Search Now

Recommendations

Monday, April 16, 2007

STRATEGY INPUTS FOR THE DAY


Nothing much to do

If people never did silly things, nothing intelligent would ever get done.

In the market, this principle doesn't hold very good as every silly mistake costs a fortune. The intelligent way would be to think who is selling when everyone is buying. Surprisingly, the bulls didn't see red in Infosys' rather subdued performance and muted guidance. In fact, they pushed the stock and the entire market sharply higher on April 13th. A steep drop in inflation also helped the matters as did a strong industrial production data earlier in the week. Nothing much has changed over the weekend.

Today, we expect a positive opening given the positive finish on Wall Street on Friday and a largely firm trend in the Asian markets. Though things may look stable at the moment, going ahead there may be fresh bumps. The near to medium term outlook is not certain. Hence, investors should as usual remain cautious and be stock specific.

Things may be okay for the bulls this week too, as more and more earnings pour in. Having said that, the intra-day volatility will continue. The market will also have to deal with the upcoming annual policy meeting of the RBI on April 24th. Inflation is likely to remain high as it is more due to supply side constraints. Any remedy on this front will take time to work its way through to the numbers. In the meantime, there may be some more pain in terms of fresh monetary/fiscal tightening measures. Already India Inc has voiced its concerns on the excessive tightening by the RBI. We also have worries over the imminent slowdown in the US, the state of the Chinese economy, high global commodity prices (especially crude oil and metals) and the currency fluctuations.

The GDP growth projection for 2007-08 has been pegged at 8.5% by the CII. According to the industry chamber, the elements in the economy, which have started surfacing towards the latter part of the fiscal 2006-07 are likely to play a moderating role on the growth prospects of the economy.

TCS will announce its results today. There is not much excitement as far as TCS results are concerned as the company doesn't believe in giving EPS or Revenue guidance. Though the recruitment numbers for the new year and any possible upside in billing rates could give one an indication of signs of things to come. Among the worries of course are on account of the rupee-dollar exchange rate and a possible recession in the US. Still, its not that the sky is about to fall for the Indian software companies, not at least for the top ones. Among the other stocks to watch out for is Mount Everest Mineral Water. A financial daily says that Nestle is also interested in the company.

Essar Steel should see some action (could even be on the downside) amid reports that it has acquired Canadian steel company Algoma for C$1.85bn. Real estate companies with majority focus in Maharashtra may attract some attention. There are reports that the state government is most likely to go ahead with the repeal of the Urban Land Ceiling Act. Though there are expectations of a dip in soaring property prices if this does materialise, it remains to be seen how the ground realities will pan out. The IPO of Fortis Healthcare opens today for subscription. Gujarat Alkalies is expected to gain amid expectations of good results and disinvestment. One of our past recommendations, Gayatri Projects is also likely to do well due to strong growth potential.

US stocks rose modestly on Friday, buoyed by upbeat results from General Electric, McDoland's and Merck. The day's economic reports were mixed, with a mild reading on inflation and a surprise narrowing of the trade gap offseting a bigger-than-expected drop in a key consumer sentiment index. Treasury prices fell, raising the corresponding yields, while the dollar was pretty flat against the yen and fell against the euro. Oil dipped slightly and gold hit a six-week high.

US light crude oil for May delivery fell 22 cents to $63.63 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 7 cents higher at $63.70 a barrel. In currency trading, the dollar was little changed versus the yen and fell versus the euro.

European stocks gained ground. The pan-European Dow Jones Stoxx 600 index rose 0.6% to 382.95. The UK's FTSE 100 closed up 0.7% at 6,462.40, the German DAX Xetra 30 advanced 1% to 7,212.07 and the French CAC-40 gained 0.7% to 5,789.34.

Asian markets are mostly on a strong footing this morning. The Nikkei in Tokyo is up 291 points at 17,665 while the Hang Seng in Hong Kong were up 216 points at 20,557. The Straits Times in Singapore gained 24 points to 3397 while the Kospi in Seoul put on 6 points to 1527.

HOW MARKET FARED

Higher opening likely 

Friday the 13th turned out to be lucky for the bulls as Infosys result announcement lifted the key indices to close on a strong note. The markets further gained ground after India Inflation figures were recorded under the 6% barrier which was less than expectations. India's inflation figures for week ended 31st March was at 5.74% against expectation of 5.78%. NSE Nifty closed over 3900mark as buying interest was witnessed across the board.  

With the Infosys results out of the way and inflation softening, the market is poised for more gains. But bear in mind that the steep fall in inflation was largely due to a high base effect rather than the Government's efforts. So, the pressure will continue on this front. The Government and the central bank will continue to be on guard and take steps accordingly. The final headline inflation reading for FY07, which is subject to a revision, is slightly above the RBI's annual target range of 5-5.5%. After Infosys, it's now going to be the turn of other IT giants like TCS and Wipro to deliver the goods next week. There will also be results from other non-IT firms. One should also give due consideration to the global issues like the US economic slowdown, oil prices, other commodity prices, etc. We will see spikes both ways as the market will remain choppy with a positive bias. 

The BSE Technology index was the major gainer, others like Bank, Metal and Auto indexes followed suit. The Mid-Cap and the small cap index also participated in the rally. The frontline stocks like BHEL, ACC, Bharti Airtel and Tata Steel were the major gainers among the 50-scrip's of NSE Nifty.  

Finally, the 30-share benchmark Sensex rallied 270 points to close at 13384. NSE Nifty also surged 86 points to close at 3916.  

VSNL gained by 1.4% to Rs421 following reports that they would buy South Africa's Transtel Telecom for Rs1.38bn. The scrip touched an intra-day high of Rs423 and a low of Rs417 and recorded volumes of over 2,00,000 shares on NSE. 

Infosys gained by 2% to Rs2086 after the company announced its Q4 result with net profit up 16.4% QoQ to Rs11.44bn and consolidated revenues are at Rs37.22bn compared to Rs36.55bn in the previous quarter, reflecting a quarter on quarter growth of 3.2%. The scrip touched an intra-day high of Rs2132 and a low of Rs2026 and recorded volumes of over 46,00,000 shares on NSE. 

Tata Motors gained by 2% to Rs726 after the company announced that they have secured order for 500 buses from Delhi Transport Corp. The scrip touched an intra-day high of Rs727 and a low of Rs704 and recorded volumes of over 16,00,000 shares on NSE. 

Technology stocks gained momentum after IT bellwether Infosys announced its impressive Q4 result. Satyam Computer surged nearly by 8% to Rs481, TCS spurred 5% to Rs1262, Wipro gained by 5% to Rs567. Polaris, HCL Tech and NIIT Ltd were the major gainers among the 50-scrip's of NSE Nifty.  

Banking stocks also recorded smart gains. The index heavy weight SBI spurred by over 3% to Rs997, ICICI Bank advanced by 2.8% to Rs873 and HDFC Bank added 2.3% to Rs981.  

Auto stocks were on a run. Bajaj Auto paced ahead by over 3.5% to Rs2433, M&M surged 3.6% to Rs745, Maruti advanced by 1.7% to Rs771 and Tata Motors added 2% to Rs726.  

Capital Good stocks also gained ground. L&T advanced 3% to Rs1614, ABB gained by 2.5% to Rs3745, BHEL gained by 0.5% to Rs2479 and Siemens added 2.3% to Rs1146.

Market volumes:

The turnover on NSE was up by 37% to Rs97.35bn. BSE Technology index was the major gainer and gained 3.19%. BSE Auto index (up 2.94%), BSE Bank index (up 2.62%), BSE Capital Good index (up 2.15%) and BSE Metal index (up 1.99%) were among the other major gainers. However, FMCG index lost 0.81%.

Volume Toppers:

IFCI, ICRA, SAIL, Idea, Satyam Computer, Tata Steel, Infosys, Unitech, Bank of India, R Com, NTPC, Orbit, TTML, India Cement, Parsvnath, Marico, MTNL and TCS

Upper Circuit filters:

Crisil, Infomedia, Marksons, Teledata Informatics, Educomp, Deccan Aviation, KEW Industries, Atlanta, Shree Ashtvinavak, Vyapar Industries, Bhushan Steel, India Infoline, Tulip It, HOV Services, KS Oils and Maxwell

Results Today:

Aventis Pharma, Country Club India, Financial Tech, Indiabulls Financial, KS Oils Petronet LNG, TCS and Tele Data Informatics

Delivery Delight:

ABB, APIL, Aptech, ACC, Canara Bank, Century Textiles, Cummins India, Divis Laboratories, Glenmark Pharmaceuticals, HDFC Bank, ICICI Bank, I-Flex, Infosys Technologies, M&M, Maruti Udyog, NDTV, Praj Industries, PNB, Reliance Capital, Satyam, SBI, TCS and Tata Motors.

F&O Cues:

Stock Futures with Largest Increases in OI:

Ranbaxy, Bank of India, UTI Bank, HCl Tech, BEML, Polaris, NTPC, Crompton Greaves, Sobha Developers and Tata Chemicals

Stock Futures with Largest Decreases in OI:

M&M, Nicholas Piramal, CESC, Bajaj Auto, Aban Offshore, Jet Airways, Cairn, India, Tata Power, L&T and MTNL.

Major News

Inflation for week ended March 31 at 5.74% vs expectations of 5.78%

Infosys Q4 net (up 16.4%) QoQ to Rs11.44bn and revenues at Rs37.22bn (up 3.2%)

Apollo Tyres to mull results and stock split on 1st May

Tata Motors gets order for 500 buses from Delhi Transport Corp

Garware Offshore to buy Anchor Handling Tug

Overseas funds reach 24% limit in Indiabulls Financial

Brokers Recommendations:

M&M – Buy from CLSA

Cinemax – Buy from Emkay

Long Term investment:

Reliance Capital

Infosys Technologies (Q4 FY07): "More disappointment than cheer"

After an ordinary Q3 FY07, Infosys delivers a below ordinary performance in Q4 FY07 missing its revenue guidance for the quarter, believe it or not. As if this was not enough, the operating margin declined qoq by 100 bps mainly impacted by the Rupee appreciation. If not for the exceptional reversal in tax provisions amounting Rs1250mn, the net profit would have grown just 3.7% qoq. The sequential EPS growth was further depressed by exercise of majority of outstanding options at the start of the quarter. Company has guided for a muted Q1 FY08 (in line with traditional pattern) and below expected FY08 revenue and EPS growth.

Outlook

In the light of poor Q4 FY07 result and below expected FY08 guidance, we are revising our FY08 EPS estimate downwards by 4% from Rs87.1 to Rs83.6. However, we maintain BUY on the company as our 1-year target price of Rs2,509 (based on 30x FY08E EPS) indicates 19.5% upside from present levels. The stock returns remain attractive even post the EPS downgrade due to significant price fall in the last 3 months (~12%) especially since the Budget (~9%).