Market Outlook for 9th June 2009

Intraday Calls 09thJun 2009
+ve Sector, Scripts :
IT, OMAXAUTO, TorontpowerSHORT Tatasteel-416 below 410 for a target 380 stop loss 420
SHORT Abirlanuvo-913 below 905 for a target 875 stop loss 915
SHORT Adlabs-399 below 390 for a target 378 stop loss 396
BUY TCS-742 above 750 for a target 767 stop loss 742
BUY BEML-926 above 935 for a target 955 stop loss 928
BUY Tatapower-1082 above 1090 for a target 1115 stop loss 1085

NIFTY FUTURES LEVELS
RESISTANCE
4470
4544
4616
4688
4760
SUPPORT
4424
4400
4328
4256
WATCH polaris,bilt,VOLTAS,TORENTPWR,TCS

Corporate News Headline
•	Areva T&D India has bagged four contracts worth Rs. 3.5 bn from power transmission utility Power Grid Corporation of India for developing four substations in the country. (BS)
•	Wire & Wireless is planning to raise Rs. 1.92 bn on a private placement basis from institutional investors. (BS)
•	Power Trading Corp is planning to acquire coal properties overseas and has identified mines in Australia and Indonesia for the purpose. (BS)
Economic and Political Headline
•	With economic condition turning better compared to that three months ago, the Planning Commission said economy should record at least 6.7% growth rate this fiscal, the same as was witnessed in 2008-09. (BS)
•	The Bank of England is proposing an extension to its Asset Purchase Facility to buy secured commercial paper as part of its plan to restore liquidity to credit markets. (Bloomberg)
•	Japan's corporate bankruptcies dropped 6.7% in May, for the first time in 12 months and merchant sentiment climbed to a one-year high, signs that the economy is starting to recover from its deepest postwar recession. (Bloomberg)

Strong & Weak futures
This is list of 10 strong futures:
JP Hydro, Aban, Bajaj Hind, MRPL, S Kumar Syn, Rajesh Expo, Welguj, Omaxe, Sobha & IVRCL Infra.
And this is list of 10 Weak :
ITC,Sterlin Bio, Cipla, Sesa Goa, Dabur, Bharti Airtel, Relinace, Glaxo, Sunpharma, Lupin & GTL.
Nifty is in Up Trend .

NIFTY FUTURES (F & O):
Hurdle at 4470 level. Above this level, expect short covering up to 4542-4544 zone and thereafter it can zoom up to 4614-4616 zone by non-stop.
Support at 4424 level. Below this level, selling may continue up to 4400-4402 zone by non-stop.

Below 4328-4330 zone, expect panic up to 4256-4258 zone by non-stop.

On Positive Side, short rallies up to 4686-4688 zone can be used to sell. Stop Loss at 4758-4760 zone.

Short-Term Investors:
Bullish Trend. 3 closes above 4270 level, it can zoom up to 4830 level by non-stop.

BSE SENSEX:
Higher opening expected. Recovery should start.
Short-Term Investors:

Short-Term trend is Bearish and target at around 13704 level on down side.
Maintain a Stop Loss at 14931 level for your short positions too.


POSITIONAL
Buy TCS (NSE Cash)
Higher opening expected. Uptrend may continue.
If trades above 724 level, then uptrend may continue up to 761 level. Cross above 783 level, expect fire works too.

If breaks 724 level, then traders can expect profit booking up to 702 level.

Buy TORRENT POWER (NSE Cash)
Higher opening expected. Uptrend may continue.

If trades above 154 level, then uptrend may continue up to 162 level. Cross above 167 level, expect fire works too.

If breaks 154 level, then traders can expect profit booking up to 150 level.

Buy VOLTAS LTD (NSE Cash)
Higher opening expected. Uptrend may continue.
If trades above 123 level, then uptrend may continue up to 129 level. Cross above 133 level, expect fire works too.

If breaks 123 level, then traders can expect profit booking up to 119 level.

Buy BALLARPUR INDUSTRIES FUTURES (NSE)
Higher opening expected. Recovery should start.
If trades above 23 level, then recovery may start up to 25 level. Cross above 25 level, expect fire works too.

If breaks 23 level, then traders can expect further selling.

Buy POLARIS FUTURES (NSE)
Higher opening expected. Uptrend may continue.
If trades above 101 level, then uptrend may continue up to 106 level. Cross above 109 level, expect fire works too.

If breaks 101 level, then traders can expect profit booking up to 98 level.


SPOT LEVELS

	4429.90	( -3.42 %)	-157.00
		1	2	3
Resistance		4559.32	4688.73	4766.07
Support		4352.57	4275.23	4145.82

	14665.92		( -2.90 %)	-437.63
			1	2	3
Resistance			15043.08	15420.25	15639.67
Support			14446.49	14227.07	13849.90

Global Cues & Rupee
The Dow Jones Industrial Average closed at 8,764.49. Up by 1.36 points.
The Broader S&P 500 closed at 939.14. Down by 0.95 points.

The Nasdaq Composite Index closed at 1,837.14. Down by 7.02 points.

The partially convertible rupee <INR=IN> ended at 47.555/565 per dollar on yesterday, lower than Friday's close of 47.105/115.

FII DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	08-Jun-2009	2424.2	2438.67	-14.47

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	08-Jun-2009	1019.38	1895.3	-875.92

Jetking Infotrain-Basic Tech Education

Long before the Aptechs and NIITs hit the headlines, Jetking has been churning out trained professionals who find employment in the repair and maintenance industry. The technician who shows up at your door to fix the television, computer and other electronic equipment would most probably have got himself trained at one of the many Jetking institutes that dot the landscape across India's cities and towns.

This unpretentious institute makes no bones about the fact that its target comprises of the low and low-middle class youth with a school or under-graduate education out to find a job at the earliest.

Jetking's courses last for a year to 15 months and provide training in jobs like network management and hardware maintenance.

Apart from full-time day courses, Jetking also provides for part-time night courses that provide an opportunity for working students to upgrade their skills. Part of the course package includes training in basic conversational English and familiarization with basic etiquette.

Though originally confined to Mumbai, Jetking has spread its wings across the country and operates out of nearly 120 training centres in major cities and towns. Future plans include spreading out abroad by setting up operations in China and Nigeria.

This small-cap company with negligible debt has shown decent growth over the past several years. Its revenues have grown from Rs 11.49 crore in FY 2005 to Rs 39.88 crore in FY 2008. The company's operating profit margins have also increased sharply as it increased emphasis on franchisee-run operations. Its profit after tax has risen from Rs 2.27 crores in FY 2005 to Rs 9.85 crores in FY 2008. OPM has risen from 8.27 per cent in FY 2005 to 46.68 per cent in FY 2008. The company also enjoys a cash profit margin exceeding 35 per cent since it charges a commission on fees earned by the franchisee from every student.

Its profits have grown 63 per cent on a CAGR basis from FY05 to FY08. Earnings per share have grown from Rs 11.58 in FY05 to Rs 25.08 in FY08. The company has been regularly rewarding its shareholders with bonuses. It issued 1:1 bonus shares in 2004 and 2007 respectively and 1.2 shares in 2008.

The company also enjoys very favourable ratios. Its return on assets is 67 per cent while return on capital employed is a whopping 101 per cent. Its return on equity is 82 per cent.

Investment Rationale

Jetking Infotrain has opted to aggressively grow its business. In FY 2009 alone the company added 20 franchisees in different parts of the country. The company has plans to add 60 more franchisees in the coming years and expand its operations in the Northern and Eastern India in the near future.

At present, the company is consolidating operations in Tamil Nadu and Kerala. As part of efforts to grab a higher mindshare in the market, Jetking Infotrain began advertising in

the recently-concluded IPL cricket series.

The prospects for the company's business appear good in the coming years despite the ongoing recession. Unlike the bigger names in the industry that have branched into software training, Jetking has decided to stay focused on the hardware part of the business where it has competition only from the unorganized sector.

Over the years Jetking has partnered with the big names in the IT field to offer courses tailor-made for the industry. It tied up with Novell in 1997 as a Novell Education Academic Partner and with Microsoft in 2003 as a Microsoft Certified Partner. It followed up with tie-ups with industry leaders like Red Hat to offer courses in Linux and open-source software and WatchGuard Technologies that offers training threat management of hardware and installed software.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)

--
Arvind Parekh
+ 91 98432 32381

Market Outlook 8th June 2009

Intraday Calls 08thJun 2009
+ve Sector, Scripts : GAIL, Ashokley
Profit booking at the opening with range bound market, so opening on
resistance may be for profit booking. So don't initiate any fresh
calls especially buy calls before 10.15, study the market moment and
buy or sell.
BUY Dr.Reddy-686 above 690 for a target 706 stop loss 685
BUY ABAN-1242 above 1255 for a target 1300 stop loss 1240
SHORT ABGShip-227 @ 230 for a target 220 stop loss 234
BUY KHANDSE-33 above 34 for a target 37 stop loss 33
BUY EDSERV-29 above 30 for a target 33 stop loss 29

Expected Breakout calls
BUY Thermax-403 above 410 for a target 451 stop loss 400
BUY Indiainfo-163 above 169 for a target 185 stop loss 165
BUY BhartiArtl-826 above 1869 for a target 185 stop loss 165

Breakout calls
BUY Adanient-762 above 770 for a target 845 stop loss 760

Positional calls
BUY AndhrSugar-104 for a target 115 stop loss 102

 

NIFTY FUTURES LEVELS

RESISTANCE

4612

4645

4677

4830

SUPPORT

4582

4571

4538

4507

SELL IDEA,SESAGOA,GRASIM,SUZLON,DISHTV

 

NIFTY FUTURES (F & O):
Rally may continue up to 4612 level for time being.

Support at 4582 level. Below this level, expect profit booking up to 4571 level by non-stop.

Buy if touches 4538-4540 zone. Stop Loss at 4507-4509 zone.

On Positive Side, cross above 4643-4645 zone can take it up to 4675-4677 zone. If crosses & sustains this zone then uptrend may continue.
 
Short-Term Investors: 
 Bullish Trend. 3 closes above 4270 level, it can zoom up to 4830 level by non-stop. 

BSE SENSEX: 
Higher opening expected. Uptrend should continue. 

Short-Term Investors:
Short-Term trend is Bearish and target at around 14931 level on down side.
Maintain a Stop Loss at 16157 level for your short positions too.
 
Global Cues & Rupee
The Dow Jones Industrial Average closed at 8,763.13. Up by 12.89 points.
The Broader S&P 500 closed at 940.09. Down by 2.37 points.

The Nasdaq Composite Index closed at 1,864.32. Down by 0.60 points.

The rupee closed at 47.1050/1150 per dollar on Friday, stronger than its Thursday's close of 47.20/21.
 

Hindustan Dorr-Oliver-Moving Into A New Phase Of Growth

BSE 509627; CMP Rs 101.85
 
 
With an order book of Rs 1300 crore, Hindustan Dorr-Oliver, the engineering subsidiary of IVRCL Infra, has provided a Revenue and Earnings visibility for atleast 18-20 months into the future. This raises hopes for a continued outperformance of HDO both on the operational front, as also on the Equities markets even as analysts run forth to revise their spreadsheets and raise earnings forecasts for FY10 and FY11.

In any case HDO reported a stellar performance for FY09, with Revenues rising to Rs 522 crore, a growth of 68 per cent and after tax profits of Rs 30 crore, an increase of 33 per cent over FY08. Though the growth in the bottomline seems lower than that of the Revenues, this comes after considering a write-off of Rs 6 crore advised by the company auditors for irrecoverable debts. Hence, both EBITDA and Net margins were strong for FY09.

The corporate has raised dividend pay-out to Rs 1 per share of FV Rs 2, as against Rs 0.60 per share of FV Rs 2, declared in FY08.

After the take-over of HDO by IVRCL (which now controls 55 per cent of the company Equity), operations of the entity were diversified to include execution of large engineering projects on EPC and LSTK basis which resulted in a 7 times increase in HDO's Revenues to Rs 522 crore in FY09 from Rs 80 crore in FY06.

HDO is currently executing one of the most prestigious projects of post independence India, the mineral beneficiation plant worth Rs 600 crore for the Uranium Corporation of India. This is in addition to a number of water recycling plants for HPCL/BPCL in many parts of the country, as also the Vedanta upcoming units in Orissa and Power units of Reliance Infrastructure (formerly Reliance Energy).

HDO is further looking into new opportunities in Oil, Gas, Power and Material Handling systems to sustain growth. It is also conceivable that at some date in the future HDO may look forward to an acquisition that brings in required and additional synergies in related fields.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
 
POSITIONAL CALLS 
Sell IDEA CELLULAR (NSE Cash) 
Lower opening expected. Profit booking may start.

If trades below 85 level, then profit booking may start up to 81 level. Break below 78 level, expect free fall too. 

If crosses 85 level, then traders can expect further buying up to 87 level.
 
Sell SESA GOA (NSE Cash) 
Lower opening expected. Selling may continue.

If trades below 161 level, then selling may continue up to 153 level. Break below 148 level, expect free fall too. 

If crosses 161 level, then traders can expect short covering up to 166 level.
 
Sell GRASIM INDS (NSE Cash) 
Lower opening expected. Profit booking may start.

If trades below 2576 level, then profit booking may start up to 2450 level. Break below 2377 level, expect free fall too. 

If crosses 2576 level, then traders can expect further buying up to 2653 level.
 
Sell SUZLON ENERGY FUTURES (NSE) 
Lower opening expected. Selling may continue.

If trades below 133 level, then selling may continue up to 126 level. Break below 123 level, expect free fall too. 

If crosses 133 level, then traders can expect short covering up to 137 level.
 
Sell DISH TV (I) FUTURES (NSE) 
Lower opening expected. Selling may continue.

If trades below 55 level, then selling may continue up to 53 level. Break below 51 level, expect free fall too. 

If crosses 55 level, then traders can expect short covering up to 57 level.
 

Weekly Market Outlook 8th-12th June 2009

Strong & Weak  futures  for 8th June
This is list of 10 strong futures:

JP Hydro, Aban, Bajaj Hind, MRPL, S Kumar Syn, Rajesh Expo, Welguj, Omaxe, Sobha & IVRCL Infra.

And this is list of 10  Weak :

ITC,Sterlin Bio, Cipla, Sesa Goa, Dabur, Bharti Airtel, Relinace, Glaxo, Sunpharma, Lupin & GTL.
 Nifty is in Up Trend .

Floundering at 15000

Sensex (15103.1)

After the fantastic journey from 8000 to 15000 in three months, Sensex appeared a little lost last week. News flow drying to a trickle and ambling ways of other equity markets could have contributed to this indecisive state. Further, conflicting statements emanating from the Government on disinvestment and on the thrust of the Union Budget made market participants nervous. The Sensex finally slipped past the 15000 mark on Friday afternoon to end with a 3.2 per cent weekly gain.

Second, third and bottom-rung stocks continued to attract immense investor interest and market breadth was positive, even on days when the Sensex closed with losses. Volumes, especially in the cash segment, were very strong, daily turnover last week was almost 50 per cent above the average daily turnover recorded in April. However, inflow of overseas funds was tepid last week

The sideways move recorded by the Sensex over the last two weeks has made the momentum drop significantly. The 10-day Rate of Change (ROC) oscillator fell sharply last week from overbought levels. But the fact that the 10-month ROC has moved in to the positive territory is an encouraging signal. If this indicator sustains above the zero line, it would signal a change in the long-term outlook for Sensex.

There is no sign of reversal in the medium-term up-trend from the March lows yet. We have repeatedly warned against fighting this trend and initiating pre-emptive short positions over the last two months. The market is known for its vagaries that can outwit the best brains. Docile trend-following can be the best way to play such a strong trending market.

Targets of the third leg of the up-move from 8047 are 14281 and 16332. Since 61.8 per cent retracement of the down-move from January 2008 peak occurs at 16180, next medium target on a strong close beyond 15300 can be between 16000 and 16300. But it needs to be borne in mind that 15284 (55 per cent retracement) is also a likely peak for the move from March low.

As far as the short-term is concerned, we had outlined two trajectories in our last column. Despite a brief move past 15200, Sensex ended the session below this level. If the decline continues next week, the index can decline to 14594 or 14185. Short-term purchases should be avoided on a close below the first target. The medium-term view will, however, be roiled only on a close below 13470. Resistances for the week ahead would be at 15284, 15698 and 15836.

Nifty (4586.9)

However, minor counts of the move from 2555 indicate that the fifth of C-wave is currently in motion that can terminate at 4428, 4597 or 4791. The second target was achieved last week and traders should tread cautiously as far as long positions are concerned unless there is a clear break above 4650 early next week. We are looking at the possible termination of the move from March lows here.

Supports for the week would be at 4428 and 4300. Fresh long positions ought to be avoided below the first support. Medium-term investors however need not worry until the index closes below 4150. Resistances for the week would be at 4646 and 4758.

Global Cues

It was a relatively sedate week in global equity markets. Most indices closed with 1 to 3 per cent gains. Some Asian indices such as those belonging to Thailand and the Philippines out-performed with over 5 per cent gains. CBOE volatility index traded around the 30 mark and closed with a small up-tick indicating that while investor confidence remains high, it has not received a fresh boost over the past week. The base built by this index during the bull-market days between 2004 and 2006 is between 10 and 20.

The Dow moved higher to an intra week peak of 8839 last week and closed slightly above its 200-day moving average. But the index needs to sustain above this line for a couple of weeks more to signal a long-term trend reversal. Medium-term target of this leg of the up-move in Dow is 8796 and 9410.

If we apply the waterfall effect in Elliott wave analysis, the Dow could reverse anytime soon from the resistance zone around 8800. Heavy negative divergence in both daily and weekly momentum too signal the uptrend from March trough could be drawing to a close. These divergences are apparent in the S&P 500 too and further this index has also reached its key medium-term target of 943 that was the peak formed on January 9.

 

WEEKLY LEVELS ON STOCKS BASED ON PIVOTS

Tata Steel (Rs 463.9)
 

Tata Steel led the market forward last week with a 14 per cent gain. The stock moved slightly above our second medium-term target of Rs 487 to peak at Rs 496. There could be a short-term correction to Rs 448 or Rs 416 in the near term. Short-term traders can buy on such declines with a stop at Rs 410. Resistances for the week would be at Rs 481 or Rs 496.

The stock is in a strong medium term up-trend and this move can continue to take Tata Steel towards the medium-term target of Rs 552. The positive medium-term view will be marred only on a close below Rs 330.

Reliance (Rs 2211.8)

RIL moved in line with our expectation, reversing below the resistance indicated last week thus highlighting the weak outlook for the short-term. The stock can decline to Rs 2094 or Rs 2066 in the near-term and a close above Rs 2343 is needed to reverse this view. The ceiling of the gap formed on May 18 at Rs 2102 will be the key short-term support for the stock.

We continue to advise caution from a medium-term perspective unless there is a weekly close above Rs 2384. A gradual decline to Rs 1900 or Rs 1700 can not be ruled out in the medium term.

Maruti Suzuki (Rs 1082.7)

Maruti recorded yet another spurt last week that made it rally above our medium-term target of Rs 1100 to peak at Rs 1113. The stock is halting at the upper boundary of the trend-channel that is enclosing the stock's movement since January 2009. Reversal from here can drag the stock lower to Rs 960. But the medium-term view will stay positive as long as this level holds. If it holds above Rs 960, Maruti can have another shy at its all-time high over the medium term.

State Bank of India (Rs 1817.9)

SBI reversed lower from an intra week peak at Rs 1935 to close with 2.7 per cent weekly loss. The stock is currently pausing at the key intermediate-term resistance at Rs 1827. A reversal from here can drag the stock lower to Rs 1537 or Rs 1300 over the medium term. Fresh purchases are therefore recommended only on a strong close above Rs 1827. Subsequent target is Rs 1970.

The stock can decline to Rs 1770 or Rs 1670 in the short-term. Near-term trend will however turn overtly negative only on a close below Rs 1750. Resistances for the week are Rs 1920 and Rs 1935.

Infosys (Rs 1690.5)

Infosys moved in line with our expectation and rallied to the intra-week peak of Rs 1706. But the stock is pausing below this resistance. The near-term view will be ambivalent as long as the stock remains at these levels for a move above Rs 1706 can take it higher to Rs 1830 while failure to surpass this level will cause a decline to Rs 1500 again.

Our medium-term view for Infosys stays negative as long as it trades below Rs 1750. Failure to move above this level over the next two weeks can cause a decline to Rs 1486 or Rs 1400 over the medium term.

ONGC (Rs 1180.6)

ONGC is currently in a short-term correction that is making the stock move in the range between Rs 1140 and Rs 1220. Short-term investors can buy on declines with a stop at Rs 1085. The stock can move higher to Rs 1257 or Rs 1340 in the near term.

SPOT LEVELS for 8th June

	4586.90	( 0.31 %)	14.25
		1	2	3
Resistance		4628.52	4670.13	4703.42
Support		4553.62	4520.33	4478.72

	15103.55		( 0.63 %)	94.87
			1	2	3
Resistance			15242.70	15381.85	15506.40
Support			14979.00	14854.45	14715.30

FUNDS DATA 5th June

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	05-Jun-2009	4022.61	3190.66	+831.95

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	05-Jun-2009	1436.44	1916.57	-480.13

 

Interpreting RSI

Since most of us now generate RSI with our computer software, the rigour of manually calculating the RSI can be dispensed with. It would suffice to understand that RSI judges the strength in the prevailing trend by tracking the gains or losses made over a pre-defined period.

The RSI oscillates between the values of 0 and 100. The zone between 0 and 30 is considered as the 'oversold' zone. When RSI declines to this zone, it means that the selling might have been overdone and an upward reversal could be around the corner.

Spotting divergence

 

Similarly, the zone above 70 and below 100 is considered as 'overbought'. RSI reaching this zone implies that the stock may be getting overvalued and a pullback or correction is likely soon. The RSI tends to peak or bottom before the underlying price chart thus giving advance indication of an impending trend reversal.

When the stock price is moving up forming higher peaks but the RSI oscillator is moving lower forming lower peaks, a negative divergence occurs. Likewise, when the stock price is trending sideways or lower, shaping lower troughs while the RSI oscillator is forming higher troughs, a positive divergence is formed.

Positive or bullish divergence is seen in the Bharat Forge chart. The stock made lower troughs during October-December 2008, while the RSI was forming higher troughs in the same period. The RSI bottomed first in October 2008 while the stock price was trending south.

 

In Dr. Reddy's Lab's stock, one can notice that during December 2008, the the relative strength index formed higher peak in line with the price action only up to Rs 720. After the Rs 720 peak, the RSI headed southward while the stock price was still moving higher creating divergence between the two. This negative divergence acted as a trigger for the stock's subsequent trend reversal.

Backspreads: Attractive for discerning traders

Backspreads reduce risks if the underlying trades in a range.

Traders are increasingly using options to take a view on the underlying security or market. The problem, however, is that options expire worthless if the underlying does not move enough within the contract expiry.

Several traders, hence, wanted to know if they could set up positions that pay off no matter whether the underlying goes up or down.

This article discusses one such trade set up – backspreads. It shows how to construct the position and why the set up generates positive payoffs so long as the underlying moves in either direction.

It also explains the risks associated with the position.

Initiating trade set up

Suppose a trader holds a view that Reliance Industries will move to Rs 2,700 if it breaks above Rs 2,400. The alternative view is that the stock could decline to Rs 2,100. This view could be typical for a straddle/strangle set up. The objective, however, is to reduce risk if the underlying trades in a range.

Besides, the trader has an upside bias (or downside bias), unlike in a straddle/strangle where the view is neutral. She can, hence, set up a call/put backspread. We assume that the trader shorts one contract of June 2250 calls and buys two contracts of June 2460 calls.

Understanding the set up

Call backspread is a two-leg transaction where the trader shorts a lower strike call and buys higher strike call. Two features make this position somewhat unique. One, the position is set up as a delta-neutral spread.

That is, the delta of the short options equals the delta of the long options. And two, because of delta-neutrality, the trader purchases more contracts of higher strike calls than she shorts the lower strike calls.

Delta is the change in the option value for a one-point change in the underlying.

If a call option has 0.50 delta (also referred to as 50 deltas), it means that the option value will increase (decrease) by 0.50 for a one-point increase (decrease) in the underlying.

The backspread is set up delta-neutral to minimize the risk for small movements in the underlying.

The trader can set up the spread for a net credit. This is because she shorts an ATM (at-the-money) option and buys OTM (out-of-the-money) option.

The June 2250/2450 backspread can be set up for a net credit of 30 points based on Thursday prices, not including brokerage commissions.

If the stock moves to Rs 2,700 by, say, June 23, the 2250 strike will be worth 450 points (rounded off) with minimal time-value. The June 2460 strike will then be worth 240 points for a total of 480 points.

The trader, hence, receives 30 points on closing the position. This coupled with another 30 points on initiation gives the trader a total gain of 60 points.

Payoffs

But what if the stock instead moves to, say, Rs 2,100? Both the June 2250 and June 2460 calls will expire worthless and the trader nets 30 points- the premium collected on initiating the position.

Suppose the stock trades at Rs 2,350 at expiry.

The June 2250 will carry an intrinsic value of 100 points (2350 minus 2250) whereas the June 2460 will expire worthless.

The net loss will then be 100 points less 30 points collected on initiation.

Conclusion

Backspread differs from straddle/strangle in that it is delta-neutral and is typically set up as a net-credit spread. The flip side is that the position is subject to high risk when the stock trades between the break-even point and the long-strike option.

In the above example, the position will suffer large losses if the stock trades above Rs 2,280 (Rs 2,250 plus 30 points premium) but below Rs 2,460 at expiry. Besides, the position is sensitive to change in volatility (vega).

It would be optimal to set up backspreads when the implied volatility is low. The trade set up is suitable for discerning option traders considering the associated risks.

--
Arvind Parekh
+ 91 98432 32381

Weekly Market Outlook 8th-12th June 2009

Strong & Weak  futures  for 8th June
This is list of 10 strong futures:

JP Hydro, Aban, Bajaj Hind, MRPL, S Kumar Syn, Rajesh Expo, Welguj, Omaxe, Sobha & IVRCL Infra.

And this is list of 10  Weak :

ITC,Sterlin Bio, Cipla, Sesa Goa, Dabur, Bharti Airtel, Relinace, Glaxo, Sunpharma, Lupin & GTL.
 Nifty is in Up Trend .

Floundering at 15000

Sensex (15103.1)

After the fantastic journey from 8000 to 15000 in three months, Sensex appeared a little lost last week. News flow drying to a trickle and ambling ways of other equity markets could have contributed to this indecisive state. Further, conflicting statements emanating from the Government on disinvestment and on the thrust of the Union Budget made market participants nervous. The Sensex finally slipped past the 15000 mark on Friday afternoon to end with a 3.2 per cent weekly gain.

Second, third and bottom-rung stocks continued to attract immense investor interest and market breadth was positive, even on days when the Sensex closed with losses. Volumes, especially in the cash segment, were very strong, daily turnover last week was almost 50 per cent above the average daily turnover recorded in April. However, inflow of overseas funds was tepid last week

The sideways move recorded by the Sensex over the last two weeks has made the momentum drop significantly. The 10-day Rate of Change (ROC) oscillator fell sharply last week from overbought levels. But the fact that the 10-month ROC has moved in to the positive territory is an encouraging signal. If this indicator sustains above the zero line, it would signal a change in the long-term outlook for Sensex.

There is no sign of reversal in the medium-term up-trend from the March lows yet. We have repeatedly warned against fighting this trend and initiating pre-emptive short positions over the last two months. The market is known for its vagaries that can outwit the best brains. Docile trend-following can be the best way to play such a strong trending market.

Targets of the third leg of the up-move from 8047 are 14281 and 16332. Since 61.8 per cent retracement of the down-move from January 2008 peak occurs at 16180, next medium target on a strong close beyond 15300 can be between 16000 and 16300. But it needs to be borne in mind that 15284 (55 per cent retracement) is also a likely peak for the move from March low.

As far as the short-term is concerned, we had outlined two trajectories in our last column. Despite a brief move past 15200, Sensex ended the session below this level. If the decline continues next week, the index can decline to 14594 or 14185. Short-term purchases should be avoided on a close below the first target. The medium-term view will, however, be roiled only on a close below 13470. Resistances for the week ahead would be at 15284, 15698 and 15836.

Nifty (4586.9)

However, minor counts of the move from 2555 indicate that the fifth of C-wave is currently in motion that can terminate at 4428, 4597 or 4791. The second target was achieved last week and traders should tread cautiously as far as long positions are concerned unless there is a clear break above 4650 early next week. We are looking at the possible termination of the move from March lows here.

Supports for the week would be at 4428 and 4300. Fresh long positions ought to be avoided below the first support. Medium-term investors however need not worry until the index closes below 4150. Resistances for the week would be at 4646 and 4758.

Global Cues

It was a relatively sedate week in global equity markets. Most indices closed with 1 to 3 per cent gains. Some Asian indices such as those belonging to Thailand and the Philippines out-performed with over 5 per cent gains. CBOE volatility index traded around the 30 mark and closed with a small up-tick indicating that while investor confidence remains high, it has not received a fresh boost over the past week. The base built by this index during the bull-market days between 2004 and 2006 is between 10 and 20.

The Dow moved higher to an intra week peak of 8839 last week and closed slightly above its 200-day moving average. But the index needs to sustain above this line for a couple of weeks more to signal a long-term trend reversal. Medium-term target of this leg of the up-move in Dow is 8796 and 9410.

If we apply the waterfall effect in Elliott wave analysis, the Dow could reverse anytime soon from the resistance zone around 8800. Heavy negative divergence in both daily and weekly momentum too signal the uptrend from March trough could be drawing to a close. These divergences are apparent in the S&P 500 too and further this index has also reached its key medium-term target of 943 that was the peak formed on January 9.

 

WEEKLY LEVELS ON STOCKS BASED ON PIVOTS

Tata Steel (Rs 463.9)
 

Tata Steel led the market forward last week with a 14 per cent gain. The stock moved slightly above our second medium-term target of Rs 487 to peak at Rs 496. There could be a short-term correction to Rs 448 or Rs 416 in the near term. Short-term traders can buy on such declines with a stop at Rs 410. Resistances for the week would be at Rs 481 or Rs 496.

The stock is in a strong medium term up-trend and this move can continue to take Tata Steel towards the medium-term target of Rs 552. The positive medium-term view will be marred only on a close below Rs 330.

Reliance (Rs 2211.8)

RIL moved in line with our expectation, reversing below the resistance indicated last week thus highlighting the weak outlook for the short-term. The stock can decline to Rs 2094 or Rs 2066 in the near-term and a close above Rs 2343 is needed to reverse this view. The ceiling of the gap formed on May 18 at Rs 2102 will be the key short-term support for the stock.

We continue to advise caution from a medium-term perspective unless there is a weekly close above Rs 2384. A gradual decline to Rs 1900 or Rs 1700 can not be ruled out in the medium term.

Maruti Suzuki (Rs 1082.7)

Maruti recorded yet another spurt last week that made it rally above our medium-term target of Rs 1100 to peak at Rs 1113. The stock is halting at the upper boundary of the trend-channel that is enclosing the stock's movement since January 2009. Reversal from here can drag the stock lower to Rs 960. But the medium-term view will stay positive as long as this level holds. If it holds above Rs 960, Maruti can have another shy at its all-time high over the medium term.

State Bank of India (Rs 1817.9)

SBI reversed lower from an intra week peak at Rs 1935 to close with 2.7 per cent weekly loss. The stock is currently pausing at the key intermediate-term resistance at Rs 1827. A reversal from here can drag the stock lower to Rs 1537 or Rs 1300 over the medium term. Fresh purchases are therefore recommended only on a strong close above Rs 1827. Subsequent target is Rs 1970.

The stock can decline to Rs 1770 or Rs 1670 in the short-term. Near-term trend will however turn overtly negative only on a close below Rs 1750. Resistances for the week are Rs 1920 and Rs 1935.

Infosys (Rs 1690.5)

Infosys moved in line with our expectation and rallied to the intra-week peak of Rs 1706. But the stock is pausing below this resistance. The near-term view will be ambivalent as long as the stock remains at these levels for a move above Rs 1706 can take it higher to Rs 1830 while failure to surpass this level will cause a decline to Rs 1500 again.

Our medium-term view for Infosys stays negative as long as it trades below Rs 1750. Failure to move above this level over the next two weeks can cause a decline to Rs 1486 or Rs 1400 over the medium term.

ONGC (Rs 1180.6)

ONGC is currently in a short-term correction that is making the stock move in the range between Rs 1140 and Rs 1220. Short-term investors can buy on declines with a stop at Rs 1085. The stock can move higher to Rs 1257 or Rs 1340 in the near term.

SPOT LEVELS for 8th June

	4586.90	( 0.31 %)	14.25
		1	2	3
Resistance		4628.52	4670.13	4703.42
Support		4553.62	4520.33	4478.72

	15103.55		( 0.63 %)	94.87
			1	2	3
Resistance			15242.70	15381.85	15506.40
Support			14979.00	14854.45	14715.30

FUNDS DATA 5th June

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	05-Jun-2009	4022.61	3190.66	+831.95

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	05-Jun-2009	1436.44	1916.57	-480.13

 

Interpreting RSI

Since most of us now generate RSI with our computer software, the rigour of manually calculating the RSI can be dispensed with. It would suffice to understand that RSI judges the strength in the prevailing trend by tracking the gains or losses made over a pre-defined period.

The RSI oscillates between the values of 0 and 100. The zone between 0 and 30 is considered as the 'oversold' zone. When RSI declines to this zone, it means that the selling might have been overdone and an upward reversal could be around the corner.

Spotting divergence

 

Similarly, the zone above 70 and below 100 is considered as 'overbought'. RSI reaching this zone implies that the stock may be getting overvalued and a pullback or correction is likely soon. The RSI tends to peak or bottom before the underlying price chart thus giving advance indication of an impending trend reversal.

When the stock price is moving up forming higher peaks but the RSI oscillator is moving lower forming lower peaks, a negative divergence occurs. Likewise, when the stock price is trending sideways or lower, shaping lower troughs while the RSI oscillator is forming higher troughs, a positive divergence is formed.

Positive or bullish divergence is seen in the Bharat Forge chart. The stock made lower troughs during October-December 2008, while the RSI was forming higher troughs in the same period. The RSI bottomed first in October 2008 while the stock price was trending south.

 

In Dr. Reddy's Lab's stock, one can notice that during December 2008, the the relative strength index formed higher peak in line with the price action only up to Rs 720. After the Rs 720 peak, the RSI headed southward while the stock price was still moving higher creating divergence between the two. This negative divergence acted as a trigger for the stock's subsequent trend reversal.

Backspreads: Attractive for discerning traders

Backspreads reduce risks if the underlying trades in a range.

Traders are increasingly using options to take a view on the underlying security or market. The problem, however, is that options expire worthless if the underlying does not move enough within the contract expiry.

Several traders, hence, wanted to know if they could set up positions that pay off no matter whether the underlying goes up or down.

This article discusses one such trade set up – backspreads. It shows how to construct the position and why the set up generates positive payoffs so long as the underlying moves in either direction.

It also explains the risks associated with the position.

Initiating trade set up

Suppose a trader holds a view that Reliance Industries will move to Rs 2,700 if it breaks above Rs 2,400. The alternative view is that the stock could decline to Rs 2,100. This view could be typical for a straddle/strangle set up. The objective, however, is to reduce risk if the underlying trades in a range.

Besides, the trader has an upside bias (or downside bias), unlike in a straddle/strangle where the view is neutral. She can, hence, set up a call/put backspread. We assume that the trader shorts one contract of June 2250 calls and buys two contracts of June 2460 calls.

Understanding the set up

Call backspread is a two-leg transaction where the trader shorts a lower strike call and buys higher strike call. Two features make this position somewhat unique. One, the position is set up as a delta-neutral spread.

That is, the delta of the short options equals the delta of the long options. And two, because of delta-neutrality, the trader purchases more contracts of higher strike calls than she shorts the lower strike calls.

Delta is the change in the option value for a one-point change in the underlying.

If a call option has 0.50 delta (also referred to as 50 deltas), it means that the option value will increase (decrease) by 0.50 for a one-point increase (decrease) in the underlying.

The backspread is set up delta-neutral to minimize the risk for small movements in the underlying.

The trader can set up the spread for a net credit. This is because she shorts an ATM (at-the-money) option and buys OTM (out-of-the-money) option.

The June 2250/2450 backspread can be set up for a net credit of 30 points based on Thursday prices, not including brokerage commissions.

If the stock moves to Rs 2,700 by, say, June 23, the 2250 strike will be worth 450 points (rounded off) with minimal time-value. The June 2460 strike will then be worth 240 points for a total of 480 points.

The trader, hence, receives 30 points on closing the position. This coupled with another 30 points on initiation gives the trader a total gain of 60 points.

Payoffs

But what if the stock instead moves to, say, Rs 2,100? Both the June 2250 and June 2460 calls will expire worthless and the trader nets 30 points- the premium collected on initiating the position.

Suppose the stock trades at Rs 2,350 at expiry.

The June 2250 will carry an intrinsic value of 100 points (2350 minus 2250) whereas the June 2460 will expire worthless.

The net loss will then be 100 points less 30 points collected on initiation.

Conclusion

Backspread differs from straddle/strangle in that it is delta-neutral and is typically set up as a net-credit spread. The flip side is that the position is subject to high risk when the stock trades between the break-even point and the long-strike option.

In the above example, the position will suffer large losses if the stock trades above Rs 2,280 (Rs 2,250 plus 30 points premium) but below Rs 2,460 at expiry. Besides, the position is sensitive to change in volatility (vega).

It would be optimal to set up backspreads when the implied volatility is low. The trade set up is suitable for discerning option traders considering the associated risks.

 

--
Arvind Parekh
+ 91 98432 32381

Market Outlook for 5th June 2009

NIFTY FUTURES

RESISTANCE

4587

4602

4638

4655

4706

4830
SUPPORT

4572

4548

4497

4446

4427

4376

watch >>>>>>>SUZLON,UNITECH,ISPAT,RNRL,RELCAP

 

Strong & Weak  futures 
 This is list of 10 strong futures:

Jp Hydro, Wel Guj, Sujlon, Sobha, Laxmi Mach, Tech M, Aban, NIIIT Ltd, Voltas & IVR Prime.

And this is list of 10  Weak :

Hero Honda, Bank Broda, Glaxo, Sterlin Bio, Dabur, Infosys Tech, Tata Power, Cipla, Bharti Airtel & Sun Pharma. 
Nifty is in Up Trend .

 

NIFTY FUTURES (F & O):
Above 4585-4587 zone, rally may continue up to 4602 level and thereafter expect a jump up to 4636-4638 zone by non-stop.

Support at 4548 & 4572 levels. Below these levels, expect profit booking up to 4495-4497 zone and thereafter slide may continue up to 4444-4446 zone by non-stop.

Buy if touches 4427-4429 zone. Stop Loss at 4376-4378 zone.

On Positive Side, cross above 4653-4655 zone can take it up to 4704-4706 zone. If crosses & sustains this zone then uptrend may continue.
 
Short-Term Investors: 
 Bullish Trend. 3 closes above 4270 level, it can zoom up to 4830 level by non-stop. 

 

BSE SENSEX:
Higher opening expected. Uptrend should start. 

Short-Term Investors:
Short-Term trend is Bearish and target at around 14931 level on down side.
Maintain a Stop Loss at 16157 level for your short positions too.

3 closes below 14931 level, it can tumble up to 13704 level.
 
 
POSITONAL BUY, CRUCIAL LEVELS TO WATCH OUT FOR:
Buy SUZLON ENERGY (NSE Cash) 
Higher opening expected. Buying may continue.

If trades above 133 level, then buying may continue up to 140 level. Cross above 144 level, expect fire works too. 

If breaks 133 level, then traders can expect profit booking up to 129 level.
 
Buy UNITECH (NSE Cash) 
Higher opening expected. Buying may continue.

If trades above 95 level, then buying may continue up to 100 level. Cross above 103 level, expect fire works too. 

If breaks 95 level, then traders can expect profit booking up to 92 level.
 
Buy RELIANCE CAPITAL (NSE Cash) 
Higher opening expected. Buying may continue.

If trades above 1009 level, then buying may continue up to 1061 level. Cross above 1093 level, expect fire works too. 

If breaks 1009 level, then traders can expect profit booking up to 979 level.
 
Buy ISPAT INDUSTRIES FUTURES (NSE) 
Higher opening expected. Buying may continue.

If trades above 27 level, then buying may continue up to 29 level. Cross above 30 level, expect fire works too. 

If breaks 27 level, then traders can expect profit booking.
 
Buy RELIANCE NATURAL RESOURCES FUTURES (NSE) 
Higher opening expected. Buying may continue.

If trades above 91 level, then buying may continue up to 96 level. Cross above 99 level, expect fire works too. 

If breaks 91 level, then traders can expect profit booking up to 88 level.
 

SPOT LEVELS

	4572.65	( 0.93 %)	41.95
		1	2	3
Resistance		4577.53	4624.37	4673.83
Support		4481.23	4431.77	4384.93

	15008.68		( 0.93 %)	137.78
			1	2	3
Resistance			15033.69	15196.48	15346.53
Support			14720.85	14570.80	14408.01

FII DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	04-Jun-2009	3527.7	3062.36	+465.34

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	04-Jun-2009	1352.23	1882.43	-530.2

 

Global Cues & Rupee
The Dow Jones Industrial Average closed at 8,750.24. Up by 74.96 points.
The Broader S&P 500 closed at 942.46. Up by 10.70 points.

The Nasdaq Composite Index closed at 1,830.25. Up by 24.10 points.

The partially convertible rupee <INR=IN> closed at 47.20/21 per dollar on yesterday, weaker than its previous close of 47.07/08.
 
DELIVERY

Satyam Computers-Outperformer 
Over a period of 6 months Satyam may turn out to be a multi-bagger as the management of Tech Mahindra takes a grasp of things, and makes things turn-around.

Over the 1st 3 months of the Satyam acquisition, most of the client and revenue erosion had already happened, but things have stabilized operationally. Over the next 3-4 qtrs, as more clarity emerges, PE multiple for Tech companies would have expended to ~12x while Infosys trades @16-17xFY10E earnings.

Lets not forget that the Satyam acquisition would put Tech M among the top 5 offshore vendors from India as well as reduce dependence on BT from ~60% currently to ~25%. Further it shall help rerate the stock on scale size (revenues for the combined entity at ~US$ 2 bn+) as well as a more diversified revenue profile Vs. earlier when TechM had a single vertical focus (Telecom). 

There are likely to be earnings upgrades panning into Tech Mah-Satyam combine as more clarity emerges. That coupled with a likely multiple expansion should make Tech Mahindra a good bet at current levels, as also Satyam.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
 

--
Arvind Parekh
+ 91 98432 32381

Market Outlook 4th June 2009

Intraday Calls 04thJun 2009
+ve Sector, Scripts : FMCG, JSW steel

BUY CenturyTex-480 above 486 for a target 505 stop loss 480
BUY Jindalsteel-2278 above 2300 for a target 2360 stop loss 2280
BUY GMDC-97 for a target 102 stop loss 95

BUY ITC-203 above 206 for a target 212 stop loss 203
BUY Marico-70 above 72 for a target 79 stop loss 70

BUY GIPCL-88 above 90 for a target 100 stop loss 85 [positional]

 

Strong & Weak  futures  
This is list of 10 strong futures:

Wel Guj, Tech M, Aban, Voltas, Skumar Sy NF, Suzlon, Bom Dyeing, NIIT Ltd, Alok Text & IVR Prime.

And this is list of 10  Weak :

Lupin, Colpal, Glaxo, Dabur, Cipla, Sterlin Bio, Hind Uni Lvr, Dr. Reddy, Bharti Airtel & Sun Pharma. 
 Nifty is in Up Trend .

NIFTY FUTURES (F & O):  
Below 4519 level, expect profit booking up to 4505-4507 zone and thereafter slide may continue up to 4481-4483 zone by non-stop.

Hurdles at 4546 & 4563 levels. Above these levels, buying may continue up to 4600-4602 zone and thereafter expect a jump up to 4624-4626 zone by non-stop.

Cross above 4636-4638 zone, can take it up to 4661-4663 zone. Supply expected at around this zone and have caution.

On Negative Side, buying should emerge at around 4468-4470 zone. Stop Loss at 4444-4446 zone.
 
Short-Term Investors:  
Bullish Trend. 3 closes above 4270 level, it can zoom up to 4830 level by non-stop. 

BSE SENSEX:
Lower opening expected. Recovery should start. 
Short-Term Investors:
 
Short-Term trend is Bearish and target at around 12478 level on down side.
Maintain a Stop Loss at 14931 level for your short positions too.

3 closes above 14931 level, it can zoom up to 16157 level.
 
POSITIONAL:
Sell RELIANCE INDS (NSE Cash) 
Lower opening expected. Selling may continue.

If trades below 2302 level, then selling may continue up to 2190 level. Break below 2124 level, expect free fall too. 

If crosses 2302 level, then traders can expect short covering up to 2371 level.
 
Sell DLF (NSE Cash)  Lower opening expected. Selling may continue.

If trades below 413 level, then selling may continue up to 393 level. Break below 381 level, expect free fall too. 

If crosses 413 level, then traders can expect short covering up to 425 level.
 
Sell BHARTI AIRTEL (NSE Cash) 
Lower opening expected. Selling may continue.

If trades below 818 level, then selling may continue up to 778 level. Break below 755 level, expect free fall too.

If crosses 818 level, then traders can expect short covering up to 843 level.
 
Sell GMR INFRASTRUCTURE FUTURES (NSE) 
Lower opening expected. Selling may continue.

If trades below 178 level, then selling may continue up to 169 level. Break below 164 level, expect free fall too. 

If crosses 178 level, then traders can expect short covering up to 183 level.
 
Sell RELIANCE PETROLEUM FUTURES (NSE) 
Lower opening expected. Selling may continue.

If trades below 146 level, then selling may continue up to 138 level. Break below 134 level, expect free fall too. 

If crosses 146 level, then traders can expect short covering up to 150 level.
 

 

FII DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	03-Jun-2009	3350.36	3317.56	+32.8

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	03-Jun-2009	1428.23	1375.34	+52.89

 

NIFTY SPOT LEVELS

	4530.70	( 0.12 %)	5.45
		1	2	3
Resistance		4577.53	4624.37	4673.83
Support		4481.23	4431.77	4384.93

	14870.90		( -0.03 %)	-4.01
			1	2	3
Resistance			15033.69	15196.48	15346.53
Support			14720.85	14570.80	14408.01

Global Cues & Rupee
The Dow Jones Industrial Average closed at 8,675.24. Down by 65.63 points.
The Broader S&P 500 closed at 931.76. Down by 12.98 points.

The Nasdaq Composite Index closed at 1,823.79. Down by 10.88 points.

The partially convertible rupee <INR=IN> closed at 47.07/08 per dollar on yesterday, weaker than its previous close of 47.02/03.
 
MARKET BUZZ:
 
(May not be useful for day-traders.)

Gruh Finance-Strong Pedigree

BSE 511288

CMP Rs 161.90

 
 
 
 
 
 
Who owns Gruh Finance? Nos % of Equity

HDFC                                      21307785 61.49

Merrill Lynch Espana     1155268   3.33

Acacia Partners                 1103775   3.19

DSP Blackrock                   669327   1.93

DSP Blackrock                   531491   1.53

Tata Investments                   500000   1.44

Acacia Partners                   467200   1.35

                                                  25734846 74.26

Financials In Rs/Crore Mar-09 Mar-08

Revenues                              294 202

PAT                                            50               42

Equity Rs                                35               35

EPS Rs                               14.3   12

Structural break-up 

Disbursements Rs/Crore       656   632

Loan Assets Rs/Crore     2086 1769

Gross NPA %                    0.9 

Outlook FY10 

Disbursements Rs/Crore 850-900

Estimated PAT Rs /Crore 60

Estimated EPS                          Rs   17 
 

Valuation 

Should command PE of                15

12 Month Price Target Rs 255 

Why A Higher PE Multiple?  

Gruh Is Owned by HDFC 

No Exposure To Commercial RE 

Business Relations with HDFC & 

HDFC Bank, HDFC Sec, HDFC MF 

& HDFC Standard Life Customers  

Strong CAGR over 5 yrs 20

Loans Backed By High Collateral 

Non Existent NPAs % 0.9

High Dividend Pay-out per share 4.8      
 

(Correction: We have forgotten to type "PSL Limited" as a Heading in Yesterday's

Newsletter. Error is regretted.)    

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)

--
Arvind Parekh
+ 91 98432 32381

Market Outlook 3rd June 2009

NIFTY FUTURES LEVELS TODAY
RESISTANCE
4555
4606
4655
4671
4720
SUPPORT
4520
4503
4485
4452
4436
4403

Intraday Calls 03rdJun 2009
+ve Sector, Scripts : IT, Metals
BUY Hindzinc-649 for a target 680 stop loss 643
BUY Tatasteel-474 for a target 493-501 stop loss 465

Breakout Calls
BUY Rolta-145 for a target 200 stop loss 135
BUY SAIL-181 for a target 203 stop loss 177

Expected Breakout Calls

BUY Jindalswhl-672 above 680 for a target 722 stop loss 670
BUY JindalSaw-414 above 417 for a target 440 stop loss 411
BUY GAIL-310 above 319 for a target 340 stop loss 311

Strong & Weak futures
This is list of 10 strong futures:
Voltas, Reding Ton, IVR Prime, Hotel Leela, NIIT Ltd., IVRCL Infra, Wel Guj, Tata Steel, Escorts & Rolta.
And this is list of 10 Weak :
Sunpharma, Cipla, Dabur, Bharti Airtel, Hind Uni Lvr, Dr. Reddy, ITC, Colpal, Lupin & Sterlin Bio.
Nifty is in Up Trend .

NIFTY FUTURES (F & O):
Hurdle at 4555 level. Above this level, expect short covering up to 4604-4606 zone and thereafter expect a jump up to 4653-4655 zone by non-stop.
Support at 4503 & 4520 levels. Below these levels, selling may continue up to 4485-4487 zone and thereafter slide may continue up to 4452-4454 zone by non-stop.

Buy if touches 4436-4438 zone. Stop Loss at 4403-4405 zone.

On Positive Side, cross above 4669-4671 zone can take it up to 4718-4720 zone. If crosses & sustains this zone then uptrend may continue.

Short-Term Investors:
Bullish Trend. 3 closes above 4270 level, it can zoom up to 4830 level by non-stop.

BSE SENSEX:
Higher opening expected. Uptrend should continue.

Short-Term Investors:
Short-Term trend is Bearish and target at around 12478 level on down side.
Maintain a Stop Loss at 14931 level for your short positions too.
3 closes above 14931 level, it can zoom up to 16157 level.

POSITIONAL BUY:
Buy TATA STEEL (NSE Cash)
Higher opening expected. Buying may continue.
If trades above 463 level, then buying may continue up to 486 level. Cross above 501 level, expect fire works too.

If breaks 462 level, then traders can expect profit booking up to 449 level.

Buy SATYAM COMPUTER (NSE Cash)
Higher opening expected. Buying may continue.

If trades above 61 level, then buying may continue up to 64 level. Cross above 66 level, expect fire works too.

If breaks 61 level, then traders can expect profit booking up to 60 level.

Buy STATE BANK (NSE Cash)
Higher opening expected. Buying may continue.
If trades above 1859 level, then buying may continue up to 1955 level. Cross above 2013 level, expect fire works too.

If breaks 1859 level, then traders can expect profit booking up to 1803 level.

Buy IFCI FUTURES (NSE)
Higher opening expected. Buying may continue.
If trades above 52 level, then buying may continue up to 55 level. Cross above 56 level, expect fire works too.

If breaks 52 level, then traders can expect profit booking up to 50 level.

Buy FIRSTSOURCE SOLUTIONS FUTURES (NSE)
Higher opening expected. Buying may continue.
If trades above 28 level, then buying may continue up to 30 level.

If breaks 28 level, then traders can expect profit booking up to 27 level.

Global Cues & Rupee
The Dow Jones Industrial Average closed at 8,740.87. Up by 19.43 points.
The Broader S&P 500 closed at 944.74. Up by 1.87 points.

The Nasdaq Composite Index closed at 1,821.76. Up by 8.12 points.

The partially convertible rupee ended at 47.02/03 per dollar on yesterday, weaker than Monday's close of 46.94/95.

SPOT LEVELS

	4525.25	( -0.10 %)	-4.65
		1	2	3
Resistance		4590.67	4656.08	4725.77
Support		4455.57	4385.88	4320.47

	14874.91		( 0.23 %)	34.28
			1	2	3
Resistance			15043.40	15211.90	15429.48
Support			14657.32	14439.74	14271.24

FII DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	02-Jun-2009	3757.39	3990.68	-233.29

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	02-Jun-2009	1615.88	2040.02	-424.14

Did Retail Investors Panic & Sell? BSE 526801

Institutional Holdings % 35.13 34.29 34.9 34.35 Institution Jun-08 Sep-08 Dec-08 Mar-09 Nos % Nos % Nos % Nos % Abn Amro Bank NV London Branch 586,805 1.37 586805 1.37 Lloyd Systems Pvt Ltd 2,522,190 5.91 2522190 5.91 2592190 6.07 2592190 6.07 LB India Holdings Cayman II Ltd 980,408 2.30 980408 2.3 980408 2.3 980408 2.3 International Finance Corporation 875,000 2.05 875000 2.05 875000 2.05 875000 2.05 Citigroup Global Markets Mauritius Pvt Ltd 928,865 2.17 916336 2.15 916336 2.15 916336 2.15 CLSA Mauritius Ltd 1,013,492 2.37 922381 2.16 1791316 4.19 1791316 4.19 Deutsche Securities Mauritius Ltd 1,159,177 2.71 1085856 2.54 688955 1.61 Macquarie Bank Ltd 1,287,485 3.01 1287485 3.01 878385 2.06 778385 1.82 Swiss Finance Corpn Mauritius 1039067 2.43 726323 1.7 575802 1.35 HSBC Unique Opportunities Fund 453,572 1.06 0 0 HSBC Advantage India Fund 480,000 1.12 0 0 JM Financial Ventures 542,622 1.27 542622 1.27 542622 1.27 J M Financial Mutual Fund JM Agri & Infrafund 1,169,602 2.74 1013172 2.37 1039446 2.43 1039146 2.43 J M Financial Mutual Fund JM Contra Fund 864,797 2.02 829797 1.94 829797 1.94 829797 1.94 J M Trustee Company Ltd A/c JM Mutual Fund Basi 1,895,898 4.44 2045898 4.79 2080398 4.87 1780398 4.17 Goldman Sachs Investments Mauritius India Ltd FCCB 786,816 1.84 0 0 Sundaram BNP Paribas 966318 2.26 966138 2.26 Sandstone Cap India Master Fund 1001685 2.35 Total 15,004,107 35.13 14647017 34.29 14907314 34.9 14669223 34.35 (Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)

--
Arvind Parekh
+ 91 98432 32381

Market Outlook for 2nd June 2009

Intraday Calls 02ndJun 2009

+ve Sector, Scripts :
BUY M&M-712 for a target 735 stop loss 705
BUY ABB-667 for a target 682 stop loss 660

Breakout Calls
BUY 3IInfo-80 for a target 90 stop loss 77.50

Expected Breakout Calls
BUY ACC-829 above 835 for a target 865 stop loss 822

 

Strong & Weak  futures  
This is list of 10 strong futures:

 IVR Prime, Brigade, Ansal Infra, NIITL Ltd., Voltas, Hotel Leela, Indusind Bank, HCC, Unitech & Finan Tech.

And this is list of 10  Weak :

Sunpharma, Cipla, Dabur, Hind Uni Lvr, Tata Tea, Lupin, Bharti Airtel, Colpal, ITC & Dr.Reddy.
 Nifty is in Up Trend .

 

NIFTY FUTURES (F & O):
Above 4539-4541 zone, rally may continue up to 4560 level by non-stop.

Support at 4519 & 4528 levels. Below these levels, expect profit booking up to 4485-4487 zone and thereafter slide may continue up to 4453-4455 zone by non-stop.

Buy if touches 4400-4402 zone. Stop Loss at 4368-4370 zone.

On Positive Side, cross above 4592-4594 zone can take it up to 4624-4626 zone. If crosses & sustains this zone then uptrend may continue.
 
Short-Term Investors:
Bullish Trend. 3 closes above 4270 level, it can zoom up to 4830 level by non-stop. 

BSE SENSEX:
Higher opening expected. Uptrend should continue. 

Short-Term Investors:
Short-Term trend is Bearish and target at around 12478 level on down side.
Maintain a Stop Loss at 14931 level for your short positions too.

3 closes above 14931 level, it can zoom up to 16157 level.
 
INVESTMENT BUY:
Buy UNITECH (NSE Cash) 
Higher opening expected. Buying may continue.

If trades above 90 level, then buying may continue up to 95 level. Cross above 97 level, expect fire works too. 

If breaks 90 level, then traders can expect profit booking up to 87 level.
 
Buy SUZLON ENERGY (NSE Cash) 

Higher opening expected. Buying may continue.

If trades above 111 level, then buying may continue up to 117 level. Cross above 120 level, expect fire works too. 

If breaks 111 level, then traders can expect profit booking up to 108 level.
 
Buy RELIANCE INDS (NSE Cash) 
Higher opening expected. Buying may continue.

If trades above 2225 level, then buying may continue up to 2339 level. Cross above 2409 level, expect fire works too. 

If breaks 2225 level, then traders can expect profit booking up to 2158 level.
 
Buy RELIANCE NATURAL RESOURCES FUTURES (NSE) 
Higher opening expected. Buying may continue.

If trades above 86 level, then buying may continue up to 91 level. Cross above 94 level, expect fire works too. 

If breaks 86 level, then traders can expect profit booking up to 84 level.
 
Buy NAGARJUNA FERTILIZERS FUTURES (NSE) 
Higher opening expected. Buying may continue.

If trades above 43 level, then buying may continue up to 45 level. Cross above 46 level, expect fire works too. 

If breaks 43 level, then traders can expect profit booking up to 41 level.

 

Global Cues & Rupee
The Dow Jones Industrial Average closed at 8,721.44. Up by 221.11 points.
The Broader S&P 500 closed at 942.87. Up by 23.73 points.

The Nasdaq Composite Index closed at 1,795.34. Up by 54.35 points.

The partially convertible rupee <INR=IN> closed at 46.94/95 per dollar on yesterday, stronger than Friday's close of 47.11/12. 

 

	4529.90	( 1.82 %)	80.95
		1	2	3
Resistance		4566.73	4603.57	4661.73
Support		4471.73	4413.57	4376.73

 

	14840.63		( 1.47 %)	215.38
			1	2	3
Resistance			14946.46	15052.30	15197.78
Support			14695.14	14549.66	14443.82

 

fii data

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	01-Jun-2009	3595.98	3316.31	279.67

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	01-Jun-2009	1660.4	1857.14	-196.74

 

C&C Constructions: Knowing the Road Ahead

BSE 532813; CMP Rs 164.45
 Delhi based C&C Constructions is moving from strength to strength energised by the solid increase in its order book. The order book as of March 2009 stood at Rs 3050 crore, with 40 per cent slated for commissioning in the FY10 ending June and 50 per cent in FY11. 

The latest wins include sizeable stretches of Road Construction in the first phase of development initiated by "The Dedicated Freight Corridor Corporation Limited-A GOI entity", that will ultimately link interior Bihar with Kanpur and then on to Bombay. 

In size, scale and magnitude the "Dedicated Freight Corridor" will be equally mammoth, just like the NDA Government showpiece, the "Golden Quadrilateral"and the "NSEW corridor".   

Another show piece project bagged from UNPO/World Bank/ADB is the construction of the Parliament in Afghanistan, the new Indian Chancery in Kabul and massive highways in Afghanistan.   

Additionally, there are 4 under-ground parking lots to be constructed in Gandhinagar, Hauz Khas, Munirka and Model Town, sponsored and funded by the Municipal Corporation of Delhi in anticipation of the Commonwealth Games 2010 New Delhi.   

Further, a Rs 300 crore Inter State Bus Terminus is to be built up as a Grassroot project in Mohali, on a BOT basis wherein C&C will operate the terminus for the first 20 years before handing it over to the Haryana Government, and retaining the Commercial Development at the ISBT for another 99 years thereafter.   

Financials 

So what does all of the above translate into? For FY09 (June ending) C&C is likely to report Revenues of close to Rs 800 crore with after tax profits of Rs 29 crore. This works out to an EPS of Rs 16 and gives the stock a PE of 10 at the present juncture, which is half the PE multiple that IVRCL, Nagarjuna and HCC are fetching.   

Secondly, for FY10, Revenues will rise 50 per cent to roughly Rs 1200 crore, with after tax profits of Rs 44 crore or a FY10 EPS of Rs 24, thereby giving the stock a forward PE of 6. The current valuations do not fully reflect the strength of C&C.   

Focus on ramping up operations 

C&C's order book has touched INR 30.5 bn, providing revenue visibility in the medium term. Indian operations contribute 86 per cent to the order book with the remaining coming from Afghanistan. All projects are funded by the GOI, State level entities or multilateral bodies like the United Nations, ADB and World Bank taking away payment risk.   

The roads sector dominates the order book with a 61 per cent share, followed by a 25 per cent share of the buildings segment; railways account for the balance.   

C&C's order book has more than doubled in the past six months. This has been accompanied by a surge in revenues, which highlights the company's efforts towards ramping up its operations.   

The company has decided to fund its current phase of growth through debt, keeping in mind the unfavourable equity markets. Thus, the increasing order book and top line have been accompanied by an uptick in debt levels.   

Going forward, while the company expects its top line growth to continue at current levels, interest charges are likely to ease in the near future, as general lending rates move down in the country, and with a new Government both in Delhi and the Centre led by the Congress-UPA alliance, the purse strings are likely to be loosened for infrastructural projects.   

The stalled Golden Quadrilateral, and NSEW project is also going to be pushed forth with fresh Road Construction orders of as much as Rs 40,000 crore to be allotted in the next few months.   

There is thus sufficient Revenue and Earnings visibility as far as C&C is concerned for the next three years.   

Outlook   

C&C is an interesting play on the construction space, with a sizeable and growing order book and exposure to high-margin markets like Afghanistan. The promoter interest in the stock remains a high 70 per cent, another 15 per cent rests with MFs/FIs and FIIs with marquee names like United India Assurance, two infra related schemes of HDFC MF and Deutsche Securities Mauritius.   
The stock can double in value by December 2009. BUY.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
 
--
Arvind Parekh
+ 91 98432 32381