Ved Prakash Chaturvedi, MD at Tata Mutual Fund said that because of crude, inflation and pressure growth rates markets, may not recover right now. He believes that the market will see some of the lows seen earlier. He does not anticipate a huge crash right now as he expects a consolidation phase. And here the markets may probably see the levels of index seen in March, again, Chaturvedi added.
Excerpts from CNBC-TV18's exclusive interview with Ved Prakash Chaturvedi:
Q: Will we get away with these sort of levels or do you think that the March lows are now looming large over us?
A: Given the context of what is happening to crude prices worldwide and inflation in India; pressures on growth rates etc, it is difficult to be extremely sanguine about a recovery from here. I expect that we will see some of the lows seen earlier. But I don’t anticipate a huge crash. I think gradually there would be a consolidation phase where we may probably see the levels of the Index that we have seen in March again.
Q: How are you reading the political turf right now after the results of Karnataka elections and the kind of noises you have been hearing, do you think we should expect things to be sticky, politically from a stock market perspective?
A: You are absolutely right. I have been seeing this for some time - that as we move towards December and the election period, I think the noise from the electoral politics will start dominating. We have seen some early signs of that. As it happens many times in the market, good and adverse news comes at the same time. But at this point of time, most of the adverse news is coming together. The good thing out of all this is that most probably the markets will bottom out before say the newsflow or the economy does. We will have to anticipate that and keep our faith and advice investors to get invested at an appropriate time.
Q: What about the kind of actions that are being considered because of what has happened with crude prices? From a market perspective, how would you read this stock of a cess on taxes?
A: Any of this will certainly not be positive for earnings and hence for the market. So I would suspect that markets would show some concern. There is enormous concern about the fact that the recent almost doubling of crude prices has not been passed onto consumers in India. There is a deficit bubble building up there which at some point of time will have to get passed on and will cause its own dynamics. So as I said earlier, it is very difficult to be sanguine in this scenario.
Also what we will have to look forward and wait for is this entire increase in crude prices to have an impact on economic growth of the world. As economic growth slows down, crude prices will come down. Also the US elections and our own elections towards maybe early part of next year will be behind us. We can hope for a good period then.
Q: What about the sector that has got punished the most - banking? Do you see value there or do you think the headwinds will peg these stocks back further?
A: The value is certainly emerging there. But also the reality of the situation right now is that this is a sector unlikely to come back into focus right away; primarily because there is going to be an upward bias in interest rates if inflation trend remains where they are and which is likely.
There will remain enormous pressure on prices in the sector, which is a delight for value stock-pickers. But we will have to wait for sometime for this value to get unlocked. This year will go down as a year when the market consolidates and digests some of the bad news that came in the way. As we move towards early part of next year, we can hope for a period of good cheer for banking and the other sectors.
Q: How would you approach cement, now that the export ban has been scaled back to a certain quantity and only for one State - but as a sector how are you feeling about it?
A: We feel that prices are bottoming out. We are positive on construction-oriented sectors and we are long-term positive on this sector.
Q: What is the biggest risk to this market according to you from all the factors that you outlined? Is it global, is it inflation, is it politics, what is the single biggest factor that probably can knock us to levels even lower than March and January?
A: The good thing in this entire period has been the resilience that the domestic investor has seen. I can say for our own and for the industry that almost through this entire period of volatility, the investors have still been putting money. That resilience is certainly very important and has lent some stability to the market. The headwind has really come from overseas and that is where the real risk lies.
Oil prices keep going up or if they do not come down from here, if inflation continues to go up, if there is a cascading impact of all that in developed world and in emerging economies, it may lead to a significant slowdown of economic growth. Hence a loss of risk logs a pullout of money; we have seen some early signs of that already. All these will not be very positive for emerging economies in general and certainly for India. The real risk lies there and that is what we have to keep eye out on for the moment.
Disclosure: It is safe to assume that Tata Mutual Funds or I personally may have positions in the stocks/sectors discussed today.
Source: Moneycontrol.com
Wednesday, May 28, 2008
Market may see 4-5% bounce back in short term
Anish Damani of Emkay Stock Brokers said that this years lows may be retested but in the short term we may see a slight bounce back of 4%-5%. He rues that, with SBI increasing their deposit rates, others may have to follow suit and compromise a bit on the NIMs. He sees a slow down in infrastructure and construction spaces due to the rising crude prices.
Excerpts from CNBC-TV18's exclusive interview with Anish Damani:
Q: What is your gut feeling going by the macroeconomic fundamentals at this point in time? The price of crude is a little softer than what it was yesterday but it still looks ugly. The staring fiscal deficit, the oil bonds and of course the potential pressure on inflation and interest rates. Does it look that the year’s lows will be retested?
A: If this continues for some more time you might see the lows retested. But in the very short-term we might actually look in for a bounce back of about 4-5% where you might take a fresh view and still see if those same factors continue to persist.
Q: Sectorally where will the bounce come? What about banks? The bank index has taken the worst knock if you compare it across sectors?
A: In banking, there are couple of things that have happened. One is the fact that oil bonds are sucking out some of the liquidity from the system. Secondly the State Bank of India (SBI) has raised its deposit rates post the Cash Reserve Ratio (CRR) hike. All other banks were looking at cutting down on deposit rates to compensate further increase cost of funding. This will put a pressure on Net Interest Margin (NIM). So we were looking at a kind of a scenario where NIMs would have remained constant or improved. But now, with SBI increasing their deposit rates, others may have to follow suit and compromise a bit on the NIMs.
Q: What is your view on the infrastructure and construction space? Basically any space dependent on government orders with the current fiscal pressure. Do you expect any slowdown in your orders going forward in these spaces?
A: There is a possibility, with the way the crude prices are heading. Firstly, there is the issue of the deficit on the oil account and the inaction of the government to pass it on. Secondly the fertiliser subsidy and thirdly, the additional farm loan waiver. So there is a lot of pressures on the fiscal side and there could be some crowding out of the investments which could result in a slowdown, should these factors continue for some more time.
Q: Your view on these two sectors fertiliser and cement they have been in the news lately due to government action?
A: If you look at fertilisers the new policy has been talked about several times over the last one-year. So we will wait to see as to what would happen there. What kind of a price jump will it entail if that comes in for the farmers. It will take some more time before the cost could come down for a lot of them. It’s positive for a sector over a longer timeframe but we need to see that policy come in really.
Q: What will you buy now? Or will you not but at all?
A: I will still buy telecom, some of the IT stocks, Pharmaceuticals, FMCG and a sprinkling of stocks in the infrastructure sector and banks.
Source: Moneycontrol.com
Excerpts from CNBC-TV18's exclusive interview with Anish Damani:
Q: What is your gut feeling going by the macroeconomic fundamentals at this point in time? The price of crude is a little softer than what it was yesterday but it still looks ugly. The staring fiscal deficit, the oil bonds and of course the potential pressure on inflation and interest rates. Does it look that the year’s lows will be retested?
A: If this continues for some more time you might see the lows retested. But in the very short-term we might actually look in for a bounce back of about 4-5% where you might take a fresh view and still see if those same factors continue to persist.
Q: Sectorally where will the bounce come? What about banks? The bank index has taken the worst knock if you compare it across sectors?
A: In banking, there are couple of things that have happened. One is the fact that oil bonds are sucking out some of the liquidity from the system. Secondly the State Bank of India (SBI) has raised its deposit rates post the Cash Reserve Ratio (CRR) hike. All other banks were looking at cutting down on deposit rates to compensate further increase cost of funding. This will put a pressure on Net Interest Margin (NIM). So we were looking at a kind of a scenario where NIMs would have remained constant or improved. But now, with SBI increasing their deposit rates, others may have to follow suit and compromise a bit on the NIMs.
Q: What is your view on the infrastructure and construction space? Basically any space dependent on government orders with the current fiscal pressure. Do you expect any slowdown in your orders going forward in these spaces?
A: There is a possibility, with the way the crude prices are heading. Firstly, there is the issue of the deficit on the oil account and the inaction of the government to pass it on. Secondly the fertiliser subsidy and thirdly, the additional farm loan waiver. So there is a lot of pressures on the fiscal side and there could be some crowding out of the investments which could result in a slowdown, should these factors continue for some more time.
Q: Your view on these two sectors fertiliser and cement they have been in the news lately due to government action?
A: If you look at fertilisers the new policy has been talked about several times over the last one-year. So we will wait to see as to what would happen there. What kind of a price jump will it entail if that comes in for the farmers. It will take some more time before the cost could come down for a lot of them. It’s positive for a sector over a longer timeframe but we need to see that policy come in really.
Q: What will you buy now? Or will you not but at all?
A: I will still buy telecom, some of the IT stocks, Pharmaceuticals, FMCG and a sprinkling of stocks in the infrastructure sector and banks.
Source: Moneycontrol.com
Friday, May 23, 2008
Which are the stocks to watch out for?
The markets ended the week on a weak note. Selling pressure erased early gains and the markets closed deep in the red. Nifty closed at 4,949 down 77 points, while the Sensex shut shop at 16,650 down 257 points.
E Mathew, Director, Mathew Easow Fiscal Services said, “We are just clutching on to the last straws and it is important that we close above the higher bottom formation, which is at 4,950 actually. It is important that we close above that level. It is essential that we do not create an intra-day low below 4,913. This uptrend would certainly be vitiated if your stop loss unfortunately is around 4,800. Below 4,800, one can just forget about this uptrend. But there is still a glimmer of hope if we close above 4,950. During this week, we had so many negative factors from crude to inflation figures, etc. The market is taking a toll on the technicals as well. Bull markets are born amidst a tremendous fear and they thrive on pessimism. So let us hope that this is part of that”, he stated.
E Matthew is negative on Reliance Capital and ITC.
Here's how E Matthew views the stocks on board:
On ITC:
ITC has been one of the biggest culprits for the fall. Yesterday’s closing was at Rs 223. By Monday, it will possibly head towards a 10% fall. If ITC closes decisively below Rs 213 today, it has the potential of going down to as low as Rs 202.
On Cairn:
Cairn is not looking so weak. It is a profit-taking stock and has run up substantially. In this correction, one should deem it as normal. If Cairn comes down as low as Rs 292-295, that should not be taken as a sign of weakness. But, all these moments have their impact on the Nifty.
On Reliance Capital:
This stock is not looking as weak as some of its peers from the same sector. But it is not clear what sort of a trading stop loss one would keep on this stock. The nearest support looks like Rs 1,260. So, with that sort of a strong support zone, a buy would not be initiated but may be on declines one could look at this with a very tight stop loss of around Rs 1,250 or Rs 1,260. As of now, its best to avoid this. Those who are holding this stock may sell out now and try to repurchase it.
Disclosures: It is safe to assume that I may be discussing stocks in which my associate company or clients may have trading positions.
Source: Moneycontrol.com
E Mathew, Director, Mathew Easow Fiscal Services said, “We are just clutching on to the last straws and it is important that we close above the higher bottom formation, which is at 4,950 actually. It is important that we close above that level. It is essential that we do not create an intra-day low below 4,913. This uptrend would certainly be vitiated if your stop loss unfortunately is around 4,800. Below 4,800, one can just forget about this uptrend. But there is still a glimmer of hope if we close above 4,950. During this week, we had so many negative factors from crude to inflation figures, etc. The market is taking a toll on the technicals as well. Bull markets are born amidst a tremendous fear and they thrive on pessimism. So let us hope that this is part of that”, he stated.
E Matthew is negative on Reliance Capital and ITC.
Here's how E Matthew views the stocks on board:
On ITC:
ITC has been one of the biggest culprits for the fall. Yesterday’s closing was at Rs 223. By Monday, it will possibly head towards a 10% fall. If ITC closes decisively below Rs 213 today, it has the potential of going down to as low as Rs 202.
On Cairn:
Cairn is not looking so weak. It is a profit-taking stock and has run up substantially. In this correction, one should deem it as normal. If Cairn comes down as low as Rs 292-295, that should not be taken as a sign of weakness. But, all these moments have their impact on the Nifty.
On Reliance Capital:
This stock is not looking as weak as some of its peers from the same sector. But it is not clear what sort of a trading stop loss one would keep on this stock. The nearest support looks like Rs 1,260. So, with that sort of a strong support zone, a buy would not be initiated but may be on declines one could look at this with a very tight stop loss of around Rs 1,250 or Rs 1,260. As of now, its best to avoid this. Those who are holding this stock may sell out now and try to repurchase it.
Disclosures: It is safe to assume that I may be discussing stocks in which my associate company or clients may have trading positions.
Source: Moneycontrol.com
Sell Reliance Capital
Technical Analyst, E Mathew is suggests to sell Reliance Capital.
Mathew told CNBC-TV18, "Reliance Capital is not looking as weak as some of its peers from the same sector. But honestly I don’t know what sort of a trading stoploss one would keep in this. That is the difficult point because to me the nearest support looks like about Rs 1260, so with that sort of a strong support zone, at least I wouldn’t initiate a buy but maybe on declines one could look at this with a very tight stoploss of around Rs 1250 or Rs 1260. But as of now its best to ignore this and those who are holding this stock may sell out now and try to repurchase it."
Disclosure: It is safe to assume that in the above stock analyst's associate company/clients/I may have trading positions.
Source: Moneycontrol.com
Mathew told CNBC-TV18, "Reliance Capital is not looking as weak as some of its peers from the same sector. But honestly I don’t know what sort of a trading stoploss one would keep in this. That is the difficult point because to me the nearest support looks like about Rs 1260, so with that sort of a strong support zone, at least I wouldn’t initiate a buy but maybe on declines one could look at this with a very tight stoploss of around Rs 1250 or Rs 1260. But as of now its best to ignore this and those who are holding this stock may sell out now and try to repurchase it."
Disclosure: It is safe to assume that in the above stock analyst's associate company/clients/I may have trading positions.
Source: Moneycontrol.com
Markets consolidating, not heading downward
Eoin Treacy, Global Strategist, Fullermoney.com, said both the Sensex and Nifty have re-tested their March supports. "They certainty haven't led on the upside as has been the case in the past. It looks like that this is just going to be a longer consolidation. I continue to believe that the January and March lows will hold but the recovery or convalescence is going to take a little bit longer on this occasion. It is just a case of time rather than that an extension pattern before the market moves lower."
Excerpts from CNBC-TV18’s exclusive interview with Eoin Treacy:
Q: Where do you see the Sensex and Nifty headed?
A: Both the Sensex and Nifty have re-tested their March supports. This has been a bit of a slow-burn recovery for the Indian markets. They certainty haven't led on the upside as has been the case in the past. It looks like that this is just going to be a longer consolidation. I continue to believe that the January and March lows will hold but the recovery or convalescence is going to take a little bit longer on this occasion.
A number of other markets in Asia have successfully tested their January lows and are trading well above those levels. They have gone onto make further highs, i.e above their February highs, and India hasn't quite done that yet. So, it is lagging. I do believe that it is just a case of time rather than that an extension pattern before the market moves lower.
Q: What about global markets? We have seen quite a bit of retracement in Dow and some of the other emerging markets this week. Do you think the rally of the last couple of months is stalling there or is this just a pullback?
A: This is probably just a pullback. We have definitely seen that particularly with the Dow, S&P and Nasdaq, the pullback over the last three days has been really quite sharp. So, it has capped the advance in the short-term.
We are probably in for a couple of weeks of consolidation here. The price of oil is on everyone’s lips at the moment and oil remains very consistent. As long as oil prices continue to push upward, that is going to be headwind for stock markets globally.
Q: What do you see on the charts for crude?
A: Crude remains remarkably consistent. When you look at the charts there you see a remarkable staircase and a step sequence. No step has dipped back into the other. The trend is starting to pick up pace. We cannot say when this move is going to end. But we know that we are approaching an ending because it is picking up pace.
It is looking like we are going to see further acceleration in the oil price and it would really need quite a sizable downward reaction to offset scope for that to move significantly higher.
Source: Moneycontrol.com
Excerpts from CNBC-TV18’s exclusive interview with Eoin Treacy:
Q: Where do you see the Sensex and Nifty headed?
A: Both the Sensex and Nifty have re-tested their March supports. This has been a bit of a slow-burn recovery for the Indian markets. They certainty haven't led on the upside as has been the case in the past. It looks like that this is just going to be a longer consolidation. I continue to believe that the January and March lows will hold but the recovery or convalescence is going to take a little bit longer on this occasion.
A number of other markets in Asia have successfully tested their January lows and are trading well above those levels. They have gone onto make further highs, i.e above their February highs, and India hasn't quite done that yet. So, it is lagging. I do believe that it is just a case of time rather than that an extension pattern before the market moves lower.
Q: What about global markets? We have seen quite a bit of retracement in Dow and some of the other emerging markets this week. Do you think the rally of the last couple of months is stalling there or is this just a pullback?
A: This is probably just a pullback. We have definitely seen that particularly with the Dow, S&P and Nasdaq, the pullback over the last three days has been really quite sharp. So, it has capped the advance in the short-term.
We are probably in for a couple of weeks of consolidation here. The price of oil is on everyone’s lips at the moment and oil remains very consistent. As long as oil prices continue to push upward, that is going to be headwind for stock markets globally.
Q: What do you see on the charts for crude?
A: Crude remains remarkably consistent. When you look at the charts there you see a remarkable staircase and a step sequence. No step has dipped back into the other. The trend is starting to pick up pace. We cannot say when this move is going to end. But we know that we are approaching an ending because it is picking up pace.
It is looking like we are going to see further acceleration in the oil price and it would really need quite a sizable downward reaction to offset scope for that to move significantly higher.
Source: Moneycontrol.com
Experts see markets trading volatile, rangebound
The markets ended the week on a weak note. Selling pressure erased early gains and the markets closed deep in the red. The Nifty closed at 4,949 down 77 points, while the Sensex shut shop at 16,650 down 257 points.
This Week, the Sensex and Nifty ended down 4.5% and 4.1% respectively. On a weekly basis, the major lossers are Jaiprakash Associates down 12%, and HCC sown 11%.
Deven Choksey of KR Choksey Securities said the market would trade rangebound between 16,000 and 17,500 next month. "As long we are at 16,000, it would be comfortable. If it goes below16,000, we are heading for bigger trouble. The range from 16,000-17,500 would be the broader range for the market next month. There is also some amount of softening in crude oil prices that would take place. So, the upside would be around 17,300 on the Sensex. The downside would probably be around 16,300.”
If crude oil starts cooling down, we will see lot of confidence coming back into the market, he said. “There is a lack of trust or faith in the market and not much of participation. It is practically a dull market as of now for us and there is not much volume.”
Rahul Mohindar of viratechindia.com said with 5,070 broken, it sets a negative trend, and with 5,010-5,020 zone also breaking intraday, it further adds to the turmoil. “On the downside, the short-term charts indicate that we would possible head to 4,920 and below that to 4,830. We are not coming to any major conclusion. We are going to attempt a re-test of previous lows. I don’t think this is heading in for that unless it really breaks about 4,830 levels. A short-term trader would be trying to trade the downside now.”
According to Mohindar, a Nifty trader should definitely exit if one has any long positions in the short-term. “If one is attempting anything, certainly try and stay light and short.”
He sees support reemerging around 4,930-4,940 on the Nifty. “It is just the short-term turmoil. There is some nervous pressure, which obviously is going to be there. We will be locked with this volatility till then.”
E Mathew, Director, Mathew Easow Fiscal Services, said it was important for the Nifty to close above 4,950. "This uptrend would certainly be vitiated if your stop loss unfortunately is at around 4,800. Below 4,800, one can just forget about this uptrend. But even now there is still a glimmer of hope. There is still hope because this week we had so many negative factors from crude to inflation and even the drama, which is going on at the petroleum ministry etc. All that together is taking a toll on the technicals of the market too. But I do not know whether this fits into this technical show. I would just like to say that bull markets are born amid tremendous fear and they thrive on pessimism. So, let us hope that this is part of that."
Eoin Treacy, Global Strategist, Fullermoney.com, said both the Sensex and Nifty have re-tested their March supports. "They certainty haven’t led on the upside as has been the case in the past. It looks like that this is just going to be a longer consolidation. I continue to believe that the January and March lows will hold but the recovery or convalescence is going to take a little bit longer on this occasion. It is just a case of time rather than that an extension pattern before the market moves lower."
Source: Moneycontrol.com
This Week, the Sensex and Nifty ended down 4.5% and 4.1% respectively. On a weekly basis, the major lossers are Jaiprakash Associates down 12%, and HCC sown 11%.
Deven Choksey of KR Choksey Securities said the market would trade rangebound between 16,000 and 17,500 next month. "As long we are at 16,000, it would be comfortable. If it goes below16,000, we are heading for bigger trouble. The range from 16,000-17,500 would be the broader range for the market next month. There is also some amount of softening in crude oil prices that would take place. So, the upside would be around 17,300 on the Sensex. The downside would probably be around 16,300.”
If crude oil starts cooling down, we will see lot of confidence coming back into the market, he said. “There is a lack of trust or faith in the market and not much of participation. It is practically a dull market as of now for us and there is not much volume.”
Rahul Mohindar of viratechindia.com said with 5,070 broken, it sets a negative trend, and with 5,010-5,020 zone also breaking intraday, it further adds to the turmoil. “On the downside, the short-term charts indicate that we would possible head to 4,920 and below that to 4,830. We are not coming to any major conclusion. We are going to attempt a re-test of previous lows. I don’t think this is heading in for that unless it really breaks about 4,830 levels. A short-term trader would be trying to trade the downside now.”
According to Mohindar, a Nifty trader should definitely exit if one has any long positions in the short-term. “If one is attempting anything, certainly try and stay light and short.”
He sees support reemerging around 4,930-4,940 on the Nifty. “It is just the short-term turmoil. There is some nervous pressure, which obviously is going to be there. We will be locked with this volatility till then.”
E Mathew, Director, Mathew Easow Fiscal Services, said it was important for the Nifty to close above 4,950. "This uptrend would certainly be vitiated if your stop loss unfortunately is at around 4,800. Below 4,800, one can just forget about this uptrend. But even now there is still a glimmer of hope. There is still hope because this week we had so many negative factors from crude to inflation and even the drama, which is going on at the petroleum ministry etc. All that together is taking a toll on the technicals of the market too. But I do not know whether this fits into this technical show. I would just like to say that bull markets are born amid tremendous fear and they thrive on pessimism. So, let us hope that this is part of that."
Eoin Treacy, Global Strategist, Fullermoney.com, said both the Sensex and Nifty have re-tested their March supports. "They certainty haven’t led on the upside as has been the case in the past. It looks like that this is just going to be a longer consolidation. I continue to believe that the January and March lows will hold but the recovery or convalescence is going to take a little bit longer on this occasion. It is just a case of time rather than that an extension pattern before the market moves lower."
Source: Moneycontrol.com
Thursday, May 22, 2008
Avoid tea stocks
Technical Analyst, Ashwani Gujral is of the view that one can ignore tea stocks.
Gujral told CNBC-TV18, "I would avoid tea stocks because they tend to have these sporadic moves but generally there is very little follow through. I think the best spaces remain oil and gas and technology that have a basic macro figure, which is driving these stocks."
Source: Moneycontrol.com
Gujral told CNBC-TV18, "I would avoid tea stocks because they tend to have these sporadic moves but generally there is very little follow through. I think the best spaces remain oil and gas and technology that have a basic macro figure, which is driving these stocks."
Source: Moneycontrol.com
Stay away from Axis Bank, Kotak Mahindra
Technical Analyst, Ashwani Gujral is of the view that one can stay away from Axis Bank, Kotak Mahindra. They are underperforming; most of them are below their 200 Exponential Moving Average (EMA). So basically these stocks are sideways. Kotak Mahindra Bank is range bound between Rs 600 and Rs 850, Axis Bank is range bound between Rs 800 and Rs 950.
Gujral told CNBC-TV18, "Axis Bank, Kotak Mahindra are underperforming; most of them are below their 200 Exponential Moving Average (EMA). So basically these stocks are sideways. Kotak Mahindra Bank is range bound between Rs 600 and Rs 850, Axis Bank is range bound between Rs 800 and Rs 950. So all these inflation link stocks are probably stocks that people need to keep away from, they still need a lot more bottoming out and right now the spaces to be in is oil & gas and probably technology."
Source: Moneycontrol.com
Gujral told CNBC-TV18, "Axis Bank, Kotak Mahindra are underperforming; most of them are below their 200 Exponential Moving Average (EMA). So basically these stocks are sideways. Kotak Mahindra Bank is range bound between Rs 600 and Rs 850, Axis Bank is range bound between Rs 800 and Rs 950. So all these inflation link stocks are probably stocks that people need to keep away from, they still need a lot more bottoming out and right now the spaces to be in is oil & gas and probably technology."
Source: Moneycontrol.com
Sensex to trade in 15k-17k range
Nirav Sheth of Brics Securities expects the Sensex to trade rangebound between 15,000 and 17,000. " We believe the Sensex could evolve between 15,000 to about 17,000. This is obviously based on our static view in terms of no abnormal movements in the prices of oil."
Excerpts from CNBC-TV18’s exclusive interview with Nirav Sheth:
Q: How are you feeling about the banking space and the kind of nervousness that has come in especially for some of the private sector banks?
A: The banking space remains a very good secular story. But there are some genuine concerns in terms of what could happen in the short-term, given the worst that you are seeing in crude oil. If you try and run through some basic numbers in terms of the impact on fiscal deficit, you will need some incremental USD 70-80 million of funding that is required to be there. Suddenly, that opens a sort of a pandora because how do you start funding this kind of gaps. Eventually, you have to go back to banks in terms of higher Statutory Liquidity Ratio and therefore you start extrapolating.
Just about six months back, you are in a position where you could have presumed that you would look at SLRs coming down. Now, we will start speculating whether SLRs can actually increase because who is going to fund the fiscal deficits. There are some tactical issues as far as the banks are concerned. The fact to the matter is that no one has a clue in terms of where the run up in oil is going to end.
Q: Where do you stand on Cairn and the big run there?
A: We did some calculations and the implied valuations in Cairn tells you that you will have to assume a price of about USD 140 over the life of the reserve. To me, that is building or trying to see too much out into the future. I would hazard a guess that probably the stock is overvalued and right now it seems to be a good hedge against rising oil prices.
Q: The inflation figure comes in tomorrow. What’s keeping the markets most nervous right now between all those moving parts of inflation, currency, and crude?
A: The underlying factor, which is driving almost all of these things together, seems to be crude oil. Due to the leg up, eventually there is a tendency to filter into inflation, be it the headline inflation numbers. If you try and look at the core inflation figures, excluding maybe food and energy, then there is not a serious reason to get worried about it.
Also, the fact that credit growth has slowed down. I am not really worried as far as interest rates are concerned. This assumes a static scenario in which oil doesn’t overshoot and get into some abnormal territory. If that happens then with the lead or leg, we will have to see their problems. This time around, there seems to be a great disconnect in terms of how oil is moving and now the economies globally are performing.
Almost every country globally like China, India, US, Europe, among others is decelerating. Therefore, it seems slightly hard to explain the pace of rise in crude oil. I would also tend to believe at some point of time that it will itself start acting as a regulating factor. Probably, crude oil at some point of time will reach a price which will start chocking growth itself. We will probably be getting into an area where growth is going to slow down, and the headline inflation is going to remain strong. Those would remain headwinds for the equity markets in general going forward.
Q: What’s a range that you are working with right now for the Nifty?
A: We believe the Sensex could evolve between 15,000 to about 17,000. This is obviously based on our static view in terms of no abnormal movements in the prices of oil. We would tend to believe that earnings growth will decelerate going into the second half, which would be offset by a very strong blow up sometime into FY10. A lot of things will change if you try and look one year out. I would expect the current PE to only origin at about 15 to 16 times. Again this is based on the view that interest rates by and large would remain stable. So, we are looking at a fairly tight range going forward over the next one-year or so.
Disclosure: It is safe to assume that we have got a vested interest in the stocks or sectors discussed.
Source: Moneycontrol.com
Excerpts from CNBC-TV18’s exclusive interview with Nirav Sheth:
Q: How are you feeling about the banking space and the kind of nervousness that has come in especially for some of the private sector banks?
A: The banking space remains a very good secular story. But there are some genuine concerns in terms of what could happen in the short-term, given the worst that you are seeing in crude oil. If you try and run through some basic numbers in terms of the impact on fiscal deficit, you will need some incremental USD 70-80 million of funding that is required to be there. Suddenly, that opens a sort of a pandora because how do you start funding this kind of gaps. Eventually, you have to go back to banks in terms of higher Statutory Liquidity Ratio and therefore you start extrapolating.
Just about six months back, you are in a position where you could have presumed that you would look at SLRs coming down. Now, we will start speculating whether SLRs can actually increase because who is going to fund the fiscal deficits. There are some tactical issues as far as the banks are concerned. The fact to the matter is that no one has a clue in terms of where the run up in oil is going to end.
Q: Where do you stand on Cairn and the big run there?
A: We did some calculations and the implied valuations in Cairn tells you that you will have to assume a price of about USD 140 over the life of the reserve. To me, that is building or trying to see too much out into the future. I would hazard a guess that probably the stock is overvalued and right now it seems to be a good hedge against rising oil prices.
Q: The inflation figure comes in tomorrow. What’s keeping the markets most nervous right now between all those moving parts of inflation, currency, and crude?
A: The underlying factor, which is driving almost all of these things together, seems to be crude oil. Due to the leg up, eventually there is a tendency to filter into inflation, be it the headline inflation numbers. If you try and look at the core inflation figures, excluding maybe food and energy, then there is not a serious reason to get worried about it.
Also, the fact that credit growth has slowed down. I am not really worried as far as interest rates are concerned. This assumes a static scenario in which oil doesn’t overshoot and get into some abnormal territory. If that happens then with the lead or leg, we will have to see their problems. This time around, there seems to be a great disconnect in terms of how oil is moving and now the economies globally are performing.
Almost every country globally like China, India, US, Europe, among others is decelerating. Therefore, it seems slightly hard to explain the pace of rise in crude oil. I would also tend to believe at some point of time that it will itself start acting as a regulating factor. Probably, crude oil at some point of time will reach a price which will start chocking growth itself. We will probably be getting into an area where growth is going to slow down, and the headline inflation is going to remain strong. Those would remain headwinds for the equity markets in general going forward.
Q: What’s a range that you are working with right now for the Nifty?
A: We believe the Sensex could evolve between 15,000 to about 17,000. This is obviously based on our static view in terms of no abnormal movements in the prices of oil. We would tend to believe that earnings growth will decelerate going into the second half, which would be offset by a very strong blow up sometime into FY10. A lot of things will change if you try and look one year out. I would expect the current PE to only origin at about 15 to 16 times. Again this is based on the view that interest rates by and large would remain stable. So, we are looking at a fairly tight range going forward over the next one-year or so.
Disclosure: It is safe to assume that we have got a vested interest in the stocks or sectors discussed.
Source: Moneycontrol.com
Wednesday, May 21, 2008
See strength in mkts; worst may be behind
Rajiv Anand of Standard Chartered Mutual Fund said there seems to be some strength in the markets. Wall Street experts seem to be indicating that the worst may be behind us.
The move on the rupee has been vicious, he opines. Fundamentally, the fairly large oil demand has pushed the rupee up. Given that, the monetary policy needs to be tight. The balance between growth and inflation is what one is contending.
Excerpts from CNBC-TV18’s exclusive interview with Rajiv Anand:
Q: What do you think? Is the global rally about to snap or are we still on a nice little uptrend for all global equities including ours?
A: There seems to be some strength. When you mean global, I would imagine you are talking about the Dow here. If one looks at the anecdotal numbers around the Dow, one is seeing that there is strength, VIX (Volatility Index) is at ten months lows, the transportation index, which is typically the frontrunner to the economy, in a sense is seeing significant strength. Of course, the financial services still continues to remain below the 200-day moving average. So put together, there seems to be some strength in the Dow.
If we hear the so called experts on the Wall Street, they seem to be indicating that “the worst seems to be behind us” and therefore to that extent, the only pall of gloom is coming not so much from commodities any more but oil because most of the other commodities around us have corrected fairly significantly especially within the soft commodity basket. So the only dampener is oil.
Q: Currency has been quite dramatic as well. There is hurried-scurried move towards the 43 to a dollar mark. Are you surprised by what’s happened in the money market and has that changed your call on some sectors in the equity market?
A: I think the move on rupee is been vicious; in the same manner the market didn’t quite see it going down 39.25 to a dollar. I think the move back up from 39 to a dollar-odd to almost 43 to a dollar today was also quite unexpected. Fundamentally speaking the fact that there is not too much of inflows coming in and on the other side fairly large oil demand is pushing the rupee up.
I think the problem within the money market is the fact that inflation is at 7.8% odd but actually the numbers are probably closer to 8.5% and given that the bias is for the monetary policy to be tight. The balancing act there is how to control inflation but given the fact that the growth numbers are not looking as exciting any more the balance between growth and inflation is what one is contending.
So I don’t think one can be too bearish on interest rates at this point in time because on side incremental inflation is beginning to come off albeit oil being where it is but remember there isn’t too much of pass through of that and growth which is weakening. So one cannot be too bearish on interest rates but on the other side inflationary expectation and the current RBI policy cannot get you too bullish on interest rate either.
Q: How would you approach something like a Cairn amongst the entire energy basket?
A: If you look at the private sector guys, it is a pure play on where crude is going. But even within the public sector space I think clearly the problem is quite large at this point in time, they are all trading well below - they are all classic value stocks. I think the incremental problem is not going to get resolved by issuance of oil bonds etc. So I think it is a reasonably good bet to play for some policy action on especially the public sector guys because on the margin they cannot survive at the way things have been going on over the last couple of years. So something needs to be done and I think that is something that one can clearly play for.
Q: Which of these sectors, which have got beaten quite a bit, does it make sense to take a contrarion trade in right now; cement, banks or real estate?
A: Among those three, if I were to put my money, it would be banks and cement in that order. I think in banks, there has been a fair amount of negative news, inflation, the noise about the credit cycle is also beginning to increase the case in point about farm loans yesterday. But I think much of that is in the price. Most of the public sector banks are trading at about one-time book; so to that extent, fairly beaten down and worth looking at. Similarly the cement side as well - perhaps cement prices could get capped but even if they do get capped, the EBITDA numbers that you are looking at are still very attractive, many of them are trading now at below replacement cost. So I think cement and banking financials are two sectors that one could look at.
Q: For the next month or two, what kind of a range do you see the market in from here?
A: I think a fairly tight range, the global cues are going to ensure that this market does not fall off too much and local macro-issues are going to really ensure that this market is not going to go up too much either.
So it is going to be a fairly tight range, maybe 5%-7% on either side.
Q: How do you approach the capital goods space? Some of those numbers are yet to come and we have seen weakness in stocks like JP Associates, BHEL over the last few sessions. Are you a buyer in that space or circumspect?
A: I think we are in the circumspect camp. What is happening is that hitherto, capital goods stocks were being valued on a multiple of order books and growth of order books. I think we are back to looking at boring things like profits and stuffs like and within that space, we are seeing that there is raw material pressure, there is pressure on margins etc and in the early ‘90s and thereabouts we have seen the ability of order books to vanish; we have seen that happen I am not for a moment saying that that’s something that could happen this time. But I think there is an element of skepticism at this point in terms of the order books etc. So we are little circumspect within the capital goods space at this point in time.
Q: What about the whole metal pack. How have you read the interest alternating first for steel and then for the base metal universe and anything that you will start buying there?
A: I think we hold a whole basket within the metal space both ferrous and non-ferrous. I think there is interest within that space both from a fundamental perspective whether it is copper or steel; I think there is story there. We are also seeing given the weakness of dollar and the concomitant impact on commodities especially the hard commodities and crude I think it’s a good place to be at this point in time.
Disclosure: It is safe to assume that my clients & I may have an interest in the stocks/sectors discussed.
Source: Moneycontrol.com
The move on the rupee has been vicious, he opines. Fundamentally, the fairly large oil demand has pushed the rupee up. Given that, the monetary policy needs to be tight. The balance between growth and inflation is what one is contending.
Excerpts from CNBC-TV18’s exclusive interview with Rajiv Anand:
Q: What do you think? Is the global rally about to snap or are we still on a nice little uptrend for all global equities including ours?
A: There seems to be some strength. When you mean global, I would imagine you are talking about the Dow here. If one looks at the anecdotal numbers around the Dow, one is seeing that there is strength, VIX (Volatility Index) is at ten months lows, the transportation index, which is typically the frontrunner to the economy, in a sense is seeing significant strength. Of course, the financial services still continues to remain below the 200-day moving average. So put together, there seems to be some strength in the Dow.
If we hear the so called experts on the Wall Street, they seem to be indicating that “the worst seems to be behind us” and therefore to that extent, the only pall of gloom is coming not so much from commodities any more but oil because most of the other commodities around us have corrected fairly significantly especially within the soft commodity basket. So the only dampener is oil.
Q: Currency has been quite dramatic as well. There is hurried-scurried move towards the 43 to a dollar mark. Are you surprised by what’s happened in the money market and has that changed your call on some sectors in the equity market?
A: I think the move on rupee is been vicious; in the same manner the market didn’t quite see it going down 39.25 to a dollar. I think the move back up from 39 to a dollar-odd to almost 43 to a dollar today was also quite unexpected. Fundamentally speaking the fact that there is not too much of inflows coming in and on the other side fairly large oil demand is pushing the rupee up.
I think the problem within the money market is the fact that inflation is at 7.8% odd but actually the numbers are probably closer to 8.5% and given that the bias is for the monetary policy to be tight. The balancing act there is how to control inflation but given the fact that the growth numbers are not looking as exciting any more the balance between growth and inflation is what one is contending.
So I don’t think one can be too bearish on interest rates at this point in time because on side incremental inflation is beginning to come off albeit oil being where it is but remember there isn’t too much of pass through of that and growth which is weakening. So one cannot be too bearish on interest rates but on the other side inflationary expectation and the current RBI policy cannot get you too bullish on interest rate either.
Q: How would you approach something like a Cairn amongst the entire energy basket?
A: If you look at the private sector guys, it is a pure play on where crude is going. But even within the public sector space I think clearly the problem is quite large at this point in time, they are all trading well below - they are all classic value stocks. I think the incremental problem is not going to get resolved by issuance of oil bonds etc. So I think it is a reasonably good bet to play for some policy action on especially the public sector guys because on the margin they cannot survive at the way things have been going on over the last couple of years. So something needs to be done and I think that is something that one can clearly play for.
Q: Which of these sectors, which have got beaten quite a bit, does it make sense to take a contrarion trade in right now; cement, banks or real estate?
A: Among those three, if I were to put my money, it would be banks and cement in that order. I think in banks, there has been a fair amount of negative news, inflation, the noise about the credit cycle is also beginning to increase the case in point about farm loans yesterday. But I think much of that is in the price. Most of the public sector banks are trading at about one-time book; so to that extent, fairly beaten down and worth looking at. Similarly the cement side as well - perhaps cement prices could get capped but even if they do get capped, the EBITDA numbers that you are looking at are still very attractive, many of them are trading now at below replacement cost. So I think cement and banking financials are two sectors that one could look at.
Q: For the next month or two, what kind of a range do you see the market in from here?
A: I think a fairly tight range, the global cues are going to ensure that this market does not fall off too much and local macro-issues are going to really ensure that this market is not going to go up too much either.
So it is going to be a fairly tight range, maybe 5%-7% on either side.
Q: How do you approach the capital goods space? Some of those numbers are yet to come and we have seen weakness in stocks like JP Associates, BHEL over the last few sessions. Are you a buyer in that space or circumspect?
A: I think we are in the circumspect camp. What is happening is that hitherto, capital goods stocks were being valued on a multiple of order books and growth of order books. I think we are back to looking at boring things like profits and stuffs like and within that space, we are seeing that there is raw material pressure, there is pressure on margins etc and in the early ‘90s and thereabouts we have seen the ability of order books to vanish; we have seen that happen I am not for a moment saying that that’s something that could happen this time. But I think there is an element of skepticism at this point in terms of the order books etc. So we are little circumspect within the capital goods space at this point in time.
Q: What about the whole metal pack. How have you read the interest alternating first for steel and then for the base metal universe and anything that you will start buying there?
A: I think we hold a whole basket within the metal space both ferrous and non-ferrous. I think there is interest within that space both from a fundamental perspective whether it is copper or steel; I think there is story there. We are also seeing given the weakness of dollar and the concomitant impact on commodities especially the hard commodities and crude I think it’s a good place to be at this point in time.
Disclosure: It is safe to assume that my clients & I may have an interest in the stocks/sectors discussed.
Source: Moneycontrol.com
Sunday, May 18, 2008
Common mistakes committed in the equity market
Throughout your investing career, it is likely that you will be guilty of committing a lot of mistakes. There is no one today who has not committed costly financial mistakes including the legendary Warren Buffet. However it is the ability to recognize and learn from your mistakes that will determine whether you are able to achieve your investment objectives. It is thus paramount to commit as few mistakes as possible. Failure is often the best teacher provided you allow yourself to be taught.
The last three months have exposed investors to several such mistakes. Here we highlight eight of the common ones.
1. Relying on tips and hearsay is the first and most common mistake committed by most investors.
2. Expecting Big Gains fast. Very few people have the mindset and patience required to invest in equity. A common expectation is to make big gains quickly. There is no focus on the risk the investment exposes your portfolio to. A classic example of recent times was the Power sector. Any stock that had the name ‘Power’ in it was considered sacrosanct. People did not even care about risk involved in taking exposure to such stocks. Instant gratification is injurious to your wealth.
3. Leverage in equity markets can have disastrous consequences not just on your financial health but on your physical health.
4. It’s not easy to always make money in equities and there could be periods of negative returns. Though over time, returns can even out, in the short run there could be sizeable downside. So don’t be surprised by it. Understand, expect corrections and be realistic.
5. Have reasonable expectations from equity. As an asset class equity should technically deliver returns in line with corporate earnings. However we do not invest in a utopian stock market but a market that drives on hope, greed and fear. Hence you are bound to see eras of excesses and exuberance and those of pessimism.
6. It’s all easy to know ‘Buy low and sell high’, but majority of people would end up doing exactly the opposite. Most investment banks, brokerages, hedge funds, FIIs, domestic investors, gurus and analysts are super confident in a bullish market when highs are torn apart every other day. Things suddenly change for them when the market corrects and no one is ready to put even their thumb in the market. Learn to embrace market sell offs. People who could not earlier invest had an excellent opportunity to invest at 14000 to 15000 levels but I do not know too many people who had the gut to really invest.
7. When the market corrects, do not put all your eggs immediately. Corrections that happen after very sharp rallies tend to extend themselves over a few months. One of the strategies that can be adopted is to invest in a staggered fashion. You should start investing if the market has corrected by more than 15-20% and go higher when it crosses 30-35%. There is no way to know what the bottom could be and I don’t know how people come up with their holy predictions on how lower can the index go. When the going is bad, all one hears is bad news and it’s very important to grow beyond these daily projections. Investing is certainly not a poker game and you would be harming your economic interests by following what a bunch of unknown people are doing.
8. Don’t keep looking at your portfolio because things are not going to change even if you see it many times. A quarterly or semi annual review should be good enough for most people. Looking daily is harmful to your overall thought process and can urge you to take emotional decisions whether on the way up or way down.
This is the time to take stock of what you actually have. The first step is to understand the various investments in your portfolio and how they fit within the overall scheme of things.
Most people would like to see their investments grow right from day one. For a long term investor, it should not matter if prices do not rise right away. Infact if investment values indeed go down, you should be happy to see your buying happening at lower levels. Eventually when the market recovers, you are bound to get much higher returns because of these inefficiencies in a turbulent market. The only time your stock prices should be up is when you need to sell.
Currently one sees lower volumes in the market due to fear and several other factors. The increase in STT (securities transaction tax) and short term capital gains tax also has had some impact on volumes. There is a lack of clarity on the direction of the market. However just because this is the case, there is no need to change your investment strategy. Continue to buy in a staggered fashion and just stay put if you already have.
Source: Moneycontrol.com
The last three months have exposed investors to several such mistakes. Here we highlight eight of the common ones.
1. Relying on tips and hearsay is the first and most common mistake committed by most investors.
2. Expecting Big Gains fast. Very few people have the mindset and patience required to invest in equity. A common expectation is to make big gains quickly. There is no focus on the risk the investment exposes your portfolio to. A classic example of recent times was the Power sector. Any stock that had the name ‘Power’ in it was considered sacrosanct. People did not even care about risk involved in taking exposure to such stocks. Instant gratification is injurious to your wealth.
3. Leverage in equity markets can have disastrous consequences not just on your financial health but on your physical health.
4. It’s not easy to always make money in equities and there could be periods of negative returns. Though over time, returns can even out, in the short run there could be sizeable downside. So don’t be surprised by it. Understand, expect corrections and be realistic.
5. Have reasonable expectations from equity. As an asset class equity should technically deliver returns in line with corporate earnings. However we do not invest in a utopian stock market but a market that drives on hope, greed and fear. Hence you are bound to see eras of excesses and exuberance and those of pessimism.
6. It’s all easy to know ‘Buy low and sell high’, but majority of people would end up doing exactly the opposite. Most investment banks, brokerages, hedge funds, FIIs, domestic investors, gurus and analysts are super confident in a bullish market when highs are torn apart every other day. Things suddenly change for them when the market corrects and no one is ready to put even their thumb in the market. Learn to embrace market sell offs. People who could not earlier invest had an excellent opportunity to invest at 14000 to 15000 levels but I do not know too many people who had the gut to really invest.
7. When the market corrects, do not put all your eggs immediately. Corrections that happen after very sharp rallies tend to extend themselves over a few months. One of the strategies that can be adopted is to invest in a staggered fashion. You should start investing if the market has corrected by more than 15-20% and go higher when it crosses 30-35%. There is no way to know what the bottom could be and I don’t know how people come up with their holy predictions on how lower can the index go. When the going is bad, all one hears is bad news and it’s very important to grow beyond these daily projections. Investing is certainly not a poker game and you would be harming your economic interests by following what a bunch of unknown people are doing.
8. Don’t keep looking at your portfolio because things are not going to change even if you see it many times. A quarterly or semi annual review should be good enough for most people. Looking daily is harmful to your overall thought process and can urge you to take emotional decisions whether on the way up or way down.
This is the time to take stock of what you actually have. The first step is to understand the various investments in your portfolio and how they fit within the overall scheme of things.
Most people would like to see their investments grow right from day one. For a long term investor, it should not matter if prices do not rise right away. Infact if investment values indeed go down, you should be happy to see your buying happening at lower levels. Eventually when the market recovers, you are bound to get much higher returns because of these inefficiencies in a turbulent market. The only time your stock prices should be up is when you need to sell.
Currently one sees lower volumes in the market due to fear and several other factors. The increase in STT (securities transaction tax) and short term capital gains tax also has had some impact on volumes. There is a lack of clarity on the direction of the market. However just because this is the case, there is no need to change your investment strategy. Continue to buy in a staggered fashion and just stay put if you already have.
Source: Moneycontrol.com
Negatives factored in; markets to trend upwards : Experts
Girish Nadkarni, ED-Capital Markets of Avendus Advisors NSE Media Centre and Mitesh Thakkar, VP - Private Client Group of Edelweiss believe markets will trade with an upward bias in the following few days.
Nadkarni said the market is likely to be rangebound with a positive bias in the near-term. It has taken negatives in its stride and so will trade with an upward bias.
While Thakkar believes one can expect to see selling after bouncebacks. He said 5,310 is an important technical level, followed by 5,410 and then 5,480 would be a stretch target.
Excerpts fom CNBC-TV18's exclusive interview with Girish Nadkarni and Mitesh Thakkar:
Q: How are you feeling about what this month might throw up? When we stepped into the week there was skepticism and by the time we have wrapped it up there is strength on the screen?
Nadkarni: I think a large part of the strength essentially stems from the fact that the markets have been beaten down very quickly this month and there has been some amount of short covering in this last week. Having said that, the belief is that valuations of stocks have reached fairly interesting levels. Therefore while markets are likely to be rangebound on account of mixed news coming out, in the next couple of weeks, markets will trade with an upward bias largely because of the valuations being good and bouts of short covering at points of time. Also a lot of the negative news has already discounted by the markets. So unless there is some serious new negative news that comes out, I think inflation, high oil prices, high commodity prices issues, the market has already taken in its stride. So I guess the markets would trade tend to trade with a slightly upward bias.
Q: What did you make of this week’s performance and do you think some of it was because of the short covering cushion we had or is the market genuinely showing you trading momentum towards the upside?
Thakkar: This was a very important week as far as technicals are concerned. We had a good rally before last week’s decline wherein the markets went up from 4,700 to 5,300 on the upside and last week we saw good profit booking happening. This week also we started on a negative note. The markets were not very strong on Monday and we did see some selling happening on Wednesday again, but the important part was that the support of 4,950 held on very well and on Thursday and today we saw a very good trading upside, which occurred in the indices. The good part of this rally was that a lot of trading stocks - the stocks which I would call as flavour stocks, the breadth improved to a very big extent. A lot of stocks like fertiliser and sugar, sectoral flavours have come back into the market and that is the very important part. With last two days' moves behind us, we can definitely look towards some more kind of upside left in this market.
Q: The target that has been talked about now is 5,300 - is that what you would watch for as well on the Nifty?
Thakkar: What has happened is that when the indices fell after the decline in January, we saw a lot of bouncebacks and a lot of intermediate peaks being recorded. So I think that one of the prominent fixtures of this upmove would be that we would see a lot of selling coming in from various technical levels or various peaks, which have been recorded as a result of the bounceback. So yes, 5,310 is an important technical level, followed by 5,410 and then we are looking at 5,480 as the stretch target.
Q: Oil and gas was a big performer through today’s session, how are you feeling about that entire pocket with specific reference to the only one standalone E&P play we have?
Nadkarni: I think with respect to E&P companies it is a goldmine except that for ONGC the subsidies are really a cause of concern and with the price of oil going up the subsidy bill keeps mounting for ONGC as well as the refining companies, since the burden is passed on. I would think that it is difficult times for all these companies although they have gone up today, especially the refining companies. I think unless there is certainty on how the subsidy bill is going to be shared by the government in terms of bonds, I would think of staying out. However, what is bad for the refining companies would be good for E&P companies. There is one company in the private sector Cairn Energy, which is doing very well. It is also a good time for ancillary companies, which feed off the E&P sector and those are companies that one should look at when the oil prices are high and likely to remain firm.
Q: Anything from there that you like technically?
Thakkar: There was a lot of action in the oil sector this week and Cairn has been enjoying very good momentum. We have been slightly positive on the stock, because it made a new high, so technically that’s a good breakout and the price targets are yet to be achieved. We are looking at an upside of around Rs 318 to Rs 320 on the stock - that’s a good stock. ONGC in fact was the dampener this week. We saw good declines happening on Monday, Tuesday and Wednesday. Rs 930 to Rs 910 is a good support range so I would advice to cover up the short side, but there is still no cue for people to start taking long positions over there.
Q: Would you watch the whole rate sensitive area more carefully from hereon?
Nadkarni: I would think so. I don’t agree that this week’s inflation has come as more of a shock. The analysis in terms of weekly data tends to be very volatile. But we have tested some of these numbers in our research and we find that if you actually compare the inflation rates over a three-year period and look at the inflation this week over the inflation three years back and plot that graph, it has a very stable, steady growth upwards. Some of these inflation numbers therefore can be predicted to remain in a fairly narrow band of between 4-6% when you compare a three-year CAGR.
Therefore, we expect there will be bouts of volatility in the weekly inflation rates and numbers that keep coming because these are CAGRs over a one-year period. If one were to look at it over a three-year period, our expectation is that inflation will continue in that band, if you see this weekly volatility continuing for the next couple of months. So, inflation is an area that will remain and play out over the next three-four months.
While inflation may look very bad from a market and industry over a medium-term perspective, with respect to market movements, it does not always happen that bouts of high inflation are followed by declining markets. It has its impact on interest rate sensitive sectors like autos or two-wheelers and things like that. But for the rest of the market, where it is not so critically dependent on the interest rate, you may not necessarily see a bad market, following the weekly numbers that keep throwing up on the inflation side.
Markets have after four-five weeks reckoned that inflation is going to stay and are kind of resigned to the fact that this will be an issue over the next couple of months.
Q: There is a big run of strength for the metals: Hindalco and Nalco are up 14-15% for the week. Does it look like a temporary bounce or would you trade some of these?
Thakkar: No, the metals are very attractive. The aluminium pack looks very good. Nalco is very close to its previous high of Rs 528-530 and that is where some supply can come in.
But if you were to look at a slightly longer-term picture, they look very good. In fact, Hindalco has had a very good breakout during the week on the weekly charts and giving a very strong closing.
The aluminium chart looks strong. So, these commodity driven stocks, particularly Nalco and Hindalco, are in the middle of a good uptrend. Over the next few weeks, we see good appreciation in the prices of these stocks. Even SAIL, after declaring its results today, gave a very strong move and we are seeing a lot of supply come in on these stocks at price levels around Rs 185-187.
So, I am looking at 10% more upside in SAIL, at least on a trading basis, and we will then take it from there.
Q: Many analysts are putting these gains down to what the global markets have been doing and the fact that we have more or less been mirroring global strength. How likely are the chances that we go back to test the March lows or get even close to that figure?
Thakkar: It is a very important question. Whenever a rally starts, the technical angle to look at these kind of upmoves would be that you are having some kind of bounceback. That is how we started this entire upmove from 4,600-4,700 levels. You are looking at a target of around 5,200-5,300, which we have reasonably achieved.
If this week we would have broken below 4,950, I would have bet strongly on the shorts and expected that this decline, that started the previous week, would have continued and probably in a much more severe manner.
We are still not sure on the longer-term charts that we are out of this entire declining mode. But with strong upmoves, temporary relief is there and we still see some kind of upside left in the markets.
But in the long-term, we are still not sure and my sense is that we might come back after a period of time and if not test, at least go very close to those levels.
Q: While inflation has been working at 7.5% for many weeks now, what came in a bit of a rush was the weakness for the rupee. Do you think that took the equity market by surprise?
Nadkarni: I would think so. I don’t think anybody expected this weakness in the rupee to happen so soon. In almost two-three weeks or probably less than that, we have seen almost 5-6% decline in the rupee. This has taken most people by surprise including the industry.
It is also reflected in some of the valuations of IT stocks. They have got some amount of breather because of sentiment that the earnings will look up on the back of a falling rupee.
Q: What sort of targets are you working with both on the upper and lower side for the Nifty for next week?
Thakkar: The upside targets remain 5,310 and 5,300 is a critical supply over here. If we are able to move above that, 5,410-5,420 is under the supply area. On the stretch side, we are looking at 5,480 as the technical target. On the downside, we probably will need to close below 5,000. 4,950 emerges as a big support range. There are going to be weekly averages being positioned over there. So, as long as we are above them, on a daily closing basis, we will keep bouncing back.
Q: A couple of large sized IPOs have got the go-ahead as well. Do you think the primary market is going to start opening up over the next few weeks?
Nadkarni: The sentiment is a little positive in the markets. If markets break the 18,000-18,500 levels and there is a rush of buying that happens, one will see the first of the IPOs or the big IPOs coming into the markets.
At this stage there doesn’t seem to be any significant change in the sentiment towards primary issues. But the markets have been trading in this band of 17,500-17,600 on the up and about 15,500 on the low side. It necessarily needs to break this trading band which may or may not happen in the next 1-2 months. Therefore, the issue of the new paper is critically dependent on market sentiment.
When that improves significantly, one will see the issue of new paper from some of these companies.
Source: Moneycontrol.com
Nadkarni said the market is likely to be rangebound with a positive bias in the near-term. It has taken negatives in its stride and so will trade with an upward bias.
While Thakkar believes one can expect to see selling after bouncebacks. He said 5,310 is an important technical level, followed by 5,410 and then 5,480 would be a stretch target.
Excerpts fom CNBC-TV18's exclusive interview with Girish Nadkarni and Mitesh Thakkar:
Q: How are you feeling about what this month might throw up? When we stepped into the week there was skepticism and by the time we have wrapped it up there is strength on the screen?
Nadkarni: I think a large part of the strength essentially stems from the fact that the markets have been beaten down very quickly this month and there has been some amount of short covering in this last week. Having said that, the belief is that valuations of stocks have reached fairly interesting levels. Therefore while markets are likely to be rangebound on account of mixed news coming out, in the next couple of weeks, markets will trade with an upward bias largely because of the valuations being good and bouts of short covering at points of time. Also a lot of the negative news has already discounted by the markets. So unless there is some serious new negative news that comes out, I think inflation, high oil prices, high commodity prices issues, the market has already taken in its stride. So I guess the markets would trade tend to trade with a slightly upward bias.
Q: What did you make of this week’s performance and do you think some of it was because of the short covering cushion we had or is the market genuinely showing you trading momentum towards the upside?
Thakkar: This was a very important week as far as technicals are concerned. We had a good rally before last week’s decline wherein the markets went up from 4,700 to 5,300 on the upside and last week we saw good profit booking happening. This week also we started on a negative note. The markets were not very strong on Monday and we did see some selling happening on Wednesday again, but the important part was that the support of 4,950 held on very well and on Thursday and today we saw a very good trading upside, which occurred in the indices. The good part of this rally was that a lot of trading stocks - the stocks which I would call as flavour stocks, the breadth improved to a very big extent. A lot of stocks like fertiliser and sugar, sectoral flavours have come back into the market and that is the very important part. With last two days' moves behind us, we can definitely look towards some more kind of upside left in this market.
Q: The target that has been talked about now is 5,300 - is that what you would watch for as well on the Nifty?
Thakkar: What has happened is that when the indices fell after the decline in January, we saw a lot of bouncebacks and a lot of intermediate peaks being recorded. So I think that one of the prominent fixtures of this upmove would be that we would see a lot of selling coming in from various technical levels or various peaks, which have been recorded as a result of the bounceback. So yes, 5,310 is an important technical level, followed by 5,410 and then we are looking at 5,480 as the stretch target.
Q: Oil and gas was a big performer through today’s session, how are you feeling about that entire pocket with specific reference to the only one standalone E&P play we have?
Nadkarni: I think with respect to E&P companies it is a goldmine except that for ONGC the subsidies are really a cause of concern and with the price of oil going up the subsidy bill keeps mounting for ONGC as well as the refining companies, since the burden is passed on. I would think that it is difficult times for all these companies although they have gone up today, especially the refining companies. I think unless there is certainty on how the subsidy bill is going to be shared by the government in terms of bonds, I would think of staying out. However, what is bad for the refining companies would be good for E&P companies. There is one company in the private sector Cairn Energy, which is doing very well. It is also a good time for ancillary companies, which feed off the E&P sector and those are companies that one should look at when the oil prices are high and likely to remain firm.
Q: Anything from there that you like technically?
Thakkar: There was a lot of action in the oil sector this week and Cairn has been enjoying very good momentum. We have been slightly positive on the stock, because it made a new high, so technically that’s a good breakout and the price targets are yet to be achieved. We are looking at an upside of around Rs 318 to Rs 320 on the stock - that’s a good stock. ONGC in fact was the dampener this week. We saw good declines happening on Monday, Tuesday and Wednesday. Rs 930 to Rs 910 is a good support range so I would advice to cover up the short side, but there is still no cue for people to start taking long positions over there.
Q: Would you watch the whole rate sensitive area more carefully from hereon?
Nadkarni: I would think so. I don’t agree that this week’s inflation has come as more of a shock. The analysis in terms of weekly data tends to be very volatile. But we have tested some of these numbers in our research and we find that if you actually compare the inflation rates over a three-year period and look at the inflation this week over the inflation three years back and plot that graph, it has a very stable, steady growth upwards. Some of these inflation numbers therefore can be predicted to remain in a fairly narrow band of between 4-6% when you compare a three-year CAGR.
Therefore, we expect there will be bouts of volatility in the weekly inflation rates and numbers that keep coming because these are CAGRs over a one-year period. If one were to look at it over a three-year period, our expectation is that inflation will continue in that band, if you see this weekly volatility continuing for the next couple of months. So, inflation is an area that will remain and play out over the next three-four months.
While inflation may look very bad from a market and industry over a medium-term perspective, with respect to market movements, it does not always happen that bouts of high inflation are followed by declining markets. It has its impact on interest rate sensitive sectors like autos or two-wheelers and things like that. But for the rest of the market, where it is not so critically dependent on the interest rate, you may not necessarily see a bad market, following the weekly numbers that keep throwing up on the inflation side.
Markets have after four-five weeks reckoned that inflation is going to stay and are kind of resigned to the fact that this will be an issue over the next couple of months.
Q: There is a big run of strength for the metals: Hindalco and Nalco are up 14-15% for the week. Does it look like a temporary bounce or would you trade some of these?
Thakkar: No, the metals are very attractive. The aluminium pack looks very good. Nalco is very close to its previous high of Rs 528-530 and that is where some supply can come in.
But if you were to look at a slightly longer-term picture, they look very good. In fact, Hindalco has had a very good breakout during the week on the weekly charts and giving a very strong closing.
The aluminium chart looks strong. So, these commodity driven stocks, particularly Nalco and Hindalco, are in the middle of a good uptrend. Over the next few weeks, we see good appreciation in the prices of these stocks. Even SAIL, after declaring its results today, gave a very strong move and we are seeing a lot of supply come in on these stocks at price levels around Rs 185-187.
So, I am looking at 10% more upside in SAIL, at least on a trading basis, and we will then take it from there.
Q: Many analysts are putting these gains down to what the global markets have been doing and the fact that we have more or less been mirroring global strength. How likely are the chances that we go back to test the March lows or get even close to that figure?
Thakkar: It is a very important question. Whenever a rally starts, the technical angle to look at these kind of upmoves would be that you are having some kind of bounceback. That is how we started this entire upmove from 4,600-4,700 levels. You are looking at a target of around 5,200-5,300, which we have reasonably achieved.
If this week we would have broken below 4,950, I would have bet strongly on the shorts and expected that this decline, that started the previous week, would have continued and probably in a much more severe manner.
We are still not sure on the longer-term charts that we are out of this entire declining mode. But with strong upmoves, temporary relief is there and we still see some kind of upside left in the markets.
But in the long-term, we are still not sure and my sense is that we might come back after a period of time and if not test, at least go very close to those levels.
Q: While inflation has been working at 7.5% for many weeks now, what came in a bit of a rush was the weakness for the rupee. Do you think that took the equity market by surprise?
Nadkarni: I would think so. I don’t think anybody expected this weakness in the rupee to happen so soon. In almost two-three weeks or probably less than that, we have seen almost 5-6% decline in the rupee. This has taken most people by surprise including the industry.
It is also reflected in some of the valuations of IT stocks. They have got some amount of breather because of sentiment that the earnings will look up on the back of a falling rupee.
Q: What sort of targets are you working with both on the upper and lower side for the Nifty for next week?
Thakkar: The upside targets remain 5,310 and 5,300 is a critical supply over here. If we are able to move above that, 5,410-5,420 is under the supply area. On the stretch side, we are looking at 5,480 as the technical target. On the downside, we probably will need to close below 5,000. 4,950 emerges as a big support range. There are going to be weekly averages being positioned over there. So, as long as we are above them, on a daily closing basis, we will keep bouncing back.
Q: A couple of large sized IPOs have got the go-ahead as well. Do you think the primary market is going to start opening up over the next few weeks?
Nadkarni: The sentiment is a little positive in the markets. If markets break the 18,000-18,500 levels and there is a rush of buying that happens, one will see the first of the IPOs or the big IPOs coming into the markets.
At this stage there doesn’t seem to be any significant change in the sentiment towards primary issues. But the markets have been trading in this band of 17,500-17,600 on the up and about 15,500 on the low side. It necessarily needs to break this trading band which may or may not happen in the next 1-2 months. Therefore, the issue of the new paper is critically dependent on market sentiment.
When that improves significantly, one will see the issue of new paper from some of these companies.
Source: Moneycontrol.com
Saturday, May 17, 2008
Cautious on markets in near-term; food, oil criminals
Andrew Holland, DSP Merrill Lynch & Nilesh Shah, MD & CEO of Envision Capital think in the short-term the pressure from commodity prices, food prices, oil prices will have an impact on markets, and this is going to hurt earnings.
While Shah thinks valuations are no longer cheap. The markets could probably move up to 18 times earnings. But any incremental newsflow could definitely spoil the sentiment. "So a combination of both these factors would make us cautious in the short-term," he said.
Excerpts from CNBC-TV18's exclusive interview with Andrew Holland and Nilesh Shah:
Q: Much has been said and talked about what May might deliver but how are you feeling about what kind of ground the market has covered and where it might head?
Holland: I am feeling very nervous globally at the moment. I think markets have had a great run, they are looking somewhat overboard now globally. I just think there is some bad news coming and it is just not making sense to me at the moment the way commodity prices are moving and the fact that we are becoming complacent about it. If I am in the US and my house is fallen by 10%-12% over the past year, I have less spending power. So I am not going to buy a car and I do not know how the car manufacturers can take higher steel prices. It is just not working; the common sense is not prevailing at the moment. So I think short-term I am just very negative.
Q: What do you think is feeding the enthusiasm right now because as you have mentioned, most of the strength has come in from the core market, the Dow and the Nasdaq and people are now talking about higher levels for those markets?
Holland: Yes, I think after the Fed drew the line for Bear Stearns that obviously that helped all the markets. Q1 results have been okay from both the US and Europe, so that has given the markets some kind of positive signs. But really when you are in any kind of downturn, it is not really going to impact and I think this quarter we are going to see the biggest impact globally and particularly for companies in the US and Europe. So I think there is bad news to come and that is why I am very nervous at the moment.
Q: What is your sense because when we stepped into this week there was almost consensus about the fact that the market might go back to retest lows, so earlier this year and by the end of it we have actually covered significant ground on the upside?
Shah: I think by and large we are clearly seeing some kind of a tug-of-war going in the market place because I think the market has very clearly divided. On one hand you have participants who are looking at a lot of the external variables and seeing what is really happening in the external environment both from a global perspective as well as from a local perspective and clearly there are lots of clouds on the horizon. So I think that is making a lot of participants negative, but at the same time I think you also have a set of participants who are reasonably optimistic saying probably the worst is over statistically the US has probably not yet slipped into a recession. Back home in India corporate earnings have not yet deteriorated materially, we are still seeing a situation where corporate earnings are growing at about 20%. So I guess it is basically a tug-of-war, which is going on.
My sense is that broadly valuations are no longer cheap compared to where they were. The markets had touched a low a couple of months back when we were trading below 15 times, we are now back to about 17.5 times and they could probably move up to 18 times earnings. But I guess that is clearly where the market could get capped in the short-term. In addition to that any incremental newsflow could definitely spoil the sentiment. So I think it is a combination of both these factors, which would probably make us cautious in the short-term.
Q: If you had to pick out one big worry for the market right now between the currency and commodities and something else perhaps what do you think it is?
Shah: I think currency and commodities are the obvious worries because they could have implications in terms of raw material cost. So if you are an importer of a commodity you are hit actually on both fronts, you have a rising dollar and you have rising commodity prices, which significantly increases your input price. But I think the biggest worry right now is that as a producer do you really have the ability to pass on these increased cost whether they come in through higher interest cost or high commodity prices or higher cost because of currency. I think that is probably the third biggest worry, which corporate India could have that if you are a cement producer or a steel producer or an oil producer, will you really be able to pass on these increased costs to the consumer? I think that can materially impact earnings.
Q: How do you read the surging crude prices and what kind of damage it might do to a market like ours?
Holland: Basically the deficit goes out into a tailspin, I suppose subsidizing everybody in India so the bill just gets higher by doing so and inflation just continues to rise. Usually I would be more bullish about India as well despite global downturns and we have always said that I believe in the Indian story and I still do, but in the short-term I see the pressure from commodity prices, food prices, oil prices having an impact and it is something that you cannot put a number on at the moment, but we will start to see that come through in the next few quarters. To my mind this is going to hurt earnings and the markets have already reflected some of that, but in between you have the government policy which is a bit confusing to everyone and therefore you cannot take any long-term views on the sectors which are being affected or positively affected as well.
I think something is going to crack soon, I am not quite sure when but when it does, it is not going to be nice.
Q: What is your sense of the more likely outcome of our markets, to see a sharp downside or get away with a rangebound month?
Holland: I think if I am correct global markets will head down, I think risk will be taken off the table again and if you are looking at India relative to other emerging markets and higher global commodity prices means everyone’s stretch is going to remain in Russia and Brazil to the detriment of China and India. So that looks as it is going to be the case for sometime. So I do not think India escapes in fortune and I think the markets will head down.
Q: To go back to the point on currency, do you think there is more rally in technology now?
Shah: Our assessment is that broadly in the short-term, the dollar to the rupee could be headed towards 43-43.15 mark, which clearly means that there is not probably much room of appreciation for the dollar and not much room of depreciation to the dollar in the short-term.
In addition to that, by and large most participants have been trying to build in the case that this level for the rupee would sustain which means they will benefit right through the rest of the year, however that situation may not be valid enough.
In addition to that, we are seeing that most of the bellwethers are trading at about 20 times and these are clearly levels where they enjoy these P/E multiples a couple of years back, but if one looks at the last 6-12 months most of the bellwether IT companies have been trading towards that 15-16 PE multiple mark and so they are trading at the higher end of the range and our sense is that probably there could be another 3-5% upside in some of the frontline tech stocks, but they are clearly no longer a strong buy at these kind of levels although one could hold on to them for the next 3-5%, but at those kind of levels one definitely cannot be overweight and there might be a case to shed some of the positions.
Q: The big worry for our market and for many other emerging markets is the way inflation has been moving and this time around it has only ticked a bit higher, how concerned are investors in India about that figure you think?
Holland: I think globally there is concern about inflation figures because it is having an impact on what Government and Finance Ministers are doing; I mean if you are European Union, even though you can see that the economy is turning down, they keep interest rates very high and so it impacts how foreign investors look at all countries, but particularly with India, it is more governments' response to inflation, which concerns most investors and in certain sectors, we have actually got to pass on the costs are not being allowed to do so and one cannot look at the earnings going forward because of that. So that concerns investors. Obviously in the year were we expect elections to take place then this is going to be me more the norm that its one off.
Q: There has been a big pall of gloom over the oil and gas space for the huge PSU fraternity, how would you approach that whole pocket and in specific one pure exploration and production (E&P) play that we have?
Shah: It is difficult to take a fundamental call on the sector and the stocks, because the reality is that input costs are going up for them whereas they are really not able to pass on the higher input costs to their end consumers and that puts an uncertainty in terms of their earnings outlook, so I still think that the sector as a whole is best avoided.
There are a few oil exploration companies which are benefiting because of the oil price rise, so it’s best to play the sector through those standalone exploration plays.
Q: The other takeaway this week was that in small bits some of power started seeing buying; do you think that is beginning to see buying interest again?
Shah: Some power stocks have got significantly battered down and a lot of them are trading at significant discount or are trading at significantly lower levels compared to where they were trading at about six months ago.
I think lot of investors are perhaps trying to average their positions or some of them believe that these are good value opportunities. Our stand is that if one wants to play the sector then one has to necessarily have to take a long-term call and do the valuation keeping in mind the capex they would have to incur to arrive at those installed capacitates, after that there is value left then probably one could go ahead and buy.
But in the current environment, I think it’s probably best to avoid the sector right now and better to play it through providers of capital equipment to some of the power projects.
Q: Our other global linkage this week has been through base metal prices, how are you reading that entire market in talk of how supply demand might take a different turn because of what happened in China?
Holland: I think we had a rally because of what happened in China, but the demand-supply doesn’t support the higher steel prices and if you are a car manufacturer and you are trying to sell in an economy in Europe or the US, no one is buying and so even if you reduce your capacity utilization which would hurt your own profits or you take a margin hit because of higher input prices to sell your cars or consumer vehicles etc, so why would one do that? why would you help steel companies make money, it doesn’t make sense, so something will give in at some stage and when it does, the bubble that some people are talking about in commodities will burst and when that happens it won’t be nice. So I think we have to very careful at the moment and tread carefully because there are lots of things out there which are not making sense.
Q: What do you think this market might throw up this month, do you think it is at best going to be a ranged market with perphas a wider range to it where we will continue to struggle when we get closer to that 5,200-5,300 mark or is there a case now for some kind of a deep cut?
Shah: My sense is that we may or may not witness a deep cut, because broadly globally the equity markets at least in the near-term look reasonably sanguine form a trend perspective, although one may not agree from a fundamental perspective, but from a trend perspective they seem to be reasonably good enough and in response to that our markets may not witness a very deep cut. We might try to scale pass that 17,500 mark or try and go towards that 18,000 mark, I think that is probably where this market could be in the short-term.
Q: What has been happening on the flow side, what are you picking up by way of money interest into India?
Holland: I think it is very low, I do not think anyone is doing anything. If you are a foreign investor, now you have to think of whether you are going to lose money on just depreciation of the currency which three-four months ago most people were saying that the rupee would head towards 37-36 even and now they are talking about 43. So you lose money by just coming in India at the moment and when you are already seeing negative returns of 10%-15% another 5% on currency is really not going to make you rush to the Indian markets. So I think flows have been very lackluster.
Q: How wary are investors of any additional fiscal or monetary policy action for India?
Holland: I think there are always concerns, I think more so at the moment for some of the emerging markets including India because, obviously when you have high inflation, governments can compel the measures, which you were not expecting whether it would be windfall tax in oil or barring a futures on commodities. You just do not know what is going to happen. So you kind of more likely to see what policy response is and see how severe it might be before making any kind of call. So I think there is a combination of still risky markets and investors trading very carefully.
Q: Purely by way of trading momentum if global markets were to remain this strong, do you think there could be a case for this market to give you a meaningful bounce?
Shah: No, I do not think that this market could potentially give you a meaningful bounce, if it does then I think it would be very short lived because yes on one hand, this market could get tailwinds because of a strong global environment for equities, but I think at the same time our upside could get capped because of a lot of several reasons whether it is the currency or the commodity market outlook or maybe just because of certain control measures which could be taken by the government to contain inflation. So I think combination of all these factors will ensure that our market gets capped on the upside. In addition to that of course there will always be an issue of valuations closer to that level of 18,000 we would no longer be kind of trading cheap. So I think you have a combination of all these reasons because of which even if there is a strong rebound I am not sure whether it will be strong enough to sustain itself.
Q: What did you make of those inflation figures because the market seems to be shrugging it off week-on-week and this time around it actually came in as a bit of a negative surprise?
Shah: Yes and no, because I think by and large we somewhere seem to kind of believe that inflation is likely to sustain above the 7% mark and maybe even above 7.5% mark for the next few weeks or next few months. In addition to that, I think by and large if we really look at prior to the announcement, some of the pink newspapers had the number of 7.8%. So I think it did not really come as a surprise. What we have also seen is whenever you have seen heady inflation numbers getting announced probably on that particular day, the market is strong but inevitably or virtually the next week the markets tend to weaken. So I think we probably need not get carried away with strength for one particular day.
Q: What is your own sense of what we might have to deal with by way of a dollar-rupee rate and might that impact institutional interest as well into India?
Holland: I am not a currency expert, I just think that globally at the moment, investors are pretty complacent and I think volatility is going to hit as hard against it on the global front. So the currency might have some impact in terms of how foreign investors are looking which I said before in terms of returns, but I think most investors are trying to look at India from a long-term viewpoint. But at the moment there is still a lot out there, which is causing a lot of uncertainty. Whilst India still has a very good long-term story, there are some other stories that you can get in the developed markets like exporters out of the US when a weaker currency, which investors are focusing on. So India is not going to stand out in terms of its growth story in the short-term, because these are the factors of which we talked about, which is keeping investors away and will continue to do so.
Q: You would say after the kind of rally we have had and it’s been a meaningful bounce back ever since March this would be a good time to just take some profits and risk off the table right now?
Holland: It is always tempting to do that, it depends on your time horizon but what I would say is that global cues is where I am more concerned at the moment, I do feel that investors are too complacent about developed markets and I think that is going to hit us all quite hard soon.
Q: One quick word on the politician scenario, there were some kind of murmurs we had through the week as well do you expect there to be any worry or hiccups on that front?
Shah: I think by and large, most political parties now are fully aware that in the next 6-10 months you are clearly going to have elections in several States and for the nation as a whole. So one is going to see a lot of murmuring but the most important thing to look forward to is basically the outcome of the Karnataka elections and that might give us some kind of indications as to how the political scene will unfold over the next 6-10 months, so I would probably watch out more for the Karnataka polls.
Source: Moneycontrol.com
While Shah thinks valuations are no longer cheap. The markets could probably move up to 18 times earnings. But any incremental newsflow could definitely spoil the sentiment. "So a combination of both these factors would make us cautious in the short-term," he said.
Excerpts from CNBC-TV18's exclusive interview with Andrew Holland and Nilesh Shah:
Q: Much has been said and talked about what May might deliver but how are you feeling about what kind of ground the market has covered and where it might head?
Holland: I am feeling very nervous globally at the moment. I think markets have had a great run, they are looking somewhat overboard now globally. I just think there is some bad news coming and it is just not making sense to me at the moment the way commodity prices are moving and the fact that we are becoming complacent about it. If I am in the US and my house is fallen by 10%-12% over the past year, I have less spending power. So I am not going to buy a car and I do not know how the car manufacturers can take higher steel prices. It is just not working; the common sense is not prevailing at the moment. So I think short-term I am just very negative.
Q: What do you think is feeding the enthusiasm right now because as you have mentioned, most of the strength has come in from the core market, the Dow and the Nasdaq and people are now talking about higher levels for those markets?
Holland: Yes, I think after the Fed drew the line for Bear Stearns that obviously that helped all the markets. Q1 results have been okay from both the US and Europe, so that has given the markets some kind of positive signs. But really when you are in any kind of downturn, it is not really going to impact and I think this quarter we are going to see the biggest impact globally and particularly for companies in the US and Europe. So I think there is bad news to come and that is why I am very nervous at the moment.
Q: What is your sense because when we stepped into this week there was almost consensus about the fact that the market might go back to retest lows, so earlier this year and by the end of it we have actually covered significant ground on the upside?
Shah: I think by and large we are clearly seeing some kind of a tug-of-war going in the market place because I think the market has very clearly divided. On one hand you have participants who are looking at a lot of the external variables and seeing what is really happening in the external environment both from a global perspective as well as from a local perspective and clearly there are lots of clouds on the horizon. So I think that is making a lot of participants negative, but at the same time I think you also have a set of participants who are reasonably optimistic saying probably the worst is over statistically the US has probably not yet slipped into a recession. Back home in India corporate earnings have not yet deteriorated materially, we are still seeing a situation where corporate earnings are growing at about 20%. So I guess it is basically a tug-of-war, which is going on.
My sense is that broadly valuations are no longer cheap compared to where they were. The markets had touched a low a couple of months back when we were trading below 15 times, we are now back to about 17.5 times and they could probably move up to 18 times earnings. But I guess that is clearly where the market could get capped in the short-term. In addition to that any incremental newsflow could definitely spoil the sentiment. So I think it is a combination of both these factors, which would probably make us cautious in the short-term.
Q: If you had to pick out one big worry for the market right now between the currency and commodities and something else perhaps what do you think it is?
Shah: I think currency and commodities are the obvious worries because they could have implications in terms of raw material cost. So if you are an importer of a commodity you are hit actually on both fronts, you have a rising dollar and you have rising commodity prices, which significantly increases your input price. But I think the biggest worry right now is that as a producer do you really have the ability to pass on these increased cost whether they come in through higher interest cost or high commodity prices or higher cost because of currency. I think that is probably the third biggest worry, which corporate India could have that if you are a cement producer or a steel producer or an oil producer, will you really be able to pass on these increased costs to the consumer? I think that can materially impact earnings.
Q: How do you read the surging crude prices and what kind of damage it might do to a market like ours?
Holland: Basically the deficit goes out into a tailspin, I suppose subsidizing everybody in India so the bill just gets higher by doing so and inflation just continues to rise. Usually I would be more bullish about India as well despite global downturns and we have always said that I believe in the Indian story and I still do, but in the short-term I see the pressure from commodity prices, food prices, oil prices having an impact and it is something that you cannot put a number on at the moment, but we will start to see that come through in the next few quarters. To my mind this is going to hurt earnings and the markets have already reflected some of that, but in between you have the government policy which is a bit confusing to everyone and therefore you cannot take any long-term views on the sectors which are being affected or positively affected as well.
I think something is going to crack soon, I am not quite sure when but when it does, it is not going to be nice.
Q: What is your sense of the more likely outcome of our markets, to see a sharp downside or get away with a rangebound month?
Holland: I think if I am correct global markets will head down, I think risk will be taken off the table again and if you are looking at India relative to other emerging markets and higher global commodity prices means everyone’s stretch is going to remain in Russia and Brazil to the detriment of China and India. So that looks as it is going to be the case for sometime. So I do not think India escapes in fortune and I think the markets will head down.
Q: To go back to the point on currency, do you think there is more rally in technology now?
Shah: Our assessment is that broadly in the short-term, the dollar to the rupee could be headed towards 43-43.15 mark, which clearly means that there is not probably much room of appreciation for the dollar and not much room of depreciation to the dollar in the short-term.
In addition to that, by and large most participants have been trying to build in the case that this level for the rupee would sustain which means they will benefit right through the rest of the year, however that situation may not be valid enough.
In addition to that, we are seeing that most of the bellwethers are trading at about 20 times and these are clearly levels where they enjoy these P/E multiples a couple of years back, but if one looks at the last 6-12 months most of the bellwether IT companies have been trading towards that 15-16 PE multiple mark and so they are trading at the higher end of the range and our sense is that probably there could be another 3-5% upside in some of the frontline tech stocks, but they are clearly no longer a strong buy at these kind of levels although one could hold on to them for the next 3-5%, but at those kind of levels one definitely cannot be overweight and there might be a case to shed some of the positions.
Q: The big worry for our market and for many other emerging markets is the way inflation has been moving and this time around it has only ticked a bit higher, how concerned are investors in India about that figure you think?
Holland: I think globally there is concern about inflation figures because it is having an impact on what Government and Finance Ministers are doing; I mean if you are European Union, even though you can see that the economy is turning down, they keep interest rates very high and so it impacts how foreign investors look at all countries, but particularly with India, it is more governments' response to inflation, which concerns most investors and in certain sectors, we have actually got to pass on the costs are not being allowed to do so and one cannot look at the earnings going forward because of that. So that concerns investors. Obviously in the year were we expect elections to take place then this is going to be me more the norm that its one off.
Q: There has been a big pall of gloom over the oil and gas space for the huge PSU fraternity, how would you approach that whole pocket and in specific one pure exploration and production (E&P) play that we have?
Shah: It is difficult to take a fundamental call on the sector and the stocks, because the reality is that input costs are going up for them whereas they are really not able to pass on the higher input costs to their end consumers and that puts an uncertainty in terms of their earnings outlook, so I still think that the sector as a whole is best avoided.
There are a few oil exploration companies which are benefiting because of the oil price rise, so it’s best to play the sector through those standalone exploration plays.
Q: The other takeaway this week was that in small bits some of power started seeing buying; do you think that is beginning to see buying interest again?
Shah: Some power stocks have got significantly battered down and a lot of them are trading at significant discount or are trading at significantly lower levels compared to where they were trading at about six months ago.
I think lot of investors are perhaps trying to average their positions or some of them believe that these are good value opportunities. Our stand is that if one wants to play the sector then one has to necessarily have to take a long-term call and do the valuation keeping in mind the capex they would have to incur to arrive at those installed capacitates, after that there is value left then probably one could go ahead and buy.
But in the current environment, I think it’s probably best to avoid the sector right now and better to play it through providers of capital equipment to some of the power projects.
Q: Our other global linkage this week has been through base metal prices, how are you reading that entire market in talk of how supply demand might take a different turn because of what happened in China?
Holland: I think we had a rally because of what happened in China, but the demand-supply doesn’t support the higher steel prices and if you are a car manufacturer and you are trying to sell in an economy in Europe or the US, no one is buying and so even if you reduce your capacity utilization which would hurt your own profits or you take a margin hit because of higher input prices to sell your cars or consumer vehicles etc, so why would one do that? why would you help steel companies make money, it doesn’t make sense, so something will give in at some stage and when it does, the bubble that some people are talking about in commodities will burst and when that happens it won’t be nice. So I think we have to very careful at the moment and tread carefully because there are lots of things out there which are not making sense.
Q: What do you think this market might throw up this month, do you think it is at best going to be a ranged market with perphas a wider range to it where we will continue to struggle when we get closer to that 5,200-5,300 mark or is there a case now for some kind of a deep cut?
Shah: My sense is that we may or may not witness a deep cut, because broadly globally the equity markets at least in the near-term look reasonably sanguine form a trend perspective, although one may not agree from a fundamental perspective, but from a trend perspective they seem to be reasonably good enough and in response to that our markets may not witness a very deep cut. We might try to scale pass that 17,500 mark or try and go towards that 18,000 mark, I think that is probably where this market could be in the short-term.
Q: What has been happening on the flow side, what are you picking up by way of money interest into India?
Holland: I think it is very low, I do not think anyone is doing anything. If you are a foreign investor, now you have to think of whether you are going to lose money on just depreciation of the currency which three-four months ago most people were saying that the rupee would head towards 37-36 even and now they are talking about 43. So you lose money by just coming in India at the moment and when you are already seeing negative returns of 10%-15% another 5% on currency is really not going to make you rush to the Indian markets. So I think flows have been very lackluster.
Q: How wary are investors of any additional fiscal or monetary policy action for India?
Holland: I think there are always concerns, I think more so at the moment for some of the emerging markets including India because, obviously when you have high inflation, governments can compel the measures, which you were not expecting whether it would be windfall tax in oil or barring a futures on commodities. You just do not know what is going to happen. So you kind of more likely to see what policy response is and see how severe it might be before making any kind of call. So I think there is a combination of still risky markets and investors trading very carefully.
Q: Purely by way of trading momentum if global markets were to remain this strong, do you think there could be a case for this market to give you a meaningful bounce?
Shah: No, I do not think that this market could potentially give you a meaningful bounce, if it does then I think it would be very short lived because yes on one hand, this market could get tailwinds because of a strong global environment for equities, but I think at the same time our upside could get capped because of a lot of several reasons whether it is the currency or the commodity market outlook or maybe just because of certain control measures which could be taken by the government to contain inflation. So I think combination of all these factors will ensure that our market gets capped on the upside. In addition to that of course there will always be an issue of valuations closer to that level of 18,000 we would no longer be kind of trading cheap. So I think you have a combination of all these reasons because of which even if there is a strong rebound I am not sure whether it will be strong enough to sustain itself.
Q: What did you make of those inflation figures because the market seems to be shrugging it off week-on-week and this time around it actually came in as a bit of a negative surprise?
Shah: Yes and no, because I think by and large we somewhere seem to kind of believe that inflation is likely to sustain above the 7% mark and maybe even above 7.5% mark for the next few weeks or next few months. In addition to that, I think by and large if we really look at prior to the announcement, some of the pink newspapers had the number of 7.8%. So I think it did not really come as a surprise. What we have also seen is whenever you have seen heady inflation numbers getting announced probably on that particular day, the market is strong but inevitably or virtually the next week the markets tend to weaken. So I think we probably need not get carried away with strength for one particular day.
Q: What is your own sense of what we might have to deal with by way of a dollar-rupee rate and might that impact institutional interest as well into India?
Holland: I am not a currency expert, I just think that globally at the moment, investors are pretty complacent and I think volatility is going to hit as hard against it on the global front. So the currency might have some impact in terms of how foreign investors are looking which I said before in terms of returns, but I think most investors are trying to look at India from a long-term viewpoint. But at the moment there is still a lot out there, which is causing a lot of uncertainty. Whilst India still has a very good long-term story, there are some other stories that you can get in the developed markets like exporters out of the US when a weaker currency, which investors are focusing on. So India is not going to stand out in terms of its growth story in the short-term, because these are the factors of which we talked about, which is keeping investors away and will continue to do so.
Q: You would say after the kind of rally we have had and it’s been a meaningful bounce back ever since March this would be a good time to just take some profits and risk off the table right now?
Holland: It is always tempting to do that, it depends on your time horizon but what I would say is that global cues is where I am more concerned at the moment, I do feel that investors are too complacent about developed markets and I think that is going to hit us all quite hard soon.
Q: One quick word on the politician scenario, there were some kind of murmurs we had through the week as well do you expect there to be any worry or hiccups on that front?
Shah: I think by and large, most political parties now are fully aware that in the next 6-10 months you are clearly going to have elections in several States and for the nation as a whole. So one is going to see a lot of murmuring but the most important thing to look forward to is basically the outcome of the Karnataka elections and that might give us some kind of indications as to how the political scene will unfold over the next 6-10 months, so I would probably watch out more for the Karnataka polls.
Source: Moneycontrol.com
Friday, May 16, 2008
Beware of buying at higher levels in May
Amit Dalal of Amit Nalin Securities said that June is usually a good month for the markets and therefore one may see a nice platform being built for a rally in June. "But I would be wary of buying at higher levels in May or buying any higher levels from here because one can always have volatility which may against for the rest of the month also," he said.
Excerpts from CNBC-TV18’s exclusive interview with Amit Dalal:
Q: How are you feeling about how this week has shaped up and what this month might throw up for the market?
A: I think the market is doing exactly what I thought it would and that is on a complete positive correlation to the US markets. US markets have given us a real surprise move upwards and has sustained even with such high oil prices.
My guess is and I have a zero ability to forecast this - oil has gone up from USD 90 to USD 125. So, maybe the markets are seeing this as perhaps a top for the time being and hopefully the oil prices will show some relief on the downward trend in the next 15 days or so and that could be a positive for global markets.
Q: What did you make of the inflation figures this afternoon and how does it translate into the performance of banks as most people are talking about more CRR hikes, given the liquidity environment, would you look at banks now?
A: I think PSU banks perhaps have some value story that one can look at. They fall into very low P/E ratios in terms of inflation and therefore the yield curve adjustment that is being done on the stock and trade of banks, that is a complete mark to market story that continues. I would not be that concerned just looking at bank’s value in that because that is not going to change.
With regard to the number itself, I think that number is anyway hidden because we don’t allow oil prices to impact our petrol and diesel prices in India. So, if you add that, then I think we have a horrendously high inflation number.
Where banks are concerned, when credit and capital becomes scarce, that is the situation right now, they usually benefit because they are able to pass on higher interest to the borrower. So, given that situation, I think they are better off and maybe you might just see some improvement in NIMs in the first quarter.
Q: What about power. Through this week, there have been dribs and drabs of interest in Tata Power, Suzlon Energy some of the allied stories. Is some kind of interest coming back there you think?
A: I think so. I think they took a huge beating after Reliance Power issue and Reliance Power was the frontrunner for evaluing and the movement of power stocks and as we know Reliance Power has gone up in the last two weeks and even quite strong today. The power generation story remains very much intact. The need for power is known to all of us and the fact that the valuations of these stocks are little higher side because the utility stock is a question mark. But merchant power is a big story in the offing and therefore I would always remain positive in power. You have over valuation, under valuation as a part of the game but at least for next two-three years power generation stocks and companies will us good results.
Q: Would you buy anything from the metals space both ferrous and non-ferrous?
A: I think commodities are going continue to show us a positive strength throughout the year. I will name two stocks in which I have a vested inertest in Tata Steel and Sterlite Industries.
Q: One word on what people traditionally expect of May and whether in that sense you expect it to be different sort of month?
A: I think May has always been a weak month and if one considers a fact that we are still far away from our highs, the market has shown a correction in the beginning of the month too. I don’t think May is usually a month where one should expect the market to be very aggressively poised but June remains a good month and therefore we may see nice platform being built for a rally in June. But I would be wary of buying at higher levels in May or buying any higher levels from here because one can always have volatility which may against for the rest of the month also. But on the whole it depends a lot on how global markets do and how oil does.
Q: Is this still a stock pickers market you would think?
A: The volatility in the market is definitely not something to be comfortable about. If you take last Friday, we closed weak and this Friday we are closing strong. The week does not have anything to do with what we had or what we felt about the market some time ago. So we are going to have to get used to this; it is a trader’s market. It is a market that is overweighed with fundamental concerns. You have oil prices at very high levels. But if oil recedes, then globally markets will start seeing some relief. Equities have had almost a 5-months underperformance. So, there will be more allocation to equities. But I think a lot rests on what is going to happen in oil in the next few days.
Q: You would rather not stock pick but what would be the advice for at least an investor if not a trader?
A: I would definitely stock pick. I think when a market falls like we saw, the fact that commodities have done well and I had advocated buying commodities; commodities look like it’s in an up cycle. Technology and midcap technology stocks are plenty of them which are still going to be revalued upwards, one can definitely look over there.
But one has to be careful of overvaluation like in the capital goods sector or an infrastructure space where perhaps from whatever we hear, the inflation is causing a slowdown and government purchases are going to recede because of the high fiscal deficit that we have in front of us. So selectively, definitely there is a case to be made for a many stocks to remain invested in. at what level to buy, I think that’s stock specific here.
Disclosures: It is safe to assume that my clients & I may have an interest in the stocks/sectors discussed.
Source: Moneycontrol.com
Excerpts from CNBC-TV18’s exclusive interview with Amit Dalal:
Q: How are you feeling about how this week has shaped up and what this month might throw up for the market?
A: I think the market is doing exactly what I thought it would and that is on a complete positive correlation to the US markets. US markets have given us a real surprise move upwards and has sustained even with such high oil prices.
My guess is and I have a zero ability to forecast this - oil has gone up from USD 90 to USD 125. So, maybe the markets are seeing this as perhaps a top for the time being and hopefully the oil prices will show some relief on the downward trend in the next 15 days or so and that could be a positive for global markets.
Q: What did you make of the inflation figures this afternoon and how does it translate into the performance of banks as most people are talking about more CRR hikes, given the liquidity environment, would you look at banks now?
A: I think PSU banks perhaps have some value story that one can look at. They fall into very low P/E ratios in terms of inflation and therefore the yield curve adjustment that is being done on the stock and trade of banks, that is a complete mark to market story that continues. I would not be that concerned just looking at bank’s value in that because that is not going to change.
With regard to the number itself, I think that number is anyway hidden because we don’t allow oil prices to impact our petrol and diesel prices in India. So, if you add that, then I think we have a horrendously high inflation number.
Where banks are concerned, when credit and capital becomes scarce, that is the situation right now, they usually benefit because they are able to pass on higher interest to the borrower. So, given that situation, I think they are better off and maybe you might just see some improvement in NIMs in the first quarter.
Q: What about power. Through this week, there have been dribs and drabs of interest in Tata Power, Suzlon Energy some of the allied stories. Is some kind of interest coming back there you think?
A: I think so. I think they took a huge beating after Reliance Power issue and Reliance Power was the frontrunner for evaluing and the movement of power stocks and as we know Reliance Power has gone up in the last two weeks and even quite strong today. The power generation story remains very much intact. The need for power is known to all of us and the fact that the valuations of these stocks are little higher side because the utility stock is a question mark. But merchant power is a big story in the offing and therefore I would always remain positive in power. You have over valuation, under valuation as a part of the game but at least for next two-three years power generation stocks and companies will us good results.
Q: Would you buy anything from the metals space both ferrous and non-ferrous?
A: I think commodities are going continue to show us a positive strength throughout the year. I will name two stocks in which I have a vested inertest in Tata Steel and Sterlite Industries.
Q: One word on what people traditionally expect of May and whether in that sense you expect it to be different sort of month?
A: I think May has always been a weak month and if one considers a fact that we are still far away from our highs, the market has shown a correction in the beginning of the month too. I don’t think May is usually a month where one should expect the market to be very aggressively poised but June remains a good month and therefore we may see nice platform being built for a rally in June. But I would be wary of buying at higher levels in May or buying any higher levels from here because one can always have volatility which may against for the rest of the month also. But on the whole it depends a lot on how global markets do and how oil does.
Q: Is this still a stock pickers market you would think?
A: The volatility in the market is definitely not something to be comfortable about. If you take last Friday, we closed weak and this Friday we are closing strong. The week does not have anything to do with what we had or what we felt about the market some time ago. So we are going to have to get used to this; it is a trader’s market. It is a market that is overweighed with fundamental concerns. You have oil prices at very high levels. But if oil recedes, then globally markets will start seeing some relief. Equities have had almost a 5-months underperformance. So, there will be more allocation to equities. But I think a lot rests on what is going to happen in oil in the next few days.
Q: You would rather not stock pick but what would be the advice for at least an investor if not a trader?
A: I would definitely stock pick. I think when a market falls like we saw, the fact that commodities have done well and I had advocated buying commodities; commodities look like it’s in an up cycle. Technology and midcap technology stocks are plenty of them which are still going to be revalued upwards, one can definitely look over there.
But one has to be careful of overvaluation like in the capital goods sector or an infrastructure space where perhaps from whatever we hear, the inflation is causing a slowdown and government purchases are going to recede because of the high fiscal deficit that we have in front of us. So selectively, definitely there is a case to be made for a many stocks to remain invested in. at what level to buy, I think that’s stock specific here.
Disclosures: It is safe to assume that my clients & I may have an interest in the stocks/sectors discussed.
Source: Moneycontrol.com
Negatives factored in; markets to trend upwards
Girish Nadkarni, ED-Capital Markets of Avendus Advisors NSE Media Centre and Mitesh Thakkar, VP - Private Client Group of Edelweiss believe markets will trade with an upward bias in the following few days.
Nadkarni said the market is likely to be rangebound with a positive bias in the near-term. It has taken negatives in its stride and so will trade with an upward bias.
While Thakkar believes one can expect to see selling after bouncebacks. He said 5,310 is an important technical level, followed by 5,410 and then 5,480 would be a stretch target.
Excerpts fom CNBC-TV18's exclusive interview with Girish Nadkarni and Mitesh Thakkar:
Q: How are you feeling about what this month might throw up? When we stepped into the week there was skepticism and by the time we have wrapped it up there is strength on the screen?
Nadkarni: I think a large part of the strength essentially stems from the fact that the markets have been beaten down very quickly this month and there has been some amount of short covering in this last week. Having said that, the belief is that valuations of stocks have reached fairly interesting levels. Therefore while markets are likely to be rangebound on account of mixed news coming out, in the next couple of weeks, markets will trade with an upward bias largely because of the valuations being good and bouts of short covering at points of time. Also a lot of the negative news has already discounted by the markets. So unless there is some serious new negative news that comes out, I think inflation, high oil prices, high commodity prices issues, the market has already taken in its stride. So I guess the markets would trade tend to trade with a slightly upward bias.
Q: What did you make of this week’s performance and do you think some of it was because of the short covering cushion we had or is the market genuinely showing you trading momentum towards the upside?
Thakkar: This was a very important week as far as technicals are concerned. We had a good rally before last week’s decline wherein the markets went up from 4,700 to 5,300 on the upside and last week we saw good profit booking happening. This week also we started on a negative note. The markets were not very strong on Monday and we did see some selling happening on Wednesday again, but the important part was that the support of 4,950 held on very well and on Thursday and today we saw a very good trading upside, which occurred in the indices. The good part of this rally was that a lot of trading stocks - the stocks which I would call as flavour stocks, the breadth improved to a very big extent. A lot of stocks like fertiliser and sugar, sectoral flavours have come back into the market and that is the very important part. With last two days' moves behind us, we can definitely look towards some more kind of upside left in this market.
Q: The target that has been talked about now is 5,300 - is that what you would watch for as well on the Nifty?
Thakkar: What has happened is that when the indices fell after the decline in January, we saw a lot of bouncebacks and a lot of intermediate peaks being recorded. So I think that one of the prominent fixtures of this upmove would be that we would see a lot of selling coming in from various technical levels or various peaks, which have been recorded as a result of the bounceback. So yes, 5,310 is an important technical level, followed by 5,410 and then we are looking at 5,480 as the stretch target.
Q: Oil and gas was a big performer through today’s session, how are you feeling about that entire pocket with specific reference to the only one standalone E&P play we have?
Nadkarni: I think with respect to E&P companies it is a goldmine except that for ONGC the subsidies are really a cause of concern and with the price of oil going up the subsidy bill keeps mounting for ONGC as well as the refining companies, since the burden is passed on. I would think that it is difficult times for all these companies although they have gone up today, especially the refining companies. I think unless there is certainty on how the subsidy bill is going to be shared by the government in terms of bonds, I would think of staying out. However, what is bad for the refining companies would be good for E&P companies. There is one company in the private sector Cairn Energy, which is doing very well. It is also a good time for ancillary companies, which feed off the E&P sector and those are companies that one should look at when the oil prices are high and likely to remain firm.
Q: Anything from there that you like technically?
Thakkar: There was a lot of action in the oil sector this week and Cairn has been enjoying very good momentum. We have been slightly positive on the stock, because it made a new high, so technically that’s a good breakout and the price targets are yet to be achieved. We are looking at an upside of around Rs 318 to Rs 320 on the stock - that’s a good stock. ONGC in fact was the dampener this week. We saw good declines happening on Monday, Tuesday and Wednesday. Rs 930 to Rs 910 is a good support range so I would advice to cover up the short side, but there is still no cue for people to start taking long positions over there.
Q: Would you watch the whole rate sensitive area more carefully from hereon?
Nadkarni: I would think so. I don’t agree that this week’s inflation has come as more of a shock. The analysis in terms of weekly data tends to be very volatile. But we have tested some of these numbers in our research and we find that if you actually compare the inflation rates over a three-year period and look at the inflation this week over the inflation three years back and plot that graph, it has a very stable, steady growth upwards. Some of these inflation numbers therefore can be predicted to remain in a fairly narrow band of between 4-6% when you compare a three-year CAGR.
Therefore, we expect there will be bouts of volatility in the weekly inflation rates and numbers that keep coming because these are CAGRs over a one-year period. If one were to look at it over a three-year period, our expectation is that inflation will continue in that band, if you see this weekly volatility continuing for the next couple of months. So, inflation is an area that will remain and play out over the next three-four months.
While inflation may look very bad from a market and industry over a medium-term perspective, with respect to market movements, it does not always happen that bouts of high inflation are followed by declining markets. It has its impact on interest rate sensitive sectors like autos or two-wheelers and things like that. But for the rest of the market, where it is not so critically dependent on the interest rate, you may not necessarily see a bad market, following the weekly numbers that keep throwing up on the inflation side.
Markets have after four-five weeks reckoned that inflation is going to stay and are kind of resigned to the fact that this will be an issue over the next couple of months.
Q: There is a big run of strength for the metals: Hindalco and Nalco are up 14-15% for the week. Does it look like a temporary bounce or would you trade some of these?
Thakkar: No, the metals are very attractive. The aluminium pack looks very good. Nalco is very close to its previous high of Rs 528-530 and that is where some supply can come in.
But if you were to look at a slightly longer-term picture, they look very good. In fact, Hindalco has had a very good breakout during the week on the weekly charts and giving a very strong closing.
The aluminium chart looks strong. So, these commodity driven stocks, particularly Nalco and Hindalco, are in the middle of a good uptrend. Over the next few weeks, we see good appreciation in the prices of these stocks. Even SAIL, after declaring its results today, gave a very strong move and we are seeing a lot of supply come in on these stocks at price levels around Rs 185-187.
So, I am looking at 10% more upside in SAIL, at least on a trading basis, and we will then take it from there.
Q: Many analysts are putting these gains down to what the global markets have been doing and the fact that we have more or less been mirroring global strength. How likely are the chances that we go back to test the March lows or get even close to that figure?
Thakkar: It is a very important question. Whenever a rally starts, the technical angle to look at these kind of upmoves would be that you are having some kind of bounceback. That is how we started this entire upmove from 4,600-4,700 levels. You are looking at a target of around 5,200-5,300, which we have reasonably achieved.
If this week we would have broken below 4,950, I would have bet strongly on the shorts and expected that this decline, that started the previous week, would have continued and probably in a much more severe manner.
We are still not sure on the longer-term charts that we are out of this entire declining mode. But with strong upmoves, temporary relief is there and we still see some kind of upside left in the markets.
But in the long-term, we are still not sure and my sense is that we might come back after a period of time and if not test, at least go very close to those levels.
Q: While inflation has been working at 7.5% for many weeks now, what came in a bit of a rush was the weakness for the rupee. Do you think that took the equity market by surprise?
Nadkarni: I would think so. I don’t think anybody expected this weakness in the rupee to happen so soon. In almost two-three weeks or probably less than that, we have seen almost 5-6% decline in the rupee. This has taken most people by surprise including the industry.
It is also reflected in some of the valuations of IT stocks. They have got some amount of breather because of sentiment that the earnings will look up on the back of a falling rupee.
Q: What sort of targets are you working with both on the upper and lower side for the Nifty for next week?
Thakkar: The upside targets remain 5,310 and 5,300 is a critical supply over here. If we are able to move above that, 5,410-5,420 is under the supply area. On the stretch side, we are looking at 5,480 as the technical target. On the downside, we probably will need to close below 5,000. 4,950 emerges as a big support range. There are going to be weekly averages being positioned over there. So, as long as we are above them, on a daily closing basis, we will keep bouncing back.
Q: A couple of large sized IPOs have got the go-ahead as well. Do you think the primary market is going to start opening up over the next few weeks?
Nadkarni: The sentiment is a little positive in the markets. If markets break the 18,000-18,500 levels and there is a rush of buying that happens, one will see the first of the IPOs or the big IPOs coming into the markets.
At this stage there doesn’t seem to be any significant change in the sentiment towards primary issues. But the markets have been trading in this band of 17,500-17,600 on the up and about 15,500 on the low side. It necessarily needs to break this trading band which may or may not happen in the next 1-2 months. Therefore, the issue of the new paper is critically dependent on market sentiment.
When that improves significantly, one will see the issue of new paper from some of these companies.
Source: Moneycontrol.com
Nadkarni said the market is likely to be rangebound with a positive bias in the near-term. It has taken negatives in its stride and so will trade with an upward bias.
While Thakkar believes one can expect to see selling after bouncebacks. He said 5,310 is an important technical level, followed by 5,410 and then 5,480 would be a stretch target.
Excerpts fom CNBC-TV18's exclusive interview with Girish Nadkarni and Mitesh Thakkar:
Q: How are you feeling about what this month might throw up? When we stepped into the week there was skepticism and by the time we have wrapped it up there is strength on the screen?
Nadkarni: I think a large part of the strength essentially stems from the fact that the markets have been beaten down very quickly this month and there has been some amount of short covering in this last week. Having said that, the belief is that valuations of stocks have reached fairly interesting levels. Therefore while markets are likely to be rangebound on account of mixed news coming out, in the next couple of weeks, markets will trade with an upward bias largely because of the valuations being good and bouts of short covering at points of time. Also a lot of the negative news has already discounted by the markets. So unless there is some serious new negative news that comes out, I think inflation, high oil prices, high commodity prices issues, the market has already taken in its stride. So I guess the markets would trade tend to trade with a slightly upward bias.
Q: What did you make of this week’s performance and do you think some of it was because of the short covering cushion we had or is the market genuinely showing you trading momentum towards the upside?
Thakkar: This was a very important week as far as technicals are concerned. We had a good rally before last week’s decline wherein the markets went up from 4,700 to 5,300 on the upside and last week we saw good profit booking happening. This week also we started on a negative note. The markets were not very strong on Monday and we did see some selling happening on Wednesday again, but the important part was that the support of 4,950 held on very well and on Thursday and today we saw a very good trading upside, which occurred in the indices. The good part of this rally was that a lot of trading stocks - the stocks which I would call as flavour stocks, the breadth improved to a very big extent. A lot of stocks like fertiliser and sugar, sectoral flavours have come back into the market and that is the very important part. With last two days' moves behind us, we can definitely look towards some more kind of upside left in this market.
Q: The target that has been talked about now is 5,300 - is that what you would watch for as well on the Nifty?
Thakkar: What has happened is that when the indices fell after the decline in January, we saw a lot of bouncebacks and a lot of intermediate peaks being recorded. So I think that one of the prominent fixtures of this upmove would be that we would see a lot of selling coming in from various technical levels or various peaks, which have been recorded as a result of the bounceback. So yes, 5,310 is an important technical level, followed by 5,410 and then we are looking at 5,480 as the stretch target.
Q: Oil and gas was a big performer through today’s session, how are you feeling about that entire pocket with specific reference to the only one standalone E&P play we have?
Nadkarni: I think with respect to E&P companies it is a goldmine except that for ONGC the subsidies are really a cause of concern and with the price of oil going up the subsidy bill keeps mounting for ONGC as well as the refining companies, since the burden is passed on. I would think that it is difficult times for all these companies although they have gone up today, especially the refining companies. I think unless there is certainty on how the subsidy bill is going to be shared by the government in terms of bonds, I would think of staying out. However, what is bad for the refining companies would be good for E&P companies. There is one company in the private sector Cairn Energy, which is doing very well. It is also a good time for ancillary companies, which feed off the E&P sector and those are companies that one should look at when the oil prices are high and likely to remain firm.
Q: Anything from there that you like technically?
Thakkar: There was a lot of action in the oil sector this week and Cairn has been enjoying very good momentum. We have been slightly positive on the stock, because it made a new high, so technically that’s a good breakout and the price targets are yet to be achieved. We are looking at an upside of around Rs 318 to Rs 320 on the stock - that’s a good stock. ONGC in fact was the dampener this week. We saw good declines happening on Monday, Tuesday and Wednesday. Rs 930 to Rs 910 is a good support range so I would advice to cover up the short side, but there is still no cue for people to start taking long positions over there.
Q: Would you watch the whole rate sensitive area more carefully from hereon?
Nadkarni: I would think so. I don’t agree that this week’s inflation has come as more of a shock. The analysis in terms of weekly data tends to be very volatile. But we have tested some of these numbers in our research and we find that if you actually compare the inflation rates over a three-year period and look at the inflation this week over the inflation three years back and plot that graph, it has a very stable, steady growth upwards. Some of these inflation numbers therefore can be predicted to remain in a fairly narrow band of between 4-6% when you compare a three-year CAGR.
Therefore, we expect there will be bouts of volatility in the weekly inflation rates and numbers that keep coming because these are CAGRs over a one-year period. If one were to look at it over a three-year period, our expectation is that inflation will continue in that band, if you see this weekly volatility continuing for the next couple of months. So, inflation is an area that will remain and play out over the next three-four months.
While inflation may look very bad from a market and industry over a medium-term perspective, with respect to market movements, it does not always happen that bouts of high inflation are followed by declining markets. It has its impact on interest rate sensitive sectors like autos or two-wheelers and things like that. But for the rest of the market, where it is not so critically dependent on the interest rate, you may not necessarily see a bad market, following the weekly numbers that keep throwing up on the inflation side.
Markets have after four-five weeks reckoned that inflation is going to stay and are kind of resigned to the fact that this will be an issue over the next couple of months.
Q: There is a big run of strength for the metals: Hindalco and Nalco are up 14-15% for the week. Does it look like a temporary bounce or would you trade some of these?
Thakkar: No, the metals are very attractive. The aluminium pack looks very good. Nalco is very close to its previous high of Rs 528-530 and that is where some supply can come in.
But if you were to look at a slightly longer-term picture, they look very good. In fact, Hindalco has had a very good breakout during the week on the weekly charts and giving a very strong closing.
The aluminium chart looks strong. So, these commodity driven stocks, particularly Nalco and Hindalco, are in the middle of a good uptrend. Over the next few weeks, we see good appreciation in the prices of these stocks. Even SAIL, after declaring its results today, gave a very strong move and we are seeing a lot of supply come in on these stocks at price levels around Rs 185-187.
So, I am looking at 10% more upside in SAIL, at least on a trading basis, and we will then take it from there.
Q: Many analysts are putting these gains down to what the global markets have been doing and the fact that we have more or less been mirroring global strength. How likely are the chances that we go back to test the March lows or get even close to that figure?
Thakkar: It is a very important question. Whenever a rally starts, the technical angle to look at these kind of upmoves would be that you are having some kind of bounceback. That is how we started this entire upmove from 4,600-4,700 levels. You are looking at a target of around 5,200-5,300, which we have reasonably achieved.
If this week we would have broken below 4,950, I would have bet strongly on the shorts and expected that this decline, that started the previous week, would have continued and probably in a much more severe manner.
We are still not sure on the longer-term charts that we are out of this entire declining mode. But with strong upmoves, temporary relief is there and we still see some kind of upside left in the markets.
But in the long-term, we are still not sure and my sense is that we might come back after a period of time and if not test, at least go very close to those levels.
Q: While inflation has been working at 7.5% for many weeks now, what came in a bit of a rush was the weakness for the rupee. Do you think that took the equity market by surprise?
Nadkarni: I would think so. I don’t think anybody expected this weakness in the rupee to happen so soon. In almost two-three weeks or probably less than that, we have seen almost 5-6% decline in the rupee. This has taken most people by surprise including the industry.
It is also reflected in some of the valuations of IT stocks. They have got some amount of breather because of sentiment that the earnings will look up on the back of a falling rupee.
Q: What sort of targets are you working with both on the upper and lower side for the Nifty for next week?
Thakkar: The upside targets remain 5,310 and 5,300 is a critical supply over here. If we are able to move above that, 5,410-5,420 is under the supply area. On the stretch side, we are looking at 5,480 as the technical target. On the downside, we probably will need to close below 5,000. 4,950 emerges as a big support range. There are going to be weekly averages being positioned over there. So, as long as we are above them, on a daily closing basis, we will keep bouncing back.
Q: A couple of large sized IPOs have got the go-ahead as well. Do you think the primary market is going to start opening up over the next few weeks?
Nadkarni: The sentiment is a little positive in the markets. If markets break the 18,000-18,500 levels and there is a rush of buying that happens, one will see the first of the IPOs or the big IPOs coming into the markets.
At this stage there doesn’t seem to be any significant change in the sentiment towards primary issues. But the markets have been trading in this band of 17,500-17,600 on the up and about 15,500 on the low side. It necessarily needs to break this trading band which may or may not happen in the next 1-2 months. Therefore, the issue of the new paper is critically dependent on market sentiment.
When that improves significantly, one will see the issue of new paper from some of these companies.
Source: Moneycontrol.com
Wednesday, May 14, 2008
Rupee breaches 42.5/$; will touch 43 in short-term
Rupee has breached 42.50. Experts believe, in the absence of any intervention in the markets, it's very difficult for rupee to appreciate. In the next few sessions, rupee is likely to continue to weaken.
Subramaniam Sharma of Greenback Forex said he saw it coming. "It was on the cards this morning because the rupee closed on a weak note yesterday. Crude prices were also looking up around USD 126/bbl and it was very clearly an indication that the rupee may slide further," he said.
He expects RBI to take some action against this steady downfall.
While Agum Gupta, Head - Forex, Standard Chartered Bank thinks 43 is not very far away for the rupee. "We are already at Rs 42.50 and the way we have been moving 40 to 50 paise a day, has become pretty easy. So I don’t see why Rs 43 can be considered to be too far away," he said.
In fact, Sundeep Bhandari of Standard Chartered Bank is also of the view that 43 is conceivable for the rupee. He said, "It looks like the rupee is headfirst towards the 43 level, I would not relate to 44. The sentiment appears to be one way, inflation, oil prices, exporters holding back, flows are flat and the current account deficit, so the sentiment is very negative and in the absence of any support certainly it could weaken further."
All experts agree that this downhill trend that the rupee has adopted is creating a lot of negative sentiment in the market.
In the longer-term, Bhandari sees the rupee coming back to 42.5 levels by September. "I think we are going to see considerable volatility over the next weeks, perhaps months, on the rupee."
Bhandari's advice to importers is to hold on because, "If one can wait a month, the rupee will get a bit cheaper, but the index in the few session is likely to weaken. So towards June-end and July, we can see rupee at 41.50-41.70 levels."
It seems that there might have been some position unwinding in the market. Ashit Parekh of IndusInd Bank said, "I think the speed at which we have seen weakening of the rupee has taken everybody by surprise. After a break of 42.25-42.30 this morning, it just went straight upto 42.60-42.65 levels. I think for the next few days 42.75-42.80 even touching 43 level is definitely on the cards."
He thinks the only way rupee can get stronger again is through intervention by the RBI, or a sudden overnight correction in the oil market.
Both Bhandari and Parekh sense that exporters have been lying low. "Quite a lot of them probably have already booked part of their exposure at 41.50. They just need to wait on the sidelines till the buying subsides and then start booking in exports," said Parekh.
Bhandari explains, "I think the exporters are holding back and they sense that the rupee is going to weaken further, hence they are holding back."
Source: Moneycontrol.com
Subramaniam Sharma of Greenback Forex said he saw it coming. "It was on the cards this morning because the rupee closed on a weak note yesterday. Crude prices were also looking up around USD 126/bbl and it was very clearly an indication that the rupee may slide further," he said.
He expects RBI to take some action against this steady downfall.
While Agum Gupta, Head - Forex, Standard Chartered Bank thinks 43 is not very far away for the rupee. "We are already at Rs 42.50 and the way we have been moving 40 to 50 paise a day, has become pretty easy. So I don’t see why Rs 43 can be considered to be too far away," he said.
In fact, Sundeep Bhandari of Standard Chartered Bank is also of the view that 43 is conceivable for the rupee. He said, "It looks like the rupee is headfirst towards the 43 level, I would not relate to 44. The sentiment appears to be one way, inflation, oil prices, exporters holding back, flows are flat and the current account deficit, so the sentiment is very negative and in the absence of any support certainly it could weaken further."
All experts agree that this downhill trend that the rupee has adopted is creating a lot of negative sentiment in the market.
In the longer-term, Bhandari sees the rupee coming back to 42.5 levels by September. "I think we are going to see considerable volatility over the next weeks, perhaps months, on the rupee."
Bhandari's advice to importers is to hold on because, "If one can wait a month, the rupee will get a bit cheaper, but the index in the few session is likely to weaken. So towards June-end and July, we can see rupee at 41.50-41.70 levels."
It seems that there might have been some position unwinding in the market. Ashit Parekh of IndusInd Bank said, "I think the speed at which we have seen weakening of the rupee has taken everybody by surprise. After a break of 42.25-42.30 this morning, it just went straight upto 42.60-42.65 levels. I think for the next few days 42.75-42.80 even touching 43 level is definitely on the cards."
He thinks the only way rupee can get stronger again is through intervention by the RBI, or a sudden overnight correction in the oil market.
Both Bhandari and Parekh sense that exporters have been lying low. "Quite a lot of them probably have already booked part of their exposure at 41.50. They just need to wait on the sidelines till the buying subsides and then start booking in exports," said Parekh.
Bhandari explains, "I think the exporters are holding back and they sense that the rupee is going to weaken further, hence they are holding back."
Source: Moneycontrol.com
Markets may trade rangebound around 4,900-5,300
The markets put on an impressive show of strength. The indices were a bit sluggish off the blocks, but strong buying interest in stocks across sectors powered the markets higher. The Nifty closed at 5,012 up 54 points, while the Sensex shut shop at 16,978 up 225 points.
Technical Analyst Ashwani Gujral said the Nifty is trading a narrow range of 4,900-5,100. "The takeaway here is that there is several factors which are against and in favour of the market. One had bad IIP numbers, and oil prices going through the roof, but inspite of a lot of bad news, 4,900 is holding up. My guess is that we will probably break the 4,900 level, collect enough shorts out there, and only then we will be able to go past 5,100. Till then, we will trade rangebound."
Investors should keep their commitments light, he said.
Rajesh Jain, Director and CEO, Pranav Securities, said there is a bit of a political overhang on the markets given the fact that Karnataka elections are underway and the results could have some sort of bearing on the fortunes of the Congress and what its constituents could offer in terms of continued support. "Commitments are slowing down as there will be tremendous volatility should the political boat be shaken. To that extent, despite good corporate numbers and in the absence of news flows other than monsoon over the next 15 days, people are not going ahead with all their buy orders."
He finds the markets fairly stable. "We have not seen the return of panic even though the market has slipped from 5,250 levels all the way down to 4,900 levels, which is a good sign. Despite all the bad news, 4,900 has held and to that extent it will continue to give confidence to investors who are venturing out to buy on a long-term investment basis. That will keep the underpinning of the market fairly stable, if not very strong. The Nifty is likely to trade rangebound around 4,900-5,300 in May."
Jain feels this is not the time for profit taking or portfolio unwinding of long-term investments. "This is a market where you really look for the right levels to buy all the stocks that you wanting to hold and you couldn't dream of buying them because the markets had gone pass 6,000 mark on the Nifty or the 20,000 mark on the Sensex. This is a market where you really try and get your bargains cheap."
Jacqueline Aldhous, Head – Research, Crosby Forsyth Research said there is a lot of uncertainty in the markets and people are wary of entering it. “There is still a lot of nervousness and uncertainty. People are still very wary about diving in. Inflation is a problem and oil is a problem in emerging markets,” she said.
Source: Moneycontrol.com
Technical Analyst Ashwani Gujral said the Nifty is trading a narrow range of 4,900-5,100. "The takeaway here is that there is several factors which are against and in favour of the market. One had bad IIP numbers, and oil prices going through the roof, but inspite of a lot of bad news, 4,900 is holding up. My guess is that we will probably break the 4,900 level, collect enough shorts out there, and only then we will be able to go past 5,100. Till then, we will trade rangebound."
Investors should keep their commitments light, he said.
Rajesh Jain, Director and CEO, Pranav Securities, said there is a bit of a political overhang on the markets given the fact that Karnataka elections are underway and the results could have some sort of bearing on the fortunes of the Congress and what its constituents could offer in terms of continued support. "Commitments are slowing down as there will be tremendous volatility should the political boat be shaken. To that extent, despite good corporate numbers and in the absence of news flows other than monsoon over the next 15 days, people are not going ahead with all their buy orders."
He finds the markets fairly stable. "We have not seen the return of panic even though the market has slipped from 5,250 levels all the way down to 4,900 levels, which is a good sign. Despite all the bad news, 4,900 has held and to that extent it will continue to give confidence to investors who are venturing out to buy on a long-term investment basis. That will keep the underpinning of the market fairly stable, if not very strong. The Nifty is likely to trade rangebound around 4,900-5,300 in May."
Jain feels this is not the time for profit taking or portfolio unwinding of long-term investments. "This is a market where you really look for the right levels to buy all the stocks that you wanting to hold and you couldn't dream of buying them because the markets had gone pass 6,000 mark on the Nifty or the 20,000 mark on the Sensex. This is a market where you really try and get your bargains cheap."
Jacqueline Aldhous, Head – Research, Crosby Forsyth Research said there is a lot of uncertainty in the markets and people are wary of entering it. “There is still a lot of nervousness and uncertainty. People are still very wary about diving in. Inflation is a problem and oil is a problem in emerging markets,” she said.
Source: Moneycontrol.com
Tuesday, May 13, 2008
Buy Dwarikesh Sugar, tgt Rs 95
PINC has maintained buy rating on Dwarikesh Sugar Industries with target price of Rs 95 in its May 13, 2008 report. "Dwarikesh Sugar Industries Ltd.’s (DSIL) net sales surged by 36% YoY to Rs866 million in Q2FY08. Commissioning of Dwarikesh Dham unit (7,500 TCD and 24 MW saleable cogen) and 24 MW cogen unit at Dwarikesh Puram were the key reasons for the sales growth. Sugar volumes rose by 27% to 37.5k mt whereas realisations were down by 2% YoY and up by 4% QoQ to Rs13.8k/mt. The other key development was the commissioning of its 24 MW each cogen plants at Dwarikesh Dham and Dwarikesh Puram in Feb’08, which were postponed on account of delays in installing evacuation lines from power plants to the state grid. The future profitability of the company will come primarily from its 56 MW (saleable) cogen power plants. This, coupled with firm sugar prices is likely to boost the company’s margins and improve its cash flows. Hence, we maintain our ‘BUY’ recommendation with a price target of Rs 95 (as against our earlier target of Rs 130) on an investment perspective of one year" according to PINC report.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Source: Moneycontrol.com
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Source: Moneycontrol.com
Buy Kotak Mahindra Bank
Edelweiss has maintained its buy rating on Kotak Mahindra Bank in its May 12, 2008 research report. "Kotak Mahindra Bank (KMB)’s Q4FY08 results reflect a mix of the non-conducive capital market environment and unfavorable treasury/forex operations, being partially offset by continued traction in the commercial and investment banking (IB) businesses. Consolidated PAT (excluding life insurance) declined 37% Q-o-Q (34% growth Y-o-Y) to INR 2.4 billion (in-line with estimates). Profitability (standalone) declined 32% Q-o-Q, despite 12% Q-o-Q growth in NII, due to lower treasury income and provisions for MTM losses. Sharp correction in the equity markets led to a plunge in the profits of the broking and asset management businesses; however, IB reported better–than-expected profits of INR 254 million."
"Our revised consolidated EPS (excluding insurance) now stands at INR 31.9 for FY09E and INR 39.1 for FY10E. The stock is trading at 15x FY10E earnings and 2.3x FY10E book. Our SOTP fair value for the stock, based on FY10 estimates, is Rs 1003 per share. We maintain our ‘BUY’ recommendation," says Edelweiss.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Source: Moneycontrol.com
"Our revised consolidated EPS (excluding insurance) now stands at INR 31.9 for FY09E and INR 39.1 for FY10E. The stock is trading at 15x FY10E earnings and 2.3x FY10E book. Our SOTP fair value for the stock, based on FY10 estimates, is Rs 1003 per share. We maintain our ‘BUY’ recommendation," says Edelweiss.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Source: Moneycontrol.com
Markets likely to re-test Jan lows
Jyoti Vaswani, Assistant Director, Fund Management, Aviva Life, said the markets are in a consolidation phase. "A correction was overdue after the rally."
He feels there is a possibility that markets will re-test its January lows. "There are negative cues from the economic data, lack of confidence among investors, IIP slowdown, and high crude prices. Investors are not rushing in to buy, and fundamentals do not look very positive."
Sushil Kedia, Head-Institutional Equities, K&A Securities, said there has been a sector rotation. "The market has not found clear sector moves."
He feels the markets will remain choppy for the next 3-4 days. "The Nifty is likely to be trade rangebound between 4,600 and 5,300 for the rest of May. The markets may bottom in few days and can provide buying opportunities for investors."
Excerpts from CNBC-TV18’s exclusive interview with Jyoti Vaswani and Sushil Kedia:
Q: What have you made of the way this month has started? Where do you think we will end up by the end of this series?
Vaswani: Markets are in a consolidation phase and we had seen the peak of 21,000 some time in January. Obviously, the valuations have got really stretched at a point in time. So, a correction was overdue. Given that the markets have now stabilized, the market should consolidate in the medium-term. That is healthy also for the markets because a one-way upward rally with valuations getting to unreasonable levels is always a more dangerous situation to be in.
Q: How wide a range would you give the market? How high are the chances that it actually goes back to test the lows we have seen earlier this year?
Vaswani: I would not like to get into numbers. But there is a possibility that the previous lows of this year could be retested, given the fact that the data that is coming out is not really very healthy.
Though there has been some moderation in the group numbers, inflation data is a cause of concern and the global risks that are currently prevalent in the world markets. Given this scenario, it would be possible that the market could re-test the lows of this calendar year.
I would still say that the markets would consolidate with these levels probably for quite some time.
Q: What do you think is going to drag this market back to the lows we saw earlier this year? Is it the way the currency has been moving, the big crude shock that we have had to deal with or is there a lack of cash commitment right now-domestic or foreign?
Vaswani: There is a lack of confidence in the marketplace, essentially arising from the factors mentioned. Crude prices are testing new highs and obviously that is putting pressure. You also have the currency, which is actually depreciating, and this would have an impact on our current account deficits. India is perhaps one of the few emerging markets, where there is a current account deficit. It could affect the flows that come into India, in the short-term. So, there is a possibility of a moderation in capital flows.
All these factors are obviously playing on the minds of players and probably the investment that is coming in at a slow pace. I don’t think people are really rushing in to buy given that the fundamentals are not so favourable at this point in time.
Q: What is the domestic money doing? We keep hearing the converging reports about what the mutual fund cash levels are at. How deeply deployed is the cash amongst the domestic fraternity?
Vaswani: The flow, as far as the insurance industry is concerned, has been very robust. We have seen practically 100% growth in the AUM, in the last financial year, which is a very good growth. Even now, post the March quarter, which is obviously the best quarter for the insurance industry, we have seen very good flows coming in.
Some of the insurance companies might be sitting on a little bit of cash. But most of the times, the money is deployed into the markets. So, the cash levels may not be as high as may be perceived.
Q: Have you made any tactical changes, by way of sectoral preferences?
Vaswani: Earnings have been in line with expectations. Perhaps, the surprise has been from the banking sector where the expectation was perhaps of worse numbers than what actually came in.
The numbers for the banking segment and financials came much better than expected. So, to that extent, there has been a slight change in our allocations. But apart from that, results have been in line with expectations. We have not really changed much, in terms of our sectoral allocations post the numbers.
Q: How has the week started off? What is the best way for a Nifty trader to approach such a volatile market?
Kedia: It has perhaps been a rewarding trade for a minority of day traders. The Nifty may remain choppy like this for another 3-4 days and should be avoided for the remainder of this week.
As it pulls lower from here, 4,870 is one level that may or may not break. Then, you have 4,670, all the way down to 4,600.
So, perhaps rather than looking at price, one should take a break away from the Nifty for the next 3-4 days and see where a sustainable reversal should build up and only then there should be a trade there. It is already quite late on the short side of Nifty here.
Q: What is your sense of what this series might throw up? Is there a greater chance that we will get towards that 5,150-5,200 mark or is there a bigger chance that we actually go down to test the lows that we had in March?
Kedia: 4,600 to 5,300 should be the range for the remainder part of this series. As of now, it has been going down. Over the next three days, a reversal can come. After that, the speed it will take up and the number of days it takes to race back to 5,300 is difficult for me to say right away. But broadly speaking, that remains the range.
Q: How are you viewing oil and gas as a space?
Vaswani: That is a sector that is going through a very bad patch, in terms of the oil marketing companies. There is an election year and the prices may not go up to reflect the increase in crude prices.
Obviously, both the upstream and the downstream companies are going to bear the brunt. In that sector, it is beyond their control. They are trying their best and lobbying with the government to reduce the burden on them.
But it doesn’t look like the government is going to be listening to them too much given the fact that inflation is high and this is an election year. So, that space is going to continue to have some problems, going forward.
Q: What do you see on the charts of stocks like Cairn and ONGC?
Kedia: Cairn opened with a large gap up at Rs 306 today. Yesterday, it was closing at about Rs 300 but it opened 2% higher. This large gap up opening and sustained selling through the day is a very potent reversal signal.
Around Rs 306-309 was in any case a make or a break level because there were no previous yardsticks to make a comparison.
ONGC has been having a sort of rising wedge, within which it is getting closer to the lower boundary. Around Rs 940 is where the lower boundary will be. It looks difficult that it is going to be breaking that right away in this descent. Post this Rs 940, another bounceback to Rs 1,100 and from there a re-sustained fall should come on Wednesday.
Q: Where is the relative resilience in the Sensex or the Nifty right now? If you had to pick a pocket that might actually insulate this market from falling too much, what do you think that might be?
Kedia: We have witnessed a slowing down of the sector rotations. The sector rotations have really not been there and individual stocks have been finding their own reversal days. The market has been really bereft of any broad sweeping themes with which fundamental trades could be found.
Over the next three-four days, as and when the final reversal comes, SBI, which has been far larger underperformer for quite sometime may see a sustained reversal. It can provide a fillip, while the other larger stocks are languishing.
So, it’s still early days. Let us wait for three-four days and see where the new leadership for the new rally will come. Chances are it can be MTNL where there is a buy trade tomorrow and SBI might accumulate over the next two-three days with a patience to be able to withstand Rs 70-80 worth of drawdowns, which is really good for cash portfolio investors.
The other stocks are just rotating around. So, maybe the refineries have been really deeply oversold. There is so much of noise about the oil price hike.
Perhaps, the market has already been sensing that and has sold them down quite deeply. So, it may not be an appealing idea to go and invest in refineries. They might produce that bounceback. In that, the Nifty may not really fall as much as in the sort of downside volatility still persisting in some other stocks.
Q: The IIP numbers looked quite disappointing. Are you changing the way you are looking at capital goods as a space now?
Kedia: I am not too concerned about the capital goods sector because the long-term growth story for the sector is intact. Their order books are very robust.
Due to some capacity constraints, the numbers reported by some large capital goods companies were slightly below expectations. But that’s going to reverse and you will see the numbers coming back on track because the order books are very strong. We really don’t foresee any problems on that front and believe that capital investment into the country is continuing. We don’t see an issue on that front as of now.
Q: Would you recommend any sort of positional trade for someone who wants to play the series?
Kedia: My worry is only in the direction of the next 2-3 days. By Thursday or Friday, the markets would have perhaps made a real tradable bottom from which many opportunities might emanate. Some might emanate even earlier than that.
Capital goods as a sector is one which is looking to add to the Nifty on the higher side when this reversal comes. So, it’s just a matter of biding your patience for the next 2-3 days and perhaps start looking for building positional trades again.
Source: Moneycontrol.com
He feels there is a possibility that markets will re-test its January lows. "There are negative cues from the economic data, lack of confidence among investors, IIP slowdown, and high crude prices. Investors are not rushing in to buy, and fundamentals do not look very positive."
Sushil Kedia, Head-Institutional Equities, K&A Securities, said there has been a sector rotation. "The market has not found clear sector moves."
He feels the markets will remain choppy for the next 3-4 days. "The Nifty is likely to be trade rangebound between 4,600 and 5,300 for the rest of May. The markets may bottom in few days and can provide buying opportunities for investors."
Excerpts from CNBC-TV18’s exclusive interview with Jyoti Vaswani and Sushil Kedia:
Q: What have you made of the way this month has started? Where do you think we will end up by the end of this series?
Vaswani: Markets are in a consolidation phase and we had seen the peak of 21,000 some time in January. Obviously, the valuations have got really stretched at a point in time. So, a correction was overdue. Given that the markets have now stabilized, the market should consolidate in the medium-term. That is healthy also for the markets because a one-way upward rally with valuations getting to unreasonable levels is always a more dangerous situation to be in.
Q: How wide a range would you give the market? How high are the chances that it actually goes back to test the lows we have seen earlier this year?
Vaswani: I would not like to get into numbers. But there is a possibility that the previous lows of this year could be retested, given the fact that the data that is coming out is not really very healthy.
Though there has been some moderation in the group numbers, inflation data is a cause of concern and the global risks that are currently prevalent in the world markets. Given this scenario, it would be possible that the market could re-test the lows of this calendar year.
I would still say that the markets would consolidate with these levels probably for quite some time.
Q: What do you think is going to drag this market back to the lows we saw earlier this year? Is it the way the currency has been moving, the big crude shock that we have had to deal with or is there a lack of cash commitment right now-domestic or foreign?
Vaswani: There is a lack of confidence in the marketplace, essentially arising from the factors mentioned. Crude prices are testing new highs and obviously that is putting pressure. You also have the currency, which is actually depreciating, and this would have an impact on our current account deficits. India is perhaps one of the few emerging markets, where there is a current account deficit. It could affect the flows that come into India, in the short-term. So, there is a possibility of a moderation in capital flows.
All these factors are obviously playing on the minds of players and probably the investment that is coming in at a slow pace. I don’t think people are really rushing in to buy given that the fundamentals are not so favourable at this point in time.
Q: What is the domestic money doing? We keep hearing the converging reports about what the mutual fund cash levels are at. How deeply deployed is the cash amongst the domestic fraternity?
Vaswani: The flow, as far as the insurance industry is concerned, has been very robust. We have seen practically 100% growth in the AUM, in the last financial year, which is a very good growth. Even now, post the March quarter, which is obviously the best quarter for the insurance industry, we have seen very good flows coming in.
Some of the insurance companies might be sitting on a little bit of cash. But most of the times, the money is deployed into the markets. So, the cash levels may not be as high as may be perceived.
Q: Have you made any tactical changes, by way of sectoral preferences?
Vaswani: Earnings have been in line with expectations. Perhaps, the surprise has been from the banking sector where the expectation was perhaps of worse numbers than what actually came in.
The numbers for the banking segment and financials came much better than expected. So, to that extent, there has been a slight change in our allocations. But apart from that, results have been in line with expectations. We have not really changed much, in terms of our sectoral allocations post the numbers.
Q: How has the week started off? What is the best way for a Nifty trader to approach such a volatile market?
Kedia: It has perhaps been a rewarding trade for a minority of day traders. The Nifty may remain choppy like this for another 3-4 days and should be avoided for the remainder of this week.
As it pulls lower from here, 4,870 is one level that may or may not break. Then, you have 4,670, all the way down to 4,600.
So, perhaps rather than looking at price, one should take a break away from the Nifty for the next 3-4 days and see where a sustainable reversal should build up and only then there should be a trade there. It is already quite late on the short side of Nifty here.
Q: What is your sense of what this series might throw up? Is there a greater chance that we will get towards that 5,150-5,200 mark or is there a bigger chance that we actually go down to test the lows that we had in March?
Kedia: 4,600 to 5,300 should be the range for the remainder part of this series. As of now, it has been going down. Over the next three days, a reversal can come. After that, the speed it will take up and the number of days it takes to race back to 5,300 is difficult for me to say right away. But broadly speaking, that remains the range.
Q: How are you viewing oil and gas as a space?
Vaswani: That is a sector that is going through a very bad patch, in terms of the oil marketing companies. There is an election year and the prices may not go up to reflect the increase in crude prices.
Obviously, both the upstream and the downstream companies are going to bear the brunt. In that sector, it is beyond their control. They are trying their best and lobbying with the government to reduce the burden on them.
But it doesn’t look like the government is going to be listening to them too much given the fact that inflation is high and this is an election year. So, that space is going to continue to have some problems, going forward.
Q: What do you see on the charts of stocks like Cairn and ONGC?
Kedia: Cairn opened with a large gap up at Rs 306 today. Yesterday, it was closing at about Rs 300 but it opened 2% higher. This large gap up opening and sustained selling through the day is a very potent reversal signal.
Around Rs 306-309 was in any case a make or a break level because there were no previous yardsticks to make a comparison.
ONGC has been having a sort of rising wedge, within which it is getting closer to the lower boundary. Around Rs 940 is where the lower boundary will be. It looks difficult that it is going to be breaking that right away in this descent. Post this Rs 940, another bounceback to Rs 1,100 and from there a re-sustained fall should come on Wednesday.
Q: Where is the relative resilience in the Sensex or the Nifty right now? If you had to pick a pocket that might actually insulate this market from falling too much, what do you think that might be?
Kedia: We have witnessed a slowing down of the sector rotations. The sector rotations have really not been there and individual stocks have been finding their own reversal days. The market has been really bereft of any broad sweeping themes with which fundamental trades could be found.
Over the next three-four days, as and when the final reversal comes, SBI, which has been far larger underperformer for quite sometime may see a sustained reversal. It can provide a fillip, while the other larger stocks are languishing.
So, it’s still early days. Let us wait for three-four days and see where the new leadership for the new rally will come. Chances are it can be MTNL where there is a buy trade tomorrow and SBI might accumulate over the next two-three days with a patience to be able to withstand Rs 70-80 worth of drawdowns, which is really good for cash portfolio investors.
The other stocks are just rotating around. So, maybe the refineries have been really deeply oversold. There is so much of noise about the oil price hike.
Perhaps, the market has already been sensing that and has sold them down quite deeply. So, it may not be an appealing idea to go and invest in refineries. They might produce that bounceback. In that, the Nifty may not really fall as much as in the sort of downside volatility still persisting in some other stocks.
Q: The IIP numbers looked quite disappointing. Are you changing the way you are looking at capital goods as a space now?
Kedia: I am not too concerned about the capital goods sector because the long-term growth story for the sector is intact. Their order books are very robust.
Due to some capacity constraints, the numbers reported by some large capital goods companies were slightly below expectations. But that’s going to reverse and you will see the numbers coming back on track because the order books are very strong. We really don’t foresee any problems on that front and believe that capital investment into the country is continuing. We don’t see an issue on that front as of now.
Q: Would you recommend any sort of positional trade for someone who wants to play the series?
Kedia: My worry is only in the direction of the next 2-3 days. By Thursday or Friday, the markets would have perhaps made a real tradable bottom from which many opportunities might emanate. Some might emanate even earlier than that.
Capital goods as a sector is one which is looking to add to the Nifty on the higher side when this reversal comes. So, it’s just a matter of biding your patience for the next 2-3 days and perhaps start looking for building positional trades again.
Source: Moneycontrol.com
Subscribe to:
Posts (Atom)