The week past and expected
Technically speaking: In the last week the market opened lower but failed to break the multi support level 4930/16600
in spite weakness in Indian rupee. It sustained at 4930 level and on Wednesday it recovered sharply that has helped bulls
to surpass the major level 5180/17350 on Thursday on the last week.
The formation of one and half month for the market suggests us that the market is in rectangle consolidation between
the levels 4930/16600 and 5180/17350, which is a bullish formation in terms of upward break out. On Thursday the
market has broken upward range and closed near to the same with an increase in volumes that has lifted the "medium
term trend of the market into positive territory". It seems that the market will sustain above the upward boundary level
5180/17350. If it happens then the minimum upward target for the market we may expect between the range 5300 and
5330 (17900) and maximum between 5400 and 5430 (18400). The level of 5090/17050 and 5050/16940 will act as a major
support for the week.
For the day on the higher side the level of 5235/17540 may act as a major hurdle for the market as the rally seems to be
over retraced in the short term it may invite profit taking around the same. In case the market lowers at the beginning
then the level 5140/5100 (17225/17100) may act as a major support for the market and positional traders can create fresh
long positions with a medium term view in mind.
In the last week there was sideways consolidation in pharmaceutical, cement, telecom and sugar stocks. There was
outperformance in steel and Infra stocks. The performance of the auto and IT was not satisfactory but still they have
managed to close into positive territory with a positive bias for the coming week. The trend was mixed in other metal
stocks and we have seen recovery in banking stocks from lower levels due to their oversold nature of the previous week.
In the current week or for next few days we may expect outperformance in Index stocks especially Reliance, ICICI Bank,
ONGC and HLL. Sector specific, we may see the positive activity in Infra, Capital goods, Power and Real estate stocks. The
positive activity in pharmaceutical and auto stocks depend on how fast they can come out of the sideways consolidation. IT
stocks may do well but we may expect outperformance in second line IT stocks. The mixed activity in metal stocks will keep
the trend volatile or stock specific.
Market wide open interest is seen at Rs 1,24,756 cr. Nifty futures have
seen significant fresh addition in the Jan series with positions in the Dec
series seen on the higher side.
n Nifty resumed its up-trend at 4950 odd levels. On the higher side resistance
is expected at 5180 after which we expect the index to test 5350.
Dec turnaround is seen at 5067 above which buyers remain strong.
n Real Estate major HDIL remains strong above 332 for 380 on the higher
side. Century textiles is expected to test 515/545 on the higher side. For
the medium term we remain positive on Biocon and GAIL.
n IDFC remains strong above 147 for 173/195 on the higher side; we advice
maintaining long positions with a stop loss placed at 147. Metal majors
continue to trade with a positive bias led by Tata Steel for an initial target
of 650.
n OI concentration is seen at 5200 call and 5000 put options. Call writing is
seen at 5300 while put buying is seen at 5200 strike. In the Jan series,
some call writing is seen at 5200-5250 levels; OI remains on the lower side
as of now.
LIC HOUSING FINANCE LTD
PRICE: RS.792 RECOMMENDATION: BUY
TARGET PRICE: RS.925 FY11E P/E: 9.0X; P/ABV: 1.9X
q Traction in mortgaged book likely to continue; we expect a 30% advances
growth in FY10 and 25% in FY11
q Net margins likely to improve following re-pricing of high of cost borrowings
due to replacement during Q3FY10
q Superior return ratio support valuation; risk-reward ratio has turned favorable,
with 15% upside from current market price levels.
q We upgrade our stock recommendation to BUY from Accumulate earlier
and maintain our price target of Rs.925 for the stock
Strong traction in mortgaged loan book
n Improving macroeconomic scenario and revival in retail demand will led to
strong traction in the mortgage finance business. India has relatively lower
mortgage penetration at ~6% of GDP, thus provides a broader landscape for
mortgage finance players.
n LICHF reported a strong growth of 32% yoy in its mortgage loans during
H1FY10 to Rs. 318.9bn, in the backdrop of whopping 75% growth in disbursement.
We expect the healthy growth trend to continue for the H2FY10 following
improving demand for real estate from the retail segment.
Net margins likely to improve following re-pricing of high of
cost borrowings due to replacement during Q3FY10
n In the wake of improved liquidity and easing of interest rates, we opine that
with replacement of high cost borrowings with relatively cheaper funds during
Q3FY10 will support net margins. We maintain our NIM estimates of 2.9% over
FY10 and FY11.
n We expect strong growth in earnings for LICHF on the back of robust mortgage
loan growth coupled with likely improvement in net margins. We expect a net
profit growth of 35% yoy for FY10 to Rs. 7.2bn and 14% yoy in FY11 to Rs.
8.2bn. Additionally, our earnings growth estimates factor in the recent equity
dilution and gains on sale of stake in LIC Mutual Fund for Rs. 1.38bn.
Higher recoveries and stringent credit monitoring aided material
improvement in asset quality
n Stringent provisioning policies and higher impetus on aggressive recoveries
aided significant improvement in asset quality, with improvement in coverage
ratio to 81% and a Gross NPA of 1.07% and net NPA of 0.21% in FY09. The
material turnaround in the asset quality has facilitated premium valuation for
the stock.
n In the wake of improvement in overall operating scenario, further significant
slippages in the mortgaged book are less likely. On the contrary, we expect
LICHF's asset quality to remain healthy, given its continuous efforts to check delinquencies
and enhanced recoveries
