Supported by the strong FII buying, the markets extended their winning streak for the second straight week. The benchmark indices gained nearly nine per cent in March, posting their best performance since September 2010.
On the BSE the Sensex closed 605 points higher at 19,420 and the Nifty on the NSE ended at 172 points up at 5,826. Aggressive buying from FIIs and expectations over Q4 earnings of companies turned the overall sentiment bullish.
The ongoing rally has been driven by the large cap stocks. Market breadth in the last couple of sessions indicates that the midcaps and smallcaps could play catch up in next few sessions. The core concerns over inflation, interest rates and high crude oil prices still persist and can become speed breakers for the rally. The market players expect fuel prices to increase after the assembly elections in the five states are over. After the smart rally over the past few sessions markets may consolidate to ‘digest’ the recent gains. The near term trend of the markets will depend on FII inflows, global cues, Q4 earnings and monsoon prediction from IMD.
Expect choppy and vola-tile stock specific trading pattern during the earnings season. Technically, the indices may face resistance around 19,680 and 19,860 and 5,890 and 5,970 levels; while 19,180 and 18,900 and 5,730 and 5,640 levels should offer good support. Short term view will turn negative if the indices start trading below the 200-DMA levels.
Earnings matter because at the end of the day, earnings are what give a stock its intrinsic value. Follow the earnings season closely to restructure portfolio.
FUTURES & OPTIONS
Despite sharp intra-day swings brisk volumes were seen in the derivative segment. Rollovers were significantly higher than last three month average reflecting the change in the mood of market participants. The April series has begun on relatively ‘heavier’ note; and the option activity (addition of Puts at 5,800 and 5,700 strikes and writing of Calls at 5,900 and 6,000 strikes) indicates trading range of 5,700-6,100 for the Nifty in the current series.
As expected, the realty stocks continued their good run on sustained buying interest. Add on declines DLF and IBRL. Expecting strong show from IT majors strong build up was seen in Infosys, TCS and others. Hold positions till Infy results. Buoyed by impressive monthly sales numbers renewed buying was seen in auto stocks. Use corrections to buy Tata Motors and M&M from four wheeler space and Hero Honda, Bajaj Auto and TVS Motors from two wheeler segment. True to predictions steady accumulation was seen in the infrastructure/construction sector. Worst is over say industry observers. Buy on declines JP
Associates, JP Infra, GMR Infra, GVKPIL, Patel Engg and NCC. PE infusion in the Airports subsidiary of GMR Infrastructure is expected to help de-leverage balance sheet and aid earnings growth and valuations. Buy for near term target of Rs 60. Outlook for non-ferrous metals is better than ferrous metals stocks say analysts. Strong demand growth will boost copper and aluminium prices.
Use corrections to buy Sterlite, Hindalco, HZL and Nalco. Among the stock futures looking good are BEML, Crompton Greaves, Bata, NMDC, GMDC, Divi Labs, Orchid Chemicals, Onmobile, Bombay Dyeing, Reliance Media, Suzlon, Triveni and KFA.
Darwin’s theory — It’s not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change — this applies squarely to stock market traders also. Be flexible and pliable at all times.
STOCK SCAN
Fiem Industries Ltd is one of the leading manufacturers of automotive and signaling equipment and rear view mirrors. The company has become Tier-1 supplier not only in India but also in Europe and USA. Rally in Motherson Sumi has triggered renewed buying in Fiem counter. Buy on declines for target price of Rs 250 in medium term.
The Andhra Paper deal has led to re-rating of the paper industry with most of the paper stocks attracting buying interest after the buyout. Expectedly Ballarpur Indu-stries Ltd, India’s largest paper maker has put on hold listing of their subsidiary on London Stock Exchange to press for higher valuation. It is pertinent to note that ITC’s paper division is largest paper board and specialty paper manufacturer. After the present euphoria dies down accumulate ITC Ltd, Ballarpur, TNPL and JK Paper for steady returns in medium term.
Carborundum Universal Ltd, belonging to Murugappa Group is the largest manufacturer of coated abrasives and bonded abrasives in the country. The company also manufactures super refractories, electro minerals, industrial ceramics and ceramic fibres. Strong fundamentals and robust demand from user industries make the stock good bet for investment. Buy at current levels for target price of Rs 350 in medium term.
C. Kutumba Rao is a Hyderabad-based stock market analyst. The views expressed and the recommendations made are those of the author. Readers are strongly recommended to consult their financial advisors before making any financial investments. This newspaper is not liable for investment decisions made on the basis of recommendations in these columns.