On the back of good results from some frontline companies and domestic fund buying, markets managed to close in the positive territory during the week ended. On the BSE, the Sensex closed 147 points higher at 19,007 and the Nifty on the NSE ended 42 points up at 5,697.
Market breadth was even and volumes continued to be on the lower side. Stock specific action was seen with companies posting good results being rewarded and non-performers punished.
High inflation, FII outflows and a disappointing Cabinet reshuffle were sentiment dampeners. With the hopes of a smooth Budget Session diminishing, governance issues and delay in policy-making are beginning to hurt investment environment. Markets are at a very crucial juncture; If the government fails to improve its governance or gives a ‘timid’ Budget without any growth initiative, the India story may come to an abrupt end, fear analysts.
Key domestic events such as the RBI credit policy and F&O settlement and global cues like the outcome of US Fed and Bank of Japan meets and macro economic data of developed countries may dictate the movement of markets in the near term.
For the week ahead, chartists predict a trading range between 18,550 and 19,380 for the Sensex and 5,530 and 5,860 for the Nifty. Supports for the week are at 18,800 and 18,680 and 5,630 and 5,570. Near term resistances for the indices are at 19,220 and 19,400 and 5,780 and 5,840. Chartists fear that the break of a 200-day simple moving average at 5,614 can trigger a panic selling to 5,250-level.
FUTURES & OPTIONS
Despite lacklustre trading in the cash segment, robust volumes were seen in the derivative segment ahead of the settlement week. This has been attributed to the heightened intra-day volatility and the rise in speculative activity. Reduced open interest at Rs 1,50,000 crore and put/call ratio at below one, indicate a possible relief rally. Rollovers have been in line with previous three-month average volumes.
* The results of most banks have been better than expectations, indicating that the growth has not been disrupted by recent negative macro economic data. The crossover of 11,000 levels by BankNifty may signal fresh rally in banking counters. Pick and choose good counters after the RBI policy meeting.
* The weekend numbers of Reliance Industries have been in line with expectations. Rumours of a consent order are gaining steam. Use declines to accumulate for decent rally in February series. An expected sell-off in Reliance ADAG pack has been slightly overdone. Strong rebound in Reliance Infra and Reliance Power is not ruled out.
* Auto stocks are witnessing a range bound trade on the concerns of the impact of rising raw material costs. Use declines to accumulate M&M and Tata Motors.
* Profit booking was seen at IT counters at higher levels. A strong performance of TCS is an indicator of chan-ge in leadership from Infosys to TCS on the bourses. With the dollar set to rise, a near to medium term outlook for IT counters is looking good. Stay invested for steady gains.
* Among the side counters looking good are IRB Infra, BRFL, Suzlon, Dish TV, Godrej Industries and Sie-mens. Counters like CESC, Pantaloon Retail, Exide Industries and IVRCL Infra may witness a relief rally.
STOCK SCAN
Diamines and Chemicals Ltd is the only company manufacturing the entire range of Ethyleneamines (EAs) in India and is among the select six to eight companies in the world, who have proprietary technology for its manufacturing. The main user industries include pharma, FMCG, dyes and agro chemicals. A robust demand and high operating margins make the stock a good investment bet for the medium term. Buy for a target price of Rs 125.
Force Motors Ltd, the manufacturer of tractors, SPVs and SUVs, has been posting a strong growth after restructuring of its operations. Sales of its 50:50 joint venture, Man Force Trucks have reportedly grown by over 200 per cent and the company has also given on lease some of its land assets to a leading capital goods company for a significant rental income. With the German partner MAN expanding, the range of haulage trucks, the stock is a good investment bet. Buy on declines for a target price of Rs 1,250 in the medium term.
Garware Wall is a leading maker of cordage (fishing nets, net assembly, ropes). A steady growth and bright prospects of user industries make this niche company a good buy for the medium term. Buy on declines for a target price of Rs 125. Results of Poddar Pigments have been better than expectations. Accumulate at current levels for double returns.
BROKERS BYTES
Company: Punjab National Bank
Broking House: Emkay Rating: Buy
Price Target: Rs 1,500
Punjab National Bank has recorded a 13 per cent increase in net profit for the December quarter — lower than the increase in topline.
The drop is because of higher provisions that had to be made for pensions and for bad loans, says Emkay.
However, the provisions are likely to fall in the coming quarters. The proportion of low cost deposits in the balance sheet remains high at a little over 39 per cent, the brokerage says. The bank had revised its base rate during the quarter, but margins are still expected to shrink during FY12, says Emkay. On the whole, the profit growth for the bank is likely to get back in the 20 per cent range for the next financial year.
Company: Wipro
Broking House: Prabhudas Lilladhar
Rating: Accumulate Price Target: Rs 550
Wipro recorded the lowest growth in IT revenues amongst the tier I players including Infosys, Wipro and HCL, says Prabhudas Lilladher. While the company has given a higher growth guidance compared to Infosys, Wipro has rarely exceeded guidance, unlike Infosys says the brokerage.
The higher margins of the company also look unsustainable, because it will have to increase spending on sales and marketing in the new demand environment, which will put pressure on margins. Considering these factors, Prabhudas Lilladher has revised downwards the expected earnings of FY12 and FY13, and it has also cut the price target on the stock to Rs 550 while keeping the ‘accumulate’ rating.