DIE HARD – 14/03/2006
When people talk about bear market, one thing is sure that there is more value to the stocks than one can find in the bull market. But as old timers will remind you that in a bear market even as the valuations become more and more attractive, but still the buyers tend to become lesser and lesser by the day. In fact many people who had very bullish opinion, not very long ago, will now pray for an early exit opportunity even though that may mean taking good losses on their portfolios. So fickle is the nature of this market that the same people who were talking about the great India story and how the Sensex will reach 40000 levels, are now talking about the recession and how the chances are that the Sensex will in four digits very soon!!! And mind you all this in a matter of just two months. This is the way market operates. Just try to remember those famous words, “BUY WHEN THER IS GLOOM AND DESPAIR ALL AROUND, TO MINT GREAT PROFITS”. Just remind yourself that this market works on psychology and there are two most important factors viz. greed and fear. In January when the markets fell, there was utter greed all around and right now there is so much fears that people are scared even to talk about the market. Just think positively and take decision by your mind and not let your heart overrule your mind. So that in future as when the market recovers, you won’t be left regretting that what a golden opportunity went abegging!
This week was marked by two important events, one the intervention by the FED to stop US market from crumbling and the other was Industrial production figure of 5.3% for January was a shocker.
- FED WILL DO, WHAT IT HAS TO.
- INDIA GROWTH SLOWS.
- L&T takes a hit on bad hedge.
- HOW TO TRADE ?
- LAST WEEK S RECOMMENDATIONS:
- THIS WEEK S RECOMMENDATIONS
- FED WILL DO, WHAT IT HAS TO.
FED pledged to lend, in return for mortgage debt, $200 billion to the securities firms that trade directly with the central bank. This step goes beyond past initiatives because the Fed can now inject liquidity without flooding the banking system with cash. In fact it is a further recognition that this credit crisis is deeper and wider, than earlier crisis. This step marks FED most direct effort yet to repair the mortgage meltdown that poses the biggest threat to the economy.INDIA GROWTH SLOWS
India’s industrial output rose 5.3% in January from a year earlier, slowing sharply from the previous month’s upwardly revised 7.7%. The figure was dragged lower by sluggish growth in manufacturing and mining sectors. Growth has fallen from double-digit levels seen last year as the impact of tight monetary policy and a strong rupee capped demand.
1. Capital Goods cows down by high weight goods rather than core products
Index of Industrial Production of Capital Goods for the month of Jan ’08 has registered mere 2.1% growth compared to 16.3% clocked in corresponding previous period of Jan ’07. In fact, this is the slowest growth in a month since last five years. Slowdown in capital goods production comes even as the production of core capital goods such as Industrial machinery, boilers, generators, power & distribution transformers, compressors etc have grown impressively on year on year basis for the month of Jan ’08. So frontline players in capital goods sector may not be impacted to the extent the data reveal. We find that about 10 capital goods together have a weight age of 47.45 out of 92.57 assigned totally for capital goods in IIP. Out of this top 10 capital goods 3 goods has decelerated sharply and that another four turned negative thus pulling down the overall growth of the IIP for capital goods for the month of Jan ’08.
2. Power generation rebounds in February 2008
Power generation growth has been decelerating from 5.8% in November 2007 to 3.8% in December 2007, which further eased to 3.3% in January 2008. However, as per provisional data from Central Electricity Authority, we find that the power generation grew by healthy 9.6% in February 2008.
We believe that the IIP growth would rebound in February 2008. For instance, the power generation, which grew by mere 3.3% in January 2008, is provisionally estimated to have increased by 9.6% in February 2008. Also, considering the fact that February 2008 had 29 days and February 2007 had 28 days, this factor alone, without considering any productivity or capacity addition gains, will give 3.6% growth in February 2008.
- L&T takes a hit on bad hedge.
Engineering major Larsen & Toubro’s one of its subsidiaries in West Asia may incur a loss of Rs 200 crores on commodity-hedging bets gone wrong, erasing last year’s profit at that unit, It may post a loss of Rs 200 crores because it bet against a decline in prices of zinc and other commodities.
Sensex opened the week at 15684, made a high of 16683, low of 15228 and closed the week at 15760. The weekly gain was 71 points. In this week, the Sensex sold off when the IIP numbers were announced and breached the last time’s low of 15332 registered in January earlier this year. It rebounded after finding some support at 15228. It has left a gap while going down on the daily charts between 15873 and 16064, which will provide resistance on the way up. The Sensex is in a pull back mode and the pull back levels are placed at 16339, 16683 and 17026. If the Sensex breaches the low of 15228, then we have to consider the correction of the entire rise from 2904 levels and the corrective levels will be 14215 and 12055. The trend line resistance is at 15822, 16355 and 17280. The 200 DMA at 17161 will also provide stiff resistance on the way up. For the week ahead the resistance will be at 15873-16355-17161. Support will be at 15228-14841-14215.
Nifty opened the week at 4767, made a high of 5019, low of 4580 and closed the week at 4745. The weekly loss was 26 points. Nifty did not break the January low of 4448 as the Sensex did, but took support at 4580 which was just above the previous low of 4448. The Nifty is in a pull back mode and the pull back levels are 4881-4974-5067. If the Nifty breaches the low of 4580, then we will head towards the previous low of 4448 and then 4281. Then we are looking at a broader correction from 920 levels and the correction levels will be 4281 and 3639. The trend line resistance is at 4954-5064 and 5246. The trend line support is at 4583 and 4670. The Nifty OI PCR is at 0.91. Lot of call writing is visible at the strike of 5000. For the week ahead the resistance at 4881-4954-5064. Support is at 4580-4448-4281.
HOW TO TRADE ?
BUY RANBAXY 464 FOR A TARGET OF 487 AND HEDGE IT WITH NIFTY FUTURE.
- LAST WEEK’S RECOMMENDATIONS:
Almost majority of the stocks recommended reached their targets even in such volatile conditions. Only McDowell and MIC Electronics will reach the target this week.
- NALCO TGT 496 REACHED 504.
- HINDALCO TGT 206 REACHED 207.
- TULIP IT TGT 980 REACHED 1052.
- THIS WEEK’S RECOMMENDATIONS:
- RANBAXY: 464 SL 454 TGT 473-487.
- HLL: 226 SL 221 TGT 237-244.
- ADLABS: 626 SL 583 TGT 658-696.
- EDUCOMP: 3625 SL 3408 TGT 3848-3875.
- CIPLA: 205 SL 199 TGT 210-215.
- SKUMARS: 151 SL 145 TGT 157-161.