Power Of Technical Analysis

Abirla from 1010 to 1130

RIL from 850 to 910+

Abv Charts were mailed to paid clients last week

M&M Hot Buy for 8-10% quick move

M&M Hot Buy for 8-10% quick move 

 

Two BULLISH Plays ONGC& OIL INDIA

Here are two technically strong stocks which deserve attention

Trading Rule: Technically strong stocks are Buys on Pullbacks.
Here’s the Chart of Stock # 1: ONGC at Breakout Point on weekly chart

ONGC broke out above 290-295 in the week of 18th Jan 2013 and now more than six months have passed and stock has done nothing. Post breakout in Jan, the stock rallied to 340-350. Now, the stock has pulled back to the breakout point. Technically, this offers a good buying opportunity and if market does not collapses: the stock has potential to surprise on the upside.
Trading Strategy: Go Long below 300 with stop loss below 280
Here’s the Chart of Stock # 2: Oil India at 200 dma

Oil India has been in strong uptrend and pullback to 200 dma looks like a good buying opportunity
Trading Strategy: Go Long at cmp with stop loss of 3% below 200 dma. 
In markets, we are dealing with probabilities. There is no guarantee that trade may work out as visualized. The overall market environment is all over the place. Please do your own due diligence before trading.

NATCO PHARMA BOUNCED BACK FROM 200 DMA

RECOMMENDED TO CLIENTS THROUGH MAIL ON JUNE 18 TO BUY NATCO PHARMA BETWEEN 420- 430

TODAY THE STOCK MADE A HIGH OF 480  AND LOOKS VERY GOOD. IT BOUNCED BACK AS EXPECTED FROM ITS 200 DMA. STOCK  IS IN VERY GOOD HANDS

THIS WAS MY MAIL TO CLIENT SON JUNE 18 :

Natco Pharma has done well over last many months and seems to be holding 200 dma. Yesterday, stock clocked huge volumes and bounced from 200 dma – good enough to attract lots of traders. Ideally there should be follow through and some upside move over next few weeks and months

Indoco Remedies – Big Triangle breakout

Indoco Remedies —- A nice breakout on short term charts above 66-69.





In the near term it can test the tops of 75.
A longer term breakout seems to be on cards above 75 which can even take it to 100.
Good volumes over the last 3 days.
Given the huge rise in pharma stocks this can be an interesting buy on dips.

The Mark Mobius pick that bombed Shiv-Vani Oil's share prices have plunged 93% since the Templeton investment in 2010

When Mark Mobius’ Templeton Asset Management (TAML) announced an investment of $20.6 million in shares of Shiv-Vani Oil and Gas Exploration Services on March 29, 2010, these were trading at Rs 412 each.

Soon after the deal, Mobius, executive chairman of TAML, said: “We are impressed with Shiv-Vani’s oil and gas exploration services capabilities and are confident these can be leveraged to assist oil & gas companies around the world.” The investment, he was confident, would fund the ongoing equipment and technology needs to make Shiv-Vani a force to reckon with in the global arena for exploration services. “This investment fits well with our global exposure to the energy sector and we look forward to working with Shiv-Vani’s management and promoters to make this a landmark relationship,” the star fund manager had said.

Strengthening this outlook, Rohan Consultancy Services, a promoter group entity, purchased 277,178 shares in May 2010 at Rs 423 a share.

As Mobius had said, Shiv-Vani was ideally positioned as the largest onshore rig owner-cum-operator to benefit from the Union government’s expansion plans and increased spending in onshore exploration. It also had a healthy order book of around Rs 4,000 crore, in a sector where entry barriers are high. Most important, Shiv-Vani had a healthy business relationship with the government’s Oil and Natural Gas Corporation (ONGC), the largest exploration entity. It certainly looked like a good investment.

Today, Shiv-Vani shares are trading around Rs 28 and show no sign of recovering. At this price, the entire company is valued at a paltry Rs 130 crore. At current exchange rates, this is marginally above $20.6 million, the amount Templeton paid for its 5.3 per cent stake three years earlier.

In it, along with Templeton, are other marquee names such as Citi Venture, Reliance Capital, Aviva Life and Religare Finvest.  Is this 93 per cent crash in stock prices justified or are the prices running ahead of fundamentals?

Templeton, which has since raised its stake to eight per cent, did not respond to an email query on the investment. A Templeton India spokesperson said the fund did not comment on stock-specific queries.

What went wrong?
Fund managers with exposure to the company said Shiv-Vani has been facing trouble on multiple fronts over several months and has not done enough to fight these. While the business outlook became grim following lower government spending, several operational issues erupted as the company found it difficult to service high-cost debt. Investor circles also said the company had initially benefited from association with the brass in some public sector firms, whose contracts it was executing, and suffered when these ties snapped.

Rajan Gupta, chief financial officer, Shiv-Vani, told Business Standard: “Revenue is good in this business. But the financing we had taken was short-period financing. Being a capital-intensive industry and no way to raise equity, all our expansion was through debt. Despite the good profitability, most of the revenue was spent in servicing debt.”

Gupta dismissed the conspiracy theories but agrees things got difficult when ONGC, Shiv-Vani’s primary client, was in the middle of a leadership change. “ONGC was headless for about a year. Contract renewals did not take place during the period. This affected the cash flow.” These financial constraints made the company default on tax payments.

In January this year, the Central Board of Excise and Customs registered a case of service tax evasion of Rs 200 crore. Reports said the firm had not filed service tax returns since October 2010.  The company agreed to the liability but cited “financial constraints” for non-payment.

What could be the financial constraints of a company that made revenue of Rs 1,484 crore in FY12 and net profit of around Rs 200 crore every year since FY09?

Suspicion
Some lenders fear the worst. “Based on our diligence, we believe the company is inflating its (annual) revenue by $80-90 mn. Accordingly, the number of rigs could be inflated by 30-40 per cent, assuming a few are genuinely idle,” said a creditor in an internal note reviewed by Business Standard. The note says of the 40 rigs claimed to have been owned by the company, only 15 were credibly verifiable. A fund manager with an exposure to the hybrid instruments of the company also said, “The company claims it has deployed 12 rigs with ONGC. Our own diligence showed they had only six.”

By the company’s latest financials, the gross block was around Rs 3,000 crore.  “According to our estimates, Shiv-Vani probably spent around Rs 1,200 crore acquiring equipment,” the note added.

Gupta said he’d already adequately addressed several queries raised by the creditors. “Of the 40 rigs, 17 were 1,000 Hp or more. This is the minimum capacity required in drilling.” According to him, three of the remaining rigs were deployed in Oman. “Of the smaller rigs, we have got regular contracts running on five more, though these account for very little revenue. Other rigs are idle.”

The company has been blacklisted by some private sector exploration companies, such as Cairn India. Recently, Oil India, another state-owned explorer, sought vigilance department clearance for contracting the services of Shiv-Vani, though it was the lowest bidder.

It was also briefly banned by ONGC for certain violations. Gupta brushed it aside as a minor issue. “There was a small contract on compression services. We should not have applied for that. But, we wanted to use machinery which was lying idle. Instead of deploying staff, we had outsourced it. This person could not complete the job due to some issues. We explained the situation and ONGC accepted it. This matter has been blown out of proportion.”

Now
On the falling stock prices, Gupta said investors in India are yet to understand the nature of this business. “I don’t have much control over stock prices. Globally, this business is highly geared. Here people look at the debt-equity ratio, refer to the FCCB (foreign currency convertible bond) liabilities and get worried.” The company has raised FCCBs worth $80 mn, maturing in August 2015.  Several public and private sector lenders have also lent to Shiv-Vani for purchase of equipment and other capital expenditure. These include ICICI Bank, State Bank of India, Punjab National Bank, YES Bank, Corporation Bank and IFCI.

A total of 57 promoter group entities, led by brothers Prem and Padam Singhee, own 49.38 per cent in the company. As the debts mount, about 85 per cent of these shares held by the promoter group are pledged with lenders. This could also be putting pressure on the stock prices, as every fall triggers new margin calls and fresh selling creating a vicious cycle, say analysts.

Even as some lenders began asking tough questions, Shiv-Vani moved for a corporate debt restructuring (CDR) plan. Gupta hopes the company will bounce back after the CDR. “The restructuring of debts will result in improvement in the liquidity and strengthen the core operations, which will lead to value addition of the stake holders in the long term.”

RECENT EVENTS AND THE MARKETS

Subsequent to the confirmation by the US Fed that Tapering of Asset Purchases is going to be a reality now we saw the markets sell of sharply. Even prior to the event I had written in my last article that we should not fear FED Tapering but welcome it. The main logic’s being that firstly it will happen if the US Fed believes that the economy in the US is now on a self sustaining upmove and secondly because a strong USD traditionally has been negative for commodities and as such the inflation driven by high commodity prices should moderate. Lower to stable commodity prices will ultimately be also positive for a country like India as it will substantially reduce India’s CAD over the long term.As I had written earlier, only traders need to be worried about the Tapering and that is what transpired. Markets sold off post the tapering announcement before regaining all the losses over the last few trading sessions.However the other big side affect post FED announcement has been the sell off in most currencies versus the USD. This has been even more prominent for emerging market currencies, especially those which have a high CAD. As such we have seen that the INR has fallen by nearly 12% over the last two months, first in anticipation of the Tapering and then after the actual event. The fall has got accelerated due to the sell off in Indian Bonds which has bought to light the deficiencies in the short term policies of the RBI and the Government of India which did not use the extremely low yields and strong market liquidity right from third quarter of last year to the first quarter of 2013 for raising a Sovereign Bond. They made the entry of more and more short term FII flows into Government bonds easier and easier. As we have always seen that short term fixes have adverse affects and as a result we have already seen a nearly $ 8 billion flow out of Indian Government Bonds. If the same money had been raised via a sovereign bond issue at a yield of just around 3.5% (when the US 10 year was trading at 1.5%) we would have been much better off. The Forex reserves would have moved up sustain-ably and the country would have locked in long term USD money at cheap borrowing levels. The bond sell off by FII’s in the domestic market would not have transpired and as a result the sell off in the INR would also have been much more moderate. Today US 10 yr bonds yield 2.7%, just 0.8% below what India could have borrowed at just 3-6 months back.Subsequently we had a few days where some of the usual suspects created a flutter in the market and the markets sold off on some political issues in Portugal and also some issues that the Trioka of lenders were facing with Greece. However as we have seen not several but tens of time in the past such issues normally create volatility but cannot change the trend. As such these fears have turned out to be just that and in my view will remain the same in the future too.The one big change that came out of the policy meeting of the European Central Bank was that they gave a long term direction which they normally never do. Subsequent comments of ECB officials have also been quite dovish and this combined with the extremely dovish stance of the Bank of Japan today creates a situation where the long term direction of the USD seems to be turning up and in a strong manner. This move now has implications in terms of creating a weakness in other currencies versus the USD. However the one key difference in thought between the arm chair economists and reality is that currencies will follow the direction of economic growth outlook and not interest rates. Raising interest rates in order to strengthen the currency or keeping rates high is the traditional thought process. However it is only a short term fix. The longer term fix for the currency is to improve the growth prospects. There is no shortage of liquidity in the world and despite the panic created around FED Tapering there is unlikely to be a global liquidity shortage anytime over the next three years atleast. The reasons are simple to understand.-The FED is going to Taper purchases, not sell assets in the markets. As such additional liquidity is still getting generated.-Money printing by the BOJ just started six months back and will go on for atleast two more years-The ECB has indicated very low rates for the foreseeable future. This will also keep Euro liquidity strong.The important thing then is to create an opportunity for this liquidity to get gainfully deployed in your economy. For this the government needs to revive the investment cycle and boost foreign investor confidence. There are some indications that the governemtn wants to move in this direction, however given that they have spend four years going the other way it will still take some more time. The worst impact of the weak currency is that it increases inflation without an increased demand. We have already had two major depreciation cycles in the last three years. We clearly need the currency to stabilize if growth has to revive. However responses like reducing bank trading positions, increasing margins, making foreign borrowings easier are just short term fixes and that is what the government and regulators are doing right now.Interesting Chart formationsOver the last couple of years I have tracked the bonds and markets of Spain and Italy as two markets that have given lead indicators for other markets. Easing bond yields and reduction in fear in the bonds of these two countries has been positive for equity markets. Lately I have observed interesting chart patterns in the equity markets of both these countries. These mirror the way the markets were before the big bull phase started in the year 2004. Sometimes historical patterns do repeat as we saw in the case of gold. Lets see how it plays out for the equity markets. Subsequent to the confirmation by the US Fed that Tapering of Asset Purchases is going to be a reality now we saw the markets sell of sharply. Even prior to the event I had written in my last article that we should not fear FED Tapering but welcome it. The main logics being that firstly it will happen if the US Fed believes that the economy in the US is now on a self sustaining upmove and secondly because a strong USD traditionally has been negative for commodities and as such the inflation driven by high commodity prices should moderate. Lower to stable commodity prices will ultimately be also positive for a country like India as it will substantially reduce India’s CAD over the long term.As I had written earlier, only traders need to be worried about the Tapering and that is what transpired. Markets sold off post the tapering announcement before regaining all the losses over the last few trading sessions.However the other big side affect post FED announcement has been the sell off in most currencies versus the USD. This has been even more prominent for emerging market currencies, especially those which have a high CAD. As such we have seen that the INR has fallen by nearly 12% over the last two months, first in anticipation of the Tapering and then after the actual event. The fall has got accelerated due to the sell off in Indian Bonds which has bought to light the defeciencies in the short term policies of the RBI and the Government of India which did not use the extremely low yields and strong market liquidity right from third quarter of last year to the first quarter of 2013 for raising a Sovereign Bond. They made the entry of more and more short term FII flows into Government bonds easier and easier. As we have always seen that short term fixes have adverse affects and as a result we have already seen a nearly $ 8 billion flow out of Indian Government Bonds. If the same money had been raised via a sovereign bond issue at a yield of just around 3.5% (when the US 10 year was trading at 1.5%) we would have been much better off. The Forex reserves would have moved up sustainably and the country would have locked in long term USD money at cheap borrowing levels. The bond sell off by FII’s in the domestic market would not have transpired and as a result the sell off in the INR would also have been much more moderate. Today US 10 yr bonds yield 2.7%, just 0.8% below what India could have borrowed at just 3-6 months back.Subsequently we had a few days where some of the usual suspects created a flutter in the market and the markets sold off on some political issues in Portugal and also some issues that the Trioka of lenders were facing with Greece. However as we have seen not several but tens of time in the past such issues normally create volatility but cannot change the trend. As such these fears have turned out to be just that and in my view will remain the same in the future too.The one big change that came out of the policy meeting of the European Central Bank was that they gave a long term direction which they normally never do. Subsequent comments of ECB officials have also been quite dovish and this combined with the extremely dovish stance of the Bank of Japan today creates a situation where the long term direction of the USD seems to be turning up and in a strong manner. This move now has implications in terms of creating a weakness in other currencies versus the USD. However the one key difference in thought between the arm chair economists and reality is that currencies will follow the direction of economic growth outlook and not interest rates. Raising interest rates in order to strengthen the currency or keeping rates high is the traditional thought process. However it is only a short term fix. The longer term fix for the currency is to improve the growth prospects. There is no shortage of liquidity in the world and despite the panic created around FED Tapering there is unlikely to be a global liquidity shortage anytime over the next three years atleast. The reasons are simple to understand.-The FED is going to Taper purchases, not sell assets in the markets. As such additional liquidity is still getting generated.-Money printing by the BOJ just started six months back and will go on for atleast two more years-The ECB has indicated very low rates for the foreseeable future. This will also keep Euro liquidity strong.The important thing then is to create an opportunity for this liquidity to get gainfully deployed in your economy. For this the government needs to revivie the investment cycle and boost foreign investor confidence. There are some indications that the governemtn wants to move in this direction, however given that they have spend four years going the other way it will still take some more time. The worst impact of the weak currency is that it increases inflation without an increased demand. We have already had two major depreciation cycles in the last three years. We clearly need the currency to stabilize if growth has to revive. However responses like reducing bank trading positons, increasing margins, making foreign borrowings easier are just short term fixes and that is what the government and regulators are doing right now.Interesting Chart formationsOver the last couple of years I have tracked the bonds and markets of Spain and Italy as two markets that have given lead indicators for other markets. Easing bond yields and reduction in fear in the bonds of these two countries has been positive for equity markets. Lately I have observed interesting chart patterns in the equity markets of both these countries. These mirror the way the markets were before the big bull phase started in the year 2004. Sometimes historical patterns do repeat as we saw in the case of gold. Lets see how it plays out for the equity markets.SPAIN IBEX WEEKLY CHART ITALY FTSE MIBMarketsWe are now at the beginning of the results season. Expectations are low and the the overall results season should be subdued and factored into the markets. The key is the economic growth outlook from here on. We have seen several brokerage downgrades over the last few weeks on India’s economic growth outlook. However it seems that they are turning pessimistic at the wrong time as they turned optimistic too early. The benefits of a normal and well spread out monsoon combined with strong government spending seem to be getting ignored. Even with a subdued investment cycle a 6% growth seems probable. Some sort of investment revival in the second half could also aid growth. However on the other hand, currency depreciation and its resultant impact on inflation wil reduce the pace of decline in interest rates and delay recovery. Overall it seems to be a mixed bag at this stage. The key will be to see where the INR stabilizes after the spiked sell off seen recently. Export oriented sectors like IT and Pharmaceuticals that are obvious beneficiaries of the currency move have remained strong whereas economy linked sectors have underperformed since the depreciation cycle started.Both Emerging Markets and EM currencies seem to be heavily oversold and due for a strong bounce back. However the drivers for a strong trend change seem to be missing at this stage. Maybe we will need to wait for 2014 for a bigger market move. Lets hope it happens earlier.