Money Morning- 30-04-2013

Corporate News/Results Corner

· Unilever PLC to raise stake in Hindusthan Unilever Ltd by 22.5% to 75%; To make voluntary offer at Rs 600/share

· Sterlite Industries’ Q4FY13 results beat consensus expectations (Positive for Sterlite Industries, Sesa Goa)

Macro Economic and Other News

· Don’t relax vigil against inflation: IMF to India

· Parliamentary panel recommends enhancing FDI limit in defence

International News

· Japan jobless rate fell to 4.1% in March

· Taiwan economy expanded slower than estimated

· U.S. pending home sales jumps in March

Money Derilook - 30 April

Nifty Outlook:

· NIFTY PCR_OI flats at 1.05 (higher opening in last 3 months), with 5800 and 5900 PE saw addition of 3.5 and 5.03 lakh shares total OI 54 and 38 lakh shares on other hand 5900 and 6000 CE saw addition of 1 and 2.5 lakh shares with total OI at 46 and 44 lakh shares (PCR-OI of 5800 and 5900 at 1.45 and 0.75) implying immediate short term NIFTY will trade in range at 5750-6000 levels.

· INDIA VIX up by 4% at 14.33 above 14 levels, we have to watch for if moves above 15-15.5 and sustains above this levels, Bears will be back in action NIFTY may feel stiff resistance higher levels at 5980-6030 levels.

· FIIs continue to be buyers in NIFTY Fut. Rs 7 Cr. (negligible volumes); also turned sellers in MAY series INDEX Options sellers 316 Cr (hedging unwound as VIX rebounding 14.5 levels, quantum is too less, implying FIIs expect volatility to remain range bound), stock futures continue to be sellers 388 Cr; buying continues in cash with momentum maintained 615 Cr., with some fresh longs in NIFTY continue along with Cash buying seeing higher momentum, NIFTY may test higher levels 5900-5980 levels.

· Over all PE writers build aggressive positions; Index may find support at 5760-5830 levels.

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Roll Over Report - May 2013

Rolls in NIFTY futures higher than last month with NIFTY rolls at 67%, higher than 6-month average of 58%, also in value terms, it is at 11501 Cr. versus 8502 Cr. (NIFTY was up by 4% in last series, therefore number of shares have increased to 158 lakh versus 121 lakh shares). On other hand, market wide roll also higher at 78% in value terms 23959 Cr which is more than last month 22168 Cr., (in share terms also higher, also as stocks have gain 5-10 % on price chart) leading to overall position of 35460 Cr Vs 30670 Cr. (higher than last month, and also highest in last three month) in futures positions, however Roll Cost is at 0.48 which is lower than last month but adjusting dividend cost is positive, higher than 6mth avg. of 0.53, with NIFTY cost at 0.09 (which is much lower than 0.58 avg. 6 months, also lower than last month),mainly because of adjustment of dividend . Also, NIFTY/STOCK Fut. ratio has come down to 0.35 (last month 0.40), implies market participants have long roll bets on individual stocks, and covering short positions.

Nifty front PCR_OI opened above 1, but higher from where last series end at 0.98 levels (stable zones); with 5700, and 5800 PE having highest OI across options as 46 and 48 lakh, (19 and 25 lakh shares add on Thursday), implying PE writers are convinced NIFTY will find support around 5670-5750; on resistance side CE OI is at 5900 (42 lakh shares), implying 5900-6005 will be crucial resistance zone; Index options positions however moved up 60110 Cr (last month 52523 Cr) clearly can be attributed to hedging being increased. We feel in short term Nifty trading range would be 5670-5750 to 5900-6005, as we enter the MAY Series.

Among stock futures lot of sectors have shown mixed sentiment, implying it will be Stock Specific market with in a sector also some stocks are showing more strength than others; some of the sectors that can help Index to gain further in the MAY. Series, Overall OIL & GAS, FINANCE, BANKING, METALS, AUTO, OIL & GAS should be watched carefully as they have shown C-o-C improve heavy weights. On other hand, sectors which might underperform are IT CEMENT and TELECOM.

TOP PICKS

LARGE CAPS

· TATAMTR rolls at 77% well above 6-month avg. (with cost improve), implying long rolls; the stock has closed above 285-286 where 50 DMA is placed. If it remains above this level, we expect it to test 305-306 levels.

· Stock to watch for TATASTEEL rolls well above avg. at 83% with cost improving stock has closed above resistance 302-307 zone where 20 and 50 DMA is placed, if continues to sustains above it expect to retest 339-340 levels

· CAIRN saw above avg. rolls at 86% with cost increase, the stock has managed to hold and rebound from crucial support levels 285-290, managed to close above 296 i.e. 50 DMA till it trades above support level, expect stock to move higher levels 321-323 i.e. 200 DMA.

· DRREDDY rolls at 69% versus 61% (6-month avg.) with C-o-C improve imply long rolls, technically, the stock has closed above 1963-1967 zone thus forming a new all time high, one should buy aggressively till it holds and sustains above 1850-1870 for a target of 2100-2150.

REDDUCE

· HCLTECH has shown 75% well above six month avg. with C-o-C decline (lower than last month), implying short rolled, Technically, the stock has breached crucial support levels 740-745 i.e. 50 DMA, if breaks below 1 can move further south to 634-640 i.e. 200 DMA, sell on rise.

MID CAPS

· SRITRANSFIN has seen above avg. rolls at 93% (highest in last six month with higher cost), implying long rolled, stock has consolidated and managed to hold above levels of 666-667, where 200 DMA is placed, if holds above these levels, expect to test 735-770 levels.

· TITAN has seen above avg. roll 82% with increase in Cost implying longs rolled, stock forming a strong support base around 255-259 levels, where 200 and 50 DMA is placed expect to retest 278-280 levels once sustain above 260.

· UCOBANK also showing an increase in rolls above avg. at 89% versus 83% with C-o-C improve implying supportive buying. Stock has closed above 66-67, if holds above 63-64 support expect a technical rally till 72-73 i.e. 200 DMA.

· KTKBK saw above average roll of 91% (with cost improving) versus avg. of 89%. The stock has moved above 149-150 resistance zone, till stays above 142-143 i.e. 50 DMA may retest higher levels of 167-168.

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EURINR move towards 71 level.

EURINR look firm for the day as we have seen EURUSD regained past week after Chinese 1Q’13 GDP severely damaged the commodity bloc’s prospects for gains. On domestic front we have USDINR dropped which had created the pressure on EURINR also but in today’s session we have USDINR once again trying to regain from 54.00 level can bounce till 54.34 level which can support EURINR, also looking to the hourly chart a break above 18dma can test 50/100dma also that is near to 70.98 level. Meanwhile we have seen bounce in EURUSD also from the 1.3045 level that can bounce till 1.3090/1.3100 level that again make EURINR to test near to 70.98/71.00 level in today’s session.

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ESSENCE OF THE WEEK-22ND APRIL2013

India’s trade deficit halved to ~USD 10 bn in March – the lowest in 2 years as exports rose 7% YoY while imports contracted 2.5%.

There were positive surprises in both headline (down at <6% YoY) and core inflation (3.5% YoY) – which hit 3 year lows. Further, the benchmark 10-year bond yield fell to its lowest since July, 2010 reflecting easing concerns over inflation. Softening global commodity prices esp gold (down 17% CYTD) and crude (down 13%) along with a firm INR will provide further room to RBI for cutting interest rates in its next policy meet in May to prop growth. However, we may still need liquidity measures (OMOs/ CRR cuts) to transmit these cuts.

The Foreign Trade Policy failed to live up to expectations of providing any major exports boost, though some positives include the decreased land requirement for SEZs and continuation of current sops. Yet, India’s exports should inch up in FY14 anyway on improving developed world demand (led by the US & Japan), and a more diversified market and product baskets. We expect India’s CAD to shrink to <4% in FY14 due to a combination of improved export performance, falling crude prices and shrinkage in non-oil imports.

March Quarter Results: TCS’ Q4 volume growth of 4% (vs. 3% estimated) was a welcome surprise especially in the wake of disastrous performance of Infy last week. TCS also reiterated that it would beat NASSCOM guidance of 12-14% industry growth in FY14. HCL Tech too reported steady volumes, strong deal wins and steady EBIT margin.

RIL’s weak operational performance in Q4 was offset by higher other income. Appointment of Kelkar Committee to review domestic gas pricing issue can possibly delay gas price hike, and hence is a negative development for domestic gas explorers (RIL, ONGC, GSPC).

Near term, we expect Banks, Auto, Oil mktg Cos to continue to do well, with expectations of continuing softness in interest rates and crude. With early indications of a normal monsoon from private agencies, and the Govt loosening its purse strings in a pre-election year, Consumption (esp durables) and agri-inputs should also recover.

Summaries of reports this week:

q Bajaj Finance - Hungry for growth: Bank license + rural India

q Digitization - ETG - Series 3: Structural story intact albeit with execution delays

q Hindustan Zinc: Silver price correction to dent profit by 5%

q India steel: Imports surge; price recovers

q Jaypee Infratech: Focus on deleveraging

q JPVL: Nigrie execution on track; equity gap key overhang

q LIC Housing: Margin to remain sluggish; cut valuation multiple

q McDonald’s: A peek into India’s best supply chain

q NMDC: CMP implies…

q Titan: Gold prices correcting but no revelry in jewellery  

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Key Takeaways - IIP Feb 2013- 12-04-2013

Index of Industrial Production (IIP) has grown at 0.6% for Feburary 2013 (above market expectations of ~-1.3%) compared to 2.4% in January 2013 (MoM) and 4.3% in February 2012 (YoY). The cumulative growth for the period April-Jan 2012-13 stood at 0.9% vs. 3.5% over the corresponding period of the previous year.

Outlook – IIP headline data for February came above street expectations. The growth in IIP was mainly on the back of some growth in manufacturing sector (capital goods grew 9.5%). Mining sector was a big negative this month (-8.1%). However capital goods numbers on a standalone basis cannot be construed as conclusive for the turnaround, as these will see sustained pick up only with pick up in projects.

Market valuations have again become attractive post correction. We recommend investors to accumulate quality blue chip stocks with medium to long term perspective and focus on reform led sectors like oil and gas. IT, Pharma and FMCG could be bought on correction.

Sector-wise growth indicator

· Manufacture sector growth at 2.2% vs. 4.1% (YoY)

· Mining sector growth at -8.1% vs. 2.3% (YoY)

· Capital sector goods growth at 9.5% vs. 10.5% (YoY)

· Electricity sector growth at -3.2% vs. 8.0% (YoY)

· Basic goods growth at -1.8% vs. 7.6% (YoY)

· Intermediate goods growth at -0.7% vs. 1.0% (YoY)

· Consumer durables goods growth at -2.7% vs. -6.2% (YoY)

· Consumer non durables goods growth at 2.9% vs. 4.4% (YoY)