Market Mantra
Market outlook
No relief in sight yet!
For fast-acting relief try slowing down- Lily Tomlin.
The Indian stock market has slowed substantially after last year's stunning rally. The key indices remain stuck in a range even as the NSE Nifty has made several attempts at breaking free from the rangebound trading pattern. The European debt crisis has only made that task tougher. In fact, there are chances of the market falling further if the situation in Europe doesn't improve fast enough. China's red-hot economy is another cause for worry even as the US continues to exhibit anemic recovery and the UK is struggling with high budget deficit.
Back home, inflation represents the biggest challenge - for the market as well as for the policymakers. All eyes are now on monsoon. Talk of poor start to the rainy season spooked the sentiment on Friday. Hopefully, the IMD's prediction will prove wrong again. Our forecast for today is another weak start following the renewed bloodbath in the US and European markets. Asian markets are in the red this morning. Don't get fooled by any intra-day relief rallies, as risk-reward equation is still not favourable for the bulls.
Trading ideas (Time period: 1-3 days)
Sesa Goa (SELL, CMP Rs375, Target Rs355): The stock has been on a downtrend since its peak of Rs495 witnessed during the second week of April 2010. During past, the stock on repeated occasions found support around 100-day DMA. This week, we saw the stock breaking below its 100-day DMA. The recent decline was accompanied by higher volumes. Friday's decline confirms the breakdown from the multiple support zone. Whenever, the stock breaks one moving average, then the next moving average becomes the next target. So a decline to 200-day DMA is not ruled out in Sesa Goa. In the medium term, every pullback is likely to face resistance around Rs412 (100-day DMA). Traders are advised to short between the levels of Rs370-378 with SL of Rs387 for target of Rs355.
Tata Steel (SELL, CMP Rs548, Target Rs525): On the daily chart, the stock has broken below the sideways consolidation pattern. It presents great opportunity for the traders to jump in on the downtrend. An occurrence of this event indicates further selling and continuation of the downtrend. From the first week of May, the stock was moving sideways within the context of 100-day DMA and 200-day DMA. On Friday, the stock fell below its 200-day DMA. If the stock stays below this important moving average, a significant decline is imminent from the current levels. We don't expect the recent peak (high end of the trading range .i.e 100-day DMA) to be tested in future any time soon. In fact, technical indicators suggest more downside from the current levels. Based on above technical observations, we recommend traders to sell the stock in the range of Rs543-551 with a stop loss of Rs561 for target of Rs525.
Derivative strategies (Time period: Till expiry)
± Short Reliance Ind. May Future below Rs1,035 for the target price of Rs1,010 and stop loss placed at Rs1,048
Lot size: 300
Remarks: Net maximum profit of Rs7,500 and net maximum loss Rs3,900.
± Short Tata Motors May Future @ Rs805 for the target price of Rs785 and stop loss placed at Rs815
Lot size: 850
Remarks: Net maximum profit of Rs17,000 and net maximum loss Rs8,500.
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% | |
Result Update: NALCO (Q4 FY10) – SELL
CMP Rs408, Target Rs322, Downside 21.2%
± NALCO's revenue jumped 14.7% qoq to Rs16.3bn, led by a rise in alumina sales and realisations
± A decline in power and fuel costs coupled with strong realisations led to an OPM expansion of 1,239bps qoq
± Power costs decreased on a qoq basis on account of higher availability of linkage coal
± Power division EBIT jumped 474% qoq due to lower coal costs and Alumina division EBIT jumped 226% qoq on account of higher realisations
± Tax rate during the quarter declined back to normal levels from 44.3% in Q3 FY10
± Maintain SELL with a target price of Rs322/share
Result Update: Reliance Communications (Q4 FY10) – BUY
CMP Rs145, Target Rs180, Upside 24.1%
± Revenues marginally below estimates; broadband pulls down topline with 3.5% qoq decline in sales
± ARPU drop in line but MOU disappoints with 3.6% qoq fall vs. our expectation of 3% increase
± Higher access charges/license fees along with increased SG&A lead to a 229bps fall in OPM
± Better than estimated net interest income pushes PAT much above our expectation
± Expect stability in ARPUs in FY12; lower EPS estimates and TP but maintain BUY
Result Update: State Bank of India (Q4 FY10) – Not Rated
CMP Rs2,223
± Net interest income was up 39% yoy, net profit, however, declined by sharp 32% yoy
± Non-interest income declined 4% yoy; fee income grew at healthy rate (35% yoy). Operating expenses were up 41% yoy; C/Income ratio highest amongst peers
± Loan book grew 17% yoy; home loans, education loans and auto loans remained the key growth drivers (up 30%+ yoy). Deposits, on other hand grew mere 8% yoy; CASA deposits were up 27% yoy
± Asset quality remains the key concern; provision coverage, however, inches to ~60% levels
± Capital adequacy remains healthy, bond issuance in H1 FY11 to boost Tier II capital
Mutual Funds Thermometer as on May 14, 2010
Key observations
± Recent correction in Indian equity market was on account of global jitters among the foreign investors. Due to this, NAVs of most of the equity diversified funds plummeted on a fortnightly basis, with the category average declining by 1%. Out of 191 funds, 39 managed to contain their downside and delivered a positive return. Top fortnight gainers among the category were ING C.U.B (+1.46%), Quantum LT Equity (+1.13%) and Birla SL Buy India (+1.1%). Among the equity diversified category, Smallcap funds witnessed a steeper fall as compared to other funds in the equity-diversified category. Among the major losers, Franklin India High Growth Cos, HSBC Small Cap and L&T Small Cap were down by 4.4%, 4.5% and 5.1% respectively on a fortnightly basis.
± Due to uncertain cues from global markets, the Indian benchmark indices remained volatile throughout the fortnight. Being defensive in nature, both FMCG and pharma-oriented funds delivered positive returns in a market with a bearish bias. Top three gainers under the sectoral category were SBI Magnum Pharma (+2.4%), Reliance Pharma Fund (+1.1%) and SBI Magnum FMCG Fund (+0.9%). NAVs of realty and infrastructure-oriented funds declined the most during the fortnight on account of heavy selling. Reliance Infrastructure-Ret (-3.9%), Tata Grow Economies Infra (-3.7%) and UTI Infrastructure (-3.5%) were the major fortnight losers. JM Telecom Sector Fund's NAV depreciated the most falling 9.5% on a fortnightly basis.
± Balanced funds have been trapped in the volatility of equity markets. Many large corpus funds, on a fortnightly basis, have delivered negative returns. The fall registered by balanced funds with maximum equity exposure was quite higher than 2% fall in its benchmark Crisil Balanced Index. LICMF Balanced (G), Escorts Balanced (G) and Principal Child Benefit-Career Builder were the major fortnight losers, down by 3.5%, 2.8% and 2.2% respectively whereas Crisil Balanced Fund Index was down by 1.4% on a fortnightly basis.
± Bullion's safe haven appeal has increased on uncertainties of rescue package to prevent the Greek debt crisis from spreading among the Euro zone states. During this period, the yellow metal has been steadily trading above Rs18,000 per 10 grams. Mirroring the performance, Gold ETFs delivered better returns on a rolling basis on different time frames. Gold ETFs posted a return of 6.4% on a fortnightly basis against a decline of 1.8% in the S&P CNX Nifty.
Weekly Update: Debt Market - week ended May 14, 2010
± The yield of the 10-year 6.35% G-Sec 2020 further softened during the week. It ended at 7.50% vis-à-vis 7.56%, down 6bps wow. In line with this, 10-year AAA corporate bond yield also ended lower by 4bps at 8.70%.
± On Friday, RBI set a cut-off yield of 7.53% on the 7.80% 2020 bond, higher than expected 7.49%.
± After easing for two consecutive weeks, Food inflation rose marginally to 16.44% yoy for the week ended May 1st 2010. However, WPI dipped marginally to 9.59% in April vis-à-vis 9.9% in March.
± SBI plans to issue retail bond worth Rs2bn to list its insurance subsidiary, SBI Life. The bonds would have a duration of 15 years with a call option for 10-years, or duration of 10-years with a call option for five years. This fund would aid bank's Tier-II capital.
± India's foreign exchange reserves fell US$3.4bn to US$276.2bn as on May 7, 2010. This fall was due to weakening of Euro which resulted in fall in the value of India's non-dollar-denominated reserves.
± The European Union and the International Monetary Fund agreed on an emergency funding facility worth as much as €720bn in loan guarantees and credits to stabilise the eurozone.
Corporate Snippets
± Reliance Industries proposes to set up a joint venture with Russian petrochemical firm SIBUR to make synthetic rubber in India. (BL)
± Videocon Industries will raise Rs22bn through a mix of qualified institutional placement, follow-on issue and preferential allotment. (BL)
± SBI would come out with a retail bond issue of about Rs2bn in the first half of the year. (BS)
± JSW Steel has completed the acquisition of nine coking coal mines in West Virginia in the US. (ET)
± Larsen and Toubro has bagged a contract worth Rs15bn from the National Highways Authority of India. (BL)
± ONGC Mittal Energy has found hydrocarbons in a Nigerian deepwater block. (BL)
± SAIL is mulling setting up a steel project, at an estimated cost of Rs600bn, in Jharkhand. (TOI)
± Tata Motors says its global sales increased by 53% in April to 77,732 units on robust demand from both commercial and passenger vehicles. (TOI)
± M&M is considering bidding for South Korea's Ssangyong Motor in a deal reportedly worth up to US$500mn. (TOI)
± DLF is looking at raising Rs27bn through asset sales in the next 12-18 months. (DNA)
± Coal India is in talks with US-based Massey Energy and Indonesia's Sinar Mas to buy equity in coal mines or form joint ventures for mining. (DNA)
± Larsen & Toubro is planning to set up a US$250mn fund for infrastructure projects in India. (BS)
± Ansal API is looking at raising Rs3bn-4bn via Qualified Institutional Placement route in near future. (BS)
± Tata Motors has decided to abort the multi-million, government-backed car development project in Thailand. (BS)
± Dr Reddy's Laboratories has received US regulator's approval to launch tacrolimus capsules, used to help prevent rejection of kidney and liver transplants. (DNA)
± Usha Martin is giving a big push to its real estate and education verticals. (BS)
± Tata Motors will soon set up an assembly plant in Roslyn near Pretoria in South Africa to cater to the African market. (DNA)
± Alstom Projects India receives an order worth Rs1.2bn from power producer Dans Energy for setting up a hydro power plant in Sikkim. (FE)
± Apollo Hospitals plans to hive off its retail pharmacy business into a separate entity and then rope in a strategic foreign investor or go for an initial share sale. (BS)
± Jindal Steel and Power says it has aborted discussions with UAE-based Al Ghaith Holdings for an estimated US$500mn buyout of its assets in Oman citing many "issues". (FE)
± Strides Arcolab has signed two licensing and supply agreements with Pfizer. (BS)
± IL&FS plans to launch 'long bonds' with maturity period of 25 years. (ET)
± Tata Motors plans to launch a passenger car in Thailand despite pulling out of an eco-car project in the Southeast Asian nation. (ET)
± Hind Copper may get nod for 20% stake sale. (ET)
± Tulip Telecom plans to invest Rs2bn to boost capacity to face potential competition from mobile phone firms which are shifting focus to data from voice as price war erodes profitability. (ET)
± MTNL has cancelled its plan to hand over the management, marketing and running of its 3G networks in Mumbai and Delhi to Virgin Mobile and Spice Group. (ET)
± IDBI Bank has recalled its Rs7.5bn loan advanced to Kingfisher Airlines after the company failed to stick to its repayment schedule. (ET)
± Jay Shree Tea has firmed up plans to launch Rwandan tea in the UK, Germany, Pakistan and Kazakhstan under its own brand name. (ET)
Economic snippets
± The value of the auction for 3G spectrum moves up to Rs154bn. (BL)
± Foreign exchange reserves declined US$3.4bn to US$276bn for the week ending May 7. (BL)
± Inflation rate eases to 9.59% in April. (BL)
± Petroleum ministry is planning a new pricing formula that will delink prices of crude from the production-sharing contracts that gas producers sign with the government. (FE)
± GST likely to cover tax on natural gas. (FE)
± Domestic carriers have registered a 22.1% growth by carrying 16mn passengers during January-April 2010. (FE)
± The Comptroller and Auditor General has recommended an independent agency to monitor toll collection on national highways on alleged leakages. (BS)
± Telecom companies that win the third generation licences are expected to raise more than Rs500bn by way of debt in order to roll out their services. (BS)
Results table
|
| Revenue | % yoy | PAT | % yoy |
| Reliance Infra | 25,531 | 9.1 | 2,510 | (27.5) |
| SBI | 67,214 | 38.8 | 18,666 | (31.9) |
| Reliance Power | 3,881 | 15.9 | 2,732 | 9.8 |
| RNRL | 4,660 | 11.8 | 733 | 4.9 |
| NALCO | 16,260 | 44.5 | 3,915 | 371.6 |
| Videocon Inds | 28,408 | 28.3 | 1,497 | 105.1 |
| DLF | 7,820 | 1,309.0 | 4,110 | 1,276.4 |
| Spice Mobile | 3,390 | 98.7 | 233 | 217.0 |
| Shivvani Oil | 2,711 | 35.5 | 195 | 14.2 |
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