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Recommendations
Monday, November 05, 2007
Daily Trading Calls
Nifty (5932) Sup 5860 Res 5993
Buy CESC (587) SL 581
Target 598, 602
Buy ICICI Bank (1333) SL1320 Target 1362, 1367
Buy Sterlite (1032) SL 1022 Target 1058, 1065
Sell M&M (755) SL 761
Target 744, 740
Sell Tata Chem (315) SL 320 Target 307, 304
Crackers and celebrations
Stop worrying about the potholes in the road and celebrate the journey!
Though officially Diwali festivities begin today, on the bourses the festive spirit has been underway for quite some time now. Last week, the Sensex crossed the 20k mark and the Nifty breached 6,000. Concerns keep bursting like loud crackers time and again. First there was the subprime mess in the US, which was followed by a smart pullback. Then came the P-Note scare. Last week, the policy announcements from the RBI and then from the Fed also did little to upset the apple cart, so to speak. The bulls have survived the bumpy ride of the past three months and seem to be in the driver's seat, thanks to the non-stop foreign capital inflows. Having said that, the same appears to have tapered off a little in the past few days. So, if the trend continues for a while, the market will react and we will have a long-overdue but a healthy consolidation/correction. Still, we wouldn't press the panic button, as the 'India Shining' story remains solid. Short-term blips apart, one should consider taking the longer, and more fruitful journey. Those who dare to tread this path should stay put in quality stocks and capitalise on any downside to buy more. Others should lock in gains as the ride has turned choppy and will remain so amid the lack of any specific catalysts. Today, we see a weak opening due to a sharp fall in Asian indices, especially the Hang Seng. Thereafter the market will turn volatile.
US stocks ended a volatile trading session on Friday with modest gains as investors weighed a surprisingly strong October jobs report and an unexpected rise in factory orders against ongoing credit-related turmoil in the financial sector.
Citigroup said its CEO Charles Prince is stepping down after the largest US bank warned of as much as $11bn of additional writedowns on subprime mortgages and related securities, on top of more than $6bn of charges reported for the third quarter.
The Dow Jones Industrial Average climbed 27.2 points to 13,595.10, but ended with a 1.5% loss for the week. The broader S&P 500 index closed up 1.25 points at 1,509.69, but ended with a weekly loss of 1.6%. The Nasdaq rose 15.55 points to 2,810.38, leaving it virtually unchanged from the prior week's close.
The US economy created 166,000 jobs in October, helping investors brush aside lingering fears over weakness in the housing and credit sectors. The growth in non-farm payrolls was the best since May. The unemployment rate held steady at 4.7%.
In commodities trading, crude-oil and gold futures both rallied on Friday. Light, sweet crude for December delivery gained $2.44 to a record close of $95.93 per barrel, while the benchmark gold contract rallied to close above $800 at their highest level in nearly 28 years, finishing up $14.80 to end at $808.50 an ounce.
Across the Atlantic, banks led the top FTSE 100 index in London into the red amid nagging worries that the recent credit market crisis may not yet be over. The FTSE 100 index closed 0.8%, or 55.50 points lower, at 6,530.60. Other European markets also closed down, though they came off lows after the release of stronger-than-expected US jobs data.
In emerging markets, the Bovespa in Brazil tumbled by close to 2% at 64,050 while the IPC index in Mexico fell by over 2% to 30,806. The RTS index in Russia gained 0.4% at 2228 and the ISE National-30 index in Turkey gave up 1.2% at 72,304.
Asian markets were mostly down this morning on renewed concerns about the extent of strain in US housing sector and its implications on the world's largest economy.
Mitsubishi UFJ Financial and National Australia Bank declined after Citigroup said it will increase writedowns by as much as $11bn on its mortgage-related investments and Deutsche Bank estimated Merrill Lynch will have to write off another $10bn on subprime-linked assets.
BHP Billiton slipped after copper had the biggest weekly loss in two months. Inpex Holdings gained after crude oil prices ended last week at a new lifetime high.
PetroChina, which raised $8.9bn in the world's biggest IPO this year, passed Exxon Mobil as the world's largest company by market value after surging on its trading debut in Shanghai.
The Morgan Stanley Capital International Asia Pacific Index lost 0.6% to 167.47 as of 11:06 a.m. in Tokyo, having slipped 2.2% on Nov. 2 from a record close. Financial shares were the biggest drag among the benchmark's 10 industry groups.
Japan's Nikkei 225 Stock Average declined 0.9% to 16,362.64. Hong Kong's Hang Seng Index lost 1.2%, the region's biggest drop, after comments by China's Premier Wen Jiabao suggested the nation may delay a plan to allow mainland investors buy Hong Kong shares.
China, Malaysia, Indonesia and the Philippines were the region's only markets to advance.
Volatility to prevail
After opening lower by more than 400 points in the opening trades the benchmark Sensex recouped all its losses and closed 251 points or 1.28% higher shrugging off all the negative cues from the International markets. The recovery was led by the index heavyweights like SBI, HDFC, Reliance Energy and ONGC.
Almost all the BSE sectoral indices ended in positive terrain towards the end of the session. The Bankex index was the top gainer, the index gained 3.5%. Others like Capital Good, FMCG and Realty indices followed suit
Finally, the 30-share Sensex gained 251 points to close at 19,976. Nifty index gained 65 points to close at 5,932.
Ranbaxy edged higher 0.6% to Rs438. The company announced that it received tentative approval from the US FDA to make and sell the hypertension tablets, Valsartan. The scrip touched an intra-day high of Rs441 and a low of Rs422 and recorded volumes of over 6,00,000 shares on NSE.
Shobha Developers ended flat at Rs925. According to reports the company has ventures into Pune residential market. The scrip touched an intra-day high of Rs929 and a low of Rs914 and recorded volumes of over 10,000 shares on NSE.
Suzlon Energy was up 0.3% to Rs1968. Reports stated that the company planned to export its products to 40 countries from present 14 countries over the next five years including locations like South Korea, South Africa and the emerging markets. The scrip touched an intra-day high of Rs1974 and a low of Rs1910 and recorded volumes of over 2,00,000 shares on NSE.
L&T gained 1% to Rs4461 after reports stated that the company secured Rs55.5bn order to build new integrated passenger terminal at
M&M slipped 1.4% to Rs754. The company announced that it has formed a Joint Venture with International Truck & Engine. The scrip touched an intra-day high of Rs819 and a low of Rs746 and recorded volumes of over 5,00,000 shares on NSE.
Tata Motors gained 1% to Rs754 after the company reported a total sale of 49,354 vehicles (including exports) for the month of October 2007, a growth of 13% compared to 43,743 vehicles sold in October last year.
The domestic market continues to be sluggish, due to the high interest rate regime, continuing to affect retails. The scrip touched an intra-day high of Rs759 and a low of Rs725 and recorded volumes of over 6,00,000 shares on NSE.
RPL gained 3.2% to Rs269. Chevron owns 5% stake in the company and further has option to buy 24%. The scrip touched an intra-day high of Rs274 and a low of Rs246 and recorded volumes of over 70,00,00,000 shares on NSE.
Ambuja Cement edged higher 0.8% to Rs145. The company declared its October sales at 1.48mn tons (up 3.4%) and output at 1.51mn tons (up 4.8%). The scrip touched an intra-day high of Rs145 and a low of Rs141 and recorded volumes of over 14,00,000 shares on NSE.
ACC slipped 1.8% to Rs1033. The company announced its cement production for the month of October, 2007 was up 4.8% to 1.76mn tones. The scrip touched an intra-day high of Rs1050 and a low of Rs1010 and recorded volumes of over 3,00,000 shares on NSE.
Apar Industries surged 2.5% to Rs257 after the company declared that they would sell Polymer unit for Rs1.11bn. The scrip touched an intra-day high of Rs280 and a low of Rs252 and recorded volumes of over 53,000 shares on NSE.
Stocks in News:
Decision on fuel prices likely soon; marginal hike in retail prices, excise duty cuts and import duty cut on crude likely options
Power Grid Corporation secures Rs42bn mega transmission project
RCom and Vodafone Essar, amongst others, could get more spectrum for expansion as they have already paid license fees
Pidilite to invest Rs4.5bn to set up a manufacturing unit in Gujarat
Financial Technologies identifies three partners to offload 16% stake in MCX
Apollo Hospitals would invest Rs8bn in two years to add 1,600 beds
Reliance Industries has contracted an ultra deepwater drillship Deepwater Pacific 1 from Transocean for US$935mn
Daimler has withdrawn its interest to acquire a strategic stake in Eicher Motors
SAIL and Rashtriya Ispat Nigam have hiked steel prices for third consecutive month
SBI has received government approval for its Rights Issue
GTL Infrastructure would invest Rs68bn to set up 25,000 shared telecom towers
Wockhardt Hospitals may raise Rs10bn to increase its network to 30 hospitals
The Government may approve capital restructuring of UCO Bank; bank may issue FPO of Rs2.5bn
BEML may set up JV with overseas partner to make high end boggies
PE giant Blackstone may invest Rs50bn in Hotel Leela
The Government proposes to allow 49% foreign investment in public sector oil refineries, in commodity exchanges and in Credit Information Companies
Power generation shortfall was 74% of the target in H1 FY08
New Mining policy likely to be announced by December; may allow higher FDI in the sector
Portfolio investments by FIIs in real estate companies should not be counted as part of FDI, according to Commerce Ministry
Fertilizer subsidy reform may cost an additional Rs12bn in FY08
The DoT rejects Law Ministry suggestion for GoM to handle applications for allotment of telecom licenses
The Tata group may participate in the Rs500bn dedicated freight corridor project; may set up a JV with Mitsubishi Corp.
Domestic drug makers have agreed to withdraw 120 combination drugs totaling over 270 brands worth Rs10bn from the market
FII Investment Trend:
FIIs were net sellers of Rs12.31bn (provisional) in the cash segment on Friday while the local institutions pumped in Rs4.45bn.
In the F&O segment, FIIs were net buyers of Rs13.8bn.
On Thursday, FIIs were net buyers of only Rs1.81bn in the cash segment. Mutual Funds were net sellers of Rs3.58bn on the same day.
Major Bulk Deals:
Clearwater Capital has picked up Alps Industries; Kotak Mahindra UK has bought Tera Software.
Upper Circuit:
Godrej Industries, Adhunik Metaliks, Nocil, GTC Industries, Deep Industries, Goldstone Tech, Goldiam International, Zandu Pharma, McNally Bharat, Prakash Industries and Ferro Alloys.
Lower Circuit:Shree Precoated Steel and Marathon Nextgen
FIIs sell in futures & options segment
The Foreign Institutional Investors (FIIs) were net sellers to the tune of Rs 1,379.53 crore in the futures & options segment on Friday.
According to data released by the NSE, FIIs were net sellers of index futures to the tune of Rs 723.40 crore and bought index options worth Rs 38.46 crore. They were net sellers of stock futures to the tune of Rs 683.82 crore and sold stock options worth Rs 10.77 crore
Retail investors exiting the market
Promoters have raised their holdings in India’s top companies in the quarter ended September 2007 whereas household investors continued to reduce their direct exposure to equities for a fifth straight quarter.
According to Morgan Stanley, as per the ownership data for India’s top stocks, households have been buyers of these top companies stocks in only six out of the past 26 quarters. In contrast, FIIs have been buyers in 17 out of the past 26 quarters. Observers say this would suggest that retail investors haven’t really participated in a big way in the huge stock market rally in the past few months as the BSE index crosses the 20,000 mark.
This data also shows that institutional investors were marginal net sellers of these stocks after buying them in the previous quarter. Institutional investors, including domestic mutual funds, foreign investors and local institutions, reduced their stake in these 75 companies by 20 basis points.
Following this quarter’s data, FII holdings in India’s top companies are now about 120 basis points off the high hit two years ago. Just like the previous 10 quarters, bulk of the FII inflows during the quarter ended September went into stocks outside the top 75 with a surge into small- and mid-cap stocks. The flows into the stocks outside the top names aggregated to a whopping $8.4 billion, the best ever and 82% higher than in the previous quarter, says Morgan Stanley.
FIIs continue to occupy the position of the second largest investors in the country after controlling stakeholders.Domestic investors were distinctly less enthusiastic about buying stocks during the quarter ended September with domestic mutual funds and households selling stocks. Domestic households have been shifting their direct ownership of stocks into owning equities via mutual funds. They reduced their stake by 37 basis points, taking the cumulative reduction to 8.7% since 2001.
Via ET
Stocks you can buy this week
Everest Kanto
Research: CLSA
Rating: Buy
CMP: Rs 277
CLSA has initiated a coverage on Everest Kanto with a ‘buy’ recommendation and a 12-month target price of Rs 306. Everest Kanto Cylinders manufactures high-pressure cylinders for CNG and industrial applications. Present in geographies that are slated to see exciting growth (especially in CNG segment) and higher-realisation markets than India, profitable growth opportunity looms ahead. It augurs well for the company that the fastest growing market (Iran) is also the highest realisation market ($315/unit vs $240/unit in India). Everest Kanto has a long standing sourcing relationship with Tenaris. This, along with approvals in 16 countries and two decades of manufacturing experience, makes it one of the best-poised players to cash in on the opportunity. The company is pursuing aggressive expansion plans in its Gandhidham facility and is setting up a greenfield plant in China at an attractive capital cost. Even after assuming a hike in raw material costs from current levels, it’s slated to see a compound annual growth rate (CAGR) of 39% and 44% in sales and EPS.
Sobha Developers
Research: Morgan Stanley
Rating: Overweight
CMP: Rs 926
Morgan Stanley has reiterated an ‘overweight’ rating on Sobha Developers (SDL) on strong fundamentals and reasonable valuations. SDL reported FQ208 results — ahead of expectations: sales were up 2% YoY (up 24% QoQ), which led to a 51% rise in net profit to Rs 56.2 crore. The performance was driven by its ongoing projects in Bangalore and Trissur and SDL’s contractual business. Forthcoming projects pipeline gives a good scale-up as well as earnings growth visibility. A good portion of the projects is in new markets, including Pune, Coimbatore, Mysore and Chennai, which should de-risk earnings. Out of the total land cost of Rs 2,370 crore, the company has paid Rs 1,430 crore. The balance is estimated to be paid over the next one-and-a-half to two years, according to SDL. Its net debt-to-equity ratio, as of September 30, ’07 is 1.15. The stock is trading at a 15% discount to Morgan Stanley’s forward NAV and 20x F09 EPSe.
Raymond
Research: Citigroup
Rating: Buy
CMP: Rs 353
Revenues grew 9% YoY driven by branded retailing, while EBITDA fell 36% and earnings before taxes declined (Rs 39.6 crore) 63% YoY — primarily due to increased denim losses and woollen fabric JV. However, this was better than Q1 earnings (Rs 2.7 crore). Standalone results are not comparable due to the de-merger of the denim division in August ’06. The 50:50 denim JV losses increased to Rs 30.4 crore in Q2 (vs Rs 13.3 crore in Q1) with revenues down 9% QoQ. High cotton prices, an appreciating rupee, high overheads in the US and EU plants are the key reasons for the losses. Raymond is taking initiatives to improve utilisations, enrich the product mix, but this is unlikely to reduce near-term losses materially. Muted growth was due to store additions and promotion of recently launched women’s range in Park Avenue and Colorplus. Profitability will improve in the second half (H2), as new stores begin to contribute to earnings. Fabric revenues were up 6% YoY, while PBIT was down 20% YoY, margins also improved to 18% against 5% in Q1. There’s an upside to the stock at 7.7x EV/EBITDA for FY09E, with a high potential to unlock value of real estate assets.
Redington
Research: Lehman Brothers
Rating: Buy
CMP: Rs 345
Lehman Brothers has initiated a coverage on Redington with an investment rating of ‘overweight’. Redington is the second-largest IT distributor in India and the largest IT distributor in the Middle East. It posted revenue CAGR of 50% for FY05-07. The momentum in revenue growth will continue, driven by increased penetration of IT products in both India and the Middle East. The company’s operating history is impressive, with bad debts averaging 0.08% of sales during the past five years and inventory write-downs in the 0.03% area. At current market price, the stock is trading at a P/E of 15.6x FY09E EPS of Rs 23.5. The 12-month forward price target is Rs 455, implying potential upside of 24% from the current share price. At the current market price, the stock trades at a forward P/E of 15.5x its FY09E EPS of Rs 23.5 and a price-to-book value ratio of 3.2 on its FY09E BV of Rs 114.3/share. The stock is inexpensive at current levels and compares favourably with global peers given its higher growth prospects.
Divi’s Lab
Research: Merrill Lynch
Rating: Buy
CMP: Rs 1,738
Merrill Lynch has upgraded Divi’s Laboratories to ‘buy’ on strong results. The FY08E and FY09E EPS are higher by 73% and 106% respectively and the target price of Rs 2,250/share includes Rs 2,050/share for the base business and Rs 200/share for carotenoids, which implies 30% upside from current levels. Divi’s sharp margin surprise is driven by high CMS contribution which is expected to grow to 65% of revenues by FY09E against the current ~50%. Merrill Lynch forecasts a 48% EPS CAGR (FY07-10E) on the back of a 37% CAGR in revenue (FY07-10E) and tax benefits. Divi’s’ likely launch of eight nutraceutical products under the ‘Vivital’ brand is expected to start generating revenues from Q3 onwards and estimate scale-up to at least $40-45 million p.a. over the next three years. Divi’s clearly has the first mover advantage to capture a significant share of pharma outsourcing by innovator companies. Despite the stock’s significant relative outperformance over the past six months, the strong earnings momentum and take-off of the nutraceuticals business will likely drive further outperformance.
SBI
Research: UBS
Rating: Buy
CMP: Rs 2,252
SBI’S net profit at Rs 1,600 crore in Q2 FY08 grew 36% YoY and 13% QoQ, around 17% higher than consensus and estimates. The stronger-than-expected growth was driven by higher trading gains and write-back of loan loss provisions against expectations of a provisioning charge. While net profit was strong, there was pressure on net interest margin (NIM) and declining provisioning cover. Net interest income (NII) grew 6% YoY and declined 10% QoQ. Fees were healthy, up 12% YoY and 7% QoQ but growth has decelerated. Provisioning cover declined to 45%. The management has guided towards an improvement in both NIMs and loan growth in H2 FY08. While Q2 was mixed, the stock may hold up due to management’s focus on new growth areas like the launch of general insurance and private equity. The management hopes to raise at least Rs10,000 crore as fresh equity by March ’08. Excluding the value of non-bank subsidiaries, SBI is trading at 1.7x P/BV FY09E.
McKinsey - Indian consumer to spend Rs 200 per day
The Indian consumer will spend over Rs200 a day on average by the year 2025, steered by a ten-fold increase in the country’s middle class population and a three-fold jump in household income during this period.
According to a study by the McKinsey Global Institute, the aggregate consumer spending could more than quadruple to Rs70 trillion by 2025, from about Rs17 trillion in 2005.
“The dramatic growth in India’s middle class, from 50 million to 583 million people, will power this growth,” the international consultancy major said in a new study.
India’s rapid economic growth has set the stage for fundamental change among its consumers. The same energy that lifted hundreds of millions of Indians out of poverty is creating a massive middle class centred in the cities... If India continues its recent growth, average household incomes will triple over the next two decades and it will become the fifth largest consumer economy by 2025, up from 12th now.
McKinsey said that by 2025, the country’s middle class would grow from about 5% of the population to more than 40%, which, along with rising private income, would drive a sharp surge in consumer spending.
Taking into account the estimated consumer population in the age-group of 15-64 years, which is expected to rise to 950 million by 2025, the spending per consumer would rise to about Rs74,310 a year, over Rs6,000 a month or Rs206 a day.
Considering the population of the same age-group at about 700 million in 2005, McKinsey’s consumer spending estimate for that year would be about Rs24,300 per person in a year, about Rs2,000 a month or just about Rs67 a day.
Middle-class families are those with disposable income between Rs1-2 lakh a year.
The forecast is based on 7.3% annual GDP growth assumption for next two decades, McKinsey said, adding this was reasonable if economic reforms continues.
Private consumption has already played a key role in India’s growth than it has in that of other developing countries, the international consultancy major said.
In 2005, private spending of Rs17 trillion accounted for 62% of India’s GDP, which is closer to the developed economies like the US (70%) and Japan (57%) than to China (37%) and other fast-growing emerging markets in Asia.
McKinsey said that the consumers’ spending in years to come would also shift substantially from the informal economy (economic activities that is neither taxed nor monitored by government) to the more efficient formal economy of organized businesses and “that transition would lower prices and further boost demand”.
The study warned, however, that “neither incumbents nor attackers will have an easy time” as bureaucratic hurdles and well-recognized infrastructure shortcomings would “frustrate many strategies.”
Besides, the spending would be spread across hundreds of millions of households, many with very modest income and high sensitivity to price and value, it noted.
A number of domestic and multinational companies are already competing in the market and the challenges would force companies to be more dynamic to adapt the rapidly changing needs and incomes of the consumers.
McKinsey also sees a shift in spending power from the countryside to the cities, thus placing a bulk of India’s private consumption within easier reach of major companies.
“Today, 57% of private spending is spread across rural areas, but by 2025 cities will command 62% of the country’s spending power,” McKinsey said.
Via Mint
Expect a volatile week
Markets may stay volatile this week, as investors could limit activity to assess the impact of the US Fed indicating that further rate cuts are unlikely on foreign fund flows. With the second quarter earnings of companies showing signs of a slowdown and oil prices hovering just below $100 per barrel, investors are uncertain about how long the recent rally would last.
A section of the market does see some slowdown in foreign fund inflows in the near-term, as absence of further rate cuts would make “carry trade” less attractive in a market that is already expensive. Also, curbs on participatory notes may further slow such inflows into India.
Carry trade involves borrowing in countries with lower rates and a weakening currency and investing the proceeds in high-yielding assets elsewhere, for higher returns. Analysts partly attribute the glut of foreign institutional
inflow into emerging markets, especially India, to this trade, which gained significance after the 0.5% cut by the US Fed in its benchmark rate.
Foreign funds have net invested $8 billion in October alone after the first Fed rate cut on September 18. So far this year, these funds have poured in over $17 billion into Indian equities, which is way above the highest-ever annual foreign inflow of roughly $11 billion in 2005.
But with the Fed chairman making cautionary statements on inflation after another 0.25% rate cut last week, investors believe that the Fed is unlikely to trim rates further. The healthier-than-expected US job report — one of the most closely watched economic data — on Friday will give lesser leeway for the US central bank to cut rates further, analysts said.
Meanwhile, bulls in the US market got the news they were waiting for on Friday when the October jobs report turned out to be better than expected. The data fuelled some opening gains, which was, however, quickly relegated to an afterthought amid renewed concerns about the financial sector’s prospects. The Dow ended 0.2% higher at 13,595 points on Friday.
Oil futures added to the positives late Friday when the British Foreign Office said the UN Security Council agreed to draft a new sanctions resolution, which could be passed in November, if Iran’s cooperation with the International Atomic Energy Agency does not improve. Investors worry that any conflict between the West and Iran would disrupt oil supplies from the Middle East. Light, sweet crude for December delivery rose $2.44 to settle at a record $95.93 a barrel on the New York Mercantile Exchange.
Back home, oil marketing companies’ shares may rise on expectations that the government will announce a hike in oil product prices soon, especially with global oil prices showing no signs of easing. Global oil prices have risen close to 50% since the past year, but oil companies have been unable to raise prices due to political compulsions.
Analysts feel shares of software companies could rebound slightly this week, as the stronger US job data suggests that the economy may not be in that bad a shape as was expected after the subprime crisis. These companies derive a major share of their revenues from the US. These shares have been the biggest laggards in the past sixmonths, as the rapid rise in the rupee against the dollar threatened to hit their earnings and margins.
Via ET
More rally ahead
| The Nifty is likely to consolidate at current levels, with an upward bias. |
| The market shot up on Monday and range-traded for the rest of the week. The Nifty closed at 5932 points for a gain of 4.04 per cent, briefly crossing above the 6000-level. The Sensex was up 3.81 per cent at 19976 points after hitting 20,000 plus. |
| The Defty rose 4.38 per cent as the rupee strengthened yet again after the RBI announced a marginally tighter monetary policy. The Nifty Junior was up 3.2 per cent. |
| Breadth was positive and volumes were fairly high except on Friday. The CNX Midcap gained 1.79 per cent while the BSE 500 was ahead by 3.92 per cent. |
| FIIs were net buyers as they appeared to have absorbed the implications of clarified participatory notes policy but mutual funds remained net sellers. |
| The Bank Nifty delivered an extraordinary gain of 9.6 per cent on a relief rally after the credit policy. The CNX IT was about the only sectoral loser, down 1.65 per cent. |
| Outlook: Consolidation within the broad range of 5700-6000 seems to be the current pattern. Look for closes outside this zone to set the next trend. Friday's trading pattern ended strong so, there is some reason to presume an upside is more likely. But it may not come immediately. |
| Rationale: The market is swinging through an unusually high range of almost 200 Nifty points per day. Diwali usually tends to be bearish because retail and operator volumes dwindle but the FIIs are still net buyers and they have the resources to keep the market buoyant. The next upwards breakout would set a target of about 6300 Nifty. |
| Counter-view: Friday's trading session was open to several conflicting interpretations. Prices moved up through the session – that's bullish. Volumes were very low – bearish. The high-low range was wider than the immediate previous sessions – indicative of a potential breakout. Trading was spotty – many counters were "under-traded" (relatively low no. of trades as well as low volumes) – this suggests more range-trading. |
| Bulls & bears: The big gainers were banking stocks, which saw in a strong relief rally after the RBI held rates unchanged. Banking heavyweights SBI, HDFC Bank, Bank of Baroda and ICICI Bank contributed a lot to overall index gains. Other major gainers were L&T, ONGC, Tata Power, Biocon. |
| The big losers were telecom stocks with market leader Bharti Airtel taking a special hammering. Hero Honda also took a beating as did several other auto stocks. As mentioned above, IT stocks lost ground until Friday. However, Tata Motors and TCS both looked as though they had bottomed out. |
| MICRO TECHNICALS |
| BIOCON Current Price: 564 Target Price: 585 |
| The stock has made a promising looking breakout on high volumes. Keep a stop at 545 and go long. The minimum target is 585 and the likelier target is 600. Book partial profits in the 580-plus zone and consider keeping a delivery position. The long-term trend may have changed for the better. |
| HDFC BANK Current Price: 1770 Target Price: 1850 |
| The credit policy sparked a sector-wide rally but HDFC Bank was one of the most promising performers. Keep a stop at 1740 and go long. There is a significant downside risk due to the almost-vertical rise. The target is likely to be 1850. |
| ONGC Current Price: 1366 Target Price: 1435 |
| There has been a breakout in the past three sessions with decent but not extraordinary volumes. The target would be a minimum 1435 and perhaps a great deal more. Consider booking partial profits at 1435 and holding a delivery position through the next eight-ten weeks. Keep a stop at 1330. |
| RNRL Current Price: 141.9 Target Price: NA |
| The stock shot up 40 per cent in a week on a sharp volume expansion. It's impossible to set a target with this formation. Set a trailing stop at 130 and go long. Move the stop up 5 units for every 5 unit move. Unfortunately the move has come so fast that there is a lack of support and you have to set a wide stop. |
| TATA POWER Current Price: 1304 Target Price: 1400 |
| The stock has made an apparent breakout but this has come on low volumes, which makes it less likely to fulfil optimistic target projections. However there is a target of 1400-plus so and very good support at 1260 so it's worth going long. Keep a stop at 1250 and go long. |
Weekly Recommendations
Birla Ericsson Optical Ltd
Ispat Industries Ltd
MRO-TEK Ltd
NIIT Technologies Ltd
Sanghvi Movers Ltd
Tainwala Chemicals & Plastics (India) Ltd
XPRO India Ltd
Aplab Ltd
Insecticides India Ltd
Khaitan Chemicals & Fertilizers Ltd
KRBL Ltd
NIIT Technologies Ltd
Sanghvi Movers Ltd
Universal Cables Ltd
Sunday, November 04, 2007
Weekly Technical Analysis
The Sensex began the week with a bang (up 735 points on Monday) and rallied past the magical 20,000 landmark. Though the index crossed the 20,000 mark on four of the five trading days and touched an all-time intra-day high of 20,238, it was unable to close above the psychological mark even once.
Profit-taking in intra-day trades saw the index shed 982 points from the peak to a low of 19,256. The Sensex, however, ended with a gain of 733 points at 19,976.
Though the undercurrent remains bullish, the Sensex may consolidate during this week before making a fresh upmove.
If the index breaks 19,500 on the downside, it may slip to 18,660. On the upside, the index is likely to face resistance around the 20,500-mark.
The Sensex is likely to face resistance around 20,350-20,470-20,585 this week and in case of a downside, the support would be around 19,600-19,485-19,370.
The key levels for the Sensex this month are around 21,000-21,385-21,755 on the upside and 18,660-18,290-17,920 on the downside.
The NSE Nifty crossed the 6000 mark, helped by the 25 bps Fed rate cut. After a near 300 points swing, from a high of 6012 to a low of 5714, the index settled at a record 5932, up 230 points for the week.
The Nifty may target 6270-6500 on the upside this month. On the downside, the index has a strong support at 5675, below which it could slip to 5400.
The Nifty moving average convergence divergence (MACD) is bullish since it is trading above its signal line. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the “signal line”, functions as a trigger for buy and sell signals.
The Nifty 9-day Relative Strength Index (RSI) is at 72, which is slightly overbought. A RSI value of over 70 is said to be overbought, while a value of less than 30 indicates an oversold position.
Gold's oustanding returns
With just a few days left for Diwali and Dhanteras, gold prices have already zoomed to new peaks and marketmen expect them to soar further well past Rs 11,000 per 10 gram level as the festivities approach closer.
Adding to the festive spirit, return on gold investments have also grown by around 34 per cent in the last one year as the precious metal became a 'preferred choice' option for a large number of investors in the country.
The gold prices rose to a new 18-month high of Rs 10,310 per 10 gram on Saturday and with expectations of buying activity improving analysts see a further rise of about Rs 600-800 by Dhanteras, considered an auspicious day for buying gold and jewellery.
"Since disposable incomes of average Indians have gone up significantly, gold has become a preferred choice of investment for a large number of investors," Assocham President Venugopal Dhoot, said.
Gold imports would grow by 250 tonnes by FY'08, he said. Speaking at an Associated Chambers of Commerce and Industry of India (Assocham) function here, Dhoot called for much-needed investments into the country to fully exploit its mineral resources while making India a vibrant trading hub for the gold and diamond businesses.
Since the economic slowdown in America is unlikely to be arrested in the immediate future, its impact will be harsh on dollar which would continue to weaken while rupee would get stronger, he added.
This could inspire gold investors, particularly in a country like India to invest more in gold for security reasons, ASSOCHAM said in an assessment on possible gold prices during Diwali and subsequently in the marriage seasons.
Gold prices are already more than Rs 1,300 higher than the last Diwali levels. On Diwali day last year, the gold price stood at Rs 8,975 per ten gram.
Besides festival demand, a sharp surge in international prices has also added to the rally in the domestic markets. The gold prices in New York touched a 28-year high of 808.5 dollars last week.
"Weakening dollar and rising crude oil and recent Federal Reserve interest rate cut also enthused the market sentiment. Gold rose 14.80 dollar to 808.50 dollar an ounce on the Comex division of the New York Mercantile Exchange, a level last seen in January 1980, while the precious metal in India witnessed levels above Rs 10,000 in May 2006," Commodity brokerage firm Karvy Comtrade analyst Harish G said.
"With the depreciating value of rupee, the spur in the prices of gold in the domestic market is not that high as compared to last year when it ruled Rs 10,730 per 10 grams in May," he said.
The domestic prices are likely to touch Rs 10,500 levels on Diwali day this year while it may hit 850 dollar an ounce in the overseas market, the Karvy official said.
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