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Fundamentals I Technical I Derivatives

CONTENT

03 Monthly Wrap-up

04 Dividend Yield Stocks

05 Technical Monthly Outlook

06 Technical - Stock Recommendation

07 Derivatives Monthly Report

October 2017

2

Disclaimer: http://www.religareonline.com/research/Disclaimer/Disclaimer_rsl.html

Team Members

Hitesh Agrawal [email protected] Ajay Pasari, CFA [email protected] Ajit Mishra [email protected] Archana Gude [email protected] Manoj M Vayalar [email protected] Mehernosh Panthaki [email protected] Siji A Philip [email protected] Suhanee Shome [email protected]

Dear Investor, Surrounded by muted domestic cues and global uncertainty, the Indian equity benchmark indices registered second consecutive month of losses. Rising inflation, muted Q1FY18 corporate earnings scorecard, disappointing GDP growth (impacted by lingering effects of demonetization and GST transition), fears of widening fiscal deficit, a below-normal monsoon, escalating geopolitical tensions between US and North Korea and fears of unwinding of stimulus in US weighed on sentiments. The Nifty fell by 1.3% in September. Most sectoral indices too ended weak with FMCG, PSU, Realty, Power and Oil & Gas being the top losers, down 2-4%. However, outperformance from sectors like Healthcare, Metals and Auto (up 2-3%) restricted further index losses. The broader market indices exhibited a mixed trend. While the BSE Mid-cap index corrected by 0.7%, BSE Small-cap index outperformed with a 0.7% gain. FIIs remained net sellers for the second straight month to the tune of Rs 10,750crs, while domestic Mutual Funds continued to support Indian equities by pumping an additional ~Rs 16,000crs. On the macro front, the CPI Inflation strengthened for second consecutive month to 3.36% YoY in August (at a five month high) from 2.36% a month ago as food inflation turned positive after three months of contraction. The WPI inflation too rose sharply to 3.24% from 1.88% in July. Further, India’s Q1 GDP growth slowing to a three year low at 5.7% was a big disappointment. To add to the woes, India’s current account deficit (CAD) soared to a four-year high of $14.3bn, or 2.4% of GDP in Q1FY18. International crude oil prices at 2-year highs will only add to the pressure on the country’s import bill. Moreover, as per IMD, India ended 2017 southwest monsoon season (June-September) with 5% lower rainfall than average (95% of LPA; below the initial prediction of 98%) and expectations of a slightly lower output of kharif, thus raising fears of lower agri and overall GDP growth (which is already witnessing pressure). The global cues also remained unsupportive. North Korea testing a hydrogen bomb and firing its second ballistic missile over Japan last month further escalated geopolitical tensions between the US / Japan and North Korea. On global monetary policy front, the US Fed left interest rates unchanged but signalled one more rate hike by the end of 2017. Further, it also indicated of reducing its $4.2trillion balance sheet in October (holdings of US Treasury bonds and mortgage-backed securities). Thus, the market is expected to remain volatile and uncertain in the near term due to several challenges that have cropped up over the past couple of months as indicated above. The Nifty has rallied 20% since 2017 so far, largely driven by strong liquidity and hopes of earnings revival. However, with no meaningful improvement having been witnessed during this period, as evident from tepid corporate earnings, slowing GDP and rising inflation, investors seem to be losing patience. Further, a probable stimulus package from the government to revive the economic growth has raised fears of widening of fiscal deficit, which could get stressed further by rising crude oil prices (at a 2-year high) and a weakening Rupee (at a 6-month low vs USD). This is clearly reflected in market sentiments over the last two months. Going forward, while we expect the RBI Monetary Policy to be a non-event with no interest rate cut in wake of inflationary trends firming up and GDP slowdown being transitory; Q2FY18 corporate earnings and global developments (extent of geopolitical risks, cues from US Fed towards interest rates and stimulus unwinding, etc.) are events to watch out for. Amidst all of the above, liquidity will be an important decider for short-term market trends. Hitesh Agrawal

EVP & Head – Retail Research

Religare Securities Limited

3


FUNDAMENTAL

MONTHLY WRAP-UP

BSE Sectoral Indices

% Change

Close 1 Month 1 Year

BSE Metal 13,563.9 2.1 38.9

BSE Cons Durable

17,554.9 -0.8 39.9

BSE Cap Goods 17,172.1 -0.9 17.8

BSE FMCG Sec-tor

9,772.7 -3.9 15.5

BSE Healthcare 13,487.8 2.6 -16.6

BSE IT Sector 9,946.6 -1.2 -2.8

BSE PSU 8,322.2 -3.7 11.5

BSE Teck 5,607.6 -1.8 -0.4

BSE Auto 24,180.0 2.1 8.8

BANKEX 27,025.3 -1.5 22.6

BSE Oil&Gas 14,842.5 -2.2 30.5

BSE Power 2,206.2 -2.4 10.9

BSE Realty Index

2,065.4 -3.4 36.6

Close price as on September 29, 2017

FIIs Investments In Indian Equities

Indian Indices

% Change

Close 1 Month 1 Year

SENSEX 31,283.7 -1.4 12.3

CNX NIFTY 9,788.6 -1.3 13.7

BSE MIDCAP 15,436.0 -0.7 17.2

BSE SMLCAP 16,113.7 0.7 26.1

NIFTY BANK 24,053.0 -1.1 24.7

Market Overview

Market Outlook

Net Investment (` Crore)

Month 2014 2015 2016 2017

Jan 714 12,919 (11,129) (1,000)

Feb 1,404 11,476 (7,988) 10,485

Mar 20,077 12,078 23,621 33,780

Apr 9,602 11,721 3,655 (2,200)

May 14,006 (1,895) 2,579 10,850

Jun 13,991 (5,480) 5,175 4,000

Net Investment (` Crore)

Month 2014 2015 2016 2017

July 13,124 2,593 11,130 1,882

Aug 5,430 (17,249) 9,800 (13,613)

Sept 5,103 (5,696) 9,330 (13,382)

Oct (1,172) 4,204 (3,500)

Nov 13,753 (7,629) (17,400)

Dec 972 206 (11,325)

The market is expected to remain volatile and uncertain in the near term due to several challenges that have cropped up over the past couple of months. A probable stimulus package from the government to revive the economic growth has raised fears of widening of fiscal deficit, which could get stressed further by rising crude oil prices (at a 2-year high) and a weakening Rupee. This is clearly reflected in market sentiments over the last two months. Going forward, while we expect the RBI Monetary Policy to be a non-event with no interest rate cut in wake of inflationary trends firming up and GDP slowdown being transitory; Q2FY18 corporate earnings and global developments (extent of geopolitical risks, cues from US Fed towards interest rates and stimulus unwinding, etc.) are events to watch out for. Amidst all of the above, liquidity will be an important decider for short-term market trends.

Surrounded by muted domestic cues and global uncertainty, the Indian equity benchmark indices registered second consecutive month of losses. Rising inflation, muted Q1FY18 corporate earnings scorecard, disappointing GDP growth (impacted by lingering effects of demonetization and GST transition), fears of widening fiscal deficit, a below-normal monsoon, escalating geopolitical tensions between US and North Korea and fears of unwinding of stimulus in US weighed on sentiments. The Nifty fell by 1.3% in September. Most sectoral indices too ended weak with FMCG, PSU, Realty, Power and Oil & Gas being the top losers, down 2-4%. However, outperformance from sectors like Healthcare, Metals and Auto (up 2-3%) restricted further index losses. The broader market indices exhibited a mixed trend. While the BSE Mid-cap index corrected by 0.7%, BSE Small-cap index outperformed with a 0.7% gain.

Nifty Dividend Yield Chart Nifty PE Movement

4


Dividend Yield Stocks

Dividend yield is one of the main factors to consider when investing in dividend-paying stocks. It is an indicator of the return

that the investors are earning on their shares. In this list we have selected 13 stocks based on their financial performance.

Investors interested in dividend income may consider the stocks in this list.

Source - Capitaline

Company Name Industry Financial Year End

Mcap (Rs cr.)

Equity (Rs cr.)

Price Septem-ber 29, 2017

Face Value (Rs)

Book Value (Rs)

EPS (Rs)

P/E (x)

Div. / Share (Rs)

[FY17]

Div. / Share (Rs)

[FY16]

Div. / Share (Rs)

[FY15]

Div. Yield (%)

Hind.Zinc Mineral 2017-03 124,976 845 295.8 2 72.9 21.7 13.7 28.9 27.8 4.4 9.8

Coal India Mineral 2017-03 167,973 6,207 270.6 10 69.4 14.9 18.1 19.9 27.4 20.7 7.4

NHPC Ltd Power 2017-03 27,854 10,259 27.2 10 30.0 2.7 10.1 2.3 1.3 0.5 8.5

Rural Elec.Corp. Power 2017-03 30,177 1,975 152.8 10 144.9 31.6 4.8 12.1 14.7 9.8 7.9

Oil India Oil&Gas 2017-03 26,684 757 352.5 10 278.4 19.3 18.2 17.5 18.0 10.5 5.0

Natl. Aluminium Mineral 2017-03 15,135 966 78.3 5 68.6 3.5 22.6 3.6 1.8 1.7 4.5

Power Fin.Corpn. Power 2017-03 32,169 2,640 121.9 10 135.5 8.1 15.1 5.6 13.9 8.7 4.6

NMDC Mineral 2017-03 37,207 316 117.6 1 103.1 8.2 14.4 4.2 12.3 7.3 3.5

Akzo Nobel Paint 2017-03 8,969 47 1,922.2 10 216.0 53.0 36.3 70.0 20.0 75.0 3.6

MphasiS IT 2017-03 11,924 193 617.8 10 317.8 40.7 15.2 20.0 16.0 7.0 3.2

Greaves Cotton Capital 2017-03 3,326 49 136.2 2 37.7 7.5 18.1 5.0 5.5 2.0 3.7

Indiabulls Hous. NBFC 2017-03 51,171 85 1,207.0 2 320.5 72.2 16.7 32.0 32.0 31.0 2.7

Sonata Software IT 2017-03 1,547 11 147.1 1 55.6 14.6 10.1 3.5 13.3 5.5 2.4

5


TECHNICAL

MONTHLY OUTLOOK

Below is a summary of Top Nifty Gainers & Losers:

Top Nifty Gainers September 2017

Scrip Name Close Price* (`) % Change

DRREDDY 2328.75 15.23

COALINDIA 270.85 14.09

GAIL 419.05 10.77

BAJAJ-AUTO 3109.4 10.47

ONGC 170.95 8.92

Breadth of Nifty stocks was negative – 28 stocks

closed in red while 23 stocks closed in green in the month of September, 2017.

Relative comparison shows Healthcare, Metal and

Auto index were the outperformers whereas FMCG, PSU and Reality Index were the underperformers in September, 2017.

* All the sectors have been compared with Nifty & the zero line represent Nifty. The movement of the sector vis-a-vis Nifty whether they outperform or underperform is shown in the above chart. It shows which sectors have attracted inflows and also the sectors from where money has exited.

Top Nifty Losers for September 2017

Scrip Name Close Price* (`) % Change

IOC 400.5 -11.91

BPCL 471.3 -10.90

BHARTIARTL 389.45 -8.94

SBIN 253.85 -8.60

ITC 258.3 -8.48

Sector Relative Performance

*Close price as on October 3, 2017

Nifty maintained its sideways tone in the passing month

and lost nearly 1.5 %, citing mixed cues. It made a new

record high at 10178.95 in the middle but profit taking

in the latter half eliminated all the gains and pushed the

index lower.

In line with the overall trend, we’re currently seeing

time-wise correction in index as Nifty has hardly

retraced from the top if we compare it with the rally in

last nine months. However, we feel that the scenario

has changed and possibility of price-wise correction is

high.

Nifty has crucial support at 9700 and its breakdown will

derail the momentum. On the other hand, decisive

breakout above 10050 would trigger fresh positional

buying. We suggest preferring only quality stocks from

our selected list of sectors viz. private bank, auto, NBFC

and metal for long trades while underperformance may

continue from PSU banks, IT and pharma pack.

Outlook for Nifty 50 (9859.50) Support 9820/9700/9600 Resistance – 9985/10150/10300

*Closing of last trading day of the month

The Month That Was:- Nifty lost 129.3 points in the month of September, 2017.

6


INDIACEM

CMP ` 182.40* Stop Loss ` 170 Target ` 205

Buy Range ` 178-182

After strong up move, INDIACEM has been witnessing correction for last five months and reached closer to major support zone around 165.

It has spent around nearly a month around that zone and looks all set for an up move. Moreover, support zone of moving averages is also adding to the positivity.

Considering all, we suggest traders to initiate long position in the range 178-182 with closing stop loss of 170 for the target of 205.

LICHSGFIN

CMP ` 641.65 * Stop Loss ` 615 Target ` 710

Buy Range ` 640-645

LICHSGFIN has witnessed decent correction from its top and retraced to the major support area of short- term moving averages of 50 day EMA on weekly chart. And, existence of trend line support is an added positive.

Considering its long term chart, strong rebound is likely in near future with marginal consolidation in between.

We advise traders to use this phase to accumulate fresh longs in the given range.

TECHNICAL

Stock Recommendations For October - 2017

*Close price as on October 3, 2017

Outlook for Bank Nifty (24103.40) Support 24000/23750/23500 Resistance 24340/24600/25000

BankNifty also traded volatile in the passing month and lost over a percent, mainly pressurized by weak PSU banks.

Unlike Nifty index, it failed to surpass its previous record high, indicating slight divergence. However, private banking counters are largely moving in tandem with the benchmark index and holding strong amid volatility.

Among the private banking counters, HDFC bank, Indusind bank, Kotak bank and Yes bank look firm and can be accumulated on dips with medium to long term investment horizon.

7


DERIVATIVES

DERIVATIVES MONTHLY ROLLOVER REPORT

September Expiry Derivatives Summary Sector Rollover (%)

October Series Outlook Rollover Synopsis

In September series, Realty @87%, Media @86% and

Pharma @86% are the sectors where highest rollover

was witnessed, whereas Capital Goods @79%,

Fertilizers and Cements @80% each are the sectors

where lower rollovers were witnessed.

Indiabull Real Estate and JSW steel are the leaders in

rollover where as NIIT Tech and Oil India futures

witnessed the lowest rollovers in September series.

The October weighted average price for Nifty and

BankNifty futures are at 9880 and 24050

respectively.

These might act as the pivot for indices for the month of

October.

Vix is currently at 12.5% and is likely to be in 10.5% to

15% for the major part of October.

We advocate doing Nifty Bear put spread through

options.

Buy Nifty 26 Oct 9900 PE @96 and sell Nifty 26 Oct

9600 PE @ 27,spread @ 69, stop loss at 30, target 150.

Sector-wise Cement and FMCG might be stable,

however Banking and Finance as a sector might

underperform for Oct series.

Since we expect the Oct series to be in a range of

9600 to 10100, buying Nifty Oct 9900 put option to

hedge all stock futures positions are recommended.

Nifty Index closed at around 9768 after Volume weighted

average price (VWAP) based buying activity was witnessed

in the last hour of trade. The Nifty futures long roll cost

(difference between current and next month futures) was

at around 38 bps vs 29 bps. Nifty futures October contract

started with around 1.96 Cr vs 1.58 Cr open interest.

BankNifty futures have seen an open interest at around

11.3 lkh vs 16.38 lkh last series. At expiry, VIX was at

around 13% levels implying a 354 odd points swing in the

Nifty in next 30 days. The highest Nifty options open

interest is at 9700 PE and 10000 CE. Nifty 9700 put open

interest stands at around 44 lkh and 10000 call open

interest at around 44 lkh.

Nifty futures has rolled around 70% vs 58% with respect to

last month, and the open interest for the new October

contract is higher by around 40 lkh implying cautious

outlook or fresh short rollovers at around 10000 levels.

BankNifty futures rolled at around 65% vs 68% compared

to last month. However the open interest of BankNifty in

this series is less by around 5 lkh, due to the short covering

seen in the second half of the expiry day.

The range for Nifty might be 10100-9600 and BankNifty

@ 23200-24700.

FIIs have sold around Rs 22423 Cr in the cash market

(expiry to expiry) in September.

With Nifty futures starting October series with higher

open interest as of expiry due to fresh shorts and VIX

inching towards 15% levels we expect Nifty stocks to

witness some distribution towards the 10000 levels till

the first fortnight of October.

65

70

75

80

85

90

Rollover %

8


DERIVATIVES

NIFTY October Series Option Data

TOP 5 — PRICE GAINERS Expiry-to-Expiry

STOCK NAME % Change

DIVISLAB 23.70

OIL 23.30

DRREDDY 17.10

IGL 14.10

NIITTECH 12.30

TOP 5 — PRICE LOSERS Expiry-to-Expiry

STOCK NAME % Change

JPASSOCIAT -31.30

RELCAPITAL -25.70

SREINFRA -20.30

JETAIRWAYS -17.60

IDEA -16.90

TOP 5 — STRONG ROLLOVERS

STOCK NAME % Rollover

IBREALEST 95

JSWSTEEL 95

ADANIPOWER 93

TV18BRDCST 93

DALMIABHA 92

TOP 5 — WEAK ROLLOVERS

STOCK NAME % Rollover

NIITTECH 61

OIL 66

INDIGO 68

RAMCOCEM 68

IRB 69

0

10

20

30

40

50

60

9200 9300 9400 9500 9600 9700 9800 9900 10000 10100 10200 10300 10400 10500

Op

en In

tere

st (i

n la

khs.

)

Nifty Open Interest Call

Put

9


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