VIKAS PARSHURAM SAMWATSARE

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Market is going into consolidation after 10% rally

 The market is going into some kind of consolidation after the 10% rally, couple of 100 points down should be expected as long as we hold on to 5180-5200. Investors need to buy into weakness, once the weakness ends and you take out say 5270 on the upside, which has been the high for the last two or three days, till that does not happen there are individual stocks that you can play with. Basically, ivestors will have to find things to do in this kind of a market, where exposure remains low and one does not lose money.

There are periods when you make money and there are periods when you lose money in the markets. If you do not lose in those losing periods then on a net basis you can come out ahead. This is the time when like the markets, you just back off and take it easy and whenever the markets pick up momentum again, on the upside or on the downside, that would be the time to come in and again participate.

Earlier, bank Nifty was outperforming. I do not think it is doing that so again in the market. 10550 is a support from where it bounces back but overall that is also in a 200 point range not worthwhile trying to trade. Now, today broadly we should have been in telecom and pharmas on the upside and on the downside, commodities and may be real estate etc. Since I have been giving telecom and pharmas all day, so I have a couple of sell calls in JSPL with a stop of about 430, target of 395. Bombay Dyeing is a sell with a stop of about 536, target of 510. Titan is a buy with a stop of about 216, target of 2341.BY VIKAS PARSHURAM SAMWATSARE 

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India's FDI policy regime is investor-friendly

 Commerce and industry minister Anand Sharma rebuffed Barak Obama's scathing comments on India's 'deteriorating investment climate,' stressing that the American president's perception is far removed from reality, and India remains top investment destination. 

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US stocks close lower after consumer spending slides

 

Stocks closed lower for the seventh day out of the last eight on Monday after the government reported that US consumers cut their spending last month.

The news pushed stocks down from the start of the trading day. Though they recovered a bit around midday, all three major indexes closed down. The Dow Jones industrial average dropped 49.88 points, or 0.4 percent, to 12,727.21.

Before trading opened, the Commerce Department said retail sales fell 0.5 percent in June from the month before as Americans spent less on autos, furniture and appliances. It was the third straight month of declining sales, a worrisome trend. The last time sales slumped for so long was in the fall of 2008, at the worst point of the global financial crisis.

``The summer soft patch is here, and it could be here a while,'' said Randy Frederick, a managing director at Charles Schwab, the stock brokerage firm. ``Consumers are belt-tightening.''

Also dampening spirits, the International Monetary Fund said it now forecasts the global economy to grow 3.9 percent in 2013, down from an earlier estimate of 4.1 percent.

The Standard & Poor's 500 index fell 3.14 points, or 0.23 percent, to 1,353.64. The Nasdaq composite index fell 11.53 points, or 0.4 percent, to 2,896.94.

Companies that rely heavily on consumer spending were among the weakest on the New York Stock Exchange. Home Depot fell 64 cents, or 1.2 percent, to $51.45. Lowe's Cos. lost 92 cents, or 3.4 percent, to $25.80.

Industrial stocks also fell sharply. General Electric and Caterpillar, a heavy equipment maker, each fell about 1 percent. GE lost 18 cents to $19.59. Caterpillar lost 92 cents to $81.15, one of the biggest losses among the 30 stocks that make up the Dow average.

Comments from Chinese Premier Wen Jiabao over the weekend also weighed on the market. Wen said his country's economy has not yet entered a recovery and ``economic difficulties may continue for some time.'' Some of the weakness in China comes from the debt crisis in Europe, which has crippled spending on imported goods.

In the Treasury market, the yield on the benchmark 10-year Treasury fell to 1.45 percent from 1.49 percent late Friday as investors sought the relative safety of government debt.

In Europe, borrowing rates for Italy and Spain rose again, the latest signal that bond investors are leery of the finances of those countries. Stocks fell 2 percent in Spain and 0.4 percent in Italy. Benchmark indexes in Germany and France were flat.

Stocks closed lower for the seventh day out of the last eight on Monday after the government reported that US consumers cut their spending last month.
The news pushed stocks down from the start of the trading day. Though they recovered a bit around midday, all three major indexes closed down. The Dow Jones industrial average dropped 49.88 points, or 0.4 percent, to 12,727.21.
Before trading opened, the Commerce Department said retail sales fell 0.5 percent in June from the month before as Americans spent less on autos, furniture and appliances. It was the third straight month of declining sales, a worrisome trend. The last time sales slumped for so long was in the fall of 2008, at the worst point of the global financial crisis.
``The summer soft patch is here, and it could be here a while,'' said Randy Frederick, a managing director at Charles Schwab, the stock brokerage firm. ``Consumers are belt-tightening.''
Also dampening spirits, the International Monetary Fund said it now forecasts the global economy to grow 3.9 percent in 2013, down from an earlier estimate of 4.1 percent.
The Standard & Poor's 500 index fell 3.14 points, or 0.23 percent, to 1,353.64. The Nasdaq composite index fell 11.53 points, or 0.4 percent, to 2,896.94.
Companies that rely heavily on consumer spending were among the weakest on the New York Stock Exchange. Home Depot fell 64 cents, or 1.2 percent, to $51.45. Lowe's Cos. lost 92 cents, or 3.4 percent, to $25.80.
Industrial stocks also fell sharply. General Electric and Caterpillar, a heavy equipment maker, each fell about 1 percent. GE lost 18 cents to $19.59. Caterpillar lost 92 cents to $81.15, one of the biggest losses among the 30 stocks that make up the Dow average.
Comments from Chinese Premier Wen Jiabao over the weekend also weighed on the market. Wen said his country's economy has not yet entered a recovery and ``economic difficulties may continue for some time.'' Some of the weakness in China comes from the debt crisis in Europe, which has crippled spending on imported goods.
In the Treasury market, the yield on the benchmark 10-year Treasury fell to 1.45 percent from 1.49 percent late Friday as investors sought the relative safety of government debt.
In Europe, borrowing rates for Italy and Spain rose again, the latest signal that bond investors are leery of the finances of those countries. Stocks fell 2 percent in Spain and 0.4 percent in Italy. Benchmark indexes in Germany and France were flat.VIKAS PARSHURAM SAMWATSARE 

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Buy Tata Motors on decline for long term

 : Tata Motors will continue to face competition but the manner in which the company is positioned, they are absolutely in good shape to really face this onslaught of competition locally as well as internationally. Despite the kind of problems that China is facing, Jaguar continues to do very well out there and what is stunning turn around by this company. Locally too, the company will have aggressive plans to ensure that cars like nano, Indigo start moving and a comeback in terms of the sales. As far as, the LCV and HCV are concerned, especially the HCV segment, with the falling interest rate regime you will see HCV coming back into the lime light. So, Tata Motors on a decline anything around Rs. 200 or slightly below that looks very fascinating buy and I would definitely go and buy it for the long term. VIKAS PARSHURAM SAMWATSARE

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Market still looks range-bound

 

That is quite possible. 5180-5200 is what I have been maintaining and the index will eventually go and test. We are very close to those levels. I am still not sure, whether we will see a breakdown happening below 5180 and therefore, my bias is slightly on the long side. I would possibly look at some kind of buying signals to arrive at those levels, especially in stocks, which have shown very strong breakouts. What is important is that the gap on Thursday, 5270, was the high on Friday. You are broadly not able to get pass those levels, 5270-5300 is the capped level. As long as, that has been captured you will possibly see supply emerges at higher levels and it still looks like range bound market, given the fact that we still do not have signals that market will have strength to get pass those significant gap.

In the last few days, we have basically shifted the range. So, instead of 5350 to about 5280, it will be possibly 5270 to about 5300 on the upside and 5180 on the downside. That is the only change, which I have made in my trading strategy but otherwise, we are trading with slightly lesser qualities. This is a period not to lose money, when you are not getting a trend. It does not make sense going full throttle over here. I have a sell on Bank of India with a stop at 343 for a price target of 320. I have a buy on Bharti with a stop at 314 with a price target of 327, which could be tested in a day or two.VIKAS PARSHURAM SAMWATSARE 

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 Buy Power Grid Corporation of India For Target Rs.132

 

Grid Of Growth And Permanence

Augmenting capex followed by higher capitalisation (superior project execution run rate) of power transmission assets would boost core earnings of Power Grid Corporation of India (PGCIL). We believe PGCIL remains the safest bet among power transmission companies due to its annuity-based business model (15.5% post-tax regulated RoE) despite the sector’s structural issues. Core demand, higher inter-regional capacity to limit regional deficits and reforms in the distribution space (state electricity boards’ losses, open access) are expected to
increase the need for transmission corridors. We believe PGCIL is attractively positioned at the beginning of 12th Five Year Plan (FY13-17), considering the huge capex outlay planned, driving up its regulated equity. We assign a Buy rating to PGCIL with a SOTP-based target price of Rs132, up 18% from the CMP.

Higher capex to ensure growth:

With an increased emphasis on integrating India’s T&D network, PGCIL has planned capex outlay of Rs1trn under the 12th Five Year Plan
(FY13-17), 82% higher compared to Rs550bn capex incurred under the 11th Plan (FY08-12). Considering its strong track record of project execution and the fact that 76% of planned capex of Rs1trn has already received investment approval, we forecast total capex outlay of Rs924bn until FY17E. This would lead to robust growth for PGCIL, as its earnings are linked to capex and the rate of capitalisation of transmission assets. 

Rising capitalisation to enhance RoE:

We expect capex under the 12th Plan to be front-ended (higher quantum in the initial years) based on planned transmission capacity addition over FY13-15E. Consequently, we expect capitalisation of transmission assets worth Rs170bn/Rs172bn in FY13E/FY14E, respectively, resulting in a 23.2% CAGR in regulated equity over FY12-15E compared to 17.6% CAGR achieved over FY08-11. Higher capitalisation leads to higher regulated equity (eligible for earning regulated returns) driving up the reported RoE from 13.9% in FY12 to
14.5%/15.7% in FY13E/FY14E, respectively.

Augmentation of inter-regional capacity to reduce deficits:

The intent to create a national grid to enhance connectivity among the regions will result in inter-regional capacity growing by 37GW in the 12th Plan period, as per the Central Electricity Authority (CEA). It will help in capping the deficits among the regions via inter-regional
energy exchange (21% CAGR in FY09-12) further aiding PGCIL’s transmission growth.

Valuation:

We assign a Buy rating to PGCIL with a target price of Rs132, providing 18% upside from the CMP. We have valued the stock on SOTP basis, assuming cost of equity of 12%, RoE of 17% and growth of 7% in regulated equity. The target price comprises core transmission valuation of Rs127/share (based on 2.1x P/BV multiple on FY14E book value) and cash and investments valued at Rs5/share.

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 Accumulate HDFC BANK For Target RS.590

Q1FY13: Core performance largely in line; CASA mix dipped marginally to 46%. However, NIM and asset quality remained one of
the best in the industry.

* HDFC bank reported strong net interest income (22.3% YoY), mainly aided by healthy loan growth (21.5% YoY) along with 10bps improvement in NIM (both YoY & QoQ). Net profit rose 30.6% YoY on back of robust non-interest income (36.6% YoY) along with modest growth in provisions & contingencies (9.8%).

* Although CASA mix dipped marginally to 46.0% at the end of Q1FY13, largely due to subdued current account deposit mobilization, it still remains one of the best in the industry. NIM saw 10bps QoQ improvement mainly due to 360bps improvement in LDR (loan deposit ratio) on back of strong built-up in wholesale book (~15% QoQ).

* Asset quality remained stable - gross and net NPAs stand at 1.0% and 0.2%, respectively. Its provision coverage ratio is also healthy at 81% at the end of Q1FY13, which provides cushion to its future earnings with any unforeseen deterioration in its asset quality. Lower stressed assets (gross NPA: 1%, restructured book: 0.3%), further reduces the risk of any big negative surprise in the future.

* At the CMP of Rs.587, the stock is trading at 20.8x its FY13E earnings and 4.0x its FY13E ABV. In our view, HDFC bank would continue to enjoy the valuation premium vis-à-vis its peers as it fares better at majority of the operational parameters - liability franchise, asset quality and NIM. With limited upside from current level, we maintain ACCUMULATE rating on the stock with unchanged TP of Rs.590 based on 4.0x of its FY13E ABV. However, we would advice our clients to enter into the stock with any decline in the stock price.

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 Buy V-Guard Industries Ltd.For Target Rs.329

Investment Rationale

Comprehensive product portfolio and new products to drive growth

V-Guard Industries (VGI) has a wide array of products which cater the requirements of consumer durable industry (stabilizers, heaters, fans and UPS), agriculture (pumps) and construction (cables) sectors of the country. The Indian household appliance market has grown at CAGR of 11% between FY04-FY12. We expect the growth pattern to continue till FY14E on the back of a) power deficiency in India, b) strong GDP growth in India, c) growth in middle class population and rising urbansisation, d) rising income levels and e) Growth of consumer electronics led by low penetration levels. Give the fact that VGI's product portfolio caters to the mass market and meets the basic requirements, demand for these products is expected to remain strong.

The company has strategically introduced new products over the last two decades. This has enabled the company to register a 37% CAGR in revenues from FY07-12. VGI also added new products like a) switch gear and b) induction cooker in FY12 which are expected to gain traction
in the current fiscal. As VGI has a good market share in the house wiring segment, domestic switch gears can be conveniently marketed and has been launched in the southern markets. Also with a view to offer more products in the home segment, Induction Cooker were launched with different models.

Growth aided by increasing geographical presence

VGI earlier focused mainly in the Southern parts of India where it has built a strong brand name as well as distribution network. 97% of its sales (FY07) came from southern market concentrated in 4 Southern States of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu.

However, over the past few years it has expanded its geographical area of operations pan-India. Over the years, the company has made a strong distribution channel in the southern region. We believe the traditional products like stabilizers, water heaters, and pump has reached a near maturity level in the south. Hence, the company has rightly ventured into the non south market. We hence expect a strong brand equity and extensive distribution network to help VGI roll out its consumer durables products and gain strong foothold going forward in Rest of India (ROI) market and expect the market share of ROI to rise to 40% by FY14E from 22% in FY12.

Mix of manufacturing and outsourcing to be beneficial in the long run

VGI adopts a manufacturing as well as outsourcing model for its product portfolio. In FY12, it operated with ~41% of its products being manufactured while the remaining 59% being outsourced. The company has tie-ups with various SSI/self-help group units in the southern
states to manufacture products to meet its needs. Depending on the purchase order, which is normally given one month in advance, the products are manufactured in these units. This enables to keep control over its cost and meet the increased demand without undertaking
significant capital expenditure. While VGI assists these units to purchase the raw material and places its quality assurance team at the units.

Extensive investment in distribution network

VGI has created a wide distribution network with over 9,500 retailers, 208 distributors and 353 service centers spread across all states in India except North East and Jammu & Kashmir. In India, the dealer plays a vital role in the sales pitch of consumer products which is highly
fragmented by nature. Of the total 28 branches owned by VGI, 18 are located in ROI which is expected to aid growth with greater brand visibility in the coming years.

Valuation

At CMP of `272, the stock is trading at a PE of 11.6x in FY13E and 8.4x in FY14E. We are optimistic on VGI’s growth story and believe it can replicate its success story of southern market in other parts of India. We recommend a BUY rating on the stock with a target price of `329 per
share (PE of 10.2x in FY14E), an upside of 21% for a long term view.

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 VIKAS PARSHURAM SAMWATSARE BIG BOSS ALL RIGHT 17/7/12