Bank, energy, metal stocks will face selling pressure
Equity benchmarks upheld consolidation bias for the fourth successive session and lost more than half a per cent amid excessive intraday volatility. In line with decline in index, majority of sectoral indices closed in red and the market breadth also turned flat by the end. Nifty has been trading roughly in a narrow range of 8,800-8,900 for the last four trading sessions and either side decisive break would trigger the next directional move. Till then, traders are advised to maintain stock specific trading approach and keep leveraged positions hedged. We reiterate our preference for defensive pack i.e. IT, FMCG and Pharma alongside with selective stocks from the infra space for long trades. In case of decline, PSU bank, energy and metal stocks may attract fresh selling pressure so plan your positions accordingly.
Jayant Manglik, president-retail distribution, Religare Securities
GDP growth rate pegged at 7.4% for current year
The new GDP figures released recently reflect an earlier-than-expected recovery as the government is pegged economy growth at 7.4 per cent for 2014-15. Sector-wise industry is expected to recover while the services sector will continue to remain resilient. Other sectors that are expected to do well are finance, insurance and real estate services. On the hand agriculture output will remain a drag on GDP and is expected to be modest. The government’s optimism on GDP front is after a change in the base year. We believe that RBI will study the historical data in detail and evaluate India’s potential before giving too much significance to government released estimates. The RBI according to us is likely to focus on more high-frequency indicators to evaluate the revival in the economy. The government estimates on GDP are clearly not in-sync with other high-frequency indicators which continue to signal weakness in the economy. In fact, the central bank in the last monetary policy meeting also highlighted the same. As such, RBI is likely to study this data in quite detail and evaluate India’s new potential GDP growth to understand at which point of the business cycle the economy is currently at.
Robust business model
NTPC’s revenue growth, although flat, was in line with our expectations. However, key highlight in the performance was strong EBIDTA at Rs 45.4 billion. This is credible given lower profitability in first half 2014-15 owing to new regulation. Higher fixed charge recovery rather than incentive contributed to better performance, in our view, as generation and plant load factor (PLF) was muted. In third quarter 2014-15, power generation stood at 61.3 billion units (BU) and sales stood at 57.2 Bus. Coal and gas project PLF too were in-line with estimate at 81 per cent. NTPC is our top-pick given relatively robust business model, strong cash flow, low leverage, beneficiary of improved demand and generation. The stock is cheap in terms of valuations. We upgrade our estimate by 9 per cent for 2014-15 and expect net profit of Rs 88 billion for this fiscal year. Bonus debenture, dividend payout provides comfort to this stock.
KSK Energy Ventures third quarter adjusted loss at Rs 988 million was higher than expectations. We have revised earnings expectation of the company downwards for 2014-15 and 2015-16. We expect the earnings performance of the company to be weak until the ‘open access issues at Wardha’ is resolved and Mahanadi is commissioned. We are positive on the stock on account of correction in the price and also because we expect Mahanadi to be a reasonable return on equity project. Further, with formation of new government in Maharashtra, we expect resolution of open access issue at Wardha. On the other hand, concerns are a weak investor sentiments for the scrip in near term till clarity emerges on coal block auctions or coal linkage in lieu of coal block. Nonetheless we are positive on the stock. We have factored in a 1 per cent reduction in interest rates in our valuations which means a 15-20 per cent upside potential in the scrip.
Emkay Global Financial Services