Market Mantra
Market outlook
Peace and prosperity
All differences in this world are of degree, and not of kind, because oneness is the secret of everything. - Swami Vivekananda.
Nearly five years after the big Reliance empire was split, the warring Ambani brothers have decided to bury the hatchet. The new peace deal in the Ambani family will surely prove to be a sentiment-booster for our market, which was starved of positive triggers. It's a no-brainer that shares of the two Reliance groups will steal the limelight, although one is still not sure of the long-term impact of the truce. What's more, Asian markets, barring Japan, are mostly positive. The good news is that the rally is being led by China, which has been the worst-performing market this year.
Given the feel-good backdrop, we expect a firm opening and perhaps a positive finish too. If global cues remain supportive and there are no fresh mishaps, the markets will be able to regain some of the lost ground. Some risks may still persist mainly due to concerns about the European sovereign debt problems and possible overheating in China. In the immediate future, the key events to watch out for will be next week's GDP report and progress of monsoon.
Trading ideas (Time period: 1-3 days)
ABAN (BUY, CMP Rs681, Target Rs715):
The stock has fallen ~45% from the levels of Rs1,200 registered during the last week of April 2010. The stock has found support near its July' 09 lows of Rs642. In addition, the momentum indicator (RSI) is in oversold zone. Based on above technical evidence, we recommend traders to buy the stock between Rs675-685 with an intraday target of Rs715. It is advisable to maintain a SL of Rs666.
BPCL (BUY, CMP Rs559, Target Rs610):
The stock has taken strong support at its November lows of Rs485 and has bounced back sharply from those levels. The bounce back has been on accompanied by higher volumes. During the previous week, BPCL gained momentum and crossed its short-tem moving averages on the daily chart. The momentum indicator is exhibiting positive divergence with RSI giving a bullish cross-over. Based on the above mentioned technical evidence, we recommend traders to buy the stock at Rs558 with a stop loss of Rs534 for a medium-term target of Rs610 and Rs615.
Derivative strategies (Time period: Till expiry)
± Long Sesa Goa May Future in range of Rs342-344 for the target price of Rs352 and stop loss placed at Rs337
Lot size: 500
Remarks: Net maximum profit of Rs10,000 and net maximum loss Rs5,000.
± Long JP Associate May Future in range of Rs117-119 for the target price of Rs125 and stop loss placed at Rs114
Lot size: 1688
Remarks: Net maximum profit of Rs13,504 and net maximum loss Rs6,752.
Mutual funds
| Fund focus | |||||||
| UTI Opportunities Fund | Invest | ||||||
| Fund manager | Harsha Upadhyaya |
| Min investment | Rs5,000 | |||
| Latest NAV | Rs23.0 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs25/12 |
| Exit load | 1% <1 yr | |||
| Latest AUM | Rs1,701cr |
| 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: Bharat Forge (Q4 FY10) – BUY
CMP Rs261, Target Rs288, Upside 10.5%
± Standalone net sales jump 92.9% yoy, driven by 99.2% yoy and 84.3% yoy growth in domestic and exports market respectively
± Non automotive business contributed 35% for Q4 FY10
± OPM for Q4 FY10 was up by 1036bps yoy and 155bps sequentially
± Net profit for Q4 FY10 surged by 51.3% on sequential basis
± Board recommended dividend of Rs1 per share, subject to approval of shareholders
± We maintain our BUY recommendation with a revised target price of Rs288
Result Update: Indraprastha Gas Ltd (Q4 FY10) – Market Performer
CMP Rs221, Target Rs208, Downside 5.8%
± Revenues rise 26.8% yoy driven by 62% growth in PNG volumes and 12.1% increase in CNG volumes
± OPM increases 75bps yoy and driven by lower raw material costs and staff costs
± Volume growth to remain strong on back of increasing private cars conversion and higher interest of OEM players
± We assume only partial pass on of higher raw material costs following recent hike in APM gas prices
± Maintain Market Performer rating with a target price of Rs208
Company Update : ICICI Bank – BUY
CMP Rs835, Target Rs1,126, Upside 34.9%
The board of ICICI Bank and Bank of Rajasthan (BoR) in a meeting held on 23rd May, 2010, has finally approved the merger between the banks. With the swap ratio, an all equity deal being fixed at (25:118shares) 1 share of ICICI Bank for each 4.72 shares of BoR, the equity dilution for ICICI Bank remains minimal at ~3.1%. ICICI Bank now awaits approval from shareholders and RBI for amalgamation and integration process. The due diligence report submitted by the independent valuer covered key aspects of advances, investments, deposits, properties and branches and employee-related liabilities of BoR. The initial assessment of these books has revealed miniscule concerns. The integration in our view is expected to enable ICICI Bank to a) increase reach, particular in north and west India, b) Cross selling of new products on asset side– mortgage and auto loans, c) Cross selling of investment products – Insurance, MF and d) provide a path towards financial inclusion. Single digit RoE, remains a key negative. Maintain BUY.
Corporate Snippets
± Mukesh and Anil Ambani have cancelled all existing non-compete agreements between their groups, drawn-up during the Reliance re-organization in 2006. (BL)
± Piramal Healthcare sells its domestic formulations business to US-based Abbott in a deal worth US$3.72bn. (BS)
± DLF is in talks with Government of Singapore Investment Corporation, Abu Dhabi Investment Authority and Kuwait Investment Authority to sell majority stake in luxury hotel chain Aman Resorts. (BS)
± Infosys is looking to bid for US-based Logica for ~Rs185bn. (BS)
± Bank of Rajasthan shareholders to gain one share of ICICI Bank for every 4.72 shares of Bank of Rajasthan. (BS)
± Jindal Power is looking to set up a hydro-power project in Nepal at an estimated cost of Rs15bn as part of its multi-billion dollar programme in the energy space. (BS)
± GMR Infrastructure unit GMR Energy plans to raise Rs102.75bn of debt funding to help achieve financial closure for three of its power projects. (ET)
± The Hinduja group acquired the private banking arm of Belgian high street bank KBC for € 1.35bn. (ET)
± The government is understood to have asked BSNL and MTNL to pay Rs167.5bn for the 3G spectrum in their possession by month-end. (ET)
± Motherson Sumi is in talks with Unilever for contract manufacturing of water purifiers for the company's international business. (BS)
± Fortis Healthcare has raised around US$100mn through the issuance of FCCBs. (ET)
± Ranbaxy receives approval of Canadian health regulator to market the generic version of cholesterol lowering medicine Lipitor. (ET)
± Top officials of Maruti Suzuki and Volkswagen India are understood to have met to explore synergies in production and vehicle design. (ET)
± Gujarat State Petroleum Corporation plans to start its upstream overseas arm in the next two to three years to look after its global oil and gas explorations. (BS)
± Srei Infrastructure may hive off its road projects business into a separate company and induct a financial investor at a later stage. (ET)
± Bharat Forge is looking at increasing its manufacturing footprint in the US market. (BS)
± Shree Cement is expanding its capacity by setting up a 1mtpa clinker unit at Ras and 1mtpa cement grinding unit in Jaipur. (BL)
± Godrej Consumer Products has entered into an agreement to acquire the entire stake of the promoters in Laboratoria Cuenca, Consell SA, Issue Uruguay and Issue Brazil, which is collectively referred to as the Issue Group. (TOI)
± Carborundum Universal is all set to pump in Rs500-750mn for setting up a brown fused alumina plant in Kutch district of Gujarat. (BS)
± JK Lakshmi Cement is holding talks to acquire an Egyptian cement firm for around Rs8bn. (ET)
± Standard Chartered Plc has fixed the price band for its proposed issue of 240mn Indian Depository Receipts at between Rs100 and Rs115. (BL)
Economic snippets
± GSM telecom user base added just over 11mn new users in April, lower than the 13.9mn added in March. (ET)
± Maharashtra Government plans to rope in foreign investment, creating a joint venture with the private sector or on lease to provide a new leash of life to closed spinning mills and those under liquidation. (BS)
± Foreign exchange reserves declined US$2.9bn to US$273bn for the week ending May 14. (BL)
± Banks likely to fix base rate at 8.5-9.5%. (BL)
± Banks agree to give clean loans to telecom companies to acquire bandwidth for 3G mobile telecom licences. (ET)
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