Earnings, global markets to set the trend on D-Street; 3 stocks with up to 15% return potential

On the macros side we will continue to look at bond yields and crude prices. We believe these are two biggest factors which can dampen the Indian market rally.  

The Dalal Street could watch out for reactions of Q4 numbers of Nifty companies. HDFC, Kotak Mahindra Bank will announce Q4 earnings on April 30. Dabur and Hindustan Media Ventures will post their earnings the next day.

Market will be closed on Tuesday due to Maharashtra Day. So, we will have only four trading days in this week.

On the macros side, the market will continue to look at bond yields and crude prices. We believe these are two biggest factors which can dampen the Indian market rally.

In US and Europe, results season is still going on. Particularly post Caterpillar and GE’s disappointing numbers we will closely watch for coming companies numbers, especially related to old economy.

In FANG stock, Facebook has posted very good set of numbers. We might see some relief rally in high beta US counters on back of this. So, in nutshell, next week's trend will be decided on the basis of quarterly earnings, trend in global markets.

Salasar Techno Engineering | Rating: Buy | Return: 15%

Salasar Techno Engineering enjoys 42% market share and all the major telecom operators are its customers having long term business relationship. The company has technical tie up with Rambol International for manufacturing and designing world class telecom towers of various qualities and range.

The current EBITDA margin is around 10%, which is expected to increase up to 11-11.5% on the back of huge order book, consistent demand and new projects for which the company has already submitted bid.

In FY17 Salasar Techno doubled its galvanizing capacity from 50,000 metric tons to 1,00,000 metric tons. Salasar Techno currently has an EV/EBIT of 9.72%.

At the current market price of Rs 387, company is trading at 11x multiple for FY19. We are recommending a buy with a target of Rs 445.

Vinyl Chemicals | Rating: Buy | Return: 9%

Vinyl Chemicals is a Pidilite group company. It is in the business of selling various speciality chemicals mainly to textile, paints and adhesive sectors. Vinyl Acetate Monomer (VAM) was manufactured in the plant located at Mahad in Raigad District, Maharashtra, India and was sold all over the world. Vinyl had major share of business of this product in India.

During 2007, the said plant was de-merged to resultant parent company Pidilite Industries for strategic reasons. However, the company's main focus remains in its product “Vinyl Acetate Monomer" (VAM). The VAM is now imported/sourced from various Global suppliers and distributed / traded in India.

Vinyl Chemicals India will maintain its major presence in the field of trading of various Speciality Chemicals in future all over the world. Currently, the stock is trading at 20x which we think is quite an attractive level given the bright future prospects and pedigree of Pidilite group.

Vinyl Chemicals will yield maximum benefits from structural changes are happening in chemical industry. Be it a production cuts from Chinese companies or continuously rising demand from Asian conglomerates. Vinyl Chemicals has all the ingredients to outpace the industry growth. We recommend a buy with a target of Rs 131.

Archidply Industries | Return: 13%

Archidply Industries is the flagship company of the Archidply group. The company is a manufacturer of wood panel products and decorative surfacing products.

The promoters of the company have been associated with plywood manufacturing for more than 30 years under the brand ‘Archidply’.

The management was responsible for the turnaround of the Mysore based particle board and plywood manufacturing unit which was shut down for seven years, before being acquired by the Archidply group. The company also has a good track record in executing projects on time.

The company started out with a single plant in Assam and has expanded the business to three facilities in Uttar Pradesh, Assam and Karnataka. The organized plywood industry is growing at a rate of 30 percent per annum driven by increased demand from institutional clients. Retail stores, corporate spaces and hospitality sector have seen huge growth and are fuelling the demand for Interior Infrastructure.

Looking at management pedigree and industry growth we believe Archidply will yield maximum benefits in coming days. We are recommending Archidply with target of Rs 108.

MORE WILL UPDATE SOON!!

Top 10 stocks which are likely to remain on traders’ radar in May series

The Bank Nifty under performed the benchmark indices in the month gone by and formed a good amount of mixed positions. Rollovers in banking index stood at 82.59 percent which is much higher than its 3-month average rollovers of 70.51 percent.

  

Post a decent correction in preceding two months, April series kick-started on a positive note and with a good amount of short positions. The Nifty continued to make higher highs as the month progressed.

April month was completely dominated by the ‘Bulls’ as we witnessed positive closing in 15 out of 19 trading sessions of April series.

As a result, Nifty concluded the April F&O series a tad above 10600 mark, with a gain of around 5 percent over its penultimate expiry.

Sectorally, IT sector was the centre of attraction for a major part of the April series as all the IT counters ended well in positive territory and they also added a huge amount of long positions.

The Nifty has retraced about 50 percent of the fall seen in February and March. In this up move, we witnessed the formation of fresh long positions.

Rollovers in Nifty stood at 72.32 percent which was above its quarterly average in both percentage term as well as in term of net open positions, which indicates that the long positions formed in the last month got rolled to the next series ahead of Assemble Election in Karnataka.

However, some of the previous shorts, which got rolled from March series, are still intact in the system. Foreign institutional investors or FIIs, who were light on positions at the start of series, too participated well in the up move and as a result.

FIIs 'Long Short Ratio' in index futures has moved higher from 18.20% (March expiry) to 54.40% (April expiry). At the same time, they sold equities worth around Rs. 8140 crore in last one month.

The BankNifty underperformed the benchmark indices in the month gone by and formed a good amount of mixed positions. Rollovers in banking index stood at 82.59 percent which is much higher than its 3-month average rollovers of 70.51 percent.

The open interest has also increased by 29.89 percent on a month-on-month basis which indicates that a blend of long and short positions got rolled to May series.

On the Nifty options front, 11000 call option is attracting trader’s attention; while 10500 – 10300 put options has added huge positions.

Considering the overall options activity, 10400 – 10800 would be a broader range for the Nifty in May series.

Stocks to watch in May series:

On stock front, good amount of long positions got rolled in stocks like MindTree, NIIT Tech, Tata Elxsi, DCB Bank, Nalco, etc.

While counters like PC Jeweller, Reliance Communications, HPCL, BPCL, IDEA and IDBI Bank, etc. had seen a huge correction in the last series and the shorts formed in these stocks got rolled to the May series as well.

MORE WILL UPDATE SOON!!

These top 10 stocks are likely to remain on traders’ radar in May series

Sectorally, IT sector was the centre of attraction for a major part of the April series as all the IT counters ended well in positive territory and they also added a huge amount of long positions.

  

Post a decent correction in preceding two months, April series kick-started on a positive note and with a good amount of short positions. The Nifty continued to make higher highs as the month progressed.

April month was completely dominated by the ‘Bulls’ as we witnessed positive closing in 15 out of 19 trading sessions of April series.

As a result, Nifty concluded the April F&O series a tad above 10600 mark, with a gain of around 5 percent over its penultimate expiry.

Sectorally, IT sector was the centre of attraction for a major part of the April series as all the IT counters ended well in positive territory and they also added a huge amount of long positions.

The Nifty has retraced about 50 percent of the fall seen in February and March. In this up move, we witnessed the formation of fresh long positions.

Rollovers in Nifty stood at 72.32 percent which was above its quarterly average in both percentage term as well as in term of net open positions, which indicates that the long positions formed in the last month got rolled to the next series ahead of Assemble Election in Karnataka.

However, some of the previous shorts, which got rolled from March series, are still intact in the system. Foreign institutional investors or FIIs, who were light on positions at the start of series, too participated well in the up move and as a result.

FIis 'Long Short Ratio' in index futures has moved higher from 18.20% (March expiry) to 54.40% (April expiry). At the same time, they sold equities worth around Rs. 8140 crores in last one month.

The BankNifty underperformed the benchmark indices in the month gone by and formed a good amount of mixed positions. Rollovers in banking index stood at 82.59 percent which is much higher than its 3-month average rollovers of 70.51 percent.

The open interest has also increased by 29.89 percent on a month-on-month basis which indicates that a blend of long and short positions got rolled to May series.

On the Nifty options front, 11000 call option is attracting trader’s attention; while 10500 – 10300 put options has added huge positions.

Considering the overall options activity, 10400 – 10800 would be a broader range for the Nifty in May series.

Stocks to watch in May series:

On stock front, good amount of long positions got rolled in stocks like MindTree, NIIT Tech, Tata Elxsi, DCB Bank, Nalco, etc.

While counters like PC Jeweller, Reliance Communications, HPCL, BPCL, IDEA and IDBI Bank, etc. had seen a huge correction in the last series and the shorts formed in these stocks got rolled to the May series as well.

MORE WILL UPDATE SOON!!

Will ‘sell in May and go away’ hold true for markets in 2018?

After a paltry average CAGR of 3% for the last 4 years, we are going to end FY 18 with an earnings growth of 10%. FY 19 promises even better, a very healthy 25% growth.

  

The April series ended with a flourish at 10,618, marking the highest close since February 5, 2018. This is significant as this is the highest close since the Nifty began making lower tops and lower bottoms. Immediate resistance now comes at 10,705 for the index.

This level marks the 61.8% retracement of the Nifty’s 1,220 points fall from 11,171 mark to 9,951. A close above the mark of 10,705 should be seen as an end to the current bearishness.

There is a market myth, propagated by some of the talking heads on TV that you can safely sell in May and go away. Coupled with this is another fear that in the month of May we have had instances of lower circuits in our markets in May 2004.

We have the Karnataka election results on May 15, which could make the bulls think twice before building longs.

Plus, on the global front, the fear that U.S. may re-impose sanctions on Iraq as the deadline of May 12 nears, which could trouble the markets further.

But before you think of selling in May and going away, just remember that of the 30 individual May months we have studied since 1990, it has fallen in only 12 and risen in 18, giving an average return of 0.62 percent.

Additionally, the average return of the year from January to April, in all 12 instances when the markets fell in May, the markets had risen 14 percent on an average. The year to date returns of the Nifty, are a paltry 0.83%.

Don’t fall into this trap

While selling in May and going away may be true for the U.S., it is certainly not a sound idea for India, no matter how fearful you may feel. Approach the month of May with an open mind.

Better Results

After a paltry average CAGR of 3% for the last 4 years, we are going to end FY 18 with an earnings growth of 10%. FY 19 promises even better, a very healthy 25% growth.

GST Numbers will only improve. For the month of March, the GST collections have been Rs 96,000 crore. The highest so far.

Along with better GST numbers, the E-way bill has been made compulsory from April. The number will only get better.

On the elections front, Karnataka is still a developing story. The markets are despondent on BJP’s electoral performance in Karnataka, especially after the Congress played its Lingayat card well.

We think for a market which is just licking its wounds inflicted by LTCG and FII selling is ignoring the positives and reading too much in the negatives.

It may be better to approach the month of May with an open mind rather than with preconceived notions of selling in May and going away.

MORE WILL UPDATE SOON!!

These 20 evergreen companies & rising star stocks are your best bet to make a multibagger portfolio

I-RoCE is more crucial than reported RoCE as it better reflects the management’s fresh capital allocation decisions and forms the crux of the efficiency test.

Return-hungry investors are always on the lookout for stocks that can offer value and at the same time promise future growth which remains elusive in most of the companies that have rallied in the past year.

To answer this, Edelweiss Securities in its second edition of Capital Conundrum series, handpicked 20 stocks based on incremental return on capital employed (I-RoCE) framework, which according to them, is a true reflection of the management ability to redeploy incremental capital at higher returns that is not clouded by past capital allocation decisions.

Further, I-RoCE companies can be categorised into two buckets: a) Evergreen – Companies improving or sustaining their high RoCE and b) Rising Stars–Companies with low historical RoCE, but moving up the curve.

  

What are 'Evergreen' and 'Rising Star' categories?

Evergreen: This category includes companies which are improving or sustaining high RoCE. The thumb rule is that RoCE should be greater than 20 percent of the 10-year average. Evergreen companies that have delivered & sustained high I-RoCE are rewarded by markets.

Under the Evergreen category, the companies which qualify the above criteria include names like Britannia Industries, Eicher, Pidilite Industries, Avanti Feeds, La Opala, TVS Srichakra Ltd, Atul, Kajaria, Sheela, and MRF.

  

Rising Stars: This category includes companies with low historical RoCE which is usually less than 20 percent of 10-year average, but are moving up the curve. Rising Stars are expected to emerge as winners going ahead and create substantial shareholders wealth.

The companies that make the list under the Rising Stars category includes TVS Motors, D-Mart, Heritage Foods, KPR Mills, CCL Products, Finolex Cables, Phoenix, Firstsource Solutions, Vardhman, and Nilkamal, said the Edelweiss report.

There are also companies that have moved from the Rising Stars category to the Evergreen category in the last five years. The probability of a Rising Star company moving to the Evergreen category in the following years, based on past five years’ back-testing analysis, is 40 percent, added the report.

  

MORE WILL UPDATE SOON!!

3 short-term stock buys which can offer up to 16% returns

At this juncture, 10640 – 10665 zone is a crucial hurdle for the Nifty and any sustainable move beyond this level will drive Nifty higher towards 10703 – 10736 which coincides with the weekly gap area.

   

The Nifty continued to trade in a narrow range of 10,540-10,630 as several factors restricted the rally. Sharp fall in the USD:INR pair, rise in bond yields and surge in crude oil prices were among the top reasons that kept indices rangebound throughout the week.

The Nifty made several attempts to surpass the crucial resistance of 10,640 levels. However, follow-up buying was clearly missing. On an hourly chart, we can see a complex bearish divergence, whereas the weekly RSI (14) is approaching 60 levels.

At this juncture, 10,640–10,665 zone is crucial hurdle for the Nifty and any sustainable move beyond this level will drive Nifty higher towards 10,703– 10,736 levels which coincides with the weekly gap area.

On the flip side, if the Nifty fails to cross and hold 10,640 levels and slides below 10,563 levels, we may see some correction in our market which could take the index towards 10,450–10,355 levels, respectively.

Short rollovers were seen in cement, capital goods, banking, NBFCs and oil & gas sector and that will keep markets under pressure, whereas sectors like technology, metal, pharma, and FMCG saw long positions getting rolled in May series.

From current levels, we don’t expect a big upmove in Nifty and any rally/short covering move towards 10,700-10,740 levels can be used to exit from long positions and initiate fresh shorts.

On the lower end, the level of 10,500 will act as immediate support for the Nifty, post which it can test 10,350-10,300 levels.

Here is a list of top 3 stocks which could give up to 16% return in the short-term:

Wockhardt: Buy at 795| Target 900| Stop Loss 750| Timeframe 15 to 21 sessions| Return 13%

After consolidating near 200-SMA, the stock saw decent buying interest in the past few trading session. The move was also confirmed by the rising volume activity.

On the weekly chart, despite the sharp fall from 1012, the 9-45 EMA on price is positive and indicates that the current trend is still up.

The weekly RSI (14) indicates that stock is likely to resume its uptrend. We advocate traders to buy Wockhardt at the current level of Rs795 with a price target of Rs900 and a stop loss placed below Rs750.

Maruti Suzuki India Ltd: Sell around 9000| Target 8300| Stop loss 9350|Timeframe 15 to 21 trading sessions| Return 7%

Maruti Suzuki has been under pressure since past few trading sessions as stock resumed its medium-term downtrend. Recently, the stock confirmed its breakdown on daily RSI (14) which doesn’t bode well for bulls.

Also, the daily, as well as the weekly RSI, has a signal shift in a range. Hence, we expect a further correction in this stock and recommend traders to short Maruti around 9000 levels with a price target of 8300. Stop loss should be placed at 9350 on a closing basis.

SAIL: Sell around 77 – 78| Target 63| Stop loss 81.50| Time frame 15 to 21 trading session| Return 16%

Last week, stock rested the neckline drawn from its previous support zone which was broken during early March 2017. In line with expectation, stock witnessed decent sell-off and in that pessimism, sail confirmed its breakdown from down sloping trend line drawn from its recent swing low of Rs67.15.

The said breakdown was confirmed by the daily RSI (14) which support our hypothesis. Hence, we expect the resumption of downtrend in this stock, therefore, advice traders to sell this stock in a range of Rs 77 to Rs 78 with a price target of Rs 63. A stop loss should be placed above Rs 81.50.

MORE WILL UPDATE SOON!!