BSE NSE Outlook for 25 Jan 2010

Spooked by disappointing corporate earnings and fall in US markets, markets posted their steepest weekly fall since October 2009. On the BSE, the Sensex dropped 695 points to end the week at 16,860 and the Nifty on the NSE shed 216 points to close at 5,036. Volumes in both cash and derivatives segments hit record levels during the week reflecting the ‘run’ to cut positions. Market breadth turned extremely weak with sentiment turning negative on the reports of aggressive selling from FIIs. Market players attribute weak support from domestic financial institutions to their plans to subscribe to the forthcoming PSU IPOs. With earnings season coming to close in next week, the markets will focus on the forthcoming Union Budget. The overall performance of Indian companies on the third quarter earnings has been better-than-expected and re-rating of earnings is overdue, analysts feel. Global markets are worried about President Barack Obama’s bank plan and China’s lending curbs. Markets are likely to be highly volatile next week on the account of F&O settlement, RBI credit policy and outcome of US Fed meet. Protect profits with trailing stops. For the week ahead, chartists predict a trading range of 16,500-17,280 for the Sensex and 4,830-5,180 for the Nifty. Friday’s lows 16,608 and 4,955 are key supports for the indices, a breach of which can take them to 16,280 and 4,830 points. Futures & Options With markets moving out of their recent trading range, robust volumes were seen in the derivatives segment. Overall open interest increased by 12 per cent to over Rs 1,25,000 crore. Option activity-call writing at 5,000-level indicates that for settlement closing Nifty may not be able to cross 5,100-level unless something dramatic happens. Initiate fresh positions only if Nifty futures close above 5,070. Open interest in stock futures shot up by eight per cent reflecting bull-run in select stocks. Among the stock futures that witnessed short build-up are ONGC, Unitech, L&T, Tata Steel, HDFC, Punj, IVRCL, PNB and GAIL. Ahead of RBI policy meet, realty stocks turned weak on persistent selling. Avoid fresh shorts at current levels. Start accumulation for medium term. Spooked by L&T’s performance, capital goods counters fell. But the present correction is likely to be short lived, say industry insiders. The performance of Punj Lloyd indicates that it is focusing on bottom line. Buy for unexpected sharp gains. Metal counters are likely to swing to the tunes of dollar movement Spurt in turnovers at the bourses spell good times for broking houses. Buy India Infoline at current levels for target price of Rs 160 in coming weeks. Mphasis and HCL Tech look good for surprising gains. Buy Mphasis ahead of results for sharp returns. Check out on roll over positions to spot winners for Budget series. Buy during weakness. Buy only after reactions confirming higher support. Stock Scan JSW Energy will commission additional capacity of nearly 2,145 MW by December 2010. Merchant power sales now constitute 73 per cent. It has PPA for 55 per cent of the projects under implementation and stands to capitalise on higher merchant tariffs. Third quarter results reflect good times, buy at current levels for a target price of Rs 200 in next few months. Adani Power is setting up power generation projects with an aggregate capacity of 6,600 MW. The company’s Mundra Power Project is scheduled to be operational by February 2010. Auto boom has benefited auto component manufacturers. Rico Auto is a leading player in the ferrous and aluminum castings space. It has presence in engine, transmission, braking and suspension parts. It is a leading supplier to companies like Hero Honda, Maruti and others. It has expanded its product portfolio with its recent ventures with foreign majors. Buy for a target price of Rs 40 in medium term. Autoline Industries has embarked on the inorganic growth path that could increase revenues by 30 per cent in the next two years. The company has strong presence in press metals and also makes components like brakes, clutches and pedals. It is a leading supplier to Tata Motors and other auto majors. RJ holds 10 per cent equity in the company. Buy at current levels for long term target of Rs 250. Motherson Sumi Systems is the largest wiring harness manufacturer and has recently acquired UK-based Visiocorp to gain leadership in rear view mirror segment. Gaining prestigious clients like BMW, GM, Ford, the company’s acquisition of Visiocorp is a likely game changer for the company. Buy on declines for a target price of Rs 200. 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. Bought to you by Ingenious Investor Equity Research Division Ravina Consulting No.429 Mahavir Tuscan Near Hoodi Circle, Whitefield Mahadevapura Post BANGALORE 560048 Read - www.ingeniousinvestor.blogspot.com Follow us - www.twitter.com/smartinvestor