Monday, May 4, 2009

>Weekly Derivatives (ICICI Direct)


* The Nifty Spot has risen by 0.20% to close at 3474 from the previous week’s close of 3480

* The total futures OI in the market stands at Rs 40780 crore whereas all options OI stands at Rs 60502 crore Futures Vol(In Shares) Nifty Spot Nifty Future


• The Nifty formed ‘Hanging Man’ like pattern on the weekly charts. Although this is not a bearish pattern, it could turn out to be a bearish one, if the market trades below the close of the week at 3474

• On the other hand, firm trading above the weekly high of 3520, would trigger further upsides up to 3,630

• On the downside, good support appears around 3350-3300 levels

• We expect the Nifty to trade in the range of 3630–3300 levels for the coming week

• The resistance appears at 3525 and 3630, whereas support exists around 3400, 3360 levels

To see full report: DERIVATIVES 040509

>Weekly Calls (ICICI Direct)

To see report: CALLS 040509

>Daily Derivatives (ICICI Direct)

Derivative Comments

• The rollovers in the Nifty surged above expectation at 74.03%. On the expiry day, significant short covering to the tune of 4.95 million shares was seen in April series while May series added 8.48 million shares with the current May OI at 36.09 million shares in OI. The rise in Nifty price by 3.32% was basically on account of short covering. Moreover, some long rollover was also seen in May wherein the premium jumped to 9.15 points

• The May series options data shows maximum Call OI currently standing at 3400 with 2.97 million shares while the largest Put OI base also is at 3400 with 3.09 million shares. On the expiry day we saw addition of 26000 contracts in the 3400 Put followed by addition of 12369 and 12495 contracts in 3300 and 3200 Puts, respectively. The IVs of these options are 3200-46.64,3300-45.26 and 3400-43.24. Put writers were having a strong hand at 3400 in the last session. The 3500, 3600 and 3800 Calls each added nearly 9500 contracts in OI while the 3400 and 3700 added nearly 6000 contracts. High volumes and drop in IVs of 3700 and 3800 Call depicts some Call writing in these strikes, which could also be due to the long weekend. Markets are likely to take support at 3400 on a closing basis today

• FII Index futures and options shows noteworthy unwinding in OI on account of expiry of April series.

To see full report: DERIVATIVES 040509

>Daily Calls (ICICI Direct)

Sensex: We said, "protecting the low (10961) can appear as an attempt to hold the 31-day long Green support line." Index held 10961, with its low exactly at the Green line, and recovered as much as 400 points or 3.6% on the Settlement day. IT Index moved 5% higher. A/D ratio turned positive at 3:1.

The action formed a Belt Hold Line Bull candle, indicating bulls' attempt to hold the Green line. Its high was testing 3-week resistance near 11400-500. Trading above day's high of 11430 can encourage further bull effort to break the 3-week resistance. Failure in this regard would retest the Green line, which break below 11090.

To see full report: CALLS 040509

>Daily Market & Technical Outlook (ICICI Direct)

Key points
􀂃 Market outlook — Open with gap up on Asian cues
􀂃 Positive — Rupee likely to rise, FII buying, Asian cues
􀂃 Negative — MFs selling consistently

Market outlook
􀂃 Indian markets are likely to open with a gap up following Asian cues. Our markets have some catch up to do after a long weekend. Our markets will be volatile this week due to the earnings season and overhang of political uncertainty. The US stress case results will be released this Thursday. It was earlier scheduled for today

􀂃 The Sensex has supports at 11200 and 10900 and resistances at 11490 and 11870. The Nifty has supports at 3470 and 3420 and resistances at 3560 and 3630

􀂃 The Nikkei Average rose 1.7% to its highest close in nearly four months on Friday, as Fujitsu surged on a better-than-expected annual outlook, while a weaker yen and receding worries about the global economy boosted exporters. Today most of the Asian indices are trading up in the range of 2-3%

􀂃 US stocks rose on Friday as surging oil prices pushed energy shares higher and fresh economic data suggested key parts of the economy could be stabilising. For the last week, the Dow rose 1.7%, the S&P gained 1.3 % and the Nasdaq ended up 1.5 % higher

􀂃 Stocks in news: Jain irrigation, Titan, UTV

To see full report: OPENING BELL 040509

>Ajit Jain among candidates to replace Buffett as CEO of Berkshire: Report

LONDON: India-born Ajit Jain could be in race to replace billionaire investment guru Warren Buffett as the the chief executive of Berkshire

Hathaway, according to a media report.

As per a report appearing in The Telegraph, Buffet was quoted as saying that all the candidates, including Jain are already working for the company.

After over 40 years, Buffett's job would be split between his son Howard, who will become the chairman, and the yet unidentified chief executive and chief investment officer.

The report said, "Buffett, 78, said all the candidates for the position of chief executive already work for Berkshire Hathaway. Among the contenders for the post are David Sokol, head of Berkshire's MidAmerican Energy; Tony Nicely, who runs the investment company's Geico car insurance business; and Ajit Jain, who runs its re-insurance business."

Another leading daily the Sunday Times said though Buffett refused to name the people who will become Berkshire's next chief executive or its next chief investment officer he said three of Berkshire's internal managers are candidates to be chief executive.

He said the board has a list of four internal and external investment managers who could manage Berkshire's portfolio.

Buffett said his four replacement candidates had failed to dodge the financial crisis this year.

As per the Sunday Times, at Berkshire's annual meeting in Omaha, the legendary investor said that his preferred replacements "did not cover themselves in glory" this year but added: "I did not either. I am very tolerant in that respect."

Buffett further said "but their average over 10 years has been modestly to significantly better than average, and I would say that would be the case over the next 10 years."

"The candidates we have for CEO are running businesses, doing things every day of an operating nature," said Buffett. "These are people who are ready for the job right now - 100 per cent," the report added.

In the Shareholders meeting held on May 2, Buffett said the world had been hit by a "financial hurricane". He said he was impressed by the government's reaction to the crisis. Buffett said the American government was "doing the right things".

Last year, Buffett said the US faced an "economic Pearl Harbor".

Regarding his investments in the US banking sector, the Telegraph quoted Buffett as saying that he would "love to buy all of Wells Fargo" if he were allowed to. When the US bank's share price fell below $9 (6 pound) earlier this year, he said: "If I had to put all my net worth in one stock, that would be the stock."



Swine Flu impact: A minor blip…

After seven consecutive weeks of spectacular gains, markets witnessed a marginal hiccup last week when the world woke up to the outbreak of “Swine Flu”. As the Flu spread to the rest of the world, global markets dipped sharply on Tuesday, particularly the travel, tourism and airline stocks. However, in what was a curtailed trading week, markets rallied spectacularly on Wednesday, closing the week on a fl at note. While the Nifty closed with a marginal dip of -0.20% W/W, the BSE Sensex rose 0.65%, recording its eighth consecutive week of gains.

The Flu impact was merely a blip on the bourses, and the positive bias in the markets is clearly evident from the encouraging news fl ow emanating from India and the US. In regard to the quarterly results, major heavyweights did not disappoint the markets, and the results continued to be fairly in line with expectations. In the banking space, particularly, select banking stocks declared better-than-expected results, although ICICI Bank failed to beat market expectations. However, with its NPA levels coming in lower than expectations, the stock witnessed a spectacular rally. Globally, too, US companies have been declaring better-than-expected results, raising hopes of a soft landing for the global economy, particularly in the backdrop of rising consumer confi dence data from around the world.

While the positives are increasingly seeping in, one must not forget that the major economies iN the world are still showing negative growth. The US’ Q1 GDP shrank 6.1%, which was worse than economists’ estimates. However, a global recovery can only be pronounced if the positive new fl ow continues to be sustainable.

In India, the focus has shifted from WPI and GDP growth to the ongoing Lok Sabha elections. Clearly, no elections have grabbed the nation’s attention as this one has. With the verdict expected to be the most fractured in India’s political history, markets may witness increased volatility in May. From a global perspective, the outcome of the stress test results on banking stocks in the US is likely to influence the direction of the global equity market in the coming sessions. Stocks in energy, software, BFSI and capital goods are expected to trade on a positive note during the week.

To see full report: KARVY BAZAAR BAATEIN

>Trade Winds (KARVY)

Slow rollover into the May series…

Indian stock markets rallied sharply due to heavy buying interest in energy, BFSI and software sectors. Major heavyweights did not disappoint market participants with their earnings last week. Buying momentum picked up in the markets after Reliance Industries and select banking stocks declared better-than-expected profi ts. Heavy short covering was witnessed in the Nifty and frontline stocks during the settlement of futures and options for the April series during the week. The Nifty witnessed a rollover of about 76% positions, whereas the rollover in the overall market was 68%. The rollover of positions into the May series was relatively lower than the rollover in the previous months due to uncertainty over the election results scheduled to be announced during the May series.

Global markets traded on a positive note during the week, considering better-than-expected earnings and expectations of deceleration in the global economic recession. However, the outbreak of Swine Flu in Mexico and its spread to other parts of the globe led to selling pressure in travel and tourism sectors. The outcome of the stress test results on banking stocks in the US is likely to infl uence the direction of the global equity market in the coming sessions.

Overall, data indicates that consumer confi dence has increased signifi cantly across the globe, but the major economies in the world are still recording negative growth. The GDP in the US shrank 6.1% for Q1 which is slightly better than the contraction of 6.3% in the previous quarter, but worse than estimates. This indicates that the pace of global economic recession is not as slow as economists estimated in the previous quarter.

Domestic markets are likely to be highly volatile as election results are scheduled to be
announced on May 16. The earnings announcements of major heavyweights are likely to infl uence the market direction in the coming sessions. The Nifty is expected to trade on a positive note within the range of 3300-3650 levels during the week. Stocks in energy, software, BFSI and capital goods are expected to trade on a positive note, whereas auto, metals and telecom stocks are likely to trade on a negative note during the week.

To see full report: TRADE WINDS

>Asia Macro and Strategy Outlook (CITI)

Green Shoots - Premature Harvest

* Talk of "green shoots" should be put in perspective, even if regional YoY GDP growth is expected to bottom in 1Q09/2Q09 — Except for China, signs of a real recovery remain elusive, though production stabilized and expectations have caught up with reality. Prospects hinge on the G3 outlook, which remains fragile.

* We are nearing, or have already reached, the end of the rate cutting cycle — Korea Taiwan and Malaysia have probably ended their rate cuts, while China may be the first to tighten policy. Only in Indonesia, India and the Philippines do we still expect sizeable cuts, though the pace of cuts will slow.

* Concerns about external liquidity risks in emerging markets, including Asia, have significantly abated, and should continue to improve — Concerns over external funding will likely improve given (1) strong government commitment globally to support systemically important institutions, (2) strengthening of resources of the IMF and other multilateral financial institutions, (3) proliferation of bilateral swaps, (4) re-opening of private capital markets, (5) improving current accounts.

* Concern about fiscal deterioration will be better factored into sovereign credit spreads, and we are biased to pay on the longer end — Revenue slippage, countercyclical fiscal policies and realisation of contingent liabilities could cause fiscal balance sheets to deteriorate. South Asia, the Philippines and Malaysia, where debt to GDP is already very high, will face more fiscal constraints. We don’t find a compelling case for receiving front-end rates except in Hong Kong and India, and are biased to pay in the long-end of the curve, especially in Malaysia, Korea and Taiwan.

* While Asian FX is vulnerable to a near-term relapse of risk aversion, the longerterm FX appreciation view remains intact — Near-term FX outlook would depend on risk environment. Anchored appreciation expectations on CNY, and improving external flows should support medium-term FX appreciation. We remain marginally bearish on SGD, neutral on MYR and biased long on IDR and KRW.

To see full report: ASIA STRATEGY

>Larsen & Toubro (MORGAN STANLEY)

Reassessing the Impact of Capex Slowdown; Retain OW

Investment conclusion: We continue to believe that L&T is a key stock to own in the India construction space as its record of gaining market share amid slowdowns over the last 15 years should stand it in good stead over the next few years. We also believe that L&T’s loss on
the Satyam bidding process and its guidance of strong order inflows in F2010 (YoY growth of 25-35%) has removed the two largest overhangs on the company.

What's new: We are lowering our F2009E and F2010E EPS by 14% and 27%, respectively, to adjust for the capex slowdown, which while easing, continues to be worse than we earlier expected. The cut is mainly on the back of our assumption that L&T’s order execution period goes up 24% to 27 months over F2009-11E, leading to L&T’s revenue growth slowing to 20%. We also account for the higher impact of the slowdown on L&T’s subsidiaries vs. our previous expectations.

Where we differ: We believe that consensus has turned too bearish on the capex cycle and does not give L&T credit for its long history of market share gains in such environments. Despite conservative assumptions, we are around 10-20% ahead of consensus on F2009-11E EPS and believe that the strong F2010 order inflows L&T recently guided to will result in F2011
earnings surprising on the upside.

What’s next: We believe that award of the negotiated order from NTPC (expected in late C2009) and order by ONGC, as well as L&T’s win percentage in those orders, will be the next big drivers. As well, we continue to believe that the growth in order bookings and revenues
and the YoY change in margins over the next three to four quarters will be the drivers of stock performance.

To see full report: LARSEN & TOUBRO


* Strong Top-line growth: Areva T&D India posted a strong Top-line growth of 66.9% to Rs845cr (Rs506cr) for 1QCY2009, which was ahead of our expectations. Primary reason for the phenomenal growth was the accounting policy change with regards to recognition of Revenues from long-term contracts in Systems and Power Transformer business on the basis of certain internal milestones as compared to invoicing on dispatches being followed earlier. In addition, better than expected execution of the healthy outstanding Order book aided the Top-line growth as well.

* Sharp dent in the Margins: On the Operating front, Areva T&D reported a sharp decline in EBITDA Margins by 390bp to 12.9% (16.8%). This was primarily due to the high raw material costs, which increased by a substantial 880bp to 72.1% (63.3%) of Net Sales. The changing product mix with increasing contribution from the Systems Segment (which entails higher
bought-out items and hence comparatively lower Margins) was a major reason behind the same. Though the company benefited from the Operating leverage with reduction in Employee cost (170bp) and Other expenses (320bp) as a % of Sales, it could only partially offset the Margin dip due to the high raw material costs. Going ahead as well, we expect the company’s Margins to decline gradually on the back of the changing Product mix and increasing competitive pressure in the market.

* Disappointing Bottom-line: Owing to the fall in Margins, EBITDA grew by a moderate 28.2% to Rs109cr (Rs85cr) during the quarter. Interest cost increased by more than three times to Rs12cr (Rs3cr) along with the increase in Depreciation. This coupled with higher restructuring and relocation costs and a slightly higher Tax rate led to reported Net Profit declining by 5.0% to Rs51cr (Rs54cr) during the quarter. However, after adjusting for the extraordinary item of profit on sale of property, adjusted Net Profit for the quarter managed to grow 5.8% to Rs51cr (Rs49cr).

To see full report: AREVA T&D

>Telecom Sector (CITI)

Asia Connect #2, 2009

Coming With Low Expectations: Thoughts from the Road

* Coming with low expectations — Our recent meetings with US investors highlighted low expectations on competitive and regulatory concerns for the sector (Indonesia an exception). While we know the sector is well-held for defensive reasons, and this is likely to be a source of funds into any market rally, we view that some stocks are set to outperform if operational delivery beats current low expectations.

* Indian wireless: Expectations very low — We were surprised by the low expectations and walked away from most meetings sensing that the various concerns (regulation, escalating price competition, declining elasticity etc.) have all been discussed to death. We think stocks are primed for disappointing results, although Idea’s strong 1Q indicates otherwise and we believe this bodes well for the sector and Bharti, our top pick.

* China: To each their own — The only investor consensus was that there is no need to be involved in the sector for now, if there was an alternative. We saw wide divergence in stock choices/ preference orders. Our view is that CM offers relative earnings stability on a 1-yr view and that investors use sub P/B parity entry points to look for longer term entry opportunities into CT and CU.

* Indonesia: Warm and fuzzy feeling — We were surprised by the positive stance of investors and suspect an improving macro outlook plays its part as well. The industry is in repair and expectations are for profit growth to accelerate. With stocks having moved up, we advocate exiting into strength as we see delivery disappointing versus built up expectations (Indosat’s recent 1Q results are a case in point).

* Korea: Skepticism rules — The wireless margin expansion story on LT contracts reducing churn is widely consensus and not believed at all, as reflected in SKT and LGT valuations, and we see risk-reward to the upside at these levels. We and most investors think KT will disappoint into any post (KTF) merger. If anything were to surprise on the contrary then KT at BVPS (W34k) levels could become an interesting play.

* Top themes and stock plays — Bharti is attractive for growth and TWM, PLDT for yield. We view there is risk-reward upside in SKT, LGT at current levels. CT, CU potential entry points at discount to book (HK$3/HK$9.9 respectively) – higher discount for CU given its lower execution track record/longer inflexion period to earnings recovery. OnMobile attractive as a VAS play on robust Indian subscriber g rowth. Top Sells include Indosat, TataCom and PCCW.

To see full report: TELECOM SECTOR