Sunday, May 16, 2010

Weekly Nifty Update 14 May, 2010 by Tanmay G Purohit

Nifty has closed positive +75 points this week at 5093 but actually only Monday was a big rally day and after that follow-up buying was really absent. AXIS BANK, TATA MOTORS, IDFC, M&M, KOTAK MAHINDRA rose more than 5% each but market was pressurized as major heavyweights didn’t perform. TELECOM stocks took it on their chin after TRAI recommendations on 2G fees – IDEA lost 10% while BHARTI AIRTEL and RCOM were down more than 5%. CIPLA fell 8% after poor results.

Industrial output rose lower than expected 13.5% in March 2010 Vs February's 15.1% expansion. Industrial output rose 10.4% in the 2009/10 fiscal year, faster than the 2.6% growth clocked in the previous fiscal year. While the headline inflation declined to 9.59% in April 2010 from 9.9% rise in March 2010, the data for February 2010 was revised upwards to 10.06% from provisional figure of 9.89%, the latest government data showed.

CRISIL has warned that Indian banks may see deterioration in their asset quality, while their collective gross non-performing assets (NPA) ratio may increase to 3.6% in 2010-11 from 2.3% in 2008-09.  The Reserve Bank of India (RBI) has issued a stern warning to public sector banks against any attempt to “evergreen” their balance sheets. For instance, a bank can lend money to a company to pay off another bank’s loan. This way, the second bank can save an account from going bad and reduce its non-performing assets (NPAs). The second bank can then extend a similar facility to a company which has not been been able to repay loans from the first bank. This is the most common method of evergreening. Some banks also disburse too many loans at the end of the year. This way they can increase their advances portfolio and reduce the NPA in percentage terms.

The Greek debt crisis could trigger short-term vulnerability in the Indian markets and there could be capital outflows from emerging markets, Reserve Bank of India (RBI) Deputy Governor Subir Gokarn said. Pranab Mukherjee said that Indian markets cannot remain immune to eurozone debt problems and will feel the impact if the $1-trillion bailout package by the EU and the IMF does not inspire confidence. Crude has started to come down $74 making 3months low and more pressure on Crude will reduce fiscal deficit, and Telecom 3G Auction also will improve deficit financing and May 21st meeting on Oil price freeing is helping Oil Marketing & Subisidy sharing company - OIL, ONGC, IOC, BPCL, HPCL & GAIL can be stable.

Europe is totally the concentration now and the euro slumped on Friday to a 17-month low against the U.S. dollar, as a report that France's president had threatened to pull his nation out of the euro zone rekindled worries about financial stability in Europe.

Globally markets are trading near 7-9 month lows and India is still not even at 3-month low which indicates we have been saved so far from global meltdown but looking at valuations - Nifty P/E is still around 21.19 and many predict a strong commodity cycle next year with 30% growth in Net Profits, this year we have had same growth but maintaining the same would be a challenge. Forward P/E at 18 and US Forward P/E at 13.5 clearly shows Indian valuation is more expensive and a correction would be an opportunity to bet on long term prospects while short-term may be bad for traders.

Technical View: Nifty has been unable to pierce past 5200 and now 200DEMA at 4893 would be a crucial support. Timewise we haven’t corrected yet far enough and if this is a bear market, in my view it is, we may see Sensex 13000 or below in a year’s time. We have advised to remain in cash 70% and so far we haven’t advised averaging as stocks may seek still lower levels. India hasn’t had problems regarding markets and every time we have corrected because of global issues, this time it is no different. Any Global Crisis will derail Global Growth and Metal stock would see major downslide.

Stocks looking good: GAIL, SUNTV

Supp 5000/4885/4800 Res 5135/5210/5300

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