Nifty likely to move in 10,540-11,200 range in 2018; use dips to buy into midcaps

Nifty Smallcap Index rallied an enormous 57% in the year 2017 making it fourth straight year of gains.

Bulls made a killing in the year 2017 as Nifty 50 Index rallied by about 29 percent after two years of consolidation.

Following this sharp rally in the previous year; 2018 started on a tepid note as the index is sitting at the upper end of a rising channel placed at 10,780 (indicated in grey lines).

Moreover, it is also facing critical resistance at the 161.8% Fibonacci extension level of the previous correction (i.e. 9119-6825) placed at 10,540.

Failure to cross this Fibonacci extension resistance may trigger corrections in the first half of the year dragging the Index lower to levels of 10,200-9540 being trend-line support and 38.2% Fibonacci retracement level respectively.

However, a sustained trade above 10,540 i.e. 161.8% Fibonacci extension level can extend the uptrend to levels of 10,780-11,200 being the upper end of the channels.

Further, the current uptrend is the 3rd impulse wave in the 5 wave Elliott setup. Failure to cross 10,540 can trigger the start of the 4th corrective wave with potential targets of 10,200-9540.

Moreover, as per rule of alteration 2nd corrective wave was sharp correcting 50% of the wave 1 (i.e. 6825-8969); therefore wave 4 can be shallow and complex suggesting time and narrow price correction.

The relative strength index (RSI) is also forming a negative divergence suggesting that the 3rd wave is maturing portending to volatile trading sessions.

Bank Nifty Index:

Bank Nifty rallied 41 percent in the year 2017 after two years of consolidation. However, it underperformed the Nifty Index towards the end of the year failing to make a higher high showing a clear divergence in trends.

Moreover, it is forming an ending diagonal pattern on the weekly chart (indicated in white lines) suggesting weakening uptrend. A weekly close below 24,800 may trigger a breakdown dragging it lower to levels of 24,500-23,300 being 61.8% Fibonacci retracement & 113% Fibonacci extension levels respectively.

However, a sustained trade above 25,800 can take it higher to levels of 26,350 i.e. upper end of the ending diagonal pattern. Further, a weekly close beyond 26,350 may take it to levels of 27,370 being the upper end of the rising channel.

RSI on the weekly chart is forming a negative divergence affirming weakening uptrend. It has also broken down from the lower end of the Bollinger Bands suggesting choppiness in the coming trading sessions.

Nifty Midcap Index:

Nifty Midcap Index rallied a mammoth 47% in the year 2017 making it fourth straight year of gains.

Following this sharp rally in the previous year, Index is now gradually entering into the overbought territory as shown in the chart above in white circles.

RSI on the monthly chart is approaching 80 level being an upper band of the bull zone. On the previous occasion when RSI had entered this zone Index witnessed a correction of around 20%.

Immediate resistance on the upside is placed at 21,715 being 161.8% Fibonacci extension level. Failure to cross this resistance may trigger minor profit booking dragging the Index lower to levels of 20,850. Moreover, a close below 20,850 may drag it lower to levels of 20,000-19,185.

Corrections in the Midcap Index can be used as buying opportunity as the larger 3rd impulse wave is still active and the trend remains upward bias.

Nifty Smallcap Index:

Nifty Smallcap Index rallied an enormous 57% in the year 2017 making it fourth straight year of gains.

Following this rally Index is approaching 189% Fibonacci extension level placed at 9,320 (indicated in blue line). A sustained trade above 9,320 can extend the 3rd wave rally to levels of 9,715-10,690 being 200% & 227% Fibonacci retracement level respectively.

However, failure to close beyond this resistance level of 9320 may trigger 4th corrective wave dragging it lower to levels 8300-8065.

Moreover, as per rule of alteration 2nd corrective wave was sharp correcting 50% of wave 1 (i.e. 2509-6112); therefore 4th corrective wave can halt at 23.6% Fibonacci retracement level placed at 8065.

In the event of the 4th corrective wave, corrections can be used as a buying opportunity following which impulse wave 5 will resume.

MORE WILL UPDATE SOON!!

Technical Pick-Shalimar Wires Industries Ltd

2nd January 2018

SHALIMAR WIRES & INDUSTRIES LIMITED

Shalimar Wires Industries Ltd is looking good in charts a and seems to have given a breakout at its crucial resistance level of 22. Consecutive closes above this crucial resistance of 22 and if not breached negatively and sustained,then we may see stock testing all time high level of 44 .Stock has shown sharp upside move from 11 to 24 and one see a good case of averaging his position around range of 22--18 for going long.

RSI of 70.20 and gradually increasing shows that we may see some more strong upside move .This is presenting a case to build position and averaging the same accordingly to get good short term result and may sustainvthis trend.

MACD of +0.39 and increasing can be seen as an anticipation of a bull run ahead on strong December 2017 result being factored in.

It is also placed well on Ichimoku charts and if 9-day conversion base line of 21.27,and if this  is positively sustained for consecutive sessions then one may see some more sharp upside move.

Immediate Support  22--20

Crucial Support 17

  

Immediate Resistance 24

Next Resistance 32

Target 44--50+

MORE WILL UPDATE SOON!!

Dow Jones 30 and NASDAQ 100 Price forecast for the week of January 2, 2018, Technical Analysis

The US stock indices rally during the week, but in thin and illiquid trading, we could not hang on to the gains. I think we are getting a bit overextended, so short-term pullback is possible. It will also be very hesitant to move drastically with the jobs number coming.

 

Dow Jones 30

The Dow Jones 30 rallied a bit during the week, but you can see that the 25,000 level above is a psychological resistance barrier, and we could not break above it. The weekly candle is a bit of a shooting star, but with this then trading, I don’t pay much attention to the market action as you have to look at the totality of how things have gone. We are bit overextended at based upon the stochastic oscillator, and we crossed as well, which of course means we will probably get a selling opportunity. However, I prefer to go long as the trend is in that direction, so the 23,500-level underneath should be a massive buying opportunity.

NASDAQ 100

The NASDAQ 100 was also very positive for the year, but we pulled back a bit during this week, reaching towards the 6400 level. The shooting star from the previous week suggested that we were to pull back, but I think there is a certain amount of support in the 6400 level, and we also have an uptrend going on in the form of the channel, so I believe it’s only a matter of time before the buyers get involved. I like buying the NASDAQ 100, but we need to see it on short-term charts such as a daily time frame, as it can fine tune our move. Given enough time, I think we break above the 6500 level.

MORE WILL UPDATE SOON!!

S&P 500 Price Forecast January 2, 2018, Technical Analysis

S&P 500 traders were active on Friday, as we witness quite a bit of volatility. Some of this of course would have been traders closing out positions before the end of the year, and one thing that is probably worth noting is the first thing Americans did was sell. However, I think that these pullbacks continue to offer value, but obviously the 2700 level has been very difficult to overcome.

The S&P 500 rallied a bit during the trading session on Friday, reaching towards the 2697 handle before rolling over. As we did, it was a strong move, and it could signify a bit we just could not hang on to the volume. However, I think it’s only a matter of time before the buyers step in and it appears that the 2675 level is offering support. I fully anticipate that the 2700 level gets broken almost immediately this year, especially if the jobs number is decent this week.

Alternately, if we did breakdown below the 2675 handle, I think it’s only a matter of time before we find buyers at 2650. That’s an area that even more supportive, and I would be much quicker to get involved if that value presents itself. I would be stunned if we break down below there, because I think that the overall reasons for the market going higher continue, and of course this is going to be looked at as a value proposition. Once we break above the 2700 level, I suspect that we will target the 2725 level next. Stock markets continue to be in a “risk on” mood, as global performance economically has been strong, and it is apparent that the US GDP of roughly 3% means that the S&P 500 should continue to show nice profits.

 

MORE WILL UPDATE SOON!!

Eye on Budget! Top 10 stocks from the rural theme which are likely to do well in 2018

Most analysts expect the government to focus on increasing government expenditure on rural economy as well as introduce a measure to kick-start investment cycle in the economy.

  

The next big trigger for India market is Budget 2018 which will be the last full Budget of the Modi-government ahead of general elections 2019.

Most analysts expect the government to focus on increasing government expenditure on rural economy as well as introduce a measure to kick-start investment cycle in the economy.

In the upcoming Union Budget, the government is expected to focus on infrastructure and the rural sector. The prime objective is to generate employment in the rural sector by the implementation of various measures.

The government has been also focusing on agricultural subsidies to increase productivity and yields from cultivation. The central government launched the direct benefit transfer (DBT) for fertilisers in various states in the month of October 2017. This ensures that there is no extra burden on farmers as they will continue to get fertilisers at a subsidised rate.

Sofat further added that such measures would increase the disposable income in rural India and drive the consumption pattern in India. Some of the stocks that are likely to benefit from the consumption-oriented landscape and likely consumption sector friendly sops in the Budget are Hatsun Agro, Jyothi Laboratories, and Varun Beverages.

Last month, Finance Minister Arun Jaitley said the government has been creating "instrumentalities" like providing agricultural inputs at lower cost and making cheap credit available to farmers so as to double their income.

Jaitley added that increase in income and purchasing power of the farmers "is extremely" important for the government as the growth of "larger economy depends on the economic potential and power of this group.

We feel this government is now realigning its policy priorities towards rural India. Going by these new priorities, rather than sectors we prefer to think in terms of businesses that would benefit from these structural tailwinds which will support rural income growth over the next few years.

We think all businesses catering to the consumption and investment needs of the farmers are in for a bounty. This could span a wide spectrum of ideas right from a rural housing finance company, to a rural road or canal construction player, a tractor manufacturer and consumer stories in durables and staples which are closer to rural markets in terms of product mix.

Can Fin Homes (CFHL): Target Rs 612

Geojit Financial Services maintains a buy recommendation on Can Fin Homes with a target price of Rs612. CFHL is a south based housing finance company (HFC) sponsored by Canara Bank with focus on Tier 1 and 2 cities.

Going ahead, initiatives by the government like “Housing for all by 2022” and incentive like credit linked subsidy scheme will drive the business growth for all HFCs and CFHL is well placed to exploit this growth opportunity.

The brokerage firm expects the net interest income (NII) and PAT to grow at a robust pace of 25 percent and 30 percent CAGR, respectively over FY17-19E led by strong loan growth (25% CAGR) along with stable asset quality.

UPL Ltd: BUY| Target Rs 887

Geojit Financial Services maintains a buy recommendation on UPL with a target price of Rs887. UPL is a leading manufacturer of crop protection products and ranks among the top 5 generic agro-chemical companies globally.

It offers a range of crop protection products, such as herbicides, insecticides, fungicides. Led by backward integration and higher contribution from branded products, UPL enjoys superior EBITDA margin of 18%- 19.8% compared to industry average of 12-15 percent.

Despite facing adverse weather conditions and subsequent slowdown in demand, UPL maintained a Revenue & PAT growth 15 percent & 24 percent CAGR over FY15-17.

Going forward, we expect revenues to grow at 14.4% CAGR, while led by backward integration & better product mix, EBITDA margin to hover in the range of 20%-21% during FY17-19E.

Escorts: BUY| Target Rs 829

Geojit Financial Services maintains a buy recommendation on Escorts with a target price of Rs829. Escorts Ltd (EL) is the third largest Agricultural tractor manufacturer in India. It has a strong presence in the north and west market, with an overall market share of 11 percent as on FY17.

The government focused approach to encourage farm mechanization and growth in infrastructure segment is expected to drive demand for tractors. EBITDA margins to expand by 270bpsYoY over FY17-19E driven by higher sales cost control initiatives.

The brokerage firm expects revenue & PAT to grow at 17 percent & 36 percent on a YoY CAGR over FY17-19E led by higher segmental revenue and new product launches.

Swaraj Engines Ltd: BUY| Target Rs 2384

SMC Capital maintains a buy recommendation on Swaraj Engines with a target price of Rs2384.

Swaraj Engines Limited (SEL) is engaged in manufacturing engines for fitment into Swaraj tractors, which is manufactured by Mahindra & Mahindra Ltd. at its Swaraj Division.

Increase current tractor penetration level, agri-mechanization, generating rural employment opportunities through various schemes, scarcity of farm labour especially during the sowing season, shortened replacement cycle, healthy credit availability, momentum in infrastructural projects etc. would be the positive drivers for tractor industry in the long-term.

The management of the company expects good growth for demand of domestic tractor due to Government’s continued thrust on agri and rural sector, which would help the company to increase market share and financial growth of the company.

Godrej Agrovet: Rating BUY| Target - Rs 648

Axis Direct maintains a buy recommendations on Godrej Agrovet. We rarely see companies where all factors align, viz: (1) secular business with deep moat; (2) attractive industry dynamics; (3) strong corporate governance; and (4) excellent management team under a great leader. Godrej Agrovet (GAVL) is one such opportunity.

GAVL will continue its multi-year secular growth; tremendous growth potential in each segment as each business segment. GAVL operates in is either under-penetrated (animal feed) or in high growth areas (dairy, poultry, agri-inputs).

It has strong financials; more than 40 percent PAT CAGR over past 7 years, minimal working capital requirement, RoCE of around 20 percent, high asset turn (~5x). We expect 20 percent PAT CAGR over FY17-21.

SBI: BUY| Target Rs 386

Prabhudas Lilladher maintains a buy recommendation on SBI with a target price of Rs386. Fresh slippages for the bank were lower than trends at Rs90 billion with half from the corporate book and half from SME/Retail/Agri.

Half of the corporate book slippage was from watch list bringing down the watch list to Rs212.9bn or 1.2% of loans (down from 1.35% in Q1FY18). 50% of watch list is now power and some exposure towards telecom/steel.

Bank expects retail slippages to be lower and recoveries to improve as they see more stability to the retail credit, with Agri recoveries to be realised in Q3/Q4FY18. The corporate slippages are likely to be volatile as there are few lumpy accounts still left.

Provisioning levels will remain elevated at 250-300bps of loans as the bank continues to improve PCR with a combination of aging and voluntary provisions.

SBI is Prabhudas Lilladher’s preferred pick among PSBs as it will dominate market share on both loans & liabilities with strong low-cost deposits mix helping it keep the cost of funds much lower.

Hatsun Agro Products: BUY

Edelweiss in a report said that Hatsun Agro Product (Hatsun) is the dominant dairy player in its home state Tamil Nadu & surrounding southern states, underpinned by established brands Arokya, Arun Ice?creams and Ibaco.

The company has aggressively expanded its procurement network in untapped regions over the past few decades and boasts of 10,000 milk banks covering 13,000 villages spearheaded by strong relationships with farmers.

Hatsun’s strength lies in its near 100% direct procurement as well as 100% exposure to the retail segment, commanding strong 9% EBITDA margin despite milk revenue share of nearly 70%.

The company’s focus on untapped regions, premium product offerings and high ad spends has reinforced its pole position. Further expansion of its procurement network outside of Tamil Nadu and deeper into untapped geographies will drive Hatsun going forward.

Supreme Industries Ltd: BUY| Target Rs 1450

Sharekhan maintains a buy recommendation on Supreme Industries with a target price of Rs1450. Supreme Industries Limited (SIL) is the most prominent plastic piping product player in India, with a market share of 14% in the organized domestic market.

The organized market currently accounts for 60% of the total market. Under GST regime, the shift in market share to the organised from the unorganised sector will benefit the largest players like SIL (7,300 plastic piping products with 916 partner channels) to gain the market share at a faster pace going forward.

Further, the company makes a conscious effort to enhance its existing offerings in its product basket as well as make new offerings across industries (infrastructure, affordable housing, Agriculture, etc) wherein the Government infuses a significant outlay for their progress.

The brokerage firm revised earnings estimates upwards for FY19/20E led by the expansion of its overall capacity beyond FY2018, surge in Government spending in key sectors where SIL has a strong presence and the fact that it’s significant.

Varun Beverages: BUY| Target 10-12% upside

Sharekhan maintains a positive stance on Varun Beverages (VBL). The company intends to enter into a binding agreement with PepsiCo India to acquire franchisee sub-territory in Jharkhand along with manufacturing facilities and franchisee rights for Chhattisgarh (subject to satisfactory due diligence and final approval of PepsiCo India).

The stock price of VBL has seen decent run-up of 15 percent post the recent acquisition of two territories. However, with 2-3 percent add-on in revenue and consequential add-on in earnings would result in 10-12% upside from current levels.

Further, the long-term growth prospects of VBL are intact, as the company is continuously focusing on acquiring new territories in different states and gaining operating efficiencies through various initiatives.

The brokerage firm maintains their positive view on the stock with 10-12% upside from current levels.

Action Construction Equipment (ACE): BUY| Target Rs 165

LKP Securities maintains a buy recommendation on ACE with a target price of Rs165. The company is a leading player in Cranes, Material Handling & Construction Equipment in India. Given its strong brand equity ACE is a virtual duopoly in Mobile Cranes with a 63 percent market share and a leading player in Crawler & Tower Cranes.

ACE in our view is a huge beneficiary of operating leverage in all its key business verticals and is our pick to play the India Growth Story.

ACE is now fast emerging as a Pan India player in Road Construction & Farm Equipment and the recent entry of Institutional Investors this quarter lends credibility to our thesis on its ability to scale up in its high growth verticals.

ACE now is making material headway in its Farm Equipment business and should contribute to overall profitability this fiscal. The brokerage firm continues to remain optimistic on ACE and recommend a Buy with a price objective of Rs165.

Mahindra CIE: BUY| Target Rs 297

Motilal Oswal maintains a buy rating on Mahindra CIE with a target price of Rs297. Mahindra CIE (MACA) is a multi-technology automotive components supplier, with annual revenue of INR53b in CY16. It is one of the top manufacturers of forging parts in India (leader in crankshafts and stub axles) and the EU.

India contributes 38 percent of MACA’s overall business, while the EU contributes the rest. It caters to top customers like Maruti, M&M, Tata Motors and Hero Moto Corp in India. MACA acquired Bill Forge (BFL) in India at INR13b in 2016, enabling it to diversify further.

MACA's India (ex BFL) business is focused on fast-growing/recovering segments of UVs, LCVs, and Tractors, which contribute nearly 2/3rd of revenue.

Top-2 customers, M&M and Tata Motors, which contribute over 55% to revenue (ex BFL), are witnessing a good recovery in volumes, driven by product lifecycle as well as rural recovery (for M&M).

MORE WILL UPDATE SOON!!

Budget to focus on doubling farmer income; 7 sectors which are likely to do well: Sanctum

Most analysts expect the government to focus on increasing government expenditure on rural economy as well as introduce a measure to kick-start investment cycle in the economy.

  

The next big trigger for India market is Budget 2018 which will be the last full Budget of the Modi-government ahead of general elections 2019.

Most analysts expect the government to focus on increasing government expenditure on rural economy as well as introduce a measure to kick-start investment cycle in the economy.

In the upcoming Union Budget, the government is expected to focus on infrastructure and the rural sector. The prime objective is to generate employment in the rural sector by the implementation of various measures.

With the government expecting growth to come through structural reforms, and elections in Gujarat out of the way, agri and rural initiatives will be a core focus, alongside infrastructure and rural investment.

The government will continue to push forward on doubling of farmer income. The government is also committed to push through reforms in the public banking system, including recapitalization and initiatives to strengthen governance and clean up balance sheets.

We expect the government to relax its glide path on fiscal deficit and GDP to remain steady at 3.2 percent. Finally, the government is likely to push through further structural reforms, which may include the linking of benami properties to Aadhaar.

Globally, we are witnessing the unwinding of central bank balance sheets. We could see some liquidity unwind. However, FII flows have been strong post the Moody’s upgrade and clarity on the benefits of reforms that the government has put forth.

Markets are certainly expensive at current levels and the PE expansion story is largely over. Should earnings not come through, there is a likelihood of a correction and a possible re-rating.

However, we believe the structural story remains intact and growth is likely to come through at a level higher than many participants expect.

While the index may remain expensive, investors’ returns will be largely determined by the funds and equities in their portfolios.

Therefore, we believe investors are better suited focusing on the valuations of the securities in their portfolios and fund management expertise.

Buying the dip is a strategy that works well in a bull market, but will probably exacerbate losses in a bear market. All investment decisions should be made within a framework with a competently experienced advisor.

We think earnings are likely to grow in the mid-teens for the next two years. Assigning a slightly higher than average multiple leads us to an upside of low double digits.

We would note that there will be a wide dispersion in performance within sectors and get the sectoral call right will be important.

Industrials, financials (private banks), infrastructure, autos & auto ancillaries (4 wheeler), consumer discretionary & staples.

Crude was a large concern for us earlier this year. The Nov 30th OPEC meeting providing some color and clarity. It is unlikely that two of the three major producers – the US and Russia – are going to allow a spike in the price of crude.

With that out of the way, a rise of USD 5 to USD 70 cannot be ruled out, but remains manageable for the domestic economy. The possibility that the government will absorb some of the hike ahead of elections remains a probable scenario.

On a global level, production levels are surging for the US as shale producers are coming online and increasing production. So the crude scenario looks manageable.

The US yield curve was an area of concern and the long end has risen. The big risks for the markets today would appear to be inflation, valuations, and non-performing loans.

We think inflation was driven higher by seasonal spikes in core food items. These will mitigate in coming months. In an improving macro backdrop and a focused government intent on addressing NPAs, we think that the problem will remain contained and show

improvement.

Finally, valuations remain a concern, however one that will be addressed via earnings improvement. The remaining risk is the risk that we aren’t considering, the known unknown.

MORE WILL UPDATES SOON!!

Buy, Sell, Hold: 1 stock and 2 sectors are on analysts' radar today

M&M and auto sector, among others, are being tracked by investors on Tuesday.

M&M

Brokerage: CLSA | Rating: Buy | Target: Rs 910

CLSA said that the firm is its top buy in Indian autos for 2018. The company is benefitting from healthy demand in tractors & cyclical recovery in LCVs. Further, SUV volumes are bottoming out and upcoming MPV launch should boost growth. It sees a case to be more positive on rural India given the rising government spending.

Autos

The brokerage house said that Maruti’s December wholesales at 1.3 lakh units were below estimates. It highlighted Eicher’s December production may have been impacted by capacity transitioning at Thiruvottiyur. Further, TVS Motor's December sales were at 2.56 lakh units, above estimates.

Financials

Brokerage: CLSA

The global research firm said that key themes for 2018 will be ‘trend reversal’ on rates & bank credit growth. Along with this, deposit mobilization and liquidity will be the key. It also sees continuity in financialization of savings, capital raising and pick-up in housing. It likes IndusInd Bank, HFCs that will benefit from uptick in activity. Non-lending financials will benefit from financialization of savings.

MORE WILL UPDATE SOON!!