Weekly Report August 09

Market Outlook

The inflation data which touched the decade high rate of 12.01% and the decline in the crude oil price were the most remarkable events during the previous week. International crude price touched a 3 months low if US$114.62 on Friday.
Nifty opened the week at 4426, made a weekly high of 4615, and closed at 4529. Sensex opened at 14594 and fell to 14503. The index then recovered considerably and made a weekly high of 15422 and closed at 15167.

Technical Outlook :
As we have mentioned, the markets continued the recovery in the first half of the week, except Monday, and the indices found resistance at higher levels. The markets are expected to open slightly positive, following the global market situations and the decline in the crude oil price.
Technical outlook of the market is still suggesting a possible downside from higher levels.


NSE Nifty (Last Closing: 4529.50)
Nifty has continued the pullback during the first half of the week, however, some profit booking happened during the latter half. The index made a high of 4615, before closing at 4529.
The trend following indicators like MACD and RSI are still showing a bullishness in NSE Nifty indexes. RSI - 14 is currently trading near the overbought zone. However, the leading indicators are cautioning a possible reversal of the current upside. Stochastic Oscillator has indicated a bearish crossing, which supports a possible down side from around these levels.
Apart from this, the momentum indicators like RSI and Commodity Channel Index have recorded a Bearish divergence, which is an indication that a possible fall is imminent.
The Elliott wave analysis of the NSE Nifty is suggesting that 4640 can be expected to be the upper target for the current recovery rally. A fall is probable from these levels.
At current levels, 4440 will act as the first support for Nifty for the week, followed by 4300. Technically, market will slip into a selling mode, if fails to close above 4640 level, in which case, 4070 will act as the downside support for the coming week.
However, a close above the critical resistance of 4640 can be an indication of further upside. In such a scenario 4725 will be the weekly resistance for the index, followed by 4835.
Technically, Market is expected to open the week in a positive note, however, after the initial upside, selling can expect to emerge from upside.


Market Ahead:
The market will take cues from June 2008 industrial production figures that will be released on 12th August and SEBI decision of P-Notes.
Falling crude oil prices and improvement in south west monsoon will provide some relief to investors. Rising inflation remains a major worry for the markets in the medium term. The government will release June 2008 industrial production data at 12:00 IST on 12 August 2008.
Reserve Bank of India’s recipe to contain inflation by increasing the lending rates is expected to hurt industry, manufacturing sector and the overall growth momentum. Industrial production grew at the slowest pace in more than six years in May 2008, at 3.8%, as against 10.6% in the same month of 2007, with manufacturing showing signs of acute deceleration. Inflation remains a major concern for the central bank.
Inflation based on the wholesale price index rose 12.01% in 12 months to 26 July 2008, slightly above the previous week's annual rise of 11.98%, government data released on 7 August 2008 showed.

Industry outlook:
The 10th and 11th five-year plans are expected to allocate huge investment from both the public and private sectors on all the three segments such as Power generation, transmission and distribution. According to the Sixteenth Electric Power Survey published by the CEA, India's demand for electricity would increase to 975 billion units, which would require an additional generation capacity of 100,000 MW from the current levels to 212,000 MW by 2012. NTPC's projected capacity addition plan is 46000 MW while Reliance Infrastructure plans to increase its capacity to 20000MW by 2012.
The Government has continued with its policy of boosting the power sector with the announcement of two more Ultra Mega Power Projects and five other power projects in the last year Budget. In addition, there is a provision to set up merchant power plants through the participation of private developers in transmission projects.

Valuation & Recommendation:
SHEL stock is currently trading at Rs 202, 9.1xs of the trailing twelve months EPS of Rs 21.7, which seems cheaper than other players in this sector such as Jyoti Structure, Kalpataru Power Transmission and Alstom Project.
We are expecting Sunil Hitech Engineers to sustain the growth momentum backed by expansion of power generation capacities by most of the existing private and public sector undertakings and additions of captive power plants from various industries. The strong order book position of the company will give a clear visibility on its earnings in coming years. Thus we recommend the stock for a medium term investment perspective.