Weekly Review of India Stock Market

Nifty turns volatile; clear picture to emerge soon!

Sundaramurthy Vadivelu

Disclosure Please click on the above link to view the disclosure document before reading this article. The contents may not be reproduced in any form without obtaining prior permission from the publisher. Please send your feedback

Over the last 6 trading sessions, the Nifty witnessed lot of volatility (4 days on the upper side due to profit booking and 1 day on the lower side due to pull back) and confusion prevailed as to what the next move could be.

In the last week’s review we discussed about the formation of a bullish engulfing pattern at the top of an uptrend. I had mentioned that the Japanese view it as “double lovers’ suicide’ and profit booking may start. This was exactly the case, as shown in the daily chart below.

http://groups.google.com/group/theindiastreet/web/Nifty_Daily_140907.jpg

While the bullish engulfing pattern formed at support levels in a downtrend is considered as a reversal sign, the one formed at the top of an uptrend is an indication that the market may witness profit booking or a possible downtrend may start.

In the above chart, last Friday, just after the formation of bullish engulfing pattern, a red candle with a long upper shadow appeared. The same was the case this Tuesday, Wednesday and Friday, indicating the sessions encountered sell off. On Monday, the formation of long lower shadow means that the attempt by the bears to push the index down was negated by the bulls. On Thursday Nifty gained 32.10 points, the only session bulls were in total control without much volatility either on upper or lower side.

The following table gives the sessionwise gain/loss for Nifty.

Date	Points Gained	% Gain / Loss
10-Sep-07	-1.65	-0.04
11-Sep-07	-10.80	-0.24
12-Sep-07	-0.20	0.00
13-Sep-07	32.10	0.71
14-Sep-07	-10.95	-0.24

Nifty gained 8.50 points (0.19%) for the week. However, it still did not close above 4530, an important resistance level. It just missed it by 1 point on Thursday when it closed at 4529.

http://groups.google.com/group/theindiastreet/web/Nifty_Intra_140907.jpg

The intraday chart of Nifty (Source: NSE web site, www.nseindia.com) shows the profit booking that started after the middle of the trading session. It also tells us about the inability of the bulls to maintain the index at higher levels right through the day.

However, there are no reversal signs yet in both weekly and monthly charts of Nifty and we maintain our bullish view of medium and long term.

In the Nifty futures contract though, there is a bullish engulfing pattern at the top of the uptrend; but the volatility could not be found. Also, no reversal sign can be seen in this chart too.

http://groups.google.com/group/theindiastreet/web/NF_Sep_140907.jpg

Forecast for next week:

Last week I had mentioned that we got a clue but no confirmation. Now that the clue has been proved correct, we should expect a reversal signal and correction this week. This correction, when happens, will be good for the index. It is worth mentioning here that, after the last month’s correction, Nifty has retraced about 90% from its low at 4002.

Is there any possibility that index may breakout on the upper side without getting corrected? Though one may not rule out this straightaway, the chances are negligible, as seen from the volatility and profit booking at higher levels.

Advance / Decline Ratio:

Date	Adv.	Dec.	Unch.
10-Sep-07	612	515	26
11-Sep-07	492	630	29
12-Sep-07	589	537	27
13-Sep-07	653	474	24
14-Sep-07	314	824	15

Top Gainers / Losers among Index stocks:

Scrip	% Gain	Scrip	% Loss
SUZLON	7.01	HCLTECH	9.71
RPL	6.47	WIPRO	5.85
STER	5.40	TCS	5.00
DABUR	5.06	CIPLA	4.71
IPCL	4.78	SATYAMCOMP	4.24

Top Gainers / Losers in overall market:

Scrip	% Gain	Scrip	% Loss
TIDEWATER	55.90	DCHL	19.87
MARKSANS	40.13	DECOLIGHT	16.71
NAUKRI	38.48	SELMCL	15.05
AFTEK	34.94	ROLTA	13.73
NOVAPETRO	33.24	SUBEX	12.92

Sundaramurthy Vadivelu

Suggested Reading

Candlestick Patterns in Indian stock markets READ THIS if you want to learn how to invest in India’s stock markets India Stock Market – Monthly Review for August 2007 Weekly Review of India Stock Market India's Futures & Options Market : An outlook

Stock of the week: Reliance Energy Limited

Sundaramurthy Vadivelu

Disclosure Please click on the above link to view the disclosure document before reading this article. The contents may not be reproduced in any form without obtaining prior permission from the publisher. Please send your feedback

Reliance Energy Limited was formerly known as Bombay Suburban Electric Supply Limited (BSES) before Reliance group took over the company in 2002.

Reliance Energy is involved in the generation, transmission and distribution of power in Mumbai, Delhi, Kerala and Orissa. It is also an ‘Engineering, Procurement and Construction’ player in power sector.

Reliance Energy distributes more than 28 billion units of power to 25 million customers across the country. It generates about 940 MW power and the power stations are located in Maharashtra, Karnataka, Kerala, Andhra Pradesh and Goa.

In addition, it currently executes projects having total generation capacity of 13,500 MW using gas, coal, wind and hydro power in Maharashtra, Uttar Pradesh, Arunachal Pradesh and Uttarkhand. Reliance Energy has also entered into the infrastructure business, including the Mumbai metro rail project and various road projects of the National Highways Authority of India. It is also active in the trading and transmission of power, making it a fully integrated player in the power sector.

Reliance Energy is a part of Reliance – Anil Dhirubhai Ambani Group, which has interests in telecommunication, power, capital markets and entertainment. After the demise of founder Dhirubhai Ambani in 2002, an accord was reached between his sons Mukesh and Anil in 2005 when Mukesh was given responsibility of Reliance Industries Limited and IPCL; Anil got Reliance Energy, Reliance Communications and Reliance Capital.

According to reports, Reliance – ADA group is set to enter investment and merchant banking advisory services. It has already tied up with Microsoft to launch IPTV services in India.

Business Profile:

Power Generation:

Reliance Energy has the following power plants in operation:

• Dahanu Thermal Power Station (about 120 km north of Mumbai) with multi fuel feed (2 x 250 MW)

• 8 MW wind farm project at Jogimatti in Chitradurga district of Karnataka

• Combined cycle power station at Kochi, Kerala (165 MW)

• Combined cycle power plant at Samalkot in Andhra Pradesh (220 MW)

• Naptha based combined cycle power plant at Goa (48 MW)

Goa Power Station of Reliance Energy Limited

Transmission:

Transmission is an intermediary between generation and distribution and it enables transmission of power at 220 kV from Dahanu Thermal Power Station to the company's area of supply in Mumbai suburbs. It operates three modern 220/33 kV receiving stations at Versova, Aarey and Ghodbunder. There are two 220kV Lines also connected to Tata Electric (Borivali) at Aarey receiving station from where extra power flows as and when required.

Distribution:

Reliance Energy Limited's Mumbai operations cover a population of 9.0 million within an area of about 384 square kilometres.

The company’s distribution network consists of 4 zones viz.

• East Zone, from Chunabhatti to Vikhroli and Mankhurd

• South Zone, from Bandra to Vile Parle

• Central Zone, from Goregaon to Kandivali

• North Zone, from Borivali to Bhayander

EPC:

The Engineering, Procurement and Construction division of Reliance Energy has completed several projects in India and abroad. Few are given below.

• 106 MW combined cycle power plant of Gujarat State Electricity Corporation Limited at Dhuvaran, Gujarat

• 24 MW bagasse based co-generation power plant for Godavari Sugar Mills Limited at Sameerwadi, Karnataka.

• 20 MW Diesel based generator sets for Surya Chakra Power Limited at Andaman and Nicobar Islands.

Reliance Energy has executed turnkey projects in Bhutan, Dubai and Saudi Arabia.

The company has declared consistent increase in revenues in the last 4 years. For the financial year 2006 – 07, its net profits stood at Rs.801 crores as against Rs.374 crores in 2003 – 04.

Reliance Energy is a constituent of both Sensex (Free float market capitalization: Rs. 13,825 crores; weightage in index: 1.34%) and Nifty (FFMC: Rs.17,812 crores; weightage: 0.76%). Reliance Energy is traded in Futures and Options segment and the lot size is 550 shares.

http://groups.google.com/group/theindiastreet/web/REL_SEP07_FUTSTK.jpg

The daily chart for stock futures of September contracts of REL is displayed above. An increase in price, volume and open interest simultaneously suggests the bullishness in the stock futures. A bullish “three inside up” candlestick formation can also be observed.

Long term outlook:

http://groups.google.com/group/theindiastreet/web/REL_MONTHLY_110907.jpg

The stock has to close above its previous resistance at 818.40 made in March 2004 in monthly chart. It did go past its previous high in July 2007; however it did not close above it. We need to wait till the end of the month to confirm the breakout. It can be seen that the previous resistance at 385 acted as a strong support for the stock; though it had gone below 385 in June 2006 it never closed below it. Also, in July 2007 the volumes were at all time high. Going by these, the stock should be able to achieve a breakout.

Medium term outlook:

http://groups.google.com/group/theindiastreet/web/REL_WEEKLY_110907.jpg

In medium charts though, the confirmation can be seen. The stock had broken its previous resistance at 706.90 with very good volumes. When we consider the first wave with a low of 360 and a high of 582.90, the target for the third wave works out to 943, which is yet to be attained. So the medium term outlook is still bullish, with a possible increase of 68.

Short term outlook:

http://groups.google.com/group/theindiastreet/web/REL_DAILY_110907.jpg

In the daily chart, it can be observed that the stock had broken the support trendline and closed below it on two occasions. Watch a bullish “harami” candlestick pattern formation immediately after it closed below support. This is an indication of bullishness (at the bottom of downtrend, though). Whereas, we see a bullish “engulfing pattern” near the resistance, which is not a good sign. There is a possibility that the stock may turn bearish for short term. This can be confirmed by a bearish candlestick pattern when formed near resistance zones.

Conclusion:

• Short term investors may wait and watch

• Medium term investors can stay invested

• Long term investors need to look out for a monthly close above 818.40 with good volumes

Sundaramurthy Vadivelu

Suggested Reading

Stock of the week: Hindustan Unilever Limited Stock of the week: Videsh Sanchar Nigam Limited VSNL Stock of the week: Dr.Reddy’s Laboratories Limited Stock of the week: Bharat Heavy Electricals Limited Stock of the week: Infosys Technologies Limited

For the Bears - Top Five stocks to avoid

(short term perspective)

By Sundaramurthy Vadivelu

Disclosure

In the last 10 trading sessions, Nifty has always closed positive except for yesterday when it lost a meagre 3.40 points. The investors have to realize that even when the index is bullish, there will be few stocks that are bearish. Let us now analyze some of these stocks.

Atul Limited (Group: B1, Scrip Code: 500027):

Atul Limited (formerly Atul Products Limited) operates through six business divisions viz. agrochemicals, aromatics, bulk chemicals, colours, pharmaceuticals and polymers. It manufactures herbicides, fungicides, insecticides, aromatics, inorganic chemicals, dyes, epoxy resins etc. The company’s net profits were down at Rs.29.6 crores in 2006 – 07 compared to Rs.83 crores in 2005 – 06.

What does the stock market thinks about this company? Let us now see the daily chart.

http://groups.google.com/group/theindiastreet/web/ATUL_060907.jpg

An interesting “Head and Shoulder Pattern” occurred in the stock between Septermber 2005 and November 2006. The pattern was confirmed when the stock had broken the neckline support in February 2007. This is an important reversal pattern and it also confirmed by volumes. Recently the stock had broken the short term support at 74.30 and closed below it for 7 days in a row. The monthly chart suggests that the stock trading well below the 61.8% retracement level at 84.65. So it is better to avoid the stock for short term.

Elgitread (India) Limited (Group: B1, Scrip Code: 590023):

The company specializes in manufacture of tyre retreading equipments. The product range includes inspection spreaders, tread builders, curing chambers, tyre buffers, envelope expanders etc. It also manufactures retreading tools/materials and repair equipment/materials. The company’s net profits stood at Rs.8.63 crores for the financial year 2006 – 07.

http://groups.google.com/group/theindiastreet/web/ELGITYRE_060907.jpg

This stock has encountered a “descending triangle” breakout as shown above. It has fallen from a high of 56.50 in September 2005 to 23.30. It closed below the support at 23.50 for 14 days in a row – an indication that crowd is not at all interested in the stock. Somehow it managed to close above 23.50 only for a day; again it has gone below it for 6 days in a row. The bearish target for the stock works out to 15.05 which is still more than 30% away.

Hindustan Petroleum Corporation Limited

(Group: A, Scrip Code: 500104):

Hindustan Petroleum Corporation Limited retail outlet in Mumbai

HPCL is a constituent of Nifty, BSE 100, BSE PSU, BSE Sectoral Indices – Oil and Gas. HPCL is a Fortune 500 company having 20% market share for petroleum products in India. The corporation operates 2 major refineries producing a range of petroleum products, one in Mumbai with 5.5 MMTPA (million metric tonnes per annum) capacity and the other in Vishakapatnam with a capacity of 7.5 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited, a state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA.

The company’s net profits declined consistenly in between 2003 and 2006 – mainly attributed to the increase in crude oil prices. It declared a net profit of Rs.1571 crores for the year 2006 – 07, 3.86 times the previous year’s figure of Rs.406 crores.

http://groups.google.com/group/theindiastreet/web/HINDPETRO_060907.jpg

In the above chart, volumes have been hidden to maintain clarity. The stock has broken on the bearish side with “descending triangle” breakout with a triangle height of 72.85. This when deducted from a low of 237.15 gives a bearish target of 164.30. During May 2004 when Indian stock market was witnessing huge fall, this stock lost nearly 35%. The Nifty has been shown in the above chart as a comparison. Hindustan Petroleum has not been moving along with the index in the last three months.

Rico Auto Industries Limited (Group B1, Scrip Code: 520008):

Rico Auto Industries is a world class engineering company supplying a wide range of high precision, fully machined aluminum and ferrous components and assemblies to automobile manufacturers around the country and all over the world. The product list includes fuel system parts, oil pump assemblies, turbine housings, crank cases, gear housings, flywheels etc. Some of the clients include Tata Motors, Hero Honda, Maruti, Ford, Volvo etc. The company’s net profits were at Rs.25.8 crores for the financial year 2006 – 07.

http://groups.google.com/group/theindiastreet/web/RICOAUTO_060907.jpg

This stock too, has had a “descending triangle” breakout last month. The triangle height is estimated to be 12.90 and the bearish target works out to be 25.10. The stock has been badly hit in the last couple of years. It has fallen from 114.60 in September 2005 to 33.95. The company has declared nearly consistent profits around Rs.35 crores between 2004 and 2006 but the market is simply not interested in this stock.

Zenith Computers Limited (Group B1, Scrip Code: 517164):

Zenith Computers is one of most powerful brands in the Indian IT industry.One in every three branded PCs in Indian homes is a Zenith PC. Zenith PCs are now exported to Europe, South Africa, rest of Asia and the Middle East. Zenith’s products include both desktop as well as laptop PCs.

The company has declared a net profit of Rs.9.60 crores for the financial year 2006 – 07.

However, in the daily chart of the stock, a “descending triangle” breakout was formed during last month, as shown below:

http://groups.google.com/group/theindiastreet/web/ZENITHCOMP_060907.jpg

After the breakout, it has been continuously trading below the previous support at 49.70. Recently, the stock has broken the new short term support at 43 and closed below it. The bearish target for the stock works out to be 28.85.

From the above discussion, one can understand that the company’s business and profit margins have little or no impact with the stock prices.

Sundaramurthy Vadivelu

Suggested Reading

Chart Patterns and market’s reaction Top Ten Signs a Stock is Going to Move up or down 5 India stocks to avoid (short term perspective) 5 More Stocks to Avoid in the Short Term 5 India Stocks to Avoid in the Short Term 5 India stocks to avoid (medium term perspective) 5 Reasons to be bearish on these Stocks (short term perspective)

Rakesh Jhunjhunwala’s insights

Quick Summary

• Expect a market slow down in the short term due to US subprime woes

• More money being poured into India Stock markets

• Mutual fund money supplies have increased

• the corporate sector will grow faster than the unorganized sector

---

Even super bull Rakesh Jhunjhunwala says he believes that the next few months will be tough for Indian markets.

In a recent presentation to the students of IIT Mumbai, he approvingly quotes former US Federal Reserve chairman Alan Greenspan saying that “history has not dealt kindly with the aftermath of protracted periods of low-risk premiums.” He says the impact of the current credit crisis in the US will lead to a slowdown in the US economy, and that is bound to affect world equity markets. But the pain in India is likely to last for only a short time. “India may benefit,” argues Jhunjhunwala, “but only after an intermittent transition period.”

What’s the basis for this upbeat view? Continued…

Source: LiveMint

Stock of the week: Videsh Sanchar Nigam Limited VSNL

Disclosure

The India Street Analysis

Videsh Sanchar Nigam Limited (VSNL) is India’s leading provider of International Long Distance (ILD) services and Internet services (Hindi: Videsh = Foreign Country; Sanchar = Communication; Nigam = Corporation).

Until the opening up of Indian telecom industry to private players, VSNL was the sole provider of ILD services.

Brief history of the company:

In 1932, Indian Radio and Cable Communications Company (IRCC) was formed by merging The Eastern Telegraph Company (established in 1872) and the Indian Radio Telegraph Company (established 1927). Soon after the independence in 1947, Indian government took over IRCC and made it a separate department (Overseas Communication Services). VSNL was incorporated in 1986 to look after the activities of this department.

In 2002 the Indian government divested about 25% stake in VSNL and the Tata Group acquired about 45% stake in it. As of June 2007, Government of India holds 26.12%, Tata Group 50.11%, Institutional investors 14.86%, corporate bodies 0.54%, individual retail investors 2.86%. 6.05% stake is held by custodians against which depository receipts have been issued.

Business Profile:

VSNL offers the following solutions for home and personal use:

• Dial-Up Internet access

• Broadband Internet access

• Net telephony

• E-mail services

• International Calling Cards

• Web site hosting services

• Wi-Fi services

These are marketed under the brand name ‘Tata Indicom’

VSNL’s corporate solutions are given below.

• International Private Leased Circuit Service

• National Private Leased Circuit

• Internet Leased Line Service

• Bandwidth on Demand

• Managed Data Network Service

• Virtual Private Network Service

• Inmarsat (International Maritime Satellite Organisation): operation of geo-stationary satellites designed to extend phone, fax and data communications all over the world

• Providing satellite television uplinking and broadcasting facilities to many television channels

• Data Centre Services

• Video Conferencing

• Corporate Net Telephony

• Integrated Services Digital Network (ISDN)

• Corporate Dial-Up solutions

• Business messaging and collaboration services

• Ethernet Wide Area Network (WAN) services

In 2004, VSNL acquired Dishnet DSL, a Chennai based Internet Service Provider belonging to Sterling Infotec group. The acquisition helped VSNL consolidate its presence in Internet business under the Tata Indicom brand name.

Of late, other basic telephone service providers like BSNL (Bharat Sanchar Nigam Limited), MTNL (Mahanagar Telephone Nigam Limited, Delhi & Mumbai), Reliance and Bharti Airtel provide ILD services as well as broadband/dial up internet access.

VSNL is one of the 11 Indian companies listed at NYSE. In India, it is a constituent of BSE-100/TECK Index and also Nifty. At NSE it has a market capitalization of Rs.13030 crores and weightage of 0.55% in Nifty.

Over the last two financial years, VSNL has declared nearly consistent net profits of Rs.480 crores and Rs.469 crores. It has an EPS of nearly 16.4.

With the arrival of new players in Internet services industry, VSNL faces stiff competition. BSNL, MTNL and Bharti Airtel provide voice solutions (local/national/international) along with broadband connectivity through underground copper cables. Tata Indicom has also started providing wireline phones/broadband access to homes, but only at Ahmedabad, Bangalore, Delhi and Hyderabad. At some places, VSNL’s cables pass overhead; this sometimes leads to disruptions in internet services.

Only 14% of the users at www.mouthshut.com have recommended Tata Indicom’s internet services. Please read more here.

Performance in stock market:

In the monthly chart shown below, it can be seen that during the dot.com boom the stock reached a high of 3250 during February 2000. But within about 8 months it collapsed to 211. So, even fundamentally good stocks can be affected badly in certain situations. (Chart courtesy: BSE web site www.bseindia.com)

http://groups.google.com/group/theindiastreet/web/VSNL_M_BSE.JPG

Obviously it may not be possible to reach a price of around 3000+ from the current levels of 420 even in the long term. Let us now discuss the medium term trend of the stock using the weekly chart.

http://groups.google.com/group/theindiastreet/web/VSNL_W_NSE.JPG

There is strong resistance at 515.80 in the weekly chart of the stock. One can also spot the “Double Top” formation at the resistance level. This indicates bearishness. The three attempts made by the stock to pierce the resistance have turned out to be futile. Importantly, the volume has gradually gone down – an indication that not too many investors are interested in the stock. But this is the case during the recent uptrend, suggesting that the trend was weak. All these factors conclude that the stock is bearish for the medium term. Unless the stock closes above 515.80 with reasonably good volumes we can’t expect much from the stock.

Conclusion:

Those who bought at reasonably lower levels may exit the stock as it is turned bearish. Fresh long positions can be initiated for medium term after confirmation of breakout on the upper side.

Sundaramurthy Vadivelu

Suggested Reading

Stock of the week: Hindustan Unilever Limited Chart Patterns and market’s reaction Video: Entertaining Look at India’s Economic History VIDEO: India vs China - Which is Better?

5 India stocks to avoid (medium term perspective)

Disclosure

In this article let us discuss some stocks which look technically bearish for medium term. The analysis is based on weekly charts.

Allcargo Global Logistics Limited:

In my earlier article 5 India stocks to avoid (short term perspective) we discussed about Gateway Distriparks Limited, a logistics facilitator company. Allcargo Global Logistics too, is a logistics service provider. This company’s key areas of operations include multi-modal transport, container freight stations, project cargo handling, airfreight and transport logistics. It declared a net profit of Rs.17.11 crores for the quarter ended June 2007.

http://groups.google.com/group/theindiastreet/web/ALLCARGO.JPG

This stock was issued at an IPO price of 675. After it got listed in June 2006 the stock touched a high of 1355 in January 2007, twice its issue price. Watch the descending triangle breakout in the chart. From the high of 1355, it made a low of 950. Some sideways movement occurred and it just broke the support in June. However, it managed to bounce back a little but the rally could not be sustained. It has once again breached the support at 950 and closed below it for two weeks in a row. The triangle height is 405 and the bearish target works out to 545. It however may get some support at 675, being the issue price.

Hindustan Sanitaryware and Industries Limited:

Hindustan Sanitaryware and Industries Limited was set up in 1962 in collaboration with Twyfords of United Kingdom. As the name implies, it specializes in manufacture and export of sanitary equipments and materials. The product range includes sanitaryware, bath fittings, tubs, shower enclosures, whirlpools and kitchen fittings, shower partitions and panels, kitchen appliances and sinks. The company’s net profit for the first quarter ending June 2007 was Rs.6.44 crores.

http://groups.google.com/group/theindiastreet/web/HINDSANIT.JPG

This stock has already fallen from a high of 195 in May 2006 to a low of 85.50 in June 2006 i.e. a loss of 56%. The stock has not been able to cross 127.50 on a close basis (61.8% retracement from high of 195). As in the case of Allcargo, a descending triangle breakout has occurred with a triangle height of 45. The stock has managed to close below support for 4 weeks in a row. The bearish target works to 38.

ICICI Bank:

The India Street analyzed ICICI Bank IPO. I had mentioned that:

“In the monthly chart displayed above, clearly, the stock is in its 5th wave. It will find strong resistance to cross 1010. According to the wave theory, a correction should start after the completion of 5th wave, which of course needs a confirmation.”

http://groups.google.com/group/theindiastreet/web/ICICIBANK_WEEKLY.JPG

Indeed, the resistance at 1010 could not be penetrated conclusively by the stock. Moreover, the stock has just broken its support trendline and closed below it last week. Ideally, this would be a “double top” formation. A weekly close below 791 (which also happens to be 38.2% retracement) would confirm the formation of double top pattern. Watch the volumes soar as the stock breaks the support trendline. As of now, the momentum, volume and directional indicators also favour further bearishness. The last support exists at 656 i.e. 61.8% retracement level.

Raymond Limited:

Raymond Limited has about 60% market share in worsted fabric industry in India and one of the largest integrated fabric manufacturers in the world. It has textile, engineering tools and aviation divisions. Its range of brands include Manzoni, Park Avenue, Colorplus, Parx, Be:, zapp, Notting Hill etc. Its group companies J.K. Files & Tools and Ring Plus Aqua Limited are engaged in the manufacture of precision engineering products such as steel files, cutting tools, hand tools, agri tools and auto components. Raymond is one of the first corporate houses in India to launch air charter services in India in 1996. It has declared a net profit of Rs.5.37 crores for the first quarter ending June 2007.

http://groups.google.com/group/theindiastreet/web/RAYMOND.JPG

It can be seen that the stock had fallen from a high of 630 in mid May 2006 to a low of 286.50 in mid June 2006 or about 55% within one month. It somehow managed to close above its 50% retracement of 458.85 on two occasions; but never closed above 61.8% retracement. Recently it has broken its strong support at 286.50 and closed below it. Watch the volumes going up as the support levels were reached. Though extremely oversold in medium term charts, directional and volume indicators favour further downside.

Ucal Fuel Systems Limited:

Ucal Fuel Systems Limited manufactures automobile fuel system components like throttle body assembly, fuel rail assembly, high pressure fuel filter, carburettor, oil/water/vacuum pump assembly, piston cooling nozzle etc. Some of its clients are Maruti Udyog, Hyundai, General Motors, Cummins, Bosch, TVS Motor, Bajaj Auto, Yamaha and Hero Honda.

The company posted a net profit of Rs.1.69 crores for the quarter ended June 2007.

http://groups.google.com/group/theindiastreet/web/UCALFUEL.JPG

In May 2005 it made a high of 291.70. After the double top formation, it has become extremely bearish. It achieved a low of 90 in June 2006. Now it has broken that support and closed below it for 3 weeks in a row. No real buying support is available from the market for this stock at the moment.

Sundaramurthy Vadivelu

Suggested Reading

Chart Patterns and market’s reaction Top Ten Signs a Stock is Going to Move up or down 5 India stocks to avoid (short term perspective) 5 More Stocks to Avoid in the Short Term 5 India Stocks to Avoid in the Short Term

How to spot undervalued stocks

By Vipin Agnihotri

In my opinion, there are plenty of proven companies such as Reliance Industries, Bajaj Auto and Infosys technologies. But fact remains that they might be fully valued. There is no doubt that the whole market is watching their business routines and news relating to any change that may be positive or negative for those companies.

If experts are to be believed, the market quickly reacts to such information and as such their value would reflect their perceived business prospects at any given point of time. It is worthwhile pointing that the prices of such stocks may take a random walk on the basis of certain general news, which has a bearing on the overall market sentiments but having no effect on their prospects.

Generally speaking, those kinds of situations give opportunity to get into such excellent stocks at a price below the normal valuations. Remember that such events and news won’t often come. The pivotal factor here is that even if they occur also how will one know what is the right price to enter a stock. It is worth mentioning in this regard that volumes have been written on how to value stocks and volumes remain to be written on the subject. This is because of the simple reason that the circumstances keep on changing and new valuation parameters are designed and employed in such a way to meet changing circumstances.

Though, there are plenty of complex valuation routines you need to have a holistic analysis that the company is doing well on all counts and not just valuation. The India Street has decided to look into the methodology, which can help an investor adjust the limits of his parameters on the basis of overall outlook.

The methodology is more of quantitative in nature to get rid of subjectivity and needs good amount of past data regarding their balance sheet, profit and loss account and cashflows to pinpoint under-valued stocks. There is no doubt in my mind that this step-by-step approach can assist you in finding a few good undervalued stocks. But sometimes you may not find one also.

Yes, you guess it right! Finding undervalued stocks are like finding oyster pearl from deep inside the sea. In theory, the analysis involves 5 basic factors and selects only those that satisfy all the parameters used for each factor. It is up to you whether to relax a parameter because some other parameter is so good so that it will negate the weakness of the other parameter. The five factors to analyze the stocks in the market are stability, profitability, capital structure, management and valuation.

Stability can be attributed to the stable income generation capacity of the company and its potential to grow. Profitability, on the other hand means different things to different people. For a lender the total cash flow generated out of operation is pretty critical. But for an equity investor the Net Profit Margin is more important.

Suggested Reading:

Stock of the week: Hindustan Unilever Limited

5 Reasons to be Bullish in the Long Run

India stocks (long term perspective)

Disclosure

In this article let us discuss some stocks which are interesting from a long term perspective. As we have seen my previous articles, “long term” means a holding time of at least a year or more. The stocks are chosen from either A group or B1 group of Bombay Stock Exchange (BSE). The analysis is based on monthly charts.

Hitachi Home and Life Solutions (India) Limited:

Hitachi Home & Life Solutions (India) Limited is a subsidiary of Hitachi Home & Life Solutions Inc., Japan. 69.90% stake is being held by the promotors. The Ahmedabad based company is a leading manufacturer of air conditioners, refrigerators and fully automatic washing machines. The company’s net profit was Rs.19.33 crores for the financial year 2006 – 07.

http://groups.google.com/group/theindiastreet/web/HITACHIHOM.JPG

The stock made a high of 124.85 in August 2005. It has been in some zig zag pattern since then. After 24 months of consolidation it has broken out with reasonably good volumes (in fact more volumes than at its previous peak). In January 2007 the stock actually broke its previous high; but didn’t close above it and volumes were not encouraging either. The long term targets for the stock is 208 and 260. Good support exists at 100.

Nagarjuna Fertilizers and Chemicals Limited:

The company’s natural gas based urea plant with a capacity of 1.2 million tonnes per year is located at Kakinada, a port town in the state of Andhra Pradesh on east coast of India. Natural gas is drawn from Krishna – Godavari basin. The company plans to expand the capacity to 1.7 million tonnes soon. Product range includes urea, anhydrous ammonia, diammonium phosphate (DAP), Muriate of Potash, hydrates of zinc sulphate and speciality fertilizers. It declared a net profit of Rs.31.71 crores in 2006 – 07, more than 50% down from its previous year’s figure of Rs.66.86 crores.

http://groups.google.com/group/theindiastreet/web/NAGARFERT.JPG

This stock witnessed a bullish breakout in May 2007 almost after two and a half years. The volume was a record high as can be seen in the chart. When it broke the previous resistance in November 2004 the volumes were pretty good. This is another factor which makes the stock more interesting. Though there had been some hiccups in between, it has finally broken out. The stock has a good support around 18.25. The long term target works out to 39.

PSL Limited:

We discussed about this stock in my earlier article “India Street Analyst - India Stock Upgrades and Downgrades – Part 1”.

PSL Limited has expertise in the design, manufacture, supply, erection and commissioning of plants, machinery and equipments catering to the pipeline industry. It is one of the largest pipe manufacturers in India with 10 pipe mills at strategically coast based locations in Chennai, Kandla and Daman with an annual capacity exceeding 1 million metric tonnes of size varying from 16" dia to 120" diameter with wall thickness from 5mm to 25mm. The company’s net profit stood at Rs.62.16 crores for the financial year 2006 – 07.

http://groups.google.com/group/theindiastreet/web/PSL_Monthly.JPG

The stock has appreciated from a low of 29.70 in October 2002 to a high of 312 in January 2006. A correction, equivalent to 38.2% retracement occurred. Though it managed to break 50% retracement, never closed below it. This month it has witnessed a powerful bullish breakout with decent volumes. The long term target for the stock works out to 474.

PTC India Limited:

In India, each state has its own demand – supply scenario for power which sometimes could be seasonal. While one state is on a deficit some other state may generate excess power. PTC India Limited (formerly known as Power Trading Corporation of India Limited), was set up to act as an entity which could undertake trading of power to achieve economic efficiency and security of supply. PTC acts as an intermediate by buying power from the generation projects and sell to multiple power utilities and other buyers. It declared a net profit of Rs.35.09 crores for the financial year 2006 – 07.

http://groups.google.com/group/theindiastreet/web/PTC.JPG

The chart displayed above shows the valiant attempt to break resistance on 4 occasions before a breakout occurred this month. These are marked 1,2,3 and 4 on the chart. It can be noted that even though the stock managed to close above resistance levels, it could not move up further due to lack of volumes. There is no hard and fast rule about this, but surpassing at least 75% of the previous peak’s highest volume gives the stock better chance of sustaining the breakout. Now that this has happened, we can expect targets of 122 and 155.

Union Bank of India:

Union Bank of India has the proud distinction of being flagged off by Father of the Nation, Mahatma Gandhi. It is a public sector unit with 55.43% share capital held by the Government of India. The bank came out with its Initial Public Offer (IPO) in August, 2002 and Follow on Public Offer in February 2006. The bank’s net profit was Rs.84.54 crores for the financial year 2006 – 07.

http://groups.google.com/group/theindiastreet/web/UNIONBANK.JPG

The stock has become bullish on long term charts this month, by breaking its previous high at 143 with volumes. It has taken almost 2 years for the consolidation pattern to get over. The stock had formed a “double top” as can be seen in the chart. Now that it is broken, we can expect targets of 243 and 324 in future. In my previous article “5 Great Long Term India Stock Buys” published last month, we discussed about DENABANK and “triple top” formation eventually getting broken. Chart patterns and candlestick patterns form vital part of technical analysis and it is essential to examine these first, before analyzing other criteria.

Sundaramurthy Vadivelu

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Top 10 Hot India Stocks for July 2007

Disclosure

In this article let us analyze the technical aspects of the top 10 India stocks which have been either very strongly bought or sold this month. As usual, the discussion is restricted to ‘A’ group or ‘B1’ group stocks of the Bombay Stock Exchange (BSE).

List of top 10 gainers:

Scrip	% Gain
SGFL	118.42
EVINIX	91.98
KOTHARIPRO	81.88
AKRUTI	67.07
NECLIFE	66.02
ZEENEWS	58.11
GOLDTECH	51.74
AXIS-IT&T	48.98
SUNILHITEC	43.39
IBREALEST	42.94

Shree Ganesh Forgings Limited (SGFL):

Price data is available at NSE from May 22, 2007. However it is being traded at BSE since August 2005. We shall analyze both weekly and daily charts.

It fell from a high of 83.5 in September 2005 to a low of 25.70 in July 2006. It closed above the resistance trendline in second week of October 2006. Once this happens, some investors enter the stock anticipating further uptrend. But there is a risk in this type of trade entry. As can be seen from the chart, the stock fell continuously and even broke its support at previous low during the last week of March 2007. Once support is broken, more sellers should come in. But what about those who bought the stock above the resistance trendline? The bulls responded with non stop vertical rally. This rise, will be used to exit the stock.

http://groups.google.com/group/theindiastreet/web/SGFL_Weekly.JPG

(Chart courtesy: BSE Web site, www.bseindia.com)

In daily chart, after the resistance at 33.65 was broken on July 3 the stock has seen very little downside volatility. Note the number of one priced doji’s i.e. open, high, low and close are all same. This indicates that the stock had opened and closed at the highest possible price for the day.

http://groups.google.com/group/theindiastreet/web/SGFL_Daily.JPG

(Chart courtesy: BSE Web site, www.bseindia.com)

Evenix Accessories Limited:

http://groups.google.com/group/theindiastreet/web/EVINIX.JPG

We have seen in “Chart patterns and market’s reaction” about bullish and bearish patterns. The “flag” pattern is a bullish continuation pattern that can last upto 12 weeks. The debate is still on about the duration, though. Firstly, a “pole” needs to be formed; this consists of a rapid sharp move with heavy volumes. Then a flag, or small rectangle pattern is formed against the previous uptrend. Once the stock breaks above the resistance trendline, again a sharp upmove occurs. The stock had all the way gone up from 85.60 to 163.65 without a single correction.

Kothari Products Limited:

Weekly chart suggests that it closed above its previous high of 647.95 almost after a year; it had been consolidating so far.

Akruti Nirman Limited & Axis IT & T:

These are cases of bear trap. We discussed about Akruti Nirman in my previous article “BSE India launches New Real Estate Index”

Nectar Life Sciences Limited, Zee News, Goldstone Technologies, Sunil Hitec and Indiabulls Real Estate broke their previous highs on July 13, July 18, June 28, July 11, June 25 respectively.

The following table gives the top 10 losers for this month:

Scrip	% Loss
AARVEEDEN	22.48
KMSUGAR	21.40
TIPSINDLTD	21.36
HTMTGLOBAL	21.33
DECOLIGHT	20.45
AARTIIND	19.73
POLARIS	19.48
IGS	19.43
ZENSARTECH	18.49
MALWACOTT	18.46

We have discussed about Aarvee Denim, Igate Global Soluitons and Zensar Technologies in my earlier articles.

K M Sugar Mills Limited:

http://groups.google.com/group/theindiastreet/web/KMSUGAR.JPG

(Chart courtesy: BSE Web site, www.bseindia.com)

The weekly chart of KM Sugar Mills shows the bearish trend in the stock. It has fallen from a high of 106 in December 2005 to a low of 18.9 this week. It has not been able to break resistances; instead, it keeps breaking supports. Sugar stocks have been hit worst in the last 18 months.

Tips Industries, HTMT Global, Decolight Ceramics, Aarti Industries and Polaris are bearish in daily charts. Malwa Cotton, a case of bear trap, gained about 29% last month. But it is struggling to find some solid support.

Sundaramurthy Vadivelu

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