This is list of 10 strong futures:
Nifty is in Up Trend.
Index Outlook: Monsoon blues hit stocks
It is a relief that Indian stock prices have stopped their blind hurtle skywards that made Sensex gain over 2,700 points since July 13.
Market participants appeared edgy as the Sensex neared the 16,000 mark and the Nifty closed in on 4,700. Volumes were subdued through the week. Nifty put-call ratio declined below 1 indicating that the shorts have squared their position. Open interest of over Rs 23,000 crore in the stock futures is however a point of concern since it shows increased retail interest in leveraged trading.
The reversal in stock prices last week coincided with reversal of FII flows. With the US and European markets beginning to show momentum, funds could move to developed markets, which have underperformed in the rally since March.
Sensex recorded an intra-week high of 16,002 on Tuesday before reversing to end with 510 point loss. The negative divergence in daily oscillators accentuated last week with the 10-day rate of change oscillator declining in to negative zone and the 14-day relative strength index moving to 51.
This indicates that the current decline can prolong in the short-term. But what is of greater concern is the weakness in the weekly oscillators. These oscillators peaked in the last week of May and have been diverging negatively since then.
Another week of decline will indicate the onset of a medium-term correction in Sensex.
The unsuccessful attempt to move past 16,000 last week implies that the Sensex needs to do some more work before it can surpass this level.
The medium-term trend can now be revised to neutral and the index can be expected to consolidate in a range between 13,000 and 16,000 for a few more weeks.
Retracement of the move from March lows gives us the initial medium-term supports at 13,616 and then at 12,963.
In other words, the gap formed in the post-election push should be a strong medium-term support. Weekly close below 12,963 is needed to make the medium-term view overtly negative. The short-term trend has turned lower from the 16,002 peak. Sensex has immediate supports at 14,939 and 14,800. Short-term investors should, however, exit long positions on a close below 14,800 since the next halt can be at 14,471 or 14,282. Resistances for the week would be 16,002 and 16,217.
The Nifty reversed from the intra-week peak of 4,731 after flirting with the 4,700 mark for three sessions.
We stay with the view that the medium-term range for the Nifty is between 3,900 and 4,700 and a strong break beyond either boundary is required to make the medium-term outlook positive or negative.
Medium-term supports based on retracement levels are 4,073 and 3,894.
The short-term supports for Nifty are at 4,422 and 4,230. Presence of the 21 and 50-day moving averages around the first support makes it a likely area from where bulls can engineer a reversal. Resistances for the week are 4,640, 4,730 and 4,794.
CBOE VIX came down slightly implying growing complacency among global investors. Asian markets were, however, subdued and some of the Asian indices such as the Hang Seng, PSE Composite, Shanghai Composite, Strait Times Index and Taiwan Weighted Index closed the week with losses.
Shanghai Composite has recorded its largest weekly decline since March, forming an evening star in the weekly chart.
This chart needs to be followed closely over the ensuing weeks since the fate of the Indian and Chinese markets are closely entwined.
The Dow ended the week 2 per cent higher and the first target indicated in our last column was achieved on Friday. The index has strong resistance in the zone between 9,400 and 9,600 and a reversal from here would imply that the long-term view remains negative.
But a break past 9,600 will give the next target of 10,500 for Dow and 1,150 for the S&P 500. —
FII DATA
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 07-Aug-2009 | 1925.66 | 2976.47 | -1050.81 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 07-Aug-2009 | 1726 | 1311.57 | +414.43 |
 | 4481.40 | ( -2.27 %) | -104.10 |  |
| 1 | 2 | 3 | ||
| Resistance | 4560.88 | 4640.37 | 4688.83 | |
| Support | 4432.93 | 4384.47 | 4304.98 | |
 | 15160.24 | ( -2.28 %) | -353.79 | | |
| 1 | 2 | 3 | |||
| Resistance | 15406.79 | 15653.33 | 15804.73 | ||
| Support | 15008.85 | 14857.45 | 14610.91 | ||
RIL moved in line with our expectation to the intra-week peak of Rs 2,123. But the decline from this peak confirms our view that the stock continues in a medium-term down-trend.
As we have been reiterating, resumption of the medium term down-trend can pull the stock down to Rs 1,645 or Rs 1,530 in the medium-term.
The short-term trend in the stock reversed lower since the peak of Rs 2,124. Immediate supports for the stock are at Rs 1,967 and Rs 1,870.
A reversal from either of these levels will mean that the short-term trend remains up and the stock can move up to Rs 2,100 and Rs 2,200 in the near-term.
State Bank of India (Rs 1,741.8)
The exuberant start to the week could not take SBI past the resistance between Rs 1,900 and Rs 2,000 that we have been watching over the past few weeks.
The sharp reversal from this zone means that the stock will be stuck in the zone between Rs 1,500 and Rs 2,000 for a few more weeks. The medium-term view will turn negative only on a close below Rs 1,500. Subsequent targets are Rs 1,420 and Rs 1,290.
Short-term trend in the stock is negative and it can decline to Rs 1,650 in the near-term.
Fresh shorts are advised only on a decline below Rs 1,650, next target is at Rs 1,540. Resistances for the week are at Rs 1,885 and Rs 1,935.
Tata Steel (Rs 456.2)
Tata Steel was unable to surpass its recent peak of Rs 496 and declined to the intra-week trough of Rs 445 instead. This decline can prolong in the near-term to drag the stock to Rs 431 or Rs 393. Close above the previous peak of Rs 490 is required to make the short-term trend positive again for the stock.
The medium-term trend in the stock is revised to neutral and it can move in the range between Rs 320 and Rs 500 indicated in this column last week.
As we have been reiterating, the stock has strong intermediate resistance at Rs 460 and since the stock is struggling to move beyond this level, investors with a short-term perspective can book some profit at this level.
Infosys (Rs 2,041.9)
Infosys sustained above the key support at Rs 2,000 last week. We stay with the view that the stock can have a shy at its previous peak of Rs 2,439 if it sustains above this level. Investors can, therefore, hold the stock as long as it trades above Rs 2,000.
Short-term supports for the stock are at Rs 1,950 and Rs 1,830.
Reversal from the first support where the 21-day moving average is also poised will provide an apt juncture where short-term traders can buy this stock. Target on a rally above Rs 2,100 is Rs 2,140.
ONGC (Rs 1,138)
ONGC too was unable to cross the hurdle offered by its recent peak of Rs 1,218 and reversed lower towards the end of the week.
The stock can move lower to Rs 1,100 and Rs 1,060 in the near-term.
If it manages to hold above the first support, it will imply strength and an impending rally above Rs 1,200 soon.
The medium-term trend in the stock is sideways and it can move in the range between Rs 970 and Rs 1,200 in this period. A weekly close below Rs 950 is needed to make the medium-term view negative.
Maruti Suzuki (Rs 1,291.3)
It was a breathtaking reversal in MSIL from an intra-week peak of Rs 1,515 and the stock closed 15 per cent below this level. Short-term support is at Rs 1,220 but the stock is likely to revert to the zone between Rs 1,000 and Rs 1,100 over the medium-term.
NHPC's established record in implementing hydropower projects and its good operating performance are among its pluses.
The dam at NHPC's Chamera-I project in Himachal Pradesh.
The NHPC initial public offer (IPO) is ideally suited for long-term investors. Hydroelectric projects, by their nature, have long gestation periods of 5-7 years. On the existing generation capacity and financial profile, the offer appears to be fully priced. Valuations could, however, undergo a change as the company gradually commissions the different projects that are under implementation over the next four years and as the return on equity improves.
Existing capacity of 5,175 megawatt (MW) will almost double in the next four years as new projects totalling 4,292 MW are commissioned. With a further 4,565 MW of projects awaiting government clearances, NHPC is expanding rapidly in an industry that is set to undergo a lot of changes, mostly favourable to the generators.
For instance, some of NHPC's future projects, either in whole or in part, will sell power on a 'merchant basis'. Given the large deficit in availability of power and the active part played by traders such as PTC India, generators such as NHPC can hope for higher realisations.
Given that its fuel cost is next to nil, NHPC sold its power last year at an average price of Rs 2.03 per unit. Though this is an advantage in the merit-order despatch system where the cheapest power is picked up first, it also means that the company is not able to capitalise on the supply shortfall.
NHPC has the advantage of its projects being located on perennial rivers and it has managed a capacity index of 95 per cent on an average. This is a major plus given that the northern grid, where NHPC sells most of its generation, is extremely starved for power.
Not surprisingly, some of its projects such as Chamera II in Himachal Pradesh have managed to earn a handsome sum as fees for meeting excess demand over that projected by the consuming State electricity board.
That said, NHPC also suffers from some blemishes that could, if not managed well, scar its financial performance and balance-sheet. Thanks to a historical reliance on equity funding through government grants, NHPC carries a huge equity base of Rs 11,182 crore that will increase to Rs 12,300 crore after the public offer now. A large quantum of equity funds is locked up at any given time in ongoing projects and this does not earn any return till the projects are commissioned.
The result is that the company's return on equity is a poor 7 per cent despite it earning an assured return of 14 per cent on its equity till last year (15.5 per cent from this fiscal for the next five years) as per regulatory norms. Peers such as NTPC boast of a return on equity that is double that of NHPC's.
The picture could change for the better in the next few years due to two reasons. First, NHPC has been off government grants since the last two years and its projects are now funded on 70:30 debt:equity with the equity coming from internal accruals. Second, as the projects under construction now start generating returns, the return on equity will gradually improve.
For instance, the 2,000 MW Subansiri Lower project in Arunachal Pradesh was originally scheduled to be completed in September 2010 but the company now expects to commission it only by December 2012. The 240 MW Uri II and 160 MW Teesta Low Dam IV projects are also on a delayed schedule. Incidentally, these are among the projects that are proposed to be part-funded from the IPO now.
The increased costs have to be approved by the regulator, failing which the company will have to bear the burden.
In price-to-book-value (P/BV) terms though, NHPC's offer price compares favourably with the rest. At the offer price band, NHPC has a P/BV of 1.8-2.2 times; JP Hydro's, in comparison, stands at close to four times while NTPC has a P/BV of three.
Given the high institutional interest in the power sector and the company's fundamentals, it is likely that the stock will attract much attention in the market. Investors with a long-term holding strategy can subscribe to this offer.
--
Arvind Parekh
+ 91 98432 32381
