Market Mantra
Market outlook
Good Day Probably!
Survival is triumph enough. Harry Crews
World markets survived yet another tumultuous week, though Spain's rating downgrade and the subsequent decline in the US as well as European markets served as a grim reminder of the challenges that lie ahead. So, we will kick off the new week with a slightly negative bias due to shaky global markets. With the US markets shut on Monday, the trend may remain rangebound and choppy.
However, things for the Indian market could turn positive as the GDP report is expected to be quite good. FY11 promises to be even better than FY10, though monsoon remains a big 'X' factor along with the global economy. Even in the worst case scenario, India should be able to register a decent performance. Still, it won't be a cakewalk amid high inflation and rising interest rates.
In the near term, the market may remain volatile as uncertainty prevails over the European debt crisis and its wider fallout on the world. Headline risks will continue to play spoilsport with every effort to move higher. As a result, one should not take undue risks at this stage and wait for some more stability.
Trading ideas (Time period: 1-3 days)
LIC Housing Finance (Re-iterate BUY, CMP Rs956, Target Rs990): LIC Housing Finance is pointing towards continued strength in coming trading sessions as it has broken above the downward sloping trendline. A detailed study of the daily chart shows that the stock has corrected from the high of Rs999 to a low of Rs873 this week. Thursday's bullish candlestick has managed to engulf black real bodies of previous two trading sessions. Such a move corroborates strength in the recovery and the stock has the potential to surpass its 52-week high. Friday's upmove of 4% has seen the stock breaking out from the trendline with a positive crossover on the RSI. A sustained rally past the levels of Rs964 could see the stock attempting its May 2010 peak. We recommend buying the stock at current levels and on any declines to Rs953 levels for short term target of Rs990. Maintain a stop loss of Rs940.
Dish TV (BUY, CMP Rs38.70, Target Rs43): Last Friday, Dish TV gave a breakout from bearish resistance line above Rs38.70 which is likely to trigger upward momentum in the coming days. The stock has been trading in narrow band of Rs35-40 for the last three months. Volumes expanded during upmoves while volumes dried out during flat/negative price action. This suggests that we may see sustained upward breakout. Short term moving average (10 DEMA) has crossed above the medium term moving average (50 DEMA). On Weekly chart, stochastic pattern is quiet interesting, as formation of triple bottom is indication that stock has already gone through enough time wise correction and is now all set to breakout for target of Rs43. Maintain a Stop loss of Rs36.70.
Derivative strategies (Time period: Till expiry)
± Short Hindalco June Future in range of Rs151-152 for the target price of Rs144 with a stop loss placed at 154.5
Lot size: 3518
Remarks: Net maximum profit of 24,626 and net maximum loss Rs12,313.
± Short SBI June Future in range of Rs2220-2225 for the target price of Rs2175 and stop loss placed at 2250
Lot size: 132
Remarks: Net maximum profit of Rs6,600 and net maximum loss Rs3,300.
Mutual funds
| Fund focus | |||||||
| UTI Opportunities Fund | Invest | ||||||
| Fund manager | Harsha Upadhyaya |
| Min investment | Rs5,000 | |||
| Latest NAV | Rs23.4 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs25/12 |
| Exit load | 1% <1 yr | |||
| Latest AUM | Rs1,392cr |
| Latest dividend (under dividend option) | 15% (Jan 22, 2010) | |||
| Type | Open-ended |
| Benchmark | BSE 100 | |||
| Class | Equity – diversified |
| Asset allocation | Equity (95%), Debt (2%), Cash (3%) | |||
| Options | Growth & dividend |
| Expense ratio | 2.3% | |||
Result Update: ONGC (Q4 FY10) – BUY
CMP Rs1,132, Target Rs1,327, Upside 17.2%
± Net sales rise 15.7% yoy despite absence of MRPL trading activities primarily on account of 18.5% higher crude oil net realizations and 51.5% higher VAP revenues
± Sales volumes for crude oil and natural gas were higher by 1.8% and 2.2% yoy respectively
± OPM expands 1,614bps yoy owing to a substantial fall in overheads as a percentage of sales
± PAT jumps 71.1% yoy driven by a robust operating performance
± Increase in production from JV fields and OVL would be key to earnings growth in near term
± We maintain our BUY recommendation and target price of Rs1,327
Result Update: SAIL (Q4 FY10) – BUY
CMP Rs206, Target Rs243, Upside 19.5%
± SAIL's Q4 FY10 revenue of Rs122.2bn was higher than our estimate of Rs110bn
± The outperformance was on account of higher sales volume (3.4mn tons Vs 3.2mn tons) and higher realisations (Rs35,970/ton Vs Rs34,600/ton)
± The positive impact of higher topline was partly negated by a jump in raw material and power & fuel costs
± Raw material costs jumped on account of consumption of carry over coking coal during the quarter
± EBIDTA/ton increased to Rs9,109/ton in Q4 FY10 from Rs8,770/ton in Q3 FY10
± Maintain BUY with a target price to Rs243
Result Update: Mahindra & Mahindra (Q4 FY10) – Market Performer
CMP Rs545, Target Rs541, Downside 0.7%
± Revenues increase 46% yoy driven by strong volume growth in both automotive and farm equipment segments
± OPM at 15.9% increased 486bps yoy and 140bps qoq
± Forthcoming monsoon season would be critical for growth in volumes for both the segments
± We value M&M at Rs541/share, which includes Rs377 for its automotive business (7x EV/EBIDTA for FY12E) and Rs164 for its subsidiaries; Maintain Market Performer rating
Result Update: Punj Lloyd (Q4 FY10) – BUY
CMP Rs137, Target Rs158, Upside 15.0%
± Revenue slide continues, de-grows by massive 45% yoy to Rs17bn, much below expectation
± Cost overruns and consequent losses in Simon Carves translate into operational loss for Punj Lloyd
± Extra-ordinary income helps reduce loss to Rs3bn
± Order book stands at Rs277bn, order inflow improves to Rs61bn
± Execution and Libya exposure continue to remain key risks to earnings visibility, hence we cut our target price to Rs158/share
Result Update: Suzlon (Q4 FY10) – BUY
CMP Rs61, Target Rs73, Upside 19.4%
± WTG sales pick up, but continue to remain muted, 38% lower over the previous year as customers defer deliveries
± Gross profit/MW improves to Rs24.6mn/MW during Q4 FY10 from Rs20.3mn/MW in Q3 FY10, expected to stabilize here
± High depreciation and tax outgo coupled with lower other income translate into adjusted loss of Rs2bn
± Order book and order inflow remain weak during the quarter, concerns on weak order book position continue
± Reduce earnings to reflect weaker than expected FY11; but steep correction leaves room for upside despite cut in target price to Rs73/share, re-iterate BUY
Result Update: EIH (Q4 FY10) – SELL
CMP Rs118, Target Rs101, Downside 14.4%
± Q4 revenues below expectation as ARRs still remain under pressure despite a likely improvement in occupancies
± Lower room rates pull down OPM by over ~15ppts yoy
± Reported PAT declines ~62% on increased interest cost
± Volume growth from new Mumbai property may not be enough to offset weak ARR scenario in current fiscal; retain SELL
Mutual Funds Thermometer as on May 28, 2010
Key observations
± Indian Equity Market experienced a roller coaster ride during the fortnight. Heavy sell-off across the globe was witnessed in reaction to the Eurozone debt worries and rising geopolitical tensions in Korea. Mirroring the markets, all equity diversified NAVs ended sharply in the red. Out of 193 diversified funds, only seven were able to outperform the benchmark S&P Nifty on a fortnightly basis. The top quartile of the fortnightly chart was mainly occupied by the large-cap funds, as they were able to contained their downside. Top-3 outperformers in the category were Edelweiss Absolute Ret Eq (-0.4%), Religare PSU Equity (-0.8%) and JM Large Cap (-1.2%) Among the top-losers, JM Basic (-7.8%), Sahara R.E.A.L (-8.1%) and India Advantage Fund (-8.2%).
± Among the sectoral fund, only two funds belonging to the defensive sector, ended in positive zone namely SBI Magnum FMCG Fund (+1.4%) and UTI Pharma & Healthcare Fund (+0.25%). Other funds belonging to these sectors remained in the top-quartile on the fortnightly chart. Infrastructure & realty-oriented funds, being highly volatile in nature, plummeted the most during the fortnight. Top three losers were JM HI FI Fund (-7.6%), JM Agri & Infra Fund (-7.6%) and SBI Infrastructure-I Fund (-6.3%).
± On a fortnightly basis, most of the balanced funds' NAVs ended in negative zone. Only three funds delivered a positive return viz. UTI CRTS 1981 (+2.9%) Sundaram BNPP CPO-3Yrs (+0.1%) and DWS Cap Prot Oriented (+0.1%). NAVs of balanced fund with maximum equity exposure declined the most. Major losers in the category were SBI Magnum NRI Inv-Flexi Asset (-4.6%), Principal Child Benefit-Career Builder (-4.4%) and LICMF Systematic Asset Allocation (-4.3%).
± ELSS funds' performances were aligned with the equity diversified funds. On a fortnightly basis, the category average was down by 4%. Out of 47, only three ELSS funds outperformed the benchmark BSE200 namely HDFC TaxSaver (-1.9%) Fidelity Tax Advt (-2.2%) and HDFC Long Term Adv (-2.4%).
± On the ETF front, for the fortnight, all funds' NAV ended in the red except Gold ETF. Gold prices rose sharply as the rush to safe haven continued amidst worries on the international front even as marriage season perked up domestic demand. On a fortnightly basis, Gold ETF delivered a return of 3.7%. Junior BeES and Bank BeES underperformed the ETF category, were down by 5.3% and 5.2% respectively on a fortnightly basis.
Corporate Snippets
± M&M makes bid to buy South Korea's bankrupt Ssangyong Motor Corp. (ET)
± Reliance Industries made fifth oil discovery in exploration block CB-ONN-2003/1, located in the Cambay Basin, about 130 km from Ahmedabad. (BS)
± Reliance Power to buy three gas-based power plants from group firm Reliance Infrastructure for an enterprise value of Rs10.95bn. (ET)
± Amtek Auto has acquired a 26.3% stake in group firm Amtek India from the promoters in a deal worth Rs2.15bn to consolidate business under one flagship company. (ET)
± ADAG scales up stake to 15.03% in multiplex chain operator Fame India. (ET)
± US Exim Bank may extend credit lines to Spicejet, for its maiden purchase of Boeing aircraft. (ET)
± City Union Bank to raise Rs 1,000 cr through QIP route. (BS)
± HDIL plans to launch 4-6mn square feet of residential projects in the current financial year. (BS)
± Ahluwalia Contracts is looking for acquisition or tie-up with a specialised construction firm to help it become an integrated urban infrastructure company. (BS)
± Essar Group plans to buy majority stake in AGC Networks from Avaya of the US for US$$44.5mn. (BS)
± Dewan Housing Finance raised Rs5bn through a combination of QIP and preferential allotment of equity shares. (BS)
± Uttam Galva Steel plans to commission the Wardha unit by June-end. (BS)
± Alstom-Schneider plans to make an open offer to acquire 20% additional stake in Areva T&D India. (BS)
± SAIL has hinted at a reduction in prices in line with the downward trend overseas. (DNA)
± GTL likely to take 26% stake in Qualcomm's BWA foray. (BS)
± Kingfisher Airlines repays 40% of its overdue fuel bill and agreed to give bank guarantee as insurance against default on future jet fuel purchases. (ET)
± Magma Fincorp expects regulatory clearance for its general insurance venture with a Germany based company during this year. (ET)
Economic snippets
± Core sector industries expanded by 5.1% in April, a drop from the healthy 7.2% growth in March. (ET)
± Foreign exchange reserves up by US$64mn to US$273bn for the week ending May 21. (BL)
± Sugarcane production is likely to increase by 10% to over 300mn tons in the 2010-11 crop year. (BS)
± The electrical equipment industry clocks 11.25% growth in 2009-10 compared to this, the industry grew only 2.73% last year. (BS)
± DoT asked the finance ministry to give defence forces a waiver of about Rs100bn on spectrum charges. (BS)
± Value of pan India broadband spectrum has reached Rs52bn at the end of the fourth day of bidding. (BL)
Results Table
| (Rs mn) | Revenues | % yoy | PAT | %yoy |
| Suzlon | 61,642 | (33.1) | (1,885) | (159.9) |
| Balkrishna Inds | 4,429 | 37.2 | 635 | 191.3 |
| KSK Energy | 1,653 | 29.6 | 949 | 97.2 |
| Punj Lloyd | 17,001 | (47.2) | (3,009) | 17.7 |
| Cummins | 7,883 | (27.1) | 1,183 | 0.1 |
| Aurobindo Pharma | 32,523 | 16.4 | 5,258 | 309.0 |
| M&M | 53,046 | 45.9 | 5,703 | 36.4 |
| ONGC | 160,023 | 15.7 | 37,764 | 75.1 |
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