Market outlook
Positive momentum may prevail
The undertaking of a new action brings new strength. – Evenius.
April promises to be an action-packed month after a rather dull March. Earnings, RBI policy, IIP data, monthly inflation and 3G auction will vie for the market's attention. On top of that, one will have to keep an eye on global developments. The market has left behind a stellar fiscal year and began the new one on a firm note. Today we expect the momentum to gain strength on the back of strong global cues. A better-than-anticipated US jobs report is likely to give a fillip to world markets.
This means that the NSE Nifty will breach 5300 yet again today. It could manage to stay above 5300 given the firm global markets and positive FII flows. However, it is likely to meet resistance as it approaches 5400 and attempts to surpass that level.
In short, the bias remains positive but there might be some softening owing to growing discomfort on valuations. Inflation will continue to be a big worry, especially if it crosses double digits and doesn't come down quickly. Going further ahead, monsoon will have some bearing on sentiment and on the overall economic outlook.
Trading ideas (Time period: 1-3 days)
Hindustan Oil Exploration: (BUY, CMP Rs247, Target Rs267): The stock had faced a stiff resistance at its downward-sloping trend line since early February 2010. However, on Thursday, the stock managed to cross over its downward sloping curve. The move was supported by sharp surge in volume (6x of its 10-day average volume). The stock has managed to hold on the support zone between Rs225-227. 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 Rs252 could see the stock attempting its February 2010 peak. We recommend buying the stock at current levels and on any declines to Rs245 levels for short term target of Rs267 and Rs272. Traders should maintain a stop loss of Rs235 on all long positions.
HDFC: (BUY, CMP Rs2,783, Target Rs2,870):On Thursday, the stock broke out past its recent peak of Rs2,760 which was acting as a stiff resistance for the stock since last three months. Daily chart suggests formation of distinctive pattern this is most likely to result into a short-term rally in the counter. We believe that the current breakout is likely to lead to a potential upside up to the levels of Rs2,870 and above. Momentum oscillators are also exhibiting strength in the upmove. We expect the stock to remain in the momentum as long as it sustains above its last week low of Rs2,715. We recommend traders to buy the stock between Rs2,775-2,795 for a short-term target of Rs2,870. It is advisable to maintain a stop loss of Rs2,745.
Derivative strategies (Time period: Till expiry)
± Long Dena Bank April Future @ Rs80 for the target price of Rs85 and stop loss placed at Rs78
Lot size: 5,250
Remarks: Net maximum profit of Rs26,250 and net maximum loss Rs10,500.
± Long Firstsource Solutions (FSL) April Future @ Rs29.65 for the target price of Rs32 and stop loss placed at Rs29
Lot size: 9,500.
Remarks: Net maximum profit of Rs22,325 and net maximum loss Rs6,175.
Mutual funds
| Fund focus | |||||||
| Reliance Growth Fund | Invest | ||||||
| Fund manager | Sunil Singhania |
| Min investment | Rs5,000 | |||
| Latest NAV | Rs439.2 |
| 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% | |||
Result Update: BHEL (Q4 FY10) - BUY
CMP Rs2,419, Target Rs2,803, Upside:15.9(%)
BHEL's Q4 FY10 and FY10 provisional results are in line with our estimates. Profit for Q4 FY10 and FY10 grew by 40% and 37% yoy to Rs19bn and Rs42bn respectively. Higher profit growth during FY10 vis-à-vis 27% revenue growth indicates better margins. We believe savings in material cost led to this improvement. Better margins are reflected in 56bps PBT margin expansion to 18.7% from 18.1% in the corresponding period last year. BHEL's FY10 order book stands at Rs1.4trn, higher by 23% yoy, provides very strong revenue visibility. Although BHEL exceeded its order inflow target of Rs550bn by ~8.8%, to Rs598bn, it was marginally lower by 1.3% yoy. During the year it received highest orders from the private sector, thus reflecting its strong competitive position. During the year, BHEL completed the first phase of its capacity expansion program to 15GW and plans to further increase this to 20GW by FY12. Higher capacity will improve its execution rate. This coupled with firm margins should translate into 30% earnings CAGR over FY09-12. Re-iterate BUY with a one year target price of Rs2,803/share.
Company Update: Aban Offshore Ltd – BUY
CMP Rs1,200, Target Rs1,430, Upside: 19.1(%)
± Estimates pruned to factor lower than expected day rates
± New contracts tied up for two rigs
± Debt repayment happening on schedule
± Steep discount to global peers not justified, maintain BUY
Auto Monthly Update – March 2010
During March 2010, Indian auto industry witnessed a strong growth in volumes backed by strong base effect. On sequential basis, all companies witnessed growth except Maruti. However, the decline for Maruti was modest at 1.6% mom. In the passenger car category, volumes for Maruti and Tata Motors increased by 8.8% and 31.6% on yoy basis respectively. Among three wheelers, while volumes for M&M nearly doubled, Bajaj Auto witnessed a growth of 36.8% yoy. Strong year-end buying witnessed in the CV space lead to sustained growth momentum for March 2010. In M&HCV portfolio, total volumes for Tata motors experienced surged by 69.6% yoy, while LCV segment for Tata Motors grew by 42.4% yoy. Xylo continues to witness strong demand translating into a strong growth of 20.9% yoy in total volumes for M&M. In two wheeler space, Bajaj Auto outperformed with a growth of 78% yoy, while Hero Honda and TVS Motors witnessed growth of 17.3% yoy and 20.3% yoy respectively.
Mutual Funds Thermometer as on April 01, 2010
Key observations
± The main Indian indices hit 52-week high but ended the fortnight flat though with a positive basis. The benchmark index 'S&P CNX Nifty' was merely up by 0.1%. However, strong rally was witnessed in the mid-cap and small cap universe. CNX Midcap and CNX Nifty Junior index were up by 1.5% and 2% on a fortnightly basis. In line with the index performance, mid-cap and small cap-oriented funds continued to remain in the top quartile and outperformed the category. The top-3 fortnightly gainers were Canara Robeco F.O.R.C.E-Reg (+3.0%), ING C.U.B (+2.6%) and ICICI Pru Discovery (+2.5%). The advance:decline ratio of the category concluded favorably at 171:19. The top-3 losers were Bharti AXA Equity-Reg, Religare AGILE and JM Large Cap. Their NAVs depreciated by 1.2%, 1.1% and 0.9% respectively on a fortnightly basis.
± Among the sectoral funds, banking and pharma funds outperformed the category on a fortnightly basis. The recent US healthcare reform bill had a positive impact on the Indian generics industry. This explains the recent run-up in the pharma stocks. Among the top-5 major gainers, three belonged to the pharma space viz. UTI Pharma & Healthcare (+4.3%), SBI Magnum Pharma (+3.9%) and Reliance Pharma (+3.9%). And other two were from the banking space viz. Reliance Banking and Religare Banking, delivering a return of 3.5%. Information Technology funds underperformed this fortnight on the account of the rupee appreciation. Birla SL New Millennium (-3.1%), Franklin Infotech (-3.6%) and SBI Magnum IT (-3.9%) were the major fortnightly losers.
± ELSS funds' performances were aligned with the equity diversified funds. On a fortnightly basis, the category average generated 0.9% returns. Out of 47, only three ELSS funds' NAV ended in negative zone. Among the large corpuses, Kotak Tax Saver, DSPBR Tax Saver and Principal Personal Tax Saver topped the charts by delivering an absolute return of 1.9%, 1.7% and 1.4% respectively.
± The recent anticipated hike in repo and reverse repo rates, to tame the inflation, and clarity over the government borrowing program have effectively capped the 10-year G-sec bond yield at the upper end. The yields were softened by 6bps on a fortnightly basis at 7.83%. Mirroring the domestic bond market, income and gilt funds' NAVs ended on a positive note. Among the gilt fund category, SBI Magnum Gilt-LTP, LICMF G-Sec-Reg and UTI Gilt Adv-LTP were the major gainers among the large corpus on a fortnightly basis. Among the income fund, HDFC Income, UTI Bond and Templeton India Income Opp were the major gainers.
± Among the ETF category, Gold ETF continued to remain weak and its NAV depreciated by 2.9% on a fortnightly basis. However, bank-oriented ETFs continued to dominate the top quartile of ETF category. Kotak PSU Bank ETF (+4.3%), PSU Bank BeES (+4.2%) and Bank BeEs (+3.0%) topped the fortnightly ETF chart.
Debt Market - week ended April 1, 2010
± Indian federal 10-year bond yield fell to 7.83%, down by 3bps on a weekly basis. Bond rally was due to positive sentiment floated on the announcement of lower-than-expected borrowing schedule. As per the schedule, government would raise 63% of its full-year borrowing target of Rs4.57trn in the first half.
± India's total external debt stock stood at US$251.4bn as on Dec '10, recording an increase of US$26.8bn (11.9%) over end-March 2009 largely on account of dollar depreciation. Long-term debt increased 13.8% (US$206.2bn) and short-term debt increased 4.3% (US$45.2bn).
± After touching a four month low at 16.22% in the previous week, food inflation bounced to 16.35% for the week ended Mar 20, 2010. Inflation in fuel group also inched higher.
± India's fiscal deficit during Apr-Feb 2009-10 was at Rs3.8trn, up 24% over the figure of Rs3.1trn in the corresponding period of last fiscal. The fiscal deficit during Apr-Feb 2009-10 accounted for 92% of the revised estimates of Rs4.1trn for 2009-10.
± Axis Bank has been authorized by the RBI to commence Primary Dealer business in G-Sec with effect from April 5, 2010.
± Consumer prices in the 16-nation euro region increased by 1.5% in March '10 from a year previously, after a 0.9% gain in February '10.
Corporate Snippets
± Maruti Suzuki raised prices from Rs1,000 on the A-Star to Rs9,000 on the SX4 with immediate effect. (BS)
± SBI has extended its teaser home loan plan till April 30. (BL)
± JSW Steel plans to expand the manufacturing capacity at its Vijayanagar plant in Karnataka from current 10mn tons to 16mn tons with an investment outlay of US$5-6bn over a period of three years. (FE)
± Bajaj Auto reported a 85.12% jump in its motorcycle sales at 244,828 units in March. (BS)
± JSW Steel plans to invest around Rs250bn in expanding the capacity of its Bellary plant in Karnataka by 6mn tons to 16mn tons in next 3 years. (BS)
± Max New York Life gives 4% stake worth Rs4bn to Axis Bank for just under Rs800mn as part of a 10-year exclusive distribution agreement. (ET)
± ONGC plans to sell gas from its C-Series field at US$5.5 per mBtu, a 30% premium over the rate at which RIL sells gas produced from its KG-D6 gas block. (BS)
± NTPC has been drawing water from a canal in Chhattisgarh for the last 11 years without any agreement, reported the Comptroller and Auditor General. (BS)
± CanvasM, a JV between Tech Mahindra and Motorola plans to launch 6,000 new indigenously developed applications for mobile phones. (BS)
± BHEL will invest Rs6.9bn to set up a new piping plant at Thirumayam and expand its boiler division. (ET)
± BHEL plans to invest Rs750mn in its Bangalore-based divisions to augment its manufacturing capacity from 15,000MW to 20,000MW by 2011-12. (BS)
± Media report suggest that Reliance Industries may not renew a contract to import Iranian crude oil from this financial year. (FE)
± M&M is in negotiations to buy a majority stake in Reva, or enter into a strategic alliance with the electric car maker for an investment of ~Rs1bn. (ET)
± Reliance Capital is in talks with Swiss Re for a proposed foray into health insurance. (ET)
± Promoters of Patni Computer are in discussions with international and local firms in a fresh attempt to sell their stakes. (ET)
± Drug major AstraZeneca has been ordered to pay attorney's fees by a US court to Dr Reddy's Laboratories for bringing a "frivolous" and "baseless" patent infringement suit against the latter. (BS)
± Foreign lenders to Wockhardt have succeeded in stalling the debt-ridden pharmaceutical company's attempts to sell its nutrition business to Abbott Laboratories. (BS)
± Ambuja Cements has produced 1.9mn tonnes in March 2010 as against 1.7mn tonnes in the same month last year. (FE)
± Tata Power plans to offload its holdings worth nearly Rs17bn in the group's telecom ventures at cost price as on March 31, 2009. (TOI)
± Union Bank of India plans to raise retail term deposit rates by 25 to 50 basis points with effect from Monday. (BS)
± Promoters of Bank of Rajasthan have sought more time to file objections to the capital markets regulator's order charging them with violations of a number of rules. (BS)
± ITC has entered the cigar manufacturing business marking its entry into the most sophisticated form of tobacco consumption. (BS)
± NMDC raises base ore prices by 34-56%. (BS)
± Reliance Infrastructure's arm completes construction of the first 600MW unit of the Haryana government's Rajiv Gandhi Khedar Thermal Power Plant in Hisar. (BS)
± Welspun-Gujarat is close to buying a majority stake in a Saudi Arabia-based company with an annual manufacturing capacity of 0.3mn tonne of pipes, primarily for the oil and gas industry. (TOI)
± Nalco achieves metal production of 4.31 lakh tons in 2009-10, against 3.61 lakh tons last year. (BS)
± The Maldives government has shortlisted GMR, consortia of Reliance Infrastructure and GVK Airport Developers to take over Male airport. (BS)
± Norwegian Statoil and Brazil's Petrobras quit ONGC's K-G basin gas block over government delays in approving their participation in the deepwater acreage. (BS)
± SAIL, JSW and Essar increased prices of the commodity by up to Rs2,500 per ton. (ET)
± Emami looking to buy Amrutanjan, says Emami Chairman. (TOI)
± Jet Airways and Gulf Air enters into a code-share agreement which will come into effect from April 12. (ET)
± International Finance Corporation, the private financing arm of the World Bank, is expected to pick up about 10% stake in Cholamandalam DBS Finance for Rs1bn. (BL)
± Sanofi-Aventis allows Sun Pharma to sell cancer drug. (TOI)
± Cinemax aims to touch at least 140 screens nationally and is targeting revenue of Rs2bn this year. (ET)
± Dishman Pharma's SEZ project to finally take off after a delay of over 4 years. (ET)
± Marico plans to shut its health & wellness brand Kay0061 Life within a month. (FE)
± Gitanjali to cut its presence in US jewellery market. (BS)
± Reliance Life Sciences plans to launch its biosimilar drug to stimulate red blood cell production in Europe within a year. (ET)
± Indage Vintners files an application with a division bench of the Bombay High Court challenging an order of a single judge that directed the company to wind up operations. (ET)
± HeidelbergCement has earmarked Rs8bn for acquisition of mid-size companies in India as it plans to double annual capacity to 6 mt in the next two years. (ET)
± Liberty Shoes plans to open 60 outlets, including 10 overseas stores, this fiscal. (BS)
± Government may eventually give a financial lifeline to Air India by pumping more funds into the carrier rather than divesting a stake to a strategic investor. (BL)
Economic snippets
± The DIPP has virtually turned down the proposal of the Department of Pharmaceuticals to cap FDI in the pharma sector at 49% stating that apprehensions about the industry were misplaced. (ET)
± The finance ministry proposes to tighten the FDI regime in the country. (BS)
± Truck sales rose 99.3% in March to 33,619 units, compared with 16,868 units during the same month last year. (BS)
± Bankers are likely to urge the RBI not to hike its key rates and mandatory cash requirement in its April policy. (ET)
± Foreign exchange reserves dipped US$1.15bn during the week ended March 26 to touch US$277bn. (ET)
± The Government is likely to consider extending export sops selectively after a detailed analysis following evidence that a strong recovery in the external sector was underway. Most of the sops given to exporters to tide over the global slowdown, including the ones announced earlier this week, are valid only till March 31, 2010. (ET)
± More than a dozen foreign entities, which invest in shares of Indian companies using the Mauritius route, are planning to move the Authority for Advance Rulings (AAR) for clarity on the issue of tax liability in India. (ET)
± Uttarakhand has demanded 1,000MW of free power from the Centre for shelving the 480MW Pala Maneri and 381MW Bhaironghati projects. (BS)
± Primary food inflation was up 16.35% yoy for the week ended March 20, after hitting a four-month low of 16.22% in the preceding week. (BS)
± Mutual fund industry's average assets under management fell 5% in March as banks and corporates withdrew from funds to feed their year-end liquidity needs. (BL)
± Imports during February up 66% yoy to US$25bn. (BL)
± TRAI set to deliver recommendations that could permanently alter the structure, pricing and methodology for spectrum allocation; it could also pave way for M&As which, according to an April 2008 guideline, are not allowed till early 2011. (TOI)
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