Market outlook
Bulls look at kissing 18K
Force is all-conquering, but its victories are short-lived. Abraham Lincoln.
Positive global cues have forced an otherwise cautious market to come within striking distance of 18K. Will the victory be short-lived? The Tuesday effect could well take place where the indices will open higher and could end weaker.
While the FII inflows (Rs29.48bn net inflows in five days) continue, the domestic funds have also turned buyers. The aided the ascent of the rupee to an almost 20-month high versus the dollar, appreciating nearly 4% this year.
In the US, stocks rallied with the Dow flirting closing in on the 11K mark aided by Last week's jobs report and housing market report. Japanese stocks have fallen this morning following profit booking after the benchmark Nikkei Stock Average reached an 18-month high.
US light crude oil for May delivery flared $86.62 a barrel on the New York Mercantile Exchange, the highest close for crude since October 2008.
While the sentiment has been positive for some time now, there remain equal concerns on whether this rally can sustain meaningfully to another leg. Exercise extreme caution at these levels and avoid putting in fresh money.
Trading ideas (Time period: 1-3 days)
Chambal Fertilizers (BUY, CMP Rs62.80, Target Rs69): On the daily chart, the stock has broken out from an inverted Head & Shoulders formation with the neckline placed at Rs62. We believe consolidation above this level could lead to a strong rally in the counter. In fact, a detailed study of the daily chart suggests that the stock has given a breakout past its 5-week resistance line. In the same period, the stock made several attempts to break past the resistance but failed. Yesterday, it managed to close above the neckline. The daily RSI is exhibiting positive divergences. Based on the above-mentioned technical evidences, we recommend traders with high risk appetite to buy the stock between Rs62-63 for an initial target of Rs69 and Rs71 with strict stop loss of Rs58.
DLF (BUY, CMP Rs322, Target Rs340): In our view, the stock has completed its downfall and has created a medium term support around the levels of Rs295. From the current level, the stock can only move towards one direction, i.e. upwards. The daily RSI has also given a positive divergence, indicating that price would start moving up. After hitting the low of Rs291 in March 2010 the stock has seen the formation of higher bottom. After creating a base around Rs291-295, the stock has moved up steadily. We expect the stock to attempt the 100-day DMA, currently placed at Rs344. Based on the above evidences, we recommend traders to buy the stock at current levels and on declines to the levels of Rs319 with the support of Rs313 for an initial target of Rs340.
Derivative strategies (Time period: Till expiry)
± Long United Phosphorous April Future @ Rs152 for the target price of Rs160 and stop loss placed at Rs149
Lot size: 1,400
Remarks: Net maximum profit of Rs11,200 and net maximum loss Rs4,200.
± Long Everest Kanto Cylinder (EKC) April Future @ Rs125 for the target price of Rs132 and stop loss placed at Rs122
Lot size: 2,000.
Remarks: Net maximum profit of Rs14,000 and net maximum loss Rs6,000.
Mutual funds
| Fund focus | |||||||
| Reliance Growth Fund | Invest | ||||||
| Fund manager | Sunil Singhania |
| Min investment | Rs5,000 | |||
| Latest NAV | Rs450.3 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs450/201 |
| 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% | |||
Sector Update: Banking – 'On a growth trajectory'
The recently released RBI data reveals that system credit growth has inched to 16%yoy (largely in-line with RBI estimates). The sluggish credit demand in the initial part of the year had compelled the reserve bank to tone down its credit growth target. The recent concluded bankers meet have claimed for a higher 20-22% credit growth in FY11. While containing inflation has been the key challenge for the central bank, with abundant liquidity, bankers (in the meet concluded yesterday) have urged the RBI to tinkle with key rates (repo rate and reverse repo rate), while leaving the CRR rate unchanged in the monetary policy due April 20th, 2010. In our view, with front-loading of government borrowing programme, inflationary expectations to slow down by July, 2010 and pick-up in credit demand, we do not expect the central bank to increase the cash reserve ratio during the Q4 monetary policy. A 25bps increase in repo rate, however, cannot be ignored.
While bond yields were up by mere 24bps (q-o-q) to 7.8% during March, 2010 quarter, we expect yields to move upwards in short term. According to our analysis, Bank of India, Corporation Bank and SBI had large proportion of their book in AFS category. With duration remaining high at 3.0-3.8years, MTM losses are expected to come in higher in case of sharp surge in bond yields. Bank of Baroda, PNB, UBI and Canara Bank, however, remains less vulnerable to MTM risk.
As against a hefty gross market borrowing programme at Rs4.5tn for the current fiscal year, the government has targeted for market borrowing of Rs2.8tn (63% of the total borrowing) in H1. Of this, Rs1.6tn (36% of total borrowings) is set to be raised during Q1 FY11. In our view, with surplus liquidity and cyclical nature of credit demand, we expect the government borrowing programme for H1 FY11 to sail through.
Corporate Snippets
± L&T has received an order worth Rs10.6bn from Gujarat State Petroleum Corporation to build an offshore oil platform. (FE)
± IFC, the private financing arm of the World Bank, has proposed to pick up a 9.92% stake in Cholamandalam DBS Finance for a consideration of Rs1bn. (ET)
± Opto Circuits has announced the acquisition of Kolkata-based NS Remedies for US$1.5mn in an all-cash deal. (ET)
± Oil India has more than US$2.5bn cash available for acquisitions as it seeks producing assets overseas to help boost the country's energy security. (BS)
± Religare Securities has hiked its stake in multiplex chain operator Fame India to 5.82%. (FE)
± ONGC has received 10,722 emission reduction certificates from the United Nations for a waste heat recovery project at its Mumbai High fields. (ET)
± Welspun Gujarat plans to buy stake in Saudi company for Rs2.6bn. (BS)
± Biocon is taking full ownership of its subsidiary, Biocon Biopharmaceuticals Pvt Ltd (BBPL) by buying the remaining 49% stake held by its Cuban joint venture partner, CIMAB SA. (BS)
± Essar Power is raising Rs11bn from IDFC for its proposed 270MW power project in Hazira, Gujarat. (ET)
± BHEL is planning to re-enter wind turbine manufacturing space in the next three months. (BS)
± Ispat Industries has increased the prices of its products by up to Rs3,000 per ton. (ET)
± NALCO has achieved the highest-ever metal production of 0.43mn tons in 2009-10, an increase of 19.4% over 2008-09 levels. (FE)
± Era Infra has forayed into power transmission and distribution (T&D) business through its new subsidiary - Era Power. (ET)
± Aegis Logistics has acquired Shell Gas (LPG) India, pursuant to which the latter has become the subsidiary of the company. (FE)
± Petronet LNG is in talks with West Asian countries, including Qatar, to secure gas supply for its Kochi terminal. (BS)
± Piramal Healthcare plans to acquire more drug brands and diagnostics chains to expand its footprint across India. (BS)
± Reliance Big Entertainment would acquire 50% stake in British developer and publisher of world-class video games Codemasters. (BS)
± The central government has granted a licence to ArcelorMittal for prospecting iron ore in the Karampada region of Jharkhand, a move that would boost the steel giant's proposed Rs500bn project in the state. (BS)
Economic snippets
± Telecom companies want sector regulator to come out with its recommendations on policy changes, including that on 2G spectrum pricing, latest by Wednesday. (ET)
± Led by buoyant Customs collection, the indirect tax mop-up is likely to be around Rs2,570bn for 2009-10, higher than the revised estimate of Rs2,440bn. (BS)
± The High-Level Committee on External commercial borrowings will consider allowing refinancing of domestic debt taken for equipment purchases for power projects. (ET)
± Bank CEOs have urged the Reserve Bank of India to raise their capital market exposure limit. (ET)
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