Market Mantra
Market outlook
Relief rally likely
"Stability itself is nothing else than a more sluggish motion." - Michel de Montaigne.
Some semblance of stability has returned to the global markets though Europe continues to be rattled by debt problems. Meanwhile, ratings agency S&P downgraded Spain's credit rating and said the outlook is negative. Incidentally, the Greek market was one of the few indices to rise in Europe after its regulator banned short selling for two months.
In the US, the Fed left key rates steady and didn't make any change in its language. The Fed said that the US economy continues to strengthen and the labor market is beginning to improve. The Fed's rate action and commentary helped Wall Street post a modest advance. Asian markets are mixed but relatively stable. Japanese market is shut today.
We expect a steady start on Indian bourses. After a sharp fall there is always a chance of a rebound. But the F&O expiry and uncertainty over the emerging financial situation in Europe may continue to haunt the bulls. Aggressive buying should be avoided till the near-term turbulence is over. The market will be volatile though select stock centric action may persist.
Trading ideas (Time period: 1-3 days)
Cummins India (BUY, CMP Rs536, Target Rs560): On Wednesday, the stock surged sharply on impressive volumes above its 20-day DMA. It now faces a resistance at Rs560 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. The stock has rallied smartly from a low of Rs437 in February 2010 to the present levels. Despite the ongoing volatility in the market, the stock has managed to hold on to the support of its 50-day DMA. The daily RSI is already in strong buy mode, indicating that the prices are set to rally from the current levels. We recommend traders with high risk appetite to buy the stock in the range of Rs533-539 with a strict stop loss of Rs523 for an initial target of Rs560.
ABB (BUY, CMP Rs815, Target Rs855): Since last few months, ABB has made 100-day DMA to be its most important support level. In March 2009 it made a base around this moving average and then staged an impressive rally of 12% in two weeks (from a base of Rs775 to a high of Rs875). In yesterday's session, the stock stabilized again around its 100-day DMA against the weaker trend in the broader indices, emphasizing our belief that it remains a critical support level. Keeping in mind, the above mentioned evidences, we recommend high risk traders to buy the stock with a stop loss of Rs800 for a target of Rs855 and Rs860.
Derivative strategies (Time period: Till expiry)
± Long Piramal Healthcare May Future @ Rs526 for the target price of Rs540 and stop loss placed at Rs517
Lot size: 1,500
Remarks: Net maximum profit of Rs21,000 and net maximum loss Rs.13,500.
± Short ICSA (India) May Future @ Rs119 for the target price of Rs110 and stop loss placed at Rs123
Lot size: 1,200.
Remarks: Net maximum profit of Rs10,800 and net maximum loss Rs4,800.
Mutual funds
New Fund Offer | |||||
DSP BlackRock Focus 25 Fund | Subscribe | ||||
Fund manager | Apoorva Shah |
| Min investment - Retail | Rs5,000 | |
NFO dates | April 23 – May 21, 2010 |
| Entry load | Nil | |
NAV | Rs10 |
| Exit load | 1% <1yr<Rs5cr | |
Type | Equity – diversified |
| Registrar | CAMS | |
Class | Open – ended |
| Asset allocation: |
| |
Options | Growth & dividend |
| Equity & Equity related securities | 65-100% | |
Benchmark | BSE Sensex |
| Debt and money securities | 0- 35% | |
IPO Note: Satluj Jal Vidyut Nigam – Subscribe
Price band Rs23-26
The IPO of Satluj Jal Vidyut Nigam Ltd., a Schedule-A Mini Ratna Category-I PSU, opens today. Through the issue, priced at Rs23-26/share, the government will divest 10% stake in the company. SJVN currently has 1,500MW of operational capacity. It plans to expand its installed capacity by 3.7x to 5,500MW over the next decade. However there is clarity on only one project, 412MW Rampur project, which is scheduled to commission by 2013. Steady cash flow generation should allow the company to fund its equity contribution towards the capex. Although no capacity is being added over the next two years (hence muted earnings growth) key triggers for FY11 earnings are 1) migration to the new CERC norms, 2) incentive income and 3) higher interest income – on account of high cash generation. Also, the company has superior RoE as compared to its listed peer, NHPC and offers 3% dividend yield. This coupled with the offer being priced at 1.2x (at the lower band) FY11E book, makes the issue attractive. Recommend Subscribe.
Result Update: Bharti Airtel (Q4 FY10) – BUY
CMP Rs295, Target Rs338, Upside 31.7%
± A better than estimated +3% qoq wireless growth leads to 4.2% revenue rise; ARPUs/net RPM in line with expectations
± Wireless MOU surge 4.9% after six quarters of decline; total MOU up 12.8%, highest since Q1 FY09
± Rise in network opex and SG&A dampens OPM; pre-exceptional PAT ahead of estimate on higher net interest income
± Company remains the best bet to ride the post 3G scenario amidst a commoditized voice market; retain BUY
Result Update: Bank of Baroda (Q4 FY10) – BUY
CMP Rs687, Target Rs761, Upside 11.0%
± NII was up 19%yoy, net profit excluding exceptional gains, was up 9.6%yoy, albeit declined 1% sequentially.
± Non-interest income declined 10%yoy, Cost-to-income ratio lowest in past several quarters.
± Loan book grew 22%yoy; international book reported a sturdy 25%yoy growth. Deposits growth, however, outpaced loan growth. LDR remains comfortable at 72.6%.
± Asset quality deteriorates sequentially; coverage ratio remains adequate
± Comfortable capital, best in class returns ratio, Maintain BUY.
Result Update: Canara Bank (Q4 FY10) – BUY
CMP Rs409, Target Rs462, Upside 12.9%
± Strong business growth of 13% qoq after two quarters of modest growth
± Material improvement in NIM aided by significant decline in the cost of deposits
± Other income decline on lower trading profits; this coupled with higher opex drive a substantial increase in C/I ratio
± Asset quality improves commendably but bank makes higher loan-loss provisions; capital adequacy fell on robust loan growth
± Retain BUY on Canara Bank due to attractive valuation and upgrade target price to Rs462
Result Update: Balrampur Chini Mills (Q2 F9/10) – Market Performer
CMP Rs82, Target Rs78, Downside 4.9%
± Sugar revenues up 43% yoy driven by ~59% surge in realizations to Rs32/kg
± Sugar EBIT collapses on a ~60% jump in landed cane cost, higher (20%) levy obligation ; co-gen cushions EBIDTA with an 18% increase in realization to Rs3.9/unit
± PAT drops 58% due to ~50% yoy contraction in OPM, higher tax burden and despite savings in interest cost
± Weakness in sugar prices prompts a downgrade to MP with a reduced TP of Rs78
Result Update: Marico Ltd (Q4 FY10) – BUY
CMP Rs112, Target Rs124, Upside 10.7%
± Marico registers muted ~ 6.4% yoy growth in revenues at Rs6bn; ~14% volume growth was marred by reduction in prices
± International FMCG business revenues grew ~16% yoy, in spite of rupee appreciation; Kaya recorded a volume growth of 15% yoy
± OPM expands by 80bps to 14.1% aided by decline in raw material cost; sharp rise in adspend restricts further expansion
± PBT records 16.8% yoy growth driven by improved operating efficiency and lower interest burden
± We expect the company to witness 9.5% CAGR in revenues and 12.3% CAGR in net profit over FY10-12E. Maintain BUY
Result Update: Exide Industries (Q4 FY10) – BUY
CMP Rs124, Target Rs137, Upside 10.8%
± Revenues increase by 28.9% yoy on back of strong volume growth in the automobile and industrial segments
± OPM jumps 434bps yoy and NPM nearly doubles on yoy basis owing to sharp fall in raw material cost which was on back of higher consumption of recycled lead
± However, on sequential basis company registered a fall of 280bps and 147bps in NPM and OPM respectively
± We maintain BUY with a revised target price of Rs137
NFO Note: DSP BlackRock Focus 25 Fund – Subscribe
From the March '09 low, S&P Nifty index has rallied ~92% till date and is currently trading at 16x FY11 P/E post factoring the recent earnings upgrade. Despite the phenomenal run-up, there are multiple stocks of various capitalizations that represent attractive long-term investment opportunity. Continuation of fund flow momentum and strengthening of India's structural growth is expected to push equity markets further up in the years ahead.
Under the said scenario, we believe that non-index stocks/midcaps would continue to outperform the broader market alike last year where the CNX Nifty Junior and CNX Midcap delivered an alpha of 83.7% and 59.8% respectively over the Nifty index. The New Fund Offering (NFO) by DSP BlackRock aims to identify and invest in 20-25 companies from the Top 200 by market capitalization. Being a multi-cap fund with heavy concentration in midcaps, the fund is a good investment for investors with low-to-medium risk appetite.
Corporate Snippets
± RIL has made a fourth oil discovery in the Cambay basin in Gujarat. (BS)
± AT&T has sold 7% stake in Tech Mahindra for Rs6.6bn; LIC buys 6%. (BS)
± Tata Group and Actis to form US$2bn JV for building roads over 5 years. (ET)
± NTPC to invest Rs400bn in three coal base power project in Madhya Pradesh. (ET)
± NTPC and Coal India enters into a JV for coal block acquisitions. (BL)
± Royal Dutch Shell is no longer in exclusive talks with Essar Oil for sale of its refineries in UK and Germany. (ET)
± Suzlon's European division forms JV with Volkswind to accelerate growth in Bulgaria. (ET)
± Punj Lloyd bags an order for the Cuddalore refinery of Nagarjuna Oil. (ET)
± US investment fund Bravia Capital Partners has proposed to invest US$40mn into SpiceJet. (ET)
± Suven Lifescience granted patents in India and New Zealand. (BL)
± Tata Africa will soon start vehicle assembly plant in Nigeria in the next 2-3 years. (ET)
Economic snippets
± Sebi has decided against filing a joint application before a court to resolve its dispute with Irda over Ulips. (BS)
± Infrastructure companies may soon be able to re-finance part of domestic debt through borrowing overseas. (ET)
± Government mulls 100% FDI in defence. (BS)
± All India 3G bid has reached Rs89.14bn at the end of 16th day of auction. (ET)
± Mines Ministry seeks windfall tax to curb illegal iron-ore mining. (BS)
± India's sugar production is likely to rise by 28% to 22.7mn tons in 2010-11 according to US Department of Agriculture. (BS)
± Tobacco exports grew 29% yoy to Rs43.7bn in FY10. (BS)
± IT spending in India is likely to grow by 14% to Rs67bn in 2010 says Gartner. (ET) Food inflation to decline in coming months says FM. (ET)
± CERC raise overdrawal charges to 12.25/unit. (ET)
Results table
Company | Revenues | % YoY | PAT | % YoY |
LIC Housing | 9,629 | 21.8 | 2,135 | 35.5 |
Canara Bank | 15,976 | 22.4 | 5,031 | (30.0) |
Bank of Baroda | 17,450 | 18.6 | 9,063 | 20.4 |
Ballrampur Chini | 4,705 | 31.8 | 276 | (58.3) |
Exide Industries | 10,303 | 28.9 | 1,345 | 97.2 |
Bharti Airtel | 107,394 | 4.7 | 20,241 | (1.2) |
Marico | 6,023 | (10.1) | 511 | (17.8) |
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