Market outlook
On lower gear!
What was hard to endure is sweet to recall
It's the season of recalls as far as the global auto industry is concerned even as the Indian auto story remains on a firmer footing so far. At the same time, policymakers across the globe, barring a few troubled spots, are reversing the crisis-fighting stimulus. India has already made its intentions clear on this matter as the economy has rebounded strongly. One only hopes that the UPA doesn't succumb to political pressure on the issue of fuel price hike.
There might be some reversal on the bourses as well after two successive days of Budget-related gains. The start will most probably be a flat one due to uncertain global cues. US market erased bigger gains to close slightly higher. European indices did somewhat better and it's a mixed bag for Asian markets.
The Budget has prevented further breakdown in sentiment but the upside too appears capped a little above these levels. Among the key factors to watch out for will be FII flows, which have turned positive again. Summer is here for now but it will be the dark clouds of monsoon which will bring the desired sunshine on the bourses.
Trading ideas (Time period: 1-3 days)
Crompton Greaves (BUY, CMP Rs446, Target Rs466): The stock had been facing stiff resistance around the levels of Rs442 from last seven weeks. On Tuesday, the stock overcame the crucial resistance levels and closed at a new 52-week high. The upmove was accompanied with heavy volumes. Infact, the volumes recorded were the highest in over two months. Moreover, on the weekly chart, the price movement has formed a higher bottom formation. We expect the stock to rally in the medium term. Traders can buy the stock in the range of Rs443-448 for a target of Rs446. It is advisable to maintain a stop loss of Rs435.
ABB (SELL, CMP Rs783, Target Rs755): The stock corrected sharply from the recent peak of Rs882 in January 2010 to the present levels. On Tuesday, the stock fell below its crucial support levels of Rs787 and also closed well below its 50-DMA (Rs795). The daily MACD is already in sell mode suggesting build-up of momentum on the downside. Bollinger band is also indicating a breakout on negative side. Based on above events, we recommend traders to sell the stock at current levels and on rallies to levels of Rs795 for target of Rs755. A stop loss of Rs803 is recommended on all short positions.
Derivative strategies (Time period: Till expiry)
± Long Indian Bank March Future @ Rs164 for the target price of Rs175 and stop loss placed at Rs162.
Lot size: 2,200
Remarks: Net maximum profit of Rs24,200 and net maximum loss Rs4,400.
± Long Mercator Lines March Future @ Rs55.50 for the target price of Rs58 and stop loss placed at Rs54.
Lot size: 4,900.
Remarks: Net maximum profit of Rs12,250 and net maximum loss Rs7,350
Mutual funds
| Fund focus | |||||||
| HDFC Taxsaver Fund | Invest | ||||||
| Fund manager | Vinay Kulkarni |
| Min investment | Rs500 | |||
| Latest NAV | Rs196.8 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs204/84 |
| Exit load | Nil | |||
| Latest AUM | Rs2,125cr |
| Latest dividend (under dividend option) | 60% (4-Mar-10) | |||
| Type | Open-ended |
| Benchmark | S&P CNX 500 | |||
| Class | Equity-tax saving |
| Asset allocation | Equity (97%), Debt (0%), Cash (3%) | |||
| Options | Growth & dividend |
| Expense ratio | 1.9% | |||
Company Update: Welspun Gujarat – BUY
CMP Rs249, Target Price Rs346, Upside 38.8%
After rising 5x over the last one year, WGL has been a underperformer in the last three months. We believe over the next one quarter the stock will be a strong performer as fresh orders are announced globally. Welspun Gujarat (WGL) has announced that it has received fresh orders worth Rs6bn from the end of Q3 FY10. The order book position, without excluding the orders executed during Q4 FY10, has increased to the Rs72bn, at 1.3x FY09 revenues and 1x trailing twelve months revenue. The Management has indicated that they are successful bidders for 1mn tons of international orders and GAIL's pipe orders to be announced in 4Q FY10. With the rise in crude oil prices and a gradual revival in order inflows, we believe WGL is the best bet in the pipe sector to exploit this opportunity. This coupled with strong order book and improving visibility in its plate business, we maintain our BUY rating on the stock. On the back of strong visibility over FY12E volumes and higher operating margins, we have raised our target price from Rs315 to Rs346.
Sector Update: Auto Monthly Update – February 2010
During February 2010, Indian auto industry witnessed a strong growth in volumes backed by strong base effect. Furthermore, pre budget buying in anticipation for hike in excise duty propelled growth rates. On sequential basis, all companies witnessed growth except for Hero Honda and M&M. However the decline for Hero Honda was modest at 2% mom. In the passenger car category, companies continue to clock record sales volumes. Maruti and Tata Motors both recorded highest ever monthly sales for passenger cars with a growth of 20.5% and 48% on yoy basis respectively. Among three wheelers, while volumes for M&M more than doubled, Bajaj Auto witnessed a growth of 58.8% yoy. Momentum in Commercial Vehicles (CV) sales continued led by strong growth in M&HCV segment. In M&HCV portfolio, domestic volumes for Tata motors almost doubled on yoy basis, while LCV segment for Tata Motors grew by 48.6% yoy. Xylo continues to witness strong demand translating into a strong growth of 52.6% yoy in total volumes for M&M. In two wheeler space, Bajaj Auto outperformed with a growth of 74% yoy, while Hero Honda and TVS Motors witnessed growth of 16.1% yoy and 15.4% yoy respectively.
Corporate Snippets
± A week after Reliance Industries raised its offer for LyondellBasell from US$13.5bn to US$14.5bn, the board of the Netherlands-based bankrupt company opts for proposal by creditors. (BS)
± Tata Consultancy Services, the country's largest software exporter by revenue, is to administer the UK's National Employee Savings Trust scheme's administered services under a 10-year deal, worth around £600mn. (BS)
± Tata Motors previewed its Tata Indica Vista EV at the Geneva Motor Show, which will go on sale later this year across Scandanavia and other select markets of Europe. (BS)
± Tata Motors said it would bring an electric version of the Nano, the world's cheapest car, to Europe within three years, starting with Britain and Scandinavia. (ET)
± Karnataka Bank has entered into a memorandum of understanding with Tata Motors to finance purchase of passenger and goods transportation vehicles manufactured by the company. (BL)
± Corus the British-Dutch subsidiary of Tata Steel has sold its 50% stake in Cindu Chemicals, a Netherlands-based tar distillation plant, to Koppers International, as part of the overall Tata Group strategy to exit non-core areas. (ET)
± GAIL and Maharashtra Industrial Development Corporation plan to establish a joint venture company for distributing gas to industrial consumers in the state. (BL)
± BHEL secured an order worth ~Rs57.8bn from Indiabulls Group firm Elena Power & Infrastructure Ltd, to set up projects at Nashik (5x270 MW) and Amravati (5x270 MW). (BL)
± The Department of Heavy Industries indicated that with an order book exceeding Rs1.5trn BHEL is likely to double its turnover in the next 10 years and hit the Rs500bn mark. (BS)
± Vedanta Resources, the London-listed holding company for India's largest copper producer, Sterlite Industries, has raised US$805mn through a convertible bond issue. (ET)
± Ministry of Defence is abandoning competitive bidding and handing over the Rs100bn project to a defence public sector undertaking, Bharat Electronics Ltd, thus leaving in lurch Wipro, Mahindra Defence Systems, Tata Power, L&T, Rolta and HCL. (BS)
± Hindustan Dorr-Oliver acquired Davy Markham, a Sheffield (UK)-based engineering services company, for ~Rs660mn. (BL)
± US-based PE firm New Silk Route Partners (NSR) has picked up a little over 30% in Nectar Lifesciences for Rs2.5bn at Rs 35 per share. (ET)
± Maytas Infra has reached a repayment settlement with one of its lenders HDFC Bank. Under the agreement, Maytas will now pay only 50% of the outstanding loan of Rs1bn as on January 2009. (ET)
± EdServ said it intends to acquire SmartLearn WebTV, a start-up that offers e-learning, at a total valuation of about $1 million. (ET)
± The board of Elgi Equipments has approved the acquisition of Belair, France, engaged in assembly, sales and service of industrial compressors, piping, fittings and accessories for more than 25 years. (ET)
± Glenmark Pharmaceuticals has said its subsidiary has received the nod of US health regulator Food and Drug Administration for marketing Ropinirole Hydrochloride tablets, used in the treatment of Parkinson's disease. (FE)
± Japanese car major Nissan is in talks with Ashok Leyland for developing a small car for the global market that could be priced around $4500-5000. (FE)
± Uco Bank has received shareholders' approval for a follow on public offer to dilute 6.26% of the government's stake. The public sector lender will issue 60mn equity shares at a face value of Rs 10each. (FE)
± The Orissa government has recommended the grant of mining lease for Potangi bauxite reserve in Koraput district, with estimated reserves of over 70mn tons, in favour of NALCO. (BS)
± A senior executive in SAIL said that the company is expected to pass on the 2% hike in excise duty on steel to consumers. (BS)
± Hyderabad-based Gulf Oil Corporation has renewed its partnership with the Indian Premier League 2010 team Kings XI Punjab. (BS)
± IIFCL, a state-run entity that extends loans at preferential rates, may use US$500mn of the nation's foreign-exchange reserves next financial year to build roads, ports and power plants. (BS)
± Effective from March 1, 2010, state owned lenders like Bank of Baroda and Union Bank of India and private sector lender Federal Bank have revised downwards the interest rates on FCNR (B) and NRE (Rupee) term deposits. (FE)
± Two directors of Inox Leisure joined the Fame board on Tuesday. (BL)
Economic snippets
± The country's merchandise exports rose for the third straight month to US$14.3bn in January, up 11.5% from US$12.9bn last year, while imports surged 35.5% to US$24.7bn from US$18.2bn thus expanding trade deficit to US$10.4bn. (BS)
± Karnataka will purchase 1,000MW power from the private producers at a cost of Rs3.2bn to meet the demand-supply situation in the state during the month of March. (BS)
± Tamil Nadu Chief Minister said that it plans to announce an "attractive textile policy" soon to attract more investments and increase employment opportunities in textile sector there. (BS)
± The high tension industrial power users in Andhra Pradesh are now faced with severe power shortage and forced to contend with one way power holiday and four-hour cut during peak hours in the week days. (BL)
± Consequent to pick up in demand, cement companies across regions have hiked prices by Rs5-7/50kg bag for the third consecutive month. (BL)
± CERC's draft regulation on 'Sharing of inter-State transmission of charges and losses' stipulates that solar-based generation would be allowed zero transmission access charge for use of inter-State transmission systems. (BL)
± The government collected 70% of its total tax revenue target for 2009-10 between April 2009 and January 2010, and will have to meet a shortfall of Rs 1,400bn in the remaining two months of the fiscal. (ET)
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