Sunday, May 30, 2010

Weekly Nifty Update 29 May, 2010 by Tanmay G Purohit

Nifty has closed positive +135 pts (5066) after hitting 15-week lows at 4786 and last three sessions pullback has been strong. RELIANCE group stocks rallied the most after two Ambani brothers decided to cancel the Non-compete agreement – RPOWER +12%, RCOM +10%, RELINFRA +6.8%. JPASSO, SIEMENS, STERLITE and UNITECH rose more than 6% each. Advances outnumbered declines this week where ACC fell more than 4% along with IDEA which fell 3%. SUGAR stocks recovered after recent sell-off – RENUKA +13%, BALRAMPUR CHINI +9% and BAJAJ HIND +6%.

Six core infrastructure industries grew 5.1 per cent in April Vs 7.2 per cent in March 2010 - the key sectors -- crude, petroleum refinery products, coal, electricity, cement and finished steel -- showed a decline in growth. Price continues to be a matter of deep concern and PM Manmohan Singh exuded confidence that inflation would come down to 5-6 % by December adding that the economy is likely to grow at about 8.5% in the current fiscal and the country is capable of achieving 10% expansion in the medium term. Steel stocks have come under heavy pressure as International steel prices collapse because countries still recovering from the economic downturn have been hit by the Greek debt crisis and JSW STEEL & ISPAT have said they would cut prices next month. NHPC has come out with excellent results and the stock is a very good investment at current levels while one has to accumulate such value stocks.

RBI has cut SLR by 50bps to stem liquidity crisis after banks had expressed their fears to RBI regarding a liquidity squeeze owing to expected outflows because of advance tax payments and also payments for 3G licenses by telcos early next month. FII selling has been main dragger of markets as they have taken out Rs 8882 Cr in May alone and with liquidity squeezing rally would be difficult to sustain for a long time. Fitch has said gross NPL (Non-Performing Loans) of Indian banking system may rise towards 3.2-3.5% by Mar2011 from current 2.5% in Mar2010 because of restructured loans and some of them have also turned into NPLs.

Corporate results with 2824 results available sales has increased by 25% and net profit by 14% and the impact of higher raw material cost is visible in results; Jan-March2010 was best performance by Corporate India in last 2years so I doubt 30% in Net profit in the FY10-11 as main projection is based on commodity cycle and it has not factored in Global crisis; P/E presently at 20 market is fully valued.

Current government has shown its lack of execution once again as it has poured down the drain Rs 55,175 crore belonging to the Indian taxpayer between 2004 and 2010 because it failed to deliver 495 projects on time; out of the 601 projects undertaken between 2004-05 and 2009-10, the government delivered just 54 either on time or ahead of schedule.

Spain's parliament approved a 15 billion euro ($18.4 billion) spending cut, following the lead of Greece, Portugal and Italy in trying to ease a crisis that has undercut the euro, rattled banks and threatened European cohesion. And now Fitch has downgraded Spain's credit rating demonstrating the difficulty of steering out of the euro zone debt crisis with budget cuts that restrict growth. The widely anticipated downgrade followed a warning by a European Central Bank policymaker that Europe's predicament could spread to other regions while labor unions threatened strikes and investment banks were hurting.

Technical View:
Nifty as long as below 5200 the trend would remain as a pullback only and the rally may take further shape only if a sustained close above this level is seen. Nifty has closed below 200DMA for most of this week and if a move below 5000 is seen once again selling may start. Nifty trades below 13, 26 and 50DMA which indicates short-term trend is still bearish. Q4 GDP data to be announced on Monday 31 May would be watched closely and Indian Met Dept expects monsoon rains to hit Kerala in next 3-4 days, any delay in rains would be negative. Spain downgrade and North Korea's warning of all-out war would impact global markets negatively in short-term.

Stocks looking good: BIOCON, DISHTV, MSKPROJECT
Supp 5000/4930/4800 Res 5122/5189/5260

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