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.