Weekly Outlook for Indian Stock Markets - 01st Sept -5th Sept, 2008

Surprising Last Week
The week gone by was full of surprises, especially the market sentiments on Friday. One occasional drop in Inflation numbers was enough for the investors to have a round of renewed buying in the markets. Even the significant drop in Q1 GDP growth looked a weak downside trigger for the markets, which rather make me thinking on what kind of mindsets are trading in the Indian stock markets.

Equally surprising is the Government reaction on inflation. It makes me wonder on why the Government needs to issue a statement every week regarding the inflation? A week back, when inflation touched 12.63% from 12.44%, Government issued a statement that it is disappointed. This week, a marginal fall of 0.23% to 12.40% made the same government optimistic enough to suggest a fall in the inflation in the coming days. Whether this is an anxiety on the Government part or any foul play behind it, one needs to find the answers for these questions surely.

Coming days would be volatile
Coming days will be more challenging than before, especially when a robust and emerging economy fights the battle with a host of negative cues like Inflation, Higher Commodities, Global slowdown, High Interest Rates regime, financial turmoil, etc. Till the time a winner is declared, we will see markets moving both ways and remain volatile.

The inflation is still a big worry, especially when the government looks defeated on this front. The failure of a government can be seen from the fact that it is praying for higher base effects to have a moderate inflation, rather than fighting the causes from the front.

The prices of commodities are troubling the economy to a great extent. The whole basket of commodities like Crude, Gold, Silver, Steel, Iron Ore, Edible Oil, etc is trading at highest prices ever, which is putting further pressure on the inflation.

To counter the inflation, the central banks across the world had to increase the interest rates, which in turn slow down the economy. If Fed Reserve follows the same steps and increase the interest rates, then the consumption demand from US will reduce and will further slowdown the Global Economy.

Hence amidst such scenario, one should not be over-bullish on the equities, since the stocks already factor the future earnings of the companies. One should have stock-specific approach and try to buy the stocks which are rich in cash.

More downside can be seen next week
Nifty at the moment is tentatively poised. It is exactly in the middle of the 3800-4600 range and chances are ominous that it may try to re-test one of the levels soon. There is a bullish undertone in the market. Tonnes of money are waiting in the sidelines to enter the markets, but everyone is skeptical about the impact of the Global Slowdown on the Indian economy. Hence, people are still finding the levels below to invest their money.

Hence, the best thing to do under these circumstances is to “invest partially”, much like SIP mode to ensure you get the average value over the next one year.

Trading Strategy - 2:1 Put to Call Ratio
Traders can be best advised to keep their positions hedge with more downside bias. The oil can show some upward bias due to hurricane over Gulf of Mexico. If it indeed stops the oil production, then one may see rise in Crude prices. Also, the inflation data will always be a trigger point of nervousness on Thursday and Friday. Hence, one can now buy 4600 Calls and 4200 Puts in proportion of 1:2.

The traders can buy pharma stocks like Ranbaxy, and Glenmark Pharmaceuticals. Ranbaxy has the potential to reach 540 in next one week, on account of open buy back. Both the stocks have seen good amount of consolidation in last few days.

Another stock that looks interesting is the “Karuturi Networks”. This company is discussed in almost every post of mine. The company is looking to acquire a company in US sub-continent and is competing with various hedge funds for the same. If it indeed able to scrape through acquisition, then the stock may see some renewed action. The stock is currently trading below Rs 23 levels and is the best price to buy for both short-term and long-term.

Follow the Logic and not the Market
The markets remain volatile for 11 months in an year, hence one must to accept it and take it in its stride. Build your own logic and follow it whole-heartedly. Chances of success increases by manifold. Be knowledgeable on the companies where you are putting your money. Do consistent research and one will always sure of how his /her investments stand to fare in the future.

Wish you all a profitable investing!!!

Weekly Outlook for Indian Stock Markets - 25th August to 29th August, 2008

Struggling Last Week
The last week was a pretty bad one for the Indian bourses. Nifty and Sensex went down by around 2% during the week, on account of grim outlook for the Indian economy. Also, the inflation continued its upward march this week as well, climbing all the way up to 12.63% from 12.44% last week. The inflation for 30 essential commodities went up from 6.34% to 6.71%, which are not at all good indications or the Indian economy.

Amidst such atmosphere, what should an investor do?? Should traders go long or go short during the coming week? Will we again see the lows of mid-July in the coming days? Let’s introspect and find out the answers for these questions?

Sugar is sweet this season
The current levels are still above the current year lows and there are several indicators that are pointing further downside in the markets. But downside now could be limited to specific sectors like Real-estate, Banking, Capital Goods. Whilst on the other side, one may see some value buying coming into several sectors that are dependent upon domestic factors or provide niche edge to India Inc.

For instance, Sugar Sector is the one that can be picked for long-term investments. India is among the largest producers and consumers of Sugar. Indian Sugar companies have grown themselves in last few years and have become competitive in the International markets.

The coming festive season in October will also see demand for Sugar rising and hence, profits and margins are also expected to increase. Another factor that goes in favor of Sugar companies is the permission of using ethanol as an alternative fuel. Hence, one can invest in companies like Renuka Sugars, India Glycol, Bajaj Hindustan for a long term view.

Information Technology is our forte
The sector that brought along the change in the outlook of Indian economy was the Information Technology sector, led by Infosys, TCS, Wipro and Satyam. Though, the recent slowdown in the US has hit the sector badly, yet it carries the potential to do well in future.

After beaten badly due to turmoil in US financial sector, the Indian IT companies have been diversifying into other sectors like telecom, logistics, Manufacturing, etc to protect themselves. The strengthening of Dollar against Rupee will also provide them some cushion against reducing margins.

Another factor that goes in favor of Indian IT companies is that these companies are run professionally. Hence, chances of success in their quest for grow are higher. The top-rung counters in IT sector like Infosys, TCS, Satyam and Wipro can be picked for a view of around 24 months.

Real-Estate is not so Real
The era of low interest rates saw tremendous rush for real-estate investments. Many a people purchased houses, not for shelter but also as a mode for making quick gains.

Sadly though, with rise in interest rates, the plans for many have gone awry. People who had taken mortgage loans have been suffering the most due to rise in EMIs. Also, the high interest rates are dampening the spirits of new breed of house-seekers who do not comfortable paying higher EMIs.

Hence, one thing is definite. The real-estate sector is must-must avoid at this moment. Also, the outlook doesn’t look good either. With slowdown in growth of Indian Inc, the salaried class will not get higher pay packages, and could lead to low demand for real-estate.

Some interesting Trading Strategies
The coming week will see the expiry of August contracts and building up of September positions. Hence, one may see a range bound market in the coming week. One may see short-positions building up in September futures, and hence, Tuesday and Wednesday may see a fall in the bourses.

This the best time to play a straddle of buying the Nifty 4000 Put and 4500 Call. There are several indicators that will keep markets volatile during the week. Some major ones are NSG deal, US Congress resolution on Indo-US Nuclear deal, Inflation, and Crude movement. Hence, this volatility will help you gain good gains out of this position.

Some stock-specific ideas
The stocks that could see some action in the coming week are Karuturi Networks, Renuka Sugars, and DCB and Indiabulls Real-Estate. Karuturi Networks is expected to announce some major decisions in its Board meeting on Monday, which may see some upward movement in this stock.

Indiabulls Real-Estate is seeing accumulation around 300 levels. The stock is currently trading at 290 odd levels and could see some upward movement during the week.

In case you have suggestions or want to share your stocks ideas, please feel free to write in your comments by clicking Comments link below.

Wish you all a very Happy Investing!!

Weekly Outlook for Indian Stock Markets - 18th August to 22nd August, 2008

Reviewing the Past

Last Week, Indian Stock Markets have again turned into selling mode, after renewed concerns of low growth and high inflation emerged into the shore. The Industrial Output for the month of May have fallen to disappointing 5.4%. Besides, the inflation is not looking good either at 12.44%.

These negative triggers pulled the markets down, especially on Thursday. Nifty which had a major support at 4500 till now has fallen down to 4430 levels on Thursday. These are no good signs for the markets and the coming week may see further downside in the equities.

The Challenges
Amidst such uncertain environment, what an investors or traders should do? As we discussed last week as well, it is better to maintain “wait and watch” approach. The economy is going through a tough patch and there are more downside risks that the upwards.

Let’s look at some of the factors that can influence the stock markets in the near future.

Inflation
The Indian Economy has been hampered with dual concerns of High Inflation and Low Growth. The pay hike of Govt employees announced by the PM on eve of Independence Day will further fuel the price hikes of the essential commodities, hence taking the inflation upward.

Somehow, it seems that the steps taken by the government to tame the inflation are too naïve and shallow. The government has given emphasis towards implementing the monetary steps to control the inflation. No sincere effort has been taken by the government on the ground to control the hoarders who have been stacking up the stocks to artificially increase the prices.

Hence, investors would be advised to stay caution till the time we see any major success for the government towards controlling the inflation.

Money Supply
The initial India Story was written on the hopes of a developed economy. But the developed economy is based upon strong infrastructure, transparent public and private role and placement of regulators who can time-to-time remove the weeds out of the system.

The start was good but we somehow swayed away in the middle. If we see closely, the growth in last 2-3 years were more on account of aggressive lending by the banks, which in turn led to reckless consumption, hence fueling the sales of the companies and greater profit margins for them.

But the same cycle pushed more money into the system, thus increasing the inflation. RBI, on its own, had started taking steps since Last June (2007) towards tightening the money supply in the financial steps. Though, these steps are not enough but yet have somehow able to bow down one side of the inflation.

If inflation doesn’t come down, then we may see more stern actions taken by RBI to reduce it. But these steps will definitely reduce the growth rate of the country. Hence, one must need to keep an eye on the RBI future course of action towards the money supply problem.

Infrastructure
If we remember, many domestic and international research reports have indicated in the past of “level below normal” infrastructure facilities currently available in the country. The reports also emphasized that infrastructure space needs heavy investment through Public-Private partnerships to ensure India remain a strong and sustainable growth story.

But it is a human tendency to ignore the weaknesses till the time they catch you. If the government would have spent money on Infrastructure, then we would have been in much better position to face the global slowdown today.

Now, in the era of low growth and high interest rates, there will always be shortage of funds to aggressively back the infrastructure projects. The funds cost will be high now due to high interest regime coming into the economy and hence, maintaining high growth will be a big challenge.

Looking Ahead
The investors should maintain “wait and watch” approach and only the selective buying should be done. There are some stocks in the mid cap and large cap space that look good and are better insulated from inflation than others. Also, one can invest in companies that have high cash reserves, since funds will be the one resource that is scarcely available.

For 1 year horizon, one can buy Vakrangee Software, Karuturi Networks, and Vishal Retail. Vakrangee software has domestic clientele, no foreign currency challenge, less debt on his balance sheets and almost no rental expenses. The stock is currently trading at 210 Rs and can be accumulated between 180-200 Rs for at least one year target of 350 Rs.

Karuturi Networks has been World’s largest supplier of Roses with plantations in India, Ethopia and Nigeria. The company has been expanding at good rate and among the few companies where FIIs have been increasing their stake in every quarter. The stock is currently trading at 23 Rs and can be accumulated around these levels for one year target of Rs. 35.

The major benefit with Vishal Retail is the market that it caters to. Unlike other companies in Retail sector, Vishal Retail serves the lower segment of the market with low cost products at low margins but high volumes. Due to slowdown, the middle class now has less money to spend and has will attract towards low cost products that can satisfy their needs. The stock is currently trading at 400 Rs levels and can be accumulated between 350-400 levels for a target of 500 Rs in one year’s time.

Trading Ideas
The traders who had bought 4400 Puts last week can reap good gains in the coming week. The markets can go down below 4400 on Monday and one can close these positions for good profits.

Another interesting strategy for next week is to buy Ranbaxy 540 Calls and 480 Puts at the same time. The stock till now has remained unaffected from the downpour due to Open offer initiated by Daichii which has started from 16th August.

Now, one can see some action in this stock in the coming week. 480 put is trading at around 6 Rs. and 540 calls for Rs. 4 odd. One can take positions on both sides for maximum benefit from the volatility.

In case, you have some views that you want to share about equities, please feel to write in your comments.

Wishing you a great trading week ahead!!!
Saayonara

A glimpse of the Past
Have good times come once again on the Dalal Street? The last week performance of Indian stock markets give indications of a possible revival, especially if we take a look at the Friday's trading. Despite the fall in US indices on Thursday night and bad inflation data, the markets managed to hold themselves pretty well on Friday.

What lies ahead?
Now what's next is the biggest question.

Has time come when one can start investing? Will markets able to consolidate and achieve new highs in the future? These are few questions that every investor must be asking himself.

My view is to "wait and watch" at this moment. One can invest but cautiously. Traders must book profits at the regular intervals. Because, there are several negative factors hovering around the equities that may pull it down.

Crude Oil has fallen sharply in last fortnight and chances do exist that Crude Oil may bounce back a bit to 120-125$ / barrel. If that indeed happens, then equities can see a sell-off once again because High Crude cannot live in harmony with high prices of equities.

Another negative factor is Inflation. Any sustainable bull run in equities cannot occur in the backdrop of high inflation and high interest rates. Hence, my view is that one should not build high hopes till the time, inflation cools down to below 8% levels.

Third negative factor are the elections in USA and India. The UPA government will be taking some steps towards reforms, but these initiatives will turn concrete only if UPA again comes to power. Hence, FIIs or MFs will only be putting money in equities, after seeing the outcome of the general elections next year. Hence, one is advised to maintain a "wait and watch" approach and closely monitor the movement of crude, inflation and elections.

Next week Scenario
The coming week may see some profit-booking. The indices have risen sharply, by about 15% in last 2 months and chances are imperative that some sort of profit-booking could be seen. Hence, my advice is to book some profits as well, especially in banking and real-estate sectors. Monday could be the day to do so, when markets are expected to open positive on account of sharp rally in Dow Jones.

Trading Strategy
Traders can buy 4400 Nifty Puts and 4900 Calls as a strategy. Nifty 4400 Put is trading at around 100 Rs, whereas, Nifty4900 Call is trading around 60 Rs. Thus, the total premium outlay comes out to be Rs 160.

Now, if crude oil goes below 110$ / barrel and no bad news come from US financial sector, then equities could see a fresh round of buying, which may take increase premium on Nifty 4900 Calls to 160-180 Rs. At that time, one can sell both the contracts to get the profit equal to premium in Nifty 4400 Puts.

Investment Mantras
I have been covering Karuturi Networks (KNL) for last few weeks. The stock is currently trading at 23 odd Rs. One can buy this stock with medium to long term perspective and target price of Rs 40-50.

Another stock is Balasore Alloys and Everest Kanto Cyclinder. Balasore Alloys is the subsidiary of Ispat Industries and generating more than expected profits for last few quarters. The stock is currently trading at Rs 55 and has a target of Rs 80-90 in next 6-9 months.

Everest Kanto Cylinder is another stock to look out for. The company is the niche market of manufacturing of cylinders for storing gases and inflammable liquids. The company Order Book is strong. The stock is currently trading at Rs 300 levels and can go till Rs 400 in next 3-4months.

Wishing you a Safe and Profitable Investing!!!