Market Mantra: Technicals - Satyam Computer (Buy), Siemens (Buy); F&O - United Spirits (Long), Aditya Birla Nuvo (Long); Reports - Technical View, CESC

 

 

Market Mantra

 

Market outlook

Avoid the risk!

 

What you risk reveals what you value.

 

The spurts of green in recent times give some confidence that the world has weathered the financial storm well so far. We still have to get out of the woods and on to a highway. For every 2-3 good news is encountered with a set of bad news, which sometimes triggers unnecessary panic. China is overheated while Europe is facing certain debt issues. The US is growing but the quality of recovery is questionable. Unemployment is still pretty high in the matured economies.

 

For India, the big issue is inflation and its broader economic fallout. Interest rates are set to head north, slowly but surely; need not be steadily though. The Government has limited elbow room on account of a bloated fiscal deficit. With the economy doing well, a partial rollback of fiscal stimulus is definitely on the cards.

 

We expect a subdued opening owing to mixed global cues. Asian markets are down mostly, barring Japan. Chinese markets will resume trading next week. US stocks closed higher and European stocks rose for a third straight session. We expect a choppy session with a slightly positive bias. The run-up if any to the budget can be used to get out of event-related counters.

 

 

Trading ideas (Time period: 1-3 days)

Satyam Computer (BUY, CMP Rs101, Target Rs107): On the daily chart, the stock has broken past two weeks resistance line. The stock was stalling around the levels of Rs99-100 since last two weeks. A close above the resistance zone accompanied with heavy is likely to take the stock towards the levels of Rs107 and above in the near term. The daily momentum indicators like RSI and MACD are exhibiting positive divergences. We recommend traders to buy the stock at current levels and on declines up to the levels of Rs99 with a stop loss of Rs96 (200-DMA) for an initial target of Rs107.

 

Siemens (BUY, CMP Rs676, Target Rs710): On Wednesday, the stock surged sharply on impressive volumes above its critical resistance levels of Rs670. Our argument is further validated after the stock gave an upside breakout in yesterday’s session as the price broke through the top of a trading range and closed at its 52-week high. Moreover, the stock has given a close above its short-term moving averages. We recommend traders with high risk appetite to buy the stock in the range of Rs671-680 with a strict stop loss of Rs663 for an initial target of Rs710.

 

Derivative strategies (Time period: Till expiry)

±       Long United Spirits Feb Future @ Rs1,342 for the target price of Rs1400 and stop loss placed at Rs1322.

Lot size: 250

Remarks: Net maximum profit of Rs14,500 and net maximum loss Rs5,000.

 

±       Long Aditya Birla Nuvo Feb Future @ Rs854 for the target price of Rs870 and stop loss placed at Rs845.

Lot size: 400.

Remarks: Net maximum profit of Rs6,400 and net maximum loss Rs3,600.

 

Mutual funds

Fund focus
ICICI Prudential Dynamic Plan					Invest
Fund manager	Sankaran Naren		Min investment				Rs5,000
Latest NAV	Rs90.6		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%

 

 

Technical View: Budget Special ‘Earnings from learning’

Historically, education stocks have the tendency to advance ahead of the Union Budget. From a technical perspective, the bullish sentiment is intact. This week, two education stocks, viz. Educomp and Aptech, have shown a uniform chart movement whereby these stocks have found support around its 100-week moving average.

 

Company Update: CESC - BUY      

CMP Rs387, Target Price Rs460, Upside 18.9%

 

With the commissioning of Budge Budge III, CESC’s installed capacity will increase by 26% to 1,225MW by the end of this year. Despite assuming 75% PLF during FY11 for the new unit, CESC is expected to witness 19% jump in generation. It acquired 100% stake in the Chandrapur project, thus hinting at its plans to become a pan India player and move out of its license area where opportunities remain limited. It has already achieved key milestones and financial closure for the project.  The company plans to place equipment orders by the end of Q1 FY11 and we expect it to commission by FY14. Of the 600MW, it plans to sell 50% under PPA to Maharashtra State Electricity Board and the rest on merchant basis. We value the project at Rs47/share. Progress continues to remain slow for the phase I of the Haldia project with land acquisition and financial closure pending.  Initially it plans to sell ~400MW to CESC’s distribution arm to meet its peak system demand and balance ~200MW on merchant basis. However, due to limited visibility on the progress we do not ascribe any value to the project. We expect CESC’s earnings to witness 11% CAGR over FY09-12, primarily aided by the commissioning of Budge Budge III and its routine distribution capex. We value its core business on FY12 basis. We also reduce our negative value on Spencer’s to nil from -Rs2/share earlier on the back of improving economic environment. Net of Haldia, we arrive at our SoTP based target price of Rs460/share. Upgrade to BUY.

 

Corporate Snippets

±      RIL may be forced to hike its bid for LyondellBasell as creditors of the bankrupt US Company have reached an agreement with the current management. (ET)

±      ONGC, IOC and Oil India will initially invest US$2.25bn in the recently bagged Venezuela project. (ET)

±      NMDC and Arcelor Mittal are exploring an opportunity for a joint mining project in Africa. (FE)

±      REC has fixed a floor price of Rs203 for its forthcoming FPO. (ET)

±      AXIS Bank has sought government permission to set-up a subsidiary in UK. (ET)

±             Government has promised its support to Bharti Airtel in its attempt to acquire the African operation of Kuwaits Zain Telecom. (ET)

±      HDIL has received an approval from government to develop a slum rehabilitation project in Mumbai. (ET)

±      BHEL has signed a MoU to form 50:50 JV with Japan’s Toshiba for manufacturing equipment for power T&D business. (ET)

±      Spice Mobile to buy 65% stake in a new JV that would own smart phone brand Blueberry and two manufacturing units of Malaysia CSL mobile. (ET)

±      REpower Systems, majority owned by Suzlon, has signed an agreement with French wind and solar power developer EOLE-RES SA, for the supply of 26 turbines with a total capacity of 52 MW. (BL)

±      Tata Steel expects to commission the Rs24bn Dhamra Port in Orissa by July. (BL)

±      NMDC is set to revise its pricing policy from April 1. (BS)

±      NMDC is looking at clocking Rs300bn turnover by 2014-15 when its various projects worth Rs260bn would be operational. (BS)

±      Ashok Leyland is set to enter into construction equipments business in JV with John Deere. (ET)

±      BHEL to hire 8,000 people in the next two years to meet growing domestic demand. (ET)

±      Abbott labs has announced an open offer to acquire 20% of Solvey Pharma India at Rs3,054 per share. (ET)

±      Union Bank of India will price its public issue in a range of Rs60-66 per share. (ET)

±      JK Lakshmi Cement to raise Rs6bn via ECBs and rupee term loans in the next quarter to finance its Greenfield projects. (ET)

±      Mahindra Satyam is looking to hire around 5,000 people, including freshers and experienced professionals, by the end of next month. (BS)

±      Havells India plans to produce ceramic metal halide (CMH) lamps which are designed for indoor and outdoor lighting applications. (BS)

±      Novartis is looking to buy out the remaining stake in US-based eye care group Alcon by the end of this year. (BS)

±      Areva T&D India has been awarded a Rs1.2bn contract for electrical Balance of Plant (eBOP) by L&T Power for state utility, Madhya Pradesh Power Generating Company Ltd. (BS)

±      L&T General Insurance is ready to launch its operations in the next three-five months. (BS)

±      SpiceJet will start flights on international routes by this year if it receives all the requisite approvals. (BL)

±      Chettainad Cement is planning to raise its capacity to 25mtpa by 2020 from 8.5mtpa currently. (ET)

 

Economic snippets

±      Government to ban FDI in Tobacco sector. (ET)

±      Prime minister’s economic advisory council has pitched for a single Cenvat rate, which would be higher than the current 8%. (ET)

±      India has retained its top slot in gold consumption. (ET)

±      Tax heavens pose a threat to security because of their complex and secret laws, says the finance ministry. (ET)

±      Government is considering selling part of its stake in PSU banks to LIC and GIC. (FE)

±      Banks want the deadline for the implementation of base rate to be extended by three months. (FE)

±      The government is confident that food prices will start easing from April when the rabi harvest hits the market. (BS)

±      The government has removed cap on the number of players who can participate in financial bidding for port expansion projects under public private partnership (PPP) to minimise litigations and get better returns. (BS)

±      According to the Finance Minister, India’s economy is poised to grow by 7.5% this fiscal and will top 8.5% in the next on the back of a strong industrial recovery, said. (BS)

±      The Designated Authority in the Commerce Ministry has recommended a modified definitive anti-dumping duty on nylon filament yarn mainly from Malaysia. (BL)

 

 

 

 

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