Market Mantra
Market outlook
Wait and watch policy!
One who adapts his policy to the times prospers; one whose policy clashes with the demands of the times does not. - Niccolo Machiavelli
The public spat between SEBI and IRDA about who should regulate ULIPs will cast its ugly shadow on the sentiment. Bulls and bears may prefer to adopt a wait and watch policy despite firm global cues. The role of the Government will now take centerstage and voices will get louder for a financial sector super regulator. A protracted battle and a war of words may ensue, something the markets don't need right now.
We may still see a higher opening as most global markets have advanced since we closed trading last Friday. IIP data (to be issued today) and monthly inflation (to be released on Thursday) will be closely followed in the run up to the RBI policy next week. The IT pack will in the spotlight ahead of tomorrow's Infosys results. The Nifty is expected to top 5400 and levels of 5500 are being talked about widely. But, the ride won't be all that smooth and some bumps are bound to make the task more difficult.
Trading ideas (Time period: 1-3 days)
IVRCL Infrastructure (BUY, CMP Rs178, Target Rs190): IVRCL Infrastructure ended up by 3% on Friday, closing above its 200-day DMA. The important thing now would be for the stock to maintain this level for at least next few sessions. If that stays, IVRCL Infra could go up to Rs190 and above in the near to medium term. Recently the stock has struggled to close above its 200-day DMA. The event has occurred after the price bounced up off a key support level last week. Moreover, cluster of moving averages are placed around Rs176-178 suggesting bullish congestion. Move past Rs179 is likely to trigger an upside in the near term. The daily RSI has also given a positive divergence, indicating that price would start moving up. Keeping in mind the above-mentioned observations, we suggest traders to buy the stock in the range of Rs175-179 with a stop loss placed at Rs170 for an initial target of Rs190.
Jet Airways (BUY, CMP Rs512, Target Rs535): Jet Airways consolidated from second week of March 2010 between the range of Rs499-453. On Friday, the stock broke past the top-end of the consolidation phase. The move was supported by strong volumes. Moreover, it has closed above its 100-day DMA after struggling to close above the important moving average since last three weeks. The momentum oscillators like the daily RSI have given a positive divergence, supporting our argument of stock price heading north. We recommend traders to buy the stock between the levels of Rs509-514 with a stop loss of Rs500 for a target of Rs535.
Derivative strategies (Time period: Till expiry)
± Long GVK Power & Infrastructure April Future @ Rs46.25 for the target price of Rs48.50 and stop loss placed at Rs45
Lot size: 4,750
Remarks: Net maximum profit of Rs10,688 and net maximum loss Rs5,938.
± Long Chennai Petroleum Corporation Ltd April Future @ Rs288 for the target price of Rs300 and stop loss placed at Rs280
Lot size: 1,800.
Remarks: Net maximum profit of Rs21,600 and net maximum loss Rs14,400.
Mutual funds
| Fund focus | |||||||
| Reliance Growth Fund | Invest | ||||||
| Fund manager | Sunil Singhania |
| Min investment | Rs5,000 | |||
| Latest NAV | Rs452.0 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs453/201 |
| 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% | |||
Company Update: Suzlon – Market Performer
CMP Rs75, Target Rs80, Upside 5.8%
Suzlon indicated that the global environment continues to remain tough and there will be pressure on pricing and gross margins during FY11. The management hinted that some of the orders which were up for bidding witnessed intense competition. Due to lack of financing it received fewer orders from the international market in FY10. However this was offset by orders from the domestic market. Increasing focus on renewable energy by the government will keep the market robust over the next couple of years. Suzlon targets to generate ~50% of its volumes from India. However, a tough business environment has made the industry more competitive thus putting pressure on pricing and margins. We believe Suzlon will continue to face pressure in the near term with order inflow and execution remaining muted. A pick up in order inflow during the year should translate into a healthy growth in FY12. Based on FY12 earnings (ex Hansen) we believe the stock has limited room for upside. Downgrade to Market Performer with a reduced target price of Rs80/share.
Company Update: Reliance Industries – Market Performer
CMP Rs1,124, Target Rs1,093, Downside 2.7%
Reliance Industries Limited (RIL) through its wholly owned subsidiary, Reliance Marcellus LLC, has executed definitive agreements to enter into a joint venture with US based Atlas Energy, (Atlas) Inc under which RIL will acquire a 40% interest in Atlas' core Marcellus Shale acreage position. A total of 120,000 acres will be transferred to RIL through the transaction valued at US$1.7bn. RIL will pay US$340mn in cash upon closing the transaction and an additional US$1.36bn in the form of a drilling carry. Depending upon the gas price realization, we believe about Rs20-25/share will be added to RIL's target price.
Debt Market - week ended April 9, 2010
± On a weekly basis, Indian federal 10-year bond yield hardened by 6bps to 7.89% vis-à-vis 7.83% last week. Hardening of yields was due to the weak participation for the new fiscal's first federal debt auction for the benchmark security.
± India's food subsidy bill is estimated to have crossed Rs720bn in FY09-10; an increase of 65%yoy on the back of increased procurement and rising cost of food grains.
± Four state governments announced the sale of 10-year SDLs for an aggregate amount of Rs38bn on April 12, 2010.
± All Scheduled Banks' investments (at book value) in the central and state government securities stood at Rs14,234bn as on Mar 26, 2010 vis-à-vis Rs11,934bn in the corresponding period of the previous year.
± RBI to switch over to the system of Base Rate from BPLR system with effect from July 1, 2010, in order to provide banks time to stabilize the system of Base Rate calculation.
± The limit for Ways and Means Advances (WMA) to the GOI would be Rs300bn for the H1FY11 and Rs100bn for the H2FY11.
± Australia's central bank raised the benchmark overnight cash rate by 25bps to 4.25% with effect April 07, 2010.
Corporate Snippets
± Reliance Industries has entered the US gas exploration market through a JV with Atlas Energy in a deal valued at US$1.7bn. (BL)
± Reliance Industries finds more reserves in KG-D6 block, it may contain 1-2 trillion cubic feet of reserves. (ET)
± A team from ExxonMobil is set to assess the eastern offshore asset of ONGC for a possible partnership. (BL)
± Maruti Suzuki invests Rs2.9bn in upgrading its hatchback WagonR that will be rolled out from a new platform with a new engine by the end of this month. (BS)
± GMR Infrastructure plans to raise up to Rs5bn through the issue of unsecured non-convertible debentures on private placement basis. (BS)
± Tata Motors plans to sell part of its shareholding in Tata Cummins, a diesel engine joint venture company. (ET)
± Reliance Industries is likely to tie-up with Japanese firm Mitsui as an investor in its Special Economic Zone project in Haryana. (ET)
± Centum Learning, the training and education arm of the Bharti group, plans to invest Rs1bn in the next three years to diversify into training school children and expanding its presence by opening campuses across the country. (BS)
± Bharti Airtel to work with Ericsson, Nokia Siemens on 3G. (BS)
± SAIL and Posco may seal a deal by the end of next month to set up an estimated Rs150bn steel plant in Jharkhand. (BS)
± Tata Tea and Pepsico are exploring joint venture opportunities in non-carbonated ready-to-drink beverages in the health and wellness category. (BS)
± Nalco receives investment approvals from the Indonesian government for its proposed Rs165bn offshore aluminium smelter-cumpower project.
± SEBI approves the IPO of Glenmark Generics, the wholly owned subsidiary of Glenmark Pharmaceuticals. (ET)
± Reliance Capital has made a foray into the Dubai market by commencing financial advisory business in the Gulf nation. (ET)
± Corporation Bank seeks overseas companies to partner with for its entry into the general insurance business. (BS)
± BHEL unit plans to re-enter the defence business. (BS)
± Videocon Industries is understood to be making moves to acquire consumer electronics business of Philips India. (BS)
± Reliance Infrastructure expects governments in Andhra Pradesh and Gujarat to invite bids to develop regional airports, which it is interested in taking up. (BS)
± GAIL (India) says it isn't possible to streamline the price of natural gas sourced from different fields and sell it at a uniform price to all sectors. (Mint)
± C&C Construction is in talks to Hilton and Golden Tulip for a management tie-up for the Rs600mn hotel it is developing near Mohali. (BS)
± GMR Energy, the power generation arm of GMR Infrastructure, finalised plan to raise US$200mn from Singapore-based Temasek Holdings. (BS)
± Jet Airways plans to hike fares by 10-15% this quarter. (BS)
± Ramkrishna Forgings plans to establish a castings unit for automobile components at Bidadi in Karnataka for an investment of Rs1.5-2bn. (BS)
± Tube Investments acquires 17.58mn shares in Cholamandalam DBS Finance from DBS Bank, Singapore increasing its sake to 57.41% from 30.93%. (ET)
± SpiceJet shareholders reject an offer by the Reliance ADA Group to pick up a 51% stake in the airline for Rs40-45 per share. (BS)
± Bhushan Steel's cold rolling project at Sankrail in West Bengal has hit a roadblock as land prices have hit the roof. (BS)
± MMTC plans to open 100 outlets, including company owned, through joint venture and through stockists in the near future. (BS)
± ADF Foods is eyeing a couple of overseas acquisitions in the Rs500mn - Rs1bn range. (BS)
Economic snippets
± The Airports Authority of India is entitled to charge airport development fee (ADF) and user development fee (UDF) like the developers of private airports, according to the Airport Economic Regulatory Authority (AERA) chairman. (BS)
± The cement industry hit double-digit growth in 2009-10, after a gap of three years, grows 10.5%. (BS)
± Foreign institutional investors and their sub-accounts will have to disclose the exact structure they use to invest in India, according to the new guidelines from SEBI. (ET)
± Foreign exchange reserves rose by US$2bn to US$279.0bn for the week ended April 2 against US$277.0bn in the previous week. (ET)
± Employees Provident Fund Organization will now be able to invest its funds in corporate bonds of joint sector companies where the government has a minimum 26% stake. (BL)
± IRDA asks insurance companies to go ahead and sell unit-linked insurance plans, notwithstanding order of SEBI banning 14 firms from selling ULIPs. (BL)
± The Ministry of Defence plans to oppose a proposal from the Ministry of Commerce and Industry to allow foreign defence corporations to establish fully-owned defence units in India. (BS)
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