Morning Bells (29 Jan 13)

Good Morning Friends.

Zindagi me mushkile tamam he, phir bhi labon pe ek muskan he, qyunki – Jeena jab har hal me he to fir muskurakar jeene me kya nuksan he.

So finally day has come – most hyped, most awaited event for which experts & market participant were waiting since past 2 months, which RBI policy announcement. Y’day we have seen short covering in rate sensitive stock specially in banking sectors, fresh shorts also seen. So first discussion about RBI policy –

While markets are confident of a low-interest rate regime, the Reserve Bank of India continues to tread cautiously at every step. In its macroeconomic report for third quarter, the central bank mentioned about calibrated (read baby step) measures in managing country's monetary policy. It revised India's GDP forecast to 5.5% in 2012-13 as against 5.7% estimated earlier.

This is no change in RBI's earliar stance aimed at taming inflation even though the rate has eased. India's headline inflation rose 7.18% in December, the slowest pace in the three years. The banking regulator however, sticked to its policy approach of playing a balancing act between high inflation and growth risks.

"Monetary policy needs to continue to be calibrated in addressing growth risks as inflation remains above the Reserve Bank's comfort level and macroeconomic risks from twin deficits persist (fiscal and current account)," RBI said in the monetary development report released on Monday, a day before October-December policy announcement.

"Reforms since September 2012 have reduced immediate risks, but there is a long road ahead to bring about a sustainable turnaround for the Indian economy. Business sentiments remain weak despite reform initiatives and consumer confidence is edging down. The Reserve Bank's survey of professional forecasters anticipates a slow recovery in 2013-14 with inflation remaining sticky."

Markets were mostly expecting a 25 basis point cut in policy (repo) rate, the rate at which banks borrow money from RBI. It current stood at 8%. Moreover, a slowing growth rate coupled with a bit eased rate of inflation prompted many to expect for a 50 bps reduction in the repo rate. With this macroeconomic survey, many believe, chances of a sharp rate are remote.  RBI had last decreased the policy rate by 50 bps in last Arpil, 2012.

"Growth in 2012-13 may fall below the Reserve Bank's October 2012 projection of 5.8 per cent. Even though a modest recovery may set in from Q4 of 2012-13 as reforms and efforts to remove structural constraints get underway, sustaining this recovery through 2013-14 would require all-round efforts in removing impediments for business activity," RBI said.

Policy makers are currently fighting with the threat of twin deficits. The current account deficit (CAD) to GDP ratio touched a historically high level of 5.4% during July-September quarter in FY13. When total import volumes exceed total export volumes, it is called CAD.

Above all CNBC polls said, most of experts are expecting Rate Cut -

The expectations of a rate cut by RBI tomorrow is almost unanimous. A CNBC-TV18 poll among bankers and economists shows that 95% expect the central bank to cut the repo rate. However, it is a divided house on the question of RBI turning its policy stance from hawkish to dovish, reports CNBC-TV18's

The market is clearly positioned for a rate cut from the RBI Governor on January 29. Of the total, 95% expect a rate cut; of which 90% see a 25 bps cut and 5% a 50 bps cut. Expectations on a cash reserve ratio (CRR) cut are less intense. Only 30% expect a CRR cut; 70% said the governor may prefer using open market operations (OMO) or open market purchase of bonds to bring liquidity.

(MoneyControl.com)

Impact of RBI Rate Cut -

The main reason why markets and finance ministry are clamouring for the RBI to cut policy rate is the assumption that the move will automatically lead to banks lowering their lending rates. This in turn should boost demand for loans and revive growth in the economy. At least, in theory.

Most of Experts feel there is unlikely to be a meaningful drop in banks’ lending rates. That is because banks are already struggling to raise deposits despite offering high interest rates. For banks to be able to drop lending rates, they should also be in a position to cut deposit rates to maintain their profit margins.

But that may not be easy. This despite India being among the few countries where interest rates are ruling close to the peak levels in 2008 just before the global financial crisis.

MG’s View –

After Dec 12 disappointment from RBI market was very much confident about rate cut in Jan 13 and that’s market has already discounted a rate cut of 25 bps and 25 bps rate cut will not have much impact on the market. Now 6000 has good support on downside, so if RBI cut rates by 0.25 then market can show balance moves, secondly if it disappoints then bears to fight at 6100. So overall in both cases immediate effect is very less but remember – in short term it will have deep impact and can either drag or pull Nifty from current range. But yes, negative will lead a sharp correction in rate sensitive stocks.

If RBI outcome goes smooth then i.e. as per experts’ expectations then Q3 nos. in this week and in coming week can boost Nifty to head towards 6150. So if you see 6150 which itself means in immediate view upside seems capped.

Overall – more chances are for rate cut rather than to leave policy review without change.

Foreign institutional investors' (FIIs) ownership of Indian stocks as measured in the BSE 200 reached an all time high as of December 2012, Macquarie says in a report.

The October-December quarter saw broad-based buying from FIIs, with financials seeing the most buying, followed by consumer discretionary, industrial and healthcare stocks, according to the report dated on Friday.

So amid uncertainty and fear the anxiety among the market participants was clearly evident as they preferred to stay on the sidelines ahead of the RBI monetary policy scheduled to be held on 29th January, 2013.

Benchmark indices were stuck in a narrow trading range throughout the day. However, the interest rate sensitive stocks like the Banking, Auto and the Realty were in demand anticipating a rate cut. Even the IT and select telecom stocks witnessed some buying. The Mid-Cap index remained subdued, while the Small-Cap index marginally gained by 0.3%.

Gainers – Wipro, TCS, ICICI Bank, Hero MotoCorp, Coal India, HDFC, Bajaj Auto, Tata Motors, Hindalco, ITC, Mahindra & Mahindra were among gainers in Sensex and Nifty.

Losers - RIL, Infosys, NTPC, ONGC, L&T, Sun Pharma, Bharti Airtel, BHEL, Jindal Steel, SBI  were the major losers in Sensex and Nifty.

On Domestic Front -

Indian consumers are more worried than they were a year back, according to brokerage firm Credit Suisse's consumer survey, which shows a continuing decline in consumer optimism. Reasons: high inflation and a slowing economy.

On Global front –

Union Finance Minister of India P Chidambaram will launch a new promotion campaign here from Monday to woo European investors to India as the government struggles to reverse an economic slowdown, rein in fiscal deficit and avert a possible downgrade by the rating agencies.

Chidambaram will attend a roadshow on investment opportunities in India hosted by Deutsche Bank and Barclays Bank in Germany's financial centre and will hold discussions with leading representatives of European companiesand institutional investors.

=====================  MARKET OUTLOOK  =====================

Definitely RBI policy is a major event this week which will decide investors mood, beside RBI policy, F&O expiry will also play big role in market direction which will be supported by leading companies Q3 no.s

After blockbuster Q3 last week, now this week some biggies are on move, Sterlite Industries on Tuesday, ICICI Bank, Lupin and Punjab National Bank on Thursday and BHEL on Friday.

Auto and cement stocks will also remain in focus as companies from these two sector will unveil monthly sales data for January on Friday.

The INDIA VIX on NSE was up 2.71% and ended at 15.17 against previous close of 14.77.

FNO PCR is 0.97 against previous close 0.99.

Indian Rupee weakened on Monday, posting its biggest single-day fall in three weeks, on the back of heavy dollar buying by oil firms and other importers looking to meet month-end demand, while weak regional sentiment added to the downside.

Almost all Asian currencies weakened against the dollar while global equities saw some consolidation after recent gains as investors awaited confirmation that the financial market conditions and the outlook for the euro area have improved.

The Indian Rupee closed against USD and was trading at 53.91/92 against its previous close 53.67.

S&P 500 (US) was trading higher at 1502.87 down 0.09 then its previous close at the time of writing M Bells.

(MG’s Note – Closely watch S&P as to my personal view S&P above 1500 a bit risky for global market.)

=======================  NIFTY OUTLOOK  ========================

The outlook for the near term remains a bit cautious. If The Nifty cracks below the 6000 psychological mark and stays there for a considerable period of time it is likely to see a bearish movement. 

Market consolidating, now its time to lighten your portfolio and don’t make any fresh longs. Keep 5935 as SL for Longs. Buying in selective stock will continue.

Nifty is in range of 5935-5990-6040-6090-6150 for current week.

Resistance – 6088 – 6101 – 6115 and Support – 6061 – 6047 -6034 - 6005

Opening - seems flat to a bit under pressure ahead of of RBI policy announcement today.

========================  STOCK OUTLOOK  ======================

(Stock outlook needs to watch stock movement carefully and then one can bet after having a look, I tried to put related info which will help you in taking positions.)

FDI in Retail –

New Delhi-based departmental store operator V-Mart Retail plans to double its number of outlets with the help of funds raised from its initial public offering, a top company official said on Monday.

The company, which operates stores mainly in tier II and tier III towns in west and North India, will hit the stock markets with its maiden share issue on Feb 1 and close on Feb 5.

Mumbai Realty –

As per Prabhudas Liladhar –

Sales registrations up sharply, 42% MoM reflecting the festive season spurt.

Suburban Mumbai major contributor as city sales decline.

Strong leasing at lower price points, increase 47% MoM.

Indications of a softer interest rate regime props sentiment.

Reliance Industries –

Reliance Industries does not see any threat of work stopping at any of its KG-D6 gas fields and other blocks that figure in the list of 14 areas that have been classified as "No-Go" areas by the Defence Ministry.
    
RIL sources said the company has not received any communication from the government to stop work in KG-D6 or any other blocks.

Air India –

Air India has put all its newly- acquired Boeing 787-8 Dreamliner planes for sale and leaseback and invited bids from prospective lessors by February first week, even as all of these aircraft remained grounded across the world.
   
Air India and other Dreamliner operators across the world have grounded their entire fleet of 50 B-787s delivered so far following a directive from the US Federal Aviation Authority after a fire risk reportedly caused by a battery problem.

JSW Steel –

Despite a challenging business environment, JSW Steel managed to remain profitable during the December quarter, though its profit slipped around 19% to Rs 136.73 crore, YoY. The company in a statement said,  if not for higher price it had to pay for outsourcing iron ore due to the ongoing mining ban in Karnataka and Goa, profits would have been higher.

JSW Steel's 10 million tonne  capacity at Vijayanagar plant in Karnataka has been affected since August 2011 after the Supreme Court put a ban on mining in the state due to environmental related issues.

Sales climbed 5% to Rs 8275 crore as demand improved toward the end of the quarter.

Meanwhile, the company incurred forex loss of Rs 327 crore as Rupee depreciated around 4% against the dollar. 

Post earnings announcement, shares of the company were up around half a percent to Rs  867.90.

MSX-SX (with Financial Technology) –

MCX-SX, India's new stock exchange, will begin trading of cash equities and equities derivatives on February 11, according to a statement on Monday.

MCX-SX has been gearing up to launch equities trading since last year, and will compete against more established rivals Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE).

Reliance Infrastructure –

Reliance Infrastructure Ltd has posted a profit after tax, Share in Associates and Minority Interest of Rs. 7279.40 mn for the quarter ended December 31, 2012 as compared to Rs. 4083.20 mn for the quarter ended December 31, 2011.

Total Income has decreased from Rs. 63195.60 mn for the quarter ended December 31, 2011 to Rs. 55448mn for the quarter ended December 31, 2012.

Adani Ports –

Adani Ports and Special Economic Zone Ltd. (APSEZ) posted a net profit of 12.5% at Rs. 3.61bn for the quarter ended December 31, 2012 as compared to Rs. 3.20bn for the quarter ended December 31, 2011. Total Income has increased from Rs. 9.27bn for the quarter ended December 31, 2011 to Rs. 13.89bn for the quarter ended December 31, 2012.

Hexware Technology –

This note is a response to certain baseless and malicious rumors last week pertaining to Hexaware allegedly losing one of its large clients. Hexaware categorically states that such speculation is false and mischievous. The Company also wishes to reiterate that it has not lost any client nor has it encountered any adverse outcomes in the recent deal pursuits. Hexaware continues to win new business and add new logos across all its major focus areas consistently.

The Company continues to progress on its healthy revenue growth trajectory. For the last 10 consecutive quarters, Hexaware has delivered revenue growth in excess of 6% Q-o-Q (CQGR) through organic means, which is well above industry average. The Company’s annual revenue growth rate guidance for CY 2012 is 18% y-o-y which is again significantly above industry growth estimates. Hexaware remains on course to deliver above industry revenue growth over the medium term.

Stocks that can show good strength in coming days –

GMR –

Availability of coal and gas to fire extant and upcoming power projects, (2) monetization of Mumbai airport’s real estate and (3) sale of some of its assets can help to meaningfully reduce leverage (Rs 15300 crore debt against Rs 13300 crore of equity in 1HFY13).

GVK Power & Infrastructure –

Increased availability of gas could help to improve plant load factors (PLFs), revenues and profits of its power segment, (2) monetization of real estate at the Delhi airport and (3) entry of investment partners (or buyers) of some of the operating road projects can help GVK to reduce its consolidated debt burden of Rs 15500 crore (1HFY13) and increase its equity valuation

Adani Power –

A small increase in A tariff hike of Rs 0.50/kWh to offset costs in the Mundra power plant could add Rs 37 to current estimated fair value of Rs 111. We do not think a review of the PPA may be feasible. Nonetheless, reduction in fuel costs by around 20% through higher blending of low-cost coal could accrue Rs 26 to our fair valuation.average tariffs (Rs 0.25/kWh) across its projects can add 140% to our current estimated fair value of Rs 33. (2) pooling of coal prices can reduce costs by Rs 400 crore (and increase our estimated fair value to Rs 53) and (3) ramp up of Bunyu coal mine production to 10 mtpa can double the fair value estimate of APL.

Lanco Infratech –

A sustainable merchant tariff of Rs 4.0/kWh could add Rs 6 to our fair value estimate of Rs 12. In addition, allowing cost-plus tariff at Amarkantak could add Rs 3 to fair value estimates; utilization of 90% at Kondapalli could add Rs 2 to our fair value estimate.

==================== OPEN CALLS ====================

# Please remember when I make special remark with any position then one should need to take care of that else you can make loss instead of profit.

# Be with strict SL and don’t hesitate to book even small profit if Nifty doesn’t shows strength.

Reliance Jan Futu – @913 TG 20+ Updated SL Hold (Active from 25 Jan 12)

=============== INVESTMENT BASKET ===============

(Stock in this section is with view of 3 months to 1 year)

Mahindra Holiday – @334 TG 375+ (Active from 15 Dec 12)

Satyam Computer – @103 TG 130+ SL 112 (Active from 15 Dec 12)

On Mobile – @44 TG 60+ Updated SL 39 Qty 2K (Active from 01 Jan 13)

=============== HOT SHOT ===============

Keep eye on following stocks, if Nifty shows strength then these stocks can give you reasonable return in very short term –

Bumper Prize Call -

Nifty Call spread (contra position) - buy Nifty 6100CE (Y’day close) CMP 28 & 6000PE (Y’day clsoe 14) combined premium 42 (max 2 lots), SL 30% from opening price, TG – book 1 lot once Nifty moves 50+ points either side, keep balance lot with tight SL of 7Rs. from 50 points move price. Same we are looking in SBI & ICICI Bank. Will update in the morning with more specific details.

============ PL Sheet (started from Jan 2013) ============

(If someone find any error in PL, please draw our attention)

MG Blog (Total +25,650) –

Cash = +9,650.00

FNO = +19,000

Billionaire Club

TOTAL = +51,000

Today’s MG Mantra –

Don’t make fresh longs till RBI policy, one can trade with a view to exit before RBI policy.

Have a Profitable day – MG

Disclaimer –

1. I have shared my view as per my limited knowledge; please use your own skills to make a wise decision before execution of trade or consult your financial advisor.

2. Those that don’t have patience and are not willing to book loss also in cases don’t enter this market.