Monday, July 5, 2010

Market Khabar 05 July 2010

Markets ended 114 points lower at 17,461 and the Nifty on the NSE shed 32 points to close at 5,237. Market breadth however reveals heightened action in many midcap and small cap stocks.

As expected, RBI hiked key policy rates to tame inflation ahead of its monetary policy review on July 27. Another round of “hike” is not ruled out say observers. Movement of monsoon continues to be a cause for concern. However, IMD predicts that monsoon will “spread” in July.

Weak global cues like US job data, downgrade of Spain by Moody’s, impact of Euro zone crises and concerns over Chinese economic data continued to “weigh” heavily on the markets.

Indian markets look more resilient at present than other global markets, but traders should stay alert to news flow.

Use sharp corrections triggered by either policy rate hike or global cues for accumulating good counters.

For the week ahead chartists predict trading range of 17,080-17,780 for the Sensex and 5,080-5,360 for the Nifty. Resistance for the week are at 17,560 and 17,740 and 5,290 and 5,340.

Expect support to the indices at 17,320 and 17,160 and 5,180 and 5,120. Stock prices track earnings.

Over the short term, the behaviour of the market is based on enthusiasm, fear, rumours and news. Over the long term, it is mainly company earnings that determine stock movement.

Futures & options

Despite uncertain global cues, derivative segment witnessed robust volumes. Open interest continued to hover over Rs 1,20,000 crore levels. Short term indicators like put/call ratio and others present bearish view, but reversal from lower levels is not ruled out. Option activity indicates active call writing at most of the out-of-the money strikes in Nifty suggesting strong resistance on the upmove.

Announcement of RNRL-RPL merger in a 4:1 swap ratio may trigger sharp swings in both counters on valuation concerns. It is pertinent to remember that 80 per cent of RNRL shareholders received their shares free on demerger from RIL. Sources indicate that RIL will pick up small stake in the new merged entity as a “fuel supplier”.

Policy rate hike may have only marginal impact on banking, realty and auto sectors. Robust monthly auto sales numbers clearly indicate that “good times” are likely to last longer than expected.

Buy on declines Tata Motors, M&M, Maruti Suzuki and TVS Motors. Oil marketing companies continued to have good run. Book partial profits at current levels.

Despite weakness in dollar, metal stocks failed to play catch up on fears over Chinese slow down. Bargain hunters can start accumulating. Capital Goods and Pharmaceuticals continue to attract buyers on every correction. Stay invested in the sectors.

True to expectations, sugar stocks are showing good resilience. Stay invested for further gains. Media stocks are back in the reckoning. Buy DCHL, TV 18, Dish TV and Zee on declines. Ahead of Infosys numbers technology stocks may witness heightened activity. Second rung counters such as Mphasis, Rolta and Polaris may see an upmove.

Stock scan

Swaraj Engines, owned by M&M group is a rare example of supplier/customer joint venture. Strong volume growth in engine dispatches to Swaraj tractor division of M&M coupled with growth in hi-tech engine components supplies to Swaraj Mazda and continuous focus on productivity improvement helped the company report excellent results for the year ended. Buy on declines for target price of Rs500 in medium term.

Tile companies Somany Ceramics, Kajaria Ceramics and Nitco Tiles are on the radar of savvy value hunters. Somany is one of the leading manufacturers of tiles and sanitary ware with market leadership in niche segments in the country. Sources indicate bonus issues in near term. Stay invested in this low equity value stock. Turnaround performance indicated from Nitco Tiles. The company has valuable real estate in Mumbai. Plans to unlock value are being drawn say sources. Buy on declines for price target of Rs75 in short term.

Renewed buying interest seen in mid-rung technology counters Nucleus Software and Zensar Technologies. Zensar provides end to end services from IT development to Business Process Outsourcing, from consulting to implementation.

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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