Sunday, October 31, 2010

Weekly Market Update 1st- 5th Nov 2010

Strong & Weak Stocks for 1st Nov 2010
This is list of 10 strong stocks: 
ABG Ship, Dena Bank, IDBI, Canara Bank, Federal Bank, Titan, Cummins India, Renuka, Hexaware & Bank Of Baroda. 
And this is list of 10 Weak stocks: 
Finan Tech, BRFL, Educomp, Apollo Tyre, Ispat Ind, Mudra Port, BEL, ABB Ltd, Punj Lloyd & Tata Chem.
The daily trend of nifty is in Downtrend 

  • Supp / Resis SPOT/CASH LEVELS FOR INTRADAY FOR 1ST NOV 2010
Indices Supp/Resis1 23
Nifty Resistance 6054.536091.37 6150.08
Support 5958.985900.27 5863.43
Sensex Resistance 20152.13 20271.91 20463.50
Support 19840.76 19649.17 19529.39

Index Outlook — Holding above key support


Sensex (20,032.3)

The month of October acted true to its notorious reputation and rudely yanked back the Sensex just 2 per cent short of its life-time high. But a serious crash was averted thanks to the unshakeable belief of overseas investors in the 'India story'. The colossal success of Coal India IPO further added to the sheen of indomitability that is currently enveloping our stock market.

Pre-Diwali week will be dominated by the monetary policies of the US Federal Reserve and the Reserve Bank of India. The truncated week will also be influenced by corporate earnings even as market participants take some time off to participate in the festivities.

Volumes in the derivative segment reached record levels as October derivative series rolled in to expiry; it reached an all-time high of Rs 2.5 lakh crore on Thursday. The November series begins on a very heavy note above Rs 1,34,000 crore. Lower put call ratio and predominance of stock futures in the open interest points towards greater retail investor participation in the derivative segment.

It was a choppy week for the Sensex as it reversed lower from the intra-week peak of 20,452. Oscillators in the daily chart continue moving sideways in the neutral zone implying that the index could move either way in the short-term. There is a slight decline in the weekly oscillators though they continue in bullish zone denoting a positive medium-term outlook for the index.

Short-term trend in the Sensex is down from the peak of 20,854. But as explained earlier, the index has strong short-term support in the zone between 19,600 and 19,800. If we consider the minor counts for the up-move from 15,960, the fourth minor of this impulse wave appears to be unfolding now. It should typically halt in the aforementioned support zone.

What follows can either be,

Sideways move between 19,600 and 20,850 for few more weeks before the fifth wave unfolds.

If the fifth wave starts, it can take the index to 20,922, 21,638 or 22,460.

The medium-term view for the index will turn negative only on a close below 19,600. Such a move will open the possibility of a decline to 19,370 or 19,000.

The Sensex can continue to whipsaw in the week ahead as it builds the base from where to launch its next leg higher. Key short-term resistances would be at 20,182 and 20,439. Inability to move above the first resistance would mean that the index could decline to 19,800 or 19,400 in the days ahead.

Conversely a close above 20,450 would imply that the index could take another shy at the previous peak at 20,854 or even 21,207.

Nifty (6,017.7)


The Nifty could not get past the key resistance at 6,163 indicated last week. This level will continue to be a major hurdle for the index in the upcoming week and the short-term view will turn positive only on a close above this level.

Such a move will mean that the index could attempt to move to the previous peak at 6,284 or its long-term high at 6,357.

On the other hand, if the Nifty does not move beyond 6,069 in the days ahead, it will mean that the index could weaken to 5,955 or 5,834.

The medium-term outlook for the index remains positive and if the Nifty holds above the medium-term support zone between 5,890 and 5,960, it can attempt to move higher to 6,290, 6,509 or 6,760.

Global cues

Global benchmark indices moved sideways last week as investors awaited the next trigger to take equity prices in either direction. CBOE Volatility Index moved above the 20 level once again to end the week at 21.2 implying that investors are not willing to throw caution to the winds yet. Latin American markets such as Chile, Mexico and Argentina recorded strong gains.

The Dow moved close to the key long-term resistance at 11,300 to record the intra-week high at 11,247. But it turned volatile thereafter and moved in a narrow range between 11,000 and 11,200. Short-term support for the index is 10,920. If this level is breached, decline to 10,650 or even below could be on the cards.

On the other hand, move above 11,300 will take the index to bull-market territory. — Lokeshwarri S.K.


Technical Analysis

Nifty is likely to consolidate between 5950- 6150

Nifty started the week (25-29 September, 2010) on negative note backed by weak cues from global arena. On daily chart Nifty exhibiting "descending triangle" which is bearish breakout pattern if lower trend line breaks. Nifty is currently hovering near to upper trend and expecting it to move within the triangle for some more time before it break upper or lower trend line. Volatility persists over the past few sessions as global cues playing a major role now. Downtrend is expected to continue and volatility may be the order of the day for some more time and hence the investors are suggested to trade cautiously. Technically, the trend, which is now down, could test its next major support around 5,960, and if Nifty breaches this level decisively, it can go down further to test 5,920 levels. On the upside, the levels of 6,060 will play major resistance and a rise above these levels can push up Nifty to 6,100 levels. Currently Nifty is trading below its 08 days exponential moving average on the daily charts, suggesting continuation of ongoing downtrend. Technical momentum indicators are also suggesting correction in it. Stochastic is currently moving in oversold zone, on the brink of entering into deep oversold territory indicating profit booking.RSI is trading in neutral territory at 46 showing negative crossover. Another momentum technical indicator MACD is trading in negative zone, showing negative divergence, also indicating correction.

Technical Picks

 
TTK PRESTIGE (BUY)

Particulars Rs.
CMP

1394.85

Target Price

1405/1420/1440

Stop Loss

1375

Support-Resistance

1350/1480

Comment

  • RSI is at 72 overbought territory showing positive crossover indicating uptrend.
  • Stochastic is at 74 level neutral territory an on brink of entering into oversold territory.
  • Stock already crossed 34 Day EWMA and expecting to rise further.
  • MACD showing positive divergence.




BAJAJ AUTO (BUY)

Particulars Rs.
CMP

1510.95

Target Price

1525/1545/1560

Stop Loss

1485

Support-Resistance

1450/1600



Comment
  • RSI is at 53 moving into overbought territory showing positive crossover indicating uptrend.
  • Stochastic is hovering in neutral zone showing positive crossover suggesting upside.
  • Today stock has also broken its resistance level at 1510 supported with volume indicating further upside.
  • Stock next resistance level seems at 1550 if its break then stock could rise up to 1600.


BINANI INDUSTRY (SELL)

Particulars Rs.
CMP

202.90

Target Price

200/196/190

Stop Loss

208

Support-Resistance

189/226



Comment
  • RSI is in the neutral zone at 61 levels, likely to show downtrend.
  • Stochastic is moving in oversold territory showing negative crossover also indicating downside.
  • MACD showing positive divergence.
  • Stock is moving between 08 day and 34 day EWMA indicating short-term downtrend.

 

JINDAL POLY (SELL)

Particulars Rs.
CMP

626.05

Target Price

620/610/600

Stop Loss

635

Support-Resistance

583/650



Comment.
  • RSI is in profit booking phase.
  • Stochastic is moving in neutral territory showing negative crossover also indicating downside.
  • Stock next support level seems at 583 if its break then stock could fall up to 560.The stock has been rising steeply over the past few sessions and the correction in it is long overdue.

 

  

 

















 

Indian Equity Market


The Week Gone By

Indian markets wrapped the week on a negative note led by selling in Realty, IT and Power stocks. Off-loading of positions by participants due to F&O October expiry in the derivatives segment also weighed on sentiment. However, late in the week markets pared some losses as better than expected result of ICICI bank, BHEL and M&M boosted investor's sentiment.

Looking Forward

From last few trading session small sell off was witnessed in Indian equity market which should be considered as a good buying opportunity. Foreign funds continue to aggressively mop up Indian shares. The appetite for Indian equities from foreign institutional investors is very high because of a good monsoon, improving fiscal situation and rising domestic consumption. Further, money that Coal India has attracted will come back into the markets and buoy the indices. However, The Index of Six core industries having a combined weight of 26.7% in the Index of Industrial Production registered a growth of 2.5% compared to 4.3% registered in September 2009 could weigh on sentiment. RBI's Second Quarter Review of credit policy will be announced Tuesday November 2, 2010. However, considering, the possible moderation in food prices, volatile IIP numbers and 5 consecutive rate hikes, RBI may choose not to raise interest rates. Further, with banks experiencing tight cash conditions CRR hike also seems unlikely in the current policy meeting. Next week, buying is expected in IT, Power, FMCG and Auto stocks from current levels or from lower supports of 6,000 levels of Nifty while selling positions can be accumulated in Realty, banking and consumer durable stocks, if the Nifty fails to sustain above 6,000. Investor's will eye on Q2 earnings of heavy weights like RIL, Maruti Suzuki, Gail and Sun Pharma.


Nifty Top Gainers

Company % Weekly Return

M&M

4.58 

Maruti

3.21 

ICICI Bank

2.75 


Nifty Top Loser

Company % Weekly Return

SAIL

(11.49)

Idea

(7.98)

Suzlon

(6.88)

 

 

 

 


Daily Movement of Nifty 


Daily Movement of Sensex, Net FIIs & MF investment


Source for FII & MF: Sebi

Weekly return on BSE Sectoral Indices


Fundamental Picks

 
HCL Tech (Buy)

Particulars Rs.
CMP

586

Target Price

670

Upside (%)

14.33

52 Week H/L

777.45/330.50

Market Cap

825



Tamilnadu Newsprint & Papers Ltd. (Buy)

Particulars Rs.
CMP

152.30

Target Price

165

Upside (%)

8.34

52 Week H/L

163.30/71.00

Market Cap

1,054


Weekly Price Movement of GDR

Security Name

Price (USD)
as on 28-10-10

% change
from 21-10-10

L&T

45.05

-2.72

RIL

48.70

-0.06

SBI

142.80

-0.70




HCL Tech has reported better than expected revenue growth in the quarter ended September, FY11 rising 9% QoQ growth to USD 804 mn. Custom application development and Infrastructure services accounted for 71% of incremental revenue additions. The company has added more revenues incrementally than any other Indian IT services vendor in FY10 – USD 336 mn vs USD 138 mn for Infosys, USD 62 mn for Wipro and USD 313 mn for TCS. Further, With discretionary spends picking up and a reasonable portion of the company's pipeline coming from these spends, the quarters going forward could see an increase in average realized billing rates. We increase our FY12E EPS by 3.5% to Rs 32.7 as we believe the margin profile should improve going forward.



TamilNadu Newspaper posted a surge of 79% yoy in profit after tax to Rs 53.12 cr while total income went up 10.85% yoy to Rs 2,89.49 cr for the quarter ended September 10. Revenue growth was backed by 1.2% growth in volumes to 62,000 mt and 9.1% growth in average realisations to Rs 44,791/mt. Company's ongoing expansion plan for increasing the production capacity from 2.45 lakh tonnes to 4 lakh tonnes a year would commence from December 10. Also, joint venture with Switzerland based Omya International AG would increase its production capacity to 60,000 units of precipitated calcium carbonate by December 2011.

Weekly Price Movement of ADR

Security Name Price (USD)
as on 28-10-10
% change
from 21-10-10
ICICI bank

50.05

-3.06

Infosys

66.90

-0.77

MTNL

3.11

1.63

Rediff

4.11

-0.24

Sify

2.13

7.58


Economy

Indicators Latest Previous Change
Investment Deposit Ratio (%)

30.82 (Oct 08)

31.28 (Sep 24)

Credit Deposit Ratio (%)

72.45 (Oct 08)

72.70 (Sep 24)

Money Supply (%)

15.20 (Oct 08)

14.70 (Sep 24)

Bank Credit (%)

20.10 (Oct 08)

19.00 (Sep 24)

Aggregate Deposits (%)

15.00 (Oct 08)

14.30 (Sep 24)

Forex Reserves USD bn

295.39 (Oct 22)

296.43 (Oct 15)


Global Equity Markets

US stocks mixed during the week (till Thursday) as investors remained hesitant to make any significant moves ahead of next week's Fed meeting as well as the midterm elections. Investors are concerned after a Wall Street Journal report said that the central bank is likely to unveil a program of US Treasury bond purchases worth a few hundred billion dollars over several months. This was way short than market expectation of quantitative easing up to around two trillion dollars. Additionally, positive bias were generated from a better-than-expected earnings from Verizon Communications, Honeywell International, American Express, online retailer Amazon.come,Taxas Instruments, DuPont, 3M, Symantec, Exxon Mobil and Ford. Sentiments were boosted after pledge by G20 nations to avoid competitive currency devaluation weakened US dollar. Looking ahead to next week, all eyes will firmly set on next week's policy meetings of the US Federal Reserve and advance reading on third quarter GDP. 

Asian markets traded lower during the week. Japan's Nikkei 225 tumbled with investors being disappointed with Yen becoming stronger despite the meeting of the G20 finance minister. Also, buying enthusiasm remained subdued as investors were presented with another negative batch of economic data including industrial output, consumer prices, retail trade and corporate service price index , which was played a vital role in sinking the market sentiments. Hong Kong indices slumped following the news that Beijing imposed more strict import payment measures to crack down on illegal capital flows. Chinese markets were flat after the recent tightening moves from the central bank. The 25 basis points hike by the People's Bank of China seemed to have augured as a necessary factor from the point of view of controlling inflation and prevent an asset-price bubble.

European markets lost over 1% during the week. After gaining on first day of the week after a Group of 20 agreement failed to stop the trend of a weaker dollar. Stronger metals prices also supported the markets. However, markets slipped to hit 2 week closing low as lower than expected result from UBS and downbeat economic data from US dampened investors sentiments. Further, investors becoming cautious on doubts over the extent of a likely stimulus by the Federal Reserve at its meeting next week. Though, some upbeat corporate earnings lend support to the markets, they were still lower from last week. Moreover, rate decision from both the ECB and BOE will be presented next week, along with the Fed rate decision that might introduce a huge stimulus estimated at USD 500 billion over the upcoming six-months. Further, the investors will eye on economic data for markets direction.

Weekly return on major Global Indices

Data of US and European markets taken from Oct 21 to Oct 28, 2010
Data of Asian markets taken from Oct 22 to Oct 29, 2010 

Weekly Change in the Composites of S&P 500
Industry

Adj. Mkt. Cap 
as on

28-10-10

Adj. Mkt. Cap as on
21-10-10


Change

Energy
11,94,412 

11,89,077 

0.45 
Materials
3,86,426 

3,86,800 

(0.10)
Industrials
11,43,367 

11,54,941 

(1.00)
Cons Disc
11,36,471 

11,21,099 

1.37 
Cons Staples
11,93,480 

11,94,419 

(0.08)
Health Care
12,34,715 

12,32,384 

0.19 
Financials
16,53,419 

16,55,085 

(0.10)
Info Tech
20,73,893 

20,44,279 

1.45 
Telecom Services
3,34,505 

3,34,515 

(0.00)
Utilities
3,79,817 

3,85,004 

(1.35)

Key Events

Global Key Events

  • US new home sales rose 6.6% to an annual rate of 3,07,000 in September from an annual rate of 2,88,000 in August. While new home sales remain at relatively low levels, the annual rate has moved well off the record low of 2,82,000 set in May. The annual rate of new home sales in September is still 21.5 % below the rate seen in the same month a year ago.

  • Confidence among U.S. consumers improved in October, with the increase coming as consumers were less pessimistic about the outlook for the next six months. The consumer confidence index rose to 50.2 in October from a revised 48.6 in September.

  • US home prices in 20 major metropolitan areas saw continued annual growth in the month of August. The report showed that the S&P/Case-Shiller 20-City Composite Home Price Index rose at an annual rate of 1.7 % in August compared to the 3.2 % growth seen in July.

  • First-time claims for unemployment benefits in the U.S. unexpectedly saw a modest decrease in the week ended October 23, with jobless claims falling to a three-month low. The report showed that initial jobless claims fell to 4,34,000 from the previous week's revised figure of 4,55,000.

  • Orders for U.S. manufactured durable goods increased in the month of September with the increase largely due to a rebound in orders for transportation equipment. Durable goods orders surged up by 3.3 % in September following a revised 1.0 % decrease in August.

  • New industrial orders received by Euro area manufacturers rose in August and at almost twice the expected pace. New orders rose 5.3% compared with the previous month, reversing the 1.8% fall in July.

  • Japan had a merchandise trade surplus of 797.008 billion yen in September, up 54.0% on year from 517.63 billion yen in September 2009. Exports jumped 14.4% on year to 5.842 trillion yen, following the revised 15.5% gain in the previous month. Imports were higher by 9.9% on year to 5.045 trillion yen after the 17.9 % surge a month earlier.

Domestic Key Events

  • The Reserve Bank of India (RBI) unveiled special liquidity measures to tide banks over the temporary cash crunch. The RBI said banks can avail funds under the special measures up to an additional 1% of their deposits. The central bank will conduct two liquidity adjustment facility (LAF) auctions on October 29 and November and a special 2-day repo auction on Saturday.  

  • Exports rose to a 24-month high in September while imports grew a tad less, lowering the trade deficit and creating policy space for the government to restrict the destabilising capital flows without worrying about funding the large gap between imports and exports. Exports grew 23.2% to USD 18.02 billion while imports rose 26.1% to USD 27.1 billion, which helped restrict the trade deficit to USD 9.12 billion from an alarming more than USD 13 billion in August.

  • The annual food inflation eased in mid-October 2010 as vegetable prices fell. The food price index in the year to October 16, 2010 rose 13.75%, compared with 15.53% rise in the previous week.
  • Foreign banks and financial institutions lent over USD 27 billion to their Indian counterparts in the first six months this year, following the financial crisis in euro area countries. Even the Indian banks and FIs, which parked funds abroad to the tune of USD 11 billion, withdrew them to reinvest them in the Indian economy.

  • The National Stock Exchange will introduce trading in currency options on USD-INR (US Dollar-Indian Rupee) pair. The bourse has received approval from the capital market regulator Securities and Exchange Board of Indian and the RBI for introducing exchange traded currency options on USD -Indian Rupee Spot rate.

  • Reliance Power has placed a USD 8.29-billion order with Shanghai Electric for equipment to generate 23,760 MW, putting the Anil Ambani-controlled firm on track to becoming a leading power producer and hoisting the supplier's shares to a 2-1/2-year high. With this deal, the total value of orders placed by Reliance Power with the Chinese entity goes up to about USD 10 billion for a coal-fired generation capacity of 30,000 MW, or about a fifth of India's total capacity.

Derivatives

 

  • Nifty ended the week on a negative note at 6,017.70 mark. The Nifty Novemebr future ended at 6,040 with premium of 22 points. If we look at the derivatives data we can see that Nifty future prices ended in the negative territory along with decline in open interest and some sort of short covering was witnessed in later in the week, this is indicating that market is taking strong support near 5,950 to 6,000 level and likely to move in upside. For the coming week, Nifty may continue to face resistance at higher levels of 6,155-6,180 whereas on the downside support is seen at 5,950-5,985 levels. 


  • During the week, there was significant short accumulation of open interest in OTM Call and Put options. most of the open interest accretion witnessed in the range of 5,700 to 6,000 put, while, on the flip side, highest open interest was build up in the range of 6,100 and 6,300 Calls. 


  • The Volatility Index (VIX) declined marginally and closed to 20.76%. Market participants should be watchful at current levels as any up move in volatility may trigger downsides in the markets. Volatility has a strong inverse correlation with markets.


  • The put-call ratio of open interest declined during the week, finally closing at 0.91 levels. 


  • The CNX IT index ended the week at 6,613.25 marks losing 2.42%. The CNX IT Futures prices declined along with decline in the open interest but with incline in cost of carry, this is an indication of closure of short position. For the coming week, immediate support for the Index is seen in the range of 6,500-6,550 mark, whereas on the upside resistance is seen at 6,850- 6,900 levels.


  • During the week the Bank Nifty Index ended on a negative note and fell by 0.80% to 12,330.75. If we look at the derivatives desk we can see that the bank Nifty futures prices decreased along with decline in open interest with incline in cost of carry, this is an indication of closure of long position and fresh short position is being built up at higher level. For the coming week Bank Nifty support is seen in the range of 12,000-11,800 levels whereas on the upside stiff resistance would be faced at 12,500-12,550 levels.


  • FIIs were net buyer in index futures to the tune of Rs. 222.82 crore while in stock future they were net seller of 1,950.69 crore, indicating mixed trend in markets. Further, in the index options FII were net buyer of 1,767.75 crore.


  • Nifty is expected to remain in the range of 5,950-6,225 levels and only a breach below this range will push the index to lower levels. The move may remain mixed, with selling pressure near 6,130-6180 levels. The index may find intermediate support around 5,050 levels, and a round of short covering from that level cannot be ruled out. Any instability on the global front will bring about heavy selling pressure from current levels. A breach of 5,950 levels will take the Nifty down towards 5,825-5,850 levels.
 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

27,255.43 

27,032.61 

222.82 
Index Options

39,317.25 

37,549.51 

1,767.75 
Stock Futures

39,646.83 

41,597.52 

(1,950.69)
Stock Options

1,659.12 

1,777.67 

(118.56)
From October 22 to till October 28 (Source: NSE)
Debt
  • Call money rates increased further during the week as liquidity in the system remains stiff as general public withdraws money from banks for festival season celebration. At the beginning of the week, call rates rose to one month high as banks borrowed higher-than-mandated money at the start of a reporting fortnight. During the week, banks on an average borrowed ~Rs 80,000 crore from RBI on daily basis.


  • FIIs continued selling debt instruments for the third straight week. During the week, FIIs net sold securities worth Rs 135.1 crore in the Indian debt market compared to Rs 1,898.1 crore selling in the previous week. Meanwhile, MFs turned net buyer in the debt market this week, with Rs 3,644.3 crore (4 days) buying compared to Rs 5,980.9 crore of selling in the previous week.

 

 


  • Bond prices ended flat as sharp slowdown in six key infrastructure industries growth and ease in food inflation offset the impact of tight liquidity condition in the market. Bond prices started the week on subdued note as cash conditions in the system stayed tight after advance tax payments and public offering drained money out of the system. Weaker bond prices pushed yields to a two-year high. However, bond prices recovered from lows after sharp decline in core sector growth eased rate hike worries. The six key infrastructure industries grew at slowest pace in the last 18 months at 2.5% yoy in September. Core industries have a combined weight of 26.7% in the index of industrial production (IIP) and act as a leading indicator of industrial activity in the economy. Further, sudden ease in food inflation and sort covering by investors after a sharp sell-off in the previous session also helped bond prices higher. Food inflation fell to 13.75% for the week ended October 16 from 15.53% in the previous week as prices of vegetables declined a sharp 4% during the week. Slowdown in infrastructure output data coupled with decline in food inflation eased rate hike worries by central bank in its second quarter policy review due on November 02, 2010.
  • Investors are eyeing RBI's credit policy before taking any position. We expect RBI may choose not to raise interest rates in its quarterly policy after sighting the possible moderation in food prices and slowdown in industrial production. Data released on October 28, 2010, showed that six key infrastructure industries grew at slowest pace in the last 18 months while food inflation dipped to 13.75% for the week ended October 16 from 15.53% in the previous week.
  • During the week, reverse repo transaction under RBI's Liquidity Adjustment Facility (LAF) remained at Rs 8,135 crore while Repo transaction stood at Rs 3,96,430 crore. On October 22, 2010, Government of India auctioned 7.99% CG2017 worth Rs 4,000 crore, 8.08% CG2022 worth Rs 5,000 crore and 8.30% CG2040 worth Rs 2,000 crore. On October 25, 2010, Government of India bought back government bonds worth Rs 2,148.29 crore in a bond buyback auction held for Rs 12,000 crore. On October 26, 2010, eleven state governments auctioned State development loans 2020 worth Rs 8,601.83 crore. On October 27, 2010, RBI auctioned 91-day Treasury Bills worth Rs 4,000 crore and 182-day Treasury Bills worth Rs 2,000 crore.

  • In the financial year 2010-11, Government of India (GOI) has planned to borrow as much as Rs. 4,57,143 crore. Till October 22, 2010, the government has completed 76.45% of the gross borrowing target for the current year. The government has scheduled Rs 44,000 crore borrowing during November 2010.

 

 Call Rates
Date Rate (%)

22-Oct

5.82

25-Oct

6.76

26-Oct

6.78

27-Oct

6.64

28-Oct

6.57


FIIs & MFs investment in Debt Market

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

22-Oct

(181.9)

1,830.1

25-Oct

(248.6)

221.4

26-Oct

389.1

1,325.2

27-Oct

650.8

267.6

28-Oct

(744.5)

 

This week

(135.1)

3,644.3

This Month

(1,232.5)

17,354.6

                                                                        (Source: SEBI)

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

22-Oct

97.81

8.1272

25-Oct

97.76

8.1339

26-Oct

97.56

8.1692

27-Oct

97.76

8.1411

28-Oct

97.95

8.1148

 
Spread


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

22-Oct

6,135

42,935

25-Oct

0

89,960

26-Oct

2,000

89,750

27-Oct

0

84,815

28-Oct

0

88,970

This week

8,135

3,96,430

This Month

28,345

11,77,720


 GoI borrowing Program - 2010-11
Particulars
(Rs. Cr.)

Budgeted Borrowings 

457,143

Gross Borrowing Completed

349,482

Dated Securities 

328,000

364 Day T-Bills 

21,482

% Completed

76.45

Net Borrowing till date

243,376

Government borrowing calendar (Next four auctions)
Period Maturity 5-9 yrs Maturity 10-14 yrs Maturity 15-19 yrs 20 yrs and  above Total

Nov. 1-Nov. 5

Rs 40-50 bn

Rs 40-50 bn

Rs 20-30 bn

-

Rs 110 bn

Nov. 8-Nov. 12

Rs 40-50 bn

Rs 40-50 bn

-

Rs 20-30 bn

Rs 110 bn

Nov. 15-Nov. 19

Rs 40-50 bn

Rs 40-50 bn

Rs 20-30 bn

-

Rs 110 bn

Nov. 29-Dec. 03

Rs 30-40 bn

Rs 40-50 bn

-

Rs 20-30 bn

Rs 110 bn


Commodity
Crude oil prices started the week with an upbeat. The prices rose as dollar slumped to a 15-year low against the yen, bolstering the appeal of raw materials as an alternative investment. US currency dropped on skepticism that the Group of 20 pledge to avoid devaluations which can stem the dollar's decline. As the week proceeded, crude oil prices continued to remain steady with a negative bias on a report forecast that showed that the crude inventories might increase. Moreover, a rising US consumer confidence and climbing dollar helped to keep the prices steady. A drop was seen in the crude prices after the release of inventory report for the week ended 22 October, which showed an increase of 5 mn barrels in the crude inventory. A slumping dollar index and a choppy trade session also helped to keep the prices under check. Crude oil prices continued to inch lower and were pressured by a rally in the dollar as doubts percolated among investors about the size of the economic stimulus by the US Federal Reserve. Finally, the crude prices saw a pick up of 2.15% and 2.84% in the international and domestic market respectively on w-o-w basis. Crude oil prices may remain steady in the coming week. Though, increase in the crude inventory may act as a drag on the crude prices but the effect is likely to be negated on speculation about the FOMC meeting scheduled in the first week of November. The US Federal Reserve is expected to buy assets worth between USD 80 billion and USD 100 billion per month to boost the economic growth, which will help to improve demand for crude oil.

Gold prices started the week on a higher note. The yellow metal prices gained after the US dollar index continued to decline. The failure of the G20 meeting to reach any agreement over the trade imbalances and in turn the exchange rates has helped the USD to stay weak. Moreover, every minor correction attracted the investors towards gold. But immediately after, the precious metal prices came under pressure as the investors awaited key economic indicators including consumer confidence figures and the home price index in the face of a higher dollar. Strong economic data led the crude prices continue their downward rally as the investors' risk appetite improved. Prices continued to slip as the dollar index edged higher on speculation doing the rounds on the FOMC meeting scheduled in the first week of November. The domestic gold prices also followed the international trends. Some pick was seen as compared to the previous week on the back of ongoing festival and wedding season. The international gold prices saw a decline of 0.74% and the domestic gold prices were 0.84% lower on w-o-w basis. Gold prices may see a decline in the coming week, as the prices have already picked up as compared to the previous week. Moreover, a decline may be seen amidst the speculation about Federal Reserve asset purchases. Domestic gold demand may remain high on the back of ongoing festivities, but international gold trends may limit the gains in the domestic gold prices.

 
Weekly change in Crude prices per Barrel
  28-Oct 21-Oct Change (%)
Intl Crude Oil Prices (USD)

83.59

81.83

2.15

Domestic Price (Rs)

3,711.10

3,608.58

2.84



Inventories(Weekly Change)
Week ended Change Total Inventory

22-Oct-10

5.00 mn barrels

366.2 mn barrels





Weekly change in Gold prices in Rs/10gms

  28-Oct 21-Oct Change (%)
London pm fix(USD/troyoz)

1,333.50

1,343.50

(0.74)

Mumbai (Rs/10gms)

19,300.00

19,465.00

(0.84)


Forex

After a notable gain in recent past, Rupee eased this week as the month-end dollar demand from oil importers coupled with firmer greenback weighed on domestic currency. There were some short-term capital outflows on return of funds from over-subscribed issues. Choppy domestic equity markets also weighed on domestic currency. However, Rupee managed to rise against Euro as the structural fears surrounding the Euro-zone hurt the common European currency. There were some fresh concerns over the ability of some of the European countries to meet budget targets, especially if tax revenue is depressed.

INR/ 29-Oct 22-Oct %Change
USD

44.54

44.46

(0.18)

EURO

61.81

62.07

0.42

YEN

55.21

54.84

(0.67)


INR vs. USD and Euro


Upcoming Results

Companies

Date

Companies

Date

Century Tex

1 Nov

Oriental Bank

3 Nov

Gujarat Mnrl

1 Nov

CESC

3 Nov

Havells India

1 Nov

MTNL

3 Nov

Lupin

1 Nov

GAIL

3 Nov

Punj Lloyd

1 Nov

Mcleod Russel

3 Nov

Gammon India

2 Nov

Videocon Industries

4 Nov

Neyveli Lignite 

2 Nov

Engineers India

4 Nov

Aurobindo Pharma

3 Nov

Results Declared

Companies

Total Income (Rs. Crore)

Net Profit (Rs. Crore)

Qtr ending Sep '10

Y-o-Y  %Change

Qtr ending Sep '10

Y-o-Y %Change

Idea Cellular

3,628.92

29.74 

165.98

(39.23)

Madras Cements

652.59

(23.53)

31.12

(81.68)

Mundra Port

422.99

25.39 

211.67

21.10 

Petronet LNG

3,076.31

(10.20)

131.12

8.65 

Rolta India

334.5

30.82 

96.62

26.22 

Tata Teleservices

581.99

6.77 

-97.9

(9.34)

Ultratech Cem

3,283.09

108.90 

115.77

(53.86)

Bosch

1,729.72

28.97 

236.07

21.18 

Dena Bank

1,340.38

23.19 

160.63

28.88 

Jindal Steel

2,305.61

42.44 

478.17

56.77 

JSW Steel

5,939.28

29.66 

445.44

(1.35)

NTPC

15,367.36

33.35 

2,107.38

(2.07)

Tech Mahindra

1,500.99

30.88 

183.95

(12.67)

United Phos

771.28

31.31 

81.36

272.53 

Asian Paints

1,494.28

1.45 

196.16

(22.87)

Cummins India

1,111.94

74.97 

167.89

91.35 

Glenmark Pharma

270.48

13.31 

27.54

(52.10)

Hindustan Copp

338.76

36.17 

56.21

288.73 

IFCI

621.34

48.48 

202.3

6.21 

Indian Hotels

343.67

4.24 

-6.3

(153.07)

Patni Computer

531.01

16.12 

148.22

43.18 

Thermax

1,104.95

59.08 

89.53

65.43 

Torrent Power

1,749.39

19.83 

222.61

6.24 

Union Bank

4,461.88

18.64 

303.39

0.00 

United Spirits

1,357.19

24.40 

74.69

7.31 

Adani Enter

876

(71.63)

124.92

42.13 

Andhra Bank

2,132.32

19.06 

302.97

10.59 

Cairn India

25.86

(31.98)

-76.02

(344.52)

Colgate Palmolive

577.39

13.34 

100.3

11.82 

Glaxosmithkl Phar

589.27

13.70 

157.81

11.86 

IDBI Bank

5,069.39

18.37 

429.1

69.11 

NHPC

1,452.37

9.74 

690.18

11.93 

NMDC

2,705.85

72.81 

1,378.53

78.83 

ONGC

19,336.46

18.40 

5,388.77

5.88 

PNB

7,173.69

18.07 

1,074.55

15.92 

SAIL

11,181.55

5.73 

1,090.01

(34.47)

Tata Comm

837.73

5.64 

24.24

131.96 

Zee Entert

516.79

70.27 

157.56

53.75 

ABB

1,352.38

(7.98)

11.51

(86.14)

Bharat Elect

1,045.77

(22.71)

104.07

(56.15)

BHEL

8,652.64

24.98 

1,142.28

33.15 


Pivotals

Reliance Industries (Rs 1,095.8)

The stock advanced Rs 14 in the previous week and is still testing key resistance in the band of Rs 1,090 and Rs 1,100. Short-term trend is up for the stock. However, inability to move above Rs 1,110 will lead to the stock moving sideways in the range between Rs 1,090 and Rs 1,110. Traders can continue to hold their long positions with stop-loss at Rs 1,080.

Targets for the stock are Rs 1,130 and Rs 1,150, a key resistance. On the other hand, a decline below Rs 1,080 can pull the stock lower to Rs 1,060 to Rs 1,050 range.

Medium-term trend too is up for the stock since its September low of Rs 885. Investors can stay invested with stop-loss at Rs 1,030.

State Bank of India (Rs 3,151.2)


After testing near-term resistance at Rs 3,250 on Monday, SBI experienced selling pressure and slipped Rs 50 or 1.6 per cent last week. This was within the stock's short-term sideways consolidation range between Rs 3,070 and Rs 3,300. The stock is likely to be restrained in this range in the short-term.

Traders can initiate short position in rallies with stop-loss at Rs 3,200 and exit at lower levels between Rs 3,050 and Rs 3,070. Fall below Rs 3,050 will lead to short-term downtrend and the stock can slump to Rs 3,000 and then to Rs 2,900. Resistance ahead are at Rs 3,250 and Rs 3,300.

Investors with medium-term perspective can hold the stock with stop-loss at Rs 2,750 and conclusive close above Rs 3,300 can push it to Rs 3,370.

Tata Steel (Rs 590)


In line with our expectation the stock retreated last week by declining 4.4 per cent. Tata Steel has been on a short-term downtrend from its recent peak of Rs 683. Short-term traders can continue to hold their short positions while maintaining stop-loss at Rs 605 levels.

The stock achieved our initial target of Rs 595 on Friday and is heading towards our next target of Rs 573. Key medium-term support for the stock is at Rs 550. However, after a move above Rs 615 the stock can encounter resistance at Rs 625 and Rs 650.

Infosys Technologies (Rs 2,969.6)

The stock declined Rs 83 or 2.7 per cent during last week. It slipped below its short-term support at Rs 3,000 and touched our first price target of Rs 2,950. The stock's on going short-term downtrend from life-time high of Rs 3,249 can continue further to our next target level of Rs 2,900.

Traders can exit their short around this level and be neutral. Investors can prolong their holdings with medium-term stop-loss at Rs 2,750. — Yoganand D.


Stock Strategy

IFCI (Rs 69.9): After gaining sharply in the last three months, IFCI changed track last week. It now finds an immediate support at Rs 69-68 and resistance at Rs 72. A conclusive close below Rs 69 has the potential to weaken the stock to Rs 62.

Only a strong close above Rs 75 would change the outlook to positive for the stock. In that event, it has the potential to reach Rs 92, though in between Rs 85-86 could act as minor resistance points.

F&O pointers: The IFCI futures (market lot: 4,000) witnessed accumulation of short positions on Friday. Call options at strikes 70 and 75 witnessed heavy accumulation of open interests, indicating strong emergence of call writers. The 70 put also witnessed marginal accumulation, suggesting that traders are cautious on the downside too. However, 75 put witnessed unwinding of accumulation. This suggests that it could act as a strong resistance for the counter.

Strategy: Traders can consider shorting IFCI futures with a tight stop-loss at Rs 72 (on a closing day basis). Shift the stop-loss to Rs 68, if the stock opens on a negative note.

High risk appetite traders can also consider writing 75 call, which closed on Friday at Rs 1.50. While the loss is unlimited in this strategy, the maximum possible profit would be limited to the premium collected; besides traders would have to pay additional margin requirements. This strategy therefore is strictly for traders who have a high penchant for risk.

Reliance Capital (Rs 818): The short-term prospects turned negative for Reliance Capital. Its immediate resistance appears at Rs 856, while it has support at Rs 809.

A close below Rs 809 could weaken the stock to Rs 764 first and later to Rs 702 . However, a close above the resistance could lift the stock to Rs 902 and later to Rs 943.

F&O pointers: The Reliance Capital futures (market lot 500 units) added fresh shorts on Friday. Trading in options indicates a neutral view as both puts and calls added fresh open interest, albeit only marginally.

Strategy: Traders can consider shorting Reliance Capital, if it dips below Rs 809.

Follow-up: Last week, we had advised traders to consider short on Unitech (also writing call) and Bank of India. Both the counters moved on expected lines. — K.S. Badri Narayanan


SPOT/CASH LEVELS FOR INTRADAY TRADING FOR 1ST NOV 2010

Company Name  Exchange LTP* R1 #1 S1 @1 R2 #2 S2 @2 R3 #3 S3 @3
ABB Ltd. NSE 822.20 858.17 798.12 894.13 774.03 918.22 738.07
Abbott India Ltd. NSE 1195.70 1222.02 1165.37 1248.33 1135.03 1278.67 1108.72
ABG Shipyard Ltd. NSE 453.95 485.58 427.23 517.22 400.52 543.93 368.88
Apollo Tyres Ltd. NSE 71.55 73.85 69.85 76.15 68.15 77.85 65.85
Bank of Baroda NSE 1014.15 1030.72 988.47 1047.28 962.78 1072.97 946.22
Bank of India NSE 486.55 504.87 473.22 523.18 459.88 536.52 441.57
Banking Index Benchmark Exchange Traded Scheme (Bank BeES) NSE 1231.31 1240.84 1215.89 1250.37 1200.47 1265.79 1190.94
Bharat Electronics Ltd. NSE 1632.70 1719.80 1572.80 1806.90 1512.90 1866.80 1425.80
Bharat Forge Ltd. NSE 377.15 383.22 367.87 389.28 358.58 398.57 352.52
Bharat Heavy Electricals Ltd. NSE 2445.55 2483.03 2420.03 2520.52 2394.52 2546.03 2357.03
Bharat Petroleum Corporation Ltd. NSE 730.05 741.77 715.57 753.48 701.08 767.97 689.37
Bharati Shipyard Ltd. NSE 264.60 277.77 255.82 290.93 247.03 299.72 233.87
Bharti Airtel Ltd. NSE 325.65 331.45 320.10 337.25 314.55 342.80 308.75
Bombay Dyeing & Manufacturing Company Ltd. NSE 613.40 624.53 605.63 635.67 597.87 643.43 586.73
Bombay Rayon Fashions Ltd. NSE 219.80 234.00 201.80 248.20 183.80 266.20 169.60
Canara Bank NSE 721.50 729.57 711.87 737.63 702.23 747.27 694.17
Cummins India Ltd. NSE 794.65 807.10 777.10 819.55 759.55 837.10 747.10
Dena Bank NSE 136.70 140.40 132.50 144.10 128.30 148.30 124.60
Educomp Solutions Ltd. NSE 550.45 561.70 542.50 572.95 534.55 580.90 523.30
Federal Bank Ltd. NSE 472.00 478.67 462.67 485.33 453.33 494.67 446.67
Financial Technologies (India) Ltd. NSE 982.35 1048.23 934.23 1114.12 886.12 1162.23 820.23
Hexaware Technologies Ltd. NSE 87.75 90.12 84.22 92.48 80.68 96.02 78.32
IDBI Bank Ltd. NSE 180.60 188.25 174.60 195.90 168.60 201.90 160.95
Ispat Industries Ltd. NSE 19.60 20.30 19.00 21.00 18.40 21.60 17.70
NSE Index NSE 6017.70 6054.53 5958.98 6091.37 5900.27 6150.08 5863.43
Punj Lloyd Ltd. NSE 117.40 125.93 111.83 134.47 106.27 140.03 97.73
Punjab National Bank NSE 1290.80 1310.57 1268.02 1330.33 1245.23 1353.12 1225.47
Tata Chemicals Ltd. NSE 390.45 418.70 374.10 446.95 357.75 463.30 329.50
Tata Coffee Ltd. NSE 605.35 621.40 595.40 637.45 585.45 647.40 569.40
Tata Communications Ltd. NSE 306.25 310.80 302.90 315.35 299.55 318.70 295.00
Tata Consultancy Services Ltd. NSE 1052.90 1064.93 1035.93 1076.97 1018.97 1093.93 1006.93
Tata Elxsi Ltd. NSE 277.25 283.87 272.77 290.48 268.28 294.97 261.67
Tata Motors Ltd. NSE 1159.00 1190.10 1134.50 1221.20 1110.00 1245.70 1078.90
Tata Power Company Ltd. NSE 1397.35 1421.40 1377.65 1445.45 1357.95 1465.15 1333.90
Tata Sponge Iron Ltd. NSE 373.95 384.93 366.98 395.92 360.02 402.88 349.03
Tata Steel Ltd. NSE 589.40 602.90 578.45 616.40 567.50 627.35 554.00
Tata Teleservices (Maharashtra) Ltd. NSE 22.50 22.98 22.08 23.47 21.67 23.88 21.18
Tech Mahindra Ltd. NSE 729.25 751.23 714.13 773.22 699.02 788.33 677.03
Titan Industries Ltd. NSE 3552.15 3594.10 3480.10 3636.05 3408.05 3708.10 3366.10
   *LTP stands for Last Traded Price as on Friday, October 29, 2010 4:05:04 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. 

IT stocks: Flying too high for comfort


PE multiples of global software and hardware majors are nowhere close to the highs of three years ago. But top-tier Indian companies are trading well above the highs of 2007, indicating a run ahead of fundamentals.



K.Venkatasubramanian

Technology stocks around the world, specifically those of IT companies, have seen a visible mark-up in their valuations over the last year. In the Indian market, IT stock valuations actually touched new highs. Today, Indian bigwigs such as TCS, Infosys, Wipro and HCL trade at a significant premium to Accenture, Microsoft, IBM and Oracle.

Though Indian IT majors, with their faster growth rates, optimal cost structures and until now friendly tax-rates have always enjoyed a premium over their global counterparts, the gulf has now widened considerably.

Consider this: Indian IT majors are now trading well above levels that they did during the highs of 2007, just before the sub-prime crisis. Global IT companies too witnessed re-ratings, but are nowhere close to the highs made three years ago. Why are Indian companies fetching such stiff premiums? Have PE multiples run ahead of fundamentals? These are the questions addressed here.

Factors such as earnings growth and expanding wage costs, together with higher attrition, currency appreciation and rising tax-incidence suggest that valuations of Indian IT companies may be too rich for comfort. Certainly, none of these metrics are as robust as they were in 2007 as earnings growth in FY11 and beyond may just be around 10-12 per cent. These apart, billing is just about stabilising and none of these companies is anticipating a rise on that front.

At a different level, mid-tier IT companies are still way behind their historic highs and, apart from the rally from March-October 2009, have not seen any significant run-up in stock prices and valuations.

Premium over global players

Today, an Infosys or a TCS competes with global majors such as Accenture, IBM and Capgemini for IT services deals. These global majors also have a significant presence in India and offer a few similar services and, to that extent, are comparable (though not fully). From revenue and profit declines the previous fiscal, many global majors have turned the tide from late 2009 and much of 2010.

For example, enterprise software service companies such as Microsoft and Oracle, as well as global IT majors such as IBM, HP, Accenture, have managed 9-30 per cent growth in net-profits in 2009-10 (reporting years varies from May, June, August or December). This, after a difficult 2008-09, when revenues and profits fell significantly. Growth has been more robust in recent quarters. These stocks are still trading well below their 2007 PE multiples.

This is significant as hardware and enterprise service companies provide lead indications on client spending for Indian companies as well. Indian majors, on the other hand, may find it difficult to deliver 20-30 per cent profit growth, at least in the next year. Infosys, for one, is guiding for a 7.4 per cent growth in earnings while HCL has seen profits decline, because of its loss-making BPO division and increasing tax provisions. Wipro and TCS managed better profit growth. But, for all these players, growth came partly from cost optimisation

Indian IT companies have been able to recover on the volumes (person-months billed) front, thanks to a reasonable revival in the US-based clientele's IT spends as well as uptick in the key BFSI segment. There has been a mild revival in manufacturing, but telecom is yet to rebound significantly.

These three verticals, along with retail, are the key sectors where IT majors operate. In contrast, global majors such as Accenture, IBM, CSC and HP (through EDS) have a much more diversified client base.

They derive 10-35 per cent of their revenues from government clientele, where a bulk of spending is happening on technology for cost reduction. Indian majors have minimal presence in this segment. Global IT majors operate on about 10 verticals and spread their risks thinly. These players have also been actively pursuing inorganic growth, with hardware companies acquiring software firms, and vice-versa — Dell acquiring Perot Systems, Oracle acquiring Sun Microsystems and HP acquiring 3PAR being cases in the point.

This has helped global IT majors to become well-integrated in their offerings. These players derive more than half their revenues from higher-billed services such as consulting and package implementation, whereas for Indian players, these make up less than a fourth of their revenues.

Even when there is a revival in discretionary spends, as indicated by the September quarter results of the Indian IT companies, it would be quite some time till the service-mix changes dramatically. Global players still manage to get the more lucrative portions of a big deal, while Indian companies land up with the application development and maintenance portion of deals. Contracts such as those from BP and Telstra are examples of this phenomenon.

Closer home, Cognizant, which has outpaced peers such as Infosys, Wipro and HCL, in terms of rate of profit growth (more than 23 per cent compounded annually) even during the heavy slowdown of 2008 and 2009, has not seen its PE multiples exceed its 2007 peak.

It has also been active in inorganic growth and gone in for a number of acquisitions to expand offerings. Given this global backdrop, Indian IT majors seem to be in trading in an expensive zone. Even in terms of key margin factors, there are considerable hurdles that could peg back profit growth.

Margin constraints

The first important constraint is rupee appreciation. With relentless inflows into the markets, the rupee has bounced considerably from 48-49 levels to 44.5 against the dollar now. Companies have stated that every percentage appreciation in the rupee against the dollar erodes 30-40 basis points on their margins. If no restrictions are imposed on capital inflows, rupee appreciation may well be a phenomenon to reckon with on a regular basis.

Second, tax incidence, which was 15-18 per cent for the Indian IT majors, may go up to 20-25 per cent. With the sunset clause on STPI (and with it all tax-incentives) set to go by the end of this fiscal, companies may need to contend with a much higher outflow on taxes. For Infosys, this has already crossed 26 per cent.

Third, wages, which account for 50-60 per cent of revenues for IT majors, are trending up on account of the 10-15 per cent wage hikes announced by companies. With attrition going up from 10 per cent levels to 15-20 per cent for these companies, interim hikes too cannot be ruled out. This is also likely to strain margins.

During the downturn, Indian IT majors increased their offshore component of revenues by as much as 4-6 percentage points and were able to optimise costs. But with revival in deals and even in discretionary spends, the onsite component (or high-cost revenues) is set to go up. With the regulatory framework in the US and the UK favouring more local hiring, clearly, Indian IT majors will have to deal with the outcome of such a regime.

Finally, even from a billing perspective, after several quarters of billing pressure, Indian IT majors have just about managed flat billing rates in the recent quarter. None of them envisages a hike in the near future.

Industry research from Gartner has reduced the forecast for overall IT spending growth from 5.3 per cent to 3.9 per cent for this year. Indian companies may be able to manage 3-4 times that, translating into revenue growth. Nasscom has projected a13-15 per cent growth in IT exports. Indian IT majors may be able to do a bit more around 15-20 per cent with respect to their topline numbers.

Given these facts, frontline IT companies may not offer the best investment option in the immediate future. Investors may reduce the weightage to the sector in their portfolios. Wipro gives the most comfort in terms of valuations and, with the recent correction of 15 per cent, post its results, looks reasonably priced among the top three.

Profits can be booked in HCL Technologies as it continuously faces margin pressure, with its BPO division reporting losses for the last couple of quarters, and is likely to continue to do so, as indicated by the management and the heavy surge in tax incidence from 15 per cent in FY10 to 20 per cent this fiscal and nearly 25 per cent in FY12. At a trailing PE of 22 times, clearly the stock is quite expensive.

Mid-tiers yet to rebound

Even as the markets have been quick to re-rate the frontline IT companies, mid-tier IT companies are still nowhere near their highs made in 2007.

In fact, over the last year, revenue and profit growth have been anaemic.

The results numbers of Infotech Enterprises, Sasken Communications and Mastek are still lumpy; the companies face margin pressure from the limited segments that they operate in as also from increasing attrition and rising wage costs to stem the phenomenon.

Investors can look to exit most mid-tier IT stocks, especially those that cater to limited verticals.

Tech Mahindra (among the larger IT companies) as a play on Satyam as well as its increasing growth in the telecom space and growing non-BT business, is still attractive in terms of valuation.

We recommend buying Polaris in light of its strong positioning in the BFSI segment, impressive revival in revenues, profit growth and attractive valuations of just nine times trailing earnings.

MindTree too can be good add-on as the company is exiting the handset business which should take the overhang away from the stock, while KPIT Cummins can be retained.

Ringing in the new year


A look at how the markets have fared in Muhurat trading over the past few years.



 

Anand Kalyanaraman

Lights, sound, action. And, of course, the abundance of culinary delights. With the festival season well under way and Diwali just round the corner, it is that time of the year again, when "feel-good" is thick in the air. Some of us, who believe in work-life balance (with a tilt towards the right), hardly need prodding to put in that leave application — we try to make the most of the string of holidays accompanying the biggest festival of them all in India.

However, for the more industrious among us, for whom "Money Never Sleeps" (never mind Oliver Stone's latest lullaby of a sequel to his 1987 classic "Wall Street"), the coming week is one big fat moolah-making opportunity. Businesses of all hues and sizes are going all-out with their special-offer and discount-sale spins .

Now, when the entire economy is in such hyper-mode, can the men and women who provide that eternal lubricant — money — be seen slacking? Blasphemy! The commencement of the traditional New Year "Samvat" is marked at the bourses by a special trading session known as "Muhurat trade". With many broking establishments opening new books of accounts on the big day, symbolic orders (mostly buys) are placed in the Muhurat trade to mark fresh trade in the New Year. The hope is that a good start will set the tone for the year to follow. After all, well-begun is half-done. This year, November 5 heralds the beginning of Samvat 2067, and in keeping with time-honoured traditions, the stock exchanges have announced a special one-hour trading session that evening.

We take a look at how the markets have fared in Muhurat trading over the past few years, and whether the momentum was sustained in the year that followed. We also try to gaze into the crystal-ball to hazard a guess on what Muhurat 2010 may hold in store. But like all good things in life, here is a catch in the form of disclaimers.

1. (As you all know) past performance is not indicative of what may or may not follow in the future;

2. We share credit for only success in your investment decisions; any loss is the sole outcome of your incompetence and/or bad luck.

Clairvoyance!

More often than not, the benchmark market indices have closed higher in Muhurat trading. In the ten years since 2000, only on one occasion has the Sensex dipped on Muhurat trading day. Now, that translates into an impressive hit rate of 90 per cent, not a number to be scoffed at. Clearly, the power of the collective "run them up" spirit is in grand display here.

Now, sceptics among you may frown and argue that trades and upticks driven mostly by sentiment need not be taken too seriously. For all ye nay-sayers who think that markets and superstition don't gel, chew on this. The predictive power of Muhurat trading, as seen from data over the last ten years, could give tough competition to the intuitive powers of even Paul, the Octopus (may his soul rest in peace).

Consider this; in seven out of the nine cases in which the Sensex inched up in Muhurat trading, the bellwether index rose over the course of the following year, and registered gains on an M-O-M (Muhurat-on-Muhurat) basis. Truncate the time-period slightly from Muhurat 2002 to 2009 and the predictive power seems absolute — 100 per cent.

In the sole case (November 2007) when the Sensex closed lower on Muhurat day, guess what was to follow. Absolute mayhem and bloodbath over 2008, with the unprecedented global financial crisis taking a deadly toll on markets across the globe!

The Sensex was no exception, and crashed more than 50 per cent on an M-O-M basis. Need more proof? In October 2008, when all seemed lost and the bluest of the blue chips was available at bargain-basement prices, the Sensex rose almost 500 points in Muhurat trading.

This was perhaps the harbinger of the good times that were to come before Muhurat 2009. Those who could gather the gumption to take the plunge in seemingly troubled waters and, more importantly, hold on when the tide got choppier (in March 2009) would have made a neat killing — more than 90 per cent before the next Diwali, and over 120 per cent till date.

Perhaps, markets do operate in mysterious ways.

Prognosis (at your risk)

Now, with the Indian markets flush with liquidity, thanks to FIIs pouring in money like there's no tomorrow, and Q2 results so far being quite robust on the whole, the bourses may continue to be buoyant. Now, whether that translates into "Citius, Altius, Fortius" over the next year remains to be seen. If it doesn't, don't blame us.

An exception often proves a rule. Also, we've got our backs sufficiently covered. Don't believe us? Read the disclaimer section somewhere above. On a more serious note, do exercise due diligence, and be selective in your stock choices.

With the sharp run-up over the past year and half, the market is no longer cheap and a lot many positives seem to have been priced in. But as always, there will always be the hidden gems, which the discerning investor should be able to dig out with effort and some luck.

On that note, here's wishing all of you a cracker of a Diwali!

Weekend Platter on 

http://www.indiabulls.com/securities/research/equity_analysis_report/Special_Report_PDF/WP_Oct_29.pdf

Derivative EOD Report on http://www.indiabulls.com/securities/mailermis/derivative-strategy/derivative-EOD-29-Oct-2010.htm

Buy / Sell (Oct 29, 2010)
 Buy SellNet
FII 3350.232614.83+735.40
DII 1595.761251.36+344.40


*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