Market outlook
Decent start after a Holi-day!
Risk varies inversely with knowledge
Investors have had a long weekend to put their knowledge at work after the budget. With the major event risk out of the way, a lot will again depend on how the global events play out.
The market is expected to open on a positive note. Stock-specific and sector-specific activity will be the order of the day as investors understand the impact of the budget on their holdings.
Asian stocks have pared their gains after a positive start. US stocks climbed on Monday taking the Nasdaq and S&P 500 into positive zone for the year. AIG's $35 billion asset sale and a some mergers in the pharma space brought some cheer. A Greek bailout package is being closely watched and could have a bearing on the market sentiment.
The consumption story is here to stay. With the budget putting in more money in the hands of the consumers, a lot of consumption-related stocks will see renewed action.
The EXIM numbers and sales numbers from auto and cement firms will be among the data points tracked today.
Trading ideas (Time period: 1-3 days)
IDFC (BUY, CMP Rs160, Target Rs168): On the daily chart, the stock has broken out from an inverted Head & Shoulders formation with the neckline placed at Rs158. We believe consolidation above this level could lead to a strong rally in the counter. A detailed study of the daily chart suggests that the stock has given a breakout past its one-month resistance line with heavy volumes. The supportive technical oscillators are positive and the upmove which begun last week from the levels of Rs146 has taken support at 200-DMA. We recommend traders to buy the stock between the range of Rs159-161 for target of Rs168 and Rs170 with a stop loss of Rs155.
L&T (BUY, CMP Rs1,564, Target Rs1640): L&T has made higher tops and higher bottoms in last few trading weeks. It has risen steadily from the levels of Rs1,390 from the first week of February 2010 to the current levels. On Friday, the stock confirmed a breakout after giving a close above its 200-DMA. In addition, the gain in the stock price from a low of Rs1,466 in the last week has been on back of increasing volumes, indicating strong buying at the support levels. On Friday, the stock rallied by 3% confirming the bullish set up. The daily momentum oscillators i.e. RSI and MACD are suggesting strength in the upmove. We recommend traders to buy the stock between the range of Rs1,555-1,570 with strict stop loss of Rs1,535 for target of Rs1,620 and Rs1,640.
Derivative strategies (Time period: Till expiry)
± Long Pantaloon Retail March Future @ Rs385 for the target price of Rs400 and stop loss placed at Rs378.
Lot size: 850
Remarks: Net maximum profit of Rs12,750 and net maximum loss Rs5,950.
± Long IFCI March Future @ Rs52 for the target price of Rs54.50 and stop loss placed at Rs51.
Lot size: 7,880.
Remarks: Net maximum profit of Rs19,700 and net maximum loss Rs7,880.
Mutual funds
| Fund focus | |||||||
| HDFC Taxsaver Fund | Invest | ||||||
| Fund manager | Vinay Kulkarni |
| Min investment | Rs500 | |||
| Latest NAV | Rs193.9 |
| 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% | |||
Budget 2010-11 – "Fine Balancing Act"
After a series of lackluster budgets, this year, Finance Minister Pranab Mukherjee chose a more balanced approach in devising the Budget. A key positive was a substantial increase in personal income tax slabs and increase in exemption limit. While we expected the fiscal deficit target of 5.5% set for FY11, a strong signal came through about fiscal consolidation by providing a roadmap for three years. Furthermore, the government set a reasonably low borrowing target of Rs3,450bn for the coming period. The stock market also took comfort from the fact that excise was rolled back by only 2% (our expectation) and not 4% and service tax rate remained unchanged (our expectation). The FM also sent strong signals by reporting 6.9% fiscal deficit for FY10 (market expected a much higher figure), targeting 8.5% GDP growth in FY11 and hoping for 10%+ growth in future years. Although delayed implementation of GST was known, what is encouraging is that a deadline of April 2011 has now been set for the same (for the direct tax code as well). Focus continued on infrastructure, rural development, education, healthcare and defense.
Major negatives from the budget were increase in MAT rate from 15% to 18%, service tax for the real estate sector, import duty levy on crude oil and petroleum products and Rs100/ton cess on coal.
All in all, the positives outweigh the negatives. The government has set the tone for four more years with rejuvenated efforts - even finalizing a new symbol for the Rupee. The Opposition parties staged a walkout during the budget speech. The onus is now on the Finance Minister to walk the talk; for now the markets have given a thumb's up.
Event Update: Automobiles - Budget Impact
± Higher excise duties to impact demand in the near term
± Higher disposable income on back of change in personal tax slabs to drive long term demand
± Higher fuel prices could impact profitability of fleet operators
± Thrust on rural employment generation
± Price hike by OEMs to cushion margin impact
± Higher weight on R&D deduction to increase investment for fuel efficient and less polluting technology
Event Update: Oil & Gas - Fuel Price Hike & Budget Impact
± Hike in customs duties and excise duties on crude and petroleum products
± Petrol and diesel prices raised to offset budget impact
± GRMs to be lower on account of lower duty differential
± Hikes to increase inflation by 20bps
± Further price hikes and de-regulation warranted
± GRMs to stabilize at current levels
± Sector to underperform unless de-regulation happens
Result Update: Tata Motors (Q3 FY10) – BUY
CMP Rs711, Target Price Rs836, Upside 17.6%
± Consolidated net sales rose 24.4% qoq driven primarily by 34.2% qoq jump in Land Rover volumes and better realizations
± JLR turns around and reports a net profit of £55mn (Rs4,150mn) vis-à-vis a net loss of £60mn in Q2 FY10
± Inventory days for JLR improved from 97 days in September 2009 to 79 days in December 2009
± With impending launch of new Jaguar XJ in Q4 FY10, management expects Jaguar volumes to witness strong growth
± Substantial improvement in leverage position following fund raising through GDR issue and debt repayment
± Upgrade from Market performer to BUY on back of above estimated performance of JLR
Management Mantra: Mr. M M Miyajiwala, Executive VP & CFO, Voltas Ltd
Mr. M M Miyajiwala is the Executive VP & CFO of Voltas Ltd. He is a qualified Chartered Accountant and is a rank holder. He also holds qualification in Law. Mr. Miyajiwala joined Voltas in May 1980 as an Accountant. He has grown steadily in Voltas over the years and heads both the Finance and Legal functions in Voltas Ltd. He has five years of prior professional experience with other organizations. He is also on the Board of Directors of some of the subsidiaries and Joint Venture companies of Voltas Ltd. He is also Chairman of a well known Engineering College based in Mumbai and is associated with a large Charitable organisation as an Executive Board member.
Weekly Update: Debt Market - week ended February 26, 2010
± The G-Sec bond yields were steady after the announcement of government borrowing programme for FY11. The 10-year benchmark bond yield ended at 7.89%. Even shorter term yields were flat; except for 2-year G-sec that declined by 30bps this week.
± Corporate bonds prices witnessed some rally as bond yield corrected. 10-year AAA bond yield was down by 4bps at 8.88%.
± Government announced a lower-than-expected borrowing programme of Rs4.57tn for FY11. The net borrowing is expected at Rs3.45tn in the year v/s Rs3.97tn in FY10.
± Food price inflation index fell to 17.58% for the week ended Feb 13 vis-à-vis 17.97% in the previous week. Prices of pulses, vegetables and sugar continue to remain on higher side.
± Government would infuse Rs165bn to ensure the minimum Tier-I capital of 8% by March '11 into PSBs. Of this, Rs150bn would be aided from World Bank, as the institution had agreed to provide a US$2bn loan for re-capitalizing government-owned banks.
± Russia FDI fell to US$15.9bn last year, down 41% yoy. This is the largest decline since the fall down of Soviet Union.
Corporate Snippets
± SAIL says hike in excise duty will be passed on to customers resulting in a Rs500-600 per ton price hike on long products. (BL)
± Bhushan Steel plans to invest about Rs280bn to set up a value-added steel plant in Karnataka. (DNA)
± Maruti Suzuki would raise prices between Rs3,000 to Rs13,000 across various models, with immediate effect. (DNA)
± Cement companies across all regions have increased prices in the range of Rs10-12 per bag to offset the twin effects of hike in excise duty and rise in diesel rates. (ET)
± RIL is on the verge of losing its bid for bankrupt petrochemical company Lyondell-Basell, as it baulks at rising valuation due to the recovering global economy. (ET)
± Coal India will increase its spending by three times to Rs98bn in the next financial year, primarily to fund its expansion and acquisition programmes. (FE)
± Hindustan Dorr-Oliver has acquired Sheffield-based DavyMarkham, a 180-year-old company involved in design, manufacture and assembly of large equipment used in mining, power, oil, gas and nuclear sectors. (BS)
± Tata Steel rules out raising equity to meet covenants. (BS)
± MphasiS Ltd is scouting for a company with revenues in the region of US$45-60mn and having a good presence in the cloud computing space, with a view to growing its Infrastructure and Technology Outsourcing (ITO) business. (BS)
± SAIL to spend ~Rs123bn in the next financial year largely to fund its mega expansion programme. (FE)
± Bhushan Steel would spend Rs280bn to build a 6 lakh tonnes steel plant in the Bellary region of Karnataka. (ET)
± Nabard plans to provide Credit Plus services through the Farmers' Clubs. (BS)
± Tata Motors reported 58% yoy growth in total sales volume, including exports volume. (ET)
± FPO of NMDC may be at a substantial discount to its market price, going by the numbers announced by finance minister in his Budget speech. (Mint)
± Venezuelan government owned oil firm likely to buy stake in ONGC Mangalore Petrochemicals for setting up an aromatic unit in Mangalore SEZ. (FE)
± SAIL will be spending Rs123bn in the next financial year, mainly to fund its expansion program. (FE)
± Budget clarification on extension of service tax will include all activities in the entire continental shelf and exclusive economic zone will increase the cost of offshore exploration for ONGC and Reliance Industries. (BS)
± ICICI Bank hikes long-term deposit rates by 25-50 bps. (ET)
± The Tatas will have to either buy out the 26% stake in its life insurance JV or rope in another partner if Prudential UK buys out the Asian life insurance business of AIG. (BS)
± United Bank of India fixed issue price of its IPO offer at Rs66 per share. (BS)
± M&M plans to launch nine vehicles in various segments till March 2011; raises product prices by up to Rs18,000 following the increase in excise duty announced in the Budget. (BS)
± Non-banking finance companies like IDFC, Aditya Birla Financial, Reliance Capital, Religare Enterprises and Indiabulls planning to queue at the RBI to seek banking licences. (BS)
± Bharti Airtel may sell stake to cut Zain deal debt. (ET)
± Shriram Transport Finance enters the second hand truck finance market through its new subsidiary Automall. (BS)
± Maharashtra government decides to award the Worli-Haji Ali sea link project to a consortium led by Reliance Infrastructure. (ET)
± Reliance ADAG scales up its stake in the Fame by 1.7% to nearly 14%. (ET)
± Texas Pacific Group may take over the assets of troubled Vishal Retail and convert it into a cash-and-carry operations. (ET)
Economic snippets
± Fiscal deficit for 2010-11 pegged at 5.5% of GDP. (DNA)
± Government raises excise duties by 2% to 10% on all non-oil products as part of withdrawal of the stimulus measures. (DNA)
± Domestic oil companies increased ATF prices with the increase in price ranging from Rs1.3/litre in Delhi to Rs1.4/litre in Chennai. (BL)
± Economy recorded a less than expected 6% growth in Q3 FY10, lower than the 7.9% GDP growth recorded in Q2 FY10. (BL)
± The Government has decided that telecom companies offering 3G services will not be allowed to claim tax breaks under Section 80 IA of the Income Tax Act. (BL)
± Minister of Road Transport and Highways has lowered the target for awarding national highway contracts to 7,000km by June from the earlier stated level of nearly 12,000km. (BL)
± Finance Ministry hopes to garner about Rs260bn in 2010-11 from the budget move to go back to the pre-June 2008 duty structure position on the petroleum sector. (BL)
± RBI is considering giving some additional banking licences to private sector players, including non-banking finance companies. (BL)
± Vehicles prices set to rise across the automobile industry as the government announced a 2% hike in excise duties across all segments in Budget 2010-11. (BL)
± Due to increase in customs and excise duties on petrol and diesel, consumers will now have to pay Rs2.71 per litre and Rs2.55 per litre more respectively. (BL)
± Foreign exchange reserves fell by US$527mn to US$279bn for the week ended February 19. (BL)
± Government has estimated the net borrowing for FY11 at Rs3.5tn or Rs534bn lower than the revised estimates of the current year. (BL)
± Government proposes to introduce competitive bidding process for allocating coal blocks for captive mining. (BL)
± The government is seeking a uniform low risk weight on banks' exposure to the specialised infrastructure financing companies. (ET)
± RBI has indicated that it will take longer than April to implement base rate scheme. (ET)
± The Indian Banks' Association had asked RBI to extend the deadline for base rate implementation by banks by three months to July. (ET)
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