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Friday, January 12, 2007
Market may move northwards
The market is likely to witness upward trend as major Asian gauges like the Nikkei, the Hang Seng index, the Kospi index and the Jakarta index have gained substantially in current trades of over 1% each and US Market also ended with a positive note. The domestic indices also gained by strong volatility on Thursday and saw the index gained during intra-day trades to finally closed above 13600 marks.
US indices on Thursday rallied sharply, with the Dow Jones closing firm above the level at 12500, up 73 points, while the Nasdaq moving up by 26 points to close at 2485.
All Indian floats, also, gained in US market and ended higher. ICICI Bank, MTNL, Satyam and Wipro where the heaver gainers by over 4-5%, while Infosys, Dr Reddy, Tata Motors, HDFC Bank and VSNL were up by 2-3% each. while Rediff & Patni Compuetrs was up around a percent.
In the crude oil front, the Nymex light crude oil for february series declined by $2.14 at $51.88 a barrel. In the commodity segment, the Comex gold for February delivery advanced 50 cents to settle at $613.90 an ounce.
Bullish trend to last if Nifty crosses 3,972
The market recovered impressively on Thursday, primarily due to short covering. According to a technical analyst with a domestic brokerage, the bullish trend will be confirmed only when the Nifty crosses 3,972. It had settled at 3,942.25 on Thursday (11 January), following a 92-point surge.
Heavy FII selling pulled down the market sharply in three trading sessions, from 8 January 2007 to 10 January 2007.
As per provisional data, FIIs were net sellers to the tune of Rs 24.66 crore on 11 January, the day when the Sensex and Nifty had surged 269 points and 92 points, respectively. They were net buyers to the tune of Rs 1003 crore in index-based futures. They were also net buyers to the tune of Rs 70 crore in individual stock futures that day.
FIIs were net sellers to the tune of Rs 1107 crore in the spot market on 10 January, the day when the Sensex lost 204 points.
Asian exporters led Asian shares higher on Friday. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore, and Taiwan were up by between 0.8 - 1.6%.
US stocks mounted a broad advance on Thursday as investors snapped up technology shares such as Microsoft Corp. and optimism about the economy boosted industrial stocks, pushing the Dow to a record close. Dow rose 72.82 points, or 0.59 percent, at 12,514.98. The Standard & Poor's 500 Index was up 8.97 points, or 0.63 percent, at 1,423.82. The Nasdaq Composite Index was up 25.52 points, or 1.04 percent, at 2,484.85, and hit a six-year high.
US crude oil futures slumped almost 4% on Thursday, as prices fell below $52, hitting fresh 19-month lows as fund selling intensified. On the New York Mercantile Exchange, February crude settled down $2.14, or 3.96%, at $51.88 a barrel, the lowest since front-month crude settled at $51.85 on 27 May 2005.
Infosys’ Q3 results announced during trading hours on Thursday, were in line with market expectations. The company’ s operating margins rose on a sequential basis despite a rise in the rupee against the US dollar. But its Q4 guidance was muted.
5 Intra-day Stock Ideas
NIFTY (3942) S 3904 R 3980
BUY REIAGRO (203.25) S 199 T 212, 215
BUY HINDLEVER (217.85) S 213
T 228, 230
BUY NICOLASPIR (250.8) S 246
T 258, 260
SELL UNIONBANK (117.4) @ 119 S122 T 112, 110
SELL KPIT (126.05) @128 S 131
T 120, 118
STRATEGY INPUTS FOR THE DAY
Strong start, only carry what you can
Results are what you expect, and consequences are what you get.
The bulls expected Infosys to take them out of the woods. But it was the bears who actually rescued the bulls, thanks to short covering. The outlook for today looks encouraging with markets in the US and Asia on a strong wicket and oil still trading below $53 per barrel mark. We expect the market to open higher, but things could cool off later ahead of the weekend. Indices will be deceiving in the coming days so again keep a close watch on your own portfolio instead of getting euphoric by the swings.
Despite Infosys ‘failing to positively surprise’ the bulls managed to rebound after a five-day losing sequence. Lower oil prices and firm regional markets partly helped their cause. Majority of the rally was due to short-covering of positions on the derivative side. The Nifty Futures closed at a premium to the Spot Nifty and open interest too declined. Players had built up short positions in the F&O in anticipation of a crack in the Nifty under 3800. But, as the expected correction didn't materialize. The bears then rushed to cover their short positions, in the process lifting the key indices.
The major concern is the selling by FIIs. They were net sellers of Rs246.6mn yesterday notwithstanding the sharp and swift bounce back. In the F&O segment, they pumped in Rs13.21bn. Foreign funds were net sellers of Rs11.07bn on Wednesday and Rs3.68bn on Tuesday.
As we have said before, the market is unlikely to go up too far from these levels given the rich valuations. The only way it can do so is if FIIs start pumping in a lot more than what they are doing at the moment. That may take a while. Everything looks good but it pays to remain cautious despite the bounce back.
The Dow Jones Industrial Average closed at its highest level and the Nasdaq Composite ended at its best level in almost six years.
Oil prices continued to slide, as they have since the start of the year, due to warm US weather and easing supply fears. US light crude oil for February delivery fell $2.14 to settle at $51.88 a barrel on the New York Mercantile Exchange. The contract was quoting 71 cents higher at $52.59 in extended trading in Asia.
Among the Indian ADRs, VSNL advanced 2.3%, Infy rose 3.7%, Wipro surged 5%, Satyam jumped 5.3%, Tata Motors gained 3.9%, Dr. Reddy's was up 2.5%, HDFC Bank put on 2.4%, ICICI Bank climbed 4.8% and MTNL shot up 5.3%.
Most markets in Asia were firm this morning. The Nikkei in Tokyo surged 280 points to 17,118 while the Hang Seng in Hong Kong was up 261 points at 19,647. The Kospi in Seoul surged 19 points to 1384 and the Straits Times in Singapore gained 31 points to 3001.
Results Today: UTI Bank, Ess Dee Aluminium, KEC International, S. Kumars Nationwide, Tata Sponge, Logix Micro, Rallis India, Supreme Industries.
Major Bulk Deals:
Lehman Brothers has picked up Champagne Indage; HDFC MF and Reliance MF have bought JK Industries while Fidelity has sold the stock; Deutsche Securities has purchased Nilkamal while Kotak Mahindra UK and Bear Stearns have sold it; HSBC Financial has bought SKF India while Fidelity has sold it.
Insider Trades:
Surana Telecom Ltd: Shri Narendra Surana, Managing Director has purchased from open market 34071 equity shares of Surana Telecom Ltd from 16th December, 2006 to 9th January, 2007.
Market Volumes:
The turnover on NSE was up by 14.9% to Rs98.55bn. BSE FMCG index was the major gainer and gained by 3.25%. BSE Consumer Durable index (up 2.67%), BSE Technology index (up 2.50%), BSE Auto index (up 1.94%) and Capital Good index (up 1.59%) were among the other major gainers.
Volume Toppers:
IFCI, IDBI, Cairn India, R Com, ITC, TTML, Satyam Computer, SAIL, HLL, Deccan Aviation, Shree Ashtavinayak, Polaris, IDFC, Infosys, MTNL, Gujarat Ambuja, Ashok Leyland, IVRCL Infrastructure and Bajaj Hindusthan.
Upper Circuit Filters:
Flex Industries, GTC Industries, Zandu Pharma, Shyam Telecom, Atlanta, Tulip IT, RPG Transmission, Tanla Solution, Ganesh Housing, Nirlon and Tricom India.
Brokers Recommendations:
Buy Tanla Solutions from Emkay with price target of Rs613.
Long Term Investment:
Infosys
Major News Headlines:
Infosys Q3 profit up 5.8% at Rs9.83bn (QoQ); revenues are up 5.9% sequentially at Rs36.55bn
HDFC Bank Q3 profit at Rs2.95bn (up 31.6%) and total income at Rs21.3bn (up 44%.4)
GEI Hammon gets orders worth Rs292.10mn
Ashok Leyland sets up unit in UAE
Patel Engineering bags Rs1.44bn order
PBA Infrastructure bags contract worth Rs603mn from NHAI
Tech Mahindra to set up software development centre in Hyderabad
Great Offshore Q3 profit at Rs375.4mn, revenues at Rs1.49bn
Hindustan Zinc Q3 profit at Rs13.35bn (up 305%), revenues at Rs25.4 (up 173%)
How Market Fared
Market snaps 5-day losing streak
The markets broke its five-day losing streak today as bulls were back on the bourses with vengeance. The markets rose, despite moderate quarterly earnings by Infosys. Initially the markets had a weak opening, as IT bellwether failed to provide any positive surprise. However, the markets rebounded exhibiting a sharp recovery as all round buying in scrips across the sectors lifted the benchmark BSE Sensex to hit an intra-day high of 13667.80 and NSE Nifty rising over 100 points in intra-day. All the key indices ended in green with heavy weights like HLL, RIL, R Com, Satyam Computer, Bharti Airtel and ACC leading from the front. However, GAIL, Zee Telefilms and HDFC were among the major losers in the Nifty 50. Finally, the BSE benchmark Sensex surged by 268 points to close above the 13600 level at 13630. NSE Nifty advanced 91 points to close at 3942.
Infosys gained momentum towards the end on back of fresh buying, the scrip gained by 0.9% to Rs2183 after the company registered modest 5.8% rise in Q3 at Rs9.83bn versus Rs9.29bn in previous quarter and Revenues for reporting quarter are up 5.9% sequentially at Rs36.55bn. The scrip touched an intra-day high of Rs2214 and a low of Rs2095 and recorded volumes of over 42,00,000 shares on NSE.
IFCI spurred nearly by 30% to Rs20 after the company sold its 7% stake for Rs7.8bn in the NSE to a group of investors led by NYSE Group. The scrip touched an intra-day high of Rs21 and a low of Rs16 and recorded volumes of over 23,00,00,000 shares on NSE.
Ashok Leyland paced ahead by 3.7% to Rs45 after the company announced that they have set up unit in UAE. The scrip touched an intra-day high of Rs46.90 and a low of Rs43 and recorded volumes of over 32,00,000 shares on NSE.
HDFC Bank edged lower 0.3% to Rs996. The Company announced its Q3 result with profit at Rs2.95bn (up 31.6%) and total income at Rs21.3bn (up 44%.4). The scrip touched an intra-day high of Rs1017 and a low of Rs981 and recorded volumes of over 10,00,000 shares on NSE.
FMCG stocks were in the limelight on back of sustained buying. Heavyweight HLL led from front, the scrip advanced 4.4% to Rs218, ITC surged by over 3.5% to Rs169, McDowell advanced 1.8% to Rs813 and Dabur was up 1.5% to Rs152.
Capital Good stocks were on the move. L&T gained 2% to Rs1439, Siemens was up 1.9% to Rs1068, Punj Lloyd surged 2.5% to Rs1019 and BHEL was up 0.35 to Rs2151.
The Aviation stocks were flying higher as crude oil prices fell under $54 per barrel. Air Deccan surged higher by over 7% to Rs155, Jet Airways rallied 7.5% to Rs679 and Spice Jet was up 1.5% to Rs55.
Cement stocks were up on back of value buying. ACC advanced 2.9% to Rs1048, Gujarat Ambuja gained 2.3% to Rs139, Grasim was up 0.5% to Rs2781 and Mangalam Cement added 1.4% to Rs227.
Telecom stocks were also in demand. Heavy weight Bharti Airtel spurred 3.7% to Rs636, R Com surged by over 5% to Rs427 after the Board of Directors of the company approved raising $1bn in overseas bond and MTNL added 3% to Rs160. However, VSNL slipped by 0.3% to Rs420.
Results Today
| an 12 2007 | Aro Granite Industries Ltd |
| Jan 12 2007 | ATV Projects India Ltd |
| Jan 12 2007 | Automotive Axles Ltd |
| Jan 12 2007 | Bharat Fertilizers Industries Ltd |
| Jan 12 2007 | Ess Dee Aluminium Ltd |
| Jan 12 2007 | Jaybharat Textiles & Real Estate Ltd |
| Jan 12 2007 | K E C International Ltd |
| Jan 12 2007 | Logix Microsystems Ltd |
| Jan 12 2007 | Modella Woollens Ltd |
| Jan 12 2007 | Neelamalai Agro Industries Ltd |
| Jan 12 2007 | Rallis India Ltd |
| Jan 12 2007 | Tata Sponge Iron Ltd |
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
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