Monday movements! Time to pep up
Learn from the past, prepare for the future, and perform in the moment. – Hoozer
After falling close to 3 pc last week, the market will hope for some recovery. We've not had a positive week for a month now and unless there is meaningful improvement in foreign fund inflows, the indices may continue to languish in a range. Meanwhile, SEBI is mulling relaxation of norms to permit FPIs to invest in unlisted NCDs and securitized debt instruments. Indian firms raised less than Rs. 3000 cr through QIPs in the first half this year and September alone brought in over Rs.2200 cr; last year, the same time-zone saw Rs.12685 cr. being raised. The Prime Minister mentioned about interest rates going lower after the demonetization drive and corporates may borrow money through bond sales in the coming days. The outlook is a flat to positive start. US markets closed in the red on Friday but Asian markets are in a better mood at the start of the week. Centre and states yet have issues to clear on GST and a crucial meet will take place later this week. The rupee movement will be in focus today.
Technical Insight
Nifty at Crossroads
Nifty is currently standing at crossroads as it is hovering just above the point of polarity zone between 7940-7990, multiple gann support numbers i.e. 7990 & 7921, Brexit day's low of 7927 and also 50% retracement of the entire move from 6826 to 8969. If it manages to hold on to support zone of 7940-7990, a range bound action could take place between 8200-7900 to digest recent sharp downward moves. Failure to find respite at this crucial juncture could lead to sharp fall. Inter-market analysis of leadership sectors against the benchmark index shows strength in PSU banks and Energy space. While weakness is seen in Auto & Private bank stocks.
Voltas Ltd (Q2 FY17): Near term pain built-in - Accumulate
CMP (Rs) 293, 12-mts Target (Rs) 327, Upside 11.5%
Voltas' Q2 FY17 results were below par due to miss in revenues from both, UCP and EMPS segment. UCP segment growth of 13.5% yoy was quite lower than our estimate due to high competitive intensity. EMPS business performance was weak due to delay in execution of international orders. Near term demand outlook for UCP business looks challenging due to demonetization as 40% of the purchase is on cash basis. The management expects demand to normalise by end-Q4 FY17 as the summer season sets in. Orderbook stood at Rs.42.5bn, lower by 4% qoq as order inflow was subdued in international market. We have cut our earnings estimate factoring in de-growth in H2 FY17 due to the demonetization. Post the announcement, the stock has corrected sharply, which we believe is already factoring in slower growth for the company. We maintain our accumulate rating on the stock with a revised target price of Rs.327.
Technical Track
Forming consecutive fifth lower high and lower low on the daily chart, Nifty remained under pressure throughout the previous week. It plummeted by 2.7% on weekly close, as pull back rallies continue to face stiff resistance at 8150-8200 levels. Nifty formed NR4 bar chart pattern (i.e. narrowest high-low trading band as compared to previous three session) which usually indicates shrinking price volatility after a recent down move.
In the near term, level of 8000 is likely to act as an important support and any decisive move below 8000 will intensify selling pressure for a move towards 7920. The same is placed around Brexit day's low of 7927 and also 4 digit gann number of 7921; while on higher side it is likely to retest 8200-8250 zone, if immediate hurdle of 8150 is decisively surpassed. A divergent trend among sectoral indices is likely to continue. Immediate support for Bank Nifty is seen at 18730.
Derivatives Diary
· Facing stiff resistance at 8150 spot Nifty ended week lower in a volatile trade, a divergent trend seen among sectoral indices in Friday's session
· India Vix cooled off by 4.8% to settle below 18. Significant open interest additions were seen at 8100 call and 8000/7900 put. Maximum open interest base on put remains at 8000 strike
· FIIs Index future long/short ratio was seen at 1.22x (Prev close 1.37x) with addition of 11k short index contracts
· Flat to positive opening possible as SGX Nifty is trading at 8090 up by 15 points. 8000 is likely to act as important support for the current series
Fixed Income Synopsis
The 10Y benchmark 7.59% GS 2026, closed ~1bps higher at ~6.55% vs previous close of 6.54% and the 6.97% GS 2026 ended higher at 6.43% vs previous close of 6.42%. Gsecs recorded total trading volume of ~Rs. 838 bn.
The demand at the fixed Repo window was Rs. 27.71 bn, while the supply at the fixed Reverse Repo window was registered at Rs.169.29 bn. The Call WAR closed lower at 5.95% vs previous close of 6.03%.
The benchmark five-year OIS closed higher, with the 5-Y OIS closing at 6.22% vs. previous day's close of 6.21%, while the 1-Y OIS closed at 6.11% vs. previous day's close of 6.12%.
The Reserve Bank of India's Reference Rate for the US Dollar was Rs.68.09 as on November 18, 2016, while the corresponding rate for the previous day (November 17, 2016) was Rs.67.91.
Commodity & Currency Cues
Gold treaded water around US$1,200/oz, as intensified strength in US dollar made the gold bugs gasp for breath. The outcome of US elections has simply changed the equation, where market participants are now simply pricing an inflationary scenario in US and a hawkish Fed due to potential massive tax cuts and US$1 trillion government spending on infrastructure by newly elected President Donald Trump. Nevertheless, in the physical markets, Indian gold spot premiums have jumped to two year high as jewellers and investors have flocked to the yellow metal in order to park higher denomination currency notes (Rs500 & Rs1,000) before it completely goes out of circulation from the informal economy as well after December 30th. Moreover, speculation is rife that Indian government may impose stringent restrictions on gold imports. On price front, the near term outlook for gold prices seem to be uninspiring, with strong US dollar posing as a substantial headwind. US$1,190/oz is considered to be a support, the level from which gold prices witnessed a breakout during February this year.
Base metals have cooled off after several sessions of a spectacular upside this month. Recent trading curbs imposed by Chinese authorities on commodity markets seem to be working. Real estate related euphoria and ensuing buying rage in the non-ferrous metals space is now taking a backseat.
Crude oil futures continue to dwell on the expectations of a concrete supply side measures from OPEC. The oil cartel is meeting formally on November 30th and Saudis are doing all the heavy lifting in order to deliver a meaningful production cut.
Volatility remains extreme, triggered by substantial weakness in Yen and Euro against the greenback. Action is also evident in the emerging market space, with Yuan on the cusp of breaching the frontier of 6.9 in the offshore markets and due for further deterioration. Indian rupee is also on the backfoot, with values delicately poised around the crucial support level of 68.3.
Corporate Snippets
· The US FDA has begun its inspection at Sun Pharma's Halol manufacturing facility, considered to be the most crucial for the company. (ET)
· Northern Coalfields has awarded Rs14.70bn project to DBL-DECO, a joint venture of Dilip Buildcon, for excavation work at one of its open cast mines. (BL)
· Bharat Forge announced the acquisition of US-based Walker Forge Tennessee, for a total consideration of USD14mn. Bharat Forge has made this acquisition through its US subsidiary. (BS)
· Mahindra First Choice services, the used car services arm of Mahindra & Mahindra, is planning to sell a portion of its stake to raise up to USD50mn. (BS)
· Exxon Mobil, Chevron and BP plc as well as Reliance Industries are unlikely to bid in the auction of 46 discovered small oil and gas fields. (ET)
· Infosys has invested Rs145mn in a start-up UNSILO. The investment is done through Infosys innovation fund. (BS)
· Bajaj Auto has commenced production of the most powerful bike in its own stable till date — a 400cc motorcycle — which it aims to launch around the middle of next month. (BS)
· Alembic Pharmaceuticals Ltd has received approval from the US Food & Drug Administration (USFDA) for its Abbreviated New Drug Application (ANDA) for Telmisartan and Amlodipine Tablets. (BL)
Economy Updates
· The government has issued provisional orders to attach properties worth Rs188.66bn for offences under the Money Laundering law. (BS)
· The government said its ambitious regional connectivity scheme (RCS) has received a healthy response from the aviation industry. (BS)
Results table
| Rs m | Revenue | YoY % | PAT | YoY % |
| NHPC | 23,517 | 0.7 | 15,671 | 32.7 |
| India Cements | 13,144 | 6.9 | 624 | 62.1 |
Happy Investing!
Amar Ambani
Head of Research
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