Weekly Technical Analysis

Support Around 5676

Nifty — The index closed on a negative note on the opening session of the week after which it saw a sharp decline towards 5676 towards the closing session of the week. It ended the week with a loss of 281 points.

Moving Averages — The 50 dma = 5748, 20 dma = 5850 and 10 dma = 5933. The index is facing price congestion from 20 & 50 dma, close above the 20 dma at 5850 should see the index exhibit strength for the current week’s trading.

Momentum Oscillators — On the daily charts MACD is in sell mode but in positive territory. RSI (14) - Relative Strength Index is exhibiting a reading of 47 (reading above 70 signifies overbought and reading below 30 signifies oversold). Stochastic (5,3) on daily chart is in oversold zone.

Support — The index has support around the 5676-5595 band. Lower support around 5517 (low of 28 November 07). Declines during the week should find support around the 5676-5595 band.

Resistance — The index faces resistance around the 20 dma at 5850, close above the 20 dma could see the index exhibit strength during the week’s trading. Higher resistance can be expected around 5933 (10 dma) and 6012 levels.

Conclusion — Expect strength above 5850 during the current week’s trading.

Oil Sector

Oil Sector

Stocks you can buy this week

Northgate Technologies
Research: Citigroup
Rating: Buy
CMP: Rs 580

Citigroup has initiated a coverage on Northgate Technologies with a ‘buy’ rating and Rs 700 as the target price. Northgate is a leading provider of internet marketing and advertising technology services, combined with a number of unique products (VoIP, social networking) and high-capacity, highly scalable data centres. It is a beneficiary of the strong secular growth in online advertising due to its online ad agency business, online ad serving technology and multi-pronged aggregation strategy.

The company’s business model is straightforward: It aggregates internet traffic from various sites and through various means; monetises this traffic with comprehensive, targeted advertising solutions via its in-house developed ad serving engine; and takes advantage of a more cost-effective approach by operating the data centres and telecom connections. Northgate has three primary businesses: 1. Axill, an interactive ad network with a strong presence in the UK and a growing presence in Asia; 2. Globe7, a leading VoIP-based product/community with a significant presence in China; and 3. Bharatstudent.com, one of India’s fastest-growing social networking sites.

The story, however, is about more than just what Northgate is currently doing. Using its data centres, Northgate plans to grow, particularly in Asia, via both new company-owned sites and managed hosting arrangements.

Centurion Bank of Punjab
Research: Credit Suisse
Rating: Underperform
CMP: Rs 55

Credit Suisse has raised its target price for Centurion Bank of Punjab (CBoP) to Rs 44.5, but downgraded the rating to ‘underperform’. The stock has risen 34% in a week and currently trades at 4.2x FY3/09E book value (BV) and 36.0x EPS. Credit Suisse expects growth to remain strong, though the focus is shifting toward lower-yielding small and medium enterprise (SME) lending and mortgages. This, and a lower current account and saving account (CASA) ratio, should lead to a modest pressure on margins.

Credit Suisse has reduced the EPS estimates by 17-19% over the next two years due to the recent dilution for Lord Krishna Bank (LKB) merger, capital-raising, lower margins and higher loan-loss provisioning. Credit Suisse has valued CBoP on 3.15x FY3/09E P/BV, or Rs 44.5 (3.25x FY03/08E earlier) and has increased the discount to HDFC Bank’s target multiple to 25% (earlier 20%) on a weaker deposit profile and a challenging retail lending environment.

The target price increase factors in recently raised capital and a lower cost of equity assumption from 14% to 12.5%, in line with Credit Suisse’s assumption for private banks. Factoring in the dilution for warrants/Esops, the target price implies a valuation of 3.3x FY3/09E BV and 27.4x EPS, for a return on equity (RoE) of 13.5% in FY09E. CBoP is likely to need capital infusion in FY10.

Indian Oil
Research: ABN Amro Bank
Rating: Buy
CMP: Rs 628

Indian Oil (IOC) was formed in 1964 by the merger of Indian Refineries (1958) and Indian Oil Company (1959). IOC is India’s largest company by sales and controls 10 of India’s 19 refineries. Its refining capacity is 60.2 mmtpa or 1.2 million barrels per day — the largest share among refining companies in India. It accounts for 40.4% of the national refining capacity. IOC also has a cross-country pipeline network of nearly 9,300 km length and 61.72 mmtpa capacity.

IOC is on its way to becoming a major player in petrochemicals, besides making large investments in exploration and production (E&P) and import/marketing ventures for oil and gas in India and abroad. IOC has outlined ambitious growth plans with an outlay of about Rs 45,000 crore for capacity augmentation, de-bottlenecking, bottom and quality upgradation. In addition, petrol quality upgradation projects are underway at Panipat, Mathura, Barauni, Guwahati and Digboi refineries and are expected to be completed by the end of ’09.

In-principle approval of the company’s Board to set up a 15-mmtpa grassroots refinery integrated with petrochemicals units (paraxylene, propylene and styrene) at Paradip (scheduled to be completed by October ’11) has been obtained and the detailed feasibility report is under preparation. During FY07, the company’s consolidated net sales grew by 24% to Rs 2,01,500 crore, while net profit grew by 47% to Rs 6,690 crore. In H1 FY08, its standalone net sales grew 2.5% to Rs 1,09,000 crore. Net profit rose 25% to Rs 5,290 crore, buoyed by higher operating EBITDA margin at 6% (2.4% in H1 FY07).

ICICI Bank
Research: CLSA
Rating: Buy
CMP: Rs 1,157

ICICI Bank is a direct play on the fast-growing Indian economy due to its dominance across all financial services segments. It is the largest retail bank in India and is also a key beneficiary of rising demand for project financing. It is the largest private sector insurance player and a leader in asset management, broking and private-equity. The bank has also built up strong international operations and now has a presence in 18 markets, with international loans accounting for 22% of its consolidated asset base. The recent concerns about rising non-performing loans (NPLs) are exaggerated, as most of the increase is due to rising proportion of unsecured loans, which are priced for higher loss rates.

The net profit growth forecast of 33% CAGR over FY07-10 factors in a 3x rise in provisioning for NPLs over FY07-10 due to increasing proportion of unsecured loans. Key earnings growth driver will be strong volume growth, margin expansion of 50 bps (due to changing loan mix and re-pricing of high-cost liabilities) and healthy growth in fee revenue (38% CAGR). CLSA has valued ICICI Bank’s insurance, asset management, broking and venture fund businesses at $12.2 billion (Rs 442/share) in FY10. The price target of Rs 1,400 is based on sum of parts methodology, in which, we have valued the banking operation at 2.2x FY10CL adjusted book. ICICI Bank is awaiting regulatory approvals to form a holding company to transfer its stake in the insurance and asset management business, and plans to list the holding company over the next 12 months.

DLF
Research: Merrill Lynch
Rating: Buy
CMP: Rs 961

Merrill Lynch has maintained its ‘buy’ rating on DLF with a target price of Rs 1,160 per share. DLF has recently signed a joint venture with Prudential Financial of the US to enter into the asset management business in India. DLF will hold a 39% stake in the venture. The total amount expected to be brought in by the parties is $50 million. Prudential Financial, based in the US, had $637 billion of assets under management (AUM) as of September 30, ’07.

DLF has stated that it expects to receive regulatory approval and set up the distribution in 3-6 months. While DLF is expected to bring its brand name and distribution network, Prudential Financial will bring in the fund management experience.

The company is close to finalising a chief executive officer, who is expected to be a new hire from the financial services industry. Asset management companies are normally valued at 9-12% of the AUM. However, since the company has stated that these are early days to determine the size of the AUM, Merrill Lynch has not given any value to the JV.

While it is concerned about the entry of DLF into financial services, which is unrelated to real estate, Merrill Lynch draws comfort from the fact that DLF will be a minority partner and the involvement will be limited to helping in the distribution network and providing a known brand.

Market Index Outlook

The Indian markets suddenly caved in last Monday, catching most participants unawares. The disquieting aspect of last week’s trade was the weakness witnessed in the mid- and small-cap stocks. Both the BSE Mid-cap and Small-cap indices lost around 4 per cent as investors opted to take some money off the table prior to the year-end holiday season.

With just three days to go for the expiry of the December contracts in the derivative segment, volatility is expected to rule high. The large build-up in the open interest will exert downward pressure on stock prices. Liquidity too is far from robust; FIIs pulled out close to $1 billion in cash segment in the week gone by.

The near-term outlook for the Sensex is currently negative. The 14-day relative strength index at 45, and the 10-day rate of change oscillator slipping into negative territory imply that the down-move can continue in the near term. The weekly momentum indicators too corroborate this view. But short-term investors can take heart from the fact that the Sensex is yet to breach the support around 19000. An emphatic move below this level is needed to drag the index lower towards 18500 or 18182 in the near-term.

Our medium term outlook for the index stays positive. The Sensex is consolidating in a band between 18000 and 20500 since October 30. This sideways move is likely to be followed by a break-out to 20942 or 22627. This view will hold good even if the index were to fall to 17800. However, a close below this level will imply that a correction of a larger degree could be in progress.

The bulls are likely to marshal their resources and strike back early next week. The Sensex could move higher to 19500 or 19882. But a downward reversal is possible from either of these two levels. Failure to move above the first resistance would denote that the index would slide down 19067 or 18503. The support zone around 19000 would be effective this week as well.

Nifty (5766.5)

Nifty moved lower as indicated in this column last week. Though it breached the short-term support at 5834, the index was able to pull itself higher from the next support at 5700. The zone between 5650 and 5750 will be an important support level in the week ahead.

The index can attempt to move higher to 5871 or 5992 early next week. Fresh short positions can be initiated if the index fails to get past the first resistance. The downward targets would then to 5670 and then 5557. Our medium term outlook stays unaltered. The Nifty could move between 5400 and 6200 for a few weeks before the index moves higher to 6262 or 6795.

Global Cues

The Dow Jones Industrial Average gave everyone a scare towards the middle of last week when it dipped below the long-term 200-day moving average line. But the situation was salvaged to some extent by Friday’s rally. A move beyond 13500 by the index next week will ensure that equities enter the New Year with good cheer. The tech-heavy Nasdaq Composite Index spear-headed the surge last week with a 5 per cent recovery from the week’s lowest point. Asian equities remained steady, though the intermediate term trend continues to be down in most Asian markets.

Base metals such as aluminium and copper stayed in a weak mode. Comex gold is consolidating above the 50 day moving average. The outlook for this metal stays positive as long as it holds above $770

India Real Estate gets more funds

Amidst all the worries about a property bubble in the US, the Indian realty sector continues to witness a deluge of funds, not only from private equity investors but also from builders seeking a toehold in this market.

Twenty-one private equity deals worth $1,292 million were struck in the realty sector in the six months between April and September 2007. This is a substantial increase over eight deals worth $282 million inked in the same period last year, according to Real Estate Intelligence – a research and consulting firm.

From investment banking majors Morgan Stanley and Blackstone to UAE-based Khaleej Finance and Investment and Ras Al-Khaimah Investment Authority, Indian realty companies have been attracting a wide range of institutional investors. Institutional investors expect $5 billion to be pumped into Indian real estate over the next three years, says the recent FICCI-Ernst & Young India Real Estate Report 2007.
Direct-stake route

The size and number of such deals apart, the route now being taken by institutional investors to get an exposure to projects also reflects their bullish view on Indian realty. Investments which were initially routed through Special Purpose Vehicles (SPVs) are now beginning to come in through the direct portfolio route.

Portfolio level participation is a high-risk high-return proposition as investors take concentrated exposures to a few projects. Prominent private equity names such as ICICI Ventures, HDFC, IL&FS Investment Managers, Kotak, Morgan Stanley, and Citigroup had initially invested in real estate projects through SPVs which would, in turn, re-direct funds into 5-6 projects. In recent times, some of these investors have taken direct stakes in specific projects.

“Investors who were initially evaluating this market were using the SPV route. Now, with increased confidence and a more focused approach to the realty market, the portfolio route may be the way to go,” says Mr Anurag Mathur, Deputy Managing Director, Cushman & Wakefield India.

DLF recently offloaded a 49 per cent stake in seven of its residential projects across India to global financial major Merrill Lynch. According to Cushman & Wakefield, investments at the portfolio level are now the highest and account for 40 per cent of investments in Indian real estate.
Global builders

In another trend, entity-level partnerships have also emerged, with instances such as Morgan Stanley acquiring a stake in Mantri Developers, a Bangalore-based realty company. But it is not only institutional investors who are flocking to Indian realty, global builders are here too. Alliances announced by UAE-based Nakheel and Emaar, Amsterdam’s Plaza Centers NV and Israel’s Alony Hetz with Indian players indicate that overseas builders perceive a huge opportunity in this market.

“Their entry would help in improving quality and meeting timelines (on projects). Thanks to the deep pockets of the international players, the scale of projects will also increase,” predicts Mr Ramesh Nair, Managing Director, Jones Lang LaSalle Meghraj. As he puts it, “2005 was the year of the real estate investment tourists to India. 2006 was the year when they sought partners who have access to land. 2007 has been the year of searching for partners with good execution skills.”

Precision Pipes and Profiles Subscription Details

Qualified Institutional Buyers (QIBs) - 5.0343 times

Non Institutional Investors - 8.5824 times

Retail Individual Investors (RIIs) - 18.7003 times

OVERALL - 10.35 times

Mutual Fund Analysis

Mutual Fund Analysis

Welspun India

Welspun India

Weekly Watch - Dec 22 2007

Weekly Watch - Dec 22 2007

Analysts’ picks

PYRAMID SAIMIRA THEATRE Reco price: Rs 417 Target price: Rs 736 Current market price: Rs 420 Upside: 75.23% Brokerage: IL&FS Investsmart

Pyramid Saimira Theatre (PSTL), a leading exhibitor based in South India is expected to emerge as India’s largest fully integrated media company with business interests in production, distribution and exhibition.

PSTL has successfully demonstrated its ability to enhance revenues and realise operating efficiencies while ramping up at a fast pace. The company’s revenues and net profit are expected to record a CAGR of 151 per cent and 254 per cent respectively through FY07-09E. IL&FS Investsmart has put a BUY recommendation with a target price of Rs 736.

The stock at the recommended price of Rs 417 is valued at PE multiple of 18 times FY08 and 9 times FY09E estimated earnings.

GMR INFRASTRUCTURE Reco price: Rs 235 Target price: Rs 358 Current market price: Rs 236 Upside: 51.7% Brokerage: Emkay Share and Stock Brokers

GMR Infrastructure has recently announced the placement of 165.23 million shares at a price of Rs 240 to QIB's. The company has raised Rs 396.6 crore through the issue and would result in the equity base being expanded by 9.08 per cent post dilution.

The funds raised from this issue would be utilised for capital expenditure of its various projects. The fair value for GMR Infrastructure is based on the DCF value for each of the projects.

Though the equity dilution does not in any way change the fair value of the company, the per share value stands reduced on account of the increase in the equity capital. We revise our target price to Rs 358. The target price is based on the embedded value of each of the projects.

VARUN SHIPPING Reco price: Rs 87 Target price: Rs 106 Current market price: Rs 83 Upside: 27.7% Brokerage: Angel Broking

Varun Shipping is one of the safest bets in the shipping industry, given higher stability in its revenues. Further, Varun Shipping has been consistently declaring dividends over the past many years.

The company is expanding its asset base and business operations in the offshore support services segment to explore newer opportunities in energy. Varun Shipping had allocated $400 million for expansion of fleet. Of this, it spent $320 million in the last one year with the addition of five vessels.

Most of the vessels acquired over the last 3-4 quarters are expected to contribute fully to the revenue 2HFY2008 onwards. At recommended price of Rs 87, Varun Shipping is trading at 5.8 times and 5.3 times FY2009 and FY2010 estimated earnings. The brokerage puts a buy recommendation with a 12-month target price of Rs 106.

HERO HONDA Reco price: Rs 702 Target price: Rs 745 Current market price: Rs 693 Upside: 7.5% Brokerage: Religare

According to the brokerage, Hero Honda is aggressively capturing market share in economy and premium segment. This is further expected to improve its market share to 18 per cent in the near term in the premium segment.

Also, on the back of attaining high degree of localisation of components and with the expectation that prices of nickel, aluminium will remain soft, EBIDTA margins are expected to improve.

Further, the company has indicated that it has lined up its new product and variant launches for motorcycle and scooters till FY10.

The brokerage house has increased its revenue and margin estimates on the back of recent developments in the company. With the revised estimates, the target has been raised to Rs 745. At the recommended price the stock is valued at 15.4 times FY08 and 13.7 times FY09 estimated earnings.

CORE PROJECTS AND TECHNOLOGIES Reco price: 400 Target price: NA Current market price: 412 Upside: NA Brokerage: ICICIdirect

Core Projects and Technologies a pure IT company with interests in verticals such as education, logistics and healthcare, is set to capitalise on the education boom across the globe with its strong product portfolio.

The company has successfully acquired seven companies in the past two financial years across various verticals and products. This has helped the company triple its revenues in FY07 with the acquired companies contributing more than 65 per cent to revenues (Rs 194 crore) and net profit (Rs 33.37 crore).

The company’s inorganic growth strategy has helped it to penetrate newer geographies and cross-sell products and solutions to new clients. The company is expected to continue to grow inorganically and acquire companies having strong products in the US and UK.

Core Projects has signed an agreement with the CHL at NASA’s space centre for delivering educational content exclusively to the Asia-Pacific region.

The company has also signed a MOU with IL&FS and the Indira Gandhi National Open University (IGNOU) to create education content. At the recommended price of Rs 400, the stock trades at 55 times FY08 and 29.3 times FY09 estimated earnings.

Corporation Bank, Jindal Power and Steel

Corporation Bank, Jindal Power and Steel

Daily Technical Futures - Dec 24 2007

Daily Technical Futures - Dec 24 2007

Pantaloon Retail

Pantaloon Retail

India Equity Strategy

India Equity Strategy

Pullback likely

The markets witnessed a healthy correction last week mainly on account of sustained selling by the foreign institutional investors. The overseas investors net sold stock worth Rs 4,641 crore in the first three trading days of the week, as per data available on the Sebi website.

The Nifty plunged to an intra-week low of 5,677, down 363 points from the weekly high of 6,040, on account of unabated selling. It eventually ended with a loss of 4.7 per cent (281 points) at 5,767. The low of 5,677 was nearly R3 (resistance 3) on the quarterly charts. The index may pull back up to 5,900-6,000 provided it holds last week’s low. In case the index dips below 5,677, it may slip to 5550.

The Nifty has seen congestion around its 50-day daily moving average of 5,750. The Stochastic low at 20.6 is almost in oversold zone. This, coupled with the possibility of short-covering owing to the December series expiry, could aid the upmove. The index is likely to face resistance around 5,905-5,950-5,990 this week, whereas it may find support around 5,625-5,585-5,540.

After opening flat at 20,033 (up one point), the Sensex tumbled to a low of 18,886 - down 1,146 points from the week’s open. The index finally ended with a loss of 4.3 per cent (868 points) at 19,163.

In case of follow-up selling, the index may take support around 18,600 level. Resistance would emerge around the 19,800 level. The weekly support and resistance levels for the Sensex are placed at 18,725-18,590-18,450 and 19,600-19,735-19,875 respectively.