1. Weekly Review
June 26, 2010
Market Ends Flat FII activity
(Rs crore)
The market ended almost flat during the week, amidst sessions marked by Cash Futures Net
As on (Equity) Activity
volatility, with the Sensex and Nifty ending marginally higher by 0.02% and
Jun 18 695 (335) 361
0.1%, respectively. However, BSE mid-cap and small-cap indices Jun 21 1,799 230 2,029
outperformed their large-cap counterparts by further extending gains during Jun 22 1,037 (961) 76
the week by 1.5% and 1.6%, respectively. Factors such as partial decontrol Jun 23 370 (332) 38
of Chinese currency against USD, negative cues from global markets, Jun 24 1,238 (731) 507
Net 5,140 (2,129) 3,011
decontrol of oil prices in India and rolling over of positions in the derivatives
segment on the eve of the monthly expiry contributed to the volatility during
the week. Most of the sectoral indices ended in green, with the oil and gas Mutual Fund activity (Equity)
index and healthcare index gaining the most by 3% each. (Rs crore)
As on Purchases Sales Net Activity
BSE Oil and Gas Index - Oil PSUs Shine Jun 17 523 557 (34)
Jun 18 376 273 103
The BSE oil and gas index gained 3% during the week, outperforming the
Jun 21 313 537 (224)
Sensex. The major spurt and relief was seen in OMC stocks and upstream
Jun 22 391 1,060 (669)
oil companies following EGoM's decision to fully decontrol petrol price and
Jun 23 707 990 (283)
hike diesel price. Prices of kerosene and domestic LPG were also increased.
Net 2,311 3,417 (1,106)
Following this, HPCL, BPCL and IOC gained 18%, 19.1% and 12.9%,
respectively. ONGC, Oil India and GAIL gained 5.9%, 7.4% and 2.2%,
respectively. Cairn declined 2% during the week, mirroring the 1.9% fall in Global Indices
crude price. RNRL gained 5.1% and RIL gained 0.8%. We have a positive Indices June June Weekly YTD
18, 10 25, 10 (% chg)
RIL.
view on the sector and our top pick is RIL.
BSE 30 17,571 17,575 0.0 0.6
Inside This Weekly NSE 5263 5269 0.1 1.3
Sun TV Network (Initiating Coverage): Sun TV Networks (STNL) is a leader Nasdaq 2,310 2,223 (3.7) (2.0)
in three out of the four lucrative southern TV markets through its bouquet of DOW 10,451 10,144 (2.9) (2.7)
20 channels across genres. We have modeled in 23.5%, 24.9% and 25.3% Nikkei 9,995 9,737 (2.6) (7.7)
CAGRs in top line, core EBIT (post amortisation) and earnings, respectively, HangSeng 20,287 20,691 2.0 (5.4)
for STNL over FY2010–12E. We estimate STNL's cash balance to swell to a Straits Times 2,833 2,852 0.6 (1.6)
whopping Rs10bn (~Rs33 per share) in FY2012E. We initiate coverage on
We Shanghai Composite 2,513 2,553 1.6 (22.1)
Target Price
STNL with Buy and a Target Price of Rs497 based on 24x P/E FY2012E.FY2012E. KLSE Composite 1,318 1,326 0.7 4.2
Jakarta Composite 2,930 2,947 0.6 16.3
Indraprastha Gas - Company Update: The CNG price hike has eliminated
KOSPI Composite 1,712 1,730 1.0 2.8
key headwinds for IGL. We revise our target price on the stock to Rs301
(Rs210) owing to the upward revision in earnings estimates and lower WACC
estimates. We upgrade the stock to Buy from Reduce earlier.
earlier. Sectoral Watch
Indices June June Weekly YTD
Reliance Industries - Event Update: RIL acquired 45% stake in Eagleford
18, 10 25, 10 (% chg)
shale acreage. RIL will pay US $1.3bn to Pioneer and Newpek for its implied
BANKEX 10,880 10,753 (1.2) 7.2
share of 118,000 net acres. The deal is valued at US $11,144/acre. We
BSE AUTO 8,135 8,209 0.9 10.4
maintain a Buy view on RIL with a target price of Rs1,260.
BSE IT 5,401 5,324 (1.4) 2.7
Container Corporation of India - Management Meet Note: The management BSE PSU 9,204 9,353 1.6 (1.9)
in its recent meeting has given volume guidance of 10–12% for EXIM and
12–15% for the domestic segment in FY2011E with operating margins
expected to be rangebound. We maintain Reduce on the stock with a target
price of Rs1,194.
Note: Stock Prices are as on Report release date; Refer all Detailed Reports on Angel website.
Please refer to important disclosures at the end of this report
2. Fundamental Focus | June 26, 2010
Focus
Sun TV Network - Buy Price - Rs402
Target Price - Rs497
Initiating Coverage
Sunny days ahead of 25.4x to account for risks associated with 1) high ARPUs in
DTH subscription model, and 2) release/success of Endhiran
Sun TV Networks (STNL) is a leader in 3 out of the 4 lucrative
(big budget production).
southern TV markets through its bouquet of 20 channels across
genres. We have modeled in 23.5%, 24.9% and 25.3% CAGR We believe that premium valuations for STNL are justified given
in top-line, core EBIT (post amortisation) and earnings its: 1) strong earnings CAGR of 25% over FY2010-12E, 2)
respectively, for STNL, over FY2010-12E. We also estimate leadership position in 3 out of 4 lucrative southern markets,
STNL's cash balance to swell to a whopping Rs10bn (~Rs33 which account for ~73% of the regional TV ad market, 3) strong
per share) in FY2012E. At Rs402, the stock is trading at 19.4x group strength including political clout and presence across
FY2012E Earnings. media value chains (distribution via Kal cables and DTH via
STNL Ad Revenues to outpace Regional Ad growth, we peg Sun Direct), 4) unique low-cost business model (Broadcast fee
19% CAGR: During FY2010-12E, we expect STNL's standalone
CAGR: and low SG&A), which enables it to register significantly higher
Ad revenues to register 19.3% CAGR, ahead of the 13.9% CAGR operating margins, and 5) significant reduction in losses in Radio
estimated in Regional advertising during the period, driven by:1) subsidiaries (we have factored in near break-even at operating
absorption of rate hikes (ad rates hiked 5-33% across channels), level in FY2012E).
2) increased traction in niche Kids/Comedy channels, and Key Concerns
3) strong management focus on utilising inventory during
off-peak hours and new weekend programming. Delay/difficulty in absorption of rate hikes
Fall in DTH ARPUs beyond Rs35-40/month
CAGR
Multiple levers led by DTH to aid 37% CAGR in Subscription
Delay/failure of big budget Endhiran
Revenues: During FY2010-12E, we expect STNL to register a
robust 37% CAGR in overall Subscription revenues aided by:
1) strong 58% CAGR in DTH revenues on the back of 28%
CAGR in DTH subscribers and rise in ARPUs to Rs40, and
2) 20% CAGR in Analogue revenues aided by restructuring of
distribution business and Malayalam channels (Surya TV, Kiran Key Financials (Consolidated)
TV) turning pay, effective from April 1, 2010. Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
FY2011E:
Radio losses to reduce, Endhiran the wild card in FY2011E: Net Sales 1,039 1,453 1,978 2,217
Beyond broadcasting, we believe reduction in operating losses % chg 19.5 39.8 36.2 12.0
aided by revenue traction and cost curtailment in Radio Profit
Net Profit 368 520 712 816
subsidiaries, Kal and SAFM (we have modeled in near breakeven
% chg 12.7 41.2 36.9 14.6
in FY2012E at operating level) and contribution from big budget
OPM (%) 70.9 75.1 75.7 76.1
movie, Endhiran (slated for release in 2HFY2011E, we have
factored in Rs175cr revenue from movie distribution/production EPS (Rs) 9.3 13.2 18.1 20.7
in FY2011E and 20-25% EBIT Margins from Endhiran) will be P/E (x) 43.0 30.5 22.3 19.4
the key factors to watch out for. P/BV (x) 9.3 8.4 6.7 5.4
Outlook and Valuation RoE (%) 21.6 28.0 33.0 30.6
We initiate coverage on STNL with a Buy recommendation RoCE (%) 30.2 39.8 46.8 43.7
Target Price
and Target Price of Rs497, equating to an upside of 24% from EV/Sales (x) 12.0 8.6 6.3 5.6
current levels. Our Target Price is based on 24x P/E FY2012E EV/EBITDA (x) 16.9 11.4 8.3 7.4
EPS of Rs20.7, 5% discount to its 3-year historical average P/E Source: Company, Angel Research; Price as on June 22, 2010
Research Analyst - Anand Shah Chitrangda Kapur
Shah/Chitrangda Kapur
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3. Fundamental Focus | June 26, 2010
Focus
Indraprastha Gas - Buy Price - Rs255
Target Price - Rs301
Company Update
Turning over a new leaf maintain large market share in the visible future post end of
marketing exclusivity due to its strong parentage (BPCL, GAIL
The hike in CNG prices has eliminated key headwinds for IGL
and Government of Delhi), tie-ups with oil marketing companies
viz. expected margin contraction and reduction in earnings and
(OMCs) for dispensing CNG, significant expansion of CNG
return ratios, to a large extent. Relative ease in pass through of
stations till end of the exclusivity period.
the APM gas price hike indicates absence of regulatory risks in
the near term. This coupled with strong CNG conversions and At current levels of Rs255, the stock is discounting 14.6x and
growth in newer geographies would result in strong earnings 12.0x FY2011E and FY2012E Earnings. IGL has historically
growth and re-rating of the stock. traded in the range of 9-13x its one-year forward earnings.
We upgrade our DCF-based target price of the IGL to Rs301
Margin erosion risk subsides: We had concerns over
(Rs210) on the back of upward revision in earnings estimates
sustainability of IGL's high margins, which we believed were
and lower WACC estimates (to reflect lower pricing risk). Hence,
fueled by lower gas costs (subsidised gas). Also, post end of
we upgrade the stock to Buy from Reduce.
marketing exclusivity in CY2011 we believed a level playing
field would emerge and IGL would have to source gas at higher Exhibit 1: Change in estimates
prices in turn squeezing its marketing margins. However, with Particulars Old estimates New estimates % chg
the hike in CNG prices, our assumption of margin fall no longer Rs(cr) FY11E FY12E FY11E FY12E FY11E FY12E
holds good. It also points at the absence of regulatory risks in
Revenues 1,403 1,636 1,612 1,985 14.9 21.3
the near term. Going ahead, given that KG-D6 and APM gas
prices are freezed till FY2014, IGL would not be required to EBITDA 367 422 472 606 28.5 43.6
make significant CNG price hikes. Thus, the margin erosion OPM (%) 26.2 25.8 29.3 30.5
risk has subsided substantially. EPS 13.3 14.5 17.5 21.3 31.2 46.7
Volumes to propel profitability: We expect strong growth in Source: Company, Angel Research
CNG conversion in IGL's area of operation driven by
discretionary CNG demand due to better economics. This
coupled with strong growth expected in the domestic PNG Exhibit 2: Key Financials
segment is likely to drive the company's volume growth going Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
ahead. We expect CNG and PNG volumes to register a CAGR Total operating Income 853 1,084 1,612 1,985
of 14.4% and 36.2% over FY2010-12E respectively, resulting
% chg 20.8 27.1 48.7 23.1
in overall volumes CAGR of 16.9% during the mentioned period.
Profit
Net Profit 172 215 244 298
Thus, strong volume growth coupled with stable EBDITA/scm
are likely to drive the company’s profitability (CAGR of 17.5% % chg (1.1) 24.9 13.4 21.9
over FY2010-12E) going ahead. OPM (%) 35.2 35.7 29.3 30.5
Outlook and Valuation EPS (Rs) 12.3 15.4 17.5 21.3
P/E (x) 20.7 16.6 14.6 12.0
We believe that even post end of the marketing exclusivity in
CY2011E, IGL will be able to maintain its margins, as the P/BV (x) 5.2 4.3 3.6 3.0
PNGRB regulations limits network and compression tariffs with RoE (%) 27.4 28.6 27.0 27.6
marketing margins being left out presuming it will be RoCE (%) 34.8 38.1 33.8 31.6
self-regulated due to competitive forces. As for the impact of
EV/Sales (x) 3.9 3.2 2.2 1.9
the end of the marketing exclusivity on volumes is concerned,
we believe that competition is likely to have minuscule impact EV/EBITDA (x) 11.1 8.9 7.7 6.3
on IGL's volumes. On the CNG volumes front, IGL is likely to Source: Company, Angel Research; Price as on June 22, 2010
Research Analyst - Deepak Pareek/Amit Vora
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4. Fundamental Focus | June 26, 2010
Focus
Reliance Industries - Buy Price - Rs1,063
Target Price - Rs1,260
Event Update
RIL to buy 45% stake in Eagleford shale gas net resource potential for the JV of approximately 10tcfe (4.5tcfe
net to RIL). The JV plans to increase the current drilling program
Details of the Deal: Reliance Industries (RIL), through its 100%
to approximately 140 wells per year within three years from 26
subsidiary, Reliance Eagleford Upstream LP has entered into a
,
wells planned in June-December 2010. The deal entails current
joint venture (JV) with the United States-based Pioneer Natural
production of 28mmcfepd (net 11mmcfepd to RIL) from the
Resources Company, to acquire 45% stake in Pioneer's core
five currently active horizontal wells. Another three wells would
Eagleford shale acreage position in two separate transactions.
be completed and expected to be online in 4QCY2010 following
Newpek, a wholly-owned subsidiary of ALFA, S.A.B. de C.V.,
completion of gathering facilities. From each well around 6BCFE
currently owns an approximate 16% non-operated interest in
of gas is expected to be recoverable.
Eagle Ford Shale acreage with the balance 84% held by
operator, Pioneer Natural Resources. As per the deal, both the RIL and Pioneer have also executed definitive agreements to
current owners will transfer 45% of their stake to Reliance set up a midstream JV that will service the gathering needs of
Eagleford Upstream LP With this, the new ownership structure
. the upstream JV. Reliance Eagleford Midstream LLC will pay US
of the Eagle Ford Shale acreage will be Pioneer, RIL and Newpek $46mn to acquire a 49.9% membership interest in the
owning 46%, 45% and 9%stake, respectively. RIL will pay US midstream JV, taking RIL's total investment in the venture to US
$1,315mn (US $210mn will be paid to Newpek for diluting its $1.361bn. Pioneer and RIL will have equal governing rights in
stake in favour of RIL) for its implied share of 118,000 net this JV with Pioneer serving as operator. Cash infusion by RIL
acres. This upstream transaction consideration will include will enable the JV to ramp up production from Eagle Ford to as
combined upfront cash payment of US $263mn and deferred much as 41,000boepd by 2013, from the average 2,000bpd
payment of US $1,052mn associated with a carry arrangement in 2010. The company plans to increase drilling to 6-7 rigs by
for 75% of Pioneer's and Newpek's capital costs over an 2010, 10 rigs by 2011 and 14 rigs by 2012 in its bid to enhance
anticipated four years. The deal will be effective from production,.
June 1, 2010.
Future possibilities: Pioneer will be the sole leasing agent in the
The acreage will support the drilling of over 1,750 wells with a area of mutual interest (AMI). As per the JV, Pioneer will continue
acquiring leasehold in Eagle Ford Shale, while RIL will have the
Exhibit 1: RIL's Shale Gas acquisitions compared
option to acquire 45% share in all newly acquired acres. Also,
Marcellus Atlas Ford
Eagle Ford
while the Pioneer will serve as the development operator for
RIL Share in JV (%) 40 45 the upstream JV, RIL is expected to begin acting as development
operator in certain areas in ensuing years as part of the JV.
Acreage 300,000 263,000
Rationale for the deal: The deal would expand RIL's global
Acreage (net acres to RIL) 120,000 118,000
footprint, maintain its growth rate via presence in newer avenues
Reserves - JV (TCF) 13.3 10.0 viz. shale gas. RIL can also leverage the technological
know-how to develop the unconventional shale gas resources
Reserves - (Net to RIL, inTCF) 5.32 4.50 in the country. India is estimated to have huge shale deposits
Upfront payment 340 263 across Gujarat, Assam, Rajasthan and other coastal areas.
Drilling carry cost 1,360 1,052 Our Take - Strategic move: RIL will get hands-on experience
Take
operating up to four rigs. With this and the Atlas deal, RIL has
Total Acquisition cost (USD bn) 1,700 1,315 joined the league of international oil companies who have
Acquisition cost per acre (USD) 14,167 11,144 bought into shale rock formations that hold vast amounts of
natural gas. Also, we believe that the deal has been executed
Source: Company, Angel Research
at a reasonable price, coupled with absence of exploration risks
Continued...
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5. Fundamental Focus | June 26, 2010
Focus
Reliance Industries
Event Update
and the potential for RIL to gain shale gas expertise that it could positive catalyst to its stock price going ahead. This, along with
apply elsewhere, including India. The deal valued at US its low Debt/Equity ratio of 0.42x is likely to keep RIL on high
$11,144/acre is lower than the price paid for Atlas Shale Gas growth orbit. Recovery in Refining Margins and increase in gas
acquisition (US $14,167/acre). Similarly, on the resource front, production are likely to drive the company's Earnings growth
the acquisition cost of US $0.29/mmbtu is on the lower side over the next couple of years.Also the uncertainties and concerns
compared to Atlas Shale Gas acquisition cost of associated with redeployment of cash flows are likely to be
US $0.31/mmbtu. Direct comparisons are however not always addressed as growth and diversification plans of the company
possible as all shale gas fields are different in terms of gas in crystallize over next couple of quarters, which is likely to provide
place per tonne of shale, gas recovery rates, permeability and the required boost to the stock price. We maintain a Buy on
the capital cost of extraction. RIL, Target Price
RIL, with a Target Price of Rs1,260.
The acquired acreage has significant liquid content, with 70%
of the sites located within liquid-rich window. This is a key positive
and meaningfully improves the deal economics by bringing
down the gas breakeven price, given better crude-linked
realisations from condensate and liquids. As per Scotia
Waterous, the break-even price for Eagle Ford is the least at US
$2.73/mmbtu followed by Marcellus at US $3.25/mmbtu.
Assuming long-term gas prices of around US $5/mmbtu, cost
of production at US $1.2/mmbtu, operating cost of
US $1/mmbtu from the venture and at the recovery ratio of
around 75-80%, the deal could add around Rs25-30 to our
Target Price for RIL. Currently, we have not factored in the
potential upside from the deal pending more details about
the deal. Exhibit 2: Key Financials
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Outlook and Valuation
Net sales 151,224 203,740 234,754 243,596
Overall, RIL has successfully executed its two mega ventures,
% chg 10.3 34.7 15.2 3.8
viz. KG basin gas and the SEZ refinery with minimal execution
problems as is evident from the strong ramp up in production Profit
Net Profit 14,969 15,898 22,743 28,550
at both KG-D6 and SEZ refineries. These ventures speak about % chg (23.3) 6.2 43.1 25.5
RIL's successful execution capability as KG-D6 has been one of EPS (Rs) 45.8 48.6 69.5 87.3
the fastest deepwater developments across the globe, while the
EBITDA Margin (%) 15.5 15.2 17.6 20.0
SEZ refinery is one of the most complex refineries. We expect
P/E (x) 23.2 14.2 15.3 12.2
these ventures to be likely key drivers of Profitability over the
next couple of years. We expect RIL's profitability to register RoE (%) 14.5 11.9 14.7 16.1
34% CAGR over FY2010-12E. Ramp up of gas production and RoCE (%) 8.4 8.0 11.4 13.8
higher oil production would likely increase the share of E&P in P/BV (x) 2.9 2.4 2.1 1.8
the Profit matrix in turn reducing exposure to cyclical segments.
EV/ Sales (x) 2.7 1.9 1.6 1.4
Thus, we remain positive on RIL's future growth prospects.
EV/ EBITDA (x) 17.1 12.4 8.9 7.1
We believe that RIL's inorganic growth plans would provide a
Source: Company, Angel Research; Price as on June 25, 2010
Research Analyst - Deepak Pareek/Amit Vora
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6. Fundamental Focus | June 26, 2010
Focus
Container Corporation of India - Reduce Price - Rs1,306
Target Price - Rs1,194
Management Meet Note
Margins to drag Outlook and Valuation
Export revival yet to happen: Export volumes continue to remain Concor is gradually losing its pricing power in the Exim Segment,
lacklustre in turn driving empty running. For first two months of which could be a further threat once more Rail-linked ICDs
FY2011, the company recorded 147,000TEU of exports as from the private players come up. However, we remain bullish
against 181,000TEU of imports leading to 18.5% empty on the Container sector in the long term, which is the core
running. Going ahead, export growth rates may be further driver of Concor's business. Nonetheless, higher IR tariffs and
impacted by the uncertain outlook in Europe. Pertinently, opening up of the Container industry to the private players will
management indicated that the government's ban on export of impact the company's market share in the long run. We also
non-basmati rice has impacted volumes to a large extent. believe that the company's growth trajectory will be lower than
its historical trend. Thus, key risk to our recommendation will
Volume guidance: Container Corporation of India (Concor) be Concor maintaining its market share and accelerated
has guided modest Exim volume of 10-12% in FY2011E largely construction of the dedicated Rail-freight corridor, which could
on account of the low base in 1HFY2010 and higher imports. help it wrest market share from the Road segment.
Concor registered 9-10% yoy growth in Exim volume for the
first two months of FY2011 in spite of the 21% yoy growth at We estimate Concor to post muted Earnings CAGR of 10.1%
major ports. The company has guided 12-15% growth in over FY2010-12E, as against the 17.6% CAGR registered during
domestic volumes with increased focus and strong revival in FY2005-09. At the current market price, the stock is trading at
domestic consumption. Thus, it indicated that the share of 18.0x FY2012E Earnings and at 12.2x FY2012E EV/EBITDA.
domestic volumes would increase to 25% by FY2012E from Target Price
We maintain our Reduce rating on stock, with a Target Price of
current levels of 22%. Rs1,194.
Expects hike in haulage charges: Management stated that talks
about Indian Railways (IR) increasing haulage charges on certain
routes could come through in the near term. The recent hike in
petroleum products has also led to increase in road freight rates. Key Financials (Consolidated)
Management believes that it should be able to pass on any
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
further increase in haulage charges, in absolute terms. However,
Net Sales 3,452 3,702 4,130 4,714
we believe that any increase in haulage charges will be
detrimental for Concor volumes. Further, if the haulage rates % chg 2.6 7.2 11.6 14.1
are increased in absolute terms it would impact margins. Profit
Net Profit 779 779 842 944
% chg 6.1 (0.1) 8.2 12.1
Margin pressure to persist: FY2010 OPM fell by 80bp yoy to
26.4% on lower ground rent revenues, the company’s inability FDEPS (Rs) 59.9 59.9 64.8 72.6
to pass on the entire hike in haulage charges and rebates which EBITDA Margin (%) 26.8 26.4 25.8 25.1
pulled down Exim performance. Management has indicated P/E (x) 21.8 21.8 20.2 18.0
OPMs to remain range bound in FY2011E. However, we
RoE (%) 22.6 19.4 18.4 18.1
estimate 50bp decline in OPM in FY2011E on account of
increased contribution from the low-margin domestic business RoCE (%) 18.9 17.4 17.0 17.0
and higher empties in 1HFY2011E. P/BV (x) 4.9 4.2 3.7 3.3
EV/Sales (x) 4.4 4.1 3.6 3.1
EV/EBITDA (x) 16.5 15.4 13.9 12.2
Source: Company, Angel Research; Price as on June 23, 2010
Research Analyst -Param Desai/Mihit Salot
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7. Technical Picks | June 26, 2010
Range-bound activity expected - Intermediate trend still up
Sensex (17575) / Nifty (5269)
In our previous Weekly report, we had mentioned that the Exhibit 1: Sensex Daily chart
intermediate trend remains up and if the indices manage to
trade and close above 17722/ 5302 levels then they are likely
to test 17872 / 5350 levels or even the recent 7th April 2010
highs of 18047 / 5400 levels. The week witnessed a rally to
the first mentioned target of 17872 / 5350 levels by registering
a high of 17920 / 5367 but was unable to sustain gains, which
led the Sensex to close with a marginal loss of 0.2%, while the
Nifty lost 0.12% vis-à-vis the previous week.
Pattern Formation
Source: Falcon
On the Daily chart, the move which started from 16560 to
17920 / 4967 to 5367 levels has Fibonacci supports levels at Exhibit 2: Sensex Weekly chart
17400 - 17240 - 17080 / 5214 - 5167 - 5120. Since the Shooting
Star
intermediate trend is up, there is a possibility that support is
likely to emerge near those levels (refer Exhibit 1).
On the Weekly chart, prices are still trading in an upward
sloping channel. In addition to that, we are witnessing a
candlestick pattern that resembles a "Shooting Star" which is a
reversal pattern and suggests probable downside going forward.
The high (17920 / 5367) of the "Shooting Star" will now act as
a resistance for the market (refer Exhibit 2).
Source: Falcon
Future Outlook
Broadly speaking, the indices are likely to trade in the range of
17000 / 5100 on the downside and 17920 / 5366 on the
upside in the coming week. Since the intermediate trend is still
up there is a possibility that the indices may find support at
Fibonacci retracement levels of 17400 - 17240 - 17080 / 5214
- 5167 - 5120. On the upside, momentum would resume only
once the resistance levels of 17920 / 5366 are crossed and
indices may test 7th April 2010 highs of 18047 / 5400 levels.
The uptrend on the Daily chart would be under serious threat if
16970 / 5090 levels are breached on the downside.
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9. Derivatives Review | June 26, 2010
Immediate support 5200, may be put to test
Nifty spot has closed at 5269 this week, against a close of 5263 last week. The Put-Call Ratio has decreased from 1.67 to 1.29 levels
and the annualized Cost of Carry (CoC) is positive 2.98 The Open Interest in Nifty Futures has decreased by 9.46
2.98%. 9.46%.
Put-Call Ratio Analysis Futures Annual Volatility Analysis
The Nifty PCR is at 1.29 levels, in the new series. In the July The Historical Volatility of the Nifty has decreased from 24.38%
expiry, the 5200 put option has highest open interest. On the to 22.69%. IV of at the money options has increased from 16%
other hand, the 5400 and 5500 call options have almost same to 18%. Some liquid counters where HV has increased
open interest. We may see some negative moves in the coming significantly are HINDPETRO, BPCL, IOC, ACC and
week and 5200 is the immediate support for the market. NOIDATOLL. Stocks where HV has decreased are TATACOMM,
Volatility in the stocks, mainly midcaps, could be seen. Thus, it GRASIM, PANTALOONR, ADANIENT and ABB.
is advisable to use stock specific strategis.
Open Interest Analysis Cost-of-Carry Analysis
The total Open Interest of the market is Rs1,05,286cr, as against The July Future closed at a premium of 14.65 points as against
Rs1,50,226cr last week, and the Stock Futures' open interest a premium of 0.95 points last week and Aug future closed at a
decreased from Rs37,554cr to Rs31,158cr. We saw high rollover premium of 16.35 points. Some liquid counters where CoC
in the new series. The Rollover for Nifty Futures and Minifty turned from negative to positive are RELMEDIA, UNIONBANK,
futures is around 70% and market wide rollover is 82%. Some JINDALSTEL, RNRL and ADANIENT. Stocks where CoC turned
large-cap stocks like ICICIBANK and TATASTEEL are showing from positive to negative are VIJAYABANK, EDUCOMP ,
resistance around 900-920 and 510-520 levels respectively. TATACHEM, ASHOKLEY and DENABANK.
Derivative Strategy
Scrip : RELIANCE CMP : Rs. 1062.95/- Lot Size : 250 Expiry Date (F&O) :
29th July, 2010
View: Mildly Bearish Strategy: Long Put Expected Payoff
Buy/Sell Qty Scrip Strike Series Option Buy Rate Price
Closing Price Expected
rofit/Loss
Profit/Loss
Price Type (Rs.)
Buy 250 RELIANCE 1050 July Put 20.00 Rs. 1000.00 Rs. 30.00
Rs. 1020.00 Rs. 10.00
BEP: Rs.1,030.00/-
BEP:
Rs. 1040.00 (Rs. 10.00)
Max. Risk: Rs.5,000.00/- Max. Profit: Unlimited
Profit:
Rs. 1060.00 (Rs. 20.00)
If Stock closes at or above Rs.1050 on expiry. If RELIANCE continues to trade below BEP
.
Rs. 1080.00 (Rs. 20.00)
Note: Profit can be booked before expiry, if stock moves in a favorable direction.
ote: Rs. 1100.00 (Rs. 20.00)
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10. Fund Focus
Mutual Fund Focus | June 26, 2010
Exchange Traded Funds and Gold ETFS
exchange-traded
An exchange-traded fund (ETF) is a type of fund whose investment Working of an Exchange Traded Funds
objective is to achieve the same return as a particular market
index. An ETF is similar to an index fund in the sense that it will
Primary Market ETF Issuer Secondary Markets
primarily invest in the securities of companies that are included in
a selected market index.
ETF Asset Classes Authorised
Market Making/ Seller
Participants / Financial
ETFs can be of the following underlying asset classes Arbitrage
Institutions
Equity: ETFs investing in Equity Indices e.g. Nifty BeEs Cash ETF
Bonds : ETFs that invest in Debt e.g. Liquid BeEs Buy/Sell
Commodities: ETFs that invest in Commodities e.g. Gold ETFs
Stock Exchange
Subscription /
Features of ETFs Redemption
Immediate exposure to an entire or specific market. Cash ETF
Correlation to the benchmark close to 1.
Very low total expense ratio: 0.45% on average.
No subscription/redemption fee. Fund Buyer
No maturity date.
Equally accessible both to institutional and retail investors. Current Scenario - Diversification with Gold
Broad range of asset classes. Hedge against inflation.
Advantages of ETFs Hedge against a declining dollar: Strong Negative Correlation.
Allows you to implement asset allocation or portfolio investment Safe haven in times of geopolitical and financial market
decision as Single Investment which is, instability.
• Easier to track. Commodity based on gold's supply and demand fundamentals.
• Small Investment amount.
Store of value.
Asset Classes are much simpler to track than individual stocks
Portfolio diversifier; gold can act as portfolio insurance.
since you do not have to worry about,
• Quality of management. Due to rise in demand of gold, gold prices have increased thus
causing a rally in stocks of gold mining companies.
• Accounting frauds.
• Off Balance sheet derivative losses. Due to lower inflation & deflation the input costs have come
down thereby providing operating cash flows.
• Individual Credit Quality.
High quality and well diversified portfolio. Share prices of gold mining companies appreciate at twice the
gold price.
Generates income from frozen account.
Since there is a negative correlation between the equity markets
Gold Exchange Traded Funds-ETFs and gold it can act as hedge against the down fall in equity
Open-ended MF schemes backed by units of physical gold. markets.
Follow a passive investment strategy.
Advantages Gold ETFs
Buys & holds gold on behalf of investors without actively
managing it. ETFs allow investment in gold in small denominations, which
makes it easier for the retail investor to participate.
Aims to give returns as close as possible, post-expenses, to that
given for gold as a commodity. Quick and convenient dealing through demat account.
Investor can buy & sell quickly at market price, making them No storage and security issue for investors.
highly liquid assets.
Taxation of Mutual Fund.
Intra-day trading is possible with an ETF, but not with
open-ended mutual funds. Can be traded on stock exchange like buying / selling a stock.
Disclaimer: Angel Broking Ltd is not responsible for any error or inaccuracy or any losses suffered on account of information contained in this report. Data is obtained from MFI Explorer. Mutual Fund
investments are subject to market risk. Please read the Scheme Information document carefully before investing.
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