Etihad deal a win-win for Jet; stock may move to Rs 700

Indian market has been very strong over the last few days and Nifty has rallied 300 points over the last 10 days. So, the momentum for market is strong, but today, there are no great global tailwinds to play with as the global markets were soft on Wednesday.

However, the market is bang in the midst of earning season, so there will be a lot of stock specific activity even if the market chooses to consolidate the recent gains, CNBC-TV18's managing editor, Udayan Mukherjee said. The Etihad deal is a win-win for Jet Airways and  the stock should slowly start moving towards Rs 700 this morning. Also read: Will keep 2013-14 fiscal deficit below 4.8% says Chidambaram Below is the verbatim transcript of his comments In the last fortnight or last ten days confidence in Indian macro has improved for all the factors that we have been discussing; the way commodities have behaved, gold has behaved and the expectations of rate cuts which have come back. Interestingly, if one looks at the context or the texture of the rally this time around, it is the domestic plays which have done much better compared to what used to happen earlier. Earlier, IT would lead rallies and domestic companies would sulk. However, over the last ten days, we have seen banks, autos, even some of the infrastructure plays have done better and these are all plays on either interest rate cuts or domestic macro improving on the margin. Also the leadership sectors have done well and IT has started underperforming. So, money is being switching out of some of the global plays into some of the domestic plays. So, there has been some genuine reason for this rally in India, Market has pulled back 300 points from its recent lows with some good macro reason and next week we could probably get a rate cut but what after that is the question. The growth question still lingers particularly because valuations have changed a bit in the last ten days. We are entering an interesting phase in the market because there are pulls and pressures. There are some macro tailwinds but all the headwinds have not gone away. So, this leg of the journey could be interesting. A lot of people over the last three months had gone underweight on India partly because of India’s underperformance, partly because of nothing improving on the macro front but some things have changed now. However, things like the way gold and crude equation has panned out, the way inflation has come off has led a lot of global investors to come back and relook at India, Some recalibration of ownership has certainly happened and moreover all the shorts have got cleaned out of the system. Since India was doing so badly in February, March and even parts of April, a lot of shorts were there in the system from the foreign institutional investors (FIIs) and a large part of that has got covered up. Now, the market has got some momentum, the bearish positioning has gone down but now we need to look at whether we can get more tailwinds from the global space. There have been some cracks in the global markets with how the earning is panning out in the West, crude is stabilising again above USD 100 per barrel, and gold has had a mild rebound. We need to be a bit careful out here. Right now, the mood will be quite gung-ho and there is some logic and reason to it for. However, with the kind of rally that we have seen in Europe, the US over the last few days, a little bit of caution may not be unwarranted.
We are still in a trading market and we are getting into these boom-bust kind of things. We will have couple of really bad months and then there will be hope for four-six weeks and markets will go up globally and locally. Again, something will come about in global markets or people will start fretting about growth because growth is still not there while valuations are expanding again. So, we are probably going to just ping around like this for a while longer. The clean trend despite the reason to improvement in Indian macro probably has not started.
We will probably get these 500-600 point whipsaws on the Nifty as well. Global markets will have a great stretch and suddenly something like a Cyprus will come up and again they will start selling off. So at best, I think market will be volatile though in the last few days we have been on the right side of volatility. Jet-Etihad deal
It is a good deal. The most important thing is that the money comes into the company. There might be a trace of confusion about the open offer, so if traders were building up for the open offer this morning are not quite sure, it does not follow that there will be an open offer at Rs 750 plus. So that is a little grey area but the stock should open up because strategically since it is an important deal.
Looking at all the aspects of the deal; money comes into the company, balance sheet is improving, strategic advantages of tying up with Etihad, the opportunities which have opened up in the international space, it is a win-win for Jet Airways.
However, Kingfisher Airlines may slowly start moving towards the zero rupee level because now even the mild hope that Etihad might do a deal with them goes out. However, it would be interesting to see what SpiceJet does today because after this deal, maybe will be talking about another partner getting into SpiceJet, etc so that might get lifted with rub off.
Jet Airways should slowly start moving towards Rs 700 this morning. Once there is more clarity on the open offer, the stock will probably go down to that open offer arbitrage kind of price which will be little lower than that but it’s a good deal that they have cobbled up.
_PAGEBREAK_
The market at 5,500 was not pricing in some of the recent improvements. So the Nifty fell to around 5,500 levels and then, some things changed in the environment, which the market could not see or anticipate like gold collapsing or crude collapsing. After that, the market needed to price in those things and the journey from 5,500 to 5,800 or 5,900 sort of captured most of the change that had happened in the environment.
Momentum is there with market, which can certainly take us higher but levels are difficult to call. We could go to 5,900 around expiry; we could even extend this rally to 6,000 but then we would need to sit back and take stock of the situation. We have had the 7-8-10 percent rally from the recent lows but the question is what now. Are earnings supportive enough for the market to carry on with its journey, on the way up? People may find that earnings upgrades or even macro growth upgrades are not that easy to come about even as some of the deficit issues might be getting slowly better if not completely sorted. So, probably 75-80 percent of this leg of the upmove if not more is probably done.
The market needs to consolidate now, and more so because crude has not completely collapsed, and gold is showing signs of finding a temporary bottom around USD 1,400 per ounce. Market needs to digest the recent gains, particularly because some of the clusters like private banks have run up quite significantly in the last few days. Their rallies have been to the tune of 11-15 percent. So, much more upside from here seems like stretching despite good results from private sector banks.
Therefore in this ballpark zone of 5,900, the market should run into some kind of resistance and traders might look to cash in if they got in lucky and got into the market maybe 5-6 days down the line.