What is IIFL buying in this series

Anu Jain vice president of IIFL Private Wealth Management says that the market is now in the best series it has had in many months now. She picks Wipro from the IT sector, which began the big burst in the market, and says, “I would play Wipro with a one month or a three week target, and since, its results season, would be cautious and use the dips to buy into it.” As the market saw a move in cement stocks, she suggests, “Among all the names,HCC still makes a trading buy.”

While real estate has been the dark horse this series of the market, Jain says, “The market has overbought the sector and it is dangerous to get in at this level. However, if one was to play as a trader, one can look at dips though I would stay away at the moment.” On the auto sector, she feels, “One would kind of watch it and then wait for a dip for a fresh entry.”

She also says that incase of a pullback in the Nifty, “You should look out for 5,550-5,574 levels, according to the retracement theory.” She further adds that the market is overbought and prefers to “sit aside for few days and see if the market can cross 5,800 which is a keen resistance.”

Below is a verbatim transcript of Anu Jain’s interview with CNBC-TV18’s Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: What have you made of probably our best series in many months?

A: Yes, it has been our best series in many months. The courtesy the derivative position that we had of call and puts which were un-winded as the market started moving up, which is the added impetus to the market. Now, we are overbought and it’s time to take at least a larger chunk of the profits which people are holding. I would like to sit aside for few days, see if the market can cross 5,800 which is a keen resistance. You have crossed the 200th day; there are reasons to pause if not correct.

Q: How much of a correction would you expect? What levels would you watch in case of some kind of a pullback in the Nifty?

A: According to the retracement theory, you should look out for 5,550-5,574 levels. However, copybook chart patterns would say that it should be expected whether its news driven, result driven and also the timing – whether it happens in a couple of days or over a period of series is something nobody knows however it is highly probable to happen. The only reason I am saying sit on the sides is if 5,800 were to hold because of flows which we saw last September then one would have to change one’s mind.

Q: Do we have a trend change in place or is this just a very sharp rally from oversold ground?

A: The first sign is that it’s an oversold rally because you saw the put writing which had happened at various levels get un-winded. Along with that there are longs on the Nifty future which take place. Once you cross 5,555-5,600, which the last 200 or 150 points on the Nifty that are more driven by that than anything else. There has been fresh buying which is conclusive but that you cannot see in the broader market anymore. I cannot see the small-cap giving too reliable buy signals to put money at this level.

Q: What is the threat of retracement here because most traders are working with pretty shallow stop losses right now at least on the Nifty?

A: We are not entering in too many positions right now, the stop losses are pretty close by and for whatever positions we are holding for goods which we bought at lower levels. The trailing stop losses are being raised up everyday, so that in case of any reversal, you do not lose any kind of big money. However, at the same time though the market is overbought, specially on the banking side there is no kind of reversal yet on the cards, the trend is only getting stronger whether it’s State Bank of India, HDFC Bank, IndusInd Bank. There is no reason to either completely book out or to even consider shorts at the moment. Hence, it’s only when you see a reversal presumption, short kind of a situation building up, one would have to wait, and look for signals to get into kind of reverse trade there.

Q: The big burst started with IT. What is your take on Wipro?

A: Wipro hasn’t done what the others have done and its time that it would probably move up. If you look at two month high, its closer to Rs 467, yesterday it closed at Rs 472, with a stop loss of about Rs 461. I would play this as a one month or a three week target for Rs 510 that is roughly about 10% from here. Its results season, so, I would be cautious and probably use the dips to buy into it.

Q: We saw quite a move in cement stocks, any thoughts on any of them technically?

A: If we were to look at Ambuja which did about 8%; it’s overbought for sure. The 200 day moving average is about Rs 130, it’s close to Rs 150 so crossed that way back. I would play at the same way as for the rest of the market. I would keep a trailing stop loss of Rs 146.5, if that keeps gets hit I would get out of it if I am holding. For any kind of fresh buying, look at dips till Rs 139 to get into it. The relative strength index (RSI) is positive, so momentum can take it higher. However, I wouldn’t want to get into a stock that has already moved so much at this juncture.

It is similar with ACC that has moved 3.5% and can move up. I would again keep a stop loss here of about Rs 1,050. Pure momentum can take it to about Rs 1,134. Hence, similarly I would wait for dips to about Rs 990 odd to get into it. JP Associates if you want to look at it from the cement side, similar story; momentum can take it to about Rs 94 and would play with a stop loss which is probably about 1.5% from where it is trading right now.

Q: Some of the midcaps or liquid midcaps have also started moving, even from infrastructure names like IVRCL, Hindustan Construction Company.

A: You have seen IVRCL pull up from Rs 74 to Rs 83 odd levels. You have seen IRB move from Rs 190 to closer to Rs 215 to Rs 216 levels. HCC has moves the last owing to the negative news flow. Among all the names, HCC still makes a trading buy, close at about Rs 37.70, the momentum will really either step in when Rs 38 is crossed, if it crosses that then it could attempt Rs 40 to Rs 40.20 kind of a dash. Otherwise, any retracement till about Rs 37 to Rs 36.80, which should be bought into if one has the risk appetite to get into such a sector. I would say probably because it’s an expiry day and oversold things would still run up. HCC can do a dash even today. Hence, probably for expiry, maybe after expiry, it would settle down back again.

Q: The dark horse this series has been real estate. Is there anything that you would buy from there?

A: They have all done their bit. So, if you look at DLF, Indiabulls Real Estate, they have really dashed up once from the lower level. Unitech too has retraced. Out of the pack, the strongest start pattern one of them would be DLF. So, where it has been, it’s run back and I would probably at current levels just hold it with the trailing stop loss of about Rs 257, that can dash up higher because the next resistance is at about Rs 270 and is not too far off.

Hence, at this juncture to get in would be difficult. It is the same with Indiabulls Real Estate, around that Rs 121 levels there is resistance, it has crossed that and come back, it is crisscrossing those levels. Therefore, if it holds Rs 121, it can do another 4% to 5%. However, at this time when the market has overbought a sector that is kind of one of the weakest, given up and overbought, along with the market being overbought, it is dangerous to get in at this level. If one was to play as a trader, one can look at dips however I would stay away at the moment.

Q: What about names like TVS Motors, Ashok Leyland that had been beaten down quite a bit over the start of the year and have staged a smart recovery in the March series?

A: All of them have done their first round and there is a possibility of them doing more, especially, on a day like this when its expiry and the final short positions have to be cut. If you look at Ashok Leyland, essentially, it is around those Rs 58 to Rs 59 levels, comes back to about Rs 57 or Rs 56. It can go up to Rs 60 to Rs 60.5, there is going to be strong resistance. On the other hand, if it dips down to about Rs 53.5 there would be a lot of buying. So, the zone that it has fallen down to right up to Rs 44 to Rs 45 is definitely that kind of panic is out, hence, there would be fresh buying closer to Rs 52 to Rs 53 levels.

I think that would happen even the same if I have to look into a stock like TVS Motor given a buy on it a couple of days back, it looks good but its definitely got resistance around Rs 63 to Rs 64 levels. Therefore, it has done its bit from that Rs 55 odd levels where it’s moved up now to Rs 59 odd but to cross Rs 63 to Rs 64, it would take some efforts. Even on the large-cap, you have seen M&M do that kind of a pullback, Maruti is attempting that so it can happen. Auto in fact was the last leg to move in the interest sensitive. So, you may see at least some more covering happening on these counters but they are all close to resistances, hence, one would kind of watch it, close positions if one gets that 2% to 3% more from here and then wait for a dip for a fresh entry.

Tags: NSE, BSE, Sensex, Nifty, Market, , Anu Jain, IIFL Private Wealth Management, Udayan Mukherjee , Mitali Mukherjee, Wipro, State Bank of India, HDFC Bank, IndusInd Bank, Ambuja, ACC, JP Associates

Meanings Of Important Terms

Retracement theory

Copybook chart patterns

relative strength index (RSI)

IIFL-- ANU Jain Top PICS

Anu Jain vice president of IIFL Private Wealth Management says that the market is now in the best series it has had in many months now. She picks Wipro from the IT sector, which began the big burst in the market, and says, “I would play Wipro with a one month or a three week target, and since, its results season, would be cautious and use the dips to buy into it.” As the market saw a move in cement stocks, she suggests, “Among all the names,HCC still makes a trading buy.”

While real estate has been the dark horse this series of the market, Jain says, “The market has overbought the sector and it is dangerous to get in at this level. However, if one was to play as a trader, one can look at dips though I would stay away at the moment.” On the auto sector, she feels, “One would kind of watch it and then wait for a dip for a fresh entry.”

She also says that incase of a pullback in the Nifty, “You should look out for 5,550-5,574 levels, according to the retracement theory.” She further adds that the market is overbought and prefers to “sit aside for few days and see if the market can cross 5,800 which is a keen resistance.”

PM-India Inc meet: Key takeaways

The trade and industry council chaired by the Prime Minister met in the capital today. The 23 member council discussed key economic policy issues. CNBC-TV18’s Aakansha Sethi reports on the key takeaways from that meeting.

Manmohan Singh met about close to 20 industry leaders including Ratan Tata, Sunil Mittal, Azim Premji, Kiran Mazumdar Shaw, Chanda Kochhar. There were four key takeaways from the dialogue between India Inc and PM. The first was economic reform, inflation, corruption and environmental laws.

Economic reform

The PM commented that government is committed to economic reform. He specified financial sector reforms- reform in insurance and pension space, deepening of long-term debt market and of course tax reforms. The pension and the GST bills have been tabled in the monsoon session of the Parliament but will require the Left and BJP consensus before they are passed. That is what the PM said that economic reform may take time because political consensus will have to be built.

Inflation

PM conceded to the fact that inflation is the biggest concern facing the government right now but it will make sure that growth is not hurt in inflation management.

He also clarified his stand on future, saying that it is necessary to improve future markets if better price discovery has to be there.

Singh said, “We need to develop long term debt markets and to deepen corporate bond markets. This in turn calls for strong insurance and pension subsector. Some of the reforms needed particularly in insurance involve legislative changes. We have taken initiatives in this area and we will strive to build the political consensus needed for these legislative actions. I am happy that the corporate sector has responded positively to the challenges of sustainability. We stand committed to ensuring that our industry moves ahead with confidence and without fear or apprehension.”

Corruption

Also the other big concern that has been grabbing headline is the 2G scam especially with top industry leaders being called by the PAC. The PM said that he is aware of the fact there was nervousness amongst the industry on recent developments but he will make create an environment where corporates can move forward without fear.

Environmental laws

On environmental laws also he addressed industry’s concerns on ambiguity in such laws saying that the government is working on regulatory institutions to make sure that these are rule based.

IDFC

KRChoksey is bullish on Infrastructure Development Finance Company (IDFC) and has recommended buy rating on the stock with a target of Rs 206 in its March 31, 2011 research report.

“Infrastructure Development Finance Company (IDFC) posted consolidated PAT of Rs 321 crore growing 19% y-o-y but down 5% q-o-q (Lower than our estimate of Rs 357). Approval and disbursement up 121% y-o-y & 183% y-o-y respectively indicating strong buoyancy in infrastructure financing space. NII increased 65% y-o-y and 23% q-o-q driven by strong loan growth, stable spreads and uptick in treasury NII (up213% q-o-q). Lower trading gains and subdued fee income from asset management business and weaker loan related fee income dragged non- interest income during the quarter. Loan related fee income declined 63% q-o-q, however loan related fee income grew strongly 94% y-o-y in 9mFY11 reflecting underlying strong growth momentum. Non interest income decreased 16% y-o-y coupled with sharp rise in OPEX dragged the profitability.”

“Net interest income grew strongly by 65% y-o-y mainly driven by strong loan growth at 51% y-o-y, stable spreads and sequential sharp uptick in NII from treasury. Lending business contributed ~ 70% of operating income during the quarter, however non-interest income’s share has declined from 42% in Q2FY11 to 30% on the back of lower capital gains, subdued fee income from asset management businesses. Fee income from lending operation grew 68% y-o-y driven by acceleration in sanctions and disbursements. Total non-interest income decreased 16% y-o-y to Rs 201 crore due to lower capital gains and weaker fee income from asset management. On excluding capital gains, non-interest income witnessed 27% y-o-y to Rs171 crore. We expect Net interest income to grow 55% CAGR over FY10-12 driven by strong loan growth. Core lending spread remained stable at 2.4% indicating return of reasonable pricing power. With diversification of liability franchise and targeting better yield on asset side, we expect IDFC to sustain core lending spread at 2.3-2.4% going forward.”

“Operating expenses grew 50% y-o-y and 33% q-o-q driven by heavy variable compensation provisioning reflecting higher earnings growth visibility going forward. Cost to income ratio shot up 562bps q-o-q and 366bps y-o-y to 24.5%, however, the management has guided us that cost to income ratio is likely to improve on the back of higher operating leverage and lower variable bonus provisioning going forward. Gross approvals and gross disbursement increased 121% y-o-y and 183% y-o-y indicating buoyancy in infrastructure financing space. Loan book grew 51% y-o-y and 21% q-o-q largely from power and transportation sector. The management is targeting 3x balance growth over next three –four years, majority of growth would be front loaded. We believe current capital base coupled with internal accruals would be sufficient to support this strong asset growth.”

“IDFC performed strongly on lending side but disappointing on fee based businesses during the quarter. Strong loan growth, reasonable pricing power, relatively stable spreads were key highlights of the quarter. However, continuous disappointing performance from asset management and institutional broking businesses are cause of concern to us. We have cut earnings estimate 7% and 10% for FY11 and FY12 respectively factoring lower fee incomes and capital gains.”

“We have also reduced our target price from Rs 254 to Rs 206 factoring downside risk emerging from rising interest rate and tight liquidity environment. Unique business model, strong earnings growth outlook coupled with favorable risk-reward offers compelling investment opportunity in medium term. At Rs 145, the stock is trading 11.1x FY12 earnings and 1.7x FY12BV. Hence, we maintain our BUY rating on the stock with a target price of Rs 206 (Potential upside 33%),” says KRChoksey research report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management.Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Smartlink Network Systems

Smartlink Network Systems has said it will sell its Digilink business to Schneider Electric India for Rs 503 crore in cash.

The Digilink operations consist of passive networking business including the manufacturing, marketing, and sale of structured cabling products.

Aashish Tater of Fort Share Broking in an interview on CNBC-TV18 spoke about SmartLink Network and the latest buzz surrounding the stock.

He clarified that this was not a stake sale but more a business sale on a slump sale basis. This means that SmartLink promoters are selling out their key business but are not selling any stake of the company to Schneider Electric which would warrant an open offer. So there is no open offer deal coming from minority shareholders.

Below is a verbatim transcript of his interview with CNBC-TV18’s Udayan Mukherjee. For complete details watch the accompanying video.

Q: It is not the entire company which has been sold at a premium. It is a business which accounts for 90% of the revenues. What does it mean for shareholders because there will probably not be any open offer? Do you think the cash which is coming in will find its way to the shareholders of SmartLink?

A: This particular move from the promoters to sell their flexi brand Digilink is not going to benefit the small shareholder in larger terms because the small shareholder might get a special dividend of close to Rs 8-10. That is why we have actually downgraded the stock. When I recommended the stock around the Rs 70 mark I had a target of Rs 150 for the stock from a two-year perspective.

But now we feel that this will not reward any open offer and not reward small shareholders. I feel for an Rs 8-10 dividend, the profit should be booked from current levels. People should move to some other interesting stories.

Q: We do not know clearly how much stake is up for grabs from Schneider Electric. How would you approach the company if indeed someone like Schneider comes in as a majority partner in SmartLink?

A: I was always bullish on this particular company. But I don’t think the company promoters would sell their stake but are only going to sell Digilink. The recent announcement that the company has made is clear that they are going to exit the business. Now shareholders will be left only with the cash in the balance sheet.

Apart from the marketcap, they are going to get Rs 503 crore. They also own Rs 90 crore of mutual funds. That means a cash equivalent of Rs 600 crore on a marketcap of close to Rs 270 crore. But the promoters need to come and clarify as to what kind of business they are trying to enter into.

If I see the latest annual report that was available in the public domain, they wanted to foray into voice data and internet cable. They have been procuring orders from government and the education space under their flagship brand Digilink which will now go to Schneider. I do not think that Schneider will participate with SmartLink promoters but they would foray into the company separately.

Smartlink Network to sell Digilink to Schneider Electric

AP Paper deal

Paper stocks are in the limelight post the deal between AP Paper Mills and the US paper and packaging company International Paper. The deal is touted to be lucrative not only for the company but is being read by market analysts as a way to see consolidation in the paper industry. Amol Rao analyst with Antique Broking shares his detailed view on this recent deal in an excusive interview with CNBC-TV18’s Udayan Mukherjee and Mitali Mukherjee.

What was feared as a flash in the pan for the sector, Rao confirms that the deal is rerating the paper sector. “The pricing power is returning to suppliers, namely, manufacturers are seeing a recent round of CAPEX being absorbed easily, returns on capital employed and returns on net-worth are most likely to improve over the next two to three years,” Rao observes.

He believes with companies that have a robust operational set up, good distribution network, and a healthy balance sheet, under such a deal, “all International Paper has do is to take over the management and continue business as usual.”

Below is a verbatim transcript of Amol Rao’s interview. Also watch the accompanying video.

Q: Is the deal leading to rerating of the paper sector?

A: The paper sector is one where a lot of mispricing is happened on an asset basis. You have a huge gross blocks of Rs 3000 crore to Rs 4000 crore being valued at a market cap of around Rs 600 crore to Rs 800 crore. A company like BILT being valued at market cap of close to Rs 2000 crore is obnoxious.

However, the International Paper deal with AP Paper Mills has triggered off kind of a rerating in the sector. The pricing power is returning to suppliers, namely, manufacturers are seeing a recent round of CAPEX being absorbed easily, returns on capital employed and returns on networth are most likely to improve over the next two to three years. The paper sector looks like for a rerating and this deal has just proved it.

Q: What do we know about AP Paper in specific? What do you know about its own holdings and how that should be added on?

A: AP Paper on a capacity basis is a 2 lakh, 50 thousand ton paper company that recently commissioned capacity of around Rs 17,000. On an Enterprise Value (EV) basis, if you look at the transaction, it is been valued steeply at around Rs 94,000 or Rs 95,000 a ton, and what is surprising is the replacement cost is usually for a green field natural fibre based paper mill is around Rs 55,000. Hence, this makes the question about Rs 40,000 premium that has been paid for AP Paper.

Nevertheless, it makes sense for a company like International Paper to pay such a hefty premium for a simple reason that the business has no restoration period. The linkages are there for the wood; the business is up and running with distribution in place. Hence, all International Paper has do is to take over the management and continue business as usual. So this boards well for companies with a robust operational set up, a good distribution network, and a healthy balance sheet.

Q: Who are potential candidates in the paper space? Who do you think gets top rating by way of making these or being part of these consolidation moves?

A: The uniqueness about the paper industry in India is that there are no green field plants been put up in the country, land and water being major issues here. Therefore, everybody is fair game in this country right now and it would be speculative comment which companies are targeted for acquisitions. However, AP Paper was one of the top six in the country, so anybody in the top 10 is practically on the radar right now for any international company that wants to enter market and is most likely to double in 8 to 10 years.

Q: Do you think the excitement in paper sector is warranted?

A: I don’t think this would open the floodgate for deals or acquisitions or consolidation on a mass scale, but I would be inclined to believe that like cement, the valuations will wear towards this. The company valuations will over medium-term to long-term wear towards the AP Paper deal for sure. The reason for this is that it is practically impossible to set up a paper plant in the country, if you do not have one up and running. Hence, the lack permissions, space, resources would entail consolidation within Indian paper players or takeovers by foreign players.

There is no other way you can expand in India. The market is pretty exciting, which is why International Paper has come here. You do not have a market that is doubling its size in seven to eight years where probably almost 15% of the capacity has been absorbed; incremental capacity has been absorbed within six months of being commissioned. Hence, it really looks exciting but I would say this is more of short-term phenomena, over the long-term you will see valuations gradually wearing towards this deal.