Market outlook
Don't get fooled!
"Only a fool tests the depth of the water with both feet." – African proverb
As we greet a new fiscal year following a stellar FY10, make sure you don't get fooled.
The main indices are set to open on a positive note. The initial gains may taper off as the day wears on as most players would prefer a 'wait-and-watch' stance ahead of earnings and RBI's annual policy meet. Overall, the trend will remain insipid and sideways in a range. Auto and Cement stocks will be in focus as they release monthly as well as annual sales figures.
Most Asian markets are in the green, notwithstanding the overnight fall in US counterparts. Markets in Japan and China are up on encouraging economic data. Crude oil is trading above $83 per barrel.
For now, all eyes are on Thursday's monthly payroll report in US. Wall Street finished lower on Wednesday. A private survey revealed surprising drop in jobs while a regional manufacturing report showed a bigger fall. In Europe, stock benchmarks closed in the red after a ratings agency downgraded five Greek banks.
Trading ideas (Time period: 1-3 days)
AIA Engineering (BUY, CMP Rs401, Target Rs427): The short-term ascending trendline yet again provided strong support to the stock on Wednesday. It pulled back smartly from day's low to close at days high with impressive volumes. The stock is sitting on an important trendline support just above Rs390. Recent developments are building up the case that the uptrend from March low of Rs358 is likely to continue. Daily oscillators continue to remain in a positive set-up. Traders are advised to buy the stock in the range between Rs397-405 with stop loss of Rs389 for target of Rs427.
Havells India (BUY, CMP Rs597, Target Rs625): The stock has seen impressive volume expansion in last few trading sessions and appears to have taken support between Rs565-568 range. It could bounce till somewhere between Rs620-625 levels in the near term. Our argument is further validated after the stock recovered from the low of Rs585 in yesterday's session with strong volumes. Any move above Rs600 could take the stock towards Rs625 and higher in the short-term. Traders are advised to maintain a stop loss of Rs584 and go long. Book partial profit around Rs620 and exit around the levels of Rs625.
Derivative strategies (Time period: Till expiry)
± Short ICSA (INDIA) Ltd April Future @ Rs129 for the target price of Rs120 and stop loss placed at Rs132
Lot size: 1,200
Remarks: Net maximum profit of Rs10,800 and net maximum loss Rs3,600.
± Long Bombay Rayon Fashions Ltd (BRFL) April Future @ Rs218 for the target price of Rs230 and stop loss placed at Rs213
Lot size: 1,150.
Remarks: Net maximum profit of Rs13,800 and net maximum loss Rs5,750.
Mutual funds
| Fund focus | |||||||
| Reliance Growth Fund | Invest | ||||||
| Fund manager | Sunil Singhania |
| Min investment | Rs5,000 | |||
| Latest NAV | Rs438.9 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs442/201 |
| Exit load | 1% <1 yr | |||
| Latest AUM | Rs6,733cr |
| Latest dividend (under dividend option) | 25% (Mar 30, 2010) | |||
| Type | Open-ended |
| Benchmark | BSE 100 | |||
| Class | Equity – diversified |
| Asset allocation | Equity (90%), Debt (0%), Cash (10%) | |||
| Options | Growth & dividend |
| Expense ratio | 1.8% | |||
Annual Report Analysis: Ambuja Cements - SELL
CMP Rs120, Target Rs102, Downside:14.8(%)
Turns free cash flow positive
During CY09, ACL registered a revenue growth of 13.2% yoy at Rs70.9bn.This performance was backed by 7% yoy improvement in average realization and 6% yoy increase in volumes. ACL meets part of its clinker requirement from outside (1.7mtpa) translating into higher raw material cost (up 485bps as a % of sales). This coupled with high imported coal inventory at peak prices resulted in a margin erosion of 100bps in CY09 at 27.4%, lower than peers. Resultantly, PAT before exceptional items grew by 12% yoy. Material savings (Rs6.7bn) from tighter working capital cycle and higher earnings turned ACL into a positive free cash flow company despite a Rs13.1bn capex program. Cash and cash equivalents rose by Rs4.2bn to Rs16bn (22.5% of the total capital employed).
Corporate Snippets
± Reliance Power plans to re-finance Rs150bn loan. (ET)
± L&T has bagged an order of Rs5.6bn from Cognizant Technolgies to construct its IT campus development project in Chennai. (BL)
± Videocon, Elcoteq call off stake sale negotiations. (ET)
± Ericsson wins a US$1.3bn deal from Bharti Airtel. (BL)
± L&T bags order worth Rs11.26bn. (BL)
± GAIL to invest Rs60bn on 1,000km pipelines in FY11. (ET)
± Sun TV promoter Maran is talking to hedge fund Wilbur Ross to buy its entire 30% stake in SpiceJet. (BS)
± India has offered Kuwait stakes in ONGC and IOC plants. (BS)
± GMR Infra may tie-up funds for its Rs21.9bn Hyderabad-Vijaywada highway project. (ET)
± Indraprastha Gas to borrow debt of Rs10bn for expansion. (BS)
± Nirma to merge Nirma Consumer Care with itself. (BS)
± Essar Group to decide on buying refineries from Shell by June 2010. (BS)
± Areva T&D bags order worth Rs700mn from BHEL. (BL)
± Kalpataru Power Transmission subsidiary JMC projects in consortium with SREI Infra, has won a contract from NHAI. (BL)
± Hindustan Dorr-Oliver bags orders worth Rs2.68bn. (BL)
± Purvankara Projects ties up with Mexico's Homex for projects in affordable entry level housing segment. (BL)
± IRB Infra ties up with several banks to funds its projects. (BL)
± Aditya Birla Retail has closed 39 stores including 2/3rd of its outlets in Gujarat. (ET)
Economic snippets
± Direct tax collections are set to fall short by Rs300bn of the revised target in FY10. (ET)
± India's net earnings from trade in services are headed for a first fall in nine years. (ET)
± Himachal Pradesh and Uttarakhand lose tax-haven status. (ET)
± February export rose 34% yoy, clocking gains for the four straight month. (ET)
± FDI up 15% yoy in February to US$1.72bn. (ET)
± Banks get two more years to meet IFRS norms. (ET)
± Service tax levy on railway freight deferred to July 1st 2010. (BL)
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