30 September 2013

Technical Research - Global Technical Perspective (30-Sept-13-Edel)



  • October seasonality – global volatility perks up; Nifty and Brent Crude grossly underperform

  • Nifty (futs) – retracement move already underway; key levels are 5772 and 5646

  • Bank Nifty (futs) – bears press hard; retreat to 9824 / 9490

  • S&P 500 – near term is correcting lower into seasonally bearish October

  • MSCI Asia ex-Japan – maintain bid to 560 despite a small pause

  • DAX – narrow range warns of near term downside risk; below 8518 will aim deeper

  • Nikkei 225 - breakout from 'pennant' targets May high of 15,942

  • India 10-yr yield - contraction of range likely; look for test of 8.43%

  • US 10-year yield – small top in place; expect a retreat into 2.52% / 2.41% range

  • DXY – maintain bearish bias for 79.50

  • USDINR – near term range of 63.05 - 61.20

  • Brent Crude Oil – $107/106 to cushion any weakness

  • Gold – near term directionless, but declines to $1277 to be bought


Regards,

Kotak India Daily :: 30-SEP-2013 : Strategy; Updates - Sun Pharmaceuticals, Energy

India Daily: Strategy; Updates -
Sun Pharmaceuticals, Energy 

Special Reports
Strategy
Strategy: What ails the CPI?
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CPI is dominated by food and related markets and India's food policies and markets have problems
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Prices of basic food items have gone up largely due to the Government's policies
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Prices of other key items have gone up due to the structure of the markets, taxation
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What if CPI does not decline in the next few months? WPI is anyway headed up (see Exhibit 5)
Daily Alerts
Company alerts
Sun Pharmaceuticals: Stock discounting blue-sky; reiterate SELL
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US news flow remains positive in balance
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Stock discounting blue-sky scenario
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Maintain SELL rating with TP at Rs485 (from Rs450 earlier)
Sector alerts
Energy: The road from Damascus to Tehran
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Resolution of disputes may take time to moderate sanctions on Iran
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Potential rollback of sanctions to ease Iranian crude oil supplies gradually
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Sharp increase in OPEC spare capacity, even without easing of supplies from Iran
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Large OPEC spare capacity to keep a check on global crude oil prices

BofA-ML sees RBI shoring up forex cover with rupee at 62 levels


ForexForeign brokerage Bank of America-Merill Lynch said on Monday the Reserve Bank may start buying dollars once the rupee stabilises at the 62 level, to bolster the import cover to the traditional 8-10 months. 

"We expect Governor Raghuram Rajan to buy forex if the rupee settles down at about 62 to the dollar," it said in a note. 

The report said the import cover has gone down to seven months, last seen in 1998 and hence, RBI will focus on recouping the reserves. 

It can be noted that the Rupee had fallen to 68.80 last month, but after Rajan took over the mantle of the RBI on September 4, it has gained back over 10 per cent. 

Today the currency settled at 62.60 against the dollar, down 9 paise. 

"The RBI needs to add USD 50-100 billion to revert to 8-10 months' import cover to build a bullet-proof national balance sheet that Rajan has spoken of," it said. 

It added the recent measures like the concessional swap facility for fresh NRI dollar deposits will not be enough to recoup the reserves, which have gone down to $277 billion from a peak of over $324 billion. 

However, contrary to fears of a depreciation in the local currency if the RBI starts buying, the report said RBI's entry into the market will boost the confidence of investors and actually lead to an appreciation of the rupee. 

The report also said this phenomenon was seen from 1998 to 2004, when the RBI bought dollars and yet the local currency appreciated. 

"We see forex policy reverting to the Jalan-Reddy era of buying back forex," it said. 

The report said the Reserve Bank will withdraw the liquidity tightening not before December, saying the Governor's statement of a ‘calibrated’ withdrawal hints at a delayed response in relaxation.

The rupee alone can't resurrect India's manufacturing exports



The true upside in exports will only emerge when the competitiveness of an industry improves to a fundamental and sustainable level, and if we place our bets as a country in the right sectors and countries, feel Arun Bruce & Anirban Mukherjee.

As a nation, we possess a refined ability to see the silver lining despite the gloom. Collectively, as we battle inflation, a falling rupee, weakening domestic demand, and a sluggish policy environment, we hope of a bright long term, including hope of an export boom.
As the currency has depreciated by over 15 per cent since April (it had lost more than 25 per cent a few weeks ago before bouncing back), voices abound on the kind of export boom this could trigger.

Sadly, this prophecy is not entirely true — at least definitely not for manufactured products.

First, 70 per cent to 90 per cent of the cost base of manufactured products is “exchange rate neutral”, thanks to the tightly linked world we live in.
Most manufactured products (for instance, auto components, appliances) have a commodity cost base of between 70 per cent and 90 per cent — and most commodities are priced at parity to equivalent international options.
Copper is available in the domestic market only at London Metal Exchange prices (which are dollar denominated).
Domestic steel manufacturers price their steel on par with steel imports — and are currently in the process of raising prices — thereby nullifying any advantage a weak rupee may provide. Domestic plastics and chemicals are also constantly priced on par with equivalent international imports.


Is October the most dangerous of all months for the stock market? :: ET



Mark Twain was a savant about the stock market, as he was about so much else.

"October. This is one of the peculiarly dangerous months to speculate in stocks in," he wrote in a mock diary entry in the novel "Pudd'nhead Wilson." He added, "The others are July, January, September, April, November, May, March, June, December, August and February."

Twain published this bit of satire in 1894, two years before the birth of the Dow Jones industrial average. He wasn't much of an investor himself, but he nevertheless captured the behavior of the stock market from his time to the present.

Stock speculation has been dangerous in all seasons, of course, much as Twain suggested. But, oddly, he was right about something else: a new statistical study shows that October, by some measures, is the most "peculiarly dangerous" of all months for the stock market. The two months that bracket it are almost as risky, the study also says, and autumn Mondays are particularly perilous days of the week.

Tata Global Beverages: Hold :: Business Line


Power Grid Corporation of India: Buy :: Business Line


Coal auction policy: New start, old fears :: Business Line

Last week, the Government announced a new coal block auction policy for the captive use of private companies. The policy aims to bring more transparency by auctioning coal blocks instead of allocating them on the much-criticised discretionary basis. It is expected that six explored blocks with reserves of over 2,000 million tonnes will be auctioned in the first phase, within the next four months.
Higher transparency and user-friendly terms of the auction process are likely to attract bidders. Vedanta, which operates captive power plants, has expressed its interest in bidding.

BENEFICIARIES

Coal demand in the country runs ahead of supply, with a shortfall of around 98 million tonnes as of 2012. This necessitates costly imports of the fuel, hurting companies in large coal consuming sectors — power, cement and steel. Companies in these sectors are likely to see relief with the new policy.
Fuel is a big-ticket cost for power companies, and may account for as much as 80 per cent of their expenses. The new policy would allow power companies that agree to sell power under purchase power agreements to bid. They can also avail significant cost concessions on the coal blocks.
The block will be awarded to the power company that offers the lowest power tariff in the auction; this should help ensure that the lower fuel cost benefits end users. Stocks of private power companies such as Reliance Power, Tata Power and Adani Power rose slightly after the announcement but gave up the gains to end the week mostly flat. The cement sector uses coal both as fuel and as raw material. Coal accounts for around 30 per cent of the total cost of cement companies, and the sector was adversely hit when local coal prices were hiked by 10 per cent this May. The auction process may help cement companies get captive mines and lower their costs. Cement stocks, however, did not react to the news.
In the case of steel producers, coal accounts for a relatively smaller 5 per cent of costs. Companies such as Bhushan Steel and JSW Steel, which do not have captive coal mines, could benefit from the new policy. The stock reaction though was muted to the policy.

LOWER RISK

The new policy has many positive features. Lease winners in the past had to face the risk of capital being locked for long periods. For instance, none of the ten blocks allotted between 2008 and January 2013 in Chhattisgarh, have so far achieved production.
The new policy requires the lease winner to make an upfront payment of 10 per cent of the estimated reserves in the block. The remaining payment will be linked to coal production, with the price set on the basis of international rates available from public indices such as Argus/Platts. This is unlike in the past, when 25 per cent of the bid amount was paid upfront and another 25 per cent after mine plan approval.
To ensure progress, the policy requires that the block winner perform an agreed minimum work programme at all stages and meet time limits for various milestones. The company is allowed five years to get to production in a fully explored block. The winning bidder is allowed to relinquish a block at a later date, without penalty, if minimum work has been carried out. This provides flexibility to exit and reduces the risk of being locked in.

Stock Strategy: Consider bear-call spread on Indiabulls Real Estate :: Business Line

Indiabulls Real Estate (Rs 54.6): The long-term outlook remains negative for Indiabulls Real Estate as long as the stock stays below Rs 155. The short-term trend has also turned weak for the stock after it slipped below Rs 60. It now finds immediate support at Rs 46, which is a crucial level. A close below Rs 46 will trigger a fresh slide on the stock. In that event, Indiabulls Real Estate is vulnerable to test new lows below Rs 40. Immediate resistance appears at Rs 64 and only a close above Rs 76.5 will negate the current bearish trend for the stock.
F&O pointers: Indiabulls Real Estate October futures witnessed unwinding of open interest positions along with fall in share price. The counter shed 3.2 lakh shares in open interest. Indiabulls Real Estate futures premium now narrowed to less than a rupee. Option trading also indicates a negative bias for the counter as call options accumulated open interest positions, indicating the strong emergence of call writers.
Strategy: We advise traders to consider a bear-call spread on Indiabulls Real Estate. The bear-call spread option trading strategy is employed when analysts thinks that the price of the underlying asset will go down moderately in the near-term. This strategy can be initiated by selling the 60-strike call and simultaneously buying the 55-strike call that closed at Rs 2.6 and Rs 4.4 respectively.
The maximum gain attainable using this options strategy is the credit (Rs 1.8) received upon entering the trade, which works to about Rs 7,200, as the market lot is 4,000 units. To reach the maximum profit, the stock price needs to close below the strike price of the lower striking call, which is Rs 55.
If the stock price rises above the strike price of the higher strike call (60) at the expiration date, then the strategy suffers a maximum loss, which equals to the difference in strike price between the two options minus the original credit taken in when entering the position. In this case, it will be Rs 12,800.
Though the risk-reward ratio is not skewed in favour of the strategy, we still believe that this bear-call spread has bright profit potential. This strategy is for traders who can withstand the risks of wild swings in the underlying.
Alternatively risk-averse traders could consider buying 50-strike put, which closed at Rs 2.45, where the maximum loss will be the premium paid.

Gold-silver ratio signals a bearish outlook :: Business Line


SGX Nifty 5,832.00 -55.50 ; Markets may open DOWN today

SGX Nifty 5,832.00 -55.50 ; Singapore exchange
30 Sept 2013
8:38AM India time
Markets may open DOWN today

RBI working overtime to meet Rajan's licence deadline -Jan 14

Parliament’s standing committee might have expressed its reservations on business houses being allowed to start banking operations. But the Reserve Bank of India (RBI) is hardly deterred. It is working overtime to shortlist the names of candidates from among 26 applicants.

RBI has deployed additional hands to screen the applications, from a wide range of corporate houses — from conglomerates to micro lenders.

After the screening, the shortlisted candidates will be vetted by an external committee, to be headed by former RBI governor, Bimal Jalan. The names of the other members of the committee have yet to be finalised.

Apart from officials from the department of banking operations and development — the RBI wing that has drafted the licence norms and is primarily responsible for shortlisting —20-odd officers are also learnt to be involved in the screening process.

According to sources, these officers have been chosen on the basis of their core competency in areas like corporate finance, accountancy and legal matters, among other things.

Four to five teams, each headed by a general manager, have been created to look into various aspects of the applications. The entire process of screening the applications is being overseen by Anand Sinha, RBI’s deputy governor in charge of banking operations and development portfolio.

Raghuram Rajan, who took charge as RBI governor on September 4, had said on his first day in office the names would be finalised before or soon after Sinha retires in January 2014.