|By C. Kutumba Rao|
Market players await Q4 results
Despite change in global market sentiments, inflation fears spo-oked domestic markets and the government's measures to control it have kept the markets on the edge. Shedding all gains posted in the earlier week, the Sensex fell by 6.3 per cent to end at 15,343 points and the Nifty on the NSE lost six per cent to close at 4,649 points. Though the market breadth was positive during the early part of the week, it turned negative by the end of the week reflecting crisis of confidence. Both the CNX Midcap and the BSE Smallcap had smaller cuts of 3.8 per cent and 2.4 per cent.
Renewed selling from FIIs and the lack of follow-up buying from domestic institutions kept the sentiment subdued. Fears of strong monetary and regulatory steps to control inflation affecting the growth story and liquidity have turned the sentiment bearish. Reports of losses due to exposure to asset markets and derivative contracts and the impact of slowing global economy are factors weighing on the markets. ICAI's guidelines about the accounting of derivative losses in balance sheets have created the spectre of volatility in corporate profits for financial year 2008. Market players are anxiously awaiting the fourth quarter results and the forward projections likely to be made by companies to take a call on the near term trend of the markets.
For the week ahead, chartists predict a trading band of 14,660-15,800 for the Sensex and 4,380-4,840 for the Nifty. The violation of January lows with volumes may see the indices slide to 13,300 and 4,050. Expect strong resistance to indices on upside at 15,800 and 4,940. Keep a watch on trading volumes as indices and stocks are falling on thin volumes. Buy backs are back in fashion. The willingness of the management to buy its own stock may not be a sufficient condition to buy a stock, but it does provide strong confirmation that the stock is a good investment.
Volumes in the derivatives segment have fallen sharply mirroring the weak sentiment and also on concerns over changes in taxation. Day traders and jobbers feel that under the new tax regime treatment of STT as deductible business expenditure will increase tax burden significantly.
Fresh shorts were seen in Nifty futures. Gutsy traders recommend short straddle by buying Nifty April 4600 call and put options. Sentiment indicators like open interest, implied volatility and put/call ratio indicate another bout of volatility in near term. Barring technology and pharma, selling was seen across the board in nearly all the sectors. Sharp cuts were seen in capital goods, power, banking, automobile and realty counters. Weak quarterly results from BHEL provided reason for bears to hammer capital goods counters. Impact of higher raw material prices on capital goods and infrastructure companies is clearly evident from results of BHEL. Banking counters are witnessing selling pressure on every rise. Wait for the Q4 results to initiate buying in low P/E PSU banks.
Despite aggressive global expansion strategies of Indian auto majors like Tata Motors and Mahindra and Mahindra, markets have not been kind to the stocks. Fears of slowdown in demand and high cost of acquisitions are bugging investors. Adopt wait and watch attitude. Ahead of results from Infosys, selective front running was seen in some technology stocks. Stick to frontline counters. Pharma stocks are attracting good defensive buying. Stay invested in Ranbaxy, Dr Reddy's, Orchid and Matrix Labs. Rumours of open offer in Matrix Labs from parent company Mylan are doing rounds.
Accumulate at lower levels FMCG and telecom counters for good medium term returns. Idea Cellular and Hind Unilever look good for short term. Among the side counters looking good are Suzlon Energy, Tata Chemicals, BEL, i-flex Solutions and MRPL. Do not leverage too much because if you are too leveraged, all it takes is one mistake to knock you out of the game.
* Rising demand for minerals including coal is leading to higher investments in the mining sector. Race is on among many companies to "corner" natural resources. While it is difficult to value companies sitting on mining assets, it is easy to value companies supplying machinery for them. Likes of Ashapura Minechem, Gujarat NRE Coke, GMDC, Sesa Goa, Jayaswal Neco, Sandur Manganese and others are being fancied by "miners". Material handling companies like Elecon Engineering, TRF, McNally Bharat, Sanghvi Movers and TIL are expected to benefit from higher investments in mining.
* Food prices are going up globally and food security has become dominant concern world over. Companies in dairy, agrochemicals, fertilisers and seeds are likely to attract heightened interest. Modern Dairy has diversified into value added products like edible grade casein, lactose, etc. Modern Dairy and Heritage Foods look good bets at current levels after recent correction. United Phosphorus is the largest Indian agrochemical play in crop protection space. Buy at current levels for steady returns. Advanta and Monsanto are the leading seed companies and warrant a look at current levels.
* Select stocks looking good for positional play are Mind Tree, Piramyd Retail, Zensar Tech, Coromandal Fert and Minda Inds. Mind Tree is one of the fastest growing IT and research and development (R&D) service providers. Founded by ex-Wipro honcho Ashok Soota, the company has embarked on a restructuring exercise. Buy at current levels for a price target of Rs 500. Post merger of Godavari Fertilisers within itself Coromandal Fertilisers has positioned itself to become the leading player in fertilisers in south India. Buy on every decline for price target of Rs175 in next few months. Minda Inds is an emerging giant in auto ancillary space. Accumulate in the current weakness.