Flash News Volume 23- No. 31
Stay Put In Frontline Stocks
Studies have demonstrated that bull run more often tends to last longer than bear run and this is quite evident from the Indian stock market performance over the last five years; barring a very few exception in the past. So we want to assure our readers yet again that the Indian stock market is in the long-term secular bull-run and short-term volatility should only be looked at as minor wrinkles in this run. In the last issue of Flash News we discussed the alarming volatility of the market, where the correction was almost six per cent. However, this week has comparatively better as the market remained more or less subdued, much to our expectation. The Sensex, since the closing on last Thursday (November 22, 2007) has gained just over 2.22 per cent. The weekly data of FIIs and MFs shows that FIIs have turned net sellers to the tune of Rs 3033.20 crore, while mutual funds have been net buyers to the tune of Rs 870.3 crore.
It is important to note here that we are reaching the end of the calendar year and historically it has been noticed that FIIs have turned net sellers during this time of the year only to return in January next year, when new fund allocations take place. We believe that the current scenario is only an indication of this historical trend. Secondly, the sub-prime fears have picked up in the US again after financial services companies have reduced their revenues guidance, while some continue to cut cost by downsizing, following mortgage losses. For example, the US based Bear Stearns announced 650 job cuts, taking its fourth quarter jobs cuts to 10 per cent of its total workforce. So, though India is not affected by the US sub-prime crisis, the Indian market will surely face a ripple effect. This will be inline with its Asian and global peers.
On the global front, it is quite clear now that the US economy is slowing down. The US Federal Reserve has already cut its economic growth forecast for 2008 in a range of 1.8-2.5 per cent from 2.5-2.7 per cent growth it predicted earlier. Of course, this revision comes on account of tight credit markets and weakening of US housing market – perhaps the worst recession in US housing market in 16 years. Even demand for other durables in the US has declined, indicating the sharpest fall in more than three years.
But what everybody is looking out for is the meeting of Federal Open Market Committee (FOMC), which is scheduled for December 11, 2007. A further rate cut cannot be ruled out in this meet. Recently, Vice Chairman of US Federal Reserve, Donald Kohn, accepted that the turbulence in the financial market was much more than anticipated and the possibility of it impacting credit to businesses and consumers is higher. And the fact that the FOMC will be discussing this issue in its December 11 meet, investors are already expecting another quarter-point reduction in the interest rate to 4.25 per cent. The impact of this expectation is already seen in the global market indices including emerging markets, which are already up in green.
While these mixed signals and sentiments float around in the market, we want investors to stay invested. But if you want to take some fresh exposure, the market has also given good opportunities and the current trend only suggests that investors are just doing this. Whenever the market has shed points it has also shown quick recovery and domestic mutual funds have been following this since long. But our advice to investors is to stay with the front-runners or large caps rather than mid and small caps. The mid and small caps have already witnessed a good run-up. Our data analysis of the advance-decline ratio also indicates that Group-A is still the most preferred group in terms of investment considering the fact that its advances were 136 compared to 74 in decline (see table).
The list of the F&O segment is only getting bigger and recently 16 companies were added to the list of F&O segment and these counters were quick to demonstrate good performance. Even the SEBI is planning to reduce the lot size of currently listed companies, which are being traded in F&O segment. This effectively means that as and when the lot size reduces, going forward, the liquidity will only increase.
On the new listings front, Mundra Port and SEZ was listed on November 27, 2007 at Rs 770 over its issue price of Rs 440, giving a gain of 75 per cent and touching an intra-day high of Rs 1150. Currently trading at Rs 895, it is still up 103.39 per cent over its issue price. Phenomenal performance! Perhaps, these are positive signals of Indian investment culture and the robustness of Indian capital market. Way to go…
Review Of Past Recommendations
Issue 39 (February 19, 2007)
Company Reco CMP on Profit/ % Recomm.
Price Rs (28.11.07) Rs (Loss) Rs change
L&T 1615 4113.7 2498.7 154.7 Hold
Subhash Projects 225 332.35 107.35 47.7 Hold
Bilcare 536 1199.95 663.95 123.9 BPP
Issue 40 (February 26, 2007)
Jain Irrigation 440 593.8 153.8 35.0 Hold
JMC Projects 230 493.1 263.1 114.4 Hold
Bharat Electronics 1593 1799.95 206.95 13.0 Hold
ExchangeGroup Advances Declines Unchanged
A 136 74 2
B1 356 357 5
B2 319 400 6
F 1 1 2
S 199 211 5
T 174 286 2
TS 35 45 2
Z 59 62
Advance Decline ratio from November 21 - 27, 2007
Recommendations
Orchid Chemicals Face Value - Rs 10 Buy Rs 253
Ticker: 524372 Equity: Rs 65.83 crore H/L: Rs 285/176
• Orchid Chemicals and Pharmaceuticals (OCPL) is a integrated pharmaceutical company with core competencies in the development and manufacture of Active Pharmaceutical Ingredients (APIs), Finished Dosage Forms and drug discovery
• We recommend OCPL for its strong performance for H1FY08. With good performance and good market share in the US for its Cefdinir, Macesson, Cefoxitin and Cefazolin in H1FY08, the company has managed to register a topline of Rs 569.10 crore and bottomline of Rs 109.45 crore as compared to Rs 474.08 crore and Rs 35.24 crore respectively in H1FY07.
• In addition, the company has received approval from the USFDA for its Abbreviated New Drug Application for Cefpodoxime Proxetilt tablet. With limited generic competition in this product, OCPL hopes to garner a sizeable market share and revenues in the US market.
• According to the management, OCPL will be able to maintain this healthy financial figures, if not improve them, in the current and the following quarter. In addition, the next trigger is going to be Tazobactam and Pipracillin, for which the company is waiting for the approval and if that happens between January and March, 2008, this will trigger further growth for the year 2008-09.
• On the valuation front, the company is trading at 10x of its trailing 12 months earnings. With similar or better growth expected in the next two quarters we feel the valuations are cheap and hence investors can go for the scrip at the current level.
Finolex Cables Face Value - Rs 2 Buy Rs 89.50
Ticker: 500144 Rs 30.59 crore H/L: Rs 109.85/62.55
• Finolex Cables (FCL) has come out with strong results for H1FY08 on account of strong growth in the electrical cables segment. For H1FY08, the topline has showed a strong growth and stood at Rs 636.40 crore whereas the bottomline is at Rs 58.60 crore as compared to Rs 487.80 crore and Rs 44.10 crore respectively in H1FY07.
• Although the EBITDA margins for H1FY08 have declined to 10.70 per cent as compared to 13.10 per cent in H1FY07 on account of increased copper prices, the sequential quarters show some signs of recovery in the margins. We expect the recovery in the margins to continue and expect the bottomline to improve further going forward.
• The board has approved Rs 60 crore capex to enhance capacity for compact fluorescent lamps (CFL) and cables. The only concern for FCl is the new power cables capacities in Uttarakhand have been delayed till April 2009.
• On the valuation front, the company is trading at 16.50x of the trailing 12 months earnings. But we feel, with improvement in the margins, the company is expected to improve its bottomline. Hence, we recommend investors to buy the scrip at current levels.
Jammu & Kashmir Bank Face Value - Rs 10 Buy Rs 729
Ticker: 532209 Equity: Rs 48.49 crore H/L: Rs 800/521
• Jammu & Kashmir Bank is one of the leading private sector banks with a network of 520 branches and has showed a strong growth in the last three years. This can be seen from the fact that fee based income has increased to Rs 160.21 crore in FY07 as compared to just Rs 95 crore in FY05.
• In H1FY08 the operating income of the bank stood at Rs 478.63 crore (Rs 427.87 crore). Although it has not managed to improve its interest income, banks fee based income has increased to Rs 93.90 crore as compared to Rs 57.48 crore.
• The NIM for the Q2FY08 has increased to 2.97 per cent against 2.90 per cent. On the operational front, as on September 30, 2007, the low cost CASA deposits stood at 35.21 per cent, deposits at Rs 18102 crore and advances at Rs 25954 crore. Even the CAR stands strong at 12.86 per cent and it is again expected to improve after the GDR issue of 62 lakh shares.
• On the valuation front, the bank is now trading at 1.80x of its current book value. With the bank showing significant growth in the fund-based and fee-based income, it is expected to put another strong financial performance in H2FY08 and hence we recommend investors to buy the scrip at current levels.
DIVIDENDS DECLARED IN LAST FEW DAYS
Company Name Per cent XDividend Date
Jetking Infotrain 100 NA
Walchandnagar Industries 100 NA
Mayur Leather Products 8 NA
Siemens 240 NA
Shriram City Union Finance 10 NA
Automotive Axles 65 NA
Usher Agro 5 7/12/2007
Bannari Amman Sugars 70 NA
Triveni Engineering & Industries 10 NA
Swasti Vinayaka Synthetics 5 4/12/2007
Deepak Spinners 5 27/11/2007
Garware Marine Industries 5 NA
Mahalaxmi Seamless 5 27/11/2007
Crazy Infotech 5 28/11/2007
Colgate-Palmolive (India) 600 29/11/2007
Prime Securities 30 22/11/2007
Greaves Cotton 20 NA
Manugraph India 100 NA
Shree Precoated Steels 11 NA
Television Eighteen India 25 NA
Dollex Industries 5 15/11/2007
Elgi Equipments 60 15/11/2007
Taparia Tools 20 7/11/2007
Kilitch Drugs(I) 10 15/11/2007
Nods Worldwide 350 15/11/2007
Khoday India 10 7/12/2007
United Spirits 10 20/11/2007
Sagar Cements 15 15/11/2007
GMM Pfaudler 35 15/11/2007
Shakti Pumps (India) 10 NA
Patels Airtemp (India) 5 16/11/2007
ISMT 20 15/11/2007
SB&T International 5 21/11/2007
Monsanto India 120 14/11/2007
Kingfisher Properties & Holdings 10 22/11/2007
FIEM Industries 25 7/12/2007
Avaya GlobalConnect 67.5 NA
Nile 20 15/11/2007
KSB Pumps 20 8/11/2007
Lakshmi Machine Works 200 20/11/2007
Nicco Parks & Resorts 12 NA
JK Paper 22.5 29/11/2007
Tamil Nadu Newsprint And Papers 20 12/11/2007
Jagran Prakashan 50 15/11/2007
Splits declared in last few days
Company Name Ratio* XSplit Date
Action Construction Equipment 10:02 NA
Arrow Webtex 10:01 NA
B L Kashyap & Sons 10:05 NA
Cinevistaas 10:02 NA
GEE 10:02 NA
Jagran Prakashan 10:02 NA
Jai Prakash Associates 10:02 NA
Jindal Steel & Power 5:01 NA
Kanoria Chemicals & Industries 10:05 NA
Lancor Holding 10:02 NA
Orient Paper & Industries 10:01 NA
Rajesh Exports 2:01 NA
Suzlon Energy 10:02 NA
T Spiritual World 2:10 NA
Walchandnagar Industries 10:02 NA
(*10:2 means old FV Rs 10 & New FV of Rs 2)
BONUS DECLARED IN LAST FEW DAYS
Company Name Ratio XBonus Date
Anjani Synthetics 1:01 NA
Ashiana Housing & Finance (India) 5:02 NA
Axon Infotech 3:01 15-Nov-07
Brady & Morris Engg Co 1:02 NA
Freshtrop Fruits 1:01 NA
Kanoria Chemicals & Industries 1:02 NA
Mediaone Global Entertainment 5:01 NA
Rajesh Exports 2:01 NA
Rolta India 1:01 NA
Satra Properties (India) 2:01 NA
Siemens 1:01 NA
State Trading Corporation Of India 1:01 NA
Ushdev International 1:01 NA
Vinati Organics 2:01 22-Nov-07
W H Brady & Company 1:02 NA
Walchandnagar Industries 1:01 NA
3:1 means, 3 bonus shares for one share held
TECHNICALS
SENSEX ON A CORRECTION PATH
The Sensex seems to have continued its corrective phase but keeping in mind the higher base (since it is still in the proximity of its all-time high, there are just a few resistance levels), the volatility could continue to be an inherent part of the movements and doesn't seem to be in a mood to go away in a hurry while a small negative bias has creeped in. The Sensex has come under pressure and has taken support on its trading range between 18300 on the downside and 20200 on the upside. It hasn't posted a fresh all-time high while strong resistance can be expected from the 19950 - 20200 level.
Trend (Index): Sideways Last Index Closing: 18938.87
Support: 18833, 18327 Resistance: 19276, 19621
55-WEEK EMA: 15268.47 100-WEEK EMA: 13514.73
MACD: BUY MODE RMI: BUY MODE
ROC: SELL MODE RSI: SELL MODE
STOCHASTIC: SELL MODE
GRAUER & WEIL. BUY RS 186
1ST TARGET: RS 211 2ND TARGET: RS 218 STOPLOSS: RS 155
Grauer & Weil bottomed out by posting an intra-day low of Rs 65.10 on 22.03.07, moved upwards for quite a few trading sessions while continuous support came in the form of the 65 level (congestion area) and continuous resistance came in the form of the 55-day EMA. The scrip finally posted an intra-day low of Rs 64.70 on 14.05.07 and these levels have not been seen very often since then. Grauer & Weil commenced a short-term uptrend from here (there was enough clarity on the medium-term front), struggled but overcame the 55-day EMA, posted a series of progressively higher tops and bottoms, started moving within the confines of an upward slopping channel, almost gave a throwover from this channel and finally peaked at an intra-day high of Rs 106.40 on 14.08.07. The scrip almost gave a downward key reversal from here, couldn't sustain these levels for long, entered a corrective phase, declined to post an intra-day low of Rs 85 on 22.08.07, rebounded smartly from here, posted a good but unsustainable rally to post a high of Rs 218.70 on 30.10. 07 only for the scrip to enter a sharp correction. Currently, Grauer & Weil seems to be on the verge of entering a short-term uptrend (could commence a medium-term uptrend), has overcome the 55-day EMA and with the oscillators looking positive indicating the possibility of a further upside from here.
Trading Pointers
Indicators: MACD-Buy RMI-Buy Stochastic-Buy ROC-Buy RSI-Buy
Support: 155,122 Resistance: 184, 219
BSE code: 505710 55-day EMA: 155.95
GITANJALI GEMS BUY RS 403.95
1ST TARGET: RS 427 2ND TARGET: RS 436 STOPLOSS: RS 378
Gitanjali Gems peaked by posting an intra-day high of Rs 225 on 17.05.06, but couldn't sustain these levels for long and finally declined to bottom out by posting an intra-day low of Rs 126.60 on 13.06.06 where strong support prevented further downside. The scrip finally posted an intra-day low of Rs 108.65 on 24.07.06 and these levels have rarely been seen since. Gitanjali Gems commenced a short-term uptrend from here (this time around there wasn't enough clarity on the medium-term front), struggled but eventually overcame the 55-day EMA, posted a series of progressively higher tops and bottoms, started moving within the confines of an upward slopping channel, almost gave a throwover from this channel and finally peaked by posting an intra-day high of Rs 258.30 on 02.02.07. The scrip almost gave a downward key reversal from here, couldn't sustain these levels for long, entered a corrective downmove, declined to post an intra-day low of Rs 176.50 on 30.06.07, recovered sharply from here, posted a smart but slightly unsustainable upmove to post a high of Rs 416.70 on 26.10.07. Currently, Gitanjali Gems is in the midst of commencing a medium-term uptrend, while it seems to have exhausted its weekly downmove (has recently sustained above the 55-day EMA) and with the mechanical indicators looking positive, a further upside from these levels cannot be ruled out.
Trading Pointers
Indicators: MACD-Buy RMI-Sell Stochastic-Buy ROC-Buy RSI-Buy
Support: 378, 343 Resistance: 400, 449
BSE code: 532715 55-day EMA: 351.81
Street Talk
Grab it early
There is a rumour that an institution might be picking up big stake in GNFC (BSE code: 500670) at a higher price. It is trading at Rs 169.90 and likely to catch momentum soon. Investors with high risk appetite can take exposure in this scrip.
Land story
With some land bank story raking up in SRF (BSE code 503806), market sources believe a run up in this scrip in the coming days and hence medium-term investors can go for it.
Read more!
