Market Mantra
Market outlook
Yes, we can!
Our individual salvation depends on collective salvation. Thinking only about yourself, fulfilling your immediate wants and needs, betrays a poverty of ambition.
Salvation has come to the battered bulls. After four successive days of losses, Yes We Can look forward to a bright start and hopefully an upbeat close to the week as well. All thanks to the overnight gains on Wall Street, which put up a sterling performance after Q3 GDP growth came in ahead of estimates. The Dow finished up nearly 200 points in the biggest one-day point jump since July 15. European stock indexes too finished with gains. Markets are higher across Asia but lag Wall Street's gains. So, it’s a no-brainer that we will also open with a gap.
Don’t get carried away, as there are still worries on whether the ‘V’ shape recovery can continue without any hiccups. Whatever growth is happening in the economies that were hit badly is largely due to government stimulus.
It is not clear as to what will happen once that starts to unwind though the same is going to take place gradually. Real growth, driven by household and corporate demand is yet to return to pre-crisis levels.
Trading ideas (Time period: 1-3 days)
Tata Tea (BUY, CMP Rs855, Target Rs910): Tata Tea is pointing to continued strength in the weeks to come as it has broken a downward-sloping trend line since late-August 2009, A detailed study of the daily chart shows that the stock has corrected from the high of Rs1,018 in August 2009 to touch a low of Rs821 this week. On Thursday, the stock staged a smart breakout past the downward sloping trendline). This bullish breakout signals the end of the intermediate downtrend. We recommend a buy on the stock in the range of Rs850-860 with SL of Rs830 for target of Rs910.
Wipro (BUY, CMP Rs625, Target Rs655): In our view, the stock has completed its downfall and has created a short term bottom around the levels of Rs570. From the current level, the stock can only move towards one direction, i.e. upwards. The daily RSI has also given a positive divergence, indicating that price would start moving up. After creating a base around Rs570, the stock has moved up steadily, breaking above the critical resistance line of Rs620. Based on the above observations, we recommend traders to buy the stock at current levels and on declines up to the levels of Rs618 with the support of Rs605 for a initial target of Rs655.
Derivative strategies (Time period: Till expiry)
± Long IDBI Nov Future @ Rs118 for the target price of Rs124 and stop loss placed at Rs115.
Lot size: 2,400
Remarks: Net maximum profit of Rs14,400 and net maximum loss Rs7,200.
± Long GSPL Nov Future @ Rs82 for the target price of Rs87 and stop loss placed at Rs80.
Lot size: 6,100.
Remarks: Net maximum profit of Rs30,500 and net maximum loss Rs12,200.
Commodities – Metals (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Gold - Dec | Buy | Above 15950 | 15990, 16020 | 15920 |
| Silver - Dec | Buy | Above 26300 | 26450, 26690 | 26170 |
| Copper - Nov | Sell | 313-314 | 310, 308 | 315.7 |
| Zinc - Oct | Buy | Above 105.3 | 106.4, 107.3 | 104.4 |
| Lead - Oct | Buy | Above 110.7 | 112, 113.2 | 109.8 |
| Aluminum - Oct | Buy | At 89.3 | 90.5, 91.5 | 88.7 |
| Nickel - Oct | Buy | Above 875 | 889, 900 | 864.5 |
| Crude Oil - Nov | Buy | Above 3780 | 3820, 3850 | 3755 |
| Natural Gas - Oct | Buy | Above 239 | 242.5, 246 | 236.8 |
Commodities – Agro (Time period: Intra-day)
Trade recommendation
| Commodity | Strategy | Levels | Target | Stop-Loss |
| Pepper - Nov | Sell | Below 14860 | 14720, 14600 | 14980 |
| Jeera - Nov | Sell | Below 12550 | 12430, 12350 | 12645 |
| Turmeric - Nov | Buy | Above 10620 | 10660, 10700 | 10590 |
| COCUDCAKL - Dec | Buy | Above 531 | 534.5, 538 | 528 |
| Chana - Nov | Buy | Above 2481 | 2507, 2530 | 2765 |
| Guar seed - Nov | Buy | Above 2455 | 2480, 2500 | 2435 |
| Soya bean - Nov | Sell | At 2200 | 2170, 2150 | 2215 |
| Soya oil - Nov | Buy | 450-451 | 454, 456.8 | 447.8 |
| Mustard seed - Nov | Buy | Above 585 | 588.5, 591 | 582.4 |
| Mentha oil - Oct | Sell | Below 517 | 514, 511 | 519.8 |
**Strict Stop-Loss *Book Partial Profits
Mutual funds
| Fund focus | ||||||
| Reliance Monthly Income Plan | Invest | |||||
| Fund manager | A Tripathy, Ashwani Kumar | | Min investment | Rs10,000 | ||
| Latest NAV | Rs19.3 | | Entry load | Nil | ||
| NAV 52 high/low | Rs20/14 | | Exit load | 1% <1 year | ||
| Latest AUM | Rs568cr | | Latest dividend (under dividend option) | 1.2% (21-Aug-09)w | ||
| Type | Open-ended | | Benchmark | Crisil MIP Blended | ||
| Class | Hybrid: Monthly Income | | Asset allocation Equity (15%), Debt (77%), Cash (8%) | |||
| Options | Growth & dividend | | Expense ratio | 2% | ||
Economy Update: Inflation – October 17, 2009
± WPI basket continues to rise as it increases 1.51%
± Rise in primary goods index by 8.67% yoy on back of higher prices of food articles
± Manufactured products index remains flat sequentially
± Fuel index lower by 6.2% yoy
Trading Idea: Ess Dee Aluminium – BUY
CMP Rs374, Target Price Rs440, Downside 21.4%
The stock witnessed an important price move yesterday. At a time, when the entire market was breaking down, Ess Dee Aluminum sprung a surprise by bouncing from its 20-DMA. Recent price action is supported by impressive volumes. We recommend traders to buy the stock in the range of Rs365-380 with a stop loss of Rs340 for target of Rs440 and Rs454.
Result Update: Reliance Industries (Q2 FY10) – Market Performer
CMP Rs2,004, Target
± Revenues at Rs468bn, higher by 4.6% yoy and 4.6% qoq; much in line with our estimates
± OPM expands 95bps yoy driven by sharp improvement in petrochemical segment EBIT margins
± GRMs at US$6/bbl was lower than our estimates of US$6.5/bbl
± 315% yoy jump in other income was on account of interest income surplus cash on books
± Gas production from KG-D6 field has been ramped up to 40mmscmd currently and RPL refinery operating above 100% utilization level
± Pending litigations with RNRL and tax holiday dispute for KG-D6 will keep valuations under check. Maintain Market Performer rating.
Result Update: Oil & Natural Gas Corp (Q2 FY10) – SELL
CMP Rs1,166, Target Price Rs980, Downside 15.9%
± Net sales fall 13.2% primarily on account of absence of MRPL trading activities
± Yoy depreciation in rupee against US$ and 70% yoy fall in subsidy burden translated into 20.7% yoy jump in net realization on crude oil.
± OPM expands 955bps yoy but falls 506bps qoq
± PAT growth muted at 5.8% restricted by 7.9% higher depreciation and 18.4% fall in other income
± Declining production, uncertainty over subsidy sharing pattern and rupee appreciation to impact earnings in near term. Retain SELL rating
Result Update: Tata Power (Q2 FY10) – Market Performer
CMP Rs1,405, Target
± Higher capacity leads to 17% yoy growth in generation
± 25% dip in average realizations translate into 12% drop in revenues, sells 220MU on merchant basis at Rs5.5-6/unit
± Higher capacity translates into increased depreciation and interest
± Adjusted profit remains flat at Rs1.8bn on account of higher tax outgo
± Merchant sales and higher earnings from Mumbai License Area to provide growth opportunity, upgrade to Market Performer
Result Update: Sterlite Industries (Q2 FY10) – Market Performer
CMP Rs746, Target Price Rs804, Upside 7.8%
± Q2 FY10 revenue of Rs62bn was way above our expectations, led by higher copper realisations
± Copper business EBIT jumped 82.8% qoq on account of strong copper realisations and a marginal improvement in by-product revenues
± BALCO’s aluminium business EBIT declines 7.9% qoq to Rs691mn as BALCO-I was completely ramped down
± Zinc division numbers were higher than expected on account of higher concentrate sales
± Management expects to receive coal linkages for the full 2,400 MW over the next one month, major positive trigger for the stock
± Commissioning of the first phase of 2,400MW merchant power plant delayed by a quarter
Result Update: Punjab National Bank (Q2 FY10) – BUY
CMP Rs840, Target Price Rs965, Upside 15.0%
± Business growth was in-line with expectations; SME credit expands significantly
± NIM expands materially by 30bps qoq on sharp correction in the cost of funds
± Other income decline on lower trading profits; operating expenses decline despite branch expansion
± Capital adequacy was stable; asset quality improves
± Maintain BUY on PNB with an upgraded target price of Rs965
Result Update: Mahindra & Mahindra (Q2 FY10) - Market Performer
CMP Rs928, Target Price Rs898, Downside 3.2%
± Revenues increase 35.9% yoy as volumes rose 25.6% yoy led by robust growth in UV sales and sharp jump in tractor sales
± OPM jumps 1,233bps yoy and 388bps qoq due on back of lower raw material costs and benefits of operating leverage
± Outlook seems to be improving in terms of volume growth as credit availability improves on account of aggressive financing by PSU banks
± We value M&M at Rs898/share, which includes Rs584 for its automotive business (8x EV/EBIDTA for FY11E) and Rs314 for its subsidiaries
Result Update: Cairn India Ltd (Q2 FY10) – Market Performer
CMP Rs265, Target Price Rs257, Downside 3.1%
± Excluding production from Rajasthan field, net working interest for Cairn remained flat at 17,100boepd
± Realization for crude oil was lower by 40.6% yoy, while that of natural gas was down 4.9% yoy
± OPM falls 19.4ppts yoy on account of increase in costs across all heads
± Other income witnesses 49% yoy fall on account utilization of surplus cash balances for capital expenditure in Rajasthan project
± Exceptional items of deferred tax reversal and provision write-back for favorable arbitration judgment in ONGC carry case result in 60% jump in net profit
± Government allows sale of Rajasthan crude oil to private refiners. However, cess arbitration continues to be a key concern
± Maintain Market Performer rating with a target price of Rs257
Result Update: Bharat Petroleum Corp Ltd (Q2 FY10) – Market Performer
CMP Rs506, Target Price Rs465, Downside 8.1%
± Net sales fall 28.4% yoy and primarily on account of lower realizations and absence of bond reciepts
± Upstream companies shared under recovery burden worth Rs8.8bn
± Throughput falls 5.5% yoy to 5.0mn tons as Kochi Refinery was under a shutdown for increase in capacity
± Uncertainty over subsidy sharing pattern would continue to cloud earning estimates
Result Update: Bank of India (Q2 FY10) – Not Rated
CMP Rs358
± Loan book grew 1.6% qoq and 16.2% yoy; international loan growth moderates to 2.2% qoq.
± NII was up 3.4% yoy; slowest since Q1 FY06. Pre-provision profit declined 0.7% yoy; net profit declined 57.6% yoy.
± NIM (global) improved by 15bps sequentially.
± CASA ratio improved to 31.2%, thrust on increasing share of savings deposits
± Significant deterioration in asset quality, incremental slippages as % of average loans increased to 5.7%.
± Capital adequacy remains healthy at 13.5%; headroom to raise further capital.
Result Update: Colgate-Palmolive (India) Ltd (Q2 FY10) – BUY
CMP Rs706, Target Price Rs794, Upside 12.4%
± Records 18.1% yoy growth in revenue at Rs4.9bn, driven by overall volume growth of 16%. Core toothpaste segment registers strong 18% volume growth
± Drop in raw material and advertising cost fuels operating margin to 19.5%
± Healthy topline growth coupled with improved operating efficiency drives net profit by 41.3% yoy
± We expect the company to witness a 14.1% CAGR in revenue and 20.4% in net profit over FY09-11. Maintain BUY
Result Update: CESC (Q2 FY10) – Market Performer
CMP Rs369, Target Price Rs348, Downside 5.6%
± Higher sales volume coupled with revised tariff translated into 26% yoy revenue growth
± Budge Budge continued with its strong operational performance, reported PLF at 103.8%
± Higher interest expense and tax rate led to flat PAT growth
± Budge Budge III has achieved full load test, unit will be integrated with the grid by end of this year
± Dhariwal project expected to achieve financial closure next month
± Spencer’s witnessed improvement in sales to Rs793/sq ft in September ‘09 against Rs660/sq ft in March ‘09
± Upgrade target price to Rs348/share, re-iterate Market Performer
Result Update: Britannia Industries Ltd (Q2 FY10) – BUY
CMP Rs1,680, Target
± Revenue growth muted at 2.4% yoy to Rs8.6bn, as a result of incorrect sales mix and lower consumer offtake
± Operating margin improved by 60bps to 8.6% aided by lower raw material cost. Sharp rise in adspend restricted further expansion
± Net profit registered a modest 10.8% yoy growth at Rs591mn led by lower interest and tax outgo. Growth could have been even better but for lower revenue and other income
± Due to lower earnings visibility, we revise our price target downwards to Rs1,871
Result Update: Sun Pharma
CMP Rs1,404, Under Review
± Higher non-recurring income boost revenues
± An all round increase in costs pulls down OPM by 793bps
± Adjusted PAT declined 11.5% due to contraction in margin and rise in effective tax rate
± We would keep our reco under review as clarity with respect to Caraco and Taro is yet to emerge
Result Update: Procter & Gamble Hygiene and Health Care (Q1 F6/10) – BUY
CMP Rs1,471, Target
± Revenue record 20% yoy growth at Rs2.3bn driven by strong 32% yoy growth in Feminine Hygiene and 6.6% yoy growth in Healthcare segment
± Sharp increase in raw material cost restricts operating margin expansion at 30.8%
± Net profit registered 4.7% yoy growth at Rs515mn due to sharp rise in depreciation and tax outgo
± We expect the company to witness 21% CAGR in revenues and ~26.8% CAGR in net profit over F6/09-11
± We maintain our BUY rating on the stock with a revised price target of Rs1,684
Corporate Snippets
± Cairn India to sell crude oil to RIL and Essar Oil from its Rajasthan fields. (ET)
± NTPC-BHEL’s Rs60bn plant to come up in Andhra Pradesh. (BS)
± PNB to pay US$25mn for 64% stake in Kazakh’s Dana Bank. (FE)
± CESC is scouting for overseas coal assets to power its expansion plans. (BS)
± Tata Tea quits beverage retailing; to focus on branded products. (BS)
± Sun Pharma accuses Taro director for misusing funds. (BS)
± Corporation Bank mulls entry into life, non-life insurance business. (FE)
± Zee Entertainment board approves acquisition of group firm, Zee News, on a share-swap deal basis. (FE)
± Jey Airways may soon fly full capacity. (ET)
± Government cleared 20% FPO by REC. (ET)
± Aurobindo Pharma gets nod from the South African regulator to manufacture and market auro ampicillin injection. (FE)
± iGate plans to hire 1,500 people in 2010; expands its global delivery facility in Karnataka. (BS)
± Baja Electricals plans to raise RS1.75bn via QIP. (FE)
± Provogue picks-up 45% stake in its Aurangabad mall project from its local partner. (BS)
Economic snippets
± Inflation for the week-ended October 17 rises to 1.51%. (ET)
± Gold imports rises by 72% to 37.5 tones in September as compared to the previous month. (ET)
± Finance minister turns down demand from various ministries for an extra spending of about Rs700bn this fiscal. (ET)
± Centre envisages investments of US$80bn on construction of roads and highways. (FE)
± Government may raise duty-free sugar import cap. (ET)
± India may have to import rice in 2010, says International Rice Research Institute. (FE)
Results table
| Company | Revenues (Rs mn) | Yoy (%) | PAT (Rs mn) | Yoy (%) |
| RIL | 468,480 | 4.6 | 38,520 | (6.6) |
| BPCL | 270,923 | (28.4) | (1,588) | - |
| ONGC | 151,916 | (13.2) | 50,896 | 5.8 |
| GAIL | 62,022 | 1.2 | 7,132 | (30.3) |
| Sterlite | 61,291 | (10.0) | 12,403 | (27.9) |
| PNB | 60,759 | 14.4 | 9,270 | 31.1 |
| BOI | 51,650 | 12.0 | 3,233 | (57.6) |
| Grasim Ltd | 46,823 | 5.2 | 7,808 | 60.5 |
| M&M | 45,578 | 35.9 | 7,030 | 184.8 |
| IOB | 29,223 | 10.6 | 1,760 | (51.0) |
| Tata Chemicals | 22,295 | (53.4) | 2,228 | (19.8) |
| Corporation Bank | 20,723 | 27.7 | 2,917 | 52.3 |
| DLF | 17,509 | (53.2) | 4,397 | (77.3) |
| Tata Power | 17,211 | (12.1) | 1,822 | (28.0) |
| Vijaya Bank | 14,576 | 3.4 | 1,084 | 35.7 |
| Sun Pharma | 11,857 | 0.7 | 4,538 | (11.5) |
| Voltas Ltd | 10,930 | 12.1 | 903 | 48.1 |
| CESC | 9,490 | 25.7 | 1,260 | 1.6 |
| Britannia Industries | 8,585 | 2.4 | 591 | 10.9 |
| LIC Housing Finance | 8,349 | 18.5 | 1,712 | 26.8 |
| Shree Cements | 6,280 | (30.2) | 1,075 | (64.0) |
| PSL Ltd | 5,936 | (7.8) | 216 | (0.1) |
| Dalmia Cement | 5,588 | 24.4 | 539 | 34.0 |
| Jain Irrigation | 5,499 | 18.5 | 426 | 73.7 |
| Colgate Palmolive | 4,873 | 18.1 | 897 | 41.3 |
| CCCL | 4,513 | (3.4) | 211 | 10.1 |
| HDIL | 3,537 | (25.9) | 1,486 | (44.1) |
| Cairn India | 2,298 | (28.3) | 4,695 | 60.1 |
| Sobha Developers | 2,236 | (20.6) | 275 | (38.2) |
| Emami Ltd | 2,117 | 65.7 | 230 | 71.2 |
| Shriram EPC | 1,938 | 14.2 | 91 | 29.5 |
| Orbit Corporation | 1,407 | 380.5 | 252 | 336.7 |
| PVR Cinemas | 787 | (4.7) | 52 | 10.4 |
Warm Regards,
Amar Ambani
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