May 25, Monthly View. target of Research Analyst

Transcription

1 May 5, 017 Monthly View Positive bias to persist with support near 9300; Nifty target of 9700 Research Analyst Amit Gupta Azeem Ahmad Raj Deepak Singh i i iti

2 Picks for the month Deal Team At Your Service Top Picks for the month: Bajaj Finance, Voltas, HCL Tech and Arvind No. Monthly Quant Picks Stock Code Action Recommended Range Target Stop loss Remarks 1 Arvind Limited ARVLIM Buy Open Bajaj Finance BAJFI Buy Open No Derivatives Strategy 3 HCL Tech (Bull Call) HCLTEC Buy HCL Tech June 860 Call 7-9 Sell HCL Tech June 900 Call 13-Nov 900 Open 4 Voltas (Bull Call) VOLTAS Buy Voltas June 460 Call Sell Voltas June 480 Call Booked 50% Profits (9000)

3 Monthly Quant Picks Deal Team At Your Service Bajaj Finance Buy Bajaj Finance at Target Price: Stop Loss: 1140 Rationale Stocks from the finance space had seen a mild leg of profit booking. However, Bajaj Finance is one stock, which has seen a strong price recovery because of an inherently strong fundamental story. The current OI in the stock of over 4.6 million shares still has considerable short positions. Short bias positions have been rolled to the June series that is likely to fuel upsides in the stock on the back of shot covering, if it is able to hold 100. Level of 100 is a key positional support. Hence, we recommend going long on the stock. Arvind Buy Arvind at Target Price: 41. Stop Loss 34 Rationale Arvind witnessed profit booking as GST rates were more than existing rates. However, now the stock has approached the key support placed around 365. This support level has triggered buying in the stock on multiple occasions from the start of the year. The current OI of over 6 million shares has seen a halt in the long liquidation trend. The rollover into June series is also smooth, suggesting rollover of long position. In the June series, the option addition is seen in OTM Call strike of 400, suggesting upsides could be seen in the coming month. Hence, we recommend going long on the stock. 3

4 Derivatives Strategies for the month Deal Team At Your Service HCL Tech (Bull Call Spread) Buy HCL Tech June 860 Call at 7-9 and sell June 900 Call at Target: 900, Time frame : Till June expiry. Rationale As adverse news flows ebb on the H1B visa front, the rupee will find support near 64 levels. IT stocks are seeing some riskreward buying. We are recommending a Bull Call spread on resilient, HCL Tech. The strategy has a long delta of 0.6 and will benefit from the gradual upsides in the stock. Reasons for going long in stock include OTM Call option buying seen in strikes ranging from 880 to 90. Further, the build-up in futures segment also suggests strong rollover of long bias into the June series. The current future OI in the stock is 6 million shares and has a long bias. Voltas (Bull Call Spread) Buy Voltas June 460 Call at and sell June 480 Call at Target 480. Time Frame: Till June expiry Rationale The price performance has resumed in Voltas post the strong quarterly results. The Call option buying coupled with the spurt in IV s suggests the stock has room for further price performance. We recommend a Bull Call spread on the stock with net long delta The strategy will gain from gradual upsides in the stock. The long addition trend has picked up pace in the stock. The current OI of 6 million shares is seeing smooth rollover to June series, suggesting upsides to continue. Three-year high delivery volume was seen in the stock near 435 levels. As long as this level is held, upsides in the stock could continue in the June series. Note: Recommendations released dates on IclickGain: Arvind (May 5, 017), HCL Tech (May 5, 017), Voltas (May 5, 017), and Bajaj j Finance (May 5, 017) 4

5 Recap of May series: Nifty sixth positive expiry closing masks midcap, small cap profit taking.

6 Nifty witnesses sixth positive monthly return Nifty clocks 6 th consecutive monthly gain For the sixth consecutive series, the Nifty ended in the green with % gains in the May series. The Nifty has moved up 16% in CY17 While FIIs, DIIs continued to show buying interest their buying was limited. Some liquidation was also seen Stable currency and higher bond yields continue to push focus on debt segment as that continued to offer strong entry point, in an environment that is likely to be of benign inflation and in line monsoon season Sectoral performance: Optical positive closing for Nifty, masks pain in midcap, small cap space While broader market indices continued to show green tick, midcap, small caps saw a sharp reversal of fortunes in the second half of May. Indices, after being positive in double digits, ended the month negative over 3% On the declining side, pharma, power and capital goods space saw a decline in the range of -5% Nifty May series ends positive near month highs Dec'15 Jan'16 Feb'16 Mar'16 Apr'16 May'16 Jun'16 Jul'16 Aug'16 Sep'16 Oct'16 Nov'16 Dec'16 Jan'17 Feb'17 Mar'17 Apr'17 May'17 Midcap & small cap segment see strong profit taking Pharma Small Cap Midcaps and small caps saw 5%, down move, each, Capital Goods bucking their outperformance trend Largest gainers in the index included TCS (15%) while Metal largest losers were Lupin (-14%) and Aurobindo Pharma Bank Nifty (-14%) IT % 5% 0% -5% -10% 6

7 June series outlook: Positive bias to persist with support near 9300, with Nifty target t of 9700

8 Positive bias to persist with support near 9300 with Nifty target of 9600/ Why Nifty may target 9700 Looking at the options set-up for the May series, the upward thrust could continue. The highest Call base has now moved to 9600 Call (3 million shares). Importantly, the 9600 Call strike saw close to million shares in the trailing two weeks. Additions were also seen in Call strike of However, key target remains 9600, as this is the highest Call base Mean + * sigma band on daily data point is at 9700, suggesting upsides to continue towards 9700 in coming week. The roll spread continued to remain low in May expiry week. It seems the long bias is intact in the Nifty for the next series as well as 15.8 million shares seen on T-1 day to expiry The net long Index future position of FIIs has seen ebbing of long closure trend. The current net long OI of contracts, is the lowest since start of year. Importantly this long liquidation trend has halted since May 10 Buying support is visible from DIIs & FIIs in the May series, despite of profit booking seen in mid and small cap space. This suggests strong buying support on any declines Risk-on sentiment has pervaded all equity markets post the French elections. While the MSCI World Index is currently making record highs, the MSCI EM index has also moved to its highest level since May 015 (up 3% in May). This suggests the up move of the Indian market could continue Why immediate support is placed near Looking at the F&O data, the highest Put base is at the 9000 Put strike with almost 3 million shares. However, in terms of net additions, OI addition of over million shares is seen in Put strike of 900 and Hence, we recommend 9300 as positional support for the market Lower volatility is likely to keep Nifty declines limited. Profit booking is likely to be used as a buying opportunity as FIIs may try to enter equities on these declines towards 9300 levels The Nifty has moved up for six months on the trot. In the last couple of years, there have been only a handful of instances, where the Nifty has moved higher more than five months on the trot. A round of mild profit booking is not ruled out. Risk-off sentiment will make inroads only if 9300 is breached 8

9 F&O data suggests momentum may continue... Nifty options build-up for June series: Put base remains at Nifty seeing short additions near May expiry 9300 with Call base at 9600 Call strike res ions May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 OI in Million Sha Nifty OI Milli Call OI Put OI Nifty may continue its up move along with mean+ sigma band on daily data point Nifty Bank/Nifty price ratio: Sustainability above.30 key for ongoing momentum ty / Nifty Price ratio Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 -Jul-16 1-Aug-16 0-Sep-16 0-Oct-16 9-Nov Dec Jan Feb-17 9-Mar Apr May-17 Bank Nift Close UBB() BollMA (100) on Close LBB() 9

10 Nifty Bank : Continues to see positive bias; can move towards 700 Deal Team At Your Service The Nifty Bank performance trend continued. However, alpha in the banking space was mainly seen in non-banking Nifty stocks. However, as the Nifty Bank found resistance near 900, it pushed some participants to attempt short positions, the OI addition is coupled with basis moving to negative. Net of dividend, the basis is 50 bps only (historically 100 bps). This brings out the fact of skepticism and if Index is able to move above 900, then short covering, could very well pan out. This covering trend emerged ahead in last hours of May expiry. The price performance trend (Nifty Bank/ Nifty) has resumed its upward trend. The price ratio of.38 is near its record high. Looking at the current set-up, as long as.30 is held, the outperformance trend is likely to continue. Looking at the options data, sizeable Call base was at the 3000/3500 Call strike. We believe these are long positions. With the index sustaining above 500, the up move could target 3000/3500 levels. On the lower side, highest Put base of 000 is likely to lend positional support to the banking index The positive bias continues in most private banking heavyweights, that could continue to create the delta performance from the index Nifty Bank OI at inception remains high Nifty Bank options build-up up for June series Call OI Put OI 0.7 Bank Nifty OI Millions May-16 Jun-16 6 Jul-16 6 Aug-16 6 Sep-16 6 Oct-16 6 Nov-16 6 Dec-16 6 Jan-17 7 Feb-17 7 Mar-17 7 OI in Millions

11 FII flow continues in Indian capital markets but focus during month was debt Deal Team At Your Service FII buying resumed in EMs as the risk-off sentiment ebbed post French elections and cool-off in geo-political tensions. Buy was seen across EMs, specially in the Asian EMs. Inflows were largest in South Korea, Taiwan Domestic debt and equity markets also attracted over US$.5 billion, with almost three fourth of flows seen in debt segment, as the yield on 10-year benchmark stayed higher near 7% and cooled off post subdued CPI Going ahead, FII sentiment is likely to be driven by global risk-on sentiment as the MSCI EM has already moved up to the highest level since May 017. Some exhaustion ahead of FOMC, UK elections is not ruled out. However, weakness in EM currencies has not played out till now. If that trend commences then FIIs may pull back EM assets Risk-on sentiment resuming in other EMs In US $ million S Korea India In ndonesia Malaysia Brazil illippines Phi Thailand re cror Marginal equity outflows on the back of global risk-off sentiments re I cror an-16 Ja eb-16 Fe FII debt flow continues for third month ar-16 Ma Ap pr-16 ay-16 Ma Ju un-16 ul-16 J Au ug-16 ep-16 Se ct-16 Oc No ov-16 ec-16 De an-17 Ja eb-17 Fe ar-17 Ma Ap pr-17 ay-17 Ma 11

12 India VIX: Volatility may remain suppressed at sub 15 levels aiding positive bias to continue in Nifty On expected lines, the lower volatility trend continued to aid Nifty s positive consolidation in the coming month as well, as known events are not displaying chances triggering a sharp surge in volatility. With the current bias in the Nifty still positive, the lower volatility trend is likely to continue. We reiterate our belief that only a weekly close above 15 could trigger stronger risk aversion in the market. Hence, time value plays may continue to drive the market Looking at the events calendar globally, the key events include UK election on June 8 and FOMC on June 14. An adverse outcome from UK election or a more hawkish dot plot from Fed could derail the low volatility regime, which has been theme from the start of 017. However the market is not expecting such an outcome. The Nifty is likely to see a positive consolidation as India VIX is likely to remain in the range of India VIX: Likely to remain suppressed supporting market 1

13 Last month performance. Last month performance No. Monthly Quant Pick Stock Code Action Recommended Price Target Stop loss Remarks 1 Reliance Infra RELINF Buy Stop Loss Triggered HPCL HINPET Buy Stop Loss Triggered 3 Andhra Bank ANDBAN Buy Profits Booked Derivatives Strategy 4 Asian Paints (Positional Future) ASIPAI Buy ASIPAI Ind May Future Profits Booked 5 Ambuja Cement (Bull Buy Ambuja cem May 50 Call 9-10 AMBCE Call) Sell Ambuja cem May 60 Call Target Achieved 6 Hindalco (Positional OptioHINDAL Buy HINDAL May 00 Call Profits Booked 13

14 Price performance of recommended stocks in trailing 1 months... Arvind Ltd (ARVLIM): CMP 374 HCL Tech (HCLTEC) : CMP May Jun-16 6-Jul-16 7-Jul Aug Sep-16 8-Sep-16 9-Oct-16 9-Nov Nov Dec-16 1-Jan-17 1-Feb-17 -Feb Mar-17 5-Apr-17 6-Apr May-17 5-May Jun-16 6-Jul-16 7-Jul Aug-16 7-Sep-16 8-Sep Oct-16 9-Nov Nov-16 1-Dec Jan Feb-17 -Feb Mar-17 5-Apr-17 6-Apr-17 7-May-17 Voltas (VOLTAS): CMP 460 Bajaj Finance (BAJFI) : CMP May Jun-16 6-Jul-16 7-Jul Aug-16 7-Sep-16 8-Sep Oct-16 9-Nov Nov-16 1-Dec Jan-17 1-Feb-17 -Feb Mar-17 5-Apr-17 6-Apr May-17 5-May-16 5-Jun-16 5-Jul-16 5-Aug-16 5-Sep-16 5-Oct-16 5-Nov-16 5-Dec-16 5-Jan-17 5-Feb-17 5-Mar-17 5-Apr-17 14

15 Portfolio allocation in Derivatives Products It is recommended to spread out the trading corpus in a proportionate manner between the various derivatives research products Please avoid allocating the entire trading corpus to a single stock or a single product segment Within each product segment, it is advisable to allocate equal amount to each recommendation. For example: The Daily Derivatives product carries two intraday recommendations. It is advisable to allocate equal amount to each recommendation Quant Picks recommendations should be considered in cash segment and stoploss on closing basis. Time frame for these recommendations is 3 month. Allocation Return Objective Product wise Max allocation Frontline Mid-cap Products allocation per stock Number of Calls Stocks stocks Duration Daily Derivatives 5% -3% Stocks 1% -3% Intraday Weekly Derivatives 10% 3-5% Stocks 3-5% 5-7% 1 Week Monthly Derivatives 15% 3-5% 4-7 Stocks 7-10% 10-15% 1 Month Global Derivatives 5% -3% 4-5 stocks Month Quant Picks 15% -3% 6-8 stocks 7-10% 10-15% 3 Months Alpha Trader 10% -3% -3 strategy 5% - 1- Month Volatility Insights 10% -3% 3-4 Strategy 8-10% 10-15% 1- Month Arbitrage Opportunity 5% -3% -3 Stocks >.5% >.5% Event Based Short term Futures 5% -3% 8-1 Stocks 1-3% -5% 1- days Positional Index Strategy 5% 3-4% -4 Index calls days Stock option strategy 5% 3-4% -8 Stocks - 3-5% 1- days Daily Currency Future 5% 3-4% 3-5 Calls days Monthly Currency Futures 5% 3-4% -3 Calls Month 15

16 Pankaj Pandey Head Research i i iti ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road no.7, MIDC Andheri (East) Mumbai research@icicidirect.com 16

17 Disclaimer ANALYST CERTIFICATION We /I, Amit Gupta B.E, MBA (Finance), Azeem Ahmad MBA (Fin), CS, Raj Deepak Singh BE, MBA (Finance) and Nandish Patel, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number INH ICICIICICI Securities i is awholly-owned subsidiary of ICICI Bank which h is India s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. ( associates ), the details in respect of which are available on ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this section have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. The research recommendations are based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. These research recommendations and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. ICICI Securities will not treat recipients as customers by virtue of their receiving these recommendations. Nothing in this section constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed herein may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of these recommendations. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned herein during the period preceding twelve months from the date of these recommendations for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. 17

18 ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned herein in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its Analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. It is confirmed that Research Analysts giving these recommendations have not received any compensation from the companies mentioned herein in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the company/companies mentioned herein as of the last day of the month preceding the publication of these research recommendations. Since Associates (ICICI group companies) of ICICI Securities are engaged g in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned herein. It is confirmed that Research Analysts do not serve as an officer, director or employee or advisory board member of the companies mentioned herein. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented herein. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned herein. We submit that no material disciplinary actionhasbeentakenonicicisecuritiesby any Regulatory Authority impacting Equity Research Analysis activities. This report or recommendations are not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. 18