Daily Market Strategy - Mid-caps beat the Street; weak start in store

Anil Mascarenhas, IIFL | Mumbai | August 06, 2015 08:29 IST

The outlook for today is a flat to weak start. Asian markets are lackluster. US indices ended mixed with slight gains for Nasdaq and S&P while Dow closed in the red. The main indices may move in a tight range.

The most important thing in life is to see to it that you are never beaten. - Andre Malraux
 
The main indices may have resumed their gains after a pause following a status quo by RBI but the action clearly seems to be in the mid-cap space. Wednesday saw the midcap index soar to another high as local investors including mutual funds seem to be lapping up counters in this space. Worry seems to be setting in among fund managers says a report who cite that on a valuation basis, the midcap index is trading at a P/E ratio of 24.5 times while Sensex is at a P/E ratio of 22 times. Given the fact that midcap index valuations historically trade at a discount to the Sensex, caution is warranted in these counters.
 
The outlook for today is a flat to weak start. Asian markets are lackluster. US indices ended mixed with slight gains for Nasdaq and S&P while Dow closed in the red. The main indices may move in a tight range. The CNX IT has technically given a breakout and following Cognizant Technology Solutions rise in quarterly profit and raising of forecast for annual revenue growth, this sector would be on the watchlist of buyers. .
 
In an encouraging development for the economy, India's service sector output increased for the first time in three months, albeit marginally, in July. Indicating a modest increase in performance of the services sector, the seasonally adjusted Nikkei Services Business Activity Index came in at 50.3 in July compared to 47.7 in June. A reading below 50 means contraction in the sector.
 
Cognizant Technology Solutions Corporation announced its second quarter 2015 financial results. Revenue for the second quarter of 2015 rose to $3.09 billion, up 22.6% from $2.52 billion in the second quarter of 2014. GAAP net income was $420.1 million, or $0.68 per diluted share, compared to $371.9 million, or $0.61 per diluted share, in the second quarter of 2014. Non-GAAP diluted earnings per share was $0.79 compared to $0.66 in the second quarter of 2014. GAAP operating margin for the quarter was 17.7%. Non-GAAP operating margin was 20.2%, slightly higher than the Company’s target range of 19-20%. 
 
China's apparent oil demand rose 4.1% in June from a year earlier to 11.25 million barrels per day (b/d), according to a just-released Platts analysis of Chinese government data. This is in contrast with year-over-year increase of around 10% seen in the previous three months.
 
Tata Sons, the promoter of major operating companies of the Tata group, will acquire 2.18 per cent stake in Titan Company at an estimated price of over Rs 680 crore taking its total holding to 19.59%.
 
Sonata Software has signed a definitive agreement to acquire through its US subsidiary, a 100% stake in the enterprise mobility enablement technology provider Halosys. 
 
Based in Santa Clara, California, Halosys is an innovator in providing technology platform and solutions that help enterprises realize the transformational impact of 
mobile on business. Halosys provides a single Unified Enterprise Mobile Enablement platform that enables businesses build, secure, manage and deploy an enterprise wide mobile applications portfolio. 
 
The Government is looking to boost public spending to make up for the subdued private sector investment as part of its ongoing efforts to accelerate economic growth.  “We are trying to ensure that the difference between Budget estimates and revised estimates, as has been the practice in the past, is not there,” Finance Minister Arun Jaitley told Parliament on Wednesday. “If at all, revised estimates may be a bit superior to the Budget estimates.
 
Finance Minister Arun Jaitley said on Wednesday that India can aspire to be a global manufacturing hub in view of the slowdown in China but once again lamented that the Opposition’s obstructionist stance on the roll out of the goods & services tax (GST) that could boost GDP growth by 1-2%.
 
India received foreign direct investment (FDI) worth US$19.78bn from 12 countries visited by Prime Minister Narendra Modi in financial year 2014-15, Commerce & Industry Minister Nirmala Sitharaman said on Wednesday. During the same period, Indian companies invested US$3.42bn in countries such as Bhutan, Brazil, Nepal, Japan, USA, Myanmar, Australia, Fiji, Seychelles, Mauritius, Sri Lanka and Singapore, she told the parliament. The total outflow and inflow of foreign investment in general for FY15 was US$6.42bn and US$75.71bn, respectively, Sitharaman said in a written reply to Rajya Sabha.
 
The loss-making state-owned telecom companies BSNL and MTNL have received financial incentives from the Government to help them revive their business fortunes.  Both BSNL and MTNL will get refunds for surrendering part of their CDMA spectrum that was put up for auction in March this year. The compensation works out to INR 169.16 crore for BSNL and INR 458.04 crore for MTNL.
 
In order to tide over the current crisis in the domestic sugar sector, the Government is reportedly contemplating making it mandatory to export certain amount of surplus sugar. This will be part of a number of other measures being mulled by the Government to help resolve issues plaguing the domestic sugar sector.  According to reports, a final decision on export of surplus sugar will be taken by the Prime Minister, who is believed to have discussed the issue at a weekend meeting with ministers, officials and sugar mill owners.
 
India on Wednesday called off planned negotiations this month for a free trade agreement (FTA) with the European Union (EU) after the latter banned 700 drugs tested by Hyderabad-based GVK Biosciences. “This decision has been taken as the Government of India is disappointed and concerned over the action of the EU in imposing a legally binding ban on the sale of around 700 pharma products clinically tested by GVK Biosciences,” an official communiqué from the Commerce & Industry Ministry said.
 
An Australian federal court on Wednesday invalidated the environmental clearance granted to the US$16-billion (INR 1 lakh crore) Adani coal mining project for not taking into consideration damage to two local endangered species - the yakka skink and the ornamental snake.  The Adani Group said that it would continue to pursue the project.
 
A slew of leading foreign single-brand retailer stores could mushroom in India as the Government has reportedly allowed them to operate across multiple platforms. A number of proposals, including those by Tommy Hilfiger, Swarovski, H&M, Nike and Adidas, among others, might soon get the government’s green signal to open stores in India.
 
The Union Cabinet on Wednesday approved release of wages directly into the accounts of the workers engaged under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). According to the new scheme, the wage component of MGNREGA will be released direct to the workers’ accounts based on a fund transfer order to be generated by states’ implementing agencies in accordance with procedures prescribed by rural development ministry.
 
The Finance Ministry is believed to have selected SBI Capital, ICICI Securities, Edelweiss and Deutsche Bank to manage the Government stake sale in five public sector undertakings (PSU). The Government plans to sell shares in 10 PSUs this year in two buckets of 5 companies each. Investment bankers selected for one basket will have to handle all the 5 PSUs in it, according to the bidding process.
 
Results: Fortis Healthcare, Piramal Enterprises, Bajaj Electricals, Motherson Sumi Systems, Aarti Industries, Escorts, Arvind, Bombay Dyeing, Claris Lifesciences, Cummins India, Deepak Spinners, Hawkins Cookers, SRF, Jaypee Infratech, Jaiprakash Power Ventures,Tata Global Beverages,TVS Electronics, KEI Industries, Mangalore Chemicals, Minda Corporation, Monte Carlo Fashions, Oracle Financial Services Software, Omaxe, Pincon Spirit, Polaris Consulting & Services, Praj Industries, Rupa&Company, Surana Solar, Talwalkars Better Value Fitness.
 
Global Data: Participation Rate (Jul) AUD, Unemployment Rate s.a. (Jul) AUD, Employment Change s.a. (Jul) AUD, Fulltime employment (Jul) AUD, Part-time employment (Jul) AUD, Coincident Index (Jun)Preliminar JPY, Leading Economic Index (Jun)Preliminar JPY, SECO Consumer Climate (3m) (Q3) CHF, Factory Orders s.a. (MoM) (Jun) EUR, Factory Orders n.s.a. (YoY) (Jun) EUR, Halifax House Prices (3m/YoY) (Jul) GBP, Halifax House Prices (MoM) (Jul) GBP, Industrial Production (MoM) (Jun) GBP, Manufacturing Production (MoM) (Jun) GBP, Industrial Production (YoY) (Jun) GBP, Manufacturing Production (YoY) (Jun) GBP, Bank of England Minutes  GBP, BOE MPC Vote Hike GBP, BoE Interest Rate Decision GBP, Bank of England Quarterly Inflation Report  GBP, BOE MPC Vote Unchanged GBP, BoE Asset Purchase Facility GBP, BOE MPC Vote Cut GBP, Challenger Job Cuts (YoY) (Jul) USD, BOE's Governor Carney speech  GBP, Initial Jobless Claims (Jul 31) USD, Continuing Jobless Claims (Jul 24) USD, NIESR GDP Estimate (3M) (Jul) GBP, EIA Natural Gas Storage change (Jul 31) USD, AiG Performance of Construction Index (Jul) AUD, JP Foreign Reserves (Jul) JPY
 
Trends in FII flows: The FIIs were net buyers of Rs. 4.47 bn in the cash segment on Wednesday. The domestic institutional investors (DIIs) were net sellers of Rs. 1.89 bn as per the provisional figures released by the NSE.

Other news in the media:
 
Stepping up presence in the premium category, Maruti Suzuki India launched the crossover S-Cross at a starting price of Rs 834k (ex-showroom Delhi). (BS)
 
Bain Capital is set to exit Hero MotoCorp by selling its remaining stake in the Indian two-wheeler maker, two people familiar with the matter said. (ET)
 
Vakrangee will help Amazon India leverage Pradhan Mantri Jan Dhan Yojana (PMJDY) bank accounts for online payments as a part of its tie up with the ecommerce giant. (ET)
 
Yes Bank said it has raised $ 49.2mn from International Finance Corporation, the private sector financing arm of the World Bank. The funds are raised for a term of 10 years at 8.95% (BL)
 
Tata Steel has completed the move of incorporating its Long Products Europe (LPE) division into a new standalone wholly-owned subsidiary within its European operations to create a sustainable future. (BL)
 
Star India, which held 25.99% stake in Balaji Telefilms, has offloaded all its shares in the company at Rs. 63.6/share. The total deal value is pegged at Rs. 1.1 bn. (BS)
 
Larsen & Toubro has sought shareholders nod to raise up to $600mn through issuing securities to meet capital requirement of growing business. (BL)
 
In a bid to counter the deep discounting strategy by e-tailers, Bata India is planning to create a separate portfolio exclusively for online. (BL)
 
Bharat Heavy Electricals Ltd (BHEL) could be next on the list of the Centre’s disinvestment offer, while mega issue of ONGC and Indian Oil may take some more time. (BL)
 
Tata Power with the present installed capacity of 8,750 MW has launched an evaluation for the acquisition of stressed power projects in the country. (BS)
 
The government is likely to bring in rules to make it compulsory for sugar mills to export millions of tonnes of surplus supplies to support local prices, sources said, in a move that could quell growing anger among farmers but add to a glut on global markets. (BS)
 
Poor monsoon and low reservoir levels in Krishna river system has forced the Krishna River Management Board to make it clear there would be no water for crops served by the river in Telangana and Andhra Pradesh. (BL)
 
US regulator FDA has hiked its fees for new generic drug applications by up to 30%, a move that may hit hard Indian drugmakers, which account for a major chunk of generic medicines sold in that country. (ET)

TEN MOST ACTIVE FUTURES

Symbol

No.of Cont Traded

Last price

Open Interest

% chg in Op.Int

ADANIENT

31,544

99.25

10,472,500

-4.82

TATAMOTORS

29,726

377.60

41,581,000

6.48

CANBK

24,540

303.70

8,724,000

4.11

RELIANCE

21,664

991.70

32,573,750

-0.05

BHARATFORG

20,646

1,249.50

4,348,250

-10.40

TATASTEEL

19,509

263.10

29,814,000

-8.15

ICICIBANK

19,026

312.85

49,102,000

-1.94

LT

18,407

1,784.00

5,752,000

-1.17

DLF

16,283

120.65

24,114,000

6.51

YESBANK

14,677

835.15

11,659,750

-0.37

TEN MOST ACTIVE OPTIONS

Option Type

Strike price

No.of Cont Traded

Open Interest

% Chg in Op.In

ADANIENT

CE

100

4,434

824,500

24.83

TATASTEEL

CE

270

3,958

1,397,000

26.54

INFY

CE

1,100

3,775

997,500

-9.85

RELIANCE

CE

1,000

3,769

833,750

9.96

RELIANCE

CE

1,020

3,596

979,000

11.47

TATAMOTORS

CE

400

3,406

1,767,500

34.56

CANBK

PE

300

3,178

683,000

183.40

SBIN

CE

290

2,913

2,932,000

55.46

DLF

CE

130

2,909

1,458,000

157.60

ICICIBANK

CE

320

2,866

3,829,000

8.72

SUPPORT & RESISTANCE LEVEL

Company Name

S3

S2

S1

Close

R1

R2

R3

Sensex Index

28,104

28,133

28,164

28,223

28,282

28,313

28,342

Nifty Index

8,538

8,545

8,553

8,568

8,583

8,591

8,598

ABB Ltd

1,348

1,353

1,359

1,370

1,381

1,387

1,392

ACC

1,367

1,371

1,374

1,381

1,388

1,391

1,394

Ambuja Cements

228

228

229

230

231

232

232

Bajaj Holdings

1,504

1,508

1,512

1,519

1,527

1,531

1,534

BHEL

275

276

278

280

283

285

286

Bharti Airte

409

411

413

417

421

423

425

Cipla

711

713

715

719

723

725

727

Dabur India

296

299

301

307

312

315

317

GAIL India

341

342

343

345

347

347

348

Grasim Ind.

3,724

3,731

3,740

3,756

3,772

3,780

3,788

HCL Tech

929

931

934

938

942

945

947

HDFC Bank

1,084

1,086

1,088

1,092

1,096

1,098

1,100

Hero Honda

2,632

2,639

2,646

2,660

2,675

2,682

2,689

Hindalco

106

106

107

108

110

110

111

Hindustan Unilever

903

904

905

907

910

911

912

ICICI Bank

304

306

308

311

315

316

318

Infosys Tech

1,070

1,074

1,078

1,087

1,095

1,099

1,103

ITC Ltd

328

329

330

332

334

335

336

L&T

1,765

1,768

1,772

1,779

1,785

1,789

1,792

MTNL

20

20

21

21

21

22

22

M&M

1,360

1,365

1,372

1,383

1,395

1,401

1,407

Maruti Suzuki

4,428

4,439

4,450

4,471

4,492

4,503

4,513

Mahindra Satyam

539

542

545

550

556

559

561

National Alumin

37

37

38

39

40

40

40

ONGC

267

268

269

270

271

272

273

Oriental Bank

179

180

181

183

184

185

186

PNB

155

156

157

159

161

162

163

Ranbaxy Labs

831

833

836

841

846

849

852

Reliance Capital

388

389

391

393

396

398

399

Reliance Comm

70

71

71

72

73

74

74

Reliance Energy

421

423

424

427

430

432

433

Reliance Inds

977

980

982

988

993

996

998

R Power

43

43

44

44

44

45

45

Siemens India

1,475

1,480

1,485

1,496

1,506

1,511

1,516

SBI

280

282

283

285

288

289

290

TCS

2,517

2,523

2,529

2,542

2,554

2,561

2,567

Tata Motors

368

370

372

377

381

383

386

Tata Power

69

69

69

70

70

71

71

Tata Steel

256

258

259

262

265

267

268

Tata comm

428

430

432

436

441

443

445

Wipro

564

567

569

575

580

583

585

Wire And Wireless

35

35

35

36

36

36

36

Zee Entertainment

408

409

411

413

416

417

419


 
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