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Top 10 stocks you should look at
Salil Panchal & Hemen Kapadia / Morpheus Inc. in Mumbai |
December 01, 2004
The Indian equity market struck its all-time high of 6272.68 points earlier on Wednesday. On Tuesday, it closed at its highest ever closing figure of 6234 points.
Foreign fund inflows, according to the Securities and Exchange Board of India, are also their highest level (net investments of $7.08 billion) for the calendar year 2004, with buying interest expected to sustain into early next year.
Within this scenario, it may seem easy to go stock-picking as mid-cap stocks and Sensex heavyweights have gained across-the-board over the past two months.
This is not true. To make your investments really count it is important to time your entry / exit levels at these higher levels.
We are of the view that this momentum will be sustained, but with minor bouts of profit booking and correction.
We have identified 10 stocks which look to be attractive buys over the medium term, some from a fundamental viewpoint, others from their strong charts and anticipated corporate activity.
The Top 10
Merck Ltd (erstwhile E-Merck India Ltd) is the Indian arm of German company Merck KgaA, a global pharmaceutical company. It is a major player in vitamin formulations and has gradually increased its presence in cardiovascular, anti-infective and anti-malarial segments to widen its therapeutic reach.
The company enjoys leadership in the laboratory reagents market in India.
From a technical viewpoint, Merck Ltd gave a downward key reversal, entered an intermediate correction and declined to post an intra-week low of Rs 333.25 during the week ended March 26, 2004, while strong support from the 55-week EMA (exponential moving average) resulted in an upward key reversal.
The scrip then reverted so to speak and started moving within the confines of the original upward sloping channel while there was additional reinforcement in the form of the 55-week EMA.
Currently Merck Ltd has shown fresh positives by giving an upward breakout from a rectangle formation on the weekly chart, signaling the onset of an intermediate uptrend with even the longer term mechanical indicators supporting the move, a further upside from these levels seems to be on the cards.
Gillette India Ltd (formerly Indian Shaving Products Ltd) is a 52 per cent subsidiary of the Gillette Co, USA the global leader in shaving systems.
Gillette India completed its restructuring process between 2001-03 and received cash infusion from the parent, which helped it restructure and pay of all its debt. The company has hived off its battery manufacturing plant (Duracell) at Manesar.
It is now a focused grooming products company and revenue growth appears to be back on track. The company posted double digit growth at 16 per cent year-on-year in the September-end 2004 quarter.
From a technical analysis perspective, Gillette India stock bottomed out by posting an intra-week low of Rs 499 during the week ended March 26, 2004 where support came in the form of a demand line.
Since then, Gillette India has been moving sideways in a consolidation pattern and has only recently shown fresh signs of life.
Currently the scrip has bounced back after taking support on a demand line and the 55-week EMA, while -- more importantly -- it has closed above a supply line and has posted a 26 week high indicating further upside for the stock.
Corporate developments make this stock an essential buy. The government has softened its stance on ownership in banks and indicated allowing 10 per cent creeping acquisitions each year.
This will liberalise the area of private and foreign ownership in Indian banks and trigger an investment re-rating in all private sector banks.
HDFC Bank will come out with a $ 300 million American depository receipt (ADR) issue by mid-January, 2005, following the recent board approval.
For the quarter ended September 30, 2004, HDFC Bank earned a total income of Rs 867.4 crore (Rs 8.674 billion) as against Rs 730.9 crore (Rs 7.309 billion) in the corresponding quarter ended September 30, 2003.
Net revenues (net interest income plus other income) for the quarter ended September 30, 2004 were Rs 548.3 crore (Rs 5.483 billion), up 28.0 per cent over Rs 428.5 crore (Rs 4.285 billion) for the corresponding quarter of the previous year.
HDFC hopes to list its life insurance joint venture, HDFC Standard Life Insurance Company, in coming years. The bank is planning to increase the deposit and lending rates. The bank's lending rates were at 9.5-14.5 per cent for automotives (depending on the sector and category), 16-19 per cent for personal loans and around 17 per cent for two-wheelers.
MphasiS BFL is a key BPO player, which has already established itself as an integrated player.
The management says it sees signs of preference in major Request for Proposals (RFPs) due to its status in software services and BPO services. Development work will continue to be outsourced to locations like India.
The company is looking at possible acquisition targets in both its business segments, though this will take some time. MphasiS' performance in the software services business over the past two quarters has been disappointing due to the merger issues with its top client and also scale down/delays in some projects.
On the other hand, the BPO business has continued to improve. We are positive on the company-wide performance on a longer-term basis.
Talks of the much-awaited merger of MTNL and BSNL have commenced in earnest. Communications and Information Technology Minister Dayanidhi Maran has said the government would finalise the plan for synergising operations of MTNL and BSNL by mid-2005.
The net worth of the two state-run telecom companies is placed at Rs 350 billion.
It may not be a market favourite, but we see value in MTNL over the long-term. The business conditions for MTNL have improved considerably of late. MTNL will be among the biggest beneficiaries of the rising telecom spends in the country.
MTNL will start its own international long distance (ILD) services in 2005 and the PSU has written to the department of telecom (DoT) to grant it licence for the same.
Yes. You've read right. We are of the view that the Reliance Industries stock holds strong fundamentals even at this stage.
The company has seen the most tumultuous two weeks in recent years, with boardroom battles between the Ambani brothers. The media might have played up the rift and differences of opinion between the Ambani brothers, but from a group perspective, there is a lot at stake and from a management perspective, the company is professionally managed with a huge talent pool and overall functioning does not stand to suffer.
RIL vice chairman Anil Ambani, in his latest email to employees, has hinted at reconciliation and taking the company ahead with brother and RIL chairman Mukesh.
The stock will obviously see further volatility but investors should look at buying Reliance Industries at lower levels. It would be prudent for investors to access their risk bearing capacity and buy in small lots at lower levels.
However, those who prefer to invest only in few stocks, should wait until the storm clouds blow over. From a fundamental viewpoint, over the medium to long-term, looking at cash flows, there is little to worry about.
Even the technical charts, over a medium- to long-term show an upside.
SAW Pipes is a global player, with state-of-the-art manufacturing facilities in India and USA. It is India's only manufacturer of Submerged Arc Welded (SAW) Pipes using U-O-E technology.
SAW Pipes, in recent quarters, had suffered due to rising raw material (steel) costs and the company quoted poor financial results with a 26 per cent dip in net profit for Q2 FY05.
But SAW Pipes appears to have tide over the worst and consolidated margins will improve in coming quarters. In the next 12 months, SAW Pipes will add other business segments like DICI pipes segment, and seamless tubes.
On the technical charts, the scrip gave a deep correction and bottomed out by posting an intra-week low of Rs 119 during the week ended June 11, 2004 only to give an upward bar reversal and staged a smart recovery.
Currently SAW Pipes has perked up after a 17 week consolidation phase, closing above the 55-week EMA and with the weekly mechanical indicators signaling a buy, the scrip seems set to appreciate further from these levels.
State Bank of India:
A market favourite, SBI continues to attract buying interest from retail investors, domestic and foreign funds. In SBI's case, an improving loan growth, stabilising margins and increased operating efficiency make fundamentals strong.
On the charts, SBI entered a corrective phase which gathered downward momentum only when it decisively breached and closed below the Rs 550 level on the weekly chart and collapsed to an intra-week low of Rs 399.95 during the week ended July 9, 2004.
Since then, the SBI stock is moving sideways in a rather large trading range roughly between Rs 400 on the downside and Rs 499 on the upside, while there was addition pressure in the form of the 55-week EMA.
Currently the scrip seems to be setting the stage for an upward breakout from the aforesaid trading range and has closed above the 55-week EMA, with the weekly mechanical indicators signaling a buy and a further upside.
Tata Metaliks, promoted by Tisco, is engaged in the business of manufacturing and selling pig iron. With domestic steel demand rising and the hardening of international steel prices in recent years, we foresee some more business upside potential for Tata Metaliks.
For FY2004, the company had made an EPS of Rs 10, which represented a 70 per cent growth in its earnings compared to the previous fiscal. This year till the end of 1HFY2004, the Y-o-Y earnings of the company have already grown by 270 per cent, and should close this fiscal performance with tremendous profits.
Given our optimism on the growth prospects of its end user industries, we expect this stock to perform positively in the medium term and recommend a buy at these levels.
The Tata group major, it is now a diversified automobile manufacturer with utility vehicles, commercial vehicles and passenger cars. The company has spread its manufacturing facilities across India and this is coupled with nationwide sales, service and spare parts network.
The company enjoys a significant demand in export markets like Europe, Australia, South East Asia, Middle East and Africa.
Tata Motor net revenue increased by 31 per cent y-o-y to Rs 41.5 billion during the previous quarter on the back of 22 per cent growth in sales volumes. The company posted a PAT of Rs 3.1 billion in 2Q FY05, a 50 per cent rise compared to Rs 2.1 billion in 2QFY04.
On the technical charts, Tata Motors declined to post an intra-week low of Rs 330.40 during the week ended May 21, 2004 and started moving sideways in what seemed to be a consolidation phase.
Currently the scrip has bounced back after taking support on the 55-week EMA, is moving in an ascending triangle formation on the weekly chart and this has signaled the onset of an intermediate uptrend.