Fundamental

This Week’s Market Round Up: "Markets continue their northward journey"

• Sensex closes at 17,605, up 2.2%; Nifty closes at 5,325, up 2.3% for the week.
  
  

• During this week, the domestic core sector growth numbers were announced. Production expanded by 3.1% YoY during December versus a 6.8% growth in November.
  
  

• PMI numbers for most economies signal expansion in manufacturing activity for the month of January over December. China PMI for January stood at 50.5, India at 57.5 and Eurozone at 48.8.
  
  

• In domestic markets, biggest gainers for the week were commodity stocks such as Sesa Goa, Sterlite and Hindalco, rallying by greater than 10% for the week.
  
  

• Rupee continued to rally this week ending at 48.68, 1.5% higher for the week and retracing 10% from the lows of 53/dollar.
  
  

Market Outlook: "Liquidity stress eases, recommend getting into equities"

• At the current level of 17,605, the Sensex trades at a PE of 16.2x FY12E earnings estimate and 14.0x FY13E earnings estimate.
  
  

• At 14.0x, we trade below average valuations of 15.4x 1 year forward earnings.
  
  

• We believe that this year’s 14% rally is a consequence of the ‘Risk on’ trade in global markets, led by quantitative easing by ECB in the form Long Term Refinancing Operation (LTRO).
  
  

• Also, central banks in emerging markets are expected to support slowing growth through monetary easing, leading to a further fillip for growth and risk assets.
  
  

• Seeing liquidity pressures ease and valuations being in attractive zones, we recommend as highlighted in our recent strategy note to deploy 50% of cash in a phased manner over the next month.

Sectoral Outlook: "Time to buy interest rates sensitives"

• As inflationary pressures ease and the risk to growth becomes more accentuated, we expect RBI to cut repo rates.
  
  

• RBI has already cut the Cash Reserve Ratio (CRR) by 50 bps to inject liquidity to the tune of Rs. 32,000 crores in the banking system. This, accompanied by planned open market operations (OMOs), is likely to ease stress on the short term money rates.
  
  

• We would advice clients to play interest rate sensitives like Banks and Capital Goods (Yes Bank, City Union Bank and Larsen and Toubro) to capitalize on falling rates theme.
  
  

• At the same time consumption and agri stories (GSK Consumer, Bajaj Auto, Coromondal Fertiliser) would continue to do well.
  
  

• Global cyclicals like Tata Steel are also amongst our preferred picks.

EdelStar - Buy BANK OF BARODA LTD
CMP: Rs. 762 Target Price: Rs. 855

Time Horizon – 3 months

• Bank of Baroda. (BANBAR), is amongst the top 5 Indian banks in terms of balance sheet size and third largest amongst PSU banks in deposit franchise, BANBAR was one of the 14 banks that were nationalised in 1969. With nearly 3,400 branches within India and over 75 offices abroad, and a balance sheet size of over ~Rs. 3.8 tn, It has a well-diversified balance sheet within India, while it has leveraged its international branch network to build a 25% balance sheet from outside India. It has been one of the early players to have identified the potential and importance of international presence and is currently operating through its eight banking subsidiaries apart from the parent.
  
  

• BANBAR reported robust pick-up in advances for the Q3FY12 at 9% Q-o-Q and 25.8% Y-o-Y, to Rs. 2.6 tn. Strong growth was witnessed in the international loan book as well as domestic SME segment. Management is confident of achieving an above industry +20% growth in the loan book in FY12.

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Technical

Round-up: "High after a low"

• As expected, Nifty started the week on a negative note and gave confirmation of "Hanging Man" pattern, breaching the support of 200DEMA and hitting a low of 5076. However, after taking support at 5076 levels, Nifty bounced back sharply and hit a new high of 5334 on Friday. Finally, Nifty closed at 5325 with a gain of 2.9% on w-o-w basis.
  
  

Nifty Outlook: "Bright days ahead Nifty to soar to 5399"

• After taking support near 200DEMA, Nifty bounced back sharply and breached mentioned resistance level of 5220 with good volumes. Moreover, Nifty continued its northbound journey and made a high of 5334.
  
  

• Nifty continues to trade above 200DEMA, as well as making higher top and higher bottom. Furthermore, the directional oscillator ADX is trading positive.
  
  

• Therefore, going forward, Nifty is looking strong and we can expect to witness further upside till 5399.
  
  

• On the downside, Nifty has support at 5135, which is 200DEMA. As a result, if Nifty closes below the aforementioned level in the near future, then we can expect to see some correction in markets.