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Market View: All eye on Fed meet

Dalal Street on Monday is expected to join other global markets in cheering the Chinese central bank's unexpected move to cut interest rates. Investors are hoping that the monetary easing in China coupled with European Central Bank comment on the possibility of a further stimulus would encourage funds to return to emerging markets. A lot will, however, depend on the outcome of the US Fed's rate-setting meeting this week. Benchmark indices climbed to a two-month high on Friday after the ECB's Mario Draghi hinted the cen-tral bank may expand the quantitative easing (QE) programme as early as December. The statement caused the euro to weaken against the dollar as investors speculated a stronger US currency may prompt the Fed to rethink any proposal to raise interest rates soon. Till recently, global markets were expecting the Fed to start its monetary policy tightening cycle in December. Now, with the yuan, too, expected to decline against the dollar after the surprise rate cut by People's Bank of China, hopes have revived the Fed may signal on Wednesday that rates may remain unchanged for a longer period. Optimists are hoping that such expectations may drive emerging market funds to return after these investors dumped shares across the board in August and September. FIIs net sold shares worth Rs 23,000 crore in these two months. Though they have renewed purchases in October, the inflows are still in a trickle. In the past four weeks, Indian indices have risen 6.2% against MSCI emerging market index's gains of 11.3% over this same period. Strategists said volatility may heighten if the market moves up further. Kamal Jhaveri MD- Jhaveri Securities

(inputs from economic times)

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Vol.: 266 26th October,2015

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Company Basics

BSE Code 503806

NSE Symbol SRF

EQUITY (` in Cr.) 57.42

MKT.CAP (` in Cr.) 6582.92

Financial Basics FV (`) 10.00 EPS (`) 52.74 P/E (x) 21.74 P/BV (x) 2.90 BETA 1.3170 RONW (%) 10.52

Share Holding Pattern Holder's Name % Holding Foreign 16.04 Institutions 12.59 Promoters 52.38 Non Prom. 0.00 Public & Others 15.17 Government 3.82

Company overview SRF Limited is multi-product, multi-business organization and industrial intermediate segment. The company was incorporated in 1970. The business divisions of the company include Technical Textile Business, Chemical Business, Packaging Films Business and Engineering Plastics Business. The company has 12 production plant across the globe. Out of 12 nine in India and the remaining in Dubai, South Africa, Thailand. It is market leader in majority of its product. SRF has strong presence in international market with exporting around 75 countries. Investment Rational SRF is one of the leading and sole domestic supplier of HFC –134 a and growth in passenger vehicles spur sales

This elements contributed 23% of SRF’s fluorochemicals revenues. The market-size of HFC-134a in India is 8.0KTPA, which is expected to rise with the rise of automobile and refrigerator sales. We estimate HFC-134a’s consumption to clock 10.1% CAGR till FY20 as sales of passenger vehicles pick up from FY17 (HFC-134a gas is used as refrigerants in cars). With a capacity of 17.5KTPA, SRF is the sole domestic producer of R-134a and its market share increased to 41% in FY15. Imports have broadly remained flat at ~4,700 MT during the past 5 years.

Specialty Chemical is on strong footing

SRF is on a strong footing in Specialty Chemicals, as it is knowledge driven and has high entry barriers. We expect the business to grow at a CAGR of 28% over FY15-17 to `1005.40 Cr. Given that it is a niche business, we believe it will continue to enjoy PBIT margin of 35%.

Packaging Business has a good strength The total demand for films in India is 360,000 MT/year and is growing at 10%. Capacity utilization swings between 73% and 86%. Currently, the industry is operating at peak utilization of ~86%. With higher capacity utilization, film manufacturers have begun enjoying higher margins.

Valuation : SRF Ltd. is currently trading at 15.74x FY16E EPS of Rs.72.80 and 12.51x FY17E EPS ofRs. 91.60, valued the stock at 15xFY17E (three year average) with the target price of Rs. 1374.

Company Update : SRF Ltd.

Vol.: 266 26th October,2015

 

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Weekly Market Recap :

• On the global front, the US Federal Reserve's two-day meeting for deliberating on interest rate decision is scheduled on 27 and 28 October 2015. Bank of Japan's (BoJ) meeting on interest rate decision will be held on Friday, 30 October 2015.

• Meanwhile, investors are looking to China's fifth plenum from 26 October 2015 to 29 October 2015 where leaders will announce a draft of their 13th Five Year Plan, a sprawling blueprint that sets the direction for China's economic and social development.

Market Eye Week ahead : • The market may remain volatile as traders roll over positions in the futures & options (F&O) segment from the near month October

2015 series to November 2015 series. The near month October 2015 derivatives contracts expire on Thursday, 29 October 2015. • On the global front, the US Federal Reserve's two-day meeting for deliberating on interest rate decision is scheduled on 27 and 28

October 2015. KEY EVENTS/FACTORS TO WATCH 1. Mon: Asian Granito, Bharti Airtel, HDFC, HFCL, Inox wind, MPS, Sterlite technology earnings 2. Tue: Axis bank, Ceat, Dish TV, Lupin, Mahindra Holidays, Maruti Suzuki, TVS motors, Thermax, Strides Arcolab earnings 3. Wed: Ambuja cements, Amara raja batteries, Dabur, TCI, Just Dial, Sun TV network, Syndicate Bank, Raymond, Tata Elexi

earnings 4. Turs: Bharat Electronics, Bharat Forge, Colgate, Grasim, MRF, NTPC,Nestle India, Yes Bank, Torrent Pharma, Thomas Cook

earnings 5. Fri: ICICI bank, Apollo Tyres, Atul, Ipca Laboratories, L&T, Kotak Mahindra bank, Titan earnings 6. Sat: IOB, IDFC, J.K. Cement, Divis Lab earnings

Securities-Based Lending

• The practice of making loans using securities as collateral. Securities-based lending (SBL) provides ready access to capital that can

be used for almost any purpose such as buying real estate, purchasing personal property like jewelry or a sports car, or investing in a business. The only restrictions are other securities-based transactions like buying shares or repaying a margin loan.

• Also known as "securities-based borrowing" or "non purpose lending," • SBL is separate and distinct from "securities lending." Securities-based lending became increasingly popular with U.S. broker-dealers

and banks from 2011 onwards as an additional revenue stream, facilitated by the steady rise in equities and record-low interest rates.

Around The World

Vol.: 266 26th October,2015

Knowledge Corner :

Mutual Fund Corner

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Source : - www.valueresearchonline.com

Fund Name Scheme Name Mirae Asset Emerging Bluechip Fund - Regular Plan

AMC Mirae Asset Global Investments (India)

Type Mid Cap

Category Open-ended and Equity

Launch Date June 2010

Fund Manager Neelesh Surana

Net Assets (` In crore ) Rs. 952.0 crore as on Sep 30, 2015

Top 10 Sector Break-Ups Fund (%)

Financial 20.45

Engineering 12.27

Chemicals 11.54

Services 9.79

Healthcare 9.12

Energy 6.79

FMCG 6.71

Automobile 6.26

Construction 4.18

Composition (%) Equity 98.77

Debt 1.08

Cash 0.14

Risk Analysis Volatility Measures Standard Deviation 15.57 Sharpe Ratio 1.51 Beta 0.92 R-Squared 0.66 Alpha 18.71

History 2012 2013 2014 2015 NAV (Rs)   13.90 15.10 27.87 31.55

Total Return (%)   45.56 8.61 84.62 13.19

+/‐CNX  Nifty   17.86 1.85 53.23 13.04

+/‐ CNX MNC   6.40 13.71 28.71 6.48

Rank (Fund/Category)   8/42 8/47 7/78 9/78

52 Week High (Rs)   13.90 15.10 27.87 32.46

52 Week Low (Rs)   9.51 11.49 14.60 27.37

Net Assets (Rs.Cr)   - - 579.62 -

Expense Ratio (%)   2.49 2.79 2.74 2.50

Fund Style

Investment Style Growth Blend Value Large

Medium

Small

Capitalization

Vol.: 266 26th October,2015

Fund Performance v/s S&P CNX Nifty

—– Fund —– CNX Nify (Rebased to 10,000)

Commodity Corner

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FUNDAMENTAL: Bullion prices ended with more than one percent losses last week as strength in the greenback alongside hints for more easing out of the ECB and an interest rate in China, Fueled a volatile session for bullion heading into the close of the week. Although prices may have further down-side to go near-term, the broader outlook remains constructive above a key support threshold just lower. The European Central Bank rate decision on Wednesday fueled a massive sell-off in euro crosses after President Mario Draghi cited willingness to further expand easing measures as growing con-cerns over deteriorating conditions in emerging markets & finical market volatility continue to threaten the recovery in Europe. Just one day later, the People’s Bank of China (PBoC) cut interest rates by 25 basis points and lowered the reserve requirement ratio (RRR) by 50 basis points. The surprise move suggests that officials continue to see downside risks for the world’s second largest economy – a topic now mentioned by both the ECB & the Fed. The U.S. economic docket is jam packed next week with New Home Sales, Durable Goods and the advanced read on U.S. 3Q GDP among the heavy hitters. The main event however will be the FOMC interest rate decision on Wednesday. With central banks around the world upping their verbal rhetoric and taking actions make policy even more accommodative, the Fed has little room for error. Fed-fund futures now show a 37% chance for a rate hike by December and if the committee cites a more dovish tone, look for expectations for higher rates to get kicked out even further- a benefit for gold. Festive demand for gold in India got off to a tepid start, with local prices still at a heavy discount to the global benchmark, a bad sign for a period when buying is typically strong. Though sales picked up this week with the onset of the festival season, demand was lower than usual, retailers said, even as jewelers splashed newspapers across the country with ads promising good deals and discounts. Demand from rural areas has been hit particu-larly hard as farmers suffer from the first back-to-back drought in India in three decades. RECOMMENDATION : SELL GOLD @ 27200 SL 27700 TGT 26800-26200.SELL SILVER @ 37500 SL 38500 TGT 36600-35500. FUNDAMENTAL: Base metals prices last week ended with losses as pressure seen after data showed that China's economy grew at its slowest pace since the global financial crisis in the third quarter. However downside was seen limited as China's central bank cut interest rates for the sixth time in less than a year and again lowered the amount of cash that banks must hold as reserves. The PBOC slashed its one-year lending rate by a quarter of a percentage point, in its latest attempt to bolster its flagging economy by easing monetary policy. In addition, the PBOC also lowered its Reserve Re-quirement Ratio (RRR) or the amount of cash commercial banks must set aside in reserves, by 0.5%. In a statement released on Friday, the PBOC said the RRC cut was needed in order to "maintain reasonably ample liquidity in the banking system." Nickel is the only counter that ended with small losses as operations at Glencore's Nickel Rim South mine in Canada were suspended until further notice for a second day. Copper stockpiles in warehouses tracked by the London Metal Exchange fell for a fourth straight day to the lowest since Feb. 4. Stockpiles in warehouses monitored by the LME dropped to 277,600 tons. China's demand for copper is expected to rise 4-4.5 percent in 2016, with the exact level depending on economic growth, investment in power projects and bank credit to small- and medium-scaled factories. Refined copper production may rise 6-7 percent to 7.87-7.94 million tonnes in 2016 as production at new smelters that came on stream this year and last year rises gradually. Growth expected for this year is 7.7 percent China is expected to add about 550,000 tonnes both in smelting and refining capacity next year versus 500,000 tonnes in smelting capacity and 450,000 tonnes in refining capacity this year. ECB president Mario Draghi said on Thursday the bank would maintain current interest rates while not ruling out an expan-sion of monetary policy. The bank’s current 60-billioneuro- per-month quantitative easing programme could be expanded at some point in future, he said. The prospect of additional liquidity from the ECB would support risk appetite for commodities but a stronger dollar and rising inventories are likely to crimp any recovery in commodity prices. China’s aluminum output fell for a second straight month in September. Output was 2.54 million tonnes in September, down from August’s 2.6 million tonnes, but up 10.1% from a year ago. RECOMMENDATION : SELL COPPER @ 352 SL 360 TGT 340-332.BUY ZINC @ 110 SL 106 TGT 116-120.lBUY NICKEL @ 670 SL 645 TGT 695-718.SELL ALUMIIUM ON JUMP @ 99 SL 102 TGT 96.50-93.BUY LEAD @ 110 SL 107 TGT 115.50-119. FUNDAMENTAL: Crude oil prices last week ended with more than four percent losses as traders dismissed a rate cut by China to focus on a surging dollar and weaker spot prices for U.S. crude as a glut weighed on prompt supplies. Prices also seen under pressure after oil industry data showing a larger-than-expected build in U.S. crude stocks last week added to concerns of global oversupply. Outlook still remain weak, uncertain as the head of the world's biggest independent oil trader said the market would struggle to recover much ground over the next year. U.S crude inventories have risen for four straight weeks amid reduced refining activity during the autumn maintenance season. Global demand growth is expected to slow from its five-year high of 1.8 mb/d in 2015 to 1.2mbpd in 2016 – closer towards its long-term trend as previous price support is likely to wane, the IEA Oil Market Report for October informed. A stubborn global oil glut, partly due to record pumping by the biggest producers in OPEC, has prevented crude prices from staging a meaningful rebound despite a few sharp intermittent rallies since early September. U.S. oil drillers also slowed the pace of rig cuts this week, idling just one rig, the smallest cut in eight weeks suggesting they may soon return to the well pad with hopes of rising crude prices in the future. It marked the eighth straight week of weekly declines, as U.S. production continues to hover near 2015 yearly lows. The count of oil and gas rigs com-bined remained unchanged at 787, its lowest level since April, 2002. Earlier this week, officials at an OPEC meeting in Vienna reportedly discussed the risks associated with a wide range of oil investments, but did not address any plans to cut production. Naturalgas prices ended with 5.64% losses as expectations of continued weak demand outweighed a smaller-thanexpected inventory build. Natural gas inventories typically rise at this time of year as producers stock up the heating fuel ahead of the winter, when consumption rises. This year, forecasts for warmer-than-normal weather in the coming weeks have traders concerned that stockpiles will continue to build longer than normal this year, pushing the already oversupplied market into a deeper glut. RECOMMENDATION : BUY CRUDE OIL ON DROP @ 2850 SL 2750 TGT 2980-3150.SELL NAT.GAS @ 158 SL 165 TGT 148-138.

BULLION

BASE METALS

ENERGY

Vol.: 266 26th October,2015

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Commodity Corner

USD/INR

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Forex Corner

EUR/INR

GBP/INR

JPY/INR

Market Eye Week ahead :

• The dollar surged as a dovish European Central Bank sent the euro tumbling. But the rupee might appreciate against the US dollar on expectations that foreign funds would surge into emerging market assets, after the European Central Bank hinted at expanding the monetary stimulus. Better - than - expected U.S. jobless claims also revived hopes that the Federal Reserve may raise rates before the year ends. Thursday's upbeat housing and labor market reports could keep the door open to an interest rate hike from the Federal Reserve by the end o f the year.

Level S2 S1 CP R1 R2 High Low Close

USD/INR 64.68 64.49 64.97 65.16 65.45 65.27 64.79 64.86

Level S2 S1 CP R1 R2 High Low Close

JPY/INR 53.43 53.09 53.96 54.30 54.83 54.49 53.62 53.77

Level S2 S1 CP R1 R2 High Low Close

GBP/INR 99.45 99.07 100.11 100.49 101.15 100.78 99.74 99.82

Level S2 S1 CP R1 R2 High Low Close EUR/INR 71.11 70.27 72.66 73.50 75.05 74.20 71.81 71.96

Market Recap :

• The Indian rupee weakened against the US dollar on Monday, tracking the losses in the local equity markets.

• The home currency closed at 64.97, down 0.21% from its previous close of 64.83. The local unit opened at 65 per US dollar and touched a low of 65.02.

• The dollar index, which measures the US currency’s strength against major currencies, was trading at 96.885, down 0.25% from its previous close of 97.127.

• On 23 October, China cut interest rates by 25 basis points to 4.35%. This was the sixth rate cut by the Chinese central bank since November 2014. One basis point is a hundredth of a percentage point.

Vol.: 266 26th October,2015

• The global macroeconomic data, next batch of Q2 results of India Inc., trend in global markets, investment by foreign port-folio investors (FPIs), the movement of rupee against the dollar and crude oil price movement will dictate trend on the markets in the coming week.

• Traders long can revise up the stop loss to 8200. The Gap got covered at 8250-8330. Expect higher range of

8340-8450 to be tested on account of short covering. Profit booking at higher range of 8340-8450 range can be under taken keeping stop loss of 8180. Weakness can resume on fall and close below 8090.

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J Street Recommendations Report Card

Top Fundamental Stocks

Stocks Rec. Date CMP on Rec. CMP Target Absolute Return @

CMP Status

Sun Pharma  03/07/2015  831 889 1041 7% Buy

Infinite Computer Sol.   20/07/2015  190 180 255 -5% Buy

Nitin Spinners Ltd.  06/07/2015  79 65 94 -18% Buy

Bank of Baroda  01/06/2015  163 172 217 6% Buy

Ambika Cotton Mills  18/05/2015  880 907 1149 3% Buy Sadbhav Engineering Ltd. 

04/05/2015  298 315 430 6% Buy

CARE Ltd.  20/04/2015  1666 1396 2250 -16% Buy

Setco Automotive Ltd.  30/03/2015  242 221 304 -9% Buy

Omkar speciality  16/03/2015  152 221 251 45% Buy

DHFL   16/02/2015  252 232 368 -8% Buy

TV Today Network  27/01/2015  222 248 337 11% Buy

M&M   12/1/2015  1238 1244 1452 1% Buy

Havells India  27/10/2014  274 257 346 -6% Buy

All Cargo Logistics  05/08/2014  260 316 342 22% Buy

PTC India Fin. Ser.  07/07/2014  39 48 45 24% Buy

Adani Port  05/07/2014  280 316 347 13% Hold

Ahluwalia contracts  24/08/2015  235 252 368 7% Buy

L & T  05/07/2014  1750 1508 1866 -14% Buy

SRF Ltd.  21/09/2015  1140 1296 1374 14% Buy 

   It's not important whether you are right or wrong, It’s about how much money you make when you're right and how        much you lose when you're wrong.” 

Vol.: 266 26th October,2015

Vol.: 266 26th October,2015