Indian Stock Markets BSE, NSE Outlook 9 Aug 2010

After trading higher during the early part of the week, markets shed some of the gains during the later part of the week on tepid global trends. On the BSE, the Sensex ended 276 points higher at 18,144 and the Nifty on the NSE closed with 72 points gains at 5,439. The broader market witnessed heightened activity with the participation of smallcap stocks in the rally. The season of “cats and dogs” has started. Be cautious and buy good standard stocks that have stood the test of time. Sustained FII inflows continued even while domestic investitional investors were seen selling on the redemption pressure. Undertone of caution is clearly visible due to concern over rising inflation, subdued IIP numbers and lukewarm first quarter results. Good monsoon and easing of food inflation have kept sentiment positive.

With no major positives or negatives in the market, range bound trading may continue for some more time. With most of the recent declines in the market driven by global corrections and bouts of risk aversion, markets may continue to swing to global cues.

Key event in the coming week will be statement from US Federal Reserve and economic data from Europe. For the week ahead, chartists predict a trading range of 17,840-18,420 for the Sensex and 5,320-5,570 for the Nifty. Supports for the week are at 18,020 and 17,860 and 5,410 and 5,360. Expect resistance to the indices in the bands of 18,300-18,600 and 5,500-5,575. Short term traders are advised to trim positions if Nifty trades below 5,400 level.

Futures & Options
Trading volumes were disappointing in the derivatives segment. Sentiment indicators like open interest, put/call ratio, implied volatility and VIX indicate that sideways trend will continue in near-term. With open interest close to Rs 1,50,000 crore, caution is advised. Avoid large positions and trade lightly.

IT stocks were back in the limelight on the back of good results and guidance from Cognizant. Dollar weakness may play spoilsport for the IT party. However use sharp corrections to buy TCS and Wipro for short-term.
Led by Tata Motors, auto stocks continued to trade firmly. Stay invested for gains in Tata Motors and Mahindra and Mahindra.

As expected, bank stocks continued to attract buyers at every fall. The passage of the SBI Bill in Parliament has given fillip to the stock. Use declines to buy Andhra Bank, Indusind Bank, UCO Bank and Yes Bank.

Selling pressure was seen in pharma and oil and gas counters. Despite the acquisition of shale gas assets, Reliance Industries stock has closed at a two-month low. Selling in the counter has been attributed to a hedge fund. Long-term investors can use present weakness for accumulating.

Lackluster results triggered selling in select from pharma companies. Lack of information on Sebi’s not-ice to Mr Anil Ambani’s Reliance ADAG is fuelling speculation. Tread cautiously in stocks of ADAG companies.
Among the stock futures, looking good for trading gains are Bharat Forge, Century, Educomp Solutions, GSPL, ITC, LIC Housing Finance, Mphasis, Onmobile, Opto Circuits, Petronet LNG, Powergrid, Sun TV and Tulip IT.
Stock scan
On the back of fast growing automobile sales, ancillary auto component industry has shown healthy growth and many companies are being lapped up by fund mangers. On the radar of savvy market players is Omax Autos, one of the top three companies in sheet metal and tubular segment. The company has largest sprocket manufacturing capacity in South East Asia, largest welding and tri nickel chrome facilities in India. Apart from supplying to auto majors such as Hero Honda, Tata Motors and others, the company has also begun manufacturing home furnishing metal houseware to global giant Ikea. With an expected turnover of Rs 1,200 crore and EPS of Rs 12 for current year and book value of Rs 72, the stock is a good bet for a target price of Rs 125.

Heightened activity seen in Nitesh Estates, Hinduja Ventures, eClerx Services and Bayer Crop Sciences.
Nitesh Estates has reportedly finalised two large development deals recently and is also reportedly hiking its stake in the hotel venture. Trading below its issue price, the counter is witnessing active accumulation by a big bull. Buy at the current level for a target price of Rs 65 in the medium term.

Hinduja Ventures’ strategy to act as incubator for new businesses like media and entertainment has started paying rich dividends. IMCL, the flagship cable subsidiary, may be demerged soon to unlock value say sources. Buy on declines for a target price of Rs 650. eClerx is one of the successful providers of Knowledge Process Outsourcing and Business Process Outsourcing services. Stay invested in the counter for further gains.

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.

Source DC


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