FUNDAMENTAL STOCK PICK:
RELIANCE INFRASTRUCTURE LTD.
CMP 1062, TARGETS 1500/2000.
The company belongs to ADAG (Anil Dhirubai Ambani Group) having presence in power and infrastructure sectors.
Reliance Infrastructure is not only India’s largest private sector company in power but also the largest private sector company in many other infrastructure sectors of India.In the power space it is involved in generation, transmission, distribution and trading of electricity and constructing power plants.
In the infrastructure space the company is focused on roads, Urban infrastructure which includes MRTS, Sea link and Airports, Specialty Real Estate which includes business districts, trade towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as free trade zones.
The engineering, procurement and construction (EPC) division has an order book of Rs 21,500 crore.
In the Urban Infrastructure business, it is the country’s first and only private sector builder and operator for Metro Systems. It is already into construction of the first line of Mumbai’s Metro system stretching 12 kms from Versova to Ghatkopar. Besides it has also won the Delhi Metro’s airport express link stretching a length of 22.5 kms. The total investment for these two projects is Rs 4900 crore.
In specialty real estate business, it is the country’s first and only private sector builder to build India’s first 100 storeyed building, a trade tower and business district in 80 acres of land in Hyderabad. The total investment for this project is Rs 6,500 crores.
In Special Economic Zones (SEZs), it is developing over 180 mn sq ft of SEZ for IT/ITES, retail hospitality in Mumbai and Noida with an investment worth Rs 31,000 crore.
The infrastructure assets include six roads and two metro rail projects. The company has a healthy balance sheet, with over Rs 10,000 crore of cash and cash equivalent.
The company has plans to a JV venture for the electrical equipment manufacturing business. In collaboration with Shanghai Electric, the company is examining the feasibility of setting up equipment manufacturing facilities for power generation, to cater to the domestic sector and to markets in the Middle East, Africa and South East Asia. The progress on the project will purely be on the basis of cost benefit analysis.
Hold your breath we have something more about this company…
This company holds 45% in reliance power which will generate 34000 mega watt powers in the next 7 to 8 years.
If we calculate the valuation @141 of reliance power then stake value per share of reliance infra will go to 1500.
Book value 525 per share (only of reliance infra and not unlisted company).
Total valuation= Reliance Power valuation + book value
=1500+525.
Total value=2025.
Now at price of 1062 what you are paying?
What is the value of infrastructure business?
What is the value of 981 mg power capacity?
Looking at above factors and analysis our price projection are 1500 and 2000.
MUTUAL FUND PICK:
HDFC PRUDENCE FUND
Recommendation: BUY.
Rational:
Excellent track record of equity investments.
Excellent track record of high grade debt investments.
Consistence dividends pay out.
WEEKLY MARKET OUTLOOK:
SUPPORT AT 4700/4600/4550.
RESISTANCE AT 4907/4970/5050.
Trend reversal or correction? a million dollar question.
11% correction so far from 5300 to 4700.
Let’s paint the scenario to give answer of above question a trend reversal or correction by two way (1) technical analysis arguments (2) fundamental analysis arguments.
(1) TECHNICAL ANALYSIS ARGUMENTS
This time lest see some more theory based analysis.
(1) FALLING WEDGE
If you look at the chart one we have drawn two trend line on lower top lower bottom formation this is called falling wedge as per general rule falling wedge gives trend reversal from falling market to rising market.
If this happen then we may see faster recovery from current levels.
(2) FIBONACCI-RETRACEMENT
Look at the chart no two we have drawn the Fibonacci retracement from 7697 to 17658.
The value of 23.6% retracement comes at 15400 .if we manage to hold this levels and market get recovery then we may consider this support has been taken by index.
It is not necessary to touch the support levels.
(3) 233 DMA
Look at the chart no. 3.
200 dma is widely used by all over world.
But at this crucial time we have used 233 dma ,if we calculate the value of 233 dma then it is 15380.
If market continues to trade well below 233 dma for 2-3 week then main trend can be in danger.
But in our case if we manage to hold this level then it will create heavy buying from the traders who follow technical analysis.
(4) DOW THEORY
Look at the chart no. 4.
As per dow theory index need to move in higher top higher bottom formation.
Index has already made higher top at 17500 now we need to substation above higher bottom which is placed at 15300.
If we manage to hold this support and cross the higher top of 17500 then we will consider this as normal pull back from 17500 levels and main trend of higher top higher bottom is intact.
(5) CANDLE THEORY
Look at the chart No. 5.
Look at the chart no 5, on quarterly chart index has make “HANGING MAN” formation.
As per hanging man formation if next candle close below the low of hanging man on quarterly basis then bears can take control of market.
On the other side if next candle close above the high of hanging man which is 17500 then bulls will take control of the market.
(2) FUNDAMENTAL ANALYSIS ARGUMENTS
In India we have good corporate earning along with good GDP numbers unlike most countries last year.
India has political stability and growth visibility, this thing likely to continue to be one of the favored markets.
Indian economy is domestic consumption story rather then export oriented so we will have our own growth story on the long run.
We believe that gold price are at higher levels and may not substation at this levels for now as dollar index has start recovering and will continue to recovery till 81 which will bring more correction in gold market .
We believe that falling gold price is good news for emerging market like India and china.
Hedge fund money will find another asset class (emerging markets) to park their money to earn good return.
If we remember in 2008 hedge fund have taken crude oil to $ 147 and then it fell to $32 and this money enter in to gold-due to sub-prime crisis and falling dollar index against major currencies.
Always remember money moves from one asset class to another asset class.
Dollar index to strengthen further and gold price will correct further and this will force hedge fund managers to exit from gold and find new asset class (emerging markets) to invest their money.
At this levels India and china offers good domestic consumption story with young generation will attract hedge fund money.
WHY STRONG DOLLAR AND WEAK GOLD ?
(1) DOLLAR INDEX
Look at the weekly chart we have put RSI and MACD-both are positive.
Along with this we have put caltner channel and this is trying to cross this channel, as per rule when index close above the upper channel, index comes in the hand of powerful bulls.
Which looks positive and dollar index can move from current price of 80.36 to 81.25/82.96/85.
Strengthen in dollar will bring correction in gold price.
(2) COMEX GOLD
Look at the daily chart of comex chart; it has formed the “head and shoulder” pattern.
Closing below the neckline of 1060 will trigger sell of by hedge fund and in panic it will slide to 1020/990 and even to 975 levels.
So strengthen in dollar index against major correction will trigger sell of in gold which can trigger inflow in Indian and Chinas market.
In short run market may move according to technical levels but in the long run it move along with economy and corporate earning.
Investments guru of world BENJAMIN GRAHAM says in short run stock market is voting machine and in the long run it is weighing machine.
We believe that there are ample opportunities available which can yield higher returns.
These have to un covered through research and meticulous stock selection.
In such scenario active portfolio management is likely to outperform passive strategies.
In India we will have good growth under insurance sector (particular ULIP) which will pump long term money in to Indian market.
Along with insurance sector online mutual fund will also help to tap the rural and urban money vary fast in long run.
Biggest Mistake Done By Common Investor Is,
They Don’t Buy When Stock Market Come Down At Value Buying Levels.
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We suggest investor our MID CAP PMS 1 AND 2 SERIES who has investment horizon of 1-2 years.
We suggest investor our 4ACE PMS who has investment horizon of 5 years or more.
CONCLUSION
So over all both on technical and fundamental arguments we believe this is not trend reversal and just a correction and trader and investor should find out value buying in market.
