Market Week Ahead: Earnings, F&O expiry among 10 things to keep investors busy

The market is expected to continue its liquidity-driven rally on earnings recovery hope and ahead of Budget 2018 (which will be presented on February 1) in the coming truncated week as well.

The bulls seemed unstoppable as the market continued its record-hitting spree in the first three weeks of the current calendar year, even in the face of rising crude oil prices.

Encouraging earnings numbers, a cut in GST rates on 83 goods and services, favourable global cues, buzz on allowing 100 percent FDI in the banking sector, and easing of fiscal deficit worries after lowered borrowing requirements, have driven the Nifty above the 10,900 level and the Sensex above the 35,500-mark for the first time ever.

In the passing week, the 50-share NSE Nifty rallied 2 percent to end at a fresh all-time closing high of 10,894.70 and the 30-share BSE Sensex jumped 2.66 percent to 35,511.58, taking year-to-date (2018) gains to 3.5 percent and 4.3 percent, on top of the 29 percent and 28 percent rallies in 2017, respectively.

Not only benchmark indices, but even the Nifty Bank index ended at a new closing high of 26,909.50, rising 4.5 percent during the week and taking total three-week gains to 5.4 percent on top of a 40.5 percent jump in the previous year.

However, the Nifty Midcap and BSE Smallcap indices underperformed equity benchmarks, falling nearly 2 percent and 3 percent in the week, respectively.

The market is expected to continue its liquidity-driven rally on hope of earnings recovery and ahead of Budget 2018 (which will be presented on February 1) in the truncated week ahead, but there could be some volatility due to expiry of January futures and options contracts on Thursday, experts suggested. Stocks specific action may continue ahead of Budget, they felt.

"Market is anticipating a sea change in the earnings trend starting from Q3 result. This is an extension of the marginal improvement we had seen in Q2. In Q2 adjusted PAT grew by about +4-5 percent for indices like Nifty50 & Sensex. And this time market is anticipating a strong growth of 15-20 percent in PAT led by revamp in businesses and low base effect. Economic data like WPI, IIP and PMI also suggesting improvement in pricing and volume growth. This trend is expected to improve to FY19-20, a main reason for the market to be buoyant," said Vinod Nair, Head Of Research at Geojit Financial Services.

He further said that for the week ahead, the market would closely watch the progress of Q3 results, which will dictate the overall trend of the market, while volatility may be heightened due to F&O expiry next week.

On the global front, developments in US over passing a spending bill to avoid a government shutdown as well as oil prices would also be closely watched out for, Teena Virmani, Vice-president – Research at Kotak Securities said.

The market will remain shut on Friday for Republic Day.

Here are 10 key things to keep investors busy next week:-

Earnings

Earnings season, so far, have been encouraging and also cheered the market from the start of the year. According to experts, Q3 and Q4 are set to dictate the FY19 earnings trend.

About 200 companies will announce their December quarter earnings in the coming week. Important ones amongst them are Maruti Suzuki, Axis Bank, Dr Reddy's Labs, Asian Paints, Havells India, RBL Bank, United Spirits, Canara Bank, InterGlobe Aviation, Idea Cellular, Mahindra & Mahindra Financial, Biocon and JSPL.

Reliance Industries and Wipro

The first on coming Monday, the market will react to Reliance Industries and Wipro's earnings that unveiled on Friday after market hours.

The flagship company of Reliance Group on consolidated basis reported a 16 percent profit growth quarter-on-quarter, driven by petrochemical business and Jio that reported its first ever profit at Rs 504 crore in Q3 against loss of Rs 271 crore in previous quarter. Gross refining margin was on expected lines at USD 11.6 a barrel QoQ in Q3.

Wipro's December quarter numbers missed analyst expectations as IT services dollar revenue growth was flat with EBIT falling 14 percent and margin contracted 250 basis points quarter-on-quarter, though the company said adjusted for one-time (provision of Rs 317 crore w.r.t a customer), margin stood at 17.2 percent that was slightly above analyst estimates of 17.1 percent for the quarter.

Maruti Suzuki

Overall for auto companies, December quarter earnings are expected to be strong on low base of last year due to demonetisation.

In particular, Maruti Suzuki, which is one of top picks (among largecaps) of majority of brokerage houses domestically as well as globally, will announce third quarter earnings on Thursday.

Brokerage houses expect the auto major's Q3 profit growth in the range of 13-24 percent and revenue growth around 13-16 percent. Operating profit growth is estimated at 19-25 percent YoY. Volume growth of more than 11 percent during the quarter driven by Baleno, Brezza and newly launched Dzire is likely to drive earnings.

Axis Bank

On coming Monday, country's third largest private sector lender is expected to report 22 percent growth YoY in profit and 4 percent in net interest income for quarter ended December 2017, according to average of estimates of analysts polled by CNBC-TV18.

Some brokerages are expecting big growth in profit due to low base in year-ago quarter. Loan growth is likely to be driven by retail business. Majority of them expect Q3 slippages to be lower than Q2FY18.

F&O Expiry

All January futures & options contracts will expire on coming Thursday and traders will roll over their positions to next month.

On the options front, maximum Put open interest was seen at 10500 followed by 10700 strikes while maximum Call OI was at 11000 followed by 10800 strikes, which indicated that 10,500 could be the support level and 11,000 could be resistance level for the Nifty in January series.

Significant Put writing was seen at 10800 and 10700 strikes which are shifting its support to higher levels whereas Call Unwinding was seen in all immediate strike prices.

“Option band signifies a trading band between 10,800 to 11,000 zones for the expiry,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“It surpassed its supply trend line and now the same is acting as a support zone to push the market to higher levels. Now it has to continue to hold above 10,780-10,800 zones to extend the rally towards psychological 11,000-11,050 zones while on the downside supports are seen at 10,700 and 10,666 levels,” he said.

Technical Outlook

The 50-share NSE Nifty, which ended the passing week at fresh record closing high, made a strong bull candle on the daily candlestick charts.

For the coming week, analysts advise investors to remain long with a strict trailing stop loss below 10,790 as they expect strong upside momentum to continue next week and next target for the index to be 11,000 which is also its crucial resistance level.

"The indications of momentum oscillators and underperformance of broader indices are signaling a euphoric upmove in the market. The upside targets of Nifty could be around 11,000 and next 11,115 levels, which could be achieved in the next 1-2 weeks," Nagaraj Shetti, Technical Research Analyst, HDFC securities said.

Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in also said on such a breakout, a modest target of 11,100 looked certain.

However, as the market is entering into a truncated week with technical oscillators in steeply overbought zone, profit booking in next trading session can’t be ruled out, acccording to him.

IPOs and Listing

Apollo Micro Systems, which caters primarily to the defence and aerospace sectors, will debut on exchanges on coming Monday. The final issue price is fixed at higher end of price band of Rs 270-275 per share.

The Rs 156-crore issue saw a whopping oversubscription of 248.51 times during January 10-12, 2018.

Total six SME IPOs (three each on BSE and NSE) will open for subscription in the coming week and one will end on Monday.

Stocks in Focus

ONGC is going to acquire government's 51.11 percent stake in HPCL at Rs 473.97 per share. The acquisition which costs Rs 36,915 crore to ONGC, is expected to complete by January-end. After this deal, the government has revised its FY18 divestment target upward approximately Rs 92,000 crore, from Rs 72,500 crore earlier.

Dr Reddy's Labs will be in focus as the US Federal Court has imposed USD 5 million penalty for distributing prescription drugs in blister packs that were not child resistant.

DCM Shriram's consolidated net profit in Q3FY18 increased sharply 56 percent year-on-year to Rs 212.9 crore and revenue grew by 30.6 percent to Rs 1,783.7 crore while operating profit shot up 74.5 percent to Rs 329.1 crore and margin expanded by 465 basis points to 18.46 percent compared to year-ago.

Godawari Power & Ispat has posted consolidated profit at Rs 73.7 crore for December quarter against loss of Rs 9.6 crore in year-ago. Revenue increased 58 percent year-on-year to Rs 672.1 crore and operating profit grew by 88 percent to Rs 169 crore with margin expansion of 409 basis points YoY. The board of directors has approved company's proposal to raise Rs 500 crore via equities, GDR, ADRs and FCCB.

Gruh Finance, which surged 16 percent on Friday, showed a 28 percent growth in Q3 profit and 12.5 percent in revenue YoY. Operating profit grew by 16 percent and margin expanded by 282 basis points during the quarter YoY.

Hindustan Oil Exploration may react positively to its earnings as profit grew by a whopping 207 percent year-on-year to Rs 12.9 crore and revenue by 144 percent to Rs 13.4 crore for December quarter.

Lux Industries has reported a 31 percent year-on-year growth in profit at Rs 18.44 crore and 29 percent growth in revenue at Rs 297.4 crore for quarter ended December 2017.

J Kumar Infraprojects has received letter of acceptance from Delhi Metro Rail Corporation (DMRC) for Line 2A Architectural Station on Dahisar (east) to DN Nagar Corridor of Mumani Metro Rail Project, which is worth Rs 57 crore.

HDFC Standard Life has reported nearly 15 percent growth in Q3 profit at Rs 207 crore and its net premium grew by 19.5 percent to Rs 5,420 crore compared to year-ago quarter.

Future Retail will acquire Travel News Services for Rs 100 crore, which will help the company to expand its presence at airports, metro stations and universities where the majority of retail outlets of TNSI and TNSI Retail are operating.

CRISIL upgraded DLF's long term/non-convertible debentures rating to A+/stable from A and short term debt rating to A1 from A2+, removing from 'Rating watch with developing implications'.

IFCI said the government was considering capital infusion of Rs 100 crore during the financial year 2017-18 to the company.

Global Cues

Two major central banks - Bank of Japan and European Central Bank - will announce rate decision on Tuesday and Thursday, respectively. Economists largely expect status quo on interest rates but commentary will be closely watched, especially related to winding down stimulus program.

Apart from central banks' monetary policy decisions, Japan's manufacturing PMI for January, and Europe & US' manufacturing & services PMI for January will be released on Wednesday.

The US will announce its initial jobless claims data for the week ended January 19 and new home sales on Thursday, and Q4 GDP data on Friday.

MORE WILL UPDATE SOON!!

Call Ratio Backspread in Nifty is an ideal strategy to generate wealth in rising market

Massive short covering by call writers at 10600 and 10700 strike of approximately 2 million shares boosted the momentum on the higher side.

The Bulls remained completely in charge last week as indices made a new all-time high. Both Nifty and Bank Nifty trades at barely any distance from the landmark of 11,000 and 27,000 respectively.

The Nifty surged higher by 2 percent while Bank Nifty outperformed with a massive gain of 4.5 percent week over week. Also, stock specific activity was witnessed in index stocks owing to Q3 results.

Future data suggests incremental long built-up of 6.5 percent in the Nifty Jan Future while Bank Nifty saw incremental built-up of 18 percent in last week accelerating the momentum on the upside.

Options statistics for the last week shows aggressive Put activity in strikes of 10700 to 10900. Approximately 5 million shares were added in 10800 PE while 3mn shares were added in 10700 PE and 10900 PE signifying support shifting higher.

Massive short covering by call writers at 10600 and 10700 strike of approximately 2 million shares boosted the momentum on the higher side.

Further, insights on options data depict resistance which remains relatively lighter with the max being at 11000 CE with OI of 5.4 mn shares followed by 11100 of 28 mn shares while Put accumulation in the zone of 10700-10900 stand at ~1.7 cr. supporting the positive bias. Strike wise PCR OI stands above 2 for 10700 and below strikes.

Further decoding weekly Participant activity it reveals that foreign institutional investors (FIIs) were net sellers in the index futures of Rs878 crore with net 4878 contracts added on the short side.

However, they created a bullish bet on Index Options synthetically by adding net 117991 contracts on the Synthetic long side (Call Long+ Put Short).

On the other end, Retails (Client) were net long of 34751 contracts in Index futures while took bearish view via. options by adding net 184418 contracts on the synthetic short side  (Long Put + Short Call).

India VIX, a barometer of risk, continues to gyrate in the band of 12-14% reconfirming the strength in trend. However, with Union Budget lined up shortly it’s recommended to go with hedge strategies and avoid naked short on volatility.

Considering strong upward momentum in the market with base formation along with weak resistance, Low-Risk Bullish Strategy: Call Ratio Backspread is suggested on Nifty.

Call Ratio Backspread is a Bullish Strategy that’s executed using a combination of ITM and ATM options. One needs to buy 10900 CE 2 lots. However, to compensate the premium outflow we should sell “In the Money” Call option of 10850.

Maximum profit is unlimited on upside above 10980 while maximum loss is when the Nifty expires at 10900. Rising volatility is beneficial for the strategy. Time decay is generally harmful when stock remains at the level of buy strike and helpful when the stock is surging higher.

MORE WILL UPDATE SOON!!

Budget 2018: Afraid of volatility? Here is how to position yourself ahead of the big event

The index appears to be in a classic melt-up phase with a little concern for valuations.

 

It has been a roller coaster ride for the bulls in the second week of January. The index rose to fresh record highs and rose 2% for the week ended 19 January? Do you think the momentum will continue?

The index appears to be in a classic melt-up phase with a little concern for valuations. Interesting thing is that laggards like IT and Pharma have also started contributing thereby strengthening the bullish sentiment further.

Even ICICI Bank and Axis Bank have also suddenly discovered life and vying to make new life time highs. Most of the mid and small caps across the board are getting locked in circuits.

I am afraid to say that too much money may be desperately chasing for opportunities irrespective of earnings quality which may have futile ending going forward.

How should one position themselves before Budget?

In 2016 and 2017 markets entered into Budget event with a multi month corrections and hence market rally on the back of good economic legislations can be justified then.

Now, the market is entering into the budget event with a relentless up move. Post budget, if the market sustains above breakout points of 10900 then momentum may take it towards 11,600.

How is the market looking on the weekly as well as monthly charts?

In the current month there is a bigger breakout on monthly charts, above the 9-years old ascending channel with multiple touch points which is projecting a huge target of around 13,200 for Nifty.

This breakout will remain valid as long as Nifty sustains above 10600 mark on monthly closing basis.  So post Budget, if Nifty were to settle above 10600 levels going into March also, I think, this kind of lucrative targets are quite possible going forward may be in next 12 – 18 months.

Weekly charts are also strong and shall register a breakout on a close above 10900 levels. Then more realistic target of 11600 can be achieved in and around budget time.

What should be the strategy -- buy on dips or sell on rallies in the coming week?

At this point in time, especially when we are seeing vertical upmoves, traders should not get carried away and throw caution to the wind. In our opinion maintaining cautiously optimistic stance is better rather than outlandishly taking a bullish stance.

Things on directional front can be much clear if we doesn’t violate critical supports post budget.  In simple words on corrections if the support of 10600 is not violated on closing basis then that should be utilised to go long. Best strategy is to remain sidelines as we head towards budget event.

Top 3-5 stocks (with timeframe) which are looking attractive at current levels based on technical?

ITC: BUY| Target Rs310| Stop Loss Rs260| Return 13%

Technically this counter appears to have registered a durable bottom around 250 levels. Since then it is strengthening its moves on the upside with breakouts after brief periods of consolidation.

Hence, sustaining above 260 levels this counter should be heading to test its huge gap zone of 320 – 292, it registered on 18th of July 2017. Hence, in the next three months it can trade around 310.

Positional traders can go long into this counter with a stop below 260 on closing basis for a target of 315 which is close to 62% retracement level of entire fall from 367 – 250

Bajaj Finance: BUY| Target Rs 1800| Stop Loss Rs 1632| Return 6%

The way this counter has rallied in Friday’s session after approaching close to its 200-days Moving Averages is suggesting that it might have posted a bottom in the session around 1632 levels.

Hence, there appears to be a high conviction trading opportunity in this counter with a stop below Rs 1632 on a closing basis for a target of Rs1800.

Canara Bank: BUY| Target Rs 395| Stop Loss Rs 350| Return 9%

After testing the upside gap zone of Rs 349 – 320 registered on 25th October 2017 this counter appears to have posted a decent bottom at recent low of 335 and appears to be on the verge of a fresh breakout.

The momentum propelled by a breakout shall pick up into this counter on a close above Rs 365. Hence, traders should buy into this in anticipation of such a breakout for a target of Rs 395. A stop for the trade should be below Rs 350 on closing basis.

MORE WILL UPDATE SOON!!

By all measures, 2017 was a stellar year for U.S. stocks, with the Dow hitting several record highs and the S&P 500 closing at an eye-popping level of 2,700.  But, will the smooth sail continue this year? Wall Street’s bulls believe that sweeping tax cuts by the Republican-led Congress will add up to bigger profits and larger stock gains this year. The market is also expected to continue its winning streak banking on a rise in wages and more confident consumers. Needless to say, the economy is on track to see the fastest expansion in decades. And it has successfully unloaded some of the baggage that had slowed it down since the Great Recession in 2009.

As many of the supportive conditions that boosted the market in 2017 are likely to stay in 2018, investing in multibaggers seems judicious. These stocks will make most of the bull run, courtesy of strong fundamentals and businesses that can multiply in a short span of time. After all, these stocks have seen their prices increase multiple times their initial investment values.

Markets Pin Hopes on Another Banner Year

In 2017, the Dow gained 25.1% after hitting 71 record closing highs, the highest since the blue-chip index’s creation in 1896. The S&P 500 added 19.4%, while the Nasdaq outperformed both with a 29% gain. The tech-heavy index moved north for the sixth straight year — its longest streak since the one that lasted from 1975 to 1980, per WSJ Market Data Group. In fact, all the three major bourses recorded the best year since 2013.

The most optimistic stock strategist further says that U.S. stocks will post sizeable returns this year as well. While some expect the Dow to hit 30,000, Tony Dwyer, the chief market strategist at New York financial firm Canaccord Genuity, raised 2018 year-end target for the S&P 500 to 3,100, up from an earlier projection of 2,800. This will mark a return of almost 16% higher than its current level of around 2,680.

So, what’s driving such bullish sentiments?

Landmark Tax Bill

President Trump’s tax cut had lifted optimism about corporate earnings, prompting many analysts to raise their forecast for business profits. The House of Representatives approved the biggest overhaul of the U.S. tax code in 30 years. Republicans successfully countered opposition from Democrats to pass the bill that will slash corporate taxes and provide temporary tax relief to both wealthy and middle-class Americans. The headline-grabbing move was that the corporate tax rate will be lowered from 35% to 21% and will be implemented next year, instead of being delayed until 2019.

Republicans also repealed the 20% corporate alternative minimum tax, while any income brought back from overseas will be taxed 8% to 15.5%, instead of the current 35%. Immediate offset of spending on short lived capital equipment is expected to further save U.S. companies around $32.5 billion in 2018, as per Congress’s joint committee on taxation (read more: GOP Passes Landmark Tax Bill: Best & Worst for Stocks).

Americans Upbeat About Economy

Consumers, in the meanwhile, have stepped into the new year with confidence. The minimum wage is poised to increase in 18 states and around 20 cities in the United States, according to an analysis by the National Employment Law Project. This will result in inching employees wage closer to $15 an hour, which is known as “living wage.” Jobless rate is already at its lowest since 2000 and job openings are abundant too.

A very strong job market fueled consumer confidence. As per the Conference Board, consumer confidence continues to hover near the 17-year high set in November. Lynn Franco, director of economic indicators at the Conference Board, added that “consumers’ expectations remain at historically strong levels, suggesting economic growth will continue well into 2018.” Diversified financial services company, Wells Fargo & Company has predicted that the U.S. economy will expand an average 2.5% each quarter this year and the next.

5 Multibaggers to Watch Out For in 2018

The Republican tax-cut plan, recently signed into law by Trump, uptick in minimum wage, consumers planning to make big-ticket purchases and a strengthening economy call for investing in multibaggers. These stocks will cash in on such positive developments and give returns that are several times their cost. We have, thus, selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Madrigal Pharmaceuticals, Inc. , a clinical-stage biopharmaceutical company, focuses on the development and commercialization of therapeutic candidates for the treatment of cardiovascular, metabolic, and liver diseases. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose more than 100% in the last 60 days.

Madrigal Pharmaceuticals has yielded a return of more than 100% in 2017. Moreover, its expected growth rate for the current year is 49.3%, better than the industry’s expected gain of 7.9%.

Boot Barn Holdings, Inc.  — a Zacks Rank #2 company — is a lifestyle retail chain which operates specialty retail stores in the United States. The Zacks Consensus Estimate for its current-year earnings advanced 3.4% over the last 60 days.

Boot Barn yielded a return 32.3% last year. The stock is expected to grow at a rate of 10.6% in the current year, in contrast to the industry’s projected decline of 3.3%.

Famous Dave's of America, Inc.-develops, owns, operates, and franchises restaurants under the Famous Daves name. The company sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose more than 100% in the last 60 days.

Famous Dave's of America gave a return 32.3% in 2017. Also, its expected growth rate for the current year is more than 100%, in contrast to the industry’s projected decline of 0.3%.

CVR Refining, LP  operates as an independent petroleum refiner and marketer of transportation fuels in the United States. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 16.9% in the last 90 days.

CVR Refining has yielded a return of 59.1% in 2017. Moreover, its expected growth rate for the current year is more than 100%, way higher than the industry’s expected gain of 9.2%.

eGain Corporation  provides cloud-based customer engagement software solutions worldwide. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings climbed 13% in the last 60 days.

eGain has given a return of more than 100% last year. Further, its expected growth rate for the current year is 25%, higher than the industry’s projected gain of 12.8%.

Zacks Editor-in-Chief Goes ""All In"" on This Stock

Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.

MORE WILL UPDATE SOON!!

Scared of investing @ record highs? Here are top 10 stocks which could turn multibaggers

Instead of looking at the Index, investors should focus more on stock specific opportunities and if you look for them, there are plenty available.

Indian market touched fresh record highs week-after-week helped by strong cues from global markets and domestic liquidity which continues to dominate in the year 2018.

The next big question in front of investors is – to buy stocks now or wait for declines? The general theory says that it is very tough to time the market but if investors keep a disciplined approach to investing, heavy losses could be avoided.

Instead of looking at the Index, investors should focus more on stock specific opportunities and if you look for them, there are plenty available. Sectors which are related to Indian economy should do well, suggest experts. Hence, sectors like consumption, GST-related, as well as rural focussed themes, are likely to do well in the coming years.

“Going ahead, we expect Equity market to continue to deliver consistent returns in 2018 as well on the back of stronger economic growth, recovery in corporate earnings. However the scale of returns expected would be in the range of 10-15% on the back of a high base and normalization of valuations playing out in 2018.

Our year-end target for Nifty is ~11450-11650. Some of the themes that we believe should do well in 2018 are Cyclicals like Cement, Infra, capital goods (benefit from the higher government spending), GST beneficiaries like jewelry retail, footwear, building material (value migration from unorganised to organised layers), rural recovery (sectors like Auto, FMCG, vehicle financing, etc.),” he said.

We have collated a list of top 10 stocks from different brokerage firms which could give multibagger returns in the next 2-3 years:

Analyst: Ravi Kataria, Managing Director, Imperative Associates Pvt. Ltd.

Talbros Automotive Components Limited:

Talbros Automotive is an industry leader in the manufacturing of Gaskets & Heat Shields, Forgings, Suspension Systems & Modules, Anti Vibration components, and Hoses. With experience and expertise, it has established a presence across all auto category from two-wheelers to Farm Equipment.

The company is expected to achieve revenues of Rs.700 crores by 2020, operating margin of 14 percent, and return on capital employed of 20%. Low leverage, higher promoter stake and lower than industry average valuations are factors imperative for investment in the company.

Ujaas Energy Ltd:

Ujaas Energy Limited has completed projects totalling 200 MW of solar power plants for corporates and retail clients. The company is also operating and maintaining more than 200 MW for its corporate clients like KRBL (KRBL), SRS, Friends Group, Rockwell, Avon Cycles, Solar Energy Corporation India or SECI.

We are expecting Ujaas’ topline to grow on the back of hybrid solar-wind policy, rooftop sales, and a gradual shift towards solar for sustainable low-cost power producing option. The company can double its EPS over the next couple of years on capacity augmentation.

Analyst: Sanjeev Mohta is the COO of East India Securities Ltd (EISL).

Nitin Spinners:

Nitin Spinners Ltd. (NSL), is a Rajasthan based manufacturer of 100% cotton yarn and knitted fabrics. Nitin has an installed capacity of 225,000 spindles.

Strong promoter pedigree - NSL is promoted by R. L. Nolkha who has spent around 25 years in the Industry before setting up NSL. Over the last 25 years, the Nolkha family has grown the business very efficiently and have successfully navigated the challenges and threats.

NSL’s expansions have been prudently planned in order to keep gearing in check and the management has consciously capped the interest cost to sales at 5%.

The company has been successful in maintaining best among the industry operating metrics resulting in a healthy RoAE – 27%/24%/25% for FY15/FY16/FY17. Trading at an attractive valuation of 9x FY19.

Westlife Development (WDL):

Indian food retail market is the sixth-largest in the world and estimated to grow to Rs.61trn by 2020, posting a CAGR of more than 15% over a six-year period. QSR segment contributes 16.3% to overall sales of food retail division.

WDL enjoys certain competitive advantages like long-term rent agreements with a longer tenure for acceleration on a relative basis which leads to faster store breakeven periods. The Company continued with the strategic and consistent expansion of its store base by setting up 22 stores in FY17.

Piramal Enterprises Ltd (PEL):

In a span of just five years, PEL has evolved to become one of the largest real estate financiers in India. NBFC business - largely catering to real estate developers financing is expected to remain on a robust growth path.

In 2013, PEL acquired 10% stake in Shriram Transport. It followed this up with the acquisition of 20% stake in Shriram Capital and 10% stake in Shriram City Union Finance in 2014. With these investments, PEL has also diversified into retail financing.

PEL is the third-largest player (after Abbott and Baxter) in the global inhalation anesthesia space. PEL’s consumer product business is the 7th largest amongst all OTC companies in India. It has a good portfolio of high-ranked brands.

Agrotech Foods Ltd:

Sales growth has picked up, clocking 22% YTD FY18 (excluding CSD) doubling the growth rate from 11% during the year-ago period. Nachos is a nascent but fast growing segment in India and Agro Tech has become the No.2 player in this market.

The company plans to launch different flavours and spin-offs of peanut butter (combination with jelly or chocolate). Peanut butter is expected to clock sales of Rs400-500m, and we expect it to touch Rs1bn by FY21.

The company has five plants currently and the sixth one is under construction at Chittoor. Once the company has its “seven-plant model” in place, we should see better growth in RTE popcorn.

Analyst: Abhinav Gupta, President - Capital Markets, Share India Securities

Rajoo Engineers:

Rajoo Engineers supplies machinery for packaging products and is bound to gain with strong consumption demand and an uptick in FMCG sales.

Currently trading at higher multiples with respect to trailing multiples we confident strong sales and higher profitability due to positioning in the industry. Rajoo has maintained strong return ratios and will continue to do so.

Greaves Cotton:

Greaves Cotton has tied up with Piaggo to supply BS VI diesel and alternative fuel engines. Policy embargo on CV's and environmental concerns from NGT make us confident on prospects of the company.

Greaves Cotton drive a significant portion of its revenue from agri-equipment and construction equipment. This makes Company uniquely positioned to gain from all quarters of government policies. Strong return ratios make us confident on management's capabilities to deliver.

Flex Foods:

Flex Foods is an associate company of Uflex and a leader in flexible packaging technology. Flex Foods cultivates and processes food products and supplies vacuum freeze-dried, air-dried, frozen and an individually quick frozen (IQF) product range.

It sources its raw materials through contract farming through a dedicated network of 500 farmers. Strong pedigree, good product range, and low forward earning multiples make us confident of a better outlook for the stock.

Hindustan Oil Exploration:

First O&G company in private sector with the professional board, debt-free balance sheet and proven development/operating experience puts this company in the sweet spot with rising crude prices and gas demand in India.

The company is planning to ramp up production capacity, raise capital for inorganic growth and acquire additional acreage.

Open Acreage Licensing Program & Discovered Small Field (DSF) bid round 2 announced by the Government present excellent opportunities to grow the portfolio.

 MORE WILL UPDATE SOON!!

Mid & smallcaps hinting at overbought levels; 3 stocks which could give up to 20% return

MidCap and SmallCap Indices have reached an overbought territory portending to minor profit booking on the cards before it resumes its uptrend.

 

The Nifty index extended its 3rd impulse wave forming new all-time highs. Further, it is also approaching near the upper end of the channel resistance placed in the zone of 11,000-11,100.

However, the immediate resistance on the way up is placed at 10,780, and a failure to cross this resistance may trigger the start of 4th corrective wave dragging it to levels of 10,560-10,415.

Moreover, the relative strength index or RSI continues to form higher highs in line with price making higher highs affirming the strong bullishness dominant at the moment.

Bank Nifty has broken out of a long consolidation phase with healthy volumes suggesting an extended uptrend which can fuel a rally in the Nifty Index as well.

MidCap and SmallCap Indices, on the other hand, have reached an overbought territory portending to minor profit booking on the cards before it resumes its uptrend.

Here is a list of top 3 stocks which could give up to 20% return in the next 3-4 weeks:

PTC India Financial Services Ltd: BUY| Target Rs 46| Stop Loss Rs 35.50| Return 20%

On the weekly chart, PTC India Financial Services Ltd. (PFS) has taken support at the lower end of the bullish wedge pattern and is now approaching upper end of the wedge placed at 41 suggesting uptrend on cards (as indicated on chart).

A sustained trade above 41 i.e. neckline of the pattern on higher volumes may trigger a bullish breakout. On the daily chart, the stock has started forming higher highs and the higher low affirming start of a bull trend.

RSI has formed a positive divergence with respect to price after taking support at the 40 level. The stock may be bought in the range of 38-39 for targets of 43-46, keeping a stop loss below 35.50.

UltraTech Cement Ltd: BUY| Target Rs 5150| Stop Loss Rs 4240| Return 14%

On the weekly chart, Ultra Tech Cement Ltd. (ULTRACEMCO) has broken out from an ascending triangle pattern triggering a bull trend reversal. The neckline of the pattern is at 4500; sustained trade above the neckline with healthy volumes can extend the up move.

On the daily chart, the stock has broken out from a flag pattern on good volumes affirming strong bullishness. RSI has turned upwards breaking out of the upper band of the Bollinger Bands suggesting higher levels in the coming trading sessions.

The stock may be bought in the range of Rs4500-4530 for targets of Rs5000-5150, and keeping a stop loss below Rs4240.

Bajaj Finserv Ltd: SELL| Target Rs 4450| Stop Loss Rs 5220| Return 11%

On the weekly chart, Bajaj Finserv Ltd. (BAJAJFINSV) has broken down from a rising channel pattern triggering the start of a bear trend. Further, a sustained trade below 4910 can extend the downtrend in the coming trading sessions.

On the daily chart, it is on the verge of a breakdown from a bearish flag pattern suggesting weakening uptrend. Further, RSI has also broken down from the lower Bollinger band suggesting lower levels.

The stock may be sold in the range of 5030-5000 for targets of 4650-4450, keeping a stop loss below 5220.

MORE WILL UPDATE SOON!!

Don’t ignore out of Out-of-favor stocks; top 10 contrarians buy & sell ideas

Most of the high beta stocks saw strong momentum in the year 2017 and is finding favour in the year 2018 as well. But, will it work every time? Well, analysts are of the view that out-of-favor stocks have beaten the benchmark in the last 10 years.

Indian market rose effortlessly in the year 2017, thanks to global and domestic liquidity which pushed benchmark indices to record highs. The liquidity rally drove many stocks beyond their historical averages but what will the momentum continue if liquidity tapers?

Most of the high beta stocks saw strong momentum in the year 2017 and is finding favour in the year 2018 as well. But, will it work every time? Well, analysts are of the view that out-of-favor stocks have beaten the benchmark in the last 10 years.

In this quarter, neutral to moderately popular stocks as well as the most popular stocks failed to beat the benchmark. The most popular stocks delivered the worst return in this quarter, whereas the least popular stocks performed the best.

Over the long term, out-of-favor low P/E stocks delivered disproportionate returns, significantly beating the benchmark. In contrast, the performance of high P/E stocks is dismal.

In this quarter, high P/E stocks delivered the best returns, whereas the low P/E quintile failed to beat the benchmark. Similarly, out-of-favor low price/cash flow or P/CF stocks deliver disproportionate returns, significantly beating the benchmark, said Motilal Oswal.

In contrast, the performance of high P/CF stocks is dismal. In this quarter, low P/CF stocks delivered the 2nd best returns, whereas the high P/CF quintile performed the worst.

Motilal Oswal findings suggested that a simple strategy of investing in stocks for which analysts’ consensus has changed from “net sell to net buy” with a holding period of one year has delivered 24.1% annual returns over the last 10 years.

Net Sell to Net Buy stocks for 3QFY18 include names like Jet Airways, Marico, PNB, United Spirits, and Dr. Reddy’s.

Contrarian sell ideas include names like Kotak Mahindra Bank, UltraTech Cement, JSTL, GAIL, and Bajaj Finance.

MORE WILL UPDATE SOON!!

Newgen Software IPO opens today. Should you subscribe?

The issue price has been set in the range of Rs 240-245 apiece and the company plans to raise around Rs 450 crore.

  

Another addition to the IPO bandwagon is Newgen Software, which is set to open its initial public offering on Tuesday.

The issue price has been set in the range of Rs 240-245 apiece, and the company plans to raise around Rs 450 crore.

"We are financially doing very well and registering good growth year-on-year. The IPO is mainly to provide exit or monetisation opportunity to some of our existing investors who have been with us since very long time. Around Rs 95-100 crore of the total fund will be used for setting up a new office in Noida," Newgen Software MD Diwakar Nigam told PTI.

Newgen Software recorded consolidated revenues of Rs 433.76 crore for 2016-17 and an operating profit of Rs 52.36 crore.

Brokerages largely recommend subscribing to the issue, barring Choice Broking, which has an ‘Avoid’ call.

SSJ Finance | Rating: Subscribe

The brokerage said the company reported a CAGR of 20.7 percent and 9.1 percent on revenue and net profit fronts, respectively, over FY2013-2017. “On its upper band of price of Rs 245, the issue is priced at PE ratio of 30.6x of its FY2017 EPS of Rs 8.0. We believe the IPO is fairly priced leaving a room for upside,” it said in a report. Hence, it recommends subscribing to the IPO.

Hem Securities | Rating: Subscribe

The brokerage highlighted the company’s enterprise-wide, mission-critical solutions, and said they have been used by some of the leading global businesses in various sectors including banking, govern-ment/PSUs, BPO/IT, insurance and healthcare.

Further, it is bringing the issue at P/E multiple of 33 on FY17 EPS of Rs 8.26 at higher price band of Rs 240-245/share. Looking after financials of the company we recommend “Long Term Subscribe” on it.

Choice Broking | Rating: Avoid

Choice Broking highlighted the issue is aggressively priced as the company is demanding valuation of Rs 16,962.7 million at P/E of 32.4 (x) to FY17 restated EPS. As per the management, there is no listed peer in domestic market with the similar business model. “However if we consider IBM, which the management mentioned a peer on global level, is trading at P/E multiple of 14(x).

Given the high sensitivity of business to global macro events, repellent receivable policy, completely exits of PE players and high demanding valuation, we are of the view that the issue is aggressively priced leaving no space for further upside. Thus we assign ‘Avoid’ rating to the issue.

MORE WILL UPDATE SOON!!

Saurabh Mukherjea expects metals & mining sector to shine in 2018; lists 5 themes to bet on

The Indian market climbed all wall of worries in the year 2017 but which sector will work in the year 2018? Saurabh Mukherjea of Ambit Capital decodes sectors to invest in the new calendar year.

  

Metals & Mining:

The sector which was among the top-performing sectors in the year 2017 is likely to continue its dream run in the calendar year 2018. The metals & mining sector are beneficiaries of global economic recovery. The demand could pick up without any significant change in supply dynamics. Capacity augmentation in this sector is a long time coming.

Construction/Road Building:

The road and construction sector which also outperformed in the previous calendar years could well find favour in 2018.

Consumer Discretionary:

On the back of two GST rollbacks in the last year, consumer discretionary as a theme will see some activity. More specifically, Auto and OEMs will have good 12-15 months until GST is tightened again.

CASA Funded Banks:

If you are aggressive investors then CASA funded banks as a play on the economic recovery will be a good theme to bet on. As inflation picks up, wholesale market borrowing costs will rise and that will hurt the NBFCs – which will shift the market share towards CASA-funded banks.

Better PSU, private sector banks will do quite nicely on the back of economic recovery.

IT Stocks:

Our IT analysts suggest US President Donald Trump is falling in love with Indian IT. The hostility which we saw in his speeches against H-1B visas 6-7 months ago seems to have dissipated.

The pullback over the last 12 months has put atleast 2 out of big 4 IT stocks are at a place where valuations aren’t that demanding. If you have attractive valuations, proven track record, healthy cash flow delivery, give dividend and return capital employed is good that 2 out of 4 stocks which have a good run.

I think there is more upside for IT companies going ahead. The worst of regulatory storms seem to have passed it companies, said Mukherjea. Indian IT companies stand to benefit if EU & American economic growth continues.

MORE WILL UPDATE SOON!!