Don’t trade indices till Budget; buy ACC, HDFC: Sukhani

Sudarshan Sukhani of s2analytics.com says the whole market was in a trading range but now the trading range would be behind us and post the Budget events, market would give a direction – either up or down. So, it would be sensible to wait till the events are over and then trade accordingly.

If Nifty goes below 8700 then be a short seller and if it goes above 8900 then buy the market, he advises.

Personally, he would stay long in the Nifty because he is upbeat on what the government will do but that is more an emotional trade rather than sensible one, he adds.

However, individual stocks are giving both buying and selling opportunities.  HDFC is on verge of life-time highs and so he would be a buyer in it with a target price of Rs 1380.

IT space is unlikely to be impacted by the Budget, so one can look at buying Wipro , which is a very good chart, says Sukhani.

According to him  ACC made life time new highs, which always represent buying opportunity. So, buy it without any doubt.

Latha: The Nifty battleground, 8750 defended so far by the bulls. Today will you dare go long or is it better to opt out?

A: Yesterday we were long and those long positions did not work out because the market went back to the opening prices. I would be sort of away today till the Railway Budget is presented and market reactions become visible.

The point is that we have two big news events; today’s Railway Budget will tell us exactly how the February 28 event will be. So, in front of events technicals may or may not work because market psychology then becomes different. However, I will just compare the two events; the two Budgets which will be a statement of the governments intent.

Before the May 16 elections the market had rallied from 5500 to 7200 already. After the elections, the market went into a trading range for weeks. Now, before the Budget we are in a trading range for the last two months; very choppy. So, the market is now ready for a decisive move. It could be up above 8900 or could be down below 8700.

So, the market is willing to take a directional move on this news because the trading range is behind us. I have no idea which direction it will go; the levels are visible, below 8700 on Budget day we want to become short sellers and above 8900, just buy.

Sonia: Would you wait for today’s event to pass before judging the next move on individual stocks as well or is it only on the Nifty?

A: Individual stocks are always giving buying and selling opportunities and mostly buying opportunities. However, eventually the Nifty will decide the direction of most stocks. I am fairly upbeat on what the government will do, so personally I stay long in the Nifty but that is more an emotional trade rather than a sensible trade.

Safe to play pharma & IT before Budget: VK Sharma

VK Sharma of HDFC Securities said in an interview to CNBC-TV18 that the Nifty could come down around 30-40 points from the level it opens.

Latha: I want to know whether today there is a trade in Nifty.

A: There is a trade that there could be a loss. The Nifty could come down around 30-40 points from the level it opens. So to that extent there is trade and I do not think there is a substantial move beyond 8,700 on the lower side.

Latha: You have a strategy on Infosys ?

A: Yes, both pharmaceutical and IT are relatively safer play considering that we have Budget on hand. I am suggesting buying 2,350 Call for the next month at around Rs 50, stop loss at Rs 35 and target of around Rs 80. This target is before the Budget is presented, so we have three sessions.

Latha: Your views on Jain Irrigation Systems ?

A: Jain Irrigation is a typical Budget thing that comes up and people invariably no matter how many times you tell them that this is a stock which will definitely do well on Saturday morning. Therefore, from that perspective the Call of 70 was quoting around 5.4, should come down to around Rs 4. I think one needs to buy for a pre Budget trade on Saturday. So buy 70 Call at Rs 4, stop loss at Rs 2 and target of Rs 8.

Sonia: You like Wockhardt ?

A: Yes we like because primarily both IT and pharma should relatively do well in case the Budget doesn’t live up to the performance, but essentially this is a stock where we have seen reduction to the extent of 19 percent in open interest but the prices have still gone up. So while the profit taking is happening, there is still some more room to go. So I will continue to buy the 1,650 Call around Rs 50. It quoted at 77, so I will wait for a dip for taking into the next settlement and should it come to 50 I would buy with a stop loss at Rs 35 and pre Budget to a target of around Rs 85.

MetLife will pay govt $123.5 mn in mortgage settlement

MetLife’s home lending unit will pay USD 123.5 million to end an investigation into allegations it gave government-backed mortgages to people who didn’t meet federal requirements.

The Justice Department said today that the mortgages were insured by the Federal Housing Authority. It says MetLife knew many of the loans didn’t meet federal requirements but it rarely informed the FHA about the problem.

According to the agency, during some periods in 2009 and 2010 MetLife Bank knew that a majority of the loans it was originating had material or significant deficiencies.

It says the FHA and taxpayers were stuck with the bill when defaults followed. The New York company says it cooperated with the investigation and set aside money for the settlement.

 

4 midcaps JP Morgan sees as cheap and poised for re-rating

Brokerage house JP Morgan feels some mi-companies have started to show improvement in fundamentals though the market is still be convinced about them.

“This comes after a long gap and given the past rather elongated history of disappointments, valuations are still cheap. The market, however, has started to take some notice and is starting to re-rate some of these,” said the JP Morgan note to clients.

“Investors in general however are skeptical resulting in reasonable to cheap valuations for most of these,” the note said.

Four such stocks JP Morgan is bullish on are Oberoi Realty , Dish TV ,  Sintex and Cox & Kings .

Excerpts from the JP Morgan note:

Oberoi Realty: After a gap of four years, the company has started launching new projects. New launches have met with incredible response with pre-sales in FY15/16 likely to be 3 times of what it achieved in FY14. As the company moves from being a single project play to a 4-project player over the next 1 year, earnings should likely follow as well.

Dish TV: Subscriber addition growth for the company has picked up. Industry fundamentals have also improved as MSOs are looking to pass through rate hikes to end consumers. DITV also has strong embedded operating leverage given content cost negotiations are locked till 2H16 and likely reduction of license fee by 200bps. The company is also now nearing a profit breakeven finally.

Sintex : Revenue growth for the 9-month ended December (+30 percent) has started to accelerate for the company. Prefab, custom molding and textile businesses are showing positive traction and outlook on monolithic construction is stable at the margin. The company will likely benefit from government initiatives on “Clean India” and CSR activities by corporates.

Cox & Kings: The company has cut its net debt by half by divesting its camping asset and equity raising. India and Education businesses remain on a strong footing wherein revenue growth will likely see acceleration going into FY16E.

Union Budget 2015: Good Budget or bad, market may struggle in the short term

Equity benchmarks have had a fantastic pre-Budget rally-nearly 3000 points from the lows of mid-December-though the market knows the limitations of the Budget in fixing big problems of the economy.

The Budget is usually seen as the centrepiece of the government’s vision for the economy and commitment to reforms. The market does not have much doubt on both counts. What it is now looking forward to is the government’s ability to execute its promises.

So much that many brokerages are closing the eyeing the Bills the government is able to pass in the Budget session, more than the Budget itself.

Land acquisition, coal reforms, higher FDI in key sectors, mining rights and GST are the key areas where the market is watching for progress. And passing the Bills is just the first step; the results will show only with a lag of few quarters.

The widely held view is that the government will just about meet the 4.1 percent fiscal deficit target for this fiscal and guide 3.6 percent for the coming fiscal.

Most players also see the Finance Minister making the right noises about fiscal consolidation. He may have little choice in this matter, given that future rate cuts by the RBI hinges on a credible road map for fiscal consolidation.

The steep drop in crude prices will give some elbow room for the FM by way of a lower oil subsidy bill. But the savings will be far from enough to fund the massive investments required in infrastructure; the government needs to think of innovative ways to raise the funds.

The industry and markets gripe about Jaitley’s first Budget was the absence of any radical tax reforms. When corporates and markets use the word tax reforms, it usually means tax breaks. Tax collections for this fiscal have fallen way short of estimates. So it remains to be seen if Jaitley would want to take a gamble by lowering taxes-corporate and personal–in the hope of spurring investment and consumption which in turn may generate higher revenues.

Pre-Budget trial balloons being floated by Finance Ministry sources so far give a mixed picture. Some reports hint at tax cuts being unlikely because of strained finances, while other reports promise relief for corporates and individuals.

This is not to say that the Budget will be a non-event for the market;certain announcements can boost sentiment even if the eventual outcome will be known only by the next Budget.

But there remains the problem of weak corporate earnings and consequently expensive valuations.

December quarter earnings were dismal with many large cap companies disappointing missing estimates by a wide margin. In the case of many state-owned banks, the numbers were downright disastrous, highlighting the problem of bad loans which the government will have to fix at some point.

Most companies have been able to cut costs and improve margins, but demand is showing no signs of picking up. The March quarter numbers are expected to be as mediocre.

That has led many brokerages to downgrade their earnings estimates for FY16.

Earnings growth in percentage terms may meet the 20-odd percent target that most analysts have been talking about. But that will come off a low base. In other words, the aggregate earnings per share of Sensex and Nifty companies for FY16 is most likely to be lower than what market was expecting a couple of quarters back.

With the much anticipated recovery in economy and corporate earnings taking longer to materialize, investors have moved out of the so-called ‘turnaround stories’ and once again sought refuge in stocks with sound earnings performance as well as with better earnings visibility.

This had led to a sharp divide in the market where the good stocks have become way too expensive and few investors are willing to bet on stocks where a recovery is still some time away.

For the broader market, investors will have to be convinced by the Budget to bet on the turnaround candidates.

A disappointing Budget will rattle investors for sure, but a good Budget will is unlikely to lift the market beyond a point because of expensive valuations.

Investors can take heart from the market’s resilience to dismal corporate earnings for the December quarter, and to despiar of industry captains at the lack of any visible improvement on the ground.

What the market seems to be indicating is that the medium term picture still looks good, despite the near term gloom.

Don’t worry about mkt jitters, go long; buy Titan: Sukhani

With Nifty still trading above 8750, small jitters in the market should not worry traders and investors because the trend is still up says Sudarshan Sukhani of s2analytics.com in an interview to CNBC-TV18.The idea is to still go long in Nifty and the Bank Nifty.

Bank Nifty has been under performing for some time now but since these sector rotations keep happening, one need not worry, he adds.

However, he cautions about trading during the Budget speech and says, he would stay away while the speech is on because the market is extremely volatile during that time especially since there are lots of expectations pinned on this Budget.

Market is not yet giving signs of short selling, so go long. Most of the stocks are day trades, short-term trade as well as positional trades, he adds

He would be a buyer in Asian Paints , Titan , GIC Housing ,  Cox & Kings and Tata Chemicals .

According to him Asian Paints did not rally and was in a narrow range and normally this range should break on the upside, so one can buy with that assumption, said Sukhani.

Titan too is in a trading range and making attractive pattern. So once it breaks out of that, it is likely to make life time highs.

GIC Housing Finance is in on a tear and corrected more than LIC housing. It is buying opportunity for both short-term and long-term traders

Apollo Hospital  made life-time highs then corrected and has now resumed its upmove, so the next upmove will take it to new highs believes Sukhani.

Since index is in trading range most stocks would be in trading range according to Sukhani. Cox & Kings has come out of trading range and is promising much better trade. So it too is a day trade, short-term trader and positional trade.

Latha: We did see some jitters on Friday probably weekend blue’s but is longing long the strategy today?

A: The jitters were there but let us see what the Nifty is doing? The Nifty is still above 8,800, above 8,750 any benchmark for saying okay this is the point at which we will exit our short-term positions even those benchmarks have not been touched. After a decent rally markets, you can call them jitters or they can simply go into a hurdle, they consolidate that is a very normal process. So I am, at all not worried about the market behavior it is as good as it gets. We also have that big event you have already talked about it. I would have thought that lifetime new highs will be made in this settlement, now of course in four days it is difficult to say but we should still be on the long side. We should not worry about the minor hiccups that come on the way the trend is up.

Bank Nifty has been underperforming. I would say that is also a random occurrence so many reason so many minor points can come about. If you remember CNX IT was underperforming a month ago and suddenly it had a 20 percent rally. So, these little sector rotations will keep on coming, the banks are also a long idea.

Sonia: Give your view on how one should approach a Budget day this time because after longtime you are seeing a Budget on a Saturday and trading on a Saturday? Considering that a lot of foreign institutional investors (FIIs) might be out of the market. Do you expect to see a lot of volatility on Budget day and what would your recommendation be to the traders?

A: There would be a lot of volatility because we are going into this Budget with a lot of expectations and the meter of expectations can keep on coming up and down as the Finance Minister speaks. Personally I never trade in this kind of volatility and most sensible traders would avoid it. The way to go into the Budget is to have long position and enter the Budget. We have to assume that the rally in the markets will not stop. If it does you will have to get out post Budget but during the Budget those two hours we just switch on the channel and watch the Finance Minister speak that is not a time when you want to trade.

Mixed Q3 nos for pharma so far: Here’s what you should buy

In an interview to CNBC-TV18, Hitesh Mahida, Pharma Analyst, Antique Stock Broking shares his analysis on the Q3 earnings so far and his preferred bets going ahead.

Mahida is bullish on Cipla ,  Glenmark and  Dr Reddy’s Laboratories from the large cap pharma space and suggests caution on  Lupin for now.

Q: Your thoughts on Cipla because how did you read the Q3 numbers and how is FY16 looking for the company as per their guidance?

A: The Q3 numbers for Cipla were slightly below expectation if you adjust for the Rs 141 crore of other operating income which the company has booked. However, the market and why we are positive on the counter is because of the company’s strong pipeline. The Nexium supplies will commence from next Q4 – FY15 and probably by FY16 Nexium will have close to sales of USD 40 million for the company.

Second big launch for the company is Generic Seretide and that could be again a very good opportunity almost USD 50-60 million of sales. Company has also started commencing marketing its own abbreviated new drug applications (ANDAs) in the US. They have launched four ANDA under Cipla’s label during third quarter. They have plans to launch at least 40 ANDAs under their label over the next 12-18 months.

In general, management focus to start marketing its own products in the regulated markets is what is going to drive the margins up and accordingly the growth will be high for FY16-17 for the company.

Q: Just for near-term, Cipla earnings were sluggish; it is not a great set of earnings. What explains the stock opening, trading with a gain close to about 3.5 percent?

A: All the long-term growth drivers are in place. Last three quarters have not been that great for the company. However, just the expectation on FY16-17, see company has already booked expenses related to all the sales that are going to come in FY16, FY17 and FY18.

Now, there will be a huge margin improvement once those sales start to kick in because the overhead is already being created by the company. So, the margin improvement will be very significant, at least 300-400 basis point margin improvement will be seen in FY16-17 over FY15.

Q: What were your biggest takeaways from the Glenmark Conference call and especially on their licensing income as well?

A: We are quite positive on Glenmark. The management was also quite upbeat in its commentary during the call. The Rs 106 crore of forex loss that the company has booked during the quarter is on receivable for almost 5-6 months. So they have booked in forex loss for almost 2 quarters during this quarter. These things will not continue going ahead.

Secondly, with Russia, Ukraine now signing the ceasefire probably the worse is over as far as rubble devaluation is concerned against the dollar.

In such a situation Russia sales will not get impacted going ahead at least on year-on-year (YoY) basis in FY16. Anyway they have received some good approvals in Russia, Seretide they have received an approval which is almost a USD 70 million market in Russia and that should again provide good growth in the local currency for the company.

We believe that company will take price hikes going ahead to offset some of the losses that it is incurring due to devaluation of the local currency.

The pipeline is very strong for the US market; the 2015 is going to be a very busy year for the company. They have lot of good ANDA launches in 2015. The prime reason why the margins have been subdued because of this rubble devaluation and the US growth is not picking up. Both this things should recovery from FY16 onwards.

Q: What is your call on Lupin now? It has already been one of the biggest movers so far this year with a rally of 17 percent. Today, it got the RBI nod for FIIs to invest more into this particular counter. What is your call on the stock now?

A: We are slightly cautious at this level because of the valuation at which it is trading. Agreed they have lot of good products in their pipeline. Nexium will be a good launch but lot of it has already got built into the stock.

We would be slightly cautious at these levels in Lupin, the valuations are pretty high. We would be rather focusing on some of the other largecaps which have got beaten down due to concerns surrounding the global situations like Dr Reddy’s, Glenmark and we will be buying those sort of largecaps rather than the expensive ones.

Expect FY16 EPS downgrade; FY15 earning to grow 5%: Motilal

Aggregate earnings of Sensex companies for FY16 is likely to see a downgrade, says Rajat Rajgarhia, MD – Institutional Equities, Motilal Oswal Securities.

On the positive side, earnings growth for next year could be in excess of 15 percent, says Rajgarhia in interview to CNBC-TV18 on the sidelines of the Make in India conference hosted by Motilal Oswal.

He does not see any earnings recovery for the next couple of quarters, and sees FY15 earnings growing 5 percent against 10-11 percent estimated earlier.

At the broader level, earnings in the December quarter are down 3-5 percent, he says.

Rajgarhia is hopeful that the ‘Make in India’ theme will instill confidence in Indian companies. He sees state playing an important role in the success of this project.

Latha: At the end of the result season are you still enthused to continue buying stocks?

A: I must admit this result season is one of those rare ones where we have seen a very high number of big misses in the big stocks right from the beginning till the end. Almost everyday has been some kind of negative surprises.

While at the aggregate level we may have estimated about 4-5 percent growth, we are now preparing with may be a 3-5 percent decline in the estimates for this quarter. Somewhere the whole downgrade cycle which had stabilised in the June and September quarter has just taken a big leg down in the December quarter. We are quite surprised by the extent of decline that we are seeing in companies across the board.

However, the markets are right now focusing a lot on macro. Stock specific, even as you mentioned about  Bharat Heavy Electricals (BHEL), even if the stock is down today 5 percent, it was up 5 percent yesterday. So, it just negated that up move. Right now the market looks to be little disconnected from the way the results season has pan out but market have their own wisdom, they focus more on future and not so much on what got reported.

Latha: You were expecting at the start of the earning season a 4-5 percent rise in sales but what you have noted so far is a 3-5 percent decline in sales, is that right?

A: I am talking about the profits.

Latha: What does this do to your future analysis, your extrapolation? Are you pushing back the quarter in which you will see earnings starting to improve?

A: Yes because this year looks like 10-11 percent kind of an earnings growth at the aggregate level should have been done. However, it looks like that that 10-11 percent may get scaled down to now just at about 5 percent or so. If March quarter does not show any improvement over the December quarter then we should brace for some more setbacks into March quarter numbers.

One of the important points is that while the domestic earnings continue to be very weak the export businesses were driving up the estimates because the currency has stopped becoming a tailwind and many of the global prices have been under pressure, even those earnings have seen downgrades for them. So, which quarter we are going to see the recovery, I cannot pinpoint but we are not going to see recovery at least for another two quarters in the estimates.

Reema: Would you change your assessment of FY16 then because earlier the market was expecting an earnings growth of 15-16 percent in FY16, would you scale that down now and if yes to how much?

A: What is more important is that even if the earnings growth for FY16 may not see any meaningful downgrade, the number still may be above 15 percent. The base number itself is changing so if earlier you were expecting a 15 percent growth on 100 then that number would have been 115 but now if you are expecting a 15 percent growth on 90 then that number becomes 105. So, the absolute earnings per share (EPS) for FY16 itself will see a downgrade.

However, let me admit that given that we are into such a volatile business environment both globally and locally, 15 percent plus estimate is what you will see consensus building on but a lot of those earnings growth would still be centered for the second half. The first half would be about 10 percent, sub 10 percent and the second half would be maybe a 20 percent kind of a growth.

Latha: You have some interesting officials from the Maharashtra state government as well. What have you gleaned so far? Are the states prepared for a Make in India’s ambience because it’s a plethora of permissions that in the first place actually put off manufacturing and manufacturers from India? India became a service oriented country partly or almost entirely because of maze of restrictions from the state governments and because of poor infrastructure. So far what have you gleaned and what are you trying to glean in your conference?

A: There are two important data that we look at. If you look at India’s share of industry in the overall gross domestic product (GDP), for almost last two decade that number has now remained stagnant at about 15 percent. Gradually being coming down as services have grown also and India’s share of manufacturing as a percentage of GDP is one of the lowest amongst many comparable nations; we may not compare ourselves with China, which stands at about 35 percent plus but even compared to many other countries we stand quite low and that is a result of many things.

Over the last many years a very common terms that’s being used is the ease of doing business but there have been many setbacks which have crept into the businesses at all levels; right from the centre to the state to the funding mechanism and maybe the way the businesses conceptualised internal rate of return (IRR) in many of the projects and these things over the last three-four-five years has taken a significant knockdown. The amount of money that we have seen Indian corporate spending outside in buying businesses or building businesses has been serious. So, this whole theme of Make in India now is basically to instill that confidence back into various segments that if the target market for the rest of the world is to sell in India then why not begin by the concept of Make in India so that the whole process of doing business becomes easy.

I think states play the most important role because that is where businesses ultimately get set up and that’s way we have people from the state machinery or some of the experts in today’s conference, who have worked in different capacities at various state level, will explain what will it take to make this Make in India a very powerful theme over the next one decade to come.

Sembcorp to buy 60% stake in IDFC’s PE arm Green Infra

PE activities are seeing more inbound investment than outbound

GIRISH NADKARNI

Partner

IDFC

Alternatives Singapore’s

Sembcorp Utilities, a wholly-owned subsidiary of Sembcorp Industries, has agreed to pick up a controlling stake in Green Infra, a wind generation firm controlled by IDFC  ’s PE arm. Sembcorp will invest Rs 1,051 crore for 60 percent stake in Green Infra, which is valued at Rs 4,400 crore.

In an interview to CNBC-TV18, Girish Nadkarni, Partner, IDFC Alternatives, said there has been a pick up in private equity investments in the past 6 months with a push for renewable sector in the last 8-9 months. He expects lower capital costs, interest rates to help pick-up in activity.

Private equity activities are seeing more inbound investment than outbound and there has been major interest seen in wind, hydro power and solar sectors, Nadkarni said, adding that the company has done 64 investments and exited around 31. The company will focus on core infra going forward, he said.

According to Tang Kin Fei, Group President & CEO, Sembcorp Industries, energy demand is growing very rapidly in India with renewable energy becoming a sustainable business. Sembcorp already has 4 units in India with 3,000 mw power generation capacity. We are creating a base for more investment in here, he said.

Ekta: Could you throw some more light on the deal as a whole?

Nadkarni: Green Infra is a company which is incorporated and incubated by IDFC and today we own 100 percent in this company. Today this company has 516 mw of capacity and soon it will touch 700 mw capacities. The current transaction is we are partnering with Sembcorp. Sembcorp is taking the controlling stake in this company. They will have 60 percent in this company. Our fund too will exist and we will continue in this company as a minority shareholder with 40 percent.

Anuj: How do you look at this deal in terms of valuations and returns?

Fei: In terms of valuation of Green Infra Limited, it is based on the current plans that they have and also the pipeline of the potential investment they have in India.

Ekta: What are the opportunities that you see in India in the renewable energy space given the government’s possible focus on it?

Fei: India is a big country and is growing very rapidly in terms of energy demand. The current energy usage per capita is still very low. In the years to come we would expect more and more requirements of energy for the population and as the generation or power requirement in India grows, will increase in thermal power requirements and to balance the carbon emission from thermal power generation. I think every government will be concerned and every government will be supportive to have renewable energy to balance the carbon emission in the country. Therefore, we think that renewable energy in India will be a sustainable business.

IDFC stock price

On February 13, 2015, at 13:44 hrs IDFC was quoting at Rs 174.00, up Rs 1.90, or 1.10 percent. The 52-week high of the share was Rs 179.20 and the 52-week low was Rs 93.10.

The company’s trailing 12-month (TTM) EPS was at Rs 9.64 per share as per the quarter ended December 2014. The stock’s price-to-earnings (P/E) ratio was 18.05. The latest book value of the company is Rs 92.92 per share. At current value, the price-to-book value of the company is 1.87

Lupin at record high after RBI ups foreign investment limit

Shares of  Lupin  hit record high at Rs 1692.50, up 4.5 percent intraday on Friday after the central bank increased foreign investment limit in it. The Reserve Bank has said foreign institutional investors and registered foreign portfolios investors can now invest up to 49 percent of the paid-up capital in Lupin under Portfolio Investment Scheme (PIS).

“The company has passed resolutions at its Board of Directors’ level and a special resolution by the share-holders, agreeing for enhancing the limit for the purchase of its equity shares and convertible debentures by FIIs/RFPIs,” RBI said in a release.

The central bank said the purchases could be made through primary market and stock exchanges and would be subject to Fema regulations.