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Archive for July 2011

How long can the markets consolidate or stay in range?

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How long can the markets consolidate, or stay in a range?. This is one question which lingers on to the minds of all investors and traders in the current scenario.

Last week’s price action can be termed as a mixed reaction for our markets. The first three trading sessions of the week seem to suggested lacklustre movements in our markets. However the last two sessions were the game-changer. The reason we believe that is because, on Thursday the markets ended lower breaking the key support of 5550 and the sentiment at the end of Thursday was heavily bearish, however on Friday it was a complete turnaround for our markets. Nifty broke the key levels of 5600 and was in touching distance of breaking the 5650 mark at one point of time. We believe that such swift turnarounds in markets, especially with the kind of lacklustre weeks of trading, is good, as now any further positive momentum can result in more short covering coming across a lot of stocks.

There are two critical aspects technically, which is worth noting in the last 2-3 weeks of price action:

1. The rally in the second half of June from 5250 to 5750 levels. The retracement levels of 50% was exactly at 5495 (which apparently was the low on 12th July). The markets have thereafter not looked back at the support and have held on to it.

2. The next key aspect is the confluence of short term moving averages around the 5500-5550 mark. The zone was very critical from the technical point of view and a sustained close below this range could have triggered a next round of selling in the major indices.

Next week is an action packed week for our markets, as there is the RBI policy meet and also the expiry week for July contracts. We believe that the action would be more on the bullish side, as the global indices (especially Dow) look quite attractive on charts. Also we believe that the frontline stocks, which had a subdued last couple of weeks, will once again witness some strong price action. Short covering will also be witnessed in many of the oversold counters once the markets stable above 5650 levels.

Food for Thought: Since 2003 our markets have always had a positive close, with an average gain of 4.8% and a minimum gain of 0.5%.
THAT IS 7 YEARS OF POSITIVE CLOSING….!!!!

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Written by Kunal Bothra

July 28, 2011 at 1:35 pm

Yes bank – achieving growth as planned

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Yes bank – achieving growth as planned

Our team recently met the management of Yes Bank. The purpose was to review the business prospects and the version 2 plan in context of the current macro environment and tight monetary policy.
The management of the bank is confident in achieving its goals of version 2 unlike a situation in 2008-09 where plans of expansion where shelved due to the macroeconomic environment. The bank has gained size from Rs229 bn in FY09 to Rs590 bn in FY11 and the ability to successfully emerge from the previous adverse interest rate cycle has enabled it to tide over the current high interest rate environment.
We also wanted to review our concern on scale and granularity of the bank. In that context, top 20 depositors make up 18.3% of deposits and top 20 borrowers make up 14% of the loan book ( top 5 borrowers would make up 7-8% of loan book). While many of the large banks slowed down activity post crisis, Yes Bank used this as an opportunity to build relationships with large and medium corporates. The bank has 500-600 existing relationships with large corporates and a CRM of 2,000 corporates in the pipeline. This has enabled the bank to move from the last leg in the consortium to becoming a consortium player.
Balance sheet and loan book growth continues to be on track and the management has indicated a growth ~2x of the industry (35-40% for FY12E). Specific sectors of growth over the next 2-3 quarters are life sciences, pharma and segments of engineering, while food and agri will be driven by seasonal and cyclical trends of monsoons, cropping patterns and commodity prices. We expect the loan book to grow at a CAGR of 36% over FY11-13E with increasing focus on commercial (mid corporates) and branch banking.
The bank is on track with its version 2 target of 250 branches in June 2011. New branches will increasingly focus on commercial and branch banking activities and the focus is towards building a liability franchise. Moving towards a hub and spoke model, Yes Bank has the hub in place with the first 50 -75 branches and is expanding to incorporate the spokes.
We believe that the gestation period of new branches for Yes Bank might be higher as compared to 12-15 months for the industry owing to the fact that the bank is in a build up phase for SME and branch banking activities. Thus despite a slower growth in term deposits at a 34% CAGR over FY11-13E and a stronger CAGR in CASA of 51% CAGR over FY11-13E we expect CASA share of ~13% in FY13E.
The bank’s ALM is structured such that 78% of liabilities are <1 year and 49% of assets are less than 1 year (based on the FY11). Thus the rising interest rate environment during Q1FY12 would exert pressure on NIMs. We expect NIMs for FY12 to remain below 3%. However, beyond the inflexion point of interest rates moving upwards we expect the 55% floating loan book to even out rates at ~2.8-2.9%. Thus NIMs are likely to remain flat to marginally negative.

The bank had a CAR of 16.5% (March 2011) with a tier I capital of 9.7%. With a balance sheet growth of 33% over FY11-13E, Tier I is likely to slip below 9% in FY12E. We believe that the bank will have to raise capital towards the end of FY12 or Q1FY12. We have
factored in capital raising of `13.2 bn in Q1FY12 which will give a tier I headroom of 175- 200 bps. We also acknowledge that capital raising in the current environment might be a challenge for the bank and a delay will influence the pace of growth at which the bank is expected to grow over the next 2 years.

Written by Fundamental Side

July 14, 2011 at 2:50 pm

Posted in Fundamental Side

Tagged with

Market trends & terrorist attacks

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DP-BLOG-GRAPH-1Market trends & terrorist attacks

(This presentation is simply an observation on how Indian markets behave post terrorist activities. It is not a call for market top or bottom but just a correlation between events and price behavior. )

Past market data points to an unusual, coincident between market trends vis-à-vis terror strikes in India. It has been noted that, such strikes have occurred while the market sentiments were either too poor or when it was in the midst of an intermediate pause (time based correction). Coincidentally, when frequent flow of grim news- Economic or political (Lokpal Bill and low market in this case) have bombarded our social life, and overall sentiment is cautious, terrorist attacks have occurred during the same phase. This is, kind of an indication that the market is flooded by extreme bad news and is likely to reverse.

 Most of the terrorist activities have occurred at the beginning of a new market trend or after a prolonged correction when the market was already at the bottom or close to the bottom. Recent example is 2008 bottom, when the market had already corrected significantly and was consolidating at that time. Such triggers act as a prior indicator of a bull rally or end of correction.

Currently Market has already corrected nearly 22% (at extremes) and 13.5% below recent top. The present position is actually time-based correction. Last bear market lasted for 15 months (where market made bottom within 10 months time frame) and we are in corrective phase since last 9 months.

 Combining the price formation along with the news flow, it has been observed that, events such as these have taken place mostly near the trend-line, with a particular interval almost maintaining the Fibonacci relationship.

(In interest with timeliness this documents has not been edited)

Written by Dwaipayan Poddar

July 14, 2011 at 2:29 pm

Posted in Uncategorized

Range bound with positive bias

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Range bound with positive bias

Market saw another bearish day yesterday in the aftermath of Infosys result & poor IIP numbers. The drag of 12th -July has retraced almost the 40% rise that we had seen from 5195 on 20th June to 5740 on 8th July. Now indices are very near to its strong support zone between 5450 & 5500. Looking to the daily chart structure, the very short-term outlook can now become positive only if Nifty futures manage to cross 5600 otherwise the downtrend will continue. On a longer-term perspective, the chart suggests that we are once again stuck in a band above 5450 & below 5750 with a positive bias. However, this bias can turn negative once Nifty closes below 5450.
Today after a gap up opening markets have attempted to cross the resistance level of 5600 but, failed & is currently trading at 5585. Looking to the advance decline ratio, which seems encouraging (2:1) at this point of time, gives a sense that indices are finding good buying interest at lower levels. In the coming days, the market is likely to become choppy with stock specific activity increasing as result season has begun.

Written by Rakesh Gandhi

July 13, 2011 at 3:55 pm

Posted in Uncategorized

Tagged with , , ,

Cars gearing down in June.

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Cars gearing down in June.

June, the month which is seasonally sluggish before the onset of monsoon was indeed sluggish for a few companies like Maruti Suzuki, not to forget the 10 day strike and maintenance shutdown at its plants. Fuel price hike and another round of interest rate hike is set to take their toll on the PV industry, which was evident from June sales of PVs. Tata Motors also continued to witness a severe slowdown in PV segment fuelled by intensifying competition. On the CV side, there is still some resilience shown by companies like Tata Motors and M&M, where these companies have performed above expectations. LCVs outperformed the overall CV industry. Two wheeler industry has also performed well in June, as it seemed the most insulated sector from the macro headwinds. We remain positive on Bajaj Auto, Tata Motors and M&M, while we have turned negative on Maruti Suzuki and Ashok Leyland, and continue to be negative on Hero Honda. TVS remains a Neutral for us.

Mahindra and Mahindra – (TP- Rs 804, BUY) – The bright spot!
In a scenario where auto companies are showing signs of slowdown, M&M continues to outperform the industry through robust sales in its well-diversified product portfolio. M&M reported a strong 29% yoy growth in its auto segment to 35,584 units, with passenger UV sales growing 14%yoy and the 4W pick-up segment which includes Gio and Maxximo posting a robust 65% growth yoy. Verito has posed yet another month of improved sales performance with a growth of 168% yoy with sales recorded at 1,510 units , 24% mom above 1,219 units sold in May and 1,050 sold in April. M&M is smartly increasing the sales of Verito on product revamp of the unsuccessful Logan. Farm Equipment Segment (FES) posted a very robust growth of 37% yoy to 22,730 units, while sequentially they were up 20% on pre monsoon purchases.

Maruti Suzuki – (TP – Rs 1,195, Underperformer)- Life after ‘LIVA’ to be difficult
Maruti Suzuki (MSIL) reported a 8.8% yoy de-growth in volumes, by selling 80,298 units in June which was about 16% fall on May, marred particularly by the 10 day long strike at its Manesar plant (loss of ~13,000 vehicles) and a 6 day maintenance shutdown at its Gurgaon plant and a similar ongoing shutdown at Manesar plant. Additionally, MSIL was the first to face the macro headwinds to the PV segment. A2, the bread and butter segment of MSIL posted just 2.3% yoy growth as the strike affected plant of Manesar produces the successful models such as Swift and A Star. Similarly, A3 segment, which was the top performing segment in April and May, also massively underperformed posting a de-growth of a whopping 60% yoy, again due to the strike. Kizashi sales were at 32 units. C segment sales were up by 23% due to continued success of Eeco in both private as well as taxi segments. Exports remained stable mom at 10,278 units, down by 33% yoy. Management has guided for a continuous export sales of 10,000 units every month, which implies a double digit(lower teens) degrowth in FY 12. Headwinds continue to be there for the PV segment on the back of rising fuel prices and interest rates. Competitive launches such as the recent launch of Toyota Liva pitched directly and aggressively against Swift will make things difficult for MSIL along with a slew of competitive launches, thus leading to a higher single digit growth in the domestic markets.

Tata Motors – (Under review)- CVs strong, PVs lack the zeal
June sales for the company were at 66,358 units, 1% up yoy and a growth of 6.5% mom. CV sales grew by 13% yoy, out of which LCV sales were up by 18% yoy and MHCV sales were 6% higher yoy. PV segment sales were down by 21% yoy to 21,993 units while utility segment sales fell by 4% yoy and equally on mom basis. Indica range continued to see a de-growth of 9% yoy as competition in the hatch back segment continued its intensification with the market leaders Maruti and Hyundai also feeling the heat. Indigo range sales were also low by 35% yoy. Nano also underperformed, which sold only 5,451 units as compared with 10,000 odd units in April, and ~6,500 in May.

TVS Motor – (TP- Rs 63, Neutral)- Still robust
TVS sold 1.82 lakh units in June, a strong growth of 14% yoy, while on a mom basis it showed a 2% de-growth. This growth indicates that the macro concerns have still not hit the two wheeler sector and TVS’s brands are showing a good demand. Two wheeler sales also grew by 14% yoy, while 3 wheelers are showing a consistent performance touching 4,000 units time and again.

Written by Fundamental Side

July 4, 2011 at 11:35 am

Posted in Auto Segment

Tagged with , ,

Cars gearing down in June.

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Cars gearing down in June.

June, the month which is seasonally sluggish before the onset of monsoon was indeed sluggish for a few companies like Maruti Suzuki, not to forget the 10 day strike and maintenance shutdown at its plants. Fuel price hike and another round of interest rate hike is set to take their toll on the PV industry, which was evident from June sales of PVs. Tata Motors also continued to witness a severe slowdown in PV segment fuelled by intensifying competition. On the CV side, there is still some resilience shown by companies like Tata Motors and M&M, where these companies have performed above expectations. LCVs outperformed the overall CV industry. Two wheeler industry has also performed well in June, as it seemed the most insulated sector from the macro headwinds. We remain positive on Bajaj Auto, Tata Motors and M&M, while we have turned negative on Maruti Suzuki and Ashok Leyland, and continue to be negative on Hero Honda. TVS remains a Neutral for us.

Mahindra and Mahindra – (TP- Rs 804, BUY) – The bright spot!
In a scenario where auto companies are showing signs of slowdown, M&M continues to outperform the industry through robust sales in its well-diversified product portfolio. M&M reported a strong 29% yoy growth in its auto segment to 35,584 units, with passenger UV sales growing 14%yoy and the 4W pick-up segment which includes Gio and Maxximo posting a robust 65% growth yoy. Verito has posed yet another month of improved sales performance with a growth of 168% yoy with sales recorded at 1,510 units , 24% mom above 1,219 units sold in May and 1,050 sold in April. M&M is smartly increasing the sales of Verito on product revamp of the unsuccessful Logan. Farm Equipment Segment (FES) posted a very robust growth of 37% yoy to 22,730 units, while sequentially they were up 20% on pre monsoon purchases.

Maruti Suzuki – (TP – Rs 1,195, Underperformer)- Life after ‘LIVA’ to be difficult
Maruti Suzuki (MSIL) reported a 8.8% yoy de-growth in volumes, by selling 80,298 units in June which was about 16% fall on May, marred particularly by the 10 day long strike at its Manesar plant (loss of ~13,000 vehicles) and a 6 day maintenance shutdown at its Gurgaon plant and a similar ongoing shutdown at Manesar plant. Additionally, MSIL was the first to face the macro headwinds to the PV segment. A2, the bread and butter segment of MSIL posted just 2.3% yoy growth as the strike affected plant of Manesar produces the successful models such as Swift and A Star. Similarly, A3 segment, which was the top performing segment in April and May, also massively underperformed posting a de-growth of a whopping 60% yoy, again due to the strike. Kizashi sales were at 32 units. C segment sales were up by 23% due to continued success of Eeco in both private as well as taxi segments. Exports remained stable mom at 10,278 units, down by 33% yoy. Management has guided for a continuous export sales of 10,000 units every month, which implies a double digit(lower teens) degrowth in FY 12. Headwinds continue to be there for the PV segment on the back of rising fuel prices and interest rates. Competitive launches such as the recent launch of Toyota Liva pitched directly and aggressively against Swift will make things difficult for MSIL along with a slew of competitive launches, thus leading to a higher single digit growth in the domestic markets.

Tata Motors – (Under review)- CVs strong, PVs lack the zeal
June sales for the company were at 66,358 units, 1% up yoy and a growth of 6.5% mom. CV sales grew by 13% yoy, out of which LCV sales were up by 18% yoy and MHCV sales were 6% higher yoy. PV segment sales were down by 21% yoy to 21,993 units while utility segment sales fell by 4% yoy and equally on mom basis. Indica range continued to see a de-growth of 9% yoy as competition in the hatch back segment continued its intensification with the market leaders Maruti and Hyundai also feeling the heat. Indigo range sales were also low by 35% yoy. Nano also underperformed, which sold only 5,451 units as compared with 10,000 odd units in April, and ~6,500 in May.

TVS Motor – (TP- Rs 63, Neutral)- Still robust
TVS sold 1.82 lakh units in June, a strong growth of 14% yoy, while on a mom basis it showed a 2% de-growth. This growth indicates that the macro concerns have still not hit the two wheeler sector and TVS’s brands are showing a good demand. Two wheeler sales also grew by 14% yoy, while 3 wheelers are showing a consistent performance touching 4,000 units time and again.

Written by Kunal Bothra

July 4, 2011 at 11:01 am

Posted in Auto Segment