Shale Boom Fears Add to Meltdown for Oil's Worst Week Since 2016--->Tarun Devrani --Research Associate Risk Management (Indianmarketpulse)

Measure of oil market volatility climbs to highest since Aug.

S&P 500 Energy Index poised for biggest weekly loss since 2015

The last time oil had such a bad week two years ago, the commodity was trading near a $26 bottom.

On Friday alone futures in New York lost almost $2, settling below $60 a barrel for the first time this year as the unraveling  of global equity markets added to concerns that a new shale boom is in the making.

American crude output is soaring so fast that the U.S. is on the verge of elbowing Saudi Arabia and Russia aside as the top supplier, gushing more than 10 million barrels a day. Drillers this week added the most oil rigs since January 2017.

Crude had been on a steady rally since June as the Organization of Petroleum Exporting Countries and Russia curtailed output to prop up prices, while American stockpiles shrank. But with some prime shale areas delivering profits with oil at $50 or even less, the U.S. is producing the most crude since the 1970s.

Traders who try to divine market momentum from technical signals were closely watching New York crude’s 50-day moving average during the session, with West Texas Intermediate closing below the key level. A settlement below that mark for several days in a row would be regarded as a bearish indicator.

WTI for March delivery slid $1.95 to settle at $59.20 a barrel on the New York Mercantile Exchange, the lowest since Dec. 22. For the week, futures declined 9.6 percent, the most since January 2016.

Brent for April settlement declined $2.02 to end the session at $62.79 on the London-based ICE Futures Europe exchange. The global benchmark settled at a $3.80 premium to April WTI.

While the S&P 500 Index erased losses Friday, stocks are still poised for their worst week since 2016.

One of the things about this pull-back that we are seeing in equities, which is really tough to manage, is that there does not appear to be any good place to hide Oil and gas companies are feeling the pain. The S&P 500 Energy Index is on track for an 8.5 percent drop this week, the largest on a weekly basis September 2015.

MORE WILL UPDATE SOON!!

Market Week Ahead: Earnings, macro data among few things to keep investors busy

Experts advise churning portfolio and buying quality stocks in this dip. They expect the stock specific action to continue as we are near fag end of December quarter earnings season.

Bears disrupted the extended reign of bulls on Dalal Street, dragging down benchmark indices over 5.5 percent in two consecutive weeks, and in effect, aligning market valuations with earnings and economic growth.

A sell-off, warranted for a long time, was eventually caused by two events – first, the Budget 2018 where government imposed 10 percent long term capital gains tax on equity and 10 percent dividend distribution tax on equity oriented MF, and raised fiscal deficit target; and second global developments where expectations increased for a faster hike in US interest rates (more than three) hinting early inflationary pressures on tight labour market with higher wages. RBI in its policy also cited inflation concerns while keeping repo rate unchanged.

Losses over the last two weeks wiped out the year-to-date gains in 2018 with investors losing Rs 7.79 lakh crore worth of wealth in just the two weeks. The 50-share NSE Nifty had rallied 29 percent in 2017, taking total gains before correction to over 35 percent (i.e. till January 25, 2018) on hopes of earnings and economic recovery.

There was, however, some sigh of relief only in broader markets in the passing week as mid and smallcaps recovered on bargain hunting, with the Nifty Midcap index rising 0.6 percent and BSE Smallcap gaining 1.8 percent (on earnings recovery in Q3FY18) after losing 8 percent in previous week.

Here are things that will keep investors busy next week:

Earnings

We are at the fag end of the earnings season and majority of largecaps as well as midcaps have already declared earnings. Earnings announced, so far, are stable to better-than-expected.

"The current earnings season is providing strong signs of revival in corporate earnings underlining the long term growth prospects, which is providing relief for investors," Vinod Nair, Head Of Research at Geojit Financial Services said.

More than 2,000 companies will announce December quarter numbers in the coming week, which include some PSU banks, engineering & construction, real estate, sugar firms etc.

Monday (566 companies): GAIL, Bank of India, Britannia Industries, Motherson Sumi, Indian Bank, Power Finance Corporation, NHPC, Sadbhav Engineering, Corporation Bank, Mangalam Cement;

Tuesday (504) : DLF, Shipping Corporation, MMTC, JK Tyre, IL&FS Engineering, Abab Offshore, CG Power, Snowman Logistics, Shalimar Paints, Max India, PTC India Financial, NMDC, NBCC, Punjab & Sind Bank, Indian Overseas Bank, Godfrey Phillips India, GMR Infrastructure, Fortis Healthcare, Chambal Fertilizers, Bajaj Hindusthan, Dilip Buildcon, CRISIL;

Wednesday (1,110): Sun Pharma, Tata Power, Grasim Industries, Jet Airways, Dena Bank, Allahabad Bank, DB Realty, Zicom Security, HDIL, Godrej Industries, Vivimed Labs, Satin Creditcare, Sakthi Sugars, Titagarh Wagons, Steel Strips Wheels, Shriram EPC, Speciality Restaurants, Pratibha Industries, PNC Infratech, NLC India, NCC, Rolta India, Repco Home Finance, Shree Renuka Sugars, Religare Enterprises, MT Educare, Rana Sugars, Punj Lloyd, Prism Cement, Patel Engineering, Infibeam Incorporation, Jindal Stainless, IVRCL, JBM Auto, Globus Spirits, Gitanjali Gems, Gammon Infrastructure, Endurance Technologies, GVK Power, GTPL Hathway, 8K Miles, Ballarpur Industries, Bharat Road Network, Bhushan Steel, Ahluwalia Contracts;

Thursday (7): Vesuvius India;

Friday: Varun Beverages.

Sun Pharma

Sun Pharma, which will announce its October-December quarter earnings on Wednesday, is expected to report weak numbers especially due to continued US pricing pressure but domestic numbers could be good.

"Companies like Sun Pharma, while having strong domestic presences will struggle to show growth in Q3FY18 due to the absence of significant launches in the US market. Current regulatory issues for Sun Pharma (warning letter for Halol plant) have stifled launches in the US market in the recent past and we expect this to reflect in the current quarter’s US numbers," HDFC Securities said.

It expects company's topline is likely to decline around 11 percent YoY, owing to the high base (gGleevec) and increasing pressure on Taro’s business. The launch of gCoreg CR (first generic) will mitigate some of the decline, it feels.

Prabhudas Lilladher expects 16.6 percent fall in topline, 47 percent in operating income and 40 percent in profitability while HDFC sees EBITDA margin to continue to show some sequential improvement on the back of QoQ growth in the US business and resulting operating leverage.

Key things to watch out for would be FY19 generic launch guidance, updates on Halol facility re-inspection and specialty pipeline progress.

Taro Pharma, the subsidiary which announced earnings last week, reported 30 percent decline in topline due to price erosion in the US, 87 percent fall in bottomline on one time charge of USD 38 million due to tax changes in US and 1,880 basis points contraction in operating profit margin.

PSU Banks

Country's largest lender State Bank of India, on Friday, reported quarterly loss (Rs 2,416 crore) for the first time in almost 17 years, with higher slippages and weak asset quality performance. Even loan and deposit growth was muted in Q3FY18.

Bank of Baroda also reported a 56 percent fall YoY in profit on higher provisions and marginally higher asset quality.

Stocks may react to bad numbers on Monday, but analysts feel there could be some improvement from Q4 and FY19 onwards in banks earnings. Infact, FY19 could be far better than FY18, they said.

"Worst is behind us and heading into FY19, lot of resolutions in Q1FY18 would clean up the path for corporate banks to move ahead strongly. Next 3-6 months could be challenging but after that there would be greener pasture," Krishna Kumar of Sundaram MF said.

Bank of India, Indian Bank, Corporation Bank, Indian Overseas Bank, Dena Bank and Allahabad Bank will announce quarterly earnings in the coming week.

Macro Data

Industrial and manufacturing production data for December month, and CPI inflation for January will be released on Monday while WPI inflation for January will be announced on Wednesday.

IIP growth in November jumped to 17-month high of 8.4 percent from 2 percent in October while Consumer Price Index inflation increased to 5.21 percent in December from 4.88 percent in previous month.

Balance of trade data for January will be declared on Thursday. Foreign exchange reserves for the week ended February 9, and deposit & bank loan growth for week ended February 2 will be released on Friday.

India’s forex reserves surged by USD 4.1 billion to a new high of USD 421 billion for week ended February 2.

Technical Outlook

Technical analysts feel the underlying trend of the market is still weak and breaking of 10,000 can be possible in short term.

"The trend of Nifty as per weekly and monthly is down. The present weakness is expected to continue in the coming weeks or months. Although Nifty placed at the immediate support of around 10,400 levels, the support could eventually be broken on the downside. One may expect Nifty to slip below the recent low of 10,276 levels," Nagaraj Shetti, Technical Research Analyst at HDFC Securities said.

Any attempt of upside bounce is going to be a sell on rise opportunity for next week and the downside targets to be watched is around 10,000-mark for the next couple of weeks, he added.

According to Ashwani Gujral, ashwanigujral.com, the market is expected to remain choppy in the coming week and 10,300-10,600 could be trading band for the Nifty.

F&O

F&O data also indicated that there could be further weakness in the market going ahead.

"The Call writers in the Nifty have been rolling their positions lower, which suggests towards increasing pressure on the index as we are approaching settlement. Profit booking is seen in 10900 Call writing positions and now these are getting formed at 10500-10600 Call strikes," ICICIdirect said.

It further said, "The pressure due to long liquidation is quite evident in so far outperforming Nifty heavyweights. This may keep the index under pressure for some time. If the Nifty is unable to hold above 10,600, it can slip towards 10,250 again towards settlement."

On Friday, Call writing was seen at the strike price of 10,400, which saw the addition of 7.99 lakh contracts along with 10,500, which added 5.07 lakh contracts, along with 10,600, which saw the addition of 4.22 lakh contracts.

Maximum Put writing was seen at the strike price of 10,100, which saw the addition of 6.94 lakh contracts, followed by 10,200, which added 5.62 lakh contracts and 10,400, which added 3.63 lakh contracts.

IPO

Healthcare services provider Aster DM Healthcare will open its IPO for subscription on Monday, with a price band of Rs 180-190 per share.

The company aims to raise up to Rs 980 per share at higher end of price band, of which it already garnered Rs 294 crore from anchor investors on February 9.

The issue, which will close on February 15, consists of a fresh issue of up to Rs 725 crore and an offer for sale of up to 1,34,28,251 equity shares by the promoter, Union Investments Private Limited.

The fresh issue proceeds would be utilised for repayment of debt; purchase of medical equipment; and general corporate purposes

Stocks in Focus

On coming Monday, State Bank of India, ONGC, Mahindra & Mahindra, BPCL, Bank of Baroda, Marico, Tata Steel, Sobha, Nalco, Sun TV Network, Capacit’e Infraprojects, PTC India, Va Tech Wabag, Amara Raja Batteries, MOIL, Syndicate Bank, Oil India, Suzlon Energy, Technofab Engineering, and RCF stocks will react to their earnings.

SIS India will react positively as the company bagged contract for security arrangements at Commonwealth Games.

Global Cues

On Monday, Indian market may react to the Friday's bounce back on Wall Street on but the sustainability of recovery could be difficult going ahead. The Dow Jones ended 330 points higher on last day of the week.

Japan's Q4 GDP; Europe's Q4 GDP and industrial production for December month, and United States' January CPI will be released on Wednesday.

On Thursday, Japan's December core machinery orders & industrial production; and US' January industrial & manufacturing production data will be announced.

 MORE WILL UPDATE SOON!!

Avoid bottom fishing in this market; 5 stocks to buy which could give up to 14% return

The big support for the index is placed around 10,398 and a fall below could take the index towards 10,300-10,200 levels.

The Nifty50 breached key support levels in the past five trading session and closed by about 3 percent lower for the week ended February 9 signaling a pause in the momentum which we saw in the beginning of the year 2018.

Apart from domestic factors such as rising crude oil prices, high valuations, concerns over higher fiscal deficit as well as the imposition of long-term capital gains tax (LTCG) of 10 percent weighed on sentiment — the larger part of the decline can be attributed to global markets.

Investors are advised to stay light and avoid bottom fishing at current levels. The market has turned from buy on dips market to sell on rallies. Hence, any bounce back should be used to create short positions, suggest experts.

The big support for the index is placed around 10,398 and a fall below could take the index towards 10,300-10,200 levels.

As we all know, markets find its own reasons to correct and this time too, the global markets became the major culprits for drawing correction this time. With reference to previous articles, the short-term tide has now turned lower and looking at the ‘Bearish Engulfing’ pattern on the weekly chart; we do not expect any relief soon in the market.

At present, markets are undergoing much awaited (and required) correction. We reiterate that traders need to be very selective as the volatility is likely to remain on the higher side and also with such global issues; the opening direction is mainly dictated by the overnight cues from the global markets.

Chavan further added that one should avoid taking any kind of undue risks and should rather remain light on positions. In fact, it would be a prudent ploy to stay light and avoid making any kind of bottom fishing till the definite signals emerge.

Here is a list of top five stocks to buy in this week which could give up to 14% return:

MCX: BUY| Target Rs 825| Stop Loss Rs 670| Return 14%

This has been a wealth destroyer over the past one year and has now reached its multi-year support zone of 700. The relentless fall from 960 got arrested last week as the stock managed to recover from the new ’52-week low’ of 671.75 and then went on to form a ‘Morning Star’ pattern on daily chart.

This pattern has a bullish implication and indicates a short-term reversal. Thus, we expect a decent retracement of this recent severe correction. One can look to go long for a reasonable target of Rs.825. The stop loss should be fixed at Rs. 670.

Tata Chemicals: SELL| Target Rs662| Stop Loss Rs715| Return 5.4%

Recently, we saw a significant amount of correction in this stock from the high of Rs782. Last week, the stock prices managed to take some breather around ‘200-day SMA’ and eventually, recovered a bit from recent lows.

If we meticulously observe the daily chart, the corrective phase resulted into a breakdown from the multiple supports around 710 and hence, the relief rally during the week can be construed as a bounce back or just a relief rally.

Going by the ‘Change of Polarity’ rule, earlier support would now act as a strong hurdle and hence, we may see this stock facing some selling pressure around its current levels. We recommend selling this stock for a target of Rs.662 by following a strict stop loss at Rs.715.

BEML: BUY| Target Rs1400| Stop Loss Rs1180| Return 11.4%

The stock closed at Rs 1256.15 on 09th February 2018. It made a 52-week low at Rs 1125.15 on 25th May 2017 and a 52-week high of Rs. 1947 on 19th September 2017. The 200-days Exponential Moving Average (EMA) of the stock on the daily chart is currently placed at Rs1520.79.

After registering an all-time high of Rs1947, the stock has beaten down sharply from its highs and tested Rs1150 levels, which was its earlier support zone.

Apart from this, 200-WEMA was also laying around Rs1140 levels. The stock witnessed a bounce back from the said level and formed a reversal candle on the weekly charts.

On the indicators front, RSI and MACD are showing the positive divergence for the stock to bounce back is expected from current levels. Therefore, one can buy in the range of Rs1235-1245 levels for the upside target of Rs1370-1400 levels with a stop loss below Rs 1180.

InterGlobe Aviation: BUY| Target Rs1400| Stop Loss Rs1200| Return 11.2%

The stock closed at Rs1258.65 on 09th February 2018. It made a 52-week low at Rs815 on 14th February 2017 and a 52-week high of Rs1346.70 on 16th August 2017.

The 200-days Exponential Moving Average (EMA) of the stock on the daily chart is currently at Rs1153.45. As we can see on charts that stock is continuously trading in the wide range of 1050-1320 from August 2017 and has been forming a “Symmetrical Triangle” on weekly charts, which is bullish in nature.

Last week, the stock gave the pattern breakout but couldn’t hold the high levels due to correction in broader indices.

Overall, bias is still looking positive for the stock as there is a rise in the volumes which shows the strength for the stock.

Therefore, one can buy in the range of Rs1240-1250 levels for the upside target of Rs1370-1400 levels with a stop loss below Rs1200.

Steel Authority of India (SAIL): BUY | Target Rs.104 | Stop-loss Rs85 | Return 11%

Last week SAIL registered an uptrend breakout from its short-term moving average level placed at 86, after consolidating from 52-weeks high level seen on 8th of last month. It decisively managed to rebound from 81 level abetted by volume growth throughout the week and settled at just 7 points below its 52-week high.

With price trading above all the crucial moving average level, it formed a solid candlestick pattern on the weekly price chart, attempting to breakthrough its higher band.

The weekly secondary momentum indicator suggests a positive breakout with RSI level at 61 coupled with MACD witnessing a crossover from its Signal Line, indicating an uptrend phase.

The immediate support level for scrip is currently placed at 81 and resistance level is seen at 101 followed by 108. We have a BUY recommendation for SAIL which is currently trading at Rs. 93.95.

MORE WILL UPDATE SOON!!

Deploy Put Butterfly Spread to beat volatility till February expiry

With Market data point suggesting cautious stand, it is imperative to hedge the portfolio for any further downward risk. Thus a hedge strategy, Put Butterfly Spread in Nifty with higher Reward to risk of 3.65:1 is recommended.

  

Volatile increased by each passing day leading to alternate bouts of buying and selling in the market. The Nifty50 index on closing basis lost 2.8 percent to end the week at 10,495. It made a swing low of 10,276.30.

Volatility is getting recovered. Nifty futures saw continued shedding in open interest of 2 percent in the week carried over from the previous expiry.

Option data suggest highest Put concentration is at 10000 strikes while highest call concentration is at 11100 strikes with OI of 57.6 lakh shares each.

Option players remained significantly active on both calls and Puts as a notable increment of ~20 lakh shares was witnessed in call strikes of 10400 to 10700 and on the put side from 10400 to 10000 strike.

Put Call Ratio open interest wise for Nifty trades at 1.09 cooling off from the highs of 1.89 registered in the last series. The ratio indicates 1.09 Puts for every 1 call signifying nearly equal position at both calls and puts.

Lower bound for the ratio is near 0.90 indicating cautious stand on the market. The considerable spike in volatility across global indices led to a global meltdown in Equities with India being no exception.

Spike in Volatility Index to 19.23 percent raised the panic among traders & investors as they look forward to protect their portfolio from probable downside risk. A negative correlation between India VIX and Prices further puts downward pressure on the prices.

Decoding Participant activity for last week depicts FII were net sellers of 6257 crores in the Index Futures with OI increase 62802 contracts on the short side.

In Index Option, FII increased their bet on the short side by adding cumulative 164,173 contracts in Index Put Long and Index Call Short while Clients added nearly equivalent quantity of 163,670 contracts on Index Call Long and Index Put Short indicating FII negative bias and Client(Retail) positive bias for the market.

With Market data point suggesting cautious stand, it is imperative to hedge the portfolio for any further downward risk. Thus a hedge strategy, Put Butterfly Spread in Nifty with higher Reward to risk of 3.65:1 is recommended

Under this strategy, we need to Buy Nifty Feb series 10400 PE 1 lot, Sell 10100 PE 2 lots and Buy 9800 PE 1 lot.

Put Butterfly Spread helps in participating in high yielding trade with relatively lower cost. Being completely hedge one can hold on to the position up till expiry to provide a cushion in any further adverse movement in the market.

Also, as trade is hedged, jump or fall in Volatility will not impact the strategy significantly.

MORE WILL UPDATE SOON!!

Does correction on D-St warrant a portfolio reshuffle? 12 stocks to buy

 top buys in the large caps space include names like Maruti Suzuki, ICICI Bank, Motherson Sumi, HPCL, Hindalco Industries, Aurobindo Pharma, Bharat Electronics and Ashok Leyland.

The Nifty50 corrected 5.7 percent from its lifetime high of 11,130 (on January 29, 2018), led by global sell-off and on profit booking by the market, post introduction of Long Term Capital Gains (LTCG) tax in Union Budget FY19, IDFC Securities said in a note.

The budget focused on rural growth, infrastructure push, employment creation, MSME (Micro, Small and Medium Enterprises) support and social welfare, which was in line with expectations and is expected to support lower income groups in general.

The domestic brokerage firm believes that two themes would predominantly play out as the economy recovers: a) Asset-heavy and export-oriented industries would do well as the global economy recovers and consequently, the valuation gap between asset-heavy and asset-light industries would narrow further, and b) Consumption being the strongest component of GDP will continue to see growth impetus from retail credit.

Moreover, the recent reduction in tax rates for companies operating in the discretionary consumer sector will boost overall consumption.

Consequently, IDFC Securities is Overweight: Engineering and Capital goods, Construction, Metals & Mining, Oil & Gas, Consumer Goods, Automobiles, Media, and Pharmaceuticals; Neutral: Banks, Cement, Chemicals, Power and IT; Underweight: Real Estate and Telecom.

IDFC Securities has made some changes in its portfolio of stocks. It replaced SBI with ICICI Bank within top picks, and ONGC with Maruti Suzuki India Ltd.

IDFC top buys in the large caps space include names like Maruti Suzuki, ICICI Bank, Motherson Sumi, HPCL, Hindalco Industries, Aurobindo Pharma, Bharat Electronics and Ashok Leyland. In the small and midcaps space stocks such as Kajaria Ceramics, SpiceJet, Ashoka Buildcon, and Greenply Industries are looking attractive.

Here is a list of top 12 stocks 

Maruti Suzuki: Buy | Target: Rs 10,500

As Maruti Suzuki continues to gain market share, it again underpins its strong competitive position. Successful product launches coupled with declining competitive intensity reinforces the company’s dominance in the market.

While profitability has been weak in the Q3 FY18, going forward we expect margins to improve on the back of better operating leverage and an improving product mix.

Also, the company will start production of batteries FY 20E onwards in a joint venture with Suzuki, Toyota, and Denso, with increasing focus on electric vehicles.

IDFC Securities values the company at 26x FY20 led by stronger earnings visibility (royalty payments are likely to decline with logistic savings on vendor localization and fast ramp-up of Gujarat plant).

ICICI Bank Ltd: Target: Rs 390

IDFC Securities added ICICI Bank to their top picks as it believes: a) Slippage going ahead will be less volatile compared to what we observed in the previous years, b) margins have bottomed out. Moreover, ICICI Bank has managed volatility in stress loans better than other private corporate banks.

Also, the loan growth continues to be healthy (domestic loans grew by 16 percent YoY and 6 percent QoQ in Q3 FY18). With latest earnings release, we have revalued non-banking subsidiaries with a value of core business at 1.3x PBV FY20E, thereby increasing our target price to Rs 390.

Motherson Sumi Systems: Target: Rs 425

Motherson Sumi expects to achieve its revenue target of USD 18 billion a year before than earlier targeted for 2020. Also, in the last few years, SMR/SMP have consistently gained market shares across product segments and the company has entered new verticals with the acquisition of PKC.

Moreover, further growth drivers persist as (a) the company has enough whitespaces to grow with existing customers, b) overall growth in the premium car market is likely to outstrip lower-end vehicles, c) content per vehicle continues to rise with the share of electronics improving.

HPCL: Target: Rs 515

IDFC Securities believes that improved refinery configuration, higher marketing margins, and rising cash flows do not yet reflect in HPCL’s valuations.

In refining, the brokerage house believes that the reasons for miss compared to estimates in Q2 will not spill over into H2 and the improving distillate yields, higher sulphur crude and improving configuration should lead to GRMs sustaining at over USD 7/bbl (FY18-20E).

While growth in marketing volumes remains below historical levels, OMCs are expected to benefit from higher-margin LPG replacing lower-margin kerosene over FY18-19E. Moreover, with ONGC taking a stake in HPCL, if ONGC allows HPCL to absorb MRPL, the overall refining complexity of HPCL would see a sharp improvement.

Hindalco Industries: Target: Rs 346

With clarity on aluminium hedging volumes and prices in FY19 and its CoP peaking soon, we expect Hindalco’s (HNDL) EBITDA to rise 29 percent YoY to Rs 78 billion in FY19E from its India operations. Moreover, Novelis’ sustainable EBITDA guidance of USD 375-380/t provides comfort on its future earnings.

Hindalco’s capex plans in value addition and alumina expansion are key positives. We have not factored in any probable acquisition by Novelis in our estimates. Post Q3 FY18 earnings, IDFC Sec have rolled over their valuation to FY20E earnings to arrive at a target price of Rs 346 (earlier Rs 322).

Aurobindo Pharma: Target: Rs 944

Aurobindo reported steady earnings growth versus most peers in FY17-18, disproving apprehensions on the company’s US generics focussed business model. The company’s US sales grew 28 percent QoQ to USD 327 million in Q2 FY18, aided by gRenvela launch.

We estimate 13 percent CAGR from US sales over FY17-20E to USD 1.45 billion in FY20E, despite likely erosion in oral solid dosage (OSD) portfolio. Growth in US sales will be driven by 33 percent CAGR in injectables, new niche OSD launches and scale-up in Natrol and OTC segments over FY17-20E

Additionally, EU profitability will drive 11 percent PAT CAGR over FY17-20E with significant operational cash generation. Aurobindo is our top pick in the largecap pharma space.

Bharat Electronics Limited: Target: Rs 220

BEL is well-positioned to capture the growing defence spend, led by its strong manufacturing capabilities and R&D focus. Accordingly, IDFC Securities expect order intake momentum to sustain at Rs150bn on an annual basis over the next few years, providing strong revenue visibility with a current order backlog of Rs 405 billion (4x FY18E revenues).

As execution picks up (22 percent revenue CAGR over FY17-20E), we expect margins to remain stable, led by positive operating leverage.

While the near-term earnings growth is impacted by lower other income (buyback and lower yields, 3  percent growth in FY18E), IDFC Sec expects long-term earnings trajectory to be strong (18 percent CAGR over FY18-20E).

The stock trades at attractive valuations along with sustained order inflows, long-term earnings potential, and improvement in return ratios.

Ashok Leyland Ltd: Target: Rs 138

We believe the CV cycle has not peaked and expect volume growth recover in H2 FY18E. We expect a) an improvement in mining/road construction sectors, b) stringent regulation on overloading in UP, and c) defence tenders to drive growth.

Moreover, we are convinced about Ashok Leyland’s improving competitiveness and increased focus on exports/LCVs, which we believe de-risk its business. We expect these initiatives to drive revenues (12 percent CAGR over FY17-20E, backed by 8 percent M&HCV volume growth and 4 percent improvement in price realization) while reducing cyclicality over FY17-19E.

Kajaria Ceramics: Target: Rs 776

IDFC Securities believes that organised players will continue to gain market share from unorganised players, led by GST implementation (tax compliance) in the medium term.

However, in the near term, unorganised players have gained given the delay in the introduction of the e-way bill. This along with a sharp increase in fuel prices has led to cut our estimates sharply.

IDFC Securities now estimate 14.6 percent volume CAGR (depressed base) and strong 27.5 percent earnings CAGR over FY18-20E on the back of operating leverage kicking, JV issues getting sorted and higher contribution of sanitaryware/faucet division.

With industry-leading market share, margins and high return ratio profile, we expect the stock to command industry leading multiples (provided growth does not decelerate).

SpiceJet: Target: Rs 173

SpiceJet continues to invest in rebuilding its brand and in improving its service offerings. Its bold route strategy involves a greater focus on non-trunk routes, has strong growth prospects and is already earning the company better yields. Driven by 21.5 percent/24.9 percent RPKM/revenue CAGR and stable gross spreads, we expect 26 percent/32 percent EBITDA/EPS CAGR for SpiceJet over FY17-19E.

Also, we believe SpiceJet’s balance sheet will continue to strengthen with strong cash generation (expect net cash position by Mar 2019). The stock trades at 8.1x FY19E EV/EBITDAR and we value SpiceJet at 9.3x FY19E EBITDAR (5  percent discount to multiple assigned to IndiGo).

Ashoka Buildcon: Buy | Target: Rs 312

IDFC Securities believes that organised players will continue to gain market share from unorganised players, led by GST implementation (tax compliance) in the medium term. However, in the near term, unorganised players have gained given the delay in the introduction of the e-way bill.

This along with a sharp increase in fuel prices has led to cut our estimates sharply. IDFC Securities now estimate 14.6% volume CAGR (depressed base) and strong 27.5 percent earnings CAGR over FY18-20E on the back of operating leverage kicking, JV issues getting sorted and higher contribution of sanitaryware/faucet division.

Greenply: Target: Rs 390

IDFC Securities expects Greenply to benefit from the recent boost in GST (lowered to 18  percent), which will accelerate the shift in market share towards organised players. Also, ongoing revival in real estate will aid growth, in our view.

Moreover, its MDF and plywood units are expected to come on stream from mid-FY19E. With its new MDF plant, Greenply will own almost ~45 percent of India’s MDF capacity and with increasing adoption of MDF in India, Greenply is poised to grow well in the medium term.

IDFC Sec thus expects Greenply’s earnings to double over FY17-20E with most of it being back-ended (FY18 to be a challenging year given GST implementation and ply wood capacity peaking out). We estimate over 25 percent growth in FY20E/21E.

MORE WILL UPDATE SOON!!

Stay with winners! Sensex loses 1000 points in a week; top 40 stocks which rose up to 30%

The valuation of India market still remains to be rich; hence, any correction owning to global volatility should be used as a buying opportunity to dig into quality stocks.

The S&P BSE Sensex lost over 1,000 points while the Nifty50 dropped a little over 300 points in a week marred by global volatility but there were plenty of stocks which braved the fall.

The correction which started from New York extended to Japan, China and then to the Indian market. The S&P BSE Sensex plunged 3 percent translates into the worst decline since August.

The market continued to witness selling pressure throughout the week largely on the concern of higher inflation, potential tightening of liquidity, rising bond yields and sell-off in global markets.

The valuation of India market still remains to be rich; hence, any correction owning to global volatility should be used as a buying opportunity to dig into quality stocks. Corrections will help bring some stability to the valuations front as well.

“Current decline was due to mixed emotions of all LTCG, global sell-off, and overvaluations. At this steep correction, we think it is time to add some of the quality stocks like Himadri Chemical, Graphite, Rain industries in Chemicals sector which have corrected a lot and there is a huge potential left,” Chirag Singhvi of KIFS Trade Capital told Moneycontrol.

“Dalmia Bharat, L&T, TCS are the pioneer in their industry and a good buy at the current market price for value investing. Titagarh Wagons is available at cheap valuations with the good dividend yield, he said.

There were plenty of stocks from the S&P BSE 500 index, the S&P BSE Midcap index and the S&P BSE Smallcap index which braved the fall and rose up to 30 percent in a week which spelled ‘Bloodbath’.

The benchmark indices lost 2.8 percent for the week ended 9 February; however, some buying interest was witnessed in the mid & small cap stocks post a recent sharp correction.

Plenty of stocks in the S&P BSE Smallcap index rose up to 30 percent which includes names like Surya Roshni, followed by Excel Industries, Bombay Dyeing, Lumax Industries, FDC, Arshiya, Gulf Oil etc. among others.

In the S&P BSE 500 index Bajaj Electricals, HEG, Rain Industries, Fortis Healthcare, Jet Airways, 8K Miles, Shankara Building Products, SAIL, Polaris Consulting rose 10-20 percent in the week gone by.

In the midcap space, Reliance Capital put out a strong show post Q3 results. The stock closed the week with gains of 13 percent, followed by Bharat Forge which gained 10 percent, Ashok Leyland rallied 10 percent in the same period.

MORE WILL UPDATE SOON!!

Equity gave stellar returns despite fall; 9 MFs which gave up to 20% return every year

Investing in equity mutual funds is always advocated via a Systematic Investment Plan (SIP). It takes out the need to accurately time the market as well as the urge to act on your emotions.

If someone asked you what the hardest part of investing is, what would you say?

It could be as rudimentary as getting started, or as elaborate as arriving at the fair value estimate of a stock. Alternatively, it could be figuring out an optimal investment policy or deciding whether to kick your fund to the curb. There is no right answer.

However, I would like to suggest one that tries and tests the resolve of virtually every investor.

Doing Nothing.

I have not read a more eloquent explanation than the one offered by Charles Ellis in his book ‘Winning the Loser’s Game’: Sustaining a long-term focus at market highs or lows is notoriously difficult.

It’s a time when emotions are the wildest when action appears most demanding and the “facts” most compelling. Staying rational in such an emotionally charged environment is extraordinarily difficult.

But, is also extraordinarily important because the cost of infidelity to your own commitments can be very high.

In a bull run, it seems extremely enticing to throw caution to the wind, discard your pre-determined asset allocation, and wholeheartedly pump money into stocks that promise to sizzle and can only go one way: Up.

In a slump, it is critical to sit back and do nothing while your portfolio loses value. But, here’s something to remember; it is only a notional loss until you actually act on your impulse to sell.

Does it mean you should never sell? Of course not. The point I am making is not to impulsively sell a good investment just because the market has tumbled and the buzz is that it is never going to climb back again.

This is precisely one of the reasons investing in equity mutual funds is always advocated via a Systematic Investment Plan (SIP). It takes out the need to accurately time the market as well as the urge to act on your emotions.

Let’s look at how a monthly SIP would have functioned over the years. If we look only at data which dates back 5 years, it won’t throw up a very accurate picture. But, if we take it over a 10-year or 13-year time frame, we cover ample terrain.

This period would cover the market high of 2007 and January 2008, the massive slump, the rally in 2010, the dip again in 2011 to be followed by a run up again.

Annualized Returns of 10-year Monthly SIP ending on December 29, 2017

Are there gaps between the best and the worst performers? Of course, yawning gaps. But, the point being made here is that in the end, equity delivered. All that was required of the investor was to do nothing during all the upheavals but diligently continue with the SIPs.

I have so often read this statement that describes flying a small airplane: “It is hours and hours of boredom punctuated by moments of sheer terror.” While one can argue that it even applies to life, investing can also be thought of along the same lines.

Doing nothing may sound like terrible advice. But long-term investing is about doing nothing 99% of the time.

In fact, the world renown investor Seth Klarman is known to have said that the greatest edge an investor can have is a long-term orientation.

If you manage to keep your wits around you when everyone is either getting euphoric or losing their cool, you will ultimately emerge the winner.

MORE WILL UPDATE SOON!!