Indian Equity Indices - From The Desk Of Research

Indian equity indices went through a turbulent week as they failed to negotiate a close above the neutral line for even a single session and eventually snapped the week with a cut of over two percent. The week largely remained characterized by choppiness because investors were reluctant to pile up positions and indulged largely in stock specific activities as corporate India continued to divulge their fourth quarterly report card. Volatility gradually accelerated session after session as the April series Futures and Options settlement neared while quarterly earnings' announcements by RIL,Wipro,Bank of Baroda, Ambuja Cement,

Crompton Greaves, TVS Motors were punished badly as they remained below Street's expectations.On one hand spiraling international crude oil prices become the headache of policymakers while on the other, worries over global economic recovery loomed large, given the fact that world's biggest economy continues to grow at a tepid pace. The April series F&O settlement day turned out to be another pathetic trading session for the Indian stock markets as the selling pressure gathered greater momentum after government released the disappointing food inflation numbers which stayed absolutely flat at 8.76% on annual basis during week-ended April 16 compared with 8.74% recorded in the previous week. Rate sensitive counters like Real Estate and Bankex witnessed relentless selling pressure through the week ahead of the RBI's annual monetary policy review meet on May 3rd where it is expected to bite the bullet and hike rates by 50 bps to cool the spiraling inflation which has vehemently hovered at uncomfortable levels on the back of crude oil prices which have skyrocketed by over 50% in last six months. The Foreign Institutional Investors on the other hand ploughed back their money from the local markets to the extent of Rs 2,703 crore in the week on expectations that deteriorating domestic macro headwinds will have adverse impacts on the companies' earnings thereby reducing the returns on investment. The Bombay Stock Exchange (BSE) Sensex lost 466.27 points or 2.38% to 19,135.96 during the week ended April 29, 2011. The BSE Mid-cap index declined by 141.07 points or 1.95% to 7,094.23 and the Small-cap index shed 163.26 points or 1.84% to 8,715.31. On the sectoral front, Reality lost 201.17 points or 8.45% to 2180.10,

Capital Goods (CG) shed 607.16 points or 4.45% to 13,036.91, Bankex declined by 468.163 points or 3.46% to 13545.13, Oil & Gas tumbled by 301 points or 2.92% to 10,008.27 and Metal index down by 467.98 points or 2.81% to 16,190.59,were the top losers on the BSE, while Health Care(HC) adding 74.77 points or 1.21% to 6232.55 and FMCG advanced 24.78 points or 0.66% to 3755.16 were the only gainers on the sectoral space. The S&P CNX Nifty trimmed 135.20 points or 2.30% to 5750. On the National Stock Exchange (NSE), Bank Nifty lost 3.46% to 11,483.75, CNX mid-cap shed 1.36% to 8,200.95, CNX Nifty Junior declined by 1.35% to 11,376.70 and CNX IT tumbled by 0.92% to 6718.35. Conclusively we expect slightly range bound scenario between 5555-5960 though sentiments remain subdued for the upcoming sessions. Any closing above this 5960 with substantial volumes for at least 2 consecutive days may generate another 2-3% return and we might see 6070-6080 in the short term.HAPPY TRADING......

Read more about  Stock Market Monthly Report By Mansukh

Nifty 50 Sensex From The Desk Of Research

The rebound in international crude prices by around a percent in the back of the ongoing turbulence in Libya and neighboring nations too weighed on the local sentiments. However, the rally in software and technology stocks capped the downside risks for the markets while the ease in inflation numbers to single digits during the week-ended March 19 after showing an unexpected increase in the previous week also supported the investor mood.

Indian frontline indices went through a rollercoaster ride on the settlement day of March series futures and options contracts as sentiments turned highly volatile in the second half of the session. The seven successive days of winning streak got extended for yet another day, thanks to the late short covering rally after the indices drifted to the red terrain on the back of hefty position squaring in rate sensitive and healthcare counters . The rebound in international crude prices by around a percent on the back of the ongoing turbul ences in Libya and neighboring nations too weighed on the local sentiments.

However , the rally in software and technology stocks capped the downside risks for the markets while the ease in inflation numbers to single digits during the week-ended March 19 after showing an unexpected increase in the previous week also supported the investor mood. The NSE's 50share broadly followed index Nifty, settled a tad below the crucial 5,850 support level, after surging around a percent while Bombay stock Exchange's Sensitive Index, or Sensex garnered over one hundred fifty points and closed just below the psychological 19,450 level. In the broader markets especially the mid cap stocks after a tremendous rally in last session showed some sign of fatigue but managed to hold in green. The BSE's Midcap and Smallcap indices went home with trivial gains of 0.29% and 0.21% pectively, underperforming their larger peers by quite a margin. On the sectoral front, The IT pocket grabbed the top gainer's position after garnering 1.92% on hopes that upbeat results and outlooks last week from global technology majors Oracle Corp and Accenture bode well for resurgence in tech spending. 

The paper stocks continued to remain in jubilant mood while AP Paper Mills once again got locked in upper circuit other paper stocks too traded higher. On the other hand, the Banking sector languished at the bottom of the table after slipping 0.70% as majors like SBI and Indusind Bank plummeted 3.19% and 4.87% respectively..Among most active underlyings SBI witnessed a contraction of 13.08% in the March month futures contract, followed by Reliance which saw a contraction of 7.05% of OI in the near month contract. Tata steel witnessed an addition of 0.50% in the near-month futures and Tata Motors witnessed an addition of 14.21% in the near month futures contract . Meanwhile, the government is set to release a revised FDI policy circular later in the day hoping to attract greater amount of foreign funds in the next financial year beginning April 1. Among other modifications, the third edition of the Consolidated FDI Policy Circular (CFPC) may contain guidelines on domestic companies issuing shares to foreign entities for considerations other than cash, a move aimed at checking possible misuse of FDI policy to engage in money laundering.

At current juncture we expect the same scenario in the upcoming sessions though possibility of profit booking around 5875-5885 couldn't be rule out. Any closing above this level may generate another 250-300 pts rally and we might see 6070-6080 in the next series. On the flip side any negative outcome from global side particularly from Middle East Asia may dampens the current euphoria. Technically too spot index rallied from last 8 consecutive sessions. Therefore ossibility of minor retracement near to 5550-5570 could be on higher side however any correction should be used to create fresh long positions.

Mansukh brings to you the most updated monthly magazine which will not only help you in understanding online share market but will also help you in doing online stock market trading conveniently and smartly. For all the latest happening of  Share market trading, visit www.moneysukh.com.

Equity Research Weekly Market Outlook Report By Mansukh 26-March-2011

SNAPSHOT

Despite starting the week with a lackadaisical performance and ending below the crucial support levels of 5,400 and 18,000, the benchmarks convalesced on Tuesday and carried forward the strong rally for rest of the of the week as they vivaciously conquered a lot of psychological levels on their way up. The consolidation in crude prices around $105 levels despite escalating turbulences in the Middle East nations was also seen as an opportunity by the local investors who resorted to broad based buying as tabling of the banking sector amendment bill and the Constitution Amendment Bill in parliament buttressed the chances of a rebound for the domestic indices. Moreover, bourses rallied over two percentage points on the last trading day of the week to finish the action-packed week on an exciting note. The spurt on the last trading day in benchmarks was not only due to sanguine leads from the global market but also on encouraging local cues like the overall growth  in the farm sector being pegged at 5.4% along with finance minister's avowal of 9% growth in the next fiscal in the upper house of Parliament stoking investor sentiments. 

Boisterous Indian stock markets witnessed an awe-inspiring week of trade as it seemed like the bullishness of the recent past has come to the fore. The frontline indices accumulated over a gargantuan five percentage points for the week taking the benchmarks to around two month high levels as optimistic global cues coupled with encouraging local developments fortified investors' mood. The Bombay Stock Exchange (BSE) Sensex surged 936.83 points or 5.24% to 18,815.64 during the week ended March 25, 2011.The BSE Mid-cap index gained 3.25% to 6,721.56 and the Small-cap index advanced 2.61% to 8,001.63. All the sectoral indices on the BSE were in the positive terrain; Realty was up 184.64 points or 8.99% to 2,237.87, Bankex up by 741.78 points or 6.09% to 12926.07, IT up 344.65 points or 5.74% to 6,344.62, TECk up by 198.55 points or 5.62% to 3729.29 and Capital Goods (CG) up by 646.72 points or 5.23% to 12,373.27 were the major gainer. The S&P CNX Nifty zoomed 280.55 points or 5.22% to 5,654.25. On the National Stock Exchange (NSE), Bank Nifty surged 6.27% to 11,387.30, CNX IT soared 5.77% to 6,930.65, CNX Nifty Junior advanced 3.08% to 10,943.10 and CNX mid- cap gained 3.05% to 7,824.15. 

WEEK AHEAD
Amidst rising crude oil prices would continue to be threat for the equity markets in the coming week which is characterized by the volatility of  the expiry of F&O series for the month of March, Investor's in the coming week will be eagerly eyeing the core sector growth data, as measured
by the index of six key infrastructure industries, having a combined weight of 26.7% in the Index of Industrial Production (IIP) and also the HSBC India Manufacturing PMI data for the month of March. Further, investor's will keep a close watch on telecom stocks as recommendations on the proposed new policies for telecom infrastructure and manufacturing will be coming in the next week. On the global front, investor's will be eyeing lots of major economic data from the US, starting with Existing Home Sales data on March 21,2011, New Home Sales data, Durable Goods Orders and Jobless Claims data and finally the Corporate Profits data.  Therefore any closing above 5670-5690 for at least two consecutive days may reap indices towards 5800-5850 where we might see some sort of consolidation. On the flip side 5355 still a major support for the March series. HAPPY TRADING…..

Trade In Crude Being Extra Alert Mansukh Monthly Report

Crude oil price still appears to go up but how long this bullishness will sustain is very difficult to predict. So do trade in crude but being very active & cautious.

A MONTH ago Brent crude oil stood at around $96 a barrel and Hosni Mubarak was ensconced as Egypt's ruler. Now he is gone, overthrown by a display of people power that is shaking autocratic leaders across North Africa and the Middle East. And oil has surged above $111. Little wonder. The region provides 35% of the world's oil. Libya, the scene of growing violence this week, produces 1.7m of the world's 88m barrels a day. So far prices have not been pushed up by actual disruptions to supply. Oil hit a peak even before news emerged that some foreign oil companies operating in Libya would stop some production and that the country's ports had temporarily closed. As we think, oil prices are driven both by current conditions and by future expectations.

Oil markets don't like surprises. The sudden ousting of Mr Mubarak and the unrest in Libya, Bahrain, Yemen, Iran and Algeria (which between them supply a tenth of the world's oil) have added 16% to oil
prices. But the big worry is that spreading unrest will culminate in another shock akin to the oil embargo of 1973, the Iranian revolution or Iraq's invasion of Kuwait. Oil is now more global than it was during those previous crises. In the 1970s production was concentrated around the Persian Gulf. Since then a gusher of non-OPEC oil has hit markets from fields in Latin America, West Africa and beyond. Russia overtook Saudi Arabia as the world's biggest crude supplier in 2009; OPEC's share of production has gone from around 54% in the mid- 1970s to just over 40% now.

If Libya's oil stopped flowing importers would look to Saudi Arabia to make up the shortfall. The oil could probably flow to fill the gap in Europe, Libya's main market, in a matter of weeks. That is ample to plug a Libyan gap but would hasten the day when growing world demand sucks up all spare production capacity and sends oil prices rocketing. Despite rising prices, Saudi Arabia has so far been reluctant to turn its stopcocks. OPEC claims that the world is amply supplied with oil and seems content with a price around $100 a barrel. Traders hope that Saudi Arabia will boost production stealthily or that OPEC will call a special meeting to raise quotas and calm markets.

The worst-case scenario for oil prices would be some kind of disruption to Saudi supply itself. That concern has become livelier given the unrest in neighboring Bahrain. The tiny island kingdom produces little oil but is of vital strategic importance in the Persian Gulf, a seaway that carries 18% of the world's oil. America's 5th Fleet, which polices the Gulf against troublemakers (i.e. Iran), uses the country as a base.

The Saudis may also fear that protests by Bahrain's Shia population could spill over their own borders. Saudi Arabia's eastern provinces are home to both its oil industry and most of its Shias, who may also have cause for grievance with their Sunni rulers. One crumb of comfort is that oil facilities across the region are generally located far from the population centers, where protests tend to be concentrated, and are well defended against anything but a concerted military assault.

The impact of a crisis would therefore depend on how much oil production was lost and for how long. Even seismic shocks in oil- producing countries might not cut off supplies for very long. Yet the example of Iran shows what can go wrong. The world could probably weather a short-lived crisis. But the damage if oil prices spiked and stayed high for a long time could be great for the recovering economies of the rich world. As for the prospects of reducing the importance of the Middle East to global oil supplies, forget it. Strong Asian demand is likely to mean that OPEC's share of oil production rises again as it pumps extra output eastward. A troubled region's capacity to cause trouble will not diminish.

India’s domestic Oil production is insufficient (at 0.8 million barrels per day), to meet with growing demand of oil in the country. India is hugely depends on the OPEC countries for his requirements. Instability in political scenario and some rise in crude oil prices will also affect National Stock Exchange and Bombay Stock Exchange. Equity market and commodity and exchange market, seems to get most affected from this.

Tips To Make Better Options Trades

Buying options by the traders is always being considered while keeping the focus on the premium paid rather than the potential returns. Whereas this is important information in terms of making a calculated trade, many options traders tend to lose sight of the probability of the market reaching and exceeding its position's strike. The average monthly range of the market number provides perspective on two important elements of an options trade: whether volatility is expanding or contracting and whether the market has a chance of reaching and exceeding the breakeven point of the position.

What Is The Probability?
It is commonly said that the majority of options expire worthless. If that is a true statement and you are trading a position that is long premium (i.e. buying a call or a put), you need the market to have a chance of reaching a price that will make your option position profitable. When considering an option position, it is important to consider if it is probable that the market will reach that point. Just because the premium paid is cheap or under priced does not make the trade a good one, especially if the market has little or no probability of reaching that goal.

Calculate the Average Monthly Range
To calculate the average monthly range, all you need is access to reliable historical prices. For any stock, you can get historical open, high, low and closing prices for a given date range. This will give you all the key numbers that will be used in the calculation - the high and the low for each trading day. To calculate this average for a given period of time, subtract the low from the high for each month to get that month's range. For the time frame, add up each month's range and divide by the number of months.

Select a Time Period
Generally, it pays to look at a time frame of twice the length of the option position you are considering, and then break this up into two separate blocks of time. For example, if the option you are considering has three months of time to expiration, look at the average monthly range of the last three months, the three months prior to that and the last six months.

Apply the Strategy
Generally, an Option Strategy involves the simultaneous purchase and/or sale of different option contracts, also known as an Option Combination. There are such a wide variety of option strategies that
use multiple legs as their structure, however, even a one legged (Long Call Option) can be viewed as an option strategy. That is, if a trader thought that Coca Cola's share price was going to increase over the next month a simple way to profit from this move while limiting his/her risk is to buy a call option. Of course, s/he could also sell a put option. If the market price of an option contract implies that it is 50% more expensive than the historical prices for the same characteristics, then you may decide against buying into this option and hence make a move to sell it instead.

Words of Caution
In certain markets and at certain times, by using the average monthly range to choose options strikes, we may find that the implied volatility has pushed the option premiums to unreasonable levels. This causes smaller traders to buy strikes that are too far out of the money, simply because they want to be in a given market and have limited capital. In these cases, the use of the average monthly range should be telling you to either avoid that market, or to use a strategy that can get you closer to the current market price, such as a debit spread (bull call spread or bear put spread).

The Debit Spread
In certain market conditions, the debit spread gives the investor a limited risk position and gets closer to the current market than buying an option outright. In exchange, the investor sacrifices unlimited gains for a limited, but defined, maximum gain. This is often a favorable tradeoff, and will keep the investor grounded in the reality of what the market is more likely to do. The advantage of
unlimited gains is normally only effective if the market were to make a rare historic move.

Option Trading Tactics:
Option trading is still one of the safest methods of trading although it considered risky by many. Although, there are credit ratings of different firms based on the liquidity of options. Being an underlying asset, buyer of the option gains the right, but not the obligation. In India, the biggest player in options trading is National Stock Exchange and Bombay Stock Exchange. Since options listed in NSE & BSE separately, it results in tough competition from each other. Exchange having more volume will have more liquidity. So keep these things in mind while trading in Options.

Equity Research Technical Analysis Report BY Mansukh February 2011

ALBK's NII for Q3FY11 has grown-up by 55.7%yoy to Rs10.5bn driven by more than 30% yoy (+4% qoq) growth in advances and 14bps expansion in NIMs to 3.4%. The advances expansion was muscular at 32% yoy and 6% qoq principally driven by SME and corporate advances, which grew by sturdy 9%qoq and +7%qoq respectively. However, we consider that the advances growth on yoy basis is likely to cool off by 6-7% for FY11 due to hostile base effect. The CASA mix declined by 144bps to 33.3% in Q3FY11 as the bank raised term deposits aggressively during the quarter, a growth of 8.8%qoq. ALBK's CAR remained comfortable at 12.8% with tier I CAR of 8.1%. We believe that ALBK's current valuations of 1.6x FY11E ABV and 1.2x FY12E ABV are extremely attractive looking at average 22% RoAs for FY11- 12E.

On technical perspective, stock currently shows some correction from the highs of Rs 272 however we believe it's a temporary one. And we may see some counter actions in the near term. Nevertheless its technical indicators i.e. RSI and MACD also revealed some buying opportunities in near term.

Sterlite Industries (Sterlite) reported slightly better Q3FY11 numbers. Disenchantment on copper and power segment's performance got remunerated by above expectation results in Zinc business. On the back of higher than expected mined metal volumes, Zinc business reported an EBITDA of Rs15.0bn above our expectation of Rs14 bn. Contrary to performance in Zinc business, Copper reported an EBITDA of Rs2.3bn due to lower mined metal production at and below expected refined metal production at domestic operations. Power business reported numbers well below our expectation coupled by Commissioning of Sterlite Energy's (SEL) further got delayed by a quarter to revised schedule of Q4FY11 with an overall delay of a year.

On technical viewpoint, stock has shown some consolidation around Rs 160 (200 dma). In close proximity we believe stock is well poised to move in upward direction. Moreover it's RSI and other technical indicators also suggest some buying opportunities due to its over sold territory. Hence investors are advised to BUY this stock for a price target of Rs 175-190 in one month.

MECHANISM OF DERIVATIVES PART-III OPEN INTEREST

After providing the best possible tutorials in our last two sessions on mechanism of derivatives now we will discuss about some more dynamics of derivatives. Derivatives are either used for hedging or for speculation and if you would like to be an active player in the derivatives market than “open interest" is also an important market indicator that could lead you in the right direction. By definition, Open interest refers to the total number of derivative contracts, like futures and options that have not been settled in the immediately previous time period for a specific underlying security. A large open interest indicates more activity and liquidity for the contract. For each buyer of a futures contract there must be a seller. From the time the buyer or seller opens the contract until the counter-party closes it, that contract is considered 'open'.

What is Open Interest?
Every trade in the exchange would have an impact on the open interest for that day. Say, for example, `A' buys one contract of Nifty on Monday while `B' buys two on the same day. Open interest at the end of the day will be three. On Tuesday, while `A' sells his one contract to `C', `B' buys another Nifty contract. The open interest at the end of the day is now four. In other words, if both parties to the trade initiated a new position, it increases the open interest by one contract. But if the traders square off their existing positions, open interest will decrease by the same number of contracts. However, if one of the parties to the transaction squares off his position while the other creates one open interest will remain unchanged. Open interest, thus, mirrors the flow of money into the derivatives market, which makes it a vital indicator of market direction. Here is how you interpret open interest.

Advantage of Monitoring Open Interest
By monitoring the changes in the open interest figures at the end of each trading day, some conclusions about the day's activity can be drawn

Rising Market with Increase in Open Interest
If the markets are on an uptrend and open interest is also increasing, it is a bullish signal. It implies the entry of new players into the market, which are creating fresh long positions and suggests the flow of extra money into the market.

Rising Market with Decrease in Open Interest
If despite a rise in market, the open interest decreases, it can be interpreted as a precursor to a trend reversal. The lack of additions to open interest shows that the markets are rising on the back of short-sellers covering their existing positions. This also implies that money is flowing out of the market, given that open interest is decreasing.

Falling Market with Increase in Open Interest
When open interest records an increase in value amidst a falling market, it could be a bearish signal. Though a rise in open interest means that new trading positions are being created and fresh money is getting routed into the market, the new money is probably being used for creating fresh short positions, which will lead to a further downtrend.

Falling Market with Decrease in Open Interest
If open interest decreases in a falling market, it can be attributed to the forced squaring-off of long-positions by traders. It, thus, represents a trend reversal, since the downtrend in the market is likely to reverse after the long positions have been squared off. Thus, in a falling market, a declining open interest can be considered a signal indicating the strengthening of the market.

Sideways Market with Increase in Open Interest
When the market is range-bound and there is marked rise in the open interest, we can expect a significant movement in the National Stock Exchange and Bombay Stock Exchange. However, the direction of the move cannot be predicted.

Sideways Market with Decrease in Open Interest
If the open interest decreases in a sideways market, we can say that flat market trends will continue for some more time. A decrease in open interest only represents the squaring-off of old positions and lack of any new positions might result in a sideways or weak trends in the market. Though open interest is a good barometer of where the markets are heading; it is only an indicator that helps us trade intelligently; it cannot be considered foolproof.