Market outlook 19-07-2010

US Markets closed lower.
Europe markets also ended in red.
Asian markets are trading weak.
Expect Indian Markets to open negative.
Nifty: (5394) Support 5342-5284 and Resistance 5453

INTRADAY BEEPS

BUY STRIDE ACROLAB TARGET 450 SL 410;
BUY DR REDDY TARGET 1500 SL 1465 ;
BUY ORIENT BANK TARGET 380 SL 365 ;
BUY YES BANK TARGET 315 SL 290 ;
BUY IFCI TARGET 63 SL 57 ;
BUY PFC TARGET 340 SL 315 ;
BUY BHARTI AIRTEL TARGET 320 SL 294 ;


STOCK BEEPS

-Results Today: HDFC Bank, Sesa Goa, Aventis Pharma, Balaji Tele,Bayer Crop, Container Corp, Crompton Greaves, Escorts, ETC Networks,Excel Inds, Indowind Energy, Jindal Saw, Mid Day Multimedia, Mindtree,PTC India, Triveni Engg, Whirlpool, Zylog Systems
-Tata Steel: Sells 27.03% stake in Southern Steel Berhad, Malaysia for USD 72 million
-ABB not to up offer price of Rs 900/share for stake hike in ABB India
-Sun Pharma : NJ court denies motion on patent litigation for generic Protinix
-Everonn board meet today on issue of optionally convertible debentures to non-promoters
-Axis-IT&T Ltd : Board meet on 17 July to review Fund raising approved from earlier approved Rights issue[
-Essar Group in talks with banks to explore options, including an IPO of 33% for its stake in its telecom venture with Vodafone
-Nagarjuna Fertilizers plans to set up an urea manufacturing plant in Nigeria, would be the company's first foray into Africa
-Singapore based Banyan Tree in race to acquire Aman resort for $ 350 million – FE (Aman owned by DLF)

RESULT UPDATE

-Rallis Q1 Net profit at Rs 14.8 cr vs Rs 9.4 cr (YoY)
-Canara Bank Q1 Net profit at Rs 1,013 cr vs Rs 555.3 cr (YoY)
-Sterlite Tech Q1 Net profit at Rs 55.6 cr vs Rs 72.2 cr (QoQ)
-Godrej Properties Q1 Net profit at Rs 22.4 cr vs Rs 3 cr (YoY)
-DCB Q1 net Loss of Rs 3 cr vs Rs 35 cr ((YoY))
-VST Industries PAT at Rs 18 cr vs Rs 24 cr ((YoY))

Weekly Beeps 18-07-2010

The failure of the key indices to head higher after making new intermediate highs this week shows that the market is a little jittery. The disappointing IIP report and stubbornly high inflation have only added to the confusion. Global cues too are not particularly rosy amid persistent worries over the state of affairs in the US, EU and China. The only positive development is the improvement in the euro versus the dollar. So, the near-term trend may continue to be driven partly by earnings and partly by external factors.

The key indices may find it tough to accelerate beyond a point if world markets are not supportive. A lot will hinge on how the rest of the results from India Inc. unfold. A big positive for India is the fact that FIIs seem to be fairly upbeat about growth prospects here.So, any fall will only make our market that much more attractive at a time when the world is struggling to keep the momentum going.

Inflation is a big worry and may remain so for some time to come. But,a calibrated monetary tightening has already been discounted and won't be much of a problem. Given this backdrop, one could continue to be positive on India over the medium to long-term though some caution is
warranted in the near term owing to a fragile global situation.

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Market Data > Swaraj Engines Ltd
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Mkt. Price NSE (Rs) 445

52-week High/Low (Rs) 464 / 260

NSE Symbol SWARAJENG

Perfect past + Bright future = Long term wealth creation opportunity

We all know of how Warren Buffett was guided by the learnings of his mentor Benjamin Graham in the early part of his career. But few would know that Buffett's later investments (the ones that made him really successful as an investor) were more influenced by the philosophy of Philip Fisher and close friend, Charlie Munger. Munger would rather invest in a good business bought at a fair price, than in a really cheap, dull company that could never really grow. In fact, Munger convinced Buffett that they should pay a slightly higher premium for good businesses.

And thus, Buffett today realizes that when you find a really good business run by first class people, chances are a price that looks high isn't high. The combination is rare enough. And thus such a business is worth a pretty good price.

We can say the same for our Hidden Treasure for this month - Swaraj Engines (SEL). The stock isn't ultra cheap now at almost 14 times earnings. But then, you are paying such a price for a company that has a brilliant long term track record of profitability and wealth creation.

SEL manufactures diesel engines for the 'Swaraj' brand of tractors owned by the auto major M&M. And for the most part of the past 15 years, it has maintained a clean balance sheet and has generated good profits and cash flows. For instance, since FY96, it has averaged return on equity of around 32%. Return on invested capital has averaged a whopping 63%! The company is also amongst the most efficient in its industry when it comes to managing working capital.
Its dividend payout history also inspires confidence. All in all, the management has been highly effective all these years. It has managed the business without taking undue risks.

Overall, we see SEL as an indirect bet on India's agriculture sector.Given the focus on increased farm productivity, the demand for tractors is on the rise. This should benefit the company in the long run.

The stock is trading at around 14.2 times its FY10 earnings. Based on out estimated FY13 earnings, it is trading at just 8.8 times.Considering its strong past track record and equally good expectations from the future, we believe the stock should be part of the portfolio of long term investors. The stock has the potential to turn into a 2-bagger over the next 4-5 years. We thus advise you to 'Buy' into the same at the current levels.

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