Market outlook
Solid start in the offing
"Victory is sweetest when you've known defeat."
It was exactly the case for the Chennai Super Kings as they edged out the favourites - the Mumbai Indians in the IPL final. As far as the market is concerned, the gains made over the past one year or so have been spectacular post the global meltdown. Today promises to be yet another sweet start for the market on the back of good global tidings. The key to watch is whether the Nifty closes above 5350.
Equities worldwide have gained after Greek decided to tap into the EU-IMF loan. The initial monsoon forecast is encouraging. Earnings from a couple of big private banks have been pretty robust. On the flip side, Reliance's results were slightly disappointing. Crude oil is above $85. The political temperature is rising and calls for tighter bank regulations have got shriller in the US.
As the MI's loss to CSK shows, nobody is invincible. So, one has to guard against complacency. No need to take undue risk. Wait for a decisive move in key indices. We expect the market to remain sideways and rangebound ahead of the Fed meet and F&O expiry.
Trading ideas (Time period: 1-3 days)
JP Associates (BUY, CMP Rs157, Target Rs167): On the daily chart, the stock had been stalling around its 200-day DMA for one month, currently placed at Rs149. The close on Friday can be considered as a fresh break-out on the upper side. It is attempting to move higher after a consolidation of four weeks. The volume chart has also improved along with the momentum oscillators. Any sustainable move on heavy volumes above the levels of Rs160 could provide fuel for a stronger rally over the next couple of sessions. The daily momentum indicators like RSI and MACD are exhibiting positive divergences. We recommend traders to buy the stock at current levels and on declines up to the levels of Rs155 with a stop loss of Rs151 for an initial target of Rs167.
Graphite Industries (BUY, CMP Rs95.50, Target Rs104): On the daily chart, the stock has given an upside breakout in Friday's trading session. It suggests that the consolidation range is about to end and may reverse into an uptrend. On Friday, the stock rallied by over 5% confirming the bullish set up. Moreover, the stock has given a close above its key moving averages on expanding volumes. The other supportive technical oscillators are positive and the up move may extend to the levels of Rs104. It is advisable to maintain a stop loss of Rs91 on all long positions.
Derivative strategies (Time period: Till expiry)
± Long Century Textiles Ltd April Future @ Rs541 for the target price of Rs555 and stop loss placed at Rs530
Lot size: 848
Remarks: Net maximum profit of Rs11,872 and net maximum loss Rs7,632.
± Short Sesa Goa Ltd April Future @ Rs442 for the target price of Rs425 and stop loss placed at Rs449
Lot size: 1,500.
Remarks: Net maximum profit of Rs25,500 and net maximum loss Rs10,500.
Mutual funds
| Fund focus | |||||||
| Reliance Growth Fund | Invest | ||||||
| Fund manager | Sunil Singhania |
| Min investment | Rs5,000 | |||
| Latest NAV | Rs456.6 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs457/201 |
| 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% | |||
Trading Idea: Nagarjuna Constructions – BUY
CMP Rs184, Target Rs222, Upside 21%
On Friday, the stock overcame crucial resistance levels and closed above it. As long as it stays above Rs180, the medium term outlook appears bullish. If the current trend sustains, the stock could touch Rs220. Continued positive divergence with the RSI oscillator points to the likelihood for an upward swing in the stock price.
Result Update: Reliance Industries (Q4 FY10) – Market Performer
CMP Rs1,087, Target Rs1,097, Upside 0.9%
± Revenues at Rs576bn, higher by 120.7% yoy and 1.3% qoq; lower than our estimates
± OPM falls 601bps yoy driven by fall in refining margins yoy and sequential decline in petrochemical segment EBIT margins
± 40% yoy fall in other income was on account of lower yields on investments
± Gas production from KG-D6 field continues to be at 60mmscmd currently but future increase dependent on expansion of GAIL's HVJ pipeline
± Pending litigations with RNRL and tax holiday dispute for KG-D6 will keep valuations under check. Deployment of cash through acquisitions could be a trigger. Maintain Market Performer rating
Result Update : ICICI Bank (Q4 FY10) – BUY
CMP Rs976, Target Rs1,126, Upside 15.4%
± NII was down 5%yoy; net profit, however, was up 35.2%yoy.
± Non-interest income grew 13%yoy; fee income too rose 13%yoy.
± Loan book grew 1.1% sequentially; deposit book too was up 2.2%qoq, with CASA deposits up 7.6% qoq.
± Concerns over asset quality to wane in coming period
± Adequately capitalized; lower returns ratio act as a caveat
± Based on our SOTP valuations raise our price target to Rs1,126. Maintain BUY.
Result Update : HDFC Bank (Q4 FY10) – BUY
CMP Rs1,944, Target Rs2,270, Upside 16.7%
± Strong business growth momentum continues; deposit growth outpace advance growth after four quarters
± Despite lower C/D ratio, NIM improve by 10bps qoq aided by expansion in spread
± Non-interest income lowered by G-Sec trading losses; C/I deteriorate marginally on robust branch expansion in FY10
± Asset quality continues to improve at fast clip; capital adequacy remains strong
± Upgrade book value estimates marginally; maintain BUY rating and target price of Rs2,270 on HDFC Bank
Result Update: NTPC (Q4 FY10) – Market Performer
CMP Rs205, Target Rs220, Upside 7.3%
NTPC's FY10 provisional results were in line with our estimates, with profit growing by 5.6% yoy to Rs86bn against Rs82bn last year. The standalone entity's installed capacity grew by 3.6% to 28.8GW. During FY10, NTPC commissioned only 990MW (on a standalone basis) against its target of 3.3GW. This coupled with 570MW commissioned by JV's helped it increase its total installed capacity to 31.7GW, higher by 4.3% yoy. NTPC's coal stations operated at 90.81% PLF, significantly higher than the national average of 77.48%. An improvement in the operations of its gas based plants, due to higher gas supplies, enabled them to operate at 78.38% PLF. Increased capacity, robust operations and higher average realizations translated into 11.3% yoy growth in revenues to Rs465bn during the year. With 17.8GW under construction, NTPC targets to add 4,150MW during FY11. It plans to double its capex in FY11 to Rs291bn. Capacity addition holds the key for future earnings growth. With continued slippages, it is evident that the company will miss its XIth plan target by ~40%. Despite this we believe it offers good long term value as it has a defined road-map to expand its capacity base. It has drafted a plan to secure itself for fuel, which holds the key to future growth. It has applied for the 'Maharatna' status, which we believe should enable it to accelerate its capacity addition program. Earnings growth, which is a factor of capacity addition, can accelerate with merchant sale. However we do not factor in any merchant sale and value the stock based on its FY12E book to arrive at a one year target of Rs220/share.
Result Update: Wipro Ltd (Q4 FY10) – Market Performer
CMP Rs693, Target Rs725, Upside 4.6%
± 4.7% qoq constant currency revenue growth in IT services was in-line; material offshore pricing improvement a positive
± Strong indications of broad-based recovery in progress with positive growth in all verticals, offerings and key geographies
± Company OPM declined by lower-than-expected 30bps qoq aided by margin improvement in IT services segment
± Q1 FY11 revenue guidance of 2-4% growth; significant people addition manifests company's confidence in near-term growth
± Retain estimates and recommendation at Market Performer
Result Update: Corporation Bank (Q4 FY10) – BUY
CMP Rs499, Target Rs558, Upside 11.9%
± Net interest income grew 49.4%yoy; net profit, however, was up 19.9%yoy.
± Non-interest income was down 45%yoy, albeit increased sequentially.
± Asset quality improves sequentially; provision coverage within the RBI regulated norms.
± Adequately capitalized; valuations point towards further re-rating.
± Assign 1.0x multiple to FY12 book to arrive at price target of Rs558. Maintain BUY.
Result Update: Procter & Gamble Hygiene and Health Care (Q3 F6/10) – BUY
CMP Rs2,033, Target Rs2,240, Upside 10.2%
± Top line increases 15.3% yoy to Rs2.05bn backed by strong 16% yoy growth in Feminine Hygiene and 15% yoy rise in Healthcare segment
± Despite sharp rise in ad spends by 70.4% yoy, PGHH registered an increase of 330 bps in OPM on account of lower overheads and raw material costs
± Net profit jumped 25.4% yoy to Rs437mn driven by strong operational performance coupled with lower tax rate
± We expect the company to witness 21% CAGR in revenues and ~26.3% CAGR in net profit over F6/09-11
± We maintain our BUY rating on the stock with a revised price target of Rs2,372
Weekly Update: Debt Market - week ended April 23, 2010
± Though at the start of the week 10-year benchmark bond yield softened to 7.99%, it inched up on Friday to 8.06% thereby ending flat on weekly basis. Yields on shorter tenure papers ended lower with 1-year and 5-year yields declining by 21bps and 10bps respectively.
± India's holding of US Treasury Securities as at the end of Feb 2010 stood at US$31.6bn vis-à-vis US$32.7bn at the end of Jan 2010.
± After easing a bit, India's food inflation marginally rose to 17.7% yoy for the week ended April 10. The increase was mainly on account of higher prices of milk and rice.
± RBI extended the benefit of low interest rate for exporters from April 30, 2010 to June 30, 2010. The interest rate ceiling on pre-shipment rupee export credit up to 270 days and post shipment rupee export credit up to 180 days is at BPLR minus 2.5%.
± For the first time in three weeks, US treasuries yield declined as Government prepared to sell a record amount of US$129bn notes.
± Greece appealed for an emergency Eurozone loan of US$40bn to fight debt crisis under overwhelming pressure from the financial markets.
Corporate Snippets
± DLF arm buys out PE stake in group firm for Rs31bn. (BL)
± TCS, Infosys, Wipro and IBM vie for Bharti Airtel outsourcing operations worth over a US$1bn. (ET)
± NTPC may raise US$500mn through external commercial borrowings this financial year. (BS)
± EID Parry (India) says it has entered into an agreement with the promoters of GMR Industries, the agri business arm of GMR Group, to buy 51% of their stake in the company. (TOI)
± ICICI Bank has brought back its special home loan offer following rival and mortgage major HDFC's move to relaunch a similar product last week. (TOI)
± Pantaloon Retail says the company will demerge three of its businesses, including that of food, into two of its subsidiaries. (TOI)
± NTPC has missed its capacity addition target by almost 50% in 2009-10 by adding only 1560MW, as against a target of 3,330MW. (DNA)
± ArcelorMittal has proposed a JV with SAIL to build a US$2.7bn steel plant in eastern India. (DNA)
± Reliance Industries has zeroed in on Singapore based infrastructure firm InfraCo to offload 45% stake in its 25,000 acre-Jhajjar (Haryana) SEZ. (FE)
± Tata motors may roll out 800cc small car by 2012. (BS)
± Reliance Communications is close to signing an agreement with US-based GetJar to launch its own application store. (BS)
± TCS, Infosys, HCL Technologies and Wipro get eliminated from the selection process for the Unique Identification Authority of India project. (BS)
± Areva T&D to tie up with Bharat Forge, L&T on solar energy. (BS)
± Maruti Suzuki plans to scale up production by at least 70,000 units this year. (BS)
± MindTree is understood to have emerged as the winner for the application development services segment of the Unique Identification project. (BS)
± International Finance Corporation will invest US$60mn in Apollo Tyres' greenfield manufacturing project coming up on the outskirts of Chennai. (FE)
± Cairn India begins second crude oil processing plant at its Mangala oilfield in Thar desert of Rajasthan. (BS)
± Tata Power offers to take over the distribution business of Reliance Infrastructure. (BS)
± Government is mulling to more than doubling the price of natural gas produced by ONGC to US$4.20 per mmBtu. (BS)
± Jaypee Infratech fixes the price band of its IPO at Rs 102-117 per share. (BS)
± Escorts plans to launch up to three new tractor models in the next six months. (BS)
± Coal India expects to seal strategic partnership deals with three listed companies abroad within six months, including Peabody Energy of the US. (BS)
± Jet Airways is recasting itself as a network carrier by fortifying its international and domestic connectivity. (ET)
± Religare Enterprises plans to go ahead with its health insurance business alone after talks of tie-ups hit a wall over support issue. (ET)
± EID-Parry has entered into an agreement with GMR Holding to acquire a majority stake in GMR Industries. (ET)
Economic snippets
± Foreign exchange reserves rose by US$61mn to US$280bn for the week ended April 16. (BL)
± Centre has fixed the 'fair and remunerative price' of sugarcane for the ensuing 2010-11 sugar season at Rs 139/quintal. (BL)
± Value of 3G spectrum moved up by over Rs6bn to close at Rs76bn. (BL)
± Cabinet gave its nod to infuse Rs150bn in public sector banks during 2010-11 to help them maintain capital requirements and boost their credit growth. (BL)
± Government is likely to increase tax on all forms of iron ore to 20%. (FE)
± IMD forecasts a normal monsoon across the country this year. (BS)
± RBI plans to free interest rates on certain segments of export finance. (BS)
± Government is considering a proposal to ease foreign direct investment rules in the retail sector. (BS)
Results table
| Company | Revenues | % YoY | PAT | % YoY |
| P&G Hygiene & Health Care | 2,054 | 15.5 | 437 | 25.4 |
| Mahindra Lifespace | 1,010 | 223.4 | 237 | 68.0 |
| Corporation Bank | 19,222 | 12.6 | 3,123 | 19.9 |
| Gujarat Gas Company | 4,100 | 33.8 | 617 | 69.5 |
| ICICI Bank | 68,913 | (23.2) | 13,418 | 79.3 |
| HDFC Bank | 40,531 | (4.7) | 8,366 | 32.6 |
| RIL | 575,700 | 120.7 | 47,100 | 18.9 |
| Wipro | 69,784 | 0.7 | 12,362 | 1.5 |
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