Nifty may face hurdle at 10,400; top 5 stocks with up to 5% return potential in short term

The index has formed 'Spinning Top' candlestick pattern indicating lack of momentum on either side. Now Nifty has to close above 10,250 marks for further upside. The level 10,400 will work as immediate hurdle zone and support is seen around 10,130 mark.

             

The Indian benchmark indices Sensex and Nifty closed lower as banking stocks extended losses. Among sectoral indices, the Nifty PSU Bank index ended 1.81 percent lower led by a fall in the shares of Canara Bank, IDBI Bank and Oriental Bank of Commerce.

The Nifty Metal index too ended 1.81 percent down due to a fall in shares of Steel Authority of India Limited, Jindal Steel & Power and Tata Steel.

In the global markets, Asian shares rallied and the safe-haven yen eased on Friday after North Korean leader Kim Jong Un offered to stop nuclear and missile testing and US President Donald Trump agreed to a meeting that could come before May.

Technical Outlook

Nifty

Nifty opened higher but failed to hold gains and remained in a trading range of 86 points. The index has formed 'Spinning Top' candlestick pattern indicating lack of momentum on either side. Now Nifty has to close above 10,250 marks for further upside. The level 10,400 will work as immediate hurdle zone and support is seen around 10,130 mark.

Furthermore, RSI (14) failed to give positive crossover. We are expecting Index to consolidate within a range of 10,100-10,400 levels in near term.

Bank Nifty

Nifty Bank opened with positive bias but failed to hold gains and closed lower by 0.74 percent amid sell-off in PSU Stocks. It is consolidating around 78.6 percent Retracement levels on daily scale. Any significant move above 24,500 levels might take Nifty Bank higher till 24,800 and 25,100 levels. Strong support is seen around 23,900 levels.

Moreover, Oscillators are trading around oversold zone. We are expecting Index to consolidate within a range of 23900-24800 levels in near term.

Below are the top 5 stocks which can yield up to 5% return:

VA Tech Wabag | Rating: Buy | Target: Rs 523, stop loss: Rs 480 | Return: 5%

Kajaria Ceramics | Rating: Buy | Target: Rs 590, stop loss: Rs 555 | Return: 3%

BEML Limited | Rating: Buy | Target: Rs 1145, stop loss: Rs 1080 | Return: 3%

United Breweries | Rating: Sell | Target: Rs 989, stop loss: Rs 1040 | Return: 3%

Dr Reddy's Laboratories | Rating: Sell | Target: Rs 2060, stop loss: Rs 2190 | Return: 3%

MORE WILL UPDATE SOON!!

Broader Indices stay in green as HCL Tech pulls IT index higher; 2 stocks which can return up to 4%

From the Nifty the stocks which gained the most were HCL Tech which jumped 3 percent while ITC was up close to 3 percent. Wipro, Infosys and Vedanta were the other top performing stocks.

  

The bulls were in control with the Indian markets rallying as the Nifty jumped 87 points at 10,314 while the Sensex was up 272 points.

The Nifty IT index jumped 1.69 percent led by HCL Tech which was up 3 percent while Tech Mahindra, Infosys, Tata Consulltancy Services and Wipro were the other top IT gainers.

The Nifty PSU banking index was however down over 2.5 percent dragged by Andhra Bank which plunged over 12 percent after the Enforcement Directorate filed a charge sheet against a former bank director in an alleged Rs 5,000-crore bank fraud case involving a Gujarat-based pharma firm.

The other top losers included IDBI Bank which feel obver 9 percent followed by Canara Bank, Oriental Bank of Commerce, Bank of India and Union Bank of India which shed up to 9 percent.

From the Nifty the stocks which gained the most were HCL Tech which jumped 3 percent while ITC was up close to 3 percent. Wipro, Infosys and Vedanta were the other top performing stocks.

Chandan Taparia, AVP- Equity Derivatives & Technical at Motilal Oswal Securities has picked up 2 stocks which can yield up to 4% return:

Jubilant Foodworks | Rating: Buy | Target: Rs 2150, stop loss: Rs 2025 | Return: 3%

Tech Mahindra | Rating: Buy | Target: Rs 648, stop loss: Rs 620 | Return: 4%

MORE WILL UPDATE SOON!!

Market Week Ahead:key things that will keep traders busy

The market is likely to start the coming week on a positive note, tracking strong closing in US markets on Friday after better-than-expected jobs data but for the rest of the week, a bit of weakness amid consolidation is expected to continue.

   

The market continued its correction in the passing week despite recovery in global peers, shedding more than 2 percent and taking total losses to over 8 percent from its record high touched on January 29, 2018. Benchmark indices closed at fresh 2018 closing lows.

Continued weakness in the banking space after the Rs 12,700-crore PNB fraud case, and worries over trade war arising from the US announcement of import duties on steel and aluminium hit market sentiment.

Generally, when the market sharply moves either way, it becomes difficult to predict the top or bottom. Hence, in this falling market, people are finding it difficult to take long positions and are waiting for the bottom to be formed.

The market trend also indicated that traders as well as investors are using two strategies - "sell on rally" and "add exposure to quality stocks".

The current gradual correction from all-time high indicated the overall weakness in the market is not yet over due to ongoing asset quality issues in banking, the major driver of the economy, experts feel.

The market is likely to start the coming week on a positive note, tracking strong closing in US markets on Friday after better-than-expected jobs data but for the rest of the week, a bit of weakness amid consolidation is expected to continue, experts said, adding a major sell-off is unlikely unless there are any further detrimental developments in the banking fraud case or globally.

"The market breadth has remained weak throughout the week. Despite a recovery of almost 100 points on Thursday, a negative breadth clearly suggested prevailing scepticism in the market. Thus, selling pressure may continue at higher levels in the coming sessions," Amit Gupta of ICICIdirect said.

He further said, "As fresh shorts are not evident in data, any change of bias in the Nifty may be seen only if fresh long additions were observed or Call writers start unwinding their positions. At the same time, sudden depreciation in rupee also weighed on equities as it moved above 65 once again."

In the coming week, the market will closely watch the macro data (January IIP and February CPI inflation). The flow in secondary market could be impacted due to active primary market as three IPOs nearly worth Rs 10,000 crore will open for subscription.

"The macro data will give a sense of the economic recovery and trend in inflation, respectively. In this, inflation would be something that would be critical as its further hardening could trigger fears of rate hikes," Sanjeev Zarbade, Vice-president-PCG Research, Kotak Securities. said.

On the global front, he said President Trump’s rhetoric on trade protectionism could weigh on markets. On the other hand, any move by the Trump towards reconciliation with North Korea could be taken positively.

The recent fall in mid-cap stocks provides a good opportunity for investors to pick stocks. So he advises investors to select stocks with strong management quality, robust earnings growth and reasonable valuations.

Here are 10 key things to watch out for in the coming week:

Banking fraud deepening

The crisis in banking sector, the major driver of the economy, has been intensifying after the country's second largest public sector lender Punjab National Bank reported transaction fraud worth Rs 12,700 crore last month. PSU Bank index corrected 5.4 percent and Nifty Bank lost 2.4 percent in the week gone by.

A multi-agency probe is already underway into the PNB scam and the ministry already filed a petition against individuals, groups and their entities belonging to Nirav Modi and Mehul Choksi Groups before the Mumbai bench of the National Company Law Tribunal (NCLT).

In the latest development, the Serious Fraud Investigation Office (SFIO) is probing 107 companies and seven Limited Liability Partnerships linked to Nirav Modi and Mehul Choksi groups.

In another alleged scam, the Enforcement Directorate also filed a charge sheet against a former Andhra Bank director in an alleged Rs 5,000-crore bank fraud case involving a Gujarat-based pharma firm. A media report indicated that former deputy manager of PNB Gokulnath Shetty, who involved in the PNB-Nirav Modi-Mehul Choksi scam, had also dealt with Winsome officials and the CBI has summoned R Ravichandran, former director (operations) of that diamond trading company.

On top of the likely elevated NPA levels and higher provisions, latest banking report by global investment firm warned that state-run banks, which are typically the largest investors in sovereign securities, could lose more than Rs 20,000 crore in the January-March quarter, due to a continued spike in bond yields and as they held more bonds than are required by the regulator.

The Government’s tough call to inspect all books of PSU Banks where borrowed amounts were above Rs 50 crore may keep some investors un-nerved on expectations of more un-toward revelation by PSU banks, the Stewart & Mackertich Wealth Management said in its report.

GST Council

The Goods and Services Tax (GST) Council approved the e-Way Bill rollout from April 1 in its 26th meeting held in New Delhi on Saturday.

Finance Minister Arun Jaitley while addressing the media after the meeting said the council was working on making the returns filing process simpler.

The current system for simplifying returns has been extended by 3 months. TDS and TCS system formalities, in which state and central government accounting systems will be linked has also been extended until June 30.

The tax bureaucracy was of the view that such a mechanism would be in place that there would be no room left for tax evasion.

Macro Data

Industrial output for the month of January and CPI inflation for February will be released on Monday after market hours, which will give a sense of the economic recovery and trend in inflation.

Overall economists expect the CPI for February at around 4.7 percent and IIP for January around 6.3-6.4 percent.

CPI in January improved to 5.07 percent whereas, index of industrial production data for December 2017 was reported at 7.1 percent.

Apart from CPI and IIP, balance of trade for February will be announced on Monday, Q4 current account deficit data on Tuesday, WPI inflation for February on Wednesday, and foreign exchange reserves data for the week ended March 9 and deposits & bank loan growth data for week ended March 2 on Friday.

IPOs

The primary market will be fully active in the coming week as around Rs 10,000 crore worth of IPOs will hit the Dalal Street.

State-owned Bharat Dynamics and Hindustan Aeronautics will open their IPOs worth Rs 960 crore and Rs 4,200 crore for subscription on Tuesday and Friday, respectively.

Bandhan Bank's Rs 4,473 crore IPO will be opened on Thursday while the Rs 77-crore public issue of Karda Construction will open on Friday.

FIIs

Foreign institutional investors were net buyers to the tune of more than Rs 1,500 crore in equities last week after around Rs 12,000 crore worth of selling in equities in February while domestic institutional investors' flow was muted as they bought only Rs 131 crore worth of shares following more than Rs 17,000 crore buying in previous month.

FIIs and DIIs flow would be closely watched in the coming week as major chunk of their investment may be shifted to primary market wherein four IPOs will be opened.

Jayesh Bhanushali, Senior Analyst at IIFL said tracking FIIs' short-term future and options positions, they have a long/short ratio of 0.9x in index futures, 1.9x in call options and 2.7x in put options, indicating a negative outlook for the March expiry.

Futures & Options

The trend in F&O indicated that the market could be in a range of 200-250 points on the Nifty in the coming week.

"Option band signifies a range bound trading range between 10,100 to 10,350 zones," Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities said.

On the options front, maximum Put open interest stood at 10000 followed by 10200 strikes while maximum Call open interest is at 10500 followed by 10400 strike. Fresh Call writing was seen at 10300 followed by 10500 strikes while Put writing was seen at 10200 followed by 10150 levels on Friday.

The index futures have added around 70 lakh shares in open positions since the beginning of the March series, consisting of mainly short positions.

"As out of the money 10400ce & 10500ce strikes have huge call writing positions, we believe every upside up to the mentioned strikes should be used to unwind long positions or create fresh short positions," Bhanushali said.

Technical Outlook

Technically, the 10,100 would be important support level for the Nifty, followed by 10,000, the most crucial level said every analyst. If that breaks, then there could be more sell-off in the market, experts feel.

"Daily chart pattern suggests, the Nifty is approaching towards 200 daily EMA placed around 10,100 levels, recent pullback from 10,140 levels may again get sold off towards lower lows. This pullback is likely to be short lived since there is 13-30 daily EMA bearish cross down on the daily chart," Stewart & Mackertich said.

"The Nifty may remain under pressure as long as it trades below dual resistance zone of 10,340. Hence, aggressive buying is certainly not advised. The broader trading range for this month is expected to be 10,540-10,000," it added.

Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan said, "The momentum indicators on the daily as well as the weekly time frame are in bearish mode. This indicates that the bears are having upper hand on the benchmark index.

Once the Nifty breaches the swing low of 10,141 it can target the psychological mark of 10,000 with potential to tumble down till 9,800, he feels.

Stocks in Focus

Here is the list of stocks that may react to the news on coming Monday:

Tata Motors said global wholesales of all its commercial vehicle & Tata Daewoo range in February stood at 46,262 vehicles, passenger vehicles at 74,990 units and JLR at 56,905 vehicles.

Enforcement Directorate has filed prosecution complaint against Anup Prakash Garg, ex- director, Andhra Bank under PMLA in Rs 5,000 crore bank fraud case involving Sterling Biotech, its directors & others.

Oriental Bank of Commerce raised 1-year marginal cost of funds based lending rate to 8.50 percent from 8.35 percent.

IDBI Bank will be in focus as a media report indicated that capital market regulator SEBI is set to buy bank's building in Mumbai for nearly Rs 1,000 crore.

Union Bank of India has direct credit exposure of about Rs 295 crore to Nirav Modi and Gitanjali Group companies, its chief executive told Reuters.

Reliance Communications promoter firm pledges shares worth Rs 300 crore.

Government said PNB incurred losses of Rs 2,808 crore due to frauds in 2016-17.

Bharti Airtel planned to raise up to Rs 3,000 crore for refinancing debt and meeting spectrum liabilities

Global Cues

Indian markets may the start the coming week on a positive note, tracking strong close on Wall Street on Friday. The Dow Jones Industrial Average rallied 440 points after February jobs growth far exceeded expectations.

The US economy added 3,13,000 jobs in February, according to the Bureau of Labor Statistics. Economists polled by Reuters expected a gain of 2,00,000.

On the data front, US' CPI for the month of February will be released on Tuesday, continuing & initial jobless claims on Thursday, and industrial production data for February on Friday.

Japan will announce its data for machine tool orders on Monday, PPI for February on Tuesday, core machinery orders for January & monetary policy meeting minutes on Wednesday, and industrial production for January on Friday.

Europe's industrial production data for January will be announced on Wednesday and CPI for February month on Friday.

China's industrial production data for February will be released on Wednesday.

MORE WILL UPDATE SOON!!

Allocate 70% to equities in this fall; Top 5 wealth creating ideas for next 2-3 years

After a setback from Union Budget 2018, the domestic market has shifted focus into the global volatility which is turning cautious due to premium valuation, increase in interest rate and risk of de-globalisation.

   

In the short-term, the market may have a positive bias and during which the investors should consider shifting the portfolio into low beta, Vinod Nair, Head of Research at Geojit Financial Services.

India has gone into a double whammy under the domestic and global headwinds. After a setback from Union Budget 2018, the domestic market has shifted focus into the global volatility which is turning cautious due to premium valuation, increase in interest rate and risk of de-globalisation.

This trend may continue as valuation normalises and bond yield stabilise. For example, India’s government 10-years yield currently stands at 7.77, 49bps up in the last 2months.

Deposit and lending rates are increasing and trajectory of inflation continues to be on the higher side, which augurs further cut in valuation.

In the near-term, RBI is expected to provide additional liquidity to the bond market, which will provide some support to the market especial the financial sector.

The current effective Fed rate is 1.4 percent while the 10-years yield is 2.9 percent. If the US Fed rate is increased by 3times, the effective rate will be 2.15 percent by the end of Dec-2018, if the same spread is maintained the bond yield will increase to 3.65 percent.

The US bond yield has increased by 60bps in the last 3 month, bringing high volatility in the Indian market. Currently, the market is down by about 6 percent, if this situation continues in the global bond market, India will also be impacted.

 To churn your portfolio towards defensive sectors and reducing high beta stocks should be the key for retail investors. In the short-term, the market may have a positive bias and during which the investors should consider shifting the portfolio into low beta.

Profit booking on stocks with premium valuation and increasing in mutual funds debt are also advisable in the medium-term.

Given our moderate expectation on equity markets, we suggest starting with a holding of 40 percent for equity which can be increased to 70 percent over the long-term.

The focus should be more on Mutual Fund schemes predominantly with largecap exposure which investors can increase through diversified multicap funds.

Direct equity can be 10 to 15 percent of the total portfolio with a focus on defensive sectors. For the time being, high exposure is advised on mutual fund debt scheme at 60 percent with corporate accrual funds.

Top five wealth-creating ideas which investors can look at for the next 2-3 years.

HCL Technologies

We continue to remain positive on HCL on a consolidated basis driven by traction in deal wins and strength in Mode 2 & 3 services (focus on next-gen offerings).

Revenue contribution from Mode 2 & 3 services surpassed 25 percent of the total revenue and the management is eyeing to further increase the contribution from digital business to 40 percent over the next few years.

Deal wins remained strong in Q3FY18 with the company signing twenty transformational deals across services. The company’s strategy of augmenting its IP based partnerships with technology vendors to broaden its product offerings is expected to provide a tailwind to revenue growth going ahead. We factor revenue CAGR of 9 percent over FY17-20E.

Aarti Industries

AARTI Industries Ltd (ARTO) is a global leader in Benzene based derivative products. The company has a diversified product portfolio with end users in pharma, agrochemicals, specialty polymers, paints & pigments.

ARTO’s Q3 Revenue grew by 29 percent YoY, led by strong growth across business segments with Speciality chemical business grew by 23 percent YoY, home & personal care business 103 percent YoY and Pharma 35 percent YoY.

Recently, ARTO signed Rs10,000cr exclusive supply contract with a global chemical conglomerate for high-value speciality chemical intermediate over a period of 20 years with the commencement of supplies from the Year 2020.

Going forward, we believe that with strong off-take Pharma segment and stable growth from Specality chemicals segments, we factor revenue to grow 14 percent CAGR over FY18E- FY20E. Given healthy earnings outlook, we continue to have a positive rating on the stock.

Torrent Pharma

Torrent’s acquisition of branded formulations business of Unichem Laboratories will strengthen its presence in the domestic market with expansion in the chronic portfolio, improved market share and widening distribution networks.

Besides recovery in US business is expected to drive robust growth going ahead. Higher revenue growth from Europe is also another positive for the company. Given increased R&D spends for high margin/high-volume products and meaningful new launches for coming years.

Notably, the management has guided for 10-15 ANDA filings in FY18 and also indicated plans to submit 3-4 derma products by this fiscal end. We expect Torrent Pharma’s revenue and Adj. PAT to grow at a CAGR of 14 percent/9 percent over FY17-20E owing to increased contribution from the domestic, gradual pickup in US sales through quality filings and strong growth in Germany, Brazil and RoW.

Idea Cellular

Idea’s focus on the Vodafone merger and accelerating synergistic benefits both in terms of operating cost and capex is expected to achieve a higher level of efficiency going ahead.

The merger process is likely to be completed by H1CY18, we expect synergies to start accruing from FY20E leading to an expansion in EBITDA margin to 28.4 percent in FY20E.

Importantly, the company’s fund-raising will provide Idea with much-needed liquidity to boost network and protect its revenue and market share. Moreover, Idea’s plan to monetise its tower assets will strengthen its balance sheet.

Tata Global Beverages

Tata Global Beverages (TGB), an integrated natural beverage company derives ~70 percent of revenue from branded tea business and ~60 percent of the revenue comes from markets outside India.

TGB has put in place a new strategy to drive growth and profitability including exiting from loss-making geographies. Under the core business rejuvenation, TGB will expand its product offerings in premium and non-black categories and enhanced its focus on green and herbal tea categories (higher margins).

It is also planning to foray in large tea consuming Asian markets such as Singapore, Malaysia, and China. To renew Nourishco (JV), TGB launched several new products/variants under Tata Gluco Plus and Himalayan water brands.

We expect TGB to gain market share across geographies led by its innovative premium product offerings and expect revenue/PAT to grow at ~6 percent/23 percent CAGR over FY17-20E.

MORE WILL UPDATE SOON!!

Heads up! FIIs create fresh short in index futures of over $145 mn

On the data front, continued writing was seen at OTM (out of the money) Call strikes of 10300 and 10400. We believe that levels near 10,350 will pose as an immediate hurdle for the Nifty.

   

Indian markets remained under pressure and did not witness any major pullback despite a recovery seen in the global markets. The Nifty50 ended the week with another 2.4 percent loss at 10,225. It is the lowest weekly closing since the first week of December 2017.

While banking remained a major laggard, auto and metal stocks also succumbed to the pressure while long liquidation was observed across sectors.

Only because of the pullback among select heavyweights like Reliance Industries, HDFC and L&T and the Nifty50 was able to end above 10,200 this week while most index stocks closed in the red.

The market breadth has remained weak throughout the week. Despite a recovery of almost 100 points on Thursday, a negative breadth clearly suggested prevailing scepticism in the market. Thus, selling pressure may continue at higher levels in the coming sessions.

On the data front, continued writing was seen at OTM (out of the money) Call strikes of 10300 and 10400. We believe that levels near 10,350 will pose as an immediate hurdle for the Nifty.

Till these levels are not taken out, any major recovery seems unlikely.

As fresh shorts are not evident in data, any change of bias in the Nifty may be seen only if fresh long additions were observed or Call writers start unwinding their positions.

At the same time, sudden depreciation in the rupee also weighed on equities as it moved above 65 against the US dollar once again.

 

Bank Nifty: 24000 remains crucial for the coming week

Volatility remained extremely high for banking stocks because for the third week in a row there was no respite for PSU banks. The index corrected sharply and moved towards 24,000.

However, on the weekly expiry day, the index witnessed a sharp bounce on the back of short covering and moved towards 24,500. However, once again towards the end of the week, it turned negative and ended well below 24,500.

As implied volatilities (IVs) remained high, huge volatility was seen in OTM options. Call option premium rose nearly 70 percent on the weekly expiry day whereas in the absence of any follow-up buying, premiums got eroded significantly and fresh writing positions were seen forming in 24600 and 24700 Call, which is likely to keep the index move in check.

However, on the Put side, major open interest concentration was seen in 24000 strike, which is likely to be a support in the coming week. A close below these levels would open the gates for more downside.

The current price ratio, Bank Nifty/Nifty remained intact near 2.38. As the index has a major hurdle near 24,700, we feel that unless the index moves and closes above these levels, the ratio is likely to consolidate near the same levels. Eventually, it is likely to slide towards 2.35 levels.

Price recovery in EMs not supported by FII inflows

Adverse news flows globally and domestically kept the strong recovery in risk assets in check. On the global front, there was news of tariff plans from US administration and a populist vote in Italy.

On the domestic front, the PNB led fiasco kept the Indian market's recovery in check. MSCI World and MSCI EM Equity Indices recovered almost 2 percent each (outperforming the Nifty).

The recovery in emerging markets (Ems) was not backed by fresh FII inflows into EMs. Outflows amounting to around USD 200 million each were seen from Indonesia, South Korea, Thailand, Taiwan, and Brazil.

Hawkish tones emanating from US Federal Reserve and ECB’s hawkish ECB assessment of quantitative easing (despite the populist Italy move) has partly kept EMs up move in check.

In the Indian equity segment, FIIs had continuously sold in February. The trend at the start of March is not very encouraging yet.

In the last five sessions, as per the Sebi data, their buying aggregated to a paltry sum of USD 16 million. They created fresh short in index futures segment amounting to over USD 145 million.

Portfolio hedging was also strong as they bought index options worth over USD 450 million.

On the watchlist will be Donald Trump’s tariff plans and stability in the risk sentiment for risk assets. Unless these variables stabilise, EMs are unlikely to see any meaningful inflows from FIIs.

MORE WILL UPDATE SOON!!

Betting on tech theme? Top 4 stocks which investors could add in their portfolio

The association of Indian IT companies are expecting a strong growth in the fiscal year 2019 as most of the companies are able to adapt to the new age digital technologies and are also strengthening in the automation segments which could make the space as one of the strong sectors for the year 2018.

  

India IT sector has emerged as an outperforming sector in the recent correction. The S&P BSE IT index rose nearly 10 percent compared to 1 percent fall seen in the S&P BSE Sensex so far in the year 2018.

Most experts are turning favourable towards the India IT sector in the near-term as they see the pain in the sector is priced in and with expectations of some more rupee depreciations, the sector is likely to hog some limelight.

The association of Indian IT companies are expecting a strong growth in the fiscal year 2019 as most of the companies are able to adapt to the new age digital technologies and are also strengthening in the automation segments which could make the space as one of the strong sectors for the year 2018.

"Even the tailwind of weakness in rupee against the dollar over last few weeks is also likely to add to their top line numbers. Hence select largecap and midcap IT stocks have much more potential to outperform in the coming quarters.

The calendar year 2018 is likely to be better than 2017 which could drive re-rating. However, the magnitude of acceleration will determine stock returns from here, suggest experts.

A 2-3 percent higher growth in FY2019 is already baked into the stock prices. The path to the higher acceleration of 4-5 percent can lead to further upsides, Kotak Institutional Equities said in a note.

“It is easier to predict the direction of growth than the magnitude of acceleration in our view. We prefer Infosys and Tech Mahindra as expectations embedded in the current valuations are low,” it said.

Kotak Institutional Equities has an ADD rating on Infosys, L&T Infotech, Mindtree and Tech Mahindra.

 

Indian IT companies expressed hopes of a better FY2019 led by – (1) a better macro environment across key goes, especially North America, (2) better deal flow for some, (3) pipeline of projects and deals and (4) increasing digital deal sizes, companies said on the sidelines of a conference organised by Kotak.

Companies did not quantify the magnitude of improvement although they were optimistic across verticals except in banking and retail where commentary differed.

Nearly all IT companies indicated that simplification and digital transformation of the core will drive up digital deal sizes. “Companies expressed confidence of maintaining margins in a guided band (TCS and Infosys) or improving it (Wipro in the medium term and Tech Mahindra in FY2019),” said the Kotak note.

The note further added that confidence in margin performance emanates from the pricing environment that has not thrown any unexpected surprises, benefits of automation and deriving leverage from investments already made in digital services.

Key takeaways from individual companies from Kotak Institutional Equities annual conference:

Infosys:

Infosys believes that increase in interest rates in the US, tax cuts that can potentially prop spending and a strong macro environment bode well for growth in FY2019. A positive macro can translate into better growth in FY2019 although the company believes it is too early to quantify the magnitude.

Traditional levers such as utilization are maxed out. The onsite mix can reduce and help margins. In addition, L1 and L2 automation can be adopted across a wider range of offerings.

Finally, the share of new services (10 percent of overall revenues) that are in an investment phase, can start contributing to margins after they achieve a particular scale. KIE view is that margins will move in a narrow band in the foreseeable future.

Tech Mahindra:

FY2018 has seen the rationalization of clients and unprofitable portfolio of business leading to impact on growth rates; communication practice will see negligible growth or even decline. Without this rationalization, FY2018 telecom revenue growth would have ranged 5-6 percent.

None of the large clients had a renegotiation in rates/pricing setting the platform for a return to growth in FY2019. Without factoring upside from 5G, mid-single digit revenue growth is possible in communications in FY2019.

Tech Mahindra believes that capex cycle and investments in IT are closely linked. Investments in 5G capex would spur IT spending, per the management.

L&T Infotech:

L&T Infotech’s management has guided for mid-teen growth in FY2018E and is optimistic about continued momentum in FY2019E led by (1) market share gains in top accounts, (2) solid deal wins in the recent past (one USD 100 million+, four USD30-100 million and five USD10-30 million deals), (3) an improving deal pipeline, and (4) addition of new logos—82 new logos added in the past 12 months and 3 of the top 10 deal wins are from new logos.

Growth in FY2019 will be powered by top-20 accounts as well as new logos. From a vertical standpoint, BFS, media and hi-tech and retail CPG verticals will growth faster than the company.

On the services front, analytics, enterprise integration, and mobility, ES and IMS will drive growth. The management expects the growth momentum to continue in CBDT project.

Mindtree:

Mindtree is seeing healthy demand across RTB (run-the-business) and digital portfolios. On RTB front, TCV growth is healthy, pricing is stable and large projects have stabilised after ramp-up.

On the digital front, Mindtree is witnessing benefits of an increase in average deal sizes. The management indicated the deal pipeline is improving and Mindtree’s deal win rate has improved to 34 percent from 22 percent (deals won out of the total deals tracked by Mindtree internally).

It is winning more deals through the advisory channel. Improving deal wins rate should reflect on TCVs in the coming quarters.

Mindtree has retained its sequential revenue growth guidance in dollar terms in Q4FY18 to be broadly similar to Q2 (3 percent) and Q3 (3.9 percent). The management expects EBITDA margin to be flat sequentially at about 15.1 percent.

MORE WILL UPDATE SOON!!

Stuck with huge portfolio losses? Use ‘Options’ in a falling market

Buying Puts is a simple strategy where an At the Money put is bought on the Index like Nifty with a notional value of the portfolio adjusted for portfolio’s beta.

  

Options being a non-linear instrument can help investors/traders in multiple ways and here are some of the simple strategies to be deployed in a falling market.

Want to protect your portfolio from downside?

One of the ways investor’s uses options is for Hedging. Market corrections are fierce and steep and to protect the downside investors are at times willing to buy protection with a premium outflow i.e. at a cost.

Long Puts

Buying Puts is a simple strategy where an At the Money put is bought on the Index like Nifty with a notional value of the portfolio adjusted for portfolio’s beta.

This is a fairly expensive strategy but the protection is open for an unlimited downside and for the time period of protection the investor doesn’t need to bother much about any steep correction.

Buying Spreads

Deploying spreads like a Bear Put Spread, Bear Call Spread, etc. may be a better choice if the hedging is intended only up to a given level. For example Mr. A wants to protect his portfolio for any downside up to 9700 on Nifty where he’s confident of the Index reviving.

In this case, Mr. A doesn’t need to pay the premium of unlimited downside by buying a simple put and can reduce the premium outflow by deploying a spread which will cost lower than a long put. The trade-off is an open risk below the lower strike of the spread.

Don’t want to sell or hedge the portfolio but want to generate some returns to compensate the fall?

Hedging comes with a cost and no matter the portfolio falls or not, you are certain to spend the cost of hedging out from your pocket. This is not so lucrative to few investors and instead, they choose to generate some additional returns on the portfolio to compensate the downtrend.

To achieve this, covered calls can be deployed on stocks in the portfolio. Calls of stocks held in portfolio are sold with strikes at key resistance levels. This generates some returns with very limited risk.

If the stock moves up, the investor gets some returns in the stock till the strike plus the premium received and as he’s already holding the stock it can be delivered against the sold call.

In an event where the stock doesn’t move up, there is an additional return in the portfolio of premium received from the sold call option.

Traders expecting an immediate correction

For traders expecting an immediate correction and wants to benefit from that, Long put can be a simple strategy to deploy. Predicting a market downside and using options to trade is more rewarding than predicting an upside.

Volatility increases in the case of a fierce down-trend and long options are positive volatility which means that put options will increase in value due to the market correction and will additionally increase due to the rising volatility, making it more lucrative and naturally rewarding to trade corrections.

Traders expecting a gradual downside

A slow and gradual downside comes with a lot of Theta decay in the bought single options for eg. Long Puts. Hence, the idea is to reduce some of the theta decay by selling another option.

In these situations, buying a spread may be more beneficial than buying a single put option. This can be achieved by deploying one of the few strategies like Bear Put Spread, Bear Call Spread, Put Ratio Back-spread, Ratio Spreads, etc.

MORE WILL UPDATE SOON!!