Wednesday, July 27, 2011

TECHNICAL OUTLOOK: Strong market cues begins the week on a positive note…

Market Outlook: Indian markets are expected to open on a flattish note on the back mixed cues on the global space. Auto, Banking and real estate sectors in action ahead of RBI rate hike would see some pressure. On the global space Wall Street ends lower; crude slips, gold advances and flow continuous in Asian markets trading lower; Nikkei, Straits Times down. On the overall basis we expect Indian market trade with support near 5600 in the near term and any positive breakout would be expected only after 5740.

Results today: GAIL, HCL Tech, IDFC, Hexaware, Ultratech Cement, Lupin, Engineers India, Tata Coffee, Greaves Cotton, BGR Energy, JK Lakshmi cement, Dabur, Delta Corp, Tata Metaliks, Strides Arcolab, Karur Vysya Bank, Asahi India, TTK Healthcare, Bank of Baroda, Nagarjuna fertilizers, Canara Bank, UCO Bank, Subex, LLoyds Finance, Jayant Agro, Birla Corp, Marico, Muthoot Finance, Trent, Gokaldas Exports, Genus Power, Sunflag Iron, Wendt India, Brandhouse retail, Hercules Hoists, Oil India, Mannapuram General Finance, Chennai Petroleum, Orient Paper & Industries, Dewan Housing, Mahindra Ugine, Panacea Biotech, Paper Products

Global events to watch for:

Þ Durable Goods Orders

Þ Bank Reserve Settlement

Global indices Update @ 8:

Dow Jones : 12501 (-91.50)

NASDAQ : 2839 (-02.84)

Nikkei 225 : 10041 (-56.71)

Hang seng : 22559 (-02.11)

SGX CNX Nifty : 5584 (+07.00)

Gold (USD/t oz.) : 1624.4 (+05.10)

Nymex Crude (F) : 99.27 (+00.17)

INR / 1 USD : 44.48

TECHNICAL OUTLOOK: Strong market cues begins the week on a positive note…

In yesterday's letter we wrote about the different signals being flashed by our time-price forecasting and the options set up. Clearly, the time-price forecast "won" the day. Option traders are these days, fickle creatures. They seem to be using options as a major substitute for futures in order to reduce their costs of trading and hence we are seeing this substantial positions being created in options. In recent weeks there has been a major chunk that is moving back and forth between calls and puts. It is difficult to gauge whether this big block of trading is making money or not but certainly there is a lot of action. In yesterday's letter we had mentioned about the large changes in calls and puts. Well, yesterday the market activity showed the exact reverse! Some 60 lac calls were added while some 55 L puts were shed. These quantities are quite large and one really wonders at the players at the back of it all. This kind of action is certainly changing the character of the market. Immediate question that springs to mind is whether it will change the readings we get on the charts? Answer is definitely NO, because the basic emotion- human greed and fear- does not change no matter what instruments are used! But one of the changes that we do find is in the area of small breakouts of support and resistance. Since options are being used, there isn't much follow thru activity any longer in small time breakouts. One can convert that information to considering that if there is a definite follow thru to a breakout, then it is obvious that some fresh selling or buying has emerged that is outside of the "normal" trading activity indicated by the options positions.

Index failure at resistance - both Nifty as well as Bank Nifty- is to be taken as negative for the short term trend. We had mentioned that the bearish trigger was far away at 5560. Well, it seems that nothing is really far in the market! But importantly, the index did not really make much further ground downward once the 5560 level was reached. That we have closed somewhere near those levels makes one consider that there could be some renewed attempts to break this. In case that happens, then the next support is a bit further away- around 5450- and that may create problems for those holding longs. More, it will also break the short term uptrend. Now, if the market is not to go higher, then, ideally, it will not move much beyond 5665 levels. So keep that as the immediate resistance level. The attached chart of today is Nifty 15 minutes with modified Gann angle trendlines drawn. It can be seen that the prices dropped to take support on the Gann angle from the 7 July high. If this breaks (i.e. below 5550) then the next one for support can be seen to be well below. Slopes of the trendlines are decided by the way prior price moves have lined up.

With the 50 bps hike there is little doubt that interest rates will increase so interest sensitive sectors like real estate, banks, auto, infra etc etc were all down and are likely to remain down. The levels given for Bank Nifty, SBI and Icici Bank yesterday should have proved useful. The first two failed at the resistance while the other held the support. Look for continuation lower (BNif 11000, SBI current rates and Icici 1035) and if seen trade short in the sector. Maruti was an exception but other auto stocks were placed weak. All real estate stocks were down but keep a watch on Unitech and DLF- these are flashing slightly different signals from the rest. Maybe there is a change coming and the leaders are beginning to reflect it. We hear that PE Funds are now the savior of real estate projects and that may change the dynamics of the business somewhat. We long had a strategic short view on this sector and that seems about to change. Keep track.

UTV Software has announced delisting plans. The news was reasonably well known in the market. So there was immediate profit taking and prices have moved lower. What is notable in the document, as pointed out by our analyst to us, is that the promoters also have an option to tender their shares at the buy back. Considering that delisting processes generally happen thru a reverse buy back, there is a good chance that there will be some attempt later to push the prices up. Hence the stock remains a buy on dips. Not for traders of course but more for investors with surplus investible funds.

STRATEGY FOR THE DAY: Market is once again back in the range after an aborted attempt at crossing the resistance. This time it was done in thru an event. But no big selling has emerged and hence declines my not be severe. But upside momentum is halted or broken and will need to be rebuilt. This may take a while. Hence we could be back to ranging action. Be alert for this. Momentum is still not lost in the mid cap space. We may actually see a shift of action to this space now. So be on the watch for that as well.

Stocks to buy if market is strong:

MASTEK A gapped down open last session and continued selling throughout the day pushed prices sharply lower last session and led them to close at the days low. On the chart we see a clear downside breakout and the fall came on high volumes. Momentum readings have taken a beating as well. Sell.




Sell below 118

1.5 points

115 / 113

Or rally to 121

1.5 Points


WOCKHARDT Prices shot up afresh last session on renewed buying and hit new swing highs. From the daily chart we see that this rise has triggered a fresh buy signal and also put an end to the last many sessions sideways consolidation. Consider going long here.




Buy above 435

3.5 points

441 / 445 / 448

Or dip near 429-28

3.5 points

434 / 438-39

Stocks to sell if market is weak:

GODREJ IND Last session saw this counter form a minor double top at a crucial valuation resistance around 235 levels and crashed out heavily last session. This has also led RSI to form a top at 60 and plunge lower. Supports are now in danger of being broken. Sell.




Sell below 221

2.5 points

217 / 215-14

Rise near 225

2.5 points

221 / 219




Buy Renuka above 75 for target of 77 / 78 and stop below 73.9

Sell Central Bank below 123 for target of 120.50/119 stop above 124.5

Stocks in action for the day: Cairn India, SKS Micro, Alstom Projects, MRPL, TTML, Orient Paper.

Cairn India CEO says -Most of the hit on account of royalty of USD 289 million is for FY12 -15-16% of net revenues to be paid as royalty -Royalty to have direct impact on revenues & bottomline -Gross royalty payable is USD 330 million Cairn India says -To seek shareholder nod for considering GoI conditions -Royalty payable under PSC is cost-recoverable -Company withdraws arbitrations w.r.t payment of cess -If royalty cost-recoverable, Q1 revenues would be down by Rs 1,291.6 crore -Q1 numbers are net of estimated share of profit petroleum of Rs 187.6 crore

Orient Paper board meet today for restructuring ((Stock up 10% yesterday, likely to separate paper and cement business, CK Birla to address press))

IPO Corner: L&T Finance Holdings , which will issue 21-24 crore shares with a price range of 51-59/sh, opens today

Govt restores DEPB sops for cotton, cotton yarn export

SKS Microfinance
board approves QIP of Rs 900 crore by issue of equity shares to QIB's

Alstom Projects YoY (cr - crore, vs - versus) -Total income down 20% at Rs 287.18 cr vs Rs 358.37 cr -PAT down 80% at Rs 6.3 cr vs Rs 31.51 cr ((PAT boosted by higher 'other income')) EBITDA down 90% at Rs 5.18 cr vs Rs 50.65 cr ((EBITDA positive due to higher depreciation; company incurred loss of Rs 6.96 cr at EBIT level)) -OPM at 1.80% vs 14.13% *** Other Income up 1.10 times at Rs 16.28 cr vs Rs 7.74 cr -Employee costs up 28% at Rs 93.6 cr vs Rs 73.15 cr-Power segment revenues down 18% at Rs 277.46 cr; EBIT down 99% at Rs 47 lakh -Transport revenues down 47% at Rs 10.81 cr; EBIT: company incurred loss of Rs 6.34 cr vs loss of Rs 27 lakh

TTML Q1 -Net loss at Rs 119 cr vs loss of Rs 309.9 cr (QoQ) -Net sales up 2% at Rs 585 cr (QoQ)

Seamec Q1 -Net profit at Rs 8.6 cr Vs loss of Rs 22.7 cr (YoY) -Net sales at Rs 46 cr vs Rs 24.9 cr (YoY)

MRPL Q1FY12 YoY -Net sales up 70% at Rs 13369 cr vs Rs 7877 cr -PAT up 5.2 times at Rs 173 cr vs Rs 28 cr -EBITDA up 1.8 times at Rs 223 cr vs Rs 80 cr

SKS Microfinance Q1FY12 QoQ -Income from operations down 12% at Rs 150 cr vs Rs 171 cr
-Net loss at Rs 219 cr vs net loss at Rs 70 cr -Total expenditure up 40% at Rs 297 cr vs Rs 212 cr

Thomas Cook India Q1FY12 -Income from operations up 16% at Rs 106 cr vs Rs 91 cr -PAT up 40% at Rs 21 cr vs Rs 15 cr -EBITDA margin 34% vs 32%

Opto Circuits Q1FY12 -Net sales up 78% at Rs 521 cr vs Rs 292 cr -PAT up 40% at Rs 116 cr vs Rs 83 cr -EBITDA up 47% at Rs 143 cr vs Rs 97 cr -EBITDA margin at 27.45% vs 33.2%

Lumax Auto Q1FY12 consolidated YoY -Net sales up 37% at Rs 187 cr vs Rs 137 cr -PAT up 63% at Rs 13 cr vs Rs 8 cr

Welspun Syntex Q1FY12 -Net sales up 29% at Rs 134 cr vs Rs 104 cr -PAT up 33% at Rs 4 cr vs Rs 3 cr

Merck Q2FY12 -Net sales up 26% at Rs 152 cr vs Rs 121 cr -PAT down 5% at Rs 17.6 cr vs Rs 18.5 cr -EBITDA margin at 9.87% vs 14.88%

Great Offshore Q1FY12 -Total income from operations up 18% at Rs 282 cr vs Rs 239 cr -PAT doubled at Rs 55 cr vs Rs 27 cr -EBITDA Margin at 60.28% vs 41.42% INEOS ABS Q1FY12
-Net sales up 15% at Rs 206 cr vs Rs 179 cr -PAT up 14% at Rs 16 cr vs Rs 14 cr

F&O ban: ABG Shipyard, Kingfisher Airlines, Suzlon

RBI rate rise to hit auto industry

NAC to discuss NREGS, denotified tribes this week

US lawmakers deadlocked over deal default looms

Singapore's GIC increases exposure to emerging markets

Noida land acquisition: HC defers hearing to Aug 17


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