Get ready for bottom fishing

C. Kutumba Rao

Markets extended their losses for seventh straight week. With the week ended, the Sensex and the Nifty recorded losses of 3,981 points and 1,142 poi-nts respectively in a continuous string of weekly losses. On the BSE, the Sensex ended the week with a loss of 348 points or 2.52 per cent at 13,454 and the Nifty on the NSE shed 121 points or 2.92 per cent to close at 4,016. Weak undertone and lack of conviction was refl-ected in sharp losses registered by CNX Midcap and BSE Smallcap indices. A flood of negative news in recent months such as surging crude oil and commodity prices, double digit inflation, fleeing FIIs, weakening rupee, and political uncertainty have impacted the markets to such an extent that India’s market cap to GDP ratio has fallen from 1.8 to 0.9. With too many "gloom and doom" reports doing rounds, contrarians say it is time to start bottom fishing. Barring any unforeseen negative developments on political and economic fronts, markets may stage a modest rally on the back of good first quarter earning reports. For the week ahead, chartists predict wide trading band of 12,800-14,500 for the Sensex and 3,840-4,300 for the Nifty. Expect support at 13,180 and 12,800 and 3,960 and 3,840. Near term resistances for the indices are at 13,800 and 4,140. For indices to go into intermediate uptrend, the Sensex and the Nifty should trade above 14,450 and 4,325 steadily. Though the road ahead for markets continues to remain hazy and uncertain in near term, long-term investors should start buying fundamentally good stocks in parts.

***

f&O

Despite high volatility, volumes have improved in derivatives segment indicating that selective buying is emerging and some short positions are being squared off. Discount between Nifty futures and spot has come down to 37 points from 59 points in the previous week. Average of Nifty July series futures is 4,070. Close abo-ve 4,070 may trigger short covering, say traders. Buy Nifty 4300 strike call option for ‘random’ gains tip punters. Implied volatility and put/call ratio have gone up modestly suggesting fresh short positions and bear grip on markets. A strong relief rally is not ruled out, say savvy players. Steady increase in wholesale markets of sugar and a fall in the season’s crop area may see sugar stocks deliver sweet returns in coming months. Stay invested and add on dec-lines companies like Shree Renuka, Bajaj Hindustan, Triveni and Balrampur Chini. Buy on declines Dr Reddy, Divi Labs and Ranbaxy. Further gains indicated in Orchid and Aurob-indo. Beaten down realty stocks are being given a relook on new valuation parameters like lease and rental income streams, etc. Modest rally indicated in near term.

With valuations becoming attractive, select power, capital goods and telecom counters. Valuations of ba-nk and infrastructure stocks have become very attractive for long term buying.

***

SATTA GUPCHUP

n Open offer for i-Flex Solutions by Oracle likely to be revised to Rs 1,800, say sources close to company circles. Use corrections to buy for delisting gains.

n Stake sale in Petronet LNG at Rs 80 to major international investor on cards. Among the names doing rounds is Lakshmi Nivas Mittal. Stay invested in the counter.

n Samajwadi Party leader Amar Singh’s political gains likely to be reflected in stock price of Energy Development Company, which he chairs.

n Savvy punters were seen accumulating counters like Sunil Hi-tech, Geodesic Info, Pioneer Distilleries and Indsil Electro. Indsil Electro has two divisions-smelter division producing low carbon silicon manganese and hydel power division. Buy at current levels for target price of Rs 135. Sunil Hi-tech has bagged large orders from National Thermal Power Company and JSW Steel. The company is likely to report EPS of Rs 35 for 2008-09. Buy at current levels for medium term. After recent sharp correction Pioneer Distilleries is reportedly on the radar of leading liquor major. Buy at current levels for ‘doubling’ returns in medium term.

n Value hunting has begun again. ‘Fund’ interest in Astra Microwave and investments by ‘biggies’ in Shrenuj & Co and Archies are some examples. Look out for companies showing heightened activity.

n Renewed buying interest was seen in diamond companies. Gitanjali Gems, Suashish, Classic and Shrenuj warrant a look say punters.

C. Kutumba Rao is a Hyderabad-based stock market analyst. The views expressed and the recommendations made are those of the author. Readers are strongly recommended to consult their financial advisors before making any financial investments. This newspaper is not liable for investment decisions made on the basis of recommendations in these columns.