Morning Calls

Short covering triggers rally

The market saw a technical pullback via short-covering ahead of a long weekend. The Nifty, which slid to a 2010 low of 4,675 points on Monday, closed at 4,826.85 for a week-on-week gain of 2.4 per cent. The Sensex closed at 16,152 for an identical gain. The Defty rose by 2.7 per cent as the rupee rallied from lower levels. Breadth was good with advances outnumbering declines for the week. However, volumes were low. The FIIs were heavy net sellers, counter-balanced to some degree by moderate domestic institutional buying. The BSE500 was up 2.4 per cent while Midcaps underperformed the major indices, rising only 1.8 per cent.

Outlook: The rally appears to have come on short-covering. There is significant resistance at 4,850 and if the FII attitude doesn’t reverse, there is every chance next week will open weak. On the downside, support between 4,650 and 4,700 remains crucial. On the upside, if 4,850 is broken, a rally till 5,000 is possible.

Rationale: A sharp jump on low volumes ahead of a weekend is characteristic of a short-covering rally. The market would need significant volume expansion to cross 4,850. If it does so, a move past 4,950 would suggest an end to the intermediate downtrend, which has lasted five weeks so far.

Counter-view: Most likely, shorts will be renewed and push the market down to the strong support in the 4,650-4,700 range, followed by range-trading between 4,650 and 4,850. But a dip below 4,650, and especially a close below 4,650, would be a serious danger signal. That would be a Southwards breach of the 200 Day Moving Average, which is between 4,660 (exponential) and 4,684 (simple), and perhaps, the beginning of a new bear market.

Bulls & Bears: The CNXIT index continued to outperform the overall market, gaining 3.6 per cent. The move here was sector-wide. The banking (and financials) sector underperformed, with the Bank Nifty gaining only 1.9 per cent.

Real estate saw a late rally, which could fizzle out soon. Metals saw short-covering, which may continue for a couple more sessions. Sugar and cement scrips also saw a rally as did auto-stocks and in all three cases, there could be a little upside. Oil production and exploration scrips saw speculative investments. In most cases, the rise came on low volumes and clearly seemed to be short-covering or buybacks following sales against delivery. However, a lot of stocks have consolidated at lower levels before moving up.

MICRO TECHNICALS

HIND OIL EXPLORATION
Current Price: Rs 269.95
Target Price: Rs 290

The stock jumped from Rs 229 to current levels in one session on massive volume expansion. This is an unusual, difficult to read pattern. On volumes alone, there should be an upside till Rs 290. Keep a stop at Rs 263 and go long. Raise the stop by 5 units for every 5-unit rise. Book at least 50 per cent profit at Rs 290.

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SESA GOA
Current Price: Rs 382.70
Target Price: Rs 405

The stock has rebounded from decent support between Rs 355 and Rs 365 to current levels. Volumes are average. If it can close above Rs 385, it has the potential to reach Rs 405. Keep a stop at Rs 375 and go long. Add to the position above Rs 385. Book profits at Rs 405.

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ORIENTAL BANK
Current Price: Rs 274
Target Price: Rs 255

The stock has shown volume expansion and a lot of volatility, while ranging between Rs 250 and Rs 290 in the past few sessions. It is likely to see a downside in the next week, till at least Rs 265 level and maybe till Rs 255. Keep a stop at Rs 280 and go short. Cover 50 per cent of the position at Rs 265 and reset the stop till Rs 270.

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JP ASSOCIATES
Current Price: Rs 132.65
Target Price: Rs 140

The stock has bottomed out close to the current levels and it may be set for another up move. A technical recovery to the Rs 140 level is possible. Keep a stop at Rs 130 and go long. Volumes are not great. So a move past resistance at Rs 140 is unlikely.

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UNITECH
Current Price: Rs 74.80
Target Price: Rs 70

Short-covering has pulled the stock up but this looks like temporary relief. Another selloff next week could push the stock back till support at Rs 70. Keep a stop at Rs 77 and short. Cover 50 per cent of the position at Rs 72 and clear the rest at Rs 70.

Analysts' corner 15-FEB-10 Educomp reported robust performance recording 37.2 per cent year-on-year growth in top-line in the December 2009 quarter.

Attractive risk-reward ratios 15-FEB-10 It appears that the current month premiums are under-estimating the likely volatility ahead of the Budget.

Short covering triggers rally 15-FEB-10 The market saw a technical pullback via short-covering ahead of a long weekend.

Risk and innovation 15-FEB-10 Capital market vision is important as it tells us where we want our markets to head tomorrow.

Costly pipes 15-FEB-10 Lacklustre track record, competitive industry and stiff pricing render Texmo’s IPO unattractive.

Pitching for value 15-FEB-10 Tripling of its capacity and moving up the coal tar pitch value-chain should help Himadri Chemicals meet demand and maintain margins.

Firing on all cylinders 15-FEB-10 ITC’s cigarette business, its cash cow, has been doing well with volumes growing at a robust rate for three consecutive quarters.

Flying higher 15-FEB-10 If the sector is able to control costs and maintain higher load factors going ahead, then consistent profitability could become a reality.

"Be stock-specific, expect moderate returns in 2010" 15-FEB-10 In a new series of interviews, Ajay Parmar talks to Rex Cano about the outlook for 2010, review of corporate earnings, upcoming Union Budget and his approach to investments.

Markets at a glance 15-FEB-10 Volatility was order of the day, as investors were uncertain about global cues.

Value picks 15-FEB-10 Despite the run up in markets in the last one year, many good companies are still available at attractive valuations.

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Src: ET, Business-Standard, DP Blog and etc

FIIs cut exposure to India, shift to safer markets

FIIs cut exposure to India, shift to safer markets

MUMBAI: The Indian stock market has witnessed net foreign fund outflows of Rs 3,550 crore since the start of 2010, making it one of most badly hit markets among emerging markets. A desire to shift a part of their money to safer dollar-denominated assets in the wake of the recent credit turmoil in Europe, concerns over further weakening of the rupee and stretched equity valuations have led foreign portfolio investors to cut their exposure to domestic equities. With a net withdrawal of $754 million in 29 trading sessions (since January), India trails just behind Taiwan ($2,488 million) in terms of foreign outflows, according to Bloomberg. Indonesia and Thailand, with net outflows of $238 million $294 million respectively, are among the other Asian market that have seen foreign capital outflows since the beginning of this year. Around $3 billion has been redeemed from the entire emerging market cluster during the first week of February, say market experts. While much preferred Asian equity hubs witnessed a sell-off, dormant markets like Japan, Philippines, Vietnam and Pakistan witnessed investments flowing in from foreign portfolio investors. South Korea logged inflows to the tune of $290 million since January while the surprise package was Japan, which witnessed inflows worth a whopping $18,868 million. Even if one takes a shorter time-frame from February, Japanese funds were winners as they witnessed seven consecutive weeks of net inflows. Key benchmarks in Japan, Vietnam and Philippines currently trade at 6-12 times price-to-earnings (P/E). In India’s case, despite a near-10% correction, the local market still commands a premium valuation of 20 times trailing P/E, making it a fairly-valued zone for any class of investor. “Japan currently offers investors a chance to gain on currency arbitrage. Moreover, asset prices (especially equities) in Japan are cheap. Astute cross-border investors will try to make most of this situation by moving their investments into Japanese shares,” said Gopal Agarwal, equities head, Mirae Asset Global Investment. In India’s case, according to market experts, the sell-off has been more because of global factors and stretched stock valuations. The sell-off in key emerging markets like India started after US President Barack Obama decided to limit financial risk-taking by banks. The sell-off aggravated after the credit crisis in Greece and Portugal. The hardening of the dollar also resulted in foreign investors shifting their rupee-based investments to dollar denominated assets. A rise in (dollar) value (against the rupee) increases the borrowing cost for foreign investors who had borrowed dollars to invest in Indian market. They exit their rupee investment at higher levels, pocketing currency value differential along with portfolio gains, if any. “Investors will start coming back once the rupee moves up to 48 - 49 levels,” said Mr Agarwal. Echoing his views, Ambareesh Baliga, vice-president, Karvy Stock Broking said: “FIIs are likely to stay away from Indian shares until there is clarity in world markets. It may be 2-3 months before they start reinvesting in Indian shares,” he said. According to Mr Baliga, while the market may not see a deep fall from current levels; it probably will be locked in a narrow range at lower levels. Investors should be cautious while investing in these markets, he added.

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