Nifty likely to maintain range, BHEL seems attractive

As another eventful week got ended where RBI has again increased the interest rates, Indian Equity Markets are likely to take a day or two of breather. Nifty (benchmark index) is now stuck in a narrow range of 5060-5200 and would like to break it after a pause.

Fundamentally, the concerns remain valid. High Interest Rates are likely to impact the earnings from now on. Growth will also likely to come down. Globally uncertainty looms larger over Europe and USA. Commodity Prices are going up. Amidst such scenario, the expectations should be tapered down.

Nifty move from 4800 to current levels is likely to resume for a while. It is likely to touch 5200-5270 from where we might see another retracement to 4900-5000. If Nifty is able to breach 5270, then the next level comes at 5400.

On the downside, 5030-5040 is a very crucial level. If this gets breached, we might see Nifty going to 4960 and then, 4870 levels. Thus, as a trader it is wise to work under strict stop-losses. Shorts can be opened at 5020 with target prices of 4960 and stop-loss of 5060.

On both fundamental and technical side, BHEL looks attractive. Technically it is close to its medium level support of 1640. Also it has underperformed Nifty by around 10-15% in last three months which it might try to recover in the coming days. For technical traders, one may go long in 1660-1680 range with target prices of 1730-1780 and Stop-loss of 1630.

Comparison with Nifty index

Fundamentally too, one may buy this stock at around current levels. As it is a part of benchmark index, it was trading at PE of 17X in March with EPS of 122 (Ref: Results). Even if we discount the slow down and put down EPS to 110 for this financial year and reduce PE to 16X, then even, its fair price comes at 1750. At fair valuations of 120 EPS and PE of 17X, the price arrives at 2050.

Thus, long term investors can buy the stock at 1660, 1530 levels with probable targets of 1750, 1900, 2050 levels in next 6 months.

Wishing you a great week...

Buying opportunities in mid cap space. Bharat Forge, Indian Bank Buy - 08th August 2011

The Global Equity Markets had a horrendous time last week. US and European Indices fell by ~ 10%. The ripple effect of USA Debt Downgrade, European default, imminent slowdown in the economies and this list may go on and on and on....

Indian Equity Markets too melt down by 5%. Though the pain on Dalal Street was much more than this. Mid-cap stocks fell down much more than that. Interest Sensitive sectors like Real Estate, Infrastructure fell down too. DLF, Unitech, BHEL, L&T - all big and small names fell down. Reliance too down below 800 Rs mark. One can't count the dead on this battle field.

Amid such scenario, our recommendations did a bit better. Cummins India hit its Buy target of 640. Wow! Rare Buy target achieved in this market. The recommendation is still open @ 605 with target price of 640 and Stop loss of 578.

India Cements fell down but managed to stay above its SL of 64. It closed @ 65. The hope still alive... :) Geodesic Systems too managed to float above its stop loss of 53. It closed @ 55.25. The buy recommendations still intact.

For this week, one may Buy Indian Bank @ 215 with Stop-loss of 208 and target price of 228. The stock has fallen down steeply till Thursday. But on Friday, it shows resilience in the support range of 210-220. Open Interest too was positive too which is a good indication.

Bharat Forge too can be bought at around current levels of 270-275. The stock has fallen steeply from 340 Rs and looks into over sold range. One may buy this stock with Stop-loss of 264 and target price of 292.

Wishing you best of luck for the challenging week!!! 

Tremendous buying opportunity in mid-cap stocks amid macro issues - 03rd August 2011

Indian Equity Markets are having nightmare sessions now a days. At macro levels, things have become scary - US Debt Downgrade which can have cascading effect on the world economy, Europe slowdown, Inflation issue in India, Corruption in Government, High Commodity Prices... The list is endless.

But the bigger question is on how to change this Threat into Opportunity?? For this, we just need to go to the basics and find out stocks which have no or minimal impact from these issues, yet they have fallen with the market. The time is ripe to find out stocks which are going down with the flow, yet their fundamentals intact. And surely, you will lot many such stocks in mid and small cap like GTL Infra, GMR Infra, KS Oils, JP Associates, HCC, IFCI, Geodesic, India Cements...

1) Cummins India - Cummins India has fallen steeply in the last few days from 680 odd levels to 610 levels (~10%). The company is due to announce results tomorrow. Its sales have risen consistently. The business model is intact and has very less interest expenses. Technically too, RSI is around 20 odd levels. One may buy this share in 610-615 Rs range with approximate targets of 640, 660 levels. Stop Loss can be placed at 590 and 570.

2) Geodesic Systems - Geodesic Systems is an IT company that develop software into telecom, financial services and power. The company's revenues have been increasing steadily and has been making efforts to reduce the debt expenses. The company is in run to acquire a company in US and likely to make final announcement in August. It has a good range of applications which has been getting good demand from the clients. Technically too, the stock is trading at 2 year low. RSI is also close to 20 which indicates over-sold range. One may buy this stock in 60-61 range with targets of 65, 75. One may place Stop-loss at 53.

3) India Cements - India Cements has been under consistent pressure for last few quarters and no doubt, has some fundamental issues. But the current stock price suggests more digestion than what is required. The valuations have become really attractive at the current levels. Though the current monsoon season will have a negative impact on the sales, but that will be counted in the next quarter. One may buy the stock in 68-69 Rs with target price of 75, 80, 90, 105 and Stop-loss of 64, 59 and 55.Hope you have a great year of investing!!

Volatile Nifty in coming days, Buy Tata Global and Sell KPIT Cummins - 24th July 2011

Indian Stock Markets have become volatile on the backdrop of decent quarterly results, FII inflows but deteriorating US debt dispute and high inflation and poor monsoons are putting a check on the further rise. This week of expiry though can become exception and we might see some movement on the reverse side.

This week, Nifty, is expected to become volatile and direction seems not clear. The Options Trader can buy both Nifty 5600 Call and 5600 Put if Nifty hovers around 5600-5610 during initial trade on Monday. In case it makes a gap up opening on the up side, Nifty is likely to face resistance at around 5710-5720 and becomes a sell candidate. On the downside, Nifty can go below 5500 if it breaches 5540 on the downside.Last week, Nifty made the anticipated move and rebounded from 5550 to 5625. Both stocks recommendations though, hit their Stop-losses :(

During the current week, one may sell KPIT Cummins at around 196 for stop-loss of 203 and target price of 187. The stock had a good run up during last few quarters but disappointing results on 21st July pushed it down. Though it had again rebounded on friday but likely to face stiff resistance around 197 mark. Also psychological level of 200 will also play on traders' mind. Another technical factor that will play is the major gap between short term trend line and long term trend line, which is likely to narrow down in the coming days.

On the buy side, one may accumulate Tata Global Beverages at around 102 with target price of 113 and Stop Loss of 96. The stock has been trading in a range of 90-105 for last six months and has rebounded strongly from 90 levels twice. Also the stock is making a bullish pattern now and likely to break the current levels to 113-115.Wishing you a great trading week ahead...

Nifty close to short term support zone. Pidilite overbought PGHH Buy -17th July 2011

After a negative last week for the bourses, the benchmark indices are likely to show some support in the current range. Quarterly results so far have shown consistent growth coming in the top line, though the bottom line seems hit by rising Interest and Employment costs.

Technically, Nifty is trading close to the support zone of 5530-5560, where it is likely to show some strength. Front line real estate stocks like DLF, Unitech, Sobha Developers, Parsavnath are showing strength and are likely to boost the index up. FMCG stocks too are showing strength which are good indications for the market.

The short-term traders may go long on Nifty in 5530-5540 range. Nifty is likely to move up to 5610-5630 range where it is likely to face some resistance. One may close the position, if Nifty goes below 5510-5515.

Among the stocks, Pidilite Industries is showing resistance for last few weeks at around the current levels, primarily due to technical reasons. RSI is currently close to over-bought zone for this stock. Also the gap between the short-term support and long-term support is quite wide which indicates that the current run up in short-term is difficult to sustain and hence, it might correct a bit. Traders can open their short positions in this scrip at around 170-172 Rs with Stop-loss of 176 and target price of 166.

Another stock that is currently looking good at the moment is Proctor and Gamble (PGHH). It has broken down its current resistance levels of 2000 and hence, is likely to create a short-term rally in the near future. FMCG sector overall is doing well which provides further fillip to this stock. One may enter into this stock at 2010 with stop-loss at 1980 and target price of 2045.

Wishing you a great investing week!!! We will soon come out with more trading and investment ideas.

Parsvnath Developers - Headwinds present but valuations provide better Risk vs Reward ratio

Parsvnath Developers is Delhi NCR based real-estate firm which caters to the needs in both residential and commercial segments. The company primarily started from Delhi NCR region and gradually expanded to other cities of India.

During the last recession, the company suffered major losses due to tremendous amount of leverage on its books. In March '09 results, the sales revenues were reduced to half on Y-o-Y basis whilst the interest expenses increased to double. Its Interest / Net Profit ratio had increased to 36% in FY'09 results.

Subsequently, the company restructured its business, which has started to give some results now. The company's Net Profit has been increasing steadily and is expected to see it grow by around 35% this year (Click here for results). 

Though few concerns remain. With Central Bank constantly increasing the benchmark rates, the loans will surely get expensive which would result in slowdown in demand (sales can decline) and also increase the interest expenses (higher borrowing cost). Also, the last quarter result shown decline in revenues and increase in other expenses which again put some doubts on the financial health of the company,

Technically though, the share price has declined sharply in the last two months. In Apr '10, the share price was trading @ PE of 8X (57 Rs price, EPS - 7 Rs). With expected EPS of 9.5 Rs and current price of 37 Rs, it is trading at PE of just 4X, which seems cheap.

Even in the current context, we may reduce PE valuations to 6X. Even in that case, the fair price comes @ around 60 Rs which provides an upside of not less than 50%.


Hence, it becomes a buy with first target of 47 Rs (@ PE of 5X) and second target of 57 (@ PE of 6X).

Eicher Motors - fundamentally good stock and valuations attractive

Eicher Motors is India's leading tractor manufacturer company. Royal Enfield brand too belongs to this firm. The company has shown tremendous growth since last recession when interest costs and less demand on the agriculture front had put steep pressure on the bottom line.

With new economic horizon, the working environment for this company has changed. Both Central and State Governments are now focussing on the agriculture sector which would help the company in increasing its sales. Also it has exclusive tie-up with International HCV manufacturer -Volvo - for trucks manufacturing. Thus the company foray into Rural India space would help it continue to grow in the near future.

In terms of financials, the company was into tremendous interest costs pressure in 2008 where Sales/ Interest Expenses ratio was around 14% which now has been reduced to mere 2%. The reduce in interest expenses along with improved sales has helped the firm notch 100% increase in Net Profit on Y-o-Y basis.

Valuation-wise the stock used to trade in PEX of 18-20 times during recession period. In the current bull market, it traded at PEX of 45-50 times. Currently, it is trading at PEX of 35. With better financial prospects in the future and its working in "Agriculture" domain, it should demand PE of at least 35 times. With estimated EPS of 35 Rs (30% gains Y-o-Y) and PE of 35X, its fair price comes at 1250 Rs for next one year which provides returns of 20% from current market price.

Technically, it has good support at 1020-1050 levels. If this level is broken, the stock can be accumulated at around 850-860 levels, which is extremely attractive. After this level, one may buy around 600-650 levels where exists Stop-loss as well for this stock (Ref: graph).

My advise is to buy around 50% at current levels and 50% at 850 levels for optimal gains. In case of last resort, put 100% more at 650 levels with strict stop-loss of 580.



Jain Irrigation seems a good buy though at lower levels

Jain Irrigation is World's second largest organization in Micro-irrigation sector and has given exceptionally good results in the last few quarters.

Though after the split occurred in Oct, the stock is trading in a range with some negative bias probably due to more equity now floated into the market. The negative sentiments of the overall market is also putting pressure on the stock.

The stock traded @ PE of 30 times last year at EPS of 7 Rs (adjusted) citing the robust business model of the company. The company has managed to live upto investor sentiments but its rising interest costs would surely bring the bottom line into pressure in the comg days.

With potential EPS of around 8.5 Rs this year and PE of 25X (lower due to current market sentiments), the probable target price comes at 215 Rs.

Fundamentals of the company remains intact and can be bought @ 170-180 Rs with target price of 215-225 levels.

Macro Economic factors look to spoil the bull party- 03rd January 2010

Indian Equity Markets have made a good rebound from intermediate lows made in the early part of December 2010.

But if we look at the charts carefully, even though it is giving bullish signals, the correction gaps have widen up than before. In other words, the time to recovery is increasing as we move up. It indicates that confidence level is now as good as it was in the lower levels.



Then the only reason we have been goin up is the liquidity factor. The long term investors must utilize this opportunity to book profits and wait for a good correction to come. With high current account deficit, rising interest rate regime and high inflation, there has been some serious fine tuning required in the Indian economy before it can resume its meaningful upward journey.

Short term traders must go into the market with strict stop-losses. The logic is not to afraid to book losses quickly.

Technically, we are into bullish zone till the time market crosses 6170-6200. Also RSI which is in mid-50 range can go upto 70-80 levels where we would see an over bought region. In this range, we anticipate another fall to come into the markets.

Options traders can sell Nifty 6300-6400 Calls for January at every rise. In the downward trend, one may sell Nifty 5800-5900 Puts.

Wishing you a great trading time ahead!!!