Morning Trekk

Monday, 28 October 2013

Volume 1 Issue 218

Visit us at http://www.investrekk.com

Reality check @Nifty 6200 - V

. Market internals In past five years the capital market in India has mostly failed in its primary function, viz., facilitating entrepreneurs in raising risk capital from investors. The character of the market has thus got constricted to a trading platform. In that also, the liquidity has remained extremely thin. Over 95% of daily volume has got concentrated in top 50 stocks. The average daily cash turnover is almost half of 2007. More importantly, the household investors who historically supplied long term stable money to the capital markets have been gradually losing interest. The direct retail participation in equity market, both secondary and primary is at lowest level in more than a decade. Even in mutual funds and equity linked insurance schemes they have been in gradually exiting. .Read more Market outlook The momentum of the corrective up move in a technical bear market rally has slowed down considerably, indicating imminent reversal in next few trading sessions. A convincing close below 5910 would confirm the reversal. The upside from the current level shall be limited to 3-4%, while the downside may extend all the way to 5480-5530 range, a good 10% in next 8-10weeks. In our view, investors must restructure equity portfolios by (a) rationalizing portfolios by exiting low quality small and midcaps and (b) rationalizing weight of commodities and financials in portfolio where these are overweight..........read more More inside Markets overnight What we found interesting in global news What we found interesting in local news

Vijay K. Gaba +91-22-24036039 investrekk@gmail.com Thought for the day October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February. Mark Twain (American, 18351910)

Word of the day Dither (v) To act irresolutely; vacillate.

(Source: Dictionary.com)

Shri Nrada Uvca Why Rahul Gandhi is helping Narendra Modis cause?

This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person. Readers should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. InvesTrekk Global Research (P) Limited does not provide portfolio management, stock broking or any other fund based service. The model portfolios mentioned in this report are merely to illustrate the investment style and strategy recommended in the present times. Please refer to the important disclosures at the end of this report. Copyright 2012 InvesTrekk Global Research (P) Limited. All rights reserved. InvesTrekk Trekking the path less travelled and InvesTrekk are trademarks of InvesTrekk Global Research (P) Limited.

28 October 2013

Reality check @Nifty 6200 - V

Also read: Reality Check Part I Reality Check Part II Reality Check Part III Reality Check Part IV Case for Nifty 6700 Case for Nifty 4700 Retail Conundrum I Retail Conundrum II Retail Conundrum III Retail Conundrum IV Market internals In past five years the capital market in India has mostly failed in its primary function, viz., facilitating entrepreneurs in raising risk capital from investors. The character of the market has thus got constricted to a trading platform. In that also, the liquidity has remained extremely thin. Over 95% of daily volume has got concentrated in top 50 stocks. The average daily cash turnover is almost half of 2007. More importantly, the household investors who historically supplied long term stable money to the capital markets have been gradually losing interest. The direct retail participation in equity market, both secondary and primary is at lowest level in more than a decade. Even in mutual funds and equity linked insurance schemes they have been in gradually exiting. In a survey conducted in March 2013 we discovered that the shift of household investors away from listed equity is rather structural and not likely to reverse in next 5-7years at the least. (See Retail Conundrum Part 1, Part II, Part III, Part IV). Further, the constitution of market turnover has dramatically changed in past five years. Till 2007, most activity was concentrated in individual stocks and stock futures. Average volatility was high and therefore arbitrage premiums were good. The market manipulation at Index level was difficult and less rewarding. However, presently, over 80% of average daily reported turnover is in Nifty options only. The top 15 liquid Nifty stocks account for over 95% of Nifty movement. The Index level manipulation is therefore easy and rewarding, whereas arbitrage premiums are unattractive as volatility is persistently low. The equity investing is thus virtually degenerating into trading and gambling. Building a case for secular bull market thus is unfathomable and futile. Market technicals We have witnessed a strong bear market rally in past 8weeks. This rally though not as big, ferocious and wide spread as July 2007 January 2008 bear market rally, but is similar in structure and design. There are early indications that the rally might be losing momentum already. On daily charts MACD, RSI and Oscillators are all about to turn bearish. Whereas on monthly and quarterly charts Nifty is not showing any sign of breaking out of its long term 5year range of 5200 6300 on regular basis. We may though continue to see occasional violations of both the side. For example, the reverse head and shoulder pattern on weekly chart suggests that in next 15months we might even test 6700 on the upside. In immediate term, Nifty has small support at 5910 (50days EMA). A break below this level shall take Nifty back to 5480-5790 range in no time. . 2

28 October 2013

Markets overnight
Chg Chg %

India equities Indian equities extended losses ahead of monetary policy announcement on 29th October. Volumes were below average. Volatility continued to remain low. Market breadth was poor at 1:2. IT was notable outperforming sector. TCS, HCL Tech, Wipro, NTPC and Sesa Sterlite were top Nifty gainers. Auto, realty and metals were worst performing sectors. Hindalco, DLF, NMDC, Cairn and Tata Steel were top Nifty losers. Global equities

NIFTY NIFTY Fut CNX Midcap Sensex NSE VIX

6145 6152 7366 20684 20.42

(0.31) (0.36) (0.99) (0.20) (1.08)

GOI 10yr yld INRUSD

8.590 61.46

0.00 (0.02)

S&P500 FTSE100 STOXX50 Nikkei225

1760 6721 3035 14088

0.45 0.12 (0.13) (2.83)

U.S. stocks rose, sending the Standard & Poors 500 Index to a record, as Amazon.com Inc. and Microsoft Corp. sales beat estimates while a drop in consumer confidence added to speculation the Federal Reserve will delay scaling back monetary stimulus. Emerging-market stocks fell, capping the biggest weekly drop since August, as Chinas money-market rates jumped and concern grew that earnings will falter. Indonesias rupiah posted its best week since June 2009. India currency and debt Indian 10yr benchmark yields were flat at 8.59%. Indian rupee appreciated to 61.46/USD level. On Thursday short term overnight market volumes were lower at Rs1039.39bn with call money rate at 8.96%. LAF repo outstanding was lower at Rs407.94bn. Global debt US Treasuries gained for a second consecutive week amid speculation the U.S. economy is recovering too slowly for the Federal Reserve to begin reducing asset purchases this year. Global currencies The dollar traded at almost the weakest level in two years versus the euro after U.S. consumer sentiment fell to a 10-month low, adding to bets the economy is struggling and the Federal Reserve will delay cutting stimulus. Global Commodities West Texas Intermediate crude rose for a second day, paring the sixth decline in seven weeks, as orders for durable goods increased the most in three months and the U.S. stock markets gained. Gold futures advanced to the highest in a month on speculation that the Federal Reserve will maintain stimulus to boost economic growth.

US10yr yld Ger10yr yld Japan10yr yld

2.51 1.75 0.61

0.00 (0.57) 0.00

EURUSD USDJPY DXY

1.380 97.42 79.21

0.14 0.11 (0.04)

CRB Index WTI Fut ($/bbl) Cu Fut ($/lb) Gold Fut ($/oz) Silver Fut ($/oz)

283 97.85 327 1353 22.64

0.35 0.73 0.00 0.59 (0.27)

Source: Bloomberg, BSE, NSE, RBI

28 October 2013

Market outlook and strategy for today

5 things that will make us bullish on market: (a) Final clearance for implementation of GST from April 2015. (b) Fall in inflation to RBI acceptable range of 6%. (c) A sharp fall in NIFTY to below 5250 level led by banks. (d) Sharp sustainable fall in global energy prices. (e) A truly coalition government at the center post election. Broad market direction The momentum of the corrective up move in a technical bear market rally has slowed down considerably, indicating imminent reversal in next few trading sessions. A convincing close below 5910 would confirm the reversal. The upside from the current level shall be limited to 3-4%, while the downside may extend all the way to 5480-5530 range, a good 10% in next 8-10weeks. In our view, investors must restructure equity portfolios by (a) rationalizing portfolios by exiting low quality small and midcaps and (b) rationalizing weight of commodities and financials in portfolio where these are overweight. We suggest this up move may be used to reduce trading long positions and creating short positions in financials and realty sectors. We continue to maintain our target of 8000 on Bank Nifty by December 2014. In next 15 months we see Nifty gyrating between 4700-6700 range. It is important to note that this rally is akin to IT rally of 1999-2000 and abundant credit rally of 2007. It is not backed by economic fundamentals in any part of the world and hence least likely to sustain in little longer time frame. This cycle like the previous will be shallow, limited, and unsustainable. The reversal therefore could be much sharper and deeper. It is important to note that the losses in 2001-02 and 2008-09 were at least 5x the gains made in the preceding rally. While it may sound a ridiculous to miss this alluring opportunity to make some quick money, we would caution that all trading positions must be created and held with strict stop loss. Strategy (a) Avoid leverage. Reduce overall equity exposure. (b) Create aggressive shorts when Nifty appears closing convincingly below 5910 level. (c) Buy MNCs like Cummins, Siemens, United Spirits, Bosch, Bayer Crop (d) Hold all long trading position with strict stop loss of 1%. (e) Avoid commodities and PSUs from mid to long term perspective. (f) (f) Keep cash only in very short term debt. Avoid longer duration debt. Create aggressive positional short in USDINR below 60 level for a target of 75 by March 2015. (g) Gradually build trading position in gold with 15-18months perspective

28 October 2013

Morning walk through the woods

UK's economic growth picks up in third quarter Britain's economic growth picked up pace in the third quarter of this year, boosting hopes that the country's nascent recovery is becoming more entrenched. The U.K.'s third-quarter gross domestic product (GDP) grew by 0.8 percent from the second quarter, according to official data from the Office for National Statistics released on Friday - its fastest growth since 2010. The figure - which was in line with forecasts in a Reuters poll - marked a pickup in economic expansion from the April-June period, when it came in at 0.7 percent. The year-on-year growth rate, of 1.5 percent, also met expectations. Martin McMahon, economist at the Commonwealth Bank of Australia, said the data demonstrated the strength of Britain's economy. "It's roaring ahead, really, and you would expect growth to become more broad-based from here, going through in the second-half of the year," he told CNBC after the release of the figures. Friday's data revealed that Britain's dominant services sector continued to steam ahead, with growth of 0.7 percent from the second quarter, and manufacturing increased by 0.9 percent for the second consecutive quarter. Construction output, meanwhile, increased by 2.5 percent in the third quarter compared with the previous three months - the strongest in more than three years as house building got a boost. (CNBC) China makes a move towards shift to market determined rates China started publishing a new lending rate based on quotes from banks and signaled it may eventually replace the current benchmark set by the Peoples Bank of China, deepening a shift to market-based interest rates. Chinas interbank funding center, under the PBOC, will calculate a weighted average loan prime rate each day from costs charged to the best clients by nine major lenders including Industrial & Commercial Bank of China Ltd. (601398), the Beijing-based central bank said in a statement today. The oneyear rate is 5.71 percent today, compared with the PBOC-set benchmark of 6 percent. The state-set lending rate is losing relevance after authorities in July removed the lower limit on borrowing costs, giving banks more freedom to set their own rates. The government is likely to loosen more controls in financial markets over the next year as Communist Party leaders meet in November to discuss economic reforms, a Bloomberg News survey showed this month. Its a positive move in rate liberalization, said Xu Gao, chief economist with Everbright Securities Co. in Beijing, who previously worked for the World Bank. The new rate can be a very useful indicator for economists and analysts to measure credit demand and supply on the ground -- a good indicator that did not exist before. (Bloomberg)

28 October 2013 Wall Street week ahead: Focus on Facebook, Apple and the Fed The Federal Reserve meeting next week is not on the minds of as many people as when it met in September, but its decision to do nothing last month is providing the fuel for more share gains in Apple and Facebook, which report results next week. The numbers from Facebook and Apple are among those that will be closely watched - and investors say at their current levels, the margin for error is slim. Nearly half of the S&P 500 companies have reported their third-quarter results so far, and 69 percent have beaten Thomson Reuters I/B/E/S estimates. The technology sector has led the way, beating expectations 84 percent of the time. The most recent companies to do so were Amazon.com and Microsoft, whose results led the S&P to close at an all-time high of 1,759.79 on Friday. Companies already stretched to high price-to-earnings multiples, Facebook, will have to outpace expectations to keep investors buying. like

That's where the Fed comes in. Some of the riskier names and high-dividend payers had pulled back in the late summer, anticipating the Fed would begin reducing monthly bond purchases beginning at its September meeting. But that didn't happen - and since then, stocks have been unimpeded, save for the 16-day government shutdown that didn't scare too many people. The Federal Reserve will hold its October meeting on Tuesday and Wednesday. But earnings will overshadow the central bank, as it is expected to maintain its current policy, in part because of the economic hit that resulted from the shutdown. (Reuters) Housing shortages threatening to derail Swedish economy A housing shortage in Sweden is pushing upprices to levels close to those in central London and threatening to undermine one of Europe's most solid economies. For decades the creation of new homes has lagged Sweden's population growth, crimping labor mobility, raising the cost of housing and pushing up mortgage borrowing to levels that have raised fears of a credit bubble. "We have built around half of what other countries have over the last 20 years. That shows that we have a long-term problem," Sweden's Minister for Public Administration and Housing, Stefan Attefall told Reuters. Complex building regulations - planning permission can take 10 years in Sweden, against around two in Germany - and rental market controls are major reasons for the housing shortage. But radical measures are unlikely before an election due in 2014 and a catch-up in building will probably take years. The problem is particularly acute in and around Stockholm, a region whose 2 million population is expected to increase by 600,000 by 2030 and where there is already a shortage of around 110,000 homes, according to the Chamber of Commerce. (CNBC)

28 October 2013

Events in our back yard

Maruti shelves diesel engine plant expansion Maruti Suzuki India Ltd has shelved an expansion of its first diesel engine factory, indicating that consumer preference for diesel-powered automobiles may be ending as the fuel slowly loses its price advantage over petrol. Indias top auto maker initially planned to increase capacity at its Gurgaon plant on the outskirts of Delhi to 300,000 diesel engines a year from the current 150,000 at a cost of Rs.1,700 crore. It will not longer do so because demand for diesel vehicles have been falling, according to three people familiar with the development, who declined to be named. Maruti Suzuki India Ltd has shelved an expansion of its first diesel engine factory, indicating that consumer preference for diesel-powered automobiles may be ending as the fuel slowly loses its price advantage over petrol. Experts see the latest development as a fallout of the partial deregulation of diesel. The share of diesel automobiles in overall passenger vehicle sales fell to 42% between April and August from a high of 51% in the year-ago period. Maruti Suzuki has five modelsRitz, Swift, DZire, Ertiga and SX4with diesel and petrol variants. Of these, the diesel versions accounted for 90% of Marutis sales in 2011-12. (MINT) ICICI Bank surprises on margins Like in the past several quarters, ICICI Bank Ltds net profit trumped consensus estimates for the three months ended September. It is an all the more strong showing since the bank has fully absorbed a Rs. 278.84 crore mark-to-market loss on its bond portfolio instead of spreading it over three quarters. ICICI Banks focus on the retail business and profitability is again evident in the September quarter numbers. First, the bank has actually improved its net interest margins to 3.31%, up four basis points from the previous quarter and close to its highest. That was possible owing to a 17% rise in low-cost current and savings account (Casa) deposits and, of course, an increase in the base rate. ICICI Banks average Casa deposits as a proportion of the total improved to 40.3%, well over the 39% in the June quarter. The banks management said that wholesale deposits were less than 30% of its funding sources, enabling it to deflect the impact of high money market rates during the quarter. Secondly, ICICI Banks retail loans grew 20% from a year ago, boosting the overall loan growth rate. If there has been one quibble about the banks performance in the past few quarters, it has been the caution on lending total advances grew only 16% from a year ago in the September quarter, lower than the industry pace. The management attributed it to the sluggish growth environment and a scaling back of corporate lending, owing to fears of bad assets. Loans to firms grew 11% in the September quarter compared with 20% in the previous quarter. (MINT)

28 October 2013 Gurgaon e-way could end up as NPA if debt not fixed In an affidavit filed in the Delhi High Court, IDFC, the lead banker in the consortium of lenders to the beleaguered Delhi-Gurgaon expressway project, has said that if the Rs 1,600-crore debt to the concessionaire DS Construction was not restructured, it could lead to the project being classified as a nonperforming asset (NPA) under RBI rules. "If the debt is not restructured, it is likely that the project would be categorised as a NPA as per the guidelines of the RBI, and this is likely to affect the project and its stakeholders, including NHAI, adversely, IDFC said, while objecting to the allegations levied by National Highway Authority of India (NHAI) that the company and four other lenders of the project are in connivance with DS Construction. The other four in the lenders consortium are Bank of India, PNB, Oriental Bank of Commerce and State Bank of Bikaner and Jaipur. The IDFC-led lender's consortium has also submitted that the restructuring of the project has become imperative because of a host of factors that are beyond senior lenders' control, adding that NHAI also stands to be blamed as it has not increased toll rates for the last two years. Further, the senior lenders have hit back at NHAI's connivance charge by saying that its actions have not been guided or motivated by any favouritism towards or in connivance with the concessionaire, but to protect their interests and the project itself. (FE) Telecom Commission to review M&A norms on Tuesday The Telecom Commission, will review the final draft of the merger and acquisition (M&A) guidelines at its next meeting on Tuesday. The commission will also examine the clarifications by the Telecom Regulatory Authority of Indias on its earlier recommendations on spectrum pricing. The commission will then forward these, along with its comments, to the Empowered Group of Ministers (EGoM) headed by Finance Minister P Chidambaram. The government is expected to finalise the M&A policy before the next round of auction scheduled for January 8. The commission will also consider whether to bring infrastructure providers, including telecom tower companies, under the purview of the new unified licensing regime. Infrastructure providers include companies that establish and maintain passive infrastructure assets such as dark fibre, right of way, duct fibre and tower, and offer these infrastructure to telecom operators. Earlier, the government could not include such companies under the unified licensing regime because the limit of foreign direct investment (FDI) for telecom operators was capped at 74 per cent. Now, the 100 per cent FDI has been permitted in the sector. Meanwhile, a DoT committee has noted the government should revisit the definition of adjusted gross revenue for infrastructure providers. The DoT committee had earlier suggested that infrastructure providers should be levied an annual fee of eight per cent on the revenue and bring these entities under the ambit of unified licensing regime. (BS) 8

28 October 2013

Important disclosures
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