Monday, December 6, 2010

Market Outlook 6th Dec 2010

Buoyed by strong Q2 GDP number, fall in the headline inflation and positive global cues markets staged a strong comeback during the week ended after three weeks of losses. On the BSE the Sensex closed 830 points higher at 19,967 and the Nifty ended 241 points up at 5,993.

Renewed buying from FIIs kept the sentiment positive. However some sections of the broader market were badly battered after the exposure of a stock rigging scam by the market regulator SEBI. Global cues and liquidity flows hold the key for near term direction of markets. Rise in international crude oil prices to $88+ level may impact inflation again.

With upbeat macro economic numbers lending a hand for market recovery, the next big trigger for markets is Q3 advance tax numbers. Sustaining the present level will be difficult if there are disappointments in Q3 numbers. Barring any ‘surprising’ negative domestic political or global economic cues markets may trade in a tight range till the year end.

For the week ahead chartists predict trading range of 19,650-20,450 for the Sensex and 5,750-6,175 for the Nifty. Key supports for the indices are at 19,780 & 19,540 and 5,880 & 5,790. Immediate resistances are at 20,160 & 20,340 and 6,060 & 6,140. In the near future, in spite of short term volatility select large-caps and mid-caps will throw up good opportunities. Keep an eye on opportunities. Be greedy when others are fearful and fearful when others are greedy.

Futures & Options

Despite high volatility brisk trading volumes were seen in the derivative segment. Overall open interest jumped by `23000 crore or 20 per cent to `143000 crore suggesting revival in confidence among traders and fresh long build up of positions. Sharp fall in VIX is also indicative of return of normalcy. However, sharp trader’s advice caution and buying of put options as hedge for portfolios.

Banking and realty stocks which were battered recently on account of bribery scandal staged a strong rebound. ICICI Bank, Canara Bank, BOB and IDBI Bank from the larger ones and smaller banks like UCO Bank, Andhra Bank, DCB and InduSind Bank look good for near term gains. Buy on declines DLF, HDIL and IBRL. Good defensive buying seen in pharma and IT counters. Large cap IT stocks Infosys, TCS and Wipro are showing good resilience. Buy on dips. From the pharma pack, Cipla, Dr Reddy, Lupin and Ranbaxy look set for healthy gains.
Metal counters are witnessing good buying interest at lower levels. This is being attributed to weakness in dollar and also robust domestic demand. Ahead of MOIL listing NMDC may jump to `300+ levels say punters.

Oil & Gas space is attracting institutional buying. With FPO’s of IOC and ONGC on cards, oil stocks may continue to trade steadily in near term. Huge volatility in many of the midcaps in F&O segment has reportedly put many traders to loss. Swings of 5 to 25 per cent in counters like BGR Energy, Welspun and others showcase the present high level of “risk” in the segment. Trade lightly with strict trailing stop loss advice old-timers. Avoid hindsight error and unrealistic optimism.

Stock scan

International Travel House, an associate company of ITC Ltd is one of the largest complete travel management companies in India. The company has bagged some of the travel and tourism industry’s most coveted awards and recognitions.

ITHL is pursuing the niche segment of medical tourism and travel insurance aggressively. With revival in demand, both inbound and outbound traffic showing strong growth, the company is expected to report OPM of 30 per cent and EPS of `24 for the current year. Buy at current levels for target price of `375 in medium term.

Agro Tech Foods Ltd affiliated to ConAgra Foods of USA, one of the world’s largest food companies is engaged in the business of marketing food and food ingredients.
Some of the leading brands include Sundrop, Act II, Rath, Healthy World etc. Recently the company has sold its vanaspati brand Rath to Cargill India for an undisclosed sum and intends to focus on value-added high margin products. Buy on declines for target price of `550 in medium term.

Many midcap and smallcap stocks have fallen anywhere between 10 per cent to 50 per cent in the recent meltdown. While some have fallen on account of links to operators, others have corrected only on ‘panic’ selling. Ahead of Q3 results, select counters like Vishnu Chemicals, Savera Inds, Arcotech and others recommended in this column look good buys at current levels. Start bottom fishing in smallcap and midcap counters.

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.

Source : DC

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