Market outlook
Trespassing 5100!
The only way most people recognize their limits is by trespassing on them.
A bright Monday morning is in the offing as the bulls seem to be in a mood to trespass 5100 comfortably and not be prosecuted. Friday's smart gains in the US following an encouraging jobs report and higher Asian markets will do the needful as far as openign gains are concerned. European stock benchmarks have also posted healthy gains.
Remaining comfortable above 5100 remains a challenge; but given the momentum in recent times flirting with 5200 seems on the cards shortly. On the downside, 5000 remains a good short-term support.
Overall sentiment has improved slightly post the better than expected Budget. However, in the near term, the market could face some resistance at higher levels. Valuations are not cheap and uncertainties persist on the external front.
On the macro front, things are shaping up well, but much will hinge on how the monsoon unfolds. Concerns over inflation and its fallout on the monetary policy will continue to play on investors' minds.
Trading ideas (Time period: 1-3 days)
Petronet (BUY, CMP Rs80, Target Rs88): The stock has seen impressive volume expansion in Friday's sessions and appears to have taken support between Rs72-75 range. It could bounce till somewhere between Rs87-88 levels in the near term. On Friday, the stock broke out from one-month trading range. The bullish formation is confirmed after the stock gave a close above its short-term moving averages. Traders can buy the stock at current levels and on dips up to the levels of Rs79 with a stop loss of Rs75 for a short-term target of Rs87 in the coming trading sessions.
DLF (BUY, CMP Rs317, Target Rs335): DLF is pointing to continued strength in the weeks to come as it has broken a downward-sloping trend line since January 2010. A detailed study of the daily chart shows that the stock has corrected from the high of Rs392 in January 2010 to touch a low of Rs282 last week. On Friday, the stock staged a smart breakout past the downward sloping trendline. This bullish breakout signals the end of the intermediate downtrend. The other supportive technical oscillators are positive and the upmove may extend to the levels of Rs338 and Rs345. We recommend high risk traders to buy the stock in the range between Rs315-319 for a target of Rs335 with stop loss of Rs309.
Derivative strategies (Time period: Till expiry)
± Long ABB March Future @ Rs817 for the target price of Rs855 and stop loss placed at Rs810.
Lot size: 500
Remarks: Net maximum profit of Rs19,000 and net maximum loss Rs3,500.
± Long Nagarjuna Constrn. Co. Ltd. March Future @ Rs160 for the target price of Rs170 and stop loss placed at Rs155.
Lot size: 2,000.
Remarks: Net maximum profit of Rs20,000 and net maximum loss Rs10,000.
Mutual funds
| Fund focus | |||||||
| HDFC Taxsaver Fund | Invest | ||||||
| Fund manager | Vinay Kulkarni |
| Min investment | Rs500 | |||
| Latest NAV | Rs199.2 |
| 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% | |||
Initiating Coverage: Educomp Solutions – BUY
CMP Rs714, Target Price Rs817, Upside 14.4%
Educomp Solutions has grown rapidly to become India's largest education company with presence across all segments of educational system, both formal and informal, from pre-schools to professional and vocational education. In most segments, Educomp is the market leader with no serious competition. Over the past 3-4 years, company has aggressively added scale in incumbent segments and acquired scale in new segments thereby substantially increasing its addressable market opportunity.
After recording exceptional 125% revenue CAGR over FY06-09, Educomp is estimated to witness a robust 44% CAGR in revenues (on a higher base) over FY09-12. Company's operating margin is expected to improve by 300-400bps over FY10-12 on account of profitability improvement in various business segments. Resultantly, earnings are expected to record a higher-than-revenue CAGR of 60% over FY09-12.
We expect Educomp to become FCF positive from FY11 as the new securitization model in Smart Class business would lead to higher cash profits generation, contraction in working capital cycle and reduction in capex intensity. This would eliminate the risk of further equity dilution to fund growth. Based on estimated strong earnings growth and dearth of other similar investment options in education space, we recommend BUY on Educomp with 1-year target price of Rs817 (15x FY12E EPS). However, low independence and small size of the Board is a key concern.
Weekly Update: Debt Market - week ended March 05, 2010
± The 10-year G-Sec bond yield hardened to 7.98%, highest since October '08. It increased by 9bps on a weekly basis over concerns about rising inflation due to increase in fuel prices.
± Seven state governments announced the sale of their 10-year SDLs for an aggregate amount of Rs54.5bn on March 9, 2010.
± EXIM Bank of India concluded an agreement with the Government of the Republic of Benin to provide a Line of Credit of US$15mn for financing imports from India.
± Higher prices of milk and pluses have inflated food inflation to 17.87% yoy for the week ended on Feb 20 vis-à-vis 17.58% yoy in the previous week.
± Foreign exchange reserve fell to US$278.4bn, down by US$375mn, during the week ended Feb 26 on account of revaluation of non-dollar assets and fall in value of gold in reserves.
± The Bank of England maintained the official bank rate paid on commercial bank reserves at a record-low of 0.5%. It also opted to retain the stock of assets financed by issuance of central bank reserves at US$300bn (£200bn).
± The Reserve Bank of Australia raised the benchmark interest rate by 25bps to 4%, effective from March 3, 2010
Corporate Snippets
± Reliance Industries, which has tasted success in a block in the Cauvery basin, could be close to striking hydrocarbon in an adjacent block in the region. (BL)
± Zydus Cadila announces commencement of phase-II and III clinical trials of its swine flu vaccine. (ET)
± Tata Steel sold 5.54mn tons of steel during April-February, registering a growth of 22% over the same period of 2008-09. (BS)
± Adani Power has been shortlisted along with three other international bidders to build a 1,000MW coal-fired power plant in European nation Kosovo. (BS)
± NMDC to double iron ore output to 50 mn tons by 2015. (BS)
± NMDC along with two other companies has submitted a US$230mn non-binding bid to buy 70% stake in an Australian mine owned by Perth-based Atlas Iron. (BS)
± NMDC plans Rs240bn capex for next 5 years. (BL)
± Coal Minister approves a grant of fuel linkages to 11 new thermal power projects of NTPC and Damodar Valley Corporation. (BL)
± The government to make a capital infusion of over Rs10bn in three public sector banks including UCO Bank, Central Bank of India and United Bank of India this month. (BS)
± JSW Steel will be exporting 40,000 tons of steel slabs to its US subsidiary, Texas Works. (BL)
± JSW Steel's crude steel production rose 69% in February to 0.5mn tonnes. (BL)
± Punj Lloyd will likely write off in the fourth quarter an Rs1.6bn claim made by its client Ensus for delay in completion of its project. (DNA)
± All mobile firms, except RCom and Tata Teleservices, have opposed the proposal to introduce 11-digit format. (ET)
± Essar Minerals, a subsidiary of Essar Group, acquired US-based Trinity Coal Partners for US$600mn. (BS)
± Essar Group is reported to have begun preparations for an US$8bn listing on the London Stock Exchange. (TOI)
± REC signs MoU with NTPC Tamil Nadu Energy Company Ltd, to invest Rs21.14bn in the Phase-II development of greenfield power project at Vallur in North Chennai. (BS)
± Zensar Technologies is looking at acquisitions in the US and Europe within the next six months to increase its scale of operations in overseas markets. (BS)
± Zee Entertainment Enterprises set to acquire 9X, the Hindi general entertainment channel belonging to the loss-making INX Media. (DNA)
± Schneider Electric India would buy two electronic security system business units of Zicom Electronic Security Systems, for Rs2.24bn. (BS)
± The Reserve Bank of India has ordered a special audit of the accounts of Bank of Rajasthan following investigations into irregular dealings by the private sector bank. (ET)
± ONGC Videsh has made two significant oil discoveries with a combined potential of 185mn barrels in a block in north eastern Syria. (BS)
± Adani Group has decided to bid for Ahmedabad 'the Manchester of the East' franchise. (BS)
± Orient Paper & Industries plans to expand its cement business by selling the commodity in new domestic markets. (ET)
± Kansai Nerolac Paints plans to invest Rs4bn over the next three years to increase its paint manufacturing capacity by 40% to 2.8 lakh tons per annum. (BS)
± Future Group and its UAE-based partner Axiom Telecom are on the verge of selling their mobile handset retail JV Future Axiom to the Essar Group's The MobileStore. (ET)
± BSNL decides to scrap Rs350bn GSM tender. (BS)
± IndiGo and SpiceJet add frills to lure more passengers. (ET)
± KPIT Cummins is considering about a 10% hike in salaries for its employees and hire 400 software professionals in the first two quarters of next fiscal. (ET)
± Blackstone Group is likely to acquire a 12% stake in Monnet Ispat's greenfield power plant to be set up in Orissa; deal is valued at Rs2.8bn. (DNA)
± HT Media says its subsidiary Hindustan Media Ventures plans to raise up to Rs3bn through an initial public offer. (BL)
± The Ruias plans to invest nearly Rs4bn in rolling out the first batch of Aegis campuses in India. (ET)
± LIC expects about 18% growth in premium income in 2010-11 over the current financial year. (BL)
± Just two months after it launched mobile services, STel has been asked by DoT to shut down the network in all the three regions where it is currently operational. (BL)
Economic snippets
± Foreign exchange reserve dipped US$375mn during the week ended February 26 to touch US$278.4bn. (ET)
± State governments' FY11 market borrowings are expected to come down by at least Rs400bn, relieving the pressure on interest expenditure. (BL)
± Truck rentals zoom 6-8%, retail freight up 12-15%. (BS)
± Finance minister may expand railway's exempted goods list. (BS)
± The Reserve Bank of India postponed the implementation of the proposed base rate mechanism by three months. (BS)
± Reserve Bank committee proposes collateral-free loans. (ET)
± The government plans to relax entry norms for UMPP. It proposes to modify a clause that requires a bidding firm to hold at least 26% in a project, with a capital cost not less than Rs30bn. (ET)
± The government has decided to allow only two players in each circle for broadband wireless services instead of three players earlier. (ET)
± Draft bill on Direct Taxes Code is likely to be introduced in the monsoon session of the Parliament, according to the Revenue Secretary. (BL)
± A capacity of 5,531MW grid-interactive power generations from various renewable energy sources has been installed up to January 31, 2010 against a target of 12,300MW for 11th Five-Year Plan. (BL)
± SEBI has decided in principle to allow stock exchanges to introduce physical settlement of equity derivatives. (BL)
± SEBI announces effective May 1, all QIBs will have to pay 100% of their bid amount in all public offers upfront, up from 10% now. (TOI)
± Government has allows power producers in SEZs to sell electricity to outside customers by paying a customs duty of 16% of the sale price. (FE)
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