Markets have broken below some crucial supports yesterday. Now, the support of 4220 (Nifty) & 14047 (Sensex) become very crucial and thus the markets need to hold the same to maintain their relative strength of the past month.

The upper trading targets are placed at 14586-14785 (SENSEX) & 4372-4434 (NIFTY).

The lower supports are placed at 14047-13685 (SENSEX) & 4220-4118 (NIFTY).

One can buy close to 4220 (Nifty) with a stop below 4200.

Last week, the Sensex moved within the expected range of 14,200-15,100. The index shrugged off an early weakness as it recovered from a low of 14,281 and rallied to a high of 15,106 on Tuesday. However, a significant weakness in the last two days saw the index dropping back to lower levels and finally ending the week on a soft note — down 81 points at 14,484.

Among the index stocks, Ranbaxy was the major loser, down over 13 per cent at Rs 519. Tata Steel, Sterlite, Tata Motors and Bharti Airtel declined 4-7 pe cent each. On the other hand, State Bank of India (SBI) rallied over 8 per cent to Rs 1,519. ONGC, Maruti, ACC, TCS and Tata Power gained about 3-5 per cent each.

Positive signs, which were visible last week, are now changing to a bit of caution. However, the downside seems limited, with the Sensex likely to find considerable support around the 13,970 level. The upmove will gain momentum once the index crosses the 15,100-15,170 block.

The Nifty, too, faced resistance around the 4,530 level mentioned last week and then retreated to lower levels. The index finally ended with a marginal loss of 8 points at 4,352.

Given weak global markets, the index may see some more downside early next week, but it is likely to find support around the 4,200 level. Besides, the 4,050-4,080 levels should be seen as a strong support base for the index this month.

The Nifty’s short-term daily moving average is 4,540, while the mid-term is around 5,060 and the long term around 3,600.

Expect high daily volatility, support at 4,275 or 4,200.

The market slid considerably last week and despite a partial revival, it ended in the red. The Nifty closed at 4,327.45 points with a loss of 2.33 per cent. The Sensex was down 2.19 per cent at 14,401 points. The Defty lost 3.6 per cent as the rupee weakened. Breadth signals were poor. Declines far out-numbered advances and volumes were low through the week.

The Junior lost 3.03 per cent and the BSE 500 was down 2.37. Trading outside the F&O segment was quite limited. The FIIs were heavy sellers and the domestic institutions were also sellers though in smaller quantities.

Outlook: In settlement week, sentiment is muted. But a fairly strong carryover trend and chances of short-covering on Wednesday and Thursday could lift the market. The short-term trend may be liable to find support either at 4,275 or lower down at 4,200. Expect volume expansion and higher daily volatility whichever way the market moves.

Rationale: The intermediate trend may be reversing to bearish after 6 weeks though this is not confirmed. The short-term trend seems down and it could test support at 4,200.

The upside in case of short-covering could be about 4,450. Volatility is always high in settlement week and cash volumes are likely to rise because the F&O market has been consistently generating high volumes.

Counter-view: In terms of chart signals the Nifty hit a higher intermediate top at 4,650 on August 12 and if the low at 4,248 on last Friday was trustworthy, that was a higher bottom as well. If so, the intermediate trend is still bullish. The worrying signals are the shrinking volumes and the very poor breadth.

Bulls & bears: The 39 new inductees to the F&O stock section did not create many waves in terms of either volumes or price movements. Banks continued to be hard-hit with the Bank Nifty losing 4.3 per cent week-on-week.

Other rate-sensitive sectors such as real estate and infrastructure also saw sell offs. The CNXIT lost relatively less ground due to the weaker rupee. PSU refiners were savaged with all of them losing disproportionate ground. However, producers like ONGC and Cairn were less affected and private refiners such as RIL and Essar also held their ground.

The Bank Nifty could rebound sometime next week on short-covering. In that case, Axis Bank, ICICI and HDFC Bank would be among the larger gainers.

Another interesting possibility is metals. Non-ferrous producers like Hindalco, Sterlite and Hind Zinc had strong price lines on Friday. Tata Steel and Sail saw more muted recoveries. Apart from these, there were scattered gainers like Hotel Leela, Maruti, Ranbaxy and Titan.

MICRO TECHNICALS

Axis Bank
Current Price: Rs 679.85
Target Price: Rs 720

The stock has recovered from a low at Rs 635 on high volumes in a single session. This is probably due to short covering. It has the potential to move till Rs 720 and it could go further with the next resistance at Rs 740 and then Rs 760. There will be extreme volatility however. Keep a stop at Rs 665 and go long.

Cairn
Current Price: Rs 247.15
Target Price: Rs 260

The stock has made a steady recovery from a low of Rs 210 in late July. It is not generating much volume however. It has a minimal target of Rs 260 and a potential upside till Rs 275-280. Keep a stop at Rs 240 and go long.

Hotel Leela
Current Price: Rs 32.5
Market Price: Rs 35

The stock has seen unusual volume expansion and it has good support at Rs 30-31. The upside could be around Rs 35 at the minimum and more likely will test Rs 38. Keep a stop at Rs 30 and go long. If the stock closes above Rs 35, increase the position with a target of Rs 38.

Sterlite
Current Price: Rs 627
Market Price: Rs 660

After bottoming at Rs 590-Rs 600, Sterlite is now moving into a range-trading pattern. Volume expansion makes an upside breakout look likely. The stock has a potential upside till around the Rs 660 level. Keep a stop at Rs 620 and go long. Start booking profits above Rs 655.

Titan
Current Price: Rs 1,237.4
Target Price: Rs 1,300

The stock has seen a bullish engulfing pattern with Friday’s prices ranging much wider than previous sessions. It has a potential upside target of Rs 1,300. Keep a stop at Rs 1,220 and go long. It’s liable to run into resistance above Rs 1,280 so book partial profits at that level.

The Nifty closed at 4,136 points, down 4.85 per cent week-on-week. The Sensex was down 5.28 per cent at 13,802. The rupee stayed weak at 42.79, but it recovered slightly from lows near 43 and the Defty lost 4.55 per cent.

FII remained net sellers – they have sold over Rs 10,000 crore in June. Domestic institutions were net buyers, but not in quantities that could halt the slide.

Volumes were average on the other sessions and good on Thursday. The advances-declines ratio was highly negative. The Junior slid 8.7 per cent, while the Midcaps-50 dropped 9 per cent and the BSE 500 was also down 6.6 per cent. Smaller stocks ran into liquidity issues because the focus was clearly big-caps.

Outlook: The market hit yet another annual low and it is likely to test 4,000 in the coming week. On the upside, rallies are likely to terminate in the 4,450-4,500 range. Next week, expect high intra-day volatility and net losses broken by one possible up-session. If the government falls, the market will go bust and perhaps hit 3,800.

Rationale: It is difficult to set targets given a continuous downtrend that has lasted since early May. But, another key support was broken at 4,200 and the intra-day low on Friday was 4,119. The target projections would be in the 4,000-range and these could easily be exceeded given another negative trigger.

Counter-view: Intermediate trends can stay in force for between 4-12 weeks- this one has already run 8 weeks. There is a chance it will mature and a rally till 4,500 will be triggered. However, we are in an extended bear market and that makes an early termination of the current bearish intermediate trend less likely.

Bulls & Bears: The bearishness was all pervasive, but sectors such as banking and real estate got hit harder than others. Liquidity in smaller stocks was an issue with volumes concentrated only in bigger F&O counters. A host of index heavyweights broke key support levels.

Among the few bright spots were Reliance Industries and RPL, which found support in a falling market.

The BankNifty lost 9.5 per cent and most of the bigger banks busted key support levels - J&K is among the few that may have bottomed.

IT and FMCG were among the least damaged sectors with the CNXIT losing “only” 4.2 per cent but even here, Infosys made a downside breakout. Metals saw selloffs with Sterlite, Hindalco, Nalco and Tata Steel badly affected. Most auto counters plunged.

The trader will have to pick between shorts that could slip further and badly beaten down counters that are now on strong supports.

This is a dangerous game since shorts (in either derivatives or intra-day in cash) need to be managed much more carefully with tight stops and extra margin.

MICRO TECHNICALS

Adlabs
Current Price: Rs 473.7
Target Price: Rs 450

The stock made a downside breakout with high volume action. The projected target would be about Rs 450. Keep a stop at Rs 483 and go short. Start booking profits below Rs 460. Be prepared for high daily ranges and intra-day switches in direction.

CESC
Current Price: Rs 408.85
Target Price: Rs 430

The stock is showing unusually high activity and it has actually gained in the past four sessions. It has decent delivery ratios that suggest there is investment buying. It has the potential to hit Rs 440 on intra-day moves and chances of closing in the Rs 430-435 range. Keep a stop at Rs 400 and go long.

Grasim
Current Price: Rs 1,944
Target Price: Rs 1,800

Grasim has made a big downside breakout on very high volumes. It is tough to set a target with a pattern like this - the stock has fallen from Rs 2,280 in five sessions. The minimum downside should be Rs 1,800. Keep a trailing stop at Rs 1,980 and go short. Slide the stop 20 units down for every 30 unit fall.

RPL
Current Price: Rs 173.65
Target Price: Rs 185

The stock has seen support even in this falling market. It could recover till the Rs 185 levels. Keep a stop at Rs 170 and go long. If the stock does drop below Rs 170, it will find the next support at Rs 160.

Tata Motors
Current Price: Rs 444.25
Target Price: Rs 425

The stock has made a downside breakout on reasonable volume. It has a minimum target of Rs 425-430 and it could fall further. If there is a technical bounce, the key resistance would be at Rs 460. Keep a stop at Rs 452 and go short. Start covering below Rs 430.

PVR
Reco price: Rs 174
Current market price: Rs 184
Target price: Rs 318
Upside: 72.83%
Brokerage: Prabhudas Lilladher

PVR reported impressive FY08 numbers with consolidated revenue growing by 49.7 per cent to Rs 265.9 crore and earnings growing by a whopping 112.2 per cent to Rs 21.6 crore.

During the year, the company added 16 new screens, taking its total screen count to 84. It plans to scale up total screen count to 125 by FY09. For FY09, PVR Pictures is expected to release four movies under co-production viz. Jaane Tu Ya Jaane Na, Contract, Mere Khwabon Mein Jo Aaye and Ghost Ghost Na Raha.

In February 2008, the company entered into a 51:49 joint venture with Major Cineplex Group, a leading film exhibition and retail entertainment company based in Thailand.

The JV would set-up bowling alleys, karaoke centres, ice skating rinks and gaming zones. The company’s revenue and profit are expected to grow at 48 per cent and 70 per cent CAGR respectively over FY07-10E. At Rs 174, PVR is trading at 12.7x FY09 and 8.4x FY10 earnings. The company’s valuations are expected to be re-rated as it aggressively scales-up its new ventures.

India Glycols
Reco price:Rs 285
Current market price: Rs 273.75
Target price: Rs 535
Upside: 95.43%
Brokerage: Pinc Research

India Glycols (IGL) is one of the leading manufacturers of glycols and ethylene oxide (EO) derivatives, which cater primarily to industries like textiles, agrochemicals, oil and gas, detergents and paints. Currently, its business can broadly be segregated into chemicals, alcohol and other products (guar gum and industrial gases).

In December 2007, it acquired Shakumbari Sugar and Allied Industries for Rs 47 crore, which will give it flexibility in making ethanol through molasses or sugarcane depending on their price cycles. It is one of the few companies, globally, to produce EO/Mono-ethylene Glycol (MEG) via the organic route.

MEG as a key product accounted for about 51 per cent within chemicals, and about 41 per cent of total gross sales in FY08. The largest consumer of MEG in India is the polyester fibre sector (about 70 per cent). Reduction in custom duty (from 10 per cent to 7.5 per cent) on polyester in Union Budget 2007-08 has brought prices at par with cotton.

IGL is expanding its MEG capacity by 20 per cent to 600 tonne per day, which will be completed by June 2008. Expansions in the polyester industry (Indo Rama, JBF and Reliance Industries) will ensure offtake of IGL’s incremental capacity. At Rs 285, IGL is ruling EV/EBIDTA of 2.3x and P/E of 2.7x FY10E earnings. Maintain Buy with a price target of Rs 535 (12-month investment horizon)

Tata Tea
Reco price: Rs 779
Current market price:Rs 816.30
Target price: Rs 970
Upside: 18.83%
Brokerage: Sharekhan

Tata Tea has launched Himalayan mineral water in Q4 FY08 (a brand of Mount Everest Mineral Water in which Tata Tea has a 31.73 per cent stake) in its new avatar.

The bottled water market in India is estimated at over Rs 1,500 crore and is growing at a stupendous rate of 25 per cent YoY. For FY08, Tata Tea’s revenue grew 9.1 per cent YoY to Rs 4,392.3 crore.

Adverse impact on account of forex translation and transfer of north India plantation operations impacted the overall growth. The sale of investment held in Energy Brand Inc resulted in the exceptional income of Rs 1,607.52 crore for FY08. Consequently, Tata Tea posted a net profit of Rs 1,542.6 crore for FY08 as against Rs 443.4 crore in FY07.

The company’s hefty reserves together with the management’s intention to look for acquisitions in the domestic and global non-alcoholic beverage market will ensure inorganic growth in the future. At Rs 777.3, the stock trades at 10.7x FY10E earnings. Maintain Buy with the sum-of-the-parts price target of Rs 970.

Motherson Sumi Systems
Reco price: Rs 85
Current market price: Rs 83.75
Target price: Rs 111
Upside: 32.54%
Brokerage: Angel Broking

Motherson Sumi Systems (MSSL) is a leader in wire harnessing, controlling over 65 per cent of the domestic passenger vehicle market.

The company is now focusing on the supply of higher level assemblies and modules as the margins in this segment are comparatively higher. MSSL entered into a 49:51 joint venture (JV) with Calsonic Kansei Corporation in FY08 to meet the growing needs of the automotive manufacturers in India.

The JV will avail advantages of the strong synergies between the two players, as Calsonic Kansei will provide the product and manufacturing technology, which will be supported by the company’s high performance development/production engineering in the fields of polymer molding and tool making.

For FY08, MSSL clocked 32.8 per cent year-on-year growth in consolidated revenue to Rs 2,028 crore. The company reported 37.3 per cent YoY growth in earnings to Rs 177.9 crore (including extra ordinary income of Rs 24 crore, owing to profit on sale of land) during the year.

MSSL is expected to grow at a CAGR of around 18-20 per cent over the next two years. At Rs 85, the stock is trading at 15.8x FY09E and 13.4x FY10E consolidated earnings (fully diluted). Maintain Buy with a target price of Rs 111.

Glenmark Pharmaceuticals
Reco price: Rs 657
Current market price: Rs 646.45
Target price: Rs 938
Upside: 45.10%
Brokerage: ICICI Securities

As part of the re-organisation, Glenmark spun out its non-branded generics international business into a separate company, Glenmark Generics (GGL) effective April 1, 2008.

The company plans to raise about Rs 2,000 crore in FY09 by diluting 25-30 per cent stake in GGL (by way of an IPO) and thereby fund its ambitious growth and acquisitions in the US and EU generics markets.

Glenmark’s international generic business has risen 42x in the past five years from a modest base of about $7 million in FY03. Performance in the dosage-form market in the US is exemplary, with $140 million revenues (with estimated EBITDA margin of 38 per cent and NPM of 34 per cent in FY08) catapulting the company into the big-league of the top-4 from India.

The company has an impressive pipeline of 13 compounds, with three new chemical entities (NCE) in phase II.

Glenmark has beaten its FY08 guidance by 2 per cent and raised PAT guidance for FY09 by 8 per cent to $210 million and FY10 by 15 per cent to $282 million, driven by the base generics business.

The stock is currently trading at a P/E of 16x FY10E earnings on a consolidated basis. The fair value for the stock is Rs 938, representing potential upside of 45 per cent over the next 18 months.