Weekly Outlook for Indian Stock Markets - 21st July to 25th July, 2008

The word “Deal” is buzzing everywhere in economic and political circles. Some deals are being called-off, some deals are put at stake and some deals are getting finalized behind the close doors. In this frenzy season of deals, the common man is losing his prestige as an investor as well as the voter.

First let’s discuss the deal which is being called-off. On Friday, Reliance Communication (RCOM) and MTM have called off the proposed deals between them after about 2 months of hectic negotiations due to legal and regulatory constraints. Surely, Anil Ambani would be a disappointed man, since he expected RCOM to be on a global stage after this deal. The biggest spoiler in this deal is none other than his own brother Mukesh Ambani who threatened to revoke ROFP (Right of First Proposal) if this deal actually goes through. Where this sibling rivalry head to in the coming days, it will be an event to watch out for…

RCOM stock may see some initial selling pressure due to failed negotiations, but unlikely to go below 400 levels, since it never went up in expectations of the deal. Rather, the scrip has declined from 600 odd levels to 450 levels during the time when negotiations were going on. Hence, the stock may see some bounce back like the sam way, Bharti share had shown after their negotiations with MTN were called off. Surely, I would compel to buy this stock at around 400-410 levels, if it goes down on Monday.

Another deal that is at stake this week will be “Nuclear Deal”. UPA Government after 4.5 years of failed political marriage has finally listened to his conscience and decided to pursue with the Nuclear Deal with USA. But before this deal finalize, the govt is required to pass the “No-Confidence” motion on Tuesday. If the government fails to win over “No-Confidence” motion, then this deal will definitely moved to the back-burner till the time new governments take over in USA and India. And surely, stock market would get a definite hit as well.

On the contrary if government wins the “No-Confidence” motion, then not only Nuclear Deal but various other reforms like Pension Reforms, Banking Reforms, etc would also be carried out by the government. And this will strengthen markets, which is currently down on knees due to global gitters. Hence, stock market will be praying for Manmohan Singh led UPA govt to win the majority and also, some of these deals.

Another type of deals that were seen during the weekend” is the ones going behind closed doors in Political circles”. The troika of UPA, UNPA and NDA are doing hectic back door lobbying to win over the crucial votes for small political parties, independents and opposition party rebels. Some are offered as much as Rs 100 crores to vote for them during the “No-Confidence” motion. Seeing this kind of dirty power-play between the parties, my faith as a voter has shaken. Many of us would be contemplating whether to cast a vote in the coming elections or not.

Anyways, there is one good trading strategy that can be taken this week. In this volatile market, it is better to trade in the index. One can buy 3600 Puts and 4300 Calls on Monday. According to the outcome on Tuesday, the markets will take a definite one-side moment. If government wins the majority, the markets will see a definite upside turn towards 4300 levels. Similarly, if government fails to attain majority, markets could come down to as much as 3500 levels. Under both the circumstances, one can close the positions and get the profit (after accounting for losses on the other side).

Wishing you a week of Successful Deals!!!

Weekly Outlook on Indian Stock Markets - 14th July to 18th July, 2008

In the background of economic turmoil, the Indian politics has reached its climax. Within a week’s time, the Indian Government ruled by Congress will be facing No-Confidence motion in the Parliament. With dark clouds of inflation, interest rates and slowdown looming over Indian economy, Indian stock market is wishing that government doesn’t fall down at this juncture.

But the fundamental concerns still remain the same whether this government remains or falls down. The inflation is inching up week-by-week. The economy is showing considerable slowdown. The latest example is the IIP data for the month of May that released last Friday, which indicates the decrease in industrial growth to 3.3% viz-a-viz 11% lat year. And the most important is the Crude Oil, which is showing no signs of relent.

The government is taking monetary steps, which is not enough. The government must clampdown on the hoarders who have been accumulating the commodity and then pushing up their prices. Mint published on Friday that Salt prices have been going up too. In country like India, where Mahatma Gandhi initiated the freedom struggle against Britishers in the name of Salt, the people (especially lower class) are again deprived of the basic item called Salt.

Anyways, back to the stock markets. What could be the strategy for the coming week? The best investment strategy seem to accumulate stocks but by hedging the index. The primary reason is the market sentiments. When markets go down, they pull down every stock, without any reason. Hence, to ensure, one doesn’t suffer any major losses, it is wise to either sell the July Nifty or buy 3800 Nifty Puts in a proportion of 70:30%. In other words, for every 100 Rs of stock you buy; also buy 30 Rs of Nifty Put (30 Rs is the contract value).

Another strategy that seems interesting is to buy Reliance Communication 400 Put and 500 Call Option. 400 Put is trading at around 9 Rs and 500 Call is trading at Rs 5. One can buy both the contracts to generate profits. Reliance Communication and MTN negotiation deadline is 21st July and contracts are expiring at 31st July this month. It is very likely that the stock may see some action around 21st.July.

If the deal goes through at favorable equity swaps ratio, the stock will see some tremendous trend. We must remember that it came down from 600 odd levels to 440 levels. If deal goes though, it can re-test the 500-550 levels. Hence, the 500 Call could fetch you more than 20 Rs. In such case, the net profit will be 20 – (9+5) = Rs 6 * number of shares.

On the contrary, if deal doesn’t go through, the stock could come down to 400 levels. In such case, the Put could be trading around 20-25 Rs again. Hence, the profit will again be Rs 6 * number of shares. Hence, the key factor that can generate profit in this strategy is the volatility in this stock. And the history is evident that ADAG stocks have been pretty good in this regard.

Wish you all a great trading week ahead!!!

Weekly Outlook on Indian Stock Markets - 06th July to 10th July, 2008

Indian Stock Markets seem living dangerously at the moment, especially after witnessing the kind of movement they showed during last week's trading. Markets were up by 5% on Wednesday, then down 4% the next day and finally closed 2% up on Friday.

Such kind of volatility is interpreted in different ways by Bulls and Bears. Bulls are calling it a "Strong Resistance", whilst on the other side; Bears are calling it a "Final Resistance before 10000 mark". Well, who is right and who is wrong, only the future will decide, but as investors, we must keep hunting for good stocks. First let's look at some of the sectors that are in limelight now a days:

Real Estate (Stay Away)
The sector that hammered the most in last few weeks is the Real-Estate sector. And there are some voices raised in the markets about the attractive valuations for this sector. No doubt as a trader, the sector may see some pull back, but fundamentally the sector has more downside risks that upside potential. The economy slowdown will have an impact on pockets of everyone, especially in the Middle Class. At the same time, increase in interest rates has further pull people out of the housing markets. Besides, real-estate companies have been facing problems due to rise in prices of Cement and Steel that have further increased their input costs. In this vicious circle of less demand and increased input prices, the companies may put brakes on their expansion plans. Hence, it is better for investors like you and me to stay away from this sector.

Infrastructure (Hold)
Infrastructure Sector has also got a severe beating like Real estate but holds much more potential than its counter-part. The governments (both State and Center) have been emphasizing strongly on improving the infrastructure, and that is the strongest prospect for this sector. Another advantage is that this sector is insulated from consumer's behavior and rather more dependent upon the economy. Hence, any consistent downside in the growth rate of economy can hamper the prospects of this sector, whilst on the other side; consistent growth rate will push up this sector. As of now, the growth rate seems OK (without taking inflation into account). If inflation gets controlled, the sector will continue to grow. So, any investor who is looking in horizon of 2-3 years, can start putting money in this sector. Companies like GMR Infra, IRB Infra are good stocks to buy at these levels of below.

Information Technology (Buy)
Information Technology has been the blue-eyed boy of Indian economy for last few years and is expected to remain so in coming years as well. The IT companies have been performing well consistently, albeit, have faced the forex crisis last year. Their low-cost services due to currency parity (difference between foreign currency and Indian currency), quality labor, will help these companies in growing in coming years. As an investor, it is better to put money in those IT companies which are well-diversified into various domains (like Telecom, Finance, Logistics). For instance, Satyam and TCS are better than Infosys and Wipro in terms of domain diversification.

Trading Ideas for the week
This week is expected to see some buying interests in some of the real-estate and infrastructure stocks like DLF, REL, GMR, JP Associates. One can trade in these stocks. The best strategy, though, is to hedge the portfolio by buying a Nifty Put for 3800 in the proportion of 1:3 i.e., buying 10000 Rs value of Nifty Put {(LTP+ Strike Price)*50}, along with 30000 Rs of stocks in the Cash market.

The stocks which are at attractive levels and can be accumulated for long term are IRB Infra, Karuturi Networks, Vakrangee Software, Balasore Alloys, DCHL, NDTV. These companies have shown consistent growth in last 2-3 years and have seen FII interest, despite the slow down.

Wish you a great investing and profitable trading this week!!!