Strong & Weak futures
This is list of 10 strong futures:
GTL Infra, Tech Mahindra, Triveni, Federal Bank, Indusind Bank, DCB, Brfl, Idea, Dish TV & Sun TV.
And this is list of 10 Weak futures:
Punj Lloyd, Orchid Chem, Ivrcl Infra, Suzlon, Ranbaxy, GT Offshore, HCC, Hind Petro, Balrampur Chini & HDFC.
Nifty is in Down trend
NIFTY FUTURES (F & O):
Selling may continue up to 5014-5016 zone and thereafter slide may continue up to 5000 level and thereafter it can tumble up to 4966-4968 zone by non-stop.
Hurdles at 5030 & 5052 levels. Above these levels, expect short covering up to 5068-5070 zone and thereafter expect a jump up to 5116-5118 zone by non-stop.
Sell if touches 5164-5166 zone. Stop Loss at 5212-5214 zone.
On Negative Side, break below 4918-4920 zone can take it up to 4870-4872 zone by non-stop. If breaks & sustains this zone then down trend may continue and have caution.
Short-Term Investors:
Bearish Trend. Down side Target at 4645.40.
Stop Loss at 5247.00.
Equity:
JINDALSTEL (NSE Cash)
Explosive. Do remember that, if breaks & sustains below 668 level, then it can tumble up to 660 level by non-stop. Buy at around this level with a Stop Loss of 651 level.
Rally up to 681 & 687 levels may be possible.
Cross above 694 & 695 levels, this scrip will explode up to 702 level and thereafter expect a jump up to 708 level by non-stop.
HINDUNILVR (NSE Cash)
Explosive. Do remember that, if breaks & sustains below 255 level, then it can tumble up to 253 level by non-stop. Buy at around this level with a Stop Loss of 252 level.
Rally up to 260 level may be possible.
Cross above 265 level, this scrip will explode up to 268 level by non-stop.
RENUKA (NSE Cash)
Explosive. Do remember that, if breaks & sustains below 219 level, then it can tumble up to 214-216 zone by non-stop. Buy at around this level with a Stop Loss of 207-209 zone.
Rally up to 223-225 zone may be possible.
Cross above 229-231 zone, this scrip will explode up to 236 level and thereafter expect a jump up to 240 level by non-stop.
ITC (NSE Cash):
Bulls may get trapped at higher levels during intra-day trades today. Expect Negative News within 2 days.
MCDOWELL-N (NSE Cash):
Bulls may get trapped at higher levels during intra-day trades today. Expect Negative News within 3 days.
JETAIRWAYS (NSE Cash):
Bulls may get trapped at higher levels during intra-day trades today. Expect Positive News within 5 days.
HCLTECH (NSE Cash):
Bulls may get trapped at higher levels during intra-day trades today. Expect Negative News within 2 days.
TECHM (NSE Cash):
Bulls may get trapped at higher levels during intra-day trades today. Expect Negative News within 5 days.
INVESTMENT BUY:
ITL INDUSTRIES LTD (BSE Code:522183)
1 Month Target at 69.95.
Stop Loss at 54.55.
OPTIONS (NSE):
NIFTY 5100 PUT OPTION
Today's trend is sideways pattern with Positive bias. If rally continues, then it can zoom up to 163 level by non-stop.
On Negative side, if profit booking starts then slide may continue up to 52 level by non-stop.
TATA STEEL 620 PUT OPTION
Today's trend is sideways pattern with Positive bias. If rally continues, then it can zoom up to 20 level by non-stop.
On Negative side, if profit booking starts then slide may continue up to 8 level by non-stop.
STOCK FUTURES (NSE):
IDEA FUTURES
Explosive. Do remember that, if breaks & sustains below 61 level, then it can tumble up to 56 level by non-stop. Buy at around this level with a Stop Loss of 55 level.
Rally up to 63 level may be possible.
Cross above 68 & 69 levels, this scrip will explode up to 75 level by non-stop.
IVRCLINFRA FUTURES
Stock may crash up to 297 level today & may touch 283 level on (or) before expiry.
On Positive side, short covering may be restricted up to 353 level today & 379 level on (or) before expiry.
Disclosure: I don't have any positions in the above said scrips & NIFTY FUTURES.
SPOT INDEX LEVELS
 | 5036.00 | ( -1.14 %) | -58.15 |  |
| | 1 | 2 | 3 |
| Resistance | 5101.82 | 5167.63 | 5241.12 |
| Support | 4962.52 | 4889.03 | 4823.22 |
 | 16859.68 | ( -1.12 %) | -191.46 | |
| | 1 | 2 | 3 |
| Resistance | 17037.31 | 17214.94 | 17429.55 |
| Support | 16645.07 | 16430.46 | 16252.83 |
FUNDS DATA
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) |
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 22-Jan-2010 | 3068.98 | 5484.47 | -2415.49 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) |
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 22-Jan-2010 | 3336.17 | 1382.2 | 1953.97 |
Index Outlook: Market enters turbulent phase
Sensex (16,859.7)
Stock prices held steady in the first two sessions of last week despite the selling wave passing through other equity markets. This fortitude could, however, not last and market caved in on Thursday ostensibly due to earnings disappointment from Larsen and Toubro. Disconcerting noises from China, Greece and US stoked the panic further making Sensex close 694 points lower for the week.
Market could not have chosen a more inappropriate time to begin a decline. We have the F&O expiry coming up in three sessions, Reserve Bank's monetary policy review is scheduled towards the end of the week and the deluge of earnings announcements will continue. Extremely high open interest that has risen over Rs 1, 25,000 crore suggests that unwinding of long positions can apply further pressure on prices. Put call ratio on index options has dropped close to 1. This implies that short positions that can cushion a fall have already been pared in the decline recorded last week.
Volume in both cash and derivative segment touched record levels on Friday when the market witnessed wide intra-day swings. FIIs were net sellers in four out of the last five sessions and they pulled out over Rs 2,400 crore on Friday alone. Domestic institutions bought stocks worth Rs 2,000 crore on that day.
Oscillators in the daily chart have retreated to the bearish zone denoting that the decline can extend in the near term. Weekly oscillators are however still poised in the neutral zone denoting that the medium-term trend has not reversed lower yet.
The Sensex has recorded the first meaningful weekly decline in the last two months. We have been reiterating the importance of the resistance zone between 17,800 and 18,200 over many weeks and the possibility of a significant peak in this zone. But it is too early to judge the degree of the current decline, whether it is short-term blip or the onset of a medium-term decline. The action over the next two weeks should help us make up our mind.
The index moved close to the key medium-term trend deciding level of 16,500 indicated last week, but rebounded from there. US market's close on Friday suggests that this level will be tested again and the index can decline as far as 16,560 or 16,270 early next week. Traders holding long positions can continue to do so only as long as the second support holds.
Decline below 16,270 will imply that the index is heading towards 15,330. Presence of the 200-day moving average around 15,300 makes it a reliable support if weakness persists. Resistances for the week would be at 17,029, 17,166 and 17,290. Failure to move beyond 17,000 would imply that volatility would continue in the near-term.
Nifty (5,036)
Nifty was again very capricious last week. It did not give a clear sell signal in the first three sessions and just when traders became bullish, it plunged beyond our outermost short-term target to 5,036. The near-term trend has reversed lower but the index bounced off the key medium-term support at 4,940 indicated last week. This level could be tested again next week and the index could retreat as far as 4,925 or 4,833. Traders can watch out for a bounce from either of these levels.
The current decline would exacerbate only if 4,833 is breached and next target down would be 4,538.
Short-term resistances would be at 5,083 and 5,162. Fresh shorts can be initiated if the index fails to move past the first resistance.
Global Cues
It was a turbulent week for global equities with the major benchmarks recording 3-4 per cent declines. The sell-off on Friday was accompanied by a faint touch of panic as traders rushed to unwind positions as the long-awaited correction finally rolled out. This change in sentiment is reflected in the sharp spike in CBOE volatility index that climbed 50 per cent higher in the last two sessions, closing at a two-month high. That this index has breached its medium-term trend line and long-term moving average implies that the current volatility can persist in global markets.
The Dow closed 4 per cent lower last week, its worst weekly loss since March 2009. Formation of an evening star in the weekly candlestick chart and the close below its 50-day moving average denotes that the index can remain weak for few more weeks. But the action next week is very important for deciding the medium-term trend in the index. Immediate support is at 10100. If this level is breached, Dow can decline further to 9,650. Rebounds will face resistance at 10,500.
Pivotals: Reliance Industries (Rs 1,053.1)
RIL did an about-turn last week and ended Rs 60 lower. The stock failed to surpass the resistance at Rs 1,130 and has begun a short-term down-trend from the peak of Rs 1,138. The decline is however halting at the short-term support at Rs 1,050. The rebound that began on Friday can take the stock higher to Rs 1,097. However, failure to move beyond this level will imply that the stock can decline towards Rs 990 in the near-term.
Presence of 200-day moving average at Rs 1,020 makes it a significant support from a medium-term perspective. Close below this level will give the next medium-term target at Rs 900. We maintain that the stock remains in a range between Rs 850 and Rs 1,200 over the medium-term. Investors need to worry only on a decline below Rs 850.
State Bank of India (Rs 2,090.2)
SBI held steady in the first two sessions of the week but it caved in the later part to close below the short-term support at Rs 2,125. As indicated last week, target of the third leg down from Rs 2,500 is at Rs 2,041 and then Rs 1,872. The stock has strong support around Rs 2,050 where it halted in October and November last year. Rebound from here can take the stock higher to Rs 2,223 or Rs 2,329. Traders can initiate fresh short positions if the stock fails to move above the first target.
The stock is halting at the lower boundary of its medium term range between Rs 2,050 and Rs 2,500. Close below Rs 2,050 will give the next medium-term target at Rs 1,880.
Tata Steel (Rs 624.5)
Tata Steel could not get past the resistance at Rs 660 last week either and declined to our first short-term support at Rs 614. A rebound from here can make the stock move in the range between Rs 614 and Rs 660 over the ensuing sessions. Subsequent supports are at Rs 600 and Rs 585.
The medium-term trend in the stock continues to be up and a close below Rs 580 is required to mitigate this view. But as indicated earlier, the stock has key intermediate-term resistance at Rs 660. We are expecting the formation of an intermediate-term peak here that starts a decline to Rs 450 or even lower.
Infosys Technologies (Rs 2,573)
Infosys has been through an extremely volatile phase over the last three weeks, closing strongly higher one week and plunging sharply the next. The stock reversed lower from the short-term resistance at Rs 2,700 to close Rs 105 lower last week. The short-term trend in the stock can be classified as sideways in the range between Rs 2,500 and Rs 2,700. Strong close below Rs 2,500 is required to turn the short-term view negative for the stock. Presence of 50-day moving average at Rs 2,490 also adds to the significance of the support around Rs 2,500. Traders should avoid initiating fresh long positions on a breach of this level.
Commodities or commodity stocks... Which is the better choice?
Commodity price recovery provided strong visibility on the earnings of commodity companies for most of 2009.
S. Hamsini Amritha
Riding the global revival theme, commodities were early movers in the concerted rally in global asset prices in 2009. Stimulus spending being the key trigger for the global economic recovery, commodities (mainly, industrial commodities) scripted a strong comeback story from their lows of last year.
Alongside this, the prospect of supply shortages helped agro-commodities such as sugar, rice, tea and coffee record impressive price appreciation in the last twelve months. This leads to the questions: Should an investor looking to play the revival bet on commodities or on stocks of companies processing the commodities? Would holding a stock like Sterlite Industries be a better bet than buying copper? Commodity stocks have won hands down during the recent rally; but investors need to know there are exceptions too.
Stocks outpace commodities
In most cases, commodity stocks beat the underlying commodity in terms of returns in the 2009 rally. Sesa Goa delivered a return of 350 per cent, against a 67 per cent rise in iron ore prices; Sterlite Industries rose two-fold, while copper prices on the LME increased a lower 133 per cent. Most Indian sugar stocks outpaced the 121 per cent rise in global sugar prices over the past year.
There are two reasons for this. One, even as most sectors faced difficult times last year, the commodity price recovery provided strong visibility on the earnings of commodity companies for most of 2009. This allowed stock prices to catch up with and outperform the underlying commodity pretty quickly.
Two, it is low PE stocks that led the recent market rally. After the battering in 2008, commodity companies led the list of low-PE stocks during the market lows of late 2008 and 2009. The combination of improving earnings outlook with the stock market rally made the rebound in commodity stocks stronger than that in other sectors.
When commodity prices recover from their lows, earnings of commodity companies can expand manifold; the combination of improving earnings and lower valuations can obviously deliver a strong boost to stock price returns. Some good examples for this are tea and sugar stocks.
For instance, while tea and sugar prices were up 21 per cent and 121 per cent in the global market since January 2009, stocks such as Jay Shree Tea and Shree Renuka Sugars appreciated by 350 per cent and 220 per cent respectively over the same period.
Thanks to capacity additions and a sharp rise in domestic sugar prices, Shree Renuka Sugars has managed an over 70 per cent growth in net profits on a 150 per cent expansion in sales for the year ended September 2009.
With sugar prices continuing to head up, the stock's PE too has improved from around 13 times (trailing 12 month earnings) to 33 times between last January and now.
Such trends are, in fact, mirrored by most Indian sugar stocks, though the re-rating has been slower for companies with higher debt on their balance-sheet.
While stocks of most commodity processors outpaced the underlying commodity in the rally, the trends during the earlier meltdown were more divergent.
Divergent trends in a fall
As commodity prices peaked and then went into a free fall between July and December 2008, the Hindalco stock fell more than aluminium prices on the LME (60 per cent decline against 48 per cent), and most sugar stocks underperformed sugar prices.
If you perceive a weakness in commodity prices, sell the stocks with weaker financials first — that seems to be the key lesson for investors from this trend.
The prospect of lower volume sales with a cut in realisations seems to be the key trigger for the sharper falls in these commodity stocks. However, the exceptions to this trend were such stocks as Sesa Goa and Sterlite, which fared better than the underlying commodity. Reasonable volume growth for Sesa Goa, low leverage and good cash coffers for both companies appears to have aided performance during the commodity price meltdown.
Take the case of Sterlite Industries. Its consolidated profits grew at an annual rate of 40 per cent till FY07. Though this saw moderation in FY08, the company still managed to expand its profits by 19 per cent in FY09.
As a result, though its stock price fell by 59 per cent between July and December 2008, it was quick to bounce back from January 2009 and the stock has since posted 217 per cent returns.
On the other hand, Hindalco, with its prospects heavily hinging on its Novelis' operations, took a while to catch up in the stock market.
Hindalco's consolidated net profit for FY 09 declined by 22 per cent, while until that fiscal the company had notched up a 30 per cent profit growth.
In general, companies which have posted strong sequential profit growth have seen better returns in the stock market as well. For example, Sesa Goa, Jay Shree Tea, Hindustan Zinc and Shree Renuka Sugars lead the list of top performers, while Balrampur Chini, Bajaj Hindustan and Hindalco are at the bottom end.
VALUATIONS run ahead
Both in the meltdown and the rally of 2009, stock prices for commodity companies tended to anticipate the earnings picture well in advance. PE expansion in this rally has preceded an actual improvement in earnings for most commodity companies.
The PE multiples of Hindustan Zinc, Sterlite Industries Sesa Goa and Jay Shree Tea are currently at 20 times, 14 times, 16 times and 32 times respectively.
The extent of re-rating enjoyed by them is clear from the fact that the valuations for these stocks were at 3, 4, 2 and 7 times respectively in January 2009.
Commodity stocks have always traded at a discount to the BSE Sensex and that continues today as well, though the discount to the Sensex widened during the fall and has narrowed during the recent rally.
With a strong turnaround coming through in their earnings, valuations for commodity stocks may head lower in the forthcoming quarters.
Indian angle
One important facet of the recent rally in commodities is that, despite stronger domestic demand, prices of commodities in India have tracked global price trends.
According to latest figures published by International Aluminium Institute, the world aluminium market saw a 9 per cent decline in production of the metal, while the Indian market grew 16 per cent in January-December 2009.
Despite this, spot prices of aluminium at India's MCX and the LME went up by the same extent — 45 per cent.
However, Indian commodity stocks tended to outpace their global peers in the 2009 rally, probably a rub-off effect of the Indian stock market doing much better than the world markets.
Even global mining majors, such as Alcoa and BHP Billiton delivered much lower returns than the home-grown Hindalco or Sesa Goa in 2009. The more uncertain global demand outlook and excess capacities owing to their aggressive expansion just before the commodity bubble dampened earnings prospects for some of the commodity giants.
With the Indian economy on a strong growth path, volume growth at least is not a challenge that many commodity processors are likely to face in the coming quarters.
SEBI cracks the whip on FIIs
By clamping down on big names SEBI is sending a strong signal that the days of a lax regime for offshore derivative instruments are over. FIIs have now to either comply with its guidelines or stop transacting in these instruments.
Offshore derivative instruments (ODI) have been a constant source of irritation for Indian regulators over the last few years. Experience shows that imposing restrictions on these instruments can destabilise financial markets, forcing the regulator to backtrack.
The only recourse left to prevent misuse of these instruments is to enforce stricter compliance with the existing guidelines.
The recent instance of the Securities and Exchanges Board of India (SEBI) banning Barclays Bank and Societe Generale from issuing ODIs appears to be an effort in that direction. This directive should send a strong signal to other foreign institutional investors (FIIs) who issue ODIs that the days when the regulator looked the other way while the guidelines were blatantly flouted are over.
ODIs, or P-notes, as they are more popularly called, are offshore instruments issued by FIIs with underlying Indian securities to overseas investors.
Investors who do not wish to register with Indian regulatory authorities prefer this route to take an exposure to the Indian capital market. What complicates the issue is that these instruments can be issued onward by the clients of FIIs to other entities.
The Reserve Bank of India has consistently voiced its reservation against these instruments on the ground that this route was being used for money-laundering.
The copious inflow through this route in 2007 that led to sharp appreciation in the rupee resulted in restrictions being imposed on these instruments in October 2007. But these restrictions were withdrawn a year later, following fear of large-scale unwinding by P-note holders, leading to sharp erosion in rupee and stock prices.
Onus on Foreign investors
SEBI has mandated that the P-notes must be issued only to entities regulated by relevant regulatory authority in the countries of their incorporation.
And it has put the onus of ensuring this on the FIIs primarily issuing the P-note. These foreign investors are also required to comply with "know your client" (KYC) guidelines while issuing the ODIs. Since ODIs are not transacted through any exchange and are mainly over-the-counter contracts between two entities, SEBI has to rely entirely on the FIIs to comply with the guidelines laid down by it. Compliance is ensured by requiring FIIs to make periodic disclosures of all the relevant details of ODIs transacted by them.
The prescribed form also includes columns asking for information on back-to-back issuance of ODIs, name of the regulator who regulates the entity to whom the ODIs have been further issued and the nature of the investor — whether hedge fund, individual, pension fund and so on. This information ensures that FIIs are aware of the end beneficiaries of these instruments and whether they are regulated entities and so on.
The recent skirmish involving two big names in the financial world, Barclays Bank and Societe Generale, however, shows that foreign institutions are paying scant regard to the SEBI guidelines. Barclays Bank had issued ODIs with Reliance Communications as the underlying to Hythe Securities. But in its periodic disclosure to SEBI, it had mentioned the counterparty as UBS AG and had entirely omitted Hythe from the disclosure form.
Clamping down
Further, it had also omitted to disclose that the same ODIs had been further issued to Pluri, that is an unregulated entity.
The Societe Generale (SG) case is very similar and the counterparty involved is, again, Hythe Securities. On SEBI raising a query regarding SG's dealing with Hythe, SG revealed that of the 48 transactions with Hythe, 14 were wrongly reported. On further questioning regarding the end beneficiary of the ODI, SG denied any knowledge of further issuance of the ODI stating that it was transacting only with Hythe on 'principal' basis. On further scrutiny Hythe confirmed that these ODIs were onward issued to Opportunite S.A. and further to Pluri.
Both Barclays and SG have not only misrepresented facts and made false disclosures, the end beneficiary of the ODIs is an unregulated entity about which not much is stated.
This is gross violation of the guideline requiring FIIs to ensure that only entities regulated by relevant authorities were issued with ODIs and raises serious doubts about the kind and colour of money flowing into the stock market through this conduit.
These two instances could just be the tip of the iceberg as far as flouting the P-note guidelines go. Murkier details could be revealed as the regulator digs deeper. But by clamping down on two of the big names SEBI is sending a strong signal that the days of a lax ODI regime are over. FIIs have now to either comply or stop transacting in these instruments.
Recent reports about government reviewing the double taxation treaty with Mauritius are another sign that, though our economy is dependent on portfolio inflows from overseas, the government is not willing to compromise on the kind of money entering our shores anymore.
--
Arvind Parekh
+ 91 98432 32381
