Monsoon, June earnings next triggers for market

Going forward though, market experts see earnings as well as monsoon to be the next big triggers.

 

Benchmark indices have had a subdued year so far, returning 3-5 percent on a year-to-date basis. Going forward though, market experts see earnings along with the monsoon to be the next big triggers.

With medium to long term perspective, markets will be stock specific and will reward those companies which have sustainable earnings with robust business outlook and quality management.

Monsoons and Q1FY19 results will be the next triggers for markets to take direction forward. With medium to long-term perspective, markets will be stock specific and will reward those companies which have sustainable earnings with robust business outlook and quality management.

Due to lower-than-expected earnings in Midcaps, where prices were running ahead of fundamentals, there has been a correction. New Additional Surveillance Mechanism (ASM) by exchanges and SEBI added fuel to fire. I believe monsoons and Q1FY19 results will be next triggers for markets to take direction forward.

From medium term perspective, I like Cadila Healthcare and Persistent Systems, and from long-term perspective, I like Jubilant Life Sciences, Deepak Nitrite, Aditya Birla Fashion and Retail.

Cadila Healthcare | Rating: Buy | Target: Rs 489

The company expects 40-50 launches annually and is focusing on vaccines and biologics – which could be future growth drivers. It has strong ANDA pipeline in the US, with 144 filings awaiting approval of which 60+ are Para IV.

The company will launch high-margin key products such as gAsacol HD and gToprol in FY19. The firm has recently announced it is considering fund raising proposals of up to Rs 10,000 crore via QIP and up to Rs 5,000 crore via FCCBs. We expect 11% and 17% CAGRs over FY18-20 in revenue and  earnings respectively, our target price is based on 21x FY20e EPS.

Persistent Systems | Rating: Buy | Target: Rs 960

Over the last two years, the company’s focus has been on digital, which has helped it build capabilities in key technology areas as it transforms to software-driven businesses.

With its cash balance now, of $175 million, it will be seeking more acquisitions to expand its geographical reach, mainly in non-US markets, and is not keen on acquiring legacy businesses.

Levers to improve margins expansion

1) Better business mix,

2) Incremental IP revenue.

3) Greater utilization ratio

4) Pricing (up 4.5% y/y onsite, 2.5% offshore in Q4)

5) Currency (up 2.5% in Q1 FY19 so far)

We value Persistent at 18x FY20EPS, leading to a `960 target.

Jubilant Life Sciences | Rating: Buy | Target: Rs 1,040

JLS has crafted a niche wherein it has built its presence in segments like nuclear medicine (radiopharma), contract manufacturing of sterile injectables and allergy immunotherapy - which have high entry barriers on account of manufacturing complexity.

Also being backward integrated for most solid dosage filings in the US, the same is sustainable and attractive too.

JLS has planned to invest about Rs 550 crore in capital expenditure in FY19. In addition, JLS plan to invest Rs 300 crore in R&D during the year, including Rs 150 crore in Product Development expenditure.

We maintain a buy on the stock, with a target of Rs 1,040, based on 11.7x FY20e EPS.

Aditya Birla Fashion and Retail | Rating: Buy | Target: Rs 186

We expect a revival in Madura Lifestyle. We believe the strong brand image, established distribution network and expanding reach would lead to ~8% revenue growth and ~14% EBITDA growth over FY18-20. A 120bp margin expansion in Madura is expected over FY18-20.

Pantaloons is on a growth trajectory: Vigorous store expansion and better same sales growth would drive growth for Pantaloons.

Management initiatives such as reducing store size and ramping up franchised stores resulted in a turnaround as the division reported an operating profit in FY18. We expect this improved profitability to continue. We estimate it to report a ~170bp margin expansion to 7.7% by FY20.

We have a buy coverage of Aditya Birla Fashion and Retail with a target price of 186 at an EV/EBITDA of 17x FY20e.

Deepak Nitrite | Rating: Buy | Target: Rs 346

The company’s new greenfield expansion plan at Dahej, Gujarat for manufacturing phenol (2,00,000 ton/year) and acetone (1,20,000 ton/year) should provide a significant increase in its top line and profitability.

The project is now well into its pre-commissioning activity and the company has set up a marketing team for customer outreach of the new products.

We reiterate our coverage on Deepak Nitrite Limited with a BUY rating and a target price of Rs 346 per share.

MORE WILL UPDATE SOON!!

Stock Picks of the Day: 3 stocks that could return 4-12% in about 30 days

This week, we expect the market to remain range bound between 10,925 on the upside and 10,720 on the downside.

  

In the week gone by, the Indian equity market sustained its performance on a weekly basis, despite taking a breather after the Federal Open Market Committee's rate hike on Thursday.

The Nifty traded in a positive trajectory in four out of the last five sessions. It came under selling pressure during early trade on Friday to hit a low of 10,755, but managed to recoup its losses towards the end of session to close above 10,800 levels.

The index touched an intraday high of 10,834 and closed on a flat note at 10,817 levels, a gain of about 0.46 percent on a weekly basis.

After taking a short breather on Thursday to form a Hammer like candlestick pattern, the index didn’t see a significant pattern formation on a weekly basis, apart from the inverted pattern.

The weekly relative strength index (RSI) stood at 61, indicating a positive breakout from the pattern formation, while the weekly moving average convergence divergence continues to indicate a bullish trend as price trades above the signal line.

This week, lack of major domestic triggers and fears of an escalation in the trade war between US and China is likely to weigh on sentiment. This tension will certainly keep the index volatile despite positive biases on the domestic front.

We advise investors to remain cautious with a sector or stock specific approach and maintain a strict stop-loss. This week, we expect the market to remain rangebound between 10,925 on the upside and 10,720 on the downside.

Here is a list of top three stocks that could return 4-12 percent in a month:

Nava Bharat Ventures Ltd: Buy | Target: Rs 163 | Stop-loss: Rs 132 | Return: 12%

Nava Bharat traded in a positive trajectory on its weekly price chart post its correction from its 52-week high of Rs 184 levels. It took a strong support at Rs 120 levels.

Despite a muted market breath, the scrip witnessed a strong momentum as it managed to break out from its multi-long moving average level of 200-50-days.

It also witnessed a substantial volume breakout on the weekly chart which indicates an upward trend. On the weekly price chart, the scrip registered a solid bullish candlestick pattern indicating a sustained rally post current breakout from crucial levels.

Further, the weekly RSI is placed at 58 which suggests a buying regime at a current level along with positive cues from MACD suggesting an upward shift.

The stock is likely to face resistance around Rs 168 while support level is placed at Rs 288. We have a buy recommendation for Nava Bharat Ventures which is currently trading at Rs 145.60

Hindustan National Glass & Industries Ltd: Buy| Target: Rs 113 | Stop-loss: Rs 95 | Return: 8%

After witnessing a sharp correction from Rs 167 odd levels in the past few months, Hind Nat Glass witnessed a reversal trend in the recent period. A strong support is placed at 78-76 levels.

The scrip registered a strong pullback throughout the session as it managed to decisively break out from its crucial moving average level of Rs 94 levels on closing basis coupled with positive volume growth above average.

The scrip gained about 12 percent on an intraday basis and about 32 percent on the weekly basis. The positive breakout on the weekly basis aided the scrip to form a long-solid bullish candlestick pattern indicating a strong reversal trend for a couple of sessions.

The weekly RSI trend registered an upward momentum at Rs 67 suggesting a buying regime along with MACD moving near bullish crossover.

The scrip has a support placed at Rs 78 levels and resistance level at Rs 128. We have a buy recommendation for Hindustan Nat Glass which is currently trading at Rs 104.90

Gruh Finance Ltd: Sell Target: Rs 309 | Stop-loss: Rs 335 | Return 4%

Gruh Finance witnessed a sharp correction on the weekly price chart despite making a decent move on the upside. The scrip came under pressure last week as it lost about 11 percent on weekly basis and slipped below the short-term moving average level of Rs 330.

It also witnessed a negative volume support indicating a sustained pressure on short-term basis.

The scrip formed a solid bearish candlestick pattern on its weekly price chart after breaching below important level indicating a sustained pressure.

Further, the secondary momentum trend continued to indicate negative signal with RSI slipping below at 39 coupled with the bearish outlook from MACD trend.

The scrip is facing a resistance at Rs 337 levels and crucial support from 100-days EMA is placed at Rs 305 levels. We have a SELL recommendation for Infibeam which is currently trading at Rs. 322.45.

MORE WILL UPDATE SOON!!

Technical View: Nifty forms a ‘Long Legged Doji’ on weekly charts; 10,818 crucial for bulls

A typical long-legged Doji pattern is formed when the opening price is almost equal to the closing price but there was a lot of intraday movement on either side.

 

The Nifty50 which opened with a gap down managed to recoup a majority of its losses and closed flat with slight negative bias on Friday. It made a bullish candle on the daily charts on an intraday basis and a ‘Long Legged Doji’ kind of pattern on the weekly charts.

A typical long-legged Doji pattern is formed when the opening price is almost equal to the closing price but there was a lot of intraday movement on either side.

The Nifty50 opened the week at 10,765.95 on Monday and closed at 10,767 on Friday. But, it hit a low of 10,633.15 on 5 June and a high of 10,818 on Thursday.

For Friday, Nifty index opened negative but managed to hold on to its immediate support of 10,700 – 10,720 zones and recovered towards its crucial hurdle of 10,770-10,780 zones.

Technical experts advise investors to remain cautious as bulls failed to reclaim crucial resistance levels even after strong rally seen in two back-to-back trading sessions. It is crucial for bulls to reclaim 10,818 levels which was the intraday high of Thursday for the momentum to continue.

On the weekly charts, it looks that it is slowly inching up as it registered a third consecutive positive close before signing off the week with a ‘Long Legged Doji’ kind of candlestick formation suggesting indecisive nature of bulls.

Hence, it is critical for Nifty50 to register a fresh breakout above recent highs of 10,818 levels so that bulls can confidently march ahead else they continue to remain vulnerable to a counterattack by the bears at any time.

Mohammad further added that Thursday’s gap-up opening in the zone of 10,722 – 10,698 appears to be in a critical support and a breach of which could enhance selling pressure, but for now, traders are advised to remain cautiously optimistic till a directional move unfolds going forward.

India VIX fell down by 0.65 percent at 12.69 levels. On the options front, maximum Put OI is placed at 10,600 followed by 10,500 strikes while maximum Call OI is placed at 11,000 followed by 10,800 strikes.

Put writing was seen at 10,600 and 10,700 strikes while Call writing was seen at 11,000 and then towards 10,700 strikes. “Options data suggests a broader trading range in between 10650 to 10850 zones for next coming sessions.

The Nifty closed flattish by forming a small bullish candle on the daily scale while on the weekly basis it formed a high wave long legged Doji Candle. The price set up suggests that decline is being bought while follow up is missing at a higher level to hold beyond 10,770 zones on closing basis.

The index needs to hold above 10,770 zones to extend its positive movement towards 10,888 and then towards 10,929 while on the downside supports are seen at 10,720 and then towards 10,660 levels.

MORE WILL UPDATE SOON!!

Time to go short? Risk reward is attractive to create short positions on Nifty

Risk-reward ratio at this level is quite attractive to create short positions, and on the downside, 10,417-10,300 levels will be the targets to watch out for.

 

The Nifty, in the week gone by, witnessed sharp swings in both the directions and ultimately posted a third consecutive weekly positive close. The detailed structure i.e. the daily chart shows that the price action over these three weeks is showing the characteristic of a pullback.

This means that the move is unlikely to develop into a larger rally. A higher time frame, i.e. the monthly chart reveals that the Nifty formed a Doji pattern for the month of May. A Doji is a sign of exhaustion in the market.

Thus, we are likely to witness a correction unless high of the Doji pattern i.e. 10,929 gets taken out. The risk-reward ratio at this level is quite attractive to create short positions. On the downside, 10,417-10,300 will be the targets to watch out for.

The market breadth has been weak for quite some time. A number of stocks, especially from the broader market, are in a downtrend from short term as well as long-term perspective.

One should definitely stay away from these stocks and those who are still holding on to these tumblers should be looking to get rid of them.

There is a huge divergence between the Nifty and the mid and small cap indices. The Nifty is still hanging on above its crucial short term and medium term moving averages whereas the mid & small cap indices are way below the respective averages.

They have even breached their March lows. Clearly, there is a weakness in this space. In terms of wave structure, these indices are forming a complex correction and the bounce over the last couple of sessions is a part of the larger decline. Thus, one should use this bounce as an opportunity to exit.

Positional calls which could give handsome returns to investors in the next 1 month?

ICICI Bank Fut: Sell| Stop loss: Rs 302 | Target Rs 255| Return 11.4%

Ashok Leyland Fut: Sell| Stop loss: Rs 152| Target Rs 132| Return 8.9%

Mindtree: Buy| Stop loss: Rs 982| Target: Rs 1,120| Return 9%

MORE WILL UPDATE SOON!!

Global brokerages bet on these 10 mid & smallcaps that could return 16-71%

In terms of returns, the BSE Midcap and Smallcap indices saw a cut of 11 percent and over 14 percent so far in 2018, compared to an over 1 percent return in the Sensex.

  

Mid and smallcap stocks that provided handsome returns in 2017 lost some sheen in 2018 as investors lost over Rs 6 lakh crore. Aggregate market capitalisation of the BSE Smallcap and Midcap indices slipped Rs 4.6 lakh crore and Rs 1.7 lakh crore, respectively.

In terms of returns, the BSE Midcap and Smallcap indices saw a cut of 11 percent and over 14 percent so far in 2018, compared to an over 1 percent return in the Sensex.

Stocks in the midcap space that lost the most in 2018 include: Reliance Communications, Adani Power, Bank of India, Union Bank of India, Ajanta Pharma and Bharat Electronics. The same in the smallcap space include: Vakrangee, Gitanjali Gems, SRS, Electrosteel Steels, Orient Paper & Industries.

 

A number of factors - resignation of auditors, Securities and Exchange Board of India reclassification of mutual fund schemes and BSE’s surveillance mechanism on over 100 stocks - are weighing on BSE Mid and Smallcap stocks. Apart from that, high valuations, relentless selling by foreign institutional investors and failure of earnings to catch up are some of the key factors that led to a sharp correction in the mid and smallcap space.

The bull phase of CY17 provided an impetus for broader shares under the small and midcap segment to generate staggering returns for investors. Riding on this euphoria, many smallcap stocks that rose up to 174 percent or more recently came under selling pressure.

Mismatch between valuations and fundamentals as prime reason for the sell-off as earnings were not able to justify the valuation level’.It was also partially aided by SEBI’s reclassification of mutual fund schemes which played a role in price correction through a churning.

Correction in broader market further led to a margin call on scrips, thus denting overall market sentiment, which translated into further selling.

Going forward, investors will be better off investing in companies from the small & midcap space that are displaying earnings visibility and growth momentum.

Here is a list of ten mid- and smallcap stocks from various global brokerage firms that can return 16-71 percent in the next one year:

JSPL: Buy| Target: Rs 401| LTP: Rs 234.65| Return 71%

Citigroup maintain a buy rating on JSPL with a 12-month target of Rs 401. The steel business is doing well in Q1FY19. The Angul plant is ramping up fast which is a positive sign for the company. The Direct-reduced iron (DRI), also called sponge iron plant is likely to start in July 2018.

Coal supply situation has improved, and the company is now looking to sign short-term PPAs, said the report. Valuation with improving cash flows and EBITDA appear quite attractive.

HEG and Graphite India:

Jefferies maintain buy on HEG and Graphite India which have risen sharply in the last one year. The global investment bank has a buy rating on HEG with a target of Rs 4,400 which translates into a return of 38 percent. For Graphite, the target is set at 1275, which translates into gains of nearly 60 percent.

The demand supply tightness continues which led to higher realisations. New contracts are signed at higher prices hinting strong Q1FY19, said the global investment bank.

Jefferies remains positive on Graphite electrode sector. Both HEG and Graphite are trading at cheap valuations providing good buying opportunity to buy.

Apollo Hospitals: Buy| Target: Rs 1500| LTP: Rs 930| Return 61%

CLSA maintains a buy recommendations on Apollo Hospitals with a target price of Rs 1,500. Execution is key in FY19 for Apollo Hospitals. CLSA expects Apollo to achieve 20 percent EBITDA growth. New hospitals are also witnessing good traction.

Thermax: Buy| Target: Rs 1,350| LTP: Rs 1129| Return 20%

Deutsche Bank maintains a buy call on Thermax with a 12-month target price of Rs 1,350. The company has decided to enter new segments to devolatilise revenue.

The company is also looking to enter into process cooling, commercial sector, rooftop solar, and industrial segment. It also plans to expand rooftop solar biz to developed markets after 18-24 months.

Torrent Pharma: Buy| Target: Rs 1,610| LTP: 1,388| Return 16%

CLSA maintains a buy rating on Torrent Pharma with a target price of Rs 1,610. Strengthening of India franchise keeps us positive despite EPS cut.

The global investment bank expects to gain steam in FY19 along with its synergy with Unichem. It looks like the US sales have bottomed out, and Europe is holding strong while Brazil faces headwinds in FY19.The global investment bank retains revenue and Ebitda estimates for FY19-20CL.

Dish TV: Buy| Target: Rs 100| LTP: Rs 72.70| Return 39%

CLSA maintains a buy rating on Dish TV with a target price of Rs 100. The management reiterated merger synergy of Rs 5 billion in FY19. The global

investment bank sees 10 percent Ebitda Cagr over FY19-21 CL. However, ongoing open offer caps downside risk.

Prestige Estate: Buy| Target: 325| LTP: Rs 233.85| Return 40%

Citigroup maintains a buy rating on Prestige Estates with a target price of Rs 325. The new launches is likely to keep pace of sales going and boost revenues.

ESCORTS: Buy| Target: Rs 1,150| LTP: Rs 898.80| Return 28%

HSBC maintains a buy rating on Escorts with a 12-month target price of Rs 1,150. The growth momentum remains intact. The margins are likely to improve across all businesses, said the globel investment bank. Increasing captive financing is a key positive for Escorts.

NCC: Buy| Target: Rs 160| LTP: Rs 107.55| Return 49%

CLSA maintains a buy recommendation on NCC with a 12-month target price of Rs 160. The global investment bank sees several years of growth visibility. It has forecasted a 20 percent EPS CAGR over FY18-20. The guidance is robust with co expecting 45 percent topline growth in FY19.

MORE WILL UPDATE SOON!!

RBI monetary policy: 6 things to watch out for on Wednesday

The central bank has maintained the status quo on its repo rate since August 2017, citing concerns about inflation.

  

The Reserve Bank of India's Monetary Policy Committee (MPC) is meeting for its second bi-monthly policy review in FY19. This is the first time the committee is meeting for three days instead of the regular two days.

Some experts expect the MPC to revise the benchmark repo rate upwards. Repo rate is the rate at which banks borrow short-term funds from the RBI.

Here are 6 things to watch out for in Wednesday's monetary policy announcement:

Change of stance

Observers feel that the MPC may shift its stance on liquidity to hawkish from being neutral earlier. This could be in preparation for a hike in August, if rates are not hiked on Wednesday.

Experts are expecting a higher probability of key repo rate remaining unchanged at 6.00 percent, and a shift in stance from 'neutral' currently to 'withdrawal of accommodation' by the MPC.

The central bank has maintained the status quo on its repo rate since August 2017, citing concerns about inflation.

GDP growth

The Indian economy grew at 7.7 percent in the January-March quarter and helped India retain the tag of the world's fastest-growing economy. In its previous meeting, the committee had noted that the economy was expected to grow at faster pace in FY19 due to several factors.

Inflation

RBI's commentary on inflation will be watched closely on Wednesday. Observers are expecting the central bank to revise consumer inflation projections.

View on rising fuel prices

The MPC is expected to talk about the escalating prices of petrol and diesel, caused by the global increase in crude oil prices.

MPC voting pattern

In April, the RBI Deputy Governor Viral Acharya had indicated that he would vote to withdraw monetary accommodation in the next policy. Michael Patra had voted in favour of raising the repo rate.

The others had overruled Patra by voting to maintain the status quo. It would be interesting to see how the MPC members vote on Wednesday.

Views on US Fed rates

RBI Governor Urjit Patel said on Monday that the US Fed should reduce the pace at which it is unwinding its balance sheet, in order to limit the impact of a shortage of the dollar in emerging markets.

Patel said that the Fed should carefully adjust the pace, keeping in view evolving macroeconomic conditions.

The committee's observations on the US Fed's decisions on interest rates will be another thing to watch out for in Wednesday's policy announcement.

MORE WILL UPDATE SOON!!

Top 10 stocks which could get impacted the most if RBI goes for a rate hike

A rate hike is something which might not be taken in a positive light by most of the sectors.

  

Mark participants are eyeing the outcome of the Reserve Bank of India's Monetary Policy Committee (MPC). The Street has more or less discounted a rate hike of 25 bps and a change in stance by the central bank.

This is the first time the committee is meeting for three days instead of the regular two days. Some experts expect the MPC to revise the benchmark repo rate upwards from current 6 percent.

Repo rate is the rate at which banks borrow short-term funds from the RBI.

Observers feel that the MPC may shift its stance on liquidity to hawkish from being neutral earlier. This could be in preparation for a hike in August if rates are not hiked in the June meeting.

A rate hike is something which might not be taken positively by many sectors. Stocks in sectors like consumption, consumer durables, banking and real estate will be impacted the most, along with rupee and bond market.

The impact of rate hike by the RBI (if not in June then in the August meeting) will just hit the sentiment of the inventors. As said earlier, if RBI becomes more hawkish, there will be an impact on all the sectors; however, the intensity of the impact will be different. Sectors such as Banks, FMCG infrastructure, real sector and automobile, to name a few, are expected to see some impact.

A rate hike in coming months, if not in June, seems inevitable as global central banks, be it the US or other emerging markets are on interest rate hiking trajectory. Obviously, hike in interest rate by RBI would impact banks’ lending, capex, rupee and bond markets.

Aggarwal further added that a rate hike is unlikely to immensely affect lending rates, because banks such as SBI, HDFC, and Axis Bank have raised borrowing costs even before any central bank action.

Rupee, which has been witnessing downside trend, may get a relief from the rate hike. Off late, Indian bond markets have witnessed its worst selloff where FIIs were smart enough to pull out money and place it in other Asian economies like Indonesia and Philippines, suggest experts.

A 25 basis points rate hike in August is more or less discounted in the bond market hence, only a higher than 25 basis points (bps) hike will trigger fall in bond market considering this an unusual and aggressive stance by the Reserve Bank of India.

Rupee has been moving largely due to demand-supply factors, it has a good integration and correlation with the bond market. The fall in rupee is more related to crude and gold prices than rate hike by RBI at this moment.

Commenting on sectors in specific Mittal said, a rate hike would hit demand for two-wheelers, credit demand for the banking system and realty will become unattractive due to rise in lending rates.

We have collated a list of ten stocks from different experts which are likely to get impacted the most by a rate hike by the Reserve Bank of India (RBI):

DLF & Indiabulls Real Estate:

As real estate stocks are directly impacted by a rate hike and are considered as most sensitive ones to the changes in key rates stocks like DLF and Indiabulls Real Estate will be impacted in a negative way slowing down the growth rate.

The cash flow of DLF remained weak and there was also a major change in the profit of March’18 which came at Rs.37.7 crore as compared to Rs.4110.2 crore in December 2017.

Axis Bank:

The results of Axis bank were not impressive as the Gross NPA rose to 6.77 percent of the total loans at the end of the March quarter, from 5.28 percent in December.

The net NPA ratio worsened to 3.4 percent from 2.5 percent sequentially. And, now the rates are expected to increase it would be very tough for the stock to sustain at the current market rate.

State Bank of India:

SBI also gave negative results for the quarter ended March. The asset quality worsened because of fresh slippages which shot up to approximately 7.2 percent. The country’s largest bank reported a second consecutive net loss of Rs 7,718 crore for the March quarter, primarily due to a surge in provisions and bad loans.

IndusInd Bank:

The gross non-performing assets rose 14 percent sequentially in absolute terms to Rs 1,705 crore. Provisions for bad loans also increased to Rs 335 crore in March quarter, compared to Rs 236.2 crore in the previous quarter.

Hero MotoCorp & TVS Motor:

Both the two-wheeler names depend on finance to boost sales. Most of the two-wheelers are bought on finance and hence any increase in interest rate will certainly lead to lower sales.

Indiabulls Housing Finance & DHFL:

Housing EMIs forms a large portion of household spend and thus new consumers will certainly defer their decision of buying a home in case of a rate hike.

Indiabulls Housing & DHFL has grown at a very fast pace in recent years and rate hike will certainly put brakes on advances growth for the company.

L&T:

The company is the largest EPC player in the Indian infrastructure space. If RBI hikes interest rates than we may see a slowdown in the infrastructure sector and will result in drying up the new order wins for L&T.

Market is haemorrhaging, but Sensex & Nifty seem to suggest rude health

The big indices have retreated just 5-6 percent from their peaks, but the price damage in mid and small cap shares has been severe.

  

Many investors would be surprised to see the erosion in their portfolios despite the Sensex and Nifty not being too far from their lifetime highs. The big indices have retreated just 5-6 percent from their peaks, but the price damage in mid and small cap shares has been severe.

Here are some data points that describe the carnage in the market on Tuesday, June 6th. During the day, trading in 381 stocks on the BSE was frozen after there were only sellers in those stocks. Nearly 700 stocks, or one in every four stocks are trading within 5 percent of their 52-week lows. Sector indices that are close to their lows are power, telecom, infrastructure, utilities, healthcare and public sector undertaking.

There are various reasons why many these stocks are being hammered. In many cases, weak fundamentals are to blame. But market players say the recent policies and regulations by the government and market regulator SEBI are aggravating the situation.

The introduction of long-term capital gains tax from February 1 had many investors rushing to book profits mainly for tax considerations. Soon after, mutual funds began selling shares of smaller companies because the regulator introduced a new system of classifying stocks bought in the various schemes. Last week, SEBI tightened margin requirements to curb speculation and this has resulted in a new round of selling.

The retail investor is left wondering if the regulator is there to save them, who will save them from the regulator.

For someone who follows only the Nifty and Sensex as a gauge of market sentiment, the meltdown is not visible. A handful of stocks are giving the impression that all is well in the Indian markets.

The top five stocks in Nifty 50 account for a third of the market capitalization of the indices. Around 15 stocks have a weight of less than 1 percent of the index. In other words, the indices are like a Doberman, which will not be affected much even if the tail is chopped off. Nine of the top 10 stocks are trading close to their 52 week high levels. The only high market cap stock which is away from their highs is SBI.

An index is supposed to reflect the health of the market. Our indices are currently so skewed that they do not reflect the sickness that has spread to most of the market.

The purists might say that it is the nature of the beast where the top companies in terms of market capitalization will account for the bulk of the weight of the index. The index is expected to represent the health of a major portion of the market, but this is nowhere near the truth.

It is like taking a financial health of India by looking at the net-worth of top 10 richest Indians. For the common Indian, like a market investor, this is not even funny.

MORE WILL UPDATE SOON!!

See Nifty trading in a 10,200-11,000 band in June series

On the daily chart, immediate support for the Nifty is placed around 10,537 (50-day daily moving average) and 10,440 levels (50 percent retracement of its March to May upmove), whereas 10,699 (23.6 percent retracement of its March to May upmove) will act as immediate resistance.

  

The Nifty ended Tuesday highly volatile session on a negative note at 10,593.15, down 0.33 percent. Bears continued to exert pressure on domestic markets in the early noon session ahead of the Monetary Policy Committee meet.

Market sentiments remained weak with Commerce and Industry Minister Suresh Prabhu’s statement that unilateral trade restrictive actions by some developed countries could derail the fragile global economic recovery, which in turn would have implications on the job scenario.

Besides that, the BSE placed additional surveillance measure on numerous midcap stocks, which led to a sell-off in smallcap and midcap stocks.

On the daily chart, immediate support for the Nifty is placed around 10,537 (50-day daily moving average) and 10,440 levels (50 percent retracement of its March to May upmove), whereas 10,699 (23.6 percent retracement of its March to May upmove) will act as immediate resistance.

The relative strength index (RSI) on the daily chart is placed at 48.25 which is showing a downward momentum. Moving Average Convergence Divergence (MACD) is trading above the zero line with a negative cross, which indicates that the bias could remain bearish for the next few trading sessions.

India VIX ended down 4.09 percent at 13.31. A decrease in VIX suggests limited downside and a consolidated upmove in the market.

On the options front, maximum call open interest of 45.51 lakh contracts is seen at strike price 11,000, followed by 10,700, which now holds 33.89 lakh contracts. Maximum put open interest of 35.68 lakh contracts is seen at strike price 10,200, followed by 10,600 which now holds 34.76 lakh contracts.

As per the options data, immediate support is seen around 10,600 and 10,200 levels, whereas immediate resistance is seen around 10,700 and 11,000, which will act as stiff resistance in the June expiry.

Here are two stocks which could give 4-10% return in the short term:

Sanofi India Ltd: Buy| Close: Rs 5,068.35 | Target: Rs 5,335 | Stop loss: Rs 4,880 | Return: 10.89%

The stock has given a breakout above its downward trend line around Rs 5,038-5,045 levels on Tuesday on the daily chart which suggests bullishness in the stock.

A daily momentum indicator Relative Strength index (RSI) reading at 63.32 level, showing positive momentum and MACD trading above zero line with positive crossover whereas (+) DI continuously trading above (-) DI.

Based on the above observations, the trader can buy the stock around in dips around Rs 5,040-5,050 with a stop loss below Rs 4,880 (closing) for the target of Rs 5,335

Axis Bank Ltd: Buy| Close: Rs 530.90 | Target: Rs 510 | Stop loss: Rs 551 | Return: 4.85%

The stock has given breakdown from symmetrical triangle pattern around Rs 536-537 on Tuesday in the daily chart with moderate volumes.

The Daily Relative Strength index (RSI) breakdown its 21 days average and showing downward momentum and MACD trading with a negative cross above zero line, which indicates that stock likely to move downward further.

A trader can sell the stock after some technical bounce around Rs 536-538 with a stop loss above Rs 551 (closing) for the target of Rs 510.

MORE WILL UPDATE SOON!!

Avoid averaging stocks that are hitting 52-week lows: Axis Securities

For the week, Axis Securities expects the index to trade in a 10,550-10,820 range.

  

On the weekly chart, the index has formed a Doji candlestick formation, indicating indecisiveness among market participants regarding the market’s direction. Since the past seven weeks, the index has been consolidating within the 10,500-10,820 range, which represents a short to medium term sideways trend.

Any decisive breakout on either side will provide direction to the market. The chart pattern suggests that if the Nifty crosses and sustains above 10,770 levels, then buying interest would lead it towards 10,820-10,900 levels. However, if the index breaks below 10,640 levels, then it would witness selling which could take it towards 10,500-10,550 levels.

The Nifty is well placed above its 20, 50 and 100-day simple moving average (SMA), indicating positive bias in the short term. It continues to remain in an uptrend in the short term, so buying on dips continues to be our preferred strategy. For the week, we expect the index to trade in a 10,550-10,820 range.

 The rollover cost in May series stood at 0.09 percent as compared to 0.3 percent in the previous expiry, which indicates that most short positions have been rolled over while long positions have not been rolled over. Highest call open interest addition was seen in 11,000 strikes, which is likely to act as a hurdle on the higher side. At the money put 10,600 saw OI on the first day of the June series which indicates that we may break below 10,600 before moving up.

 If we look at the overall market, stocks in select pockets are performing well and the index is holding up because of heavyweights like HDFC Bank, Infosys, Mahindra & Mahindra, Bajaj Finance and Ashok Leyland. Most stocks are under pressure and have faced significant corrective action as they failed to meet market expectations on their quarterly result.

Investors should not average stocks that are hitting 52-week lows at the current juncture. Looking at the macro picture, we feel there would be more short term downside in these stocks. We are advising investors to book profits in stocks that are hitting 52-week highs as we expect some profit-booking and consolidation in the market going forward.

 Midcap and smallcap stocks generally perform in a healthy market. In the last two months, we are witnessing high volatility due to domestic and global cues which is creating uncertainty among investors. We believe smallcap and midcap stocks are likely to underperform for some more time, so booking profits on rallies would be advised..

 Please share 3-5 positional calls that could offer handsome returns to investors in the next 1 month?

A) Here is a list of top three stocks that could offer 6-7% returns in the next one month:

Torrent Pharma Ltd: CMP: Rs 1,438| Buying Range: Rs 1,430-1,400| Target: Rs 1540| Stop loss Rs 1375| Return 7%

On the weekly chart, the stock has observed a ‘Down Sloping Trendline’ breakout at Rs 1,420 on closing basis which signals a change of trend towards the upside.

This breakout is accompanied with high volumes indicating increased participation. The stock is currently trading above all its crucial SMA i.e. 20, 50, 100. The RSI and Stochastic are also in the positive terrain.

BPCL: CMP: Rs 408.55| Buying Range: Rs 408-400| Target: Rs 430-437| Stop loss: Rs 391| Return 7%

BPCL has given a downward sloping trendline breakout at Rs 400 which was also the immediate acting resistance in the stock and went on to make a high of Rs 411.50 on a closing basis.

The stock is witnessing high volume along with the support placed at 20 and 50-days SMA. The momentum indicators are also signaling a positive probability towards the bullish momentum in the stock.

Godrej Consumer Products: CMP: Rs 1,163.90| Buying Range: Rs 1,163-1,145| Target: Rs 1,230| Stop loss: Rs 1,115| Return 5.6%

Godrej CP has given the breakout from its last five weeks consolidation range of Rs 1,150-1,070 on the weekly closing basis. This breakout is accompanied with high volumes indicating increased participation.

The stock is forming higher top higher bottom formation on daily/weekly charts indicates sustained uptrend. The strength indicators are in positive territory which indicates positive momentum to continue further.

MORE WILL UPDATE SOON!!