Citigroup - Forecasts - USD, Economic Forecasts, Currency, Interest Rates

Download here

Forecasts

Bullish trend intact

Today’s correction was on expected lines. I would call it a technical, or a pre-budget correction. The market-breadth was quite weak. In the next major correction, the breadth could be even worse.

The market wide open interest in the derivatives segment was about Rs 60000 crore, which is on the higher side. It’s a combination of factors that called for today’s fall.

Though it was the last trading day of the week, I won’t attribute the correction to end of the week profit-booking as there were hardly any stocks which have put on high gains from their beginning of the week prices. The selling was actual selling and not profit-booking. Real estate stocks, which had gone too high on valuations, have been correcting in the past few days.

The correction in mid-caps today was much more severe than the large-caps in today’s trade.

The inflation rate came out higher than anticipated, and was on account of a hike in crude prices. Again, the position of crude supply in global markets is quite comfortable and the rise in prices is on the back of the news of an oilfield shut down in California, US. Again it’s a kind of sentimental impact on the price and not totally justified by economic rationales. The Government will step in and take charge of the situation to bring down local fuel prices.

I feel the bullish trend is intact and the Sensex will not top out before attaining 15,000 – 15,100 levels in the near-term. The Sensex most probably will not breach the 14,000 level on the lower side. I now see PSU stocks catching up with its peers.

Technical charts indicate a 'buy' on Wipro and Oriental Bank of Commerce. We also strongly recommend Automotive Axles and Datamatics Technologies to our clients.

There is a chance of the market opening weak on Monday as well, but the closing will most likely be positive.

- Bharat Gala, Technical Analyst, Ventura Securities


Market bullish in long term perspective

Falls or corrections like today’s are reminiscent of the market behaviour and market functioning. There is never a one way upward or downward movement to any equity/financial market. Today’s fall cannot be attributed to any single reason, say inflation data or in that case any other reason.

The volumes on most mid cap and small cap counters are nowhere near that of the large caps. That is one of the reasons that the mid cap and the small cap segment stocks exhibit more volatility, hitting circuits either way. Today’s severity of the fall being higher in the mid cap segment was a reflection of the same.

Even if the Sensex is to correct by 2000 points in the short term, I am bullish about the market from a 3-5 year perspective. The corporate sector is doing well and so is the economy as a whole.

- Tejas Doshi, Research Analyst, Sushil Finance

Forecast - No hitch for the market till budget

I do not foresee any major correction in the market till the budget. Budget related triggers are yet to pour in, as there is some time to go before the event.

The Sensex has added more than 500 points in the past five sessions. Firm global markets have contributed their bit to the party. Many of them are trading at their all-time high levels. So there were no major correction concern from that facet.

There is a possibility for the market to remain flattish tomorrow, after all the bullishness seen over the past few days. ITC, Reliance Industries and HLL among the Sensex stocks could move up tomorrow considering that they were dull in today’s trading.

- Samir Porecha, Director, Porecha Global Securities

Market looks strong

When the Nifty was trading below 4,100, investors had hedged their long positions in individual stocks by selling Nifty future contracts. Once this level was crossed, Nifty futures were bought by investors who squared off their previous shorts, thus giving an upward push to the Nifty futures and in turn, the cash market as well.

Further indications from the derivatives segment are positive as well. The cost of carry is at a comfortable level; the put-call ratio as per Tuesday’s data stood at 0.8:1. Along with a fresh build-up of long positions on the futures side, we are also observing a contrary short position build-up, thus giving certain stability to the system. When the next correction comes, these shorts will give support, as we will see a portion of them getting squared up.

If the derivatives segment cues are considered, then an upmove seems likely.

- Amit Hiremat, Derivatives Analyst, IDBI Capital Markets Services

Forecast - Lackluster trading may continue tomorrow

Today’s correction was on account of profit-booking and it followed a gain of 425 odd points in the Sensex during the previous three trading sessions. Compared to the surge, the correction was very marginal. This apart, the market also received direction from flat trading across global markets. We are experiencing a dearth of triggers to ascend further. Budget-related triggers are yet to impact trading in a full-fledged manner.

The total volumes of around Rs 45,000 crore in cash and F&O were quite decent.

A lot of investors are seen squaring off their positions, both long and short. That is because the lackluster condition is likely to continue for a couple of more trading days.

Fund-managers and investors world-wide are alarmed on the news that hedge fund, Red Kite, which had substantial investments in copper and zinc, showed a 20% fall in the net asset value of its investment portfolio on account of a fall in metal prices. It is feared that a couple of other hedge funds may be in a similar position as Red Kite and the sentiment itself could ignite a redemption pressure on funds. If funds start liquidating investments to service redemption demand, then a serious correction may be on the cards.

The next support levels for the Nifty are at 4,172 followed by 4,124. On the upper-side, the resistances are at 4,266 and then at 4,310.

- Arun Mewawala, Technical Analyst, K R Choksey Securities

Market Forecasts

'Nifty resistance seen at 4,340'

I do not see the market cooling down until the Nifty touches 4,340. It can be seen as the next resistance level. The F&O segment, too, indicates a further positive run for the market. The Nifty future is trading at a discount of 10 points to the underlying index, and the cost of carry in stocks across the board averages to about 7 - 8%. So I do not see any selling concerns in the derivatives segment.

Being the budget month, volatility cannot be ruled out. There will be sector specific action at times, when the finance minister announces related policies. Telecom and banking stocks should do well. Taking a technical view, most IT stocks are trading around their resistances or at the upper limit permitted by their valuations. There could be some consolidation in this space.

- Ankur Agarwal, Technical Analyst, IDBI Securities

'Telecom, banks seen bullish'

I expect telecom stocks to surge up on the back of speculation, as people try to figure out who would bag the Hutch deal. I am also bullish about banks. The State Bank of India (SBI), IDBI, Indian Overseas Bank (IOB) and Union Bank look good among the lot.

In the light of government making it compulsory for consumers to either opt for the CAS technology, or the DTH technology for television viewing, Wire & Wireless India (WWIL) stock should see appreciation. The Dish TV brand is owned by the company. Its main competitor in the segment, Tata Sky, is not listed on the bourses.

The market should also get a boost if the government does not hike the Securities Transaction Tax (STT) in the forthcoming Union Budget.

Currently, there is this ambiguity about the tax treatment of frequent purchase and sale of a security within a year. Gains from purchasing shares and selling them off within a period of less than 1 year are considered short-term capital gains. But gains out of repetitive purchase and sale of a stock in the same year are often interpreted by tax authorities as business income. And if such gains fall in the category of business income, then the tax rate applicable is 33%. In case of short-term capital gains, the rate is just 10%. If the Government dispels the ambiguity about what gains will qualify as business income and which as short-term gains, or rather puts all such gains in the category of short-term capital gains, then we can expect a marginal rise in the securities transaction tax (STT).

Day traders will benefit the most from any such decision. But there is also a chance of the short-term capital gains tax getting hiked by 200 to 300 basis points from the current 10% if a similar policy is adopted.

Tomorrow the market looks bullish to me. The Nifty has a resistance at 4,250 – 4,260. We can see a correction of 150 - 200 points on the Nifty from those levels.

- John Jose Perin Chery, Research Analyst, Anagram Stock Broking

Forecasts

Bullish trend resumes

We have a target for the Nifty of 4,288 by end-February 2007. Most results have been as per market expectations. Companies in telecom, IT and cement sector have done well. Pharma company results, however, did not live up to expectations. The market moved more or less sideways as most results were already discounted in the prices. I think the market should continue bullish due to anticipation on the back of budget policy. Then there can be a correction of 10 - 12 % from the peak. Till then, the outlook is positive.

- Vineet Birla, Technical analyst, Pranav Securities



The rebound of the market started after the RBI meeting on Wednesday. The US Fed too not raising any fresh alarm about inflationary pressures in the world's largest economy provided more fodder. I think the pre-budget rally has begun. The securities transaction tax (STT) is likely to stay flat in the forthcoming Union Budget. There is some speculation of the Government raising the ceiling for foreign shareholding in the aviation sector. We have been recommending aviation stocks to our customers for some time now. The budget seems to have some positives in store for the auto sector as well.

Technical charts suggest a buy signal for GMR Infrastructure and Hanung Toys. Both have formed a bottom. The volumes on GMR Infrastructure were particularly high today.

For the Nifty, the next target is 4,250 in the near-term.

- Gaurav Modi, Technical Analyst, Pragaya Securities

No major correction expected tomorrow

As we get closer to Jan derivative contracts expiry, the cost of carry is getting lower. Reliance Jan contracts and the cash segment prices were almost at par. Sail Jan futures were trading at a discount.

Last month, the Nifty rollover was around 65 – 70% levels. This month, the figure until yesterday was pegged at 47%. For individual stocks, the rollovers haven’t been too bad until now at 55 – 60% levels. Long positions were not rolled over aggressively.

The implied volatility for Feb futures contracts has come down to around 20 % levels from the 24 - 25% levels seen a few days back.

The Put-Call ratio has corrected to 1.59 as of yesterday.

I am bullish on the market and don’t see a major correction coming in tomorrow in the event of expiry. But if the high premiums continue in individual stocks in the first half of the day, then we may see some correction in the last half an hour of trade tomorrow.

- Zeal Mehta, Derivatives Analyst, Emkay Shares

Pre-budget rally good for booking profits

Without FII buying, the market cannot rise higher. FIIs have been net sellers in this month. They were net sellers last month as well. I expect a Sensex EPS between Rs 675 and Rs 725 in FY 2007. It will go up to Rs 775 - Rs 800 in FY 2008, slowing down earnings growth.

There has been relatively lackluster FII response to the three IPOs, which had opened for subscription on Monday, an indication that the FII appetite is waning.

The market may see a correction after the four-year solid bull run. The correction will be slow but painful.

In the near term, the market may firm up ahead of the budget due to market expectation of tax cuts in the budget. Any rise in the market in the run up to the budget should be used to book profit.

Small-cap and mid-cap stocks look attractive as mutual funds have raised a good amount of money in new fund offers dedicated for small-cap and mid-cap stocks.

The structural and secular long term India growth story remains intact.

- Ajit Sanghvi, director, MSS Securities

2007 Forecasts

IT stocks will do well

I am quite happy with the results of Infosys today. The market was expecting it to out do its earnings guidance. It didn’t happen and so the stock fell during early trade. But one needs to understand that the quarter was a difficult one for the IT sector as a whole in the light of depreciating dollar and there were lesser working days. The company has certainly lived up to the earnings estimates if not out done them. When this seeped in, the stock gained strength later. There has been a decent growth in top line and bottom line. The company bettered its margins on a sequential basis. Product revenues accounted for a higher proportion of the total income and this segment enjoys better margins. On the negative side, the attrition rate has risen. But this is something that the sector will have to live with. Not much can be done about it the way not much can be done about the rising rupee. Companies in the sector that handle this problem better will command better valuations. Companies like Infosys handle it better and so they command their valuations. If I am to advice someone to invest in the sector, I would recommend large caps. Though Infosys and Satyam are my favourites, TCS and Wipro wouldn’t be bad choices. Mid caps in the sector are having comparatively cheaper valuations but they come at the cost of higher perceived risk.

I am bullish about the sector’s prospects and see no major concern for the coming one year.

- Harit Shah, IT and Telecom sector Analyst, Angel Broking

Bullish trend yet to be confirmed

The markets recovered impressively today but I would still be cautious. Today’s rise was primarily on short covering and only partly on fresh new long positions. For a confirmation of the bullish uptrend having resumed, there need to be more new long positions being taken and the Nifty should cross 3972. The volumes were good today.

Before taking a stance, I would prefer to see how tomorrow’s session pans out. The markets are volatile and the result season is on. We might see “sell on news” trades with companies coming out with good results and these might have a negative pressure on the markets. The results to watch out for are Reliance Industries, ONGC, TCS and Wipro. They would have a say in the market’s further direction.

- Vineet Birla, Technical Analyst, Pranav Securities

Volatility to remain for few more days

In today’s trade, the Nifty found support at 3900. Traders were seen covering their short positions around this level. The negative cost of carry narrowed down to just about 3 points on the Nifty January futures. Apart from short covering, there were some fresh long positions being taken as well.

Among individual stock futures, MTNL is looking very strong. It saw a 90% roll over of positions to this month and we’ve been recommending it from Rs.140. ICICI Bank has held well in the past 2 days of correction and one can expect some good upside to it.

The implied volatility has been 26% and we advice investors to be cautious. The volatility is expected to continue for few more sessions.

- Zeal Mehta, Derivatives Analyst, Emkay Stock Broking

Nifty has strong support at 3,900

The FII taxation issue played a dampener today. The day traders took up this opportunity and added to the panic by taking short positions. However, the strong support for the Nifty at 3900 still holds its place. We saw the markets recover partially at the fag end of the trading session. That was on account of day traders covering up their short positions. The Nifty closed at 3911, which is above its support of 3,900. Infosys’ quarterly results on Thursday would be taken symbolic for the sector and will determine the direction of the stocks in the sector. The mid caps rally was not much hampered inspite of the large cap correction today.

Cairn India listed below its issue price today. I don’t see anything wrong with the company’s fundamentals. I rather feel that it’s a good buy if one can hold the stock for a longer term. The company’s output is expected to grow five fold by 2010. Fund managers and institutional investors accumulated the stock at lower levels citing value in the stock for long-term investment.

For the markets as a whole, I don’t see any interruption of the broader bullish trend until Feb 15- Feb 20.

- Rajeev Nainani, Relationship Manager, Anagram Stock Broking

2007 would be a year of small-caps and mid-caps

I feel the markets would trade flat for a couple of trading sessions. The Sensex is trading at a really high valuation of 23 – 24 times trailing twelve months earnings. The commensurate number, if one were to take estimated FY 2007 earnings, would be 18 to 19 times. Even this is quite on the higher side compared to the earnings multiple of other emerging markets. I would say the year 2007 would be the year for mid caps and small caps. But when I say that, one should be extremely selective when picking up stocks in these segments. I see some IT mid caps making for good buys at their current price levels and valuations.

Cement and metal stocks have seen technical correction in the past couple of sessions. Cement stocks would certainly strike back considering that the Q3 results that are to come out would be exceptionally good. There was a 2% appreciation in cement prices during the quarter gone by and this would be reflected in their quarterly numbers. A further Rs.3 to Rs.5 hike in cement prices is expected. There is no doubt that cement would continue to do well. I however wouldn’t hold the same for metal stocks. There has been a sharp correction in individual metal prices, say zinc, copper, lead etc. Copper for instance is trading at 8 month low. The sector I feel will take some time to recover.

I would suggest that investors be very selective in stock picking. We would see substantial growth now only in 8 to 10 percent of the companies listed on the bourses. The growth otherwise across the board would be nominal and in line of standard market returns.

- Nehal Shah, Research Analyst, Ventura Securities

Sensex may gain about 800 points

A build up of long positions is likely on expectations of favourable policy announcements in the budget. We can expect the Sensex to put on around 800 more points before the budget. There however would be some pressure on the bourses post budget on account of profit booking and squaring of long positions by investors. There has been some strain on the operating margins of auto companies due to higher metal prices but a likely excise relief to the sector might compensate this. Mahindra and Mahindra looks good on technicals and should cross the Rs.1000 mark in a couple of sessions. Indian Hotels is another stock that’s looking really good.

Prior budget, we can see a Rs.60 to 70 appreciation in Blue Star and a round about Rs.100 appreciation in Tata Elxsi. There are also talks in the market about Anil Ambani buying a stake in Satyam from group chairman Ramlinga Raju. The stock’s already shot up quite a bit and it would notch up further gains if something actually materializes on this front.