FUNDAMENTAL STOCK PICK
CASTROL INDIA LTD.
RECOMMENDATION:
Book Profit.
Over priced/under weight.
About the Company:
Castrol India is the largest private sector lubricant company in India with nearly 21 % market share.
The Co. produces engine oils for automotive, industrial and marine & energy segments. In the auto segment, company provides diesel engine oils to trucks, tractors & off-road equipment; gasoline engine oils to passenger cars for 2-stroke & 4-stroke oils to motorcycles & 3-wheelers. In the industrial segment, company caters to the metals, auto & machine manufacturing segments.
The Co. has very popular brands which include Castrol Active 4T, Castrol RX Supermax, Castrol CRB Turbo, Castrol Magnatec, and Castrol Power
The Co. has tie up with original manufacturer like maruti, tata motors, hero Honda, jcb, mahindra, BMW, VW, MAN, Audi, Volvo and Renault to sale its products.
Having good brands, good profit margins, clients, and yes debt-free status; why one should book profit/avoid investments OR why are we underweighting share of this company?
Lest look at the financial of the company.
Debt-free status is good for long term sustainable growth.
The stock is trading at P/E multiple of 30 which is high for the the engine oil company.
While valuing a debt free company with investments guru warren buffet style we look at the cash flow per share. Stock is trading at 26 time of the cash flow per share which is much higher at current levels.
Return on net worth (RONW) and Return on capital employed (ROCE) are excellent.
Strong brand, high return on capital but valuation parameter are high like P/E multiple and cash flow with this look at the main raw material crude oil which is constantly rising and it is expected to rise further so this will hit margin significantly in future so at this levels stock is trading at high priced and we underweight the stock and advising to book profit/avoid new investments.
MUTUAL FUND PICK
HSBC MID CAP FUND
Recommendation: Avoid this fund, because the fund fails to deliver good return and underperforming its bench mark.
WEEKLY MARKET OUTLOOK:
Support at 5130/5050/4990.
Resistance at 5303/ 5360/5410.
Last week we had give sell call on nifty fu and stop loss get triggered. We had created hedge position by buying call options of different strike price so we have covered most of losses.
Market is rising with lots of liquidity pumping By FIIs and domestic’s institutions (many time told in my fundamental analysis).
After constant rise from budget we are still below last high of 17800 and 5300 respectively for Sensex and Nifty. Yes, we have not broken the lower bottom of 15300 and 4500 for nifty but we need to cross and substation above 17800 and 5300 with very good volume.
If the above condition happens then we have given Elliott wave analysis of “common flat a-b-c” pattern and which can take Sensex to 19300/19600 and in last leg it can cross 21000 mark also.
But we need to sustain above 17800 for quite some time say for 4 consecutive weeks, last time after Dubai-fall Sensex has taken out the 17500 levels but it sustained above 17500 for 2 weeks and panic started; so this time we need to close above 17500 for at least 4 week thereafter we will see the next up move from hear.
In technical analysis every penny counts, still after such a rise we have not cross the high and in my last report I have argued about “head and shoulder” pattern and if we are not able to cross the high 17800 and 5300 then problem is their and doors for down side is open so remember my following words
“The rule of the game (stock market) is to be in direction of major trend and get out when the trend has reached the stage where almost everyone has become complacent and careless.”
Everything is described in above three lines and we advise you to book profit if you have invest money before budget (yes we were telling in every report this is buying opportunity) and put all your money in to liquid mutual fund schemes and enjoy vacation and come back if Sensex close above 17800 for 4 consecutive weeks.
GLOBAL STOCK MARKET UPDATE:
Dow Jones-
It is trading at crucial resistance levels of 10500 to 11500 levels, so be careful on higher side.
S&P 500-
For this broader index, the major resistance area is 1178; if it closes three consecutive + weekly closes above 1178 then it will move further. As per time series this is 13 month from low of 675.
MOMENTUM TRADING CALLS:
Friends, the market is at high speed and if you don’t wear helmet while you running motorcycle at speed of 100, then your life is at risk.
Hear we suggest you some trading calls but we also suggest you to buy April month put option to hedge you buying position because market is running on high speed and any single bed news will create vertical fall and you may loose significantly.
Hedge by,
Buy April month 5000 put trading at 44.
Buy April month 4900 put trading at 29.
Buy one lot of each with total premium of 3650
Trade in half quantity what you regularly trade in market in following stocks:
Cairn India Ltd.
Stock broken triangle, buy with stop loss 270 targets 303
Mercator lines Ltd.
This stock has given breakout from inverted head and shoulder pattern; buy with stop loss 56 targets 70.
Reliance infrastructure Ltd.
Buy with stop loss 1010 target 1044/1050.
Sesa goa
Buy with stop loss 437 targets 470/490.
Aditya Birla Nuvo
This stock broken inverted head and shoulder pattern; buy with stop loss 850 targets 930/960.
ALERT: We expect profit booking in jai corp, Indian hotels, hind copper and hindalco. So we suggest avoiding going long in these scrips.
QUOTE OF THE WEEK:
" I don't want a lot of good investments, I want a few outstanding ones."
-Phill Fisher, Famous Successful investor.
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