Wednesday, 11 November 2009

Great Eastern Shipping (Rs 247.7): Sell

We recommend a sell in the stock of Great Eastern Shipping Company from a short-term horizon. From March low of Rs 142, the stock had continued to be in an intermediate-term uptrend till October high of Rs 310. After encountering significant long-term resistance around Rs 310, the stock changed direction by resuming its long-term downtrend. The stock has been trending downwards since January 2008 high of Rs 572. In late October, the stock conclusively penetrated its intermediate-term up trendline as well as 50-day moving average. It is trading well below its 21- and 50 day moving averages. The daily relative strength index (RSI) has re-entered the bearish zone and weekly RSI is slipping towards this zone in the neutral region. We are bearish on the stock from a short-term perspective. We expect it to decline until it hits our price target of Rs 222. Traders with short-term horizon can sell the stock while maintaining stop-loss a stop-loss at Rs 261.

Source: thehindubusinessline

Fedders Lloyd Corp (Rs 72.5): Buy

Investors with a short-term trading perspective can buy Fedders Lloyd Corporation at current level. Short-term trend in the stock is bullish. It has been moving up vertically without any correction since October 6. Momentum indicators in the daily chart have moved in to the overbought region but there is no sign of weakness yet. The stock closed above the immediate resistance at Rs 69 on Monday implying that the vertical climb can extend. Investors can buy the stock with a stop at Rs 68. The uptrend is expected to take the stock to the target of Rs 82 in the short-term.

Source: thehindubusinessline

Tuesday, 3 November 2009

Index Outlook: The long-awaited correction

Sensex (15,896.3)

The breezy roller-coaster ride that we had expected turned in to a scary hurtle downward as the Sensex plunged 914 points last week recording the largest weekly decline in the last three months. The cut was much deeper in mid and small stocks especially those reporting adverse earnings as tolerance to negative news nosedived. The truncated week ahead is likely to be influenced by the Federal Open Market Committee meeting scheduled next week and the signals that are flashed from there.

Sudden reversal in stock prices made volumes soar sky-high, especially in derivative segment. Volumes in futures and options segment reached record levels mid-week close to the expiry of October contracts. The vicious side of the market was amply demonstrated in the way it waited for the belief in the current rally’s invincibility to get all-pervasive before reversing lower: waiting for the last bear to turn in to a bull. Sensex’ close below the 50-day moving average is a negative as is the close below the previous peak of 16,002. 10-day rate of change indicator declined in to the negative zone for the first time since August and the 14-day relative strength index has declined to 32. The weekly oscillators are however still in the positive zone implying that though the short-term trend is very weak, the medium term trend is not overtly so yet.

Though we had anticipated a correction last week, the magnitude was far greater than envisaged. We had expected a terminal corrective wave that moved sideways for a few weeks before the move from July lows ended. But the decline last week throws up a zigzag formation from July lows that could mark the completion of the C wave from March lows.

But we will wait for a confirmation of one more week to see if this decline prolongs and leads the index to a firm close below 16,000. Another fight-back by the bulls from these levels can result in a sideways move between 16,000 and 18000 for the rest of this year, indicated in our previous columns.

If the Sensex records a strong close below 16,000 next week, it would mean that an intermediate term correction is in progress that has the minimum targets of 14659 and 13885 – the opportunity that those who have missed the rally so far, are waiting for.

A rebound next week can take the Sensex higher to 16,450, 16,650 or 16,848. Failure to move above the first resistance would imply that weakness will persist to drag the index down to 14917 or 14740.

Source: thehindubusinessline

Reliance Power (Rs 138.5): Sell

We recommend a sell in the stock of Reliance Power from a short-term perspective. It is apparent from the charts that the stock was on an intermediate-term uptrend from March low of Rs 89 to its June high of Rs 210. Triggered by negative divergence and presence of significant long-term resistance around Rs 200, the stock resumed its long-term downtrend which has been in place since February 2008 high of Rs 374. Moreover, since June it has been on an intermediate-term downt rend. In early October, the stock breached its 21-day and 50-day moving averages and is hovering way below them. Both the daily relative strength index (RSI) and moving average convergence and divergence (MACD) indicators are featuring in the bearish territory. The weekly indicators are on the verge of entering in to the bearish territory. Our short-term forecast on the stock is bearish. We expect the stock’s downtrend to prolong until it hits our price target of Rs 124 in the approaching trading sessions. Traders with a short-term perspective can sell the stock while maintaining a stop-loss at Rs 146.

Source: thehindubusinessline

Rural Electrification Corp: Buy

Fresh investments can be considered in the stock of Rural Electrification Corporation (REC), a navratna public sector undertaking, which finances all the segments across the power value chain.

Secured advances with a high asset quality (net non-performing assets of almost zero) coupled with sustainable spreads are the key positives for REC when compared to most finance companies. Even after gaining more than 165 per cent this year, the company’s stock is trading at a modest 12 times its estimated FY10 earnings (assuming 15 per cent equity expansion post-offer) and at 1.6 times its estimated book value.

A power sector debt funding requirement of more than Rs 15 lakh crore over the Eleventh and Twelfth Plans is the major growth driver for REC. Its proposed follow-on public offer will augment the capital base, enabling balance sheet expansion.

The Reserve Bank of India’s recent policy change which pegs bank’s risk weights to the borrowers credit rating, will also favour the company given its AAA rating. The profits of REC rose 70 per cent in the first half of this fiscal, helped by loan book and disbursements growth of 32 per cent and 22 per cent respectively. This bettered overall bank credit growth of 20 per cent. Improvement of spreads from 3.34 per cent to 3.47 per cent, helped by better yields and lower costs, also aided the company’s net profit growth.

We expect the loan growth to continue at robust pace on the back of the wide Rs 1,50,000-crore gap between sanctions and disbursements. The margins may get some support as the proportion of private sector borrowers trends up.

At current market prices, the follow-on offer may raise Rs 2,600 crore, given the proposed offer size. This will increase its net worth by 32 per cent and bring down the debt-equity ratio from 6.3 to 4.8, reducing the risk to its credit rating. Increase in costs due to reduced reliance on tax-free bonds, may be compensated by the fall in borrowing costs from banks.

Delays in power projects leading to late disbursement and rescheduling of loan repayments, are the biggest risks for the company. Asset-liability mismatch arising out of lower maturity deposits and high duration loans is also a potential risk. Increase in interest rates later in the year may put pressure on margins as the company predominantly has fixed-rate loans, with three- or 10-year reset.

Source: thehindubusinessline

Monday, 2 November 2009

10 Companies that FIIs love

In First Place:

Name of company: Sybly Industries Limited
FII share in company: 74.18 %
Best known for: Manufacturing Polyester Yarn and Mercerised

In 2nd place:

Name of company: Indiabulls Real Estate
FII share in company: 67.43 %
Best known for: Real Estate

In 3rd place:

Name of company: H D F C
FII share in company: 59.85 %
Best known for: Private sector banking

In 4th place:

Name of company: Geodesic
FII share in company: 53.47 %
Best known for: Developing products in the information, communication and entertainment space.

In 5th place:

Name of company: Amtek Auto
FII share in company: 50.84 %
Best known for: Manufacturing automotive components

In 6th place:

Name of company: IVRCL Infrastructure
FII share in company: 48.04 %
Best known for: Infrastructure sectors like Water & Environment, Transportation, Buildings, and Power

In 7th place:

Name of company: Prajay Engineering
FII share in company: 42.55 %
Best known for: Real estate

In 8th place:

Name of company: Amtek India
FII share in company: 42.55 %

In 9th place:

Name of company: Jain Irrigation
FII share in company: 42.02 %
Best known for: Manufacturing irrigation systems

In 10th place:

Name of company: Logix Microsystems
FII share in company: 41.96 %
Best known for: Software Products Company

Source: Moneycontrol

Bharti at 52-week low: Time to buy?

The telecom industry continues to weather rough storms. In the throes of an intense pricing war in a bid to woo subscribers — especially by the newer entrants — apart from concerns relating to irregularities in the Department of Telecom’s (DoT) allocation of 2G spectrum and a harrowing delay in the 3G auction, the sector’s cup of woes seems to be running over.

Industry leader Bharti Airtel is especially facing a tough time. The bellwether, which a few months ago called off an attempt to strike a merger deal with South Africa’s telecom giant MTN, faces the threat of competition biting away at its subscriber base with lucrative pricing and the prospect of declining average revenues per user (ARPUs) — the industry benchmark used to measure a telco’s financial health.

In a recent interview with CNBC-TV18, industry veteran Rajeev Chandrasekar, former chairman of BPL Mobile and now a Rajya Sabha MP, said the telecom sector was on the verge of a fundamental shift in dynamics. “We are going from a model where there were two or three well capitalised strong players in this market — the Bhartis and the Vodafones — to a market where now we will have most likely six-seven players, all very well capitalised and strongly positioned to take high market shares in the incremental market,” he said, adding that newer players like Tate DoCoMo and Reliance Communication would do to Bharti and Vodafone what these leaders did to BSNL 10 years ago. “The best days for incumbents like Bharti, Vodafone, BSNL and Idea are behind them.”

Stock at 52-week low

Bharti Airtel, announced its second quarter FY10 results on Friday, which were quite disappointing. The company’s net profit declined 7.8% to Rs 2,321 crore as against Rs 2,517 crore on a quarter-on-quarter (QoQ) basis. Soon after, the Bharti Airtel stock hit a 52-week low at Rs 290 on the exchanges. The stock was, two months ago, quoting a price of Rs 450.

Is Bharti now so beaten-down that investors can buy at it current levels or is it wiser to stay away from it at even these levels, given the outlook of the telecom sector?

Stock close to bottom

“For Bharti, we are closer to the end now in terms of price damage,” says Sanjay Chawla of Anand Rathi Securities. “However, it is the time correction that is likely to be extended and that may well last for another three-six months.”

Chawla adds that market is eyeing two-three developments closely: the impact of tariff cuts on its margins and evidence of the pricing war bottoming out.

“Also, with the Unitech-Telenor launch, Docomo making rapid inroads and number probability to launch soon, the effect of that remains to be seen,” he says. “We don’t see that the time correction is going to end until Q1 results are out.”
He, however, added that stock was close to bottoming out and may stay at current levels for some to come.

“The earnings numbers that we saw are disappointing particularly the fact that the average revenue per user (ARPU) has declined 8% — even when the entire tariff cut was implemented much later,” says Hemang Jani, Senior Vice President, Sharekhan, adding that there was a feeling that the stock may under-perform for the next six months given the competition.

“However, the way I look at Bharti, it’s a company that makes a net profit of Rs 8,500 crore, available at about 11-12 PE and I don’t think we are going to see this kind of a scenario playing out for too long. From an investment perspective at 11 times forward PE, Bharti definitely looks attractive.”

Watch out for ARPUs ahead

Shubham Majumder of Macquarie Securities feels that even as the stock looked attractive for long-term investors at current levels, one needs to watch out for a few developments. “Brokerages’ estimate for Bharti’s earnings per share (EPS) could be scaled down further if its embraces per second billing and number portability, which could affect its post-paid user segment where profitability remains high,” he says.

“Also, we could see pressure on the text and data side of the business because as of now, all of this tariff action is limited to the prepaid, which essentially is the Rs 100-200 ARPU bracket,” Maajumder says. “When you see action move to the Rs 400-500-800 ARPU customer — that is when you really need to start to worry for players like Bharti and Vodafone because they cater to a majority of the high ARPU and a high value market.”

Source: Moneycontrol

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.