Market outlook
Monday morning blues for bulls
If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience. – GB Shaw
Just when the main indices were closing in on 52-week highs comes the somewhat 'unexpected' RBI rate hikes. That the central bank would raise key rates was a given with inflation spiking to nearly double digits. What surprised was the timing of the announcement. Also, post the January meet, RBI had maintained it would not hike rates before April meet. But last week, a deputy governor said the central bank was open to revising rates up before April 20. May be he was not taken seriously.
When trading resumes today, we expect to a fall of about 1-1.5% in the key indices. The fall will be paced by banks and other rate sensitive sectors like real estate. Whether the decline stops there or continues is a mystery still. One will also have to keep an eye on global cues, especially from Europe where Greece will hold a summit with regional leaders for emergency aid. F&O expiry and a public holiday will add to the uncertainty and volatility.
Trading ideas (Time period: 1-3 days)
HDIL (SELL, CMP Rs300, Target Rs280): On the daily charts, HDIL has given a close well below its critical support levels of Rs311 and its 200-day DMA for a fifth session in a row. Moreover, the stock has broken below its short-term moving average. We expect the weakness to continue in the near term with daily RSI also showing a downward trend. Movement of the momentum indicators denote that the stock could trudge lower over the near term. Any fall from these levels could drag the stock lower towards Rs280 and below. We recommend a high-risk sell on the stock between the levels of Rs297-302 with stop loss of Rs308 for an initial target of Rs280.
DCHL (BUY, CMP Rs173, Target Rs183): On Friday, the stock gave a breakout after consolidating between the levels of Rs172-157 for the last two weeks. The stock has a strong support around its 100- DMA. Friday's close is above its key resistance levels of Rs172 with higher than average volumes. In fact, the breakout has occurred after a 2-week consolidation, representing a high level bullish congestion, suggesting a potential upside to the levels of Rs183 and above. The daily RSI is already in strong buy mode. The stock has closed above all its key daily moving averages. Keeping in mind the above-mentioned evidences, we recommend high risk traders to buy the stock between the range of Rs172-174 with a stop loss of Rs167 for target of Rs183.
Derivative strategies (Time period: Till expiry)
± Long ICSA April Future @ Rs135 for the target price of Rs145 and stop loss placed at Rs130
Lot size: 1,200
Remarks: Net maximum profit of Rs12,000 and net maximum loss Rs6,000.
± Long PTC India April Future @ Rs113 for the target price of Rs118 and stop loss placed at Rs111
Lot size: 2,350.
Remarks: Net maximum profit of Rs11,750 and net maximum loss Rs7,050.
Mutual funds
| Be Fund focus | |||||||
| ICICI Prudential Tax Plan | Invest | ||||||
| Fund manager | Sankaran Naren |
| Min investment | Rs500 | |||
| Latest NAV | Rs126.5 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs127/50 |
| Exit load | Nil | |||
| Latest AUM | Rs1,044cr |
| Latest dividend (under dividend option) | 10% (Mar 19, 2010) | |||
| Type | Open-ended |
| Benchmark | S&P Nifty | |||
| Class | Equity – Tax saving |
| Asset allocation | Equity (91%), Debt (0%), Cash (9%) | |||
| Options | Growth & dividend |
| Expense ratio | 2.0% | |||
Company Update: NTPC- Market Performer
CMP: Rs203, Target: Rs220, Upside 8.5%
Media reports suggest NTPC plans to add 4.1GW during FY11, revised lower from its initial target of 5.4GW. We reduce our capacity addition target for FY11 and FY12 to 4GW and 4.2GW respectively to reflect the same. Lower addition over the next couple of years and slippages in the past will translate into NTPC achieving only 60% of its planned additions during the XIth plan. However, since our estimates were in line with that of CEA's, there is no major change in our estimates. Another set of media reports suggest, NTPC has approached the government seeking the 'Maharatna' status. This will benefit NTPC as it will have greater financial and operational autonomy to take decisions relating to investments, joint ventures and capacity expansion. Despite slippages we believe it offers good value in the long term as it plans to enhance its capacity to 75GW by 2017. Earnings growth, which is a factor of capacity addition, can accelerate with merchant sale. However we do not factor in any merchant sale and value the stock based on its FY12E book to arrive at a one year target of Rs220/share.
Sector Update: RBI – 'Calibrated exit strategy'
With a view to anchor the rising risk of inflationary pressure, the central bank of India has raised its key rates repo and reserve repo rate by 25bps each to 5% and 3.5% respectively with immediate effect. While this move, in our view, is in right direction, we do not expect banks to increase their lending rates in the near term. A host of banks including both private sector and public sector banks have already increased their deposit rates recently. However, banks are currently busy meeting their year-end targets. with abundant liquidity, lending rates in our view, are set to rise only in Q2 FY11 and we have factored the same in our FY11 estimates.
Mutual Funds Thermometer as on March 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
± Equity diversified funds continued their upward rally this fortnight, as NAVs ended higher keeping in line with the equity market. Positive global and domestic cues resulted in the S&P CNX Nifty gaining 3.3% on a fortnightly basis. Though the advance:decline ratio was favourable at 172:18, only seven funds were able to outperform the S&P Nifty index. After a gap of a fortnight, mid-cap and small-cap funds replaced large-cap funds in the top quartile of the category. The biggest gainer during the fortnight was Reliance Equity Oppor, managing a corpus of Rs18.7bn; it's NAV appreciated by 4.8%. Other than Reliance Equity, HDFC Capital Builder (+3.6%) and DSPBR Micro-Cap (+3.4%) were the top gainers in the equity-diversified category.
± Information Technology (IT) funds topped the sectoral chart on a fortnightly basis. This was mainly due to announcements of hiring and pay hikes by IT companies, indicating a positive trigger for the industry. Top five funds in the sectoral category were ICICI Pru Technology (+7.4%), Franklin Infotech (+6.0%), SBI Magnum IT (+4.4%), Birla SL New Millennium (+4.4%) and DSPBR Technology.com (+4.1%). After reaming in the top quartile last fortnight, banking funds unperformed the category. Reliance Banking (+0.3%) and Sundaram BNPP Fin Serv Oppor (+0.7%) were among the underperformers on a fortnightly basis.
± Due to the positive bias in the equity market, balanced funds with maximum equity exposure gained the most during this fortnight. Out of 51 balanced funds, only two fund NAVs ended in the red. The funds, which were part of the top-quartile were most exposed to equities in the balanced fund category viz. Reliance Reg Savings-Balanced (+3.5%), LICMF Systematic Asset Alloc(+2.6%), Canara Robeco Balance(+2.3%). These funds outperformed the category as well as the benchmark Crisil Balanced Fund index, which was up by 2.1% this fortnight.
± The benchmark 10-year G-Sec bond yield, after touching a 19-month high at 8%, softened to 7.8% (down by 13bps) during the fortnight. Standard & Poor's raised India's outlook to stable from negative, which resulted in softening of yields. Improving fiscal position and strengthening economic growth had a positive effect on the performance of debt funds. On a fortnightly basis, Income and gilt funds NAV ended in the green. Top three gainer under gilt fund category were Edelweiss Gilt (+0.9%), SBI Magnum Gilt-LTP (+0.7%) and LICMF G-Sec (+0.6%). Income fund fortnightly gainers were SBI Dynamic Bond (+1.0) Templeton India Income Opp (+0.7%) and SBI Magnum Income (+0.7%).
± During the fortnight, Gold prices remained under pressure due to lack of domestic demand coupled with concerns over Europe's aid package to Greece globally. Gold ETFs' NAV declined by 1.9% on a fortnightly basis. However, Equity index-based ETF topped the chart. Quantum Index ETF, Nifty BeES and SPIcE were the top-3 fortnight gainers under the ETF category.
Weekly Update: Debt Market - week ended March 19, 2010
± After touching a 19-month high above 8%, the benchmark 10-year G-Sec bond yield softened to 7.89% (down by 13bps) at the end of the week. Softening of yields was a result of Standard & Poor's raising India's ratings outlook to 'stable' from 'negative'.
± Five state governments announced auction of their 10-year SDLs for an aggregate amount of Rs.28.8bn on March 23, 2010.
± India's WPI inflation accelerated to 9.89% in Feb '10 from 8.56% in Jan '10. However, food inflation eased to 16.3% for the week ended March 6 vis-à-vis 17.81% in the previous week on the back of declining prices of pulses and vegetables.
± RBI raised the repo rate under the LAF by 25bps to 5% and the reverse repo rate by 25bps to 3.5% with immediate effect.
± The Bank of Japan announced doubling of its fixed-rate operations to boost long-term liquidity to US$222bn, and to maintain its uncollateralized overnight interest rate at 0.1%.
± US current-account deficit widened to US$115.6bn in Q4FY09, up by 12.9% qoq. This was mainly due to imports of oil, autos and other foreign products outpaced the gains in U.S. exports.
Corporate Snippets
± Reliance Industries has renewed talks with the ONGC-led consortium to pick up a stake in the Carabobo-1 oil block in Venezuela. (ET)
± Bharti Airtel has finalised US$8.5bn of funding for acquisition of Zain assets as well as a likely foray into 3G, telecom in India. (ET)
± Posco and SAIL are understood to be carrying out a feasibility study on the possibility of a JV to build a 5mn tonne plant in Jharkhand. (BL)
± NTPC plans to undertake renewable energy power projects having capacity of more than 1000MW. (BS)
± Union Minister for Mines rules out any possibility of disinvestment in Nalco. (BS)
± SBI is not looking to increase lending rates immediately. (BL)
± Dr Reddy's receives approval from the US FDA for launching the generic version of Allegra, an anti-allergy drug of Sanofi Aventis. (BL)
± Cairn India has finalized a funding arrangement with a consortium of domestic institutional lenders for a loan of Rs40bn by pledging part of its equity in the discovery. (TOI)
± ONGC, its partners bag 17 blocks under NELP VIII. (BL)
± ONGC targets 27mn tonnes crude oil output next fiscal. (BL)
± Cabinet Committee on Economic Affairs (CCEA) has given its nod to ONGC Videsh and its partners, Oil India and IOC to invest US$2.2bn in an oilfield in Venezuela. (BL)
± Larsen & Toubro unit won an order worth Rs14bn for a six-lane highway. (DNA)
± Coal India says government would divest up to 10% stake in the company by July-August. (BL)
± Asarco has filed a lawsuit against Sterlite Industries for backing out of a US$2.6bn deal to take the US copper miner out of bankruptcy in 2008. (BS)
± JSW Steel plans to more than double its retail presence to about 400 stores in the next financial year. (BS)
± SAIL to soon have a joint venture partner for its 300 acre steel SEZ in Tamil Nadu. (BS)
± NTPC expects to acquire coal blocks overseas on its own in the next six months. (BL)
± SBI awaits RBIs clearance to acquire up to 30% stake in Tata Motors Finance. (BS)
± Indraprastha Gas announces hike in CNG prices by 50 paise per kg. (BL)
± Mahindra Satyam has been short-listed for contracts under Unique Identification (UID) number project. (BL)
± IOC and Oil India combine may hike their takeover offer for Middle East-focused oil firm Gulfsands Petroleum Plc. (BS)
± SBI plans to open 1,000 more branches in the next fiscal, taking its total branch network to over 13,000. (BS)
± The Future Group has acquired franchisee store of South Africa's biggest grocery chain, Shoprite Holding. (BS)
± Elder Pharma increases stake in Bulgarian subsidiary. (BL)
± Welspun Gujarat Stahl Rohren receives orders worth Rs6bn from its global clients. (BL)
± BEML says it has won an order worth Rs6.3bn from the army to supply three variants of BEML Tatra vehicles. (BL)
± CESC is planning to raise funds for two of its thermal power projects - 600MW each plants at Haldia in West Bengal and Chandrapur in Maharashtra. (DNA)
± TVS Motor launches its new model TVS Jive in Chandigarh. (BS)
± Bank of Baroda plans to increase its branch network to over 700 in Uttar Pradesh and Uttarakhand. (BS)
± Bank of Baroda, IOB and Andhra Bank await Malaysia clearance for setting up a joint venture bank in Malaysia. (BL)
± Yes Bank is likely to raise US$80mn in the first round of fund raising for its PE fund focused on clean technologies. (ET)
± ArcelorMittal is in talks to buy a stake in Prakash Industries, the New Delhi-based Rs15bn steel company. (DNA)
± Vishal Retail lenders near agreement on restructuring plan. (BS)
± Bajaj Holdings & Investment raises stake in Bajaj Electricals by nearly 19%, for Rs768.8mn through open market transactions. (BS)
± IFCI picks up 45% of the anchor investor portion in the ongoing IPO of Shree Ganesh Jewellery. (ET)
± UCO Bank has firmed up plans to raise funds through a FPO by issuing 60mn equity shares by May-end. (BS)
± MTNL would get a tax refund of Rs13.8bn for five assessment years. (BS)
± Monnet Ispat plans to set up cement plants in Chhattisgarh and Gujarat with an investment of about Rs24bn. (ET)
± Sanghi Industries has acquired land in Kenya to build a cement plant. (ET)
± Hindustan Dorr-Oliver plans to raise US$50mn by share sale from international markets. (ET)
± Parsvnath Developers has decided to sell off the 27,000 sq metre plot of land. (DNA)
Economic snippets
± RBI moves to stem inflationary pressures by raising its key policy rates - repo and reverse repo - by 25bps each with immediate effect. (BL)
± Foreign exchange reserves rose by US$1.3bn to US$280bn for the week ended March 12. (BL)
± The potential market for data and video services has driven as many as 11 companies to file applications to bid for the broadband wireless access spectrum. (BL)
± Government has received applications from nine telecom companies for participating in the auction for 3G mobile spectrum starting April 9. (BL)
± The Planning Commission reduces the power generation capacity addition target by over 20% to 62,374MW for the 11th Plan (2007-12) in its mid-term review. (BS)
± The government may link petrol and diesel prices to market prices in 2010-11 and introduce a graded system of subsidy-sharing. (BS)
± NHAI decided to raise the net worth criteria of the concessionaire to restrict the bidding to only big players in the national and international stage for its large projects. (BS)
± The World Bank has approved a credit of US$1.05bn to support two education projects in India. (BS)
± India's 2010 monsoon rains, crucial for farm output, will be normal, Farm Secretary Prabeer Kumar Basu said. (BS)
± The Cabinet Committee on Economic Affairs approved award of 33 out of 36 oil and gas blocks that were bid for in the last NELP round. (ET)
± The Government is considering the setting up of an independent regulator for the mining sector to deal with issues such as irregularities and delay in clearances. (BL)
± The Secretary of Ministry of Petroleum and Natural Gas hints at price hike again. (BL)
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