Penny Stocks to Watch for January 2018:International Markets

Penny stocks limped into December, under performing other investments, with the majority of speculative capital pouring into red-hot blockchain and cryptocurrency plays. Small baskets of low-priced biotech and industrial metals lifted to monthly highs but the majority just ran in place or ticked lower, grinding through multi month consolidation patterns or entering new downtrends.

  

Sierra Oncology, Inc. (SRRA)

SRRA

Sierra Oncology Inc

3.44

+5.85%

 

posted the most substantial gains on the December watch list, rising more than 30% to an 18-month high. That stock and four previous picks have been added to January’s penny stocks list because their technicals continue to forecast even higher prices. Also, the first penny stocks to watch list for 2018 includes three perennial laggards who have recently shifted out of traditional operations into blockchain technology. Keep in mind these are highly volatile issues that require well-honed risk management skills to avoid steep and painful losses.  

January will signal the most favorable seasonality of the year for small caps and low-priced stocks. The prior year’s laggards and beaten down issues often post their strongest yearly gains in the first quarter, for two reasons. First, tax loss selling ends on December 31, allowing weak performers to float higher. Second, winners get sold with equal fervor in January as market players take profits to incur capital gains exposure, often rotating into more speculative plays.

Penny Stocks to Keep Watching

1. Medical Transcription Billing, Corp. (MTBC)

MTBC

Medical Transcription Billing Corp

3.90

+8.63%

 

Medical Transcription Billing, Corp. (MTBC)

MTBC

Medical Transcription Billing Corp

3.90

+8.63%

 

entered a steep decline after coming public at $5.00 in July 2014, posting lower lows into the second quarter of 2017 when it finally bottomed out at 29-cents. It surged to $3.84 less than three weeks later and pulled back, consolidating gains into a failed October breakout attempt. The stock has spent the last three months grinding sideways in the upper third of the 9-month trading range while the 200-day EMA continues to tick higher, predicting that resistance will break and lift the uptrend into an all-time high.

2. EVINE Live, Inc. (EVLV)

EVLV

EVINE Live Inc

1.30

-2.26%

 

EVINE Live, Inc. (EVLV)

EVLV

EVINE Live Inc

1.30

-2.26%

 

rallied to a 4-year high at $8.73 in 2011 after dropping to an all-time low at 18-cents during the economic collapse. That level marked resistance at the top of a rectangle pattern that broke support at $1.40 in January 2016. The stock fell into a higher low at 41-cents in September 2016 and turned higher, reversing at the breakdown level into 2017, It bounced at 90-cents in August and is testing resistance once again, with a breakout predicting excellent upside that could test double digits.

3. Sierra Oncology, Inc. (SRRA

SRRA

Sierra Oncology Inc

3.44

+5.85%

 

Sierra Oncology, Inc. (SRRA)

SRRA

Sierra Oncology Inc

3.44

+5.85%

 

posted an all-time high at $33.75 during its IPO session in July 2015 and turned sharply lower, dropping to an all-time low at $1.10 in June 2017. Committed buyers took control in July, generating an uptrend that’s nearly quadrupled the stock’s price in just six months. The rally is now filling the June 2016 gap between $6.70 and $2.96, raising odds for healthy upside into the fill price in coming months. On Balance Volume (OBV) has already reached an all-time high, predicting that price will continue to play catch-up.

4. Ladenburg Thalmann Financial Services, Inc. (LTS)

LTS

Ladenburg Thalmann Financial Services Inc

3.13

+1.95%

 

Ladenburg Thalmann Financial Services, Inc. (LTS)

LTS

Ladenburg Thalmann Financial Services Inc

3.13

+1.95%

 

 rallied to a 15-year high at $4.50 in October 2014 and entered a decline that posted lower lows into November 2016 when it bottomed out at $1.63. The stock bounced into range resistance at $2.80 one month later and pulled back, grinding out a higher low above $2.00 in May 2017. It broke out in October and has been crisscrossing resistance near the November 2015 high at $3.28 for the last 6-weeks. A buying spike above $3.50 should clear this obstacle, opening the door to a test of the 2014 high.

5. Limelight Networks, Inc. (LLNW)

LLNW

Limelight Networks Inc

4.36

+1.63%

 

Limelight Networks, Inc. (LLNW)

LLNW

Limelight Networks Inc

4.36

+1.63%

 

posted an all-time low at 90-cents in February 2016 and entered a new uptrend that remounted broken range support at $2.00 after the presidential election. The rally reached the 2015 high at $4.43 in October 2017, yielding a breakout that now favors additional upside into the 2010 high at $8.97. The uptick stalled above $6.00 in November, generating a decline that’s just filled the October breakaway gap at $4.50. This price action may signal a low-risk buying opportunity, ahead of a bounce that resumes the strong uptrend.

6. Nova Lifestyle, Inc. (NVFY)

NVFY

Nova Lifestyle Inc

2.40

+0.42%

 

Nova Lifestyle, Inc. (NVFY)

NVFY

Nova Lifestyle Inc

2.40

+0.42%

 

recently formed I Design Blockchain Technology, Inc., a wholly-owned subsidiary. The furniture maker came public at $2.05 in January 2013 and posted an all-time high at $10.35 one year later. The subsequent decline accelerated into July 2016, dumping the stock to an all-time low at 38-cents while a bounce into October ended at $5.15. It carved a higher low in the summer of 2017 and spiked to yearlong range resistance at $2.75 after the magical transformation, with a breakout favoring continued upside into last year’s high.

7. Long Blockchain, Corp. (LTEA)

LTEA

Long Blockchain Corp

6.44

-2.28%

 

Long Blockchain, Corp. (LTEA)

LTEA

Long Blockchain Corp

6.44

-2.28%

 

 formerly known as Long Island Iced Tea, Corp., rallied to $15.00 in February 2015 and sold off, finding support near $3.60 in 2016. It broke down in September 2017, dropping into December’s multi-year low at $1.70 just a few days before its name change triggered a furious pre-market rally into the mid-teens, testing the prior high. The stock opened the regular session in single digits and has been pulling back since that time. A Fibonacci grid stretched across the vertical uptick predicts a buying opportunity at the .786 retracement level near $3.40. As of Dec. 29, the stock is hovering just below the $5.00 penny stock threshold, it may not be a penny stock for long. 

8. Nxt-ID, Inc. (NXTD)

D

Dominion Energy Inc

75.50

-1.55%

 

Nxt-ID, Inc. (NXTD)

NXTD

Nxt-ID Inc

2.32

-0.43%

 

joined the blockchain bandwagon on December 20 when it announced the development of a cryptocurrency payment platform. It came public at $30 in 2013 and posted an all-time high at $72.50 one month later. A decline accelerated into December 2015, dropping the stock to $1.60 ahead of even lower lows into November 2017. A vertical rally spike and deep pullback followed the blockchain news while a Fibonacci grid stretched across the uptick predicts a buying opportunity at the .786 retracement level near $2.75.

9. Viking Therapeutics, Inc. (VKTX)

VKTX

Viking Therapeutics Inc

5.63

+11.93%

 

Viking Therapeutics, Inc. (VKTX)

VKTX

Viking Therapeutics Inc

5.63

+11.93%

 

came public at $8.50 in April 2015 and topped out at $10.00 just one month later. The subsequent downtrend found support just under a buck in November 2016, yielding an August 2017 test that completed a bullish double bottom reversal. Buying power exploded in September, lifting the stock into December’s 2-year high at $4.40. It’s been consolidating gains in a narrow trading band for the last three weeks and could head higher in January, lifting toward broken 2015 range support near $5.70.

10. Aptevo Therapeutics, Inc. (APVO)

APVO

Aptevo Therapeutics Inc

3.37

+0.60%

 )

Aptevo Therapeutics, Inc. (APVO)

APVO

Aptevo Therapeutics Inc

3.37

+0.60%

 

spiked up to $50 shortly after entering the public exchanges at $8.00 in July 2016 and settled into a downtrend that found support at $1.75 in the first half of 2017. It broke down in August, dropping to an all-time low at $1.15 and remounted broken support in September, setting off fresh buying signals. The subsequent uptrend reached a 16-month high at $4.50 in early December and eased into a high tight pennant that could generate fresh upside to $7.50.

MORE WILL UPDATE SOON!!

Dow Jones 30 and NASDAQ 100 Price forecast for the week of January 29, 2018, Technical Analysis

US stock markets continue to rally during the week, breaking fresh, new highs yet again. It is getting a bit parabolic, so the longer-term trader is going to have to be very cautious.

 

Dow Jones 30

Obviously, one cannot sell the Dow Jones 30 anytime soon. The market is extraordinarily bullish, but longer-term traders are going to struggle with the idea of buying at this high level, because a pullback could involve a 1500-point move. The 25,000 level should be rather supportive at this point, and quite frankly I think it would be healthy if we pull back to that level. I believe that the market will eventually continue even higher, but longer-term traders need to see some type of value before they start investing in this market.

NASDAQ 100

The NASDAQ 100 has exploded to the upside as well, clearing the 7000 level during late Friday trading. Because of this, I think it’s only a matter of time before we continue to go to the upside, but when I look at the Bollinger Bands, we are starting to get into the overbought area, and the stochastic oscillator has been pegged in the overbought condition for what seems to be ages. I think that pullbacks are necessary, but those are buying opportunities. The 6750-level underneath is the “floor” in the short-term uptrend, while the 6500 level is even more supportive for the longer-term move. I like buying dips, they represent value, but at this point it would be very difficult to go long of this market because of the significant pullback that will need to be had at one point or another.

MORE WILL UPDATE SOON!!

S&P 500 Price forecast for the week of January 29, 2018, Technical Analysis

The S&P 500 rallied again during the week, as we continue to see massive amounts of bullish pressure. We are approaching the 2900 level, and quite frankly this point I think we are a bit parabolic.

 

The S&P 500 has rocketed to the upside yet again, as we continue to see a parabolic move in a market that simply does not pull back. While bullish, I am a bit concerned that we have not seen a red candle but sparingly over the last several months. I anticipate that we will eventually go higher, but I would prefer to see some type of pullback to offer value. Short-term traders will have an easier time of trading this type of market, because the longer-term trader must worry about a significant pullback. Because of this, if you are trading longer-term, you need to see a pullback to offer a better entry price.

The 2700 level underneath would make an excellent floor, but unfortunately, I don’t think we see that until we test at the very least the 2900 level, if not the 3000 level. If you are a longer-term trader, you obviously want to be buying and not selling, but going long at this point is chasing the trade, one of the absolute worst things that you can do.

If you are already long in this market, and you should be if you’ve been watching here at FX Empire, then it’s about managing the trade. I believe that stop losses should be below the 2800 level, if not the 2700 level. Obviously, depending on how long you’ve been in this trade to the upside you may be able to adjust your stop losses accordingly. Selling is all but impossible.

MORE WILL UPDATE SOON!!

Nifty Bank Outlook for the Week (Jan 29, 2018 – Feb 02, 2018)

NIFTY BANK:

Nifty Bank closed the week on positive note gaining around 1.90%.

As we have mentioned, last week that resistance for the index lies in the zone of 27100 to 27200 where target for the break out is lying. If the index manages to close above these levels then the index can move to the levels of 27400 to 27500 where trend-line joining earlier highs is lying. During the week the index manages to hit a high of 27522 and close the week around the levels of 27423.

Minor support for the index lies in the zone of 27000 to 27100. Support for the index lies in the zone of 26400 to 26500 where break out levels are lying. If the index manages to close below these levels then the index can drift to the levels of 25700 to 25800 where break out levels and short term moving averages are lying.

Resistance for the index lies in the zone of 27400 to 27500 where trend-line joining earlier highs is lying. If the index manages to close above these levels then the index can move to the levels of 27900 to 28000.

Range for the week is seen from 26400 to 26500 on downside & 28400 to 28500 on upside.

MORE WILL UPDATE SOON!!

Nifty Outlook for the Week (Jan 29, 2018 – Feb 02, 2018

NIFTY:

Nifty closed the week on positive note gaining around 1.60%.

As we have mentioned last week, that resistance for the index lies in the zone of 10900 to 11000. If the index manages to close above these levels then the index can move to the levels of 11200 to 11300. During the week the index manages to hit a high of 11110 and close the week around the levels of 11070.

Minor support for the index lies in the zone of 10950 to 11000. Support for the index lies in the zone of 10600 to 10700 from where the index broke out of trend-line joining highs formed in the month of September-2016 and August-2017 is lying. If the index manages to close below these levels then the index can drift to the levels of 10350 to 10400 where break out levels and short term moving averages are lying.

Resistance for the index lies in the zone of 11100 to 11200 where channel resistance for the index is lying. If the index manages to close above these levels then the index can move to the levels of 11400 to 11500.

High level of volatility can be expected during the week as the Government is going to announce the Budget on 1st February 2018.

Broad range for the week is seen from 10600 on downside & 11400 on upside.

  

MORE WILL UPDATE SOON!!

It is not over yet, this bull has more legs: There is a case for 13,000 on Nifty50

As there are breakouts on the long-term charts post-budget if the market sustains above 10600 levels market can retain its positive momentum over the medium term.

It was nothing short of a Chartist delight when I discovered breakouts across the time frames as I delve through historical charts of different indices. The conclusion? Each time frame chart was throwing up its own target for Nifty50.

On daily time frame target was 11100, on the weekly chart, it is 11533, monthly chart it is 12005, and on the quarterly chart it was about 13,500 on the Nifty50.

This bull market which was till now dominated by a handful of sectors with minimal contribution from pivotal names like IT, Pharma, Capital Goods, and Metals are suddenly looking much stronger and robust with broad-based participation as leadership appears to be changing from Financials to IT and becoming much wider.

Besides many sectors which were lagging till now have either registered breakouts or on the verge of a breakout on the longer time frame charts which shall facilitate Nifty50 in achieving bigger targets.

Is it possible to deliver 20% return year after year?

Now, the moot question to address whether this kind of lucrative target is possible after registering 28 percent gain of last year is possible. For that historical data has the perfect answer.

In the last bull market of 2003-2008, the market registered a gain of 40-45 percent every year for the next three years in a row from the year 2005-2007.

In the bull market of 1990s market saw a minimum 30 percent gain for consecutive years of 1990, 1991 and 1992 in a row. Before that, in 1981, the S&P BSE Sensex delivered 53 percent return after netting a gain of 24 percent in 1980.

Based on historical data analysis, it is clear that indices can post a decent 25-30 percent gain year after year. Hence, we can’t rule out the lucrative target of 13,000 on the Nifty just because indices already delivered a 28 percent return in the year 2017.

Technically, what gives confidence to me is the fact that index consolidated for years 2015 and 2016 and then registered a breakout in the year 2017.

This on longer time horizon should be read as a consolidation breakout which should pave the way for bigger long lasting up moves.

What is likely to contribute to the rally?

After 13 months of relentless upmove led by financials, things are changing fast. The participation is becoming broad-based. Pivotal like IT, Pharma and Capital goods appear to be coming back to life as IT appears to have taken over the leadership mantle for the time being.

Software behemoth TCS is leading from the front by hitting new lifetime highs in this sector which was otherwise out of favour and topped out way back in 2015.

Similarly, pharma index which also topped out in the year 2015 appears to be bottoming out and is on the verge of a breakout which will be confirmed if it sustains above 10,150 levels.

This breakout on the long-term charts is throwing up a big target of around 12,060 which is a gain of 18 percent from breakout points.

From the old economy, L&T and JSW Steel hogged the limelight with new lifetime highs whereas Tata Steel is yet to catch up.

Metals which were reeling under bear market kind of scenario till February 2016 are yet to get past their 2008 highs and are 25 percent away from that coveted mark.

In this bull market, private bankers and NBFCs till now assumed leadership and delivered fantastic returns but some of the largest bankers in the country like SBI, BOB and PNB are still struggling and yet to deliver returns to their shareholders.

But, fortunately, tide seems to be turning for PSU Banking space as this index is negotiating downward sloping trend line resistance on the long-term charts for last 4 months and appears to be on the verge of a breakout.

Once it manages a sustainable breakout above 4000 levels it will have a long way to go with a decent appreciation of 20 percent which should lead it closure to the test of 2010 highs.

What about Valuations:

It is rightly said that ‘Value’ lies in the eye of the beholder. The market may definitely look expensive on the back of historical figures like PE Ratios/ Book Values/Dividend Yield etc.

There were instances when Indian Markets traded at a historical PE of 34x in 2000 and at a PE multiple of 50x plus in 1994 and in 1997.

Hence, a Historical PE of around 28x at current levels may not be expensive for the smart money which is chasing the stocks at these levels hoping that

earnings will eventually catch up.

Who knows, George Soros’s Theory of Reflexivity may be at work which should eventually impact fundamentals in a positive fashion going forward.

Critical Technical points to be watched:

The key issue to be addressed is about the direction of the market in the near-term which is looking very tricky at this point in time as markets are defying gravity and trying to sit in their own orbit.

As there are breakouts on the long-term charts post-budget if the market sustains above 10600 levels market can retain its positive momentum over the medium term.

However, significant damage to the current bull market will be done if Nifty50 closes below 10300 on the monthly closing basis.

From Elliot Wave perspective, it looks like the current leg of rally from December 2016 lows of 7893, in a very long-term bull market, is wave three which based on our observations, should top out somewhere between March to June of 2018 thereby paving the way for multi-month correction in the form of wave 4 which when culminates pave the way for final leg of bull market.

MORE WILL UPDATE SOON!!

Signs of short term reversal showing on Nifty; 3 stocks which could give up to 12% return

With the Union Budget to be announced next week it is advisable to remain cautious and sticking to stock specific activity should be adhered to in the short term.

  

Pre-Budget extravagance continues on Dalal Street! The market extended its dream run further as indices recorded rose for the eight consecutive weeks.

Largecaps gained momentum as midcaps continued to underperform. Steady corporate earnings so far have kept investors' confidence intact and led to further buying which propped up the indices to fresh lifetime highs almost every day of the week.

The Nifty recovered sharply in the last hour of trades on Friday; however, daily chart analysis indicates the index formed a Doji candle stock pattern on Thursday followed by a Hanging Man kind of candlestick pattern on Friday.

These are signs of uncertainty and also a possible reversal may be on the cards going forward.

With the Union Budget to be announced next week it is advisable to remain cautious and sticking to stock specific activity should be adhered to in the short term.

Bank Nifty too recovered towards the end of Friday’s session thanks to private banks like HDFC Bank, ICICI Bank and IndusInd Bank which showed immense strength.

On the other hand, PSU banks failed to hold on to gains despite the mega infusion announcement by the government.

Here is a list of stocks that can deliver up to 6-12% returns in the short term:

Vedanta: BUY| Target Rs 388| Stop Loss Rs 329| Returns 12.4%

The stock has been consolidating for over past four weeks and has finally broken out from a Classic Cup and Handle pattern on the daily chart.

The 13-DEMA has proved to act as a very strong support every time the stock declined. With Vedanta closing above the neckline of Rs340, it marks a fresh buy signal according to Dow Theory.

In addition, volumes have also accompanied the overall price up move which further accentuates our bullish stance on the stock. We expect Vedanta to rally towards its potential target of Rs365.

Reliance Industries Ltd: Target Rs 1025, Stop Loss Rs 938, Returns 6.2%

Reliance Industries (RIL) has been consolidating for over 12 weeks now and has finally broken out from the Channel pattern on the weekly chart. Volumes have also accompanied the price outburst on the weekly basis.

In addition, the relative strength has also reversed from the 60 mark indicating that the current momentum is likely to extend further. We expect, RIL to move higher towards its potential medium-term target of Rs 1025.

Coal India Ltd: BUY| Target Rs 328| Stop Loss Rs 286| Returns 9.6%

Coal India is a classic retracement play. The stock had broken out from a Cup and Handle pattern two weeks back. Since hitting highs of Rs 311, Coal

corrected and retraced back to the breakout zone of Rs 286 in the previous week. The current move saw the stock once again finding support at the breakout level and rebounded sharply.

In addition, the relative strength also reaffirms our bullish stance on the stock. We expect Coal India to rally towards its potential target of Rs 328 in the medium term.

MORE WILL UPDATE SOON!!

Don’t know where market will drift on Budget Day? Deploy Modified Put Butterfly Spread

Option data for February series remains well distributed across strikes for Calls of 11,000 to 11,500 and for Puts from 11,000 to 10,600 with open interest ranging from 20-25 lakh shares each indicating option players remains cautious ahead of Budget with bets placed at both sides.

January series ended with a big jump as benchmark Indices scaled to all-time highs. The Nifty gained 5.6 percent while Bank Nifty gained 7.6 percent viz-a-viz last monthly expiry.

Rollover for Nifty stood at 65% compared to 71% last expiry while for Bank Nifty rolls were at average 71 percent. January series marked Nifty PCR OI moving to highest point in last 5 years at 1.89.

Better than expected Q3 earnings by corporates followed by FII inflows of Rs 9,500 crore in the cash market and Pre-budget expectation propelled the momentum significantly.

Option data for February series remains well distributed across strikes for Calls of 11,000 to 11,500 and for Puts from 11,000 to 10,600 with open interest ranging from 20-25 lakh shares each indicating option players remains cautious ahead of Budget with bets placed at both sides.

Notable Open Interest of 48 lakh shares is standing at 10500 PE indicating vital support area. Significant change in OI distribution could pave way for directional momentum.

Further decoding Participant activity in Index futures reveals FII have carried forward 1,44,197 contracts of Index longs ( highest in last two months) while Index Short carried over were mere 36,578 lowest in last 1 year indicating their positive stance on the market.

In Index Options too FII added significantly to their positive bias with Synthetic long /Short ratio {(Call Long +Put Short)/ (Put Long+ Call Short)} placed at 1.29, highest in last 6 months.

Synthetic Long /Short ratio are placed at 0.95 signifying nearly equal position on both sides. Possibility of Volatility based strategies placed before Budget event.

India VIX, an indicator to riskiness did give a breakout from the range of 12-14% towards 18.5 percent to settle the series at 17.51 percent, with gain of 25 percent.

Historically, it’s being witnessed that with events lined up, various time frame traders gets active and take position in option market to participate in wild swings leading to surge in Implied Volatility of options. Post the event, possibility of mean reversion increases.

Strike-wise PCR OI for Feb series remains in neutral zone. Immediate support is placed at 10,900 at 1.52 followed by 10,700 at 2.09 signifying temporary indecisiveness about the trend.

Considering possible pause in momentum due to surge in volatility & shift in PCR band on lower side a hedge strategy “Modified Put Butterfly Spread” is recommended to protect from downward movement or to take a speculative bet on downside.

Modified Put Butterfly Spread is a Neutral to Bearish Strategy that’s executed by buying 1 Put, Selling 2 lower side Puts and Buying 1 further lower Put.

Change in volatility doesn’t impact strategy to larger extent as it is hedged. Time decay is generally harmful when index is at first strike however it’s beneficial when it’s at middle strike.

  

MORE WILL UPDATE SOON!!

If you have Rs 10 lakh to invest ahead of Budget 2018, here are top 5 sectors to allocate money

There could be a correction at any point in time. Investors must be prepared. With every rise in stock prices, the chances of a sell-off also increase. This may be induced by some bad news.

  

There could be a correction at any point in time. Investors must be prepared. With every rise in stock prices, the chances of a sell-off also increase. This may be induced by some bad news.

Adverse budget proposals can dampen sentiment. More often than not, it is an event which is out of the blue which has not been visualised by the market.

Difficult to forecast the trend for 2018. There are many important events – State Elections, Budget, Change in RBI policy given that inflation has picked up and corporate earnings. Disappointment on any of these fronts could lead to volatility.

Domestic Money, Domestic Money, Domestic Money, Investing in Mutual Funds has become a national pastime. The problems will start when the Mutual Fund returns are negative and then panic will set in.

 It will be a populist budget no doubt about it. Investors should brace themselves for disappointment. Only hope that if Long Term Capital Gains is restored then STT on Delivery trades is reduced to the level of non-delivery trades. Otherwise, it will lead to double taxation.

Q) If somebody plans to invest Rs10,00,000 now – what would be your advise to him considering he is in the age bracket of 30-40 years?

Banks and NBFC – 35 %

Indian FMCG (including Liquor) – 20 %

Auto and Auto Ancillary – 10 %

Building Material – 15 %

Aviation / Retail/ Travel / Education etc. 20 %

We are in a multiyear Bull Market which will last for many more years. From time to time, stocks will run ahead of the fundamentals. We are at that point just now. For investing to be attractive, either the prices have to correct or fundamentals have to improve significantly; better than street expectations.

No sector is likely to gain from the budget. Agriculture sector will receive special attention but playing this as an investment theme is difficult given present valuations of companies which are rural focussed.

Investors should refrain from designing their investment strategy based on market capitalisation. Instead focus on growth, earnings visibility and reasonableness of valuation.

Domestic Consumer-facing businesses in BFSI, Auto, Building Material, Appliances, Aviation, Retail, Media, Healthcare, Education, Lifestyle businesses like liquor, gaming high-end big-ticket items.

MORE WILL UPDATE SOON!!

Maruti Suzuki likely to open 4-5% higher on Monday post Q3 results

Sharekhan maintains a buy rating on Maruti Suzuki and raised its 12-month target price to Rs 11,085 from Rs 10,170 earlier post Q3 results.

  

Maruti Suzuki Ltd is expected to open higher and could well rally 4-5 percent once trading resumes on Monday after India’s largest car maker reported 3 percent year-on-year (YoY) growth in profit at Rs 1,799 crore for December quarter.

Even though the net profit was in line with estimates, analysts are positive on future earnings visibility for automaker largely supported by strong order book, new product launches, and improvement in margins due to loyalty reduction.

Maruti Suzuki today said the board has approved a revision in the method of calculating royalty which would result in lower royalty payments for new model agreements starting the Ignis.

We have factored 50bps improvement in FY2019 and 60 bps improvement in FY2020 earnings. We have raised our FY2020 estimates by 5 percent.

Re-rating is possible given the increased earnings and strong management commentary on the product launch pipeline. We think the stock should open up by 4-5% in Monday’s trade.

Sharekhan maintains a buy rating on Maruti Suzuki and raised its 12-month target price to Rs 11,085 from Rs 10,170 earlier post Q3 results.

Revenue from operations for the quarter grew by 14.2 percent to Rs 19,283 crore compared to Rs 16,888 crore in year-ago, driven by double-digit sales volumes.

The company sold a total of 4,31,112 vehicles during the quarter, a growth of 11.3 percent over the same period last year, with domestic sales growing 12.4 percent to 4,00,586 units.

The changes in royalty payment would be implemented after approval by the board of parent company Suzuki Motor Corporation. As per the management, all new models viz Ignis, the newly launched Dzire, the upcoming Swift and all the future launches would benefit from lower royalty outgo.

Revised royalty would be implemented retrospectively after approval from the parent company. Based on the current sales mix, these 3 models contribute to about 30 percent of the company’s volumes and are likely to witness the benefit of lower royalty, say, experts.

We think the impact would definitely result in better bottom line as Maruti is already insulated against foreign exchange fluctuations since it pays Royalty in Rupee to the parent company for new models since 2016.

Maruti is also expected to pay the royalty on all models to Suzuki in rupee terms by 2024-25. As far as re-rating is concerned, we are still plugging in the details for different models. We expect the opening to be flat to positive on Monday, but it is a good buy on dips stock.

Operationally, the company reported an in-line set of numbers. Lower other income and higher tax outgo lead to muted net profit which was below estimates.

Operating profit or EBITDA (earnings before interest, tax, depreciation, and amortisation) increased 22.1 percent to Rs 3,038 crore and margin expanded by 100 basis points to 16 percent compared to year-ago.

Although operating profit increased by 26.7 percent, net profit growth was restricted to just 3 percent on account of increase in effective tax rates and lower other income. Other income was lower due to mark-to-market (MTM) loss of Rs3.13bn, due to increase in interest rates.

“Royalty rate to be reduced on retrospective effect from Jan’2017 due to revision in the method of royalty on new products such as Ignis, Dzire, Swift etc. Quantum of royalty reduction would be announced post-Suzuki Board meeting,” he said.

Matlawala further added that current royalty rate is 6 percent and any significant reduction in royalty rates will certainly make a strong case for a re-rating of a stock.

MORE WILL UPDATE SOON!!