F&O expiry due in this week! Options Pain is an add-on indicator for expiry trading,

If a trader is able to successfully forecast the level; or a narrow range of expiry, there exists several strategies which can be of high yield namely: Short Straddle, Short Strangle or a hedged strategy with a high reward to risk ratio along-with limited risk i.e. Butterflies.

 

Expiry trading is highly attractive to a majority of Options Traders where buyers are hunting for last moment large surges for a high return on investment whereas on the other side Option Writers are busy analysing levels beyond which the index or the stock might not expire to earn small absolute premiums of the OTM options.

But, the base of all is at which point expiry will happen?

Well, there isn’t a way to exactly forecast the level precisely to my knowledge but there are several add-on indicators traders used to gauge the possible level of expiry two of them being recent Value Weighted Average Price (VWAP) of the underlying and Option Pain level derived from Open Interest and Intrinsic value of options for possible expiry levels.

f a trader is able to successfully forecast the level; or a narrow range of expiry, there exists several strategies which can be of high yield namely: Short Straddle, Short Strangle or a hedged strategy with a high reward to risk ratio along-with limited risk i.e. Butterflies.

Let’s learn both the methods for creating a forecast for expiry.

VWAP:

Value Weighted Average Price of the recent past for the underlying instrument can suggest an average price where buyers and sellers form equilibrium and hence, the level is expected to form an approximation for expiry.

However, there is no thumb rule of what time period should be considered as an input to this calculation. But, a more sensible way out would be to calculate VWAP’s from significant recent swing movements of peaks and troughs.

Option Pain:

Calculation

Option pain is a calculation to find a level at which Option buyers will have a maximum loss and as derivative is a Zero-sum game, it means Options Sellers will make maximum profits or least losses at this point.

The pain level is calculated by multiplying the Open Interest with the intrinsic value of options for different levels of expiries for each strike. The pain line is derived by adding the Call P&L along-with the Put P&L at each strike.

The level which comes as the maximum profit or lowest loss is the level of Option Pain.

Concept:

The reasoning behind tracking the pain level is first, Option writers are expected to be the smart money around as they take the unlimited risk for a very little profit so they tend to have a well-researched approach.

Secondly, option writers adjust positions with their revised forecasts of the market and the market as a whole tends to that equilibrium.

The Flaw:

Option Pain is not a complete calculation as the formula doesn’t account for the premium inflow that the Option writers already received and even though some strikes might show losses where the Option writers may have made significant returns from premium erosion.

Similarly, few strikes may have been under-estimated too. A better approach would be to adjust for the premium received but is certainly a difficult task to perform as trades takes place on a continuous basis and the price is certainly not constant.

High Probability Areas:

Option Pain in our study has been mildly accurate if used raw but a filtration from other technical analysis or derivative analysis tools to decode if the underlying is in a trend or oscillation can help raise the odds of the forecast being right.

Pain level will be respected more in an oscillating market rather than in a market which has a very sharp trend. Lastly, Indices are much more stable for this tool over stocks.

MORE WILL UPDATE SOON!!

Morgan Stanley sees Sensex at 44,000 by June 2019 in a bull case, focuses on these 20 stocks

In a bear case scenario, Morgan Stanley sees a 20 percent probability of the Sensex heading lower to 26,500 levels.

Global investment bank Morgan Stanley has a June 2019 Sensex target of 36,000 under its base case scenario. This means the index would trade below its historical average at just under 16 times one-year forward price-to-earnings. It said factors like improving growth, reasonable largecap valuations and low beta are up against an election year, rising oil prices and higher yields.

In a bull case scenario, it sees a 30 percent probability of the Sensex rallying towards 44,000. “Better-than-expected outcomes, most notably on the policy and global front will result in such an upmove. The market starts believing in a strong election result and earnings growth accelerates to 29 percent and 26 percent in FY19 and FY20, respectively.”

In a bear case scenario, it sees a 20 percent probability of the index heading lower to 26,500 levels “if global conditions deteriorate and the market starts pricing in a poor election outcome and Sensex earnings grow at 21 percent and 22 percent in FY19 and FY20, respectively.”

The global investment bank prefers largecaps over midcaps. The brokerage is positive on banks (private corporate and retail), discretionary consumption, industrials, and domestic materials, while avoiding healthcare, staples, utilities, global materials and energy.

India's low beta and its implications

The global investment bank said in its India Equity Strategy note that India is a likely outperformer even as absolute returns are capped by a tepid global equity market outlook. “The market is now recognising India macro's growing stability compared to emerging markets as is evidenced by the 37 percent fall since December 2014 in the country's beta to a 13-year low. The implications include case for a positive surprise in equity returns for India (as expectations are now low going by the beta level), with likely outperformance for India versus EM in a low return world.”

In addition, India's relative falling short rates, rising relative growth rates and a dip in positioning by foreign portfolio investors to 2011 levels add to the outperformance case, Morgan Stanley added.

Valuations

Morgan Stanley does not feel the Sensex or Nifty are pricing in a multi-year growth cycle, implying meaningful upside potential to stocks over the next three to five years. “For long-term investors, valuations are still in the comfort zone. Relative valuations are attractive and around average, but midcap valuations are still looking stretched despite the recent drawdown,” it stated.

Stocks in focus list:

  

MORE WILL UPDATE SOON!!

Portfolio picks: These 5 stocks can be multibaggers in the next 2-3 years

His favoured picks in the IT space are Tata Consultancy Services, Infosys and Hexaware Technologies.

  

If the monsoon remains normal as predicted by the India Meteorological Department, we will see a dovish stance from the Monetary Policy Committee accompanied by a 25 bps rate hike later in the year.

He is bullish on the IT and pharmaceutical space. His favoured picks in the IT space are Tata Consultancy Services, Infosys and Hexaware Technologies. From the pharma space, he advises long term investors to stagger buying in stocks like Cipla, Natco Pharma and Caplin Point.

We expect the market to remain rangebound with a positive bias, given we don’t see any major global fallout due to escalating trade tensions between the US and China. Despite relentless selling by foreign institutional investors (FIIs), markets are well supported by domestic inflows. We believe the tug of war between FIIs and domestic institutional investors (DIIs) will keep broader indices in a range with high short term volatility due to headwinds like rising crude oil prices, political uncertainty, reversal in the rate cycle and looming trade war between the US and China.

Unlike 2017, 2018 is a year where we are getting closer to an election cycle. Elections bring uncertainty: a factor which makes markets jittery and volatile. We are going to have a balancing year between opportunities like robust corporate earnings, strong rural consumption and bountiful monsoons along with challenges like rising crude prices, burgeoning current and fiscal account deficit and political uncertainty. The above factors will keep markets largely rangebound with sharp interim volatility.

We certainly expect one more rate hike in the latter half of the year given the surge in oil prices due to fresh sanctions on Iran.

If the monsoon spell remains normal as predicted by the India Meteorological Department, we will see a dovish stance from the Monetary Policy Committee accompanied by a 25 bps rate hike later in the year.

The recent directive is hawkish. Any further rise in US bond yields will lead to weaker emerging market currencies and outflow of funds from both debt and equity markets as returns will be depressed for foreign investors. India will not remain an exception.

However, inflows from domestic institutions remained robust. If we have a normal monsoon as predicted by IMD, we may see downward pressure on inflation in the second half of the year, which in turn will cool off rising bond yields at home.

In nutshell, if the FOMC increases rates gradually, it may not be a huge disruption for emerging markets including India.

We expect our domestic currency to remain relatively stronger than other emerging markets currencies, around 68/$ levels, due to comparatively better macros like strong domestic inflows and a hopes of a normal monsoon.

At present, rising crude oil prices is the biggest risk to our economy as it can potentially hurt our fiscal math leading to further weakening of the rupee. But recent developments like talks of hiking production at Friday’s OPEC meet has triggered a sharp fall in WTI crude oil prices from $72.5 a barrel to almost $65 a barrel.

A fall in crude oil prices will ease concerns about India’s swelling current and fiscal deficit and take pressure off from a weakening rupee.

 The outcome of the recently concluded elections in Gujarat, Karnataka and few key Lok Sabha by-polls has given fresh impetus to opposition parties who prepare to come together to fight the 2019 general elections, which can potentially change the caste and religious arithmetic against the NDA.

We believe the popularity of Prime Minister Narendra Modi is unmatched till date and his personal charisma will help NDA steer clear through any alliance strategy by opposition parties.

The market is also discounting the same. But there may be a possibility that its number of seats may reduce from last time and NDA may have to take support of other like-minded parties.

 Despite the steep fall from recent peaks, valuations of midcap and smallcap stocks are not attractive enough. A lot of corporate governance issues with mid-sized companies have surfaced in recent times in relation to the pre-termination of contracts by auditors.

Earlier, we expected margin expansion, but now see the same remaining under pressure due to high base and rising raw material prices, which will ultimately impact earnings.

The risk-reward ratio for small and midcaps seems unfavourable. However, there will be exceptional cases. Small companies with healthier balance sheets and strong execution record can emerge winners in medium to long term.

The Q4 FY18 earnings season has been relatively positive. Almost 50-60 percent of top 100 companies have reported in line or better-than-expected numbers. For the June quarter, we expect the positive momentum to continue mainly in metals, private banking, IT and selective mid and small sized companies. We haven’t revised our FY19 earnings estimates yet and will rather wait for June quarter earnings and management guidance to take any call.

 The Indian IT sector has undergone a massive structural change. Going by earnings of the last two quarters, it is quite evident that Indian IT companies are successfully weathering the H-IB visa issue by re-inventing their business model by shifting towards onshore, leaving behind the old offshore legacy model.

IT is a space where there are no balance sheet issues and last quarter’s numbers indicate early signs of an improving trend in client spending, particularly in some key pockets like banking, financial service and insurance (BFSI). Moreover, investors are raising their bets on the sector, amid weakening of the rupee-dollar and market volatility.

Though valuations are on the higher side now, the short term prognosis for the global economy is positive. The US economy is doing well, which usually translate into greater IT spending even though it may not be visible now. Our favoured picks in the IT space are Tata Consultancy Services, Infosys and Hexaware Technologies.

The ongoing pain in the pharma space due to customer consolidation and pricing pressure in the US may start gradually easing out in the second half of FY19 due to low base early signs that the US business getting stabilising.

We expect growth in the US to revive in the later part of this year with fresh approvals and product launches. Lately, we have seen a lot of resolutions from the US Food & Drug Administration, but in no way can we conclude that the USFDA is going easy on Indian pharma companies. Recently, whatever relaxation companies are seeing from the USFDA will actually take time to translate into positive financials. Long term investors can stagger buying in stocks like Cipla, Natco Pharma and Caplin Point.

Jamna Auto (CMP - Rs 90)

The stock is trading at 28.5 times its trailing earnings (down from almost 35 times few weeks back). The company maintains its industry leading return on equity of 30 percent and modest debt/EBITDA of 0.3 times. Strong Q4 numbers; safe play to ride the revival in the commercial vehicle sales cycle, with facilities located in close proximity to the plants of original equipment manufacturers; and benefits from lower logistic costs makes it difficult for new entrants to garner market share from OEMs.

JSW Steel (CMP Rs 326)

The stock is trading at 12.5 times its trailing earnings (down from 15-16 times a few months back) with robust RoE of 22 percent. The management expects steel demand to grow at 7-7.5 percent in FY19. We expect margins to improve in FY19, if steel prices remain rangebound. We maintain our accumulate rating with a target price of Rs 435 per share (discounting the stock to trade at 15 times FY19e earnings of Rs 29 per share).

Ashok Leyland (CMP Rs 136)

The stock is trading at 25.8 times its trailing earnings (down from 33-34 times a few months back) with a robust RoE of 22 percent. Uptick in economic growth and pick up in infrastructure activity is seen. Stricter enforcement of overloading norms is a positive development but competitive pressure is likely to remain high. We maintain our accumulate rating with a price target of Rs 183 per share (discounting the stock to trade at 24 times its FY19e earnings of Rs 7.64 per share)

NOCIL (CMP Rs  172)

The company is the largest rubber chemicals manufacturer in India and one of the few players in this business to offer a wide range of rubber chemicals to meet its customer needs. Tightening environment norms by the Chinese government has increased compliance cost and led to closure of unorganised/small players in China, which helped Indian players like NOCIL improve its competitive positioning. NOCIL has a healthy balance sheet with a debt-to-equity ratio of around 0.20 times. It is trading around 16 times its trailing earnings. Our target price on the stock is Rs 240 per share.

Insecticides India (CMP Rs -725)The stock is trading at a trailing P/E 17.8 times. Earnings of the next two quarters will play a major catalyst as: 1. A normal monsoon has been predicted by IMD till June 18; and 2. Minimum support price at 1.5 times cost of production will encourage farmers to strive for higher agricultural output.

MORE WILL UPDATE SOON!!

Stay cautious on short build-up by FIIs; 3 stocks that may return up to 13%

If the Nifty falls below the 10,680 mark, it could correct to 10,500 levels on the back of further selling.

  

A sharp sell-off was seen in the Nifty due to liquidation of long positions as traders turned cautious amid US-China trade tensions.

The recent market data has turned slightly negative and is indicating probability of further profit booking. Call writers are active in 10,700, 10,800 and 10,900 strikes, which indicate limited upside.

The continuous build-up of shorts by foreign institutional investors (FIIs) indicates cautiousness. The levels of 10,700-10,680 will remain crucial this week as indicated by option open interest concentration.

If the Nifty falls below the 10,680 mark, it could correct to 10,500 levels on the back of further selling. On a bounce, the index will face strong resistance around 10,800-10,850 levels.

If we look at the option open interest concentration, 10,700 put strike still holds the highest OI with more than 52 lakh shares, followed by 10,600 strikes with nearly 46 lakh shares.

On the call option side, the maximum OI is seen at 11,000 strikes, followed by 10,800 strikes with nearly 54 lakh and 45 lakh shares, respectively.

Here is a list of top 3 stocks that could return 11-13% percent in the short term:

Torrent Pharmaceuticals: Buy| Target: Rs 1,670| Stop loss: Rs 1,360| Return 13%

On daily charts, the stock had been consolidating in a broader range of Rs 1,230-1,430 since the beginning of the year which has led to a formation of an inverted head and shoulder pattern.

This week a fresh breakout was witnessed above the neckline of the pattern formation after prolonged consolidation which indicates more upside in prices moving forward. Traders can accumulate the stock in a range of Rs 1,470-1,490 for the target of Rs 1,670 and a stop loss below Rs 1,360.

Bata India: Buy| Target: Rs 900| Stop loss: Rs 760| Return 11%

After three months of prolonged consolidation, the stock witnessed a fresh breakout above the key resistance level of Rs 825 along with hefty volumes.

Additionally, the stock has also given a breakout above the neckline of the inverted head and shoulder pattern visible on the weekly charts.

The follow-up buying after the breakout can be seen in the stock as secondary indicators like the RSI and stochastic are also supporting the up move. Traders can accumulate the stock in a range of Rs 810-825 for the upside target of Rs 900 and a stop loss below Rs 760.

Natco Pharma Limited: Buy| Target: Rs 955| Stop loss: Rs 780| Return 13%

The stock has given a fresh breakdown below Rs 900 levels and its 200-days exponential moving average in the early 2018 and tested Rs 700 levels in the short span.

The price has been consolidating since then as the stock is fluctuating in the range of Rs 700-830. Last week, we have observed a V-shape recovery in prices from the lower band along with higher volumes which suggest for lower levels buying in the stock.

Now, a breakout above the resistance level of Rs 845 can further trigger follow-up buying in the stock to once again reclaim above 200-days EMA. Traders can buy the stock above Rs 845 levels for the upside target of Rs 955 levels and a stop loss below Rs 780.

MORE WILL UPDATE SOON!!

Top 10 money making ideas by experts which could give 4-12% returns in 30 days

Stock specific moves likely to happen in selective IT, pharma, NBFC stocks and heavyweights stocks are likely to take the lead while PSU, Auto, Cement, Mid and Small Cap stocks would be under pressure with limited upside.

 

A roller coaster ride for Nifty50, but strong buying at lower levels helped Nifty50 climb 10,800 on weekly basis. The index bounced back after hitting a low of 10,709.05 on June 8 to close at 10,817.70, a gain of nearly 0.5 percent on weekly basis.

Volatility rose after the US Federal Reserve hiked interest rates by 25 bps and ECB signalling an end to the bond purchases by 2018 end while BoJ maintained its ultra-loose monetary policy.

Rising interest rates in the US and expected increase in interest rates from 2019 summer may weigh on the foreign portfolio investors (FPIs) flows going forward. Going ahead the markets would also weigh the concerns coming from possible trade war between US and China.

Higher interest rates have resulted in valuation multiple contractions and going forward gains in the market would largely hinge on earnings recovery.

On the technical front, most experts are of the view that a possibility of breakout beyond 10,800 is on the cards and could possibly extend towards 10920-10,930 levels gradually. On the flipside, 10,698 followed by 10,650 would be seen as immediate supports.

We expect some consolidation in benchmarks with a positive bias. Traders are advised to focus on individual pockets that are poised for decent moves. This optimism remains valid as long as index maintains its position above the 10550 mark.

As far as sector-specific view goes, we have been quite vocal since the last couple of weeks about ‘Pharmaceutical’ space getting bottomed out. Friday’s gigantic move in this basket certainly validates our contradictory stance.

Stock specific moves likely to happen in selective IT, Pharma, NBFC stocks and heavyweights stocks are likely to take lead while PSU, Auto, Cement, Mid and Small Cap stocks would be under pressure with limited upside.

Stock wise we see the positive formation in Bajaj Finance, Bharat finance, Tata Elxsi, TCS, Infosys, HCL Tech, Torrent Pharma, Sun Pharma, Lupin, Jubilant Foodworks, UPL, etc,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

Here is a list of top 10 money making ideas from different experts which could give 4-12% return in the next 30 days:

Kaveri Seed Company Ltd: Buy| LTP: Rs 560.05| Target: Rs 625| Stop loss: Rs 524| Return 11%

Last week, after a long consolidation, the stock finally managed to burst through its recent congestion zone. If we look at the volume activity, it has picked up substantially during this development, providing credence to the breakout.

Since the last couple of days, we are seeing some subdued movement due to lack of follow up buying in the counter. But, if we consider the broader picture now, we would construe this as a good buying opportunity for a target of Rs 625. Traders can keep their stop losses at Rs 524.

Delta Corp Ltd: Buy | LTP: Rs 245.90 | Target: Rs 270 | Stop Loss Rs 229 | Return 10%

Last few months have not been great for this traders’ favorite counter after enjoying a relentless bull run throughout the calendar year 2017. Recently, stock prices consolidated within the boundaries of a ‘Falling Wedge’ pattern.

Last week, we witnessed a breakout from this pattern with reasonably higher volumes. Although it would be too early for this call, we expect the stock to start the upward leg of the rally. Hence, one can look to go long for a target of Rs 270 by following a strict stop loss of Rs 229.

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.

CDSL: Buy| CMP: Rs 294| Target: Rs 308-320 | Stop loss: Rs 278 | Return 8.8%

With current week's 5 percent gains the stock has decisively broken out its five weeks consolidation range (290-265) on closing basis indicating a shift of short-term trend to upward. This breakout is accompanied with high volumes indicating increased participation on the rally.

The stock has also broken out past six months downward sloping "Trendline" breakout at 283 levels which reconfirms bullish sentiments in near term. Currently, the stock is well placed above its 20 and 50 days SMA which signals positive bias ahead.

The strength indicator - RSI is placed above its reference line on the daily and weekly chart which interprets rising strength on the rally.

Buying Range: Rs 294-290

Apollo Hospital Ltd: Buy | CMP: Rs 1,038 | Target: Rs 1064-1082 | Stop loss: Rs 980| Return 8.8%

On the daily chart, the stock has observed an "Inverse Head & Shoulder" - a short-term trend reversal pattern breakout at Rs 1,025 level on a closing basis. This breakout is supported with huge volumes indicating strength ahead.

The stock is sustaining above its 20 and 50-day SMA which supports bullish sentiments ahead. On the weekly chart, the stock has observed rising volumes which signal increased participation for short to medium term.

Daily as well as weekly indicators - RSI and Stochastic both are in positive territory which supports buying momentum to continue ahead.

Buying Range: Rs 1,030-1,010

RIL: Buy | LTP: 1,013 | Target: Rs 1,130 | Stop loss: Rs 980 | Return 11%

With new lifetime highs, this counter appears to be heading for a fresh breakout above its multi-week ascending channel which has a potential target of Rs 1,130. Hence, positional traders are advised to buy into this counter now and on declines up to Rs 990 for a target of Rs 1,130 with a stop below Rs 1,180 on a closing basis.

Muthoot Finance: Buy | LTP: Rs 386.40 | Target: Rs 420 | Stop loss: Rs 380 | Return 8.8%

At a recent low of Rs 383, this counter retraced around 62 percent of its last leg of the rally from the lows of Rs 369 – 399.

We suspect some sort of accumulation in this counter as for the most part of the Friday’s session it has remained in positive terrain withering the market turmoil.

If it has bottomed out and fresh upswing is in progress then the initial hurdle around Rs 405 should be taken off.

In such a scenario, it should head all the way to test 200-day moving average (DMA) whose value is placed around Rs 420. A stop suggested for the trade is a close below Rs 380.

Mahindra Lifespace: Buy | LTP: Rs 570.40 | Target: Rs 620 | Stop loss: Rs 540 | Return 8%

The recent price action in this counter with the expansion of intraday price range on high volumes is pointing towards some sort of accumulation suggesting it can be in for a sustainable up move going forward.

Hence, positional traders should buy now and on declines between Rs 560 – 555 range for a target of Rs 620. A stop suggested for the trade is below Rs 540 on a closing basis.

MORE WILL UPDATE SOON!!

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!!