Dear All,
F&O expiry! Bank Nifty in focus
It is the mark of an educated mind to be able to entertain a thought without accepting it. – Aristotle
As human pyramids line up the streets to break earthen pots filled with curd to celebrate Krishna Janmashtami, the market is struggling to break out of a range. The F&O expiry today is likely to be flat as far as the Nifty is concerned. Market-wide rollovers to the September F&O series were above average while rollovers for Nifty futures so far have been much higher than the past three series. Bank Nifty rolls have been lower so far and some action is anticipated here. Few global developments like North Korea testing another missile and Turkey launching attacks on Syria have once again brought in the tension factor. The only thought now on investors' minds seems to be about what the Fed is likely to do in September. Yellen's speech at Jackson Hole tomorrow may provide some clues. The outlook is a flat start. The US markets ended weak after crude fell and expectations of a rate hike by Fed increased.
Call Success & Update
Britannia Industries Ltd.
Reco Price Rs2,922, Achieved Target Rs3,439, New Target Rs3,635
We had recommended a BUY on Britannia Industries Ltd (BRIT) in our Initiating coverage at a recommended price of Rs2,922 released on September 01, 2015 for a target price of Rs3,956. We had revised our Target Price to Rs3,439 in our Q4FY16 result update released on May 24, 2016. The stock has touched a high of Rs3,484 in yesterday's trading session yielding a total return of 17.6% from our recommendation price of Rs2,922. We expect revenue/EBITDA/PAT CAGR of 17.4%/20.2%/20.9%, respectively, over FY16-FY18E. BRIT's growth outlook continues to remain healthy, given its strong innovation pipeline, story of premiumisation intact, efforts to increase share in rural & northern markets, increase in distribution channel and costs efficiency. The stock is currently trading at 35x FY18E which leaves limited headroom for further upside. We maintain an ACCUMULATE rating with a revised target price of Rs3,635 (based on 37x FY18E EPS and 23.3x EV/EBITDA).
Aurobindo Pharma (Q1 FY17): Strong start to FY17 - BUY
CMP (Rs) 788, 12-mts Target (Rs) 1,030, Upside 31.1%
Aurobindo reported lower than expected revenue and EBIDTA growth at 13% and 23% yoy respectively. US sales jumped an inline 21% yoy on back of 7 new products plus lagged effect of Q4 launches like Abilify. Management admitted to some lag in product launches as approvals came in faster than expected and would look to launch some large products including a still meaningful Nexium by October. Ex-US top line was a mixed bag with Europe and EM growth offset by lower than expected anti retro viral sales. Gross and EBIDTA margin expanded by a similar ~190bps yoy which drove 24% increase in PAT. Company guided for 4-4.5% R&D and capex of Rs12-13bn in FY17. ARBP would focus on oncology, hormones, vaccines and peptides filings though revenues are still 2-3 years away. We lower FY18E EPS estimates by 5% but reiterate Aurobindo as top pick with unchanged 1-year target of Rs1,030, based on 20x FY18E EPS, which is still at a discount to peers like Lupin and Cipla.
Technical Track
Narrow range bound action has led to current congestion zone with broader markets out-performing the benchmark in this month's trade. On Wednesday, index made a low of 8621 and ensured that pattern of higher low remained intact. Infact index is making higher swing lows since second week of July which suggests that base is shifting higher as it is taking support of midpoint of its upward sloping channel and also 21-EMA.
With an appearance of higher high/low, Nifty formed small Doji candle along with NR7 Bar chart pattern which usually indicates decrease in price volatility and trading ranges are getting smaller. A decisive move above 8700 is required for Nifty to gain further momentum on the upside.
Derivatives Diary
² Nifty rollovers at 2.3cr shares at 70.6% and banknifty 48.5% on D-1 days to august expiry while marketwide rollovers at 59.15%.
² Expiry day build-up on options seen at 8600 puts and 8700 calls, most likely expiry levels should be in between monthly VWAP near 8665 levels.
² FII's futures long/short ratio stood at 3.4x (previous 3.66x) larger part of short rolls from FII's done at higher roll cost of 50 points on nifty.
² PSU banking stocks might see VWAP action likes of Andhra, oriental and syndicate banks on buying side.
Fixed Income Synopsis
The 10Y benchmark yield ended ~3 bps lower at 7.13% vs previous close of 7.16%. Gsecs recorded total trading volume of ~Rs. 896 bn. 10Y benchmark bond saw some value buying in the trading session and yields recovered with decent volume.
The demand at the fixed Repo window was Rs 123.49 bn, while the supply at the fixed Reverse Repo window was registered at Rs 22.61 bn. The Call WAR closed higher at 6.45% vs. previous close of 6.41%.
The benchmark five-year OIS and one-year OIS closed lower, with the 5-Y OIS closing at 6.51% vs. previous day's close of 6.54%, while the 1-Y OIS closed at 6.57% vs. previous day's close of 6.57%.
The Reserve Bank of India's Reference Rate for the US Dollar is Rs 67.13 on August 24, 2016, while the corresponding rate for the previous day (August 23, 2016) was Rs. 67.09.
Commodity & Currency Cues
Precious metals witnessed a steep decline, as bulls remained on the defensive ahead of US Fed chief Janet Yellen's speech tomorrow at Jackson Hole Symposium. Investors will like to digest what Yellen intends to do in next few months as far as monetary policy is concerned. Interest rate futures indicate 18%, 24% and 41% probability of a 25bps rate hike in September, November and December respectively. Nevertheless, we expect the central bank to remain rate timid and see no revelation coming out of Jackson Hole. On price front, gold prices are expected to hold ground around the support zone of US$1,300-1,310/oz and advocate that the recent dip should be construed as a lucrative opportunity to accumulate.
LME base metals ended lower, with Nickel prices leading declines in the pack. Copper prices were categorically weighed down by yet another hefty rise in LME warehouse stocks. Inventories have surged by 44,000 tons over the last three days.
Crude oil futures remained under pressure, weighed down by rise in weekly US crude oil inventories (reported by both API and EIA).
In currency markets, traders will remain on the sidelines ahead of Yellen's speech. Amid the slew of hawkish remarks from various Fed officials, it has become imperative for the investors to hear from horse's mouth.
Corporate Snippets
² Lupin said its subsidiary Gavis Pharmaceuticals has received approval from the US health regulator to market generic linezolid tablets used for treating bacterial infection in the American market. (BS)
² New Delhi Television (NDTV) has got partial relief from Income Tax Appellate Tribunal (ITAT) in a case related to payment of income tax. The ITAT has disallowed a tax claim by the Income Tax department in excess of Rs220mn from the Delhi-based media company for the assessment years 2007-08 and 2008-09. (BS)
² ITC has filed a case against Britannia Industries, claiming NutriChoice Digestive Zero brand has copied the packaging of ITC's Sunfeast Farmlite Digestive All Good biscuit. (ET)
² Oil and Natural Gas Corp (ONGC) has awarded a multi-milliondollar frame agreement to US energy giant GE Oil & Gas, under which the latter will support the state firm's exploratory drilling campaign in shallow to medium waters for the next three years. (ET)
² Tata Global Beverages (TGB) may "restructure" China operations. (BL)
² Jubilant Life Sciences has received approval from the US health regulator for Telmisartan tablets, used for the treatment of hypertension, in the American market. (BL)
² Strides Shasun has received approval from the US health regulator for Ranitidine tablets used for treating intestinal and stomach ulcers and gastroesophageal reflux disease. (BL)
² Tata Steel has started exports of ferroshots from its steel plant at Kalinganagar in Odisha. (BS)
² Tata Consultancy Services (TCS), has settled an ongoing law suit with Orange County, California. The company has paid USD26mn to settle the three-year long dispute. (BS)
² Jiangsu Longzhe may soon seal a deal to buy majority stake in Diamond Power Infrastructure for USD125mn. (BL)
² The Board of Directors of Nava Bharat Ventures Limited have approved sale of 100% shares of Nava Bharat Lao Energy Pte Limited (NBLE). (BL)
² Indo Count Retail Ventures P. Ltd (ICRVL), a subsidiary of Indo Count Industries Limited (ICIL), has announced its entry into Rs130bn domestic bed linen market with the launch of 'Boutique Living' range of Bed Linen products. (BL)
² 8K Miles Software Services Ltd announced its plans to raise Rs5bn through a mix of instruments including issue of equity shares or convertible bonds through qualified institutional placement (QIP), among others. (BL)
² IndusInd Bank has tied up with IBM to use its Cloud commerce solutions to transform customer engagements and enhance its cross-sell platforms. (ET)
Economy Updates
² The Union Cabinet gave its nod for signing of revised double taxation avoidance agreement (DTAA) with Cyprus, a popular tax haven. (BL)
² Domestic crude oil output fell 1.81% in July 2016 but natural gas output rose 3.27%. (BL)
Results Table
| Rs m | Revenue | YoY % | PAT | YoY % |
| Vardhman Textiles | 14,771 | (10.0) | 1,783 | 22.5 |
Happy Investing!
Amar Ambani
Head of Research
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