August 18, 2017 Oil & Gas Thematic Quant Pick Gail and Petronet t LNG Quant Pick Stock Action Range Target Stoploss Frame GAIL Buy 376-382 445 342 3 months Petronet LNG Buy 226-230 230 270 205 3months Research Analyst Amit Gupta amit.gup@icicisecurities.com Azeem Ahmad azeem.ahmad@icicisecurities.com Raj Deepak Singh rajdeepak.singh@icicisecurities.com Nandish Patel nandish.patel@icicisecurities.com c secu es co
Buy Gail in the range of 376-382; Target 445; Stop Loss 342; Time frame: Three months Snapshot Spot Price 382.00 Beta 1.04 3M Avg Price ( ) 374 3M Avg Volume (Shares) 2614020 3M Avg Roll (%) 67.58% HV 60 Day (% Annualised) 24.22 Low leverage in stock likely to provide cushion on downsides 450 Price Open Interest 430 410 390 370 350 40000 35000 30000 Price vs. 25000 open interest 20000 pattern 330 15000 Price 310 290 270 250 2 8-Oct 18 8-Nov 9-Dec 30 0-Dec 0-Jan 0-Feb 2 1 3-Mar 24 4-Mar 1 4-Apr 5-May 26 6-May 1 6-Jun 7-Jul 28-Jul 18 8-Aug 10000 5000 0 OI in Thousands 2
Derivatives and Quantitative Outlook Oil & gas stocks are one of the major performers in the last couple of months. The Nifty Energy index has gained over 38% against a 28% increase in the Nifty. Both midcap and large cap stocks witnessed buying support at every decline. The recent outperformance of gas oriented stocks brings the focus to Gail, which has so far been unable to replicate the gains seen by the rest of its peers. We expect a catch up exercise to be seen in Gail. The stock can move towards 450 levels From a data perspective, the open interest in the stock has declined more than 25% since the June series when it made a low near 345 levels. Closure of short positions was clearly evident in the stock since then The highest Call option base for the stock was seen at the 400 strike followed by 380 strike post its quarterly results. Since then, it has already surpassed 380 levels while closure among Call options has begun. Further upside momentum can be expected in the stock Despite lower-than expected quarterly results, Gail has not breached its June lows and witnessed buying from 360 levels. In today s session itself, it has surpassed its result day s high of 380. Sustainability above it is likely to fuel fresh buying in the stock In the first half of the August series, a significant ifi increase of delivery based activity it was seen in the stock whilemorethan60%averagedeliveryvolumeswere observed whenever it moved towards 270. We believe the ongoing accumulation in the stock may result in sharp upsides Near term volatility in the stock has remained elevated in recent times. However, volatility levels have also witnessed a reversal whenever it moved towards 27% in the last few months. We expectanother round of decline in volatility from current levels, which should benefit the stock Note: Call was initiated on iclick-2-gain on August 18, 2017 3
Buy Petronet LNG in range of 226-230; Target 270; Stop Loss 205; Time frame: Three months Snapshot Spot Price 228.00 Beta 0.69 3M Avg Price ( ) 214 3M Avg Volume (Shares) 5578201 3M Avg Roll (%) 87.68% HV 60 Day (% Annualised) 25.11 Ongoing short covering in stock may provide further momentum 240 Price Open Interest 18000 230 16000 Price vs. open interest pattern Price 220 210 200 190 180 14000 12000 10000 8000 6000 in Thousands 170 4000 160 2000 150 0 18-N Nov 9-D Dec 30-D Dec 3-M Mar 24-M Mar 5-M May 26-M May 7- -Jul -Jul OI i 18-A Aug 28- Oct 20- Jan 10- Feb 14- Apr 16- Jun 28-4
Derivatives and Quantitative Outlook Petronet LNG has been taking out the consolidation price range of the last year. In October 2016, it was near 205. After almost a year, the current move has started after testing this level. It has respected this level, which is the mean price of the last many months Considering the closure of short positions in the current month, it seems the current move is likely to take the stock higher. Also, 25% of short closure has already been seen in the stock In June, five-year high volumes were seen near 210 levels. Since then, whenever it declined below 210, which was seen in July and August, we saw an increase in volumes. This shows the increasing buying interest in the stock at lower levels On July 19 and July 31, quite high delivery pick up (81%) was seen in the stock at an average price of 205, which h led to the current stock move The 60-day volatility in the stock has eventually started declining, which gives indication of accumulation. The historical volatility has come down from 28% to 25% The mean + Sigma level for the stock is placed at 220. After a couple of months of consolidation below this level, it has recovered above this, which would remain a good support in the short-term In the options segment, Call writers were active in the stock at 220 and 230 strikes. As the 220 strike has already been taken out, short covering is expected in this segment, which can lead to a good pullback Note: Call was initiated on iclick-2-gain on August 18, 2017 5
Quant Pick : Open recommendations Date Scrip Initiation Range CMP Target Stop Loss % Return as on date 8-May-17 Container Corporation 1180-1195 1257 1430 1070 5.6% 30-May-17 Tata Chemical 608-614 593 715 552-2.8% 13-Jun-17 Ultratech cement 4090-4110 4009 4750 3760-2.2% 20-Jul-17 Engineers India 159-163 151 188 145-6.5% 1-Aug-17 UPL Ltd 870-885 852 1020 788-2.8% 4-Aug-17 Colgate 1060-1080 1073 1260 975 0.2% 8A 8-Aug-17 Vedanta Ltd 294-299299 301 345 269 18% 1.8% 14-Aug-17 Pidilite Industries 805-815 815 965 730 0.6% 6
Portfolio allocation in Derivatives Products It is recommended d to spread out the trading corpus in a proportionate t 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. Products Allocation Return Objective Product wise Max allocation Frontline Mid-cap allocation per stock Number of Calls Stocks stocks Duration Daily Derivatives 5% 2-3% 2 Stocks 1% 2-3% Intraday Weekly Derivatives 10% 3-5% 2 Stocks 3-5% 5-7% 1 Week Monthly Derivatives 15% 3-5% 4-7 Stocks 7-10% 10-15% 1 Month Global Derivatives 5% 2-3% 4-5 stocks - - 1 Month Quant Picks 15% 2-3% 6-8 stocks 7-10% 10-15% 3 Months Alpha Trader 10% 2-3% 2-3 strategy 5% - 1-2 Month Volatility Insights 10% 2-3% 3-4 Strategy 8-10% 10-15% 1-2 Month Arbitrage Opportunity 5% 2-3% 2-3 Stocks > 2.5% >2.5% Event Based Short term Futures 5% 2-3% 8-12 Stocks 1-3% 2-5% 1-2 days Positional Index Strategy 5% 3-4% 2-4 Index calls - - 1-14 days Stock option strategy 5% 3-4% 2-8 Stocks - 3-5% 1-2 days Daily Currency Future 5% 3-4% 3-5 Calls - - 1-2 days Monthly Currency Futures 5% 3-4% 2-3 Calls - - 1 Month 7
Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road no.7, MIDC Andheri (East) Mumbai 400 093 research@icicidirect.comcom 8
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 INH000000990.ICICI Securities is a wholly-owned subsidiary of ICICI Bank which 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 www.icicibank.com. 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. 9
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. 10