceptional trading gains in Q3 FY09. The system credit growth has remained low at 11.3% yoy (6.2% YTD), while deposit growth has moderated to 18% yoy. NIM is however set to improve for most banks as they benefit from re-pricing of some high-cost deposits and improvement in C/D ratio. The concerns over asset quality have abated and we expect limited accretion in NPLs. Restructuring is also expected to be minimal in the quarter. The recent surge in bond yields may result in higher MTM provisions on G-Sec investments which may however be offset by gains on equity portfolio. We prefer PNB, BoB and Canara Bank in PSB space and HDFC Bank and Yes Bank amongst the private banks. We remain negative on Axis Bank.
Capital Goods
Engineering and capital goods companies are expected to witness healthy revenue growth due to a strong order backlog. A pick up in order execution of power systems will augur well for these players. We expect margins to improve for players as raw material prices are lower vis-à-vis the corresponding period last year. With the industrial capex reviving, we expect companies to experience an improvement in order inflow going forward.
Cement
Domestic cement consumption remained steady with growth of ~10% yoy in Q3. However, rising supplies led to price declines of ~5-30% in different parts of the country. Southern, Central and Western regions were the worst affected whereas lower capacity addition along with strong demand led to stable pricing in northern and eastern markets. Ultratech and India Cements would under perform due to higher exposure in Southern and Western
FMCG
We believe the growth momentum in FMCG sector will remain intact in Q3 FY10 aided by strong demand across categories and propelled by rising demand from the bottom-of-the- pyramid. The growth is expected to be primarily volume-led as a result of aggressive marketing activities and strong upsurge in demand from rural markets. In the absence of any major price hikes during the quarter, the value growth is likely to be lower. Most of the players are expected to report healthy margin expansion aided by lower raw material cost. Firm agri-commodity prices are likely to restrict margin expansion of processed food companies. We expect the robust demand emerging from small towns and rural areas to help players sustain strong volume growth in the coming quarters. We remain positive on the sector with ITC, Nestle and GSK Consumer as our top picks.
Hotels
Q3 FY10 would indicate the strength of revival in occupancies and ARRs on sequential basis. We reckon average occupancies for leading metro-based luxury/business properties would be well above 75%, up about 10ppts qoq. Room rates may show improvement from Q2 levels as foreign arrivals rise an estimated 32% qoq. That said, revenue and profit growth would still be lower yoy, especially the latter which is expected to fall ~30-48% for the three coverage companies. Along with occupancies, operating margin too should post a recovery of about 12-14ppts qoq but down yoy. Current sector valuations price in ARRs similar to FY08 levels, which we believe is unlikely. Retain SELL on IH, EIH and LELA.
Information Technology
Q3 FY10 results of IT sector are unlikely to spring-up any positive surprises given the elevated street expectations. Volume growth is expected to be stronger than Q2 FY10 despite seasonal weakness while pricing is likely to stabilize. Constant currency (CC) dollar revenue growth would be in the range of 2-4.5% qoq for large companies. Margin is expected to contract by 100-300bps qoq for most due to multiple headwinds while the quantum of hedges would determine individual profit performance. We expect Infosys to upgrade FY10 rupee EPS guidance to Rs102-103.
Metals
Metal companies’ earnings are expected to register growth for the fourth consecutive quarter sequentially and for the first time on a yearly basis since Q2 FY09. Non-ferrous companies are expected to lead the pack buoyed by strong commodity prices. For the non-ferrous companies, all the companies are expected to report strong set of numbers led by Hindalco and NALCO (both had reported weak numbers in Q2 FY10). Hindalco is expected to register the highest earnings growth on account of lower base effect and strong aluminium prices. For steel companies, earnings growth would remain flat due to lower steel realisations and lower sales volume (JSW & JSPL). Among the steel peers, Tata Steel standalone is expected to outperform on account of the 9.6% qoq volume growth and lower coking coal costs.
Oil and Gas
Brent prices averaged US$75/bbl during Q3 FY10, compared to US$68.5/bbl in Q2 FY10. This translated into 40% sequential jump in under recoveries to Rs140bn. With no indications from the government, we have assumed the sharing pattern to remain similar to Q2 FY10 (auto fuel losses: upstream companies; cooking fuel losses: OMCs). Singapore GRMs weakened further leading to lower qoq GRMs for all refiners. Higher production from KG-D6 will offset lower GRMs for Reliance and will result into higher transmission volumes for GAIL. While Cairn will see higher revenues due to commencement of oil production from Rajasthan field, ONGC will gain on account of higher net realization. ONGC and GAIL will witness improved profitability as sharing of only auto fuel losses will lead to lower share in under recoveries.
Telecom
Q3 FY10 was the first full impact quarter of a no holds barred tariff war amongst operators. Albeit we expect voice traffic to improve in response to the tariff cuts which could partly counteract the estimated 3-4p decline in revenue/min. Bharti/Rcom wireless revenues would be lower by 0.8/2.5% qoq while Idea could witness 3.4% sequential rise in topline. Bharti telemedia sales would remain flat qoq on a 2.4% ARPU decline.
Utilities
During the first two months of Q3 FY10, the country added only 1.6GW, taking
Corporate Snippets
± Supreme Court issues notice to RIL in
± TCS, Infosys, Wipro, HCL Tech amongst IT majors vying for US$500mn Danish pension fund contract. (BS)
± SAIL may cut steel prices in near future. (ET)
± Transgene Biotek has entered into a licensing and technology transfer agreement with Dr Reddy’s for its obesity drug, Orlistat. (BL)
± ONGC is facing serious challenges in maintaining
± PNB launches banking operations in
± Reliance MediaWorks acquires ilab
± Ashok
± Thermax bags an order worth Rs2.4bn. (BL)
± Ashok Leyland reports 164% rise in sales in December 2009. (BS)
± Lanco Infratech is all set to enter the solar power business early next fiscal. (BL)
± IRB Infra wins a contract from NHAI for a road project in
± Coal
± PSL bags orders worth Rs4.25bn. (ET)
± Stride Arcolabs has announced a major licensing deal with Pfizer. (BL)
± BGR Energy ties-up with
± Tata Elxsi to hire 400 professionals this year. (BS)
± Kalpatru Power secures two orders worth Rs2.5bn. (BL)
Economic snippets
± Food inflation for the week ended December 26 falls to 18.22%. (ET)
± Power Ministry wants gas at US$2.34 for NTPC. (BS)
± Telecom service providers have added 44.2mn new subscribers in the quarter-ended September 2009. (BS)
± Insurance industry grows by 11.4% in April-September 2009. (BL)
± Government to decide on new SEZs on February 8. (FE)
± Government will allow companies to adjust FBT paid by them against the advance tax due in the March quarter. (ET)
± TRAI likely to fix non-CAS cable tariff by May 31st. (ET)
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