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Monday, March 12, 2007
Intra-day Stock Ideas
NIFTY (3718) SUP 3981 RES 3756
BUY ERACONS (335.75)
SL 330 T 344, 346
BUY CAIRN (122.85)
SL 119 T 129, 131
SELL BIRLAJUTE (206.5)
@ 211 SL 216 T 201, 199
SELL AMTEKINDIA (148)
@ 152 SL 156 T 143, 141
SELL BHARATFOGE (303)
@ 307 SL 311 T 297, 295
STRATEGY INPUTS FOR THE DAY
Learn from past week
Your best teacher is your last mistake.
A positive opening may make us forget the volatility last week. And the next time we remember it may be when the same thing happens again, which could take place this week. Though the bulls managed a bounce back last week, we are not out of the woods yet as there are plenty of worries encircling the market. Brace yourself for some more pain in the near term before the market regains its winning ways. Any rally should be used as an exit route for the short term. One can re-enter at much more attractive levels. Only those with deep pockets, lots of patience and steely nerves to ignore the daily swings should stay invested for long term benefits.
Things have changed pretty swiftly though the warning signs have been there for quite some time. Global liquidity, which was powering the equity markets across the world for the past 2-3 years, has suddenly taken an ugly turn down. The so-called "yen carry trade" is slowly unwinding, throwing emerging as well as developed markets, out of gear. There are also worries about the health of the US economy, especially the fragile housing sector.
Locally, interest rates have shot up in a fairly short span of time, as inflation has crossed the uncomfortable 6% mark. As a result, we have a panicky Government and central bank trying to get themselves, out of the hole they apparently dug, by letting the money loose for far too long. The market hasn't taken the revival of Government intervention too kindly. What's worse, we aren't not finished yet as there will be more such developments in future.
The dangerous combination of local and global elements won't let the market settle for a while. Interest rates are expected to go up further. Inflation may take time to cool off. The Government will continue with its "market unfriendly" steps to reign in prices. FIIs are pulling money out of the emerging markets. In the first week of March they offloaded close to $9bn from emerging market funds. The trend has to reverse for the resurgence of the global equity markets.
If you think we are cautioning some Monday morning blues, be rest assured the opening looks set for some positive mood. We expect a higher opening thanks to firm Asian markets. Japan is leading the regional markets higher after the world's second-largest economy grew at the fastest pace in three years. Friday's better than expected jobs report in the US has also soothed some concerns about the state of the world's largest economy. Still, one should not get carried away as in the short term, there are more chances of the market falling below these levels than rising with confidence.
FIIs were net buyers of Rs4.12bn (provisional) in the cash segment on Friday when the Sensex fell by over 160 points. In the F&O segment they offloaded stocks worth Rs2.98bn. On Thursday, foreign funds pumped in Rs1.16bn in the cash segment. On the other hand, Mutual Funds were net sellers at Rs397.6mn.
Reliance will surely attract a lot of attention following the approval of the IPCL merger. The swap ratio of 1 share of Reliance for 5 shares of IPCL is in line with expectations. Both the companies have also announced big dividends. Reliance is also in the news for a possible mega global acquisition.
IFCI may continue to hog the limelight as local debt rating agency ICRA is to formally launch its IPO today. Northgate Technology is likely to gain as the RBI has hiked the investment limit for FIIs up to 49%. Bharti Airtel could advance as the company plans to invest $8bn by 2010 on expansion.
The Dow Jones Industrial Average gained 0.1% on Friday, rounding out a 1.3% advance for the week. It was up 15.62 points to 12,276.32. The broader S&P 500 was flat at 1,402.85, while the tech-heavy Nasdaq too finished nearly unchanged at 2,387.55.
A government report showed that the US jobless rate fell to 4.5% last month, approaching a five-year low, from January's 4.6%. US companies added 97,000 jobs, while average weekly earnings rose.
A separate government report showed the trade deficit narrowed in January. Data two weeks ago on new home sales and durable-goods orders had fueled concerns growth in the world's largest economy is slowing.
The string of economic readings sent Treasury prices tumbling, as bond investors lowered expectations for the Fed to cut interest rates anytime soon. The decline raised the yield on the 10-year note to 4.58 percent from 4.51 percent late on Thursday.
In currency trading, the dollar rallied versus the yen and the euro. COMEX gold for April delivery fell $3.50 to $652 an ounce.
US light crude oil for April delivery fell $1.59 to settle at $60.05 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 68 cents lower at $59.37 a barrel in extended trading in Asia.
Most Asian markets, barring China are trading higher this morning. The Nikkei is up 135 points at 17,299 while the Hang Seng in Hong Kong rose 140 points to 19,275 and the Kospi in Seoul added 15 points to 1439. The Straits Times in Singapore gained 26 points at 3170.
The Morgan Stanley Capital International Asia-Pacific Index gained 0.7% to 143.61 at 11:09 a.m. in Tokyo.
Japanese exporters rose after the yen weakened 1% to 118.32 against the dollar in New York on Friday, its biggest drop since July 12. Against the euro, the yen lost 0.8 percent to 155.18. Japan's currency recently changed hands at 118.24 a dollar and 155.01 per euro.
All the emerging markets ended sharply higher on Friday. The Bovespa in Brazil was up 1.5% to 44,133 while the IPC index in Mexico advanced 1.2% to 27,106 and the RTS index in Russia surged 2.35% to 1808.
Market Watch & Insider Trades
Insider Trades:
ACC Limited: Life Insurance Corporation of India has purchased from open market 5614744 equity shares of ACC Limited on 5th March, 2007.
Market Volumes:
The turnover on NSE was 17% to Rs96.41bn. BSE FMCG index was the major loser and lost 1.64%. BSE Capital Good index (down 1.47%), BSE Auto index (down 1.31%) and BSE Technology index (down 1.18%) were among the major losers.
Volume Toppers:
Idea Cellular, IFCI, SAIL, India Cement, ITC, TTML, Century Textile, R Com, Tata Steel, ACC, IVRCL Infrastructure, NTPC, Ashok Leyland, DCB, HCC and Aptech.
Lower Circuits:
Shree Cement, Manglam Cement, Shah Alloys, Atlanta, Tanla, Shree Ashtavinyak, Autoline Industries, Anant Raj Industries and Ganesh Housing.
Delivery Delight:
Alfa-Laval, Asian Electronics, BEML, Blue Star, City Union Bank, Colgate, Educomp Solutions, Gammon India, Gitanjali Gems, GVK Power, Max India, NTPC, NIIT LTD, Nicholas Piramal, Sadbhav Engineering, Sun Pharma, Thermax and Welspun Gujarat.
Long Term investment:
BHEL
Major News Headlines:
Inflation at 6.1% for week ended Feb 24 vs 6.05%
Colgate to pay Rs3.25 per share interim dividend
Aurobindo Pharma receives USFDA approval for Didanosine Oral Suspension
Astrazeneca Pharma Board to consider interim dividend
Patel Engineering declares Interim Dividend at 130%
Bihar Tubes hikes prices of all its products by 4% to 5%
Alfa Transformers to start unit in Nasik
From the Research Desk - Nagarjuna Constructions
Nagarjuna Construction Company Ltd (NCC)
Nagarjuna Construction Company Ltd (NCC) to benefit from the high investment in road and water verticals, expected to together account for 35.6% of revenues in FY07 and 19.5% in FY08. The current order book is healthy, given NCC’s average execution period of 27 months. With order intake during FY06 at 2x turnover, NCC is set for high growth in the next two years, with an expected topline increase of 54.5% and 43.5% during FY07 and FY08 respectively.
NCC was one of the early entrants into the BOT space and enjoys a good mix with two annuity road projects, two toll based ones and two projects in the power vertical. The company plans to bid for new BOTs on its own having raised
the finances. At the book value of NCC’s equity, these six projects translate into Rs15.8 per share of NCC, which is 9% of the CMP.
NCC will sell 88% of the 50 acres land, in lieu of 12% of the developed area to be given to the government, post the National Games 2007. NCC also has 89% equity stake in the AP Housing project for development of 85 acres. We value these two projects at Rs9.1 per share of NCC at 2x book value of equity infused, comprising 5.2% of the CMP.
We also assign a value of Rs10.9 per share to the 130 acres land bank, over and above the two projects above, with a current market value of Rs3bn, post a 25% haircut. We foresee enormous value unlocking on the development and sale of these properties in future.
HOW MARKET FARED
Volatility likely to continue
Markets again fell under the grip of bears as volatility, selling pressure, higher than expected Inflation figures and freezing of Cement prices for one year dragged benchmark index to hit a low of 12788.16. Both the key indices yet again witnessed wild gyrations during the trading session with benchmark Sensex swinging over 350 points and NSE Nifty over 100 points. All the sectoral indices except for the BSE Small Cap and the Consumer Durable index ended in red, with BSE FMCG index being the top loser losing 1.64%. Finally, the 30-share benchmark Sensex slipped 164 points to close at 12884. NSE Nifty dropped 43 points to close at 3718.
Idea Cellular opened at Rs92.40 on the BSE as against the issue price of Rs74. The scrip surged by 14% to Rs85 after hitting an intra-day high of Rs92 and a low of Rs85 and recorded volume of over 17,00,00,000 shares on NSE. The Aditya Birla Group Company fixed the issue price at Rs75 per share. The company entered capital market with an IPO of Rs21.25bn. The issue was subscribed 49.51 times.
Nalco edged higher by 0.4% to Rs227 after the company announced that they would pay Rs1.5 per share in interim Dividend. The scrip touched an intra-day high of Rs230 and a low of Rs222 and recorded volumes of over 1,00,000 shares on NSE.
Patel Engineering edged lower 0.7% to Rs326. The company declared Interim Dividend at 130%. The scrip touched an intra-day high of Rs338 and a low of R322 and recorded volumes of over 28,000 shares on NSE.
Cement stocks were again badly beaten up after cement companies agreed not to raise prices for a year despite higher input prices. ACC declined 6.7% to Rs777, Grasim lost 7.5% to Rs2063, Manglam Cement was locked at 5% lower circuit to Rs150.20, Ultra tech Cement dropped 5.6% to Rs771 and India Cement lost 8.6% to Rs153.
Pharma stocks were in bad health. Cipla lost 3.1% to Rs229, Ranbaxy declined 0.7% to Rs326, Wockhardt lost 1.7% to Rs370 and Cadila shed lower by 0.5% to Rs310.
FMCG stocks also were on the receiving end. Heavy weight ITC declined by over 3.5% to Rs154, Dabur was down 2.1% to Rs89, Britannia edged lower by 0.4% to Rs1234 and HLL was marginally down by 0.25 to Rs183.
Ashish Chugh - Hidden Gems
Chugh is a chor to Many people. Please keep that in mind before reading his views
March 12, 2007
Market View
Though March- early April look to be a good month to BUY; a further short term correction from these levels is not totally ruled out.
The markets have been badly battered in the last one to two months - it has been a across the board fall - be it large, mid or small caps -infact small and mid caps have been the worst hit with many of them loosing 30-50% of their values.
We feel the markets will consolidate over the next few days with increased volatility. The short term bias of the markets looks negative. With fear and uncertainty engulfing minds of investors & March being a month for tax planning and a time when brokerages try to reduce leverage to clients, a further drop from the current levels is not totally ruled out. However, the drop will provide an opportunity to accumulate.
What could trigger a rise :-
¬ Corporate Result Announcements - Announcement of good numbers from corporates and guidance would be a key for lifting the sentiment.
¬ The second and the more important trigger would be indications from the government regarding reigning in inflation & indications on end to high interest rate regime by announcement of appropriate monetary policies. Even a small drop of 25 basis points in interest rates would have a huge positive impact on the market sentiment, since it would signal an end to the uncertainty regarding a continuing high interest rate scenario.
¬ Global Liquidity/ Global Markets- We had seen a selloff in the Indian markets as a part of selloff in markets globally. Improvement in global sentiment would be a trigger for the Indian markets.
What to Do ?
The month of March looks like a good month to make investment and I am sure you will not regret if you look back after a few months - however there could be some more short term pain. Investors can therefore choose to stagger their purchases buying on dips/ on bad days. A short term correction from these levels looks likely and we believe a worst case short term scenario could be a sensex level of around 12000.
For the benefit of our new subscribers, we are giving here the nuances of investing in small and mid cap stocks and a few handy tips for the investors investing in such stocks :-
(Our old subscribers would have read this on earlier occasions too)
Investing in Mid & Small Cap Stocks
A number of our subscribers who have enrolled for Hidden Gems are first time entrants to the world of Equity Investing.
With the volatility being witnessed in the markets currently, many of them get swayed by the sentiment, getting in at the top and then selling out in panic, since everyone on the street starts giving bear market call, making a loss on their investment in the process.
Investors should realize that investing in Small & Mid-sized companies carries greater risk compared to the Large Caps.
Company Risk
Investing in Small & Mid Caps is based on the premise that these companies will increase their earnings and grow into larger, more valuable companies. However, as with all equity investing, there is the risk that a company will not achieve its expected earnings results, or that an unexpected change in the market or within the company will occur, both of which may adversely affect investment results.
Volatilty
Historically, small & mid-cap stocks have experienced greater volatility than other equity asset classes, and they may be less liquid than larger cap stocks. Thus, relative to larger, more liquid stocks, investing in mid-cap stocks involves potentially greater volatility and risk. The biggest risk of equity investing is that returns can fluctuate and investors can lose money.
Liquidity risk
Midcap stocks in general, trade in lower volumes than large-cap stocks, and this would render them more illiquid. Especially in the event of the market turning bearish, investors find the Small & Mid caps difficult to sell due to the absence of buyers. This may result in the stock price coming down substantially even on slight selling.
Besides, the other factors that increase risk are -
(a) Lack of Information on what's happening in the companies - since in most cases , the information disemmination platform for most companies is the Annual Report. Further, the disadvantage of small & mid caps over large caps is that the media actively covers the large caps.
(b) Earnings Volatility - Owing to their relatively small size, volatile growth/de-growth patterns are almost immediately reflected in their stock prices and valuations of Small/ Mid Caps.
(c) Management Concerns - Incase of many small & Mid-cap companies, the management concern may be a major factor in the minds of shareholders since very less is known & written about them.
A few Handy Tips for the Investors :-
¬ Donot invest in Equities with borrowed funds.
¬ Donot invest with funds which you may require for monthly household expenses or for other important financial commitment over a shorter time period say - daughter's wedding after a few months, child's education, buying a house etc...
¬ Diversify your portfolio, - as they say Do not put all your eggs in one basket.
¬ Keep booking profits on a regular basis.
¬ Contrary to the popular belief, investing in IPO also carries risk - Many investors tend to think that investing in IPO's is totally risk free with the perception that the stock once it starts trading cannot go below the IPO price. Some IPO investors also go to the extent of leveraging their position by putting in a margin towards IPO application with the rest being funded by the bank. The strategy may make good money for them depending upon at what levels the Stock Price opens and the ratio of allotment to the shares applied, however investors have to realise that in the event of the stock price moving down and the ratio of allotment being low, the investor may end up paying a substantial amount to the bank towards interest cost, thereby loosing heavily in the process, in some cases a substantial portion of the capital invested by him. So, with so many IPOs being planned and the promoters becoming greedy wanting the maximum possible premium for their shares, INVESTORS BEWARE.
Profit Booking - The only way to take money back home
Profit booking on a regular basis is a strategy will will take away a lot of pain in the event of a market fall/ correction. We would advise profit booking if the gains come in pretty much pretty soon. There are many cases on stocks recommended to our investors which have appreciated significantly - one can choose to book atleast part profit/ full profit depending upon one's temperament/ risk profile etc. Take for example- Vijay Shanthi Builders, which was recommended at Rs.25-30 & went to a high of Rs.185 only to fall back to Rs.75-80 levels Or Country Club which was recommended at Rs.80 and went on to touch Rs.450 to fall to Rs.250. Or Confidence Petroleum which went up from Rs.2 to Rs.9 to fall back to Rs.5. One could have atleast booked part profits in such stocks. As a thumb rule, we would advise investors to sell atleast 50% of the holdings if the stock appreciates by 75-100% so that there is less pain in case of a market fall. And incase the stock appreciates significantly even from your sale levels, you still can enjoy profits on your balance holdings
Domestic bourses may track firm Asian markets
The market is likely to edge higher with data showing stepping up of buying by FIIs and on firm Asian markets. Asia-Pacific share markets rose on Monday, continuing a recovery from a recent slide after US jobs data reassured investors about the health of the world's biggest economy. Key benchmark indices in Hong Kong, Singapore, South Korea, Taiwan, Australia and Japan were up by between 0.55% to 1%.
The US economy added 97,000 jobs in February, slightly below expectations, data showed on Friday, but jobs growth for previous months was revised up and the unemployment rate fell. US blue chip stocks inched up on Friday, helped by the jobs data, but the growing financial woes of firms operating at the riskier end of the mortgage market capped broader gains. Dow Jones Industrial Average gained 15.62 points or 0.13% to settle at 12,276.32. The Nasdaq Composite Index ended nearly unchanged at 2,387.55.
FIIs have resumed buying since the past three days, after their heavy sales since late-February 2007. FIIs were net buyers to the tune of Rs 115.80 crore on Thursday 8 March 2007, the day when Sensex had surged 470 points. As per provisional data, they were net buyers to the tune of Rs 412 crore on Friday 9 March, the day when Sensex had lost 164 points.
FIIs were net sellers to the tune of Rs 241 crore in index-based futures on Friday. They were net buyers to the tune of Rs 114 crore in individual stock futures on that day.
Mutual funds are sitting on cash, thanks to collections from some of the recent new fund offers and they may step up purchases on declines. However, the latest data shows that mutual funds are in selling mode. They were net sellers to the tune of Rs 40 crore on Thursday 8 March, the day when Sensex had surged 470 points. They had pressed sales worth a net Rs 379.56 crore on Wednesday (7 March 2007), the day when the Sensex had lost 177 points in volatile trade.
Investsmart - Morning Call - Mar 12 2007
Market Grape Wine :
In House :
Nifty at a support of 3684 & 3655 & 3625 with resistance at 3781 & 3812 &
3840 levels .
Sell : Drreddy below 655 target 641 s/l 662
Sell : Wipro below 560 taregt 545 s/l 567
Markets to be range bound with no major triggers with short covering at
lower levels not ruled out .
Positive opening with pressure at higher levels .
Buying in Cement at lower levels not ruled out .
Out House :
Sensex at a support of 12786 & 12696 levels with resistance at 13113 &
13223 levels .
Buy : RIL & RelCap
Buy : Infy & Sataym
Buy : Polaris & Mphasis
Buy : EKC , Gitanjali , Praj & IDBI
Buy : ACC & Grasim at dips
Buy : SBIN , IciciBank & UTIBank at dips
Buy : Unitech , Ivrcl & NagarConst
Dark Horse : RIL , Sbin , UtiBank , Gitanjali , ACC , Gacl , BajajHind ,
EKC & PRAJ
Market may move sideways
The market may open on a positive note following the recovery in the US markets from the previous week's battering and strong Asian indices in the morning trades. However, caution should be maintained on account of the prevalence of a sharp intra-day volatility. Action could be seen in cement stocks after the government's decision to control on the prices hike for the next one year. Among the local indices, the Nifty could test higher levels around the 3775 level and has a support in the 2660-3572 range. The Sensex on the downside may slip to 12800 and may face resistance at 13000.
US indices witnessed a sharp turnaround towards the close after exhibiting sharp volatility during intra-day trades. While the Dow Jones advanced by 16 points at 12276, the Nasdaq moved marginally down at 2388.
All Indian ADRs were losers except Patni Computer on the US bourses. MTNL fell sharply and tumbled over 3% while VSNL, Tata Motors, Infosys, Satyam, HDFC Bank, ICICI Bank, Dr Reddy's and Rediff declined around 1-2% each while Patni Computers gained around a percent and Wipro remained unchanged.
The Nymex light crude oil for April delivery slipped by $1.59 to close at $60.05. In the commodity space, the Comex gold for April series declined $3.50 to settle at $652 a troy ounce.
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