DERIVATIVE PICK 22 02 2011

INFOSYS TECH (CASH – Rs.3165.25) : The stock after trading between Rs.3165 and Rs.3020 for the past 15 trading sessions has crossed the upper end of the range and has almost closed at it. The 14 day RSI during this period took constant support at the 40 level which clearly indicates that the stock is shifting into strong hands. Buying is advised above Rs.3178 for a target of Rs.3205 and Rs.3224. Higher target of Rs.3248-3256 is also possible. Stop Loss of Rs.3144 should be kept. For the last target to be reached, the time frame of the trade would be around 6-7 trading sessions.

EDUCOMP CASH (CASH- Rs.511.35) : The stock has been moving up in a slow and steady manner and in the hourly time frame it has already formed a series of higher tops and bottoms. Buying is advised above Rs.515 for a target of Rs.528 and Rs.539. Higher target of Rs.548-5552 is also possible. Stop Loss of Rs.499 should be kept. The time frame of the trade would be around 4-5 trading sessions.

INVESTMENT PICK

DIVIS LAB
Present Price – Rs.646.75, Projected price – Rs.720

Divis Lab is involved in the manufacture of APIs & intermediates for generics, custom synthesis of APIs and advanced intermediates for discovering new compounds in collaboration with global pharma majors. It is also involved in developing building blocks for peptides, nucleotides and carotenoids. Divis is the largest producer of naproxen (NSAID used for the treatment of arthritis) the world (~70% of total consumption) & it is working almost at 20 products in API segment, which would drive its growth in future.

Long-term prospects of pharmaceutical outsourcing to India has great potential and we expect Divi’s to be a key beneficiary of this trend given its inherent competencies and leadership in certain complex molecules. The high growth prospects in the Caretonoids segment would further add to the growth momentum. Divis is setting up R & D unit in Visakhapatnam (SEZ facility), which is expected to contribute to revenue from FY12 onwards. Further, it has plans to expand its high potency chemistry biosimilar and biopharmaceutical products.

In Q3 FY11 Divis Lab reported increase in revenue by 57.8% y-o-y & 21.3% q-o-q to Rs 3.10 billion. Its EBITDA grew 34.4% y-o-y & 37% q-o-q to Rs 1.20 billion and reported adj net profit of Rs 917 million was up by 40.4% y-o-y & 38.3% q-o-q.

We expect the company to report EPS of Rs.22 plus for FY12 which makes Divis and excellent investment bet at current levels.

Stock To Trade 22 02 2011

• HDFC :- HDFC made a NR7 pattern today. Ready for a big move. HDFC stand on its 200 days MA.
• SUN PHARMA : - Sun pharma trading above to its 200 days MA. Sun pharma is in short term up trend. TA Insync moving up.
• Andhra Bank :- Andhra bank made a NR7 pattern today. A big move may come. Andhra bank stand on its 200 days MA.

Uptrend Intact

Nifty Watch:- The Nifty opened at 5460 near Friday's close. The Index remained choppy for first half of the day and touched its day low at 5411. In the last 90 minutes of trading, a dramatic upsurge started, with the index quickly making a high at 5539 - a gain of 128 points from its day low and finally closed at 5529 with an increase of 69 points from the day's open.

Today’s market increase gives a second chance to the investors and traders to sell and exit from trapped buy positions. Investors and traders should not rush in, but wait for the dips to buy.
Trend:- The short term trend remains up. The Intermediate trend remains down, with the Nifty trading below its 200 days and 50 days moving average but both are coming closer.
TA Insync(55-5) is now above the level of -45 and still moving up. This indicator is suggesting upside momentum.

Level:- Looking for support at 5450, then 5350. Major resistance comes at 5600.

Summary:- The choppyness of market will remain for few more days due to pre budget session. Traders and investors should look for the dips only to buy and they should not take more risk. Keep volume light.

Market Outlook for 22 02 2011

Markets opened with a slight negative bias and traded in negative territory for all but last 90 minutes. Nifty dropped to just around 5400 before some strong buying in key heavyweights. IT bigwigs TCS, Wipro and Infosys were the ones that really kick started the recovery and later the others like SBI, RIL and L&T too joined in. RIL came out with its tie-up with BP after the market hours and that should help market to retain the positive momentum. RIL stock should have a positive impact and it is expected to regain four figure mark. SBI has also been resilient and is likely to move up towards 2835-2850. L&T opened on a positive note but then struggled to sustain higher levels and dropped to around Rs 1610. But the rebound from these lower levels suggests that the stock has retained neutral to positive bias and could move up to around Rs1720-25 and then even to around Rs 1765-1775. Overall, Nifty has found support just around 5400 and it looks likely that Nifty may not break 5375-5400 ahead of Union Budget. On the upside resistance could be seen as the markets heads higher to around 5650. Some of the banking stocks like SBI, HDFC bank, Syndicate Bank, Allahabad Bank, BOB, BOI and IOB could see more upside. Others that are looking positive are Welspun Corp, HDFC, Educomp, Sobha, Bajaj Auto and JSW Steel. Nifty has immediate support around 5450-60 and then around 5375-5390 while resistance is seen around 5560-70 and then around 5620.