Daily Market Strategy - Choke off waste
The secret of all power is - save your force. If you want high pressure you must choke off waste.
Looks like its going to be the year of mega deals involving Indian companies, be it inbound or outbound. After the Tata-Corus blockbuster, we now have the Hindalco-Novelis deal and the Vodafone-Hutch Essar thriller. As far as stock market is concerned Hindalco shares could come under pressure just like Tata Steel owing to worries about the high debt component of the transaction. But, for those who have the patience to wait can look at buying the stock at lower levels. Reliance Communications and Bharti Airtel are likely to gain, as Vodafone has valued Hutch Essar at 24.6 times EBIDTA. The Idea Cellular IPO also opens today. So keep an eye on the telecom counters.
Coming to the broader market, we expect a subdued opening, as worries about inflation and fears of more rate increases could offset the resurgence in FII inflows and strong economic numbers. The government will release the latest industrial production data at noon today. Though there may be some cooling, overall numbers are expected to be strong, further fanning the fears over more rate hikes by the RBI. Global cues are not encouraging either. US stocks closed in the red on Friday. Barring the Nikkei in Japan, most Asian markets are trading weak. Oil remains above $59 per barrel.
We would advise investors to be cautious as the near-term outlook has turned weak on the back of the sharp spike in inflation and its fallout on interest rates. The budget too may not have too many triggers for the market. Valuations are already quite high. The F&O segment also doesn't hold too much promise. The Nifty February futures are trading at a discount. The Put-to-Call (PCR) is pretty high as is the cost of carry. A stock specific approach is the order of the day as volatility has increased and some correction is imminent. Keep your portfolio at manageable levels and your cash position high. You may just be able to pick your counters at lower levels.
India Infoline’s report on the Indian Transformer Industry will be mailed to you today. The Rs55bn Indian transformer industry will benefit from the strong demand expected from reforms in the power sector. We expect the industry to witness a CAGR of 30% plus in value terms over the next five years against approximately 17% CAGR in the past three years. Improved realizations and higher volumes will largely drive this growth. The government intends to add massive capacity to the generation side and create a National Grid for distribution of this power, both of which should boost demand for transformers. The funding issues for the same have been taken care by the World Bank (WB) and Asian Development Bank (ADB).
Our top picks: Indo Tech Transformers Ltd (ITTL) – BUY, Target price Rs375; EMCO Ltd (EMCO) – BUY, Target price Rs1,067; Voltamp Transformers Ltd (VTL) – HOLD, Target price Rs816; Bharat Bijlee Ltd (BBL) – HOLD, Target price Rs1,675.
A summary note with a link to the entire report will be mailed to you during the day.
FIIs were net buyers of Rs3.18bn (provisional) in the cash segment on Friday. However, in the F&O segment they pulled out Rs5.72bn. On Thursday, foreign funds pumped in Rs6.99bn in the cash segment. Mutual Funds were net sellers of Rs1.93bn on the same day.
The IPOs of Indus Fila and Evinix Accessories will open for subscription today. Shares of Technocraft Industries India will get listed today.
Ansal Properties & Infrastructure's Board will meet today for considering a bonus issue. Syngenta India's Board will meet today to consider the audited accounts and recommend dividend for the year ended December 31, 2006. Federal Bank's Board will meet today to consider expansion of the bank's share capital by way of Public / Rights / Domestic / International share issue.
Insider Trades:
Century Textiles & Industries Ltd: Reliance Vision Fund - Scheme of Reliance Mutual Fund has sold in open market 100000 equity shares of Century Textiles & Industries Ltd on 1st February, 2007.
Market Volumes:
The turnover on NSE was down by 4.2% to Rs91.75bn. BSE Metal index was the major loser and lost 1.74%. BSE Pharma index (down 1.49%), BSE Capital Good index (down 1.36%), BSE Oil & Gas index (down 0.84%) and BSE PSU index (down 0.83%) were among the other major losers.
Volume Toppers:
Pochiraju Industries, IDBI, TTML, SREI Infrastructure, SAIL, Zee Entertainment, NTPC, R Com, Satyam Computer, SCI, ITC, Indiabulls, Autoline Industries, Hindalco, Shree Ashtavinyak, Hindustan Motors and Gujarat Ambuja.
Delivery Delight:
Bajaj Auto, EID Parry, Financial Technologies, GAIL, GTL, HDFC Bank, Infotech Enterprises, Maharashtra Seamless, NTPC, Nagarjuna Construction, OBC, Punj Lloyd, Tata Motors and UTI Bank.
Lower Circuit Filters:
Ansal Infrastructure, Goldstone Technology, PSTL, Saksoft Ltd, Radha Madhav, Swan Mills, Nesco Ltd, Aurionpro Solutions, Ansal Housing, Ganesh Housing, Heritage Foods and Nirlon.
Brokers Recommendations:
Gujarat Ambuja Cement – Buy from ABN Amro with target of Rs160
Punj Lloyd – Outperform from Macquarie Research with target of Rs1315.
Long Term Investment:
Bajaj Auto
Major News Headlines:
Inflation accelerates to 6.58%, the fastest pace in more than two years
ABB denies bonus news
Deccan Aviation plans to create separate helicopter unit
Tata Motors says report of bid for Punjab Tractors speculative
KEC International receives order worth Rs912mn
Moser Baer to enter Karnataka Home Video market
Suzlon join hands with Portuguese builder Mota-Engil SGPS SA to buy German windmill maker for 1.02bn euros