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Tuesday, January 02, 2007

STRATEGY INPUTS FOR THE DAY


New year, old story

The undertaking of a new action brings new strength.

The party time is over. Don't worry, we are (hopefully) not talking about the bull run on the bourses but the new year revelry. New action and new strength will revolve around the quarterly numbers initially and later the budget. Equities had yet another good year in 2006 with the Sensex clocking a 47% gain despite the crash in May and June. But, that is behind us now and it's time to take a fresh guard for the year ahead. The long-term outlook is upbeat, given the strong growth momentum in the Indian economy. Take a fresh look at your portfolio. A lot of stocks, especially the large caps are looking fairly or even overvalued in some cases. At the same time, outside the frontline basket, there are plenty of opportunities available for long-term investing. Carefully cherry pick these stocks.

In the near term, the trend of the market will be determined by quarterly results. IT companies will be in focus for the next few days, as they will be among the first ones to announce their Oct-Dec quarter earnings. The first half of the current fiscal year has been pretty good, in fact much better than expected. It remains to be seen if India Inc manages to maintain the tempo in the rest half of the year. On the whole, the results are expected to be good, but one should always dig deep to look for trends ahead. Don’t be surprised by negative surprises here and there.

The next big hyped up event, which may later turn a non-event, would be the budget. Market will keep an eye on sector-specific tax sops. One will also have to see how the Government manages its finances. The buoyancy in corporate earnings and the strong economy has led to a fast-clip growth in tax revenues for the Government. As a result, there may well be a positive surprise on the fiscal deficit front. But, whether the Government manages to maintain the same momentum next year is anybody's guess.

Quite a few markets around the world may still be shut for new year holiday. So, there isn't much in the form of global cues. We expect a cautious opening after last week's rally. Most players would prefer to stay on the sidelines before the first batch of results kick in. Also, one will have to watch out for the trend in overseas inflows. Last year, FII inflows were less than 2004. How much allocation foreign funds would give to India will be known over the next few days. Generally, activity picks up only after the budget. Some see 17k on the Sensex by the end of the year while others are more conservative and expect the benchmark BSE index to be at point 15k. Concentrate on stocks in your portfolio rather than get carried way by the daily movement in the indices.

Auto and cement shares will remain in the limelight as they declare their monthly sales figures. Maruti is likely to gain as it has reported strong growth in volume last month. In two-wheeler category, Bajaj Auto has posted good numbers while Hero Honda and TVS have disappointed. IFCI is likely to be in the thick of things with a financial newspaper reporting that the troubled state-run FI may get a strategic investor soon. Stocks like SAIL, ACC, Gujarat Ambuja, BILT and JK Paper may get hit as the Government is considering scrapping the subsidised supply of coal to companies in steel, cement and paper sectors. Century Textiles, Vardhman Industries and Gulf Oil could attract some attention due to their reported foray into real estate business.

FIIs were net sellers to the tune of Rs69.4mn in the cash segment on Friday. In the F&O segment, they were net buyers at Rs357.3mn.

Major Bulk Deals:

Reliance MF has picked up Bosch Chassis Systems India; Deutsche Securities has bought Crew BOS while Blackstone Asia has sold the stock; Merrill Lynch has purchased Diana Tea Company; Morgan Stanley has bought JB Chemicals; Gujarat Fluorochemicals has sold Mount Everest Mineral Water; Bank of New York has sold Nissan Copper; Merrill Lynch has purchased Selan Exploration; UBS Securities has picked up Shah Allows.

US stocks fell on Friday, but all the three major indexes posted stronger than expected gains for the year. All three of them clocked the best annual gain since 2003. US stocks rose more than expected in 2006 after the Federal Reserve halted two years of monetary tightening and crude prices fell 22% from a July record. The S&P 500 gained 14%, the Dow rose 16%, and the Nasdaq increased 9.5%. Today, US markets will remain shut as a mark of respect for former President Gerald R. Ford. For the week, the S&P 500 gained 0.5% and the Dow added 1%. The Nasdaq added 0.6%.

European stocks closed lower on Friday. The pan-European Dow Jones Stoxx 600 lost 0.3% to 365.26. In London, the FTSE 100 closed 0.3% lower at 6,220.80. The German DAX Xetra 30 slipped 0.2% to 6,596.92. Not all national markets were lower, however, with the French CAC 40 gaining 0.2% to 5,541.76.

Insider Trades:
Aurionpro Solutions Limited: Mr. Sandeep Daga, Director has sold in open market 9695 equity shares of Aurionpro Solutions Limited on 26th December, 2006.

Gujarat Ambuja Cement Ltd: Shri P B Kulkarni (Director) has sold in open market 12000 equity shares of Gujarat Ambuja Cement Ltd on 27th December, 28th December and 29th December 2006.

Market Volumes:
The turnover on NSE was down by 31% to Rs75.56bn. BSE FMCG index was the major loser and lost 0.94%. BSE Oil & Gas index (down 0.44%) and BSE Technology index (down 0.28%) were among the other major losers. However, BSE Consumer Durable index gained 2.34%.

Volume Toppers:
Nissan Copper, IFCI, SAIL, Indiabulls, XL Telecom, HLL, Parsvnath, GTL, HCC, Polaris, Essar Oil, Triveni Engineering, NTPC, Mphasis BFL, India Cements, IVRCL Infrastructure and Nagarjuna Construction.

Delivery Delight:
ABB, APIL, ACC, Bajaj Hindustan, Bata India, BEML, Bombay Dyeing, Canara Bank, Crompton Greaves, Gateway Distriparks, Mahindra Gesco, Nagarjuna Construction, NIIT Tech, Polaris, Praj Industries, Prism Cement, SAIL, Strides Arcolab, Thermax, Titan Industries and TV Today.

Upper Circuit Filters:
Ramco System, Texmaco Ltd, Atlanta, Educomp Solutions, Anant Raj Industries, IOL Broadband, Ganesh Housing and Nirlon.

Brokers Recommendations:
SAIL - Buy from Man Financial with a target price of Rs124

Long Term Investment:
L&T

Major News Headlines:
Hindustan Zinc cuts prices by Rs3200 to Rs2,21,500
Aurobindo Pharma acquires Pharmacin International in Netherlands
SBI plans to raise Rs20bn by March
State Bank of Mysore raises PLR to 12% from 11.5%
Unichem gets nod to sell generic Mobic in US