Market Mantra: Technicals - NMDC (Buy), BGR Energy (Buy); F&O - Reliance Infra (Long), Cipla (Long); Report - KPIT Cummins Infosystems

 

 

Market Mantra

 

Market outlook

Courage on the street!

 

A man of courage never needs weapons, but he may need bail.

 

A Greek-tragedy has been averted!  In what could be the first financial rescue in the 11-year old history of the 16-member eurozone, Greece is likely to receive aid to help it reduce its massive debt. The big question is whether other troubled EU nations like Portugal, Spain and Ireland too will get similar bailouts? A few may also be perturbed by the recurring financial problems and their subsequent bailouts. 

 

For now though, risk appetite seems to be back, at least temporarily. The dollar index slid below 80 and the euro had its biggest gain against the greenback in two months. Gold and crude oil also advanced. The Dow Jones had its biggest gain since Jan. 4. Stocks in Europe, however, missed out on much of the Greek-related rally. Asian markets are mostly higher.

 

We expect a positive start for Indian stocks on healthy global cues. But, don't take undue risks, as the near-term outlook remains cloudy. A big worry is the continuous selling by FIIs, though local funds remain bullish. Budget could prove to be an important catalyst.

 

Trading ideas (Time period: 1-3 days)

NMDC (BUY, CMP Rs491, Target Rs520): On the daily chart, the stock has broken out from a Symmetrical Triangle pattern. The stock had been moving back and forth within the context of the Triangle from December 2009. In the above formation, it has converging trendlines that come together at an apex.  It is considered a bullish set up. This pattern is marked by a series of lower tops and higher bottoms. The stock could not escape the sharp fall in the broader market and corrected from a high of Rs527 in January 2010 to a low of Rs440 Last week. The current breakout is set to take the stock to the levels of Rs520 and above. We recommend traders to buy the stock at current levels with a stop loss of Rs477.

 

BGR Energy (BUY, CMP Rs521, Target Rs550): The stock has rallied smartly from a low of Rs439 in January-end 2010 to the present levels. On the weekly 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. The stock is trading above its 26-DMA, placed at around Rs521. A sustained move past the Rs525 levels will see the stock heading towards the levels of Rs550 in the medium term. We recommend traders to buy the stock between Rs516-526 levels for an initial target of Rs550 with a stop loss of Rs508.

 

Derivative strategies (Time period: Till expiry)

±       Long Reliance Infra Feb Future @ Rs1,065 for the target price of Rs1,100 and stop loss placed at Rs1,050.

Lot size: 276

Remarks: Net maximum profit of Rs9,660 and net maximum loss Rs4,140.

 

±       Long Cipla Feb Future @ Rs321 for the target price of Rs335 and stop loss placed at Rs315.

Lot size: 1,250.

Remarks: Net maximum profit of Rs17,500 and net maximum loss Rs7,500

 

Commodities – Metals (Time period: Intra-day)

Trade recommendation

Commodity	Strategy	Levels	Target	Stop-Loss
Gold – Apr	Sell	16345	16210	16410
Silver - Mar	Sell	24540	24310	24680
Copper - Feb	Sell	310	304	314.2
Zinc – Feb	Sell	99.2	96.1	100.5
Lead - Feb	Sell	96.2	94.3	97.1
Aluminum - Feb	Sell	95.2	93.7	96.3
Nickel - Feb	Trade as per intraday calls
Crude Oil - Feb	Sell	3450	3410	3465
Natural Gas - Feb	Trade as per intraday calls

 

 

 

 

Mutual funds

Fund focus
HDFC Top 200 Fund					Invest
Fund manager	Prashant Jain		Min investment				Rs5,000
Latest NAV	Rs170.9		Entry load				Nil
NAV 52 high/low	Rs183/78		Exit load				1% <1 year
Latest AUM	Rs6,066cr		Latest dividend (under dividend option)				30% (5-Mar-09)
Type	Open-ended		Benchmark				BSE200
Class	Equity-diversified		Asset allocation	Equity (98%), Debt (0%), Cash (2%)
Options	Growth & dividend		Expense ratio			1.8%

 

 

Company Update: KPIT Cummins Infosystems – BUY

CMP Rs114, Target Price Rs138, Upside 20.6%

 

Our recent interaction with KPIT management has made us more confident about company's strong revenue growth prospects and margin defense capability in the next two years. We expect KPIT's dollar revenues to witness 25% CAGR over FY10-12 driven by robust growth in Sparta and operating margin to decline by 300bps (lower than earlier assumption of 450bps) despite factoring steep ~10% rupee appreciation from hereon. Resultantly, we revise upwards FY11 and FY12 EPS estimates by 5% and 13% respectively. Earnings revision and the recent stock price correction have made current valuations attractive. Upgrade KPIT to BUY with a target price of Rs138.

 

Corporate Snippets

±      Iran said it continues to import fuel from Reliance Industries, a statement contrary to that made by the Mukesh Ambani-controlled company that it had, since last year, stopped selling gasoline to the Islamic nation in an apparent bid to escape US sanctions. (BS)

±      Bharti Airtel and RCom announced their plans to launch mobile applications stores, joining global companies like Apple, Google, Motorola and BlackBerry. (ET)

±      Bharti Airtel accounts for 24% of SingTel's profit of USS$991mn for the three-months ended December 2009. (ET)

±      ONGC has threatened to withdraw from over seven exploration blocks it had licenses for, if the Centre does not reimburse the taxes the company is paying on behalf of its joint venture partners for these blocks. (FE)

±      Hero Honda plans to set up Rs8bn greenfield facility in Gujarat for manufacturing bikes and also come up with ancillary units. (BS)

±      Wipro's BPO arm plans to shift 20% of its workforce overseas in the next five years. (FE)

±      Coal India, along with the coal ministry and the Department of Divestment, will meet SEBI on February 19 to chart out the blueprint for its IPO. (BS)

±      Coal India has lowered its production target to 486mn tons from 520mn tons for the Eleventh Five Year Plan period in a mid-term review. (BS)

±      Mahindra Renault, a JV between M&M and Renault, has finalized a new roadmap for the troubled venture, details of which will be made public in 30-45 days. (BS)

±      SBI will continue with its limited period offer on home loans till the end of the current financial year. (ET)

±      BHEL bagged Rs10bn contract for supplying equipment to a hydro power project in Bhutan. (BL)

±      The Electrical & Gulf Projects Operating Company, which is part of L&T's construction division, secured orders worth Rs5.8bn for four electrical projects. (BL)

±      Adani Power plans to set up a 1,320MW coal-based thermal power plant in Madhya Pradesh. (BL)

±      Adani Power has decided to scrap one of its long-term power supply pacts with the apex power utility GUVNL, thus attracting a penalty of Rs1bn. (ET)

±      Court ruling allows Cipla to market generic cancer drug. (BL)

±      PFC may hive off its renewable energy business and consortium lending in early 2010-11 to leverage the current investment boom in green energy projects and diversify its asset base. (BS)

±      NIIT Technologies will launch its bundled cloud computing offerings from the first quarter of the next financial year. (BL)

±      GMDC is embarking on a line-up of projects involving investments of Rs40bn. (BL)

±      Reliance Capital Partners, an ADAG company, upped the ante against Fame India by raising its stake in the latter to 7.89% from 6.25% and also threatened regulatory action against the theatre chain. (BS)

±      Titan Industries plans to take the Titan brand to more countries in the Asian region over the next few years. (BL)

±      Bank of India has cancelled its US$500mn dollar denominated bond sale, citing volatility in credit markets. (ET)

±      Seven bidders, including Voltas, Deepak Fertilizers and Bharat Hotels have submitted requests for qualification to build Rs2.5bn terminal market in Thane district near Mumbai. (BS)

±      Kirloskar Brothers bagged an order from the Gujarat Water Supply and Sewage Board to install 10 solar pumping systems. (BS)

±      Strides Arcolab said the USFDA has granted market approval for its generic injectible drug for severe hypertension - labetalol hydrochloride. (BL)

±      US-based Purdue Pharma Products LP and UK-based Napp Pharmaceutical Group have sued Lupin and its US subsidiary, Lupin Pharma Inc, claiming that their attempt to manufacture and market the generic version of the analgesic tramadol ER infringes patent coverage of the innovator. (FE)

±      Bombay Dyeing said a meeting of its Board of Directors will be held to consider and approve a proposal for issue of warrants to promoters on a preferential basis. (BL)

±      Subex announced that it is raising up to Rs480mn through a preferential placement with an investment company of the promoter Subash Menon. (FE)

±      Goodyear India Ltd announced that its board has approved the proposal received from the parent company, Goodyear Tire & Rubber Company to buy out the remaining stake in the company and delist it from the stock market. (BL)

±      Golden Tobacco can proceed with its proposed plan to sell its non-core assets after a shareholder withdrew his objection to the sale. (ET)

±      Zee Turner, the TV channel distribution JV between the Turner Group and the Essel Group, said it would stop Hathway Datacomm from airing 33 channels, since it defaulted on its payments. (BS)

±      Ennore Coke plans to invest Rs750mn in scaling up its coke plant capacity at Haldia from 0.15mtpa to 0.3mtpa. (BS)

±      Spanish wind power equipment major Gamesa, whose windmill assembly plant in Chennai was inaugurated today, says it intends to spend €100mn in developing wind farms in India. (BL)

±      CalPERS, one of the largest public pension funds in the US with investments of ~US$1bn in Indian equities, is looking at infrastructure investments in India. (BS)

±      With hopes of raising funds through an IPO or selling a stake to a strategic investor fading due to stiff opposition from the unions, the government is working on a proposal for a private placement for BSNL. (BS)

 

Economic snippets

±      The government is considering a proposal to set up Rs500bn India Infrastructure Debt Fund to meet the long-term needs of PPP projects by tapping foreign and domestic pension and insurance funds, sovereign funds and multilateral institutions. (BS)

±      The country's merchandise exports in January are likely to rise 8% to US$14bn from US$12.9bn in the same month last year. (BS)

±      Prime Minister's Economic Advisory Council Chairman C Rangarajan made a strong case for withdrawal of fiscal measures by the government to stimulate the economy. (BS)

±      The Planning Commission has recommended cutting short the Budget outlay of the power ministry by over 25% to Rs106.3bn for the next financial year against the ministry's demand of Rs144.3bn. (BS)

±      The 1% cess levied on the construction activities by the Orissa government as per the provisions of the building and other construction workers' welfare act, 1996, would be applicable to the projects taken up under RGGVY. (BS)

±      Power-starved Karnataka, which is facing a shortage of 20MU/day, plans to spend Rs3.5-4bn over the next three months to purchase 400MW power from independent power producers. (BS)

±      Despite political opposition, the Uttarakhand government is going ahead with its plan to privatise power distribution system in two cities. (BS)

±      Government expects India's spend on information technology and e-governance to touch about US$4bn during the next fiscal. (BL)

±      In a move that will make ECB easier and faster for corporates, RBI has allowed Authorised Dealers or banks to perform functions that earlier required the consent of the central bank. (BL)

±      State-run Food Corporation of India will export 50,000 tons of wheat to Nepal. (FE)

±      To contain rising sugar prices, the government is planning to restrict bulk users of sugar like soft drinks and ice-cream makers from procuring the sweetener locally and instead meet their requirements through imports. (FE)