Market Mantra
Market outlook
Gains to spillover
"Expect nothing. Live frugally on surprise."
The RBI never fails to surprise. Just when the markets feared an all-out assault on inflation comes a surprisingly dovish policy action. However, the policy document itself points to several pressure points – like the spike in non-food inflation, volatile crude oil prices and fiscal deficit. That means there is a chance of some inter-meeting action if the need arises. Monsoon of course remains the joker in the pack along with the global factors.
The immediate concern is some tapering off in FII inflows. In addition, we have a long road ahead as far as earnings are concerned. Technically too, the key indices are facing some resistance. So, it makes sense to stay a little guarded in the near term although the medium-to long-term looks promising.
Today we expect a follow-through rally at the start. Things might turn choppy and range-bound depending on the results and other newsflow. Stick to stock centric action and do proper due diligence to avoid any major heartburn.
Trading ideas (Time period: 1-3 days)
Dena Bank (BUY, CMP Rs81, Target Rs90): Dena Bank is pointing to continued strength in the weeks to come as it has broken a downward-sloping trend line since early-April 2010, A detailed study of the daily chart shows that the stock has corrected from the high of Rs85 in June 2009 to touch a low of Rs76.90 this week. On Tuesday, the stock staged a smart breakout past the downward sloping trendline. This bullish breakout signals the end of the intermediate downtrend. The position of the short-term oscillators also indicates that the stock has formed an intermediate bottom. A sustained rally past the levels of Rs82 could see the stock attempting a new peak for April 2010. We recommend buying the stock at current levels and on any declines to Rs79 levels for short term target of Rs90. Traders should maintain a stop loss of Rs76 on all long positions.
Bombay Dyeing (BUY, CMP Rs611, Target Rs640): The stock has rallied smartly from a low of Rs547 in March 2010 to the present levels. The stock has been consolidating above its 50-day DMA since March 2010, before staging an impressive rally in Tuesday's trading session. The daily RSI is already in strong buy mode, indicating that the prices are set to rally from the current levels. Any move past the levels of Rs613, could see the stock attempting the levels of Rs640-645 in the short-term. We recommend a buy at current levels with a stop loss of Rs598.
Derivative strategies (Time period: Till expiry)
± Long Federal Bank Ltd April Future @ Rs282 for the target price of Rs291 and stop loss placed at Rs278
Lot size: 851
Remarks: Net maximum profit of Rs7,659 and net maximum loss Rs3,404.
± Short Tata Consultancy Services Ltd April Future @ Rs793 for the target price of Rs770 and stop loss placed at Rs802
Lot size: 1,000.
Remarks: Net maximum profit of Rs23,000 and net maximum loss Rs9,000.
Mutual funds
| Fund focus | |||||||
| Reliance Growth Fund | Invest | ||||||
| Fund manager | Sunil Singhania |
| Min investment | Rs5,000 | |||
| Latest NAV | Rs449.6 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs453/201 |
| Exit load | 1% <1 yr | |||
| Latest AUM | Rs7,111cr |
| 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% | |||
Event Update: Annual Monetary Policy Review 2010-11
The Reserve Bank of India in its annual monetary policy review today increased its key policy rates (repo and reverse repo rate) and CRR by 25bps each (in-line with our estimates). Given the risk of rising inflation, the central bank has placed focus on ensuring price stability while anchoring inflationary pressure. It has thereby increased the CRR ratio by 100bps to 6%, repo rate to 5.25% (up 50bps) and reverse repo rate to 3.75% (up 50bps) in a short span of 3-months. The Bank rate, however, has been left unchanged at 6%. Given the surplus liquidity, we do not foresee any increase in lending rates in near term. However, with pick-up in credit activities, we expect lending rates to increase by 100-150bps in FY11. The annual policy has targeted for a real GDP growth of 8% with an upside bias for 2010-11. With inflationary pressure expected to moderate by July, 2010, the central bank has set an inflation outlook of 5.5% by March-end. The policy statement has targeted for a system non-food credit growth of 20% for schedule commercial banks. Deposits growth is pegged at 18%, with money supply (M3) expected to grow at 17% levels for FY11.While a large part of the borrowing programme is front-loaded, with borrowings largely through fresh-issuance of securities, this is expected to create pressure on interest rates in short term. The policy placed focus on financial inclusion and customer services. It also provided sops to infrastructure sector in form of investment norms.
Event Note: GAIL (India) Ltd – BUY
CMP Rs425, Target Rs534, Upside 25.6%
± Higher tariffs to increase revenue and earnings for GAIL
± Transmission volume growth to remain strong
± Best growth visibility amongst PSU oil companies
Result Update: Axis Bank (Q4 FY10) – Market Performer
CMP Rs1,187, Target Rs1,131, Downside 4.7%
± Exceptional business growth in Q4 FY10 after modest performance in the first nine months
± NIM improved by 10bps qoq as cost of funds decline to a multi-quarter low
± Asset quality improves marginally; substantially lower provisions drive a 17% qoq growth in PAT
± Management targets an above-system balance sheet growth of 25% in FY11 but NIM expected to correct
± Upgrade book value estimates, target price and recommendation to Market Performer
Corporate Snippets
± Tata Power has made a direct offer to the state government to transfer it some parts of the distribution network owned by RInfra to save Mumbai from the tariff hike proposed by RInfra. (ET)
± M&M said that its foray into the mini-truck segment through Maxximo, which was launched in the northern and western regions only about a month back, has garnered about 25% of the market share in these regions. (BS)
± Real estate major Unitech announced a demerger swap ratio of 1:1, following its decision to hive off non-core operations such as telecom, SEZs, logistics, hotels, transmission towers and others into a separate entity called Unitech Infra Ltd. (BL)
± The strong rebound in demand for software services has prompted TCS to earmark an 'all-time high' capital expenditure of over Rs22bn for this fiscal. (BL)
± TCS plans to hire about 3,000 people in FY11 across its global delivery centers to bring onsite support to its clients. (FE)
± Suzlon Energy's subsidiary, REpower Systems AG, bagged a contract for supply of 44 wind turbines for a project in Turkey. (FE)
± Japanese drug major Daiichi Sankyo, which owns 63.9% in Ranbaxy, failed to convert the warrants issued by the latter into shares during the stipulated 18-month period. (BS)
± Maruti Suzuki crossed the milestone of rolling out 0.3mn K-Series engines, its latest generation engine which powers new models, including A Star, Swift, Swift Dzire and Ritz. (ET)
± International Finance Corporation plans to invest US$75mn (Rs3.3bn) in IDFC to make investments in renewable energy as well as cleaner production and energy-efficiency projects across the country. (BS)
± Procter & Gamble's biggest bet on a new diaper in 25 years has run afoul of some parents who say their babies suffered rashes and burns after using them. (BS)
± Uttar Pradesh government gave its nod to Bajaj Hindustan to set up its 1,980MW coal-fired power plant in Lalitpur district of Bundelkhand region. (BS)
± SpiceJet has received its board's approval to raise US$50-75mn to fund its international expansion. (BS)
± Strides Arcolab bought back FCCBs worth US$34mn that were due this year. (BL)
± Bharati Shipyard plans to appoint two of its members as executive directors on the board of Great Offshore in an attempt to correct an incongruous situation that arose after it bought GOL in a hotly-contested takeover battle last year. (ET)
± Binani Cement said its board will meet on April 23 to consider a share buy-back proposal. (FE)
± Everonn Kompass, a division of Chennai-based Everonn Education Ltd, opened its centre in Kurnool, Andhra Pradesh. (BL)
± Education solutions provider CORE Projects & Technologies bagged Rs1.2bn order from the Government of Maharashtra to implement technology infrastructure at 947 schools in the State for five years. (BL)
± GSS America, specializing in providing managed IT services, has been awarded a US$5mn contract to provide an end-to-end e-governance and e-procurement solution to the Bangladesh Government. (BL)
± Hanung Toys & Textiles bagged an export order worth US$90mn from a leading US buyer. (ET)
± The government plans to raise Rs130bn by selling shares in Coal India Ltd in July, the country's biggest initial public offering. (BS)
± Jai Prakash Power Ventures Ltd has signed a lease agreement with Kerala Industrial Infrastructure Development Corporation for setting up a 240MW coal-based thermal power plant, 1.5mtpa cement grinding unit and a jetty in 164.2 acres of land at its industrial park at Kalliassery and Pappinissery villages in Kannur district. (BL)
± Essar Shipping Ports and Logistics signed a licence agreement with Paradip Port Trust to invest Rs5bn in a dry bulk cargo berth. (ET)
Economic snippets
± The RBI raised the repo and reverse repo rates by 25bps each, effective today and CRR by 25bps, but effective from Friday. (BS)
± The RBI will now allot bank licenses to private sector players and NBFCs. (BS)
± In an effort to promote the corporate bond market, the RBI has permitted banks to treat their exposure to unlisted non-statutory liquidity ratio debt securities as an investment in listed securities at the time of making investments. (BS)
± The RBI has made registration of core investment companies with assets of over Rs1bn mandatory. (BL)
± The RBI announced that it will allow banks to treat annuity payments and toll collection rights for highways built on BOT model as secured loans. (BL)
± MCX Stock Exchange is likely to start trading in equities in the next two-to-three months, a top company official said. (BS)
± Low-grade iron ore miners in Goa reduced their production by 30% to avoid stockpiling ahead of the monsoon. (BS)
± The government would rake in at least Rs255bn from the auction of 3G spectrum as the pan-India licence on the ninth day reached a bid of Rs63.5bn, up 81.5% from the base price of Rs35bn. (BS)
± The Department of Pharmaceuticals has declined the commerce ministry's proposal to incorporate intellectual property protection clauses, which go beyond the existing rules, as part of the free trade agreements being negotiated with the European Union and Japan. (BS)
± Gujarat government plans to set up a dedicated SEZ for offsets in the defense sector. (BS)
± Rising demand from China and India, coupled with global recovery, is driving thermal coal prices that have appreciated by about a fourth in the past few months. (BL)
Results table
| (Rs mn) | Revenues | % yoy | PAT | % yoy |
| Axis Bank | 14,601 | 41.4 | 7,649 | 31.5 |
| GTL Ltd | 6,248 | 10.4 | 431 | 52.5 |
| Zee Entertainment | 6,493 | 26.4 | 1,263 | 30.9 |
| Ballarpur Industries | 10,324 | 50.3 | 443 | 147.6 |
| Great Offshore | 2,785 | 3.3 | 731 | 2.4 |
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