Monday, August 30, 2010

Market Outlook 30th Aug 2010

Strong & Weak Stocks
This is list of 10 strong stocks
BPCL, Hind Petrol, Cummins India, UCO Bank, Bhushan Steel, Petronet, TV-18, Patni,Crompton Greaves & KFA.  
And this is list of 10 Weak Stocks: 
Suzlon, EKC, HCC, Punj Llyod, Rel Infra, Tech Mahindra, Patel Eng, Sesa Goa, Nagar Cont & JP Associates.
The daily trend of nifty is in Downtrend 

  • Supp / Resis SPOT/CASH INDEX LEVELS FOR MONDAY  30th Aug 2010
Indices Supp/Resis1 23
Nifty Resistance 5471.955535.20 5575.20
Support 5368.705328.70 5265.45
Sensex Resistance 18183.1318367.84 18487.33
Support 17878.9317759.44 17574.73


SUPPORT/RESISTANCE LEVELS FOR MONDAY 30TH AUG 2010 INTRADAY TRADING IN CASH/SPOT LEVELS
Company Name  Exchange LTP* R1 #1 S1 @1 R2 #2 S2 @2 R3 #3 S3 @3
Bank of BarodaNSE 811.65 827.10  800.10 842.55  788.55 854.10  773.10 
Bank of IndiaNSE 446.80 460.03  438.53 473.27  430.27 481.53  417.03 
Banking Index Benchmark Exchange Traded Scheme (Bank  BeES) NSE1083.06  1100.71 1072.71  1118.35 1062.35  1128.71 1044.71 
Bharat Electronics Ltd.NSE 1668.80 1694.20  1649.20 1719.60  1629.60 1739.20  1604.20 
Bharat Forge Ltd.NSE 353.80 361.87  347.87 369.93  341.93 375.87  333.87 
Bharat Gears Ltd. NSE73.00  75.77 71.37  78.53 69.73  80.17 66.97 
Bharat Heavy Electricals Ltd.NSE 2472.05 2502.12  2451.12 2532.18  2430.18 2553.12  2400.12 
Bharat Petroleum Corporation Ltd. NSE 776.40 801.43  751.68 826.47  726.97 851.18  701.93 
Bharti Airtel Ltd. NSE316.10  322.07 312.57  328.03 309.03  331.57 303.07 
Bhushan Steel Ltd.NSE 1828.65 1852.70  1807.80 1876.75  1786.95 1897.60  1762.90 
Crompton Greaves Ltd.NSE 298.35 305.97  294.27 313.58  290.18 317.67  282.57 
Cummins India Ltd. NSE729.35  741.73 714.03  754.12 698.72  769.43 686.33 
Eveready Industries India Ltd.NSE 72.50 74.77  71.12 77.03  69.73 78.42  67.47 
Everest Industries Ltd. NSE266.10  271.62 262.87  277.13 259.63  280.37 254.12 
Everest Kanto Cylinder Ltd.NSE 107.65 110.22  106.07 112.78  104.48 114.37  101.92 
Hindalco Industries Ltd. NSE164.00  167.07 161.62  170.13 159.23  172.52 156.17 
Hindustan Construction Company Ltd.NSE 59.80 62.42  58.27 65.03  56.73 66.57  54.12 
Hindustan Motors Ltd. NSE25.10  25.88 24.58  26.67 24.07  27.18 23.28 
Hindustan Oil Exploration Company Ltd.NSE 231.75 241.23  226.43 250.72  221.12 256.03  211.63 
Hindustan Petroleum Corporation Ltd. NSE531.80  544.23 521.38  556.67 510.97  567.08 498.53 
Hindustan Unilever Ltd.NSE 263.95 265.52  262.72 267.08  261.48 268.32  259.92 
Hindustan Zinc Ltd. NSE1062.60  1076.02 1051.07  1089.43 1039.53  1100.97 1026.12 
Kingfisher Airlines Ltd.NSE 57.95 60.00  56.70 62.05  55.45 63.30  53.40 
Nagarjuna Construction Co. Ltd. NSE155.20  156.80 153.25  158.40 151.30  160.35 149.70 
Nagarjuna Fertilisers & Chemicals Ltd.NSE 29.90 30.60  29.50 31.30  29.10 31.70  28.40 
NSE Index NSE5408.70  5471.95 5368.70  5535.20 5328.70  5575.20 5265.45 
Patel Engineering Ltd.NSE 372.30 380.93  366.93 389.57  361.57 394.93  352.93 
Patni Computer Systems Ltd.NSE 542.25 549.83  536.83 557.42  531.42 562.83  523.83 
Petronet LNG Ltd. NSE108.85  112.02 106.92  115.18 104.98  117.12 101.82 
Punj Lloyd Ltd.NSE 109.45 111.63  107.88 113.82  106.32 115.38  104.13 
Punjab National BankNSE 1193.50 1216.98  1173.03 1240.47  1152.57 1260.93  1129.08 
Reliance Capital Ltd.NSE 762.25 771.75  755.50 781.25  748.75 788.00  739.25 
Reliance Communications Ltd. NSE160.30  162.72 158.57  165.13 156.83  166.87 154.42 
Reliance Industrial InfraStructure Ltd.NSE 858.60 879.90  846.20 901.20  833.80 913.60  812.50 
Reliance Industries Ltd. NSE949.60  958.15 943.80  966.70 938.00  972.50 929.45 
Reliance Infrastructure Ltd.NSE 983.15 999.57  973.62 1015.98  964.08 1025.52  947.67 
Reliance Media Works Ltd.NSE 194.00 199.87  190.57 205.73  187.13 209.17  181.27 
Reliance Natural Resources Ltd.NSE 37.30 37.73  36.98 38.17  36.67 38.48  36.23 
Reliance Power Ltd.NSE 151.70 153.77  150.32 155.83  148.93 157.22  146.87 
Religare Enterprises Ltd. NSE461.95  467.63 457.63  473.32 453.32  477.63 447.63 
Sesa Goa Ltd.NSE 317.95 323.45  314.50 328.95  311.05 332.40  305.55 
Suzlon Energy Ltd.NSE 47.70 48.52  47.12 49.33  46.53 49.92  45.72 
Tech Mahindra Ltd.NSE 656.00 671.33  647.33 686.67  638.67 695.33  623.33 
UCO BankNSE 111.95 114.93  110.23 117.92  108.52 119.63  105.53  
 
   *LTP stands for Last Traded Price as on Friday, August 27, 2010 4:05:01 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. 

Derivative Stratage 

  Corporate News Headline
Tata Consultancy Services has signed a Rs. 1.3 bn e-governance contract with the Madhya Pradesh government. (BS)
Tata Power informed the Supreme Court that it would file a rejoinder to the Centre's affidavit that rejected its allegation of Reliance Power for usage of coal from mines allotted to the Rs. 200 bn Sasan Power Project. (BS)
Titagarh Wagons Ltd is in talks with a Japanese firm to form a joint venture to make steel bridges, a top official said. (BS)
  Economic and Political Headline
Output of core infrastructure industries expanded by 3.9% in July, as compared to 3.2% in the same month last year, according to data released by the government. The six core industries - crude oil, petroleum refinery products, coal, electricity, cement and finished steel - registered a 4.5% growth during the first four months. Crude oil production grew by 15.8% in July, while refinery output expanded by 13.7%. However, cement production contracted by 0.2% and finished steel output by 0.9% year-on-year. Coal output slowed to 4.5% against a robust growth of 10.5% in July, 2009. (BS)
The economic recovery in the US weakened in the second quarter more than previously estimated, highlighting the risks of a prolonged slackening in growth. The economy grew at a 1.6% annual pace down from an estimate of 2.4% issued last month, revised figures from the Commerce Department. (Bloomberg)
Federal Reserve Chairman Ben S. Bernanke said the central bank has the tools to prevent the US economy from slipping back into a recession, while stopping short of indicating an immediate need for more stimuli. (Bloomberg)

  US and European markets
Index Latest 1D Chg YTD
Nasdaq 1791.64 1.28% (3.69)%
DJIA 10150.65 1.65% (2.66)%
S&P 500 1064.59 1.66% (4.53)%
US stocks rose as Federal Reserve Chairman Ben S. Bernanke vowed to safeguard the recovery and growth in gross domestic product slowed less than estimated. The NASDAQ, Dow Jones and S&P 500 added 1.28%, 1.65% and 1.66%, respectively. Alcoa Inc. and Exxon Mobil Corp. helped lead materials and energy producers to the top gains among 10 groups after Bernanke said the central bank will do "all that it can" to foster growth. Boeing Co. advanced 3%. 3Par Inc. jumped 25% after Hewlett- Packard Co. offered USD 30 a share for the company, topping Dell Inc's USD 27.
Index Latest 1D Chg YTD
FTSE 100 5201.56 0.89% (3.90)%
CAC 40 3507.44 0.93% (10.90)%
UK stocks rose after Federal Reserve Chairman Ben S. Bernanke said the US central bank "will do all that it can" to ensure that the world's largest economy continues to recover. The FTSE 100 advanced 45.72 points or 0.89% at 5,201.56. Cable & Wireless Worldwide Plc soared 5.7% as telecommunication shares were the biggest gainers on the FTSE 100. BP dropped 1.5% after a senior vice president told a US federal panel that he didn't know who was in charge of the Deepwater Horizon rig days before it exploded.



INVESTMENT VIEW
Buy Texmaco
Texmaco is a KK Birla Group, diversified Engineering & Infrastructure company, engaged in segments like - Railway Rolling stocks, heavy engineering, Process equipments and modern state of art steel foundry [to cater to needs of mfg divisions]. It is market leader in Railway freight cars with best infrastructure and international tie ups.
 
The immediate trigger for the company could be - the proposed de-merger of present Texmaco in to - Texmaco Rail and Engg Co.(which will include all mfg operations like -Heavy engg, Infra and steel foundry divisions.), while post de-merged existing Texmaco will be holding investments & real estate. The share holders will get shares in the ratio of 1:1 for new co. The de-merger is now awaiting HC approval, which may take 3-6 months.  
 
De-merger will unlock significant value as - residual Texmaco will hold huge land bank, of which they already have the permission to develop 11 acres of land. The Supreme Court has permitted company to commercially exploit the 35% of the land and rest has been handed over to Delhi Development Authority (DDA), but if DDA exploits that commercially, then 50% revenues will have to be given to Texmaco. 
 
Texmaco's land is worth around Rs 2000 crs and other land plus right to get 50% share of revenues from DDA [if they develop land handed over to them] will be additional benefit. Company will also be holding investments worth Rs 360 Crs as on March'10. 
 
Recommendation
 
Present combined Mkt Cap of company is just around 1900 Crs, where as valuations of just Real estate & investment arm is higher then that. So you are getting core Mfg entity free of cost on de-merger. Post de-merger, we expect that - both companies to do extremely well and one can expect appreciation of 50% [on combined valuation basis] in next 12 months. BUY for target of Rs 225/- in next 12 month.


Market Snapshot
 27-Aug 20-Aug
Nifty

 5,408.70 

 5,530.65 

Sensex

 17,998.41 

 18,401.82 

NSE F&O Turnover (Rs. Cr)

89,587.43

93,076.73

PC Ratio

 1.22 

 1.19 

India VIX

 19.63 

 16.70 


 

Weekly Highest Open Interest Build up
StocksOI
% Change in Price

IFCI

9,20,72,000

-5.79

ISPATIND

8,99,69,000

4.47

SUNTV

7,90,76,000

-3.72

UNIPHOS

 6,18,08,000 

-5.83

GMRINFRA

 4,38,64,000 

-7.85




Weekly Lowest Open Interest Build up
StocksOI
% Change in Price

BOSCHLTD

25,375

-0.01

CONCOR

34,000

-2.78

ASIANPAINT

64,875

-1.45

BEML

1,68,000

-1.59

HINDZINC

1,75,750

-5.41


Technical Outlook

Nifty exhibited "symmetrical triangle" which is bearish  breakout pattern. Friday (27th August, 2010) it broke the lower trend line of symmetrical triangle decisively. Technical momentum indicators are suggesting correction in Nifty. Stochastic is currently moving in oversold zone, on the brink of entering into neutral territory indicating profit booking. Nifty is currently trading below 8 and 34 Day EWMA indicating downward movement. If Nifty continues to trade below 34 Day EWMA, then we could see downside upto 5,320 during the coming week.

Derivative Outlook

Nifty ended on a negative note at 5,408.70 marks losing more than 2% during the week. The Nifty September futures ended at 5,404 (LTP) with a discount of 4.70 points. If we look at the derivatives data we could see that Nifty future prices ended in the negative territory along with incline in open interest but with decline in the cost of carry, this is an indication of short position is being built up at higher level. Nifty may face resistance at higher levels of 5,450 to 5,480 whereas on the downside support is seen at 5,350-5,280 level.

Sector Outlook

This week, buying is expected defensive sectors like FMCG and Pharma sectors from lower supports of 5,400 levels. Short positions can be accumulated in Banking, Metal and Oil and Gas stocks if the Nifty fails to sustain above 5,400 levels. Short covering could be seen in Realty sector.


Derivative Strategies for the week:

Short Nifty September 5300 Put Option and Simultaneously Short 5500 Call Option

CMP:5,408.70
View:Range Bound
Strategy:Strangle
Market Lot: 50

Long TATASTEEL September 520 Call Option and simultaneously Short 540 Call Option

CMP:510.15
View:Positive
Strategy:

Bull Spread

Market Lot: 500


Nifty broke lower trend line of "symmetrical triangle" indicating downtrend
Nifty exhibited symmetrical triangle which is bearish breakout pattern. Today it broke the lower trend line of symmetrical triangle decisively, expecting it to fall further. Nifty is currently trading below 8 and 34 Day EWMA indicating downward movement. If Nifty continues to trade below 34 Day EWMA then we could see downside upto 5,320 during the coming week. If Nifty manages to trade above 34 Day EWMA then it could bounce back to its previous high (5,549.80), which looks highly unlikely at this stage. Technical momentum indicator Stochastic is currently moving in oversold zone, on the brink of entering into neutral territory indicating profit booking. RSI is trading in neutral territory at 55 showing negative crossover.

Stocks to Watch:
1) VIDEOCON: Sell
2) RUCHI SOYA: Sell

The upside seems to be limited in Indian markets
The upside seems to be limited in Indian markets from current month high as the overall corporate performance for the June quarter was lower than expectations as higher-than-expected cost pressures (raw material costs and staff costs , to a certain extent,) dented margins. Further,the government proposes to raise the minimum alternate tax (MAT) on book profits to 20% from current 18% also weighed in sentiment. US data is increasingly stroking fears of a dip in the economy again. Investors have become cautious about emerging markets equities, Asia-Pacific equity funds were relatively hard hit, posting outflows of USD 289 million for the week, based on fears a US slowdown would hurt the Asian exporters. However, June-September monsoon season turns out good and well distributed, it will help raise farm output, boost rural incomes and lower food inflation. Next week, buying is expected in FMCG, Hydro power, Healthcare and low beta stocks from current levels or from lower supports of 5,350-5,400 levels of Nifty while selling positions can be accumulated in metals, Realty, IT and BFSI if the Nifty fails to sustain above 5,400.

Global markets is likely to get some breadth back, optimistically waiting form Bernanke speech
Global equity markets marked another sluggish week led by weaker than expected US economic data. U.S. durable goods and new home sales data came worst-than-expected raising concern over the prospects of a global economic recovery. Further, Japan's export growth also slowed for a fifth month in July as Yen continues to strengthen against dollar. However, it seems that markets have reached neutral ground from where it could get some breadth back in the coming days as Fed chairman Bernanke is likely to loosen monetary policy significantly in its speech. Moreover, manufacturing PMI from Australia, China, the UK, EU and US will be closely watched.

Crude prices likely to stay flat, Gold prices may rise modestly
Crude prices are likely to stay flat with a negative bias in the coming weeks. The more than expected stockpiles and discouraging economic data may drag the prices lower. Also, the currency movement is unlikely to provide support to the prices. The gold prices may rise modestly in the coming week. The appeal for precious metal as an alternative investment is likely to pick up as the signals for the global economic recovery may stay weak on the back of laggard economic data. The demand for the precious metal in the domestic market will see a further upsurge due to the ongoing festivities and wedding season.

Bond yields to stay above 8% mark on liquidity concerns
Bond yields are expected to remain above 8% mark on increased concerns about liquidity going forward as quarterly advance tax payments which will start from mid-September may suck Rs 40,000 crore from system.

Index Outlook - Bulls on the backfoot


Sensex (17,998.4)

Bulls took a breather after weeks of toil to push the Sensex over the 18,500 mark. The benchmark rolled down effortlessly to close 403 points lower, the largest weekly decline in the last three months. Expiry of August derivative contracts kept market participants busy in an otherwise arid week on the news-flow front.

Volumes reached record levels in the derivative segment. FIIs however withdrew their supportive prop and turned net sellers last week. September derivative series has begun on a very heavy note with open interest of over Rs 1.4 lakh crore. Put call ratio remains very high implying that short positions dominate the positions rolled over.

The ease with which the Sensex slipped lower indicates that the path of least resistance for this index is lower. It formed a bearish engulfing candle pattern in the weekly chart as it broke below the short-term trend channel formed since July low.

The 10-day rate of change oscillator has slipped in to the negative zone, while the 14-day relative strength index has slipped to 45 denoting the onset of a short-term down-trend. The deterioration is not that stark in the weekly time-frame though weekly momentum indicators are also dipping lower.

We have been reiterating that caution needs to be exercised from a medium-term perspective since the Sensex is nearing the upper end of its trading range between 15,500 and 18,500. A reversal from these levels can pull the index lower to 17,000 or below over the ensuing weeks.

We however maintain a positive view from a long-term perspective since the Sensex is moving within an upward moving trend channel since last August. This denotes a positive bias and the possibility of an upward break-out to a new high over the long-term. Close below 15,500 is required to roil this bullish long-term view.

If we extrapolate the wave that started from the May low of 15,960, the first target occurs around 18,600. Sub-minor counts of the move from March 2009 lows also give us strong resistance in the zone between 18,300 and 18,600.

The support that short-term investors need to watch out for is at 17,800. If the index holds above this level, that would leave open the possibility of another shy at moving above the resistance zone between 18,500 and 18,600 to the next medium term target at 19,300. But breach of this level would drag the index down to 16,920. The 200-day moving average positioned at 17,300 would also cushion any declines in the index in the near term.

The Sensex bounced off the 50-day moving average on Friday. So there can be a short rally to 18,146 or 18,272 in the week ahead. Failure to penetrate the first resistance would imply that the index can move lower to 17,807 or even 17,522 in the days ahead. Movement of the index in the week ahead should help us understand the trajectory that the index intends to take over the next few weeks.

Nifty (5,408.7)


The Nifty did not even attempt to take on the resistance in the band between 5,550 and 5,600. It reversed lower instead to record the low of 5,392 on Friday. We maintain the medium term target of 5,780 on a strong move past 5,600. But a close below 5,356 would mean that the index can decline further towards the lower end of our medium term trading range between 4,700 and 5,600.

The succession of higher troughs formed within the medium term range since last August mean that the Nifty can halt any medium term decline at 5,080 or even at the 200-day moving average at 5,170.

Since the Nifty halted at its 50-day moving average on Friday, it can bounce higher to 5,452 or 5,489 in the week ahead. Failure to get past the first resistance would be the cue for short-term traders to initiate fresh short positions with stop at 5,500. Declines in the days ahead would receive support at 5,350. Downtrend will accelerate on a breach of this level, dragging the index further to 5,262.

Global Cues

Global benchmarks remained on the back-foot last week and closed marginally in the red. CBOE volatility index initially climbed to a high of 28.9 reflecting nervousness among investors.

But it reversed sharply lower Friday to end the week at 24.4 even as US stocks shrugged off a slower growth in US GDP. As we have been reiterating, the VIX needs to close above 28.1 to usher in a more protracted down-move in equities.

Dow tried to hold above the key short-term support at 10,000 indicated in our last column.

A strong close below this level will drag the index to 9,621 or 9,441. Friday's upward reversal will face resistance at 10,250 and then at 10,420. Strong close above the second resistance is needed to indicate that the index is on safe terrain.

A notable feature of last week's trade was the weakness in most Asian and Latin American markets.

Technical Analysis

Nifty broke lower trend line of "symmetrical triangle" indicating downtrend

Nifty exhibited"symmetrical triangle" which is bearish breakout pattern. Today (27th August, 2010) it broke the lower trend line of symmetrical triangle decisively, expecting it to fall further. After surging to a new 52 week high of 5,549.80 on very first day of current week , Nifty falls continuously and touched weekly low of 5,391.55 on last day of the week, before closing at 5,408.70 with a loss of 2.20% on w-o-w basis. From last week Nifty is trading in narrow range and moving in between 120-130 points. Nifty is currently trading below 8 and 34 Day EWMA indicating downward movement. If Nifty continues to trade below 34 Day EWMA, then we could see downside upto 5,320 during the coming week. If Nifty manages to trade above 34 Day EWMA then it could bounce back to its previous high (5,549.80), which looks highly unlikely at this stage. Profit booking was the main reason behind Friday fall and we feel that markets may correct further as it has rallied recently upto 5,550 level, despite of negative cues from global counterparts. Nifty is likely to be volatile and may correct to around 5,300-5,320. On upside Nifty resistance level is 5,460 while on downside it has mild support at 5,370. On upside if level of 5,460 breaks then we could see rise in it up to mark of 5,560, on the other side if level of 5,370 is breaches decisively then it could retrace up to 5,320. Technical momentum indicator Stochastic is currently moving in oversold zone, on the brink of entering into neutral territory indicating profit booking. RSI is trading in neutral territory at 55 showing negative crossover. Another technical indicator MACD is trading in positive zone on the brink of showing negative divergence, indicating correction.

Stocks to Watch

 
VIDEOCON (Sell)

Particulars Rs.
CMP

261.05

Target Price

255/250

Stop Loss

265

Support-Resistance

256/270

Comment

  • After consolidating in range of 12 points in between 260-272 stock has formed a Japanese candlestick pattern called "inverted hammer" which is sign of downtrend. Stock has made a 52 week high today but retraced thereafter. Stock is also on the verge of crossing 8 Day EWMA from above. Any decisive break out below 8 Day EWMA could take stock to its next immediate support of 246 (20 Day EWMA). Traders can sell the stock at current price 261.05 with strict stop loss of 265. Technical indicators MACD, RSI and Stochastic are also suggesting correction in stock as they all are showing negative divergence.





RUCHI SOYA (Sell)

Particulars Rs.
CMP

128.95

Target Price

127/124/121

Stop Loss

132.50

Support-Resistance

126/136

Comment

  • After rallying nonstop for almost a week stock has given a break out on lower side today supported with volume. Stock is trading near its all time high, breached all important resistance levels decisively. Stock immediate support seems at 126. Technical indicators MACD, RSI and Stochastic are also suggesting correction in stock as they all are showing negative divergence.

 

  

 

 

 

 

 


Indian Equity Market


The Week Gone By

The key benchmark indices wrapped the week on negative note led by profit booking on Reality, banking and Metal stocks. Except consumer durable All the BSE Sector indices fell during the week as investors were cautious on worries over the pace of the US economic recovery. Reliance Industries, IT and infrastructure companies fell after the Union Cabinet approved the new Direct Taxes Code bill wherein it proposed a hike in the rate of minimum alternate tax (MAT) on book profits to 20% from the prevailing 18%.

Looking Forward

The upside seems to be limited in Indian markets from current month high as the overall corporate performance for the June quarter was lower than expectations as higher-than-expected cost pressure, dented margins. Further,the government proposes to raise the minimum alternate taxon book profits to 20% from current 18% also weighed in sentiment. 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. US data is increasingly stroking fears of a dip in the economy again. he latest data from global fund tracker EPFR Global showed investors have become cautious about emerging markets equities,. Asia-Pacific equity funds were relatively hard hit, posting outflows of USD 289 million for the week, based on fears a US slowdown would hurt the region's exporters. However, June-September monsoon season turns out good and well distributed, it will help raise farm output, boost rural incomes and lower food inflation. Next week, buying is expected in FMCG, Healthcare and low beta stocks from current levels or from lower supports of 5,350-5,400 levels of Nifty while selling positions can be accumulated in metals, Realty, IT and BFSI if the Nifty fails to sustain above 5,400.


Nifty Top Gainers

Company % Weekly Return

BPCL

11.12 

ONGC

4.70 

Bharti Airtel

1.87 


Nifty Top Loser

Company% Weekly Return

JP Associate

(9.54)

Unitech

(9.46)

Hindalco

(8.15)

 


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 26-08-10

% change
as on 19-08-10

L&T

39.68

0.97

RIL

40.41

(3.90)

SBI

120.65

0.39

Weekly Price Movement of ADR
Security NamePrice (USD)
as on 26-08-10
% change
as on 19-08-10
ICICI bank

41.39

(2.57)

Infosys

58.29

(2.23)

MTNL

2.66

(4.66)

Rediff

1.93

2.12

Sify

1.28

(8.57)


Global Equity Markets

US indices lower during the week (till Thursday) amid lingering concerns about the economic outlook. Investors continued to express concerns about the economic outlook following the series of disappointing economic data. Meanwhile, with earnings season winding down, market ignored the better-than-estimated earnings from the big companies. In another corporate news, computer maker Dell announced that data storage firm 3PAR's board had agreed to a revised takeover offer of USD 24.30 per share, which is just above Hewlett-Packard's offer of USD 24 per share. Looking ahead to next week, investors will look to what is a widely expected to be a downward revision to second quarter GDP, while a reading on August consumer sentiment and comments from Federal Reserve Chairman Ben Bernanke on the economic outlook are also likely to garner attention.

Asian markets traded lower during the week tracking the US market cues as the worries about a fragile global economy resurfaced yet again. The stocks in Japan slipped as the persistent rise in the Japanese yen added fuel to the fire amid mounting concern about the authorities' inaction on a strong yen, which threatens a fragile economic recovery. In China, SSE Composite lower on central government's urging local governments to take forceful measures on the property market.

European marketscame under pressure after weaker than expected macroeconomic data from US. Worst-than-expected U.S. durable goods and weak U.S. new home sales data sparked worries over the prospects of a global economic recovery. Economy worries weighed on construction and materials stocks dragging European markets to 5 week closing low during the week. Though, some encouraging company results helped the market to recover later in the week but still were down. Further, markets are likely to gain some ground in the next week as it is expected that Federal Reserve Chairman Ben Bernanke is overall reluctant to loosen its monetary policy significantly in its speech. Moreover, some encouraging economic data could also support the markets.

Weekly return on major Global Indices

Data of US and European markets taken from Aug 19 to Aug 26, 2010
Data of Asian markets taken from Aug 20 to Aug 27, 2010 

Weekly Change in the Composites of S&P 500
Industry

Adj. Mkt. Cap 
as on

26-08-10

Adj. Mkt. Cap as on
19-08-10


Change

Energy

10,23,010 

10,62,252 

(3.69)

Materials

3,37,347 

3,49,205 

(3.40)

Industrials

9,81,880 

10,24,084 

(4.12)

Cons Disc

9,76,460 

10,00,904 

(2.44)

Cons Staples

11,19,491 

11,27,923 

(0.75)

Health Care

11,15,234 

11,37,672 

(1.97)

Financials

14,97,929 

15,45,899 

(3.10)

Info Tech

17,47,052 

18,05,829 

(3.25)

Telecom Services

3,06,850 

3,09,677 

(0.91)

Utilities

3,67,418 

3,66,195 

0.33 


Key Events

Global Key Events

  • Sales of existing houses in US plunged by a record 27% in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the US economic recovery. Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping.

  • Sales of US new homes unexpectedly dropped in July to the lowest level on record, signaling that even with cheaper prices and reduced borrowing costs the housing market is retreating. Purchases fell 12% from June to an annual pace of 276,000.

  • Orders for durable goods increased less than forecast in July, a sign one of the few remaining bright spots in the US economy is cooling.

  • Applications for unemployment benefits in the US fell more than forecast last week. Initial jobless claims dropped by 31,000, the first decline in a month, to 473,000 in the week ended Aug. 21.

  • Growth in Europe's services and manufacturing industries weakened more than economists forecast in August, signaling the pace of the recovery has peaked. A composite index based on a survey of euro-area purchasing managers in both industries declined to 56.1 from 56.7 in July.

  • European industrial orders rose more than economists forecast in June as strengthening global growth helped fuel the region's fastest expansion in four years in the second quarter. Orders in the 16-nation euro area increased 2.5% from May, when they jumped 4.1%.

  • Japan's export growth slowed for a fifth month in July, adding to risks in an economy under threat from the yen's surge against the dollar. Overseas shipments advanced 23.5% in July from a year earlier, less than June's 27.7% gain.

  • The German economy logged its biggest expansion by a seasonally adjusted 2.2% sequentially in the second quarter, up sharply from the 0.5% expansion in the first three months of the year. Exports of goods and services moved up 8.2% compared to first quarter. A 7% increase in imports was smaller than that in exports, taking the balance to a surplus. 

Domestic Key Events

  • Annual food inflation fell for the second straight week, to 10.05% for the week ended August 14, as prices of vegetables like potato and onion declined. On an yearly basis, potato became cheaper by over 50%, while vegetables overall saw a decline of 14.23%. Onion prices also fell by 7.29%.

  • The government extended sops worth Rs. 10.52 bn to exporters, particularly for the labour-intensive textile, handicrafts and leather sectors, to help them see through the fragile economic recovery globally.

  • The industry ministry has suggested mandatory third-party licensing of production of patented drugs in the country in order to check the random acquisition of Indian pharma companies by multinationals and the jacking up of prices. Alternatively, foreign direct investment in the sector should be restricted to bring down cost of medicines in the country. At present, 100% FDI is allowed in the sector through automatic route.

  • The union cabinet has approved the direct taxes code (DTC) bill, paving the way for its introduction in the ongoing monsoon session of Parliament. The proposed DTC will cut tax rates to bring in more people and companies under the net, phase out profit-linked exemptions for firms and replace them with investment-linked incentives.

  • In yet another significant statistic marking the rapid rise of India and China as global economic powers India has overtaken economic powerhouse Japan in demand for oil among Asian nations in the second quarter of 2010. the country's demand for oil in the April-June period stood at 3.1 million barrels per day (mbpd), which was marginally higher than Japan's 3 mbpd.

  • In a big blow to Vedanta Resources, the union government refused to give environment clearance to its USD 1.7 billion bauxite mining project in Orissa. Giving reasons for the decision, union minister of state for environment and forests Jairam Ramesh told that "There has been a very serious violation of Environment Protection Act, Forest Conservation Act and the Forest Rights Act."

  • Anil Dhirubhai Ambani Group firm Reliance Power is reported to be considering investments of up to USD 5 billion (about Rs 23,480 crore) in Indonesia. Company plans to produce 50 million tonnes coal a year within five years from mines in South Sumatra and has also plans to set up a 230-km-long railway line that will link its coal operations in Batang Hari, South Sumatra, to a port in Jambi.


Derivatives

 

  • Nifty ended on a negative note at 5,408.70 marks losing more than 2% during the week. The Nifty September futures ended at 5,404 (LTP) with a discount of 4.70 points. If we look at the derivatives data we could see that Nifty future prices ended in the negative territory along with incline in open interest but with decline in the cost of carry, this is an indication of short position is being built up at higher level. Nifty may face resistance at higher levels of 5,450 to 5,480 whereas on the downside support is seen at 5,350-5,280 level. 


  • During the week, there was significant accumulation of open interest in OTM Call and Put options. Most of the open interest builds up in the range of 5,500-5,700 call as significant short accumulation witnessed in these level on the other hand aggressive buying was seen in 5300-5400 strike Put option


  • The Put-Call ratio of open interest increased substantialy during the week from 1.19 to 1.22 levels. The options concentration has shifted to the 5,300-5500 strike put option.


  • The Volatility Index (VIX) increased during the week and closed at 19.63%. 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 6,005.90 marks losing 2%. The CNX IT Futures prices declined along with incline in the open interest but with decline in cost of carry this is indicating that index is in selling mode and more correction is remained . For the coming week, immediate support for the Index is seen in the range of 5,800-5850 mark, whereas on the upside resistance is seen at 6,100- 6,150 levels


  • During the week the Bank Nifty Index ended on a negative note and fell by 2.78% to 10727.45. If we look at the derivatives desk we can see that the bank Nifty futures prices decreased along with an overall deecline in open interest with decline in the cost of carry, this is an indication closure of long position and addition of fresh short position. For the coming week bank Nifty support is seen in the range of 10,500-10,550 levels whereas on the upside stiff resistance would be faced at 11,850-10,900 levels.



  • FIIs were net seller in index futures to the tune of Rs 3,678 crore while in stock future they were net seller of 6,767 crore, indicating further correction in markets . Further, in the index options FII were net buyer of 10,268.74 crore with higher PCR is indicating the same. 



  • Overall the market continues to remain in the sell mode. The Nifty is expected to remain in the range of 5,280-5,450 levels. If the index sustains 5,380, we may see higher levels of 5,450. If the market fails to hold 5,380 levels, it is likely to see a sharp decline due to heavy short positions. Any positive market indicator may propel up move due to significant short covering. while any instability on the global front is likely to result in selling pressure from current levels. trader can short 5600-5,700 strikes Call 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 BuySellNet
Index Futures

23,952.09 

27,630.23 

(3,678.14)

Index Options

36,005.70 

25,736.96 

10,268.74 

Stock Futures

34,770.99 

35,538.04 

(767.05)

Stock Options

1,369.91 

1,504.63 

(134.72)

*From August 20 to till August 26(Source: NSE) 
Debt
  • Call money rates eased during the weak to 4.50% mark on comfortable liquidity in the system. The liquidity in the market improved during the week after government paid Rs 14,000 crore to oil companies as part of its budgeted cash subsidy. During the week, average daily borrowing of banks from RBI under LAF window fell to Rs 2,804 crore from Rs 15,458 crore last week while reverse repo transaction rose to Rs 14,098 crore from Rs 1,586 crore last week.



  • After remaining net buyers for three straight weeks, FIIs turned net seller in the market with selling worth Rs 74.8 crore compared to 730.8 crore buying in the previous week. However, MFs turned net buyer this week in the debt market, with Rs 5,432.2 crore (4 days) buying compared to Rs 1,526.3 crore of selling in the previous week.









  • Bond yields touched 8% mark after almost 4 months as bond prices softened. The prices of 10 year benchmark bond fell as investors reduced position from 7.80% CG 2020 paper on concerns that paper may not remain liquid in future. Government has already issued Rs 40,000 crore worth of 7.80% CG 2020 paper and it usually does not issues fresh paper above Rs 55,000 crore in a single paper to avoid bunching of redemption. Further, the bond will soon cease to be a 10 year paper. Investors are shifting their holdings from 7.80% CG 2020 paper to 8.13% CG 2022 paper as it is the closet possible benchmark bond. Investors are also concerned about the quarterly advance tax payment which will start from mid-September and may drain as much as Rs 40,000 crore from the system putting pressure on liquidity.



  • Bond yields are expected to remain above 8% mark on increased concerns about liquidity going forward as quarterly advance tax payments which will start from mid-September may suck Rs 40,000 crore from system.










  • During the week, RBI sucked Rs 70,490 crore from the system under Liquidity Adjustment Facility (LAF) window while Repo transaction stood Rs 14,020 crore. On August 20, 2010, GoI auctioned 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. On August 23, 2010, the GoI announced auction of 7.17% CG 2015 worth Rs. 5,000 crore, 7.80% CG 2020 worth Rs. 4,000 crore, 8.26% CG 2047 worth Rs. 3,000 crore to be held on August 27, 2010. On August 24, 2010, five state governments auctioned State Development Loans 2020 for Rs 3,550 crore. On August 25, 2010 RBI auctioned 91-day Treasury Bills worth Rs 7,000 crore and 364-day Treasury Bills worth Rs 1,000 crore.
 Call Rates
Date Rate (%)

20-Aug

5.06

23-Aug

5.54

24-Aug

4.67

25-Aug

4.52

26-Aug

4.54


FIIs & MFs investment in Debt Market

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

20-Aug

55.5 

500.5 

23-Aug

(147.0)

1,204.8 

24-Aug

-

2,148.9 

25-Aug

192.6 

1,578.0 

26-Aug

(175.9)

-

Total

(74.8)

5,432.2 

This Month

3,134.0 

9,596.5 

 (Source: SEBI)

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

20-Aug

99.14

7.9234

23-Aug

98.47

8.0304

24-Aug

98.55

8.0278

25-Aug

98.24

8.0325

26-Aug

98.44

8.0546

 
Spread

 
Liquidity Adjustment Facility
DateReverse Repo
(Rs. Crore)
Repo
(Rs. Crore)

20-Aug

0

11,015

23-Aug

0

3,005

24-Aug

20,575

0

25-Aug

29,695

0

26-Aug

20,220

0

This week

70,490

14,020

This Month

94,615

1,29,355


Commodity
Crude oil prices continued with the last week's drop and started this week on a lower note. The fall in crude prices was in line with the global equity markets. Moreover, the pace of global recovery was hit by the worse than expected housing data which shook the investors' confidence and therefore dragged the prices further lower. But surprising gains were seen in the crude prices towards the end of the week. The prices picked up despite the weak economic data. An unexpected increase of 4.1 mn barrels in the crude inventories for the week ended 20th August , also could not bring the prices down. The gains continued as the initial claims data checked in better than expected at US and thereby partly erasing concerns about global economic recovery. The crude prices movement lacked a clear direction and remained almost flat in both the markets. The international crude registered a modest fall of 0.37% whereas the domestic crude prices were mildly up by 0.61% on w-o-w basis. The coming week is likely to see the same trend in the crude oil prices whereby the prices may stay flat with a negative bias. Some selling pressure is likely to emerge on the back of rise in the prices towards the end of the week. Moreover, the more than expected stockpiles and discouraging economic data may drag the prices lower. The cuurency movement in the coming week is also highly unlikely to provide support to the prices.

Gold prices opened the week's trade on an almost flat note. But immediately after, the precious metal began to pick up on the back of falling global equity markets which increased the appeal for gold as an alternative investment option. Prices also rose as the dollar erased its initial gains to become almost flat. The yellow metal continued to glow, to touch the two month high towards the end of the week. Worse than expected new home sales data and durable goods order imparted shine to the precious metals and prices rose despite a steady dollar. But, the investors began to shift away from gold as the better than expected initial claim data erased some concerns about the global economic recovery. Finally, the international gold prices remained almost flat, registering a gain of 0.28% on w-o-w basis. The domestic gold prices also followed the international trends but finally managed a higher gain than the global peers on the back of ongoing wedding and festival season. Domestically, the gold prices saw an increase of 1.72% on w-o-w basis due to the increased demand. The gold prices may rise modestly in the coming week. The appeal for precious metal as an alternative investment is likely to pick up as the signals for the global economic recovery may stay weak on the back of laggard economic data. The demand for the precious metal in the domestic market will see a further upsurge due to the ongoing festivities and wedding season.

 
Weekly change in Crude prices per Barrel
 26-Aug19-Aug Change (%)
Intl Crude Oil Prices (USD)

75.02

75.30

(0.37)

Domestic Price (Rs)

3,503.91

3,482.67

0.61




Inventories (weekly change)
Week ended ChangeTotal Inventory
20-Aug-10

4.1 mn barrels

358.30 mn barrels





Weekly change in Gold prices in Rs/10gms

 26-Aug19-Aug Change (%)
London pm fix(USD/troyoz)

1,237.00

1,233.50

0.28

Mumbai (Rs/10gms)

18,980.00

18,658.75

1.72

Top
Forex

Rupee ended the week on subdued note against US Dollar and tested 47 level. During the week, US Dollar strengthened against INR on defensive demand as confidence in the global economy continues to deteriorate. Further, the month-end related demand for the dollar also pulled domestic currency down. However, as most of negative economic data are coming US, the greenback pared some gains towards the end of the week. INR also weakened against Japanese Yen as US currency weakened to 15-year lows near 83.50 against JPY. Yen is witnessing hefty defensive demand on shaky global economic recovery. On the positive side, INR managed to inch slightly higher against Euro.

INR/ 27-Aug20-Aug%Change
USD

46.86

46.58

(0.60)

EURO

59.59

59.66

0.12 

YEN

55.31

54.58

(1.34)

 

INR vs. USD and Euro


 
Economy

IndicatorsLatest PreviousChange
Investment Deposit Ratio (%)

31.36 (Aug 13)

31.14 (Jul 30)

Credit Deposit Ratio (%)

72.64 (Aug 13)

72.36 (Jul 30)

Money Supply (%)

14.80 (Aug 13)

14.70 (Jul 30)

Bank Credit (%)

20.10 (Aug 13)

19.70 (Jul 30)

Aggregate Deposits (%)

14.10 (Aug 13)

14.00 (Jul 30)

Forex Reserves USD bn

282.54 (Aug 20)

282.79 (Aug 13)



Pivotals


Reliance Industries (Rs 949.7)

The stock tumbled 3.8 per cent last week and is testing our medium-term key support level of Rs 950. Both medium and short-term trend is down for the stock.

The stock continues to remain in a short-term downtrend as long as it trades below Rs 900 and Rs 1,000 band. We don't see any positive signs of short-term trend reversal. Traders with short-term perspective can initiate short positions with stop-loss at Rs 985. Strong decline below Rs 950 will pull the stock lower to Rs 935 and then Rs 920 or Rs 910 in the upcoming weeks.

Nevertheless, a move above Rs 1,000 would take the stock ahead to Rs 1,020 or Rs 1,030 in the short-term. We reiterate that only a strong up-move above Rs 1,050 will mitigate the stock's medium-term downtrend. Medium-term resistance is at Rs 1,090.

State Bank of India (Rs 2,803.1)


In line with our prior expectation, the stock broadly moved sideways within the range of Rs 2,750 and Rs 2,850 and ended the week with Rs 19 gain. On Friday, the stock fell 2 per cent, forming bearish engulfing candlestick pattern in its daily chart implying short-term reversal.

Besides, the daily moving average convergence divergence oscillator has signalled a sell. Short-term traders can sell the stock while maintaining stop-loss at Rs 2,850. Targets for the stock are at Rs 2,750 and Rs 2,700. On the other hand, a move above Rs 2,860 will lift the stock to Rs 2,900. The stock's medium-term trend continues to be up. Investors can consider holding the stock with a stop at Rs 2,350.

Tata Steel (Rs 510.1)


Tata Steel fell almost 2 per cent last week. The near-term trend is down for the stock. As long as the stock stays below Rs 530, the near-term view is negative. Traders can initiate a short position with stop at Rs 530.

Near-term targets for the stock are at Rs 490 and Rs 480. Key resistances above Rs 530 are at Rs 540 and Rs 550. The medium-term trend is still down. Significant medium-term support for the stock is at Rs 450.

Infosys Technologies (Rs 2,708.8)


As anticipated, the stock declined last week and fell below Rs 2,730, and reached our initial target of Rs 2,700 on Friday. The stock ended the week with a 2 per cent decline. The stock appears to have conclusively breached its key support at Rs 2,750. Moreover, it is trading well below its 21- and 50-day moving averages. Short-term traders can continue to hold their short positions with stop-loss at Rs 2,750.

The stock can decline to Rs 2,650, with minor pause around Rs 2,675 in the ensuing week. Resistances above Rs 2,750 are pegged at Rs 2,800 and Rs 2,783. Investors with medium-term perspective can hold the stock with stop at Rs 2,600. —


Sizzling Stocks


State Bank of Mysore (Rs 1,167.8)

The stock zoomed, hitting its 20 per cent upper circuit last Monday as well as on Tuesday. Thereafter, it recorded a 52-week high of Rs 1,450, and started to decline, but finished the week with 26 per cent gains.

The stock, which had been on a sideways consolidation from May 2009 in the broad range between Rs 575 and Rs 750, broke out in August 2010. However, after encountering resistance around Rs 1,450, the stock declined retracing 38.2 per cent fibonacci retracement of its prior up move and is testing support around Rs 1,500.

A fall below Rs 1,100 in the ensuing weeks will drag the stock further down to Rs 1,000 or Rs 920. On the other hand, a reversal from the current support level will result in the stock moving sideways in the zone between Rs 1,150 and Rs 1,327. Strong move above Rs 1,327 once more will take the stock higher to Rs 1,450 or Rs 1,500 in the medium-term.

Surya Pharmaceutical (Rs 293)


The stock's bullish momentum prolonged and shot up by 28 per cent during the week. Since March 2009 low of Rs 47, the stock has been on a long-term uptrend, steadily forming rising peaks and troughs. Medium-term trend is also up for the stock. On August 16, the stock conclusively penetrated its key resistance of Rs 200 and subsequently began to accelerate. Marking an all-time high of Rs 314 recently, the stock is in a minor correction as the daily and weekly relative strength indices are hovering in the overbought territory.

Inability to move above Rs 310 can accelerate the ongoing correction to its immediate support of Rs 265 or Rs 250. The intermediate-term outlook remains positive as long as the stock trades above Rs 180. — 


Sector topper: BSE Bankex


After underperforming the broader market indices during much of 2005-2008, over the last two years, the BSE Bankex has outperformed the BSE Sensex. Until October 2008, the aggressive monetary tightening of the RBI led to repo rate and cash reserve ratio going up to as high as 9 per cent each. Rising yields led to most of the banks' under-performance given high proportion of gilt investments in their books.

The BSE Bankex is up 47 per cent over the last one year taking the latest PE multiple to 17.5 times from 12.9 times in August 2009 as compared with BSE Sensex PE expansion of 1.4 percentage points. The surge in valuations is more to do with the re-rating than earnings growth..

The current rally of BSE Bankex was very secularly driven by public sector and private banks alike. IndusInd Bank, BoB, Canara Bank, Yes Bank and PNB were among the key outperformers (78-120 percent returns) in the BSE Bankex.

Kotak Mahindra Bank, IDBI Bank, ICICI Bank and Bank of India have been laggards. Lower growth in the earnings and asset quality slippages led to under-performance of Bank of India and ICICI Bank.

The banking sector, despite witnessing slippages in asset quality thrived mainly due to two reasons. One, for the year ended-June 2009, steep fall in gilt yields allowed banks to make big bucks as compared with the preceding year . Second, banks were allowed to restructure their assets which partly postponed the deterioration in the asset quality. In 2009-10, banks despite seeing asset quality slippages, revival in core earnings led to continued out-performance of these stocks. Margins are expected to improve in the early part of the interest rate cycle. Cutting down of excess investments to combat tight liquidity would also mean lower treasury losses for banks going forward.


52-Week loser: RNRL


RNRL's roller-coaster ride over the last year eventually ended in deep disappointment. The initial optimism from the favourable Bombay High Court ruling last year in the gas supply dispute with Reliance Industries (RIL) was ephemeral.

The first body blow was the adverse ruling of the Supreme Court on May 7, which choked out its raison d'etre – that of sourcing gas from RIL at a cheap price. The RNRL stock lost around 23 per cent on the day of the verdict. However, after some more bloodletting, it recouped most of its losses in the hopes of a favourable settlement following the redrawing of the non-compete agreement with RIL.

The respite though was short-lived. The final nail in the coffin was the announcement on July 4 of the merger of RNRL with Reliance Power, at a swap ratio of 1:4.


With the stock effectively pegged at one-fourth the going price of Reliance Power, the RNRL stock lost a whopping 28 per cent in the next day's trade, and has continued its downward move, losing an additional 19.5 per cent since then.


Riding the right sectors

These trends offer many pointers to investors looking to protect their portfolio from the next correction and ride the next new bull wave. One, the next big market move, if and when there is one, may not be led by consumer durables, fertilisers, construction or even auto stocks — the top performers of the 2009-10 rally.

Going by history, the frontrunners of each bull market usually spend the next up-cycle in hibernation. The length of that hibernation depends on the excesses during the previous uptrend. If valuations are bid up to astronomical levels, the outperformers in a bull market can take several years to recoup from a market meltdown.

Many of the mid-cap software stocks — Mastek, Rolta and Hexaware, for instance — today trade at a fraction of their prices in February 2000; even the redoubtable Wipro is yet to recapture earlier peaks. Mid- and small-cap stocks within a fancied theme often find it far more difficult to recover from a meltdown than large-caps. While the large-cap DLF today trades 70 per cent below its January 2008 price, the mid-cap BL Kashyap trades 81 per cent below. Mid-cap and small-cap stocks, therefore, should the prime candidates for profit-booking even within the outperforming sectors.

Two, investors should also avoid betting on thematic funds that play on favoured market themes.

Both the dotcom rally of 1999-2000 and the 2008 bull market saw the bunching up of new fund offerings towards the end of the uptrend — if it was technology funds in 1999-2000, it was infrastructure funds in end-2007.

Investors betting on either of these themes at those points in time would have ended up significantly underperforming the market. Given that the sectors and stocks that lead each new bull market are quite different from the previous one, it would be best to place your bets on diversified equity funds, which are better placed to ride a new theme, as and when it plays out.

Three, while choosing between stocks and sectors, maintain a consistent focus on 'value'.

The above instances prove that betting on the dark horse, whether it is by investing in an out-of-favour sector or a stock with modest valuations, does eventually pay off — if not in this bull run, certainly in the next. And if you stay away from the momentum sectors, the bonus is, you don't have to worry about your portfolio being battered out of shape during a correction either.

Weekend Platter  on http://www.indiabulls.com/securities/mailermis/weekly-reports/weekend-platter-27Aug2010.aspx#technical

http://www.indiabulls.com/securities/research/equity_analysis_report/Special_Report_PDF/WP_Aug%2027.pdf


Caution in the air


The winds are changing in financial markets and there are signals aplenty to corroborate this. Risk-aversion is creeping higher on worries about slowing growth in the global economy. Funds are moving out of riskier assets and into currencies and commodities viewed as safe havens.

Out of steam

The recovery in the global economy, driven by heavy stimulus spending, appears to be running out of steam. GDP growth has already begun slowing in the world's top three economies — the US, Japan and China. Steadily climbing unemployment, plunging new home sales et al in the US are further signs that one of the largest consumers in the world is struggling to stay afloat. The other issue that is making investors edgy is the sovereign debt default risk of some European nations.

According to IMF's recent World Economic Outlook the main risk in the near-term is an escalation of financial stress prompted by rising concern over sovereign risk leading to higher funding costs and weaker bank balance-sheets that can ultimately affect global demand. It also cites "overly severe or poorly planned fiscal consolidation" as another potential threat that stifles demand.

Home, safe home

The mood of caution among global investors as a result of these issues is reflected in the strengthening of the two currencies, the Japanese yen and the dollar, that are viewed as safe-havens in times of crisis. According to a report published by International Financial Services, London (IFSL), half of global conventional investment management assets originate from the US. Japan ranks third with 6 per cent contribution to global investible funds. It is therefore not surprising that in times of turbulence, the dollar and yen spike higher as investors prefer to bring the money invested overseas, back to the home countries.

Yen recorded a 15-year high against the dollar at 83.6 this week. Some would say that the strength in the Japanese currency unit is surprising given Japan's high public debt and deflationary economy. Strange are the ways of men and stranger the ways of investors.

Home hearth appears to be the preferred refuge in stormy times for investors even if the roof is on the verge of collapsing. The relative strength in the Japanese economy when compared to the US and unwinding of some of the carry trades could be the other reasons causing this anomaly.

Carry trades

Yen has been the favoured currency for carry trades due to the low interest rates prevailing in Japan over the past decade. A strong yen is not conducive to such trades wherein investors take loans in Japan to invest in overseas assets. Higher value of yen would diminish the profit margin on carry trades pressuring investors to reverse these carry trades. Reversal of carry trades in turn results in selling of overseas assets to repay the yen loan, thus leading to sell-off in most asset classes. Similar argument holds true for dollar carry trades as well. But dollar carry trades are considered a more ephemeral phenomenon due to the low interest rates prevailing in the US over the last two years.

It is estimated that dollar carry trades have grown to between $250 billion and $550 billion in the first half of 2009 while the yen carry trade is double that. The dollar could be moving higher due to both US-based investors repatriating funds home and unwinding dollar carry trades.

The dollar index that tracks the movement of the dollar against six major world currencies has gained 4 per cent in the last three weeks.

Among commodities, it is gold that investors turn to in times of financial turbulence. The yellow metal has also been witnessing a lot of action of late. Gold prices that were sliding down till the end of July did an about-turn in August and went on to gain almost 7 per cent this month. Analysts are busy upping their year-end targets for gold in expectation of increased fund-flow in to this asset as a hedge against weaker currencies and inflation.

Rising risk-aversion is also reflected in global investors booking profits in riskier frontier markets. The top loser among global benchmarks in August was Ho Chi Minh Stock Index of Vietnam, down 15 per cent so far. Benchmarks of other frontier markets such as Ireland, Pakistan and Nigeria also came in for some profit taking this month. These are highly risky markets with low market capitalisation and low liquidity. Money typically flows from frontier and emerging markets back to developed markets when investors are nervous.

Indian investors need to take note of these early warning signals and exercise greater caution while adding to their investment portfolios.


Reading emotions in charts


Trading is all about understanding people.


Brandon Wendell

Most people incorrectly assume that trading is all about understanding the fundamentals of the market or knowing the balance-sheet of a company. It does not have as much to do with that as it does with understanding people.

People's perceptions or expectations of a company or even the entire economy are what drive prices of securities. Prices of equities, commodities, and currencies are all subject to the same laws of supply and demand, as in any other product.

Demand and supply

In fact, this is why there is a drop in prices after a company meets expectations for an announcement. The demand for the shares prior to the release overwhelms the supply. Sellers realise this and raise their prices. Buyers, in a desperate attempt to own shares are, in turn, willing to pay more.

For instance, if Tata Motors sells more cars than expected, and traders anticipate this, then the price will not move up as one might expect. Traders expecting positive sales results would have bought the shares prior to the announcement.

This should have caused a rise in price for the reasons stated above. Once the data is known to everyone and there are no surprises, there may be some buying interest.

However, traders who already own shares are disappointed about the prices not rising or are satisfied with theprofits and begin to sell. Without increased buying pressure from interested parties, these sellers must drop their price to attract buyers. So you see how human emotion, basically fear and greed, can motivate traders in the market. This is what causes price movement. So, to be successful in trading, you need to know how to read this emotion.

That is what technical analysis does. The charts show the actions of traders who are involved in that security. Candlesticks and technical tools bring out the emotions of those who move the markets. We can see when this emotion shifts.

Stochastic Oscillator

Take for instance, the Stochastic Oscillator. This indicator indicates where prices are closing within a range. If there is a bullish trend that you expect will continue, you would expect the share price to close at or near the high of the day for several days.

If the price closes away from that high, then it implies that the buying pressure has weakened or selling pressure strengthened. Either way, it is not good for those holding the stock.

If there is a close that occurs significantly below the highs, it would trigger a sell signal on the oscillator.

The Stochastic also shows when selling pressure gains or weakens. You would expect a very weak stock to close at or near the lows. If it does not, then buyers are strengthening or sellers are weakening or both.

So by viewing traders' actions in a graphical format, we can make assumptions about the strength of the movement of the stock price.

These observations are part of our decision-making process to time proper entries and exits in the market. That is what technical analysis can offer to a trader or investor.


When choosing sectors, bet on the dark horse

Given that the sectors and stocks that lead each new bull market are quite different from the previous one, investors should cash in on outperformers and look for sectors that have not participated..


I t is the third time in a decade that the BSE Sensex has emulated the Great Indian rope trick; it has doubled in value from its trough. So, if you're looking to sell some stocks and lock into the outsized gains that you're sitting on today, which ones should they be?

Going by history, stocks from consumer durables, fertilisers and construction should be first on your 'sell' list. Analysis of the three bull markets of the past decade shows that it is the top performers of the bull market that go into a free fall when the inevitable correction sets in.

Sector reshuffle

Even if the Sensex does manage to rise again, phoenix-like, don't expect the same old sectors to take wing. Every new bull market over the past decade has been led by a new 'theme' — a fresh set of sectors and stocks that didn't star in the previous rally.

The leaders of the 1999-2000 boom — the media, software and telecom triad — weren't the star performers when the markets took off again in June 2006 (and went on to new highs in January 2008). That time the frontrunners were power, banks and steel. In the latest bull market, the top gainers have once again come from unexpected quarters — sectors such as consumer durables, fertilisers and construction.

Analysis of how different sectors have behaved in the three separate bull markets since 2000 has many interesting lessons for investors; and here they are. We classified all NSE-listed stocks into key sector groups in order to arrive at our conclusions.


Top gainers turn top losers

Reckoned from its March low, the BSE Sensex is up 126 per cent in absolute value. The previous bull market from June 2006 to January 2008 saw the index rise 141 per cent; the dotcom boom from November 1998 to February 2000 took it up by 120 per cent.

This fact, combined with the stiff-ish price-earnings multiple of 21 that the broader market trades at today, makes this a good time for investors to skim off some profits from their equity holdings. Now, having said that, where should investors look to take those profits?

Probably in the stocks and sectors that made the maximum gains from March 2009. At last count, the top performers of this rally were consumer durables (up 325 per cent), fertilisers (up 242 per cent) and construction/infrastructure (up 237 per cent). In the event of a market fall, steel, auto and finance stocks may not get off too lightly either, given that these sectors sport gains of 178-222 per cent.

It makes sense for investors to take profits in the top performing sectors simply because, going by history, the stock prices of these are likely to crumble the most in a correction. Remember the 2008 market meltdown? It is no coincidence that a majority of the stocks that crashed 90 per cent-plus came from the realty space.

Stocks such as Unitech, BL Kashyap, Ganesh Housing and Ansal Housing lost over 90 per cent off their peak during the bear phase that lasted from January 2008 to March 2009. These were stocks that clocked 200-300 per cent gains in the preceding rally.

Those who experienced the dotcom boom will recollect that the same pattern played out in the crash of 2000-01 too.

Media, software and telecom stocks managed breathtaking gains, multiplying seven to thirty-fold between end-1998 and February 2000 on astronomic growth expectations from the 'New Economy'. When rationality set in, it is these sectors that were mercilessly battered, they gave up over 90 per cent of their earlier gains.

Even if the recent bull market has not seen excesses comparable to 1999-2000, the underlying lesson — that outperforming sectors are usually the most vulnerable to a correction — may still hold good. A combination of high valuations, heavy ownership by institutional investors and the human tendency to take profits ahead of losses, may suffice to ensure a repeat of this trend.

New 'defensives'

All right; if the outperformers in a bull phase turn out to be the top losers during a fall, where should one look for the 'defensive' stocks — ones that don't cave in during a market correction?

Though investors automatically perceive sectors such as FMCG, pharma and software as 'defensive' bets, flocking to these sectors may not deliver the best results this time round.

That's because these sectors have participated rather actively in the 2009-10 rally, notching up gains of 115, 138 and 168 per cent respectively from March lows.

With foreign and domestic institutions all hopping on to the consumer bandwagon, FMCG and pharma stocks today sport substantial institutional ownership, as well as premium valuations.

It would also do well to remember that FMCG, pharma and IT stocks proved very poor 'defensive' bets in the market meltdown of 2000-01; mainly because they were active participants in the preceding 2000 rally.

Thus, the best place to scout for defensive picks after the market's breathtaking move, may be in the sectors that have remained mute spectators to this rally. However, for investors who would like to shield their portfolio against losses during a market fall, it is best not to place their bets too early.

A study of the two previous boom-bust phases suggests that even sectors that don't participate actively in a rally may give in to market declines, though they may not suffer as much as the favourites.

For instance, automobile stocks actually posted a decline in the 2006-2008 bull market; but they still suffered a 26 per cent decline in the crisis-induced crash of 2008. Software stocks were underperformers, with only a 34 per cent gain between 2006 and 2008; yet (thanks to their global linkages) they fell as much as 63 per cent when the corrective phase set in. Textile stocks lost twice as much in the crash as they gained in the rally.

However, if there is a substantial market correction, the sectors worth looking at would be those which were underperformers not just over the past upcycle, but over the past two.

Seen in this context, it is telecom (up 12 per cent), oil (61 per cent) and cement (63 per cent) that fit the bill as they have lagged far behind other sectors both in 2009-10 and 2006-2008.

Realty stocks, after their steep falls of 2008 and muted returns in this rally, too may offer opportunities for selective buying.

Buy / Sell (Aug 27, 2010)
 BuySell Net
FII1811.621919.78 +108.16
DII1206.01966.41 +239.60

*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.
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Arvind Parekh
+ 91 98432 32381