Market Mantra
Market outlook
Global tailwinds to boost start
Raise your sail one foot and you get ten feet of wind.
A good start to an action-packed week will at least save you the Monday blues. Asian markets are all smiling with the Nikkei 225 up nearly 3%. The Railway Budget, Economic Survey and Union Budget and F&O expiry will see the bulls and bears have a slug-fest especially later this week. Besides the Q3 GDP figures later this week, the report of the 13th Finance Commission will also be closely watched.
A lot of economic reports are due from the
Shree Renuka Sugars would be in action. It has entered into definitive agreements with Grupo Equipav S.A. of
While the prudent strategy would be to wait till the budget before committing a large portion of your money, there is always room to enter and exit the usual suspects who spiral around budget time. Exercise extreme caution though.
Trading ideas (Time period: 1-3 days)
HDIL (BUY, CMP Rs315, Target Rs333): The stock has rallied smartly from a low of Rs296 in first week of February 2010 to the present levels. Despite the ongoing volatility in the market, the stock has managed to hold on to the support of its 200-DMA. On the daily charts, it has formed a pattern of a higher bottom. It is considered as the initial sign of a bottoming out process in the short term. The daily RSI is already in strong buy mode, indicating that the prices are set to rally from the current levels. A sustained move past the Rs318 levels will see the stock heading towards the levels of Rs330-335 in the medium term. We recommend high risk traders to buy the stock between Rs312-318 for a target of Rs333 with a stop loss of Rs307.
SBI (BUY, CMP Rs1,942, Target Rs2,050): The stock had been in a downtrend after touching a
Derivative strategies (Time period: Till expiry)
± Long Piramal Healthcare Feb Future @ Rs380 for the target price of Rs395 and stop loss placed at Rs375
Lot size: 1,500
Remarks: Net maximum profit of Rs22,500 and net maximum loss Rs15,000.
± Long Educomp Solutions Feb Future @ Rs710 for the target price of Rs770 and stop loss placed at Rs700.
Lot size: 375.
Remarks: Net maximum profit of Rs22,500 and net maximum loss Rs3,750.
Mutual funds
| Fund focus | |||||||
| ICICI Prudential Dynamic Plan | Invest | ||||||
| Fund manager | Sankaran Naren | | Min investment | Rs5,000 | |||
| Latest NAV | Rs89.8 | | Entry load | Nil | |||
| NAV 52 high/low | Rs94/44 | | Exit load | 1% <1 year | |||
| Latest AUM | Rs1,890cr | | Latest dividend (under dividend option) | 12% (19-Feb-10) | |||
| Type | Open-ended | | Benchmark | S&P Nifty | |||
| Class | Equity-diversified | | Asset allocation | Equity (83%), Debt (0%), Cash (17%) | |||
| Options | Growth & dividend | | Expense ratio | 1.9% | |||
| | | | | | | | |
Sector Report - Power Financing – Electrifying
The increasing demand-supply mismatch and low per capita consumption of energy necessitate higher generation of power. Government of
Rural Electrification Corp - BUY
CMP Rs215, Target Price Rs303, Upside 41.1%
Rural Electrification Corporation (REC) with core focus on developing power infrastructure in rural areas has diversified its loan portfolio to include power and power related financing projects. With ~16% market share in power financing business, we expect the company to be a key beneficiary of the capex plan as envisaged in the current Five Year plan. REC has witnessed sturdy ~26% CAGR in sanctions over FY05-09; a large amount of these would materialize with improving economic environment. This in-turn would translate into 24% CAGR in net profit and 25% CAGR in balance sheet over FY09-11E. Asset quality has been contained at near zero levels. While the recent equity infusion is likely to dilute RoE in FY11, we expect it to improve thereafter. Recommend subscribe in the ongoing FPO.
Power Finance Corporation (PFC) - BUY
CMP Rs235, Target Price Rs299, Upside 27.3%
Power Finance Corporation (PFC) with prominent market share (20%+) in power financing business is expected to be the key beneficiary of the hefty capex plan as articulated in the XIth Five Year Plan. The company has witnessed robust 32% CAGR in sanctions over FY05-FY09. With an improving investment appetite, we expect PFC to capitalise on the growth opportunity. Predominant exposure towards generation segment, increasing proportion of disbursement towards private sector and near zero levels of NPA would drive a sturdy 21% CAGR in balance sheet and 22% CAGR in loan book over FY09-11E. Recommend BUY.
Result Update: Nestle India Ltd (Q4 CY09) – BUY
CMP Rs2,642, Target Price Rs2,915, Upside 10.3%
± Nestle surpassed our revenue expectations by recording 24% yoy growth at Rs13.5bn, led by strong 25.3% yoy growth in domestic sales and a modest 8.5% yoy increase in exports
± Sharp rise in raw material and staff cost pulled down operating margins by 480bps to 14.7%. As a result, net profit declined by 6.7% yoy to Rs1.1bn
± We expect Nestle to witness 19.1% CAGR in revenues and 24.5% in net profit over CY09-11. Maintain BUY with a target price of Rs2,915
Mutual Funds Thermometer as on February 19, 2010
Given below is the summary of performance of the mutual fund industry in India. The analysis has been based on different criteria like time period, size of corpus and scheme category. A snapshot of the report is shown below.
Key observations
± During the fortnight, volatility subsisted in equity market across the globe as a result of which NAVs of equity diversified funds also ended on a mixed note. The advance: decline ratio stood at 146:44. Only 45 equity diversified funds were able to outperform the benchmark S&P Nifty, which was up by 0.8% on a fortnightly basis. Mid-cap funds continued to maintain a foothold in the top quartile. Among the large corpuses, HDFC Mid-Cap Opportunities Fund (+1.6%), SBI Magnum Global '94 Fund (+1.5%) and Reliance Growth Fund (+1.4%) were the fortnightly gainers, with an average exposure of 53% of their total corpus to mid-cap companies. JM Basic Fund continues to be an underperformer. Its NAV declined by 1.7% on a fortnightly basis.
± After a gap of a fortnight, Informational Technology (IT) Funds made a comeback and positioned themselves in the top quartile under the sectoral category. The top three gainers belonged to IT category namely Franklin Infotech, Birla Sun Life New Millennium and ICICI Prudential Technology. Their NAVs appreciated by 3.1%, 2.4% and 2.1% respectively. JM Telecom was the dragger in the sectoral fund category. Its NAV declined the most by 4% due to heavy sell-off in Bharti Airtel, which constitutes 48% of the total corpus. Bharti fell following an acquisition announcement of the African operations of Kuwait-based Zain.
± During the fortnight, the benchmark 10-year bond yields hardened and held near 16-month highs over concerns of higher government borrowing for the next fiscal. Mirroring the yields performance, long-dated bond funds’ NAVs ended in negative region. However, the short and medium term dated bond funds ended on a positive note. Among the large corpuses, SBI SHD-Short Term, Religare Credit Opp-Reg and UTI Short Term Income were the gainers among the income fund category. Under the gilt fund category, Templeton India G-Sec-Treasury, UTI G-Sec-Invest and UTI G-Sec-STP were the major gainers on a fortnightly basis.
± Among Fund of Funds category, funds investing in gold mining companies have significantly outperformed the category on a fortnightly basis. AIG World Gold and DSPBR World Gold were two major gainers in the category. They delivered returns of 9.7% and 8.9% respectively.
± On a fortnightly basis, all ETFs NAV ended in green. Banking ETF topped the chart by delivering an average return of 1.3%. Gold ETFs’ NAV continued to remain soft on a fortnightly basis. It delivered an average return of 0.5%. Public Sector Undertaking (PSU)-oriented funds continued to underperform under the ETF category. Kotak PSU Bank ETF and PSU Bank BeES NAVs were up a tad by 0.1%.
Weekly Update: Debt Market - week ended February 19, 2010
± The 10-year G-Sec bond yield closed at 7.89%, after holding near 16-month highs. Yields hardened by 2bps on a weekly basis over concerns of higher government borrowing in the next fiscal. However, 5-year bonds yield softened by 10bps.
± Food inflation rose for the fourth consecutive week. It stood at 17.97% for the week ended Feb 6 on account of higher prices of pulses and potatoes. It rose by ~38% on a yearly basis.
± RBI reduced the ceiling rate on export credit in foreign currency by banks to LIBOR +200bps from LIBOR +350bps with immediate effect.
± India’s holding of US Treasury securities at the end of Dec‘09 stood at US$29.6bn vis-à-vis US$31.6bn at the end of Nov‘09.
± State Governments announced the sale of 10-year SDLs for an aggregate amount of Rs.37.3bn as on Feb 23, 2010.
± US Fed Reserve increases the primary credit rate from 0.5% to 0.75%, effective from Feb 19, 2010.
± Russia’s central bank cut its benchmark interest rate - repurchase rate to 7.5% from 7.75% and refinancing rate by 25bps to 8.5% with effective from February 24.
Corporate Snippets
± SBI may not raise deposit rates before May-June. (BL)
± REC FPO subscribed just 0.29 times receiving bids for 34.90mn shares out of the total issue size of 171.73mn shares on opening day. (BS)
± HDFC Bank increases the rates on fixed deposits by up to 150bps across maturities. (BL)
± Reliance MediaWorks has made an open offer to purchase a controlling stake in Fame India. (Mint)
± Bharti Airtel chairman says his company does not need any regulatory approvals in India to acquire African assets of Zain Telecom; hopes the deal would be concluded by the end of April. (TOI)
± Bharti Airtel lines up funds aggregating US$9bn from foreign and local banks for its proposed acquisition of Zain Telecom, as it settles to finance the entire deal through debt in the first phase. (ET)
± S&P and Crisil placed Bharti Airtel’s long-term bank facilities and debt programme on ‘rating watch with negative implications. (ET)
± Ambuja Cements plans to spend around Rs35bn to expand its capacity to 24mn tons from the current 19mn tons by year-end. (ET)
± Shree Renuka Sugars announces the acquisition of 51% stake in Equipav S.A. Acucar e Alcool, one of the largest sugar and ethanol companies in Brazil, for Rs15bn. (BL)
± Patel Engineering plans to dilute as much as 40% of equity in its power subsidiary, Patel Energy Resources. (BS)
± The Foreign Investment Promotion Board asks United Breweries Holdings to clarify some issues on an application to bring in foreign investment. (BS)
± Nestle India reports 6.7% fall in net profit at Rs1.13bn for Q4 as against Rs1.21bn. (BS)
± Offshore services provider Great Offshore plans to raise funds up to Rs17.5bn by issuing securities. (BL)
± The government is likely to sell its 330mn shares in NMDC next month through a price band of Rs415-430 per share and leave the auction route adopted in the case of NTPC and REC. (BS)
± NMDC is set to pick up a 50% stake in Ferrous Resources’ Brazilian operations for US$2.5bn. (ET)
± Kingfisher Airlines, British Airways in talks for code-sharing in India. (ET)
± Videocon’s Elcoteq bid take a hit as creditors’ eye higher compensation to cede controlling stake. (ET)
± Emami enters F&B business; launches edible oil brand. (FE)
± Apollo Hospitals plans to come up with three more liver transplant clinics across the country. (BS)
± Godrej Industries’ real estate arm has lined up Rs20bn of investments for developing five projects over 30mn square feet in Bangalore. (DNA)
± Jaypee Infratech says it was proposing to raise Rs16.5bn through initial public offering and the issue was likely to be launched by next month. (FE)
± Star Aviation, the country’s first regional airline to get a licence in 2007 but which is yet to launch service, has initiated sale talks with the GMR group. (TOI)
± United Spirits enters the non-alcoholic drinks category with Romanov Red Energy Drink. (BS)
± Burnpur Cement plans to set up cement plants in Uttar Pradesh, Bihar and in neighboring countries like Nepal, to increase capacity to 10mn tones in the next few years. (ET)
± Coal India plans to file the draft red herring prospectus with SEBI for its initial public offer by June. (BL)
Economic snippets
± A more than three-fold jump in private remittances is expected in 2009-10 as the economy stages a stronger-than-estimated rebound in the second half, the Economic Advisory Council to the Prime Minister has projected. (BL)
± The Reserve Bank of India reduced the ceiling rate on export credit in foreign currency by banks to Libor plus 200bps from Libor plus 350bps. (BS)
± New FDI policy to be unveiled on March 31. (BL)
± India's PC market sales touched ~2mn units in Oct’-Dec’ 09, a 25.7% growth over corresponding quarter of previous year. (BL)
± Foreign exchange reserves rose US$485mn to US$279bn for the week ended February 12. (BL)
± Cement dispatches by major manufacturers grew by a healthy 12.6% yoy in January at 18.2mn tonnes. (TOI)
± Communication minister says number portability would be launched in the first week of May; in the first leg, it would be launched in Chennai and Bangalore. (TOI)
± The finance ministry is considering a proposal to rationalise end-use exemptions granted to businesses through various duty reliefs. (BS)
± Iron ore shipment declined 11% in December to 12.37mn tons in December 2009 compared to 13.85mn tones in the corresponding month last year. (BS)
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