Monday, March 16, 2009

>Daily Market Preview (MARWADI FINANCIAL)

● Strong market upmoves (close to 6%) in the last 2 days in domestic indices indicate that March may not see the much feared extreme distress and new lows. The F & O internals also suggest the underlying support for the market at the 2500 Nifty level.

● We feel Nifty in the near term could see further gains upto 5%. Robust market trajectory that has sustained for the last couple of days globally emboldens us to recommend a positive look at stocks. We advice to hunt for bargains and invest currently 20-25% of your investible corpus.

To see full report: MARKET PREVIEW 16-03-09

>Daily Technical Report (MARWADI FINANCIAL)

Wall street consecutively perform in good rally, Asian market also trading in positive range due to optimism stimulus will revive growth. Since last two trading session we seen the good rally in domestic market also and we expect that the rally may continue for short time. So it is advisable to book some amount of profit at every higher levels. Again the inflation numbers is continuing in southwards direction so it is good sign to developing economy. Now onwards we have to seen, how central bank manages unnecessary volatility in the currency, and it is required to stabilize the currency rate. Power Finance company also get good amount of liquidity to further finance the project as well as execution the project, keep watch on that counters.

On technical note today market open with positive note and after positive opening it will take volatile mode so intraday trader we recommend to trade with positive bias. In morning session market open with marginal positive note, so wait fro the conformation of the trend to take long view. Again the investor have to book profit in good market and wait for lower levels buying.

Today Sensex trade in the range of 8930-8620 And Nifty in the range of 2775-2670

To see full report: Technical Report 16-03-09

>Trade Winds (KARVY)

Five potential risks for our markets…
While India is witnessing a slowdown in GDP growth, in line with the global slowdown, it is still one of the fastest-rising economies in the world today. However, there are fi ve potential risks for the Indian stock markets:

A corporate de-growth in excess of expected 18-20%: The decline in corporate profits could be in excess of the currently factored 18-20% due to myriad factors like lower domestic consumer spending owing to lesser availability of consumer credit and sharp decline in demand in international markets, dampening exports, and tight controls on corporate expansion plans as well as corporate spending.

Fall in Sensex EPS beyond the expected EPS of around 850: If the risk of corporate profit de-growth results in the Sensex EPS coming below 850 in FY09, it can have an adverse impact on Indian stock markets. Moreover, the risk of negative growth is likely to trigger a lower P/E multiple for the index. All these could compound the risk for the Indian stock markets.

Increased flight of capital overseas: In the last few months, foreign institutional investors (FIIs) sold heavily on the Indian bourses, resulting in fl ight of capital overseas. FIIs turned net sellers to the tune of Rs9,117 crore in CY09. They sold in excess of Rs40,000 crore in FY08-09. The sharp depreciation of the Indian rupee against the US dollar and expectations of further weakness in the rupee against the US dollar also triggered the fl ight of capital overseas. The government’s burgeoning market borrowing program has also put pressure on the rupee. Thus, a further flight of foreign capital may pose increased risk for Indian markets.

Election results leading to a weak coalition government: The possible formation of a weak coalition government in India itself is a risk for the stock markets, particularly at a time when a strong and stable government is the need of the day to tackle the economic crisis. The competition between the two major camps—UPA and NDA—is likely to be compounded further with the formation of the Third Front.

Increase in terrorist activity in the sub-continent: Last but not least, the increasing terrorist activity in the Indian sub-continent is a risk for stock markets. The 26/11 terror attack on Mumbai, the recent terrorist strike on the Sri-Lankan cricketers, besides increasing political turmoil among our neighbors, raise India’s investment risk profile.

To see full report: TRADE WINDS

>HDIL (ICICI Securities)

Healthy demand at lower price point. The visit to HDIL’s residential site in Kurla has surprised us positively on the demand front – HDIL sold 390 apartments within three days of the launch. And our interaction with the buyers suggests that the demand for the project at the offered price points is genuine. HDIL has launched the project at Rs5,250/sqft with a ticket size of Rs4mn, at more than 25% discount to the ongoing projects in the vicinity. Sales have been booked on advance payment of 5- 10% of the ticket size. The project is located in Kurla, within 5kms from the Mumbai airport and 20mins from Bandra-Kurla Complex. The 756-apartment project has a
total saleable area of 0.6mn sqft. With a total saleable area of ~5mn sqft at the site, HDIL has the potential to increase the scope of the project 8x over a period of time.

Construction at a rapid clip. The Kurla residential project site is nearing completion as regards ground excavation and delivery is expected in April ’11. Work in Kurla SRS is going strong with ~3,000 workers and eight contractors working on ~28 buildings – The pace has picked up since Q3FY09.

Other developers too getting better response at lower price points. Post the favourable response received by DLF on its below-market priced projects in Chennai, Bangalore and Hyderabad, other developers are following suit. Purvankara recently launched Cosmocity near Siruseri in South Chennai under its mid-income housing banner Provident. The 2,174-apartment project is priced at ~Rs1,600/sqft with ticket size below Rs2mn – Our discussion with the Purvankara management suggests that the initial response has been good.

To see full report: HDIL

>Dividend Yield Picks (HDFC Securities)

In a volatile market such as now, should one invest in a stock for the dividend it pays? Conventional wisdom suggests one should. In a market downtrend, buying stocks of companies with a high dividend yield is considered a good defensive strategy. Dividend yield, which is dividend per share as a percentage of the market price, is a “value” measure that allows one to buy stocks that are only temporarily out of favor, or perhaps under-priced. Generally, the dividend yield strategy outperforms when the market recovers from the bottom.

In sudden sharp corrections, one may be able to pick up a stock that has a high dividend yield and gain once the market recovers. But timing the bottom of a correction is not easy. And in the interim the share price may fall further causing temporary capital erosion. Thus, such stocks may call for an active profit-booking strategy.

This brings us to the theory of ‘The Dogs of the Dow’ which is an investment strategy popularized by Michael O’Higgins in 1991. It proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price.

Proponent of the Dogs of the Dow strategy argue that blue chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that companies with a high yield, with high dividend relative to price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low yield companies.

Under this model, an investor annually reinvesting in high-yield companies should out-perform the overall market. The logic behind this is that a high dividend yield suggests both that the stock is oversold and that management believes in its company’s prospects and is willing to back that up by paying out a relatively high dividend. Investors are thereby hoping to benefit from both above average stock price gains as well as a relatively high dividend.

To see full report: Dividend Picks

>BHEL (Japyee Capital)

Strong Order Backlog: With an impending order backlog of Rs. 1135 and expected to close the fiscal year FY09E at Rs. 1200 , clear revenue visibility can be seen for the next 4‐5 years timeframe. High orders from NTPC & other government entities reduce the risk of order cancellations in this economic downturn. With a reigning market share of 60‐70% in the power equipment arena, Bhel will witness strong order inflows with the 12th five year plan in the offing.

Power to ALL by 2017: With an average GDP growth rate of 7‐8% for the next 10 years, India’s insatiable demand for power which is c120 GW is expected to soar to 315‐335 GW by 2017. India will require generation capacity of 415‐440 GW, which implies a tripling of installed capacity from c140GW translating into an annual addition of 20‐40 GW. This implies fivefold to tenfold the 4 GW per year that was achieved in the last 10 years. This will drive growth in equipment manufacturing.

● Supercritical boilers to be the mainstay of future: Almost 50% of the 12th 5 year plan will have projects based on supercritical technology. A major stimulus for bulk order for supercritical power equipment worth an estimated Rs 21,000 crore is likely to be thrown open for bidding in FY10 to the domestic power equipment sector. Nine units from NTPC and two units for Damodar Valley Corporation of 660 Mw each have been ordered. Chinese equipment manufacturers with no domestic manufacturing facilities in the country have been barred from bidding raising concerns regarding the quality and efficacy of Chinese equipment in harsher Indian conditions, where high‐ash coal is used.

De‐bottlenecking & lining up additional capacities: Plans are afoot to augment capacities to 15,000 MW from c10000 MW per annum by December, 2009 with an investment of Rs 42000 mlns and to 20,000 MW per annum by December 2011 with an investment of Rs.48000 mlns, via internal accruals. This will iron out capacity constraints on the company and fasten its execution capacities that should augur well for organic expansion in power sector.

To see full report: BHEL

>Power Utilities (MOTILAL OSWAL)

NTPC to retain 80-IA tax benefits under the revised tariff norms: Under the revised tariff norms (FY10-14), the tax rate for calculating pre-tax RoE will be the applicable tax rate, and not the effective tax rate. Thus, NTPC (Neutral) will be able to retain the 80-IA benefit. For PowerGrid (Not Rated), this change will make no difference, as it is a MAT paying company. Most of the private sector projects would also not benefit, as they are being set up as project SPVs, which would be MAT paying.

Expect XIIth Plan project awards by CPSUs / state companies to be expedited: According to the National Tariff Policy, post January 2011, all new projects of Central Public Sector Undertakings (CPSUs) will be based on CBT, versus current tariff based on fixed RoE plus incentives. To be eligible for current tariffs, the projects need to receive investment approval and achieve financial closure before January 2011. Thus, we believe that a large part of the XIIth Plan (FY13-17) capacity award by the CPSUs and state generation companies could happen by FY11. This will translate into a steady flow of orders for power equipment companies like BHEL (Neutral).

Draft guidelines for promotion of renewable energy being framed: CERC is in the process of issuing draft guidelines on promotion of renewable energy, and providing cost plus returns to such projects. CERC is in favor of preferential treatment during the initial period of debt repayment to allow renewable energy projects to compete with thermal power. Going forward, benchmarks for capital cost will be established and escalations will be provided. CERC is also conceptualizing renewable energy certificates (REC) along the lines of carbon credits.

To see full report: POWER UTILITIES

>Equity Weekly Watch (ANAGRAM)

Winds of change seem to be blowing on Dalal Street. The bearish stance of the past months is giving way to cautious optimism. The root cause of this new found confidence, however, is not domestic.

The country which was responsible for the global slow down is also behind this relief rally,

These three reasons have contributed to the bullishness in USA.

Statement by Citi late Monday night that it has earned profits for Jan and Feb. J P Morgan said the same thing yesterday.

Expectations that the mark to market rule will be suspended suitably modified to allow banks to breath easy.

Hopes that the uptick rule,that was introduced in the 1930's and that was repealed in 2007, would be introduced soon to curb short selling.

These are very powerful moves and therefore shorts need to be covered and time has come to grow Bullish horns.

To see full report: WEEKLY WATCH

>Currency Weekly Highlights (ANAGRAM)

At scheduled auction of 120 billion rupees, RBI rejected all bids of government bonds without giving any reasons for the move.

Rising yields increase govt's borrowing costs which have become a major concern. It has risen 62 basis points this week and more than 100 basis points this month. However, Indian federal bond yields tumbled after the central bank rejected all bids at the 120 billion rupees federal debt auction. It had earlier risen to as high as 7.37 percent a level last seen on Nov.20.

The index of Industrial Production for the month of January fell by 0.5% (y-o-y) which was lower than market expectations for a decline of around 0.9%. The mining, Manufacturing and Electricity segments noted a decline of 0.4%, a decline of 0.8% and growth of 1.8% respectively. The decline for month of December was revised lower to 0.6% from 2.0% estimated earlier.

The inflation based on Wholesale Price Index for week ended 28 February 2009 was seen at 2.43%, sharply lower than 3.03% noted previous week.

Central bank has extended the deadline for companies to buy back their foreign currency convertible bonds to Dec.31 from March 31.

The MCSI Asia-Pacific Index of shares climbed 3.7 percent in the week, halting four weeks of losses.

To see full report: CURRENCY HIGHLIGHTS