Market Mantra
Market outlook
Neither sweet, nor sour
On Gudhi Padwa, bitter taste of neem remind us of struggles while sweet taste of jaggery remind us of the progress that results from the struggle.
Just like today's festival, the market is neither too good nor too bad; spring cleaning is the order of the day as investors weight their options. Thankfully, we may see more green on the trading screens today though the overall pattern will remain largely subdued yet choppy. We expect a slightly higher opening. The overnight recovery in the US and positive trend across Asia will add to the festivities.
No big movements are on the cards, at least till we get the first few Q4 numbers from India Inc. Advance tax numbers are pretty mixed and loosely indicate that auto and FMCG companies have done well while banks are laggards.
Struggle and progress go hand in hand. Monthly inflation is within striking distance of touching double digits and is affecting other segments of the economy besides food. But India's fundamentals are in much better shape vis-à-vis last year. Monsoon of course will be a joker in the pack and RBI's annual policy meet next month could be crucial.
Trading ideas (Time period: 1-3 days)
Lanco Infratech (BUY, CMP Rs54, Target Rs60): The stock had been consolidating in a narrow range between the levels of Rs49-53 for one weeks after recording a spectacular rally during the February-end 2010. During which the stock witnessed a rise from the levels from its 200-day DMA. The daily RSI is already in strong buy mode. The stock has closed above its 100-day DMA. A move past the levels of Rs55 could take the stock towards the levels of Rs60 and Rs62 levels in the short-term. Keeping in mind the above-mentioned evidences, we recommend high risk traders to buy the stock between the range of Rs53-55 with a stop loss of Rs50 for an initial target of Rs60.
JP Associates (BUY, CMP Rs149, Target Rs158): On Monday, the stock advanced on impressive volumes above its critical resistance levels of Rs147-148. It now faces a resistance at Rs157-160 levels and should have a minimum upside till that level. 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 200-day DMA. We recommend traders with high risk appetite to buy the stock in the range of Rs147-150 with a strict stop loss of Rs144 for an initial target of Rs158.
Derivative strategies (Time period: Till expiry)
± Long The Great Eastern Shipping Co. Ltd. March Future @ Rs288.50 for the target price of Rs300 and stop loss placed at Rs282
Lot size: 1,200
Remarks: Net maximum profit of Rs13,800 and net maximum loss Rs7,800.
± Short MTNL March Future @ Rs72.50 for the target price of Rs67 and stop loss placed at Rs75
Lot size: 3,200.
Remarks: Net maximum profit of Rs17,600 and net maximum loss Rs8,000.
Mutual funds
| Fund focus | |||||||
| ICICI Prudential Tax Plan | Invest | ||||||
| Fund manager | Sankaran Naren |
| Min investment | Rs500 | |||
| Latest NAV | Rs124.8 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs125/50 |
| 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% | |||
Inflation – February 2010
± WPI basket continues to rise as it increases 9.89%
± Primary goods index continues to surge
± Food products prices cause higher manufactured goods index
± Fuel index rises 7.4% yoy as crude oil price increase
Sector Update: Banking – 'NIMs under pressure'
With various banks having increased deposits rates recently, we believe that lending rates are likely to increase from Q2 FY11. Banks with substantial retail exposure are better placed to pass-on the rising cost of funds due to robust demand for retail loans. We expect bank lending rates to increase by 100-150bps in FY11. The one-to-two quarter lag in pass-on could impact NIMs of many public banks adversely in the short-term while private banks may be able to contain margin contraction via full pass-on and superior ALM. With macro drivers getting in place for robust and safer growth over the next 2-3 years, we remain positive on the sector. Our top picks are HDFC Bank and Yes Bank while Axis is the only SELL.
What's In, What's Out – February 2010
Given below is the snapshot of mutual fund activity in Indian equities. The information includes performance of mutual funds, current cash levels and stocks which are in and out of flavour.
Key observations
± Indian Mutual Fund industry reported a growth of 2.7% mom, after witnessing two successive declines of 4.1% mom and 1.6% mom in January and December respectively. It was mainly on account of positive inflow by the financial institutions and stabilisation in the equity market. In February, industry's Average Asset under Management (AAUM) stood at Rs7.8tn, an increase of Rs202bn.
± The top-10 fund houses cumulatively posted a growth of 2.4% mom in AAUM however; the growth was submissive relative to the industry growth. Reliance Mutual Fund witnessed a monthly decline of 1.3% but continues to hold top position. The other two fund houses, which witnessed a decline in their AAUM, were LIC Mutual Fund (-2.1% mom) and SBI Mutual Fund (-1.5% mom). Kotak Mahindra Mutual Fund outperformed the industry and the top players by reporting a growth of 9.7% mom. Peerless Mutual Fund made its debut with an average corpus of Rs1.2bn and positioned itself at 36 within the universe of 38 fund houses.
± In February '10, positive inflows were witnessed across all categories. Income and equity funds witnessed a net inflow of Rs48.9bn and Rs15.1bn respectively. Although the income fund category witnessed a positive inflow, it was relatively lower to the previous month. However, equity funds category witnessed relatively higher inflows (+54% mom) compared to the previous month.
± Domestic fund houses were bullish on power generation, oil and cement companies. NTPC, Adani Power and GVK Power & Infrastructure were among the top-10 companies bought in February from the power space. However, fund houses have been underweight on FMCG, realty and telecom companies. ITC and Dabur were among the top-10 sold companies. In telecom space, Bharti Airtel continues to be one of the top sold stocks among fund manager. DSP Black Rock and Reliance Mutual Fund offloaded 5.8mn of Bharti Airtel shares. Crompton Greaves was the top sold scrip in terms of volume, as fund houses offloaded approximately 31.5m of shares in month of February.
± Foreign Institutional Investors (FII) and domestic mutual funds remained buoyant in the debt market during the budget month. They bought debt securities worth Rs31.5bn and Rs119.7bn respectively. However, in the equity market, both players espoused different approach. Mutual funds continued to remain net sellers for the last six months and offloaded equities worth Rs6.9bn in Feb '10, whereas FIIs, unlike last month, bought equities worth Rs12.2bn in Feb '10.
± Among the top-12 fund houses, cash levels increased by Rs8bn within the equity schemes. On an average, top fund houses maintained a cash cushion of 6.9% of the total equity corpus in February vis-à-vis 6.4% in January. Out of top-12 fund houses, six fund houses increased their cash holdings. Presently, ICICI Prudential Mutual Fund has maintained maximum cash cushion among the peers at 11.4% vis-à-vis 7.6% in previous month.
Corporate Snippets
± Tata Motors global sales increase by 59% in February to 89,768 units (ET)
± Special auditors appointed by DoT to scrutinize accounts of Bharti Airtel have given a clean chit to the company on most parameters outlined by the Government. .(BL)
± ICICI Bank aims to grow its Balance Sheet by 15% in FY11. (FE)
± L&T has bagged a project worth Rs20.4bn from ONGC Mangalore Petrochemicals. (ET)
± BHEL wins Rs33.5bn turnkey contract to set up 365MW acptive power plant at the upcoming Paradip Refinery. (BS)
± HCC to acquire Swiss company, Karl Steiner, for Rs1.5bn. (ET)
± TCS signed a 5-year deal with Malaysia Airlines for an undisclosed amount. (ET)
± Tata Steel may increase prices of its products in the coming months. (BS)
± SAIL eyes Rs430bn sales in FY11. (BS)
± ONGC to fund overseas acquisitions over next decade with US$20bn borrowings. (BS)
± RIL and MRPL have committed to buy up to 45% of crude oil from ONGC Videsh and its partners plan to produce from a Venezuelan oil field. (ET)
± Reliance Communications crosses 100mn mobile subscriber mark. (BS)
± NTPC plans to double its gas-based power generation capacity to over 8,000MW by 2017. (ET)
± GMR Group plans to bring in strategic partners to set-up a proposed refinery and petrochemicals plant at Kakinada in Andhra Pradesh. (ET)
± PFC to raise US$300mn from SBI's London Branch. (ET)
± Hero Honda may set up its fourth plant in Himachal Pradesh. (BL)
± Ranbaxy Labs has settled a patent dispute with Takeda Pharmaceuticals. (ET)
± Essar Oil will start marketing aviation fuel from next month. (BL)
± NMDC's FPO price has been fixed at RS300/share. (ET)
± NMDC will finalize its new iron ore pricing mechanism within next 15 days. (BL)
± Central Bank to buy out partners in mortgage finance subsidiary, Centbank Home Finance, by month-end.(BS)
± Power Grid aims at Rs79bn revenues next year. (BL)
± IndusInd Bank likely to raise Rs3bn from Tier-2 bonds. (FE)
± Great Offshore has decided to raise Rs1.75bn. (ET)
± Titagarh Wagons is mulling a foray into shipbuilding industry. (BS)
± Vedanta Resources' plan to mine bauxite in Orissa could be jeopardized if environment ministry accepts the finding of report made by committee appointed by the Government. (ET)
Economic snippets
± India's inflation rises to 9.9% for the month of February 2010, a 16-month high. (ET)
± Domestic air traffic rose 17% in February 2010. (ET)
± Foreign Education Bill finally gets cabinet nod. (BS)
± DoT did not receive any bid for 3G spectrum on the first day of the auction. (BL)
± Oil firms may hike jet fuel prices by 2.4%. (BS)
± RBI has asked banks to disclose more information on NPLs. (BS)
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