By Kutumba Rao - Nov 2, 2009
It's time to focus on earnings visibility
Spooked by the hawkish stand of the Reserve Bank of India in its mid-year policy review, none too enthusiastic results, scepticism over the global recovery, markets fell like a set of bowling pins during the week ended.
On the Bombay Stock Exchange, the Sensex tumbled by 915 points to end the week at a two-month low below 16,000-level at 15,896 and the Nifty on the National Stock Exchange crashed by 285 points to close at 4,712.
The sell off was broad based with realty, banking, oil and gas and metals being the worst hit.
The five per cent to 15 per cent correction that many people have been calling for since the summer is finally in place, say old timers. With the end of results season, it is time to pick the companies that have shown good performance and have good earnings visibility for next few quarters.
It is pertinent to note that both domestic institutions and FIIs were buyers on Friday, the day when market fell 500 points during the day. Avoid aggressive shorts at current levels. For the week ahead, chartists predict a trading band of 15,260 and 16,400 for the Sensex and 4,520 and 4,940 for the Nifty.
Immediate supports for the indices are at 15,540 and 15,280 and 4,580 and 4,490. Any pullback rally may see indices face resistance at 16,140 and 16,450 and 4,820 and 4,940.
Markets look oversold for the near term, cover shorts during the early part of next week, advise savvy market players. Sell on rallies approach should be adopted till Nifty conclusively closes above 4,900-level.
Every speculator knows the danger of too much "company." When in doubt do nothing. Don't enter the market on half conviction; wait till the convictions are full matured.
* A careful perusal of the results of Fenoplast clearly indicates a cash EPS of Rs 14 for full year. The company has reportedly become largest PVC film manufacturer of the country after recent expansion. Buy at current levels for target price of Rs75 in medium term.
* Smart card biggie Bartronics has come out with excellent numbers for the second quarter. Good earnings visibility coupled with exciting prospects for the industry make it good buy at current levels for target price of Rs 200.
* Nagarjuna Agrichem has reported better-than-expected results. The company has emerged as a leading crop protection chemicals player with diversified product portfolio. Buy on declines for a target price of Rs 250.
* Continuing its good run, training simulator manufacturer Zen Technologies has reported excellent second quarter numbers. Annualised earning per share is likely to be Rs 30 plus. Buy at current levels for target price of Rs 400 in medium term.
* A revival in demand from OEM manufacturers and introduction of new high margin products has helped Subros Ltd, India's largest auto air conditioning manufacturing company, to post robust performance. Buy on declines for a price target of Rs 55.
The "uncomfortable" level of open interest triggered a sharp sell-off in many momentum counters. A high-level of complacency and confidence about the pre-Diwali rally led to 'trapping' of bulls in many active counters.
Rollovers were unimpressive indicating some loss of confidence over the near term direction of markets. Sentiment indicators like open interest, implied volat-ility and put/call ratio indicate the continuation of rough patch for some more time.
Among stock futures, short build up seen in ICICI Bank, RCom, JSPL, RIL, HDIL, DLF, Bharti, BOI and JP Associates. Selective longs were seen in M&M, United Spirits, Wipro, TCS, Biocon, Tata Chemicals, PTC, Ashok Leyland and Crompton Greaves.
Hike in SLR by the RBI triggered selling in realty and banking stocks. Buy in the current correction at lower levels the smaller PSU banks like Allahabad Bank, Vijaya Bank, Dena Bank and Andhra Bank. Bottom fishing can be attempted at lower levels in realty stocks. Renewed strength in dollar may spark renewed buying in IT counters. Hold positions in frontline IT biggies and add on declines for steady gains in medium term. After the robust gains for better part of the year metal prices look set for sharp correction in near term. Avoid large bets and buy selectively in 'tune' with trends. Weak results may see Divi Labs, RCom. and RIL extend losses.
Best of the times are over for Divi Labs say industry observers. Shrewd players suggest a shift to DRL. Hei-ghtened activity indicated in side counters like Voltas, Crompton Greaves, Biocon, MTNL, Firstsource, Bombay Rayon and Sun TV.
C. Kutumba Rao is a Hyderabad-based stock market analyst. The views expressed and the recommendations made are those of the author. Readers are strongly recommended to consult their financial advisors before making any financial investments. This newspaper is not liable for investment decisions made on the basis of recommendations in these columns.