Earnings, Karnataka exit polls to decide market trend; 3 stocks can give up to 21% return in short term

Overall, next week's trend will be decided on the basis of quarterly earnings, trend in global markets and exit polls of Karnataka elections.

 

Benchmark indices ended on a negative note on Friday as Nifty closed below 10,650 zone. Midcap and small cap counters continued to remain under pressure.

On sector front, Metal, Energy, IT stocks witnessed selling pressure while selective Banking and Financial stocks ended in green.

The coming week will be quite important due to quarterly earnings and Karnataka elections.

ICICI Bank will announce Q4 earnings on Monday. Eicher Motors will announce Q4FY18 results on Wednesday. Zee Entertainment, Asian Paints and Titan will announce Q4 numbers on Thursday.

On Monday, Prime Minister Narendra Modi will address meetings in Raichur, Chitradurga and Kolar and on Tuesday in Vijayapura, Mangaluru and Bengaluru. PM Modi will visit Nepal on Friday.

Fortis Board will meet on Thursday to decide on binding bids.

Saturday will be quite important day as Karnataka will go for polling and it’s exit polls will drive the sentiments of Indian stock market.

Market looks weak especially after breaking key important levels of 10,650 and 10,620. Now, one can look at 10,550 levels on a downside and 10,680-10,780 levels on upside. Overall, next week's trend will be decided on the basis of quarterly earnings, trend in global markets and exit polls of Karnataka elections.

Here is the list of three stocks that can give up to 21 percent return in short term:-

Prakash Industries: Buy | Target – Rs 235 | Return – 15%

Prakash Industries is a low cost steel producer having an integrated steel plant at Champa, Chhattisgarh. The sponge iron kilns installed at Champa work on latest SL/RN technology developed by German company Lurgi. SL/RN is the only renowned technology in coal based Sponge Iron manufacturing.

Prakash Industries is self reliant in power through its captive power plant at Champa, with existing capacity of 230 MW. Additional 15MW capacity is to be commissioned by September 2018 for upcoming capacity in steel. For Iron Ore requirements, Prakash Industries owns mines at Sirkaguttu (Odisha) & Kawardha (Chhattisgarh). It has secured 100 percent requirements of coal through long term coal linkages for next 5 years.

Prakash Industries is a low cost, fully integrated steel producer. It has linkages for coal up to 1.56 MTPA for next 5 years. Post regulatory clearance, two third of Iron Ore requirement which is currently procured from outside will be fulfilled from company owned mines. Sirkaguttu Iron Ore mine is estimated to start in April 2018 while Kawardha mine in April 2019.

Currently running at 1 mtpa , Prakash Industries is doubling its steel capacity to 2 mtpa in a phased manner. Installation of 6th kiln will add 0.2 MT additional capacities by September 2018. In next 5 years management has a vision to become 3MTPA company.

We are recommending a Buy on back of full utilisation of steel capacity, strong steel prices in Indian market & uninterrupted supply of iron ore from Odisha with target price of Rs 235.

PFC: Buy | Target – Rs 102 | Return – 21%

Power Finance Corporation (PFC) is a specialiSed in power sector financing, providing fund and non-fund-based support for development of power projects in India. The company’s project financing activities are primarily focused on the thermal and hydro-energy generation areas.

In addition, it finances renovation and modernisation of power projects, projects related to transmission and distribution of power. It has also initiated financing of projects based on renewable energy sources such as bio mass and wind power generation.

PFC’s clientele comprises state power utilities, central power utilities, private power utilities, joint sector power utilities, and power equipment manufacturers. Of total loan assets around 65 percent of advances were extended to state power utilities, 8 percent to central power utilities, 17 percent to private power utilities, and 9 percent to joint sector power utilities.

Its Q3FY18 earnings were supported by provisions write-back of Rs 220 crore given upgrades from stress pool. In addition to it, Q3FY18 marks the quarter where upgrades have been crystallising on a guided path plus, NNPL plus restructured, also known as stress pool, fell to 26 percent from 29.5 percent on a QOQ basis, a trend management believes will sustain in future.

Given that large part of stress pertains to state utilities, where recovery is just a matter of time we believe stock is available at a throw away price. It is trading at below band of its historic P/B value band. We are recommending a Buy with target price of Rs 102.

Maan Aluminium: Buy | Target – Rs 155 | Return – 14%

The company manufactures aluminium extruded products, which find use in engineering, construction and architectural applications. Maan Aluminium is one of the India's largest manufacturers and exporters of aluminium extruded products from central India.

During FY17, the company has achieved production of 4854.087 MT as compared to 4557.457 MT during the previous year. Considering the installed capacity of 9000 MT, Maan Aluminium has significant spare capacity to increase production and sales level.

Management has guided for a sale of 9000 MT in 2 years time with increasing capacity level. We believe Maan is at sweet spot. It has already incurred CAPEX and in next two years it is focusing on ramping up of the facilities. It will substantially increase the revenue in coming days.

The future for aluminium and aluminium extrusion in India looks promising with the low per capita consumption in the country coupled with high and good quality reserves of Bauxite. Awareness of the utility of aluminium in various industrial sectors is growing and it provides a lower cost option as to use of various metals in different sectors.

The company has immense growth potential which can be seen in the FY17 numbers. Its sales increased from Rs 190.33 crore in FY16 to Rs 349.56 crore FY17, which is more than double. Most of the growth is attributed to trading, in addition to an increase in export market.

Looking at the FY18 numbers, we are quite positive on this counter and we are recommending it with target price of Rs 155.

MORE WILL UPDATE SOON!!

These top 10 stocks can deliver up to 76% return over next 15 months

The Nifty50 is up more than 7 percent from its 2018 lows of 9,980 to over 10,700 levels. Hopes of an earnings recovery, easing of trade war fears and geopolitical tensions and strong domestic institutional inflows have been able to overshadow higher crude oil prices, rising US bond yields and a weak rupee.

   

The benchmark has been consolidating and the same could continue for a couple of sessions, experts said, adding investors await clarity on corporate earnings as well as next week’s Karnataka assembly elections.

From a 12-month perspective, IL&FS' Vibhav Kapoor expects earnings to support the market despite weak macros and sees it trading between 10,000 and 11,000 levels. “One needs to be wary of the 11,000-mark as that is when earnings will start to look expensive. Anything beyond that will be an opportunity to book profits in the short-term.”

He feels the Nifty could touch 13,000 levels if the Bharatiya Janata Party (BJP) manages to win the 2019 general elections. But if the election results don’t go as desired, then the 50-share index could fall to 9,000 levels.

Investing and trading opportunities if the Nifty trades above the 10,650 level in the coming fortnight. Corporate earnings result for Q4 FY18 have been better than expected. Both the India Meteorological Department (IMD) and private weather forecaster Skymet have predicted normal monsoon this year. They are advised to keep a close watch on crude oil prices and the upcoming earnings results of India Inc.

Here is the list of 10 stocks that can give up to percent 76 percent return over 12-15 months:-

HDFC  Buy | Target - Rs 2,250 | Return - 18%

HDFC has commanded premium valuations over the years due to its consistent track record in earnings. Return ratios have remained healthy across economic cycles with return on equity (RoE) more than 20 percent & return on assets (RoA) around 2.2-2.5 percent.

Going ahead, we expect PAT of Rs 11,641 crore in FY20E (up 14.8 percent YoY). We have largely maintain loan estimates and expect 17.2 percent CAGR to Rs 4,94,049 crore by FY20E.

Other parameters such as NIM/spread and asset quality are estimated to be stable, going ahead. We value the standalone business at 2.9x FY20E ABV.

We maintain SOTP based target price of Rs 2,250/share and Buy rating on the stock. HDFC remains a portfolio stock.

Kotak Mahindra Bank: Buy | Target - Rs 1,440 | Return - 15%

Kotak Mahindra Bank reported steady set of numbers. NII grew 19 percent YoY, led by healthy credit offtake at 24.7 percent YoY. Margins improved QoQ to 4.35 percent from 4.2 percent. Healthy operational performance continued with PPP at Rs 2,018 crore, up 18.6 percent YoY.

Banking business has been witnessing continued improvement in business growth and asset quality. We remain positive on the fundamental strength given steady NIM at 4.2-4.4 percent, healthy business growth and improvement in cost-to-income ratio ahead.

Asset quality is seen to remain prudent with GNPA seen at around 2 percent in FY20E. With non-banking businesses (prime, life insurance and securities business) firing up on growth and profitability, value enrichment remains a positive. Therefore, proportion of non-banking business in overall profitability is on the upturn.

Valuing the stock on SOTP, we revise target price upwards to Rs 1,440 from Rs 1,200 earlier and continue with Buy rating on the stock.

Shoppers Stop: Buy | Target - Rs 650 | Return - 15%

FY18 has been a strategic year for the company, with strengthening of the balance sheet being the key focus area. The proceeds of divestment in Hypercity, Nuance Group & Timezone were utilised towards retirement of debt (borrowings as on 31st March 2018: Rs 87.4 crore versus Rs 575.9 crore as on 31st March 2017) leading to substantial reduction in interest outflow (interest expense down 40 percent YoY to Rs 36.2 crore).

Following the same, interest coverage and debt/equity ratio improved significantly from 1.3x and 0.8x in FY17 to 2.8x and 0.1x, respectively, in FY18. Furthermore, return on capital employed (RoCE) improved by 380 bps YoY to 9.6 percent in FY18. Exit from non-core business and re-jig in inventory of private label brands (focusing on value fashion rather than premium fashion) is expected to revive same-store-sales-growth (SSSG) going forward.

Furthermore, the recent tie-up with Amazon will enable Shoppers Stop to fortify its presence in the omni-channel space, with management expecting online channel to contribute 10 percent of revenues over next three years, from current 1 percent. We introduce FY20E estimates and roll over valuation to FY20E. We continue to maintain Buy recommendation on the stock with a target price of Rs 650.

Jindal Stainless Hisar: Buy | Target - Rs 318 | Return - 76%

Jindal Stainless Hisar's (JSHL) Q4FY18 standalone numbers were below estimates, due to lower than expected realisation. The volume during the quarter continues to remain strong. FY18 consolidated PAT doubled to Rs 591 crore, supported by strong performance in standalone operations and improved performance from Jindal Stainless Steelway (JSSL) and Jindal Lifestyle (JLL).

On the back of strong volume and better than expected JSL and JLL performance, we have revised earnings estimate higher for FY19E and FY20E to Rs 21.5 (earlier Rs 18.3) and Rs 24.5 (earlier Rs 19.2), respectively.

Going ahead, we believe, an increasing share of cold rolled (JSHL's focus) in the overall product mix, will help the EBITDA to grow at a CAGR of 9 percent during the FY18-FY20E period, with EBITDA margin in the range of 12-12.5 percent.

Besides these, the strong performance of subsidiaries will also be a potential growth driver. We continue to maintain Buy rating, with an unchanged target price of Rs 318.

MCX: Buy | Target - Rs 1,040 | Return - 37%

MCX delivered robust set of numbers in Q4FY18, revenue was up 12.4 percent QoQ (in-line with estimates), led by 17.8 percent rise in volume. Total ADTV (average daily trading value) was up 17.8 percent QoQ and 22.6 percent YoY led by rise in commodity prices and volatility. Encouraging part is that volume traction is even stronger in April-18, ADTV is up 26 percent QoQ led by 13/27 percent rise in bullion and metals volume.

MCX will launch four to five additional options contract in second half of FY19 and has already started LES in April-18 to boost gold options volume. Regulatory tailwinds like institutional participation (Banks, MFs, PMS) and partnership with retail banks subsidiaries can boost trading volumes.

Universal exchange concept (effective October-18) is a risk and can lead to rise in competitive intensity, pricing pressure and some market share loss to BSE & NSE (if they turn aggressive). However, management doesn’t see significant erosion in market share and expects the overall market size to increase with regulatory boost.

We see value in MCX based on (1) Embedded non-linearity, (2) Strong recovery in ADTV, and (3) Net cash of Rs 1,400 crore (around 35 percent of market cap). We estimate revenue/PAT CAGR of 23/30 percent over FY18-20E. Maintain Buy with a target price of Rs 1,040 implying a P/E of 30x FY20E EPS (earlier 35x).

Equitas Holdings: Buy | Target - Rs 220 | Return - 34%

Equitas Holdings’ (Equitas) Q4FY18 performance, which marks a turnaround quarter, vindicates our stance that earnings have bottomed out. Key highlights: a) non-MFI businesses sustained momentum (more than 50 percent AUM spurt) with improvement in asset quality (GNPLs at 3.4 percent versus 4.1 percent in Q3FY18); b) reduction in MFI book QoQ was primarily due to write-off of Rs 140 crore of loans (MFI GNPLs fell to sub-1 percent levels); c) on liability front, performance was encouraging—CASA at more than 15 percent of borrowings; and d) cost/income ratio fell below 77 percent levels (85 percent in Q3FY18) as costs have started to stabilise.

We believe visible benefits of successful execution (operating leverage benefits, strengthening liability franchise) will further bolster confidence, leading to valuation re-rating.

The ongoing transition phase is strenuous, but the company’s right strategy and adequate capital will rein in execution risks. With large part of stress recognition over, we expect the returns profile to stabilise from FY19 (green-shoots visible over H2FY18) with significant funding cost advantages and lower cyclicality risks. We estimate return on assets (RoA) to scale up gradually to around 2 percent and RoE to around 12.6 percent by FY20. We maintain 'Buy/SO' with target price of Rs 220.

Nelcast: Buy | Target - Rs 140 | Return - 57%

Nelcast Ltd, is India’s largest manufacturer of SG Iron Castings. It’s also one of the leading manufacturers of Grey Iron Castings. Its products find applications primarily in Tractors & Trailers, Medium & Heavy commercial vehicles (MHCVs), and Railways.

We expect the domestic and export market to remain in a healthy shape with growth remaining in strong double digits.

We expect that going ahead overall bottomline growth in the next 3 years starting FY17 onwards should easily increase at a CAGR of 18-25 percent and with fresh capex over the next 2 years likely to be funded out of internal accruals and debt which we believe can be comfortably serviced by its net cash flows generated going ahead.

The ROE and ROCE is also expected to improve to 14 percent and 15 percent and 11 percent and 13 percent by FY19 and FY20. Going ahead we expect Nelcasts’s earnings to grow at a 19-22 percent over FY17-20E led by a rising healthy topline growth, prudent product strategy, and more importantly savings in interest costs as the company has repaid some of its old loans.

The Nelcast stock trades at a P/E of 15x and 12x based on FY19E and FY20E, which looks attractive considering its strong production capability, consistent financial track record and healthy industry trends in the Castings sector where Nelcast looks poised to do well considering its size of operations, domestic clients and significant improvement expected both from the CV and Tractor segments ahead.

Hence we believe that the Nelcast stock should be purchased at the current price for a price target of around Rs 140 over the next 12 to 18 months.

Godrej Agrovet: Buy | Target - Rs 805 | Return - 15%

Government of India has increased its investment towards agricultural and poultry industry which will benefit Godrej Agrovet with its diversified business verticals coupled with pan India presence and established Godrej brand.

Its significant investments towards R&D and diversified business model would help to drive growth, optimize capital efficiency, maintain competitive advantage and hedge against the risks associated with any segment. At the CMP, the stock trades at around 30 times FY19 EPS of Rs 23. Hence, we recommend a Buy on the stock with a target price of Rs 805 with an investment horizon of 9-12 months.

Tata Motors: Buy | Target - Rs 565 | Return - 68%

Tata Motors' April-18 sales volumes were below estimates at 56,500 units (estimates 61,000 units); growing by 82.5 percent YoY on a low base of last year due to pre buy impact of BS-IV switchover in commercial vehicle (CV) segment.

Passenger vehicle (PV) segment sales increased by 27.3 percent YoY (in-line), as the utility vehicle (UV) segment registered volume growth of 290 percent YoY due to healthy demand of Nexon, while the car segment volumes declined 10.3 percent YoY.

Total CV volumes increased by 126.7 percent YoY to 38,900 units (below estimates of 43,000 units), led by increase in both LCV and HCV sales by 182 percent and 95.3 percent respectively.

The stock trades at 6x/5.2x FY19E/20E consolidated EPS. Maintain Buy.

Coal India: Buy | Target - Rs 397 | Return - 41%

We revisited two railway projects that are aimed at improving coal evacuation – DK line and GP line – in Chhattisgarh after 2-3 years. While the DK line is progressing well, work on the GP line is moving very slowly.

Existing evacuation infrastructure can handle planned growth at SECL and MCL for a couple of years but not beyond. The GP and/or JB-HM projects are critical for additional coal dispatches to North and West India.

We believe Coal India (COAL) will have to supply more coal to power plants in proximity due to evacuation bottlenecks.

We believe volume growth of 6-7 percent, operating leverage, closure of unviable underground mines, price hikes and focus on operating efficiencies will drive 31 percent CAGR in EBITDA and EPS over FY18-20. We maintain Buy with a target price of Rs 397.

MORE WILL UPDATE SOON!!

Technical View: Nifty forms bearish candle; 10,600 crucial for bulls

Formation of a bearish candle after a Bearish Belt Hold does not augur well for the bulls but as long as Nifty trades above 10,600 levels, bulls have nothing to fear.

   

Bears gained control over D-Street from the word go and pushed the Nifty50 below its crucial psychological support level of 10,700 on Thursday making a bearish candle on the daily candlestick charts.

The Nifty 50 closed tad below its crucial support placed at 10,680 which is also its 5-days exponential moving average (DEMA). The index opened at 10,720 and slipped to an intraday low of 10,647.45 to close 38 points lower at 10,679.

Formation of a bearish candle after a Bearish Belt Hold does not augur well for the bulls but as long as Nifty trades above 10,600 levels, bulls have nothing to fear, suggest experts. Investors can keep a stop below this level (10,600) for all the long positions.

“It was heartening to see Nifty50 registering a bearish candle which is similar to a Hammer kind of formation as it recoiled after testing the gap zone of 10,647 – 10,628 levels registered on the 27th of April.

This bounce is a vindication of the fact that the uptrend is still intact and as long as Nifty 50 sustains above 10600 levels on the closing basis one can look for much higher targets placed towards 10900 levels. However, in between recent high of 10,784 can act as a resistance and once that is conquered on closing basis momentum in the index shall pick up in no time

Interestingly Bank Nifty appears to be the on the verge of a big move which shall aid Nifty 50 to clear the said resistance paving the way for a bigger move in Nifty50. “Hence, it looks prudent for the traders to make use of the dips to create fresh longs with a stop below 10600 on a closing basis

India VIX moved up by 1.13 percent at 12.98. VIX has to remain below 13.50 zones to get stability else some profit booking decline could be seen.

On the options front, maximum Put OI is placed at 10,500 followed by 10,600 strikes while maximum Call OI is placed at 11,000 followed by 10,800 strikes. Fresh Put writing at 10300 and 10600 strikes while Call writing is seen at 10900 and 10800 strikes.

“Option data suggests an immediate trading range between 10,600 to 10,800 zones. It formed a Bearish candle and closed negative for the second consecutive session. The index has seen consolidation breakout from its trading range of 10500 to 10638 zones in the last week and now the previous hurdle could act as a support to again get the positive momentum.

Now it has to hold above 10,638 to witness an up move towards 10,780 then 10,800 zones while below 10,638 it could start further weakness towards 10,550 and 10,500 zones.

Taparia further added that Nifty is in the process to make a Bearish or a Spinning top candle on the weekly chart so Friday’s movement could be meaningful to get the next course of action to decide the trend.

MORE WILL UPDATE SOON!!

Accumulate IndiGo for the long-term, Q4 result a short blip

IndiGo has all the right ingredients that is required to retain its leadership position in the Indian aviation sector.

 the parent company of IndiGo airlines, posted a significant growth in its Q4 FY18 revenue from operations. However, operational profits were marred by lower passenger yields, higher fuel cost and foreign exchange losses. We continue to like the business on the back of operational efficiencies, its capacity addition plans and multiple growth drivers.

Quarterly snapshot

Revenue from operations grew 19.6 percent year-on-year (YoY) led by a 24.6 percent YoY increase in volumes. This was partially offset by a 5.4 percent YoY fall in passenger load factor, which witnessed a 280bps growth over the same quarter last year.

Cost per available seat km (CASK) increased 7.1 percent YoY, leading to a 1,040bps YoY contraction in earnings before interest, tax, depreciation, amortisation and tax (EBITDAR) margin at 19.5 percent. This was primarily driven by rise in fuel cost, forex losses (booked a loss of Rs 925 million compared to a gain of Rs2.5 billion in the same quarter last year) and fall in passenger yields.

This impact profit after tax (PAT) as well, which fell by 73.3 percent YoY. On a full year basis, the company posted a significant 35.1 percent YoY growth in PAT, its highest ever profit.

Growth drivers going forward

Significant capacity addition to capture rising demand

During the quarter gone by, the company added six aircraft to its fleet. It has also placed a huge order for aircraft, the delivery of which will help IndiGo retain its leadership position in the Indian market. Most of these additions would be of the fuel efficient A320neo aircraft. The management sees its capacity growing 18 percent YoY in the first quarter and 25 percent YoY in FY19.

Foray into the international market

The management has envisaged interest in stepping up its presence in the long-haul international market and continues to expand its global reach organically. It has also stated that it has no intention of acquiring Air India. The company added one international destination during the quarter gone by. In terms of capacity mix, the company has allocated 15 percent capacity to its international operations from 11 percent last year.

UDAN scheme may power regional growth

The government’s regional air connectivity scheme, UDAN, is another avenue for IndiGo to capture growth originating from non-trunk routes. The airline has started connecting non-trunk routes aggressively and chalked out plans for regional connectivity. The government has already cleared the airline for 20 routes under this scheme.

ATR operations

As part of its regional connectivity programme, the management has sourced an ATR aircraft and started operations from December last year. The management said this operation would constitute five percent of total capacity in the years to come.

Well timed aircraft ownership

The management plans to use its existence cash flow to finance purchase of aircraft. It believes this strategy would bring in additional operational cost savings. The company has enough resources on its book to acquire new aircraft. The primary reason for it owning aircraft is because new technology has just been introduced into the market and the company sees lesser chance of it going obsolete soon. This technology will usher in additional cost savings if the aircraft are flown for a longer duration.

IndiGo has all the right ingredients that is required to retain its leadership position in the Indian aviation sector. Post the recent weakness due to the departure of Aditya Ghosh, its President and Whole Time Director, the stock is quoting at 4.3 and 3.6 times FY19 and FY20 projected EBITDAR, respectively. This makes it a ripe candidate for accumulation in the long-term.

MORE WILL UPDATE SOON!!

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

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

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

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

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

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

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

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

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

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

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

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

Vinyl Chemicals | Rating: Buy | Return: 9%

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

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

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

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

Archidply Industries | Return: 13%

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

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

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

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

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

MORE WILL UPDATE SOON!!

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

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

  

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

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

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

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

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

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

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

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

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

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

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

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

Stocks to watch in May series:

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

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

MORE WILL UPDATE SOON!!

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

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

  

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

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

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

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

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

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

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

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

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

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

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

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

Stocks to watch in May series:

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

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

MORE WILL UPDATE SOON!!

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

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

  

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

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

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

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

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

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

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

Don’t fall into this trap

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

Better Results

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

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

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

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

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

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

MORE WILL UPDATE SOON!!

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

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

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

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

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

  

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

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

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

  

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

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

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

  

MORE WILL UPDATE SOON!!

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

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

   

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MORE WILL UPDATE SOON!!