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Markets continue downslide
During the week, markets were on a rollercoaster ride and finally ended in
the negative zone. The benchmark indices, the Sensex and Nifty, lost 4.2%
each. The Indian markets showed weakness during the week, giving away
previous gains despite the global markets remaining flat or positive. Unlike
earlier weeks, markets were highly volatile this week on the back of
apprehensions that the RBI may hike the interest rates to curb inflation. The
BSE mid- and small-cap indices fell in line with the large-cap index, losing
3.3% and 3.9%, respectively. On the sectoral front, the BSE Capital Goods
index was the biggest loser, down 5.9%, followed by the BSE Realty index
and BSE Bankex, down 5.3% each. The BSE FMCG index fared better than
the other indices, losing only 1.5% of its value during the week.
BSE capital goods index underperforms the Sensex
The BSE capital goods index was the major loser during the week, declining
5.9%, primarily due to November 2010 IIP numbers, which rose lower than
expected by 2.7%. The index also underperformed the Sensex by 170bp for
the week ended January 14, 2011. Hardening interest rates coupled with
the prospects of their further increase on the back of higher inflation are
likely to raise the borrowing cost for industries, which may adversely impact
their growth. The expected slowdown in the manufacturing sector may also
delay capex projects, leading to fewer order intakes for the capital goods
sector going ahead. Factoring the above negatives, capital goods stocks
such as Gammon India, Thermax, L&T, BGR Energy and Alstom Projects
corrected sharply during the week.
Inside This Weekly
Infosys Technologies - 3QFY2011 Result Update : Infosys reported revenue
of US $1,585mn, up merely 5.9% qoq, primarily on the back of muted
volume growth of 3.1% qoq. The company managed to maintain its EBITDA
as well as EBIT margins qoq at 33.3% and 30.2%, respectively.
We recommend Accumulate on the stock with a Target Price of `3,605,
valuing it at 24.7x FY2012E EPS of `145.9.
Sintex Industries - 3QFY2011 Result Update : Sintex reported consolidated
revenue of `1,186cr, up by 39.9% yoy, in line with our expectation. Strong
revenue growth was mainly led by the monolithic segment (up 171% yoy),
Bright Autoplast (up 49% yoy), textile segment (up 29% yoy) and international
subsidiaries (up 20% yoy). We have revised upwards our earnings estimates
for FY2011 and FY2012 by 8.0% and 8.6%, respectively. At `167, the stock
trades at 8.1x FY2012E EPS and 1.7x FY2012E BV. We maintain Buy with a
Target Price of `229.
SAIL - 3QFY2011 Result Update: SAIL reported net sales of `11,143cr, in
line with our estimate of `10,825cr. However, net profit came in at `1,107cr,
below our estimate of `1,200cr. We maintain Accumulate on the stock with
a revised Target Price of `182 (`198).
Bears in control - 200-Day SMA under threat
Sensex (18860) / Nifty (5655)
In our previous Weekly report, we had mentioned that markets
are at crucial support levels and any weekly close below 19629
/ 5883 levels would breach the upward sloping trendline and
confirm the "Bearish Engulfing" pattern on the weekly chart.
On the downside, the indices are likely to test 19321 - 19074
- 18954 / 5800 - 5721 - 5690 levels. The week opened on a
pessimistic note and selling dominated the week and the indices
made fresh lows of 18812 / 5640 levels. The Sensex and Nifty
closed with a net loss of 4.2% vis-à-vis the previous week.
Pattern Formation
�� On the Weekly chart, we are witnessing confirmation of
lower-top lower-bottom formation. The formation has emerged
on the charts for the first time after March 2009 and suggests
weakness going ahead.
�� On the Daily chart, prices are marginally close to the
200-day SMA, which is at 18674 / 5600 levels. Further, the
trend following indicator viz. the ADX Line (-DI > +DI) is gaining
momentum, which suggests continuation of the on-going
downtrend.
Future Outlook
The coming week is likely to roll out with negative sentiment.
The immediate support for the indices is the 200-day SMA,
which is at 18674 / 5600 levels. The current price action, which
has confirmed the lower-top lower-bottom formation on the
weekly charts coupled with the rising ADX Line (-DI > +DI) on
the Daily charts, suggests high probability of breach of the
200-day SMA (18674 / 5600 levels). Any close below 18674 /
5600 levels would intensify the selling pressure and the indices
may test 18500 - 17800 / 5550 to 5340 levels in the next
couple of weeks. On the upside, 19450 - 19720 /
5833 - 5900 levels may act as strong resistance for the week.
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