By Nirmal Bang

Market Analysis

After a lack luster performance by the markets in January, the month of February was marked by volatility in the markets. The choppiness continued throughout the month as markets closed flat with Nifty up by just 0.82% & Sensex closing up by 0.44%. The Union Budget brought out the much needed relief for the markets with the sentiment turning positive on the last day of the month. The Fii¡¯s continued their selling spree, selling to the extent of Rs.1972 crs in the month. DIIs once again supported the markets & were net buyers to the tune of Rs.1344 crs. Midcaps & Small caps however underperformed the benchmark indices losing 1.72% & 2.01% respectively.

Sector Analysis

Amongst the sectoral indices, IT was the biggest gainer up by 3.94% amidst news of global recovery & Rupee depreciation vis a vis dollar. Auto index was the next major gainer on the back of continuous improvement in the sales numbers of all major companies. With 2% increase in excise which was in line with expectations, most of the players have already increased prices of their vehicles. Healthcare was the other major beneficiary gaining 3.10% followed by Metals which gained 2.75% on back of buoyant domestic demand. Capital goods & Bankex were the other gainers gaining 2.67% & 1.81% respectively.

Amongst the sectors which ended in red, Realty was the biggest loser down by 7.53% on the back of increase in the interest rates coupled with fall in demand in major markets. To add to the woes of the sector cement price hike & other implications of the budget were also negative for the sector. Oil & Gas, Power & FMCG were the other sectors which ended in red losing 3.45%, 3.27% & 2.32% respectively.

Fund Activity

FII¡¯s were net sellers for the month of February to the extent of Rs. 1,972 crs, on account of profit booking. However, DII¡¯s were buyers for the month with Rs. 1,344 crs.

Currency Fluctuations

The partially convertible rupee closed at Rs46.09 per dollar, 0.2% above its close of Rs. 46.18, supported by stronger domestic stock markets, after the federal budget presented by finance minister Pranab Mukherjee earlier in the day raised expectations it would boost consumption, but demand for dollars from oil refiners kept a lid on the gains.

The euro has slumped 2.9% against the dollar amid concern sovereign debt problems will hamper the 16©\nation currency area¡¯s recovery. The euro has lost over 10% since late November as fiscal woes in Greece intensified in the past few months leading to a huge sell©\off by investors. The single currency has been dogged by Greece's debt problems and tepid economic growth in the 16©\nation region, even as U.S. economic prospects appear to improve.

The dollar was also pushed higher after the Federal Reserve unexpectedly lifted an emergency lending rate for the first time since the financial crisis. Though the Fed cited improving market conditions we believe that the action had come sooner than expected and moved the central bank one step closer to pushing up benchmark lending rates, which would raise borrowing costs for consumers and companies.

International Markets

Asian stocks rose as investors looked past the Federal Reserve's discount rate hike to signs of strength in the U.S. economy, while the euro firmed on talk that a quick bailout is being sketched out for debt©\stricken Greece. Asian share markets were also buoyed by a steady start in Chinese markets as they re©\opened after a week©\long holiday and had their first chance to react to a surprise central bank tightening move on Feb 12.

Moody¡¯s said a change in Greece¡¯s rating would depend on whether Athens could smoothly enact a fiscal reform plan, while Standard & Poor¡¯s said a downgrade by one or two notches in the next month was possible. The move could increase borrowing costs and exacerbate Greece¡¯s problems.

South Korea rose marginally by 0.10% or closed at 1613 points, with news of European Union support for debt©\laden Greece set to boost sentiment for the investors.

The Dow Jones industrial average rose by 283.5 points, or 2.80 percent, to 10,404. The Nasdaq Composite Index rose by 95 points, or 4.34 percent, to close at 2,274. World Markets 26©\Feb

BSE 500 Review

Gainers

Bata India
Bata India¡¯s stock price gained 29.2% in February 2010 after it reported strong results for Q4 FY09 on 24 February 2010 and increased the dividend payout. The stock price increased from around Rs. 186 to Rs. 233 within a couple of days.

Amtek India
Amtek India increased 21.6% in February 2010.

Dalmia Cement
Dalmia Cement¡¯s stock price increased 26.5% in February 2010 on the back of the expectations that cement prices will rise in India which will benefit the company.

J K Cements
JK Cement¡¯s stock price increased 26.5% in February 2010 on the back of the expectations that cement prices will rise in India particularly in the North region which will benefit the company.

Abbott India
Abbott India increased 23.3% in February 2010. The stock price increased substantially after the company announced an open offer to acquire Solvay Pharma India at price of Rs 3,054.73 per share. Abbott also announced a dividend of Rs. 17 per share on 01 February 2010 which also strengthened the stock price during the month.

Losers

KLG Systel
KLG Systel declined 29.8% in the month of February 2010.

Bajaj Hindustan
Bajaj Hindustan declined 24.5% in February 2010 due to the decline in sugar prices during the month

Shree Global Tradefin Ltd
Shree Global Tradefin Ltd¡¯s stock price declined 22.6% in February 2010.

Jet Airways
Jet Airways¡¯ stock price declined 21.8% in February 2010 capturing decline in air ticket rate.

Hexaware Technologies
Hexaware Technologies declined 21.0% in February 2010 after company reported a disappointing result for 4Q FY09 and provided a muted guidance for Q1 FY10.

Economic Activity for the month of February 2010

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of December 2009 stand at 206.0, 360.7, and 235.2 respectively, with the corresponding growth rates of 9.5%, 18.5% and 5.4% as compared to December 2008. The cumulative growth during April©\December, 2009©\10 over the corresponding period of 2008©\09 in the three sectors have been 8.5%, 9.0% and 5.8% respectively, which moved the overall growth in the General Index to 8.6%. India's holding of US Treasury Securities at the end of December 2009 stood at $29.6 billion vis©\¨¤vis $31.6 billion at the end of November 2009.

The growth in gross domestic product (GDP) at constant prices during the third quarter (October©\December) Q3 of 2009©\10 is estimated at 6.0% as against 7.90% in Q2 of 2009©\10 and 6.20% during Q3 of 2008©\09. The economic activities which registered significant growth in Q3 of 2009©\10 over Q3 of 2008©\09 were, ¡®mining & quarrying¡¯ at 9.6 per cent, ¡®manufacturing¡¯ at 14.3 per cent, ¡®construction¡¯ at 8.7 percent, ¡®trade, hotels, transport and communication¡¯ at 10.0 per cent, and ¡®financing, insurance, real estate and business services¡¯ at 7.8 per cent. The growth rate in ¡®agriculture, forestry & fishing¡¯ was estimated at (©\) 2.8 per cent in this period.

India's WPI accelerated 8.56% in January from 7.31% in December. The WPI for November was revised upwards to 5.55% from 4.78%.Primary articles recorded a slight moderation in inflation and stood at 14.5% showing a slight deceleration on account of decline in price so food articles, primarily fruits and vegetables. Food price inflation also decelerated at 19.4% in January from 21.9% in December. We expect food price inflation to ease off going forward due to better than expected rabi crop output as indicated by second advance estimate of agriculture minister.

India¡¯s exports during January, 2010 were valued Rs. 65,920 crore which was 4.9 %higher than the level Rs. 62,844 crore during January, 2009. Cumulative value of exports for the period April©\2009 to January©\2010 Rs 6,29,224 crore as against Rs. 7,15,764 crore registering a negative growth 12.1% over the same period last year. India¡¯s imports during January, 2010 were valued at Rs.1,13,545 crore representing a growth of 27.6% over the level of imports valued at Rs. 89,015 crore in January, 2009. Cumulative value of imports for the period April, 2009©\ January, 2010 was Rs. 10,41,513 crore as against Rs. 12,15,214 crore registering a negative growth of 14.3 %over the same period last year.

The People's Bank of China in its second step in a month to restrain inflation and damp asset prices raised the reserve requirement of banks by 50 basis points, effective February 25 from the existing level of 16% for the bigger banks and 14% smaller ones. The Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75% while reducing the maximum maturity for primary credit loans to overnight stating that the move will encourage financial institutions to rely more on money markets rather than the central bank for short©\term liquidity needs. Fed chairman Ben Bernanke said the US economy is in a ¡°nascent¡± recovery that still requires low interest rates to encourage demand by consumers and businesses once federal stimulus expires. Treasury secretary Timothy Geithner said the US is in no danger of losing its AAA debt rating even though the Obama administration has predicted a $1.6 trillion budget deficit in 2010.The European Commission said the euro©\area recovery may not gather momentum until the fourth quarter and maintained its forecast for 0.7% growth this year. GDP in the 16©\nation euro region almost stalled to a growth of 0.10% in the fourth quarter of 2009 from 0.40% in the third quarter, mostly due to as waning spending and investment in Germany. For the full year, the economy contracted 4%. USA recorded a 5.9 % increase in annualised gross domestic product (GDP). The higher growth rate, the fastest since the third quarter of 2003, was driven by increases in manufacturing and in capital expenditure by businesses, and in spite of a lower©\thanexpected increase in consumer spending, rising 1.7pc against 2.8pc in the third quarter.

Outlook for the month of March 2010

Lower than expected Deficit projections of 5.5% 0f GDP in budget and generous increase in slab for personal income tax has taken the equity market up by over 5% post budget. The up move has already made valuation of large cap stocks rich with Nifty PE at 21.63 on 05th march 2010 indicating upside from here is limited.

The increase in excise duty across the board by 2%, levy of cess on coal, increase in petroleum product price all these stapes taken in budget were inflationary. These will further increase the inflation which is already running high at 8.56%.

The inflationary expectation will drive the interest rate up in coming period and will have its impact on corporate performance.

As such we do not expect market to run away from here and expect it to consolidate. We do not expect the up move in Auto stock specially 4 wheelers and Commercial Vehicle to sustain and are negative on them. Stocks in construction sector are expected to continue to do well with yearend fresh order win announcements. The appreciating rupee may not allow IT stock to perform. Private Banks Capital Goods and Entertainment Sector looks good. Action will continue in selected Mid Cap and Small Cap Stocks.

Flashback Feb¡¯2010

The Feb¡¯10 series opened at 42,880 cr. as against 42,996 cr. last month, wherein the Nifty future was 15,392 cr. and Stock futures were 27,488 cr. The rollovers to the Feb series were comparatively high even after seeing a sharp correction from the high of 5,310 to hit a low 4,824 on the expiry day and closed at 4,867. The market players were feeling a sense that the trend was slightly close to the oversold region and chances of a technical bounce back was very high in the new series.

During the first week of Feb series markets showed little bit of stability from the oversold region but could not sustain at higher levels. The F&O Put Call Ratio was around 0.86 indicating an oversold picture. And if we look at the historic data of the PCR whenever it comes near to 0.80 region markets bounce back smartly. Nifty bounced backed from the early Feb lows of 4,766 to make a high of 4,950 but witnessed strong selling pressure around that region. As the 4,945 level acted as an important support level in the previous rallies.

In the second week of Feb we saw the nifty making a new low of 4,675 on 08 Feb and bounced back smartly to end the day on a positive note on huge short covering. The entire Feb series was subdue and markets were consolidating on low volumes with no fresh trigger ahead expect the Railway and Union budget around the corner.

For the Feb month Nifty was up by 0.9%. The FIIs have been net sellers for the Feb¡¯10 to the total of Rs 1,971 cr. while the domestic institutions were net buyers of Rs 1,344 cr.

Road ahead March¡¯2010

The March series opened at 38,629 cr. as against 42,880 cr. last month, wherein the Nifty future was 11,989 cr. and Stock futures were 26,640 cr. The rollovers to the March series were comparatively low as market players were skeptical on the budget front. The sentiments were very down but technically market were still holding strong above their important support level.

The markets reacted positively to the Union Budget delivered and gave a spectacular breakout from the consolidation that took place since a long time. Nifty has given a symmetrical breakout on 26 Feb above the 4,910 level and this breakout gives an ultimate target of 5,200 ¨C 5,330 in coming days.

Currently nifty has rallied almost 230 points or 4.8% from its low of 4,958 and has reached the 61.8% retracement level of 5,070 which is from the top of 5,310 to the low of 4,675. Now this 5,070 happens to be an important point from where markets could give a fresh breakout on the higher side. We believe that this 230 point rally took place in a very short period of time and going forward we feel that markets will take time and consolidate around this level and look for a fresh trigger to drift the market high from these levels.

Nifty is well place above its 50©\day moving average of 5,015 and support for the market in March series is placed at 4,960 / 4,880 and resistance at 5,120. Unless we see the markets breaking below 4,880 every dip should be used as a buying opportunity.

At this current scenario our sense is that more action will be shifted from the frontline index stock to blue chip midcap stocks where we could see big action happening.

Stock Idea:

Stocks like Ador Welding, Dalmia Cement, JK Cement, Prakash Ind, PSL Ltd, Spice Jet, Nectar LifeScience, Welspun (I), GujNre Coke, SREI Infra, Strides Arco, Videocon Ind, State Bank of India looks a great buy on corrective phase from an investment perspective.