IndiaStar.biz - Indian Stock Market Guide

RBI will come with news/hints about interest rate hike in some form in January, and that will trigger a 5-10% stock down in banks. So trade cautiously in banks, and if you are in investor, you can book profits (if any) and watch the developments in banking over next 30-40 days.

Capital Goods companies obtain many projects in the last quarter and their results in Q4 are usually strong, so it may help to buy Capital Goods companies in that are still not shooting up. For example, Havells India has already moved up 47% in last one month, including nearly 10% just today.
Closing price: 475.90
Gain: 43.10 (9.96%)

Food products and Fertilizers are also likely to do well in Q4.

Indian stock market has shown immense resilience and has weathered many a storm including the Dubai story.

We are at 5150 on the Nifty and following needs to be taken care by investors going forward.

1. Nifty is at high level and valuations are just about ok.

2. Nifty is tired and short term profit taking can take it down atleast to 4800 in near future.

3. Upside is limited to around 5300-5400 so call buyers and long owners need to be watchful.

4. December is a lean period in West esp. in USA and budget constraints generally push IT billability down - IT expected to go down from its starry heights (Infy, TCS, Wipro).

5. Reliance Industries and Reliance ADAG case is expected to be a long battle. These stocks will tend to move in expectations. Reliance after bonus 1:1 will go to 1000 and consolidate.

6. Stock picks - Reliance, NTPC, Classic Diamond, Satyam, TTML, Reliance Communication, BHEL

7. Sell - Ranbaxy, Infosys, TCS, WIPRO

8. Futures - Short bias, Options - Put bias

9. A bad winter might hit the sector affected by it. Cement and realty to take hit.

10. No major change on interest rates and policy issues.

Macroeconomic indicator:

 1.      US managed to keep its head in green (up 0.5%) after a dismal start - Daily chores regarding some recovery seen continue to remain albeit not loud and clear but just about whisper.

2.      Asia is weak on low commodity prices - Yen has started to recover. It is looking for direction and leadership which is non-existant currently.

3.      Budget has come and gone and market reacted with violence yesterday - low growth, fiscal imbalance, high deficit, populist measure, nothing on custom and excise and nothing on corporate tax or service tax. Add to it no concerte talks on policy announcements and/or disinvestments.Now what can one expect Nifty to do under these circumstances.  

We expect Nifty to open in green on short covering and some of the pep talks which have gone after the dismal status quo budget. It virtually chages nothing. Market will take a breather today from the carnage yesterday.

Further downside seen in the market in days to come. Ideally right time to stay cash rich and avoid dangerous positions. Amateur investor can stay out of derivative and complex tradings.

Medium term view on Nifty is the trading range between 3900-4100.

A)Nifty 50 Index  

Trading on long side for 1-2% gain.  

Buy- Current levels – 4165

Sell- 4225

Stop loss – 4182

Target – 4288  (Daily chart)

Stock Specific Futures:

            Long on Power stocks (NTPC, PFC, Tata Power, Power Grid)

Margin Trading:

Same as stock specific futures.

Investment tips for today.

Start acquiring capital goods (ABB, BHEL, L&T), Auto (Maruti), Steel (SAIL), Power (NTPC), IT (TCS, Infosys), Bank (SBI, PNB), Reliance, RPL, Airtel, Cement (GACL, Ultratech) at lower levels. Take preferred midcaps stocks like TTML, Idea Cellular, IFCI, Satyam, Reliance Energy, RNRL at lower levels as well.

Macroeconomic indicator:

1.      Volatile DOW had just another day in office closing a notch lower.US is sitting on edge of a pandemic outbreak on account of swine flu coming across Mexico which might have substantial impact if it sustains.

2.      Nikkei and rest of Asia is cautious at opening and is by and large flat. Strengthing of Yen Vis-a Vis major global currency like Euro is expected to help Yen carry forward trade which augurs well for stock market of emerging markets.

3.      Led by ICICI Bank Nifty gyrated north and south yesterday to close flat .A trend which is likely to persist till distinctive direction surfaces- a likely south movement on global economic concern, profit booking, financial numbers and guidance

We expect Nifty to open slightly lower on profit booking .Ahead of expiry on thrusday market to show weakness at higher level. Nifty expected to remain volatile

A)   Nifty 50 Index

Volatile with a South bias.

Trading on short side for moderate day gain. 

Trade on short side with 1-1.5 % day trading gain.

Sell–- Current levels – 3475-3480

Buy- 3400

Stop loss – 3492

Target – 3368  (Daily chart)

Stock Specific Futures:

Avoid future trading in individual counters.

Margin Trading:

Avoid margin trading in individual counters.

Investment tips for today.

Hold on with new Investments until a clear picture emerge post elections.

Attorneys, court and legal councils seems to have taken hold of the erstwhile Satyam economics.  For 1+ Billion Indians this is a sad sequence of events for a company which till December of 2008 was nothing shy of a bellwether – and one of the faces of emerging new India. It was a face which gave an identity to 53K plus people and millions associated with them. It will be never the same again for the Satyamites no matter how well they recover from the existing “SHOCK”.

Why Raju did all this? It is a very difficult question – with the obvious answer of “Greed” but that seems far from true. There seems to be no bottom to any of the investigation of corporate governance anywhere across the globe and we as investors can only hope that there is a bottom to this though. However, the initial findings however will reveal one thing – that fall of Satyam is related to the “BUST OF THE REALTY BUBBLE”.

Prima-facie it seems that Raju, for all his wisdom in the IT sector parleyed into the sector which is made up of deceit at the ground level –Realty. There is big fortune associate with it during hay days but the pain can be very much leveraged in a downturn. We are pretty confident that investigations will reveal that Raju got messed up in this realty mess.

Satyam revenues and profit by all means were diverted by Raju to amass huge real estate ownerships. Make no mistake year 2003 onwards and upto 2008 had been a real boom for the realty sector where real estate prices have grown at 3x-4x or in some case even higher levels. In real estate sector it is very difficult to discover the sources of funds and this looks to be the idle case in the Satyam scam. As Maytas got created in the infrastructure sector for the kith and kilns of Raju’s – the source of money remained Satyam. This take care of the 3% Net big lie by Raju in his confess note – wherein common sense says that the remainder 20-25% EBIT got diverted to the swell the books of Maytas to make its bid for big infrastructure project look viable. Through, the Maytas and independent holding route it is also very likely that lot of money was exposed in real estate by the Raju’s.

In a go gala time, the debt portion of a balance sheet is in a self healing mode and often gets un-noticed. The top line and bottom lines continues to make headlines. However, as economy dives, these leveraged debt or high cash exposure in non-liquid sectors bites. Realty sector is very un-liquid in a downturn. If a builder (promoter) has taken 75% debt and 25% equity to develop a real estate project – it is very likely that such builder (promoter) can be insolvent if the buyers disappear fearing a high interest rate regime and slowing growth economy.

As we are already seeing what sub-prime mortgage can do to big names like Citigroup and Lehmann. There is no reason why such real estate exposure cannot sink the balance sheet of a comparatively small Satyam. It appears very likely that the investments which Raju’s made were in leveraged realty sector which has no buyers in the short term and prices are expected to go further south from its already 25 percentage point correction.

We may be entirely wrong in jumping the gun and revealing the possible outcome of a long investigation (an investigation which might never come up measurable results), but it all sound quiet weird that Raju, the entrepreneur with all the knowledge of running and growing the Company would mess it up for nothing. Raju for sure was aiming for that one very big leap (may be in the realty space) which would have leapfrogged him over the NRN’s, the Premji’s and the club. He probably wanted to make Satyam – beyond an IT platform and probably sewed up a plan towards realization of the same. The plan we all see has gone all too “WRONG” and has landed him in “JAIL”.