RIL-RNRL: What SC verdict could mean for investors.

Share prices of Reliance Industries (RIL) and Reliance Natural Resources (RNRL) have reacted sharply ever since reports of Supreme Court's early verdict on the KG 6 basin gas dispute surfaced. According to marketmen, the apex court may pass judgment in favour of RNRL. The verdict is likely to have some sentimental impact on the stock market, as RIL is an index heavyweight.

Analysts are not expecting a major correction in RIL even if it loses the case whereas RNRL is expected to react sharply.

If RNRL loses the case then it will only concern the company shareholders or bear a negative sentimental impact on ADAG group shares. But if the verdict is against index-heavyweight Reliance Industries, it can have a negative impact on the market. RIL may correct up to 5 per cent and move sideways for next few sessions.

RNRL will turn volatile and move sharply in either direction once the judgment is out. If it wins the case then it may move 25-30 per cent on the upside. But if it loses the case then it will fall more than 50 per cent.

Traders should avoid trading in futures as volatility in the RNRL stock will increase tremendously. Take positions ahead of the verdict.

If RNRL loses the case then there will be fundamental downside for the stock. Speculative traders can buy put options in case they expect the company to lose the case. If they expect RNRL to win the case then buy 70 call option.

RIL and RNRL have been fighting a legal battle over the supply of 28 million units of gas for the next 17 years at $2.34 per unit to RNRL from the gas fields of Krishna-Godavari basin, which had been awarded to Mukesh Ambani's RIL as part of the New Exploration or Licensing Policy (NELP).

In the past one-week, shares of Reliance Industries have fallen around 4 per cent while those of Reliance Natural Resources have galloped around 10 per cent. The shares are witnessing sideways movement ahead of the verdict.

Source: economictimes.com
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Nimesh.

Mutual Fund Recommendation for May 2010.

Equity Growth Schemes: Should be considered for SIP.

 
MIP Schemes:
 
 

 


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Nimesh.

Reliance Mutual Equity & Debt Fund Performance Apr 2010.

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Nimesh.

Markets Today - 5/5/2010 - Analyzed - Disclaimer Post Applies

Nifty futures closed at 5120.15 at a discount of 5 points over the Nifty spot which closed at 5124

Implications: Increase in Volatility, futures in discount and shift in concentration of put at lower levels with higher call writing for consecutive 4^th trading sessions imply weakness at current levels. We expect markets to take a strong support at 5,000 levels for intermediate term and 5250/5300 to act as a resistance for near term and 5,400 for May expiry.

Option Analysis

·         Call Writing: Since 29^th April, 2010, we have observed major addition of open interest taking place at 5,200 and 5,300 strike prices. Out of 46 lakh fresh addition in open interest, ~53.3% took place in above strike prices. Concentration of open interest stood at 5,300 of 64.67 lakh shares.

·         Put Writing: On other hand, major activity from same date has taken place below 5,000 strike prices. Out of 54 lakh shares, ~70% addition was seen between 5,000 and 4,700 levels. In today’s trading session, we have observed concentration shifting from 5,200 to 4,900.

Implications: Higher activity in out-of-money call strike prices, less put activity in in-the-money strike prices with concentration shifting to 4,900 indicates lack of confidence among traders for major upside movement. However, we see downside limited to 5000 or 4900 in worst case scenario, upside may be capped to 5300. We also expect an intermediate rise till 5150 which should be used as an opportunity to short /exit the market.

 FIIs and DIIs activity in capital market segment

·         FIIs were net sellers of Rs 1589 crore with Gross buyers of Rs 2,027 crore and Gross Sellers of Rs 3,616 crore.

·         DIIs were net buyers of Rs 691 crore with Gross buyers of Rs 1,832 crore and Gross sellers of Rs 1,141 crore.

India VIX (Inverse relationship between Nifty and Indian VIX)

·         Volatility for 5^th May, 2010 close at 23.7 which is 1.65% higher as compared to previous close, after touching an intraday high of 25.15 and low of 23.3.

Implications: Volatility maintained yesterday level of 23 with a marginal increase in today’s session. We still hold our “Bullish” view on Volatility and expect it to increase to 30 odd levels

 Thanks,

Dewang K Mehta

DENIP Consultants - www.denip.in

IRDA issues guidelines on ULIPs.

The Insurance Regulatory and Development Authority (IRDA) has issued guidelines on unit-linked insurance products (ULIP).

• The minimum policy term for ULIPs is to be five years.

• All ULIPs are expected to have an insurance cover payable on death.

• The pension/annuity products must have insurance cover.

• No loans are to be granted under ULIPs.

• A partial withdrawal in ULIPs will be allowed only after the fifth year of policy. However, there will be no partial withdrawal for pension/annuity products.

• These guidelines are to apply to all ULIPs from July 1, 2010.

Thanks,
Nimesh.

Markets Today - 4th May 2010 - Analyzed !

Market Overview

Futures trading at discount, volatility start rising as expected and consecutive third strong strading session for call indicate some more trading sessions for negative trend. However, We expect 5,100 to act as support for intermediate and 5,000 for May expiry. On the other hand, 5,300 to act as a  resistance for near term and 5,400 for May expiry.

Option Analysis

·         Call Writing: Higher activity was observed in and at the money strike prices. Maximum addition of open interest was witnessed at 5,200 of 14.6 lakh shares. ~44% of total open interest at 5,300 & 5,400 with concentration at 5,300 indicates limited upside from current levels.

·         Put Writing: Weak activity witnessed at higher levels. Higher fresh writing of more than 3 lakh shares was observed below 5,100 strike prices. ~37% of total open interest at 5,200 & 5,100 with concentration at 5,200 indicates some bounce back may be seen when Nifty is closer to 5,100

Implications: Consecutive third trading session for higher call writing than put writing indicates some more weakness in next few trading sessions. However, by observing concentration in put it seems that market to take intermediate support at 5,100 and 5,000 for May expiry.  

 FIIs and DIIs activity in capital market segment

·         FIIs were net sellers of Rs 29 crore with Gross buyers of Rs 2,753 crore and Gross Sellers of Rs 2,783 crore.

·         DIIs were net sellers of Rs 438 crore with Gross buyers of Rs 858 crore and Gross sellers of Rs 1,296 crore.

India VIX (Inverse relationship between Nifty and Indian VIX)

·         Volatility for 4^th May, 2010 close at 23.3 which is 5.2% higher as compared to previous close, after touching an intraday high of 23.35 and low of 21.35.

Implications: As expected volatility has started its uptrend. We are “Bullish” on Volatility and expected it to increase 30 odd levels 

Market Analysis - 3/5/2010

Market Overview

Implications: Low volatility and higher call activity with put writing in deep out of money indicates some more weakness in the market from current levels. However, we expect market to take strong support at 5,200 and 5,100 odd levels for May month and 5,400 to act as resistance.

Option Analysis

·         Call Writing: More of call writing was observed at higher levels. 5300CE added open interest of 11.1 lakh shares and 6.0 lakh shares at 5400CE. 46% of total call near month open interest and concentration at 5300CE indicates a resistance for May expiry.

·         Put Writing: Weakness in market may continue on back of shedding at higher levels with major put writing in deep in the money. 4800 PE added open interest of 9.5 lakh shares and 4.0 lakh shares at 5000PE. 40% of total put near month open interest and concentration at 5200 indicates a support for May expiry.

Implications: We expect some more weakness in the market in next few trading sessions. So, markets would be trading between 5200 and 5300 for intermediate time and 5500 and 5000 for May expiry.                      

 FIIs and DIIs activity in capital market segment

·         FIIs were net sellers of Rs 387 crore with Gross buyers of Rs 1,553 crore and Gross Sellers of Rs 1,940 crore.

·         DIIs were net buyers of Rs 107 crore with Gross buyers of Rs 829 crore and Gross sellers of Rs 936 crore.

India VIX

·         Volatility for 3^rd May, 2010 close at 22 which is 8.8% higher as compared to previous close, after touching an intraday high of 22.5 and low of 20.95.

Implications: Volatility has an inverse relationship with Nifty.  We expect volatility to further move from current odd levels to 30 odd levels and have negative impact on Nifty.

Results Calendar - 1 week May 2010.

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Nimesh.

Weekly Market Outlook - 1st Week of May - Sent to clients - Disclaimer Post Applies

Indian and Global Markets - Overview

This past week we saw the market open at 5299 levels and rose till 5342 before testing a low of 5250 and finally ending at 5278. The markets were filled with uncertainty this week and we believe that it will continue to remain in the same mode till the sentiment improves globally. If the global markets tank or stay flat, we believe that the Indian markets will tank heavily. Banks which have outperformed since the past 2 weeks will see some consolidation and there might be some downside to all the index heavy stocks. The RIL – RNRL case is still an overhang and makes RIL go lower which in turn makes it even more difficult for the markets to rise higher.

Getting to the results side of the market we have seen some spectacular results in the US with a lot of the companies outperforming most of the analyst’s expectations. However the Goldman Sachs overhang seems to have taken over in the US. Back in our homes the results have been a mixed bag which makes the mood cautious on the street. The RIL-RNRL case still hangs in the balance and we advise investors that if the verdict is in favor of RNRL then you can start selling the RNRL shares over the week after results are announced and start transferring the same amount to RIL shares. RIL could very well fall below the Rs. 1000 mark below which it will make it a very attractive buy. Do buy RIL shares around the 850 – 900 mark without thinking twice.

We are witnessing a major concentration of Call contracts at the 5300CE & 5400CE which will be the definitive resistance regions.      On the PUT side, the major concentration of contracts is at the 5200PE & 5100PE which should be the definitive support zones. However we will not be surprised to see a major shedding of open interest at the 5200PE level if the market breaks the 5250 level on the Nifty. We saw a major increase in open interest of Put at the 4700PE and the 5200PE which mark the 2 definitive support zones for the Nifty. Major concentration of contracts on the Call side, is seen at 5200CE, 5300CE & 5400CE. The largest change in open interest came at the 5300CE & 5500CE which are the two definitive resistance zones for the markets in the May series.

In Fridays trading sessions, FIIs were net buyers of Rs 355.55 crore & the DIIs were net buyers of Rs. 217.61 crore. However we believe that its best if one does not read too much into the same since the FIIs can start selling any moment which could be as early as Monday morning.

  

­Commodity Market Overview

 

This week will be bad for the commodities market too. We believe that we will witness across the board selling. Aluminum, Zinc, Copper & Lead should fall this week by at least 2%. Gold might start rising due to its safe haven status. Crude oil settled on $86/bbl in anticipation of recovery in the US markets. However this might not be too favorable considering that the Kirit Parekh committee report is up for consideration in the parliament.

View on Indices - Weekly Outlook

1. Bank Nifty
1. This index has made a bearish pattern and we believe that at 9870 this index will correct a little. Targets could be placed at 9700 – 9500. Upside for the moment is capped at 9900 - 9975 and lower end supports are placed at 9300 – 9100.
2. CNX 100
1. This index is trading at 5235 which is a highly overbought level for this index. We believe that now the index has entered its resistance zone and one can short this index for a target of 5200 / 5170 / 5100.
3. CNX IT
1. This index is trading at 5985 and is on its crossroads. We believe that one should invest int his index right now and keep a stop loss at 5850. Consolidation might set into this index to ensure a healthy market. Lower side supports set at 5830/ 5800/ 5100 for this week.
4. Nifty Midcap 50
1. This index is trading at 2838 and is facing still resistance from 2900 -2950 levels. This index can test 2900 on the upside but we believe that the downside gap will be first filled at 2800 and then it will test lower levels if stands at 2770 / 2750 / 2720.
5. S&P CNX Nifty
1. This index is trading at 5278 and we that it might start correction if 5200 is broken on this index. We see a gap down opening for this index mostly at 5250 levels based on the SGX Nifty. For the week the targets for this index are set at 5195 / 5180 / 5145.

Trading Stocks Ideas

1. Axis Bank
1. This stock can be shorted at 1268 for a target of 1246.
2. Lanco Infratech
1. This stock can be short sold at 64.2 for a target of 62.7.
3. HDFC
1. This stock can be sold at 2821 for a target of 2791.

Company	Call Type	Quantity	Buy/Sell Price	Target 1	Target 2	Target 3	Best Target
Axis Bank	Short Sell	45	1268	1262	1255	1250	1246
Lanco Infra	Short Sell	6380	64.2	64	63.5	63	62.7
HDFC	Short Sell	150	2821	2815	2800	2795	2791

 Thanks,

Dewang K Mehta

DENIP Consultants - www.denip.in

Disclaimer Post applies.

Company Deposit List for May 2010.

Thanks,

Nimesh