Monday, April 19, 2010

Market Khabar 19 April 2010

Spooked by the stand off between the stock market and insurance regulators SEBI and IRDA; and fears of an imminent rate hike by the RBI, markets closed in negative zone after nine weeks winning streak during the week ended. On the BSE the Sensex shed 342 points closing at 17,591 and the Nifty ended at 5,263.

However market breadth was positive on some days of weakness reflecting heightened “action” in the midcap and smallcap segments. Track earnings numbers to spot winners. Good earnings are already priced in, negative surprises are not. Exercise caution.

The IMD has indicated that the monsoons this year are likely to be normal with more rainfall expected July onwards. Keep fingers crossed for monsoons. Treat any correction in stock prices triggered by RBI’s credit policy as healthy; this will bring valuations to reasonable levels offering good buying opportunity. The news of SEC charging Goldman Sachs has introduced an “unknown” into the US markets with possibility of more sub prime “skeletons”.

Markets may trade weak during the early part of the coming week with signs of recovery during the later part. For the week ahead chartists predict trading range of 17,120-17,860 for the Sensex and 5,110-5,360 for the Nifty. Supports below 17,500 for the Sensex are at 17,320 and 17,110. Nifty support levels are 5,180 and 5,120.

Futures & Options

In contrast to the subdued volumes in cash segment, robust trading was seen in the derivatives segment.

As the earnings season unfolds expect sharp stock specific movements. Option activity and the low index put/call ratio indicate that the ongoing correction will be short lived one.

Expect sharp directional move after the RBI’s credit policy. Expectedly, buoyed by good results from Infosys IT stocks outperformed the broader markets. Use corrections to buy frontline counters. After exhibiting “unusual” strength during past few weeks’, ahead of credit policy meet realty stocks attracted profit booking at higher level. Begin accumulating DLF, HDIL and Unitech in the ongoing correction for strong gains in both short and medium term.
Defensive bets pharma and FMCG counters may witness good buying interest in near term. Buy Lupin, Dr Reddy, Sun Pharma, Orchid Chemicals, Hind Unilever, Tata Tea and ITC. Punters predict sharp short term rebound in banking stocks after the credit policy.

Avail corrective moves to buy smaller PSU banks and private banks like ICICI Bank and Federal Bank. Infra, power and capital goods counters are attracting selling at higher levels. Track results to pick value counters. L&T, Crompton Greaves and Cummins look good after recent correction. Among the side counters looking good are Financial Technologies, GE Shipping, CESC, Ispat Inds, Petronet LNG, Orchid Chemicals, Hotel Leela and Pantaloon Retail.

The average long term experience is never surprising, but the short term experience is always surprising. Focus not on rate of return, but on the informed management of risk.

Stock scan

Kallam Spinning Mills is engaged in the manufacture and sale of cotton yarn. The company has set up a hydro electric plant used for captive consumption of spinning division, and has modernised the existing spinning machinery with modern equipment such as ring frames and auto caners.

Improved performance in the last few quarters reflects the changed fortunes of the company. Buy at current levels for the target price of Rs 55 in the short term.

Poddar Pigments is the largest manufacturer of master batches in the country and has the unique distinction of being the first company in India to introduce and manufacture master batches for dope dyeing of polypropylene, nylon and other multifilament yarns.

The company has recently completed buy back of shares and is expected to post good results in Q4. Buy at current levels for target price of Rs 75. Orchid Chemicals, Plethico Pharmaceuticals and Tilaknagar Inds are on the radar of savvy fund managers.

After the sale of injectables division to Hospira, Orchid Chemicals is adopting first-to-file strategy for the oral basket and has already made applications for seven drugs, which treat allergies, Alzheimer’s disease, central nervous disorders, and osteoporosis

Sources indicate the firm is getting window of exclusivity for two drugs soon. Buy at current levels for the target price of Rs 300 in the medium term. Plethico Pharma is a major player in the nutraceuticals formulations segment with 45 per cent sales coming from US.

C. Kutumba Rao is a Hyderabad-based stock market analyst. The views expressed and the recommendations made are those of the author. Readers are strongly recommended to consult their financial advisors before making any financial investments. This newspaper is not liable for investment decisions made on the basis of recommendations in these columns.

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