Previous euphoria in market is now stuck in narrow range which is forming between 100 and 200 Day Moving Average, is 10940 and 10766 respectively.
Decoupled with global peers, the Indian market outperformed to some extent over the week but a sharp correction was seen on Friday’s session after seven consecutive days of upward move. Nifty closed with a mild weekly loss of 0.47% at 10754.
The euphoria seen earlier in the market is now stuck within a narrow range, that is forming between 100 and 200-Day Moving Average, at 10940 and 10766 respectively.
As we have closed at the lower range of the band and US markets closed below important support levels, if the market breaks its Friday low (10738.65) then it could derail the upside momentum for the time being and then the fall can extend upto the levels of 10651 and 10507.
An upside of 10940-10985 will remain a challenging zone for the bulls.
Options data suggests a cautious approach of bulls as 10,900 and 11,000 call option has witnessed significant writing. Whereas, cumulative open interest of around 32 lakh contracts at 10,500 put strike price, suggesting that a fall is likely to be arrested at lower levels.
100 percent retracement projection of previous week's range comes in at 10,500 level coupled with macro factors i.e strengthening bond yield, Indian rupee and melting crude oil prices. We believe that once the market reaches a lower level, it should be bought into and we can see a fresh upward move after correction at the month-end.
As the regulator has "pulled up its socks" regarding the tightening of norms for various sectors, this has led to short-term instability but on the other side, would strengthen quality & firmness in long run.
Here's a list of quality, contra & controversial stocks that are expected to bear fruits in the next couple of months.
Sun Pharma | Buy | CMP 425 | Target 512 | Return 20% | Long-term
The company has seen a number of allegations owing to its corporate governance. Whether it is regarding the inadequate disclosures, a low single-digit tax rate or the matter of Aditya Medisales. All this coupled with the selection of London-based firm Jermyn Capital to manage Sun’s $275 million foreign convertible bond issue in 2004-07 have affected the company lately. Though most of the issues have now been clarified by the management.
Although Q2 numbers disappointed the street owing to a one time expense related to Modafinil and this may dampen Q3 numbers as well. Recent approvals by the USFDA for Elepsia TM XR 1000 mg and 1500 mg and approvals for Generic Ganirelix Acetate Injection having annual sales of around $67 million in the US is expected to commercialise in Q4FY19. Further, approval & launch of Ilumya, Cequa, Yonsa & XELPROS in the US may provide good growth in the future.
Apart from all the controversy, Sun Pharma, as India's largest drugmaker offers strong quality. Besides, management is keen to furnish the details & finish up with the allegations at the earliest. We expect the working capital & ROCE to improve going ahead. We recommend BUY for a target of Rs 512 initially.
Yes Bank | Buy | CMP 183 | Target 236 | Return 29% | Long term
Yes Bank’s share price has halved over the past few months on account of various concerns i.e. regulator’s loss of confidence in its founder-CEO, Rana Kapoor, resignation of Ashok Chawla, OP Bhatt and Vasant Gujrati.
Following the last meeting, Mr T S Vijayan & Mr Uttam Prakash Agarwal took over the charge of an additional director. Also, the bank has recommended the name of its board member Brahm Dutt for the post of Chairman to the RBI.
The bank is on verge of announcing a new chief soon. Board of Directors are on track to complete the process within the stipulated timeline by the RBI and final recommendations will be submitted post their next meeting scheduled on January 9, 2019. If they complete as per schedule, then good sentiments are expected to build around the share price from here onwards.
In spite of all the short-term headwinds that can be resolved sooner or later, stock could witness a rebound in coming weeks owing to strong growth numbers & healthy asset quality. Looking ahead, we anticipate no adverse impact on performance from the RBI's risk-based supervision exercise and recommend to BUY with target of Rs 236, which corresponds to 2x P/BV.
Bandhan Bank| Buy | CMP 529 | Target 616 | Return 16% | Long term
Since the bank has not been able to bring down shareholding to 40% as mandated under licensing condition, general permission to open new branches was withdrawn but the bank can still open branches with a prior approval of RBI. Furthermore, the bank has taken necessary steps to comply with licensing condition i.e. acquisition in MSME, HFC & MFI space and dissolving the holding company structure.
Restrictions on branch expansion doesn't pose any challenge to its regular pace of growth as it has already opened 938 branches, some of which are unexplored. However, prior approvals from the RBI will only slow down the pace of opening branches.
Moreover, significant presence in the under-penetrated East and North East India would bring growth opportunities for the next 2-3 years. Apart from all controversies, the bank sees immense growth potential as it has strong fundamentals in place. We expect 30-35% CAGR growth over the next couple of years, on basis of FY20E book value of Rs 154, we valued the share price of Rs 616 initially at 4x P/BV.
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The author is a senior research analyst at Rudra Shares and Stock Brokers.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.