Monthly Equity presentation - April 2013

Sustainability missing .

 

·        NIFTY (5495), Nifty after making fancy high of 6111(27 Month high) on 29^th January2013 has corrected till 5487 almost 10% from recent high. Nifty has closed below 200DMA 5645 while 200 Weekly M.A 5329 would form next support.

 

·        SENSEX (18226) has corrected till 18206 and strength is lacking and till Gap-down(19383-19378) is not crossed Month of April & May 2013 could see some pressure on overall market as we ahead towards result season and Budget session of parliament restarting 22^nd April.

 

 

Pick Of the month - NATCO PHARMA

 

·        Revenue distribution - Domestic formulations 40%, API's 28%, exports formulation 13% and others 19%.

·         Recent Supreme Court ruling on Glivec case is favourable for Natco as Natco's sales from this product is ~`250m annually.

·        Strong growth continues in API business and export formulation. Change in revenue mix (a higher proportion from high margin API business) is also contributing to the bottom line as well.

·         API business growth is seen due to increased supply of niche category APIs to domestic & export markets and export formulation is led by recently-announced Lansoprazole approval (a prescription product).

·         Successful monetization of para IV opportunities (Lansorazole OTC, Revlimid, Tamiflu, Copaxone etc) would provide substantial performance.

·         This will further be reflected in improved ROCE to 16.6% by FY15  and drop in DE to 0.2 x in the same period.

·         The stock trades at valuations of 15x FY14e and 12.7x FY15e earnings.

 

Picks of the Last month	Reco Price	High after Reco	% returns
Last month Pick
Rallis India (March 2013)	126	130.5	3.57
Cummins India (Feb 2013)	502	518.5	3.29
LIC Housing (Jan 2013)	289	290.45	0.50
Sun Pharmaceuticals Inds (Dec)	715	887	24.06
ING Vysysa Bank (Nov)	471	607	28.87
BASF (Oct)	665	781	17.44
Tata coffee (Sep)	993	1673.9	68.57
Bayer Cropscience (Aug)	922	1341	45.44
This month Pick
Natco Pharma (April 2013)	444

 

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News Views & Events 10th April 2013

News:

Ø  TCS has bought French firm Alti SA for over ?75 million (Rs.530 cr) in a deal aimed at giving the Indian company an edge in the European market.

Ø  The Supreme Court today asked a host of companies including Vedanta, Adani and Tata Steel and Essar Steel to pay up 50% of the tax demanded by the state of Odisha by way of entry tax for now.

Ø  Reliance Communications is likely to complete its deal to sell 74 percent stake in subsidiary Reliance Globalcomm to Bahrain Telecommunication Co (Batelco) for around Rs.6,000 crore by first week of May.

Ø  The RBI is not in favour of auctioning bank licenses as it will deter the cause of financial inclusion, Governor D Subbarao told a parliamentary panel on new banking licenses.

Ø  Cairn India has reported another oil discovery in the prolific Barmer block in Rajasthan.

Ø  Reliance Industries has discovered a new reservoir of natural gas below its existing fields in the KG-D6 basin, raising prospects that output from the region will rise again after a long period of decline.

Ø  ONGC has signed a MoU with KK Birla Group Company, Chambal Fertilisers and Chemicals for setting up a fertiliser unit in Unakoti district. The estimated cost of the project for producing 1.3 million tonne of fertiliser per annum is Rs.5,000 crore. The construction of the plant would be completed by 2016.

Ø  Dr Reddy's Laboratories is setting up a new R&D centre in Princeton, New Jersey.

Ø  Reliance Infrastructure will slash power tariff by 37% to keep supplying to the Goa government as the state threatened to suspend the power purchase from the company citing unviable pricing.

Ø  Jindal Stainless has entered into a strategic agreement with Korean steelmaker Posco, which will help JSL stabilise production of alloy used in cars and home appliances.

Ø  Merck sought HC's order to restrain Glenmark from manufacturing & sale of anti-diabetes drugs Zita & Zita-Met.

Ø  eClerx Services  board approves buy-back of shares up to 10%.

Ø  Ansal Housing to announce Bonus in ratio of 2:1 today.

 

Key events for the day:

Ø  Power, Coal Officials to meet FM on price pooling today.

Ø  United Spirits open offer commence today, closes on 26th April 2013(offer at Rs.1440/share).

Ø  Release of EUR Industrial Production m/m.

Ø  Release of USD Crude Oil Inventories, 10-y Bond Auction & Federal Budget Balance.

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Derivatives Strategist 10th April 2013

Data Feeler: Nifty future on Tuesday turned out to be an extremely volatile session with trading in a zigzag manner. Nifty after gap up opening witnessed some short covering rally towards 5620 levels but could not able to hold at higher levels in the absence of follow up buying interest and tumbled down with huge selling pressure seen almost across the board. Nifty future intraday made high of 5622 and then after a sustained selling it made low of 5494 levels. Nifty future till the time holding below 5580 levels selling pressure may remain continue whereas sustaining below 5520 levels may put further selling pressur e in the market towards 5450 levels. Looking at the option concentration data for April series, maximum put OI is at 5600 followed by 5500/5400 strike price and maximum call OI is at 5700 followed by 5800 strike prices. Bank Nifty till the holding below 11000 levels selling pressure may be continued towards 11800-11750 levels.

 

Put Call Ratio based on Open Interest of Nifty moved up from 0.8 to 0.83 levels. Historical Volatility of Nifty moved up from 17 to 17.20 levels and Implied Volatility also moved up from 16.37 to 16.82 levels.

 

Nifty future saw increase in OI by 6.7% with a fall in price by 1.05%. Market witnessed buying interest only in Auto space whereas selling pressure was seen almost across the board especially in IT, Tech, Oil & Gas, PSU, FMCG, Reality, CD, Power, Banking and CG sector stocks. Nifty future closed at premium of 6 points as compared to premium of 16 points in previous trading session.

 

The market turnover decreased by 110.45% in terms of number of contracts traded vis-à-vis previous trading day whereas in terms of rupees decreased by 106%.

 

Derivative Calls: Buy on VOLTAS & Sell on ANDHRA BANK.

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First Morning Technical Call 10th April 2013

MARKET OUTLOOK

NIFTY (5495) : CNX Nifty  corrected from a high of 5603 to low of 5487 and closed lowest in 140 trading days,  now 5441 & 5282 are levels to watch on downside and Nifty has been below its 200 DMA 5645 for 4^th day while 200 Week M.A 5329 would be the major support if correction continues till those levels. For the day, Nifty has to sustain 5470 on the down side and cross 5550 on the upside, to target 5590 & 5645 while below 5470 then 5425 & 5380 are possible levels on downside. Nifty has to hold 5440-5480 zone which happens to be a very important support and if t hese levels are held then sharp bounce can be  expected and on closing basis 5550 should also be crossed. INFY Rs.2766, had made Irregular double top on monthly, weekly & daily basis around 3009 high of 7^th March and 2999 high of 3^rd April and made low in 38 trading days now Rs.2660 or 2550 are important supports as weakness  still prevails ahead of results on 12^th April. FIIs were observed to be selling in both , Equity & Debt in last 5-6 days Post Cyprus Deposit on tax raised many questions and if this outflow continues it would be negative for large cap stocks and could weaken Rupee. RELIANCE IND has encountered natural gas in the first exploration well  in more than five years, The MJ-1 exploration well on the Dhirubhai-1 and 3 gas fields in the KG-DWN-98/3 or KG-D6 block has sniffed natural gas while drilling.

SENSEX (18226): Sensex closed lowest in 140 trading days and marked its lowest in 30weeks or 7 Months and partially closed Gap-up (18062-18206) made on 14^th September2012. Sensex has also closed below 200DMA 18619 for 4^th day in succession and 200 Week M.A 17722 would become major support. For the day Sensex has to hold 18200 and cross 18400 to target 18535 & 18650 on higher side, while below 18200 the gap levels 18062 & 17867 would get filled.

 TECHNICAL CALLS 

BUY SPECIALITY Rs. 175:  SPECIALITY has made Cup & Handle formation  and now the target for the same  can be Rs.195 on higher side as the stock has closed highest in 48 trading days. SPECIALITY trades above 100 DMA Rs.172 and 50DMA Rs.176 while just below 200 DMA Rs.178.

SELL DENABANK Rs.86.60:  DENABANK has closed lowest in 146 trading days and looks weak can target Rs.82-80 on lower side, stock in last 26 trading days has made congestion and also made M-shape break-down. Stock trades below 200 Week M.A Rs.89.9, 200 DMA Rs.102, 100 DMA Rs.106 and 50 DMA Rs.97.

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