• Reliance Industries has signed a gas sales and purchase agreement with state-owned power major NTPC to supply gas at the government-mandated price of USD 4.2 per mmBtu. (BS)
• Unitech is planning to raise USD 200 mn within the next three months by selling stake in its affordable housing projects to private equity players. (BS)
• DLF said that it will reduce its huge debt of Rs. 140 bn to half by the end of this fiscal by raising funds through sales of non-core assets/businesses, and internal accruals. (BS)
Economic and Political Headline
• The RBI has allowed Public sector banks to give more relief to farmers under the debt relief scheme, provided the lenders do not ask the Government to bear the losses. (BS)
• The US Consumer spending rose 0.3% in May as benefits from the Obama administration's stimulus plan spurred a jump in American incomes, a sign that efforts to revive the economy are starting to pay off. (Bloomberg)
• Japan's consumer prices fell 1.1% from a year earlier in May, adding to the risk that deflation will become entrenched and hamper a rebound from the nation's worst postwar recession. (Bloomberg)
4509
BUY ABB-789 for a target 815 stop loss 780
BUY ArevaT&D-339 for a target 345-351 stop loss 335
BUY STER-613 for a target 630-637 stop loss 608
This is list of 10 strong futures:
Nifty is in Down Trend.
NIFTY FUTURES (F & O):
Below 4347 level, expect profit booking up to 4293-4295 zone and thereafter expect a slide up to 4240-4242 zone by non-stop.
Hurdle at 4394 level. Above this level, rally may continue up to 4402 level.
Cross above 4455-4457 zone, can take it up to 4507-4509 zone. Supply expected at around this zone and have caution.
On Negative Side, rebound expected at around 4153-4155 zone. Stop Loss at 4100-4102 zone.
Short-Term Investors:
Bullish Trend. 3 closes above 4270 level, it can zoom up to 4830 level by non-stop.
Already SL triggered.
BSE SENSEX:
Lower opening expected. Uptrend should continue.
Short-Term Investors:
Short-Term trend is Bearish and target at around 12478 level on down side.
Maintain a Stop Loss at 14931 level for your short positions too.
Already SL triggered.
INVESTMENT BUY:
Buy CARBORUNDUM UNIV (NSE Cash)
Profit Booking expected in 1 day.
Bullish for 1 Week, 1 Month & Bulls will have two minds.
Profit Booking to start for 3 Months.
Bullish for 1 Year, but bulls will try to offload their long positions.
Buy ORIENT HOTELS (NSE Cash)
Profit Booking expected in 1 day, 1 Week, 3 Months & 1 Year.
 | 4370.55 | ( -0.11 %) | -4.95 |  |
| 1 | 2 | 3 | ||
| Resistance | 4424.85 | 4474.20 | 4564.65 | |
| Support | 4285.05 | 4194.60 | 4145.25 | |
 | 14757.01 | ( -0.05 %) | -7.63 | | |
| 1 | 2 | 3 | |||
| Resistance | 14906.53 | 15048.42 | 15314.90 | ||
| Support | 14498.16 | 14231.68 | 14089.79 | ||
The Dow Jones Industrial Average closed at 8,438.39. Down by 34.01 points.
The Broader S&P 500 closed at 918.90. Down by 1.36 points.
The Nasdaq Composite Index closed at 1,838.22. Up by 8.68 points.
The partially convertible rupee ended at Rs48.10/11 per dollar on Friday, stronger than its previous close of Rs48.595/605.
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 26-Jun-2009 | 2512.02 | 1960.88 | +551.14 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 26-Jun-2009 | 1546.78 | 1212.83 | +333.95 |
DELIVERY ONLY BUY
CRAM Players Will Shine
Buy Sun, Cipla, Dishman, Jubilant
Even though the pharmaceutical sector is one of the more vulnerable sectors prone to protectionism in the current environment, an analysis of the on-the ground realities of the pharmaceutical industry reveals that the impact of protectionism could be very limited.
After looking into the perspective of key stakeholders in countries of the European Union and the US (which are among the largest markets for the Indian pharmaceutical exports), it is highly beneficial for the government of these countries to continue pharmaceutical imports from India instead of imposing protectionist measures against it.
Overview of Indian exports
Despite having a very large number of domestic players, India accounts for only 1.3% of the global pharmaceutical market. Around 45% of total revenue for the Indian pharmaceutical industry comes from exports, with the US alone accounting for 20-30% of the total sector revenue.
Even though combined sales in the US have grown at a steady pace in the past three years (accounting for more than 20% of net sales), most Indian companies are still in early stages of their ramp, with a 1-2% market share. The Indian pharmaceutical industry also provides a wide range of contract services across the drug development value chain including drug discovery, contract manufacturing, clinical trials and data management to the foreign multinational companies.
A comparison of set-up costs of these facilities in the US vis-à-vis India shows that it is 37% more economical to set up a captive unit in India than in the US. In addition to cost benefits, the global pharmaceutical majors also enjoy certain other benefits in shifting their R&D operations to countries like India. These include greater access to the patient population they are trying to serve, access to indigenous plants known to have huge medicinal potential (but not fully tested or commercialised yet), favourable environment for developing significant new research processes and access to funds from local or regional governments to treat diseases that are generally neglected.
Why protectionism does not pose a potential threat
Despite significant sensitivity for the Indian pharmaceutical industry, on the ground impact of protectionism would be limited or negligible in this sector. Our argument is based upon various factors that decide the disposition of key stakeholders of the US pharmaceutical industry on imports from India.
Multi-national pharmaceutical companies:
The industry is truly global in nature, with manufacturing and sales interests spread across countries. Many MNC pharmaceutical companies already outsource research and manufacturing to several Indian, Chinese and other companies that employ scientists and chemists in India.
They are, therefore, unlikely to support any protectionist measures in the US or in Europe – the largest markets for Indian companies. For the genericised markets or products, many of these companies also outsource supplies to the very same manufacturers. In fact, due to the huge cost and time benefits, many multi-national pharmaceutical companies in the US and Europe have been increasingly outsourcing the API, intermediates and generic drugs production to India. A cost-benefit analysis of typical manufacturing cost elements between the US and India illustrates that outsourcing of manufacturing operations to India results in net savings of 27%.
The government:
Cheaper generic drugs is an important factor in the cost cutting plans of the US government considering that it currently spends more than US$2 tn annually on healthcare and subsidies, medicines for the elderly and the poor. Healthcare expenditure generally accounts for a major share in the total spending of developed countries including 10.7% of the GDP in Germany, 9.7% in Canada and 9.5% in France in 2008.
With rising healthcare costs in Europe and the US, cheap generic drugs exported from other countries has proven to be a silver lining. A recent study by the Generic Pharmaceutical Association in the US revealed that the American healthcare system saved US$734 bn between 1999 and 2008 by using generic drugs, including about US$121 bn in savings in 2008 alone.
With India being one of the major sources for manufacturing these cheap generic drugs, the governments in the US and Europe would want to further promote their imports from India. Recent announcements by the US President in May 2009 to cut down on healthcare costs in a bid to make medical treatment more affordable in the US, also indicates that the likelihood of any protectionist measure being taken against Indian pharmaceutical companies in near future is low.
The insurance companies: Around 85% of citizens have health insurance coverage in the United States; with private insurance companies and funds accounting for more than 50% of total healthcare expenditure. The insurance companies would thus benefit from cheaper drugs manufactured in India. These multinationals also have a significant say in the governments in these countries.
The generic drugs imported from India are, in turn, beneficial to consumers who need to pay a lower health insurance premium for using these drugs. Recent estimates indicate that the average insurance premium for family coverage in the US in 2008 grew at an average rate of 5%, 2x the average rate of inflation (source: Kaiser Health Research).
The workforce:
The pharmaceutical industry in the US and Europe and the manufacturing sector at large in developed countries are not perceived as a major job creator due to the high degree of automation in manufacturing.
In fact, the pharmaceutical sector employed only 0.3% of the US working population in 2008 compared with healthcare and social assistance services, which correspondingly employed 12.5%. Thus, recent cries of protectionism in the US and Europe related to growing concerns of unemployment in various sectors are not so relevant to the pharmaceutical manufacturing industry.
The pharmaceutical sector is one sector which has felt a relatively lesser impact of the global financial crisis and the corresponding demand slump following it compared with other manufacturing sectors. This is because primary drugs are essential commodities and a high priority is accorded to healthcare by consumers.
(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
WEEKLY MARKET OUTLOOK
Faint cracks in uptrend
Negotiating the slope —
Sensex (14764.4)
US President, Barack Obama, and the World Bank played the miscreant over last fortnight, deflating equity markets with their grim statements about a prolonged recession. The whimsical monsoons were Indian equities' bête noire that kept stock prices in check for most part of last week before a bout of buying, ostensibly triggered by changing Nifty weights, made Sensex close 242 points higher.
Volumes were very strong last week but breadth turned negative on many days. Weak rollover of June contracts denotes that market participants are adopting a cautious stance ahead of the Union Budget. FIIs pulled out about $500 million in the first four sessions of the week though they turned net buyers on Friday.
Following three elongated white candles in the monthly Sensex chart, we have a long-legged doji for June. This formation denotes indecision and is perfectly justified given the 94 per cent rally from the March lows. Weekly and daily momentum indicators are reversing downward reflecting sagging momentum. The 10-day rate of change oscillator's decline in to the negative zone too portends prolonged weakness.
The medium-term uptrend from the March lows is showing faint signs of cracks. We had explained earlier that the index faces strong intermediate resistance in the area between 15500 and 16200. Sensex has already declined 10 per cent from its recent peak of 15600. The index has also retraced 21 per cent of the prior up-move from 8047.
It is, however, too soon to judge if the ongoing correction is a short-term pull-back in the medium term uptrend or the commencement of a medium term down-trend.
If the down-move from June 12 was a short-term correction, then it could have ended at 14014 and the index can now proceed higher to 15800 or 16200 once more.
If the Sensex has already formed a medium-term peak at 15600, it will not cross above this level over the next couple of weeks. Minimum downward targets according to this assumption are 13346 and 12730. The duration of the down-move can be a minimum of one-month.
The open gap between 12173 and 13480 will be an important support zone for the medium term. The 200-day moving average at 12100 will also be an important medium term support.
To put it in other words, Sensex is reversing lower from key resistance and a medium term peak could already have been formed at 15600. A rally above 15600 over the next couple of weeks will negate this view and cause another leg of the uptrend that takes Sensex beyond 16000.
Sensex can be volatile between 14000 and 15600 next week. Failure to move above the first target will usher in a decline to 14000 or 13800. Target below 13800 is 13197.
Nifty (4375.5)
Nifty declined to 4143 last week before rallying on Friday to close with 61 points gain. Short-term resistance for the index are at 4482 and 4693. Failure to move above the first target will usher in a decline to 4100 or 4044 in the short-term.
Nifty too is declining from key medium term resistance zone between 4600 and 4900. It is yet to be confirmed if a medium term peak has been formed at 4693. If the index fails to rally beyond 4693 over the next couple of weeks, it can be concluded that a medium term correction that can last a few months is in progress that has the minimum targets of 4051 and 3876.
Global Cues
Equity markets worldwide were under pressure in the first half of the week but the recovery on Thursday helped most equity indices to close on relatively stable note. European markets were relatively weak. DJ Euro STOXX 50 closed the week down 2 per cent. Some of the European markets have already retraced 30 per cent of the gains recorded since March. Many of the Asian indices are reversing lower from significant resistance levels. The action this week should be closely watched to gauge if the medium term trend has reversed or if it was just a short-term correction in these indices.
The Dow moved in the range between 8600 and 8800 for two weeks before beginning a short-term down-trend. This index retraced 30 per cent of the down-trend from the October 2007 peak when it recorded the recent peak at 8878. In other words, if the move from March lows in a counter-trend pull-back (bear market rally in common parlance) it could have ended there. The struggle and failure to move above the 200 day EMA also supports this view. But a weekly close below 7800 is required to indicate that the index can move back to the March lows. Else it can reverse higher from 7800 or 7400. S&P 500 is also displaying a similar trend. A strong close above 956 is needed to turn the short term trend positive again.
CBOE volatility index is moving in a band between 26 and 33 since the beginning May. While the fact that it has not spiked up indicates lack of nervousness among investors it needs to be noted that it has not declined to its bull-market levels below 20 either implying that investors have not turned overwhelmingly bullish yet
Reliance (Rs 2,028.6)
RIL failed to rally above the resistance at Rs 2,384 indicated in our edition dated June 14, 2009, and the third wave of the down-move from Rs 2,490 dragged the stock to our medium-term target of Rs 1,935. It is important to note that RIL has filled the gap formed after the Lok Sabha election results thus leading to the possibility that it was an exhaustion gap that signalled the end of the up-trend from March low of Rs 1,118. Key medium-term support is at Rs 1,900. If this level is breached, a decline to Rs 1,700 or Rs 1,520 is possible.
There can be a bounce to Rs 2,120 or Rs 2,267 in the short-term. Reversal from the first resistance would be a cue for short-term traders to short the stock. Supports for the short-term are Rs 1,900 and Rs 1,778.
State Bank of India (Rs 1,748.9)
The down-move from June 3 peak in SBI halted at Rs 1,612 and the stock has been meandering sideways ever since. We retain a negative medium-term view for the stock. The current sideways move appears to be the second wave of a medium-term downtrend. The targets for the third wave down are Rs 1,559 and Rs 1,436. The 200-day moving average poised around Rs 1,400 is a likely medium term target once the stock declines below Rs 1,600. Key short-term resistances for the stock are at Rs 1,780 and Rs 1,815. Failure to move above the first resistance will imply an impending down-move to Rs 1,612 or Rs 1,560. A strong close above Rs 1,815 will make the short-term view positive.
Tata Steel (Rs 387.9)
Tata Steel moved sideways in the range between Rs 380 and Rs 420 last week. As indicated earlier, the stock has key medium-term resistance around Rs 460. That the stock was unable to record an emphatic weekly close above this level implies that it can slide down towards Rs 320 or Rs 280 over the medium-term. A strong weekly close above Rs 460 is required to make the medium-term view positive again.
Tata Steel can be confined to the band between Rs 380 and Rs 420 over the short-term. Decline below Rs 380 will drag the stock lower to Rs 365 and Rs 340. Resistances for the week would be at Rs 427 and Rs 455.
Infosys (Rs 1,826.7)
Infosys oscillated in the range between Rs 1,700 and Rs 1,800 in the first four sessions of the week before surging on Friday to close at Rs 1,826. The stock faces key intermediate resistance in the zone between Rs 1,850 and Rs 1,900. A downward reversal from this zone can make the stock decline below Rs 1,400 over the medium-term. Conversely a strong close above Rs 1,900 will pave the way for a rally towards the stock's all-time high again.
Short-term targets for the stock are Rs 1,850 and Rs 2,000. Supports for the week would be at Rs 1,740 and Rs 1,670.
ONGC (Rs 1,040.9)
The 10 per cent decline in the third week of June dragged ONGC below the key intermediate resistance at Rs 1,100. It needs to record a weekly close above this level to mitigate the negative medium-term view. Medium-term supports for the stock are Rs 1,000 and Rs 850. The stock is attempting to move higher from the first support. Short-term investors can buy with a stop at Rs 960. ONGC can move on to Rs 1,132 or Rs 1,220 over the short-term. Short-term support on a decline below Rs 970 is at Rs 917.
Nifty future may try to head higher
Thanks to Friday's strong recovery, the Nifty future managed to end the week on a positive note. The Nifty July future closed 4384, a gain of 1.3 per cent over the previous week's close of 4326. It also ended with a premium of about eight points over Nifty spot, which ended at 4375.5. However, the rollover of Nifty future at 51 per cent was sharply lower when compared with its record in the previous three months. Even market-wide rollover was lower at 62-63 per cent, with a good number of counters witnessing short rollovers.
Follow-up
We had advised traders to consider long strangle strategy using 4200 put and 4400 call of July strikes. This spread will now be at the money as Nifty has closed the week between the two strikes. Traders can consider holding the spread for two more weeks.
Outlook
Nifty future tried to pierce the 4200 support level but failed to close below it. On the contrary, it later went on to stage a sharp recovery on Friday. Now as long Nifty future stays above 4200 (on a closing day basis), in all likelihood it would make another attempt to touch 4630, it next resistance level; though 4400 could act as minor resistance level in between. A move past 4630 can take it higher to 4800-4850 levels. But in case it manages to break below the 4200 level, it will find next support at 3650, though 4150 and 3800 would act as minor support level before that. In the coming week, we expect the Nifty future to make another attempt to reach the 4630 level.
Option monitor
Puts with strike prices as low as 3600 shot into active zone, due to the sudden turnaround in sentiment. Open interest was high in puts with strikes 4200, 4000 and 3800. This suggests the emergence of strong put writing activity, which in turn could act as a major support for Nifty. Among the calls, it was the 4700 strike that enjoyed high open interest, indicating that it could act as a strong resistance. The 4500 and 4200 call options also saw smart accumulation. But since 4200 strike saw accumulation in both puts and calls, the Nifty might may move in and around this range.
Volatility index
Volatility index ended the week on a weak note. It dipped to 37.99 against its previous week's close of 48.95.
The fall in volatility index was despite the weakness in Nifty during the early part of the week.
Recommendation
Traders can consider the following two strategies.
1) Go long on Nifty future keeping the stop loss at 4200.
Traders can book their profits at 4450, 4630 and if lucky even at 4800.
2) Set a long straddle strategy using 4300 strike. (This strategy is for a slightly longer period). The 4300 put closed at Rs 155 and the call at Rs 238.15. This strategy would result in profit only if the Nifty swings wildly in either direction.
FII trend
The cumulative FII positions as percentage of the total gross market position on the derivative segment as on June 25 was 39.81 per cent. They were predominantly net buyers, particularly in index futures. They now hold index futures worth Rs 8,878.73 crore (Rs 14,707.95 crore) and stock futures worth Rs 16,869.59 crore (Rs 21,886.95 crore). On index options, FII holding declined to Rs 15,589.4 crore (Rs 26,556.37 crore).
--
Arvind Parekh
+ 91 98432 32381
