You are on page 1of 8

Weekly Wrap

Pair Strategy
Long Reliance and Short Nifty
Over the past four months, downbeat market sentiment, concerns over KG-D6 output and implications of the CAG report have resulted in a breakdown in the price ratio between the NSE Nifty and Reliance Industries [currently trading above the Upper Band 2 (mean+ 2nd standard deviation) of 6.56]. With Reliance having the highest weightage in the Nifty, such dispersion from the mean is not justied. Thereby, we expect Reliance to outperform the Nifty in the coming weeks. Further, on the technical front, Reliance is forming an ending diagonal on weekly charts. The current move can be attributed as a downthrust, which is unlikely to extend below the Rs 760 levels. On the other hand, the Nifty has violated key support zone of 5400 in the current week, thereby turning the near term trend to negative. Traders are recommended to keep a SL at 6.7 price ratio.
Recommedation* Long Reliance (Sept Futs) Short Nifty (Sept Futs) RIL (Cash Neutral) Price 799 5,237 792 Qty 250 50 78 Fut lots 1 1 -

August 05, 2011

*~Outlow(Rs1.2lacs), Time horizon - 30-45days, Expected return 5-10% Spread Summary Last Mean Off Mean Median Standard Dev Spread Summary Correlation 1-Year 6.556 5.821 0.736 5.776 0.287 1-Year 0.77 60 Days 6.556 5.725 0.831 5.762 0.190 60 Days 0.69 21 Days 6.556 5.871 0.685 5.828 0.113 21 Days 0.84

Absolute spread and price ratio - RIL vs Nifty


Spread (Rs) (LHS) 5,500 5,300 5,100 4,900 4,700 4,500 4,300 4,100 3,900 3,700 3,500 6-Aug 26-Oct 15-Jan 6-Apr 26-Jun 1.0 0.0 3.0 2.0 5.0 Ratio (x) 7.0

Price ratio at 1yr high (Mean + 2Std Dev)


Ratio (X) UB (2) 7.50 6.0 7.00 6.50 4.0 6.00 5.50 5.00 4.50 4.00 6-Aug-10 Price ratio Mean LB (2) UB (1) UB (3) LB (1) LB (3)

26-Oct-10

15-Jan-11

6-Apr-11

26-Jun-11

Source: India Infoline Research

Source: India Infoline Research

RIL has underperformed vis--vis Nifty


0.20 0.15 0.10 0.05 0.00 -0.05 -0.10 -0.15 -0.20 -0.25 -0.30 6-Aug-10 26-Oct-10 15-Jan-11 6-Apr-11 26-Jun-11 Reliance Nifty

Maximum occurrence between 5.52-5.79


4.97-5.24 5.24-5.52 5.52-5.79 5.79-6.07 6.07-6.34 6.34-6.62 6.62-6.89
0 4 11 29 10 46 Distribution of price ratio (%)

Source: India Infoline Research

Source: India Infoline Research

India Infoline Weekly Wrap


Market Outlook
Global events clearly overwhelmed the Indian markets. We didnt fall as much as US and European markets but still the fall was quite steep. The carnage was sparked by disappointing economic reports from various parts of the world. But, markets were particularly concerned about the signals coming out of the US. Even the clinching of the crucial US debt ceiling deal failed to lift the gloom. Eurozone was also back in the limelight amid rising Italian and Spanish bond yields. ECB chairmans statements and its move to resume bond purchases of only Portugal and Ireland also had an impact. Going ahead, the US jobs data on Friday will be very important. For the coming week, one must keep an eye on the Fed policy meet and Chinese data. Sentiment for India will continue to be driven by overseas markets in the near term. Trend in fund ows will also be important. Policy action from the Centre or lack of it may also have a role to play. IIP data will be another key moniterable.

Technical View
The global turmoil forced Nifty to violate previous trough of 5,200 which earlier held on quiet well. Weekly chart of Nifty shows formation of descending triangle and currently it is resting at horizontal support line. Any weekly close below 5,200 levels open gateways towards 5,000. But after declining more than 5% this week, Nifty appears to be trading into oversold terrain. With an appearance of hammer on Friday, the probability of trend reversal remains high if we manage a higher opening on Monday.

F&O View
Nifty drifted all the way towards 5,100 on account of weak global cues. Total OI in Nifty is at 26.7mn, adding ~1.8mn shares in Fridays trade. Highest OI for August series in Call & Put now stands at 5,500 & 5,000 respectively. We expect Nifty to take support around 5,100-5,050. On the upside, Nifty could stage a pullback towards its VWAP level, placed at 5,380. The pullback may be led by high beta stocks in the coming week.

FIIs/MFs activity
600 400 200 0 (200) (400) (600) (800) (1,000) (Rs cr) Net FIIs inflow Net MFs Inflows

Advance/Decline
2,500 2,000 1,500 1,000 500 0 18-Jul 19-Jul 20-Jul 21-Jul 22-Jul 25-Jul 26-Jul 27-Jul 28-Jul 29-Jul 1-Aug 2-Aug 3-Aug (No of stocks) Advance Decline

19-Jul

21-Jul

22-Jul

20-Jul

25-Jul

26-Jul

27-Jul

28-Jul

29-Jul

1-Aug

2-Aug

3-Aug

Global performance
Shanghai Nifty Sensex Nikkei Dow Jones Hangseng (6.3) (6.7) (4.7) (4.7) (5.4) (2.8)

4-Aug

Sectoral performance
BSE Oil & Gas BSE Pharma BSE FMCG BSE-200 BSE Power BSE Bank BSE Auto BSE Cap Goods BSE Small-Cap BSE IT BSE Metal BSE Realty -6.0 -4.0 -2.0 0.0 -1.9% -3.1% -4.4% -4.6% -4.6% -4.9% -5.1% -5.5% -5.9% -6.5% -6.8% -7.5% -8% -6% -4% -2% 0% 2%

Nasdaq (7.3) -8.0

-10%

4-Aug

India Infoline Weekly Wrap


Technical Check
Nifty 50 & CNX 500 top 10 gainers
NSE Nifty Company BPCL ONGC Cipla CMP (`) 702 277 307 % Chg Company 6.6 3.0 0.2 Carol Info Cox & Kings NMDC BPCL Godfrey Phillips Adani Ent. TVS Motor Chambal Fert. Shree Ash IOC CNX 500 CMP (`) 219 225 256 702 3,200 624 53 92 4 332 % Chg 2.0 8.9 6.7 6.6 6.6 6.6 6.5 6.3 6.0 5.3 Company Reliance Cap. Sterlite Ind. Sesa Goa HCL Tech RCOM M&M DLF JP Associates SAIL Reliance Power

Nifty 50 & CNX 500 top 10 Losers


NSE Nifty CMP (`) 494 142 247 443 93 657 211 61 116 103 % Chg Company (14.2) (11.0) (10.2) (9.0) (8.9) (8.8) (8.5) (8.3) (8.2) (7.8) KS Oils Guj Nre Coke IL&FS IVRCL Infra India Glycols Lakshmi Ene Bharat Forge Jai Corp Ansal Prop Provogue CNX 500 CMP (`) 15 35 109 50 121 27 275 85 34 30 % Chg (22.1) (21.9) (20.6) (19.1) (18.2) (17.8) (16.7) (15.5) (15.4) (15.0)

Technically strong
CMP (`) 1,317 332 92 403 699 10 days Moving Average (`) 1,290 320 89 385 663 Total Traded Qty (lacs) 0.1 3.1 9.5 5.3 1.4 10 days Average Traded Qty (lacs) 0.1 1.1 7.0 0.7 0.3

Technically weak
CMP (`) 352 667 273 105 30 10 days Moving Average (`) 363 692 284 108 31 Total Traded Qty (lacs) 0.6 1.6 1.0 0.3 3.8 10 days Average Traded Qty (lacs) 0.3 1.0 0.8 0.2 3.2

Company Oil India IOC Chambal Fert. HPCL BPCL

Company Tata Chem. HDFC Opto Circuits Ksk Energy GMR Infra

Bulk deals
Date 1-Aug 1-Aug 1-Aug 3-Aug 4-Aug Institution Carlson Fund IDFC Infra Fund Morgan Stanley Barclays Capital The India Fund Scrip name Cox & Kings Gujarat Pipavav JSW Steel IVRCL Limited Aban Offshore B/S S S S B s Qty (lacs) 7.0 44.1 12.0 14.1 2.4 Price 219.98 73.5 701.1 54.5 467.4

Book closure and record date


Company MRF BHEL Ceat Jubilant SAIL ING Vysya Bank Date 09 Aug 2011 10 Aug 2011 10 Aug 2011 10 Aug 2011 10 Aug 2011 11 Aug 2011 Purpose Interim Dividend Final Dividend Dividend Dividend Final Dividend Dividend

Nifty Future VWAP


5750 5650 5550 5450 5350 5250 5150 15-Jul 18-Jul 19-Jul 20-Jul 21-Jul 22-Jul 25-Jul 26-Jul 27-Jul 28-Jul 29-Jul 1-Aug 2-Aug 3-Aug 4-Aug 5-Aug Nifty Futs Close Nifty Vwap

Bank Nifty Future VWAP


Bank Nifty Futs Close 11600 11400 11200 11000 10800 10600 10400 10200 10000 9800 15-Jul 18-Jul 19-Jul 20-Jul 21-Jul 22-Jul 25-Jul 26-Jul 27-Jul 28-Jul 29-Jul 1-Aug 2-Aug 3-Aug 4-Aug 5-Aug Bank Nifty Vwap

India Infoline Weekly Wrap


Commodity Corner
Base metals
MCX Base metals registered heavy losses this week, with liquidation witnessed across the board. Poor economic data on US front and slowing Chinese demand continued to suppress the metals prices. On manufacturing activity front, China's ofcial purchasing managers' index dipped to 50.7 in July from June's 50.9. In US, the Institute for Supply Managements manufacturing gauge in July dropped 4.4 points to 50.9%, the worst reading since July 2009. Poor consumer spending in US also dented the bullish sentiment. Meanwhile, deal to lift the US debt ceiling has failed to augment the buying sentiment in the complex. Supply issues in Chile were able to limit the losses in Copper prices to a limited extent. The strike at Escondida mine, which produces 7 percent of the world's copper has entered its 13th day. However, BHP Billiton reported that labour talks are in progress and the strike at Escondida copper mine in Chile may resolve soon. Nickel prices declined in tandem with the base metals complex. Lead & Zinc prices declined the most, impacted by oversupply concerns. On price outlook, we advocate to refrain from buying metals at dips, as gloomy economic backdrop on the global front will continue to haunt the metal bulls.

Precious metals
MCX Gold prices registered stupendous gains, supported by uncertainty regarding European debt and a high probability of the debt contagion spreading in to countries like Spain & Italy. Macro economic indicators on the US front continued to convey slowing economic growth, which effectively augmented the safe haven appeal for the yellow metal. Relatively weaker US dollar & Central banks procurement of the metal also supported gold prices. In this respect, South Koreas central bank purchased 25 tons, spending more than $1 billion in its rst gold purchase in more than a decade, joining the trend among central banks to diversify their foreign reserves amid global growth uncertainties. MCX Silver prices traded higher at the beginning of the week, however was not able to sustain gains, as the white metal was inuenced by the liquidation in the industrial metals complex. We continue to remain bullish on the complex and expect Gold prices to reach new life time highs, with the price radar on US$1,700/ounce. Considering the prevalent economic turmoil on both sides of the Atlantic, we advocate buying at moderate dips. Moreover, prices will be buoyed by the anticipated growth in jewellery fabrication and investment demand in India, as we approach the festive season in August & September.

Note: This market commentary is written at 12:30 PM IST

MCX prices
Base Metals Copper Nickel Zinc Aluminium Lead Precious Metals Gold Silver High 440 1,114 111 117 118 High 24,205 62,384 Low 411 1,034 100 110 107 Low 22,965 57,620 LTP* 413 1,046 102 110 109 LTP* 24,160 59,265 Chg (%) (5.6) (3.1) (6.2) (3.2) (5.4) Chg (%) 4.2 0.3

Weekly inventory update


Tons Copper (LME) Nickel (LME) Zinc (LME) Aluminium (LME) Lead (LME) Tin (LME) Shanghai Copper Shanghai Zinc Shanghai Aluminium 465,325 102,780 889,525 4,420,175 309,950 21,685 118,200 400,336 158,130 Abs Chg. (1,225) 240 (525) (33,075) (1,500) 820 1,133 (235) (23,585) Chg (%) (0.3) 0.2 (0.1) (0.7) (0.5) 3.9 1.0 (0.1) (13.0)

* Last Traded Price

LME Copper
11000 10000 9000 8000 7000 6000 5000 4000 3000 Oct-08 Oct-09 Oct-10 Apr-08 Apr-09 Apr-10 Jan-08 Jan-09 Jan-10 Jan-11 Apr-11 Jul-08 Jul-09 Jul-10 Jul-11 Copper (LME)

COMEX Gold
1750 Gold 1500 1250 1000 750 500

Oct-08

Oct-09

Oct-10

Apr-08

Apr-09

Apr-10

Jan-08

Jan-09

Jan-10

Jan-11

Apr-11

Jul-08

Jul-09

Jul-10

Jul-11

2000

India Infoline Weekly Wrap


Mutual Fund Round-up
India Infoline picks
Mutual Funds HDFC Top 200 Fund (G) ICICI Prudential Dynamic - (G) IDFC Small & Midcap Fund (G) Fidelity Tax Advantage (G) HDFC Prudence Fund (G) Reliance equity opportunities(G) IDFC Premier Equity-A(G) Assets (` Cr) 11,065 3,814 1,134 1,239 6,407 3,032 2,303 NAV (`) 203.7 104.3 18.6 21.3 214.3 36.0 32.7 Absolute return (%) as on August 05, 2011 1wk (2.3) (2.2) (1.9) (2.4) (1.6) (1.6) (1.7) 1mth (4.3) (3.9) (1.6) (3.4) (1.9) (2.6) (0.1) 3mth (1.0) (1.6) 2.4 0.0 1.9 2.8 4.3 6mth 0.9 0.3 6.9 1.1 5.3 6.6 9.3 1yr 0.8 1.6 0.3 (0.4) 4.5 2.6 0.1 2yr 29.3 36.7 49.2 37.0 46.3 60.7 49.6 3yr 56.3 45.6 107.7 53.1 78.4 75.2 71.7 5yr 131.7 114.8 NA 120.8 134.5 122.4 233.9

Funds this week: HDFC Top 200 Fund


Fund snapshot Fund Manager Latest NAV NAV 52 high/low Latest AUM (cr) Type Class Options Min investment Benchmark No. of stocks No. of sectors Expense ratio Exit load Prashant Jain `203.7 `236/187 `11,065 Open-ended Equity - Diversied Growth & dividend `5,000 BSE 200 66 30 1.8% 1% before 1 year Asset allocation (%) Equity Debt Cash/call Top 5 holdings (%) State Bank Of India ICICI Bank Ltd. Infosys Ltd. ITC Ltd. Reliance Industries Ltd. Top 3 sectors (%) Banks Consumer Non Durables Software 23.12 11.07 10.76 6.9 6.4 5.9 4.6 4.1 94.1 0.0 5.9

Reliance equity opportunity fund


Fund snapshot Fund Manager Latest NAV NAV 52 high/low Latest AUM (cr) Type Class Options Min investment Benchmark No. of stocks No. of sectors Expense ratio Exit load Viral Belawala `36.0 `39.86/31.80 `3,032 Open-ended Equity - Diversied Growth, Dividend & Bonus `5,000 BSE 100 34 21 1.85% 1% before 1 year Asset allocation (%) Equity Debt Cash/call Top 5 holdings (%) Divi'S Laboratories Ltd. Aventis Pharma Ltd. Infosys Technologies Ltd. ICICI Bank Ltd. HDFC Bank Top 3 sectors (%) Banks Consumer Non Durables Software 22.1 10.8 9.9 5.1 4.8 6.7 5.9 4.3 93.5 6.5

NFO update
Fund Name Edelweiss Select midcap fund Axis Hybrid fund series 1(3 years) DSP BlackRock FMP - 6M - Series 10 SBI Debt Fund Series - 367 Days - 5 Close 18-Aug 11-Aug 9-Aug 8-Aug Type CE CE CE CE Class Equity Hybrid Debt FMP Debt FMP

Dividend update
Mutual Fund L&T Midcap UTI xed income interval fund(Monthly interval plan II Kotak Quarterly Interval Plan Series 6 Dividend % Record date 2.5 8-Aug 100% of 9-Aug distributable surplus 100%of 9-Aug appreciation Class Equity Hybrid:Equityoriented Debt FMP

India Infoline Weekly Wrap


Chartbook
Weekly Ination
25 20 15 10 5 0 Primary Article Inflation Food Inflation

Interest Rate
18 16 14 12 10 8 6 4 10yr Gsec yield 3mth CP rate 5yr AAA bond yield

Jan-08

Jan-09

Jan-10

Jan-11

Jan-08

Jan-09

Jan-10

Jan-11

Jul-08

Jul-09

Jul-10

Jul-11

Jul-08

Jul-09

Jul-10

IIP and Six core Industries


16 14 12 10 8 6 4 2 May-10 May-11 Oct-10 Apr-10 Feb-11 Mar-11 Nov-10 Dec-10 Jun-10 Aug-10 Sep-10 Jan-11 Apr-11 Jul-10 0 Six core Ind. IIP

Crude (Brent/ Nymex)


180 160 140 120 100 80 60 40 May-10 Mar-09 Oct-09 Dec-10 Jan-08 Aug-08 Jul-11 Jul-11 20

Currency Movements
100 90 80 70 60 50

Dollar Index
95 90 85 80 75

40 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 May-11 Apr-09 Nov-08 Feb-10 Jan-08 Jun-08 Sep-09 Dec-10 Jan-11 Jul-10 30 70

Source: Bloomberg

Jul-11

edurC tnerB

xednI ralloD

edurC xemyN

)YPJ/RNI( )DSU/RNI(

)PBG/RNI( )DSU/ORUE(

PMI

45

50

55

60

65

70

100

10 Dec-10

20

30

40

50

60

70

80

90

10,000

15,000

20,000

25,000

30,000

5,000 Jan-08

0 Jul-08 Jan-11 India Germany

Apr-99

Source: Bloomberg

Volatility Index

Chartbook...

Sensex PE Band

Apr-00

Apr-01 Jan-09 Feb-11 Jul-09 Mar-11 VIX Jan-10 Apr-11 Jul-10 May-11

Apr-02

May-03

May-04

May-05

Euro Zone US

May-06

May-07

Jun-08 China Jan-11

Jun-09

Jun-10 Jul-11 Jun-11

21x

13x

17x

Jun-11

PE (x)

Dow Jones (Rs)

Nasdaq

PE Comparision

S&P 500

FTSE

DAX

US Initial Jobless Claims

Sensex Earning Estimates

Hang Seng* .

India Infoline Weekly Wrap

Nikkei*

FY12

FY12

Shanghai Comp

Brazil Bovespa

Mexico Bolsa

Initial Jobless Claims ('000)

Kospi*

FY13

Taiwan*

Straits*

Sensex

5x 200 300 Apr-10 May-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 May-11 Jun-11 Jul-11 1,200 1,220 1,240 1,260 1,280 1,300 1,320 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11

9x

400

500

600

700

800

18 16 14 12 10 8 6 4 2 0

India Infoline Weekly Wrap


News Recap

World markets in turmoil on growth jitters


Equity markets across the globe went into a tailspin, as panicky investors scurried for cover amid fears that the US economy was slowing down and the eurozone credit crisis will deteriorate. The selloff across world markets came despite the US Congress clearing a crucial legislation to lift the debt ceiling before the Aug. 2 deadline. The undertone was hit by a series of downbeat economic reports pointing to a deceleration in the US economy. Also, Moody's and Fitch warned that US' coveted "AAA" rating was still in danger of being downgraded. Economic data from other pockets of the world too showed moderation in economic activity, especially in the manufacturing space. In addition, yields on Italian and Spanish government bonds jumped amid concerns that the eurozone debt crisis will spread to these two large economies. Grim comments from ECB chairman Jean-Claude Trichet about the state of the eurozone economy didn't help matters either.

Rupee tumbles to 5-week low as stocks slide


The rupee plunged to a ve-week low on Friday, and was headed for its biggest weekly loss in seven months, as local stocks joined a global rout amid fears of a steep slowdown in the US and other developed markets. Persistent demand for dollars from domestic oil companies for Iran payments also weighed on the partially-convertible Indian currency. The rupee touched 44.8550, the weakest level since June 29.

PM panel sees FY12 GDP at 8.2%


India's economy would grow by 8.2% in the current scal year while ination is projected to be at 6.5% by the end of March 2012, the Prime Minister's Economic Advisory Council (PMEAC) said. The agriculture sector is projected to grow at 3.0% in FY12 while industry is likely to expand by 7.1% and services by 10%. India must increase the rate of xed asset investment to maintain a healthy GDP growth rate of 9%, PMEAC Chairman and former RBI Governor Dr. C. Rangarajan said.

Event Calender
Period : 8st - 12th Aug
US 2Q Nonfarm Productivity (9 Aug) FOMC Rate Decision (9 Aug) June Wholesale Inventories (10 Aug) June Trade Balance (11 Aug) June business Inventories (12 Aug) India Food Articles WPI YoY (11 Aug) Primary Articles WPI YoY (11 Aug) June IIP data YoY (12 Aug) China July Exports YoY (10 Aug) July Imports YoY (10 Aug) July Industrial Production YoY (11 Aug) Actual FDI YoY (10-15 Aug) Euro Zone Aug Sentix Investor Condence (8 Aug) Aug ECB Monthly Report (11 Aug) June Euro-Zone Ind. Prod. WDA (YoY) (12 Aug)
IIFL, IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel (W), Mumbai 400 013 The information in this newsletter is generally provided from the press reports, electronic media, research, websites and other media. The information also includes information from interviews conducted, analysis, views expressed by our research team. Investors should not rely solely on the information contained in this publication and must make their own investment decisions based on their specic investment objectives and nancial position and using such independent advisors as they believe necessary. The materials and information provided by this newsletter are not, and should not be construed as an advice to buy or sell any of the securities named in this newsletter. India Infoline may or may not hold positions in any of the securities named in this newsletter as a part of its business. Past performance is not necessarily an indication of future performance. India Infoline does not assure for accuracy or correctness of information or reports in the newsletter.

Period : 15th - 19th Aug


US Aug Empire Manufacturing (15 Aug) July Building Permits MoM% (16 Aug) July Housing Starts MoM% (16 Aug) July IIP data (16 Aug) July consumer price index YoY (18 Aug) India July ination YoY% (15 Aug) Food Articles WPI YoY (18 Aug) Primary Articles WPI YoY (18 Aug) China July new Yuan loans (11-15 Aug) July Money Supply - M2 YoY (11-15 Aug) China June Leading Economic Index (16 Aug) Euro Zone Q2 Euro-Zone GDP YoY (16 Aug) June Euro-Zone Trade Balance (16 Aug) June Euro-Zone current account (17 Aug)