Market Mantra
Market outlook
Avoid any adventure!
Adventure is just bad planning - Roald Amundsen
Make no mistake; risk aversion is here to stay, so is uncertainty and volatility. The euro has hit a fresh four-year low against the US dollar. The CBOE VIX ended upwards of 33 overnight. The dollar index is trading above 87. Risky assets like stocks, commodities, and emerging market currencies are being shunned. Safe havens like gold and US treasuries are being snapped up. Germany is banning some bearish bets on sovereign bonds and certain financial stocks.
Markets are pre-occupied with the euro-zone debt crisis and its potential fallout on the global economy. The trend is unlikely to change anytime soon.
We see another weak start to the day as Asian markets are mostly in red following the overnight fall on Wall Street. Ironically, markets in Europe ended smartly higher. One has to watch how they open today. The NSE Nifty may yet again test 200-day DMA of 4987 today. It will be interesting to see if it rebounds from there or slips under it.
Trading ideas (Time period: 1-3 days)
SBI (SELL, CMP Rs2280, Target Rs2240):
The stock had seen a steady rise from the levels of Rs2020 during the last week of April 2010. However, the stock hit an intermediate top around the levels of Rs2350-2355. The above levels have proved to be major resistance zone. On Tuesday, the stock rose 1.3% but faced stiff resistance at downward sloping trend (Rs2300). The momentum indicator is exhibiting negative divergence. Based on above technical evidence, we recommend traders to sell the stock up to Rs2290-2270. It is advisable to maintain a SL of Rs2300 for an intraday day target of Rs2240.
Sterlite (SELL, CMP Rs688, Target Rs655):
The stock continued to show weakness and fell below the crucial support of Rs710-715 levels. The break below key support area suggests more downside in the coming trading sessions. The daily oscillators are also indicating increased momentum on the downside. We recommend traders to sell the stock at current levels and on rallies to the levels of Rs699 for an initial target of Rs655. It is advisable to maintain a stop loss of Rs702 on all the short positions.
Derivative strategies (Time period: Till expiry)
± Long Sesa Goa May Future between Rs361-359 for the target price of Rs372 and stop loss placed at Rs354
Lot size: 500
Remarks: Net maximum profit of Rs6,000 and net maximum loss Rs3,000.
± Short L&T May Future Rs1,655 for the target price of Rs1610 and stop loss placed at Rs1,677
Lot size: 200
Remarks: Net maximum profit of Rs9,000 and net maximum loss Rs4,400.
Mutual funds
| New Fund Offer | |||||
| DSP BlackRock Focus 25 Fund | Subscribe | ||||
| Fund manager | Apoorva Shah |
| Min investment - Retail | Rs5,000 | |
| NFO dates | April 23 – May 21, 2010 |
| Entry load | Nil | |
| NAV | Rs10 |
| Exit load | 1% <1yr<Rs5cr | |
| Type | Equity – diversified |
| Registrar | CAMS | |
| Class | Open – ended |
| Asset allocation: |
| |
| Options | Growth & dividend |
| Equity & Equity related securities | 65-100% | |
| Benchmark | BSE Sensex |
| Debt and money securities | 0- 35% | |
Company Update: ICICI Bank – BUY
CMP Rs899, Target Rs1,126, Upside 26.6%
ICICI Bank has received in-principle board approval to merge the controversial Bank of Rajasthan (BoR) with itself. With increasing conflict over promoter Tayal's stake, BoR board too approved the said amalgamation. The share swap deal has been agreed upon at 25 shares of ICICI Bank for each 118 shares of Bank of Rajasthan. Equity dilution for ICICI Bank, however, is expected to remain at a meager 3.1% as at end FY10. BoR balance sheet size remains limited at Rs173bn (4.8% of ICICI Bank balance sheet), deposit book at Rs152bn and advance book at Rs78bn would constitutes 7.5% and 4.3% of ICICI Bank respectively. BoR with 463 branches as at end FY09, constituted ~23% of the branch network for ICICI Bank. The acquisition price at ~Rs30.4bn translates into Rs65mn per branch of BoR as against Rs260mn paid by HDFC Bank for acquiring branches of CBoP in February, 2008. Increasing levels of NPLs for both banks, however, have remained the key concern.
Company Update: Suzlon – BUY
CMP Rs64, Target Rs80, Upside 25.1%
Suzlon announced the reduction in conversion price of its US$211mn and US$121mn FCCB's to Rs97.26/share from Rs359.68/share and Rs371.55/share respectively. It also revised the floor price to Rs74/share for both these bonds. In addition it has agreed to pay ~US$6mn as incentive fee to the bondholders and has asked for the removal of financial covenants and waiver of any existing or prior breaches. Post conversion of these bonds, Suzlon's equity will dilute by 9.8%. However, it will enable the company to improve its balance sheet as it could potentially reduce debt by ~Rs15bn. The stock has corrected by ~11% in the last one month, thus making the stock attractively valued. Upgrade to BUY with a target price of Rs80/share.
Result Update: Chennai Petroleum Corp (Q4 FY10) – BUY
CMP Rs254, Target Rs309, Upside 21.9%
± Revenues rise 13.6%, substantially below expectations on account of lower throughput
± GRMs were at US$4.3/bbl as against US$6.6/bbl in Q4 FY09 and US$3.4/bbl in Q3 FY10
± Sequential increase in GRMs was on account of higher spreads of gasoline and diesel
± With recovery in demand expected from CY10, GRMs could sustain at current levels
± We maintain our BUY with a revised target price of Rs309
Result Update: Motherson Sumi Systems (Q4 FY10) – BUY
CMP Rs137, Target Rs175, Upside 27.9%
± Consolidated net sales jump 140.5% yoy, on account of revenues from SMR
± Consolidated OPM for Q4 FY10 was up by 164bps yoy and 301bps sequentially
± OPM for SMR witnessed sequential growth of 222bps
± Consolidated net profit for Q4 FY10 surged by 89.4% on sequential basis
± Company has entered an agreement to acquire 60% stake held by Balda AG in Balda Mothersons Solutions India Ltd (BMSI)
± Company declared dividend of Rs1.75 per share
± We maintain our BUY recommendation and target price of Rs175
What's In, What's Out – April 2010
Given below is the snapshot of mutual fund activity in Indian equities. The information includes performance of mutual funds, current cash levels and stocks which are in and out of flavour.
Key observations
± The month of April has proven to be a decent month for the Indian Mutual Fund (MF) industry. The combined average Assets Under Management (AUM) of 38 fund houses witnessed a growth of ~3% mom in April, up by Rs217bn. After a decline of 4.3% mom last month, mainly on account of heavy redemption by corporates and financial institutions, the industry was able to magnetize decent inflows in the debt schemes.
± The top-10 fund houses, which constituted ~80% of the total industry assets, cumulatively reported a growth of 2.7% mom in April '10. Birla Sun Life MF gained the most; its AUM was up by 11.5% mom. This was followed by the second largest fund house HDFC MF, up by 6.7% mom. LIC MF had been the underperformer, witnessing a de-growth of 4.2% mom. Among the top-10 funds, besides LIC, three others witnessed a de-growth namely Kotak Mahindra MF (-2.7%), UTI MF (-0.9%) and IDFC MF (-0.6%). Among 38 fund houses, L&T MF witnessed maximum increase in its AUM; rising 64%mom at Rs41.3bn. Shinsei MF was the underperformer in the industry, its average AUM was down by 39.5% mom.
± Inflows in equity fund category continued to be dry due to the ban of entry load on the equity schemes, which was levied nine months back. In April '10, equity category witnessed a net higher outflow of Rs11.3bn vis-à-vis Rs2bn in the corresponding period of the previous year. However, April had been a good month for income funds. The category managed to attract higher inflows compared to the corresponding period of the previous year. The category witnessed a net inflow of Rs Rs1,778bn in April '10 vis-à-vis Rs1,031bn in April '09. On the whole. Mutual Fund industry witnessed a net inflow of Rs1,860bn in April '10 vis-à-vis Rs1,542bn in April '09, up by 20% on a yearly basis.
± Bullion's safe haven appeal increased following concerns that Greece's debt crisis could spread among other Euro zone states. This led to a significant inflow in the Gold ETF. This category witnessed a significant inflow of Rs520mn vis-à-vis an outflow of Rs640mn in April '09.
± Among the top-12 fund houses, Tata Motors featured in the top-5 additions of four funds during April '10. They bought ~6.6mn of shares. Significant buying interest was also seen in Differential Voting Rights (DVR) shares of Tata Motors with ~7.7mn shares purchased. Three major fund houses, namely Birla Sun Life MF, Franklin Templeton MF and Reliance MF, went underweight on Kirloskar Industries in April, selling 5.1mn shares.
± On the equity front, Indian Fund houses and Foreign Institutional Investors (FII) moved in different direction in April '10. FIIs were the equities net buyer worth Rs93.6bn, whereas Indian MF sold equities worth Rs14.1bn. However, both FIIs and MFs were net buyers in the debt market purchasing debt instruments worth Rs30.3bn and Rs665bn respectively during April '10.
± In April '10, the total cash available with top-12 stood at Rs89bn vis-à-vis Rs 80bn during the previous month. The highest level of cash holding, in percentage terms is held by ICICI Prudential MF at 11% while in monetary terms, Reliance MF continued to hold the maximum with Rs21.6bn cash. On a consolidated basis, top-12 fund houses hold 5.4% of cash and cash equivalent vis-à-vis 5% in previous month.
Corporate Snippets
± ICICI Bank will take over the crisis-ridden private sector Bank of Rajasthan and has offered a swap ratio of 1:4.72 for the deal - 25 shares of ICICI Bank for 118 shares of Bank of Rajasthan. (FE)
± RIL and RNRL began informal talks for a possible gas supply agreement in line with the Supreme Court verdict. (FE)
± TCS's outsourcing contract from the UK government for managing a state-sponsored pension scheme may be among the several projects that will be put on the block by the new regime in London. (BL)
± ONGC said that it has been asked by the government to pay Rs50bn to cover refiners' losses from selling fuels below cost during January-March quarter. (FE)
± SAIL has urged engineering exporters to enter into long-term contracts with his organization to overcome the shortage of raw materials facing them. (BL)
± BHEL's industry sector segment recorded an all-time high growth of 40% in 2009-10. (BL)
± Axis Bank plans to ramp up its retail loans and contribute about 25% of the total loan portfolio within next two years. (FE)
± Ranbaxy Laboratories has run into fresh trouble in Europe, primarily UK and Denmark, for not adhering to stipulated safety warning requirements. (FE)
± Jet Airways has decided to expand its global footprint before joining one of the world's leading airline groupings like Star Alliance and OneWorld. (FE)
± Thermax signed a technology transfer agreement with Germany's Lambion Energy Solutions in the area of energy generation from waste. (FE)
± Ashmore and PTC India are planning to pump in US$100mn into their US$1bn fund, while the rest will come from domestic and overseas financial institutions and pension funds. (FE)
± Godrej Consumer Products plans to raise US$150mn via sale of shares to fund its purchase of Sara Lee Corp's stake in an Indian venture and other acquisitions. (FE)
± CPCL proposes to scrap the oldest of its three units at its Manali refinery complex and build a new, 9mtpa refinery at a cost Rs100bn. (BL)
± Suzlon has received regulatory approvals for lowering the conversion price of its zero coupon FCCBs expiring in June and October 2012 respectively to Rs97.2/share. (BL)
± KSK Energy Ventures announced the commencement of power generation from the first unit of 135MW of the four-unit, 540MW coal-fired power project, based in Maharashtra. (BL)
± MindTree announced a partnership with Carlyle Group where it will provide IT infrastructure management and support services for Carlyle's global data centers. (FE)
± Founder of MphasiS plans to set up a housing finance corporation to provide loans to low income home buyers. (ET)
± Shriram EPC bagged orders worth Rs1.3bn. (FE)
± Reliance MediaWorks has expanded its UK operations with the installation of new facilities enabling it to handle processing films for Hollywood, British and European producers shooting in the country. (FE)
± Indian Bank plans to tap the market by September to raise up to Rs10bn to meet its Tier-II capital requirements. (BS)
± Aban Offshore board to meet on May 25 to discuss about raising long-term funds through FCCB, ADR and GDR. (BS)
± BL Kashyap and Sons plans to raise Rs4.5bn through share sale to qualified institutional buyers. (FE)
± Renuka Sugars is renegotiating its Rs15.3bn deal to acquire Brazilian sugar and ethanol maker Equipav. (BS)
± JSW Steel nearly finalises share sale agreement with Japan's JFE, after about six months of discussion. (BS)
± BSNL plans to invest around Rs148bn this financial year and a similar amount for the next financial year as part of its capex plans. (BS)
± Pfizer plans to cut 18% of its workforce, at its 78 manufacturing plants over the next five years. (BS)
± Kumar Mangalam Birla plans to convert preferential warrants into equity in Aditya Birla Nuvo, earlier than the deadline for conversion which ends in December 2010. (ET)
± Bhushan Steel plans to drop prices by Rs2,500-3,000 from June. (BS)
± Jai Balaji Industries is in talks with national and international entities for a technical tie-up or joint venture partnership. (BS)
± Orient Green Power Company an associate company of Shriram EPC has filed a DRHP with SEBI for its proposed IPO. (BS)
± Rain Commodities board approves the transfer of cement business from RCL (holding company) to Rain CII Carbon (India) Limited, a wholly-owned subsidiary. (BS)
± AEGIS is set to acquire a 300-person back-office unit of Virginia-based Sallie Mae. (ET)
± Essar Oilfields Services Ltd, a wholly owned subsidiary of Essar Shipping Ports & Logistics, won its first contract outside India valued at US$40mn from Vietsovpetro JV (VSP), an oil exploration and production company in Vietnam. (FE)
Economic snippets
± The EGoM on telecom, headed by Pranab Mukherjee, which resolved the 3G auction issue, will look into the 2G spectrum price recommendations. (FE)
± In a bid to curb subsidies that threaten to derail the government's ambitious fiscal consolidation agenda, the Centre is likely to let oil PSUs sell diesel and petrol at market prices. (FE)
± An EGoM headed by the finance minister is likely to meet early next month to decide on freeing petrol and diesel prices from government control. (FE)
± Day 32 of the 3G spectrum auctions saw the provisional bid amount for pan-India slot touch Rs165.3bn. (FE)
± SEBI issued a model listing agreement for small and medium enterprises seeking listing on the SME exchange. (FE)
± Mumbai is unlikely to see any significant increase in hotel room rates in the financial year 2010-2011 as hospitality players add more rooms in the market, bridging the gap between demand and supply. (BL)
± Trai to review 2G plan wired in controversy. (ET)
Results table
| Companies | Revenue | % YoY | PAT | % YoY |
| Motherson Sumi | 20,278.9 | 140.5 | 1,418.6 | 84.5 |
| Chennai Petroleum | 54,653.0 | 13.6 | (611.0) | - |
| Hinduja Ventures | 805.6 | 26.1 | 162.7 | 238.3 |
| Bilpower | 1,199.9 | 3.8 | 39.5 | 32.6 |
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