Monday, August 23, 2010

Market Outlook 23rd Aug 2010 & Weekly Update(23rd-27th Aug 2010)

Strong & Weak  futures for 23rd Aug 2010
This is list of 10 strong future: 
KFA, UCO Bank, Bhushan Steel, Tata Comm, Petronet, Vijaya Bank, Orient Bank, Aurobindo Ph, DCB & Tata Chem. 
And this is list of 10 Weak futures:
 RNRL, RCOM, Sesa Goa, Punj Lloyd, National Alum, HCC, R Power, GT Offshore, ABB & Educomp.
The daily trend of nifty is in Uptrend 

  • Supp / Resis spot/ cash levels for intraday 23rd Aug
Indices Supp/Resis1 23
Nifty Resistance 5547.055563.45 5580.30
Support 5513.805496.95 5480.55
Sensex Resistance 18457.01 18512.19 18560.25
Support 18353.77 18305.71 18250.53

SPOT/ CASH LEVELS FOR INTRADAY TRADING 23RD AUG
Company Name  Exchange LTP* R1 #1 S1 @1 R2 #2 S2 @2 R3 #3 S3 @3
ABB Ltd. NSE 773.05 788.28 759.53 803.52 746.02 817.03 730.78
Aurobindo Pharma Ltd. NSE 1079.40 1097.93 1062.93 1116.47 1046.47 1132.93 1027.93
Bank of Baroda NSE 830.60 837.38 824.43 844.17 818.27 850.33 811.48
Bank of Rajasthan Ltd. NSE 208.45 210.82 206.92 213.18 205.38 214.72 203.02
Banking Index Benchmark Exchange Traded Scheme (Bank BeES) NSE 1116.93 1124.45 1106.45 1131.98 1095.98 1142.45 1088.45
Development Credit Bank Ltd. NSE 54.75 56.35 52.30 57.95 49.85 60.40 48.25
Educomp Solutions Ltd. NSE 574.80 586.20 567.20 597.60 559.60 605.20 548.20
Great Eastern Shipping Company Ltd. NSE 305.20 307.78 302.33 310.37 299.47 313.23 296.88
Great Offshore Ltd. NSE 399.25 406.42 394.27 413.58 389.28 418.57 382.12
Hindalco Industries Ltd. NSE 178.55 180.20 176.60 181.85 174.65 183.80 173.00
Hindustan Construction Company Ltd. NSE 64.35 66.63 63.03 68.92 61.72 70.23 59.43
Hindustan Motors Ltd. NSE 26.35 27.12 25.82 27.88 25.28 28.42 24.52
Hindustan Oil Exploration Company Ltd. NSE 246.80 253.23 242.83 259.67 238.87 263.63 232.43
Hindustan Petroleum Corporation Ltd. NSE 510.35 516.63 501.58 522.92 492.82 531.68 486.53
Hindustan Unilever Ltd. NSE 268.90 273.25 266.30 277.60 263.70 280.20 259.35
Hindustan Zinc Ltd. NSE 1123.40 1138.47 1109.67 1153.53 1095.93 1167.27 1080.87
Kingfisher Airlines Ltd. NSE 61.60 62.93 60.18 64.27 58.77 65.68 57.43
National Aluminium Company Ltd. NSE 400.30 403.80 396.90 407.30 393.50 410.70 390.00
National Fertilisers Ltd. NSE 117.85 118.90 117.15 119.95 116.45 120.65 115.40
NSE Index NSE 5530.65 5547.05 5513.80 5563.45 5496.95 5580.30 5480.55
Oriental Bank of Commerce NSE 444.65 452.05 433.70 459.45 422.75 470.40 415.35
Petronet LNG Ltd. NSE 109.60 112.80 107.60 116.00 105.60 118.00 102.40
Punj Lloyd Ltd. NSE 115.95 116.80 115.30 117.65 114.65 118.30 113.80
Punjab National Bank NSE 1195.65 1224.78 1159.43 1253.92 1123.22 1290.13 1094.08
Reliance Capital Ltd. NSE 783.70 803.53 746.93 823.37 710.17 860.13 690.33
Reliance Communications Ltd. NSE 163.05 164.20 162.05 165.35 161.05 166.35 159.90
Reliance Industries Ltd. NSE 988.65 997.20 976.30 1005.75 963.95 1018.10 955.40
Reliance Infrastructure Ltd. NSE 1070.30 1079.43 1056.63 1088.57 1042.97 1102.23 1033.83
Reliance Natural Resources Ltd. NSE 38.10 38.37 37.72 38.63 37.33 39.02 37.07
Reliance Power Ltd. NSE 154.10 155.20 152.50 156.30 150.90 157.90 149.80
Sesa Goa Ltd. NSE 328.50 332.67 324.67 336.83 320.83 340.67 316.67
Tata Chemicals Ltd. NSE 396.45 403.00 390.70 409.55 384.95 415.30 378.40
Tata Coffee Ltd. NSE 487.75 494.15 481.75 500.55 475.75 506.55 469.35
Tata Communications Ltd. NSE 344.90 351.85 334.00 358.80 323.10 369.70 316.15
Tata Consultancy Services Ltd. NSE 868.95 878.23 861.33 887.52 853.72 895.13 844.43
Tata Motors Ltd. NSE 1015.35 1031.28 1006.13 1047.22 996.92 1056.43 980.98
Tata Power Company Ltd. NSE 1289.80 1298.93 1282.73 1308.07 1275.67 1315.13 1266.53
Tata Steel Ltd. NSE 518.90 522.18 516.33 525.47 513.77 528.03 510.48
UCO Bank NSE 113.90 115.53 112.43 117.17 110.97 118.63 109.33
Vijaya Bank NSE 84.40 85.57 83.67 86.73 82.93 87.47 81.77
   *LTP stands for Last Traded Price as on Friday, August 20, 2010 4:04:15 PM
    #1R1   stands for Resistance level 1                         @1S1   stands for Support level 1
    #2R2   stands for Resistance level 2                         @2S2   stands for Support level 2
    #3R3   stands for Resistance level 3                         @3S3   stands for Support level 3
    
    The levels given above are with respect to previous closing price on the NSE / BSE. 
  Corporate News Headline
Jindal Steel and Power said it has resumed work on its USD 2.1 bn project in Bolivia after the South American country allocated about 3,000 acres of land for the venture. (BS)
Bharat Petroleum Corporation said its exploration arm, Bharat PetroResources, has entered into an agreement with Australia's Norwest Energy to pick up a stake in two shale gas blocks in the Perth Basin. (BS)
ABB said it has opened a wind power generator factory in Vadodara, fourth such plant in India, to meet both domestic and overseas requirement of the equipment. (BS)
  Economic and Political Headline
Country's foreign exchange reserves declined by USD 4.56 bn to USD 282.79 bn for the week ended August 13, as against USD 287.35 bn the previous week due to a heavy dent in foreign currency assets. Foreign currency assets, which is a major component of the country's foreign exchange reserves, tanked by USD 4.49 bn to USD 256.59 bn, against the previous week's USD 261.07 bn, the Reserve Bank of India said in its weekly data released. (BS)
France's government cut its forecast for economic growth next year as President Nicolas Sarkozy prepares for the biggest budget squeeze in at least two decades. The euro area's second-largest economy will expand 2% in 2011, instead of the 2.5% previously predicted, Sarkozy's office said in an emailed statement. (Bloomberg)
Mexico's central bank held its benchmark interest rate unchanged for a record 12th straight meeting, saying inflation will remain within forecasts even as the economy grew the most in a decade in the second quarter. The bank's five-member board, led by Governor Agustin Carstens, kept the overnight rate at 4.5%. (Bloomberg)

  US and European markets
Index Latest 1D Chg YTD
Nasdaq 1825.75 0.15% (1.86)%
DJIA 10213.62 (0.56)% (2.06)%
S&P 500 1071.69 (0.37)% (3.89)%
US stocks fell, extending a second straight weekly decline for major benchmarks, as a drop in commodities pulled oil and metals producers down amid concern the economic rebound may be flagging. The NASDAQ advanced 0.15%, while Dow Jones and S&P 500 slipped 0.56% and 0.37%, respectively. Research In Motion Ltd. slumped 3.5% as the maker of the BlackBerry smartphone was cut to "underweight" at Morgan Stanley. The firm also trimmed its share-price estimate for Hewlett-Packard Co., sending the stock down by 2.2%, the biggest drop in the Dow Jones Industrial Average. Freeport- McMoRan Copper & Gold Inc. and Schlumberger Ltd. declined at least 1% to help lead declines in commodity producers.
Index Latest 1D Chg YTD
FTSE 100 5195.28 (0.31)% (4.02)%
CAC 40 3526.12 (1.30)% (10.42)%
UK stocks fell for a third day, extending the FTSE 100 Index's second straight weekly drop, as declines by mining companies offset a rally in Dana Petroleum Plc and BG Group Plc. The FTSE 100 slipped 16.01 points or 0.31% at 5,195.28. Xstrata Plc and Kazakhmys Plc both sank at least 3% as copper retreated for a second day. British Airways Plc shed 2.8% after technical problems caused delays to European flight traffic throughout the afternoon.


Today Market Update on http://www.indiabulls.com/securities/mailermis/morning-brief/morning-brief-23Aug2010.htm

Buy / Sell (Aug 20, 2010)
 BuySell Net
FII2611.151948.29 + 662.86
DII1121.911224.07 - 102.16

Weekly Index Outlook: Sensex marches with Asian peers


Sensex (18,401.8)

The Sensex continued to befuddle all by reversing higher mid-week to record a new 30-month high despite the continued onslaught of negative economic data from overseas. Foreign institutional investors are touted to be the perpetrators of this rally with their incessant purchases. But a look at other global markets that went up last week, perhaps again with FII support, throws up an interesting trend.

Markets in developed countries drooped even as stocks in emerging Asian markets such as in Malaysia, Philippines, Thailand and Indonesia also closed at multi-year highs last week. While this suggests that global funds are turning their eyes towards high growth economies to earn better returns; the 8 per cent spike in Sri-Lankan All Share Index and 4 per cent spike in Slovakia's SAX Index last week is disquieting - a sign that the bottom of the barrel is being scraped.

Frenzied action in some long-forgotten small-cap stocks in our market also suggests the same. Activity in derivative segment is also getting frenetic with the turnover crossing Rs 1 lakh crore on three days last week. Open interest has risen to highest-ever level, nudging the Rs 2 lakh crore mark. Highest component of this figure is Nifty put options at around Rs 60,000 crore. Stock futures come second at Rs 53,000 crore. This sets the stage for an exciting expiry to the August series.

The Sensex closed 234 points higher last week, edging close to the 18,500 mark. It does qualify as a minor break-out. But the fact that many such breakouts have fizzled out within a couple of weeks in recent history, denotes that not too much can be read in to this move. The 10-day rate of change oscillator that is diverging negatively since mid-June is an apt indicator of the fact that the current up-move lacks momentum.

The medium-term trend in Sensex stay remains sideways with positive bias. We are at the ceiling of this medium-term range and it is possible that we have a small break-out before the index pulls back within the range (15,500 and 18,500). We stay with the first medium-term target for the up-move from May lows between 18,300 and 18,600 and the next target around 19,300. A close below 17,395 is required to signal that the index is on its way down towards the lower boundary.

In the near-term too, the index is moving sideways forming higher peaks and troughs since July 14. This denotes a bullish undercurrent. However, there is likely to be strong resistance in the zone between 18,500 and 18,600 and investors can take some money off the table in this band. If this zone is surpassed, subsequent targets are 18,798 and 19,275. Close below 18,000 is needed to turn the short-term view negative.

A bumpy ride is expected for investors in the week ahead and the index is likely to gyrate between 18,000 and 18,600. Upper targets for the week could be 18,513 and 18,581. Move beyond 18,600 due to a bout of short-covering can take the index to 18,762. Supports will be at 18,200 and 18,000.

Nifty (5,530.6)


The Nifty too rose to our short-term resistance level of 5,550 towards weekend and closed just a little lower. The near term trend in the index stays positive but the expiry in the derivative section could usher in volatility and result in strong moves in either direction. Upper targets for the short-term are 5,580, 5,608 and 5,660. Supports for this period are at 5,461 and 5,408. Traders should desist from initiating fresh longs on a close below the first support.

We have a slew of medium-term targets converging in the zone between 5,550 and 5,600 that makes it very unlikely that the index can get past this zone just yet. We maintain the target of 5,780 on a strong move past 5,600. Medium-term outlook will turn negative only on a close below 5,225.

Global Cues

Global equities moved lower last week and most benchmarks ended the second consecutive week in the red. CBOE VIX, the investors' fear gauge, whipsawed through the week and finally ended on a flat note.

This index reversed lower from the intra-week peak of 28.1 that is the key short-term resistance. Close above this level will usher in a more prolonged downtrend in US equities.

Weakness in equities is resulting in funds flowing in to commodities. CRB index that tracks the movement of commodity prices is once more close to the peak recorded in January this year. DJ Euro STOXX 50 closed over 2 per cent lower implying that the medium-term downtrend from the April peak continues to be in force in this index. Indices such as the FTSE and the DAX that were showing strength over the past month also reversed lower last week.

It was a week of sharp swings in both directions for the Dow and the index finally ended in the red. Key near term support for the index is at 10,000. Since this is also a psychological level the down-move can intensify if the index penetrates this level emphatically.

Pivotals: Reliance Industries (Rs 988.1)


RIL marked an intra-week low of Rs 959 and bounced up advancing Rs 9 late in the week. The stock almost declined to our first support level of Rs 957 and leaped up slightly. As the stock failed to move below Rs 957, it has signalled caution, as we mentioned in the previous week. Moreover, the daily relative strength index has displayed a positive divergence triggering near-term trend reversal. However, to confirm this, the stock has to move above Rs 1,025, which is the 50 per cent fibonacci retracement level of the prior down move from June. Short-term traders can desist trading in the stock as long as it trades in the range between Rs 960 and Rs 1,010. Key support and resistance for the stock are at Rs 936 and Rs 1,030 respectively.

Medium-term trend is down for the stock. Strong weekly close above Rs 1,050 will mitigate this downtrend. In that case, it can climb to Rs 1,090. On the other hand, a decline to Rs 950 and then to Rs 920 is in the offing.

State Bank of India (Rs 2,783.6)


SBI retreated 2 per cent in the previous week. In the near-term, the stock can move sideways in the band between Rs 2,750 and Rs 2,850. Short-term traders should trade cautiously as long as the stock remains within this range. A fall below Rs 2,750 will tow the stock down to Rs 2,700 or Rs 2,650 in the short-term. In that scenario, traders can initiate short position with stop-loss at Rs 2,780 levels. The key resistances for the ensuing week are at Rs 2,850 and Rs 2,900. Medium-term trend continues to be up and investors with this time horizon can stay invested with stop-loss at Rs 2,350.

Tata Steel (Rs 520.2)

The stock declined Rs 6.8 last week, amid volatile sessions. It is moving sideways between Rs 510 and Rs 540. Short-term traders can initiate fresh short position on a decline below its 50-day moving average positioned around Rs 510 with a stop at Rs 520. Short-term targets are 500 and Rs 490. Resistances for the week are at Rs 540 and Rs 564. We reiterate that its medium-term trend is down since its April 2010 peak of Rs 701. Medium-term supports for the counter is at Rs 470 and Rs 450.


Infosys Technologies (Rs 2,769.2)

The stock slipped marginally previous week by declining Rs 11. It consolidated sideways in line with our prior expectation, in the zone between Rs 2,730 and Rs 2,830. We re-affirm that a fall below Rs 2,730 will pull the stock lower to Rs 2,700 with the next support at Rs 2,675 in the short-term. Key resistance for the week are at Rs 2,800 and Rs 2,830. Medium-term investors can remain invested in the stock with stop-loss at Rs 2,600. 


Sizzling Stocks: Ranbaxy (Rs 492.6)

Taking support at Rs 440, Ranbaxy turned red-hot and witnessed a spectacular rally over the week by gaining 11 per cent. There has been an increase in volumes over the past four trading sessions. The stock breached its 200-day moving average on Wednesday and its key medium-term resistance around Rs 480 on Friday. It appears to have resumed its intermediate-term uptrend that has been in place since March 2009 low of Rs 133.

The stock has the potential to prolong its ongoing rally until it encounters resistance at the Rs 520-530 band. As this resistance band is a significant long-term resistance, the stock may face some difficulty in surpassing it in first attempt. On a strong close above Rs 530, the stock can move higher to Rs 570 in the medium-term. Immediate key supports are pegged at Rs 465 and Rs 440. Long-term key support is at Rs 400.


Bhushan Steel (Rs 1,836.5)

The stock zoomed 14 per cent last week, accompanied by good volume. After finding support at Rs 1,260 in early June, the stock recommenced its long-term uptrend. It is hovering well above its 21 and 50-day moving averages and testing intermediate-term resistance in the range between Rs 1,825 and Rs 1,856. Presence of key resistance coupled with the daily relative strength featuring in the overbought territory imply short-term cautiousness. Failure to climb past this resistance will drag the stock lower to immediate support at Rs 1,700 or Rs 1,600 in the short-term. However, a decisive move above Rs 1,856 will lift the stock to Rs 1,900. —


Nifty calendar spread

Index strategy.

With current month derivative contracts slated for expiry in the coming week, trading in F&O could be ridden with high risks. While it is best to stay away from trading this week, traders with a penchant for risk can consider setting a calendar spread on Nifty. This can be done by selling Nifty Aug 5,500 call (trading at Rs 42) and buying Nifty Sep 5,600 call (trading at Rs 68). The spread will entail an initial cost of Rs 26 a share. Traders can also consider buying Nifty Sep 5,500 call instead (closed at Rs 122). This, however, would peg up the initial cost to Rs 80 a share.

Tweak the costs lower by timing the transactions depending on how the market fares on Monday. For instance, consider buying the next month long option first if the market opens weak, or sell the current month option first on a firm opening.

Overall, while the short leg of this spread will benefit from the fading time value of money, the long leg would benefit from the expected uptrend in the index. This spread will help you play the time value favourably and at the same time lower the cost of buying the second long option.

Note that this strategy enjoys a limited risk and high reward potential. Limited risk, because the sold option is backed by the long option in the far month; high reward as returns would swell if the market moves up as expected. However, on the downside, if the index makes an adverse move, and starts to correct from current levels, you will be risking the net debit paid while setting the spread. Therefore, if the index moves lower before the expiry, though you may be able to pocket the premium of the sold option, the long option will stand the risk of turning out of money.

After the expiry of the current month contract, keep the long position open as long as the index trades above 5,500. Close the position on a decisive move below it.

How to play Cairn news

Stock strategy.

Cairn India: The stock turned volatile recently after Vedanta Resources said it would acquire 51-60 per cent in it for $8.5 billion to $9.6 billion. The indication of Rs 405 a share (which includes a non-compete fee of Rs 50) means the open offer for Cairn India shareholders will come at Rs 355.

The outlook remains positive for the stock. Cairn India's immediate resistance appears at Rs 358 and the support at Rs 338. The stock could reach as high as Rs 395 and only a close below Rs 295 would reverse the outlook. Difference scenarios

If due to shareholders' activism, Vedanta announces an open offer at Rs 405 a share, the stock should surge to that level. However, if the deal fails, the stock should take its natural direction. As the crude oil price has fallen almost 10 per cent to around $74 from its peak, the Cairn India stock should also follow suit.

However, if Vedanta sticks to its current decision of offering Rs 355 a share, (or the decision is delayed), the stock would continue hover around current levels.

F&O pointers: The Cairn India futures (market lot 1,000) witnessed a rollover of 34 per cent. The Cairn India September futures is quoting lower at Rs 346.2, indicating long rollovers. Both calls and puts witnessed addition of open interest. This suggests that it could hover at current levels.

Strategy: Traders could consider long straddle on Cairn India by buying September 340-strike of call and put. The 340 call closed at Rs 13 and the put at Rs 6.7, thus entailing an initial outgo of Rs 19.7/contract.

If the first scenario pans out, then the stock should surge to around Rs 40; the call price would be over Rs 50 and put would be near zero; if the deal fails through, then the stock could slip to around Rs 315-320 (assuming a 10 per cent correction as has happened to the crude oil price). This will push the put price above Rs 25-30 and call to near zero. The risk is if the stock remains at the current level, the options' premiums would lose value due to time decaying.


Making the most of fundamental indexing

The Indian asset management industry appears to be opening up to new product ideas. A recent offering is a fundamentally-indexed Nifty ETF.

This article explains the concept of fundamental indexing and then shows how investors can benefit from such products. It also discusses whether such products fit inside the core-satellite portfolio.

Fundamental Indexing

Proponents of fundamental indexing argue that market-cap weighted index has an inherent flaw. The argument is simple. Market participants typically overreact to information. In an uptrending market, stocks move up more than is warranted by their estimated intrinsic value. Market-cap weighted index, hence, overweights over-valued stocks and underweights under-valued stocks. Such exposure is expected to drag portfolio returns.

Rob Arnott and his US-based firm, Research Affiliates, argue that fundamental indexing tidies this problem by considering fundamental variables such as book value and earnings. Research Affiliates used several metrics including book value and trailing five-year average cash flow, ranked each stock based on its relative metric weight to create the index.

Their article, published in 2005, has since led to intense debate in the asset management industry as to whether fundamentally-weighted index really scores over the market-cap weighted index.

We skirt this issue here and instead discuss if investors can benefit from taking exposure to funds benchmarked to fundamentally-weighted index.

Value tilts?

MOSt shares M 50 are benchmarked to fundamentally-weighted index, constructed with the Nifty constituents. Suffice it to know that fundamentally-weighted indices carry value tilt. This means that the index has a bias towards high-yield stocks — stocks that have low price-to-cash flow multiple and high dividend yield. This offers an opportunity for investors to take exposure to large-cap value-style investment.

The question is: Is value-style investment optimal? The answer would depend on the investor psychographics (investor characteristics and behaviour) - whether an investor is confident or anxious about her decisions and whether she is careful or hasty in her investment actions.

Typically, value-style investment performs well after market recovers from asset price crash. Empirical evidence shows that value stocks did well after the market recovered from the 2008 crash.

While there may not be a strong statistical relationship between VIX (Volatility Index) and style investing, it is true that volatility declines when investors are confident. And confident investors typically favour growth stocks over value stocks. By logical extension, it may be, perhaps, worthwhile considering value-style investing when VIX moves up. Investors have to consider if fundamentally-weighted index products fit within the core-satellite portfolio. To recap, core portfolio is typically created with passive equity and bond exposure. The satellite portfolio is constructed using alpha-generating strategies.

The value-tilt that fundamental indexing offers makes ETFs benchmarked to such indices suitable for the passive core. It is, of course, the investors' decision to choose fundamentally-weighted or cap-weighted index for their passive core.

It would be, however, sub-optimal for investors to take exposure to both market-cap weighted fund and fundamentally-weighted ETF inside the core portfolio. This is because the growth bias of the market-cap weighted index and the value tilt of the fundamentally-weighted ETF would prevent the portfolio from realizing its optimal upside potential when asset prices climb up.

Conclusion

We wish to leave the reader will three thoughts to consider before investing. One, the product should complement other assets within the existing portfolio. Two, management fees and expenses should be comparable to similar products in the market. And three, the benchmark (constituents and weights) should be transparent for easy performance evaluation.


Sector Topper: BSE IT Index


There is nothing defensive about the entire IT pack, going by the stupendous run they have had from March 2009 lows. Even on a one-year basis, the BSE IT index is among the top gainers having delivered over 40 percent returns in this period, with the top-tier IT companies reaching multi-year highs in terms of valuations. The BSE IT itself trades at 24 times trailing earnings, higher than the Sensex or the Nifty.

The revival was not restricted to client spends in the US and the key vertical of BFSI which is normally good news for the diversified IT pack – large and mid-tier, even niche companies focussed on manufacturing, telecom and automotive gained significantly from the pent up demand. Volumes (person-months billed) has revived for companies across board, a fact cheered by the markets.

Infosys, TCS, Wipro and HCL Technologies have delivered 35-80 percent returns over the past one year and trade at PE multiple range of 20-27 times, which is the level they enjoyed in 2007. TCS and HCL have been key outperformers over the past one-year.

But with wage hikes of 10-15 percent, a rising tax-incidence and the challenging environment in Europe (and the Euro losing ground against other currencies) mean that margin pressures exist. In this context valuations look to be in the fair to expensive zone.

Among the others in the large sized pack, Patni Computer has delivered stellar returns, while Tech Mahindra has fallen from its year-ago levels.

Mid-cap stocks still trade at a substantial discount to their larger peers at 10-15 times earnings as markets still tread cautiously in assigning them any premium. Oracle Financial , Mphasis and Rolta India have all underperformed.

Weekend Platter Report on http://www.indiabulls.com/securities/research/equity_analysis_report/Special_Report_PDF/WP_Aug%2020.pdf & 

http://www.indiabulls.com/securities/mailermis/weekly-reports/weekend-platter-20Aug2010.aspx

Technical Analysis

RSI and Stochastic suggesting range bound movement

Nifty surged to a new 52 week high of 5,546.60 on very last day of the current week. After marking low of 5,397.40 on very first day it managed to mark high of 5,546.60 on last trading day of current week, finally closed at 5,528.20 with a gain of 1.40% on w-o-w basis. The benchmark Nifty closed with modest losses on the back of weak global cues and profit booking on Friday, after witnessing 125 points rally in previous two days. But more importantly it held 5,500 level for the second consecutive day and traded in a tight range of 5,520-5,540 today. From last one week Nifty is trading in range of 130 points in between 5,410-5,540. Nifty exhibited parallel line trading within and still showing upward movement for coming week. On upside Nifty resistance level is 5,553 but expected that it can break in coming week and downside it has support at 5,490. On upside if level of 5,553 breaks then we could see rise upto mark of 5,595, on the lower side if level of 5,490 is breaches decisively then Nifty could retrace upto 5,430 mark. Technical momentum indicators are suggesting mix bias for Nifty. Stochastic is currently moving in overbought zone, on the brink of entering into neutral territory indicating profit booking. However, another momentum indicator RSI is indicating up side, currently trading in neutral territory at 65 showing positive crossover. MACD is trading in positive zone on the verge of showing positive divergence moving upwards, also suggesting upside. Today Nifty has just managed to close above 8 Day EMA and not showing any downward pattern for coming week, expecting small correction in forthcoming session but overall looking positive.

Stocks to Watch

 
ATUL (Buy)

Particulars Rs.
CMP

134.80

Target Price

140/142/144

Stop Loss

135.5 (Buy above 138.50)

Support-Resistance

132.5/148

Comment

  • After consolidating in range of 7 points in between 115-122 stock has given a break out yesterday, supported with volume, looking good for up side. Momentum technical indicators Stochastic and RSI are suggesting upside. Stock already made a 52 week high today. Stock is er averages chart slow moving average (08) still above the fast moving average (34) and not showing any reversal sigh so stock is good for long term investment. Traders can buy the stock above 138.50 with strict stop loss of 135.5.





WOCKPHARMA (Buy)

Particulars Rs.
CMP

247.15

Target Price

249.5/252/254.5

Stop Loss

245

Support-Resistance

242/260

Comment

  • After rallying nonstop for almost a week stock is still showing uptrend in forthcoming trading session. Stock is trading near its all time high, breached all important resistance levels decisively. Stock immediate support seems at 242 and resistance at 260.Technical indicators is also suggesting uptrend. Traders can initiate long position with strict stop loss of 245.

 

  

 

 

 

 

 


Indian Equity Market


The Week Gone By

Indian markets belled the week on a subdued note as selling interest intensified across Metal and Realty space on account of weak sentiments across the global market. Thereafter markets made a smart recovery on the back of sustained buying by foreign funds. Further, the report by the Commerce Department, which stated that the construction of new homes and apartments grew 1.7% in July also boosted the investors sentiments.

Looking Forward

India's medium-term growth trajectory remains promising amid a still gloomy world outlook. better diversification in manufacturing & service sector contribution to GDP, underleverage and better demographics will continue to accelerate growth in the Indian economy. This makes India one of the most attractive investment destinations for global investors. However, the overall corporate performance for the June quarter was lower than expectations as higher-than-expected cost pressures (raw material costs and, to a certain extent, staff costs) dented margins and bottom-line. Form here, market will continue to take cues from global markets; fund flows and risk appetite, as there are no major domestic triggers until the start of the next result season. The upside seems to be limited in Indian markets as US data is increasingly stroking fears of a dip in the economy again. This week, buying is expected in FMCG, Healthcare and low beta stocks from current levels or from lower supports of 5,450-5,500 levels of Nifty while selling positions can be accumulated in metals, realty, IT and BFSI if the Nifty fails to sustain above 5,500. Investors will eye on data of infrastructure sector output for the month of July 2010 which accounts for 26% of industrial output.


Nifty Top Gainers

Company % Weekly Return

Ranbaxy

11.10 

Hindalco

7.50 

HDFC Bank

6.90


Nifty Top Loser

Company % Weekly Return

Idea

(3.8)

Unitech

(3.4)

Cairn

(3.3)

 


Daily Movement of Nifty 


Daily Movement of Sensex, Net FIIs & MF investment


Source for FII & MF: Sebi

Weekly return on BSE Sectoral Indices

Weekly Price Movement of GDR

Security Name

Price (USD)
as on 19-08-10

% change
as on 12-08-10

L&T

39.30

1.55

RIL

42.05

0.60

SBI

120.18

1.70

Weekly Price Movement of ADR
Security Name Price (USD)
as on 19-08-10
% change
as on 12-08-10
ICICI bank

42.48

4.22

Infosys

59.62

0.57

MTNL

2.79

(2.11)

Rediff

1.89

(6.90)

Sify

1.40

0.72


Global Equity Markets

US stocks fell during the week (till Thursday) as a series of disappointing economic reports renewed recent concerns about the economic outlook. Buying enthusiasm remained subdued as investors were presented with another negative batch of US economic data, which was played a vital role in sinking the mood on Wall Street. However, merger and acquisition news that provide the much needed support to the market. Meanwhile, with earnings season winding down, market ignored the better-than-estimated earnings from the big companies. Looking ahead to next week, with earnings season winding down, there are no major quarterly results due to be released next week. Subsequently, trading is likely to be driven by reaction to economic data such as exiting home sales,durable goods,housing starts and initial jobless claims.

Asian markets were mostly down except SSE composite which surge 1.37% during the week. Japanese exporters were hurt by the appreciation in Yen while a weaker than expected GDP data at 0.4% kept the sentiments under check. Though, Hang Seng markets surged in the early part of the week but finished lower on profit taking after receiving weak cues from the US markets after rise in jobless claims data has added to recent concerns about the outlook for the economic recovery. However, China's stocks gained on strong economic outlook as leading economic index climbed 0.8% to 147.0 in June, also the under valued stocks attracted investors attention.

European markets could not sustain the initial gains and fell sharply late in the week (till Thursday). Early gains during the week from the mining shares were offset with oil majors pressured as crude prices dipped on an increase in U.S. Crude Inventories. Also, the technical resistance level led the markets to retreat from the 50% Fibonacci retracement. Though, Germany's Bundesbank raised forecast for the country's economic growth this year, disappointing U.S. economic data hurts investors sentiment and markets drifted to one month closing low. Some selling pressure could be seen in next week due to lack of any positive news.

Weekly return on major Global Indices

Data of US and European markets taken from Aug 12 to Aug 19, 2010
Data of Asian markets taken from Aug 13 to Aug 20, 2010 

Weekly Change in the Composites of S&P 500
Industry

Adj. Mkt. Cap
as on

19-08-10

Adj. Mkt. Capas on
12-08-10


Change

Energy

10,62,252 

10,77,353 

(1.40)

Materials

3,49,205 

3,47,334 

0.54 

Industrials

10,24,084 

10,29,341 

(0.51)

Cons Disc

10,00,904 

10,05,490 

(0.46)

Cons Staples

11,27,923 

11,31,305 

(0.30)

Health Care

11,37,672 

11,54,818 

(1.48)

Financials

15,45,899 

15,74,288 

(1.80)

Info Tech

18,05,829 

18,05,263 

0.03 

Telecom Services

3,09,677 

3,09,503 

0.06 

Utilities

3,66,195 

3,68,615 

(0.66)


Key Events

Global Key Events

  • US initial jobless claims data has added to recent concerns about the outlook for the labor market.The report showed that initial jobless claims rose to 5,00,000 in the week ended August 14th from the previous week's revised figure of 4,88,000. As against expectations of 4,75,000 from the 4,84,000 during previous week.

  • US Housing Starts showed a notable increase in the month of July, although the annual rate of housing starts came in below estimates due to a downward revision to the data for June. The report showed that housing starts rose 1.7% to an annual rate of 5,46,000 in July from the revised June estimate of 5,37,000. Building permits, an indicator of future housing demand, fell by 3.1% to an annual rate of 5,65,000 in July from the June rate of 5,83,000.

  • The index of US leading indicators rose in July for the second time in four months, extending a see-saw pattern that indicates slower growth through the end of the year. The 0.1% gain in the Conference Board's gauge of the prospects for the economy in the next three to six months followed a 0.3% decline in June.

  • European inflation accelerated to the fastest pace in 20 months in July on rising energy prices. Consumer prices in the 16 nations that use the euro increased 1.7% from a year earlier after rising 1.4% in June.

  • U.K. annual inflation slowed in July, falling to its lowest level since February. Inflation exceeded the 2% target by one full percentage point for three straight months after the previous breach. Annual inflation eased to 3.1% in July, slowed from 3.2% in June. The figure remained above 3% for the fifth month in a row.

  • German investor confidence dropped more than forecast to a 16-month low in August, suggesting economic growth will slow from the record pace set in the second quarter.

  • Japan's economy grew at less than a fifth of the pace economists estimated last quarter, pushing it into third place behind the US and China and adding to evidence the global recovery is faltering. Gross domestic product rose an annualized 0.4% in the three months ended June 30.

  • Malaysia's economy grew near the fastest pace in a decade in the second quarter, an expansion that may prompt the central bank to consider raising interest rates further. Gross domestic product increased 8.9% in the three months through June from a year earlier, after expanding 10.1% in the first quarter.

Domestic Key Events

  • India's annual headline inflation slowed more sharply than expected to single digits after five months. The wholesale price index rose 9.97% from a year earlier. Data showed annual food inflation rate fell to 10.29% in July from 14.60% in the prior month. Further, annual food inflation fell to 10.35% for the week ended August 7 as prices of vegetables, specially potato and onion, declined.

  • Trade deficit widened to USD 12.93 billion in July as exports fell short of target due to lower demand of leather, handicrafts and readymade garments in the US and Europe.Exports grew only by 13.2% in July 2010 year-on-year against 30.4% growth recorded in the previous month. Exports from the country in July were USD16.24 billion while import was USD 29.17 billion resulting in a trade deficit of USD 12.93 billion.

  • The government will renew efforts to push for exemption of social security tax paid by top tech firms including TCS, Infosys and Wipro in the US. India's USD 50-billion software outsourcing industry pays around USD1 billion every year towards social security taxes to the US government, according to Nasscom.

  • The government plans to introduce the Bill in the current, Monsoon, session of Parliament to prepare the ground for rolling out the GST from April 1, 2011. Under the proposed plan, all central and state taxes like excise, VAT and service tax will be subsumed into GST, once the new indirect tax regime takes effect. The revenue from GST will be shared equally between the Centre and states.

  • After transferring 433 MW of power generation assets to Reliance Power (R-Power ), ADAG-group promoted Reliance Infra (R-Infra) is now betting big on its EPC business. The EPC order book currently stands at 19,000 crore and despite a drop of revenues in this vertical in the last quarter, the company is confident of achieving 4,000–5,000 crore for FY11. The company is the front runner in R-Power UMPPs and is also expanding its orderbook with metros, sealink and external projects.

  • GVK group offered to the Punjab government to increase the capacity of the under- construction GVK Goindwal Sahib Thermal Plant in Amritsar by 1320 MW to 1860 MW. The expansion of the capacity could be done by setting up two more units of 660 MW each in addition to the two units of 270 MW each being set up.

  • Vedanta Group has offered to acquire 20% of the issued share capital of Cairn India for around Rs13,631 crore (about USD3 billion) in an open offer.The UK-listed Vedanta Resources is making the acquisition through its India mining arm Sesa Goa Ltd offer ahead of its proposed USD 9.5 billion acquisition of Cairn's oil and gas assets in India. The offer will open on 11 October and close on 30 October.


Derivatives
  • Nifty ended on positive note at 5,530.65 marks gaining 0.24% during the week. The Nifty August futures ended at 5,521.35 (LTP) with a discount of 9.30 points. If we look at the derivatives data we could see that Nifty future prices ended in the positive territory along with decline in open interest as well with decline in the cost of carry, this is an indication of closure of long position and short position is being built up at higher level. Nifty may face resistance at higher levels of 5,550 to 5,580 whereas on the downside support is seen at 5,420-5,350 level. 



  • During the week, there was significant accumulation of open interest in OTM Put options. Most of the open interest builds up in the range of 5,300-5,500 Put as significant short accumulation witnessed in these level.



  • The Put-Call ratio of open interest increased substantialy during the week from 1.03 to 1.19 levels. The options concentration has shifted to the 5,300-5,500 strike Put option. 



  • The Volatility Index (VIX) remained low during the week and closed at 16.70%. Market participants should be watchful at current levels as any up move in volatility may trigger more downsides in the markets. Volatility has a strong inverse correlation with markets.



  • The CNX IT index ended the week at 6,128.60 marks gaining 0.19%. The CNX IT Futures prices inclined with addition in the open interest but with decline in cost of carry this is an indication of fresh short position is being built up at higher level. For the coming week, immediate support for the Index is seen in the range of 6,000-6,050 mark, whereas on the upside resistance is seen at 6,200- 6,250 levels.


  • During the week the Bank Nifty Index ended on a positive note and breached the psychological 11,000 level rose by 2.76%. If we look at the derivatives desk we can see that the bank Nifty futures prices increased along with an overall decline in open interest but with decline in the cost of carry, this is an indication closure of long postion. For the coming week Bank Nifty support is seen in the range of 10,750-10,000 levels whereas on the upside stiff resistance would be faced at 11,250-11,300 levels.




  • FIIs were net buyer in index futures to the tune of Rs 1,711 crore while in stock future they were net seller of 242 crore . Further, in the index options FII were net buyer of 5,844 crore. 




  • The Nifty is expected to remain in the range of 5,350-5,580 levels. If the index sustains 5,500-5,530, we may see higher levels of 5,580. If the market fails to hold 5,500-5,450 levels, it is likely to see a sharp decline due to heavy closure of positions. The move may remain mixed, with selling pressure near the 5,550-5580 levels. The index may find intermediate support around 5,480 levels. Any instability on the global front is likely to result in selling pressure from current levels. trader can short 5,700 strikes Call and short 5,300 strikes Put of Nifty for September expiry.

 Open Interest in Nifty Future vis-à-vis Nifty 



Most Active Contracts


Put-Call Ratio

Volatility Index


FIIs Cumulative trailing 5 day's data
Particulars Buy Sell Net
Index Futures

9,222.57 

7,511.46 

1,711.11 

Index Options

33,955.43 

28,111.43 

5,844.00 

Stock Futures

13,154.75 

13,397.13 

(242.38)

Stock Options

2,823.59 

2,968.23 

(144.64)

*From August 13 to till August 19(Source: NSE)

Debt
  • Indian overnight cash rates remained close to the repo rate on persistent liquidity crunch in the market. During the week, average daily borrowing of banks from RBI under LAF window rose to Rs 15,458 crore from Rs 6,914 crore last week. Concerns of fresh supplies also weighed on investors sentiments.




  • FIIs continued to remain net buyers in the market with buying worth Rs 730.8 crore compared to 1,252.2 crore buying in the previous week. However, MFs turned net seller this week in the debt market, with Rs 1,936.4 crore (3 days) selling compared to Rs 2,467.9 crore of buying in the previous week.








  • After trading in tight band at the beginning of the week, bond prices fell towards the end of the week. Bond started the week flat after India's inflation eased to a six-month low. WPI based inflation rose 9.97% (yoy) in July compared to 10.55% in June and market expectation of 10.4%. However, the upward revision in April inflation to 11.14% from the provisional number of 10.16% kept investors speculating that the blazing heat of inflation will over. However, prices declined towards the end as investors trimmed position ahead of government bond auction. Sudden fall in bond prices pushed the yield on the benchmark 10-year bond to a three and half month high.



  • Bond prices are expected to remain soft on tight cash conditions. Investors are facing tight liquidity conditions which may prevail for some more time as companies pay the quarterly advance taxes in mid-September. We expect the yields to touch 8% mark in near term.









  • During the week, RBI sucked Rs 6,345 crore from the system under Liquidity Adjustment Facility (LAF) window while Repo transaction stood Rs 61,830 crore. On August 18, 2010 RBI auctioned 91-day Treasury Bills worth Rs 7,000 crore and 182-day Treasury Bills worth Rs 1,500 crore. On August 18, 2010, five state governments announced auction of State Development Loans 2020 for Rs 3,550 crore to be held on August 24, 2010. On August 16, 2010, the GoI announced auction of 7.46% CG 2017 worth Rs. 4,000 crore, 8.13% CG 2022 worth Rs. 5,000 crore, 8.30% CG 2040 worth Rs. 3,000 crore to be held on August 20,2010.
 Call Rates
Date Rate (%)

13-Aug

5.00 

16-Aug

5.73 

17-Aug

5.69 

18-Aug

5.67 


FIIs & MFs investment in Debt Market

Period
FIIs
Net Investment
(Rs. Crore)
MFs
Net Investment
(Rs. Crore)

13-Aug

(607)

(830)

16-Aug

406 

(627)

17-Aug

183 

(480)

18-Aug

749 

Total

731 

(1,936)

This Month

3,209 

3,754 

 (Source: SEBI)

Bond Yield (7.80% CG 2020)
Date LTP (Rs.) YTM (%)

13-Aug

99.76 

7.85 

16-Aug

99.91 

7.82 

17-Aug

99.70 

7.86 

18-Aug

99.20 

7.92 

 
Spread


Liquidity Adjustment Facility
Date Reverse Repo
(Rs. Crore)
Repo
(Rs. Crore)

13-Aug

6,345 

13,450 

16-Aug

25,550 

17-Aug

10,815 

18-Aug

12,015 

This week

6,345 

61,830 

This Month

24,125 

1,15,335 


Commodity

Crude oil prices continued to sink and started the week on a lower note. The weak economic data hinted towards the slower pace of global economic recovery which led the prices lower. But immediately after, the crude prices began to pick up in tandem with the global stocks. The higher crude prices could not be sustained and began to fall towards the end of the week. A less than expected drop of 0.8 mn barrels in the crude inventory for the week ended 13 August pushed the prices lower. A spate of weak economic data including the labor department report whereby the unemployment benefits rose unexpectedly, could not lend any support to the crude prices. A falling dollar further made the prices inch lower. Finally, the crude oil prices registered a modest loss of 0.79% in the international markets and 1.41% in the domestic market on w-o-w basis. The crude oil is expected to stay under pressure in the coming week. The signals of a slowing economic recovery, bolstering stockpiles, poor weekly jobs data and related concerns will let the crude prices shy away from rising. Some buying interest may be seen on bargain hunting but a pick up in crude prices in the coming week is highly unlikely.

Gold prices opened the week's trade with an upbeat. A weaker dollar and a weak set of economic data helped to push the prices of the yellow metal higher. The precious metal continued to rise, briefly touched its highest level in nearly two months, as the demand for gold increased as a safe haven. A heavy fluctuation was seen in the gold prices but they managed to stay higher as the global economic outlook seemed shaky. The weak economic data increased the appeal of gold as a hedge against inflation . Finally, the precious metal managed to end 1.69% higher in the international markets on w-o-w basis. The domestic gold prices also moved in sync with the trends in the global gold markets. Heavy physical buying was seen as demand is set to pick up for the busy festival season, starting with Raksha Bandhan on Aug. 24 and extending till Dhanteras in November. Finally, the domestic gold prices saw a growth of 1.41% on w-o-w basis. The uptrend in the gold prices is likely to continue in the coming week as the macro economic picture is still far from rosy. Moreover, the domestic markets will see further boost in the prices amidst the ongoing festivities.

 
Weekly change in Crude prices per Barrel
  19-Aug 12-Aug Change (%)
Intl Crude Oil Prices (USD)

75.30

75.90

(0.79)

Domestic Price (Rs)

3,482.67

3,540.77

(1.64)




Inventories (weekly change)
Week ended Change Total Inventory
13-Aug-10

(0.8) mn barrels

354.20 mn barrels





Weekly change in Gold prices in Rs/10gms

  19-Aug 12-Aug Change (%)
London pm fix(USD/troyoz)

1,233.50

1,213.00

1.69

Mumbai (Rs/10gms)

18,658.75

18,400.00

1.41


Forex

Rupee managed to resist initial selling pressure and ended the week on mixed note. The domestic currency ended flat against the USD, gained against Euro but fell against Yen. Rupee started the week lower due to deterioration in risk appetite and a retreat in equity prices. Later, the local currency showed some resilience as gains in the domestic share market raised hopes for more foreign fund inflows. Weakness in USD after flurry of disappointing economic data against major currencies also boosted INR. However, the domestic currency fell almost 1% against yen as the Japanese currency continue to gain due to protection from low US yields and expectations of a US slowdown.

INR/ 20-Aug
13-Aug
%Change
USD

46.58

46.58

0.00 

EURO

59.66

60.05

0.65 

YEN

54.58

54.10

(0.89)

 

INR vs. USD and Euro



Economy

Indicators Latest Previous Change
Investment Deposit Ratio (%)

31.14 (Jul 30)

31.14 (Jul 30)

Credit Deposit Ratio (%)

72.36 (Jul 30)

72.36 (Jul 30)

Money Supply (%)

14.70 (Jul 30)

14.70 (Jul 30)

Bank Credit (%)

19.70 (Jul 30)

19.70 (Jul 30)

Aggregate Deposits (%)

14.00 (Jul 30)

14.00 (Jul 30)

Forex Reserves USD bn

282.79 (Aug 13)

287.35 (Aug 06)



Gujarat Pipavav Port — IPO: Invest at cut-off


 
Funds from the IPO could help the company move into the profit zone in a couple of years.

Investors with a three-four-year perspective can subscribe to the initial public offerof Gujarat Pipavav Port (GPPL). The strong parentage of A.P Moller-Maersk group, strategic location and fast growth in volumes, albeit on a low base are positives for this private port. The port is located on the main maritime trade routes and provides a good alternative for ships seeking to anchor at Mumbai.

While GPPL is yet to turn in profits at the net level, it has been profitable at the operational level for a few years now. Higher borrowing costs and initial cost of ramping up operations have resulted in losses. As the funds from the IPO would significantly reduce debt, the company could well move into the profit zone in a couple of years.

Valuations

At the offer price of Rs 42-48, the price discounts the post-issue book value by 2.3-2.5 times. Valuation for Mundra Port and SEZ is nine times (March 2010). GPPL's Enterprise value/EBITDA at about 30-33 times appears a little expensive given that Mundra Port enjoys only a multiple of 35.

However, this ratio could improve significantly for GPPL, once the railway traffic guarantee shortfall payment reduces or vanishes with increase in volume.

Investors need to note that GPPL has a long way to go before it can scale up to Mundra Port's size. Mundra Port handled 21 million tonnes of bulk cargo in FY-10 as against 3.4 million tonnes by GPPL for the year ending December 2009. In terms of revenue, Mundra Port's Rs 1,280 crore (FY-10) is close to six times that of GPPL's.

Mundra's financial metrics therefore suggest that it is a superior play, with the advantage of scale. GPPL, given the backing of the promoter and a small base, may nevertheless grow at a faster pace, provided global trade does not witness another sharp slump.

Company and the offer

GPPL, a non-major, all-weather private port located in the Saurashtra region of Gujarat is promoted by the Netherlands-based APM Terminals, part of the A.P. Moller-Maersk Group, among the largest container terminal operators in the world. The offer consists of a fresh issue of Rs 500 crore and a Rs 50-crore offer for sale by institutional investors. The company's market capitalisation (at the offer price) would be about Rs 2,000 crore.

Demand for non-major ports: Most of the country's major ports have been operating at over 100 per cent capacity utilisation in FY-2010, thus providing ample opportunities for traffic spill-over into non-major ports. Not falling under the purview of the Tariff Authority that regulates major ports, the other ports also have the advantage of flexible pricing. The prospect for Western region ports is also supported by the fact that over 60 per cent of the total cargo (CRISIL Research 2010) is handled in the Western coast of India. Added to this, operator-friendly royalty rates and easier access to vast land has made Gujarat a lucrative region for port developers.

Key positives


The company's strong parentage helps it to develop business with international shipping lines such as Maersk Lines and Safmarine Container Lines, who have made GPPL their exclusive port of call in the state of Gujarat. As a result, GPPL's bulk cargo has more than doubled in the last two years to 3.37 million tonnes. Nevertheless, container cargo accounts for a higher proportion of the company's present cargo, with parent APM being among the leading container operators in the world.

Revenues from LPG cargo and higher volumes from coal bulk cargo may be some of the key accelerators for revenue in the coming years. The Pipavav region is set to see power capacity additions by Videocon Industries, Visa Power, Torrent Power in addition toGSPC's plant. With a good proportion of coal sourced from overseas mines, the port would see significant coal imports. Coal currently accounts for 45 per cent of the port's bulk cargo. GPPL provides LPG cargo services for Aegis Gas. As the company was relocating its LPG cargo jetty, it did not derive any revenue between July 2007 and March 2010 and was instead paying some compensation to the client. This segment may now see lower expenses besides revenue contributions. The relocation also makes the company better placed to take up clients and provide dedicated pipelines.

GPPL has connectivity to the National highways and has a 269 km dedicated railway link, with double stack container rake service, through a venture with the Railways. This link also completes services provided for customers.

Financials

Pipavav's operating profits grew 17 per cent compounded annually over the last three years to Rs 49 crore for the year ending December 2009; the growth has not been attractive for two reasons — one, the slowdown in 2008 and partly in 2009, hit revenues. Two, the company was paying/providing very high (Rs 144 crore so far) penalty as a result of not meeting the traffic volume obligation towards the Western Railways. This amount has now dwindled and may become nil as volumes begin to surpass the minimum guaranteed amount. Interest costs, which were an alarming 50 per cent of total revenues, may also decline by one-third. Debt-equity ratio too would reduce to less than 1.5 after the offer from over three (pre-IPO).

A key limitation for GPPL is that unlike Mundra Port, Pipavav does not have exclusive corporate agreements (barring UltraTech Cement) for usage of port although a number of big names transact with them. However, this may be key to having more sustainable revenue streams.

*Disclosure: I don't have any positions in the above said scrips & NIFTY FUTURES.

Disclaimer: "I do not make any warranties, express or implied, as to results to be obtained from using the information in this e-letter.  Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report.
--
Arvind Parekh
+ 91 98432 32381