Relief rally over; mkts may retest Oct lows: Daryl Guppy

Daryl Guppy, Founder and Director, guppytraders.com, said the relief rally that took place in global markets has stalled and that markets may retest lows. The Sensex may retest levels of 7,500-8,500, and if it goes below that, it may test 6,000, Guppy said, adding that the Nifty could test 2,500, but major support exists only at 2,200.

Guppy believes the lows seen in October didn’t coincide with long-term supports and that markets will trade lower than those.

Source: Moneycontrol

Buy beaten down mid-, smallcap stocks: Kotak Sec

R Venkat Subramanian of Kotak Securities said from a long-term point of view it’s time to buy on a bottom-up basis and not at index level. "Start looking at stocks from a long–term point of view and don’t worry about newsflow. In terms of price action, the midcap and smallcap side of the market is decimated, there is huge value there. Whereas, the largecap stocks are not particularly cheap given the current economic outlook and the price at which they trading.”

Here is a verbatim transcript of the exclusive interview with R Venkat Subramanian on CNBC-TV18.

Q: What do you think this leg of the pullback is over or do you think it’s just a mild pullback retracement after which we will form a higher range?
A: The pullback was quite good when it lasted. But yesterday’s action was a little disappointing; it didn’t look like a pullback on the rally, it almost looked like a fresh wave of selling. But in terms of price action, there are two sets of market here; the midcap, smallcap side of the market has been completely decimated and there is a huge value there.

Whereas the largecap stocks - you cannot call them particularly very cheap, given the current economic outlook and the price multiples that they are trading at. So maybe there is some scope for some more liquidation at the largecap level, but at the midcap, smallcap level the market has become ridiculously cheap.

The question that investors have to start asking now is – can we look forward to a 6-7% GDP (Gross Domestic Product) growth at least in the next one-two year? Can we expect once the dust settles down to access to international capital? Can we expect the policy action and the government to be proactive and growth oriented? The answer to all these questions will be – Yes we can. So from a longer-term investor point of view this is time to be a buying particularly on a bottom up basis not at an index level even institutional investors looking at this country would start becoming more positive.

So its time to be little substitute; some amount of hope for despair and start looking at talks from a slightly longer-term point of view and not worry about the news flow. The news flow will continue to be negative; we are not going to get a relief from there. If you are buying today and looking for news flow to support it in the next one-two days or two weeks then you are going to be disappointed. From a trading point of view, the market will remind one – it’s easy to make money by selling and buying than by buying and selling. But that’s the trading side of it. From the investment side you are getting to a very attractive levels for the mid and smallcap segment of the market.

Q: What about some of the defensives, would you be comfortable buying FMCG or pharma right now because they have still got a bit of a valuation premium going?
A: No, at this stage the market and when the broader market is completely bombed out and as an investor if you have any amount of risk appetite you should be buying things which can do well as the market improves. This is not the time to hide behind the stocks, which will not fall. If you had done that in the market 15,000 or 20,000 then it would have been god. But at this stage, I would be little more aggressive in looking for stocks, which can go up than to look at stocks which will not go down. So I would avoid FMCG and even pharma for that matter.

Q: What do you do with the entire energy space not just Reliance, yesterday GAIL, RPL, Essar Oil all of them were under pressure and there were big delivery volumes on them as well?
A: We are coming after few years of significant upturn on the refining side and now margins are slowing down. Even for complex refineries like Reliance Petroleum and Reliance the mix of the margin between transportation fuel and other side has turned against them. So when any of these big trends turns down, the market always tries to see where it’s going to bottom out and not anticipate a bottom based on what has happened in the last one-two years. So to that extent till the refining margins stabilise, we can say this is the base minimum that you can work with. The earnings estimates are going to be all over the place. So, that’s not the space where you are going to get any joy in the near-term. I would still be cautious on stocks like Reliance and Reliance Petroleum and would sell them on rallies than look to buy them.

Q: Some of these infrastructure names which have put interesting rallies. Stocks like IVRCL, Hindustan Construction, Lanco etc. What’s your take on that space?
A: I am reasonably positive on that, more because of the prices than anything else. These stocks are trading at cheap valuations. If you believe that these projects and the orders they have on hand will be executed and they or their clients will have the funding to do that, they will, given the government stand on infrastructure etc. Take a case of IVRCL, it has a Rs 15,000 crore order book and even if they make 4-5% margin on it, its about Rs 750 crore and the market cap of the company is about Rs 1,500 crore now. So it’s got to a level where most of the risks are priced in and should the realty in the next 12-18 months turn out to be any better than what we are all trading now, this would look like a ridiculous valuations.

So some of the slightly midcap infrastructure names are definitely stocks you should be looking to buy on every dip and the kind of panic that we get once in a while, you get them really cheap. But the larger names - maybe you can argue that the valuations are still not that cheap particularly when you compare with the midcap names so maybe you want to be little cautious on them. But midcap infrastructures particularly the well run companies with large order books are definitely buy on dips.

Q: What do you do with Tata Motors? The rights issue went horribly wrong, extremely bad news coming with their sales, the shutdowns they are doing. What would you do with that stock?
A: Unfortunately the company is in set of circumstances that are not going to change quickly. It’s something that you have to look beyond the regular auto cycle to look for any upturn in Tata Motors; they have huge strategic decisions that they have made which are going to make it difficult for that company to enjoy any kind of serious profitability in the next two-three years. The acquisition as well as the small car project, both of that is going to weigh down on that company and now we have the downturn because of the domestic economic conditions. I think that’s a stock which from investor’s point of view is a complete avoid. You will get you chance to buy that when things bottom out. But it’s too early to think about investing in Tata Motors. I think it’s sometime away.

Disclaimer: It is safe to assume that I & my clients may have an investment interest in the stocks/sectors that have been spoken about.

Source: Moneycontrol

Indian IT cos will continue to grow business: Gates

Software for students: The Co-Chairperson of Gates Foundation, Mr Bill Gates, during the launch of DreamSpark - a software giveaway for an estimated 10 million-plus qualified students in the country, at IIT Delhi, in the Capital on Wednesday

Lauding Indian IT industry for building an “incredible reputation”, the Microsoft Founder and the second richest man in the world, Mr Bill Gates, said on Wednesday that while Indian IT companies would be impacted by the global economy, they will continue to grow business.

“In terms of IT companies in India that do global projects, they have done fantastic work. They have been great partners of Microsoft…,” Mr Gates said addressing students of the Indian Institute of Technology, Delhi.

He said the world continued to see a shortage of skills in IT services. To a specific query on the extent of the financial crisis in the US, Mr Gates said that although there would be an economic recession in the US, it may not get extended to too many other countries. “I think in some ways the markets have overreacted,” he pointed out.

Admitting that current imbalances could create some weakness, he said, “I cannot predict whether it would be 3-4 years but it is going to be more than six months…then economy will be back on track.”

Microsoft takes a 5-10 year view and is certainly not cutting back on research, he said after unveiling DreamSpark – a software giveaway for an estimated over 10 million students in India. DreamSpark would provide students access to Microsoft developer and designer tools free of cost, with a view to unlocking their potential.

Mr Gates’ ongoing visit to India has been relatively low key. Earlier in the day, the 53-year-old Mr Gates said that he had full faith in Indian pharmaceutical companies and that his foundation would continue to do business with them.

“The science of Indian pharmaceuticals is quite strong. We will continue our involvement with them. The cheap drugs (sourced from India) are benefiting many countries,” he said. This assumes significance in the light of concerns raised by the US FDA on some drugs manufactured by Indian companies, including Ranbaxy and Sun Pharma. “We have association with many companies like Ranbaxy and Dr. Reddy’s Lab,” Mr Gates said.

Meets PM

He also met the Prime Minister, Dr Manmohan Singh, and discussed areas of support between the Melinda and Bill Gates Foundation and the Ministry of Health and Family Welfare. The Foundation has been providing grants for public health activities, notably in the areas of HIV/AIDS prevention and communication.

Mr Gates’ agenda includes discussion on several healthcare issues with a focus on polio eradication. The foundation has so far committed more than $400 million worldwide to support polio eradication efforts with India among its recipients.

Source: TheHinduBusinessLine

Areva T&D (Rs 176.05): Sell

We recommend a sell in Areva T&D India from a short-term trading perspective. It is apparent from the charts of Areva T&D India that it has been on a medium-term downtrend from its September high of Rs 366. The stock commenced its downtrend from a significant resistance level of Rs 360, forming lower troughs and peaks. However, the stock recently found support at around Rs 142 level (a 52-week low) and witnessed a corrective upmove till Rs 200. This upmove retraced 23.6 per cent fibonacci retracement of its prior down leg and encountered twin resistance (key resistance level at Rs 200 and the down trendline). Subsequently, the stock resumed its medium-term downtrend by tumbling 9 per cent accompanied by above average volume on November 5. The daily relative strength index (RSI) has re-entered the bearish zone from the neutral region and the weekly RSI is featuring in this zone. Our short-term forecast for the stock is bearish. We expect the stock’s fall to prolong further until it hits our price target of Rs 158 in the upcoming trading sessions. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 185.

Source: TheHinduBusinessLine

UK banks face abyss, Europe needs capital: Analysts

British banks are "staring into the abyss" and European lenders may need to raise 83 billion euros ($107 billion) more capital as a credit cr
isis bites hard and drives up bad debts, analysts warned on Thursday.

"Things are getting worse, faster than we thought," Jonathan Pierce, analyst at Credit Suisse, said in a note on British banks entitled "Staring into the abyss?"

That could renew strain on capital even after 44 billion pounds ($70 billion) has been raised in recent months, and leave Royal Bank of Scotland facing a loss this year and next, Pierce said.

Banks across Europe face a grim outlook and could need to raise 83 billion euros and slash dividends, said Huw van Steenis, analyst at Morgan Stanley.

"Deleveraging, funding stresses, weaker macro and re-regulation make us think it's still too early to buy the banks sector," van Steenis said in a note. He cut 2009 earnings forecasts by more than 30 percent for many banks.

Trading updates from a batch of European banks this week have flagged a sharp rise in bad debts as consumers and businesses struggle to cope with a deepening credit crisis.

Many are also struggling to reduce their balance sheets, or reported continued asset growth, which could add to strain on capital even after governments have stepped in with rescue funds for banks in Britain, Germany and beyond.

Britain slashed interest rates by a surprising 1.5 percentage points on Thursday and the European Central Bank and Swiss national bank cut rates by 50 basis points in attempts to ward off deep recessions.

CREDIT CYCLE "TURNS SHARPLY"

The deterioration for Britain's banks this quarter and in the first quarter of 2009 "will be relatively severe" as the global credit crisis affects markets and the economy, Credit Suisse's Pierce said.

RBS is his favourite UK bank stock, but it is unlikely to see much good news for some time. "We think the bank will generate a loss at a group level in 2008, and wouldn't rule out losses for next year as well," Pierce said.

RBS warned on Tuesday it faced more writedowns and rising bad debts this quarter, which could drag it to its first ever full-year loss.

"Recent trading statements demonstrate -- if evidence were needed -- that the credit cycle has turned sharply," Pierce said. "The tightening in credit availability in the last few months bodes badly for economic and bank-related news in the coming months, and conditions have, if anything, got worse since government support was announced in October."

Credit Suisse cut its 2009 and 2010 earnings forecasts by a further 40 percent and said the threat of higher bad debts created further substantial risks to forecasts and could reignite concerns about capital "at one or more of the banks".

Pierce predicted none of the domestic UK banks would pay dividends in 2009 and 2010. Analysts at Keefe, Bruyette & Woods forecast Barclays is the only UK domestic bank likely to pay a dividend next year.

By 1400 GMT the DJ Stoxx European bank index was down 3.9 percent as the interest rate cuts added to worries about gloomy prospects across the sector.

Shares in UBS, Credit Suisse, RBS, Lloyds TSB, BBVA, BNP Paribas and Deutsche Bank all fell 5 percent or more.

Source: EconomicTimes

Banking stocks fall as SBI expresses concern over liquidity

Banking stocks fell by 2.5 to 6.5 per cent after the country's largest lender, State Bank of India expressed concern over liquidity in the I
ndian banking system.

Despite government's continued efforts to ease liquidity and advising lending rate cut, banks are facing the challenges of liquidity availability, says a banking analyst with a foreign broking company.

“Indian banking system does have a problem of lack of liquidity,” chief executive of SBI, O.P. Bhatt, said in a banking seminar on Thursday.

Brokers said that market is experiencing another sharp downtrend on worries over global economic recession that would have possible impact on Asian economies, especially the emerging economies.

At 11:00 am, BSE Bankex was down 2.12 per cent led by Yes Bank down by nearly 6.5 per cent. Frontline banks including SBI and ICICI Bank were down by 3 per cent at Rs 1236 and Rs 437, respectively. HDFC Bank was down by 1.76 per cent to Rs 1075.

Source: EconomicTimes

Alkali Metals shares ends at 68% premium

Shares of new listing Alkali Metals Ltd closed at Rs 173.40 on NSE Thursday, a premium of Rs 70.40 or 68.35 per cent against the issue price of Rs 103.

The intraday high was Rs 179 and low Rs 99 on volume of 1,06,70,652 shares.

On BSE, Alkali Metals shares ended at Rs 173.15, a premium of Rs 70.15 or 68.11 per cent. The stock touched a high of Rs 179.30 and low was Rs 90.

Source: EconomicTimes