Market Mantra
Market outlook
Chasing different things!
Realize what you really want. It stops you from chasing butterflies and puts you to work digging gold. - William Marston
The bulls seem to have given up their chase for some time. The key indices are struggling to build on recent gains. The NSE Nifty has not been able to pierce 5500. With two days to go for the F&O expiry, it looks like the market might consolidate further in a tight range, unless we are blessed with a global rally.
The start is likely to be a silent one. Wall Street ended on a flat note. Asian markets are largely subdued while European markets managed some gains. Things may turn choppy later on due to the derivative settlement.
We are all chasing the monsoon, says the RBI governor. Indeed, we are, as improved rainfall could have a cascading effect on overall growth. More importantly, enhanced farm output could soften the blow that we are taking in the form of double-digit inflation. So far, the weather Gods have been kind enough. Another couple of months are still left in the monsoon season. Hopefully there won't be any major hiccups on this front going ahead.
Trading ideas (Time period: 1-3 days)
United Phosphorous (BUY, above Rs187, Target Rs196): On the daily chart, the stock has formed a rounding bottom pattern. The base for the same is around Rs172-173 levels. Since the first week of July 2010, the stock has been moving in a range of Rs186-172. On Tuesday, the stock made an engulfing line, suggesting a possible reversal. In our view, the stock has formed a medium term bottom and the pullback which begun from Rs172 levels is likely to take the stock up to Rs196. The daily RSI is exhibiting positive divergences. Based on the above-mentioned evidences, we recommend traders with high risk appetite to buy the stock above Rs187 for an initial target of Rs196. A stop loss of Rs183 is recommended on all long positions.
Sun Pharmaceuticals (BUY, above Rs1,785, Target Rs1,835): Sun Pharmaceuticals has bounced back strongly after testing its 100-DMA near its falling resistance line. The falling resistance line also correspond to short term breakout levels at Rs1,785, above which stock might attempt to test its all time high of Rs1,853. Postive crossover in RSI also support buying argument after breakout is confirmed on price chart. Also golden cross at short term moving averages at levels of Rs1,748 is likely to grant strength in counter by acting as key reversal support. We advise buying the stock above Rs1,785 with stop loss of Rs1,762 for target of Rs1,835.
Derivative strategies (Time period: Till expiry)
± Long Orbit Corporation Aug Future in range of Rs134.50-135 for the target price of Rs144.50 with a stop loss placed at Rs129.50.
Lot size: 2000
Remarks: Net maximum profit of Rs20,000 and net maximum loss of Rs10,000.
± Long ABB Aug Future in range of Rs802.50-803.50 for the target price of Rs822.50 and stop loss placed at Rs792.50.
Lot size: 250
Remarks: Net maximum profit of Rs5,000 and net maximum loss of Rs2,500.
Mutual funds
| Fund focus | |||||||
| HDFC Top 200 Fund | Invest | ||||||
| Fund manager | Prashant Jain |
| Min investment | Rs5,000 | |||
| Latest NAV | Rs199.1 |
| Entry load | Nil | |||
| NAV 52 high/low | Rs200/135 |
| Exit load | 1% <1 yr | |||
| Latest AUM | Rs8,020cr |
| Latest dividend (under dividend option) | 40% (Mar 12, 2010) | |||
| Type | Open-ended |
| Benchmark | BSE200 | |||
| Class | Equity – diversified |
| Asset allocation | Equity (97%), Debt (0%), Cash (3%) | |||
| Options | Growth & dividend |
| Expense ratio | 1.8% | |||
Result Update: Reliance Industries (Q1 FY11) – Market Performer
CMP Rs1,054, Target Rs1,139, Upside 8.1%
± Revenues at Rs582bn, higher by 81.7% yoy and 1.1% qoq; much in line with our estimates
± OPM falls 243bps yoy driven by fall in petrochemical EBIT margins yoy
± PAT at Rs48.5bn v/s our estimate of Rs49bn
± Gas production from KG-D6 field continues to be at 60mmscmd; management guidance as reported by media for not being able to sustain production higher than current levels a cause of concern
± We maintain our Market Performer rating as key business segments of refining and petrochemicals will continue to see muted environment
Result Update: Cairn India (Q1 FY11) – Market Performer
CMP Rs331, Target Rs327, Downside 1.2%
± Net sales jump 310% on rising crude oil production from Rajasthan field, but sales lower than estimates
± Realization for Rajasthan crude continues to be at10-15% discount to Brent much in line with company's guidance
± OPM jumps 1,252bps yoy on account of benefits of operating leverage
± Net profit much lower than estimates on account of depreciation and interest pertaining to pipeline, which commenced operations in June 2010
± Downgrade to Market Performer on back of a sharp run-up in stock price
IPO Note: SKS Microfinance Ltd – Subscribe
Price band Rs850-985
SKS Microfinance (SKSMF) is the largest microfinance company in India with loan portfolio of ~US$1bn, 2,000+ branches spread across 19 states and 6.8mn members. Its strengths include pan-India presence, scalable operating model, diversified product revenues and access to various sources of capital. Lending primarily to poor women, the business model involves village centered group lending, thereby ensuring a check on asset quality. The huge demand-supply credit gap and inability of banks to penetrate into unbanked areas have driven the growth of microfinance industry. While valuations appear expen sive, the scalable business mode , market leadership position and high earnings growth provide comfort. Recommend Subscribe.
Corporate Snippets
± RIL has bought out the loss making plant of Bombay Dyeing at just under Rs3bn. (ET)
± The Government has approved RIL's proposal to drill two more wells as a part of D1 and D3 field development plan. (ET)
± JSW Steel has proposed to raise at least Rs57bn from Japan's second largest steel maker, JFE Holdings, to give the latter a 14.99% stake in the company. (BS)
± The empowered group of ministers (EGoM) on the Krishna-Godavari basin, scheduled to meet tomorrow, may consider swapping the supply of 3mmscmd KG gas to customers in the Uran region (Gujarat) with ONGC's C-series gas. (BS)
± ONGC and PetroVietnam will jointly bid for BP's assets in Vietnam. (BS)
± The government may give additional time to Cairn India for exploring more oil and gas in its Rajasthan oilfield provided the company agrees to pay levies in proportion to its stake in energy assets. (ET)
± The government has forfeited a service tax claim of over Rs22bn on Power Grid Corporation. (ET)
± M&M has launched the Yuvraj 215, the country's first 15hp tractor targeting the small and marginal farmer with an average landholding of two to five acres of land. (BS)
± DLF is likely to bring in a strategic Indian investor in DLF Pramerica Life Insurance. (ET)
± Ashok Leyland plans to import tyres to ease supply crunch. (BL)
± Volvo-Eicher Commercial Vehicles (VECV), an equal joint venture between Swedish firm Volvo AB and Eicher Motors, has said that it is looking to leverage Volvo's network in emerging and India-like markets to sell Eicher branded products. (BL)
± Mahindra Holidays & Resorts Ltd is planning to foray into the budget resorts category by investing around Rs2.5bn in increasing its inventory by around 500 rooms. (BS)
± Future Group's Kishore Biyani has joined the race to take over the assets of cash-strapped Vishal Retail Ltd. (BS)
± SpiceJet plans to order 30 Boeing aircraft for US$2.7bn, which will be delivered between 2014 and 2018. (BS)
± Opto Circuits has fully acquired US-based Unetixs Vascular Inc for a cash consideration of around US$9.7mn. (BL)
± Century Textiles and Industries received shareholders permission to re-enter shipping business. (ET)
± Kingfisher Airlines has sought a two-year moratorium on all its loan repayments. The airline has also decided to convert Rs4bn worth unsecured loans and preference capital from the UB group into equity during this financial year. (FE)
Economic snippets
± RBI revised it's GDP forecast for India from 8% to 8.5%. (BS)
± In its first quarterly monetary policy review for FY11, RBI lifted the repo rate by 25bps to 5.75%, and the reverse repo rate by 50bps to 4.5%. (BS)
± The RBI discussion paper on banking licences is expected to refrain from taking a firm view on the possibility of permitting industrial houses and corporates to float banks. (FE)
± India has signed five agreements with Myanmar to invest in sectors such as agriculture, live stock development, fisheries, mining, construction, engineering and power generation in that country. (FE)
± The government is likely to ask all departmental enterprises and agencies, such as the National Highways Authority of India (NHAI), to dispense with the system of tender-based appointment of internal auditors. (BS)
± The Government has said that GSM operators owe Rs 4.5bn in the form of outstanding payments and charges towards spectrum and licence fees as on March 31, 2010. (BL)
± Oil companies will pay an interim price of Rs 27 per litre for ethanol, which they will buy from the sugar mills for doping in petrol. (FE)
Results table
| Rs mn | Revenue | % yoy | PAT | % yoy |
| RIL | 582,280 | 81.7 | 48,510 | 33.4 |
| Essar Oil | 105,310 | 55.5 | (700) | - |
| L&T | 78,351 | 6.4 | 6,662 | 468.2 |
| JSW Steel | 48,180 | 20.7 | 2,954 | 26.2 |
| Hindustan Unilever | 47,939 | 7.1 | 5,332 | (1.8) |
| Ashok Leyland | 23,480 | 157.3 | 1,226 | 1,472.3 |
| Union Bank of India | 13,480 | (3.4) | 6,014 | 1.3 |
| Cadila Health care | 10,551 | 19.9 | 1,992 | 54.7 |
| Godrej Industries | 9,624 | 26.1 | 487 | 197.2 |
| Cairn India | 8,406 | 310.1 | 2,814 | 519.3 |
| CEAT | 7,722 | 14.6 | 139 | (77.0) |
| Glenmark Pharma | 6,819 | 25.4 | 1,555 | 190.7 |
| Usha Martin | 6,732 | 10.6 | 419 | 30.7 |
| 3i Infotech | 6,370 | 6.6 | 612 | (53.3) |
| GTL | 6,170 | 25.7 | 351 | (40.4) |
| IRB | 5,120 | 23.6 | 1,175 | 44.2 |
| Radico Khaitan | 2,385 | 23.6 | 161 | 50.0 |
| Orbit Corp | 1,195 | 8.3 | 202 | 12.2 |
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