‘Nifty to hit 8750 soon; advise 60% exposure in cyclicals’

Indian equities have been in the grip of Bulls ever since the new reform-led government took charge in May this year. This grip got tighter, adding more strength to the market and fueling optimism among investors backed by government’s initial steps to turnaround the Indian economy. And now, steep fall in global crude oil prices is cherry on the cake for Indian equities, whose stellar Bull Run continues.

Equity benchmarks started of December series on a strong note with the Sensex and Nifty hitting an all-time high. Vibhav Kapoor of IL&FS is bullish on the Indian market and sees the Nifty rising to 8,750 this month. In an interview to CNBC-TV18 he said that medium term base for the Nifty has moved up to 8,000 levels.

Sharing views on the much-waited December 2 monetary policy, he said that the current trend of falling crude oil price open up possibility of an earlier than anticipated rate cut. He is hoping RBI governor Rajan to slash rates in the upcoming policy. “If rate cut is not announced on December 2nd, then the market could see a mild negative reaction,” he added.

On specific sectors, structural issues on public sector lenders with respect to asset quality still remain. But private sector banks remain a ‘buy & hold’ case over the 12-24 month time frame. Those investors looking to bet on this theme can allocate almost 25 percent of their equity portfolio towards banks or NBFCs.

While others can allocate 60 percent of their portfolio exposure skewed towards cyclicals and 30 percent in quality IT & FMCG stocks, he said.

Sonia: We have seen huge opening to the market today. What is the sense you are getting about how the year end will shape up. Do you see a fresh leg of this rally purely because of how crude has shaped up?

A: I think that is definitely a big positive. It also means that not only today oil prices have fallen but I think they are going to stay pretty low and the downtrend is going to continue for quite some time to come and that is a big positive for an economy like India. This is definitely going to give some new fillip to the market which we can see today.

Also, this probably opens up little chance of a rate cut sooner than we had been talking about earlier because the RBI should now be looking at the fact that inflation is not going to go up so quickly at least the oil related inflation and the secondary benefits that it will have and that could lead to rate cut sooner than what the market had been expecting and that would be a big positive.

Latha: What is your own expectation from the policy on December 2nd and how is the market poised, will a lack of a rate cut be seen as a negative because it perhaps just postpones it by one more policy?

A: To be honest, previously we had not been expecting before April. My view was that the Reserve Bank of India (RBI) would like to see the Budget; it would like to see how inflation is behaving for the next two to three months and then take a call in the April policy. However, with this development happening overnight as I said rate cut could come earlier and there are at least some chances now that you could see a rate cut on the December 2nd.

If the rate cut doesn’t happen I don’t think it is going to be a big negative. Probably you might see a very mild reaction in the market but the hope is always now going to be there that you are going to have a series of rate cut sooner than we had expected earlier. So, I don’t think it is going to cause panic in the market.

Sonia: We are expecting a big boost in the macros both in the form of inflation and the lower import bill. How much do you think the range of this market will now move higher to factor in the positive macro trends?

A: In the immediate term say for December we would be looking at a possibility of something like 8750 on the upper side and then one would have to look at how things develop later on as the Budget approaches. One of the bigger advantages which today the market has is not only the Indian situation which is benefitting from this but the fact that the global markets are conducive for equity.

RBI scraps 80:20 gold import curbs; price may come down

Easing restrictions on gold imports, the Reserve Bank today scrapped the controversial 80:20 scheme, a move which the industry believes will bring down prices of the precious metal.

Under the 80:20 norm, put in place in August 2013 to curb high gold inflows that was widening the current account deficit, at least 20 percent of the imported gold had to be mandatorily exported before bringing in new lots. The surprise move comes a time when the industry was actually expecting more curbs imports of gold which is seen as an unproductive asset attracting household savings away from the financial markets.

“It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed on import of gold. Accordingly, all instructions issued about the scheme from time to time…stand withdrawn with immediate effect,” the RBI said in a notification.

Gold imports jumped 280 percent to USD 4.17 billion in October, as per the latest trade data. The in-bound shipments touched 95 tonnes in September this year as against 12 tonnes a year ago. There were apprehensions in the market that government and the Reserve Bank of India (RBI) may clamp more restrictions to curb the rising gold imports.

“We believe the move (to scrap 80:20) will do away with the distortions and calm the market which was anticipating some curbs to restrict gold imports,” an official said, adding this would help reduce imports.”This scheme was totally impractical as it was promoting monoplistic business practices. After scrapping of this scheme, gold prices may come down as there is dip in overall demand in global markets, crude prices are already down and now importers will also charge less premium on import of gold,” All India Gems and Jewellery Federation Chairman Haresh Soni told PTI.

Sources said the 80:20 scheme was initially seen as “working” as gold imports had slowed, but the shipments surged after certain relaxations were given by then UPA government in its last days. The norms were relaxed in in May and six private sector trading firms were permitted to import the gold under the 80:20 scheme. Initially, only state-owned firms and banks were permitted to import. The six private firms, which were given relaxation, accounted for 40 percent of the total gold imports in April-September, sources said.

Don’t try to time market; OMCs, paint cos to benefit: Emkay

It is time for retail investors to increase exposure to equities as the economy is likely to see a structural improvement over the next 2-3 years, feels Krishna Kumar Karwa, Managing Director, Emkay Global.

In an interview to CNBC-TV18’s Latha Venkatesh and Sonia Shenoy, he says investors should invest regularly and not try to time the market. Karwa is bullish on financial services stocks and sees this space yielding good returns for investors.

He sees falling crude prices as being a key positive for the Indian economy, and expects oil marketing companies and paint companies to be the major beneficiaries of this trend. He expects the RBI to hold rates at next week’s policy review meeting and says the market is not hopeful of the central bank cutting rates anytime soon.

Latha: At these nearly stratospheric levels are you getting an uneasy feeling of buying more?

A: If you look at it, we have had a run of almost 700-800 points on the Nifty in the last 40-45 days and at 8500 odd levels you feel that the markets should be more in kind of a consolidation kind of phase before it starts moving up next. So, the markets are looking for the next round of triggers post the diesel price deregulation.

Hopefully if there are some triggers either from the ongoing parliament session, etc then things could further move up. Otherwise, we are headed for a period of consolidation before we start looking towards the upcoming Budget.

Latha: There seems to be a bit of a divergence with reality in the sense that the second quarter earnings were nothing to write home about, the macro data are not turning the corner, auto sales continues to be damp. Do you think the markets will look for an excuse to correct and would an absence of a rate cut on December 2nd be that excuse to correct?

A: I believe that as far as the December 2nd Reserve Bank of India (RBI) policy – as markets are not looking at a rate cut in that meeting in fact if you look at the consensus poll of various experts, etc and even including our internal understanding we believe that status quo would be maintained as far as December 2 is concerned. That should not be a trigger for correction in the market.

Markets as you can see now also they feel to be more in a consolidation mode and they will consolidate on their own steam and finally will be individual stocks which will have their own correction based on the results they have given and what kind of the outlook that they have. So, I don’t believe that this could be a trigger for a market correction.

Sonia: You did mention that you are expecting to see a consolidation but is this still a buy on dips market for a retail investor and if yes, what are the pockets of value that still exists in this market now?

A: What we need to understand is that we are expecting recovery both in the gross domestic product (GDP) and the earnings etc and this is not just six months story, what we are looking forward even two-three years kind of a structural improvement in the economy and accordingly stock prices. So from that perspective, investor should be looking to steadily, regularly invest rather than trying to time the market and it is very difficult for any investor to be able to do that. So if there are corrections, it is good enough because that is an opportunity for you to invest and otherwise also Indian investors are underinvested in to financial assets and specifically equity and so it is time to increase their exposure to the asset class which is expected to do well in the next three-five years.

Latha: Let us take the Nifty, everyone is gung-ho in the long run and much of the gung-ho is already come. Now, what would be a 12 month target for the Nifty?

A: Nifty will finally track how the earnings grow. So, to put a number to that will be a function of various factors. However, I would say that within the Nifty also there would be a huge segment which I believe the financials is a segment that should give you very good returns from the current levels itself. So, that is one segment that we are bullish on. Otherwise, on the Nifty who would have expected that we would be at 8500? 45 days ago we were around 7500-7600, so, that is a function of too many things.

Latha: What I am asking is that do you therefore expect that earnings will grow in a year? I am not asking you for a near-term or a March target, I am asking you for a 12 months target assuming that you are expecting growth to kick-in by then. So, another 10-15 percent a year down the line looks safe for the Nifty?

A: It should possibly be there. However, having said that let us look at it this way that we have had a very good run in anticipation of improved earnings. So, it could possibly happen that your earnings will improve and your stock market will possibly be in a consolidation phase. So, investors should be prepared for that also. Having said that, a 10-15 percent uptick on the indices in the next 12 months, is a distinct possibility.

Sonia: As we speak the big positive for Indian markets is the way crude has been falling; now Brent is below USD 77 a barrel. Which are the sectors or companies that one can buy now to play this falling crude theme so say the paint sector, the tyre sector; which are the pockets that you would be interested in now?

A: Falling crude prices because India is a large importer, it is across the board very comfortable and positive for India the falling crude prices. So, the way to look at rather than trying to do a direct correlation better way to look at it is overall what kind of an uptick on the gross domestic product (GDP) is possible because of falling crude prices; that is the primary premise that we would be looking at.

However, if you want to zero-in then with diesel deregulation, etc then you have your oil marketing companies (OMCs) they will be relieved a lot of subsidy burden and there could be a structural opportunity in those kind of companies because valuations are reasonable. So, that is one segment.

As you rightly said the paint segment, they are a beneficiary not only from falling raw material prices but also we have seen that they are basically price maker. If there is improvement in domestic consumption as well as in automobile segment then paint companies will be a primary beneficiary in the immediate term.

Latha: When you started of about the Nifty you said that you would bet on financials? Which part of the financials, would you go ahead with the private sector banks which have run up significantly or now do you think you are closer to a turnaround in the public sector banks?

A: There are two ways to play, if you are looking to play growth then with the kind of capital adequacy that the new generation private sector banks and may be some of the old generation private sector banks have their ability to grow is much better than the public sector bank because they have their own challenges in terms of their capital adequacy. So, you have your new generation private sector bank which offers you good opportunities for growth.

Having said that your public sector banks, the valuations are very reasonable there is a reason for that. However if you believe that from a 12-18 month perspective your interest rates are going to come off and your economy is expected to improve and that will help a lot in their non performing assets recovery (NPA) then form a valuation perspective you have pockets in public sector banks also which could also give equally good returns.

Sonia: The interesting part this month has been that both defensives and cyclical have seen an upmove. So, technology names like Infosys have also moved and public sector undertakings (PSU) banks like  State Bank of India (SBI) have also moved. However say for the next 6 to 12 months do you think that defensives will overtake cyclical? How would you play this argument now?

A: Honestly speaking it is a challenge to keep on moving between various segments of the market. I believe that the best thing to do is that as long as the quality of your portfolio is balanced that is the best way to move ahead. Infosys, the valuation were at a discount and for obvious reasons to the market leaders but the sentiments has turned positive into favor of the stock and the expectations with the change in the top management is that the things going forward will be much more superior. So, that is the reason why Infosys has outperformed.

However, I would believe that investor should be invested in financials and pharma and in IT. You should have a balanced portfolio other than trying to keep on moving from segment to segment based on short-term thought process.

Latha: Your views on midcap and do you expect the midcap index itself to be a major out performer in a 12 month period and more importantly identify specific stocks, sectorally all of logistics has gone up, all of auto ancillaries have gone up. Do values look stretched? Tell us where values lie according to you in the midcap space?

A: From a one – two year perspective it seems that the midcaps have run up sharply and have outperformed the largecap indices. However if you look at the midcap indices from a five year perspective still there is a lot of catching up that the midcap as a whole versus the largecap index. So primarily from a short-term perspective you may feel that they have run up sharply but I believe that still in a growing economy it is the midcap stock which will tend to give you out size returns versus the largecap stock. That is the basic premise that we work on.

Having said that you can not brush all midcap with the same brush you will have to be bottom up in terms of identifying and investing in them. Rather than trying to do sectorial attempts in terms of which are the sectors and then I would like to look at which midcap to invest, it is primarily based on bottom-up kind of approach where valuations and individual growth opportunity should be the key theme.

About auto ancillaries, there is recovery in the commercial vehicle (CV) cycle. Then many of the auto ancillaries which have been struggling for want of growth and also many of them have been developing good export opportunity. So, they should do well and they also are reflected in the valuations that many of the tops have gone through. We are bullish on auto ancillaries we have seen the kind of growth which an  Amara Raja has had and we still believe that despite it having run up so much it will still give you good returns.

Other stock that we like in agro-chemicals, we like  Tata Chemicals that is again a large midcap again where we believe that the balance sheet tries correction in terms of debt reduction which is happening should add to the enterprise value and to the market cap of the company. We are again bullish on  United Phosphorus (UPL) where we believe that versus peers the valuations are much lower. It is a global company available at very reasonable valuation.

Pvt sector treated badly; power woes to stay: FeedbackInfra

Auctioning coal blocks to private sector companies is not a good idea as it will skew market dynamics, besides raising the price of fuel as well as power tariffs, feels Vinayak Chatterjee Chairman, Feedback Infra. He was speaking in a discussion on CNBC-TV18 on some of the proposals made by the Power Ministry yesterday.

“The government is concerned about the (problems) in the power sector and is trying hard to find an operational solution. Has an operation solution been found?the answer is no,” Chatterjee said, adding that the private sector was being treated unfairly.

Chatterjee does not see things in the power sector getting better anytime soon despite the reforms proposed by the government.

Speaking in the same discussion, Isaac George, Director Finance,  GVK Power said the relief package proposed by the government will address only short terms. George said the proposed pooling of gas would be a big positive for the power sector and would help gas-based producers pare their losses. George believes a working tariff of Rs 5.50/kWh is possible.

Q: I want to discuss certain recommendations that were made by the power minister, one was a price pooling of imported and domestic gas. What is your analysis on how much it would make fuel affordable for the power plants if this comes through?

George: There have been guidelines laid down earlier and what the government was saying is that the price should not exceed Rs 5.5/Kilowatt (kW). All the stakeholders were to take a cut in whatever they were doing. For example, they said that Gas Authority of India, which is going to be the agency that is going to pool gas, would have to take a cut on their transportation margins and on the respective margins.

Apart from that, even the developers were supposed to limit their fixed charges to Rs 1.1/ kW. Plus, the government was coming forward and saying that they would ensure that there will be no taxes on the imported gas. So all the stakeholders were actually contributing to ensure that the price was kept to the lowest possible level.

It is time right now basically because if you see the spot prices of LNG now, through the media I have come to know that it has come down to as low as USD 10.5/mmbtu which is fairly positive. If you compare it with last years prices in October, I think it is almost about 45 percent down. So I think the government should do this, facilitate the standard assets to start generation once again. This will be a very positive step. Though the government is saying that we will supply you gas so that you can run at a plant load factor (PLF) of 40 percent that is good enough to begin with because it is not going to bring these gas projects into a profitable stage but then what will happen is that it will contribute to the fixed charges so that is very positive.

Q: Bulk of what the minister said yesterday appears to be financial. They have asked the finance ministry to tell the RBI to extend the commercial operation date by one year, to extend the repayment schedule, to extend the moratorium on principle repayment. It appears that they are just going to bankroll you a bit more. If only the financial package were to come, will it make any difference?

George: No. Honestly speaking, it might be helpful in the short-term but that is not a long-term solution. I think the government will have to have a two-pronged solution to this particular problem. One of course is to instruct the banks and the financial institutions to address the concerns of the developers like rescheduling of debt giving additional moratorium and things like that but the other bigger problem is to get these projects back on track by supplying them with the required amount of fuel through a pooling of cash.

Q: At a landed price of USD 10.5 per mmBtu, is the imported gas an option at all?

George: It should be an option. If we are restricting the cost to about 5.5, which I am confident that should be possible then I think it should help both the consumer as well as the developer because basically a domestic consumer like me today in Andhra Pradesh is paying something like Rs 8.5 per kilogram.

Q: If you have USD 10.5 per mmBtu landed price of gas, it becomes economical only if you pool, right? Not per se, not only with imports?

George: Absolutely. No, I am talking about pooling. Pooling will bring down cost because today we are talking about more than USD 6 for the domestic gas.

Q: What is your capacity utilisation now?

George: We have total of about 900 megawatt. Only 216 megawatt is operating at 55 percent PLF, the other two are not operating at all.

Q: I was just coming to that, both of your gas based power plants what is the exact PLF that both Jegurupadu2 (JP2) and Gautami operate at this point in time and if these recommendations are taken up, if pooling is done then how much do you think it could help in terms of an improvement?

George: As of now, JP2 and Gautami are not operating at all. This has the ability to operate at a minimum of 80-85 percent PLF if gas is available but the government today is only talking about giving 40 percent gas for operating these projects. I am not saying that this is good enough but then to begin with it is good enough because whatever these 40 percent operations will contribute to the fixed charges. So my losses will come down.

Q: What is the sense you got from the announcements so far and particularly the announcement yesterday? For me yesterday the announcements were skewed too much towards finance and too little about operations. This 40 percent PLF operations and pooling of gas from the very small part of the press conference if that some of them didn’t even appear, do you think we are any close to providing gas to the gas based companies?

Chatterjee: What I can see from yesterday’s press conference from the media is that the government is certainly extremely concerned and are trying hard to find operational solutions. But if you ask me, whether operational solutions have been found, announced and are ready to be implemented, the answer is no. So it is right now high, I would give full marks on the high level of interest and energy that the government has and its priority to solve the problem but has the solution emerged? No.

Q: Wanted to take that point forward that you said that if these issues are taken up then it will help bring down your losses quite a bit, can you give us an indication of how much do you think it could give you in terms of relief?

George: If you ask me, today JP2 and Gautami if they were to operate at around 60 percent PLF then we would breakeven.

Q: But you are only getting 40 percent.

George: But then what will happen is that today I am reporting losses in JP2 and Gautami because of the fixed charges, interest cost etc. That will dramatically come down.

Q: But you breakeven only at 60 percent.

George: We breakeven today at 60 percent.

Q: What is the timeline that you would give since the intent is there, if this continues do you think that Issac Geoge would be getting 40 percent of the plant operational in one years time or six months time?

Chatterjee: I cannot give you a timeline on behalf of the government.

Q: But you are not seeing any concrete efforts at all towards resolution of the operational problems?

Chatterjee: You have got me wrong. I am seeing concrete efforts, what I am not seeing is concrete solutions and results. There is no denying concrete effort.

Q: There are also some measures that suggest that pipeline operators like GAIL  should reduce their transportation tariff by 20 percent and also companies like GAIL should halve their marketing margins on supplies made for power generation, how much do you think that would help a company like yours?

George: It will certainly help because it reduces the landed cost to that extent and certainly cost of generation also comes down to that extent. Every little contribution from each of the stakeholders will contribute to a lower cost of generation so that will be positive as far as we are concerned and ultimately benefit the consumers at large.

Q: What is your sense about the coal based projects? We are just seeing a disentangling of the mess, we have not seen extra coal coming to the market, do you think however a year down the line, you are going to see the supply of coal not be an issue?

Chatterjee: I am asking you a reverse question. You stated that you are seeing a disentangling, is that right? You are seeing it not being straightened out?

Q: Yes, one – that the coal mines are going to be re-auctioned and at a price it will be available to the power producers before March 31. We also had a fairly confident Anil Swarup and the minister saying that they are going to double Coal India ’s output in five years. That is a tall ask because Coal India has been raising its output at 3 percent and 5 percent every year. But the secretary was very confident that in a month’s time he is going to give us something very concrete in the first year, so assuming Coal India is going to even increase output by 10 percent, won’t that improve the situation.

Chatterjee: If Coal India increases its output by 10 percent, if the country doubles its output for coal in five years time, we are all in a happy situation. I suspect there is very little to discuss there. So we should wait for the outcomes of five years in five years time but I suspect your question which you didn’t ask is to do with the current situation on coal auctions. Am I right?

Q: Are you sceptical about their entire coal auction process?

Chatterjee: No, I am not sceptical it is only that if you have seen the various reactions from commentators, experts, private sectors, media there seems to be a lot of questions that are being raised about the philosophical underpinnings of the coal auction.

The first major philosophical underpinning that we are unable to understand is that we thought that the SC judgement at one stroke swept away the broom, swept away the dust of socialism history in saying that we are going to move – hopefully, that was our expectation from allocation economics to market economics. That was the broad philosophical understanding all of us had when the Supreme Court judgement came in. Therefore, the broad sweep of action was one market method to move towards the market-based economy for India’s largest fuel that is coal.

However, increasingly we find that the caste system that has prevailed historically in this country that is that public sector gets coal allocated and private sector has to bid for it is continuing. So we are a little surprised to see under what philosophical guideline or economic guideline or conceptual guideline is this structure, which we understand is being worked out that large chunks of coal blocks are going to be once again just allocated to state-run entities, which are obviously different from the private sector.

As far as private sector is concerned, not only does it have to pay the fines from this governance and the executive in the past, it has to pay a fine and then it has to have an auction for the coal that it needs. We are once again creating a caste system where a commodity, which has a certain price is going to be made freely available to the state-run sector and has to be auctioned in market economics to the private sector. To my mind, this is once again a distortion of market economics and I have this simple question that is aviation turbine fuel (ATF) allocated to Air India or does Air India have to pay for it?

Q: There can be a lot of question in a manner in which it has been done but at the end of the day are you going to find the power sector the better off at the end of a quarter or two quarters?

Chatterjee: When you talk about power sector, it is very difficult to answer your question. Power sector is a long chain of activities. It starts from fuels that are coal and gas, it goes to generation, it goes to transmission then it goes to distribution and then it goes to last mile. So, if your question is a holistic question am I going to see the power sector better off, I am not going to see the power sector better off because the cost of the auctions is that it is going to raise the price of the fuel.

There is a huge uncertainty with the nature in which the regulators will allow pass through of that increased coal price to private operators. There is still a whole lot of grey area on open access, transmission things etc and finally we have really not seen any salvation on the most of the discounts, and some discounts were doing very well.

However, we haven’t seen any light at the end of the tunnel so far as the rapid reform which was expected from the discount sector. So if your question is am I suddenly going to see the power sector brightening up? The answer in no.

See flat expiry for Nifty; buy NTPC, Divis Lab: Murlidharan

Manoj Murlidharan of Religare Securities in an interview to CNBC-TV18 shared his views on the derivatives markets, the November series and stock specific action.

He does not expect the market to see a linear trend today and says the trend would be divided in two parts. The first half would see bullish trend but the second half could see some profit booking, he adds. One needs to be cautious in the second half, says Murlidharan.

In the first half bullish people might go in for rollover and the second half could see long unwinding. He expects the Nifty expiry to be flat.

Stock specific, he has a buy on Divi’s Lab ,  NTPC and  Axis Bank as an intra-day trade. However, he is not so upbeat on DLF and says it has already seen lot of buying and could see profit booking later in the day.

He is positively biased on Reliance Industries and is positive on cement, pharma, media as a sector for December.

Latha: Is there a strategy on the Nifty itself?

A: Yes, indeed. This expiry like any other expiry is a confusing one. But then what we feel the intraday move might not be a linear one. We are expecting the day to be divided. You will have a first half which can be a bullish one and there would be good lot of volume-weighted average price (VWAP) trades in terms of stocks also.

Then there is a cautious note on the second half. Very precisely 7.9 lakh is the net open interest which is still prevailing in the Bank Nifty if you compare it with the last expiry which has to be rolled. The point here is the difference between current and next month – what we call as roll cost, is at a good 124-126 points, that is almost 72 basis points and that is quite high. In these last three-four days, we have not even seen the dip come in, at least 60 bps so that rollover is not happening.

If you remember on Monday, the Nifty and the Bank Nifty were at par and now we have a difference of close to 20 percent. Obviously, the quantum of open interest is different in both the indices but it is a Bank Nifty since October 17, which has rallied 2,500 points. So what we are expecting is the first half – the people who are very bullish would definitely go in to roll and you will see a moment possibly the Nifty can also go to 8,530 odd, the Bank Nifty can give you 100-150 points on the upside but the real catch would be on the second half. We are expecting that long unwinding of close to 4-4.5 lakhs which might happen in second half can give you a VWAP sell in the last 45 minutes and we are expecting that this will see the Bank Nifty crash, and possible that Nifty expiry would be flat or hardly 10-20 points on the up or the downside.

So the view here is you can simply buy 17,800 Put for the Bank Nifty as well as 18,100 Call. The combination should be as of now the closing is around 38 points, you wait for sometime because you get it close to Rs 28-30, you buy that and hold it on and you might get a target of Rs 100 on that or simply if the traders have to be trading in both the halves, you can simply buy Nifty or Bank Nifty in the first half for a good 164-168 points and then the second half you have to buy and this is too precise but then if you simply want to take a trade, take both Call and Put and you will get the money in that

Sonia: You have a buy on Divi’s Laboratories today?

A: Divi’s would be a buy. It qualifies at VWAP, so that’s a positive bias. It is at Rs 1,740, buy that and Rs 1,728 should be the stop loss and intraday target of Rs 1,772 is very much possible in that.

We like UPL as well. The closing price is Rs 338 on Futures, buy that and keep Rs 332 as a stop loss for a target of Rs 348.

These are all intraday trades because what happens in December is something different view that we have specifically designed for the VWAP strategy which happens because of the delivery and the prevailing open interest is what we feel.

NTPC also qualifies for a buy. The closing is Rs 141; buy that on Futures with a stop loss of Rs 137 and Rs 148 is what we are expecting on that.

Latha: I expected some banks, I expected DLF, I BHEL – any of these you want to take up as a strategy because we have seen so much of volatility in DLF. Is there no strategy today on that?

A: That is correct. I was saying we are not expecting a linear trend throughout the day. So if I give a strategy here I don’t want the people who are watching this to get caught on the second half because the second half might is something which might be vulnerable.

However, if you have to still buy banks I would still go with an Axis Bank that is the best among the lot. You could buy that and get a 3-4 percent move. Rs 470 is what it is trading at, keep a stop loss of Rs 456 and a target of Rs 484 is definitely what you can get.

DLF has seen good buying but then I am expecting that the net deficit of open interest might not be rolled and we might see some profit booking in the second half. So, I would not touch DLF today.

Latha: Is there a trading strategy for BHEL ?

A: Yes this month obviously we have seen good cash based buying happening in Bharat Heavy Electricals (BHEL) and there are lots of reports following an upgrade as well. We are seeing good built-up but again every expiry on the last day we have close to at least 120-118 scrip’s that falls into VWAP and we still have an open interest deficit in that as I was discussing DLF.

So these are the scrip’s where the quantum of cash buying is not really justifying the open interest built-up or the money which has come on the derivative side and that is why we are not really getting into this scrip because for December we are not really positively biased.

Obviously, we are expecting some correction to come in and if it is pure quant basis analysis we expect a 6.5 percent lesser delivery to come into the banking stocks. So 93.8 percent money in banks is what we are expecting versus a 100 that we are seeing now. The outperformance won’t happen.

Cement, pharma and media as a sector is what we are positive for December, so we are not touching any of these stocks now. Also Reliance is something we are positively biased on from the oil and gas sapce.

Latha: What about National Thermal Power Corporation (NTPC)?

A: NTPC is a buy at Rs 141 for the current month futures, you can still buy that. The reason why I am saying current month is this is precisely an intraday trade and we are expecting this movement to happen intraday. So Rs 141 is what it is trading at, keep a stop loss at Rs 137 and we are expecting a move till Rs 148 on that.

Latha: Any other stocks that we left out in terms of high activity which you would want us to focus on say Ashok Leyland, State Bank of India, any of these stocks?

A: The thing with Ashok Leyland is the stock was somewhere close to Rs 51-52 when there were lot of buy calls. I was one to say that we will see an expiry of Rs 61-62 but the levels of Rs 57.5 is where we have actually seen the VWAP based distribution, so we are not really expecting big move on that but the stock that can still qualify and where we can see action today would be  Cairn India at Rs 273 and Andhra Bank at Rs 79.

Axis Bank is what I said and then  IDFC can be a surprise pack because the bias of the cash delivery and the derivative built-up has been at par. Now either a reversal of that gives you a good swing on the upside or downside. So Rs 153 is what it is so it can be a surprise pack for today as well. So IDFC is something which I would be watching at least the first one hour of the trade.

Mkt outperformance intact; like pvt banks: Dipan Mehta

In an interview to CNBC-TV18, Dipan Mehta, member, BSE & NSE says there seem to be no road blocks in sight to stall the market upmove although intution says market needs to correct to stay healthy.

Neither does he see the Q2FY15 GDP number expected tomorrow to be a material event for the market even if it is a bit disappointing. In fact if the number comes in below expectations then it could make a case for RBI to cut interest rates and drive the government to revive growth, he thinks.

Liquidity flows from domestic, FIIs and HNIs have so far kept the momentum going for the market, he adds

When asked to comment on DLF, he says on a fundamental basis it is difficult to value the company and traders should exit the stock on any upswing. Investors on the other hand should keep away from all realty stocks, he advises.

In other stock specific action, he is upbeat on most private sector banks as opposed to PSU banks with an exception of SBI . He thinks the worst is behind for SBI and the management too sounded positive post their Q2 numbers.

From the midcap space he is upbeat on the financials like Bajaj Finance , SKS Microfinance . He is also bullish on some of the FMCG names like Emami ,  Jyothy Laboratories and from the pharma space Torrent Pharma , Cadila Health.

“Within key industries good performers are available at reasonable valuations and with a long-term view these could give 25-30% returns,” says Dipan.

Anuj: First a word on broader market, do you expect the kind of outperformance that we have seen for last month, month and half to continue and if yes then what kind of stocks would you buy now?

A: As we look ahead there seems to be absolutely no roadblocks and intuitively one does feel that a correction should take place, would make the markets more healthy and we keep on worrying about valuations but the flow of liquidity continues to drive stock prices up on the days when the foreign institutional investors (FIIs) are sellers then we are seeing Indian domestic institutions buying. At the same time a lot of high networth investors (HNIs) also are putting their money to work as far as equities are concerned.

On the whole we are in pretty much blue sky kind of scenario over here with politically lot of developments taking place positively. We have a Budget where expectations are going to certainly climb higher and higher considering the statements coming in from there. Globally there is a fair degree of calmness with a lot of important indices getting to new highs.

So, virtually difficult to find any negative reason so my sense is that the outperformance would continue and a correction if at all a serious one would come only if there is a negative newsflow which can impact the sentiment.

Ekta: Wanted to get your sense on two triggers, one, the gross domestic product (GDP) data which is out for tomorrow which is for the Q2 FY15 quarter. It is expected to slowdown from the 5.7 percent that we clocked-in in the Q1, do you think that would be a disappointment for the markets if in case it does come in maybe below the expectations of 5-5.1 percent?

A: I don’t think it is going to be a material event for the market. If it is slightly disappointing then it will make the case for interest rate cut all the more compelling. It may also drive the government to do little bit more to revive the growth. So, I don’t think it is a major event that will move the markets in a significant manner.

In any case 5 percent number has already got discounted and usually these numbers are typically in the 0.1-0.2 percent range as well. So, I am not looking at any major fireworks post announcement of the GDP numbers.

Anuj: The stock of this month has been DLF; that is up 19 percent. Two part question then, one what would you do with DLF and two what does that tell you about the state of the market right now?

A: A lot of movement in DLF has been in conjunction with what developments are taking place. On a fundamental basis it is very difficult to value DLF; it is a complex company.

From an investor viewpoint all I would say is that avoid all real estate stocks DLF included. Typically such swings on the upside are good exit points for retail investors

GDP growth to slow to 5.1%, but no rate cut yet: Poll

India’s economic growth probably slowed to 5.1 percent in the July-September quarter from a year ago, but economists polled by Reuters doubted whether that would be enough to persuade the central bank to cut interest rates just yet.

Clamours for the Reserve Bank of India to ease policy have grown louder in recent weeks. Consumer inflation slowed to 5.52 percent in October, its lowest reading on record, and despite Mumbai’s soaring stock market there are no signs of economic growth picking up.

The Reuters poll consensus forecast is roughly in-line with a government estimate of around 5 percent GDP growth in the July-September quarter, down from 5.7 percent in the previous quarter. Forecasts ranged from 6.0 percent to 4.5 percent.

Upasna Bhardwaj, economist at ING Vysya Bank, expects slower government spending, exports and agricultural output to have weighed on growth.

“These were the three reasons why the numbers overshot our expectations for the first quarter (April/June) of the fiscal year. And none of the three are expected to be supportive significantly for the next quarter,” she said.

If the data, to be released on Friday, shows GDP growth below the 5 percent forecast, it could pile even more pressure on the RBI to cut rates the following week.

Finance Minister Arun Jaitley will make a forceful case for lower rates when he meets RBI Governor Raghuram Rajan ahead of the policy meeting on Tuesday, sources told Reuters this week.

A nearly unanimous majority said Rajan is unlikely to relent and will keep the repo rate unchanged at 8 percent next week, although slightly more than half of them expect the tone of its policy statement to be more dovish than it was in September.

The RBI is not alone in being pressurised to ease policy at a time when economies around the world face a trend of disinflation owing to slowing economies and a sharp drop in crude oil prices.

China’s central bank cut its benchmark lending and deposit rates last week for the first time in more than two years, taking markets completely by surprise, and is expected to ease policy further. The European Central Bank is under pressure to launch a sovereign bond purchase programme.

But forecasters in the poll were divided over whether or not Rajan will cut the repo rate in the first quarter of 2015, with 14 of 38 predicting a cut of at least 25 basis points to 7.75 percent by end-March.

“At the moment, the RBI should pause for a while to be really convinced of (whether) the disinflationary pressures will last for longer than just the near term,” said Bhardwaj.

Global crude oil prices have plunged over 30 percent since June to four-year lows, exacerbating disinflationary pressures in the global economy.

Most economists in the poll, conducted between Nov. 19-25, said the RBI would rather wait to see if the recent slide in India’s inflation would persist even if global oil prices were to rise.

“The RBI will be wary of getting caught wrong-footed by over-reacting to short-term fluctuations,” said Radhika Rao, economist at DBS Bank in Singapore.

Cos garner Rs 7000 cr via NCDs in first 8 months of FY15

Indian companies have raised  close to Rs 7,000 crore via retail issuance of non-convertible debentures (NCDs) in first eight months of the current fiscal, primarily to meet their working capital requirements.

In comparison, firms had collectively raised Rs 15,022 crore via 12 issues in the April-November period of previous fiscal.

Most of the funds have been raised to support working capital requirements and for other general corporate purposes. Firms, including Shriram City Union Finance , Kosamattam Finance, SREI Infrastructure Finance , ECL Finance and Muthoot Finance , collectively raised Rs 6,928 crore via NCDs in the current fiscal through 18 issuances, according to data from Securities and Exchange Board of India (Sebi).

This is more than the initial target of Rs 2,900 crore. Market experts said fund raising via NCDs has been less, compared to the year-ago period as companies have preferred QIPs and rights issues.

Moreover, many companies are looking to raise funds via initial public offers (IPOs) as investor confidence has returned in the equity markets after the formation of a stable government at the Centre.

Individually,  Shriram Transport Finance Company raised Rs 1,975 crore against a target of Rs 500 crore;  IFCI raked in Rs 1,225 crore against a base size of Rs 250 crore; Muthoot Finance mopped up Rs 466 crore against a target of Rs 250 crore; and ECL Finance garnered Rs 400 crore against Rs 200 crore.

Moreover, SREI Infrastructure Finance, Shriram Transport Finance Company, Kosamattam Finance, Muthoot Finance, Muthoot Fincorp and Muthoottu Mini Financiers tapped the NCD route more than once.

In the previous fiscal, about Rs 42,383 crore was generated through 35 issues of NCDs.

Shriram City stock price

On November 26, 2014, Shriram City Union Finance closed at Rs 1689.90, down Rs 57.15, or 3.27 percent. The 52-week high of the share was Rs 1827.80 and the 52-week low was Rs 935.00.

The company’s trailing 12-month (TTM) EPS was at Rs 82.25 per share as per the quarter ended September 2014. The stock’s price-to-earnings (P/E) ratio was 20.55. The latest book value of the company is Rs 440.77 per share. At current value, the price-to-book value of the company is 3.83.

Nippon Life to increase stake in Reliance Capital to 49%

Japanese life insurance major Nippon Life will raise its stake in Reliance Capital Asset Management to 49 percent from the existing 26 percent.

Nippon will invest Rs 657 crore for an additional 9 percent stake in the first tranche to reach 35 percent. It will acquire further 14 percent stake in multiple tranches.

The deal ups the valuation of Reliance Cap, which runs Reliance MF, to around Rs 7,300 crore or USD 1.2 billion. Nippon would eventually up its stake to 49 percent in multiple tranches at prices to be determined on the basis of future prevailing assets and profitability of the company that are expected to be higher than the current levels.

Nippon already holds 26 percent stake Reliance Cap, which it had acquired for Rs 1,450 crore in 2012 while valuing the company at Rs 5,600 crore at that time.

Nippon Life manages over USD 500 billion (Rs 30 lakh crore) in assets, highest in the world for any life insurer, while Reliance Cap is part of Reliance Capital, the financial services arm of Anil Ambani-led Reliance Group.

Reliance Cap is the largest asset manager in India, in terms of Asset Under Management, managing Rs 2,18,338 crore (USD 36 billion) as on September 30, 2014, across mutual funds, pension funds, managed accounts and offshore funds.

“We welcome Nippon’s decision to further strengthen this partnership and acquire an additional stake in our asset management company. We strongly believe their expanded role in the company will accelerate our growth, reach and performance,” Reliance Capital CEO Sam Ghosh said in a press statement.

Nippon Life also holds 26 percent stake in Reliance Life Insurance Company, which it had bought for Rs 3,062 crore. This deal was completed in October 2011 and it had valued the Indian insurer at over Rs 11,500 crore at that time.

Recently, Nippon gave indication that it was willing to hike its stake in Reliance Life as well once the regulations permit so.

The government has now proposed to hike FDI cap in insurance sector from 26 percent to 49 percent. The proposal has been cleared by the Union Cabinet, but needs to be passed by Parliament.

Mkt at its peak, see good correction before Jan 31: Quantum

Indian equities have garnered lot of investor attention this year. Key benchmarks have seen stellar performance this year boosted by new government’s promise to turnaround the Indian economy via big bang reform measures . Sanjay Dutt, director, Quantum Securities is not bearish on the Indian market; however he cautions that prices have run up ahead of fundamentals and Indian stocks look very over-owned at the moment.

According to him, there is a 80 percent probability that this is the peak for market this year and recommends market participants to brace for  a good correction before January 31. He sees base for Nifty at 7600-7700 level.

Those looking to bet on the market should keep adding on to stocks when there is a pullback, he says.

On specific sectors, Dutt is bullish on oil and gas, banks and capital goods. He also likes auto ancillaries and sees good long-term potential in them. On the flipside, he adds that risk reward is unfavourable in the tyre sector.

Latha: The earnings and the growth have not yet caught up. How long can we run before we have to pause and wait for the numbers to catch up?

A: My sense is that the prices have definitely run-up ahead of the fundamentals what you correctly mentioned. The probability that we have touched the high for the year for this calendar year is about 70-80 percent. To make it very simple I think from now on we probably would see a reasonably good correction before December 31 or the first week of January because a lot of ifs and buts still remain and you mentioned correctly that both the macro as well as earnings don’t really look that good as yet.

The future is rosy definitely, things are better, sentiment is better but it is not translating into numbers on ground as yet and it is not even translating into action at company levels because I have been interacting with a large number of tier II companies, they are all still struggling with the single most important problem and that has got to do with restructuring their balance sheets, debt, offtake, payments, cash flows. That hasn’t changed in the last six months since the government has taken over. So I think implementation, execution is what is going to really drag this market down in the next few weeks in my opinion.

Sonia: What should retail investors do at this juncture, should you just stay away wait for that dip and then get into that market or are there still some opportunities that look good now?

A: Opportunities are always there but what happens is if you buy into something and if the market was to correct 3-5 percent or may be more, the stock that you have bought is definitely going to be impacted. May not be as much but it will be impacted. So, therefore my advice would be that if you have found a good stock and if you are convinced about an idea after having done your rigorous reading research and checking with your advisers, start nibbling in, don’t buy the quantity at one go because there will be enough opportunities.

This is a long-term bull market but it is going to be a rocky ride because you have seen a one way rise from the lows of about 5000 levels to 8500. There would be pullbacks and that is a time when you keep adding on to your favourite stocks.

Latha: Yesterday after the Chinese central bank cut rates we saw kneejerk reaction across the globe in metal stocks and in India Sesa Sterlite, Tisco, Hindalco, all of them, a whole host of metal stocks were up and about. Do you like that space at all?

A: I like that space but there are a lot of problems still and the resolution to those problems are few months or few quarters away. Prices are already factoring in the positives that probably one would see in the March or the June quarter whether it has got to do with their fuel linkages or whether it has got to do with sustained reduction at the input cost and at the other end the offtake in the demand. So all those things are about a few months away and the prices have run-up and are discounting that event much ahead in advance.

So that is why I am quite convinced that even in the metal sector it is going to be a struggle, we are going to see pull backs, we are going to see challenges because we have just got coal block allocations coming in. The auction process, quite a few of these companies will be bidding or will be part of the process or would be impacted by them directly or indirectly because of input cost dependent on how the auctions go etc. I cannot say really comfortably that you should remain fully invested in them or you should be out of them. I think there are opportunities in them but like I said about the market there is going to be a bit of struggle there.

Sonia: One pocket that the market is still finding value in is the auto ancillary space. Is this a space that you would still buy into and if yes what would you look at now?

A: From a longer term perspective this space does have tremendous potential. We have got globally competitive companies who are producing for not only companies that absorb their output here that is the manufacturers, the car and the vehicle manufacturers but are also exporting and are very good both in terms of quality as well as delivery etc. So the sector does look good from a long-term perspective but most of the run-up has happened whether you look at the tyre companies or you look at some of the other auto ancillary companies, substantial run-up has happened. The risk reward is not really in favour of adding new beds at this point of time.

Latha: What would you buy for instance in the Nifty if that 10 percent shakeout were to happen?

A: I would be aggressively piling up bets on the banking, oil and gas sector because those are real secular long structural stories that really are there in India at this point of time. Some amount of auto may be but my priorities would really be oil and gas, banking, engineering, capital goods. These three I would be aggressively long if I get an opportunity.

Latha: You saw the earnings in the midcap space and there are always businesses which vastly outperform the economy and their sector itself. Anything that stood out for you?

A: Nothing really because I think the earnings were relatively tepid, so I wouldn’t really step out and stick my neck out on anything based primarily on earnings. What we would really want to do and what we are doing right now is looking at select midcap companies which would actually benefit from the upcoming capital goods and the infrastructure rollout. Some small midcap companies in the infrastructure sector have shown reasonably good earnings and I think that is a place to be but the last two quarters aren’t any indicators of anything because it is too early to really judge as to what is going to happen.