Market Mantra
Market outlook
Pick when ready!
Pick the flower when it is ready to be picked.
Friday’s late spurt may have raised hopes of an encore at least on Monday. But, with most global indices flashing the red signs, looks like the Indian market will turn lower again. We expect a slight dip at start and another choppy session.
Wait and watch should be the mantra in the near term to overcome the current phase of uncertainty and volatility. Be extremely choosy while picking up stocks at this juncture.
You have all the time to closely examine each opportunity. We repeat, do proper due diligence lest you have to pay a heavy price later. For the time being, most stocks look neither ready nor steady for a convincing buy.
The ongoing consolidation though presents an excellent opportunity to revamp one’s portfolio. Get rid of weak stocks and replace them with potential outperformers..
Technically, 4800 remains a critical level. A sustained close below this could spell trouble for bulls. The Nifty may fall as low as 4600-4650. The upside too is capped and resistance is likely at 5000.
Trading ideas (Time period: 1-3 days)
Tata Steel (SELL, CMP Rs569, Target Rs530): In third week of January, the stock surged smartly on higher volumes. However, last week, it appears to have run into strong resistance area of Rs620-630. Moreover, it gave a close below the support of its 50-DMA, suggesting that a downside is likely from the current levels on the daily chart. Deeper decline is still possible to the levels of Rs530 and below. The candlestick patterns formed in the last week support the bears. Based on the above view, we recommend traders to sell the stock at current levels and on rallies up to Rs575. It is advisable to maintain a stop loss of Rs585 on all short positions.
Orbit Corp (BUY, CMP Rs292, Target Rs320): Since last few weeks, the stock has made 100-DMA to be its most important support level. In December-end it made a base around this moving average and then staged an impressive rally. Last week, the stock bounced back from this moving average yet again, emphasizing our belief that it remains a critical support level. In addition, the gain in the stock price from a low of Rs262 in the last week has been on back of increasing volumes, indicating strong buying at the support levels. Keeping in mind, the above mentioned evidences, we recommend traders to buy the stock between the levels of Rs286-294 with a stop loss of Rs280 for a target of Rs320.
Derivative strategies (Time period: Till expiry)
± Long Reliance Capital Feb Future @ Rs806 for the target price of Rs829 and stop loss placed at Rs795.
Remarks: Net maximum profit of Rs6,348 and net maximum loss Rs3,036.
± Long Patni Computer Feb Future @ Rs456 for the target price of Rs475 and stop loss placed at Rs445.
Remarks: Net maximum profit of Rs24,700 and net maximum loss Rs14,300.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Apr | Sell | Below 16285 | 16250, 16210 | 16315 |
| Silver - Mar | Sell | At 25600 | 25420, 25250 | 25710 |
| Copper - Feb | Sell | Below 311 | 308, 305 | 313.6 |
| Zinc - Feb | Sell | Around 99 | 97.6, 96.3 | 100.1 |
| Lead - Feb | Sell | 94.6-94.8 | 93.5, 92 | 95.4 |
| Aluminum - Feb | Sell | 97-97.3 | 96, 95 | 98.2 |
| Nickel - Feb | Buy | At 845 | 858, 872 | 836.4 |
| Crude Oil - Feb | Sell | At 3399 | 3360, 3330 | 3423 |
| Natural Gas - Feb | Buy | Above 240 | 242.5, 245 | 237.9 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Feb | Sell | 13550-13580 | 13415, 13270 | 13660 |
| Jeera - Feb | Buy | 11700-11720 | 11855, 11990 | 11590 |
| Turmeric - Apr | Sell | Below 6940 | 6900, 6870 | 6970 |
| COCUDAKL - Feb | Sell | Below 1154 | 1140, 1126 | 1165.5 |
| Chana - Feb | Buy | At 2160 | 2190, 2220 | 2145 |
| Guar seed - Feb | Sell | Below 2330 | 2300, 2270 | 2354 |
| Soya bean - Feb | Sell | Below 2065 | 2040, 2020 | 2093 |
| Soya oil - Feb | Sell | At 448 | 444, 440 | 451 |
| Mustard seed - Apr | Sell | Below 473.5 | 470, 467 | 476.3 |
| Mentha oil - Feb | Sell | At 592 | 588, 585 | 594.3 |
**Strict Stop-Loss *Book Partial Profits
Mutual funds
| Fund focus | |||||||
| HDFC Top 200 Fund | Invest | ||||||
| Fund manager | Prashant Jain | | Min investment | Rs5,000 | |||
| Latest NAV | Rs171.9 | | 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% | |||
| | | | | | | | |
Event Update: Monetary Policy Review 2009-10 – Q3 FY10
After a prolonged period of accommodative monetary policy stance, RBI today in its third quarter monetary policy review increased the CRR ratio by 75bps (against our and street expectations of 50bps) to 5.75%. It, however, left the key policy rates unchanged - Repo rate (4.75%), reverse repo rate (3.25%) and bank rate (6%). With rising risk of high inflation and anemic credit demand, the central bank has now shifted its stance from ‘managing the crisis’ to ‘managing the recovery’. Despite huge sanctions, the credit growth has remained at low 14% yoy until mid-January. The apex bank, has thereby, reduced its non-food credit growth target to 16% yoy (previously 18% yoy). The deposit growth projection too has been scaled down to 17% from 18% earlier. Further, money supply (M3) growth rate has been lowered to 16.5% (previously 17%). With both WPI and CPI ruling pretty high, the central bank has raised its annual inflation outlook to 8.5% (previously 6.5%). The reserve bank has completed over 98% of its hefty net market borrowing programme of the central government for FY10, largely being front-loaded. Even after factoring in zero growth in agricultural sector, the central bank has projected a GDP growth of 7.5% for 2009-10 (earlier 6%+ with upward bias), implying meaningful growth in coming quarters.
Result Update: NTPC – MP
CMP Rs214, Target Price Rs220, Upside 2.7%
± Generation grows 3.7% yoy to 54BU during Q3 FY10, higher by 7.8% qoq
± Higher generation was on account of improved gas supply, higher commercial capacity and better performance of existing stations
± 4.2% drop in average realizations due to lower fuel cost offset higher generation, hence revenues de-grow by 0.8% yoy to Rs112bn
± Pre-exceptional PAT grows 5.1% yoy to Rs23.6bn against Rs22.5bn last year
± Only 500MW of 3,300MW commissioned during 9M FY10, remaining capacity may be added in FY11
± Fairly valued, re-iterate Market Performer with an increased target price of Rs220/share
Result Update: Reliance Communications – BUY
CMP Rs170, Target Price Rs220, Upside 29.4%
± Flat wireless revenues cushion topline decline to ~4%-better than expected; Global, Broadband sales disappoint
± Wireless EBIDTA drops 150bps qoq on lower rev/min
± Control over SG&A counters higher access charges/license fees; OPM stable at 33.8%
± PAT much ahead of expectation on net interest income, improved OPM
± Retain BUY on attractive valuation of 7.5x FY12 PER
Result Update: Tata Motors - MP
CMP Rs694, Target Price Rs679, Downside 2.2%
± Net sales jump 88.7% yoy following 67.5% surge in volumes and 12.7% increase in realizations
± Lower raw material costs and benefits of operating leverage translate into 11ppts yoy increase in OPM
± Increase in debt levels to re-finance bridge loan taken to fund JLR acquisition leads to higher interest costs
± Sharp fall in other income owing to sale of investments in Q2 FY10 translates into sequential fall in net profit
± Upgrade target price to Rs679 and rating to Market Performer following improved standalone and JLR earnings
Result Update: Suzlon – BUY
CMP Rs77, Target Price Rs85, Upside 10.2%
± WTG sales pick up after two weak quarters, but continue to remain muted, expect volumes to pick up from Q4 onwards
± Gross profit/MW declines to Rs20.3mn/MW for 9M FY10 from Rs20.7mn/MW last year, but should stabilize here
± Low margin, high depreciation and interest expense translate into pre-exceptional net loss
± Order book remains flat sequentially at 1,484MW
± Revise estimates to reflect loss in FY10; value Suzlon based on FY12 earnings re-iterate BUY with an upgraded target of Rs85
Result Update: Tata Communications Ltd – SELL
CMP Rs320, Target Price Rs276, Downside 13.8%
± Pricing pressure continues unabated in wholesale voice; topline drops 23% yoy
± Higher opex, staff costs pull down OPM by 364bps yoy
± Increased interest expenses, lower margin nearly erode pre-tax profit; albeit other income, tax credit boost reported PAT
± Lacks sustainable catalysts for growth’ lower core business value to Rs61/share (earlier Rs89/share) and retain SELL with revised TP of Rs276
Result Update: Indian Oil Corp Ltd - SELL
CMP Rs301, Target Price Rs270, Downside 10.0%
± Financial numbers not comparable owing to merger with BRPL
± Upstream companies offered discounts only on MS and HSD worth Rs22.7bn
± Total refinery throughput was higher by 4.1% at 12.5mn tons while market sales rise 5.2% yoy to 16.5mn tons
± Uncertainty continues to persist even over FY10 subsidy sharing pattern leave apart FY11 and FY12, downgrade to SELL
Result Update: Balrampur Chini Mills Ltd – BUY
CMP Rs120, Target Price Rs159, Upside 32.2%
± A ~72% yoy surge in sugar realizations compensates for 37% sugar volume sales; topline up 2.3% yoy
± RM cost up 43% yoy as cane SAP increases to Rs190/qtl; OPM up 301bps on decline in other expenses
± PAT jumps 49% on lower interest cost, improved operating performance
± Firm sugar prices and attractive valuation support our BUY for a TP of Rs159
Result Update: Procter & Gamble Hygiene and Health Care – BUY
CMP Rs1,594, Target Price Rs1,845, Upside 15.7%
± Revenues record strong 21.7% yoy growth at Rs2.7bn driven by strong 34% yoy growth in Feminine Hygiene and 11.1% yoy growth in Healthcare segment
± Sharp drop in adspend and overheads cost fuels operating margins to 35.2%
± Net profit registered robust 58.2% yoy growth at Rs745mn driven by strong topline growth coupled with improved operating efficiency
± We expect the company to witness 21% CAGR in revenues and ~26.3% CAGR in net profit over F6/09-11
± We maintain our BUY rating on the stock with a revised price target of Rs1,845
Result Update: OnMobile Global Ltd – MP
CMP Rs403, Target Price Rs375, Downside 6.9%
± Revenue growth of 6.3% qoq the highest since Q3 FY09
± OPM rebounds from Q2 FY10 low on control over staff, other expenses, forex gain; content costs remain stable at 19% of sales
± Higher tax rate and depreciation mean PAT growth of 33% trails operating profit
± Downgrade to MP on sluggish domestic VAS outlook amidst an intense pricing war amongst telcos
Result Update: Chennai Petroleum Corp Ltd – BUY
CMP Rs235, Target Price Rs311, Upside 32.3%
± A ~72% yoy surge in sugar realizations compensates for 37% sugar volume sales; topline up 2.3% yoy
± RM cost up 43% yoy as cane SAP increases to Rs190/qtl; OPM up 301bps on decline in other expenses
± PAT jumps 49% on lower interest cost, improved operating performance
± Firm sugar prices and attractive valuation support our BUY for a TP of Rs159
Sector Update: Oil Monthly Update – January 2009
± Crude oil prices rise on a mom basis
± Refining margins recover sequentially
± Sequentially under recoveries rise for all four products
± CPCL and Petronet outperform during January
Weekly Update: Debt Market - week ended January 29, 2010
± After the monetary policy announcement, 10-year benchmark bonds yields ended flat on a weekly basis at 7.58%. However, shorter term G-Sec yields harderned; it was up in the range of 14-18bps this week.
± RBI increased the cash reserve ratio by 75bps to 5.75%, in order to absorb the excess liquidity (~Rs360bn) from the system, while keeping repo & reverse repo rates unchanged in the Q3 FY10 monetary policy review.
± Scheduled banks investments in the central and state G-Sec increased to Rs14,131bn as on Jan 15, 2010 vis-à-vis Rs11,658bn in the corresponding period of the previous year.
±
± S&P lowered the outlook on Japan’s long-term sovereign debt from ‘stable’ to ‘negative’ because of diminishing flexibility to cope with the world’s largest public debt and concern about the lack of a plan to rein in budget deficits.
± The Reserve Bank of
Corporate Snippets
± GSPC plans IPO to fund KG Basin development. (BL)
± Tata Chemicals will invest Rs35bn to double its urea production capacity to 2.4mn tones. (BL)
± Lanco Infratech has announced it has secured five major contracts worth Rs57bn, including a project from its subsidiary which is setting up a 2x660MW, coal-based project in
± IVRCL has been awarded a Rs2.4bn contract under the Hogenakkal water supply and fluorosis mitigation project. (BL)
± Srei Infrastructure Finance approved the amalgamation of Quippo Infrastructure Equipment with Srei at a share swap ratio of 3:2. (BL)
± Air India signs US$1.1bn deal with US EXIM for aircraft buy. (BL)
± Apollo Hospitals to invest Rs18bn by 2012. (DNA)
± Aditya Birla Nuvo plans to invest Rs8bn in its life insurance business over the next 15 months. (DNA)
± Punj Lloyd says it has bagged an Rs11bn order for highway development in Andhra Pradesh. (FE)
± Indian Hotels Company plans to restructure its international business, housing several entities in one company that will hold all the international assets. (FE)
± Spice group will merge its two subsidiaries - the listed Spice Mobiles and the unlisted Spice Televentures - to form a new entity called Spice Mobility that will invest Rs10bn over the next two years. (TOI)
± ACC acquires Vizag-based Encore Cement and Additives for an undisclosed sum. (ET)
± Bombay High Court asks Wockhardt to clarify with its foreign lenders which assets company could sell during the pendency of the winding-up petitions. (ET)
± Binani cement has put its
± Sun Pharma plans to launch a copy of US-based Wyeth anti-depressant capsule Effexor XR. (ET)
± Promoter of BILT is about to invest Rs3bn in the firm to strengthen the balance sheet and provide funds to repay overseas investors. (ET)
± PFC to tap global debt market to raise US$300mn through external commercial borrowing. (ET)
± Fortis Healthcare plans to raise Rs4.5bn through a combination of term loans from banks as well as internal accruals. (BS)
± Five consortia led by Reliance Infrastructure, L&T, and Lanco Infratech have been shortlisted for the US$2bn, High Speed Rail Link in
± Mahindra & Mahindra to launch six to seven variants of its vehicles across different segments during the next financial year. (BS)
± Oil India is willing to take over ONGC's
Economic snippets
± Foreign exchange reserves fell by US$2.2bn to US$283bn for the week ended January 22. (BL)
± RBI raises CRR by 75bps to 5.75% of banks' net demand and time liabilities. (BL)
± RBI raises GDP forecast to 7.5%. (ET)
± Government is set to lose Rs350bn this fiscal as the auction for 3G spectrum is likely to be postponed to the next financial year. (BL)
± RBI raises inflation projection for current fiscal to 8.5%. (BL)
± Government is likely to free petrol prices next month and partially increase diesel prices after considering the recommendations of the Kirit S Parikh committee report. (DNA)
± FDI inflows up 13% yoy in Dec’ 10 at US$1.5bn. (BL)
± State-run oil firms cut ATF prices by 5.5%. (TOI)
± Government is mulling a single telecom licence in the place of 17 service-specific ones. (TOI)
± As of end-Dec’09, revenue deficit has touched 89% of the year’s forecast. (DNA)
Results table
| Rs mn | Revenues | YoY % | PAT | YoY % |
| Rcom | 51,290 | (5.7) | 11,080 | (21.4) |
| EKC | 1,694 | 106.1 | 15 | (81.4) |
| Thermax | 7,263 | (7.8) | 565 | (21.8) |
| Unitech | 7,745 | (1.9) | 1,760 | 29.4 |
| BGR Energy | 6,351 | 34.4 | 419 | 54.0 |
| Reliance Capital | 4,848 | (25.6) | 413 | (63.9) |
| Gammon | 10,145 | 55.2 | 209 | 309.2 |
| AIA Engineering | 2,652 | (5.8) | 606 | 108.0 |
| Ahluwalia Contracts | 4,243 | - | 249 | - |
| KSK Energ | 723 | 8.5 | (49) | - |
| Oil | 20,413 | - | 7,173 | - |
| Gammon Infra | 920 | 93.7 | 66 | (7.5) |
| Aurobindo Pharma | 9,152 | 24.5 | 1,718 | 310.5 |
| Tulip Telecom | 5,009 | 13.4 | 686 | 38.2 |
| GVK Power | 4,735 | 353.8 | 458 | 181.7 |
| Ackruti Cit | 2,041 | 332.4 | 786 | 3,869.7 |
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